Vermont Teddy Bear Co.(R) Reports Q1 Results: Company Prepares for Busy Christmas Holiday Season with Expansion of Fulfillment C

Vermont Teddy Bear Co.(R) Reports Q1 Results: Company Prepares
for Busy Christmas Holiday Season with Expansion of Fulfillment Center 


SHELBURNE, Vt., Nov. 15  /PRNewswire-FirstCall/ -- The Vermont Teddy Bear
Company(R) (NASDAQ:BEAR) today reported a 22% increase in net revenues to
approximately $6.1 million for the three months ended September 30, 2004, the
first quarter of its fiscal year 2005. Net revenues were approximately $5.0
million for the three months ended September 30, 2003. The Company also
reported a net loss available to common stockholders for the quarter of
$173,000, or $.03 per diluted common share, as compared to a net loss available
to common stockholders of $183,000, or $.04 per diluted share, for the same
quarter last year.

The revenue increase of approximately $1,158,000 in the first quarter of the
fiscal year 2005 is primarily attributed to an increase of $1,533,000 in the
Calyx & Corolla segment as compared to last year which included one month of
revenue in the first quarter subsequent to the August 29, 2003 acquisition of
the Calyx business. Net revenues in the PajamaGram(R) and TastyGram(R) segments
also increased during the period by $31,000 and $11,000, respectively. These
increases to revenue were partially offset by a decrease in net revenues in the
Bear-Gram segment of $260,000 as the Company reduced BearGram marketing and
selling expenses by $321,000 in the first quarter, the Company's only quarter
that does not include a major gift giving holiday. Revenues in the Retail
segment decreased by $99,000 due to reduced tourist traffic throughout the
summer tourism season.  Revenues in the Corporate/Wholesale segment decreased
by $58,000.

As the Company prepares for what is anticipated to be the busiest Christmas
holiday selling season in its history, the expansion of its distribution
facility located on property contiguous to its factory headquarters in
Shelburne, Vermont is nearing completion.  The building was completed in
October and the majority of setup of conveyor systems and related equipment is
expected to be completed in November, just prior to the onset of the Company's
Christmas selling season. In order to accommodate growth and ensure capacity to
fulfill and ship orders for the coming peak selling seasons, the Company
doubled the size of the existing 60,400 square foot facility, opened in the
fall of 2000, to a 120,800 square foot main floor foot print. The 60,400 square
foot expansion will include additional picking lines for the PajamaGram and
Calyx businesses. The BearGram picking lines are also being modified to
accommodate an increase in the number of orders that are personalized with
embroidery or artwork and dressed just prior to shipment. In addition, the
expansion will house added packing stations and expanded conveyors systems to
sort and process orders for shipment. Lastly, the Company will consolidate
25,000 square feet of offsite warehousing currently located in Williston,
Vermont into the new space.

An unfinished 25,000 square foot mezzanine in the expansion space above the new
60,400 square foot main floor space will allow the Company to consolidate and
expand its call center operations in the future. Currently the Company's call
center is fragmented with 200 seats spread out in multiple locations within the
factory headquarters building. The mezzanine will accommodate approximately 250
seats in one area and free up space in the headquarters building for marketing
and selling, and administrative operations.

Meanwhile, consolidated gross margin dollars increased $199,000 to
approximately $3.0 million in the three month period ended September 30, 2004,
as compared to $2.8 million in the same period last year due to the gross
margin contribution of the Calyx business for the entire three month period in
fiscal 2005 versus for the one month subsequent to the acquisition date in the
comparable three month period of fiscal 2004.  Gross margin as a percentage of
net revenues, however, declined in the quarter to 48.3% from 55.5% last year.
The decrease in consolidated margin percentage is primarily due to the addition
of Calyx revenues, which traditionally generate lower margins on a percentage
basis than the Company's BearGram business. The Company's gross margin
percentage was also negatively impacted in all segments by higher delivery
costs primarily related to higher fuel surcharges and other ancillary charges
imposed by common carriers.  Margins in the BearGram segment were also
negatively impacted in the quarter by an increase in unit costs that is
attributed to lower production volumes in its teddy bear manufacturing
operation as the Company continues to adjust to lower sales volumes in this
segment and as it transitions to new processes for lean manufacturing called
modular manufacturing.  Margins in the PajamaGram segment decreased as a
percentage of net revenues in the first quarter of fiscal 2005 as the Company
promoted a sale on its PajamaGram website to reduce remaining quantities of
seasonal merchandise in order to accommodate the new merchandise assortment for
the upcoming holiday seasons that includes a greater percentage of the
Company's own private label product manufactured by its suppliers overseas.

The Company began the transition to modular manufacturing in February 2004
primarily in response to escalating worker's compensation costs related to
repetitive motion injuries.  In modular processes, employees work in teams or
"modules" and rotate between manufacturing tasks performed to complete a bear
in significantly shortened manufacturing cycles.  The anticipated benefits of
modular manufacturing, in addition to reduced worker's compensation costs,
include reduced levels of work in process inventory which is already being
recognized in the Company's inventory balances and improved quality as problems
are caught and addressed immediately when each bear is completed within the
shortened cycle.  When the transition is complete later this year, the Company
expects to achieve higher levels of efficiency with lower direct labor costs
and improved employee satisfaction as employees no longer focus on a single
operation and can work in a team environment. Excess overhead that currently
impacts negatively on the Company's cost of goods in the BearGram segment will
be addressed as the Company's reallocates manufacturing space to other
operations and as throughput increases later in the year.

