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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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



FOR THE FISCAL YEAR ENDED SEPTEMBER 24, 2005



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



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COMMISSION FILE NUMBER 000-27677



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CHARLOTTE RUSSE HOLDING, INC.

(Exact Name of Registrant as Specified in Its Charter)



|                                               |  |                                     
|---------------------------------------------- |  | ------------------------------------
|DELAWARE                                       |  | 33-0724325                          
|(State or Other Jurisdiction of Incorporation) |  | (I.R.S. Employer Identification No.)



4645 MORENA
BOULEVARD

SAN DIEGO, CA 92117

(Address, including Zip Code, of Registrants Principal Executive Offices)



(858) 587-1500

(Registrants Telephone Number, Including Area Code)



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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE



SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

COMMON STOCK, PAR VALUE $0.01 PER SHARE

(Title of Each Class)



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



Indicate by check mark if the Registrant is an
accelerated filer (as defined in Rule 12b-2 of the Act):    Yes  x    No ̈



Indicate by check mark if the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes ̈No  x



Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act:    Yes ̈No  x



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act:    Yes ̈No  x



Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or
any amendment to this Annual Report on Form 10-K. ̈



The aggregate market value of the Registrants Common Stock held by non-affiliates of the Registrant as of
March 25, 2005, the last business day of the Registrants most recently completed second fiscal quarter, was approximately $190,295,000.



Number of shares of common stock outstanding as of December 1, 2005 was 22,377,734.



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DOCUMENTS INCORPORATED BY REFERENCE



Part III incorporates information by reference from the definitive Proxy Statement for the 2006 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days after the end of the Registrants fiscal year covered by this Annual Report on Form 10-K.



The stylized and non-stylized Charlotte Russe, Refuge and

LOGO trademarks referred to in this Annual Report on Form 10-K are federally registered in the United States. These trademarks are the property of Charlotte Russe Holding, Inc. or its subsidiaries. The Rampage® trademark referred to in this Annual Report on Form
10-K is federally registered in the United States and is used by Charlotte Russe under a license agreement with Rampage Licensing, LLC. The use of the Rampage trademark by other parties, including other apparel manufacturers and retailers, should
not be attributed to our business. All other trademarks or trade names referred to in this Annual Report on Form 10-K are the property of their respective owners.



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PART I



ITEM 1. BUSINESS



General



We are a
growing, mall-based specialty retailer of fashionable, value-priced apparel and accessories targeting young women in their teens and twenties. We have two distinct, established store concepts: Charlotte Russe and Rampage. As
of September 24, 2005, we operated a total of 408 stores throughout 42 states and Puerto Rico. Through our fashion content, merchandise mix, exciting store layout and design, and striking merchandise presentation, we project fashion attitudes
that appeal to customers across age and socioeconomic boundaries, with a core emphasis on the fashion and lifestyle needs of young women. Our Charlotte Russe stores offer fashionable, affordable apparel and accessories that have been tested and
accepted by the marketplace, thus appealing to women who prefer established fashion trends. Our Rampage stores feature trendsetting apparel and accessories and thus appeal to women who have a flair for making fashion statements and who want
runway-inspired fashion, quality and value.



Our Charlotte
Russe and Rampage stores are located predominantly in high-visibility, center court mall locations in spaces that average approximately 7,000 square feet. Our stores are designed to create an environment that is exciting to shop and accentuates the
fashion, breadth and value of our merchandise selection.



Our
broad assortment of merchandise is centered on styles that are affordable, feminine and reflect the latest fashion trends. Our breadth of merchandise enables our customers to assemble coordinated and complete outfits that satisfy many of their
lifestyle needs. Both our Charlotte Russe and Rampage store concepts offer merchandise at value-oriented prices, generally below most of our direct mall-based competitors. We estimate that over 80% of our Charlotte Russe merchandise is sold under
our proprietary Charlotte Russe labels and over 80% of our Rampage merchandise is sold under our proprietary label. The remainder of our merchandise at these stores consists of nationally-recognized brands popular with our customers.



We are a growing national specialty retailer.



As of September 24, 2005, we operated 408 stores throughout 42 states
and Puerto Rico. Based on our successful track record, favorable demographic trends and a solid infrastructure, we believe we are positioned for continued growth over the next several years. We plan to continue to open new Charlotte Russe and
Rampage stores at a measured rate, with up to 35 new Charlotte Russe stores planned for fiscal year 2006. We have already opened 14 of these stores and have substantially completed our lease negotiation and evaluation process for 18 of the
remainder. We expect to open these new stores in existing markets as well as in markets in which we currently do not have a presence.



We rely on exciting in-store graphics and window displays to convey our fashion-forward orientation in both our Charlotte Russe and Rampage stores. We
have also leveraged these successful marketing efforts to promote awareness of our Charlotte Russe brands on a national level through a national print marketing campaign.



Our business strategy differentiates us from our competitors.



The elements of our business strategy combine to create a merchandise assortment that appeals to consumers from a broad
range of socioeconomic, demographic and cultural profiles and that differentiates us from our competitors. We believe this broad consumer appeal, coupled with our new store cash returns on investment, creates a highly portable store concept and a
significant opportunity for growth. The principal elements of our business strategy include the following:



Offer Consistent Value Pricing. We offer a broad assortment of fashionable, quality merchandise at prices generally below most of our direct
mall-based competitors. We employ this value-pricing strategy across both of



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our established store concepts, with an average sales price for apparel items at our Charlotte Russe and Rampage stores of approximately $16.00 and $30.00,
respectively. Because our prices are affordable and our merchandise quality is comparable to higher priced specialty retailers and department stores, we create a strong perception of value that we believe has enabled us to build a broad and loyal
base of customers.



Maintain Distinct Brand Images. We
have created focused and differentiated brand images based on fashion attitude, value pricing and quality. These images are consistently communicated through all aspects of our business, including merchandise assortments, in-store visual
merchandising and marketing materials. We also enhance brand recognition by offering approximately 80% of our Charlotte Russe merchandise under our proprietary Charlotte Russe labels and approximately 80% of our Rampage merchandise under our
proprietary

LOGO label. We believe that both of our established brands provide opportunities for expansion of our current merchandise categories and entry into new product categories.



Target a Highly Desirable Market. Our Charlotte Russe and Rampage
stores target young women in their teens and twenties, a large and growing demographic. The teenage and early twenties population is expected to grow at a rate faster than that of the overall United States population according to the United States
Census Bureau.



Offer Broad, Exciting Merchandise
Assortment. Our merchandising strategy is founded on offering a broad assortment of apparel and accessories that conveys a consistent fashion attitude. Our merchandise includes ready-to-wear apparel such as knit and woven tops, dresses, shorts,
pants and skirts, as well as accessories such as shoes, handbags and jewelry that enable our customers to create distinct ensembles complemented by color coordinated and fashion-forward items. Our merchandise assortment is voguish enough to attract
teenage customers and yet stylish enough to retain those women as they mature into young adults. We maintain a fresh and exciting shopping environment by frequently introducing new merchandise into our stores and by regularly updating our
merchandise displays. In addition, our stores provide a comfortable and spacious environment that accentuates the breadth of our merchandise offerings.



Capitalize on Strong Store Economics. Based on our experience with store openings for our two established concepts, we estimate that the average
net investment to open these new stores is approximately $400,000, which includes capital expenditures, net of landlord contributions, and initial inventory, net of payables. All new stores opened since our acquisition in fiscal 1996 generated
average net sales of approximately $1.7 million and store-level operating cash flow of approximately $335,000 during their first year of operation representing an average cash return on investment of approximately 89%. For the 180 stores opened in
the three years ended fiscal 2004, we achieved average net sales of approximately $1.6 million and store-level operating cash flow of approximately $280,000 during their first year of operation representing an average cash return on investment of
approximately 87%.



Leverage Highly Experienced Management
Team. We believe our management is positioned to capitalize on the strong economics of the Charlotte Russe and Rampage concepts and to successfully execute our national expansion program. Our two executive officers and our active Chairman of the
Board have an average of more than 26 years of retailing experience, including experience with national retailers such as Contempo Casuals, Guess?, Pacific Sunwear, Claires Stores and Price Club. In addition, our 11 Vice Presidents average
over 20 years of retailing experience, and our total of 14 executives have been with us for an average of 9 years.



Actively Manage Inventory. A key aspect of our merchandising strategy is our test-and-reorder philosophy. This strategy allows us to minimize our
inventory risk by ordering small quantities of fashion merchandise to test customer acceptance before placing larger purchase commitments. Our test-and-reorder strategy is successful in large part because we deal primarily with domestic vendors,
which in our experience has generally resulted in short lead times of three to six weeks. These short lead times, together with our ability to monitor store sales on a daily basis, permit us to quickly react to sell-through trends and fashion
preferences. We have one of the higher



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inventory turn rates in the industry, and we believe that our approach to managing our merchandise mix has contributed to strong merchandise gross margins.



Our target customers are young, fashion-conscious women.



We target young, fashion-conscious women. Our Charlotte Russe customer is a
woman who desires established trends at substantial value. She is a hip teenager seeking the current fashion trends, as well as the fashionable working woman looking for career dressing. Regardless of her age, the Charlotte Russe customer is
feminine and body conscious. Our Rampage stores cater to women with definitive fashion sense who set, rather than follow, trends. Our Rampage customer is hip, eclectic, body conscious and tapped into pop culture. She wants her look to be
cutting-edge, while recognizing the value of competitive pricing.



We offer
established fashion and cutting-edge merchandise.



Charlotte Russe. Our Charlotte Russe stores provide an exciting, fashionable assortment of merchandise that complements virtually every facet of our customers lifestyle. Our merchandise reflects established fashion trends and
includes a broad offering of ready-to-wear apparel, including knit and woven tops, dresses, shorts, pants and skirts, as well as seasonal items such as prom dresses and outerwear. This product assortment allows us to be fashionable enough to attract
teenage customers and yet stylish enough to retain customers as they become young working women. We believe Charlotte Russe stores offer a higher percentage of dresses as compared to other specialty retailers to better meet our customers broad
lifestyle needs for casual, social and special occasion wear. Our typical dresses range in price from $14.99 to $49.99. By offering a product mix that reflects a more mature stage of the fashion cycle, our Charlotte Russe stores are able to learn
from the experience of our Rampage stores with emerging trends in order to more quickly identify fashion that has a broad market appeal. Charlotte Russe stores also offer a broad assortment of accessories, such as lingerie, footwear, jewelry,
handbags and cosmetics. Our expansive accessories category enables us to offer the convenience of one-stop shopping to our customers, enabling them to complement their ready-to-wear clothing with color coordinated items and fashion-forward
accessories. Over 80% of the merchandise sold in our stores carries our proprietary Charlotte Russe labels. Our average sales price for apparel items is $16.00, and the average sales price for all of our merchandise, including accessories, is
$11.00.



Rampage. Our Rampage stores offer essentially
the same breadth of ready-to-wear apparel as our Charlotte Russe stores, but the merchandise reflects emerging trends and therefore a more cutting-edge look. The retail prices for our typical dresses range from $59.90 to $129.90. There is also less
emphasis on the career customer in our Rampage stores. Over 80% of the Rampage merchandise is offered under our proprietary

LOGO label. We work with our vendors to design a majority of the merchandise that is carried in our Rampage stores. We also have established a standard fit for all of our apparel to ensure consistent sizing among our
merchandise. Our Rampage stores also offer specialty accessories that complement our higher-end merchandise. By offering the latest in emerging fashions, our Rampage stores are able to command price points that are higher than those of Charlotte
Russe, but still below those of its competitors. The average sales price for apparel items in our Rampage stores is $30.00, and the average sales price for all of our merchandise, including accessories, is $25.00.



Our visual merchandising strengthens our brand name and creates an exciting shopping
environment.



Our merchandising presentation for our
retail apparel concepts communicates a clear fashion point-of-view to our customers and encourages the purchase of coordinated outfits. Our visual merchandising team for the Charlotte Russe and Rampage stores also makes use of body forms in store
windows as well as on the selling floor to enhance our merchandise presentation.



Within our Charlotte Russe stores, we seek to create an inviting environment for our broad product offerings. We generally group our apparel merchandise by fashion casual, wear-to-work and going-out lifestyles.



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Our offerings are complemented with lingerie, shoes and other accessories. We believe that presenting apparel merchandise by lifestyles, when accompanied
with boutiques of various accessories, creates an attractive atmosphere for our customers and that the breadth and depth of our product offerings makes us a destination location for their shopping needs.



At our Rampage stores, we employ an equally effective visual merchandising
strategy in order to capture the interest of our customers. Our Rampage merchandise is generally grouped by lifestyles with an emphasis on color and fashion trends to keep the stores vibrant, hip and visually stimulating. Our store size allows us to
provide an expansive and diverse offering of merchandise. Our store window displays and in-store graphics accentuate the fashion, quality and cutting-edge style of our merchandise.



We order primarily from domestic sources and utilize a test-and-reorder strategy.



We purchase all of our inventory from third party vendors. A key aspect of
our merchandising strategy is our test-and-reorder philosophy. Our experienced buying staff uses sophisticated information systems to track the weekly sell-through of each merchandise item by classification, style, color and size, and then places
appropriate reorders for popular merchandise. Accordingly, our test-and-reorder strategy enables us to quickly react to sell-through trends and fashion preferences.



Our test-and-reorder strategy is successful in large part because we deal with domestic vendors, which has generally
resulted in short lead times of three to six weeks. We have established relationships with over 500 vendors to meet our ongoing fashion and inventory needs. We are continuing an initiative to optimize our purchasing by decreasing our number of
vendors. We believe that we generally are able to obtain attractive pricing and other terms from vendors because of their desire to be associated with the Charlotte Russe and Rampage images and the rapid consumer feedback provided by our
test-and-reorder philosophy. We maintain a buying office in the CaliforniaMart in Los Angeles, the primary apparel center in southern California, to facilitate constant dialogue and feedback between our buying staff and our vendors. During the
fiscal year ended September 24, 2005, our top five vendors accounted for approximately 19.9% of our total purchases and no single vendor accounted for more than 4.5% of our total purchases.



We manage our inventory through merchandise planning and allocation.



Our merchandise planning and allocation team works closely with our
merchants and store personnel to meet the requirements of individual stores for appropriate merchandise in sufficient quantities. This team is also responsible for managing inventory levels, allocating merchandise to stores and replenishing
inventory based upon information generated by our management information systems. Our planning department allocates merchandise for new store openings based on estimated units per square foot, and all new stores are fully stocked prior to opening.
Our inventory control systems monitor current inventory levels at each store and for our operations as a whole. If necessary, we shift slow moving inventory to other stores for sell-through prior to instituting corporate-wide markdowns. We also
monitor recent selling history within each store by merchandise classification, style, color and size.



We distribute merchandise through our modern facilities.



Our merchandise is distributed through two modern distribution facilities: our 265,000 square foot distribution facility in Ontario, California, which we
opened in April 2002, and our 125,000 square foot distribution facility (which includes our corporate offices) in San Diego, California, which we opened in April 1998. Both of these facilities use automated systems for sorting apparel by store and
facilitating packaging for display in our stores. In addition, our Ontario facility also uses an automated system for sorting accessories by store. Our Ontario facility services the Charlotte Russe stores, and our San Diego facility (which until
April 2002 served all our stores) services Rampage stores. We estimate that we have the distribution capacity to service at least 700 stores.



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We estimate that approximately 90% of our apparel merchandise is currently pre-ticketed by our vendors.
This pre-ticketing by vendors allows us to ship merchandise more quickly, reduces labor costs and enhances inventory management. Our merchandise is generally shipped to stores within 24 hours of receipt at the distribution center for delivery on
common carrier within one to five business days. Our merchandise is available for sale in our stores the same day it is received and, accordingly, the time period from receipt of goods at our distribution center to display in our stores is typically
less than seven days. Each store generally receives three to five merchandise shipments per week. We believe our current distribution operations are sufficient to accommodate our expected store growth and expanded product offerings through the next
several years.



We have stores throughout the United States.



As of September 24, 2005, we operated 342 Charlotte Russe stores and
66 Rampage stores throughout 42 states and Puerto Rico. The number of our stores located in each state is shown in the following map:



LOGO



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The following table highlights the number of stores, by geographic region, opened in each of the last
five fiscal years:



|                                  |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|--------------------------------- |  | ---------- | - |  | --------- | - |  | --------- | - |  | --------- | - |  | -------------- |  | ----- | -
|                                  |  | California |   |  | Northeast |   |  | Southeast |   |  | Southwest |   |  | Midwest& Other |  | Total |  
|Store count at September 30, 2000 |  | 44         |   |  | 23        |   |  | 29        |   |  | 28        |   |  | 12             |  | 136   |  
|Fiscal 2001                       |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|Stores opened                     |  | 7          |   |  | 13        |   |  | 8         |   |  | 8         |   |  | 18             |  | 54    |  
|Stores closed                     |  | (1         | ) |  |          |   |  | (1        | ) |  |          |   |  |               |  | (2    | )
|                                  |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|                                  |  | 50         |   |  | 36        |   |  | 36        |   |  | 36        |   |  | 30             |  | 188   |  
|Fiscal 2002                       |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|Stores opened                     |  | 2          |   |  | 15        |   |  | 12        |   |  | 15        |   |  | 19             |  | 63    |  
|                                  |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|                                  |  | 52         |   |  | 51        |   |  | 48        |   |  | 51        |   |  | 49             |  | 251   |  
|Fiscal 2003                       |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|Stores opened                     |  | 4          |   |  | 19        |   |  | 12        |   |  | 11        |   |  | 24             |  | 70    |  
|Stores closed (Charlottes Room)  |  | (4         | ) |  | (1        | ) |  | (1        | ) |  | (4        | ) |  |               |  | (10   | )
|                                  |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|                                  |  | 52         |   |  | 69        |   |  | 59        |   |  | 58        |   |  | 73             |  | 311   |  
|Fiscal 2004                       |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|Stores opened                     |  | 5          |   |  | 10        |   |  | 12        |   |  | 6         |   |  | 16             |  | 49    |  
|                                  |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|                                  |  | 57         |   |  | 79        |   |  | 71        |   |  | 64        |   |  | 89             |  | 360   |  
|Fiscal 2005                       |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|Stores opened                     |  | 5          |   |  | 13        |   |  | 15        |   |  | 5         |   |  | 11             |  | 49    |  
|Stores closed                     |  |           |   |  | (1        | ) |  |          |   |  |          |   |  |               |  | (1    | )
|                                  |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  
|Store count at September 24, 2005 |  | 62         |   |  | 91        |   |  | 86        |   |  | 69        |   |  | 100            |  | 408   |  
|                                  |  |            |   |  |           |   |  |           |   |  |           |   |  |                |  |       |  



We seek to locate our stores in
large, commanding spaces in high traffic areas of strong regional malls.



