The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with our Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Report.

Cautionary Note Regarding Forward-Looking Statements

This Report contains "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 (the "Exchange Act"), and we intend that such forward-looking statements be subject to the safe harbors created thereby. In Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended January 28, 2012 (our "Annual Report"), as amended by Amendment No. 1 to our Annual Report, filed April 10, 2012 (our Annual Report, as amended, our "2011 Annual Report"), we provide cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in the forward-looking statements contained herein. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, future events or performance (often, but not always, identifiable by the use of words or phrases such as "will result," "expects to," "will continue," "anticipates," "plans," "intends," "estimated," "projects" and "outlook") are not historical facts and may be forward-looking and, accordingly, such statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. Examples of forward-looking statements in this Report include, but are not limited to, the following categories of expectations about:

• the sufficiency of operating cash flows, working capital and available credit to meet our operating and capital expenditure requirements;

• our capital expenditure plans for fiscal 2012;

• potential recording of noncash impairment charges for underperforming stores in future quarters; and

• increases in product sourcing costs.

All forward-looking statements included in this Report are based on information available to us as of the date hereof, and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. See Item 1A, Risk Factors, in our 2011 Annual Report, which are hereby incorporated by reference in this Report for a discussion of these risks and uncertainties. We assume no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur after such statements are made.

Executive Overview

We consider the following items to be key indicators in evaluating our performance:

Comparable (or "same-store") sales

Stores are deemed comparable stores on the first day of the fiscal month following the one-year anniversary of their opening or expansion/relocation. We consider same-store sales to be an important indicator of the Company's current performance. Same-store sales results are important in achieving operating leverage of certain expenses such as store payroll, store occupancy, depreciation, general and administrative expenses and other costs that are somewhat fixed. Positive same-store sales results usually generate greater operating leverage of expenses while negative same-store sales results generally have a negative impact on operating leverage. Same-store sales results also have a direct impact on our net sales, cash and working capital.

Net merchandise margin

We analyze the components of net merchandise margins, specifically initial markups, discounts and markdowns as a percentage of net sales. Any inability to obtain acceptable levels of initial markups or any significant increase in our use of discounts or markdowns could have an adverse impact on our gross margin results and results of operations.

Operating margin

We view operating margin as a key indicator of our success. The key drivers of operating margins are comparable store net sales, net merchandise margins, and our ability to control operating expenses. For a discussion of the changes in the components comprising operating margins, see "Results of Operations" in this section.

Store sales trends

We evaluate store sales trends in assessing the operational performance of our stores. Important store sales trends include average net sales per store and average net sales per square foot.

Cash flow and liquidity (working capital)

We evaluate cash flow from operations, liquidity and working capital to determine our short-term operational financing needs. Based on current forecasts and plans for the year, we believe that cash flows from operating activities, working capital, borrowing availability under the New Credit Facility, and cash on hand resulting from the closing of the Term Loan will be sufficient to meet our operating and capital expenditure needs for the next twelve months. However, if we were to experience same-store sales declines similar to those which occurred in fiscal 2010 and 2009, we may have to access most, if not all, of the New Credit Facility and potentially require other sources of financing to fund our operations, which might not be available. For a discussion of the changes in our operating cash flows and working capital, see "Liquidity and Capital Resources" in this section.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2011 Annual Report.

Results of Operations

Continuing Operations

The following table sets forth selected income statement data from our
continuing operations expressed as a percentage of net sales for the fiscal
years indicated. The table excludes discontinued operations and the discussion
that follows should be read in conjunction with the table:



                                                          For the First Quarter Ended
                                                 April 28, 2012                 April 30, 2011
Net sales                                                  100.0 %                        100.0 %
Cost of goods sold, including buying,
distribution and occupancy costs                            76.4                           80.7

Gross margin                                                23.6                           19.3
Selling, general and administrative
expenses                                                    34.1                           35.5

Operating loss                                             (10.5 )                        (16.2 )
Gain on derivative liability                                (3.6 )                           -
Other expense, net                                           1.9                            0.3

Loss before income taxes                                    (8.8 )                        (16.5 )
Income taxes                                                (0.2 )                         (0.2 )

Net loss from continuing operations                         (9.0 )%                       (16.7 )%

The first quarter ended April 28, 2012 as compared to the first quarter ended April 30, 2011

Net Sales

Net sales increased to $174 million for the first quarter of fiscal 2012 from
$172 million for the first quarter of fiscal 2011. The components of this $2
million increase in net sales are as follows:



$ millions                                   Attributable to
$          1        1% increase in comparable store net sales in the first quarter of
                    fiscal 2012. The increase was due to an increase in average sales
                    transactions of 6%, partially offset by a decrease in the total
                    transactions of 5%.
           1        Increase in other non-comparable sales including sales from
                    expanded or relocated stores not yet included in the comparable
                    store base and bulk sales.

