The following discussion provides information and analysis of our results of operations for the 13 and 40 week periods ended October 4, 2008 (hereinafter referred to as the "third fiscal quarter of 2008" and the "first fiscal nine months of 2008," respectively) and the 13 and 40 week periods ended October 6, 2007 (hereinafter referred to as the "third fiscal quarter of 2007" and the "first fiscal nine months of 2007," respectively), and our liquidity and capital resources. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements included elsewhere herein.

Business Overview

We design, contract for the manufacture of and market a broad range of women's collection sportswear, suits and dresses, casual sportswear and jeanswear for women and children, and women's footwear and accessories. We sell our products through a broad array of distribution channels, including better specialty and department stores and mass merchandisers, primarily in the United States and Canada. We also operate our own network of retail and factory outlet stores. In addition, we license the use of several of our brand names to select manufacturers and distributors of women's and men's apparel and accessories worldwide.

º in February 2008, we announced that Wal-Mart Stores Inc. ("Wal-Mart") would be the exclusive retailer of our l.e.i. brand for juniors, junior plus and girls beginning with the 2008 back-to-school shopping season at Wal-Mart stores nationwide;
º in May 2008, we announced the sale of our remaining Mexican operations;
º in June 2008, we announced that we successfully completed amendments to our $1 billion and $750 million five-year revolving credit facilities which expire on June 15, 2009 and May 16, 2010, respectively, with the terms and conditions of the credit facilities remaining substantially unchanged, except for modification of the pricing provisions and certain covenants and reduction of the aggregate commitment under the $1 billion facility to $500 million;
º in June 2008, we announced that we formed a joint venture with Royale Etenia LLC ("Royale") to develop, market and license the New York-based fashion brand Rachel Roy and that we also assumed the operating assets and liabilities of Rachel Roy Fashions, Inc.;
º in June 2008, we announced that we acquired a minority interest in GRI Group Limited, an international accessories and apparel brand management and retail-distribution network;
º in June 2008, we announced the completion of our accelerated stock repurchase ("ASR") program;
º in July 2008, we announced we had entered into an agreement with New Balance Athletic Shoe, Inc. ("New Balance") to license, create and distribute a fashion-lifestyle footwear collection that brings together New Balance's innovative performance and materials technology with Nine West's renowned fashion styling; and
º on August 5, 2008, Standard & Poor's removed our corporate credit and senior unsecured debt ratings from credit watch and lowered the ratings to BB from BB+. It further lowered the ratings to BB- on October 29, 2008 while maintaining its previously-assigned negative outlook. On October 20, 2008, Moody's lowered our corporate family and probability of default ratings to Ba2 from Ba1 and assigned a ratings outlook of stable..

Rachel Roy Joint Venture

On June 10, 2008, we formed a joint venture with Royale to develop, market and license the New York-based fashion brand Rachel Roy. Under the terms of the agreement, we own a 50% interest in the joint venture, with the remaining interest owned by Royale. The joint venture plans to develop the Rachel Roy brand through continued global expansion of the wholesale business, introduction of new product categories, and stand-alone retail stores in key U.S. and international locations. Rachel Roy will continue to lead the design of the brand. We also assumed the operations and the assets and liabilities of the existing designer collection business formerly operated by Rachel Roy Fashions, Inc. under a license with the new joint venture. These entities are consolidated by us and, accordingly, the results of operations are reflected in our financial statements. In connection with the acquisition, no material assets or liabilities were recorded in this transaction.

Investment in GRI

On June 20, 2008, we acquired a 10% equity interest in GRI, an international accessories and apparel brand management and retail-distribution network, for $20.2 million. GRI, which (including its franchisees) operates over 600 points of sale in 12 Asian countries, is the exclusive licensee of several of our brands in Asia, including Nine West, Anne Klein New York, AK Anne Klein, Easy Spirit, Enzo Angiolini and Joan & David. GRI also distributes other ladies apparel, shoes and accessory brands.

Under the terms of our investment, GRI will be entitled to receive a future cash payment from us of up to $10.0 million if GRI's net income for its fiscal year ending January 31, 2009 exceeds a specified earnings target. Any additional payment will be recorded as an additional investment in GRI but will not increase our 10% equity interest. Based on projected results of GRI for the remainder of 2008, we currently do not anticipate making any additional payments. The results of GRI are reported under the equity method of accounting.

