8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 7, 2004

Alloy, Inc.

(Exact name of registrant as specified in its charter)

Delaware	0-26023	04-3310676
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
151 West 26th Street, 11th Floor, New York, New York		10001
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 244-4307

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02. Results of Operations and Financial Condition.
SIGNATURES
EXHIBIT INDEX
EX-99.1 PRESS RELEASE

Item 2.02. Results of Operations and Financial Condition.

On December 7, 2004, Alloy, Inc. (the “Company”) issued the press release attached hereto as Exhibit 99.1 announcing its financial results for its third fiscal quarter.

Exhibit
Number	Description
99.1	Press release dated December 7, 2004.

2

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ALLOY, INC. (Registrant)
Date: December 7, 2004	/s/ James K. Johnson, Jr.
	James K. Johnson, Jr., Chief Financial Officer

3

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press release dated December 7, 2004

4

EX-99.1

Exhibit 99.1

Contacts:	Jim Johnson
	Chief Financial Officer
	Alloy, Inc.
	212/244-4307

For immediate release:

ALLOY ANNOUNCES THIRD QUARTER FINANCIAL RESULTS

Management Reaffirms Full Year EBITDA Guidance in the $3-$6 Million Range
Continues Program to Improve Sponsorship Business Profitability

New York, NY – December 7, 2004 - Alloy, Inc. (Nasdaq:ALOY), a media, marketing services, direct marketing and retail company primarily targeting the dynamic Generation Y population, today reported revenues for its fiscal quarter ended October 31, 2004 of $110.0 million and net income attributable to common stockholders of $1.6 million or $0.04 per diluted share. For this third fiscal quarter, Alloy generated earnings of $7.5 million before interest and other income/expense, income taxes, depreciation and amortization, stock-based compensation expense, and restructuring charges (“Adjusted EBITDA”). For additional financial detail, including the reconciliation of Adjusted EBITDA to net income (loss) determined under GAAP, please refer to the financial tables provided at the end of this release.

     Total revenues for the third fiscal quarter increased 4.0% to $110.0 million, compared with $105.8 million for the third quarter of fiscal 2003. Third fiscal quarter net merchandise revenues of $54.0 million increased 11.3% compared with $48.6 million for last year’s third fiscal quarter. The increase resulted primarily from the inclusion of a full fiscal quarter’s sales for dELiA*s which we acquired during last year’s third fiscal quarter in September 2003. Third fiscal quarter sponsorship and other revenues of $56.0 million were down 2.2% versus $57.2 million for the comparable period of the prior fiscal year. The decrease was primarily attributable to reduced sales in our promotions business.

     Third fiscal quarter gross profit remained relatively flat at $53.2 million, or 48.3% of revenues, compared with $53.3 million, or 50.4% of revenues, for the comparable period last year. The decrease in gross margin percentage was primarily the result of decreased gross margins in our promotions business.

     Operating expenses were $50.0 million for the third quarter of fiscal 2004 versus $53.6 million for the third quarter of fiscal 2003. The decrease resulted primarily from the cost savings derived from integrating the acquired dELiA*s operations into our merchandise operations, along with lower legal costs. During the third quarter, we began to realize some of the synergies we expected to result from combining our direct marketing operations with those of dELiA*s, leveraging our combined scale, selling across our combined databases while controlling overall catalog circulation, and consolidating fulfillment operations. Separately, in an effort to improve earnings in our sponsorship business we have been selectively eliminating positions and reducing other fixed overhead costs.

     Net income for the third quarter of fiscal 2004 was $2.0 million, compared with a net loss of $6.8 million for last fiscal year’s third quarter. Net income attributable to common stockholders for the third quarter of fiscal 2004 was $1.6 million, or $0.04 per diluted share, compared with a net loss attributable to common stockholders of $7.2 million, or $0.17 per diluted share, for last fiscal year’s third quarter. Adjusted EBITDA increased from $4.6 million for the third fiscal quarter of 2003 to $7.5 million for the third fiscal quarter of 2004.

