Operating income was $5.6 million, compared to prior year’s operating income of $3.2 million.

Adjusted operating income, excluding special items of $4.8 million, was $10.5 million, an increase of $2.9 million, compared to prior year’s adjusted operating income of $7.6 million.

Net sales decreased 8.4% to $275.9 million, compared to $301.3 million in the same period last year, due in part to the impact of store closings in fiscal 2011 as a result of the Company’s store rationalization plan.

Consolidated comparable sales, which includes stores, Internet, catalog and red-line sales, decreased 3.8% compared to the prior year. Consolidated comparable sales exclude stores closed or scheduled to close under the Company’s store rationalization plan.

Store sales decreased 9.1% to $218.9 million, compared to $240.8 million in the same period last year. Comparable store sales decreased 2.2% in the first quarter of 2012, and exclude stores closed or scheduled to close under the Company’s store rationalization plan.

Direct marketing sales, including Internet, catalog and red-line, decreased 5.8% in the quarter to $57.0 million, compared to $60.5 million in the same period last year.

Cost of sales, buying and occupancy as a percent of net sales decreased 90 basis points to 63.5%, compared to 64.4% last year. This decrease was due in part to a 60 basis point improvement in merchandise margin resulting from lower levels of markdowns. Additionally, buying and occupancy as a percent of net sales leveraged 30 basis points.

Selling, general & administrative (SG&A) expenses as a percent of net sales increased 50 basis points to 33.6% compared to the prior year. On a dollar basis SG&A decreased $7.2 million from the prior year period to $92.6 million, and included a total of $2.5 million in net expense obligations in connection with executive search and legal and advisory fees associated with the Company’s exploration of strategic alternatives. Additionally, SG&A expenses were impacted by estimated incremental performance-based compensation for which no comparable compensation was recorded in the same period of the prior year.

Total inventory decreased 6.2% to $166.2 million, compared to $177.1 million in the same period last year, due to a planned decrease in spring receipts.

Total outstanding debt was $197.9 million, an increase of $111.1 million compared to $86.8 million last year. Total outstanding debt includes $122.9 million under the Company’s revolving credit facility and $75.0 million under its term loan, entered into on February 16, 2012.

In the first quarter, the Company opened four Talbots upscale outlets, closed five Talbots stores and ended the period with 516 stores, or 540 locations, including 47 Talbots upscale outlet stores.

the ability to achieve our operating and strategic plans for operating results, working capital and cash flows;

the risks associated with our efforts to maintain our traditional customer and expand to attract new customers;

the risks associated with competitive pricing pressures and the current increased promotional environment;

the ability to reduce spending as needed;

the ability to access on satisfactory terms, or at all, adequate financing and other sources of liquidity, as and when necessary, to fund our continuing operations, working capital

needs, strategic and cost reduction initiatives and other cash needs and to obtain further increases in our debt facilities, extend and continue our trade payables arrangement with our exclusive sourcing agent and obtain other or additional debt or credit facilities or other internal or external liquidity sources if cash flows from operating activities or other capital resources are not sufficient for our cash requirements at any time or times;

the ability to successfully increase our customer traffic and the success and customer acceptance of our merchandise offerings in our stores, on our website and in our catalogs;

the satisfaction of all borrowing conditions under our debt facilities including accuracy of all representations and warranties, no defaults or events of default, absence of material adverse effect or change and all other borrowing conditions;

the risks associated with our efforts to successfully implement, adjust as appropriate and achieve the benefits of our strategic initiatives including store rationalization, store re-imaging, information technology reinvestments, store segmentation, upscale outlet expansion and any other future initiatives that we may undertake;

the ability to attract and retain talented and experienced executives that are necessary to execute our strategic initiatives;

the risks associated with our appointment of an exclusive global apparel sourcing agent, including that the anticipated benefits and cost savings from this arrangement may not be realized or may take longer to realize than expected and the risk that upon any cessation of this relationship, for any reason, we would be unable to successfully transition to an internal or other external sourcing function;

