Summary of TWEEN BRANDS, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes to those Consolidated Financial Statements. Also refer to the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 on page 26. For the purposes of the following discussion, unless the context otherwise requires, "Tween Brands," "we," "our," "the Company" and "us" refer to Tween Brands, Inc. and our wholly-owned subsidiaries. Company Overview
Tween Brands, Inc. is currently the operator of two specialty retailing brands:
Limited Too and Justice. Both of our brands target girls ages 7 to 14 ("tweens"). Limited Too, with stores located primarily in shopping malls, is a specialty retailer of high quality and fashionable apparel, accessories, footwear, lifestyle, licensed electronics and girlcare products for fashion-aware, trend-setting tween girls. Limited Too customers are active, creative and image-conscious girls. They enjoy shopping and describe themselves as "fun" and "cool." They want a broad assortment of merchandise to compliment their range of wearing occasions, including school, leisure activities and special functions. To accommodate this, we continually update our merchandise assortment, which includes non-apparel merchandise, such as jewelry, toiletries, cosmetics, electronics, toys, games and candy - basically, anything she views as part of her world. Through our Limited Too website (www.limitedtoo.com) and catazine (catalog within a magazine format), we offer our Limited Too customers a product array similar to our in-store assortment, and also carry exclusive web-only offerings. Additionally, we operate 33 internationally licensed Limited Too stores under various partnerships in the Middle East, Scandinavia and Russia as of quarter-end.
Justice, launched in January 2004, is our value-conscious specialty retail brand offering fashionable apparel, accessories and lifestyle items for tween girls. Our Justice stores are currently located primarily in power centers, off-mall retail locations designed to draw customers intent on apparel shopping. The Justice fashion assortment contains a large selection of basic items as well as the latest fashion our girl is looking for. Justice stores also offer tween girls the opportunity to be a rock star or princess for a day through their in-store parties offering moms and girls a one-stop shop for birthdays or special events. Justice stores are fun, inviting, interactive places to shop with bright, colorful lighting and unique fixtures highlighting the merchandise assortment. Through our Justice website (www.shopjustice.com), which debuted in July 2008, and catazine, we offer our Justice customers a product array similar to our in-store assortment, and also carry exclusive web-only offerings. Conversion to Justice
During the third fiscal quarter in 2008, we announced plans to convert approximately 560 Limited Too stores across the country to our more value-oriented Justice brand to improve profitability. Following several years of record growth and earnings, fiscal 2007 began to show signs of the challenges ahead and the results for the first and second fiscal quarters of 2008 confirmed our need for change. Our results for the first three fiscal quarters of the year were impacted by negative comparable store sales at Limited Too and an overall inability to leverage increasing costs in this sluggish economy. Our current infrastructure has been strained by the duplicative costs associated with the task of differentiating our two brands - both of which are selling to essentially the same customer. We also believe that the highly challenging conditions of today's current economic environment may persist for the foreseeable future, causing customers to put value at the top of their list of key factors when deciding where to shop. Therefore, we made the decision to convert all U.S. stores to Justice and to eliminate the redundant costs associated with maintaining both Limited Too and Justice stores. As we continue to see our moms struggle to respond to their daughters' needs in this tough economy, we are confident that switching to the Justice brand is the appropriate course for the future success of Tween Brands.
By converting to a single store brand, we intend to streamline operations and maximize cost savings while still remaining our girls' favorite place to shop. We have already combined the strong talent we had at Limited Too and Justice into one team to support our brands and now the new Justice will offer the best that both brands has to offer. We plan to combine the quality and value-priced offerings consistently found at Justice with the hottest, fashion-

