dELiAs 10-Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 31, 2009

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

For the transition period from              to             .

Commission file number: 000-51648

dELiA*s, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3397172
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

50 West 23^rd Street, New York, NY 10010

(Address of Principal Executive Offices) (Zip Code)

(212) 590-6200

(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report:

None

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

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

Large Accelerated Filer	¨	Accelerated Filer	x
Non-accelerated Filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

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

As of December 8, 2009 the registrant had 31,201,514 shares of common stock, $.001 par value per share, outstanding.

dELiA*s, Inc.

TABLE OF CONTENTS

		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at October 31, 2009 (unaudited), January 31, 2009 and November 1, 2008 (unaudited)	3
	Condensed Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended October 31, 2009 (unaudited) and November 1, 2008 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 31, 2009 (unaudited) and November 1, 2008 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults upon Senior Securities	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
	SIGNATURES
	EXHIBIT INDEX
	EX-31.1
	EX-31.2
	EX-32.1
	EX-32.2

2

Item 1. Financial Statements

dELiA*s, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

	October 31, 2009		January 31, 2009		November 1, 2008
	(unaudited)				(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	26,396	$	92,512	$	7,966
Inventories, net		36,936		33,942		40,208
Prepaid catalog costs		4,765		2,759		5,344
Deferred income taxes		2,000		2,000		—
Other current assets		11,187		5,481		6,396
Assets held for sale		—		—		18,735
TOTAL CURRENT ASSETS		81,284		136,694		78,649
PROPERTY AND EQUIPMENT, NET		56,484		53,164		54,423
GOODWILL		12,073		12,073		12,073
INTANGIBLE ASSETS, NET		2,423		2,440		2,447
RESTRICTED CASH		15,753		—		—
OTHER ASSETS		563		430		196
ASSETS HELD FOR SALE		—		—		28,170
TOTAL ASSETS	$	168,580	$	204,801	$	175,958
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	22,231	$	21,389	$	30,190
Bank loan payable		—		—		13,813
Current portion of mortgage note payable		—		2,205		2,260
Accrued expenses and other current liabilities		27,073		28,822		26,676
Income taxes payable		715		25,243		—
Liabilities held for sale		—		—		330
TOTAL CURRENT LIABILITIES		50,019		77,659		73,269
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES		12,163		11,813		10,166
TOTAL LIABILITIES		62,182		89,472		83,435
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred Stock; $.001 par value, 25,000,000 shares authorized, none issued		—		—		—
Common Stock; $.001 par value, 100,000,000 shares authorized; 31,201,514, 31,199,889 and 31,108,981 shares issued and outstanding, respectively		31		31		31
Additional paid-in capital		98,430		97,728		97,494
Retained earnings (accumulated deficit)		7,937		17,570		(5,002	)
TOTAL STOCKHOLDERS’ EQUITY		106,398		115,329		92,523
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	168,580	$	204,801	$	175,958

See accompanying Notes to Condensed Consolidated Financial Statements.

3

dELiA*s, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	For the Thirteen Weeks Ended						For the Thirty-Nine Weeks Ended
	October 31, 2009			November 1, 2008			October 31, 2009			November 1, 2008
NET REVENUES	$	59,736		$	56,946		$	157,565		$	148,407
Cost of goods sold		37,957			35,895			103,968			96,625
GROSS PROFIT		21,779			21,051			53,597			51,782
Selling, general and administrative expenses		23,678			23,835			67,698			69,021
Impairment of long-lived assets		—			574			—			574
TOTAL OPERATING EXPENSES		23,678			24,409			67,698			69,595
OPERATING LOSS		(1,899	)		(3,358	)		(14,101	)		(17,813	)
Interest expense, net		(97	)		(209	)		(141	)		(501	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(1,996	)		(3,567	)		(14,242	)		(18,314	)
Benefit for income taxes		(650	)		(4,377	)		(4,598	)		(6,570	)
(LOSS) INCOME FROM CONTINUING OPERATIONS		(1,346	)		810			(9,644	)		(11,744	)
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX		5			2,708			11			6,330
NET (LOSS) INCOME	$	(1,341	)	$	3,518		$	(9,633	)	$	(5,414	)
BASIC (LOSS) INCOME PER SHARE:
(LOSS) INCOME FROM CONTINUING OPERATIONS	$	(0.04	)	$	0.03		$	(0.31	)	$	(0.38	)
INCOME FROM DISCONTINUED OPERATIONS	$	0.00		$	0.08		$	0.00		$	0.20
NET (LOSS) INCOME	$	(0.04	)	$	0.11		$	(0.31	)	$	(0.18	)
WEIGHTED AVERAGE BASIC COMMON SHARES		31,036,236			30,995,942			31,033,822			30,912,987
DILUTED (LOSS) INCOME PER SHARE:
(LOSS) INCOME FROM CONTINUING OPERATIONS	$	(0.04	)	$	0.03		$	(0.31	)	$	(0.38	)
INCOME FROM DISCONTINUED OPERATIONS	$	0.00		$	0.08		$	0.00		$	0.20
NET (LOSS) INCOME	$	(0.04	)	$	0.11		$	(0.31	)	$	(0.18	)
WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING		31,036,236			31,015,124			31,033,822			30,912,987

See accompanying Notes to Condensed Consolidated Financial Statements.

4

dELiA*s, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Thirty-Nine Weeks Ended
	October 31, 2009			November 1, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,633	)	$	(5,414	)
Income from discontinued operations		11			6,330
Loss from continuing operations		(9,644	)		(11,744	)
Adjustments to reconcile net loss to net cash used in operating activities of continuing operations:
Depreciation and amortization		7,479			6,450
Stock-based compensation		700			761
Impairment of long-lived assets		—			574
Changes in operating assets and liabilities:
Inventories		(2,994	)		(12,785	)
Prepaid catalog costs and other assets		(7,845	)		(1,433	)
Restricted cash		(15,753	)		—
Income taxes payable		(24,528	)		121
Accounts payable, accrued expenses and other liabilities		(1,040	)		7,385
Total adjustments		(43,981	)		1,073
Net cash used in operating activities of continuing operations		(53,625	)		(10,671	)
Net cash provided by operating activities of discontinued operations		11			4,350
NET CASH USED IN OPERATING ACTIVITIES		(53,614	)		(6,321	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(10,299	)		(10,770	)
NET CASH USED IN INVESTING ACTIVITIES		(10,299	)		(10,770	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement		—			13,813
Payment of mortgage note payable		(2,205	)		(155	)
Proceeds from the exercise of stock options		2			—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(2,203	)		13,658
NET DECREASE IN CASH AND CASH EQUIVALENTS		(66,116	)		(3,433	)
CASH AND CASH EQUIVALENTS, beginning of period		92,512			11,399
CASH AND CASH EQUIVALENTS, end of period	$	26,396		$	7,966
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the period for interest	$	199		$	481
Cash paid during the period for taxes	$	25,134		$	286
Capital expenditures incurred not yet paid	$	1,257		$	1,045

See accompanying Notes to Condensed Consolidated Financial Statements.

5

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In the discussion and analysis below, when we refer to “Alloy, Inc.”, we are referring to Alloy, Inc., our former parent corporation, and when we refer to “Alloy”, we are referring to the Alloy-branded direct marketing and merchandising business that we operate. Similarly, when we refer to “dELiA*s”, we are referring to the dELiA*s-branded direct marketing, merchandising and retail store business that we operate; when we refer to “dELiA*s, Inc.,” the “Company”, “we,” “us,” or “our,” we are referring to dELiA*s, Inc., its subsidiaries and its predecessors, including Alloy Merchandising Group, LLC, the company that, together with its subsidiaries, historically operated our business and that converted to a corporation named dELiA*s, Inc. on August 5, 2005; and when we refer to “the Spinoff”, we are referring to the December 19, 2005 spinoff of the outstanding common shares of dELiA*s, Inc. to the Alloy, Inc. shareholders. The accompanying financial information for the periods ended October 31, 2009 and November 1, 2008 is unaudited. The accompanying condensed consolidated balance sheet information at January 31, 2009 was derived from the audited consolidated balance sheet at January 31, 2009.

1. Basis of Presentation

We are a direct marketing and retail company comprised of two lifestyle brands primarily targeting teenage girls and young women. Our two lifestyle brands—dELiA*s and Alloy—generate revenue by selling to consumers through the integration of direct mail catalogs, e-commerce websites and, for dELiA*s, mall-based specialty retail stores. Through our catalogs and e-commerce web pages, we sell many name brand products, along with our own proprietary brand products in key teenage spending categories, directly to consumers, including apparel, accessories, footwear and room furnishings. Our mall-based specialty retail stores derive revenue primarily from the sale of apparel and accessories to teenage girls.

The accompanying unaudited condensed consolidated financial statements (the “financial statements”) of dELiA*s, Inc. at October 31, 2009 and November 1, 2008 and for the thirteen and thirty-nine week periods ended October 31, 2009 and November 1, 2008 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain notes and other information have been condensed or omitted from the financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the most recent dELiA*s, Inc. Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet at January 31, 2009 and related information presented in the footnotes have been derived from audited consolidated statements at that date. All financial results in these Notes to Condensed Consolidated Financial Statements are for continuing operations only unless otherwise stated. The Company has evaluated subsequent events through December 10, 2009, which is the date the financial statements were available to be issued.

Discontinued Operations and Assets Held for Sale

On November 5, 2008, the Company sold its CCS business to Foot Locker, Inc. for $103.2 million. As a result of this transaction, the results of the CCS business have been reported as discontinued operations for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008. In discontinued operations, the Company has reversed its allocation of shared services to the CCS business and has charged discontinued operations with the administrative and distribution expenses that were attributable to CCS. Also, as part of the transaction, dELiA*s, Inc. provided certain transition services to Foot Locker.