Our stores, which average approximately 7,000 square feet, provide a comfortable and spacious shopping environment that accentuates the breadth of our merchandise offering. The target square footage for our new
Charlotte Russe stores is 6,500 to 7,000 and the target square footage for our new Rampage stores is 4,000 to 4,500. To distinguish our stores, we also seek prominent center court locations with distinctive architectural features, such as high
angled ceilings, which our store designers and visual merchandisers can use to create striking displays, facades and entrances. We believe that specialized store design features, including finished ceilings, classic lighting and detailed features,
help create a differentiated store environment unique to young women apparel retailers in the mall. We have historically been able to locate and profitably operate our stores in a variety of malls catering to different socioeconomic, demographic and
cultural profiles.



We seek to identify favorable store
locations in existing or new markets with criteria that include:



| |  |  | a careful assessment of mall traffic;
| | - |  | -------------------------------------



| |  |  | the performance of other retailers within the mall and in particular those serving our target customers;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the proposed location within the mall;
| | - |  | --------------------------------------



| |  |  | population and demographic characteristics of the area; and
| | - |  | -----------------------------------------------------------



| |  |  | projected profitability and cash return on investment.
| | - |  | ------------------------------------------------------



Immediately after site approval, we simultaneously negotiate lease terms and begin planning the store layout and design. We typically open a new store
within three months after lease execution and delivery of space. We also continually evaluate our stores to assess the need for remodeling or possible closure based on economic factors.



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Although we currently engage an independent real estate consultant to assist us in site selection and
lease negotiations, we expect to develop the capabilities to perform these functions internally.



Store Operations



Our
store operations are currently organized into five regions: a Western region with 9 districts; a Northeastern region with 10 districts; a Southeastern region with 6 districts; a Texas region with 11 districts; and a Midwestern region with 12
districts. Each region is managed by a regional manager and each district is managed by a district manager. Each district manager is responsible for from four to thirteen stores in his or her district. Individual store personnel generally consist of
a store manager, one or two assistant managers and seven to ten sales associates, the number of which generally increases during our peak selling seasons. Our store managers are responsible primarily for customer service training and hiring store
level staff. Merchandise selections, inventory management and visual merchandising strategies for each store are determined at the corporate level. Our regional, district, and store managers receive a base compensation plus incentive compensation
based on sales goals.



Our commitment to customer satisfaction
and service is an integral part of building customer loyalty. We strive to hire enthusiastic sales personnel and provide them with extensive training to create a sales staff with a strong fashion sense, a focus on customer service and a willingness
to assist customers with assembling, accessorizing and coordinating outfits.



Our standard training program for store managers includes an initial three week session at a store managed by one of our training managers, as well as frequent regional and district meetings. In addition, our training
manual provides practical information and skill development for all store level positions. We develop new store managers by promoting from within and selectively hiring from other retail organizations. In anticipation of our continued store
expansion, we will continue to increase the number of people in our store manager training program as appropriate to support our proposed expansion strategy.



We continually invest in and upgrade our information technology systems.



We are committed to investing in and continually upgrading our information technology systems, as we believe those systems are critical to
implementing our expansion strategy in an efficient manner and to maintaining a competitive industry position. Our information technology systems address an array of operations information, including among other things, our stock keeping unit and
classification inventory tracking, purchase order management, merchandise distribution, automated ticket making, general ledger, sales audit, accounts payable, fixed asset management, payroll, integrated financials and point-of-sale information.
Through automated nightly two-way electronic communication with each store, we upload sales information, payroll hours, carton receipts and messages to our host system and download new merchandise pricing, price changes for existing merchandise, and
system maintenance tasks to the point-of-sale devices. Our planning department evaluates information obtained through daily polling and, accordingly, implements merchandising decisions regarding inventory levels, reorders, price changes and
allocation of merchandise to stores. In 2003, we implemented a new planning and reporting software system. During 2004, we implemented a new inventory software system that became operational for our Rampage stores at the end of fiscal 2004 and
became operational for our Charlotte Russe stores during fiscal 2005.



We compete with other retailers primarily on the basis of timeliness of fashions, breadth of merchandise, brand recognition, pricing and quality.



We currently compete against a diverse group of retailers, including national and local specialty retail stores, regional
retail chains, traditional retail department stores and, to a lesser extent, mass merchandisers. The primary competitors of Charlotte Russe are Forever 21, Express and Wet Seal. The primary competitors of Rampage are bebe, Arden B and Guess?. Our
competitors sell a broad assortment of apparel and accessories that



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are similar and often identical to those we sell. Furthermore, our competitors may at times sell their merchandise at prices lower than what we charge for
comparable merchandise. We believe that the principal bases upon which we compete in our industry are timeliness of fashions, breadth of merchandise, brand recognition, pricing and quality. We believe that we have a significant competitive advantage
over our competitors because of our exciting shopping environment. Our stores provide a feminine look that is exciting to shop and accentuates the value and breadth of our merchandise selection. We also believe that we have a competitive advantage
because of high consumer recognition and acceptance of our brands, our strong presence in major shopping malls throughout the United States, our relationship with our vendors and the experience of our management. The retail and apparel industries,
however, are highly competitive and characterized by relatively low barriers to entry.



Our intellectual property is important to our success.



We believe that our trademarks are important to our success. Our Charlotte Russe, Refuge and trademarks are registered with the United States Patent and Trademark Office.



In connection with the acquisition of our Rampage stores in September 1997, we acquired the exclusive right within the
United States to use the Rampage trademark on exterior and interior signage identifying our Rampage stores, as well as the non-exclusive right within the United States to use the Rampage trademark for promotional and advertising materials. The right
to market merchandise under the Rampage trademark was retained by Rampage Clothing Company and subsequently transferred to an affiliate, Rampage Licensing, LLC (Rampage Clothing Company and Rampage Licensing, LLC are collectively referred to herein
as Rampage Clothing Company); and, accordingly, we do not have the right to use the Rampage trademark on our merchandise. Further, nothing in our license agreement prohibits the sale of merchandise bearing the Rampage trademark by other parties or
the licensing of the Rampage trademark to other parties, and Rampage Clothing Company, in fact, has licensed the trademark to other parties. If the product quality or activities of the Rampage Clothing Company or these other parties substantially
negatively impact our business reputation, we have the right to terminate the license agreement, subject to certain contractual notice obligations. We pay a royalty under the license agreement equal to the greater of a stated dollar amount or a
percentage of net sales during the calendar year at stores operating under the Rampage name. The license agreement has an initial term that expires in 2012 and may be extended for six additional five-year periods provided that net sales under the
license exceeds an annual goal for the year ending immediately prior to the beginning of such extension period. In the event we decide to terminate the license agreement prior to the end of the term, we may be required to pay a termination fee as
specified in the licensing agreement.



We consider the relationship with our
employees to be good.



As of September 24, 2005, we
employed 1,832 full-time and 5,778 part-time employees. Of our full-time employees, 234 were employed at our corporate offices, 135 were employed at our distribution centers and 1,463 were employed at our store locations. The number of part-time
employees fluctuates depending on our seasonal needs. None of our employees is represented by a labor union, and we consider the relationship with our employees to be good.



Available Information



We are subject to the information requirements of the Securities Exchange Act of 1934 (the Exchange Act). Therefore, we file periodic reports,
proxy statements, and other information with the Securities and Exchange Commission (the SEC). Such reports, proxy statements, and other information may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street,
NW, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file
electronically.



Our Internet address is
http://www.charlotte-russe.com. We make available through our Internet website our Annual Report on form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to



10



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those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as amended, as soon as reasonably practicable after such
reports and amendments are electronically filed with or furnished to the SEC.



We have adopted a code of ethics for our principal executive officer, principal financial officer and other individuals performing similar accounting and finance functions for us. This code of ethics is available via
the Internet on our website. In the future, should amendments to the code of ethics be required, such amendments will also be posted on our website.



ITEM 2. PROPERTIES



We operated 408 stores throughout 42 states and Puerto Rico as of September 24, 2005. We currently lease all of our store locations. Most leases have
an initial term of at least ten years and do not contain options to extend the lease. Our leases, however, often allow for termination by us after three years if sales at that site do not exceed specified levels, although in many instances we are
required to pay back a portion of any landlord allowances received. We lease space containing approximately 125,000 square feet for our executive offices and distribution center in San Diego, California. This lease is for a term of twelve years and
is scheduled to expire on August 31, 2009. We also lease approximately 10,300 square-feet of additional administrative office space near our executive office facility in San Diego, California. This facility has been leased for a one year term
that will expire in November 2006. We have entered into a ten and a half year lease, scheduled to expire on July 17, 2012, for space containing approximately 265,000 square feet for our Ontario, California distribution center. We believe our
distribution capacity at the San Diego facility and the Ontario, California facility should be sufficient to accommodate our expected store growth through the next several years. We also lease approximately 16,200 square feet, which includes an
allocation of adjoining common area space, at the CaliforniaMart in Los Angeles. This lease expires April 30, 2010.



11



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The following table highlights the number of stores, by concept, in each state:



|                                  |  |                |  |         |  |      
|--------------------------------- |  | -------------- |  | ------- |  | -----
|                                  |  | CharlotteRusse |  | Rampage |  | Total
|Alabama                           |  | 2              |  |        |  | 2    
|Arkansas                          |  | 1              |  |        |  | 1    
|Arizona                           |  | 11             |  | 3       |  | 14   
|California                        |  | 50             |  | 12      |  | 62   
|Colorado                          |  | 5              |  | 1       |  | 6    
|Connecticut                       |  | 6              |  | 1       |  | 7    
|Delaware                          |  | 1              |  |        |  | 1    
|Florida                           |  | 35             |  | 10      |  | 45   
|Georgia                           |  | 12             |  | 3       |  | 15   
|Hawaii                            |  | 2              |  |        |  | 2    
|Iowa                              |  | 1              |  | 1       |  | 2    
|Illinois                          |  | 16             |  | 5       |  | 21   
|Indiana                           |  | 8              |  |        |  | 8    
|Kansas                            |  | 3              |  |        |  | 3    
|Kentucky                          |  | 4              |  |        |  | 4    
|Louisiana                         |  | 3              |  |        |  | 3    
|Maryland                          |  | 5              |  | 1       |  | 6    
|Massachusetts                     |  | 4              |  | 2       |  | 6    
|Michigan                          |  | 14             |  | 1       |  | 15   
|Minnesota                         |  | 6              |  | 1       |  | 7    
|Mississippi                       |  | 1              |  |        |  | 1    
|Missouri                          |  | 6              |  | 1       |  | 7    
|Nebraska                          |  | 2              |  |        |  | 2    
|Nevada                            |  | 7              |  | 2       |  | 9    
|New Hampshire                     |  | 3              |  | 1       |  | 4    
|New Jersey                        |  | 12             |  | 4       |  | 16   
|New Mexico                        |  | 1              |  |        |  | 1    
|New York                          |  | 16             |  | 6       |  | 22   
|North Carolina                    |  | 8              |  |        |  | 8    
|Ohio                              |  | 13             |  | 1       |  | 14   
|Oklahoma                          |  | 5              |  |        |  | 5    
|Oregon                            |  | 3              |  |        |  | 3    
|Pennsylvania                      |  | 15             |  | 2       |  | 17   
|Puerto Rico                       |  | 4              |  | 1       |  | 5    
|Rhode Island                      |  | 1              |  |        |  | 1    
|South Carolina                    |  | 5              |  |        |  | 5    
|South Dakota                      |  | 1              |  |        |  | 1    
|Tennessee                         |  | 6              |  |        |  | 6    
|Texas                             |  | 25             |  | 5       |  | 30   
|Utah                              |  | 4              |  |        |  | 4    
|Vermont                           |  | 1              |  |        |  | 1    
|Virginia                          |  | 9              |  | 1       |  | 10   
|Wisconsin                         |  | 5              |  | 1       |  | 6    
|                                  |  |                |  |         |  |      
|Store count at September 24, 2005 |  | 342            |  | 66      |  | 408  
|                                  |  |                |  |         |  |      



12



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ITEM 3. LEGAL PROCEEDINGS



On December 14, 2004, plaintiff David Phillips, on behalf of himself and purportedly on behalf of a class of others
similarly situated, filed a complaint seeking damages in the United States District Court for the Southern District of California against us and two of our officers, alleging violations of federal securities laws related to declines in our stock
price in connection with various statements and alleged omissions to the public and to the securities markets. Two follow-on actions were filed in the same court alleging substantially similar claims, and on April 25, 2005, all these claims were
consolidated into a single action. On October 31, 2005, we reached an agreement in principle (subject to court approval) to settle the securities litigation pending against us and certain of our officers and directors for the sum of $3.9 million,
paid mostly by our insurance carrier. In the fourth quarter of fiscal 2005, we incurred a pre-tax charge of approximately $600,000 associated with defense and settlement costs.



In addition to the foregoing, from time to time, we may be involved in litigation relating to claims arising out of our
operations. As of the date of this filing, we are not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or results of operations.



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



Not applicable.



13



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | ---------------------------------------------------------------------



Market Information and Holders



Our common stock began trading on the Nasdaq National Market under the symbol CHIC on October 20, 1999, following our initial public
offering. The following table sets forth the range of high and low closing sales prices of the common stock as reported by the Nasdaq National Market:



|                                     |  |      |       |     |   |      
|------------------------------------ |  | ---- | ----- | --- | - | -----
|                                     |  | High |       | Low
|Fiscal Year Ended September 24, 2005 |  |      |       |     |   |      
|First Quarter                        |  | $    | 14.35 |     | $ | 8.84 
|Second Quarter                       |  | $    | 12.95 |     | $ | 9.13 
|Third Quarter                        |  | $    | 13.49 |     | $ | 10.23
|Fourth Quarter                       |  | $    | 15.21 |     | $ | 12.44
|                                     |  |     
|Fiscal Year Ended September 25, 2004 |  |      |       |     |   |      
|First Quarter                        |  | $    | 15.15 |     | $ | 10.15
|Second Quarter                       |  | $    | 18.70 |     | $ | 12.16
|Third Quarter                        |  | $    | 21.75 |     | $ | 16.21
|Fourth Quarter                       |  | $    | 21.76 |     | $ | 11.09



As of December 1,
2005, the number of holders of record of our common stock was approximately 22 and the number of beneficial holders of our common stock was estimated to be in excess of 3,500. On December 1, 2005, the closing price of our common stock as
reported by the Nasdaq National Market was $19.01 per share.



Dividends



We have never declared nor paid
dividends on our common stock and we do not intend to pay any dividends on our common stock in the foreseeable future. We currently intend to retain earnings to finance future operations and expansion. Moreover, under the terms of the credit
facility, stock dividends and distributions are restricted.



Securities
Authorized for Issuance Under Equity Compensation Plans



The shares disclosed in column (c) in the schedule below include 212,678 shares of common stock issuable under the 1999 Employee Stock Purchase Plan.



|                                                           |  |                                                                                              |  |                                                                             |      |                                                                                                                                             |        
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------
|                                                           |  | Equity Compensation Plan Information                                                        
|Plan category                                              |  | Number of securities to be issued upon exercise ofoutstanding optionswarrants and
rights (a) |  | Weighted-averageexercise price ofoutstandingoptions, warrantsand
rights (b) |      | Number of securitiesremaining available forfuture issuance
underequity compensation plans (excludingsecurities reflected in column (a)) (c)
|Equity compensation plans approved by security holders     |  | 3,927,410                                                                                    |  | $                                                                           | 6.00 |                                                                                                                                             | 628,178
|Equity compensation plans not approved by security holders |  |                                                                                             |  |                                                                             |     |                                                                                                                                             |       
|                                                           |  |                                                                                              |  |                                                                             |      |                                                                                                                                             |        
|Total                                                      |  | 3,927,410                                                                                    |  | $                                                                           | 6.00 |                                                                                                                                             | 628,178
|                                                           |  |                                                                                              |  |                                                                             |      |                                                                                                                                             |        



14



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Please see Note 6 in the notes to the consolidated financial statements for more information regarding
our equity compensation plans.



