Alloy Announces Second Quarter Results; Total Revenues Up 9%, Gross Margin Dollars Up $8.5 Million Versus Prior Year Quarter

Alloy, Inc. (Nasdaq: ALOY), a media, marketing services, directmarketing and retail company primarily targeting the dynamicGeneration Y population, today reported revenues for the fiscalquarter ended July 31, 2005 of $89.2 million and a loss fromcontinuing operations, including preferred stock dividends andaccretion, of $3.5 million or $0.08 per diluted share. The net lossattributable to common stockholders was $3.3 million or $0.07 perdiluted share. In the second fiscal quarter of 2005, Alloy registered$1.7 million of earnings from continuing operations before interestand other income/expense, income taxes, depreciation and amortization,stock-based compensation expense, spin off costs, restructuringcharges, and asset write-downs due to impairment ("Adjusted EBITDA").For additional financial detail, including the reconciliation ofAdjusted EBITDA to net income (loss) as determined under GAAP, pleaserefer to the financial tables provided at the end of this release.

Total revenues for the second fiscal quarter of 2005 increased9.0% to $89.2 million, compared with $81.9 million for the secondquarter of fiscal 2004. Second fiscal quarter net merchandise revenuesof $43.0 million increased 10.3% compared with $39.0 million for lastyear's second fiscal quarter. The increase resulted primarily fromstrength in the direct marketing segment as all of the company'sdirect marketing titles exceeded last year's second fiscal quartersales and gross margin levels. Second fiscal quarter sponsorship andother revenues also increased from $42.8 million for last year'ssecond fiscal quarter to $46.2 million for the second quarter offiscal 2005, a 7.8% increase. Second fiscal quarter gross profitincreased to $48.2 million, or 54.1% of revenues, compared with $39.7million, or 48.4% of revenues, for the comparable period last year,driven primarily by significant gross margin improvement in ourpromotional marketing business and the previously noted improvementsin the direct marketing segment of our merchandising business.

Operating expenses were $50.4 million for the second quarter offiscal 2005 versus $49.1 million for the second quarter of fiscal2004. Contributing to the increase were expenses of $0.4 millionassociated with the anticipated separation of our merchandisingbusiness from our media and marketing services business (i.e., thespin off transaction) later in the year and $0.9 million of impairmentcharges also associated with long lived assets in our merchandisingbusiness. Despite these one-time charges, operating expenses decreasedas a percentage of total revenues to 56.6% for the second quarter offiscal 2005 versus 60% for the second quarter of fiscal 2004. Thepercentage decrease resulted primarily from the cost savings derivedfrom integrating the operations of dELiA*s, which we acquired inSeptember 2003, into our merchandise operations, along with reducedcorporate overhead costs including technology, finance, legal andother fixed overhead expenses. Beginning in the third quarter offiscal 2004, we began to more fully realize many of the synergies weexpected to result from combining our direct marketing operations withthose of dELiA*s, leveraging our combined scale, selling across ourcombined databases while controlling overall catalog circulation, andconsolidating fulfillment operations.

The loss from continuing operations, including preferred dividendsand accretion, for the second quarter of fiscal 2005 was $3.5 million,or $0.08 per diluted share compared with a loss of $11.8 million forlast year's second fiscal quarter or $0.28 per diluted share. The netloss for the second quarter of fiscal 2005 was $3.1 million, comparedwith a net loss of $11.2 million for last fiscal year's secondquarter. Net loss attributable to common stockholders for the secondquarter of fiscal 2005 was $3.3 million, or $0.07 per diluted share,compared with a net loss attributable to common stockholders of $11.6million, or $0.27 per diluted share, for last year's fiscal secondquarter. Our weighted average common shares outstanding now includethe impact of the conversion of the Series B Redeemable ConvertiblePreferred Stock into approximately 3.3 million shares of Alloy Inc.common stock on June 15, 2005. Adjusted EBITDA transitioned from aloss of $5.4 million for the second quarter of fiscal 2004 to earningsof $1.7 million for the second quarter of fiscal 2005.

