**Table of Contents**

** **

** **

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x**** QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 28,2008**

 

**OR**

 

**o**** TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

**For the transition periodfrom                   to**

 

**Commission File Number: 0-10345**

 

**CACHE,INC.**

(Exact name of registrant asspecified in its Charter)

 

| **Florida**                               |   | **59-1588181**                     |
|-------------------------------------------|--------|------------------------------------|
| (State or other jurisdiction of           |   | (IRS Employer Identification  No.) |
| incorporation or organization)            |   |                               |
|                                      |   |                               |
| **1440 Broadway, New York, New York**     |   | **10018**                          |
| (Address of principal executive  offices) |   | (zip code)                         |

 

**212-575-3200**

(Registrant’s telephone number,including area code)

 

 

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

 

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

** **

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

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

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).  Yes oNo x

 

As of July 31 2008, 13,225,936 common shareswere outstanding.

 

 

 

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Tableof Contents

 

CACHE, INC. AND SUBSIDIARIES

 

INDEX

** **
| PART I. FINANCIAL INFORMATION |                                                                                                                                      |
|-----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |                                                                                                                                      |   |
|  Item 1.                      | Condensed Consolidated Financial Statements (unaudited)                                                                                   | 3 |
|                                    | Condensed Consolidated Balance Sheets as of June 28,  2008, December 29, 2007 and June 30, 2007                            | 3 |
|                                    | Condensed Consolidated Statements of Income for the twenty-six and  thirteen week periods ended June 28, 2008 and June 30, 2007 | 4 |
|                                    | Condensed Consolidated Statements of Cash Flows for the twenty-six week periods ended June 28,  2008 and June 30, 2007          | 6 |
|                                    | Notes to the Condensed Consolidated Financial Statements                                                                                  | 7 |
|  Item 2.                      | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                               | 12 |
|  Item 3.                      | Quantitative and Qualitative Disclosures  About Market Risk                                                                               | 18 |
|  Item 4.                      | Controls and Procedures                                                                                                                   | 19 |
|                                    |                                                                                                                                      |   |
| PART II. OTHER INFORMATION    |                                                                                                                                      |
|                                    |                                                                                                                                      |   |
| Item 6.                            | Exhibits                                                                                                                                  | 19 |
|                                    |                                                                                                                                      |   |
| SIGNATURES                              | 20                                                                                                                                        |

 

2

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Table of Contents

 

**PART I - FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)**

 

**CACHE, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                      | ** ** | **June 28,** | ** **      | **December 29,** | ** ** | **June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-----------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                      | ** ** | **2008**          | ** **      | **2007**              | ** ** | **2007**          | ** ** |
| ** **                                                                                                                      | ** ** | **(Unaudited)**   | ** **      | **(Audited)**         | ** ** | **(Unaudited)**   | ** ** |
| **ASSETS**                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Current  assets:**                                                                                                            | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Cash and  equivalents**                                                                                                       | ** ** | **$**             | **1,045,000**   | ** **            | **$**      | **7,243,000**     | ** ** | **$** | **16,466,000** | ** ** |
| **Marketable  securities**                                                                                                      | ** ** | **26,319,000**    | ** **      | **42,887,000**        | ** ** | **49,546,000**    | ** ** |
| **Receivables,  net**                                                                                                           | ** ** | **4,565,000**     | ** **      | **4,788,000**         | ** ** | **2,944,000**     | ** ** |
| **Inventories,  net**                                                                                                           | ** ** | **35,042,000**    | ** **      | **30,547,000**        | ** ** | **32,215,000**    | ** ** |
| **Prepaid  expenses and other current assets**                                                                                  | ** ** | **4,465,000**     | ** **      | **2,465,000**         | ** ** | **6,734,000**     | ** ** |
| **Total  current assets**                                                                                                       | ** ** | **71,436,000**    | ** **      | **87,930,000**        | ** ** | **107,905,000**   | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Equipment  and leasehold improvements, net**                                                                                  | ** ** | **46,764,000**    | ** **      | **49,298,000**        | ** ** | **49,544,000**    | ** ** |
| **Goodwill**                                                                                                                    | ** ** | **10,089,000**    | ** **      | **10,089,000**        | ** ** | **—**        | ** ** |
| **Intangible  assets, net**                                                                                                     | ** ** | **1,364,000**     | ** **      | **1,423,000**         | ** ** | **102,000**       | ** ** |
| **Other  assets**                                                                                                               | ** ** | **382,000**       | ** **      | **385,000**           | ** ** | **355,000**       | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Total  assets**                                                                                                               | ** ** | **$**             | **130,035,000** | ** **            | **$**      | **149,125,000**   | ** ** | **$** | **157,906,000** | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                  | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Current  liabilities:**                                                                                                       | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Accounts  payable**                                                                                                           | ** ** | **$**             | **10,567,000**  | ** **            | **$**      | **10,510,000**    | ** ** | **$** | **10,844,000** | ** ** |
| **Note  payable**                                                                                                               | ** ** | **1,362,000**     | ** **      | **1,586,000**         | ** ** | **—**        | ** ** |
| **Accrued  compensation**                                                                                                       | ** ** | **1,949,000**     | ** **      | **1,910,000**         | ** ** | **1,710,000**     | ** ** |
| **Accrued  liabilities**                                                                                                        | ** ** | **9,663,000**     | ** **      | **14,252,000**        | ** ** | **9,120,000**     | ** ** |
| **Total  current liabilities**                                                                                                  | ** ** | **23,541,000**    | ** **      | **28,258,000**        | ** ** | **21,674,000**    | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Note  payable**                                                                                                               | ** ** | **3,753,000**     | ** **      | **4,348,000**         | ** ** | **—**        | ** ** |
| **Other  liabilities**                                                                                                          | ** ** | **16,373,000**    | ** **      | **16,172,000**        | ** ** | **15,681,000**    | ** ** |
| **Deferred  income taxes, net**                                                                                                 | ** ** | **99,000**        | ** **      | **83,000**            | ** ** | **1,779,000**     | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Commitments  and contingencies**                                                                                              | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **STOCKHOLDERS’  EQUITY**                                                                                                  | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Common  stock, par value $.01; authorized, 20,000,000 shares; issued and outstanding  16,392,936, 16,319,358 and 16,296,733** | ** ** | **164,000**       | ** **      | **163,000**           | ** ** | **163,000**       | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Additional  paid-in capital**                                                                                                 | ** ** | **46,784,000**    | ** **      | **46,136,000**        | ** ** | **45,526,000**    | ** ** |
| **Retained  earnings**                                                                                                          | ** ** | **78,227,000**    | ** **      | **78,175,000**        | ** ** | **73,083,000**    | ** ** |
| **Treasury stock, 3,167,000, 1,695,032 and 0  shares, at cost**                                                                 | ** ** | **(38,906,000**   | **)**           | **(24,210,000**       | **)**      | **—**        | ** ** |
| **Total  stockholders’ equity**                                                                                            | ** ** | **86,269,000**    | ** **      | **100,264,000**       | ** ** | **118,772,000**   | ** ** |
| ** **                                                                                                                      | ** ** | ** **        | ** **      | ** **            | ** ** | ** **        | ** ** |
| **Total  liabilities and stockholders’ equity**                                                                            | ** ** | **$**             | **130,035,000** | ** **            | **$**      | **149,125,000**   | ** ** | **$** | **157,906,000** | ** ** |

 

**Theaccompanying Notes to Condensed Consolidated Financial Statements are anintegral part of these statements.**

 

3

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**CACHE, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME**

