GSI Commerce Reports Fiscal 2005 Third Quarter Results; Conference Call Scheduled for Nov. 16 at 10 a.m. EST

KING OF PRUSSIA, Pa., Nov. 15, 2005 – GSI Commerce Inc. (Nasdaq: GSIC) today announced results for the third fiscal quarter ended Oct. 1, 2005, and has scheduled a conference call for Wednesday, Nov. 16, at 10 a.m. EST, to discuss the company’s results and expectations for future performance.

Net Revenues and Merchandise Sales

•Net revenues were $84.9 million for the third quarter of fiscal 2005, a 24 percent increase compared to $68.6 million in the same period in fiscal 2004.
•Merchandise sales were $126.6 million for the third quarter of fiscal 2005, a 26 percent increase compared to $100.2 million in the same period in fiscal 2004. A definition of merchandise sales appears later in this news release under “Non-GAAP Financial Measures.”

Components of Net Revenues and Merchandise Sales

•Net revenues from product sales from the sporting goods category were $38.1 million for the third quarter of fiscal 2005, a 28 percent increase compared to $29.8 million for the same period last year.
•Merchandise sales from the sporting goods category were $46.5 million for the third quarter of fiscal 2005, a 29 percent increase compared to $36.1 million in the same period last year.
•Net revenues from product sales from other categories were $30.4 million for the third quarter of fiscal 2005, a 17 percent increase compared to $26.0 million for the same period last year.
•Merchandise sales from other categories were $80.2 million for the third quarter of fiscal 2005, a 25 percent increase compared to $64.1 million in the same period last year.
•Service fee revenues were $16.4 million in the third quarter of fiscal 2005, a 29 percent increase compared to $12.7 million in the same period last year.

Net Loss, EPS and Adjusted EBITDA

•Net loss was $4.5 million or $0.10 per share for the third quarter of fiscal 2005, compared to a net loss of $3.0 million, or $0.07 per share in the same period last year.
•Adjusted EBITDA was approximately break even for the third quarter of fiscal 2005, compared to an adjusted EBITDA loss of $0.1 million in the same period last year. A definition of adjusted EBITDA appears later in this news release under “Non-GAAP Financial Measures.”

Gross Profit and Operating Expenses

•Gross profit was $34.2 million in the third quarter of fiscal 2005, an increase of 29 percent compared to $26.4 million in the same period last year.
•Gross margin was 40.3 percent in the third quarter of fiscal 2005, an increase of 180 basis points from 38.5 percent in the same period last year.
•Total operating expenses were $38.7 million for the third quarter of fiscal 2005, a 31 percent increase compared to $29.6 million for the same period last year.
•Total operating expenses, as a percentage of net revenues, increased to 45.6 percent in the third quarter of fiscal 2005 compared to 43.0 percent in the third quarter of fiscal 2004.
•Total operating expenses of $38.7 million, as a percentage of merchandise sales of $126.6 million, were 30.6 percent in the third quarter of fiscal 2005. This compared to total operating expenses of $29.6 million in the same period last year, which as a percentage of merchandise sales of $100.2 million, was 29.5 percent.

Balance Sheet

The company’s cash, cash equivalents and marketable securities at the end of the third fiscal quarter of 2005 were $112.2 million compared to $75.4 million at the end of fiscal year 2004, and $45.5 million at the end of third fiscal quarter of 2004.

Management Commentary

“We are pleased to have resolved the issues that caused us to delay the release of our 2005 fiscal third quarter operating results and suggest that investors read the separate press release that we issued today that discusses the resolution of these matters, ” said Michael G. Rubin, chairman and CEO of GSI Commerce. “As for our third quarter results, net revenues for the fiscal third quarter exceeded the high end of our guidance range and gross margins were solid. This demonstrates the strength of our underlying business. As previously announced, our adjusted EBITDA and net income were below our guidance due to the cost of partner launches in the second half of fiscal 2005 being greater than our original expectations and, to a lesser extent, because of modest delays in actual launch dates. We are excited to have launched six new sites for five partners between September and November and we look forward to their future contribution.

“For the full year, we expect net revenues to be approximately $432 million and net income to be approximately $5.0 million. Our net income guidance is modestly lower than the guidance of $5.5 million to $6.5 million that we issued on Oct. 26, primarily due to one launch that we had previously planned for November 2005 being moved to January 2006, and additional professional fees related to the resolution of the two previously disclosed matters that caused the delay of our operating results. We do not expect these issues to have an impact on fiscal 2006.”

Key Events Since July 27, 2005

•The company launched new e-commerce operations for RadioShack, Bath & Body Works, Levi’s Brand, C.C. Filson & Co. and two online stores for Zale Corporation – Zales and Bailey Banks & Biddle.
•The company signed a new long-term extension of an agreement with one of its partners in the health and beauty category for the continued outsourcing of that partner’s e-commerce operations.
•The company signed a multiyear agreement to provide a new partner in the home category with an e-commerce solution that includes core technology platform, fulfillment services and customer care operations. The partner is expected to launch its new e-commerce operation during the first quarter of 2006. Revenues from the new partner will be recorded as service fees. The addition of this new partner brings the total number of new partners announced in fiscal 2005 to 10.
•The company named Robert Wuesthoff to the position of executive vice president of global operations. Wuesthoff heads the company’s fulfillment, customer care and business operations, and reports to Robert Blyskal, the company’s president and chief operating officer.

