**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

----

**FORM 10-Q**

| **(Mark One)** |
|----------------|
| ** **     |
| **x**          | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
| ** **     | **SECURITIES  EXCHANGE ACT OF 1934** |
| ** **     | ** ** |
| ** **     | **For the  quarterly period ended June 2, 2007** |
| ** **     | ** ** |
| ** **     | **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 No. 001-31390**

### **CHRISTOPHER& BANKS CORPORATION**

(Exact name of registrant as specified in its charter)

| **Delaware**                     |   | **06 -  1195422**       |
|----------------------------------|--------|-------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer        |
| incorporation or  organization)  |   | Identification  Number) |

 

# **2400Xenium Lane North, Plymouth, Minnesota**

(Address of principal executive offices)

# **55441**

(Zip Code)

**(763) 551-5000**

(Registrant’stelephone number, including area code)

----

 

Indicate by check mark whether the registrant (1) hasfiled all reports 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 is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

| **Large accelerated filer   ****x** |   | **Accelerated  filer  ****o** |   | **Non-accelerated  filer  ****o** |
|----------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------------|

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

| **YES   ****o** |   | **NO   ****x** |   | ** ** |
|--------------------------------|--------|-------------------------------|--------|------------|

As of June 29, 2007, 36,256,125 shares of theregistrant’s common stock were outstanding.

 

----

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

**QUARTERLY REPORT ON FORM 10-Q**

**INDEX**

# **PART I**

# **FINANCIAL INFORMATION**

|                        | ** ** | ** **                                                                                                | ** ** | **Page** |
|------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|----------|
| Item 1.                |       | Unaudited Consolidated Condensed Financial  Statements:                                                   |       |     |
|                   |       |                                                                                                      |       |     |
|                   |       | Consolidated  Condensed Balance Sheet  As of June 2, 2007, March 3, 2007 and May 27, 2006                 |       | 3        |
|                   |       |                                                                                                      |       |     |
|                   |       | Consolidated  Condensed Statement of Income  For the Three Months Ended June 2, 2007 and May 27, 2006     |       | 4        |
|                   |       |                                                                                                      |       |     |
|                   |       | Consolidated  Condensed Statement of Cash Flows  For the Three Months Ended June 2, 2007 and May 27, 2006 |       | 5        |
|                   |       |                                                                                                      |       |     |
|                   |       | Notes to  Consolidated Condensed Financial Statements                                                     |       | 6        |
|                   |       |                                                                                                      |       |     |
| Item 2.                |       | Management’s  Discussion and Analysis of   Financial Condition and Results of Operations             |       | 12       |
|                   |       |                                                                                                      |       |     |
| Item 3.                |       | Quantitative and Qualitative Disclosures  About Market Risk                                               |       | 16       |
|                   |       |                                                                                                      |       |     |
| Item 4.                |       | Controls and  Procedures                                                                                  |       | 17       |
|                   |       |                                                                                                      |       |     |
| **PART II**            |       |                                                                                                      |
| **OTHER  INFORMATION** |       |                                                                                                      |
| ** **             |       |                                                                                                      |
| Item 1.                |       | Legal Proceedings                                                                                         |       | 17       |
|                   |       |                                                                                                      |       |     |
| Item  1A.              |       | Risk  Factors                                                                                             |       | 17       |
|                   |       |                                                                                                      |       |     |
| Item 2.                |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                              |       | 17       |
|                   |       |                                                                                                      |       |     |
| Item 3.                |       | Defaults  Upon Senior Securities                                                                          |       | 18       |
|                   |       |                                                                                                      |       |     |
| Item 4.                |       | Submission  of Matters to a Vote of Security Holders                                                      |       | 18       |
|                   |       |                                                                                                      |       |     |
| Item 5.                |       | Other Information                                                                                         |       | 18       |
|                   |       |                                                                                                      |       |     |
| Item  6.               |       | Exhibits                                                                                                  |       | 18       |
|                   |       |                                                                                                      |       |     |
|                   |       | Signatures                                                                                                |       | 19       |
|                   |       |                                                                                                      |       |     |
|                   |       | Index  to Exhibits                                                                                        |       | 20       |

 

2

----

# **CHRISTOPHER & BANKSCORPORATION**

# **CONSOLIDATED CONDENSEDBALANCE SHEET**

(Unaudited)
| ** **                                                                                                                                                                                                                                           | ** ** | **June 2,** | ** **  | **March 3,** | ** ** | **May 27,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|-------------|-------------------|------------|------------------|------------|
| ** **                                                                                                                                                                                                                                           | ** ** | **2007**         | ** **  | **2007**          | ** ** | **2006**         | ** ** |
| **ASSETS**                                                                                                                                                                                                                                           |       |             |        |              |       |             |       |
| Current assets:                                                                                                                                                                                                                                      |       |             |        |              |       |             |       |
| Cash and cash  equivalents                                                                                                                                                                                                                           |       | $                | 52,178,941  |              | $          | 53,991,398       |       | $ | 68,066,992 |   |
| Short-term investments                                                                                                                                                                                                                               |       | 44,425,000       |        | 48,275,000        |       | 44,525,000       |       |
| Accounts  receivable                                                                                                                                                                                                                                 |       | 5,621,277        |        | 4,481,624         |       | 5,103,703        |       |
| Merchandise  inventories                                                                                                                                                                                                                             |       | 58,829,857       |        | 52,354,944        |       | 42,937,086       |       |
| Prepaid expenses                                                                                                                                                                                                                                     |       | 10,344,306       |        | 10,666,421        |       | 3,125,676        |       |
| Other current  assets                                                                                                                                                                                                                                |       | 3,783,548        |        | 5,334,636         |       | 3,079,876        |       |
| Total current  assets                                                                                                                                                                                                                                |       | 175,182,929      |        | 175,104,023       |       | 166,838,333      |       |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Property, equipment and  improvements, net                                                                                                                                                                                                           |       | 129,629,964      |        | 127,776,442       |       | 121,686,064      |       |
| Goodwill                                                                                                                                                                                                                                             |       | 3,587,052        |        | 3,587,052         |       | 3,587,052        |       |
| Intangible assets                                                                                                                                                                                                                                    |       | 547,990          |        | 575,281           |       | 657,154          |       |
| Other assets                                                                                                                                                                                                                                         |       | 1,425,091        |        | 280,299           |       | 269,498          |       |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Total assets                                                                                                                                                                                                                                         |       | $                | 310,373,026 |              | $          | 307,323,097      |       | $ | 293,038,101 |   |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                       | ** ** | ** **       | ** **  | ** **        | ** ** | ** **       | ** ** |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Current liabilities:                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Accounts payable                                                                                                                                                                                                                                     |       | $                | 13,646,265  |              | $          | 16,287,931       |       | $ | 6,446,559 |   |
| Accrued  salaries, wages and related expenses                                                                                                                                                                                                        |       | 6,002,676        |        | 7,574,930         |       | 9,609,804        |       |
| Other accrued  liabilities                                                                                                                                                                                                                           |       | 23,071,441       |        | 22,387,281        |       | 25,422,295       |       |
| Total current  liabilities                                                                                                                                                                                                                           |       | 42,720,382       |        | 46,250,142        |       | 41,478,658       |       |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Non-current liabilities:                                                                                                                                                                                                                             |       |             |        |              |       |             |       |
| Deferred lease  incentives                                                                                                                                                                                                                           |       | 22,678,101       |        | 23,646,261        |       | 21,338,405       |       |
| Deferred rent  obligations                                                                                                                                                                                                                           |       | 11,418,416       |        | 10,678,341        |       | 9,996,313        |       |
| Other                                                                                                                                                                                                                                                |       | 3,351,206        |        | 983,137           |       | 2,512,130        |       |
| Total  non-current liabilities                                                                                                                                                                                                                       |       | 37,447,723       |        | 35,307,739        |       | 33,846,848       |       |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Commitments                                                                                                                                                                                                                                          |       | —           |        | —            |       | —           |       |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Stockholders’ equity:                                                                                                                                                                                                                           |       |             |        |              |       |             |       |
| Preferred stock  – $0.01 par value, 1,000,000 shares authorized, none outstanding                                                                                                                                                          |       | —           |        | —            |       | —           |       |
| Common stock –  $0.01 par value, 74,000,000 shares authorized, 45,097,823, 45,038,310 and  43,566,852 shares issued and 36,255,905, 36,521,451 and 36,782,116 shares  outstanding at June 2, 2007, March 3, 2007 and May 27, 2006, respectively |       | 450,978          |        | 450,383           |       | 435,669          |       |
| Additional  paid-in capital                                                                                                                                                                                                                          |       | 107,325,355      |        | 106,806,885       |       | 77,696,894       |       |
| Retained earnings                                                                                                                                                                                                                                    |       | 223,003,723      |        | 213,264,385       |       | 200,156,126      |       |
| Common stock  held in treasury, 8,841,918, 8,516,859 and 6,784,736 shares at cost at June  2, 2007, March 3, 2007 and May 27, 2006                                                                                                                   |       | (100,575,135     | )           | (94,756,437       | )          | (60,576,094      | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                     |       | 230,204,921      |        | 225,765,216       |       | 217,712,595      |       |
|                                                                                                                                                                                                                                                 |       |             |        |              |       |             |       |
| Total liabilities and  stockholders’ equity                                                                                                                                                                                                     |       | $                | 310,373,026 |              | $          | 307,323,097      |       | $ | 293,038,101 |   |

