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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**FORM 10-Q**

 

**(Mark One)**

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

 

**For thequarterly period ended May 29, 2010**

 

**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 registrant asspecified 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)

 

**NotApplicable**

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

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. YES x   NO o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). YES o   NO o

 

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

 

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

 

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

 

Asof June 25, 2010, 35,826,742 shares of the registrant’s common stock wereoutstanding.

 

 

 

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Table of Contents

 

**CHRISTOPHER & BANKSCORPORATION**

 

**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 29, 2010, February 27, 2010 and May 30, 2009        | 3        |
|                                          |                                                                                                                            |     |
|                                          | Condensed Consolidated Income Statement (Unaudited)  For the Three Months Ended May 29, 2010 and May 30, 2009         | 4        |
|                                          |                                                                                                                            |     |
|                                          | Condensed Consolidated Statement of Cash Flows  (Unaudited)  For the Three Months Ended May 29, 2010 and May 30, 2009 | 5        |
|                                          |                                                                                                                            |     |
|                                          | Notes to Condensed Consolidated Financial Statements  (Unaudited)                                                               | 6        |
|                                          |                                                                                                                            |     |
| Item 2.                                       | Management’s Discussion and Analysis  of Financial Condition and Results of Operations                                     | 17       |
|                                          |                                                                                                                            |     |
| Item 3.                                       | Quantitative and Qualitative  Disclosures About Market Risk                                                                     | 25       |
|                                          |                                                                                                                            |     |
| Item 4.                                       | Controls and Procedures                                                                                                         | 25       |
|                                          |                                                                                                                            |     |
| **PART II  —  OTHER INFORMATION**   |
|                                          | ** **                                                                                                                      |     |
| Item 1.                                       | Legal Proceedings                                                                                                               | 26       |
|                                          |                                                                                                                            |     |
| Item 1A.                                      | Risk Factors                                                                                                                    | 26       |
|                                          |                                                                                                                            |     |
| Item 2.                                       | Unregistered Sales of Equity  Securities and Use of Proceeds                                                                    | 26       |
|                                          |                                                                                                                            |     |
| Item 3.                                       | Defaults Upon Senior Securities                                                                                                 | 26       |
|                                          |                                                                                                                            |     |
| Item 4.                                       | (Removed and Reserved)                                                                                                          | 26       |
|                                          |                                                                                                                            |     |
| Item 5.                                       | Other Information                                                                                                               | 26       |
|                                          |                                                                                                                            |     |
| Item 6.                                       | Exhibits                                                                                                                        | 26       |
|                                          |                                                                                                                            |     |
|                                          | Signatures                                                                                                                      | 27       |
|                                          |                                                                                                                            |     |
|                                          | Index  to Exhibits                                                                                                              | 28       |

 

2

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** **

**PART I — FINANCIALINFORMATION**

 

**ITEM 1.**

**FINANCIAL STATEMENTS**

**CHRISTOPHER & BANKSCORPORATION**

**CONDENSED CONSOLIDATED BALANCESHEET**

(In thousands)

(Unaudited)

 
| ** **                                                                                                                                                                                                                                  | ** ** | **May 29,** | ** ** | **February 27,** | ** ** | **May 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-----------------------|------------|------------------|------------|
| ** **                                                                                                                                                                                                                                  | ** ** | **2010**         | ** ** | **2010**              | ** ** | **2009**         | ** ** |
| **ASSETS**                                                                                                                                                                                                                                  | ** ** | ** **       | ** ** | ** **            |       |             |       |
| Current assets:                                                                                                                                                                                                                             |       |             |       |                  |       |             |       |
| Cash and cash equivalents                                                                                                                                                                                                                   |       | $                | 38,730     |                  | $          | 37,073           |       | $ | 88,306 |   |
| Short-term investments                                                                                                                                                                                                                      |       | 60,962           |       | 62,251                |       | —           |       |
| Accounts receivable                                                                                                                                                                                                                         |       | 5,847            |       | 4,245                 |       | 4,371            |       |
| Merchandise inventories                                                                                                                                                                                                                     |       | 34,543           |       | 38,496                |       | 32,570           |       |
| Prepaid expenses                                                                                                                                                                                                                            |       | 2,834            |       | 1,642                 |       | 2,608            |       |
| Income taxes receivable                                                                                                                                                                                                                     |       | —           |       | 394                   |       | 16,597           |       |
| Current deferred tax asset                                                                                                                                                                                                                  |       | 4,017            |       | 3,509                 |       | 4,114            |       |
| Other current assets                                                                                                                                                                                                                        |       | 1,562            |       | 2,000                 |       | —           |       |
| Total current assets                                                                                                                                                                                                                        |       | 148,495          |       | 149,610               |       | 148,566          |       |
|                                                                                                                                                                                                                                        |       |             |       |                  |       |             |       |
| Property, equipment and improvements, net                                                                                                                                                                                                   |       | 92,884           |       | 96,109                |       | 114,759          |       |
| Long-term investments                                                                                                                                                                                                                       |       | 15,172           |       | 13,622                |       | 16,400           |       |
| Deferred tax asset                                                                                                                                                                                                                          |       | 8,076            |       | 7,631                 |       | 5,206            |       |
| Other assets                                                                                                                                                                                                                                |       | 320              |       | 325                   |       | 3,026            |       |
| Total assets                                                                                                                                                                                                                                |       | $                | 264,947    |                  | $          | 267,297          |       | $ | 287,957 |   |
|                                                                                                                                                                                                                                        |       |             |       |                  |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                               |       |             | ** ** | ** **            | ** ** | ** **       | ** ** |
|                                                                                                                                                                                                                                        |       |             |       |                  |       |             |       |
| Current liabilities:                                                                                                                                                                                                                        |       |             |       |                  |       |             |       |
| Accounts payable                                                                                                                                                                                                                            |       | $                | 7,443      |                  | $          | 13,654           |       | $ | 22,570 |   |
| Accrued salaries, wages and related expenses                                                                                                                                                                                                |       | 6,563            |       | 8,472                 |       | 7,485            |       |
| Other accrued liabilities                                                                                                                                                                                                                   |       | 18,109           |       | 19,164                |       | 20,362           |       |
| Other current liabilities                                                                                                                                                                                                                   |       | 3,704            |       | —                |       | 487              |       |
| Total current liabilities                                                                                                                                                                                                                   |       | 35,819           |       | 41,290                |       | 50,904           |       |
|                                                                                                                                                                                                                                        |       |             |       |                  |       |             |       |
| Non-current liabilities:                                                                                                                                                                                                                    |       |             |       |                  |       |             |       |
| Deferred lease incentives                                                                                                                                                                                                                   |       | 18,371           |       | 19,578                |       | 22,471           |       |
| Other                                                                                                                                                                                                                                       |       | 12,259           |       | 12,699                |       | 14,315           |       |
| Total non-current liabilities                                                                                                                                                                                                               |       | 30,630           |       | 32,277                |       | 36,786           |       |
|                                                                                                                                                                                                                                        |       |             |       |                  |       |             |       |
| Commitments                                                                                                                                                                                                                                 |       | —           |       | —                |       | —           |       |
| Stockholders’ equity:                                                                                                                                                                                                                  |       |             |       |                  |       |             |       |
| Preferred stock — $0.01 par value, 1,000 shares  authorized, none outstanding                                                                                                                                                     |       | —           |       | —                |       | —           |       |
| Common stock — $0.01 par value, 74,000 shares  authorized, 45,621, 45,735 and 45,658 shares issued and 35,830, 35,944 and  35,867 shares outstanding at May 29, 2010, February 27, 2010 and  May 30, 2009, respectively |       | 456              |       | 457                   |       | 457              |       |
| Additional paid-in capital                                                                                                                                                                                                                  |       | 114,163          |       | 113,584               |       | 112,233          |       |
| Retained earnings                                                                                                                                                                                                                           |       | 196,567          |       | 192,361               |       | 200,289          |       |
| Common stock held in treasury, 9,791 shares at  cost at May 29, 2010, February 27, 2010, and May 30, 2009,  respectively                                                                                                     |       | (112,711         | )          | (112,711              | )          | (112,712         | )          |
| Accumulated other comprehensive income                                                                                                                                                                                                      |       | 23               |       | 39                    |       | —           |       |
| Total stockholders’ equity                                                                                                                                                                                                             |       | 198,498          |       | 193,730               |       | 200,267          |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                             |       | $                | 264,947    |                  | $          | 267,297          |       | $ | 287,957 |   |

 

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

 

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**CHRISTOPHER & BANKS CORPORATION**

**CONDENSED CONSOLIDATED INCOMESTATEMENT**

(In thousands, except per share data)

(Unaudited)

 
| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **May 29,**                 | ** ** | **May 30,** | ** ** |
| ** **                          | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| ** **                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net sales                           |       | $                                | 126,235    |   | $ | 120,367 |   |
|                                |       |                             |       |   |   |
| Costs and expenses:                 |       |                             |       |   |   |
| Merchandise, buying and occupancy   |       | 72,857                           |       | 75,458 |   |
| Selling, general and administrative |       | 36,199                           |       | 36,144 |   |
| Depreciation and amortization       |       | 6,530                            |       | 6,311 |   |
| Total costs and expenses            |       | 115,586                          |       | 117,913 |   |
|                                |       |                             |       |   |   |
| Operating income                    |       | 10,649                           |       | 2,454 |   |
|                                |       |                             |       |   |   |
| Other income                        |       | 116                              |       | 115 |   |
|                                |       |                             |       |   |   |
| Income before income taxes          |       | 10,765                           |       | 2,569 |   |
|                                |       |                             |       |   |   |
| Income tax provision                |       | 4,425                            |       | 884 |   |
|                                |       |                             |       |   |   |
| Net income                          |       | $                                | 6,340      |   | $ | 1,685 |   |
|                                |       |                             |       |   |   |
| Basic earnings per share:           |       |                             |       |   |   |
| Net income                          |       | $                                | 0.18       |   | $ | 0.05 |   |
|                                |       |                             |       |   |   |
| Basic shares outstanding            |       | 35,306                           |       | 35,132 |   |
|                                |       |                             |       |   |   |
| Diluted earnings per share:         |       |                             |       |   |   |
| Net income                          |       | $                                | 0.18       |   | $ | 0.05 |   |
|                                |       |                             |       |   |   |
| Diluted shares outstanding          |       | 35,607                           |       | 35,137 |   |
|                                |       |                             |       |   |   |
| Dividends per share                 |       | $                                | 0.06       |   | $ | 0.06 |   |

 

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

 

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**CHRISTOPHER & BANKSCORPORATION**

**CONDENSED CONSOLIDATED STATEMENTOF CASH FLOWS**

(In thousands)

(Unaudited)

