UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

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

For the transition period from                      to                     

Commission File Number: 1-14987

(Exact name of Registrant as specified in its charter)

Delaware		31-1333930
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

Registrant’s telephone number, including area code 614-775-3500

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

Title of each class		Name of each exchange on which registered
Common Shares, $.01 par value		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

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. þ Yes o 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. o Yes þ No

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. þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant at August 2, 2008 was $338,073,973. There were 24,820,850 shares of the Registrant’s common stock outstanding at March 25, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our proxy statement for the Annual Meeting of Stockholders scheduled for May 21, 2009 are incorporated by reference into Part III.

 

 

TWEEN BRANDS, INC.

TABLE OF CONTENTS

PART I
Item 1. Business			4
Item 1A. Risk Factors			10
Item 1B. Unresolved Staff Comments			18
Item 2. Properties			18
Item 3. Legal Proceedings			20
Item 4. Submission of Matters to a Vote of Security Holders			20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			21
Item 6. Selected Financial Data			23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			44
Item 8. Financial Statements and Supplementary Data			45
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			73
Item 9A. Controls and Procedures			74
Item 9B. Other Information			77
PART III
Item 10. Directors, Executive Officers and Corporate Governance			78
Item 11. Executive Compensation			78
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			78
Item 13. Certain Relationships and Related Transactions, and Director Independence			78
Item 14. Principal Accounting Fees and Services			78
PART IV
Item 15. Exhibits, Financial Statement Schedules			79
SIGNATURES			83
Exhibit 10.29
Exhibit 21
Exhibit 23.1
Exhibit 24
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

(This Page Intentionally Left Blank)

PART I

Item 1. Business.

The Company

Tween Brands, Inc. (referred to herein as “Tween Brands,” the “Company,” “we,” “our” or “us”; formerly “Too, Inc.”) is the operator of two specialty retailing brands: Limited Too and Justice. Both of our brands target girls who are ages 7 to 14 (“tweens”). We were established in 1987 and, prior to our August 1999 spin-off, were a wholly-owned subsidiary of Limited Brands, Inc. (“Limited Brands”), formerly The Limited, Inc. In connection with the spin-off, we entered into various agreements regarding certain aspects of our relationship with Limited Brands, some of which are ongoing to this day. Since the spin-off, we have operated as an independent, separately traded, public company, currently traded on the New York Stock Exchange under the symbol “TWB”. In July 2006, we changed our corporate name from Too, Inc. to Tween Brands, Inc. to better reflect our identity and our dedication to serving tweens.

Our History

Limited Too was established in 1987 as a department within the “The Limited” division of Limited Brands. At various times during our initial years of operations we sold apparel for young girls, toddlers and infants, eventually emerging as a stand-alone division of Limited Brands. By 1996 the brand had expanded from the two original stores to 288 stores. That same year, a new management team led by our current Chief Executive Officer and Chairman of the Board of Directors, Michael Rayden, recognized that tweens had their own emerging sense of style. The management team revised the strategy to focus solely on young girls, ages 7 to 14, as our target customer group.

In 2004, Tween Brands expanded into the international marketplace. We formed a relationship with Alshaya Trading Co. WLL., a leading name in international retailing, to operate stores in Kuwait, United Arab Emirates, Jordan, Qatar Bahrain and the Kingdom of Saudi Arabia. In 2007, we entered into a new relationship with Family Invest AB, to operate stores in Scandinavia. In 2008, we formed a relationship with Moneks, to operate stores in Russia.

We opened our first Justice store in January of 2004 in Columbus, Ohio at the Polaris Town Center. Justice is similar to Limited Too in quality, style and target customer, but at a lower price point, which appeals to our more value-conscious customers.

In August 2008 we announced our plan to transition our Limited Too stores to our more value-oriented Justice store brand in order to drive growth and profitability. As of January 31, 2009, all of our international partners have agreed to transition to the Justice store brand.

Our Girl

The number one focus at Tween Brands is our girl. Obtaining a thorough understanding of her wants and needs is essential to our continued success. Our customers are active, creative and image-conscious girls. They enjoy shopping and describe themselves as “fun” and “cool.” They want a broad assortment of merchandise to complement their ever-changing personalities and schedules. As such, we continually update our assortments for our girl, which include clothes for school and special occasions or just lounging with her friends in her room. We also offer her an array of non-apparel merchandise, such as jewelry, toiletries, cosmetics, electronics, toys, games and candy — basically, anything she views as part of her world.

Over the past 20 years, we have gathered a significant amount of information pertaining to the households where our girl lives. We maintain this information in a database and use it to better serve our girl and her mom by delivering creative and intriguing offers to them throughout the year. We target these households with direct mailers, including catazines and postcards, in an effort to stimulate interest and generate future purchases.

Our Brands

Limited Too was our original brand consisting of high quality apparel, accessories, footwear, lifestyle, licensed electronics and girlcare products for fashion-aware, trend-setting tween girls. While our stores will be converting to the Justice brand, a select number will still offer Limited Too merchandise.

Beginning February 1, 2009, Justice became our primary specialty retail store brand offering fashionable sportswear, key accessories, lifestyle items and select Limited Too merchandise for tween girls. Justice celebrates tween girls at a more value-conscious price point and contains a large proportion of basic items, as well as the latest fashions for our girl.

Justice merchandise includes:

•

apparel, such as jeans and other pants, skirts, shorts, knit tops, graphic tee shirts, dresses and outerwear;

•

accessories, such as bags, belts, hats, coin purses, backpacks, jewelry, hair ornaments, and legwear;

•

footwear, such as casual shoes, boots, flip flops and slippers;

•

lifestyle products, such as bedroom furnishings, music, stationary, candy, party favors, electronics and web based toys;

•

swimwear, underwear, bras and sleepwear; and

•

select Limited Too merchandise.

We also maintain a website, www.shopjustice.com, to offer our girls another alternative to in-store shopping. A product assortment similar to the one carried at our stores, with the addition of web-only styles, can be purchased through this website.

Conversion to One Brand

During the third fiscal quarter in 2008, we announced plans to convert all Limited Too stores across the country to our more value-oriented Justice store brand. Following several years of record growth and earnings, fiscal 2007 began to show signs of the challenges ahead and the results for the first and second fiscal quarters of 2008 confirmed our need for change. Our results for the year were impacted by negative comparable store sales at Limited Too and an overall inability to leverage increasing costs in this sluggish economy. Our infrastructure had been strained by the duplicative costs associated with the task of differentiating our two brands — both of which were selling to essentially the same customer. We also believed that the highly challenging conditions of today’s current economic environment would persist for the foreseeable future, causing customers to put value at the top of their list of key factors when deciding where to shop. Therefore, we made the decision to convert all U.S. stores to Justice and to eliminate the redundant costs associated with maintaining both the Limited Too and Justice store brands. As we continue to see our moms struggle to respond to their daughters’ needs in this tough economy, we are confident that switching to the Justice brand is the appropriate course for the future success of Tween Brands.

By converting to a single store brand, we intend to streamline operations and maximize cost savings while still remaining our girls’ favorite place to shop. We have already combined the strong talent we had at Limited Too and Justice into one team to support our brands and now the new Justice will offer the best that both brands have to offer. We plan to combine the quality and value-priced offerings consistently found at Justice with the hottest, fashion-forward apparel offerings found at Limited Too. The price points will be at the historic Justice price range with the exception of the Limited Too branded offerings that will be found at our stores and through our e-commerce site. We realize that converting Limited Too customers to the Justice brand is paramount. We are confident in our ability to be successful in this conversion because we listened closely to our customers and believe this shift was necessary to address their needs.

Throughout the conversion, our approach to attract and retain customers will include point-of-sale events, continuation of our loyalty programs, web-based communications and the use of our direct marketing campaigns. In January 2009, we used our catazines to communicate with our customers. These catazines told our Limited Too customers that Limited Too is now Justice and that we are transforming the style, sophistication and quality she knows and loves into the Justice brand to offer her better value. To our Justice customers, we communicated that the Justice brand will now be offering even more great style, fashion and quality for less and will be in many more locations. In February, we held a brand launch party which included 40% off the entire store, gifts for the girls, purchase-with-purchase offerings and an exciting sweepstakes opportunity. Tween girls love parties and we are going to do everything we can to generate excitement in the stores for the girls.

Amended Credit Facility

On February 23, 2009, we amended the terms and conditions of our credit facility to provide for an easing of the original leverage and coverage ratio financial covenants. Additionally, the facility will become secured by our assets and the undrawn revolving credit facility will be reduced from $100.0 million to a maximum of $50.0 million.

Pricing of the facility has been adjusted to reflect current market rates, resulting in an increase to LIBOR plus margin of 350 basis points from the previous margin of 80 basis points. Additionally, our annual capital investment levels, net of tenant allowances, are governed by the amendment, and we are restricted from paying dividends and repurchasing our own common stock.

While the maturity date of the facility remains at September 12, 2012, the Company is required to make monthly principal payments on the outstanding term loan in the amount of $500,000 payable on the last business day of February through December of each year beginning February 27, 2009. Consistent with the original term loan repayment schedule, the Company is required to make an $8.8 million principal payment at the end of each fiscal year commencing on or about January 29, 2010.

International

As of January 31, 2009, we had international franchise stores located in the following countries:

Geographic Location		Number of Stores
Kingdom of Saudi Arabia			18
United Arab Emirates			6
Kuwait			4
Qatar			2
Bahrain			1
Jordan			1
Russia			2
Sweden			1
Total			35

Product Development

We develop substantially all of our Limited Too and Justice brand apparel and add-on assortment through internal design groups. This allows us to create a vast array of exclusive merchandise under our proprietary brands, while bringing our products to market expediently. Additionally, our current season merchandise is sold exclusively in our stores to control the presentation and pricing of our merchandise while providing a high level of customer service.

Sourcing

Merchandise is sourced through external sourcing partners and vendors as well as Tween Brands’ own Asia-based sourcing offices. During fiscal 2008, we purchased merchandise from approximately 250 suppliers, down from approximately 270 in fiscal 2007. Our largest external supplier is Li & Fung Limited, which provided 16% of all merchandise purchases in fiscal 2008, an increase from 14% in fiscal 2007. Our next largest external supplier, Ganz, Inc., the supplier of Webkinz^™ products, supplied 9% of all merchandise purchased in fiscal 2008, up from 5% in 2007. Mast Industries, Inc., also supplied 9% of all merchandise purchases in fiscal 2008, a decrease from 12% in fiscal 2007.

Tween Brands’ two direct sourcing offices supplied 29% of our total purchases in fiscal 2008, as compared to the 25% penetration achieved in fiscal 2007. The offices located in Hong Kong and South Korea — established in 2002 and 2006, respectively — engage in the contract manufacturing of both apparel and non-apparel merchandise. In fiscal 2009, our goal is to continue to increase our direct sourcing penetration to source as much as 60% of total merchandise purchases. To accomplish this goal, the offices will continue to target core merchandise categories and ensure our sourcing base provides a cost-effective, quality product that is competitive with the external suppliers. We feel we have a good mix of internal and external sourcing to enable us to keep our product costs at our desired level, while retaining the benefits and flexibility of external sourcing relationships.

We source a significant amount of our merchandise from foreign contract manufacturers and importers located primarily in the Pacific Rim. We do not have long-term merchandise supply contracts, and most of our imports are subject to existing or potential duties, tariffs or quotas that may limit the quantity of goods which may be imported into the United States from countries in that region. Additionally, as we may enter into contracts in advance of the selling season, we are subject to shifts in demand for our products. Our business is subject to a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad, such as political instability, currency and exchange risks, local business practices and other political issues.

Distribution

We operate our own 470,000 square foot distribution center in Etna Township, Ohio. We distribute all of our store merchandise from this center. Over the last several years, we have upgraded and expanded the automation within the distribution center to support store growth, improve efficiencies and defer future expansion. For our direct channel business, we utilize a third party service provider to fulfill orders and ship merchandise to our online and catazine customers.

Inventory Management

Our approach to inventory management emphasizes rapid turnover of a broad assortment of merchandise and taking markdowns to keep merchandise fresh and current with fashion trends. Our policy is to maintain sufficient quantities of inventory on hand in our retail stores and distribution center in order to offer customers a full selection of current merchandise.

Seasonality

The retail apparel market has two principal selling seasons, spring (the first and second quarters) and fall (the third and fourth quarters). As is generally the case in the apparel industry, we experience our peak sales activity during the fall season. This seasonal sales pattern results in increased inventory during the back-to-school and holiday selling periods. During fiscal 2008, the highest inventory level was $137.5 million at October month-end and the lowest inventory level was $83.2 million at December month-end driven by an aggressive fourth quarter promotional cadence to move units allowing for a cleaner transition to the single store brand, Justice.

