form10qjul312010.htm
 
 

 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2010

Or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________


Commission File No. 000-07258

CHARMING SHOPPES, INC.
(Exact name of registrant as specified in its charter)

 
PENNSYLVANIA
 
23-1721355
 
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 

 
3750 STATE ROAD, BENSALEM, PA 19020
 
(215) 245-9100
 
 
(Address of principal executive offices) (Zip Code)
 
(Registrant’s telephone number, including Area Code)
 

NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
 
Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):
 
Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):
 
Large Accelerated Filer  x
Accelerated Filer  o
Non-accelerated Filer  o
Smaller Reporting Company  o
 

 


 
 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
 
Yes o  No x

The number of shares outstanding of the issuer’s Common Stock (par value $.10 per share) as of August 30, 2010 was 115,460,399 shares.
















































 
 

 

CHARMING SHOPPES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

   
Page
     
PART I.
FINANCIAL INFORMATION                                                                                                                    
2
     
Item 1.
Financial Statements
2
     
 
Condensed Consolidated Balance Sheets
 
 
July 31, 2010 (Unaudited) and January 30, 2010
2
     
 
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
 
 
Thirteen weeks ended July 31, 2010 and August 1, 2009
3
 
Twenty-six weeks ended July 31, 2010 and August 1, 2009
4
     
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
Twenty-six weeks ended July 31, 2010 and August 1, 2009
5
     
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
     
 
Forward-looking Statements
22
     
 
Critical Accounting Policies
26
     
 
Recent Developments
26
     
 
Overview
26
     
 
Results of Operations
28
     
 
Liquidity and Capital Resources
42
     
 
Financing
44
     
 
Market Risk
47
     
 
Impact of Recent Accounting Pronouncements
47
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
47
     
Item 4.
Controls and Procedures
47
     
PART II.
OTHER INFORMATION
48
     
Item 1.
Legal Proceedings
48
     
Item 1A.
Risk Factors
48
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
49
     
Item 6.
Exhibits
49
     
 
SIGNATURES
51
     
 
Exhibit Index
52





 
1

 

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


   
July 31,
   
January 30,
 
(In thousands, except share amounts)
 
2010
   
2010
 
   
(Unaudited)
       
             
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 210,055     $ 186,580  
Available-for-sale securities
    0       200  
Accounts receivable, net of allowances of $2,148 and $5,345
    4,761       33,647  
Merchandise inventories
    289,456       267,525  
Deferred taxes
    7,556       5,897  
Prepayments and other
    97,514       128,053  
Total current assets                                                                                   
    609,342       621,902  
                 
Property, equipment, and leasehold improvements – at cost
    1,026,065       1,026,815  
Less accumulated depreciation and amortization
    738,115       721,732  
Net property, equipment, and leasehold improvements
    287,950       305,083  
                 
Trademarks, tradenames, and internet domain names
    187,132       187,132  
Goodwill
    23,436       23,436  
Other assets
    23,033       24,104  
Total assets
  $ 1,130,893     $ 1,161,657  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities
               
Accounts payable
  $ 160,049     $ 126,867  
Accrued expenses
    140,333       153,175  
Current portion – long-term debt
    6,405       6,265  
Total current liabilities                                                                                   
    306,787       286,307  
                 
Deferred taxes
    53,424       52,683  
Other non-current liabilities
    176,737       186,175  
Long-term debt, net of debt discount of $28,037 and $42,105
    133,201       171,558  
                 
Stockholders’ equity
               
Common Stock $.10 par value:
               
Authorized – 300,000,000 shares
               
Issued – 154,024,597 shares and 154,234,657 shares
    15,402       15,423  
Additional paid-in capital
    505,611       505,033  
Treasury stock at cost – 38,571,746 shares
    (348,241 )     (348,241 )
Retained earnings
    287,972       292,719  
Total stockholders’ equity                                                                                   
    460,744       464,934  
Total liabilities and stockholders’ equity
  $ 1,130,893     $ 1,161,657  
   
See Notes to Condensed Consolidated Financial Statements
 





 
2

 


CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)


   
Thirteen Weeks Ended
 
   
July 31,
   
August 1,
 
(In thousands, except per share amounts)
 
2010
   
2009
 
             
Net sales
  $ 517,564     $ 527,217  
                 
Cost of goods sold
    268,441       263,358  
Gross profit
    249,123       263,859  
                 
Occupancy and buying expenses
    91,880       100,084  
Selling, general, and administrative expenses
    146,979       134,279  
Depreciation and amortization
    16,937       19,192  
Restructuring and other charges
    619       7,768  
Total operating expenses
    256,415       261,323  
                 
Income/(loss) from operations
    (7,292 )     2,536  
                 
Other income
    396       283  
Gain on repurchases of 1.125% Senior Convertible Notes
    1,907       7,313  
Interest expense
    (4,096 )     (4,485 )
                 
Income/(loss) before income taxes
    (9,085 )     5,647  
Income tax (benefit)/provision
    (443 )     664  
                 
Net income/(loss)
  $ (8,642 )   $ 4,983  
                 
Basic net income/(loss) per share
  $ (0.07 )   $ 0.04  
                 
Diluted net income/(loss) per share
  $ (0.07 )   $ 0.04  
   
See Notes to Condensed Consolidated Financial Statements
 




















 
3

 


CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)


   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
 
(In thousands, except per share amounts)
 
2010
   
2009
 
             
Net sales
  $ 1,022,369     $ 1,065,353  
                 
Cost of goods sold
    496,657       513,919  
Gross profit
    525,712       551,434  
                 
Occupancy and buying expenses
    184,104       202,640  
Selling, general, and administrative expenses
    306,152       291,781  
Depreciation and amortization
    33,748       39,274  
Restructuring and other charges
    1,508       16,473  
Total operating expenses
    525,512       550,168  
                 
Income from operations
    200       1,266  
                 
Other income
    534       481  
Gain on repurchases of 1.125% Senior Convertible Notes
    1,907       11,564  
Interest expense
    (8,570 )     (9,505 )
                 
Income/(loss) before income taxes
    (5,929 )     3,806  
Income tax (benefit)/provision
    (1,182 )     5,384  
                 
Net loss
    (4,747 )     (1,578 )
                 
Other comprehensive loss, net of tax
               
Unrealized losses on available-for-sale securities
    0       (5 )
                 
Comprehensive loss
  $ (4,747 )   $ (1,583 )
                 
Basic net loss per share
  $ (0.04 )   $ (0.01 )
                 
Diluted net loss per share
  $ (0.04 )   $ (0.01 )
   
See Notes to Condensed Consolidated Financial Statements
 















 
4

 

CHARMING SHOPPES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
 
(In thousands)
 
2010
   
2009
 
             
Operating activities
           
Net loss
  $ (4,747 )   $ (1,578 )
Adjustments to reconcile net loss to net cash provided by operating activities
               
Depreciation and amortization                                                                                                     
    34,696       40,501  
Stock-based compensation                                                                                                     
    2,010       2,974  
Accretion of discount on 1.125% Senior Convertible Notes                                                                                                     
    3,974       5,434  
Deferred income taxes                                                                                                     
    (918 )     1,691  
Gain on repurchases of 1.125% Senior Convertible Notes                                                                                                     
    (1,907 )     (11,564 )
Write-down of capital assets                                                                                                     
    0       7,128  
Net loss from disposition of capital assets                                                                                                     
    534       237  
Net loss from securitization activities                                                                                                     
    0       178  
Changes in operating assets and liabilities
               
Accounts receivable, net                                                                                                 
    28,886       29,941  
Merchandise inventories                                                                                                 
    (21,931 )     8,669  
Accounts payable                                                                                                 
    33,182       21,645  
Prepayments and other                                                                                                 
    30,916       (23,053 )
Accrued expenses and other
    (22,653 )     (24,790 )
Net cash provided by operating activities
    82,042       57,413  
                 
Investing activities
               
Investment in capital assets
    (16,584 )     (9,766 )
Proceeds from sales of capital assets
    0       1,219  
Gross purchases of securities
    0       (1,698 )
Proceeds from sales of securities
    200       8,588  
(Increase)/decrease in other assets
    (954 )     3,354  
Net cash provided/(used) by investing activities
    (17,338 )     1,697  
                 
Financing activities
               
Repayments of long-term borrowings
    (3,100 )     (3,448 )
Repurchases of 1.125% Senior Convertible Notes
    (38,260 )     (26,617 )
Payments of deferred financing costs
    0       (6,328 )
Net payments for settlements of hedges on convertible notes
    0       (31 )
Net proceeds from shares issued under employee stock plans
    131       254  
Net cash used by financing activities
    (41,229 )     (36,170 )
                 
Increase in cash and cash equivalents
    23,475       22,940  
Cash and cash equivalents, beginning of period
    186,580       93,759  
Cash and cash equivalents, end of period
  $ 210,055     $ 116,699  
                 
See Notes to Condensed Consolidated Financial Statements
 









 
5

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 1. Condensed Consolidated Financial Statements

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”).  In our opinion, we have made all adjustments (which, except as otherwise disclosed in these notes, include only normal recurring adjustments) necessary to present fairly our financial position, results of operations and comprehensive income, and cash flows.  We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles.  These financial statements and related notes should be read in conjunction with our financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.  The results of operations for the thirteen weeks and twenty-six weeks ended July 31, 2010 and August 1, 2009 are not necessarily indicative of operating results for the full fiscal year.

