News

Perfumania Holdings, Inc. Discusses Current Business Trends, Second Quarter Results and Outlook

BELLPORT, N.Y.-(Business Wire)-September 26, 2008 - Perfumania Holdings, Inc. (NASDAQ: PERF) will host a conference call today, September 26, 2008 at 11:00 AM Eastern Time, to discuss current business trends, certain performance expectations, and recent quarterly results for Perfumania Holdings, Inc. (formerly, E Com Ventures, Inc.) (the “Company”) and Model Reorg, Inc. (“Model Reorg”) contained in Form 10-Q filed on September 16, 2008.

Summary

Michael Katz, President and Chief Executive Officer of the Company said, “While we are pleased with the 2.9% same store sales increase in the Perfumania stores in the second fiscal quarter, decelerating sales trends in August and September across both the retail and wholesale segments of our business have caused us to adopt a more cautious tone for our near-term outlook. For the first seven weeks of the Company’s fiscal third quarter, same store sales in the Perfumania stores are running down 2.9%. This compares with same store sales increases of 2.9% in the second fiscal quarter and 3.0% in the first fiscal quarter. We believe the recent change in trend is related to the ongoing difficult retail environment, as the decelerating sales trends have impacted our older as well as our newer stores. As a result, we are now projecting same store sales to decline 2.5% for the fiscal quarter ending October 31, 2008 versus a previous estimated increase of 5%. While the Model Reorg business is performing more in line with expectations, this business is being negatively impacted by inventory reduction programs and conservative buying patterns from many of our large retail customers.

On a more positive note, we are pleased with the early integration of the Model Reorg business. While the current environment certainly has its challenges, we are excited about the opportunities and prospects afforded by the merger of Model and Perfumania. The merger will enable us to pursue future growth strategies, take advantage of the synergies between the two companies, and position ourselves as a large, independent, national, vertically integrated specialty retailer and wholesale distributor of designer perfumes and fragrances.”

Outlook

While the Company has not previously provided any type of financial guidance, the July 25, 2008 Proxy filing contained selected financial projections for the combined company (E Com Ventures and Model Reorg) for certain twelve-month periods ending October 31. As a result of decelerating same store sales trends in its specialty retail stores and cautious buying patterns by many large wholesale customers, the Company is lowering the October 2008 net income projection contained in the Proxy filing to $9.0-$10.0 million from a previous projection of $14.3 million. This estimate excludes approximately $1.5 million non-recurring merger expenses and any future special charges related to the merger and consolidation of the E Com Ventures and Model Reorg businesses. The company is in the process of deriving pro-forma projections for the combined company for the twelve-month period ending January 31, 2009 and intend to provide quarterly pro-forma combined results for the Company’s first three quarters for fiscal 2008 in the third quarter fiscal 2008 press release.

Perfumania quarter ended August 2, 2008 versus quarter ended August 4, 2007

Total net sales decreased 15.3% to $62.1 million from $73.4 million;
Retail sales increased 10.5% to $57.4 million from $52.0 million and wholesale sales decreased 78.0% to $4.7 million from $21.4 million;
Comparable store sales (sales for stores open at least 12 months) increased 2.9% versus an increase of 1.2% last year;
Gross profit increased 7.0% to $26.7 million from $25.0 million and gross margin increased 890 basis points to 43.0% from 34.1%;
Selling, general and administrative (SG&A) expenses increased 18.7% to $27.1 million from $22.9 million. As a percentage of sales, SG&A expenses increased 1,250 basis points to 43.6% from 31.1%;
Loss from operations was $2.2 million compared to income from operations of $600,000 and depreciation and amortization increased to $1.9 from $1.5 million;
Net loss increased to $2.0 million from $400,000, and net loss per common share increased to $0.65 from $0.14;
Number of stores at quarter end increased 17.5% to 323 from 275.

Model Reorg quarter ended July 31, 2008 versus quarter ended July 31, 2007

Net sales decreased 5.6% to $63.8 million from $67.6 million;
Gross profit decreased 8.8% to $17.8 million from $19.5 million and gross margin decreased 90 basis points to 27.9% from 28.8%;
Selling, warehouse, delivery and administrative expenses decreased to $13.1 million, or 20.5% of net sales, from $13.4 million, or 19.8% of net sales;
Income from operations decreased 26.6% to $4.2 million from $5.7 million and depreciation and amortization increased to $460,000 from $338,000;
Net income decreased 19.3% to $1.3 million from $1.7 million.

Model Reorg Acquisition

On August 11, 2008, Perfumania Holdings, Inc. completed its acquisition of Model Reorg, Inc. when Model Reorg merged into the Company’s wholly owned subsidiary, Model Reorg Acquisition LLC. The transaction occurred subsequent to the Company’s second fiscal quarter of 2008 which ended on August 2, 2008, and thus the financial statements and notes to condensed consolidated financial statements in the Form 10-Q dated September 16, 2008 include the results of the Company prior to the acquisition of Model Reorg.

