Phoenix Footwear Group, Inc. reported a 3.2% decrease in net sales from continuing operations for the fourht quarter to $19.4 million from $20.1 million last year. Sales of Tommy Bahama products grew by 99% for the quarter.  The company also generated sales growth in its Trotters and SoftWalk lines.  Sales of H.S. Trask shrank as a result of a large closeout sale in 2006 which did not reoccur in 2007.  Sales of Chambers decreased for the quarter reflecting a challenging retail environment in the ladies segment.


“Fiscal 2007 was an important transitional time for our Company, and we are very pleased with the success we achieved in executing each aspect of our revitalization plan,” commented Cathy Taylor, Phoenix Footwear's Chief Executive Officer. “During the year, we significantly strengthened our management team, invested additional resources in our product design, and improved our sourcing and procurement capabilities, which are resulting in noticeable improvements in gross margins and accelerated growth across multiple brands. Additionally, we have dramatically improved our balance sheet, increasing our tangible net worth by over $30 million, increasing our working capital by over $28 million and repaying the majority of our bank debt. We are confident that the strengthened and focused portfolio of our remaining product lines, as well as the dramatically improved capital structure, position us well for supporting our growth plans and creating value for our shareholders in 2008 and beyond.”

First Quarter 2008 Preliminary Results and Financial Guidance


On a preliminary basis, for the first quarter ended March 29, 2008, the company expects the following positive financial results:

    —  Net sales from continuing operations to increase 3% to $21.9 million
year-over-year. During the first quarter, all of the company's brands
posted positive growth, except for a 4% decrease in Chambers.
— Gross margins improvement of 1000 basis points sequentially to
36.1%. The Company expects further sequential improvements in gross
margins throughout the remainder of the fiscal year.
— Positive EBITDA for the first quarter of 2008.
— Significant progress toward refinancing its revolving credit facility
with Wells Fargo pursuant to a term sheet which provides for interest
at LIBOR plus 2.4%, or prime minus 0.25% for an effective interest
rate of 5% based upon today's rates. The company is working to satisfy
closing conditions. The facility is expected to be in place no later
than mid-2008.
— Funded bank debt, net of cash, down to $8.9 million on March 29, 2008.

For fiscal year 2008, the company reiterates its previously issued guidance of net sales of between $95 million to $100 million and income from continuing operations of between $2.0 million to $2.5 million.


“Looking ahead, we remain optimistic about our future opportunities. We are very excited about the all-door program at Nordstrom's for Tommy Bahama and believe this brand is well positioned to maintain significant double digit growth throughout the year. Initial reaction to our newly redesigned line of H.S. Trask, which was introduced at the FFANY shoe show in February, is very encouraging. A new higher price point extension of our Trotter label, “The Z Collection,” is now in the market and performing in line with our initial expectations. Additionally, we expect that Chambers should return to positive growth in the second half of the year. With these exciting developments underway, we believe Phoenix Footwear is well positioned to expand sales within its addressable market and to continue on track for profitable growth,” continued Ms. Taylor.


Fourth Quarter 2007 Results


For the fourth quarter ended December 29, 2007, the company reported the following financial results:

    —  Net sales from continuing operations decreased 3.2% to $19.4 million,
compared to $20.1 million for the fourth quarter of fiscal 2006. Sales
of Tommy Bahama products grew by 99% for the quarter. The company
also generated sales growth in its Trotters and SoftWalk lines. Sales
of H.S. Trask shrank as a result of a large closeout sale in 2006
which did not reoccur in 2007. Sales of Chambers decreased for the
quarter reflecting a challenging retail environment in the ladies
segment.
— Gross margin from continuing operations expanded 760 basis points to
26.1%, compared to 18.5% for the fourth quarter of fiscal 2006 due to
fewer closeouts and improved sourcing operations.
— Net loss for the quarter totaled $11.9 million, or $1.48 per share, on
8.0 million weighted-average shares outstanding. This loss includes
non-cash charges of $6.0 million in goodwill impairments and a tax
valuation allowance of $7.3 million. In addition, the company
expensed $576,000 during the quarter for severance relating to its
previously announced staffing reductions. This compares to net loss of
$23.4 million, or $2.95 per share, on 7.9 million weighted-average
shares outstanding, for the fourth quarter of fiscal 2006.
— Tangible net worth increased by $30.3 million to $19.6 million at year
end. Net working capital increased by $28.3 million to $18.7 million
at year end. Funded bank debt, net of cash, stood at $8.9 million on
March 29, 2008.

Cathy Taylor concluded, “While our consolidated growth for the fourth quarter was a negative 3.2%, we are very pleased by the progress and performance of majority of our brands in a very challenging retail environment. As we successfully completed the re-design and re-launch of Tommy Bahama, the division posted the second consecutive quarter of doubling sales. Both Trotters and SoftWalk performed well and maintained positive momentum into the first quarter. We have also recently seen positive growth from H.S. Trask and believe this trend will continue for the balance of the year. We are especially thrilled to have James Clopton join our team as President of the Tommy Bahama and H.S. Trask divisions. As a 30-year industry veteran, he possesses the right set of skills to build on the current strength of these brands and continue to drive their profitable growth.”


