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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2004

OR

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 1-7288

THE BOMBAY COMPANY, INC.
(Exact name of registrant as specified in its charter)


Delaware 75-1475223

(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

550 Bailey Avenue, Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
(817) 347-8200
(Registrant's telephone number, including area code)


(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No ______

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.


Class Number of shares outstanding at August 28, 2004

Common stock, $1 par value 35,818,000



Page 1 of 20





THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Form 10-Q

Quarter Ended July 31, 2004



TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

Item
Page No.

1.Financial Statements 3-9

2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-16

3. Quantitative and Qualitative Disclosures About Market Risk 17

4. Controls and Procedures 17



PART II - OTHER INFORMATION


4. Submission of Matters to a Vote of Security Holders 18

6.Exhibits and Reports on Form 8-K 19

Signatures 20












2







THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)


Three Months Ended Six Months Ended
July 31, August 2, July 31, August 2,
2004 2003 2004 2003

Net revenue $122,479 $130,273 $246,060 $249,510

Costs and expenses:
Cost of sales, buying and
store occupancy costs 95,074 94,863 188,700 180,762
Selling, general and administrative
expenses 37,549 36,673 76,869 72,257
Operating loss (10,144) (1,263) (19,509) (3,509)

Other income (expense):
Interest income 19 35 39 178
Interest expense (6) (41) (4) (42)

Loss before income taxes (10,131) (1,269) (19,474) (3,373)
Benefit for income taxes (3,803) (501) (7,400) (1,332)


Net loss $(6,328) $ (768) $(12,074) $ (2,041)

Basic and diluted earnings (loss) per share $(.18) $(.02) $(.34) $(.06)

Average common shares outstanding 35,670 34,556 35,550 34,088








The accompanying notes are an integral part of these consolidated financial
statements.

3


THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)

July 31, January 31, August 2,
2004 2004 2003

ASSETS
Current assets:
Cash and cash equivalents $ 10,034 $ 25,619 $ 8,914
Inventories 136,620 138,908 161,776
Other current assets 30,342 26,012 22,795
Total current assets 176,996 190,539 193,485

Property and equipment, net 73,640 68,107 46,961
Goodwill, less amortization 423 423 423
Other assets 5,561 5,864 10,318
Total assets $256,620 $264,933 $251,187

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 2,200 $ -- $ 13,847
Accounts payable and accrued 36,899 35,348 42,104
expenses
Income taxes payable -- 1,103 --
Accrued payroll and bonuses 4,074 8,019 6,181
Gift certificates redeemable 6,430 7,129 5,251
Accrued insurance 4,195 3,730 3,908
Total current liabilities 53,798 55,329 71,291
Accrued rent and other liabilities 22,163 18,217 5,954
Stockholders' equity:
Preferred stock, $1 par value,
1,000,000 shares -- -- --
authorized, none issued
Common stock, $1 par value,
50,000,000 shares authorized, 38,150 38,150 38,150
38,149,646 shares issued
Additional paid-in capital 79,778 79,210 75,735
Retained earnings 74,238 86,312 74,320
Accumulated other comprehensive 142 122 (547)
income (loss)
Common shares in treasury, at cost,
2,362,866; 2,816,772 and 3,073,478 (9,693) (11,555) (12,615)
shares, respectively
Deferred compensation (1,956) (852) (1,101)
Total stockholders' equity 180,659 191,387 173,942

Total liabilities and stockholders' $256,620 $264,933 $251,187
equity

The accompanying notes are an integral part of these consolidated financial statements.

4





THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

Six Months Ended
July 31, August 2,
2004 2003

Cash flows from operating activities:
Net loss $(12,074) $(2,041)
Adjustments to reconcile net loss
to net cash from operating activities: 8,444 8,943
Depreciation and amortization 414 79
Employee stock-based compensation expense (11) 156
Deferred taxes and other

Changes in assets and liabilities:
(Increase) decrease in inventories 2,327 (58,569)
Increase in other current assets (4,925) (999)
Decrease in current liabilities (2,986) (4,009)
Increase in noncurrent assets (18) (4)
Increase (decrease in noncurrent liabilities) 305 (108)
Net cash used in operating activities (8,524) (56,552)
Cash flows from investing activities:
Purchases of property and equipment (14,282) (10,765)
Landlord constructioin allowances 4,320 --
Proceeds from sales of property and equipment 26 71

