Creative Computers, Inc. Reports First-Quarter Financial Results.

TORRANCE, Calif.--(BUSINESS WIRE)--April 28, 1998--

1st Quarter Highlights:

-- Record Q1 sales: $164 million - Up 37%

-- Record PC/Wintel sales: $99 million - Up 173%

-- PC/Wintel sales now 60% of total sales

-- Strong Internet performance: Over $8.3 million in sales - Up

325%

-- Company takes write-offs, reports net loss of $12.8 million

Creative Computers, Inc. ("Creative") (NASDAQ:MALL) today announced its first-quarter results.

For the quarter ended March 31, 1998, Creative reported record first-quarter revenue of $164.1 million, up 37% over net sales of $120.1 million reported for the same quarter in 1997. Sales for its PC/Wintel business reached $99 million, up 173% from $36 million reported for the same quarter last year. The Company reported a net loss of $12.8 million, or $1.27 per share, compared with net income of $0.8 million, or $0.08 per share, for the same period last year. In February 1998, the Company closed one retail store acquired from Elek-Tek and on March 23, 1998, the Company announced that it had closed six of its seven remaining retail stores to better position the company going forward. These closed retail stores generated only 9% of the Company's first-quarter sales, but had operating losses approaching $2 million for the quarter. The Company also reported a one-time restructuring charge of $10.5 million relating to exit costs associated with the closing of retail operations, including write-offs of assets and goodwill related to the retail store closures. In addition, approximately $7 million of write-offs were taken primarily relating to a more rapid decline in Mac sales during the first quarter and the effects on inventory and receivables of rapid price erosion and other changes in the industry during the first quarter. Creative's workforce was reduced by over 250 employees during the first quarter.

"Although the first quarter of 1998 was especially challenging for us, we took significant actions during the quarter to help position us for the future. These actions are intended to strengthen our balance sheet and our operations going forward as we concentrate on our core direct sales and marketing business, as well as our e-commerce business. Our Mac-related sales declined 22%, versus just 5% during all of 1997, primarily due to a drop in catalog circulation and the elimination of Mac-clone products. Similar to the rest of our industry, we also experienced significant margin pressure during the quarter. This came as a result of intense price competition and price declines, as well as the drop in Mac sales which have a higher margin," stated Frank Khulusi, Creative's President and Chief Executive Officer. "On a positive note, our PC/Wintel sales exceeded our expectations by increasing 173%. PC/Wintel sales now comprise 60% of our total sales versus 30% one-year ago. Also, uBid, our new online auction website has ramped up very rapidly to three auctions per week and has achieved over $2 million in sales in the first quarter."

First-Quarter Financial Summary

For the three months ended March 31, 1998, net sales grew to $164.1 million, up 37% over last year's first quarter net sales of $120.1 million. The increase in net sales came from PC/Wintel sales increasing 173% (over 70% excluding acquisitions), with acquisitions and uBid adding almost $42 million. Mac sales declined 22%. Creative reported a net loss for the quarter of $12.8 million, or $1.27 per share, versus net income of $0.8 million, or $0.08 per share, for the first quarter last year. The loss for the quarter includes a one-time restructuring charge of $10.5 million associated with the closing of seven retail stores, approximately $7 million in the previously described write-offs, approximately a $2 million loss from the seven retail stores operations during the first quarter, margin erosion due to Mac sales decline and overall price declines, and a net investment in uBid.

Gross profit declined $2.9 million. Excluding the impact from the retail store closures and the write-offs mentioned above, gross profit as a percent of net sales declined approximately one percentage point from 12.9% last year to 11.9% this year.

SG&A expenses for the first quarter of 1998, excluding the one-time restructuring charge relating to the retail store closures, increased $12.1 million compared with the same period last year. Approximately $4 million of the increase came from the write-offs mentioned above, $5.5 million was the result of increased sales, and the remainder was due to support costs for higher levels of Mac sales than were actually realized during the quarter and support costs for uBid.

Creative's balance sheet at March 31, 1998 remains strong. Cash increased $2.8 million to $10.9 million since December 31, 1997, while short-term debt declined $2.6 million to $7.4 million. Accounts receivable declined slightly and inventory declined $8.5 million going from $42.6 million to $34.1 million. Inventory turns increased from 9 annualized turns in the first quarter last year to 16 annualized turns in the first quarter of this year.

