GSI Commerce Inc. increased its net revenues 43% to $135.8 million and reported net income of $10.6 million, or 25 cents per share, compared to net revenues of $95.2 million and net income of $2.7 million, or 7 cents per share for 2003’s fourth fiscal quarter. Due to the rise of the company’s stock price during the quarter, the company was required to take an unanticipated additional charge to stock-based compensation of $1.7 million, or 4 cents per share more than it would have if the company’s stock price had remained unchanged from the end of 2004’s third fiscal quarter. For the same comparable quarterly periods, adjusted EBITDA, a non-GAAP financial measure, improved by approximately $10.1 million to $16.0 million, and merchandise sales, also a non-GAAP financial measure, rose 66% to $199.3 million. To better reflect its definition, the term, “merchandise sales” is the company’s new nomenclature for what it reported in previous quarters as “net merchandise sales.” Merchandise sales represent the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through the GSI Commerce platform, whether or not the company is the seller of the merchandise, or records the full amount of such sales on its financial statements.

For the 2004 fiscal year ended Jan. 1, 2005, the company increased its net revenues 39% to $335.3 million and reported net income of $340,000 or 1 cent per share, compared to a loss of $12.1 million, or 30 cents per share for the 2003 fiscal year. For the same comparable annual periods, adjusted EBITDA improved by approximately $14.2 million to $14.3 million and merchandise sales rose 68% to $475.0 million.

Net Revenues and Merchandise Sales

Net revenues were $135.8 million for the fourth quarter of fiscal 2004, which was a 43% increase compared to net revenues of $95.2 million for the fourth quarter of fiscal 2003. Net revenues were $335.3 million for fiscal year 2004, which was a 39% increase compared to net revenues of $242.0 million in fiscal year 2003.

Merchandise sales were $199.3 million for the fourth quarter of fiscal 2004, a 66% increase compared to merchandise sales of $120.3 million for the fourth quarter of fiscal 2003. Merchandise sales were $475.0 million for fiscal year 2004, a 68% increase compared to merchandise sales of $282.0 million for fiscal year 2003.

Components of Net Revenues and Merchandise Sales

Net revenues from product sales generated by the company’s sporting goods category were $67.6 million for the fourth quarter of fiscal 2004, which was a 30% increase compared to $52.0 million for the fourth quarter of fiscal 2003. Merchandise sales from the sporting goods category increased 75% in the fourth quarter of fiscal 2004 to $91.2 million compared to $52.1 million in the fourth quarter of fiscal 2003.

Net revenues from product sales generated by the company’s sporting goods category were $165.4 million for fiscal year 2004, which was a 29% increase compared to $128.4 million for fiscal year 2003. Merchandise sales from the sporting goods category increased 56% in fiscal year 2004 to $200.4 million compared to $128.5 million in fiscal year 2003.

Net revenues from product sales generated by the company’s other merchandise categories were $41.5 million for the fourth quarter of fiscal 2004, which was a 29% increase compared to $32.1 million for the fourth quarter of fiscal 2003. Merchandise sales from the company’s other merchandise categories increased 58% in the fourth quarter of fiscal 2004 to $108.0 million from $68.2 million in the fourth quarter of fiscal 2003.

Net revenues from product sales generated by the company’s other merchandise categories were $109.6 million for fiscal year 2004, which was a 24% increase compared to $88.1 million for fiscal year 2003. Merchandise sales from the company’s other merchandise categories increased 79% in fiscal year 2004 to $274.6 million from $153.5 million in fiscal year 2003.

Service fee revenues increased 140% to $26.7 million in the fourth quarter of fiscal 2004 compared to $11.1 million in the fourth quarter of fiscal 2003. Service fee revenues increased 137% to $60.3 million in fiscal year 2004 compared to $25.4 million in fiscal year 2003.

Net Income, EPS and Adjusted EBITDA

The company had net income of $10.6 million for the fourth quarter of fiscal 2004, which was a 285% increase compared to net income of $2.7 million for the fourth quarter of fiscal 2003. The company showed an 18 cents per share improvement with earnings per share of 25 cents for the fourth quarter of fiscal 2004 compared to earnings per share of 7 cents for the fourth quarter of fiscal 2003. The company had net income of $340,000 for fiscal year 2004, which was an improvement of approximately $12.4 million compared to the net loss of $12.1 million for fiscal year 2003. The company showed a 31 cents per share improvement for fiscal year 2004 to 1 cents per share, compared to a loss per share of 30 cents for fiscal year 2003.