As used in these notes, “Fiscal 2010” refers to our fiscal year ending January 29, 2011, “Fiscal 2009” refers to our fiscal year ended January 30, 2010, “Fiscal 2008” refers to our fiscal year ended January 31, 2009, and “Fiscal 2007” refers to our fiscal year ended February 2, 2008.  “Fiscal 2010 Second Quarter” refers to our fiscal quarter ended July 31, 2010, “Fiscal 2009 Second Quarter” refers to our fiscal quarter ended August 1, 2009, and “Fiscal 2008 Second Quarter” refers to our fiscal quarter ended August 2, 2008.  “Fiscal 2009 Third Quarter” refers to our fiscal quarter ended October 31, 2009, “Fiscal 2009 Fourth Quarter” refers to our fiscal quarter ended January 30, 2010, and “Fiscal 2010 First Quarter” refers to our fiscal quarter ended May 1, 2010.  The terms “the Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc. and, where applicable, our consolidated subsidiaries.

Segment Reporting

We operate and report in two segments: Retail Stores and Direct-to-Consumer.  We determine our operating segments based on the way our chief operating decision-makers review our results of operations.  Additional information regarding our segment reporting is included in “Note 10. Segment Reporting” below.


Note 2. Accounts Receivable

Accounts receivable consist of trade receivables from sales through our FIGI’S® catalog and website.  Details of our accounts receivable are as follows:

   
July 31,
   
January 30,
 
(In thousands)
 
2010
   
2010
 
             
Due from customers
  $ 6,909     $ 38,992  
Allowance for doubtful accounts
    (2,148 )     (5,345 )
Net accounts receivable
  $ 4,761     $ 33,647  









 
6

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 3. Long-term Debt

   
July 31,
   
January 30,
 
(In thousands)
 
2010
   
2010
 
             
1.125% Senior Convertible Notes, due May 2014
  $ 140,451     $ 189,636  
Capital lease obligations
    8,454       10,116  
6.07% mortgage note, due October 2014
    9,409       9,777  
6.53% mortgage note, due November 2012
    3,150       3,850  
7.77% mortgage note, due December 2011
    6,179       6,549  
Total long-term debt principal
    167,643       219,928  
Less unamortized discount on 1.125% Senior Convertible Notes
    (28,037 )     (42,105 )
Long-term debt – carrying value
    139,606       177,823  
Current portion
    (6,405 )     (6,265 )
Net long-term debt
  $ 133,201     $ 171,558  

Upon maturity of the 1.125% Senior Convertible Notes (the “1.125% Notes”) we will be obligated to repay the principal value of the outstanding notes.

During the thirteen weeks ended July 31, 2010 we repurchased $49,185,000 aggregate principal amount of 1.125% Notes with $10,094,000 of unamortized discount for a purchase price of $38,260,000 and recognized a gain of $1,907,000, net of unamortized issue costs.  During the thirteen weeks ended August 1, 2009 we repurchased $38,235,000 aggregate principal amount of 1.125% Notes with $9,582,000 of unamortized discount for a purchase price of $20,986,000 and recognized a gain of $7,313,000, net of unamortized issue costs.  During the twenty-six weeks ended August 1, 2009 we repurchased $51,735,000 aggregate principal amount of 1.125% Notes with $13,020,000 of unamortized discount for a purchase price of $26,617,000 and recognized a gain of $11,564,000, net of unamortized issue costs.  In conjunction with the Fiscal 2009 repurchases, during the Fiscal 2009 Second Quarter we unwound a portion of our positions in the warrants and call options that we had sold and purchased in Fiscal 2007 to hedge the impact of the convertible debt, which had an immaterial impact on our consolidated financial statements.

The 6.07% mortgage note is secured by a mortgage on real property at our distribution center in Greencastle, Indiana and an Assignment of Lease and Rents and Security Agreement related to the Greencastle facility.  The 6.53% mortgage note is secured by a mortgage on land, a building, and certain fixtures we own at our distribution center in White Marsh, Maryland and by leases we own or rents we receive, if any, from tenants of the White Marsh facility.  The 7.77% mortgage note is secured by a mortgage on land, buildings, and fixtures we own at our offices in Bensalem, Pennsylvania and by leases we own or rents we receive, if any, from tenants of the Bensalem facility.

We have a loan and security agreement (the “Agreement”) for a $225,000,000 senior secured revolving credit facility that provides for committed revolving credit availability through July 31, 2012.  The amount of credit available from time to time under the Agreement is determined as a percentage of the value of eligible inventory, accounts receivable, and cash, as reduced by certain reserves.  In addition, the Agreement includes an option allowing us to increase our credit facility up to $300,000,000, based on certain terms and conditions.  The credit facility may be used for general corporate purposes, and provides that up to $100,000,000 of the $225,000,000 may be used for letters of credit.





 
7

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 3. Long-term Debt (Continued)

The Agreement provides for borrowings under either “Base Rate” loans or “Eurodollar Rate” loans.  Borrowings under Base Rate loans will generally accrue interest at a margin ranging from 2.75% to 3.25% over the Base Rate (as defined in the Agreement) and Eurodollar Rate loans will generally accrue interest at a margin ranging from 3.75% to 4.25% over the London Interbank Offered Rate (“LIBOR”).  As of July 31, 2010 the applicable rates under the facility were 6.00% (Base Rate plus 2.75%) for Base Rate Loans and 4.07% (LIBOR plus 3.75%) for 30-day Eurodollar Rate Loans.

The Agreement provides for customary representations and warranties and affirmative covenants.  The Agreement also contains customary negative covenants providing limitations, subject to negotiated exceptions, for sales of assets; encumbrances; indebtedness; loans, advances and investments; acquisitions; guarantees; new subsidiaries; dividends and redemptions; transactions with affiliates; changes in business; limitations or restrictions affecting subsidiaries; credit card agreements; proprietary credit cards; and changes in control of certain of our subsidiaries.  If at any time “Excess Availability” (as defined in the Agreement) is less than $40,000,000 then, in each month in which Excess Availability is less than $40,000,000, we will be required to maintain a minimum fixed charge coverage ratio of at least 1.1 to 1 for the then preceding twelve-month fiscal period.  The Agreement also provides for certain rights and remedies if there is an occurrence of one or more events of default under the terms of the Agreement.  Under certain conditions the maximum amount available under the Agreement may be reduced or terminated by the lenders and the obligation to repay amounts outstanding under the Agreement may be accelerated.

In connection with the Agreement we executed an Amended and Restated Guaranty (the “Amended Guaranty”).  Pursuant to the Amended Guaranty, we and most of our subsidiaries jointly and severally guaranteed the borrowings and obligations under the Agreement, subject to standard insolvency limitations.  Under the Amended Guaranty, collateral for the borrowings under the Agreement consists of pledges by us and certain of our subsidiaries of the capital stock of each such entity’s subsidiaries.  The Agreement also provides for a security interest in substantially all of our assets excluding, among other things, equipment, real property, and stock or other equity and assets of excluded subsidiaries.  Excluded subsidiaries are not Guarantors under the Agreement and the Amended Guaranty.

As of July 31, 2010 we had an aggregate total of $4,916,000 of unamortized deferred debt acquisition costs related to the facility that will be amortized on a straight-line basis over the life of the facility as interest expense.  There were no borrowings outstanding under the facility as of July 31, 2010.
















