CARBONDALE, Colo., Aug. 12 — The North Face, Inc. (Nasdaq: TNFI) today reported financial results for the second quarter ended June 30, 1999. For the second quarter ended June, 1999, sales increased 26.5% to $54.6 million compared to $43.2 million for the second quarter of 1998. Net loss for the quarter, excluding one-time charges of $1.8 million, after tax, or $0.14 per share was $5.8 million or $0.46 per share compared to a loss of $1.7 million or $0.14 per share for the second quarter of 1998.(1)   

For the six months ended June, 1999, sales increased 19.1% to $105.9 million compared to $88.9 million for the six months ended June 30, 1998. Net loss for the first six months, excluding one-time charges of $3.6 million, after tax, or $0.28 per share was $9.5 million or $0.75 per share compared to a loss of $2.5 million or $0.21 per share in the first half of 1998.(1)  

James Fifield, President and Chief Executive Officer, commented, “Sales growth in the second quarter picked up over the first quarter. Wholesale revenue grew by 26.0% over last year and retail sales increased 18.2%, attesting to the continued strength of the North Face brand. In addition, sales in Europe were up 21.5% over last year’s second quarter. Overall, gross margin was 43.8%, the same as the gross margin in the second quarter of 1998. For the year, gross margin improved by 90 basis points. Trade accounts receivable growth for the quarter, slowed to 15.3% year-over-year reflecting our focused effort on improving our balance sheet. At the same time, inventory growth also showed significant improvement slowing to 10.8% compared to the second quarter of last year.”  

“The cost pressure we experienced in the first quarter continued into the second quarter as planned project spending for advertising, footwear, product development and infrastructure improvements increased. Although spending in these areas is critical to support the future growth of the business, it is having an adverse impact on this year’s results and we are focusing aggressively on controlling costs throughout the rest of the year. However, expense pressure from planned projects including the outsourcing of our distribution of products and improvements to our management information systems will continue in the second half of the year. These investments are necessary for us to sustain our long-term growth. The second quarter also includes approximately $2.1 million in costs related to accounts receivable accommodations made to certain customers to keep goods sold during 1998 out of unfavorable distribution channels and approximately $1.3 million in additional inventory reserves and adjustments. These charges were taken to ensure that the value of these assets is properly reflected on our current balance sheet and they improve our balance sheet going forward, but negatively impact our operating expenses and gross margin.”  

Jim Fifield continued: “Looking at the remainder of the year, we are fully-focused on implementing our strategic initiatives and growing the business. We have many exciting opportunities ahead of us including the expected introduction of our Internet E-Commerce Web Site scheduled for the third quarter, growth of our rugged footwear, the roll-out of our 1999 fall product line, which has been enthusiastically received by our dealers, and the expansion of our distribution channels. The North Face brand remains well positioned to capitalize on these opportunities.”  

Highlights of the quarter included:

* The Company’s top performing product categories for the quarter included Outerwear and Equipment. Fleece products also performed well, with the Denali jacket as the most popular product. The Ascentials line has bbeen very successful, particularly for daypacks and technical accessories. Sell-through of our tents and sleeping bags was exceptional.  

* The North Face’s new rugged footwear line continues to perform well and sell-through at the Company’s dealers remains strong. Wholesale sales for the Company’s footwear in the second quarter totaled $3.9 million bringing the year-to-date total to $8.1 million.  

* Wholesale advance orders for the Fall 1999 season continue to track 30% ahead of advance orders for the same period in 1998. Top performing products include The North Face’s newly redesigned Mountain Light jacket and the new Pac-Lite outerwear series, developed in collaboration with W.L. Gore.  

* The North Face Internet E-Commerce Web Site is expected to be launched in the third quarter. It will display the breadth and depth of The North Face’s entire product line and will include sites for business to business retail ordering and a consumer site.  * The Company has completed the move to outsource its U.S. distribution of products to a new distribution center in Lenexa, Kansas. U.S. distributed North Face products are now being shipped to our dealers and customers from this location.  

* Three new retail outlet stores recently opened in San Jose, California; Toronto, Canada and San Marcos, Texas. In the next few months, we have planned openings in Dawsonville, Georgia and Desert Hills, California.  

* The North Face Summit Shop program, its shop-within-a-shop program, continued to expand with 24 new shops being opened in the quarter. This brings the total number of Summit Shops to 418 through June 1999.