1-800 CONTACTS Announces First Quarter Results

DRAPER, Utah, May 2  /PRNewswire-FirstCall/ -- 1-800 CONTACTS, INC. (NASDAQ:CTAC), today reported results for its first quarter ended April 1, 2006.

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Consolidated net sales for the first quarter ended April 1, 2006 were $63.5 million, compared to $60.3 million for the comparable quarter of the prior year.  For the first quarter of fiscal 2006, the Company reported consolidated net income of $1.2 million, or $0.09 per diluted common share, compared to consolidated net income of $0.2 million, or $0.01 per diluted common share, for the first quarter of fiscal 2005.  The fiscal 2006 results include $0.3 million of expense related to stock options granted prior to fiscal 2006 and approximately $50,000 of expense related to restricted stock grants compared to approximately $5,000 of expense related to restricted stock grants in the first quarter of fiscal 2005.  These amounts are included in other selling, general and administrative expenses.

US Retail

Net sales and operating income for the Company's US retail business for the first quarter of fiscal 2006 were $59.2 million and $7.0 million, respectively, compared to net sales of $56.4 million and operating income of $4.4 million for the first quarter of fiscal 2005.

The gross margin for the US retail business increased to 39.9% for the first quarter of fiscal 2006 from 39.4% for the first quarter of fiscal 2005.

Advertising expense for the first quarter of fiscal 2006 was approximately $2.6 million less than the first quarter of fiscal 2005.

During the first quarter of fiscal 2006, the US retail business other selling, general and administrative expenses as a percentage of net sales increased to 19.8% from 17.9% in the first quarter of fiscal 2005.

ClearLab

Net sales and operating loss for ClearLab, the Company's international manufacturing business, for the first quarter of fiscal 2006 were $4.3 million and $(2.9) million, respectively, compared to net sales of $4.3 million and an operating loss of $(2.0) million for the first quarter of fiscal 2005. ClearLab's results for the first quarter of fiscal 2006 include $1.5 million in license fees from the Company's Japanese license agreement compared to $1.0 million in the first quarter of fiscal 2005.  ClearLab's fiscal 2005 first quarter results also include $0.4 million of intercompany sales to the Company's US retail business.

For the first quarter of fiscal 2006, ClearLab's operating results include a $0.3 million increase in research and development expense and a $0.5 million increase in other selling, general and administrative expenses.

The change in other income (expense) for the first quarter of fiscal 2006 is principally due to unrealized foreign exchange transaction gains related primarily to intercompany loans to ClearLab.

Second Quarter Outlook

For the second quarter of fiscal 2006, the Company expects US retail net sales of approximately $55.0 million to $57.0 million and operating income of approximately $4.5 million to $5.5 million.

The Company expects ClearLab to achieve revenue of approximately $5.0 million and an operating loss of approximately $(3.0) million for the second quarter of fiscal 2006.

Overview

Jonathan Coon, Chief Executive Officer, commented, "We exceeded our expectations for the first quarter.  Our first quarter performance was driven by our Internet business as sales increased after the upgrades we made to our website during 2005 and from targeted online marketing programs.  Our continued sales growth in spite of reduced advertising is a short-term benefit of our cumulative investment of approximately $190 million to build brand awareness to a record level."

Brian Bethers, President, added, "Our reduction in advertising spending during the quarter from the first quarter of 2005 is consistent with our plans to spend less on advertising in 2006 as we focus on addressing the threat of 'doctors only' lenses.  Although we saw an increase in sales during the first quarter of 2006 compared to the first quarter of 2005, we expect that our sales later this year will be impacted by the decrease in advertising spending as reflected in our projection of a sequential drop in sales during the second quarter."

Mr. Coon, added, "We are pleased with ClearLab's progress in preparation for our previously announced July 26th press conference in New York."

About 1-800 CONTACTS, INC.

1-800 CONTACTS offers consumers an attractive alternative for obtaining replacement contact lenses in terms of convenience, price and speed of delivery.  Through its easy-to-remember, toll-free telephone number, "1-800 CONTACTS" (1-800-266-8228), and its Internet web site, http://www.1800contacts.com/, the Company sells almost all of the popular brands of contact lenses.  1-800 CONTACTS offers products at competitive prices, while delivering a high level of customer service.

ClearLab develops and manufactures a wide range of disposable contact lens products and distributes these lenses in international markets.  More information about ClearLab can be found at its website, http://www.clearlab.com/.

