UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended July 27, 2013

or

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

Commission file number 0-11736

ASCENA RETAIL GROUP, INC.

(Exact name of registrant as specified in its charter)

(845) 369-4500

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 x

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2.1 billion as of January 26, 2013, based on the last reported sales price on the NASDAQ Global Select Market on that date. As of September 19, 2013, 159,588,424 shares of voting common shares were outstanding. The registrant does not have any authorized, issued or outstanding non-voting common stock.

Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on December 12, 2013 are incorporated into Part III of this Form 10-K.

ASCENA RETAIL GROUP, INC.

FORM 10-K

FISCAL YEAR ENDED JULY 27, 2013

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including the section labeled Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and the risk factors that we have included elsewhere in this report. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and involve known and unknown risks, uncertainties and other factors that may cause our results, level of activity, performance or achievements to be materially different from any future results, level of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. We generally identify these statements by words or phrases such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “may,” “should,” “estimate,” “predict,” “potential,” “continue,” or the negative of such terms or other similar expressions.

Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed below under Item 1A. Risk Factors, and other factors discussed in this Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission. We disclaim any intent or obligation to update or revise any forward-looking statements as a result of developments occurring after the period covered by this report.

WEBSITE ACCESS TO COMPANY REPORTS

We maintain our corporate Internet website at www.ascenaretail.com. The information on our Internet website is not incorporated by reference into this report. We make available, free of charge through publication on our Internet website, a copy of our Annual Reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, including any amendments to those reports, as filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after they have been so filed or furnished. Information relating to corporate governance at Ascena Retail Group, Inc., including our Code of Ethics for the Chief Executive Officer and Senior Financial Officers, information concerning our directors, committees of the Board of Directors, including committee charters, and transactions in Ascena Retail Group, Inc. securities by directors and executive officers, is also available at our website. Paper copies of these filings and corporate governance documents are available to stockholders without charge by written request to Investor Relations, Ascena Retail Group, Inc., 30 Dunnigan Drive, Suffern, New York 10901.

In this Form 10-K, references to “Ascena,” “ourselves,” “we,” “us,” “our” or “Company” or other similar terms refer to Ascena Retail Group, Inc. and its subsidiaries, unless the context indicates otherwise. The Company utilizes a 52-53 week fiscal year ending on the last Saturday in July. As such, fiscal year 2013 ended on July 27, 2013 and reflected a 52-week period (“Fiscal 2013”); fiscal year 2012 ended on July 28, 2012 and reflected a 52-week period (“Fiscal 2012”); and fiscal year 2011 ended on July 30, 2011 and reflected a 52-week period (“Fiscal 2011”). All references to “Fiscal 2014” refer to our 52-week period that will end on July 26, 2014.

PART I

Item 1. Business.

General

Ascena is a leading national specialty retailer of apparel for women, and tween girls and boys, and operates, through its wholly owned subsidiaries, the following principal retail brands: Justice; Lane Bryant; maurices; dressbarn; and Catherines. The Company’s operations include approximately 3,900 stores throughout the United States, Puerto Rico and Canada, with annual revenues of over $4.7 billion for the fiscal year ended July 27, 2013.

On June 14, 2012, the Company acquired Charming Shoppes, Inc. (“Charming Shoppes”) and its related family of retail brands. Charming Shoppes owned and operated multiple retail brands through over 1,800 retail stores and e-commerce operations, including Lane Bryant and Catherines. The Company acquired Charming Shoppes in an all cash transaction at $7.35 per share, for an aggregate purchase price of $882.1 million (excluding the assumption of debt and transaction costs, and collectively, the “Charming Shoppes Acquisition”). The acquisition was partially funded with $325 million from new borrowings, including (a) a $300 million, six-year, variable-rate term loan and (b) $25 million of borrowings under the Company’s existing revolving credit facility, which was amended in connection with the transaction. The remainder was funded through available cash and cash equivalents and the liquidation of substantially all of the Company’s investment portfolio.

Charming Shoppes also owned and operated a specialty retail business named Fashion Bug and a food and specialty gift products business named Figi’s. The Fashion Bug business ceased operations in February 2013 and the Company recently entered into an agreement to sell the principal net assets of the Figi’s business, which is expected to close during the first quarter of Fiscal 2014. The financial position and operating results of both of these businesses have been classified as discontinued operations within the accompanying audited consolidated financial statements of the Company.

Our Brands and Products

The Company classifies its businesses into five segments following a brand-oriented approach: Justice, Lane Bryant, maurices, dressbarn and Catherines.

Justice

The Justice segment includes approximately 971 specialty retail and outlet stores, e-commerce operations, and certain licensed franchises in international territories. The Justice brand offers fashionable apparel to girls who are ages 7 to 14 in an environment designed to match the energetic lifestyle of tween girls, and fashionable apparel to boys who are ages 7 to 14 under the Brothers brand. Justice creates, designs and develops its own exclusive Justice and Brothers branded merchandise in-house. This allows Justice to maintain creative control and respond as quickly as fashion trends dictate. The Justice merchandise mix represents the broad assortment that its girl wants in her store - a mix of apparel, accessories, footwear, intimates and lifestyle products, such as bedroom furnishings and electronics, to meet all her needs. Justice’s store footprint primarily includes mall locations, strip centers, lifestyle centers and outlet centers.

Lane Bryant

The Lane Bryant segment includes approximately 788 specialty retail and outlet stores, and e-commerce operations. Lane Bryant is a widely recognized brand name in plus-size fashion. Through private labels such as Lane Bryant and Cacique, and select national brands, fashionable and sophisticated apparel is offered to female customers in plus-sizes 14-28, including intimate apparel, wear-to-work and casual sportswear, accessories, select footwear and social occasion apparel. Lane Bryant has a loyal customer base, generally ranging in age from 25 to 45 years old, which shops for fashionable merchandise in the moderate price range. Lane Bryant retail stores are located in a combination of destination malls, lifestyle centers and strip shopping centers.

maurices

The maurices segment includes approximately 877 specialty retail and outlet stores, and e-commerce operations. The maurices brand offers up-to-date fashion designed to appeal to the 17 to 34 year-old female, with stores concentrated in small markets (approximately 25,000 to 100,000 people). maurices merchandise is primarily sold under two product lines, maurices and Studio Y. The maurices product line encompasses women’s casual clothing, career wear and accessories, while the Studio Y product line represents women’s dressy apparel. maurices stores are typically located near large discount and department stores to capitalize on the traffic those retailers generate. maurices seeks to differentiate itself from those retailers by offering a wider selection of style, color and current fashion, as well as the shopping experience offered, which emphasizes a visually stimulating environment with a helpful staff. While maurices stores offer a core merchandise assortment, individual maurices stores vary their merchandise assortment to reflect individual store demands and local market preferences.

dressbarn

The dressbarn segment includes approximately 826 specialty retail and outlet stores, and e-commerce operations. The dressbarn brand primarily attracts female consumers in the mid-30’s to mid-50’s age range and offers moderate-to-better quality career and casual fashion to the working woman. dressbarn stores are located primarily in convenient strip shopping centers in major trading and high-density markets, and in surrounding suburban areas. dressbarn’s centrally managed merchandise selection is changed and augmented frequently to keep its merchandise presentation fresh and exciting. Individual store assortments vary depending on local demographics, seasonality and past sales patterns. Carefully edited, coordinated merchandise is featured in a comfortable, easy-to-shop environment, which is staffed by friendly, service-oriented salespeople.

Catherines

The Catherines segment includes approximately 397 specialty retail stores, and e-commerce operations. Catherines carries a full range of plus sizes (16-34 and 0X-5X) and is particularly known for extended sizes (28-34). Catherines offers classic apparel and accessories to female customers for wear-to-work and casual lifestyles. Catherines customers are generally in the 45 years old and older age group, shop in the moderate price range, and are concerned with comfort, fit and value. Catherines retail stores are primarily located in strip shopping centers and outlet locations.

The tables below present net sales and operating income by segment for the last three fiscal years.

Over the past five fiscal years, our sales have grown to approximately $4.7 billion in Fiscal 2013 from $1.5 billion in Fiscal 2009. This growth has been largely a result of both our acquisitions and organic growth. We currently operate approximately 3,900 stores throughout the United States, Puerto Rico and Canada. We have diversified our business by brand, price point and target consumer, as well as by geography throughout North America. Our Justice and maurices brands now operate 23 stores and 15 stores, respectively, in Canada. We plan to continue our global expansion during Fiscal 2014, and will continue evaluating other international opportunities for our family of brands. In addition to our store presence, we sell merchandise through our primary e-commerce websites: shopjustice.com; lanebryant.com; maurices.com; dressbarn.com; catherines.com and our Brothers line e-commerce site located at shopbrothers.com.

Over the past five fiscal years, we have invested approximately $1.8 billion in cash, common stock and debt to fund acquisitions, capital improvements, and technology infrastructure improvements, primarily funded through our strong operating cash flow. We intend to continue to execute our long-term strategy, which includes, among other things, expanding our presence internationally, expanding through selective acquisitions, investing in our operational infrastructure, and expanding our e-commerce businesses.

Seasonality of Business

Our business is typically affected by seasonal sales trends primarily resulting from the timing of holiday and back-to-school shopping periods.  In particular, sales at Justice tend to be significantly higher during the fall season which occurs during the first and second quarters of our fiscal year, as this includes the back-to-school period and the December holiday season that is focused on gift-giving merchandise.   The maurices brand experiences peak sales during the December holiday season as well as during the early spring which includes the Easter holiday season. The dressbarn brand has historically experienced higher sales in the spring, which includes the Easter and Mother’s Day holidays. The Lane Bryant and Catherines brands typically experience peak sales during the Easter, Mother’s Day and December holiday seasons.  Lane Bryant’s peak sales around Mother’s Day typically extend through Memorial Day and into the early summer. In addition, our results of operations and cash flows may fluctuate materially in any quarterly period depending on, among other things, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays and changes in merchandise mix. 

Store Locations

Our stores are primarily open seven days a week and most evenings. As of July 27, 2013, we operated approximately 3,900 stores in 48 states, the District of Columbia, Puerto Rico and Canada. Justice is currently located across 47 states, Canada and Puerto Rico. Justice also has 59 international franchise stores. dressbarn has stores in 48 states, which are mostly concentrated in the northeast while maurices has stores in 46 states, which are mostly concentrated in the Midwest, and Canada. The Lane Bryant and Catherines stores are located in suburban and small towns in 46 states and 44 states, respectively.

During Fiscal 2013, no store accounted for more than 1% of our total sales. The table below indicates the type of shopping facility in which the stores were located:

As of July 27, 2013, our stores had a total of 21.0 million square feet, consisting of Justice with 4.0 million square feet, Lane Bryant with 4.5 million square feet, maurices with 4.5 million square feet, dressbarn with 6.4 million square feet and Catherines with 1.6 million square feet. All of our store locations are leased. Our leases often contain renewal options and termination clauses, particularly in the early years of a lease, if specified sales volumes are not achieved.

Store Count by Segment

Trademarks

Our principal owned trademarks include:

JUSTICE®, BROTHERSâ, LANE BRYANT®, LANE BRYANT OUTLET®, LANE BRYANT WOMAN®, CACIQUE®, RIGHT FIT BY LANE BRYANT®, MAURICESâ, STUDIO Yâ, DRESSBARN®, CATHERINES®, CATHERINES PLUS SIZES®, MAGGIE BARNES ®, LIZ&ME®, SERENADA® and RIGHT FIT BY CATHERINES®.

We have U.S. Certificates of Registration of Trademark and trademark applications pending for the operating names of our stores and our major private label merchandise brands. We believe our JUSTICE®, LANE BRYANT®, LANE BRYANT OUTLET®, LANE BRYANT WOMAN®, CACIQUE®, MAURICES®, STUDIO Y®, DRESSBARN®, CATHERINES® and CATHERINES PLUS SIZES® trademarks are material to the continued success of our business. We also believe that our rights to these trademarks are adequately protected.

E-commerce

All of our brands have e-commerce operations, and the Company continues to focus on this sales channel as an opportunity for continued growth. Total e-commerce revenues amounted to approximately $400 million during Fiscal 2013. After giving effect to the Charming Shoppes Acquisition as of the beginning of Fiscal 2012, this represented an increase of approximately 33% over Fiscal 2012. We continue to develop our e-commerce platform and believe this will be an on-going source of sales growth in future periods for our family of brands.

Our segments sell products online through their e-commerce sites:

Product Licensing

We earn licensing revenue through our Justice brand’s international franchise stores along with advertising and other “tween-right” marketing initiatives with partner companies. Licensing revenue is less than 1% of our consolidated annual net sales. Justice has 59 international franchise stores.

International Store Expansion

Our Justice brand currently has 23 stores in Canada and is planning on additional expansion in Canada during Fiscal 2014. Our maurices brand currently has 15 stores in Canada and is also planning on additional expansion in Canada during Fiscal 2014. We will continue to evaluate other international opportunities for our family of brands.

Sourcing

During Fiscal 2013, the Company began integrating the sourcing operations of the Company and Charming Shoppes under the name Ascena Global Sourcing (“AGS”). Through AGS’s offices in Seoul, South Korea, Shanghai, China and Hong Kong, AGS continues to develop and expand relationships with manufacturing partners within sourcing networks, enabling AGS to control the quality of goods, while achieving speed to market and better/favorable pricing. With AGS’s successful sourcing operations, it is able to eliminate the middleman, reduce costs and increase initial markup. AGS has registered various trademarks related to the Company’s brands in foreign countries to the degree necessary to protect these marks, although there may be restrictions on the use of these marks in a limited number of foreign jurisdictions.

Office and Distribution Centers

For a detailed discussion of our office and distribution centers, see Part I, Item 2 “Properties” in this Annual Report on Form 10-K.

Information Technology Systems

Our information technology systems make the design, marketing, importing and distribution of our products more efficient by providing, among other things, comprehensive order processing, product and design information, and financial information. During Fiscal 2013, we continued to execute on our plan to standardize our information systems across brands, including the integration of the Charming Shoppes technology platform with our own. Also, during Fiscal 2013, we completed our project to consolidate certain of our financial systems and processes across our legacy family of brands, including a common general ledger and consolidation platform. We anticipate integrating the Charming Shoppes’s brands onto our technology platform over the next two years.

Advertising and Marketing

We use a variety of broad-based and targeted marketing and advertising strategies to effectively define, evolve and promote our brands. These strategies include customer research, advertising and promotional events, window and in-store marketing materials, direct mail marketing, internet marketing, lifestyle magazines, catazines and other measures to communicate our fashion and promotional message. We utilize a customer relationship management system to track customer transactions and determine strategic decisions for our direct mail initiatives and we offer various customer loyalty programs at our brands. We also pursue a public relations strategy to garner editorial exposure.

