Financials: Management's Discussion & Analysis of Financial Condition & Results of Operations

Fiscal 1999 Compared to Fiscal 1998
Net sales increased $23.1 million, or 7.1%, to $347.9 million in fiscal 1999 from $324.8 million in fiscal 1998. Comparable store sales decreased 2.8% for fiscal 1999. The increase in net sales resulted from net sales generated by 16 new stores opened during fiscal 1999, and 16 new stores opened in the second half of fiscal 1998. In addition, the Company closed eight underperforming stores in fiscal 1999.

The factors affecting the future trend of comparable store sales include, among others, overall demand for products the Company sells, the Company's marketing programs, pricing strategies, store operations and competition.

Gross profit increased $4.7 million, or 5.4%, to $91.1 million in fiscal 1999 from $86.4 million in fiscal 1998. Gross profit as a percentage of net sales decreased to 26.2% in fiscal 1999 from 26.6% in fiscal 1998, primarily due to increased occupancy costs and higher warehouse distribution costs as a percentage of net sales.

Operating, selling and administrative expenses increased $7.1 million, or 12.0%, to $66.4 million in fiscal 1999, from $59.3 million in fiscal 1998. Operating, selling and administrative expenses as a percentage of net sales increased to 19.1% in fiscal 1999 from 18.2% in fiscal 1998, primarily due to higher store selling expenses.

Depreciation and amortization increased $1.4 million, or 12.0%, to $13.0 million in fiscal 1999 from $11.6 million in fiscal 1998. Depreciation and amortization as a percentage of net sales increased to 3.7% in fiscal 1999 from 3.6% in fiscal 1998, primarily as a result of the capital expenditures for new stores opened during fiscal 1999 and the second half of fiscal 1998.

Net interest expense was relatively constant with last year at $4.4 million in fiscal 1999 versus net interest expense of $4.3 million in fiscal 1998.

Seasonality and Quarterly Results
Similar to many retailers, the Company's business is seasonal, with its highest retail sales, gross profit and net income historically occurring in the fourth fiscal quarter. This seasonal pattern reflects the increased demand for books and gifts experienced during the year-end holiday selling season. Working capital requirements are generally highest during the third fiscal quarter and the early part of the fourth fiscal quarter due to the seasonality of the Company's business.

In addition, the Company's results of operations may fluctuate from quarter to quarter as a result of the amount and timing of sales and profits contributed by new stores as well as other factors. New stores require the Company to incur pre-opening expenses and often require several months of operation before generating acceptable sales volumes. Accordingly, the addition of a large number of new stores in a particular quarter could adversely affect the Company's results of operations for that quarter.

Continued...