##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 29, 2009

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: 001-33048

Bare Escentuals, Inc.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-1062857                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

71 Stevenson Street, 22ndFloor

San Francisco, CA 94105

(Address of principal executive offices with zip code)

(415) 489-5000

(Registrants telephone number, including area code)

N/A

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈ (registrant is not yet required to provide financial disclosure in an Interactive Data File format, but has been providing the information in this format
voluntarily)    No   ̈

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check one):



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large accelerated filer  x |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈                      |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    YES   ̈    NO  x

At April 29, 2009, the number of shares outstanding of the registrants common stock, $0.001 par value, was 91,945,457.









---

##### Table of Contents

Table of Contents

Bare Escentuals, Inc.

INDEX



|                             |  |                                                                                                        |  |   
|---------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | --
|PART IFINANCIAL INFORMATION |  | 3                                                                                                     
|                             |  |                                                                                                       
|Item 1                       |  | Financial Statements (unaudited):                                                                      |  | 3 
|                             |  | Condensed Consolidated Balance Sheets  March 29, 2009 and December 28, 2008                           |  | 3 
|                             |  | Condensed Consolidated Statements of Income  Three Months Ended March 29, 2009 and March 30,
2008     |  | 4 
|                             |  | Condensed Consolidated Statements of Cash Flows  Three Months Ended March 29, 2009 and March 30,
2008 |  | 5 
|                             |  | Notes to Condensed Consolidated Financial Statements                                                   |  | 6 
|Item 2                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 19
|Item 3                       |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 27
|Item 4                       |  | Controls and Procedures                                                                                |  | 27
|                             | 
|PART IIOTHER INFORMATION    |  | 28                                                                                                    
|                             |  |                                                                                                       
|Item 1                       |  | Legal Proceedings                                                                                      |  | 28
|Item 1A                      |  | Risk Factors                                                                                           |  | 28
|Item 2                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                            |  | 28
|Item 3                       |  | Defaults Upon Senior Securities                                                                        |  | 28
|Item 4                       |  | Submission of Matters to a Vote of Security Holders                                                    |  | 28
|Item 5                       |  | Other Information                                                                                      |  | 28
|Item 6                       |  | Exhibits                                                                                               |  | 29
|Signatures                   |  | 30                                                                                                    
|Certifications               |  |                                                                                                       



2



---

##### Table of Contents

PART IFINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

BARE ESCENTUALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)





|                                                                                                                                                                 |  |               |          |   |                     |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ------------------- | - | -------- | -
|                                                                                                                                                                 |  | March 29,2009 |          |   | December 28,2008(a) |  
|                                                                                                                                                                 |  | (unaudited)   |          |   |                     |  
|ASSETS                                                                                                                                                           |  |               |          |   |                     |   |          |  
|Current assets:                                                                                                                                                  |  |               |          |   |                     |   |          |  
|Cash and cash equivalents                                                                                                                                        |  | $             | 61,307   |   |                     | $ | 47,974   |  
|Inventories                                                                                                                                                      |  |               | 87,729   |   |                     |   | 92,576   |  
|Accounts receivable, net of allowances of $5,941 and $8,930 at March 29, 2009 and December 28, 2008,
respectively                                                |  |               | 32,473   |   |                     |   | 42,304   |  
|Prepaid expenses and other current assets                                                                                                                        |  |               | 10,062   |   |                     |   | 10,302   |  
|Prepaid income taxes                                                                                                                                             |  |               | 2,658    |   |                     |   |         |  
|Deferred tax assets, net                                                                                                                                         |  |               | 10,011   |   |                     |   | 10,011   |  
|                                                                                                                                                                 |  |               |          |   |                     |   |          |  
|Total current assets                                                                                                                                             |  |               | 204,240  |   |                     |   | 203,167  |  
|Property and equipment, net                                                                                                                                      |  |               | 74,124   |   |                     |   | 71,157   |  
|Goodwill                                                                                                                                                         |  |               | 15,409   |   |                     |   | 15,409   |  
|Intangible assets, net                                                                                                                                           |  |               | 6,201    |   |                     |   | 6,943    |  
|Other assets                                                                                                                                                     |  |               | 2,863    |   |                     |   | 3,105    |  
|                                                                                                                                                                 |  |               |          |   |                     |   |          |  
|Total assets                                                                                                                                                     |  | $             | 302,837  |   |                     | $ | 299,781  |  
|                                                                                                                                                                 |  |               |          |   |                     |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                   |  |               |          |   |                     |   |          |  
|Current liabilities:                                                                                                                                             |  |               |          |   |                     |   |          |  
|Current portion of long-term debt                                                                                                                                |  | $             | 17,216   |   |                     | $ | 17,216   |  
|Accounts payable                                                                                                                                                 |  |               | 11,248   |   |                     |   | 16,534   |  
|Accrued liabilities                                                                                                                                              |  |               | 16,897   |   |                     |   | 20,260   |  
|Income taxes payable                                                                                                                                             |  |               |         |   |                     |   | 3,053    |  
|                                                                                                                                                                 |  |               |          |   |                     |   |          |  
|Total current liabilities                                                                                                                                        |  |               | 45,361   |   |                     |   | 57,063   |  
|Long-term debt, less current portion                                                                                                                             |  |               | 220,364  |   |                     |   | 223,808  |  
|Other liabilities                                                                                                                                                |  |               | 18,806   |   |                     |   | 19,218   |  
|Commitments and contingencies                                                                                                                                    |  |               |          |   |                     |   |          |  
|Stockholders equity (deficit):                                                                                                                                  |  |               |          |   |                     |   |          |  
|Preferred stock; $0.001 par value; 10,000 shares authorized; zero shares issued and outstanding                                                                  |  |               |         |   |                     |   |         |  
|Common stock; $0.001 par value; 200,000 shares authorized; 91,945 and 91,608 shares issued and outstanding at March 29, 2009
and December 28, 2008, respectively |  |               | 92       |   |                     |   | 92       |  
|Additional paid-in capital                                                                                                                                       |  |               | 427,322  |   |                     |   | 425,352  |  
|Accumulated other comprehensive loss                                                                                                                             |  |               | (4,200   | ) |                     |   | (4,155   | )
|Accumulated deficit                                                                                                                                              |  |               | (404,908 | ) |                     |   | (421,597 | )
|                                                                                                                                                                 |  |               |          |   |                     |   |          |  
|Total stockholders equity (deficit)                                                                                                                             |  |               | 18,306   |   |                     |   | (308     | )
|                                                                                                                                                                 |  |               |          |   |                     |   |          |  
|Total liabilities and stockholders equity (deficit)                                                                                                             |  | $             | 302,837  |   |                     | $ | 299,781  |  
|                                                                                                                                                                 |  |               |          |   |                     |   |          |  



|(a) | Condensed consolidated balance sheet as of December 28, 2008 has been derived from the audited consolidated financial statements as of that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes.



3



---

##### Table of Contents

BARE ESCENTUALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)



|                                                                               |  |                    |         |   |               |   |         |  
|------------------------------------------------------------------------------ |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                                                                               |  | Three months ended |        
|                                                                               |  | March 29,2009      |         |   | March 30,2008 |  
|                                                                               |  | (unaudited)        |        
|Sales, net                                                                     |  | $                  | 124,253 |   |               | $ | 140,358 |  
|Cost of goods sold                                                             |  |                    | 33,337  |   |               |   | 38,657  |  
|                                                                               |  |                    |         |   |               |   |         |  
|Gross profit                                                                   |  |                    | 90,916  |   |               |   | 101,701 |  
|Expenses:                                                                      |  |                    |         |   |               |   |         |  
|Selling, general and administrative                                            |  |                    | 54,062  |   |               |   | 50,464  |  
|Depreciation and amortization, relating to selling, general and administrative |  |                    | 4,094   |   |               |   | 2,621   |  
|Stock-based compensation, relating to selling, general and administrative      |  |                    | 1,471   |   |               |   | 1,912   |  
|                                                                               |  |                    |         |   |               |   |         |  
|Operating income                                                               |  |                    | 31,289  |   |               |   | 46,704  |  
|Interest expense                                                               |  |                    | (2,789  | ) |               |   | (4,644  | )
|Other (expense) income, net                                                    |  |                    | (438    | ) |               |   | 707     |  
|                                                                               |  |                    |         |   |               |   |         |  
|Income before provision for income taxes                                       |  |                    | 28,062  |   |               |   | 42,767  |  
|Provision for income taxes                                                     |  |                    | 11,373  |   |               |   | 16,984  |  
|                                                                               |  |                    |         |   |               |   |         |  
|Net income                                                                     |  | $                  | 16,689  |   |               | $ | 25,783  |  
|                                                                               |  |                    |         |   |               |   |         |  
|Net income per share:                                                          |  |                    |         |   |               |   |         |  
|Basic                                                                          |  | $                  | 0.18    |   |               | $ | 0.28    |  
|                                                                               |  |                    |         |   |               |   |         |  
|Diluted                                                                        |  | $                  | 0.18    |   |               | $ | 0.28    |  
|                                                                               |  |                    |         |   |               |   |         |  
|Weighted-average shares used in per share calculations:                        |  |                    |         |   |               |   |         |  
|Basic                                                                          |  |                    | 91,687  |   |               |   | 91,260  |  
|                                                                               |  |                    |         |   |               |   |         |  
|Diluted                                                                        |  |                    | 92,876  |   |               |   | 93,277  |  
|                                                                               |  |                    |         |   |               |   |         |  

See accompanying notes.



4



---

##### Table of Contents

BARE ESCENTUALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                       |  |                    |        |   |               |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------- | -
|                                                                                       |  | Three months ended |       
|                                                                                       |  | March 29,2009      |        |   | March 28,2008 |  
|                                                                                       |  | (unaudited)        |       
|Operating activities                                                                   |  |                    |        |   |               |   |         |  
|Net income                                                                             |  | $                  | 16,689 |   |               | $ | 25,783  |  
|Adjustments to reconcile net income to net cash provided by operating activities:      |  |                    |        |   |               |   |         |  
|Depreciation of property and equipment                                                 |  |                    | 3,352  |   |               |   | 1,881   |  
|Amortization of intangible assets                                                      |  |                    | 742    |   |               |   | 740     |  
|Amortization of debt issuance costs                                                    |  |                    | 54     |   |               |   | 67      |  
|Stock-based compensation                                                               |  |                    | 1,471  |   |               |   | 1,912   |  
|Excess tax benefit from stock option exercises and disqualifying disposition of shares |  |                    | (69    | ) |               |   | (1,180  | )
|Deferred income tax benefit                                                            |  |                    | (388   | ) |               |   | (343    | )
|Loss on disposal of property and equipment                                             |  |                    | 120    |   |               |   |        |  
|Changes in assets and liabilities:                                                     |  |                    |        |   |               |   |         |  
|Inventories                                                                            |  |                    | 4,341  |   |               |   | (9,926  | )
|Accounts receivable                                                                    |  |                    | 9,780  |   |               |   | 5,523   |  
|Income taxes                                                                           |  |                    | (5,335 | ) |               |   | 588     |  
|Prepaid expenses and other current assets                                              |  |                    | 233    |   |               |   | 224     |  
|Other assets                                                                           |  |                    | 186    |   |               |   | 9       |  
|Accounts payable and accrued liabilities                                               |  |                    | (8,534 | ) |               |   | (4,080  | )
|Other liabilities                                                                      |  |                    | 502    |   |               |   | 101     |  
|                                                                                       |  |                    |        |   |               |   |         |  
|Net cash provided by operating activities                                              |  |                    | 23,144 |   |               |   | 21,299  |  
|Investing activities                                                                   |  |                    |        |   |               |   |         |  
|Purchase of property and equipment                                                     |  |                    | (6,469 | ) |               |   | (5,532  | )
|Proceeds from sale of property and equipment                                           |  |                    |       |   |               |   | 1,299   |  
|                                                                                       |  |                    |        |   |               |   |         |  
|Net cash used in investing activities                                                  |  |                    | (6,469 | ) |               |   | (4,233  | )
|Financing activities                                                                   |  |                    |        |   |               |   |         |  
|Repayments on First Lien Term Loan                                                     |  |                    | (3,444 | ) |               |   | (13,580 | )
|Excess tax benefit from stock option exercises                                         |  |                    | 69     |   |               |   | 1,180   |  
|Exercise of stock options                                                              |  |                    | 137    |   |               |   | 940     |  
|                                                                                       |  |                    |        |   |               |   |         |  
|Net cash used in financing activities                                                  |  |                    | (3,238 | ) |               |   | (11,460 | )
|Effect of foreign currency exchange rate changes on cash                               |  |                    | (104   | ) |               |   | (61     | )
|                                                                                       |  |                    |        |   |               |   |         |  
|Net increase in cash and cash equivalents                                              |  |                    | 13,333 |   |               |   | 5,545   |  
|Cash and cash equivalents, beginning of period                                         |  |                    | 47,974 |   |               |   | 32,117  |  
|                                                                                       |  |                    |        |   |               |   |         |  
|Cash and cash equivalents, end of period                                               |  | $                  | 61,307 |   |               | $ | 37,662  |  
|                                                                                       |  |                    |        |   |               |   |         |  
|Supplemental disclosure of cash flow information                                       |  |                    |        |   |               |   |         |  
|Cash paid for interest                                                                 |  | $                  | 1,601  |   |               | $ | 4,300   |  
|                                                                                       |  |                    |        |   |               |   |         |  
|Cash paid for income taxes                                                             |  | $                  | 17,072 |   |               | $ | 14,895  |  
|                                                                                       |  |                    |        |   |               |   |         |  