Net cash used in investing activities (9,936) (10,694)
Cash flows from financing activities:
Net bank borrowings 2,200 13,847
Purchases of treasury stock -- (82)

Sale of stock to employee benefit plans 215 147
Proceeds from the exercise of employee stock options 514 5,291
Net cash provided by financing activities 2,929 19,203
Effect of exchange rate change on cash (54) 349
Net decrease in cash and cash equivalents (15,585) (47,694)
Cash and cash equivalents at beginning of period 25,619 56,608
Cash and cash equivalents at end of period $ 10,034 $ 8,914


Supplemental disclosure of cash flow information:
Interest paid $ -- $ 97
Income taxes paid 1,454 5,483
Non-cash financing activities:
Distributions of deferred director fees -- 179
Issuance of restricted stock 1,518 1,035

The accompanying notes are an integral part of these consolidated financial statements.

5




THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

(1) Basis of Presentation

In the opinion of the Company, the accompanying unaudited consolidated
financial statements, which include the accounts of The Bombay Company, Inc.
and its wholly-owned subsidiaries (the "Company" or "Bombay"), contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position as of July 31, 2004 and August 2, 2003,
the results of operations for the three and six months then ended, and cash
flows for the six months then ended in accordance with the rules of the
Securities and Exchange Commission. The results of operations for the three
and six month periods ended July 31, 2004 and August 2, 2003 are not
necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements should be read in conjunction with the
financial statement disclosures contained in the Company's 2003 Annual Report
on Form 10-K/A.


(2) Stock-Based Compensation

The Company accounts for its stock-based compensation plans under the
intrinsic value method. Accordingly, no compensation expense related to grants
of stock options has been recognized, as all options granted under the plans
had an exercise price not less than the market price of the Company's common
stock on the date of grant. Compensation expense related to grants of
restricted stock is based upon the quoted market price of the Company's common
stock at the measurement date, amortized to expense over the vesting period.
The following table illustrates the effect on net loss and earnings (loss) per
share as if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123"), to stock-based compensation (in thousands,
except per share amounts):



Three Months Ended Six Months Ended

July 31, August 2, July 31, August 2,
2004 2003 2004 2003

Net loss, as reported $(6,328) $ (768) $(12,074) $(2,041)
Stock-based compensation expense
determined under FAS 123, net of tax (535) (325) (884) (549)
Net loss, pro forma $(6,863) $(1,093) $(12,958) $(2,590)

Basic and diluted earnings (loss)
per share, as reported $(.18) $(.02) $(.34) $(.06)
Basic and diluted earnings (loss)
per share, pro forma $(.19) $(.03) $(.36) $(.08)







6






THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont'd)

During the first quarter of Fiscal 2004, the Company awarded restricted stock
grants aggregating 115,000 shares to a group of key employees other than the
Chief Executive Officer. The respective shares will become vested in
designated increments contingent upon continued employment of the respective
employee based upon specified vesting periods of at least 12 months and not
more than 36 months. Deferred compensation of $795,000 was recorded in
conjunction with the grants, and will be expensed over the respective vesting
periods.

During the second quarter of Fiscal 2004, the Company awarded 122,980 shares
of restricted stock to its Chief Executive Officer. Contingent upon his
continued employment, the shares will become fully vested after 24 months.
Deferred compensation of $723,000 was recorded in conjunction with the grant,
and will be expensed over the vesting period.


(3) Comprehensive Income/Loss

Comprehensive loss for the three and six months ended July 31, 2004 and
August 2, 2003 was as follows (in thousands):



Three Months Ended Six Months Ended

July 31, August 2, July 31, August 2,
2004 2003 2004 2003

Net loss $(6,328) $(768) $(12,074) $(2,041)
Foreign currency translation
adjustments 403 115 20 847
Comprehensive loss $(5,925) $(653) $(12,054) $(1,194)


(4) Earnings (Loss) per Share

Basic earnings (loss) per share are based upon the weighted average number of
shares outstanding. Diluted earnings (loss) per share are based upon the
weighted average number of shares outstanding plus the shares that would be
outstanding assuming exercise of dilutive stock options and distribution of
deferred director compensation.