This news release contains forward-looking statements about the Company's future business prospects.  These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements.  Factors that may cause future results to differ materially from the Company's current expectations include, among others: general economic conditions, the health of the contact lens industry, inventory acquisition and management, manufacturing operations, governmental regulations, exchange rate fluctuations, advertising spending and effectiveness, unanticipated costs and expected benefits associated with the Japanese license agreement and the Company's supply agreements and related arrangements, research and development initiatives, prescription verification requirements of The Fairness to Contact Lens Consumers Act, and other regulatory considerations.  Information on the Company's websites, other than the information specifically referenced in this press release, shall not be deemed to be part of this press release.

                            1-800 CONTACTS, INC.
         CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
                  (in thousands, except per share amounts)
                                 (unaudited)

                                                       Quarter Ended
                                                April 2,           April 1,
                                                  2005               2006
  NET SALES                                     $60,283            $63,491
  COST OF GOODS SOLD                             37,775             39,013
    Gross profit                                 22,508             24,478
  SELLING, GENERAL & ADMINISTRATIVE
   EXPENSES:
    Advertising                                   6,538              3,983
    Legal and professional                        1,284              1,125
    Research and development                      1,055              1,328
    Other selling, general &
     administrative                              11,517             13,679
      Total selling, general &
       administrative expenses                   20,394             20,115
  INCOME FROM OPERATIONS                          2,114              4,363
  OTHER INCOME (EXPENSE), net                      (641)               313
  INCOME BEFORE PROVISION
    FOR INCOME TAXES                              1,473              4,676
  PROVISION FOR INCOME TAXES                     (1,290)            (3,495)
  NET INCOME                                       $183             $1,181

  PER SHARE INFORMATION:
    Basic and diluted net income per
     common share                                 $0.01              $0.09

  OTHER DATA:
    Depreciation                                 $1,055             $1,388
    Amortization                                  1,071                910
        Total depreciation and
         amortization                            $2,126             $2,298
    Depreciation and amortization
      included in the following
       captions:
      Cost of goods sold                           $692               $770
      Research and development                       27                 49
      Other selling, general &
       administrative                             1,407              1,479
        Total depreciation and
         amortization                            $2,126             $2,298



  SEGMENT INFORMATION:
                                  Quarter Ended
                                  April 2, 2005

                          U.S.   International    Eliminations     Total
  Net sales            $56,366          $4,288          $(371)    $60,283
  Gross profit          22,187             603           (282)     22,508
  Research and
   development              --           1,055             --       1,055
  Other selling,
   general
   & administrative     10,078           1,439             --      11,517
  Income (loss)
   from operations       4,403          (2,007)          (282)      2,114


                                  Quarter Ended
                                  April 1, 2006

                          U.S.   International   Eliminations      Total
  Net sales            $59,173          $4,318           $--      $63,491
  Gross profit          23,624             638           216       24,478
  Research and
   development              10           1,318            --        1,328
  Other selling,
   general &
   administrative       11,713           1,966            --       13,679
  Income (loss)
   from operations       7,006          (2,859)          216        4,363



                             1-800 CONTACTS, INC.
               CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
                                (in thousands)
                                 (unaudited)

                                    ASSETS

                                               December 31,         April 1,
                                                   2005               2006
  CURRENT ASSETS:
     Cash                                         $1,481               $407
     Accounts receivable, net                      3,451              3,027
     Inventories, net                             21,458             21,596
     Deferred income taxes                         1,624              1,872
     Other current assets                          5,530              3,766
        Total current assets                      33,544             30,668
  PROPERTY, PLANT AND EQUIPMENT, net              29,705             31,389
  DEFERRED INCOME TAXES                            1,087              1,054
  GOODWILL                                        35,405             35,773
  DEFINITE-LIVED INTANGIBLE ASSETS,
   net                                            13,847             13,268
  OTHER ASSETS                                     1,357              1,365
        Total assets                            $114,945           $113,517

                     LIABILITIES AND STOCKHOLDERS' EQUITY

  CURRENT LIABILITIES:
     Line of credit                                  $--            $13,061
     Current portion of long-term debt             1,633              1,686
     Current portion of capital lease
      obligations                                     58                 28
     Accounts payable and accrued
      liabilities                                 24,126             32,418
        Total current liabilities                 25,817             47,193
  LONG-TERM LIABILITIES:
     Line of credit                              $23,746                $--
     Long-term debt, net of current
      portion                                      6,440              6,211
     Capital lease obligations, net of
      current portion                                 83                 70
     Other long-term liabilities                   1,642              1,143
        Total long-term liabilities               31,911              7,424
  STOCKHOLDERS' EQUITY                            57,217             58,900
        Total liabilities and
         stockholders' equity                   $114,945           $113,517


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DATASOURCE: 1-800 CONTACTS, INC.



CONTACT: Brian W. Bethers, President, or Robert G. Hunter, CFO, both of

1-800 CONTACTS, INC., 



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

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