Summary of CHARMING SHOPPES INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes included in Item 1 of this report. It should also be read in conjunction with the management's discussion and analysis of financial condition and results of operations, financial statements, and accompanying notes appearing in Exhibit 99.1 of our Form 8-K dated June 19, 2009, which retrospectively revised the financial statements and related notes included in our January 31, 2009 Annual Report on Form 10-K as a result of our adoption of FASB Staff Position ("FSP") APB 14-1. As used in this management's discussion and analysis, "Fiscal 2009" refers to our fiscal year ending January 30, 2010, "Fiscal 2008" refers to our fiscal year ended January 31, 2009, and "Fiscal 2007" refers to our fiscal year ended February 2, 2008. "Fiscal 2009 First Quarter" refers to our fiscal quarter ended May 2, 2009 and "Fiscal 2008 First Quarter" refers to our fiscal quarter ended May 3, 2008. "Fiscal 2009 Second Quarter" refers to our fiscal quarter ended August 1, 2009 and "Fiscal 2008 Second Quarter" refers to our fiscal quarter ended August 2, 2008. "Fiscal 2009 Third Quarter" refers to our fiscal quarter ending October 31, 2009 and "Fiscal 2008 Third Quarter" refers to our fiscal quarter ended November 1, 2008. "Fiscal 2007 Third Quarter" refers to our fiscal quarter ended November 3, 2007 and "Fiscal 2007 Fourth Quarter" refers to our fiscal quarter ended February 2, 2008. The terms "Charming Shoppes," "the Company," "we," "us," and "our" refer to Charming Shoppes, Inc. and its consolidated subsidiaries except where the context otherwise requires or as otherwise indicated.

FORWARD-LOOKING STATEMENTS

With the exception of historical information, the matters contained in the following analysis and elsewhere in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, projections of revenues, income or loss, cost reductions, capital expenditures, liquidity, divestitures, financing needs or plans, store closings, merchandise strategy, and plans for future operations, as well as assumptions relating to the foregoing. The words "expect," "could," "should," "project," "estimate," "predict," "anticipate," "plan," "intend," "believes," and similar expressions are also intended to identify forward-looking statements.

We operate in a rapidly changing and competitive environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors that may affect us. Forward-looking statements are inherently subject to risks and uncertainties, some of which we cannot predict or quantify. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements, which speak only as of the date on which they were made. We assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Factors that could cause our actual results of operations or financial condition to differ from those described in this report include, but are not necessarily limited to, the following, which are discussed in more detail in "PART I; Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2009 and in "PART II. OTHER INFORMATION; Item 1A. Risk Factors" below:

? Our business is dependent upon our ability to accurately predict rapidly changing fashion trends, customer preferences, and other fashion-related factors, which we may not be able to successfully accomplish in the future.

? The women's specialty retail apparel and direct-to-consumer markets are highly competitive and we may be unable to compete successfully against existing or future competitors.

? We cannot assure the successful implementation of our business plan for increased profitability and growth in our Retail Stores or Direct-to-Consumer segments and we may be unable to successfully implement our plan to improve merchandise assortments. Recent changes in management may fail to achieve improvement in our operating results.

? A continuing slowdown in the United States economy, an uncertain economic outlook, and fluctuating energy costs could lead to reduced consumer demand for our products in the future.

? Our inability to successfully manage labor costs, occupancy costs, or other operating costs, or our inability to take advantage of opportunities to reduce operating costs, could adversely affect our operating margins and our results of operations. We cannot assure the successful implementation of our planned cost reduction and capital budget reduction plans or the realization of our anticipated annualized expense savings from our restructuring programs. We may be unable to obtain adequate insurance for our operations at a reasonable cost.

? We are subject to the Fair Labor Standards Act and various state and Federal laws and regulations governing such matters as minimum wages, exempt status classification, overtime, and employee benefits. Changes in Federal or state laws or regulations regarding minimum wages, unionization, or other employee benefits could cause us to incur additional wage and benefit costs, which could adversely affect our results of operations. Changes in legislation limiting interest rates and other credit card charges that can be billed on credit card accounts could negatively impact the operating margins of our credit operation.

