You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Financial Data" and our financial statements and related notes appearing elsewhere in this annual report. Descriptions of all documents included as exhibits hereto are qualified in their entirety by reference to the full text of such documents so referenced.

The results for all periods presented reflect CCS as a discontinued operation. The Company completed its sale of the CCS business on November 5, 2008. Upon closing of the transaction, the Company received $103.2 million in cash proceeds. All financial results in this discussion are for continuing operations only unless otherwise stated.

Executive Summary and Overview

dELiA*s, Inc. is a multi-channel, specialty retailer of apparel, and accessories, comprised of two lifestyle brands-dELiA*s and Alloy. Our merchandise assortment (which includes many name brand products along with our own proprietary brand products), our catalogs, our e-commerce webpages, and our mall-based dELiA*s specialty retail stores are designed to appeal directly to consumers in the teen market. We reach our customers through our direct marketing segment, which consists of our catalog and e-commerce businesses, and our growing base of retail stores.

On May 31, 2005, Alloy, Inc. announced that its board of directors had approved a plan to pursue a spinoff to its shareholders of all of the outstanding common stock of dELiA*s, Inc. (the "Spinoff"). The Spinoff was completed as of December 19, 2005. In connection with the Spinoff, Alloy, Inc. contributed and transferred to us substantially all of the assets and liabilities related to its direct marketing and retail store segments.

Our strategy is to improve upon our strong competitive position as a direct marketing company targeting teenagers; to expand and develop our dELiA*s specialty retail stores; to capitalize on the strengths of our brands by testing other branded direct marketing and potentially exploring retail store concepts; and to carry out such strategy while controlling costs.

We expect that growth in our retail stores business, which represented 52.4% of our total net sales in fiscal 2008, will be the key element of our overall growth strategy. Our current expectation is to grow our retail store net square footage by approximately 12-15% in fiscal 2009 and approximately 15% annually thereafter. As market conditions allow, we plan to continue to expand the dELiA*s retail store base over the long term, perhaps to as many as 350-400 stores. In addition, as store performance and market conditions allow, we may plan on accelerating our growth in gross square footage. Should we accelerate our growth, we may need additional equity or debt financing.

The accompanying consolidated financial statements include the operations of Alloy, Inc.'s direct marketing and retail store segments' merchandise business. dELiA*s, Inc. formerly was an indirect, wholly-owned subsidiary of Alloy, Inc. By virtue of the completion of the Spinoff, Alloy, Inc. does not own any of our outstanding shares of common stock. In addition, we entered into various agreements with Alloy, Inc. prior to or in connection with the Spinoff. These agreements, as subsequently amended, govern various interim and ongoing relationships between Alloy, Inc. and us following the Spinoff.

Goals

We believe that focusing on our brands and implementing the following initiatives should lead to profitable growth and improved results from operations:

• delivering low to mid single digit comparable store sales growth in our dELiA*s retail stores over the long term;

• driving low to mid single digit top-line growth in direct marketing, through targeted circulation in productive mailing segments;

• improving gross profit margins each year by 50 basis points;

• developing retail merchandising assortments that emphasize key sportswear more effectively;

• improving our retail store metrics through increased focus on the selling culture with emphasis on key item selling, thereby improving productivity;

• implementing profit-improving inventory planning and allocation strategies such as seasonal carry-in reduction, better store-level planning, targeted replenishment by size, tactical fashion investment, and vendor consolidation, to create inventory turn improvement;

• leveraging our current expense infrastructure and taking additional operating costs out of the business;

• increasing retail store square footage by approximately 12-15% in fiscal 2009 and by approximately 15% annually thereafter;

• monitoring and opportunistically closing underperforming stores.

Key Performance Indicators

The following measurements are among the key business indicators that management reviews regularly to gauge the Company's results:

• store metrics such as comparable store sales, sales per gross square foot, average retail price per unit sold, average transaction values, store cash contribution margin (defined as store gross profit less direct cash costs of running the store), and average units per transaction;

• direct marketing metrics such as demand generated by book, with demand defined as the amount customers seek to purchase without regard to merchandise availability, fill rate, which is the percentage of any particular order we are able to ship for our direct marketing business from available on hand inventory or future inventory orders;

• gross profit;

• operating income;

• inventory turnover and inventory per average square foot; and

• cash flow and liquidity determined by the Company's cash provided by operations.

