Sport Haley Fiscal Q2 Swings to Profit on 11% Sales Decline

Sport-Haley, Inc. net sales for the fiscal second quarter ended December 31, 2005 were $4.4 million, a decrease of $571,000 or 11%, from net sales of $5.0 million for the same quarter in the prior fiscal year. Net income for the quarter ended December 31, 2005, was $99,000, a difference of $2.1 million, or 105%, when compared with our net loss of ($2,006,000) for the comparable quarter in the prior fiscal year.

Net sales for the six months ended December 31, 2005, were $8.4 million, a decrease of $2.1 million or 20%, from net sales of $10,570,000 for the comparable six-month period in the previous fiscal year.

The decrease in net sales for the quarterly period was primarily due to a continuing increase in the sales of Ben Hogan® men's fashion apparel combined with the previously reported discontinuance of HALEY RESERVE men's fashion golf apparel and a significant decrease in the sales of SPORT HALEY women's fashion apparel. Net sales of Ben Hogan® apparel approximated $2.8 million and $5.2 million for the quarter and six months ended December 31, 2005, increases of approximately $800,000, or 40%, and $480,000, or 10%, from net sales of approximately $2,000,000 and $4,700,000 for the quarter and six months ended December 31, 2004. Sport Haley believes the discontinuance of HALEY RESERVE men's fashion golf apparel contributed $200,000 and $900,000 to the decreases for the fiscal quarter and six month period, respectively.

Net sales of SPORT HALEY(TM) women's fashion apparel totaled approximately $1.4 million and $2.9 million for the quarter and six months ended December 31, 2005, decreases of approximately $1.1 million, or 44%, and $1.5 million, or 34%, when compared with the respective quarterly and six-month periods in the prior fiscal year. The overall market for women's fashion golf apparel appears to be shrinking, as evidenced by the recent exit from the women's market by certain other companies.

Gross margins, as a percentage of sales, were 37% and 35% for the quarter and six months ended December 31, 2005, respectively. Comparatively, gross margins, as a percentage of sales, were 9% and 21% for the comparable periods in the prior fiscal year. The company believes the increase in gross margins is primarily attributable to successful efforts to minimize the amount of finished goods inventories remaining on hand at the end of each selling season and to better estimate the recoverable value of excess finished goods inventories.

Selling, general and administrative expenses for the fiscal quarter ended December 31, 2005, decreased by $926,000, or 39%, to $1,438,000 from $2,364,000 for the same quarter in the prior fiscal year. Selling, general and administrative expenses for the six months ended December 31, 2005, decreased by $2,061,000, or 39%, to $3,162,000 from $5,223,000 for the comparative six-month period in the prior fiscal year. Selling, general and administrative expenses were approximately 32% and 37% of net sales for the quarter and six months ended December 31, 2005, as compared with 47% and 49% for the comparable periods in the prior fiscal year.

The decreases between comparative quarterly and six-month periods were primarily due to the accrual in the quarter ended December 31, 2004, of $520,000 in severance and other compensation payable to our former Chief Executive Officer and severance and $650,000 in other compensation paid to our late Chairman's estate in September 2004 combined with decreases in sales commissions, payroll expenses and a general reduction in other selling general and administrative expenses. We believe the general decrease in selling, general and administrative expenses is indicative of cost reductions that have been achieved as a result of implementing cost reduction initiatives in fiscal 2005.

Net loss for the six months ended December 31, 2005, was ($429,000), a difference of $2,853,000, or 87%, when compared with our net loss of ($3,282,000) for the comparable six-month period in the prior fiscal year.

Basic earnings (loss) per common share were $0.04 and ($0.77) for the quarters and were ($0.16) and ($1.29) for the six-month periods ended December 31, 2005 and 2004, respectively. Diluted earnings (loss) per common share were $0.03 and ($0.77) for the quarters and were ($0.16) and ($1.29) for the six-month periods ended December 31, 2005 and 2004, respectively.

SPORT-HALEY, INC.
                Consolidated Unaudited Financial Information
                     (In thousands, except per share data)

                                  Three Months Ended    Six Months Ended
                                     December 31,          December 31,
                                   2005       2004       2005       2004
                                ---------  ---------  ---------  ---------
Statements of Income Data:

Net sales                       $   4,429  $   5,000  $   8,440  $  10,570

Gross profit                        1,637        458      2,942      2,228

Other operating costs               1,613      2,516      3,500      5,573

Income (loss) from operations          24     (2,058)      (558)    (3,345)

Other income (expense), net            77         52        130         63

Net income (loss)                      99     (2,006)      (429)    (3,282)

Diluted earnings (loss)
   per common share             $    0.03 ($    0.77)($    0.16)($    1.29)


Diluted average weighted
  shares outstanding            2,968,000  2,545,000  2,728,000  2,541,000