Strong PC/Wintel Sales

Creative reported continued strong PC/Wintel sales momentum during the first quarter. PC/Wintel sales increased 173% over the first quarter of last year, primarily due to continued strength in the PC Mall Catalog and the acquisitions of Elek-Tek and ComputAbility. PC/Wintel sales accounted for 60% of total sales, up from 30% in Q1 1997. PC/Wintel sales have grown dramatically since the inception of the PC Mall catalog in April 1995, with $43 million in 1995, $102 million in 1996 and $221 million sales in 1997.

Printers, desktop computers, video and multi-media products, and memory were the fastest growing product categories, based on the percentage increase in dollar sales over the first quarter of 1997. Printers were the fastest growing product category with net sales dollars increasing over 270%. Notebook computers, which were the largest category at 21% of net sales, grew at a rate of over 140%. Desktop computers, which were the second largest category at 16% of net sales, grew at a rate of over 240%.

"Notebook and desktop sales continued to be dominated by Compaq, Hewlett Packard, IBM and Toshiba," said Mr. Khulusi. "The average selling price of a desktop computer decreased to $1234 in Q1 versus $1532 in the same quarter last year. The availability of Pentium MMX and Pentium II desktop computers in the less than $1000 and $1500 ranges have increased the number of small and medium sized businesses that we can offer solutions to."

Mac Sales Overview

Although Macintosh sales were down 22% from the same quarter a year ago, a good portion of the decrease was due to the elimination of the major Macintosh clones (in addition to a drop of catalog circulation). Apple-brand sales only decreased 9% and subtracting Apple-brand imaging sales, a category that Apple exited in the second half of 1997, Apple sales were flat from Q1 1997 to Q1 1998.

"We are encouraged by Apple's reported results for the quarter and we plan to continue to leverage our position as the second largest Macintosh catalog company in the U.S. We are stepping up our efforts to market to Macintosh customers on the Internet. In Q1 the Macintosh G3 product line continued to sell well for us. Demand for Microsoft Office 98, which began shipping in Q1, was strong and Mac OS 8.1, Quark Express 4.0 and Norton Utilities for the Mac continued to sell well. In Q2 we are looking forward to new product introductions from Apple and Adobe," said Mr. Khulusi.

Rapid Growth in Internet Sales Including uBid

Q1 1998 Internet sales were $8.3 million, which was an increase of 325% from $2 million in the same quarter last year.

"Our e-commerce auction business uBid is off to a remarkable start, reporting more than $2 million in sales in its first full quarter of operations. Sales ramped rapidly during the quarter, starting with approximately $150,000 in January and exiting with approximately $1,250,000 in March. We launched the uBid website in late December of last year, and we are already selling more than 2,000 items per week. This makes uBid among the leading e-commerce auction sites of computers and computer-related equipment," said Mr. Khulusi.

"We see substantial opportunities with uBid as well as all of our Internet catalog websites going forward and our strategy is to continue to invest in this business. To further attract shoppers to uBid, we have some very exciting promotions scheduled," added Mr. Khulusi. "In addition, we are working on significant enhancements in features and content for our catalog websites."

Creative Computers, Inc. is leading direct marketer of personal computers and related products. The Company offers over 45,000 products to its customers. The Company creates demand for its products through its distinctive, full-color MacMall, PC Mall and ComputAbility catalogs, outbound marketing, Internet marketing and its websites, retail showrooms and other promotional materials. The Company's staff of over 400 knowledgeable sales executives, telemarketing, customer service and technical support personnel work together to provide high-level customer service and gain customer loyalty. Creative also sells computers, computer-related products and consumer electronics, from a variety of leading manufacturers, in an Internet auction format, through the Company's wholly owned subsidiary, uBid, Inc. uBid's website is located at http://www.ubid.com.

Customers may call PC Mall sales at 800/555-MALL, MacMall sales at 800/222-2808, and ComputAbility sales at 800/558-0003,or shop Creative on the Internet at http://www.pcmall.com, http://www.macmall.com, http://www.ubid.com, or http://www.computability.com.

