Fourth Quarter and Fiscal 2015 Bluestem Stand-alone Highlights Includes Orchard Brands Corporation beginning July 10, 2015

Transcription

1 Bluestem Group Inc. Announces Unaudited Consolidated Fourth Quarter and Fiscal Year 2015 Earnings Results, Stock Repurchase Authorization, Receipt of Regulatory Inquiry and Election of New Member to its Board of Directors Eden Prairie, MN March 31, 2016 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- and 52- week periods ended January 29, 2016 and January 30, We refer to the 13-week periods in this release as the fourth quarter and the 52-week periods as the fiscal year. 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. Bluestem Group had another solid quarter. Not only did Bluestem Brands, Inc. experience record sales and profit for the fourth quarter, but we also made significant progress on the integration of the Orchard Brands acquisition. We delivered fourth quarter net retail sales of $737.7 million and our credit portfolio performance continues to improve on a year over year basis; the net principal loss rate in the fourth quarter was 17.8%, representing a 143 basis point improvement over the fourth quarter of fiscal In addition, earlier this week our Board of Directors authorized the repurchase of up to 4.5 million shares to reinforce our belief that the company s current stock price does not reflect the intrinsic value of the company, said Steve Nave, Bluestem Group s Chief Executive Officer. Fourth Quarter and Fiscal 2015 Bluestem Group Consolidated Highlights Includes Bluestem Brands Inc. beginning November 7, 2014, and Orchard Brands Corporation beginning July 10, 2015 Adjusted EBITDA for the fourth quarter of fiscal 2015 was $80.6 million compared to $63.4 million in the fourth quarter of fiscal 2014 and $137.4 million for fiscal 2015 compared to $89.8 million for fiscal Income from continuing operations after income taxes for the fourth quarter of fiscal 2015 was $8.2 million compared to $58.7 million for the fourth quarter of fiscal Diluted income per share from continuing operations was $0.06 for the fourth quarter of fiscal 2015, compared to $0.43 for the fourth quarter of fiscal Reducing fiscal 2015 fourth quarter net income was a $6.5 million non-cash loss from derivatives in our own equity and a $20.2 million non-cash Gettington tradename impairment charge. Income from continuing operations after income taxes for fiscal 2015 was $14.2 million compared to $70.0 million for fiscal Diluted income per share from continuing operations was $0.10 for fiscal 2015, compared to $0.69 for fiscal The decrease in diluted income per share from continuing operations in fiscal 2015 was driven by the Gettington tradename impairment charge and decline in net gains from our real estate related assets and businesses of $17.2 million. Net gain on loans held for sale, investments available-for-sale, and equity in income of joint ventures and partnership were $5.9 million and commercial real estate related asset proceeds were $14.9 million in the fourth quarter of fiscal Net gain on loans held for sale, investments available-for-sale, and equity income of joint ventures and partnership in fiscal 2015 were $15.6 million and commercial real estate related asset proceeds were $97.5 million for fiscal Fiscal 1

2 2015 proceeds included $39.8 million from the Federal Home Loan Bank ( FHLB ) full redemption of the Company s outstanding shares of regulatory-restricted mandatorily redeemable capital stock at par. As of the end of the fiscal year, the company had $64.9 million in net commercial real estate assets remaining versus $105.4 million at the end of fiscal Cash and cash equivalents were $185.9 million as of January 29, Fourth Quarter and Fiscal 2015 Bluestem Stand-alone Highlights Includes Orchard Brands Corporation beginning July 10, 2015 Net sales for the fourth quarter of fiscal 2015 were $737.7 million, including $253.3 million of net sales from the Orchard Portfolio, a 61.6% increase over net sales of $456.5 million for the fourth quarter of fiscal Net sales for fiscal 2015 were $1,720.2 million, including $535.9 million of net sales from the Orchard Portfolio, a 60.5% increase over net sales of $1,071.5 million for fiscal Bluestem s adjusted EBITDA in the fourth quarter of fiscal 2015 was $76.4 million compared to adjusted EBITDA of $56.6 million for the fourth quarter of fiscal Bluestem s adjusted EBITDA for fiscal 2015 was $130.8 million compared to adjusted EBITDA of $119.9 million for fiscal Excluding the impact of the Orchard Brands acquisition, Bluestem s net sales for the fourth quarter of fiscal 2015 were $484.4 million, a 6.1% increase compared to $456.5 million in the fourth quarter of fiscal Bluestem Legacy Portfolio net sales for fiscal 2015 were $1,184.2 million, a 10.5% increase compared to $1,071.5 million in fiscal Orchard Portfolio s net sales for the fourth quarter of fiscal 2015 were $253.3 million, a decrease of 5.7% compared to Orchard net sales of $268.5 million for the 13 weeks ended January 24, Fingerhut and Gettington active accounts increased to 1.7 million as of the end of fiscal 2015, a 5.6% increase over 1.6 million as of the end of fiscal day delinquent balances on the revolving portfolio were 14.7% at the end of fiscal 2015 and Net principal charge-off rate on the revolving portfolio was 17.8% for the fourth quarter of fiscal 2015 compared to 19.2% for the fourth quarter of fiscal Orchard Portfolio s active customers were 7.8 million for the 53 weeks ended January 29, 2016 and 7.9 million for the 52 weeks ended January 24, Stock Repurchase Authorization The Board of Directors has authorized the repurchase of up to 4.5 million shares of its outstanding common stock in one or more transactions occurring on or prior to March 28, The repurchase authorization also has received the approval of Bluestem Group s Series A Preferred stockholders as required by the Company s articles of incorporation and investment agreement with the Centerbridge Partners affiliates party to the agreement. Under the repurchase authorization, shares may be repurchased in open-market purchases or in privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18. The extent to which shares, if any, are repurchased and the timing of such repurchases, will depend upon a variety of factors including, but not limited to, market conditions, applicable legal requirements, and other corporate considerations, as determined by Bluestem Group s Board of Directors. The repurchase authorization may be suspended or discontinued at any time. Bluestem Group expects to finance the purchases with existing cash on-hand. Shares of common stock acquired through the repurchase authorization will be retired and restored to the status of authorized and unissued shares. 2

