The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with the consolidated financial statements and notes included in Item 1 of this Form 10-Q and the consolidated financial statements, notes and MD&A contained in the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2009.

Executive Overview

Christopher & Banks Corporation, a Delaware corporation, is a Minneapolis-based retailer of women's apparel, which operates retail stores through its wholly-owned subsidiaries. The Company was incorporated in 1986 to acquire Braun's Fashions, Inc., which had operated as a family-owned business since 1956. In July 2000, the Company's stockholders approved a change in the Company's name from Braun's Fashions Corporation to Christopher & Banks Corporation.

As of May 30, 2009, the Company operated 816 stores in 46 states, including 546 Christopher & Banks stores and 270 C.J. Banks stores. The Company's Christopher & Banks brand offers distinctive fashions featuring exclusively designed, coordinated assortments of women's apparel in sizes four to 16. The Company's C.J. Banks brand offers similar assortments of women's apparel in sizes 14W to 24W. The Company also operates e-commerce web sites for its two brands at www.christopherandbanks.com and www.cjbanks.com.

The Company strives to provide its customers quality apparel at a great value with a perfect fit. The Company's overall strategy for its two brands, Christopher & Banks and C.J. Banks, is to consistently offer a fashionable apparel assortment through its stores and e-commerce web sites in order to satisfy its target customers' expectations for style, quality, value and fit, while providing exceptional, personalized customer service.

The Company has competitively positioned itself to offer merchandise assortments reflecting current fashion, balanced between classic and trend right apparel, at affordable prices. To differentiate itself from its competitors, the Company's buyers, working in conjunction with the Company's internal design group, create a merchandise assortment of coordinated outfits which is manufactured exclusively for the Company under its proprietary Christopher & Banks and C.J. Banks brand names.

Fiscal 2010 First Quarter Summary

The Company's results of operations for the first quarter of fiscal 2010 continued to be impacted by the challenging macro-economic environment. Continued instability in the housing and financial markets, combined with general economic uncertainty, have impacted consumer spending patterns, particularly for discretionary retail purchases. Same-store sales declined 24% during the quarter. Approximately two-thirds of the decline was related to a decrease in the number of transactions per average store, while roughly one-third of the decline was a result of a decrease in the average transaction value.

Despite the pressure on sales, the Company generated positive cash flow, reduced inventory levels, and made significant reductions in selling, general and administrative ("SG&A") expenses. The Company increased its combined cash and long-term investment balance from $95.2 million at February 28, 2009 to $104.7 million as of May 30, 2009. Total inventory decreased from $42.1 million at the end of last year's first quarter to $32.6 million at the end of the first quarter of fiscal 2010, which represents a 22% year-over-year reduction in inventory on a per-store basis, which excludes e-commerce inventory. The reduction in inventory levels resulted in a sequential improvement in merchandise margins throughout the quarter. SG&A expenses decreased from $43.6 million during the first quarter of fiscal 2009, to $36.1 million during the first quarter of fiscal 2010. As a result, the Company achieved approximately $7.5 million in SG&A savings in the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009.

The Company recorded net income from continuing operations of $1.7 million, or $0.05 per diluted share, in the first quarter of fiscal 2010, as compared to net income from continuing operations of $11.7 million, or $0.33 per diluted share, for the first quarter of fiscal 2009. In the first quarter, the Company opened two new C.J. Banks stores, closed one Christopher & Banks store and converted one Christopher & Banks store to a C.J. Banks store.

Fiscal 2010 Outlook

Given the uncertain economic environment, the Company is approaching the balance of fiscal 2010 with a continued focus on operating effectiveness, expense controls, disciplined inventory management and conservative capital spending. The Company anticipates inventory per-store will continue to decline to levels modestly below fiscal 2009 for the remainder of the fiscal year. Going forward, the Company plans to proceed cautiously with new store growth. The Company currently plans to open two additional new stores in fiscal 2010 including one dual store concept.

