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WALNUT CREEK, CA, Wednesday, August 20, 2003
Westaff, Inc. (NASDAQ: WSTF), a leading provider of temporary light industrial, clerical/administrative and call center staff, today reported financial results for its third fiscal quarter, which ended July 12, 2003.

Revenues for the third quarter of fiscal 2003 were $117.1 million, up sequentially from $116.4 million in the second quarter of 2003, but down $2.0 million, or 1.6%, from the third quarter of fiscal 2002. Domestic revenues decreased 5.9% from the prior year quarter primarily due to a reduction in sales for some higher volume, low margin government business as well as softness in the domestic economy. Revenues for international operations increased 19.0%. Excluding the effect of exchange rate fluctuations, international revenues increased 3.4% for the quarter.

Gross margin was 17.6% for the 2003 fiscal quarter as compared to 18.5% for the same quarter of fiscal 2002. The lower gross margin reflects the intensely competitive pricing environment in the domestic temporary staffing industry, which continues as a result of a soft U.S. economy, combined with increased workers' compensation and state unemployment insurance costs.

"We had anticipated that our third quarter revenues would be below those of the comparable 2002 quarter," commented Westaff President and CEO Dwight S. Pedersen "and are concentrating our efforts on positioning the domestic operations for growth as the economy improves. I am pleased with the improvements in our international operations and am anticipating continued growth in that arena.

"Our focus on our Permanent Placement programs as one means of improving gross margins has shown initial success, and we have increased revenues from these programs sequentially quarter over quarter during fiscal 2003. In addition, our Trak products continue to elicit very positive feedback from our customers and have helped us win some significant accounts. We believe that we are well positioned to take advantage of future economic growth."

Selling and administrative expenses for the third quarter of fiscal 2003 were $16.0 million compared to $16.7 million in the fiscal 2002 quarter. As a percentage of revenues, selling and administrative expenses were down from 14.1% in the fiscal 2002 quarter to 13.7% in fiscal 2003. The Company reported an operating loss from continuing operations of $0.4 million for the third quarter of fiscal 2003 as compared to operating income from continuing operations of $0.4 million for the 2002 quarter. The current quarter's operating loss from continuing operations has been reduced by $1.9 million as compared to the second quarter of fiscal 2003, primarily reflecting the positive effects of the Company's cost containment initiatives.

"We are benefiting from the results of our concerted efforts to reduce costs and improve productivity," continued Mr. Pedersen "and are very enthusiastic about the responses we are receiving from those field offices which have migrated to our new proprietary front-office operating system. As of August 20, 40 offices are now operating on the new system and are reporting significant productivity improvements in timecard processing."

For the 36 weeks ended July 12, 2003, revenues were $351.4 million, with an operating loss from continuing operations of $2.9 million. This compares with revenues of $335.8 million and an operating loss from continuing operations of $5.1 million in the fiscal 2002 period. The fiscal 2002 loss includes restructuring charges of $1.9 million.

During the current fiscal quarter, the Company successfully negotiated an amendment to its Multicurrency Credit Agreement which reset certain financial covenants and waived covenant violations existing at the end of the second quarter. As of the end of the third quarter of fiscal 2003, the Company's Australian subsidiary was not in compliance with certain financial covenants within the Australian credit facility. The Company is working with its Australian lenders to obtain waivers for these covenants and expects to complete this process promptly. As of July 12, 2003, the Company had $2.8 million outstanding under the Australia credit facility.

Westaff provides staffing services and employment opportunities for businesses in global markets. Westaff annually employs approximately 150,000 people and services more than 15,000 client accounts from more than 280 offices located throughout the U.S., the United Kingdom, Australia, New Zealand, Norway and Denmark. For more information, lease visit our Web site at www.westaff.com.

This press release contains forward-looking statements as defined in the Securities Exchange Act of 1934, and is subject to the safe harbors created by law. Forward-looking statements contained herein include, but are not limited to, the statements of Mr. Pedersen regarding sales, margins, programs, products, costs and the prospects for fiscal 2003. The forward-looking statements contained herein involve a number of assumptions, risks and uncertainties. Actual results of future events could differ materially from estimates. Among the factors affecting future operating results are: possible adverse effects of fluctuations in the general economy, variability of employee-related costs including workers' compensation liabilities and unemployment insurance costs, compliance with debt covenants, liquidity, reliance on executive management, uncertain ability to continue and manage growth, control by a significant shareholder, reliance on management information systems, risks related to international operations, risks related to customers, variability of operating results and the seasonality of the business cycle, ability to attract and retain the services of qualified temporary personnel, a highly competitive market, reliance on field management, employer liability risks and risks related to franchise agent and licensed operations.

Forward-looking statements are based on the beliefs and assumptions of the Company's management and on currently available information. The Company undertakes no responsibility to publicly update or revise any forward-looking statement. Additional information concerning the risks and uncertainties listed above, and other factors you may wish to consider, are contained in the Company's filings with the Securities and Exchange Commission, including the Company's most recent Form 10-K, Form 10-Q, Form 8-K and other filings.