Phoenix Footwear Group, Inc. announced net sales for the second quarter ended June 28, 2003 totaled $7.6 million versus $8.5 million for the second quarter of 2002, a decrease of $900,000 or 10.6%. Gross Profit increased to $3.2 million during the current quarter as compared to $3.1 for the prior year quarter, an increase of 3.4%.

The Company’s financial results for the second quarter resulted in a net loss of ($688,000) which included expenses totaling $1.3 million associated with the previously disclosed dissenting shareholders litigation and corporate relocation costs. The loss per share was ($0.19) for the second quarter and included ($0.28) per share in litigation settlement and corporate relocation costs as compared to earnings per diluted share of $0.09 for the prior year period. The per share amounts reflect the Company’s 2-for-1 stock split which was effective May 22, 2003.

The Company also announced that the Penobscot litigation was settled during the second quarter, and no further charges are expected with regard to this litigation.

The Company reaffirmed its financial guidance for the full-year 2003 of $0.70 to $0.75 per fully diluted share, before accounting for previously disclosed year-to-date litigation, acquisition and corporate relocation costs, as well as the pending H.S. Trask & Co. acquisition. The per share amounts reflect the Company’s 2-for-1 stock split which was effective May 22, 2003.

James R. Riedman, Chairman and CEO, commented, “We posted continued gross profit margin expansion during the second quarter despite the difficult retail environment, highlighting our commitment to generating profitable returns for our shareholders. As we support our brands, our business strategy entails strict product discipline, cost controls and an emphasis on maintaining low debt levels. As a result, we are positioned to grow our operating earnings, after the impact of expenses associated with the Penobscot litigation. Despite our second quarter revenue declines caused by the soft footwear market, our brands have continued to maintain their share of available consumer dollars and we are optimistic that we will return to top-line growth in the second half of 2003.”

Mr. Riedman continued, “In addition, we remain on track to close on our acquisition of H.S. Trask & Co. during our third quarter. The addition of H.S. Trask will add a well-known line of men’s footwear to the Phoenix Footwear product line, providing us with an opportunity to drive additional revenues and cash flows. The integration of the H.S. Trask line into our distribution platform will create natural cost-saving synergies, enhancing profitability over the next 12 months. Looking ahead, our focus remains on supporting organic growth, while expanding our brand portfolio through strategic acquisitions that will be accretive to earnings and will maximize shareholder value.”

Net sales for the quarter ended June 28, 2003 decreased 10.6% to $7.6 million as compared to $8.5 million for the second quarter of 2002 primarily due to poor weather conditions and a depressed economic retail environment.

Gross profit in the second quarter of 2003 increased 3.4% to $3.2 million or 42.2% of net sales as compared to $3.1 million or 36.5% of net sales in the second quarter of 2002. The improvement in gross margin as a percentage of net sales primarily relates to an improved product sales mix and a reduction in the volume of closeout sales.

Selling, general and administrative expenses for the second quarter of 2003 were $2.6 million or 34.4% of net sales, versus $2.4 million or 28.5% of net sales for the second quarter of 2002. This increase was primarily related to increased marketing and advertising expenses, increased employee compensation and benefit costs, and occupancy costs associated with the Company’s new west coast operations.

During the second quarter of 2003, interest expense amounted to $386,000 and included an interest charge of $346,000 related to previously disclosed dissenting shareholders litigation. Without the interest charge, interest expense for the current quarter would have been $40,000 as compared to $103,000 in the prior year period. The decrease is a result of lower interest rates and average outstanding indebtedness during the current quarter as compared to the prior year period.

Additionally, in accordance with the Company’s stock repurchase program approved by its Board of Directors in May 2002, the Company repurchased approximately 16,400 shares during the second quarter of 2003 at an average purchase price of $4.35. These per share amounts reflect the Company’s 2-for- 1 stock split which was effective May 22, 2003.

Net sales for the six months ended June 28, 2003 decreased 12.9% to $16.8 million as compared to $19.2 million for the six months ended June 30, 2002 primarily due to unseasonably cold weather and economic concerns.

Gross profit for the six months ended June 28, 2003 increased 4.2% to $7.2 million or 43.0% of net sales as compared to $6.9 million or 35.9% of net sales for the comparable prior year period. The improvement in gross margin as a percentage of net sales primarily relates to an improved product sales mix and a reduction in the volume of closeout sales.

Selling, general and administrative expenses for the six months ended June 28, 2003 were $5.5 million, or 32.5% of net sales, versus $5.0 million, or 26.0% of net sales for the comparable prior year period. This increase was primarily due to increased marketing and advertising expenses, employee compensation and benefit costs, and increased occupancy costs associated with the Company’s new west coast operations.

Interest expense for the six months ended June 28, 2003 totaled $452,000 and included interest charges of $376,000 related to previously disclosed dissenting shareholders litigation. Without these interest charges, interest expense would have been $76,000 as compared to $335,000 in the prior year period. The decrease is a result of lower interest rates and average outstanding indebtedness during the current six month period as compared to the prior year period.

Additionally, in accordance with the Company’s stock repurchase program approved by its Board of Directors in May 2002, the Company repurchased approximately 57,800 shares during the six months ended June 28, 2003 at an average purchase price of $3.47. These per share amounts reflect the Company’s 2-for-1 stock split which was effective May 22, 2003.

Consolidated Condensed Statement of Operations

                                          For the Quarter Ended
                                              (Unaudited)
                                     June 28,                June 30,
                                       2003                   2002

    Net Sales                     $ 7,552,000   100.0%   $ 8,446,000    100.0%
    Cost of goods sold              4,365,000    57.8%     5,363,000     63.5%

    Gross profit                    3,187,000    42.2%     3,083,000     36.5%

    Operating expenses:
     Selling and
      administrative expenses       2,601,000    34.4%     2,408,000     28.5%
     Other expense, net               939,000    12.4%             0      0.0%
        Total operating expenses    3,540,000    46.9%     2,408,000     28.5%

    (Loss) / Income from operations  (353,000)   -4.7%       675,000      8.0%

    Interest expense                  386,000     5.1%       103,000      1.2%

    (Loss) / Income before
     income taxes                    (739,000)   -9.8%       572,000      6.8%

    Income tax (benefit) / provision  (51,000)               229,000

    Net (Loss) / Income           $  (688,000)   -9.1%    $  343,000      4.1%

    (Loss) / Earnings per
     common share:

     Basic                             ($0.19)                $0.10
     Diluted                           ($0.19)                $0.09