St. John Knits Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %>
P.O. Box 19524
Irvine, CA 92713-9524
(714) 863-1171

UNION CITY, Ca., September 4, 1996/FOOLWIRE/ --- St. John Knits reported Q3 1996 results today. They were happy to announce that they were able to exceed their budgeted numbers for Q3 and for the first nine months of 1996. The company reported net income of $6 million or $0.35 for Q3 versus $4.3 million or $0.26 last year, an increase of 40%. Net sales for the quarter increased 26% to $46.5 million. Their retail division reported sales of $11.3 million, an increase of $2.9 million or 34.5%.

Gross profit margins for Q3 were 56.9% versus 53.6% last year. SG&A as a percent of net sales was 35.1% versus 34.2% last year. There was no one specific thing that contributed to the margin increase. Their retail business is very good and that helps their margins tremendously. They are improving their manufacturing techniques and every season they get a little bit better at what they are doing and they think they can continue that. They have done some analyzing and have identified areas where they think they can definitely improve. It's a mix across the board that is contributing to the margin improvements and hopefully they will continue to do that.

For the nine month period ended July 28th, the company reported net income of $18.5 million or $1.08 per share versus $13.4 million or $0.81 last year, an increase of 38.2%. Net sales for the nine month period increased 24.5% to $141.8 million. Their retail division reported sales of $36.7 million, an increase of 33.6%. Gross profit margins for the nine month period were 55.5% versus 53.4% last year. SG&A as a percent of net sales increased 10 basis points to 33.7%.

BALANCE SHEET HIGHLIGHTS

Looking at the balance sheet, cash and short-term investments as of July 28th were $17.2 million versus $15.1 million at year end. Current cash balance is about $11 million. Accounts receivable balance at July 28th was $19.3 million, down $1.8 million from the $21.1 million reported at year end. The accounts receivable balance at the end of Q3 last year was $13.3 million. The increase of 45% over Q3 last year occurred primarily because sales in Q3 1996 were skewed toward the last month of the quarter. That is kind of a typical pattern for them, they always seem to pick up as they move through a quarter. This pattern also has the downside of making the receivables numbers look like they have collection problems. That isn't true either. All the receivables are current. The shipments were heavier in the last month of the quarter and, therefore, they are not due.

Inventory was $21.7 million, an increase of $6.8 million or 45.7% over year end. The inventory balance at the end of Q3 last year was $16.1 million. This increase of 34.8% over the prior period was primarily due to three factors: increased sales (sales are up 26%), a change in the way the company is shipping domestically (they are now trying to ship by cargo which forces them to carry more inventory), and the addition of the Beverly Hills boutique and an increase in the inventory level at the New York boutique in anticipation of the opening of the new section.

Looking at liquidity, no amounts are outstanding under the line of credit which is $15 million. In April, they entered into an agreement with their bank to finance up to $8 million in new facilities. Borrowings are on a revolving basis through September of 1997. At that time, any unpaid balance converts to a 10-year fully amortized loan. The company had $47.6 million in working capital at the end of the quarter.

During the 9-month period ending July 28th, the company purchased property and equipment of approximately $14.2 million -- the primary components of this are the purchase of 32 electronic knitting machines, the purchase of 3.8 acres of land which includes a 35,000 square foot building to be used for production and storage, the purchase of an adjoining parcel of land which includes a 37,000 square foot building to be used for design and production, construction costs incurred in connection with the March 12th opening of their 17th boutique in Beverly Hills, and costs incurred to expand the New York City boutique.

Their capital expenditure budget for the remainder of FY 1996 is approximately $6.5 million. The primary expenditures will be the construction of a new design center on the recently purchased 1.8 acres of land, the purchase of land and building to replace a current manufacturing facility in the Los Angeles area, lease on the New York City boutique, and construction of a 20,000 square foot manufacturing facility on the recently purchased 3.8 acres.

The company has also entered into an agreement to purchase certain assets and technologies from one of their raw material vendors. These assets and technologies are used in the design and production of certain types of trim used on their garments called paillettes. These are a heat-set product which they apply to their knitted garments and are used as trim or in the all-over program. This purchase will enable them to do more with the product, to do greater experimentation with color and in how they apply and mix the items in various sizes. They think it is exciting because it will give them some new things to look at. The product is used in more dressy items. The purchase also gives them worldwide control of the product. The purchase price is approximately $2.6 million with $1.9 million being paid in Q4 and the balance to be paid over the next 12 months.

They were asked if there were any other niche areas of their business that might make attractive acquisitions. They answered that they don't see any at this time. The one they have made at this time is a very important acquisition because it certainly is going to improve the gross margins. The gross margins of this company were outstanding and the acquisition gives them control over something that they have practically an exclusive on and, while they won't have to raise their prices they think they will have better margins on the product they're making because of the acquisition.

On September 3rd the Board of Directors declared a regular cash dividend of $0.0025 per share to be paid on November 8th to shareholders of record on October 3rd.

SALES AT THE RETAIL LEVEL & BACKLOG

Their retail sales in ready-to-wear were ahead of last year's 21.6% for the combined months of May, June, and July. Same store sales for the quarter and year to date are both approximately 10%, which is down from the 21%, but a very good number. The accessories showed continued strong performance, running 28% ahead of last year for the same time period.

They have just completed the Cruise market showings for the St. John collection and their current backlog is $94 million, which is a 32% increase over last year's original bookings. They think the growth is a reflection of the confidence in the product on the part of retailers. (Note: when the backlog number gets to a certain point, the company cuts off orders). This backlog includes remaining shipments for the last two months of the year for Fall and the Cruise orders for next season. Their current department store accounts are ordering more heavily. They have added very few new accounts. There is just an across-the-board increase in their orders coming from the stores. Every store is planning considerable growth in the coming year. The company's revenue growth from business to the company's principal retail accounts (Saks Fifth Avenue, Neiman Marcus, Nordstrom, and Jacobson) was approximately 20% both for the quarter and year-to-date -- without their own boutiques.

