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 non-cash impairment charges for underperforming stores in future quarters; and

• sales trends for the third quarter of fiscal 2012.

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 sources 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 Second Quarter Ended                            For the First Half Ended
                                       July 28, 2012                July 30, 2011             July 28, 2012               July 30, 2011
Net sales                                       100.0 %                      100.0 %                   100.0 %                     100.0 %
Cost of goods sold, including
buying, distribution and
occupancy costs                                  72.5                         76.4                      74.3                        78.4

Gross margin                                     27.5                         23.6                      25.7                        21.6
Selling, general and
administrative expenses                          30.2                         31.8                      32.0                        33.5

Operating loss                                   (2.7 )                       (8.2 )                    (6.3 )                     (11.9 )
Loss on derivative liability                      3.9                           -                        0.5                          -
Other expense, net                                1.6                          0.3                       1.7                         0.3

Loss before income taxes                         (8.2 )                       (8.5 )                    (8.5 )                     (12.2 )
Income taxes                                     (0.1 )                       (0.2 )                    (0.1 )                      (0.2 )

Loss from continuing operations                  (8.3 )%                      (8.7 )%                   (8.6 )%                    (12.4 )%

The second quarter (13 weeks) ended July 28, 2012 as compared to the second quarter (13 weeks) ended July 30, 2011

Net Sales

Net sales increased to $210 million for the second quarter of fiscal 2012 from
$201 million for the second quarter of fiscal 2011. The components of this $9
million increase in net sales are as follows:



$ millions                                   Attributable to
$         8        A 5% increase in comparable store net sales in the second quarter
                   of fiscal 2012 and an 8% increase in average sales transactions,
                   partially offset by a decrease in total transactions of 3%.
          1        Increase in other non-comparable sales including sales from
                   expanded, relocated or new stores not yet included in the
                   comparable store base.

$         9        Total

For the second quarter of fiscal 2012, comparable store net sales of Men's and Women's increased 7% and 2%, respectively, which represented the highest Men's second quarter comparable since fiscal 2004. The increase in Men's was attributable to increases in sales of tops and non-apparel, partially offset by decreases in sales of bottoms, compared to the second quarter of fiscal 2011. The increase in Women's was primarily driven by increases in sales of bottoms and non-apparel partially offset by decreases in sales of tops, compared to the second quarter of fiscal 2011. Apparel represented 85% of total Women's sales for the second quarter of fiscal 2012 versus 86% in the second quarter of fiscal 2011, while Men's apparel was flat at 85% of total Men's sales for the second quarters of fiscal 2012 and fiscal 2011. Total non-apparel represented a combined 15% of total sales for the second quarter of fiscal 2012 and 14% of total sales for the second quarter of fiscal 2011. In addition, same-store sales transactions decreased from 4.7 million in the second quarter of fiscal 2011 to 4.6 million in the second quarter of fiscal 2012.

On our quarterly conference call discussing second quarter results, held on August 22, 2012, we provided same-store sales guidance for our third quarter of fiscal 2012 to be in the range of negative 2% to plus 2%.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, was $58 million for the second quarter of fiscal 2012 versus $47 million for the second quarter of fiscal 2011. As a percentage of net sales, gross margin was 27.5% for the second quarter of fiscal 2012 compared to 23.6% for the second quarter of fiscal 2011. The components of this 3.9% increase in gross margin as a percentage of net sales were as follows:

  %                                    Attributable to
  2.6     Increase in merchandise margin to 51.4% in the second quarter of fiscal
          2012 from 48.8% in the second quarter of fiscal 2011, primarily due to an
          increase in initial markups and a decrease in promotions.
  1.1     Leveraging of occupancy costs as a result of the 5% same-store sales
          increase for the second quarter of fiscal 2012 discussed above and a
          reduction in rent expense related to negotiations with our landlords.
  0.2     Decrease in distribution costs as compared to the second quarter of fiscal
          2011.