ITEM 6. SELECTED FINANCIAL DATA



The selected consolidated financial data set forth below
is qualified in its entirety by, and should be read in conjunction with, Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included
elsewhere in this Annual Report on Form 10-K.



|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|-------------------------------------------- |  | ---------------------------------------------------------------- | ------- | -- | ------------- | - | ------- | ------------- |  | - | ------------- | -- |  | ------------- | ------- | -- |  | - | ------- | --
|                                             |  | Fiscal Year Ended (1)                                            |        
|                                             |  | Sept. 29,2001                                                    |         |    | Sept. 28,2002 |   |         | Sept. 27,2003 |  |   | Sept. 25,2004 |    |  | Sept. 24,2005 |        
|                                             |  | (dollars in thousands, except per share and sales per foot data) |        
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Statement of Income Data:                    |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Net sales                                    |  | $                                                                | 324,825 |    |               | $ | 409,382 |               |  | $ | 456,622       |    |  | $             | 539,404 |    |  | $ | 603,756 |   
|Cost of goods sold                           |  |                                                                  | 228,145 |    |               |   | 297,250 |               |  |   | 344,133       |    |  |               | 403,760 |    |  |   | 460,878 |   
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Gross profit                                 |  |                                                                  | 96,680  |    |               |   | 112,132 |               |  |   | 112,489       |    |  |               | 135,644 |    |  |   | 142,878 |   
|Selling, general and administrative expenses |  |                                                                  | 63,181  |    |               |   | 76,516  |               |  |   | 90,896        |    |  |               | 111,270 |    |  |   | 126,148 |   
|Store closing costs                          |  |                                                                  |        |    |               |   |        |               |  |   | 4,900         |    |  |               | (325    | )  |  |   |        |   
|Amortization of goodwill                     |  |                                                                  | 828     |    |               |   |        |               |  |   |              |    |  |               |        |    |  |   |        |   
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Operating income                             |  |                                                                  | 32,671  |    |               |   | 35,616  |               |  |   | 16,693        |    |  |               | 24,699  |    |  |   | 16,730  |   
|Interest income, net                         |  |                                                                  | 425     |    |               |   | 164     |               |  |   | 118           |    |  |               | 303     |    |  |   | 868     |   
|Other charges, net                           |  |                                                                  | (314    | )  |               |   | (290    | )             |  |   | (270          | )  |  |               | (275    | )  |  |   | (260    | ) 
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Income before income taxes                   |  |                                                                  | 32,782  |    |               |   | 35,490  |               |  |   | 16,541        |    |  |               | 24,727  |    |  |   | 17,338  |   
|Provision for income taxes                   |  |                                                                  | 12,559  |    |               |   | 13,841  |               |  |   | 6,451         |    |  |               | 9,643   |    |  |   | 6,537   |   
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Net income                                   |  | $                                                                | 20,223  |    |               | $ | 21,649  |               |  | $ | 10,090        |    |  | $             | 15,084  |    |  | $ | 10,801  |   
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Earnings per share (2):                      |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Basic                                        |  | $                                                                | 0.98    |    |               | $ | 1.03    |               |  | $ | 0.48          |    |  | $             | 0.70    |    |  | $ | 0.49    |   
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Diluted                                      |  | $                                                                | 0.86    |    |               | $ | 0.91    |               |  | $ | 0.43          |    |  | $             | 0.63    |    |  | $ | 0.45    |   
|                                             |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Weighted average shares outstanding (2):     |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Basic (000s)                                |  |                                                                  | 20,596  |    |               |   | 21,045  |               |  |   | 21,240        |    |  |               | 21,567  |    |  |   | 21,995  |   
|Diluted (000s)                              |  |                                                                  | 23,428  |    |               |   | 23,694  |               |  |   | 23,507        |    |  |               | 23,993  |    |  |   | 24,062  |   
|                                             |  |                                                                  |         |    |              
|Selected Operating Data:                     |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Number of stores open at end of period       |  |                                                                  | 188     |    |               |   | 251     |               |  |   | 311           |    |  |               | 360     |    |  |   | 408     |   
|Average square footage per store (3)         |  |                                                                  | 7,169   |    |               |   | 7,087   |               |  |   | 7,149         |    |  |               | 7,034   |    |  |   | 6,993   |   
|Sales per square foot (4)                    |  | $                                                                | 277     |    |               | $ | 259     |               |  | $ | 229           |    |  | $             | 228     |    |  | $ | 228     |   
|Comparable store sales decrease (5)          |  |                                                                  | (1.7    | )% |               |   | (5.4    | )%            |  |   | (10.1         | )% |  |               | (0.4    | )% |  |   | (0.3    | )%
|Average store sales (6)                      |  | $                                                                | 2,010   |    |               | $ | 1,839   |               |  | $ | 1,629         |    |  | $             | 1,619   |    |  | $ | 1,602   |   
|                                             |  |                                                                  |         |    |              
|Balance Sheet Data:                          |  |                                                                  |         |    |               |   |         |               |  |   |               |    |  |               |         |    |  |   |         |   
|Cash and cash equivalents                    |  | $                                                                | 10,031  |    |               | $ | 13,553  |               |  | $ | 22,967        |    |  | $             | 30,713  |    |  | $ | 33,693  |   
|Working capital                              |  |                                                                  | 2,357   |    |               |   | 12,917  |               |  |   | 26,055        |    |  |               | 43,091  |    |  |   | 51,668  |   
|Total assets                                 |  |                                                                  | 181,387 |    |               |   | 227,070 |               |  |   | 261,444       |    |  |               | 301,680 |    |  |   | 329,136 |   
|Total long-term debt                         |  |                                                                  |        |    |               |   |        |               |  |   |              |    |  |               |        |    |  |   |        |   
|Total stockholders equity                   |  |                                                                  | 98,415  |    |               |   | 124,025 |               |  |   | 134,929       |    |  |               | 155,613 |    |  |   | 167,110 |   

---

|(1) | All periods presented included 52 weeks.
|--- | ----------------------------------------



15



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|(2) | See Notes 1 and 10 of the notes to the consolidated financial statements for the method used to calculate the earnings per share and weighted average shares outstanding.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Our average square footage per store is based on all open stores at the end of the period.
|--- | ------------------------------------------------------------------------------------------

|(4) | Our sales per square foot consist of net sales divided by the time weighted average of gross square footage of all open stores.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(5) | Our comparable store percentages are based on net sales, and stores are considered comparable beginning on the first day of the month following the fourteenth full month of sales.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Our average store sales are based on the time weighted average of all open stores in the period.
|--- | ------------------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Financial Statements and Notes thereto of the company included elsewhere in this Annual Report on Form 10-K. The following Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Risks
Relating to Our Business in this section.



OVERVIEW



We were founded in 1975 and opened our first store in
Carlsbad, California. In September 1996, two funds managed by Apax Partners, L.P., a private equity firm, together with Bernard Zeichner, acquired the business. Mr. Zeichner undertook several strategic initiatives for a national new store
expansion program, including hiring a number of other senior executives with national retail experience, and upgrading our information systems, distribution systems and facilities. In September 1997, we launched our second distinct retail concept by
acquiring 16 stores and a license to use the Rampage name on retail stores. In August 2001, we further enhanced our management team with the addition of Mark Hoffman as Chief Operating Officer. Mr. Hoffman began a strategic evaluation of our
infrastructure needs, including senior management, systems, distribution facilities and merchandising strategy. In July 2003, Mr. Hoffman was promoted to Chief Executive Officer, and Mr. Zeichner became Chairman of the Board of Directors.



We consider a store comparable after it has been open for 14
full months. At the end of fiscal 2005, 271 of the 342 Charlotte Russe stores were included in the comparable store base, compared to 239 of the 294 stores open at the end of fiscal 2004. At the end of fiscal 2005, 59 of the 66 Rampage stores were
included in the comparable store base, compared to 50 of the 66 stores open at the end of fiscal 2004.



In the five fiscal years ended September 24, 2005, we grew from 136 stores to 408 stores, representing a compound annual growth rate of 24.6%, and
increased our annual revenues from $245.3 million in fiscal 2000 to $603.8 million in fiscal 2005, representing a compound annual growth rate of 19.7%. Beginning in the third quarter of fiscal 2001, we experienced successive quarters of comparable
store sales declines through the first quarter of fiscal 2004 that resulted in a 23.5% decline in average annual sales per store. As a result, beginning in late fiscal 2003, we began to initiate a series of management and operational changes
intended to improve our merchandise assortments, in-store presentation and financial performance.



Our sales trends improved during the second and third quarters of fiscal 2004 which contributed to improved profitability. During the fourth quarter
ending in September, however, sales slowed down as offerings at the Charlotte Russe stores failed to reflect enough wear-now Summer fashion due to an early conversion to early-Fall assortments. At the same time, the repositioning of the Rampage
brand had become more difficult as more of the merchandise reflected elevated initial retail prices and corresponding elevations of product quality,



16



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fabrication, fit and detailing. Management acknowledged that it would take time to attract targeted customers to the elevated assortments, and it estimated
that the Rampage stores would continue to experience negative comparable sales trends during the first half of fiscal 2005.



Sales for the first half of fiscal 2005 were disappointing. Offerings at the Charlotte Russe stores had not met with customer acceptance and the
anticipated progression of improvements at the Rampage stores had not materialized. However, during the third quarter of fiscal 2005, the success of the Rampage brand repositioning was evidenced by the return to positive comparable store sales,
while sales at the Charlotte Russe stores benefited from our decision to increase the presentation of denim in our stores. During the fourth quarter of fiscal 2005, the Charlotte Russe chain experienced improved selling of apparel merchandise, in
particular our Refuge branded denim and fast fashion tops, while the Rampage chain continued to focus on repositioning of the brand and build customer recognition for assortments that target aspirational branded retailers. Comparable store sales
increased 12.9% for the fourth quarter of fiscal 2005, compared to a decrease of 2.3% for the fourth quarter of fiscal 2004.





17



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RESULTS OF OPERATIONS



The following table sets forth our operating results, expressed as a percentage of sales, and store information for the
periods indicated.



|                                             |  |             |   |  |       |   |  |       |  
|-------------------------------------------- |  | ----------- | - |  | ----- | - |  | ----- | -
|                                             |  | Fiscal Year |  
|                                             |  | 2003        |   |  | 2004  |   |  | 2005  |  
|Net sales                                    |  | 100.0       | % |  | 100.0 | % |  | 100.0 | %
|Cost of goods sold                           |  | 75.4        |   |  | 74.9  |   |  | 76.3  |  
|                                             |  |             |   |  |       |   |  |       |  
|Gross profit                                 |  | 24.6        |   |  | 25.1  |   |  | 23.7  |  
|Selling, general and administrative expenses |  | 19.8        |   |  | 20.5  |   |  | 20.9  |  
|Store closing costs                          |  | 1.1         |   |  | 0.0   |   |  | 0.0   |  
|                                             |  |             |   |  |       |   |  |       |  
|Operating income                             |  | 3.7         |   |  | 4.6   |   |  | 2.8   |  
|Interest income, net                         |  | 0.0         |   |  | 0.1   |   |  | 0.1   |  
|Other charges, net                           |  | (0.1        | ) |  | (0.1  | ) |  | (0.0  | )
|                                             |  |             |   |  |       |   |  |       |  
|Income before income taxes                   |  | 3.6         |   |  | 4.6   |   |  | 2.9   |  
|Income taxes                                 |  | 1.4         |   |  | 1.8   |   |  | 1.1   |  
|                                             |  |             |   |  |       |   |  |       |  
|Net income                                   |  | 2.2         | % |  | 2.8   | % |  | 1.8   | %
|                                             |  |             |   |  |       |   |  |       |  
|Number of stores open at end of period       |  | 311         |   |  | 360   |   |  | 408   |  
|                                             |  |             |   |  |       |   |  |       |  



Fiscal Year Ended
September 24, 2005 Compared to Fiscal Year Ended September 25, 2004



Net Sales. Our net sales increased to $603.8 million from $539.4 million, an increase of $64.4, or 11.9%, over the prior fiscal year. This increase reflects $66.1 million of additional net sales from the 49 new
stores opened during fiscal 2005 as well as other stores opened in prior fiscal years that did not qualify as comparable stores. This increase was partially offset by a 0.3% decrease in comparable store sales, which resulted in decreased sales of
$1.7 million compared to the prior fiscal year.



Gross
Profit. Gross profit represents net sales less cost of goods sold, which includes buying, distribution and occupancy costs. Our gross profit increased to $142.9 million from $135.6 million, an increase of $7.3 million, or 5.3%, over the prior
fiscal year. This increase was primarily the result of higher net sales. As a percentage of net sales, gross profit decreased to 23.7% from 25.1%. The decrease as a percentage of net sales was principally due to decreased product gross margins as
higher markdown expense more than offset higher initial markup.



Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased to $126.1 million from $111.3 million, an increase of $14.8 million, or 13.4%, over the prior fiscal year. This increase was
attributable to new store expansion and increased corporate expenses, specifically higher store payroll and operating expenses and higher central office payroll and related expenses. As a percentage of net sales, selling, general and administrative
expenses increased to 20.9% from 20.5% primarily due to higher corporate expenses including the costs for the tentative settlement of two class action lawsuits.



Income Taxes. Our effective tax rate for fiscal 2005 was 37.7%. This rate is lower than last years 39.0% rate as we adjusted our tax
liabilities to reflect the reassessment of tax contingency balances for fiscal 2005.



Net Income. Our net income decreased to $10.8 million from $15.1 million, a decrease of $4.3 million, or 28.4%, over the prior fiscal year. The decrease was primarily due to an increase in selling, general and
administrative expenses, which was partially offset by an increase in gross profit and a decrease in income taxes.



18



---

Fiscal Year Ended September 25, 2004 Compared to Fiscal Year Ended September 27, 2003



Net Sales. Our net sales increased to $539.4 million from $456.6
million, an increase of $82.8, or 18.1%, over the prior fiscal year. This increase reflects $84.5 million of additional net sales from the 49 new stores opened during fiscal 2004 as well as other stores opened in prior fiscal years that did not
qualify as comparable stores. This increase was partially offset by a 0.4% decrease in comparable store sales, which resulted in decreased sales of $1.7 million compared to the prior fiscal year.



Gross Profit. Gross profit represents net sales less cost of goods
sold, which includes buying, distribution and occupancy costs. Our gross profit increased to $135.6 million from $112.5 million, an increase of $23.1 million, or 20.6%, over the prior fiscal year. This increase was primarily the result of higher net
sales. As a percentage of net sales, gross profit increased to 25.1% from 24.6%. The increase as a percentage of net sales was principally due to improved product gross margins as higher initial markup more than offset a higher markdown expense.



Selling, General and Administrative Expenses. Our
selling, general and administrative expenses increased to $111.3 million from $90.9 million, an increase of $20.4 million, or 22.4%, over the prior fiscal year. This increase was attributable to new store expansion and increased corporate expenses,
specifically higher store payroll and operating expenses and higher central office payroll and related expenses. As a percentage of net sales, selling, general and administrative expenses increased to 20.5% from 19.8% primarily due to higher store
payroll expenses.



Store Closing Costs. Fiscal 2004
includes a pre-tax reversal of $325,000 of costs previously incurred in fiscal 2003 associated with the closure of 10 Charlottes Room stores.



Income Taxes. Our effective tax rate of 39.0% approximates our statutory income tax rates.



Net Income. Our net income increased to $15.1 million from $10.1
million, an increase of $5.0 million, or 49.5%, over the prior fiscal year. The increase was primarily due to an increase in gross profit which was partially offset by an increase in selling, general and administrative expenses, reduction in store
closing costs, and an increase in income taxes.



19



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QUARTERLY RESULTS AND SEASONALITY



We have historically experienced and expect to continue to experience seasonal and quarterly fluctuations in our net sales
and operating income. As is the case with many retailers of apparel and related merchandise, our business is subject to seasonal influences, characterized by strong sales during the back-to-school, Easter and winter holiday seasons. The strength of
each of these three seasons generally provides relatively balanced sales during our first, third and fourth fiscal quarters. We typically experience lower net sales and net income during the second quarter of each fiscal year. Our quarterly results
of operations may fluctuate significantly as a result of a variety of factors, including the timing of new store openings, fashion trends and shifts in timing of certain holidays, as well as other factors discussed in the section entitled
Risks Relating to Our Business.