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forward apparel offerings found at Limited Too. The price points will be at the historic Justice price range with the exception of the Limited Too branded offerings that will be found at approximately 200 of our best stores and through our e-commerce site. We realize that converting Limited Too customers to the Justice brand is paramount. We are confident in our ability to be successful in this conversion because we listened closely to our customers and believe this shift was needed to address their needs.
Throughout the conversion, our approach to attract and retain customers will include point-of-sale events, continuation of our loyalty programs, web-based communications and the use of our direct marketing campaigns. In January 2009, we will be using our catazines to communicate with all of our customers. These catazines will tell our Limited Too customers that Justice is the new Limited Too and that we are transforming the style, sophistication and quality she knows and loves into the Justice brand to offer her better value. To our Justice customers, we will communicate that the Justice brand will now be offering even more great style, fashion and quality for less and will be in many more locations. In February, we plan to throw a brand launch party which will include in-store parties, invitations, gifts for our girls, branded balloons and candy. Tween girls love parties and we are going to do everything we can to generate excitement in the stores for the girls.
Performance Overview
The results of the third fiscal quarter of 2008 reflect the challenging state of the macro-economic environment and our difficulty generating sales and sustaining top line growth in this environment. Sales and earnings results continued to disappoint through the third fiscal quarter of 2008, reconfirming the need to focus on our value-based store brand, Justice. Total sales for the third fiscal quarter declined 3% over the third fiscal quarter of 2007. Negative comparable store sales of 11%, a decrease in margin rates, the inability to leverage occupancy expenses and a restructuring charge of $11.5 million resulted in operating income for the third fiscal quarter of 2008 of $1.8 million or $19.4 million below last year's operating income of $21.2 million. The comparable store sales decline of 11% was comprised of a negative 13% at Limited Too and a negative 4% at Justice.
The incredibly challenging economic pressures facing our business today are being experienced across the country and around the globe. Due to our inability to leverage many of our fixed costs, most notably our store occupancy costs, we have been especially hard hit. As our "number of transactions per average store" statistic confirms, customers no longer appear to be just trading down in their apparel shopping by choosing lower price or sale items. Instead, they appear to be cutting back on shopping overall.
Merchandise Review
At both Limited Too and Justice, average stores sales across virtually all departments showed a decline. The largest of these decreases were seen in the ready-to-wear category, with outerwear and dresses performing poorly. Active bottoms, and most notably active pants, underperformed as compared to last year as well. These declines contributed heavily to the top line sales miss. On a positive note, the accessories category at Limited Too and the footwear category at Justice both posted positive average store sales. Lifestyle products performed consistently between the two brands and showed strong average store sales increases, which continue to be driven mainly by the sale of WebkinzTM. At Limited Too, lifestyles represented 11% of total sales, an increase from 9% of total sales in the third fiscal quarter of 2007. At Justice, lifestyles represented 10% of total sales, an increase from 9% of total sales in the third fiscal quarter of 2007. At Limited Too, total hanging represented 71% of total sales, a decrease from 73% of total sales in the third fiscal quarter of 2007. At Justice, total hanging represented 73% of total sales, a decrease from 74% of total sales in the third fiscal quarter of 2007. Financial Summary
Net sales for the fiscal quarter ended November 1, 2008 were $254.3 million, a decrease of $6.6 million, or 3%, from $260.9 million in the third fiscal quarter of 2007. Gross income in the third fiscal quarter of 2008 was $85.6 million, a decrease of $8.3 million, or 9%, from $93.9 million in the third fiscal quarter of 2007. Operating income decreased $19.4 million from operating income of $21.2 million in the third fiscal

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quarter of 2007 to $1.8 million in the third fiscal quarter of 2008. Net income decreased $13.8 million from net income of $13.0 million in the third fiscal quarter of 2007 to net loss of $0.8 million in the third fiscal quarter of 2008. Earnings per diluted share decreased $0.49 from earnings per diluted share of $0.46 in the third fiscal quarter of 2007 to loss per diluted share of $0.03 in the third fiscal quarter of 2008.
Net sales for the year-to-date period ended November 1, 2008 were $729.1 million, an increase of $31.2 million, or 4%, from $697.9 million for to the same period of 2007. Gross income was $233.8 million for the year-to-date period of 2008, a decrease of $13.2 million, or 5%, from $247.0 million for the same period of 2007. Operating income decreased $40.4 million from operating income of $41.4 million for the comparable period of 2007, resulting in an operating income of $1.0 million for the year-to-date period of 2008. Net income decreased $30.8 million from net income of $27.6 million for the year-to-date period of 2007, resulting in a net loss of $3.2 million for the year-to-date period of 2008. Earnings per diluted share decreased $1.04 from earnings per diluted share of $0.91 in the same period of 2007, resulting in a loss per diluted share of $0.13 for the year-to-date period of 2008.
Summarized operational data for the thirteen and thirty-nine week periods ended November 1, 2008 and November 3, 2007 is presented below:

                                            Thirteen Weeks Ended                                    Thirty-Nine Weeks Ended
                              November 1,          November 3,            %             November 1,           November 3,            %
                                 2008                 2007              Change             2008                  2007             Change
Net sales (millions)
(1)                          $       254.3        $       260.9              -3 %      $       729.1         $       697.9              4 %

Comparable store sales
(2)                                    -11 %                  4 %                                 -7 %                   2 %
Net store sales per
average gross square
foot (3)                     $        65.0        $        74.4             -13 %      $       191.2         $       210.0             -9 %
Net store sales per
average store
(thousands) (4)              $       272.8        $       311.4             -12 %      $       800.4         $       875.0             -9 %

Average store size at
period end (gross
square feet)                         4,178                4,157               0 %              4,178                 4,157              0 %
Total gross square feet
at period end
(thousands)                          3,864                3,467              11 %              3,864                 3,467             11 %
Store inventory per
gross square foot at
period end (5)               $        30.8        $        33.5              -8 %      $        30.8         $        33.5             -8 %
Store inventory per
store at period end
(thousands) (5)              $       128.5        $       139.4              -8 %      $       128.5         $       139.4             -8 %

Number of stores:
Beginning of period                    895                  786                                  842                   722
Opened                                  30                   51                                   87                   119
Closed                                   -                   (3 )                                 (4 )                  (7 )

End of period                          925                  834                                  925                   834

Limited Too stores
remodeled                                2                    6                                   24                    28
Justice stores
remodeled                                -                    -                                    -                     -

Number of Limited Too
stores                                 590                  588                                  590                   588
Number of Justice
stores                                 335                  246                                  335                   246

(1) Total net sales includes:
store sales,
net of
associate
discounts;
direct sales;
shipping
revenue;
deferred
revenue;
international
revenue and
partner
advertising
revenue.

(2) A store is included in our comparable store sales calculation once it has completed 52 weeks of operation. Further, stores that have changed more than 20% in gross square feet are treated as new stores for purposes of this calculation.

(3) Net store sales per average gross square foot is the result of dividing net store sales for the fiscal period by the monthly average gross square feet, which reflects the impact of opening and closing stores throughout the period.

(4) Net store sales per average store is the result of dividing net store sales for the fiscal period by average store count, which reflects the impact of opening and closing stores throughout the period.

(5) Inventory value includes store and distribution center inventory net of estimated shrink.

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The following table compares components of the Consolidated Statements of Operations as a percentage of net sales at the end of each period:

                                                        Thirteen Weeks                             Thirty-Nine Weeks
                                                             Ended                                       Ended
                                               November 1,           November 3,           November 1,           November 3,
                                                  2008                  2007                  2008                  2007
Net sales                                             100.0 %               100.0 %               100.0 %               100.0 %
Cost of goods sold, including buying and
occupancy costs                                        66.3 %                64.0 %                67.9 %                64.6 %

Gross income                                           33.7 %                36.0 %                32.1 %                35.4 %
Store operating, general and
administrative expenses                                28.4 %                27.9 %                30.3 %                29.5 %
Restructuring charge                                    4.6 %                 0.0 %                 1.7 %                 0.0 %

Operating income                                        0.7 %                 8.1 %                 0.1 %                 5.9 %
Interest income                                        (0.2 )%               (0.3 )%               (0.2 )%               (0.4 )%
Interest expense                                        0.9 %                 0.6 %                 0.9 %                 0.3 %

