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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 4, 2018
or
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. 001-31390
CHRISTOPHER & BANKS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
06 - 1195422
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
2400 Xenium Lane North, Plymouth, Minnesota
 
55441
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code (763) 551-5000
 
 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  ☐  NO
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☒  YES  ☐  NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company  ☒
 
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  ☐  YES ☒  NO
As of August 31, 2018 there were 38,422,693 shares of the registrant's common stock outstanding.



Table of Contents

CHRISTOPHER & BANKS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1

Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
CHRISTOPHER & BANKS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
 
August 4, 2018
 
February 3, 2018
 
 
 
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
23,114

 
$
23,077

Accounts receivable
 
3,508

 
2,626

Merchandise inventories
 
40,184

 
41,361

Prepaid expenses and other current assets
 
4,263

 
2,715

Income taxes receivable
 
218

 
172

Total current assets
 
71,287

 
69,951

Property, equipment and improvements, net
 
38,383

 
47,773

Other non-current assets:
 
 
 
 
Deferred income taxes
 
597

 
597

Other assets
 
1,213

 
1,043

Total other non-current assets
 
1,810

 
1,640

Total assets
 
$
111,480

 
$
119,364

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
23,689

 
$
20,825

Accrued salaries, wages and related expenses
 
5,045

 
5,309

Accrued liabilities and other current liabilities
 
19,655

 
26,201

Total current liabilities
 
48,389

 
52,335

Non-current liabilities:
 
 
 
 
Deferred lease incentives
 
7,023

 
7,762

Deferred rent obligations
 
6,459

 
6,621

Other non-current liabilities
 
9,372

 
2,237

Total non-current liabilities
 
22,854

 
16,620

 
 
 
 
 
Commitments and contingencies
 

 

 
 
 
 
 
Stockholders’ equity:
 
 
 
 
Preferred stock — $0.01 par value, 1,000 shares authorized, none outstanding
 

 

Common stock — $0.01 par value, 74,000 shares authorized, 48,222 and 47,625 shares issued, and 38,432 and 37,834 shares outstanding at August 4, 2018 and February 3, 2018, respectively
 
481

 
475

Additional paid-in capital
 
128,236

 
127,652

Retained earnings
 
24,231

 
34,993

Common stock held in treasury, 9,791 shares at cost at August 4, 2018 and February 3, 2018
 
(112,711
)
 
(112,711
)
Total stockholders’ equity
 
40,237

 
50,409

Total liabilities and stockholders’ equity
 
$
111,480

 
$
119,364



See Notes to Condensed Consolidated Financial Statements

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Table of Contents

CHRISTOPHER & BANKS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
(unaudited) 
 
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
 
August 4,
 
July 29,
 
August 4,
 
July 29,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net sales
 
$
87,418

 
$
86,618

 
$
173,319

 
$
175,173

Merchandise, buying and occupancy costs
 
62,546

 
61,990

 
121,103

 
120,007

Gross profit
 
24,872

 
24,628

 
52,216

 
55,166

Other operating expenses:
 
 

 
 
 
 
 
 
Selling, general and administrative
 
29,675

 
29,179

 
59,422

 
60,153

Depreciation and amortization
 
2,518

 
3,167

 
5,334

 
6,266

Impairment of store assets
 

 
93

 

 
163

Total other operating expenses
 
32,193

 
32,439

 
64,756

 
66,582

Operating loss
 
(7,321
)
 
(7,811
)
 
(12,540
)
 
(11,416
)
Interest expense, net
 
(42
)
 
(38
)
 
(99
)
 
(69
)
Loss before income taxes
 
(7,363
)
 
(7,849
)
 
(12,639
)
 
(11,485
)
Income tax provision
 
63

 
40

 
106

 
92

Net loss
 
$
(7,426
)
 
$
(7,889
)
 
$
(12,745
)
 
$
(11,577
)
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of tax
 

 

 

 

Comprehensive loss
 
$
(7,426
)
 
$
(7,889
)
 
$
(12,745
)
 
$
(11,577
)
 
 
 
 
 
 
 
 
 
Basic loss per share:
 
 
 
 
 
 
 
 
Net loss
 
$
(0.20
)
 
$
(0.21
)
 
$
(0.34
)
 
$
(0.31
)
Basic shares outstanding
 
37,458

 
37,156

 
37,381

 
37,123

 
 
 
 
 
 
 
 
 
Diluted loss per share:
 
 
 
 
 
 
 
 
Net loss
 
$
(0.20
)
 
$
(0.21
)
 
$
(0.34
)
 
$
(0.31
)
Diluted shares outstanding
 
37,458

 
37,156

 
37,381

 
37,123

 

See Notes to Condensed Consolidated Financial Statements


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Table of Contents

CHRISTOPHER & BANKS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
 
Twenty-six Weeks Ended
 
 
August 4, 2018
 
July 29, 2017
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(12,745
)
 
$
(11,577
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
5,334

 
6,266

Impairment of store assets
 

 
163

Amortization of financing costs
 
31

 
31

Deferred lease-related liabilities
 
(486
)
 
(442
)
Stock-based compensation expense
 
604

 
550

Changes in operating assets and liabilities:
 
 

 
 
Accounts receivable
 
(882
)
 
(1,284
)
Merchandise inventories
 
1,178

 
(5,082
)
Prepaid expenses and other assets
 
(1,579
)
 
(1,180
)
Income taxes receivable
 
(46
)
 
261

Accounts payable
 
3,021

 
9,096

Accrued liabilities
 
(5,757
)
 
(7,872
)
Other liabilities
 
(59
)
 
1,793

Net cash used in operating activities
 
(11,386
)
 
(9,277
)
Cash flows from investing activities:
 
 
 
 
Purchases of property, equipment and improvements
 
(1,722
)
 
(3,150
)
Proceeds from sale of assets
 
13,329

 

Net cash provided by (used in) investing activities
 
11,607

 
(3,150
)
Cash flows from financing activities:
 
 
 
 
Shares redeemed for payroll taxes
 
(13
)
 
(6
)
Proceeds from short-term borrowings
 
9,100

 

Payments of short-term borrowings
 
(9,100
)
 

Payments of deferred financing costs
 
(171
)
 

Net cash used in financing activities
 
(184
)
 
(6
)
Net increase (decrease) in cash and cash equivalents
 
37

 
(12,433
)
Cash and cash equivalents at beginning of period
 
23,077

 
35,006

Cash and cash equivalents at end of period
 
$
23,114

 
$
22,573

Supplemental cash flow information:
 
 
 
 
Interest paid
 
$
100

 
$
69

Income taxes paid (refunded)
 
$
130

 
$
(251
)
Accrued purchases of equipment and improvements
 
$
143

 
$
219

 

See Notes to Condensed Consolidated Financial Statements


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Table of Contents

CHRISTOPHER & BANKS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 — Basis of Presentation
 
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Christopher & Banks Corporation and its subsidiaries (collectively referred to as “Christopher & Banks”, “the Company”, “we” or “us”) pursuant to the current rules and regulations of the United States ("U.S.") Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been omitted, pursuant to such rules and regulations. These unaudited condensed consolidated financial statements, except the condensed consolidated balance sheet as of February 3, 2018 derived from the Company's audited financial statements, should be read in conjunction with the audited financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2018.
 
The results of operations for the interim period shown in this report are not necessarily indicative of results to be expected for the full fiscal year. In the opinion of management, the information contained herein reflects all adjustments, consisting only of normal adjustments, except as otherwise stated in these notes, considered necessary to present fairly our financial position, results of operations, and cash flows as of August 4, 2018, and July 29, 2017 and for all periods presented.
 
Recently issued accounting pronouncements
 
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, which requires that any lease arrangements longer than twelve months result in an entity recognizing an asset and liability on its balance sheet. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company has elected to apply the standard on a prospective basis with an adjustment to retained earnings in the first period of adoption. The Company is currently evaluating the guidance and its impact on our consolidated financial statements and the related internal controls over financial reporting. The Company expects the adoption of this standard will have a material impact on its consolidated balance sheet for recognition of lease-related assets and liabilities. We will adopt the ASU beginning in the first quarter of fiscal 2019.
 
