CARLSBAD, Calif., April 20 /PRNewswire-FirstCall/ — Phoenix Footwear Group,
Inc. (NYSE Alternext US: PXG) today reported results for the fourth quarter
and year ended January 3, 2009. In addition, the Company provided an update
on its strategic process.

Fourth Quarter and Full 2008 Fiscal Year Results

For the fourth quarter ended January 3, 2009, net sales from continuing
operations totaled $16.5 million, down 15% from sales of $19.4 million in the
fourth quarter of 2007. For the full 2008 fiscal year, net sales from
continuing operations were $75.1 million, a 9% decrease from $82.9 million for
fiscal 2007.

The net loss from continuing operations was $14.2 million, or $1.74 per share
for the fourth quarter of 2008, compared to a net loss from continuing
operations of $12.8 million, or $1.59 per share for the fourth quarter of
fiscal 2007. Included in the net loss for the fourth quarter of fiscal 2008
were $10.8 million in non-cash impairment charges compared to $6.0 million in
non-cash impairment charges for the same period in the previous fiscal year.
For the full 2008 fiscal year, net losses from continuing operations totaled
$18.8 million, or $2.31 per share inclusive of the $10.8 million impairment
charges. In fiscal 2007, the Company recorded a net loss from continuing
operations of $16.6 million, or $2.07 per share inclusive of the $6.0 million
impairment charges.

Net sales in the Company’s accessories and footwear businesses declined during
fiscal 2008 reflecting an unusually weak retail environment and an effort by
the Company’s major customers to reduce their inventories on hand.

The Company’s accessories segment generated net sales of $37.4 million for
fiscal 2008, a $4.1 million decrease from $41.5 million for fiscal 2007,
primarily attributable to softness in the women’s mass and specialty channels.
Footwear sales (including both the footwear and premium footwear segments)
were $37.7 million for fiscal 2008, a decrease of $3.6 million from footwear
sales of $41.3 million in fiscal 2007. Net sales decreased in all primary
footwear distribution channels, including independent retailers, department
stores and catalog vendors, as the retail market continued to experience
unprecedented softness during the second half of fiscal 2008.

Gross profits declined by $1.1 million for the 2008 fiscal year as the
Company’s net sales declined; gross margins, however, improved by two
percentage points from 31% in fiscal 2007 to 33% in fiscal 2008. This
improvement resulted from fewer closeout sales during fiscal 2008 and the
streamlining of the Company’s sourcing operations during the latter half of
fiscal 2007.

As a result of aggressive inventory management, the Company finished fiscal
2008 with net inventories of $18.0 million, a 10% reduction in inventories
from the prior fiscal year end level of $19.9 million.

“With the economic headwinds, this past year was an especially challenging
one,” said Russell Hall, President and CEO of Phoenix Footwear Group, Inc.
“We are disappointed in our net sales decline and resulting net loss; however
we have made some important gains in managing our inventory and gross margins
and in restructuring and right sizing our business as detailed in our Annual
Report on Form 10-K for fiscal 2008 which we filed today with the SEC. Our
productivity improvements, combined with our new organizational structure,
position us to produce better results once retail conditions normalize.”

The Company has been in continuing default on its bank debt since September
27, 2008. As a result of this and the fact that the Company has had net
losses for the past two fiscal years, the Company’s independent registered
public accountants have included a going concern explanatory paragraph in
their report on the Company’s financial statements included in the Company’s
Annual Report on Form 10-K for the 2008 fiscal year that the Company filed
today with the Securities and Exchange Commission. This announcement of a
qualification is being made in compliance with NYSE Alternext US Company Guide
Rule 610(b) requiring a public announcement of the receipt of an audit opinion
that contains a going concern qualification and does not reflect any change or
amendment to the consolidated financial statements as filed. Further
information regarding the going concern qualification is contained in the
Company’s Annual Report on Form 10-K referred to above.

Strategic Initiative Update

Phoenix Footwear also provided the following update on its strategic
initiatives to return the Company to profitability and reduce or eliminate its
bank debt.

In February 2009, the Company terminated its Tommy Bahama license agreement.
At the same time, the Company discontinued production and sales of Tommy
Bahama branded products other than pending orders and sales to Tommy Bahama
Group to fulfill a products purchase agreement. By shutting down the Tommy
Bahama footwear division, the Company eliminated a division which incurred
operating losses of $2.4 million and $3.5 million during fiscal 2008 and
fiscal 2007, respectively. Additionally, the Company is in the process of
monetizing the associated working capital and plans to use the resulting
proceeds to reduce its bank debt by an estimated $2.5 million. In the first
quarter of fiscal 2009, the Company will report the results of its Tommy
Bahama business as discontinued operations. In connection with this action, in
the first quarter of fiscal 2009, a pre-tax charge of between $680,000 and
$830,000 will be recorded.