The following
table includes our unaudited quarterly results of operations data for each of the eight quarters during the two-year period ended September 24, 2005. This data has been derived from our unaudited consolidated financial statements. We believe
that this information has been prepared on the same basis as our audited consolidated financial statements and that all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the selected
quarterly information when read in conjunction with our audited consolidated financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K.



|                                           |  |                                               |         |    |                    |   |         |              |  |   |               |   |  |              |         |    |              |   |         |              |  |   |               |    |  |   |         |    |  |   |         |  
|------------------------------------------ |  | --------------------------------------------- | ------- | -- | ------------------ | - | ------- | ------------ |  | - | ------------- | - |  | ------------ | ------- | -- | ------------ | - | ------- | ------------ |  | - | ------------- | -- |  | - | ------- | -- |  | - | ------- | -
|                                           |  | Fiscal Year 2004                              |         |    | Fiscal Year 2005   |  
|                                           |  | Three Months Ended                            |         |    | Three Months Ended |  
|                                           |  | Dec. 27,2003                                  |         |    | Mar. 27,2004       |   |         | Jun. 26,2004 |  |   | Sept. 25,2004 |   |  | Dec. 25,2004 |         |    | Mar. 26,2005 |   |         | Jun. 25,2005 |  |   | Sept. 24,2005 |   
|                                           |  | (dollars in thousands, except per share data) |        
|Statement of Operations Data:              |  |                                               |         |    |                    |   |         |              |  |   |               |   |  |              |         |    |              |   |         |              |  |   |               |    |  |   |         |    |  |   |         |  
|Net sales                                  |  | $                                             | 149,291 |    |                    | $ | 118,776 |              |  | $ | 133,044       |   |  | $            | 138,293 |    |              | $ | 149,982 |              |  | $ | 126,976       |    |  | $ | 146,885 |    |  | $ | 179,913 |  
|Gross profit                               |  |                                               | 39,027  |    |                    |   | 25,115  |              |  |   | 36,179        |   |  |              | 35,323  |    |              |   | 34,800  |              |  |   | 27,411        |    |  |   | 35,407  |    |  |   | 45,260  |  
|Operating income (loss)                    |  |                                               | 10,661  |    |                    |   | 118     |              |  |   | 8,875         |   |  |              | 5,045   |    |              |   | 3,485   |              |  |   | (1,414        | )  |  |   | 5,104   |    |  |   | 9,555   |  
|Net income (loss)                          |  |                                               | 6,480   |    |                    |   | 76      |              |  |   | 5,424         |   |  |              | 3,104   |    |              |   | 2,162   |              |  |   | (762          | )  |  |   | 3,314   |    |  |   | 6,087   |  
|                                           |  |                                               |         |    |                    |   |         |             
|Earnings Per Share:                        |  |                                               |         |    |                    |   |         |              |  |   |               |   |  |              |         |    |              |   |         |              |  |   |               |    |  |   |         |    |  |   |         |  
|Basic earnings (loss) per share            |  | $                                             | 0.30    |    |                    | $ | 0.00    |              |  | $ | 0.25          |   |  | $            | 0.14    |    |              | $ | 0.10    |              |  | $ | (0.03         | )  |  | $ | 0.15    |    |  | $ | 0.28    |  
|Diluted earnings (loss) per share          |  | $                                             | 0.27    |    |                    | $ | 0.00    |              |  | $ | 0.23          |   |  | $            | 0.13    |    |              | $ | 0.09    |              |  | $ | (0.03         | )  |  | $ | 0.14    |    |  | $ | 0.25    |  
|                                           |  |                                               |         |    |                    |   |         |             
|As a Percentage of Net Sales:              |  |                                               |         |    |                    |   |         |              |  |   |               |   |  |              |         |    |              |   |         |              |  |   |               |    |  |   |         |    |  |   |         |  
|Net sales                                  |  |                                               | 100.0   | %  |                    |   | 100.0   | %            |  |   | 100.0         | % |  |              | 100.0   | %  |              |   | 100.0   | %            |  |   | 100.0         | %  |  |   | 100.0   | %  |  |   | 100.0   | %
|Gross profit                               |  |                                               | 26.1    |    |                    |   | 21.1    |              |  |   | 27.2          |   |  |              | 25.5    |    |              |   | 23.2    |              |  |   | 21.6          |    |  |   | 24.1    |    |  |   | 25.2    |  
|Operating income (loss)                    |  |                                               | 7.1     |    |                    |   | 0.1     |              |  |   | 6.7           |   |  |              | 3.6     |    |              |   | 2.3     |              |  |   | (1.1          | )  |  |   | 3.5     |    |  |   | 5.3     |  
|Net income (loss)                          |  |                                               | 4.3     |    |                    |   | 0.1     |              |  |   | 4.1           |   |  |              | 2.2     |    |              |   | 1.4     |              |  |   | (0.6          | )  |  |   | 2.3     |    |  |   | 3.4     |  
|                                           |  |                                               |         |    |                    |   |         |             
|Operating Data:                            |  |                                               |         |    |                    |   |         |              |  |   |               |   |  |              |         |    |              |   |         |              |  |   |               |    |  |   |         |    |  |   |         |  
|Comparable store sales increase (decrease) |  |                                               | (7.6    | )% |                    |   | 3.5     | %            |  |   | 7.1           | % |  |              | (2.3    | )% |              |   | (9.9    | )%           |  |   | (3.1          | )% |  |   | (0.9    | )% |  |   | 12.9    | %
|Stores open at end of period               |  |                                               | 329     |    |                    |   | 335     |              |  |   | 342           |   |  |              | 360     |    |              |   | 368     |              |  |   | 372           |    |  |   | 388     |    |  |   | 408     |  



20



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LIQUIDITY AND CAPITAL RESOURCES



Our working capital requirements vary consistent with the seasonality of our business. Our capital requirements result
primarily from capital expenditures related to new store openings. We have historically satisfied our cash requirements principally through cash flow from operations, although we have also used borrowings under prior credit facilities in the past
for acquisitions, including our acquisition and the acquisition of the Rampage stores. Due to the rapid turnover of our inventory, we generate trade payables and other accrued liabilities sufficient to offset most, if not all, of our working capital
requirements, and this allows us to generally operate with limited working capital. As of September 24, 2005, we had working capital of approximately $51.7 million which included cash and cash equivalents of $33.7 million.



During fiscal years 2005, 2004 and 2003, our net cash provided by operations
amounted to approximately $48.1 million, $48.1 million and $56.7 million, respectively. In fiscal year 2005, our net cash provided by operations decreased as a result of lower net income, a decrease in deferred tax assets and net changes in working
capital accounts, offset by an increase in depreciation and amortization and an increase in landlord construction allowances. Our net cash used in investing activities amounted to approximately $45.6 million, $42.6 million and $47.8 million in
fiscal years 2005, 2004 and 2003, respectively. The primary component related to purchases of fixed assets, which consists of new store openings, the upgrade of our information systems and other corporate expenditures. We opened a total of 49, 49
and 70 new stores during the fiscal years 2005, 2004 and 2003, respectively. We expect to continue to invest in capital expenditures to support our growth.



Based on our experience with store openings for our two concepts, we estimate that the average net investment to open these new stores is approximately
$400,000, which includes capital expenditures, net of landlord contributions, and initial inventory, net of payables. All new stores opened since our acquisition in fiscal 1996 generated average net sales of approximately $1.7 million and
store-level operating cash flow of approximately $335,000 during their first year of operation representing an average cash return on investment of approximately 89%. For the 180 stores opened in the three years ended fiscal 2004, we achieved
average net sales of approximately $1.6 million and store-level operating cash flow of approximately $280,000 during their first year of operation representing an average cash return on investment of approximately 87%. After taking into account new
store construction, existing store remodeling, distribution center expenditures, and other corporate capital projects, total capital expenditures for fiscal year 2006 are projected to range from approximately $38 to $42 million.



Net cash provided by financing activities amounted to approximately $0.5
million, $2.2 million and $0.6 million for fiscal years 2005, 2004 and 2003, respectively. Financing activities primarily consist of the proceeds of stock option exercises.



We currently have a $40.0 million secured revolving credit facility (the Credit Facility) with Bank of America,
N.A., which expires on June 30, 2010. Under the term of the Credit Facility, we may borrow up to the maximum borrowing limit of $40 million less any outstanding letters of credit, and we have set the initial loan ceiling amount at $30 million.
Interest on the Credit Facility is payable quarterly, at our option, at either (i) the Banks prime rate plus 0.50% to 1.00% (Base Rate), or (ii) 1.00% to 1.50% over the average interest settlement rate for deposits in the
London interbank market banks (Eurodollar Rate) subject to certain adjustments. Our ability to receive loan advances under the Credit Facility is subject to our continued compliance with various covenants, representations and warranties,
and conditions, including but not limited to negative covenants against the incurrence of debt or liens. The Credit Facility also contains events of default customary for facilities of this type and provides that, upon the occurrence of an event of
default, payment of all outstanding loans may be accelerated and/or the lenders commitments may be terminated. Pursuant to this agreement, we and our wholly-owned subsidiaries have (i) provided an unconditional guarantee of the full and
punctual payment of obligations under the Credit Facility, (ii) pledged certain securities of the Companys subsidiaries to the collateral agent as security for the full payment and performance of our obligations under the Credit Facility
and (iii) granted a security interest in essentially all of our personal property as security for the full payment and



21



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performance of our obligations under the Credit Facility. At September 24, 2005, there was no outstanding debt under the Credit Facility and we were in
compliance with the terms of the bank credit agreement. As of September 24, 2005, we had $21.7 million of borrowing availability under the Credit Facility.



We believe that cash flows from operations, our current cash balance and funds available under our revolving credit facility will be sufficient to meet
our working capital needs and contemplated capital expenditure requirements for fiscal 2006. If our cash flow from operations should decline significantly, it may be necessary for us to seek additional sources of capital.



Off-balance sheet arrangements



As of September 24, 2005, we had no off-balance sheet financing
arrangements.



LETTERS OF CREDIT



Pursuant to the terms of the Credit Facility, the Company can issue up
to $20.0 million of documentary or standby letters of credit. The outstanding commitments under this agreement at September 24, 2005 totaled approximately $8.3 million, including $2.2 million in standby letters of credit.



CONTRACTUAL OBLIGATIONS



The Companys commitment to make future payments under long-term
contractual obligations was as follows, as of September 24, 2005:



|                            |  |                        |         |                  |   |           |  |           |         |               |   |         |  |   |        
|--------------------------- |  | ---------------------- | ------- | ---------------- | - | --------- |  | --------- | ------- | ------------- | - | ------- |  | - | -------
|Contractual Obligations     |  | Total                  |         | Less Than 1 Year |   | 1-3 Years |  | 3-5 Years |         | After 5 Years
|                            |  | (dollars in thousands)
|Operating leases            |  | $                      | 532,959 |                  | $ | 73,974    |  | $         | 145,533 |               | $ | 137,610 |  | $ | 175,842
|Other long-term obligations |  |                        | 15,736  |                  |   | 11,048    |  |           | 1,500   |               |   | 1,500   |  |   | 1,688  
|                            |  |                        |         |                  |   |           |  |           |         |               |   |         |  |   |        
|                            |  | $                      | 548,695 |                  | $ | 85,022    |  | $         | 147,033 |               | $ | 139,110 |  | $ | 177,530
|                            |  |                        |         |                  |   |           |  |           |         |               |   |         |  |   |        



CRITICAL ACCOUNTING
POLICIES AND ESTIMATES



Managements Discussion
and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reported periods.



On an on-going basis, management evaluates its estimates and judgments
regarding inventories, receivables, fixed assets, intangible assets, accrued liabilities, income taxes and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances. The results from this evaluation form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Under different assumptions
or conditions, alternative estimates and judgments could be derived which would differ from the estimates being used by management. Actual results could differ from any or all of these estimates.



22



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As a retailer of womens apparel and accessories, our financial statements are affected by several
critical accounting policies, many of which affect managements use of estimates and judgments, as described in the Notes to the Consolidated Financial Statements. We sell merchandise directly to retail customers and recognize revenue at the
point of sale. Customers have the right to return merchandise to us, and we maintain a reserve for the financial impact of returns which occur subsequent to the current reporting period.



Our policy with respect to gift cards is to record revenue as the gift cards are redeemed for merchandise. Prior to their
redemption, unredeemed gift cards are recorded as a liability, included within accrued expenses and other current liabilities. Revenue recognized from gift card forfeitures is based upon an expected forfeiture rate determined from historical trends
and for each period presented has had an immaterial financial statement impact.



Our merchandise is initially offered for sale at a regular price, but is often marked down prior to the ultimate sale of all such units. We utilize the retail method of accounting for our inventory valuation that
inherently reduces the inventories carrying value as markdowns are initiated. In addition, we maintain a reserve for the financial impact of markdowns that we believe are likely to be encountered in the future. If actual demand or market
conditions are more or less favorable than those projected by management, the level of the reserve for future markdowns would be subject to change in subsequent reporting periods.



We also provide for estimated inventory losses for damaged, lost or stolen inventory for the period from the last physical
inventory to the financial statement date. These estimates are based on historical experience and other factors.



We receive certain allowances from our vendors primarily related to distribution center handling expenses or defective merchandise. These allowances are
reflected as a reduction of merchandise inventory in the period they are received and allocated to cost of sales during the period in which the items were sold.



We have recorded a goodwill asset that arose from the acquisition of our business in September 1996. This asset is tested for possible impairment on at
least an annual basis in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangibles. The carrying value of investments in our stores, principally leasehold
improvements and equipment, and other operations is reviewed for impairment on at least an annual basis in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets In prior years, we
established reserves for stores which have been closed, and no other stores are contemplated for closure at this time. Our estimates in testing for possible impairment may be based upon a number of factors, including assumptions about the projected
future cash flows, discount rate, growth rate or changes to our business operations. Changes in our estimates may result in impairment charges recorded in future periods.



Rent expense on noncancellable leases containing known future scheduled rent increases are recorded on a straight-line basis
over the respective leases beginning when we receive possession of the leased property for construction purposes. The difference between rent expense and rent paid is accounted for as deferred rent. Landlord construction allowances and other such
lease incentives are recorded as deferred lease credits, and are amortized on a straight-line basis as a reduction to rent expense.



23



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RECENT ACCOUNTING PRONOUNCEMENTS



In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes
and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and supersedes FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statementsan amendment of APB Opinion
No. 28. SFAS No. 154 requires retrospective application to prior periods financial statements of changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of
the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS No. 154 requires that the new accounting principle be applied to the balances of assets and
liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income
statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS No. 154 requires that the new accounting principle be applied as if it were adopted prospectively from the
earliest date practicable. SFAS No. 154 shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the provisions of SFAS No. 154 will have a significant impact on our
results of operations.



In December 2004, the FASB issued SFAS
No. 123R which requires all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value, effective for public companies for interim or annual periods beginning after June 15, 2005. The FASB
concluded that companies can adopt the new standard in one of two ways: the modified prospective transition method, in which the company would recognize share-based employee compensation from the beginning of the fiscal period in which the
recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the
effective date; or the modified retrospective transition method, in which a company would recognize employee compensation cost for periods presented prior to the adoption of SFAS No. 123R in accordance with the original provisions of SFAS No. 123
Accounting for Stock-Based Compensation, pursuant to which a company would recognize employee compensation cost in the amounts reported in the pro forma disclosures provided in accordance with SFAS No. 123. We will adopt SFAS No.
123R during the first quarter of fiscal 2006 and will use the modified prospective transition method. The impact of this statement on our financial statements or our results of operations in 2006 and beyond will depend upon various factors,
including the amount of awards granted and the fair value of those awards at the time of grant. We currently expect to incur incremental pre-tax expense of approximately $2.0 million during fiscal 2006 as a result of the adoption of SFAS No. 123R.



|ITEM | 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|---- | --------------------------------------------------------------



Our market risks relate primarily to changes in interest rates. We bear this risk in two specific ways. First, our revolving credit facility carries a
variable interest rate that is tied to market indices and, therefore, our statement of income and our cash flows will be exposed to changes in interest rates. As of September 24, 2005, we had no borrowings against our credit facility. However,
we may borrow additional funds under our revolving credit facility as needed.



The second component of interest rate risk involves the short-term investment of excess cash in short-term, investment-grade interest-bearing securities. These investments are considered to be cash equivalents and are
shown that way on our balance sheet. If there are changes in interest rates, those changes would affect the investment income we earn on these investments and, therefore, impact our cash flows and results of operations.



We believe our market risk exposure is minimal.



24



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FORWARD-LOOKING STATEMENTS



We have made statements under the captions, Business, Managements Discussion and Analysis of
Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk and Risks Relating to Our Business, as well as in other sections of this Annual Report on Form 10-K, that are
forward-looking statements. You can identify these statements by forward-looking words such as may, will, expect, intend, anticipate, believe, estimate and
continue or similar words. These forward-looking statements may also use different phrases. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements,
which are subject to risks, uncertainties, and assumptions about us, may include, among other things, projections of our future results of operations or of our financial condition, our anticipated growth strategies, successful repositioning of our
Rampage brand, integration of our recently hired senior executives, and general and regional economic conditions, industry trends, consumer demands and preferences, competition from other retailers and uncertainties generally associated with
womens apparel and accessory retailing.



There may be
events in the future that we are not able to accurately predict or which we do not fully control that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. Because these forward-looking
statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including shopping mall traffic and shopping patterns,
timing of openings for new shopping malls or our stores, fashion trends, national or regional economic influences, and weather.



We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report on Form 10-K might not occur.



25



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RISKS RELATING TO OUR BUSINESS



Our success depends on our ability to identify and rapidly respond to consumer fashion tastes.



The apparel industry is subject to rapidly evolving fashion trends and
shifting consumer demands. Accordingly, our success is heavily dependent both on the priority our target customers place on fashion and on our ability to anticipate, identify and capitalize upon emerging fashion trends in a timely manner. Current
fashion tastes place significant emphasis on a fashionable look. In the past this emphasis has increased and decreased through fashion cycles and decreased emphasis has adversely affected our results. If we do not anticipate, identify or react
appropriately and timely to changes in styles, trends, desired images or brand preferences, it may lead to, among other things, excess inventories and higher markdowns, as well as decreased appeal of our brands.



We intend to continue to open new stores, which could strain our resources and cause us
to operate our business less effectively.



Our growth
will largely depend on successfully opening and operating new stores. During fiscal 2005, we opened 49 new stores and closed 1 Rampage store representing a 13% net increase from the number of stores open at the end of fiscal 2004. We plan to open up
to 35 new Charlotte Russe stores during fiscal 2005, an increase of 9% from total stores opened as of September 24, 2005. We intend to continue to increase our number of stores for at least the next several years.



In order to support our planned expansion we will need to continually monitor
and upgrade our management information and other systems. This expansion also will place increased demand on our managerial, operational, and administrative resources. These increased demands and operating complexities could cause us to operate our
business less effectively, which in turn could cause deterioration in the financial performance of our individual stores and slow our new store growth.



Our planned expansion involves a number of risks that could prevent or delay the successful opening of new stores as well as impact the performance of our existing
stores.



Our ability to open and operate new stores
successfully depends on many factors, including, among others, our ability to:



| |  |  | identify suitable store locations, the availability of which is outside of our control;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | negotiate acceptable lease terms, including desired tenant improvement allowances;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | source sufficient levels of inventory to meet the needs of new stores;
| | - |  | ----------------------------------------------------------------------



| |  |  | hire, train and retain store personnel;
| | - |  | ---------------------------------------



| |  |  | successfully integrate new stores into our existing operations; and
| | - |  | -------------------------------------------------------------------



| |  |  | identify and satisfy the fashion preferences of new geographic areas.
| | - |  | ---------------------------------------------------------------------



In addition, some of our new stores will be opened in regions of the United States in which we currently have few or no stores. The expansion into new
markets may present competitive, merchandising and distribution challenges that are different from those currently encountered in our existing markets. Any of these challenges could adversely affect our business and results of operations. In
addition, to the extent our new store openings are in existing markets, we may experience reduced net sales volumes in existing stores in those markets.



26



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A decline in general economic conditions may lead to reduced consumer demand for our apparel and accessories.



Consumer spending habits, including spending for the
fashionable apparel and related accessories that we sell, are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions. A
general slowdown in the United States economy and an uncertain economic outlook could adversely affect consumer spending habits and mall traffic, which could result in lower net sales than expected and could cause us to slow our expansion plans.



