UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Commission File No. 0-19972

CHRISTOPHER & BANKS CORPORATION

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  ý     NO    o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES  ý     NO    o

As of December 24, 2004, 35,707,604 shares of the registrant’s common stock were outstanding.

CHRISTOPHER & BANKS CORPORATION

FORM 10-Q QUARTERLY REPORT

INDEX

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CHRISTOPHER & BANKS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

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CHRISTOPHER & BANKS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

4

CHRISTOPHER & BANKS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

5

CHRISTOPHER & BANKS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

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CHRISTOPHER & BANKS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The unaudited consolidated condensed financial statements included in this Form 10-Q have been prepared by Christopher & Banks Corporation and subsidiaries (the “Company”) pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed, or omitted, pursuant to such rules and regulations. These unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2004.

The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature.

NOTE 2 – ACQUISITION OF ACORN STORES

On November 1, 2004, the Company acquired the assets and assumed certain liabilities of Gilmore Brothers Inc., a privately held women’s specialty retailer operating stores under the name “Acorn,” for approximately $7.4 million in cash. The Company funded the purchase from current cash balances and redemptions of short-term investments. Of the $7.4 million, $2.3 million was placed in escrow to satisfy certain obligations of Gilmore Brothers, Inc. not assumed by the Company. The Company plans to continue to operate Acorn as a division of Christopher & Banks, Inc.

As of November 1, 2004, Acorn operated 21 stores in nine states that offer upscale women’s fashions along with complementary jewelry and accessories under private and branded labels. The transaction was accounted for under the purchase method of accounting and accordingly, the results of operations of Acorn have been consolidated in the Company’s financial statements from the date of acquisition.

The total purchase price has been allocated to the assets acquired and liabilities assumed from Gilmore Brothers, Inc., based on their respective estimated fair values as of the date of acquisition. The purchase price allocation resulted in excess consideration, over the estimated fair value of the net assets acquired, of approximately $3.6 million, which has been assigned to goodwill. A summary of the allocation of the purchase price follows:

The intangible assets acquired pertained to customer lists and other information relating to the Acorn Awards program, a preferred customer shopping program. The intangible assets will be amortized over their estimated useful lives, ranging from three to nine years. The resulting amortization expense has been included in depreciation and amortization in the consolidated statement of income.

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NOTE 3 – SHORT-TERM INVESTMENTS

Short-term investments consisted of the following at November 27, 2004 and November 29, 2003:

NOTE 4 – MERCHANDISE INVENTORY, NET

Merchandise inventory, net consisted of the following at November 27, 2004 and November 29, 2003:

NOTE 5 – PROPERTY, EQUIPMENT, AND IMPROVEMENTS, NET

Property, equipment and improvements, net consisted of the following at November 27, 2004 and November 29, 2003:

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NOTE 6 – GOODWILL

The changes in the carrying amount of goodwill for the nine months ended November 27, 2004, are as follows:

The Company recognizes the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed as goodwill. Goodwill will be tested for impairment on an annual basis in the fourth quarter and between annual tests whenever impairment is indicated. Fair values are calculated based on an estimate of future cash flows, compared to the corresponding carrying value of the acquired entity, including goodwill. Impairment losses will be recognized whenever the implied fair value is less than the carrying value of the related asset.

NOTE 7 – INTANGIBLE ASSETS

Acquired intangible assets consisted of the following at November 27, 2004:

Aggregate amortization expense for the nine months ended November 27, 2004 totaled $9,097. Estimated aggregate amortization expense for fiscal 2005 and the next five fiscal years is as follows:

The above amortization expense forecast is an estimate. Actual amounts may differ from the estimated amounts due to additional intangible asset acquisitions, potential impairment, accelerated amortization or other events. Impairment losses are recognized if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and exceeds its fair value.

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NOTE 8 – ACCRUED LIABILITIES

Other accrued liabilities consisted of the following at November 27, 2004 and November 29, 2003:

NOTE 9 – LONG-TERM DEBT

The Company maintains an Amended and Restated Revolving Credit and Security Agreement with Wells Fargo Bank, National Association (the “Wells Fargo Revolver”) which expires on June 30, 2006. The Wells Fargo Revolver provides the Company with revolving credit loans and letters of credit of up to $40.0 million, subject to a borrowing base formula based on inventory levels.