See accompanying notes.



5



---

##### Table of Contents

BARE ESCENTUALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



|1. | Business
|-- | --------

Bare Escentuals, Inc., together
with its subsidiaries (Bare Escentuals or the Company), develops, markets, and sells branded cosmetics, skin care and body care products under the bareMinerals, RareMinerals, Buxom and md formulations
brands. The bareMinerals cosmetics, particularly the core foundation products which are mineral-based, offer a highly differentiated, healthy alternative to conventional cosmetics. The Company uses a multi-channel distribution model utilizing
traditional retail distribution channels consisting of premium wholesale customers including Sephora, Ulta and select department stores; company-owned boutiques; and spas and salons; as well as direct to consumer media distribution channels
consisting of home shopping television on QVC; infomercials; and online shopping. The Company also sells products internationally in the United Kingdom, Japan, France, Germany and Canada as well as in smaller international markets via distributors.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

The
Companys significant accounting policies are disclosed in Note 2 in the Companys Form 10-K for the year ended December 28, 2008. The Companys significant accounting policies have not changed significantly as of
March 29, 2009.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 29, 2009, the condensed consolidated statements of income for the three months ended March 29, 2009 and March 30, 2008, and the
condensed consolidated statements of cash flows for the three months ended March 29, 2009 and March 30, 2008, are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial information, Form 10-Q and Article 10 of Regulation S-X. In the opinion of the Companys management, the unaudited interim condensed consolidated financial statements have
been prepared on the same basis as the annual consolidated financial statements and include all adjustments of a normal recurring nature necessary for the fair presentation of the Companys financial position as of March 29, 2009, its
results of operations for the three months ended March 29, 2009 and March 30, 2008, and its cash flows for the three months ended March 29, 2009 and March 30, 2008. The results for the interim periods are not necessarily
indicative of the results to be expected for any future period or for the fiscal year ending January 3, 2010.

These unaudited interim
condensed consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and related notes included in the Companys 2008 Annual Report on Form 10-K filed with the SEC on
February 26, 2009.

Fiscal Quarter

The Companys fiscal quarters end on the Sunday closest to March 31, June 30, September 30 and December 31. The three months ended March 29, 2009 and March 30, 2008 each contained 13 weeks.

Concentration of Credit Risk and Credit Risk Evaluation

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents are held by or invested in
various financial institutions with high credit standing and as such, Management believes that minimal credit risk exists with respect to these balances.

Sales generated through credit card purchases for the three months ended March 29, 2009 and March 30, 2008 were approximately 48.1% and 45.6% of total net sales, respectively. The Company uses a third party
to collect its credit card sales and, as a consequence, believes that its credit risks related to these channels of distribution are limited. The Company performs ongoing credit evaluations of its third-party resellers not paying by credit card.
Generally, the Company does not require collateral. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection using specific identification of doubtful accounts and an
aging of receivables analysis based on invoice due dates. Actual collection losses may differ from managements estimates, and such differences could be material to the Companys consolidated financial position, results of operations, and
cash flows. Uncollectible receivables are written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted, and recoveries are recognized when they are received. Generally, accounts receivable are past due
after 30 days of an invoice date unless special payment terms are provided.



6



---

##### Table of Contents

The table below sets forth the percentage of consolidated accounts receivable, net for customers who
represented 10% or more of consolidated accounts receivable:



|           |  |               |   |  |                  |  
|---------- |  | ------------- | - |  | ---------------- | -
|           |  | March 29,2009 |   |  | December 28,2008 |  
|Customer A |  | 12            | % |  | 15               | %
|Customer B |  | 25            | % |  | 19               | %
|Customer C |  | 23            | % |  | 39               | %

The table below sets forth the percentage of consolidated sales, net for customers who represented
10% or more of consolidated net sales:



|           |  |                    |    |  |               |  
|---------- |  | ------------------ | -- |  | ------------- | -
|           |  | Three months ended |   
|           |  | March 29,2009      |    |  | March 30,2008 |  
|Customer A |  |                   | %* |  | 13            | %
|Customer B |  | 13                 | %  |  | 13            | %
|Customer C |  | 11                 | %  |  | 16            | %



|* | Represents less than 10%
|- | ------------------------

As of March 29, 2009 and
December 28, 2008, the Company had no off-balance sheet concentrations of credit risk.

Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Certain Hedging Activities, as amended (Statement 133), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts,
and for hedging activities. Statement 133 also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they are measured at fair value. On December 29, 2009, the Company adopted
Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB No. 133(Statement 161), which supplements the required disclosures under
Statement 133 and its related interpretations.

Earnings per Share

A calculation of earnings per share, as reported is as follows (in thousands, except per share data):



|                                                                        |  |                    |        |               |   |       
|----------------------------------------------------------------------- |  | ------------------ | ------ | ------------- | - | ------
|                                                                        |  | Three months ended
|                                                                        |  | March 29,2009      |        | March 30,2008
|Numerator:                                                              |  |                    |        |               |   |       
|Net income                                                              |  | $                  | 16,689 |               | $ | 25,783
|                                                                        |  |                    |        |               |   |       
|Denominator:                                                            |  |                    |        |               |   |       
|Weighted average common shares used in per share calculations  basic   |  |                    | 91,687 |               |   | 91,260
|Add: Common stock equivalents from exercise of stock options            |  |                    | 1,189  |               |   | 2,017 
|                                                                        |  |                    |        |               |   |       
|Weighted-average common shares used in per share calculations  diluted |  |                    | 92,876 |               |   | 93,277
|                                                                        |  |                    |        |               |   |       
|Net income per share                                                    |  |                    |        |               |   |       
|Basic                                                                   |  | $                  | 0.18   |               | $ | 0.28  
|                                                                        |  |                    |        |               |   |       
|Diluted                                                                 |  | $                  | 0.18   |               | $ | 0.28  
|                                                                        |  |                    |        |               |   |       

For the three months ended March 29, 2009 and March 30, 2008, options to purchase
2,158,198 and 408,975 shares of common stock, respectively, were excluded from the calculation of weighted average shares for diluted net income per share as their impact was anti-dilutive.



7



---

##### Table of Contents

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustments and changes in unrealized gains or losses on
interest rate swap, net of tax.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform to the current year presentation. In the fourth quarter of fiscal 2008, the Company changed its operating segments and historical segment
financial information presented have been revised to reflect these new operating segments (Note 17).

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. Statement 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement 157 also applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new
fair value measurements. For financial assets and liabilities, the provisions of Statement 157 are effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. 157-2,
Effective Date of FASB Statement No. 157, which amends Statement 157 by delaying the effective date of Statement 157 to fiscal years ending after November 15, 2008 for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted Statement 157 on December 31, 2007 for financial assets and financial liabilities and on December 29, 2008 for nonfinancial assets
and liabilities. It did not have any impact on the Companys results of operations or financial position (Note 14).

In December 2007,
the FASB issued SFAS No. 141 (Revised 2007), Business Combinations.Statement 141(R) will significantly change the accounting for future business combinations after adoption. Statement 141(R) establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non controlling interest in the acquired business. Statement 141(R) also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Statement
141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted Statement 141(R) on December 29, 2008, as required. It did
not have any impact on the Companys results of operations or financial position.

In March 2008, the FASB issued Statement 161
which amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of: 1) How and why an entity uses derivative instruments; 2) How derivative instruments and
related hedged items are accounted for under Statement 133 and its related interpretations and 3) How derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. This statement is
effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted Statement 161 on December 29, 2008. The adoption of Statement 161 had no financial impact on the
financial position or results of operations as it is disclosure-only in nature.

In January 2009, the FASB released Proposed Staff Position
SFAS 107-b and Accounting Principles Board (APB) Opinion No. 28-a, Interim Disclosures about Fair Value of Financial Instruments (SFAS 107-b and APB 28-a). This proposal amends Statement 107, Disclosures about Fair Values of
Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The proposal also amends APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in all interim financial statements. This proposal is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15,
2009. The Company plans to adopt SFAS 107-b and APB 28-a and provide the additional disclosure requirements for the second quarter of 2009.



|3. | Acquisition
|-- | -----------

On April 3, 2007, the Company
completed its acquisition of U.K.-based Cosmeceuticals Limited (Cosmeceuticals), which distributed Bare Escentuals bareMinerals, md formulations and MD Forte brands primarily to spas and salons and QVC
U.K. The acquired entity has been renamed Bare Escentuals U.K. Ltd. The Companys primary reason for the acquisition was to reacquire its distribution rights and to expand its market share. The consideration for the purchase was cash of
$23.1 million, comprised of $22.4 million in cash consideration and $0.7 million of transaction costs. The Companys consolidated financial statements include the operating results of the business acquired from the date of
acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material.



8



---

##### Table of Contents

The total purchase price of $23.1 million was allocated as follows: $12.6 million to goodwill
included as corporate assets (not deductible for income tax purposes), $8.9 million to identifiable intangible assets comprised of customer relationships of $8.0 million and $0.9 million for non-compete agreements, $4.4 million to net
tangible assets acquired, and $2.8 million to deferred tax liability. The estimated useful economic lives of the identifiable intangible assets acquired are three years. The most significant factor that resulted in the recognition of goodwill in the
purchase price allocation was the ability to expand on an accelerated basis into trade areas beyond the acquired distribution rights.

