Q Earnings Call. April 12, 2019

Transcription

1 Q Earnings Call April 12, 2019

2 Notice to Recipients This presentation 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 Inc. and its consolidated subsidiaries plans, strategies, prospects, and expectations regarding its business are forward-looking statements. These statements involve risks, uncertainties, and assumptions. Important factors that could cause actual results to be materially different from Bluestem Group Inc. and its consolidated subsidiaries expectations include the risks and uncertainties set forth in Risk Factors in the Bluestem Group Inc. and its consolidated subsidiaries report as of and for the years ended February 1, 2019 and February 2, 2018 (available at Accordingly, you should not place undue reliance on the forward-looking statements contained in this presentation. These forward-looking statements are made only as of the date of this presentation. Bluestem Group Inc. and its consolidated subsidiaries undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. This presentation also contains financial measures that are not prepared in accordance with U. S. Generally Accepted Accounting Principles ( GAAP ). Please refer to the Bluestem Group Inc. Consolidated Fourth Quarter Earnings Results press release ("2018 Q4 Earnings Release") (available at for the reconciliations of non-gaap financial measures to the most directly comparable GAAP measures. You should read the 2018 Q4 Earnings Release in addition to this presentation. Non-GAAP financial measures in this presentation include adjusted EBITDA, lender adjusted EBITDA, contribution margin, adjusted general and administrative expenses, leverage ratio debt, lender leverage ratio, lender net liquidity and adjusted free cash flow. 2

3 Q Bluestem Brands, Inc. Headlines Net sales of $584.8 million in Q decreased 5.9% compared to Q Net credit expense declined by 180 bps to 6.6% 1 of net sales compared to Q Contribution margin of $109.2 million 1,2,3 or 18.7% of net sales in Q increased 240 bps compared to Q Adjusted EBITDA of $60.7 million 1,2,3,4 in Q increased $6.3 million or 11.5% compared to Q Compliant with lender covenants throughout and as of Q4 2018, net liquidity was $85.4 million and lender leverage ratio was 2.99x 1 Excludes a servicing rights valuation charge $1.2 million in Q and a servicing rights valuation charge of $4.6 million in Q Excludes impact of the fiscal 2018 adoption of new revenue recognition accounting standard (Topic 606) that resulted in a $13.9 million net decrease of direct response advertising costs in fiscal Q4. 3 Excludes restructuring related inventory write-down charges of $6.5 million 4 Excludes $2.5 million of restructuring charges for employee costs and professional fees 3

4 Business Strategy Update Northstar areas of focus and opportunity Implement a customer segmentation strategy to allow personalized content based on known and predicted preferences and behaviors Leverage personalization efforts to optimize content and drive improved returns from digital marketing Category expansion into fashion and accelerate development of private brands Develop Gettington into a deal-based, dynamic shopping experience centered on apparel and footwear Continue efforts to drive improvements in the credit portfolio Accelerate Orchard portfolio turnaround efforts Execute the exit of the six under-performing retail brands announced at the end of Q4 Brand closures will allow for greater focus on the remaining brands through refined marketing and merchandising strategies Continue to improve circulation productivity initiatives and digital expansion efforts across all brands Improve upon our "concept to customer" approach to improve quality of inventory, shorten product development cycle and improve ability to react to changing market conditions 4

5 Bluestem Brands, Inc. Q4 Results Bluestem Brands, Inc. Q4 FY2018 As reported Adjustments 1 As Adjusted Q4 FY2017 % of net sales As reported Adjustments 1 As Adjusted Net sales $ 584,817 $ $ 584, % $ 621,341 $ $ 621, % Cost of goods sold 335,611 (6,450) 329, % 340, , % Gross Profit 249,206 6, , % 281, , % Sales and marketing expenses 93,798 13, , % 127, , % Net credit expense 39,932 (1,155) 38, % 57,040 (4,633) 52, % Contribution margin 115,476 (6,309) 109, % 96,883 4, , % General and administrative expenses 52,410 (3,018) 49, % 49,836 (1,745) 48, % Amortization and depreciation not included in cost of goods sold 13,202 13, % 15,284 15, % Loss on impairment 25,601 (25,601) % 191,919 (191,919) % Interest expense, net 12,283 12, % 12,291 12, % Income tax expense (benefit) (1,132) (1,132) (0.2)% (12,685) (12,685) (2.0)% Net income (loss) 13,112 22,310 35, % (159,762) 198,297 38, % Plus: Total amortization, depreciation and other 14, % 16, % Interest expense 12, % 12, % Income tax expense (benefit) (1,132) (12,685) Adjusted EBITDA 60, % 54, % 5 1 See slide 6 for explanation and detail of adjustments. Commentary (based on adjusted balances): Net sales decreased 5.9% versus Q as account activation efforts in advance of account closures in Q3 at Northstar resulted in accelerating expected Q4 sales into Q3, and a reduction in Orchard Portfolio catalog circulation resulted in decreased demand Gross profit rate decreased 160 bps primarily due to lower enrollments in our loyalty programs at Orchard and aggressive promotional discounts at Orchard to drive demand. Sales and marketing expense rate decreased 210 bps due to eliminating less productive catalog circulation partially offset by increased investment in digital advertising Adjusted EBITDA as a percentage of net sales increased 160 bps or 11.5% % of net sales