  3.9     Total

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") was flat at $64 million for the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011. These expenses decreased to 30.2% as a percentage of net sales in the second quarter of fiscal 2012 from 31.8% in the second quarter of fiscal 2011. The components of this 1.6% decrease in SG&A as a percentage of net sales were as follows:

  %                                  Attributable to
 0.8    Increase in payroll and payroll-related expenses as a percentage of net
        sales. Payroll expense, increased $4 million to $39 million in the second
        quarter of fiscal 2012 from $35 million in the second quarter of fiscal
        2011 due primarily to an increase in bonus accrual.
(0.6)   Decrease in depreciation expense to $8.6 million in the second quarter of
        fiscal 2012 from $9.4 million in the second quarter of fiscal 2011 due
        primarily to recent store closures.
(0.6)   Decrease in non-cash asset impairment charges and store closure related
        charges to $2 million in the second quarter of fiscal 2012 from $3 million
        in the second quarter of fiscal 2011.
(1.2)   Decrease in all other SG&A expenses as a percentage of sales. Other SG&A
        expenses decreased $2 million to $14 million in the second quarter of
        fiscal 2012 from $16 million in the second quarter of fiscal 2011,
        primarily due to a decrease in credit card authorization fees and
        consulting fees.

(1.6)   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 $1 million during the second quarter of fiscal 2012 and approximately $3 million during the second quarter of fiscal 2011 to write-down the carrying value of certain long-lived store assets to their estimated fair values. During the second quarters of fiscal 2012 and 2011, we tested 116 and 187 stores, respectively, for impairment and recorded impairment charges related to 23 and 28 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 $8 million as of July 28, 2012, is recoverable. Additionally, the Company wrote off approximately $ 1 million of excess store fixtures in the second quarter of fiscal 2012.

Loss on Derivative Liability

We recorded a fair market adjustment of approximately $8 million related to the derivative liability in the second quarter of fiscal 2012. 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 approximately $4 million and $1 million for the second quarters of fiscal 2012 and 2011, respectively. The increase in other expense from fiscal 2011 to fiscal 2012 is 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 $0.2 million and $0.4 million for the second quarter of fiscal 2012 and 2011, respectively. 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.

Loss from Continuing Operations

Our loss from continuing operations for the second quarter of fiscal 2012 was approximately $18 million, or $(0.26) per share, versus a loss from continuing operations of approximately $17 million, or $(0.26) per share, for the second quarter of fiscal 2011.

The first half (26 weeks) ended July 28, 2012 as compared to the first half (26 weeks) ended July 30, 2011

Net Sales

Net sales increased to $384 million for the first half of fiscal 2012 from $373
million for the first half of fiscal 2011. The components of this $11 million
increase in net sales are as follows:



 $ millions                                  Attributable to
$         10        A 3% increase in comparable store net sales in the first half of
                    fiscal 2012 and an increase in average sales transactions of 7%,
                    partially offset by a decrease in total transactions of 4%.
           1        Increase in other non-comparable sales including sales from
                    expanded, relocated or new stores not yet included in the
                    comparable store base and bulk sales.

$         11        Total

For the first half of fiscal 2012, comparable store net sales of Men's and Women's increased 4% and 1%, respectively. The increase in Men's was attributable to increases in sales of tops, bottoms, and non-apparel, compared to the first half of fiscal 2011. The increase in Women's was driven by increases in sales of bottoms and non-apparel, partially offset by decreases in sales of tops, compared to the first half of fiscal 2011. Apparel represented 85% of total Women's sales for the first half of fiscal 2012 versus 86% in the first half of fiscal 2011, while Men's apparel was flat at 85% of total Men's sales for the first half of fiscal 2012 and fiscal 2011. Total non-apparel represented a combined 15% of total sales for the first half of fiscal 2012 and 14% of total sales for the first half of fiscal 2011. In addition, same-store sales transactions decreased from 8.9 million in the first half of fiscal 2011 to 8.5 million in the first half of fiscal 2012.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, was $99 million for the first half of fiscal 2012 versus $81 million for the first half of fiscal 2011. As a percentage of net sales, gross margin was 25.7% for the first half of fiscal 2012 compared to 21.6% for the first half of fiscal 2011. The components of this 4.1% increase in gross margin as a percentage of net sales were as follows:

  %                                    Attributable to
  2.1     Increase in merchandise margin to 51.2% in the first half of fiscal 2012
          from 49.1% in the first half of fiscal 2011, primarily due to an increase
          in initial markups and a decrease in promotions.
  1.6     Leveraging of occupancy costs as a result of the 3% same-store sales
          increase for the first half of fiscal 2012 discussed above and a reduction
          in rent expense related to negotiations with our landlords.
  0.4     Decrease in buying and distribution costs to $15 million in the first half
          of fiscal 2012 compared to $16 million in the first half of fiscal 2011.