Commenting on the quarter, Matt Diamond, Chairman and ChiefExecutive Officer stated, "We are pleased to report that we mademeaningful progress toward improved sustained profitability in bothour merchandising and sponsorship businesses. During the secondquarter in both the merchandise and the media and marketing servicesbusinesses we saw a combination of improved sales productivity, marginexpansion and a lower overall cost structure that lead to improvedprofitability. We look forward to building on these improvements aswell as executing on our previously announced dELiA*s retail storeroll-out plan."

Looking ahead, Mr. Diamond concluded, "As you have seen today byour filing of a Form S-1 Registration Statement with the Securitiesand Exchange Commission, it is the Company's intention to spin-off themerchandising business from our media and marketing services businessin the near term. We are working to complete this transaction prior tothe close of our fiscal year." As previously announced, in fiscal 2005the Company will not be providing an earnings per share or AdjustedEBITDA target range for the year. Instead, during our quarterlyconference calls we will provide a recap and outlook for key operatingmetrics that we expect will influence our earnings per share andAdjusted EBITDA and our strategies to improve these metrics along withour actual financial results throughout the year.

Total revenues for the six months ended July 31, 2005 increased6.8% to $176.9 million compared with $165.7 million for the six monthsended July 31, 2004. Net merchandise revenues for the six months endedJuly 31, 2005 of $87.5 million were up 10.3% versus $79.3 million forthe six months ended July 31, 2004. Sponsorship and other revenues of$89.4 million for the six-month period ended July 31, 2005 increased3.5% compared with $86.4 million for the same period last year. Grossprofit for the six months ended July 31, 2005 increased to $91.0million, or 51.5% of revenues, compared with $79.0 million, or 47.7%of revenues, for the first six months of fiscal 2004. Operatingexpenses were flat at $96.8 million for the six months ended July 31,2005 and 2004. However, operating expenses decreased as a percentageof total revenues to 54.7% for the six months ended July 31, 2005versus 58.4% for the six months ended July 31, 2004. The loss fromcontinuing operations, including preferred stock dividends andaccretion, for the six months ended July 31, 2005 was $8.5 million, or$0.20 per diluted share compared with a loss of $21.3 million for thesix months ended July 31, 2004 or $0.50 per diluted share. Net lossfor the six months ended July 31, 2005 was $19.0 million, comparedwith a net loss of $20.4 million for the six months ended July 31,2004. Net loss attributable to common stockholders for the six monthsended July 31, 2005 was $19.6 million, or $0.45 per diluted share,compared with net loss attributable to common stockholders of $21.2million, or $0.50 per diluted share for the six months ended July 31,2004.

The 2005 results reflect management's sale of the operations ofDan's Competition ("Dan's") in June 2005. Accordingly, the company'sresults reflect Dan's as a discontinued operation and include a losson disposition of the related net assets of approximately $11.4million. Approximately $13 million in net proceeds were received fromthe sale. The 2004 results have been restated to reflect Dan's as adiscontinued operation.

About Alloy

Alloy, Inc. is a media, marketing services, direct marketing andretail company primarily targeting Generation Y, a key demographicsegment comprising the more than 60 million boys and girls in theUnited States between the ages of 10 and 24. Alloy's convergent mediamodel uses a wide range of media assets to reach more than 31 millionGeneration Y consumers each month and is comprised of two distinctdivisions: Alloy Media + Marketing and Alloy Merchandising Group.Alloy Media + Marketing is one of the largest providers of targetedmedia and promotional marketing programs incorporating such industryrecognized divisions as Alloy Marketing & Promotions (AMP), 360 Youth,American Multicultural Marketing (AMM), Market Place Media (MPM),Alloy Education, Alloy Entertainment, and Alloy Out-of-Home. Workingwith these groups, marketers can connect with their targeted audiencethrough a host of advertising and marketing programs incorporatingAlloy's wide ranging media and marketing assets such as direct mailcatalogs, college and high school newspapers, Web sites, display mediaboards, college guides, and promotional events. Alloy MerchandisingGroup, our direct marketing and retail store division, includes thedELiA*s, Alloy, and CCS brand names and sells apparel, accessories,footwear, room furnishings and action sports equipment directly to theyouth market through catalogs, websites and retail stores. For furtherinformation regarding Alloy, please visit our corporate website at(www.alloyinc.com).

