Bluestem Group Inc. Announces Unaudited Consolidated Second Quarter Fiscal 2018 Earnings Results

Transcription

1 Bluestem Group Inc. Announces Unaudited Consolidated Second Quarter Fiscal 2018 Earnings Results Eden Prairie, MN September 17, 2018 Bluestem Group Inc. ("Bluestem Group" or the "Company")(OTCMKTS: BGRP) today reported unaudited consolidated financial results that include its wholly-owned subsidiary, Bluestem Brands, Inc. and its subsidiaries ( Bluestem Brands ), for the 13- and 26-weeks ended August 3, 2018 and August 4, We refer to the 13-week periods in this release as the "second quarter". Bluestem is a multi-brand, direct-to-consumer online retailer of a broad selection of name-brand and private label general merchandise serving the boomer and senior demographic, generally considered age 50 and over, and low- to middle-income consumers across all age demographics. Second Quarter Fiscal 2018 Bluestem Brands Highlights Net sales were $422.2 million, a 3.8% decrease compared to the second quarter of fiscal Adjusted net sales, which exclude exited businesses, decreased 2.0%**. Gross margin was 47.8% compared to 47.9% in the second quarter of fiscal The new revenue recognition accounting standard ("Topic 606") adopted in Q resulted in a net decrease of $10.8 million of direct response advertising costs. Adjusted EBITDA was $31.6 million compared to $21.1 million in the second quarter of fiscal 2017, an increase of 270 basis points as a percent of net sales*. Excluding the impact from the adoption of Topic 606, Adjusted EBITDA was $20.8 million in the second quarter of fiscal Compliant with lender covenants throughout and as of the end of the second quarter, net liquidity was $82.5 million compared to a covenant requirement of $40.0 million and lender leverage ratio was 3.98x compared to a covenant requirement of 4.50x. Lisa Gavales, Interim CEO, stated, "Our second quarter results reflect further progress in key areas of the business. We saw improved performance in our credit portfolio with our 30+ day delinquency rate down for the second quarter in a row. This demonstrates the stabilization in performance of the overall portfolio which is an indicator of potential future declines in credit losses. Excluding the impact of the adoption of the new revenue recognition standard, adjusted EBITDA margin increased 10 basis points and at Northstar, we delivered a 300 basis point increase in contribution margin. In our Orchard portfolio, while we saw sequential improvement in the year over year trends, we recognize that we have work to do and are taking actions to advance this turnaround effort. Looking ahead, we continue to focus our efforts on improving the health of the credit portfolio, driving sales, and increasing marketing efficiencies, which we expect will drive improved EBITDA performance for the company and put us on track to achieve long-term sustained profitability." Second Quarter Fiscal 2018 Bluestem Group Consolidated Statistics unaudited in millions (except income (loss) per share) Q Q Bluestem Group net income (loss)* $ 6.1 $ (14.3) Bluestem Group basic and diluted income (loss) per share* $ 0.05 $ (0.11) Bluestem Group Adjusted EBITDA* $ 30.9 $ 18.6 Bluestem Group cash and cash equivalents $ $

2 Second Quarter Fiscal 2018 Bluestem Brands Stand-Alone Statistics unaudited in millions Q Q Bluestem Brands net sales $ $ Bluestem Brands adjusted net sales** $ $ Bluestem Brands net income (loss)* $ 3.0 $ (6.8) Bluestem Brands Adjusted EBITDA* $ 31.6 $ 21.1 Northstar Portfolio net sales $ $ Orchard Portfolio net sales $ $ Northstar portfolio active accounts Orchard Portfolio gross active customers Northstar Portfolio revolving credit portfolio: 30+ day delinquency rate 17.5% 18.2% Net principal charge-off rate 22.0% 21.7% *Second quarter of fiscal 2018 includes a $10.8 million impact from the net reduction of certain advertising costs as a result of the adoption of Topic 606. **Excludes net sales for exited businesses (PayCheck Direct and LinenSource). Year-over-year changes are estimated using net sales for the 13-weeks ended August 3, 2018 and August 4, 2017, respectively. All financial information included in this release is unaudited. Information for Bluestem Group is presented on a consolidated basis. Consolidated information for Bluestem Group s wholly-owned subsidiary, Bluestem Brands, Inc., is also presented on a stand-alone basis. 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 The Company will host a conference call at 9:00 AM ET on Tuesday, September 18, The conference call can be accessed at (800) or (323) (International), conference ID # and 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 (844) or (412) (International), replay pin # The telephone replay will be available at 12:00 PM ET September 18, Additional investor information can be accessed at About Bluestem Group Bluestem Group Inc., a holding company headquartered in Eden Prairie, MN, operates multiple direct to consumer retail brands through its subsidiary Bluestem Brands. The Northstar Portfolio includes Fingerhut and Gettington, both of which are national multi-channel retail brands offering a broad selection of name brand and private label merchandise serving low- to middle-income consumers by offering multiple payment plans through revolving credit lines or installment loans offered by WebBank. The Orchard Portfolio consists of multichannel brands including Appleseed s, Bedford Fair, Blair, Draper s & Damon s, Gold Violin, Haband, Norm Thompson, Old Pueblo Traders, Sahalie, Tog Shop and WinterSilks. These brands offer apparel, accessories, and home products for the boomer and senior demographic, generally considered age 50 and over and provide customers with the ability to obtain credit through a third-party private label credit card. For additional information visit the Bluestem Group website at 2