On September 6, 2007, we entered into an ASR agreement with Goldman, Sachs & Co. ("Goldman") to repurchase $400 million of our outstanding common stock. Purchases under the ASR were subject to collar provisions that established minimum and maximum numbers of shares based generally on the volume-weighted average price of our common stock during the term of the ASR program. Final settlement of the ASR program was scheduled for no later than July 19, 2008 and could occur earlier at the option of Goldman or later under certain circumstances. Through June 5, 2008, 17.9 million shares had been delivered to us by Goldman under the terms of the ASR. On June 5, 2008, Goldman informed us that it had concluded the ASR. As a result, we received a final delivery of 3.2 million shares on June 10, 2008, bringing the aggregate number of shares received under the ASR program to 21.1 million shares. No cash was required to complete the final delivery of shares. The combined average price for the shares delivered under the ASR was $19.00 per share.

Strategic Decisions Regarding Certain Moderate Apparel Brands

Our continued strategic operational reviews and efforts to improve profitability and the continued trend of our moderate and jeanswear customers towards differentiated product offerings led us to make the strategic decision to exit some of our moderate apparel product lines during 2007. As a result of this exit, we have renamed our wholesale moderate apparel segment as our wholesale jeanswear segment to better reflect the products we produce in that segment. We believe that exiting these product lines will strengthen our future operating results and allow us to focus primarily on growth opportunities in our remaining wholesale product lines, which have strong fundamentals and operate at substantially higher margins. This decision did not impact in any way our denim and junior division labels such as Gloria Vanderbilt, l.e.i., Energie, GLO, Jeanstar, Grane and others, which are also reported in the wholesale jeanswear segment. The moderate product lines we exited have not been classified as discontinued operations as they do not meet the criteria for discontinued operations as set forth in SFAS No. 144. As a result of the loss of these projected revenues, we recorded impairments for our Norton McNaughton and Erika trademarks of $69.0 million in our licensing, other and eliminations segment during the fiscal quarter ended July 7, 2007. In connection with this decision, we also announced the closing of our Goose Creek, South Carolina and Edison, New Jersey distribution centers. See "Accrued Restructuring Costs" in Notes to Consolidated Financial Statements.

The assets and liabilities relating to the moderate product lines originally planned to be sold were classified as held for sale in the Consolidated Balance Sheet at July 7, 2007. We had estimated the fair value of the moderate net assets to be sold to be $22.5 million based upon preliminary sales negotiations. The carrying value of these net assets was $52.9 million as of July 7, 2007; therefore, we recorded a loss of $30.4 million to write these assets down to realizable value. We subsequently decided to shut down and liquidate these brands rather than sell them and, as a result, we reclassified the assets previously reported as assets held for sale as assets held and used during the fiscal quarter ended October 6, 2007. During the fiscal quarter ended October 6, 2007, we reversed $16.8 million of previously reported losses on assets held for sale since the carrying value of these current assets would be recovered during the process of shutting down and liquidating the related brands. We also reclassified the remaining $13.6 million of previously reported losses on assets held for sale as additional impairments of trademarks and property, plant and equipment of $11.5 million and $2.1 million, respectively, during the fiscal quarter ended October 6, 2007.

We also announced in February 2008 that Wal-Mart would be the exclusive retailer of our l.e.i. brand for juniors, junior plus and girls beginning with the 2008 back-to-school shopping season at Wal-Mart stores nationwide.

Sale of Mexican Operations

On September 12, 2006, we announced the closing of our Mexican operations related to the decision by Polo to discontinue the Polo Jeans Company product line, which we produced for Polo subsequent to the sale of the Polo Jeans Company business to Polo in February 2006. At that time, we determined the estimated fair value of the property, plant and equipment employed in Mexico was less than its carrying value. As a result, we recorded an impairment loss of $8.6 million, which was reported as cost of sales in the wholesale jeanswear segment in

Sale of Barneys

On September 6, 2007, we completed the sale of Barneys to an affiliate of Istithmar PJSC. In accordance with the provisions of SFAS No. 144, the results of operations of Barneys for the fiscal quarter and nine months ended October 6, 2007 have been reported as discontinued operations and the assets and liabilities relating to Barneys have been reclassified as held for sale in the Consolidated Balance Sheet for October 6, 2007.