Income from discontinued operations, net of taxes was $5,000 and $11,000 for the thirteen and thirty-nine weeks ended October 31, 2009, respectively, and $2.7 million and $6.3 million for the thirteen and thirty-nine weeks ended November 1, 2008, respectively.

Discontinued operations were comprised of (in thousands):

	For the Thirteen Weeks Ended					For the Thirty-Nine Weeks Ended
	October 31, 2009			November 1, 2008		October 31, 2009			November 1, 2008
Net revenues	$	—		$	19,834	$	—		$	50,035
Cost of goods sold		—			11,086		—			29,726
Gross profit		—			8,748		—			20,309
Selling, general and administrative expenses (income)		(8	)		3,903		(18	)		9,491
Professional fees associated with sale of CCS		—			550		—			550
Total expenses (income)		(8	)		4,453		(18	)		10,041
Operating income		8			4,295		18			10,268
Provision for income taxes		3			1,587		7			3,938
Income from discontinued operations, net of income taxes	$	5		$	2,708	$	11		$	6,330

6

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Assets and liabilities of discontinued operations held for sale included the following (in thousands):

	October 31, 2009		January 31, 2009		November 1, 2008
Inventories, net	$	—	$	—	$	17,261
Prepaid catalog costs		—		—		1,474
Total current assets		—		—		18,735
Goodwill		—		—		28,131
Intangible assets, net		—		—		39
Total assets	$	—	$	—	$	46,905
Customer liabilities	$	—	$	—	$	330

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. We based our estimates on historical experience and on various other assumptions that we believe 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.

In preparing the financial statements, management makes routine estimates and judgments in determining the net realizable value of inventory, prepaid expenses, fixed assets, stock-based compensation, intangible assets and goodwill. Some of the more significant estimates include the allowance for sales returns, the reserve for inventory valuation, the expected future revenue stream of catalog mailings, risk-free interest rates, expected useful lives, expected volatility assumptions used for calculating stock-based compensation expense, the expected useful lives of fixed assets and the valuation of intangible assets and goodwill. Actual results may differ from these estimates under different assumptions and conditions.

We evaluate our estimates on an ongoing basis and make revisions as new information and experience warrants.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to January 31. References to “2009” or “fiscal 2009” represent the 52-week period ending on January 30, 2010, and references to “2008” or ”fiscal 2008” represent the 52-week period ended January 31, 2009.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

Principles of Consolidation

The financial statements include the accounts of dELiA*s, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash and cash equivalents, receivables, payables, other accrued liabilities and obligations under capital leases approximated fair value due to the short maturity of these financial instruments. The carrying amount of the mortgage note payable at January 31, 2009 and November 1, 2008 approximated fair value as this debt had a variable interest rate that fluctuated with the market rate.

We calculate the fair value of financial instruments and include this additional information in the notes to financial statements when the fair value is different than the book value of those financial instruments. When the fair value approximates book value, no additional disclosure is made. We use quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, we use standard pricing models for various types of financial instruments which take into account the present value of estimated future cash flows.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, credit card receivables and highly liquid investments with original maturities of three months or less. Credit card receivable balances included in cash and cash equivalents as of October 31, 2009, January 31, 2009 and November 1, 2008 were approximately $1.7 million, $643,000 and $2.1 million respectively.

7

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Valuation of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Factors we consider important that could trigger an impairment review include a significant underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset or a significant negative industry or economic trend. When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate determined by management. In the event future store performance is lower than forecasted results, future cash flows may be lower than expected, which could result in future impairment charges. While we believe recently opened stores will provide sufficient cash flow so as not to trigger impairment charges, material changes in results could result in future impairment charges. There were no impairment charges recorded for the thirteen and thirty-nine weeks ended October 31, 2009.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the Company’s net income (loss) by the weighted average number of shares outstanding during the period. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net earnings by the weighted average number of shares outstanding and the impact of all dilutive potential common shares, primarily stock options, restricted stock and convertible debentures. The dilutive impact of stock options and restricted stock is determined by applying the “treasury stock” method.

The total weighted average number of potential common shares with an anti-dilutive impact excluded from the calculation of diluted net income (loss) per share is detailed in the following table for the thirteen and thirty-nine week periods ended October 31, 2009 and November 1, 2008:

	For Thirteen Weeks Ended		For Thirty-Nine Weeks Ended
	October 31, 2009	November 1, 2008	October 31, 2009	November 1, 2008
Options, warrants and restricted shares	7,263,520	7,009,824	7,265,934	7,038,785
Conversion of 5.375% Convertible Debentures	873	—	873	54,867
Total	7,264,393	7,009,824	7,266,807	7,093,652

Income taxes

The Company reviews the annual effective tax rate on a quarterly basis and makes necessary changes if information or events merit. The annual effective rate is forecasted quarterly using actual historical information and forward-looking estimates.

Recently Issued Accounting Pronouncements

Effective August 2, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10,Generally Accepted Accounting Principles(“ASC 105-10”). ASC 105-10 establishes theFASB Accounting Standards Codification(the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied to non-governmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretative releases of the SEC under authority of Federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of new Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions in the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

In April 2009, the FASB issued amendments to ASC 820-10,Fair Value Measurements and Disclosures, which provide guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased. These amendments to ASC 820-10 include guidance on identifying circumstances that indicate when a transaction is not orderly, and are effective for interim reporting periods ending after June 15, 2009. These amendments to ASC 820-10 do not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, comparative disclosures are only required for periods ending after initial adoption. The Company adopted these amendments to ASC 820-10 during the second quarter of Fiscal 2009 and the adoption did not have a material impact on our condensed consolidated financial statements.

In May 2009, the FASB issued amendments to ASC 855-10,Subsequent Events, which establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The amendments to ASC 855-10 introduce the concept of financial statements beingavailable to be issued, and require the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company adopted the amendments to ASC 855-10 during the second quarter of Fiscal 2009. See Note 1, Basis of Presentation, for the disclosure required under these amendments to ASC 855-10.

In April 2009, the FASB issued updated guidance related to business combinations, which is included in the Codification in ASC 805-20,Business Combinations-Identifiable Assets, Liabilities and Any Non Controlling Interest,(“ASC 805-20”). ASC 805-20 amends and clarifies ASC 805 to address application issues regarding the initial recognition and measurement, subsequent measurement and accounting and disclosures of assets and liabilities arising from contingencies in a business combination. In circumstances where the acquisition-date fair value for a contingency cannot be determined during the measurement period and it is concluded that it is probable that an asset or liability exists as of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as of the acquisition date based on the estimated amount. The Company will apply ASC 805-20 prospectively to any business combinations completed after February 1, 2009.

8

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

In April 2009, the FASB issued amendments to ASC 825-10,Financial Instruments, which require disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The amendments to ASC 825-10 also require those disclosures in summarized financial information at interim reporting periods. The amendments to ASC 825-10 are effective for interim reporting periods ending after June 15, 2009. The amendments to ASC 825-10 do not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, comparative disclosures are only required for periods ending after initial adoption. The Company adopted the amendments to ASC 825-10 during the second quarter of Fiscal 2009. The required disclosures are included in “Fair Value of Financial Instruments” above.

In June 2008, the FASB issued amendments to ASC 260-10,Earnings Per Share, which require that unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) be considered participating securities and be included in the two-class method of computing earnings per share. These amendments to ASC 260-10 are effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company adopted these amendments to ASC 260-10 on February 1, 2009. The adoption of ASC 260-10 had no material impact on the Company’s condensed consolidated financial statements.

On February 3, 2008, the Company adopted FASB ASC 820-10,Fair Value Measurements and Disclosures(“ASC 820-10”), to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles and expand disclosures about fair value measurements except with respect to its non-financial assets and liabilities. ASC 820-10 requires quantitative disclosures using a tabular format in all periods (interim and annual) and qualitative disclosures about the valuation techniques used to measure fair value in all annual periods. On February 1, 2009, the Company adopted ASC 820-10 for its non-financial assets and liabilities. The Company’s non-financial assets, which include goodwill, property and equipment, and intangible assets are subject to this new guidance and are measured at fair value for impairment assessments. The adoption of ASC 820-10 did not have a material impact on our condensed consolidated financial statements.

3. Other Current Assets

Other current assets consisted of the following (in thousands):

	October 31, 2009		January 31, 2009		November 1, 2008
Prepaid rent	$	2,495	$	2,224	$	2,152
Prepaid taxes		5,480		407		577
Miscellaneous receivables		1,585		1,668		1,844
Prepaid store supplies		502		270		518
Prepaid insurance		225		5		364
Other miscellaneous prepaids		900		907		941
	$	11,187	$	5,481	$	6,396

4. Property and Equipment, net

Property and equipment, net, consisted of the following (in thousands):

	October 31, 2009			January 31, 2009			November 1, 2008
Construction in progress	$	2,464		$	1,403		$	1,185
Computer equipment		9,671			7,885			7,662
Machinery and equipment		125			125			125
Office furniture		18,595			16,096			15,629
Leasehold improvements		48,622			43,187			42,978
Building		7,559			7,559			7,559
Land		500			500			500
		87,536			76,755			75,638
Less: accumulated depreciation and amortization		(31,052	)		(23,591	)		(21,215	)
	$	56,484		$	53,164		$	54,423

Depreciation and amortization expense related to property and equipment was approximately $2.6 million and $7.5 million for the thirteen and thirty-nine week periods ended October 31, 2009, respectively, and $2.2 million and $6.4 million for thirteen and thirty-nine week periods ended November 1, 2008, respectively.