Non-GAAP Financial Measures

This news release contains the non-GAAP measures merchandise sales, certain ratios that use merchandise sales and adjusted EBITDA. Merchandise sales represent the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through the GSI Commerce platform, whether or not the company is the seller of the merchandise, or records the full amount of such sales on its financial statements. Merchandise sales also include product sales related to Aspherio. GSI Commerce uses merchandise sales as a metric for operating its business. Variable costs such as fulfillment and customer service labor expense, order processing costs such as credit card and bank processing fees and organizational costs such as business management are related to the amount of sales made through GSI Commerce’s platform, whether or not GSI Commerce records the revenue from such sales. GSI Commerce believes that investors will have a more thorough understanding of its historical expenses and expense trends if they have visibility to GAAP net revenue as well as the non-GAAP financial measure merchandise sales and the percentages that such expenses bear to net revenues and merchandise sales.

GSI Commerce also uses adjusted EBITDA, which represents earnings (or losses) before interest income/expense, taxes, depreciation, amortization, and stock-based compensation. GSI Commerce uses adjusted EBITDA as a means to evaluate its performance period to period without taking into account certain expenses, particularly stock-based compensation expense, which may fluctuate materially due to fluctuations in the price of GSI Commerce’s common stock both on a quarterly and annual basis, and does not consistently reflect GSI Commerce’s results from its core business activities.

These financial measures should be considered in addition to, and not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures included in this press release have been reconciled to the nearest GAAP measures as required under Securities and Exchange Commission rules and are contained later in this release.

Third Quarter 2005 Conference Call

GSI Commerce has scheduled a conference call on Nov. 16, at 10 a.m. EST to discuss the company’s fiscal 2005 third quarter results and expectations for future performance. For access to the conference call, please call the toll-free conference number, 1-866-383-8009, by 9:45 a.m. EST, on Nov. 16. The conference passcode is “65840638.” Alternatively, to listen to the call live on the Web, go to the GSI Commerce Web site, www.gsicommerce.com, and click on the link provided on the home page. Please do this at least 15 minutes prior to the call (9:45 a.m. EST) to register, download and install any necessary audio software. The conference call also will be broadcast live on the Web through CCBN StreetEvents (www.streetevents.com). For those who cannot listen to the live Webcast, a telephone replay of the conference call will be available one hour after the completion of the call and remain available through Dec. 16. Access to a recording of the conference call can be made by calling toll-free, 1-888-286-8010. The telephone replay passcode is “82149080.” In addition, access to an audio replay of the conference call’s Webcast can be found on the home page of the GSI Commerce Web site. Access to the audio replay of the Webcast also will remain available through Dec. 16.

About GSI Commerce

GSI Commerce is a leading provider of e-commerce solutions that enable retailers, branded manufacturers, entertainment companies and professional sports organizations to operate e-commerce businesses. We provide solutions for our partners through our integrated e-commerce platform, which is comprised of three components: core technology, supporting infrastructure and partner services. We either operate, or will operate pursuant to signed agreements, all or portions of the e-commerce businesses for approximately 50 partners.

Forward-Looking Statements

All statements made in this release and to be made in GSI Commerce’s fiscal 2005 third quarter conference call, including those in the tape recording, live audio and live Webcast of the call, other than statements of historical fact, are or will be forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” “prospects,” and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about the business of GSI Commerce and the industries and markets in which GSI Commerce operates. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Factors which may affect GSI Commerce’s business, financial condition and operating results include the effects of changes in the economy, the impact of FASB 123(R), consumer spending, the financial markets and the industries in which GSI Commerce and its partners operate, changes affecting the Internet and e-commerce, the ability of GSI Commerce to develop and maintain relationships with strategic partners and suppliers and the timing of its establishment, extension or termination of its relationships with strategic partners, the ability of GSI Commerce to timely and successfully develop, maintain and protect its technology and product and service offerings and execute operationally, the ability of GSI Commerce to attract and retain qualified personnel, the ability of GSI Commerce to successfully integrate its acquisitions of other businesses, if any, and the performance of acquired businesses. More information about potential factors that could affect GSI Commerce can be found in its most recent Form 10-K, Form 10-Q and other reports and statements filed by GSI Commerce with the SEC. GSI Commerce expressly disclaims any intent or obligation to update these forward-looking statements, except as otherwise specifically stated by GSI Commerce.

Click here for Third Quarter 2005 Financial Statements (.pdf)

Contact:

Michael Conn
Senior Vice President, Corp. Development
tel: 610-491-7002
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Greg Ryan
Director, Corp. Communications
tel: 610-491-7294
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