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period among the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for public companies for fiscal years and interim periods within those years beginning after December 15, 2017. There was no adjustment to prior year financial statements as the Company had no restricted cash in prior years. As of August 4, 2018, the Company included $1.6 million of restricted cash in cash and cash equivalents within the statement of cash flows related to cash held in escrow in conjunction with the sale-leaseback transaction.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The Company adopted ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) on February 4, 2018 using the modified retrospective method for all contracts. The additional disclosures required by the ASU have been included in Note 6 Revenue. Results for reporting periods beginning February 4, 2018 reflect the application of ASC 606, while the results for prior reporting periods were prepared under the guidance of ASC 605, Revenue Recognition (“previous guidance”). We recorded a net increase to opening equity of $2.0 million as of February 4, 2018 due to the cumulative impact of adopting the new standard, with the impact primarily related to the recognition of gift card breakage. Further, as a result of applying the modified retrospective method, the following adjustments were made to accounts on the condensed consolidated balance sheet as of February 4, 2018 (in thousands):


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Table of Contents

 
 
February 3, 2018
 
ASC 606 Adjustments
 
February 4, 2018
Balance Sheet
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Merchandise inventories
 
$
41,361

 
$
(482
)
 
$
40,879

Prepaid expenses and other current assets
 
2,715

 
482

 
3,197

 
 
 
 
 
 
 
Liabilities
 
 

 
 
 
 
Accrued liabilities and other current liabilities
 
26,201

 
(1,983
)
 
24,218

 
 
 
 
 
 
 
Equity
 
 

 
 
 
 
Retained earnings
 
34,993

 
1,983

 
36,976


Impact on Financial Statements
The following tables summarize the impacts of adopting ASC 606 on the Company’s condensed consolidated financial statements as of and for the thirteen and twenty-six weeks ended August 4, 2018 (in thousands):
Condensed Consolidated Balance Sheet
 
 
As reported
 
Balance without adoption of ASC 606
 
Effect of change
Higher/(lower)
Balance Sheet
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Merchandise inventories
 
$
40,184

 
$
40,781

 
$
(597
)
Prepaid expenses and other current assets
 
4,263

 
3,666

 
597

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Accrued liabilities and other current liabilities
 
19,655

 
19,746

 
(91
)
 
 
 

 
 
 
 
Equity
 
 
 
 
 
 
Retained earnings
 
24,231

 
24,140

 
91


Condensed Consolidated Statement of Operations and Comprehensive Loss
 
 
Thirteen weeks ended August 4, 2018
 
Twenty-six weeks ended August 4, 2018
 
 
As reported
 
Balance without adoption of ASC 606
 
Effect of change
Higher/(lower)
 
As reported
 
Balance without adoption of ASC 606
 
Effect of change
Higher/(lower)
Statement of Operations and Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
87,418

 
$
87,407

 
$
11

 
$
173,319

 
$
173,228

 
$
91

Net loss
 
(7,426
)
 
(7,437
)
 
11

 
(12,745
)
 
(12,836
)
 
91

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.20
)
 
$
(0.20
)
 
$
0.00

 
$
(0.34
)
 
$
(0.34
)
 
$
0.00

Diluted
 
$
(0.20
)
 
$
(0.20
)
 
$
0.00

 
$
(0.34
)
 
$
(0.34
)
 
$
0.00


We reviewed all other significant newly-issued accounting pronouncements and concluded they are either not applicable to our operations, or that no material affect is expected on our consolidated financial statements as a result of future adoption.


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Table of Contents

NOTE 2 — Property, Equipment and Improvements, Net
 
Property, equipment and improvements, net consisted of the following (in thousands):
 
Description
 
August 4, 2018
 
February 3, 2018
Land
 
$

 
$
1,597

Corporate office, distribution center and related building improvements
 

 
12,753

Store leasehold improvements
 
48,587

 
50,094

Store furniture and fixtures
 
68,149

 
70,447

Corporate office and distribution center furniture, fixtures and equipment
 
5,033

 
5,053

Computer and point of sale hardware and software
 
33,825

 
33,126

Construction in progress
 
1,300

 
1,275

Total property, equipment and improvements, gross
 
156,894

 
174,345

Less accumulated depreciation and amortization
 
(118,511
)
 
(126,572
)
Total property, equipment and improvements, net
 
$
38,383

 
$
47,773

 
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In conjunction with an impairment analysis, the Company analyzed improvements and equipment at certain under-performing stores and stores identified for closure for impairment. As a result, the Company recorded no long-lived asset impairment during the thirteen week period ended August 4, 2018 and approximately $0.1 million during the thirteen week period ended July 29, 2017. Additionally, the Company recorded no impairment during the twenty-six week period ended August 4, 2018 and approximately $0.2 million during the twenty-six week period ended July 29, 2017.

Sale-Leaseback

On April 27, 2018, the Company completed the sale of and entered into an agreement to leaseback its corporate headquarters facility, including the distribution center, in Plymouth, MN. The agreement provided for the sale of the facility for a purchase price of $13.7 million and the subsequent leaseback of the facility for a 15-year period. The lease is classified as an operating lease. As a result, the Company recorded a deferred gain of $7.7 million. As of August 4, 2018, $7.1 million of the deferred gain is reflected in the condensed consolidated balance sheet under other non-current liabilities, with the remaining $0.5 million included as a component of accrued liabilities and other current liabilities. The Company recorded $0.1 million into earnings during the thirteen week period ended August 4, 2018. As part of the transaction, the Company put $1.7 million in escrow for certain repairs to the building. As of August 4, 2018, $1.6 million remained in escrow for repairs to the building. This amount is considered to be restricted cash and is included within cash and cash equivalents on the condensed consolidated balance sheet.
 
NOTE 3 — Accrued Liabilities
 
Accrued liabilities and other current liabilities consisted of the following (in thousands):
 
 
August 4, 2018
 
February 3, 2018
Gift card and store credit liabilities
 
$
2,899

 
$
6,931

Accrued Friendship Rewards Program loyalty liability
 
3,868

 
3,539

Accrued income, sales and other taxes payable
 
1,287

 
1,587

Accrued occupancy-related expenses
 
3,743

 
3,432

Sales return reserve
 
1,304

 
1,079

eCommerce obligations
 
3,999

 
3,824

Other accrued liabilities
 
2,555

 
5,809

Total accrued liabilities and other current liabilities
 
$
19,655

 
$
26,201


NOTE 4 — Credit Facility
 
The Company is party to an amended and restated credit agreement ("the Credit Facility") with Wells Fargo Bank, National Association ("Wells Fargo"), as lender. On August 3, 2018, the Company entered into a second amendment ("Second Amendment") to the Credit Facility.
 

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The Second Amendment, among other changes, (i) extended the term of the Credit Facility to August 3, 2023; and (ii) supplemented the existing $50.0 million revolving Credit Facility by adding a new $5.0 million revolving "first-in, last-out" tranche credit facility (the "FILO Facility"), subject to borrowing base restrictions applicable to the FILO Facility. The Company must draw under the FILO Facility before making any borrowings under the revolving Credit Facility.
 
Loans under the FILO Facility will bear interest based on quarterly excess available under the Borrowing Base as defined in the Credit Facility. The interest rate under the FILO Facility will be either (i) the London interbank Offered Rate ("LIBOR") plus 3.00% for FILO loans that are LIBOR loans; or (ii) 2.00% above the Base Rate for FILO loans that are Base Rate loans as such terms are defined in the Credit Facility. Borrowings under the Credit Facility will generally accrue interest at a rate ranging from 1.50% to 1.75% over the LIBOR or 0.50% to 0.75% over the Wells Fargo Prime Rate based on the amount of Average Daily Availability for the Fiscal Quarter immediately preceding each Adjustment Date, as such terms are defined in the Credit Facility. The Company has the ability to select between the LIBOR or prime based rate at the time of the cash advance. The Credit Facility has an unused commitment fee of 0.25%.

In addition to these changes, the Second Amendment eliminates availability against the Company's real property, which was the subject of a recent sale-leaseback transaction. The Company recorded approximately $0.2 million of deferred financing costs in the second quarter of fiscal 2018 in connection with the Second Amendment. The deferred financing costs have been combined with the balance of the deferred financing costs remaining from the prior amendment on September 8, 2014. The entire deferred financing costs are recorded within other assets on the condensed consolidated balance sheet and are being amortized as interest expense over the related term of the Second Amendment.

The Credit Facility contains customary events of default and various affirmative and negative covenants. The sole financial covenant contained in the Credit Facility requires the Company to maintain Availability at least equal to the greater of (a) ten percent (10%) of the borrowing base or (b) $3.0 million. In addition, the Credit Facility permits the payment of dividends to the Company's stockholders if certain financial conditions are met. The Company was in compliance with all financial covenants and other financial provisions as of August 4, 2018.