Community Service

We are proud to have a long tradition of supporting numerous charities. We actively support charities such as The American Cancer Society, Dress for Success, United Way and various higher education institutions. Our philanthropic strategy is: “Empowering Women and Children To Be Their Best.” Our programs reinforce our commitment to the communities we serve.

Competition

The retail apparel industry is highly competitive and fragmented, with numerous competitors, including department stores, off-price retailers, specialty stores, discount stores, mass merchandisers and internet-based retailers, many of which have substantially greater financial, marketing and other resources than us. Many of our competitors are able to engage in aggressive promotions, reducing their selling prices. Some of our competitors are Walmart, Macy’s, JCPenney, Kohl’s, Old Navy, Aeropostale and Target. Other competitors may move into the markets that we serve. Our business is vulnerable to demand and pricing shifts, and to changes in customer tastes and preferences. If we fail to compete successfully, we could face lower net sales and may need to offer greater discounts to our customers, which could result in decreased profitability. We believe that we have established and reinforced our image as a source of fashion and value by focusing on our target customers and by offering superior customer service and convenience.

Merchandise Vendors

We purchase our merchandise from many domestic and foreign suppliers. We have no long-term purchase commitments or arrangements with any of our suppliers, and believe that we are not dependent on any one supplier. We have good working relationships with our suppliers. No third-party supplier accounts for more than 10% of our merchandise purchases.

Employees

As of July 27, 2013, we had approximately 48,000 employees, 34,000 of whom worked part-time. We typically add temporary employees during peak selling periods. Except for approximately 100 employees of Lane Bryant that were represented by unions at the end of Fiscal 2013, none of our other employees are covered by any collective bargaining agreement. We consider our employee and union relations to be good.

Executive Officers of the Registrant

The following table sets forth the name, age and position of our Executive Officers:

Mr. Elliot S. Jaffe, our co-founder and Chairman of the Board, was Chief Executive Officer of our company from 1966 until 2002.

Mr. David Jaffe became President and Chief Executive Officer in 2002. Previously he had been Vice Chairman, Chief Operating Officer and a member of the Board of Directors since 2001. He joined us in 1992 as Vice President-Business Development and became Senior Vice President in 1995 and Executive Vice President in 1996. Mr. Jaffe is the son of Elliot S. and Roslyn S. Jaffe. Mrs. Jaffe serves as Secretary and Treasurer of our Company.

Mr. John Sullivan joined the Company in 2011 as Executive Vice President and Chief Operating Officer, responsible for IT, distribution and Human Resources Information Systems. Prior to joining the Company, Mr. Sullivan was Executive Vice President and Chief Information Officer for QVC from 2007 to 2011, and preceding that Senior Vice President for sourcing, service, systems and Chief Information Officer for Liz Claiborne from 1996 to 2007.

Mr. Michael W. Rayden is the Chief Executive Officer of Tween Brands, Inc. (“Tween Brands”) and a member of the Ascena Board of Directors since November 2009. Prior to the Company’s merger with Tween Brands on November 25, 2009, Mr. Rayden served as Chief Executive Officer of Tween Brands since March 1996 and was elected Chairman of the Board of Tween Brands in August 1999. Mr. Rayden also served as the President of Tween Brands from March 1996 until January 2007. Before joining Tween Brands, he served as President, Chief Executive Officer and Chairman of the Board of Pacific Sunwear of California, Inc. from 1990 to 1996; President and Chief Executive Officer of The Stride Rite Corporation from 1987 to 1989 and President and Chief Executive Officer of Eddie Bauer Inc. from 1984 to 1987.

Mr. Dirk Montgomery joined the Company in January 2013 as Executive Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Montgomery was Executive Vice President and Chief Value Chain Officer of Bloomin’ Brands, Inc. Prior to that position, he served as Chief Financial Officer of Bloomin’ Brands for six years. Prior to joining Bloomin’ Brands in 2005, Mr. Montgomery served in a variety of domestic and international leadership roles such as Chief Financial Officer of Con Agra Foods Retail Group, Chief Financial Officer of Express (previously a division of Limited Brands) and in several senior management positions with the Sara Lee Corporation. Mr. Montgomery began his career at Ernst & Young LLP as an auditor and corporate finance consultant.

Mr. Jay Levine joined the Company in 2011 as Senior Vice President, Chief Accounting Officer and Corporate Controller, primarily responsible for SEC reporting, internal reporting, corporate budgeting/financial planning, shared accounting services and global tax and compliance. Prior to joining the Company, Mr. Levine was Vice President and Corporate Controller for Ralph Lauren Corporation for five years and, preceding that, had roles of increasing responsibility for twelve years at Time Warner Inc., including his last role as Vice President and Chief Accounting Officer of Time Warner Inc.'s Music Division. Mr. Levine started his career and spent eight years at Ernst & Young LLP.

Mr. Gene Wexler has been Senior Vice President, General Counsel and Assistant Secretary of our Company since 2005.

Mr. David Johns joined the Company in March 2013 as Executive Vice President and Chief Information Officer. Prior to joining the Company, Mr. Johns held several senior leadership roles at Owens Corning since 1994.  Most recently, he was Senior Vice President, Chief Information Officer & Chief Global Shared Services officer.  Prior to his experience at Owens Corning, Mr. Johns held technology positions with Honeywell, Inc. and Time Warner Inc.

Mr. Ronnie Robinson became President, Ascena Global Sourcing in February 2013. His current responsibilities include global sourcing, product integrity and production operations for all of the Company’s brands. Mr. Robinson joined Tween Brands as Vice President of Sourcing in 2001.

Item 1A. Risk Factors.

There are risks associated with an investment in our securities. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, our prospects, our results of operations, our financial condition, our liquidity, the trading prices of our securities, and the actual outcome of matters as to which forward-looking statements are made in this report. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our results of operations, financial position and cash flows.

Our business is dependent upon our ability to accurately predict fashion trends, customer preferences and other fashion-related factors.

Customer tastes and fashion trends are volatile and tend to change rapidly, particularly for women and tween girls apparel. Our success depends in part upon our ability to anticipate and respond to changing merchandise trends and consumer preferences in a timely manner. Accordingly, any failure by us to anticipate, identify and respond to changing fashion trends could adversely affect consumer acceptance of the merchandise in our stores, which in turn could adversely affect our business and our image with our customers. Because we enter into agreements for the manufacture and purchase of merchandise well in advance of the applicable selling season, we are vulnerable to changes in consumer preferences and demand, price shifting, and the optimal selection and timing of merchandise purchases. If we miscalculate either the demand for our merchandise or our customers’ tastes or purchasing habits, we may be required to sell a significant amount of unsold inventory at below average markups over cost, or below cost, which would have an adverse effect on our results of operations, financial position and cash flows.

General economic conditions may adversely affect our business.

Our performance is subject to macroeconomic conditions and their impact on levels of consumer spending. Some of the factors negatively impacting discretionary consumer spending include general economic conditions, wages and high unemployment, increased taxation, high consumer debt, reductions in net worth based on severe market declines (such as in residential real estate markets), higher fuel, energy and other prices, increasing interest rates, severe weather conditions and low consumer confidence. In addition, any significant volatility in our financial markets, as has been experienced in the past, could also negatively impact the levels of future discretionary consumer spending.

Such macroeconomic and other factors could continue to have a negative effect on the lower level of consumer spending in the U.S., which in turn, could have a material effect on our business, results of operations, financial condition and cash flows.

In addition, as a result of occasional instability in the global financial markets, there can be no assurance that our liquidity will not be affected or that our capital resources will at all times be sufficient to satisfy our liquidity needs. Although we believe that our existing cash and cash equivalents, cash provided by operations and available borrowings under our $500 million Amended and Restated Credit Agreement (the “Revolving Credit Agreement”) will be adequate to satisfy our capital needs for the foreseeable future, any renewed tightening of the credit markets could make it more difficult for us to access funds, enter into an agreement for new indebtedness or obtain funding through the issuance of our securities. Our Revolving Credit Agreement also has financial covenants which, if not met, may further impede our ability to access funds under the Revolving Credit Agreement.

We also have significant amounts of cash and cash equivalents on deposit at FDIC-insured financial institutions that are currently in excess of federally-insured limits. Since the deposit insurance provision of the Dodd-Frank Wall Street Reform Act expired on December 31, 2012, we cannot be assured that we will not experience losses with respect to cash on deposit in excess of federally- insured limits.

As described in Note 10 to our audited consolidated financial statements included elsewhere herein, we have significant goodwill and other intangible assets related to our acquisition of maurices in January 2005, the merger with Tween Brands consummated in November 2009 and the Charming Shoppes Acquisition consummated in June 2012. Current and future economic conditions may adversely impact Justice’s, Lane Bryant’s, maurices’s, dressbarn’s or Catherines’s ability to attract new customers, retain existing customers, maintain sales volumes and maintain margins. These events could materially reduce Justice’s, Lane Bryant’s, maurices’s, dressbarn’s or Catherines’s profitability and cash flow which could, in turn, lead to an impairment of Justice’s, Lane Bryant’s, maurices’s or Catherines’s goodwill and intangible assets. Furthermore, if customer attrition were to accelerate significantly, the value of Justice’s, Lane Bryant’s, maurices’s or Catherines’s intangible assets could be impaired or subject to accelerated amortization.

Risks associated with the Charming Shoppes Acquisition.

The success of the Charming Shoppes Acquisition continues to depend on our ability to integrate and manage both our and Charming Shoppes’s operations, to realize opportunities for revenue growth and, to some degree, to eliminate redundant and excess costs. Achieving the anticipated benefits of the Charming Shoppes Acquisition may present a number of significant risks and considerations, including, but not limited to:

We depend on strip shopping center and mall traffic and our ability to identify suitable store locations.

Many of our stores are located in strip shopping centers, shopping malls and other retail centers that benefit from the ability of “anchor” retail tenants, generally large department stores, and other attractions, to generate sufficient levels of consumer traffic in the vicinity of our stores. Strip shopping center and mall traffic may be adversely affected by, among other things, economic downturns, the closing of anchor stores or changes in customer shopping preferences. A decline in the popularity of strip shopping center or mall shopping among our target customers could have a material adverse effect on customer traffic and our results of operations.

To take advantage of customer traffic and the shopping preferences of our customers, we need to maintain or acquire stores in desirable locations where competition for suitable store locations is intense.

Our ability to successfully adapt to ongoing organizational change could impact our business results.

We have executed a number of significant business and organizational changes including acquisitions, workforce and technology optimization projects and distribution center consolidation projects to support our growth strategies. We expect these types of changes to continue for the foreseeable future. Successfully managing these changes, including retention of key employees, is critical to our business success. In addition, our success is dependent on identifying, developing and retaining key employees to provide uninterrupted leadership and direction for our business. This includes developing organizational capabilities in key growth markets where the depth of skilled employees is limited and competition for these resources is intense. Further, business and organizational changes may result in more reliance on third parties for various services, and that reliance may increase compliance risks, including anti-corruption. Finally, our financial targets assume a consistent level of productivity improvement. If we are unable to deliver expected productivity improvements while continuing to invest in business growth, our results of operations, financial position and cash flows could be adversely impacted.

Our business could suffer if our information technology systems fail to operate effectively, are disrupted or compromised.

We rely on our existing information technology systems in operating and monitoring all major aspects of our business, including sales, warehousing, distribution, purchasing, inventory control, merchandise planning and replenishment, as well as various financial systems. The reliability and capacity of our information technology systems are critical. Despite our precautionary efforts, our systems are vulnerable from time to time to damage or interruption from, among other things, natural disasters, technical malfunctions, inadequate systems capacity, power outages, computer viruses, and security breaches. Any disruption in the operation of our information technology systems, or our failure to continue to upgrade or transition to new systems, integrate or expend capital on such systems as our business expands, could have a material adverse effect on our business. Any failure to maintain adequate system security controls to protect our information technology systems and sensitive data, including customer data, from unauthorized access, disclosure or use could also damage the Company's reputation with our customers.

We rely on foreign sources of production.

We purchase a significant portion of our apparel directly in foreign markets, including Asia, the Middle East and Africa, and indirectly through domestic vendors with foreign sources. We face a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad, including but not limited to:

New initiatives may be proposed that may have an impact on the trading status of certain countries and may include retaliatory duties or other trade sanctions that, if enacted, could increase the cost of products purchased from suppliers in such countries or restrict the importation of products from such countries. The future performance of our business depends on foreign suppliers and may be adversely affected by the factors listed above, all of which are beyond our control. This may result in our inability to obtain sufficient quantities of merchandise or increase our costs, thereby negatively impacting our results of operations.

We may suffer negative publicity and our business may be harmed if we need to recall any products we sell.

Justice has in the past and may in the future need to recall products that we determine may present safety issues. If products we sell have safety problems of which we are not aware, or if we or the Consumer Product Safety Commission recall a product sold in our stores, we may suffer negative publicity and product liability lawsuits, which could have a material adverse impact on our reputation, results of operations, financial position and cash flows.

Our expansion into new services and technologies subjects us to additional business, legal, financial and competitive risks.

We may have limited experience in our newer market segments and our customers may not adopt our new service offerings, which include our e-commerce services. This new offering may present new and difficult technology challenges, and we may be subject to claims if customers of these offerings experience service disruptions or failures or other quality issues. In addition, our gross profits in our newer activities may be lower than in our older activities and we may not be successful enough in these newer activities to recoup our investments in them. If any of this were to occur, it could damage our reputation, limit our growth and negatively affect our results of operations, financial position and cash flows.

Risks associated with e-commerce sales.

We sell merchandise via the Internet through our e-commerce services offered by our various brands. Our e-commerce services are subject to numerous risks, including:

The Company's failure to successfully address and respond to any one or more of these risks could have a material adverse effect on our results of operations, financial position and cash flows, and damage the reputation of our brands.

We face challenges to grow our business and to manage our growth.

Our growth is dependent, in large part, upon our ability to successfully add new stores. In addition, on a routine basis, we close underperforming stores, which may result in write-offs. The success of our growth strategy depends upon a number of factors, including, among others, the identification of suitable markets and sites for new stores, negotiation of leases on acceptable terms, construction or renovation of sites in a timely manner at acceptable costs and maintenance of the productivity of our existing store base. We also must be able to effectively renew our existing store leases. We must be able to hire, train and retain competent managers and personnel and manage the systems and operational components of our growth. Our failure to open new stores on a timely basis, obtain acceptance in markets in which we currently have limited or no presence, attract qualified management and personnel or appropriately adjust operational systems and procedures could have an adverse effect on our growth prospects.

Our business would suffer a material adverse effect if our distribution centers were shut down or disrupted.