? We depend on the availability of credit for our working capital needs, including credit we receive from our bankers, our factors, our suppliers and their agents, and on our credit card securitization facilities. The current global financial crisis could adversely affect our ability or the ability of our vendors to secure adequate credit financing. If we or our vendors are unable to obtain sufficient financing at an affordable cost, our ability to merchandise our retail stores or e-commerce businesses could be adversely affected.

? We cannot assure the successful consummation of the sale of our credit card operations. We also cannot assure that we will realize the expected benefits from the sale of our credit card operations if the sale is consummated. Should we fail to consummate the sale of our credit card operations, we would refinance our maturing credit card term securitization series through our credit conduit facilities, which are renewed annually, or through the issuance of a new term series. To the extent that our conduit facilities could not be renewed they would amortize according to their terms and we would finance this amortization using our corporate cash flows or other sources of financing to the extent that they become available. There is no assurance that we would be able to refinance or renew our conduit facilities on terms comparable to our existing facilities or that there would be sufficient availability from other sources for such financing. Should we fail to consummate the sale of our credit card operations and fail to refinance or renew our facilities, our ability to offer our credit program to our customers and consequently our financial condition and results of operations, would be adversely affected.

? Our Retail Stores and Direct-to-Consumer segments experience seasonal fluctuations in net sales and operating income. Any decrease in sales or margins during our peak sales periods or in the availability of working capital during the months preceding such periods could have a material adverse effect on our business. In addition, extreme or unseasonable weather conditions may have a negative impact on our sales.

? We cannot assure the successful implementation of our business plan for the development of our core brands, that we will realize increased profitability, or that we will achieve our objectives as quickly or as effectively as we plan.

? We depend on the efforts and abilities of our executive officers and their management teams and we may not be able to retain or replace these employees or recruit additional qualified personnel.

? Our business plan is largely dependent upon continued growth in the plus-size women's apparel market, which may not occur.

? We depend on our distribution and fulfillment centers and third-party freight consolidators and service providers, and could incur significantly higher costs and longer lead times associated with distributing our products to our stores and shipping our products to our e-commerce and catalog customers if operations at any of these locations were to be disrupted for any reason.

? Natural disasters, as well as war, acts of terrorism, or other armed conflict, or the threat of any such event may negatively impact availability of merchandise and customer traffic to our stores, or otherwise adversely affect our business.

? Successful operation of our e-commerce websites and our catalog business is dependent on our ability to maintain efficient and uninterrupted customer service and fulfillment operations.

? We rely significantly on foreign sources of production and face a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad. Such risks include (but are not necessarily limited to) political instability; imposition of or changes in duties or quotas; trade restrictions; increased security requirements applicable to imports; delays in shipping; increased costs of transportation; and issues relating to compliance with domestic or international labor standards.

? Our manufacturers may be unable to manufacture and deliver merchandise to us in a timely manner or to meet our quality standards. In addition, if any one of our manufacturers or vendors fails to operate in compliance with applicable laws and regulations, is perceived by the public as failing to meet certain labor standards in the United States, or employs unfair labor practices, our business could be adversely affected.

? Our long-term growth plan depends on our ability to open and profitably operate new retail stores, to convert, where applicable, the formats of existing stores on a profitable basis, and to continue to expand our outlet distribution channel. Our retail stores depend upon a high volume of traffic in the strip centers and malls in which our stores are located, and our future retail store growth is dependent upon the availability of suitable locations for new stores. In addition, we will need to identify, hire, and retain a sufficient number of qualified personnel to work in our stores. We cannot assure that desirable store locations will continue to be available, or that we will be able to hire and retain a sufficient number of suitable sales associates at our stores.

? We may be unable to protect our trademarks and other intellectual property rights, which are important to our success and our competitive position.