6 Bluestem Brands, Inc. Summary of P&L Adjustments - Q4 FY18 & FY 17 Inventory Writedown 1 Restructuring Costs 2 Topic Rights Valuation 4 Servicing Impairment of Intangible Assets 5 Stock Based Compensation and Other 6 One-Time Charges 7 Q4 FY2018 Cost of sales (6,450) (6,450) Sales and marketing expense 13,914 13,914 Net credit expense (1,155) (1,155) Contribution margin 6,450 (13,914) 1,155 (6,309) G&A (2,472) (458) (88) (3,018) Loss on impairment (25,601) (25,601) Net income 6,450 2,472 (13,914) 1,155 25, ,310 Q4 FY2017 Net credit expense (4,633) (4,633) Contribution margin 4,633 4,633 G&A (175) (854) (716) (1,745) Loss on impairment (191,919) (191,919) Net income , , ,297 Explanation of adjustments: 1 Merchandise inventory write-down of $3.9 million along with the establishment of a $2.5 million liability related to the receipt of committed inventory purchases was recorded as a result of actions taken to monetize the inventory of the exiting Orchard retail brands 2 Restructuring costs associated with the 2018 and 2017 restructuring activities, consisting primarily of severance and relocation costs, professional services and other restructuring expenses- see slide 17 in the Appendix for further information 3 Change in direct response advertising costs resulting from the adoption of new accounting standard (Topic 606) 4 Servicing rights valuation gains and (losses) 5 Impairment of intangible assets of the Orchard Portfolio 6 Non-cash expenses recognized in conjunction with the Company's stock based compensation programs 7 One-time charges for Orchard segmentation and positioning plus executive separation and employment matters 6 Total

7 Northstar Portfolio Q4 Performance unaudited in 000's Q As Reported Q As Adjusted Q As Adjusted Net sales $ 386,071 $ 386,071 $ 399,009 Net sales change YOY (3.2)% (3.2)% (11.3)% Gross profit % % 43.4 % 42.9 % Sales and marketing expense as a % of net sales % 12.1 % 11.5 % Net selling margin % 1, % 31.3 % 31.4 % Net credit expense as a % of net sales % 10.0 % 13.2 % Contribution margin as a % of net sales 1,2, % 21.3 % 18.2 % Revolving new credit accounts FreshStart new credit accounts Northstar Portfolio active customers 1,480 1,465 1 Q As Adjusted excludes the impact of $1.6 million inventory write-down for Sahalie brand inventory to be sold through Gettington 2 Q As Adjusted excludes impact of adoption of Topic 606 accounting standard in fiscal 2018 that resulted in a net decrease of direct response advertising costs, positively impacting contribution margin, net loss and adjusted EBITDA by $5.3 million in Q Q As Adjusted excludes the impact of $1.2 million and Q excludes the impact of $4.6 million from unfavorable servicing rights valuation losses Commentary (based on adjusted balances): Net sales decreased 3.2% compared to Q due to timing of marketing efforts focused on reactivating inactive customers in Q3 2018, which accelerated sales from Q into Q Full year net sales increased 0.4% compared to fiscal 2017 Sales and marketing expense as a percentage of net sales increased 60 bps compared to Q due to higher new customer acquisition costs, including third-party partner relationship costs Net credit expense as a percentage of net sales decreased 320 bps compared to Q due to lower collection costs and lower merchant discount rate due to the actions taken to improve the credit quality of the customers in the portfolio Contribution margin improved 310 bps 7