(Loss) / Earnings before income taxes                   0.0 %                 7.8 %                (0.6 )%                6.0 %
(Benefit from) / Provision for income
taxes                                                   0.3 %                 2.8 %                (0.2 )%                2.0 %

Net (loss) / income                                    (0.3 )%                5.0 %                (0.4 )%                4.0 %

Net Sales
Net sales for the third fiscal quarter of 2008 decreased 3% from the third fiscal quarter of 2007. This was primarily driven by an 11% decrease in comparable store sales, partially offset by the additional sales from the 91 net new stores added since the third fiscal quarter of 2007. Net sales for the year-to-date period ended November 1, 2008 increased 4% from the comparable period of 2007. This was driven by the additional sales from the 91 net new stores added since the third fiscal quarter of 2007, partially offset by a 7% decrease in comparable store sales.
The following summarized sales data compares the thirteen and thirty-nine week periods ended November 1, 2008 and November 3, 2007:

                                                                      Thirteen Weeks Ended                           Thirty-Nine Weeks Ended
                                                           November 1,       November 3,         %          November 1,       November 3,         %
                                                              2008              2007           Change          2008              2007          Change
Average dollar value of unit sold at retail ("AUR") (1)   $       11.90     $       12.60           -6 %   $       11.38     $       12.48          -9 %
Average number of units per transaction ("UPT") (2)                4.80              4.45            8 %            4.49              4.39           2 %
Average dollar sales value per transaction ("ADS") (3)    $       57.10     $       56.12            2 %   $       51.12     $       54.79          -7 %
Number of transactions per average store (4)                      4,803             5,558          -14 %          15,718            16,049          -2 %
Sales from transactions over $50 (% of total sales)                80.5 %            77.2 %                         75.4 %            77.2 %
Transactions over $50 (% of total transactions)                    43.8 %            41.5 %                         37.5 %            40.2 %

(1) Average dollar value of unit sold at retail is the result of dividing gross store sales dollars for the period by the number of units sold during the period.

(2) Average number of units per transaction is the result of dividing the number of units sold in the period by the number of store transactions.

(3) Average dollar sales value per transaction is the result of dividing gross store sales dollars for the period by the number of store transactions.

(4) Number of transactions per average store is the result of dividing the total number of transactions for the fiscal period by the average store count, which reflects the impact of opening and closing stores throughout the period.

As shown in the table above, UPT increased 8% and AUR decreased 6% during the third quarter, yielding an increase in ADS of 2% for the quarter. For the year-to-date period, UPT increased 2% and AUR decreased 9%, yielding a decrease in ADS of 7%. For the quarter, the increase in ADS was more than offset by a 14% decrease in

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average store transactions, driving our 11% decrease in comparable store sales. For the year-to-date period, the decline in ADS was worsened by a 2% decrease in average store transactions for the first thirty-nine weeks of 2008, driving our 7% decrease in comparable store sales. It should be noted that our average store sales are growing more slowly than our comp store sales primarily due to the number of store openings at our Justice brand. These Justice stores tend to open at volumes below our average store volume, and have historically had significant volume increases in the second and third years. Gross Income
Internally, we analyze gross income by splitting it into two components, internal gross income (gross income excluding buying and occupancy costs) and buying and occupancy costs. Internal gross income is composed of our more variable cost components of gross income, while our buying and occupancy costs are predominantly fixed in nature. Gross income for the third fiscal quarter of 2008 was $85.6 million, $8.3 million less than the third fiscal quarter of 2007 as shown in the table below (in thousands, except basis point amounts):

                                                                                    Q3 2008 vs. Q3 2007              Q3 2008 vs. Q3 2007
                                                                                       Dollar change                    Change in bps
                                                Q3 2008          Q3 2007          favorable/(unfavorable)          favorable/(unfavorable)
Changes in:
Internal Gross Income                          $ 148,697        $ 153,560        $                  (4,863 )                            (40 )
Buying & Occupancy Costs                          63,054           59,634                           (3,420 )                           (190 )