Critical Accounting Policies

Several of our accounting policies involve significant or complex judgements and uncertainties and require us to make certain critical accounting estimates. We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were highly uncertain at the time the estimate was made. The estimates with the greatest potential effect on our results of operations and financial position include the collectibility of accounts receivable, the recovery value of obsolete or overstocked inventory and the fair values of both our goodwill and intangible assets with indefinite lives. Estimates related to accounts receivable affect our wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories and retail segments. Estimates related to inventory and goodwill affect our wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories and retail segments. Estimates related to intangible assets with indefinite lives affect our licensing, other and eliminations segment.

For accounts receivable, we estimate the net collectibility, considering both historical and anticipated trends of trade discounts and co-op advertising deductions given to our customers, allowances we provide to our retail customers to flow goods through the retail channels, and the possibility of non-collection due to the financial position of our customers. For inventory, we estimate the amount of goods that we will not be able to sell in the normal course of business and write down the value of these goods to the recovery value expected to be realized through off-price channels. Historically, actual results in these areas have not been materially different than our estimates, and we do not anticipate that our estimates and assumptions are likely to materially change in the future. However, if we incorrectly anticipate trends or unexpected events occur, our results of operations could be materially affected.

We test our goodwill and our trademarks for impairment on an annual basis (during our fourth fiscal quarter) and between annual tests if an event occurs or circumstances change that would reduce the fair value of an asset below its carrying value. These tests utilize discounted cash flow models to estimate fair values. These cash flow models involve several assumptions. Changes in our assumptions could materially impact our fair value estimates and material impairment losses could result where the estimated fair values of these assets become less than their carrying amounts. Assumptions critical to our fair value estimates are: (i) discount rates used to derive the present value factors used in determining the fair value of the reporting units and trademarks; (ii) royalty rates used in our trade mark valuations; (iii) projected average revenue growth rates used in the reporting unit and trademark models; and (iv) projected long-term growth rates used in the derivation of terminal values. These and other assumptions are impacted by economic conditions and expectations of management and will change in the future based on period-specific facts and circumstances.

RESULTS OF OPERATIONS

Statements of Operations Stated in Dollars and as a Percentage of Total Revenues

(In millions)                   Fiscal Quarter Ended                   Fiscal Nine Months Ended
                        -------------------------------------   ---------------------------------------
                        October 4, 2008     October 6, 2007      October 4, 2008      October 6, 2007
                        ----------------   ------------------   ------------------   ------------------
Net sales               $ 948.6   98.3%    $ 1,011.8   98.5%    $ 2,732.2   98.7%    $ 2,970.8   98.7%
Licensing income           16.0    1.7%         15.4    1.5%         36.5    1.3%         36.8    1.2%
Service and other
revenue                     0.1    0.0%          0.4    0.0%          0.8    0.0%          2.3    0.1%
                        -------- -------   ---------- -------   ---------- -------   ---------- -------
Total revenues            964.7  100.0%      1,027.6  100.0%      2,769.5  100.0%      3,009.9  100.0%
Cost of goods sold        641.4   66.5%        701.1   68.2%      1,843.2   66.6%      2,028.1   67.4%
                        -------- -------   ---------- -------   ---------- -------   ---------- -------
Gross profit              323.3   33.5%        326.5   31.8%        926.3   33.4%        981.8   32.6%
Selling, general and
administrative expenses   271.5   28.1%        286.2   27.9%        809.1   29.2%        831.2   27.6%
Trademark impairments         -      -          11.5    1.1%            -      -          80.5    2.7%
Reversal of losses on
assets held for sale          -      -          30.4    3.0%            -      -             -     -
                        -------- -------   ---------- -------   ---------- -------   ---------- -------
Operating income           51.8    5.4%         59.2    5.8%        117.2    4.2%         70.1    2.3%
Net interest expense
and financing costs        10.5    1.1%         12.7    1.2%         30.0    1.1%         40.0    1.3%
Gain on sale of
interest in Australian
joint venture                 -      -             -     -            0.8    0.0%            -     -
Equity in (loss)
earnings of
unconsolidated
affiliates                 (0.4)  (0.0%)         1.0    0.1%         (0.4)  (0.0%)         3.1    0.1%
                        -------- -------   ---------- -------   ---------- -------   ---------- -------
Income from continuing
operations before
provision for income
taxes                      40.9    4.2%         47.5    4.6%         87.6    3.2%         33.2    1.1%
Provision (benefit) for
income taxes               14.6    1.5%        (90.9)  (8.8%)        31.1    1.1%        (98.5)  (3.3%)
                        -------- -------   ---------- -------   ---------- -------   ---------- -------
Income from continuing
operations                 26.3    2.7%        138.4   13.5%         56.5    2.0%        131.7    4.4%
Income from
discontinued
operations, net of tax      1.0    0.1%        261.7   25.5%          1.0    0.0%        269.2    8.9%
                        -------- -------   ---------- -------   ---------- -------   ---------- -------
Net income               $ 27.3    2.8%      $ 400.1   38.9%       $ 57.5    2.1%      $ 400.9   13.3%
                        -------- -------   ---------- -------   ---------- -------   ---------- -------