Stores

At the end of fiscal 2008, we operated 914 stores, 34% of which are less than three years old. Our stores feature furniture, fixtures, lighting and music to create a shopping experience matching the energetic lifestyle of our girl. In order to keep the store atmosphere fresh, we reassess the layouts of our stores and reinvest in new formats to better highlight our merchandise. The table below shows the number of Limited Too and Justice retail stores we operated over the past five fiscal years:

		Fiscal Year
		2008				2007				2006				2005				2004
Number of stores:
Beginning of year			842				722				666				603				558
Opened			92				140				79				70				55
Closed			(20	)			(20	)			(23	)			(7	)			(10	)
End of year			914				842				722				666				603
Stores remodeled			26				33				34				25				20
Total square feet at period end (thousands)			3,824				3,510				3,006				2,777				2,495
Average store size at period end (gross square feet)			4,184				4,169				4,163				4,170				4,138
Number of Limited Too stores (1)			576				582				563				574				568
Number of Justice stores (1)			338				260				159				92				35

Additional information about our business, including revenues and profits for the last three years, is set forth under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7.

Trademarks and Service Marks

We own trademarks and service marks, including “Justice”, used to identify our merchandise and services. Many of these marks are registered with the U.S. Patent and Trademark Office. These marks are important to us, and we intend to, directly or indirectly, maintain and protect these marks and their registrations. However, we may choose not to renew a registration of one or more of our merchandise marks if we determine that the mark is no longer important to our business.

A wholly-owned subsidiary of Limited Brands owns the brand name “Limited Too,” which is registered in the United States and in numerous foreign countries. In connection with the spin-off, this subsidiary licenses the brand name, royalty-free, to one of our wholly-owned subsidiaries, which allows us to operate under the “Limited Too” brand name. Under the terms of the agreement, the license is renewable annually at our option.

We conduct business in foreign countries, principally because a substantial portion of our merchandise is manufactured outside the United States. We have registered marks 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.

Competition

The sale of apparel, accessories and girlcare products through retail stores and e-commerce channels is a highly competitive business with numerous participants, including individual and chain fashion specialty stores, department stores, discount retailers and direct marketers. Depth of selection, colors and styles of merchandise, merchandise procurement and pricing, ability to anticipate fashion trends and customer preferences, inventory control, reputation, quality of merchandise, store design, store location, advertising and customer services are all important factors in competing successfully in the retail industry. Additionally, factors affecting consumer spending such as interest rates, employment levels, taxation and overall economic conditions can materially affect our results of operations and financial condition.

Associate Relations

As of March 25, 2009, we employed approximately 12,200 associates (none of whom were parties to a collective bargaining agreement), approximately 8,850 of whom were part-time. Our staffing levels vary throughout the year with our peak periods being the back-to-school and holiday periods during the fall.

Being Tween

We understand it takes integrity, dedication and a commitment to excellence to form the foundation that will drive the success of our future plans. In order to reinforce these characteristics, we continue to expect our associates to subscribe to the following five specific values that demonstrate what it means to be part of Tween Brands:

Be Focused — our customer must come first in everything we do;

Be Driven — all of us need to set goals, aggressive goals, and perform at a consistently high level in order to achieve them;

Be Creative — we should encourage innovation and support other associates in their creative pursuits;

Be Ethical — always, always do the right thing;

Be Balanced — life is not a dress rehearsal. We must remember to have fun, enjoy life and not forget to take care of ourselves.

By adopting these five values, our associates display the culture and traditions of our organization to our customers, our shareholders, our community and each other.

Available Information

We provide free of charge access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, through our website, www.tweenbrands.com, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. These reports are also available through the Securities and Exchange Commission website at www.sec.gov. We also post on our website, under the caption “Corporate Governance,” our Corporate Governance Principles; the Charters of our Board of Directors’ Audit Committee, Nominating and Governance Committee, and Compensation Committee; the Charter of our Lead Independent Director; the Code of Ethics for Senior Financial Officers; and the Code of Business Conduct and Ethics, which applies to all of our directors and associates. These materials will also be provided without charge to any shareholder submitting a written request to Tween Brands, Inc., Attn: Investor Relations, 8323 Walton Parkway, New Albany, Ohio 43054.

The certifications of our Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as Exhibits 31.1, 31.2, 32.1 and 32.2 to this annual report. We also filed without qualification with the New York Stock Exchange (“NYSE”) in 2008 the required certificate of our Chief Executive Officer certifying he was not aware of any violation by Tween Brands, Inc. of the NYSE corporate governance listing standards. On March 6, 2009, we received notification from the NYSE stating that the Company currently does not satisfy one of the NYSE’s continued listing standards. The NYSE noted specifically that the Company is “below criteria” because its average total market capitalization was less than $75 million over a 30 trading-day period. The Company has notified the NYSE of our intent to submit a plan that demonstrates how we will become compliant with continued listing standards within the required 18-months from receipt of the March 6, 2009 letter.

We have included our website addresses throughout this filing as textual references only. The information contained on these websites is not incorporated into this Form 10-K.

Fiscal Year Definitions

Our accounting period is based on a retail calendar with our fiscal year ending on the Saturday closest to January 31. Periodically, this results in a fiscal year including 53 weeks. The table below summarizes the number of weeks in each respective fiscal year, as well as the designation of fiscal years in the financial statements and notes.

				Number of weeks
Fiscal Year		Period Ending		in Fiscal Year
2008		January 31, 2009		52 weeks
2007		February 2, 2008		52 weeks
2006		February 3, 2007		53 weeks
2005		January 28, 2006		52 weeks
2004		January 29, 2005		52 weeks

Item 1A. Risk Factors.

The information contained or incorporated by reference in this Form 10-K contains various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other applicable securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “target,” “believe,” “intend,” “expect,” “hope,” “risk,” “could,” “plan,” “pro forma,” “potential,” “predict,” “prospects,” “outlook,” “forecast” or similar words. These statements discuss future expectations, contain projections regarding future developments, operations or financial conditions or state other forward-looking information. These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results for 2009 and beyond to differ materially from those expressed in the forward-looking statements.

The following factors, among others, could affect our future financial performance and cause actual future results to differ materially from those expressed or implied in any forward-looking statements included in this Form 10-K:

We may not be able to grow or maintain comparable store sales

Our comparable store sales performance has fluctuated in the past on a monthly, quarterly and annual basis and is expected to fluctuate in the future. A number of factors have historically affected, and are expected to continue to affect, our comparable store sales results, including:

•

economic conditions;

•

weather conditions;

•

changing fashion trends;

•

competition;

•

customer response to our conversion to the Justice store brand;

•

depth of our promotional activities;

•

new store openings in existing markets;

•

store remodeling and expansions;

•

customer response to our marketing programs;

•

procurement and management of merchandise inventory; and

•

development and growth of our Justice brand.

As a result of these factors, we may not achieve comparable store sales growth or we may have comparable store sales decline in the future. As comparable store sales are an important measurement, our common stock price may be materially affected by fluctuations in our comparable store sales performance.

We must identify and respond to fashion and lifestyle trends and satisfy customer demands in order to continue to succeed

Our success depends, in part, on our ability to anticipate the desired fashion and lifestyle trends of our customers and offer merchandise which appeals to them on a timely and affordable basis. We expect our customers’ desired fashion and lifestyle needs to change frequently. If we are unable to successfully anticipate, identify or react to changing styles or trends, our sales may be adversely affected and we may have excess inventories. In response, we may be forced to increase our marketing promotions, or take higher than planned markdowns, which could reduce our operating income. Our brand image may also suffer if our customers believe our merchandise misjudgments indicate we are no longer able to offer them the latest fashion and lifestyle products.

We may be unable to compete successfully in our highly competitive segment of the retail industry

The tween retail apparel and accessories industry is highly competitive. We compete with national and local department stores, specialty and discount store chains, independent retail stores and internet businesses that market similar lines of merchandise. We also compete with direct marketers who, like us, target customers through catalogs, internet shopping capabilities and other distribution channels. At any time, new competitors may enter the market. Increased competition could result in pricing pressures, increased marketing expenditures and loss of our market share, all of which could have a material adverse effect on our financial condition and results of operations and cash flows.

Some of our competitors may have greater financial, marketing and other resources available to them. In many cases, our primary competitors are located in the same shopping centers as our stores thereby offering an alternative shopping experience to our customer, and in addition to competing for sales, we compete for favorable site locations and lease terms.

We depend on a high volume of mall and power center traffic to generate sales

Our stores are located in both shopping malls and power centers. Our sales depend, in part, on the high volume of traffic in those shopping areas. Our stores benefit from the traffic generated by the shopping area’s anchor tenants, generally large department and specialty stores. Mall and power center traffic, and consequently our sales volume, may be adversely affected by economic downturns in a particular area, competition from other retailers, success of retail centers where we do not have stores, and the closing of anchor tenants. In addition, a decline in the desirability of the shopping environment in a particular mall or power center or an overall decline in the popularity of mall and power center shopping among our target consumers could adversely impact mall or power center traffic. To the extent we experience a decline in traffic, our sales could decrease, and result in a decrease in our operating income.

Expansion into new and existing markets creates challenges

Expansion into new and existing markets may present competitive, design and distribution challenges that differ from our current challenges. These challenges include competition among our stores, diminished novelty of our store design and concept, added strain on our distribution center and additional information to be processed by our information systems. New stores in new markets, including international markets, where we are less familiar with the target customer and our brands are less well-known, may face different or additional risks and increased costs compared to stores operated in existing markets. Expansion into new markets could bring us into direct competition with retailers with whom we have no past experience as direct competitors. To the extent that we are not able to overcome these new challenges, our sales could decrease and our operating costs could rise.

Effectiveness of store remodels is unpredictable

In order to maintain a fresh, clean and positive shopping environment for our target customers, we periodically remodel a portion of our existing stores. The desired effects of a store remodel include increased store traffic and sales. The long term effect of a particular store remodel can not be precisely predicted. Additionally, a remodel may cause a short-term disruption to our business at a particular location.

The market for prime real estate is competitive

In order to optimize profitability, our strategy requires securing desirable retail lease space and opening stores in new and existing markets. We must choose store sites, execute favorable real estate transactions on terms that are acceptable to us, hire competent personnel and effectively open and operate these new stores. Plans to open new retail stores will depend in part on the availability of suitable store sites. Real estate costs and acquisition, construction and development costs could also impact our ability to open new retail stores.

Our future success depends upon brand awareness and the effectiveness of our marketing programs

Our future success depends upon our ability to effectively define, evolve and promote our brands. In order to achieve and maintain significant brand name recognition, we will need to invest in the development of our brands through various means, including customer research, advertising and promotional events, direct mail marketing, internet marketing and other measures. Certain external costs may be subject to price fluctuations such as increases in the cost of mailing, paper or printing catazines and other direct mail promotions. We can provide no assurance that the marketing strategies we implement and the investments we make will be successful in building significant brand awareness or attracting new customers.

Our licensed Limited Too and registered Justice brands are integral to our brand strategy

We currently license the Limited Too brand name and have a federal registration for the Justice trademark and other trademarks in the United States. We have also applied for or obtained numerous other registrations in the United States and internationally, including a registration for Justice in most of the foreign countries in which our vendors are located.

We cannot be assured that the registrations we have applied for or obtained will be adequate to prevent the imitation of our products or the infringement or challenge of our intellectual property rights by others. If a third party imitates our products, consumers may be confused and the third party may gain sales at our expense. If any such products are manufactured or marketed in a manner projecting lesser quality or carries a negative connotation, our brand image could be adversely affected.

In addition, our right to utilize the Limited Too brand is governed by an exclusive trademark and service mark licensing agreement with Limited Brands. The agreement is renewable annually, at our option. In return, we are required to provide Limited Brands with the right to inspect our stores and distribution facilities and to review our advertising. Limited Brands has the right to terminate the agreement under certain circumstances, specifically if:

•

we breach any of our obligations under the agreement and do not cure the breach within 60 days after receiving notice of the breach;

•

we become bankrupt or insolvent; or

•

we experience a change of control.

The agreement also restricts the way in which we use the licensed brand in our business. We may only use the brand name “Limited Too” in connection with any business in which we sell to our target customer group. Although we currently market only to tweens, our licensing agreement allows us to market to infants and toddlers as well.