3 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. Forwardlooking 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 February 2, 2018 and February 3, 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 forwardlooking statements, whether as a result of new information, future events or otherwise. Investor Relations: Jean Fontana ICR IR@bluestembrands.com 3

4 BLUESTEM GROUP INC. Table of Contents Page Overview and Basis of Presentation 5 Bluestem Group Inc. 6 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) 7 Condensed Consolidated Balance Sheets (Unaudited) 8 Condensed Consolidated Statements of Cash Flows (Unaudited) 9 Non-GAAP Financial Measure 10 Impact of Topic 606 Adoption 11 Bluestem Brands, Inc. 13 Condensed Consolidated Statements of Income (Loss) and Selected Operating Data (Unaudited) 14 Condensed Consolidated Balance Sheets (Unaudited) 16 Condensed Consolidated Statements of Cash Flows (Unaudited) 17 Supplemental Financial Information Segment Net Sales 18 Credit Portfolio 20 Non-GAAP Financial Measures 22 Impact of Topic 606 Adoption 27 4

5 BLUESTEM GROUP INC. BLUESTEM BRANDS, INC. FINANCIAL INFORMATION 13-weeks ended May 4, 2018 and May 5, 2017 Overview and Basis of Presentation As used in this release: Bluestem Group, "BGI," we, us, our, or the Company refers to Bluestem Group Inc. with its consolidated subsidiaries BGI Holding Company refers to the Bluestem Group Inc. legal entity, excluding its subsidiaries "Bluestem Brands" or Bluestem refers to Bluestem Brands, Inc., an indirect subsidiary of Bluestem Group, which consists of Northstar Portfolio, Orchard Portfolio and PayCheck Direct (which was exited in the first quarter of fiscal 2017) "Northstar Portfolio refers to the consolidated Fingerhut and Gettington retail brands Orchard Portfolio refers to the consolidated Appleseed s, Bedford Fair, Blair, Draper s & Damon s (retail stores were exited during the first quarter of fiscal 2017), Gold Violin, Haband, LinenSource (which was exited in the second quarter of fiscal 2017), Norm Thompson, Old Pueblo Traders, Sahalie, Tog Shop, and WinterSilks retail brands The accompanying financial information for Bluestem Group Inc. is presented on a consolidated basis, including its wholly owned subsidiary Bluestem Brands, Inc. and its consolidated subsidiaries. The accompanying financial information for Bluestem Brands, Inc. is also presented on a stand-alone basis. All financial information included in this release is unaudited. The business results for 2018 reflect the adoption of the new revenue recognition accounting standard (Topic 606). The primary impact of the adoption of Topic 606 was to accelerate the timing of recognizing direct mail catalog advertising costs, which were capitalized and amortized over their expected period of future benefit prior to adoption and are now recognized on the estimated date of first delivery to recipients. The Company reviews and presents the consolidated business results based on the organizational structure management uses to evaluate performance and make decisions on allocating resources and assessing performance. Financial Information To supplement the historical financial data derived from Bluestem Group s and Bluestem s consolidated financial statements, which are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), this release uses adjusted EBITDA as a non-gaap performance measure. In addition, Bluestem s stand-alone consolidated financial statements includes contribution margin, adjusted general and administrative expenses, adjusted free cash flow, program agreement adjusted EBITDA, lender adjusted EBITDA, leverage ratio net debt, program agreement leverage ratio, lender leverage ratio, working capital, adjusted working capital, program agreement net liquidity and lender net liquidity 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 and Bluestem s results for further important information concerning these measures. 5

6 Bluestem Group Inc. Results for the 13- and 26-Weeks Ended August 3,

7 BLUESTEM GROUP INC. Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited - in thousands, except shares and per share amounts) 13-Weeks Ended 26-Weeks Ended August 3, 2018 August 4, 2017 August 3, 2018 August 4, 2017 Net sales and revenue Net sales $ 422,198 $ 438,893 $ 803,258 $ 866,515 Commercial real estate revenue, net 359 (298) 754 1,407 Total net sales and revenue 422, , , ,922 Costs and expenses Cost of goods sold 220, , , ,527 Sales and marketing expenses 98, , , ,444 Net credit expense 29,011 29,487 54,159 59,423 General and administrative expenses 46,171 55,511 95, ,845 Amortization and depreciation not included in cost of goods sold 12,043 13,913 24,347 29,326 Loss on impairment 230 Total costs and expenses 405, , , ,795 Operating income (loss) 17,040 (2,423) (10,159) (31,873) Interest expense, net 12,513 12,751 25,115 25,616 Income (loss) before income taxes 4,527 (15,174) (35,274) (57,489) Income tax benefit (1,584) (831) (1,273) (124) Net income (loss) $ 6,111 $ (14,343) $ (34,001) $ (57,365) Other comprehensive income (loss) Unrealized (loss) gain on interest rate swap, net of tax (254) (558) 148 (793) Comprehensive income (loss) $ 5,857 $ (14,901) $ (33,853) $ (58,158) Basic and diluted income (loss) per share - common stockholders Basic income (loss) per share $ 0.05 $ (0.11) $ (0.26) $ (0.43) Diluted income (loss) per share $ 0.05 $ (0.11) $ (0.26) $ (0.43) Basic weighted average shares outstanding 132,761, ,179, ,544, ,108,129 Diluted weighted average shares outstanding 132,764, ,179, ,544, ,108,129 7

