The following discussion should be read in conjunction with our audited consolidated financial statements and related notes thereto, which are included elsewhere in this Annual Report on Form 10-K for Fiscal 2012 ("Fiscal 2012 10-K"). We utilize a 52-53 week fiscal year that ends on the last Saturday in July. As such, fiscal year 2012 ended on July 28, 2012 and reflected a 52-week period ("Fiscal 2012"); fiscal year 2011 ended on July 30, 2011 and reflected a 52-week period ("Fiscal 2011"); and fiscal year 2010 ended July 31, 2010 and reflected a 53-week period ("Fiscal 2010"). All references to "Fiscal 2013" refer to our 52-week period that will end on July 27, 2013. The inclusion of the 53rd week in Fiscal 2010 resulted in incremental revenues of approximately $56 million.

INTRODUCTION

MD&A is provided as a supplement to the accompanying audited consolidated financial statements and footnotes to help provide an understanding of our financial condition and liquidity, changes in financial condition and results of our operations. MD&A is organized as follows:

· Overview. This section provides a general description of our business, including our objectives and risks, and a summary of financial performance for Fiscal 2012. In addition, this section includes a discussion of recent developments and transactions affecting comparability that we believe are important in understanding our results of operations and financial condition, and in anticipating future trends.

· Results of operations.This section provides an analysis of our results of operations for Fiscal 2012, Fiscal 2011 and Fiscal 2010.

· Financial condition and liquidity. This section provides an analysis of our cash flows for Fiscal 2012, Fiscal 2011 and Fiscal 2010, as well as a discussion of our financial condition and liquidity as of July 28, 2012. The discussion of our financial condition and liquidity includes (i) our available financial capacity under our credit facility, (ii) a summary of our key debt compliance measures and (iii) a summary of our outstanding debt and commitments as of July 28, 2012.

· Market risk management. This section discusses how we manage our risk exposures related to interest rates, foreign currency exchange rates and our investments, as well as the underlying market conditions as of July 28, 2012.

· Critical accounting policies. This section discusses accounting policies considered to be important to our financial condition and results of operations, which require significant judgment and estimation on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 3 to our accompanying audited consolidated financial statements.

· Recently issued accounting pronouncements. This section discusses the potential impact to our reported financial condition and results of operations of accounting standards that have been recently issued.

OVERVIEW

Our Business

On June 14, 2012, as described further under the section entitled "Recent Developments," the Company acquired Charming Shoppes, Inc. ("Charming Shoppes") and its related family of retail brands. Accordingly, the Company now operates, through its wholly owned subsidiaries, the following principal retail brands:
Justice, Lane Bryant, maurices, dressbarn and Catherines. The Company now operates (through its subsidiaries) approximately 3,800 stores throughout the United States, Puerto Rico and Canada, with annual revenues on a pro forma basis of over $4.5 billion for the fiscal year ended July, 28, 2012, giving effect to the acquisition of Charming Shoppes as of the beginning of such year.

We classify our businesses into five segments following a brand-oriented approach: Justice, Lane Bryant, maurices, dressbarn and Catherines. The Justice segment includes approximately 942 specialty retail and outlet stores, e-commerce operations, and certain licensed franchises in international territories. The Justice brand offers fashionable apparel to girls who are ages 7 to 14 in an environment designed to match the energetic lifestyle of tween girls. The Lane Bryant segment includes approximately 805 specialty retail and outlet stores, and e-commerce operations. The Lane Bryant brand offers fashionable and sophisticated plus-size apparel under multiple private labels to female customers in the 35 to 55 age range. The maurices segment includes approximately 832 specialty retail and outlet stores, and e-commerce operations. The maurices brand offers up-to-date fashion designed to appeal to the 17 to 34 year-old female, with stores concentrated in small markets (approximately 25,000 to 100,000 people). The dressbarn segment includes approximately 827 specialty retail and outlet stores, and e-commerce operations. The dressbarn brand primarily attracts female consumers in the mid-30's to mid-50's age range and offers moderate-to-better quality career, special occasion and casual fashion to the working woman. The Catherines segment includes approximately 422 specialty retail and outlet stores, and e-commerce operations. The Catherines brand offers classic apparel and accessories for wear-to-work and casual lifestyles in a full range of plus sizes, generally catering to the female customer 45 years and older.