**FOR THE TWENTY-SIX WEEKS ENDED**

**(Unaudited)**

 
| ** **                                         | ** ** | **June 28,** | ** **      | **June 30,** | ** ** |
|----------------------------------------------------|------------|-------------------|-----------------|-------------------|------------|
| ** **                                         | ** ** | **2008**          | ** **      | **2007**          | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Net  sales**                                     | ** ** | **$**             | **141,681,000** | ** **        | **$**      | **135,381,000** | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Cost of  sales, including buying and occupancy** | ** ** | **79,074,000**    | ** **      | **72,456,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Gross  profit**                                  | ** ** | **62,607,000**    | ** **      | **62,925,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Expenses**                                       | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Store  operating expenses**                      | ** ** | **48,701,000**    | ** **      | **49,631,000**    | ** ** |
| **General  and administrative expenses**           | ** ** | **11,871,000**    | ** **      | **12,493,000**    | ** ** |
| **Store  exit costs**                              | ** ** | **2,308,000**     | ** **      | **—**        | ** ** |
| **Total  expenses**                                | ** ** | **62,880,000**    | ** **      | **62,124,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Operating  income (loss)**                       | ** ** | **(273,000**      | **)**           | **801,000**       | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Other  income (expense):**                       | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Interest  expense**                              | ** ** | **(131,000**      | **)**           | **—**        | ** ** |
| **Interest  income**                               | ** ** | **487,000**       | ** **      | **1,484,000**     | ** ** |
| **Total  other income, net**                       | ** ** | **356,000**       | ** **      | **1,484,000**     | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Income  before income taxes**                    | ** ** | **83,000**        | ** **      | **2,285,000**     | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Income  tax provision**                          | ** ** | **31,000**        | ** **      | **857,000**       | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Net  income**                                    | ** ** | **$**             | **52,000**      | ** **        | **$**      | **1,428,000** | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Basic  earnings per share**                      | ** ** | **$**             | **0.00**        | ** **        | **$**      | **0.09** | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Diluted  earnings per share**                    | ** ** | **$**             | **0.00**        | ** **        | **$**      | **0.09** | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Basic  weighted average shares outstanding**     | ** ** | **13,443,000**    | ** **      | **16,289,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **      | ** **        | ** ** |
| **Diluted  weighted average shares outstanding**   | ** ** | **13,462,000**    | ** **      | **16,719,000**    | ** ** |

 

**Theaccompanying Notes to Condensed Consolidated Financial Statements are anintegral part of these statements.**

 

4

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**CACHE, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME**

**FOR THE THIRTEEN WEEKS ENDED**

**(Unaudited)**

 
| ** **                                         | ** ** | **June 28,** | ** **     | **June 30,** | ** ** |
|----------------------------------------------------|------------|-------------------|----------------|-------------------|------------|
| ** **                                         | ** ** | **2008**          | ** **     | **2007**          | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Net  sales**                                     | ** ** | **$**             | **73,973,000** | ** **        | **$**      | **71,027,000** | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Cost of  sales, including buying and occupancy** | ** ** | **39,781,000**    | ** **     | **37,092,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Gross  profit**                                  | ** ** | **34,192,000**    | ** **     | **33,935,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Expenses**                                       | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Store  operating expenses**                      | ** ** | **24,783,000**    | ** **     | **25,616,000**    | ** ** |
| **General  and administrative expenses**           | ** ** | **6,202,000**     | ** **     | **7,028,000**     | ** ** |
| **Total  expenses**                                | ** ** | **30,985,000**    | ** **     | **32,644,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Operating  income**                              | ** ** | **3,207,000**     | ** **     | **1,291,000**     | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Other  income (expense):**                       | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Interest  expense**                              | ** ** | **(63,000**       | **)**          | **—**        | ** ** |
| **Interest  income**                               | ** ** | **197,000**       | ** **     | **758,000**       | ** ** |
| **Total  other income, net**                       | ** ** | **134,000**       | ** **     | **758,000**       | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Income  before income taxes**                    | ** ** | **3,341,000**     | ** **     | **2,049,000**     | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Income  tax provision**                          | ** ** | **1,236,000**     | ** **     | **765,000**       | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Net  income**                                    | ** ** | **$**             | **2,105,000**  | ** **        | **$**      | **1,284,000** | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Basic  earnings per share**                      | ** ** | **$**             | **0.16**       | ** **        | **$**      | **0.08** | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Diluted  earnings per share**                    | ** ** | **$**             | **0.16**       | ** **        | **$**      | **0.08** | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Basic  weighted average shares outstanding**     | ** ** | **13,320,000**    | ** **     | **16,296,000**    | ** ** |
| ** **                                         | ** ** | ** **        | ** **     | ** **        | ** ** |
| **Diluted  weighted average shares outstanding**   | ** ** | **13,357,000**    | ** **     | **16,672,000**    | ** ** |

 

**Theaccompanying Notes to Condensed Consolidated Financial Statements are anintegral part of these statements.**

 

5

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**CACHE, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE TWENTY-SIX WEEKS ENDED**

**(Unaudited)**

** **
| ** **                                                                                           | ** ** | **June 28,** | ** **    | **June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------|---------------|-------------------|------------|
| ** **                                                                                           | ** ** | **2008**          | ** **    | **2007**          | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Net  income**                                                                                      | ** ** | **$**             | **52,000**    | ** **        | **$**      | **1,428,000** | ** ** |
| **Adjustments  to reconcile net income to net cash****provided  by (used in) operating activities:** | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Depreciation  and amortization**                                                                   | ** ** | **6,260,000**     | ** **    | **5,569,000**     | ** ** |
| **Write  down of equipment and leasehold improvements, net of deferred rent**                        | ** ** | **1,445,000**     | ** **    | **—**        | ** ** |
| **Provision  for sales allowance and doubtful accounts, net**                                        | ** ** | **117,000**       | ** **    | **—**        | ** ** |
| **Stock-based  compensation**                                                                        | ** ** | **150,000**       | ** **    | **601,000**       | ** ** |
| **Non-cash  interest expense on note payable**                                                       | ** ** | **63,000**        | ** **    | **—**        | ** ** |
| **Deferred  income taxes**                                                                           | ** ** | **16,000**        | ** **    | **(289,000**      | **)**      |
| **Gift  card breakage**                                                                              | ** ** | **(159,000**      | **)**         | **(164,000**      | **)**      |
| **Amortization  of deferred rent**                                                                   | ** ** | **(1,030,000**    | **)**         | **(816,000**      | **)**      |
| **Excess  tax benefit from stock-based compensation**                                                | ** ** | **(155,000**      | **)**         | **—**        | ** ** |
| **Other**                                                                                            | ** ** | **—**        | ** **    | **(18,000**       | **)**      |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Change  in assets and liabilities:**                                                               | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Decrease  in receivables**                                                                         | ** ** | **106,000**       | ** **    | **1,850,000**     | ** ** |
| **Decrease  (increase) in inventories**                                                              | ** ** | **(4,495,000**    | **)**         | **2,614,000**     | ** ** |
| **Decrease  (increase) in prepaid expenses and other current assets**                                | ** ** | **(1,842,000**    | **)**         | **483,000**       | ** ** |
| **Increase  (decrease) in accounts payable**                                                         | ** ** | **57,000**        | ** **    | **(858,000**      | **)**      |
| **Increase  (decrease) in accrued liabilities and accrued compensation**                             | ** ** | **(2,243,000**    | **)**         | **7,000**         | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Net cash  provided by (used in) operating activities**                                             | ** ** | **(1,658,000**    | **)**         | **10,407,000**    | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **CASH FLOWS  FROM INVESTING ACTIVITIES:**                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Purchase  of marketable securities**                                                               | ** ** | **(26,908,000**   | **)**         | **(56,832,000**   | **)**      |
| **Maturities  of marketable securities**                                                             | ** ** | **43,476,000**    | ** **    | **49,380,000**    | ** ** |
| **Purchase  of equipment and leasehold improvements**                                                | ** ** | **(6,029,000**    | **)**         | **(6,131,000**    | **)**      |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Net cash  provided by (used in) investing activities**                                             | ** ** | **10,539,000**    | ** **    | **(13,583,000**   | **)**      |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Proceeds  from the issuance of common stock**                                                      | ** ** | **344,000**       | ** **    | **279,000**       | ** ** |
| **Excess  tax benefit from stock-based compensation**                                                | ** ** | **155,000**       | ** **    | **—**        | ** ** |
| **Repayment  of note payable**                                                                       | ** ** | **(882,000**      | **)**         | **—**        | ** ** |
| **Repurchase  of common stock**                                                                      | ** ** | **(14,696,000**   | **)**         | **—**        | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Net cash  provided by (used in) financing activities**                                             | ** ** | **(15,079,000**   | **)**         | **279,000**       | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Net  decrease in cash and equivalents**                                                            | ** ** | **(6,198,000**    | **)**         | **(2,879,000**    | **)**      |
| **Cash and  equivalents, at beginning of period**                                                    | ** ** | **7,243,000**     | ** **    | **19,363,000**    | ** ** |
| **Cash and  equivalents, at end of period**                                                          | ** ** | **$**             | **1,045,000** | ** **        | **$**      | **16,466,000** | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Supplemental  disclosure of cash flow information:**                                               | ** ** | ** **        | ** **    | ** **        | ** ** |
| ** **                                                                                           | ** ** | ** **        | ** **    | ** **        | ** ** |
| **Interest  paid**                                                                                   | ** ** | **$**             | **141,000**   | ** **        | **$**      | **—** | ** ** |
| **Income  taxes paid**                                                                               | ** ** | **$**             | **1,853,000** | ** **        | **$**      | **873,000** | ** ** |
| **Accrued  equipment and leasehold improvements**                                                    | ** ** | **$**             | **461,000**   | ** **        | **$**      | **532,000** | ** ** |

 

**Theaccompanying Notes to Condensed Consolidated Financial Statements are anintegral part of these statements.**

 

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**CACHE, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

1.               BASIS OFPRESENTATION

 

References to the “Company,”“we,” “us,” or “our” means Cache, Inc., together with its wholly-ownedsubsidiaries, except as expressly indicated or unless the context otherwiserequires. We currently operate two chains of women’s apparel specialty stores,of which 284 stores are operated under the trade name “Cache” and 13 stores areoperated under the trade name “Cache Luxe”.