7





THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont'd)

The computation for basic and diluted earnings (loss) per share is as follows
(in thousands, except per share amounts):



Three Months Ended Six Months Ended

July 31, August 2, July 31, August 2,
2004 2003 2004 2003

Numerator:
Net loss $(6,328) $ (768) $(12,074) $(2,041)
Denominator for basic and diluted
earnings (loss) per share:
Average common shares outstanding 35,670 34,556 35,550 34,088
Basic and diluted earnings (loss)
per share $ (.18) $(.02) $ (.34) $ (.06)


During the three and six month periods ended July 31, 2004 and August 2,
2003, the Company reported a net loss. Accordingly, common stock equivalents
would be anti-dilutive during these periods and, thus, are not included in the
computation of diluted earnings (loss) per share. The following table presents
the potentially dilutive securities outstanding at each of the periods then
ended, which are excluded from the computation of diluted earnings (loss) per
share because their inclusion would be antidilutive (in thousands):

July 31, August 2,
2004 2003

Stock options 3,329 2,940
Deferred director compensation 34 7
Total potentially dilutive securities 3,363 2,947



(5) Credit Facility and Debt

The Company has an unsecured, revolving credit agreement with a group of
banks with an aggregate commitment of $75 million. The facility, which expires
July 5, 2005, is for working capital, inventory financing and letter of credit
purposes.

Availability under the credit facility is limited to the lesser of $75
million or 45% of eligible inventory, as defined by the credit agreement. At
July 31, 2004, the bank commitment was $61,285,000. Borrowings of $2,200,000
and letters of credit totaling $12,002,000, primarily to support inventory
purchases, were outstanding under the facility, and $47,083,000 was available
for additional borrowings or letters of credit.

At July 31, 2004, the Company failed to satisfy two financial covenants, the
Fixed Charge Coverage Ratio and the Leverage Ratio, as such terms are defined
by the credit agreement, a copy of which is on file with the SEC. The banks
were promptly notified and have provided written waiver of such deficiencies
that are effective through September 30, 2004.

8






THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont'd)

Management has signed a letter of intent and expects to replace the Company's
existing credit facility with a new, secured, revolving credit facility. The
proposed facility has an aggregate commitment of up to $175 million, with an
initial commitment of up to $125 million, subject to borrowing base
limitations. Available commitment under the facility is based upon a borrowing
base comprised of eligible inventory and receivables, as defined by the
agreement. The proposed facility provides for borrowings, at the Company's
option and subject to certain limitations, in the form of loans or by the
issuance of bankers' acceptances with respect to inventory purchases. The
facility is expected to expire five years after execution of the agreement and
is to be secured by the Company's inventory and receivables. Management
expects to execute a final agreement relating to the facility on or before
September 30, 2004, at which time the existing facility will expire coincident
with the closing of the new facility.


(6) New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation 46, "Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51" ("FIN 46"). FIN 46 is intended to clarify the
application of ARB No. 51, "Consolidated Financial Statements," to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support. For those entities, a controlling financial interest cannot be
identified based on an evaluation of voting interests and may be achieved
through arrangements that do not involve voting interests. The consolidation
requirement of FIN 46 was effective immediately to variable interests in
variable interest entities ("VIEs") created or obtained after January 31, 2003.
FIN 46 also sets forth certain disclosures regarding interests in VIEs that are
deemed significant, even if consolidation is not required. In December 2003,
the FASB issued FIN 46 (revised December 2003), "Consolidation of Variable
Interest Entities" ("FIN 46R"), which delayed the effective date of the
application to us of FIN 46 to non-special purpose VIEs acquired or created
before February 1, 2003, to the interim period ended on May 1, 2004, and
provided additional technical clarifications to implementation issues. The
Company does not have any VIEs and, therefore, the adoption of FIN 46R had no
impact on its consolidated financial position or results of operations.







9







THE BOMBAY COMPANY, INC. AND SUBSIDIARIES


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Special Note Regarding Forward-Looking Statements

Certain statements in this Form 10-Q under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of The Bombay Company, Inc. and its wholly-owned
subsidiaries (the "Company" or "Bombay") to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and financial market conditions which affect consumer
confidence in the spending environment for home-related purchases; competition;
seasonality; success of operating initiatives; new product development and
introduction schedules; uninterrupted flow of product; acceptance of new
product offerings; inherent safety of product offerings; advertising and
promotional efforts; adverse publicity; expansion of the store chain;
availability, locations and terms of sites for store development; ability to
renew leases on an economic basis; changes in business strategy or development
plans including risks associated with the strategy to move off-mall;
availability and terms of borrowings or capital for operating purposes; labor
and employee benefit costs; ability to obtain insurance at a reasonable cost;
rising fuel and energy costs and their impact on the operations of the
business; reliance on technology; security of the technological infrastructure;
changes in government or trade regulations including provisional duties on
bedroom furniture imports from China including the possibility that the scope
of such duties will be expanded to encompass additional countries or product
categories; risks associated with international business; fluctuations in
foreign currency exchange rates; terrorism; war or threat of war; potential
travel or import/export restrictions due to communicable diseases; regional
weather conditions; hiring and retention of adequate and qualified personnel
and other risks and uncertainties contained in the Company's 2003 Annual Report
on Form 10-K/A and other SEC filings as they occur.