During the three months ended March 30, 2008, the Company sold $1.3 million of the net tangible assets acquired to a third party for proceeds of $1.3 million. There was no gain or loss recorded in this transaction.



|4. | Comprehensive Income
|-- | --------------------

The components of
comprehensive income were as follows (in thousands):



|                                                         |  |                    |        |   |               |   |        |  
|-------------------------------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | -
|                                                         |  | Three months ended |       
|                                                         |  | March 29,2009      |        |   | March 30,2008 |  
|Net income                                               |  | $                  | 16,689 |   |               | $ | 25,783 |  
|Foreign currency translation adjustments, net of tax     |  |                    | (584   | ) |               |   | (61    | )
|Unrealized gain (loss) on interest rate swap, net of tax |  |                    | 539    |   |               |   | (1,468 | )
|                                                         |  |                    |        |   |               |   |        |  
|Comprehensive income                                     |  | $                  | 16,644 |   |               | $ | 24,254 |  
|                                                         |  |                    |        |   |               |   |        |  

The components of accumulated other comprehensive loss were as follows (in thousands):



|                                                     |  |               |        |   |                  |   |        |  
|---------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                     |  | March 29,2009 |        |   | December 28,2008 |  
|Foreign currency translation adjustments, net of tax |  | $             | (3,076 | ) |                  | $ | (2,492 | )
|Unrealized loss on interest rate swap, net of tax    |  |               | (1,124 | ) |                  |   | (1,663 | )
|                                                     |  |               |        |   |                  |   |        |  
|Total accumulated other comprehensive loss           |  | $             | (4,200 | ) |                  | $ | (4,155 | )
|                                                     |  |               |        |   |                  |   |        |  



|5. | Inventories
|-- | -----------

Inventories consisted of the following
(in thousands):



|                |  |               |        |                  |   |       
|--------------- |  | ------------- | ------ | ---------------- | - | ------
|                |  | March 29,2009 |        | December 28,2008
|Work in process |  | $             | 14,784 |                  | $ | 14,058
|Finished goods  |  |               | 72,945 |                  |   | 78,518
|                |  |               |        |                  |   |       
|                |  | $             | 87,729 |                  | $ | 92,576
|                |  |               |        |                  |   |       



9



---

##### Table of Contents

|6. | Property and Equipment, Net
|-- | ---------------------------

Property and
equipment, net, consisted of the following (in thousands):



|                            |  |               |         |   |                  |   |         |  
|--------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                            |  | March 29,2009 |         |   | December 28,2008 |  
|Furniture and equipment     |  | $             | 17,136  |   |                  | $ | 16,749  |  
|Computers and software      |  |               | 23,681  |   |                  |   | 22,347  |  
|Leasehold improvements      |  |               | 46,272  |   |                  |   | 45,959  |  
|                            |  |               |         |   |                  |   |         |  
|                            |  |               | 87,089  |   |                  |   | 85,055  |  
|Accumulated depreciation    |  |               | (20,563 | ) |                  |   | (17,285 | )
|                            |  |               |         |   |                  |   |         |  
|                            |  |               | 66,526  |   |                  |   | 67,770  |  
|Construction-in-progress    |  |               | 7,598   |   |                  |   | 3,387   |  
|                            |  |               |         |   |                  |   |         |  
|Property and equipment, net |  | $             | 74,124  |   |                  | $ | 71,157  |  
|                            |  |               |         |   |                  |   |         |  



|7. | Intangible Assets, Net
|-- | ----------------------

Intangible assets, net,
consisted of the following (in thousands):



|                               |  |               |        |   |                  |   |        |  
|------------------------------ |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                               |  | March 29,2009 |        |   | December 28,2008 |  
|Customer relationships         |  | $             | 8,000  |   |                  | $ | 8,000  |  
|Trademarks                     |  |               | 3,233  |   |                  |   | 3,233  |  
|Domestic customer base         |  |               | 939    |   |                  |   | 939    |  
|International distributor base |  |               | 820    |   |                  |   | 820    |  
|Non-compete agreements         |  |               | 900    |   |                  |   | 900    |  
|                               |  |               |        |   |                  |   |        |  
|                               |  |               | 13,892 |   |                  |   | 13,892 |  
|Accumulated amortization       |  |               | (7,691 | ) |                  |   | (6,949 | )
|                               |  |               |        |   |                  |   |        |  
|Intangible assets, net         |  | $             | 6,201  |   |                  | $ | 6,943  |  
|                               |  |               |        |   |                  |   |        |  



|8. | Other Assets
|-- | ------------

Other assets consisted of the
following (in thousands):



|                                                                                                                            |  |               |       |                  |   |      
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                                                                                                            |  | March 29,2009 |       | December 28,2008
|Debt issuance costs, net of accumulated amortization of $624 and $570 at March 29, 2009 and December 28, 2008,
respectively |  | $             | 494   |                  | $ | 548  
|Other assets                                                                                                                |  |               | 2,369 |                  |   | 2,557
|                                                                                                                            |  |               |       |                  |   |      
|                                                                                                                            |  | $             | 2,863 |                  | $ | 3,105
|                                                                                                                            |  |               |       |                  |   |      



|9. | Accrued Liabilities
|-- | -------------------

Accrued liabilities consisted
of the following (in thousands):



|                                     |  |               |        |                  |   |       
|------------------------------------ |  | ------------- | ------ | ---------------- | - | ------
|                                     |  | March 29,2009 |        | December 28,2008
|Employee compensation and benefits   |  | $             | 6,136  |                  | $ | 6,793 
|Gift cards and customer liabilities  |  |               | 2,195  |                  |   | 2,817 
|Royalties                            |  |               | 1,494  |                  |   | 1,646 
|Sales taxes and local business taxes |  |               | 1,389  |                  |   | 1,983 
|Interest                             |  |               | 340    |                  |   | 311   
|Other                                |  |               | 5,343  |                  |   | 6,710 
|                                     |  |               |        |                  |   |       
|                                     |  | $             | 16,897 |                  | $ | 20,260
|                                     |  |               |        |                  |   |       



10



---

##### Table of Contents

|10. | Revolving Lines of Credit
|--- | -------------------------

At March 29, 2009,
$24,680,000 was available under our revolving line of credit (the Revolver) and $320,000 was outstanding in letters of credit. Borrowings under the Revolver bear interest at a rate equal to, at the Companys option, either LIBOR or
the lenders base rate, plus an applicable margin based on a grid in which the pricing depends on the Companys consolidated total leverage ratio and debt rating (2.25% plus LIBOR or 1.25% plus lenders base rate; actual rate of 2.78%
at March 29, 2009 and 2.76% at December 28, 2008). The Company is also required to pay commitment fees of 0.5% per annum on any unused portions of the facility.



|11. | Long-Term Debt
|--- | --------------

Long-term debt consisted of the
following (in thousands):



|                                             |  |               |         |   |                  |   |         |  
|-------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                             |  | March 29,2009 |         |   | December 28,2008 |  
|First Lien Term Loan                         |  | $             | 237,580 |   |                  | $ | 241,024 |  
|Less current portion                         |  |               | (17,216 | ) |                  |   | (17,216 | )
|                                             |  |               |         |   |                  |   |         |  
|Total long-term debt, net of current portion |  | $             | 220,364 |   |                  | $ | 223,808 |  
|                                             |  |               |         |   |                  |   |         |  

First Lien Term Loan

The First Lien Term Loan has an original term of seven years expiring on February 18, 2012 and bears interest at a rate equal to, at the Companys option, either LIBOR or the lenders base rate, plus an
applicable margin varying based on the Companys consolidated total leverage ratio. As of March 29, 2009 and December 28, 2008, the interest rate on the First Lien Term Loan was accruing at 2.78% and 2.76%, respectively (without
giving effect to the interest rate swap agreement).

Borrowings under the Revolver (Note 10) and the First Lien Term Loan are secured by
substantially all of the Companys assets, including, but not limited to, all accounts receivable, inventory, property and equipment, and intangibles. The terms of the senior secured credit facilities require the Company to comply with
financial covenants, including maintaining a leverage ratio and entering into interest rate swap or similar agreements with respect to 40% of the principal amounts outstanding under the Companys senior secured credit facilities as of
October 2, 2007. The secured credit facility also contains nonfinancial covenants that restrict some of the Companys activities, including its ability to dispose of assets, incur additional debt, pay dividends, create liens, make
investments, and engage in specified transactions with affiliates. As of March 29, 2009, the Company was in compliance with its financial and nonfinancial covenants.

Scheduled Maturities of Long-Term Debt

At March 29, 2009, future scheduled principal payments
on long-term debt were as follows (in thousands):



|                                             |  |   |        
|-------------------------------------------- |  | - | -------
|Year ending:                                 |  |   |        
|Remainder of the year ending January 3, 2010 |  | $ | 13,773 
|January 2, 2011                              |  |   | 13,773 
|January 1, 2012                              |  |   | 158,386
|December 30, 2012                            |  |   | 51,648 
|                                             |  |   |        
|                                             |  | $ | 237,580
|                                             |  |   |        



11



---

##### Table of Contents

|12. | Derivative Financial Instruments
|--- | --------------------------------

On
December 29, 2008, the Company adopted Statement 161. The Company is exposed to interest rate risks primarily through borrowings under its senior secured credit facilities. Interest on all of the Companys borrowings under its senior
secured credit facilities is based upon variable interest rates. As of March 29, 2009, the Company had borrowings of $237.6 million outstanding under its senior secured credit facilities which bear interest at a rate equal to, at the
Companys option, either LIBOR or the lenders base rate, plus an applicable margin varying based on the Companys consolidated total leverage ratio. As of March 29, 2009, the interest rate on the First Lien Term Loan was
accruing at 2.78% (without giving effect to the interest rate swap agreement discussed below). At all times after October 2, 2007, the Company is required under its senior secured credit facilities to enter into interest rate swap or similar
agreements with respect to at least 40% of the outstanding principal amount of all loans under its senior loan facilities, unless the Company satisfies specified coverage ratio tests. For the three months ended March 29, 2009, the Company
satisfied these tests.

In August 2007, the Company entered into a two-year interest rate swap agreement under the Companys senior
secured credit facilities. The interest rate swap was designated as a cash flow hedge of future interest payments of LIBOR and had an initial notional amount of $200 million which declined to $100 million after one year under which, on a net
settlement basis, the Company will make monthly fixed rate payments, excluding a margin of 2.25%, at the rate of 5.03% and the counterparty makes monthly floating rate payments based upon one-month U.S. dollar LIBOR. As a result of the interest rate
swap transaction, the Company has fixed for a two-year period the interest rate subject to market based interest rate risk on $200 million of borrowings for the first year and $100 million of borrowings for the second year under its First Lien
Credit Agreement. The Companys obligations under the interest rate swap transaction as to the scheduled payments are guaranteed and secured on the same basis as is its obligations under the First Lien Credit Agreement.