 

The accompanying notes are an integral part of these unauditedconsolidated condensed financial statements.

3

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**CHRISTOPHER& BANKS CORPORATION**

**CONSOLIDATED CONDENSED STATEMENT OF INCOME**

(Unaudited)
| ** **                                                                     | ** ** | **Three Months Ended** | ** **  |
|--------------------------------------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                                                     | ** ** | **June 2,**                 | ** **  | **May 27,** | ** ** |
| ** **                                                                     | ** ** | **2007**                         | ** **  | **2006** | ** ** |
|                                                                           |       |                             |        |   |   |
| Net sales                                                                      |       | $                                | 149,371,334 |   | $ | 142,530,289 |   |
|                                                                           |       |                             |        |   |   |
| Costs and  expenses:                                                           |       |                             |        |   |   |
| Merchandise, buying and occupancy, exclusive of  depreciation and amortization |       | 86,916,121                       |        | 78,561,840 |   |
| Selling, general and administrative                                            |       | 39,079,123                       |        | 36,080,701 |   |
| Depreciation and amortization                                                  |       | 5,295,127                        |        | 4,981,619 |   |
| Total costs and expenses                                                       |       | 131,290,371                      |        | 119,624,160 |   |
|                                                                           |       |                             |        |   |   |
| Operating income                                                               |       | 18,080,963                       |        | 22,906,129 |   |
|                                                                           |       |                             |        |   |   |
| Interest income                                                                |       | 1,059,023                        |        | 961,531 |   |
|                                                                           |       |                             |        |   |   |
| Income before income taxes                                                     |       | 19,139,986                       |        | 23,867,660 |   |
|                                                                           |       |                             |        |   |   |
| Income tax  provision                                                          |       | 7,464,595                        |        | 9,260,652 |   |
|                                                                           |       |                             |        |   |   |
| Net income                                                                     |       | $                                | 11,675,391  |   | $ | 14,607,008 |   |
|                                                                           |       |                             |        |   |   |
| Basic earnings  per common share:                                              |       |                             |        |   |   |
|                                                                           |       |                             |        |   |   |
| Net income                                                                     |       | $                                | 0.32        |   | $ | 0.40 |   |
|                                                                           |       |                             |        |   |   |
| Basic shares outstanding                                                       |       | 36,189,740                       |        | 36,407,732 |   |
|                                                                           |       |                             |        |   |   |
| Diluted earnings  per common share:                                            |       |                             |        |   |   |
|                                                                           |       |                             |        |   |   |
| Net income                                                                     |       | $                                | 0.32        |   | $ | 0.39 |   |
|                                                                           |       |                             |        |   |   |
| Diluted shares outstanding                                                     |       | 36,305,439                       |        | 37,032,452 |   |
|                                                                           |       |                             |        |   |   |
| Dividends per share                                                            |       | $                                | 0.06        |   | $ | 0.04 |   |

 

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

4

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**CHRISTOPHER & BANKS CORPORATION**

**CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS**

(Unaudited)
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **June 2,**                 | ** ** | **May 27,** | ** ** |
| ** **                                                                         | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| Cash flows from  operating activities:                                             |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 11,675,391 |   | $ | 14,607,008 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                      |       | 5,295,127                        |       | 4,984,235 |   |
| Deferred income taxes                                                              |       | (1,486,803                       | )          | (1,473,717 | ) |
| Excess tax benefit related to stock-based  compensation                            |       | (21,006                          | )          | (2,113,088 | ) |
| Stock-based compensation expense                                                   |       | 458,680                          |       | 912,597 |   |
| Loss on disposal of furniture, fixtures and  equipment                             |       | 28,239                           |       | 14,677 |   |
| Changes in operating assets and liabilities:                                       |       |                             |       |   |   |
| Increase in merchandise inventories                                                |       | (6,474,913                       | )          | (5,065,711 | ) |
| Increase in accounts receivable                                                    |       | (1,139,653                       | )          | (350,400 | ) |
| Increase in income taxes payable/receivable                                        |       | 8,294,032                        |       | 8,234,341 |   |
| Decrease (increase) in other current assets                                        |       | 322,115                          |       | (62,854 | ) |
| Increase in other assets                                                           |       | (65,668                          | )          | (59,629 | ) |
| Decrease in accounts payable                                                       |       | (2,903,475                       | )          | (3,482,956 | ) |
| Increase (decrease) in accrued liabilities                                         |       | (4,614,630                       | )          | 2,980,522 |   |
| Decrease in deferred lease incentives                                              |       | (968,160                         | )          | (464,464 | ) |
| Increase in deferred rent obligations                                              |       | 740,075                          |       | 386,314 |   |
|                                                                               |       |                             |       |   |   |
| Net cash provided by operating activities                                          |       | 9,139,351                        |       | 19,046,875 |   |
|                                                                               |       |                             |       |   |   |
| Cash flows from  investing activities:                                             |       |                             |       |   |   |
| Purchases of property, equipment and improvements                                  |       | (6,887,788                       | )          | (8,239,973 | ) |
| Purchases of short-term investments                                                |       | (20,500,000                      | )          | (22,525,000 | ) |
| Redemptions of short-term investments                                              |       | 24,350,000                       |       | 8,000,000 |   |
|                                                                               |       |                             |       |   |   |
| Net cash used in investing activities                                              |       | (3,037,788                       | )          | (22,764,973 | ) |
|                                                                               |       |                             |       |   |   |
| Cash flows from  financing activities:                                             |       |                             |       |   |   |
| Proceeds from exercise of stock options                                            |       | 39,379                           |       | 8,735,860 |   |
| Dividends paid                                                                     |       | (2,155,707                       | )          | (1,448,857 | ) |
| Excess tax benefit related to stock-based compensation                             |       | 21,006                           |       | 2,113,088 |   |
| Acquisition of common stock held in treasury                                       |       | (5,818,698                       | )          | — |   |
|                                                                               |       |                             |       |   |   |
| Net cash provided by (used in) financing activities                                |       | (7,914,020                       | )          | 9,400,091 |   |
|                                                                               |       |                             |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                              |       | (1,812,457                       | )          | 5,681,993 |   |
|                                                                               |       |                             |       |   |   |
| Cash and cash  equivalents at beginning of period                                  |       | 53,991,398                       |       | 62,384,999 |   |
|                                                                               |       |                             |       |   |   |
| Cash and cash  equivalents at end of period                                        |       | $                                | 52,178,941 |   | $ | 68,066,992 |   |
|                                                                               |       |                             |       |   |   |
| Supplemental  cash flow information:                                               |       |                             |       |   |   |
| Income taxes paid                                                                  |       | $                                | 417,930    |   | $ | 2,500,027 |   |
| Purchases of  equipment and improvements, accrued, not paid                        |       | $                           | 261,809    |   | $  | 76,170 |   |