Recent Developments

In June 2012, the Company acquired Charming Shoppes, which owns and operates multiple retail brands through over 1,800 retail stores and e-commerce operations including: Lane Bryant; Catherines; Fashion Bug; and Figi's, in an all cash transaction at $7.35 per share, for an aggregate purchase price of $882.1 million (excluding the assumption of debt and transaction costs, and collectively, the "Charming Shoppes Acquisition"). The acquisition was partially funded with $325 million from new borrowings, including (a) a $300 million six-year, variable-rate term loan and (b) $25 million of borrowings under the Company's existing revolving credit facility, which was amended in connection with the transaction. The remainder was funded through available cash and cash equivalents and the liquidation of substantially all of the Company's investment portfolio.

Based on the results of its strategic review of Charming Shoppes's operations, the Company announced, contemporaneously with the closing of the Charming Shoppes Acquisition, its intent to cease operating the acquired Fashion Bug business. The Fashion Bug business, consisting of approximately 600 retail stores, is expected to be closed down by early in calendar year 2013 through an orderly liquidation of the related net assets.

In addition, the Company also announced, contemporaneously with the closing of the Charming Shoppes Acquisition, its intent to sell the acquired Figi's business. The Figi's business, which markets food and specialty gift products, is expected to be sold by the one-year anniversary date of the closing of the Charming Shoppes Acquisition.

Given the Company's intent to exit both of those businesses, their financial position and operating results have been classified as discontinued operations within the accompanying consolidated financial statements of the Company.

Our Objectives and Risks

Objectives

Our core strengths include a portfolio of value-oriented, lifestyle brands serving the female customer at various levels of maturity and sizes, beginning from age 7. This portfolio of brands is well complemented by a strong and experienced management team, a disciplined investment philosophy and a solid balance sheet. Despite the various risks associated with the current global economic environment as further discussed below, we believe our core strengths will allow us to continue to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.

We continue to focus on a number of ongoing key initiatives aimed at increasing our profitability and integrating newly acquired businesses, including reducing expenses and improving our comparative store sales trends. These initiatives include, but are not limited to, the following:

Integration of Charming Shoppes

We recently completed our acquisition of Charming Shoppes and are currently performing an operational and strategic assessment of its businesses and existing cost structure for integration purposes. Among other areas, we are evaluating how best to integrate our respective companies' technology platforms, sourcing operations and supply chain operations. As a result of this assessment, we expect to identify a number of cost-reduction opportunities in connection with anticipated operational efficiencies and the streamlining of corporate overhead. Once identified, those actions will begin to be implemented in Fiscal 2013.

Store Expansion

We have been exploring, and will continue to explore, expansion opportunities both within our current market areas and in other regions, including international expansion. During Fiscal 2012, for our legacy family of brands, we opened a net 85 stores, including net openings of 40 stores at Justice; net openings of 48 stores at maurices; and partially offset by net closings of 3 stores at dressbarn. During Fiscal 2013, we currently plan to open approximately 100 net new stores in the aggregate for all our brands.

During Fiscal 2012, our Justice brand continued to increase its international presence by opening 10 stores in Canada for a total of 16 stores. Justice plans to open an additional 15 stores in Canada during Fiscal 2013. In addition, maurices expanded into Canada during Fiscal 2012 by opening 6 stores, with plans to open an additional 15 stores in Fiscal 2013.

E-Commerce

Over the past couple of years, the Company has focused on better developing its e-commerce channel across all brands. Excluding the newly acquired businesses of Charming Shoppes, total e-commerce revenues amounted to approximately $160 million during Fiscal 2012, an increase of approximately 54% over the prior year period. We continue to develop our e-commerce platform and believe this will be an ongoing source of sales growth in future periods for both our legacy family of brands and those of the newly acquired Charming Shoppes.

Cost-Savings Initiatives

Over the past couple of years, we have centralized certain of our distribution center operations, our information technology operations, and our payroll processing operations. In addition, our ongoing project to consolidate certain of our financial systems and processes across our legacy family of brands, including a common general ledger and consolidations platform, is scheduled to be completed in the second quarter of Fiscal 2013. We expect to continue to leverage our shared resource centers among brands, particularly with regards to the integration of Charming Shoppes. We believe these efforts will continue to lead to increased cost savings and efficiencies in future periods.

