The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with the consolidated financial statements and notes included in Item 1 of this Form 10-Q and the consolidated financial statements, notes and MD&A contained in our Transition Report on Form 10-K for the transition period ended January 28, 2012.

Executive Overview

Christopher & Banks Corporation, a Delaware corporation, is a Minneapolis-based retailer of women's apparel and accessories, which operates retail stores through its wholly-owned subsidiaries. In January 2012, our Board of Directors amended and restated our By-Laws to provide that our fiscal year ends at the close of business on that Saturday which falls closest to the last day of January. Prior to this change, our fiscal year ended at the close of business on that Saturday which fell closest to the last day of February. In order to transition to our new fiscal calendar, our last fiscal year was shortened from twelve months to eleven months, resulting in an eleven-month transition period ended January 28, 2012 (the "transition period"). In this Quarterly Report on Form 10-Q, our current fiscal year, the 53-week period ending February 2, 2013, is referred to as fiscal 2012.

As of October 27, 2012, we operated 638 stores in 44 states, including 387 Christopher & Banks stores, 171 C.J. Banks stores, 55 dual concept stores and 25 outlet stores. Our Christopher & Banks brand offers unique fashions and accessories featuring exclusively designed, coordinated assortments of women's apparel in sizes 4 to 16 and in petite sizes 4P to 16P. Our C.J. Banks brand offers similar assortments of plus size women's apparel in sizes 14W to 26W. Our dual concept and outlet stores offer an assortment of both Christopher & Banks and C.J. Banks apparel servicing the petite, missy and women-size customer in one location. We also operate e-Commerce web sites for our two brands at www.christopherandbanks.com and www.cjbanks.com which, in addition to offering the apparel and accessories found in our stores, also offer exclusive sizes and styles available only online.

We strive to provide our customers with quality apparel at a reasonable price and a consistent fit. Our overall strategy for our two brands, Christopher & Banks and C.J. Banks, is to offer a compelling, evolving assortment of unique and classic apparel through our stores and e-Commerce web sites in order to satisfy our customers' expectations for style, quality, value and fit, while providing exceptional, personalized customer service.

Fiscal 2012 Third Quarter Summary

We made significant progress on our strategic initiatives, which are more fully described below, in the third quarter of fiscal 2012. Our total sales increased 2.4% to $117.3 million in the third quarter of fiscal 2012, compared to $114.6 million for the thirteen weeks ended October 29, 2011. We achieved this increase despite operating an average of 129, or 17%, fewer stores during the quarter than during the comparable period last year.

Same store sales increased 13.7% in the third quarter of fiscal 2012, a sequential improvement from the 5.5% increase reported in the second quarter. We experienced an 11% increase in traffic, slightly higher rates of customer conversion and generated 11% more units per transaction during the third quarter. This improvement was offset somewhat by an 8% decrease in our average retail selling price per unit, which resulted primarily from a 20% decline in our average retail ticket prices, as we reversed the price increases instituted during last year's fall and holiday selling seasons.

Gross profit grew by 42.1% to $41.3 million in the third quarter of fiscal 2012, as compared to $29.1 million for the comparable period last year. Gross margin expanded 980 basis points to 35.2% for the thirteen-week period ended October 27, 2012, from 25.4% for the thirteen-week period ended October 29, 2011. Gross margin also improved sequentially by 750 basis points in the third quarter from 27.7% in the second quarter of fiscal 2012.

The increase in gross margin was attributable to both increased merchandise margins and positive leverage of buying and occupancy costs associated with the 13.7% increase in same store sales. Gross margin was further improved by the benefit of closing underperforming stores and restructuring rents in existing stores. The improvement in merchandise margins reflected strong customer acceptance of our product assortments resulting in increased full price selling and accelerated sell-through.