General

The Company designs, sources and markets a unique line of fashionable home
accessories, wall d{e'}cor and furniture through 472 retail locations in 42
states in the United States and nine Canadian provinces, specialty catalogs,
the Internet and international licensing arrangements. Throughout this report,
the terms "our", "we", "us" and "Bombay" refer to The Bombay Company, Inc.
including its subsidiaries.

In addition to our primary retail Bombay operations, during 2001 we expanded
our product offering to include BombayKIDS, a line of children's furniture,
textile and accessories, which is currently being offered in 40 BombayKIDS
store locations as well as through catalog and Internet channels. Our
wholesale operation, Bailey Street Trading Company ("Bailey Street"), markets a
limited number of furniture and accessory stock keeping units under a separate
brand to specialty gift stores, furniture stores, department stores, catalogers
and mass merchants. Bombay also has international licensing agreements under
which a total of 15 licensed international stores are operating in the Middle
East and the Caribbean.

10






The largest percentage of Bombay's sales and operating income is realized in
the fiscal quarter that includes December (Christmas season). Merchandise is
manufactured to our specifications through a worldwide network of contract
manufacturers. The impact of inflation on operating results is typically not
significant because the majority of our products are proprietary. We attempt
to alleviate inflationary pressures by adjusting selling prices (subject to
competitive conditions), improving designs and finding alternative production
sources in lower cost countries.

Same store sales comparisons are calculated based upon revenue from stores
opened for more than 12 months. Stores converted from the regular format to
the large format and stores relocated from mall to off-mall locations are
classified as new and are excluded from same store sales until they have been
opened for 12 months. Stores relocated within a mall and whose size is
significantly changed are treated as new stores and are excluded from the same
store sales calculation until opened for a full year. Remodeled stores remain
in the computation of same store sales.

Cost of sales includes all costs associated with the purchase of product
including, but not limited to, vendor cost, inbound transportation costs,
duties, commission, inspections, quality control, warehousing and outbound
transportation costs. Buying costs include costs associated with our buying
department, consisting primarily of salaries, travel, product development and
product sample costs. Store occupancy costs include costs such as rent, common
area maintenance charges, utilities and depreciation and amortization of
leasehold improvements and other fixed assets relating to our retail locations.


Executive Summary

We focus on several key metrics in managing and evaluating our operating
performance and financial condition including, but not limited to, the
following: same store sales, sales and gross margins by merchandise
categories, operating margins as a percentage of revenues, earnings (loss) per
share, cash flow, return on assets, inventory turn, number of transactions and
average sales per transaction. We are currently executing a multiphase
turnaround, as previously discussed in our 2003 Annual Report on Form 10-K/A.
Our goal is to improve our operating performance and generate competitive
operating results in line with current market leaders in the sector.

During Fiscal 2004 and beyond, we are focused on six critical success
factors.

DRIVE SAME STORE SALES AT A COMPETITIVE RATE - During the first half
of Fiscal 2004, our same store sales performance has been disappointing.
We believe that the lack of newness and flow in our merchandise
assortment are the biggest factors contributing to the decline. The
decision to carry over inventory from Fiscal 2003 adversely impacted
freshness within the assortment for the first half of Fiscal 2004.
However, the significant increase in newness as we enter the fall season
is expected to help reverse this trend. Additionally, the effects of the
imposition of an anti-dumping tariff on bedroom furniture from China have
disrupted the timeliness of product flow. Purchases for the second half
of the year have been adjusted accordingly. We also believe that we have
been experiencing a softer demand for moderately-priced home furnishings
than anticipated.




