Bluestem Group Inc. Announces Unaudited Consolidated Second Quarter 2015 Earnings Results

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)-- Bluestem Group Inc. (OTCMKTS: BGRP) today reported unaudited consolidated financial results that include its wholly-owned subsidiary, Bluestem Brands, Inc. and its subsidiaries (“Bluestem”), for the 13-week period ended July 31, 2015 (we refer to the 13-week periods ended July 31, 2015 and August 1, 2014 in this release as respectively the “second quarter” of fiscal 2015 and fiscal 2014). Bluestem is a multi-brand, online retailer of a broad selection of name-brand and private label general merchandise serving low- to middle-income consumers nationwide.

“It was an exciting quarter for Bluestem Group with the successful closing of the Orchard Brands acquisition and the adoption of our new corporate name, Bluestem Group Inc. We have a lot of work ahead of us but the integration of the Orchard portfolio is off to a great start. Before the favorable impact of the Orchard portfolio of brands’ performance, which are consolidated with our results for the last 22 days of the quarter, Bluestem’s sales grew 10% year-over-year in the second quarter to $252.9 million. Including results from the Orchard portfolio of brands, Bluestem’s sales grew 31% to $301.4 million. As we expected, adjusted EBITDA including the Orchard portfolio of brands decreased to $20.5 million compared to adjusted pro forma EBITDA of $26.7 million for the second quarter of last year.” said Steve Nave, Bluestem Group’s Chief Executive Officer.

Second Quarter 2015 Bluestem Group Consolidated Highlights

• Adjusted EBITDA for the second quarter of fiscal 2015 was $17.8 million compared to $13.4 million in second quarter of fiscal 2014.
• Net loss for the second quarter of fiscal 2015 was $13.8 million compared to net income of $10.9 million for the second quarter of fiscal 2014. Included in the second quarter net loss was $10.1 million amortization of acquired intangible assets related to the acquisition of Bluestem in November 2014, $6.6 million in expenses related to the Orchard Brands acquisition and $8.8 million in interest expense. Diluted loss per share was $0.10 for the second quarter of fiscal 2015, compared to diluted earnings per share of $0.11 for the second quarter of fiscal 2014.
• Cash and cash equivalents were $163.5 million as of July 31, 2015, and net commercial real estate assets were approximately $53.4 million. During the quarter, $47.4 million in cash was received from asset collections and revenue on legacy commercial real estate-related assets and businesses, including a final redemption of $36.2 million from the equity investment in the Federal Home Loan Bank of Seattle.

Second Quarter 2015 Bluestem Brands Stand-alone Highlights

• Net sales for the second quarter of fiscal 2015 were $301.4 million, including $48.4 million of net sales from the Orchard portfolio, a 31% increase over net sales of $230.5 million for the second quarter of fiscal 2014. Before the impact of the Orchard portfolio, Bluestem’s net sales grew 10% year-over-year.
• Adjusted EBITDA was $20.5 million in the second quarter of fiscal 2015, a 23% decrease compared to adjusted pro forma EBITDA of $26.7 million for the second quarter of fiscal 2014.
• Net loss for the second quarter of fiscal 2015 was $12.7 million, compared to net income of $9.9 million for the second quarter of fiscal 2014.
• Revolving new customer credit accounts were 150 thousand, a 2% decrease over 153 thousand in the second quarter of fiscal 2014.
• FreshStart new customer credit accounts were 50 thousand, a 6% increase over 47 thousand in the second quarter of fiscal 2014.
• Active accounts increased to 1.68 million as of the end of the second quarter of fiscal 2015, an 11% increase over the end of the second quarter of fiscal 2014.
• 30+ day delinquent balances on the revolving portfolio were 16.3% at the end of the second quarter of fiscal 2015 compared to 16.7% for the same period in 2014.

All financial information included in this release is unaudited. Information for Bluestem Group is presented on a consolidated basis, including Bluestem Brands, Inc. beginning November 7, 2014 and the Orchard Portfolio beginning July 10, 2015. Consolidated information for Bluestem Group’s wholly-owned subsidiary, Bluestem, is also presented on a stand-alone basis. The acquisitions of Bluestem Brands and Orchard were accounted for as business combinations.

Adjusted EBITDA and adjusted pro forma EBITDA are defined in the accompanying financial information of Bluestem Group and Bluestem Brands. Please see “Bluestem Group Inc. and Bluestem Brands, Inc. Financial Information-Overview and Basis of Presentation” below and accompanying disclosures for a more detailed explanation of the foregoing matters, reconciliations to results reported under GAAP and other important information for investors to consider.

Earnings Teleconference Information

Management will discuss the company’s 13-week period ended July 31, 2015 financial results during a teleconference tomorrow, September 29, 2015, at 8:00 AM ET. The conference call can be accessed at (888) 364-3109 or (719) 325-2361 (International). The call will also be broadcast simultaneously at http://www.bluestem.com/investor-relations. Following completion of the call, a recorded replay of the webcast will be available on Bluestem Group’s website. To listen to the telephone replay, call toll-free (877) 870-5176 or (858) 384-5517 (International), replay pin # 7179823. The telephone replay will be available at 8:00 PM ET September 29, 2015. Additional investor information can be accessed at http://www.bluestem.com/investor-relations.

About Bluestem Group

Bluestem Group Inc. is a holding company whose businesses include Bluestem Brands, a multi-brand, online retailer of a broad selection of name-brand and private label general merchandise serving low- to middle-income consumers through 16 retail brands that include: Appleseed’s, Bedford Fair, Blair, Draper’s & Damon’s, Fingerhut, Gettington, Gold Violin, Haband, LinenSource, Norm Thompson, Old Pueblo Traders, PayCheck Direct, Sahalie, Solutions, Tog Shop and Wintersilks. Complementing each brand is a large selection of merchandise with payment options that provide customers with the flexibility of paying over time. Bluestem Group is headquartered in Eden Prairie, MN. For additional information visit the Bluestem Group website at www.bluestem.com.

Forward Looking Statements

This release contains statements that are “forward-looking statements”. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All statements contained herein that are not clearly historical in nature are forward-looking. In some cases, you can identify these statements by use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “intend,” “could” or similar expressions. In particular, statements regarding Bluestem Group’s plans, strategies, prospects and expectations regarding its business are forward-looking statements. You should be aware that these statements and any other forward-looking statements in this document only reflect Bluestem Group’s beliefs, assumptions and expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond Bluestem Group’s control and may cause actual results and performance to differ materially from Bluestem Group’s expectations.

Forward-looking statements are based on Bluestem Group’s beliefs, assumptions and expectations of its future performance and actions, taking into account all information currently available to Bluestem Group. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to Bluestem Group or are within its control. If a change occurs, Bluestem Group’s plans, business, financial condition, and liquidity may vary materially from those expressed in its forward-looking statements. Important factors that could cause the actual results to be materially different from Bluestem Group’s expectations include the risks and uncertainties set forth in “Risk Factors” in Bluestem Group’s Report as of and for the fiscal years ended January 30, 2015 and January 31, 2014.

Accordingly, you should not place undue reliance on the forward-looking statements contained in this release. These forward-looking statements are made only as of the date of this release. Bluestem Group undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

BLUESTEM GROUP INC.BLUESTEM BRANDS, INC.FINANCIAL INFORMATION13 and 26 weeks ended July 31, 2015 and August 1, 2014

Overview and Basis of Presentation

The accompanying financial information for Bluestem Group is presented on a consolidated basis, including Bluestem beginning from November 7, 2014. The accompanying financial information for Bluestem Group’s wholly-owned subsidiary, Bluestem, is also presented on a stand-alone basis. All such information is unaudited.

Bluestem Group Consolidated Financial Information

On November 7, 2014, Bluestem Group Inc. (f/k/a Capmark Financial Group Inc.) acquired Bluestem. As a result, the financial results of Bluestem for the 13- and 26-week periods ended July 31, 2015 were included in Bluestem Group’s consolidated results, and Bluestem’s financial results were not included in the Bluestem Group’s consolidated results for the 13- or 26-week periods ended August 1, 2014. The acquisition of Bluestem was accounted for as a business combination.

In December 2014, Bluestem Group changed its fiscal year from December 31 to the Friday closest to January 31 of the following year to conform to the fiscal year of Bluestem. Bluestem operates on a fiscal calendar widely used by the retail industry that results in fiscal years consisting of a 52- or 53-week period ending on the Friday closest to January 31 of the following year.

On June 18, 2015 Capmark Financial Group Inc. changed its name to Bluestem Group Inc. and began trading on the OTC marketplace under the symbol BGRP on June 19, 2015.

On July 10, 2015, Bluestem acquired Orchard Brands Corporation. Information for the Orchard portfolio is presented in Bluestem’s consolidated financial information beginning July 10, 2015.

To supplement the historical financial data derived from Bluestem Group’s consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles, or GAAP, this release uses adjusted EBITDA of Bluestem Group as non-GAAP performance measures. This measure is not in accordance with, or an alternative to, measures prepared in accordance with GAAP.

Bluestem Stand-alone Financial Information

As previously discussed, the acquisition of Bluestem was accounted for as a business combination. By the application of “push down” accounting, Bluestem’s assets and liabilities were adjusted to fair value as of November 7, 2014. The accompanying Bluestem financial results are presented as “Predecessor” or “Successor” to indicate the period preceding the acquisition or the period succeeding the acquisition, respectively.