Our stores are heavily dependent on the customer traffic generated by
shopping malls.



Most of our store locations are not
sufficiently concentrated to make significant marketing expenditures cost effective. As a result, we depend heavily on locating our stores in prominent locations within successful shopping malls in order to generate customer traffic. We cannot
control the development of new shopping malls, the availability or cost of appropriate locations within existing or new shopping malls or the success of individual shopping malls.



Our market share may be adversely impacted at any time by a significant number of competitors.



We operate in a highly competitive environment characterized by low barriers
to entry. We compete against a diverse group of retailers, including national and local specialty retail stores, regional retail chains, traditional department stores and, to a lesser extent, mass merchandisers. Our market share and results of
operations may be adversely impacted by this significant number of competitors. Many of our competitors also are larger and have substantially greater resources than we do.



We rely on our good relationships with vendors to implement our business strategy successfully.



Our business is dependent on continued good relations with our vendors. In
particular, we believe that we generally are able to obtain attractive pricing and other terms from vendors because we are perceived as a desirable customer. Our test-and-reorder merchandise strategy also relies in large part on our ability to
obtain much of our merchandise from our vendors within three to six weeks from the date of order. Our failure to maintain good relations with our vendors could increase our exposure to changing fashion cycles, which may in turn lead to increased
inventory markdown rates.



Certain members of our senior management team
have limited tenure with us.



Our business requires
disciplined execution at all levels of our organization in order to timely deliver and display fashionable merchandise in appropriate quantities in our stores. This execution requires experienced and talented management. If we fail to attract,
motivate and retain qualified and talented key personnel, it may adversely affect our business and inhibit our plans for future growth.



During fiscal 2005, we hired a new Senior Vice President of Apparel for Charlotte Russe and a Vice President of Stores. Each of these individuals has
significant experience in these and similar roles with other apparel retailers, although they have limited tenure with our company.



If at any time our comparable store sales and quarterly results of operations decline or do not meet the expectations of research analysts, the price of our common
stock could decline substantially.



Our quarterly
results of operations for our individual stores have fluctuated in the past and can be expected to continue to fluctuate in the future. For instance, our quarterly comparable store sales percentages have ranged as high as positive 12.9% and as low
as negative 9.9% over the past two years. Our net sales and operating results are typically lower in the second quarter of our fiscal year due to the traditional retail slowdown



27



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immediately following the winter holiday season. Our comparable store sales and quarterly results of operations are affected by a variety of factors,
including:



| |  |  | the timing of new store openings and the relative proportion of new stores to mature stores;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | efforts to reposition the targeted customer for our Rampage stores;
| | - |  | -------------------------------------------------------------------



| |  |  | fashion trends;
| | - |  | ---------------



| |  |  | calendar shifts of holiday or seasonal periods;
| | - |  | -----------------------------------------------



| |  |  | the effectiveness of our test-and-reorder strategy in maintaining appropriate inventory levels;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | changes in our merchandise mix;
| | - |  | -------------------------------



| |  |  | timing of promotional events;
| | - |  | -----------------------------



| |  |  | general economic conditions and, in particular, the retail sales environment;
| | - |  | -----------------------------------------------------------------------------



| |  |  | actions by competitors or mall anchor tenants;
| | - |  | ----------------------------------------------



| |  |  | weather conditions; and
| | - |  | -----------------------



| |  |  | the level of pre-opening expenses associated with new stores.
| | - |  | -------------------------------------------------------------



Our business and reputation may be adversely affected if our Rampage stores are associated with negative publicity related to the use of the Rampage trademark by
other parties.



In connection with the acquisition of
our Rampage stores, we acquired the exclusive right within the United States to use the Rampage trademark on exterior and interior signage identifying our Rampage stores, as well as the non-exclusive right within the United States to use the Rampage
trademark for promotional and advertising materials. We do not, however, have the right to use the Rampage trademark on our merchandise. The right to market merchandise under the Rampage trademark was retained by Rampage Clothing Company. Further,
nothing in our license agreement with Rampage Clothing Company prohibits the sale of merchandise bearing the Rampage trademark by other parties or the licensing of the Rampage trademark to other parties. In fact, Rampage Clothing Company has
licensed the trademark to other parties. We believe a positive Rampage brand image is important to our success. Accordingly, if the merchandise sold by the Rampage Clothing Company or other parties under the Rampage trademark is of low quality or if
the Rampage Clothing Company or these parties otherwise engage in activities that negatively affect the Rampage trademark or are otherwise inconsistent with our Rampage store concept, consumers could lose confidence in our merchandise and our
reputation and business could be materially adversely affected.



The
failure to efficiently complete the planned replacement of certain of our technology and information systems could negatively impact our business.



The efficient operation of our business is heavily dependent on information systems. In particular, we rely upon technology and information systems for
inventory control and other critical information. We periodically review, improve and, under certain circumstances, replace information systems to provide enhanced support to all operating areas. If such upgrades and enhancements are not
successfully implemented, then the current systems may not be able to continue to adequately support our information requirements. We have recently initiated the replacement of our existing inventory software systems. If we are unable to complete
this conversion in an efficient and timely manner, our business could be negatively impacted.



Our operations, as well as a substantial number of our stores, are concentrated in the Southwest and other heavily populated regional areas, which makes us susceptible to adverse conditions in these regions.



Our headquarters and distribution centers are located
in California, and a substantial number of our stores are located in California, Florida and Texas. As a result, our business may be more susceptible to regional factors



28



---

than the operations of more geographically diversified competitors. These factors include, among others, economic and weather conditions, demographic and
population changes, and fashion tastes. Further, a natural disaster or other catastrophic event, such as an earthquake affecting southern California, or hurricanes affecting the Southeastern states and Texas, could significantly disrupt our
operations.



The loss of, or disruption of operations in, either of our
two distribution centers could negatively impact our business.



Our merchandise is distributed through two modern facilities that use automated systems for sorting apparel and shipping merchandise. We depend on the orderly operation of our facilities and distribution processes, as well as sufficient
shipping resources. Disruptions in these operations due to fire, earthquake or other catastrophic events, employee matters (including work stoppages), shipping problems or other events could result in delays in the delivery of merchandise to our
stores.



Our business could be adversely impacted by unfavorable
international conditions.



We receive apparel and
other merchandise from foreign sources, both purchased directly in foreign markets and indirectly through domestic vendors with foreign sources. To the extent that any of our vendors are located overseas or rely on overseas sources for a large
portion of their products, any event causing a disruption of imports, including the imposition of import restrictions, could harm our ability to source product. This disruption could materially limit the merchandise that we would have available for
sale and reduce our revenues and earnings. The flow of merchandise from our vendors could also be adversely affected by financial or political instability, or war, in or affecting any of the countries in which the goods we purchase are manufactured
or through which they flow. Trade restrictions in the form of tariffs or quotas, or both, that are applicable to the products that we sell also could affect the import of those products and could increase the cost and reduce the supply of products
available to us. Any material increase in tariff levels, or any material decrease in quota levels or available quota allocation, could negatively impact our business. Further, changes in tariffs or quotas for merchandise imported from individual
foreign countries could lead us to shift our sources of supply among various countries. Any such shift we undertake in the future could result in a disruption of our sources of supply and lead to a reduction in our revenues and earnings. Supply
chain security initiatives undertaken by the U.S. government that impede the normal flow of product could also negatively impact our business.



The effects of war or acts of terrorism could adversely affect our business.



The continued threat of terrorism, heightened security measures and military action in response to an act of terrorism has
disrupted commerce and has intensified the uncertainty of the United States economy. Any further acts of terrorism, particularly directed at malls, or new or extended hostilities may disrupt commerce and undermine consumer confidence, which could
negatively impact our sales by causing mall traffic or consumer spending to decline.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



Information with respect to this Item is indexed on page F-1 of this Report and is contained on pages F-3 through F-20.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------



Not applicable.



29



---

ITEM 9A. CONTROLS AND PROCEDURES



Disclosure Controls and Procedures



Based on an evaluation by management of the Company (with the participation of the Companys Chief Executive Officer and Chief Financial Officer), as
of the end of the period covered by this report, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, (the Exchange Act)) were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (SEC) rules and forms and that such information is accumulated and communicated to the Companys management,
including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Consistent with the suggestion of the SEC, the Company has formed a Disclosure Committee consisting of key Company personnel
designed to review the accuracy and completeness of all disclosures made by the Company.



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined
in Exchange Act Rules 13a-15(f) of the Exchange Act. With the supervision and participation of the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting
based on the framework and the criteria established in Internal ControlIntegrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that
internal control over financial reporting was effective as of September 24, 2005.



Our independent auditor, Ernst & Young LLP, an independent registered public accounting firm, has issued a report on managements assessment of internal control over financial reporting.



Report of Independent Registered Public Accounting Firm

on Internal Control Over Financial Reporting



The Board of Directors and Stockholders of Charlotte Russe Holding, Inc.



We have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that
Charlotte Russe Holding, Inc. maintained effective internal control over financial reporting as of September 24, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Charlotte Russe Holding, Inc.s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the companys internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



30



---

A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.



Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.



In our opinion, managements assessment that Charlotte Russe Holding, Inc. maintained effective internal control over financial reporting as of September 24, 2005, is fairly stated, in all material respects,
based on the COSO criteria. Also, in our opinion, Charlotte Russe Holding, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 24, 2005, based on the COSO criteria.



We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of Charlotte Russe Holding, Inc. as of September 24, 2005 and September 25, 2004, and the related consolidated statements of income, stockholders equity, and cash
flows for each of the three years in the period ended September 24, 2005 and our report dated December 1, 2005 expressed an unqualified opinion thereon.



/s/ ERNST & YOUNG LLP



San Diego, California

December 1, 2005



Changes in Internal Control Over Financial Reporting



During the fourth fiscal quarter ended September 24, 2005, there have
been no significant changes in the Companys internal controls over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal controls over financial reporting, nor were there any
corrective actions required with regard to significant deficiencies and material weaknesses.



ITEM 9B. OTHER INFORMATION



Not applicable.



31



---

PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Information with respect to this item is incorporated by reference to the Registrants definitive Proxy Statement to be filed with the Commission not
later than 120 days after the end of the Registrants fiscal year.



ITEM 11. EXECUTIVE COMPENSATION



Information with respect to this item is incorporated by reference to the Registrants definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the Registrants fiscal year.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



Information with respect to this item is incorporated by
reference to the Registrants definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the Registrants fiscal year.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Information with respect to this item is incorporated by reference to the Registrants definitive Proxy Statement to be
filed with the Commission not later than 120 days after the end of the Registrants fiscal year.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Information with respect to this item is incorporated by reference to the Registrants definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the Registrants
fiscal year.



PART IV



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



| | (a)1. |  | The financial statements listed in the Index to Financial Statements at page F-1 are filed as part of this report.
| | ----- |  | --------------------------------------------------------------------------------------------------------------------



| | 2. |  | Schedule IIValuation and Qualifying Accounts
| | -- |  | ---------------------------------------------



All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission other than the ones listed
on page F-20 are not required under the related instructions or are not applicable, and therefore, have been omitted.



| | 3. |  | The exhibits are listed in the Exhibit Index, which is incorporated herein by reference.
| | -- |  | ----------------------------------------------------------------------------------------



32



---

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on the 7th day of December, 2005.



CHARLOTTE RUSSE HOLDING, INC.By:

/s/    DANIEL T. CARTERDaniel T. Carter Executive Vice President and Chief Financial Officer




POWER OF
ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and appoints Mark A. Hoffman and Daniel T. Carter, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in
any and all capabilities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated:



|                                          |  |                                                                                                      |  |                 
|----------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | ----------------
|Signature                                 |  | Title                                                                                                |  | Date            
|                                          |  |                                                                                                     
|/s/    MARK A. HOFFMANMark A. Hoffman     |  | Chief Executive Officer and Director (Principal Executive Officer)                                   |  | December 7, 2005
|                                          |  |                                                                                                     
|/s/    DANIEL T.
CARTERDaniel T.
Carter   |  | Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |  | December 7, 2005
|                                          |  |                                                                                                     
|/s/    BERNARD
ZEICHNERBernard
Zeichner   |  | Chairman of the Board                                                                                |  | December 7, 2005
|                                          |  |                                                                                                     
|/s/    PAUL R. DEL
ROSSIPaul R. Del
Rossi |  | Director                                                                                             |  | December 7, 2005
|                                          |  |                                                                                                     
|/s/    ALLAN W. KARPAllan W. Karp         |  | Director                                                                                             |  | December 7, 2005
|                                          |  |                                                                                                     
|/s/    LEONARD H.
MOGILLeonard H.
Mogil   |  | Director                                                                                             |  | December 7, 2005
|                                          |  |                                                                                                     
|/s/    MARK J. RIVERSMark J. Rivers       |  | Director                                                                                             |  | December 7, 2005



33



---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                         |  |     
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                         |  | Page
|Charlotte Russe Holding, Inc.                                                                                                            |  |     
|                                                                                                                                         | 
|Report of Ernst & Young LLP, Independent Registered Public Accounting Firm                                                               |  | F-3 
|                                                                                                                                         | 
|Consolidated Balance Sheets as of September 24, 2005 and September 25, 2004                                                              |  | F-4 
|                                                                                                                                         | 
|Consolidated Statements of Income for the fiscal years ended September 24, 2005, September 25, 2004 and September 27, 2003               |  | F-5 
|                                                                                                                                         | 
|Consolidated Statements of Stockholders Equity for the fiscal years ended September 24, 2005, September 25, 2004 and September 27, 2003 |  | F-6 
|                                                                                                                                         | 
|Consolidated Statements of Cash Flows for the fiscal years ended September 24, 2005, September 25, 2004 and September 27, 2003           |  | F-7 
|                                                                                                                                         | 
|Notes to Consolidated Financial Statements                                                                                               |  | F-8 



F-1



---



This Page Intentionally Left
Blank



F-2



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders of Charlotte Russe Holding, Inc.:



We have audited the accompanying consolidated balance sheets of Charlotte Russe Holding, Inc. as of September 24, 2005 and September 25, 2004, and the related consolidated statements of income, shareholders
equity, and cash flows for each of the three years in the period ended September 24, 2005. Our audits also included the financial statements and schedule listed in the Index at Item 15 (a-1 and a-2). These financial statements and schedule are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.



In our opinion, the financial statements referred
to above present fairly, in all material respects, the consolidated financial position of Charlotte Russe Holding, Inc. at September 24, 2005 and September 25, 2004, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended September 24, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Charlotte Russe Holding, Inc.s internal control over financial
reporting as of September 24, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 1, 2005 expressed an unqualified
opinion thereon.



/s/ ERNST
& YOUNG LLP



San Diego, California

December 1, 2005



F-3



---

CHARLOTTE RUSSE HOLDING, INC.



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                 |  |                   |             |                   |   |            
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ----------------- | - | -----------
|                                                                                                                                                                                 |  | September 24,2005 |             | September 25,2004
|ASSETS                                                                                                                                                                           |  |                   |             |                   |   |            
|Current assets:                                                                                                                                                                  |  |                   |             |                   |   |            
|Cash and cash equivalents                                                                                                                                                        |  | $                 | 33,693,158  |                   | $ | 30,713,343 
|Inventories                                                                                                                                                                      |  |                   | 58,087,482  |                   |   | 49,154,877 
|Other current assets                                                                                                                                                             |  |                   | 11,090,971  |                   |   | 8,019,487  
|Deferred tax assets                                                                                                                                                              |  |                   | 7,450,000   |                   |   | 6,300,000  
|                                                                                                                                                                                 |  |                   |             |                   |   |            
|Total current assets                                                                                                                                                             |  |                   | 110,321,611 |                   |   | 94,187,707 
|Fixed assets, net                                                                                                                                                                |  |                   | 188,629,728 |                   |   | 177,518,053
|Goodwill                                                                                                                                                                         |  |                   | 28,790,000  |                   |   | 28,790,000 
|Other assets                                                                                                                                                                     |  |                   | 1,394,340   |                   |   | 1,184,227  
|                                                                                                                                                                                 |  |                   |             |                   |   |            
|Total assets                                                                                                                                                                     |  | $                 | 329,135,679 |                   | $ | 301,679,987
|                                                                                                                                                                                 |  |                   |             |                   |   |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                             |  |                   |             |                   |   |            
|Current liabilities:                                                                                                                                                             |  |                   |             |                   |   |            
|Accounts payable, trade                                                                                                                                                          |  | $                 | 33,581,612  |                   | $ | 25,703,097 
|Accounts payable, other                                                                                                                                                          |  |                   | 6,776,763   |                   |   | 8,749,782  
|Accrued payroll and related expense                                                                                                                                              |  |                   | 3,554,097   |                   |   | 4,124,136  
|Income and sales taxes payable                                                                                                                                                   |  |                   | 3,095,810   |                   |   | 1,970,903  
|Other current liabilities                                                                                                                                                        |  |                   | 11,644,718  |                   |   | 10,548,758 
|                                                                                                                                                                                 |  |                   |             |                   |   |            
|Total current liabilities                                                                                                                                                        |  |                   | 58,653,000  |                   |   | 51,096,676 
|Deferred rent                                                                                                                                                                    |  |                   | 101,888,551 |                   |   | 91,226,297 
|Other liabilities                                                                                                                                                                |  |                   | 43,894      |                   |   | 43,894     
|Deferred tax liabilities                                                                                                                                                         |  |                   | 1,440,000   |                   |   | 3,700,000  
|                                                                                                                                                                                 |  |                   |             |                   |   |            
|Total liabilities                                                                                                                                                                |  |                   | 162,025,445 |                   |   | 146,066,867
|                                                                                                                                                                                 |  |                  
|Commitments and contingencies                                                                                                                                                    |  |                   |             |                   |   |            
|                                                                                                                                                                                 |  |                  
|Stockholders equity:                                                                                                                                                            |  |                   |             |                   |   |            
|Preferred stock, $0.01 par value, 3,000,000 shares authorized, none issued and outstanding                                                                                       |  |                   |            |                   |   |           
|Common stock, $0.01 par value, 100,000,000 shares authorized; issued and outstanding shares 22,037,432 and 21,950,927 at September 24,
2005 and September 25, 2004, respectively |  |                   | 220,375     |                   |   | 219,509    
|Additional paid-in capital                                                                                                                                                       |  |                   | 50,724,713  |                   |   | 50,029,794 
|Retained earnings                                                                                                                                                                |  |                   | 116,165,146 |                   |   | 105,363,817
|                                                                                                                                                                                 |  |                   |             |                   |   |            
|Total stockholders equity                                                                                                                                                       |  |                   | 167,110,234 |                   |   | 155,613,120
|                                                                                                                                                                                 |  |                   |             |                   |   |            
|Total liabilities and stockholders equity                                                                                                                                       |  | $                 | 329,135,679 |                   | $ | 301,679,987
|                                                                                                                                                                                 |  |                   |             |                   |   |            



See accompanying notes.