Most of the merchandise we purchase is shipped directly to our distribution centers, where it is prepared for shipment to the appropriate stores. If our distribution centers were to have an unplanned shut down or lose significant capacity for any reason, our operations would likely be seriously disrupted. As a result, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to reopen or replace any distribution center.

Additionally, freight costs are impacted by changes in fuel prices. Fuel prices affect freight costs both on inbound freight from vendors to the distribution centers and outbound freight from the distribution centers to our stores.

Although we maintain business interruption and property insurance, management cannot be assured that our insurance coverage will be sufficient, or that insurance proceeds will be timely paid to us, if any of the distribution centers are shut down for any unplanned reason.

Our business could suffer a material adverse effect from extreme or unseasonable weather conditions.

Extreme weather conditions in the areas in which the Company's stores are located could negatively affect the Company's business, results of operations, financial position and cash flows. Frequent or unusually heavy snowfall, ice storms, rainstorms or other extreme weather conditions over an extended period could make it difficult for our customers to travel to our stores, which could negatively impact the Company's results of operations. The Company's business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool temperatures during the summer season could reduce demand and thereby have an adverse effect on the Company's results of operations.

Our business could suffer as a result of a third-party manufacturer’s inability to produce goods for us on time and to our specifications.

We do not own or operate any manufacturing facilities and therefore depend upon independent third parties for the manufacture of all of the goods that we sell. Both domestic and international manufacturers produce these goods. The Company is at risk for increases in manufacturing costs and we cannot be certain that we will not experience operational difficulties with these third-party manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality control and failure to meet production deadlines. The inability of a manufacturer to ship orders in a timely manner or to meet our safety, quality and social compliance standards could have a material adverse impact on our business.

Our business could suffer if parties with whom the Company does business are subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to the Company.

The Company is a party to contracts, transactions and business relationships with various third parties, including vendors, suppliers, service providers and lenders, pursuant to which such third parties have performance, payment and other obligations to the Company. In some cases, the Company depends upon such third parties to provide essential products, services or other benefits, including with respect to merchandise fulfillment, advertising, software development and support, logistics, and other agreements for goods and services in order to operate the Company’s business in its ordinary course. Current economic, industry and market conditions could result in increased risk to the Company associated with the potential financial distress or insolvency of such third parties. If any of these third parties were to become subject to bankruptcy, receivership or similar proceedings, the rights and benefits of the Company in relation to its contracts, transactions and business relationships with such third parties could be terminated, modified in a manner adverse to the Company, or otherwise impaired. The Company cannot make any assurance that it would be able to arrange alternate or replacement contracts, transactions or business relationships on terms as favorable as the Company’s existing contracts, transactions or business relationships, if at all. Any inability on the part of the Company to do so could negatively affect the Company’s business, results of operations, financial position and cash flows.

Our business could suffer if we need to replace manufacturers.

We compete with other companies for the production capacity of our manufacturers and import quota capacity. Many of our competitors have greater financial and other resources than we have and thus may have an advantage in the competition for production capacity. If we experience a significant increase in demand, or if an existing manufacturer of the goods that we sell must be replaced, we may have to increase purchases from our other third-party manufacturers and we cannot guarantee we will be able to do so at all or on terms that are acceptable to us. This may negatively affect our results of operations. We enter into a number of purchase order commitments each season specifying a time for delivery, method of payment, design and quality specifications and other standard industry provisions, but we do not have long-term contracts with any manufacturer. None of the manufacturers we use produces products for us exclusively.

Our business could suffer if one of the manufacturers of the goods that we sell fails to use acceptable labor practices.

We require manufacturers of the goods that we sell to operate in compliance with applicable laws and regulations. While our internal and vendor operating guidelines promote ethical business practices and our staff and our agents periodically visit and monitor the operations of our independent manufacturers, we do not control these manufacturers or their labor practices. The violation of local labor, employment or other laws by an independent third-party manufacturer used by us, or the divergence of an independent third-party manufacturer’s labor practices from those generally accepted as ethical in the United States, could interrupt or otherwise disrupt the shipment of products to us or damage our reputation, which may result in a decrease in customer traffic to our stores and adversely affect our results of operations. Publicity regarding violation of the foregoing guidelines or practices or other social/compliance standards by any of our third-party manufacturers could adversely affect our results of operations.

Acts of terrorism, effects of war, public health, natural disasters, other catastrophes or political unrest could have a material adverse effect on our business.

The threat or actual acts of terrorism continue to be a risk to the global economy. Terrorism and potential military responses, political unrest, natural disasters (such as Hurricane Sandy in 2012), pandemics or other health issues have disrupted or could disrupt commerce, impact our ability to operate our stores or offices in the affected areas or impact our ability to provide critical functions or services necessary to the operation of our business. A disruption of commerce, or an inability to recover critical functions or services from such a disruption, could interfere with the production, shipment or receipt of our merchandise in a timely manner or increase our costs to do so, which could have a material adverse impact on our results of operations, financial position and cash flows. In addition, any of the above disruptions could undermine consumer confidence, which could negatively impact consumer spending or customer traffic, and thus have an adverse effect on our results of operations.

Existing and increased competition in the women’s and girls’ retail apparel industry may reduce our net revenues, profits and market share.

The women’s and girls’ retail apparel industry is highly competitive. Although the Company is one of the nation’s largest specialty retailers, we have numerous and varied competitors at the national and local level, primarily consisting of department stores, off-price retailers, other specialty stores, discount stores, mass merchandisers, and Internet and mail-order retailers, many of which have substantially greater financial, marketing, promotional and other resources than we have. Many department stores offer a broader selection of merchandise than we offer. In addition, many department stores continue to be promotional and reduce their selling prices, and in some cases are expanding into markets in which we have a significant presence. As a result of this competition, we may experience pricing pressures, increased marketing expenditures and loss of market share, which could have a material adverse effect on our business, results of operations, financial position and cash flows.

We could suffer a decline in our profitability as a result of increasing pressure on margins.

The apparel industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products and changes in consumer spending patterns. These factors may cause us to reduce our sales prices to consumers, which could cause our gross margin to decline if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions with comparable reductions in our operating costs. If our sales prices decline and we fail to sufficiently reduce our product costs or operating expenses, our profitability will decline. This could have a material adverse effect on our results of operations, financial position and cash flows.

Our business could suffer as a result of increases in the price of raw materials, labor, energy and freight.

Increases in the price of cotton, wool and other raw materials used in the production of fabric and accessories, as well as increases in labor and energy costs, could result in increases for the costs of our products as well as their distribution to our distribution centers, retail locations and to our customers. In response to these price increases, we have moderately increased merchandise prices on certain items in each of our brands and may, in the future, need to further increase merchandise prices in order to maintain our merchandise margins. Consequently, higher product costs could have a negative effect on our gross profit margin and increased selling prices could have a negative effect on our sales volume.

We depend on key personnel in order to support our existing business and future expansion and may not be able to retain or replace these employees or recruit additional qualified personnel.

Our success and our ability to execute our business strategy depend largely on the efforts of our current management teams at the Company and the respective brands. Executives at the Company and the brands have substantial experience in the retail business and have made significant contributions to the growth and success of our business. The loss of the services of one or more of our key personnel could have a material adverse effect on our business, as we may not be able to find suitable management personnel to replace departing executives on a timely basis. Competition for key personnel in the retail industry is intense, and our operations could be adversely affected if we fail to attract, hire, motivate and retain qualified personnel or if we fail to attract additional qualified individuals.

Our performance also depends in large part on the talents and contributions of engaged and skilled associates in all areas of the Company. If we are unable to identify, hire, develop, motivate and retain talented individuals, we may be unable to compete effectively and could adversely impact our business, results of operations, financial position and cash flows.

Covenants in our Revolving Credit Agreement may impose operating restrictions.

Our Revolving Credit Agreement has financial covenants with respect to a fixed charge coverage ratio, as well as other covenants. If we fail to meet these covenants or obtain appropriate waivers, our lenders may terminate the Revolving Credit Agreement. Such termination could negatively impact our liquidity, which could have a negative impact on the flow of goods and services, adversely impacting our operations.

Our business may be affected by regulatory, administrative and litigation developments.

Laws and regulations at the local, state, federal, and international levels frequently change, and the ultimate cost of compliance cannot be precisely estimated. In addition, we cannot predict the impact that may result from regulatory or administrative changes. Changes in regulations, the imposition of additional regulations, or the enactment of any new or more stringent legislation that impacts employment and labor, trade, product safety, transportation and logistics, healthcare, tax, accounting, privacy, operations, or environmental issues, among others, could have an adverse impact on our results of operations, financial position and cash flows.

Additionally, from time-to-time, we are involved in litigation incidental to our business, including litigation regarding overtime compensation and other employment or wage and hour related matters. Our current exposure could change in the event of the discovery of damaging facts with respect to legal matters pending against us or determinations by judges, juries or other finders of facts that are not in accordance with management's evaluation of the claims. Should management's evaluation prove incorrect, our exposure could greatly exceed expectations and have a material adverse effect on our results of operations, financial position and cash flows.

Increases in the cost of employee health benefits could impact the Company's results of operations, financial position and cash flows.

The Company's expenses relating to employee health benefits are significant. Unfavorable changes in the cost of such benefits could negatively affect the Company's results of operations, financial position and cash flows. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform could result in significant changes to the U.S. healthcare system. Due to the breadth and complexity of the healthcare reform legislation, the lack of implementing regulations and interpretive guidance and the phased-in nature of the implementation of the legislation, the Company is not able at this time to fully determine the impact that healthcare reform will have on the Company-sponsored medical plans.

We are pursuing a strategy of international expansion.

We currently intend to expand our operations into other countries in the future. Currently, our Justice brand has licensed stores in certain Middle Eastern countries, Australia, Southeast Asia, Central and South America and Russia. During Fiscal 2013, both our Justice and maurices brands continued their expansion into Canada. As we expand internationally, we may incur significant costs associated with the start-up and maintenance of foreign operations. Costs may include, but are not limited to, obtaining locations for stores, setting up foreign offices, hiring experienced management and maintaining good relations with associates. We may be unable to open and operate new stores successfully, or we may face operational issues that delay our intended pace of international store growth. In any such case, our expansion may be limited, unless we can:

Failure to implement our international expansion plan consistent with our internal expectations, whether as a result of one or more of the factors listed above or other factors, could adversely affect our ability to achieve the objectives that we have established.

We utilize ports to import our products from Asia and other regions.

We currently ship the vast majority of our products by ocean. If a disruption occurs in the operation of ports through which our products are imported, we and our vendors may have to ship some or all of our products from Asia by air freight or to alternative shipping destinations in the United States. Shipping by air is significantly more expensive than shipping by ocean and our profitability could be reduced. Similarly, shipping to alternative destinations in the United States could lead to increased lead times and costs on our products. A disruption at ports (domestic or abroad) through which our products are imported could have a material adverse effect on our results of operations, financial position and cash flows.

We may experience fluctuations in our tax obligations and effective tax rate.

We are subject to income taxes in the United States and numerous international jurisdictions. We record tax expense based on our estimates of future tax payments, which include reserves for estimates of probable settlements of international and domestic tax audits, including uncertain tax positions. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and reserves are re-evaluated. Further, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings by taxing jurisdiction or by changes to existing accounting rules or regulations.

Our stock price may be volatile.

Our common stock is quoted on the NASDAQ Global Select Market. Our stock price may fluctuate substantially as a result of quarter to quarter variations in our actual or anticipated financial results, the results of other companies in the retail industry, or the markets we serve. In addition, the stock market has experienced price and volume fluctuations that have affected the market price of many retail and other stocks and that have often been unrelated or disproportionate to the operating performance of these companies.

Changes to accounting rules and regulations may adversely affect our results of operations, financial position and cash flows.

Changes to existing accounting rules or regulations may impact our future results of operations or cause the perception that we are more highly leveraged. Other new accounting rules or regulations and varying interpretations of existing accounting rules and regulations have occurred and may occur in the future. For instance, accounting regulatory authorities have indicated that they may begin to require lessees to capitalize operating leases in their financial statements in the next few years. If adopted, such a change would require us to record a significant amount of lease related assets and liabilities on our balance sheet and make other changes to the recording and classification of lease related expenses on the consolidated statements of operations and cash flows. This and other future changes to accounting rules or regulations or the questioning of current accounting practices may adversely affect our results of operations, financial position and cash flows.

Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively impact our business, the price of our common stock and market confidence in our reported financial information.

We must continue to document, test, monitor and enhance our internal controls over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We cannot be assured that our disclosure controls and procedures and our internal controls over financial reporting required under Section 404 of the Sarbanes-Oxley Act will prove to be adequate in the future. Any failure to maintain the effectiveness of internal controls over financial reporting or to comply with the requirements of the Sarbanes-Oxley Act could have a material adverse impact on our business, results of operations, financial position, cash flows and the price of our common stock.

We are subject to cybersecurity risks and may incur increased expenses to mitigate our exposure.

Our business, and that of our third-party service providers, employs systems and websites that allow for the secure storage and transmission of proprietary or confidential information regarding our customers, employees, job applicants, and others, including credit card information and personal identification information. Security and/or privacy breaches could expose us to a risk of loss or misuse of this information, litigation and potential liability. We may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks or intrusions. Attacks may be targeted at us, our customers, or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Advances in computer capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result of non-technical issues, including breach by us or by our third-party service providers that result in the unauthorized release of personal or confidential information.

The protection of customer, employee, and Company data is critical. The regulatory environment surrounding information security and privacy is demanding, with the frequent imposition of new and changing requirements. In addition, customers have a high expectation that we will adequately protect their personal information. Any breach involving this data could cause harm to our reputation or result in liability, either of which could have a material adverse effect on our results of operations, financial position and cash flows.

We may be unable to protect our trademarks and other intellectual property rights.

We believe that our trademarks and service marks are important to our success and our competitive position due to their name recognition with our customers. We devote substantial resources to the establishment and protection of our trademarks and service marks on a worldwide basis, including in the countries in which we have business operations or plan to have business operations. We are not aware of any material claims of infringement or material challenges to our right to use any of our trademarks in the United States or Canada. Nevertheless, the actions we have taken, including to establish and protect our trademarks and service marks, may not be adequate to prevent others from imitating our products or to prevent others from seeking to block sales of our products. Also, others may assert proprietary rights in our intellectual property and we may not be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We lease space for all our retail stores in various domestic and international locations. Store leases generally have an initial term ranging from 5 to 10 years with one or more options to extend the lease. The table below, covering all open store locations leased by us on July 27, 2013, indicates the number of leases expiring during the period indicated and the number of expiring leases with and without renewal options:

Our store leases generally provide for a base rent per square foot per annum. Certain leases have formulas requiring the payment of additional rent as a percentage of sales, generally when sales reach specified levels. Our aggregate minimum rentals under operating leases in effect at July 27, 2013 and excluding locations acquired after July 27, 2013, are approximately $385.1 million for Fiscal 2014. In addition, we are typically responsible under our store leases for our pro rata share of maintenance expenses and common charges in strip shopping centers, outlet centers and malls.