 

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith Rule 10-01 of Regulation S-X and do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States. However, in the opinion of our management, all knownadjustments necessary for a fair presentation of the results of the interimperiods have been made. These adjustments consist primarily of normal recurringaccruals and estimates that impact the carrying value of assets andliabilities. Actual results may materially differ from these estimates.

 

These condensed consolidatedfinancial statements should be read in conjunction with the Company’s auditedconsolidated financial statements for the year ended December 29, 2007,which are included in the Company’s Annual Report on Form 10-K withrespect to such period filed with the Securities and Exchange Commission. Allsignificant intercompany accounts and transactions have been eliminated. TheDecember 29, 2007 condensed consolidated balance sheet amounts are derivedfrom the Company’s audited consolidated financial statements.

 

The Company’s fiscal year(“fiscal year” or “fiscal”) refers to the 52 or 53 weeks. The yearsended December 29, 2007 (“fiscal 2007”) and December 27, 2008(“fiscal 2008”) are each 52-week years.

 

A reclassification has beenmade to the 2007 Consolidated Balance Sheet to segregate intangible assets,net, as a separate line item to conform to the 2008 presentation.

 

2.     STOCK BASED COMPENSATION

 

The Company recordscompensation expense associated with stock options in accordance with Statementof Financial Accounting Standards (“SFAS”) No. 123R, “*Share-BasedPayment*”, as interpreted by SEC Staff Accounting BulletinNo. 107. During the 26 and 13-week periods ended June 28, 2008, theCompany recognized approximately $150,000 and $76,000, respectively, in stockbased compensation expense and for the same periods ended June 30, 2007,the Company recognized $601,000 and $291,000, respectively. The grant date fairvalue is calculated using the Black-Scholes option valuation model. There were15,000 options granted during the 26-week period ended June 28, 2008 and55,000 options granted during the 26-week period ended June 30, 2007. Nooptions were granted during the 13-week period June 28, 2008 and 55,000options were granted during the 13-week period ended June 30, 2007. TheCompany recognized $155,000 in excess tax benefits from the exercise of stockoptions for the 26-week period ended June 28, 2008 and no excess taxbenefits were recognized from the exercise of stock options for the 26-weekperiod ended June 30, 2007.

 

The weighted-average fairvalue of options granted during the 26-week period ended June 28, 2008 was$3.14. The grant date fair value is calculated using the Black-Scholes optionvaluation model. The following assumptions were used during fiscal 2008:

 
| Expected dividend rate  |   | $     | 0.00   |   |
|-------------------------|--------|-------|--------|--------|
| Expected volatility     |   | 36.06 | %      |
| Risk free interest rate |   | 2.64  | %      |
| Expected lives (years)  |   | 4.00  |   |

 

3.     BASIC AND DILUTED EARNINGS PER SHARE

 

In accordance with SFAS No. 128, “*Earnings PerShare*”, basic earnings per share has been computed based upon theweighted average of common shares outstanding. Diluted earnings per share giveseffect to outstanding stock options.

 

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Earnings per common share has been computedas follows:

 
| ** **                                                  | ** ** | **26-Weeks Ended** | ** ** | **13-Weeks Ended** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                  | ** ** | **June 28,**       | ** ** | **June 30,**       | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                                                  | ** ** | **2008**                | ** ** | **2007**                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                                  |       | $                       | 52,000     |                    | $          | 1,428,000 |   | $ | 2,105,000 |   | $ | 1,284,000 |   |
| Basic weighted number of average shares  outstanding        |       | 13,443,000              |       | 16,289,000              |       | 13,320,000 |   | 16,296,000 |   |
| Incremental shares from assumed issuances  of stock options |       | 19,000                  |       | 430,000                 |       | 37,000 |   | 376,000 |   |
|                                                        |       |                    |       |                    |       |   |   |   |   |
| Diluted weighted average number of shares  outstanding      |       | 13,462,000              |       | 16,719,000              |       | 13,357,000 |   | 16,672,000 |   |
|                                                        |       |                    |       |                    |       |   |   |   |   |
| Net income per share - Basic                                |       | $                       | 0.00       |                    | $          | 0.09 |   | $ | 0.16 |   | $ | 0.08 |   |
| - Diluted                                                   |       | $                       | 0.00       |                    | $          | 0.09 |   | $ | 0.16 |   | $ | 0.08 |   |
|                                                             |            |                         |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Options to purchase 644,000common shares were excluded from the computation of diluted earnings per sharefor the 26 and 13-week period ended June 28, 2008, because their effectwould be anti-dilutive due to their exercise price being greater than theaverage market price.

 

4.     RECENTDEVELOPMENTS

 

TheCompany has no recent developments to report.

 

5.     RECENT ACCOUNTINGPRONOUNCEMENTS

 

During September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, *“Fair Value Measurements”* (“SFAS No. 157”). SFAS No. 157defines fair value, establishes a framework for measuring fair value inaccordance with generally accepted accounting principles, and expandsdisclosures about fair value measurements. The provisions of SFAS No. 157for financial assets and liabilities, as well as any other assets andliabilities that are carried at fair value on a recurring basis in financialstatements, are effective for financial statements issued for fiscal yearsbeginning after November 15, 2007 (fiscal year 2008 for the Company). In February 2008,the FASB issued FASB Staff Positions (‘‘FSP’’) 157-1, which amended SFAS 157 toremove leasing transactions accounted for under SFAS 13, ‘‘Accounting forLeases’’ and FSP 157-2, which deferred the effective date of SFAS 157 for allnonfinancial assets and nonfinancial liabilities that are recognized ordisclosed at fair value in the financial statements on a nonrecurring basis tofiscal years beginning after November 15, 2008 (fiscal year 2009 for theCompany).   The implementation of SFAS No. 157for financial assets and financial liabilities, effective December 30,2007, did not have a material impact on the Company’s consolidated financialposition, results of operations or cash flows. The Company is currently evaluating the impact of SFAS No. 157 fornonfinancial assets and liabilities on its consolidated financial statements.

 

During December 2007,the FASB issued SFAS No. 160, *“Noncontrolling interestsin Consolidated Financial Statements—an amendment of ARB No. 51”*(“SFAS No. 160”). SFAS No. 160 requires expanded disclosures in theconsolidated financial statements that clearly identify and distinguish betweenthe interests of the parent’s owners and the interests of noncontrolling ownersof a subsidiary. SFAS No. 160 is effective for fiscal years beginning onor after December 15, 2008. We are currently evaluating the standard, butdo not expect it to have a material impact on our consolidated financialstatements upon adoption.

 

During December 2007, the FASB issuedSFAS No. 141R, *“Business Combinations”*(“SFAS No. 141R”). Under Statement 141R, an acquiring entity will berequired to recognize all the assets acquired and liabilities assumed in atransaction at the acquisition-date fair value with limited exceptions. Inaddition, acquisition costs will generally be expensed as incurred. The revisedstatement also includes a substantial number of new disclosure requirements.SFAS 141R is effective prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008.

 

InMarch 2008, the FASB issued SFAS No. 161, “*Disclosuresabout Derivative Instruments and Hedging Activities — an amendment of FASBStatement No. 133*” (“SFAS No. 161”). SFAS No. 161 requiresenhanced disclosures about how and why an entity uses derivative instruments,how derivative instruments and related hedged items are accounted for, and howthey affect an entity’s financial position, financial performance, and cashflows. The Statement is effective for financial statements issued for fiscalyears and interim periods beginning after November 15, 2008, with earlyapplication encouraged. The Company is currently evaluating the effect, if any,of SFAS No. 161 on its financial statements.

 

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InMay 2008, the FASB issued SFAS No. 162, “*TheHierarchy of Generally Accepted Accounting Principles*” (“SFAS No.162”). SFAS No. 162 identifies the sources of accounting principles andthe framework for selecting the principles to be used in the preparation offinancial statements of nongovernmental entities that are presented inconformity with generally accepted accounting principles in the United States.This Statement will become effective 60 days following the SEC’s approvalof the Public Company Accounting Oversight Board (PCAOB) amendments to AUSection 411, “The Meaning of Present Fairly in Conformity With GenerallyAccepted Accounting Principles.” The Company does not anticipate a materialimpact on its consolidated financial statements from the adoption of SFASNo. 162.