Risks

There are trends and other factors, including those described below, which we face as a women's and girls' specialty apparel retailer that could have a material impact on our audited consolidated financial statements. For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A "Risk Factors" of the Fiscal 2012 10-K.

General Economic Conditions. Our performance is subject to macroeconomic conditions and their impact on levels of consumer spending. Some of the factors negatively impacting discretionary consumer spending include general economic conditions, wages and high unemployment, high consumer debt, reductions in net worth based on severe market declines (such as in residential real estate markets), increased taxation, higher fuel, energy and other prices, increasing interest rates, and low consumer confidence. In addition, any significant volatility in our financial markets, as has been experienced in the past, could also negatively impact the levels of future discretionary consumer spending. While the U.S. and certain other international economies have improved since the global financial crisis commenced in Fall 2008, a prolonged economic downturn and slow recovery, including high rates of unemployment, rising commodity prices and declining real estate market values, could have a material effect on our business, financial condition and results of operations.

Integration of Charming Shoppes.The success of the Charming Shoppes Acquisition will depend on our ability to manage both operations, to realize opportunities for revenue growth, and to eliminate redundant and excess costs. Achieving the anticipated benefits of integrating Charming Shoppes may present a number of significant risks and uncertainties.

Weather Conditions. Weather conditions can affect our net sales because inclement weather may discourage travel or require temporary store closures, thereby reducing customer traffic. Unseasonably warmer weather during typically colder months or unseasonably colder weather during typically warmer months can also affect the seasonal composition and demand for our merchandise.

Price Increases. The raw materials used to manufacture our products, in particular cotton, and our transportation and contract manufacturing labor costs, are subject to availability constraints and price volatility. We have recently seen an increase in such costs, although cotton prices have begun to moderate. In response to these price increases, we have moderately increased merchandise prices on certain items in each of our brands and may, in the future, need to further increase merchandise prices in order to maintain our merchandise margins. Consequently, higher product costs could have a negative effect on our gross profit margin and increased selling prices could have a negative effect on our sales volume.

Seasonality of Business. Our business is typically affected by seasonal sales trends primarily resulting from the timing of holiday and back-to-school shopping periods. In particular, Justice sales and operating profits tend to be significantly higher during the fall season which occurs during the first and second quarters of our fiscal year, as this includes the back-to-school period and the holiday selling period which is focused on gift-giving merchandise. The dressbarn and maurices brands have historically experienced lower earnings in the second fiscal quarter ending in January than during the three other fiscal quarters, reflecting the intense promotional environment that generally has characterized the holiday shopping season in recent years. The newly acquired Lane Bryantand Catherines brands typically experience peak sales during the Easter, Memorial Day and December holiday seasons. In addition, our operating results and cash flows may fluctuate materially in any quarterly period depending on, among other things, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays and changes in merchandise mix.

Competition. The retail apparel industry is highly competitive and fragmented, with numerous competitors, including department stores, off-price retailers, specialty stores, discount stores, mass merchandisers and Internet-based retailers, many of which have substantially greater financial, marketing and other resources than us. Many of our competitors are able to engage in aggressive promotions, reducing their selling prices. Some of our competitors include Walmart, Macy's, JCPenney, Kohl's, Old Navy, Aeropostale, Target and Sears. Other competitors may move into the markets that we serve, particularly in the plus-size women's apparel market where we have a high concentration of sales. Our business is vulnerable to demand and pricing shifts, and to changes in customer tastes and preferences. If we fail to compete successfully, we could face lower net sales and may need to offer greater discounts to our customers, which could result in decreased profitability. We believe that we have established and reinforced our image as a source of fashion and value by focusing on our target customers, and by offering superior customer service and convenience.

Customer Tastes and Fashion Trends. Customer tastes and fashion trends are volatile and can change rapidly. Our success depends in part on our ability to effectively predict and respond to changing fashion trends and consumer demands, and to translate market trends into appropriate, saleable product offerings. If we are unable to successfully predict or respond to changing styles or trends and misjudge the market for our products or any new product lines, our sales will be lower and we may be faced with a substantial amount of unsold inventory. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess or slow-moving inventory, which may have a material adverse effect on our financial condition or results of operations.