The financial information in the accompanying report on Bluestem’s results of operations for the 13 and 26 weeks ended July 31, 2015 includes summary Bluestem consolidated adjusted pro forma EBITDA, pro forma net credit expense (income) and pro forma contribution margin data, which gives effect to the Santander Consumer USA transaction to which Bluestem became a party in April 2013. This information has been derived from internally prepared pro forma data, and is presented for informational purposes only and does not purport to represent what Bluestem’s consolidated financial position actually would have been had the events so described occurred on the dates indicated or to project its consolidated financial position as of any future date. This pro forma data does not relate in any way to or depict the effects in any way Bluestem Group’s acquisition of Bluestem.

To supplement the historical financial data derived from Bluestem’s consolidated financial statements, which are prepared in accordance with GAAP, the accompanying report on Bluestem’s results of operations for the 13 and 26 weeks ended July 31, 2015 uses, in addition to the above referenced adjusted pro forma data of Bluestem, adjusted EBITDA, contribution margin and adjusted general and administrative expenses, as non-GAAP performance measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Please see the accompanying report on Bluestem’s results of operations for the 13 and 26 weeks ended July 31, 2015 for further important information concerning these non-GAAP measures.

BLUESTEM GROUP INC.
Consolidated Statement of Comprehensive Income
(unaudited — in thousands, except shares and per share amounts)
		13 Weeks Ended								26 Weeks Ended
		July 31, 2015 (a)				August 1, 2014				July 31, 2015 (a)				August 1, 2014
Net sales and revenue
Net retail sales		$	301,375			$	-			$	507,550			$	-
Commercial real estate revenue
Net interest income			379				1,673				1,177				3,671
Net gains on investments available for sale			166				11,986				274				13,776
Other noninterest income			2,344				4,128				7,585				5,873
Total net sales and revenue			304,264				17,787				516,586				23,320
Costs and expenses
Retail cost of goods sold			169,535				-				289,795				-
Retail sales and marketing expenses			65,070				-				107,787				-
Retail net credit expense			9,809				-				16,108				-
Commercial real estate operating expenses			605				1,788				1,282				3,208
General and administrative expenses			49,969				5,537				87,717				13,657
Amortization and depreciation not included in retail cost of goods sold			14,758				21				26,809				54
(Gain) loss from derivatives in our own equity			(411	)			-				7,814				-
Total costs and expenses			309,335				7,346				537,312				16,919
Operating (loss) income			(5,071	)			10,441				(20,726	)			6,401
Retail interest expense			8,754				-				16,274				-
(Loss) income from continuing operations before income taxes			(13,825	)			10,441				(37,000	)			6,401
Income tax (benefit) expense			(27	)			209				317				499
(Loss) income from continuing operations after income taxes			(13,798	)			10,232				(37,317	)			5,902
Loss from discontinued operations, net of tax			-				(2,505	)			-				(4,753	)
Net (loss) income			(13,798	)			7,727				(37,317	)			1,149
Plus: Net loss attributable to noncontrolling interests			-				3,125				-				5,267
Net (loss) income attributable to Bluestem Group Inc.			(13,798	)			10,852				(37,317	)			6,416
Other comprehensive income (loss)
Net change in unrealized gains and losses on investment securities			362				(483	)			147				(416	)
Comprehensive (loss) income attributable to Bluestem Group Inc.		$	(13,436	)		$	10,369			$	(37,170	)		$	6,000
Basic and Diluted Loss Per Share - Common Stockholders
Basic and diluted loss per share - continuing operations		$	(0.10	)		$	0.13			$	(0.27	)		$	0.11
Basic and diluted loss per share attributable to Bluestem Group Inc.		$	(0.10	)		$	0.11			$	(0.27	)		$	0.06
Basic weighted average shares outstanding			136,140,955				99,803,233				136,132,962				99,803,233
Diluted weighted average shares outstanding			136,140,955				101,072,344				136,132,962				100,448,306
(a) Includes Orchard Portfolio results for the period July 10, 2015 - July 31, 2015.

BLUESTEM GROUP INC.
Condensed Consolidated Balance Sheets
(in thousands)
		July 31, 2015				January 30, 2015
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	163,517			$	254,207
Restricted cash			11,605				13,586
Customer accounts receivable — net of allowance of $10,152 and $10,457			46,731				40,928
Commercial real estate accounts and other receivables			19,375				19,270
Retail merchandise inventories			225,571				96,431
Other current assets			70,372				33,647
Total current assets			537,171				458,069
Loans held-for-sale			50,251				78,080
Equity investments			58,523				114,736
Property and equipment — net			98,799				49,755
Intangibles — net			360,056				377,892
Goodwill			506,649				201,642
Other assets			10,957				21,107
Total Assets		$	1,622,406			$	1,301,281
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	181,101			$	82,037
Accrued costs and other liabilities			124,153				92,823
Short-term debt			31,179				17,764
Total current liabilities			336,433				192,624
Long-term debt			558,311				354,116
Deferred income taxes			94,772				79,949
Other long-term liabilities			13,371				20,037
Total liabilities			1,002,887				646,726
Stockholders' Equity:
Series A participating convertible preferred stock			4,913				4,856
Common stock			1,366				1,364
Treasury stock			(131	)			-
Additional paid-in capital			358,960				356,697
Retained earnings			253,400				290,774
Accumulated other comprehensive income, net of tax			1,011				864
Total Bluestem Group Inc. stockholders’ equity			619,519				654,555
Total Liabilities and Stockholders' Equity		$	1,622,406			$	1,301,281

BLUESTEM GROUP INC.
Consolidated Statement of Changes in Stockholders’ Equity
(unaudited — in thousands, except share data)
		Bluestem Group, Inc. Stockholders
																												Accumulated
		Series A Convertible																		Additional								Other								Total
		Preferred Stock						Common Stock						Treasury Stock						Paid-In				Retained				Comprehensive				Noncontrolling				Stockholders’
		Shares		Amount				Shares			Amount			Shares		Amount				Capital				Earnings				Income				Interest				Equity
BALANCE — January 31, 2014		-		$	-			100,182,419			$	100		-		$	-			$	189,970			$	181,922			$	1,601			$	32,503			$	406,096
Net income (loss)																									108,936								(5,930	)			103,006
Total other comprehensive loss, net of tax																													(737	)							(737	)
Common stock par value adjustment												902									(902	)															-
Issuance of preferred stock		1,000			5,000																																5,000
Beneficial conversion feature associated with preferred stock at issuance					(228	)															228																-
Issuance of common stock								2,081,357				21									8,317																8,338
Issuance of restricted common stock								249,623				2																									2
Exercise of common stock warrants								33,861,194				339									135,311																135,650
Deemed dividend from beneficial conversion feature associated with preferred stock					84																				(84	)											-
Stock-based compensation																					23,773																23,773
Other (includes impact from sale of discontinued operations assets)																																	(26,573	)			(26,573	)
BALANCE — January 30, 2015		1,000		$	4,856			136,374,593			$	1,364		-		$	-			$	356,697			$	290,774			$	864			$	-			$	654,555
Net loss																									(37,317	)											(37,317	)
Total other comprehensive income, net of tax																													147								147
Issuance of restricted common stock								177,165				2																									2
Exercise of common stock options								25,624																													-
Deemed dividend from beneficial conversion feature associated with preferred stock					57																				(57	)											-
Stock-based compensation																					2,145																2,145
Treasury shares repurchased								(21,419	)					21,419			(131	)			118																(13	)
BALANCE — July 31, 2015		1,000		$	4,913			136,555,963			$	1,366		21,419		$	(131	)		$	358,960			$	253,400			$	1,011			$	-			$	619,519

BLUESTEM GROUP INC.
Consolidated Statement of Cash Flows
(unaudited — in thousands)
		26-Weeks Ended
		July 31, 2015				August 1, 2014
Operating Activities of Continuing Operations
Net (loss) income		$	(37,317	)		$	1,149
Net loss from discontinued operations			-				(4,753	)
Net (loss) income from continuing operations			(37,317	)			5,902
Adjustments to reconcile net (loss) income from continuing operations to net cash provided by operating activities of continuing operations:
Provision for deferred income taxes			(872	)			-
Net (gains) losses on loans held for sale, investment securities and other			(6,090	)			(15,607	)
Equity in net (gains) losses of investees and cash return on investment			(1,129	)			(1,101	)
Amortization and depreciation expense			27,444				54
Loss from derivatives in our own equity			7,814				-
Provision for doubtful accounts			7,157				-
Provision for retail merchandise returns			13,852				-
Stock-based compensation expense			2,947				900
Inventory obsolescence and other reserves			14,836				-
Other, net			2,268				-
Net change in assets and liabilities which provided (used) cash:
Customer account and other receivables, net			(22,637	)			4,499
Retail merchandise inventories			1,978				-
Other assets			(1,570	)			1,690
Accounts payable and other liabilities			(61	)			1,871
Proceeds from sales of/payments from loans held for sale			33,536				11,376
Net cash provided by operating activities of continuing operations			42,156				9,584
Investing Activities of Continuing Operations
Net decrease in restricted cash			1,981				-
Proceeds from sales of investment securities classified as available-for-sale			51				-
Proceeds from repayments of investment securities classified as available-for-sale			223				13,769
Proceeds from sales of/capital distributions from equity investments			57,523				33,009
Purchases of customer accounts receivable			(475,031	)			-
Proceeds from sale of customer accounts receivable			475,178				-
Acquisition of Orchard Brands Corporation net of cash on hand			(392,158	)			-
Net (purchases) dispositions of property and equipment			(15,223	)			4,663
Net cash (used in) provided by investing activities of continuing operations			(347,456	)			51,441
Financing Activities of Continuing Operations
Net borrowings/repayments of debt			217,486				(13,678	)
Borrowings on revolving credit facilities			192,276				-
Repayments on revolving credit facilities			(194,944	)			-
Proceeds from issuance of preferred stock			-				5,000
Treasury shares repurchased			(131	)			-
Net cash provided by (used in) financing activities of continuing operations			214,687				(8,678	)
Effect of Foreign Exchange Rates on Cash			(77	)			63
Discontinued Operations
Net cash used in operating activities of discontinued operations			-				(1,192	)
Net cash provided by investing activities of discontinued operations			-				2,736
Net cash provided by discontinued operations			-				1,544
Net (Decrease) Increase in Cash and Cash Equivalents			(90,690	)			53,954
Cash and Cash Equivalents, Beginning of Period			254,207				169,444
Cash and Cash Equivalents, End of Period		$	163,517			$	223,398