 
8

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 4. Stockholders’ Equity

The following table summarizes changes in total stockholders’ equity for the period indicated:

   
Twenty-six
 
   
Weeks Ended
 
   
July 31,
 
(Dollars in thousands)
 
2010
 
       
Total stockholders’ equity, beginning of period
  $ 464,934  
Net loss
    (4,747 )
Issuance of common stock (308,690 shares), net of shares withheld for payroll taxes
    131  
Equity component of repurchases of 1.125% Senior Convertible Notes
    (1,584 )
Stock-based compensation
    2,010  
Total stockholders’ equity, end of period
  $ 460,744  


Note 5. Stock-based Compensation Plans

We have various stock-based compensation plans under which we are currently granting awards, which are more fully described in “Item 8.  Financial Statements and Supplementary Data; Note 10.  Stock-Based Compensation Plans” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.  Current grants of stock-based compensation consist primarily of stock appreciation rights (“SARs”) and restricted stock units (“RSUs”).

On April 28, 2010 our Board of Directors approved, and on June 24, 2010 our shareholders approved, our 2010 Stock Award and Incentive Plan (the “2010 Plan”).  The 2010 Plan replaces our 2004 Stock Award and Incentive Plan (the “2004 Plan”) and no new awards will be granted under the 2004 Plan.  Shares for equity awards to our non-employee directors under our 2003 Non-Employee Directors Compensation Plan (the “2003 Plan”), including grants of awards in Fiscal 2010, will also be drawn from the 2010 Plan and no further awards will be granted from remaining shares which were reserved under the 2003 Plan.  In addition, no further awards will be granted under our 1988 Key Employee Stock Option Plan (the “1988 Plan”).

The number of shares reserved for issuance under the 2010 Plan consist of 4,000,000 shares plus (i) 2,413,587 shares remaining available under the 2004 Plan, which have been transferred to the 2010 plan, and (ii) shares subject to outstanding awards under the 2004 Plan and predecessor plans (2000 Associates’ Stock Incentive Plan, 1999 Associates’ Stock Incentive Plan, and 1993 Employees’ Stock Incentive Plan) that are canceled, forfeited, or otherwise become available under the share recapture provisions of the 2010 Plan.  Shares remaining available under the 2003 Plan and 1988 Plan will not be added to the shares authorized under the 2010 Plan.

The 2010 Plan provides for a broad range of awards, including stock options; SARs; RSUs; restricted stock awards (“RSAs”); deferred stock; other stock-based awards; dividend equivalents; performance shares or other stock-based performance awards; cash-based performance awards; and shares issuable in lieu of rights to cash compensation.  Stock options include both incentive stock options and non-qualified stock options.  Executive officers and other employees of Charming Shoppes, Inc. and its subsidiaries, non-employee directors, consultants, and others who provide substantial services to us are eligible for awards under the 2010 Plan.



 
9

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 5. Stock-based Compensation Plans (Continued)

The 2010 Plan includes a limitation on the amount of awards that may be granted to any one participant in a given fiscal year in order to qualify awards as “performance-based” compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code.  The 2010 Plan does not allow the amendment or replacement of options or SARs previously granted under the 2010 Plan in a transaction that constitutes a “re-pricing” under generally accepted accounting principles without shareholder approval and does not authorize loans to participants.

Additional information related to the 2010 Plan is as follows:

   
Twenty-six
 
   
Weeks Ended
 
   
July 31,
 
   
2010
 
       
RSAs/RSUs granted
    272,797  
Weighted average market price at date of grant
    $3.70  
RSAs/RSUs outstanding at end of period
    272,797  

Shares available for future grants under our stock-based compensation plans as of July 31, 2010 were as follows:

2010 Stock Award and Incentive Plan
    6,128,529  
1994 Employee Stock Purchase Plan
    490,221  

Stock option and stock appreciation rights activity under our various stock-based compensation plans for the twenty-six weeks ended July 31, 2010 was as follows:

         
Average
         
Aggregate
 
   
Option/
   
Option/
         
Intrinsic
 
   
SARs
   
SARs
   
Option/SARs
   
Value(1)
 
   
Shares
   
Price
   
Prices per Share
     (000’s)  
                                 
Outstanding at January 30, 2010
    7,076,953     $ 2.92     $ 0.99     $ 13.84     $ 20,421  
Granted exercise price equal to market price
    945,704       5.15       3.83       6.62          
Canceled/forfeited
    (859,923 )     4.60       1.00       11.28          
Exercised
    (2,532 )     1.40       1.00       2.93       12 (2)
Outstanding at July 31, 2010
    7,160,202     $ 3.02     $ 0.99     $ 13.84       10,466  
Exercisable at July 31, 2010
    1,301,801     $ 4.01     $ 1.00     $ 13.84       612  
____________________
 
(1)    Aggregate market value less aggregate exercise price.
 
(2)    As of date of exercise.
 






 
10

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 5. Stock-based Compensation Plans (Continued)

During the Fiscal 2009 Second Quarter and the Fiscal 2008 Second Quarter we granted cash-settled RSUs under our 2003 Non-Employee Directors Compensation Plan.  These cash-settled RSUs have been accounted for as liabilities in accordance with ASC 718-10-25-11, “Compensation – Stock Compensation; Recognition.”  Compensation expense related to cash-settled RSUs is recognized over the vesting period of one year from the date of grant and included in “Accrued expenses” in our consolidated balance sheets.  Total compensation expense for cash-settled RSUs has been fully recognized as of the Fiscal 2010 Second Quarter.

Total stock-based compensation expense was as follows:

   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
   
July 31,
   
August 1,
 
(In thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Stock-based compensation expense, excluding cash-settled RSUs
  $ 936     $ 1,264     $ 2,010     $ 2,974  
Stock-based compensation expense, cash-settled RSUs
    (237 )     280       4       562  
Total stock-based compensation expense
  $ 699     $ 1,544     $ 2,014     $ 3,536  

We use the Black-Scholes valuation model to estimate the fair value of stock options and stock appreciation rights.  We amortize stock-based compensation on a straight-line basis over the requisite service period of an award except for awards that include a market condition, which are amortized on a graded vesting basis over their derived service period.  Estimates and assumptions we use under the Black-Scholes model are more fully described in “Item 8. Financial Statements and Supplementary Data; Note 1. Summary of Significant Accounting Policies; Stock-based Compensation of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.

Total stock-based compensation expense not yet recognized, related to the non-vested portion of stock options, stock appreciation rights, and awards outstanding, was $10,246,000 as of July 31, 2010.  The weighted-average period over which we expect to recognize this compensation expense is approximately 3 years.


Note 6. Customer Loyalty Card Programs

We offer our customers various loyalty card programs.  Customers that join these programs are entitled to various benefits, including discounts and rebates on purchases during the membership period.  Customers join some of these programs by paying an annual membership fee.  For these programs, we recognize revenue as a component of net sales over the life of the membership period based on when the customer earns the benefits and when the fee is no longer refundable.  We recognize costs in connection with administering these programs as cost of goods sold when incurred.








 
11

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 6. Customer Loyalty Card Programs (Continued)

   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
   
July 31,
   
August 1,
 
(In thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Loyalty card revenues recognized
  $ 4,809     $ 4,955     $ 9,216     $ 9,974  

Accrued expenses include $2,344,000 as of July 31, 2010 and $3,161,000 as of January 30, 2010 for the estimated costs of discounts earned and coupons issued and not yet redeemed under these programs.


Note 7. Net Income/(Loss) per Share

   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
   
July 31,
   
August 1,
 
(In thousands, except per share amounts)
 
2010
   
2009
   
2010
   
2009
 
                         
Basic weighted average common shares outstanding
    115,699       115,612       115,851       115,396  
Dilutive effect of stock options, stock appreciation rights (“SARs”), and awards
    0 (1)     3,319       0 (1)     0 (1)
Diluted weighted average common shares and equivalents outstanding
    115,699       118,931       115,851       115,396  
                                 
Net income/(loss) used to determine basic and diluted net loss per share
  $ (8,642 )   $ 4,983     $ (4,747 )   $ (1,578 )
                                 
Options/SARs with weighted average exercise price greater than market price, excluded from computation of diluted earnings per share:
                               
Number of shares
    0 (1)     1,160       0 (1)     0 (1)
Weighted average exercise price per share
        $ 6.63              
____________________
                               
(1)    Stock options, SARs, and awards are excluded from the computation of diluted net income/(loss) per share as their effect would have been anti-dilutive.
 