If in the future we are unable to use the Limited Too brand, we will be forced to change our brand name used on some of our merchandise. Because a portion of our merchandise is currently sold under the Limited Too label, a name change might cause confusion for our customers and adversely affect our brand recognition and our sales. We may need to expend substantial resources, which we cannot estimate at this time, to produce new merchandise and to establish brand recognition.

Talented personnel are critical to our success

Our continued success depends, to a significant degree, upon the services of our key personnel, particularly our senior executive officers and merchandising and design personnel. The loss of any of our key personnel could impact our ability to bring desirable products to market or effectively manage our internal operations. Such a loss could reduce future revenues, increase costs, or both. Our success in the future will also depend upon our ability to attract, develop and retain talented and qualified personnel.

We may not be able to sustain a growth rate consistent with our past and this could impact our ability to implement our business strategy

There is a risk that we may not be able to sustain our growth at a rate consistent with our past. Our future business prospects depend upon a number of factors, including our ability to:

•

convert former Limited Too customers to Justice;

•

find suitable markets and sites for our stores and negotiate leases on acceptable terms for those stores;

•

fulfill our plans to open new stores and remodel or expand existing stores;

•

continue to develop our sales channels, including our direct-to-consumer operations;

•

identify suitable franchise operators for our international expansion initiative;

•

maintain sufficient infrastructure to accommodate our business strategy, including maintaining high levels of customer service;

•

attract, train and retain qualified sales associates;

•

manage our inventory effectively, maintain sufficient distribution capacity and deliver our merchandise in a timely manner;

•

keep up with constantly shifting fashion trends and develop new and appealing merchandise; and

•

maintain continued success for our Justice brand.

We may require substantial capital expenditures to implement our business strategy, in particular the opening of new stores and/or remodeling or expansion of existing stores. If we do not generate sufficient cash flow from operations or if we are unable to obtain sufficient financing under our credit facility or from other sources on acceptable terms, we may be required to reduce our planned capital expenditures, which could have a material adverse effect on our growth prospects.

There would be risks associated with launching and maintaining a new concept

As we continue to grow our business, we may take advantage of certain opportunities created by the development of new brand concepts. The ability to succeed in any potential new concept requires significant capital expenditures and management attention. Potential new concepts are subject to certain other risks including:

•

customer awareness and acceptance of the new brand and its products;

•

competition, both external and internal;

•

product and brand differentiation among our already-existing brands; and

•

the ability to attract, develop and retain qualified personnel including management and designers.

We can provide no assurance that we will develop a new concept or, if we do, that the new concept will grow or become profitable. If we attempt to develop and grow a new brand and do not succeed, this could adversely impact the continued success of our existing brands and our results of operations and cash flows.

Our business fluctuates on a seasonal basis

We experience seasonal fluctuations in our sales and operating income, with a disproportionate amount of our sales and operating income typically realized during our fourth quarter due to sales during the holiday shopping period. We also generate significant sales during the back-to-school period in the third quarter.

Seasonal fluctuations also affect our inventory levels. We typically order merchandise in advance of the peak selling periods and often before new fashion trends are confirmed by customer purchases. As such, we carry a significant amount of inventory before the holiday and back-to-school selling periods. Inaccurate forecasting and changing customer buying behaviors may result in excess inventory, which may lead to markdowns and inventory valuation adjustments.

We rely on a single distribution center

We rely on one distribution center to receive, store and distribute merchandise to all of our stores. Any significant interruption in the operation of the distribution center due to natural disasters and severe weather, as well as events such as fire, accidents, power outages, system failures or other unforeseen causes could damage a significant portion of our inventory. These factors may also impair our ability to adequately stock our stores and process returns of products to vendors and could ultimately increase our costs associated with our supply chain.

We rely on foreign sources of production

We do not own or operate any manufacturing facilities directly. We depend on independent third parties for the manufacture of all of our merchandise. We source a large majority of our merchandise from foreign factories located primarily in East and Southeast Asia. We do not have any long-term merchandise supply contracts and purchase merchandise in U.S. dollars. We compete with many other companies for production facilities and import quota capacity. Many of our imports are subject to existing or potential duties, tariffs or quotas that may limit the quantity of goods which may be imported into the United States from countries in that region. Changes in U.S. customs regulations may also occur unexpectedly and result in an overall increase in the cost of imported merchandise which may negatively impact our gross margins.

Our business also faces a variety of other risks generally associated with doing business in foreign markets and importing merchandise from abroad, including:

•

political instability;

•

currency and exchange risks;

•

local business practice and political issues, including issues relating to compliance with domestic or international labor standards;

•

changes in trade restrictions, duties, tariffs or quotas;

•

international health concerns;

•

potential delays or disruptions in shipping and related pricing impacts; and

•

inability to meet our quality standards.

Our future performance will depend upon these factors, which are beyond our control.

We source merchandise through our internal sourcing offices in Asia

Our offices in Asia engage in contract manufacturing, allowing us to bypass agents, brokers and middlemen and establish and develop direct relationships with manufacturers and reduce our sourcing costs. If we are unable to maintain these relationships, our selling margins may decrease which could negatively impact our profitability as a business. We intend to increase our direct sourcing efforts in the future; however, we can provide no assurance that this will happen or be profitable.

We utilize ports to import our products from Asia

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 through which our products are imported could have a material adverse effect on our results of operations and cash flows.

We are pursuing a strategy of international expansion

As of the end of the fiscal year, we had licensed stores in certain Middle Eastern and Scandinavian countries and Russia and intend to expand into other countries in the future. In addition to the general risks associated with doing business in foreign markets, as stated above, we run the risk of not being able to sustain our growth in these international markets or to penetrate new international markets in the future. As we penetrate these markets, there is increased risk of not fully complying with existing and future laws, rules and regulations of countries where we conduct business. As with any future business strategy, we can provide no assurance that our current and future international endeavors will be successful.

We will need to comply with existing and new laws and regulations that govern us

Various aspects of our operations are subject to federal, state or local laws, rules and regulations including, for example, the Sarbanes-Oxley Act of 2002 and the Internal Revenue Code. In addition, much of our merchandise is subject to various regulations promulgated by the U.S. Food and Drug Administration, the Federal Trade Commission and the U.S. Consumer Product Safety Commission. A significant change in the regulatory environment applicable to our operations or merchandise could increase our costs associated with compliance including increased product costs resulting from any new regulations. Further, if we expand our merchandise assortment or increase the number of our suppliers, it may become more difficult or costly to comply with existing and new regulations, which could reduce margins and profits.

We rely on our manufacturers to enforce ethical labor practices

We require our independent manufacturers to operate their businesses in compliance with the laws and regulations applicable to them. Our sourcing personnel periodically visit and monitor the operations of our independent manufacturers, but we have limited control over their business and labor practices. We also rely on an independent third party to periodically audit factories producing our goods. If an independent manufacturer violates or is suspected of violating labor laws or other applicable regulations, or if a manufacturer engages in labor or other practices divergent from those typically acceptable in the United States, we could, in turn, experience negative publicity or possible litigation. Negative publicity or legal actions regarding the production of our products could have a material adverse effect on our reputation, sales, business, and financial position.

Our business may be harmed if our computer network security is compromised

Despite our considerable efforts and technological resources to secure our computer network, security could be compromised and confidential information relating to our customers could be misappropriated or system disruptions could occur. This could lead to negative publicity, legal actions, loss of sales and profits or cause us to incur significant costs to reimburse third parties for possible damages.

We may be a party to legal proceedings that could result in unexpected outcomes and have an adverse effect on our financial condition or results of operations

From time to time, we are a party to legal proceedings, including matters involving employment issues and other proceedings arising in the ordinary course of business. In addition, we are a defendant in a purported class action lawsuit alleging, among other things, violations of federal securities laws. (See “Item 3. Legal Proceedings.”) We evaluate our exposure to these legal proceedings and establish reserves for the estimated liabilities, when appropriate, in accordance with generally accepted accounting principles (“GAAP”). Assessing and predicting the outcome of these matters involves substantial uncertainties. Although not currently anticipated by management, unexpected outcomes in these legal proceedings, or changes in management’s evaluations, could have a material adverse impact on our financial condition, results of operations or cash flows.

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

We have 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, financial condition, results of operations or cash flows.

We many not be able to comply with restrictions and covenants in our Amended Credit Facility

Our Amended Credit Facility contains certain financial covenants with which we are required to comply. These covenants require us to maintain certain coverage and leverage ratios, and also restrict our ability to incur additional debt, allow liens on our assets, pay or declare dividends or repurchase our common stock. Additionally, our annual capital investment levels are governed by the Amended Credit Facility. Our failure to comply with these covenants could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under the Amended Credit Facility and impair our ability to obtain working capital advances and letters of credit, which could have a material adverse effect on our financial condition, results of operations or cash flows.

We may be unable to service our debt

We may be unable to service the debt drawn under our Amended Credit Facility and/or any other debt we may incur. Additionally, the agreement related to such debt requires us to maintain certain financial ratios and limits our capital expenditures and the total amount we may borrow. The inability to service our debt could have a material adverse effect on our reputation, financial condition and results of operations, as well as affect our ability to borrow additional funds.

We may be adversely affected by the general economic conditions and the current financial crisis

Our performance and operating results are impacted by the relative condition of the U.S. and world economy. The macro-economic environment has been highly volatile due to a variety of factors, including but not limited to, the deterioration of the housing market, lack of credit availability, fuel and energy prices, unstable interest rates, inflation fears, unemployment concerns, increasing consumer debt, significant stock market volatility and recession. These economic conditions also impact levels of consumer spending, which have recently deteriorated significantly and may remain depressed for the foreseeable future. Consumer purchases of discretionary items, including our merchandise, generally decline during recessionary periods and other periods where disposable income is adversely affected. The downturn in the economy may continue to affect consumer purchases of our merchandise and adversely impact our results of operations. In addition, the current credit crisis is causing a significant negative impact on businesses around the world. The impact of this crisis on our major suppliers and service providers cannot be predicted. The inability of key suppliers and service providers to access liquidity, or the insolvency of key suppliers or service providers, could lead to their failure to deliver our merchandise or respective services. Any or all of these factors, as well as other unforeseen factors, could have a material adverse impact on consumer spending, our availability to get credit, our results of operations, liquidity, financial condition and stock price.

We may not be able to successfully convert Limited Too stores and customers to the Justice brand

Our future success largely depends on our ability to convert Limited Too stores in the United States and their customers to our Justice brand in a manner that is minimally disruptive and satisfies our customers’ demands. Our failure to anticipate, identify or react appropriately and in a timely manner to conversion-related issues could lead to customer attrition, lower sales, missed opportunities, excess inventories and increased markdowns, which could have a material adverse impact on our business.

The benefits expected from the brand conversion program may not be achieved or may take longer to achieve than expected

In August 2008, we announced a multi-year conversion program as part of a major drive to enhance profitability and improve overall operating effectiveness. The key elements of our conversion program include: converting Limited Too stores in the United States to our Justice brand, organizational streamlining, and reduced marketing and store operation expenses. The estimated costs and charges associated with the conversion program may vary materially based on various factors, including the timing in execution of the conversion plan; outcome of negotiations with landlords and other third parties; inventory levels; and changes in our assumptions and projections. As a result of these events and circumstances, delays and unexpected costs may occur, which could result in not realizing all or any of the anticipated benefits of the restructuring program.

We may recognize impairment on long-lived assets

Our long-lived assets, primarily stores, are subject to periodic testing for impairment. Store assets are reviewed using factors including, but not limited to, our future operating plans and projected future cash flows. Failure to achieve our future operating plans or generate sufficient levels of cash flow at our stores could result in impairment charges on long-lived assets, which could have a material adverse effect on our financial condition or results of operations.

Our common stock could be delisted from the New York Stock Exchange, which would adversely affect the liquidity and market price of our common stock

In addition to several other continued listing standards, the NYSE requires that issuers with securities listed on the NYSE, such as Tween Brands, maintain an average market capitalization, over a 30-day trading period, greater than $75.0 million. On March 6, 2009, the NYSE notified us that we were in not in compliance with this continued listing standard. We have 45 calendar days from receipt of the notice to respond to the NYSE’s non-compliance notification by submitting a business plan demonstrating how we will regain compliance with this standard within 18 months of receipt of the notice. We have notified the NYSE of our intent to submit a plan that demonstrates how we will become compliant with the above mentioned standard. If the NYSE does not accept the plan, we will be subject to suspension by the NYSE and delisting by the Securities and Exchange Commission. If the NYSE accepts the plan, we will be subject to quarterly monitoring for compliance with the plan. It is not certain that we would be able to successfully implement a plan within the 18-month time period allotted. Delisting would have an adverse effect on the liquidity of our common stock and, as a result, the market price of our common stock might be adversely affected.