8 SCUSA Portfolio Q4 Performance % of SCUSA average customer accounts receivable Q Q Risk Adjusted Margin Net credit revenue 29.3 % 25.1 % Net credit losses 24.2 % 21.4 % Servicing fee 2.0 % 2.0 % Cost of bank debt 5.1 % 4.4 % Risk Adjusted Margin excluding the merchant fee (2.0)% (2.7)% SCUSA average customer accounts receivable (in 000's) $ 1,427,071 $ 1,417, day delinquency rate 16.6 % 16.3 % Average merchant discount rate applied to Q4 credit originations 7.6 % 9.8 % 2018 vintage continues to show improvements compared to prior years based on credit underwriting actions previously taken 2018 vintage performance rates trending 5-6% better than the comparable 2017 vintage which were better than 2016 vintage rates Vintage improvement trends are expected to continue in 2019, but at a reduced pace as we anniversary actions taken in prior years The 30+ day delinquency rate increased 30 bps compared to Q due to lower year-over-year sales impacting the denominator Risk Adjusted Margin before the merchant fee improved 70 bps from Q

9 Orchard Portfolio Q4 Performance unaudited in 000's Q As Reported Q As Adjusted Q Net sales $ 179,644 $ 179,644 $ 207,739 Net sales change YOY (13.5)% (13.5)% (17.0)% Gross profit % % 43.3 % 48.0 % Sales and marketing expense as a % of net sales % 31.6 % 37.2 % Contribution margin as a % of net sales 1, % 11.8 % 10.7 % New gross customers Gross active customers 6,809 7,374 1 Q As Adjusted excludes impact of write-off of inventory liquidated by exited retail brands of $4.9 million 2 Q As Adjusted excludes impact of adoption of Topic 606 accounting standard in fiscal 2018 that resulted in a net decrease of direct response advertising costs, positively impacting contribution margin, net loss and adjusted EBITDA by $4.9 million Net sales decreased 13.5% compared to Q Strategic reduction in catalog circulation resulting in lower sales but improved marketing productivity and contribution margin Continued reductions in other revenues as a result of decreased enrollments in our loyalty programs Excluding the impact of inventory write-downs related to exiting 6 retail brands, gross profit as a percentage of net sales decreased 470 bps compared to Q due to continued lower enrollments in our loyalty program and aggressive promotional discounts to drive demand Excluding the Topic 606 impact, sales and marketing expense as a percentage of net sales decreased 560 bps compared to Q due to elimination of less productive catalog circulation, partially offset by increased investment in digital advertising. Contribution margin improved 110 bps 9

10 Bluestem Brands, Inc. Full Year Results Bluestem Brands, Inc. Fiscal Year Ended February 1, 2019 Fiscal Year Ended February 2, 2018 % of net As reported Adjustments 1 As Adjusted sales As reported Adjustments 1 As Adjusted % of net sales Net sales $ 1,795,852 $ $ 1,795, % $ 1,887,655 $ $ 1,887, % Cost of goods sold 968,534 (6,450) 962, % 1,001,596 1,001, % Gross Profit 827,318 6, , % 886, , % Sales and marketing expenses 429,641 4, , % 470, , % Net credit expense 120,374 3, , % 148,777 (9,487) 139, % Contribution margin 277,303 (1,398) 275, % 266,294 9, , % General and administrative expenses 189,559 (8,001) 181, % 213,017 (24,948) 188, % Amortization and depreciation not included in cost of goods sold 49,510 49, % 58,081 58, % Loss on impairment 25,601 (25,601) % 192,149 (192,149) % Interest expense, net 50,136 50, % 50,692 50, % Income tax expense (benefit) (8,468) (8,468) % (39,859) (39,859) (2.1)% Net income (loss) (29,035) 32,204 3, % (207,786) 226,584 18, % Plus: Total amortization, depreciation and other 53,056 62,600 Interest expense 50,224 50,755 Income tax expense (benefit) (8,468) (0.5)% (39,859) (2.1)% Adjusted EBITDA 97, % 92, % 1 See slide 11 for explanation and detail of adjustments. 10