Key Business Initiatives

The Company will continue to execute its cost-savings initiative in fiscal 2010. SG&A savings, primarily store-related expenses, marketing expenditures and travel costs, of approximately $7.5 million were realized in the first quarter of fiscal 2010. The Company expects to save an additional $7.5 million of SG&A expenses in the aggregate in the second, third and fourth quarters of fiscal 2010. It is anticipated that this will result in at least $15.0 million of total SG&A savings for the year. The Company will also continue to focus on reducing occupancy costs through aggressive lease renegotiations and diligently exercising rent reductions related to sales volume and co-tenancy lease violations. Total fiscal 2010 capital expenditures are planned to range from $8 million to $9 million, down approximately 50% from the $18.4 million of capital expenditures in fiscal 2009.

The Company will also continue to employ strict inventory controls in fiscal 2010, targeting continued inventory reductions in the first half of the year. During the year, the Company will continue to enhance inventory productivity through SKU rationalization and improved store assorting based on sales volume, climate, size and fashion preferences.

The Company will continue to strengthen its Customer Relationship Management ("CRM") programs throughout fiscal 2010. The Company plans to migrate to a new CRM application in the second half of fiscal 2010 which will provide more robust data collection and analysis capabilities. In addition, the Company will continue to accumulate and incorporate customer data into its existing and new CRM program to drive additional customer traffic to its stores and web sites, encourage cross shopping between its stores and online sites and increase overall brand awareness. CRM efforts will focus primarily on email communication, which the Company believes is the most cost-effective and efficient method of communicating with customers. In addition, the Company is tailoring its email messages to segmented groups of customers in an effort to provide more relevant and compelling offers and to drive stronger response rates from its messages.

The Company is increasing its focus on the smaller markets that have traditionally been the foundation of the Company's success. Approximately 50% of the Company's stores are located in small, rural and captive markets. While same-store sales have declined in these markets, the declines have been slightly less than in the remainder of the Company's stores. In addition to adjusting the merchandise mix in these areas, the Company plans to further develop its grass roots marketing efforts to increase communication and connections with customers in these markets. Stores located in the smaller, rural markets generally have higher productivity and lower occupancy costs, resulting in higher operating margins.

The Company will continue to place additional focus on growth opportunities with its plus size brand, C.J. Banks. The Company plans to open its first dual store concept during the second quarter. This will give it the opportunity to offer both of its brands, Christopher & Banks and C.J. Banks, and all three size ranges, missy, petite and plus, within one store, resulting in greater productivity and operating efficiencies. In addition, in the fall of 2009, the Company intends to introduce edited assortments of its C.J. Banks plus size merchandise in a select test group of approximately 30 Christopher & Banks stores to further capitalize on increasing its plus size market share.

The Company plans to continue to grow its Christopher & Banks and C.J. Banks e-commerce businesses. The Company plans to enhance web site visual presentation and to expand merchandise offerings to include exclusive online-only merchandise categories, styles, sizes and lengths. In an effort to drive additional traffic to its web sites, the Company intends to continue to increase its online marketing efforts and leverage its online associate ordering system, which allows the Company's store associates the opportunity to service customers through direct access to the Company's e-commerce sites.

While the Company's management believes the retail and macro-economic environments will remain challenging throughout the remainder of fiscal 2010, it also believes that it is taking actions to position the Company for stronger operating performance when economic conditions become more favorable.

Key Performance Indicators

The Company's management evaluates the following items, which are considered key performance indicators, in assessing the Company's performance:

Same-store sales

The Company's same-store sales data is calculated based on the change in net sales for stores that have been open for more than 13 full months and includes stores, if any, that have been relocated within the same mall, though the Company typically does not expand or relocate stores within a mall.

Stores where square footage has been changed by more than 25 percent within the past 13 months are excluded from the same-store sales calculation. Stores closed during the year are included in the same-store sales calculation only for the full months of the year the stores were open. In addition, sales which are initiated in stores but fulfilled through the company's ecommerce website are included in the calculation of same-store sales.