3 Receipt of Civil Investigation Demand On January 19, 2016, Bluestem Brands, Inc. received a Civil Investigative Demand (a CID ) from the Consumer Financial Protection Bureau (the CFPB ). The CID requests the production of documents, answers to written questions and oral testimony related to debt collection and the selling of debt portfolios. We are cooperating with the CFPB in this investigation and are in the process of providing our responses to the CID. New Member of the BGRP Board of Directors Alberto Sanchez was elected by Bluestem Group s Series A Preferred stockholders to join the Board of Directors effective February 24, Mr. Sanchez replaces Brian Libman who had served the company since December 2014 and recently resigned from the Board in order to devote additional time and resources to his other professional endeavors. Mr. Sanchez, worked at Grupo Santander from 1997 until For the last 10 years he was the bank s Head of Investment Strategy for the Americas and became Vice-Chairman of Santander Consumer USA, Board member of Santander Holdings USA, Santander Bank N.A. (formerly Sovereign Bank), and Santander Investment Securities. From 1997 to 2005 he ran the Southern European Equities Research team and later the Latin America Equities Division. Alberto brings a wealth of talent, expertise and energy to our Board of Directors. We are very fortunate to have him as part of the team as we grow our business, said Eugene Davis, Executive Chairman of the Board. 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 Orchard Brands Corporation beginning July 10, Consolidated information for Bluestem Group s wholly-owned subsidiary, Bluestem Brands Inc., is also presented on a stand-alone basis. The acquisitions of Bluestem Brands and Orchard were accounted for as business combinations. Adjusted EBITDA is 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 Steve Nave, CEO, and Mark Wagener, CFO, will host a conference call at 9:00AM ET on Friday, April 1, 2016 to discuss the company s 13- and 52-week periods ended January 29, The conference call can be accessed at (888) or (719) (International), conference ID # and will be broadcast simultaneously at Following completion of the call, a recorded replay of the webcast will be available on Bluestem s website. To listen to the telephone replay, call toll-free (877) or (858) (International), replay pin # The telephone replay will be available at 11:30 AM ET April 1, Additional investor information can be accessed at 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 3

4 flexibility of paying over time. Bluestem Group is headquartered in Eden Prairie, MN. For additional information visit the Bluestem Group website at 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, as updated by its subsequent periodic reports. 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. Investor Relations: Denise Garcia ICR (215)

5 BLUESTEM GROUP INC. BLUESTEM BRANDS, INC. FINANCIAL INFORMATION 13 and 52 weeks ended January 29, 2016 and January 30, 2015 Overview and Basis of Presentation The accompanying financial information for Bluestem Group, Inc. ( Bluestem Group ) is presented on a consolidated basis, including Bluestem Brands, Inc. ( Bluestem ) and its consolidated subsidiaries beginning November 7, 2014 and Orchard Brands Corporation ( Orchard ) and its consolidated subsidiaries beginning July 10, The accompanying financial information for Bluestem Group s wholly-owned subsidiary, Bluestem, is also presented on a stand-alone basis. The acquisitions of Bluestem and Orchard were accounted for as business combinations. Bluestem s purchase price allocation for its acquisition of Orchard was finalized in the fourth quarter of fiscal 2015, and all quarters preceding the fourth quarter from the Orchard acquisition date have been adjusted to reflect the final allocation. All financial information included in this release 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 52-week periods ended January 29, 2016 and for the period from November 7, 2014 through January 30, 2015 were included in Bluestem Group s consolidated results. 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 52- or 53-weeks 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, 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, 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, non-gaap net income (loss) and non-gaap diluted net income (loss) per share of Bluestem Group 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 Group s results of operations for further important information concerning these measures. 5