Percentage totals may not add due to rounding.

Fiscal Quarter Ended October 4, 2008 Compared to Fiscal Quarter Ended October 6, 2007

Revenues. Total revenues for the third fiscal quarter of 2008 were $0.96 billion, compared with $1.03 billion for the third fiscal quarter of 2007, a decrease of 6.1%.

Revenues by segment were as follows:

                                   Third Fiscal Third Fiscal
                                     Quarter      Quarter    Increase/  Percent
(In millions)                        of 2008      of 2007    (Decrease) Change
                                   ------------ ------------ ---------- --------
Wholesale better apparel               $ 303.8      $ 320.5    $ (16.7)   (5.2%)
Wholesale jeanswear                      202.0        246.9      (44.9)  (18.2%)
Wholesale footwear and accessories       269.6        267.8        1.8     0.7%
Retail                                   173.2        176.8       (3.6)   (2.0%)
Other                                     16.1         15.6        0.5     3.2%
                                   ------------ ------------ ---------- --------
  Total revenues                       $ 964.7    $ 1,027.6    $ (62.9)   (6.1%)
                                   ------------ ------------ ---------- --------

Wholesale better apparel revenues decreased $16.7 million, primarily due to lower shipments of our Jones New York, Jones New York Sport, Nine West and specialty market product lines, due to decreased orders from our customers based on the performance of these brands at retail. This decrease was partially offset by increased shipments of our Jones New York Signature product line, due to increased customer orders based on the performance of the brand at retail and initial shipments of our new casual line of products, and of our Joneswear product line, due to increased customer orders based on the performance of the brand at retail.

Wholesale jeanswear revenues decreased $44.9 million. Lower shipments of our Rena Rowan, Nine & Co., Evan-Picone, Bandolino, Pappagallo and Erika moderate product lines which were discontinued or repositioned in

Wholesale footwear and accessories revenues increased $1.8 million, primarily as a result of: increased shipments in our international businesses due to continued expansion by our licensed partners; increased shipments of our Nine West and Nine & Co. handbag product lines due to increased orders from our customers based on the performance of these brands at retail; and initial shipments of our AK Anne Klein handbag line. These increases were offset by decreased shipping of our Nine West footwear products, primarily related to planned lower sales to value chain retailers and a shift in the market away from dress shoes towards casual shoes.

Retail revenues decreased $3.6 million, primarily due to a 2.5% decline in comparable store sales ($4.0 million). Comparable stores are those that have been open for a full year, are not scheduled to close in the current period and are not scheduled for an expansion or downsize by more than 25% or relocation to a different street or mall. A 0.6% decrease in comparable store sales for our footwear stores ($0.6 million) and a 10.9% decrease in comparable store sales for our apparel store sales ($6.5 million) were offset by an 85.3% increase in our e-commerce business ($3.1 million). We began the third fiscal quarter of 2008 with 1,018 retail locations and had a net decrease of five locations during the quarter to end the quarter with 1,013 locations. This compares with 1,018 locations at the end of the third fiscal quarter of 2007.

Gross Profit. The gross profit margin increased to 33.5% in the third fiscal quarter of 2008 compared with 31.8% in the third fiscal quarter of 2007.

Wholesale better apparel gross profit margins were 30.5% and 31.1% for the third fiscal quarters of 2008 and 2007, respectively. The decrease was due to higher levels of sales to off-price retailers in our suit and dress product lines.