 

InMay 2008, the FASB issued SFAS No. 163, *“Accountingfor Financial Guarantee Insurance Contracts—an interpretation of FASB StatementNo. 60”* (“SFAS No. 163”). SFAS 163 requires recognition ofan insurance claim liability prior to an event of default when there isevidence that credit deterioration has occurred in an insured financialobligation. SFAS 163 is effective for financial statements issued for fiscalyears beginning after December 15, 2008, and all interim periods withinthose fiscal years. Early application is not permitted. The Company’s adoptionof SFAS 163 will not have a material effect on the Consolidated FinancialStatements

 

**6.     FAIR VALUE MEASUREMENT**

 

EffectiveDecember 30, 2007, the Company adopted SFAS 157, which defines fair valueas the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at themeasurement date (exit price). SFAS 157 establishes a fair value hierarchy,which prioritizes the inputs used in measuring fair value into three broadlevels as follows:

 

·                  Level 1 – Unadjusted quoted marketprices in active markets for identical assets or liabilities that the Companyhas the ability to access at the measurement date.

·                  Level 2 – Quoted prices for similarassets or liabilities in active markets, quoted prices for identical or similarassets or liabilities in markets that are not active, inputs other than quotedprices that are observable for the asset or liability (i.e., interest rates,yield curves, etc.) and inputs that are derived principally from orcorroborated by observable market data by correlation or other means.

·                  Level 3 – Unobservable inputs thatreflect assumptions about what market participants would use in pricing assetsor liabilities based on the best information available.

 

As ofJune 28, 2008, the Company’s marketable securities primarily consist ofshort-term United States Treasury bills and tax-exempt municipal bonds. TheCompany classifies its short-term investments as held-to-maturity.Held-to-maturity securities are those securities in which the Company has theability and intent to hold the securities until maturity. Because the Company’sheld-to-maturity securities mature within one year of the purchase date, thesecurities are classified as short-term marketable securities. Held-to-maturitydebt securities are recorded at amortized cost, adjusted for the amortizationor accretion of premiums or discounts and

 

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such carryingvalues approximate fair value. A decline in the market value of anyheld-to-maturity security below cost that is deemed to be other than temporaryresults in a reduction in carrying amount to fair value. The impairment ischarged to earnings and a new cost basis for the security is established.

 

EffectiveDecember 30, 2007, the Company adopted SFAS 159, which provides entitiesthe option to measure many financial instruments and certain other items atfair value. Entities that choose the fair value option will recognizeunrealized gains and losses on items for which the fair value option waselected in earnings at each subsequent reporting date. The Company hascurrently chosen not to elect the fair value option for any items that are notalready required to be measured at fair value in accordance with accountingprinciples generally accepted in the United States of America.

 

The fair valueof our marketable securities, which was determined based upon Level 1 inputs,totaled $26.3 million, $42.9 million and $49.6 million as of June 28,2008, December 29, 2007 and June 30, 2007, respectively. For thefiscal periods ended June 28, 2008, December 29, 2007 andJune 30, 2007, the aggregate amount of marketable securities (maturinggreater than 90 days and less than one year) totaled approximately $26.3million, $42.9 million and $49.5 million, respectively. The Company noted smallvariances between the book value and fair value due to the remainingunamortized premiums. As a result, no impairment has occurred for the fiscalperiods presented herein. Premiums and discounts are amortized or accreted overthe life of the related held-to-maturity investments. Interest income isrecognized when earned.

 

**7.     RECEIVABLES**

 
| ** **                | ** ** | **June 28,** | ** ** | **December 29,** | ** ** | **June 30,** | ** ** |
|---------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                | ** ** | **2008**          | ** ** | **2007**              | ** ** | **2007**          | ** ** |
| Construction allowances   |       | $                 | 988,000    |                  | $          | 683,000           |       | $ | 737,000 |   |
| Third party credit card   |       | 1,997,000         |       | 2,522,000             |       | 1,866,000         |       |
| Accounts receivables, net |       | 686,000           |       | 596,000               |       | —            |       |
| Other                     |       | 894,000           |       | 987,000               |       | 341,000           |       |
|                      |       | $                 | 4,565,000  |                  | $          | 4,788,000         |       | $ | 2,944,000 |   |

 

Accounts receivable, netincludes sales from Mary L., which are recorded net of any returns,chargebacks, discounts and allowances. The Company recorded approximately $1.1million and utilized $930,000 of provisions for sales allowances and doubtfulaccounts during the 26-week period ended June 28, 2008, which resulted inan aggregate reserve amount of $351,000, as of June 28, 2008.

 

**8.     INVENTORIES**

 
| ** **      | ** ** | **June 28,** | ** ** | **December 29,** | ** ** | **June 30,** | ** ** |
|-----------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **      | ** ** | **2008**          | ** ** | **2007**              | ** ** | **2007**          | ** ** |
| Raw materials   |       | $                 | 4,568,000  |                  | $          | 1,242,000         |       | $ | — |   |
| Work in process |       | 2,942,000         |       | 832,000               |       | —            |       |
| Finished goods  |       | 27,532,000        |       | 28,473,000            |       | 32,215,000        |       |
|            |       | $                 | 35,042,000 |                  | $          | 30,547,000        |       | $ | 32,215,000 |   |

 

**9.     EQUIPMENT ANDLEASEHOLD IMPROVEMENTS**

 
| ** **                                       | ** ** | **June 28,** | ** ** | **December 29,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                       | ** ** | **2008**          | ** ** | **2007**              | ** ** | **2007**          | ** ** |
|                                             |       |              |       |                  |       |              |       |
| Leasehold improvements                           |       | $                 | 54,925,000 |                  | $          | 55,088,000        |       | $ | 53,926,000 |   |
| Furniture, fixtures and equipment                |       | 52,213,000        |       | 49,772,000            |       | 47,120,000        |       |
|                                             |       | 107,138,000       |       | 104,860,000           |       | 101,046,000       |       |
| Less: accumulated depreciation and  amortization |       | (60,374,000       | )          | (55,562,000           | )          | (51,502,000       | )          |
|                                             |       | $                 | 46,764,000 |                  | $          | 49,298,000        |       | $ | 49,544,000 |   |

 

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**10.  GOODWILL****AND INTANGIBLE ASSETS**

 

The Company’sgoodwill and its indefinite-lived intangible assets are reviewed annually forimpairment or more frequently, if impairment indicators arise. The annualvaluation is performed during the fourth quarter of each year. The carryingamounts of intangible assets as of June 28, 2008, December 29, 2007and June 30, 2007 are as follows:

 
| ** **                          | ** ** | **June 28,** | ** ** | **December 29,** | ** ** | **June 30,** | ** ** |
|-------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2008**          | ** ** | **2007**              | ** ** | **2007**          | ** ** |
| Indefinite-lived intangible assets: |       |              |       |                  |       |              |       |
| Trademarks-Cache                    |       | $                 | 102,000    |                  | $          | 102,000           |       | $ | 102,000 |   |
| Trademarks-Mary L.                  |       | 620,000           |       | 620,000               |       | —            |       |
|                                |       | 722,000           |       | 722,000               |       | 102,000           |       |
|                                |       |              |       |                  |       |              |       |
| Definite-lived intangible assets:   |       |              |       |                  |       |              |       |
| Customer relationships              |       | 300,000           |       | 300,000               |       | —            |       |
| Non-Compete agreements              |       | 300,000           |       | 300,000               |       | —            |       |
| Favorable market lease              |       | 160,000           |       | 160,000               |       | —            |       |
|                                |       | 760,000           |       | 760,000               |       | —            |       |
| Less: accumulated amortization      |       | (118,000          | )          | (59,000               | )          | —            |       |
|                                |       | 642,000           |       | 701,000               |       | —            |       |
| Total intangible assets, net        |       | $                 | 1,364,000  |                  | $          | 1,423,000         |       | $ | 102,000 |   |

 

**11.  ACCRUEDLIABILITIES**

 
| ** **                                                                    | ** ** | **June 28,** | ** ** | **December 29,** | ** ** | **June 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                    | ** ** | **2008**          | ** ** | **2007**              | ** ** | **2007**          | ** ** |
| Operating expenses                                                            |       | $                 | 2,176,000  |                  | $          | 3,954,000         |       | $ | 3,588,000 |   |
| Taxes, including income taxes                                                 |       | 1,722,000         |       | 2,364,000             |       | 1,269,000         |       |
| Share repurchase liability                                                    |       | —            |       | 2,033,000             |       | —            |       |
| Group insurance                                                               |       | 554,000           |       | 557,000               |       | 759,000           |       |
| Sales return reserve                                                          |       | 579,000           |       | 752,000               |       | 478,000           |       |
| Leasehold additions                                                           |       | 461,000           |       | 752,000               |       | 532,000           |       |
| Gift cards, merchandise credit cards and  other customer deposits and credits |       | 3,357,000         |       | 3,840,000             |       | 2,494,000         |       |
| Store exit costs                                                              |       | 597,000           |       | —                |       | —            |       |
| Deferred income                                                               |       | 217,000           |       | —                |       | —            |       |
|                                                                          |       | $                 | 9,663,000  |                  | $          | 14,252,000        |       | $ | 9,120,000 |   |

 

Leasehold additions generally represent aliability to general contractors for a final 10% payable for store constructionor renovation contracts.