9

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

5. Intangible Assets

Intangible assets consisted of the following (in thousands):

	October 31, 2009				January 31, 2009				November 1, 2008
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizable intangible assets:
Mailing lists	$	78	$	78	$	78	$	76	$	78	$	74
Noncompetition agreements		390		390		390		390		390		390
Websites		689		689		689		689		689		689
Leaseholds		190		186		190		171		190		166
	$	1,347	$	1,343	$	1,347	$	1,326	$	1,347	$	1,319
Nonamortizable intangible assets:
Trademarks	$	2,419	$	—	$	2,419	$	—	$	2,419	$	—

Amortization expense was approximately $5,000 and $17,000 for the thirteen and thirty-nine week periods ended October 31, 2009, respectively, and $11,000 and $71,000 for the thirteen and thirty-nine week periods ended November 1, 2008, respectively. As of October 31, 2009, the estimated amortization expense for the remainder of fiscal 2009 is approximately $4,000.

6. Credit Facility

dELiA*s, Inc. and certain of its wholly-owned subsidiaries were parties to a Second Amended and Restated Loan and Security Agreement with Wells Fargo Retail Finance II, LLC (the “Restated Credit Facility”) which expired by its terms on June 26, 2009. The Restated Credit Facility was a secured revolving credit facility that the Company could draw upon for working capital and capital expenditure requirements and had an initial credit limit of $25 million.

The Company was allowed under the Restated Credit Facility, under certain circumstances and if certain conditions were met, to permanently increase the credit limit in $5 million increments, up to a maximum credit limit of $40 million. Each permanent increase in the credit limit required the Company to pay an origination fee of 0.20% of the amount of the increase. During March 2008, the Company permanently increased the credit limit under the Restated Credit Facility by $5 million, from $25 million to $30 million. The Company could also have obtained temporary credit limit increases for up to 90 consecutive days during the period beginning July 15th and ending on December 15th each year. Temporary credit limit increases did not require the payment of an origination fee. In the third quarter of fiscal 2008, the Company obtained a temporary credit increase of $5 million. During June 2008, the Restated Credit Facility was amended to allow for letters of credit up to an aggregate amount of $15 million. The Restated Credit Facility previously allowed for letters of credit up to an aggregate amount of $10 million.

Funds were available under the Restated Credit Facility up to the then existing credit limit or, if lower, the “Borrowing Base” of the Company determined in accordance with a formula set forth in the Restated Credit Facility based upon eligible inventory and accounts receivable, in each case less the sum of (i) outstanding revolving credit loans, (ii) outstanding letters of credit, (iii) certain “Availability Reserves” as determined in accordance with the terms of the Restated Credit Facility, and (iv) the “Availability Block” (which was equal to the greater of 6.5% of the then existing credit limit and $1.5 million). Loans under the Restated Credit Facility bore interest, at the Company’s option, either at the prime rate or the London Interbank Offered Rate plus a variable margin ranging from 1.25% to 1.75% depending on excess availability and cash on hand. A monthly fee of 0.25% per annum was payable based on the unused balance of the Restated Credit Facility. The Restated Credit Facility was secured by substantially all of the assets of the Company and contained various affirmative and negative covenants, representations, warranties and events of default, including restrictions such as limitations on additional indebtedness, other liens, dividends, distributions, stock repurchases, the annual amount of capital expenditures and the number of new stores the Company could open each year.

As of January 31, 2009 and November 1, 2008, there were $-0- and $13.8 million outstanding, respectively, under the Restated Credit Facility. Upon the closing of the sale of CCS in November 2008, all outstanding borrowings were repaid.

On June 26, 2009, the Company entered into a letter of credit agreement with Wells Fargo Retail Finance II, LLC (“Letter of Credit Agreement”) replacing the Restated Credit Facility.

The Letter of Credit Agreement, which has a maturity date of June 26, 2011, provides for the issuance of letters of credit to finance the acquisition of inventory from suppliers, to provide standby letters of credit to factors, landlords, insurance providers and other parties for business purposes, and for other general corporate purposes. Aggregate letters of credit issued and to be issued under the Letter of Credit Agreement at any one time outstanding may not exceed the lesser of $15,000,000 or an amount equal to a certain percentage of cash collateral held by Wells Fargo to secure repayment of the Company’s and the Subsidiaries’ respective obligations to Wells Fargo under the Letter of Credit Agreement and related letter of credit documents. The Company has secured these obligations by the pledge to Wells Fargo of cash collateral in the amount of $15,750,000. None of the other assets or properties of the Company, or any of its subsidiaries or affiliates, have been pledged as collateral for these obligations.

The Letter of Credit Agreement calls for the payment by the Company of an unused line fee of 0.75% per annum on the average unused portion of the credit facility under the Letter of Credit Agreement, a letter of credit fee of 2.00% per annum on the average outstanding face amount of letters of credit issued under the Letter of Credit Agreement, as well as other customary fees and expenses generally charged by the letter of credit issuer. The Letter of Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates must comply during the term of the Letter of Credit Agreement.

As of October 31, 2009, there were $7.2 million of outstanding letters of credit under the Letter of Credit Agreement.

10

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

	October 31, 2009		January 31, 2009		November 1, 2008
Accrued sales tax	$	941	$	906	$	809
Accrued payroll, bonus, taxes and withholdings		554		1,881		900
Accrued professional services		589		955		1,141
Credits due to customers		15,338		15,414		14,744
Allowance for sales returns		956		1,288		1,131
Accrued construction in progress		1,179		458		771
Other accrued expenses		7,516		7,920		7,180
	$	27,073	$	28,822	$	26,676

8. Mortgage Note Payable

We were a party to a mortgage loan agreement related to the purchase of our distribution facility in Hanover, Pennsylvania. The mortgage note amortized on a fifteen-year schedule and was to mature with a balloon payment of $2.3 million in September 2008. During March 2008, we extended the maturity date on the mortgage note from September 2008 to September 2009. The loan bore interest at LIBOR plus 225 basis points and was subject to quarterly financial covenants. The mortgage loan was secured by the distribution facility and related property. The Company paid off the remaining balance of the mortgage, which was approximately $2.1 million, on September 30, 2009.

9. Share-Based Compensation

The Company accounts for share-based compensation under the provisions of ASC 718 Compensation-Stock Compensation, which requires share-based compensation related to stock options to be measured based on estimated fair values at the date of grant using an option-pricing model.

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of stock option grants and expected future stock price volatility over the expected term.

Included in selling, general and administrative expense in the financial statements was stock-based compensation expense of approximately $235,000 and $700,000 for the thirteen and thirty-nine week periods ended October 31, 2009, respectively, and approximately $214,000 and $761,000 for the thirteen and thirty-nine week periods ended November 1, 2008, respectively, related to employee stock options and restricted stock.

The per share weighted average fair value of stock options granted during the thirty-nine weeks ended October 31, 2009 was $1.19. The fair value of each option grant is estimated on the date of grant with the following weighted average assumptions:

	Thirty-Nine Weeks Ended October 31, 2009
Dividend yield	—
Risk-free interest rate	2.8	%
Expected life (in years)	6.5
Historical volatility	65	%

A summary of the Company’s stock option activity and weighted average exercise prices is as follows:

	Options		Weighted Average Exercise Price
Options outstanding at January 31, 2009	6,137,356		$	7.89
Options granted	440,500			1.94
Options exercised	(1,625	)		1.81
Options cancelled	(356,487	)		10.28
Options outstanding at October 31, 2009	6,219,744		$	7.31
Options exercisable at October 31, 2009	4,349,653		$	8.97

As of October 31, 2009, there was $742,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 1.6 years.

11

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

10. Stockholders’ equity

Rights Offering

On December 30, 2005, we filed a prospectus under which we distributed to persons who were holders of our common stock on December 28, 2005 transferable rights to purchase up to an aggregate of 2,691,790 shares of our common stock at a cash subscription price of $7.43 per share. The rights offering was made to fund the costs and expenses of our retail store expansion plan and to provide funds for general corporate purposes following the Spinoff. MLF Investments, LLC (“MLF”), which is controlled by Matthew L. Feshbach, our former Chairman of the Board, agreed to backstop the rights offering, meaning MLF agreed to purchase all shares of our common stock that remained unsold upon completion of the rights offering at the same $7.43 subscription price per share. The rights offering was completed in February 2006 with $20 million of gross proceeds. The stockholders exercised subscription rights to purchase 2,040,570 shares of dELiA*s, Inc. common stock, of the 2,691,790 shares offered in the rights offering, raising a total of $15,161,435. On February 24, 2006, MLF purchased the remaining 651,220 shares for a total of $4,838,565. Excluding MLF, 90% of the rights were exercised. MLF received as compensation for its backstop commitment a nonrefundable fee of $50,000 and ten-year warrants to purchase 215,343 shares of our common stock at an exercise price of $7.43 per share. The warrants had a grant date fair value of approximately $900,000 and were recorded as a cost of raising capital. The MLF warrants were subsequently split so that MLF Offshore Portfolio Company, LP owned warrants to purchase 206,548 shares of our common stock and MLF Partners 100, LP owned warrants to purchase 8,795 shares of our common stock. Such warrants were distributed on a pro-rata basis to investors as part of the winding up of operations of MLF and its affiliated funds

Warrants and Convertible Debentures

Prior to the Spinoff, Alloy, Inc. had warrants outstanding for the purchase of 1,326,309 shares in the aggregate of Alloy, Inc. common stock that had been issued to certain purchasers of (i) Alloy, Inc. common stock in a private placement transaction completed on January 25, 2002, and (ii) Alloy, Inc.’s Series A Convertible Preferred Stock (collectively the “Warrants”). Upon consummation of the Spinoff, the Warrants became exercisable into both the number of shares of Alloy, Inc. common stock into which such Warrants otherwise were exercisable and one-half that number of shares, or 663,155 shares, of our common stock. We have agreed with Alloy, Inc. that we will issue shares of our common stock, without compensation, on behalf of Alloy, Inc. to holders of the Warrants as and when required in connection with any exercise of the Warrants. All other outstanding Alloy, Inc. warrants were unaffected by the Spinoff.

