Westaff, Inc. (NASDAQ:WSTF), a leading provider of staffing services, today reported financial results for its first fiscal quarter, which ended January 21, 2006. Consistent with its financial reporting practice, the Company's first three fiscal quarters comprise 12 weeks each while the fourth quarter comprises 16 or 17 weeks.


"Our first quarter fiscal 2006 results were on target with our plans for fiscal 2006," commented Westaff President and CEO, Trish Newman. "Our fiscal 2006 goals call for improved revenue and profits as compared to fiscal 2005 and we remain on target for those goals through the first quarter. Whilst we did incur an operating loss for the first quarter of fiscal 2006, this is in line with our expectations and is warranted in light of the strategic investments that we are making in the Company to foster consistent growth and sustained profitability and because of the seasonal nature of our business."

Revenue for the first quarter of fiscal 2006 was $138.6 million, up $3.3 million or 2.4% from the first quarter of fiscal 2005. Domestic revenue increased 4.6% driven largely by a 3.6% increase in billed hours coupled with a slight increase in average billing rates. International revenue decreased by 4.4% primarily as a result of a 9.2% decrease in revenue in the United Kingdom as a result of "offshoring" of certain staffing functions by a number of Westaff's UK customers partially offset by a 1% increase in sales in Australia.

"I am pleased to report domestic revenue growth for the first quarter of fiscal 2006, which was one of our principal goals heading into the current year," commented Ms. Newman. "We currently expect domestic revenue growth rates in the 3% to 5% range during the second quarter of fiscal 2006. The comparative growth rates in Australia have dropped off relative to the excellent growth rates achieved throughout fiscal 2005, partially as a result of the completion of some large project work."

Gross margin for the 2006 quarter was 16.8% as compared to 16.9% for the 2005 quarter. Domestic gross margin increased from 16.2% in the fiscal 2005 quarter to 16.4% in fiscal 2006, due largely to bill rate increases and a 98% increase in permanent placement fees from $0.4 million in the fiscal 2005 quarter to $0.8 million in 2006. International margins declined primarily due to a change in the geographic mix of business with a larger relative proportion of business coming from Westaff's Australia operations which tend to have lower margins associated with its national account program.

Selling and administrative expenses increased $1.2 million, or 7.0% for the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005, due largely to salaries and related expenses associated with domestic staff additions to support the Company's goals of driving both temporary and permanent sales in the US and to support the implementation of the Company's business process management system initiatives. As of the end of the first quarter of fiscal 2006 compared to the end of the first quarter of fiscal 2005, the Company had increased its domestic field staff by 12%. Over half of these field staff additions were in support of the Company's permanent placement service line of business with the remainder focused on developing the temporary staffing business line. As a percentage of revenue, selling and administrative expenses rose to 13.0% in the first quarter of fiscal 2006 as compared to 12.4% in the fiscal 2005 quarter.

Westaff Senior Vice President and Chief Financial Officer, Dirk Sodestrom, added, "it is important that we make these strategic investments in our field operations now so that we can set the stage for our seasonally strong third and fourth quarters. Our current plans are to restrict further regular staff hiring in the US until we are able to maximize the return on our staff investments thus far and to fully integrate the recently acquired Houston franchise operations into our company-owned office infrastructure. As individual opportunities warrant, we may continue to selectively add permanent placement consultants in appropriate markets."

The Company reported an operating loss of ($0.2) million for the first quarter of fiscal 2006 as compared to operating income of $1.1 million in the first quarter of fiscal 2005. The Company also reported a net loss of ($0.4) million or ($0.02) per diluted share as compared to first quarter fiscal 2005 income of $0.5 million or $0.03 per diluted share.

The Company ended the quarter with a revolver debt balance of $4.7 million, virtually all of which is attributable to the Australia credit facility, and consolidated revolver borrowing availability of $16.2 million.

Westaff will discuss these results on a conference call at 8:00 a.m. (Pacific) on Tuesday, March 7, 2006. The call will be webcast live and can be accessed at Westaff's website at www.westaff.com. Investors can also access the webcast at www.investorcalendar.com. The webcast will be available for replay through March 6, 2007.

Westaff provides staffing services and employment opportunities for businesses in global markets. Westaff annually employs approximately 125,000 people and services more than 15,000 client accounts from more than 230 offices located throughout the U.S., the United Kingdom, Australia and New Zealand. For more information, please visit our website at www.westaff.com.
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