Except for historical information, all of the statements, expectations and assumptions contained in the foregoing are forward-looking statements. The realization of any or all of these expectations is subject to a number of risks and uncertainties and it is possible that the assumptions made by management may not materialize. There can be no assurances that the Company's closing of seven retail stores, taking restructuring charges and reducing its workforce will better position the Company going forward or favorably impact the Company's balance sheet; the Company's uBid subsidiary will continue to ramp up sales; the investment in the Company's uBid subsidiary will favorably impact sales; the Company's promotions will favorably impact uBid sales; the Company's uBid subsidiary will be profitable; the Company's Internet websites will continue sales increases; or the developments at Apple will have a favorable impact on the Company's sales and earnings in the future. In addition to the factors set forth above, other important factors that could cause actual results to differ materially from our expectations include the ability of uBid to achieve a leadership position in its industry either near term or beyond, and competition from companies either currently in the market or entering the market; competition from other catalog and retail store resellers and price pressures related thereto; uncertainties surrounding the supply of and demand for products manufactured by and compatible with Apple Computer and clones thereof; our reliance on Apple Computer, IBM, Hewlett Packard, Compaq and other vendors; and risks due to shifts in market demand and/or price erosion of owned inventory. This list of risk factors is not intended to be exhaustive. Reference should also be made to the risk factors set forth from time to time in the Company's SEC reports, including but not limited to those set forth in the section entitled "Certain Factors Affecting Future Results" in its Annual Report on Form 10-K for 1997. -0-

                       Creative Computers, Inc.

                      CONSOLIDATED BALANCE SHEET
                   (in thousands except share data)

                                  March 31, 1998   December 31,1997(a)
                                   (unaudited)

Assets
Current assets:
Cash and cash equivalents         $      10,858         $      8,018
Accounts receivable,
 net of allowance for
  doubtful accounts                      41,142               42,455
Inventories                              34,074               42,643
Prepaid expenses and
 other current assets                     5,126                2,894
Income tax refund receivable                715                  469
Deferred income taxes                     5,569                2,484
  Total current assets                   97,484               98,963
Property, plant
 and equipment, net                      15,493               16,868
Goodwill, net                            12,595               15,141
Deferred income taxes                     2,282                    -
Other assets                                117                  182
                                  $     127,971         $    131,154

Liabilities and
 Stockholders' Equity
Current liabilities:
Accounts payable                  $      57,561         $     45,958
Accrued expenses and
  other current liabilities              13,898               13,275
Capital leases - current portion            207                  207
Notes payable - current portion           7,358                9,979
         Total current liabilities       79,024               69,419
Capital leases                              105                  148
Notes payable                               164                  348
Deferred income taxes                     1,468                1,469
         Total liabilities               80,761               71,384

Stockholders' equity:

Common stock, $.001 par value;
 15,000,000 shares
  authorized; 10,140,239
   and 10,105,258 shares issued              10                   10
Preferred stock, $.001 par value;
  5,000,000 shares
   authorized; none issued
    and outstanding
Additional paid-in capital               57,021               56,772
Treasury stock,
 at cost: 15,000 shares                     (91)                 (91)
Retained earnings
 (accumulated deficit)                   (9,730)               3,079
 Total stockholders' equity              47,210               59,770
                                  $     127,971         $    131,154

     (a) Restated to reflect changes in presentation.

                       Creative Computers, Inc.

                 CONSOLIDATED STATEMENT OF OPERATIONS
           (unaudited, in thousands except per share data)

                                            For the three months ended
                                                    March 31,
                                           1998                 1997

Net sales                         $     164,134         $    120,140

Cost of goods sold                      147,878              104,692

Retail store closure
 inventory reserves                       3,679                    -

   Gross profit                          12,577               15,448

Selling, general and
 administrative expenses                 26,377               14,286

Non-recurring expenses
 related to retail store closures         6,773                    -

Income (loss) from operations           (20,573)               1,162

Interest income/(expense), net              (87)                  79

Income (loss) before income taxes       (20,660)               1,241

Income tax provision (benefit)           (7,851)                 471

Net income (loss)                 $     (12,809)        $        770

Basic earnings (loss) per share   $       (1.27)        $       0.08

Diluted earnings (loss) per share $       (1.27)        $       0.08

Basic weighted average number of
shares outstanding                       10,121                9,831

Diluted weighted average number of
shares outstanding                       10,121               10,108

CONTACT: Creative Computers, Inc.

Frank Khulusi, President/CEO

Richard M. Finkbeiner/CFO

310/354-5600

or

Seiler Martin Ekman, LLC

Tom J. Ekman

Jody Martin

Steven Seiler

310/312-7880