Comparison of the Thirteen Weeks Ended July 28, 2012 with the Thirteen Weeks
Ended July 30, 2011.

Net Sales

                                                                                                                                                           Percent
                                                                                                                                                           Change
                  Thirteen Weeks     Percentage      Thirteen Weeks     Percentage                                                                        Excluding
                      Ended              of              Ended              of                         Dollar Change due to   Dollar Change Excluding      Parlux
                  July 28, 2012       Net Sales      July 30, 2011      Net Sales     Dollar Change     Parlux Acquisition      Parlux Acquisition       Acquisition
                                         ($ in thousands)
Retail          $         78,461         72.5 %    $         78,851       76.1%      $        (390 )   $                -     $           (390 )            (0.5 )%
Wholesale                 29,697         27.5 %              24,744       23.9%              4,953                  9,046               (4,093 )           (16.5 )%
Total net sales $        108,158       100.0%      $        103,595       100.0%     $       4,563     $            9,046     $         (4,483 )            (4.3 )%

Net sales increased 4.4% from $103.6 million in the thirteen weeks ended July 30, 2011 to $108.2 million in the thirteen weeks ended July 28, 2012. The increase in sales included a $5.0 million increase in wholesale sales offset by a $0.4 million decrease in retail sales. Excluding the results of Parlux, net sales decreased by $4.5 million or 4.3%.
Retail sales decreased by 0.5% from $78.9 million in the thirteen weeks ended July 30, 2011 to $78.5 million in the thirteen weeks ended July 28, 2012. The decrease included a decrease in SOW's consignment sales of $0.8 million offset by an increase in Perfumania's retail sales of $0.4 million.
Perfumania's retail sales increased from $63.0 million in the thirteen weeks ended July 30, 2011 to $63.4 million in the thirteen weeks ended July 28, 2012. The average number of stores operated was 343 in the thirteen weeks ended July 28, 2012 compared with 344 in the comparable period last year. Perfumania's comparable store sales decreased by 0.8% during the thirteen weeks ended July 28, 2012 from the same period in 2011. Comparable store sales measure sales from stores that have been open for one year or more. We exclude stores that are closed for renovation from comparable store sales from the month during which renovation commences until the first full month after reopening. The average retail price per unit sold during the thirteen weeks ended July 28, 2012 decreased by 2.1% from the prior year's comparable period while the total number of units sold increased by 2.7%.
SOW's consignment sales decreased from $15.9 million in the thirteen weeks ended July 30, 2011 to $15.1 million in the thirteen weeks ended July 28, 2012. The decrease in SOW's net sales is due generally to the termination of several consignment relationships.
Excluding the results of Parlux, the decrease in wholesale sales of $4.1 million is the result of less product availability for the wholesale division and lower customer demand during the thirteen weeks ended July 28, 2012 compared to the thirteen weeks ended July 30, 2011.

Gross Profit

                                                                                                                            Percent Change
                  Thirteen Weeks      Thirteen Weeks                                                                          Excluding
                       Ended               Ended                           Dollar Change due to   Dollar Change Excluding       Parlux
                   July 28, 2012       July 30, 2011      Dollar Change     Parlux Acquisition      Parlux Acquisition       Acquisition
                           ($ in thousands)
Retail           $        34,094     $        35,765     $      (1,671 )   $                -     $         (1,671 )             (4.7 )%
Wholesale                  9,994               6,791             3,203                  4,612               (1,409 )            (20.7 )%
  Total gross
profit           $        44,088     $        42,556     $       1,532     $            4,612     $         (3,080 )             (7.2 )%



Gross Profit Percentages
                                  Thirteen Weeks   Thirteen Weeks
                                      Ended            Ended
                                  July 28, 2012    July 30, 2011
Retail                                43.5%            45.4%
Wholesale                             33.7%            27.4%
  Total gross profit percentage       40.8%            41.1%

Gross profit increased 3.6% from $42.6 million in the thirteen weeks ended July 30, 2011 to $44.1 million in the thirteen weeks ended July 28, 2012. The increase in gross profit was due to the acquisition of Parlux on April 18, 2012. Excluding the results of Parlux, gross profit decreased by $3.1 million or 7.2%. Perfumania's retail gross profit dollars for the thirteen weeks ended July 28, 2012 decreased by 3.9% to $29.1 million compared with the comparable period in 2011. For these same periods, Perfumania's retail gross margins were 46.0% and 48.1%, respectively. The decrease in Perfumania's retail gross profit percentage was due to increased promotional activity during the thirteen weeks ended July 28, 2012.