In October 2004, the Wells Fargo Revolver was amended to allow, among other things, the formation of a new subsidiary, Christopher & Banks Services Company, in conjunction with the acquisition of Acorn.

Loans under the Wells Fargo Revolver bear interest at Wells Fargo’s base rate, 5% as of November 27, 2004, plus 0.25%. Interest is payable monthly in arrears. The Wells Fargo Revolver carries a facility fee of 0.25% based on the unused portion as defined in the agreement. Facility fees totaled $3,963 for the nine months ended November 27, 2004. The credit facility is collateralized by the Company’s equipment, general intangibles, inventory, inventory letters of credit and letter of credit rights. The Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first nine months of fiscal 2005. Historically, the Wells Fargo Revolver has been utilized by the Company only to open letters of credit to facilitate the import of merchandise. The borrowing base at November 27, 2004 was $35.5 million. As of November 27, 2004, the Company had outstanding letters of credit in the amount of $17.6 million. Accordingly, the availability of revolving credit loans under the Wells Fargo Revolver was $17.9 million at November 27, 2004.

The Wells Fargo Revolver contains certain restrictive covenants including restrictions on incurring additional indebtedness and limitations on certain types of investments, as well as requiring the maintenance of certain financial covenants. As of November 27, 2004, the most recent measurement date, the Company was in compliance with all covenants of the Wells Fargo Revolver.

NOTE 10 – STOCKHOLDERS’ EQUITY

In September 2003, the Company’s Board of Directors declared an on-going cash dividend of $0.04 per share to be paid quarterly, subject to Board approval. In the first nine months of fiscal 2005, quarterly dividends were paid on April 6, 2004, July 6, 2004 and October 5, 2004 to shareholders of record as of March 19, 2004, June 18, 2004 and September 20, 2004, respectively. On December 2, 2004, the Company declared another quarterly dividend of $0.04 per share to be paid January 4, 2005 to shareholders of record as of December 17, 2004.

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The Company’s Board of Directors authorized a stock repurchase program in February 2004 enabling the Company to purchase up to $25.0 million of its common stock, subject to market conditions. On June 28, 2004, the Company announced its Board of Directors authorized an increase in the stock repurchase program to $40.0 million. As of November 27, 2004, the Company had repurchased 2,367,400 shares of its common stock for a total cost of approximately $40.0 million, effectively completing the repurchase program.

The common stock repurchased under the Company’s most recent authorization is being held in treasury and reduced the number of shares of the Company’s common stock outstanding by approximately 6%. All of the Company’s share repurchases were executed in the open market, and no shares were repurchased from related parties. In addition, all of the Company’s share repurchases were executed in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Depending on market conditions and the Company’s cash position, the Company may participate in additional stock repurchase programs in the future.

NOTE 11 – NET INCOME PER SHARE

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the applicable periods, while diluted EPS is computed based on the weighted average number of common and common equivalent shares (dilutive stock options) outstanding.

The following is a reconciliation of the number of shares and per share amounts used in the basic and diluted EPS computations:

Stock options of 1,513,349 and 1,489,349 were excluded from the shares used in the computation of diluted EPS for the three and nine months ended November 27, 2004 as they were anti-dilutive. Stock options of 12,000 and 286,348 were excluded from the shares used in the computation of diluted EPS for the three and nine months ended November 29, 2003 as they were anti-dilutive.

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NOTE 12 – STOCK-BASED COMPENSATION

The Company discloses stock-based compensation information in accordance with Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock Based Compensation,” and No. 148 (“SFAS No. 148”), “Accounting for Stock Based Compensation Transition and Disclosure.” SFAS No. 148, an amendment of SFAS No. 123, does not amend the provisions of SFAS No. 123 that permit entities to account for stock-based compensation under the intrinsic value method set forth by Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees.” The Company has elected to continue to recognize compensation cost for its stock-based compensation plans in accordance with APB No. 25. Generally, no compensation expense is recognized for stock options with exercise prices equal to the market value of the underlying shares of stock at the date of grant.