The company recorded adjusted EBITDA of $16.0 million for the fourth quarter of fiscal 2004, which was a $10.0 million improvement from an adjusted EBITDA of $6.0 million in the fourth quarter of fiscal 2003. The company recorded adjusted EBITDA of $14.3 million for fiscal year 2004, which was a $14.2 million improvement from an adjusted EBITDA of $82,000 for fiscal year 2003. Adjusted EBITDA represents earnings (or losses) before interest income/expense, taxes, depreciation, amortization, and stock-based compensation.

Gross Profit and Operating Expenses

The company’s gross profit improved 53% to $55.9 million in the fourth quarter of fiscal 2004 compared to a gross profit of $36.4 million in the fourth quarter of fiscal 2003. Gross margin improved to 41.2% for the fourth quarter of fiscal 2004 from 38.2% in the fourth quarter of fiscal 2003, an increase of 300 basis points. The company’s gross profit improved 52% to $132.2 million in fiscal year 2004 compared to a gross profit of $87.2 million in fiscal year 2003. Gross margin improved to 39.4% for fiscal year 2004 from 36.0% in fiscal year 2003, an increase of 340 basis points.

Total operating expenses were $44.7 million for the fourth quarter of fiscal 2004, an increase of 32% compared to $33.9 million for the fourth quarter of fiscal 2003. Total operating expenses, as a percentage of net revenues, decreased to 33.0% in the fourth quarter of fiscal 2004 compared to 35.6% in the fourth quarter of fiscal 2003. Total operating expenses were $131.9 million for fiscal year 2004, an increase of 31% compared to $100.4 million for fiscal year 2003. Total annual operating expenses, as a percentage of annual net revenues, decreased to 39.3% in fiscal year 2004 compared to 41.5% in fiscal year 2003.

Total operating expenses of $44.7 million, as a percentage of merchandise sales of $199.3 million, were 22.5% in the fourth quarter of fiscal 2004. This compared to total operating expenses of $33.9 million in the fourth quarter of fiscal 2003, which as a percentage of merchandise sales of $120.3 million, was 28.2%. Total operating expenses of $131.9 million, as a percentage of merchandise sales of $475.0 million, were 27.8% for fiscal year 2004. This compared to total operating expenses of $100.4 million in fiscal year 2003, which as a percentage of merchandise sales of $282.0 million, was 35.6%.

Balance Sheet

The company’s cash, cash equivalents, short-term investments and marketable securities at the end of fiscal year 2004 were $75.4 million compared to $69.5 million at the end of fiscal year 2003, an increase of $5.9 million. Accounts receivable at the end of fiscal 2004 increased to $14.9 million compared to $4.9 million at the end of fiscal 2003 due to the overall growth in net revenues as well as growth in business-to-business sales and increased receivables due from partners. Inventory at the end of fiscal 2004 increased to $37.8 million compared to $22.9 million at the end of fiscal 2003 predominantly due to higher levels of electronics inventory in anticipation of first quarter product launches and also to support the overall growth of sporting goods revenues. 

    Key Events Since October 27, 2004

    * Home Box Office (HBO(R)), the largest pay television network, launched
      its new, online retail store for the United States
      (http://store.hbo.com) on Nov. 8, 2004 using an e-commerce solution
      developed and operated by GSI Commerce.

    * RadioShack, one of the largest U.S. consumer electronics retailers,
      signed a multi-year agreement to have GSI Commerce develop and operate a
      new e-commerce solution for the company.  Launch for the initial phase
      of the new Web store is scheduled for the second half of 2005.

    * Aeropostale, a leading, mall-based, specialty retailer of casual and
      active apparel for young men and women, signed an e-commerce agreement
      to have GSI Commerce develop and operate a new e-commerce solution for
      the company.  The Web store is scheduled to launch during the third
      quarter of 2005.

    * adidas, a leading brand in the global sporting goods market with strong
      positions in footwear, apparel and hardware, selected GSI Commerce as
      its new e-commerce solution provider.  The multi-year agreement calls
      for GSI Commerce to provide and operate a new, integrated e-commerce
      solution for adidas online store.  The new online store is expected to
      launch during the summer of 2005.

    * The National Hockey League (NHL) selected GSI Commerce to provide a
      comprehensive e-commerce solution to operate the league's e-commerce
      business and the Web stores of the league's 30 professional teams.  The
      new NHL Web store (http://shop.nhl.com) launched on Feb. 1, 2005.

    * Stephen J. Gold was named to the position of executive vice president
      and chief information officer (CIO). Gold oversees the company's
      technology and information services (TIS) organization and reports to
      Robert Blyskal, the company's co-president and chief operating officer.