 

The accompanying notes are an integral part of these unauditedconsolidated condensed financial statements.

5

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**CHRISTOPHER& BANKS CORPORATION**

# **NOTES TO CONSOLIDATEDCONDENSED FINANCIAL STATEMENTS**

(Unaudited)

## **NOTE1 – BASIS OF PRESENTATION**

The unaudited consolidated condensed financialstatements included in this Form 10-Q have been prepared by Christopher &Banks Corporation and subsidiaries (the “Company”) pursuant to the rules andregulations of the United States Securities and Exchange Commission. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed, or omitted, pursuant to suchrules and regulations. These unaudited consolidated condensed financialstatements should be read in conjunction with the financial statements andrelated notes included in the Company’s Annual Report on Form 10-K for thefiscal year ended March 3, 2007.

The results ofoperations for the interim periods shown in this report are not necessarilyindicative of results to be expected for the fiscal year. In the opinion ofmanagement, the information contained herein reflects all adjustments necessaryto make the results of operations for the interim periods a fair statement ofsuch operations. All such adjustments are of a normal recurring nature.

## **NOTE 2 – INCOME TAXES**

TheCompany adopted the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No.48”), on March 4, 2007. FIN No. 48 prescribes a minimum recognition thresholdand measurement process for recording uncertain tax positions in the financialstatements. Additionally, FIN No. 48 provides guidance on derecognition,classification, accounting and disclosure related to uncertain tax positions.

Implementationof FIN No. 48 resulted in an adjustment to the Company’s liability forunrecognized tax benefits of approximately $0.2 million, with a correspondingincrease to retained earnings. As of the date of adoption, the total amount ofunrecognized tax benefits was $3.4 million. Of that amount, approximately $2.3million represents the amount of unrecognized tax benefits that would, ifrecognized, favorably affect the Company’s effective income tax rate in futureperiods.

TheCompany recognizes interest and penalties related to unrecognized tax benefitsas components of income tax expense. At March 4, 2007, the Company had accrued$0.7 million for the potential payment of interest and penalties.

TheCompany and its subsidiaries file income tax returns in the U.S. Federaljurisdiction and various state jurisdictions. The Internal Revenue Service hascompleted their audit for tax years through fiscal 2006. The Company is notsubject to state income tax examination by tax authorities for taxable yearsprior to fiscal 2004.

## **NOTE 3 – SHORT-TERM INVESTMENTS**

Short-terminvestments consisted of the following:
|                                         | ** ** | **June 2,**  | ** ** | **March 3,** | ** ** | **May 27,**  | ** ** |
|-----------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Description**                         | ** ** | **2007**          | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|                                    |       |              |       |              |       |              |       |
| Tax advantaged  auction rate securities |       | $ 44,425,000 |       | $ 48,275,000 |       | $ 32,525,000 |       |
| U.S. Government  debt securities        |       | —            |       | —            |       | 12,000,000        |       |
|                                    |       |              |       |              |       |              |       |
|                                    |       | $ 44,425,000 |       | $ 48,275,000 |       | $ 44,525,000 |       |

 

6

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## **NOTE 4 – MERCHANDISE INVENTORIES**

Merchandise inventoriesconsisted of the following:
|                                    | ** ** | **June 2,**  | ** ** | **March 3,** | ** ** | **May 27,**  | ** ** |
|------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Description**                    | ** ** | **2007**          | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|                               |       |              |       |              |       |              |       |
| Merchandise - in  store            |       | $ 54,181,240 |       | $ 41,099,342 |       | $ 35,851,315 |       |
| Merchandise - in  transit          |       | 6,050,464         |       | 11,888,367        |       | 7,483,892         |       |
| Allowance for  permanent markdowns |       | (1,401,847        | )          | (632,765          | )          | (398,121          | )          |
|                               |       |              |       |              |       |              |       |
|                               |       | $ 58,829,857 |       | $ 52,354,944 |       | $ 42,937,086 |       |

 

The Companypurchased approximately 9% and 11% of its merchandise from its largest overseassupplier during the first three months of fiscal 2008 and 2007, respectively.

## **NOTE 5 – PROPERTY, EQUIPMENT ANDIMPROVEMENTS, NET**

Property,equipment and improvements, net consisted of the following:
| ** **                                                                  | ** ** | **Estimated**                               | ** ** | **June 2,** | ** **  | **March 3,** | ** ** | **May 27,** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------------|------------|------------------|-------------|-------------------|------------|------------------|------------|
| **Description**                                                             | ** ** | **Useful Life**                        | ** ** | **2007**         | ** **  | **2007**          | ** ** | **2006**         | ** ** |
|                                                                        |       |                                        |       |             |        |              |       |             |       |
| Land                                                                        |       | —                                      |       | $                | 1,596,898   |              | $          | 1,596,898        |       | $ | 1,596,898 |   |
| Corporate  office, distribution center and related building improvements    |       | 25  years                                   |       | 11,663,704       |        | 11,663,704        |       | 11,412,094       |       |
| Store leasehold  improvements                                               |       | Term  of related lease,  typically 10 years |       | 88,081,545       |        | 87,288,395        |       | 76,347,224       |       |
| Store furniture  and fixtures                                               |       | Three  to 10 years                          |       | 102,473,180      |        | 101,486,350       |       | 87,786,967       |       |
| Point of sale  hardware and software                                        |       | Five  years                                 |       | 8,860,076        |        | 8,625,579         |       | 8,136,324        |       |
| Corporate office  and distribution center furniture, fixtures and equipment |       | Seven  years                                |       | 2,792,298        |        | 2,751,805         |       | 2,546,565        |       |
| Computer  hardware and software                                             |       | Three  to five years                        |       | 5,996,760        |        | 5,771,237         |       | 4,381,119        |       |
| Construction in  progress                                                   |       | —                                      |       | 9,244,966        |        | 5,429,824         |       | 10,687,863       |       |
|                                                                        |       |                                        |       | 230,709,427      |        | 224,613,792       |       | 202,895,054      |       |
| Less accumulated  depreciation and amortization                             |       |                                        |       | 101,079,463      |        | 96,837,350        |       | 81,208,990       |       |
|                                                                        |       |                                        |       |             |        |              |       |             |       |
| Net property, equipment  and improvements                                   |       |                                        |       | $                | 129,629,964 |              | $          | 127,776,442      |       | $ | 121,686,064 |   |

