Service Fee Revenue Increases 20% to $21.3 million

PFSweb, Inc. (Nasdaq: PFSW), an international business process outsourcing provider of end-to-end web commerce solutions and an online discount retailer, today announced its financial results for the second quarter and six months ended June 30, 2008.

Summary of consolidated results for the second quarter ended June 30, 2008:

• Total reported revenue was $110.7 million, compared to $108.4 million for the second quarter of 2007;
• Adjusted EBITDA (as defined) was $2.5 million versus $3.4 million for the same period last year;
• Net income was $62,000, or $0.01 per basic and diluted share, compared to a net income of $154,000, or $0.02 per basic and diluted share, for the second quarter of 2007;
• Non-GAAP net income (as defined) was $0.4 million, or $0.04 per basic and diluted share, compared to non-GAAP net income of $0.5 million, or $0.06 per basic and $0.05 per diluted share, for the second quarter of 2007;
• Merchandise sales (as defined) totaled approximately $631 million for the second quarter of 2008 versus $649 million for the same period last year;
• Total cash, cash equivalents and restricted cash equaled $17.8 million as of June 30, 2008 compared to $16.3 million as of December 31, 2007.

Summary of consolidated results for the six months ended June 30, 2008:

• Total reported revenue was $229.2 million, compared to $212.8 million for the six months ended June 30, 2007;
• Adjusted EBITDA (as defined) was $5.2 million versus $4.1 million for the same period last year;
• Net income was $476,000, or $0.05 per basic and diluted share, compared to a net loss of $2.2 million, or $0.22 per basic and diluted share, for the six months ended June 30, 2007;
• Non-GAAP net income (as defined) was $1.2 million, or $0.12 per basic and diluted share, compared to a non-GAAP net loss of $1.4 million, or $0.14 per basic and diluted share, for the same period last year;
• Merchandise sales (as defined) totaled nearly $1.4 billion versus $1.3 billion for the same period last year.

Mark Layton, Chairman and Chief Executive Officer of PFSweb, stated, “During the second quarter we continued to perform within our expectations for this year, delivering our fifth consecutive profitable quarter and Adjusted EBITDA of $2.5 million. Notwithstanding the macroeconomics affecting the U.S. retail industry, our diversified roster of new and existing clients and customers in multiple industries have allowed us to increase revenue, generate positive cash flow and maintain a sound balance sheet during this year.”

All share data and per share data in this press release reflect the impact of the Company’s 1 for 4.7 reverse stock split effected June 2, 2008.

Summary of results by business:

Service Fee Business:

For the second quarter of 2008, Service Fee revenue increased 20.4% to $21.3 million, compared with $17.6 million for the same period in 2007. The Service Fee business reported Adjusted EBITDA of $1.0 million for the second quarter of 2008, compared to $1.9 million for the same period last year.

For the six months ended June 30, 2008, Service Fee revenue increased 21.5% to $42.1 million, from $34.6 million for the same period in 2007. The Service Fee business reported Adjusted EBITDA of $2.7 million for the six months ended June 30, 2008, compared to $2.2 million for the same period last year.

Mike Willoughby, President of PFSweb’s services division, commented, “Second quarter revenue for our Service Fee business, which increased approximately 20% from the prior year period, was driven by new contracts, temporary increased activity for one of our largest Service Fee clients and incremental project activity. Over the past several months, we participated in the launch of a new web commerce site for Ashley Stewart providing order management, customer care and fulfillment services for the initiative. We also completed the development of a new platform for Roots.com. This new platform utilizes our enhanced end-to-end offering, which features the Demandware eCommerce platform and integration with select interactive marketing partners, including Sitebrand and Coremetrics. The Roots.com Canadian and U.S. online storefronts, which also feature a new user experience design by Fluid, were officially launched last week.

