**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

----

 

# **FORM 10-Q**

# ** **

# **(Mark One)**

# ** **

| **x**                                                 | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                            | ** **                                                                                               |
| **For the quarterly  period ended May 31, 2008** |
| ** **                                            | ** **                                                                                               |
| **or**                                                |
| ** **                                            | ** **                                                                                               |
| **o**                                                 | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from                        to                         .**

 

**Commission File Number 001-31390**

 

### **CHRISTOPHER &BANKS CORPORATION**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                     | ** ** | **06 -  1195422**    |
|--------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                 |       | (I.R.S. Employer     |
| incorporation or  organization)                  |       | Identification  No.) |
|                                             |       |                 |
| **2400  Xenium Lane North, Plymouth, Minnesota** | ** ** | **55441**            |
| (Address of  principal executive offices)        |       | (Zip Code)           |

 

**(763) 551-5000**

(Registrant’stelephone number, including area code)

 

**Not Applicable**

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

**YES ****x****   NO ****o**

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

**YES ****o****   NO ****x**

 

As of June 27, 2008,35,414,825 shares of the registrant’s common stock were outstanding.

 

###### ** **

----

###### ** **

###### **CHRISTOPHER &BANKS CORPORATION**

###### ** **

**QUARTERLY REPORT ON FORM 10-Q**

 

**TABLE OF CONTENTS**

# ** **

|                  |                                                                                        | **Page**   |
|-----------------------|---------------------------------------------------------------------------------------------|------------|
|                  |                                                                                        | ** ** |
|                  | **PART I**                                                                             | ** ** |
|                  | **FINANCIAL  INFORMATION**                                                                  | ** ** |
|                  |                                                                                        | ** ** |
| Item 1.               | Financial Statements:                                                                       |       |
|                  |                                                                                        |       |
|                  | Condensed Consolidated  Balance Sheet (Unaudited)                                           |       |
|                  | As of May 31, 2008,  March 1, 2008 and June 2, 2007                          | 3          |
|                  |                                                                                        |       |
|                  | Condensed Consolidated  Statement of Income (Unaudited)                                     |       |
|                  | For the Three Months Ended  May 31, 2008 and June 2, 2007                         | 4          |
|                  |                                                                                        |       |
|                  | Condensed Consolidated  Statement of Cash Flows (Unaudited)                                 |       |
|                  | For the Three Months Ended  May 31, 2008 and June 2, 2007                         | 5          |
|                  |                                                                                        |       |
|                  | Notes to Condensed Consolidated Financial Statements  (Unaudited)                           | 6          |
|                  |                                                                                        |       |
| Item 2.               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 15         |
|                  |                                                                                        |       |
| Item 3.               | Quantitative  and Qualitative Disclosures About Market Risk                                 | 24         |
|                  |                                                                                        |       |
| Item 4.               | Controls and  Procedures                                                                    | 25         |
|                  |                                                                                        |       |
| **PART II**      | ** **                                                                                  |
| **OTHER INFORMATION** |                                                                                        |
| ** **            |                                                                                        |
| Item 1.               | Legal Proceedings                                                                           | 25         |
|                  |                                                                                        |       |
| Item 1A.              | Risk Factors                                                                                | 25         |
|                  |                                                                                        |       |
| Item 2.               | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 25         |
|                  |                                                                                        |       |
| Item 3.               | Defaults Upon  Senior Securities                                                            | 26         |
|                  |                                                                                        |       |
| Item 4.               | Submission of  Matters to a Vote of Security Holders                                        | 26         |
|                  |                                                                                        |       |
| Item 5.               | Other Information                                                                           | 26         |
|                  |                                                                                        |       |
| Item 6.               | Exhibits                                                                                    | 26         |
|                  |                                                                                        |       |
|                  | Signatures                                                                                  | 27         |
|                  |                                                                                        |       |
|                  | Index to Exhibits                                                                           | 28         |

 

2

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# ** **

# **PART I – FINANCIAL INFORMATION**

# ** **

**ITEM 1.**

**FINANCIAL STATEMENTS**

 

# **CHRISTOPHER & BANKS CORPORATION**

# **CONDENSED CONSOLIDATED BALANCE SHEET**

(Unaudited)

 
| ** **                                                                                                                                                                                                                                                                              | ** ** | **May 31,** | ** **  | **March 1,** | ** ** | **June 2,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|-------------|-------------------|------------|------------------|------------|
| ** **                                                                                                                                                                                                                                                                              | ** ** | **2008**         | ** **  | **2008**          | ** ** | **2007**         | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                              | ** ** | ** **       | ** **  | ** **        | ** ** | ** **       | ** ** |
| Current assets:                                                                                                                                                                                                                                                                         |       |             |        |              |       |             |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                              |       | $                | 88,033,313  |              | $          | 78,492,297       |       | $ | 52,178,941 |   |
| Short-term  investments                                                                                                                                                                                                                                                                 |       | 5,000,000        |        | —            |       | 44,425,000       |       |
| Accounts  receivable                                                                                                                                                                                                                                                                    |       | 6,698,639        |        | 5,222,976         |       | 5,621,277        |       |
| Merchandise  inventories                                                                                                                                                                                                                                                                |       | 42,102,786       |        | 43,840,338        |       | 58,829,857       |       |
| Prepaid expenses                                                                                                                                                                                                                                                                        |       | 11,901,106       |        | 11,597,280        |       | 10,344,306       |       |
| Other current  assets                                                                                                                                                                                                                                                                   |       | 4,324,000        |        | 9,482,393         |       | 3,783,548        |       |
| Total current  assets                                                                                                                                                                                                                                                                   |       | 158,059,844      |        | 148,635,284       |       | 175,182,929      |       |
|                                                                                                                                                                                                                                                                                    |       |             |        |              |       |             |       |
| Property,  equipment and improvements, net                                                                                                                                                                                                                                              |       | 135,224,654      |        | 133,598,580       |       | 129,629,964      |       |
| Long-term  investments                                                                                                                                                                                                                                                                  |       | 18,535,577       |        | 23,350,000        |       | —           |       |
| Goodwill                                                                                                                                                                                                                                                                                |       | —           |        | —            |       | 3,587,052        |       |
| Other assets                                                                                                                                                                                                                                                                            |       | 6,196,516        |        | 6,207,858         |       | 1,973,081        |       |
| Total assets                                                                                                                                                                                                                                                                            |       | $                | 318,016,591 |              | $          | 311,791,722      |       | $ | 310,373,026 |   |
|                                                                                                                                                                                                                                                                                    |       |             |        |              |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                           | ** ** | ** **       | ** **  | ** **        | ** ** | ** **       | ** ** |
| Current  liabilities:                                                                                                                                                                                                                                                                   |       |             |        |              |       |             |       |
| Accounts payable                                                                                                                                                                                                                                                                        |       | $                | 10,346,856  |              | $          | 15,380,692       |       | $ | 13,646,265 |   |
| Accrued  salaries, wages and related expenses                                                                                                                                                                                                                                           |       | 7,662,286        |        | 9,246,050         |       | 6,002,676        |       |
| Other accrued  liabilities                                                                                                                                                                                                                                                              |       | 30,185,397       |        | 28,040,623        |       | 23,071,441       |       |
| Total current  liabilities                                                                                                                                                                                                                                                              |       | 48,194,539       |        | 52,667,365        |       | 42,720,382       |       |
|                                                                                                                                                                                                                                                                                    |       |             |        |              |       |             |       |
| Non-current  liabilities:                                                                                                                                                                                                                                                               |       |             |        |              |       |             |       |
| Deferred lease  incentives                                                                                                                                                                                                                                                              |       | 25,257,541       |        | 24,854,278        |       | 22,678,101       |       |
| Deferred rent  obligations                                                                                                                                                                                                                                                              |       | 11,646,168       |        | 11,720,689        |       | 11,418,416       |       |
| Other                                                                                                                                                                                                                                                                                   |       | 4,260,057        |        | 3,722,195         |       | 3,351,206        |       |
| Total  non-current liabilities                                                                                                                                                                                                                                                          |       | 41,163,766       |        | 40,297,162        |       | 37,447,723       |       |
|                                                                                                                                                                                                                                                                                    |       |             |        |              |       |             |       |
| Commitments                                                                                                                                                                                                                                                                             |       | —           |        | —            |       | —           |       |
|                                                                                                                                                                                                                                                                                    |       |             |        |              |       |             |       |
| Stockholders’  equity:                                                                                                                                                                                                                                                             |       |             |        |              |       |             |       |
| Preferred stock –  $0.01 par value, 1,000,000 shares authorized, none outstanding                                                                                                                                                                                             |       | —           |        | —            |       | —           |       |
| Common stock –  $0.01 par value, 74,000,000 shares authorized, 45,218,623, 45,050,290 and  45,097,823  shares issued and  35,414,825, 35,259,572 and  36,255,905  shares outstanding at May 31, 2008,   March 1, 2008 and June 2, 2007, respectively |       | 452,186          |        | 450,503           |       | 450,978          |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                             |       | 110,987,122      |        | 110,359,847       |       | 107,325,355      |       |
| Retained  earnings                                                                                                                                                                                                                                                                      |       | 231,092,360      |        | 221,928,654       |       | 223,003,723      |       |
| Common stock  held in treasury, 9,803,798, 9,790,718 and 8,841,918 shares at cost at  May 31, 2008,  March 1, 2008  and June 2, 2007, respectively                                                                                                                  |       | (112,858,959     | )           | (112,711,809      | )          | (100,575,135     | )          |
| Accumulated  other comprehensive income (loss)                                                                                                                                                                                                                                          |       | (1,014,423       | )           | (1,200,000        | )          | —           |       |
| Total  stockholders’ equity                                                                                                                                                                                                                                                        |       | 228,658,286      |        | 218,827,195       |       | 230,204,921      |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                                                                        |       | $                | 318,016,591 |              | $          | 311,791,722      |       | $ | 310,373,026 |   |

 

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

 

3

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**CHRISTOPHER & BANKS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTOF INCOME**

(Unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended** | ** **  |
|--------------------------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                                     | ** ** | **May 31,**                 | ** **  | **June 2,** | ** ** |
| ** **                                                                     | ** ** | **2008**                         | ** **  | **2007** | ** ** |
| ** **                                                                     | ** ** | ** **                       | ** **  | ** ** | ** ** |
| Net sales                                                                      |       | $                                | 159,642,804 |   | $ | 149,371,334 |   |
|                                                                           |       |                             |        |   |   |
| Costs and  expenses:                                                           |       |                             |        |   |   |
| Merchandise,  buying and occupancy, exclusive of depreciation and amortization |       | 90,473,004                       |        | 86,916,121 |   |
| Selling, general  and administrative                                           |       | 44,812,737                       |        | 39,079,123 |   |
| Depreciation and  amortization                                                 |       | 6,458,343                        |        | 5,295,127 |   |
| Total costs and  expenses                                                      |       | 141,744,084                      |        | 131,290,371 |   |
|                                                                           |       |                             |        |   |   |
| Operating income                                                               |       | 17,898,720                       |        | 18,080,963 |   |
|                                                                           |       |                             |        |   |   |
| Interest income                                                                |       | 826,567                          |        | 1,059,023 |   |
|                                                                           |       |                             |        |   |   |
| Income before  income taxes                                                    |       | 18,725,287                       |        | 19,139,986 |   |
|                                                                           |       |                             |        |   |   |
| Income tax  provision                                                          |       | 7,452,664                        |        | 7,464,595 |   |
|                                                                           |       |                             |        |   |   |
| Net income                                                                     |       | $                                | 11,272,623  |   | $ | 11,675,391 |   |
|                                                                           |       |                             |        |   |   |
| Basic earnings  per common share:                                              |       |                             |        |   |   |
|                                                                           |       |                             |        |   |   |
| Net income                                                                     |       | $                                | 0.32        |   | $ | 0.32 |   |
|                                                                           |       |                             |        |   |   |
| Basic shares  outstanding                                                      |       | 35,071,088                       |        | 36,189,740 |   |
|                                                                           |       |                             |        |   |   |
| Diluted earnings  per common share:                                            |       |                             |        |   |   |
|                                                                           |       |                             |        |   |   |
| Net income                                                                     |       | $                                | 0.32        |   | $ | 0.32 |   |
|                                                                           |       |                             |        |   |   |
| Diluted shares  outstanding                                                    |       | 35,138,246                       |        | 36,305,439 |   |
|                                                                           |       |                             |        |   |   |
| Dividends per  share                                                           |       | $                                | 0.06        |   | $ | 0.06 |   |

 

The accompanying notes are anintegral part of these unaudited condensed consolidated financial statements.