Management considers same-store sales to be an important indicator of the Company's performance. Same-store sales results are important in achieving leveraging of costs, including store payroll, store occupancy, depreciation and other general and administrative expenses. Year-over-year increases in same-store sales contribute to greater leveraging of costs, while declining same-store sales contribute to deleveraging of costs. Same-store sales results also have a direct impact on the Company's total net sales, cash and cash equivalents and working capital.

Merchandise, buying and occupancy costs, exclusive of depreciation and amortization

The merchandise margin component of merchandise, buying and occupancy costs, which includes the cost of merchandise, markdowns and shrink expense, exclusive of depreciation and amortization, measures whether the Company is appropriately optimizing the price of its merchandise. Buying and occupancy costs include freight into and out of the Company's distribution center, buyer and distribution center salaries, buyer travel, rent and other occupancy-related costs, various merchandise design and development costs, miscellaneous merchandise expenses and other costs related to the Company's distribution network.

Operating income

The Company's management views operating income as a key indicator of the Company's success. The key drivers of operating income are same-store sales; merchandise, buying and occupancy costs; and the Company's ability to control its other operating costs.

Store productivity

Store productivity measures, including sales per square foot, average unit retail selling price, number of transactions per store, number of units per transaction, average retail dollars per transaction, customer traffic and conversion rates (the percentage of customers who enter the Company's stores and make a purchase) are evaluated by management in assessing the operational performance of individual stores and of the Company.

Inventory turnover

The Company's management evaluates inventory turnover as a measure of how productively inventory is bought and sold. Declining rates of inventory turnover are important as they signal that inventory is becoming slow-moving.

Cash flow and liquidity

Management evaluates cash flow from operations, investing activities and financing activities in determining the sufficiency of the Company's cash position. Cash flow from operations has historically been sufficient to cover the Company's uses of cash. The Company expects its cash and cash equivalents, combined with cash flows from operations, to be sufficient to fund anticipated capital expenditures, working capital and other requirements for liquidity during fiscal 2010.

Critical Accounting Policies and Estimates

The Company's critical accounting policies are more fully described in Note 1 of the notes to consolidated financial statements contained within the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2009. There have been no material changes in the Company's critical accounting policies or estimates in the three months ended May 30, 2009. Management's discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

On an ongoing basis, the Company evaluates its estimates, including those related to customer product returns, inventories, income taxes, medical and workers' compensation claims and contingencies. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company reviews long-lived assets with definite lives at least annually, or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable in accordance with SFAS No. 144. While the Company recorded no impairments of long-lived assets employed in continuing operations in the three month period ended May 30, 2009, the current challenging economic environment, combined with the continued instability in the housing, credit, stock and financial markets, and increasing general economic uncertainty affecting the retail industry, make it reasonably possible that long-lived asset impairments could be identified and recorded in future periods.

As of May 30, 2009, the Company has net deferred tax assets of $9.3 million. Deferred income tax assets represent potential future income tax benefits. Realization of these assets is ultimately dependent upon future taxable income. No valuation allowance has been provided for deferred tax assets because management believes realization of the full amount of net deferred tax assets is more likely than not. While the Company has a history of profits, its profitability has declined over the last three years and the Company recorded a net loss in fiscal 2009. Therefore, earnings results in fiscal 2010 will be a significant factor in determining the Company's ability to continue to carry these deferred tax assets. The Company's accounting for deferred taxes represents its best estimate of future events. If future results from the Company's operations are less than projected, a valuation allowance may be required to reduce deferred tax assets, which could have a material impact on the Company's results of operations in the period in which it is recorded.
Significant negative events, including losses in future periods, would make it reasonably possible that valuation allowances against deferred tax assets would be required in future periods.

Results of Operations

The following table sets forth consolidated operating statement data expressed
as a percentage of net sales for the periods indicated.