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **May 29,**       | ** ** | **May 30,** | ** ** |
| ** **                                                                         | ** ** | **2010**               | ** ** | **2009** | ** ** |
|                                                                               |       |                   |       |   |   |
| Cash flows from operating activities:                                              |       |                   |       |   |   |
| Net income                                                                         |       | $                      | 6,340      |   | $ | 1,685 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                   |       |   |   |
| Depreciation and amortization                                                      |       | 6,530                  |       | 6,311 |   |
| Amortization of premium on investments                                             |       | 187                    |       | — |   |
| Excess tax benefit on stock-based compensation                                     |       | (206                   | )          | — |   |
| Deferred income taxes                                                              |       | (946                   | )          | (1,197 | ) |
| Stock-based compensation expense                                                   |       | 638                    |       | 474 |   |
| Loss on disposal of furniture, fixtures and  equipment                             |       | 3                      |       | 77 |   |
| Gain on investments, net                                                           |       | (18                    | )          | — |   |
| Changes in operating assets and liabilities:                                       |       |                   |       |   |   |
| Sales of trading securities                                                        |       | 3,250                  |       | — |   |
| Increase in accounts receivable                                                    |       | (1,602                 | )          | (450 | ) |
| Decrease in merchandise inventories                                                |       | 3,953                  |       | 6,258 |   |
| Increase in prepaid expenses                                                       |       | (1,192                 | )          | (670 | ) |
| Decrease in income taxes receivable                                                |       | 601                    |       | 2,150 |   |
| Increase in other assets                                                           |       | (2                     | )          | (2 | ) |
| Increase (decrease) in accounts payable                                            |       | (6,124                 | )          | 3,813 |   |
| Increase (decrease) in accrued liabilities                                         |       | 386                    |       | (3,844 | ) |
| Decrease in deferred lease incentives                                              |       | (1,207                 | )          | (1,035 | ) |
| Decrease in other liabilities                                                      |       | (440                   | )          | (113 | ) |
| Net cash provided by operating activities                                          |       | 10,151                 |       | 13,457 |   |
|                                                                               |       |                   |       |   |   |
| Cash flows from investing activities:                                              |       |                   |       |   |   |
| Purchases of property, equipment and improvements                                  |       | (3,395                 | )          | (1,849 | ) |
| Purchases of investments                                                           |       | (22,034                | )          | — |   |
| Sales of investments                                                               |       | 18,776                 |       | — |   |
| Net cash used in investing activities                                              |       | (6,653                 | )          | (1,849 | ) |
|                                                                               |       |                   |       |   |   |
| Cash flows from financing activities:                                              |       |                   |       |   |   |
| Exercise of stock options                                                          |       | 87                     |       | — |   |
| Excess tax benefit on stock-based compensation                                     |       | 206                    |       | — |   |
| Dividends paid                                                                     |       | (2,134                 | )          | (2,116 | ) |
| Net cash used in financing activities                                              |       | (1,841                 | )          | (2,116 | ) |
|                                                                               |       |                   |       |   |   |
| Net increase in cash and cash equivalents                                          |       | 1,657                  |       | 9,492 |   |
|                                                                               |       |                   |       |   |   |
| Cash and cash equivalents at beginning of period                                   |       | 37,073                 |       | 78,814 |   |
|                                                                               |       |                   |       |   |   |
| Cash and cash equivalents at end of period                                         |       | $                      | 38,730     |   | $ | 88,306 |   |

 

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

 

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**CHRISTOPHER & BANKS CORPORATION**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

(Unaudited)

 

**NOTE 1 — BASIS OF PRESENTATION**

 

The unaudited condensed consolidated financial statements included inthis Form 10-Q have been prepared by Christopher & BanksCorporation and its subsidiaries (the “Company”) pursuant to the rules andregulations of the United States Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America have beencondensed, or omitted, pursuant to such rules and regulations. Theseunaudited condensed consolidated financial statements should be read inconjunction with the audited financial statements and related notes included inthe Company’s Annual Report on Form 10-K for the fiscal year ended February 27,2010.

 

The results of operations for the interim periods shown in this reportare not necessarily indicative of results to be expected for the full fiscalyear.  In the opinion of management, theinformation contained herein reflects all adjustments, consisting of onlynormal adjustments, except as otherwise stated in these notes, necessary topresent fairly the Company’s financial position as of May 29, 2010, February 27,2010 and May 30, 2009, and its results of operations and cash flows forthe three month periods ended May 29, 2010 and May 30, 2009.

 

*Loyalty Program*

 

During the first quarter of fiscal 2011, the Company launched itsFriendship Rewards loyalty program. Under the program, customers accumulatepoints based on purchase activity.  Oncea Friendship Rewards member achieves a certain point level, the member earnsawards certificates that may be redeemed for merchandise.  Points are accrued as unearned revenue andrecorded as a reduction of net sales and a current liability as they areaccumulated by members and certificates are earned.  The liability is recorded net of estimatedbreakage based on redemption patterns and trends.  The reward certificates expire approximatelysix weeks after issuance.

 

*Recently Adopted Accounting Pronouncements*

 

InJune 2009, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Update (“ASU”) 2009-17, “Consolidations,” which seeks to improve financial reporting byrequiring that entities perform an analysis to determine whether any variableinterest or interests that they have give them a controlling financial interestin a variable interest entity.   TheCompany adopted ASU 2009-17 during the first quarter of fiscal 2011.  The adoption of ASU 2009-17 had no impact onthe Company’s financial statements.

 

InJanuary 2010, the FASB issued ASU 2010-06, “New Guidance andClarifications for Improving Disclosures about Fair Value Measurements.”  This guidance requires enhanced disclosuresregarding transfers in and out of the levels within the fair valuehierarchy.  Separate disclosures arerequired for transfers in and out of Level 1 and 2 fair valuemeasurements, and the reasons for the transfers must be disclosed.  In the reconciliation for Level 3 fairvalue measurements, separate disclosures are required for purchases, sales,issuances, and settlements on a gross basis. The new disclosures and clarifications of existing disclosures areeffective for interim and annual reporting periods beginning afterDecember 15, 2009, except for the disclosures about purchases, sales,issuances, and settlements in the roll forward of activity in Level 3 fairvalue measurements, which are effective for interim and annual reportingperiods beginning after December 15, 2010. The Company adopted the required disclosure requirements effective February 28,2010.  See Note 10, Fair ValueMeasurements, for the additional disclosures required under the guidance. TheCompany intends to adopt the remaining Level 3 disclosure requirementseffective February 27, 2011.   TheCompany is in the process of evaluating the additional disclosure requirementsand does not expect that the additional requirements will have a significantimpact on its consolidated financial statements.

 

*Recently Issued  AccountingPronouncements*

 

InOctober 2009, the FASB issued ASU 2009-13, “Multiple Deliverable Revenue Arrangements.” ASU 2009-13 amendsAccounting Standards Codification (“ASC”) 605-10, “Revenue Recognition,” and addresses accounting for multiple-deliverablearrangements to enable vendors to account for products or services(deliverables) separately rather than as a combined unit, and provides guidanceregarding how to measure and allocate arrangement consideration to one or moreunits of accounting.  ASU 2009-13 iseffective for revenue arrangements entered into or materially modified infiscal years beginning on or after June 15, 2010.  Early adoption is permitted, but certainrequirements must be met.  The Company isin the process of evaluating ASU 2009-13 and does not expect that it will havea significant impact on its consolidated financial statements.

 

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**NOTE 2 — INVESTMENTS**

 

Investmentsconsisted of the following (in thousands):

 
| ** **                       | ** ** | **May 29, 2010** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **Amortized**         | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Estimated** | ** ** |
| **Description**                  | ** ** | **Cost**              | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Fair Value** | ** ** |
|                             |       |                  |       |   |   |   |   |   |   |
| Short-term investments:          |       |                  |       |   |   |   |   |   |   |
| Available-for-sale securities:   |       |                  |       |   |   |   |   |   |   |
| Variable rate demand obligations |       | $                     | 22,195     |   | $ | — |   | $ | — |   | $ | 22,195 |   |
| Municipal commercial paper       |       | 1,000                 |       | — |   | — |   | 1,000 |   |
| Municipal bonds                  |       | 27,281                |       | 8 |   | — |   | 27,289 |   |
| U.S. Agency securities           |       | 484                   |       | 1 |   | 6 |   | 479 |   |
|                             |       |                  |       |   |   |   |   |   |   |
| Trading securities:              |       |                  |       |   |   |   |   |   |   |
| Auction Rate Securities          |       | 9,999                 |       | — |   | — |   | 9,999 |   |
|                             |       |                  |       |   |   |   |   |   |   |
| Total short-term investments     |       | 60,959                |       | 9 |   | 6 |   | 60,962 |   |
|                             |       |                  |       |   |   |   |   |   |   |
| Long-term investments:           |       |                  |       |   |   |   |   |   |   |
| Available-for-sale securities:   |       |                  |       |   |   |   |   |   |   |
| Municipal bonds                  |       | 9,635                 |       | 32 |   | — |   | 9,667 |   |
| U.S. Agency securities           |       | 5,501                 |       | 5 |   | 1 |   | 5,505 |   |
|                             |       |                  |       |   |   |   |   |   |   |
| Total long-term investments      |       | 15,136                |       | 37 |   | 1 |   | 15,172 |   |
|                             |       |                  |       |   |   |   |   |   |   |
| Total investments                |       | $                     | 76,095     |   | $ | 46 |   | $ | 7 |   | $ | 76,134 |   |

 
| ** **                       | ** ** | **February 27, 2010** | ** ** |
|----------------------------------|------------|----------------------------|------------|
| ** **                       | ** ** | **Amortized**              | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Estimated** | ** ** |
| **Description**                  | ** ** | **Cost**                   | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Fair Value** | ** ** |
|                             |       |                       |       |   |   |   |   |   |   |
| Short-term investments:          |       |                       |       |   |   |   |   |   |   |
| Available-for-sale securities:   |       |                       |       |   |   |   |   |   |   |
| Variable rate demand obligations |       | $                          | 24,900     |   | $ | — |   | $ | — |   | $ | 24,900 |   |
| Municipal commercial paper       |       | 1,000                      |       | — |   | — |   | 1,000 |   |
| Municipal bonds                  |       | 22,999                     |       | 28 |   | 11 |   | 23,016 |   |
| U.S. Agency securities           |       | 536                        |       | 1 |   | 2 |   | 535 |   |
|                             |       |                       |       |   |   |   |   |   |   |
| Trading securities:              |       |                       |       |   |   |   |   |   |   |
| Auction Rate Securities          |       | 12,800                     |       | — |   | — |   | 12,800 |   |
|                             |       |                       |       |   |   |   |   |   |   |
| Total short-term investments     |       | 62,235                     |       | 29 |   | 13 |   | 62,251 |   |
|                             |       |                       |       |   |   |   |   |   |   |
| Long-term investments:           |       |                       |       |   |   |   |   |   |   |
| Available-for-sale securities:   |       |                       |       |   |   |   |   |   |   |
| Municipal bonds                  |       | 6,572                      |       | 37 |   | 2 |   | 6,607 |   |
| U.S. Agency securities           |       | 7,002                      |       | 13 |   | — |   | 7,015 |   |
|                             |       |                       |       |   |   |   |   |   |   |
| Total long-term investments      |       | 13,574                     |       | 50 |   | 2 |   | 13,622 |   |
|                             |       |                       |       |   |   |   |   |   |   |
| Total investments                |       | $                          | 75,809     |   | $ | 79 |   | $ | 15 |   | $ | 75,873 |   |

 

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| ** **                  | ** ** | **May 30, 2009** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **Amortized**         | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Estimated** | ** ** |
| **Description**             | ** ** | **Cost**              | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Fair Value** | ** ** |
|                        |       |                  |       |   |   |   |   |   |   |
| Trading securities:         |       |                  |       |   |   |   |   |   |   |
| Auction Rate Securities     |       | $                     | 16,400     |   | $ | — |   | $ | — |   | $ | 16,400 |   |
|                        |       |                  |       |   |   |   |   |   |   |
| Total long-term investments |       | 16,400                |       | — |   | — |   | 16,400 |   |
|                        |       |                  |       |   |   |   |   |   |   |
| Total investments           |       | $                     | 16,400     |   | $ | — |   | $ | — |   | $ | 16,400 |   |

 

Inan effort to improve yield without sacrificing principal, the Companydiversified its investment portfolio in fiscal 2010 to include holdings ofselect, highly-rated, short-duration variable rate demand obligations,municipal bonds, municipal commercial paper and U.S. Agency securities.