If stock-based compensation cost had been determined based on the fair value methodology prescribed by SFAS No. 123 and SFAS No. 148, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated in the following table.

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The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. As the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

NOTE 13 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment ,” which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requires all share-based payment transactions, including stock options, restricted stock plans, performance-based awards, share appreciation rights and employee stock purchase plans, to be recognized as compensation expense in the financial statements. The cost will be measured based on the fair value of the equity or liability instruments issued. SFAS No. 123(R) is effective for the first interim or annual reporting period beginning after June 15, 2005. The Company is currently evaluating the impact this statement will have on its financial statements and anticipates adopting SFAS No. 123(R) during the third quarter of fiscal 2006.

In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions.” SFAS No. 152 amends SFAS No. 66, “Accounting for Sales of Real Estate,” and No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. Statement No. 152 is effective for fiscal years beginning after June 15, 2005. The adoption of SFAS No. 152 is expected to have no impact on the Company’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions which should be measured based on the fair value of the assets exchanged. Statement No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is expected to have no impact on the Company’s financial position or results of operations.

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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)

Overview

Christopher & Banks Corporation is a Minneapolis-based retailer of women’s specialty apparel, which operates stores through its wholly-owned subsidiaries, Christopher & Banks, Inc., Christopher & Banks Company and Christopher & Banks Services Company, collectively referred to as the “Company.” As of December 24, 2004, the Company operated 648 stores in 44 states including 472 Christopher & Banks stores, 155 C.J. Banks stores and 21 Acorn stores. The Company’s Christopher & Banks stores offer distinctive fashions featuring exclusively designed, coordinated assortments of sportswear and sweaters in sizes four to 16. The Company’s C.J. Banks stores offer similar assortments of women’s specialty apparel in sizes 14W and up. Acorn stores offer upscale women’s fashions along with complementary jewelry and accessories under private and branded labels.

On November 1, 2004, the Company acquired the assets and assumed certain liabilities of Gilmore Brothers Inc., a privately held women’s specialty retailer operating stores under the name “Acorn,” for approximately $7.4 million in cash. The Company funded the purchase from current cash balances and short-term investments. Of the $7.4 million, $2.3 million was placed in escrow to satisfy certain obligations of Gilmore Brothers, Inc. not assumed by the Company. The Company plans to continue to operate Acorn as a division of Christopher & Banks, Inc.

As of December 24, 2004, Acorn operated 21 stores in nine states that offer upscale women’s fashions along with complementary jewelry and accessories under private and branded labels. The Company believes the acquisition will provide a differentiated yet complementary third retail concept to its business, which will enhance strategic growth plans by allowing the Company to reach a more upscale customer. The transaction was accounted for under the purchase method of accounting and accordingly, the results of operations of Acorn have been consolidated in the Company’s financial statements from the date of acquisition.

In the first nine months of fiscal 2005, the Company opened 60 new Christopher & Banks stores and 34 new C.J. Banks stores. The Company closed one store during the first nine months of fiscal 2005. The Company currently intends to open in excess of 100 new stores in fiscal 2006. However, in light of the Acorn acquisition and recent sales trends, the Company plans to review the number of stores it will open in fiscal 2006 during February 2005.

The Company’s Board of Directors authorized a stock repurchase program in February 2004 enabling the Company to purchase up to $25.0 million of its common stock, subject to market conditions. On June 28, 2004, the Company announced its Board of Directors authorized an increase in the stock repurchase program to $40.0 million. As of November 27, 2004, the Company had repurchased 2,367,400 shares of its common stock for a total cost, including commissions, of approximately $40.0 million, effectively completing the repurchase program.

The common stock repurchased under the Company’s most recent authorization is being held in treasury and reduced the number of shares of the Company’s common stock outstanding by approximately 6%. All of the Company’s share repurchases were executed in the open market and no shares were repurchased from related parties. In addition, all of the Company’s share repurchases were executed in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Depending on market conditions and the Company’s cash position, the Company may participate in additional stock repurchase programs in the future.