F-4



---

CHARLOTTE RUSSE HOLDING, INC.



CONSOLIDATED STATEMENTS OF INCOME



|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|---------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | ----------------- |  | - | ----------- | -
|                                                                       |  | Years Ended       |            
|                                                                       |  | September 24,2005 |             |   | September 25,2004 |   |             | September 27,2003 | 
|Net sales                                                              |  | $                 | 603,755,818 |   |                   | $ | 539,403,949 |                   |  | $ | 456,622,115 |  
|Cost of goods sold, including buying, distribution and occupancy costs |  |                   | 460,877,392 |   |                   |   | 403,760,365 |                   |  |   | 344,133,481 |  
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Gross profit                                                           |  |                   | 142,878,426 |   |                   |   | 135,643,584 |                   |  |   | 112,488,634 |  
|Selling, general and administrative expenses                           |  |                   | 126,148,180 |   |                   |   | 111,269,438 |                   |  |   | 90,896,124  |  
|Store closing costs                                                    |  |                   |            |   |                   |   | (325,000    | )                 |  |   | 4,900,000   |  
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Operating income                                                       |  |                   | 16,730,246  |   |                   |   | 24,699,146  |                   |  |   | 16,692,510  |  
|Other income (expense):                                                |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Interest income, net                                                   |  |                   | 868,440     |   |                   |   | 303,067     |                   |  |   | 118,718     |  
|Other charges, net                                                     |  |                   | (261,079    | ) |                   |   | (274,901    | )                 |  |   | (269,933    | )
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Total other income (expense)                                           |  |                   | 607,361     |   |                   |   | 28,166      |                   |  |   | (151,215    | )
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Income before income taxes                                             |  |                   | 17,337,607  |   |                   |   | 24,727,312  |                   |  |   | 16,541,295  |  
|Income taxes                                                           |  |                   | 6,536,278   |   |                   |   | 9,643,652   |                   |  |   | 6,451,104   |  
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Net income                                                             |  | $                 | 10,801,329  |   |                   | $ | 15,083,660  |                   |  | $ | 10,090,191  |  
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Earnings per share:                                                    |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Basic                                                                  |  | $                 | 0.49        |   |                   | $ | 0.70        |                   |  | $ | 0.48        |  
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Diluted                                                                |  | $                 | 0.45        |   |                   | $ | 0.63        |                   |  | $ | 0.43        |  
|                                                                       |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Weighted average shares outstanding:                                   |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Basic                                                                  |  |                   | 21,994,665  |   |                   |   | 21,567,205  |                   |  |   | 21,239,569  |  
|Diluted                                                                |  |                   | 24,062,215  |   |                   |   | 23,993,019  |                   |  |   | 23,507,028  |  



See accompanying notes.



F-5



---

CHARLOTTE RUSSE HOLDING, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                     |  |              |  |                           |         |  |                      |            |   |                  |   |                          |   |  |   |             |  |   |             |  
|---------------------------------------------------- |  | ------------ |  | ------------------------- | ------- |  | -------------------- | ---------- | - | ---------------- | - | ------------------------ | - |  | - | ----------- |  | - | ----------- | -
|                                                     |  | Common Stock |  | AdditionalPaid-in Capital |         |  | DeferredCompensation |            |   | RetainedEarnings |   | TotalStockholdersEquity |  
|                                                     |  | Shares       |  | Amount                    |         |  |                      |           
|Balance at September 28, 2002                        |  | 21,210,707   |  | $                         | 212,107 |  | $                    | 43,793,497 |   |                  | $ | (171,000                 | ) |  | $ | 80,189,966  |  | $ | 124,024,570 |  
|Stock option transactions, including tax benefits    |  | 53,000       |  |                           | 530     |  |                      | 467,646    |   |                  |   |                         |   |  |   |            |  |   | 468,176     |  
|Amortization of deferred compensation                |  |             |  |                           |        |  |                      |           |   |                  |   | 108,000                  |   |  |   |            |  |   | 108,000     |  
|Issuance of stock under employee stock purchase plan |  | 26,475       |  |                           | 265     |  |                      | 237,397    |   |                  |   |                         |   |  |   |            |  |   | 237,662     |  
|Net income and comprehensive income                  |  |             |  |                           |        |  |                      |           |   |                  |   |                         |   |  |   | 10,090,191  |  |   | 10,090,191  |  
|                                                     |  |              |  |                           |         |  |                      |            |   |                  |   |                          |   |  |   |             |  |   |             |  
|Balance at September 27, 2003                        |  | 21,290,182   |  |                           | 212,902 |  |                      | 44,498,540 |   |                  |   | (63,000                  | ) |  |   | 90,280,157  |  |   | 134,928,599 |  
|Stock option transactions, including tax benefits    |  | 641,100      |  |                           | 6,411   |  |                      | 5,630,549  |   |                  |   |                         |   |  |   |            |  |   | 5,636,960   |  
|Amortization of deferred compensation                |  |             |  |                           |        |  |                      |           |   |                  |   | 63,000                   |   |  |   |            |  |   | 63,000      |  
|Issuance of stock under employee stock purchase plan |  | 19,645       |  |                           | 196     |  |                      | 200,705    |   |                  |   |                         |   |  |   |            |  |   | 200,901     |  
|Stock offering costs                                 |  |             |  |                           |        |  |                      | (300,000   | ) |                  |   |                         |   |  |   |            |  |   | (300,000    | )
|Net income and comprehensive income                  |  |             |  |                           |        |  |                      |           |   |                  |   |                         |   |  |   | 15,083,660  |  |   | 15,083,660  |  
|                                                     |  |              |  |                           |         |  |                      |            |   |                  |   |                          |   |  |   |             |  |   |             |  
|Balance at September 25, 2004                        |  | 21,950,927   |  |                           | 219,509 |  |                      | 50,029,794 |   |                  |   |                         |   |  |   | 105,363,817 |  |   | 155,613,120 |  
|Stock option transactions, including tax benefits    |  | 64,500       |  |                           | 646     |  |                      | 506,596    |   |                  |   |                         |   |  |   |            |  |   | 507,242     |  
|Issuance of stock under employee stock purchase plan |  | 22,005       |  |                           | 220     |  |                      | 188,323    |   |                  |   |                         |   |  |   |            |  |   | 188,543     |  
|Net income and comprehensive income                  |  |             |  |                           |        |  |                      |           |   |                  |   |                         |   |  |   | 10,801,329  |  |   | 10,801,329  |  
|                                                     |  |              |  |                           |         |  |                      |            |   |                  |   |                          |   |  |   |             |  |   |             |  
|Balance at September 24, 2005                        |  | 22,037,432   |  | $                         | 220,375 |  | $                    | 50,724,713 |   |                  | $ |                         |   |  | $ | 116,165,146 |  | $ | 167,110,234 |  
|                                                     |  |              |  |                           |         |  |                      |            |   |                  |   |                          |   |  |   |             |  |   |             |  



See accompanying notes.



F-6



---

CHARLOTTE RUSSE HOLDING, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  |                   |             |   |                   |   |             |                   |  |   |             |  
|--------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | ----------------- |  | - | ----------- | -
|                                                                                  |  | Years Ended       |            
|                                                                                  |  | September 24,2005 |             |   | September 25,2004 |   |             | September 27,2003 | 
|Operating Activities                                                              |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Net income                                                                        |  | $                 | 10,801,329  |   |                   | $ | 15,083,660  |                   |  | $ | 10,090,191  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Depreciation and amortization                                                     |  |                   | 33,124,578  |   |                   |   | 27,738,947  |                   |  |   | 23,396,212  |  
|Amortization of construction allowances                                           |  |                   | (10,639,505 | ) |                   |   | (8,193,468  | )                 |  |   | (7,052,558  | )
|Landlord construction allowances                                                  |  |                   | 19,231,200  |   |                   |   | 15,140,208  |                   |  |   | 23,865,180  |  
|Deferred rent                                                                     |  |                   | 2,070,559   |   |                   |   | 2,306,109   |                   |  |   | 3,082,344   |  
|Amortization of deferred compensation                                             |  |                   |            |   |                   |   | 63,000      |                   |  |   | 108,000     |  
|Loss on disposal of assets                                                        |  |                   | 1,184,401   |   |                   |   | 586,805     |                   |  |   | 3,264,869   |  
|Deferred income taxes                                                             |  |                   | (3,410,000  | ) |                   |   | 600,000     |                   |  |   | 2,400,000   |  
|Changes in operating assets and liabilities:                                      |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Inventories                                                                       |  |                   | (8,932,605  | ) |                   |   | (14,647,965 | )                 |  |   | (1,187,898  | )
|Other current assets                                                              |  |                   | (3,071,484  | ) |                   |   | (2,609,364  | )                 |  |   | (2,907,922  | )
|Accounts payable, trade                                                           |  |                   | 7,878,515   |   |                   |   | 4,774,833   |                   |  |   | (4,000,479  | )
|Accounts payable, other                                                           |  |                   | (1,973,019  | ) |                   |   | 2,292,650   |                   |  |   | 1,012,326   |  
|Accrued payroll and related expense                                               |  |                   | (570,039    | ) |                   |   | 1,597,380   |                   |  |   | 154,622     |  
|Income and sales taxes payable                                                    |  |                   | 1,274,562   |   |                   |   | 2,968,080   |                   |  |   | 1,201,473   |  
|Other current liabilities                                                         |  |                   | 1,095,960   |   |                   |   | 662,491     |                   |  |   | 3,134,132   |  
|Other liabilities                                                                 |  |                   |            |   |                   |   | (268,883    | )                 |  |   | 103,894     |  
|                                                                                  |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Net cash provided by operating activities                                         |  |                   | 48,064,452  |   |                   |   | 48,094,483  |                   |  |   | 56,664,386  |  
|                                                                                  |  |                   |            
|Investing Activities                                                              |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Purchases of fixed assets                                                         |  |                   | (45,265,083 | ) |                   |   | (42,657,356 | )                 |  |   | (47,733,032 | )
|Other assets                                                                      |  |                   | (365,684    | ) |                   |   | 99,145      |                   |  |   | (92,827     | )
|                                                                                  |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Net cash used in investing activities                                             |  |                   | (45,630,767 | ) |                   |   | (42,558,211 | )                 |  |   | (47,825,859 | )
|                                                                                  |  |                   |            
|Financing Activities                                                              |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Proceeds from issuance of common stock                                            |  |                   | 546,130     |   |                   |   | 2,509,754   |                   |  |   | 575,310     |  
|Stock offering costs                                                              |  |                   |            |   |                   |   | (300,000    | )                 |  |   |            |  
|                                                                                  |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Net cash provided by financing activities                                         |  |                   | 546,130     |   |                   |   | 2,209,754   |                   |  |   | 575,310     |  
|                                                                                  |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Net increase in cash and cash equivalents                                         |  |                   | 2,979,815   |   |                   |   | 7,746,026   |                   |  |   | 9,413,837   |  
|Cash and cash equivalents at beginning of the year                                |  |                   | 30,713,343  |   |                   |   | 22,967,317  |                   |  |   | 13,553,480  |  
|                                                                                  |  |                   |             |   |                   |   |             |                   |  |   |             |  
|Cash and cash equivalents at end of the year                                      |  | $                 | 33,693,158  |   |                   | $ | 30,713,343  |                   |  | $ | 22,967,317  |  
|                                                                                  |  |                   |             |   |                   |   |             |                   |  |   |             |  



See accompanying notes.



F-7



---

CHARLOTTE RUSSE HOLDING, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Organization
and Summary of Significant Accounting Policies



Organization



Charlotte Russe Holding,
Inc. (the Company) was incorporated in Delaware in July 1996. On September 27, 1996, the Company was capitalized through the issuance of Common Stock and long-term debt. Effective September 27, 1996, the Company acquired all of
the stock of Lawrence Merchandising Corporation, a California corporation, and its affiliates, Lawrence Merchandising Corporation of Nevada and Lawrence Merchandising Corporation of Nevada II, both Nevada corporations, (collectively, the
Predecessor companies) for approximately $35.0 million in cash. In addition, the Company repaid $5.0 million of the Predecessors short-term borrowings concurrent with the consummation of the purchase transaction. The acquisition
was accounted for using the purchase method of accounting. The excess of the aggregate purchase price over the fair value of net assets acquired of approximately $32.9 million was recognized as goodwill.



Description of Business



The Company operates in a single segment, selling clothing, accessories and
footwear for women through its mall-based retail stores that operate under the names Charlotte Russe and Rampage. As of September 24, 2005, the Company operated 408 retail stores in 42 states and Puerto Rico.



Principles of Consolidation



The accompanying consolidated financial statements, prepared in accordance
with accounting principles generally accepted in the United States of America, include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation.



Fiscal Year



The Companys fiscal year is the 52/53 week period ending on the last
Saturday in September. All years presented contained 52 weeks.



Use of Estimates



The preparation of
the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and disclosed in the accompanying notes. Actual results could differ from these estimates.



Cash Equivalents



The Company considers all liquid investments with maturities of three months or less when purchased to be cash equivalents.



Inventories



Inventories consist primarily of apparel and accessories purchased for
resale. Inventories are accounted for by the retail inventory method. The cost of inventory is determined at the lower of the first-in, first-out (FIFO) method or market.



F-8



---

Fixed Assets



Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of
the assets, generally five to seven years. Leasehold improvements are amortized on a straight-line basis over the estimated useful lives of the respective assets or the term of the lease, whichever is shorter. Maintenance, repairs and minor renewals
are charged to expense when incurred. Upon disposition of an asset, its accumulated depreciation is deducted from the original cost, and any gain or loss is reflected in current operations. Depreciation expense for the fiscal years ended
September 24, 2005, September 25, 2004 and September 27, 2003 amounted to $32,969,006, $27,650,425, and $23,269,351, respectively.



Goodwill



Goodwill represents the excess of the cost over the fair value of net assets acquired. The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, at the beginning of fiscal 2002. SFAS No. 142 requires that goodwill be tested annually for impairment or more frequently if events and circumstances
warrant, utilizing a test that begins with an estimate of the fair value of the reporting unit or intangible asset. The Company tests goodwill annually and whenever events or circumstances occur indicating that goodwill might be impaired.



Other Assets



Other assets include intangibles that resulted from the Companys
acquisition of assets from Rampage Retailing Inc. including a license to utilize the Rampage name and other intangibles. This intangible asset is stated at a cost of approximately $1.3 million and is amortized using the straight-line method over the
estimated useful life of 20 years. The amortization period was primarily determined based on the expectation that the Rampage license renewal options would be exercised (see Note 4). Accumulated amortization at September 24, 2005 and
September 25, 2004 amounted to $535,864 and $468,880, respectively. Straight-line amortization on the intangible asset amounts to $66,984 each year.



Impairment of Long-lived Assets



In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in
circumstances indicate that the carrying amount of its assets might not be recoverable, the Company, using its best estimates based upon reasonable and supportable assumptions and projections, reviews the carrying value of long-lived assets for
impairment.



Impairment for long-lived assets to be held is
measured by comparing the carrying amount of the asset to its fair value. Impairment is reviewed at the lowest levels for which there are identifiable cash flows that are independent of the cash flows of other groups of assets. The Company performs
such analysis on an individual store basis and estimates fair values based on sales prices for comparable assets. The Company measures impairment for long-lived assets to be disposed of at the lower of the carrying amount or net realizable value
(fair market value less cost to dispose).



Deferred Rent



Rent expense on noncancellable leases containing
known future scheduled rent increases are recorded on a straight-line basis over the term of the respective leases beginning when we receive possession of the leased property for construction purposes. The difference between rent expense and rent
paid is accounted for as deferred rent. Landlord construction allowances and other such lease incentives are recorded as deferred lease credits and are amortized on a straight-line basis as a reduction to rent expense.



F-9



---

Income Taxes



The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes, which
requires the use of the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded to reflect the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases.



Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.



Revenue Recognition



Retail merchandise sales are recognized at the point of sale. A reserve is provided for the impact of anticipated returns based on historical experience.
With respect to gift cards the Company records revenue as the gift cards are redeemed for merchandise. Prior to their redemption, unredeemed gift cards are recorded as a liability, included within accrued expenses and other current liabilities.
Revenue recognized from gift card forfeitures is based upon an expected forfeiture rate determined from historical trends.



Advertising Costs



Advertising costs are expensed as incurred and amounted to $422,410, $497,486, $863,330 for the fiscal years ended September 24,
2005, September 25, 2004, and September 27, 2003, respectively.



Vendor Allowances



The Company receives certain allowances from our vendors primarily related to distribution center handling expenses or defective merchandise. These allowances are reflected as a reduction of merchandise inventory in the period they are
received and allocated to cost of sales during the period in which the items were sold.



Store Pre-opening Costs



Costs incurred in connection with the opening of a new store are expensed as incurred.