6 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, 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. To supplement the historical financial data derived from Bluestem s consolidated financial statements, which are prepared in accordance with GAAP, this release includes adjusted EBITDA, adjusted pro forma EBITDA, contribution margin, adjusted general and administrative expenses and free cash flow, 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 further important information concerning these measures. Orchard Brands Corporation Stand-alone Financial Information The financial information in the accompanying report on Bluestem s results of operations for the 13 and 52 weeks ended January 29, 2016 includes historical results of Orchard Brands Corporation and its subsidiaries for the 13 weeks ended June 27, 2015, March 28, 2015, December 27, 2014, September 27, 2014, June 28, 2014 and March 29, 2014 (collectively the Six Quarters of Historical Orchard Results ). The Six Quarters of Historical Orchard Results are presented in accordance with GAAP and based on historical Orchard Brands Corporation's basis of presentation. The Six Quarters of Historical Orchard Results are based on the historical Orchard Brands Corporation fiscal second quarter ended June 27, 2015, first quarter ended March 28, 2015 and fiscal year ended December 27, To supplement the historical financial data derived from the historical results of Orchard Brands Corporation the accompanying report uses adjusted EBITDA and free cash flow measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. The accompanying report also uses adjusted net sales, adjusted gross profit, adjusted selling and marketing expenses and adjusted general and administrative expenses. These measures are conformed to Bluestem Brands, Inc. basis of presentation for comparison purposes. Bluestem Brands, Inc.'s basis of presentation is in accordance with GAAP. The financial results of the Orchard Portfolio for periods succeeding the acquisition of Orchard Brands Corporation on July 10, 2015 will be presented on Bluestem Brands, Inc.'s basis of presentation. Please see the accompanying report on Orchard Brands Corporation s results of operations for the Six Quarters of Historical Orchard Results for further important information concerning these measures. 6

7 Bluestem Group Inc. Results for the 13- and 52-weeks ended January 29, 2016 (includes results of Bluestem Brands, Inc. from November 7, 2014 and results of Orchard Brands Corporation from July 10, 2015) 7

8 BLUESTEM GROUP INC. Consolidated Statements of Comprehensive Income (unaudited in thousands, except shares and per share amounts) 13-Weeks Ended Fiscal Years Ended January 29, 2016 January 30, 2015 January 29, 2016 January 30, 2015 Net sales and revenue Net retail sales $ 737,682 $ 432,392 $ 1,720,189 $ 432,392 Commercial real estate revenue Net interest income 891 1,734 2,732 6,609 Net gains on investments available for sale ,978 Other noninterest income 5,828 8,295 19,398 23,505 Total net sales and revenue 744, ,454 1,743, ,484 Costs and expenses Retail cost of goods sold 403, , , ,885 Retail sales and marketing expenses 166,657 69, ,234 69,128 Retail net credit expense 32,784 18,011 64,035 18,011 Commercial real estate operating expenses ,158 4,901 General and administrative expenses 65,267 64, ,686 85,289 Amortization and depreciation not included in retail cost of goods sold 53,163 21,573 98,383 21,627 Loss from derivatives in our own equity 6,489 15, ,353 Total costs and expenses 728, ,620 1,726, ,194 Operating income (loss) 15,884 (4,166) 16,521 7,290 Retail interest expense, net 13,701 7,091 43,920 7,091 (Loss) income from continuing operations before income taxes 2,183 (11,257) (27,399) 199 Income tax benefit (6,065) (69,969) (41,614) (69,770) Income from continuing operations after income taxes 8,248 58,712 14,215 69,969 Income from discontinued operations, net of tax ,037 Net income 8,248 58,712 14, ,006 Net loss attributable to noncontrolling interests ,930 Net income attributable to Bluestem Group Inc. 8,248 58,712 14, ,936 Other comprehensive (loss) income Net change in unrealized gains and losses on investment securities (638) 54 (633) (737) Comprehensive income attributable to Bluestem Group Inc. $ 7,610 $ 58,766 $ 13,582 $ 108,199 Basic and diluted income per share - common stockholders Basic and diluted income per share from continuing operations $ 0.06 $ 0.43 $ 0.10 $ 0.69 Basic income per share attributable to Bluestem Group Inc. $ 0.06 $ 0.43 $ 0.10 $ 1.00 Diluted income per share attributable to Bluestem Group Inc. $ 0.06 $ 0.43 $ 0.10 $ 0.99 Basic weighted average shares outstanding 136,382, ,657, ,202, ,277,257 Diluted weighted average shares outstanding 137,824, ,124, ,748, ,335,400 8