BLUESTEM GROUP INC.
Non-GAAP Financial Measures
(unaudited — in thousands)
To supplement the consolidated financial statements of Bluestem Group Inc. and its subsidiaries which are presented in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, we use the following measures that are not in accordance with, or an alternative to, measures prepared in accordance with GAAP (non-GAAP measures):
	Adjusted EBITDA, as presented, represents net loss before interest expense, income tax (benefit) expense, amortization and depreciation expense, stock-based compensation expense, (gain) loss from derivatives in our own equity, acquisition transaction costs and costs related to the Centerbridge Investment Agreement.
	Non-GAAP net income (loss), as we present it, represents net income (loss) attributable to Bluestem Group Inc. before amortization of acquired intangible assets, stock-based compensation expense, (gain) loss from derivatives in our own equity, acquisition transaction costs and costs related to the Centerbridge Investment Agreement.
	Non-GAAP diluted income (loss) per share, as we present it, represents diluted income (loss) per share before amortization of acquired intangible assets, stock-based compensation expense, (gain) loss from derivatives in our own equity, acquisition transaction costs and costs related to the Centerbridge Investment Agreement.
We provide these measures because we believe they are useful to investors in evaluating our operating performance compared to other companies in our industry. As non-GAAP measures, they have limitations in that they do not reflect all of the amounts associated with Bluestem Group Inc.'s results of operations as determined in accordance with GAAP and are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP. In addition, our calculations of Adjusted EBITDA, non-GAAP net income and non-GAAP diluted earnings per share may not be comparable to the calculations of such measures by other companies.
			13 Weeks Ended							26 Weeks Ended
			July 31, 2015				August 1, 2014			July 31, 2015				August 1, 2014
Adjusted EBITDA reconciliation to GAAP net (loss) income:
	Net (loss) income attributable to Bluestem Group Inc.		$	(13,798	)		$	10,852		$	(37,317	)		$	6,416
	Retail interest expense			8,754				-			16,274				-
	Income tax (benefit) expense			(27	)			209			317				499
	Amortization and depreciation expense			15,106				21			27,444				54
	Stock-based compensation expense			1,527				450			2,947				900
	(Gain) loss from derivatives in our own equity			(411	)			-			7,814				-
	Acquisition transaction costs			6,610				-			8,422				-
	Costs related to Centerbridge Investment Agreement			-				1,913			-				5,444
Adjusted EBITDA			$	17,761			$	13,445		$	25,901			$	13,313
GAAP net (loss) income attributable to Bluestem Group Inc.			$	(13,798	)		$	10,852		$	(37,317	)		$	6,416
Adjustments:
	Amortization of acquired intangible assets			10,133				-			17,836				-
	Stock-based compensation expense			1,527				450			2,947				900
	(Gain) loss from derivatives in our own equity			(411	)			-			7,814				-
	Acquisition transaction costs			6,610				-			8,422				-
	Costs related to Centerbridge Investment Agreement			-				1,913			-				5,444
	Tax effect of adjustments			-				-			-				-
Non-GAAP net income (loss) attributable to Bluestem Group Inc.			$	4,061			$	13,215		$	(298	)		$	12,760
GAAP diluted (loss) income per share available to common stockholders			$	(0.10	)		$	0.11		$	(0.27	)		$	0.06
Adjustments:
	Amortization of acquired intangible assets			0.07				-			0.13				-
	Stock-based compensation expense			0.01				0.00			0.02				0.01
	(Gain) loss from derivatives in our own equity			(0.00	)			-			0.06				-
	Acquisition transaction costs			0.05				-			0.06				-
	Costs related to Centerbridge Investment Agreement			-				0.02			-				0.06
	Tax effect of adjustments			-				-			-				-
Non-GAAP diluted income (loss) per share available to common stockholders			$	0.03			$	0.13		$	(0.00	)		$	0.13
Fully diluted weighted-average shares outstanding				136,140,955				101,072,344			136,132,962				100,448,306

BLUESTEM BRANDS, INC.
Consolidated Statements of Operations and Selected Operating Data
(unaudited — in thousands, except average order size)
			Successor					Predecessor
			(13 Weeks Ended)					(13 Weeks Ended)
			July 31, 2015 (a)					August 1, 2014				Change (b)
Net sales			$	301,375				$	230,474			30.8	%
Cost of sales				169,535					132,853			27.6	%
Gross profit				131,840					97,621			35.1	%
Sales and marketing expenses				65,070					42,991			51.4	%
Net credit expense (income)				9,809					174			n/m
General and administrative expenses				46,431					31,533			47.2	%
Amortization and depreciation not included in cost of sales (c)				14,758					3,158			367.3	%
Interest expense, net (d)				8,754					4,364			100.6	%
(Loss) income before income taxes				(12,982	)				15,401			n/m
Income tax (benefit) expense				(288	)				5,510			n/m
Net (loss) income			$	(12,694	)			$	9,891			n/m
Margins and Expenses as a Percentage of Net Sales:
Gross profit rate				43.7	%				42.4	%		139		bp
Sales and marketing expenses				21.6	%				18.7	%		294		bp
Pro forma net credit expense (income) (e)			$	9,809				$	2,677			266.4	%
As a percentage of net sales				3.3	%				1.2	%		209		bp
Pro forma contribution margin (e)			$	56,961				$	51,953			9.6	%
As a percentage of net sales				18.9	%				22.5	%		(364	)	bp
Adjusted general and administrative expenses (e)			$	36,922				$	25,666			43.9	%
As a percentage of net sales				12.3	%				11.1	%		112		bp
Adjusted EBITDA (e)			$	20,519				$	29,402			(30.2	%)
As a percentage of net sales				6.8	%				12.8	%		(595	)	bp
Adjusted pro forma EBITDA (e)			$	20,519				$	26,659			(23.0	%)
As a percentage of net sales				6.8	%				11.6	%		(476	)	bp
Selected Operating Data:
Fingerhut and Gettington.com revolving new customer credit accounts (f)				150					153			(2.0	%)
Fingerhut FreshStart new customer credit accounts (f)				50					47			6.4	%
PayCheck Direct new customer credit accounts (f)				8					6			33.3	%
Orchard Portfolio new gross customers (g)				94					n/a			n/m
Fingerhut and Gettington.com revolving active accounts (h)				1,682					1,519			10.7	%
Orchard Portfolio active customers (i)				8,000					n/a			n/m
PayCheck Direct eligible client employees (j)				4,316					2,194			96.7	%

(a) Orchard Portfolio results are presented for the period from July 10, 2015 through July 31, 2015.

(b) Changes in rates are presented as the basis point (bp) increase (decrease) from the prior period.

(c) Amortization and depreciation expense not included in cost of sales primarily consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense of software. Depreciation expense related to equipment in Bluestem's fulfillment facilities are included in cost of sales.

(d) Interest expense net of interest income.

(e) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.

(f) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates initially included in FreshStart new customer credit accounts when their initial order was made.

(g) Customers who have made a first time purchase from a particular brand within the Orchard Portfolio during the period presented.

(h) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.

(i) Customers that have made at least one purchase within the previous twelve fiscal months.

(j) PayCheck Direct clients' full-time active employees with a tenure greater than six months, are at least 18 years old, and have met certain minimum annual earnings.