Item 1B. Unresolved Staff Comments.

No such unresolved comments exist.

Item 2. Properties.

We own and operate our home office facilities in New Albany, Ohio and our distribution center in Etna Township, Ohio, which are approximately 15 miles apart. We own office space in Hong Kong and lease office space in Seoul, South Korea to support our international sourcing operations. Additionally, we acquired a 44-acre parcel of land adjacent to our home office in fiscal 2006 and completed a 60,000 square foot building addition connected to our existing New Albany, Ohio home office headquarters in late 2007.

As of January 31, 2009, we operated 914 stores, which are located primarily in shopping malls and off-mall power centers throughout the United States and leased directly from third parties. Our leases expire at various dates between 2009 and January 2020. In fiscal 2008, total store rent was $98.9 million. Minimum rent commitments under non-cancelable store leases as of January 31, 2009, totaled $93.8 million, $88.0 million, $81.7 million, $76.2 million and $70.6 million for fiscal years 2009 through 2013, respectively, and $215.1 million thereafter.

Typically, when space is leased for a retail store in a shopping center, all improvements, including interior walls, floors, ceilings, fixtures and decorations are supplied by the tenant. In certain cases, the landlord of the property may provide a construction allowance to fund all or a portion of the cost of improvements. The cost of improvements varies widely, depending on the size and location of the store. Lease terms are typically ten years and usually include a fixed minimum rent and, in certain cases, a contingent rent based on the store’s annual sales in excess of a specified amount. Certain operating costs such as common area maintenance, utilities, insurance and taxes are typically paid by tenants. Generally, occupancy expenses for traditional shopping malls are greater than those of off-mall power centers.

At January 31, 2009, we operated 914 stores in the United States and the commonwealth of Puerto Rico as shown below:

Geographic Location		Limited Too				Justice				Total
Texas			48				42				90
California			57				23				80
Florida			44				26				70
Pennsylvania			36				14				50
New York			29				16				45
Illinois			23				18				41
Ohio			22				19				41
New Jersey			21				15				36
Georgia			21				11				32
Michigan			20				12				32
North Carolina			15				11				26
Indiana			15				9				24
Tennessee			13				9				22
Virginia			15				7				22
Massachusetts			13				8				21
Missouri			12				7				19
Arizona			7				11				18
Alabama			10				7				17
Maryland			14				3				17
Colorado			9				7				16
Connecticut			11				5				16
Minnesota			12				4				16
Kentucky			11				3				14
Washington			8				6				14
Nevada			5				8				13
South Carolina			9				4				13
Wisconsin			9				4				13
Louisiana			9				2				11
Utah			5				5				10
Mississippi			5				3				8
Oklahoma			5				3				8
Arkansas			5				2				7
Iowa			4				3				7
Kansas			4				3				7
Oregon			3				3				6
Nebraska			3				2				5
New Hampshire			5				—				5
West Virginia			3				2				5
Delaware			4				—				4
Maine			2				1				3
New Mexico			2				—				2
North Dakota			2				—				2
Rhode Island			2				—				2
Idaho			1				—				1
South Dakota			1				—				1
Vermont			1				—				1
Puerto Rico			1				—				1
Total			576				338				914

Item 3. Legal Proceedings.

Since August 24, 2007, three purported class action complaints were filed by purported purchasers of the Company’s common stock against the Company and certain of its current and former officers, asserting claims under the federal securities laws. All of these actions were filed in the United States District Court for the Southern District of Ohio, where, on October 23, 2007, they were consolidated into a single proceeding (the “Tween Brands federal securities litigation”). On December 21, 2007, the Court appointed the Electrical Works Pension Fund, Local 103, I.B.E.W. as lead plaintiff and, on March 20, 2008, the lead plaintiff filed a consolidated complaint naming the Company and certain current and former officers as defendants.

The Tween Brands federal securities litigation purports to be brought on behalf of all purchasers of the Company’s common stock between February 21, 2007 and August 21, 2007 (the “class period”). The consolidated complaint alleges, among other things, that the defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by making false and misleading statements concerning the Company’s business and prospects during the class period. These actions also allege that the Company’s CEO sold stock while in possession of adverse non-public information. On May 5, 2008, a Motion to Dismiss the consolidated complaint was filed on behalf of all defendants. On June 17, 2008, a Motion for Leave to File a First Amended Consolidated Complaint was filed by the lead plaintiff. On September 4, 2008, the Court granted the lead plaintiff’s Motion for Leave to File a First Amended Consolidated Complaint and on October 3, 2008, the lead plaintiff filed an Amended Consolidated Complaint. On November 17, 2008, a Motion to Dismiss the Amended Consolidated Complaint was filed on behalf of all defendants. On January 20, 2009, lead plaintiff filed an Opposition to Defendants Motion to Dismiss. On March 2, 2009, defendants filed a Reply in Support of the Motion to Dismiss.

At this stage, it is not possible to predict the outcome of these proceedings or their impact on Tween Brands, Inc. The Company believes the allegations made in the consolidated complaint are without merit and intends to vigorously defend this action. The Company believes that, if necessary, insurance coverage will be available under the Company’s insurance policies, subject to self-insured retentions and policy limits, and we do not believe the litigation will have a material adverse effect on our results of operations, cash flows or financial position.

From time-to-time we also may become involved in various litigation and regulatory matters incidental to operations of our business. It is our opinion the ultimate resolution of these matters will not have a material adverse effect on our results of operations, cash flows or financial position.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of our security holders during the fourth quarter of fiscal 2008.

PART II

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

(a)

Tween Brands, Inc. shares are traded on the New York Stock Exchange under the trading symbol “TWB” (formerly “TOO”). The following is a summary of the high and low sales and close prices of our common stock as reported on the New York Stock Exchange for the 2008 and 2007 fiscal years:

		Sales Price
		High				Low				Close
2008 Fiscal Year
4th Quarter		$	8.52			$	2.23			$	2.69
3rd Quarter		$	15.11			$	6.90			$	8.52
2nd Quarter		$	21.75			$	12.90			$	13.75
1st Quarter		$	33.00			$	17.37			$	19.12
2007 Fiscal Year
4th Quarter		$	32.92			$	22.75			$	32.92
3rd Quarter		$	43.28			$	27.17			$	27.89
2nd Quarter		$	49.00			$	37.17			$	37.61
1st Quarter		$	40.08			$	33.62			$	39.56

We have never declared nor paid any dividends on our common stock. While we regularly assess our dividend policy, we have no current plans to pay any dividends in the foreseeable future. Under our Amended Credit Facility, we are prohibited from declaring or paying any dividends. Earnings from our operations will be retained and reinvested to support our business. At March 25, 2009, we had approximately 13,800 shareholders of record.

Shareholder Return Graph

The following graph shows a comparison, over a five-year period, of the cumulative total return for Tween Brands, Inc. common stock, the Standard & Poor’s SmallCap 600 Index and the Standard & Poor’s Apparel Retail Index, each of which assumes an initial investment value of $100 on January 31, 2004, in common stock of Tween Brands, and in the Standard & Poor’s SmallCap 600 Index and the Standard & Poor’s Apparel Retail Index. The comparison also assumes the reinvestment of any dividends.

Total Return To Shareholders
(Includes reinvestment of dividends)

		Annual Return Percentage
		Fiscal Years Ending
Company/Index		1/29/05				1/28/06				2/3/07				2/2/08				1/31/09
Tween Brands, Inc			74.18				7.32				21.89				(5.57	)			(91.83	)
S&P SmallCap 600 Index			14.20				21.10				10.57				(6.12	)			(38.28	)
S&P Apparel Retail			19.69				(7.04	)			18.56				(2.61	)			(49.86	)

		Indexed Returns
		Fiscal Years Ending
		Base Period
Company/Index		1/31/04				1/29/05				1/28/06				2/3/07				2/2/08				1/31/09
Tween Brands, Inc			100				174.18				186.93				227.84				215.16				17.58
S&P SmallCap 600 Index			100				114.20				138.29				152.90				143.55				88.59
S&P Apparel Retail			100				119.69				111.27				131.92				128.48				64.42

Payments to Acquire Treasury Stock
Fiscal Years Ending (in millions)
	1/29/05				1/28/06				2/3/07				2/2/08				1/31/09
$	3.5			$	56.1			$	59.9			$	236.0			$	5.9

(b)		Not applicable. No sales of unregistered securities.
(c)		Not applicable. No repurchases made within the fourth quarter of the fiscal year.

Item 6. Selected Financial Data.

The following data is in thousands, except per share data, number of stores and annual sales per average gross square foot:

		Fiscal Year
		2008				2007				2006 (1)				2005				2004
Statement of Operations Data:
Net sales (2)		$	995,062			$	1,013,971			$	883,683			$	757,936			$	675,834
Gross income			292,144				369,381				333,968				291,297				241,887
Store operating, general and administrative expenses			287,996				285,059				238,278				208,338				177,508
Operating (loss)/income			(14,844	)			84,322				95,690				82,959				64,379
(Loss)/Earnings before income taxes			(22,242	)			82,657				100,828				84,984				65,686
Net (loss)/income			(17,145	)			52,574				64,821				54,451				41,589
(Loss)/Earnings per share — basic		$	(0.69	)		$	1.84			$	1.99			$	1.62			$	1.21
(Loss)/Earnings per share — diluted		$	(0.69	)		$	1.81			$	1.95			$	1.60			$	1.19
Balance Sheet Data:
Cash and cash equivalents		$	72,154			$	46,009			$	48,394			$	22,248			$	26,212
Inventories, net			88,523				107,483				91,742				66,033				62,441
Total assets			545,458				611,637				569,677				523,730				493,696
Total debt			166,250				175,000				—				—				—
Total shareholders’ equity			175,773				194,999				371,326				350,783				322,524
Selected Operating Data:
Comparable store sales (decrease)/increase(3) (4)			(12	)%			4	%			6	%			5	%			4	%
Total net sales (decline)/growth			(1.9	)%			14.7	%			16.6	%			12.1	%			12.9	%
Gross income rate (5)			29.4	%			36.4	%			37.8	%			38.4	%			35.8	%
Operating (loss)/income rate (5)			(1.5	)%			8.3	%			10.8	%			10.9	%			9.5	%
Total number of stores open at year end			914				842				722				666				603
Total gross square feet at year end			3,824				3,510				3,006				2,777				2,495
Annual net store sales per average gross square foot (6)		$	255			$	296			$	299			$	284			$	272

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes to those Consolidated Financial Statements. Also refer to the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 on page 43. For the purposes of the following discussion, unless the context otherwise requires, “Tween Brands,” “we,” “our,” “the Company” and “us” refer to Tween Brands, Inc. and our wholly-owned subsidiaries.

Executive Overview

2008 Performance

Net sales for fiscal 2008 declined 2% to $995.1 million compared to 2007 driven predominantly by a 12% decline in comparable store sales. Justice total sales were $318.7 million, up 32% from last year, while comparable store sales were flat. Limited Too total sales were $631.5 million, down 14% from last year, with a comparable store sales decline of 16%. The drop in sales combined with increased promotional activities and costs associated with the addition of 92 new stores opened throughout the year caused margins to compress, particularly in the Limited Too fleet. The Company reported a 2008 fiscal year loss of $17.1 million, or $0.69 per diluted share, compared to earnings of $52.6 million, or $1.81 per diluted share for last year. The loss for fiscal year of 2008 related to restructuring was $19.0 million, pretax, or $11.9 million after tax, and was $0.48 per diluted share.

As a result of increased promotional activities during the Fall season, we ended the year with narrower margins but also with Fall apparel carryover inventory down 69% on an average store basis and total inventories down 24% per square foot at cost allowing for a much cleaner Spring season transition to the Justice merchandise offering at the former Limited Too stores.

In addition to managing our inventories, we announced on February 25, 2009 that we had taken steps to further reduce our infrastructure costs with the elimination of 85 positions, of which 49 were populated. This is in addition to the 170 positions that were eliminated based on our decision to shift to the single Justice store brand. We expect that the reduced staff size will produce a total cost savings in 2009 of approximately $32.0 million before tax and severance expense. The headcount reductions provide a significant reduction in our cost structure thereby positioning us to more easily bring the benefit of revenues to the bottom line.