The Company's obligations under the Credit Facility are secured by the assets of the Company and its subsidiaries. The Company has pledged substantially all of its assets as collateral security for the loans, including accounts owed to the Company, bank accounts, inventory, other tangible and intangible personal property, intellectual property (including patents and trademarks), and stock or other evidences of ownership of 100% of all of the Company's subsidiaries.
 
There were no outstanding borrowings under the Credit Facility as of August 4, 2018 and July 29, 2017. The total Borrowing Base at August 4, 2018 was approximately $29.6 million. As of August 4, 2018, the Company had open on-demand letters of credit of approximately $6.7 million. Accordingly, after reducing the Borrowing Base for the open letters of credit and the required minimum availability of the greater of $3.0 million, or 10.0% of the Borrowing Base, the net availability of revolving credit loans under the Credit Facility was approximately $22.2 million at August 4, 2018.

NOTE 5 — Income Taxes

For the thirteen weeks ended August 4, 2018, the Company recorded income tax expense of $63 thousand, or an effective rate of (0.9)%, compared to income tax expense of $40 thousand, or an effective rate of (0.5)%, for the second quarter of fiscal 2017. For the twenty-six weeks ended August 4, 2018, the Company recorded income tax expense of $106 thousand, or an effective rate of (0.8)%, compared to income tax expense of $92 thousand, or an effective rate of (0.8)%, for the same period of fiscal 2017. The income tax provision for the fiscal 2018 and 2017 periods is primarily driven by state taxes.

As of August 4, 2018, the possibility of future cumulative losses still exists. Accordingly, the Company has continued to maintain a valuation allowance against its net deferred tax assets. A small deferred tax asset remains related to certain state tax benefits. The Company has federal and state net operating loss ("NOL") carryforwards which will reduce future taxable income. Approximately $26.1 million in net federal tax benefits are available from these federal loss carryforwards. An additional $0.8 million is available in net tax credit carryforwards. The state loss carryforwards will result in net state tax benefits of approximately $4.5 million.

Sections 382 and 383 of the Internal Revenue Code limit the annual utilization of certain tax attributes, including net operating loss carryforwards, incurred prior to a change in ownership. If the Company were to experience an ownership change, as defined by Sections 382 and 383, its ability to utilize its tax attributes could be substantially limited. Depending on the severity of the annual NOL limitation, the Company could permanently lose its ability to use a significant number of its accumulated NOLs.


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The Company's liability for unrecognized tax benefits associated with uncertain tax positions is recorded within other non-current liabilities. There has been no material change in the reserve for unrecognized tax benefits since the end of the previous fiscal year. The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. We do not expect any significant changes to the amount of unrecognized tax benefits in the next twelve months.

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. With few exceptions, the Company or its subsidiaries are no longer subject to examination prior to tax years before fiscal 2013. The Company does not have any ongoing income tax audits.

The Tax Cuts and Jobs Act ("the Act") was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018. The income tax effects of the Act required the remeasurement of our deferred tax assets and liabilities in accordance with ASC Topic 740. The Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin No. 118 ('SAB 118') that allows companies to record provisional estimates of the impacts of the Act during a measurement period of up to one year from the enactment, which is similar to the measurement period used when accounting for business combinations. The Company has estimated the effects of the Act, and those estimates have been reflected in our 2017 financial statements.
 
NOTE 6 — Revenue
 
Merchandise sales
We sell merchandise through our brick and mortar and eCommerce sales channels. Revenues are recognized when control of the promised merchandise is transferred to our customers. Within our brick and mortar sales channel, control is transferred at the point of sale. Within our eCommerce sales channel, control is transferred upon delivery of the merchandise to our customers. Shipping revenues associated with the eCommerce channel are recognized upon the completion of the delivery. The revenue recorded reflects the consideration that we expect to receive in exchange for our merchandise. The Company has elected, as an accounting policy, to exclude from the transaction price all taxes assessed by governmental authorities imposed on merchandise sales.
Right of return
As part of our merchandise sales, we offer customers a right of return on merchandise that lapses based on the original purchase date. The Company estimates the amount of sales that may be returned by our customers and records this estimate as a reduction of revenue in the period in which the related revenues are recognized. We utilize historical and industry data to estimate the total return liability. Conversely, the reduction in revenue results in a corresponding reduction in merchandise, buying and occupancy costs which results in a contract asset for the anticipated merchandise returned. The total reduction in revenue from estimated returns was $1.3 million as of August 4, 2018, which is included within accrued liabilities and other current liabilities in the condensed consolidated balance sheet.
Friendship rewards program
The Company established the Friendship Rewards Program as a loyalty program where customers earn points towards future discount certificates based on their purchase activity. We have identified the additional benefits received from this program as a separate performance obligation within a sales contract in the form of the discount certificates earned by customers. Accordingly, we assess any incremental discounts issued to our customers through the program and allocate a portion of the transaction price associated with merchandise sales from loyalty program members to the future discounts earned. The transaction price allocated to future discounts is recorded as deferred revenue until the discounts are used or forfeited.
In addition, the Company estimates breakage on the points earned within the program that will not be used by customers for future discounts. The Company estimates breakage based on the historical redemption rate and considers industry trends. Breakage is recorded as a reduction to the deferred revenue associated with the program.
As of August 4, 2018, the Company recorded $3.9 million in deferred revenue associated with the program, which is included in accrued liabilities and other current liabilities in the condensed consolidated balance sheet.
Gift card revenue
The Company sells gift cards to customers which can be redeemed for merchandise within our brick and mortar and eCommerce sales channels. Gift cards are recorded as deferred revenue when issued and are subsequently recorded as revenue upon redemption. The Company estimates breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based on the vintage of the gift card. Breakage on gift cards is recorded as revenue in proportion to the rate of gift card redemptions by vintage. This represents a change in the methodology used to estimate

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breakage as we have historically recognized breakage for the portion of the gift card balances that remained outstanding following 36 months of issuance.
As of August 4, 2018, the Company had $2.9 million of deferred revenue associated with the issuance of gift cards, which is included in accrued liabilities and other current liabilities in the condensed consolidated balance sheet.
Private label credit card
The Company offers a private label credit card ("PLCC") which bears the Christopher and Banks brand name offered under an agreement with Comenity Bank. Pursuant to this agreement, there are several obligations on behalf of Comenity Bank that impact the recording of revenue.
As part of the agreement, the Company received a signing bonus. We have determined that the benefits associated with signing the agreement are recognized over time throughout its term. This is a faithful depiction of the transfer of services as the customer receives and consumes the benefits by obtaining and having the ability to use financing through Comenity Bank for purchases within our brick and mortar and eCommerce sales channels throughout the agreement's term. As of August 4, 2018, the Company had $1.8 million recorded as deferred revenue associated with the signing bonus, which is included in accrued liabilities and other current liabilities in the condensed consolidated balance sheet. The Company recorded $0.1 million into revenue for the thirteen week and twenty-six week periods ended August 4, 2018 associated with the signing bonus.
The Company records revenue associated with royalties received for purchases made using the PLCC. Royalty revenue is recognized based on the total amount to which we have a right to invoice in accordance with the practical expedient included in ASC 606-10-55-18. Therefore, royalty revenue is recognized in the period in which the related purchases are recognized.
The Company receives a performance bonus based on the total amount of new accounts that are opened during the year. We have determined that this is a form of variable consideration. Variable consideration is recorded if, in the Company’s judgment, it is probable that a significant future reversal of revenue under the contract will not occur. For the thirteen week and twenty-six week periods ended August 4, 2018, the Company met certain performance metrics within the contract and recorded a small amount of revenue associated with performance bonuses.
Disaggregation of revenue
The following table provides information about disaggregated revenue by sales channel. All revenue illustrated below is included within our one reportable segment.

 
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
 
August 4, 2018
 
August 4, 2018
Brick and mortar stores
 
$
66,715

 
$
134,770

eCommerce sales
 
19,216

 
38,010

Other
 
1,487

 
539

Net sales
 
$
87,418

 
$
173,319


Amounts included within other revenue relate to revenues earned from our private label credit card, net of any revenue adjustments and accruals.