                                                Three Months Ended
                                                May 30,     May 31,
                                                 2009        2008
Net sales                                          100.0 %    100.0 %
Merchandise, buying and occupancy costs             62.7       55.8
Selling, general and administrative expenses        30.0       28.0
Depreciation and amortization                        5.2        4.1
Operating income                                     2.1       12.1
Interest income                                        -        0.5
Income tax provision                                 0.7        5.0
Income from continuing operations                    1.4        7.6
Loss on discontinued operations, net of tax            -       (0.3 )
Net income                                           1.4 %      7.3 %

Net Sales from Continuing Operations. Net sales from continuing operations for the three months ended May 30, 2009 were $120.4 million, a decrease of $35.0 million, or approximately 23%, from $155.4 million for the three months ended May 31, 2008. The decrease in net sales from continuing operations was a result of a decline in same-store sales, partially offset by an increase in sales at the company's two e-commerce websites. The Company operated 816 stores at May 30, 2009 compared to 814 stores, excluding Acorn stores, as of May 31, 2008.

The Company's same-store sales from continuing operations for the first quarter of fiscal 2010 declined 24% when compared to the corresponding period in fiscal 2009. Approximately two-thirds of the decline was related to a decrease in the number of transactions per average store, while roughly one-third of the decline was a result of a decrease in the average transaction value. In addition, units sold per transaction decreased by approximately 6% during the first quarter of fiscal 2010 compared to the prior year period.

Merchandise, Buying and Occupancy Costs, exclusive of depreciation and amortization. Merchandise, buying and occupancy costs, exclusive of depreciation and amortization, were $75.5 million, or 62.7% of net sales, during the first quarter of fiscal 2010, compared to $86.7 million, or 55.8% of net sales, during the same period in fiscal 2009, resulting in approximately 690 basis points of deleverage compared to the prior year period.

The decline in gross profit margin in the first quarter of fiscal 2010, compared to the first quarter of fiscal 2009, was essentially equally attributable to erosion of merchandise margins, due to elevated markdown levels and promotional activity, and deleveraging of buying and occupancy expenses associated with the 24% decline in same-store sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended May 30, 2009 were $36.1 million, or 30% of net sales, compared to $43.6 million, or 28.0% of net sales, for the three months ended May 31, 2008. This resulted in approximately 200 basis points of deleverage due to the 24% decrease in same-store sales.

SG&A expenses were reduced by approximately $7.5 million in the first quarter of fiscal 2010 as a result of the Company's cost reduction initiative. Significant savings were realized in store-related operating expenses, marketing expenditures and travel costs.

Depreciation and Amortization. Depreciation and amortization was $6.3 million, or 5.2% of net sales, in the first quarter of fiscal 2010, compared to $6.4 million, or 4.1% of net sales, in the first quarter of fiscal 2009.

Operating Income. Based on the foregoing, the Company recorded operating income of $2.5 million, or 2.1% of net sales for the quarter ended May 30, 2009, compared to operating income of $18.7 million, or 12.1% of net sales for the quarter ended May 31, 2008.

Interest Income. For the three months ended May 30, 2009, interest income was $115,000, compared to $827,000 for the three months ended May 31, 2008. The decrease resulted from lower interest rates on cash, cash-equivalents and investments in the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009.

Income Taxes. Income tax expense in the first quarter of fiscal 2010 was $0.9 million, with an effective tax rate of 34.4%, compared to income tax expense of $7.8 million, with an effective tax rate of 39.8%, in the first quarter of fiscal 2009. The decrease in effective tax rate primarily resulted from the impact of permanent timing differences and state income taxes.

Income taxes for fiscal 2009 have been allocated to continuing and discontinued operations based on the methodology required by Financial Accounting Interpretation No. 18 ("FIN 18"), whereby income taxes are computed with and without the impact of results from discontinued operations and the difference in taxes between these computations is allocated to discontinued operations.

Income from Continuing Operations. As a result of the foregoing factors, the Company reported net income from continuing operations of $1.7 million, or 1.4% of net sales, for the three months ended May 30, 2009, compared to income from continuing operations of $11.7 million, or 7.6% of net sales, for the three months ended May 31, 2008.

Loss on Discontinued Operations, Net of Tax. The Company reported a pre-tax loss on discontinued operations of $0.8 million for the three months ended May 31, 2008 related to store-level operating losses at the Company's Acorn stores. Net of tax, the loss on discontinued operations was $0.5 million. There were no expenses related to discontinued operations recorded in the first quarter of fiscal 2010.