Our 1.125% Notes will not impact our diluted net income per share until the price of our common stock exceeds the conversion price of $15.379 per share because we expect to settle the principal amount of the 1.125% Notes in cash upon conversion.  Our call options are not included in the diluted net income per share calculation as their effect would be anti-dilutive.  Should the price of our common stock exceed $21.607 per share, we would include the dilutive effect of the additional potential shares that may be issued related to our warrants, using the treasury stock method.  See “Note 3. Long-term Debt” above and “Item 8.  Financial Statements and Supplementary Data; Note 8. Long-term Debt” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010 for further information regarding our 1.125% Notes, call options, and warrants.







 
12

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 8. Income Taxes

We calculate our interim tax provision in accordance with the provisions of ASC 740-270, “Income Taxes; Interim Reporting.”  Due to the variability in pre-tax income/(loss) that we have experienced and the existence of a full valuation allowance on our net deferred tax assets, we have concluded that computing our actual year-to-date effective tax rate (as opposed to estimating our annual effective tax rate) provides an appropriate basis for recording income taxes in our interim periods.  Additionally, we record an income tax expense or benefit that does not relate to ordinary income/(loss) in the current fiscal year discretely in the interim period in which it occurs.  We also recognize the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

In computing the income tax provision/(benefit) we make certain estimates and management judgments, such as estimated annual taxable income or loss, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets.  Our estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes.

In accordance with ASC 740, “Income Taxes,” we recognize deferred tax assets for temporary differences that will result in deductible amounts in future years and for net operating loss (“NOL”) and credit carryforwards.  ASC 740 requires recognition of a valuation allowance to reduce deferred tax assets if, based on existing facts and circumstances, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.  During Fiscal 2008 we evaluated our assumptions regarding the recoverability of our deferred tax assets.  Based on all available evidence we determined that the recoverability of our deferred tax assets is more-likely-than-not limited to our available tax loss carrybacks.  Accordingly, we established a valuation allowance against our net deferred tax assets.  During Fiscal 2009 we increased the valuation allowance and recognized an additional non-cash provision, net of a tax benefit resulting from the carryback of remaining Fiscal 2008 NOLs pursuant to H.R. 3548, the “Worker, Homeownership, and Business Assistance Act of 2009,” which was signed into law on November 6, 2009.  In future periods we will continue to recognize a valuation allowance until such time as the certainty of future tax benefits can be reasonably assured.  Pursuant to ASC 740, when our results of operations demonstrate a pattern of future profitability the valuation allowance may be adjusted, which would result in the reinstatement of all or a part of the net deferred tax assets.

Income taxes receivable, which primarily include available NOL carrybacks for Fiscal 2009 and Fiscal 2008 and amended return receivables, included in “Prepayments and other” on our condensed consolidated balance sheets, were as follows:

   
July 31,
   
January 30,
 
(In thousands)
 
2010
   
2010
 
             
Income taxes receivable
  $ 5,910     $ 50,609  

The reduction in income taxes receivable during the twenty-six weeks ended July 31, 2010 was principally a result of the receipt of $44,968,000 of Federal tax refunds that related primarily to our NOL carryback for Fiscal 2008 and an amended return.

As of July 31, 2010 our gross unrecognized tax benefits associated with uncertain tax positions were $30,195,000.  If recognized, the portion of the liabilities for gross unrecognized tax benefits that would decrease our provision for income taxes and increase our net income was $20,595,000.  The accrued interest and penalties as of July 31, 2010 were $15,913,000.

 
13

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 8. Income Taxes (Continued)

During the twenty-six weeks ended July 31, 2010 the gross unrecognized tax benefits increased by $422,000 and the portion of the liabilities for gross unrecognized tax benefits that, if recognized, would decrease our provision for income taxes and increase our net income increased by $444,000.  Accrued interest and penalties decreased by $2,158,000 during the twenty-six weeks ended July 31, 2010.

As of July 31, 2010 it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next twelve months by as much as $4,021,000 as a result of resolutions of audits related to U.S. Federal and state tax positions.

Our U.S. Federal income tax returns for Fiscal 2004 and beyond remain subject to examination by the U.S. Internal Revenue Service (“IRS”) due to statute of limitations and the filing of amended returns.  We file returns in numerous state jurisdictions, with varying statutes of limitations.  Our state tax returns for Fiscal 2005 and subsequent years, depending upon the jurisdiction, generally remain subject to examination.  The statute of limitations on a limited number of returns for years prior to Fiscal 2005 has been extended by agreement between us and the particular state jurisdiction.  The earliest year still subject to examination by state tax authorities is Fiscal 1998.


Note 9. Asset Securitization

On October 30, 2009 we sold our proprietary credit card receivables programs to World Financial Network National Bank, a subsidiary of Alliance Data Systems Corporation, and entered into ten-year operating agreements with Alliance Data for the provision of private-label credit card programs for our customers.  Prior to the sale of the proprietary credit card receivables programs, our proprietary credit card receivables were originated by Spirit of America National Bank (the “Bank”), our wholly-owned credit card bank under our asset securitization program.  The Bank transferred its interest in the receivables associated with the proprietary credit card receivables programs to the Charming Shoppes Master Trust (the “Trust”), an unconsolidated qualified special-purpose entity (“QSPE”).  The sale of our proprietary credit card receivables programs and the operations of our asset securitization program prior to the sale of our proprietary credit card receivables programs are more fully described in “Item 8. Financial Statements and Supplementary Data; Note 12. Sale of Proprietary Credit Card Receivables Programs” and “Note 17. Asset Securitization” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.  See “Note 12. Fair Value Measurements” below for further information related to our certificates and retained interests in our securitized receivables prior to the sale of the proprietary credit card receivables programs.

The following table presents additional information relating to the receivables in our Trust prior to the sale of the credit card portfolio:

   
Thirteen
   
Twenty-six
 
   
Weeks Ended
   
Weeks Ended
 
   
August 1,
   
August 1,
 
(In thousands)
 
2009
   
2009
 
             
Proceeds from sales of new receivables to QSPE                                                                                                         
  $ 183,957     $ 359,677  
Collections reinvested in revolving-period securitizations                                                                                                         
    227,710       464,226  
Cash flows received on retained interests                                                                                                         
    24,050       43,031  
Servicing fees received                                                                                                         
    2,418       4,888  
Net credit losses                                                                                                         
    10,975       22,593  
Credit card balances 90 or more days delinquent at end of period                                                                                                         
    18,340       18,340  

 
14

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 10. Segment Reporting

We operate and report in two segments: Retail Stores and Direct-to-Consumer.  We determine our operating segments based on the way our chief operating decision-makers review our results of operations.  We consider our retail stores and store-related e-commerce as operating segments that are similar in terms of economic characteristics, production processes, and operations.  Accordingly, we have aggregated our retail stores and store-related e-commerce into a single reporting segment (the “Retail Stores” segment). Our catalog and catalog-related e-commerce operations are separately reported under the Direct-to-Consumer segment.

The Retail Stores segment derives its revenues from sales through retail stores and store-related e-commerce sales under our LANE BRYANT® (including LANE BRYANT OUTLET®), FASHION BUG®, and CATHERINES PLUS SIZES® brands and, in Fiscal 2009, our PETITE SOPHISTICATE OUTLET® brand.  The Direct-to-Consumer segment derives its revenues from catalog sales and catalog-related e-commerce sales under our FIGI’S title.

During Fiscal 2008 we decided to discontinue our LANE BRYANT WOMAN® catalog and our SHOETRADER.COM® website, which were included in our Direct-to-Consumer segment.  During the Fiscal 2009 Second Quarter we completed the closing of our LANE BRYANT WOMAN catalog and during the Fiscal 2009 Third Quarter we completed the closing of our SHOETRADER.COM website.  During the Fiscal 2009 Third Quarter we also decided to close our PETITE SOPHISTICATE OUTLET stores and convert a majority of the space to CATHERINES stores in outlet locations, which was started during the Fiscal 2009 Fourth Quarter and completed during the Fiscal 2010 First Quarter.