BLUESTEM BRANDS, INC.
Consolidated Statements of Operations and Selected Operating Data
(unaudited — in thousands, except average order size)
			Successor					Predecessor
			(26 Weeks Ended)					(26 Weeks Ended)
			July 31, 2015 (a)					August 1, 2014				Change (b)
Net sales			$	507,550				$	401,725			26.3	%
Cost of sales				289,795					231,606			25.1	%
Gross profit				217,755					170,119			28.0	%
Sales and marketing expenses				107,787					80,202			34.4	%
Net credit expense (income)				16,108					(12,532	)		n/m
General and administrative expenses				80,187					65,286			22.8	%
Amortization and depreciation not included in cost of sales (c)				26,809					6,337			323.1	%
Interest expense, net (d)				16,274					9,000			80.8	%
(Loss) income before income taxes				(29,410	)				21,826			n/m
Income tax (benefit) expense				(5,447	)				7,815			n/m
Net (loss) income			$	(23,963	)			$	14,011			n/m
Margins and Expenses as a Percentage of Net Sales:
Gross profit rate				42.9	%				42.3	%		56		bp
Sales and marketing expenses				21.2	%				20.0	%		128		bp
Pro forma net credit expense (income) (e)			$	16,108				$	5,957			170.4	%
As a percentage of net sales				3.2	%				1.5	%		169		bp
Pro forma contribution margin (e)			$	93,860				$	83,960			11.8	%
As a percentage of net sales				18.5	%				20.9	%		(241	)	bp
Adjusted general and administrative expenses (e)			$	67,296				$	51,916			29.6	%
As a percentage of net sales				13.3	%				12.9	%		34		bp
Adjusted EBITDA (e)			$	27,444				$	51,741			(47.0	%)
As a percentage of net sales				5.4	%				12.9	%		(747	)	bp
Adjusted pro forma EBITDA (e)			$	27,444				$	32,774			(16.3	%)
As a percentage of net sales				5.4	%				8.2	%		(275	)	bp
Selected Operating Data:
Fingerhut and Gettington.com revolving new customer credit accounts (f)				293					291			0.7	%
Fingerhut FreshStart new customer credit accounts (f)				110					96			14.6	%
PayCheck Direct new customer credit accounts (f)				14					7			100.0	%
Orchard Portfolio new gross customers (g)				94					n/a			n/m
Fingerhut and Gettington.com revolving active accounts (h)				1,682					1,519			10.7	%
Orchard Portfolio active customers (i)				8,000					n/a			n/m
PayCheck Direct eligible client employees (j)				4,316					2,194			96.7	%

(a) Orchard Portfolio results are presented for the period from July 10, 2015 through July 31, 2015.

(b) Changes in rates are presented as the basis point (bp) increase (decrease) from the prior period.

(c) Amortization and depreciation expense not included in cost of sales primarily consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense of software. Depreciation expense related to equipment in Bluestem's fulfillment facilities are included in cost of sales.

(d) Interest expense net of interest income.

(e) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.

(f) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates initially included in FreshStart new customer credit accounts when their initial order was made.

(g) Customers who have made a first time purchase from a particular brand within the Orchard Portfolio during the period presented.

(h) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.

(i) Customers that have made at least one purchase within the previous twelve fiscal months.

(j) PayCheck Direct clients' full-time active employees with a tenure greater than six months, are at least 18 years old, and have met certain minimum annual earnings.

BLUESTEM BRANDS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
		July 31, 2015 (a)				January 30, 2015
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	8,349			$	59,222
Restricted cash			11,345				13,425
Customer accounts receivable — net of allowance for doubtful accounts of $10,152 and $10,457, respectively			46,731				40,928
Merchandise inventories			225,571				96,431
Promotional material inventories			50,012				13,976
Deferred income taxes			11,473				14,914
Prepaid expenses and other assets			19,920				19,008
Total current assets			373,401				257,904
Property and equipment — net			98,799				49,755
Intangible assets — net			360,241				377,892
Goodwill			506,464				201,642
Other assets			700				10
Total Assets		$	1,339,605			$	887,203
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	181,101			$	82,037
Current income taxes payable			8,469				18,567
Accrued costs and other liabilities			92,785				65,109
Short-term debt			31,179				17,764
Total current liabilities			313,534				183,477
Long-term debt			508,215				272,802
Deferred income taxes			151,553				140,119
Other long-term liabilities			4,648				5,187
Stockholders' equity:
Common stock			-				-
Additional paid-in capital			369,602				269,602
Retained earnings			(7,947	)			16,016
Total stockholders' equity			361,655				285,618
Total Liabilities and Stockholders’ Equity		$	1,339,605			$	887,203
(a) Orchard Portfolio results are presented as of July 31, 2015.

BLUESTEM BRANDS, INC.
Condensed Consolidated Statement of Cash Flows
(unaudited — in thousands)
		Successor			Predecessor
		(26 Weeks Ended)			(26 Weeks Ended)
		July 31, 2015 (a)			August 1, 2014
Cash flows from operating activities:
Net (loss) income		$ (23,963)			$ 14,011
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Amortization and depreciation expense		27,444			7,314
Amortization of deferred charges and original issue discount		1,914			1,197
Provision (benefit) for doubtful accounts		7,157			(8,598)
Provision for merchandise returns		13,852			11,574
Deferred income taxes		(820)			(780)
Stock-based compensation expense		1,947			1,424
Inventory obsolescence and other reserves		14,836			10,944
Other, net		918			-
Net change in assets and liabilities which provided (used) cash:
Customer accounts receivable		(33,521)			(13,480)
Merchandise inventories		1,978			(10,377)
Promotional material inventories		(5,452)			166
Prepaid expenses and other assets		3,659			9,546
Current income taxes payable		(7,195)			(10,135)
Accounts payable and other liabilities		5,492			5,283
Net cash provided by operating activities		8,246			18,089
Cash flows from investing activities:
Purchase of customer accounts receivable		(475,031)			(422,344)
Proceeds from sale of customer accounts receivable		475,178			423,336
Acquisition of Orchard Brands, net		(392,158)			-
Net purchase of property and equipment		(15,223)			(11,271)
Net decrease (increase) in restricted cash		2,080			(5,121)
Net cash used in investing activities		(405,154)			(15,400)
Cash flows from financing activities:
Borrowings on revolving credit facilities		192,276			209,641
Repayments on revolving credit facilities		(194,944)			(210,430)
Borrowings on Successor Term Loan, net of financing fees		269,453			-
Repayments on Successor Term Loan		(20,750)			-
Repayments on Predecessor Term Loan		-			(40,000)
Cash equity contributions from parent		100,000			-
Issuance of Predecessor common stock		-			492
Net cash provided by (used in) financing activities		346,035			(40,297)
Net Decrease in Cash and Cash Equivalents		(50,873)			(37,608)
Cash and Cash Equivalents, Beginning of Period		59,222			132,388
Cash and Cash Equivalents, End of Period		$ 8,349			$ 94,780
(a) Orchard Portfolio results are presented for the period from July 10, 2015 through July 31, 2015.

BLUESTEM BRANDS, INC.
Supplemental Financial Information
(unaudited — in thousands)
		Successor							Predecessor
		(13 Weeks Ended)							(13 Weeks Ended)
		July 31, 2015							August 1, 2014							Change
Total sales by merchandise category: (a)
Home		$	131,833			41.2	%		$	110,682			45.8	%		19.1	%
Entertainment			101,861			31.8	%			96,387			39.8	%		5.7	%
Fashion			85,745			26.8	%			34,891			14.4	%		145.8	%
Total merchandise sales (b)			319,439			100.0	%			241,960			100.0	%		32.0	%
Returns and allowances			(26,556	)						(15,885	)					67.2	%
Commissions and other revenue			8,492							4,399						93.0	%
Net sales		$	301,375						$	230,474						30.8	%
Gross profit rate			43.7	%						42.4	%					139		bp
Sales and marketing expense			21.6	%						18.7	%					294		bp
Contribution margin rate (c)			18.9	%						23.6	%					(473	)	bp
Average order size (d)		$	238						$	232						2.6	%
Fingerhut sales by merchandise category:
Home		$	111,752			47.5	%		$	103,129			47.2	%		8.4	%
Entertainment			88,504			37.5	%			82,546			37.8	%		7.2	%
Fashion			35,464			15.0	%			32,860			15.0	%		7.9	%
Total merchandise sales (b)			235,720			100.0	%			218,535			100.0	%		7.9	%
Returns and allowances			(16,834	)						(14,411	)					16.8	%
Commissions			4,794							4,152						15.5	%
Net sales		$	223,680						$	208,276						7.4	%
Gross profit rate			43.8	%						44.5	%					(72	)	bp
Sales and marketing expense			19.2	%						19.0	%					15		bp
Contribution margin rate (c)			20.7	%						25.6	%					(487	)	bp
Average order size (d)		$	235						$	230						2.2	%
Orchard sales by merchandise category: (a)
Home		$	5,727			10.8	%
Fashion			47,118			89.2	%
Total merchandise sales (b)			52,845			100.0	%
Returns and allowances			(7,711	)
Commissions and other revenue			3,307
Net sales		$	48,441
Gross profit rate			53.9	%
Sales and marketing expense			36.3	%
Contribution margin rate (c)			17.5	%
Average order size (d)		$	75
Other sales by merchandise category: (e)
Home		$	14,354			46.5	%		$	7,553			32.2	%		90.0	%
Entertainment			13,357			43.3	%			13,841			59.1	%		(3.5	)%
Fashion			3,163			10.2	%			2,031			8.7	%		55.7	%
Total merchandise sales (b)			30,874			100.0	%			23,425			100.0	%		31.8	%
Returns and allowances			(2,011	)						(1,474	)					36.4	%
Commissions			391							247						58.3	%
Net sales		$	29,254						$	22,198						31.8	%
Gross profit rate			26.9	%						22.5	%					445		bp
Sales and marketing expense			15.5	%						15.1	%					46		bp
Contribution margin rate (c)			7.1	%						5.0	%					208		bp
Average order size (d)		$	259						$	256						1.2	%

(a) Orchard Portfolio results are presented for the period from July 10, 2015 through July 31, 2015.

(b) Total merchandise sales includes shipping and handling revenue and is net of sales discounts.

(c) Contribution margin rate represents contribution margin as a percentage of net sales. Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.

(d) Average order size represents retail merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented.

(e) Other includes Gettington.com and Paycheck Direct.