Expenses
Selling, general and administrative expenses include payroll and related benefits for our distribution center, sales, store operations, field management, purchasing and other corporate office and administrative personnel; rent, common area maintenance, real estate taxes and utilities for our stores, distribution centers and corporate office; advertising, consignment fees, sales promotion, insurance, supplies, freight out, and other administrative expenses. Selling, general and administrative expenses were $54.8 million in the thirteen weeks ended July 28, 2012, compared to $38.3 million in the thirteen weeks ended July 30, 2011. Excluding the results of Parlux, selling, general and administrative expenses increased by $0.3 million. Included in selling, general and administrative expenses are expenses in connection with the Services Agreement with Quality King, which were $0.2 million for both thirteen weeks ended July 28, 2012 and July 30, 2011.
Depreciation and amortization was approximately $4.7 million and $1.9 million in the thirteen weeks ended July 28, 2012 and July 30, 2011, respectively. Approximately $2.7 million of amortization expense during the thirteen weeks ended July 28, 2012 relates to amortization on identifiable intangibles acquired as a result of the acquisition of Parlux.
Share-based compensation expense of approximately $0.6 million during the thirteen weeks ended July 28, 2012 represents the expense incurred on stock options granted during the current period.
Merger related expenses of approximately $0.2 million during the thirteen weeks ended July 28, 2012 represents costs incurred by the Company for the acquisition of Parlux.
Interest expense was approximately $2.3 million for the thirteen weeks ended July 28, 2012 compared with approximately $1.9 million for the thirteen weeks ended July 30, 2011. The increase in interest expense is due primarily to a higher average outstanding balance on the Company's revolving credit facility, as well as a higher outstanding balance on the Company's outstanding notes payable to affiliates during the thirteen weeks ended July 28, 2012 compared with the thirteen weeks ended July 30, 2011.
The Company continues to record a full valuation allowance against all deferred tax assets, thus no income tax benefit was

recorded on operating losses during the thirteen weeks ended July 28, 2012 and July 30, 2011.
As a result of the foregoing, we realized a net loss of approximately $18.6 million in the thirteen weeks ended July 28, 2012 compared to net income of $0.5 million in the thirteen weeks ended July 30, 2011. Excluding the results of Parlux, our net loss was $2.5 million for the thirteen weeks ended July 28, 2012.

Comparison of the Twenty-six Weeks Ended July 28, 2012 with the Twenty-six Weeks
Ended July 30, 2011.

Net Sales

                                                                                                                                                             Percent
                                                                                                                                                             Change
                 Twenty-six Weeks     Percentage    Twenty-six Weeks     Percentage                                                                         Excluding
                       Ended              of              Ended              of                           Dollar Change due to   Dollar Change Excluding     Parlux
                   July 28, 2012      Net Sales       July 30, 2011      Net Sales      Dollar Change      Parlux Acquisition      Parlux Acquisition      Acquisition
                                         ($ in thousands)
Retail          $         152,391       71.0%      $         151,233       72.2%      $         1,158     $                -     $          1,158             0.8%
Wholesale                  62,151       29.0%                 58,143       27.8%                4,008                  9,675               (5,667 )          (9.7)%
Total net sales $         214,542       100.0%     $         209,376       100.0%     $         5,166     $            9,675     $         (4,509 )          (2.2)%