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Contract balances

The following table provides information about contract assets and liabilities from contracts with customers (in thousands):

 
 
Contract liabilities
(current)
 
Contract liabilities
(non-current)
Contract Balances - February 4, 2018
 
 
 
 
Right of return
 
$
1,079

 
$

Friendship Rewards Program
 
3,501

 

Gift card revenue
 
4,986

 

Private label credit card
 
274

 
1,622

Total
 
$
9,840

 
$
1,622

 
 
 
 
 
Contract Balances - August 4, 2018
 
 
 
 
Right of return
 
$
1,304

 
$

Friendship Rewards Program
 
3,868

 

Gift card revenue
 
2,899

 

Private label credit card
 
274

 
1,485

Total
 
$
8,345

 
$
1,485


The Company recognized revenue of $1.5 million and $3.4 million in the thirteen week and twenty-six week periods ended August 4, 2018, respectively, related to contract liabilities recorded at the beginning of the period. Such revenues were comprised of the redemption and forfeiture of Friendship Rewards Program discount certificates, redemption of gift cards, and amortization of the PLCC signing bonus. The Company does not have any material contract assets as of August 4, 2018.
For the thirteen and twenty-six week periods ended August 4, 2018, the Company did not recognize any revenue resulting from changes in the estimated variable consideration to be received associated with performance obligations satisfied or partially satisfied in prior periods.
Transaction price allocated to remaining performance obligations
The following table includes the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied as of August 4, 2018:
 
 
Remainder of
 
 
 
 
 
 
Fiscal 2018
 
Fiscal 2019
 
Thereafter
Private label credit card
 
137

 
274

 
1,348

Total
 
137

 
274

 
1,348


Contract Costs
The Company has not incurred any costs to obtain or fulfill a contract.

NOTE 7 — Earnings Per Share
 
The following table sets forth the calculation of basic and diluted earnings per share (“EPS”) shown on the face of the accompanying consolidated statement of operations:

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Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
 
August 4,
 
July 29,
 
August 4,
 
July 29,
 
 
2018
 
2017
 
2018
 
2017
Numerator (in thousands):
 
 
 
 
 
 
 
 
Net loss attributable to Christopher & Banks Corporation
 
$
(7,426
)
 
$
(7,889
)
 
$
(12,745
)
 
$
(11,577
)
Denominator (in thousands):
 
 

 
 

 
 
 
 
Weighted average common shares outstanding - basic
 
37,458

 
37,156

 
37,381

 
37,123

Dilutive shares
 

 

 

 

Weighted average common and common equivalent shares outstanding - diluted
 
37,458

 
37,156

 
37,381

 
37,123

Net loss per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.20
)
 
$
(0.21
)
 
$
(0.34
)
 
$
(0.31
)
Diluted
 
$
(0.20
)
 
$
(0.21
)
 
$
(0.34
)
 
$
(0.31
)
 
Total stock options of approximately 4.3 million and 4.1 million were excluded from the shares used in the computation of diluted earnings per share for the thirteen week periods ended August 4, 2018 and July 29, 2017, as they were anti-dilutive. Total stock options of approximately 4.0 million and 4.1 million were excluded from the shares used in the computation of diluted earnings per share for the twenty-six week periods ended August 4, 2018 and July 29, 2017, as they were anti-dilutive.
 
NOTE 8 — Fair Value Measurements
 
Fair value is defined 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. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:
 
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable
Level 3 – Unobservable inputs that are significant to the fair value of the asset or liability.

Assets that are Measured at Fair Value on a Non-recurring Basis:
 
The following table summarizes certain information for non-financial assets for the twenty-six weeks ended August 4, 2018 and the fiscal year ended February 3, 2018, that are measured at fair value on a non-recurring basis in periods subsequent to an initial recognition period. The Company places amounts into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. 
 
 
Twenty-six Weeks Ended
 
Fiscal Year Ended
Long-Lived Assets Held and Used (in thousands):
 
August 4, 2018
 
February 3, 2018
Carrying value
 
$

 
$
318

Fair value measured using Level 3 inputs
 
$

 
$

Impairment charge
 
$

 
$
318

 
All of the fair value measurements included in the table above were based on significant unobservable inputs (Level 3). The Company determines fair value for measuring assets on a non-recurring basis using a discounted cash flow approach as discussed in Note 1, Nature of Business and Significant Accounting Policies in our Form 10-K for the year ended February 3, 2018. In determining future cash flows, the Company uses its best estimate of future operating results, which requires the use of significant estimates and assumptions, including estimated sales, merchandise margin and expense levels, and the selection of an appropriate discount rate; therefore, differences in the estimates or assumptions could produce significantly different results. General economic uncertainty impacting the retail industry and continuation of recent trends in company performance makes it reasonably possible that additional long-lived asset impairments could be identified and recorded in future periods.

Fixed asset fair values were derived using a discounted cash flow ("DCF") model to estimate the present value of net cash flows that the asset or asset group is expected to generate. The key inputs to the DCF model generally included our forecasts of

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net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate. In the case of assets for which the impairment was the result of restructuring activities, no future cash flows have been assumed as the assets will cease to be used and expected sale values are nominal.

n
NOTE 9 — Legal Proceedings
 
We are subject, from time to time, to various claims, lawsuits or actions that arise in the ordinary course of business. We accrue for loss contingencies associated with outstanding litigation or legal claims for which management has determined it is probable that a loss contingency exists and the amount of the loss can be reasonably estimated. If we determine an unfavorable outcome is not probable or reasonably estimable, we do not accrue a potential loss contingency.

The ultimate resolution of legal matters can be inherently uncertain and, for some matters, we may be unable to predict the ultimate outcome, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result from an unfavorable outcome because of these uncertainties. We do not, however, currently believe that the resolution of any pending matter will have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 3, 2018 and our unaudited Condensed Consolidated Financial Statements and related Notes included in Item 1 of this Quarterly Report on Form 10-Q. Unless otherwise noted, transactions and other factors significantly impacting our financial condition, results of operations and liquidity are discussed in order of magnitude.
 
Executive Overview
 
We are a national specialty retailer featuring exclusively-designed, privately-branded women’s apparel and accessories. We offer our customer an assortment of unique, classic and versatile clothing that fits her everyday needs at a good value.
 
We operate an integrated, omni-channel platform that provides our customer the ability to shop when and where she wants, including online or at our retail and outlet stores. This approach allows our customers to browse, purchase, return, or exchange our merchandise through the channel that is optimal for her.
 
As of August 4, 2018, we operated 461 stores in 45 states, including 313 Missy, Petite, Women ("MPW") stores, 79 outlet stores, 36 Christopher & Banks ("CB") stores, and 33 C.J. Banks ("CJ") stores. Our CB brand offers unique fashions and accessories featuring exclusively designed 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 women’s apparel in sizes 14W to 26W. Our MPW concept and outlet stores offer an assortment of both CB and CJ apparel servicing the Missy, Petite and Women-sized customer in one location.
 
Strategic Priorities
 
Our overall business strategy is to build sustainable, long-term revenue growth and consistent profitability through the following strategic initiatives:

Enhance the shopping experience;
Deliver compelling promotions that support our financial goals;
Leverage our omni-channel capabilities;
Attract new customers and grow our customer file; and
Optimize our cost structure.

Enhance the shopping experience
We are committed to ensuring that we consistently meet our customers’ needs with a differentiated product assortment that fits her lifestyle at a recognizable value. Over the past twelve months, we have increased the flow of fashion offerings to entice her to shop more often. We are focused on ensuring that our assortment is easy to shop so that she can more easily see what is new and how to build her outfit.


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Deliver compelling promotions that support our financial goals
We intend to better leverage our data and tools to execute a marketing and promotional strategy that will drive traffic and conversion while expanding gross margins. We are committed to our value proposition that recognizes our customer is drawn to the style, quality and value that we offer. With the assistance of data analytics, we believe there is an opportunity to better leverage our data to drive fewer, more meaningful promotions. We will continue to analyze, test, react and refine our promotional strategy to ensure that we are providing the most attractive offers for our customer, which support our financial goals.

Leverage our omni-channel capabilities
Our omni-channel strategy is designed to provide our customers with a seamless shopping experience allowing her to shop when and where she wants. New flexible fulfillment options should also allow us to leverage our total inventory across channels to drive sales and lower costs. In January 2018, we launched buy online, ship to store. We are in the process of piloting buy online, ship from store and we will pilot buy online, pick up in store by the end of the fall season. Additionally, while we have a well established and growing eCommerce business, we see an opportunity to improve our website experience. This includes enhancing product recommendation capabilities, increasing site speed, and making it easier for her to create and access her account. We believe these enhancements will further improve her online experience and drive higher sales on our site.