Many of the store leases have termination clauses if certain specified sales volumes are not achieved. This affords us greater flexibility to close underperforming stores. Generally, these provisions are operative only during the first few years of a lease.

Our investment in new stores consists primarily of inventory, leasehold improvements, fixtures and equipment. We generally receive tenant improvement allowances from landlords to offset a portion of these initial investments in leasehold improvements.

In May 2012, the Company sold its 900,000 square-foot building and 16 acres of adjacent land in Suffern, New York, which contains Ascena and dressbarn’s corporate offices and the former warehouse space of dressbarn, for approximately $40.0 million. Simultaneously, the Company entered into a two-year leaseback for a minor portion of the building of approximately 124,000 square-feet of office space, which is cancelable at any time subject to a 10-day notice period.

In April 2012, the Company purchased a 137,000 square-foot building in Mahwah, New Jersey, for $14.6 million. Upon completion of the Company’s planned renovations and expansion, which are anticipated to be completed during the second half of Fiscal 2014, the location will become the new corporate offices for Ascena and the dressbarn brand.

As an incentive for the Company to relocate its offices to New Jersey, the Company was approved, under the Grow New Jersey Assistance Program, for up to an annual $3.2 million tax credit for ten years, aggregating to an amount no greater than $32.4 million. The tax credits are subject to certain requirements including: (i) a required capital expenditure spending threshold for qualified improvements to the facility, (ii) the continued maintenance of certain employee levels for ten years in the new facility and in the State of New Jersey, and (iii) certain average employee compensation thresholds, as well as other stated requirements. In the event the Company fails to comply with the program rules, the credit will be suspended starting in the year when the Company fails to comply and until the Company is deemed again to be in compliance by the State of New Jersey, at which time it will be reinstated. The credits obtained from the program will be used by the Company to reduce its New Jersey corporate income tax liability and, to the extent not used, carried forward or sold to a third-party for an amount not less than 75% of face value.

In addition to the incentives described above to relocate its offices to New Jersey, the Company was approved, under the New Jersey Business Employment Incentive Program, to receive an annual cash grant for up to ten years based on the number of new jobs created in New Jersey. The grant is available up to a maximum of $50,000 per employee over the course of the grant, subject to certain restrictions. In particular, the grant is subject to certain limits based on the amount of employee income taxes withheld and the number of new positions created, and is also subject to certain claw back provisions based on the length of time employment is sustained in New Jersey. These cash grants are expected to total between $4 to $6 million over the ten-year grant period.

We own Justice’s corporate office facilities in New Albany, Ohio totaling approximately 280,000 square feet, along with 44 acres of adjacent land.  We own maurices’s corporate headquarters in downtown Duluth, Minnesota, which is composed of three office buildings totaling approximately 151,000 square feet.  We own 145,000 square feet of space in Bensalem, Pennsylvania which houses the corporate offices of Charming Shoppes as well as Catherines. We lease approximately 135,000 square feet in Columbus, Ohio which serves as Lane Bryant’s corporate headquarters. Internationally, we own office space in Hong Kong and lease office space in Shanghai, China and Seoul, South Korea to support our sourcing operations.

We own distribution centers in Etna Township, Ohio, Greencastle, Indiana and Des Moines, Iowa.  The Etna Township facility is approximately 470,000 square feet.  While it currently serves as the distribution center for the Justice and dressbarn brands, the facility is being expanded in connection with our distribution center consolidation project and will serve as the distribution center for all of the Company’s brick and mortar store operations.  The Greencastle facility, which has 865,000 square feet and is located on 126 acres of land, was acquired in the Charming Shoppes Acquisition.  It currently serves our Lane Bryant and Catherines brands.  This facility is also being expanded in connection with our distribution center consolidation project and will serve as the distribution and fulfillment center for all of the Company’s e-commerce operations.  Our distribution center in Des Moines, which has 360,000 square feet of space on approximately 13.5 acres of land, currently houses maurices warehousing and distribution operations.  These operations will be combined with the Company’s other distribution and fulfillment centers over the next couple of years and the facility is expected to be sold at that time.

As an incentive for the Company to expand its properties in Ohio (including its distribution center), the Company secured state and local tax incentives. The incentives awarded to the Company include state commercial activity tax credits, city income tax credits, real estate tax abatements and various grants with a total estimated benefit of $21.2 million over a 15 year period. To obtain the full benefits from these programs, the Company will generally need to meet certain minimum employment or expenditure commitments, as well as, comply with periodic reporting requirements.

Also in connection with the Charming Shoppes Acquisition, we acquired facilities that serviced the acquired Fashion Bug and Figi’s businesses.  In January 2013, we sold an approximately 513,000 square foot distribution center located on 28 acres of land in White Marsh, Maryland, which primarily serviced the discontinued Fashion Bug brand, for $15.9 million.  Through Figi’s, which is in the process of being sold, we own multiple buildings in Marshfield, Wisconsin, totaling 316,000 square feet.  These buildings serve as its distribution center, corporate offices and manufacturing facility. 

To support sales of products sold through our websites, we have multi-year agreements with contract logistics providers, who provide warehousing and fulfillment services for our e-commerce operations.

Item 3. Legal Proceedings.

The Company is, and in the future may be, involved in various lawsuits, claims or proceedings incident to the ordinary course of business. The results of litigation are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, the Company believes that the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial statements.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Prices of Common Stock

The common stock of Ascena Retail Group, Inc. is quoted on the NASDAQ Global Select Market under the ticker symbol “ASNA.”

The table below sets forth the high and low prices as reported on the NASDAQ Global Select Market for the last eight fiscal quarters.

Number of Holders of Record

As of September 19, 2013, we had approximately 5,168 holders of record of our common stock.

Dividend Policy

We have never declared or paid cash dividends on our common stock. However, payment of dividends is within the discretion and are payable when declared by our Board of Directors. Payments of dividends are limited by our Revolving Credit Agreement as described in the Liquidity and Capital Resources section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Performance Graph

The following graph illustrates, for the period from July 27, 2008 through July 27, 2013, the cumulative total shareholder return of $100 invested (assuming that all dividends, if any, were reinvested) in (1) our common stock, (2) the S&P Composite-500 Stock Index and (3) the S&P Specialty Apparel Retailers Index.

The comparisons in this table are required by the rules of the SEC and, therefore, are not intended to forecast or be indicative of possible future performance of our common stock.

Securities Authorized for Issuance under Equity Compensation Plans

The information set forth in Item 12 of Part III of this Annual Report on Form 10-K is incorporated by reference herein.

Issuer Purchases of Equity Securities ⁽¹⁾

The following table provides information about the Company’s repurchases of common stock during the quarter ended July 27, 2013.

Item 6. Selected Financial Data.

See the "Index to Consolidated Financial Statements and Supplementary Information," and specifically "Selected Financial Information" appearing at the end of this Annual Report on Form 10-K. This selected financial data should be read in conjunction with Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 — "Financial Statements and Supplementary Data" included in this Annual Report on Form 10-K. Historical results may not be indicative of future results.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes thereto, which are included elsewhere in this Annual Report on Form 10-K for Fiscal 2013 (“Fiscal 2013 10-K”). We utilize a 52-53 week fiscal year that ends on the last Saturday in July. As such, fiscal year 2013 ended on July 27, 2013 and reflected a 52-week period (“Fiscal 2013”); fiscal year 2012 ended on July 28, 2012 and reflected a 52-week period (“Fiscal 2012”); and fiscal year 2011 ended July 30, 2011 and reflected a 52-week period (“Fiscal 2011”). All references to “Fiscal 2014” refer to our 52-week period that will end on July 26, 2014.

INTRODUCTION

MD&A is provided as a supplement to the accompanying audited consolidated financial statements and footnotes to help provide an understanding of our results of operations, financial condition, liquidity and changes in financial condition. MD&A is organized as follows:

OVERVIEW

Our Business

Ascena is a leading national specialty retailer of apparel for women, and tween girls and boys, and operates, through its wholly-owned subsidiaries, the following principal retail brands: Justice; Lane Bryant; maurices; dressbarn; and Catherines. The Company’s operations include approximately 3,900 stores throughout the United States, Puerto Rico and Canada, with annual revenues of over $4.7 billion for the fiscal year ended July 27, 2013.

On June 14, 2012, the Company acquired Charming Shoppes, Inc. (“Charming Shoppes”) and its related family of retail brands. Charming Shoppes owned and operated multiple retail brands through over 1,800 retail stores and e-commerce operations, including: Lane Bryant; Catherines; Fashion Bug; and Figi’s. The Company acquired Charming Shoppes in an all cash transaction at $7.35 per share, for an aggregate purchase price of $882.1 million (excluding the assumption of debt and transaction costs, and collectively, the “Charming Shoppes Acquisition”). The acquisition was partially funded with $325 million from new borrowings, including (a) a $300 million, six-year, variable-rate term loan and (b) $25 million of borrowings under the Company’s existing Revolving Credit Agreement (as defined and discussed below under “Debt”), which was amended in connection with the transaction. The remainder was funded through available cash and cash equivalents and the liquidation of substantially all of the Company’s investment portfolio.

Contemporaneously with the closing of the Charming Shoppes Acquisition, the Company announced its intent to cease operating the Fashion Bug business. The Fashion Bug business, which consisted of approximately 600 retail stores, ceased operations in February 2013. The liquidation of the related net assets was concluded during the fourth quarter of Fiscal 2013 and resulted in an immaterial adjustment to goodwill.

In addition, the Company also announced, contemporaneously with the closing of the acquisition of Charming Shoppes, its intent to sell the acquired Figi’s business, which markets food and specialty gift products. In August 2013, the Company entered into an agreement to sell the principal net assets of the Figi’s business (the “Figi’s Sale”). The Figi’s Sale is expected to close during the first quarter of Fiscal 2014 and remains subject to customary closing conditions.

The Fashion Bug and Figi’s businesses have been classified as discontinued operations within the accompanying audited financial statements of the Company.

We classify our businesses into five segments following a brand-oriented approach: Justice, Lane Bryant, maurices, dressbarn and Catherines. The Justice segment includes approximately 971 specialty retail and outlet stores, e-commerce operations, and certain licensed franchises in international territories. The Justice brand offers fashionable apparel to girls who are ages 7 to 14 in an environment designed to match the energetic lifestyle of tween girls, and fashionable apparel to boys who are ages 7 to 14 under the Brothers brand. The Lane Bryant segment includes approximately 788 specialty retail and outlet stores, and e-commerce operations. The Lane Bryant brand offers fashionable and sophisticated plus-size apparel under multiple private labels to female customers in the 25 to 45 age range. The maurices segment includes approximately 877 specialty retail and outlet stores, and e-commerce operations. The maurices brand offers up-to-date fashion designed to appeal to the 17 to 34 year-old female, with stores concentrated in small markets (approximately 25,000 to 100,000 people). The dressbarn segment includes approximately 826 specialty retail and outlet stores, and e-commerce operations. The dressbarn brand primarily attracts female consumers in the mid-30’s to mid-50’s age range and offers moderate-to-better quality career, special occasion and casual fashion to the working woman. The Catherines segment includes approximately 397 specialty retail and outlet stores, and e-commerce operations. The Catherines brand offers classic apparel and accessories for wear-to-work and casual lifestyles in a full range of plus sizes, generally catering to the female customer 45 years and older.

Our Objectives and Risks

Objectives

Our core strengths include a portfolio of value-oriented, lifestyle brands primarily serving the female customer at various levels of maturity and sizes, beginning from age 7. This portfolio of brands is well complemented by a strong and experienced management team, a disciplined investment philosophy and a solid balance sheet. Despite the various risks associated with the current global economic environment as further discussed below, we believe our core strengths will allow us to continue to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.

We continue to focus on a number of ongoing key initiatives aimed at increasing our profitability and integrating newly acquired businesses, including reducing expenses and improving our comparable store sales trends.  These initiatives include, but are not limited to, the following:

Integration of Charming Shoppes

The integration of Charming Shoppes continued during Fiscal 2013, and included an operational and strategic assessment of its businesses and existing cost structure. Among other areas, we developed plans to integrate our respective companies’ technology platforms, sourcing operations, supply chain operations and e-commerce fulfillment operations. As a result of this assessment, and in connection with the cost-saving initiatives discussed below, we identified a number of opportunities to achieve operational efficiencies and streamline corporate overhead. These actions are expected to be implemented over the next two years.

Store Expansion

We have been exploring, and will continue to explore, expansion opportunities both within our current market areas and in other regions, including international expansion. During Fiscal 2013, we opened a net 31 stores. This included net openings of 29 stores at Justice; net openings of 45 stores at maurices; and was partially offset by net closings of 17 stores at Lane Bryant; net closings of 1 store at dressbarn and net closings of 25 stores at Catherines. During Fiscal 2014, we currently plan to open between 55-75 net new stores in the aggregate for all our brands.

During Fiscal 2013, our Justice brand continued to increase its international presence by opening 7 stores in Canada, for a total of 23 stores. In addition, maurices continued to expand in Canada during Fiscal 2013 by opening 9 stores, for a total of 15 stores. Both Justice and maurices plan to continue their Canadian expansion during Fiscal 2014.

E-Commerce

Over the past few years, the Company has focused on the continued growth of its e-commerce channel across all brands. Total e-commerce revenues amounted to approximately $400 million during Fiscal 2013. After giving effect to the Charming Shoppes Acquisition as of the beginning of Fiscal 2012, this represented an increase of approximately 33% over Fiscal 2012. We continue to develop our e-commerce platform and believe this will be an on-going source of sales growth in future periods.

Cost-Saving Initiatives

Over the past few years, we have centralized certain of our distribution center operations, our information technology operations, and our payroll processing operations. In addition, our project to consolidate certain of our financial systems and processes across our legacy family of brands, including a common general ledger and consolidation platform, was completed in Fiscal 2013. We anticipate adding the operations of Charming Shoppes onto our technology platform over the next two years. We expect to continue to leverage our shared resources among our brands, including migrating to more common technology platforms and more centralized supply chain operations, and believe these efforts will continue to lead to increased cost savings and efficiencies in future periods.

Risks

There are trends and other factors, including those described below, which we face as a women’s, and girls’ and boys’, specialty apparel retailer that could have a material impact on our consolidated financial statements. For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A “Risk Factors” of the Fiscal 2013 10-K.