Basis of Presentation

Discontinued Operations

As discussed more fully under the section entitled "Recent Developments," the newly acquired businesses of Fashion Bug and Figi'shave been presented as discontinued operations within the accompanying consolidated financial statements of the Company.

Common Stock Split

On April 3, 2012, the Company effected a two-for-one common stock split in the form of a 100% stock dividend. All common share and per common share data, except par value per share, presented in MD&A and in the consolidated financial statements has been adjusted to reflect the stock split. See Note 2 to the accompanying consolidated financial statements for further discussion of the Company's stock split and the effect of this change.

Segment Information Reclassification

Historically, the Company was a single-brand retailer operating under the name of dressbarn. As such, all corporate overhead costs were reported historically within the dressbarn operating segment. As the Company's legal entity structure evolved with the acquisitions of the maurices brand in the fiscal year ended on July 30, 2005 ("Fiscal 2005") and the Justice brand in Fiscal 2010, the Company allocated approximately $2 million of corporate overhead costs annually to each of those operating segments from the dressbarn operating segment. The remainder of the corporate overhead costs continued to be reported primarily within the dressbarn operating segment.

In January 2011, the Company completed an internal corporate reorganization and established a new holding company, named Ascena Retail Group, Inc., to own the interests of each of the dressbarn, maurices, and Justice brands through wholly owned subsidiaries. In connection therewith, beginning in Fiscal 2012, the Company implemented a new methodology to allocate corporate overhead costs to each of its operating segments on a reasonable basis.

In order to conform to this new cost allocation methodology, the Company has recasted historically reported segment operating results in order to enhance the comparability of its segmental operating performance. There have been no changes in total net sales, total operating income or total depreciation and amortization expense as a result of this change. See Note 20 to the accompanying consolidated financial statements for further discussion of the Company's segment information and the effect of this change.

Occupancy, Distribution and Buying Costs

Historically, the Company included occupancy, distribution and buying costs within cost of goods sold on the face of its statement of operations. However, in the fourth quarter of Fiscal 2012, in connection with conforming the financial presentation of Charming Shoppes, the Company decided to present each of the aggregate of occupancy, distribution and buying costs and gross margin separately on the face of its statement of operations. In addition, certain costs, such as store utility costs, were reclassified from selling, general and administrative expenses to occupancy, distribution and buying costs. Financial information for all prior periods has been reclassified in order to conform to the current period's presentation. There have been no changes in historical operating income or historical net income for any period as a result of these changes.

Other Reclassifications

Certain other immaterial reclassifications also have been made to the prior period's financial information in order to conform to the current period's presentation.

Summary of Financial Performance

Operating Results

In Fiscal 2012, we reported net sales of $3,353.3 million, income from continuing operations of $171.8 million and net income from continuing operations per diluted share of $1.08. This compares to net sales of $2,914.0 million, income from continuing operations of $170.5 million and net income from continuing operations per diluted share of $1.05 in Fiscal 2011. Including a $9.6 million loss in Fiscal 2012 on the discontinued operations of Fashion Bug and Figi's, net income was $162.2 million and net income per diluted share was $1.02 in Fiscal 2012.

Our operating performance for Fiscal 2012 was positively affected by a 15.1% increase in net sales, consisting of 10% organic growth from our legacy family of brands and 5% growth from the Charming Shoppes Acquisition. The increase in net sales from our legacy family of brands was driven by both our comparable store sales and new store growth, as well as strong growth in e-commerce sales. While our gross margin rate declined 70 basis points to 56.0%, this was mainly due to the effect of the Charming Shoppes Acquisition, which included an unfavorable, non-cash purchase accounting adjustment of approximately $13 million for Fiscal 2012 associated with the write-up of Charming Shoppes's inventory to fair market value. The gross margin rate for our legacy family of brands declined only 10 basis points to 56.6% due largely to lower margins at dressbarn and maurices relating to increased markdowns.

Operating income increased $2.8 million, consisting of a $42.3 million increase from our legacy family of brands and a $39.5 million decrease relating to the Charming Shoppes Acquisition. The operating loss from Charming Shoppes reflected $25.4 million of acquisition-related integration and restructuring costs and the approximate $13.0 million non-cash inventory expense mentioned above. In turn, the increased operating income from our legacy family of brands primarily reflected the flow-through of margin on the higher sales volume, offset in part by increased operating costs.

