Vermont Teddy Bear Company(R) Reports 38.6% Revenue Increase in Fiscal Year 2004: Doubles Size of Distribution Facility in Shelb

Vermont Teddy Bear Company(R) Reports 38.6% Revenue Increase in
Fiscal Year 2004: Doubles Size of Distribution Facility in Shelburne 


SHELBURNE, Vt., Sept. 28  /PRNewswire-FirstCall/ -- The Vermont Teddy Bear
Company(R), Inc. http://www.vermontteddybear.com/ (NASDAQ:BEAR) announced today
annual net revenues of $55,828,000 for its fiscal year ended June 30, 2004, an
increase of $15,553,000, or 38.6 percent, compared to $40,275,000 reported in
fiscal year 2003. Net income available to common stockholders was $1,738,000 or
$.30 per diluted common share, for fiscal 2004 as compared to $1,126,000, or
$.19 per diluted common share, in fiscal 2003.

The increase in net revenues is primarily attributable to the Company's August
29, 2003 acquisition of Calyx & Corolla(R), a floral mail order and catalog
business. Calyx & Corolla, incorporated into the Company's operating results
for the ten months following the August 29, 2003 acquisition, generated
approximately $15.7 million of net revenues during the Company's fiscal year
ended June 30, 2004. The addition of Calyx & Corolla along with the PajamaGram
and TastyGram gift services extends the Company's product offering beyond the
renowned Bear-Gram gift as the Company continues to offer customers additional
premium gift choices. The Company's PajamaGram gift segment grew by
approximately 40 percent to $7.4 million for the fiscal year ended June 30,
2004, from $5.3 million in the prior year. Increased revenues in both the Calyx
and PajamaGram segments more than offset a $2.1 million decrease in the
Company's BearGram business during fiscal 2004 as the Company scaled back its
advertising in this segment by $583,000.

The acquisition of Calyx & Corolla also contributed to a 54.4 percent increase
in the Company's net income to common stockholders in fiscal 2004 as the
Company successfully integrated Calyx into its operations during the ten months
following the acquisition.

"As we continue to add new gift product categories and materially invest in
product develop and marketing to support them, we have added to both our net
revenues and our profitability in fiscal 2004," stated CEO Elisabeth Robert.
"Looking ahead we plan to pursue the development of additional gift product
categories under stand-alone brands both organically and through acquisitions.
In addition, we will continue new product introductions within each product
category such as men's pajamas and spa products for our PajamaGram segment."

To accommodate growth and ensure capacity to fulfill and ship orders for the
coming peak selling seasons, the Company is expanding its distribution facility
located on property contiguous to its factory headquarters in Shelburne,
Vermont.  Construction is nearly complete to double the size of the existing
60,400 square foot facility opened in the fall of 2000. The 60,400 square foot
expansion will include additional picking lines for the PajamaGram and Calyx
businesses. The BearGram picking lines are also being expanded to accommodate
an increase in the number of orders that are personalized 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 new expansion space over and
above the 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.

Consolidated gross margin in fiscal year ended June 30, 2004 increased by
approximately $6.7 million to approximately $31.5 million from $24.8 million
last year. Gross margin dollar increases in the PajamaGram, Corporate
Wholesale, and TastyGram segments totaling approximately $1.7 million, in
addition to the $7.5 million gross margin contribution of the new Calyx
segment, more than offset the $2.1 million gross margin decrease in the
BearGram segment and  $365,000 decrease in the Retail Store segment. Gross
margin as a percentage of net revenues decreased to approximately 56.4% from
61.7% last year, primarily as the result of including in consolidated operating
results the Calyx 47.5 percent gross margin which is less than the Company's
overall gross margin percentage prior to the acquisition.  The Company achieved
a gross margin percentage point increase of 4.1 points and 10.7 points in the
PajamaGram and TastyGram segments, respectively, for the year as a result of
better unit gross margins and changes to the product mix that more than offset
increases in delivery costs. The improvement in the PajamaGram segment is
primarily attributed to an increase in the quantities of private label goods
imported directly from the Company's suppliers in Asia. A 2.7 point decrease in
the gross margin percentage of the BearGram segment is attributed to increased
unit manufacturing costs as domestic bear production volume was adjusted to
lower revenues in this segment, and increased costs of common carrier
deliveries related, in part, to fuel prices and other ancillary surcharges for
residential deliveries.

Marketing and selling expenses increased by approximately $ 4.5 million to
$21.8 million for the year ended June 30, 2004 from $17.3 million last year.
The increases are primarily due to the addition of $5.1 million of marketing
and selling expenses associated with the new Calyx segment.  Increased
advertising costs of $356,000 in the PajamaGram segment, primarily for
television and catalog, were more than offset by decreased advertising costs of
$583,000 and $242,000 in the Bear Gram and TastyGram segments, respectively. 
During the year the Company also shifted material amounts of BearGram
advertising dollars from its "live read" local radio ad campaign to syndicated
radio programs and cable television. As a result, marketing and selling costs
as a percentage of net revenues decreased to 39.1 percent in the year ended
June 30, 2004 from 42.9 percent last year.

General and administrative expenses for the year ended June 30, 2004 increased
to $5.8 million from $5.0 million primarily due to the general and
administrative costs associated with the Calyx & Corolla gift segment. However,
general and administrative expenses decreased as a percentage of net revenues
to 10.4% from 12.3% last year.

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 Income
                   For the Twelve Months Ended June 30,
                              2004 and 2003

                                                 Twelve Months Ended
                                           June 30, 2004     June 30, 2003

        Net Revenues                         $55,827,533       $40,275,401
        Cost of Goods Sold                    24,326,047        15,445,502
              Gross Profit                    31,501,486        24,829,899

        Operating Expenses:
              Marketing and Selling
               Expenses                       21,814,290        17,261,185
              General and
               Administrative Expenses         5,787,364         4,968,382
                                              27,601,654        22,229,567
              Operating Income                 3,899,832         2,600,332
        Interest Income                           42,641           138,220
        Interest Expense                        (668,262)         (599,224)
        Other Income                               5,550             5,796
              Income Before Income
               Taxes                           3,279,761         2,145,124
        Income Tax Provision                  (1,339,836)         (873,717)
              Net Income                       1,939,925         1,271,407
        Preferred Stock Dividends               (183,632)          (90,525)
        Accretion of Original Issue
         Discount                                (18,153)          (54,492)
        Net Income Available to Common
         Stockholders                         $1,738,140        $1,126,390

        Basic Net Income Per Common
         Share                                     $0.35             $0.21

        Diluted Net Income Per Common
         Share                                     $0.30             $0.19

        Weighted Average Number of
         Shares Outstanding                    4,932,009         5,464,996

        Weighted Average Number of
         Diluted
          Common Shares Outstanding            6,167,634         6,237,089


                                               June 30,           June 30,
                                                 2004               2003

        Cash and Cash Equivalents             $6,586,571         $5,168,177
        Current Assets                        12,831,098         11,805,830
        Total Assets                          27,312,738         21,022,425

        Current Liabilities                    7,879,743          6,109,936
        Long Term Debt                         6,754,669          6,751,191
        Series C Preferred                        93,042            164,889
        Series D Preferred                     2,510,274                  0

        Stockholders'  Equity                 10,075,010          7,996,409


DATASOURCE: Vermont Teddy Bear Company(R), Inc.



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





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

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