Earnings Per Share



Basic earnings per share is calculated based on the weighted average outstanding common shares. Diluted earnings per share is calculated based on the
weighted average outstanding shares and potentially dilutive stock options and warrants.



F-10



---

Stock-Based Compensation



The Company has stock-based compensation plans, which are described more fully in Note 6. SFAS No. 123,
Accounting for Stock-Based Compensation, encourages, but does not require the Company to record compensation cost for stock-based employee compensation plans at fair value. The Company has adopted the disclosure-only provision of
SFAS No. 123. Accordingly, compensation expense has only been recognized for stock options granted to employees when the exercise price was below fair market value on the date of grant. Had compensation expense been recorded for options granted
using the fair value method under SFAS No. 123, the Companys net income and basic and diluted earnings per share would have been decreased to the following proforma amounts:



|                                                                                  |  |                   |            |   |                   |   |            |                   |  |   |            |  
|--------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | ----------------- |  | - | ---------- | -
|                                                                                  |  | Years Ended       |           
|                                                                                  |  | September 24,2005 |            |   | September 25,2004 |   |            | September 27,2003 | 
|Net income                                                                        |  | $                 | 10,801,329 |   |                   | $ | 15,083,660 |                   |  | $ | 10,090,191 |  
|Less: Stock-based compensation expense for all awards, net of related tax effects |  |                   | (858,800   | ) |                   |   | (1,230,555 | )                 |  |   | (861,320   | )
|                                                                                  |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Pro forma net income                                                              |  | $                 | 9,942,529  |   |                   | $ | 13,853,105 |                   |  | $ | 9,228,871  |  
|                                                                                  |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Basic earnings per share                                                          |  | $                 | 0.49       |   |                   | $ | 0.70       |                   |  | $ | 0.48       |  
|Pro forma                                                                         |  | $                 | 0.45       |   |                   | $ | 0.64       |                   |  | $ | 0.43       |  
|Diluted earnings per share                                                        |  | $                 | 0.45       |   |                   | $ | 0.63       |                   |  | $ | 0.43       |  
|Pro forma                                                                         |  | $                 | 0.41       |   |                   | $ | 0.58       |                   |  | $ | 0.39       |  



Pro forma information
regarding net income is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. Following the Companys initial public offering, the
fair value of the options granted was estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for those periods:



|                               |  |                   |   |  |                   |   |  |                   |  
|------------------------------ |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                               |  | Years Ended       |  
|                               |  | September 24,2005 |   |  | September 25,2004 |   |  | September 27,2003 |  
|Risk free interest rate        |  | 3.95              | % |  | 3.30              | % |  | 2.75              | %
|Dividend yield                 |  | 0                 | % |  | 0                 | % |  | 0                 | %
|Expected volatility            |  | 47                | % |  | 55                | % |  | 65                | %
|Weighted average expected life |  | 4 years           |   |  | 4 years           |   |  | 4 years           |  



Because the
Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the
existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.



Fair Value of Financial Instruments



Financial instruments, including cash equivalents, accounts payable, accrued expenses and income tax payable are carried at cost, which management
believes approximates fair value because of the short-term maturity of these instruments. There was no long-term debt at September 24, 2005 or September 25, 2004.



Recent Accounting Pronouncements



In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes
and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and supersedes



F-11



---

FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statementsan amendment of APB Opinion No. 28. SFAS No. 154
requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is
impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS No. 154 requires that the new accounting principle be applied to the balances of assets and liabilities as of the
beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. When it is
impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS No. 154 requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date
practicable. SFAS No. 154 shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the provisions of SFAS No. 154 will have a significant impact on
its results of operations.



In December 2004, FASB issued SFAS
No. 123R which requires all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value, effective for public companies for interim or annual periods beginning after June 15, 2005. The FASB
concluded that companies can adopt the new standard in one of two ways: the modified prospective transition method, in which the company would recognize share-based employee compensation from the beginning of the fiscal period in which the
recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the
effective date; or the modified retrospective transition method, in which a company would recognize employee compensation cost for periods presented prior to the adoption of SFAS No. 123R in accordance with the original provisions of SFAS No. 123
Accounting for Stock-Based Compensation, pursuant to which a company would recognize employee compensation cost in the amounts reported in the pro forma disclosures provided in accordance with SFAS No. 123. The Company will adopt
SFAS No. 123R during the first quarter of fiscal 2006 and will use the modified prospective transition method. The impact of this statement on the Companys financial statements or the Companys results of operations in 2006 and beyond
will depend upon various factors, including the amount of awards granted and the fair value of those awards at the time of grant. The Company currently expects to incur incremental pre-tax expense of approximately $2.0 million during fiscal 2006 as
a result of the adoption of SFAS No. 123R.



2. Fixed Assets



A summary of fixed assets is as follows:



|                                                |  |                   |              |   |                   |   |              |  
|----------------------------------------------- |  | ----------------- | ------------ | - | ----------------- | - | ------------ | -
|                                                |  | September 24,2005 |              |   | September 25,2004 |  
|Leasehold improvements                          |  | $                 | 245,264,269  |   |                   | $ | 218,517,800  |  
|Furniture and fixtures                          |  |                   | 32,292,275   |   |                   |   | 28,847,047   |  
|Equipment and other                             |  |                   | 43,462,019   |   |                   |   | 33,046,538   |  
|                                                |  |                   |              |   |                   |   |              |  
|                                                |  |                   | 321,018,563  |   |                   |   | 280,411,385  |  
|Less: Accumulated depreciation and amortization |  |                   | (132,388,835 | ) |                   |   | (102,893,332 | )
|                                                |  |                   |              |   |                   |   |              |  
|                                                |  | $                 | 188,629,728  |   |                   | $ | 177,518,053  |  
|                                                |  |                   |              |   |                   |   |              |  



3. Credit Arrangement



On June 24, 2005, the Company entered into a new
$40.0 million secured revolving credit facility (the Credit Facility) with Bank of America, N.A., which expires on June 30, 2010. Under the terms of the Credit Facility, the Company may borrow up to the maximum borrowing limit of
$40 million less any outstanding letters of credit, and the Company has set the initial loan ceiling amount at $30 million. Interest on the Credit Facility is payable quarterly, at the Companys option, at either (i) the Banks prime
rate plus 0.50% to 1.00% (Base Rate), or (ii) 1.00% to 1.50% over the average interest settlement rate for deposits in the London



F-12



---

interbank market banks (Eurodollar Rate) subject to certain adjustments. The Companys ability to receive loan advances under the Credit
Facility is subject to the continued compliance with various covenants, representations, warranties, and conditions, including but not limited to negative covenants against the incurrence of debt or liens. The Credit Facility also contains events of
default customary for facilities of this type and provides that, upon the occurrence of an event of default, payment of all outstanding loans may be accelerated and/or the lenders commitments may be terminated. Pursuant to this agreement, the
Company and the Companys wholly-owned subsidiaries have (i) provided an unconditional guarantee of the full and punctual payment of obligations under the Credit Facility, (ii) pledged certain of the securities of the Companys
subsidiaries to the collateral agent as security for the full payment and performance of the Companys obligations under the Credit Facility and (iii) granted a security interest in essentially all of the Companys personal property
as security for the full payment and performance of the obligations under the Credit Facility. At September 24, 2005, there was no outstanding debt under the Credit Facility and the Company was in compliance with the terms of the bank credit
agreement. As of September 24, 2005, the Company had $21.7 million of borrowing availability under the Credit Facility.



Pursuant to the terms of the new secured credit facility, the Company can issue up to $20.0 million of documentary or standby letters of credit. The
Company is charged a fee equal to the Banks Eurodollar Rate for the average daily face amount of outstanding letters of credit and customary issuance and amendment charges. Fees are paid quarterly in arrears and charges are paid as incurred.
At September 24, 2005, there were outstanding letters of credit in the amount of $8.3 million.



4. Commitments and Contingencies



Leases



The
Company leases its retail stores, distribution centers, and office facilities under various non-cancelable operating leases that expire between 2006 and 2016. Under certain retail store leases, the Company is required to pay the greater of a minimum
lease payment or 5% to 11% of annual sales volume. Rent expense, including reimbursement of the Companys proportional share of common area maintenance expenses, for the years ended September 24, 2005, September 25, 2004 and
September 27, 2003 amounted to $110,374,420, $90,258,119 and $76,120,584, respectively, including $4,973,267, $4,839,557, $3,834,060, respectively, of contingent rentals.



As of September 24, 2005, aggregate future minimum rentals are as follows:



|                                    |  |                 |            
|----------------------------------- |  | --------------- | -----------
|                                    |  | OperatingLeases
|Fiscal Year Ending September:       |  |                 |            
|2006                                |  | $               | 73,973,659 
|2007                                |  |                 | 72,993,511 
|2008                                |  |                 | 72,539,912 
|2009                                |  |                 | 71,050,377 
|2010                                |  |                 | 66,559,208 
|Thereafter                          |  |                 | 175,841,693
|                                    |  |                 |            
|Total future minimum lease payments |  | $               | 532,958,360
|                                    |  |                 |            



License
agreement



In conjunction with the acquisition of
Rampage assets on September 30, 1997, the Company entered into a license agreement enabling the Company to operate stores under the Rampage name. The license fee is calculated as the greater of an annual fee (ranging between $600,000 to
$750,000) or a percent of sales at stores operating under the Rampage name (ranging between 0.5% and 1.0%).



The license agreement has an initial term that expires in 2012 and may be extended for six additional five-year periods provided that net sales under the
license exceeds an annual goal for the year ending immediately



F-13



---

prior to the beginning of such extension period. In the event the Company decides to terminate the license agreement prior to the end of the term, the
Company may be required to pay a termination fee as specified in the licensing agreement. License fees incurred during the fiscal years ended September 24, 2005, September 25, 2004, and September 27, 2003 were $924,689, $902,781,
$849,405, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of income.



Litigation



On December 14, 2004, plaintiff David Phillips, on behalf of himself and purportedly on behalf of a class of others similarly situated, filed a complaint
seeking damages in the United States District Court for the Southern District of California against the Company and two of our officers, alleging violations of federal securities laws related to declines in our stock price in connection with various
statements and alleged omissions to the public and to the securities markets. Two follow-on actions were filed in the same court alleging substantially similar claims, and on April 25, 2005, all these claims were consolidated into a single action.
On October 31, 2005, the Company reached an agreement in principle (subject to court approval) to settle the securities litigation pending against the Company and certain of its officers and directors for the sum of $3.9 million, paid mostly by the
Companys insurance carrier. In the fourth quarter of fiscal 2005, the Company incurred a pre-tax charge of approximately $600,000 associated with defense and settlement costs.



In addition to the foregoing, from time to time, the Company may be involved in litigation relating to claims arising out of
our operations. As of the date of this filing, the Company is not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or results of operations.



5. Income Taxes



Income taxes consist of the following:



|          |  |                   |            |   |                   |   |                   |  |   |          
|--------- |  | ----------------- | ---------- | - | ----------------- | - | ----------------- |  | - | ---------
|          |  | Years Ended      
|          |  | September 24,2005 |            |   | September 25,2004 |   | September 27,2003
|Current:  |  |                   |            |   |                   |   |                   |  |   |          
|Federal   |  | $                 | 8,338,978  |   |                   | $ | 7,422,552         |  | $ | 3,178,204
|State     |  |                   | 1,600,000  |   |                   |   | 1,700,000         |  |   | 872,900  
|          |  |                   |            |   |                   |   |                   |  |   |          
|          |  |                   | 9,938,978  |   |                   |   | 9,122,552         |  |   | 4,051,104
|Deferred: |  |                   |            |   |                   |   |                   |  |   |          
|Federal   |  |                   | (2,993,800 | ) |                   |   | 335,700           |  |   | 2,300,000
|State     |  |                   | (408,900   | ) |                   |   | 185,400           |  |   | 100,000  
|          |  |                   |            |   |                   |   |                   |  |   |          
|          |  |                   | (3,402,700 | ) |                   |   | 521,100           |  |   | 2,400,000
|          |  |                   |            |   |                   |   |                   |  |   |          
|          |  | $                 | 6,536,278  |   |                   | $ | 9,643,652         |  | $ | 6,451,104
|          |  |                   |            |   |                   |   |                   |  |   |          



A reconciliation of
the calculated income tax provision based on statutory tax rates in effect and the effective tax rate follows:



|                                               |  |                   |           |   |                   |   |           |                   |  |   |           |  
|---------------------------------------------- |  | ----------------- | --------- | - | ----------------- | - | --------- | ----------------- |  | - | --------- | -
|                                               |  | Years Ended       |          
|                                               |  | September 24,2005 |           |   | September 25,2004 |   |           | September 27,2003 | 
|Tax at U.S. statutory rates                    |  | $                 | 6,068,163 |   |                   | $ | 8,654,559 |                   |  | $ | 5,789,454 |  
|State income taxes, net of federal tax benefit |  |                   | 676,167   |   |                   |   | 1,181,347 |                   |  |   | 612,855   |  
|Non-deductible expenses                        |  |                   | 15,288    |   |                   |   | 44,386    |                   |  |   | 70,608    |  
|Other, net                                     |  |                   | (223,340  | ) |                   |   | (236,640  | )                 |  |   | (21,813   | )
|                                               |  |                   |           |   |                   |   |           |                   |  |   |           |  
|                                               |  | $                 | 6,536,278 |   |                   | $ | 9,643,652 |                   |  | $ | 6,451,104 |  
|                                               |  |                   |           |   |                   |   |           |                   |  |   |           |  



F-14



---

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has not recorded a valuation allowance for all periods presented as the utilization of the deferred tax assets is deemed to be more
likely than not.



Significant components of the Companys
deferred tax liabilities and assets are as follows:



|                           |  |                   |             |   |                   |   |             |  
|-------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | -
|                           |  | September 24,2005 |             |   | September 25,2004 |  
|Deferred tax assets:       |  |                   |             |   |                   |   |             |  
|Inventory                  |  | $                 | 3,583,838   |   |                   | $ | 2,854,432   |  
|Deferred rent              |  |                   | 39,622,971  |   |                   |   | 36,442,785  |  
|Employee benefit programs  |  |                   | 1,299,142   |   |                   |   | 991,966     |  
|State income taxes         |  |                   | 152,969     |   |                   |   | 194,077     |  
|Other accrued expenses     |  |                   | 2,414,050   |   |                   |   | 2,259,525   |  
|                           |  |                   |             |   |                   |   |             |  
|                           |  |                   | 47,072,970  |   |                   |   | 42,742,785  |  
|Deferred tax liabilities:  |  |                   |             |   |                   |   |             |  
|Tax over book depreciation |  |                   | (39,053,432 | ) |                   |   | (38,347,501 | )
|Intangibles                |  |                   | (2,009,538  | ) |                   |   | (1,795,284  | )
|                           |  |                   |             |   |                   |   |             |  
|                           |  |                   | (42,062,970 | ) |                   |   | (40,142,785 | )
|                           |  |                   |             |   |                   |   |             |  
|Net deferred tax assets    |  | $                 | 6,010,000   |   |                   | $ | 2,600,000   |  
|                           |  |                   |             |   |                   |   |             |  



6. Equity



Stock Options



In 1996, the Company established a Long-Term Incentive Plan (the 1996
Plan). The 1996 Plan provides for the issuance of shares of Common Stock under incentive stock options and non-qualified stock options. Options vest ratably at 20% per year over five years from the date of the grant, subject to certain
acceleration provisions and are exercisable for a period of up to ten years from the date of grant. Incentive stock options are granted at prices that approximate the fair value of the common shares at the date of grant as determined by the Board of
Directors.



In May 1999, the Company established a 1999
Long-Term Incentive Plan (the 1999 Plan). The 1999 Plan provides for the issuance of shares of Common Stock under non-qualified stock options and stock appreciation rights. The exercise price of options shall not be less than 85% of the
fair market value at the date of grant, or 110% in the case of any person possessing 10% combined voting power of all classes of stock of the Company. The Companys Board of Directors determines the vesting and other provisions of option and
stock appreciation rights granted under the 1999 Plan. In July 1999, the Companys Board of Directors resolved that no further stock option grants will be made from the 1996 Plan or the 1999 Plan.



The Companys Board of Directors and stockholders adopted the 1999
Equity Incentive Plan, effective as of the completion of its initial public offering. The 1999 Equity Incentive Plan permits the grant of options that qualify as incentive stock options and non-qualified options. The option exercise price of each
option shall be determined by the compensation committee of the Board of Directors. In the case of incentive stock options, however, the exercise price shall not be less than 100% of the fair market value of the shares on the date of grant, or 110%
in the case of incentive stock options granted to an individual with ownership in excess of certain limits. Subject to adjustment for stock splits and similar events, the total number of shares of Common Stock that can be issued under the 1999
Equity Incentive Plan is 2,250,000 shares. The terms of these options are substantially the same as other options previously issued.