11




SUCCESSFULLY CONTINUE THE MIGRATION OF OUR STORES FROM MALL TO OFF-
MALL LOCATIONS - We continue to pursue this strategy as our leases expire,
and expect the move to off-mall locations to positively impact our store
occupancy costs. Key to our success is the ability to transfer sales from
stores that we close in a mall location to the new off-mall location.
Through the end of the second quarter, we estimate that 28 of the 35
locations that we have moved have been able to maintain or exceed their
sales volume during the first year of operations. We believe that sales
from newly relocated stores have been impacted by the same factors that
impacted the rest of the chain, including a weakness in demand and issues
relating to our merchandise assortment. Through the end of the second
quarter, in the aggregate, on a four-wall basis the Company's 101 core
off-mall locations were as profitable as its 282 mall-based locations. We
continue to be encouraged by the results and believe that it validates our
overall strategy.

GROW STORE COUNT - Our strategy is to focus on opening stores in our
top 25 markets, thereby increasing market density and allowing us to
create operating efficiencies, particularly in the areas of advertising,
logistics and field supervision. We continue to closely monitor the
impact of new stores on the performance of nearby existing stores as we
assess market density opportunities and identify new locations. This
information will be key to helping define our future real estate strategy.
Currently, 60% of our stores are concentrated in our top 25 markets.
During the first and second quarters, we opened 19 stores, including five
BombayKIDs stores, and closed 18 stores either whose leases expired or
were underperforming. During the remainder of the year, we expect to open
45 to 50 stores, including 10 to 11 BombayKIDs stores, and to close 16
stores, ending the year with slightly more than 500 stores. The ending
store count reflects a recent decision to reduce the store opening plan
for Fiscal 2004 by ten stores so that we can focus on execution during the
fourth quarter. We expect to renew or replace substantially all stores as
their leases expire and, over the long-term, increase store count by
approximately 5% annually.

DEVELOP BOMBAYKIDS - We are pleased with the performance to date of
our BombayKIDS stores. This concept allows us to leverage the Bombay
brand and reach a new customer. BombayKIDS stores currently total 40, and
we plan to have approximately 50 open by the end of the fiscal year.
Particularly encouraging is the impact that our BombayKIDS stores have on
the adjacent Bombay store which have performed at a higher sales level due
to the synergies created and the introduction of a new customer to the
Bombay brand.

BUILD THE PROPER INFRASTRUCTURE TO SUPPORT FUTURE GROWTH -
Significant investments in infrastructure continue to be made in Fiscal
2004, including the addition of a distribution center this quarter near
Allentown, Pennsylvania. The facility will reduce our dependence on
temporary storage for that region and is expected to improve our
efficiency through both modernization with the newer facility and better
proximity to transportation sources. During the third quarter, our new
point-of-sale system with broadband communications, already in service in
the U.S., will be rolled out to our Canadian store locations. The
Canadian stores will benefit from faster transaction times and enhanced
functionality as we enter the holiday season, when we typically experience
the highest transaction volumes of the year. Key leadership positions
have been filled, including a General Merchandise Manager and Vice
President of Financial Planning and Analysis. Although the costs of these
and other investments have been difficult to leverage with the recent
revenue declines, we continue to believe that they are critical to our
future profitability and growth.


12

GENERATE PROFIT MARGIN EXPANSION - Our ability to execute the first
five critical success factors should lead us to better profit flow
through. While our progress to date has been disappointing, we believe
that the opportunity exists for us, in the long-term, to improve our
operating results to approach those of industry leaders in our sector.
We believe that there are significant opportunities for to increase profit
margins through improvements in gross margins and leveraging overhead
expense, in addition to the improvement that comes from sales growth and
pursing the off-mall strategy as discussed above.


Results of Operations

Quarters Ended July 31, 2004 and August 2, 2003

Net revenue for the quarter ended July 31, 2004 declined 6% to $122.5 million
compared to $130.3 million for the quarter ended August 2, 2003. Same store
sales declined 18% for the quarter as we anniversaried same store sales gains
of 26% in the second quarter of the prior year. Sales declines were largely
the result of a lack of freshness in merchandise mix due to decisions made in
the fall of Fiscal 2003 that led to excess inventory on hand as of the end of
Fiscal 2003. Same store sales declines in the current period were partially
offset by sales from new stores, net of closings, and growth from the Internet.
Revenues attributable to new stores totaled $23.0 million for the quarter,
while stores closed during the quarter contributed $11.3 million in revenues
during the second quarter of Fiscal 2003. Revenues from non-store activity,
including Internet, mail order, International and Bailey Street, accounted for
9% of sales for the quarter compared to 8% last year.

