TCR_Public/950821.MBX

BANKRUPTCY CREDITORS' SERVICE, INC.






        Hills Stores has new $300 million revolver,
        hires Bear, Stearns as financial advisor and announces second
        quarter results

         

            CANTON, Mass.--August 21, 1995--Hills Stores
        Company (NYSE:HDS)
today announced that it has closed on its
        previously announced commitment from Chemical Bank to provide a new
        $300 million working capital facility.

         

            Hills also announced that it has retained the investment banking
        firm of Bear, Stearns & Co., Inc.  as its financial advisor to opine
        on the fairness of any acquisition proposals or to assist the board
        in setting up a process designed to maximize shareholder value in
        the near term.  Due to the importance of the fourth quarter to
        overall results, the company currently believes that in order to
        best maximize shareholder value this process might not conclude
        until the first quarter of 1996.  Hills also stated that until
        warranted it planned no further announcements regarding any
        potential extraordinary transactions.   

         

            Hills today also released its second quarter results.  Total
        sales for the quarter ended July 29, 1995, increased 3.7% from the
        previous year to $389.4 million and increased 0.4% on a comparable
        store basis to $376.3 million.  Earnings before interest, taxes,
        depreciation, amortization, other non-cash charges and one time
        gains/ losses ("EBITDA") decreased to $2.7 million from $14.2
        million in the same period of 1994.  Net loss was $45.2 million
        versus a $3.6 million loss in the prior year second quarter.  Loss
        per share on a fully-diluted basis was $4.64 compared to a loss per
        share of $0.36 in the prior year second quarter.  This year's net
        income includes a non- recurring charge of $43.3 million ($35.6
        million or $3.65 per share after taxes), relating to severance and
        refinancing expenses which occurred as a result of the July 5 change
        of control.   

         

            For the six months ended July 29, 1995, total sales increased
        1.5% to $752.3 million while sales on a comparable store basis
        declined 1.7% to $727.6 million.  EBITDA totaled $13.0 million for
        the six month period compared to $24.6 million for the prior year
        six month period.  Net loss was $49.5 million versus a net loss of
        $6.0 million for the prior six month period.  The first half loss
        per share equaled $4.90 compared to a loss per share of $0.59 in
        1994.  As previously mentioned, the 1995 results include a $43.3
        million charge as a result of change of control related severance
        and refinancing expenses.  Loss per share for the first half
        excluding this one time charge was $1.38 per share.

         

       Jack Smailes, President of Hills Stores Company, commented:

         

            "Our second quarter operating results were negatively impacted
        by two factors.  First, the Company's second quarter sales forecast
        proved too optimistic resulting in more markdowns than planned,
        which lowered gross margin.  Second, as a result of costs associated
        with the new store growth strategy adopted last year and other cost
        pressures, SG&A expenses as a percentage of sales increased 0.7%
        from the earlier period.   

         

            "The aggressive new store growth strategy was significantly
        reduced at the beginning of July.  As a result of the cost savings
        to be achieved from this change, as well as planned improvements in
        other controllable expenses, we project that notwithstanding the
        second quarter's results for the year ending February 3, 1996 the
        company should exceed last year's EBITDA (before a one time pension
        related gain) of $136.9 million.  This projection is based on a
        forecast of a 0.5% increase in comparable store sales for the second
        half of 1995.   

         

            "My management team and I plan to introduce ourselves to
        shareholders at a meeting in New York next week in order to further
        elaborate on Hills' business plan."

         

            Hills Stores is a leading regional discounter operating 159
        stores in 12 Mid-Western and Mid-Atlantic states.

         
  
                  ($ in 000's, except per share amounts)

         
        Second quarter              1995(a)   1994(b)    $ Change   % Change
         
        Sales                      $389,424  $375,632    $13,792       3.7%
        EBITDA(c)                     2,723    14,228    (11,505)    (80.9%)
        Operating earnings(loss)    (50,180)    5,456    (55,636) (1,019.7%)
        Net loss                    (45,170)   (3,597)   (41,573) (1,155.8%)
        Loss per share               ($4.64)   ($0.36)    ($4.28) (1,188.9%)
        Shares outstanding(d)         9,730     9,920     (190.0)     (1.9%)
         
                                    July 29,  July 30, Six months ended:
        1995      1994      
         
        Sales                      $752,286  $741,229    $11,057       1.5%
        EBITDA(c)                    12,993    24,564    (11,571)    (47.1%)
        Operating earnings (loss)   (49,035)   11,852    (60,887)   (513.7%)
        Net loss                    (49,507)   (5,959)   (43,548)   (730.8%)
        Loss per share               ($4.90)   ($0.59)    ($4.31)   (730.5%)
        Shares outstanding(d)        10,109    10,116         (7)     (0.1%)
         
         Trailing twelve             July 29,  July 30,
         months ended:               1995      1994      
         
        Sales                    $1,883,078 $1,809,060    $74,018       4.1%
        EBITDA(c)                   128,677    133,576     (4,899)
        (3.7%)  
        Operating income             44,868    102,200    (57,332)     (56.1%)  
        Net earnings (loss)          (3,117)   295,341(e)(298,458)    (101.1%)
         

        (a) Operating earnings (loss), net loss and loss per share include a
        
        pre-tax charge of $43.3 million related to severance expenses  
        paid to certain senior officers and employees of the company,  
        and legal and other expenses, associated with the July 5, 1995  
        change of control.

         

        (b) Operating earnings (loss), net loss and loss per share include a
         
        gain of $4.5 million from the elimination of the company's  
        pension benefit obligation.