 

**12.  BANKDEBT**

 

During November 2005, the Companyreached an agreement with its bank to amend the amount available under theAmended Revolving Credit Facility. Pursuant to the Amended Revolving CreditFacility, $17,500,000 is available until expiration at November 30, 2008.The amounts outstanding under the credit facility bear interest at a maximumper annum rate equal to the bank’s prime rate, currently 5.00% at June 28,2008, less 0.25%. The agreement contains selected financial and othercovenants. Effective upon the occurrence of an Event of Default under theAmended Revolving Credit Facility, the Company grants to the bank a security interestin the Company’s inventory and certain receivables. The Company has been incompliance with all financial loan covenants during the fiscal periodspresented.

 

There have been no borrowings against theline of credit during fiscal 2007 and the first half of fiscal 2008. There wereoutstanding letters of credit of $569,000, $774,000 and $900,000, pursuant tothe Amended Revolving Credit Facility, at June 28, 2008, December 29, 2007and June 30, 2007, respectively.

 

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**13. STORE EXIT COSTS**

 

During the quarter ended March 29, 2008,the Company recorded a pre-tax charge of $2.3 million for asset write down andstore closing costs for 14 underperforming stores.  For the 13-week periods ended June 28,2008 the Company recorded payments for severance and lease terminationcosts.  The schedule below identifies theexit costs and the payments recognized during fiscal 2008.

 
| ** **                                          | ** ** | **Liability  Balance**          | ** ** | ** **  | ** ** | ** **             | ** ** | **Liability  Balance**      | ** ** |
|-----------------------------------------------------|------------|---------------------------------|------------|-------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | **Beginning of Year** | ** ** | **Charges** | ** ** | **Cash Payments** | ** ** | **End of Period** | ** ** |
| Write down of equipment and leasehold  improvements |       | $                               | —     |        | $          | 2,071,000              |       | $                           | —     |   | $ | — |   |
| Severance                                           |       | —                          |       | 198,000     |       | 32,000                 |       | 166,000                     |       |
| Reversal of deferred rent liability                 |       | —                          |       | (626,000    | )          | —                 |       | —                      |       |
| Lease termination costs                             |       | —                          |       | 665,000     |       | 68,000                 |       | 597,000                     |       |
|                                                |       | $                               | —     |        | $          | 2,308,000              |       | $                           | 100,000    |   | $ | 763,000 |   |

 

The Company does not expect to incur significant additional exit costsupon the closing of these stores. The Company plans on closing these storesover the course of fiscal 2008.

 

14. CONTINGENCIES

 

The Company is exposed to a number ofasserted and unasserted potential claims. Management does not believe that the resolution of these matters willresult in a material loss.  We have notprovided any third party financial guarantees as of and for the 26 and 13-weekperiods ended June 28, 2008 and June 30, 2007, respectively, and forthe 52-week period ended December 29, 2007.

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Except for the historical information andcurrent statements contained in this Form 10-Q, certain matters discussedherein, including, without limitation, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” are forward-looking statementsthat involve risks and uncertainties, including, without limitation, the effectof economic and market conditions and competition, the ability to open newstores and expand into new markets, and risks relating to foreign importingoperations, which could cause actual results to differ materially.**

** **

**RESULTS OF OPERATIONS**

** **

**The following table sets forth our results ofoperations for the 26 and 13-week periods ended June 28, 2008 and June 30,2007, respectively, expressed as a percentage of net sales.  Amounts include the combined results of ourCache and Cache Luxe stores.**

 

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| ** **                          | ** ** | **26-Weeks Ended** | ** ** | **13-Weeks Ended** | ** ** |
|-------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **June 28,**       | ** ** | **June 30,**       | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                          | ** ** | **2008**                | ** ** | **2007**                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Sales                               |       | 100.0                   | %          | 100.0                   | %          | 100.0 | % | 100.0 | % |
| Cost of sales                       |       | 55.8                    |       | 53.5                    |       | 53.8 |   | 52.2 |   |
| Gross profit                        |       | 44.2                    |       | 46.5                    |       | 46.2 |   | 47.8 |   |
| Store operating expenses            |       | 34.4                    |       | 36.7                    |       | 33.5 |   | 36.1 |   |
| General and administrative expenses |       | 8.4                     |       | 9.2                     |       | 8.4 |   | 9.9 |   |
| Store exit costs                    |       | 1.6                     |       | 0.0                     |       | 0.0 |   | 0.0 |   |
| Operating income (loss)             |       | (0.2                    | )          | 0.6                     |       | 4.3 |   | 1.8 |   |
| Interest expense                    |       | 0.1                     |       | 0.0                     |       | 0.1 |   | 0.0 |   |
| Interest income                     |       | 0.3                     |       | 1.1                     |       | 0.3 |   | 1.1 |   |
| Income before income taxes          |       | 0.0                     |       | 1.7                     |       | 4.5 |   | 2.9 |   |
| Income tax provision                |       | 0.0                     |       | 0.6                     |       | 1.7 |   | 1.1 |   |
| Net income                          |       | 0.0                     | %          | 1.1                     | %          | 2.8 | % | 1.8 | % |

 

We use a number of key indicators offinancial condition and operating performance to evaluate the performance ofour business, some of which are set forth in the following table:

 
| ** **                                             | ** ** | **26-Weeks Ended** | ** ** | **13-Weeks Ended** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **June 28,**       | ** ** | **June 30,**       | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                                             | ** ** | **2008**                | ** ** | **2007**                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Total store count, at end of period                    |       | 297                     |       | 294                     |       | 297 |   | 294 |   |
| Net sales growth (decrease)                            |       | 4.7                     | %          | (0.1                    | )%         | 4.1 | % | (1.0 | )% |
| Comparable store sales growth                          |       | 3                       | %          | 1                       | %          | 3 | % | 1 | % |
| Average sales per transaction decrease                 |       | (1.7                    | )%         | (7.0                    | )%         | (0.5 | )% | (6.0 | )% |
| Average number of transactions growth                  |       | 5.0                     | %          | 8.6                     | %          | 3.5 | % | 6.7 | % |
| Net sales per average square foot                      |       | $                       | 234        |                    | $          | 219 |   | $ | 122 |   | $ | 115 |   |
| Total square footage, at end of period (in  thousands) |       | 601                     |       | 598                     |       | 601 |   | 598 |   |
|                                                        |            |                         |            |                         |            |  |  |  |  |  |  |  |  |

 

**Net sales**

** **

**During the 26-week period ended June 28,2008, net sales increased to $141.7 million from $135.4 million, an increase of$6.3 million, or 4.7%, over the same 26-week period last year.  This reflects $3.7 million of additional netsales, as a result of a 3% increase in comparable store sales, and $2.8 millionof net sales from our newly acquired division — Mary L. Comparable store salesincreased due to strong customer response to the sportswear assortment and theCompany’s aggressive pricing strategy. Due to the acquisition of the Mary L. division in the third quarter offiscal 2007, no sales for Mary L. were recorded during the first half of fiscal2007.  The increases in sales from ourcomparable stores and from our Mary L. division were offset by a decrease innon-comparable stores sales, which amounted to $167,000.  The increase in net sales in fiscal 2008 atCache stores reflected a 5.0% increase in sales transactions, which waspartially offset by a 1.7% decrease in average dollars per transactions,primarily due to the new pricing strategy.**

** **

**During the 13-week period ended June 28,2008, net sales increased to $74.0 million from $71.0 million, an increase of$3.0 million, or 4.1%, over the same 13-week period last year.  This reflects $1.9 million of additional netsales, as a result of a 3% increase in comparable stores sales, $910,000 of netsales from our newly acquired division — Mary L. and a $149,000 increase in netsales from non-comparable stores. Comparable store sales increased due to strong customer response to thesportswear assortment and the Company’s aggressive pricing strategy.  Due to the acquisition of the Mary L.division in the third quarter of fiscal 2007, no sales for Mary L. wererecorded during the 13-week period last year. The increase in net sales in fiscal 2008 at Cache stores reflected a3.5% increase in sales transactions, which was partially offset by a 0.5%decrease in average dollars per transaction, primarily due to our new pricingstrategy.**

** **

**Gross profit**

** **

**During the 26-week period ended June 28,2008, gross profit decreased to $62.6 million from $62.9 million, a decrease of$318,000, or 0.5%, as compared to the same 26-week period last year.  As a percentage of net sales, gross profitdecreased to 44.2% from 46.5%, last year. This decrease was primarily due tothe Company’s implementation of the new pricing strategy and increase inmarkdown sales, as compared to the same period last year, and by the inclusionof operational costs related to our newly acquired subsidiary –**

 

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**Adrienne Victoria Designs or “AVD”.**Costs related to AVDwere not recorded in the same period last year, as it was acquired in the thirdquarter of fiscal 2007.  These costs werepartially offset by savings from increased direct sourcing of merchandisethrough AVD and a decrease in buying and occupancy expense, as compared to thesame period last year.