The provision for income taxes from continuing operations decreased by $6.7 million to $107.2 million. The effective tax rate decreased 160 basis points, to 38.4% for Fiscal 2012, from 40% for Fiscal 2011. The decrease was primarily the result of the reversal of certain liabilities for uncertain tax positions in Fiscal 2012.

Income from continuing operations increased $1.3 million to $171.8 million as the increase in operating income and lower tax provision described above were offset, in part, by $14.0 million of one-time, acquisition-related costs relating to the Charming Shoppes Acquisition. Net income from continuing operations per diluted share increased by $0.03, or 2.9%, to $1.08 per share for Fiscal 2012 from $1.05 per share for Fiscal 2011. The increase in diluted earnings per share results was primarily due to the higher level of net income and a reduction in the weighted average diluted common shares outstanding relating to our common stock repurchase program.

Financial Condition and Liquidity

Our financial position reflects the overall relative strength of our business results, along with the financial effects of the Charming Shoppes Acquisition. We ended Fiscal 2012 in a net debt position (total cash and cash equivalents, plus short-term and non-current investments less total debt) of $157.7 million, compared to a $436.1 million of net cash and investments as of the end of Fiscal 2011.

The change in our financial position was primarily due to the use of cash and borrowings to fund the Charming Shoppes Acquisition, our treasury stock repurchases and capital expenditures, partially offset by our cash flows generated from operations. Our equity increased to $1.341 billion as of July 28, 2012, compared to $1.158 billion as of July 30, 2011, primarily due to our net income during Fiscal 2012.

We generated $361.5 million of cash from operations during Fiscal 2012, compared to $280.8 million during Fiscal 2011. During Fiscal 2012, a significant portion of our available cash was used to fund the Charming Shoppes Acquisition, to support our common stock repurchase program and to reinvest in our business through capital spending. In particular, we used $37.2 million to repurchase 2.7 million shares of common stock. We also used $150.4 million for capital expenditures primarily associated with our retail store expansion and investments in our facilities and technological infrastructure.

Transactions Affecting Comparability of Results of Operations and Financial Condition

The comparability of the Company's operating results for the three fiscal years presented herein has been affected by certain transactions, including:

· The Charming Shoppes Acquisition that closed on June 14, 2012, as described in Note 5 to the accompanying consolidated financial statements;

· The Tween Brands Merger that occurred in November of Fiscal 2010, as defined and described in Note 5 to the accompanying consolidated financial statements; and

· Certain acquisition-related, integration and restructuring costs, and certain pretax charges related to extinguishments of debt.

A summary of the effect of certain of these items on pretax income for each applicable fiscal year presented is noted below (references to "Notes" are to the notes to the accompanying audited consolidated financial statements):

                                                              Fiscal Years Ended
                                                   July 28,        July 30,        July 31,
                                                     2012            2011            2010
                                                                  (millions)
Acquisition-related, integration and
restructuring costs (see Note 5) (a)              $     (25.4 )   $     (12.3 )   $      (7.4 )
Acquisition-related costs (see Note 5)                  (14.0 )             -               -
Loss on extinguishment of debt (see Note 14)                -            (4.0 )          (5.8 )
Total                                             $     (39.4 )   $     (16.3 )   $     (13.2 )

(a) Acquisition-related, integration and restructuring costs are classified within SG&A expenses in the accompanying consolidated statement of operations.

The comparability of the Company's operating results has also been affected by the inclusion of a 53rd week in Fiscal 2010, which resulted in incremental revenues of approximately $56 million in Fiscal 2010.

The following discussion of results of operations highlights, as necessary, the significant changes in operating results arising from these items and transactions. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users individually should consider the types of events and transactions that have affected operating trends.

RESULTS OF OPERATIONS

Our segment reporting structure reflects a brand-focused approach, designed to optimize the operational coordination and resource allocation of our businesses across multiple functional areas, including specialty retail, e-commerce and licensing. The five reportable segments described below represent our brand-based activities for which separate financial information is available, and which is utilized on a regular basis by our executive team to evaluate performance and allocate resources. In identifying our reportable segments, we consider economic characteristics, as well as products, customers, sales growth potential and long-term profitability. As such, we report our operations in five reportable segments as follows:

• Justice segment - consists of the specialty retail, outlet, e-commerce and licensing operations of the Justice brand.

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