 

TheCompany accounts for its investments in accordance with ASC 320-10, “Investments— Debt and Equity Securities” and, accordingly, its investment securities havebeen characterized as either available-for-sale or trading. As of May 29,2010, the Company’s available-for-sale investment securities were comprised ofvariable rate demand obligations, municipal bonds, municipal commercial paperand U.S. Agency securities.  These securitieswere classified as available-for-sale as the Company did not enter into theseinvestments for speculative purposes or intend to actively buy and sell thesecurities in order to generate profits on differences in price.  The Company’s primary investment objective ispreservation of principal.  During thefirst quarter of fiscal 2011, purchases of available-for-sale securitiestotaled approximately $22.0 million, while proceeds from the sale ofavailable-for-sale securities were $18.8 million.  Gross realized gains and losses on the saleof available-for-sale securities during the quarter ended May 29, 2010were not material.

 

TheCompany’s available-for-sale securities are reviewed for possible impairment atleast quarterly, or more frequently if circumstances arise which may indicateimpairment.  When the fair value of thesecurities declines below the amortized cost basis, impairment is indicated andit must be determined whether it is other-than-temporary.  Impairment is considered to be other-than-temporaryif the Company (i) intends to sell the security, (ii) will morelikely than not be forced to sell the security before recovering its cost, or (iii) doesnot expect to recover the securities’ amortized cost basis.  If the decline in fair value is consideredother-than-temporary, the cost basis of the security is adjusted to its fairmarket value and the realized loss is reported in earnings.  Subsequent increases or decreases in fairvalue are reported in equity as other comprehensive income (loss).  As of May 29, 2010, there were noother-than-temporary impairments of the Company’s available-for-salesecurities.

 

TheCompany had approximately $10.0 million, $12.8 million and $16.4 million oftrading securities as of May 29, 2010, February 27, 2010 and May 30,2009, respectively, which consisted solely of $11.6 million, $14.8 million and$19.5 million of Auction Rate Securities (“ARS”) at cost, less fair valueadjustments of approximately $1.6 million, $2.0 million and $3.1 million.  The fair value of the ARS was determinedutilizing a discounted cash flow method based on market rates and an estimatedperiod of time the ARS are expected to be held.

 

Substantially all of the Company’s ARS are collateralized by studentloans.  As of May 29, 2010, approximately90% of its ARS had AAA (Standard & Poor’s), Aaa (Moody’s), or AAA(Fitch) credit ratings.  As of May 29,2010, the repayment of approximately 80% of the student loans, which serve ascollateral for the ARS held by the Company, was substantially backed by theUnited States government.  Until February 2008,the ARS market was liquid and auctions for ARS held by the Company did notfail.  However, beginning in February 2008,auctions for the ARS held by the Company began to fail and have continued tofail up to and as of the date of this report. Unsuccessful auctions have limited the Company’s ability to access thesefunds.

 

Allof the ARS owned by the Company were purchased through UBS Financial Services, Inc.,a subsidiary of UBS AG (“UBS”) and are held, for the benefit of the Company, byUBS.  In November 2008, the Companyaccepted a settlement offer from UBS to restore liquidity to its clients whohold ARS.  The settlement grants theCompany certain ARS rights.  These ARSrights provide the Company the ability to redeem its ARS at par during atwo-year time period beginning June 30, 2010.  During this time, the Company may choose tocontinue to hold some, or all, of its ARS and earn interest or sell some, orall, of its ARS to UBS at par plus accrued interest.  The ARS rights are not transferable, tradableor marginable and will not be listed or quoted on any securities exchange orany electronic communications network.  Asthe Company has the ability and intent to redeem its ARS at June 30, 2010,it reclassified the ARS to short-term investments during the second quarter offiscal 2010.

 

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Uponacceptance of the settlement offer, the Company classified its ARS as tradingsecurities and elected to record the ARS rights at fair value on a recurringbasis utilizing significant unobservable inputs in accordance with ASC 820-10, “FairValue Measurements and Disclosures.”  Thefair value of the ARS rights was estimated utilizing the Black-Scholes optionpricing model and the forward contract method. The fair value of the ARS rights was determined to be approximately $1.6million, $2.0 million and $2.7 million as of May 29, 2010, February 27,2010 and May 30, 2009, respectively. The ARS rights were recorded within other current assets on theconsolidated financial statements as of May 29, 2010 and February 27,2010 and as other non-current assets on the consolidated financial statementsas of May 30, 2009.  During thequarter ended May 29, 2010, approximately $3.3 million of the Company’sARS were redeemed.

 

EffectiveJune 30, 2010, the Company exercised its ARS rights under the settlementagreement with UBS and redeemed all of its outstanding ARS at par, whichtotaled approximately $7.1 million, on July 1, 2010.

 

Expectedmaturities of the Company’s investments are as follows (in thousands):

 
| ** **                             | ** ** | **May 29,** | ** ** |
|----------------------------------------|------------|------------------|------------|
| ** **                             | ** ** | **2010**         | ** ** |
| Due in one year or less                |       | $                | 60,962     |   |
| Due after one year through three years |       | 15,172           |       |
|                                   |       |             |       |
| Total investment securities            |       | $                | 76,134     |   |

 

TheCompany has $22.2 million of Variable Rate Demand Obligations (“VRDOs”) as of May 29,2010.  These investments maintain aconstant par value, have variable rates of return tied to short-term interestrates which reset weekly, and may be tendered for sale upon notice to thetrustee.  Although the Company’s VRDOsare issued and rated as long-term securities, with maturities ranging from 2013through 2041, they are priced and traded as short-term investments as each VRDOcontains a put feature, which is supported by highly rated financialinstitutions.  The Company classified itsVRDOs as short-term investments maturing in one year or less as it expects torealize the proceeds from its VRDOs within that time period.  Actual maturities may differ from expectedmaturities because the issuers of the securities may have the right to prepaythe obligations without prepayment penalties.

 

**NOTE 3 — MERCHANDISE INVENTORIESAND SOURCES OF SUPPLY**

 

Merchandiseinventories consisted of the following (in thousands):

 
| ** **                        | ** ** | **May 29,** | ** ** | **February 27,** | ** ** | **May 30,** | ** ** |
|-----------------------------------|------------|------------------|------------|-----------------------|------------|------------------|------------|
| **Description**                   | ** ** | **2010**         | ** ** | **2010**              | ** ** | **2009**         | ** ** |
|                              |       |             |       |                  |       |             |       |
| Merchandise - in store/e-Commerce |       | $                | 33,178     |                  | $          | 36,522           |       | $ | 31,140 |   |
| Merchandise - in transit          |       | 1,365            |       | 1,974                 |       | 1,430            |       |
|                              |       |             |       |                  |       |             |       |
|                              |       | $                | 34,543     |                  | $          | 38,496           |       | $ | 32,570 |   |

 

The Company does not have long-term purchasecommitments or arrangements with any of its suppliers or agents.  During the quarter ended May 29,2010, one of the Company’s vendors supplied approximately 30% of the Company’smerchandise purchases and a second vendor supplied approximately 18% of theCompany’s merchandise purchases.  TheCompany purchased approximately 25% and 14% of its merchandise from thesevendors during the quarter ended May 30, 2009.

 

Although the Company has strong relationships withthese vendors, there can be no assurance that these relationships can bemaintained in the future or that the vendors will continue to supplymerchandise to the Company.  If there should be any significant disruptionin the supply of merchandise from these vendors, management believes that itwill be able to shift production to other suppliers so as to continue to securethe required volume of product.  Nevertheless, it is possible that anysignificant disruption in supply could have a material adverse impact on theCompany’s financial position or results of operations.

 

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**NOTE 4 — PROPERTY, EQUIPMENT ANDIMPROVEMENTS, NET**

 

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

 
| ** **                                                                  | ** ** | **Estimated**                             | ** ** | **May 29,** | ** ** | **February 27,** | ** ** | **May 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------|------------|-----------------------|------------|------------------|------------|
| **Description**                                                             | ** ** | **Useful Life**                           | ** ** | **2010**         | ** ** | **2010**              | ** ** | **2009**         | ** ** |
| Land                                                                        |       | —                                    |       | $                | 1,597      |                  | $          | 1,597            |       | $ | 1,597 |   |
| Corporate office, distribution center and related  building improvements    |       | 25 years                                  |       | 12,047           |       | 12,027                |       | 12,005           |       |
| Store leasehold improvements                                                |       | Term of related lease, typically 10 years |       | 92,431           |       | 93,894                |       | 94,994           |       |
| Store furniture and fixtures                                                |       | Three to 10 years                         |       | 111,482          |       | 112,815               |       | 113,497          |       |
| Point of sale hardware and software                                         |       | Five years                                |       | 14,943           |       | 15,056                |       | 15,162           |       |
| Computer hardware and software                                              |       | Three to five years                       |       | 24,269           |       | 24,176                |       | 21,328           |       |
| Corporate office and distribution center  furniture, fixtures and equipment |       | Seven years                               |       | 5,334            |       | 5,315                 |       | 3,587            |       |
| Construction in progress                                                    |       | —                                    |       | 2,833            |       | 73                    |       | 1,940            |       |
|                                                                        |       |                                      |       | 264,936          |       | 264,953               |       | 264,110          |       |
| Less accumulated depreciation and amortization                              |       |                                      |       | 172,052          |       | 168,844               |       | 149,351          |       |
|                                                                        |       |                                      |       |             |       |                  |       |             |       |
| Net property, equipment and improvements                                    |       |                                      |       | $                | 92,884     |                  | $          | 96,109           |       | $ | 114,759 |   |

 

TheCompany reviews long-lived assets with definite lives for impairment at leastannually or whenever events or changes in circumstances indicate that thecarrying value of the asset may not be recoverable.  The Company recorded no impairments oflong-lived assets in the three month period ended May 29, 2010.  The general economic uncertainty affectingthe retail industry makes it reasonably possible, however, that long-livedasset impairments may be identified and recorded in future periods.