9 BLUESTEM GROUP INC. Condensed Consolidated Balance Sheets (in thousands) January 29, 2016 January 30, 2015 (unaudited) ASSETS Current assets:. Cash and cash equivalents. $ 185,944 $ 254,207 Restricted cash. 22,569 13,586 Customer accounts receivable, net of allowance of $14,434 and $10,457 44,446 36,494 Retail merchandise inventories. 263,579 96,431 Promotional material inventories 53,253 13,976 Other current assets. 49,233 43,398 Total current assets. 619, ,092 Loans held-for-sale. 23,146 78,080 Equity investments. 47, ,736 Property and equipment, net. 125,001 49,755 Intangibles, net. 460, ,892 Goodwill. 367, ,642 Other assets. 14,891 21,195 Total Assets. $ 1,657,842 $ 1,301,392. LIABILITIES AND STOCKHOLDERS EQUITY. Current liabilities:. Accounts payable. $ 180,601 $ 82,037 Accrued costs and other liabilities. 129,361 92,823 Short-term debt. 47,981 17,787 Total current liabilities. 357, ,647 Long-term debt. 513, ,204 Deferred income taxes. 98,275 79,948 Other long-term liabilities. 14,531 20,038 Total liabilities. 984, ,837. Stockholders' Equity:. Series A participating convertible preferred stock. 4,970 4,856 Common stock. 1,366 1,364 Treasury stock (131) - Additional paid-in capital. 361, ,697 Retained earnings. 304, ,774 Accumulated other comprehensive income, net of tax Total Bluestem Group Inc. stockholders equity. 673, ,555 Total Liabilities and Stockholders' Equity. $ 1,657,842 $ 1,301,392 9

10 BLUESTEM GROUP INC. Consolidated Statements of Cash Flows (unaudited in thousands) 13-Weeks Ended Fiscal Years Ended January 29, 2016 January 30, 2015 January 29, 2016 January 30, 2015 Operating Activities of Continuing Operations Net income $ 8,248 $ 58,712 $ 14,215 $ 103,006 Income from discontinued operations ,037 Net income from continuing operations 8,248 58,712 14,215 69,969 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of continuing operations: Provision for deferred income taxes (4,798) (48,778) (39,199) (48,047) Uncertain tax positions 691 (18,699) 370 (18,699) Net losses (gains) on loans held for sale, investment securities and other (10,773) (17,722) Equity in net gains investees and cash return on investment (5,858) (6,797) (8,323) (11,330) Amortization and depreciation expense 54,266 21, ,327 21,885 Loss from derivatives in our own equity 6,489 15, ,353 Provision for doubtful accounts 20,409 10,510 31,204 10,510 Provision for retail merchandise returns 35,743 11,455 83,824 11,455 Stock-based compensation expense 1,360 21,809 5,393 23,773 Inventory obsolescence and other reserves 17,343 11,285 45,701 11,285 Other, net 1, , Net change in assets and liabilities which provided (used) cash: Customer account receivables, net (65,286) (35,728) (101,631) (30,863) Retail merchandise inventories 75,693 78,895 (6,695) 78,895 Other assets 32,110 15,399 (10,161) 17,043 Accounts payable and other liabilities (107,189) (57,975) (75,926) (61,671) Payments from loans held for sale 42 4,996 60,940 26,281 Net cash provided by operating activities of continuing operations 71,000 83,194 95,173 99,050 Investing Activities of Continuing Operations Net (increase) decrease in restricted cash (4,360) 7,761 (8,983) 12,331 Proceeds from repayments of investment securities classified as available-for-sale ,972 Distributions from equity investments 14,134 13,307 75,009 73,105 Purchases of customer accounts receivable (480,238) (430,600) (1,197,537) (430,600) Proceeds from sale of customer accounts receivable 480, ,949 1,198, ,949 Acquisition, net of cash on hand 6,261 (509,796) (375,313) (509,796) Net purchases of property and equipment (11,343) (5,349) (35,935) (688) Net cash provided by (used in) investing activities of continuing operations 4,998 (493,728) (343,891) (408,727) Financing Activities of Continuing Operations Borrowings of debt - 281, , ,064 Repayments of debt (7,690) (6,739) (100,782) (25,961) Borrowings on asset backed line of credit 111, , , ,287 Repayments on asset backed line of credit (172,105) (182,676) (469,425) (182,676) Settlement of Bluestem Brands Selling Stockholders' acquisition-related liabilities - (66,362) - (66,362) Proceeds from issuance of preferred stock ,000 Proceeds from issuance of common stock - 143, ,988 Treasury shares repurchased - - (131) - Net cash (used in) provided by financing activities of continuing operations (68,128) 349, , ,340 Effect of Foreign Exchange Rates on Cash (51) (242) (165) (297) Discontinued Operations Net cash used in operating activities of discontinued operations (6,313) Net cash provided by investing activities of discontinued operations ,710 Net cash provided by discontinued operations ,397 Net Increase (Decrease) in Cash and Cash Equivalents 7,819 (61,214) (68,263) 84,763 Cash and Cash Equivalents, Beginning of Period 178, , , ,444 Cash and Cash Equivalents, End of Period $ 185,944 $ 254,207 $ 185,944 $ 254,207 10