8 BLUESTEM GROUP INC. Condensed Consolidated Balance Sheets August 3, 2018 February 2, 2018 August 4, 2017 ASSETS Current assets: Cash and cash equivalents $ 123,318 $ 123,398 $ 129,064 Restricted cash 14,348 15,759 16,891 Customer accounts receivable, net of allowance of $5,638, $8,233 and $12,404 5,658 9,008 23,524 Merchandise inventories 192, , ,103 Promotional material inventories 17,739 34,660 44,040 Other current assets 30,257 28,399 30,054 Total current assets 383, , ,676 Property and equipment, net 96, , ,957 Intangibles, net 155, , ,904 Goodwill 36,717 36, ,556 Other assets 7,646 11,222 9,641 Total Assets $ 680,368 $ 723,479 $ 953,734 LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities: Accounts payable $ 166,112 $ 160,300 $ 157,395 Accrued costs and other liabilities 70,094 67,754 75,500 Short-term debt 38,719 26,434 54,559 Total current liabilities 274, , ,454 Long-term debt 407, , ,950 Deferred income taxes 2,495 4,245 37,796 Other long-term liabilities 35,380 39,349 37,126 Total liabilities 720, , ,326 Stockholders' Equity: Series A participating convertible preferred stock 5,000 5,000 5,000 Common stock 1,332 1,332 1,323 Treasury stock (131) (131) (131) Additional paid-in capital 296, , ,767 Accumulated deficit (345,166) (297,324) (140,379) Accumulated other comprehensive income, net of tax 2,479 2,331 (172) Total stockholders equity (40,232) 5, ,408 Total Liabilities and Stockholders' Equity $ 680,368 $ 723,479 $ 953,734 8

9 BLUESTEM GROUP INC. Condensed Consolidated Statements of Cash Flows 26-Weeks Ended August 3, 2018 August 4, 2017 Operating Activities Net loss $ (34,001) $ (57,365) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization and depreciation expense 26,582 31,878 Loss on impairment 230 Provision for doubtful accounts 41,472 38,631 Provision for deferred income taxes (1,714) 322 (Gain) loss on servicing right (3,190) 590 Net gains (losses) on loans held for sale, investment securities and other 265 (626) Stock-based compensation expense 1,716 2,612 Other, net 2,185 1,434 Net change in assets and liabilities: Customer account receivables (821) 19,032 Merchandise inventories 2,159 46,867 Promotional material inventories 3,080 5,690 Other assets (459) 10,434 Accounts payable and other liabilities 8,742 (62,198) Net cash provided by operating activities 46,016 37,531 Investing Activities Purchases of customer accounts receivable (423,953) (432,691) Proceeds from sale of customer accounts receivable 386, ,558 Net purchases of property and equipment (9,581) (8,885) Distributions from equity investments 2,109 8,215 Other (13) Net cash used in investing activities (44,773) (31,816) Financing Activities Repayments of debt (14,401) (14,401) Borrowings on asset backed line of credit 181, ,246 Repayments on asset backed line of credit (170,046) (204,219) Payment of dividends (80,201) Net cash used in by financing activities (2,642) (88,575) Effect of Foreign Exchange Rates on Cash (92) 76 Net Decrease in Cash, Cash Equivalents and Restricted Cash (1,491) (82,784) Cash, Cash Equivalents and Restricted Cash, Beginning of Period 139, ,739 Cash, Cash Equivalents and Restricted Cash, End of Period $ 137,666 $ 145,955 9

10 BLUESTEM GROUP INC. Non-GAAP Financial Measure To supplement the consolidated financial statements of Bluestem Group Inc. and its subsidiaries, which are presented in accordance with GAAP, we use the following measure that is not in accordance with, or an alternative to, measures prepared in accordance with GAAP ("non-gaap measure"): Adjusted EBITDA, as presented, represents net income (loss) attributable to Bluestem Group Inc. before income tax benefit, interest expense, amortization and depreciation expense, loss on impairment, (gain) loss on servicing right, stockbased compensation expense, restructuring costs, Orchard Portfolio segmentation and positioning research and other. We provide this measure because we believe it is useful to investors in evaluating our operating performance compared to other companies in our industry. As a non-gaap measure, it has limitations in that it does not reflect all of the amounts associated with Bluestem Group Inc.'s results of operations as determined in accordance with GAAP and is not based on any comprehensive set of accounting rules or principles. This non-gaap measure 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 calculation of Adjusted EBITDA may not be comparable to the calculation of such measure by other companies. The following table reconciles Adjusted EBITDA from the nearest GAAP performance measure, which is net income (loss): 13-Weeks Ended 26-Weeks Ended August 3, 2018 August 4, 2017 August 3, 2018 August 4, 2017 Adjusted EBITDA: Net income (loss) $ 6,111 $ (14,343) $ (34,001) $ (57,365) Income tax benefit (1,584) (831) (1,273) (124) Interest expense 12,517 12,752 25,122 25,617 Amortization and depreciation expense 13,118 15,077 26,583 31,878 Loss on impairment 230 (Gain) loss on servicing right (366) (660) (3,190) 590 Stock-based compensation expense 637 1,266 1,715 2,612 Restructuring costs 5 1, ,892 Other 508 3,557 1,703 5,534 Adjusted EBITDA $ 30,946 $ 18,568 $ 16,753 $ 24,864 10