Full-Year 2007 Results


For the fiscal year ended December 29, 2007, the company reported the following financial results:

    —  Net sales from continuing operations decreased 5.3% to $82.9 million,
compared to $87.5 million for fiscal 2006. The decline was primarily
attributable to a 31.2% decrease in H.S. Trask and a decrease in
Chambers, which were partially offset by a 9.4% increase in Trotters.
— Gross margin from continuing operations were 31.0%, compared to
32.2% for fiscal 2006. The decrease was attributable to costs related
to the migration of sourcing activities to China and exiting of the
American Red Cross license.
— Operating expenses increased 5.6% to $41.4 million, or 50% of net
sales, compared to $39.2 million, or 44.8% of net sales, in fiscal
2006.
— Combined gain from the divestiture of the Royal Robbins and Altama
brands of $14.7 million, net of taxes.
— Net loss was $1.3 million, or 17 cents per share, compared to net loss of
$20.4 million, or $2.58 per share, for the fiscal 2006. Non recurring
charges included in total expenses for 2007 include the following:

— $1.0 million related to the discontinuation of the American
Red Cross licenses
— $1.2 million in direct expenses related to the migration of
the company's sourcing operations to China
— $1.0 million in severance costs and S-O-X related expenses
— $6.0 million related to the non-cash impairment of goodwill
— $7.3 million in non-cash tax valuation allowances


Balance Sheet and Liquidity


As of December 29, 2007, the company had $2.4 million in cash and cash equivalents, $18.7 million in working capital, and $22.7 million in bank debt. This compares to $0.8 million in cash and cash equivalents, $9.5 million of working capital deficit and $54.0 million in bank debt as of December 30, 2006. As mentioned above, debt was further reduced, net of cash, to $8.9 million as of March 29, 2008.

                         Phoenix Footwear Group, Inc.
Consolidated Condensed Statement of Operations
(In thousands, except share and per share data)

For the Quarter Ended

December 29, December 30,
2007 2006

Net sales $19,409 100.0% $20,055 100.0%
Cost of goods sold 14,337 73.9% 16,340 81.5%

Gross profit 5,072 26.1% 3,715 18.5%

Operating expenses:
Selling and administrative
expenses 9,037 46.6% 7,928 39.5%
Non cash 401k stock grant
compensation 134 0.7% 164 0.8%
Amortization 228 1.2% 243 1.2%
Intangible Impairment Charge 6,034 31.1% 6,558 32.7%
Other expense (income), net 479 2.5% 12 -%
Total operating expenses 15,912 82.0% 14,905 74.3%

Loss from operations (10,840) -55.9% (11,190) -55.8%

Interest expense 295 341

Loss before income taxes and
discontinued operations (11,135) -57.4% (11,531) -57.5%

Income tax expense (benefit) 1,655 (3,398)

Loss before discontinued operations (12,790) -65.9% (8,133) -40.6%

Income (loss) from discontinued
operations, net of tax 899 4.6% (15,276) -76.2%

Net (loss) income $(11,891) -61.3% $(23,409) -116.7%

(Loss) earnings per common share:

Basic
Continuing operations $(1.59) $(1.02)
Discontinued operations 0.11 (1.93)
Net (loss) earnings $(1.48) $(2.95)

Diluted
Continuing operations $(1.59) $(1.02)
Discontinued operations $0.10 (1.93)
Net (loss) earnings $(1.48) $(2.95)

Weighted-average shares
outstanding:
Basic 8,044,871 7,927,265
Diluted 8,672,857 7,927,265

For the Twelve Months Ended
December 29, December 30,
2007 2006

Net sales $82,871 100.0% $87,476 100.0%
Cost of goods sold 57,215 69.0% 59,265 67.8%

Gross profit 25,656 31.0% 28,211 32.2%

Operating expenses:
Selling and administrative
expenses 33,484 40.4% 30,119 34.4%
Non cash 401k stock grant
compensation 534 0.6% 653 0.7%
Amortization 903 1.1% 959 1.1%
Intangible Impairment Charge 6,034 7.3% 6,558 7.5%
Other expense (income), net 451 0.5% 916 1.0%
Total operating expenses 41,406 50.0% 39,205 44.8%

Loss from operations (15,750) -19.0% (10,994) -12.6%

Interest expense 1,402 1,462

Loss before income taxes and
discontinued operations (17,152) -20.7% (12,456) -14.2%

Income tax expense (benefit) (559) (3,516)

Loss before discontinued operations (16,593) -20.0% (8,940) -10.2%

Income (loss) from discontinued
operations, net of tax 15,249 18.4% (11,438) -13.1%

Net (loss) income $(1,344) -1.6% $(20,378) -23.3%

(Loss) earnings per common share:

Basic
Continuing operations $(2.07) $(1.13)
Discontinued operations 1.90 (1.45)
Net (loss) earnings $(0.17) $(2.58)

Diluted
Continuing operations $(2.07) $(1.13)
Discontinued operations $1.73 (1.45)
Net (loss) earnings $(0.17) $(2.58)