Attract new customers and grow our customer file
We have a very loyal customer base that is highly engaged. The personalized customer service that our Associates provide is a differentiator for us and is a contributor to the loyalty our customers exhibit, with approximately 90% of our active customers participating in our loyalty rewards program. We look to drive increased spend with our current customers. To increase loyalty to our brand, we have been very focused on growing the number of private label credit card customers. During the second quarter, we saw a significant increase in the number of accounts activated. We also saw an increase in our customer loyalty penetration during the second quarter.

We are extremely focused on increasing our total customer file. We believe that leveraging digital marketing is one of the best ways to acquire new customers and we have shifted a greater mix of our marketing spend to digital.

Optimize our cost structure
We believe that we have an opportunity to continue to control and leverage our expenses as our business model evolves. In the second quarter, we signed a contract with a third party firm to leverage our non-merchandise procurement.

Performance Measures

Management evaluates our financial results based on the following key measures of performance:

Comparable sales
Comparable sales is a measure that highlights the sales performance of our store channel and eCommerce channel by measuring the changes in sales over the comparable, prior-year period of equivalent length.

Our comparable sales calculation includes merchandise sales for:
Stores operating for at least 13 full months;
Stores relocated within the same center; and
eCommerce sales.

Our comparable sales calculation excludes:
Stores converted to the MPW format for 13 full months post conversion.

We believe our eCommerce operations are interdependent with our brick-and-mortar store sales and, as such, we believe that reporting combined store and eCommerce comparable sales is a more appropriate presentation. Our customers are able to browse merchandise in one channel and consummate a transaction in a different channel. At the same time, our customers have the option to return merchandise to a store or our third-party distribution center, regardless of the original channel used for purchase.

Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies.


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Other performance metrics
To supplement our comparable sales performance measure, we also monitor changes in net sales, net sales per store, net sales per gross square foot, gross profit, gross margin rate, operating income, cash, inventory and liquidity.
 
Second Quarter Fiscal 2018 Results of Operations
 
The following table presents selected consolidated financial data for the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017:
 
 
Thirteen Weeks Ended
(dollars in thousands)
 
August 4, 2018
 
July 29, 2017
Net sales
 
$
87,418

 
$
86,618

Merchandise, buying and occupancy costs
 
62,546

 
61,990

Gross profit
 
24,872

 
24,628

Other operating expenses:
 
 
 
 
Selling, general and administrative
 
29,675

 
29,179

Depreciation and amortization
 
2,518

 
3,167

Impairment of store assets
 

 
93

Total other operating expenses
 
32,193

 
32,439

Operating loss
 
(7,321
)
 
(7,811
)
Interest expense, net
 
(42
)
 
(38
)
Loss before income taxes
 
(7,363
)
 
(7,849
)
Income tax provision
 
63

 
40

Net loss
 
$
(7,426
)
 
$
(7,889
)
 
 
 
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
Rate trends as a percentage of net sales
 
August 4, 2018
 
July 29, 2017
Gross margin
 
28.5
 %
 
28.4
 %
Selling, general, and administrative
 
33.9
 %
 
33.7
 %
Depreciation and amortization
 
2.9
 %
 
3.7
 %
Operating loss
 
(8.4
)%
 
(9.0
)%
 
Second Quarter Fiscal 2018 Summary
Net sales increased 0.9% compared to the same period last year primarily due to an increase in average unit retail, partly offset by a decrease in transactions;
Comparable sales increased 0.8% following a 0.6% decrease in the same period last year;
eCommerce sales increased 15.4% following a 22.1% increase in the same period last year;
Gross margin rate remained flat compared to the same period last year due to a reduction in occupancy expense offset by increased product costs from our first quarter receipts. The product cost issue has been addressed for the balance of the year;
Net loss aggregated to $7.4 million, a $0.20 loss per share, compared to a net loss of $7.9 million, or $0.21 per share, for the same period last year;
As of August 4, 2018, we held $23.1 million of cash and cash equivalents, compared to $22.6 million as of July 29, 2017;
On August 3, 2018, Christopher & Banks Corporation entered into a second amendment to its existing credit facility with Wells Fargo Bank to extend the term of the credit facility to August 3, 2023 and supplement the existing $50.0 million credit facility by adding a new $5.0 million revolving "first-in, last-out" tranche credit facility.

Net Sales
 
 
Thirteen Weeks Ended
 
 
Net sales (in thousands):
 
August 4, 2018
 
July 29, 2017
 
% Change
Net sales
 
$
87,418

 
$
86,618

 
0.9
%
 

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The components of the 0.9% net sales increase in the second quarter fiscal 2018 compared to the second quarter of fiscal 2017 were as follows:
 
 
Thirteen Weeks Ended
Sales driver change components
 
August 4, 2018
Number of transactions
 
(5.2
)%
Units per transaction
 
0.3
 %
Average unit retail
 
5.2
 %
Other sales
 
0.6
 %
Total sales driver change
 
0.9
 %
 
 
 
Thirteen Weeks Ended
Comparable sales
 
August 4, 2018
Comparable sales
 
0.8
%

Net sales increased primarily due to a 5.2% increase in average unit retail, offset by a decline in transactions, including the effects of a 2.5% decline in store count. Average unit retail expansion coupled with eCommerce sales growth more than offset continued weakness in store traffic.

To supplement our comparable sales measure, we also monitor changes in other store sales metrics as illustrated in the table below:
 
 
Thirteen Weeks Ended
Store metrics
 
August 4, 2018
Net sales per store % change
 
0.1
%
Net sales per square foot % change
 
%

Net sales per store and net sales per square foot for the second quarter of fiscal 2018 remained flat compared to the same period last year.

Store count, openings, closings, and square footage for our stores were as follows:
 
 
 
Store Count
 
Square Footage (1)
 
 
May 5,
 
 
 
 
 
MPW
 
August 4,
 
Avg Store
 
August 4,
 
May 5,
Stores by Format
 
2018
 
Open
 
Close
 
Conversions
 
2018
 
Count
 
2018
 
2018
MPW
 
314

 

 
(1
)
 

 
313

 
314

 
1,225

 
1,225

Outlet
 
79

 

 

 

 
79

 
79

 
309

 
310

Christopher and Banks
 
36

 

 

 

 
36

 
36

 
119

 
119

C.J. Banks
 
33

 

 

 

 
33

 
33

 
120

 
120

Total Stores
 
462

 

 
(1
)
 

 
461

 
462

 
1,773

 
1,774

(1) 
Square footage presented in thousands

Average store count in the second quarter of fiscal 2018 was 462 stores compared to an average store count of 474 stores in the second quarter of fiscal 2017, a decrease of 2.5%. Average square footage in the second quarter of fiscal 2018 decreased 2.5% compared to the second quarter of fiscal 2017.


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Gross Profit
 
 
Thirteen Weeks Ended
 
 
Gross profit
 
August 4, 2018
 
July 29, 2017
 
Change
Gross profit
 
$
24,872

 
$
24,628

 
$
244

Gross margin rate as a percentage of net sales
 
28.5
%
 
28.4
%
 
0.1
%

Gross margin rate remained flat to last year due to a reduction in occupancy expense offset by increased product costs from our first quarter receipts. The product cost issue has been addressed for the balance of the year.

Selling, General, and Administrative (“SG&A”) Expenses
 
 
Thirteen Weeks Ended
 
 
Selling, general, and administrative
 
August 4, 2018
 
July 29, 2017
 
Change
Selling, general, and administrative
 
$
29,675

 
$
29,179

 
$
496

SG&A rate as a percentage of net sales
 
33.9
%
 
33.7
%
 
0.2
%
 
SG&A increased by $0.5 million, mainly due to increases in professional services of $0.5 million, marketing expenses of $0.4 million, severance expense of $0.3 million and medical expenses of $0.2 million. These SG&A expense increases were partially offset by savings in store operational expenses of $0.5 million and in insurance and taxes of $0.3 million. As a percent of net sales, SG&A increased approximately 20 basis points.
 
Depreciation and Amortization (“D&A”)
 
 
Thirteen Weeks Ended
 
 
Depreciation and amortization
 
August 4, 2018
 
July 29, 2017
 
Change
Depreciation and amortization
 
$
2,518

 
$
3,167

 
$
(649
)
D&A rate as a percentage of net sales
 
2.9
%
 
3.7
%
 
(0.8
)%

Depreciation and amortization expense decreased primarily due to the sale-leaseback of the corporate facility and a decrease in average store count.

Impairment of Store Assets
 
 
Thirteen Weeks Ended
 
 
Impairment of Store Assets
 
August 4, 2018
 
July 29, 2017
 
Change
Impairment of Store Assets
 
$

 
$
93

 
$
(93
)

There were no non-cash impairment charges relating to long-lived assets for the thirteen weeks ended August 4, 2018 compared to an impairment charge of $0.1 million in the same period last year related to long-lived assets at a small number of store locations.
 