General Economic Conditions. Our performance is subject to macroeconomic conditions and their impact on levels of consumer spending. Some of the factors negatively impacting discretionary consumer spending include general economic conditions, wages and high unemployment, increased taxation, high consumer debt, reductions in net worth based on severe market declines (such as in residential real estate markets), higher fuel, energy and other prices, increasing interest rates, severe weather conditions and low consumer confidence. In addition, any significant volatility in our financial markets, as has been experienced in the past, could also negatively impact the levels of future discretionary consumer spending.

Generally, we experienced lower and inconsistent customer traffic and spending patterns during the better part of Fiscal 2013. We believe that the lower level of consumer spending during this timeframe was largely related to some of the macroeconomic and other conditions mentioned above, particularly increased taxation, continuing high unemployment and the adverse effects of unseasonably cold weather and storms. Consequently, this contributed to a decline in comparable store sales and lower merchandise margins in our brick-and-mortar sales channel during this period, which were offset, in part, by continued growth in our e-commerce sales channel.

Such macroeconomic and other factors could continue to have a negative effect on the lower level of consumer spending in the U.S., which in turn, could have a material effect on our business, results of operations, financial condition and cash flows.

Integration of Charming Shoppes. The success of the Charming Shoppes Acquisition will depend on our ability to manage our combined operations, to realize opportunities for revenue growth, and to eliminate redundant and excess costs. Achieving the anticipated benefits of integrating Charming Shoppes may present a number of significant risks and uncertainties.

Weather Conditions. Weather conditions can affect our net sales because inclement weather may discourage travel or require temporary store closures, thereby reducing customer traffic. Unseasonably warmer weather during typically colder months or unseasonably colder weather during typically warmer months, as was experienced in the spring of Fiscal 2013, can also affect the seasonal composition and demand for our merchandise.

Price Increases. The raw materials used to manufacture our products, in particular cotton, and our transportation and contract manufacturing labor costs, are subject to availability constraints and price volatility. Over the past couple of years, we had seen an increase in such costs, although cotton prices have since moderated. In response to these price increases, we have moderately increased merchandise prices on certain items in each of our brands and may, in the future, need to further increase merchandise prices in order to maintain our merchandise margins. Consequently, higher product costs could have a negative effect on our gross profit margin and increased selling prices could have a negative effect on our sales volume.

Seasonality of Business. Our business is typically affected by seasonal sales trends primarily resulting from the timing of holiday and back-to-school shopping periods.  In particular, sales at Justice tend to be significantly higher during the fall season which occurs during the first and second quarters of our fiscal year, as this includes the back-to-school period and the December holiday season which is focused on gift-giving merchandise.   The maurices brand experiences peak sales during the December holiday season as well as during the early spring which includes the Easter holiday season. The dressbarn brand has historically experienced higher sales in the spring, which includes the Easter and Mother’s Day holidays. The Lane Bryant and Catherines brands typically experience peak sales during the Easter, Mother’s Day and December holiday seasons.  Lane Bryant’s peak sales around Mother’s Day typically extend through Memorial Day and into the early summer. In addition, our results of operations and cash flows may fluctuate materially in any quarterly period depending on, among other things, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays and changes in merchandise mix. 

Competition. The retail apparel industry is highly competitive and fragmented, with numerous competitors, including department stores, off-price retailers, specialty stores, discount stores, mass merchandisers and Internet-based retailers, many of which have substantially greater financial, marketing and other resources than we do. Many of our competitors are able to engage in aggressive promotions, which include reducing their selling prices. Some of our competitors include Walmart, Macy’s, JCPenney, Kohl’s, Old Navy, Aeropostale and Target. Other competitors may move into the markets that we serve, particularly in the plus-size women’s apparel market where we have a high concentration of sales. Our business is vulnerable to demand and pricing shifts, and to changes in customer tastes and preferences. If we fail to compete successfully, we could face lower net sales and may need to offer greater discounts to our customers, which could result in decreased profitability. We believe that we have established and reinforced our image as a source of fashion and value by focusing on our target customers, and by offering superior customer service and convenience.

Customer Tastes and Fashion Trends. Customer tastes and fashion trends are volatile and can change rapidly. Our success depends in part on our ability to effectively predict and respond to changing fashion trends and consumer demands, and to translate market trends into appropriate, saleable product offerings. If we are unable to successfully predict or respond to changing styles or trends and misjudge the market for our products or any new product lines, our sales will be lower and we may be faced with a substantial amount of unsold inventory. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess or slow-moving inventory, which may have a material adverse effect on our results of operations, financial position and cash flows.

Summary of Financial Performance

Operating Results

Our operating results for Fiscal 2013 reflect the inclusion of the Charming Shoppes Acquisition for the entire twelve-month period, whereas Fiscal 2012 only includes such operations for a 45-day period from the acquisition date.

In Fiscal 2013, we reported net sales of $4.715 billion, income from continuing operations of $155.2 million and net income from continuing operations per diluted share of $0.95. This compares to net sales of $3.353 billion, income from continuing operations of $171.8 million and net income from continuing operations per diluted share of $1.08 in Fiscal 2012. Including a loss from discontinued operations of $3.9 million, or $0.02 per diluted share, net income was $151.3 million in Fiscal 2013 and net income per diluted share was $0.93. This compares to a loss from discontinued operations of $9.6 million, or $0.06 per diluted share, and net income of $162.2 million, or $1.02 per diluted share in Fiscal 2012.

The decrease in net income and net income per diluted share during Fiscal 2013 was primarily due to an overall decline in operating income, which reflected the incurrence of incremental acquisition-related, integration and restructuring costs, a duplicative overhead structure and incremental depreciation expense. Also contributing to the overall decrease in net income and net income per diluted share was an increase in interest expense to service the debt incurred to fund the Charming Shoppes Acquisition and a loss on extinguishment of debt. These decreases were offset in part by a decrease in the provision for income taxes, the absence of $14.0 million of acquisition-related, transaction costs incurred during Fiscal 2012 and lower losses from discontinued operations.

As discussed earlier under the section entitled General Economic Conditions, the operating environment for the better part of Fiscal 2013 has remained challenging. This, in turn, had a significant impact on our operating results. Nevertheless, our operating performance for Fiscal 2013 was positively affected by a 40.6% increase in net sales, consisting of 4.6% organic growth from our legacy family of brands and 36.0% growth from the Charming Shoppes Acquisition. The increase in net sales from our legacy family of brands was driven by both our comparable store sales at Justice and new store growth at both our Justice and maurices brands, as well as strong growth in e-commerce sales at all of our legacy brands. Partially offsetting those increases was a decrease in comparable store sales from our dressbarn brand. On a combined pro forma basis, comparable store sales and e-commerce sales for the Company increased 2%. Our gross margin rate increased by 20 basis points to 56.2%. The gross margin rate at our legacy family of brands was flat, as slightly higher margins at maurices were offset by slightly lower margins at Justice and dressbarn. The gross margin rate was negatively affected by the incurrence of approximately $20 million and $14 million in Fiscal 2013 and 2012, respectively, of one-time, non-cash inventory expenses associated with the purchase accounting write-up of Charming Shoppes’s inventory to fair market value as of the acquisition date.

Operating income decreased $27.3 million, consisting of a $12.5 million, or 3.8%, decrease from our legacy family of brands, $9.2 million of incremental unallocated acquisition-related, integration and restructuring costs and a $5.6 million decrease relating to the acquired operations of Lane Bryant and Catherines. The operating results of Lane Bryant and Catherines reflected an incremental $6 million in Fiscal 2013 related to the one-time, non-cash inventory purchase accounting expense mentioned above and a duplicative corporate overhead structure. The decreased operating income from our legacy family of brands primarily reflected a decrease in sales and gross margin rate at our dressbarn brand, offset in part by the flow-through of margin on the higher sales volume at Justice and maurices. Also contributing to the decline in operating income was $67.2 million of incremental depreciation expense resulting from the opening of new stores during the last twelve months and accelerated depreciation of existing assets whose useful lives were shortened by the Company’s supply chain and technological integration efforts.

The provision for income taxes from continuing operations decreased by $19.8 million to $87.4 million. The effective tax rate decreased 240 basis points, to 36.0% for Fiscal 2013, from 38.4% for Fiscal 2012. The decrease in the effective tax rate was primarily the result of higher tax benefits relating to the accounting for discrete items recognized in Fiscal 2013, and lower permanent non-deductible items related to the Charming Shoppes Acquisition.

Income from continuing operations decreased $16.6 million to $155.2 million primarily as a result of the overall decline in operating income, increase in interest expense to service the debt incurred to fund the Charming Shoppes Acquisition and a loss on extinguishment of debt. These decreases were offset in part by a decrease in the provision for income taxes and the absence of acquisition-related, transaction costs incurred during Fiscal 2012.

Net income from continuing operations per diluted share decreased by $0.13, or 12.0%, to $0.95 per share for Fiscal 2013 from $1.08 per share for Fiscal 2012. The decrease in diluted earnings per share results was primarily due to the lower level of net income and an increase in the weighted average diluted common shares outstanding.

Financial Condition and Liquidity

We ended Fiscal 2013 in a net cash and investments position (total cash and cash equivalents, plus short-term and non-current investments less total debt) of $53.8 million, compared to a net debt position of to $157.7 million as of the end of Fiscal 2012.

The increase in our net financial position as of July 27, 2013 as compared to July 28, 2012 was primarily due to our operating cash flows, which were partially offset by our use of cash to support our capital expenditures (as discussed below under “Capital Spending”), the prepayment of debt under our Term Loan and the use of the available cash and cash equivalents to reduce our outstanding debt under our Revolving Credit Agreement (each as defined and discussed below under “Debt”). Our equity increased to $1.556 billion as of July 27, 2013, compared to $1.341 billion as of July 28, 2012, primarily due to our net income during Fiscal 2013.

We generated $450.0 million of cash from operations during Fiscal 2013, compared to $361.5 million during Fiscal 2012. During Fiscal 2013, we used $194.7 million for the repayment of debt and $290.9 million for capital expenditures primarily associated with our retail store expansion and investments in our facilities and technological infrastructure.

Transactions Affecting Comparability of Results of Operations and Financial Condition

The comparability of the Company's operating results for the three fiscal years presented herein has been affected by certain transactions, including:

A summary of the effect of certain of these items on pretax income for each applicable fiscal year presented is noted below (references to "Notes" are to the notes to the accompanying audited consolidated financial statements):

The following discussion of results of operations highlights, as necessary, the significant changes in operating results arising from these items and transactions. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users individually should consider the types of events and transactions that have affected operating trends.

Reclassifications

Certain immaterial reclassifications have been made to the prior period’s financial information in order to conform to the current period’s presentation.

RESULTS OF OPERATIONS

Our segment reporting structure reflects a brand-focused approach, designed to optimize the operational coordination and resource allocation of our businesses across multiple functional areas, including specialty retail, e-commerce and licensing. The five reportable segments described below represent our brand-based activities for which separate financial information is available, and which is utilized on a regular basis by our executive team to evaluate performance and allocate resources. In identifying our reportable segments, we consider economic characteristics, as well as products, customers, sales growth potential and long-term profitability. As such, we report our operations in five reportable segments as follows:

Fiscal 2013 Compared to Fiscal 2012

The following table summarizes our results of operations and expresses the percentage relationship to net sales of certain financial statement captions:

^(a) Effective tax rate is calculated by dividing the provision for income taxes by income from continuing operations before provision for income taxes.

^(b) Loss from discontinued operations is presented net of a $3.3 million and $5.1 million tax benefit for the years ended July 27, 2013 and July 28, 2012, respectively.

^(NM) Not Meaningful

Net Sales. Net sales increased by $1.362 billion, or 40.6%, to $4.715 billion in Fiscal 2013 from $3.353 billion in Fiscal 2012. The increase in net sales consisted of 4.6% organic growth from our legacy family of brands and 36.0% from the Charming Shoppes Acquisition. The increase in net sales from our legacy family of brands was driven by both our comparable store sales at Justice and new store growth, at both our Justice and maurices brands, as well as strong growth in e-commerce sales at all of our legacy brands. Partially offsetting those increases was a decrease in comparable store sales from our dressbarn brand. After giving effect to the Charming Shoppes Acquisition as of the beginning of 2012, comparable store sales were flat during Fiscal 2013. E-commerce sales increased by $100.1 million, or 33% to $401.2 million during Fiscal 2013 from $301.1 million during Fiscal 2012. On a combined basis, these two categories increased 2% during Fiscal 2013. As discussed under the section entitled General Economic Conditions, our comparable store sales trends during Fiscal 2013 reflected lower and inconsistent customer traffic and spending patterns, which generally began in November 2012.

Net sales and comparable store sales data for our five business segments is presented below.

^(NM) Not Meaningful

Justice net sales. The net increase primarily reflects:

Lane Bryant net sales. The net increase reflects the operation of 788 stores in the current year for the entire year, as the acquisition was consummated during the fourth quarter of Fiscal 2012. Such results reflected:

maurices net sales. The net increase primarily reflects:

dressbarn net sales. The net decrease primarily reflects:

Catherines net sales. The net increase reflects the operation of 397 stores in the current year for the entire year, as the acquisition was consummated during the fourth quarter of Fiscal 2012. Such results reflected:

Gross Margin. Gross margin, which represents the difference between net sales and cost of goods sold, expressed as a percentage of net sales, increased by 20 basis points to 56.2% in Fiscal 2013 from 56.0% in Fiscal 2012. The gross margin rate at our legacy family of brands was flat as slightly higher margins at maurices were offset by slightly lower margins at Justice and dressbarn. The gross margin rate was negatively affected by the incurrence of approximately $20 million and $14 million in Fiscal 2013 and 2012, respectively, of one-time, non-cash inventory expenses associated with the purchase accounting write-up of Charming Shoppes’s inventory to fair market value as of the acquisition date.

Gross margin as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among brands, changes in the mix of products sold, the timing and level of promotional activities, and fluctuations in material costs. These factors, among others, may cause cost of goods sold as a percentage of net revenues to fluctuate from year to year.

Buying, Distribution and Occupancy Costs. Buying, distribution and occupancy costs consist of store occupancy and utility costs (excluding depreciation), out-bound freight and all costs associated with the buying and distribution functions.

Buying, distribution and occupancy costs increased by $280.1 million, or 51.7%, to $822.4 million in Fiscal 2013 from $542.3 million in Fiscal 2012. Buying, distribution and occupancy costs as a percentage of net sales increased by 120 basis points to 17.4% in Fiscal 2013 from 16.2% in Fiscal 2012. The increase in Buying, distribution and occupancy costs, both in dollars and as a percentage of net sales, was primarily due to a change in store location mix, as Lane Bryant’s higher mall-based mix of stores has higher store occupancy costs as a percentage of sales. From our legacy family of brands, increases in store occupancy and distribution expenses, which resulted largely from new store growth and the increased sales volume, also contributed to the increase.