** **

**During the 13-week period ended June 28,2008, gross profit increased to $34.2 million from $33.9 million, an increaseof $257,000, or 0.8%, as compared to the same 13-week period last year.  As a percentage of net sales, gross profitdecreased to 46.2% from 47.8%, last year. The increase of $257,000 was partially due to an increase of 3% incomparable store sales, which was offset by the Company’s implementation of thenew pricing strategy, inclusion of operational costs related to our newlyacquired subsidiary – Adrienne Victoria Designs or “AVD” and an increase in ourbuying and occupancy costs, as compared to the same period last year.**Costs related to AVDwere not recorded in the same period last year, as it was acquired in the thirdquarter of fiscal 2007.  These costs werepartially offset by savings from increased direct sourcing of merchandisethrough AVD.

** **

**Store operating expenses**

 

**During the 26-week period ended June 28,2008, store operating expenses decreased to $48.7 million from $49.6 million, adecrease of $930,000, or 1.9%, as compared to the same 26-week period lastyear. As a percentage of net sales, store operating expenses decreased to 34.4%from 36.7%, for the 26-week period last year. Store operating expensesdecreased, principally due to lower marketing expenses ($3.0 million), whichwere partially offset by an increase in depreciation and amortization expense($671,000), payroll expense ($886,000) and several other expense categories.**

** **

**During the 13-week period ended June 28,2008, store operating expenses decreased to $24.8 million from $25.6 million, adecrease of $833,000, or 3.3%, as compared to the same 13-week period lastyear. As a percentage of net sales, store operating expenses decreased to 33.5%from 36.1%, for the 13-week period last year. Store operating expensesdecreased, principally due to lower marketing expenses ($1.7 million), whichwere partially offset by an increase in depreciation and amortization expense($188,000), payroll expense ($398,000) and several other expense categories.**

** **

**General and administrative expenses**

** **

**During the 26-week period ended June 28,2008, general and administrative expenses decreased to $11.9 million from $12.5million, a decrease of $622,000, or 5.0%, below the same 26-week period lastyear. As a percentage of net sales, general and administrative expensesdecreased to 8.4% from 9.2%.  General andadministrative expenses decreased, primarily due to lower professional fees($1.8 million), which was due to lower audit fees during the current fiscalyear and the inclusion of $1.0 million in nonrecurring legal settlement costsin the same period last year.  Thedecrease was offset by increases in shipping expense ($290,000), due toshipment of products for our newly acquired Mary L. division, sales commission($332,000) paid to agent for the sale of products related to our Mary L.division, payroll ($138,000), principally due to the payout resulting from therecent change in management, outside services ($187,000), repair andmaintenance ($176,000), amortization ($59,000), of intangibles acquired inconnection with the acquisition of AVD, equipment leasing cost ($55,000) andseveral other expense categories.**

** **

**During the 13-week period ended June 28,2008, general and administrative expenses decreased to $6.2 million from $7.0million, a decrease of $826,000, or 11.8%, below the same 13-week period lastyear. As a percentage of net sales, general and administrative expensesdecreased to 8.4% from 9.9%.  General andadministrative expenses decreased, primarily due to a reduction in professionalfees ($1.6 million), which was principally due to $1.0 million in nonrecurringlegal settlement cost in the same period last year.  These decreases were offset by increases inseveral other expense categories.**

** **

**Store exit costs**

** **

**During the 26-week period ended June 28,2008, the Company recorded a pre-tax charge of $2.3 million ($1.5 million aftertax or $0.11 per diluted share) for 14 underperforming stores, which will closeover the course of fiscal 2008.  Includedin the store exit costs is a write down of equipment and leasehold improvementsand furniture and fixtures in the amount of $2.1 million, severance accrual of$198,000 and lease termination costs for $665,000.  These costs were offset by the reversal of$626,000 of deferred rent accruals. Store exit costs were recorded during the 13-week period ended March 29,2008 and no additional exit costs were recorded during 13-week period ended June 28,2008.**

** **

**Other income/expense**

** **

**During the 26-week period ended June 28,2008, other income (expense) decreased to $356,000 from $1.5 million, adecrease of $1.1 million, or 76.0%, as compared to the same 26-week period lastyear.  This decrease was due to areduction in interest income of $997,000, caused by lower interest rates andlower average cash and marketable securities balances, coupled with chargesrelated to interest expense for the note payable recorded in connection withthe acquisition of AVD.**

 

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**During the 13-week period ended June 28,2008, other income (expense) decreased to $134,000 from $758,000, a decrease of$624,000, or 82.3%, as compared to the same 13-week period last year.  This decrease was due to a reduction ininterest income of $561,000, caused by lower interest rates and lower averagecash balances, coupled with charges related to interest expense for the notepayable recorded in connection with the acquisition of AVD.**

** **

**Income taxes**

** **

**During the 26-week period ended June 28,2008, income tax provision decreased to $31,000 from $857,000, a decrease of$826,000, or 96.4%, as compared to the same 26-week period last year.  During the 13-week period ended June 28,2008, income taxes increased to $1.2 million from $765,000, an increase of$471,000 or 61.6%, as compared to the same 13-week period last year.  The estimated effective tax rate for fiscal2008 is projected to be 37.0%, as compared to the fiscal 2007 estimate of37.5%.**

** **

**Net income**

** **

**As a result of the factors discussed above,net income of $52,000 and $2.1 million was recorded during the 26 and 13-weekperiods ended June 28, 2008, respectively. In fiscal 2007, net income of $1.4 million and $1.3 million was recordedduring the 26 and 13-week periods ended June 30, 2007, respectively.**

** **

**LIQUIDITY AND CAPITAL RESOURCES**

** **

The Company’s cashrequirements are primarily for working capital, the construction of new stores,the remodeling of existing stores and to improve and enhance our informationtechnology systems. During the 26-week period ended June 28, 2008, we used$1.7 million of cash flow from operations, as compared to $10.4 milliongenerated for the same period in fiscal 2007. We expect to continue to meet ouroperating cash requirements primarily through cash flows from operatingactivities, existing cash and equivalents, and short-term investments.  In addition, we have available a $17.5million revolving credit facility (the “credit facility”) with Bank of AmericaRetail Finance, under which we have not had outstanding borrowings for severalyears.  At June 28, 2008, we hadworking capital of $47.9 million, cash and marketable securities of $27.4million and $5.1 million in third party debt outstanding related to thepurchase of Adrienne Victoria Designs (“AVD”).

 

The following table setsforth our cash flows for the period indicated:

 
| ** **                                           | ** ** | **26 Weeks ended** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **June 28,**            | ** ** | **June 30,** | ** ** |
| ** **                                           | ** ** | **2008**                     | ** ** | **2007** | ** ** |
| Net cash provided by (used in) operating  activities |       | $                            | (1,658,000 | ) | $ | 10,407,000 |   |
| Net cash provided by (used in) investing  activities |       | 10,539,000                   |       | (13,583,000 | ) |
| Net cash provided by (used in) financing  activities |       | (15,079,000                  | )          | 279,000 |   |
| Net decrease in cash and equivalents                 |       | $                            | (6,198,000 | ) | $ | (2,897,000 | ) |

** **

During the 26-week period ended June 28,2008, cash and equivalents decreased by $6.2 million, primarily due torepurchase of common stock ($14.7 million), amortization of deferred rent ($1.0million), a seasonal increase in inventories ($4.5 million), an increase inprepaid expenses ($1.8 million) primarily due to estimated tax payments and adecrease in accrued expenses ($2.2 million), primarily due to payment fortreasury share repurchases accrued in fiscal 2007.  Decreases in cash flows for the currentperiod also resulted from capital expenditures for our new store expansion andremodeling program totaling $6.0 million. This decrease was offset by operating cash flows from net maturities ofmarketable securities ($16.6 million), depreciation and amortization expense($6.3 million) and write down of equipment and leasehold improvements, net ofdeferred rent ($1.4 million).