Net sales increased 2.5% from $209.4 million in the twenty-six weeks ended July 30, 2011 to $214.5 million in the twenty-six weeks ended July 28, 2012. The increase in sales included an increase in retail sales of $1.2 million and an increase in wholesale sales of $4.0 million. Excluding the results of Parlux, net sales decreased by $4.5 million.
Retail sales increased by 0.8% from $151.2 million in the twenty-six weeks ended July 30, 2011 to $152.4 million in the twenty-six weeks ended July 28, 2012. The increase included an increase in Perfumania's retail sales of $0.8 million and an increase in SOW's consignment sales of $0.4 million.
Perfumania's retail sales increased from $120.7 million in the twenty-six weeks ended July 30, 2011 to $121.5 million in the twenty-six weeks ended July 28, 2012. Perfumania's comparable store sales increased by 0.4% during the twenty-six weeks ended July 28, 2012. The average retail price per unit sold during the twenty-six weeks ended July 28, 2012 increased 9.4% from the prior year's comparable period while the total number of units sold increased by 1.5%. We attribute the increase in the average retail price per unit sold and the increase in the number of units sold to an increase in mall traffic and various store level pricing promotions. The average number of stores operated was 342 in the twenty-six weeks ended July 28, 2012, versus 349 in the prior year's comparable period.
SOW's consignment sales increased from $30.5 million in the twenty-six weeks ended July 30, 2011 to $30.9 million in the twenty-six weeks ended July 28, 2012. The increase in SOW's net sales is due to an increase in sales to one existing account offset by the termination of several consignment relationships. Excluding the results of Parlux, the decrease in wholesale sales of $5.7 million is the result of less product availability for the wholesale division and less customer demand during the twenty-six weeks ended July 28, 2012 compared to the twenty-six weeks ended July 30, 2011.

Gross Profit

                                                                                                                                    Percent
                                                                                                                                    Change
                   Twenty-six Weeks       Twenty-six Weeks                                                                         Excluding
                        Ended                  Ended                             Dollar Change due to   Dollar Change Excluding     Parlux
                    July 28, 2012          July 30, 2011        Dollar Change     Parlux Acquisition      Parlux Acquisition      Acquisition
                              ($ in thousands)
Retail           $           66,416     $           68,134     $      (1,718 )   $                -     $         (1,718 )          (2.5)%
Wholesale                    18,957                 14,544             4,413                  4,943                 (530 )          (3.6)%
  Total gross
profit           $           85,373     $           82,678     $       2,695     $            4,943     $         (2,248 )          (2.7)%

Gross Profit Percentages

                               Twenty-six      Twenty-six
                                  Weeks           Weeks
                                  Ended           Ended
                              July 28, 2012   July 30, 2011
Retail                            43.6%           45.1%
Wholesale                         30.5%           25.0%
Total gross profit percentage     39.8%           39.5%

Gross profit increased 3.3% from $82.7 million in the twenty-six weeks ended July 30, 2011 to $85.4 million in the twenty-six weeks ended July 28, 2012. Excluding the results of Parlux, gross profit decreased by $2.2 million or 2.7%. Perfumania's retail gross profit for the twenty-six weeks ended July 28, 2012 decreased by 3.8% to $55.3 million compared with the comparable period in 2011. For these same periods, Perfumania's retail gross margins were 45.5% and 47.7%, respectively.

Expenses
Selling, general and administrative expenses were $97.3 million in the twenty-six weeks ended July 28, 2012, compared to $78.1 million in the twenty-six weeks ended July 30, 2011. Excluding the results of Parlux, selling, general and administrative expenses decreased by $2.9 million. Also included in selling, general and administrative expenses are expenses in connection with the Services Agreement with Quality King, which were $0.5 million and $0.3 million for the twenty-six weeks ended July 28, 2012 and July 30, 2011, respectively. Depreciation and amortization was approximately $6.6 million in the twenty-six weeks ended July 28, 2012, compared to $3.8 million for the twenty-six weeks ended July 30, 2011. Approximately $2.7 million of amortization expense during the twenty-six weeks ended July 28, 2012 relates to amortization on identifiable intangibles acquired as a result of the acquisition of Parlux. Share-based compensation expense of approximately $4.4 million during the twenty-six weeks ended July 28, 2012 represents the expense incurred on stock options granted during the current period.
Merger related expenses of approximately $4.6 million during the twenty-six weeks ended July 28, 2012 represents costs incurred by the Company for the acquisition of Parlux.
Interest expense was approximately $4.1 million for the twenty-six weeks ended July 28, 2012 compared with approximately $4.0 million for the twenty-six weeks ended July 30, 2011. The increase in interest expense is due primarily to a higher average outstanding balance on the Company's revolving credit facility, as well as a higher overall average outstanding balance on the Company's outstanding notes payable to affiliates during the twenty-six weeks ended July 28, 2012 compared with the twenty-six weeks ended July 30, 2011. Since the Company continues to record a full valuation allowance against all deferred tax assets, no income tax benefit was recorded during either of the twenty-six week periods ended July 28, 2012 and July 30, 2011.
As a result of the foregoing, we realized a net loss of approximately $31.6 million in the twenty-six weeks ended July 28, 2012, compared to a net loss of $3.2 million in the twenty-six weeks ended July 30, 2011. Excluding the results of Parlux, our net loss was $15.5 million for the twenty-six weeks ended July 28, 2012.

LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the twenty-six weeks ended July 28, 2012 was approximately $13.6 million, compared with approximately $13.1 million provided by operating activities during the twenty-six weeks ended July 30, 2011. The $26.7 million decrease in cash flows from operating activities during the twenty-six weeks ended July 28, 2012 compared with the prior year's comparable period resulted primarily from an increase in our net loss. The seasonality of our operations may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods.
Net cash used in investing activities was approximately $48.2 million in the twenty-six weeks ended July 28, 2012 compared to $1.2 million in the twenty-six weeks ended July 30, 2011. The current period's investing activities primarily related to the payment of $62.1 million to acquire Parlux, net of Parlux's $17.1 million cash on hand. During the twenty-six weeks ended July 28, 2012, Perfumania opened 8 new stores and closed 9 stores, including 1 seasonal location. We plan to

open a minimum of 13 stores and close 2 stores for the remainder of fiscal 2012. We continuously evaluate the appropriate new store growth rate in light of economic conditions and may adjust the growth rate as conditions change. Furthermore, we continue to evaluate the need to close, remodel or relocate existing stores.
Net cash provided by financing activities during the twenty-six weeks ended July 28, 2012 was approximately $61.6 million, primarily because of the $32.1 million borrowed under our Senior Credit Facility, net of cash and cash equivalents acquired from Parlux, and the $30 million borrowed from affiliates to fund the cash paid for Parlux, compared with approximately $11.8 million used in financing activities for the twenty-six weeks ended July 30, 2011. See further discussion at Note 2 of the condensed consolidated financial statements. The Company has a $225 million revolving credit facility with a syndicate of banks (the "Senior Credit Facility"), which is used for the Company's general corporate purposes and those of its subsidiaries, including working capital. The Company and certain of its subsidiaries are co-borrowers under the Senior Credit Facility, and the Company's other subsidiaries have guaranteed all of their obligations thereunder. The Company was in compliance with all financial and operating covenants under the Senior Credit facility as of July 28, 2012. As of July 28, 2012, the Company had $40.3 million available to borrow under the Senior Credit Facility based on the borrowing base at that date. Further information about the Senior Credit Facility is included in Note 6 of our condensed consolidated financial statements included in this Form 10-Q. The Company has various unsecured notes payable outstanding to affiliates which in aggregate total $125.4 million of principal. No payments of principal may be made on any of these notes payable to affiliates before the maturity of the Senior Credit Facility although interest payments are permitted under certain conditions. See further discussion of our notes payable to affiliates and our Senior Credit Facility in Note 6 of our condensed consolidated financial statements included in this Form 10-Q.
Our liquidity is impacted by a number of factors, including our sales levels, the amount of credit that our vendors extend to us and our borrowing capacity under our Senior Credit Facility. Our principal funding requirements are for inventory purchases, financing extended terms on accounts receivable, paying down accounts payable and debt, and to a lesser extent, information system enhancements, opening new stores and renovation of existing stores. These capital requirements generally have been satisfied through borrowings under the Senior Credit Facility and notes payable to affiliates. Based on current internal sales and cash flow projections, current vendor payable support and our projected available borrowing capacity under our Senior Credit Facility, as well as other initiatives to maximize cash flow, we believe that these resources will be adequate to meet our requirements in both the short and long-term.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our condensed consolidated financial statements have been prepared in accordance with US GAAP. Preparation of these statements requires management to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, management evaluates its estimates, including those related to bad debts, inventories, asset impairments, sales returns and allowances, and other contingent assets and liabilities. As such, some accounting policies have a significant impact on amounts reported in these financial statements. The judgments and estimates made can significantly affect results. Materially different amounts might be reported under different conditions or by using different assumptions. We consider an accounting policy to be critical if it is both important to the portrayal of our financial condition and results of operations, and requires significant judgment and estimates by management in its application. We have identified certain critical accounting policies that affect the significant estimates and judgments used in the preparation of its financial statements. There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the year ended January 28, 2012.