During the first quarter of fiscal 2009, the Company took further steps to
reduce its corporate overhead. In addition to the 3 positions eliminated
relating to Tommy Bahama, 13 managerial and support positions were also
eliminated. This restructuring is expected to result in an estimated savings
of greater than $2.0 million in annual payroll and related expenses. In
connection with this action, in the first quarter of fiscal 2009, a pre-tax
restructuring charge of approximately $1.0 million for these activities will
be recorded.

Recently, Wrangler Apparel Inc. advised the Company of its intent to directly
enter the accessories business and take in-house its Wrangler mass license
business. In the wake of this development, the Company has decided to sell
the Chambers private label accessories business and certain assets. More
specifically, the Company is negotiating with interested parties the terms of
a sale transaction which would include Chambers manufacturing equipment,
certain Chambers inventory at cost and certain intellectual property and
customer relationships. The Company does not plan to include in the Chambers
sale the division’s accounts receivables or Wrangler licenses. Upon closing a
transaction, the Company plans to collect these receivables and proceeds and
wind-down the divisions remaining activities as the Wrangler licenses expire
unrenewed.

The Company expects that the Tommy Bahama transaction and Chambers transaction
would yield sufficient net proceeds to extinguish its bank debt during fiscal
2009. Until a Chambers transaction is agreed upon and entered into, the
Company cannot provide any assurance that a sale will occur or the ultimate
amount of proceeds that will result from it.

About Phoenix Footwear Group, Inc.

Phoenix Footwear Group, Inc., headquartered in Carlsbad, California, designs,
develops and markets men’s and women’s footwear and accessories. Phoenix
Footwear’s brands include Trotters (R), SoftWalk (R), H.S. Trask (R) and it is
a licensee of the Wrangler brand. Emphasizing quality, fit and traditional and
authentic designs, these brands are primarily sold through department stores,
specialty retailers, mass merchants and catalogs. Phoenix Footwear Group, Inc.
is traded on the NYSE Alternext US under the symbol PXG.

Forward-Looking Statements

The words “anticipates,” “will,” “expects,” “intends” and words of similar
meaning identify forward-looking statements. Forward-looking statements also
include representations of the Company’s expectations or beliefs concerning
future events that involve risks and uncertainties, including the Company’s
statements regarding the proposed Chambers sale transaction, the expected
closing and timing of that transaction and the expected net proceeds from that
transaction and the monetization of Chambers’ working capital and the Tommy
Bahama transaction and the repayment of the Company’s debt and other risks
detailed in the Company’s periodic report filings with the Securities and
Exchange Commission. The potential risks and uncertainties include, among
others, the possibility that a Chambers transaction is not successfully
concluded, or the unexpected liabilities related to the disposition arise or
the transactions do not yield the anticipated proceeds. The forward-looking
statements speak only as of the date of this press release, and the Company
expressly disclaims any obligation to release publicly any update or revision
to any forward-looking statement contained herein if there are changes in the
Company’s expectations or if any events, conditions or circumstances on which
any such forward-looking statement is based.

This press release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to
be covered by the safe harbors created thereby. These forward-looking
statements include, but are not limited to, statements regarding future growth
and performance of individual brands, Phoenix Footwear’s expected financial
performance and condition for fiscal 2009 and/or statements preceded by,
followed by or that include the words “believes,” “could,” “expects,”
“anticipates,” “estimates,” “intends,” “plans,” “projects,” “seeks,”
“exploring, ” or similar expressions. Many of these risks and uncertainties
are discussed in Phoenix Footwear’s Annual Report on Form 10-K for the fiscal
year ended January 3, 2009 filed with the Securities and Exchange Commission
(the “SEC”), and in any subsequent reports filed with the SEC, all of which
are available at the SEC’s website at http://www.sec.gov. These include,
without limitation: Phoenix Footwear’s ability to obtain a replacement bank
facility or waiver of defaults and amendments to its defaulted secured credit
arrangement and the attendant risk of increased costs or stockholder dilution
from refinancing the defaulted debt or foreclosure on the Company’s assets if
a waiver/amendment is not obtained or the debt is not refinanced; the risk
that Phoenix Footwear. will not be able to continue as a going concern;
Phoenix Footwear’s ability to return to profitability despite its
restructuring efforts and debt reduction; risk associated with the recent
disruptions in the overall economy and the impact on the retail industry,
including Phoenix Footwear’s customers; risk associated with Phoenix’s
accessories business; the concentration of Phoenix Footwear’s sales to a
relatively small group of customers; changing consumer preferences and fashion
trends; Phoenix’s ability to execute on its growth strategies, including the
introduction of new products or the distribution of products through new
channels; competition from other companies in Phoenix Footwear’s markets; the
potential financial instability of Phoenix Footwear’s customers and the risk
of loss of future and pending orders; Phoenix Footwear’s ability to protect
its intellectual property rights; the risk of losing third party trademark
licenses; Phoenix Footwear’s ability to manage inventory levels; fluctuations
in its financial results as a result of the seasonality in its business; the
risks of doing business in international markets; Phoenix Footwear’s reliance
on independent manufacturers; disruptions in Phoenix Footwear’s manufacturing
system; the loss of one or more senior executives; fluctuations in the price,
availability and quality of raw materials; a decline in general market and
economic conditions; and, risk associated with claims arising from divestiture
transactions, including indemnification claims. Although Phoenix Footwear
believes that the assumptions underlying the forward- looking statements
contained herein are reasonable, any of the assumptions could be inaccurate,
and therefore, there can be no assurance that the forward-looking statements
included in this press release will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by Phoenix Footwear or any other person that the objectives and
plans of Phoenix Footwear will be achieved. All forward-looking statements
included in this press release are based on Phoenix Footwear’s current
expectations and projections about future events, based on information
available at the time of the release, and Phoenix Footwear assumes no
obligation to update any forward-looking statements.

