We have made statements in this quarterly report on Form 10-Q that are forward-looking statements. You can identify these statements by forward-looking words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project" and "will," or other similar words, phrases or expressions. We have based these forward-looking statements on our current expectations and projections about future events. Statements and financial discussion and analysis contained in this quarterly report on Form 10-Q that are not historical facts are forward-looking statements. These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate.

Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: the risks described under the heading "Risk Factors" in this quarterly report on Form 10-Q; changes in the financial market and the economy, including the current credit crisis and economic downturn; changes in consumer demand; changes in consumer fashion taste; changes in business strategies and decisions; changes in shopping mall traffic and shopping patterns; timing of openings for new shopping malls or our stores; changes in fashion trends; and weather. The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on us. All forward-looking statements included in this quarterly report on Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements.

Except as required under the federal securities laws and rules and regulations of the Securities and Exchange Commission, or SEC, we undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

We are a growing, mall-based specialty retailer of fashionable, value-priced apparel and accessories. We are focused on providing exciting, fashion-forward merchandise that appeals to customers across age and socioeconomic boundaries, with a core emphasis on the lifestyle trends of young women in their teens and twenties. Our stores offer merchandise at value-oriented prices and the majority of our merchandise is sold under our proprietary Charlotte Russe labels, including Charlotte Russe, Refuge and blu Chic. The remainder of our merchandise consists of nationally-recognized brands popular with our customers. As of March 28, 2009, we operated 496 Charlotte Russe stores throughout 45 states and Puerto Rico.

Strategic Development

In March 2009, KarpReilly Capital Partners, L.P., or KarpReilly, nominated a slate of three directors to be elected at our 2009 Annual Meeting of Stockholders, or the Annual Meeting. We currently have a non-classified Board of Directors consisting of five non-employee directors and two employee directors. All seven directors are up for reelection at the Annual Meeting. In April 2009, KarpReilly announced that it was withdrawing its slate of nominees for election at the Annual Meeting, in view of the reports issued by RiskMetrics Group and Glass Lewis & Co., which recommend that stockholders support the incumbent nominees. The Annual Meeting is scheduled for Tuesday, April 28, 2009.

In January 2009, we announced that our Board of Directors was engaged in a process to evaluate strategic alternatives, including a possible sale of Charlotte Russe. In March 2009, we announced that our Board of Directors had instructed our financial advisor to initiate a sale process, that we had received preliminary expressions of interest from both financial and strategic buyers and that the sale process will enable us to obtain formal indications of interest from potential buyers. In April 2009, we announced that we were encouraged by the progress of the ongoing sales process, including the level of interest from potential buyers. No timetable has been set for completion of the process and there can be no assurance that any transaction will result.

Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this quarterly report on Form 10-Q. The following table sets forth our operating results, expressed as a percentage of net sales, and Charlotte Russe store numbers for the periods indicated. These operating results are not necessarily indicative of the results that may be expected for any future period.

                                         Three Months Ended                              Six Months Ended
                               March 28, 2009          March 29, 2008         March 28, 2009          March 29, 2008
Net sales                               100.0 %                 100.0 %                100.0 %                 100.0 %
Cost of goods sold                       76.3                    74.9                   77.9                    73.2

Gross profit                             23.7                    25.1                   22.1                    26.8
Selling, general and
administrative expenses                  23.7                    22.2                   23.2                    20.4
Impairment of long-lived
assets                                    0.8                     0.5                    0.4                     0.1

Operating (loss) income                  (0.8 )                   2.4                   (1.5 )                   6.3
Interest income, net                       -                      0.6                    0.1                     0.5
Other charges, net                         -                       -                      -                       -

(Loss) income before
income taxes                             (0.8 )                   3.0                   (1.4 )                   6.8
Income tax (benefit)
expense                                  (0.4 )                   0.7                   (0.6 )                   2.5

Net (loss) income                        (0.4 )%                  2.3 %                 (0.8 )%                  4.3 %

Charlotte Russe stores
open at end of period                     496                     448                    496                     448

Three Months Ended March 28, 2009 Compared to the Three Months Ended March 29, 2008

Net Sales. Our net sales increased to $191.2 million from $185.1 million, an increase of $6.1 million, or 3.3%, over the same quarter last year. This increase reflects $8.2 million of additional net sales from one new store opened during the second quarter of fiscal 2009 and the net sales from stores opened in prior fiscal years that did not qualify as comparable stores. The increase in net sales was partially offset by an 8.0% decrease in comparable store sales, which resulted in $14.3 million of lower sales compared to the same quarter last year.

