1-800 CONTACTS Announces Third Quarter Results

DRAPER, Utah, Nov. 7  /PRNewswire-FirstCall/ -- 1-800 CONTACTS, INC. (NASDAQ:CTAC), today reported results for its fiscal 2006 third quarter ended September 30, 2006.

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  Third Quarter Results


Consolidated net sales for the third quarter ended September 30, 2006 were $64.3 million, compared to $60.9 million for the comparable quarter of the prior year.  For the third quarter of fiscal 2006, the Company reported a consolidated net loss of $(1.5) million, or $(0.11) per diluted common share, compared to a consolidated net loss of $(0.6) million, or $(0.04) per diluted common share, for the third quarter of fiscal 2005.

U.S. Retail

Net sales and operating income for the Company's U.S. retail business for the third quarter of fiscal 2006 were $59.2 million and $5.1 million, respectively, compared to net sales of $55.8 million and operating income of $3.4 million for the third quarter of fiscal 2005.

Gross margin for the Company's U.S. retail business decreased to 38.8% for the third quarter of fiscal 2006 from 39.3% for the third quarter of fiscal 2005.

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

During the third quarter of fiscal 2006, other selling, general and administrative expenses as a percentage of net sales for the U.S. retail business increased to 21.6% from 19.7% in the third quarter of fiscal 2005.

ClearLab

Net sales and operating loss for ClearLab, the Company's international contact lens manufacturing business, for the third quarter of fiscal 2006 were $5.1 million and $(4.6) million, respectively, compared to net sales of $6.0 million and an operating loss of $(1.4) million for the third quarter of fiscal 2005.  ClearLab's net sales for the third quarters of fiscal 2006 and 2005 included $1.0 million in license fees from the Company's Japanese license agreement.  In addition, ClearLab's net sales for the third quarter of fiscal 2005 included $0.9 million of intercompany sales to the Company's U.S. retail business.

For the third quarter of fiscal 2006, ClearLab's operating results included a $1.0 million increase in research and development expense and a $1.4 million increase in other selling, general and administrative expenses.

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

Strategic Review of ClearLab

The Company, with the assistance of its investment banking advisor, Sonenshine Partners, has completed the first round of its strategic review of ClearLab.  Jonathan Coon, Chief Executive Officer, remarked, "In the last 90 days, we have met with numerous third parties who have expressed interest in AquaSoft Singles and other technology developed by ClearLab.  Based on these discussions, we are now committed to a separation of ClearLab from the U.S. retail business and expect to announce terms by the end of March 2007."

2006 and 2007 Outlook

For the fourth quarter of fiscal 2006, the Company expects U.S. retail net sales of approximately $51 million and operating income of approximately $4 million.  These expected results are comparable to the results for the fourth quarter of the prior year and are consistent with the Company's historical seasonality in the fourth quarter.

For fiscal year 2006, the Company expects U.S. retail net sales of approximately $227 million and operating income of approximately $22 million. Brian Bethers, President, added, "For the first three quarters of 2006, the retail business has performed above expectations despite a significant reduction in advertising spending.  This has largely been due to improved efficiency and effectiveness of our marketing -- in particular our online marketing.  We intend to increase our advertising spending in 2007 to approximately $18 million.  We believe that this level of advertising spending will deliver a meaningful increase in revenue and an operating income of $23 million to $26 million in 2007 for our U.S. retail business."

The Company expects ClearLab's net sales and operating loss for the fourth quarter of fiscal 2006 to be similar to those reported for the third quarter of fiscal 2006 excluding any potential costs or accounting charges resulting from a possible consolidation of ClearLab's operations.  Mr. Bethers added, "Over the last several months, we have undergone an extensive review of ClearLab's manufacturing operations.  Subject to any consultation that may be necessary under United Kingdom law, we are evaluating a consolidation of ClearLab's manufacturing, research and development operations which are currently carried out in the Singapore and United Kingdom manufacturing facilities."