Operating Loss
 
 
Thirteen Weeks Ended
 
 
Operating loss
 
August 4, 2018
 
July 29, 2017
 
Change
Operating loss
 
$
(7,321
)
 
$
(7,811
)
 
$
490

Operating loss rate as a percentage of net sales
 
(8.4
)%
 
(9.0
)%
 
0.6
%

Our operating loss decreased in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017 primarily due to an increase in net sales of $0.8 million and a decline in depreciation and amortization expenses of $0.6 million, partly offset by a SG&A increase of $0.5 million.
 

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Table of Contents

Interest expense, net
 
 
Thirteen Weeks Ended
 
 
Interest expense, net
 
August 4, 2018
 
July 29, 2017
 
Change
Interest expense, net
 
$
(42
)
 
$
(38
)
 
$
(4
)

The change in interest expense, net is not material.
 
Income Tax Provision
 
 
Thirteen Weeks Ended
 
 
Income tax provision
 
August 4, 2018
 
July 29, 2017
 
Change
Income tax provision
 
$
63

 
$
40

 
$
23

 
Income tax expense recorded for the thirteen weeks ended August 4, 2018 was $63 thousand compared to income tax expense of $40 thousand for the same period of fiscal 2017. Our effective tax rate was (0.9)% for the thirteen weeks ended August 4, 2018 compared to (0.5)% in the same period last year.
 
Net earnings
 
 
Thirteen Weeks Ended
 
 
Net loss
 
August 4, 2018
 
July 29, 2017
 
Change
Net loss
 
$
(7,426
)
 
$
(7,889
)
 
$
463

Net loss rate as a percentage of net sales
 
(8.5
)%
 
(9.1
)%
 
0.6
%

Our net loss decrease in the second quarter of fiscal 2018 compared to our net loss in the second quarter of 2017 was primarily due to an increase in net sales and a decline in depreciation and amortization expenses, partly offset by an increase in SG&A.

First Half Fiscal 2018 Results of Operations

The following table presents selected consolidated financial data for the first twenty-six weeks of fiscal 2018 compared to the first twenty-six weeks of fiscal 2017:


18

Table of Contents

 
 
Twenty-six Weeks Ended
(dollars in thousands)
 
August 4, 2018
 
July 29, 2017
Net sales
 
$
173,319

 
$
175,173

Merchandise, buying and occupancy costs
 
121,103

 
120,007

Gross profit
 
52,216

 
55,166

Other operating expenses:
 
 
 
 
Selling, general and administrative
 
59,422

 
60,153

Depreciation and amortization
 
5,334

 
6,266

Impairment of store assets
 

 
163

Total other operating expenses
 
64,756

 
66,582

Operating loss
 
(12,540
)
 
(11,416
)
Interest expense, net
 
(99
)
 
(69
)
Loss before income taxes
 
(12,639
)
 
(11,485
)
Income tax provision
 
106

 
92

Net loss
 
$
(12,745
)
 
$
(11,577
)
 
 
 
 
 
 
 
 
 
 
 
 
Twenty-six Weeks Ended
Rate trends as a percentage of net sales
 
August 4, 2018
 
July 29, 2017
Gross margin
 
30.1
 %
 
31.5
 %
Selling, general, and administrative
 
34.3
 %
 
34.3
 %
Depreciation and amortization
 
3.1
 %
 
3.6
 %
Operating loss
 
(7.2
)%
 
(6.5
)%

First Half Fiscal 2018 Summary

Net sales decreased 1.1% compared to the same period last year primarily due to a decline in transactions, including a decrease in average store count, partly offset by an increase in average unit retail;
Comparable sales decreased 0.9% following a 4.1% decrease in the same period last year;
eCommerce sales increased 9.1% following an 18.1% increase in the same period last year;
Gross margin rate decreased 140 basis points compared to the same period last year largely driven by an increase in product costs, which have been addressed for the balance of the year, and additional markdowns due to higher beginning of period inventory due to lower than anticipated sales;
Net loss aggregated to $12.7 million, a $0.34 loss per share, compared to a net loss of $11.6 million, or $0.31 per share, for the same period last year.

Net Sales
 
 
Twenty-six Weeks Ended
 
 
Net sales (in thousands):
 
August 4, 2018
 
July 29, 2017
 
% Change
Net sales
 
$
173,319

 
$
175,173

 
(1.1
)%
 
The components of the 1.1% net sales decrease in the first half of fiscal 2018 compared to the first half of fiscal 2017 were as follows:
 
 
Twenty-six Weeks Ended
Sales driver change components
 
August 4, 2018
Number of transactions
 
(5.3
)%
Units per transaction
 
(2.2
)%
Average unit retail
 
5.5
 %
Other sales
 
0.9
 %
Total sales driver change
 
(1.1
)%

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Table of Contents

 
 
 
Twenty-six Weeks Ended
Comparable sales
 
August 4, 2018
Comparable sales
 
(0.9
)%

Net sales decreased primarily due to a 5.3% decrease in transactions, including the effects of a 2.9% decrease in average store count, partly offset by an increase in average unit retail of 5.5%. Sales performance improved as the weather became more seasonal during the latter part of the first quarter and the first part of the second quarter as customers responded favorably to spring merchandise.

To supplement our comparable sales measure, we also monitor changes in other store sales metrics as illustrated in the table below:
 
 
Twenty-six Weeks Ended
Store metrics
 
August 4, 2018
Net sales per store % change
 
(0.7
)%
Net sales per square foot % change
 
(1.1
)%

Net sales per store and net sales per square foot decreased mainly due to a decline in transactions partly offset by an increase in average unit retail.

Store count, openings, closings, and square footage for our stores were as follows:
 
 
 
Store Count
 
Square Footage (1)
 
 
February 3,
 
 
 
 
 
MPW
 
August 4,
 
Avg Store
 
August 4,
 
February 3,
Stores by Format
 
2018
 
Open
 
Close
 
Conversions
 
2018
 
Count
 
2018
 
2018
MPW
 
314

 

 
(2
)
 
1

 
313

 
314

 
1,225

 
1,225

Outlet
 
78

 
3

 
(2
)
 

 
79

 
79

 
309

 
314

Christopher and Banks
 
37

 

 

 
(1
)
 
36

 
36

 
119

 
122

C.J. Banks
 
34

 

 

 
(1
)
 
33

 
33

 
120

 
123

Total Stores
 
463

 
3

 
(4
)
 
(1
)
 
461

 
462

 
1,773

 
1,784

(1) 
Square footage presented in thousands

Average store count in the first half of fiscal 2018 was 462 stores compared to an average store count of 476 stores in the first half of fiscal 2017, a decrease of 2.9%. Average square footage in the first half of fiscal 2018 decreased 2.8% compared to the first half of fiscal 2017.

Gross Profit
 
 
Twenty-six Weeks Ended
 
 
Gross profit
 
August 4, 2018
 
July 29, 2017
 
Change
Gross profit
 
$
52,216

 
$
55,166

 
$
(2,950
)
Gross margin rate as a percentage of net sales
 
30.1
%
 
31.5
%
 
(1.4
)%

Gross margin rate decreased 140 basis points primarily driven by an increase in product costs, which have been addressed for the balance of the year, and additional markdowns due to higher beginning of period inventory due to lower than anticipated sales.


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Selling, General, and Administrative (“SG&A”) Expenses
 
 
Twenty-six Weeks Ended
 
 
Selling, general, and administrative
 
August 4, 2018
 
July 29, 2017
 
Change
Selling, general, and administrative
 
$
59,422

 
$
60,153

 
$
(731
)
SG&A rate as a percentage of net sales
 
34.3
%
 
34.3
%
 
%
 
SG&A decreased by $0.7 million, mainly due to lower store operating expenses of $1.5 million and lower insurance and tax expenses of $0.7 million. These SG&A expense savings were partially offset by increases in professional services of $0.8 million, marketing expenses of $0.8 million and severance expense of $0.3 million. As a percent of net sales, SG&A remained flat.
 
Depreciation and Amortization (“D&A”)
 
 
Twenty-six Weeks Ended
 
 
Depreciation and amortization
 
August 4, 2018
 
July 29, 2017
 
Change
Depreciation and amortization
 
$
5,334

 
$
6,266

 
$
(932
)
D&A rate as a percentage of net sales
 
3.1
%
 
3.6
%
 
(0.5
)%

Depreciation and amortization expense decreased primarily due to the sale-leaseback of the corporate facilities and a decrease in average store count.