The following table summarizes the fair value and presentation within the unaudited condensed consolidated balance sheets for derivatives designated as
hedging instruments under Statement 133 (in thousands):



|                   |  |                      |  |                  |           |       |                      |                   |  |           |   |      
|------------------ |  | -------------------- |  | ---------------- | --------- | ----- | -------------------- | ----------------- |  | --------- | - | -----
|                   |  | Liability Derivative
|                   |  | March 29,2009        |  | December 28,2008
|                   |  | BalanceSheetLocation |  |                  | FairValue |       | BalanceSheetLocation |                   |  | FairValue
|Interest rate swap |  | Other liabilities    |  |                  | $         | 1,873 |                      | Other liabilities |  |           | $ | 2,752
|                   |  |                      |  |                  |           |       |                      |                   |  |           |   |      

The following table presents the impact of derivative instruments and their location within the
unaudited condensed consolidated statements of income and accumulated other comprehensive income (AOCI) (in thousands):

Derivatives in Statement 133
Cash Flow Hedging Relationships



|                               |  |                                                                         |      |                                                                            |               |                                                                              |               |  |               |   |               |   |               |  |   |   |  |   |  
|------------------------------ |  | ----------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------- | ------------- | ---------------------------------------------------------------------------- | ------------- |  | ------------- | - | ------------- | - | ------------- |  | - | - |  | - | -
|                               |  | Amount of (Gain) LossRecognized in AOCI onDerivative (EffectivePortion) |      | Amount of (Gain) LossReclassified from AOCI intoIncome (Effective Portion) |               | Amount of (Gain) LossRecognized in Income onDerivatives
(IneffectivePortion)
|                               |  | Three months ended                                                      |      | Three months ended                                                         |               | Three months ended                                                          
|                               |  | March 29,2009                                                           |      |                                                                            | March 30,2008 |                                                                              | March 29,2009 |  | March 30,2008 |   | March 29,2009 |   | March 30,2008
|Interest rate swap, net of tax |  | $                                                                       | (539 | )                                                                          |               | $                                                                            | 1,468         |  | $             |  |               | $ |              |  | $ |  |  | $ | 
|                               |  |                                                                         |      |                                                                            |               |                                                                              |               |  |               |   |               |   |               |  |   |   |  |   |  



12



---

##### Table of Contents

|13. | Commitments and Contingencies
|--- | -----------------------------

Lease Commitments

The Company leases retail boutiques, distribution facilities, office space and certain office equipment under non-cancelable operating
leases with various expiration dates through January 2021. Additionally, the Company subleases certain real property to third parties. Portions of these payments are denominated in foreign currencies and were translated in the tables below
based on their respective U.S. dollar exchange rates at March 29, 2009. These future payments are subject to foreign currency exchange rate risk. The future minimum annual payments and anticipated sublease income under such leases in effect at
March 29, 2009, were as follows (in thousands):



|                                             |  |                       |         |                      |   |                         |  |   |        
|-------------------------------------------- |  | --------------------- | ------- | -------------------- | - | ----------------------- |  | - | -------
|                                             |  | MinimumRentalPayments |         | SubleaseRentalIncome |   | NetMinimumLeasePayments
|Year ending:                                 |  |                       |         |                      |   |                         |  |   |        
|Remainder of the year ending January 3, 2010 |  | $                     | 12,728  |                      | $ | 16                      |  | $ | 12,712 
|January 2, 2011                              |  |                       | 18,312  |                      |   | 21                      |  |   | 18,291 
|January 1, 2012                              |  |                       | 18,208  |                      |   | 21                      |  |   | 18,187 
|December 30, 2012                            |  |                       | 18,319  |                      |   | 1                       |  |   | 18,318 
|December 29, 2013                            |  |                       | 18,659  |                      |   |                        |  |   | 18,659 
|Thereafter                                   |  |                       | 80,081  |                      |   |                        |  |   | 80,081 
|                                             |  |                       |         |                      |   |                         |  |   |        
|                                             |  | $                     | 166,307 |                      | $ | 59                      |  | $ | 166,248
|                                             |  |                       |         |                      |   |                         |  |   |        

Many of the Companys retail boutique leases require additional contingent rents when certain
sales volumes are reached. Total rent expense was $6,084,000 and $4,421,000 for the three months ended March 29, 2009 and March 30, 2008, respectively. Total rent expense included contingent rents of $190,000 and $556,000 for the three
months ended March 29, 2009 and March 30, 2008, respectively. Several leases entered into by the Company include options that may extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception.

As of March 29, 2009, under the terms of its corporate office lease, the Company had outstanding an irrevocable standby letter of
credit of $100,000 to the lessor for the term of the lease.

Royalty Agreements

The Company is party to a license agreement (the License) for use of certain patents associated with some of the skin care products sold by
the Company. The License requires that the Company pay a quarterly royalty of 4% of the net sales of certain skin care products for an indefinite period of time. The License also requires minimum annual royalty payments of $600,000 from the Company.
The Company can terminate the agreement at any time with six months written notice. The Companys royalty expense under the License for the three months ended March 29, 2009 and March 30, 2008 was $150,000 and $150,000, respectively.

In March 2009, the Company entered into a new agreement for the license rights to proprietary mineral extraction technology and a limited
exclusive right to purchase certain ingredients based on such technology. The license is exclusive to the Company for a specified period from the date of the agreement in certain defined fields of use and is otherwise nonexclusive for the term of
the agreement. However, the Company has the right to extend the term of the exclusivity in the defined fields of use to the full term of the agreement upon a one-time payment of a specified amount or achievement of a specified level of annual
aggregate gross revenues from the sale of licensed products in the defined fields of use. The Company is required to pay three lump-sum commencement payments over the course of the first year of the term of the agreement. In addition, on a quarterly
basis during the term of the agreement, the Company is required to pay royalties on its net revenue resulting from the sale of products containing the licensed ingredients. Such royalties are not subject to any minimum annual amounts. The new
agreement has an initial term of 10 years. As a result of the new agreement, the Companys previous agreement was terminated. The Companys expense under these agreements for the three months ended March 29, 2009 and March 30,
2008 was $43,000 and $310,000, respectively.

Contingencies

The Company is involved in various legal and administrative proceedings and claims arising in the ordinary course of its business. The ultimate resolution of such claims would not, in the opinion of management, have a
material effect on the Companys financial position or results of operation.



13



---

##### Table of Contents

|14. | Fair Value Measurements
|--- | -----------------------

The Company adopted
Statement 157 as of December 31, 2007 for financial assets and liabilities and as of December 29, 2008 for nonfinancial assets and liabilities. The Company also adopted Statement 159 in which entities are permitted to choose to measure
many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its eligible financial assets or liabilities under FAS 159.

SFAS No. 157 established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:



| |  |  | Level 1  observable inputs such as quoted prices for identical instruments in active markets.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Level 2  inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market
data.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

As of March 29, 2009 and December 28, 2008, the Company held certain assets that are required to be measured
at fair value on a recurring basis. These included the Companys interest rate swap agreement and certain investments associated with the Companys Long-Term Employee-Related Benefits Plan. The fair value of the Companys
interest rate swap agreement is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the interest rate swap as
Level 2. The fair value of the Companys investments associated with its Long-Term Employee-Related Benefits Plan is based primarily on third-party reported net asset values, which is primarily based on quoted market prices of the
underlying assets of the funds and have been categorized as Level 2.

The following table presents the Companys financial assets and
liabilities measured at fair value on a recurring basis as of March 29, 2009 subject to the disclosure requirements of Statement 157 (in thousands):



|                      |  |       |       |                               |   |         |  |         |       |  |   |  
|--------------------- |  | ----- | ----- | ----------------------------- | - | ------- |  | ------- | ----- |  | - | -
|                      |  |       |       | Fair Value Measurements Using
|                      |  | Total |       | Level 1                       |   | Level 2 |  | Level 3
|Other assets:         |  |       |       |                               |   |         |  |         |       |  |   |  
|Deferred compensation |  | $     | 1,156 |                               | $ |        |  | $       | 1,156 |  | $ | 
|                      |  |       |       |                               |   |         |  |         |       |  |   |  
|Other liabilities:    |  |       |       |                               |   |         |  |         |       |  |   |  
|Interest rate swap    |  | $     | 1,873 |                               | $ |        |  | $       | 1,873 |  | $ | 
|Deferred compensation |  |       | 686   |                               |   |        |  |         | 686   |  |   | 
|                      |  |       |       |                               |   |         |  |         |       |  |   |  
|Total liabilities     |  | $     | 2,559 |                               | $ |        |  | $       | 2,559 |  | $ | 
|                      |  |       |       |                               |   |         |  |         |       |  |   |  

The following table presents the Companys financial assets and liabilities measured at fair
value on a recurring basis as of December 28, 2008 subject to the disclosure requirements of Statement 157 (in thousands):



|                      |  |       |       |                               |   |         |  |         |       |  |   |  
|--------------------- |  | ----- | ----- | ----------------------------- | - | ------- |  | ------- | ----- |  | - | -
|                      |  |       |       | Fair Value Measurements Using
|                      |  | Total |       | Level 1                       |   | Level 2 |  | Level 3
|Other assets:         |  |       |       |                               |   |         |  |         |       |  |   |  
|Deferred compensation |  | $     | 1,232 |                               | $ |        |  | $       | 1,232 |  | $ | 
|                      |  |       |       |                               |   |         |  |         |       |  |   |  
|Other liabilities:    |  |       |       |                               |   |         |  |         |       |  |   |  
|Interest rate swap    |  | $     | 2,752 |                               | $ |        |  | $       | 2,752 |  | $ | 
|Deferred compensation |  |       | 886   |                               |   |        |  |         | 886   |  |   | 
|                      |  |       |       |                               |   |         |  |         |       |  |   |  
|Total liabilities     |  | $     | 3,638 |                               | $ |        |  | $       | 3,638 |  | $ | 
|                      |  |       |       |                               |   |         |  |         |       |  |   |  



|15. | Income Taxes
|--- | ------------

As of March 29, 2009, the total
amount of net unrecognized tax benefits was $2,829,000. This amount includes $260,000 of net unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company accrues interest related to unrecognized tax benefits in its
provision for income taxes. As of March 29, 2009, the Company had approximately $329,000 of accrued interest, net of tax, related to uncertain tax positions.



14



---

##### Table of Contents

The Company anticipates that it is reasonably possible that the gross amount of unrecognized tax benefits
balance may change by a range of zero to $250,000 in the next twelve months as a result of the settlement of certain tax audits and expiration of applicable statutes of limitation in certain jurisdictions.

The Company files income tax returns in the United States and in various states, local and foreign jurisdictions. The tax years subsequent to 2003 remain
open to examination by the major taxing jurisdictions in the United States.



|16. | Stock-Based Employee Compensation Plans
|--- | ---------------------------------------

As of
March 29, 2009, the Company had reserved 8,987,927 shares of common stock for future issuance.

2004 Equity Incentive Plan

On June 10, 2004, the board of directors adopted the 2004 Equity Incentive Plan (the 2004 Plan). The 2004 Plan provides for the issuance
of non-qualified stock options for common stock to employees, directors, consultants, and other associates. The options generally vest over a period of five years from the date of grant and have a maximum term of ten years.

In conjunction with the adoption of the 2006 Equity Incentive Plan in September 2006, no additional options are permitted to be granted under the
2004 Plan. In addition, any outstanding options cancelled under the 2004 Plan will become available to grant under the 2006 Equity Incentive Plan.

A summary of activity under the 2004 Plan is set forth below.



|                             |  |                           |   |  |                     |   |  |                               |     
|---------------------------- |  | ------------------------- | - |  | ------------------- | - |  | ----------------------------- | ----
|                             |  |                           |   |  | Options Outstanding
|                             |  | OptionsAvailablefor Grant |   |  | Number ofShares     |   |  | Weighted-AverageExercisePrice
|Balance at December 28, 2008 |  |                          |   |  | 3,550,729           |   |  | $                             | 2.37
|Exercised                    |  |                          |   |  | (212,833            | ) |  |                               | 0.64
|Canceled                     |  | 16,488                    |   |  | (16,488             | ) |  |                               | 8.87
|Rolled over to 2006 Plan     |  | (16,488                   | ) |  |                    |   |  |                               |    
|                             |  |                           |   |  |                     |   |  |                               |     
|Balance at March 29, 2009    |  |                          |   |  | 3,321,408           |   |  | $                             | 2.44
|                             |  |                           |   |  |                     |   |  |                               |     

At March 29, 2009, there were 1,528,894 total outstanding vested options under the 2004 Plan
at a weighted-average exercise price of $1.84.