Phoenix Footwear Group, Inc.
Consolidated Condensed Statement of Operations
(In thousands, except per share data)

For the Three Months Ended
(Unaudited)
January 3, December 29,
2009 2007
—- —-

Net sales $16,479 100.0% $19,409 100.0%
Cost of goods sold 12,036 73.0% 14,337 73.9%

Gross profit 4,443 27.0% 5,072 26.1%

Operating expenses:
Selling, general
and administrative
expenses 7,314 44.4% 9,037 46.6%
Non-cash 401k stock
grant compensation 43 0.3% 134 0.7%
Amortization 149 0.9% 228 1.2%
Goodwill and intangible
impairment charges 10,831 6,034
Other (income)
expense, net – -% 479 2.5%
Total operating expenses 18,337 111.3% 15,912 82.0%

Operating Loss (13,894) -84.3% (10,840) -55.9%

Interest expense 207 295

Loss before income taxes and
discontinued operations (14,101) -85.6% (11,135) -57.4%

Income tax provision (benefit) 104 1,655

Loss before discontinued
operations (14,205) -86.2% (12,790) -65.9%

(Loss) earnings from
discontinued
operations, net of tax (698) -4.2% 899 4.6%

Net (loss) earnings $(14,903) -90.4% $(11,891) -61.3%

Loss per common share:

Basic and diluted
Continuing operations $(1.74) $(1.59)
Discontinued operations (0.09) 0.11
Net loss $(1.83) $(1.48)

Weighted-average shares outstanding:
Basic and diluted 8,166 8,045

For the Twelve Months Ended
January 3, December 29,
2009 2007
—- —-
Net sales $75,070 100.0% $82,871 100.0%
Cost of goods sold 50,493 67.3% 57,215 69.0%

Gross profit 24,577 32.7% 25,656 31.0%

Operating expenses:
Selling, general and
administrative expenses 31,492 42.0% 33,484 40.4%
Non-cash 401k stock grant
compensation 171 0.2% 534 0.6%
Amortization 604 0.8% 903 1.1%
Goodwill and intangible
impairment charges 10,831 6,034
Other (income)
expense, net (1,500) -% 451 0.5%
Total operating expenses 41,598 55.4% 41,406 50.0%

Operating Loss (17,021) -22.7% (15,750) -19.0%

Interest expense 1,613 1,402

Loss before income taxes and
discontinued operations (18,634) -24.8% (17,152) -20.7%

Income tax provision (benefit) 149 (559)

Loss before discontinued
operations (18,783) -25.0% (16,593) -20.0%

(Loss) earnings from
discontinued operations,
net of tax (677) -0.9% 15,249 18.4%

Net (loss) earnings $(19,460) -25.9% $(1,344) -1.6%

Loss per common share:

Basic and diluted
Continuing operations $(2.31) $(2.07)
Discontinued operations (0.08) 1.90
Net loss $(2.39) $(0.17)

Weighted-average shares outstanding:
Basic and diluted 8,144 8,031

Phoenix Footwear Group, Inc.
Consolidated Condensed Balance Sheets
(In thousands)

As of As of
January 3, December 29,
ASSETS 2009 2007
—- —-
Current assets:
Cash and cash equivalents $456 $2,355
Accounts receivable, net 10,684 14,323
Inventories, net 17,983 19,874
Notes receivable – 13,303
Other current assets 1,510 1,661
Income taxes receivable 312 2,657
Total current assets 30,945 54,173

Property, plant and equipment, net 2,089 1,996
Goodwill and unamortizable intangibles – 6,190
Intangible assets, net 22 5,268
Other assets 93 50
$33,149 $67,677

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Notes payable – line of credit $11,173 $22,666
Accounts payable 5,431 7,032
Accrued expenses 3,198 3,833
Other current liabilities 1,376 1,467
Income taxes payable 78 444
Total current liabilities 21,256 35,442

Other long-term liabilities 531 1,127
Deferred income tax liability – 21
Total liabilities 21,787 36,590

Stockholders’ equity 11,362 31,087
$33,149 $67,677

SOURCE Phoenix Footwear Group, Inc.

Dennis Nelson, Chief Financial Officer of Phoenix Footwear Group, Inc.,
+1-760-602-9688