Corresponding to an increase in net revenues of approximately $1,158,000 is an
increase to marketing and selling expenses in the first quarter of fiscal year
2005 of approximately $18,000 to $1,799,000 from approximately $1,781,000 of
net revenues for the same quarter last year. Increases in the Calyx & Corolla,
PajamaGram and Retail marketing and selling expenses as well as call center and
customer service costs to process order volume related to the Calyx business
totaled $352,000. These increases were largely offset by the decreases in the
Bear-Gram, TastyGram and Corporate segments totaling $334,000.

General and administrative expenses for the first quarter of fiscal 2005
increased to $1,218,000 from $1,073,000 in the first quarter last year. As a
percentage of net revenues, however, general and administrative expenses
decreased to 19.8% in the quarter from 21.5% last year. The $145,000 increase
is primarily attributed to increased legal expenses, employee benefit costs,
buildings and maintenance costs and telephone costs. The Company incurred
additional legal expenses of $33,000 in the first quarter of fiscal 2005 due to
renewed legal activity in preparing for settlement discussions and a possible
trial in the New York lease dispute. Employee benefit costs increased year over
year in the first quarter by $11,000. Buildings and maintenance and telephone
costs were higher by $28,000 and $38,000, respectively compared to the same
period last year as the result of unanticipated labor reductions and credits
obtained in the prior year period.

A Vermont Teddy Bear Company Bear-Gram gift is a popular alternative to sending
flowers.  Each Bear-Gram gift includes a customized Vermont Teddy Bear
accompanied by a personal greeting card and candy treat, all packaged in a
colorful gift box with an air hole.

Orders are placed by calling 1-800-829-BEAR or by shopping at
http://www.vermontteddybear.com/.

The PajamaGram Company is a gift delivery service where customers can pamper
their loved ones by sending pajamas and spa products in luxurious packaging by
calling 1-800-GIVE-PJS or shopping at http://www.pajamagram.com/.

The TastyGram Company specializes in the delivery of creatively packaged,
deliciously presented gourmet foods and sweets by with a personalized greeting
card calling 1-800-82-TASTY or shopping at http://www.tastygram.com/

Calyx & Corolla delivers premium direct-from-the-grower floral gifts through
its catalog, by phone at 1-800-800-7788 or online at
http://www.calyxandcorolla.com/.

The foregoing can be interpreted as including forward-looking statements under
the Private Securities Litigation Reform Act of 1995.  Actual future results
may differ materially from those suggested by the statements above.

                     THE VERMONT TEDDY BEAR CO., INC.
             Condensed Consolidated Statements of Operations
          For the Three Months Ended September 30, 2004 and 2003
                               (Unaudited)
                                                    Three Months Ended
                                                September 30,  September 30,
                                                     2004            2003
       Net Revenues                               $6,137,544     $4,979,652
       Cost of Goods Sold                          3,176,054      2,217,527
            Gross Profit                           2,961,490      2,762,125

       Operating Expenses:
            Marketing and Selling
             Expenses                              1,798,838      1,780,864
            General and Administrative
             Expenses                              1,217,799      1,072,930
                                                   3,016,637      2,853,794
            Operating Loss                           (55,147)       (91,669)
       Interest Income                                 7,578         12,025
       Interest Expense                             (160,739)      (153,236)
       Other Income                                    1,917            488
            Loss Before Income Taxes                (206,391)      (232,392)
       Income Tax Benefit                             84,414         94,531
            Net Loss                                (121,977)      (137,861)
       Preferred Stock Dividends                     (50,913)       (31,043)
       Accretion of Original Issue
        Discount                                           0        (13,623)
       Net Loss Available to Common
        Stockholders                               $(172,890)     $(182,527)

       Basic Net Loss Per Common Share                ($0.03)        ($0.04)

       Diluted Net Loss Per Common
        Share                                         ($0.03)        ($0.04)

       Weighted Average Number of
        Shares Outstanding                         5,006,000      4,864,555

       Weighted Average Number of
        Diluted
         Common Shares Outstanding                 5,006,000      4,864,555



                                    September 30,  June 30,   September 30,
                                        2004         2004         2003
                                     (unaudited)               (unaudited)

        Cash and Cash Equivalents     $1,308,109   $6,586,571   $1,897,104
        Current Assets                 9,832,147   12,831,098    9,957,903
        Total Assets                  24,476,296   27,312,738   24,854,263

        Current Liabilities            5,394,021    7,879,743    7,018,713
        Long Term Debt                 6,542,425    6,754,669    7,307,132
        Series C Preferred                93,042       93,042      178,512
        Series D Preferred             2,510,274    2,510,274    2,510,274

        Stockholders'  Equity          9,936,534   10,075,010    7,839,632


DATASOURCE: The Vermont Teddy Bear Company(R)



CONTACT:  Nicole L'Huillier of Vermont Teddy Bear, [phone],





Web site:  http://www.vermontteddybear.com/

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