Eddie Bauer Holdings, Inc. third quarter ended September 30, 2006, total revenues were $211.3 million, compared to $217.3 million in the third quarter of 2005. Total revenues for the third quarter of 2006 included net merchandise sales of $199.3 million, shipping revenues of $7.3 million, licensing royalty revenues of $3.2 million, royalty revenues from foreign joint ventures of $1.4 million, and other revenues of $0.1 million. In the third quarter of 2005, total revenues included net merchandise sales of $204.7 million, shipping revenues of $7.5 million, licensing royalty revenues of $3.6 million, royalty revenues from foreign joint ventures of $1.4 million, and other revenues of $0.1 million.

Net merchandise sales for the third quarter of 2006 included $149.5 million of sales from the Company's retail and outlet stores and $49.8 million of sales from its direct channel, which includes sales from its catalogs and websites. This compares to $153.1 million of sales from the Company's retail and outlet stores and $51.6 million of sales from its direct channel in the same period last year. Comparable store sales for the third quarter of 2006 declined by 1.5%. However comparable store sales during the month of September 2006 increased by 5.9%, driven in part by higher promotional activity as compared to the same period last year. Fourth-quarter-to-date comparable store sales through November 11, 2006 increased 1.6%. During the fourth quarter to date, the Company has not needed to incur the same level of markdowns as it did in the comparable period in the previous year, which the Company believes reflects a more favorable customer response to the product offering. Comparable store sales include net sales from retail and outlet stores that have been open for one complete fiscal year.

Fabian Mansson, president and chief executive officer, commented, “Results for the quarter were in line with our expectations as we continued to liquidate Spring and Summer merchandise, but began showing improvement in September as more of our Fall and Holiday merchandise became available. We hope to build on this progress in the fourth quarter and through the Holiday season.”

Gross margin for third quarter of 2006 totaled $60.8 million, representing a decrease of $5.6 million from the gross margin for the third quarter of 2005. Gross margin percentage for the third quarter of 2006 declined to 30.5%, compared to 32.4% for the year-ago period. The principal factors contributing to the decline in gross margin percentage for third quarter 2006 versus that of the comparable quarter in the prior year were decreased sales that resulted in, higher levels of markdowns taken in order to drive merchandise sales, higher buying and occupancy costs as a percentage of net merchandise sales as well as costs related to the customer rewards program that the Company launched during the third quarter.

During the quarter, the Company completed a review of its indefinite-lived intangible assets in accordance with SFAS No. 142, including its goodwill and trademarks. Impairment evaluations were conducted with the assistance of an independent valuation firm, taking into account reasonable, supportable assumptions and projections and estimates of projected future cash flows. Based on the analysis, the fair value of the Company's trademarks was determined to be equal to the Company's net book value for its trademarks of $185 million, and no impairment charge was recorded related to the Company's trademarks. The analysis also determined that, with respect to goodwill, the estimated fair value of the Company was less than the carrying value of the Company's net book value and long-term debt, and, accordingly, the Company recorded an impairment loss of $117.6 million related to its goodwill. The decline in the fair value of the Company since its fresh start reporting date of July 2, 2005 was due principally to the lower than expected revenues and gross margins.

The Company's net loss for the third quarter of 2006, including the above-mentioned goodwill impairment and $52.7 million of income tax expense to increase the tax valuation allowance related to the Company's NOLs, was $197.6 million, or a loss of $6.58 per diluted share, compared to a net loss of $10.0 million, or $0.33 per diluted share, in the third quarter of 2005. The net loss of $10.0 million in the third quarter of 2005 included a $287,000 loss from discontinued operations, or $0.01 per diluted share.