Although the Company has not met revenue, gross margin or same-store sales growth targets consistent with the past, overall cash flows remain very strong. This has provided the Company the ability to continue to fund growth, including the Acorn acquisition, and to complete its stock repurchase program from cash flows from operations and current cash and short-term investment balances.

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Critical Accounting Policies and Estimates

The Company’s critical accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements contained within the Company’s Annual Report on Form 10-K. Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Condensed Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

 On an ongoing basis, the Company evaluates its estimates, including those related to customer product returns, inventories, income taxes, insurance claims and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes in the Company’s critical accounting policies during the quarter or nine months ended November 27, 2004.

Results of Operations

The following table sets forth, for the periods indicated, certain items from the Company’s statement of income expressed as a percentage of net sales:

Three Months Ended November 27, 2004
Compared to Three Months Ended November 29, 2003

Net Sales. Net sales for the three months ended November 27, 2004 were $120.6 million, an increase of $13.3 million or 12.4%, from $107.3 million for the three months ended November 29, 2003. The increase in net sales resulted from an increase in the number of stores operated by the Company, partially offset by a 1% decline in same-store sales. The Company operated 648 stores at November 27, 2004, compared to 535 stores at November 29, 2003. The decline in same-store sales was primarily attributable to weakness in the Company’s sweater business and a challenging retail environment.

The Company’s same-store sales data is calculated based on the change in net sales for stores that have been open for more than 13 full months and includes stores, if any, that have been relocated within the same mall. The Company typically does not expand or relocate stores within a mall. Stores where the square footage has changed by more than 25 percent are excluded from the same-store sales calculation. Stores closed during the year are included in the calculation of same-store sales only for the full months of the year that the stores were open.

Sales from the 21 Acorn stores acquired by the Company on November 1, 2004 will be excluded from the calculation of same-store sales until the Company has operated these stores for 13 full months.

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Gross Profit. Gross profit, which is net sales less the cost of merchandise, buying expenses and occupancy costs, was $45.0 million, or 37.3% of net sales, during the third quarter of fiscal 2005, compared to $45.1 million, or 42.0% of net sales, during the same period in fiscal 2004. The decline in gross margin as a percent of net sales was mainly the result of a decrease in merchandise margins primarily due to higher markdowns, combined with negative leveraging of store rent expense. The negative leveraging of store rent expense resulted from a 1% decline in same-store sales combined with operating more stores in the third quarter of fiscal 2005 which were still in the buildup phase of their sales curve.

The Company’s gross profit may not be comparable to that of other entities as some entities, such as the Company, include all costs related to their distribution network in cost of sales, while other entities exclude a portion of these expenses from cost of sales and include them in selling, general and administrative expenses.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended November 27, 2004 were $29.0 million, or 24.1% of net sales, compared to $23.6 million, or 22.0% of net sales, for the three months ended November 29, 2003. The increase in selling, general and administrative expenses as a percent of net sales was primarily the result of increases in store salaries expense, self-insured medical costs, and other expenses, which had negative leverage due to the Company’s 1% decline in same-store sales.

Depreciation and Amortization. Depreciation and amortization was $3.5 million, or 2.8% of net sales, in the third quarter of fiscal 2005, compared to $3.0 million, or 2.8% of net sales, in the third quarter of fiscal 2004. The increase in depreciation and amortization expense was a result of capital expenditures made during the past year. The Company opened 94 new stores and acquired 21 Acorn stores during the nine months ended November 27, 2004.

Operating Income. As a result of the foregoing factors, operating income for the quarter ended November 27, 2004 was $12.5 million, or 10.4% of net sales, compared to operating income of $18.4 million, or 17.2% of net sales, for the three months ended November 29, 2003.

Interest Income.       For the three months ended November 27, 2004, interest income increased to $189,629 from $149,747 for the three months ended November 29, 2003. The increase was a result of higher interest rates on short-term investments in the third quarter of fiscal 2005 compared to the third quarter of fiscal 2004, offset by a lower average balance of short-term investments in the third quarter of fiscal 2005.

Income Taxes. Income tax expense in the third quarter of fiscal 2005 was $4.9 million, with an effective tax rate of 38.6%, compared to $7.2 million, with an effective tax rate of 38.6%, in the third quarter of fiscal 2004.