11 BLUESTEM GROUP INC. Non-GAAP Financial Measure Impact of Adoption of Topic 606 The Company adopted Topic 606 which pertains to revenue recognition, on February 3, The adoption of Topic 606 had a material impact on the timing of advertising expense recognition related to direct response advertising. Under Topic 606, the Company now recognizes the expense associated with its catalogs on the estimated date of first delivery to recipients. Prior to adoption of Topic 606, these costs were capitalized and amortized over their expected period of future benefit. In addition, the estimated realizable value of future product returns was reclassified from current liabilities to current assets. The following tables present the impact the adoption of Topic 606 had on the Company's condensed consolidated statement of comprehensive income (loss) and condensed consolidated balance sheet: 13-Weeks Ended August 3, 2018 Balances without As reported % of net Topic 606 Adoption of % of net sales Adjustments Topic 606 sales Total net sales and revenue $ 422, % $ $ 422, % Costs and expenses Cost of goods sold 220, % 220, % Sales and marketing expenses 98, % 10, , % Net credit expense 29, % 29, % General and administrative expenses 46, % 46, % Amortization and depreciation not included in cost of goods sold 12, % 12, % Total costs and expenses 405, % 10, , % Operating income (loss) 17, % (10,821) 6, % Interest expense, net 12, % 12, % Income (loss) before income taxes 4, % (10,821) (6,294) (1.5)% Income tax benefit (1,584) (0.4)% (1,584) (0.4)% Net income (loss) $ 6, % $ (10,821) $ (4,710) (1.1)% 26-Weeks Ended August 3, 2018 Balances without As reported % of net Topic 606 Adoption of % of net sales Adjustments Topic 606 sales Total net sales and revenue $ 804, % $ $ 804, % Costs and expenses Cost of goods sold 415, % 415, % Sales and marketing expenses 225, % (2,441) 222, % Net credit expense 54, % 54, % General and administrative expenses 95, % 95, % Amortization and depreciation not included in cost of goods sold 24, % 24, % Total costs and expenses 814, % (2,441) 811, % Operating loss (10,159) (1.3)% 2,441 (7,718) (1.0)% Interest expense, net 25, % 25, % Loss before income taxes (35,274) (4.4)% 2,441 (32,833) (4.1)% Income tax benefit (1,273) (0.2)% (1,273) (0.2)% Net loss $ (34,001) (4.2)% $ 2,441 $ (31,560) (3.9)% 11

12 BLUESTEM GROUP INC. Non-GAAP Financial Measure As of August 3, 2018 As Reported Topic 606 Adjustment Balances Without Adoption of Topic 606 Promotional material inventories $ 17,739 $ 16,282 $ 34,021 Other current assets 30,257 (3,729) 26,528 Accrued costs and other liabilities 70,094 (3,729) 66,365 Accumulated deficit (345,166) 16,282 (328,884) 12

13 Bluestem Brands, Inc. Results for the 13- and 26-Weeks Ended August 3,

14 Condensed Consolidated Statements of Income (Loss) and Selected Operating Data 13-Weeks Ended August 3, 2018 August 4, 2017 Change (a) Net sales $ 422,198 $ 438,893 (3.8)% Cost of goods sold 220, ,708 (3.6)% Gross profit 201, ,185 (4.1)% Sales and marketing expenses (b) 98, ,399 (13.4)% Net credit expense 29,084 28, % General and administrative expenses 44,433 54,314 (18.2)% Amortization and depreciation not included in cost of goods sold (c) 12,043 13,913 (13.4)% Interest expense, net (d) 12,513 12,751 (1.9)% Income (loss) before income taxes (b) 5,356 (12,591) % Income tax expense (benefit) 2,401 (5,822) % Net income (loss) (b) $ 2,955 $ (6,769) % Margins and Expenses as a Percentage of Net Sales: Gross profit 47.8% 47.9% (10) bps Sales and marketing expenses (b) 23.3% 25.8% (250) bps Net credit expense 6.9% 6.5% 40 bps Contribution margin (b,e) $ 74,345 $ 68, % As a percentage of net sales (b) 17.6% 15.6% 200 bps Adjusted general and administrative expenses (e) $ 43,194 $ 47,893 (9.8)% As a percentage of net sales 10.2% 10.9% (70) bps Adjusted EBITDA (b,e) $ 31,636 $ 21, % As a percentage of net sales (b) 7.5% 4.8% 270 bps Selected Operating Data: Northstar Portfolio revolving new customer credit accounts (f) % Fingerhut FreshStart new customer credit accounts (f) % Orchard Portfolio new gross customers (g) (7.0)% Northstar Portfolio active accounts (h) 1,486 1,546 (3.9)% Orchard Portfolio gross active customers (i) 7,328 7,710 (5.0)% (a) Changes in rates are presented as the basis point ("bps") increase (decrease) from the prior period. (b) Fiscal 2018 amounts and percentages include the impact of the adoption of Topic 606, which pertains to revenue recognition. Under Topic 606, the Company now recognizes the expense associated with its catalogs on the estimated date of first delivery to recipients. Prior to adoption of Topic 606, these costs were capitalized and amortized over their expected period of future benefit. The impact of adopting Topic 606 was a decrease in sales and marketing expense of $10,821 for the 13-weeks ended August 3, (c) Consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense related to software and office equipment. Owned fulfillment facilities and equipment depreciation is included in cost of goods sold. (d) Interest expense is 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) Individual customers who have made a first-time purchase from a particular brand within the Orchard Portfolio during the period presented. Unique new customers, representing unique individuals who have made a first-time purchase from the Orchard Portfolio during the 13-weeks ended August 3, 2018 and August 4, 2017, were 153 and 144, respectively. (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) Individual customers that have made at least one purchase from a particular brand within the Orchard Portfolio during the previous twelve fiscal months. Unique active customers, representing unique individuals who have made at least one purchase from the Orchard Portfolio during the twelve fiscal months ended August 3, 2018 and August 4, 2017, were 4.4 million and 4.7 million, respectively. 14