The discussion below includes references to "comparable stores." We consider a store comparable after it has been open for fifteen full months without closure for more than seven consecutive days and whose square footage has not been expanded or reduced by more than 25% within the past year. If a store is closed during a fiscal period, it is removed from the computation of comparable store sales for that fiscal quarter and year-to-date period.

Our fiscal year is on a 52-53 week basis and ends on the Saturday nearest to January 31. The fiscal years ended January 31, 2009 and February 2, 2008 were 52-week fiscal years, and the fiscal year ended February 3, 2007 was a 53-week fiscal year.

Consolidated Results of Operations

The following table sets forth our statements of operations data for the periods indicated, reflected as a percentage of revenues:

                                                                   Fiscal Year
                                                         2008         2007         2006
STATEMENTS OF OPERATIONS DATA:
Total revenues                                           100.0 %      100.0 %      100.0 %
Cost of goods sold                                        64.3 %       64.0 %       61.0 %

Gross profit                                              35.7 %       36.0 %       39.0 %

Operating expenses:
Selling, general and administrative expenses              44.3 %       45.2 %       43.7 %
Impairment of long-lived assets                            0.3 %         -            -

Total operating expenses                                  44.6 %       45.2 %       43.7 %

Operating loss                                            (8.9 %)      (9.2 %)      (4.7 %)
Interest (expense) income, net                            (0.1 %)        -           0.1 %

Loss from continuing operations before provision for
income taxes                                              (9.0 %)      (9.2 %)      (4.6 %)
Benefit for income taxes                                  (3.2 %)      (3.1 %)      (1.7 %)

Loss from continuing operations                           (5.8 %)      (6.1 %)      (2.9 %)
Income from discontinued operations, including gain
on sale, net of taxes                                     13.8 %        5.0 %        5.9 %

Net income (loss)                                          8.0 %       (1.2 %)       3.0 %

Fiscal 2008 Compared with Fiscal 2007 (52 weeks vs. 52 weeks)

Revenues

Total Revenues

Total revenues increased 7.0% to $215.6 million in fiscal 2008 from $201.6 million in fiscal 2007. Revenue increases in the retail segment were driven primarily through new store sales and a comparable store sales increase of 2.8%. Revenue from the retail segment comprised 52.4% of total revenue for fiscal 2008 as compared to 48.7% in fiscal 2007, and revenue from the direct segment comprised 47.6% of total revenue for fiscal 2008 as compared to 51.3% for fiscal 2007.

Direct Marketing Revenues

Direct marketing revenues decreased 1.0% to $102.6 million in fiscal 2008 from $103.5 million in fiscal 2007. In the direct segment, increases in the dELiA*s brand were offset by a year-over-year reduction in the Alloy brand.

Retail Store Revenues

Retail store revenues increased 15.3% to $113.1 million in fiscal 2008 from $98.1 million in fiscal 2007. The increase in revenue was driven by the eleven new stores (net of relocations and remodels) opened in fiscal 2008 and the full year impact of the twelve stores (net of relocations and remodels) opened in fiscal 2007. In addition, we experienced a positive comparable store sales increase of 2.8% for the year.

The following table sets forth select operating data in connection with the revenues of our Company:

                                                 For Fiscal Years Ended
                                                   2008            2007
           Channel Net Sales (in thousands):
           Retail                              $    113,063      $  98,069
           Direct:
           Catalog                                   19,004         23,994
           Internet                                  83,553         79,494

                                                    102,557        103,488

                                               $    215,620      $ 201,557

           Internet %                                    81 %           77 %

           Catalogs Mailed (in thousands)            46,465         50,488

           Number of Stores:
           Beginning of Period                           86             74
           Stores Opened*                                13 *           23 **
           Stores Closed*                                 2 *           11 **

           End of Period                                 97             86

           Total Gross Sq. Ft
           @ End of Period (in thousands)             370.1          327.1

* Totals include two stores that were closed and relocated to alternative sites in the same malls during fiscal 2008.

** Totals include one store that was closed, remodeled and reopened during fiscal 2007, and three stores that were closed and relocated to alternative sites in the same malls during fiscal 2007.

Gross Profit

Total Gross Profit

Gross profit for fiscal 2008 was $77.0 million, or 35.7% of revenues, as compared to $72.5 million, or 36.0% of revenues in fiscal 2007. New store revenues increased gross profit dollars. The decline in gross profit percentage, however, was principally due to a higher percentage of total sales coming from the retail segment which has lower margins.