During the Fiscal 2009 Third Quarter we completed the sale of our proprietary credit card receivables programs.  As a result of the sale, we began to allocate the operating results of our credit card operations, including revenue from our customer loyalty programs, to the Retail Stores segment.  Accordingly, we have restated the results of the Retail Stores and Corporate and Other segments for the thirteen weeks and twenty-six weeks ended August 1, 2009 to reflect this change in how our chief operating decision-makers evaluate the performance of our operating segments.

The accounting policies of the segments are generally the same as those described in “Item 8. Financial Statements and Supplementary Data; Note 1. Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.  Our chief operating decision-makers evaluate the performance of our operating segments based on a measure of their contribution to operations, which consists of net sales less the cost of merchandise sold and certain directly identifiable and allocable operating costs.  We do not allocate certain corporate costs, such as shared services and insurance to our Retail Stores or Direct-to-Consumer segments.  Information systems support costs are not allocated to the Retail Stores segment but are allocated to the Direct-to-Consumer segment.  Operating costs for our Retail Stores segment consist primarily of store selling, occupancy, buying, and warehousing.  Operating costs for our Direct-to-Consumer segment consist primarily of catalog development, production, and circulation; e-commerce advertising; warehousing; and order processing.

Corporate and Other operating costs include: unallocated general and administrative expenses; shared services; insurance; information systems support for the Retail Stores segment; corporate depreciation and amortization; corporate occupancy; and other non-routine charges.  Operating contribution for the Retail Stores and Direct-to-Consumer segments less Corporate and Other net expenses equals income/(loss) before interest and income taxes.




 
15

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 10. Segment Reporting (Continued)


Operating segment assets are those directly used in, or allocable to, that segment’s operations.  Operating assets for the Retail Stores segment consist primarily of inventories; the net book value of store facilities; goodwill; and intangible assets.  Operating assets for the Direct-to-Consumer segment consist primarily of trade receivables; inventories; deferred advertising costs; the net book value of catalog operating facilities; goodwill; and intangible assets.  Corporate and Other assets include: corporate cash and cash equivalents; the net book value of corporate and distribution center facilities; deferred income taxes; and other corporate long-lived assets.

Selected financial information for our operations by reportable segment and a reconciliation of the information by segment to our consolidated totals is as follows:

   
Retail
   
Direct-to-
   
Corporate
       
(In thousands)
 
Stores
   
Consumer
   
and Other
   
Consolidated
 
                         
Thirteen weeks ended July 31, 2010
                       
Net sales
  $ 512,219     $ 5,345     $ 0     $ 517,564  
Depreciation and amortization
    13,637       297       3,003       16,937  
Income/(loss) from operations
    14,119       (3,243 )     (18,168 )(1)     (7,292 )
Gain on repurchases of 1.125% Senior Convertible Notes
                    1,907       1,907  
Net interest expense and other income
                    (3,700 )     (3,700 )
Income tax benefit
                    443       443  
Net income/(loss)
    14,119       (3,243 )     (19,518 )     (8,642 )
Capital expenditures
    2,887       80       5,854       8,821  
                                 
Thirteen weeks ended August 1, 2009
                               
Net sales
  $ 520,847     $ 6,348     $ 22 (2)   $ 527,217  
Depreciation and amortization
    14,731       323       4,138       19,192  
Income/(loss) from operations
    40,126       (3,893 )     (33,697 )(3)     2,536  
Gain on repurchases of 1.125% Senior Convertible Notes
                    7,313       7,313  
Net interest expense and other income
                    (4,202 )     (4,202 )
Income tax provision
                    (664 )     (664 )
Net income/(loss)
    40,126       (3,893 )     (31,250 )     4,983  
Capital expenditures
    1,541       12       3,511       5,064  
____________________
                               
(1)    Includes restructuring and other charges of $619 (see “Note 11. Restructuring and Other Charges” below).
 
(2)    Revenues related to figure® magazine, which was discontinued in the Fiscal 2009 First Quarter.
 
(3)    Includes restructuring and other charges of $7,768 (see “Note 11. Restructuring and Other Charges” below).
 
   
(Table continued on next page)
 










 
16

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 10. Segment Reporting (Continued)

   
Retail
   
Direct-to-
   
Corporate
       
(In thousands)
 
Stores
   
Consumer
   
and Other
   
Consolidated
 
                         
Twenty-six weeks ended July 31, 2010
                       
Net sales
  $ 1,004,293     $ 18,076     $ 0     $ 1,022,369  
Depreciation and amortization
    26,756       595       6,397       33,748  
Income/(loss) from operations
    42,068       (4,909 )     (36,959 )(1)     200  
Gain on repurchases of 1.125% Senior Convertible Notes
                    1,907       1,907  
Net interest expense and other income
                    (8,036 )     (8,036 )
Income tax benefit
                    1,182       1,182  
Net loss
    42,068       (4,909 )     (41,906 )     (4,747 )
Capital expenditures
    8,157       80       8,347       16,584  
                                 
Twenty-six weeks ended August 1, 2009
                               
Net sales
  $ 1,039,158     $ 25,803     $ 392 (2)   $ 1,065,353  
Depreciation and amortization
    29,841       669       8,764       39,274  
Income/(loss) from operations
    77,467       (10,344 )     (65,857 )(3)     1,266  
Gain on repurchases of 1.125% Senior Convertible Notes
                    11,564       11,564  
Net interest expense and other income
                    (9,024 )     (9,024 )
Income tax provision
                    (5,384 )     (5,384 )
Net loss
    77,467       (10,344 )     (68,701 )     (1,578 )
Capital expenditures
    5,148       12       4,606       9,766  
____________________
                               
(1)    Includes restructuring and other charges of $1,508 (see “Note 11. Restructuring and Other Charges” below).
 
(2)    Revenues related to figure magazine, which was discontinued in the Fiscal 2009 First Quarter.
 
(3)    Includes restructuring and other charges of $16,473 (see “Note 11. Restructuring and Other Charges” below).
 






















 
17

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 11. Restructuring and Other Charges

The following table summarizes our restructuring and other charges:

                     
Total
 
   
Costs
   
Costs Incurred
   
Estimated
   
Estimated/
 
   
Incurred
   
for Twenty-six
   
Remaining
   
Actual
 
   
as of
   
Weeks Ended
   
Costs
   
Costs as of
 
   
January 30,
   
July 31,
   
To be
   
July 31,
 
(In thousands)
 
2010
   
2010(1)
   
Incurred
   
2010
 
                         
Fiscal 2008 Announcements
                       
Lease termination and accretion charges
  $ 11,141     $ 236     $ 2,065 (2)   $ 13,442  
Severance, retention, and other costs
    4,963       143       21       5,127  
                                 
Fiscal 2009 Announcements
                               
Closing of PETITE SOPHISTICATE OUTLET stores:
                               
Non-cash accelerated depreciation
    643       (31 )     0       612  
Store lease termination charges
    1,215       0       0       1,215  
Other non-cash costs
    195       0       0       195  
Closing of under-performing stores:
                               
Store lease termination charges
    749       1,120       6,881       8,750  
Total
  $ 18,906     $ 1,468     $ 8,967     $ 29,341  
____________________
 
(1)    Excludes $40 of retention costs related to the sale of our proprietary credit card receivables programs, which are included in “Restructuring and Other Charges” in the accompanying condensed consolidated statement of operations and comprehensive income for the twenty-six weeks ended July 31, 2010.
 
(2)    Accretion charges related to lease termination liability for retained non-core misses apparel assets.
 





















 
18

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 11. Restructuring and Other Charges (Continued)

The following table summarizes our accrued restructuring and other charges:

   
Accrued
   
Twenty-six Weeks Ended
   
Accrued
 
   
as of
   
July 31, 2010
   
as of
 
   
January 30,
   
Costs
   
Payments/
   
July 31,
 
(In thousands)
 
2010(1)
   
Incurred
   
Settlements
   
2010(1)
 
                         
Fiscal 2008 Announcements
                       
Severance and retention costs(2) 
  $ 1,941     $ (16 )   $ (1,904 )   $ 21  
Non-core misses apparel assets:
                               
Lease termination charges
    10,285       236       (2,106 )     8,415  
Other costs
    158       0       (5 )     153  
Transformational initiatives:
                               
Severance and retention costs
    236       155       (248 )     143  
                                 
Fiscal 2009 Announcements
                               
Closing of PETITE SOPHISTICATE OUTLET stores:
                               
Store lease termination charges
    1,215       0       0       1,215  
Closing of under-performing stores:
                               
Store lease termination charges
    714       1,029       (871 )     872  
Total
  $ 14,549     $ 1,404     $ (5,134 )   $ 10,819  
____________________
 
(1)    Included in “Accrued expenses” in the accompanying condensed consolidated balance sheets.
 