11 BLUESTEM GROUP INC. Non-GAAP Financial Measures (unaudited in thousands, except shares and per share data) 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 ("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 income attributable to Bluestem Group Inc. before retail interest expense, income tax benefit, amortization and depreciation expense, stock-based compensation expense, loss from derivatives in our own equity, acquisition transaction costs, integration costs, costs related to the Centerbridge Investment Agreement and income from discontinued operations, net of tax. Non-GAAP net income, as we present it, represents net income attributable to Bluestem Group Inc. before amortization of acquired intangible assets, stock-based compensation expense, loss from derivatives in our own equity, acquisition transaction costs, integration costs, costs related to the Centerbridge Investment Agreement, income from discontinued operations, net of tax, tax effects of the foregoing adjustments and Orchard acquisition and deferred tax valuation allowance and recognition of uncertain tax positions. Non-GAAP diluted income per share, as we present it, represents diluted income per share before amortization of acquired intangible assets, stock-based compensation expense, loss from derivatives in our own equity, acquisition transaction costs, integration costs, costs related to the Centerbridge Investment Agreement, income from discontinued operations, net of tax, tax effects of the foregoing adjustments and Orchard acquisition and deferred tax valuation allowance and recognition of uncertain tax positions. 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 Fiscal Years Ended January 29, 2016 January 30, 2015 January 29, 2016 January 30, 2015 Adjusted EBITDA reconciliation to GAAP net income: Net income attributable to Bluestem Group Inc. $ 8,248 $ 58,712 $ 14,215 $ 108,936 Retail interest expense 13,704 7,091 43,927 7,091 Income tax benefit (6,065) (69,969) (41,614) (69,770) Amortization and depreciation expense 54,266 21, ,327 21,885 Stock-based compensation expense 1,360 21,809 5,393 23,773 Loss from derivatives in our own equity 6,489 15, ,353 Acquisition transaction costs - 8,533 8,342 9,926 Integration costs 2,635-5,607 - Costs related to Centerbridge Investment Agreement ,666 Income from discontinued operations, net of tax (33,037) Adjusted EBITDA $ 80,637 $ 63,430 $ 137,380 $ 89,823 GAAP net income attributable to Bluestem Group Inc. $ 8,248 $ 58,712 $ 14,215 $ 108,936 Adjustments: Amortization of acquired intangible assets 46,511 18,300 76,501 18,300 Stock-based compensation expense 1,360 21,809 5,393 23,773 Loss from derivatives in our own equity 6,489 15, ,353 Acquisition transaction costs - 8,533 8,342 9,926 Integration costs 2,635-5,607 - Costs related to Centerbridge Investment Agreement ,666 Income from discountinued operations, net of tax (33,037) Tax effect of adjustments (7,557) (1,074) (7,557) (1,225) Tax effect of Orchard business combination - - (34,963) - Deferred tax valuation allowance and recognized uncertain tax positions - (84,317) - (90,529) Non-GAAP net income attributable to Bluestem Group Inc. $ 57,686 $ 37,386 $ 67,721 $ 57,163 GAAP diluted income per share available to common stockholders $ 0.06 $ 0.43 $ 0.10 $ 0.99 Adjustments: Amortization of acquired intangible assets Stock-based compensation expense Loss from derivatives in our own equity Acquisition transaction costs Integration costs Costs related to Centerbridge Investment Agreement Income from discountinued operations, net of tax (0.30) Tax effect of adjustments (0.05) (0.01) (0.05) (0.01) Tax effect of Orchard business combination - - (0.25) - Deferred tax valuation allowance and recognized uncertain tax positions - (0.62) - (0.83) Non-GAAP diluted income per share available to common stockholders $ 0.43 $ 0.27 $ 0.50 $ 0.52 Diluted weighted average shares outstanding 137,824, ,124, ,748, ,335,400 11

12 Bluestem Brands, Inc. Results for the 13- and 52-weeks ended January 29, 2016 (includes results of Orchard Brands Corporation from July 10, 2015) 12