Direct Marketing Gross Profit

Direct marketing gross profit for fiscal 2008 was $48.2 million, or 47.0% of revenues, as compared to $49.3 million, or 47.7% of revenues in fiscal 2007. The decrease in gross profit percentage was attributable to an increase in buying, distribution, and outbound freight costs.

Retail Store Gross Profit

Retail store gross profit for fiscal 2008 was $28.7 million, or 25.4% of revenues, as compared to $23.2 million, or 23.7% of revenues in fiscal 2007. The increase in gross profit percentage was primarily due to higher merchandise margins and lower inventory obsolescence due to improved inventory management.

Operating Expenses

Total Selling, General and Administrative

As a percentage of total revenues, our selling, general and administrative expenses decreased from 45.2% in fiscal 2007 to 44.3% in fiscal 2008. This decrease was driven by the leveraging of store selling and overhead expenses on higher sales. In total dollars, selling, general and administrative expenses increased 5.0% from $91.0 million in fiscal 2007 to $95.6 million in fiscal 2008. The increase was the result of store operating expenses and depreciation associated with a net increase of twenty-three stores since the beginning of fiscal 2007.

Direct Marketing Selling, General and Administrative.

As a percentage of revenues, selling, general and administrative expenses increased from 47.4% in fiscal 2007 to 48.5% in fiscal 2008. This deleverage was primarily caused by the 1% decrease in sales in fiscal 2008. In total, direct marketing selling, general and administrative expenses increased in dollars from $49.0 million in fiscal 2007 to $49.7 million in fiscal 2008. Fiscal 2007 benefitted from a reversal of an accrual of $0.5 million related to the settlement of various legal matters.

Retail Store Selling, General and Administrative.

As a percentage of revenues, selling, general and administrative expenses decreased from 42.8% in fiscal 2007 to 40.5% in fiscal 2008. This decrease was primarily driven by the leveraging of store selling and overhead costs on higher sales volume. In dollars, retail store selling, general and administrative expenses increased 9.2% from $42.0 million in fiscal 2007 to $45.8 million in fiscal 2008. The increase was primarily due to higher depreciation and amortization expense, and increased store operation costs due to the increase in our number of stores.

Loss from Continuing Operations

Total Loss from Continuing Operations.

Our total loss from continuing operations before interest expense and income taxes was $19.2 million in fiscal 2008 as compared to a loss of $18.5 million in fiscal 2007.

(Loss) income from Direct Marketing Operations.

Direct marketing loss from operations was $1.5 million in fiscal 2008 as compared to income from operations of $0.3 million in fiscal 2007. The loss was attributable to the sales decrease, as well as increased freight, buying, and distribution costs.

Loss from Retail Store Operations.

Our loss from retail store operations was $17.7 million in fiscal 2008, as compared to $18.8 million in fiscal 2007. This reduction was primarily driven by higher merchandise margins and the positive comparable store sales performance.

Interest Expense, net

We recognized net interest expense of $309,000 and $6,000 in fiscal 2008 and fiscal 2007, respectively. Interest expense was related to borrowings under our credit facility with Wells Fargo and the mortgage note for our Hanover, Pennsylvania facility. Interest income was earned from cash balances in money market accounts provided primarily from the proceeds of the sale of our CCS business in fiscal 2008.

Income Tax Benefit

We recorded an income tax benefit of $6.9 million in fiscal 2008, compared with a benefit of $6.2 million in fiscal 2007. This increase in tax benefit was primarily a result of the increased loss from continuing operations for fiscal 2008.

Income from discontinued operations

During the fourth quarter of fiscal 2008, we sold our CCS business for aggregate cash consideration of $103.2 million, resulting in a pre-tax gain of $49.4 million. The results of the CCS business have been classified as discontinued operations in all periods presented. Income from discontinued operations, including the gain from the sale of CCS, net of income taxes, was $29.8 million for fiscal 2008 compared to $10.0 million in the prior fiscal year.

Fiscal 2007 Compared with Fiscal 2006 (52 weeks vs. 53 weeks)

Revenues

Total Revenues

Total revenues increased 5.3% to $201.6 million in fiscal 2007 from $191.5 million in fiscal 2006. On a 52-week basis, total revenues increased 7.7%. Revenue increases in the retail segment were driven primarily through new store sales and a comparable store sales increase of 4.1%. The 53rd week of fiscal 2006 added approximately $4.4 million of total revenues.