11 Bluestem Brands, Inc. Summary of P&L Adjustments- FY2018 & FY2017 Inventory Writedown 1 Restructuring Costs 2 Topic Rights Valuation 4 Servicing Impairment of Intangible Assets 5 Stock Based Compensation and Other 6 One-Time Charges 7 Full Year FY2018 Cost of sales (6,450) (6,450) Sales and marketing expense 4,666 4,666 Net credit expense 3,182 3,182 Contribution margin 6,450 (4,666) (3,182) (1,398) G&A (2,566) (2,471) (2,964) (8,001) Loss on impairment (25,601) (25,601) Net income 6,450 2,566 (4,666) (3,182) 25,601 2,471 2,964 32,204 Full Year FY2017 Net credit expense (5,822) (3,665) (9,487) Contribution margin 5,822 3,665 9,487 G&A (13,825) (3,525) (7,598) (24,948) Loss on impairment (230) (191,919) (192,149) Net income 0 19, , ,919 3,525 7, ,584 Total Explanation of adjustments: 1 Merchandise inventory write-down of $3.9 million along with the establishment of a $2.5 million liability related to the receipt of committed inventory purchases was recorded as a result of actions taken to monetize the inventory of the exiting Orchard retail brands 2 Restructuring costs associated with the 2018 and 2017 restructuring activities, consisting primarily of severance and relocation costs, professional services, facilities and other restructuring expenses - see slide 17 for further information 3 Change in direct response advertising costs resulting from the adoption of new accounting standard (Topic 606) 4 Servicing rights valuation gains and (losses) 5 Impairment of intangible assets of the Orchard Portfolio 6 Non-cash expenses recognized in conjunction with the Company's stock based compensation programs 7 One-time charges for Orchard segmentation and positioning plus executive separation and employment matters 11

12 Selected Balance Sheet and Covenant Information (Bluestem Brands, Inc.) unaudited in 000's, except Inventory Turnover & Lender Leverage Ratio Q Q Merchandise inventories $ 210,658 $ 194,693 Inventory Turnover Leverage Ratio Net Debt $ 446,017 $ 448,695 Lender Leverage Ratio Lender Leverage Ratio required covenant amount < 4.50 < 4.50 Lender Net Liquidity $ 85,372 $ 97,092 Lender Net Liquidity required covenant amount > $ 40,000 > $ 40,000 Merchandise inventories were up $16.0 million or 8.2% compared to Q Inventory turnover to decrease 0.1 turns to 3.1x in Q compared to Q primarily due to lower demand within the Orchard portfolio In compliance with all covenants throughout and at the end of Q Lender leverage ratio of 2.99x reflects LTM Q Lender Adjusted EBITDA of $149.0 million and Leverage Ratio Net Debt of $446.0 million The improved lender leverage ratio reflects additional allowable adjustments identified as a result of revisiting debt documents following changes in the tariff environment in fiscal Lender net liquidity of $85.4 million reflects $3.8 million of cash and cash equivalents and $81.5 million of availability under our inventory asset based line of credit 12

13 13 APPENDIX

14 Selected Information (Bluestem Group - parent company only) Cash, Investments, PayCheck Direct Receivables, Dividends Paid unaudited in 000's Q Q Cash and cash equivalents $ 119,507 $ 123,398 Net commercial real estate investments $ 31,947 $ 32,101 PayCheck Direct accounts receivables, net $ $ 1,733 Dividends paid year-to-date $ $ 80,201 Stock Outstanding and Available for Grant: February 1, 2019 Series A Convertible* Common Stock 2018 Restricted Stock Unit Plan 2014 Equity Incentive Plan Stock Common Stock Warrants Total Convertible, Common, Incentive Stock & Warrants unaudited in 000's Total outstanding stock 1, ,016 9,718 9, ,214 Stock available for grant 9,078 21,881 30,959 Total stock outstanding and available for grant 1, ,016 18,796 21,881 9, ,173 * On an as converted common stock basis 14

15 Q4 Adjusted EBITDA (Bluestem Brands, Inc.) unaudited in 000's Q Q Net income (loss) $ 13,112 $ (159,762) Income tax expense (benefit) (1,132) (12,685) Interest expense 12,359 12,351 Amortization and depreciation expense 14,083 16,263 Loss on impairment 25, ,919 Gain on servicing right 1,155 4,633 Stock-based compensation expense Inventory write-down, exited brands 6,450 Restructuring costs 2, Other Adjusted EBITDA $ 74,646 $ 54,464 Adjusted EBITDA % of net sales 12.8% 8.8% Impact of adoption of Topic 606: Addback: Net decrease of direct response advertising costs (13,914) Adjusted EBITDA, excluding impact of Topic 606 $ 60,732 $ 54,464 Adjusted EBITDA, excluding impact of Topic 606, % of net sales 10.4% 8.8% 15