15 Condensed Consolidated Statements of Income (Loss) and Selected Operating Data 26-Weeks Ended August 3, 2018 August 4, 2017 Net sales $ 803,258 $ 866,515 (7.3)% Cost of goods sold 416, ,527 (8.0)% Gross profit 387, ,988 (6.5)% Sales and marketing expenses 225, ,444 (4.7)% Net credit expense 53,744 62,101 (13.5)% General and administrative expenses 90, ,349 (23.9)% Amortization and depreciation not included in cost of goods sold (b) 24,347 29,326 (17.0)% Loss on impairment 230 (100.0)% Interest expense, net (c) 25,115 25,616 (2.0)% Income (loss) before income taxes (32,243) (59,078) 45.4 % Income tax expense (benefit) (4,454) (21,856) 79.6 % Net income (loss) $ (27,789) $ (37,222) 25.3 % Margins and Expenses as a Percentage of Net Sales: Gross profit 48.2% 47.8% 40 bps Sales and marketing expenses (b) 28.0% 27.3% 70 bps Net credit expense 6.7% 7.2% (50) bps Contribution margin (b,e) $ 108,082 $ 115,443 (6.4)% As a percentage of net sales (b) 13.5% 13.3% 20 bps Adjusted general and administrative expenses (e) $ 87,651 $ 97,557 (10.2)% As a percentage of net sales 10.9% 11.3% (40) bps Adjusted EBITDA (b,e) $ 19,028 $ 26,850 (29.1)% As a percentage of net sales (b) 2.4% 3.1% (70) bps Selected Financial Data: Lender net liquidity (e) $ 82,487 $ 66, % Availability on inventory line of credit $ 78,632 $ 62, % Adjusted free cash flow (e) $ 5,752 $ 17,112 (66.4)% Lender leverage ratio (e) Lender leverage ratio requirement < 4.50 < 4.50 Program agreement leverage ratio (e) Program agreement leverage ratio requirement < 5.00 < 5.00 Selected Operating Data: Northstar Portfolio revolving new customer credit accounts (f) % Fingerhut FreshStart new customer credit accounts (f) % Orchard Portfolio new gross customers (g) 988 1,109 (10.9)% Northstar Portfolio active accounts (h) 1,486 1,546 (3.9)% Orchard Portfolio gross active customers (i) 7,328 7,710 (5.0)% (a) Changes in rates are presented as the basis point ("bps") increase (decrease) from the prior period. (b) Fiscal 2018 amounts and percentages include the impact of the adoption of Topic 606, which pertains to revenue recognition. Under Topic 606, the Company now recognizes the expense associated with its catalogs on the estimated date of first delivery to recipients. Prior to adoption of Topic 606, these costs were capitalized and amortized over their expected period of future benefit. The impact of adopting Topic 606 was an increase in sales and marketing expense of $2,441 for the 26-weeks ended August 3, (c) Consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense related to software and office equipment. Owned fulfillment facilities and equipment depreciation is included in cost of goods sold. (d) Interest expense is 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) Individual customers who have made a first-time purchase from a particular brand within the Orchard Portfolio during the period presented. Unique new customers, representing unique individuals who have made a first-time purchase from the Orchard Portfolio during the 26-weeks ended August 3, 2018 and August 4, 2017, were 351 and 363, respectively. (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) Individual customers that have made at least one purchase from a particular brand within the Orchard Portfolio during the previous twelve fiscal months. Unique active customers, representing unique individuals who have made at least one purchase from the Orchard Portfolio during the twelve fiscal months ended August 3, 2018 and August 4, 2017, were 4.4 million and 4.7 million, respectively. 15

16 Condensed Consolidated Balance Sheets August 3, 2018 February 2, 2018 August 4, 2017 ASSETS Current assets: Cash and cash equivalents $ 8,590 $ 9,173 $ 9,698 Restricted cash 14,348 15,759 16,806 Customer accounts receivable, net of allowance of $5,505, $7,082 and $5,857 5,658 7,275 5,636 Merchandise inventories 192, , ,103 Promotional material inventories 17,739 34,660 44,040 Prepaid expenses and other assets 28,576 25,346 24,882 Total current assets 267, , ,165 Property and equipment, net 78,606 89, ,957 Intangible assets, net 155, , ,904 Goodwill 36,717 36, ,556 Other assets 2,369 4,040 2,022 Total Assets $ 540,952 $ 580,425 $ 803,604 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 166,112 $ 160,300 $ 157,394 Current income taxes payable 39,676 36,370 17,450 Accrued costs and other liabilities 85,519 81,098 90,103 Short-term debt 38,719 26,434 54,559 Total current liabilities 330, , ,506 Long-term debt 407, , ,733 Deferred income taxes 5,210 16,325 52,690 Other long-term liabilities 35,635 39,145 29,313 Total liabilities 778, , ,242 Stockholder's equity: Common stock Additional paid-in capital 369, , ,602 Accumulated deficit (608,984) (570,697) (400,133) Accumulated other comprehensive income, net of tax 1,880 1,768 (107) Total stockholder's equity (237,502) (199,327) (30,638) Total Liabilities and Stockholder's Equity $ 540,952 $ 580,425 $ 803,604 16