BLUESTEM BRANDS, INC.
Supplemental Financial Information
(unaudited — in thousands)
		Successor							Predecessor
		(26 Weeks Ended)							(26 Weeks Ended)
		July 31, 2015							August 1, 2014							Change
Total sales by merchandise category: (a)
Home		$	233,550			43.6	%		$	191,801			45.7	%		21.8	%
Entertainment			183,218			34.2	%			165,588			39.4	%		10.6	%
Fashion			118,741			22.2	%			62,495			14.9	%		90.0	%
Total merchandise sales (b)			535,509			100.0	%			419,884			100.0	%		27.5	%
Returns and allowances			(40,504	)						(26,487	)					52.9	%
Commissions and other revenue			12,545							8,328						50.6	%
Net sales		$	507,550						$	401,725						26.3	%
Gross profit rate			42.9	%						42.3	%					56		bp
Sales and marketing expense			21.2	%						20.0	%					127		bp
Contribution margin rate (c)			18.5	%						25.5	%					(701	)	bp
Average order size (d)		$	230						$	224						2.7	%
Fingerhut sales by merchandise category:
Home		$	203,419			47.4	%		$	179,255			47.1	%		13.5	%
Entertainment			159,135			37.2	%			142,439			37.4	%		11.7	%
Fashion			65,762			15.4	%			58,674			15.5	%		12.1	%
Total merchandise sales (b)			428,316			100.0	%			380,368			100.0	%		12.6	%
Returns and allowances			(29,376	)						(24,020	)					22.3	%
Commissions			8,515							7,924						7.5	%
Net sales		$	407,455						$	364,272						11.9	%
Gross profit rate			43.7	%						44.3	%					(59	)	bp
Sales and marketing expense			20.0	%						20.4	%					(40	)	bp
Contribution margin rate (c)			20.2	%						27.3	%					(710	)	bp
Average order size (d)		$	228						$	222						2.7	%
Orchard sales by merchandise category: (a)
Home		$	5,727			10.8	%
Fashion			47,118			89.2	%
Total merchandise sales (b)			52,845			100.0	%
Returns and allowances			(7,711	)
Commissions and other revenue			3,307
Net sales		$	48,441
Gross profit rate			53.9	%
Sales and marketing expense			36.3	%
Contribution margin rate (c)			17.5	%
Average order size (d)		$	75
Other sales by merchandise category: (e)
Home		$	24,404			44.9	%		$	12,546			31.7	%		94.5	%
Entertainment			24,083			44.3	%			23,149			58.6	%		4.0	%
Fashion			5,861			10.8	%			3,821			9.7	%		53.4	%
Total merchandise sales (b)			54,348			100.0	%			39,516			100.0	%		37.5	%
Returns and allowances			(3,417	)						(2,467	)					38.5	%
Commissions			723							404						79.0	%
Net sales		$	51,654						$	37,453						37.9	%
Gross profit rate			26.3	%						23.4	%					284		bp
Sales and marketing expense			16.6	%						15.5	%					110		bp
Contribution margin rate (c)			6.0	%						8.1	%					(210	)	bp
Average order size (d)		$	252						$	243						3.7	%

(a) Orchard Portfolio results are presented for the period from July 10, 2015 through July 31, 2015.

(b) Total merchandise sales includes shipping and handling revenue and is net of sales discounts.

(c) Contribution margin rate represents contribution margin as a percentage of net sales. Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.

(d) Average order size represents retail merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented.

(e) Other includes Gettington.com and Paycheck Direct.

BLUESTEM BRANDS, INC.
Supplemental Financial Information
(unaudited — in thousands, except average balance outstanding)
		Successor					Predecessor
		(13 Weeks Ended)					(13 Weeks Ended)
		July 31, 2015					August 1, 2014					Change
Net credit expense (income):
Finance charge and fee income		$	(202	)			$	1,949					(110.4	)%
Provision (benefit) for doubtful accounts			1,891					(1,225	)				(254.4	)%
Credit management costs			18,107					17,677					2.4	%
Portfolio profit sharing and servicing fee income			(9,987	)				(18,227	)				(45.2	)%
Net credit expense (income)		$	9,809				$	174					n/m
Serviced Portfolio Selected Credit Data:
		(13 Weeks Ended)
		July 31, 2015
		Revolving (a)					FreshStart (b)					PCD Installment (c)
Balance active accounts			1,800					136					32
Average balance outstanding		$	688				$	104				$	545
Customer accounts receivable (d)		$	1,237,579				$	14,094				$	17,318
Balances 30+ days delinquent (e)		$	201,406				$	5,804				$	1,521
Balances 30+ days delinquent as a percentage of total customer accounts receivable (f)			16.3	%				41.2	%				8.8	%
Average customer accounts receivable		$	1,252,998				$	16,852				$	16,574
Finance charge and fee income (expense)			90,072					(620	)				n/a
Finance charge and fee income rate (g)			28.8	%				-3.1	%				n/a
Net principal charge-offs		$	60,863				$	7,219				$	378
Net principal charge-off rate (h)			19.4	%				36.1	%				9.1	%
		(13 Weeks Ended)
		August 1, 2014
		Revolving (a)					FreshStart (b)					PCD Installment (c)
Balance active accounts			1,665					110					10
Average balance outstanding		$	622				$	105				$	670
Customer accounts receivable (d)		$	1,035,927				$	11,502				$	6,646
Balances 30+ days delinquent (e)		$	173,326				$	4,591				$	144
Balances 30+ days delinquent as a percentage of total customer accounts receivable (f)			16.7	%				39.9	%				2.2	%
Average customer accounts receivable		$	1,035,569				$	12,040				$	5,136
Finance charge and fee income		$	78,645				$	(237	)				n/a
Finance charge and fee income rate (g)			30.4	%				-1.9	%				n/a
Net principal charge-offs		$	39,852				$	4,201				$	140
Net principal charge-off rate (h)			15.4	%				33.4	%				10.9	%

(a) Revolving serviced portfolio includes Fingerhut and Gettington.com revolving credit accounts.

(b) FreshStart serviced portfolio is Fingerhut's installment accounts.

(c) PCD installment serviced portfolio is installment receivables issued to consumers who are members and employees of participating organizations and employers in the PayCheck Direct program.

(d) Customer accounts receivable excludes impact from purchase accounting fair value adjustment.

(e) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end.

(f) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end as a percentage of total customer accounts receivable as of the customers' statement cycle dates prior to or on fiscal period end.

(g) Revolving finance charge and fee income rate represents finance charge and fee income as a percentage of average customer accounts receivable for the 13 weeks ended July 31, 2015 and August 1, 2014 annualized to 52-week periods for comparability. FreshStart finance charge and fee income rate represents finance charge and fee income as a percentage of the 13 weeks of FreshStart related sales five months prior to the 13 weeks ended July 31, 2015 and August 1, 2014.

(h) Revolving and PCD Installment net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 13 weeks ended July 31, 2015 and August 1, 2014 annualized to 52-week periods for comparability. FreshStart net principal charge-off rate represents net principal charge-offs as a percentage of the 13 weeks of FreshStart related sales five months prior to the 13 weeks ended July 31, 2015 and August 1, 2014.

BLUESTEM BRANDS, INC.
Supplemental Financial Information
(unaudited — in thousands, except average balance outstanding)
		Successor					Predecessor
		(26 Weeks Ended)					(26 Weeks Ended)
		July 31, 2015					August 1, 2014					Change
Net credit expense (income):
Finance charge and fee income		$	(4,182	)			$	7,271					(157.5	)%
Provision (benefit) for doubtful accounts			7,157					(8,598	)				(183.2	)%
Credit management costs			37,202					34,045					9.3	%
Portfolio profit sharing and servicing fee income			(24,069	)				(45,250	)				(46.8	)%
Net credit expense (income)		$	16,108				$	(12,532	)				n/m
Serviced Portfolio Selected Credit Data:
		(26 Weeks Ended)
		July 31, 2015
		Revolving (a)					FreshStart (b)					PCD Installment (c)
Balance active accounts			1,800					136					32
Average balance outstanding		$	688				$	104				$	545
Customer accounts receivable (d)		$	1,237,579				$	14,094				$	17,318
Balances 30+ days delinquent (e)		$	201,406				$	5,804				$	1,521
Balances 30+ days delinquent as a percentage of total customer accounts receivable (f)			16.3	%				41.2	%				8.8	%
Average customer accounts receivable		$	1,247,272				$	19,630				$	16,858
Finance charge and fee income			182,257					1,683					n/a
Finance charge and fee income rate (g)			29.2	%				5.3	%				n/a
Net principal charge-offs		$	113,704				$	10,265				$	1,065
Net principal charge-off rate (h)			18.2	%				32.6	%				12.6	%
		(26 Weeks Ended)
		August 1, 2014
		Revolving (a)					FreshStart (b)					PCD Installment (c)
Balance active accounts			1,665					110					10
Average balance outstanding		$	622				$	105				$	670
Customer accounts receivable (d)		$	1,035,927				$	11,502				$	6,646
Balances 30+ days delinquent (e)		$	173,326				$	4,591				$	144
Balances 30+ days delinquent as a percentage of total customer accounts receivable (f)			16.7	%				39.9	%				2.2	%
Average customer accounts receivable		$	1,022,708				$	13,074				$	4,519
Finance charge and fee income		$	152,366				$	1,492					n/a
Finance charge and fee income rate (g)			29.8	%				7.2	%				n/a
Net principal charge-offs		$	77,672				$	6,559				$	157
Net principal charge-off rate (h)			15.2	%				31.5	%				6.9	%

(a) Revolving serviced portfolio includes Fingerhut and Gettington.com revolving credit accounts.

(b) FreshStart serviced portfolio is Fingerhut's installment accounts.