(2)    Primarily severance for departure of former CEO, the closing of our LANE BRYANT WOMAN catalog, and the elimination of other positions.
 

During Fiscal 2010 we continued to recognize accretion charges on lease termination costs for facilities retained in connection with the sale of our Crosstown Traders apparel catalogs.  In addition, we recognized lease termination costs for the closing of under-performing stores identified during the Fiscal 2009 Fourth Quarter.  See “Item 8. Financial Statements and Supplementary Data; Note 14. Restructuring and Other Charges” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010 for further information regarding our restructuring and other charges.

The remaining estimated restructuring charges to be incurred as of the end of the Fiscal 2010 Second Quarter relate primarily to store lease termination charges and accretion charges related to the lease termination liability for the retained non-core misses apparel assets.  See “Item 8. Financial Statements and Supplementary Data; Note 14. Restructuring and Other Charges” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010 for additional details of the total charges related to these announcements.










 
19

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 12. Fair Value Measurements

ASC 820-10-20, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  We use various methods to determine fair value, including discounted cash flow projections based on available market interest rates and management estimates of future cash payments.

Financial assets and liabilities that are measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.
   
Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data.
   
Level 3 – Unobservable inputs that are not corroborated by market data.

Our financial assets and liabilities subject to ASC 820-10 were as follows:

   
As of
   
As of
 
Fair Value
   
July 31,
   
January 30,
 
Method
(In thousands)
 
2010
   
2010
 
Used
               
Assets
             
Available-for-sale securities(1)
    (2)   $ 200  
Level 2
____________________
(1)    Unrealized gains and losses on our available-for-sale securities are included in stockholders’ equity until realized and realized gains and losses are recognized in income when the securities are sold.
(2)    There were no available-for-sale securities as of July 31, 2010.

Prior to the sale of our proprietary credit card receivables programs during the Fiscal 2009 Third Quarter our financial assets included certificates and retained interests in our securitized receivables and our financial liabilities included a servicing liability related to our asset securitization program.  We measured these assets and liabilities using Level 3 inputs and reported them at fair value in accordance with ASC 820-10.

We estimated the fair value of our certificates and retained interests in our securitized receivables based on the present value of future expected cash flows using assumptions for the average life of the receivables sold, anticipated credit losses, and the appropriate market discount rate commensurate with the risks involved.  This cash flow included an “interest-only” (“I/O”) strip, consisting of the present value of the finance charges and late fees in excess of the amounts paid to certificate holders, credit losses, and servicing fees.

The fair value of our servicing liability represented the present value of the excess of our cost of servicing over the servicing fees received.  We determined the fair value by calculating all costs associated with billing, collecting, maintaining, and providing customer service during the expected life of the securitized credit card receivable balances.  We discounted the amount of these costs in excess of the servicing fees over the estimated life of the receivables sold.  The discount rate and estimated life assumptions used for the present value calculation of the servicing liability were consistent with those used to value the certificates and retained interests.


 
20

 
CHARMING SHOPPES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)



Note 12. Fair Value Measurements (Continued)

The table below presents a reconciliation of the beginning and ending balances of our certificates and retained interests and our servicing liability during the twenty-six weeks ended August 1, 2009:

   
Retained
   
Servicing
 
(In thousands)
 
Interests
   
Liability
 
             
Balance, January 31, 2009
  $ 94,453     $ 3,046  
Additions to I/O strip and servicing liability
    14,115       2,253  
Net additions to other retained interests
    7,014        
Reductions and maturities of QSPE certificates
    (900 )      
Amortization of the I/O strip and servicing liability
    (16,131 )     (2,356 )
Valuation adjustments to the I/O strip and servicing liability
    1,807       71  
Balance, August 1, 2009
  $ 100,358     $ 3,014  


Note 13. Fair Value of Financial Instruments

The carrying amounts and estimated fair values of our financial instruments are as follows:

   
July 31, 2010
   
January 30, 2010
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
(In thousands)
 
Amount
   
Value
   
Amount
   
Value
 
                         
Assets:
                       
Cash and cash equivalents                                                                    
  $ 210,055     $ 210,055     $ 186,580     $ 186,580  
Available-for-sale securities                                                                    
    0       0       200       200  
                                 
Liabilities:
                               
1.125% Senior Convertible Notes, due May 2014
    112,414 (1)     110,956       147,531 (1)     141,279  
6.07% mortgage note, due October 2014                                                                    
    9,409       8,909       9,777       9,068  
6.53% mortgage note, due November 2012
    3,150       3,108       3,850       3,763  
7.77% mortgage note, due December 2011
    6,179       6,243       6,549       6,560  
____________________
 
(1)    Net of unamortized discount of $28,037 at July 31, 2010 and $42,105 at January 30, 2010 (see “Note 3. Long-term Debt” above).
 

The fair value of cash and cash equivalents approximates their carrying amount because of the short maturities of such instruments.  The fair values of available-for-sale securities and the 1.125% Senior Convertible Notes are based on quoted market prices for the securities.  The fair values of the mortgage notes and other long-term debt are based on estimated current interest rates that we could obtain on similar borrowings.






 
21

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes included in Item 1 of this report.  It should also be read in conjunction with the management’s discussion and analysis of financial condition and results of operations, financial statements, and accompanying notes appearing in our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.  As used in this management’s discussion and analysis, “Fiscal 2010” refers to our fiscal year ending January 29, 2011, “Fiscal 2009” refers to our fiscal year ended January 30, 2010, “Fiscal 2008” refers to our fiscal year ended January 31, 2009, and “Fiscal 2007” refers to our fiscal year ended February 2, 2008.  “Fiscal 2010 Second Quarter” refers to our fiscal quarter ended July 31, 2010 and “Fiscal 2009 Second Quarter” refers to our fiscal quarter ended August 1, 2009.  “Fiscal 2010 First Quarter” refers to our fiscal quarter ended May 1, 2010 and “Fiscal 2009 First Quarter” refers to our fiscal quarter ended May 2, 2009.  “Fiscal 2009 Third Quarter” refers to our fiscal quarter ended October 31, 2009, “Fiscal 2009 Fourth Quarter” refers to our fiscal quarter ended January 30, 2010, and “Fiscal 2008 First Quarter” refers to our fiscal quarter ended May 3, 2008.  The terms “Charming Shoppes,” “the Company,” “we,” “us,” and “our” refer to Charming Shoppes, Inc. and its consolidated subsidiaries except where the context otherwise requires or as otherwise indicated.


FORWARD-LOOKING STATEMENTS

With the exception of historical information, the matters contained in the following analysis and elsewhere in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements may include, but are not limited to, projections of revenues, income or loss, cost reductions, capital expenditures, liquidity, divestitures, financing needs or plans, store closings, merchandise strategy, and plans for future operations, as well as assumptions relating to the foregoing.  The words “expect,” “could,” “should,” “project,” “estimate,” “predict,” “anticipate,” “plan,” “intend,” “believes,” and similar expressions are also intended to identify forward-looking statements.

We operate in a rapidly changing and competitive environment.  New risk factors emerge from time to time and it is not possible for us to predict all risk factors that may affect us.  Forward-looking statements are inherently subject to risks and uncertainties, some of which we cannot predict or quantify.  Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements, which speak only as of the date on which they were made.  We assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements.  Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Factors that could cause our actual results of operations or financial condition to differ from those described in this report include, but are not necessarily limited to, the following, which are discussed in more detail in “PART I; Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010:

Our business is dependent upon our ability to accurately predict rapidly changing fashion trends, customer preferences, and other fashion-related factors.  These risks may increase as we shift a higher proportion of our product to internally-designed merchandise and to overseas sourcing with its associated increase in lead times.
   
The women’s specialty retail apparel and direct-to-consumer markets are highly competitive and we may be unable to compete successfully against existing or future competitors.
   
Our business plan is largely dependent upon continued growth in the plus-size women’s apparel market, which may not occur.



