Shoe Pavilion Q4 Net Drops Despite Sales Gains

Shoe Pavilion, Inc. saw fourth quarter net sales increase 38.6% to $40.8 million from $29.5 million last year. Comparable store net sales for the quarter increased 8.6%. Sales from new and relocated stores contributed $10.9 million in the quarter.

Gross profit was 33.8% in the fourth quarter compared to 36.3% in the same period last year. The decrease primarily reflects higher occupancy costs due to the rapid rollout of new stores and a reduction in selling margins. Selling, general and administrative expenses improved to 28.7% of net sales compared to 29.0% in the year-ago period.

Net income for the fourth quarter decreased 21.1% to $971,000, or 10 cents per diluted share, from net income of $1,230,000, or 16 cents per diluted share, in the prior year period.

Dmitry Beinus, Chairman and CEO of the Company, stated, “Our net sales were in line with our expectations and our net income was slightly better than expected. We are pleased to have successfully continued our store rollout plans with the opening of nine new stores during the quarter.”

During the quarter, the company opened new stores in West Los Angeles, Irvine, Rocklin, San Marcos, Petaluma and Tracy, California; Oracle and Yuma, Arizona; and Arlington, Texas. The company closed one store in California for which the lease had expired and as of December 30, 2006 operated 108 stores.

Business Outlook

In the first quarter of 2007, the company expects to open three new stores and relocate three existing stores into larger premises. For fiscal 2007, the company expects to open 20 to 25 new stores and close 5 to 7 for a net increase of 15 to 20 stores in our total store base.

The company anticipates that comparable store net sales will increase 8% to 10% in the first quarter of 2007, and that comparable store net sales will increase 4% to 5% for the fiscal year 2007. The company anticipates achieving net sales of $37 million to $39 million in the first quarter of 2007, an increase of 35% to 43% in net sales over the first quarter of 2006. For the fiscal year 2007, the company anticipates achieving net sales of $172.5 million to $180.0 million, an increase of 31% to 37% in net sales over fiscal 2006.

Shoe Paviliion presently expects that in the first quarter of 2007 it will incur a net loss 2 cents to 3 cents per diluted share and for the fiscal year 2007, anticipates that diluted earnings per share will be in the range of 19 cents to 23 cents.

                      Shoe Pavilion, Inc.

            Condensed Consolidated Statements of Operations
                              (Unaudited)
                 (in thousands, except per share data)

                     Thirteen Weeks Ended,    Fifty-two Weeks Ended,
                   ------------------------- -------------------------
                   December 30, December 31, December 30, December 31,
                      2006         2005         2006         2005
                   ------------ ------------ ------------ ------------

                      Amount       Amount       Amount       Amount
                   ------------ ------------ ------------ ------------
 Net sales             $40,835      $29,462     $131,305     $102,510
 Cost of sales and
  related
  occupancy
  expenses              27,046       18,767       87,264       66,588
                   ------------ ------------ ------------ ------------
 Gross profit           13,789       10,695       44,041       35,922
 Selling expenses        8,574        6,223       28,579       22,369
 General and
  administrative
  expenses               3,119        2,329       11,398        8,722
                   ------------ ------------ ------------ ------------
 Income from
  operations             2,096        2,143        4,064        4,831
 Interest expense,
  net                     (402)        (124)        (870)        (504)
                   ------------ ------------ ------------ ------------
 Income before
  income taxes           1,694        2,019        3,194        4,327
 Income tax
  expense                  723          789        1,329        1,694
                   ------------ ------------ ------------ ------------
 Net income               $971       $1,230       $1,865       $2,633
                   ============ ============ ============ ============
 Net income
  available to
  common
  stockholders            $971       $1,136       $1,865       $2,429
                   ============ ============ ============ ============

 Earnings per
  share:
 Basic                   $0.10        $0.17        $0.21        $0.36
 Diluted                 $0.10        $0.16        $0.21        $0.36