(c) PCD installment serviced portfolio is installment receivables issued to consumers who are members and employees of participating organizations and employers in the PayCheck Direct program.

(d) Customer accounts receivable excludes impact from purchase accounting fair value adjustment.

(e) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end.

(f) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end as a percentage of total customer accounts receivable as of the customers' statement cycle dates prior to or on fiscal period end.

(g) Revolving finance charge and fee income rate represents finance charge and fee income as a percentage of average customer accounts receivable for the 26 weeks ended July 31, 2015 and August 1, 2014 annualized to 52-week periods for comparability. FreshStart finance charge and fee income rate represents finance charge and fee income as a percentage of the 26 weeks of FreshStart related sales five months prior to the 26 weeks ended July 31, 2015 and August 1, 2014.

(h) Revolving and PCD Installment net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 26 weeks ended July 31, 2015 and August 1, 2014 annualized to 52-week periods for comparability. FreshStart net principal charge-off rate represents net principal charge-offs as a percentage of the 26 weeks of FreshStart related sales five months prior to the 26 weeks ended July 31, 2015 and August 1, 2014.

BLUESTEM BRANDS, INC.
Non-GAAP Financial Measures
(unaudited — in thousands)
To supplement the consolidated financial information of Bluestem Brands, Inc. and its subsidiaries which are presented in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, Bluestem uses the following measures that are not in accordance with, or an alternative to, measures prepared in accordance with GAAP (non-GAAP measures):
Pro forma net credit expense (income), as presented, is defined as net credit expense (income) assuming that the Santander Consumer USA Inc. ("SCUSA") credit financing arrangement had been in place and all revolving customer accounts receivable were sold to SCUSA prior to the 2014 fiscal year. No pro forma adjustments were necessary for the 13 weeks and 26 weeks ended July 31, 2015 as the sale of receivables was fully transitioned by the end of fiscal 2014.
Contribution margin, as presented, is defined as net sales less cost of sales, sales and marketing expenses and net credit expense (income). Contribution Margin represents the combined performance of merchandising, marketing and credit management activities.
Pro forma contribution margin, as presented, is defined as net sales less cost of sales, sales and marketing expenses and pro forma net credit expense (income) assuming that the SCUSA credit financing arrangement had been in place and all revolving customer accounts receivable were sold to SCUSA prior to the 2014 fiscal year. No pro forma adjustments were necessary for the 13 weeks and 26 weeks ended July 31, 2015 as the sale of receivables was fully transitioned by the end of fiscal 2014.
Adjusted general and administrative expense, as presented, is defined as general and administrative expenses adjusted for dividend equivalent expense, stock-based compensation expense, acquisition transaction costs, specified litigation matters, and other. Specified litigation matters are certain litigation contingencies that existed as of the November 7, 2014 acquisition of Bluestem by Bluestem Group that are subject to limited indemnification by Bluestem's former stockholders.
Adjusted EBITDA, as presented, represents net (loss) income before interest expense, income tax (benefit) expense, amortization and depreciation expense, stock-based compensation expense, dividend equivalent expense, acquisition transaction costs, specified litigation matters, and other. Specified litigation matters are certain litigation contingencies that existed as of the November 7, 2014 acquisition of Bluestem by Bluestem Group that are subject to limited indemnification by Bluestem's former stockholders.
Adjusted pro forma EBITDA, as presented, represents net (loss) income, assuming that the SCUSA credit financing arrangement had been in place and all revolving customer accounts receivable were sold to SCUSA prior to the 2014 fiscal year, before interest expense, income tax (benefit) expense, amortization and depreciation expense, stock-based compensation expense, dividend equivalent expense, acquisition transaction costs, specified litigation matters, and other. In April 2013, the Company entered into a new strategic relationship with SCUSA, under which the Company would sell all newly originated Fingerhut and Gettington revolving credit receivables to SCUSA at par on the same business day as its purchase from WebBank and shares the profit on the receivables with SCUSA. No pro forma adjustments were necessary for the 13 weeks and 26 weeks ended July 31, 2015 as the sale of receivables was fully transitioned by the end of fiscal 2014.
We provide these measures because we believe they are useful to investors in evaluating our operating performance (while giving effect to the SCUSA transaction) compared to other companies in our industry. As non-GAAP measures, they have limitations in that they do not reflect all of the amounts associated with Bluestem's results of operations as determined in accordance with GAAP and are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP. In addition, our calculations of pro forma net credit expense (income), contribution margin, pro forma contribution margin, adjusted general and administrative expense, adjusted EBITDA, and adjusted pro forma EBITDA may not be comparable to the calculations of such measures by other companies.
The following table reconciles our pro forma Net Credit Expense (Income) to the nearest GAAP performance measure, which is net credit expense (income):
		13 Weeks Ended								26 Weeks Ended
		July 31, 2015 (a)				August 1, 2014				July 31, 2015 (a)				August 1, 2014
Pro forma Net Credit Expense (Income):
Net credit expense (income)		$	9,809			$	174			$	16,108			$	(12,532	)
Less:
Finance charge and fee income adjustment (b)			-				(1,712	)			-				(8,763	)
Provision for doubtful accounts adjustment (b)			-				3,519				-				14,157
Servicing income adjustment (c)			-				(98	)			-				(274	)
Profit sharing adjustment (c)			-				794				-				13,369
Total net credit expense (income) pro forma adjustments			-				2,503				-				18,489
Pro forma Net Credit Expense (Income)		$	9,809			$	2,677			$	16,108			$	5,957
Pro forma net credit expense (income) % of net sales			3.3	%			1.2	%			3.2	%			1.5	%

(a) No pro forma adjustments were necessary for the 13 weeks and 26 weeks ended July 31, 2015 as the sale of receivables was fully transitioned by the end of fiscal 2014.

(b) Finance charge and fee income and provision for doubtful accounts shifted to SCUSA for all revolving receivables. Bluestem Brands, Inc. retains finance charge and fee income and provision for doubtful accounts for retained receivables (FreshStart and PayCheck Direct).

(c) Bluestem Brands, Inc. receives a 2% servicing fee and profit sharing (based on Risk Adjusted Margin) from SCUSA.

BLUESTEM BRANDS, INC.
Non-GAAP Financial Measures
(unaudited — in thousands)
The following table reconciles our Contribution Margin to the nearest GAAP performance measure, which is net (loss) income:
		13 Weeks Ended								26 Weeks Ended
		July 31, 2015 (a)				August 1, 2014				July 31, 2015 (a)				August 1, 2014
Contribution Margin:
Net (loss) income		$	(12,694	)		$	9,891			$	(23,963	)		$	14,011
Income tax (benefit) expense			(288	)			5,510				(5,447	)			7,815
Interest expense, net			8,754				4,364				16,274				9,000
General and administrative expenses			46,431				31,533				80,187				65,286
Amortization and depreciation not included in cost of sales			14,758				3,158				26,809				6,337
Contribution Margin		$	56,961			$	54,456			$	93,860			$	102,449
Contribution margin % of net sales			18.9	%			23.6	%			18.5	%			25.5	%
The following table reconciles Contribution Margin to pro forma Contribution Margin:
		13 Weeks Ended								26 Weeks Ended
		July 31, 2015 (b)				August 1, 2014				July 31, 2015 (b)				August 1, 2014
Pro forma Contribution Margin:
Contribution margin			56,961				54,456				93,860				102,449
Less:
Net credit expense (income) pro forma adjustments (c)			-				2,503				-				18,489
Pro forma Contribution Margin		$	56,961			$	51,953			$	93,860			$	83,960
Pro forma contribution margin % of net sales			18.9	%			22.5	%			18.5	%			20.9	%
The following table reconciles Adjusted General and Administrative expenses to the nearest GAAP performance measure, which is general and administrative expenses:
		13 Weeks Ended								26 Weeks Ended
		July 31, 2015 (a)				August 1, 2014				July 31, 2015 (a)				August 1, 2014
Adjusted General and Administrative Expenses:
General and administrative expenses		$	46,431			$	31,533			$	80,187			$	65,286
Less:
Dividend equivalent expense			-				2,976				-				6,136
Stock-based compensation expense			939				703				1,948				1,424
Acquisition transaction costs			6,530				1,335				8,342				2,884
Specified litigation matters			-				805				-				2,822
Lease termination costs			1,122				-				1,122				-
Other			918				48				1,479				104
Adjusted General and Administrative Expenses		$	36,922			$	25,666			$	67,296			$	51,916
Adjusted general and administrative expenses % of net sales			12.3	%			11.1	%			13.3	%			12.9	%

(a) Orchard Portfolio results are presented for the period from July 10, 2015 through July 31, 2015.

(b) No pro forma adjustments to Contribution Margin was necessary for the 13 weeks and 26 weeks ended July 31, 2015 as the sale of receivables was fully transitioned by the end of fiscal 2014.

(c) Net credit expense (income) pro forma adjustments are described in pro forma net credit expense (income) section.

