Except for the historical information contained in this Form 10-Q, the matters addressed herein are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent the Company's expectation or belief concerning future events. Without limiting the foregoing, the words "believes," "thinks," "anticipates," "estimates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. The Company cautions that forward-looking statements are subject to risks, uncertainties, assumptions and other important factors that could cause actual results to differ materially, or otherwise, from those expressed or implied in the forward-looking statements, including, without limitation, macroeconomic factors that have affected the retail sector, including changes in national, regional and local economic conditions, employment levels and consumer spending patterns, and the other risks detailed from time to time in the Company's most recent Form 10-K, Forms 10-Q and other reports filed with the Securities and Exchange Commission. Continued weakness in or a further worsening of the economy generally or in a number of our markets could adversely affect our financial position and results of operations, cause us to reduce the number and frequency of new store openings, slow our re-modeling of existing locations or cause us to increase store closings. Other unknown or unpredictable factors also could harm the Company's business, financial condition and results. Consequently, there can be no assurance that actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable securities laws.

RESULTS OF OPERATIONS



The following table sets forth our results of operations for the 13-week periods
ended March 28, 2009 and March 29, 2008, respectively, expressed as a percentage
of net sales.



                                          13-Weeks Ended
                                      March 28,    March 29,
                                        2009         2008
Sales                                     100.0 %      100.0 %
Cost of sales                              58.9         58.0
Gross profit                               41.1         42.0
Store operating expenses                   37.0         35.3
General and administrative expenses         8.8          8.4
Store exit costs                            0.0          3.4
Operating loss                             (4.7 )       (5.1 )
Interest expense                           (0.1 )       (0.1 )
Interest income                             0.1          0.4
Loss before income taxes                   (4.7 )       (4.8 )
Income tax benefit                         (1.7 )       (1.8 )
Net loss                                   (3.0 )%      (3.0 )%

We use a number of key indicators of financial condition and operating performance to evaluate the performance of our business, some of which are set forth in the following table:

                                                              13-Weeks Ended
                                                        March 28,        March 29,
                                                           2009            2008
Total store count, at end of period                            294              294
Net sales increase (decrease)                                (21.7 )%           5.2 %
Comparable store sales increase (decrease)                   (20.7 )%           3.3 %
Average sales per transaction decrease                       (13.7 )%          (3.3 )%
Average number of transactions increase (decrease)            (8.1 )%           6.8 %
Net sales per average square foot                       $       86      $       106
Total square footage, at end of period (in thousands)          596              595

Net sales

During the 13-week period ended March 28, 2009, net sales decreased to $53.0 million from $67.7 million, a decrease of $14.7 million, or 21.7%, as compared to the same 13-week period last year. This reflects $13.2 million of reduced net sales, as a result of a 20.7% decrease in comparable store sales, a decrease of $1.5 million of net sales from our Mary L. division, and a decrease of $134,000 from our non-comparable store sales, which was offset by a small increase in income recognized from our co-branded credit card. The decrease in net sales is due primarily to the ongoing economic crisis, which resulted in a dramatic reduction in mall traffic where Cache stores are located. The decrease in net sales in fiscal 2009 at Cache stores reflected a 8.1% decrease in sales transactions and a 13.7% decrease in average dollars per transactions.

Gross profit

During the 13-week period ended March 28, 2009, gross profit decreased to $21.8 million from $28.4 million, a decrease of $6.6 million, or 23.3%, as compared to the same 13-week period last year. This decrease was primarily due to lower net sales, as described above. As a percentage of net sales, gross profit decreased to 41.1% from 42.0% for the fiscal 2009 13-week period as compared to the prior year period. This decrease as a percentage of net sales was driven by reduced leverage of store occupancy costs resulting from lower sales. The decrease in net sales was partially offset by a decrease in production costs, lower markdowns and higher initial mark ups, primarily due to improved sourcing, as compared to the prior year.

Store operating expenses

During the 13-week period ended March 28, 2009, store operating expenses decreased to $19.6 million from $23.9 million, a decrease of $4.3 million, or 18.1%, as compared to the same 13-week period last year. Store operating expenses decreased due to Company's initiatives to reduce costs and to preserve cash. Due to these initiatives, the Company achieved reductions primarily in payroll expenses ($2.0 million), advertising expense ($897,000) and depreciation expense ($610,000). Payroll expenses were lower primarily due to reduction in store hours allotted to employees. Decline in advertising expense was due to reduction in spending for postcards, direct mail and photography. Depreciation expense decreased as a result of certain assets being fully depreciated as of fiscal 2008, the closure of 16 underperforming stores, as indicated below, under "Store exit costs" and due to the Company's decision to reduce capital expenditures on new stores, store renovations and new equipment. As a percentage of net sales, store operating expenses increased to 37.0% from 35.3% for the fiscal 2009 13-week period as compared to the prior year period.