The total intrinsic value of options exercised under the 2004 Plan for the three months
ended March 29, 2009 was $492,000.

2006 Equity Incentive Plan

On September 12, 2006, the Companys stockholders approved the 2006 Equity Incentive Award Plan (the 2006 Plan) for executives, directors, employees and consultants of the Company. A total of
4,500,000 shares of the Companys Common Stock have been reserved for issuance under the 2006 Plan. Awards are granted with an exercise price equal to the closing market price of the Companys Common Stock at the date of grant. Those
awards generally vest over a period of four or five years from the date of grant and have a maximum term of ten years.

A summary of
activity under the 2006 Plan is set forth below:



|                             |  |                           |   |  |                     |   |  |                               |      
|---------------------------- |  | ------------------------- | - |  | ------------------- | - |  | ----------------------------- | -----
|                             |  |                           |   |  | Options Outstanding
|                             |  | OptionsAvailablefor Grant |   |  | Number ofShares     |   |  | Weighted-AverageExercisePrice
|Balance at December 28, 2008 |  | 4,131,681                 |   |  | 1,518,350           |   |  | $                             | 12.36
|Rolled over from 2004 Plan   |  | 16,488                    |   |  |                    |   |  |                               |     
|Granted                      |  | (245,500                  | ) |  | 245,500             |   |  |                               | 3.96 
|Canceled                     |  | 64,775                    |   |  | (64,775             | ) |  |                               | 24.08
|                             |  |                           |   |  |                     |   |  |                               |      
|Balance at March 29, 2009    |  | 3,967,444                 |   |  | 1,699,075           |   |  | $                             | 10.70
|                             |  |                           |   |  |                     |   |  |                               |      

At March 29, 2009, there were 104,314 total outstanding vested options under the 2006 Plan at
a weighted-average exercise price of $27.62.



15



---

##### Table of Contents

The total cash received from employees as a result of employee stock option exercises under all plans for
the three months ended March 29, 2009 was $137,000. In connection with these exercises, the tax benefits realized by the Company for the three months ended March 29, 2009 were $69,000.



|17. | Segment and Geographic Information
|--- | ----------------------------------

Operating
segments are defined as components of an enterprise engaging in business activities for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to
allocate resources and assessing performance. The Companys Chief Executive Officer has been identified as the CODM as defined by Statement 131, Disclosures about Segments of an Enterprise and Related Information.

One of the Companys key objectives is the further expansion of its business internationally and as a consequence, the operating results that the
CODM reviews to make decisions about resource allocations and to assess performance have changed to be more geographically focused. In the fourth quarter of fiscal 2008, the Company re-evaluated its operating segments to bring them in line with
these changes and how management currently reviews and evaluates the operating performance of the Company and accordingly, the new segments include: North America Retail, North America Direct to Consumer, and International. The North America Retail
segment includes all products marketed in the United States and Canada and consists of sales to end users either directly through company owned boutiques or through third-party resellers in a branded, prestige retail environment. The North America
Direct to Consumer segment includes all products marketed in the United States and Canada and consists of sales to end users through television or online media who then receive their product via mail. The International segment includes all
operations outside the United States and Canada, regardless of method of delivery to the end user. Prior to fiscal 2008, the Companys operating segments were Retail and Wholesale. As a result, historical segment financial information presented
has been revised to reflect these new operating segments.

These reportable segments are strategic business units that are managed
separately based on the fundamental differences in their operations. The following table presents certain financial information for each segment. Operating income is the gross margin of the segment less direct expenses of the segment. Some direct
expenses, such as media and advertising spend, do impact the performance of the other segment, but these expenses are recorded in the segment they directly relate to and are not allocated out to each segment. The Corporate column includes
unallocated selling, general and administrative expenses, depreciation and amortization and stock-based compensation expenses. Corporate selling, general and administrative expenses include headquarters facilities costs, distribution center costs,
product development costs, corporate headcount costs and other corporate costs, including information technology, finance, accounting, legal and human resources costs. These items, while often times related to the operations of a segment, are not
considered by segment operating management and the Chief Operating Decision Maker in assessing segment performance.



|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|---------------------------------------- |  | ------------------- | ------ | ------------------------------ | - | ------------- |  | --------- | ------ |  | ----- | ------- | - |  | - | ------- | -
|                                         |  | North AmericaRetail |        | North AmericaDirect toConsumer |   | International |  | Corporate |        |  | Total |        
|Three Months ended March 29, 2009        |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Sales, net                               |  | $                   | 73,209 |                                | $ | 35,170        |  | $         | 15,874 |  | $     |        |   |  | $ | 124,253 |  
|Cost of goods sold                       |  |                     | 17,958 |                                |   | 10,294        |  |           | 5,085  |  |       |        |   |  |   | 33,337  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Gross profit                             |  |                     | 55,251 |                                |   | 24,876        |  |           | 10,789 |  |       |        |   |  |   | 90,916  |  
|Operating expenses:                      |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Selling, general and administrative      |  |                     | 22,168 |                                |   | 11,387        |  |           | 4,041  |  |       | 16,466  |   |  |   | 54,062  |  
|Depreciation and amortization            |  |                     | 1,363  |                                |   | 7             |  |           | 939    |  |       | 1,785   |   |  |   | 4,094   |  
|Stock-based compensation                 |  |                     |       |                                |   |              |  |           |       |  |       | 1,471   |   |  |   | 1,471   |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Total expenses                           |  |                     | 23,531 |                                |   | 11,394        |  |           | 4,980  |  |       | 19,722  |   |  |   | 59,627  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Operating income (loss)                  |  |                     | 31,720 |                                |   | 13,482        |  |           | 5,809  |  |       | (19,722 | ) |  |   | 31,289  |  
|Interest expense                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | (2,789  | )
|Other expense, net                       |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | (438    | )
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Income before provision for income taxes |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | 28,062  |  
|Provision for income taxes               |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | 11,373  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Net income                               |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  | $ | 16,689  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  



16



---

##### Table of Contents

|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|---------------------------------------- |  | ------------------- | ------ | ------------------------------ | - | ------------- |  | --------- | ------ |  | ----- | ------- | - |  | - | ------- | -
|                                         |  | North AmericaRetail |        | North AmericaDirect toConsumer |   | International |  | Corporate |        |  | Total |        
|Three Months ended March 30, 2008        |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Sales, net                               |  | $                   | 78,042 |                                | $ | 48,248        |  | $         | 14,068 |  | $     |        |   |  | $ | 140,358 |  
|Cost of goods sold                       |  |                     | 20,206 |                                |   | 14,005        |  |           | 4,446  |  |       |        |   |  |   | 38,657  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Gross profit                             |  |                     | 57,836 |                                |   | 34,243        |  |           | 9,622  |  |       |        |   |  |   | 101,701 |  
|Operating expenses:                      |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Selling, general and administrative      |  |                     | 15,293 |                                |   | 15,661        |  |           | 2,205  |  |       | 17,305  |   |  |   | 50,464  |  
|Depreciation and amortization            |  |                     | 643    |                                |   | 7             |  |           | 819    |  |       | 1,152   |   |  |   | 2,621   |  
|Stock-based compensation                 |  |                     |       |                                |   |              |  |           |       |  |       | 1,912   |   |  |   | 1,912   |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Total expenses                           |  |                     | 15,936 |                                |   | 15,668        |  |           | 3,024  |  |       | 20,369  |   |  |   | 54,977  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Operating income (loss)                  |  |                     | 41,900 |                                |   | 18,575        |  |           | 6,598  |  |       | (20,369 | ) |  |   | 46,704  |  
|Interest expense                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | (4,644  | )
|Other income, net                        |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | 707     |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Income before provision for income taxes |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | 42,767  |  
|Provision for income taxes               |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   | 16,984  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  
|Net income                               |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  | $ | 25,783  |  
|                                         |  |                     |        |                                |   |               |  |           |        |  |       |         |   |  |   |         |  

The Companys long-lived assets, excluding goodwill and intangibles, by segment were as
follows (in thousands):



|                                 |  |               |        |                  |   |       
|-------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                 |  | March 29,2009 |        | December 28,2008
|North America Retail             |  | $             | 41,670 |                  | $ | 38,628
|North America Direct to Consumer |  |               |       |                  |   | 84    
|International                    |  |               | 2,615  |                  |   | 2,594 
|Corporate                        |  |               | 30,914 |                  |   | 31,036
|                                 |  |               |        |                  |   |       
|                                 |  | $             | 75,199 |                  | $ | 72,342
|                                 |  |               |        |                  |   |       



17



---

##### Table of Contents

Long-lived assets allocated to the North America Retail segment consist of fixed assets and deposits for
retail stores. Long-lived assets in Corporate consist of fixed assets, tooling costs and deposits related to the Companys corporate offices and distribution centers.

The Companys long-lived assets, excluding goodwill and intangibles, by geographic area were as follows (in thousands). For the table below, Canada
is included in International.



|              |  |               |        |                  |   |       
|------------- |  | ------------- | ------ | ---------------- | - | ------
|              |  | March 29,2009 |        | December 28,2008
|United States |  | $             | 72,416 |                  | $ | 69,390
|International |  |               | 2,783  |                  |   | 2,952 
|              |  |               |        |                  |   |       
|              |  | $             | 75,199 |                  | $ | 72,342
|              |  |               |        |                  |   |       

No individual geographical area outside of the United States accounted for more than 10% of net
sales in any of the periods presented. The Companys sales by geographic area were as follows (in thousands). For the table below, Canada is included in International.



|              |  |                    |         |               |   |        
|------------- |  | ------------------ | ------- | ------------- | - | -------
|              |  | Three months ended
|              |  | March 29,2009      |         | March 30,2008
|United States |  | $                  | 108,008 |               | $ | 126,290
|International |  |                    | 16,245  |               |   | 14,068 
|              |  |                    |         |               |   |        
|Sales, net    |  | $                  | 124,253 |               | $ | 140,358
|              |  |                    |         |               |   |        



18



---

##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements

This section and other parts of this Quarterly Report on Form 10-Q
contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as anticipates, expects, believes, plans,
predicts, and similar terms. Such forward-looking statements are based on current expectations, estimates and projections about our industry, managements beliefs and assumptions made by management. Forward-looking statements are
not guarantees of future performance and our actual results may differ materially from the results discussed below and in the forward-looking statements. Factors that might cause such differences include, but are not limited to those discussed in
Part II, Item 1A, Risk Factors below and Item 1A of our Annual Report on Form 10-K for the year ended December 28, 2008 filed with the SEC on February 26, 2009. The following discussion should be read in
conjunction with the Companys consolidated financial statements and related notes hereto included elsewhere in this Quarterly Report on Form 10-Q. Except as required by law, we expressly disclaim any obligation to update publicly any
forward-looking statements, whether as result of new information, future events or otherwise.

Executive Overview

Founded in 1976, Bare Escentuals is one of the leading prestige cosmetic companies in the United States and an innovator in mineral-based cosmetics. We
develop, market and sell branded cosmetics and skin care products primarily under our bareMinerals, RareMinerals, Buxom and md formulations brands worldwide.

We utilize a distinctive marketing strategy and a multi-channel distribution model consisting of premium wholesale customers including Sephora, Ulta and
select department stores; company-owned boutiques; spas and salons; home shopping television on QVC; infomercials; online shopping and international distributors. We believe that this strategy provides convenience to our consumers and allows us to
reach the broadest possible spectrum of consumers.