 

4

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**CHRISTOPHER & BANKSCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTOF CASH FLOWS**

(Unaudited)

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **May 31,**                 | ** ** | **June 2,** | ** ** |
| ** **                                                                         | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                             |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 11,272,623 |   | $ | 11,675,391 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                     |       | 6,458,343                        |       | 5,295,127 |   |
| Deferred income  taxes                                                             |       | 127,815                          |       | (1,486,803 | ) |
| Excess income  tax benefit on exercise of stock options                            |       | —                           |       | (21,006 | ) |
| Stock-based  compensation expense                                                  |       | 628,958                          |       | 458,680 |   |
| Loss on disposal  of furniture, fixtures and equipment                             |       | 170,488                          |       | 28,239 |   |
| Changes in  operating assets and liabilities:                                      |       |                             |       |   |   |
| Decrease  (increase) in merchandise inventories                                    |       | 1,737,552                        |       | (6,474,913 | ) |
| Increase in  accounts receivable                                                   |       | (1,475,663                       | )          | (1,139,653 | ) |
| Decrease in  income taxes receivable                                               |       | 5,031,494                        |       | 4,942,826 |   |
| (Increase)  decrease in prepaid expenses                                           |       | (303,826                         | )          | 322,115 |   |
| (Increase) decrease  in other assets                                               |       | 7,203                            |       | (65,668 | ) |
| Decrease in  accounts payable                                                      |       | (5,033,836                       | )          | (2,903,475 | ) |
| Increase  (decrease) in accrued liabilities and income taxes payable               |       | 413,860                          |       | (4,614,630 | ) |
| Increase  (decrease) in deferred lease incentives                                  |       | 403,263                          |       | (968,160 | ) |
| Increase  (decrease) in deferred rent obligations                                  |       | (74,521                          | )          | 740,075 |   |
| Increase in  other liabilities                                                     |       | 537,862                          |       | 3,351,206 |   |
| Net cash  provided by operating activities                                         |       | 19,901,615                       |       | 9,139,351 |   |
|                                                                               |       |                             |       |   |   |
| Cash flows from  investing activities:                                             |       |                             |       |   |   |
| Purchases of  property, equipment and improvements                                 |       | (8,251,682                       | )          | (6,887,788 | ) |
| Purchases of  investments                                                          |       | —                           |       | (20,500,000 | ) |
| Sales of  investments                                                              |       | —                           |       | 24,350,000 |   |
| Net cash used in  investing activities                                             |       | (8,251,682                       | )          | (3,037,788 | ) |
|                                                                               |       |                             |       |   |   |
| Cash flows from  financing activities:                                             |       |                             |       |   |   |
| Proceeds from  exercise of stock options                                           |       | —                           |       | 39,379 |   |
| Dividends paid                                                                     |       | (2,108,917                       | )          | (2,155,707 | ) |
| Excess income  tax benefit on exercise of stock options                            |       | —                           |       | 21,006 |   |
| Acquisition of  common stock held in treasury                                      |       | —                           |       | (5,818,698 | ) |
| Net cash used in  financing activities                                             |       | (2,108,917                       | )          | (7,914,020 | ) |
|                                                                               |       |                             |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                              |       | 9,541,016                        |       | (1,812,457 | ) |
|                                                                               |       |                             |       |   |   |
| Cash and cash  equivalents at beginning of period                                  |       | 78,492,297                       |       | 53,991,398 |   |
|                                                                               |       |                             |       |   |   |
| Cash and cash  equivalents at end of period                                        |       | $                                | 88,033,313 |   | $ | 52,178,941 |   |
|                                                                               |       |                             |       |   |   |
| Supplemental  cash flow information:                                               |       |                             |       |   |   |
| Income taxes  paid                                                                 |       | $                                | 353,090    |   | $ | 417,930 |   |
| Purchases of  equipment and improvements, accrued, not paid                        |       | $                                | 130,950    |   | $ | 261,809 |   |

 

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

 

5

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**CHRISTOPHER &BANKS CORPORATION**

# **NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Unaudited)

 

## **NOTE1 – BASIS OF PRESENTATION**

## ** **

The unauditedcondensed consolidated financial statements included in this Form 10-Qhave been prepared by Christopher & Banks Corporation and subsidiaries(the “Company”) pursuant to the rules and regulations of the United StatesSecurities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed, oromitted, pursuant to such rules and regulations.  These unaudited condensed consolidatedfinancial statements should be read in conjunction with the audited financialstatements and related notes included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended March 1, 2008.

 

The results of operations for the interim periodsshown in this report are not necessarily indicative of results to be expectedfor the full fiscal year.  In the opinionof management, the information contained herein reflects all adjustmentsnecessary to present fairly the Company’s financial position as of May 31,2008 and June 2, 2007, and its results of operations and cash flows forthe three month periods ended May 31, 2008 and June 2, 2007.  All such adjustments are of a normalrecurring nature.

 

*Recently IssuedAccounting Pronouncements*

* *

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”)No. 157, “Fair Value Measurements.” (“SFAS No. 157”).  SFAS No. 157 establishes a singledefinition of fair value and a framework for measuring fair value, sets out afair value hierarchy to be used to classify the source of information used infair value measurements, and requires new disclosures of assets and liabilitiesmeasured at fair value based on their level in the hierarchy.  This statement applies under other accountingpronouncements that require or permit fair value measurements.  In February 2008, the FASB issued StaffPositions (“FSPs”) No. 157-1 and No. 157-2, which, respectively,remove leasing transactions from the scope of SFAS No. 157 and defer itseffective date for one year relative to certain nonfinancial assets andliabilities. As a result, the application of the definition of fair value andrelated disclosures of SFAS No. 157 (as impacted by these two FSPs) waseffective for the Company beginning March 2, 2008 on a prospective basiswith respect to fair value measurements of (a) nonfinancial assets andliabilities that are recognized or disclosed at fair value in the Company’sfinancial statements on a recurring basis (at least annually) and (b) allfinancial assets and liabilities. This adoption did not have a material impacton the Company’s consolidated results of operations or financial condition forthe quarter ended May 31, 2008. The remaining aspects of SFAS No. 157for which the effective date was deferred under FSP No. 157-2 are currentlybeing evaluated by the Company.  Areasimpacted by the deferral relate to nonfinancial assets and liabilities that aremeasured at fair value but are recognized or disclosed at fair value on anonrecurring basis. This deferral applies to such items as nonfinancial assetsand liabilities initially measured at fair value in a business combination (butnot measured at fair value in subsequent periods) or nonfinancial long-livedasset groups measured at fair value for an impairment assessment.  The effects of these remaining aspects ofSFAS No. 157 are to be applied by the Company to fair value measurementsprospectively beginning March 1, 2009. The Company does not expect them tohave a material impact on the Company’s consolidated results of operations orfinancial condition.  Please refer toNote 11 for disclosures related to our initial adoption of SFAS No. 157.

 

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”).  SFAS No. 159 permits an entity tochoose, at specified election dates, to measure eligible financial instrumentsand certain other items at fair value that are not currently required to bemeasured at fair value. An entity reports unrealized gains and losses on itemsfor which the fair value option has been elected in earnings at each subsequentreporting date.  Upfront costs and feesrelated to items for which the fair value option is elected are recognized inearnings as incurred and not deferred. SFAS No. 159 also established presentation and disclosurerequirements designed to facilitate comparisons between entities that choosedifferent measurement attributes for similar types of assets andliabilities.  SFAS No. 159 waseffective for financial statements issued for fiscal years beginning after November 15,2007 (March 2, 2008 for the Company). At the effective date, an entity could elect the fair value option foreligible items that existed at that date. The entity was required to report the effect of the first remeasurementto fair value as a cumulative-effect adjustment to the opening balance ofretained earnings. The Company did not elect the fair value option for eligibleitems that existed as of March 2, 2008.

 

6

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In December 2007, the FASB issued SFAS No. 141R,“Business Combinations,” (“SFAS No. 141R”) which changes accounting forbusiness acquisitions.  SFAS No. 141Rrequires the acquiring entity in a business combination to recognize all (andonly) the assets acquired and liabilities assumed in the transaction andestablishes the acquisition-date fair value as the measurement objective forall assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact thedetermination of acquisition-date fair value of consideration paid in abusiness combination (including contingent consideration); exclude transactioncosts from acquisition accounting; and change accounting practices for acquiredcontingencies, acquisition-related restructuring costs, in-process research anddevelopment, indemnification assets, and tax benefits. For the Company, SFAS No. 141Ris effective for business combinations and adjustments to an acquired entity’sdeferred tax asset and liability balances occurring after February 28,2009.  The Company is currentlyevaluating the impacts and disclosures of this standard which would pertain tothe Company only if it affected a future business combination.

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements, an amendment ofARB No. 51,” (“SFAS No. 160”) which establishes new standardsgoverning the accounting for and reporting of noncontrolling interests (“NCIs”)in partially owned consolidated subsidiaries and the loss of control ofsubsidiaries.  Certain provisions of thisstandard indicate, among other things, that NCIs (previously referred to asminority interests) be treated as a separate component of equity, not as aliability; that increases and decreases in the parent’s ownership interest thatleave control intact be treated as equity transactions, rather than as stepacquisitions or dilution gains or losses; and that losses of a partially ownedconsolidated subsidiary be allocated to the NCI even when such allocation mightresult in a deficit balance.  Thisstandard also requires changes to certain presentation and disclosurerequirements.  For the Company, SFAS No. 160is effective beginning March 1, 2009. The provisions of the standard are to be applied to all NCIsprospectively, except for the presentation and disclosure requirements, whichare to be applied retrospectively to all periods presented.  Based on the Company’s current operations, itdoes not expect that the adoption of SFAS No. 160 will have a materialeffect on its financial position, results of operations or cash flows.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS No. 161”)which will require increased disclosures about an entity’s strategies andobjectives for using derivative instruments; the location and amounts ofderivative instruments in an entity’s financial statements; how derivativeinstruments and related hedged items are accounted for under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities;” and howderivative instruments and related hedged items affect its financial position,financial performance, and cash flows. Certain disclosures will also berequired with respect to derivative features that are credit risk-related. SFASNo. 161 is effective for the Company beginning March 1, 2009 on aprospective basis.  Based on the Company’scurrent operations, the Company does not expect that the adoption of SFAS No. 161will have a material effect on its financial position, results of operations orcash flows.

 

## **NOTE 2 – INVESTMENTS**

 

The Company’s investments consisted of the following:

 
| ** **                                                    | ** ** | **May 31,** | ** ** | **March 1,** | ** ** | **June 2,** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| **Description**                                               | ** ** | **2008**         | ** ** | **2008**          | ** ** | **2007**         | ** ** |
|                                                          |       |             |       |              |       |             |       |
| Tax-advantaged,  auction rate, available-for-sale securities: |       |             |       |              |       |             |       |
| Short-term                                                    |       | $                | 5,000,000  |              | $          | —           |       | $ | 44,425,000 |   |
| Long-term                                                     |       | 18,535,577       |       | 23,350,000        |       | —           |       |
|                                                          |       |             |       |              |       |             |       |
|                                                          |       | $                | 23,535,577 |              | $          | 23,350,000       |       | $ | 44,425,000 |   |

 

As of May 31, 2008, the Company had approximately$23.5 of short-term and long-term investments, which consisted solely of $24.5million of auction rate securities (“ARS”) at cost, less a temporary valuationallowance of $1.0 million.  Thisallowance was based on an analysis of other-than-temporary impairment factors,resulting in management’s estimate of fair value, given the current lack ofliquidity of these investments, while taking into account the current creditquality of the underlying securities.