 

**The Company plans to open approximately 16new stores during fiscal 2008, eight of which we have opened in the first halfof fiscal 2008.  We also renovated sixexisting stores in the first half of fiscal 2008.  We spent approximately $6.0 million through June 28,2008 and expect to spend an additional $5 million to $6 million during thebalance of fiscal 2008, for both new store and existing store construction andremodeling. We announced the closure of 14 underperforming stores throughoutfiscal 2008, which is not inclusive of seven stores closed in the normal courseof business.**

** **

**As of June 28, 2008, the Company hasrepurchased during fiscal 2008, in the open market, a total of 1,471,968 sharesat a cost of $14.7 million or $9.98 per share for a total repurchase of3,167,000 shares, at a cost of $38.9 million or $12.28 per share.**

 

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**There have been no borrowings against theline of credit during fiscal 2007 and the first half of fiscal 2008. There wereoutstanding letters of credit of $569,000, $774,000 and $900,000, pursuant tothe Amended Revolving Credit Facility, at June 28, 2008, December 29,2007 and June 30, 2007, respectively.**

** **

#### **Inflation / Recession**

 

The Company does not believethat our sales revenue or operating results have been materially impacted byinflation during the past two fiscal years. There can be no assurance, however,that our sales revenue or operating results will not be impacted by inflationin the future. Many believe the U.S. economy has entered into a recession. Prolongedperiods of the recession on the U.S. economy or global economies may affect thesales volume and profitability levels of our company.

 

#### **Off-Balance Sheet Arrangements**

 

**The Company** does not have any off-balance sheetarrangements or transactions with unconsolidated, limited purposeentities.  In the normal course of ourbusiness, we enter into operating leases for store locations and utilizeletters of credit principally for the importation of merchandise.  We do not have any undisclosed materialtransactions or commitments involving related persons or entities.

** **

# ***CriticalAccounting Policies and Estimates***

 

TheCompany’s accounting policies are more fully described in Note 1 of Notes toConsolidated Financial Statements in our fiscal 2007 10-K.  As disclosed in Note 1 of Notes toConsolidated Financial Statements, the preparation of financial statements in conformitywith accounting principles generally accepted in the United States of America (“GAAP”)requires management to make estimates and assumptions about future events thataffect the amounts reported in the consolidated financial statements and accompanyingnotes. Since future events and their effects cannot be determined with absolutecertainty, actual results will differ from those estimates. We evaluate our estimates and judgments on anongoing basis and predicate those estimates and judgments on historicalexperience and on various other factors that are believed to be reasonableunder the circumstances.   Actual results will differ from these underdifferent assumptions or conditions.

 

TheCompany’s management believes the following critical accounting policies, amongothers, affect its more significant judgments and estimates used in preparationof the Consolidated Financial Statements.

 

*Inventories**.* TheCompany’s finished goods inventories at our retail stores are valued at thelower of cost or market using the retail inventory method. Under the retailinventory method (“RIM”), the valuation of inventories at cost and theresulting gross margins are calculated by applying a calculated cost to retailratio to the retail value of inventories. RIM is an averaging method that iswidely used in the retail industry due to its practicality. Additionally, it isrecognized that the use of RIM will result in valuing inventories at the lowerof cost or market if markdowns are currently taken as a reduction of the retailvalue of inventories. Inherent in the RIM calculation are certain significantmanagement judgments including, among others, merchandise markon, markups, andmarkdowns, which significantly impact the ending inventory valuation at cost aswell as the resulting gross margins. We take markdowns due to changes infashion and style, based on the following factors: (i) supply on hand, (ii) historicalexperience and (iii) our expectations as to future sales. We do notanticipate any significant change in our markdown strategy that would cause asignificant change in our earnings. We believe that our RIM provides aninventory valuation, which results in a carrying value at the lower of cost ormarket. For our AVD division, which makes up approximately 23% of totalinventory as of June 28, 2008, the raw materials, work in process and finishedgoods inventories are valued at the lower of cost or market value, using thefirst-in-first-out valuation method. The Company ensures that the rawmaterials, work in process and finished goods are properly valued by takinginto account any obsolescence and recording a reserve in accordance with ourestablished policy.

 

***Reserve forsales allowance and doubtful accounts***. The allowance for doubtful accounts is the Company’s best estimate ofthe amount of probable credit losses in existing accounts receivable. Theallowance is determined based on historical write-off experience and thecurrent retailer environment. We regularly review the allowance for doubtfulaccounts. Balances over 90 days past due and over a specified amount arereviewed individually for collectability; other balances are considered on anaggregate basis considering the aging of balances.  Account balances are written off against theallowance when it is probable the receivable will not be recovered. There is nooff-balance sheet credit exposure related to our customers. Management believesthat the risk associated with trade accounts receivable is adequately providedfor in the allowance for doubtful accounts. During the 26-week period ended June 28, 2008, we recorded a reserve of approximately$1.1 million and utilized $930,000, resulting in an aggregate reserve amount of$351,000 as of June 28, 2008. As of December 29, 2007, the company reported areserve balance of $234,000.

** **

***Finite-long lived assets.***   The Company’s judgment regarding the existence ofimpairment indicators is based on market and operational performance. We assessthe impairment of long-lived assets, primarily fixed assets, whenever events orchanges in 

 

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**circumstancesindicate that the carrying value may not be recoverable. Factors we consider importantwhich could trigger an impairment review include the following:**

** **

**·**       significant changes inthe manner of our use of assets or the strategy for our overall business;

** **

**·**       significant negativeindustry or economic trends;

** **

**·**       storeclosings; or

** **

**·**       underperformingbusiness trends.

 

In theevaluation of the fair value and future benefits of finite long-lived assets,we perform an analysis by store of the anticipated undiscounted future net cashflows of the related finite long-lived assets. If the carrying value of therelated asset exceeds the undiscounted cash flows, the carrying value isreduced to its fair value. Various factors including future sales growth andprofit margins are included in this analysis. To the extent these futureprojections or strategies change, the conclusion regarding impairment maydiffer from the current estimates. In fiscal 2006, the Company recorded animpairment charge of $101,000, related to one store, that the Company closed inearly 2007.  No impairment charges, otherthan the store exit costs, were recorded during the 26-week period ended June 28,2008. No impairment charges were recorded in the same period last year.

 

*Goodwill and Intangible Assets*. The Companyadopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “*Goodwill**and Other IntangibleAssets*” (“SFAS No. 142”) on December 30, 2001. SFAS No. 142requires that ratable amortization of goodwill be replaced with periodic testsof the goodwill’s impairment. During fiscal 2007, in connection with theacquisition of AVD, the Company recorded goodwill of $10.1 million and other intangibleassets of $1.3 million. The Company performs annual impairment testing whichconsiders the Company’s fair value to determine whether an impairment chargerelated to the carrying value of the Company’s recorded goodwill and otherintangible assets is necessary. As a result of this testing, the Companyconcluded that there was no such impairment loss necessary during fiscal 2007.This is reevaluated annually during the fourth quarter, or more frequently ifnecessary, using similar testing.

 

*Self Insurance.* The Company isself-insured for losses and liabilities related primarily to employee healthand welfare claims. Losses are accrued based upon our estimates of theaggregate liability for claims incurred using certain actuarial assumptionsfollowed in the insurance industry and based on Company experience. Adjustmentsto earnings resulting from changes in historical loss trends have beeninsignificant for fiscal 2007 and 2008. Further, we do not anticipate anysignificant change in loss trends, settlements or other costs that would causea significant change in our earnings. We maintain stop-loss insurance coverage,which covers us for benefits paid in excess of limits as defined in the plan.