Direct Marketing Revenues

Direct marketing revenues decreased 3.7% to $103.5 million in fiscal 2007 from $107.4 million in fiscal 2006. On a 52-week basis, the direct segment revenues decreased 0.5%. In the direct segment, the increase in the dELiA*s brand was offset by a year-over-year reduction in the Alloy brand. The 53rd week of fiscal 2006 added approximately $3.5 million of revenues.

Retail Store Revenues

Retail store revenues increased 16.6% to $98.1 million in fiscal 2007 from $84.1 million in fiscal 2006. On a 52-week basis, retail store revenues increased 17.9%. The increase in revenue was driven by the nineteen new stores (net of relocations and remodels) opened in fiscal 2007 and the full year impact of the eighteen stores (net of relocations and remodels) opened in fiscal 2006. In addition, we experienced a positive comparable store sales increase of 4.1% for the year. The increase was offset, in part, by the closing of seven stores in the period. The 53rd week of fiscal 2006 added approximately $0.9 million of revenues.

Gross Profit

Total Gross Profit

Gross profit for fiscal 2007 was $72.5 million, or 36.0% of revenues, as compared to $74.8 million, or 39.1% of revenues in fiscal 2006. New store revenues increased gross profit dollars. The decline in gross profit percentage, however, was principally due to the decline in the retail segment.

Direct Marketing Gross Profit

Direct marketing gross profit for fiscal 2007 was $49.3 million, or 47.7% of revenues, as compared to $52.3 million, or 48.7% of revenues in fiscal 2006. The decrease in gross profit percentage was attributable to the mix of underperforming full price catalogs in the Alloy brand and the resulting increased relative performance of clearance catalogs versus full price catalogs with their associated lower gross profit rate. Increased outbound freight costs also contributed to the decline.

Retail Store Gross Profit

Retail store gross profit for fiscal 2007 was $23.2 million, or 23.7% of revenues, as compared to $22.5 million, or 26.8% of revenues in fiscal 2006. The decrease in gross profit percentage was primarily due to higher promotional and clearance markdowns as well as the deleveraging of occupancy costs.

Operating Expenses

Total Selling, General and Administrative

As a percentage of total revenues, our selling, general and administrative expenses increased from 43.8% in fiscal 2006 to 45.2% in fiscal 2007. In total, selling, general and administrative expenses increased 8.7% from $83.7 million in fiscal 2006 to $91.0 million in fiscal 2007. The increase was the result of store operating expenses and depreciation associated with a net increase of twenty-seven stores since the beginning of fiscal 2006, incremental rent and moving costs associated with the build out of our new corporate office space and additional planned increases in corporate overhead.

Direct Marketing Selling, General and Administrative.

As a percentage of revenues, selling, general and administrative expenses increased from 46.7% in fiscal 2006 to 47.4% in fiscal 2007. In total, direct marketing selling, general and administrative expenses decreased 2.3% in dollars from $50.2 million in fiscal 2006 to $49.0 million in fiscal 2007 reflecting the reduced circulation and improvements in production costs.

Retail Store Selling, General and Administrative.

As a percentage of revenues, selling, general and administrative expenses increased from 40.0% in fiscal 2006 to 42.8% in fiscal 2007. In dollars, retail store selling, general and administrative expenses increased 25.1% from $33.6 million in fiscal 2006 to $42.0 million in fiscal 2007. The increase was primarily due to higher depreciation and amortization expense due to the increase in our number of stores, increased store operation costs associated with new stores and an increase in the retail segment's allocated overhead resulting from its higher percentage of total Company revenues.

Loss from Continuing Operations

Loss from Continuing Operations.

Our total loss from continuing operations before interest (expense) income and income taxes was $18.5 million in fiscal 2007 as compared to a loss of $9.0 million in fiscal 2006. The 53rd week of fiscal 2006 added approximately $0.8 million of total income from operations.

Income from Direct Marketing Operations.

Direct marketing income from operations was $0.3 million in fiscal 2007 as compared to income from operations of $2.1 million in fiscal 2006. The decrease in income was attributable to a shift in the mix of full price and clearance sales, as well as increased freight costs. The 53rd week of fiscal 2006 added approximately $0.8 million of income from operations.

