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Shoe Pavilion Expects Loss

Shoe Pavilion Inc. said today that it expects to report a net loss of $1.2 million to $1.3 million or $0.13 to $0.14 per diluted share for the first quarter ended March 31, 2007. The Sherman Oaks-based company said net sales and comparable store sales for the first quarter of 2007 increased by 7.8 percent to $36.2 million. The latest projections were down from earlier guidance. The company had previously said it would see net sales between $37 million and $39 million for the first quarter and a net loss in the range of $0.02 to $0.03 per diluted share. Lower than expected sales and operating margins at the company’s newest stores were blamed for the downward adjustment. Shoe Pavilion said that 24 stores opened in 2006 generated sales that were about $2.5 million below the company’s expectations for that store group. The new stores accounted for the majority of the expected first quarter operating loss. In addition, Shoe Pavilion noted that it opened one new store versus the original plan to open three stores in the period. “Most of the stores we rolled out in 2006 were in new shopping centers where we have experienced slower than expected traffic due to ongoing construction as well as it taking longer than planned for other retailers to open stores at those centers,” said Bruce Ross, CFO of Shoe Pavilion. “In addition, we experienced a lower than expected selling margin due to increased discounting in our newer stores to drive sales as well as an extended period of cold weather resulting in higher than typical sales of discounted winter merchandise in the first two months of the quarter.” Ross also noted that the company’s more mature stores outperformed its expectations.

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