We ended the third quarter with cash and cash equivalents of $33.2 million, no long-term debt and no borrowings under our $50 million credit facility. Total inventory was $58.2 million at October 27, 2012, down approximately 11% compared to $65.3 million at October 29, 2011. In-store inventory per store, which excludes in-transit and e-commerce inventory, was approximately 13% higher at the end of the third quarter when compared to the same period last year. The increase in per store inventory levels primarily resulted from a change in our floor set cadence. By reducing the number of major floor sets from twelve to six per year, we are receiving a greater amount of inventory in the first month of each two-month delivery period. At October 27, 2012, we had received a greater amount of November product, which is the first month of the November/December floor set, than compared to the amount of November product received at October 29, 2011. Our inventory balance at the end of the third quarter of fiscal 2012 was current, with approximately 75% of product from more recent deliveries, including October and November merchandise assortments and core product.

Other Developments

On October 29, 2012, we announced that our Board of Directors had elected LuAnn Via as our President and Chief Executive Officer and as a member of our Board of Directors effective November 26, 2012, Ms. Via's first date of employment. Joel Waller, our former President and Chief Executive Officer, ceased serving in such roles as of November 26, 2012 and began serving as a consultant for the Company through June 30, 2013. Ms. Via has over thirty years of retail experience in a variety of channels, including extensive executive, merchandise and product development responsibilities. Ms. Via has served as the President and Chief Executive Officer of Payless ShoeSource, Inc., in several capacities for Charming Shoppes, Inc. including as a Group Divisional President for both the Lane Bryant and Cacique brands, as a Vice President, General Merchandise Manager at Sears Holding Company and as a Senior Vice President, General Merchandise Manager of product development at Saks, Inc. Ms. Via also has other executive, merchandising and product development experience.

Effective as of October 2, 2012, we entered into an amended and restated agreement with Mr. Waller. As part of that agreement, Mr. Waller agreed to continue as our President and Chief Executive Officer until March 31, 2013, unless a successor to Mr. Waller as President and Chief Executive Officer had been elected by our Board of Directors and commenced employment prior to March 31, 2013. In connection with the agreement, we paid Mr. Waller a one-time cash bonus of $150,000.

Fiscal 2012 Outlook

Our results of operations for the quarter ended October 27, 2012 reflect some early benefits of our new strategic initiatives, including improved same store sales and margin improvement over the second quarter of fiscal 2012 and the comparable period last year, which consisted of the thirteen weeks ended October 29, 2011. While we anticipate the current heavily promotional environment to continue throughout the remainder of fiscal 2012, we expect to achieve a high-single to low-double-digit increase in same store sales on a percentage basis in the fourth quarter of this fiscal year. We plan to be less aggressive, yet still competitive, with our promotional activity in the fourth quarter than in the same period last year with a greater focus on optimizing gross profit dollars rather than driving sales with lower gross margins. As a result, merchandise margins in the fourth quarter are anticipated to exceed levels in the comparable prior year period, while being seasonally lower than in the third quarter of fiscal 2012, which is consistent with our historical quarterly performance trends.

As a result of store closings and rent restructurings, we expect approximately 400 to 500 basis points of positive leverage of occupancy expense for the fourteen-week quarter ending February 2, 2013, when compared to the thirteen-week quarter ended January 28, 2012. We expect selling, general and administrative expenses to be in the range of $36 million to $37 million in the fourteen-week fourth quarter, which includes approximately $1.9 million of expense associated with the 14th week.

We expect that inventory levels in the fourth quarter of fiscal 2012 will be in line with our expected increase in same store sales, with the exception of accelerating some receipts of first quarter merchandise deliveries as a result of the timing of the Chinese New Year holiday which impacts merchandise production and delivery schedules. Depreciation and amortization is expected to be roughly $18 million and capital expenditures are anticipated to be approximately $5 million for the current full fiscal year.

Based on our current plans for fiscal 2012, we believe cash flows from operating activities and working capital will be sufficient to meet our operating and capital expenditure requirements for the remainder of the fiscal year. We do not anticipate the need to utilize our New Credit Facility for any liquidity needs in the fourth quarter of fiscal 2012, other than to maintain and open letters of credit in the normal course of business. Our operating plan for the last quarter of fiscal 2012 contemplates positive same store sales and improvements in merchandise margins when compared to the comparable prior-year period. The plan is dependent on our ability to consistently deliver merchandise that is appealing to our customers at a profitable price and to manage our costs effectively in order to satisfy our working capital and other operating cash requirements. Our operating plan is based on a number of assumptions which involve significant judgments and estimates of future performance. If our net sales, gross margins and operating results fall short of our expectations, we may be required to access some, if not all, of our New Credit Facility and potentially require other sources of financing to fund our operations.

