PFSweb Reports Second Consecutive Quarter of Net Income - Profit, Record Service Fee Revenue and Strong New Client Additions Highlight Third Quarter

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PFSweb, Inc. (NASDAQ: PFSW), a global provider of integrated business process outsourcing (BPO) solutions, e-commerce fulfillment, supply chain management and third party logistics reports its results for the third quarter of 2004. Consolidated results include total net revenues of $73 million, net income before interest, taxes, depreciation and amortization of $2.1 million, and net income of $420,000, or $0.02 per share. The net income was a substantial improvement of more than $1.5 million from the $1.1 million loss reported in the year-ago period. The consolidated balance sheet as of Sept. 30, reflects $114.9 million in total assets, including $15.9 million in cash, of which $1 million is restricted, and shareholders’ equity of $27.7 million, or $1.29 per share. THIS RELEASE ALSO SUMMARIZES NEW CLIENTS FOR THIS YEAR, BY NAME OR GENERICALLY, WHERE ALLOWED.

PFSweb, Inc. (NASDAQ: PFSW), a global provider of integrated business process outsourcing (BPO) solutions, today reported its results for the quarter ended September 30, 2004. “It is very gratifying to see the results of years of hard work by the PFSweb team begin to come to fruition,” said Mark C. Layton, Senior Partner and Chief Executive Officer of PFSweb.

PFSweb’s consolidated results for the September 2004 quarter include total net revenues of $73.2 million, net income before interest, taxes, depreciation and amortization of $2.1 million, and net income of $420,000, or $0.02 per share. The net income result was a substantial improvement from the $1.1 million loss reported for the same period of the prior year. The consolidated balance sheet as of September 30, 2004, reflects $114.9 million in total assets, including $15.9 million in cash, of which $1 million is restricted, and shareholders’ equity of $27.7 million, or $1.29 per share.

“I am extremely pleased with our results this quarter,” continued Layton. “These results indicate significant milestones for our company, including:

•    Record net service fee revenues – Our service fee business segment reported $13.5 million of fee revenues, the highest level in our Company’s history. This represents a 33% increase over the same quarter of the prior year.

•    Consecutive profitable quarters – This is the first time that we have reported back-to-back profitable quarters. Additionally, three of the past six quarters have been profitable. We believe sustainable profitability is now in sight.

•    Continued strong new business activity – We have been very successful again this past quarter in new contract signings. The projected annual service fees from this year’s new and expanded client signings are already at a record pace. In addition, our lead and proposal pipeline remains robust, including outstanding proposals for more than $30 million in annual service fees.”

“Our service fee business segment continues to perform well, both in terms of revenues and costs,” stated Tom Madden, Senior Partner and Chief Financial Officer of PFSweb. “The service fee business segment benefited this quarter from several incremental projects with both existing and new clients and also includes service fees from certain new clients recently implemented. Our gross margin percentage for this business segment improved slightly over the prior year, but was down sequentially from the June 2004 quarter. This decline was primarily due to implementation costs on new contracts and lower overall gross margin percentage on certain incremental projects. We continue to target a gross margin percentage performance on our service fee clients between 30-40%, but we have and we may continue to accept lower than this targeted range on certain larger contracts and projects depending on contract scope and other factors.

“SG&A levels were relatively consistent with the same period from the prior year, yet lower than the June 2004 quarter. This decrease was primarily due to timing of certain expenditures, including professional fees and sales and marketing costs. We continue to review our operating expenses to ensure they align with our targeted growth levels, and we plan to make further investments in areas that will help continue to fuel and support our growth plans. Additionally, we expect to experience growth in SG&A due to increased professional fees applicable to the Sarbanes Oxley Act.”

“In addition to the positive financial performance,” Layton said, “PFSweb continues to experience outstanding results in new client additions. During 2004, we have gained many new client relationships. These new relationships include Raytheon Aircraft Company, FLAVIA® Beverage Systems, René Furterer USA, and unnamed clients including a Fortune 500 consumer products firm, a major nutraceutical company, a prepaid wireless provider, a healthcare payment provider and other clients. Due to contractual agreements, we often are not allowed to mention new clients by name.

“To meet the needs of this growth, we recently leased an additional facility in Southaven, Miss., just a short distance from our distribution hub in Memphis, Tenn. We expect this facility to become operational during the first quarter of 2005. We are continually evaluating the need for additional distribution facilities.

“Due to the time estimated to fully implement our new contract relationships, we do not expect to fully realize the majority of the financial revenue and gross margin benefit of these new contracts until calendar year 2005. However, based on our current projections, we expect to post significant year-on-year service fee revenue growth and overall financial improvement for both the December 2004 and March 2005 quarters. However, the March quarter has been and is expected to continue to be our weakest quarter due to seasonal fluctuations of certain clients. Our current targets for the full calendar year 2005 call for positive cash flow from operating activities and accelerating growth of our service fee revenue business segment.