13 BLUESTEM BRANDS, INC. Consolidated Statements of Operations and Selected Operating Data (unaudited in thousands) Successor Predecessor and Successor Total Successor Predecessor (13 Weeks Ended) (13 Weeks Ended) (12 Weeks Ended) (1 Week Ended) January 29, 2016 January 30, 2015 January 30, 2015 November 7, 2014 Change (a) Net sales $ 737,682 $ 456,474 $ 432,392 $ 24, % Cost of goods sold 403, , ,885 14, % Gross profit 333, , ,507 9, % Sales and marketing expenses 166,657 74,010 69,128 4, % Net credit expense 32,784 20,713 18,011 2, % General and administrative expenses 63,272 63,116 34,466 28, % Amortization and depreciation not included in cost of goods sold (b) 53,163 21,847 21, % Loss on early extinguishment of debt - 9,298-9,298 n/m Interest expense, net (c) 13,701 7,419 7, % Income (loss) before income taxes 4,158 (11,564) 25,238 (36,802) (136.0)% Income tax expense (benefit) 10,971 (2,960) 9,222 (12,182) (470.6)% Net (loss) income $ (6,813) $ (8,604) $ 16,016 $ (24,620) (20.8)% Margins and Expenses as a Percentage of Net Sales: Gross profit rate 45.2 % 40.5 % 475 bp Sales and marketing expenses 22.6 % 16.2 % 638 bp Net credit expense 4.4 % 4.5 % (9) bp Contribution margin (d) $ 134,294 $ 90, % As a percentage of net sales 18.2 % 19.7 % (154) bp Adjusted general and administrative expenses (d) $ 59,136 $ 33, % As a percentage of net sales 8.0 % 7.4 % 59 bp Adjusted EBITDA (d) $ 76,391 $ 56, % As a percentage of net sales 10.4 % 12.4 % (205) bp Selected Financial Data: Liquidity (e) $ 117,875 $ 102, % Free Cash Flow (d) $ 69,710 $ 54, % Leverage ratio (f) bp Selected Operating Data: Fingerhut and Gettington revolving new customer credit accounts (g) (7.6%) Fingerhut FreshStart new customer credit accounts (g) (24.4%) PayCheck Direct new customer credit accounts (g) % Orchard Portfolio new gross customers (h) 433 n/a n/m Fingerhut and Gettington revolving active accounts (i) 1,683 1, % Orchard Portfolio active customers (j) 7,845 n/a n/m PayCheck Direct eligible client employees (k) 6,323 2, % (a) Changes in rates are presented as the basis point (bp) increase (decrease) from the prior period. (b) Consists of amortization expense of customer relationship finite-lived intangible assets, depreciation expense of software and impairment of indefinite-lived intangible assets. Depreciation expense related to equipment in Bluestem's fulfillment facilities are included in cost of goods sold. (c) Interest expense net of interest income. (d) 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. (e) Defined as unrestricted cash and cash equivalents plus availability on inventory line of credit. (f) Leverage ratio as defined by our Successor term loan agreement dated November 7, (g) 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. (h) Customers who have made a first time purchase from a particular brand within the Orchard Portfolio during the period presented. (i) 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. (j) Customers that have made at least one purchase within the previous twelve fiscal months. (k) 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. 13

14 BLUESTEM BRANDS, INC. Consolidated Statements of Operations and Selected Operating Data (unaudited in thousands) Successor Predecessor and Successor Total Successor Predecessor (52 Weeks Ended) (52 Weeks Ended) (12 Weeks Ended) (40 Weeks Ended) January 29, 2016 (a) January 30, 2015 January 30, 2015 November 7, 2014 Change (b) Net sales $ 1,720,189 $ 1,071,523 $ 432,392 $ 639, % Cost of goods sold 937, , , , % Gross profit 782, , , , % Sales and marketing expenses 412, ,795 69, , % Net credit expense 64,035 16,958 18,011 (1,053) % General and administrative expenses 200, ,267 34, , % Amortization and depreciation not included in cost of goods sold (c) 98,383 31,312 21,573 9, % Loss on early extinguishment of debt - 9,298-9,298 n/m Interest expense, net (d) 43,920 20,667 7,091 13, % (Loss) income before income taxes (36,500) 2,578 25,238 (22,660) (1515.8)% Income tax (benefit) expense (10,191) 1,560 9,222 (7,662) (753.3)% Net (loss) income $ (26,309) $ 1,018 $ 16,016 $ (14,998) (2684.4)% Margins and Expenses as a Percentage of Net Sales: Gross profit rate 45.5 % 41.4 % 406 bp Sales and marketing expenses 24.0 % 18.4 % 560 bp Net credit expense 3.7 % 1.6 % 214 bp Contribution margin (e) $ 306,079 $ 230, % As a percentage of net sales 17.8 % 21.5 % (368) bp Adjusted general and administrative expenses (e) $ 178,702 $ 112, % As a percentage of net sales 10.4 % 10.5 % (11) bp Adjusted EBITDA (e) $ 130,825 $ 119, % As a percentage of net sales 7.6 % 11.2 % (358) bp Free Cash Flow (e) $ 112,568 $ 113,017 (0.4%) Selected Operating Data: Fingerhut and Gettington revolving new customer credit accounts (f) (0.4%) Fingerhut FreshStart new customer credit accounts (f) (4.6%) PayCheck Direct new customer credit accounts (f) % Orchard Portfolio new gross customers (g) 973 n/a n/m Fingerhut and Gettington revolving active accounts (h) 1,683 1, % Orchard Portfolio active customers (i) 7,845 n/a n/m PayCheck Direct eligible client employees (j) 6,323 2, % (a) Orchard Portfolio results are presented for the period from July 10, 2015 through January 29, (b) Changes in rates are presented as the basis point (bp) increase (decrease) from the prior period. (c) Consists of amortization expense of customer relationship finite-lived intangible assets, depreciation expense of software and impairment of indefinite-lived intangibles. Depreciation expense related to equipment in Bluestem's fulfillment facilities are included in cost of goods sold. (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. 14