 

## **NOTE 6 – GOODWILL**

## The Company recognizes theexcess cost of an acquired entity over the net amount assigned to assetsacquired and liabilities assumed as goodwill. Goodwill will be tested forimpairment on an annual basis in the fourth quarter and between annual testswhenever impairment is indicated. Fair values are calculated based on anestimate of future cash flows, compared to the corresponding carrying value ofthe acquired entity, including goodwill. Impairment losses will be recognizedwhenever the implied fair value is less than the carrying value of the relatedasset. There were no impairments or other changes to the recorded amounts ofgoodwill for the periods presented.

7

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## **NOTE 7 – INTANGIBLE ASSETS**

## Intangible assets consisted ofthe following:

|                           | ** ** | **June 2,** | ** ** | **March 3,** | ** ** | **May 27,** | ** ** |
|---------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| ** **                | ** ** | **2007**         | ** ** | **2007**          | ** ** | **2006**         | ** ** |
| ** **                | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** |
| Customer lists            |       | $                | 830,000    |              | $          | 830,000          |       | $ | 830,000 |   |
| Accumulated  amortization |       | (282,010         | )          | (254,719          | )          | (172,846         | )          |
|                      |       | $                | 547,990    |              | $          | 575,281          |       | $ | 657,154 |   |

 

Aggregateamortization expense for the three months ended June 2, 2007 was $27,291. Estimatedaggregate amortization expense for fiscal 2008 and the next five fiscal yearsis as follows:
| Fiscal 2008 |   | $      | 100,278 |   |
|-------------|--------|--------|---------|--------|
| Fiscal 2009 |   | 82,500 |    |
| Fiscal 2010 |   | 82,500 |    |
| Fiscal 2011 |   | 82,500 |    |
| Fiscal 2012 |   | 82,500 |    |
| Fiscal 2013 |   | 82,500 |    |

 

## **NOTE 8 – ACCRUED LIABILITIES**

Other accruedliabilities consisted of the following:
|                                                      | ** ** | **June 2,** | ** ** | **March 3,** | ** ** | **May 27,** | ** ** |
|------------------------------------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|
| **Description**                                      | ** ** | **2007**         | ** ** | **2007**          | ** ** | **2006**         | ** ** |
|                                                 |       |             |       |              |       |             |       |
| Gift card,  certificate and store credit liabilities |       | $                | 9,851,472  |              | $          | 13,174,041       |       | $ | 8,734,287 |   |
| Accrued income,  sales and other taxes payable       |       | 6,935,594        |       | 2,499,410         |       | 10,274,601       |       |
| Accrued  occupancy related expenses                  |       | 1,175,758        |       | 640,985           |       | 1,364,083        |       |
| Other accrued  liabilities                           |       | 5,108,617        |       | 6,072,845         |       | 5,049,324        |       |
|                                                 |       |             |       |              |       |             |       |
|                                                 |       | $                | 23,071,441 |              | $          | 22,387,281       |       | $ | 25,422,295 |   |

 

## **NOTE 9 – STOCK-BASED COMPENSATION**

The Companyaccounts for stock-based compensation in accordance with the provisions of Statementof Financial Accounting Standard (“SFAS”) No. 123R, “Share-Based Payment”(“SFAS 123R”), which was adopted February 25, 2006 using the modifiedprospective transition method. Under this transition method, stock-basedcompensation expense recognized for share-based awards includes: (a)compensation expense for all stock-based compensation awards granted prior to,but not yet vested as of February 25, 2006, based on the grant date fair valueestimated in accordance with the original provisions of SFAS 123, and(b) compensation expense for all stock-based compensation awards grantedsubsequent to February 25, 2006, based on the grant date fair value estimatedin accordance with the provisions of SFAS 123R.

Thetotal pre-tax compensation expense related to stock-based awards for the threemonths ended June 2, 2007 and May 27, 2006 was $458,680 and $912,597,respectively. Stock-based compensation expense was included in merchandise,buying and occupancy expenses for the Company’s buying and distribution employeesand in selling, general and administrative expenses for all other employees.

8

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*MethodologyAssumptions*

TheCompany uses the Black-Scholes option-pricing model to value the Company’sstock options for grants to its employees and non-employee directors. Usingthis option-pricing model, the fair value of each stock option award isestimated on the date of grant. The fair value of the Company’s stock optionawards, which are generally subject to pro-rata vesting, is expensed on astraight-line basis over the vesting period of the stock options. The expectedvolatility assumption is based on the historical volatility of the Company’sstock over a term equal to the expected term of the option granted. Theexpected term of stock option awards granted is derived from historicalexercise experience. The expected term assumption incorporates the contractualterm of an option grant, as well as the vesting period of an award. Therisk-free interest rate is based on the implied yield on a U.S. Treasuryconstant maturity with a remaining term equal to the expected term of theoption granted.

Theweighted average assumptions relating to the valuation of the Company’s stockoptions for the quarters ended June 2, 2007 and May 27, 2006 were as follows:
|                          | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **June 2,**                 | ** ** | **May 27,** | ** ** |
| ** **               | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| Expected  dividend yield |       | 1.29%                            |       | 0.64% |   |
| Expected  volatility     |       | 45.11%                           |       | 44.30% |   |
| Risk-free  interest rate |       | 4.58%                            |       | 4.90% |   |
| Expected term in years   |       | 4.25 Years                       |       | 4 Years |   |

 