“Along with our pursuit of leased distribution space to support our new client relationships, we also will incur additional capital expenditures to support the incremental business. Our new Southaven distribution center will include approximately $4 million to $5 million in capital expenditures. We also expect to incur further capital expenditures, estimated to be approximately $2 million, to support other recent client additions. To finance these expenditures, we are seeking bank financing, state bond financing, or lease financing.

“Combined with a continuing improvement in the U.S. economic environment, PFSweb’s many strengths are contributing to our recent new business successes. Everything we offer is ‘world class,’ which has allowed us to develop a reputation as a high quality service provider. Our business solutions are custom tailored to meet each client’s specific needs. Our systems can easily converse with virtually any IT platform. And most importantly, our people are experts in their fields of discipline. From finance to technology to logistics to customer retention, we offer our clients the world’s leading solutions design talent,” Layton emphasized.

CONFERENCE CALL INFO:

PFSweb will hold a conference call Monday, November 8, 2004 at 3:30 p.m. Central Time. To ensure attendance on the call, plan to dial in by 3:20 p.m. to (973) 582-2741. Ask to be placed on the PFSweb Earnings Release Conference Call. The call also can be heard “live” by accessing the Company’s website, http://www.pfsweb.com, at the time of the call. Two hours after the conference, a recorded playback can be heard for 14 days at (877) 519-4471, using the confirmation number 5348274. Check http://www.pfsweb.com and our November 2, 2004 investor conference call press release for more details on the call.

About PFSweb, Inc.

When the world’s brand names need proven, fast and secure business infrastructure to enable traditional and e-commerce strategies, they choose PFSweb for comprehensive outsourcing solutions. The PFSweb team of experts designs diverse solutions for clients around a flexible core business infrastructure. PFSweb provides solutions that include: professional consulting services, order management, web-enabled customer contact centers, customer relationship management, international distribution services, kitting and assembly services, managed web hosting and site design, billing and collection services and ERP information interfacing utilizing the Entente Suite (SM).

Our services are provided to a multitude of industries and company types, including such clients as Adaptec (NASDAQ: ADPT), Dupont Fluoroproducts, FLAVIA® Beverage Systems, Hewlett-Packard (NYSE: HPQ), iGo/Mobility Electronics (NASDAQ: MOBE), International Business Machines (NYSE: IBM), Nokia (NYSE: NOK), Pfizer, Inc. (NYSE: PFE), Raytheon Aircraft Company, René Furterer USA, Roots, Inc., Shell Energy Services Company, Smithsonian Institution and Xerox (NYSE: XRX).

The matters discussed in this news release (except for historical information) and, in particular, information regarding estimates, future revenue, earnings and business plans and goals, consist of forward-looking information under the Private Securities Litigation Reform Act of 1995 and are subject to and involve risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties include, but are not limited to, our ability to retain and expand relationships with existing clients and attract new clients; our dependence upon our agreements with IBM; 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 client mix and the seasonality of their business; our ability to finalize pending contracts; the impact of strategic alliances and acquisitions; trends in the market for our services; trends in e-commerce; whether we can continue and manage growth; changes in the trend toward outsourcing; increased competition; our ability to generate more revenue and achieve sustainable profitability; effects of changes in profit margins; the customer concentration of our business; the unknown effects of possible system failures and rapid changes in technology; trends in government regulation both foreign and domestic; foreign currency risks and other risks of operating in foreign countries; potential litigation involving our e-commerce intellectual property rights; our dependency on key personnel; our ability to raise additional capital or obtain additional financing; our relationship with and our guarantees of the working capital indebtedness of our subsidiary, Supplies Distributors; and our ability or the ability of our subsidiaries to borrow under current financing arrangements and maintain compliance with debt covenants; and whether outstanding warrants issued in a prior private placement will be exercised in the future. A description of these factors, as well as other factors, which could affect the Company’s business, is set forth in the Company’s Form 10-K for the year ended December 31, 2003.

In addition, some forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. We undertake 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.

To find out more about PFSweb, Inc. (NASDAQ: PFSW), visit our Web site at http://www.pfsweb.com. The PFSweb web site is not part of this release. PFSweb and GlobalMerchant CommerceWareTM are registered trademarks of PFSweb, Inc. IBM is a registered trademark of International Business Machines Corp. All rights reserved.

CONTACTS:

Mark C. Layton, Senior Partner and Chief Executive Officer

or Thomas J. Madden, Senior Partner and Chief Financial Officer

(972) 881-2900

or

Preston F. Kirk, APR

Senior Associate - IR & PR

Michael A. Burns & Associates            

kirk@281.com

830) 693-4447

FINANCIAL TABLES FOLLOW: Please go to the corporate web site, http://www.pfsweb.com

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Preston F. Kirk, APR
KIRK PUBLIC RELATIONS
830-693-4447
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