In the fourth quarter of fiscal 2008, we re-evaluated how we internally review our
business performance and, in turn, changed our operating segments to be more geographically focused. As a result, our business is now comprised of three strategic business units constituting reportable segments that we manage separately based on
fundamental differences in their operations:



| |  |  | Our North America Retail segment includes the United States and Canada and consists of our company-owned boutiques; premium wholesale customers and spas and salons.
Our company-owned boutiques enhance our ability to build strong consumer relationships and promote additional product use through personal demonstrations and product consultations. We also sell to retailers that we believe feature our products in
settings that support and reinforce our brand image and provide a premium in-store experience. Similarly, our spa and salon customers provide an informative and treatment-focused environment in which aestheticians and spa professionals can
communicate the benefits of our core products.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our North America Direct to Consumer segment includes infomercials, home shopping television in the United States and Canada and online shopping. We believe that
our infomercial business helps us to build brand awareness, communicate the benefits of our core products and establish a base of recurring revenue. Our sales through home shopping television help us to build brand awareness, educate consumers
through live product demonstrations and develop close connections with our consumers. In addition, our online shopping business allows us to educate consumers as to the benefits as well as proper usage and application techniques for each product
offered.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our International segment includes premium wholesale, spas and salons, home shopping television, infomercial, and international distributors outside of North
America. We have partnered with a third party to build our infomercial business in Japan and currently have an international home shopping television presence and appear on QVC in Japan, the U.K. and Germany. We have a presence in brick-and-mortar
locations overseas, including in certain international Sephora locations as well as spas, salons and department stores in the U.K. We also sell our products in smaller international markets primarily through a network of third-party distributors.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We manage our business segments to maximize overall sales growth and market share. We believe that our multi-channel
distribution strategy enhances convenience for our consumers, reinforces brand awareness, increases consumer retention rates, and drives corporate cash flow and profitability. Further, we believe that the broad diversification within our segments
provides us with expanded opportunities for growth and reduces our dependence on any single distribution channel. Within individual distribution channels, financial results can be affected by the timing of shipments as well as the impact of key
promotional events.

Our performance depends on economic conditions in the United States and globally and their impact on levels of
consumer confidence and spending. Driven in part by the recent challenging economic environment, we have seen a trend across our distribution channels of customers favoring lower-ticket, non-kit items in lieu of higher-priced kits. Although this has
the impact of reducing our sales growth, the impact to net income is partially mitigated as these non-kit items sell at a higher gross margin.



19



---

##### Table of Contents

In the current economic environment, we continue to closely manage our
expenses and allocate resources in order to maximize cash flow and liquidity. This includes a more conservative approach to inventory management in light of reduced target inventory levels on behalf of our retail
partners. At the same time, we continue to invest strategically in areas that we believe will create long-term value including our international operations, domestic distribution expansion, education and field teams, and customer acquisition
activities. We anticipate that our capital expenditures for fiscal 2009 will be approximately $28.0 million which will support boutique and department store build-outs as well as international infrastructure investments.

During the first quarter of fiscal 2009, net sales decreased $16.1 million, or 11.5%, to $124.3 million from the first quarter of fiscal 2008. As
anticipated, the economic environment remained challenged in the first quarter impacting our net sales.

Diluted earnings per share for the
first quarter of fiscal 2009 decreased 35.7% to $0.18 compared to $0.28 per diluted share in the first quarter of fiscal 2008. Diluted earnings per share decreased due to a decline in sales combined with selling, general and administrative increases
largely resulting from a net increase of 43 boutiques versus the prior year.

Basis of Presentation

The Companys significant accounting policies are disclosed in Note 2 in the Companys Form 10-K for the year ended December 28, 2008.
The Companys significant accounting policies have not changed significantly as of March 29, 2009.

Results of Operations

The following is a discussion of our results of operations and percentage of net sales for the three months ended March 29, 2009 compared to the
three months ended March 30, 2008.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



|                                         |  |                                    |         |   |               |       |   |  |   |         |   |  |       |  
|---------------------------------------- |  | ---------------------------------- | ------- | - | ------------- | ----- | - |  | - | ------- | - |  | ----- | -
|                                         |  | Three months ended                 |        
|                                         |  | March 29,2009                      |         |   | March 30,2008 |      
|                                         |  | (in thousands, except percentages) |        
|Sales, net                               |  | $                                  | 124,253 |   |               | 100.0 | % |  | $ | 140,358 |   |  | 100.0 | %
|Cost of goods sold                       |  |                                    | 33,337  |   |               | 26.8  |   |  |   | 38,657  |   |  | 27.5  |  
|                                         |  |                                    |         |   |               |       |   |  |   |         |   |  |       |  
|Gross profit                             |  |                                    | 90,916  |   |               | 73.2  |   |  |   | 101,701 |   |  | 72.5  |  
|Expenses:                                |  |                                    |         |   |               |       |   |  |   |         |   |  |       |  
|Selling, general and administrative      |  |                                    | 54,062  |   |               | 43.5  |   |  |   | 50,464  |   |  | 35.9  |  
|Depreciation and amortization            |  |                                    | 4,094   |   |               | 3.3   |   |  |   | 2,621   |   |  | 1.9   |  
|Stock-based compensation                 |  |                                    | 1,471   |   |               | 1.2   |   |  |   | 1,912   |   |  | 1.4   |  
|                                         |  |                                    |         |   |               |       |   |  |   |         |   |  |       |  
|Operating income                         |  |                                    | 31,289  |   |               | 25.2  |   |  |   | 46,704  |   |  | 33.3  |  
|Interest expense                         |  |                                    | (2,789  | ) |               | (2.2  | ) |  |   | (4,644  | ) |  | (3.3  | )
|Other income (expense), net              |  |                                    | (438    | ) |               | (0.4  | ) |  |   | 707     |   |  | 0.5   |  
|                                         |  |                                    |         |   |               |       |   |  |   |         |   |  |       |  
|Income before provision for income taxes |  |                                    | 28,062  |   |               | 22.6  |   |  |   | 42,767  |   |  | 30.5  |  
|Provision for income taxes               |  |                                    | 11,373  |   |               | 9.2   |   |  |   | 16,984  |   |  | 12.1  |  
|                                         |  |                                    |         |   |               |       |   |  |   |         |   |  |       |  
|Net income                               |  | $                                  | 16,689  |   |               | 13.4  | % |  | $ | 25,783  |   |  | 18.4  | %
|                                         |  |                                    |         |   |               |       |   |  |   |         |   |  |       |  

Net sales by business segment and percentage of net sales for the three months ended
March 29, 2009 and March 30, 2008 are as follows:



|                                 |  |                                    |         |  |               |   |  |   |         |  |       |  
|-------------------------------- |  | ---------------------------------- | ------- |  | ------------- | - |  | - | ------- |  | ----- | -
|                                 |  | Three months ended                 |        
|                                 |  | March 29,2009                      |         |  | March 30,2008 |  
|                                 |  | (in thousands, except percentages) |        
|North America Retail             |  | $                                  | 73,209  |  | 58.9          | % |  | $ | 78,042  |  | 55.6  | %
|North America Direct to Consumer |  |                                    | 35,170  |  | 28.3          |   |  |   | 48,248  |  | 34.4  |  
|International                    |  |                                    | 15,874  |  | 12.8          |   |  |   | 14,068  |  | 10.0  |  
|                                 |  |                                    |         |  |               |   |  |   |         |  |       |  
|Sales, net                       |  | $                                  | 124,253 |  | 100.0         | % |  | $ | 140,358 |  | 100.0 | %
|                                 |  |                                    |         |  |               |   |  |   |         |  |       |  



20



---

##### Table of Contents

Gross profit and gross margin by business segment for the three months ended March 29, 2009 and
March 30, 2008 are as follows:



|                                 |  |                                    |        |  |               |   |  |   |         |  |      |  
|-------------------------------- |  | ---------------------------------- | ------ |  | ------------- | - |  | - | ------- |  | ---- | -
|                                 |  | Three months ended                 |       
|                                 |  | March 29,2009                      |        |  | March 30,2008 |  
|                                 |  | (in thousands, except percentages) |       
|North America Retail             |  | $                                  | 55,251 |  | 75.5          | % |  | $ | 57,836  |  | 74.1 | %
|North America Direct to Consumer |  |                                    | 24,876 |  | 70.7          |   |  |   | 34,243  |  | 71.0 |  
|International                    |  |                                    | 10,789 |  | 68.0          |   |  |   | 9,622   |  | 68.4 |  
|                                 |  |                                    |        |  |               |   |  |   |         |  |      |  
|Gross profit/gross margin        |  | $                                  | 90,916 |  | 73.2          | % |  | $ | 101,701 |  | 72.5 | %
|                                 |  |                                    |        |  |               |   |  |   |         |  |      |  

Operating income (loss) by business segment for the three months ended March 29, 2009 and
March 30, 2008 are as follows:



|                                 |  |                                    |         |   |               |      |   |  |   |         |   |  |      |  
|-------------------------------- |  | ---------------------------------- | ------- | - | ------------- | ---- | - |  | - | ------- | - |  | ---- | -
|                                 |  | Three months ended                 |        
|                                 |  | March 29,2009                      |         |   | March 30,2008 |     
|                                 |  | (in thousands, except percentages) |        
|North America Retail             |  | $                                  | 31,720  |   |               | 43.3 | % |  | $ | 41,900  |   |  | 53.7 | %
|North America Direct to Consumer |  |                                    | 13,482  |   |               | 38.3 |   |  |   | 18,575  |   |  | 38.5 |  
|International                    |  |                                    | 5,809   |   |               | 36.6 |   |  |   | 6,598   |   |  | 46.9 |  
|                                 |  |                                    |         |   |               |      |   |  |   |         |   |  |      |  
|Total                            |  |                                    | 51,011  |   |               | 41.1 | % |  |   | 67,073  |   |  | 47.8 | %
|Corporate                        |  |                                    | (19,722 | ) |               |      |   |  |   | (20,369 | ) |  |      |  
|                                 |  |                                    |         |   |               |      |   |  |   |         |   |  |      |  
|Operating income                 |  | $                                  | 31,289  |   |               | 25.2 | % |  | $ | 46,704  |   |  | 33.3 | %
|                                 |  |                                    |         |   |               |      |   |  |   |         |   |  |      |  

Three months ended March 29, 2009 compared to three months ended March 30, 2008

Sales, net

Net sales for the three months ended
March 29, 2009 decreased to $124.3 million from $140.4 million in the three months ended March 30, 2008, a decrease of $16.1 million, or 11.5%. The decrease in our net sales was driven by our North America Retail and North America Direct
to Consumer segments.

North America Retail. North America Retail net sales decreased 6.2% to $73.2 million in the three
months ended March 29, 2009 from $78.0 million in the three months ended March 30, 2008. Net sales to our premium wholesale and spa and salon customers decreased from March 30, 2008 resulting primarily from our major retail partners
reducing their weeks-on-hand ownership. Offsetting this decrease was an increase in net sales from boutiques versus the prior year due primarily to a net increase of 43 boutiques open as of March 29, 2009 compared to March 30, 2008. As of
March 29, 2009 and March 30, 2008, we had 96 and 53 open company-owned boutiques, respectively.

North America Direct to
Consumer. North America Direct to Consumer net sales decreased 27.1% to $35.2 million in the three months ended March 29, 2009 from $48.2 million in the three months ended March 30, 2008. This decrease primarily resulted from a
reduction in infomercial performance versus the prior year and a decline in home shopping television net sales due to less on-air time compared to the prior year.

International. International net sales increased 12.8% to $15.9 million in the three months ended March 29, 2009 from $14.1 million in the three months ended March 30, 2008 as we expanded our
business across our international channels. Net sales to our global premium wholesale customers increased due to continued expansion into additional locations as well as increased sales from international distributors. Partially offsetting this
increase was a decrease in international home shopping sales.