*Stock-BasedCompensation Activity*

Thefollowing table presents a summary of the Company’s stock option activity forthe three months ended June 2, 2007:
| ** **                        | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** **          | ** ** | **Weighted**    | ** ** |
|-----------------------------------|------------|------------|------------|--------------|------------|---------------|------------|---------------------|------------|-----------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** **    | ** ** | ** **          | ** ** | **Average**     | ** ** |
| ** **                        | ** ** | **Number** | ** ** | **Average**  | ** ** | **Aggregate** | ** ** | **Weighted**        | ** ** | **Remaining**   | ** ** |
| ** **                        | ** ** | **of**     | ** ** | **Exercise** | ** ** | **Intrinsic** | ** ** | **Average**         | ** ** | **Contractual** | ** ** |
| ** **                        | ** ** | **Shares** | ** ** | **Price**    | ** ** | **Value**     | ** ** | **Fair Value** | ** ** | **Life**        | ** ** |
|                              |       |       |       |         |       |          |       |                |       |            |       |
| Outstanding,  beginning of period |       | 2,072,876  |       | $            | 19.44      |          | $          | 2,431,460           |       | $               | 6.85       |   |   |   |
| Vested                            |       | 1,765,038  |       | 19.30        |       | 2,276,280     |       | 6.69                |       |            |       |
| Unvested                          |       | 307,838    |       | 20.24        |       | 155,180       |       | 7.78                |       |            |       |
| Granted                           |       | 212,750    |       | 17.98        |       | 128,090       |       | 6.87                |       |            |       |
| Exercised                         |       | (5,063     | )          | 7.78         |       | 53,314        |       | 3.29                |       |            |       |
| Canceled -  Unvested (Forfeited)  |       | (5,466     | )          | 19.45        |       | —        |       | 7.15                |       |            |       |
| Outstanding, end  of period       |       | 2,275,097  |       | $            | 19.33      |          | $          | 2,504,859           |       | $               | 6.86       |   | 5.46 |   |
| Vested                            |       | 1,809,144  |       | $            | 19.37      |          | $          | 2,285,249           |       | $               | 6.74       |   | 4.48 |   |
| Unvested                          |       | 465,953    |       | $            | 19.17      |          | $          | 219,610             |       | $               | 7.35       |   | 9.23 |   |
|                              |       |       |       |         |       |          |       |                |       |            |       |
| Exercisable, end of  period       |       | 1,809,144  |       | $            | 19.37      |          | $          | 2,285,249           |       | $               | 6.74       |   | 4.48 |   |

 

TheCompany may also grant shares of restricted stock to its employees andnon-employee members of its Board of Directors. Restricted stock awards areindependent of option grants and are subject to forfeiture if employment orservice terminates prior to the lapse of the restrictions. In addition, certainof the Company’s restricted stock awards are performance based and are subjectto forfeiture if the defined performance conditions are not achieved. TheCompany values the restricted shares based on the closing price of the Company’scommon stock on the date of grant. The resulting expense is recorded on astraight line basis over the vesting period of the restricted award.

9

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Thefollowing table presents a summary of the Company’s restricted stock activityfor the three months ended June 2, 2007:
|                                  | ** ** | **Number** | ** ** | **Aggregate** | ** ** | **Weighted**        | ** ** |
|----------------------------------|------------|------------|------------|---------------|------------|---------------------|------------|
| ** **                       | ** ** | **of**     | ** ** | **Intrinsic** | ** ** | **Average**         | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Value**     | ** ** | **Fair Value** | ** ** |
|                             |       |       |       |          |       |                |       |
| Unvested,  beginning of period   |       | 53,717     |       | $             | 998,062    |                | $          | 20.04 |   |
| Granted                          |       | 53,800     |       | 999,604       |       | 17.98               |       |
| Vested                           |       | (8,417     | )          | 156,388       |       | 19.46               |       |
| Canceled -  Unvested (Forfeited) |       | (1,450     | )          | 26,941        |       | 19.45               |       |
| Unvested, end of period          |       | 97,650     |       | $             | 1,814,337  |                | $          | 18.96 |   |

 

## **NOTE 10 – LONG-TERM DEBT**

The Company maintains an Amended and Restated Revolving Credit Facilitywith Wells Fargo Bank, National Association (the “Wells Fargo Revolver”) whichexpires on June 30, 2008. The Wells Fargo Revolver provides the Company withrevolving credit loans and letters of credit of up to $50.0 million, subject toa borrowing base formula based on inventory levels.

Loans under the Wells Fargo Revolver bear interest at Wells Fargo’sfloating rate, 8.25% as of June 2, 2007, plus 0.25%. Interest is payablemonthly in arrears. The Wells Fargo Revolver carries a facility fee of 0.25%based on the unused portion as defined in the agreement. Facility fees totaled$1,606 for the three months ended June 2, 2007. The credit facility iscollateralized by the Company’s equipment, general intangibles, inventory,inventory letters of credit and letter of credit rights. The Company had norevolving credit loan borrowings under the Wells Fargo Revolver during thefirst three months of fiscal 2008. Historically, the Wells Fargo Revolver hasbeen utilized by the Company only to open letters of credit to facilitate theimport of merchandise. The borrowing base at June 2, 2007 was $47.1 million. Asof June 2, 2007, the Company had outstanding letters of credit in the amount of$21.3 million. Accordingly, the availability of revolving credit loans underthe Wells Fargo Revolver was $25.8 million at June 2, 2007.

The Wells Fargo Revolver contains certain restrictive covenantsincluding restrictions on incurring additional indebtedness and limitations oncertain types of investments, as well as requiring the maintenance of certainfinancial covenants. As of June 2, 2007, the most recent measurement date, theCompany was in compliance with all covenants of the Wells Fargo Revolver.

## **NOTE 11 – STOCKHOLDERS’ EQUITY**

In fiscal 2007, the Company’s Board of Directors authorized a stockrepurchase program enabling the Company to purchase up to $40.0 million of itscommon stock, subject to market conditions. During fiscal 2007, the Companyrepurchased 1,732,123 shares at a total cost, including commissions, ofapproximately $34.2 million. In March 2007, the Company completed therepurchase program by purchasing an additional 325,059 shares of its commonstock for a total cost, including commissions, of $5.8 million, bringing thetotal number of shares repurchased under this program to 2,057,182 at a totalcost, including commissions, of approximately $40.0 million.

The common stock repurchased under this program is being held intreasury and has reduced the number of shares of the Company’s common stockoutstanding by approximately 5%. All of the Company’s share repurchases wereexecuted in the open market and no shares were repurchased from relatedparties. In addition, all of the Company’s share repurchases were executed inaccordance with the safe harbor provision of Rule 10b-18 of the SecuritiesExchange Act of 1934, as amended.

On May 25, 2007, the Company’s Board of Directors authorized a one-yearstock repurchase program enabling the Company to repurchase up to $20.0 millionof its common stock, subject to market conditions. As of June 29, 2007, noshares had been repurchased under this stock repurchase program.

10

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Infiscal 2007, the Company’s Board of Directors authorized an increase in theCompany’s quarterly cash dividend to $0.06 per share of common stock, effectivebeginning with the October 2006 dividend payment. The dividend rate waspreviously $0.04 per share of common stock. The Company has declared and paid adividend each quarter since its first declaration in fiscal 2004.

## **NOTE 12 – NET INCOME PER SHARE**

Basic earnings per share (“EPS”) is computed based on the weightedaverage number of shares of common stock outstanding during the applicableperiods, while diluted EPS is computed based on the weighted average number ofcommon and common equivalent shares (dilutive stock options) outstanding. TheCompany’s reconciliation of earnings per share includes the individual shareeffects of all securities affecting earnings per share which consist solely ofthe effects of dilution from awards granted under the Company’s stock-basedcompensation plans.

The following is a reconciliation of the number of shares and per shareamounts used in the basic and diluted EPS computations:
|                                                         | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **June 2, 2007**       | ** ** | **May 27, 2006** | ** ** |
| ** **                                              | ** ** | **Shares**                       | ** ** | **Net  Income  Per Share** | ** ** | **Share** | ** ** | **Net  Income  Per Share** | ** ** |
| Basic                                                   |       | 36,189,740                       |       | $ | 0.32 |   | 36,407,732 |   | $ | 0.40 |   |
|                                                    |       |                             |       |   |   |   |   |   |   |
| Effect of  dilution from stock-based compensation plans |       | 115,699                          |       | — |   | 624,720 |   | (0.01 | ) |
|                                                    |       |                             |       |   |   |   |   |   |   |
| Diluted                                                 |       | 36,305,439                       |       | $ | 0.32 |   | 37,032,452 |   | $ | 0.39 |   |

 

Stock options of 1,686,198 and 123,280 were excluded from the sharesused in the computation of diluted EPS for the three months ended June 2, 2007and May 27, 2006, respectively, as they were anti-dilutive.

