The management's discussion and analysis of financial condition and results of operations ("MD&A") that follows 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 August 29, 2009, the Company operated 811 stores in 46 states, including 542 christopher & banks stores, 268 cj banks stores and one dual-concept store. The Company's christopher & banks brand offers distinctive fashions featuring exclusively designed, coordinated assortments of women's apparel primarily in sizes four to 16. The Company's cj banks brand offers similar assortments of women's apparel primarily in sizes 14W to 24W. The Company's dual-concept store offers an assortment of both christopher & banks and cj banks apparel servicing the petite, misses and plus size customer in one store. The Company also operates e-commerce web sites for its two brands at www.christopherandbanks.com and www.cjbanks.com, which offer exclusive sizes and styles available only online.

The Company strives to provide its customers with quality apparel at a great value and a perfect fit. The Company's overall strategy for its two brands, christopher & banks and cj 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 balancing unique, novelty apparel with more classic, basic styles, 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, the majority of which is manufactured exclusively for the Company under its proprietary christopher & banks and cj banks brand names.

Fiscal 2010 Second Quarter Summary

The Company's results of operations for the second quarter of fiscal 2010 continued to be impacted by the challenging macro-economic environment. Continued instability in the housing market and higher levels of unemployment, combined with general economic uncertainty, have impacted consumer spending patterns, particularly for discretionary retail purchases.

Same store sales declined 22% during the second quarter of fiscal 2010 compared to the prior year period. This decrease was primarily a result of fewer transactions per store, while the average transaction value was essentially flat for the quarter compared to the second quarter of fiscal 2009.

Despite the pressure on sales, the Company ended the quarter with better than anticipated gross margins and above-plan cost savings. Selling, general and administrative ("SG&A") expenses declined by approximately $8.0 million in the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009. Markdowns and inventory were well controlled during the quarter resulting in a 24% decline in inventory levels on a per-store basis, excluding e-commerce inventory, at the end of the second quarter compared to the end of the prior year second quarter. The Company ended the quarter with approximately $100 million of cash, cash equivalents and short-term investments.

The Company recorded a net loss of $2.1 million, or ($0.06) per share, in the second quarter of fiscal 2010, compared to net income from continuing operations of $2.0 million, or $0.06 per diluted share, for the second quarter of fiscal 2009. In the first half of fiscal 2010, the Company opened three new cj banks stores and its first dual-concept store. Six christopher & banks stores and two cj banks stores were closed during the first six months of fiscal 2010.

Fiscal 2010 Outlook and Key Business Initiatives

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 be managed at 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 one additional new store in fiscal 2010.

The Company continued to execute its cost reduction initiative in fiscal 2010. SG&A savings, primarily reductions in store payroll and other store-related expenses, marketing expenditures and travel costs, of approximately $15.4 million were realized in the first six months of the fiscal year. The Company expects to realize total SG&A savings of $17 million to $18 million in all of fiscal 2010, with at least $1.0 million of savings anticipated in the third quarter. The Company also continues 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 also continues to employ strict inventory controls in fiscal 2010. During the year, the Company plans to continue to enhance inventory productivity through SKU rationalization and improved store assorting based on sales volume, climate, size and fashion preferences.

The Company plans to continue to strengthen its Customer Relationship Management ("CRM") programs throughout fiscal 2010. The Company is in the midst of migrating to a new CRM database management system which is designed to ensure better customer data consistency across all channels, provide more robust customer and marketing analytics and enable management of more complex and segmented communications campaigns. In addition, the Company plans to continue to accumulate and incorporate customer data into its existing and new CRM programs 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 continues to focus on 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 grassroots marketing efforts to increase communication 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 continues to place additional focus on growth opportunities for its plus size brand, cj banks. The Company opened its first dual-concept store during the second quarter of fiscal 2010. This store offers merchandise from both of its brands, christopher & banks and cj banks, and all three size ranges, misses, petite and plus, within one store, resulting in a greater opportunity to service the Company's customers while increasing productivity and enhancing operating efficiencies. In addition, during September 2009, the Company introduced edited assortments, or "capsules," of its cj 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. Overall productivity of these test stores is expected to increase as the cj banks capsule assortments were added to these stores without a reduction in the planned christopher & banks assortment.

The Company expects its christopher & banks and cj banks e-commerce businesses to continue to grow. The Company plans to further 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 e-commerce websites 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, investments and working capital.