 

**NOTE 5 — ACCRUED LIABILITIES**

 

Otheraccrued liabilities consisted of the following (in thousands):

 
| ** **                                               | ** ** | **May 29,** | ** ** | **February 27,** | ** ** | **May 30,** | ** ** |
|----------------------------------------------------------|------------|------------------|------------|-----------------------|------------|------------------|------------|
| **Description**                                          | ** ** | **2010**         | ** ** | **2010**              | ** ** | **2009**         | ** ** |
| Gift card and store credit liabilities                   |       | $                | 8,337      |                  | $          | 10,884           |       | $ | 8,991 |   |
| Accrued merchandise inventory receipts not yet  invoiced |       | 1,673            |       | 1,539                 |       | 3,781            |       |
| Accrued Friendship Rewards loyalty liability             |       | 1,189            |       | —                |       | —           |       |
| Accrued income, sales and other taxes payable            |       | 2,753            |       | 2,081                 |       | 2,357            |       |
| Accrued workers compensation liability                   |       | 505              |       | 600                   |       | 1,184            |       |
| Accrued occupancy-related expenses                       |       | 1,143            |       | 665                   |       | 841              |       |
| Other                                                    |       | 2,509            |       | 3,395                 |       | 3,208            |       |
|                                                     |       | $                | 18,109     |                  | $          | 19,164           |       | $ | 20,362 |   |

 

**NOTE 6 — CREDIT FACILITY**

 

TheCompany maintains an Amended and Restated Revolving Credit Facility (the “CreditFacility”) with Wells Fargo Bank, National Association (“Wells Fargo”) whichexpires on June 30, 2011.  TheCredit Facility provides the Company with revolving credit loans and letters ofcredit of up to $50 million, in the aggregate, subject to a borrowing baseformula based on inventory levels.

 

Loansunder the Credit Facility bear interest at the prime rate minus 0.25%.  As of May 29, 2010, the prime rate was3.25%.  The Credit Facility also providesthe Company with the ability to borrow under the Credit Facility at an interestrate tied to the London Interbank Market Offered Rate (“LIBOR”).  Advances under the LIBOR option would be tiedto the one, three, or six month LIBOR rate based on the length of time thecorresponding advance is outstanding.

 

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Interestunder the Credit Facility is payable monthly in arrears.  The Credit Facility carries a facility fee of0.25%, based on the unused portion as defined in the agreement, a collateralmonitoring fee and a guarantee service charge. Borrowings under the Credit Facility are collateralized by the Company’sequipment, intangible assets, inventory, inventory letters of credit and letterof credit rights.  The Company had norevolving credit loan borrowings under the Credit Facility during the firstthree months of fiscal 2011 or fiscal 2010. 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 29, 2010 was$21.6 million.  As of May 29, 2010,the Company had open on-demand letters of credit in the amount of $1.3million.  Accordingly, the availabilityof revolving credit loans under the Credit Facility was $20.3 million at May 29,2010.

 

TheCredit Facility contains certain restrictive covenants, including restrictionson incurring additional indebtedness and limitations on certain types ofinvestments, as well as requiring the maintenance of certain financialcovenants.  As of May 29, 2010, themost recent measurement date, the Company was in compliance with all financialcovenants under the Credit Facility.

 

**NOTE 7 — STOCK-BASED COMPENSATION**

 

TheCompany accounts for stock-based compensation in accordance with the provisionsof ASC 718-10, “Stock Compensation.” Under various plans, the Company may grantoptions to purchase common stock to employees and non-employee members of itsBoard of Directors at a price not less than 100% of the fair market value ofthe Company’s common stock on the option grant date.  In general, options granted to employees vestover three to five years and are exercisable up to ten years from the date ofgrant, and options granted to Directors vest immediately and are exercisable upto ten years from the grant date.

 

TheCompany may also grant shares of restricted stock to its employees andnon-employee members of its Board of Directors. The grantee cannot transfer the shares before the respective sharesvest.  Shares of nonvested restrictedstock are considered to be currently issued and outstanding.  Restricted stock grants to employees haveoriginal vesting schedules of three to seven years, while restricted grants toDirectors are fully vested on the date of grant.

 

TheCompany’s restricted stock awards are generally subject to forfeiture ifemployment or service terminates prior to the lapse of the restrictions.  In addition, certain of the Company’srestricted stock awards have performance-based vesting provisions and aresubject to forfeiture in whole or in part if these performance conditions arenot achieved.  The Company assesses, onan ongoing basis, the probability of whether the performance criteria will beachieved and, once it is deemed probable, the Company begins recognizingcompensation expense over the relevant performance period.  For those awards not subject to performancecriteria, the Company expenses the cost of the restricted stock awards, whichis determined to be the fair market value of the shares at the date of grant,on a straight-line basis over the vesting period.  The fair market value of the Company’srestricted stock is determined based on the closing price of the Company’scommon stock on the grant date.

 

Totalpre-tax compensation expense related to stock-based awards for the three monthsended May 29, 2010 and May 30, 2009 was approximately $638,000 and$474,000, respectively.

 

*MethodologyAssumptions*

 

TheCompany uses the Black-Scholes option-pricing model to value the Company’sstock options for grants to its employees and non-employee directors.  Using this option-pricing model, the fairvalue of each stock option award is estimated on the date of grant and isexpensed on a straight-line basis over the vesting period, as the stock optionsare subject to pro-rata vesting.  Theexpected volatility assumption is based on the historical volatility of theCompany’s stock over a term equal to the expected term of the option granted.  The expected term of stock option awards grantedis derived from historical exercise experience and represents the period oftime that awards are expected to be outstanding.  The risk-free interest rate is based on theimplied yield on a U.S. Treasury constant maturity with a remaining term equalto the expected term of the option granted.

 

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Theweighted average assumptions relating to the valuation of the Company’s stockoption grants for the three month periods ended May 29, 2010 and May 30,2009 were as follows:

 
| ** **               | ** ** | **Three  Months Ended** | ** ** |
|--------------------------|------------|-------------------------|------------|
| ** **               | ** ** | **May 29,**        | ** ** | **May 30,** | ** ** |
| ** **               | ** ** | **2010**                | ** ** | **2009** | ** ** |
| Expected  dividend yield |       | 3.08%                   |       | 5.50% |   |
| Expected  volatility     |       | 70.0%                   |       | 66.2% |   |
| Risk-free  interest rate |       | 2.49%                   |       | 1.80% |   |
| Expected  term in years  |       | 4.9                     |       | 5.0 |   |

 

*Stock-BasedCompensation Activity*

 

Thefollowing table presents a summary of the Company’s stock option activity forthe three months ended May 29, 2010:

 
| ** **                       | ** ** | ** ** | ** ** | ** **   | ** ** | ** **         | ** ** | ** **     | ** ** | **Weighted**    | ** ** |
|----------------------------------|------------|------------|------------|--------------|------------|--------------------|------------|----------------|------------|-----------------|------------|
| ** **                       | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Aggregate**      | ** ** | ** **     | ** ** | **Average**     | ** ** |
| ** **                       | ** ** | **Number** | ** ** | **Average**  | ** ** | **Intrinsic**      | ** ** | **Weighted**   | ** ** | **Remaining**   | ** ** |
| ** **                       | ** ** | **of**     | ** ** | **Exercise** | ** ** | **Value**          | ** ** | **Average**    | ** ** | **Contractual** | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Price**    | ** ** | **(in thousands)** | ** ** | **Fair Value** | ** ** | **Life**        | ** ** |
|                             |       |       |       |         |       |               |       |           |       |            |       |
| Outstanding, beginning of period |       | 1,592,670  |       | $            | 11.56      |               | $          | 2,360          |       | $               | 4.24       |   |   |   |
| Vested                           |       | 744,628    |       | 16.62        |       | 211                |       | 5.59           |       |            |       |
| Unvested                         |       | 848,042    |       | 7.11         |       | 2,149              |       | 2.81           |       |            |       |
| Granted                          |       | 272,900    |       | 10.76        |       | —             |       | 5.15           |       |            |       |
| Exercised                        |       | (18,500    | )          | 4.68         |       | 110                |       | 1.78           |       |            |       |
| Canceled - vested (expired)      |       | (3,318     | )          | 10.86        |       | —             |       | 3.96           |       |            |       |
| Canceled - unvested (forfeited)  |       | (57,400    | )          | 7.08         |       | 156                |       | 3.10           |       |            |       |
|                             |       |       |       |         |       |               |       |           |       |            |       |
| Outstanding, end of period       |       | 1,786,352  |       | 11.65        |       | 2,121              |       | 4.44           |       | 7.39            |       |
| Vested                           |       | 941,872    |       | 14.99        |       | 405                |       | 5.34           |       | 5.86            |       |
| Unvested                         |       | 844,480    |       | 7.93         |       | 1,716              |       | 3.43           |       | 9.10            |       |
|                             |       |       |       |         |       |               |       |           |       |            |       |
| Exercisable, end of period       |       | 941,872    |       | 14.99        |       | 405                |       | 5.34           |       | 5.85            |       |
|                                  |            |            |            |              |            |                    |            |                |            |                 |            |  |  |  |

 

Theaggregate intrinsic value in the preceding table represents the total pre-taxintrinsic value (the difference between the Company’s closing stock price onthe last trading day of the quarter and the exercise price, multiplied by thenumber of in-the-money options) that would have been received by the optionholders had all option holders exercised their options on May 29, 2010.

 

Thefollowing table presents a summary of the Company’s restricted stock activityfor the three months ended May 29, 2010:

 
| ** **                       | ** ** | **Number** | ** ** | **Weighted**   | ** ** |
|----------------------------------|------------|------------|------------|----------------|------------|
| ** **                       | ** ** | **of**     | ** ** | **Average**    | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
|                             |       |       |       |           |       |
| Unvested, beginning of  period   |       | 702,450    |       | $              | 5.34       |   |
| Granted                          |       | 253,900    |       | 9.96           |       |
| Vested                           |       | (125,341   | )          | 5.94           |       |
| Canceled - unvested  (forfeited) |       | (327,650   | )          | 4.61           |       |
|                             |       |       |       |           |       |
| Unvested, end of period          |       | 503,359    |       | 7.99           |       |
|                                  |            |            |            |                |            |  |

 

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Thetotal fair value of shares of restricted stock that vested during the quarterended May 29, 2010 and May 30, 2009 was approximately $745,000 and$475,000, respectively.  As of May 29,2010, there was approximately $3.5 million of unrecognized stock-basedcompensation expense, which is expected to be recognized over a weightedaverage period of approximately two years.

 

**NOTE 8 — INCOME TAXES**

 

Asof May 29, 2010, the Company’s liability for unrecognized tax benefitsassociated with uncertain tax positions was approximately $2.7 million and thetotal amount of unrecognized tax benefits that, if recognized, would affect theeffective tax rate was $1.7 million. The Company recognizes interest andpenalties related to unrecognized tax benefits as components of income taxexpense. At May 29, 2010, the Company had accrued approximately $0.8million for the potential payment of interest and penalties.

 

TheCompany and its subsidiaries are subject to U.S. federal income tax and theincome tax of various state and local jurisdictions.  The Internal Revenue Service has completedits audit for tax years through fiscal 2006. The Company had submitted a report to the Internal Revenue Service forreview by the Joint Committee on Taxation regarding the Company’s refund claimfor the carryback of its fiscal 2009 loss. This reporting process is standardfor all claims greater than $2.0 million. The Company has received the refund and was notified in May theJoint Committee has taken no exception and has begun the process to close thecase.  With few exceptions, the Companyis not subject to state income tax examination by tax authorities for taxableyears prior to fiscal 2006.  At May 29,2010, the Company has ongoing audits in various jurisdictions.  The Company does not believe that settlementof these examinations will have a significant impact on its liability forunrecognized tax benefits.