Net Income. As a result of the foregoing factors, the Company recorded net income of $1.7 million, or 1.4% of net sales and $0.05 per diluted share, for the three months ended May 30, 2009, compared to net income of $11.3 million, or 7.3% of net sales and $0.32 per diluted share, for the three months ended May 31, 2008.

Liquidity and Capital Resources

The Company's principal on-going cash requirements are to fund working capital needs such as purchasing merchandise inventory, to finance the construction of new stores, the remodeling of certain existing stores and to make information technology-related and other capital expenditures. Merchandise purchases vary on a seasonal basis, peaking in the fall. As a result, the Company's cash requirements historically reach their peak in October or November, during the Company's third fiscal quarter. Conversely, cash balances peak in the fourth fiscal quarter in January, after the holiday season is completed.

Net cash provided by operating activities

Net cash provided by operating activities totaled $13.5 million in the first three months of fiscal 2010, a decrease of $6.4 million from $19.9 million for the first three months of fiscal 2009.

Significant fluctuations in the Company's working capital accounts included a $6.3 million decrease in inventory, a $3.8 million increase in accounts payable and a $3.8 million decrease in accrued liabilities. The Company's inventory levels were down approximately 22% on a per-store basis at May 30, 2009, compared to May 31, 2008. The Company anticipates inventory levels will continue to decline on a percentage basis by mid-to-high teens through the second quarter of fiscal 2010. The decrease in accrued liabilities primarily resulted from a $2.0 million decrease in accrued payroll and severance charges and a decline in the amount of outstanding gift cards at May 30, 2009 compared to May 31, 2008.

The remainder of the change in cash provided by operating activities was substantially the result of net income earned during the first three months of fiscal 2010, after adjusting for non-cash charges, including depreciation expense, deferred income taxes, stock-based compensation expense, loss on the disposal of furniture, fixtures and equipment and various other changes in the Company's other operating assets and liabilities.

Net cash used in investing activities

Net cash used in investing activities in the first three months of fiscal 2010 consisted solely of $1.8 million of capital expenditures. The Company opened two new stores during the quarter. The Company also made other investments at its stores, corporate office and distribution center facility during the three months ended May 30, 2009.

The Company expects to fund approximately $6 million to $7 million of additional capital expenditures in the last three quarters of fiscal 2010. The Company plans to open two additional stores in the second quarter including the Company's first dual store, which will incorporate both the Company's Christopher & Banks and C.J. Banks brands in one store. The Company also currently plans to open one additional Christopher & Banks store in the third quarter. In addition, the Company plans to continue to make improvements at its distribution center facility. The Company anticipates its cash and cash equivalents, combined with cash flows from operations, will be sufficient to meet its capital expenditure, working capital and other requirements for liquidity for the remainder of fiscal 2010.

Net cash used in financing activities

Net cash of $2.1 million was used in financing activities for the payment of a quarterly cash dividend in the first three months of fiscal 2010.

Credit facility

The Company maintains an Amended and Restated Revolving Credit Facility (the "Credit Facility") with Wells Fargo Bank, National Association ("Wells Fargo") which expires on June 30, 2011. The Credit Facility provides the Company with revolving credit loans and letters of credit of up to $50 million, in the aggregate, subject to a borrowing base formula based on inventory levels.

Loans under the Credit Facility bear interest at the prime rate minus 0.25%. As of May 30, 2009 the prime rate was 3.25%. The Credit Facility also provides the Company with the ability to borrow under the Credit Facility at an interest rate tied to the London Interbank Market Offered Rate ("LIBOR"). Advances under the LIBOR option would be tied to the one, three, or six month LIBOR rate based on the length of time the corresponding advance is outstanding.

Interest under the Credit Facility is payable monthly in arrears. The Credit Facility carries a facility fee of 0.25%, based on the unused portion as defined in the agreement, and a collateral monitoring fee. For the three months ended May 30, 2009, fees related to the Credit Facility totaled $12,933. Borrowings . . .