Merchandise, buying and occupancy costs

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.

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 and six month periods ended August 29, 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 August 29, 2009, the current challenging economic environment, combined with the continued instability in the housing, credit, stock and financial markets, and 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 August 29, 2009, the Company had net deferred tax assets of $10.4 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 without any valuation allowance. 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           Six Months Ended
                                    August 29,    August 30,    August 29,    August 30,
                                       2009          2008          2009          2008

Net sales                                100.0 %       100.0 %       100.0 %       100.0 %
Merchandise, buying and
occupancy costs                           65.4          61.3          63.9          58.3
Selling, general and
administrative expenses                   31.8          31.3          30.9          29.5
Depreciation and amortization              6.2           5.2           5.7           4.6
Operating income (loss)                   (3.4 )         2.2          (0.5 )         7.6
Other income                               0.2           0.5           0.2           0.5
Income tax provision (benefit)            (1.1 )         1.1          (0.1 )         3.2
Income (loss) from continuing
operations                                (2.1 )         1.6          (0.2 )         4.9
Loss on discontinued operations,
net of tax                                   -          (0.9 )           -          (0.6 )
Net income (loss)                         (2.1 )%        0.7 %        (0.2 )%        4.3 %

Three Months Ended August 29, 2009 Compared to Three Months Ended August 30, 2008

Net Sales from Continuing Operations. Net sales from continuing operations for the three months ended August 29, 2009 were $101.2 million, a decrease of $27.3 million or approximately 21%, from $128.5 million for the three months ended August 30, 2008. The Company's sales were negatively impacted in the second quarter of fiscal 2010 by the challenging macro-economic environment. Continued instability in the housing market and higher levels of unemployment, combined with general economic uncertainty, impacted consumer spending patterns, particularly for discretionary retail purchases.

The Company's same store sales from continuing operations for the second quarter of fiscal 2010 declined 22% when compared to the corresponding period in fiscal 2009. This decrease was primarily due to fewer

transactions per store and fewer units sold overall, partially offset by an increase in average unit retail. Average transaction value was essentially flat for the quarter compared to the prior year period.

The decline in same store sales was partially offset by an increase in sales at the Company's two e-commerce websites. The Company operated 811 stores at August 29, 2009, compared to 818 stores, excluding Acorn stores, as of August 30, 2008.

Merchandise, Buying and Occupancy Costs. Merchandise, buying and occupancy costs, exclusive of depreciation and amortization, were $66.2 million, or 65.4% of net sales, during the second quarter of fiscal 2010, compared to $78.7 million, or 61.3% of net sales, during the same period in fiscal 2009, resulting in approximately 410 basis points of deleverage compared to the prior year period.

As merchandise margins were essentially flat in the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009, the decline in gross profit margin was essentially due to deleveraging of buying and occupancy expenses associated with the 22% decline in same store sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended August 29, 2009 were $32.2 million, or 31.8% of net sales, compared to $40.2 million, or 31.3% of net sales, for the three months ended August 30, 2008, resulting in approximately 50 basis points of deleverage.

SG&A expenses were reduced by approximately $8.0 million in the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009 primarily as a result of the Company's cost reduction efforts. Significant savings were realized in store payroll and other store-related operating expenses, marketing expenditures, benefits and IT-related costs. Approximately $0.02 per share of the savings realized in the second quarter was non-recurring, related to lower compensation costs and a legal settlement.

Depreciation and Amortization. Depreciation and amortization was $6.3 million, or 6.2% of net sales, in the second quarter of fiscal 2010, compared to $6.7 million, or 5.2% of net sales, in the second quarter of fiscal 2009. The decrease in the amount of depreciation and amortization resulted from a reduction of capital expenditures in fiscal 2010 compared to fiscal 2009 and from asset impairment charges recorded in the fourth quarter of fiscal 2009. Capital expenditures in the first half of fiscal 2010 totaled $3.4 million, compared to $12.9 million in the first half of fiscal 2009, while approximately $4.6 million of asset impairment charges were recorded in the fourth quarter of fiscal 2009.

Operating Income (Loss). Based on the foregoing, the Company recorded an operating loss of $3.5 million, or 3.4% of net sales for the quarter ended August 29, 2009, compared to operating income of $2.8 million, or 2.2% of net sales for the quarter ended August 30, 2008.