21



---

##### Table of Contents

Gross profit

Gross profit decreased $10.8 million, or 10.6%, to $90.9 million in the three months ended March 29, 2009 from $101.7 million in the three months ended March 30, 2008. Our North America Retail segment gross profit decreased 4.5%
to $55.3 million in the three months ended March 29, 2009 from $57.8 million in the three months ended March 30, 2008, as a result of lower sales across our premium wholesale and spas and salons channels. Our North America Direct to
Consumer segment gross profit decreased 27.4% to $24.9 million in the three months ended March 29, 2009 from $34.2 million in the three months ended March 30, 2008, primarily due to the decline in the performance of our infomercial
compared to the prior year and less on-air time at QVC. Our International segment gross profit increased 12.1% to $10.8 million in the three months ended March 29, 2009 from $9.6 million in the three months ended March 30, 2008, due to
increases in sales across our global premium wholesale and international distributors channels.

Gross margin increased approximately 70
basis points to 73.2% in the three months ended March 29, 2009 from 72.5% in the three months ended March 30, 2008. This overall increase resulted primarily from a shift in product mix towards higher-margin open stock merchandise as well
as a shift towards higher-margin sales channels.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $3.6 million, or 7.1%, to $54.1 million in the three months ended March 29, 2009 from $50.5
million in the three months ended March 30, 2008. The increase was primarily due to increased expenses to support distribution expansion including $4.4 million in increased operating costs relating to boutique expansion and $1.8 million in
international infrastructure expense. This was partially offset by decreased expenses of $4.2 million from savings in infomercial operating expenses and lower corporate infrastructure expense due to cost control efforts. As a percentage of net
sales, selling, general and administrative expenses increased 760 basis points to 43.5% from 35.9%, primarily due to infrastructure expenses increasing at a greater rate than net sales.

Depreciation and amortization

Depreciation and amortization expenses increased $1.5 million, or
56.2%, to $4.1 million in the three months ended March 29, 2009 from $2.6 million in the three months ended March 30, 2008. This increase was primarily attributable to increases in depreciable assets as we continue to expand the number of
company-owned boutiques and invest in our corporate infrastructure.

Stock-based compensation

Stock-based compensation expense decreased $0.4 million, or 23.1%, to $1.5 million in the three months ended March 29, 2009 from $1.9 million in the
three months ended March 30, 2008. This decrease resulted primarily from the impact of actual forfeitures.

Operating income

Operating income decreased $15.4 million, or 33.0%, to $31.3 million in the three months ended March 29, 2009 from $46.7 million in the three months
ended March 30, 2008, primarily due to decreases in operating income across all segments partially offset by a decrease in operating loss in Corporate due to lower corporate operating expenses.

Our North America Retail segment operating income decreased 24.3% to $31.7 million in the three months ended March 29, 2009 from $41.9 million in
the three months ended March 30, 2008. This decrease was primarily driven by lower sales and increased operating expenses of $7.6 million primarily related to the increase in the number of company-owned boutiques.

Our North America Direct to Consumer segment operating income decreased 27.4% to $13.5 million in the three months ended March 29, 2009 from $18.6
million in the three months ended March 30, 2008. This decrease was primarily driven by sales and gross margin declines due to the lower productivity of our infomercial program compared to the prior version partially offset by lower operating
costs for this channel.

Our International segment operating income decreased 12.0% to $5.8 million in the three months ended
March 29, 2009 from $6.6 million in the three months ended March 30, 2008 due to increased operating costs of $2.0 million which more than offset sales growth and gross margin improvements in this segment.



22



---

##### Table of Contents

Our Corporate operating loss decreased 3.2% to $19.7 million in the three months ended March 29,
2009 from $20.4 million in the three months ended March 30, 2008 primarily due to a decrease in Corporate selling, general and administrative expense of $0.8 million and a decrease in stock-based compensation of $0.4 million, which was offset
by an increase in depreciation and amortization of $0.6 million. The decrease in Corporate selling, general and administrative expense resulted from our cost control measures.

Interest expense

Interest expense decreased $1.9 million, or 40.0%, to $2.8 million in the three
months ended March 29, 2009 from $4.6 million in the three months ended March 30, 2008. The decrease was attributable to lower average interest rates (excluding the debt under the interest rate swap agreement) versus the prior year
combined with decreased debt balances during the three months ended March 29, 2009 as a result of repayment of outstanding indebtedness.

Other
income (expense), net

Other income (expense), net decreased to net other expense of $0.4 million in the three months ended
March 29, 2009 from net other income of $0.7 million in the three months ended March 30, 2008. The decrease was primary attributable to a negative foreign currency impact resulting from fluctuations in the value of the U.S. dollar as
compared to certain foreign currencies as well as lower interest income on our cash and cash equivalent balances resulting from lower interest rates versus the prior year.

Provision for income taxes

The provision for income taxes was $11.4 million, or 40.5% of income
before provision for income taxes, in the three months ended March 29, 2009 compared to $17.0 million, or 39.7% of income before provision for income taxes, in the three months ended March 30, 2008. The decrease resulted from lower income
before provision for income taxes offset by a higher effective rate in the three months ended March 29, 2009 compared to the three months ended March 30, 2008.

Seasonality

Because our products are largely purchased for individual use and are consumable in
nature, we are not generally subject to significant seasonal variances in sales. However, fluctuations in sales and operating income in any fiscal quarter may be affected by the timing of wholesale shipments, home shopping television appearances and
other promotional events. While we believe our overall business is not currently subject to significant seasonal fluctuations, we have experienced limited seasonality in our premium wholesale and company-owned boutique channels as a result of
increased demand for our products in anticipation of, and during, the holiday season. To the extent our sales to specialty beauty retailers and through our boutiques increase as a percentage of our net sales, we may experience increased seasonality.

Liquidity and Capital Resources

Our
primary liquidity and capital resource needs are to service our debt, finance working capital needs and fund ongoing capital expenditures. We have financed our operations through cash flows from operations, sales of common shares and borrowings
under our credit facilities.

Our operations provided us cash of $23.1 million in the three months ended March 29, 2009. At
March 29, 2009, we had working capital of $158.9 million, including cash and cash equivalents of $61.3 million, compared to working capital of $146.1 million, including $48.0 million in cash and cash equivalents, as of December 28, 2008.
The $13.3 million increase in cash and cash equivalents resulted from cash provided by operations of $23.1 million, including net income for the three months ended March 29, 2009 of $16.7 million, partially offset by cash used in investing
activities of $6.5 million related to capital expenditures and cash used in financing activities of $3.2 million. The $12.8 million increase in working capital was primarily driven by increases in prepaid income taxes and decreases in accounts
payable, accrued liabilities and income taxes payable.

Net cash used in investing activities was $6.5 million in the three months ended
March 29, 2009, primarily attributable to the build-out of additional company-owned boutiques and department stores as well as our continued investment in our corporate and information systems infrastructure to support our distribution
expansion both in the U.S. and internationally. Our future capital expenditures will depend on the timing and rate of expansion of our business, information technology investments, new store openings, store renovations and international expansion
opportunities.

Net cash used in financing activities was $3.2 million in the three months ended March 29, 2009, which consisted of
repayments of $3.4 million on our first-lien term loan partially offset by exercise of stock options of $0.1 million.

Our revolving credit
facility of $25.0 million, of which approximately $0.3 million was utilized for outstanding letters of credit as of March 29, 2009, and our first-lien term loan of $237.6 million, bear interest at a rate equal to, at our option, either LIBOR or
the lenders base rate, plus an applicable variable margin based on our consolidated total leverage ratio and debt rating. The current



23



---

##### Table of Contents

applicable interest margin for the revolving credit facility and first-lien term loan is 2.25% for LIBOR loans and 1.25% for base rate loans based on our
current Moodys rating. As of March 29, 2009, interest on the first-lien term loan was accruing at 2.78% (without giving effect to the interest rate swap transaction discussed below).

Borrowings under our revolving credit facility and the first-lien term loan are secured by substantially all of our assets, including, but not limited
to, all accounts receivable, inventory, property and equipment, and intangibles. The terms of the senior secured credit facilities require us to comply with financial covenants, including maintaining a leverage ratio, entering into interest rate
swap or similar agreements with respect to 40% of the principal amounts outstanding under our senior secured credit facilities as of October 2, 2007.

In August 2007, we entered into a two-year interest rate swap transaction under our senior secured credit facilities. The interest rate swap had an initial notional amount of $200 million which declined to $100
million after one year under which, on a net settlement basis, we make monthly fixed rate payments at the rate of 5.03% and the counterparty makes monthly floating rate payments based upon one-month U.S. dollar LIBOR. As a result of the interest
rate swap transaction, we have fixed the interest rate for a two-year period subject to market based interest rate risk on $200 million of borrowings for the first year and $100 million for the second year under our First Lien Credit Agreement. Our
obligations under the interest rate swap transaction as to the scheduled payments are guaranteed and secured on the same basis as our obligations under the First Lien Credit Agreement. The fair value of the interest rate swap as of March 29,
2009 was $1.9 million, which was recorded in other liabilities in the condensed consolidated balance sheet, with the related $1.9 million unrealized loss recorded and included in equity as a component of accumulated other comprehensive loss, net of
a $0.8 million tax benefit.

The terms of our senior secured credit facilities require us to comply with financial covenants, including a
maximum leverage ratio covenant. We are required to maintain a maximum leverage ratio (consolidated total debt to Adjusted EBITDA as defined in the agreement) of not greater than 4.5 to 1.0. As of March 29, 2009, our leverage ratio was 0.99 to
1.0. If we fail to comply with any of the financial covenants, the lenders may declare an event of default under the secured credit facility. An event of default resulting from a breach of a financial covenant may result, at the option of lenders
holding a majority of the loans, in an acceleration of repayment of the principal and interest outstanding and a termination of the revolving credit facility. The secured credit facility also contains non-financial covenants that restrict some of
our activities, including our ability to dispose of assets, incur additional debt, pay dividends, create liens, make investments and engage in specified transactions with affiliates. The secured credit facility also contains customary events of
default, including defaults based on events of bankruptcy and insolvency, nonpayment of principal, interest or fees when due, subject to specified grace periods, breach of specified covenants, change in control and material inaccuracy of
representations and warranties. We have been in compliance with all financial ratio and other covenants under our credit facilities during all reported periods and we were in compliance with these covenants as March 29, 2009.

Subject to specified exceptions, including for investment of proceeds from asset sales and for permitted equity contributions for capital expenditures,
we are required to prepay outstanding loans under our amended senior secured credit facilities with the net proceeds of certain asset dispositions, condemnation settlements and insurance settlements from casualty losses, issuances of certain debt
and, if our consolidated leverage ratio is 2.25 to 1.0 or greater, a portion of excess cash flow.

Liquidity sources, requirements and contractual cash
requirement and commitments

We believe that cash flow from operations, cash on hand and amounts available under our revolving credit
facility will provide adequate funds for our foreseeable working capital needs and planned capital expenditures. As part of our business strategy, we intend to invest in making improvements to our information technology systems. We opened 45
boutiques in 2008 and closed two locations. We plan to open approximately 25 new boutiques in 2009 (two of which were opened as of March 29, 2009), which will require additional capital expenditures. Additionally, we also plan to continue to
invest in our corporate infrastructure particularly in support of our international growth. We may also look to acquire or invest in businesses or products complementary to our own. We anticipate that our capital expenditures in the year ending
January 3, 2010 will be approximately $28.0 million. Our ability to fund our working capital needs, planned capital expenditures and scheduled debt payments, as well as to comply with all of the financial covenants under our debt agreements,
depends on our future operating performance and cash flow, which in turn are subject to prevailing economic conditions, including the limited availability of capital in light of the current financial crisis, and to financial, business and other
factors, some of which are beyond our control.