“I am also pleased to report continued progress in winning new business, including both signed contracts as well as contracts still being finalized, which we partially attribute to our new end-to-end offering. PFSweb will formally announce each agreement in a press release or quarterly conference call if such disclosure is approved by the client. Many of these new arrangements are with brand name companies that are either moving from one of our competitors’ services to take advantage of our new end-to-end offering or are looking to take advantage of the eCommerce space for the first time. We believe these new client wins demonstrates significant demand for our Service Fee business, particularly with our new end-to-end offering. Our current pipeline for potential new business is in excess of $35 million, including contracts still being finalized, which is in line with our expectations for this time of year and is targeted to increase during the fall season.”

Supplies Distributors Business:

For the second quarter of 2008, Supplies Distributors revenue was $60.0 million, compared to $57.6 million for the same period last year. Adjusted EBITDA was $2.1 million for the second quarter of 2008, consistent with $2.1 million for the same period last year.

For the six months ended June 30, 2008, Supplies Distributors revenue was $122.3 million, compared to $116.4 million for the same period last year. Adjusted EBITDA was $3.7 million for the six months ended June 30, 2008, a slight increase compared to $3.4 million for the same period last year.

Mr. Willoughby continued, “For the quarter and first half of 2008, the Supplies Distributors business has continued to perform well. Revenue increased approximately four percent in the second quarter and gross margins were approximately 8%, which is slightly above their normal range due to the impact of certain incremental inventory cost reductions.”

eCOST.com Business:

For the second quarter of 2008, eCOST.com revenue was $23.0 million, compared to $27.1 million for the same period in 2007. Adjusted EBITDA for eCOST.com in the quarter was a loss of $0.6 million, consistent with the Adjusted EBITDA loss of $0.6 million for the same period last year.

For the six months ended June 30, 2008, eCOST.com revenues were $51.0 million, compared to $48.7 million for the same period in 2007. Adjusted EBITDA for eCOST.com in the six months ended June 30, 2008 was a loss of $1.2 million, compared to a loss of $1.5 million for the same period last year.

Mr. Layton continued, “Considering the macroeconomic forces pressuring the entire U.S. retail industry, we believe the overall health of eCOST.com continues to improve due to the enhancements we have made to the site and underlying business. During the quarter, eCOST.com experienced a softening in its business to business segment, and its business to consumer segment was relatively flat compared to last year. We improved our gross profit margin through implementation of new and more sophisticated automated pricing tools and from a growing mix of higher margin product sales, including our new ‘For the Home’ and ‘Sports and Leisure’ stores, especially in our business to consumer segment, and we continue to focus increased efforts here.

“Throughout the quarter we continued to make progress towards the overall site redevelopment and launching our new ‘For the Home’ and ‘Sports and Leisure’ products. We remain confident our continued emphasis on making site enhancements, introducing new products and focus on achieving higher gross margins will help us in our goal to achieve cash flow breakeven at eCOST.com,” Mr. Layton concluded.

Financial Targets for Fiscal Year 2008

PFSweb continues to target total consolidated revenues, excluding pass-through revenues, of approximately $445 million to $475 million and consolidated Adjusted EBITDA of $10 – $12 million for calendar year 2008. Non-GAAP net income, which excludes the impact of stock-based compensation and amortization of identifiable intangible assets, is targeted to be approximately $1 - $3 million for 2008. However, further weakening in the U.S. economy may cause us to fall toward the lower end of these targets.

Conference Call Information

Management will host a conference call at 9 a.m. Central Time (10 a.m. Eastern Time) on August 14, 2008 to discuss the latest corporate developments and results. To listen to the call, please dial (888) 562-3356 and enter the pin number (59375549) at least five minutes before the scheduled start time. Investors can also access the call in a “listen only” mode via the Internet at the Company’s website, www.pfsweb.com. Please allow extra time prior to the call to visit the site and download any necessary audio software.

A digital replay of the conference call will be available through September 14, 2008 at (800) 642-1687, pin number (59375549). The replay also will be available at the Company’s website for a limited time.

Non-GAAP Financial Measures

This news release contains the non-GAAP measures non-GAAP net income (loss), Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), and Adjusted EBITDA.

Non-GAAP net income (loss) represents net income (loss) calculated in accordance with U.S. GAAP as adjusted for the impact of non-cash stock-based compensation expense and amortization of identifiable intangible assets.