Under the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 21, 2007 and amended on July 8, 2008, by and among the Company, Model Reorg, the shareholders of Model Reorg, and Model Acquisition, the Company issued to the Model Reorg shareholders 5,900,000 shares of the Company’s common stock and warrants exercisable for the purchase of 1,500,000 shares of the Company’s common stock at an exercise price of $23.94 per share (the “Warrants”). The shares issued to the Model Reorg shareholders represent approximately 66% of the Company’s 8,959,041 outstanding shares following the Merger, and approximately 71% assuming exercise of all of the warrants. The Company’s shareholders approved the issuance of the shares and Warrants at a special meeting on August 8, 2008.

For accounting purposes, Model Reorg is considered to be the acquiror. Accordingly, the merger consideration will be allocated among the fair values of E Com Ventures’ assets and liabilities based upon a valuation that has not yet been determined. Historical financial condition and results of operations shown for comparative purposes in future periodic filings will reflect Model Reorg’s results. However, the Company will continue to use the same fiscal year end, the Saturday closest to January 31.

Conference Call

The Company’s management will host a conference call today, September 26, 2008 at 11:00 AM Eastern Time. Parties interested in participating in the conference call may dial-in at (913) 312-0403. A live webcast of the call will be accessible on www.viavid.net. The webcast will be archived for 60 days on this site, while a telephone replay of the call will be available beginning at 2:00 PM Eastern Time on September 26, 2008 through October 3, 2008 at (719) 457-0820, and entering the pass code of 7448928.

About Perfumania Holdings, Inc.

With the closing of the Model Reorg acquisition on August 11, 2008, Perfumania Holdings, Inc. is positioned as a large national vertically-integrated specialty retailer and wholesale distributor of designer perfumes, fragrances and other related products. The Company’s retail segment offers fragrance and related products in over 335 Perfumania specialty retail stores and more than 3,100 managed retail locations for national retailers such as Burlington Coat Factory, Filene’s Basement, Loehmann’s, and Kmart. The Company’s wholesale segment distributes products to other leading national retailers such as Wal-Mart, Walgreen’s, Kohl’s, Target, Marshalls, and JCPenney.

Forward Looking Statements

Statements in this release about future operating or financial results, the development of our markets, and other statements that are not historical facts are “forward-looking statements.” All forward-looking statements involve risks, uncertainties and contingencies that may cause our actual results to differ materially from the anticipated results described in the statements. Among the factors that could cause actual results to differ materially from that described or implied in the forward-looking statements are our ability to integrate and achieve synergies between Perfumania and Model Reorg, our ability to service our obligations, our ability to comply with the covenants in our senior credit facility, general economic conditions, including a decrease in discretionary spending by consumers, competition, the ability to raise additional capital to finance our expansion, the risks inherent in new product and service introductions and the entry into new geographic markets, and other factors.

Exhibit 1
PERFUMANIA HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Thirteen Weeks					Thirteen Weeks
	Ended					Ended
	August 2, 2008					August 4, 2007
						(as restated)

Net sales to:
Unrelated customers	$	57,436,088				$	51,983,009
Affiliates		4,707,159					21,407,555
		62,143,247		100.0	%		73,390,564		100.0	%
Cost of goods sold to:
Unrelated customers		30,979,937		49.9	%		28,256,898		38.5	%
Affiliates		4,420,703		7.1	%		20,138,125		27.4	%
		35,400,640		57.0	%		48,395,023		65.9	%
Gross profit		26,742,607		43.0	%		24,995,541		34.1	%

Operating expenses:
Selling, general and administrative expenses		27,117,915		43.6	%		22,854,155		31.1	%
Depreciation and amortization		1,855,931		3.0	%		1,504,256		2.0	%
Total operating expenses		28,973,846		46.6	%		24,358,411		33.2	%

Income (loss) from operations		(2,231,239	)				637,130
Interest expense
Affiliates		(75,833	)				(116,908	)
Other		(919,192	)				(1,185,665	)
		(995,025	)				(1,302,573	)
Loss before income taxes		(3,226,264	)				(665,443	)
Income tax benefit		1,225,981					252,440
Net loss	$	(2,000,283	)			$	(413,003	)

Net loss per common share:
Basic	$	(0.65	)			$	(0.14	)
Diluted	$	(0.65	)			$	(0.14	)

Weighted average number of common shares outstanding:
Weighted average number of common shares outstanding:
Basic		3,059,041					3,058,935
Diluted		3,059,041					3,058,935

Exhibit 2

PERFUMANIA HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

August 2, 2008

February 2, 2008

ASSETS:

Current assets:

Cash

1,379,769

1,035,073

Trade receivables, no allowance required

1,560,458

1,057,499

Deferred tax asset: current

5,266,295

2,261,856

Inventories, net

128,997,241

107,479,019

Prepaid expenses and other current assets

2,061,443

2,228,013

Total current assets

139,265,206

114,061,460

Property and equipment, net

40,561,481

36,587,935

Goodwill

1,904,448

Deferred tax asset: non-current

6,980,518

Other assets, net

318,668

300,250

Total assets

189,030,321

159,834,611

LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities:

Accounts payable-non affiliates

27,290,351

19,609,065

Accounts payable-affiliates

58,043,257

48,650,294

Accrued expenses and other liabilities

10,124,159

10,327,794

Bank line of credit

50,253,069

32,840,872

Subordinated convertible note payable - affiliate

5,000,000

Current portion of obligations under capital leases

374,005

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