F-15



---

A summary of the Companys stock option activity and related information for the plans is as
follows:



|                                  |  |           |   |  |                              |      
|--------------------------------- |  | --------- | - |  | ---------------------------- | -----
|                                  |  | Options   |   |  | WeightedAverageExercisePrice
|Outstanding at September 28, 2002 |  | 2,117,870 |   |  | $                            | 8.04 
|Granted                           |  | 438,000   |   |  |                              | 10.88
|Cancelled                         |  | (197,300  | ) |  |                              | 11.22
|Exercised                         |  | (53,000   | ) |  |                              | 5.90 
|                                  |  |           |   |  |                              |      
|Outstanding at September 27, 2003 |  | 2,305,570 |   |  |                              | 8.35 
|Granted                           |  | 185,000   |   |  |                              | 14.34
|Cancelled                         |  | (159,300  | ) |  |                              | 11.29
|Exercised                         |  | (641,100  | ) |  |                              | 3.60 
|                                  |  |           |   |  |                              |      
|Outstanding at September 25, 2004 |  | 1,690,170 |   |  |                              | 10.54
|Granted                           |  | 589,500   |   |  |                              | 12.18
|Cancelled                         |  | (253,200  | ) |  |                              | 12.05
|Exercised                         |  | (64,500   | ) |  |                              | 5.54 
|                                  |  |           |   |  |                              |      
|Outstanding at September 24, 2005 |  | 1,961,970 |   |  | $                            | 11.00
|                                  |  |           |   |  |                              |      



The following table
summarizes information about stock options outstanding as of September 24, 2005:



|                |  |                     |  |                              |  |                              |       |             |         |                              |   |      
|--------------- |  | ------------------- |  | ---------------------------- |  | ---------------------------- | ----- | ----------- | ------- | ---------------------------- | - | -----
|                |  | Options Outstanding |  | Options Exercisable         
|Exercise Prices |  | Outstanding         |  | WeightedAverageRemainingLife |  | WeightedAverageExercisePrice |       | Outstanding |         | WeightedAverageExercisePrice
|$1.00$4.00     |  | 349,570             |  | 1.25                         |  | $                            | 2.17  |             | 349,570 |                              | $ | 2.17 
|$7.00$13.50    |  | 1,130,000           |  | 7.31                         |  |                              | 11.16 |             | 456,800 |                              |   | 11.32
|$13.51$27.00   |  | 482,400             |  | 8.05                         |  |                              | 17.01 |             | 190,900 |                              |   | 19.75
|                |  |                     |  |                              |  |                              |       |             |         |                              |   |      
|Total           |  | 1,961,970           |  | 6.41                         |  | $                            | 11.00 |             | 997,270 |                              | $ | 9.72 
|                |  |                     |  |                              |  |                              |       |             |         |                              |   |      



The weighted average
fair value of options granted was $7.02, $6.09, and $5.41 for the fiscal years ended September 24, 2005, September 25, 2004 and September 27, 2003, respectively.



Stock Purchase Plan



On September 27, 1999, the Company approved the adoption of the 1999 Employee Stock Purchase Plan (the Plan), which authorized up to
350,000 shares of Common Stock available for employee purchase through payroll deductions at 85% of fair market value. All eligible employees of the Company may participate. Eligibility is defined as those employees who have completed at least six
months of employment and work at least 20 hours per week, except for employees who own Common Stock or options on such Common Stock that represents 5% or more of the Company total equity ownership. There were 22,005, 19,645 and 26,475 shares issued
under the Plan during the fiscal years ended September 24, 2005, September 25, 2004 and September 27, 2003, respectively.



Warrants



In conjunction with the issuance of two senior subordinated note agreements with affiliated investors that were paid off in June 1999, the Company issued
warrants to purchase 1,964,410 shares of Common Stock at $1.00 per share. The number of shares of Common Stock issuable under these warrants was increased by an



F-16



---

aggregate of 1,030 shares pursuant to certain anti-dilution provisions. The warrants are fully exercisable and expire on September 27, 2006.



Shares Reserved for Future Issuance



|                                                                  |  |                   |  |                  
|----------------------------------------------------------------- |  | ----------------- |  | -----------------
|                                                                  |  | September 24,2005 |  | September 25,2004
|Warrants issued and outstanding                                   |  | 1,965,440         |  | 1,965,440        
|Stock options issued and outstanding                              |  | 1,961,970         |  | 1,690,170        
|Common shares authorized for future stock option grants           |  | 415,500           |  | 751,800          
|Shares authorized for issuance under Employee Stock Purchase Plan |  | 212,678           |  | 234,683          
|                                                                  |  |                   |  |                  
|Shares reserved for future issuance                               |  | 4,555,588         |  | 4,642,093        
|                                                                  |  |                   |  |                  



7. Supplemental Cash Flows
Disclosures



|                                                |  |                   |            |                   |   |                   |  |   |          
|----------------------------------------------- |  | ----------------- | ---------- | ----------------- | - | ----------------- |  | - | ---------
|                                                |  | Years Ended      
|                                                |  | September 24,2005 |            | September 25,2004 |   | September 27,2003
|Income tax benefit of stock option transactions |  | $                 | 149,655    |                   | $ | 3,328,107         |  | $ | 130,528  
|Cash paid during the year for:                  |  |                   |            |                   |   |                   |  |   |          
|Interest                                        |  | $                 | 61,378     |                   | $ | 50,607            |  | $ | 39,231   
|Income taxes                                    |  | $                 | 10,145,081 |                   | $ | 7,418,618         |  | $ | 7,081,428



8. Related Party Transactions



The Company, its Chairman of the Board and two funds
managed by Apax Partners, L.P. (Apax), entered into a stockholders agreement in 1996. This agreement provides that: (1) as long as Apax owns more than 25% but less than 50% of the Companys outstanding shares, they will
have the right to nominate three directors, and (2) as long as Apax owns at least 1,820,735 shares of Common Stock, including shares of Common Stock issuable upon exercise of outstanding warrants, it will have the right to nominate two
directors.



The stockholders agreement grants the
Companys Chairman of the Board certain tag along rights in the event of a private sale by Apax of their shares of Common Stock. The stockholders agreement also grants, subject to limitations and exceptions, demand and piggyback registration
rights to Apax and piggyback registration rights to the Chairman of the Board. The Company is responsible for certain costs of registered offerings in which shares are sold by Apax and the Chairman of the Board. Costs attributable to shares sold by
Apax were $300,000 for the fiscal year ended September 25, 2004 and there were no such costs during the years ended September 24, 2005 or September 27, 2003. Given the historical nature of this obligation, these costs are treated as
reductions to stockholders equity as an offset to proceeds received from shares sold by the Company, if any.



The Company expensed a management fee of $250,000 to Apax during each of the three years presented. This fee terminates when Apax owns less than 1,820,735
shares of Common Stock, including shares of Common Stock issuable upon exercise of outstanding warrants.



For the fiscal years ended September 24, 2005, September 25, 2004 and September 27, 2003, the Company purchased approximately zero,
$235,000 and $821,000, respectively, of merchandise from a company primarily owned by family members of the Companys Chairman of the Board. There were no related party accounts payable balances at September 24, 2005, or September 25,
2004.



F-17



---

9. Employee Savings Plan



The Company has an Internal Revenue Code Section 401(k) profit-sharing plan (the Plan) for eligible employees. The Plan is funded by employee
contributions and provides for the Company to make discretionary contributions. The Company matches 25% of participants contributions up to 4% of eligible compensation. Amounts contributed and expensed under this plan were approximately
$126,954, $113,300 and $108,500 for the fiscal years ended September 24, 2005, September 25, 2004 and September 27, 2003, respectively.



10. Earnings Per Share



|                                   |  |                   |            |   |                   |   |            |                   |  |   |            |  
|---------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | ----------------- |  | - | ---------- | -
|                                   |  | Years Ended       |           
|                                   |  | September 24,2005 |            |   | September 25,2004 |   |            | September 27,2003 | 
|Net income                         |  | $                 | 10,801,329 |   |                   | $ | 15,083,660 |                   |  | $ | 10,090,191 |  
|                                   |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Earnings per share:                |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Basic                              |  | $                 | 0.49       |   |                   | $ | 0.70       |                   |  | $ | 0.48       |  
|Effect of dilutive warrants        |  |                   | (0.04      | ) |                   |   | (0.05      | )                 |  |   | (0.04      | )
|Effect of dilutive stock options   |  |                   | (0.00      | ) |                   |   | (0.02      | )                 |  |   | (0.01      | )
|                                   |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Diluted                            |  | $                 | 0.45       |   |                   | $ | 0.63       |                   |  | $ | 0.43       |  
|                                   |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Weighted average number of shares: |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Basic                              |  |                   | 21,994,665 |   |                   |   | 21,567,205 |                   |  |   | 21,239,569 |  
|Effect of dilutive warrants        |  |                   | 1,804,541  |   |                   |   | 1,840,567  |                   |  |   | 1,781,661  |  
|Effect of dilutive stock options   |  |                   | 263,009    |   |                   |   | 585,247    |                   |  |   | 485,798    |  
|                                   |  |                   |            |   |                   |   |            |                   |  |   |            |  
|Diluted                            |  |                   | 24,062,215 |   |                   |   | 23,993,019 |                   |  |   | 23,507,028 |  
|                                   |  |                   |            |   |                   |   |            |                   |  |   |            |  



The calculation of
dilutive shares excludes the effect of the following options that are considered anti-dilutive:



|                      |  |                   |  |                   |  |                  
|--------------------- |  | ----------------- |  | ----------------- |  | -----------------
|                      |  | Years Ended      
|                      |  | September 24,2005 |  | September 25,2004 |  | September 27,2003
|Anti-dilutive options |  | 544,795           |  | 217,908           |  | 902,452          



F-18



---

SCHEDULE II



CHARLOTTE RUSSE HOLDING, INC.



VALUATION AND QUALIFYING ACCOUNTS



Three fiscal years ended September 24, 2005

(amounts in thousands)



|                                      |  |                              |       |                        |   |                        |  |   |      
|------------------------------------- |  | ---------------------------- | ----- | ---------------------- | - | ---------------------- |  | - | -----
|                                      |  | Balance atbeginningof period |       | AdditionsandReductions |   | Balance atendof period
|Fiscal year ended September 27, 2003: |  |                              |       |                        |   |                        |  |   |      
|Reserve for markdown of inventory     |  | $                            | 2,500 |                        | $ | 1,000                  |  | $ | 3,500
|Allowance for effect of sales returns |  |                              | 750   |                        |   | 0                      |  |   | 750  
|Fiscal year ended September 25, 2004: |  |                              |       |                        |   |                        |  |   |      
|Reserve for markdown of inventory     |  | $                            | 3,500 |                        | $ | 300                    |  | $ | 3,800
|Allowance for effect of sales returns |  |                              | 750   |                        |   | 100                    |  |   | 850  
|Fiscal year ended September 24, 2005: |  |                              |       |                        |   |                        |  |   |      
|Reserve for markdown of inventory     |  | $                            | 3,800 |                        | $ | 1,200                  |  | $ | 5,000
|Allowance for effect of sales returns |  |                              | 850   |                        |   | 250                    |  |   | 1,100



F-19



---

EXHIBIT INDEX



(a) Exhibits marked with an asterisk are filed herewith. The remainder of the exhibits have heretofore been filed with the
Commission and are incorporated herein by reference.



|        |  |                                                                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                 
|        | 
|2.1     |  | Stock Purchase Agreement dated as of August 26, 1996 by and among Charlotte Russe Holding, Inc., Daniel Lawrence, Frank Lawrence and Larry Lawrence (Exhibit 2.1 to Registration Statement
333-84297 filed October 19, 1999)
|        | 
|3.1     |  | Certificate of Incorporation of Charlotte Russe Holding, Inc., as amended (Exhibit 3.1 to Registration Statement 333-84297 filed October 19, 1999)                                                                          
|        | 
|3.2     |  | Certificate of Amendment to the Certificate of Incorporation of Charlotte Russe Holding, Inc. (Exhibit 3.2 to Registration Statement 333-84297 filed October 19, 1999)                                                      
|        | 
|3.3     |  | Amended and Restated By-laws of Charlotte Russe Holding, Inc. (Exhibit 3.3 to Registration Statement 333-84297 filed October 19, 1999)                                                                                      
|        | 
|4.1     |  | Form of Common Stock Certificate (Exhibit 4.1 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                   
|        | 
|10.3    |  | Stockholders Agreement by and among Charlotte Russe Holding, Inc., The SK Equity Fund, L.P., SK Investment Fund, L.P. and Bernard Zeichner (Exhibit 10.7 to Registration Statement
333-84297 filed October 19, 1999)        
|        | 
|10.4    |  | Employment Agreement by and between Charlotte Russe, Inc. and Bernard Zeichner dated October 1, 1996 (Exhibit 10.9 to Registration Statement 333-84297 filed October 19, 1999)                                              
|        | 
|10.5    |  | Amendment No. 1 to Employment Agreement by and between Charlotte Russe, Inc. and Bernard Zeichner (Exhibit 10.10 to Registration Statement 333-84297 filed October 19, 1999)                                                
|        | 
|10.6    |  | Trade Secret and Confidentiality Agreement dated as of October 1, 1996 by and between Charlotte Russe Holding, Inc. and Bernard Zeichner (Exhibit 10.11 to Registration Statement 333-84297
filed October 19, 1999)         
|        | 
|10.7    |  | Charlotte Russe Holding, Inc. 1999 Long-Term Incentive Plan (Exhibit 10.12 to Registration Statement 333-84297 filed October 19, 1999)                                                                                      
|        | 
|10.8    |  | Charlotte Russe Holding, Inc. 1996 Long-Term Incentive Plan (Exhibit 10.13 to Registration Statement 333-84297 filed October 19, 1999)                                                                                      
|        | 
|10.9    |  | Lease Agreement for San Diego Distribution Center dated July 24, 1997 by and between Price Enterprises, Inc. and Charlotte Russe, Inc. (Exhibit 10.14 to Registration Statement 333-84297 filed
October 19, 1999)           
|        | 
|10.10   |  | Charlotte Russe Holding, Inc. 1999 Equity Incentive Plan (Exhibit 10.15 to Registration Statement 333-84297 filed October 19, 1999)                                                                                         
|        | 
|10.11   |  | License Agreement dated September 30, 1997 by and between Rampage Clothing Company and Charlotte Russe, Inc. (Exhibit 10.16 to Registration Statement 333-84297 filed October 19,
1999)                                     
|        | 
|10.12   |  | Charlotte Russe Holding, Inc. 1999 Employee Stock Purchase Plan (Exhibit 10.17 to Registration Statement 333-84297 filed October 19, 1999)                                                                                  
|        | 
|10.13   |  | Common Stock Purchase Warrant No. 2 by and between Charlotte Russe Holding, Inc. and The SK Equity Fund, L.P., dated as of September 27, 1996 (Exhibit 10.19 to Registration Statement
333-84297 filed October 19, 1999)    
|        | 
|10.14   |  | Common Stock Purchase Warrant No. 3 by and between Charlotte Russe Holding, Inc. and SK Investment Fund, L.P., dated as of September 27, 1996 (Exhibit 10.20 to Registration
Statement 333-84297 filed October 19, 1999)    



---

|        |  |                                                                                                                                                                                                                                                                     
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                         
|        | 
|10.15   |  | First Amendment dated October 1, 1999 to the Common Stock Purchase Warrant by and between Charlotte Russe Holding, Inc. and The SK Equity Fund, L.P., dated as of September 27, 1996
(Exhibit 10.22 to Registration Statement 333-84297 filed October 19, 1999)     
|        | 
|10.16   |  | First Amendment dated October 1, 1999 to the Common Stock Purchase Warrant by and between Charlotte Russe Holding, Inc. and SK Investment Fund, L.P., dated as of September 27, 1996
(Exhibit 10.23 to Registration Statement 333-84297 filed October 19, 1999)     
|        | 
|10.17   |  | Form of Indemnification Agreement for Directors and Officers of Charlotte Russe Holding, Inc. (Exhibit 10.24 to Registration Statement 333-84297 filed October 19, 1999)                                                                                            
|        | 
|10.18   |  | Stockholders Agreement dated as of October 1, 1999 by and among Charlotte Russe Holdings, Inc., The SK Equity Fund, L.P. and SK Investment Fund, L.P. (Exhibit 10.25 to Registration
Statement 333-84297 filed October 19, 1999)                                    
|        | 
|10.19   |  | Amendment No. 2 to Employment Agreement by and between Charlotte Russe, Inc. and Bernard Zeichner (Exhibit 10.19 to Form 10-K filed on December 12, 2001)                                                                                                           
|        | 
|10.21   |  | Employment Agreement by and between Charlotte Russe Holding, Inc. and Mark A. Hoffman dated August 20, 2001 (Exhibit 10.21 to Form 10-K filed on December 12, 2001)                                                                                                 
|        | 
|10.22   |  | Employment Agreement by and between Charlotte Russe Holding, Inc. and Daniel T. Carter dated October 11, 2001 (Exhibit 10.22 to Form 10-K filed on December 12, 2001)                                                                                               
|        | 
|10.27   |  | Amendment #1 to License Agreement, dated September 30, 1997, by and between Rampage Clothing Company and Charlotte Russe, Inc. (Exhibit 10.27 to Form 10-K filed on December 13,
2002)                                                                              
|        | 
|10.30   |  | Employment Agreement by and between Charlotte Russe Holding, Inc. and Mark A. Hoffman dated July 9, 2003. (Exhibit 10.30 to Form 10-K filed on December 19, 2003)                                                                                                   
|        | 
|10.31   |  | Employment Agreement by and between Charlotte Russe, Inc. and Bernard Zeichner dated August 31, 2003. (Exhibit 10.31 to Form 10-K filed on December 19, 2003)                                                                                                       
|        | 
|10.33   |  | Loan and Security Agreement by and among Charlotte Russe, Inc., as Borrower, direct and indirect domestic subsidiaries of Borrower and Bank of America, N.A., as Agent, dated as of June 24,
2005. (Exhibit 10.33 to the Registrants Form 10-Q filed July 22, 2005)
|        | 
|10.34   |  | First Amendment by and between Charlotte Russe Holding, Inc. and Mark A. Hoffman dated August 31, 2005. (Exhibit 99.1 to Form 8-K filed on September 6, 2005)                                                                                                       
|        | 
|21      |  | Subsidiaries (Exhibit 21 to Registration Statement 333-84297 filed October 19, 1999)                                                                                                                                                                                
|        | 
|23.1    |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm*                                                                                                                                                                                        
|        | 
|24      |  | Power of Attorney (See Signature Page)                                                                                                                                                                                                                              
|        | 
|31.1    |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                            
|        | 
|31.2    |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                            
|        | 
|32.1    |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                            
|        | 
|32.2    |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                            



| | (b) | Financial Statement Schedules
| | --- | -----------------------------



All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions or are inapplicable as the information has been provided in the consolidated financial statements or related notes thereto.