Net Income. As a result of the foregoing factors, net income for the three months ended November 27, 2004 was $7.8 million, or 6.5% of net sales and $0.22 per diluted share, compared to $11.4 million, or 10.6% of net sales and $0.29 per diluted share, for the three months ended November 29, 2003.

In the third quarter of fiscal 2005, diluted earnings of approximately $0.01 per share can be attributed to the Company’s repurchase of 2,367,400 shares of its common stock in February 2004 and the first nine months of fiscal 2005.

Nine Months Ended November 27, 2004
 Compared to Nine Months Ended November 29, 2003

Net Sales. Net sales for the nine months ended November 27, 2004 were $319.6 million, an increase of $29.2 million or 10%, from $290.4 million for the nine months ended November 29, 2003. The increase in net sales resulted from an increase in the number of stores operated by the Company, partially offset by a 4% decline in same-store sales. The Company operated 648 stores at November 27, 2004, compared to 535 stores at November 29, 2003. The 4% decline in same-store sales was primarily attributable to weakness in the Company’s sweater business and a challenging retail environment.

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The Company’s same-store sales data is calculated based on the change in net sales for stores that have been open for more than 13 full months and includes stores, if any, that have been relocated within the same mall. The Company typically does not expand or relocate stores within a mall. Stores where the square footage has changed by more than 25 percent are excluded from the same-store sales calculation. Stores closed during the year are included in the calculation of same-store sales only for the full months of the year that the stores were open.

Sales from the 21 Acorn stores acquired by the Company on November 1, 2004 will be excluded from the calculation of same-store sales until the Company has operated these stores for 13 full months.

Gross Profit. Gross profit, which is net sales less the cost of merchandise, buying expenses and occupancy costs, was $125.7 million, or 39.3% of net sales, during the first nine months of fiscal 2005, compared to $126.6 million, or 43.6% of net sales, during the same period in fiscal 2004. The decline in gross margin as a percent of net sales was mainly the result of negative leveraging of store rent expense, combined with a decrease in merchandise margins primarily due to higher markdowns. The negative leveraging of store rent expense resulted from a 4% decline in same-store sales combined with operating more stores in the first three quarters of fiscal 2005 which were still in the buildup phase of their sales curve.

The Company’s gross profit may not be comparable to that of other entities as some entities, such as the Company, include all costs related to their distribution network in cost of sales, while other entities exclude a portion of these expenses from cost of sales and include them in selling, general and administrative expenses.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended November 27, 2004 were $78.1 million, or 24.4% of net sales, compared to $68.1 million, or 23.5% of net sales, for the nine months ended November 29, 2003. The increase in selling, general and administrative expenses as a percent of net sales was primarily the result of an increase in store salaries expense which had negative leverage due to the Company’s 4% decline in same-store sales. Additionally, increases in self-insured medical costs and other expenses, partially offset by a decrease in bonus expense, contributed to negative leveraging of selling, general and administrative expense.

Depreciation and Amortization. Depreciation and amortization was $9.9 million, or 3.1% of net sales, in the first nine months of fiscal 2005, compared to $8.5 million, or 2.9% of net sales, in the first nine months of fiscal 2004. The increase in depreciation and amortization expense was a result of capital expenditures made during the past year. The Company opened 94 new stores and acquired 21 Acorn stores during the nine months ended November 27, 2004.

Operating Income. As a result of the foregoing factors, operating income for the nine months ended November 27, 2004 was $37.7 million, or 11.8% of net sales, compared to operating income of $50.0 million, or 17.2% of net sales, for the nine months ended November 29, 2003.

Interest Income.       For the nine months ended November 27, 2004, interest income increased to $689,585 from $548,357 for the nine months ended November 29, 2003. The increase was due to slightly higher interest rates in the first nine months of fiscal 2005 compared to the first nine months of fiscal 2004.

Income Taxes. Income tax expense in the first nine months of fiscal 2005 was $14.8 million, with an effective tax rate of 38.6%, compared to $19.5 million, with an effective tax rate of 38.6%, in the first nine months of fiscal 2004.