  4.1     Total

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased to $123 million for the first half of fiscal 2012 from $125 million for the first half of fiscal 2011, a decrease of $2 million, or 1.5%. These expenses decreased to 32.0% as a percentage of net sales in the first half of fiscal 2012 from 33.5% in the first half of fiscal 2011. The components of this 1.5% decrease in SG&A as a percentage of net sales were as follows:

   %                                    Attributable to
   0.8      Increase in payroll and payroll-related expenses as a percentage of net
            sales. Payroll expense increased $5 million to $75 million in the first
            half of fiscal 2012 from $70 million in the first half of fiscal 2011,
            primarily due to an increase in bonus accrual.
  (0.9)     Decrease in depreciation expense to $17 million in the first half of
            fiscal 2012 from $19 million in the first half of fiscal 2011 due
            primarily to recent store closures.
  (0.5)     Decrease in non-cash asset impairment charges and store closure related
            charges to $4 million in the first half of fiscal 2012 from $5 million
            in the first half of fiscal 2011.
  (0.9)     Decrease in all other SG&A expenses as a percentage of sales. Other SG&A
            decrease $3 million to $27 million in the first half of fiscal 2012 from
            $30 million in the first half of fiscal 2011, primarily due to a
            decrease in consulting costs and credit card processing fees.

  (1.5)     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 $3 million and $6 million during the first half of fiscal 2012 and 2011, respectively, to write-down the carrying value of certain long-lived store assets to their estimated fair values. During the first half of fiscal 2012 and 2011, we tested 151 and 240 stores, respectively, for impairment and recorded impairment charges related to 39 and 64 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. Additionally, the Company wrote off approximately $1 million of excess store fixtures in the second half of fiscal 2012.

Loss on Derivative Liability

We recorded a fair market adjustment of approximately $2 million related to the derivative liability in the first half of fiscal 2012. 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 approximately $7 million and $1 million for the first half of fiscal 2012 and 2011, respectively. The increase in other expense from fiscal 2011 to fiscal 2012 was 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 $0.5 million and $0.7 million for the first half of fiscal 2012 and 2011, respectively. 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.

Loss from Continuing Operations

Our loss from continuing operations for the first half of fiscal 2012 was approximately $33 million, or $(0.49) per share, versus a loss from continuing operations of approximately $46 million, or $(0.70) per share, for the first half 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 sources might not be available.

                                                    For the First Half Ended
                                              July 28, 2012          July 30, 2011
                                                         (In thousands)
 Net cash used in operating activities       $       (13,549 )      $       (43,717 )
 Net cash used in investing activities                  (227 )               (6,638 )
 Net cash used in financing activities                (1,700 )                 (103 )

 Net decrease in cash and cash equivalents   $       (15,476 )      $       (50,458 )

Operating Cash Flows

Net cash used in operating activities for the first half of fiscal 2012 was $14 million. We used $8 million of cash in operations (net of non-cash charges). In addition, cash decreased $6 million from changes in working capital items primarily due to increases in merchandise inventories of $56 million partially offset by an increase in accounts payable of $47 million. Such increases resulted from the seasonal variation between the peak back-to-school selling season and the annual low point for inventories at the end of the fiscal year. The remaining working capital change was attributable to an increase in other current liabilities of $6 million, partially offset by an increase in other current assets, primarily due to an increase in prepaid expenses.

Net cash used in operating activities for the first half of fiscal 2011 was $44 million. We used $21 million of cash in operations (net of noncash charges), before working capital changes. In addition, cash decreased $18 million from changes in working capital items, primarily due to increases in merchandise inventories of $68 million, offset by increased accounts payable of $56 million due to the seasonal variation between the peak back-to-school selling season and the annual low point for inventories at the end of the fiscal year. The remaining decrease in cash from working capital items was attributable to an increase in other current assets of $6 million primarily due to an increase in prepaid expenses of $5 million. Additional decreases in operating cash flows were due to changes in other assets and liabilities of $5 million.

Working Capital

Working capital at July 28, 2012, was $43 million compared to $62 million at
January 28, 2012, a decrease of $19 million. The changes in working capital were
as follows:



 $ millions                                    Description
$         62        Working capital at January 28, 2012.
. . .