At the time of the Spinoff, Alloy, Inc. had outstanding $69.3 million of 5.375% convertible senior debentures due 2023 (the “Debentures”). The outstanding Debentures were convertible into 8,274,628 shares of Alloy, Inc. common stock. As a result of the Spinoff, the Debentures were convertible into 8,274,628 shares of Alloy, Inc. common stock (before consideration of a subsequent reverse stock split by Alloy, Inc.) and 4,137,314 shares of our common stock if and when the conditions to conversion are satisfied. We have agreed with Alloy, Inc. that we would issue shares of our common stock, without compensation, on behalf of Alloy, Inc. to holders of the Debentures as and when required in connection with any conversion of the Debentures. On July 30, 2008, debentures were converted into 82,508 shares of dELiA*s, Inc. common stock, which were recorded as a component of stockholders’ equity and had no impact on our statement of operations. As of October 31, 2009, 4,136,441 shares of dELiA*s, Inc. common stock have been issued in connection with conversions of the Debentures. When the remaining conversions occur, the remaining 873 related shares will also be recorded as a component of stockholders’ equity and have no impact on our statement of operations.

Restricted Stock

The Company issues shares of restricted stock, which are subject to vesting requirements, primarily to outside board members. These shares are charged to stock-based compensation expense ratably over the vesting period, which is generally three years. No restricted shares were issued during the thirteen and thirty-nine weeks ended October 31, 2009.

11. Interest (Expense) Income, Net

Interest income and interest expense are presented as a net amount in the condensed consolidated statements of operations. Interest income is derived from cash in bank accounts and money market accounts. Interest income for the thirteen and thirty-nine week periods ended October 31, 2009 was $28,000 and $220,000, respectively. Interest income for the thirteen and thirty-nine week periods ended November 1, 2008 was $29,000 and $95,000, respectively. Interest expense for the thirteen and thirty-nine week periods ended October 31, 2009 was $125,000 and $361,000, respectively. Interest expense for the thirteen and thirty-nine week periods ended November 1, 2008 was $238,000 and $596,000, respectively.

We capitalized $9,000 and $26,000 of interest expense in the thirteen and thirty-nine week periods ended October 31, 2009, respectively. We capitalized $21,000 and $59,000 of interest expense in the thirteen and thirty-nine week periods ended November 1, 2008, respectively.

12. Related Party Transactions

Services and Revenues

We recognize other revenues that consist primarily of advertising provided for third parties in our catalogs, on our e-commerce web pages, in our outbound packages, and in our retail stores pursuant to specific pricing arrangements with Alloy, Inc. Alloy, Inc. arranges these advertising services on our behalf, through a media services agreement (which was subsequently amended in conjunction with the sale of CCS) entered into in connection with the Spinoff, and this arrangement is deemed a related party transaction. We believe that the terms and conditions of this relationship are similar to those that we could obtain in the marketplace. Revenue under these arrangements is recognized, net of commissions and agency fees, when the underlying advertisement is published or otherwise delivered pursuant to the terms of each arrangement. We recorded revenues of $75,000 and $312,000 for the thirteen and thirty-nine week periods ended October 31, 2009, respectively, and $199,000 and $468,000 for the thirteen and thirty-nine week periods ended November 1, 2008, respectively, in our financial statements in accordance with the terms of the media services agreement. We recorded revenues of $27,000 and $83,000 for the thirteen and thirty-nine week periods ended November 1, 2008, respectively, related to the CCS business which is included in the discontinued operations caption in our consolidated statements of operations.

Prior to the Spinoff, we and Alloy, Inc. entered into the following agreements that were to define our ongoing relationships after the Spinoff: a distribution agreement, tax separation agreement, trademark agreement, information technology and intellectual property agreement, media services agreement (which was subsequently amended in conjunction with the sale of CCS), and an On Campus Marketing call center agreement. In addition, as part of the transaction involving the sale of our former CCS business, we entered into a Media Placement Services Agreement with Alloy, Inc. pursuant to which we agreed to purchase specified media services over a three year period for $3.3 million. We have compensated Alloy, Inc. approximately $318,000 and $985,000 for the thirteen and thirty-nine week periods ended October 31, 2009 and $12,000 and $107,000 for the thirteen and thirty-nine week periods ended November 1, 2008, respectively, in relation to the services provided under these agreements.

12

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

13. Income Taxes

The (benefit) provision for income taxes is based on the current estimate of the annual effective rate and is adjusted as necessary for quarterly events.

The Company follows ASC 740-10Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For this benefit to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes interest accrued for increases in the net liability for unrecognized income tax benefits in interest expense and any related penalties in income tax expense.

At October 31, 2009, the Company had a liability for unrecognized tax benefits of $336,000, all of which would favorably affect the Company’s effective tax rate if recognized. Included within the $336,000 is an accrual of $89,000 for the payment of related interest and penalties. There were no changes to the Company’s unrecognized tax benefits during the thirteen and thirty-nine weeks ended October 31, 2009. The Company does not believe there will be any material changes in the unrecognized tax positions over the next twelve months.

The Company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the fiscal years 2006 onward. The Company is not currently under examination by the Internal Revenue Service. State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective returns. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is periodically subject to state income tax examinations.

14. Litigation

The Company is involved from time to time in litigation incidental to the business and, from time to time, the Company may make provisions for potential litigation losses. The Company follows ASC 450 Contingencieswhen assessing pending or potential litigation.

The Company is a defendant in a litigation brought by Mynk Corporation (“Mynk”) in the Los Angeles Superior Court alleging non-payment for goods. The Company previously had a long-standing relationship with a supplier of goods, Femme Knits, Inc. (“Femme Knits”). Mynk contends that it acquired the right to completed orders for goods from Femme Knits as a result of an acquisition of that right at an alleged Uniform Commercial Code foreclosure sale. In accordance with an agreement between dELiA*s, Inc. and Femme Knits, dELiA*s, Inc. advanced the sum of $600,000 for some price and other concessions, and dELiA*s, Inc. could offset against the $600,000 advance future amounts owing to Femme Knits (Mynk). In July 2008, the Company recovered the advance by paying all other sums due on the purchase of goods from Femme Knits (Mynk) except for the $600,000 owed to it. Mynk contends that it is not bound by the agreement between dELiA*s, Inc. and Femme Knits. The Company intends to defend the matter vigorously. Although the amount of loss, if any, that might result from the matter is reasonably estimable, no provision has been recorded in the Company’s consolidated financial statements since the Company is unable to predict the outcome.

We are involved in additional legal proceedings that have arisen in the ordinary course of business. We believe that there is no claim or litigation pending, the outcome of which could have a material adverse effect on our financial condition or operating results.

15. Segment Reporting

The Company’s executive management, being its chief operating decision makers, works together to allocate resources and assess the performance of the Company’s business. The Company’s executive management manages the Company as two distinct operating segments—direct marketing and retail stores. Although offering customers substantially similar merchandise, the Company’s direct and retail operating segments have distinct management, marketing and operating strategies and processes.

The Company’s executive management assesses the performance of each operating segment based on operating income (loss), which is defined as net sales less the cost of goods sold and selling, general and administrative expenses both directly identifiable and allocable. For the direct segment, these operating costs, in addition to the cost of merchandise sold, primarily consist of catalog development, production and circulation costs, order processing costs, direct personnel costs and allocated overhead expenses. For the retail segment, these operating costs, in addition to the cost of merchandise sold, primarily consist of store selling expenses, direct labor costs and allocated overhead expenses. Allocated overhead expenses are costs associated with general corporate expenses and shared departmental services (e.g., executive, facilities, accounting, data processing, legal and human resources). Since the CCS business is recorded as a discontinued operation, certain allocated overhead expenses have been reallocated to the remaining continuing businesses (see Note 1).