Other Income. For the three months ended August 29, 2009, other income included interest income of $78,000 and $150,000 of unrealized gains on short-term investments. In the three months ended August 30, 2008, other income consisted solely of $586,000 of interest income. The decrease in interest income resulted from lower interest rates on cash, cash-equivalents and investments in the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009.

Income Taxes. Income tax benefit in the second quarter of fiscal 2010 was $1.1 million, with an effective tax rate of 34.4%, compared to income tax expense of $1.3 million, with an effective tax rate of 39.8%, in the second quarter of fiscal 2009. The decrease in the effective tax rate primarily resulted from the impact of permanent timing differences and state income taxes.

Income taxes for fiscal 2009 were 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 (Loss) from Continuing Operations. As a result of the foregoing factors, the Company reported a net loss from continuing operations of $2.1 million, or 2.1% of net sales, for the three months ended August 29, 2009, compared to income from continuing operations of $2.0 million, or 1.6% of net sales, for the three months ended August 30, 2008.

Loss on Discontinued Operations, Net of Tax. The Company reported a pre-tax loss on discontinued operations of $2.0 million for the three months ended August 30, 2008 related to store-level operating losses at the

Company's Acorn stores and impairment charges related to Acorn store assets. Net of tax, the loss on discontinued operations was $1.2 million. There were no expenses related to discontinued operations recorded during the quarter ended August 29, 2009.

Net Income (Loss). As a result of the foregoing factors, the Company recorded a net loss of $2.1 million, or 2.1% of net sales and ($0.06) per share, for the three months ended August 29, 2009, compared to net income of $0.8 million, or 0.7 % of net sales and $0.02 per diluted share, for the three months ended August 30, 2008.

Net Sales from Continuing Operations. Net sales from continuing operations for the six months ended August 29, 2009 were $221.5 million, a decrease of $62.3 million, or approximately 22%, from $283.8 million for the six months ended August 30, 2008. The Company's sales were negatively impacted in the first six months of fiscal 2010 by the challenging macro-economic environment. Continued instability in the housing market and higher levels of unemployment, combined with general economic uncertainty, impacted consumer spending patterns, particularly for discretionary retail purchases.

The Company's same store sales from continuing operations for the first half of fiscal 2010 declined 23% when compared to the corresponding period in fiscal 2009. This decrease was primarily due to fewer transactions per store and fewer units sold overall, partially offset by an increase in average unit retail. In addition, the average transaction value declined slightly in the first half of the year compared to the first six months of fiscal 2009.

The decline in same store sales was partially offset by an increase in sales at the Company's two e-commerce websites. The Company operated 811 stores at August 29, 2009, compared to 818 stores, excluding Acorn stores, as of August 30, 2008.

Merchandise, Buying and Occupancy Costs. Merchandise, buying and occupancy costs, exclusive of depreciation and amortization, were $141.6 million, or 63.9% of net sales, during the first six months of fiscal 2010, compared to $165.4 million, or 58.3% of net sales, during the same period in fiscal 2009, resulting in approximately 560 basis points of deleverage compared to the prior year period.

The decline in gross profit margin in the first half of fiscal 2010, compared to the first half of fiscal 2009, was attributable to erosion of merchandise margins due to elevated markdown levels and promotional activity in the first quarter and deleveraging of buying and occupancy costs in both the first and second quarters associated with the 23% decline in same store sales.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ended August 29, 2009 were $68.4 million, or 30.9% of net sales, compared to $83.8 million, or 29.5% of net sales, for the six months ended August 30, 2008, resulting in approximately 140 basis points of deleverage.

SG&A expenses were reduced by approximately $15.4 million in the first six months of fiscal 2010 compared to the first half of fiscal 2009 primarily as a result of the Company's cost reduction initiative. Significant savings were realized in store payroll and other store-related operating expenses, marketing expenditures, travel, benefits and IT-related costs. Approximately $0.02 per share of the savings realized in the second quarter of fiscal 2010 was non-recurring, related to lower compensation costs and a legal settlement.

Depreciation and Amortization. Depreciation and amortization was $12.6 million, or 5.7% of net sales, in the first six months of fiscal 2010, compared to $13.1 million, or 4.6% of net sales, in the first six months of fiscal 2009. The . . .