Impairment of Store Assets
 
 
Twenty-six Weeks Ended
 
 
Impairment of Store Assets
 
August 4, 2018
 
July 29, 2017
 
Change
Impairment of Store Assets
 
$

 
$
163

 
$
(163
)

There were no non-cash impairment charges relating to long-lived assets for the twenty-six weeks ended August 4, 2018 compared to an impairment charge of $0.2 million in the same period last year related to long-lived assets at a small number of store locations.
 
Operating Loss
 
 
Twenty-six Weeks Ended
 
 
Operating loss
 
August 4, 2018
 
July 29, 2017
 
Change
Operating loss
 
$
(12,540
)
 
$
(11,416
)
 
$
(1,124
)
Operating loss rate as a percentage of net sales
 
(7.2
)%
 
(6.5
)%
 
(0.7
)%

Our operating loss increased in the first half of fiscal 2018 compared to the first half of fiscal 2017 primarily due to a 140 basis point gross margin rate decline and a net sales decrease of $1.9 million, partly offset by a depreciation and amortization expense decrease of $0.9 million and a SG&A decrease of $0.7 million.
 
Interest expense, net
 
 
Twenty-six Weeks Ended
 
 
Interest expense, net
 
August 4, 2018
 
July 29, 2017
 
Change
Interest expense, net
 
$
(99
)
 
$
(69
)
 
$
(30
)

The change in interest expense, net is not material.
 
Income Tax Provision
 
 
Twenty-six Weeks Ended
 
 
Income tax provision
 
August 4, 2018
 
July 29, 2017
 
Change
Income tax provision
 
$
106

 
$
92

 
$
14


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Income tax expense recorded for the twenty-six weeks ended August 4, 2018 was $106 thousand compared to income tax expense of $92 thousand for the same period of fiscal 2017. Our effective tax rate was (0.8)% for both the twenty-six weeks ended August 4, 2018 and in the same period last year.
 
Net earnings
 
 
Twenty-six Weeks Ended
 
 
Net loss
 
August 4, 2018
 
July 29, 2017
 
Change
Net loss
 
$
(12,745
)
 
$
(11,577
)
 
$
(1,168
)
Net loss rate as a percentage of net sales
 
(7.4
)%
 
(6.6
)%
 
(0.8
)%

Our net loss increase in the first half of fiscal 2018 compared to our net loss in the first half of 2017 was primarily due to a gross margin rate decline and net sales decrease partly offset by a decrease in depreciation and amortization and SG&A expenses.
 
Fiscal 2018 Outlook
 
We are working to implement a number of strategic priorities, including actions to enhance her shopping experience with a well-curated merchandise offering; deliver compelling promotions that support our financial goals; leverage our omni-channel capabilities, and attract new customers and grow our customer file. We also will continue to evaluate the business for further cost saving opportunities.

During the remainder of fiscal 2018, we plan to close 1 CB store, 1 CJ store, 1 Outlet store, and 1 MPW store. We plan to open 2 Outlet stores and 2 MPW stores. Average square footage for the year is expected to be down approximately 2.4% as compared to fiscal 2017 and down 2.2% in the third quarter as compared to the same period last year.

We continue to expect capital expenditures for the fiscal year to range between $3.0 million and $4.0 million representing investments in store relocations, merchandising technology applications, and the continued development of our omni-channel capabilities.

We expect our taxes for the year to be nominal and to represent minimum fees and taxes.

Future Outlook

Through our continued progress on our strategic initiatives, we expect to achieve modest sales per store increases in brick and mortar stores and double digit growth in eCommerce. We also plan to achieve improved gross margin through merchandise margin expansion due to reduced discounting and higher penetration of full price sales, supply chain savings, and improved occupancy leverage.

We intend to realize our expense reduction initiative through our engagement of a third party non-merchandise procurement partner as well as a thorough review and right-sizing of all spending. We expect this to result in SG&A leverage throughout fiscal 2019.

We believe these efforts will deliver improved gross margin, drive year over year sales growth, and achieve meaningful improvement in earnings and cash flow for fiscal 2019.

Liquidity and Capital Resources
 
Cash flow and liquidity
 
Summary
 
We expect to operate our business and execute our strategic initiatives principally with funds generated from operations and, if necessary, from our amended and restated credit agreement (the “Credit Facility”) with Wells Fargo, subject to compliance with all covenants and other financial provisions of the Credit Facility. To supplement our financial flexibility, the Company completed a sale-leaseback transaction of the Company’s corporate facility for $13.7 million in the first quarter of fiscal 2018. As part of the sale-leaseback transaction, the Company has $1.6 million in escrow for certain repairs to the property.

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The following table summarizes our cash and cash equivalents as of the end of the first half of fiscal 2018 and the end of fiscal 2017:
 
(in thousands)
 
August 4, 2018
 
February 3, 2018
Cash and cash equivalents
 
$
23,114

 
$
23,077

 
Cash and cash equivalents remained flat compared to the end of fiscal 2017. During the period, the Company received proceeds on the sale of the corporate facility as part of the sale-leaseback transaction, partly offset by the net loss in the first half of fiscal 2018.

Cash Flows
 
The following table summarizes our cash flows from operating, investing, and financing activities for the first half of fiscal 2018 compared to the first half of 2017:
 
 
Twenty-six Weeks Ended
(in thousands)
 
August 4, 2018
 
July 29, 2017
Net cash used in operating activities
 
$
(11,386
)
 
$
(9,277
)
Net cash provided by (used in) investing activities
 
11,607

 
(3,150
)
Net cash used in financing activities
 
(184
)
 
(6
)
Net increase (decrease) in cash and cash equivalents
 
$
37

 
$
(12,433
)
 
Operating Activities
 
The increase in cash used in operating activities in the first half of fiscal 2018 compared to the first half of fiscal 2017 was primarily due to an increase in the net loss for the twenty-six week period and a decrease in depreciation expense due to the corporate facility sale-leaseback transaction as well as a lower average store count compared to the same period last year. Net seasonal changes in working capital were relatively flat compared to the same period last year.
 
Investing Activities
 
The increase in cash provided by investing activities in the first half of fiscal 2018 compared to the first half of fiscal 2017 was mainly attributable to the proceeds from the sale of the corporate facility as part of a sale-leaseback transaction. The gross sale proceeds were $13.7 million. Capital expenditures for the first half of fiscal 2018 were approximately $1.7 million, which primarily reflected investments in technology associated with our omni-channel and merchandising capabilities and expenditures supporting new stores.
 
Financing Activities

Financing activities in the first half of fiscal 2018 and 2017 were due to the payment of deferred financing costs and to a small number of shares redeemed by employees to satisfy payroll tax obligations.

We have not paid any dividends in the last three fiscal years.

Sources of Liquidity

Funds generated by operating activities, available cash and cash equivalents and our Credit Facility are our most significant sources of liquidity. We believe that our sources of liquidity will be sufficient to sustain operations and to finance anticipated capital investments and strategic initiatives over the next twelve months. However, in the event our liquidity is not sufficient to meet our operating needs, we may be required to limit our spending. There can be no assurance that we will generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our existing facilities or obtain additional financing, if necessary, on favorable terms.

The Credit Facility with Wells Fargo was amended and extended on August 3, 2018. The current expiration date is August 3, 2023. The Credit Facility amendment supplements the Company’s existing $50.0 million revolving credit facility by adding a new $5.0 million revolving “first-in, last-out” (“FILO Facility”) tranche, subject to the borrowing base restrictions applicable to

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the FILO Facility. The Company must draw under the FILO facility before making any borrowings under the revolving Credit Facility.

In addition to these changes, the amendment eliminates availability against the Company’s real property, which was the subject of a sale-leaseback transaction.

There were no outstanding borrowings under the Credit Facility as of August 4, 2018 and July 29, 2017. The total Borrowing Base at August 4, 2018 was approximately $29.6 million. As of August 4, 2018, the Company had open on-demand letters of credit of approximately $6.7 million. Accordingly, after reducing the Borrowing Base for the open letters of credit and the required minimum availability of the greater of $3.0 million, or 10.0% of the Borrowing Base, the net availability of revolving credit loans under the Credit Facility was approximately $22.2 million at August 4, 2018.

See Note 4 - Credit Facility for additional details regarding our Credit Facility, including a description of the sole financial covenant, with which we were in compliance as of August 4, 2018.