13

dELiA*s, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Operating segment assets are those directly used in or clearly allocable to an operating segment’s operations. For the retail segment, these assets primarily include inventory, fixtures and leasehold improvements. For the direct segment, these assets primarily include inventory and prepaid catalog costs, together with goodwill. Corporate and other assets include corporate headquarters, distribution and contact center facilities, shared technology infrastructure as well as corporate cash and cash equivalents and prepaid expenses. Operating segment depreciation and amortization and capital expenditures are recorded directly to each operating segment. Corporate and other depreciation and amortization and corporate and other capital expenditures are allocated to each operating segment. The accounting policies of the segments are the same as those described in Note 2. Reportable data for our operating segments were as follows:

	Direct Marketing Segment		Retail Store Segment		Total
	(in thousands)
Total Assets
October 31, 2009	$	89,338	$	79,242	$	168,580
January 31, 2009	$	139,055	$	65,746	$	204,801
November 1, 2008	$	54,496	$	74,557	$	129,053
Capital Expenditures (accrual basis)
October 31, 2009 - 39 weeks ended	$	101	$	10,919	$	11,020
November 1, 2008 - 39 weeks ended	$	718	$	8,758	$	9,476
Depreciation and Amortization
October 31, 2009 - 39 weeks ended	$	1,096	$	6,383	$	7,479
November 1, 2008 - 39 weeks ended	$	1,092	$	5,358	$	6,450
Goodwill
October 31, 2009	$	12,073	$	—	$	12,073
January 31, 2009	$	12,073	$	—	$	12,073
November 1, 2008	$	12,073	$	—	$	12,073

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31, 2009			November 1, 2008			October 31, 2009			November 1, 2008
	(in thousands)						(in thousands)
Net revenues:
Direct marketing	$	24,501		$	24,377		$	73,414		$	69,286
Retail store		35,235			32,569			84,151			79,121
Total net revenue	$	59,736		$	56,946		$	157,565		$	148,407
Operating loss:
Direct marketing	$	(668	)	$	(979	)	$	(2,146	)	$	(3,487	)
Retail store		(1,231	)		(2,379	)		(11,955	)		(14,326	)
Operating loss	$	(1,899	)	$	(3,358	)	$	(14,101	)	$	(17,813	)

14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this report on Form 10-Q and in conjunction with our audited financial statements and related notes on our most recent Form 10-K. Descriptions of all documents incorporated by reference herein or included as exhibits hereto are qualified in their entirety by reference to the full text of such documents so incorporated or included. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth below in this Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption “Forward Looking Statements”.

The results for the thirteen and thirty-nine weeks ended October 31, 2009 and all other periods presented reflect CCS as a discontinued operation. The Company completed its sale of the CCS business on November 5, 2008. Upon closing of the transaction, the Company received $103.2 million in cash proceeds.

All financial results in this discussion are for continuing operations only unless otherwise stated.

Results of Operations and Financial Condition

Executive Summary

dELiA*s, Inc. is a multi-channel, specialty retailer of apparel and accessories comprised of two lifestyle brands—dELiA*s and Alloy. Our merchandise assortment (which includes many name brand products along with our own proprietary brand products), our catalogs, our e-commerce web pages, and our mall-based dELiA*s specialty retail stores are designed to appeal directly to our core customers. We reach our customers through our direct marketing segment, which consists of our catalog and e-commerce businesses, and our growing base of dELiA*s retail stores.

Our strategy is to improve upon our strong competitive position as a direct marketing company targeting teenage girls and young women; to expand and develop our dELiA*s specialty retail stores; to capitalize on the strengths of our brands by testing other branded direct marketing and potentially exploring retail store concepts; and to carry out such strategy while controlling costs.

We expect that growth in our retail stores business, which represented 59% and 53% of our total net sales for the thirteen and thirty-nine weeks ended October 31, 2009, respectively, will be the key element of our overall growth strategy. Our current expectation is to grow our retail store net square footage by approximately 13% in fiscal 2009 and by approximately 10-15% annually thereafter, although management periodically reviews our growth strategy based on market, economic and other conditions. We plan to continue to expand the dELiA*s retail store base over the long term, perhaps to as many as 350-400 stores, in part by utilizing our databases to identify new store sites. In addition, as store performance and market conditions allow, we may plan on accelerating our growth in gross square footage. Should we accelerate our growth, we may need additional equity or debt financing, which may not be available on acceptable terms or at all.

dELiA*s, Inc. formerly was an indirect, wholly-owned subsidiary of Alloy, Inc. By virtue of the completion of the Spinoff, Alloy, Inc. does not own any of our outstanding shares of common stock. In addition, we entered into various agreements with Alloy, Inc. prior to or in connection with the Spinoff. These agreements, as subsequently amended, govern various interim and ongoing relationships between Alloy, Inc. and us following the Spinoff.

Goals

We believe that focusing on our brands and implementing the following initiatives should lead to profitable growth and improved results from operations:

• Delivering low-to mid-single digit comparable store sales growth in our dELiA*s retail stores over the long term;

• Driving low-to mid-single digit top-line growth in direct marketing, through targeted circulation in productive mailing segments;

• Improving gross profit margins each year by 50 basis points;

• Developing retail merchandising assortments that emphasize key sportswear categories more effectively;

• Improving our retail store metrics through increased focus on the selling culture, with emphasis on key item selling, and thereby improving productivity;

• Implementing profit-improving inventory planning and allocation strategies such as seasonal carry-in reduction, better store-planning, targeted replenishment by size, tactical fashion investment, and vendor consolidation, to create inventory turn improvement;

• Leveraging our current expense infrastructure and taking additional operating costs out of the business;

• Increasing retail store net square footage by approximately 13% in fiscal 2009 and by approximately 10-15% annually thereafter;

• Monitoring and opportunistically closing underperforming stores.

15

Key Performance Indicators

The following measurements are among the key business indicators that management reviews regularly to gauge the Company’s results:

• store metrics such as comparable store sales, sales per gross square foot, average retail price per unit sold, average transaction values, average units per transaction, traffic conversion rates, and store contribution margin (defined as store gross profit less direct costs of running the store);

• direct marketing metrics such as demand generated by book, with demand defined as the amount customers seek to purchase without regard to merchandise availability;

• fill rate, which is the percentage of any particular order we are able to ship for our direct marketing business, from available on-hand inventory or future inventory orders;

• gross profit;

• operating income;

• inventory turnover and average inventory per store; and

• cash flow and liquidity determined by the Company’s cash provided by operations.

The discussion below includes references to “comparable stores.” We consider a store comparable after it has been open for fifteen full months without closure for more than seven consecutive days and whose square footage has not been expanded or reduced by more than 25% within that period. If a store is closed during a fiscal period, it is removed from the computation of comparable store sales for that fiscal quarter.

Our fiscal year is on a 52-53 week basis and ends on the Saturday nearest to January 31. The fiscal year ended January 31, 2009 was a 52-week fiscal year, and the fiscal year ending January 30, 2010 will also be a 52-week fiscal year.

Consolidated Results of Operations

The following table sets forth our statements of operations data for the periods indicated, reflected as a percentage of revenues:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2009		November 1, 2008		October 31, 2009		November 1, 2008
STATEMENTS OF OPERATIONS DATA:
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	63.5	%	63.0	%	66.0	%	65.1	%
Gross profit	36.5	%	37.0	%	34.0	%	34.9	%
Operating expenses:
Selling, general and administrative expenses	39.6	%	41.9	%	43.0	%	46.5	%
Operating loss	(3.2	)%	(5.9	)%	(8.9	)%	(12.0	)%
Interest expense, net	(0.2	)%	(0.4	)%	(0.1	)%	(0.3	)%
Loss before benefit for income taxes	(3.3	)%	(6.3	)%	(9.0	)%	(12.3	)%
Benefit for income taxes	(1.1	)%	(7.7	)%	(2.9	)%	(4.4	)%
(Loss) income from continuing operations	(2.3	)%	1.4	%	(6.1	)%	(7.9	)%
Income from discontinued operations	0.0	%	4.8	%	0.0	%	4.3	%
Net (loss) income	(2.2	)%	6.2	%	(6.1	)%	(3.6	)%

Thirteen Weeks Ended October 31, 2009 Compared to Thirteen Weeks Ended November 1, 2008

Revenues

Total Revenues. Total revenues increased 4.9% to $59.7 million in the quarter ended October 31, 2009 from $56.9 million in the quarter ended November 1, 2008.

Direct Marketing Revenues. Direct marketing revenues increased 0.5% to $24.5 million in the quarter ended October 31, 2009 from $24.4 million in the quarter ended November 1, 2008. Sales were primarily driven by increased volume as a result of incremental clearance activity.

Retail Store Revenues. Retail store revenues increased 8.2% to $35.2 million in the quarter ended October 31, 2009 from $32.6 million in the quarter ended November 1, 2008. The revenue increase was driven by new store openings offset by a comparable store sales decrease of 3.6% over the prior year period. During the quarter ended October 31, 2009, we opened four new stores and ended with 108 stores in operation as compared to the 96 locations open as of November 1, 2008.

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The following table sets forth select operating data in connection with the revenues of our Company:

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 31, 2009			November 1, 2008			October 31, 2009			November 1, 2008
Channel net revenues (in thousands) (1):
Retail	$	35,235		$	32,569		$	84,151		$	79,121
Direct:
Catalog		4,275			4,641			12,769			12,525
Internet		20,226			19,736			60,645			56,761
Total direct		24,501			24,377			73,414			69,286
	$	59,736		$	56,946		$	157,565		$	148,407
Internet % of total direct revenues		83	%		81	%		83	%		82	%
Catalogs Mailed (in thousands) (1)		14,576			14,725			33,148			33,693
Number of Stores:
Beginning of period		104			94			97			86
Stores opened		4			2			13	*		12	**
Stores closed		0			0			2	*		2	**
End of Period		108			96			108			96
Total Gross Sq. Ft. End of Period (in thousands)		411.7			366.1			411.7			366.1

1) Restated to exclude the CCS business

* Totals include one store that was closed, remodeled and reopened in the first quarter of fiscal 2009, and one store that was closed and relocated to an alternative site in the same mall during the second quarter of fiscal 2009.

** Totals include one store that was closed and relocated to an alternative site in the same mall during the first quarter of fiscal 2008, and one store that was closed and relocated to an alternative site in the same mall during the second quarter of fiscal 2008.

Gross Profit

Total Gross Profit. Total gross profit for the quarter ended October 31, 2009 was $21.8 million or 36.5% of revenues as compared to $21.1 million or 37.0% of revenues in the quarter ended November 1, 2008.

