Hanover Direct, Inc. (AMEX: HNV) today announced its results for the year and thirteen weeks ended December 25, 1999.

“We are extremely pleased with Hanover Direct’s fiscal 1999 financial results,” reported President and Chief Executive Officer, Rakesh K. Kaul, “which demonstrate the turnaround and transformation of Hanover Direct into a fast growing e-commerce leader.”

Hanover Brands, the business-to-consumer subsidiary, posted 1999 income before interest and taxes of $10.4 million, a $23.1 million improvement over 1998. Internet sales accelerated to $32.8 million, a 321% increase over 1998. At year-end, active customer e-mail accounts reached one million, a number that compares quite favorably to many well-known shopping destinations.

The re-alignment of Hanover Direct, announced earlier this year, led to the creation of distinct business units, Hanover Brands, Inc. and erizon, Inc. Hanover Brands, the Company’s business-to-consumer subsidiary, is comprised of its catalog and on-line portfolio of proprietary home fashions, apparel, general merchandise and gift brands. erizon, the Company’s business-to-business subsidiary, is home to the Company’s direct commerce IT platform, Desius and Keystone Internet Services. 24/7 webshop software, systems and programming are offered to third party customers by Desius, a joint venture formed last spring with RS Software India, Ltd. Third-party e-care, distribution, logistics and fulfillment services are offered through Keystone Internet Services. Keystone Internet Services had 1999 revenues of $14.9 million, a 602% gain from 1998, and exited 1999 with 18 third-party clients.

For the fourth quarter of 1999, Hanover Direct, Inc. reported consolidated revenues of $169.2 million compared to $163.6 million for the same quarter last year, a 3.4% increase. Hanover Brands’ direct commerce revenues increased 3.2% during the quarter. Total 1999 revenues for the Company of $549.9 million were 0.7% above prior year revenues of $546.1 million, with Hanover Brands continuing direct commerce revenues increasing $18.6 million or 3.8%.

Hanover Brands reported income before interest and taxes of $5.4 million in the fourth quarter, bringing the subsidiary’s 1999 income before interest and taxes to $10.4 million. erizon reported a fourth quarter loss before interest and taxes of $(6.9) million and a full year loss before interest and taxes of $(18.9) million. In total, Hanover Direct recorded a net loss of $(3.8) million, or $(.02) per common share, for the fourth quarter, better than the net loss of $(13.4) million, or $(.06) per common share, in the prior year fourth quarter. The Company reported a 1999 full year net loss of $(16.9) million, or $(.08) per common share, compared to a net loss of $(26.2) million, or $(.13) per common share, for 1998. Fourth quarter EBITDA of $1.0 million was $9.4 million better than 1998; fiscal 1999 EBITDA of $0.9 million was an improvement of $8.2 million over the prior year.

“The Hanover Brands business model validated its success by producing sustainable topline sales growth and profits,” reported Senior Vice President and Chief Financial Officer, Brian C. Harriss. “Positive list growth was reported across virtually all of our brands. Material improvements in advertising and marketing efficiency are also contributing to the profit improvement. This profitability improved the Company’s cash flow to support continued platform and e-care expansion and the aggressive start-up of our Desius webshop that ended the year with over 100 programmers and 20 customers.”

During 1999, selling costs as a percent of sales were 24.8%, 2.4 points lower than 1998. Improved cash management is reflected in reduced inventory of approximately $7.5 million at year-end 1999 despite fourth quarter sales growth of 3.4%. At year-end, the Company amended its third party marketing agreement for the Shopper’s Edge membership club and sold The Shopper’s Edge LLC, an administrative company, to a party to the marketing agreement; these actions established a fee for services revenue stream for this product. Revolver debt ended the year at $5.2 million while funds availability, including unrestricted cash on hand and undrawn lines under the Company’s revolving credit agreement, totaled approximately $32.8 million at December 25, 1999.

“Hanover Direct, Inc. ended 1999 with a new organizational structure geared toward providing greater financing options in the capital markets. This supplements previous capital initiatives including the previously announced retention of Bear Stearns to advise on a number of strategic options and financial offerings potentially available to the Company for creating shareholder value,” concluded Harriss.

Hanover Direct, Inc. (AMEX: HNV) and its business units provide quality, branded merchandise through a portfolio of catalogs and e-commerce platforms to consumers, as well as a comprehensive range of Internet, e-commerce, and fulfillment services to businesses. Hanover Brands, Inc. is comprised of the Company’s catalog and e-commerce web site portfolio of home fashions, apparel, general merchandise and gift brands, including Domestications, The Company Store, Turiya, Domestications Kitchen & Garden, Kitchen & Home, Encore, Improvements, Silhouettes International Male, Undergear, and Gump’s By Mail. Hanover Direct is the exclusive distributor of the Compagnie de la Chine brand in North America; the Company owns Gump’s, a retail store based in San Francisco; and the Company has a majority equity stake in Always In Style®. Each brand can be accessed on the Internet individually by name. erizon, Inc. is comprised of Keystone Internet Services, Inc. (www.keystoneinternet.com), the Company’s third party, end-to-end, fulfillment, logistics and e-care provider, and Desius, LLC, the Company’s joint venture with RS Software India, Ltd., offering 24/7-web shop services and e-commerce systems development. The erizon subsidiary also services the logistical, IT and fulfillment needs of the Hanover Brands subsidiary. Information on Hanover Direct, including each of its subsidiaries, can be accessed on the Internet at www.hanoverdirect.com.

Forward Looking Statements

The following may be deemed to be forward looking statements:

“We are extremely pleased with Hanover Direct’s fiscal 1999 financial results… which firmly demonstrate the turnaround and transformation of Hanover Direct into a fast growing e-commerce leader.”

“The Hanover Brands business model validated its success by producing sustainable topline sales growth and profits.”

“Hanover Direct, Inc. ended 1999 with a new organizational structure geared toward providing greater financing options in the capital markets.”

Cautionary Statements

The following material identifies important factors, which could cause actual results to differ materially from those in the forward looking statements identified above:

A general deterioration of economic conditions in the United States leading to increased competitive activity, including a business failure of a substantial size company in the retail industry, a reduction in consumer spending generally, or specifically with reference to the types of merchandise the Company offers in its catalogs. The failure of the Internet generally to achieve the projections made for it with respect to growth of e-commerce or otherwise.

The ability of the Company's computer systems to connect with the systems of others, and to be able to serve the others' fulfillment needs.

The Company had a history of operating losses. Continuation of the operating losses may prevent the Company from making the investments in e-commerce that are required to be made to achieve a position of leadership in serving the e-commerce needs of companies doing business, or desiring to do business, on the Internet. Also acquisitions may be prevented by the continuation of operating losses, and financing options in the capital markets or otherwise may be limited.

The ability of the Company to attract management with the requisite experience in e-commerce or in Internet businesses and to develop a culture that is consistent with the manner in which e-commerce is managed.

AGG International, Public Relations
Paula Zwerdling / paula@aggintl.com
Paul Scott / paulscott@aggintl.com
Tel: (212) 869-8230

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