We will continue to monitor our performance and liquidity and, if we believe it is appropriate or necessary to borrow under the New Credit Facility or obtain additional liquidity, we would first consider taking further steps intended to improve our financial position. Steps we may consider include modifying our operating plan, seeking to reduce costs further, decreasing our cash spend and/or capital expenditures, as well as evaluating alternatives and opportunities to obtain additional sources of liquidity through the debt or equity markets. It is possible these actions may not be sufficient or available or, if available, available on terms acceptable to us.

Strategic Initiatives

Merchandising

In the third quarter of the transition period, we reestablished the position of Divisional General Merchandise Manager in our merchandise area. We added two Divisional General Merchandise Managers, one for the Christopher & Banks division and one for the C.J. Banks division. One of the Divisional General Merchandise Managers was promoted internally, while the other was a new hire. Both individuals bring strong retail experience and merchandising discipline to our merchant team.

Our merchant team is currently focused on delivering increased net sales and improved gross profit through executing our strategic initiatives described below. Although these initiatives began in the third and fourth quarters of our transition period, only a minimal amount of our product assortment was impacted in the first quarter of fiscal 2012. In May, we were able to impact the styling and balance of only a small amount of our assortment. By July, our new merchant team was able to impact the pricing, number of unique styles offered, order quantities and promotional strategy on approximately half of our merchandise offerings. Beginning in the third quarter, substantially all of our new merchandise assortments reflected the impact of the initiatives described below:

-Provide a balanced merchandise assortment

In the third and fourth quarters of the transition period, and the first quarter of fiscal 2012, the majority of our merchandise assortments consisted of styles that were too updated, priced too high and lacking in key product categories. We provided our customer with too many upscale choices at full-retail prices our customers were unwilling to pay. As a result, we had a significant increase in markdown levels required to compel our customers to purchase our merchandise and allow us to clear-through slow-selling styles.

Our merchant team was able to begin impacting a portion of our summer fiscal 2012 product and delivered a well-balanced merchandise assortment in the third quarter. This included editing the number of styles offered, reducing retail ticket prices to levels more in-line with our traditional offerings and providing styles that better align with our customers' fashion taste. Our merchants are focusing on building assortments with fewer styles that are more balanced by increasing the amount of 'good' and 'better' product offerings and decreasing the number of 'best' styles. This involves increasing the penetration of core product in our deliveries, including basic knit layering pieces and classic bottoms, increasing the representation of mid-priced 'better' selections, such as printed tees and novelty jackets and sweaters, while reducing the number of higher priced 'best' styles. Our goal is to reduce the overall number of unique styles we carry, allowing us to present a more focused and compelling product assortment with fewer, more relevant selections.

-Reduction and simplification of price points

We increased our retail ticket prices in the transition period and our customers did not respond positively. The price increases resulted from elevated commodities costs and providing more intricately constructed styles. Our customers were highly resistant to the increased price points. As we moved through fiscal 2012, our goal was to mitigate markdown levels by offering more attractive opening price points and simplifying the number of price points offered to our customers.

The change in our approach to pricing supports our 'good, better, best' product initiative. As we increased the penetration of core product offerings in our assortments, we were able to drive sales volume by offering more styles at attractive opening price points that our customers have begun to accept without steep discounting or mark-downs. In addition, we reduced the number of price points across all categories to simplify the shopping experience.

We are committed to offering our customers value. All styles, including those falling into our 'better' and 'best' classifications, have been priced at levels that are intended to be more attractive to our customers. Retail ticket prices for our fall 2012 product deliveries are approximately 20% lower than in the comparable period last year. We believe that this will continue to result in improved net sales, reduced markdowns and increased gross profit.