 

Asof May 29, 2010, the Company has net deferred tax assets of approximately$12.1 million.  Deferred income taxassets represent potential future income tax benefits.  Realization of these assets is ultimatelydependent upon future taxable income.  Novaluation allowance has been provided for deferred tax assets becausemanagement believes realization of the full amount of net deferred tax assetsis more likely than not.  While theCompany has a history of profits, the Company recorded a net loss in fiscal2009 and near break-even results in fiscal 2010.  Therefore, achievement of profitability inthe future is a significant factor in determining the Company’s continuingability to carry these deferred tax assets. The Company’s accounting for deferred taxes represents its best estimateof future events.  If future results fromthe Company’s operations are less than projected, a valuation allowance may berequired to reduce deferred tax assets, which could have a material impact onthe Company’s results of operations in the period in which it is recorded. Significant negative events, including losses in future periods, wouldmake it reasonably possible that valuation allowances against deferred taxassets would be required in future periods.

 

Asof May 29, 2010, the Company has state net operating loss carryforwardswhich will result in state tax benefits of approximately $0.3 million.  These state net loss carryforwards willexpire in fiscal 2014 and beyond. Additionally, the Company has charitable contribution carryforwards thatwill expire in fiscal 2014.

 

**NOTE 9 — EARNINGS PER SHARE**

 

OnMarch 1, 2009, the Company adopted ASC 260-10, “Earnings per Share,” whichclarified that unvested share-based payment awards that contain nonforfeitablerights to receive dividends or dividend equivalents (whether paid or unpaid)are considered participating securities, and thus, should be included in thetwo-class method of computing EPS. Participating securities under this statement include the Company’sunvested employee restricted stock awards with time-based vesting, whichreceive nonforfeitable dividend payments.

 

Thecalculation of EPS for common stock shown below excludes the incomeattributable to these unvested employee restricted stock awards from thenumerator and excludes the dilutive impact of these shares from thedenominator. 

 

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| ** **                                                                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                  | ** ** | **May 29,**       | ** ** | **May 30,** | ** ** |
| ** **                                                                  | ** ** | **2010**               | ** ** | **2009** | ** ** |
| **Numerator**(in  thousands)**:**                                           |       |                   |       |   |   |
| Net income attributable to Christopher &  Banks Corporation        |       | $                      | 6,340      |   | $ | 1,685 |   |
| Income allocated to participating securities                                |       | (64                    | )          | (9 | ) |
| Net income available to common shareholders                                 |       | $                      | 6,276      |   | $ | 1,676 |   |
| ** **                                                                  |       |                   |       |   |   |
| **Denominator**(in  thousands)**:**                                         |       |                   |       |   |   |
| Weighted average common shares outstanding - basic                          |       | 35,306                 |       | 35,132 |   |
| Dilutive shares                                                             |       | 301                    |       | 5 |   |
| Weighted average common and common equivalent  shares outstanding - diluted |       | 35,607                 |       | 35,137 |   |
|                                                                        |       |                   |       |   |   |
| **Net income per common share:**                                            |       |                   |       |   |   |
| Basic                                                                       |       | $                      | 0.18       |   | $ | 0.05 |   |
| Diluted                                                                     |       | $                      | 0.18       |   | $ | 0.05 |   |

 

Stockoptions of 1,271,302 and 2,161,543, were excluded from the shares used in thecomputation of diluted earnings per share for the three month periods ended May 29,2010 and May 30, 2009, respectively, as they were anti-dilutive.

 

**NOTE 10— FAIR VALUE MEASUREMENTS**

 

UnderASC 820-10, “Fair Value Measurements and Disclosures,” fair value is defined asthe exit price, or the amount that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participantsas of the measurement date.  ASC 820-10also establishes a hierarchy for inputs used in measuring fair value that maximizesthe use of observable inputs and minimizes the use of unobservable inputs byrequiring that the most observable inputs be used when available.  Observable inputs are inputs marketparticipants would use in valuing the asset or liability and are developedbased on 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 that are developed based upon the bestinformation available in the circumstances. The hierarchy is broken down into three levels.  Level 1 inputs are quoted prices (unadjusted)in active markets for identical 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.

 

*Assets and Liabilities that are Measured at Fair Value on aRecurring Basis:*

 

Forthe three month periods ended May 29, 2010 and May 30, 2009, fairvalue under ASC 820-10 applied to the Company’s available-for-sale securities,ARS and ARS rights.  These financialassets are carried at fair value following the requirements of ASC 820-10.

 

Thefollowing tables provide information by level for assets and liabilities thatare measured at fair value on a recurring basis (in thousands).

 

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| ** **                    | ** ** | ** **            | ** ** | **Fair Value Measurements**    | ** ** |
|-------------------------------|------------|-----------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **Fair Value at**     | ** ** | **Using Inputs Considered as** | ** ** |
| **Description**               | ** ** | **May 29, 2010** | ** ** | **Level 1**                    | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Assets:                       |       |                  |       |                           |       |   |   |   |   |
| Available-for-sale securities |       | $                     | 66,135     |                           | $          | — |   | $ | 66,135 |   | $ | — |   |
| Trading securities            |       | 9,999                 |       | —                         |       | — |   | 9,999 |   |
| ARS rights                    |       | 1,562                 |       | —                         |       | — |   | 1,562 |   |
|                          |       |                  |       |                           |       |   |   |   |   |
| Liabilities:                  |       | $                     | —     |                           | $          | — |   | $ | — |   | $ | — |   |

 
| ** **                    | ** ** | ** **                 | ** ** | **Fair Value Measurements**    | ** ** |
|-------------------------------|------------|----------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **Fair Value at**          | ** ** | **Using Inputs Considered as** | ** ** |
| **Description**               | ** ** | **May 30, 2009** | ** ** | **Level 1**               | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Assets:                       |       |                       |       |                           |       |   |   |   |   |
| Available-for-sale securities |       | $                          | —     |                           | $          | — |   | $ | — |   | $ | — |   |
| Trading securities            |       | 16,400                     |       | —                         |       | — |   | 16,400 |   |
| ARS rights                    |       | 2,700                      |       | —                         |       | — |   | 2,700 |   |
|                          |       |                       |       |                           |       |   |   |   |   |
| Liabilities:                  |       | $                          | —     |                           | $          | — |   | $ | — |   | $ | — |   |

 

Followingis a description of the valuation methodologies used for financial assets andliabilities measured at fair value:

 

*Available-for-salesecurities:*  As of May 29,2010, the Company’s available-for-sale securities were valued based on quotedprices for similar assets in active markets or quoted prices for identical orsimilar assets in markets in which there were fewer transactions.

 

*Tradingsecurities:*  The Company’strading securities consist solely of ARS as of May 29, 2010 and May 30,2009.  See Note 2, Investments, forfurther disclosure regarding the Company’s ARS.

 

*ARSrights:*  As discussed in Note 2, Investments,in November 2008, the Company accepted UBS’s ARS settlement offer.  This resulted in the Company receiving ARSrights, which the Company has elected to account for at fair value.

 

Thefollowing table provides a reconciliation of the beginning and ending balancesof items measured at fair value on a recurring basis in the table above thatused significant unobservable inputs (Level 3) (in thousands).

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                   | ** ** | **May 29, 2010**  | ** ** | **May 30, 2009**  | ** ** |
| ** **                                   | ** ** | **ARS**                | ** ** | **ARS Rights**         | ** ** | **ARS** | ** ** | **ARS Rights** | ** ** |
|                                         |       |                   |       |                   |       |   |   |   |   |
| Beginning balance                            |       | $                      | 12,800     |                   | $          | 2,000 |   | $ | 16,400 |   | $ | 2,700 |   |
|                                         |       |                   |       |                   |       |   |   |   |   |
| Total gains (losses):                        |       |                   |       |                   |       |   |   |   |   |
| Included in earnings                         |       | 449                    |       | (438                   | )          | — |   | — |   |
| Purchases (sales), issuances and settlements |       | (3,250                 | )          | —                 |       | — |   | — |   |
|                                         |       |                   |       |                   |       |   |   |   |   |
| Ending balance                               |       | $                      | 9,999      |                   | $          | 1,562 |   | $ | 16,400 |   | $ | 2,700 |   |

 

*Assets and Liabilities that are Measured at Fair Value on aNon-recurring Basis:*

 

TheCompany measures certain assets and liabilities at fair value on anon-recurring basis.  Specifically, theCompany’s nonfinancial long-lived asset groups are measured at fair value forimpairment assessments.  There were no impairmentcharges related to assets measured at fair value on a non-recurring basisrecorded during the quarters ended May 29, 2010 and May 30, 2009.

 

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**NOTE 11— COMPREHENSIVE INCOME**

 

Comprehensiveincome consisted of the following (in thousands):

 
| ** **                           | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------|------------|------------------------|------------|
| ** **                           | ** ** | **May 29,**       | ** ** | **May 30,** | ** ** |
| ** **                           | ** ** | **2010**               | ** ** | **2009** | ** ** |
|                                 |       |                   |       |   |   |
| Net income                           |       | $                      | 6,340      |   | $ | 1,685 |   |
| Fair value adjustment on investments |       | (16                    | )          | — |   |
|                                 |       |                   |       |   |   |
| Total comprehensive income           |       | $                      | 6,324      |   | $ | 1,685 |   |

 

**NOTE 12— LEGAL PROCEEDINGS**

 

TheCompany is subject, from time to time, to various claims, lawsuits or actionsthat arise in the ordinary course of business. Although the amount of any liability that could arise with respect toany current proceedings cannot, in our opinion, be accurately predicted, anysuch liability is not expected to have a material adverse impact on the Company’sfinancial position, results of operations or liquidity.

 

**NOTE 13 — SEGMENT REPORTING**

 

TheCompany operates in the retail apparel industry in which it primarily designs,sources and sells women’s apparel catering to customers who are typically partof the female baby boomer demographic. The Company has identified two operating segments (Christopher &Banks and C.J. Banks) as defined by ASC 820, “Disclosures about Segments of anEnterprise and Related Information.”  TheCompany’s Christopher & Banks and C.J. Banks operating segments havebeen aggregated into one reportable segment based on the similar nature ofproducts sold, methods of sourcing, merchandising and distribution processesinvolved, target customers, and economic characteristics of the two brands.

 

Inthe table below, the “Christopher & Banks/C.J. Banks” reportablesegment includes activity generated by the Company’s Christopher &Banks and C.J. Banks operations.  The “Corporate/Administrative”column, which primarily represents operating activity at the Company’scorporate office and distribution center, is presented to allow forreconciliation of segment-level net sales, operating income and total assets tothe Company’s consolidated net sales, operating income and total assets.  Segment operating income includes only netsales, merchandise gross margin and direct store expenses with no allocation ofcorporate overhead.