17 Condensed Consolidated Statements of Cash Flows 26-Weeks Ended August 3, 2018 August 4, 2017 Operating Activities Net loss $ (27,789) $ (37,222) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization and depreciation expense 26,127 31,878 Loss on impairment 230 Provision for doubtful accounts 41,530 42,417 Provision for deferred income taxes (11,115) (4,068) (Gain) loss on servicing right (3,190) 590 Stock-based compensation expense 1,415 2,400 Other, net 2,514 1,202 Net change in assets and liabilities: Customer accounts receivable (2,612) 3,288 Merchandise inventories 2,159 46,867 Promotional material inventories 6,423 5,690 Prepaid expenses and other assets (1,831) 4,233 Current income taxes payable 3,306 (16,609) Accounts payable and other liabilities 9,268 (59,474) Net cash provided by operating activities 46,205 21,422 Investing Activities Purchase of customer accounts receivable (423,953) (432,691) Proceeds from sale of customer accounts receivable 386, ,403 Net purchase of property and equipment (8,256) (8,885) Net cash used in investing activities (45,557) (10,173) Financing Activities Repayments of debt (14,401) (14,401) Borrowings on asset backed line of credit 181, ,246 Repayments on asset backed line of credit (170,046) (204,219) Net cash used in financing activities (2,642) (8,374) Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash (1,994) 2,875 Cash, Cash Equivalents and Restricted Cash, Beginning of Period 24,932 23,629 Cash, Cash Equivalents and Restricted Cash, End of Period $ 22,938 $ 26,504 17

18 Supplemental Financial Information - Segment Net Sales (unaudited - in thousands, except average order size) 13-Weeks Ended August 3, 2018 August 4, 2017 Change $ % of Sales $ % of Sales % Total sales by merchandise category: Home $ 113, % $ 124, % (9.0)% Entertainment 85, % 88, % (4.2)% Fashion 244, % 237, % 3.1 % Total merchandise sales (a) 442, % 450, % (1.7)% Corporate and other (b) 3,213 12,934 Returns and allowances (40,824) (44,692) (8.7)% Commissions and other revenues 16,892 20,199 (16.4)% Net sales $ 422,198 $ 438,893 (3.8)% Gross profit rate 47.8% 47.9% (10) bps Sales and marketing expense rate (c) 23.3% 25.8% (250) bps Contribution margin rate (c, d) 17.6% 15.6% 200 bps Average order size (e) $ 105 $ 108 Northstar Portfolio sales by merchandise category: Home $ 105, % $ 105, % (0.2)% Entertainment 85, % 88, % (4.2)% Fashion 40, % 34, % 20.2 % Total merchandise sales (a) 231, % 228, % 1.3 % Returns and allowances (11,473) (12,214) (6.1)% Commissions and other revenues 4,755 5,010 (5.1)% Net sales $ 224,496 $ 221, % Gross profit rate 44.0% 42.9% 110 bps Sales and marketing expense rate (c) 14.0% 15.5% (150) bps Contribution margin rate (c, d) 17.1% 14.1% 300 bps Average order size (e) $ 233 $ 239 Orchard Portfolio sales by merchandise category: Home $ 7, % $ 18, % (57.7)% Fashion 203, % 203, % 0.2 % Total merchandise sales (a) 211, % 222, % (4.7)% Returns and allowances (29,351) (32,478) (9.6)% Commissions and other revenues 12,137 15,189 (20.1)% Net sales $ 194,489 $ 204,903 (5.1)% Gross profit rate 51.5% 52.5% (100) bps Sales and marketing expense rate (c) 34.3% 36.6% (230) bps Contribution margin rate (c,d) 17.2% 15.9% 130 bps Average order size (e) $ 65 $ 69 (a) Total merchandise sales include shipping and handling revenue and is net of sales discounts. (b) Corporate and other consist of adjustments to Bluestem's net sales related to in-transit product sales from shipping point to estimated time of delivery to the customer, net sales of PayCheck Direct and the elimination of inter-segment activities. (c) Fiscal 2018 percentages include the impact of the adoption of Topic 606, which pertains to revenue recognition. Under Topic 606, the Company now recognizes the expense associated with its catalogs on the estimated date of first delivery to recipients. Prior to adoption of Topic 606, these costs were capitalized and amortized over their expected period of future benefit. The impact of adopting Topic 606 was a decrease in sales and marketing expense of $10,821 for the 13-weeks ended August 3, 2018, of which $1,071 related to Northstar Portfolio and $7,762 related to Orchard Portfolio. (d) 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. (e) Represents merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented. 18