 

7

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ARS are long-term debt instruments with interest ratesthat reset through scheduled auctions which occur every seven, 28 or 35days.  Holders of ARS can either sellinto the auction, bid based on a desired interest rate or hold and accept thereset rate.  If there are insufficientbuyers, then the auction “fails” and holders are unable to liquidate theirinvestment through the auction.  A failedauction is not a default of the debt instrument. The result of a failed auctionis that the ARS continues to pay interest in accordance with its originalterms. Liquidity, however, for holders is limited until there is a successfulauction, until such time as another market for ARS develops or the ARS arecalled by the issuer. Auctions continue to be held as scheduled until the ARSmatures or until the issue is called. All of the Company’s ARS arecollateralized by student loans and currently have AAA (S&P) or Aaa (Moody’s)credit ratings.  As of May 31, 2008,the repayment of the student loans for approximately 85% of the ARS, whichserve as collateral for the ARS held by the Company, is substantially backed bythe United States government.  Until February 2008,the ARS market was liquid and auctions for ARS held by the Company did notfail. However, in February 2008, a substantial number of auctions failed,meaning there was not enough demand to sell the entire issue at auction.  Auctions for the Company’s ARS have continuedto fail through the date of this report.

 

Based on current market conditions, managementbelieves that it is likely that auctions related to the Company’s ARS willcontinue to be unsuccessful for the near term. Unsuccessful auctions have limited the Company’s ability to access thesefunds.  Management anticipates theliquidity of the ARS will continue to be restricted until there is a successfulauction or until such time as another market for the ARS develops or until theARS are called by the issuer.  TheCompany reclassified the ARS to long-term investments at March 1, 2008 toreflect the lack of liquidity of these investments.  As of May 31, 2008, the Company hadapproximately $93.0 million of cash, cash equivalents and short-terminvestments.  Management believes theCompany has sufficient balances of cash, cash equivalents and short-terminvestments to meet the Company’s working capital requirements and liquidityneeds in fiscal 2009.

 

In June 2008, following the closing of theCompany’s first quarter of fiscal 2009, the Company was notified by two of theARS issuers that $5.0 million of the Company’s ARS in the aggregate would becalled.  One ARS issue for $3.5 millionwas retired at par on July 1, 2008, and another ARS issue for $1.5 millionwas retired at par on July 9, 2008. As a result, the Company reclassified $5.0 million of its ARS toshort-term investments as of May 31, 2008 and reduced the ARS temporaryvaluation allowance by approximately $186,000 for the amount of the allowancerelating to the called ARS issues.

 

The Company reviews impairments associated with itsARS in accordance with EITF 03-1 and FASB Staff Position SFAS Nos. 115-1 and124-1, “The Meaning of Other-Than-Temporary-Impairment and Its Application toCertain Investments,” to determine the classification of the impairment as “temporary”or “other-than-temporary.”  A temporaryimpairment charge results in an unrealized loss being recorded in the othercomprehensive income component of stockholders’ equity.  Such an unrealized loss does not reduce netincome for the applicable accounting period because the loss is not viewed asother-than-temporary.  The Company’smanagement currently believes that all of the impairment related to its ARS istemporary.  The factors evaluated todifferentiate between temporary and other-than-temporary include an assessmentof the credit quality of the underlying collateral,  credit ratings actions and the recent call inJuly 2008 of $5.0 million of the Company’s investment in ARS at par plusaccrued interest.  No tax benefit hasbeen provided for this allowance as a loss, if any, would be capital in nature.

 

## **NOTE 3 – MERCHANDISE INVENTORIES AND SOURCES OF SUPPLY**

## ** **

Merchandise inventoriesconsisted of the following:

 
| ** **                | ** ** | **May 31,** | ** ** | **March 1,** | ** ** | **June 2,** | ** ** |
|---------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| **Description**           | ** ** | **2008**         | ** ** | **2008**          | ** ** | **2007**         | ** ** |
|                      |       |             |       |              |       |             |       |
| Merchandise - in  store   |       | $                | 36,683,719 |              | $          | 37,303,879       |       | $ | 52,779,393 |   |
| Merchandise - in  transit |       | 5,419,067        |       | 6,536,459         |       | 6,050,464        |       |
|                      |       |             |       |              |       |             |       |
|                      |       | $                | 42,102,786 |              | $          | 43,840,338       |       | $ | 58,829,857 |   |

 

**TheCompany does not have long-term purchase commitments or arrangements with anyof its suppliers or agents.**

 

8

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**TheCompany purchased approximately 11% and 9% of its merchandise from its largestoverseas supplier during the first three months of fiscal 2009 and 2008,respectively. **Although the Company hasan established operating history with its largest vendor, there can be noassurance that this relationship can be maintained in the future or that thevendor will continue to supply merchandise to the Company.  If thereshould be any significant disruption in the supply of merchandise from thisvendor, management believes that it will be able to shift production to othersuppliers so as to continue to secure the required volume of product. Nevertheless, it is possible that any significant disruption in supply couldhave a material adverse impact on the Company’s financial position and resultsof operations.

** **

In the first quarter offiscal 2009, the Company purchasedapproximately 53% of its merchandise through one buying agent (the “Agent”). The Company has begun the process of establishing relationships with additionalprimary suppliers, which are intended to reduce its reliance on the Agent.  The Agent also has informed the Company thatit desires to cease serving as an intermediary with manufacturers on behalf ofChristopher & Banks.  Therefore,the Company and the Agent have agreed that their current arrangement will be discontinuedby the end of December 2008.  Whilemanagement believes the actions it is taking to mitigate the risks of relianceon the Agent will be successful, any significant disruption in supply fromvendors working through the Agent could have a material adverse impact on theCompany’s financial position and results of operations.

 

## **NOTE 4 – PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET**

## ** **

Property, equipment andimprovements, net consisted of the following:

 
| ** **                                                                  | ** ** | **Estimated**          | ** ** | **May 31,** | ** **  | **March 1,** | ** ** | **June 2,** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|------------------|-------------|-------------------|------------|------------------|------------|
| **Description**                                                             | ** ** | **Useful Life**   | ** ** | **2008**         | ** **  | **2008**          | ** ** | **2007**         | ** ** |
| Land                                                                        |       | —                 |       | $                | 1,596,898   |              | $          | 1,596,898        |       | $ | 1,596,898 |   |
| Corporate  office, distribution center and related building improvements    |       | 25 years               |       | 12,014,667       |        | 12,014,667        |       | 11,663,704       |       |
| Store leasehold  improvements                                               |       | Term of related lease, |       |             |        |              |       |             |       |
|                                                                        |       | typically 10 years     |       | 98,952,408       |        | 97,525,439        |       | 88,081,545       |       |
| Store furniture  and fixtures                                               |       | Three to 10 years      |       | 115,465,441      |        | 113,585,852       |       | 102,473,180      |       |
| Point of sale  hardware and software                                        |       | Five years             |       | 10,923,735       |        | 10,750,608        |       | 8,860,076        |       |
| Corporate office  and distribution center furniture, fixtures and equipment |       | Seven years            |       | 3,088,708        |        | 3,055,898         |       | 2,792,298        |       |
| Computer  hardware and software                                             |       | Three to five years    |       | 12,158,895       |        | 10,844,392        |       | 5,996,760        |       |
| Construction in  progress                                                   |       | —                 |       | 12,300,990       |        | 9,474,738         |       | 9,244,966        |       |
|                                                                        |       |                   |       | 266,501,742      |        | 258,848,492       |       | 230,709,427      |       |
| Less accumulated  depreciation and amortization                             |       |                   |       | 131,277,088      |        | 125,249,912       |       | 101,079,463      |       |
|                                                                        |       |                   |       |             |        |              |       |             |       |
| Net property,  equipment and improvements                                   |       |                   |       | $                | 135,224,654 |              | $          | 133,598,580      |       | $ | 129,629,964 |   |

 

## **NOTE 5 – ACCRUED LIABILITIES**

## ** **

Other accrued liabilitiesconsisted of the following:

 

| ** **                                             | ** ** | **May 31,** | ** ** | **March 1,** | ** ** | **June 2,** | ** ** |
|--------------------------------------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| **Description**                                        | ** ** | **2008**         | ** ** | **2008**          | ** ** | **2007**         | ** ** |
|                                                   |       |             |       |              |       |             |       |
| Gift card,  certificate and store credit liabilities   |       | $                | 10,093,617 |              | $          | 13,545,500       |       | $ | 9,851,472 |   |
| Accrued  un-invoiced merchandise inventory receipts    |       | 7,541,396        |       | 4,949,370         |       | 1,814,653        |       |
| Accrued workers  compensation self-insurance liability |       | 2,377,609        |       | 2,252,571         |       | 1,763,648        |       |
| Accrued income,  sales and other taxes payable         |       | 4,440,140        |       | 2,161,038         |       | 6,935,594        |       |
| Accrued  occupancy-related expenses                    |       | 1,945,458        |       | 992,584           |       | 1,175,758        |       |
| Other                                                  |       | 3,787,177        |       | 4,139,560         |       | 1,530,316        |       |
|                                                   |       |             |       |              |       |             |       |
|                                                   |       | $                | 30,185,397 |              | $          | 28,040,623       |       | $ | 23,071,441 |   |

 

9

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## **NOTE 6 – CREDIT FACILITY**

## ** **

The Company maintains an Amended and RestatedRevolving Credit Facility (the “Credit Facility”) with Wells Fargo Bank,National Association (“Wells Fargo”). The Credit Facility provides the Company with revolving credit loans andletters of credit of up to $50.0 million, in the aggregate, subject to aborrowing base formula based on inventory levels.

 

On May 23, 2008, theCompany and Wells Fargo entered into a Second Amendment to the Credit Facility(the “Second Amendment”).  The SecondAmendment extended the maturity date of the Credit Facility by three years fromJune 30, 2008 to June 30, 2011. In addition, the Second Amendment reduced the interest rate under theCredit Facility from the prime rate plus 0.25% to the prime rate minus0.25%.  As of May 31, 2008, WellsFargo’s prime rate was 5.0%.  The SecondAmendment also provided the Company with the ability to borrow under the CreditFacility at an interest rate tied to the London Interbank Market Offered Rate(LIBOR).

 

Interest under the CreditFacility is payable monthly in arrears. The Credit Facility carries a facility fee of 0.25%, based on the unusedportion as defined in the agreement, and a collateral monitoring fee.  For the three months ended May 31, 2008,fees related to the Credit Facility totaled $2,147.  Borrowings under the Credit Facility are collateralizedby the Company’s equipment, intangible assets, inventory, inventory letters ofcredit and letter of credit rights.

 

The Company had norevolving credit loan borrowings under the Credit Facility during the firstthree months of fiscal 2009.  Historically,the Credit Facility has been utilized by the Company only to open letters ofcredit to facilitate the import of merchandise. The borrowing base at May 31, 2008 was $34.7 million.  As of May 31, 2008, the Company hadoutstanding letters of credit in the amount of $17.4 million.  Accordingly, the availability of revolvingcredit loans under the Credit Facility was $17.3 million at May 31, 2008.

 

The Credit Facilitycontains certain restrictive covenants, including restrictions on incurringadditional indebtedness and limitations on certain types of investments, aswell as requiring the maintenance of certain financial covenants.  As of May 31, 2008, the most recentmeasurement date, the Company was in compliance with all of these restrictivecovenants under the Credit Facility.

 

## **NOTE 7 – STOCKHOLDERS’ EQUITY**

## ** **

In fiscal 2008, theCompany’s Board of Directors authorized and subsequently announced a one-yearstock repurchase program enabling the Company to purchase up to $20 million ofits common stock, subject to market conditions. No repurchases were executed under the program in the first quarter offiscal 2009.  As of May 24, 2008,the expiration date of the repurchase program, the Company had repurchased948,800 shares of its common stock under the program for a total cost,including commissions, of approximately $12.1 million.