This announcement may contain forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 and Section21E of the Securities Exchange Act of 1934, including statementsregarding our expectations and beliefs regarding our future results orperformance. Because these statements apply to future events, they aresubject to risks and uncertainties. When used in this announcement,the words "anticipate", "believe", "estimate", "expect","expectation", "project" and "intend" and similar expressions areintended to identify such forward-looking statements. Our actualresults could differ materially from those projected in theforward-looking statements. Additionally, you should not consider pastresults to be an indication of our future performance. Factors thatmight cause or contribute to such differences include, among others,our ability to: increase revenues; generate high margin sponsorshipand multiple revenue streams; increase visitors to our Web sites(www.alloy.com, www.delias.com, and www.ccs.com) and build customerloyalty; develop our sales and marketing teams and capitalize on theseefforts; develop commercial relationships with advertisers and thecontinued resilience in advertising spending to reach the teen market;manage the risks and challenges associated with integrating newlyacquired businesses; and identify and take advantage of strategic,synergistic acquisitions and other revenue opportunities. Otherrelevant factors include, without limitation: our competition;seasonal sales fluctuations; the uncertain economic and politicalclimate in the United States and throughout the rest of the world, andthe potential that such climate may deteriorate further; and generaleconomic conditions. For a discussion of certain of the foregoingfactors and other risk factors see the "Risk Factors That May AffectFuture Results" section included in our annual report on Form 10-K forthe year ended January 31, 2005, which is on file with the Securitiesand Exchange Commission. We do not intend to update any of theforward-looking statements after the date of this announcement toconform these statements to actual results, to changes in management'sexpectations or otherwise, except as may be required by law.
Alloy, Inc.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)



Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
7/31/2004 7/31/2005 7/31/2004 7/31/2005

Net merchandise revenues $39,009 $43,031 $79,302 $87,461
Sponsorship and other
revenues 42,843 46,171 86,409 89,438
---------------------- ----------------------
Total revenues 81,852 89,202 165,711 176,899
Cost of goods sold 42,195 40,969 86,722 85,857
---------------------- ----------------------
Gross profit 39,657 48,233 78,989 91,042

Selling and marketing
expenses 35,941 38,888 70,695 74,348
General and
administrative expenses 11,216 9,408 22,434 18,931
Amortization of acquired
intangible assets 1,404 749 2,663 1,842
Stock-based compensation 352 84 703 139
Impairment of long-lived
assets 0 889 0 924
Spin off costs 0 427 0 615
Restructuring charges 192 0 318 0
---------------------- ----------------------
Total operating expenses 49,105 50,445 96,813 96,799

Loss from continuing
operations before
interest and other
income (expense) and
income taxes (9,448) (2,212) (17,824) (5,757)

Interest and other income
(expense), net (1,829) (1,043) (2,515) (2,106)

---------------------- ----------------------
Loss from continuing
operations before income
taxes (11,277) (3,255) (20,339) (7,863)
Income tax expense 110 17 120 66
---------------------- ----------------------
Loss from continuing
operations (11,387) (3,272) (20,459) (7,929)

Discontinued operations
Income (loss) from
operations of
discontinued Dan's
Competition (including
loss on disposal of
11,405), net of tax 232 213 61 (11,029)

---------------------- ----------------------
Net loss (11,155) (3,059) (20,398) (18,958)

Preferred stock dividend
and accretion 401 217 795 620
---------------------- ----------------------
Net loss attributable to
common stockholders ($11,556) ($3,276) ($21,193) ($19,578)

