Hanover Direct Reports Second Quarter Results
Hanover Brands Reports Operating Profit of $4.0 Million Versus $1.7 Million Year Ago Core Catalog Revenues Increase 10.1% versus Prior Year Keystone Revenues at $7.1 Million Versus $1.1 Million in 1999 Hanover Direct, Inc. and Richemont Finance S.A. Enter Binding Agreement for $70,000,000 Preferred Stock Financing

WEEHAWKEN, NJ, August 9, 2000 – Hanover Direct, Inc. (AMEX: HNV) today announced its results for the thirteen weeks ended June 24, 2000.

For the second quarter of 2000, Hanover Direct, Inc. reported revenues of $143.4 million compared to $131.2 million for the same period last year, an increase of $12.2 million or 9.3%. The net loss for the quarter was $(13.7) million or $(.06) per common share, compared to a net loss of $(5.8) million or $(.03) per common share for the prior year period. The increased net loss in the quarter was primarily due to distribution expenses, systems development costs, and administrative costs in the Company’s business-to-business e-commerce subsidiary.

“Hanover Brands reported strong sales, profit and Internet growth,” stated Rakesh K. Kaul, President and Chief Executive Officer of Hanover Direct, Inc., “demonstrating that the core business is positioned well for the important holiday season. We are also pleased with the revenue growth reported by erizon, Inc. The announced $70.0 million Preferred Stock financing pays down up to $35 million of debt and will give Hanover Direct a strong balance sheet. This, coupled with the increasing earning power of Hanover Brands, will position the Company well positioned to fund its strategic initiatives. Going forward, the Company will accelerate programs to improve profitability and achieve self-funding for its corporate development initiatives.”

Hanover Brands, Inc., the Company’s direct commerce subsidiary, reported revenues of $136.3 million for the second quarter of 2000, compared to $130.2 million for the second quarter of 1999. Revenues from continuing catalogs increased by $12.6 million, or 10.1%, reflecting strong consumer demand across all merchandise categories: men’s and women’s apparel, home furnishings, general merchandise and gifts. Hanover Brands, Inc. reported an operating profit of $4.0 million for the second quarter 2000 period compared to an operating profit of $1.7 million in the second quarter of 1999.

Hanover Brands second quarter Internet sales were $15.7 million (representing 11.5% of total sales), an increase of 138% versus second quarter 1999 sales of $6.6 million (representing 5.1% of total sales). During the second quarter of 2000, Internet customer e-mail accounts grew 12.6% versus first quarter 2000.

The Keystone Internet Services, Inc. unit of erizon, Inc., the Company’s business-to-business e-commerce subsidiary, reported revenues of $7.1 million for the second quarter of 2000, compared to $1.1 million for the second quarter of 1999, an increase of $6.0 million or 545%. This reflects an increase in the range of Internet order processing, customer care, and shipping and distribution services utilized by its existing customer base as well as recently announced new accounts, such as eZiba.com and Camdens. The Company recently announced the departure of KBkids.com as a client. A new 700,000 square foot facility was opened in the second quarter of 2000 in Maumelle, Arkansas which expanded the Company’s total warehouse fulfillment capacity to two million square feet. Keystone continues to actively pursue a list of qualified prospects to utilize the Company’s new Maumelle, Arkansas facility.

erizon, Inc. reported an operating loss for the second quarter of 2000 of $(10.9) million, compared to an operating loss of $(5.0) million in the second quarter of 1999, due to investment spending toward distribution capacity, systems development and upgrades to the information technology platform, and personnel expenses related to the expansion of erizon, Inc. as well as a higher provision for doubtful accounts.

The Company incurred an additional loss from operations of $(4.5) million during the second quarter of 2000 reflecting corporate level general and administrative expenses, losses related to the development of Always In Style joint venture, and professional and consulting fees.

The Company reported a net loss of $(27.1) million or $(.13) per share for the twenty-six weeks ended June 24, 2000 compared to a net loss of $(10.0) million or $(.05) per share for the comparable period last year. During the twenty-six weeks ended June 24, 2000, net cash provided by financing activities totaled $37.4 million, due to a net increase in borrowings of $40.0 million, partially offset by the payment of debt issuance costs of $2.3 million related to the March 2000 refinancing of the Company’s credit facilities. Through the second quarter of 2000, the Company borrowed $25.0 million under the Richemont $25.0 million unsecured line of credit facility.

Effective August 7, 2000 the Company and Richemont Finance S.A. entered into a binding agreement for the sale of a new series of the Company’s preferred stock to Richemont for a purchase price of $70.0 million. Such proceeds will be used to repay and retire the unsecured line of credit facility provided from Richemont to Hanover earlier in the year as well as for the development of warehouse facilities and general corporate purposes. The preferred stock bears a dividend at the annual rate of 15% payable quarterly in cash or in kind and is redeemable on the 5th anniversary of the date of issuance or earlier under certain circumstances. The issuance was approved by the Company’s Transactions Committee and its Independent Directors and is expected to close by the end of this month.

“This financing”, stated Brian C. Harriss, Senior Vice President & Chief Financial Officer, “is nondilutive, strengthens the Company’s balance sheet, provides adequate liquidity to support the Company’s future development, reduces debt, and delivers funding at a time when the capital markets are less responsive to the financial requirements of e-commerce initiatives.”