 

## **NOTE 8 – STOCK-BASED COMPENSATION**

## ** **

The Company accounts for stock-based compensation inaccordance with the provisions of SFAS No. 123R, “Share-Based Payment” (“SFAS123R”).  Under this transition method,stock-based compensation expense recognized for share-based awards includes: (a) compensationexpense for all stock-based compensation awards granted prior to, but not yetvested as of, February 25, 2006, based on the grant date fair valueestimated in accordance with the original provisions of SFAS 123, and (b) compensationexpense for all stock-based compensation awards granted subsequent to February 25,2006, based on the grant date fair value estimated in accordance with theprovisions of SFAS 123R.

 

Total pre-tax compensation expense related tostock-based awards for the three months ended May 31, 2008 and June 2,2007 was approximately $629,000 and $459,000, respectively.  Stock-based compensation expense is includedin merchandise, buying and occupancy expenses for the Company’s buying anddistribution employees and in selling, general and administrative expenses forall other employees.

 

10

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*Methodology Assumptions*

 

The Company uses the Black-Scholes option-pricingmodel to value the Company’s stock options for grants to its employees andnon-employee directors.  Using thisoption-pricing model, the fair value of each stock option award is estimated onthe date of grant.  The fair value of theCompany’s stock option awards, which are generally subject to pro-rata vesting,is expensed on a straight-line basis over the vesting period of the stockoptions.  The expected volatilityassumption is based on the historical volatility of the Company’s stock over aterm equal to the expected term of the option granted.  The expected term of stock option awardsgranted is derived from historical exercise experience.  The expected term assumption incorporates thecontractual term of an option grant, as well as the vesting period of anaward.  The risk-free interest rate isbased on the implied yield on a U.S. Treasury constant maturity with aremaining term equal to the expected term of the option granted.

 

The weighted averageassumptions relating to the valuation of the Company’s stock option grants forthe three month periods ended May 31, 2008 and June 2, 2007 were asfollows:

 

| ** **               | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **May 31,**                 | ** ** | **June 2,** | ** ** |
| ** **               | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Expected  dividend yield |       | 2.26                             | %          | 1.29 | % |
| Expected  volatility     |       | 48.34                            | %          | 45.11 | % |
| Risk-free  interest rate |       | 2.61                             | %          | 4.58 | % |
| Expected term in  years  |       | 4.74                             |       | 4.25 |   |

 

*Stock-Based Compensation Activity*

 

The following table presents a summary of the Company’sstock option activity for the three months ended May 31, 2008:

 

| ** **                        | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** **          | ** ** | **Weighted**    | ** ** |
|-----------------------------------|------------|------------|------------|--------------|------------|---------------|------------|---------------------|------------|-----------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** **    | ** ** | ** **          | ** ** | **Average**     | ** ** |
| ** **                        | ** ** | **Number** | ** ** | **Average**  | ** ** | **Aggregate** | ** ** | **Weighted**        | ** ** | **Remaining**   | ** ** |
| ** **                        | ** ** | **of**     | ** ** | **Exercise** | ** ** | **Intrinsic** | ** ** | **Average**         | ** ** | **Contractual** | ** ** |
| ** **                        | ** ** | **Shares** | ** ** | **Price**    | ** ** | **Value**     | ** ** | **Fair Value** | ** ** | **Life**        | ** ** |
|                              |       |       |       |         |       |          |       |                |       |            |       |
| Outstanding,  beginning of period |       | 1,889,454  |       | $            | 18.83      |          | $          | 296,460             |       | $               | 6.79       |   |   |   |
| Vested                            |       | 1,485,011  |       | 19.34        |       | 295,147       |       | 6.83                |       |            |       |
| Unvested                          |       | 404,443    |       | 16.97        |       | 1,313         |       | 6.63                |       |            |       |
| Granted                           |       | 291,050    |       | 10.56        |       | 201,501       |       | 3.85                |       |            |       |
| Exercised                         |       | —     |       | —       |       | —        |       | —              |       |            |       |
| Canceled -  Vested                |       | (53,046    | )          | 18.46        |       | —        |       | 7.01                |       |            |       |
| Canceled -  Unvested (Forfeited)  |       | (10,166    | )          | 17.38        |       | —        |       | 6.67                |       |            |       |
| Outstanding, end  of period       |       | 2,117,292  |       | 17.70        |       | 497,960       |       | 6.38                |       | 6.04            |       |
| Vested                            |       | 1,494,024  |       | 19.33        |       | 295,147       |       | 6.85                |       | 4.67            |       |
| Unvested                          |       | 623,268    |       | 13.80        |       | 202,813       |       | 5.27                |       | 9.32            |       |
|                              |       |       |       |         |       |          |       |                |       |            |       |
| Exercisable, end  of period       |       | 1,494,024  |       | 19.33        |       | 295,147       |       | 6.85                |       | 4.67            |       |
|                                   |            |            |            |              |            |               |            |                     |            |                 |            |  |  |  |

 

The Company may alsogrant shares of restricted stock to its employees and non-employee members ofits Board of Directors.  Restricted stockawards are independent of option grants and are generally subject to forfeitureif employment or service terminates prior to the lapse of therestrictions.  In addition, certain ofthe Company’s restricted stock awards have performance-based vesting provisionsand are subject to forfeiture if these performance conditions are notachieved.  The Company assesses, on anongoing basis, the probability of whether the performance criteria areprojected to be achieved and, if it is deemed probable, recognizes compensationexpense over the relevant performance period. For those awards not subject to performance criteria, the Companyexpenses the cost of the restricted stock awards, which is determined to be thefair market value of the shares at the date of grant, on a straight-line basisover the vesting period.  The fair marketvalue of the Company’s restricted stock is determined based on the closingprice of the Company’s common stock on the grant date.

 

11

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The following table presents a summary of the Company’srestricted stock activity for the three months ended May 31, 2008:

 

| ** **                       | ** ** | **Number** | ** ** | **Aggregate** | ** ** | **Weighted**        | ** ** |
|----------------------------------|------------|------------|------------|---------------|------------|---------------------|------------|
| ** **                       | ** ** | **of**     | ** ** | **Intrinsic** | ** ** | **Average**         | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Value**     | ** ** | **Fair Value** | ** ** |
|                             |       |       |       |          |       |                |       |
| Unvested,  beginning of period   |       | 118,484    |       | $             | 1,332,945  |                | $          | 16.26 |   |
| Granted                          |       | 189,383    |       | 2,130,559     |       | 10.56               |       |
| Vested                           |       | (40,000    | )          | 450,000       |       | 12.08               |       |
| Canceled -  Unvested (Forfeited) |       | (3,550     | )          | 39,938        |       | 18.58               |       |
| Unvested, end of  period         |       | 264,317    |       | 2,973,566     |       | 12.78               |       |
|                                  |            |            |            |               |            |                     |            |  |  |

 

## **NOTE 9 – INCOME TAXES**

## ** **

The Company adopted the provisions of FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”),on March 4, 2007.  FIN No. 48prescribes a minimum recognition threshold and measurement process forrecording uncertain tax positions in the financial statements.  Additionally, FIN No. 48 providesguidance on derecognition, classification, accounting and disclosure related touncertain tax positions.

 

As of May 31, 2008, the Company’s liability forunrecognized tax benefits associated with uncertain tax positions wasapproximately $4.3 million and the total amount of unrecognized tax benefitsthat, if recognized, would affect the effective tax rate was $2.5 million.  The Company recognizes interest and penaltiesrelated to unrecognized tax benefits as components of income tax expense.  At May 31, 2008 the Company had accruedapproximately $0.8 million for the potential payment of interest and penalties.

 

The Company and its subsidiaries are subject to U.S.federal income tax and the income tax of various state and localjurisdictions.  The Internal RevenueService has completed its audit for tax years through fiscal 2006.  The Company is not subject to state incometax examination by taxing authorities for taxable years prior to fiscal2004.  At May 31, 2008, the Companydid not expect its liability for unrecognized tax benefits to significantlyincrease or decrease over the next year.

 

## **NOTE 10 – NET INCOME PER SHARE**

## ** **

Basic earnings pershare (“EPS”) is computed based on the weighted average number of shares of commonstock outstanding during the applicable periods, while diluted EPS is computedbased on the weighted average number of shares of common stock and commonequivalent shares outstanding.  TheCompany’s reconciliation of EPS includes the individual share effects of allsecurities affecting EPS which consist solely of the effects of dilution fromawards granted under the Company’s stock-based compensation plans.

 

The following is areconciliation of the number of shares and per share amounts used in the basicand diluted EPS computations:

 

| ** **                                               | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **May 31, 2008**       | ** ** | **June 2, 2007** | ** ** |
| ** **                                               | ** ** | ** **                       | ** ** | **Net** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                                               | ** ** | ** **                       | ** ** | **Income** | ** ** | ** ** | ** ** | **Income** | ** ** |
| ** **                                               | ** ** | **Shares**                       | ** ** | **Per Share** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Basic                                                    |       | 35,071,088                       |       | $ | 0.32 |   | 36,189,740 |   | $ | 0.32 |   |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Effect of  dilution from stock- based compensation plans |       | 67,158                           |       | — |   | 115,699 |   | — |   |
|                                                     |       |                             |       |   |   |   |   |   |   |
| Diluted                                                  |       | 35,138,246                       |       | $ | 0.32 |   | 36,305,439 |   | $ | 0.32 |   |

 

12

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Stock options of1,898,852 and 1,686,198 were excluded from the shares used in the computationof diluted EPS for the three months ended May 31, 2008 and June 2,2007, respectively, as they were anti-dilutive.

 

**NOTE 11 — FAIR VALUE MEASUREMENTS**

 

As discussed in Note 1, the Company adopted SFAS No. 157,“Fair Value Measurements,” (as impacted by FSP Nos. 157-1 and 157-2) effective March 1,2008, with respect to fair value measurements of (a) nonfinancial assetsand liabilities that are recognized or disclosed at fair value in the Company’sfinancial statements on a recurring basis (at least annually) and (b) allfinancial assets and liabilities.

 

Under SFAS No. 157, fair value is defined as theexit price, or the amount that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants asof the measurement date.  SFAS No. 157also establishes a hierarchy for inputs used in measuring fair value thatmaximizes the use of observable inputs and minimizes the use of unobservableinputs by requiring that the most observable inputs be used whenavailable.  Observable inputs are inputsmarket participants would use in valuing the asset or liability developed basedon market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflectthe Company’s assumptions about the factors market participants would use invaluing the asset or liability developed based upon the best informationavailable in the circumstances.  Thehierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets foridentical assets or liabilities. Level 2 inputs include quoted prices forsimilar assets or liabilities in active markets, quoted prices for identical orsimilar assets or liabilities in markets that are not active and inputs (otherthan quoted prices) that are observable for the asset or liability, eitherdirectly or indirectly.  Level 3 inputsare unobservable inputs for the asset or liability.   Categorization within the valuationhierarchy is based upon the lowest level of input that is significant to thefair value measurement.

 

*Assetsand Liabilities that are Measured at Fair Value on a Recurring Basis:*

 

For the Company, effective March 1, 2008, fairvalue under SFAS No. 157 (as impacted by FSP Nos. 157-1 and 157-2)principally applied to financial asset and liabilities such asavailable-for-sale investments (included in short and long-term investments inthe Consolidated Balance Sheet).  Theseitems were previously and will continue to be marked-to-market at eachreporting period; however, the definition of fair value used for thesemark-to-markets is now applied using SFAS No. 157.  The information in the following paragraphsand tables primarily addresses matters relative to these financial assets andliabilities.  Separately, there were nomaterial fair value measurements with respect to nonfinancial assets orliabilities that are recognized or disclosed at fair value in the Company’sfinancial statements on a recurring basis subsequent to the effective date ofSFAS No. 157 (as impacted by FSP Nos. 157-1 and 157-2).