any impact to or disruption in our supply of merchandise;

the continuing impact of the U.S. economic environment on our business, continuing operations, liquidity and financial results, including any negative impact on consumer discretionary spending, substantial loss of household wealth and savings and continued high unemployment levels;

the ability to continue to purchase merchandise on open account purchase terms at existing or future expected levels and with acceptable payment terms and the risk that suppliers could require earlier or immediate payment or other security due to any payment concerns;

the ability to accurately estimate and forecast future regular-price, promotional and markdown selling and other future financial results and financial position;

any negative publicity concerning the specialty retail business in general or our business in particular;

the risk of any further increases in postretirement benefit and funding obligations;

the risk that estimated or anticipated costs, charges and liabilities to settle and complete the transition and exit from and disposal of the J. Jill business, including both retained obligations and contingent risk for assigned obligations, may be materially greater than anticipated;

the risk of material impairment of our goodwill, trademarks or long-lived assets;

the risks associated with our efforts in transforming our information technology systems to meet our changing business systems and operations, including the ability to maintain adequate system security controls;

any significant interruption or disruption in the operation of our distribution facility or the domestic and international transportation infrastructure; and

the risks and uncertainties associated with the outcome of current and future litigation, claims, tax audits and tax and other proceedings and the risk that actual liabilities, assessments or other financial impact will exceed any estimated, accrued or expected amounts or outcomes.

the risks associated with any uncertainties arising related to our ongoing review of strategic alternatives.

Net sales

Costs and expenses

Cost of sales, buying and occupancy

Selling, general and administrative

Restructuring charges

Impairment of store assets

Merger-related costs

Operating income

Interest

Interest expense

Interest income

Interest expense, net

Income before taxes

Income tax (benefit) expense

Income from continuing operations

Loss from discontinued operations

Net income

Basic earnings per share:

Continuing operations

Discontinued operations

Net earnings

Diluted earnings per share:

Continuing operations

Discontinued operations

Net earnings

Weighted average shares outstanding:

Basic

Diluted

Cash and cash equivalents

Customer accounts receivable, net

Merchandise inventories

Other current assets

Total current assets

Property and equipment, net

Goodwill

Trademarks

Other assets

Total Assets

Accounts payable

Trade payables financing

Accrued liabilities

Revolving credit facility

Current portion of term loan

Total current liabilities

Term loan

Deferred rent under lease commitments

Deferred income taxes

Other liabilities

Stockholders' equity

Total Liabilities and Stockholders' Equity

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

Loss from discontinued operations

Income from continuing operations

Depreciation and amortization

Stock-based compensation

Amortization of debt issuance costs

Impairment of store assets

Gift card breakage income

Deferred and other items

Changes in:

Customer accounts receivable

Merchandise inventories

Accounts payable

Accrued liabilities

All other working capital

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property and equipment

Proceeds from disposal of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings on revolving credit facility

Payments on revolving credit facility

Borrowings on term loan

Change in trade payables financing, net

Payment of debt issuance costs

Proceeds from options exercised

Purchase of treasury stock

Net cash provided by financing activities

EFFECT OF EXCHANGE RATE CHANGES ON CASH

CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS, END OF PERIOD

Income from continuing operations

Restructuring charges (a)

Impairment of store assets (a)

Merger-related costs (a)

Executive retirement (a) (b)

Evaluation of strategic alternatives (a) (c)

Store re-image initiative (a) (d)

Adjusted income from continuing operations

Operating income

Restructuring charges

Impairment of store assets

Merger-related costs

Executive retirement (b)

Evaluation of strategic alternatives (c)

Store re-image initiative (d)

Adjusted operating income

Store Count (unaudited)

Retail

Upscale Outlets

Surplus Outlets

Total

Location Count (including individual store concepts) (unaudited)

Retail

Upscale Outlets

Surplus Outlets

Total

Total Store Selling Square Footage (unaudited)

Amounts in thousands

Retail

Upscale Outlets

Surplus Outlets

Total