General and administrative expenses

During the 13-week period ended March 28, 2009, general and administrative expenses decreased to $4.7 million from $5.7 million, a decrease of $933,000, or 16.5%, as compared to the same 13-week period last year. The decrease in general and administrative expenses was primarily due to the departure of the Company's previous Chairman and CEO combined with the Company's initiatives to reduce costs and to preserve cash. In total, payroll expenses decreased by $756,000, primarily due to the one time charges associated with the departure of the Company's former Chairman and CEO incurred during the first quarter of fiscal 2008 in the amount of $616,000, combined with a reduction of base salaries paid to several of the Company's officers. In addition, travel expense decreased by $253,000 due to a reduction in travel by corporate and regional management. As a percentage of net sales, general and administrative expenses increased to 8.9% from 8.4%, due to lower sales volume in fiscal 2009.

Store exit costs

There were no exit costs incurred during the first quarter of fiscal 2009. During the 13-week period ended March 29, 2008, the Company recorded a pre-tax charge of $2.3 million ($1.5 million after tax or $0.11 per diluted share) for 14 underperforming stores, of which we closed six stores during fiscal 2008 and an additional four stores during the 13-week period ended March 28, 2009. The remaining stores will close over the balance of fiscal 2009. Included in the exit costs is a write down of equipment and leasehold improvements and furniture and fixtures in the amount of $2.1 million, severance accrual of $198,000 and lease termination costs for $665,000. These costs were offset by the reversal of $626,000 of deferred rent accruals.

Other income/expense

During the 13-week period ended March 28, 2009, other income (expense) decreased to $16,000 from $222,000, a decrease of $206,000 or 92.8%, as compared to the same 13-week period last year. This decrease was due to a reduction in interest

income of $223,000, caused by lower interest rates and lower average cash and marketable securities balances. The reduction in average cash balances was primarily due to the repurchase of the Company's common stock.

Income taxes

During the 13-week period ended March 28, 2009, an income tax benefit of $918,000 was recorded as compared to an income tax benefit of $1.2 million recorded in the same 13-week period last year. The estimated effective tax rate for fiscal 2009 is projected to be 36.5%, as compared to the fiscal 2008 estimate of 37.0%.

Net loss

As a result of the factors discussed above, net loss of $1.6 million was recorded during the 13-week period ended March 28, 2009, as compared to the net loss of $2.1 million for the prior year 13-week period.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash requirements are primarily for working capital, inventory for new stores, construction of new stores, remodeling of existing stores and to improve and enhance our information technology systems. We have historically satisfied our cash requirements principally through cash flow from operations. During the 13-week period ended March 28, 2009, we generated $2.2 million of cash flow from operations, as compared to $4.1 million used for the same period in fiscal 2008. We expect to continue to meet our operating cash requirements primarily through cash flows from operating activities, existing cash and equivalents, and short-term investments. At March 28, 2009, we had working capital of $43.0 million, cash and marketable securities of $30.5 million and $4.1 million in third party debt outstanding related to the purchase of AVD. The cash and marketable securities at March 28, 2009 included certificates of deposit that have been placed by the Company as collateral against a standby letter of credit in the amount of $550,000.

The following table sets forth our cash flows for the periods indicated:

                                                            13-Weeks Ended
                                                       March 28,      March 29,
                                                          2009           2008
Net cash provided by (used in) operating activities   $  2,156,000   $ (4,111,000 )
Net cash provided by (used in) investing activities     (4,909,000 )   12,755,000
Net cash used in financing activities                     (936,000 )  (12,637,000 )
Net decrease in cash and equivalents                  $ (3,689,000 ) $ (3,993,000 )

During the 13-week period ended March 28, 2009, cash and equivalents decreased by $3.7 million, primarily due to net purchases of marketable securities ($4.2 million), a seasonal increase in inventories ($3.7 million) and the net loss incurred during the current 13-week period. In addition, this decrease was caused by purchases of equipment and leasehold improvements ($683,000) for our new and remodeled stores, amortization of deferred rent ($512,000), repurchase of common stock ($586,000), repayment of a note payable ($350,000) in connection with the acquisition of AVD and a net loss of $1.6 million. This decrease was partially offset by, depreciation and amortization expense ($2.7 million), the decrease in receivables ($2.2 million) primarily due to the collection of an income tax receivable recorded during fiscal 2008 and a seasonal increase in accounts payable ($4.3 million).

The Company opened two new stores during the 13-week period ended March 28, 2009. No additional new stores are scheduled to open for the remainder of fiscal 2009. We spent approximately $683,000 through March 28, 2009, and expect to spend an additional $1.5 million to $2.0 million during the balance of fiscal 2009, for existing remodelings. We announced the closure of 16 underperforming stores throughout fiscal 2008, of which we have closed ten stores as of March 28, 2009 and expect to close the remaining stores over the balance of fiscal 2009. The Company accrued for the cost of closing these stores during fiscal 2008, as noted under note 12 of our condensed consolidated financial statements included herein. We have closed one additional store in the normal course of business during the 13-week period ended March 28, 2009.