 

Following is a description of the valuationmethodologies used for financial assets and liabilities measured at fair value:

 

Available-for-sale investment securities — auction rate securities (“ARS”):

 

As discussed in Note 2, auctions for ARS held by theCompany failed beginning in February 2008 and have continued to failthrough the date of this report.  As aresult, investments in ARS are valued to reflect the current lack of liquidityof these investments while taking into account the credit quality of theunderlying securities.

 

The following table provides information by level forassets and liabilities that are measured at fair value, as defined by SFAS No. 157,on a recurring basis.

 

| ** **                                              | ** ** | **Fair Value**        | ** ** | **Fair Value Measurements**         | ** ** |
|---------------------------------------------------------|------------|----------------------------|------------|-----------------------------------------------|------------|
| ** **                                              | ** ** | **at**                     | ** ** | **Using Inputs Considered as** | ** ** |
| **Description**                                         | ** ** | **May 31, 2008** | ** ** | **Level 1**                              | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Assets:                                                 |       |                       |       |                                          |       |   |   |   |   |
| Available-for-sale  investments Auction Rate Securities |       | $                          | 23,535,577 |                                          | $          | — |   | $ | — |   | $ | 23,535,577 |   |
| Liabilities:                                            |       | —                     |       | —                                        |       | — |   | — |   |
|                                                         |            |                            |            |                                               |            |  |  |  |  |  |  |  |  |

 

13

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The following table provides a reconciliation of thebeginning and ending balances of items measured at fair value on a recurringbasis in the table above that used significant unobservable inputs (Level 3).

 

| ** **                              | ** ** | **Auction Rate Securities** | ** ** |
|-----------------------------------------|------------|---------------------------------------|------------|
| Beginning  balance, March 1, 2008  |       | $                                     | 23,350,000 |   |
| Total gains  (losses):                  |       |                                  |       |
| Included in  earnings                   |       | —                                |       |
| Included in  other comprehensive income |       | 185,577                               |       |
| Purchases,  issuances and settlements   |       | —                                |       |
| Transfers in  and/or out of Level 3     |       | —                                |       |
| Ending balance,  May 31, 2008      |       | $                                     | 23,535,577 |   |

 

The Company reports other comprehensive income (loss)in accordance with the provisions of SFAS No. 130, “ReportingComprehensive Income” (“SFAS No. 130”). SFAS No. 130 established standards for the reporting and disclosureof Comprehensive Income.  In the firstquarter of fiscal 2009, other comprehensive income (loss) included unrealizedgains or losses associated with investments classified as available forsale.  Total comprehensive income for thequarter ended May 31, 2008 was $11.5 million, which is the sum of the Company’snet income of $11.3 million plus the $186,000 adjustment to the Company’sallowance for the temporary impairment of long-term investments.

 

*Assetsand Liabilities that are Measured at Fair Value on a Nonrecurring Basis:*

 

During the quarter ended May 31, 2008, theCompany had no measurements of assets or liabilities at fair value (as definedin SFAS No. 157) on a nonrecurring basis subsequent to their initialrecognition.  As indicated in Note 1, theaspects of SFAS No. 157 for which the effective date for the Company wasdeferred under FSP No. 157-2 until March 1, 2009 relate tononfinancial assets and liabilities that are measured at fair value but arerecognized or disclosed at fair value on a nonrecurring basis. This deferralapplies to such items as nonfinancial assets and liabilities initially measuredat fair value in a business combination (but not measured at fair value insubsequent periods) or nonfinancial long-lived asset groups measured at fairvalue for an impairment assessment.

 

**NOTE 12 — COMMITMENTS AND CONTINGENCIES**

** **

*Legal Proceedings*

 

The Company is subject to various legal proceedingsand claims that arise in the ordinary course of business.  Although the amount of any liability thatcould arise with respect to these actions cannot be accurately predicted, anysuch liability is not expected to have a material adverse impact on the Company’sfinancial position or results of operations.

 

## **NOTE 13 – SEGMENT REPORTING**

## ** **

The Company operates in the retail apparel industry inwhich it primarily designs, sources and sells women’s apparel catering tocustomers generally ranging in age from 40 to 60 who are typically part of asegment of the female baby boomer demographic. The Company has identified three operating segments (Christopher &Banks, C.J. Banks and Acorn) as defined by SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information” (“SFAS No. 131”).  The Company’s Christopher & Banksand C.J. Banks operating segments have been aggregated into one reportablesegment based on the similar nature of products sold, methods of sourcing,merchandising and distribution processes involved, target customers, andeconomic characteristics of the two brands. Based on operating performance, the Company’s Acorn division ispresented as a separate reportable segment.

 

In the table below the “Christopher &Banks/C.J. Banks” reportable segment includes activity generated by the Company’sChristopher & Banks and C.J. Banks operations. The “Acorn” reportablesegment includes activity generated from the Company’s Acorn operations.  The “Corporate/Administrative” column, whichprimarily represents operating activity at the Company’s corporate office anddistribution center facility, is presented to allow for reconciliation ofsegment-level net sales, operating income (loss) and total assets to theCompany’s consolidated net sales, operating income and total assets.  Segment operating income (loss) includes onlynet sales, merchandise gross margin and direct store expenses with noallocation of corporate overhead.  Netsales and operating income (loss) are the two components of segment operationsreviewed by the Company’s chief operating decision maker.

 

14

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**Segment Reporting:**

 
| ** **                                | ** ** | **Christopher & Banks/** | ** **  | ** ** | ** ** | **Corporate/**     | ** ** | ** **       | ** **  |
|-------------------------------------------|------------|----------------------------------------|-------------|------------|------------|--------------------|------------|------------------|-------------|
| ** **                                | ** ** | **C.J. Banks**                    | ** **  | **Acorn**  | ** ** | **Administrative** | ** ** | **Consolidated** | ** **  |
| **Three Months Ended May 31, 2008:** |       |                                   |        |       |       |               |       |             |        |
| Net  sales                                |       | $                                      | 155,395,348 |       | $          | 4,247,456          |       | $                | —      |   | $ | 159,642,804 |   |
| Operating  income (loss)                  |       | $                                      | 35,622,479  |       | $          | (662,908           | )          | $                | (17,060,851 | ) | $ | 17,898,720 |   |
| Total  assets                             |       | $                                      | 180,700,362 |       | $          | 2,851,164          |       | $                | 134,465,065 |   | $ | 318,016,591 |   |
|                                      |       |                                   |        |       |       |               |       |             |        |
| **Three Months Ended June 2, 2007:** |       |                                   |        |       |       |               |       |             |        |
| Net  sales                                |       | $                                      | 145,520,814 |       | $          | 3,850,520          |       | $                | —      |   | $ | 149,371,334 |   |
| Operating  income (loss)                  |       | $                                      | 32,037,895  |       | $          | (688,774           | )          | $                | (13,268,158 | ) | $ | 18,080,963 |   |
| Total  assets                             |       | $                                      | 201,639,026 |       | $          | 13,758,152         |       | $                | 94,975,848  |   | $ | 310,373,026 |   |

 

**ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Thefollowing management’s discussion and analysis of financial condition andresults of operations (“MD&A”) should be read in conjunction with theconsolidated financial statements and notes included in Item 1 of this Form 10-Q.**

** **

**Executive Overview**

** **

**Christopher &Banks Corporation, a Delaware Corporation, is a Minneapolis-based retailer ofwomen’s apparel, which operates retail stores through its wholly ownedsubsidiaries.  The Company wasincorporated in 1986 to acquire Braun’s Fashions, Inc., which had operatedas a family-owned business since 1956. In July 2000, the Company’s stockholders approved a change in theCompany’s name from Braun’s Fashions Corporation to Christopher &Banks Corporation.**

** **

**As of May 31,2008, the Company operated 850 stores in 46 states, including 551 Christopher &Banks stores, 263 C.J. Banks stores and 36 Acorn stores.  The Company also operated two e-commerceenabled websites at**www.christopherandbanks.com and www.cjbanks.com.  The Company’s Christopher &Banks brand offers distinctive fashions featuring exclusively designed,coordinated assortments of women’s apparel in sizes 4 to 16. The Company’s C.J.Banks brand offers similar assortments of women’s apparel in sizes 14W to24W.  Its Acorn stores offer upscalewomen’s fashions, along with accessories, including jewelry, handbags and othergift items under private and branded labels.

** **

*Fiscal 2009 First Quarter Summary*

 

The Company recorded netincome of $0.32 per diluted share in the first quarter of fiscal 2009, comparedto net income of $0.32 per diluted share in the first quarter of fiscal2008.  Same-store sales for the firstquarter were flat.  Strong customerresponse to the Company’s second “Friends and Family” promotional event in April offsetthe effect of double-digit declines in store traffic encountered throughoutmuch of the quarter.  Despite thedownturn in customer traffic, merchandise margins for the first quarterincreased approximately 150 basis points over last year as tight inventorycontrols allowed for more selling at full price and a reduced need to mark downmerchandise.  Inventory levels at the endof the quarter were down approximately 35% on a per-store basis over the prioryear.  Both the Company’s averagetransaction value and average units per transaction increased in the firstquarter, which management believes was reflective of customers’ acceptance ofthe Company’s merchandise assortment.

 

15

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In the first quarter, oneof the Company’s goals regarding its merchandise was to improve the freshnessand color of its product assortment.  TheCompany moved away from the practice of featuring colors for two consecutivemonths.  Major in-store remerchandisingfloor sets (“floor sets”) are now being executed on a monthly basis at all ofthe Company’s stores.  Beginning in thefirst quarter of fiscal 2009, refresher floor sets are completed each monthbetween the more traditional, larger floor sets, to ensure that fresh productis featured more frequently in the Company’s stores.

 

In the first quarter, theCompany opened nine new Christopher & Banks stores and eight new C.J.Banks stores.  The Company also closedone Christopher & Banks store, two C.J. Banks stores and one Acornstore during the quarter.  In addition,the Company completed the installation of new point-of-sale registers in 550 ofits stores.  The new registers providethe Company with updated point-of-sale technology.  Management anticipates these new registerswill help improve operating efficiencies and provide enhanced communicationabilities with its stores.

 

*Fiscal 2009 Outlook*

 

In the first quarter offiscal 2009, the Company’s results were impacted by the extremely challengingdomestic macro-economic environment. Higher gasoline and food costs have placed increasing pressure onconsumers’ spending patterns.  Weakcustomer traffic encountered in the first quarter has continued into June andearly July and the Company anticipates that this weak traffic trend, andcorresponding negative impact on sales, will persist throughout the secondquarter and into the second half of fiscal 2009.

 

The Company isapproaching its real estate growth strategy more cautiously given the uncertaineconomic environment.  The Company plansto open six new stores in the second quarter, five new stores in the thirdquarter and no new stores in the fourth quarter of fiscal 2009.  Five of the additional new stores are plannedto be Christopher & Banks stores and six are planned to be C.J. Bankslocations.  The Company is not planningto open any Acorn stores during fiscal 2009. Going forward, the Company will proceed cautiously with new storegrowth.  New store opportunities will beanalyzed closely and only those with compelling lease economics will beapproved.

 

Management plans tocontinue its focus on managing inventory conservatively in the remainder offiscal 2009.  Management plans to buildinventory levels, which were down 35% on a per store basis at the end of thefirst quarter, on a per store basis in the second quarter.  In the second half of the year, managementexpects inventory levels per store to build to levels comparable to thosepresent in the fall and holiday season of fiscal 2008.  As the year progresses, management willevaluate selling trends and make appropriate adjustments to inventory levels inorder to maximize full-priced sales.

 

During the first quarterof fiscal 2009, the Company continued to make progress related to several keybusiness initiatives as described below.