Direct Marketing Gross Profit. Direct marketing gross profit for the quarter ended October 31, 2009 was $10.9 million or 44.5% of revenues as compared to $11.3 million or 46.3% of revenues for the quarter ended November 1, 2008. The decrease was primarily attributable to increased clearance versus full price sales.

Retail Store Gross Profit. Retail store gross profit for the quarter ended October 31, 2009 was $10.9 million or 30.9% of revenues as compared to $9.8 million or 30.0% of revenues for the quarter ended November 1, 2008. Gross margin was driven by an increase in merchandise margins and improved inventory management.

Operating Expenses

Total Selling, General and Administrative. As a percentage of revenues, total selling, general and administrative expenses (SG&A) decreased to 39.6% for the quarter ended October 31, 2009 from 41.9% for the quarter ended November 1, 2008. In total dollars, selling, general and administrative expenses decreased to $23.7 million in the quarter ended October 31, 2009 from $23.8 million in the quarter ended November 1, 2008. The improvement in SG&A expenses as a percentage of sales was a result of reduced overhead costs.

In the third quarter of fiscal 2008, the Company recorded a noncash impairment charge of $0.6 million related to an underperforming store location.

Direct Marketing Selling, General and Administrative. Direct marketing selling, general and administrative expenses decreased to $11.6 million in the quarter ended October 31, 2009 from $12.3 million in the quarter ended November 1, 2008. As a percentage of related revenues, the direct marketing selling, general and administrative expenses decreased to 47.2% in the quarter ended October 31, 2009 from 50.3% in the quarter ended November 1, 2008. The improvement in SG&A as a percentage of sales reflects the leveraging of reductions in overhead costs.

Retail Store Selling, General and Administrative. Retail selling, general and administrative expenses increased to $12.1 million in the quarter ended October 31, 2009 from $11.6 million in the quarter ended November 1, 2008. As a percentage of related revenues, retail selling, general and administrative expenses decreased to 34.4% in the quarter ended October 31, 2009 from 35.5% for the quarter ended November 1, 2008. The improvement in SG&A as a percentage of sales reflects the leveraging of reduced overhead costs, partially offset by the additional costs related to the increased store count.

Operating Loss

Total Operating Loss. Our total operating loss was $1.9 million for the quarter ended October 31, 2009 as compared to a loss of $3.4 million for the quarter ended November 1, 2008.

Direct Marketing Operating Loss. Direct marketing operating loss was $0.7 million for the quarter ended October 31, 2009 as compared to a loss of $1.0 million for the quarter ended November 1, 2008.

Retail Store Operating Loss. Operating loss from retail stores was $1.2 million for the quarter ended October 31, 2009 as compared to a loss of $2.4 million for the quarter ended November 1, 2008.

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Interest income (expense), net

We recorded net interest expense of $97,000 in the quarter ended October 31, 2009 as compared with interest expense of $209,000 in the quarter ended November 1, 2008. Interest income was earned from cash in bank accounts and money market accounts. Interest expense was primarily related to fees for our credit facilities with Wells Fargo and the mortgage note for our Hanover, Pennsylvania facility.

Benefit for income taxes

Our income tax benefit reflects our anticipated annual effective tax rate and is adjusted as necessary for quarterly events. We recorded an income tax benefit from continuing operations of $0.7 million in the quarter ended October 31, 2009 and an income tax benefit of $4.4 million for the quarter ended November 1, 2008. The benefit for income taxes from continuing operations for the thirteen weeks ended November 1, 2008 included a year-to-date catch-up adjustment of $3.1 million.

Discontinued Operations and Assets Held for Sale

On November 5, 2008, the Company sold its CCS business to Foot Locker, Inc. for $103.2 million. As a result of this transaction, the operating results of the CCS business have been reported as discontinued operations for the thirteen and thirty-nine weeks ended October 31, 2009 and November 1, 2008. In discontinued operations, the Company has reversed its allocation of shared services to the CCS business and has charged discontinued operations with the administrative and distribution expenses that were attributable to CCS. Also, as part of the transaction, dELiA*s, Inc. provided certain transition services to Foot Locker.

Income from discontinued operations, net of taxes was $5,000 and $2.7 million for the thirteen weeks ended October 31, 2009 and November 1, 2008, respectively.

Thirty-Nine Weeks Ended October 31, 2009 Compared to Thirty-Nine Weeks Ended November 1, 2008

Revenues

Total Revenues. Total revenues increased 6.2% to $157.6 million in the thirty-nine weeks ended October 31, 2009 from $148.4 million in the thirty-nine weeks ended November 1, 2008.

Direct Marketing Revenues. Direct marketing revenues increased 6.0% to $73.4 million in the thirty-nine weeks ended October 31, 2009 from $69.3 million in the thirty-nine weeks ended November 1, 2008. Increased sales were driven by higher clearance activity as well as increased full price selling.

Retail Store Revenues. Retail store revenues increased 6.4% to $84.2 million for the thirty-nine weeks ended October 31, 2009 from $79.1 million for the thirty-nine weeks ended November 1, 2008. The revenue increase was driven by new store openings partially offset by a comparable store sales decrease of 3.8% over the prior year. During the thirty-nine weeks ended October 31, 2009, we opened eleven new stores. Accordingly, we ended the thirty-nine weeks ended October 31, 2009 with 108 stores in operation. We had 96 locations open as of November 1, 2008.

Gross Profit

Total Gross Profit. Total gross profit for the thirty-nine weeks ended October 31, 2009 was $53.6 million or 34.0% of revenues as compared to $51.8 million or 34.9% of revenues in the thirty-nine weeks ended November 1, 2008.

Direct Marketing Gross Profit. Direct marketing gross profit for the thirty-nine weeks ended October 31, 2009 was $31.9 million or 43.4% of revenues as compared to $31.9 million or 46.0% of revenues for the thirty-nine weeks ended November 1, 2008. The decrease, as a percentage of sales, was primarily attributable to increased clearance versus full price sales.

Retail Store Gross Profit. Retail store gross profit for the thirty-nine weeks ended October 31, 2009 was $21.7 million or 25.8% of revenues as compared to $19.9 million or 25.2% of revenues for the thirty-nine weeks ended November 1, 2008. The increase in retail segment gross margin was driven by improved merchandise margins and improved inventory management, partially offset by deleveraging of occupancy costs.

Operating Expenses

Total Selling, General and Administrative. As a percentage of revenues, total selling, general and administrative expenses (SG&A) decreased to 43.0% for the thirty-nine weeks ended October 31, 2009 from 46.5% for the thirty-nine weeks ended November 1, 2008. In total dollars, selling, general and administrative expenses decreased $1.3 million, to $67.7 million in the thirty-nine weeks ended October 31, 2009 from $69.0 million in the thirty-nine weeks ended November 1, 2008. The improvement in SG&A expenses as a percentage of sales reflects the leveraging of selling expenses on higher sales in both the retail and direct segments, as well as reduced overhead costs as a result of our recent restructuring.

In the thirty-nine weeks ended November 1, 2008, the Company recorded a noncash impairment charge of $0.6 million related to an underperforming store location.

Direct Marketing Selling, General and Administrative. Direct marketing selling, general and administrative expenses decreased to $34.0 million in the thirty-nine weeks ended October 31, 2009 from $35.4 million in the thirty-nine weeks ended November 1, 2008. As a percentage of related revenues, direct marketing selling, general and administrative expenses decreased to 46.4% in the thirty-nine weeks ended October 31, 2009 from 51.0% in the thirty-nine weeks ended November 1, 2008. The significant improvement in SG&A as a percentage of sales reflects the leveraging of catalog expenses on higher sales and reductions in overhead costs.

Retail Store Selling, General and Administrative. Retail selling, general and administrative expenses remained flat at $33.7 million for the thirty-nine weeks ended October 31, 2009 and November 1, 2008. As a percentage of related revenues, retail selling, general and administrative expenses decreased to 40.0% in the thirty-nine weeks ended October 31, 2009 from 42.6% for the thirty-nine weeks ended November 1, 2008. The decrease was primarily due to the leveraging of store costs on higher sales and reductions in overhead costs.

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Operating Loss

Total Operating Loss. Our total operating loss was $14.1 million for the thirty-nine weeks ended October 31, 2009 as compared to a loss of $17.8 million for the thirty-nine weeks ended November 1, 2008.

Direct Marketing Operating Loss. Direct marketing operating loss was $2.1 million for the thirty-nine weeks ended October 31, 2009 as compared to a loss of $3.5 million for the thirty-nine weeks ended November 1, 2008.

Retail Store Operating Loss. Operating loss from retail stores was $12.0 million for the thirty-nine weeks ended October 31, 2009 as compared to a loss of $14.3 million for the thirty-nine weeks ended November 1, 2008.

Interest income (expense), net

We recorded net interest expense of $141,000 in the thirty-nine weeks ended October 31, 2009 as compared with interest expense of $501,000 in the thirty-nine weeks ended November 1, 2008. Interest income was earned from cash in bank accounts and money market accounts. Interest expense was primarily related to fees for our credit facilities with Wells Fargo and the mortgage note for our Hanover, Pennsylvania facility.

Benefit for income taxes

Our income tax benefit reflects our anticipated annual effective tax rate and is adjusted as necessary for quarterly events. We recorded an income tax benefit from continuing operations of $4.6 million in the thirty-nine weeks ended October 31, 2009 and an income tax benefit of $6.6 million for the thirty-nine weeks ended November 1, 2008.

Discontinued Operations and Assets Held for Sale

Income from discontinued operations, net of taxes was $11,000 and $6.3 million for the thirty-nine weeks ended October 31, 2009 and November 1, 2008, respectively.