During the first quarter of fiscal 2009, the Company has repurchased in the open market a total of 310,199 shares at a cost of $586,000, or an average of $1.89 per share. This brings the total repurchase, since inception of the buyback program in 2007, to 3,682,000 shares, at a cost of $39.8 million or an average of $10.81 per share.

The Company had outstanding letters of credit of $643,000, $585,000 and $783,000 at March 28, 2009, December 27, 2008 and March 29, 2008, respectively.

The Company has no bank debt. The Company's credit line with Bank of America, N.A., as extended, expired on March 2, 2009. At expiration, the credit line was $10.0 million. After consideration, given the Company's current strong

liquidity position and expected liquidity needs, coupled with the onerous terms currently being offered by banks on credit facilities due to the ongoing credit crisis, the Company decided not to enter in to a new credit facility at the present time. There were no outstanding loans due to Bank of America, N.A. as of the expiration date of the credit line.

Inflation / Recession

The Company does not believe that its sales revenue or operating results have been materially impacted by inflation during the past two fiscal years. There can be no assurance, however, that our sales revenue or operating results will not be impacted by inflation in the future.

Recent economic events have affected, and continued economic weakness in the United States is likely to continue to affect, the sales volume and profitability levels of our company. Furthermore, a further reduction in the availability of consumer credit, especially of credit cards, is likely to adversely affect customer demand for our products, which could result in a decrease in our net sales, which could adversely effect our business, financial condition and results of operations.

Many of our suppliers rely on working capital financing to fund their operations. As a result of current economic conditions, lenders have over the last several months generally tightened credit standards and terms. To the extent that any of our suppliers are unable to obtain adequate credit or their borrowing costs increase, we may experience delays in obtaining products, the suppliers may increase their wholesale prices to us or they may modify payment terms in a manner that is unfavorable to us. Any of the foregoing could adversely effect our net sales or gross margins, which could adversely effect our business, financial condition and results of operations.

Off-Balance Sheet Arrangements

On July 3, 2007, the Company acquired certain assets of Adrienne Victoria Designs, Inc. ("AVD"), our largest vendor. Under the terms of the agreement, the Company is obligated to make contingent payments, not to exceed $5.5 million, based upon an earn-out to be paid over 5 years, if certain conditions are met. During the first quarters of fiscal 2009 and 2008 and for fiscal 2008, the earn-out threshold was not achieved; therefore, the Company was not obligated to make any cash payments. Other than operating lease commitments and potential payment obligations pursuant to the AVD earn-out, we are not a party to any material off-balance sheet financing arrangements.

Critical Accounting Policies and Estimates

The Company's accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements in our fiscal 2008 Form 10-K. As disclosed in Note 1 of Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, actual results will differ from those estimates. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results will differ from these under different assumptions or conditions.

The Company's management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in preparation of the Consolidated Financial Statements.

Allowance for doubtful accounts. The allowance for doubtful accounts, which is regularly reviewed, is an estimate of probable credit losses in the existing accounts receivable. The allowance is determined based on historical write-off experience and the current retailer environment. Balances over 90 days past due and over a specified amount are reviewed individually for collectability; other balances are considered on an aggregate basis considering the aging of balances. Account balances are written off against the allowance when it is probable the receivable will not be recovered. There is no off-balance sheet credit exposure related to our customers. Management believes that the risk associated with trade accounts receivable is adequately provided for in the allowance for doubtful accounts. During the 13-week period ended March 28, 2009, we recorded a reserve of approximately $306,000 and utilized $233,000, resulting in an aggregate reserve amount of $184,000 as of March 28, 2009. As of December 27, 2008, the company reported a reserve balance of $111,000.

Inventories. The Company's finished goods inventories at our retail stores are valued at the lower of cost or market using the retail inventory method. Under the retail inventory method ("RIM"), the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. RIM is an averaging

method that is widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of RIM will result in valuing inventories at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments including, among others, merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. We take markdowns due to changes in fashion and style, based on the following factors: (i) supply on hand, (ii) historical experience and (iii) our expectations as to future sales. We do not anticipate any significant change in our markdown strategy that would cause a significant change in our earnings. We believe that our RIM provides an inventory valuation that results in a carrying value at the lower of cost or market. For our AVD division, which makes up approximately 12% of total inventory as of March 28, 2009, the raw materials, work in process and finished goods inventories are valued at the lower of cost or market value, using the first-in-first-out valuation method. The Company ensures that the raw materials, work in process and finished goods are properly valued by taking into account any obsolescence and recording a reserve in accordance with our established policy.