In light of this capital infusion, the Company will reorient its business plan to accelerate achieving self-funding status. This reorientation will likely reduce the rate of increase in the Company’s IT spending, reduce structural costs, and reduce capital commitments towards new initiatives, contributing to an increase in operational efficiencies. This reorientation is consistent with the change that the Company perceives in the capital markets, away from valuing businesses based on revenue growth and towards valuing businesses based on cash availability and the timing of profitability. In conjunction with this reorientation, the Company will continue its exploration begun in the second half of 1999 of potential strategic options and financial offerings, including targeting potential strategic, financial and operating parties that could both complement and accelerate the Company’s business initiatives for the purpose of maximizing shareholder value, and obtaining access to funds that would permit the Company to redeem the preferred stock to be issued to Richemont.

The Company maintains a credit facility with Congress Financial Corporation that provides the Company with a maximum credit line, subject to certain limitations, of up to $82.5 million. At June 24, 2000, the Company had $1.3 million in cash and cash equivalents compared to $2.8 million at December 25, 1999. Remaining availability under the Company’s credit facilities, as of June 24, 2000 was $19.3 million ($20.6 million including cash on hand).

About Hanover Direct, Inc.
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 and gift brands, including Domestications, The Company Store, Company Kids, Turiya, Domestications Kitchen & Garden, Kitchen & Home, Encore, Improvements, The Safety Zone, Silhouettes, International Male, Undergear, Scandia Down, 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, LLC. 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 subsidiary also services the logistical, IT and fulfillment needs of the Hanover Brands, Inc. Information on Hanover Direct, including each of its subsidiaries, can be accessed on the Internet at www.hanoverdirect.com.

Forward Looking Statements
The following statements may be deemed to be forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995:

“Hanover Brands reported strong sales, profit and Internet growth,” stated Rakesh K. Kaul, President and Chief Executive Officer of Hanover Direct, Inc., “demonstrating that the core business is positioned well for the important holiday season. We are also pleased with the revenue growth reported by erizon, Inc. The announced $70 million Preferred Stock financing will give Hanover Direct a strong balance sheet. This, coupled with the increasing earning power of Hanover Brands, will position the Company well to fund its strategic initiatives. Going forward, the Company will accelerate programs to improve profitability and achieve self-funding for its corporate development initiatives.”

"The issuance … is expected to close by the end of this month."

"This financing," stated Brian C. Harriss, Senior Vice President and Chief Financial Officer, "… provides adequate liquidity to support the Company's future development..."

"In light of this capital infusion, the Company will reorient its business plan to accelerate achieving self-funding status."

"This reorientation will likely reduce the rate of increase in the Company’s IT spending, reduce structural costs, and reduce capital commitments towards new initiatives, contributing to an increase in operational efficiencies."

"In conjunction with this reorientation, the Company will continue its exploration begun in the second half of 1999 of potential strategic options and financial offerings, including targeting potential strategic, financial and operating parties that could both complement and accelerate the Company’s business initiatives for the purpose of maximizing shareholder value, and obtaining access to funds that would permit the Company to redeem the preferred stock to be issued to Richemont."

Cautionary Statements
The following material identifies important factors that 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 a reduction in consumer spending generally, or specifically with reference to the types of merchandise which the Company offers in its catalogs or over the Internet, or which are offered by its third-party fulfillment clients.

The failure of the Internet generally to achieve the projections made for it with respect to growth of e-commerce or otherwise. The imposition of regulatory, tax or other requirements with respect to Internet sales. Actual or perceived technological difficulties or security issues with respect to conducting e-commerce over the Internet generally or through the Company’s websites or those of its third-party fulfillment clients specifically.

A business failure of, or liquidity problems experienced by, one or more of the Company’s third-party fulfillment clients. The ability of the Company to enter into new third-party fulfillment contracts and/or maintain existing third-party fulfillment contracts.

The ability of the Company to equip and open its new fulfillment center at the same time it is receiving inventory from customers who require fulfillment services in time for the fall and holiday selling seasons.

The ability of the Company to attract and retain senior and mid-level management generally (including in the erizon sales force and in the management of the catalogs) and specifically with the requisite experience in e-commerce or Internet businesses.

The risk that key vendors or suppliers may reduce or withdraw trade credit to the Company, convert the Company to a cash basis or otherwise change credit terms, or require the Company to provide letters of credit to support its purchase of inventory, increasing the Company’s cost of capital and impacting the Company’s ability to obtain merchandise in a timely manner.

The inability of the Company to timely obtain and distribute merchandise leading to an increase in backorders and cancellations.

An increase in postage, printing and paper prices and/or the inability of the Company to reduce expenses generally as required.

The inability of the Company to access the capital markets due to market conditions generally and the Company's business situation specifically and/or the inability of the Company to close the proposed sale of preferred stock to Richemont in a timely fashion.

Cost constraints and the inability to access sufficient additional capital to maintain and upgrade the Company's information technology platform in order to serve the e-commerce needs of companies doing business (or desiring to do business) on the Internet.

The Company's dependence to date on Richemont and its affiliates for financial support and the fact that they are not under any obligation ever to provide any additional support in the future.  

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