In the first quarter of 2009, we amended our credit facility so that we could have the latitude on the financial covenants that we believe we might need to get through the challenging times that lie before us. Our $50.0 million revolving line of credit remains undrawn today, but provides us with additional cushion in the event that unforeseen circumstances arise. With a cash and investment balance of $80.2 million at year-end and our revolving line of credit of up to $50.0 million, our current liquidity position stands at $130.2 million. In addition, we will invest in the business approximately $10.0 million, net of tenant allowances in 2009. This compares to $53.1 million in 2008.

Transition to a Single Store Brand

In August 2008 we announced our plan to transition our Limited Too stores to our more value-oriented Justice brand in order to drive profitability. The transition is well underway with the vast majority of the apparel offering at the former Limited Too store locations consisting of fresh, Spring Justice inventory. We have made significant progress on the signage changes with approximately 84% of our 912 stores displaying the Justice signage.

Our marketing initiatives and events are in full swing and commenced with the brand launch party we hosted at all of our stores over the 5-day period which began February 12 and extended over the Valentine’s Day and Presidents Day weekend featuring 40% off the entire store. We believe the prominent brand launch event, including our sale signage, was successful in catching the attention of and drawing in new customers. We plan to use point-of-sale events such as this more than we have in the past in an effort to boost our attraction and conversion of new customers.

The smart utilization of our catazine mailings will continue to be the cornerstone of our marketing program and the primary vehicle for communicating with our growing customer base. As we had originally planned, the catazines that have been sent to our former Limited Too customers have included language on the front cover stating that Limited Too is now Justice, “looks you luv for less.” The cover language has also highlighted the fact that former Limited Too customers can enjoy prices that are now up to 35% less than the old Limited Too prices everyday on the same great quality merchandise.

Based on the level of the new Justice Spring apparel sales relative to previous years, we believe the customer has already begun to embrace the new Justice merchandise across our entire store fleet and online.

As a result of the transition, we incurred a $19.0 million restructuring charge consisting of $8.2 million related to the impairment of IT systems, $5.3 million related to severance, $4.3 million related to the removal of store signage and store closures, and $1.2 million related to international conversion costs and other miscellaneous restructuring costs. The charge is included separately in the “Restructuring charges” line item of our Consolidated Statement of Operations. The charge reduced our annual earnings per diluted share by $0.48.

Growing the Direct Business

Our direct business continues to experience significant growth, posting a 27% sales increase in 2008. We successfully launched the Justice brand website in July 2008. In January 2009 we consolidated the Justice and Limited Too websites into a new, interactive website, www.shopjustice.com. The new site represents the excitement of the brand with fun, playful creative elements, along with an interactive “Girl’s World of Fun” section containing fashion guidance, games, media, downloads for wallpaper and screen savers, and printable invitations.

Our focus for 2009 is to position the Justice website for continued growth through organizational redesign, website functionality and fulfillment enhancements, stronger marketing, and integration into the overall retail business.

International Expansion

Our relationship with Alshaya Trading Co. WLL continues with 32 licensed Limited Too stores successfully operating in upscale malls in the Kingdom of Saudi Arabia, Kuwait, United Arab Emirates, Jordan, Bahrain and Qatar at the end of fiscal 2008. While we are pleased with our Middle Eastern operations, we continue to seek out other appropriate international markets where we feel our brands would be successful. In fiscal 2007, we developed a relationship with Family Invest AB to operate stores in Scandinavia beginning in 2008 and have one store open and operating under this agreement in Sweden. In 2008, we formed a relationship with Moneks, to operate stores in Russia and have two stores open and operating under this agreement as of January 31, 2009. As of January 31, 2009, all international partners have agreed to transition to the Justice brand.

Results of Operations

Financial Summary

Net sales for fiscal 2008 were $995.1 million, a decrease of 2% from $1,014.0 million in fiscal 2007. Gross income decreased 21% to $292.1 million in 2008 from $369.4 million in 2007. Operating income decreased 118% to an operating loss of $14.8 million in 2008 from $84.3 million in 2007. Net income decreased 133% to a net loss of $17.2 million in 2008 from $52.6 million in 2007. Earnings per diluted share decreased 138% to a loss per diluted share of $0.69 in 2008 from $1.81 in 2007.

Summarized annual financial data is presented below:

		Fiscal Year												% Change
														2007-				2006-
		2008				2007				2006 (1)				2008				2007
Net sales (millions) (2)		$	995.1			$	1,014.0			$	883.7				-2	%			15	%
Comparable store sales (3)(4)			(12	)%			4	%			6	%
Annual net store sales per average gross square foot (5)		$	255			$	296			$	299				-14	%			-1	%
Net store sales per average store (thousands) (6)		$	1,068.9			$	1,229.0			$	1,246.1				-13	%			-1	%
Average store size at period end (gross square feet)			4,184				4,169				4,163				0	%			0	%
Total gross square feet at period end (thousands)			3,824				3,510				3,006				9	%			17	%
Store inventory per gross square foot at period end (7)		$	19.8			$	25.8			$	27.3				-23	%			-5	%
Store inventory per store at period end (7)		$	83,021			$	107,551			$	113,506				-23	%			-5	%
Number of stores:
Beginning of period			842				722				666
Opened			92				140				79
Closed			(20	)			(20	)			(23	)
End of period			914				842				722
Limited Too stores remodeled			26				33				34
Number of Limited Too stores			576				582				563
Number of Justice stores			338				260				159

The following table compares the amounts shown in our Consolidated Statements of Operations for the last three fiscal years expressed as a percentage of net sales:

		Fiscal Year
		2008				2007				2006
Net sales			100.0	%			100.0	%			100.0	%
Costs of goods sold, including buying and occupancy costs			70.6				63.6				62.2
Gross income			29.4				36.4				37.8
Store operating, general and administrative expenses			28.9				28.1				27.0
Restructuring charges			2.0				0.0				0.0
Operating (loss) / income			(1.5	)			8.3				10.8
Interest income			(0.2	)			(0.3	)			(0.6	)
Interest expense			0.9				0.4				0.0
(Loss) / Earnings before income taxes			(2.2	)			8.2				11.4
(Benefit from) / Provision for income taxes			(0.5	)			3.0				4.1
Net (loss) / income			(1.7	)%			5.2	%			7.3	%

Net Sales

Net sales for fiscal 2008 of $995.1 million decreased 2%, or $18.9 million, from fiscal 2007. This was driven by the 12% decrease in comparable store sales mainly offset by new store sales from the net addition of 72 stores during 2008. Net sales for fiscal 2007 of $1,014.0 million increased 15%, or $130.3 million, from fiscal 2006 driven by the 4% increase in comparable store sales coupled with new store sales from an additional 120 net new stores added during the year. New stores tend to have sales volumes during their initial year of opening somewhat below our average comparable store sales volume.

The following summarized operational data compares fiscal 2008 with the similar periods for 2007 and 2006, on an average store basis:

		Fiscal Year												% Change
														2007-				2006-
Limited Too and Justice:		2008				2007				2006 (1)				2008				2007
Average dollar value of units sold at retail (“AUR”) (2)		$	10.89			$	12.47			$	13.07				-13	%			-5	%
Average number of units per transaction (“UPT”) (3)			4.48				4.20				4.08				7	%			3	%
Average dollar sales value per transaction (“ADS”) (4)		$	48.80			$	52.42			$	53.32				-7	%			-2	%
Number of transactions per average store (5)			21,981				23,666				23,184				-7	%			2	%
Sales from transactions over $50 (% of total sales)			74.4	%			75.3	%			77.5	%			-1	%			-3	%
Transactions over $50 (% of total transactions)			36.2	%			38.5	%			39.5	%			-6	%			-3	%

For fiscal 2008, AUR decreased due to additional promotions in fiscal 2008, mainly in the fall season, as well as increased clearance activity primarily at Limited Too. UPT increased mainly driven by the lower AUR, leading to a 7% decrease in ADS from fiscal 2007 driven by aggressive promotional activities, primarily in the fall season to clear inventory, as well as the growth of our Justice brand. Transactions per average store were down 7% in fiscal 2008 from fiscal 2007. Transactions over $50 comprised almost 75% of total sales dollars and over 36% of total transactions at our stores, both down slightly from fiscal 2007.

For fiscal 2007, AUR decreased but UPT increased, leading to a 2% decrease in ADS from fiscal 2006. Transactions per store were up slightly in fiscal 2007 from fiscal 2006. Transactions over $50 comprised more than 75% of total sales dollars and nearly 39% of total transactions at our stores, both down slightly from fiscal 2006.

Gross Income

Fiscal 2008

Gross margin is comprised of internal gross income (gross income excluding buying and occupancy cost) less buying and occupancy costs. Internal gross income is comprised of our more variable components of gross income, while our buying and occupancy costs are predominantly fixed in nature. Gross income for fiscal 2008 was $292.1 million, $77.2 million and 700 basis points as a percentage of net sales (“bps”), less than fiscal 2007 as shown in the table below (in thousands except basis point amounts):

										2008 vs 2007				2008 vs 2007
										Dollar Change				Change in bps
		2008				2007				favorable/(unfavorable)				favorable/(unfavorable)
Internal Gross Income		$	542,618			$	599,186			$	(56,568	)			(460	)
Buying & Occupancy Costs			250,474				229,805				(20,669	)			(240	)
Gross Income		$	292,144			$	369,381			$	(77,237	)			(700	)

The $56.6 million decrease in internal gross income was primarily due to an $18.9 million, or 2% decline, in top-line sales and a $40.0 million increase in markdowns at cost due to our highly-promotional cadence throughout fiscal 2008. The decrease of 460 bps was driven by the increase in markdowns and a slight decrease in our initial mark-up (“IMU”) due to the growth of our Justice brand which has historically had a lower IMU compared to that of Limited Too.

Buying and occupancy costs increased $20.7 million over fiscal 2007 due to a $21.4 million increase in store occupancy costs associated with new store additions at Justice, partially offset by $4.4 million in buying payroll savings related to our conversion to one brand. The increase of 240 bps was primarily due to our inability to leverage occupancy costs with our sales decline.

Fiscal 2007

Gross income for fiscal 2007 was $369.4 million, $35.4 million more, but 140 bps less than fiscal 2006 as shown in the table below (in thousands except basis point amounts):

										2007 vs 2006				2007 vs 2006
										Dollar Change				Change in bps
		2007				2006				favorable/(unfavorable)				favorable/(unfavorable)
Internal Gross Income		$	599,186			$	531,113			$	68,073			$	(100	)
Buying & Occupancy Costs			229,805				197,145				(32,660	)			(40	)
Gross Income		$	369,381			$	333,968			$	35,413			$	(140	)

The $68.1 million increase in internal gross income is attributable to the 15% sales increase. The decrease in our internal gross income rate of 100 basis points as a percentage of net sales (“bps”) is primarily attributable to increased markdowns in the spring season, as well as lower IMU driven by the relative growth of our Justice brand and by the higher proportion of non-apparel merchandise sales at both brands.

Buying and occupancy costs increased $32.7 million over fiscal 2006, driven primarily by higher store occupancy expenses associated with new store additions at Justice, rent increases resulting from lease renewals at higher rates at Limited Too, as well as increased Limited Too catazine costs.

Our gross income may not be comparable to that of other retailers since all significant costs related to our distribution network, with the exception of freight costs, are included in store operating, general and administrative expenses (see “Store Operating, General and Administrative Expenses”).

Store Operating, General and Administrative Expenses

Fiscal 2008

Store operating, general and administrative expenses increased $2.9 million, or 80 bps in fiscal 2008 from fiscal 2007 as outlined in the table below (in thousands, except basis point amounts):

		2008 vs. 2007
		favorable/(unfavorable)
Changes in:		in dollars				in bps
Store operating expenses		$	(13,005	)			(160	)
Home Office			7,658				60
Marketing			(4,377	)			(40	)
Distribution center			953				10
Other			5,834				50
Total Change		$	(2,937	)			(80	)

Store operating expenses including store payroll increased over 7% in dollars in fiscal 2008 over fiscal 2007, driven by the net addition of 72 new stores. Home office expenses decreased primarily due to payroll savings from our conversion to Justice, lower incentive compensation expenses and decreased expenses for relocation and recruiting. Marketing expenses increased due to a Webkinz^TM mailer and increased catazine circulation at Justice, and one additional spring mini book at Justice. Other expenses decreased due to the decision to discontinue retirement contributions, lower credit card fees and packaging savings. The increase of 80 bps is mainly due to our inability to leverage store operating expenses including store payroll.