 

**Segment Reporting****(in thousands):**

 
| ** **                                 | ** ** | **Christopher & Banks/** | ** ** | **Corporate/**     | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|--------------------|------------|------------------|------------|
| ** **                                 | ** ** | **C.J. Banks**                    | ** ** | **Administrative** | ** ** | **Consolidated** | ** ** |
| **Three Months Ended May 29,  2010**  |       |                              |       |               |       |             |       |
| Net sales                                  |       | $                                 | 126,235    |               | $          | —           |       | $ | 126,235 |   |
| Operating income (loss)                    |       | $                                 | 24,803     |               | $          | (14,154          | )          | $ | 10,649 |   |
| Total assets                               |       | $                                 | 162,417    |               | $          | 102,530          |       | $ | 264,947 |   |
|                                       |       |                              |       |               |       |             |       |
| **Three Months Ended May 30,  2009:** |       |                              |       |               |       |             |       |
| Net sales                                  |       | $                                 | 120,367    |               | $          | —           |       | $ | 120,367 |   |
| Operating income (loss)                    |       | $                                 | 16,009     |               | $          | (13,555          | )          | $ | 2,454 |   |
| Total assets                               |       | $                                 | 163,054    |               | $          | 124,903          |       | $ | 287,957 |   |

 

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**ITEM 2.**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL 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-Qand the consolidated financial statements, notes and MD&A contained in theCompany’s Annual Report on Form 10-K for the fiscal year ended February 27,2010.

 

**ExecutiveOverview**

 

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.

 

Asof May 29, 2010, the Company operated 795 stores in 46 states, including532 Christopher & Banks stores, 261 C.J. Banks stores and two dualstores.  The Company’s Christopher &Banks brand offers distinctive fashions featuring exclusively designed,coordinated assortments of women’s apparel in sizes four to 16. The Company’sC.J. Banks brand offers similar assortments of women’s apparel in sizes 14W to26W.   The Company’s dual stores offer an assortmentof both Christopher & Banks and C.J. Banks apparel servicing thepetite, misses and plus size customer in one store. The Company also operatese-Commerce web sites for its two brands at **www.christopherandbanks.com**and **www.cjbanks.com** which, in addition tooffering the apparel found in the Company’s stores, also offer exclusive sizesand styles available only online.

 

The Company strives to provide its customers qualityapparel at a great value with a consistent fit. The Company’s overall strategy for its two brands, Christopher &Banks and C.J. Banks, is to offer a compelling, evolving assortment of apparelthrough its stores and e-Commerce web sites in order to satisfy its customers’expectations for style, quality, value and fit, while providing exceptional,personalized customer service.

 

The Company has competitively positioned itself tooffer merchandise assortments balancing unique, novelty apparel with moreclassic, basic styles, at affordable prices. To differentiate itself from its competitors, the Company’s buyers,working in conjunction with the Company’s internal design group, strive tocreate a merchandise assortment of coordinated outfits, the majority of whichis manufactured exclusively for the Company under its proprietary Christopher &Banks and C.J. Banks brand names.

 

*Fiscal2011 First Quarter Summary*

 

Inthe first quarter of fiscal 2011, the Company reported a 5% increase insame-store sales. While customer traffic remained challenging, improvedconversion rates (the percentage of customers who enter the Company’s storesand make a purchase, as compared to the total number of customers entering theCompany’s stores) indicated positive response to the Company’s evolvingmerchandise assortment.  Freshmerchandise was delivered to stores weekly during the quarter and customersresponded favorably to selections of novelty sweaters, printed and texturedshirts, and an expanded skirt assortment. The Company’s customers also responded favorably to its collections ofpetite sizes and jewelry.

 

Improvedselling at full price, targeted use of promotions and positive leverageassociated with the 5% increase in same store sales led to a 500 basis pointreduction in merchandise, buying and occupancy costs as a percent of net salesduring the quarter.  The Company heldselling, general and administrative (“SG&A”) expenses essentially flat inthe first quarter of fiscal 2011, as compared to the first quarter of fiscal2010, resulting in operating income of $10.6 million, or 8.4% of net sales, andnet income of $6.3 million, or $0.18 per diluted share.  The Company’s balance of cash, cashequivalents and short and long-term investments increased to approximately $115million at the end of the first quarter of fiscal 2011 from approximately $113million at the end of fiscal 2010 and approximately $105 million at the end ofthe prior year’s first quarter. Inventories remained well-controlled during the quarter and were upapproximately 5% on a per store basis, excluding e-Commerce inventory, at theend of the first quarter as compared to the end of the first quarter of fiscal2010.  The Company opened one new dualstore and closed eight Christopher & Banks and four C.J. Banks storesduring the first quarter.

 

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**Fiscal2011 Outlook**

 

In addition to approaching all of the Company’soperations with continued financial discipline and rigor, the Company isplacing additional focus on the following key initiatives in fiscal 2011.

 

*Increasingstore productivity*

 

TheCompany introduced edited assortments, or “capsules,” of its C.J. Banks plussize merchandise in a select test group of 30 Christopher & Banksstores (“capsule stores”) in the fall of fiscal 2010.  The C.J. Banks assortments were added to thecapsule stores without a reduction in the Christopher & Banksmerchandise assortments at these stores. Based on the improved productivity and same store sales performance atthe 30 initial capsule stores, as compared to the balance of the chain, theCompany plans to add additional capsules to approximately 30 stores in September andapproximately 20 stores in November, bringing the total number of capsulestores to approximately 80 by the 2010 holiday season.

 

TheCompany opened its first dual-concept store during fiscal 2010 and oneadditional dual store during the first quarter of fiscal 2011.  These stores offer merchandise from both ofthe Company’s Christopher & Banks and C.J. Banks brands, and all threesize ranges, misses, petite and plus, within each store, resulting in a greateropportunity to service the Company’s customers while increasing productivityand enhancing operating efficiencies.  Inorder to continue to test the performance of its dual store concept, theCompany plans to open approximately six additional dual stores during theremainder of fiscal 2011, bringing the total number of dual stores toapproximately eight by fiscal year-end.

 

Inan effort to drive productivity at all stores, the Company increased its focuson customer service in fiscal 2010 and plans to enhance this focus through moreengaged store teams in fiscal 2011.  TheCompany is striving to enhance the customer experience by encouraging its storemanagers, or “shopkeepers,” to provide more personalized selling and service toits customers.  The Company has furtherenhanced its customer experience by providing an in-store e-Commerce orderingsystem which allows store associates to provide customers with a broaderselection of merchandise, including select buys and special sizes and lengthsavailable only online.

 

*Branddifferentiation and messaging*

 

Infiscal 2011, the Company plans to place a greater emphasis on marketing.  In March 2010, the Company launched itsFriendship Rewards loyalty program. Friendship Rewards is a point-based program where members earn pointsbased on purchases.  After reaching a certainlevel of accumulated points, members are rewarded with a certificate which maybe used for purchases at the Company’s stores or online web sites.  The reward certificates expire approximatelysix weeks after issuance.  Programmembers will also be kept up-to-date on new product deliveries, special eventsand promotions to draw them into the Company’s stores and visit itswebsites.  The Company also plans toenhance its Customer Relationship Management (“CRM”) customer segmentationcapabilities, including further refining its direct mail strategy to moreprecisely design and target customer mailings.

 

TheCompany continues to capture a constant flow of customer feedback and to reactto customer input.  Throughout theremainder of fiscal 2011, the Company expects to hold customer focus groups andconduct frequent online surveys and product fit clinics to gain ongoinginsights into customer needs.  Inaddition, the Company will continue to solicit input from its shopkeepersregarding customer feedback and to design and conduct grassroots marketing efforts.

 

*Merchandising*

 

Infiscal 2011, the Company plans to continue to identify, test and, ifsuccessful, introduce new product categories in an effort to increase spendingby existing customers and to attract new customers to its brands.  Based on product tests conducted in fiscal2010, the Company rolled out a new assortment of jewelry to all of its storesduring the first quarter of fiscal 2011 and plans to increase the size of itsjewelry assortment throughout the year. In addition to the jewelry rollout, the Company plans to execute severaltests of other new product categories in fiscal 2011, including outerwear,sleepwear and extended sizes of other merchandise.

 

*Growthof e-Commerce channel*

 

TheCompany plans to continue to grow its Christopher & Banks and C.J.Banks e-Commerce channels in fiscal 2011, which have operated profitably since February 2008.  Focus will be placed on converting additionalcustomers into multi-channel shoppers and leveraging the branding benefits thee-Commerce channel can provide.  TheCompany also plans to grow its e-Commerce channel through increasing its onlinecustomer base and continuing to use the channel to test further product lineand size extensions.

 

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*Infrastructureefficiency*

 

TheCompany is in the final stages of building a scalable, cost-effective andfully-integrated information technology infrastructure. While there will benormal, ongoing enhancements and investments, such as the completion of theCompany’s rollout of upgraded point-of-sale hardware and software to all storesand implementation of a new product lifecycle management system in fiscal 2011,it does not anticipate any additional significant information technologyinfrastructure-related capital investments in the near term.

 

**KeyPerformance Indicators**

 

TheCompany’s management evaluates the following items, which are considered keyperformance indicators, in assessing the Company’s performance:

 

*Same storesales*

 

TheCompany’s same store sales data is calculated based on the change in net salesfor stores that have been open for more than 13 full months and includesstores, if any, that have been relocated within the same mall.  Stores where square footage has been changedby more than 25 percent within the past 13 months are excluded from the same storesales calculation.  Stores closed duringthe year are included in the same store sales calculation only for the fullmonths of the year the stores were open. In addition, sales which are initiated in stores but fulfilled throughthe Company’s e-Commerce website are included in the calculation of same storesales.

 

Managementconsiders same store sales to be an important indicator of the Company’sperformance.  Same store sales resultsare important in achieving leveraging of costs, including store payroll, storeoccupancy, 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.

 

*Merchandise,buying and occupancy costs*

 

Merchandise,buying and occupancy costs, exclusive of depreciation and amortization, measurewhether the Company is appropriately optimizing the price of itsmerchandise.  Merchandise, buying andoccupancy costs include the cost of merchandise, markdowns, shrink, freightinto and out from the Company’s distribution center, buyer and distributioncenter salaries, buyer travel, rent and other occupancy-related costs, variousmerchandise design and development costs, miscellaneous merchandise expensesand other costs related to the Company’s distribution network.

 

*Operatingincome*

 

TheCompany’s management views operating income as a key indicator of the Company’ssuccess.  The key drivers of operatingincome are same store sales; merchandise, buying and occupancy costs; and theCompany’s ability to control its other operating costs.

 

*Storeproductivity*

 

Storeproductivity measures, including sales per square foot, average unit retailselling price, number of transactions per store, number of units pertransaction, average retail dollars per transaction, customer traffic andconversion rates are evaluated by management in assessing the operationalperformance of individual stores and of the Company.  The Company calculates conversion rates basedon the percentage of customers who enter the Company’s stores and make apurchase, as compared to the total number of customers entering the Company’sstores.  The Company currently haselectronic customer traffic counters in approximately half of its stores.

 

*Inventoryturnover*

 

TheCompany’s management evaluates inventory turnover as a measure of howproductively inventory is bought and sold. Declining rates of inventory turnover are important as they signal thatinventory is becoming slow-moving.

 

*Cashflow and liquidity*

 

Managementevaluates cash flows from operating, investing and financing activities indetermining 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 anticipates its cash, cashequivalents and short-term investments, combined with cash flows generated fromoperations, will be sufficient to meet its capital expenditure, working capitaland other requirements for liquidity for the remainder of fiscal 2011.