Gross Profit. Gross profit represents net sales less cost of goods sold, which includes buying, distribution and occupancy costs. Our gross profit decreased to $45.3 million from $46.4 million, a decrease of $1.1 million, or 2.4%, over the same quarter last year. This decrease in gross profit was primarily the result of higher rent and occupancy costs. As a percentage of net sales, gross profit decreased to 23.7% from 25.1%, or 1.4 percentage points, from the same quarter last year. The decrease in gross profit as a percentage of net sales was principally due to deleveraging of store rent and occupancy costs as these expenses increased more than the increase in average store sales volume (2.1 percentage point impact), partially offset by lower distribution center expenses (0.6 percentage point impact) and other factors (0.1 percentage points).

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased to $45.4 million from $41.1 million, an increase of $4.3 million, or 10.5%, over the same quarter last year. This increase in amount was attributable to new store expansion, specifically higher store payroll and operating expenses, and transition costs related to expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process. As a percentage of net sales, selling, general and administrative expenses increased to 23.7% from 22.2%, or 1.5 percentage points, from the same quarter last year. The increase in expenses as a percentage of net sales was principally due to higher store operating expenses (1.1 percentage point impact), expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process (0.8 percentage point impact) and all other factors (0.2 percentage point impact). These unfavorable factors were partially offset by lower corporate office overhead (0.6 percentage points).

Impairment of Long-Lived Assets. There were $1.6 million of non-cash asset impairment charges during the second quarter of fiscal 2009 compared to $0.8 million in the same quarter last year. In fiscal 2009, these charges were primarily attributable to two Charlotte Russe stores and were based on our recoverability of assessments of the carrying value of long-lived assets conducted in accordance with Statement of Financial Accounting Standards, or SFAS, No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

Transition and Other Costs. Included in selling, general and administrative expenses in the second quarter of fiscal 2009 were cash charges of $1.5 million related to expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process. There were no transition costs in the second quarter of fiscal 2008.

Income Taxes. Our effective tax rate was 47.0% for the second quarter of fiscal 2009 compared to 23.3% in the same quarter last year. The increase of our effective tax rate is primarily due to a fiscal 2008 reversal of tax accruals and deferred tax assets after the completion and filing of tax returns for fiscal 2007 and fiscal 2009 expenses anticipated to be in excess of amounts deductible for income tax purposes.

Net Income. In the second quarter of fiscal 2009 we recognized a net loss of $0.8 million compared to net income in the second quarter of fiscal 2008 of $4.2 million, a decrease of $5.0 million, or 119.0%. The decrease was primarily due to higher store operating expenses, including rent and occupancy, and the impact of transition costs related to expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process, offset by lower corporate and distribution center expenses.

Six Months Ended March 28, 2009 Compared to the Six Months Ended March 29, 2008

Net Sales. Our net sales increased to $431.9 million from $423.3 million, an increase of $8.6 million, or 2.0%, over the corresponding period last year. This increase reflects $43.2 million of additional net sales from nine new stores opened during the first half of fiscal 2009 and the net sales from stores opened in prior fiscal years that did not qualify as comparable stores. The increase in net sales was partially offset by an 8.6% decrease in comparable store sales, which resulted in $34.6 million of lower sales compared to the corresponding period last year.

Gross Profit. Our gross profit decreased to $95.4 million from $113.6 million, a decrease of $18.2 million, or 16.0%, over the corresponding period last year. This decrease in gross profit was primarily the result of higher markdowns and higher rent and occupancy costs. As a percentage of net sales, gross profit decreased to 22.1% from 26.8%, or 4.7 percentage points, from the corresponding period last year. The decrease in gross profit as a percentage of net sales was principally due to higher markdowns (2.7 percentage point impact), deleveraging of store rent and occupancy costs as these expenses increased more than the increase in average store sales volume (2.3 percentage point impact) and all other factors (0.2 percentage point impact). These unfavorable factors were partially offset by lower distribution center expenses (0.3 percentage point impact) and lower shrinkage (0.2 percentage point impact).