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses consist of compensation and benefit-related costs for sales and store operations personnel, administrative personnel and other employees not associated with the functions described above under Buying, distribution and occupancy costs. SG&A expenses also include advertising and marketing costs, information technology and communication costs, supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.

SG&A expenses increased by $438.9 million, or 48.2%, to $1.350 billion in Fiscal 2013 from $910.9 million in Fiscal 2012. SG&A expenses as a percentage of net sales increased by 140 basis points to 28.6% in Fiscal 2013 from 27.2% in Fiscal 2012. SG&A expenses, expressed both in dollars and as a percentage of sales, increased largely due to the current, duplicative corporate overhead structure resulting from the Charming Shoppes Acquisition, which is expected to be significantly scaled back over the next couple of years. From our legacy family of brands, SG&A expenses remained flat as a percentage of sales.

Depreciation and Amortization Expense. Depreciation and amortization expense increased by $68.6 million, or 63.9%, to $176.0 million in Fiscal 2013 from $107.4 million in Fiscal 2012. The increase was primarily due to the inclusion of Charming Shoppes, which contributed $43.7 million of incremental depreciation and amortization expense during Fiscal 2013. Also contributing to the increase were higher capital expenditures, which resulted, in part, from the net opening of 73 stores from our legacy family of brands during the last twelve months and accelerated depreciation of existing assets whose useful lives were shortened primarily by the Company’s supply chain and technological integration efforts.

Operating Income. Operating income decreased by $27.3 million, or 9.3%, to $265.3 million in Fiscal 2013 from $292.6 million in Fiscal 2012. Operating income as a percentage of net sales decreased 310 basis points, to 5.6% in Fiscal 2013 from 8.7% in Fiscal 2012. The change consisted of a $12.5 million, or 3.8% decrease, from our legacy family of brands, $9.2 million of incremental unallocated acquisition-related, integration and restructuring costs and a $5.6 million decrease relating to the acquired operations of Lane Bryant and Catherines. The operating results of Lane Bryant and Catherines reflect approximately $20 million and $14 million in Fiscal 2013 and 2012, respectively, of one-time, non-cash inventory expenses associated with the purchase accounting write-up of Charming Shoppes’s inventory to fair market value as of the acquisition date and a duplicative corporate overhead structure. The decreased operating income from our legacy family of brands primarily reflected a decrease in sales and gross margin rate at our dressbarn brand, offset in part by the flow through of margin on the higher sales volume at Justice and maurices. Operating income data for our five business segments is presented below.

Justice operating income increased by $9.8 million primarily as a result of the higher sales volume, offset in part by a slight decrease in gross margin and increases in Buying, distribution and occupancy costs, SG&A expenses and depreciation expense. The margin decrease was due to increased promotional activity. The increase in Buying, distribution and occupancy costs was mainly a result of increases in store occupancy costs, which resulted largely from new store growth and the increased sales volume. The increase in SG&A expenses reflected increases in store-related payroll associated with the new store growth, higher third-party fulfillment expenses related to e-commerce growth and higher marketing costs, offset in part by the absence of $5.4 million of executive contractual obligation costs which were incurred during Fiscal 2012. The increase in depreciation expense resulted from the new store growth and accelerated depreciation as a result of the Company’s supply chain integration efforts.

Lane Bryant operating loss of $30.1 million primarily reflects the impact of the approximate $15.3 million of one-time, non-cash inventory expense associated with the purchase accounting write-up of inventory to fair market value and also includes the impact of a duplicative corporate overhead structure, which is expected to be significantly scaled back over the next couple of years. The operating results reflect the operation of 788 stores in Fiscal 2013 for the entire year, as the acquisition was consummated during the fourth quarter of Fiscal 2012.

maurices operating income increased by $4.3 million primarily as a result of a flow-through of margin on the higher sales volume, offset in part by increases in Buying, distribution and occupancy costs and SG&A expenses. The increase in Buying, distribution and occupancy costs was mainly a result of increases in store occupancy and distribution expenses, which resulted largely from new store growth and the increased sales volume. The increase in SG&A expenses during Fiscal 2013 was primarily due to store payroll-related costs and other store expenses, relating to the overall net sales increases and new store growth, and increased third-party administrative expenses related to e-commerce growth. Partially offsetting those increases in SG&A expenses was a favorable product-related vendor settlement.

dressbarn operating income decreased by $26.6 million primarily as a result of a decrease in sales and gross margin rates and increases in Buying, distribution and occupancy costs. The lower gross margin rate was mainly attributable to increased promotional activity and higher requirements for inventory markdown reserves in response to continuing, soft-sales trends. Buying, distribution and occupancy costs increased during Fiscal 2013 primarily due to rent increases tied to inflation and taxes.

Catherines operating income of $10.4 million includes the impact of the approximate $4.6 million of one-time, non-cash inventory expense associated with the purchase accounting write-up of inventory to fair market value and also includes the impact of a duplicative corporate overhead structure, which is expected to be significantly scaled back over the next couple of years. The operating results reflect the operation of 397 stores in Fiscal 2013 for the entire year, as the acquisition was consummated during the fourth quarter of Fiscal 2012.

Unallocated acquisition-related, integration and restructuring costs. The unallocated expenses of $34.6 million in Fiscal 2013 and $25.4 million in Fiscal 2012 represent acquisition-related, integration and restructuring costs incurred during the period related to the Charming Shoppes Acquisition.

Interest Expense. Interest expense increased by $9.5 million, or 220.9%, to $13.8 million in Fiscal 2013 from $4.3 million in Fiscal 2012. The increase was primarily the result of new borrowings used to partially fund the Charming Shoppes Acquisition in the fourth quarter of Fiscal 2012.

Interest and Other Income, Net. Interest and other income, net decreased by $4.3 million to $0.4 million in Fiscal 2013 from $4.7 million in Fiscal 2012. The decrease was mainly due to lower interest income, as substantially all of the Company’s investments were liquidated during the fourth quarter of Fiscal 2012 to partially fund the Charming Shoppes Acquisition.

Acquisition-related, Transaction Costs. Acquisition-related, transaction costs were $14.0 million for Fiscal 2012. These costs were incurred in connection with the Charming Shoppes Acquisition, and include legal, consulting and investment banking-related costs that were direct, incremental costs of the acquisition. No such costs were recognized during Fiscal 2013.

Loss on Extinguishment of Debt. During Fiscal 2013, the Company prepaid the Term Loan in full and prepaid the mortgage on its distribution center in Greencastle, Indiana, resulting in a $9.3 million pretax loss on extinguishment of debt. No such loss was recognized during Fiscal 2012.

Provision for Income Taxes. The provision for income taxes represents federal, foreign, state and local income taxes. The provision for income taxes from continuing operations decreased by $19.8 million, or 18.5%, to $87.4 million in Fiscal 2013 from $107.2 million in Fiscal 2012. The decrease in provision for income taxes was primarily a result of lower pretax income in Fiscal 2013 and a lower effective income tax rate. The effective tax rate decreased 240 basis points, to 36.0% for Fiscal 2013 from 38.4% for Fiscal 2012. The decrease in the effective tax rate was primarily the result of higher tax benefits relating to the accounting for discrete items recognized in Fiscal 2013, and lower permanent non-deductible items related to the Charming Shoppes Acquisition.

Net Income. Net income includes income from continuing and discontinued operations. Net income decreased by $10.9 million, or 6.7%, to $151.3 million in Fiscal 2013 from $162.2 million in Fiscal 2012. The decrease was primarily due to an overall decline in operating income, an increase in interest expense to service the debt incurred to fund the Charming Shoppes Acquisition and a loss on extinguishment of debt. These net decreases were offset in part by lower losses from discontinued operations, which generated a loss of $3.9 million in Fiscal 2013 compared to a loss of $9.6 million in Fiscal 2012, a decrease in the provision for income taxes of $19.8 million and the absence of $14.0 million of acquisition-related, transaction costs incurred during Fiscal 2012.

Net Income from Continuing Operations per Diluted Common Share. Net income from continuing operations per diluted common share decreased by $0.13, or 12.0%, to $0.95 per share in Fiscal 2013 from $1.08 per share in Fiscal 2012. The decrease in diluted per common share results was due to the lower level of income from continuing operations, as previously discussed. Weighted-average diluted common shares outstanding increased to 163.3 million shares during Fiscal 2013 from 159.4 million shares during Fiscal 2012, which also reduced net income from continuing operations per diluted common share.

Net Income per Diluted Common Share. Net income per diluted common share decreased by $0.09, or 8.8%, to $0.93 per share in Fiscal 2013 from $1.02 per share in Fiscal 2012. The decrease in diluted per share results was mainly due to a lower level of net income from continuing operations, partially offset by lower losses from discontinued operations.

Fiscal 2012 Compared to Fiscal 2011

The following table summarizes our results of operations and expresses the percentage relationship to net sales of certain financial statement captions:

^(a) Effective tax rate is calculated by dividing the provision for income taxes by income from continuing operations before provision for income taxes.

^(b) Loss from discontinued operations is presented net of a $5.1 million tax benefit for the year ended July 28, 2012.

^(NM) Not Meaningful

Net Sales. Net sales increased by $439.3 million, or 15.1%, to $3.353 billion in Fiscal 2012 from $2.914 billion in Fiscal 2011. The increase in net sales consisted of 10% organic growth from our legacy family of brands and 5% from the Charming Shoppes Acquisition. The increase in net sales from our legacy family of brands was driven by both our comparable store sales growth and new store growth, as well as strong growth in e-commerce sales. On a consolidated basis, comparable store sales increased 5% during Fiscal 2012. Our brand sales increases were as follows: $156.7 million at Justice, $119.7 million at Lane Bryant, $76.4 million at maurices, $50.1 million at dressbarn, and $36.4 million at Catherines.

Net sales and comparable store sales data for our three business segments is presented below.

^(NM) Not Meaningful

Justice net sales. The net increase primarily reflects:

Lane Bryant net sales. The net increase reflects the operation of 805 stores for a partial period in the current year, from the acquisition date of June 14, 2012, which resulted in a $119.7 million increase net sales during Fiscal 2012. Comparable store sales for the partial period in the current year were 3%.

maurices net sales. The net increase primarily reflects:

dressbarn net sales. The net increase primarily reflects:

Catherines net sales. The net increase reflects the operation of 422 stores for a partial period in the current year, from the acquisition date of June 14, 2012, which resulted in a $36.4 million increase in net sales during Fiscal 2012. Comparable store sales for the partial period in the current year were 11%.

Gross Margin. Gross margin, which represents the difference between net sales and cost of goods sold, expressed as a percentage of net sales, decreased by 70 basis points to 56.0% in Fiscal 2012 from 56.7% in Fiscal 2011. While our gross margin rate declined 70 basis points to 56.0%, this was mainly due to the effect of the Charming Shoppes Acquisition, which included an unfavorable, non-cash purchase accounting adjustment of approximately $14 million for Fiscal 2012 associated with the write-up of Charming Shoppes’s inventory to fair market value. The gross margin rate for our legacy family of brands declined only 10 basis points to 56.6% due largely to lower margins at dressbarn and maurices relating to increased markdowns.

Gross margin as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among brands, changes in the mix of products sold, the timing and level of promotional activities, and fluctuations in material costs. These factors, among others, may cause cost of goods sold as a percentage of net revenues to fluctuate from year to year.

Buying, Distribution and Occupancy Costs. Buying, distribution and occupancy costs consist of store occupancy and utility costs (excluding depreciation), out-bound freight and all costs associated with the buying and distribution functions.

Buying, distribution and occupancy costs increased by $58.9 million, or 12.2%, to $542.3 million in Fiscal 2012 from $483.4 million in Fiscal 2011. Buying, distribution and occupancy costs as a percentage of net sales decreased by 40 basis points to 16.2% in Fiscal 2012 from 16.6% in Fiscal 2011. Buying, distribution and occupancy costs increased in Fiscal 2012 primarily due to new store openings and increases relating to the Charming Shoppes Acquisition. Buying, distribution and occupancy costs were leveraged during the period mainly due to the increase in net sales.

Selling, General and Administrative Expenses. SG&A expenses consist of compensation and benefit-related costs for sales and store operations personnel, administrative personnel and other employees not associated with the functions described above under Buying, distribution and occupancy costs. SG&A expenses also include advertising and marketing costs, information technology and communication costs, supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.

SG&A expenses increased by $120.7 million, or 15.3%, to $910.9 million in Fiscal 2012 from $790.2 million in Fiscal 2011. SG&A expenses as a percentage of net sales increased by 10 basis points to 27.2% in Fiscal 2012 from 27.1% in Fiscal 2011. The increase in SG&A expenses was mainly due to increases relating to the Charming Shoppes Acquisition, as well as increases at our legacy family of brands relating to (i) store payroll-related costs and other store expenses, which resulted from the higher net sales growth and store unit growth, (ii) increased incentive compensation costs related to the better than planned earnings results, (iii) increased third-party administrative expenses related to e-commerce growth, (iv) increased marketing costs, (v) higher costs due to new business initiatives and (vi) a $5.4 million one-time executive contractual obligation incurred during the first quarter of Fiscal 2012.

Depreciation and Amortization Expense. Depreciation and amortization expense increased by $17.6 million, or 19.6%, to $107.4 million in Fiscal 2012 from $89.8 million in Fiscal 2011. The increase was primarily due to an increase in capital expenditures, which resulted, in part, from the net opening of 81 stores during Fiscal 2012. Also contributing to the increase was the inclusion of Charming Shoppes from the acquisition date of June 14, 2012, which contributed $6.0 million of incremental depreciation and amortization expense during Fiscal 2012.

Operating Income. Operating income increased by $2.8 million, or 1.0%, to $292.6 million in Fiscal 2012 from $289.8 million in Fiscal 2011. Operating income as a percentage of net sales decreased 120 basis points, to 8.7% in Fiscal 2012 from 9.9% in Fiscal 2011. The increase in operating income consisted of a $42.3 million increase from our legacy family of brands and a $39.5 million decrease relating to the Charming Shoppes Acquisition. The operating losses from Charming Shoppes reflected $25.4 million of acquisition-related integration and restructuring costs and the approximate $14 million non-cash inventory expense mentioned above. In turn, the increased operating income from our legacy family of brands primarily reflected the flow-through of margin on the higher sales volume, offset in part by increased operating costs.

Operating income data for our five business segments is presented below.