Wholesale jeanswear gross profit margins were 23.7% and 16.1% for the third fiscal quarters of 2008 and 2007, respectively. The increase is primarily due to the negative impact in the prior period of high levels of vendor allowances to clear inventory for the lower-margin moderate brands we had planned to exit or sell.

Wholesale footwear and accessories gross profit margins were 27.4% and 29.7% for the third fiscal quarters of 2008 and 2007, respectively. The decrease was due to higher levels of sales to off-price retailers to liquidate excess inventory, growth in our lower-margin international business and increased production costs in China and other Pacific Rim countries in the current period.

Retail gross profit margins were 49.7% and 48.4% for the third fiscal quarters of 2008 and 2007, respectively. The increase was primarily the result of lower levels of excess footwear inventory liquidation in the current period.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses were $271.5 million in the third fiscal quarter of 2008 and $286.2 million in the third fiscal quarter of 2007.

Wholesale better apparel SG&A expenses increased $1.2 million, primarily from $1.5 million of additional bad debt expense related to the Boscov's, Inc. ("Boscov's") bankruptcy filing. Higher levels of distribution expenses were offset by lower levels of advertising costs.

Wholesale jeanswear SG&A expenses decreased $12.5 million, primarily from cost savings resulting from exiting of some of our moderate apparel product lines during 2007, which were partially offset by $1.5 million of advertising costs related to the launch of l.e.i. at Wal-Mart and $1.8 million of additional bad debt expense related to the bankruptcy filings of Mervyn's LLC ("Mervyn's") and Boscov's.

Retail SG&A expenses increased $5.4 million, primarily due to a $1.5 million write-off of computer software, $1.7 million of higher overhead expenses and $1.0 million higher depreciation expenses in the current period.

SG&A expenses for the licensing, eliminations and other segment decreased $13.6 million, primarily due to $16.5 million recorded in the prior period relating to the termination of two former executive officers, partially offset by $1.5 million of additional amortization of employee stock options and restricted stock in the current period and $1.4 million of other cost increases, including the effects of foreign currency exchange rates.

Operating Income. The resulting operating income from continuing operations for the third fiscal quarter of 2008 was $51.8 million, compared with $59.2 million for the third fiscal quarter of 2007, due to the factors described above, the $11.5 million of trademark impairments and the reversal of $30.4 million of losses on assets held for sale recorded in the previous period.

Net Interest Expense. Net interest expense from continuing operations was $10.5 million in the third fiscal quarter of 2008, compared with $12.7 million in the third fiscal quarter of 2007. The decrease was primarily the result of no outstanding borrowings under our credit facilities and higher interest income from higher cash balances during the third fiscal quarter of 2008.

Provision for Income Taxes. The effective income tax rate on continuing operations was 35.6% for the third fiscal quarter of 2008. Excluding the effects of the reversal of deferred tax valuation allowances related to the sale of Barneys ($107.7 million), the effective tax rate on continuing operations was 35.3% for the third fiscal quarter of 2007. The increase is due primarily to a lesser impact of the foreign income tax differential relative to pre-tax income in the current period than in the prior period.

Net Income and Earnings Per Share. Net income was $27.3 million in the third fiscal quarter of 2008, compared with $400.1 million in the third fiscal quarter of 2007, which included the $258.2 million gain on the sale of Barneys. Diluted earnings per share for the third fiscal quarter of 2008 was $0.33, compared with $3.97 for the third fiscal quarter of 2007, on 17.6% fewer shares outstanding.

Fiscal Nine Months Ended October 4, 2008 Compared with Fiscal Nine Months Ended
October 6, 2007

     Revenues.  Total revenues for the first fiscal nine months of 2008 were
$2.8 billion, compared with $3.0 billion for the first fiscal nine months of
2007, a decrease of 8.0%.

     Revenues by segment were as follows:

                                   First Fiscal First Fiscal
                                   Nine Months  Nine Months  Increase/  Percent
(In millions)                        of 2008      of 2007    (Decrease) Change
                                   ------------ ------------ ---------- --------
Wholesale better apparel               $ 870.2      $ 890.4    $ (20.2)   (2.3%)
Wholesale jeanswear                      594.9        807.4     (212.5)  (26.3%)
Wholesale footwear and accessories       737.8        732.9        4.9     0.7%
. . .