Fiscal 2007

Store operating, general and administrative expenses increased $46.8 million, or 110 bps in fiscal 2007 from fiscal 2006 as outlined in the table below (in thousands, except basis point amounts):

		2007 vs. 2006
		favorable/(unfavorable)
Changes in:		in dollars				in bps
Store operating expenses		$	(22,039	)			10
Home Office			(10,841	)			(20	)
Marketing			(6,084	)			(50	)
Distribution center			(691	)			—
Other			(7,126	)			(50	)
Total Change		$	(46,781	)			(110	)

Store operating expenses increased nearly 14% in dollars in fiscal 2007 over fiscal 2006, driven by the net addition of 120 new stores, as well as a modest increase in average hourly rate. However, we were able to leverage this increase. Home office expenses increased due principally to increased payroll expenses to support our continued growth, as well as higher hardware, software and consulting expenses in the information technology area. Marketing expenses increased primarily due to increased direct marketing spending at both brands. Other expenses increased primarily due to $4.4 million of severance and consulting expenses related to our year-end cost savings initiative, as well as an increase in our direct fulfillment costs related to an increase in direct sales.

Restructuring

In August 2008 we announced our plan to convert all Limited Too stores in the United States to our more value-oriented Justice store brand in order to drive growth and profitability. By refocusing on one store brand, we expect to achieve substantial savings from reduced headcount in the home office, as well as reduced marketing and store operation expenses. In conjunction with the store conversion, we eliminated approximately 170 positions and closed 16 underperforming stores. The conversion is expected to be nearly complete by the end of the first fiscal quarter of 2009.

Restructuring expenses related to our conversion to one brand were $19.0 million for fiscal 2008. These expenses consisted of $8.2 million related to the impairment of IT systems, $5.3 million related to severance, $4.3 million related to the removal of store signage and store closures, and $1.2 million related to international conversion costs and other miscellaneous restructuring costs.

Interest Income/Expense

Fiscal 2008

Interest expense is driven mainly by the interest payments on our long-term debt. Interest income is earned on investments in money market securities, variable rate demand notes and short-term, highly liquid, tax free municipal bonds. For fiscal 2008, net interest expense amounted to $7.4 million versus net interest expense of $1.7 million for 2007. The increase over 2007 was attributed to interest expense on our long-term debt, which was outstanding for the full year in fiscal 2008, versus five months in fiscal 2007, a lower invested asset balance and lower interest rates earned on our investments.

Fiscal 2007

For fiscal 2007, net interest expense, amounted to $1.7 million versus net interest income of $5.1 million for 2006. The decrease in 2007 was attributed to interest expense on our long-term debt, a lower invested asset balance and lower interest rates earned on our investments.

Provision for Income Taxes

Fiscal 2008

The benefit from income taxes of $5.1 million in fiscal 2008 was due to a pretax loss for the year of $22.2 million as compared to the $30.1 million tax provision recognized in conjunction with the pretax income of $82.7 million in fiscal 2007. Our effective tax rate decreased to 22.9% in fiscal 2008 from 36.4% in fiscal 2007. The rate decrease was primarily attributable to a loss before income tax along with an increase in uncertain tax positions, the favorable settlement of certain state tax examinations and the disallowance of certain executive compensation in excess of $1.0 million. Due to the Company having a pre-tax loss for fiscal 2008, the impact of an unfavorable permanent item results in a decrease in the effective tax rate instead of an increase in the effective rate which is the result in a profitable year.

Fiscal 2007

The total provision for income taxes decreased to $30.1 million in fiscal 2007 from $36.0 million for 2006. Our effective tax rate increased to 36.4% in fiscal 2007 from 35.7% in 2006. The rate increase was primarily attributable to a reduction in investment income from short-term tax-free municipal bonds.

Financial Condition and Liquidity

Financial Condition

In assessing the financial condition of the business, we consider factors such as cash flow from operations, capital expenditures and operating margins to be key metrics in determining financial health. We were able to finance all capital needs with existing working capital and cash generated from operations, while still ending the year with $80.2 million in cash and short-term investments. A more detailed discussion of liquidity, capital resources and expected future capital expenditures follows.

Liquidity and Capital Resources

We are committed to a cash management strategy that maintains sufficient liquidity to support the operations of our business and withstand unanticipated business volatility. We believe cash generated from operations will be substantially sufficient to maintain ongoing operations, support seasonal working capital requirements and fund our planned capital expenditures. This cash may be supplemented with current levels of cash equivalents, short-term investments and credit availability, if necessary. However, our liquidity position is subject to economic conditions and their impact on a variety of factors, including consumer spending. If consumer spending does not increase, we may continue to experience declines in comparable store sales or experience other events that negatively affect our operating results, financial condition or liquidity. If our comparable store sales drop significantly for an extended period, or we falter in execution of our business strategy, we may continue to miss our desired financial performance goals, which could further impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of availability under our revolving credit facility, which could force us to seek alternatives to address cash constraints, including seeking additional debt and/or equity financing.

On January 31, 2009, our working capital (defined as current assets less restricted assets and current liabilities) was $138.6 million, down slightly from $141.0 million on February 2, 2008. The decrease was primarily due to the funding of $63.8 million in capital expenditures, the $8.8 million payment of our long-term debt, $5.9 million of cash used in the first fiscal quarter of 2008 for the one-time settlement payment required to complete the Accelerated Share Repurchase (“ASR”) and less cash on hand due to decreased sales. These items were substantially offset by a cash inflow from the sale of investments. Under the May 2007 Share Repurchase Program, we may repurchase up to an additional $142.3 million of our common stock, however under the Amended Credit Facility, as described below, we are restricted from repurchasing any additional shares of our common stock at this time. We also plan to continue funding capital expenditures for store expansion, although at a much slower pace, and store remodeling through normal operations.

The table below summarizes our working capital position and capitalization (in millions):

		January 31, 2009				February 2, 2008				February 3, 2007
Working capital		$	138.6			$	141.0			$	172.8
Capitalization:
Long-term debt (including current portion)			166.3				175.0				—
Shareholders’ equity			175.8				195.0				371.3
Total capitalization		$	342.1			$	370.0			$	371.3
Amounts available under the credit facility (1)		$	100.0			$	98.9			$	99.4
Letters of credit outstanding under the credit facility		$	—			$	1.1			$	0.6
Restricted assets		$	2.3			$	1.3			$	1.2

Our working capital has decreased 2%, but our overall liquidity is above the industry average as shown below. Additionally, our current ratio and debt-to-equity ratio are shown below:

		Tween Brands, Inc.								Apparel
		January 31, 2009				February 2, 2008				Industry*				S&P 500
Current Ratio			2.4				2.1				2.1				1.0
Debt/Equity Ratio			0.9				0.9				0.4				1.0

Our liquidity is enhanced by our September 2007 credit facility, which was amended in February 2009 (the “Amended Credit Facility”). The Amended Credit Facility provides for a revolving line of credit of up to $50.0 million, as well as the Term Loan discussed below in the “Financing Activities” section. Refer to Note 7 and Note 17 to our Consolidated Financial Statements for further details. Our Amended Credit Facility is secured and contains certain financial covenants. Additionally, the Amended Credit Facility prohibits the declaration or payment of dividends, any additional repurchases of our common shares and also limits our future capital expenditures. As of the current time, we are in compliance with the financial covenants. Our failure to comply with these covenants could result in an event of default. An event of default, if not cured or waived, would permit acceleration of any outstanding indebtedness under the credit facility and impair our ability to obtain working capital advances and letters of credit, which could have a material adverse effect on our financial condition, results of operations or cash flows. The alternatives available to us if in default of our covenants would include renegotiating certain terms of the credit agreement, obtaining waivers from the lenders, obtaining a new credit agreement with another bank or group of lenders, which may contain different terms, or seeking additional equity financing.

While we expect to maintain significant overall liquidity, we recognize the specialty retail industry can be highly volatile and fashion missteps can quickly impact the ability to generate operating cash flow. We continually evaluate and strive to optimize our capital structure. We may, from time to time, make changes to our capital structure without prior notice, unless specifically required by applicable regulations.

As discussed in Note 7 to our Consolidated Financial Statements, our interest payments are calculated on a short-term variable LIBOR or base rate of our choosing under the terms of the loan. We have elected to use the 3-month LIBOR. In December 2007, we entered into a swap contract in order to fix the interest rate payment on a portion of the long-term debt. Our cash flows are better matched to a fixed interest rate debt structure rather than a variable rate structure.

Net Change in Cash and Cash Equivalents

The table below summarizes our net change in cash and cash equivalents for the fiscal years ended January 31, 2009, February 2, 2008 and February 3, 2007 (in millions):

		Fiscal Year
		2008				2007				2006
Net cash provided by operating activities		$	22.3			$	111.7			$	87.4
Net cash used for investing activities		$	18.8			$	(57.2	)		$	(16.6	)
Net cash used for financing activites		$	(15.0	)		$	(56.9	)		$	(44.7	)
Net increase/(decrease) in cash and cash equivalents		$	26.1			$	(2.4	)		$	26.1

Operating Activities

Fiscal 2008

Net cash provided by operating activities in fiscal 2008 amounted to $22.3 million, down $89.4 million from $111.7 million in fiscal 2007. The table below outlines the changes in cash flow from operating activities during the year ended January 31, 2009 (in millions):

		2008 vs 2007
Changes in:		increase/(decrease)
Net income, net of non-cash expenses		$	(53.4	)
Deferred compensation liability			(20.1	)
Inventory			34.7
Accounts payable and accrued expenses			(33.3	)
Income taxes			(25.2	)
Tenant allowances received			(6.2	)
Other			14.1
Total change in cash flows from operating activities		$	(89.4	)

The decrease in cash provided by operating activities was driven primarily by a 133% decrease in net income. Also contributing to the decrease in cash provided by operating activities was a decrease in accounts payable and accrued expenses as compared to fiscal 2007. This was primarily related to a lower accrued expenses balance outstanding at fiscal 2008 year end, specifically related to severance, gift card liability and incentive compensation accruals at the prior year end. The accounts payable balance was also lower at the end of fiscal 2008 due to a decrease in store construction payables resulting from fewer store openings in fiscal 2008 as compared to fiscal 2007, as well as a decrease in in-transit merchandise payables. Our deferred compensation liability decreased substantially due to the monetization of the deferred compensation plan and subsequent payout to the individuals enrolled. Income taxes also decreased substantially due to the loss position at the end of fiscal 2008.

Offsetting these items was an increase in cash flows from inventory. Despite a 9% increase in total square footage, total inventory on an average store basis was down over 24% from fiscal 2007 and in-store inventory was down 23% from the same time period. With the conversion to Justice, we were very aggressive with our markdowns in order to clear through our inventory and begin the year with minimal carryover.

Fiscal 2007

Net cash provided by operating activities in fiscal 2007 amounted to $111.7 million, up $24.3 million from $87.4 million in fiscal 2006. The table below outlines the changes in cash flow from operating activities during the year ended February 2, 2008 (in millions):

		2007 vs 2006
Changes in:		increase/(decrease)
Net income, net of non-cash expenses		$	(6.9	)
Income taxes			(0.4	)
Inventory			10.0
Accounts payable and accrued expenses			13.6
Tenant allowances received			12.9
Other			(4.9	)
Total change in cash flows from operating activities		$	24.3

The increase in cash provided by operating activities was driven in large part by an increase in tenant allowances received due to a focus on actively collecting outstanding allowances related to fiscal year 2006, as well as an increase driven by the continued store growth of our Justice brand.

Also contributing to the increase in cash provided by operating activities was an increase in accounts payable and accrued expenses as compared to fiscal 2006. This was primarily related to higher payables outstanding at year end, specifically related to incentive compensation, gift card liability, severance accrual and accrued interest for our long-term debt.

While inventory levels as reported on the balance sheet were 17% higher at year-end 2007 than at year-end 2006, we spent the cash more efficiently and therefore, were better positioned in 2007 as was reflected in our store inventory per square foot decreasing 5% over 2006. These increases in cash were partially offset by a 19% decrease in net income, net of non-cash expenses, and higher income taxes payable.