$          2        Total

For the first quarter of 2012, comparable store net sales of Women's and Men's increased 1%, marking the first time both genders achieved positive comparable store net sales in the same quarter since fiscal 2005. The increase in Women's was driven by increases in skirts, shorts, wovens, and denim, partially offset by decreases in sales of Women's tank tops, dresses and short sleeved knits compared to the first quarter of fiscal 2011. The increase in Men's was attributable to increases in

denim, knits, shorts, and footwear, partially offset by decreases in sales of Men's accessories and swimwear compared to the first quarter of fiscal 2011. Apparel represented 86% of total Women's sales for the first quarter of fiscal 2012 versus 87% in the first quarter of fiscal 2011, while Men's apparel was flat at 84% of total Men's sales for the first quarters of fiscal 2012 and fiscal 2011. Total accessories and footwear represented a combined 15% of total sales for both the first quarter of fiscal 2012 and the first quarter of fiscal 2011. In addition, same-store sales transactions decreased 5% from 4.1 million in the first quarter of fiscal 2011 to 3.9 million in the first quarter of fiscal 2012.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, was $41 million for the first quarter of fiscal 2012 versus $33 million for the first quarter of fiscal 2011. As a percentage of net sales, gross margin was 23.6% for the first quarter of fiscal 2012 compared to 19.3% for the first quarter of fiscal 2011. The components of this 4.3% increase in gross margin as a percentage of net sales were as follows:

%                                    Attributable to
1.6     Increase in merchandise margin to 51.0% in the first quarter of fiscal
        2012 from 49.4% in the first quarter of fiscal 2011, primarily due to an
        increase in initial markups and a decrease in promotions.
2.2     Leveraging of occupancy costs as a result of the 1% same-store sales
        increase for the first quarter of fiscal 2012 discussed above. The
        reduction in rent and common area maintenance charges resulted in an
        increase of 1.7% as compared to the prior year, while lower repairs and
        maintenance and fixtures charges resulted in the remaining increase of
        0.5%.
0.4     Decrease in buying and distribution costs to $6 million in the first
        quarter of fiscal 2012 compared to $7 million in the first quarter of
        fiscal 2011.
0.1     Decrease in all other gross margin costs as a percentage of sales.

4.3     Total

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased to $59 million for the first quarter of fiscal 2012 from $61 million for the first quarter of fiscal 2011, a decrease of $2 million, or 2.8%. These expenses decreased to 34.1% as a percentage of net sales in the first quarter of fiscal 2012 from 35.5% in the first quarter of fiscal 2011. The components of this 1.4% decrease in SG&A as a percentage of net sales were as follows:

%                                        Attributable to
   0.8       Increase in store payroll and payroll-related expenses as a percentage
             of net sales. Payroll expense, inclusive of bonus accrual, increased $2
             million to $37 million in the first quarter of fiscal 2012 from $35
             million in the first quarter of fiscal 2011.
  (1.1 )     Decrease in depreciation expense to $8 million in the first quarter of
             fiscal 2012 from $10 million in the first quarter of fiscal 2011.
  (0.3 )     Decrease in noncash asset impairment charges and store closure related
             charges to $1 million in the first quarter of fiscal 2012 from $2
             million in the first quarter of fiscal 2011.
  (0.8 )     Decrease in all other SG&A expenses as a percentage of sales. Other SG&A
             decrease $1 million to $13 million in the first quarter of fiscal 2012
             from $14 million in the first quarter of fiscal 2011, primarily due to a
             decrease in consulting expenses.

  (1.4 )     Total

We assess long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets (or asset group) may not be recoverable. Based on management's review of the historical operating performance, including sales trends, gross margin rates, current cash flows from operations and the projected outlook for each of our stores, we determined that certain stores would not be able to generate sufficient cash flows over the remaining term of the related leases to recover our investment in the respective stores. As a result, we recorded non-cash impairment charges of approximately $2 million during the first fiscal quarters of 2012 and 2011 to write-down the carrying value of certain long-lived store assets to their estimated fair values. During the first fiscal quarters of 2012 and 2011, we tested 119 and 204 stores for impairment and recorded impairment charges related to 25 and 42 of these stores, respectively. The decrease in the number of stores tested for impairment year-over-year was primarily related to our recent closure of certain underperforming stores. In addition, based on historical operating performance and the projected outlook for these stores, we believe that the remaining asset value of approximately $12 million as of April 28, 2012, is recoverable.