 

**TheCompany launched two separate e-commerce websites in February 2008 for itsChristopher & Banks and C.J. Banks brands.  These websites give customers the ability toview and purchase the Company’s merchandise online atwww.christopherandbanks.com and www.cjbanks.com.  The Company currently sells essentially thesame selection of merchandise on its websites that it features in itsChristopher & Banks and C.J. Banks stores.  The Company’s customers responded favorablyto its e-commerce sites in the first quarter of fiscal 2009.  At this time, the Company is adjustinginventory levels for its online businesses to match anticipated demand for theremainder of fiscal 2009. **Beginning in the secondhalf of fiscal 2009, the Company is planning to offer a greater size selectionthrough its e-commerce websites.  Management believes that its websites providethe Company with an opportunity to generate incremental sales and offerconvenience and product research capabilities to its customers.  The Company does not have an e-commerce enabledwebsite for its Acorn brand and does not currently plan to launch an e-commercewebsite for Acorn.

** **

Management plans tocontinue to make upgrades to certain of its information systems.  The Company plans to complete theinstallation of its new planning and allocation system in the second quarter offiscal 2009.  The system allows enhancedproduct allocation models which give the Company increased flexibilityregarding product distribution by store sales volume, climate and customer sizeand fashion preferences.  In addition,the financial planning modules of this system have begun to provide the Companymore in-depth product analysis capabilities. Management expects to realize financial benefits from this systembeginning in late fiscal 2009 with  additionalbenefits expected to be realized in fiscal 2010.  The Company also plans to completethe implementation of a new suite of financial software in the second quarterof fiscal 2009.

 

16

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In the first quarter offiscal 2009, the Company purchasedapproximately 53% of its merchandise through one buying agent.  TheCompany has begun the process of establishing relationships with additionalprimary suppliers, which are intended to reduce its reliance on the Agent.  The Agent also has informed the Company thatit desires to cease serving as an intermediary with manufacturers on behalf ofChristopher & Banks.  Therefore,the Company and the Agent have agreed that their current arrangement will be discontinuedby the end of December 2008.  Whilemanagement believes the actions it is taking to mitigate the risks of relianceon the Agent will be successful, any significant disruption in supply fromvendors working through the Agent could have a material adverse impact on theCompany’s financial position and results of operations.

 

In order to increaseawareness of its brands, the Company plans to expand its marketing efforts infiscal 2009.  The Company plans to spendslightly more than 1.5% of its net sales on marketing-related expenditures infiscal 2009, compared to approximately 1.0% of sales in fiscal 2008.  In fiscal 2009, the Company plans to continueits efforts to expand its customer relationship management database and, inparticular, focus on increasing its number of customer e-mail contacts.  In the second half of fiscal 2009, theCompany has planned promotions and in-store events in an attempt to drive morecustomer traffic to its stores.

 

**Whilethe Company believes the retail and macro-economic environments will remainchallenging for the foreseeable future, it also believes that it is takingactions to position the Company for stronger operating performance wheneconomic conditions become more favorable.**

** **

***Other Developments***

** **

**On May 2,2008, the Company announced that Martin Bassett had been named to its Board ofDirectors, effective May 20, 2008. The election of Mr. Bassett increased the number of directors toeight and the number of independent directors to seven.**

** **

On May 23,2008, the Company and Wells Fargo Bank, National Association (“Wells Fargo”)entered into a Second Amendment (the “Second Amendment”) to the Amended andRestated Revolving Credit Facility (the “Credit Facility”).  The Second Amendment extended the maturitydate of the Credit Facility by three years, from June 30, 2008 to June 30,2011.  In addition, the Second Amendmentreduced the interest rate under the Credit Facility from the prime rate plus0.25% to the prime rate minus 0.25%.  Asof May 31, 2008, Wells Fargo’s prime rate was 5.0%.  The Second Amendment also provided theCompany with the ability to borrow under the Credit Facility at an interestrate tied to the London Interbank Market Offered Rate (LIBOR).

 

The Company owns its 210,000 square foot corporateoffice and distribution center facility, located in Plymouth, Minnesota.  The Company utilizes the entire facility forits corporate office and distribution center requirements.  The portion of the Company’s headquartersdevoted to office space is at capacity. As such, the Company is seeking to locate new or additional office spaceto accommodate its future staffing requirements.

 

**Key PerformanceIndicators**

** **

The Company’s management evaluates the followingitems, which are considered key performance indicators, in assessing theCompany’s performance:

 

*Same-store sales*

 

The Company’s same-storesales data is calculated based on the change in net sales for stores that havebeen open for more than 13 full months and includes stores, if any, that havebeen relocated within the same mall, though the Company typically does notexpand or relocate stores within a mall. Stores where square footage has been changed by more than 25 percent areexcluded from the same-store sales calculation. Stores closed during the year are included in the same-store salescalculation only for the full months of the year the stores were open.

 

Management considers same-store sales to be animportant indicator of the Company’s performance.  Same-store sales results are important inachieving leveraging of costs, including store payroll, store occupancy,depreciation and other general and administrative expenses.  Year-over-year increases in same-store salescontribute to greater leveraging of costs, while declining same-store salescontribute to deleveraging of costs. Same-store sales results also have a direct impact on the Company’stotal net sales, cash and cash equivalents and working capital.

 

17

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*Merchandise, buying and occupancycosts, exclusive of depreciation and amortization*

 

Merchandise, buying and occupancy costs, exclusive ofdepreciation and amortization, measure whether the Company is appropriatelyoptimizing the price of its merchandise. Merchandise, buying and occupancy costs include the cost of merchandise,markdowns, shrink, freight into and out from the Company’s distribution center,buyer and distribution center salaries, buyer travel, rent and otheroccupancy-related costs, various merchandise design and development costs,miscellaneous merchandise expenses and other costs related to the Company’sdistribution network.

 

*Operating income*

 

The Company’s management views operating income as akey indicator of the Company’s success. The key drivers of operating income are same-store sales; merchandise,buying and occupancy costs, and the Company’s ability to control its otheroperating costs.

 

*Store productivity*

 

Store productivity measures, including sales persquare foot, average unit retail selling price, number of transactions perstore, number of units per transaction, average retail dollars per transaction,customer traffic and conversion rates (the percentage of customers who enterthe Company’s stores and make a purchase) are evaluated by management inassessing the operational performance of individual stores and of the Company.

 

*Inventory turnover*

 

The Company’s management evaluates inventory turnoveras a measure of how productively inventory is bought and sold.  Inventory turnover is important as it cansignal slow moving inventory, which can be critical in determining the need totake markdowns on merchandise.

 

*Cash flow and liquidity*

 

Managementevaluates cash flow from operations, investing activities and financingactivities in determining the sufficiency of the Company’s cash position.  Cash flow from operations has historicallybeen sufficient to cover the Company’s uses of cash.  The Company expects its cash and cashequivalents, combined with cash flows from operations, to be sufficient to fundanticipated capital expenditures, working capital and other requirements forliquidity during fiscal 2009.

 

**Critical Accounting Policies andEstimates**

 

The Company’s criticalaccounting policies are more fully described in Note 1 of the notes toconsolidated financial statements contained within the Company’s Annual Reporton Form 10-K for the fiscal year ended March 1, 2008.  Management’s discussion and analysis of theCompany’s financial condition and results of operations are based upon theCompany’s consolidated condensed financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America.

 

On an ongoing basis, theCompany evaluates its estimates, including those related to customer productreturns, inventories, income taxes, medical and workers’ compensation claimsand contingencies.  The Company bases itsestimates on historical experience and on various other assumptions that itbelieves to be reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying values of assets and liabilitiesthat are not readily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions.  There have been no material changes in theCompany’s critical accounting policies or estimates in the three months ended May 31,2008.

 

18

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**Resultsof Operations**

 

The following table sets forth consolidated incomestatement data expressed as a percentage of net sales for the periodsindicated.

 
| ** **                                                                           | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                           | ** ** | **May 31,**                 | ** ** | **June 2,** | ** ** |
| ** **                                                                           | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                                                                           | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net  sales                                                                           |       | 100.0                            | %          | 100.0 | % |
| Merchandise,  buying and occupancy costs, exclusive of depreciation and amortization |       | 56.7                             |       | 58.2 |   |
| Selling,  general and administrative expenses                                        |       | 28.1                             |       | 26.2 |   |
| Depreciation  and amortization                                                       |       | 4.0                              |       | 3.5 |   |
| Operating  income                                                                    |       | 11.2                             |       | 12.1 |   |
| Interest  income                                                                     |       | 0.5                              |       | 0.7 |   |
| Income  before income taxes                                                          |       | 11.7                             |       | 12.8 |   |
| Income  tax provision                                                                |       | 4.6                              |       | 5.0 |   |
| Net  income                                                                          |       | 7.1                              | %          | 7.8 | % |

 

**Three Months Ended May 31, 2008 Compared toThree Months Ended June 2, 2007**

 

***NetSales.**** *Net sales for the three monthsended May 31, 2008 were $159.6 million, an increase of $10.2 million orapproximately 7%, from $149.4 million for the three months ended June 2,2007.  The increase in net salesprimarily resulted from an increase in the number of stores operated by theCompany.  The Company operated 850 storesat May 31, 2008, compared to 801 stores at June 2, 2007, an increaseof approximately 6%.  The Company’ssame-store sales for the first quarter of fiscal 2009 were flat when comparedto the corresponding period in fiscal 2008. An approximate 11% increase in the average value per transaction,attributable to increased units sold per transaction and a slightly higheraverage retail price per unit, was offset by an approximate 11% decrease in theaverage number of transactions per store. During the first quarter, declines in sales attributable to reduced customertraffic resulting from the challenging macro-economic environment were offsetby strong customer response to the Company’s second “Friends and Family”promotional event held in April.  In thefirst quarter, same-store sales for the Company’s stores opened in fiscal 2006,2007 and 2008 increased approximately 2%, while the mature base of stores,opened in fiscal 2005 and earlier, posted a decline in same-store sales ofapproximately 1%.

 

***Merchandise,Buying and Occupancy Costs, exclusive of depreciation and amortization. ***Merchandise, buying andoccupancy costs, exclusive of depreciation and amortization, were $90.5million, or 56.7% of net sales, during the first quarter of fiscal 2009,compared to $86.9 million, or 58.2% of net sales, during the same period infiscal 2008, resulting in approximately 150 basis points of positiveleverage.  The largest component of theimprovement in merchandise, buying and occupancy costs, as a percentage of netsales, was related to improvements in merchandise margins, primarily resultingfrom increased full-priced sales. Markdowns required to clear inventory were reduced as the Companymaintained strong controls over inventory levels in the first quarter.  On a per-store basis, inventory was downapproximately 35% at May 31, 2008 compared to June 2, 2007.  The Company’s retail inventory turnoverincreased to 3.3 for the twelve months ended May 31, 2008 from 3.1 for thetwelve months ended June 2, 2007.

 

***Selling,General and Administrative Expenses. ***Selling,general and administrative expenses for the three months ended May 31,2008 were $44.8 million, or 28.1% of net sales, compared to $39.1 million, or26.2% of net sales, for the three months ended June 2, 2007, resulting inapproximately 190 basis points of negative leverage.  Major components of the negative leverageincluded approximately 50 basis points related to performance-based bonus andincentives expense, 50 basis points resulting from higher marketing costs, 40basis points of e-commerce related expenses and 30 basis points of increasedself-insured medical claims.  Inaddition, with flat same-store sales in the first quarter of fiscal 2009, therewas general deleveraging of most other components of selling, general andadministrative expenses.

 

19

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***Depreciationand Amortization.*** Depreciation and amortization was $6.5 million, or 4.0% of net sales, inthe first quarter of fiscal 2009, compared to $5.3 million, or 3.5% of netsales, in the first quarter of fiscal 2008. The increase in the amount of depreciation and amortization expense wasa result of capital expenditures made by the Company over the past year.  The Company opened 17 new stores in the firstthree months of fiscal 2009 and 69 new stores in fiscal 2008.  In addition, the Company installed newpoint-of-sale registers at 550 of its stores in the first quarter.

 

***OperatingIncome.***  As aresult of the foregoing factors, operating income for the three months ended May 31,2008 was $17.9 million, or 11.2% of net sales, compared to operating income of$18.1 million, or 12.1% of net sales, for the three months ended June 2,2007.