BLUESTEM BRANDS, INC.
Non-GAAP Financial Measures
(unaudited — in thousands)
The following table reconciles our Adjusted EBITDA to the nearest GAAP performance measure, which is net (loss) income:
		13 Weeks Ended								26 Weeks Ended
		July 31, 2015 (a)				August 1, 2014				July 31, 2015 (a)				August 1, 2014
Adjusted EBITDA:
Net (loss) income		$	(12,694	)		$	9,891			$	(23,963	)		$	14,011
Interest expense			8,757				4,370				16,277				9,013
Income tax (benefit) expense			(288	)			5,510				(5,447	)			7,815
Amortization and depreciation expense			15,108				3,648				27,444				7,311
Stock-based compensation expense			939				703				1,948				1,425
Dividend equivalent expense			-				2,976				-				6,136
Acquisition transaction costs			6,530				1,335				8,342				2,884
Specified litigation matters			-				805				-				2,822
Lease termination costs			1,122				-				1,122				-
Other			1,045				164				1,721				324
Adjusted EBITDA		$	20,519			$	29,402			$	27,444			$	51,741
Adjusted pro forma EBITDA % of net sales			6.8	%			12.8	%			5.4	%			12.9	%
The following table reconciles our Adjusted EBITDA to Adjusted pro forma EBITDA:
		13 Weeks Ended								26 Weeks Ended
		July 31, 2015 (b)				August 1, 2014				July 31, 2015 (b)				August 1, 2014
Adjusted pro forma EBITDA:
Adjusted EBITDA		$	20,519			$	29,402			$	27,444			$	51,741
Less:
Net credit expense (income) pro forma adjustments (c)			-				(2,503	)			-				(18,489	)
Other pro forma adjustments (d)			-				(240	)			-				(478	)
Adjusted pro forma EBITDA		$	20,519			$	26,659			$	27,444			$	32,774
Adjusted pro forma EBITDA % of net sales			6.8	%			11.6	%			5.4	%			8.2	%

(a) Orchard Portfolio results are presented for the period from July 10, 2015 through July 31, 2015.

(b) No pro forma adjustments were necessary for the 13 weeks and 26 weeks ended July 31, 2015 as the sale of receivables was fully transitioned by the end of fiscal 2014.

(c) Net credit expense (income) pro forma adjustments are described above in pro forma net credit expense (income).

(d) Amortization and depreciation decrease due to elimination of amortization of deferred SCUSA transaction-related expenses.

ORCHARD BRANDS CORPORATION
Consolidated Statements of Operations and Selected Operating Data
(unaudited — in thousands)
To supplement the consolidated financial information of Bluestem Brands, Inc. and its subsidiaries, we are providing certain consolidated stand-alone historical results of Orchard Brands Corporation and its subsidiaries for the 26 weeks ended June 27, 2015 and June 28, 2014 and the 52 weeks ended December 27, 2014 and December 28, 2013. These periods represent the first two quarters of Orchard Brands Corporation's 2015 and 2014 fiscal years and its 2014 and 2013 years. This information is being presented to provide an understanding of the historic consolidated results of Orchard Brands Corporation prior to ownership by Bluestem Brands, Inc. This information does not include any adjustments or otherwise give effect to any changes to the operations of Orchard Brands Corporation or its subsidiaries that might result from Bluestem Brand’s acquisition of Orchard Brands Corporation. The results for the periods presented are not included in the results of Bluestem Brands, Inc. Orchard Brand Corporation’s consolidated results of operations for prior periods are not necessarily indicative of future performance.
EBITDA, as presented, represents net income before interest expense, income tax expense and amortization and depreciation expense. We provide this measure because we believe it is useful to investors in evaluating operating performance compared to other companies in Orchard Brand’s industry. As a non-GAAP measure, EBITDA has limitations in that it does not reflect all of the amounts associated with Orchards Brands Corporation's results of operations as determined in accordance with GAAP and is not based on any comprehensive set of accounting rules or principles. Non-GAAP measures should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP.
								52 Weeks Ended
		26 Weeks Ended						December 27,			December 28,
		June 27, 2015			June 28, 2014				2014			2013
Net Sales		$	490,424		$	493,004		$	1,022,926		$	1,023,323
Net Income		$	8,010		$	4,988		$	13,904		$	9,412
Interest expense			8,463			10,101			19,601			16,981
Depreciation and amortization			7,179			7,167			15,075			18,236
Income tax expense			5,014			3,800			10,102			4,109
EBITDA		$	28,666		$	26,056		$	58,682		$	48,738
Selected Operating Data:
Active customers (a)			8,020			7,901			7,919			7,857
New gross customers (b)			420			414			843			849
Average order size (c)		$	69		$	69		$	70		$	70

(a) Customers that have made at least one purchase within the previous twelve fiscal months.

(b) Customers who have made a first time purchase from a particular brand within the Orchard Portfolio during the period presented.

(c) Average order size represents retail merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented.

MANAGEMENT’S COMMENTARY ON RESULTS OF OPERATIONS OF BLUESTEM BRANDS, INC.

The following management commentary presents the Company’s detailed analysis of the results of operations of Bluestem Brands, Inc. and its consolidated subsidiaries on a stand-alone basis for the (unaudited) 13-weeks and 26-weeks ended July 31, 2015 and August 1, 2014.

As used in this management commentary:

• “Bluestem”, “we”, “our” or “the Company” refers to Bluestem Brands, Inc. which consists of the Bluestem legacy portfolio of retail brands and, from and after July 10, 2015, the Orchard portfolio of retail brands
• “Bluestem Legacy Portfolio” refers to the consolidated Fingerhut, Gettington.com and PayCheck Direct retail brands
• “Orchard Portfolio” refers to the consolidated Appleseed’s, Bedford Fair, Blair, Draper’s & Damon’s, Gold Violin, Haband, LinenSource, Norm Thompson, Old Pueblo Traders, Sahalie, Solutions, Tog Shop and WinterSilks retail brands

On July 10, 2015, Bluestem acquired all of the outstanding common shares and voting interests of the Orchard Brands Corporation, which operates the Orchard Portfolio, for $410 million in cash, subject to customary purchase price adjustments. The results of the Orchard Portfolio have been included in the results of operation of Bluestem for the period from July 10, 2015 through July 31, 2015.

Results of Operations – 13-Weeks Ended July 31, 2015 Compared to 13-Weeks Ended August 1, 2014

Net Income (Loss): For the 13-weeks ended July 31, 2015, net loss was $12.7 million, a decrease of $22.6 million as compared to net income of $9.9 million for the 13-weeks ended August 1, 2014. We reported a net loss for the quarter due to a $22.1 million increase in sales and marketing expenses, a $14.9 million increase in general and administrative expenses, an $11.6 million increase in amortization and depreciation not included in costs of sales, a $9.6 million increase in net credit expense and a $4.4 million increase in interest expense, net, partially offset by a $34.2 million increase in gross profit and a $5.8 million decrease in income tax expense.

Adjusted EBITDA / Adjusted Pro Forma EBITDA: Adjusted EBITDA for the 13-weeks ended July 31, 2015 was $20.5 million, a decrease of $6.1 million as compared to adjusted pro forma EBITDA of $26.7 million for the same period ended August 1, 2014. This decrease is due to a $22.1 million increase in sales and marketing expenses, an $11.2 million increase in adjusted general and administrative expenses and a $7.1 million increase in pro forma net credit expense (income), partially offset by a $34.3 million increase in gross profit.

Net Sales: For the 13-weeks ended July 31, 2015, net sales were $301.4 million, an increase of $70.9 million, or 30.8%, as compared to net sales of $230.5 million for the 13-weeks ended August 1, 2014. The Bluestem Legacy Portfolio average order size increased to $238 for the 13-weeks ended July 31, 2015 compared to an average order size of $232 for the 13-weeks ended August 1, 2014. The Orchard Portfolio recorded an average order size of $75 during the period from July 10, 2015 through July 31, 2015. The Bluestem Legacy Portfolio added 200 thousand new credit customers in the 13-weeks ended July 31, 2015 and in the 13-weeks ended August 1, 2014, respectively. The $70.9 million net sales increase was primarily a result of the acquisition of the Orchard Portfolio, which recorded $48.4 million in net sales during the period from July 10, 2015 through July 31, 2015, and due to strong sales to Bluestem Legacy Portfolio’s new and existing customers. New customer accounts acquired were driven by broader visibility of our website through effective marketing efforts and assortment expansion. Sales to existing customers were driven by our ability to retain customers through our marketing efforts, assortment expansion, credit line account management strategies and targeted promotions.

Gross Profit Rate: The gross profit rate increased 139 basis points to 43.8% for the 13-weeks ended July 31, 2015 as compared to 42.4% for the 13-weeks ended August 1, 2014. The acquisition of the Orchard Portfolio resulted in an increase in gross profit rate of 194 basis points. The Orchard Portfolio recorded a gross profit rate of 53.9% during the period from July 10, 2015 through July 31, 2015. The Bluestem Legacy Portfolio recorded a gross profit rate of 41.8% for the 13-weeks ended July 31, 2015, which represents a 55 basis point decrease as compared to the 13-weeks ended August 1, 2014. The decrease in the Bluestem Legacy Portfolio gross profit rate was primarily a result of an increase in merchandise return activity and an increase in inventory obsolescence.

Sales and Marketing Expenses: For the 13-weeks ended July 31, 2015, sales and marketing expenses were $65.1 million, an increase of $22.1 million, or 51.4%, as compared to $43.0 million for the 13-weeks ended August 1, 2014. As a percent of net sales, our sales and marketing costs increased 294 basis points to 21.6%, compared to 18.7% in the second quarter of fiscal 2014. The acquisition of the Orchard Portfolio resulted in a 283 basis point increase in sales and marketing expense. The Orchard Portfolio recorded sales and marketing expense as a percentage of net sales of 36.3% for the period from July 10, 2015 through July 31, 2015. The Bluestem Legacy Portfolio recorded sales and marketing expense as a percentage of net sales of 18.8% for the 13-weeks ended July 31, 2015, which represents an 11 basis point increase as compared to the 13-weeks ended August 1, 2014. The increase in the Bluestem Legacy Portfolio sales and marketing expense as a percentage of net sales was primarily a result of increased TV advertising.