Management’s Commentary

“The 2004 fiscal year was exciting and successful for GSI Commerce and was highlighted by two important milestones — our first year of net profitability and our fifth consecutive year of above industry average growth,” said Michael G. Rubin, chairman and CEO of GSI Commerce.

“By delivering world-class e-commerce solutions through centralized infrastructure and capabilities, GSI Commerce leverages the substantial investments required to compete effectively in multi-channel e-commerce,” said Rubin. “While this leverage has always been inherent in our model, we have also invested aggressively in capabilities and infrastructure to serve the leading retailers and brands across a range of product categories. This created a much larger opportunity for GSI Commerce, but also raised the bar for profitability. We are very pleased that with $475 million of merchandise sales in 2004, we have achieved a level of scale that enables us to operate a world-class, multi-partner e-commerce platform and also deliver profitable bottom line results.

“Looking ahead to 2005, we are expecting another year of stronger-than-industry-average growth and to grow our base of profitability both in terms of absolute dollars and profit margin. While it is still very early in the year, we are pleased with the current trends from our existing partners businesses and with our success to date in signing up new partners,” said Rubin.

Fiscal 2005 First Quarter and Annual Financial Guidance

The following forward-looking statements reflect GSI Commerce’s expectations as of Feb. 16, 2005. GSI Commerce provides guidance for its business based only on signed partner agreements. Given the potential changes in general economic conditions and consumer spending, the emerging nature of e-commerce, and various other risk factors discussed below and in our public reports, actual results may differ materially. GSI Commerce’s 2005 guidance does not include the impact of expensing stock options upon the adoption of FAS 123 Revised, and assumes that the company’s stock price remains unchanged from period to period.

The company provides the following guidance for the fiscal 2005 first quarter: 

    * Net revenues are expected to be in the range of $78 million to $83
      million.

    * Merchandise sales are expected to be in the range of $115 million to
      $125 million.

    * Net loss is expected to be in the range of $3.0 million to $3.5 million.

    * Adjusted EBITDA is expected to be in the range of $0 to $500,000.


    The company provides the following guidance for fiscal year 2005:

    * Net revenues are expected to be in the range of $390 million to $410
      million.

    * Merchandise sales are expected to be in the range of $610 million to
      $630 million.

    * Net income is expected to be in the range of $10 million to $12 million.

    * Adjusted EBITDA is expected to be in the range of $26 million to $28
      million.


                     GSI COMMERCE, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)
                                 (Unaudited)


                                       Three Months Ended  Fiscal Year Ended
                                       Jan. 3,   Jan. 1,   Jan. 3,   Jan. 1,
                                         2004      2005      2004      2005

    Revenues:
         Net revenues from product
          sales                         $84,094  $109,105  $216,510  $274,988
         Service fee revenues            11,115    26,681    25,409    60,344

              Net revenues               95,209   135,786   241,919   335,332
    Cost of revenues from product sales  58,793    79,892   154,731   203,135

              Gross profit               36,416    55,894    87,188   132,197

    Operating expenses:
         Sales and marketing, exclusive
          of $600, $1,643, $1,527 and
          $2,720 reported below as
          stock-based compensation,
          respectively                   23,287    27,866    59,613    78,919
         Product development, exclusive
          of $4, $348, $42 and $350
          reported below as stock- based
          compensation, respectively      3,465     6,063    14,124    20,181
         General and administrative,
          exclusive of $11, $440, $366
          and $530 reported below as
          stock- based compensation,
          respectively                    3,679     5,424    13,295    18,217
         Restructuring costs related to
          Ashford.com                        55       -          74       -
         Stock-based compensation           615     2,430     1,935     3,600
         Depreciation and amortization    2,835     2,966    11,386    10,944

              Total operating expenses   33,936    44,749   100,427   131,861

    Other (income) expense:
         Other expense                       (1)      556       -         620
         Interest expense                   -         241       -         538
         Interest income                   (263)     (210)   (1,177)   (1,162)

             Total other (income)
              expense                      (264)      587    (1,177)       (4)

    Net income (loss)                    $2,744   $10,558  $(12,062)     $340

    Earnings (loss) per share - basic
     and diluted:
         Net income (loss) - basic        $0.07     $0.26    $(0.30)    $0.01
         Net income (loss) - diluted      $0.07     $0.25    $(0.30)    $0.01

    Weighted average shares
     outstanding:
         basic                           40,737    41,351    39,638    41,073
         diluted                         42,180    43,076    39,638    42,369