-Improve inventory flow, speed to market and reduce lead times

Historically, we have developed and delivered a full, unique merchandise assortment to our stores on a monthly basis. In order to simplify and accelerate our product development process, beginning in September 2012, we reduced the number of major product deliveries to our stores by half, to six times annually. These deliveries reflect increased depth with a greater number of units of key styles. In order to maintain product freshness, we are supplementing the major deliveries with smaller deliveries of select new colors and styles to all stores on an ongoing basis.

We also intend to incorporate more robust product testing efforts into our development process. At the same time, we continue to work with current and new suppliers to identify opportunities to shorten product lead times, increase efficiencies in merchandise flow and enhance our ability to react more quickly to current selling trends in-season.

-Implement a more targeted promotional cadence and markdown strategy

We have analyzed our promotional cadence and adjusted our markdown strategy in an effort to minimize and reverse the significant merchandise margin erosion we experienced in the transition period and the first quarter of fiscal 2012. While we anticipate that, in order to be competitive, we will need to continue to be promotional in fiscal 2012, we are testing and implementing more targeted, unique, pre-planned promotions in an effort to improve merchandise margins and lessen our reliance on storewide promotional events. In addition, we have adopted a more focused and timely approach to our markdown process that quickly addresses underperforming styles on a unique basis in an effort to utilize our markdowns as efficiently as possible. We are also placing a greater emphasis on liquidating merchandise in-store and utilizing our Outlet stores as a liquidation channel for older product deliveries rather than utilizing a third party liquidator.

Restructuring/Store Closing Initiative

In the third quarter of the transition period, we announced that, following an in-depth analysis of our store portfolio, the Board approved a plan to close approximately 100 stores, most of which were underperforming. Ultimately, 103 stores were identified for closure. This group of stores generated approximately $35 million of net sales and store-level operating losses of approximately $11 million, which included approximately $7 million of non-cash impairment charges, on a trailing twelve-month basis through January 28, 2012. As of October 27, 2012, all 103 of the stores identified in the restructuring initiative had been closed, with the last two closing in the second quarter of fiscal 2012.

We recorded total restructuring and asset impairment charges of approximately $21.2 million in the second half of the transition period, consisting primarily of $11.4 million of non-cash asset impairment charges, $8.2 million of net expense related to lease termination liabilities, partially offset by the reduction of deferred obligations related to closed stores, and approximately $1.6 million of severance and miscellaneous other store closing costs. The lease termination liabilities consisted primarily of the costs of future contractual obligations related to closed store locations. Discounted liabilities for future lease costs and management's estimated fair value of assumed subleases of closed locations were recorded when the stores were closed and these amounts have been subject to adjustments as liabilities are settled. In addition, management has negotiated with landlords to mitigate the amount of lease termination liabilities. As a result, actual settlements have varied substantially from recorded obligations resulting in a net benefit to the Company in fiscal 2012.

In the first quarter of fiscal 2012, we recognized a net benefit of approximately $0.8 million related to restructuring and impairment costs. We recorded a non-cash benefit of approximately $1.4 million related to 18 stores where the amounts recorded for net lease termination liabilities exceeded the actual settlements negotiated with landlords. We recorded approximately $0.5 million of additional lease termination liabilities related to three stores closed in the first quarter of fiscal 2012. In addition, we recorded approximately $0.1 million of non-cash asset impairment charges related to five stores we plan to continue to operate.

In the second quarter of fiscal 2012, we recognized a net benefit of approximately $4.7 million related to restructuring and impairment costs. We recorded a non-cash benefit of approximately $4.9 million related to 35 stores where the amounts recorded for net lease termination liabilities exceeded the actual settlements negotiated with landlords. We recorded a nominal amount of additional lease termination liabilities related to stores closed in the second quarter of fiscal 2012. In addition, we recognized approximately $0.2 million of professional services in the second quarter related to the restructuring initiative.

In the third quarter of fiscal 2012, we recorded a charge of approximately $0.3 million related to restructuring costs which consisted of approximately $30,000 related to one store where the amount recorded for net lease termination liabilities was less than the actual settlement negotiated with the landlord and approximately $0.3 million related to professional services for lease terminations and renegotiations. In the third quarter of fiscal 2012, we also reclassified approximately $0.3 million of the remaining long-term portion of the lease termination liability to current accrued liabilities which relates to one store. We anticipate the lease termination negotiations related to this store will be finalized by the end of fiscal 2012.