15 BLUESTEM BRANDS, INC. Condensed Consolidated Balance Sheets (in thousands) January 29, 2016 January 30, 2015 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 11,870 $ 59,222 Restricted cash 22,485 13,425 Customer accounts receivable, net of allowance for doubtful accounts of $14,434 and $10,457, respectively 44,446 36,494 Merchandise inventories 263,579 96,431 Promotional material inventories 53,253 13,976 Prepaid expenses and other assets 32,647 23,465 Total current assets 428, ,013 Property and equipment, net 125,001 49,755 Intangible assets, net 460, ,892 Goodwill 367, ,642 Other assets 3, Total Assets $ 1,384,718 $ 872,399 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 180,601 $ 82,037 Current income taxes payable 34,583 18,567 Accrued costs and other liabilities 111,613 65,109 Short-term debt 47,981 17,787 Total current liabilities 374, ,500 Long-term debt 490, ,889 Deferred income taxes 154, ,205 Other long-term liabilities 6,171 5,187 Total liabilities 1,025, ,781 Stockholders' equity: Common stock - - Additional paid-in capital 369, ,602 Retained earnings (10,293) 16,016 Total stockholders' equity 359, ,618 Total Liabilities and Stockholders Equity $ 1,384,718 $ 872,399 15

16 BLUESTEM BRANDS, INC. Condensed Consolidated Statement of Cash Flows (unaudited in thousands) Successor Predecessor and Successor Total Successor Predecessor (13 Weeks Ended) (13 Weeks Ended) (12 Weeks Ended) (1 Week Ended) January 29, 2016 January 30, 2015 January 30, 2015 November 7, 2014 Operating Activities of Continuing Operations Net (loss) income $ (6,813) $ (8,604) $ 16,016 $ (24,620) Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Amortization and depreciation expense 54,266 22,145 21, Noncash component of loss on early extinguishment of debt - 9,298-9,298 Provision for doubtful accounts 20,409 12,494 10,510 1,984 Provision for merchandise returns 35,743 14,371 11,455 2,916 Deferred income taxes (18,691) (256) (4,077) 3,821 Stock-based compensation expense 1,108 26, ,101 Inventory obsolescence and other reserves 17,343 14,428 11,285 3,143 Other, net 1,513 1, Net change in assets and liabilities which provided (used) cash: Customer accounts receivable (65,286) (52,503) (43,072) (9,431) Merchandise inventories 75,693 65,547 78,895 (13,348) Promotional material inventories 32,628 18,125 22,066 (3,941) Prepaid expenses and other assets 135 (3,801) (2,984) (817) Current income taxes payable 29,621 (2,594) 18,567 (21,161) Accounts payable and other liabilities (104,269) (31,469) (50,858) 19,389 Net cash provided by (used in) operating activities 73,400 85,404 91,369 (5,965) Investing Activities of Continuing Operations Purchase of customer accounts receivable (480,238) (451,133) (430,600) (20,533) Proceeds from sale of customer accounts receivable 480, , ,949 20,558 Acquisition, net 6,261 (550,712) (550,712) - Net purchase of property and equipment (11,343) (5,673) (5,351) (322) Net (decrease) increase in restricted cash (4,521) (340) 736 (1,076) Net cash used in investing activities (9,345) (556,351) (554,978) (1,373) Financing Activities of Continuing Operations Borrowings of debt - 281, ,064 - Repayments of debt (7,648) Repayments on Predecessor term loan - (185,000) - (185,000) Borrowings on asset backed line of credit 111, , ,287 1,620 Repayments on asset backed line of credit (172,105) (184,607) (182,676) (1,931) Settlement of selling shareholders' acquisition liabilities - 120,228 (66,361) 186,589 Equity contributions from parent - 269, ,602 - Other - 1,479-1,479 Net cash (used in) provided by financing activities (68,086) 484, ,916 2,757 Net (Decrease) Increase in Cash and Cash Equivalents (4,031) 13,726 18,307 (4,581) Cash and Cash Equivalents, Beginning of Period 15,901 45,496 40,915 45,496 Cash and Cash Equivalents, End of Period $ 11,870 $ 59,222 $ 59,222 $ 40,915 16