## **NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS**

InSeptember 2006, the Financial Accounting Standards Boards (“FASB”) issuedStatement of Financial Accounting Standards No. 157, “Fair Value Measures” (“SFASNo. 157”), which is effective for fiscal years beginning after November 15,2007. SFAS No. 157 defines fair value, establishes a framework formeasuring fair value in accordance with generally accepted accounting principlesand expands fair value measurement disclosures. The Company is currentlyevaluating the impact of adopting SFAS No. 157, but does not anticipate itwill have a material effect on its financial position, results of operations orcash flows.

InFebruary 2007, the FASB issued Statement of Financial Accounting Standards No.159, “The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No.159 permits entities to measure many financial instrument and certain otherassets and liabilities at fair value on an instrument-by-instrument basis undera fair value option. SFAS No. 159 is effective for fiscal years beginning afterNovember 15, 2007. Early adoption is permitted as of the beginning of theprevious fiscal year provided that the entity makes that choice in the first120 days of that fiscal year. The Company is currently evaluating the impact ofadopting SFAS No. 159, but does not anticipate it will have a material effecton its financial position, results of operations or cash flows.

11

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

(Unaudited)

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

**ExecutiveSummary - Key Performance Indicators**

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

*Same-store sales*

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, though theCompany typically does not expand or relocate stores within a mall.  Stores where square footage has been changedby more than 25% are excluded from the same-store sales calculation.  Stores closed during the year are included inthe same-store sales calculation only for the full months of the year thestores were open.

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.  Positive same-store sales above a certainlevel contribute to greater leveraging of costs while negative same-store salescontribute to deleveraging of costs. Same-store sales also have a direct impact on the Company’s total netsales, cash and cash equivalents and working capital.

*Merchandise, buying and occupancy costs, exclusiveof depreciation and amortization*

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.  Any inability to obtain acceptable levels ofinitial markups or any significant increase in the Company’s markdowns couldhave an adverse effect on the Company’s results of operations.

*Operating income*

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 operating costs.

*Store productivity*

Storeproductivity, including sales per square foot, average unit retail price,number of transactions per store and number of units per transaction, isevaluated by management in assessing the operational performance of theCompany.

*Inventory turnover*

TheCompany’s management evaluates inventory turnover as a measure of howproductively inventory is bought and sold. Inventory turnover is important as it can signal slow moving inventory,which can be critical in determining the need to take markdowns on merchandise.

*Cash flow and liquidity*

Management evaluates cash flow from operations,investing activities and financing activities in determining the sufficiency ofthe Company’s cash position.  Cash flowfrom operations has historically been sufficient to cover the Company’srequirements for liquidity.

12

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**ExecutiveOverview**

Christopher & Banks Corporation is a Minneapolis-based retailer ofwomen’s specialty apparel, which operates stores through its wholly-ownedsubsidiaries:  Christopher & Banks,Inc., Christopher & Banks Company and Christopher & Banks ServicesCompany, collectively referred to as the “Company.”  As of June 2, 2007, the Company operated 801stores in 45 states, including 528 Christopher & Banks stores, 235 C.J.Banks stores and 38 Acorn stores.  TheCompany’s Christopher & Banks stores offer distinctive fashions featuringexclusively designed, coordinated assortments of sportswear and sweaters insizes four to 16.  The Company’s C.J.Banks stores offer similar assortments of women’s specialty apparel in sizes14W and up.  The Company’s Acorn storesoffer upscale women’s fashions along with complementary jewelry and accessoriesunder private and branded labels.

In the first three months of fiscal 2008, the Company opened six newChristopher & Banks stores, 17 new C.J. Banks stores and two new Acornstores.  The Company closed two storesduring the first quarter.  In the secondand third quarters of fiscal 2008, the Company anticipates it will openapproximately 45 additional stores for a total of approximately 70 new storeopenings in fiscal 2008.

On May 25, 2007, the Company’s Board of Directors authorized a one-yearstock repurchase program enabling the Company to repurchase up to $20.0 millionof its common stock, subject to market conditions.  As of June 29, 2007, no shares had been repurchasedunder this plan.

On June 18, 2007, the Company announced that Susan Connell will jointhe Company as Executive Vice President and Chief Merchandise Officer,effective July 9, 2007.  Ms. Connell willbe responsible for overseeing product development, sourcing and othermerchandising activities for the Company’s three retail concepts.

**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 March 3, 2007.  Management’s discussion and analysis of theCompany’s financial condition and results of operations are based upon theCompany’s consolidated condensed financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America.

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 are believed 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.  There has been no material changes in theCompany’s critical accounting policies during the three months ended June 2,2007.

**Results of Operations**

The following table sets forth, for the periods indicated, certainitems from the Company’s consolidated condensed statement of income expressedas a percentage of net sales:
|                                                                                      | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                           | ** ** | **June 2,**                 | ** ** | **May 27,** | ** ** |
| ** **                                                                           | ** ** | **2007**                         | ** ** | **2006** | ** ** |
|                                                                                 |       |                             |       |   |   |
| Net sales                                                                            |       | 100.0                            | %          | 100.0 | % |
| Merchandise,  buying and occupancy costs, exclusive of depreciation and amortization |       | 58.2                             |       | 55.1 |   |
| Selling, general  and administrative expenses                                        |       | 26.2                             |       | 25.3 |   |
| Depreciation and  amortization                                                       |       | 3.5                              |       | 3.5 |   |
| Operating income                                                                     |       | 12.1                             |       | 16.1 |   |
| Interest income                                                                      |       | 0.7                              |       | 0.7 |   |
| Income before  income taxes                                                          |       | 12.8                             |       | 16.8 |   |
| Income tax  provision                                                                |       | 5.0                              |       | 6.5 |   |
| Net income                                                                           |       | 7.8                              | %          | 10.3 | % |

 

13

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**Three Months Ended June 2, 2007 Compared to ThreeMonths Ended May 27, 2006**

***Net Sales.**** *Net sales for the three monthsended June 2, 2007 were $149.4 million, an increase of $6.9 million or 5%, from$142.5 million for the three months ended May 27, 2006.  The increase in net sales resulted from anincrease in the number of stores operated by the Company, partially offset by a4% decrease in same-store sales.  TheCompany operated 801stores at June 2, 2007, compared to 739 stores at May 27,2006.  The Company’s same-store saleswere calculated based on the 13 week period ended June 2, 2007, compared to the13 week period ended June 3, 2006.  The4% decline in same-store sales was primarily attributable to a decrease in theaverage number of transactions per store. Management believes factors that contributed to this decrease includedadverse weather conditions in a significant portion of the Company’scomparative-store base in April, as well as the generally challenging women’sspecialty apparel retail environment throughout the quarter.