Income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for the third quarter of 2006 was a loss of $3.8 million, adjusted for the $117.6 million goodwill impairment charge, compared to income of $2.5 million for the year-ago third quarter. EBITDA is a non-GAAP financial measure that the Company believes is an important metric because it is a key factor in how it measures its operating performance. See Unaudited Supplemental Financial Information for a reconciliation of EBITDA to its most comparable GAAP measure income (loss) from continuing operations before reorganization items and income tax expense. In addition, the Company incurred pre-tax non-cash stock-based compensation expense of $1.7 million in the third quarter of 2006. No stock-based compensation expense was incurred during the third quarter of 2005 because the Company did not grant any stock-based awards until the fourth quarter of 2005.

During the third quarter, the Company completed its listing on the NASDAQ Global Market, as required by the Company's Plan of Reorganization. Eddie Bauer common stock began trading on NASDAQ on October 12, 2006 under the symbol “EBHI.”

Year-to-Date Results

For the nine months ended September 30, 2006, total revenues were $631.5 million, compared to $683.0 million in the same period last year. Total revenues for the nine-month period of 2006 included net merchandise sales of $591.5 million, shipping revenues of $24.0 million, licensing royalty revenues of $11.0 million, royalty revenues from foreign joint ventures of $4.6 million, and other revenues of $0.4 million. In the nine-month period of 2005, total revenues included net merchandise sales of $640.8 million, shipping revenues of $26.1 million, licensing royalty revenues of $11.0 million, royalty revenues from foreign joint ventures of $4.4 million, and other revenues of $0.7 million.

Net merchandise sales for the year-to-date period of 2006 included $429.2 million of sales from the Company's retail and outlet stores and $162.3 million of sales from its direct channel. This compares to $466.6 million of sales from the Company's retail and outlet stores and $174.0 million of sales from its direct channel in the same period last year. Comparable store sales for the year-to-date period of 2006 declined 5.6%.

Gross margin for the nine months ended September 30, 2006 was $189.1 million, representing a decrease of $53.8 million from the gross margin for the same period last year. Gross margin percentage for the year-to-date period of 2006 declined to 32.0%, compared to a gross margin percentage of 37.9% for the year-ago period. The principal factors impacting the decline in gross margin percentage for the year-to-date 2006 period versus that of the comparable period in the prior year were decreased sales that resulted in, higher levels of markdowns taken in order to drive merchandise sales, higher buying and occupancy costs as a percentage of net merchandise sales as well as amortization of intangible assets that the Company recorded upon its emergence from bankruptcy.

The Company's net loss for the year-to-date period of 2006 was $275.1 million, or a loss of $9.17 per diluted share, compared to net income of $50.9 million in the same period of 2005. The 2006 year-to-date net loss includes the third quarter goodwill impairment of $117.6 million and increased tax expense in the second and third quarters of 2006 of $23.5 million and $52.7 million, respectively, to increase the tax valuation allowance related to the Company's NOLs. The net income of $50.9 million in the first nine months of 2005 included the $287,000 loss from discontinued operations mentioned above, as well as a second quarter 2005 pre-tax gain of $107.6 million related to the Company's emergence from bankruptcy and its required adoption of fresh start accounting. Per share amounts have not been reported for the nine-month period of 2005, since the Company was a wholly-owned subsidiary of Spiegel, Inc. for the majority of that period and there were no shares outstanding for the combined entity. The Company emerged as a stand-alone entity on June 21, 2005, when Spiegel's Chapter 11 Plan of Reorganization was declared effective and 30 million shares of common stock of Eddie Bauer Holdings were distributed to satisfy pre-petition claims.

Income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for the nine-month period of 2006 was a loss of $12.7 million, adjusted for the $117.6 million goodwill impairment charge, compared to income of $39.6 million for the same period last year when excluding the Company's $13.7 million of reorganization expenses and $107.6 million gain recorded upon its emergence from bankruptcy. In addition, the Company incurred pre-tax non-cash stock-based compensation expense of $8.1 million in the first nine months of 2006. No stock-based compensation expense was incurred during the first nine months of 2005 as the Company did not grant any stock-based awards until the fourth quarter of 2005.