At this time they have not yet received all of their international orders, but they will show approximately a 50% increase in sales. That is a combination of Europe and Asia. In Europe, their strongest countries are Germany and Switzerland, although it is spreading to other areas now. In Asia the strong areas are Hong Kong, Japan, and Korea.

Their Fall Trunk Shows have been absolutely sensational. One of the highlight shows of the season was a top-performing major store in a suburb of Chicago. The 3-day show generated a little over $440,000 in business with $200,000 of that figure being stock sales. What this means is that 500 units of St. Johns were being taken home by the customer during the 3 days and another 600 units in special orders are to be rung up by the store during the course of the next two months. The Trunk Shows represent tremendous opportunity for today's sales as well as for future business.

The St. John Sports line is currently in 271 doors and is selling very well. The Knit line is in 481 doors. It is reasonable to assume that they will soon take Sport into all of the 481 doors the Knit line is already in. Customers have been very enthusiastic about the pieces that have come in the pink color and the new delivery that is out there right now which is the kelly green and black is performing well at the Trunk show. For this year they think they will hit $7.5-$8 million with the Sports line. They are changing the production set up because they have had some problems coming out of Europe. They have a new factory coming online that will help them tremendously in terms of quality and fit on the product -- they will be making the line in California. That should also have a positive influence on their margins. That will be coming online later this year, probably with the Cruise line that delivers in November/December.

The company was asked whether that might mean a flattening out of the sales line while they get the production up and running and they responded that wasn't necessarily true -- they would try to mesh the two together. They were also asked if they intended to pull the Griffith & Gray line in-house for production. They responded that they weren't going to do that at this time but that is the type of thing they are headed toward for the future. They only produce two products on the outside right now, the Griffith & Gray and the Sport. Sport will be in-house totally by the middle of next year and then they will take a hard look at Griffith & Gray.

The company was asked where they are on the Griffith & Gray line in terms of remerchandising and new fits. They responded that they have terrific news regarding the Griffith & Gray collection. Kelly Gray, St. John's President, was the winner of the Cadillac Award of Excellence for American Design. Kelly and the new Cadillac Coutura will be featured in a 5-page spread in the November issue of Elle Magazine. The theme of the article is "Breaking with Tradition: Classic Designs with a Strong Element of Fun." They think it is going to be a fantastic vehicle as well as great opportunity to promote within the stores.

The company was asked if they had begun using fake fur as trim in the line. The company responded that they have been using fake fur as trim and will continue to do so. They are in 264 doors with The St. John's Fur Collection by Marie Gray. They just started to ship that line, so the next 90 days will tell them a lot on that product.

The company was asked about new accessories or other products from St. John. They responded that they are in the developmental stage of their watches and it looks like it will be sometime early next year when they release those. They have a new fragrance coming out early next year. And those are all the new things that are coming out so far. They haven't named the fragrance yet, but have narrowed it down to three names. They were asked if they were going to expand what they have done in their great gift sets at Christmas time and how their shoes are doing and what they are doing with shoes. They have a whole group of gift sets coming up. Mrs. Gray has been working very closely with the fragrance team and the accessory team to try and develop more designer items. They feel their strength is in design rather than gimmicky items. They said that they plan to release very nice quality design items at the holiday season mixed with fragrance and possibly accessories. They don't like to rely too heavily on the gift sets to drive their business, they want to stabilize with the fragrance and offer quality gift items. And, in doing quality, they have to limit the amount of what they do, so they try to focus on a few key items. They have expanded shoes and they are doing great. They are really taking off now and the company can't project how fast they might be growing. They have been growing in the 20-30% range and are now looking for 50-75% growth in the shoes over the next two years. They are doing about $3 million in shoes right now and think that will be a $5-10 million business in the very near future.

EXPANSION PLANS

St. Johns has been consistently oversold for the past few years. In an effort to bring production more in line with sales, they are continuing expansion of their product facilities which started last year. They added 120,000 square feet last year and will add another 140,000 this year by the beginning of 1997. That, in conjunction with the new equipment which they got last year, should take care of their needs through 1999. The important fact of this, they think, is that they have been able to accomplish all of the expansion without debt and still maintain their numbers.

They were asked how that might expand going forward. They responded that right now they are in most of the doors they want to be in and there could be a few others they would like to be in. They are still trying to get to a point where they can deliver as well as they'd like to. They are very close to that now. Their inventories are going up because they are now being able to deliver complete groups at a time instead of having to deliver them piecemeal. So, when they reach that stage they will probably take a harder look at marketing. But right now they are almost totally focused on making sure they get their production up to the level that will take care of the existing accounts.

Their target goal for the core St. John knit line by the year 2000 is to be around $500 million. They don't see any problem with that. They have a normal growth pattern that should take care of that goal. Beyond that, they will probably do acquisitions. But, for the St. John product, they don't see any reason why it can't be a $500 million company.

The only new store they have planned at this time is in Dusseldorf. They are doing a major expansion on the New York store. They are shopping for additional space in Dallas and Hawaii. They are also looking for other locations. They currently have, without the outlets, about 48,500 square feet of retail space. They started off opening very small stores -- anywhere from 1,800 to 2,500 square feet -- and are now finding that with the addition of their product lines that this is not a big enough store for them. So, anywhere they have a good profitable store, they are probably going to expand that store. The new stores are doing anywhere from good to outstanding. Beverly Hills has been outstanding, Chicago has been good, Atlanta is a very good market.

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