Gross Income                                   $  85,643        $  93,926        $                  (8,283 )                           (230 )

The $4.9 million decrease in internal gross income can be explained by the 3% sales decline which included deferred revenue of $4.7 million related to our loyalty program, higher markdown volume and lower initial mark-up ("IMU"). The decrease in our internal gross income rate of 40 basis points as a percentage of net sales ("bps") is primarily attributable to a higher markdown volume, mainly at Justice, as well as lower IMU driven by the relative growth of our Justice brand and by the higher proportion of non-apparel merchandise sales at both brands. Buying and occupancy costs increased $3.4 million over the third fiscal quarter of 2007, driven primarily by higher store occupancy expenses associated with new store additions at Justice and rent increases resulting from lease renewals with higher rates at Limited Too, partially offset by $2.0 million in payroll savings related to the restructuring.
Gross income for the year-to-date period ended November 1, 2008 was $233.8 million, $13.2 million less than the same period of 2007 as shown in the table below (in thousands, except basis point amounts):

                                                                                 YTD 2008 vs. YTD 2007           YTD 2008 vs. YTD 2007
                                                                                     Dollar change                   Change in bps
                                              YTD 2008         YTD 2007         favorable/(unfavorable)         favorable/(unfavorable)
Changes in:
Internal Gross Income                         $ 421,981        $ 417,676        $                  4,305                            (200 )
Buying & Occupancy Costs                        188,211          170,684                         (17,527 )                          (130 )

Gross Income                                  $ 233,770        $ 246,992        $                (13,222 )                          (330 )

The net $4.3 million increase in internal gross income was primarily due to an $18.7 million, or 4%, improvement in overall sales, partially offset by the decline in our internal gross income rate, which translates to a $14.4 million decline. The decrease in our internal gross income rate of 200 bps is primarily attributable to a higher markdown rate at Limited Too and Justice, as well as lower initial mark-up ("IMU") driven by the relative growth of our Justice brand and by the higher proportion of non-apparel merchandise sales at both brands. Buying and occupancy costs increased $17.5 million over the year-to-date period of 2007, driven primarily by higher store occupancy expenses associated with new store additions at Justice, rent increases resulting from lease renewals with higher rates at Limited Too, as well as increased Limited Too catazine costs from increased circulation.
Our gross income may not be comparable to that of other retailers since all significant costs related to our distribution network, with the exception of freight costs, are included in store operating, general and administrative expenses (see "Store Operating, General and Administrative Expenses").

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Store Operating, General and Administrative Expenses Store operating, general and administrative expenses decreased $0.4 million, but increased 50 bps, from the third fiscal quarter of 2007. The change is outlined in the table below (in thousands, except basis point amounts):

                                                     Q3 2008 vs. Q3 2007
                                                   favorable/(unfavorable)
                                                  in dollars          in bps
         Changes in:
         Store payroll and operating expenses   $        (3,188 )        (170 )
         Home office                                      3,633           120
         Marketing                                         (688 )         (30 )
         Distribution center                                777            30
         Other                                             (111 )           -

         Total change                           $           423           (50 )

Store payroll and operating expenses for the quarter increased 7% in dollars from the third fiscal quarter of 2007, driven by the net addition of 91 stores. Home office expenses for the quarter decreased, mainly driven by lower compensation expenses from associate departures in conjunction with the restructuring, as well as lower incentive compensation and recruiting expenses. Marketing expenses for the third fiscal quarter of 2008 increased over the third fiscal quarter of 2007 due to increased catazine circulation at Justice. Distribution center costs decreased from the third fiscal quarter of 2007 due to increased efficiencies. The increase of 50 bps is mainly due to our inability to leverage store payroll and operating expenses.
On a year-to-date basis, store operating, general and administrative expenses increased $15.7 million, or 80 bps, as compared to the year-to-date period ended November 3, 2007. The increase is outlined in the table below (in thousands, except basis point amounts):

                                                    YTD 2008 vs. YTD 2007
. . .