 
22

 


We continue to execute on our five key priorities to guide our organization: (1) focus on the customer; (2) stabilize and begin to grow profitable revenue; (3) increase EBITDA; (4) increase cash flow; and (5) talent.  Our key priorities are designed to support our strategic goals to enhance our competitive position and improve our financial results.  We cannot assure the successful execution and the realization of the benefits of our key priorities, which may vary materially based on various factors, including the timing of execution of our strategic initiatives.
   
Our inability to successfully manage labor costs, occupancy costs, transportation costs, or other operating costs, or our inability to take advantage of opportunities to reduce operating costs, could adversely affect our operating margins and our results of operations.  We cannot assure the successful implementation of our restructuring programs.  Certain key raw materials in our products, such as cotton, wool, and synthetic fabrics, are subject to availability constraints and price volatility.  An increase in the cost or decrease in the availability of such raw materials could adversely affect our operating margins and our results of operations.  In addition, we may be unable to obtain adequate insurance for our operations at a reasonable cost.
   
We depend on the availability of credit for our working capital needs, including credit we receive from our bankers, our factors, our suppliers and their agents, and on our ongoing payments from Alliance Data related to our private-label credit card sales.  The difficult global economic environment could adversely affect our ability or the ability of our vendors to secure adequate credit or other financing.  If we or our vendors are unable to obtain sufficient financing at an affordable cost, our ability to merchandise our retail stores or e-commerce businesses could be adversely affected.
   
We cannot assure that we will realize the expected benefits from the ten-year private-label credit card operating agreements with Alliance Data.  A significant portion of our sales revenues is generated through our private-label credit cards.  Therefore, changes in the private-label credit card programs that adversely impact our ability to facilitate customer credit may adversely impact our results of operations.  Alliance Data will have discretion over certain policies and arrangements with the cardholders and may change these policies and arrangements in ways that could affect our relationship with the cardholders.  Any such changes could adversely affect our private-label credit card sales and our results of operations.  Our ability to continue to offer private-label credit card programs to our customers will depend on the success of our strategic alliance with Alliance Data.
 
Credit card operations are subject to numerous Federal and state laws, including, in particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law on July 21, 2010, that impose disclosure and other requirements upon the origination, servicing, and enforcement of credit accounts, and limitations on the amount of finance charges and fees that may be charged by a credit card provider.  Alliance Data may be subject to regulations to which we were not subject prior to the sale of the proprietary credit card receivables programs.  To the extent that such limitations or regulations materially limit the availability of credit or increase the cost of credit to our cardholders or negatively impact provisions which affect our revenue streams associated with the ten-year operating agreements, our results of operations could be adversely affected.  In addition, changes in credit card use, payment patterns, or default rates could be affected by a variety of economic, legal, social, or other factors over which we have no control and cannot predict with certainty.  Such changes could also negatively impact the availability of credit or increase the cost of credit to our cardholders or negatively impact provisions that affect our revenue streams associated with the ten-year operating agreements.





 
23

 


The difficult global economic environment, high levels of unemployment, an uncertain economic outlook, and fluctuating energy costs have led to, and could continue to lead to, reduced consumer demand for our products in the future.
   
Our Retail Stores and Direct-to-Consumer segments experience seasonal fluctuations in net sales and operating income.  Any decrease in sales or margins during our peak sales periods or in the availability of working capital during the months preceding such periods could have a material adverse effect on our business.  In addition, extreme or unseasonable weather conditions may have a negative impact on our sales.
   
Certain of our business processes that are dependent on technology are outsourced to third parties.  Such processes include credit card authorization and processing, our e-commerce platform, and certain other information technology functions.  Although we make a diligent effort to insure that all providers of outsourced services observe proper internal control practices and procedures, we cannot assure that failures will not occur.  The failure of such third parties to provide adequate services could adversely affect our customers’ shopping experience, our results of operations, liquidity, or our ability to provide adequate financial and management reporting.
   
We depend on the efforts and abilities of our executive officers and their management teams and we may not be able to retain or replace these employees or recruit additional qualified personnel.
   
We depend on our distribution and fulfillment centers, and third-party freight consolidators and service providers, for prompt and efficient deliveries of merchandise to our stores and customers.  We could incur significantly higher costs and experience longer lead times associated with distributing our products to our stores and shipping our products to our e-commerce and catalog customers if operations at any of these locations were to be disrupted for any reason.  The failure to distribute our products promptly could adversely affect our results of operations.
   
We are subject to the Fair Labor Standards Act and various state and Federal laws and regulations governing such matters as minimum wages, exempt status classification, overtime, and employee benefits.  Changes in Federal or state laws or regulations regarding minimum wages, unionization, or other employee benefits could cause us to incur additional wage and benefit costs, which could adversely affect our results of operations.
   
Natural disasters, as well as war, acts of terrorism, or other armed conflict, or the threat of any such event may negatively impact availability of merchandise and customer traffic to our stores, or otherwise adversely affect our business.
   
Successful operation of our e-commerce websites and our catalog business is dependent on our ability to maintain efficient and uninterrupted customer service and fulfillment operations.
   
We rely significantly on foreign sources of production and face a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad.  Such risks include (but are not necessarily limited to) political instability; imposition of or changes in duties or quotas; trade restrictions; increased security requirements applicable to imports; delays in shipping; increased costs of transportation; and issues relating to compliance with domestic or international labor standards.
   




 
24

 


Our manufacturers may be unable to manufacture and deliver merchandise to us in a timely manner or to meet our quality standards.  In addition, if any one of our manufacturers or vendors fails to operate in compliance with applicable laws and regulations, is perceived by the public as failing to meet certain United States labor standards, or employs unfair labor practices, our business could be adversely affected.
   
We may be unable to protect our trademarks and other intellectual property rights, which are important to our success and our competitive position.
   
Our long-term growth plan depends on our ability to open and profitably operate new retail stores, to convert, where applicable, the formats of existing stores on a profitable basis, and to continue to expand our outlet distribution channel.  Our retail stores depend upon a high volume of traffic in the strip centers and malls in which our stores are located, and our future retail store growth is dependent upon the availability of suitable locations for new stores.  In addition, we will need to identify, hire, and retain a sufficient number of qualified personnel to work in our stores.  We cannot assure that desirable store locations will continue to be available, or that we will be able to hire and retain a sufficient number of suitable sales associates at our stores.
   
Consolidation in the commercial retail real estate industry could affect our ability to successfully negotiate favorable rental terms for our stores in the future.  Our ability to operate successfully as a mall-based retailer is dependent upon our ability to develop and maintain good relationships with our landlords.  Potential consolidation in the commercial retail real estate industry could limit our future ability to negotiate favorable rental terms or to close under-performing stores on favorable terms.  Should a significant consolidation occur a large proportion of our store base could be concentrated with one or a few entities that could then be in a position to dictate unfavorable terms to us due to the significant leverage they would possess.  If we are unable to negotiate favorable rental terms with these entities and are therefore unable to profitably operate our existing stores, our business, financial condition, and results of operations could be materially and adversely affected.
   
Inadequate systems capacity, a disruption or slowdown in telecommunications services, changes in technology, changes in government regulations, systems issues, security breaches, a failure to integrate order management systems, or customer privacy issues could result in reduced sales or increases in operating expenses as a result of our efforts or our inability to remedy such issues.
   
We continually evaluate our portfolio of businesses and may decide to acquire or divest businesses or enter into joint ventures or strategic alliances.  If we fail to manage the risks associated with acquisitions, divestitures, joint ventures, or other alliances, our business, financial condition, and results of operations could be materially and adversely affected.
   
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include our assessment of the effectiveness of our internal control over financial reporting in our annual reports.  Our independent registered public accounting firm is also required to report on whether or not they believe that we maintained, in all material respects, effective internal control over financial reporting.  If we are unable to maintain effective internal control over financial reporting we could be subject to regulatory sanctions and a possible loss of public confidence in the reliability of our financial reporting.  Such a failure could result in our inability to provide timely and/or reliable financial information and could adversely affect our business.
   



 
25

 


The holders of our 1.125% Senior Convertible Notes due May 1, 2014 (the “1.125% Notes”) could require us to repurchase the principal amount of the notes for cash before maturity of the notes upon the occurrence of a “fundamental change” as defined in the prospectus filed in connection with the 1.125% Notes (see Item 8.  Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 8. Long-Term Debt” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010).  Such a repurchase would require significant amounts of cash, would be subject to important limitations on our ability to repurchase, such as the risk of our inability to obtain funds for such repurchase, and could adversely affect our financial condition.
   