Investing Activities

Fiscal 2008

Net cash provided by investing activities in fiscal 2008 amounted to $18.8 million, up $76.0 million from the $57.2 million used in fiscal 2007. The table below outlines the changes in cash used for investing activities during the year ended January 31, 2009 (in millions):

		2008 vs 2007
Changes in:		increase/(decrease)
Investments		$	16.4
Capital expenditures			37.5
Executive life insurance			20.5
Restricted assets			(1.2	)
Funding of nonqualified benefit plans			2.8
Total change in cash flows from investing activities		$	76.0

Net proceeds from the sale or maturity of marketable securities were $62.1 million in fiscal 2008 versus $45.7 million, in fiscal 2007. Capital expenditures decreased 37% due to a decrease in the number of new stores we opened in fiscal 2008, as well as less home office expenditures due to the completion of our home office expansion and the completion of various IT projects in fiscal 2007. Executive life insurance distributions increased substantially due to the monetization of the deferred compensation plan and subsequent payout to the individuals enrolled.

Fiscal 2007

Net cash used for investing activities in fiscal 2007 amounted to $57.2 million, up $40.6 million from $16.6 million used in fiscal 2006. The table below outlines the changes in cash used for investing activities during the year ended February 2, 2008 (in millions):

		2007 vs 2006
Changes in:		increase/(decrease)
Investments		$	9.6
Capital expenditures			35.6
Funding of nonqualified benefit plans			(4.6	)
Total change in cash flows from investing activities		$	40.6

Net proceeds from the sale or maturity of marketable securities were $45.7 million in fiscal 2007 versus $55.3 million in fiscal 2006. Capital expenditures increased nearly 54% due to increased store construction related to our Justice brand, Limited Too store openings and remodels, our new home office addition and information technology initiatives.

Financing Activities

Fiscal 2008

Net cash used for financing activities in fiscal 2008 amounted to $15.0 million, a decrease of $41.9 million from $56.9 million used in fiscal 2007. The table below outlines the changes in cash used for investing activities during the year ended January 31, 2009 (in millions):

		2008 vs 2007
Changes in:		increase/(decrease)
Purchases of treasury stock		$	(230.0	)
Repayment of / proceeds from long-term debt			183.8
Tax benefit from stock option exercises			1.5
Change in cash overdraft position			(1.1	)
Stock options and other equity changes			4.0
Total change in cash flows from financing activities		$	(41.9	)

For fiscal 2008, we repurchased no shares, however, paid a $5.9 million one-time settlement payment as required to complete the ASR. As discussed in Note 7 and Note 10 to our Consolidated Financial Statements, we borrowed $175.0 million in September 2007 under a Term Loan in order to repurchase stock in accordance with our September 2007 Share Repurchase Program. In fiscal 2007, we repurchased a combined 7.8 million shares under the September 2007 and May 2007 share repurchase programs for an aggregate purchase price of $236.0 million during fiscal year 2007.

Fiscal 2007

Net cash used for financing activities in fiscal 2007 amounted to $56.9 million, an increase of $12.2 million from $44.7 million used in fiscal 2006. The table below outlines the changes in cash used for investing activities during the year ended February 2, 2008 (in millions):

		2007 vs 2006
Changes in:		increase/(decrease)
Purchases of treasury stock		$	176.0
Proceeds from issuance of long-term debt			(175.0	)
Tax benefit from stock option exercises			0.7
Change in cash overdraft position			4.6
Stock options and other equity changes			5.9
Total change in cash flows from financing activities		$	12.2

As discussed in Note 7 and Note 10 to our Consolidated Financial Statements, we borrowed $175.0 million in September 2007 under a term loan in order to repurchase stock in accordance with our September 2007 Share Repurchase Program. We repurchased a combined 7.8 million shares under the September 2007 and May 2007 Share Repurchase Programs for an aggregate purchase price of $236.0 million during fiscal year 2007. For the same period of 2006, we purchased 1.7 million shares for an aggregate purchase price of $60.0 million.

Future Capital Expenditures

We continually evaluate the best use of our resources as they relate to investments in capital projects. In the current economic environment, our main focus is renegotiating and realigning our store fleet in the most cost effective manner possible. In addition, our Amended Credit Facility places restrictions on our future capital expenditures. To that end, we are drastically reducing capital spending in 2009. We anticipate spending approximately $10.0 million, net of tenant allowances, in fiscal 2009 for capital expenditures with the majority, or approximately $6.0 million, going towards stores. Most of that amount will be for store signage related to our conversion to Justice with the remainder going towards the few new stores planned for fiscal 2009. Of the remainder, we estimate approximately $2.0 million will go toward completing our information technology and other supply chain initiatives and the final payments relating to our distribution center expansions. This planned spending is a fraction of the gross $63.8 million spent in fiscal 2008 and is indicative of our commitment to discipline during these tough economic times.

We have significantly scaled back our new openings and plan to only open up to 4 new Justice stores in fiscal 2009, and anticipate the cost for leasehold improvements, furniture and fixtures for each of these stores to be between $390,000 and $425,000, before any tenant allowances we may receive. Average pre-opening costs per store are expensed as incurred, and are expected to be approximately $21,000. Inventory purchases for Justice are expected to average approximately $69,000 per store.

We expect cash and short-term investments on hand and cash generated from operating activities will fund substantially all anticipated capital expenditures for the next twelve months and the foreseeable future.

Transitional Services and Separation Agreements

In connection with the August 1999 spin-off, we entered into several Transitional Services and Separation Agreements (the “Transitional Services Agreements”) with Limited Brands regarding certain aspects of our ongoing relationship. We believe that the terms of these agreements are similar to terms achievable through arm’s length negotiations with third parties.

Trademark and Service Mark Licensing Agreement

At the time of the spin-off, we entered into an exclusive trademark and service mark licensing agreement (the “Trademark Agreement”) with Limited Brands that allows us to operate under the “Limited Too” brand name. The Trademark Agreement had an initial term of five years after the spin-off, renewable annually at our option. All licenses granted under the Trademark Agreement will be granted free of charge. In return, we are required to provide Limited Brands with the right to inspect our stores and distribution facilities and an ability to review and approve our advertising. Under the Trademark Agreement, we are only able to use the brand name “Limited Too” in connection with any business in which we sell to our current target customer group or to infants and toddlers. In addition, we may not use the “Limited Too” brand name or its derivative on merchandise that competes with merchandise currently offered by Limited Brands or its subsidiaries, unless it is for our current target customer group. Limited Brands has the right to terminate the Trademark Agreement under certain limited conditions.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements, such as variable interests in unconsolidated entities, as of January 31, 2009.

Contractual Obligations and Commercial Commitments

We have entered into agreements that create contractual obligations and commercial commitments. These obligations and commitments may have an impact on future liquidity and the availability of capital resources. The following tables reflect these obligations and commitments as of January 31, 2009 (in thousands):

Contractual Obligations:

		Payments Due by Fiscal Period
		Total				2009				2010 & 2011				2012 & 2013				2014 & beyond
Operating lease obligations (1)		$	629,740			$	96,516			$	171,341			$	146,809			$	215,074
Purchase obligations (2)			83,796				83,796				—				—				—
Long-term debt (3)			166,250				8,750				17,500				140,000				—
FIN 48 (4)			1,223				1,223				—				—				—
Interest on long-term debt (5)			25,798				7,002				12,899				5,897				—
Total (6)		$	906,807			$	197,287			$	201,740			$	292,706			$	215,074

Commercial Commitments:

		Commitments by Period
						Less than				1-3				3-5				More than
		Total				1 year				Years				Years				5 Years
Outstanding letters of credit (1)		$	38			$	38			$	—			$	—			$	—
Standby letters of credit			—				—				—				—				—
Total		$	38			$	38			$	—			$	—			$	—

Amended Credit Facility

In September 2007, we entered into an unsecured $275.0 million credit agreement, which replaced the October 2005 credit facility. The credit facility provided for a $100.0 million revolving line of credit, which could be increased up to $150.0 million at our option under certain circumstances and subject to the approval of our lenders, as well as a term loan. In February 2009, we amended this facility (“Amended Credit Facility”). The Amended Credit Facility is secured and changes our financial covenants and provides for a revolving line of credit of up to $50.0 million, as well as the $175.0 million term loan. Certain interest rates and payment terms have also been changed in the new facility. Refer to Note 7 and Note 17 to our Consolidated Financial Statements for further detail.

Impact of Inflation

Our results of operations and financial condition are presented based upon historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe that the effects of inflation, if any, on our results of operations and financial condition have been minor.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that impact the amounts reported in our Consolidated Financial Statements and related notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to inventories, long-lived assets, sales returns, self-insurance and income taxes. We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ materially from our estimates. We believe the following estimates and assumptions are most significant to reporting our results of operations and financial position.

Revenue Recognition

Store sales, net of sales tax, are recorded when the customer takes possession of merchandise. We classify associate discounts as a reduction of revenue. Direct sales, through our catazine and website, are recorded upon customer receipt. Amounts relating to shipping and handling billed to customers in a sale transaction are classified as revenue. Related shipping and handling costs are reflected in cost of goods sold, buying and occupancy costs. Revenues are also generated through our international franchise stores through merchandise shipped at cost. Revenue from gift cards, gift certificates and store merchandise credits is deferred and recognized at the time of redemption. The cards, certificates and credits (collectively the “gift cards”) have no expiration date.

A sales reserve is carried for projected merchandise returns based on historical sales return results. Actual return rates have historically been within our expectations of the reserves established. However, in the event the actual rate of sales returns by customers increase significantly, our operating results could be adversely affected.

We defer a portion of revenues earned from our customer loyalty programs in accordance with EITF 00-22, “Accounting for ‘Points’ and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future.” Generally, these programs offer customers dollar-for-dollar discounts on future merchandise purchases within stated redemption periods if they purchase specified levels of merchandise in a current transaction. The impact of these programs on net sales is recognized ratably over the series of transactions required to both earn and redeem the customer discounts.

Certain sales of advertising space in our catazine and in-store video screens are included in revenue and are recognized when the catazine is mailed. We sell the space to companies wishing to promote tween-right brands and movies. We evaluate these advertising transactions under EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.”

Gift Card Breakage

Gift card breakage is based upon actual redemption patterns and represents the outstanding balance of gift cards for which we believe the likelihood of redemption by the customer is remote. This income is recorded as a reduction in Store operating, general and administrative expenses in the Consolidated Statement of Operations.

Operating Leases

Rent expense for our operating leases, which generally have escalating rents over the term of the lease, is recorded on a straight-line basis over the initial lease term and those renewal periods that are reasonably assured. The initial lease term includes the build-out period of our leases, where no rent payments are typically due under the terms of the lease. The difference between rent expense and rent paid is accrued in the Consolidated Balance Sheets.

Tenant Allowances

Tenant allowances received from landlords, typically in the form of one time cash payments or reduced rent charges for a specific length of time, are treated as lease incentives and are amortized as a reduction of rent expense over the life of the initial lease term, including the build-out period, and any renewal periods that are reasonably assured. The unearned portion of tenant allowances from landlords is recorded in the Consolidated Balance Sheets.

Derivatives

We account for derivatives under Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”), “Accounting for Derivative Instruments and Hedging Activities.” We designate at inception whether the derivative contract is considered hedging or non-hedging for SFAS No. 133 accounting purposes. For SFAS No. 133 hedges, we formally document at inception the relationship between the hedging instrument and the hedged item, as well as our risk management objectives and strategies for undertaking the accounting hedge. All derivative instruments are recognized in the balance sheet as either assets or liabilities depending on the rights or obligations under the contract. The derivative instruments are to be measured at fair value based on expected future cash flows. If the derivative is designated and qualifying as a cash flow hedge, the effective portion of the change in fair value of the derivative instrument shall be reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The remaining change in fair value on the derivative instrument, if any, shall be recognized currently in earnings. Additionally, we use the hypothetical derivative method at the hedge’s inception to assess whether the derivative used in the hedging transaction is expected to be highly effective in offsetting changes in the fair value or cash flows of the hedged item, in accordance with SFAS No. 133. On an ongoing basis, we also assess whether the hedging relationship is expected to continue to be highly effective through utilization of either a dollar-offset test or a statistical method. We will discontinue hedge accounting when it is determined that a derivative is not expected to be, or has ceased to be, highly effective as a hedge, and will then reflect changes in fair value in earnings after termination of the hedge relationship.

Cash Equivalents

Short-term investments with original maturities of three months or less are generally classified as cash equivalents. We also consider credit card receivables to be cash equivalents due to our policy of liquidating those balances daily, so that ordinarily we do not have more than 4 days of outstanding collections. We maintain cash deposits in banks that, from time to time, exceed the amount of deposit insurance available. We periodically assess the financial condition of the institutions and believe any potential loss is minimal. Outstanding checks are classified in accounts payable and in accrued expenses in the Consolidated Balance Sheets.