16 Lender Adjusted EBITDA and Leverage Ratios (Bluestem Brands, Inc.) Trailing Twelve Months unaudited in 000's Q Q Adjusted EBITDA $ 102,646 $ 92,294 Expected cost savings 1 21,372 17,038 Non-cash and one-time charges (103) (103) Acceleration of advertising expense due to adoption of Topic (4,135) Other 3 29,183 7,465 Program agreement adjusted EBITDA 148, ,694 Unrestricted subsidiary ,602 Incremental expected cost savings 1, Lender adjusted EBITDA $ 149,031 $ 122,216 Leverage ratio net debt: Asset backed line of credit $ 24,336 $ Term loan, net of discount 420, ,949 Capital lease obligation 535 2,048 Total debt 445, ,997 Plus: Deferred charges 4,407 6,894 Less: Cash and cash equivalents 6 (3,895) (4,713) Leverage ratio net debt $ 446,017 $ 448,695 Program agreement leverage ratio 2.99X 3.85X Program agreement leverage ratio requirement 5.00X 5.00X Lender leverage ratio 2.99X 3.67X Lender leverage ratio requirement 4.50X 4.50X 16 1 Expected cost savings reflects the projected impact of savings in credit account repricing, print and paper, headcount reduction, and other operational improvements 2 The Company adopted Topic 606, which pertains to revenue recognition, on February 3, Under Topic 606, the Company now recognizes the expense associated with its catalogs when mailed to recipients 3 Other includes charges such as strategic investment charges, system implementation charges and executive recruiting charges 4 Bluestem Enterprises, Inc. ("BEI") is excluded from Bluestem's consolidated adjusted EBITDA calculation per the term loan agreement 5 Incremental expected cost savings above program agreement threshold limitations are able to be included in lender adjusted EBITDA 6 Excludes third party credit card receivables

17 Q4 General Administrative Expenses and CapEx (Bluestem Brands, Inc.) unaudited in 000's Q Q Compensation and benefits $ 37,482 $ 31,849 Professional fees and contract labor 6,789 6,836 Rent and occupancy costs 7,156 7,443 Other 983 3,708 Total general and administrative expenses $ 52,410 $ 49,836 Less: Stock-based compensation expense (458) (854) Restructuring costs (2,472) (175) Other (88) (716) Adjusted general and administrative expenses $ 49,392 $ 48,091 Adjusted G&A as a % of net sales 8.4% 7.7% Capital Expenditures: Growth $ 2,009 $ 3,077 Maintenance $ 3,314 $ 2,316 Adjusted G&A expenses increased $1.3 million primarily due to higher incentive compensation offset by lower litigation costs 17

18 Portfolio Contribution Margin Trends (Bluestem Brands, Inc.) Northstar Portfolio Q Q Q Q Q Net sales in 000's $ 399,009 $ 183,006 $ 224,496 $ 227,549 $ 386,071 Gross profit % 42.9% 43.9% 44.0% 43.8% 43.4% Sales and marketing expense as a % of net sales % 13.9% 14.5% 14.0% 31.3% Net credit expense as a % of net sales % 15.3% 13.1% 12.2% 10.0% Contribution margin as a % of net sales 1,2 18.2% 14.8% 16.4% 17.6% 21.3% Orchard Portfolio Net sales in 000's $ 207,739 $ 208,066 $ 194,489 $ 184,332 $ 179,644 Gross profit % % 52.6% 51.5% 50.4% 43.3% Sales and marketing expense as a % of net sales % 43.5% 38.3% 39.9% 31.6% Contribution margin as a % of net sales 3,4 10.7% 9.1% 13.2% 10.5% 11.8% Adjustments made to provide comparable information: 1 Fiscal 2018 excludes the impact of a $2.1 million increase in Q1, a $1.1 million decrease in Q2, a $3.6 million increase in Q3 and a $5.3 million decrease in Q4 in direct response advertising costs resulting from the adoption new accounting standard (Topic 606) 2 Servicing rights valuation losses (gains) of $4.6 million in Q4 2017, $2.8 million in Q1 2018, $(0.4) million in Q2 2018, $(1.1) million in Q and $1.2 million in Q Q excludes the impact of $6.5 million of write-offs of inventory held by exited brands. 4 Fiscal 2018 excludes the impact of a $9.1 million increase in Q1, a $7.8 million decrease in Q2, a $1.7 million increase in Q3 and a $4.9 million decrease in Q4 in direct response advertising costs resulting from the adoption new accounting standard (Topic 606) 18