Net Credit Expense (Income): Net credit expense was $9.8 million for the 13-weeks ended July 31, 2015 compared to a net credit expense of $0.2 million for the 13-weeks ended August 1, 2014. Pro forma net credit expense for the 13-weeks ended August 1, 2014 was $2.7 million. Net credit expense for the 13-weeks ended July 31, 2015 increased 209 basis points as compared to pro-forma net credit expense for the 13-weeks ended August 1, 2014, primarily due to $8.6 million in lower profit sharing on the SCUSA-owned portfolio due to increased gross charge-offs. The $8.6 million decrease in profit sharing was partially offset by a $1.0 million increase in servicing income due to the growth of our portfolio.

General and Administrative Expenses: General and administrative expenses were $46.4 million for the 13-weeks ended July 31, 2015 as compared to $31.5 million for the 13-weeks ended August 1, 2014. Adjusted general and administrative expenses for the 13-weeks ended July 31, 2015 were $36.9 million or 12.3% of net sales, compared to $25.7 million or 11.1% of net sales for the same period ended August 1, 2014. Adjusted general and administrative expenses as a percent of net sales increased 112 basis points due to increased headcount in order to support our growth.

Amortization and Depreciation not Included in Cost of Sales: Amortization and depreciation not included in costs of sales were $14.8 million for the 13-weeks ended July 31, 2015 as compared to $3.2 million for the 13-weeks ended August 1, 2014. This increase was primarily due to the recognition of $10.1 million of amortization expense related to the customer relationship intangible asset as a result of the Bluestem acquisition.

Interest Expense: For the 13-weeks ended July 31, 2015, interest expense was $8.8 million, an increase of $4.4 million versus the same period ended August 1, 2014. The increase is a result of weighted average borrowings outstanding of $352.9 million and a weighted average interest rate of 8.4% for the 13-weeks ended July 31, 2015 compared to $195.3 million of weighted average borrowings outstanding and a 7.9% weighted average interest rate for the 13-weeks ended August 1, 2014. The increase in weighted average borrowings was due to borrowings in connection with the Bluestem acquisition and the acquisition of the Orchard Portfolio.

Income Tax Expense (Benefit): For the 13-weeks ended July 31, 2015, we recorded a $0.3 million income tax benefit, as compared to income tax expense of $5.5 million for the 13-weeks ended August 1, 2014. The $0.3 million income tax benefit was lower than the U.S. statutory rate applied to the $13.0 million pretax loss primarily because of non-deductible acquisition expenses during the 13-weeks ended July 31, 2015. The $5.5 million income tax expense was higher than the U.S. statutory rate applied to $15.4 million pretax income primarily because of state taxes for the 13-weeks ended August 1, 2014.

Results of Operations – 26-Weeks Ended July 31, 2015 Compared to 26-Weeks Ended August 1, 2014

Net Income (Loss): For the 26-weeks ended July 31, 2015, net loss was $24.0 million, a decrease of $38.0 million as compared to net income of $14.0 million for the 26-weeks ended August 1, 2014. We reported a net loss for the 26-weeks ended July 31, 2015 due to a $28.6 million increase in net credit expense, $27.6 million increase in sales and marketing expenses, a $20.5 million increase in amortization and depreciation, a $14.9 million increase in general and administrative expenses and a $7.3 million increase in interest expense, net, partially offset by a $47.6 million increase in gross profit and a $13.3 million decrease in income tax expense.

Adjusted EBITDA / Adjusted Pro Forma EBITDA: Adjusted EBITDA for the 26-weeks ended July 31, 2015 was $27.4 million, a decrease of $5.4 million as compared to adjusted pro forma EBITDA of $32.8 million for the 26-weeks ended August 1, 2014. This decrease is due to a $27.6 million increase in sales and marketing expenses, a $15.4 million increase in adjusted general and administrative expenses and a $10.2 million increase in pro forma net credit expense (income), partially offset by a $47.8 million increase in gross profit.

Net Sales: For the 26-weeks ended July 31, 2015, net sales were $507.6 million, an increase of $105.8 million, or 26.3%, as compared to net sales of $401.7 million for the same period ended August 1, 2014. The Bluestem Legacy Portfolio average order size increased to $230 for the 26-weeks ended July 31, 2015 compared to an average order size of $224 for the 26-weeks ended August 1, 2014. The Orchard Portfolio recorded an average order size of $75 during the period from July 10, 2015 through July 31, 2015. The Bluestem Legacy Portfolio added 403 thousand new credit customers in the 26-weeks ended July 31, 2015 and 387 thousand new credit customers in the 26-weeks ended August 1, 2014. The $105.8 million net sales increase was a result of strong sales to Bluestem Legacy Portfolio’s new and existing customers and the acquisition of the Orchard Portfolio, which recorded $48.4 million in net sales during the period from July 10, 2015 through July 31, 2015. New customer accounts acquired were driven by broader visibility of our website through effective marketing efforts and assortment expansion. Sales to existing customers were driven by our ability to retain customers through our marketing efforts, assortment expansion, credit line account management strategies and targeted promotions.

Gross Profit Rate: The gross profit rate increased 56 basis points to 42.9% for the 26-weeks ended July 31, 2015 as compared to 42.3% for the 26-weeks ended August 1, 2014. The acquisition of the Orchard Portfolio resulted in a 116 basis point increase in gross profit. The Orchard Portfolio recorded a gross profit rate of 53.9% during the period from July 10, 2015 through July 31, 2015. The Bluestem Legacy Portfolio recorded a gross profit rate of 41.8% for the 26-weeks ended July 31, 2015, which represents a 60 basis point decrease as compared to the 26-weeks ended August 1, 2014. The decrease in the Bluestem Legacy Portfolio gross profit rate was primarily a result of an increase in merchandise return activity and an increase in inventory obsolescence.

Sales and Marketing Expenses: For the 26-weeks ended July 31, 2015, sales and marketing expenses were $107.8 million, an increase of $27.6 million, or 34.4%, as compared to $80.2 million for the 26-weeks ended August 1, 2014. As a percent of net sales, our sales and marketing costs were 21.2%, compared to 20.0% in the prior year period. The acquisition of the Orchard Portfolio resulted in a 159 basis point increase in sales and marketing expense as a percentage of net sales. The Orchard Portfolio recorded sales and marketing expense as a percentage of net sales of 36.3% for the period from July 10, 2015 through July 31, 2015. The Bluestem Legacy Portfolio recorded sales and marketing expense as a percent of net sales was 19.6%, which represents a 32 basis point decrease as compared to the 26-weeks ended August 1, 2014. The decrease was a result of advertising efficiencies.

Net Credit Expense (Income): Net credit expense was $16.1 million for the 26-weeks ended July 31, 2015 compared to a net credit income of $12.5 million for the 26-weeks ended August 1, 2014. Pro forma net credit expense for the 26-weeks ended August 1, 2014 was $6.0 million. Net credit expense for the 26-weeks ended July 31, 2015 increased 169 basis points as compared to pro-forma net credit expense for the same period ended August 1, 2014 primarily due to $10.2 million in lower profit sharing on the SCUSA-owned portfolio due to an increase in gross charge-offs, partially offset by an increase in finance charge revenue.

General and Administrative Expenses: General and administrative expenses were $80.2 million for the 26-weeks ended July 31, 2015 as compared to $65.3 million for the 26-weeks ended August 1, 2014. Adjusted general and administrative expenses for the 26-weeks ended July 31, 2015 were $67.3 million or 13.3% of net sales, compared to $51.9 million, or 13.0% of net sales, for the same period ended August 1, 2014. Adjusted general and administrative expenses as a percent of net sales increased 34 basis points due to increased headcount in order to support our growth and increased professional fees.

Amortization and Depreciation not Included in Cost of Sales: Amortization and depreciation not included in costs of sales were $26.8 million for the 26-weeks ended July 31, 2015 as compared to $6.3 million for the 26-weeks ended August 1, 2014. This increase was primarily due to the recognition of $17.8 million of amortization expense related to the customer relationship intangible asset as a result of the Bluestem acquisition.

Interest Expense: For the 26-weeks ended July 31, 2015, interest expense was $16.3 million, an increase of $7.3 million as compared to $9.0 million for the 26-weeks ended August 1, 2014. The increase is a result of weighted average borrowings outstanding of $322.9 million and a weighted average interest rate of 8.4% for the 26-weeks ended July 31, 2015 compared to $204.3 million weighted average borrowings outstanding and a 7.9% weighted average interest rate for the 26-weeks ended August 1, 2014. The increase in weighted average borrowings was due to borrowings in connection with the Bluestem acquisition and the acquisition of the Orchard Portfolio.

Income Tax Expense (Benefit): For the 26-weeks ended July 31, 2015 we recorded a $5.4 million income tax benefit, as compared to income tax expense of $7.8 million for the 26-weeks ended August 1, 2014. The $5.4 million income tax benefit was lower than the U.S. statutory rate applied to the $29.4 million pretax loss primarily because of non-deductible acquisition expenses and other adjustments during the 26-weeks ended July 31, 2015. The $7.8 million income tax expense was higher than the U.S. statutory rate applied to $21.8 million pretax income primarily because of state taxes for the 26-weeks ended August 1, 2014.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150928006549/en/

Investor Relations:
ICR
Denise Garcia, 215-328-1555

Source: Bluestem Group Inc.