19 Supplemental Financial Information - Segment Net Sales (unaudited - in thousands, except average order size) 26-Weeks Ended August 3, 2018 August 4, 2017 Change $ % of Sales $ % of Sales % Total sales by merchandise category: Home $ 208, % $ 230, % (9.9)% Entertainment 152, % 161, % (5.5)% Fashion 501, % 519, % (3.5)% Total merchandise sales (a) 862, % 911, % (5.4)% Corporate and other (b) (6,799) 7,708 Returns and allowances (84,897) (92,381) (8.1)% Commissions and other revenues 32,641 39,200 (16.7)% Net sales $ 803,258 $ 866,515 (7.3)% Gross profit rate 48.2 % 47.8 % 40 bps Sales and marketing expense rate (c) 28.0 % 27.3 % 70 bps Contribution margin rate (c, d) 13.5 % 13.3 % 20 bps Average order size (e) $ 101 $ 107 Northstar Portfolio sales by merchandise category: Home $ 190, % $ 194, % (2.1)% Entertainment 152, % 161, % (5.5)% Fashion 77, % 65, % 17.0 % Total merchandise sales (a) 420, % 422, % (0.4)% Returns and allowances (21,682) (23,380) (7.3)% Commissions and other revenues 8,756 9,296 (5.8)% Net sales $ 407,502 $ 408,102 (0.1)% Gross profit rate 44.0 % 42.6 % 140 bps Sales and marketing expense rate (c) 14.5 % 15.4 % (90) bps Contribution margin rate (c, d) 16.2 % 13.6 % 260 bps Average order size (e) $ 227 $ 232 Orchard Portfolio sales by merchandise category: Home $ 17, % $ 36, % (51.4)% Fashion 424, % 453, % (6.4)% Total merchandise sales (a) 441, % 489, % (9.8)% Returns and allowances (63,215) (69,001) (8.4)% Commissions and other revenues 23,885 29,904 (20.1)% Net sales $ 402,555 $ 450,705 (10.7)% Gross profit rate 52.0 % 52.6 % (60) bps Sales and marketing expense rate (c) 41.3 % 38.1 % 320 bps Contribution margin rate (c,d) 10.7 % 14.4 % (370) bps Average order size (e) $ 65 $ 72 (a) Total merchandise sales include shipping and handling revenue and is net of sales discounts. (b) Corporate and other consist of adjustments to Bluestem's net sales related to in-transit product sales from shipping point to estimated time of delivery to the customer, net sales of PayCheck Direct and the elimination of inter-segment activities. (c) Fiscal 2018 percentages include the impact of the adoption of Topic 606, which pertains to revenue recognition. Under Topic 606, the Company now recognizes the expense associated with its catalogs on the estimated date of first delivery to recipients. Prior to adoption of Topic 606, these costs were capitalized and amortized over their expected period of future benefit. The impact of adopting Topic 606 was an increase in sales and marketing expense of $2,441 for the 26-weeks ended August 3, 2018, of which $1,059 related to Northstar Portfolio and $1,289 related to Orchard Portfolio. (d) 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. (e) Represents merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented. 19

20 Supplemental Financial Information - Credit Portfolio (unaudited - in thousands, except average balance outstanding) 13-Weeks Ended August 3, 2018 August 4, 2017 Change % (13-weeks) (13-weeks) Net credit expense: Provision for doubtful accounts: Loss on sale of customer accounts receivable $ 19,836 $ 18, % Company-owned customer accounts receivable 1,756 1, % Loss on sale of PayCheck Direct customer accounts receivable to BGI Holding Company 20 (100.0)% Total provision for doubtful accounts 21,592 20, % Credit management costs 15,122 16,748 (9.7)% Finance charge and fee income, net (516) (222) % Servicing fee income and portfolio profit sharing (6,748) (7,966) (15.3)% Gain on servicing right (366) (660) (44.5)% Net credit expense $ 29,084 $ 28, % 13-Weeks Ended August 3, 2018 August 4, 2017 (13-weeks) (13-weeks) Serviced Portfolio Selected Credit Data: Revolving (a) FreshStart (b) Revolving (a) FreshStart (b) Finance charge and fee income $ 95,723 $ 512 $ 89,948 $ 194 Finance charge and fee income rate (c) 27.8% 4.1% 25.7% 1.2 % Net principal charge-offs $ 75,951 $ 3,329 $ 75,954 $ 4,630 Net principal charge-off rate (d) 22.0% 29.7% 21.7% 29.0 % Average customer accounts receivable $ 1,378,798 $ 11,287 $ 1,400,838 $ 12,153 (a) Revolving serviced portfolio includes Northstar Portfolio revolving credit accounts. (b) FreshStart serviced portfolio is Fingerhut's installment accounts. (c) 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 August 3, 2018 and August 4, 2017, respectively, 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 August 3, 2018 and August 4, 2017, respectively. (d) Revolving net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 13-weeks ended August 3, 2018 and August 4, 2017, respectively, 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 August 3, 2018 and August 4, 2017, respectively. 20