***Merchandise, Buying and Occupancy Costs, exclusive of depreciation andamortization. ***Merchandise,buying and occupancy costs, exclusive of depreciation and amortization, were$86.9 million, or 58.2% of net sales, during the first quarter of fiscal 2008,compared to $78.6 million, or 55.1% of net sales, during the same period infiscal 2007.  The largest components ofthe increase in merchandising, buying and occupancy costs as a percent of netsales were merchandise margins, which declined by approximately 270 basispoints, and occupancy costs which had 70 basis points of negativeleverage.  A combination of other costsincluding a lower level of accrued bonuses for the Company’s merchandise staffpartially offset these items.

***Selling, General and Administrative Expenses. ***Selling, general andadministrative expenses for the three months ended June 2, 2007 were $39.1million, or 26.2% of net sales, compared to $36.1 million, or 25.3% of netsales, for the three months ended May 27, 2006. Increases in most expense categories as a percentage of sales, due to a4% decline in same-store sales, were offset by approximately 60 basis points ofimprovement resulting from a lower level of accrued bonuses for the Company’sselling, general and administrative management staff in the first quarter offiscal 2008 compared to the first quarter of fiscal 2007.

***Depreciation and Amortization.***  Depreciation and amortization was $5.3million, or 3.5% of net sales, in the first quarter of fiscal 2008, compared to$5.0 million, or 3.5% of net sales, in the first quarter of fiscal 2007.  The increase in the amount of depreciationand amortization expense was a result of capital expenditures made by the Companyover the past year.  The Company opened25 new stores in the first three months of fiscal 2008 and 78 new stores in allof fiscal 2007.

***Operating Income.*** As a result of the foregoing factors, operating income for the threemonths ended June 2, 2007 was $18.1 million, or 12.1% of net sales, compared tooperating income of $22.9 million, or 16.1% of net sales, for the three monthsended May 27, 2006.

***Interest Income. ***Forthe quarter ended June 2, 2007, interest income increased to $1.1 million from$961,531 for the quarter ended May 27, 2006.  The increase resulted from higher averageinterest rates on short-term investments during the first three months offiscal 2008, partially offset by a lower average balance of cash equivalentsand short-term investments.

***Income Taxes. ***Incometax expense in the first quarter of fiscal 2008 was $7.5 million, with aneffective tax rate of 39.0%, compared to $9.3 million, with an effective taxrate of 38.8%, in the first quarter of fiscal 2007.

***Net Income. ***Asa result of the foregoing factors, net income for the three months ended June2, 2007 was $11.7 million, or 7.8% of net sales, and $0.32 per diluted share,compared to $14.6 million, or 10.3% of net sales, and $0.39 per diluted share,for the three months ended May 27, 2006.

**Liquidity and Capital Resources**

The Company’s principal on-going cash requirements are to finance theconstruction of new stores and the remodeling of certain existing stores, tomake other capital expenditures, to purchase merchandise inventories and tofund other working capital requirements. Merchandise purchases vary on a seasonal basis, peaking in thefall.  As a result, the Company’s cashrequirements historically reach their peak in October or November.  Conversely, cash balances reach their peak inJanuary after the holiday season is completed.

14

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Net cash provided by operating activities totaled $9.1 million for thefirst three months of fiscal 2008, a decrease of $9.9 million from $19.0million for the first three months of fiscal 2007.  Significant fluctuations in the Company’sworking capital accounts included a $6.5 million increase in merchandise inventories,a $4.6 million decrease in accrued liabilities and an $8.3 million increase inincome taxes payable/receivable.  TheCompany’s merchandise inventories increased as the Company opened 25 new storesin the first quarter of fiscal 2008.  Inaddition, primarily as a result of a 4% decline in same-store sales during thequarter and a larger combined balance of early June merchandise receipts andin-transit inventory, the Company had a higher average balance of inventory perstore.  The decrease in accruedliabilities and increase in income taxes payable/receivable were both a resultof a shift in the timing of payments for estimated income taxes, combined withan adjustment of approximately $3.4 million for unrecognized income taxbenefits resulting from the adoption and implementation of FIN No. 48 in thefirst quarter of fiscal 2008.

Net cash used in investing activities included $6.9 million of capitalexpenditures, partially offset by net redemptions of short-term investments ofapproximately $3.9 million.  The Companyopened 25 new stores and completed three major store remodels during the threemonths ended June 2, 2007.  Net cash of$7.9 million was used in financing activities during the first quarter offiscal 2008 as the Company paid one quarterly cash dividend totalingapproximately $2.2 million and repurchased approximately $5.8 million of itscommon stock.

The Company plans to fund approximately $28 million of capitalexpenditures during the last nine months of fiscal 2008 to open approximately45 additional stores, to complete several store remodels, to complete anupgrade to its point of sale register equipment and to make various capital investmentsat its corporate office and distribution center facility.  A portion of the capital expenditures willalso be used for stores scheduled to open in the first quarter of fiscal 2009.   The Company expects its cash and short-terminvestments, combined with cash flows from operations, to be sufficient to meetits capital expenditure, working capital and other requirements for liquidityduring the remainder of fiscal 2008.

The Company maintains an Amended and Restated Revolving Credit Facilitywith Wells Fargo Bank, National Association (the “Wells Fargo Revolver”) whichexpires on June 30, 2008.  The WellsFargo Revolver provides the Company with revolving credit loans and letters ofcredit of up to $50.0 million, subject to a borrowing base formula based oninventory levels.

Loans under the Wells Fargo Revolver bear interest at Wells Fargo’sfloating rate, 8.25% as of June 2, 2007, plus 0.25%.  Interest is payable monthly in arrears.  The Wells Fargo Revolver carries a facilityfee of 0.25% based on the unused portion as defined in the agreement.  Facility fees totaled $1,606 for the threemonths ended June 2, 2007.  The creditfacility is collateralized by the Company’s equipment, general intangibles,inventory, inventory letters of credit and letter of credit rights.  The Company had no revolving credit loanborrowings under the Wells Fargo Revolver during the first three months offiscal 2008.  Historically, the WellsFargo Revolver has been utilized by the Company only to open letters of creditto facilitate the import of merchandise. The borrowing base at June 2, 2007 was $47.1 million.  As of June 2, 2007, the Company hadoutstanding letters of credit in the amount of $21.3 million.  Accordingly, the availability of revolvingcredit loans under the Wells Fargo Revolver was $25.8 million at June 2, 2007.

The Wells Fargo Revolver contains certain restrictive covenantsincluding restrictions on incurring additional indebtedness and limitations oncertain types of investments, as well as requiring the maintenance of certainfinancial covenants.  As of June 2, 2007,the most recent measurement date, the Company was in compliance with allcovenants of the Wells Fargo Revolver.

**Merchandise Sourcing**

The Company directly imported approximately 74% of its totalmerchandise purchases in the first quarter of fiscal 2008.  Substantially all of its remainingmerchandise purchases were made from domestic importers.  This reliance on sourcing from foreigncountries may cause the Company to be exposed to certain risks.  Import restrictions, including tariffs andquotas, and changes in such restrictions, could affect the import of appareland might result in increased costs, delays in merchandise receipts or reducedsupplies of apparel available to the Company, and could possibly have anadverse effect on the Company’s business, financial condition and results ofoperations.  The Company’s merchandiseflow could also be adversely affected by political instability in any of thecountries where its merchandise is manufactured or by changes in the UnitedStates’ governmental policies toward such foreign countries.  In addition, merchandise receipts could bedelayed due to interruptions in air, ocean and ground shipments.