 

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**CriticalAccounting Policies and Estimates**

 

TheCompany’s critical accounting policies are more fully described in Note 1 ofthe notes to consolidated financial statements contained within the Company’sAnnual Report on Form 10-K for the fiscal year ended February 27,2010.  There have been no materialchanges in the Company’s critical accounting policies or estimates in the threemonths ended May 29, 2010, except for the addition of a customer loyaltyprogram as discussed below. Management’s discussion and analysis of the Company’sfinancial condition and results of operations are based upon the Company’sconsolidated condensed financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesof America.

 

Onan ongoing basis, the Company evaluates its estimates, including those relatedto customer product returns, inventories, income taxes, medical and workers’compensation claims and contingencies. The Company bases its estimates on historical experience and on variousother assumptions that it believes to be reasonable under the circumstances,the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from othersources.  Actual results may differ fromthese estimates under different assumptions or conditions.

 

Duringthe first quarter of fiscal 2011, the Company launched its Friendship Rewardsloyalty program. Under the program, customers accumulate points based onpurchase activity.  Once a FriendshipRewards member achieves a certain point level, the member earns awardscertificates that may be redeemed for merchandise.  Points are accrued as unearned revenue andrecorded as a reduction of net sales and a current liability as they areaccumulated by members and certificates are earned.  The liability is recorded net of estimatedbreakage based on redemption patterns and trends.  The reward certificates expire approximatelysix weeks after issuance.

 

TheCompany reviews long-lived assets with definite lives at least annually, orwhenever events or changes in circumstances indicate that the carrying value ofthe asset may not be recoverable.  Whilethe Company recorded no impairments of long-lived assets in the three monthperiod ended May 29, 2010, the current challenging economic environment,combined with continued instability in the housing and labor markets, andgeneral economic uncertainty affecting the retail industry, make it reasonablypossible that long-lived asset impairments could be identified and recorded infuture periods.

 

Asof May 29, 2010, the Company had net deferred tax assets of $12.1million.  Deferred income tax assetsrepresent potential future income tax benefits. Realization of these assets is ultimately dependent upon future taxableincome.  No valuation allowance has beenprovided for deferred tax assets because management believes realization of thefull amount of net deferred tax assets is more likely than not.  While the Company has a history of profits, theCompany recorded a net loss in fiscal 2009 and near break even results infiscal 2010.  Therefore, achievement ofprofitability in the future is a significant factor in determining the Company’scontinuing ability to carry these deferred tax assets.  The Company’s accounting for deferred taxesrepresents its best estimate of future events. If future results from the Company’s operations are less than projected,a valuation allowance may be required to reduce deferred tax assets, whichcould have a material impact on the Company’s results of operations in theperiod in which it is recorded.  Significant negative events, includinglosses in future periods, would make it reasonably possible that valuationallowances against deferred tax assets may be required in future periods.

 

**Results of Operations**

 

The following table sets forth consolidated income statement dataexpressed as a percentage of net sales for the periods indicated.

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|------------------------|------------|
| ** **                                   | ** ** | **May 29,**       | ** ** | **May 30,** | ** ** |
| ** **                                   | ** ** | **2010**               | ** ** | **2009** | ** ** |
| Net sales                                    |       | 100.0                  | %          | 100.0 | % |
| Merchandise, buying and occupancy costs      |       | 57.7                   |       | 62.7 |   |
| Selling, general and administrative expenses |       | 28.7                   |       | 30.0 |   |
| Depreciation and amortization                |       | 5.2                    |       | 5.2 |   |
| Operating income                             |       | 8.4                    |       | 2.1 |   |
| Other income                                 |       | 0.1                    |       | — |   |
| Income tax provision                         |       | 3.5                    |       | 0.7 |   |
| Net income                                   |       | 5.0                    | %          | 1.4 | % |

 

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**Three Months Ended May 29, 2010 Compared to Three Months Ended May 30,2009**

 

***Net Sales.***Net sales for the threemonths ended May 29, 2010 were $126.2 million, an increase of approximately$5.9 million, or 5%, from $120.4 million for the three months ended May 30,2009.  The increase in net sales wasprimarily the result of a 5% increase in same store sales and increases inrevenues at the Company’s Christopher & Banks and C.J. Bankse-Commerce web sites, offset by a decrease in the number of stores operated bythe Company during the quarter and a reduction in sales related to accruedunearned revenue for points accumulated by customers and certificates issued inconjunction with the Company’s new Friendship Rewards loyalty program.

 

The5% increase in same stores sales was driven mainly by higher averagetransaction values, resulting from improved selling at full price and moretargeted promotional activity, combined with a slight increase in the number oftransactions per average store.  Inaddition, increased conversion rates in the first quarter of fiscal 2011, ascompared to the first quarter of fiscal 2010, offset continued declines incustomer traffic levels, reflecting positive response by customers to theCompany’s evolving merchandise assortment.

 

TheCompany operated 795 stores at May 29, 2010, compared to 816 stores as of May 30,2009.

 

***Merchandise, Buying and Occupancy Costs.  ***Merchandise, buying andoccupancy costs, exclusive of depreciation and amortization, were $72.9million, or 57.7% of net sales, during the first quarter of fiscal 2011,compared to $75.5 million, or 62.7% of net sales, during the same period infiscal 2010, resulting in approximately 500 basis points of positive leveragewhen compared to the prior year period.

 

Thereduction in merchandise, buying and occupancy costs as a percentage of netsales in the first quarter of fiscal 2011 as compared to the first quarter offiscal 2010, was equally attributable to higher merchandise margins, resultingfrom lower markdown levels due to reduced, more targeted promotional activity,and to leveraging of buying and occupancy expenses associated with the 5%increase in same store sales.

 

***Selling, General and Administrative Expenses. ***Selling, general andadministrative expenses, exclusive of depreciation and amortization, for thethree months ended May 29, 2010 were $36.2 million, or 28.7% of net sales,compared to $36.1 million, or 30.0% of net sales, for the three months ended May 30,2009, resulting in approximately 130 basis points of positive leverage inconnection with the 5% increase in same store sales in the first quarter.

 

TheCompany held SG&A expenses essentially flat during the first quarter offiscal 2011, as compared to the first quarter of fiscal 2010.  For the full year of fiscal 2010, the Companyreduced SG&A expenses by approximately $33.6 million compared to the prioryear as a result of a significant cost reduction initiative.

 

***Depreciation and Amortization.***  Depreciation and amortization was $6.5million, or 5.2% of net sales, in the first quarter of fiscal 2011, compared to$6.3 million, or 5.2% of net sales, in the first quarter of fiscal 2010.

 

***Operating Income. ***Based on the foregoing, the Company recordedoperating income of $10.6 million, or 8.4% of net sales, for the quarter ended May 29,2010, compared to operating income of $2.5 million, or 2.1% of net sales, forthe quarter ended May 30, 2009.

 

***Interest Income. ***For the three months ended May 29, 2010,interest income was $116,000, compared to $115,000 for the three months ended May 30,2009.

 

***Income Taxes. ***Income tax expense in the first quarter of fiscal2011 was $4.4 million, with an effective tax rate of 41.1%, compared to incometax expense of $0.9 million, with an effective tax rate of 34.4%, in the firstquarter of fiscal 2010.  The increase inthe effective tax rate reflects the Company’s expectation for improvedprofitability in fiscal 2011, compared to the near break even results reportedin fiscal 2010.

 

***Net Income. ***As a result ofthe foregoing factors, the Company recorded net income of $6.3 million, or 5.0%of net sales and $0.18 per diluted share, for the three months ended May 29,2010, compared to net income of $1.7 million, or 1.4% of net sales and $0.05per diluted share, for the three months ended May 30, 2009.

 

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**Liquidityand Capital Resources**

 

TheCompany’s principal on-going cash requirements are to fund working capitalneeds such as purchasing merchandise inventory, to finance the construction ofnew stores and the remodeling of certain existing stores, and to makeinformation technology-related and other capital expenditures.  Merchandise purchases vary on a seasonalbasis, peaking in the fall.  As a result,the Company’s cash requirements historically reach their peak in October orNovember, during the Company’s third fiscal quarter.  Conversely, cash balances peak in the fourthfiscal quarter in January, after the holiday season is completed. The Company’sbalance of cash, cash equivalents and short and long-term investments increasedto approximately $115 million at the end of the first quarter of fiscal 2011from approximately $113 million at the end of fiscal 2010 and approximately$105 million at the end of the prior year first quarter.  Please see Note 2, Investments, forfurther information regarding the Company’s investment holdings.

 

*Netcash provided by operating activities*

 

Netcash provided by operating activities totaled $10.2 million in the first threemonths of fiscal 2011, a decrease of approximately $3.3 million from $13.5million in the first three months of fiscal 2010.

 

Significantfluctuations in the Company’s working capital accounts included a $4.0 milliondecrease in inventory and a $6.1 million decrease in accounts payable.  The decrease in inventory was mainly a resultof seasonal fluctuations as per-store inventory, excluding e-Commerceinventory, increased by approximately 5% at the end of the first quarter offiscal 2011 as compared to the end of the first quarter of fiscal 2010.  The decrease in accounts payable resultedfrom a shortening of the Company’s payment terms with its merchandise vendorsand timing of the Company’s merchandise receipts and payments.

 

Theremainder of the change in cash provided by operating activities wassubstantially the result of net income earned during the first three months offiscal 2011, after adjusting for non-cash charges, including depreciation andamortization expense, deferred income taxes, stock-based compensation expense,loss on the disposal of furniture, fixtures and equipment and various otherchanges in the Company’s other operating assets and liabilities. In addition, approximately$3.3 million of the Company’s ARS were redeemed during the three months ended May 29,2010.

 

*Netcash used in investing activities*

 

Netcash used in investing activities in the first three months of fiscal 2011consisted of $3.4 million of capital expenditures as well as $3.3 million ofnet purchases of available-for-sale securities. The Company opened one new store during the quarter and also made otherinformation technology-related investments at its stores and corporate officefacility during the three months ended May 29, 2010.

 

TheCompany expects to fund approximately $9 million to $11 million of additionalcapital expenditures in the last three quarters of fiscal 2011.  The Company plans to open approximately tenmore stores during fiscal 2011 and to fund additional investments in its storesand information technology infrastructure. In addition, the Company expects that a portion of these capitalexpenditures will relate to stores with planned openings in the first quarterof fiscal 2012.

 

*Netcash used in financing activities*

 

Inthe first three months of fiscal 2011, approximately $2.1 million was used infinancing activities for the payment of a quarterly cash dividend, which waspartially offset by $87,000 of proceeds from the exercise of stock options and$206,000 of excess tax benefit on stock-based compensation.

 

TheCompany anticipates its cash, cash equivalents and short-term investments,combined with cash flows generated from operations, will be sufficient to meetits capital expenditure, working capital and other requirements for liquidityfor the remainder of fiscal 2011.

 

*Creditfacility*

 

TheCompany maintains an Amended and Restated Revolving Credit Facility (the “CreditFacility”) with Wells Fargo Bank, National Association (“Wells Fargo”) whichexpires on June 30, 2011.  TheCredit Facility provides the Company with revolving credit loans and letters ofcredit of up to $50 million, in the aggregate, subject to a borrowing baseformula based on inventory levels.

 

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Loansunder the Credit Facility bear interest at the prime rate minus 0.25%.  As of May 29, 2010, the prime rate was3.25%.  The Credit Facility also providesthe Company with the ability to borrow under the Credit Facility at an interestrate tied to the London Interbank Market Offered Rate (“LIBOR”).  Advances under the LIBOR option would be tiedto the one, three, or six month LIBOR rate based on the length of time thecorresponding advance is outstanding.