Finite-long lived assets. The Company's judgment regarding the existence of impairment indicators is based on market and operational performance. We assess the impairment of long-lived assets, primarily fixed assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable and exceeds the fair market value. Factors we consider important which could trigger an impairment review include the following:

† significant changes in the manner of our use of assets or the strategy for our overall business;

† significant negative industry or economic trends;

† store closings; or

† underperforming business trends.

The Company evaluates finite-lived assets in accordance with SFAS No.144, "Accounting for the Impairment or Disposal of Long-lived Assets" ("SFAS No. 144"). Finite-lived assets are evaluated for recoverability in accordance with SFAS No. 144 whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flows expected to result from the use and eventual disposition of the asset. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of the asset is recognized. Various factors including future sales growth and profit margins are included in this analysis. To the extent these future projections or strategies change, the conclusion regarding impairment may differ from the current estimates. No impairment charges were recorded during the 13-week period ended March 28, 2009 and March 29, 2008. Cache recorded an impairment charge of $1.1 million for 12 stores for fiscal 2008.

Goodwill and Intangible Assets. The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") on December 30, 2001. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment. During fiscal 2007, in connection with the acquisition of AVD, the Company recorded goodwill and other intangible assets. The Company performs impairment testing of its subsidiary-AVD, which considers the Company's fair value to determine whether an impairment charge related to the carrying value of the Company's recorded goodwill and other intangible assets is necessary. This is reevaluated annually during the fourth quarter, or more frequently if necessary. The Company considers many factors in evaluating whether the carrying value of the recorded goodwill will be recoverable. Factors used to determine this primarily include declines in stock price and the market capitalization in relation to the book value of the Company, discounted projected cash flows of the reporting unit and valuation of companies comparable to the reporting unit. No impairment charges were recorded during the 13-week period ended March 28, 2009 and March 29, 2008. The Company recorded an impairment charge of approximately $1.0 million against the carrying value of AVD's goodwill for fiscal 2008.

Self Insurance. The Company is self-insured for losses and liabilities related primarily to employee health and welfare claims up to certain thresholds. Losses are accrued based upon our estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company experience. Adjustments to earnings resulting from changes in historical loss trends have been insignificant for fiscal 2009 and 2008. Further, we do not anticipate any significant change in loss trends, settlements or other costs that would cause a significant change in our earnings. We maintain stop-loss insurance coverage, which covers us for benefits paid in excess of limits as defined in the plan.

Gift Cards, Gift Certificates and Credits. The Company sells gift cards and gift certificates ("Gift Cards") and issues credits to its customers when merchandise is returned ("Merchandise Credit"), which do not expire. The Company recognizes sales from Gift Cards when they are redeemed by the customer and income when the likelihood of the Gift Card and Merchandise Credit being redeemed by the customer is remote ("Gift Card breakage"), since the Company has determined that it does not have a legal obligation to remit the unredeemed value to the relevant jurisdiction as abandoned property. The Company determines Gift Card breakage income based upon historical redemption patterns and the remaining unredeemed percentage at the end of our historical data of 3.5 years. Historical redemptions of Gift Cards ranged from 64% in the first quarter to 0.03% in the fourteenth quarter subsequent to the issue date, resulting in an average of approximately 95% redeemed or 5% unredeemed Gift Cards over the historical data of 3.5 years. We have determined that redemption would be remote based on the fact that, by the fourteenth quarter since issue date, the redemption rate approximated 0%, indicating that the probability of such cards being redeemed is remote. As such, we have recorded breakage income based upon this 5%, which is reviewed on a quarterly basis for propriety. Breakage income represents the balance of Gift Cards and Merchandise Credit, for which the Company believes the likelihood of redemption by the customer is remote. At that time, the Company will recognize breakage income for those Gift Cards and Merchandise Credit. The Company recorded $63,000 and $81,000 of breakage income during the 13-week periods ended March 28, 2009 and March 29, 2008, respectively.

Revenue Recognition. Sales are recognized at the "point of sale," which occurs when merchandise is sold in an "over-the-counter" transaction or upon receipt by a customer. Sales of merchandise via our website are recognized at the expected time of delivery to the customer. Our customers have the right to return merchandise. Sales are reported net of actual and estimated returns. We maintain a reserve for potential product returns and record, as a reduction to sales, a provision for estimated product returns, which is determined based on historical experience. Charges/(credits) to earnings resulting from revisions to estimates on our sales return provision were approximately $185,000 and $198,000 for the 13-week period ended March 28, 2009 and March 29, 2008, respectively. Amounts billed to customers for shipping and handling fees are included in net sales at the time of shipment. Costs incurred at our stores for shipping and handling is included in cost of sales. The Company records revenues net of applicable sales tax.

In connection with the acquisition of AVD, the Company also acquired the rights . . .