The following table outlines the sales mix by product category for the
quarters ended July 31, 2004 and August 2, 2003:


Three Months Ended

July 31, August 2,
2004 2003
Sales mix:
Large furniture 34% 31%
Occasional furniture 17 20
Wall decor 13 13
Accessories 36 36
100% 100%





Growth in BombayKIDS helped drive the increased penetration of large
furniture during the quarter while the occasional furniture category declined
as a result of the lack of newness. The average ticket declined 5% during the
second quarter while the number of total transactions decreased 1%. On a
geographical basis, all regions of the United States and Canada reported same
store sales declines in the double-digit range, compared to last year's strong
double-digit same store sales increases.






13

Cost of sales, including buying and occupancy costs, was $95.1 million for
the second fiscal quarter compared to $94.9 million for the same period last
year. As a percentage of revenue, cost of sales increased to 77.6% for the
quarter compared to 72.8% for the prior year period due primarily to the
negative impact of the increase in fixed costs while experiencing a decline in
same store sales. Buying and occupancy costs were 370 basis points higher than
last year, at 22.3% of revenue, compared to 18.6% in the second quarter of
Fiscal 2003. Store occupancy costs increased 12% over the prior year
comparable quarter while retail square footage increased 18% since August 2,
2003. Buying costs increased 20 basis points, and product margins declined 110
basis points primarily due to the loss of leverage on fixed logistics costs.

Selling, general and administrative expenses were $37.5 million, or 30.7% of
revenue, compared to $36.7 million, or 28.2% of revenue, for the comparable
period of the prior year. Store four-wall costs increased $1.1 million due to
a $.6 million increase in store payroll, related to the 12% growth in the
number of stores, and $.5 million increase in telecommunication costs,
primarily related to the costs of the broadband network installed in the U.S.
stores last fall. As a percentage of revenue, store four-wall costs increased
170 basis points as same store sales declines resulted in deleveraging fixed
costs at the store level. Marketing and visual merchandising costs increased
$.6 million, or 80 basis points, principally resulting from an increase in the
number of markets receiving the monthly Sunday newspaper inserts for both the
Bombay and BombayKIDS operations. Corporate general and administrative
expenses declined $.9 million, or 10 basis points, principally due to a
reduction of $1.3 million in depreciation and amortization resulting from
accelerated amortization taken in Fiscal 2003 on the point-of-sale system and
components of the merchandising planning and allocation systems which were
replaced last year. Additionally, foreign exchange gain relating to our
Canadian operations resulted in decreased expenses of $.4 million from the
prior year. No provision was made during the current quarter for incentive
bonuses to corporate executives, which accounted for an additional $.8 million
of expense last year. These decreases in corporate general and administrative
expenses were partially offset by higher insurance costs, which rose $1.0
million related primarily to higher self-insured medical costs, and by
professional services, which increased $.4 million related to higher legal,
accounting and Internet hosting costs.

For the quarter ended July 31, 2004, interest income was $19,000 and interest
expense was $6,000, compared to income of $35,000 and expense of $41,000 in the
second quarter of Fiscal 2003. Improvement is a result of higher average cash
balances during the quarter coupled with seasonal borrowings beginning at a
later date than last year, related to lower inventory levels as compared to the
prior year.


Six Months Ended July 31, 2004 and August 2, 2003

Net revenue was $246.1 million for the six months ended July 31, 2004
compared to $249.5 million for the six months ended August 2, 2003, a decrease
of 1%. Same store sales declined 13% for the year-to-date as we anniversaried
same store sales gains of 25% in the first half of the prior year. Sales
declines were largely the result of a lack of freshness in merchandise mix due
to decisions made in the fall of Fiscal 2003 that led to excess inventory on
hand as of the end of Fiscal 2003. Same store sales declines in the current
period were partially offset by sales from new stores, net of closings, and
growth from the Internet and Bailey Street. New stores accounted for revenues
of $44.9 million during the first half of Fiscal 2004, and stores closed
through the second quarter contributed revenues of $21.8 million in the same
period last year. Revenues from non-store activity, including Internet, mail
order, International and Bailey Street, accounted for 9% of sales for the year-
to-date period compared to 8% last year.




14

The following table outlines the sales mix by product category for the six
month periods ended July 31, 2004 and August 2, 2003:



Six Months Ended

July 31, August 2,
2004 2003
Sales mix:
Large furniture 35% 33%
Occasional furniture 17 19
Wall d{e'}cor 14 14
Accessories 34 34
100% 100%




Growth in BombayKIDS helped drive the increased penetration of large
furniture during the period. The average ticket declined 6% during the year-
to-date while the number of total transactions, including those from new
stores, increased 4%. On a geographical basis, all regions of the United
States and Canada reported same store sales declines within a relatively tight
range, compared to last year's strong double-digit same store sales increases.