 

***InterestIncome. ***For thethree months ended May 31, 2008, interest income decreased to $827,000from $1.1 million for the three months ended June 2, 2007.  The decrease resulted from lower interestrates on investments, partially offset by a larger balance of interest-earningassets in the first quarter of fiscal 2009 compared to the first quarter offiscal 2008.  The Company hadapproximately $111.6 million of cash, cash equivalents and short-term andlong-term investments at May 31, 2008, compared to $96.6 million at June 2,2007.

 

***IncomeTaxes. ***Income taxexpense in the first quarter of fiscal 2009 was $7.5 million, with an effectivetax rate of 39.8%, compared to $7.5 million, with an effective tax rate of39.0%, in the first quarter of fiscal 2008. The increase in effective tax rate primarily resulted from a decrease inthe amount of tax-exempt interest earned in the first quarter of fiscal 2009compared to the first quarter of fiscal 2008.

 

***NetIncome. ***As aresult of the foregoing factors, net income for the three months ended May 31,2008 was $11.3 million, or 7.1% of net sales, and $0.32 per diluted share,compared to net income of $11.7 million, or 7.8% of net sales, and $0.32 perdiluted share, for the three months ended June 2, 2007.

 

**Segment Results**

 

In the table below theCompany’s “Christopher & Banks/C.J. Banks” reportable segment includesactivity generated by the Company’s Christopher & Banks and C.J. Banksoperations.  The “Acorn” reportablesegment includes activity generated from the Company’s Acorn operations.   The “Corporate Administrative” column, whichprimarily represents operating activity at the Company’s corporate office anddistribution center facility, is presented to allow for reconciliation ofsegment-level net sales, operating income (loss) and total assets to theCompany’s consolidated net sales, operating income and total assets.  Segment operating income (loss) includes onlynet sales, merchandise margin and direct store-level expenses with noallocation of corporate overhead.  Netsales and operating income (loss) are the components of segment operationsreviewed by the Company’s chief operating decision maker.

 

**SegmentReporting:**

 
| ** **                                | ** ** | **Christopher & Banks/** | ** **  | ** ** | ** ** | **Corporate/**     | ** ** | ** **       | ** **  |
|-------------------------------------------|------------|----------------------------------------|-------------|------------|------------|--------------------|------------|------------------|-------------|
| ** **                                | ** ** | **C.J. Banks**                    | ** **  | **Acorn**  | ** ** | **Administrative** | ** ** | **Consolidated** | ** **  |
| **Three Months Ended May 31, 2008:** |       |                                   |        |       |       |               |       |             |        |
| Net  sales                                |       | $                                      | 155,395,348 |       | $          | 4,247,456          |       | $                | —      |   | $ | 159,642,804 |   |
| Operating  income (loss)                  |       | $                                      | 35,622,479  |       | $          | (662,908           | )          | $                | (17,060,851 | ) | $ | 17,898,720 |   |
| Total  assets                             |       | $                                      | 180,700,362 |       | $          | 2,851,164          |       | $                | 134,465,065 |   | $ | 318,016,591 |   |
|                                      |       |                                   |        |       |       |               |       |             |        |
| **Three Months Ended June 2, 2007:** |       |                                   |        |       |       |               |       |             |        |
| Net  sales                                |       | $                                      | 145,520,814 |       | $          | 3,850,520          |       | $                | —      |   | $ | 149,371,334 |   |
| Operating  income (loss)                  |       | $                                      | 32,037,895  |       | $          | (688,774           | )          | $                | (13,268,158 | ) | $ | 18,080,963 |   |
| Total  assets                             |       | $                                      | 201,639,026 |       | $          | 13,758,152         |       | $                | 94,975,848  |   | $ | 310,373,026 |   |

 

Historically, the Company’sAcorn segment has had a relatively small negative impact on the Company’sconsolidated results of operations.  Inthe first quarter of fiscal 2009 and 2008, net sales from the Christopher &Banks/C.J. Banks segment comprised approximately 97% of the Company’s total netsales.  The Acorn segment’s operatingloss was approximately 4% of consolidated operating income for the quartersended May 31, 2008 and June 2, 2007.

 

20

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**Liquidity and Capital Resources**

 

The Company’s principal on-going cash requirements areto finance the construction of new stores and the remodeling of certainexisting stores, to make technology-related and other capital expenditures, topurchase merchandise inventory and to fund other working capitalrequirements.  Merchandise purchases varyon a seasonal basis, peaking in the fall. As a result, the Company’s cash requirements historically reach theirpeak in October or November, during the Company’s third fiscalquarter.  Conversely, cash balances peakin January after the holiday season is completed.

 

*Net cash provided by operatingactivities*

 

Net cash provided by operating activities totaled $19.9million in the first quarter of fiscal 2009, up from $9.1 million in the firstquarter of fiscal 2008.  Significantfluctuations in the Company’s working capital accounts included a $5.0 milliondecrease in accounts payable resulting in part from reduced inventory levels,and a $5.0 million decrease in income taxes receivable related to the amountand timing of estimated income tax payments. Merchandise inventories decreased $1.7 million as the Company continuedto exert tight controls over inventory purchases.  A $1.5 million increase in accountsreceivable occurred as the Company recorded construction allowances receivablefrom landlords related to the 17 new stores opened in the first quarter offiscal 2009.  The remainder of the changein cash provided by operating activities was substantially the result of netincome earned during the quarter, after adjusting for non-cash charges.  These charges primarily included depreciationexpense, deferred income taxes, stock-based compensation expense, loss on thedisposal of furniture, fixtures and equipment and various other changes in theCompany’s other operating assets and liabilities.

 

*Net cash used in investingactivities*

 

The $8.3 million of net cash used in investingactivities in the first quarter of fiscal 2009 related solely to capitalexpenditures made by the Company during the quarter.  The Company opened 17 new stores in the firstquarter and installed new point-of-sale registers in 550 of its stores.  The Company also made other informationtechnology-related investments at its stores, corporate office and distributioncenter facility during the quarter ended May 31, 2008.

 

The Company is planning to fund approximately $12 millionto $14 million of additional capital expenditures in the last three quarters offiscal 2009.  The Company anticipates itwill open 11 additional new stores in the balance of the year, with sixscheduled to open in the second quarter and five planned openings in the thirdquarter.  Five of the new stores areplanned to be Christopher & Banks locations and six are planned to beC.J. Banks.  The Company is not planningto open any Acorn stores in fiscal 2009. In addition, the Company plans to complete eight remodels and tocontinue to make further information-technology related improvements at itsstores, headquarters and distribution center facility in the remainder offiscal 2009.  The Company expects itscash and cash equivalents, combined with cash flows from operations, to besufficient to meet its capital expenditure, working capital and otherrequirements for liquidity in fiscal 2009.

 

*Net cash used in financingactivities*

 

Net cash of $2.1 million was used in financingactivities in the first quarter of fiscal 2009 as the Company declared and paida quarterly cash dividend totaling $2.1 million.

 

The Company maintains aCredit Facility with Wells Fargo.  TheCredit Facility provides the Company with revolving credit loans and letters ofcredit of up to $50.0 million, in the aggregate, subject to a borrowing baseformula based on inventory levels.

 

On May 23, 2008, theCompany and Wells Fargo entered into the Second Amendment to the CreditFacility.  The Second Amendment extendedthe maturity date of the Credit Facility by three years from June 30, 2008to June 30, 2011.  In addition, theSecond Amendment reduced the interest rate under the Credit Facility from theprime rate plus 0.25% to the prime rate minus 0.25%.  As of May 31, 2008, Wells Fargo’s primerate was 5.0%.  The Second Amendment alsoprovided the Company with the ability to borrow under the Credit Facility at aninterest rate tied to the London Interbank Market Offered Rate (LIBOR).

 

21

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Interest under theCredit Facility is payable monthly in arrears. The Credit Facility carries a facility fee of 0.25%, based on the unusedportion as defined in the agreement, and a collateral monitoring fee.  For the three months ended May 31, 2008,fees related to the Credit Facility totaled $2,147.  Borrowings under the Credit Facility arecollateralized by the Company’s equipment, intangible assets, inventory,inventory letters of credit and letter of credit rights.

 

The Company had norevolving credit loan borrowings under the Credit Facility during the firstthree months of fiscal 2009. Historically, the Credit Facility has been utilized by the Company onlyto open letters of credit to facilitate the import of merchandise.  The borrowing base at May 31, 2008 was$34.7 million.  As of May 31, 2008,the Company had outstanding letters of credit in the amount of $17.4million.  Accordingly, the availabilityof revolving credit loans under the Credit Facility was $17.3 million at May 31,2008.

 

The Credit Facilitycontains certain restrictive covenants, including restrictions on incurringadditional indebtedness and limitations on certain types of investments, aswell as requiring the maintenance of certain financial covenants.  As of May 31, 2008, the most recentmeasurement date, the Company was in compliance with all of these restrictivecovenants under the Credit Facility.

 

*Auction Rate Securities*

 

As of May 31, 2008,the Company had approximately $23.5 million of short-term and long-terminvestments, which consisted solely of $24.5 million of auction rate securities(“ARS”) at cost, less a temporary valuation allowance of $1.0 million.  This allowance was based on an analysis ofother-than-temporary impairment factors, resulting in management’s estimate of fairvalue given the current lack of liquidity of these investments, while takinginto account the current credit quality of the underlying securities.

 

ARS are long-term debtinstruments with interest rates that reset through scheduled auctions whichoccur every seven, 28 or 35 days. Holders of ARS can either sell into the auction, bid based on a desiredinterest rate or hold and accept the reset rate.  If there are insufficient buyers, then theauction “fails” and holders are unable to liquidate their investment throughthe auction.  A failed auction is not adefault of the debt instrument. The result of a failed auction is that the ARScontinues to pay interest in accordance with its original terms.  Liquidity for holders, however, is limiteduntil there is a successful auction, until such time as another market for ARSdevelops or the ARS are called by the issuer. Auctions continue to be held asscheduled until the ARS matures or until the issue is called. All of theCompany’s ARS are collateralized by student loans and currently have AAA(S&P) or Aaa (Moody’s) credit ratings. As of May 31, 2008, the repayment of the student loans forapproximately 85% of the ARS, which serve as collateral for the ARS held by theCompany, is substantially backed by the United States government.  Until February 2008, the ARS market wasliquid and auctions for ARS held by the Company did not fail. However, in February 2008,a substantial number of auctions failed, meaning there was not enough demand tosell the entire issue at auction. Auctions for the Company’s ARS have continued to fail through the dateof this report.

 

Based on current marketconditions, management believes that it is likely that auctions related to theCompany’s ARS will continue to be unsuccessful for the near term.  Unsuccessful auctions have limited theCompany’s ability to access these funds. Management anticipates the liquidity of the ARS will continue to berestricted until there is a successful auction or until such time as anothermarket for the ARS develops or until the ARS are called by the issuer.  The Company reclassified the ARS to long-terminvestments at March 1, 2008 to reflect the lack of liquidity of theseinvestments.  As of May 31, 2008,the Company had approximately $93.0 million of cash, cash equivalents andshort-term investments.  Managementbelieves it has sufficient balances of cash and cash equivalents to meet itsworking capital requirements and liquidity needs in fiscal 2009.

 

In June 2008,following the closing of the Company’s first quarter of fiscal 2009, theCompany was notified by two of the ARS issuers that $5.0 million of the Company’sARS in the aggregate would be called. One ARS issue for $3.5 million was retired at par on July 1, 2008,and another ARS issue for $1.5 million was retired at par on July 9,2008.  As a result, the Companyreclassified $5.0 million of its ARS to short-term investments as of May 31,2008, and reduced the ARS temporary valuation allowance by approximately$186,000 for the amount of the allowance relating to the called ARS issues.

