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; and

• potential recording of non-cash impairment charges for underperforming stores in future quarters.

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, average net sales per square foot and number of transactions.

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, 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 Third Quarter Ended                                 For the Three Quarters Ended
                                         October 27, 2012              October 29, 2011             October 27, 2012                October 29, 2011
Net sales                                            100.0 %                       100.0 %                      100.0 %                         100.0 %
Cost of goods sold, including
buying, distribution and
occupancy costs                                       73.4                          75.6                         73.9                            77.3

Gross margin                                          26.6                          24.4                         26.1                            22.7
Selling, general and
administrative expenses                               27.2                          30.2                         30.2                            32.2

Operating loss                                        (0.5 )                        (5.8 )                       (4.1 )                          (9.5 )
Gain on derivative liability                          (2.4 )                          -                          (0.6 )                            -
Other expense, net                                     1.4                           0.5                          1.6                             0.4

Income (loss) before income taxes                      0.5                          (6.3 )                       (5.1 )                          (9.9 )
Income tax expense (benefit)                           0.0                          (0.1 )                        0.1                             0.1

Income (loss) from continuing
operations                                             0.4 %                        (6.2 )%                      (5.2 )%                        (10.0 )%

The third quarter (13 weeks) ended October 27, 2012 as compared to the third quarter (13 weeks) ended October 29, 2011

Net Sales

Net sales increased to $228.4 million for the third quarter of fiscal 2012 from
$226.8 million for the third quarter of fiscal 2011. The components of this $1.6
million increase in net sales are as follows:



$ millions                                   Attributable to
$        0.6        A 1% increase in comparable store net sales in the third quarter
                    of fiscal 2012 and a 3% increase in average sales transactions,
                    partially offset by a decrease in total transactions of 2%.
         1.0        Increase primarily in other non-comparable sales, including sales
                    from expanded, relocated or new stores not yet included in the
                    comparable store base.

$        1.6        Total

For the third quarter of fiscal 2012, comparable store net sales of Men's was flat and Women's increased 2%, respectively. For Men's, increased sales of tops and non-apparel were offset by decreases in sales of bottoms, compared to the third quarter of fiscal 2011. The increase in Women's was primarily driven by higher sales of bottoms and non-apparel, partially offset by decreases in sales of tops, compared to the third quarter of fiscal 2011. Apparel represented 87% of total Women's sales for the third quarter of fiscal 2012 versus 86% in the third quarter of fiscal 2011, while Men's apparel represented 86% of total Men's sales for the third quarter of fiscal 2012 versus 87% in the third quarter of fiscal 2011. Total non-apparel sales represented a combined 14% of total sales for the third quarter of both fiscal 2012 and fiscal 2011. In addition, same-store sales transactions decreased from 4.5 million in the third quarter of fiscal 2011 to 4.4 million in the third quarter of fiscal 2012.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, was $60.8 million for the third quarter of fiscal 2012 versus $55.4 million for the third quarter of fiscal 2011. As a percentage of net sales, gross margin was 26.6% for the third quarter of fiscal 2012 compared to 24.4% for the third quarter of fiscal 2011. The components of this 2.2% increase in gross margin as a percentage of net sales were as follows:

%                                      Attributable to
  1.8     Increase in merchandise margin to 49.0% in the third quarter of fiscal
          2012 from 47.2% in the third quarter of fiscal 2011, primarily due to an
          increase in initial markups and a decrease in promotions, partially offset
          by a one-time store closure charge of 80 basis points for markdown
          allowances.
  0.1     Leveraging of occupancy costs as a result of the 1% same-store sales
          increase for the third quarter of fiscal 2012 discussed above and a
          reduction in rent expense related to negotiations with our landlords.
  0.3     Decrease in distribution costs as compared to the third quarter of fiscal
          2011.