19 Bluestem Brands, Inc. Restructuring Related Activities Costs Associated with Restructuring Plans unaudited in 000's Q4 FY2018 Q4 FY2017 FY2018 FY2017 Cost of goods sold 1 $ (6,450) $ $ (6,450) $ Net credit expense 5,822 General and administrative expenses 2 (2,472) (175) (2,531) (13,827) Loss on impairment 3 $ (2,960) $ $ (2,960) $ (230) Total restructuring related charges (11,882) (175) (11,941) (8,235) 1 Write-downs of inventory due to actions taken to liquidate the inventory of the exited retail brands in FY Restructuring charges related to employee costs, facility closure and professional and other costs 3 Impairment of tradenames of exited and underperforming retail brands During the first quarter of fiscal 2017, the Company initiated the "2017 Restructuring Plan" consisting of the following: Consolidated various Orchard Portfolio office locations and reduced overall workforce Exited the LinenSource business and Draper s & Damon s brand retail store locations Exited a Northstar third-party distribution center During the fourth quarter of fiscal 2018, the Company announced its "2018 Restructuring Plan" consisting of the following: Consolidated various locations and reduced overall workforce Exit of six Orchard retail brands: Bedford Fair, Gold Violin, Norm Thompson, Sahalie, The Tog Shop and WinterSilks 19

20 Impact of Adoption of Topic 606 Revenue Recognition Accounting Standard Bluestem Brands, Inc. As reported 13-Weeks Ended February 1, 2019 % of net sales Topic 606 Adjustments Balances without Adoption of Topic 606 % of net sales Net sales $ 584, % $ $ 584, % Costs and expenses Cost of goods sold 335, % 335, % Sales and marketing expenses 93, % 13, , % Net credit expense 39, % 39, % General and administrative expenses 52, % 52, % Amortization and depreciation not included in cost of goods sold 13, % 13, % Loss on impairment 25, % 25, % Total costs and expenses 560, % 13, , % Operating income (loss) 24, % (13,914) 10, % Interest expense, net 12, % 12, % Loss before income taxes 11, % (13,914) (1,934) (0.3)% Income tax expense (1,132) (0.2)% (2,434) (3,566) (0.6)% Net loss $ 13, % $ (11,480) $ 1, % 20

21 Impact of Adoption of Topic 606 Revenue Recognition Accounting Standard Bluestem Brands, Inc. As reported Fiscal Year Ended February 1, 2019 % of net sales Topic 606 Adjustments Balances without Adoption of Topic 606 % of net sales Net sales $ 1,795, % $ $ 1,795, % Costs and expenses Cost of goods sold 968, % 968, % Sales and marketing expenses 429, % 4, , % Net credit expense 120, % 120, % General and administrative expenses 189, % 189, % Amortization and depreciation not included in cost of goods sold 49, % 49, % Loss on impairment 25, % % Total costs and expenses 1,783, % 4,666 1,787, % Operating income (loss) 12, % (4,666) 7, % Interest expense, net 50, % 50, % Loss before income taxes (37,503) (2.1)% (4,666) (42,169) (2.3)% Income tax benefit (8,468) (0.5)% (1,051) (9,519) (0.5)% Net loss $ (29,035) (1.6)% $ (3,615) $ (32,650) (1.8)% 21

22 Large National Banks Show Continued Signs of Moderation in their Subprime Credit Card Portfolios Subprime Credit Card Receivables of Top-7 Banks 1 ($ Billions) 1 Largest seven credit card issuing banks: Capital One, Chase, Citi, Synchrony, Bank of America, Discover, Wells Fargo Amount of credit cards receivables to subprime consumers - defined as <660 FICO score 22 Source: Regulatory filings

23 Notice to Recipients Basis of Presentation Please refer to the Bluestem Group Inc. Q Press Release (available at for a description of the basis of presentation Definition of terms Maintenance capital expenditures represents capital expenditures related to maintaining existing capital assets Growth capital expenditures represents capital expenditures related to capital needs for continued growth Inventory turnover represents the rate at which inventory turns on an annual basis calculated by averaging the monthly inventory balances and dividing by the total cost of sales for the period 23