? Inadequate systems capacity, a disruption or slowdown in telecommunications services, changes in technology, changes in government regulations, systems issues, security breaches, a failure to integrate order management systems, or customer privacy issues could result in reduced sales or increases in operating expenses as a result of our efforts or our inability to remedy such issues.

? We continually evaluate our portfolio of businesses and may decide to acquire or divest businesses or enter into joint venture or strategic alliances. If we fail to manage the risks associated with divestitures, joint ventures, or other alliances, our business, financial condition, and operating results could be materially and adversely affected.

? Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include our assessment of the effectiveness of our internal control over financial reporting in our annual reports. Our independent registered public accounting firm is also required to report on whether or not they believe that we maintained, in all material respects, effective internal control over financial reporting. If we are unable to maintain effective internal control over financial reporting we could be subject to regulatory sanctions and a possible loss of public confidence in the reliability of our financial reporting. Such a failure could result in our inability to provide timely and/or reliable financial information and could adversely affect our business.

? The holders of our 1.125% Senior Convertible Notes due May 1, 2014 (the 1.125% Notes) could require us to repurchase the principal amount of the notes for cash before maturity of the notes upon the occurrence of a "fundamental change" as defined in the prospectus filed in connection with the 1.125% Notes. Such a repurchase would require significant amounts of cash, would be subject to important limitations on our ability to repurchase, such as the risk of our inability to obtain funds for such repurchase, and could adversely affect our financial condition.

? Changes to existing accounting rules or the adoption of new rules could have an adverse impact on our reported results of operations.

? We make certain significant assumptions, estimates, and projections related to the useful lives and valuation of our property, plant, and equipment and the valuation of goodwill and other intangible assets related to acquisitions. The carrying amount and/or useful life of these assets are subject to periodic and/or annual valuation tests for impairment. Impairment results when the carrying value of an asset exceeds the undiscounted (or for goodwill and indefinite-lived intangible assets the discounted) future cash flows associated with the asset. If actual experience were to differ materially from the assumptions, estimates, and projections used to determine useful lives or the valuation of property, plant, equipment, or intangible assets, a write-down for impairment of the carrying value of the assets, or acceleration of depreciation or amortization of the assets, could result. Such a write-down or acceleration of depreciation or amortization could have an adverse impact on our reported results of operations.

CRITICAL ACCOUNTING POLICIES

We have prepared the financial statements and accompanying notes included in Item 1 of this report in conformity with United States generally accepted accounting principles. This requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. These estimates and assumptions are based on historical experience, analysis of current trends, and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions.

We periodically reevaluate our accounting policies, assumptions, and estimates and make adjustments when facts and circumstances warrant. Our significant accounting policies are described in the notes accompanying the consolidated financial statements that appear in Exhibit 99.1 to our Form 8-K dated June 19, 2009.

Except as otherwise disclosed in this section and in the financial statements and accompanying notes included in Item 1 of this report, there were no material changes in, or additions to, our critical accounting policies or in the assumptions or estimates we used to prepare the financial information appearing in this report.

Senior Convertible Notes

In May 2008 the FASB issued FASB Staff Position ("FSP") APB 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)," which changes the accounting treatment for convertible securities that an issuer may settle fully or partially in cash. Under FSP APB 14-1 cash-settled convertible securities are separated into their debt and equity components. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature. As a result, the debt is recorded at a discount to adjust its below-market coupon interest rate to the market coupon interest rate for a similar debt instrument without the conversion feature. The difference between the proceeds for the convertible debt and the amount reflected as the debt component represents the value of the conversion feature and is recorded as additional paid-in capital. The debt is subsequently accreted to its par value over its expected life with an offsetting increase in interest expense on the income statement to reflect interest expense at the market rate for the debt component at the date of issuance.

We adopted the provisions of FSP APB 14-1 for our 1.125% Senior Convertible Notes and applied the provisions retrospectively to all past periods presented (see "Item 1. Financial Statements (Unaudited); "Note 4. Long-term Debt" above).