     Commenting on the quarter, Matt Diamond, Chairman and Chief Executive Officer stated, “In our sponsorship business, we made significant strides in reducing operating expenses and we plan to continue making improvements in the cost structure during the fourth quarter. In addition, we have stimulated our sales efforts by hiring new media sales specialists and expanding our regional sales initiatives. We believe that the moves we are making will allow us to show increased sales productivity and give us a cost structure that should allow us to deliver significant EBITDA growth in fiscal 2005. In our merchandise business, we are beginning to realize the benefits of the efficiency initiatives the management team has put in place. We expect the financial improvement to continue into and through the holiday season. Overall, we remain comfortable with the

fiscal 2004 financial guidance we provided in our second quarter earnings release on September 1^st.”

     Total revenues for the nine months ended October 31, 2004 increased 11.2% to $284.4 million compared with $255.7 million for the nine months ended October 31, 2003. Net merchandise revenues for the nine months ended October 31, 2004 of $142.0 million were up 30.8% versus $108.6 million for the nine months ended October 31, 2003. Sponsorship and other revenues of $142.4 million for the nine-month period ended October 31, 2004 were down 3.2% compared with $147.1 million for the same period last year. Gross profit for the nine months ended October 31, 2004 increased to $136.5 million, or 48.0% of revenues, compared with $124.1 million, or 48.5% of revenues, for the first nine months of fiscal 2003. Operating expenses were $151.1 million for the nine months ended October 31, 2004 versus $126.0 million for the nine months ended October 31, 2003. The net loss for the nine months ended October 31, 2004 was $18.4 million, compared with a net loss of $7.5 million for the nine months ended October 31, 2003. Net loss attributable to common stockholders for the nine months ended October 31, 2004 was $19.6 million, or $0.46 per diluted share, compared with a net loss attributable to common stockholders of $9.1 million, or $0.22 per diluted share for the nine months ended October 31, 2003.

About Alloy

     Alloy, Inc. (Nasdaq: ALOY) is a media, marketing services, direct marketing and retail company primarily targeting Generation Y, a key demographic segment comprising the more than 60 million boys and girls in the United States between the ages of 10 and 24. Alloy’s convergent media model uses a wide range of media assets to reach more than 25 million Generation Y consumers each month and is comprised of two distinct divisions: Alloy Media + Marketing and Alloy Merchandising Group. Alloy Media + Marketing is one of the largest providers of targeted media and promotional marketing programs incorporating such industry recognized divisions as Alloy Marketing & Promotions (AMP), 360 Youth, American Multicultural Marketing (AMM), Market Place Media (MPM), Alloy Education, Alloy Entertainment, and Alloy Out-of-Home. Working with these groups, marketers can connect with their targeted audience through a host of advertising and marketing programs incorporating Alloy’s wide ranging media and marketing assets such as direct mail catalogs, college and high school newspapers, Web sites, display media boards, college guides, and promotional events. Alloy Merchandising Group, our direct

marketing and retail store division, includes the dELiA*s, Alloy, CCS and Dan’s Competition brand names and sells apparel, accessories, footwear, room furnishings and action sports equipment directly to the youth market through catalogs, websites and retail stores. For further information regarding Alloy, please visit our corporate website at (www.alloyinc.com).

This announcement may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations and beliefs regarding our future results or performance. Because these statements apply to future events, they are subject to risks and uncertainties. When used in this announcement, the words “anticipate”, “believe”, “estimate”, “expect”, “expectation”, “project” and “intend” and similar expressions are intended to identify such forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements. Additionally, you should not consider past results to be an indication of our future performance. Factors that might cause or contribute to such differences include, among others, our ability to: increase revenues, generate high margin sponsorship and multiple revenue streams, increase visitors to our Web sites (www.alloy.com, www.delias.com, www.ccs.com, and www.danscomp.com) and build customer loyalty; develop our sales and marketing teams and capitalize on these efforts, develop commercial relationships with advertisers and the continued resilience in advertising spending to reach the teen market; manage the risks and challenges associated with integrating newly acquired businesses; and identify and take advantage of strategic, synergistic acquisitions and other revenue opportunities. Other relevant factors include, without limitation: our competition; seasonal sales fluctuations; inventory performance; changes in consumer preference or fashion trends; reliance on third party suppliers; our inability to achieve and maintain profitability; the uncertain economic and political climate in the United States and throughout the rest of the world and the potential that such climate may deteriorate further; and general economic conditions. For a discussion of certain of the foregoing factors and other risk factors see the “Risk Factors That May Affect Future Results” section included in our annual report on Form 10-K for the year ended January 31, 2004, as amended, which is on file with the Securities and Exchange Commission. We do not intend to update any of the forward-looking statements after the date of this announcement to conform these statements to actual results or to changes in management’s expectations, except as may be required by law.