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased to $100.3 million from $86.2 million, an increase of $14.1 million, or 16.5%, over the corresponding period last year. This increase in amount was attributable to new store expansion, specifically higher store payroll and operating expenses and transition costs related to expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process. As a percentage of net sales, selling, general and administrative expenses increased to 23.2% from 20.3%, or 2.9 percentage points, from the corresponding period last year. The increase in expenses as a percentage of net sales was principally due to higher store operating expenses (1.7 percentage point impact), expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process (0.9 percentage point impact) and higher marketing related expenses (0.3 percentage point impact).

Impairment of Long-Lived Assets. There were $1.6 million of non-cash asset impairment charges during the second half of fiscal 2009 compared to $0.8 million in the corresponding period last year. In fiscal 2009, these charges were primarily attributable to two Charlotte Russe stores and were based on our recoverability of assessments of the carrying value of long-lived assets conducted in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

Transition and Other Costs. Included in selling, general and administrative expenses in fiscal 2009 were cash charges of $3.8 million related to expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process. There were no transition costs in the first half of fiscal 2008.

Income Taxes. Our effective tax rate was 40.4% for the first half of fiscal 2009 compared to 36.3% for the first half of fiscal 2008. Our annual effective tax rate is anticipated to be 46.4%.

Net Income. In the first half of fiscal 2009 we recognized a net loss of $3.7 million compared to net income in the second half of fiscal 2008 of $18.2 million, a decrease of $21.9 million, or 120.4%. The decrease was primarily due to lower gross margins, higher store operating expenses, including rent and occupancy, and the impact of transition costs related to expenses for proxy solicitation, management transition and severance, as well as costs associated with the review of strategic alternatives and subsequent sale process.

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 and remodels. We have historically satisfied our cash requirements principally through cash flow from operations. Due to the rapid turnover of our inventory, we generate trade payables and other accrued liabilities sufficient to offset most of our working capital requirements, and this allows us to generally operate with limited working capital investment. As of March 28, 2009, we had working capital of approximately $62.4 million, which included cash and cash equivalents of $51.3 million. Our cash equivalents have a weighted average maturity of 41 days and an average credit quality of AAA as defined by Moody's. At March 28, 2009, all cash equivalents are invested in money market funds with an objective of seeking current income consistent with capital preservation and maintenance of a high degree of liquidity. These funds purchase only first-tier securities including obligations issued by the U.S. Treasury and foreign governments, commercial paper and notes and bonds issued by U.S. and foreign corporations. At March 28, 2009, we did not hold auction rate securities.

The following chart provides a summary of our sources and uses of cash during the first six months of fiscal 2009 and 2008:

                                                        Six Months Ended
                                               March 28, 2009       March 29, 2008
                                                 (26 weeks)           (26 weeks)
  Net cash provided by operating activities   $     17,654,344     $     75,345,666
  Net cash used in investing activities            (11,972,069 )        (18,801,845 )
  Net cash provided by financing activities            114,725              567,773

  Change in cash position                     $      5,797,000     $     57,111,594

During the first half of fiscal 2009, our net cash provided by operations decreased $57.7 million versus the same period of the prior fiscal year. The decrease was due to a net loss recognized in the first half of fiscal 2009 compared to net income recognized in the corresponding period of the prior year ($22.0 million), differences in

the timing of payments between the periods ($19.4 million), differences in the timing of rent payments ($10.6 million), a decrease in income taxes payable
($8.5 million), a decrease in landlord construction allowances ($4.2 million)
and the net impact of all other factors ($1.2 million). These decreases were partially offset by a larger reduction of inventory levels during the current period versus the prior year period ($8.2 million).

Net cash used in investing activities primarily consists of capital expenditures. It decreased $6.8 million during the first half of fiscal year 2009 as a result of reduced spending on capital expenditures and fewer stores opened in the first half of fiscal year 2009 as compared to the corresponding period last year.

Net cash provided from financing activities primarily consists of cash, income tax benefits associated with stock options and purchases through the Company's employee stock purchase plan. There were no stock option exercises in the first half of fiscal 2009.