Seasonality and Quarterly Fluctuation

Our historical revenues and operating results have varied significantly from quarter to quarter due to seasonal fluctuations in consumer purchasing patterns. Sales of apparel, accessories and footwear through our e-commerce web pages, catalogs and retail stores have generally been higher in our third and fourth fiscal quarters, which contain the key back-to-school and holiday selling seasons, than in our first and second fiscal quarters. Starting in the second quarter and through the beginning of our fourth fiscal quarters, our working capital requirements increase and have typically been funded by our cash balances and in past years by borrowing under the Restated Credit Facility. Quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of store openings and the relative proportion of our new stores to mature stores, fashion trends and changes in consumer preferences, calendar shifts of holiday or seasonal periods, changes in merchandise mix, timing of promotional events, fuel, postage and paper prices, general economic conditions, competition and weather conditions.

Liquidity and Capital Resources

Our primary capital requirements include construction and fixture costs related to the opening of new retail stores and for maintenance and selective remodeling expenditures for existing stores, as well as incremental inventory required for the new stores. Future capital requirements will depend on many factors, including the pace of new store openings, the availability of suitable locations for new stores, and the size of the specific stores we open and the nature of arrangements negotiated with landlords. In that regard, our net investment to open new stores is likely to vary significantly in the future.

We expect the net proceeds from the sale of CCS and cash flow from operations will be sufficient to meet our expected cash requirements for operations and planned capital expenditures for the foreseeable future.

Operating Activities

Net cash used in operating activities was $53.6 million in the thirty-nine weeks ended October 31, 2009, compared with $10.7 million in the thirty-nine weeks ended November 1, 2008. The cash used in operating activities in the thirty-nine weeks ended October 31, 2009 was due primarily to the payment of income taxes, funding the net operating loss and funding of a restricted cash account to support outstanding letters of credit required under our Letter of Credit Agreement, noted below. The cash used in operating activities in the thirty-nine weeks ended November 1, 2008 was due primarily to funding the net operating loss.

Investing Activities

Cash used in investing activities was $10.3 million in the thirty-nine weeks ended October 31, 2009, compared with $10.8 million in the thirty-nine weeks ended November 1, 2008. The cash used in investing activities was primarily due to capital expenditures associated with the construction of our new retail stores.

Financing Activities

Cash used in financing activities was $2.2 million in the thirty-nine weeks ended October 31, 2009, related to payments on our mortgage note payable. Cash provided by financing activities in the thirty-nine weeks ended November 1, 2008 was $13.7 million, primarily related to borrowings on our Restated Credit Facility.

dELiA*s, Inc. and certain of its wholly-owned subsidiaries were parties to a Second Amended and Restated Loan and Security Agreement with Wells Fargo Retail Finance II, LLC (the “Restated Credit Facility”) which expired by its terms on June 26, 2009. The Restated Credit Facility was a secured revolving credit facility that the Company could draw upon for working capital and capital expenditure requirements and had an initial credit limit of $25 million.

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The Company was allowed under the Restated Credit Facility, under certain circumstances and if certain conditions were met, to permanently increase the credit limit in $5 million increments, up to a maximum credit limit of $40 million. Each permanent increase in the credit limit required the Company to pay an origination fee of 0.20% of the amount of the increase. During March 2008, the Company permanently increased the credit limit under the Restated Credit Facility by $5 million, from $25 million to $30 million. The Company could also have obtained temporary credit limit increases for up to 90 consecutive days during the period beginning July 15th and ending on December 15th each year. Temporary credit limit increases did not require the payment of an origination fee. In the third quarter of fiscal 2008, the Company obtained a temporary credit increase of $5 million. During June 2008, the Restated Credit Facility was amended to allow for letters of credit up to an aggregate amount of $15 million. The Restated Credit Facility previously allowed for letters of credit up to an aggregate amount of $10 million.

Funds were available under the Restated Credit Facility up to the then existing credit limit or, if lower, the “Borrowing Base” of the Company determined in accordance with a formula set forth in the Restated Credit Facility based upon eligible inventory and accounts receivable, in each case less the sum of (i) outstanding revolving credit loans, (ii) outstanding letters of credit, (iii) certain “Availability Reserves” as determined in accordance with the terms of the Restated Credit Facility, and (iv) the “Availability Block” (which was equal to the greater of 6.5% of the then existing credit limit and $1.5 million). Loans under the Restated Credit Facility bore interest, at the Company’s option, either at the prime rate or the London Interbank Offered Rate plus a variable margin ranging from 1.25% to 1.75% depending on excess availability and cash on hand. A monthly fee of 0.25% per annum was payable based on the unused balance of the Restated Credit Facility. The Restated Credit Facility was secured by substantially all of the assets of the Company and contained various affirmative and negative covenants, representations, warranties and events of default, including restrictions such as limitations on additional indebtedness, other liens, dividends, distributions, stock repurchases, the annual amount of capital expenditures and the number of new stores the Company could open each year.

As of January 31, 2009 and November 1, 2008, there were $-0- and $13.8 million outstanding, respectively, under the Restated Credit Facility. Upon the closing of the sale of CCS in November 2008, all outstanding borrowings were repaid.

On June 26, 2009, the Company entered into a letter of credit agreement with Wells Fargo Retail Finance II, LLC (“Letter of Credit Agreement”) replacing the Restated Credit Facility.

The Letter of Credit Agreement, which has a maturity date of June 26, 2011, provides for the issuance of letters of credit to finance the acquisition of inventory from suppliers, to provide standby letters of credit to factors, landlords, insurance providers and other parties for business purposes, and for other general corporate purposes. Aggregate letters of credit issued and to be issued under the Letter of Credit Agreement at any one time outstanding may not exceed the lesser of $15,000,000 or an amount equal to a certain percentage of cash collateral held by Wells Fargo to secure repayment of the Company’s and the Subsidiaries’ respective obligations to Wells Fargo under the Letter of Credit Agreement and related letter of credit documents. The Company has secured these obligations by the pledge to Wells Fargo of cash collateral in the amount of $15,750,000. None of the other assets or properties of the Company, or any of its subsidiaries or affiliates, have been pledged as collateral for these obligations.

The Letter of Credit Agreement calls for the payment by the Company of an unused line fee of 0.75% per annum on the average unused portion of the credit facility under the Letter of Credit Agreement, a letter of credit fee of 2.0% per annum on the average outstanding face amount of letters of credit issued under the Letter of Credit Agreement, as well as other customary fees and expenses generally charged by the letter of credit issuer. The Letter of Credit Agreement does not contain any financial covenants with which the Company or any of its subsidiaries or affiliates must comply during the term of the Letter of Credit Agreement.

As of October 31, 2009, there were $7.2 million of outstanding letters of credit under the Letter of Credit Agreement.

We were a party to a mortgage loan agreement related to the purchase of our distribution facility in Hanover, Pennsylvania. The mortgage note amortized on a fifteen-year schedule and was to mature with a balloon payment of $2.3 million in September 2008. During March 2008, we extended the maturity date on the mortgage note from September 2008 to September 2009. The loan bore interest at LIBOR plus 225 basis points and was subject to quarterly financial covenants. The mortgage loan was secured by the distribution facility and related property. The Company paid off the remaining balance of the mortgage, which was approximately $2.1 million, on September 30, 2009.

Contractual Obligations

The following table presents our significant contractual obligations as of October 31, 2009 (in thousands):

	Payments Due By Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual Obligations
Operating Lease Obligations (1)	$	118,795	$	16,942	$	31,884	$	28,642	$	41,327
Purchase Obligations (2)		21,963		20,688		1,275		—		—
Future Severance-Related Payments (3)		2,938		2,938		—		—		—
Total	$	143,696	$	40,568	$	33,159	$	28,642	$	41,327

(1) Our operating lease obligations are primarily related to dELiA*s retail stores and our corporate headquarters

(2) Our purchase obligations are primarily related to inventory commitments and service agreements

(3) Our future severance-related payments consist of severance agreements with existing employees.

We have long-term non-cancelable operating lease commitments for retail stores, office space, contact center facilities and equipment. We also have long-term, non-cancelable capital lease commitments for equipment.

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Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses, among other things, our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to product returns, bad debts, inventories, investments, intangible assets and goodwill, income taxes, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors 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. The Company believes that the following policies are most critical to the portrayal of the Company’s financial condition and results of operations.

Revenue Recognition

Direct marketing revenues are recognized at the time of shipment to customers. These revenues are net of any promotional price discounts and an allowance for sales returns. The allowance for sales returns is estimated based upon our direct marketing return policy, historical experience and evaluation of current sales and returns trends. Direct marketing revenues also include shipping and handling fees billed to customers.

Retail store revenues are recognized at the point of sale, net of any promotional price discounts and an allowance for sales returns. The allowance for sales returns is estimated based upon our retail return policy, historical experience and evaluation of current sales and returns trends.

We recognize other revenues that consist primarily of advertising provided for third parties in our catalogs, on our e-commerce web pages, in our outbound packages, and in our retail stores, pursuant to specific pricing arrangements with Alloy, Inc. Alloy, Inc. arranges these advertising services on our behalf through a media services agreement (see Note 11 to our condensed consolidated financial statements) entered into in connection with the Spinoff. We believe that the terms and conditions of this relationship are similar to those that we could obtain in the marketplace. Revenue under these arrangements is recognized, net of commissions and agency fees, when the underlying advertisement is published or otherwise delivered pursuant to the terms of each arrangement. We also recognize revenue from the sale of offline magazine subscriptions to our telephone direct marketing customers at the time of purchase. We recorded revenues of $75,000 and $312,000 for the thirteen and thirty-nine week periods ended October 31, 2009, respectively, and $199,000 and $468,000 for the thirteen and thirty-nine week periods ended November 1, 2008, respectively, in our financial statements in accordance with the terms of the media services agreement.