 

Interestunder the Credit Facility is payable monthly in arrears.  The Credit Facility carries a facility fee of0.25%, based on the unused portion as defined in the agreement, a collateralmonitoring fee and a guarantee service charge. Borrowings under the Credit Facility are collateralized by the Company’sequipment, intangible assets, inventory, inventory letters of credit and letterof credit rights.  The Company had norevolving credit loan borrowings under the Credit Facility during the firstthree months of fiscal 2011 or fiscal 2010. 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 29, 2010 was $21.6million.  As of May 29, 2010, the Companyhad open on-demand letters of credit in the amount of $1.3 million.  Accordingly, the availability of revolvingcredit loans under the Credit Facility was $20.3 million at May 29, 2010.

 

TheCredit Facility contains certain restrictive covenants, including restrictionson incurring additional indebtedness and limitations on certain types ofinvestments, as well as requiring the maintenance of certain financialcovenants.  As of May 29, 2010, the mostrecent measurement date, the Company was in compliance with all financialcovenants under the Credit Facility.

 

*AuctionRate Securities*

 

TheCompany had approximately $10.0 million of short-term trading securities as ofMay 29, 2010, which consisted of $11.6 million of auction rate securities (“ARS”)at cost, less a fair value adjustment of approximately $1.6 million.  The fair value of the ARS was determinedutilizing a discounted cash flow method based on market rates and an estimatedperiod of time the ARS are expected to be held.

 

Substantially all of the Company’s ARS are collateralized by studentloans and a majority have AAA (S&P), Aaa (Moody’s), or Fitch (AAA) creditratings as of May 29, 2010.  As of May29, 2010, the repayment of approximately 80% of the student loans, which serveas collateral for the ARS held by the Company, was substantially backed by theUnited States Government.  Until February2008, the ARS market was liquid and auctions for ARS held by the Company didnot fail. However, beginning in February 2008, auctions for the ARS held by theCompany began to fail and have continued to fail up to and as of the date ofthis report.

 

Allof the ARS owned by the Company were purchased through UBS Financial Services,Inc., a subsidiary of UBS AG (“UBS”) and are held, for the benefit of theCompany, by UBS.  In November 2008, theCompany accepted a settlement offer from UBS to restore liquidity to itsclients who hold ARS.  The settlementoffer grants the Company certain ARS rights. These ARS rights provide the Company the ability to redeem its ARS atpar during a two-year time period beginning June 30, 2010.  During this time, the Company may choose tocontinue to hold some or all of its ARS and earn interest or sell some or allof them to UBS at par plus accrued interest. The ARS rights are not transferable, tradable, or marginable and willnot be listed or quoted on any securities exchange or any electroniccommunications network.   As the Companyhas the ability and intent to redeem its ARS at June 30, 2010, it reclassifiedthe ARS to short-term investments during the second quarter of fiscal 2010.

 

Uponacceptance of the settlement offer, the Company classified the ARS as tradingsecurities and elected to record the ARS rights at fair value on a recurringbasis utilizing significant unobservable inputs in accordance with ASC 820-10, “FairValue Measurements and Disclosures.”  The fair value of the ARS rights was estimated utilizing theBlack-Scholes option pricing model and the forward contract method.  As of May 29, 2010, the fair value of the ARSrights was determined to be approximately $1.6 million.  The ARS rights are recorded as a currentasset on the consolidated financial statements.

 

EffectiveJune 30, 2010, the Company exercised its ARS rights under the settlementagreement with UBS and redeemed all of its outstanding ARS at par, whichtotaled approximately $7.1 million, on July 1, 2010.

 

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**MerchandiseSourcing**

 

TheCompany directly imported approximately 5% of its total merchandise purchasesin the three month periods ended May 29, 2010 and May 30, 2009.  Substantially all of its remaining merchandisepurchases were made from U.S. based companies which import the goods fromoverseas.  This reliance on sourcing fromforeign countries may cause the Company to be exposed to certain risks asindicated below and as discussed in Part I, “Item 1A. Risk Factors” in theCompany’s Annual Report on Form 10-K for the year ended February 27, 2010.

 

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 financial condition,results of operations and liquidity.  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.

 

The Company does not have long-term purchasecommitments or arrangements with any of its suppliers or agents.  During the quarter ended May29, 2010, one of the Company’s vendors supplied approximately 30% of theCompany’s merchandise purchases and a second vendor supplied approximately 18%of the Company’s merchandise purchases. The Company purchased 25% and 14% of its merchandise from these vendorsduring the quarter ended May 30, 2009.

 

Although the Company has strong relationships withthese vendors, there can be no assurance that these relationships can bemaintained in the future or that the vendors will continue to supplymerchandise to the Company.  If there should be any significant disruptionin the supply of merchandise from these vendors, management believes that itwill be able to shift production to other suppliers so as to continue to securethe required volume of product.  Nevertheless, it is possible that anysignificant disruption in supply could have a material adverse impact on theCompany’s financial position or results of operations.

 

**QuarterlyResults and Seasonality**

 

TheCompany’s quarterly results may fluctuate significantly depending on a numberof factors, including general economic conditions, timing of promotional eventsand new store openings, adverse weather conditions, shifts in the timing ofcertain holidays and customer response to the Company’s seasonal merchandisemix.

 

**Inflation**

 

Managementdoes not believe that inflation had a material effect on the Company’s resultsof operations for the first quarter of fiscal 2011 or fiscal 2010.

 

**Forward-Looking Statements**

 

TheCompany, through its management, may make forward-looking statements reflectingthe Company’s current views with respect to future events and financialperformance.  These forward-lookingstatements, which may be included in reports filed under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), in press releases and inother documents and materials as well as in written or oral statements made byor on behalf of the Company, are subject to certain risks and uncertainties,including those discussed in Item 1A of the Company’s Annual Report on Form10-K for the fiscal year ended February 27, 2010, which could cause actualresults to differ materially from historical results or those anticipated.

 

Thewords or phrases “will likely result,” “are expected to,” “will continue,” “estimate,”“project,” “believe,” “expect, “ “anticipate,” “forecast,” “plans to,” “intend,”“intends” and similar expressions are intended to identify forward-lookingstatements within the meaning of Section 21e of the Exchange Act and Section27A of the Securities Act of 1933, as amended, as enacted by the PrivateSecurities Litigation Reform Act of 1995 (“PSLRA”).  In particular, the Company desires to takeadvantage of the protections of the PSLRA in connection with theforward-looking statements made in this Quarterly Report on Form 10-Q.

 

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Readersare cautioned not to place undue reliance on these forward-looking statements,which speak only as of the date such statements are made.  In addition, the Company wishes to advisereaders that the factors listed in Item 1A of the Company’s Annual Reporton Form 10-K for the fiscal year ended February 27, 2010, as well as otherfactors, could affect the Company’s performance and could cause the Company’sactual results for future periods to differ materially from any opinions orstatements expressed about such future performance or results.  The Company undertakes no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.

 

**ITEM 3.**

**QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Themarket risk inherent in the Company’s financial instruments and in itsfinancial position represents the potential loss arising from adverse changesin interest rates.  The Company’s resultsof operations could be negatively impacted by decreases in interest rates onits investments.

 

TheCompany is potentially exposed to market risk from changes in interest ratesrelating to its Credit Facility with Wells Fargo Bank.  Loans under the Credit Facility bear interestat Wells Fargo’s prime rate, 3.25% as of May 29, 2010, less 0.25%, or the one,three, or six month LIBOR rate, based on the length of time the advance isoutstanding.  However, the Company had norevolving credit loan borrowings under the Credit Facility during the firstthree months of fiscal 2011 or fiscal 2010. Given its existing liquidity position, the Company does not expect toutilize the Credit Facility in the reasonably foreseeable future other than touse letters of credit to support the import of merchandise.

 

TheCompany enters into certain purchase obligations outside the United States,which are denominated and settled in U.S. dollars.  Therefore, the Company has only minimalexposure to foreign currency exchange risks. The Company does not hedge against foreign currency risks and believesthat its foreign currency exchange risk is immaterial.

 

TheCompany does not have any derivative financial instruments and does not holdany derivative financial instruments for trading purposes.

 

**ITEM 4.**

**CONTROLS AND PROCEDURES**

 

*(a)**      **Evaluation of Disclosure Controlsand Procedures.*

 

Underthe supervision and with the participation of its Chief Executive Officer andChief Financial Officer, the Company’s management has evaluated theeffectiveness and design of the Company’s disclosure controls and procedures(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the ExchangeAct) as of the end of the period covered by this report (the “Evaluation Date”).  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 periodsspecified in applicable rules and forms, and (ii) accumulated and communicatedto the Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, to allow timely decisions regarding required disclosure.

 

*(b)**      **Internal Control Over FinancialReporting.*

 

Therehave not been any changes in the Company’s internal control over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the three months ended May 29, 2010 that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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**PART II - OTHER INFORMATION**

 

**ITEM 1.**

**LEGAL PROCEEDINGS**

 

TheCompany is subject, from time to time, to various claims, lawsuits or actionsthat arise in the ordinary course of business. Although the amount of any liability that could arise with respect toany current proceedings cannot, in our opinion, be accurately predicted, anysuch liability is not expected to have a material adverse impact on the Company’sfinancial position, results of operations or liquidity.

 

**ITEM 1A.**

**RISK FACTORS**

 

Therehave been no material changes to the factors discussed in Part I, “Item 1A.Risk Factors” in the Company’s Annual Report on Form 10-K for the year endedFebruary 27, 2010.

 

**ITEM 2.**

**UNREGISTERED SALES OF EQUITY**

**SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.**

**DEFAULTS UPON**

**SENIOR SECURITIES**

 

None.

 

**ITEM 4.**

**(REMOVED AND RESERVED)**

 

None.

 

**ITEM 5.**

**OTHER INFORMATION**

 

None.

 

**ITEM 6.**

**EXHIBITS**

 
|   | 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**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                            |       |       | **CHRISTOPHER  & BANKS CORPORATION** |
|---------------------------------|------------|------------|------------------------------------------|
|                            |       |       | ** **                               |
|                            |       |       |                                     |   |
| Dated:   July 8, 2010 | ** ** | ** ** | By                                       | /s/  LORNA E. NAGLER |
|                            |       |       |                                     |   |
|                            |       |       |                                     | Lorna  E. Nagler |
|                            |       |       |                                     | President  and Chief Executive Officer |
|                            |       |       |                                     | (Principal  Executive Officer) |
|                            |       |       |                                     |   |
|                            |       |       |                                     |   |
| Dated:   July 8, 2010 | ** ** | ** ** | By                                       | /s/  RODNEY CARTER |
|                            |       |       |                                     |   |
|                            |       |       |                                     | Rodney  Carter |
|                            |       |       |                                     | Executive  Vice President, |
|                            |       |       |                                     | Chief  Financial Officer |
|                            |       |       |                                     | (Principal  Financial Officer) |

 

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**CHRISTOPHER & BANKS CORPORATION**

**QUARTERLY REPORT ON FORM 10-Q**

 

**INDEX TO EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                         |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                    |
| 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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