  2.2     Total

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") was $62.1 million for the third quarter of fiscal 2012 compared to $68.4 million for the third quarter of fiscal 2011. These expenses decreased to 27.2% as a percentage of net sales in the third quarter of fiscal 2012 from 30.2% in the third quarter of fiscal 2011. The components of this 3.0% decrease in SG&A as a percentage of net sales were as follows:

   %                                     Attributable to
    0.7      Increase in payroll and payroll-related expenses as a percentage of net
             sales. Payroll expense increased $2 million to $39 million in the third
             quarter of fiscal 2012 from $37 million in the third quarter of fiscal
             2011 due primarily to an increase in employee benefits.
   (0.8 )    Decrease in depreciation expense to $8 million in the third quarter of
             fiscal 2012 from $9 million in the third quarter of fiscal 2011 due
             primarily to recent store closures.
   (1.8 )    Decrease in non-cash asset impairment charges and store closure related
             charges to $1 million in the third quarter of fiscal 2012 from $5
             million in the third quarter of fiscal 2011.
   (1.1 )    Decrease in all other SG&A expenses as a percentage of sales. Other SG&A
             expenses decreased $2 million to $15 million in the third quarter of
             fiscal 2012 from $17 million in the third quarter of fiscal 2011,
             primarily due to the timing of advertising expenses and a decrease in
             consulting fees.

(3.0) 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 from continuing operations of approximately $1 million during the third quarter of fiscal 2012 and approximately $4 million during the third quarter of fiscal 2011 to write-down the carrying value of certain long-lived store assets to their estimated fair values. During the third quarters of fiscal 2012 and 2011, we tested 101 and 221 stores, respectively, for impairment and recorded impairment charges related to 17 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. In addition, based on historical operating performance and the projected outlook for these stores, we believe that the remaining asset value of approximately $6 million as of October 27, 2012, is recoverable.

Gain on Derivative Liability

We recorded a fair market adjustment of approximately $6 million related to the derivative liability in the third 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, net, was approximately $3 million and $1 million for the third quarters of fiscal 2012 and 2011, respectively. The increase in other expense, net, 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 $0.1 million and an income tax benefit of $0.2 million for the third 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.

Income (loss) from Continuing Operations

Our income from continuing operations for the third quarter of fiscal 2012 was approximately $1 million, or $0.01 per diluted share, versus a loss from continuing operations of approximately $14 million, or $(0.21) per diluted share, for the third quarter of fiscal 2011. Income for the third quarter of fiscal 2012 included a gain on the derivative liability of approximately $6 million as discussed in Note 9 to the Condensed Consolidated Financial Statements.

The first three quarters (39 weeks) ended October 27, 2012 as compared to the first three quarters (39 weeks) ended October 29, 2011

Net Sales

Net sales increased to $612.6 million for the first three quarters of fiscal
2012 from $599.6 million for the first three quarters of fiscal 2011. The
components of this $13.0 million increase in net sales are as follows:



$ millions                                  Attributable to
$      10.2       A 2% increase in comparable store net sales in the first three
                  quarters of fiscal 2012 and an increase in average sales
                  transactions of 5%, partially offset by a decrease in total
                  transactions of 3%.
        2.8       Increase primarily in other non-comparable sales, including sales
                  from expanded, relocated or new stores not yet included in the
                  comparable store base.

$      13.0       Total

For the first three quarters of fiscal 2012, comparable store net sales of Men's and Women's increased 3% and 2%, respectively. The increase in Men's was attributable to increases in sales of bottoms and non-apparel, compared to the first three quarters 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 three quarters of fiscal 2011. Apparel represented 85% of total Men's sales for the first three quarters of fiscal 2012 versus 86% in the first three quarters of fiscal 2011, while Women's apparel was flat at 86% of total Women's sales for the first three quarters of fiscal 2012 and fiscal 2011. Total non-apparel sales represented a combined 15% of total sales for the first three quarters of fiscal 2012 and 14% of total sales for the first three quarters of fiscal 2011. Same-store sales transactions decreased from 13.3 million in the first three quarters of fiscal 2011 to 12.9 million in the first three quarters of fiscal 2012.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, was $159.6 million for the first three quarters of fiscal 2012 versus $135.9 million for the first three quarters of fiscal 2011. As a percentage of net sales, gross margin was 26.1% for the first three quarters of fiscal 2012 compared to 22.7% for the first three quarters of fiscal 2011. The components of this 3.4% increase in gross margin as a percentage of net sales were as follows:

  %                                    Attributable to
  2.0     Increase in merchandise margin to 50.4% in the first three quarters of
          fiscal 2012 from 48.4% in the first three quarters of fiscal 2011,
          primarily due to an increase in initial markups and a decrease in
          promotions, partially offset by a one-time store closure charge of 30
          basis points for markdown allowances.
  1.0     Leveraging of occupancy costs as a result of the 2% same-store sales
          increase for the first three quarters of fiscal 2012 discussed above and a
          reduction in rent expense related to negotiations with our landlords.
  0.4     Decrease in distribution costs as compared to the third quarter of fiscal
          2011.

  3.4     Total

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased to $184.9 million for the first three quarters of fiscal 2012 from $193.2 million for the first three quarters of fiscal 2011, a decrease of $8.3 million, or 4.3%. These expenses decreased to 30.2% as a percentage of net sales in the first three quarters of fiscal 2012 from 32.2% in the first three quarters of fiscal 2011. The components of this 2.0% 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 $7 million to $115 million in the first
            three quarters of fiscal 2012 from $108 million in the first three
            quarters of fiscal 2011, primarily due to an increase in employee
            benefits.
  (0.8 )    Decrease in depreciation expense to $25 million in the first three
            quarters of fiscal 2012 from $29 million in the first three quarters of
            fiscal 2011 due primarily to recent store closures.
  (1.0 )    Decrease in non-cash asset impairment charges and store closure related
            charges to $4 million in the first three quarters of fiscal 2012 from
            $10 million in the first three quarters of fiscal 2011.
  (1.0 )    Decrease in all other SG&A expenses as a percentage of sales. Other SG&A
            decreased $5 million to $42 million in the first three quarters of
            fiscal 2012 from $47 million in the first three quarters of fiscal 2011,
            primarily due to a decrease in consulting costs and credit card
            processing fees, as well as the timing of advertising expenses.

  (2.0 )    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 from continuing operations of approximately $3 million and $10 million during the first three quarters of fiscal 2012 and 2011, respectively, to write-down the carrying value of certain long-lived store assets to their estimated fair values. Additionally, the Company wrote off approximately $0.9 million of excess store fixtures in the first three quarters of fiscal 2012.

Loss on Derivative Liability

We recorded a fair market adjustment of approximately $4 million related to the derivative liability in the first three quarters 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, net, was approximately $10 million and $2 million for the first three quarters of fiscal 2012 and 2011, respectively. The increase in other expense, net, 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 $0.6 million and $0.5 million for the first three quarters 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 three quarters of fiscal 2012 was approximately $32 million, or $(0.48) per diluted share, versus a loss from continuing operations of approximately $60 million, or $(0.91) per diluted share, for the first three quarters 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, 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 Three Quarters Ended
                                                  October 27, 2012              October 29, 2011
                                                                  (In thousands)
Net cash used in operating activities            $          (21,621 )          $          (45,262 )
Net cash used in investing activities                        (3,096 )                      (9,865 )
Net cash used in financing activities                        (1,780 )                        (303 )

Net decrease in cash and cash equivalents        $          (26,497 )          $          (55,430 )

Operating Cash Flows

Net cash used in operating activities in the first three quarters of fiscal 2012 was $21.6 million, compared to $45.3 million for the first three quarters of fiscal 2011. This decrease of $23.7 million was due primarily to higher sales and improved gross margins in the current fiscal year. Our primary use of cash in the first three quarters of fiscal 2012 and 2011 was to purchase merchandise inventories, and was partially offset by increases in accounts payable. Such increases resulted from the seasonal variation between the ramp up for the holiday season and the annual low point for inventories at the end of our fiscal year. Non-cash adjustments to reconcile our net loss to net cash used in operating activities was approximately $30 million in the first three quarters of fiscal 2012 and $48 million in fiscal 2011, respectively, and were primarily related to depreciation expense and asset impairment charges in both periods.

Working Capital

Working capital at October 27, 2012, was $50 million compared to $62 million at
January 28, 2012, a decrease of $12 million. The changes in working capital were
as follows:



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