EBITDA represents earnings (or losses) before interest, income taxes, depreciation, and amortization. Adjusted EBITDA further eliminates the effect of stock-based compensation and merger integration related expenses.

Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry, as the calculation of non-GAAP net income (loss) eliminates the effect of stock-based compensation and amortization of intangible assets and EBITDA and Adjusted EBITDA further eliminates the effect of financing, income taxes, the accounting effects of capital spending and certain other merger related expenses, which items may vary from different companies for reasons unrelated to overall operating performance.

PFSweb believes these non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables.

Merchandise Sales

Merchandise sales represent the estimated value of all fulfillment activity that flows through PFSweb including whether or not PFSweb is the seller of the merchandise or records the full amount of such sales on its financial statements, excluding service fee revenues that PFSweb might recognize for the underlying sales transactions. PFSweb uses merchandise sales as an operating metric to allow investors to gain a more thorough understanding of its business and business volume, in addition to GAAP net revenue.

About PFSweb, Inc.

PFSweb develops and deploys integrated business infrastructure solutions and fulfillment services for Fortune 1000, Global 2000 and brand name companies, including third party logistics, call center support and e-commerce services. The company serves a multitude of industries and company types, including such clients as LEGO, Discovery Commerce, Riverbed, MARS Drinks North America, Hewlett-Packard, International Business Machines, Hawker Beechcraft Corp., Rene Furterer USA, Roots Canada Ltd. and Xerox.

Through its wholly owned eCOST.com subsidiary, PFSweb also serves as a leading multi-category online discount retailer of high-quality new, "close-out" and manufacturer recertified brand-name merchandise for consumers and small to medium size business buyers. The eCOST.com brand markets approximately 170,000 different products from leading manufacturers such as Sony, JVC, Canon, Hewlett-Packard, Garmin, Panasonic, Toshiba, Microsoft, Kitchen Aid, Panasonic, Black & Decker, Cuisinart, Coleman, Wilson and Nike primarily over the Internet and through direct marketing.

To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit the company's websites at http://www.pfsweb.com and http://www.ecost.com.

The matters discussed herein consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. PFSweb's Annual Report on Form 10-K for the year ended December 31, 2007 and Quarterly Report on From 10-Q for the quarter ended June 30, 2008 identifies certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual Report and the Risk Factors described therein. These factors include: our ability to retain and expand relationships with existing clients and attract and implement new clients; our reliance on the fees generated by the transaction volume or product sales of our clients; our reliance on our clients' projections or transaction volume or product sales; our dependence upon our agreements with IBM and Infoprint Solutions; our dependence upon our agreements with our major clients; our client mix, their business volumes and the seasonality of their business; our ability to finalize pending contracts; the impact of strategic alliances and acquisitions; trends in the e-commerce, outsourcing, government regulation both foreign and domestic and the market for our services; whether we can continue and manage growth; increased competition; our ability to generate more revenue and achieve sustainable profitability; effects of changes in profit margins; the customer and supplier concentration of our business; the unknown effects of possible system failures and rapid changes in technology; foreign currency risks and other risks of operating in foreign countries; potential litigation; the impact of our reverse stock split; our dependency on key personnel; the impact of new accounting standards and changes in existing accounting rules or the interpretations of those rules; our ability to renew or replace our credit facilities or find alternative financing; our ability to raise additional capital or obtain additional financing; our ability and the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; relationship with and our guarantees of certain of the liabilities and indebtedness of our subsidiaries; our ability to successfully achieve the anticipated benefits of the eCOST merger: eCOST's potential indemnification obligations to its former parent; eCOST's ability to maintain existing and build new relationships with manufacturers and vendors and the success of its advertising and marketing efforts; eCOST's ability to increase its sales revenue and sales margin and improve operating efficiencies and eCOST’s ability to generate a profit and cash flows sufficient to cover the values of its intangible assets. PFSweb undertakes no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. There may be additional risks that we do not currently view as material or that are not presently known.