Gain on Derivative Liability

We recorded a $6.3 million fair market adjustment related to the derivative liability. See Note 9 to the Condensed Consolidated Financial Statements "Fair Value Measurements - Recurring Fair Value Measurements-Derivative Liability" for further discussion on the derivative liability.

Other Expense, Net

Other expense was $3.3 million and $0.5 million for the first fiscal quarter of 2012 and 2011, respectively, primarily related to interest expense associated with the Term Loan described in Note 6 to the Condensed Consolidated Financial Statements.

Income Taxes

We recognized income tax expense of $0.4 during each of the first quarters of fiscal 2012 and 2011. For fiscal 2012, we expect to continue to maintain a valuation allowance against deferred tax assets resulting in minimal income tax expense for the year. Information regarding the realizability of our deferred tax assets and our assessment of a need for a valuation allowance is contained in Note 7 to the Condensed Consolidated Financial Statements.

Net Loss from Continuing Operations

Our net loss from continuing operations for the first quarter of fiscal 2012 was $16 million, or $(0.23) per share, versus a net loss from continuing operations of $29 million, or $(0.43) per share, for the first quarter of fiscal 2011.

Liquidity and Capital Resources

We have historically financed our operations primarily from internally generated cash flow and with short-term and long-term borrowings. Our primary cash requirements have been for the financing of inventories and construction of newly opened, remodeled, expanded or relocated stores. Based on current forecasts and plans for the year, we believe that cash flows from operating activities, working capital, borrowing availability under the New Credit Facility, and cash on hand resulting from the closing of the Term Loan will be sufficient to meet our operating and capital expenditure needs for the next twelve months. However, if we were to experience same-store sales declines similar to those which occurred in fiscal 2010 and 2009, we may be required to access most, if not all, of the New Credit Facility and potentially require other sources of financing to fund our operations, which might not be available.

                                                          For the First Quarters Ended
                                                    April 28, 2012            April 30, 2011
                                                                 (In thousands)
Net cash used in operating activities               $       (31,357 )         $       (35,242 )
Net cash provided by (used in) investing
activities                                                    4,228                    (3,560 )
Net cash used in financing activities                        (1,582 )                    (203 )

Net decrease in cash and cash equivalents           $       (28,711 )         $       (39,005 )

Operating Cash Flows

Net cash used in operating activities for the first quarter of fiscal 2012 was $31 million. We used $10 million of cash in operations (net income, net of non-cash charges). In addition, cash decreased $20 million from changes in working capital items (primarily merchandise inventories of $15 million) and $4 million due to changes in other assets and liabilities.

Net cash used in operating activities for the first quarter of fiscal 2011 was $35 million. We used $16 million of cash in operations (net of non-cash charges). In addition, cash decreased $17 million from changes in working capital items (primarily merchandise inventories) and $2 million due to changes in other assets and liabilities. The increase in merchandise inventories was due to an increase in non-apparel merchandise, primarily footwear and accessories.

Working Capital

Working capital at April 28, 2012, was $52 million compared to $62 million at
January 28, 2012. The changes in working capital were as follows:



$ millions                                     Description
$         62        Working capital at January 28, 2012
         (29 )      Decrease in cash and cash equivalents.
          15        Increase in merchandise inventories, net of accounts payable, from
                    fiscal year end due to planned receipt flows.
           4        Decrease in other current liabilities.

$         52        Working capital at April 28, 2012

Investing Cash Flows

Net cash provided by investing activities in the first quarter of fiscal 2012 was $4 million compared to $4 million used in investing activities for the first quarter of fiscal 2011, an increase in cash provided of $8 million. Investing cash outflows for the first quarters of fiscal 2012 and 2011 were comprised primarily of capital expenditures for refreshing existing stores and information technology investments at the store level. We expect total capital expenditures for fiscal 2012 to be approximately $15 to $20 million. Investing cash inflows of $8 million in the first quarter of fiscal 2012 are related to the receipt of restricted cash that was used as collateral to fund letters of credit outstanding under the Former Credit Facility.