21 Supplemental Financial Information - Credit Portfolio (unaudited - in thousands, except average balance outstanding) 26-Weeks Ended August 3, 2018 August 4, 2017 Change % Net credit expense: Provision for doubtful accounts: Loss on sale of customer accounts receivable $ 37,388 $ 31, % Company-owned customer accounts receivable 4,141 7,436 (44.3)% Loss on sale of PayCheck Direct customer accounts receivable to BGI Holding Company 3,786 (100.0)% Total provision for doubtful accounts 41,529 42,417 (2.1)% Credit management costs 31,066 35,570 (15.3)% Finance charge and fee income (1,466) (1,402) 4.6% Servicing fee income and portfolio profit sharing (14,195) (15,074) (5.8)% (Gain) loss on servicing right (3,190) 590 (640.7)% Net credit expense $ 53,744 $ 62,101 (13.5)% 26-Weeks Ended August 3, 2018 August 4, 2017 Serviced Portfolio Selected Credit Data: Revolving (a) FreshStart (b) Revolving (a) FreshStart (b) Finance charge and fee income $ 190,295 $ 1,455 $ 184,093 $ 1,361 Finance charge and fee income rate (c) 27.2% 7.1% 25.9% 5.2% Net principal charge-offs $ 148,729 $ 5,905 $ 146,822 $ 7,381 Net principal charge-off rate (d) 21.3% 29.7% 20.6% 28.1% Average customer accounts receivable $ 1,398,284 $ 12,093 $ 1,422,387 $ 13,957 Accounts Receivable Statistics at Periods Ending August 3, 2018 August 4, 2017 Revolving (a) FreshStart (b) Revolving (a) FreshStart (b) Balance active accounts 1, , Average balance outstanding $ 793 $ 97 $ 784 $ 97 Customer accounts receivable $ 1,346,669 $ 10,709 $ 1,364,648 $ 10,803 Balances 30+ days delinquent (c) $ 235,818 $ 3,408 $ 248,037 $ 4,085 Balances 30+ days delinquent as a percentage of total customer accounts receivable (d) 17.5% 31.8% 18.2% 37.8% (a) Revolving serviced portfolio includes Northstar Portfolio revolving credit accounts. (b) FreshStart serviced portfolio is Fingerhut's installment accounts. (c) 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 August 3, 2018 and August 4, 2017, respectively, 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 26-weeks ended August 3, 2018 and August 4, 2017, respectively. (d) Revolving net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 26-weeks ended August 3, 2018 and August 4, 2017, respectively, 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 26- weeks ended August 3, 2018 and August 4, 2017, respectively. (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. 21

22 Non-GAAP Financial Measures To supplement the consolidated financial information of Bluestem Brands, Inc. and its subsidiaries for the 13- and 26-weeks ended August 3, 2018 and August 4, 2017 which are presented in accordance with 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"): Contribution margin, as presented, is defined as net sales less cost of goods sold, sales and marketing expenses and net credit expense. Contribution Margin represents the combined performance of merchandising, marketing and credit management activities. Adjusted general and administrative expenses, as presented, is defined as general and administrative expenses adjusted for stock-based compensation expense, restructuring costs, Orchard Portfolio segmentation and positioning research and other. Adjusted EBITDA, as presented, represents net income (loss) before income tax benefit, interest expense, amortization and depreciation expense, loss on impairment, gain or loss on servicing right, stock-based compensation expense, restructuring costs, Orchard Portfolio segmentation & positioning research and other. Adjusted free cash flow, as presented, represents net cash provided by operating activities, plus proceeds from the sale of customer accounts receivable, less purchase of customer accounts receivable and less maintenance capital expenditures. Program agreement adjusted EBITDA, as presented, represents Adjusted EBITDA, as defined above, plus adjustments allowed for under Bluestem's program agreement including certain non-cash charges, certain one-time charges, accelerated advertising costs associated with the adoption of Topic 606, and expected cost savings reflecting the projected impact of savings in credit account repricing, print and paper, headcount reduction and other operational improvements. Other includes charges such as, but not limited to or necessarily inclusive of, strategic investments, system implementations and executive recruiting. Lender adjusted EBITDA, as presented, represents program agreement adjusted EBITDA, as defined above, less designated unrestricted subsidiaries, which consists of the subsidiary making sales for our PayCheck Direct business, and incremental expected cost savings as allowed for under Bluestem's lender agreements. Leverage ratio net debt, as presented, is defined as short-term debt plus long-term debt plus deferred charges and less cash and cash equivalents. Program agreement leverage ratio, as presented, represents Leverage ratio net debt, as defined above, divided by program agreement adjusted EBITDA, as defined above. Lender leverage ratio, as presented, represents Leverage ratio net debt, as defined above, divided by Lender adjusted EBITDA, as defined above. Working capital, as presented, is defined as total current assets less total current liabilities. Adjusted working capital, as presented, represents working capital, as defined above, plus the inter-company portion of current income taxes payable and inter-company payable due to stock compensation. Program agreement net liquidity, as presented, is defined as cash and cash equivalents less third-party credit card receivables ("Lender cash and cash equivalents") as defined by the lender plus availability under the asset backed line of credit. Lender net liquidity, as presented, is defined as program agreement net liquidity, as defined above, less unrestricted subsidiary cash as defined by the lender. We provide these measures because we believe they are useful to investors in evaluating our operating performance and financial condition compared to other companies in our industry and to evaluate our financial condition and operating performance compared to term loan and program agreement financial covenants. 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 contribution margin, adjusted general and administrative expense, adjusted EBITDA, adjusted free cash flow, program agreement adjusted EBITDA, lender adjusted EBITDA, leverage ratio net debt, program agreement leverage ratio, lender leverage ratio, working capital, adjusted working capital, and program agreement and lender net liquidity may not be comparable to the calculations of such measures by other companies. 22