^(NM) Not Meaningful

Justice operating income increased by approximately $43.2 million primarily as a result of an increase in sales and gross margin rates and the leveraging of Buying, distribution and occupancy costs, offset in part by an increase in SG&A expenses. The higher gross margin rate benefited from selected price increases and merchandise mix, offset in part by higher planned markdowns. Buying, distribution and occupancy costs increased largely due to store growth, but had increased leverage due to the higher sales volume. The increase in SG&A expenses during Fiscal 2012 was due to a number of factors including (i) an increase in store payroll-related costs and other store expenses, relating to the overall net sales increases (ii) increased incentive compensation costs related to the better than planned earnings results, (iii) increased third-party administrative expenses related to e-commerce growth, (iv) increased marketing costs, (v) and a $5.4 million one-time, executive contractual obligation cost incurred during the first quarter of Fiscal 2012.

Lane Bryant operating loss. The net operating loss of $10.1 million primarily reflects an unfavorable, one-time non-cash purchase accounting adjustment of approximately $10 million associated with the write-up of inventory to fair market value and the operation of 805 stores for a partial period in the current year, from the acquisition date of June 14, 2012.

maurices operating income decreased by approximately $1.8 million as the flow through of increased margin on the higher sales volume (but at a lower margin rate) was more than offset by higher Buying, distribution and occupancy costs and an increase in SG&A expenses. The lower gross margin rate was mainly attributable to higher markdowns. The de-leveraging of Buying, distribution and occupancy costs was mainly a result of new store growth. The increase in SG&A expenses during Fiscal 2012 was primarily due to store payroll-related costs and other store expenses, relating to the overall net sales increases, increased third-party administrative expenses related to e-commerce growth, higher marketing costs and a one-time, litigation-related charge.

dressbarn operating income increased by approximately $0.9 million. The lower gross margin rate was mainly attributable to higher markdowns. The leveraging of Buying, distribution and occupancy costs was mainly attributable to the higher net sales. The increase in SG&A expenses during Fiscal 2012 was mainly due to an increase in store payroll-related costs and other store expenses, relating to the overall net sales increases, and increased third-party administrative expenses related to e-commerce growth, which were partially offset by a $6.9 million gain on the sale of the Suffern, New York building.

Catherines operating loss. The net operating loss of $4.0 million primarily reflects an unfavorable, one-time non-cash purchase accounting adjustment of approximately $3 million associated with the write-up of inventory to fair market value and the operation of 422 stores for a partial period in the current year, from the acquisition date of June 14, 2012.

Unallocated acquisition-related, integration and restructuring costs. The unallocated expenses of $25.4 million represent acquisition-related, integration and restructuring costs incurred during Fiscal 2012 related to the Charming Shoppes Acquisition. No such costs were incurred during Fiscal 2011.

Interest Expense. Interest expense increased by $1.8 million, or 72%, to $4.3 million in Fiscal 2012 from $2.5 million in Fiscal 2011. The increase was primarily the result of new borrowings used to partially fund the Charming Shoppes Acquisition.

Interest and Other Income, Net. Interest and other income, net increased by $3.6 million to $4.7 million in Fiscal 2012 from $1.1 million in Fiscal 2011. The increase in income was mainly due to the absence of a $2.5 million pretax loss on the sale of an investment recognized in Fiscal 2011. Partially offsetting the increased income was lower interest income in Fiscal 2012, as average balances of cash and investments decreased during the period as a result of the Charming Shoppes Acquisition.

Acquisition-related, Transaction Costs. Acquisition-related, transaction costs were $14.0 million for Fiscal 2012. These costs were incurred in connection with the Charming Shoppes Acquisition, and include legal, consulting and investment banking-related costs that were direct, incremental costs of the acquisition. No such costs were incurred during Fiscal 2011.

Loss on Extinguishment of Debt. During Fiscal 2011, the Company prepaid the mortgage on its Suffern, New York facility, resulting in a $4.0 million pretax loss on the extinguishment of debt. No such loss was recognized in Fiscal 2012.

Provision for Income Taxes. The provision for income taxes represents federal, foreign, state and local income taxes. The provision for income taxes from continuing operations decreased by $6.7 million, or 5.9%, to $107.2 million in Fiscal 2012 from $113.9 million in Fiscal 2011. The decrease in provision for income taxes was primarily a result of lower pretax income in Fiscal 2012 and a lower effective income tax rate. The reported effective tax rate decreased 160 basis points, to 38.4% in Fiscal 2012 from 40.0% in Fiscal 2011. The lower effective tax rate was primarily the result of the reversal of certain liabilities for uncertain tax positions in Fiscal 2012.

Income from Continuing Operations. Income from continuing operations increased by $1.3 million, or 0.8%, to $171.8 million in Fiscal 2012 from $170.5 million in Fiscal 2011. The increase was primarily due to the increase in operating income and lower tax provision described above, which were offset, in part, by $14.0 million of one-time, acquisition-related, transaction costs relating to the Charming Shoppes Acquisition.

Loss from Discontinued Operations, net of taxes. Loss from discontinued operations, net of taxes amounted to $9.6 million and represents the after-tax losses of both the Fashion Bug and Figi’s businesses, which were acquired in the Charming Shoppes Acquisition.

Net Income. Net income includes income from continuing operations, net of losses from discontinued operations. Net income decreased by $8.3 million, or 4.9%, to $162.2 million in Fiscal 2012 from $170.5 million in Fiscal 2011. The decrease was primarily due to a $9.6 million loss from discontinued operation, net of taxes.

Net Income from Continuing Operations per Diluted Common Share. Net income from continuing operations per diluted common share increased by $0.03, or 2.9%, to $1.08 per share in Fiscal 2012 from $1.05 per share in Fiscal 2011. The increase in diluted per common share results was due to the higher level of income from continuing operations, as previously discussed. Weighted-average diluted common shares outstanding decreased to 159.4 million shares in Fiscal 2012 from 161.8 million shares Fiscal 2011, which complemented the positive effect of the higher level of net income.

Net Income per Diluted Common Share. Net income per diluted common share decreased by $0.03, or 2.9%, to $1.02 per share in Fiscal 2012 from $1.05 per share in Fiscal 2011. The decrease in diluted per share results was primarily due to the inclusion of a $0.06 loss on discontinued operations per diluted share.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition

The increase in our net cash and investments position as of July 27, 2013 as compared to July 28, 2012 was primarily due to our operating cash flows, which were partially offset by our use of cash to support our capital expenditures (as discussed below under “Capital Spending”), the prepayment of debt under our Term Loan and the use of the available cash and cash equivalents to reduce our outstanding debt under the Revolving Credit Agreement (each as defined and discussed below under “Debt”). The increase in equity was primarily due to the Company’s net income in Fiscal 2013.

Cash Flows

Fiscal 2013 Compared to Fiscal 2012

The table below summarizes our cash flows for the years presented as follows:

Net Cash Provided by Operating Activities. Net cash provided by operating activities was $450.0 million for Fiscal 2013, compared with $361.5 million during Fiscal 2012. The increase was primarily driven by higher net income before non-cash depreciation and amortization expense, lower working capital requirements and other balance sheet changes.

Net Cash Used in Investing Activities. Net cash used in investing activities for Fiscal 2013 was $272.2 million, compared with $602.3 million for Fiscal 2012. Net cash used in investing activities in Fiscal 2013 consisted almost entirely of cash used for capital expenditures of $290.9 million, partially offset by proceeds from the sale of a distribution center of approximately $16 million. Net cash used in investing activities for Fiscal 2012 was $602.3 million, consisting primarily of $683.9 million to fund the Charming Shoppes Acquisition, net of cash acquired, and $150.4 million of capital expenditures, which were offset in part by $193.8 million of net cash generated from the sale of investments and $38.2 million of net proceeds received for the sale of the Suffern, New York property.

Net Cash (Used in) Provided by Financing Activities. Net cash used in financing activities was $155.7 million during Fiscal 2013, consisting primarily of $194.7 million in net repayments of debt (net of borrowings), offset in part by proceeds relating to our stock-based compensation plans. Net cash provided by financing activities for Fiscal 2012 was $161.6 million, consisting primarily of $322.0 million in proceeds from borrowings to fund the Charming Shoppes Acquisition and the proceeds relating to our stock-based compensation plans, offset in part by the repayment of $144.2 million of debt and $37.2 million for the repurchase of common stock.

Fiscal 2012 Compared to Fiscal 2011

The table below summarizes our cash flows for the years presented as follows:

Net Cash Provided by Operating Activities. Net cash provided by operating activities was $361.5 million for Fiscal 2012, compared with $280.8 million during Fiscal 2011. The increase was primarily driven by increases in net income, non-cash depreciation and amortization expense, non-cash stock based compensation expense and lower working capital and other balance sheet requirements.

Net Cash Used in Investing Activities. Net cash used in investing activities for Fiscal 2012 was $602.3 million, consisting primarily of $683.9 million to fund the Charming Shoppes Acquisition, net of cash acquired, and $150.4 million of capital expenditures, which were offset in part by $193.8 million of net cash generated from the sale of investments and $38.2 million of net proceeds received for the sale of the Suffern, New York property. Net cash used in investing activities for Fiscal 2011 was $197.2 million, consisting primarily of a net $90.0 million to purchase investments and $102.1 million of capital expenditures.

Net Cash Provided by (Used in) Financing Activities. Net cash provided by financing activities was $161.6 million during Fiscal 2012, consisting primarily of $322.0 million in proceeds from borrowings to fund the Charming Shoppes Acquisition and the proceeds relating to our stock-based compensation plans, offset in part by the repayment of $144.2 million of debt and $37.2 million for the repurchase of common stock. Net cash used in financing activities was $80.7 million during Fiscal 2011, consisting primarily of $72.9 million for the repurchase of common stock, $29.2 million for the repayment of debt, offset in part by proceeds relating to our stock-based compensation plans.

Capital Spending

We routinely make capital investments primarily in connection with ongoing expansion of our retail store network, construction and renovation of our existing portfolio of retail stores, investments in our technological and supply chain infrastructure, and investments in corporate office space to support our growing operations. In Fiscal 2013, we had $290.9 million in capital expenditures, compared to $150.4 million of capital expenditures in Fiscal 2012.

During Fiscal 2013, we completed an evaluation to rationalize our distribution network. Based on that, we committed to a plan to (i) expand our distribution center located in Etna Township, Ohio, to centralize all of our brick-and-mortar store distribution in one location, (ii) expand our recently acquired distribution center located in Greencastle, Indiana, which is currently being used to support Lane Bryant and Catherines brick-and-mortar store businesses, to accommodate our ongoing growth in e-commerce operations for all brands, and (iii) once those expansion plans are complete, dispose of our distribution center located in Des Moines, Iowa, which is currently being used to support the maurices business. This transition is expected to take place principally over the next year, with our brick-and-mortar distribution center becoming operational in early calendar 2014.

In addition, in connection with the integration of the technological infrastructure of Charming Shoppes, the Company recently finalized plans to migrate to common information technology platforms for its Company-wide, point-of-sales systems, merchandise systems, warehouse management systems and financial systems. This transition is expected to take place over the next two years.

We also are making capital investments to relocate and expand our corporate office space to support our growing operations. In particular, in April 2012, we purchased an office building located in Mahwah, New Jersey, for $14.6 million and, in May 2012, we sold Ascena and dressbarn’s corporate office and former warehouse located in Suffern, New York, for approximately $40.0 million. The Mahwah, New Jersey location will become the new corporate offices for Ascena and the dressbarn brand. The renovation of the Mahwah, New Jersey location is expected to be completed during the second half of Fiscal 2014.

As a result of these plans, the Company expects the remaining incremental capital requirements to be approximately $250 million, principally over the next year. Such requirements are expected to continue to be funded primarily with operating cash flows and, to the extent necessary, borrowings under the Company’s Revolving Credit Agreement. In addition to proceeds from the sale of certain of the facilities mentioned above, we expect to receive local tax incentives to support the related investments totaling between $55 - $60 million over a 15 year period. See Note 9 to the accompanying audited consolidated financial statements for a description of certain of those tax incentives already granted.

Liquidity

Our primary sources of liquidity are the cash flow generated from our operations, availability under our Revolving Credit Agreement, available cash and cash equivalents, investments and other available financing options. These sources of liquidity are used to fund our ongoing cash requirements, including working capital requirements, retail store expansion, construction and renovation of stores, any future dividend requirements, investment in technological and supply chain infrastructure, acquisitions, debt servicing requirements, stock repurchases, contingent liabilities (including uncertain tax positions) and other corporate activities. Management believes that our existing sources of cash will be sufficient to support our operating needs, capital requirements and any debt service requirements for the foreseeable future.

As of July 27, 2013, approximately 78% of our available cash and cash equivalents was held overseas by our foreign subsidiaries. As such, for the Company to have access to those cash and cash equivalents in the U.S, we would incur a current U.S. tax liability of between 15% to 20% of the cash repatriated; this current U.S. tax liability has been previously provided for in the provision for income taxes and is currently classified within Deferred income taxes on the accompanying audited consolidated balance sheets. We currently do not have any plans to repatriate these funds from our overseas subsidiaries to the U.S.

As discussed in the “Debt” section below, as of July 27, 2013, we had $135.0 million of borrowings under our Revolving Credit Agreement. The Company believes the Revolving Credit Agreement will provide sufficient liquidity to continue to support the Company’s operating needs and capital requirements for the foreseeable future. We believe that our Revolving Credit Agreement is adequately diversified with no undue concentrations in any one financial institution. In particular, as of July 27, 2013, there were six financial institutions participating in the credit facility, with no one participant maintaining a maximum commitment percentage in excess of approximately 25%. Management has no reason at this time to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Revolving Credit Agreement in the event of our election to draw funds in the foreseeable future.

Debt

In March 2013, the Company (i) exercised an option to increase the capacity of its existing revolving credit facility by $50 million from $250 million to $300 million, (ii) borrowed approximately $263 million under the facility, (iii) used the proceeds to prepay its Term Loan (as defined and discussed further below), and (iv) amended its then existing revolving credit facility (the “Revolving Credit Agreement”) with the lenders thereunder and JPMorgan Chase Bank, N.A., as administrative agent. The principal changes in terms related to expansion of the borrowing availability from $250 million to $500 million and an extension of the maturity date of the borrowing arrangement by one year from June 2017 to June 2018.

As of July 27, 2013, the Company had $135.6 million of debt outstanding consisting primarily of (i) $135.0 million under the Revolving Credit Agreement, and (ii) $0.6 million of convertible notes due May 2014 assumed in the Charming Shoppes Acquisition, which remain outstanding after substantially all were redeemed in July 2012. For a complete description of the Company’s convertible-notes borrowing arrangement, see Note 14 to our audited consolidated financial statements.