Basic loss per common
share:
Loss from continuing
operations including
preferred stock
dividends and
accretion ($0.28) ($0.08) ($0.50) ($0.20)
Income (loss) from
discontinued
operations $0.01 $0.01 $0.00 ($0.25)
---------------------- ----------------------
Total basic loss
attributable to common
stockholders ($0.27) ($0.07) ($0.50) ($0.45)
====================== ======================

Diluted loss per common
share:
Loss from continuing
operations including
preferred stock
dividends and
accretion ($0.28) ($0.08) ($0.50) ($0.20)
Income (loss) from
discontinued
operations $0.01 $0.01 $0.00 ($0.25)
---------------------- ----------------------
Total diluted loss
attributable to common
stockholders ($0.27) ($0.07) ($0.50) ($0.45)
====================== ======================

Weighted average basic
common shares
outstanding: 42,711,248 44,619,471 42,531,538 43,796,270
====================== ======================

Weighted average diluted
common shares
outstanding : 42,711,248 44,619,471 42,531,538 43,796,270
====================== ======================

Reconciliation of EBTA
and Adjusted EBITDA to
GAAP Results (1):
-------------------------
Net loss from continuing
operations ($11,387) ($3,272) ($20,459) ($7,929)
Income tax expense 110 17 120 66
Amortization of acquired
intangible assets 1,404 749 2,663 1,842
Stock-based compensation 352 84 703 139
Impairment of long-lived
assets 0 889 0 924
Spin off costs 0 427 0 615
Restructuring charges 192 0 318 0
----------------------------------------------- ----------------------
EBTA excluding stock-
based compensation,
restructuring, asset
write-downs and spin
off costs ($9,329) ($1,106) ($16,655) ($4,343)
Interest and other income
(expense), net (1,829) (1,043) (2,515) (2,106)
Depreciation and
amortization 2,121 1,806 4,331 3,743
----------------------------------------------- ----------------------
Adjusted EBITDA ($5,379) $1,743 ($9,809) $1,506
====================== ======================

(1) This press release contains the non-GAAP financial measures EBTA
and Adjusted EBITDA. Alloy uses EBTA and Adjusted EBITDA to evaluate
its performance period to period without taking into account certain
expenses which, in the opinion of Alloy management, do not reflect
Alloy's results from its core business activities. These non-GAAP
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. These non-GAAP measures
included in this press release have been reconciled to the nearest
GAAP measure as is required under SEC rules regarding the use of
non-GAAP financial measures. As used herein, "GAAP" refers to
accounting principles generally accepted in the United States of
America.


Alloy, Inc.
SELECTED CONDENSED CONSOLIDATED BALANCE SHEET DATA
(In thousands)

January 31, July 31,
2005 2005
(unaudited)(unaudited)
Assets
Current Assets
Cash and cash equivalents $25,137 $30,680
Marketable securities 6,341 2,001
Accounts receivable, net 39,657 42,220
Inventories 26,623 32,909
Prepaid catalog costs 2,588 3,869
Other current assets 6,651 6,107
Current assets of discontinued operations 2,763 0
----------------------
Total current assets 109,760 117,786

Property and equipment, net 24,505 23,980
Goodwill, net 185,763 185,763
Intangible and other assets, net 17,159 15,461
Noncurrent assets of discontinued operations 21,946 0
----------------------
Total assets $359,133 $342,990
======================

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $29,287 $22,403
Deferred revenues 18,144 18,137
Mortgage Note payable 160 172
Bank Loan Payable 0 3,922
Accrued expenses and other current
liabilities 26,433 32,097
Current liabilities of discontinued
operations 822 302
----------------------
Total current liabilities 74,846 77,033

Long term liabilities 6,209 6,271
Convertible debt 69,300 69,300

Series B Preferred Stock 16,042 0

Stockholders' Equity 192,736 190,386
----------------------
Total liabilities and stockholders'
equity $359,133 $342,990
======================