New Director Appointment

Grange Johnson recently joined 1-800 CONTACTS' Board of Directors.  Mr. Coon, also Chairman of the Board, commented, "Grange Johnson has been a long-term investor in 1-800 CONTACTS and is one of our largest shareholders. We are excited about having him on our Board."  Mr. Johnson added, "I am pleased to be joining the Board of this exciting and growing company at an inflection point in its history."

Mr. Johnson founded LaGrange Capital Partners, an asset management firm with over $300 million in assets under management, in May 2000.  Bloomberg Markets Magazine ranked LaGrange as the highest returning event driven fund in the world for the three year period ended September 2005.  LaGrange also received the 2003 GAIM award for the best event driven fund with a three to four year track record.  Mr. Johnson holds a BA from Brown University and an MBA from Columbia Business School.

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 markets outside of the United States. More information about ClearLab can be found at its website, http://www.clearlab.com/.

Forward-looking Statements

This news release contains a number of statements about the Company's future business prospects which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  The forward-looking statements in this release include all statements which are not purely historical and include, but are not necessarily limited to, statements relating to the Company's commitment to a separation of ClearLab from the U.S. retail business; the Company's intention to announce terms of that separation by the end of March 2007; anticipated net sales and operating income for the fourth quarter of fiscal 2006 and fiscal years 2006 and 2007; the Company's intention to increase advertising spending in fiscal 2007; and any statements relating to the potential consolidation of ClearLab operations. All such forward-looking statements are based upon information available to 1-800 CONTACTS as of the date hereof, and the Company disclaims any intention or obligation to update any such forward-looking statements.  Actual results could differ materially from current expectations.  Factors that could cause or contribute to such differences include, among others: general economic conditions, the health and size of the contact lens industry, consumer acceptance of ClearLab's products, product health benefits, the outcome of the strategic review of ClearLab, 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, other regulatory considerations, and the other risks and uncertainties identified in the reports filed from time to time by 1-800 CONTACTS with the U.S. Securities and Exchange Commission, including the Company's most recent Annual Report on Form 10-K.  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          Three Quarters Ended
                        October 1,  September 30,  October 1,  September 30,
                             2005         2006          2005         2006
  NET SALES                $60,858      $64,329      $182,506     $190,975
  COST OF GOODS SOLD        37,706       40,427       113,178      119,963
    Gross profit            23,152       23,902        69,328       71,012
  SELLING, GENERAL &
   ADMINISTRATIVE
   EXPENSES:
    Advertising              6,606        3,977        20,264       11,663
    Legal and professional   1,210        1,307         3,400        3,555
    Research and
     development               426        1,388         2,292        4,353
    Other selling, general
     & administrative       13,538       16,657        37,359       46,258
      Total selling,
       general &
       administrative
       expenses             21,780       23,329        63,315       65,829
  INCOME FROM OPERATIONS     1,372          573         6,013        5,183
  OTHER INCOME (EXPENSE),
   net                        (755)         (55)       (2,562)         610
  INCOME BEFORE PROVISION
   FOR INCOME TAXES            617          518         3,451        5,793
  PROVISION FOR INCOME
   TAXES                    (1,191)      (2,053)       (3,801)      (8,185)
  NET LOSS                   $(574)     $(1,535)        $(350)     $(2,392)

  PER SHARE INFORMATION:
    Basic and diluted
     net loss per
     common share           $(0.04)      $(0.11)       $(0.03)      $(0.18)

  WEIGHTED AVERAGE NUMBER
   OF COMMON SHARES
   OUTSTANDING:
    Basic and diluted       13,329       13,366        13,315       13,357

  OTHER DATA:
    Depreciation            $1,235       $1,776        $3,405       $4,682
    Amortization             1,046          907         3,167        2,893
      Total depreciation
       and amortization     $2,281       $2,683        $6,572       $7,575
    Depreciation and
     amortization included
     in the following
     captions:
      Cost of goods sold      $797         $965        $2,200       $2,557
      Research and
       development              32          124            85          235
      Other selling,
       general &
       administrative        1,452        1,594         4,287        4,783
        Total depreciation
         and amortization   $2,281       $2,683        $6,572       $7,575