Changes to existing accounting rules or the adoption of new rules could have an adverse impact on our reported financial position or results of operations.


CRITICAL ACCOUNTING POLICIES

We have prepared the financial statements and accompanying notes included in “Item 1. Financial Statements” of this report in conformity with United States generally accepted accounting principles.  This requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.  These estimates and assumptions are based on historical experience, analysis of current trends, and various other factors that we believe to be reasonable under the circumstances.  Actual results could differ from those estimates under different assumptions or conditions.

We periodically reevaluate our accounting policies, assumptions, and estimates and make adjustments when facts and circumstances warrant.  Our significant accounting policies are described in Item 8.  Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 1. Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.  There were no material changes in, or additions to, our critical accounting policies or in the assumptions or estimates we used to prepare the financial information appearing in this report.


OVERVIEW

This overview of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presents a high-level summary of more detailed information contained elsewhere in this Report on Form 10-Q.  The intent of this overview is to put this detailed information into perspective and to introduce the discussion and analysis contained in this MD&A.  Accordingly, this overview should be read in conjunction with the remainder of this MD&A and with the financial statements and other detailed information included in this Report on Form 10-Q and should not be separately relied upon.

With the support of our strong balance sheet and liquidity, we continue to focus on the turnaround of our operating performance.  For the Fiscal 2010 Second Quarter, our Adjusted EBITDA (see “EBITDA and Adjusted EBITDA” below) was $10.3 million compared to $29.5 million for the Fiscal 2009 Second Quarter.  While we are very disappointed with our Adjusted EBITDA performance, our focus on the customer allowed us to stabilize both our sales and our customer base in the Fiscal 2010 Second Quarter.  In order to stem the decline in our customer base, which had declined significantly during Fiscal 2009, we were more promotional and invested in additional marketing.  While our year-round and seasonal core assortments generally performed well, our non-core assortments did not.  Due to poor customer response to our seasonal non-core merchandise, we were ultimately over-receipted in the non-core seasonal merchandise.  Additionally, our disappointing performance was further impacted by higher-than-planned markdowns in order to clear excess seasonal inventory in an already promotional environment.



 
26

 

We are addressing our Fiscal 2010 Second Quarter merchandising issues and are continuing to generally improve our assortments for the second half of this year, focusing on the right products in the right quantities.  Additionally, we are working to better position our supply chain organization to reduce purchase commitment lead times.

Consolidated net sales for the Fiscal 2010 Second Quarter decreased 2% as compared to the Fiscal 2009 Second Quarter due primarily to 150 net store closings during the preceding 12-month period, which were partially offset by a 36% increase in e-commerce net sales and a 1% increase in consolidated comparable store sales.  The improvement in e-commerce net sales was attributable to the August 2009 launch of our new websites and the February 2010 launch of our universal shopping cart, which includes free shipping to store locations and $7 flat-rate shipping to customers.

As discussed above, consolidated gross profit as a percentage of net sales declined 190 basis points as compared to the prior-year period.  All of our retail brands experienced decreased gross margin as a result of increased promotional activity and higher-than-planned markdowns to sell-through seasonal merchandise.

Our occupancy and buying expenses decreased both in dollar amount and as a percent of sales for the Fiscal 2010 Second Quarter, primarily related to lower rent expense as a result of the operation of fewer stores and renegotiations of store lease terms.

Our selling, general and administrative expenses increased in dollar amount and as a percent of sales for the Fiscal 2010 Second Quarter, primarily as a result of additional advertising expenses in order to support increases in traffic and conversion.  Additionally, income from our private-label credit card operations for the Fiscal 2010 Second Quarter was lower than the prior-year period but was comparable to the prior year for the year-to-date period.


Financial Position

The strength of our capital base and liquidity profile remains solid, with ample liquidity through our $210 million of cash as of the end of the Fiscal 2010 Second Quarter as compared to $187 million as of the end of Fiscal 2009.  During the Fiscal 2010 Second Quarter we received $45 million of tax refunds related primarily to a Federal income tax loss carryback and repurchased $49 million in face value of our 1.125% Convertible Notes due May 2014 for $38 million.  To date, we have repurchased an aggregate principal amount of $135 million of our 1.125% Convertible Notes for an aggregate purchase price of $89 million.  We ended the quarter with cash in excess of debt of $42 million, compared to debt in excess of cash of $33 million as of the end of Fiscal 2009, an improvement of $75 million.  Additionally, we ended the quarter with no borrowings against our $225 million committed revolving credit facility and as of July 31, 2010 our available borrowing capacity under the facility was approximately $148 million.

Management Initiatives

We continue to improve our merchandise assortments.  We are re-launching our Right Fit® denim and career pants with a strong offering of petite and tall-length assortments at LANE BRYANT and FASHION BUG.  We are also presenting a broader assortment of footwear in 500 LANE BRYANT stores, and have re-launched our Juniors assortment in 300 FASHION BUG stores.

We continue to execute on our five key priorities to guide our organization: (1) focus on the customer; (2) stabilize and begin to grow profitable revenue; (3) increase EBITDA; (4) increase cash flow; and (5) talent.  Our management initiatives are designed to reinforce and support the execution of our key priorities.




 
27

 

During the Fiscal 2010 Second Quarter we made a number of important executive changes, including the appointments of a new President at FASHION BUG, a new President at LANE BRYANT OUTLETS, and a new Executive Vice President of Merchandising and Product Development at FASHION BUG.


RESULTS OF OPERATIONS

The following table shows our results of operations expressed as a percentage of net sales and on a comparative basis:

   
Percentage of Net Sales(1)
   
Percentage
   
Percentage of Net Sales(1)
   
Percentage
 
   
Thirteen Weeks Ended
   
Change
   
Twenty-six Weeks Ended
   
Change
 
   
July 31,
   
August 1,
   
From Prior
   
July 31,
   
August 1,
   
From Prior
 
   
2010
   
2009
   
Period
   
2010
   
2009
   
Period
 
                                     
Net sales
    100.0 %     100.0 %     (1.8 )%     100.0 %     100.0 %     (4.0 )%
Cost of goods sold
    51.9       50.0       1.9       48.6       48.2       (3.4 )
Gross profit
    48.1       50.0       (5.6 )     51.4       51.8       (4.7 )
Occupancy and buying expenses
    17.8       19.0       (8.2 )     18.0       19.0       (9.1 )
Selling, general, and administrative expenses
    28.4       25.5       9.5       29.9       27.4       4.9  
Depreciation and amortization
    3.3       3.6       (11.7 )     3.3       3.7       (14.1 )
Restructuring and other charges
    0.1       1.5       (92.0 )     0.1       1.5       (90.8 )
Income/(loss) from operations
    (1.4 )     0.5       (387.5 )     0.0       0.1       (84.2 )
Other income
    0.1       0.1       39.9       0.1       0.0       11.0  
Gain on repurchases of 1.125% Senior Convertible Notes
    0.4       1.4       (73.9 )     0.2       1.1       (83.5 )
Interest expense
    0.8       0.9       (8.7 )     0.8       0.9       (9.8 )
Income tax (benefit)/provision
    (0.1 )     0.1       (166.7 )     (0.1 )     0.5       (122.0 )
Net income/(loss)
    (1.7 )     0.9       (273.4 )     (0.5 )     (0.1 )     200.8 (2)
____________________
 
(1)    Results may not add due to rounding.
 
(2)    Increase in net loss.
 





















 
28

 

The following table shows information related to the change in our consolidated total net sales:

   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
   
July 31,
   
August 1,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Retail Stores segment
                       
Increase/(decrease) in comparable store sales(1) :
                       
Consolidated retail stores
    1 %     (14 )%     (1 )%     (14 )%
LANE BRYANT(2)
    1       (13 )     (1 )     (14 )
FASHION BUG
    3       (18 )     1       (16 )
CATHERINES
    0       (9 )     (1 )     (9 )
                                 
Sales from new stores as a percentage of total consolidated prior-period sales(3):
                               
LANE BRYANT(2)
    1       2       1       2  
FASHION BUG
    0       0       0       0  
CATHERINES(4)
    1       0       1       0  
Other retail stores(5)
    0       0       0       0  
                                 
Prior-period sales from closed stores as a percentage of total consolidated prior-period sales:
                               
LANE BRYANT(2)