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A substantial portion of the Company’s directly imported merchandise ismanufactured in Southeast Asia.  Themajority of these goods are produced in China, Hong Kong, Indonesia andSingapore.  The Company is not currentlyimporting merchandise produced in the Middle East.

The Company purchased approximately 9% and 11% of its merchandise fromits largest overseas supplier during the first three months of fiscal 2008 and2007, respectively.  Although the Companybelieves that its relationship with this particular vendor is good, there canbe no assurance that this relationship can be maintained in the future or thatthe vendor will continue to supply merchandise to the Company.  If there should be any significant disruptionin the supply of merchandise from this vendor, management believes that it canshift production to other suppliers so as to continue to secure the requiredvolume of product.  Nevertheless, thereis some potential that any such disruption in supply could have a materialadverse impact on the Company’s financial position and results of operations.

**Quarterly Results and Seasonality**

The Company’s quarterly results may fluctuate significantly dependingon a number of factors including timing of new store openings, adverse weatherconditions, shifts in the timing of certain holidays and customer response tothe Company’s seasonal merchandise mix.

**Inflation**

Although the operations of the Company are influenced by generaleconomic conditions, the Company does not believe that inflation had a materialeffect on the results of operations during the three months ended June 2, 2007and May 27, 2006.

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 short-term investments.

TheCompany is potentially exposed to market risk from changes in interest ratesrelating to its Wells Fargo Revolver. Loans under the Wells Fargo Revolver bear interest at Wells Fargo’sfloating rate, 8.25% as of June 2, 2007, plus 0.25%.  However, the Company had no revolving creditloan borrowings under the Wells Fargo Revolver during the first three months offiscal 2008 and, given its existing liquidity position, does not expect toutilize the Wells Fargo Revolver in the near future except for its continuinguse of the import letter of credit facility.

Allof the Company’s purchase obligations placed with foreign suppliers aredenominated in U.S. dollars.  Therefore,the Company has minimal exposure to foreign currency exchange risks.  The Company does not hedge against foreigncurrency risks and believes that its foreign currency exchange risk is notsignificant.

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

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**ITEM 4.CONTROLS AND PROCEDURES**

*(a)*       Evaluation of DisclosureControls and Procedures.

Under the supervision andwith the participation of its Chief Executive Officer and Chief FinancialOfficer, the Company’s management has evaluated the effectiveness and design ofthe Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) as of the end of the period covered by thisreport.  Based upon the foregoing, theCompany’s Chief Executive Officer and Chief Financial Officer concluded thatthe Company’s disclosure controls and procedures were effective in timelyalerting them to the material information relating to the Company required tobe included in the Company’s periodic reports to the Securities and ExchangeCommission under the Exchange Act.

*(b)*       Internal Controls OverFinancial Reporting.

There have not been anychanges in the Company’s internal controls over financial reporting (as suchterm is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) duringthe three months ended June 2, 2007 that have materially affected, or arereasonably likely to materially affect, the Company’s internal controls overfinancial reporting.

**PART II.**

**ITEM 1.LEGAL PROCEEDINGS**

There are nomaterial legal proceedings pending against the Company.

**ITEM1A.RISK FACTORS**

In addition to the other information set forth in this Quarterly Reporton Form 10-Q, the factors discussed in Part I, “Item 1A. Risk Factors” in theCompany’s Annual Report on Form 10-K for the year ended March 3, 2007 should becarefully considered as they could materially affect the Company’s business,financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are notthe only risks facing the Company. Additional risks and uncertainties not currently known to the Company orthat the Company currently deems to be immaterial may also materially adverselyaffect the Company’s future business, financial condition and/or results ofoperations.

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

In fiscal 2007, the Company’s Board of Directors authorized a stockrepurchase program enabling the Company to purchase up to $40.0 million of itscommon stock, subject to market conditions. During fiscal 2007, the Company repurchased 1,732,123 shares at a totalcost, including commissions, of approximately $34.2 million.  In March 2007, the Company completed therepurchase program by purchasing an additional 325,059 shares of its commonstock for a total cost, including commissions, of approximately $5.8 million,bringing the total number of shares repurchased under this program to 2,057,182at a total cost, including commissions, of approximately $40.0 million.

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The followingtable sets forth information concerning purchases made by the Company of itscommon stock for the periods indicated:
| ** **                    | ** ** | ** **            | ** ** | ** **          | ** ** | **Total Number**                 | ** ** | **Approximate**                       | ** ** |
|-------------------------------|------------|-----------------------|------------|---------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                    | ** ** | ** **            | ** ** | ** **          | ** ** | **of Shares**                    | ** ** | **Dollar Value**                 | ** ** |
| ** **                    | ** ** | **Total Number** | ** ** | **Average**         | ** ** | **Purchased as**                 | ** ** | **of Shares that May** | ** ** |
| ** **                    | ** ** | **of Shares**    | ** ** | **Price Paid** | ** ** | **Part of a Publicly** | ** ** | **Yet be Purchased**        | ** ** |
| **Period**                    | ** ** | **Purchased**         | ** ** | **per Share**  | ** ** | **Announced Program**            | ** ** | **Under the Program**       | ** ** |
|                          |       |                  |       |                |       |                                  |       |                                  |       |
| Fiscal March:                 |       |                  |       |                |       |                                  |       |                                  |       |
| March 4, 2007 -March 31, 2007 |       | 325,059               |       | $                   | 17.90      |                                  | 2,057,182  |                                  | $          | — |   |
|                               |            |                       |            |                     |            |                                       |            |                                       |            |  |  |

 

All of the Company’sshare repurchases were executed in accordance with the safe harbor provisionsof Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

On May 25, 2007, the Company’s Board of Directors authorized a one-yearstock repurchase program enabling the Company to repurchase up to $20.0 millionof its common stock, subject to market conditions.  As of June 29, 2007, no shares had beenrepurchased under this stock repurchase program.

**ITEM 3.DEFAULTS UPONSENIOR SECURITIES**

There has been nodefault with respect to any indebtedness of the Company.

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

There were no matters submitted to a vote of security holders duringthe quarter ended June 2, 2007.

**ITEM 5.OTHER INFORMATION**

None.

**ITEM 6.EXHIBITS**

(a)           The following exhibitsare filed with this report:
| 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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**SIGNATURES**

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

**CHRISTOPHER & BANKSCORPORATION**
| Dated:  July 12,  2007 | By     | /S/ MATTHEW P.  DILLON                |   |
|----------------------------------|--------|---------------------------------------|--------|
|                             |   |                                  |
|                             |   | Matthew P. Dillon                     |
|                             |   | President and Chief Executive Officer |
|                             |   |                                  |
|                             |   | Signing on behalf of the              |
|                             |   | Registrant as principal               |
|                             |   | executive officer.                    |
|                             |   |                                  |
|                             |   |                                  |
| Dated:  July  12, 2007 | By     | /S/ ANDREW K.  MOLLER                 |   |
|                             |   |                                  |
|                             |   | Andrew K. Moller                      |
|                             |   | Executive Vice President              |
|                             |   | and Chief Financial Officer           |
|                             |   |                                  |
|                             |   | Signing on behalf of the              |
|                             |   | Registrant as principal               |
|                             |   | financial officer.                    |

 

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**CHRISTOPHER & BANKS CORPORATION**

**QUARTERLY REPORT ON FORM 10-Q**

**INDEXTO 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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