Store Supplies

The initial inventory of supplies for new stores including, but not limited to, hangers, security tags, packaging and other point-of-sale supplies is capitalized at the store opening date. In lieu of amortizing the initial balance, subsequent shipments are expensed. Store supply balances are periodically reviewed and adjusted as appropriate for changes in supply levels and costs.

Investments

Investments in debt securities are classified as available-for-sale and reported at cost, which approximates fair market value due to their variable interest rates, which typically reset every 1 to 35 days. We classify these securities as current assets despite the long-term nature of their stated contractual maturities because we have the ability to quickly liquidate them to support current operations.

Certain securities with long-term contractual maturities are classified as held-to-maturity and are accounted for at amortized cost with any premium or discount amortized over the holding period. We have classified these securities as held-to-maturity based on our intent and ability to hold them to maturity as determined at the time of purchase.

Investments are subject to the credit risk of the issuer and adverse developments in that credit risk could restrict our ability to liquidate securities at their maturity or earlier.

Restricted Assets

Restricted assets represent investments held in an insurance trust for the benefit of our casualty insurance carrier, as well as restricted investments held to fund our deferred compensation plan.

Store Opening Costs

Store opening costs, which include payroll and supply costs incurred prior to store opening, are expensed as incurred.

Inventories, net

Inventories are principally valued at the lower of average cost or market, on a weighted average cost basis, using the retail method. Under the retail method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories. The use of the retail method will result in valuing inventories at the lower of cost or market when markdowns are taken as a reduction of the retail value. We record a markdown for in-store promotional activities, as well as for all inventory on hand when a permanent retail price reduction is reflected. At the end of each selling season, we reduce the cost of that season’s inventory to the estimated value of the inventory when it is ultimately removed from the stores, less the expected proceeds from the sale of the inventory to sell-off vendors.

Inherent in the retail method are certain management judgments and estimates including, among others, future sales, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes) and use markdowns to sell through merchandise. We estimate and accrue our inventory shrinkage for the period between the last physical count and the balance sheet date.

Accounts Receivable, net

Accounts receivable consist primarily of tenant allowances from landlords, licensing fees from our international partner and miscellaneous trade vendor receivables and are continuously reviewed for their collectability. The allowance for doubtful accounts is classified as an offset in accounts receivable in the Consolidated Balance Sheets.

Property and Equipment, net

Property and equipment are stated at cost, net of accumulated depreciation and long-lived asset impairment. Depreciation is computed on a straight-line basis, using service lives for store assets ranging principally from the shorter of the lease term or 10 years for leasehold improvements and 3 to 10 years for other property and equipment. Depreciation for fixed assets at our home office and distribution center are calculated using service lives of 40 years for buildings, 20 years for building equipment and heavy machinery, 7 to 10 years for furniture and fixtures and 5 to 7 years for computers and other office equipment. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts, with any resulting gain or loss included in net income. Interest costs associated with the construction of certain long-term projects are capitalized. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments that extend service lives are capitalized.

In accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” we capitalize certain costs associated with internally developed or modified software and amortize these costs using the straight-line method over the estimated useful life, usually 3 to 7 years. These costs include, but are not limited to, employee payroll costs for time devoted to developing the projects as well as external direct costs for materials and services. These costs are expensed until the software project reaches the development stage. Subsequent additions or upgrades to existing software are capitalized only to the extent that they add value and additional performance functionality. Software maintenance and training costs are expensed in the period in which they are incurred. The capitalization of software requires our judgment in determining when a project has reached the development stage.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment quarterly or when circumstances indicate the carrying values of such assets may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there are identifiable cash flows, which is generally at a store level. Store assets are reviewed using factors including, but not limited to, our future operating plans and projected cash flows. The determination of whether impairment has occurred is based on an estimate of undiscounted future cash flows directly related to that store, compared to the carrying value of the assets. If impairment has occurred, the amount of impairment recognized is determined by estimating the fair value of the assets and recording a loss if the carrying value is greater than the fair value. Expenses related to the impairment of long-lived assets were $0.4 million, $0.0 million and $0.0 million for fiscal years 2008, 2007 and 2006, respectively.

Catazine and Advertising Costs

Catazine costs for Limited Too, principally production and mailing costs, are expensed as costs of goods sold, buying and occupancy expense when the catazine is mailed. These same costs for Justice are included in store operating, general and administrative expenses as they are viewed as promotional materials to drive in-store business. In 2009, all catazine costs related to sales will be recognized in store operating, general and administrative expenses. All other advertising costs, including costs associated with in-store marketing and television and direct mail campaigns, are expensed at the time the promotion first appears in media or in the store as a component of store operating, general and administrative expenses.

Advertising Barter Transactions

We account for barter transactions in accordance with Emerging Issues Task Force (“EITF”) Issue No. 99-17, “Accounting for Advertising Barter Transactions.” EITF Issue No. 99-17 requires that barter transactions be recorded at the fair value of advertising surrendered only if the fair value is determinable based on the entity’s own historical practice of receiving cash for similar advertising. During fiscal years 2008, 2007 and 2006, we recorded no barter transactions.

Income Taxes

Income taxes are calculated in accordance with SFAS 109, “Accounting for Income Taxes,” which requires the use of the liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Inherent in the measurement of deferred balances are certain judgments and interpretations of enacted tax laws and published guidance with respect to applicability to our operations. No valuation allowance has been provided for deferred tax assets because we believe it reasonably certain that the full amount of the net deferred tax assets will be realized in the future.

Income taxes on foreign operations are provided based upon the statutory taxes of the applicable foreign country. Deferred U.S. income taxes have been provided on foreign earnings as we no longer intend to permanently reinvest these earnings overseas.

In the first quarter of 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN48). FIN 48 requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in the financial statements. It also provides guidance on the recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties.

Self-Insurance

We are self-insured for certain losses related to workers’ compensation, general liability, medical and dental expenses. However, we maintain stop-loss coverage with third-party insurers to limit our liability exposure. Liabilities associated with these losses are estimated in part by considering historical claims experience, industry factors, severity factors and other actuarial assumptions.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 141(R) will significantly change current practices regarding business combinations. Among the more significant changes, SFAS No. 141(R) expands the definition of a business and a business combination; requires the acquirer to recognize the assets acquired, liabilities assumed and noncontrolling interests (including goodwill), measured at fair value at the acquisition date; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination; requires assets acquired and liabilities assumed from contractual and non-contractual contingencies to be recognized at their acquisition-date fair values with subsequent changes recognized in earnings; and requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset. SFAS No. 160 will change the accounting and reporting for minority interests, reporting them as equity separate from the parent entity’s equity, as well as requiring expanded disclosures. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. We are in the process of evaluating the effects of the adoption of SFAS No. 141(R) and SFAS No. 160 but do not expect any material impact on our financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”), which requires additional disclosures about the objectives of using derivative instruments, the method by which the derivative instruments and related hedged items are accounted for under FASB Statement No.133 and its related interpretations, and the effect of derivative instruments and related hedged items on financial position, financial performance and cash flows. SFAS No. 161 also requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. We are in the process of evaluating the effects of the adoption of SFAS No. 161 but do not expect any material impact on our financial position, results of operations or cash flows.

We have reviewed and continue to monitor the actions of the various financial and regulatory reporting agencies and are currently not aware of any other pronouncement that could have a material impact on our consolidated financial position, results of operations or cash flows.

Seasonality

Historically, our operations and results have been seasonally skewed, with a significant amount of net sales and net income occurring in the fourth fiscal quarter, reflecting increased demand during the year-end holiday selling season and, to a lesser extent, the third quarter, reflecting increased demand during the back-to-school selling season. During fiscal 2008, the third and fourth fiscal quarters accounted for approximately 52% of our sales. As a result of this seasonality, any negative factors affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. Our quarterly results of operations may also fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the amount of net sales contributed by new and existing stores, the timing and level of markdowns, store closings, refurbishments and relocations, competitive factors, weather and general economic conditions.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). This Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of the PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “target,” “believe,” “expect,” “plan,” “hope,” “risk,” “intend,” “could,” “pro forma,” “potential,” “predict,” “prospects,” “outlook,” “forecast” or similar words. These statements discuss future expectations, contain projections regarding future developments, operations or financial conditions, or state other forward-looking information. These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results for 2009 and beyond to differ materially from those expressed in the forward-looking statements. The following factors, among others, could affect our future financial performance and cause actual future results to differ materially from those expressed or implied in any forward-looking statements included in this Form 10-K:

•

Effectiveness of converting Limited Too stores to Justice stores;

•

Ability to convert Limited Too customers to the Justice brand;

•

Risk that the benefits expected from the brand conversion program will not be achieved or may take longer to achieve than expected;

•

Ability to grow or maintain comparable store sales;

•

Decline in the demand for our merchandise;

•

Ability to develop new merchandise;

•

The impact of competition and pricing;

•

Level of mall and power center traffic;

•

Effectiveness of expansion into new or existing markets;

•

Effectiveness of store remodels;

•

Availability of suitable store locations at appropriate terms;

•

Effectiveness of our brand awareness and marketing programs;

•

Ability to enforce our licenses and trademarks;

•

Ability to hire and train associates;

•

Ability to successfully launch a new brand;

•

A significant change in the regulatory environment applicable to our business;

•

Risks associated with our sourcing and logistics functions;

•

Changes in existing or potential trade restrictions, duties, tariffs or quotas;

•

Currency and exchange risks;

•

Changes in consumer spending patterns, consumer preferences and overall economic conditions;

•

The security of our computer network;

•

Outcome of various legal proceedings;

•

Impact of product recalls;

•

Ability to comply with restrictions and covenants in our credit facilities;

•

Ability to service our debt;

•

The potential impact of health concerns relating to severe infectious diseases, particularly on manufacturing operations of our vendors in Asia and elsewhere;

•

Potential impairment of long-lived assets;

•

Ability to satisfy NYSE continued listing standards;

•

Acts of terrorism in the U.S. or worldwide; and

•

Other risks that may be described in Item 1A or elsewhere in this Form 10-K and other reports and filings we make with the Securities and Exchange Commission.

Future economic and industry trends that could potentially impact revenue and profitability are difficult to predict. Therefore, there can be no assurance the forward-looking statements included in this Form 10-K will prove to be accurate. The inclusion of forward-looking statements should not be regarded a representation by us, or any other person, that our objectives will be achieved. The forward-looking statements made herein are based on information presently available to us as the management of Tween Brands, Inc. We assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

Item 7A. Quantitative And Qualitative Disclosures About Market Risk

We are exposed to interest rate risk primarily due to our long-term debt. At January 31, 2009, $166.3 million was outstanding under the credit facility and appears on our balance sheet as long-term debt and current long-term debt. As such, we are currently exposed to market risk related to changes in interest rates. Refer to Note 7 to our Consolidated Financial Statements for additional information regarding the credit facility. Additionally, we purchase investments with original maturities of 90 days or less and also hold investments with original maturities of at least 91 days but less than five years. These financial instruments bear interest at fixed rates and are subject to potential interest rate risk should interest rates fluctuate. We do not enter into financial instruments for trading purposes.

As discussed in Note 7 to our Consolidated Financial Statements, our interest payments are calculated on a short-term variable rate of our choosing under the terms of the loan. As part of our risk management policy, we aim to minimize our exposure to interest rate variability and therefore entered into an interest rate swap contract in order to fix the interest rate payment on a significant portion of our long-term debt. Our cash flows are better matched to a fixed interest rate debt structure rather than a variable rate structure. We chose variable rate debt with a swap contract, versus traditional fixed rate debt, because of the increased flexibility surrounding the terms available under this type of financing.

Interest Rate Sensitivity

The table below provides information regarding our financial instruments sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. The fair value of the swap agreements was determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Weighted average variable rates are based on implied forward rates in the yield curve at January 31, 2009. The table below is in thousands, except for percentage amounts.

		As of January 31, 2009
		Expected Maturity Date by Fiscal Year
		2009				2010				2011				2012				Thereafter				Total				Fair Value
Liabilities
Long-term debt		$	8,750			$	8,750			$	8,750			$	140,000				—			$	166,250			$	166,250
Average interest rate			1.7	%			1.9	%			2.2	%			1.7	%			—
Interest rate derivatives
Interest rate swaps
Variable to fixed		$	21,438			$	5,687			$	91,000			$	0				—			$	118,125			$	(8,664	)
Average receive rate			1.5	%			1.9	%			2.7	%			3.4	%			—
Average pay rate			4.2	%			4.2	%			4.2	%			4.2	%			—