According to NPD Fashionworld, the domestic apparel retailing market measured $172.8 billion in retail sales in 2004, which represents an increase of 4.0% from $166.1 billion in 2003.

Women’s apparel represented the largest percentage of the 2004 domestic apparel retailing market at 54.7%, followed by men’s at 28.6% and children’s at 16.7%.

NPD Fashionworld estimates that specialty retailers were the largest distribution channel in 2004, representing 29.8% of the total market, or $51.4 billion in retail sales, an increase of 9.3% from 2003.

According to NPD Fashionworld catalog sales decreased 9.7% from 2003 to 2004 while website sales increased 12.0% from 2003 to 2004.

The Company’s products are developed in four seasonal collections and are subdivided for monthly product introductions in its monthly catalog mailings and in its retail stores. The design process begins with the Company’s designers developing seasonal collections eight to twelve months in advance..

From the sample collection, the Company’s merchandising team selects which items to market in each of the sales channels and edits the collection as necessary to increase its commerciality. The Company’s technical design teams develop construction and fit specifications for every product, ensuring quality workmanship and consistency across product lines.

The Company offers its customers a mix of designer-quality products at higher price points and more casual items at lower price points, consistent with its strategy of offering “accessible luxury,” and its signature styling strategy of pairing luxury items with more casual items. The Company has introduced limited edition luxury items, such as hand-beaded skirts. The Company also offers more moderately priced products, such as t-shirts, broken-in chinos and jeans.

The Company conducts its business through two primary sales channels: stores channel, which consists of retail and factory stores, and direct channel, which consists of a catalog and an Internet website.

As of August 15, 2005, the Company operated 156 retail stores (as well as one seasonal retail store) throughout the United States. The Company’s retail stores are located in upscale regional malls, lifestyle centers, shopping centers and street locations.

As of August 15, 2005, the Company operated 43 factory stores throughout the United States. The Company’s factory stores are located primarily in large factory-outlet malls. Factory stores are designed with simple, volume-driving visuals to maximize sales of key items and drive faster inventory turns.

The Company designs and operates its website using an in-house technical staff. The Company updates its website periodically throughout the day to accurately reflect product availability and to determine where on the website a particular product generates the best sales. In addition to selling its regular merchandise on the website, the Company also uses its website as a means to sell marked-down merchandise.

The Company plans to expand its Internet business by adding category-based “shops” to the website.

Gross profit increased by $35.7 million, or 58.8%, to $96.4 million in the first quarter of fiscal 2005 from $60.7 million in the first quarter of fiscal 2004.

Selling, general and administrative expenses increased by $9.9 million, or 15.6%, to $73.5 million in the first quarter of fiscal 2005 from $63.6 million in the first quarter of fiscal 2004.

Interest expense decreased by $3.5 million, or 16.6%, to $17.5 million in the first quarter of fiscal 2005 from $21.0 million in the first quarter of fiscal 2004.

Net income increased by $28.7 million to $4.9 million for the first quarter of fiscal 2005 from a net loss of $23.8 million for the first quarter of fiscal 2004.