17 BLUESTEM BRANDS, INC. Condensed Consolidated Statement of Cash Flows (unaudited in thousands) Successor Predecessor and Successor Total Successor Predecessor (52 Weeks Ended) (52 Weeks Ended) (12 Weeks Ended) (40 Weeks Ended) January 29, 2016 January 30, 2015 January 30, 2015 November 7, 2014 Operating Activities of Continuing Operations Net (loss) income $ (26,309) $ 1,018 $ 16,016 $ (14,998) Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Amortization and depreciation expense 101,327 33,091 21,831 11,260 Noncash component of loss on early extinguishment of debt - 9,298-9,298 Provision for doubtful accounts 31,204 4,552 10,510 (5,958) Provision for merchandise returns 83,824 30,186 11,455 18,731 Deferred income taxes (28,346) (5,413) (4,077) (1,336) Stock-based compensation expense 4,106 29, ,232 Excess tax benefit from stock-based compensation - (5,159) - (5,159) Inventory obsolescence and other reserves 45,701 31,897 11,285 20,612 Other, net 5,129 2, ,839 Net change in assets and liabilities: Customer account receivables, net (122,049) (72,920) (43,072) (29,848) Merchandise inventories (6,695) (21,012) 78,895 (99,907) Promotional material inventories (8,693) 1,386 22,066 (20,680) Prepaid expenses and other assets (439) (3,342) (2,984) (358) Current income taxes payable 16,016 (5,817) 18,567 (24,384) Accounts payable and other liabilities (60,680) 30,991 (50,858) 81,849 Net cash provided by (used in) operating activities 34,096 60,562 91,369 (30,807) Investing Activities of Continuing Operations Purchase of customer accounts receivable (1,197,537) (1,091,962) (430,600) (661,362) Proceeds from sale of customer accounts receivable 1,198,146 1,093, , ,654 Acquisitions, net (375,313) (550,712) (550,712) - Net purchases of property and equipment (35,935) (24,220) (5,351) (18,869) Net increase in restricted cash (9,060) (6,353) 736 (7,089) Net cash used in investing activities (419,699) (579,644) (554,978) (24,666) Financing Activities of Continuing Operations Borrowings of debt 269, , ,064 - Repayments of debt (43,282) Repayment on Predecessor term loan - (225,000) - (225,000) Borrowings on asset backed line of credit 481, , , ,175 Repayments on asset backed line of credit (469,425) (518,485) (182,676) (335,809) Settlement of selling shareholders' acquisition liabilities - 120,228 (66,361) 186,589 Cash equity contributions from parent 100, , ,602 - Other financing activities, net - 2,045-2,045 Net cash provided by (used in) financing activities 338, , ,916 (36,000) Net (Decrease) Increase in Cash and Cash Equivalents (47,352) (73,166) 18,307 (91,473) Cash and Cash Equivalents, Beginning of Period 59, ,388 40, ,388 Cash and Cash Equivalents, End of Period $ 11,870 $ 59,222 $ 59,222 $ 40,915 17

18 BLUESTEM BRANDS, INC. Supplemental Financial Information (unaudited in thousands, except average order size) Successor Predecessor and Successor Total Successor Predecessor (13 Weeks Ended) (13 Weeks Ended) (12 Weeks Ended) (1 Week Ended) January 29, 2016 January 30, 2015 January 30, 2015 November 7, 2014 Change Total sales by merchandise category: Home $ 190, % $ 154, % $ 145,334 $ 8, % Entertainment 248, % 237, % 225,163 12, % Fashion 346, % 87, % 82,957 4, % Total merchandise sales (a) 784, % 478, % 453,454 25, % Returns and allowances (69,043) (28,804) (27,218) (1,586) % Commissions and other revenue 21,762 6,573 6, % Net sales $ 737,682 $ 456,474 $ 432,392 $ 24, % Gross profit rate 45.2% 40.5% 473 bp Sales and marketing expense 22.6% 16.2% 640 bp Contribution margin rate (b) 18.2% 19.7% (151) bp Average order size (c) $ 141 $ 232 (39.2)% Fingerhut sales by merchandise category: Home $ 145, % $ 139, % $ 131,050 $ 7, % Entertainment 208, % 205, % 194,955 10, % Fashion 83, % 79, % 75,333 3, % Total merchandise sales (a) 437, % 423, % 401,338 22, % Returns and allowances (27,080) (25,777) (24,366) (1,411) 5.1 % Commissions 6,828 5,995 5, % Net sales $ 416,973 $ 403,874 $ 382,584 $ 21, % Gross profit rate 43.3% 42.8% 50 bp Sales and marketing expense 15.8% 16.6% (81) bp Contribution margin rate (b) 20.6% 21.3% (72) bp Average order size (c) $ 245 $ % Orchard sales by merchandise category: Home $ 25, % Fashion 251, % Total merchandise sales (a) 277, % Returns and allowances (37,831) Commissions and other revenue 13,917 Net sales $ 253,252 Gross profit rate 53.0% Sales and marketing expense 36.6% Contribution margin rate (b) 16.3% Average order size (c) $ 78 Other sales by merchandise category: (d) Home $ 19, % $ 15, % $ 14,284 $ % Entertainment 39, % 31, % 30,208 1, % Fashion 10, % 7, % 7, % Total merchandise sales (a) 70, % 55, % 52,116 2, % Returns and allowances (4,132) (3,027) (2,852) (175) 36.5 % Commissions 1, % Net sales $ 67,457 $ 52,600 $ 49,808 $ 2, % Gross profit rate 28.0% 22.7% 528 bp Sales and marketing expense 12.1% 13.1% (100) bp Contribution margin rate (b) 10.1% 7.6% 250 bp Average order size (c) $ 299 $ % (a) Total merchandise sales includes shipping and handling revenue and is net of sales discounts. (b) 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. (c) Represents retail merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented. (d) Other includes Gettington and Paycheck Direct. 18