(tables to follow)

Alloy, Inc.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	10/31/2003			10/31/2004			10/31/2003			10/31/2004
Net merchandise revenues	$	48,558		$	54,049		$	108,557		$	142,032
Sponsorship and other revenues		57,193			55,954			147,140			142,383
Total revenues		105,751			110,003			255,697			284,415
Cost of goods sold		52,473			56,830			131,574			147,877
Gross profit		53,278			53,173			124,123			136,538
Selling and marketing expenses		41,290			38,361			98,157			111,618
General and administrative expenses		9,501			9,474			20,725			33,135
Amortization of acquired intangible assets		2,083			1,724			5,763			4,913
Stock-based compensation		358			371			649			1,074
Restructuring charges		351			29			730			347
Total operating expenses		53,583			49,959			126,024			151,087
(Loss) income from operations		(305	)		3,214			(1,901	)		(14,549	)
Interest and other income (expense), net		(970	)		(1,238	)		(687	)		(3,753	)
(Loss) income before income taxes		(1,275	)		1,976			(2,588	)		(18,302	)
Income tax expense		5,543			10			4,938			130
Net (loss) income		(6,818	)		1,966			(7,526	)		(18,432	)
Preferred stock dividend and accretion		393			405			1,548			1,200
Net (loss) income attributable to common stockholders		($7,211	)	$	1,561			($9,074	)		($19,632	)
Net (loss) income attributable to common stockholders per basic share		($0.17	)	$	0.04			($0.22	)		($0.46	)
Net (loss) income attributable to common stockholders per diluted share		($0.17	)	$	0.04			($0.22	)		($0.46	)
Weighted average basic common shares outstanding:		41,405,485			42,951,223			40,904,949			42,672,454
Diluted shares outstanding per GAAP:		41,405,485			43,044,459			40,904,949			42,672,454
Reconciliation of EBTA and Adjusted EBITDA to GAAP Results (1):
Net (loss) income		($6,818	)	$	1,966			($7,526	)		($18,432	)
Income tax expense		5,543			10			4,938			130
Amortization of acquired intangible assets		2,083			1,724			5,763			4,913
Stock-based compensation		358			371			649			1,074
Restructuring charges		351			29			730			347
EBTA excluding stock-based compensation, restructuring and asset write-downs	$	1,517		$	4,100		$	4,554			($11,968	)
Interest and other income (expense), net		(970	)		(1,238	)		(687	)		(3,753	)
Depreciation and amortization		2,108			2,119			4,358			6,551
Adjusted EBITDA	$	4,595		$	7,457		$	9,599			($1,664	)

(1) This press release contains the non-GAAP financial measures EBTA and Adjusted EBITDA. Alloy uses EBTA and Adjusted EBITDA to evaluate its performance period to period without taking into account certain expenses which, in the opinion of Alloy management, do not reflect Alloy’s results from its core business activities. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, other measures of financial performance prepared in accordance with GAAP. These non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure as is now required under new SEC rules regarding the use of non-GAAP financial measures. As used herein, “GAAP” refers to accounting principles generally accepted in the United States of America.

Alloy, Inc.
SELECTED CONDENSED CONSOLIDATED BALANCE SHEET DATA
(In thousands)

	January 31, 2004		October 31, 2004
	(audited)		(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	30,543	$	11,636
Marketable securities		19,014		6,537
Accounts receivable, net		31,492		48,328
Inventories		29,021		42,907
Prepaid catalog costs		2,028		4,960
Other current assets		3,813		5,906
Total current assets		115,911		120,274
Marketable securities		5,585		1,016
Property and equipment, net		27,234		25,153
Goodwill, net		274,796		277,615
Intangible and other assets, net		25,865		22,192
Total assets	$	449,391	$	446,250
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	28,740	$	34,403
Deferred revenues		15,124		20,711
Accrued expenses and other current liabilities		39,755		34,911
Total current liabilities		83,619		90,025
Long term liabilities		743		5,082
Convertible debt		69,300		69,300
Series B Preferred Stock		14,434		15,634
Stockholders’ Equity		281,295		266,209
Total liabilities and stockholders’ equity	$	449,391	$	446,250