We expect to continue to invest in capital expenditures to support our growth. After taking into account new store construction, existing store remodeling and other corporate capital projects, primarily related to information technology, total capital expenditures for fiscal 2009 are projected to be approximately $30.3 million. Of that amount, $15.4 million will be used for new stores, $7.8 million will be used for remodels and other store related capital items and $7.1 million will be used for corporate, information technology and other projects. In the first half of fiscal 2009, we opened nine stores, bringing our total square footage to 3,513,000 as of March 28, 2009, and closed no stores. Consistent with our new strategic plan, we are taking a conservative and thoughtful approach to new store development. We expect to open 20 new stores in fiscal 2009, reflecting our decision to pull back from the aggressive pace of recent years as we focus on improving the productivity of our existing stores and driving enhanced performance.

We currently have a $40.0 million secured revolving credit facility, referred to as the Credit Facility, with Bank of America, N.A., which expires on June 30, 2010. Under the terms of the Credit Facility, we may borrow up to the maximum borrowing limit of $40.0 million less any outstanding letters of credit, and we have set the initial loan ceiling amount at $30.0 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% or (ii) 1.00% to 1.50% over the average interest settlement rate for deposits in the London interbank market banks, 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 of our securities 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 performance of our obligations under the Credit Facility. At March 28, 2009, there was $5.5 million outstanding under the Credit Facility to secure letters of credit and we were in compliance with the terms of the bank credit agreement. As of March 28, 2009, we had $24.5 million of borrowing availability under the Credit Facility.

We believe that our cash flows from operations, our current cash balance and the funds available under our Credit Facility will be sufficient to meet our working capital needs and contemplated capital expenditure requirements through fiscal 2009. If our cash flow from operations should decline significantly, it may be necessary for us to seek additional sources of capital or to reduce planned new store openings, store remodels or other expenditures. Due to the current credit crisis and other negative macroeconomic indicators, additional sources of capital may not be available on favorable terms, if at all. If adequate sources of capital are not available on favorable terms, we may be required to further reduce planned new store openings and other capital projects.

                     CONTRACTUAL AND COMMERCIAL OBLIGATIONS



Our commitment to make future payments under long-term contractual obligations
and commercial obligations as of March 28, 2009, was as follows:



                                             Less Than                                After
                                   Total       1 Year     1-3 Years    3-5 Years     5 Years
                                                        (in thousands)
 Contractual Obligations
 Operating leases                $ 550,724   $   84,159   $  160,951   $  134,211   $ 171,403
 Purchase commitments               95,188       37,688       32,500       25,000          -

                                 $ 645,912   $  121,847   $  193,451   $  159,211   $ 171,403

 Commercial Obligations
 Documentary letters of credit   $   3,467   $    3,467   $       -    $       -    $      -
 Standby letters of credit           2,078        2,078           -            -           -

                                 $   5,545   $    5,545   $       -    $       -    $      -

Liabilities associated with uncertain tax positions, currently estimated at $660,000 (including interest), are not included in the table above as we cannot reasonably estimate when, if ever, an amount would be paid to a government agency. Ultimate settlement of these liabilities is dependent on factors outside of our control, such as examinations by each agency and expiration of statutes of limitation for assessment of additional taxes.

During fiscal 2006, we sold lease rights for 43 locations that were formerly operated as Rampage stores to Forever 21 Retail, Inc., and its parent company guaranteed its obligations under the leases it assumed. In the event of default, we could be liable for obligations associated with 39 real estate leases which have future lease payments (undiscounted) of approximately $33.2 million through the end of fiscal 2016 which are not reflected in the tables above. The scheduled future minimum rentals for these leases over fiscal years 2009, 2010, 2011 and thereafter are $8.6 million, $8.2 million, $7.1 million and $9.3 million, respectively. We believe that the likelihood of material liability being triggered under these leases is remote, and no liability has been accrued for these contingent lease obligations as of March 28, 2009.

"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.

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.

On an on-going basis, management evaluates its estimates and judgments regarding revenues, inventories, long-lived assets, goodwill, accrued liabilities, stock-based compensation, self-insurance programs, 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.

Revenue . . .