As of September 30, 2006, the Company operated 389 retail and outlet stores in total, consisting of 275 retail stores and 114 outlet stores. The Company opened eight retail stores and six outlet stores during the third quarter and closed no retail or outlet stores.

On November 13, 2006, Eddie Bauer Holdings, Inc. and Eddie B Holding Corp., a company owned by affiliates of Sun Capital Partners, Inc. and Golden Gate Capital, announced that they entered into a definitive agreement under which Eddie B Holding Corp. agreed to acquire Eddie Bauer for $9.25 per share in cash. The per share consideration represents an approximate 12% premium to the prior four weeks' average closing price of Eddie Bauer's common stock. The total transaction value is approximately $614 million, including debt to be repaid of approximately $328 million, as of September 30, 2006. The sale is the culmination of an exploration of strategic alternatives initiated by Eddie Bauer in May 2006.

    Consolidated and Combined Statements of Operations ($ in thousands, except
                               earnings per share)

                Successor    Successor    Successor   Successor  Predecessor
               Three Months Three Months Nine Months Three Months Six Months
                  Ended        Ended        Ended       Ended       Ended
                Sept. 30,     Oct. 1,     Sept. 30,    Oct. 1,      July 2,
                   2006         2005         2006        2005        2005
                             (Restated)               (Restated)
               (Unaudited)  (Unaudited)  (Unaudited) (Unaudited)  (Audited)

    Net sales
     and other
     revenues    $211,285     $217,339     $631,528    $217,339    $465,723
    Costs of sales,
     including
     buying and
     occupancy    138,536      138,347      402,426     138,347     259,536
    Impairment of
     indefinite-
     lived
     intangible
     assets       117,584           --      117,584          --          --
    Selling,
     general and
     administrative
     expenses      89,307       89,235      282,202      89,235     185,225

      Total
       operating
       expenses   345,427      227,582      802,212     227,582     444,761
    Operating
     income
     (loss)      (134,142)     (10,243)    (170,684)    (10,243)     20,962
    Interest
     expense       (7,208)      (5,257)     (19,448)     (5,257)       (761)
    Other income      555          559        2,090         559          --
    Equity in
     earnings
     (losses) of
     foreign
     joint
     ventures      (1,230)        (555)      (2,330)       (555)        (95)

    Income (loss)
     from continuing
     operations before
     reorganization
     items and
     income tax
     expense
     (benefit)   (142,025)     (15,496)    (190,372)    (15,496)     20,106
    Gain on
     discharge of
     liabilities       --           --           --          --    (107,559)
    Reorganization
     costs and
     expenses, net     --           --           --          --      13,686

    Income (loss)
     from continuing
     operations before
     income tax
     expense
     (benefit)   (142,025)     (15,496)    (190,372)    (15,496)    113,979
    Income tax
     expense
     (benefit)     55,560       (5,790)      84,230      (5,790)     50,402

    Income (loss)
     from continuing
     operations  (197,585)      (9,706)    (274,602)     (9,706)     63,577

    Loss from
     discontinued
     operations
     (net of income
     tax expense
     (benefit) of $0,
     $(181), $0,
     $(181) and $(1,686)
     respectively)     --         (287)        (534)       (287)     (2,661)

    Net income
     (loss)     $(197,585)     $(9,993)   $(275,136)    $(9,993)    $60,916

    Income (loss)
     per basic
     and diluted
     share:
      Loss from
       continuing
       operations
       per share   $(6.58)       (0.32)      $(9.15)      (0.32)        n/a
      Loss from
       discontinued
       operations
       per share       --        (0.01)       (0.02)      (0.01)        n/a
      Net loss
       per share    (6.58)       (0.33)       (9.17)      (0.33)        n/a
    Weighted average
     shares used
     to compute
     income (loss)
     per share:
      Basic    30,009,214   29,998,538   29,997,591  29,998,538         n/a
      Diluted  30,009,214   29,998,538   29,997,591  29,998,538         n/a