In the first quarter of fiscal 2018, the Company completed the closing of a sale-leaseback transaction of the Company’s corporate facility for gross proceeds of $13.7 million, providing greater liquidity.

Sourcing
 
There have been no material changes to our ratio of imports to total merchandise purchases or concentration of supplier purchases in the thirteen weeks ended August 4, 2018 compared to the fiscal 2017 year ended February 3, 2018. The Company is phasing out sourcing product from one of its largest vendors, which is expected to be completed early next fiscal year. The Company is in the process of sourcing inventory from alternative vendors. In connection with this transition, the Company does not anticipate that there will be a disruption in its supply of inventory of any significance, if at all.

Quarterly Results and Seasonality
 
Our quarterly results may fluctuate significantly depending on a number of factors, including general economic conditions, consumer confidence, customer response to our seasonal merchandise mix, timing of new store openings, adverse weather conditions, and shifts in the timing of certain holidays and shifts in the timing of promotional events.
 
Inflation
 
We do not believe that inflation had a material effect on our results of operations for the thirteen or twenty-six week periods ended August 4, 2018.
 
Forward-Looking Statements
 
We may make forward-looking statements reflecting our current views with respect to future events and financial performance. These forward-looking statements, which may be included in reports filed under the Exchange Act, in press releases and in other documents and materials as well as in written or oral statements made by or on behalf of the Company, are subject to certain risks and uncertainties, including those discussed in Item 1A - Risk Factors of our Annual Report on Form
10-K for the fiscal year ended February 3, 2018, which could cause actual results to differ materially from historical results or those anticipated.

The words or phrases “will likely result,” “are expected to,” “estimate,” “project,” “believe,” “expect,” “should,” “anticipate,” “forecast,” “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 21e of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, as enacted by the Private Securities Litigation Reform Act of 1995 (“PSLRA”). In particular, we desire to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Quarterly Report on Form 10-Q.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. In addition, we wish to advise readers that the factors listed in Item 1A of our Annual Report on Form
10-K for the fiscal year ended February 3, 2018, as well as other factors, could affect our performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed in the quarterly report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


24

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
For a discussion of our exposure to, and management of our market risks, see Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018. There have been no material changes to our exposure to, and management of our market risks in the thirteen weeks ended August 4, 2018

ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
 
The Company carried out an evaluation as of the end of the period covered by this report (the “Evaluation Date”), under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of August 4, 2018 the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
 
Changes in Internal Controls
 
There were no significant changes in our internal controls that could materially affect our disclosure controls and procedures subsequent to the Evaluation Date. Furthermore, there was no change in our internal control over financial reporting during the quarter ended August 4, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS
 
We are subject, from time to time, to various claims, lawsuits or actions that arise in the ordinary course of business. We accrue for loss contingencies associated with outstanding litigation or legal claims for which management has determined it is probable that a loss contingency exists and the amount of the loss can be reasonably estimated. If we determine an unfavorable outcome is not probable or reasonably estimable, we do not accrue a potential loss contingency.

The ultimate resolution of legal matters can be inherently uncertain and, for some matters, we may be unable to predict the ultimate outcome, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result from an unfavorable outcome because of these uncertainties. We do not, however, currently believe that the resolution of any pending matter will have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS
 
In addition to the other information discussed in this report, the risk factors described in Part I, Item 1A. Risk Factors in our 2017 Annual Report on Form 10-K for the fiscal period ended February 3, 2018, should be considered as they could materially affect our business, financial condition or future results. These are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition or operating results. There have not been any material changes with respect to the risks described in our 2017 Form 10-K, except for the following:

We are currently out of compliance with the New York Stock Exchange’s (“NYSE”) listing requirements, and we are at risk of the NYSE delisting our common stock, which could materially impair the liquidity and value of our common stock.

We are currently listed on the NYSE. On June 14, 2018, the Company received written notice from the NYSE that it is not in compliance with the continued listing standards set forth in Section 8 of the NYSE Listed Company Manual. The Company is considered below the criteria established by the NYSE for continued listing because (i) its average market capitalization has

25

Table of Contents

been less than $50 million over a consecutive 30 trading-day period, and at the same time its stockholders’ equity was less than $50 million, and (ii) its 30-day average closing price was below $1.00. As a result, we are required to bring our share price and consecutive 30 trading-day average share price, as measured on the last trading day of any calendar month during the sixth month period following receipt of the NYSE notice above $1.00 per share or the NYSE may commence suspension and delisting procedures. In addition, if our common stock price remains below the $1.00 per share threshold and falls to the point where the NYSE considers the stock price to be “abnormally low”, the NYSE has the discretion to begin delisting procedures immediately.

We have submitted a continued listing plan (“Plan”) to the NYSE that outlines the steps we are taking to regain compliance with the market capitalization and stockholders’ equity listing standard within eighteen months. On August 23, 2018 the NYSE notified us that they accepted our Plan, subject to quarterly reviews by the NYSE Listing and Compliance Committee to ensure progress against the Plan. The Company’s common stock continues to trade on the NYSE. The current noncompliance with the standards described above does not affect the Company’s ongoing business operations or its reporting requirements with the Securities and Exchange Commission.

If the NYSE were to delist our common stock, it could: (i) reduce the liquidity and, quite possibly, the market price of our common stock; (ii) reduce the number of institutional investors willing to hold or acquire our common stock, which could negatively affect our ability to raise equity financing; (iii) limit our access to public capital markets; (iv) impair our ability to provide equity incentives that would be attractive to our employees; (v) significantly impair our ability to use our common stock as consideration for acquisitions of other companies; (vi) result in a limited availability for market quotations for our common stock; and (vii) result in the loss of analyst coverage of the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table sets forth information concerning purchases of our common stock for the quarter ended August 4, 2018:
 
 
 
 
 
 
Total Number of
 
Maximum Number of
 
 
 
 
 
 
Shares Purchased as
 
Shares that May Yet
 
 
Total Number of
 
 
 
Part of Publicly
 
Be Purchased Under
 
 
Shares
 
Average Price
 
Announced Plans or
 
the Plans or
Period
 
Purchased (1)
 
Paid per Share
 
Programs
 
Programs
5/6/18 - 6/2/18
 
2,126

 
$
1.06

 

 
$

6/3/18 - 7/7/18
 
2,126

 
0.84

 

 

7/8/18 - 8/4/18
 
2,126

 
1.01

 

 

Total
 
6,378

 
 

 

 

(1) 
The shares of common stock in this column represent shares surrendered to us by stock plan participants in order to satisfy minimum withholding tax obligations related to the vesting of restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.

ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.

ITEM 5. OTHER INFORMATION
 
None.

26

Table of Contents

ITEM 6.   EXHIBITS
 
Exhibit
Description
4.1*
10.1**
10.2**
10.3**
10.4**
10.5**
10.6**
10.7**
10.8**
10.9
31.1*
31.2*
32.1*
32.2*
101*
Financial statements from the Quarterly Report on Form 10-Q of Christopher & Banks Corporation for the fiscal quarter ended August 4, 2018, formatted in eXtensible Business Reporting Language ("XBRL"): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements
 
*   Filed with this report
** Management agreement or compensatory plan or agreement


27

Table of Contents

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
CHRISTOPHER & BANKS CORPORATION
 
 
 
 
Dated: September 6, 2018
By:
 
/s/ Keri L. Jones
 
 
 
Keri L. Jones
 
 
 
President, Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Dated: September 6, 2018
By:
 
/s/ Richard Bundy
 
 
 
Richard Bundy
 
 
 
Senior Vice President, Chief Financial Officer
 
 
 
(Principal Financial Officer)


28
stockcertificate2018


 


 
Exhibit


Exhibit 31.1
 
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Keri L. Jones, certify that: 
1.
I have reviewed this quarterly report on Form 10-Q of Christopher & Banks Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 
 
 
 
 
Dated: September 6, 2018
    
    
 
 
 
/s/ Keri L. Jones
 
 
 
Keri L. Jones
 
 
 
President, Chief Executive Officer
 



Exhibit


Exhibit 31.2
 
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Richard Bundy, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Christopher & Banks Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 
 
 
 
 
Dated: September 6, 2018
    
    
 
 
 
/s/ Richard Bundy
 
 
 
Richard Bundy
 
 
 
Senior Vice President, Chief Financial Officer
 



Exhibit


Exhibit 32.1
 
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Keri L. Jones, President and Chief Executive Officer of Christopher & Banks Corporation (the “Company”), certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.
The quarterly report of the Company on Form 10-Q for the period ended August 4, 2018 as filed with the United States Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.