24



---

##### Table of Contents

Contractual commitments

We lease retail stores, warehouses, corporate offices and certain office equipment under noncancelable operating leases with various expiration dates through January 2021. Portions of these payments are
denominated in foreign currencies and were translated in the tables below based on their respective U.S. dollar exchange rates at March 29, 2009. These future payments are subject to foreign currency exchange rate risk. As of March 29,
2009, the scheduled maturities of our long-term contractual obligations were as follows:



|                                                                      |  |                                          |      |            |   |            |  |              |      |       |   |      |  |   |      
|--------------------------------------------------------------------- |  | ---------------------------------------- | ---- | ---------- | - | ---------- |  | ------------ | ---- | ----- | - | ---- |  | - | -----
|                                                                      |  | Remainder ofthe yearendingJanuary 3,2010 |      | 1 - 3Years |   | 4 - 5Years |  | After 5Years |      | Total
|                                                                      |  | (amounts in millions)                   
|Operating leases, net of sublease income                              |  | $                                        | 12.7 |            | $ | 54.8       |  | $            | 37.3 |       | $ | 61.4 |  | $ | 166.2
|Principal payments on long-term debt, including the current portion   |  |                                          | 13.8 |            |   | 223.8      |  |              |     |       |   |     |  |   | 237.6
|Interest payments on long-term debt, including the current portion(1) |  |                                          | 6.3  |            |   | 10.6       |  |              |     |       |   |     |  |   | 16.9 
|Payments under licensing arrangements                                 |  |                                          | 0.3  |            |   | 0.2        |  |              |     |       |   |     |  |   | 0.5  
|Purchase obligations(2)                                               |  |                                          | 2.6  |            |   |           |  |              |     |       |   |     |  |   | 2.6  
|                                                                      |  |                                          |      |            |   |            |  |              |      |       |   |      |  |   |      
|Total                                                                 |  | $                                        | 35.7 |            | $ | 289.4      |  | $            | 37.3 |       | $ | 61.4 |  | $ | 423.8
|                                                                      |  |                                          |      |            |   |            |  |              |      |       |   |      |  |   |      



|(1) | For purposes of the table, interest expense is calculated after giving effect to our interest rate swap as follows: (i) during the remaining five month term of the swap
agreement, interest expense is based on $100 million of our first-lien term loan and based on the fixed rate of the swap of 5.03% plus a margin of 2.25% and interest expense on the remaining amount of the loan is estimated based on the rate in
effect as of March 29, 2009 and (ii) after the remaining five month term of the swap agreement, interest expense on the loan is estimated for all periods based on the rate in effect as of March 29, 2009. A 1% change in interest rates
on our variable rate debt, including the effect of the interest rate swap, would result in a change of $5.2 million in our total interest payments, of which $1.4 million would be in the remainder of the year ended January 3, 2010 and $3.8
million would be in years 1-3.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Purchase obligations include agreements to purchase goods that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to
be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Agreements that are cancelable without penalty have been excluded.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are also party to a sublicense agreement for use of certain patents associated with certain of our mineral-based skin care products. The agreement
requires that we pay a quarterly royalty of 4.0% of the net sales of these skin care products up to the date of the last to expire licensed patent rights. This sublicense also requires minimum annual royalty payments of approximately $0.6 million
for 2007 and thereafter. The minimum annual royalty payments have not been included in the schedule of long-term contractual obligations above as we can terminate the agreement at any time with six months written notice.

Off-balance-sheet arrangements

We do not have any
off-balance-sheet financing or unconsolidated special purpose entities.

Effects of inflation

Our monetary assets, consisting primarily of cash and receivables, are not significantly affected by inflation because they are short-term in nature. Our
non-monetary assets, consisting primarily of inventory, intangible assets, goodwill and prepaid expenses and other assets, are not currently affected significantly by inflation. We believe that replacement costs of equipment, furniture and leasehold
improvements will not materially affect our operations. However, the rate of inflation affects our cost of goods sold and expenses, such as those for employee compensation, which may not be readily recoverable in the price of the products offered by
us. In addition, an inflationary environment could materially increase the interest rates on our debt and reduce consumers discretionary spending.



25



---

##### Table of Contents

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and
assumptions. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements. An accounting policy is deemed
to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies and estimates are discussed in our recently filed Annual Report on Form 10-K
for the fiscal year ended December 28, 2008, which was filed with the SEC on February 26, 2009. We believe that there have been no other significant changes during the three months ended March 29, 2009 to the items that we disclosed
in our critical accounting policies and estimates with the exception of the adoption of Statement 141-R, Statement 157 and Statement 161 as noted below.

Derivative Financial Instruments

We account for derivative financial instruments in accordance with Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, as amended (Statement 133), which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging activities. Statement 133 also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they are
measured at fair value. On December 29, 2009, we adopted Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB No. 133 (Statement
161), which supplements the required disclosures under Statement 133 and its related interpretations.

New Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. Statement 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. Statement 157 also applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. For
financial assets and liabilities, the provisions of Statement 157 are effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement
No. 157, which amends Statement 157 by delaying the effective date of Statement 157 to fiscal years ending after November 15, 2008 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value
in the financial statements on a recurring basis. We adopted Statement 157 on December 31, 2007 for financial assets and financial liabilities and on December 29, 2008 for nonfinancial assets and liabilities. It did not have any impact on
our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations. Statement 141(R) will significantly change the accounting for future business combinations after adoption. Statement 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any non controlling interest in the acquired business. Statement 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business
combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Statement 141(R) is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We adopted Statement 141(R) on December 29, 2008, as required. It did not have any impact on our results of operations or financial position.

In March 2008, the FASB issued Statement 161 which amends and expands the disclosure requirements of Statement 133 with the intent to
provide users of financial statements with an enhanced understanding of: 1) How and why an entity uses derivative instruments; 2) How derivative instruments and related hedged items are accounted for under Statement 133 and its related
interpretations and 3) How derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. We adopted Statement 161 on December 29, 2008. The adoption of Statement 161 had no financial impact on the financial position or results of operations as it is disclosure-only in nature.

In January 2009, the FASB released Proposed Staff Position SFAS 107-b and Accounting Principles Board (APB) Opinion No. 28-a,
Interim Disclosures about Fair Value of Financial Instruments (SFAS 107-b and APB 28-a). This proposal amends Statement 107, Disclosures about Fair Values of Financial Instruments, to require disclosures about fair value of
financial instruments in interim financial statements as well as in annual financial statements. The proposal also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial
statements. This proposal is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. We plan to adopt SFAS 107-b and APB 28-a and provide the
additional disclosure requirements for the second quarter of 2009.



26



---

##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Interest rate sensitivity

We are exposed to interest rate risks primarily through borrowings under our credit
facilities. We have reduced our exposure to interest rate fluctuations by entering into an interest rate swap agreement covering a portion of our variable rate debt. In August 2007, we entered into a two-year interest rate swap transaction
under our senior secured credit facilities. The interest rate swap had an initial notional amount of $200 million declining to $100 million after one year under which, on a net settlement basis, we make monthly fixed rate payments at the rate of
5.03% and the counterparty makes monthly floating rate payments based upon one-month U.S. dollar LIBOR. Our weighted average borrowings outstanding during the three months ended March 29, 2009 were $245.8 million and the annual effective
interest rate for the period was 4.48%, after giving effect to the interest swap agreement. A hypothetical 1% increase or decrease in interest rates would have resulted in a $0.6 million change to our interest expense in the three months ended
March 29, 2009 and $2.4 million on an annualized basis.

Foreign currency risk

Most of our sales, expenses, assets, liabilities and cash holdings are currently denominated in U.S. dollars but a portion of the net revenues we receive
from sales is denominated in currencies other than the U.S. dollar. Additionally, portions of our costs of goods sold and other operating expenses are incurred by our foreign operations and denominated in local currencies. While fluctuations in
the value of these net revenues, costs and expenses as measured in U.S. dollars have not materially affected our results of operations historically, we cannot assure that adverse currency exchange rate fluctuations will not have a material
impact in the future. In addition, our balance sheet reflects non-U.S. dollar denominated assets and liabilities which can be adversely affected by fluctuations in currency exchange rates. We do not currently hedge against foreign currency
risks.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods
specified in the SECs rules, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer determined that disclosure controls and procedures were effective at a reasonable assurance level.

There has been no change in internal controls over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal controls over financial
reporting.



27



---

##### Table of Contents

PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In the ordinary course of our
business, we are subject to periodic lawsuits, investigations and claims. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending
legal proceeding to which we are a party is likely to have a material adverse effect on our business, results of operations, cash flows or financial condition.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

An investment in our common stock
involves a high degree of risk. Our Annual Report on Form 10-K for the year ended December 28, 2008 includes a detailed discussion of our risk factors under the heading Part I, Item 1ARisk Factors. Set forth
below are changes from the risk factors previously disclosed in our Annual Report on Form 10-K. You should carefully consider the risk factors discussed in this report and our Annual Report on Form 10-K as well as the other information in
this report, before making an investment decision. If any of the following risks or the risks discussed in the Annual Report on Form 10-K occur, our business, financial condition, results of operations or future growth could suffer.

Our senior management team has limited experience working together as a group, and may not be able to manage our business effectively.

Many members of our senior management team, including our President of Retail and Vice President Controller have been hired since June
2008. As a result, our senior management team has limited experience working together as a group. This lack of shared experience could harm our senior management teams ability to quickly and efficiently respond to problems and effectively
manage our business. Our success also depends on our ability to continue to attract, manage and retain other qualified senior management members as we grow.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



28



---

##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------

Exhibits

The following documents are incorporated by reference or filed as Exhibits to this report:



|              |  |                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                        
|              | 
|3.2(1)        |  | Amended and Restated Certificate of Incorporation.                                                                                                 
|              | 
|3.4(1)        |  | Amended and Restated Bylaws.                                                                                                                       
|              | 
|10.1         |  | License and Supply Agreement between Bare Escentuals Beauty, Inc., a wholly owned subsidiary of the Registrant, and BioKool LLC dated March 9, 2009
|              | 
|31.1          |  | Certification of the Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.                                        
|              | 
|31.2          |  | Certification of the Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.                                        
|              | 
|32.1          |  | Certification of the Chief Executive Officer and the Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002.         



|(1) | Incorporated by reference from our Quarterly Report on Form 10-Q for the period ended October 1, 2006 filed on November 15, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



| | Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filed separately with the SEC.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



---

##### Table of Contents

SIGNATURES

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



|                  |  |  |  |                       |  |                                                                              
|----------------- |  |  |  | --------------------- |  | -----------------------------------------------------------------------------
|                  |  |  |  | BARE ESCENTUALS, INC.
|                  |  |  | 
|Date: May 8, 2009 |  |  |  | By:                   |  | /s/ LESLIE A. BLODGETT                                                       
|                  |  |  |  |                       |  | Leslie A. Blodgett                                                           
|                  |  |  |  |                       |  | Chief Executive Officer and Director                                         
|                  |  |  | 
|                  |  |  |  | By:                   |  | /s/ MYLES B. MCCORMICK                                                       
|                  |  |  |  |                       |  | Myles B. McCormick                                                           
|                  |  |  |  |                       |  | Executive Vice President, Chief Financial Officer and Chief Operating Officer



30