Loss from Retail Store Operations.

Our loss from retail store operations was $18.8 million in fiscal 2007, as compared to $11.1 million in fiscal 2006. The increased revenue from stores opened could not offset the reduced margins, increased store expenses and the deleveraging of occupancy costs, thus causing the loss to increase over the prior year. The 53rd week of fiscal 2006 had no material impact on income from operations.

Interest (Expense) Income

We recognized net interest (expense) income of ($6,000) and $205,000 in fiscal 2007 and fiscal 2006, respectively. Interest expense was related to borrowings under our credit facility with Wells Fargo and the mortgage note for our Hanover, Pennsylvania facility. Interest income was earned from cash balances in money market accounts provided primarily from cash raised in the rights offering in the first quarter of 2006 and cash flow from operating activities.

Income Tax Benefit

We recorded an income tax benefit of $6.2 million in fiscal 2007, compared with a benefit of $3.2 million in 2006. This increase in tax benefit was primarily a result of the increased loss from continuing operations for fiscal 2007.

Income from discontinued operations

In the fourth quarter of fiscal 2008, we sold our CCS business for aggregate cash consideration of $103.2 million, therefore the results of the CCS business have been classified as discontinued operations in all periods presented.

Liquidity and Capital Resources

As part of the Spinoff, we agreed with Alloy, Inc. on a mechanism that was designed to provide us with approximately $30 million, in cash and cash equivalents based on our fiscal 2005 year end balance sheet, as adjusted to reflect certain working capital expectations, as defined in our distribution agreement with Alloy, Inc. Shortly after our fiscal 2005 year end, we calculated the amount of cash and cash equivalents and working capital (as defined) on our balance sheet as of such date (we were required to assume, for purposes of such calculation, that we received the full $20 million in proceeds from the rights offering). The year end cash true up resulted in an $8.2 million payment received by us from Alloy, Inc. in March 2006.

On November 5, 2008, the Company completed the sale of its CCS business. The Company received gross proceeds of $103.2 million ($95.2 million net of transaction costs) for the sale of the CCS assets and assumption of certain related liabilities. The transaction significantly strengthened the Company's balance sheet and recapitalized the Company at a time when financial flexibility and liquidity is important.

On May 17, 2006, dELiA*s, Inc. and certain of its wholly owned subsidiaries entered into a Second Amended and Restated Loan and Security Agreement with Wells Fargo Retail Finance II, LLC (the "Restated Credit Facility"). The Restated Credit Facility is a secured revolving credit facility that the Company may draw upon for working capital and capital expenditure requirements and had an initial credit limit of $25 million. The Restated Credit Facility may also be used for letters of credit up to an aggregate amount of $10 million.

The Company is allowed under the Restated Credit Facility, under certain circumstances and if certain conditions are met, to permanently increase the credit limit in $5 million increments, up to a maximum credit limit of $40 million. Each permanent increase in the credit limit requires the Company to pay an origination fee of 0.20% of the amount of the increase. During March 2008, we permanently increased the credit limit under the Restated Credit Facility by $5 million, from $25 million to $30 million. The Company may also obtain temporary credit limit increases for up to 90 consecutive days during the period beginning July 15th and ending on December 15th each year. Temporary credit limit increases do not require the payment of an origination fee. The Restated Credit Facility has a maturity date of May 17, 2009. The Company plans to amend/extend the Restated Credit Facility upon maturity and is currently in discussions with its existing lender. However, there can be no assurances that we will be successful in such amendment/extension.

Funds are available under the Restated Credit Facility up to the then existing credit limit or, if lower, the "Borrowing Base" of the Company determined in accordance with a formula set forth in the Restated Credit Facility based upon eligible inventory and accounts receivable, in each case less the sum of
(i) outstanding revolving credit loans, (ii) outstanding letters of credit,
(iii) certain "Availability Reserves" as determined in

accordance with the terms of the Restated Credit Facility, and (iv) the "Availability Block" (which is equal to the greater of 6.5% of the then existing credit limit and $1.5 million). Loans under the Restated Credit Facility bear interest, at the Company's option, either at the prime rate or the London Interbank Offered Rate plus a variable margin ranging from 1.25% to 1.75% depending on excess availability and cash on hand. A monthly fee of 0.25% per annum is payable based on the unused balance of the Restated Credit Facility.

The Restated Credit Facility is secured by substantially all of the assets of . . .