 

22

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The Company reviewsimpairments associated with its ARS in accordance with EITF 03-1 and FASB StaffPosition SFAS Nos. 115-1 and 124-1, “The Meaning of Other-Than-Temporary-Impairmentand Its Application to Certain Investments,” to determine the classification ofthe impairment as “temporary” or “other-than-temporary.”  A temporary impairment charge results in anunrealized loss being recorded in the other comprehensive income component ofstockholders’ equity.  Such an unrealizedloss does not reduce net income for the applicable accounting period becausethe loss is not viewed as other-than-temporary. The Company’s management currently believes that all of the impairmentrelated to its ARS is temporary.  Thefactors evaluated to differentiate between temporary and other-than-temporaryinclude an assessment of the credit quality of the underlying collateral,  credit ratings actions and the recent call inJuly 2008 of $5.0 million of the Company’s investment in ARS at par plusaccrued interest.  No tax benefit hasbeen provided for this allowance as a loss, if any, would be capital in nature.

 

**MerchandiseSourcing**

 

The Companydirectly imported approximately 84% of its total merchandise purchases in thefirst three months of fiscal 2009. Substantially all of its remaining merchandise purchases were made fromdomestic importers.  This reliance onsourcing from foreign countries may cause the Company to be exposed to certainrisks as indicated below and as discussed in Part I, “Item 1A. RiskFactors” in the Company’s Annual Report on Form 10-K for the year ended March 1,2008.

 

Importrestrictions, including tariffs and quotas, and changes in such restrictions,could affect the import of apparel and might result in increased costs, delaysin merchandise receipts or reduced supplies of apparel available to theCompany, and could have an adverse effect on the Company’s business, financialcondition and results of operations.  TheCompany’s merchandise flow could also be adversely affected by politicalinstability in any of the countries where its merchandise is manufactured or bychanges in the United States’ governmental policies toward such foreigncountries.  In addition, merchandisereceipts could be delayed due to interruptions in air, ocean and groundshipments.

 

A substantialportion of the Company’s directly imported merchandise is manufactured inSoutheast Asia.  The majority of thesegoods are currently produced in China, Hong Kong, Indonesia and Singapore.  The Company is not presently importingmerchandise produced in the Middle East.

 

**TheCompany purchased approximately 11% and 9% of its merchandise from its largestoverseas supplier during the first three months of fiscal 2009 and 2008,respectively. **Although the Company hasan established operating history with its largest vendor, there can be noassurance that this relationship can be maintained in the future or that thevendor will continue to supply merchandise to the Company.  If thereshould be any significant disruption in the supply of merchandise from thisvendor, management believes that it will be able to shift production to othersuppliers so as to continue to secure the required volume of product.  Nevertheless,it is possible that any significant disruption in supply could have a materialadverse impact on the Company’s financial position and results of operations.

** **

In the firstquarter of fiscal 2009, the Companypurchased approximately 53% of its merchandise through one buying agent. The Company has begun the process of establishing relationships with additionalprimary suppliers, which are intended to reduce its reliance on the Agent.  The Agent also has informed the Company thatit desires to cease serving as an intermediary with manufacturers on behalf ofChristopher & Banks.  Therefore,the Company and the Agent have agreed that their current arrangement will bephased out by the end of December 2008. While management believes the actions it is taking to mitigate the risksof reliance on the Agent will be successful, any significant disruption insupply from vendors working through the Agent could have a material adverseimpact on the Company’s financial position and results of operations.

 

**QuarterlyResults and Seasonality**

 

The Company’squarterly results may fluctuate significantly depending on a number of factors,including general economic conditions, timing of new store openings, adverseweather conditions, shifts in the timing of certain holidays and customerresponse to the Company’s seasonal merchandise mix.

 

**Inflation**

 

As the operationsof the Company are influenced by general economic conditions, the Company’smanagement believes that inflation, resulting particularly from higher gasolineand food costs, had a negative effect on the Company’s results of operationsduring the quarter ended May 31, 2008. Management does not believe that inflation had a material effect on theCompany’s results of operations during the quarter ended June 2, 2007.

 

23

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**Forward-Looking Statements**

 

The Company, through its management, may makeforward-looking statements reflecting the Company’s current views with respectto future events and financial performance. These forward-looking statements, which may be included in reports filedunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”), inpress releases and in other documents and materials as well as in written ororal statements made by or on behalf of the Company, are subject to certainrisks and uncertainties, including those discussed in Item 1A of the Company’sAnnual Report on Form 10-K for the fiscal year ended March 1, 2008,which could cause actual results to differ materially from historical resultsor those anticipated.

 

The words or phrases “will likely result,” “areexpected to,” “will continue,” “estimate,” “project,” “believe,” “expect, “ “anticipate,”“forecast” and similar expressions are intended to identify forward-looking statementwithin the meaning of Section 21e of the Exchange Act and Section 27Aof the Securities Act of 1933, as amended, as enacted by the Private SecuritiesLitigation Reform Act of 1995 (“PSLRA”). In particular, the Company desires to take advantage of the protectionsof the PSLRA in connection with the forward-looking statements made in thisQuarterly Report on Form 10-Q.

 

Readers are cautioned not to place undue reliance onthese forward-looking statements, which speak only as of the date such statementsare made.  In addition, the Companywishes to advise readers that the factors listed in Item 1A of the Company’sAnnual Report on Form 10-K for the fiscal year ended March 1, 2008,as well as other factors, could affect the Company’s performance and couldcause the Company’s actual results for future periods to differ materially fromany opinions or statements expressed. The Company undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

 

The market riskinherent in the Company’s financial instruments and in its financial positionrepresents the potential loss arising from adverse changes in interestrates.  The Company’s results ofoperations could be negatively impacted by decreases in interest rates on itsinvestments, including its investments in Auction Rate Securities.  Please see Note 2 to the ConsolidatedFinancial Statements and Management’s Discussion and Analysis of FinancialCondition and Results of Operation for further information regarding theCompany’s investments in Auction Rate Securities.

 

The Company ispotentially exposed to market risk from changes in interest rates relating toits Credit Facility with Wells Fargo Bank. Loans under the Credit Facility bear interest at Wells Fargo’s primerate, 5.00% as of May 31, 2008, less 0.25%.  However, the Company had no revolving creditloan borrowings under the Wells Fargo Revolver during the first quarters offiscal 2009 or fiscal 2008 and, given its existing liquidity position, does notexpect to utilize the Credit Facility in the reasonably foreseeable futureexcept for its use of the Credit Facility to import merchandise utilizingletters of credit.

 

The Company entersinto certain purchase obligations outside the United States, which aredenominated and settled in U.S. dollars. Therefore, the Company has only minimal exposure to foreign currencyexchange risks.  The Company does nothedge against foreign currency risks and believes that its foreign currencyexchange risk is immaterial.

 

The Company doesnot have any derivative financial instruments and does not hold any derivativefinancial instruments for trading purposes.

 

24

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**ITEM 4.CONTROLS AND PROCEDURES**

 

*(a)*       Evaluation of DisclosureControls and Procedures.

* *

Under thesupervision and with the participation of its Chief Executive Officer and ChiefFinancial Officer, the Company’s management has evaluated the effectiveness anddesign of the Company’s disclosure controls and procedures (as such term isdefined in Rules 13a-15(e) and 15d-15(e) under the Exchange Actas of the end of the period covered by this report.  Based upon that evaluation, the Company’sChief Executive Officer and Chief Financial Officer concluded that, as of theEvaluation Date, the Company’s disclosure controls and procedures wereeffective to ensure that information required to be disclosed by the Company inthe reports that it files or submits under the Exchange Act is (i) recorded,processed, summarized and reported within the time periods specified inapplicable rules and forms, and (ii) accumulated and communicated tothe Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, to allow timely decisions regarding required disclosure.

 

*(b)*       Internal Control OverFinancial Reporting.

* *

There have notbeen any changes in the Company’s internal control over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the three months ended May 31, 2008 that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**PART II- OTHER INFORMATION**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

The Company is subject to various legal proceedingsand claims that arise in the ordinary course of business.Although the amount of any liability that could arise with respect to theseactions cannot be accurately predicted,any such liability is not expected to have a material adverse impact on theCompany’s financial position or results of operations.

 

**ITEM1A.RISK FACTORS**

 

The factorsdiscussed in Part I, “Item 1A. Risk Factors” in the Company’s AnnualReport on Form 10-K for the year ended March 1, 2008 should becarefully considered as they could materially affect the Company’s business,financial condition or future results.

 

**ITEM 2.UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

In fiscal 2008,the Company’s Board of Directors authorized and subsequently announced aone-year stock repurchase program enabling the Company to purchase up to $20million of its common stock, subject to market conditions.  No repurchases were executed under theprogram in the first quarter of fiscal 2009. As of May 24, 2008, the expiration date of the repurchase program,the Company had repurchased 948,800 shares of its common stock under theprogram for a total cost, including commissions, of approximately $12.1million.

 

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**ITEM 3.DEFAULTS UPON****SENIOR SECURITIES**

 

None.

 

 

**ITEM 4.SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

 

None.

 

 

**ITEM 5.OTHER INFORMATION**

 

None.

 

 

**ITEM 6.EXHIBITS**

 
|  3.1 |   | Restated  Certificate of Incorporation of the Company, as amended (incorporated herein  by reference to Exhibit 3.1 to the Company’s Annual Report on  Form 10-K for the fiscal year ended February 25, 2006 filed  May 11, 2006)                                                                                                                                                             |
|-----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
|  3.2 | *      | Second Amended  and Restated By-Laws of the Company, as amended through May 21, 2008                                                                                                                                                                                                                                                                                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
|  4.1 | *      | Form of  certificate for shares of common stock of Christopher & Banks  Corporation                                                                                                                                                                                                                                                                                                                      |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 10.1      |   | Second  Amendment, dated May 23, 2008, to the Amended and Restated Credit and  Security Agreement, dated November 4, 2005, by and between  Christopher & Banks, Inc., Christopher & Banks Company  and Wells Fargo Bank, National Association (incorporated herein by reference  to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  May 29, 2008) |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 31.1      | *      | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 31.2      | *      | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 32.1      | *      | Certification of  the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                      |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 32.2      | *      | Certification of  the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                      |

 

----

| * Filed with  this report. |   |   |   |   |   |   |
|----------------------------|--------|--------|--------|--------|--------|--------|

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| ** ** | ** **          | **CHRISTOPHER & BANKS CORPORATION** |
|------------|---------------------|----------------------------------------------|
|       |                |                                         |   |
|       |                |                                         |   |
| Dated:     | July 10,  2008 | By                                           | /S/ LORNA E. NAGLER |
|       |                |                                         |   |
|       |                | Lorna E. Nagler                              |
|       |                | President and Chief Executive Officer        |
|       |                | (Principal Executive Officer)                |
|       |                |                                         |   |
|       |                |                                         |   |
| Dated:     | July 10,  2008 | By                                           | /S/ ANDREW K. MOLLER |
|       |                |                                         |   |
|       |                | Andrew K. Moller                             |
|       |                | Executive Vice President                     |
|       |                | and Chief Financial Officer                  |
|       |                | (Principal Financial Officer)                |

 

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**CHRISTOPHER & BANKSCORPORATION**

**QUARTERLY REPORT ON FORM 10-Q**

 

**INDEXTO EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 3.1                  |       | Restated  Certificate of Incorporation of the Company, as amended (incorporated herein  by reference to Exhibit 3.1 to the Company’s Annual Report on  Form 10-K for the fiscal year ended February 25, 2006 filed  May 11, 2006)                                                                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 3.2*                 |       | Second Amended  and Restated By-Laws of the Company, as amended through May 21, 2008                                                                                                                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 4.1*                 |       | Form of  certificate for shares of common stock of Christopher & Banks  Corporation                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 10.1                 |       | Second  Amendment, dated May 23, 2008, to the Amended and Restated Credit and  Security Agreement, dated November 4, 2005, by and between  Christopher & Banks, Inc., Christopher & Banks Company  and Wells Fargo Bank, National Association (incorporated herein by reference  to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  May 29, 2008) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 31.1*                |       | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 31.2*                |       | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 32.1*                |       | Certification of  the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| 32.2*                |       | Certification of  the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                      |

 

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| * Filed with  this report. |   |   |   |   |   |   |
|----------------------------|--------|--------|--------|--------|--------|--------|

 

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