  SEGMENT INFORMATION:

                                            Quarter Ended
                                           October 1, 2005
                             U.S.    International  Eliminations    Total
  Net sales                $55,791       $5,984         $(917)     $60,858
  Gross profit (loss)       21,928        1,841          (617)      23,152
  Research and development      --          426            --          426
  Other selling, general
   & administrative         10,998        2,540            --       13,538
  Income (loss) from
   operations                3,367       (1,378)         (617)       1,372

  Depreciation and
   amortization             $1,236       $1,045           $--       $2,281


                                            Quarter Ended
                                         September 30, 2006
                             U.S.    International  Eliminations    Total
  Net sales                $59,189       $5,140           $--      $64,329
  Gross profit (loss)       22,968          934            --       23,902
  Research and development      --        1,388            --        1,388
  Other selling, general
   & administrative         12,762        3,895            --       16,657
  Income (loss) from
   operations                5,125       (4,552)           --          573

  Depreciation and
   amortization             $1,358       $1,325           $--       $2,683


                                        Three Quarters Ended
                                           October 1, 2005
                             U.S.    International  Eliminations    Total
  Net sales               $168,924      $14,873       $(1,291)    $182,506
  Gross profit (loss)       66,972        3,147          (791)      69,328
  Research and development      --        2,292            --        2,292
  Other selling, general
   & administrative         31,870        5,489            --       37,359
  Income (loss) from
   operations               12,159       (5,355)         (791)       6,013

  Depreciation and
   amortization             $3,630       $2,942           $--       $6,572


                                        Three Quarters Ended
                                         September 30, 2006
                             U.S.    International  Eliminations    Total
  Net sales               $176,096      $14,879           $--     $190,975
  Gross profit (loss)       69,366        1,393           253       71,012
  Research and development      10        4,343            --        4,353
  Other selling, general
   & administrative         37,044        9,214            --       46,258
  Income (loss) from
   operations               17,886      (12,956)          253        5,183

  Depreciation and
   amortization             $4,094       $3,481           $--       $7,575



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

                                  ASSETS

                                               December 31,   September 30,
                                                  2005            2006
  CURRENT ASSETS:
    Cash                                           $1,481         $1,538
    Accounts receivable, net                        3,451          3,483
    Inventories, net                               21,458         21,988
    Deferred income taxes                           1,624          1,955
    Other current assets                            5,530          5,151
      Total current assets                         33,544         34,115
  PROPERTY, PLANT AND EQUIPMENT, net               29,705         31,791
  DEFERRED INCOME TAXES                             1,087          1,007
  GOODWILL                                         35,405         36,742
  DEFINITE-LIVED INTANGIBLE ASSETS, net            13,847         11,958
  OTHER ASSETS                                      1,357          1,253
      Total assets                               $114,945       $116,866

                     LIABILITIES AND STOCKHOLDERS' EQUITY
  CURRENT LIABILITIES:
    Line of credit                                    $--        $27,216
    Current portion of long-term debt               1,633          2,404
    Current portion of capital lease obligations       58             25
    Accounts payable and accrued liabilities       24,126         24,103
      Total current liabilities                    25,817         53,748
  LONG-TERM LIABILITIES:
    Line of credit                                 23,746             --

    Long-term debt, net of current portion          6,440          4,816
    Capital lease obligations, net of current
     portion                                           83             46
    Other long-term liabilities                     1,642            848
      Total long-term liabilities                  31,911          5,710
  STOCKHOLDERS' EQUITY                             57,217         57,408
      Total liabilities and
       stockholders' equity                      $114,945       $116,866


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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., [phone], 



Web site:  http://www.1800contacts.com/ 

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