Net Income. As a result of the foregoing factors, net income for the nine months ended November 27, 2004 was $23.5 million, or 7.4% of net sales and $0.64 per diluted share, compared to $31.0 million, or 10.7% of net sales and $0.81 per diluted share, for the nine months ended November 29, 2003.

In the first nine months of fiscal 2005, diluted earnings of approximately $0.02 per share can be attributed to the Company’s repurchase of 2,367,400 shares of its common stock in February 2004 and the first nine months of fiscal 2005.

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Liquidity and Capital Resources

The Company’s principal on-going cash requirements are to finance the construction of new stores and the remodeling of certain existing stores, to purchase merchandise inventory and to fund other working capital requirements. Merchandise purchases vary on a seasonal basis, peaking in the fall. As a result, the Company’s cash requirements historically reach their peak in October or November. Conversely, cash balances reach their peak in January, after the holiday season is completed.

Net cash provided by operating activities totaled $18.6 million in the first nine months of fiscal 2005. Net cash provided by investing activities of $9.3 million included net redemptions of short-term investments of $36.8 million, offset by $20.1 million of capital expenditures and $7.4 million of cash paid for the acquisition of 21 Acorn stores. The Company opened 94 new stores and completed 19 store remodels during the nine months ended November 27, 2004.

Net cash of $38.6 million was used by the Company for financing activities in the first nine months of fiscal 2005. The Company repurchased 2,088,236 shares of the Company’s common stock at a total cost, including commissions, of approximately $35.4 million during the nine months ended November 27, 2004. The common stock repurchased is being held in treasury. Certain directors, officers and key employees of the Company exercised stock options which provided approximately $1.2 million of cash during the nine months ended November 27, 2004. In April, July and October 2004, the Company paid quarterly cash dividends which together totaled approximately $4.4 million.

The Company plans to fund approximately $5 million of capital expenditures during the last three months of fiscal 2005, most of which will relate to stores scheduled to open in the first quarter of fiscal year 2006. The Company currently intends to open in excess of 100 new stores in fiscal 2006. However, in light of the Acorn acquisition and recent sales trends, the Company plans to review the number of stores it will open in fiscal 2006 during February 2005. The Company expects its cash and short-term investments, combined with cash flows from operations, to be sufficient to meet its planned new store growth, capital expenditure, working capital and other requirements for liquidity during the remainder of fiscal 2005 and throughout fiscal 2006.

The Company maintains an Amended and Restated Revolving Credit and Security Agreement with Wells Fargo Bank, National Association (the “Wells Fargo Revolver”) which expires on June 30, 2006. The Wells Fargo Revolver provides the Company with revolving credit loans and letters of credit of up to $40.0 million, subject to a borrowing base formula based on inventory levels.

In October 2004, the Wells Fargo Revolver was amended to allow, among other things, the formation of a new subsidiary, Christopher & Banks Services Company, in conjunction with the acquisition of Acorn.

Loans under the Wells Fargo Revolver bear interest at Wells Fargo’s base rate, 5% as of November 27, 2004, plus 0.25%. Interest is payable monthly in arrears. The Wells Fargo Revolver carries a facility fee of 0.25% based on the unused portion as defined in the agreement. Facility fees totaled $3,963 for the nine months ended November 27, 2004. The credit facility is collateralized by the Company’s equipment, general intangibles, inventory, inventory letters of credit and letter of credit rights. The Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first nine months of fiscal 2005. Historically, the Wells Fargo Revolver has been utilized by the Company only to open letters of credit to facilitate the import of merchandise. The borrowing base at November 27, 2004 was $35.5 million. As of November 27, 2004, the Company had outstanding letters of credit in the amount of $17.6 million. Accordingly, the availability of revolving credit loans under the Wells Fargo Revolver was $17.9 million at November 27, 2004.

The Wells Fargo Revolver contains certain restrictive covenants including restrictions on incurring additional indebtedness and limitations on certain types of investments, as well as requiring the maintenance of certain financial covenants. As of November 27, 2004, the most recent measurement date, the Company was in compliance with all covenants of the Wells Fargo Revolver.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of November 27, 2004:

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