"We began 2004 knowing we had a challenge, and we clearly underestimated the difficulties ahead, and the softness of the environment that we would experience in quarters three and four," said James D. Carreker, Bombay chairman CEO, during Wednesday's earnings conference call. "In terms of earnings, there were two things that we didn't anticipate: new accounting for leases, and store impairments that were higher than normal."

In an effort to combat these difficulties, Bombay went ahead in 2004 with a major shift in location-emphasis for its stores. "We've successfully moved to a much higher percentage of off-mall locations, which have significantly lower fixed operating costs per sf," Carreker noted. "Currently, almost 40% of our stores are in off-mall locations compared to only 12% two years ago. All of these investments position us well for future profit on sales."

Provided, of course, customers can be persuaded to return to Bombay in earnest. "We remain concerned about the softness in consumer demand," he continued. "We've taken steps to reduce our expenses during 2004, and will continue to manage spending levels aggressively for 2005. At the same time, we plan to increase our spending on consumer and market research, Internet, marketing and visual presentation in our stores."