Cost of sales, including buying and occupancy costs, was $188.7 million, or
76.7% of revenue, for the six months compared to $180.8 million, or 72.4%, for
the same period last year. The higher costs as a percentage of revenue were
due primarily to the negative impact of the increase in fixed costs in
conjunction with same store sales declines. Buying and occupancy costs were
300 basis points higher than last year, at 22.2% of revenue, compared to 19.2%
in the first six months of Fiscal 2003. Store occupancy costs increased 13%
while retail square footage increased 18% due to new store openings in larger,
off-mall locations. Buying costs increased 30 basis points, and product
margins declined 130 basis points for the year-to-date due primarily to higher
logistics costs measured against a lower sales volume.

Selling, general and administrative expenses increased $4.6 million to $76.9
million compared to $72.3 million for the comparable period of the prior year.
As a percentage of revenue, selling, general and administrative expenses were
31.2% for the six months ended July 31, 2004 and 29.0% for the six months ended
August 2, 2003. Store four-wall costs increased $3.3 million related primarily
to a $2.0 million increase in store payroll, resulting from the 12% increase in
store count, and a $1.0 million increase in telecommunication costs, primarily
related to the costs of the broadband network installed last fall in U.S.
stores. As a percentage of revenue, store four-wall costs increased 150 basis
points as same store sales declines resulted in deleveraging fixed costs at the
store level. Marketing and visual merchandising costs increased $1.0 million,
or 50 basis points, primarily as a result of an increase in the number of
markets receiving the monthly Sunday newspaper inserts for both the Bombay and
BombayKIDS operations. Corporate general and administrative expenses increased
$.3 million or 30 basis points. Insurance and taxes were $1.6 million higher,
principally related to higher self-insured medical costs. Payroll costs
increased $.8 million as a result of additional infrastructure investments and
severance costs associated with vice president level changes made to reflect
the current needs of the business. Additionally, professional services rose by
$.5 million, reflecting higher legal, accounting and Internet consulting costs.
These increases were substantially offset by a decline in depreciation and
amortization resulting primarily from accelerated amortization taken in Fiscal
2003 associated with the retirement of the old point-of-sale system and the
lack of accrual for performance-based incentive compensation for senior
management.
15


For the year-to-date July 31, 2004, interest income was $39,000 and interest
expense was $4,000, compared to income of $178,000 and expense of $42,000 in
the first half of Fiscal 2003. The decrease in interest income is the result
of lower average cash balances in the current year, particularly in the first
quarter, related to higher average inventory levels in the earlier part of the
period. Lower expense is a result of beginning seasonal borrowings later in
the current period than during last year, as a result of lowering inventory
levels and later timing of seasonal inventory build-up in the current year.

Liquidity and Capital Resources

The primary sources of liquidity and capital resources are cash flows from
operations and a line of credit. We currently have an unsecured, revolving
credit agreement with a group of banks, with an aggregate commitment of up to
$75 million for working capital and letter of credit purposes. Availability
under the credit facility is limited to the lesser of $75 million or 45% of
eligible inventory, as defined by the credit agreement. At July 31, 2004, the
bank commitment was $61.3 million, with letters of credit and borrowings
outstanding totaling $12.0 million and $2.2 million, respectively, leaving
$47.1 million available for borrowings or additional letters of credit. The
credit facility, which expires July 5, 2005, gives us the option to request an
increase in the aggregate commitment to $100 million, subject to approval by
the banks, through the addition of another lending bank or increased commitment
by the existing lending banks. At July 31, 2004, we failed to satisfy two
financial covenants, the Fixed Charge Coverage Ratio and the Leverage Ratio, as
such terms are defined by the credit agreement, a copy of which is on file with
the SEC. The banks were promptly notified and have provided written waiver of
such deficiencies that are effective through September 30, 2004.

We have signed a letter of intent to replace the current credit facility with
a new, secured, revolving credit facility with a commitment of up to $175
million in order to finance the growing need for working capital as we continue
to open stores. We are in the process of negotiating the final agreement and
expect to execute the new facility on or before September 30, 2004. Our long-
term strategy is to utilize our credit facility to finance seasonal borrowings
and to utilize cash flow from operations and our balance sheet to finance our
capital programs.