The following table details restructuring activity for the transition period and the first nine months of fiscal 2012.

                                                     Lease
                                  Severance       Termination         Asset
                                   Accrual        Obligations      Impairment         Other          Total
Balance, February 26, 2011      $           -    $           -    $           -    $         -    $          -

Asset impairment charge                     -                -           11,445              -          11,445
Restructuring charges                   1,168            8,225                -            345           9,738
Total charges                           1,168            8,225           11,445            345          21,183

Non-cash charges                            -                -          (11,445 )         (106 )       (11,551 )
Deferred lease obligations
on closed stores                            -            3,587                -              -           3,587
Cash payments                            (310 )              -                -           (239 )          (549 )

Balance, January 28, 2012                 858           11,812                -              -          12,670

Asset impairment charge                     -                -              139              -             139
Non-cash adjustments                        -           (6,263 )              -              -          (6,263 )
Restructuring charges                       -              314                -            342             656
Total charges (credits)                     -           (5,949 )            139            342          (5,468 )

Non-cash charges                            -                -             (139 )            -            (139 )
Deferred lease obligations
on closed stores                            -              244                -              -             244
Cash payments                            (858 )         (5,782 )              -           (342 )        (6,982 )

Balance, October 27, 2012       $           -    $         325    $           -    $         -    $        325

Real Estate

In addition to the store closing/restructuring initiative, we have reevaluated our overall real estate strategy, including continuing to identify and close underperforming locations and to reduce the number of new store openings. We began fiscal 2012 with 402 Christopher & Banks stores, 199 C.J. Banks stores, 62 dual stores and 23 outlet stores. During the first nine months of fiscal 2012, we opened six dual stores and two outlet stores. All of the dual store openings represented combinations or repositioning of previously existing Christopher & Banks and C.J. Banks store locations in mature markets. We opened the two outlet locations in markets where we deemed it was strategically important to maintain an outlet store location. We are not planning additional new store openings in fiscal 2012, with the exception of a few strategic combinations of previously existing locations in mature markets.

In addition to the 13 stores closed as part of our restructuring initiative in the first nine months of fiscal 2012, we closed 43 additional stores in the first thirty-nine weeks of the fiscal year. Currently, we are planning to close 28 more stores in the fourth quarter of fiscal 2012. Approximately 50% of our leases expire or come up for renewal within the next three fiscal years, which we believe will offer us significant flexibility to restructure occupancy expense further and, if necessary, close additional underperforming stores. However, in some cases we may need to pay higher rents in order to continue to lease certain locations.

In the third quarter of fiscal 2012, we converted eleven dual stores back into Christopher & Banks stores. We plan to convert an additional 13 dual format stores back to Christopher & Banks stores in the fourth quarter. While we believe the dual store format represents a growth opportunity in the future, these 24 stores did not have the customer base or adequate square footage to support meaningful assortments of our missy, petite and woman-size merchandise offerings characteristic of our dual concept stores.

Customer/In-store Experience

In an effort to drive overall productivity, we continue to strive to enhance our customer experience. We have focused our associates on strengthening our selling culture while providing more knowledgeable selling and personalized service to our customers. We have reintroduced a selling program that includes a significant focus on grass roots connections with our customers and improving our store associates' product knowledge. We also continue to strive to deliver exceptional personalized customer service in a warm and inviting store environment.

In addition, we continue to refine and add new visual merchandising elements to our stores to maximize merchandise displays to provide more compelling and clearer product messages. This is intended to drive increased numbers of new and existing customers into our stores through a more organized presentation of merchandise and product outfitting options.

In July, we initiated a 28-store pilot program to test various strategies, including a key item table program, adding more updated fixtures, adjusting inventory and staffing levels and starting a new employee incentive program to improve service and drive conversion. These stores have experienced greater increases in same store sales and higher levels of conversion than the stores in the balance of the chain. We will continue to adjust inventory and staffing levels in these stores in order to refine the proper balance necessary to drive productivity.

. . .