RECENT DEVELOPMENTS

On July 13, 2009 we announced that we have discontinued our exploration of the sale of our FIGI'S Gifts in Good Taste catalog business, based in Wisconsin. In August 2008 we initiated that process as a step in our strategy to refocus our energies on our core brands, stating at that time that we would only enter into a transaction at an acceptable valuation.

In July 2009 we outsourced certain information technology functions to a third-party provider. This action will result in the elimination of approximately 50 positions at our Bensalem corporate offices, and will result in future reductions of internal operating costs and decreased capital spending. We expect to complete this outsourcing by the end of the Fiscal 2009 Third Quarter.

On July 31, 2009 we entered into an amended and restated loan and security agreement for a $225 million senior secured revolving credit facility, which replaces our $375 million revolving credit facility and provides for committed revolving funding through July 31, 2012. See "OVERVIEW" and "FINANCING; Revolving Credit Facility" below for further discussion of the amended agreement.

On August 13, 2009 we announced an agreement for the sale of our credit card receivables program to World Financial Network National Bank, a subsidiary of Alliance Data Systems Corporation ("Alliance Data"). We also entered into ten-year operating agreements with Alliance Data for the servicing of our private-label credit card receivables program. We expect the transaction to close before the end of Fiscal 2009, subject to obtaining certain customary regulatory approvals.

We expect to receive net cash proceeds of approximately $110 million related to the transaction. The transaction consists of the sale of our private-label credit card portfolio, along with certain other assets and liabilities that are required to support these credit card programs, including our consolidated balance sheet asset "Investment in Asset-Backed Securities." Gross proceeds from the transaction are estimated at $140 million. Approximately $30 million will be utilized to fund the termination of contractual obligations related to the transaction as well as exit costs.

OVERVIEW

This overview of our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") presents a high-level summary of more detailed information contained elsewhere in this Report on Form 10-Q. The intent of this overview is to put this detailed information into perspective and to introduce the discussion and analysis contained in this MD&A. Accordingly, this overview should be read in conjunction with the remainder of this MD&A and with the financial statements and other detailed information included in this Report on Form 10-Q and should not be separately relied upon.

Results of Operations

Net sales for the Fiscal 2009 Second Quarter were $527.2 million, a decrease of 19% from the Fiscal 2008 Second Quarter. Net sales for our Retail Stores segment decreased $104.6 million or 17%, primarily as a result of a comparable store sales decrease of 14%. Additionally, Retail Stores segment net sales were impacted by 99 net store closings over the preceding 12-month period. The comparable store sales decrease is due primarily to reduced traffic levels impacted by weakened consumer demand as a result of the downturn in the economy and partially due to our year-over-year reduction in inefficient promotional spending. Additionally, our conservative inventory planning and a lack of balanced assortments in inventory negatively impacted our net sales. Net sales for our Direct-to-Consumer segment decreased $16.2 million primarily as a result of the planned shutdown of our LANE BRYANT WOMAN catalog announced in Fiscal 2008, which we completed during the Fiscal 2009 Second Quarter.

Our gross profit as a percentage of sales increased 3.3% during the Fiscal 2009 Second Quarter as compared to the Fiscal 2008 Second Quarter. This increase reflects our efforts to tightly manage our inventories in response to the challenging retail environment to limit the level of markdown activity on spring and summer merchandise. Our inventories as of the end of the Fiscal 2009 Second Quarter have decreased approximately 18% as compared to the end of the Fiscal 2008 Second Quarter on a comparable-store basis.

Our occupancy and buying expenses decreased 5.2% as a result of the operation of fewer stores and occupancy reductions secured from landlords, partially offset by increases in buying costs. Our selling, general, and administrative expenses decreased 18.4% during the Fiscal 2009 Second Quarter as compared to the Fiscal 2008 Second Quarter primarily as a result of our expense reduction initiatives and the closing of under-performing stores.