Revolving Credit Agreement

The Revolving Credit Agreement now provides for a senior secured revolving credit facility up to $500 million, with an optional additional increase of up to $100 million. The Revolving Credit Agreement expires in June 2018. There are no mandatory reductions in borrowing availability throughout the term of the Revolving Credit Agreement. However, availability under the Revolving Credit Agreement fluctuates from month-to-month based on the Company’s underlying collateral position at the end of the period. Our collateral position is determined, at any given period, by the aggregate of the Company’s (i) inventory position (less reserves), (ii) market value of eligible real properties up to certain limits, and (iii) eligible credit card receivables. The Revolving Credit Agreement may be used for the issuance of letters of credit, to fund working capital requirements and capital expenditures, and for general corporate purposes. The Revolving Credit Agreement includes a $250 million letter of credit sublimit, of which $60 million can be used for standby letters of credit, and a $25 million swing loan sublimit.

Borrowings under the Revolving Credit Agreement bear interest at a variable rate determined using a base rate equal to the greatest of (i) prime rate, (ii) federal funds rate plus 50 basis points, or (iii) LIBOR plus 100 basis points; plus an applicable margin ranging from 50 basis points to 200 basis points based on a combination of the type of borrowing (prime or LIBOR), the Company’s leverage ratio (defined below) existing at the end of the previous quarter, and average borrowing availability during the previous fiscal quarter. The Company believes the aforementioned refinancing will reduce its future borrowing costs.

The leverage ratio is defined as a ratio of the sum of the aggregate principal amount of indebtedness to consolidated EBITDA. For such purposes, consolidated EBITDA is defined generally as net income plus (i) income tax expense, (ii) interest expense, (iii) depreciation and amortization expense, (iv) non-recurring, acquisition-related expenses, and (v) restructuring charges not exceeding predetermined limits.

In addition to paying interest on any outstanding borrowings under the Revolving Credit Agreement, the Company is required to pay a commitment fee to the lenders under the Revolving Credit Agreement in respect of the unutilized commitments in an amount ranging between 25 basis points and 37.5 basis points per annum based on the Company’s leverage ratio existing at the end of the previous quarter and average utilization during the previous fiscal quarter.

As of July 27, 2013, after taking into account the $135.0 million of revolving debt outstanding and the $19.0 million in outstanding letters of credit, the Company had $333.0 million of its variable availability under the Revolving Credit Agreement.

Restrictions under the Revolving Credit Agreement

The Revolving Credit Agreement is subject to restrictions, as summarized below.

The Revolving Credit Agreement has financial covenants with respect to a fixed charge coverage ratio, which is defined as a ratio of consolidated EBITDAR, less capital expenditures to consolidated fixed charges. For such purposes, consolidated EBITDAR is defined generally as net income plus (i) income tax expense, (ii) interest expense, (iii) depreciation and amortization expense, (iv) rent expense, (v) non-recurring acquisition-related expenses, and (vi) restructuring charges not exceeding predetermined limits. Consolidated fixed charges are defined generally as the sum of (a) cash interest expense, (b) rent expense, (c) cash tax expense, (d) mandatory principal repayment, (e) capital lease payments, (f) mandatory cash contributions to any employee benefit plan and (g) any restricted payments paid in cash. The Company is required to maintain a minimum fixed charge coverage ratio for any period of four consecutive fiscal quarters of at least 1.00 to 1.00. As of July 27, 2013, the actual fixed charge coverage ratio was 1.47 to 1.00. The Company was in compliance with all financial covenants contained in the Revolving Credit Agreement as of July 27, 2013.

In addition to the above, the Revolving Credit Agreement contains customary negative covenants, subject to negotiated exceptions, on (i) liens and guarantees, (ii) investments, (iii) indebtedness, (iv) significant corporate changes including mergers and acquisitions, (v) dispositions, (vi) restricted payments, cash dividends and certain other restrictive agreements. The borrowing agreement also contains customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control, or the failure to observe the negative covenants and other covenants related to the operation of the Company’s business.

The Company’s obligations under the Revolving Credit Agreement are guaranteed by certain of its domestic subsidiaries (the “Subsidiary Guarantors”). As collateral security under the borrowing agreement and the guarantees thereof, the Company and the Subsidiary Guarantors have granted to the administrative agent for the benefit of the lenders, a first priority lien on substantially all of their tangible and intangible assets, including, without limitation, certain domestic inventory and certain material real estate.

Our Revolving Credit Agreement allows us to pay dividends, provided that at the time of and immediately after giving effect to the dividend, (i) there is no default or event of default, and (ii) Availability (as defined in the Revolving Credit Agreement) is not less than 20% of the aggregate Revolving Commitments (as defined in the Revolving Credit Agreement), subject to a minimum predetermined availability limit. Dividends are payable when declared by our Board of Directors. Currently, the Board of Directors does not plan to pay any dividends.

Term Loan

In connection with the funding of the Charming Shoppes Acquisition during the fourth quarter of Fiscal 2012, the Company entered into a $300 million variable-rate term loan (“Term Loan”) with an original maturity of June 14, 2018. The Term Loan was recorded net of an original issue discount of $3 million, which was being amortized to Interest expense over the contractual life of the Term Loan.

During the second quarter of Fiscal 2013, the Company prepaid approximately $20 million of the outstanding principal balance of the Term Loan. The transaction resulted in a $0.6 million pretax loss on extinguishment of debt during the second quarter of Fiscal 2013, relating to a proportional reduction in the balances of the original issue discount and deferred financing costs, which has been disclosed as a component of the Loss on extinguishment of debt on the face of the accompanying audited consolidated statements of operations.

During the third quarter of Fiscal 2013, the Company prepaid the entire remaining approximate $279 million of outstanding principal balance under the Term Loan using approximately $263 million of borrowings under the Revolving Credit Agreement (as discussed above) and approximately $16 million of proceeds from the sale of Fashion Bug’s distribution center. These transactions resulted in an aggregate $7.9 million pretax loss on extinguishment of debt during the third quarter of Fiscal 2013, relating to a write-off of the remaining balances of the original issue discount and deferred financing costs. This loss has been disclosed as a component of the Loss on extinguishment of debt on the face of the accompanying audited consolidated statements of operations.

Charming Shoppes Convertible Notes

In connection with the Charming Shoppes Acquisition, the Company assumed $140.5 million aggregate principal amount of Charming Shoppes’s 1.125% Senior Convertible Notes due May 2014 (the “Charming Convertible Notes”). In conjunction with the change-in-control of Charming Shoppes, pursuant to the terms of the indenture governing the Charming Convertible Notes, each security holder had the right to require Charming Shoppes to repurchase all of its outstanding notes for the principal amount of the notes, plus accrued and unpaid interest to the repurchase date of July 27, 2012 (the “Convertible Notes Redemption”). In Fiscal 2012, substantially all of the Charming Convertible Notes were redeemed for $139.6 million, consisting of $139.2 million of principal and $0.4 million of interest thereon. No gain or loss was recognized in connection with the Convertible Notes Redemption. The Convertible Notes Redemption was funded through available cash on hand.

As of July 27, 2013, $0.6 million aggregate principal amount of Charming Convertible Notes remain outstanding and such notes are no longer convertible into Charming Shoppes’s common stock.

In connection with the Charming Shoppes Acquisition, the Company also settled related common stock warrants, which were historically entered into by Charming Shoppes as a hedge against the potential dilution related to the Charming Convertible Notes, for an aggregate cost of $5.3 million. The settlement of the warrants was funded through available cash on hand. No gain or loss was recognized in connection with the settlement of the common stock warrants.

Greencastle Mortgage

In connection with the Charming Shoppes Acquisition, the Company assumed a $7.8 million mortgage obligation (the “Greencastle Mortgage”) on Charming Shoppes’s owned distribution center in Greencastle, Indiana. The Greencastle Mortgage bore interest at a fixed rate of 6.07%. During the second quarter of Fiscal 2013, the Company prepaid the outstanding principal balance of the Greencastle Mortgage in full. The payment of $8.4 million resulted in a $0.8 million pretax loss on extinguishment of debt, relating to a make-whole premium to holders of the mortgage note, which has been disclosed as a component of the Loss on extinguishment of debt on the face of the accompanying audited consolidated statements of operations.

Common Stock Repurchase Program

In Fiscal 2010, the Company’s Board of Directors authorized a $100 million share repurchase program (the “2010 Stock Repurchase Program”). This program was then expanded in Fiscal 2011 to cover an additional $100 million of authorized purchases. Under the 2010 Stock Repurchase Program, purchases of shares of common stock may be made at the Company’s discretion from time to time, subject to overall business and market conditions.

No shares of common stock were repurchased by the Company under its repurchase program during Fiscal 2013. In Fiscal 2012, 2.7 million shares of common stock were repurchased by the Company at an aggregate cost of $37.2 million under its repurchase program. In Fiscal 2011, 5.0 million shares of common stock were repurchased by the Company at an aggregate cost of $72.9 million under its repurchase program. Repurchased shares normally are retired and treated as authorized but unissued shares.

The remaining availability under the 2010 Stock Repurchase Program was approximately $89.9 million at July 27, 2013.

CONTRACTUAL AND OTHER OBLIGATIONS

Firm Commitments

The following table summarizes certain of the Company's aggregate contractual obligations as of July 27, 2013, and the estimated timing and effect that such obligations are expected to have on the Company's liquidity and cash flows in future periods. The Company expects to fund the firm commitments with operating cash flow generated in the normal course of business and, if necessary, availability under its Revolving Credit Agreement or other potential sources of financing.

The following is a description of the Company's material, firmly committed contractual obligations as of July 27, 2013:

Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $28.4 million as of July 27, 2013. This liability for unrecognized tax benefits has been excluded from the above table because the Company cannot make a reliable estimate of the period in which the liability will be settled, if ever.

The above table also excludes the following: (i) non-debt related amounts included in current liabilities in the consolidated balance sheet as of July 27, 2013, as these items will be paid within one year; and (ii) non-current liabilities that have no cash outflows associated with them (e.g., deferred revenue) or the cash outflows associated with them are uncertain or do not represent a "purchase obligation" as the term is used herein (e.g., deferred taxes and other miscellaneous items).

The Company also has certain contractual arrangements that would require it to make payments if certain circumstances occur. See Notes 17 and 19 to the accompanying audited consolidated financial statements for a description of the Company's contingent commitments not included in the above table, including obligations under employment agreements.

Off-Balance Sheet Arrangements

The Company's off-balance sheet firm commitments, which include outstanding letters of credit and private label letters of credit, amounted to approximately $63.8 million as of July 27, 2013. The Company does not maintain any other off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect on its results of operations, financial condition and cash flows.

MARKET RISK MANAGEMENT

The Company is exposed to a variety of market-based risks, representing our potential exposure to losses arising from adverse changes in market rates and prices. These market risks include, but are not limited to, changes in foreign currency exchange rates relating to our expanding Canadian and other international operations, changes in interest rates, and changes in both the value and liquidity of our cash, cash equivalents and investment portfolio. Consequently, in the normal course of business, we employ a number of established policies and procedures to manage such risks, including considering, at times, the use of derivative financial instruments to hedge such risks. However, as a matter of policy, we do not enter into derivative financial instruments for speculative or trading purposes. As of the end of Fiscal 2013, the Company did not have any outstanding derivative financial instruments.

Foreign Currency Risk Management

We currently do not have any significant risks to the fluctuation of foreign currency exchange rates. Purchases of inventory for resale in our retail stores and e-commerce operations normally are transacted in U.S. dollars. In addition, our wholly owned international retail operations represent approximately 1% of our consolidated revenues for Fiscal 2013. In the future, as our international operations continue to expand, we would consider the use of forward foreign currency exchange contracts to manage any significant risks to changes in foreign currency exchange rates.

Interest Rate Risk Management

Our Company currently has $135.0 million in variable-rate debt outstanding under our Revolving Credit Agreement. Accordingly, we remain subject to changes in interest rates. For each 0.125% increase or decrease in interest rates, the Company’s interest expense would increase or decrease by approximately $0.2 million, and net income would decrease or increase, respectively, by approximately $0.1 million. See Note 14 to our audited consolidated financial statements for a summary of the terms and conditions of our Revolving Credit Agreement.

Investment Risk Management

As of July 27, 2013, our Company had cash and cash equivalents on-hand of $186.4 million, a portion of which was invested in money market funds. The Company's short-term investments of $3.0 million consisted entirely of restricted cash.

We maintain cash deposits and cash equivalents with well-known and stable financial institutions; however, there were significant amounts of cash and cash equivalents at these financial institutions in excess of federally insured limits at the end of Fiscal 2013. This represents a concentration of credit risk. With the current financial environment and the instability of some financial institutions, we cannot be assured we will not experience losses on our deposits in the future. However, there have been no losses recorded on deposits of cash and cash equivalents to date.

CRITICAL ACCOUNTING POLICIES

The SEC's Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies" ("FRR 60"), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to the Company's results of operations and financial position and requires significant judgment and estimates on the part of management in its application. The Company's estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. The Company believes that the following list represents its critical accounting policies as contemplated by FRR 60. For a discussion of all of the Company's significant accounting policies, see Notes 3 and 4 to the accompanying audited consolidated financial statements.

Inventories

Inventory is valued using the retail method of accounting and is stated at the lower of cost, on a First In, First Out (“FIFO”) basis, or market. Under the retail inventory method, the valuation of inventory at cost and resulting gross margin are calculated by applying a calculated cost to retail ratio to the retail value of inventory. The retail inventory method is an averaging method that has been widely used in the retail industry due to its practicality. Inherent in the retail method are certain significant management judgments and estimates including, among others, initial merchandise markup, markdowns and shrinkage, which can significantly impact the ending inventory valuation at cost as well as the resulting gross margins.

The Company continuously reviews its inventory levels to identify slow-moving merchandise and necessary markdowns to clear slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements may differ from actual results due to changes in quantity, quality and mix of products in inventory, as well as changes in consumer preferences, market and economic conditions. The Company’s historical estimates of these costs and its markdown provisions have not differed materially from actual results.

Reserves for inventory shrinkage, representing the risk or physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts.

Sales Returns Reserves

A significant area of judgment affecting reported revenue and net income is estimating product return reserves, which represent that portion of gross revenues not expected to be realized. In particular, retail revenue, including e-commerce sales, is reduced by estimates of returns.

In determining estimates of returns, management analyzes historical trends, seasonal results, current economic and market conditions and store performance. The Company reviews and refines these estimates on a quarterly basis. The Company's historical estimates of these costs have not differed materially from actual results.

Impairment of Goodwill and Other Intangible Assets

Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and such indefinite-lived intangible assets are assessed for impairment at least annually based on comparisons of their respective fair values to their carrying values. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable.

Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is to identify potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and performance of the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value was the purchase price paid to acquire the reporting unit.