At July 31, 2004, inventory levels were $136.6 million compared to $161.8
million at August 2, 2003. On a per store basis, inventory declined 25% to
$289,000 from August 2, 2003. Inventory levels last year were higher than
required as a result of our focus on being in-stock for the duration of each
promotional event, and to support forecasted double-digit same store sales
increases. The decrease in inventory level on a per store basis this year is
consistent with our plans to improve inventory turns from 2.2 times in Fiscal
2003 to 2.4 times during Fiscal 2004, and with more conservative sales
forecasts in the current year.

During the first six months of Fiscal 2004, we opened 14 large format Bombay
stores and five BombayKIDS stores. Eighteen stores were closed during the
period. As of the end of the second quarter, we had 364 large format stores,
22 regular stores, 46 outlets and 40 BombayKIDS stores for a total of 472
stores. During the remainder of Fiscal 2004, we plan to open 45 to 50 stores,
including approximately 10 to 11 BombayKIDS locations.

Our capital expenditures plan, net of landlord construction allowances, for
Fiscal 2004 is expected to total approximately $30 million for the year and
includes the cost of opening new stores, migrating stores from mall to off-
mall, expanding our distribution facilities in the northeast and rolling out
our new point-of-sales system and broadband communications to our Canadian
operations. We believe that our current cash position, cash flow from
operations and the proposed, expanded, credit facility will be sufficient to
fund our operations and capital expenditure programs during the current year.


16


THE BOMBAY COMPANY, INC. AND SUBSIDIARIES


Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of July 31, 2004, the Company does not have any market risk sensitive
instruments.


Item 4. Controls and Procedures

Pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, an
evaluation was performed under the supervision and with the participation of
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Company's management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that the Company's disclosure controls and procedures were effective in
alerting them in a timely fashion to material information relating to the
Company that is required to be included in periodic filings with the Securities
and Exchange Commission. In conjunction with its preparation toward compliance
with Section 404 of the Sarbanes-Oxley Act of 2002, the Company is in the
process of implementing certain enhancements with respect to its internal
control over financial reporting. Specifically, the Company is enhancing
segregation of duties within its information technology systems and further
restricting system access. These matters have been discussed with the
Company's independent accountants, with the Audit and Finance Committee and
with the Board of Directors of the Company. Management, including the Chief
Executive Officer and Chief Financial Officer, expects that these enhancements
will be in place by October 30, 2004.









17




THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION


Item 4. Submission of Matters to a Vote of Security Holders

(a) The Annual Meeting of Shareholders of the Company was held on May 26,
2004.

(b) Directors elected to hold office are listed in the attached Proxy
Statement, which is incorporated herein by reference.

Directors elected:Paul J. Raffin, Julie L. Reinganum and Bruce R. Smith
Continuing directors:James D. Carreker, John H. Costello, Susan T.
Groenteman, Laurie M. Shahon and Nigel Travis

(c)
(i) Election of directors:

Name For Withheld
Paul J. Raffin 31,212,196 1,017,431
Julie L. Reinganum 31,108,074 1,121,553
Bruce R. Smith 31,182,708 1,046,919

(ii) Ratify PricewaterhouseCoopers LLP as independent auditors:

For Against Abstain
31,769,459 389,796 70,373










18





Item 6. Exhibits and Reports on Form 8-K

(a) The Exhibits filed as a part of this report are listed below.

Exhibit No. Description

10 (a) Restricted Stock Agreement with
Executive Officer

10 (b) Employment Agreement with Executive
Officer

31(a) Certification by Chief Executive
Officer Pursuant to Rule 13a-15 and
Rule 15d-15 of The Securities Exchange
Act of 1934, as amended

31(b) Certification by Chief Financial
Officer Pursuant to Rule 13a-15 and
Rule 15d-15 of The Securities Exchange
Act of 1934, as amended

32 Certifications of Registrant Pursuant
to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) On May 20, 2004, the Company filed a Form 8-K reporting the results of
its earnings for the first
fiscal quarter ended May 1, 2004.

On May 24, 2004, the Company filed a Form 8-K related to FD disclosure
regarding its Internet business relationship.















19






THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

THE BOMBAY COMPANY, INC.
(Registrant)



/S/ JAMES D. CARREKER
Date: September 8, 2004 James D. Carreker
Chairman of the Board and
Chief Executive Officer





/S/ ELAINE D. CROWLEY
Date: September 8, 2004 Elaine D. Crowley
Senior Vice President, Chief
Financial Officer and Treasurer
























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