 

*Gift Cards, Gift Certificates and Credits**.***The Company sellsgift cards and gift certificates (“Gift Cards”) and issues credits to itscustomers when merchandise is returned. These Gift Cards do not have expirationdates. The Company recognizes sales from Gift Cards when they are redeemed bythe customer and income when the likelihood of the Gift Card being redeemed bythe customer is remote (Gift Card breakage) since the Company has determinedthat it does not have a legal obligation to remit the value of unredeemed GiftCards to the relevant jurisdiction as abandoned property. The Companydetermines Gift Card breakage income based upon historical redemption patternsand the remaining unredeemed percentage at the end of our historical data of3.5 years.  Historical redemptions ofgift cards ranged from 64% in the first quarter to 0.03% in the fourteenthquarter subsequent to the issue date, resulting in an average of approximately95% redeemed or 5% unredeemed gift cards over the historical data of 3.5years.  We have determined thatredemption would be remote based on the fact that, by the fourteenth quartersince issue date, the redemption rate approximated 0%, indicating that theprobability of such cards to be redeemed is remote.  As such, we have recorded breakage income basedupon this 5%, which is continually reviewed on a quarterly basis for propriety.Breakage income represents the balance of Gift Cards, for which the Companybelieves the likelihood of redemption by the customer is remote. At that time,the Company will recognize breakage income for those Gift Cards. The Companyrecorded $159,000 and $164,000 of breakage income during the 26-week periodsended June 28, 2008 and June 30, 2007, respectively.

 

*Revenue Recognition.*  Salesare recognized at the “point of sale,” which occurs when merchandise is sold inan “over-the-counter” transaction or upon receipt by a customer. Sales ofmerchandise via our website are recognized at the expected time of delivery tothe customer. Our customers have the right to return merchandise. Sales arereported net of actual and estimated returns. We maintain a reserve forpotential product returns and record, as a reduction to sales, a provision forestimated product returns, which is determined based on historical experience.Charges or credits to earnings resulting from revisions to estimates on oursales return provision for fiscal 2007 and 2008, have not been material.Amounts billed to customers for shipping and handling fees are included in netsales at the time of shipment. Costs incurred for shipping and handling are includedin cost of sales. The Company records revenues net of applicable sales tax.

 

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In connectionwith the acquisition of AVD, the Company also acquired the rights to the “MaryL.” trademark. Mary L. products are sold in upper tier department stores and asa result, Mary L. sales are included under net sales when the merchandise isshipped to the department stores. Mary L. sales are recorded net of anyreturns, chargebacks, discounts and allowances. We also maintain a reserve as areduction to sales for potential returns, chargebacks, discounts andallowances. During the 26-week period ended June 28, 2008, we recorded areserve of approximately $1.1 million and utilized $930,000, resulting in anaggregate reserve amount of $351,000 as of June 28, 2008.

 

During thesecond quarter of fiscal 2007, Cache introduced a co-branded customer creditcard program. Under this program, the Company receives from the issuing bank anon-refundable credit card activation fee for each new account that is openedand activated. These fees are initially deferred and recognized in consolidatednet sales as revenue over the life of the contract.  During the 26-week period ended June 28,2008, the Company received approximately $778,000 in connection with activatedcards. The amount of fee income recorded in connection with activated creditcards was $163,000 in fiscal 2008 and insignificant in fiscal 2007.

 

The Companyalso offers its credit card holders a program whereby points can be earned onnet purchases made with the co-branded credit card. Five reward points areawarded for each dollar spent at Cache business and one reward point is awardedfor each dollar spent at non-Cache businesses. Cardholders whose credit cardaccount is not delinquent, in default or closed will be automatically eligibleto receive a $25 Cache gift card upon accrual of 2,500 reward points. Theissuing bank bears the cost of the reward program and is responsible for theadministration and management of the program.

 

The Companyalso receives from the issuing bank and Visa U.S.A Inc. a sales royalty, whichis based on a percentage of net purchases made by cardholders at Cache or otherbusinesses. Cache has determined that since it has not incurred any significantor recurring costs in relation to the co-branded credit card program the salesroyalties earned in connection to the agreement will be recorded under net sales.The fees that are incurred by the Company are cardholder incentives, which arefunded from the fees paid by the issuing bank and Visa U.S.A Inc. The amount ofsales royalty income recorded has been insignificant in the first half offiscal 2008.

 

***Income Taxes.***The Company accounts for income taxes in accordance with SFAS No. 109,“*Accounting for Income Taxes*.”  This statement requires the Company torecognize deferred tax liabilities and assets for the expected future taxconsequences of events that have been recognized in the Company’s financialstatements or tax returns. Under this method, deferred tax liabilities andassets are determined based on the difference between the financial statementcarrying amounts and tax bases of assets and liabilities, using applicable taxrates for the years in which the differences are expected to reverse. When taxcontingencies become probable, a liability for the contingent amount isestimated based upon the Company’s best estimation of the potential exposuresassociated with the timing and amount of deductions, as well as various taxfiling positions. As of June 28, 2008, the Company did not have any taxcontingencies. The Company adopted the provisions of FIN 48, effective December 31,2006. The impact of adoption did not have a material impact on the consolidatedfinancial statements.

** **

***Seasonality.***The Company experiences seasonal and quarterly fluctuations in net sales andoperating income. Quarterly results of operations may fluctuate significantlyas a result of a variety of factors, including the timing of new storeopenings, fashion trends and shifts in timing of certain holidays.  Our business is subject to seasonalinfluences, characterized by highest sales during the fourth quarter (October, November andDecember) and lowest sales during the third quarter (July, August andSeptember).

** **

**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

** **

**The Company is exposed to the following typesof market risk-fluctuations in the purchase price of merchandise, as well asother goods and services: the value of foreign currencies in relation to theU.S. dollar; and changes in interest rates. Due to our inventory turn rate andour historical ability to pass through the impact of any generalized changes inour cost of goods sold to our customers through pricing adjustments, commodityand other product risks are not expected to be material.  We purchase substantially all merchandise inU.S. dollars.**

** **

**Our exposure to market risk for changes ininterest rates relates to cash, cash equivalents and marketable securities. Asof June 28, 2008, our cash, equivalents and marketable securitiesconsisted primarily of funds invested in money market accounts, which bearinterest at a variable rate and U.S. treasury instruments, as well as municipalbonds, which bear interest at a fixed rate. Due to the average maturity and theconservative nature of our investment portfolio, we believe a sudden change ininterest rates would not have a material effect on the value of our investmentportfolio. As the interest rates on a material portion of our cash, cashequivalents and marketable securities are variable, a change in interest ratesearned on our investment portfolio would impact interest income along with cashflows, but would not materially impact the fair market value of the relatedunderlying instruments.**

 

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**ITEM 4. CONTROLS AND PROCEDURES**

** **

**The Company is committed to maintainingdisclosure controls and procedures designed to ensure that information requiredto be disclosed in our periodic reports filed under the Exchange Act of 1934,as amended (the “Exchange Act”), is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms,and that such information is accumulated and communicated to our management,including our chief executive officer and chief financial officer, asappropriate, to allow for timely decisions regarding required disclosure.**

** **

**Under the supervision and with theparticipation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of our disclosurecontrols and procedures, as such term is defined under Rules 13a-15(e) and15d-15(e) under the Exchange Act as of the end of the period covered bythis report.  There are inherentlimitations to the effectiveness of any system of disclosure controls andprocedures, including the possibility of human error and the circumvention oroverriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can onlyprovide reasonable assurance of achieving their control objectives.  Based on this evaluation, our principalexecutive officer and our principal financial officer concluded that ourdisclosure controls and procedures were effective as of the end of the periodcovered by this Report.**

** **

**There has been no change in our internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) ofthe Exchange Act) during the six months ended June 28, 2008 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.**

** **

**PART II - OTHER INFORMATION**

** **

**ITEM 6. EXHIBITS**

 
| ** ** | **31.1** | **Certification Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.** |
|------------|----------|------------------------------------------------------------------------------------|
| ** ** | **31.2** | **Certification Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.** |
| ** ** | **32.1** | **Certification Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.** |

 

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Signatures

 

**Pursuant to the requirement of Section 13or 15 (d) of the Securities and Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.**

** **

** **
| ** ** | **Dated: August 7, 2008**        |
|------------|----------------------------------|
| ** ** | **CACHE, INC.**                  |
| ** ** | ** **                       |
| ** ** | ** **                       |
| ** ** | **BY:**                          | ** /s/ Thomas E. Reinckens** |
| ** ** | **Thomas E. Reinckens**          |
| ** ** | **Chairman and Chief**           |
| ** ** | **Executive Officer**            |
| ** ** | **(Principal Executive**         |
| ** ** | **Officer)**                     |
| ** ** | ** **                       |
| ** ** | ** **                       |
| ** ** | **BY:**                          | ** /s/ Margaret Feeney** |
| ** ** | **Margaret Feeney**              |
| ** ** | **Executive Vice President and** |
| ** ** | **Chief Financial Officer**      |
| ** ** | **(Principal Financial and**     |
| ** ** | **Accounting Officer)**          |

 

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