Financing Cash Flows

Net cash used in financing activities in the first quarter of fiscal 2012 was $1.6 million compared to $0.2 million for the first quarter of fiscal 2011. The primary source of financing cash outflows in fiscal 2012 was principal payments under the New Credit Facility of $1.3 million. The primary driver of financing cash outflows in fiscal 2011 was payments for mortgage borrowing costs.

New Credit Facility

Information regarding the New Credit Facility is contained in Note 6 to the Condensed Consolidated Financial Statements and is incorporated herein by reference.

Term Loan

Information regarding the Term Loan is contained in Note 6 to the Condensed Consolidated Financial Statements and is incorporated herein by reference.

Mortgage Transactions

Information regarding our mortgage debt is contained in Note 6 to the Condensed Consolidated Financial Statements and is incorporated herein by reference.

Contractual Obligations

We have minimum annual rental commitments under existing store leases as well as a minor amount of capital leases for computer equipment. We lease all of our retail store locations under operating leases. We lease equipment, from time to time, under both capital and operating leases. In addition, at any time, we are contingently liable for commercial letters of credit with foreign suppliers of merchandise. At April 28, 2012, our future financial commitments under all existing contractual obligations were as follows:

                                                     Payments Due by Period
                                                  Less                               More
                                                 than 1       1-3        3-5        than 5
                                     Total        year       years      years       years
                                                         (In millions)
      Operating lease obligations    $  392     $     78     $  139     $   92     $     83
      Term loan                         105            3          8         94           -
      Mortgage debt                      29           <1          1          1           26
      Letters of credit                  26           26         -          -            -
      Guaranteed minimum royalties        3            1          2         -            -
      Capital lease obligations           4            1          1          2           -

      Total                          $  559     $    110     $  151     $  189     $    109

Operating lease obligations consist primarily of future minimum lease commitments related to store operating leases. The contractual obligations table above does not include common area maintenance ("CAM") charges, insurance, or tax obligations, which are also required contractual obligations under our store operating leases. In many of our leases, CAM

charges are not fixed and can fluctuate significantly from year to year for any particular store. Total store rental expenses, including CAM, for the first quarters of fiscal 2012 and fiscal 2011 were approximately $34 million and $40 million, respectively. Total CAM expenses may continue to fluctuate significantly from year-to-year as long-term leases come up for renewal at current market rates in excess of original lease terms and as we continue to close stores. Additional information regarding operating leases can be found below under the caption "Operating Leases."

Obligations under our Executive Deferred Compensation Plan are equal to approximately $2 million as of April 28, 2012 and have been excluded from the contractual obligations table above as we are unable to reasonably determine the amount or the timing of the future payments.

Operating Leases

We lease our retail stores and certain equipment under operating lease agreements expiring at various dates through January 2023. Many of our retail store leases require us to pay CAM charges, insurance and property taxes. In addition, many of our retail store leases require us to pay percentage rent ranging from 2% to 20% when sales volumes exceed certain minimum sales levels. The initial terms of such leases are typically 8 to 10 years, some of which contain renewal options exercisable at our discretion. Most leases also contain rent escalation clauses that come into effect at various times throughout the lease term. Rent expense is recorded under the straight-line method over the life of the lease. Other rent escalation clauses can take effect based on changes in primary mall tenants throughout the term of a given lease. Many leases also contain cancellation or kick-out clauses in our favor that relieve us of any future obligation under a lease if specified criteria are met. These cancellation provisions typically apply if annual store sales levels do not exceed $1 million or mall occupancy targets are not achieved within the first 36 months of the lease. Generally, we are not required to make payments to our landlords in order to exercise our cancellation rights under these provisions. We are planning to close approximately 100 stores in the fourth quarter of fiscal 2012. The New Credit Facility and Term Loan do not preclude the transfer or disposal of assets related to the closure of such stores. None of our retail store leases contain purchase options.

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that will require us to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers in certain circumstances.

It is not possible to determine our maximum potential liability under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements.

Off-Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 3 to the Condensed Consolidated Financial Statements and is incorporated herein by reference.

Inflation

We do not believe that inflation has had a material effect on our results of operations in the recent past, including the first quarter of fiscal 2012.

Seasonality and Quarterly Results

Our business is seasonal by nature. Our first quarter historically accounts for the smallest percentage of annual net sales with each successive quarter contributing a greater percentage than the last. In recent years, approximately . . .