         

        (c) Represents earnings before interest, taxes, depreciation and  
        amortization, and non-recurring items on a first-in, first-out,
        inventory basis.

         

        (d) Fully diluted average shares outstanding for the quarter and six
        months ended July 29, 1995 do not include 1,285,824 shares of  
        preferred stock as their effect would be anti-dilutive.
         (e) Includes a $258.2 million after-tax extraordinary gain on the  
        discharge of prepetition debt related to the company's emergence
        from Chapter 11 in October 1993.

        
         

       Hills Stores Company and Subsidiaries Consolidated Statements of
        Operations (Unaudited) (dollars in thousands, except per share
        amounts)

         

                     Three months       Six months        Twelve months

                        ended              ended              ended
                  7/29/95  7/30/94   7/29/95  7/30/94    7/29/95   7/30/94
         
        Net sales    $389,424 $375,632  $752,286 $741,229  $1,883,078  $1,809,060  
        Cost of  
         sales        288,683  269,173   550,235  534,436   1,356,020   1,290,896  
        Selling and         
         administrative
         expenses      98,149   92,231   189,214  177,750     401,861     380,157  
        Depreciation         
         and amort-
         ization        9,480    8,772    18,580   17,191      37,037      35,807  
        Costs related
         to change
         in control    43,292       --    43,292       --      43,292        --
         
        Operating
         earnings
         (loss)       (50,180)   5,456   (49,035)   11,852     44,868     102,200
         
        Other income
         (expense)
         
         Capital lease
          interest     (3,538)  (3,696)   (7,117)   (7,428)   (14,396)    (14,918)
         
         Other
          interest     (8,186)  (5,820)  (15,578)  (11,485)   (28,098)    (20,312)
         
         Other income,
          net               152      463     1,962     1,102     10,101      3,807
         
                        (11,572)  (9,053)  (20,733)  (17,811)   (32,393)   (31,423)
         
                        (61,752)  (3,597)  (69,768)   (5,959)    12,475     70,777
         
        Reorganization
         items, net        --       --        --        --         --     (6,640)
         
                      (61,752)  (3,597)  (69,768)   (5,959)    12,475      64,137  
        Income tax
         
         provision
         (benefit)    (16,582)      --   (20,261)       --     15,592      26,609
         
                      (45,170)  (3,597)  (49,507)   (5,959)    (3,117)     37,528
Extraordinary
         
         gain on  
         discharge of
         prepetition
         debt
                            --       --        --        --         --    258,239  
        Net earnings
         
         (loss)       (45,170)  (3,597)  (49,507)   (5,959)    (3,117)     295,767  

        Preferred  
         dividend
         requirements     --       --        --        --         --        426  

        Net earnings
         (loss)  
         applicable  
         to common
         share-
         holders     ($45,170) ($3,597) ($49,507)  ($5,959)   ($3,117)  $295,341
         
        Net loss  
         per share:
          Primary      ($4.66)  ($0.36)   ($5.11)   ($0.61)
          Fully-
           diluted     ($4.64)  ($0.36)   ($4.90)   ($0.59)
         
        Shares outstanding
          
          Primary       9,699    9,920     9,683     9,739  
          Fully-
           diluted      9,730    9,920    10,109    10,116  
         

        The Consolidated Statement of Operations for the trailing twelve
        months ended July 30, 1994 is shown combined for information
        purposes only since it was prepared using two different basis of
        accounting.  The company adopted Fresh-Start accounting in
        conjunction with its emergence from Chapter 11 in October 1993.

         
         

        Hills Stores Company and Subsidiaries Consolidated Balance Sheets
        (unaudited) (in thousands)

         
                                            July 29,          July 30,  
                                                   1995             1994
        ASSETS Current Assets:
         
        Cash and cash equivalents              $     456       $    4,701
        Trade receivables, net                    48,915           47,108
        Inventories                              442,565          396,044
        Deferred tax asset-short term             20,923             - Other
        current assets                       6,231            4,319
         
        Total Current assets                     519,090          452,172
         
        Property and equipment, net              181,654          151,707
        Property under capital issues, net       118,941          129,284
        Beneficial lease rights, net               8,661            9,489
        Other assets, net                          8,187            8,351
        Deferred tax asset long-term              10,061
        - Reorganization value in excess
         
         of amounts allocable to  
         identifiable assets, net                140,887          172,235
         
                                             987,481          923,238
         
        LIABILITIES AND COMMON
         SHAREHOLDERS'S EQUITY Current liabilities:
         
        Current portion of
         capital leases                        $   6,121       $    5,532
        Borrowings under the
         
         revolving credit
         facility                                115,000
        - Accounts payable, trade                  122,873          112,121
        Other accounts payable
         
         and accrued expenses                    181,400          183,264
         
        Total current liabilities                425,394          300,917
         
        Senior notes                             160,000          160,000
        Obligations under
         
         capital leases                          121,525          127,927
        Sale/leaseback financing                  25,169             -
         
        Other liabilities                          8,935           10,118
        Commitments and contingencies               -                -
         
        Preferred stock at mandatory
         redemption value                         25,716           77,671
         
        Common shareholders equity:
         
         Common stock                                 97              101
         Additional paid in capital              208,486          216,228
         Retained earnings                        12,159           30,276
        Total common shareholders' equity        220,742          246,605
         
                                           $987,481       $  923,238  
         
        CONTACT: Hills Stores Co.

                 William K. Friend, 617/821-1000 ext. 1189
                   or
                 The Bromley Group
                 Alan Bromley, 212/807-0878