Although net sales decreased across all brands in our Retail Stores segment, income before interest and income taxes, as a percentage of sales, increased for our LANE BRYANT and CATHERINES brands, reflecting our ability to limit markdown activity and improve the quality of the sales for these brands. For LANE BRYANT, income before interest and income taxes as a percentage of sales increased from 4.4% to 5.0% for the Fiscal 2009 Second Quarter and increased from 7.3% to 8.6% for the first half of Fiscal 2009. For CATHERINES, income before interest and income taxes as a percentage of sales increased from 6.8% to 7.9% for the Fiscal 2009 Second Quarter and increased from 7.6% to 8.9% for the first half of Fiscal 2009. For our FASHION BUG brand, income before interest and income taxes, as a percentage of sales, decreased from 7.9% to 3.5% for the Fiscal 2009 Second Quarter and decreased from 5.7% to 1.7% for the first half of Fiscal 2009, reflecting a difficult second quarter with spring and summer assortments that were not compelling to our customer and that did not yet reflect the impact of our new product leadership.

Financial Position

Our balance sheet continued to remain strong, with ample liquidity through our $117.1 million of cash and available-for-sale securities as of the end of the Fiscal 2009 Second Quarter as compared to $100.2 million as of the end of Fiscal 2008.

We continue to proactively strengthen our liquidity. On July 31, 2009 we entered into a three-year agreement for a new $225 million senior secured revolving credit facility. The new credit facility provides committed revolving funding through July 2012 and replaces our $375 million revolving credit facility. Our efforts over the last year to simplify our business through the divestiture of our non-core misses apparel catalogs and the closure of our figure magazine, SHOETRADER.COM, and LANE BRYANT WOMAN catalog, as well as reduced inventory levels as a result of our inventory management initiatives and our closing of under-performing stores, allowed us to reduce our new revolving credit facility to an amount that is appropriate for our current business model.

On August 13, 2009 we announced that we have entered into an agreement for the sale of our credit card receivables program to World Financial Network National Bank, a subsidiary of Alliance Data Systems Corporation ("Alliance Data"), and have also entered into ten-year operating agreements with Alliance Data for the servicing of our private label credit card receivables program (see "RECENT DEVELOPMENTS" above). In addition to partnering with one of the country's premier credit card providers, the benefits of this transaction include the following:

? It will allow us to further focus on our core business;

? It will eliminate the financing risk associated with our credit card receivable securitization program and the credit risk of the underlying credit card portfolio;

? It will result in projected net cash proceeds to us of $110 million and the attendant strengthening of our liquidity and financial flexibility; and

? We will receive annual payments from Alliance Data based on credit sales generated by our private-label credit card portfolio, which are projected to substantially replace our net credit contribution related to our credit card business on a trailing twelve-month basis and are projected to result in the transaction being non-dilutive.

We continued to generate positive operating cash flow during the Fiscal 2009 Second Quarter and ended the quarter with no borrowings against our $225 million revolving credit facility. As of August 1, 2009 our available borrowing capacity under the facility was $199.2 million.

Management Initiatives

We have established five key priorities to guide our organization. Those key priorities are: (1) focus on the consumer; (2) stabilize and begin to grow profitable revenue; (3) increase EBITDA; (4) increase cash flow; and (5) employee empowerment with accountability. Our management initiatives are designed to reinforce and support the execution of our key priorities.

The following are our key initiatives:

? We are working to improve our marketing. We believe we can better succeed by focusing on the basics of efficiently driving traffic both to our stores and online, and by focusing on increasing the conversion rate for customers in our stores and on our websites.

? We are focused on assortments planning and selling outfits. We believe we can better succeed by improving our buying and in-store merchandising of appropriate assortments of bottoms, tops, accessories, intimates, and related products.

? We are working to complete the process of transforming into a vertical specialty store model, increasing the percentage of internally designed and developed fashion product and transforming each of our core brands into more independent, distinct brands.

? We are focused on increasing our e-commerce business across all of our brands. As a first step in that process we have overhauled each of our core brands' websites and moved to a new technology platform in advance of the Fiscal 2009 Third Quarter. Our objective is to provide an improved on-line customer experience that results in increased sales . . .