Catalog Costs

Catalog costs consist of catalog production, including paper and mailing costs. These costs are capitalized and expensed over the expected future revenue stream, which is customarily two to four months from the date the catalogs are mailed.

An estimate of the future sales dollars to be generated from each individual catalog mailing serves as the foundation for our catalog costs policy. The estimate of future sales is calculated for each mailing using historical trends for catalogs mailed in similar prior periods as well as the overall current sales trend for each individual direct marketing brand. This estimate is compared with the actual sales generated-to-date for the catalog mailing to determine the percentage of total catalog costs to be capitalized as prepaid expenses on our consolidated balance sheets.

Inventories

Inventories, which consist of finished goods, are stated at the lower of cost (first-in, first-out method) or market value. Inventories may include items that have been written down to our best estimate of their net realizable value. Our decisions to write-down and establish valuation allowances against our merchandise inventories are based on our current rates of sale, the age of the inventory and other factors. Actual final sales prices to customers may be higher or lower than our estimated sales prices and could result in a fluctuation in gross profit. The cost of inventories includes the cost of merchandise, freight in, duties, and certain buying, merchandising and warehousing costs. Store occupancy costs, including rent and common area maintenance, are treated as period costs.

Goodwill and Other Indefinite-Lived Intangible Assets

We follow the provisions of ASC 350 Goodwill and Other Intangible Assets.

Goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method. Goodwill of a reporting unit is tested for impairment on an annual basis or between annual tests if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount.

Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge.

We perform valuation analyses and consider other market information that is publicly available. Estimates of fair value are primarily determined using discounted cash flows and market comparisons. These approaches use significant estimates and assumptions including projected future cash flows (including timing), discount rates reflecting the risk inherent in future cash flows, revenue growth rates, projected long-term growth rates, royalty rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables.

Considerable management judgment is necessary to estimate the fair value of our reporting units which may be impacted by future actions taken by us or our competitors and the economic environment in which we operate. These estimates affect the balance of goodwill as well as intangible assets on our consolidated balance sheets and operating expenses on our consolidated statements of operations.

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Impairment of Long-Lived Assets

In accordance with ASC 360-10-35Impairment or Disposal of Long-Lived Assets, we assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified. Factors we consider important that could trigger an impairment review include a significant underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset or a significant negative industry or economic trend. When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate determined by management. In the event future store performance is lower than forecasted results, future cash flows may be lower than expected, which could result in future impairment charges. While we believe recently opened stores will provide sufficient cash flow so as not to trigger impairment charges, material changes in results could result in future impairment charges. For the thirteen and thirty-nine weeks ended October 31, 2009, we recorded no impairment charge in our consolidated statements of operations.

Recent Accounting Pronouncements

Effective August 2, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10,Generally Accepted Accounting Principles(“ASC 105-10”). ASC 105-10 establishes theFASB Accounting Standards Codification(the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied to non-governmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretative releases of the SEC under authority of Federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of new Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions in the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

In April 2009, the FASB issued amendments to ASC 820-10,Fair Value Measurements and Disclosures, which provide guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased. These amendments to ASC 820-10 include guidance on identifying circumstances that indicate when a transaction is not orderly, and are effective for interim reporting periods ending after June 15, 2009. These amendments to ASC 820-10 do not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, comparative disclosures are only required for periods ending after initial adoption. The Company adopted these amendments to ASC 820-10 during the second quarter of Fiscal 2009 and the adoption did not have a material impact on our condensed consolidated financial statements.

In May 2009, the FASB issued amendments to ASC 855-10,Subsequent Events, which establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The amendments to ASC 855-10 introduce the concept of financial statements beingavailable to be issued, and require the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company adopted the amendments to ASC 855-10 during the second quarter of Fiscal 2009. See Note 1, Basis of Presentation, for the disclosure required under these amendments to ASC 855-10.

In April 2009, the FASB issued updated guidance related to business combinations, which is included in the Codification in ASC 805-20,Business Combinations-Identifiable Assets, Liabilities and Any Non Controlling Interest,(“ASC 805-20”). ASC 805-20 amends and clarifies ASC 805 to address application issues regarding the initial recognition and measurement, subsequent measurement and accounting and disclosures of assets and liabilities arising from contingencies in a business combination. In circumstances where the acquisition-date fair value for a contingency cannot be determined during the measurement period and it is concluded that it is probable that an asset or liability exists as of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as of the acquisition date based on the estimated amount. The Company will apply ASC 805-20 prospectively to any business combinations completed after February 1, 2009.

In April 2009, the FASB issued amendments to ASC 825-10,Financial Instruments, which require disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The amendments to ASC 825-10 also require those disclosures in summarized financial information at interim reporting periods. The amendments to ASC 825-10 are effective for interim reporting periods ending after June 15, 2009. The amendments to ASC 825-10 do not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, comparative disclosures are only required for periods ending after initial adoption. The Company adopted the amendments to ASC 825-10 during the second quarter of Fiscal 2009. The required disclosures are included in “Fair Value of Financial Instruments” above.

In June 2008, the FASB issued amendments to ASC 260-10,Earnings Per Share, which require that unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) be considered participating securities and be included in the two-class method of computing earnings per share. These amendments to ASC 260-10 are effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company adopted these amendments to ASC 260-10 on February 1, 2009. The adoption of ASC 260-10 had no material impact on the Company’s condensed consolidated financial statements.

On February 3, 2008, the Company adopted FASB ASC 820-10,Fair Value Measurements and Disclosures(“ASC 820-10”), to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles and expand disclosures about fair value measurements except with respect to its non-financial assets and liabilities. ASC 820-10 requires quantitative disclosures using a tabular format in all periods (interim and annual) and qualitative disclosures about the valuation techniques used to measure fair value in all annual periods. On February 1, 2009, the Company adopted ASC 820-10 for its non-financial assets and liabilities. The Company’s non-financial assets, which include goodwill, property and equipment, and intangible assets are subject to this new guidance and are measured at fair value for impairment assessments. The adoption of ASC 820-10 did not have a material impact on our condensed consolidated financial statements.

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Off-Balance Sheet Arrangements

We enter into letters of credit issued under the Letter of Credit Agreement to facilitate the purchase of merchandise.

dELiA*s Brand, LLC, one of our subsidiaries, entered into a license agreement in 2003 with JLP Daisy that grants JLP Daisy exclusive rights (except for our rights) to use the dELiA*s trademarks to advertise, promote and market the licensed products, and to sublicense to permitted sub-licensees the right to use the trademarks in connection with the manufacture, sale and distribution of the licensed products to approved wholesale customers.

At the time of the Spinoff, Alloy, Inc. had outstanding $69.3 million of 5.375% convertible senior debentures due 2023 (the “Debentures”). The outstanding Debentures were convertible into 8,274,628 shares of Alloy, Inc. common stock. As a result of the Spinoff, the Debentures were convertible into 8,274,628 shares of Alloy, Inc. common stock (before consideration of a subsequent reverse stock split by Alloy, Inc.) and 4,137,314 shares of our common stock if and when the conditions to conversion are satisfied. We have agreed with Alloy, Inc. that we would issue shares of our common stock, without compensation, on behalf of Alloy, Inc. to holders of the Debentures as and when required in connection with any conversion of the Debentures. On July 30, 2008, debentures were converted into 82,508 shares of dELiA*s, Inc. common stock, which were recorded as a component of stockholders’ equity and had no impact on our statement of operations. As of October 31, 2009, 4,136,441 shares of dELiA*s, Inc. common stock have been issued in connection with conversions of the Debentures. When the remaining conversions occur, the remaining 873 related shares will also be recorded as a component of stockholders’ equity and have no impact on our statement of operations.

Prior to the Spinoff, Alloy, Inc. had warrants outstanding for the purchase of 1,326,309 shares in the aggregate of Alloy, Inc. common stock that had been issued to certain purchasers of (i) Alloy, Inc. common stock in a private placement transaction completed on January 25, 2002, and (ii) Alloy, Inc.’s Series A Convertible Preferred Stock (collectively the “Warrants”). Upon consummation of the Spinoff, the Warrants became exercisable into both the number of shares of Alloy, Inc. common stock into which such Warrants otherwise were exercisable and one-half that number of shares, or 663,155 shares, of our common stock. We have agreed with Alloy, Inc. that we will issue shares of our common stock, without compensation, on behalf of Alloy, Inc. to holders of the Warrants as and when required in connection with any exercise of the Warrants. All other outstanding Alloy, Inc. warrants were unaffected by the Spinoff.

We do not maintain any other off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Guarantees

We have no significant financial guarantees.

Inflation

In general, our costs are affected by inflation, and we may experience the effects of inflation in future periods. We have experienced recent increases in postage, paper, freight and energy costs that have had an adverse impact on our operating results.

Forward-Looking Statements

In order to keep stockholders and investors informed of our future plans, this Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains and, from time to time, other reports and oral or written statements issued by us may contain, statements expressing our expectations and beliefs regarding our future results, goals, performance and objectives that are or may be deemed to be “forward-looking statements” within the meaning of applicable securities laws. Our ability to do this has been fostered by the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. When used in this document, the words “anticipate”, “may”, “could”, “plan”, “project”, “should”, “would”, “predict”, “believe”, “estimate”, “expect” and “intend” and similar expressions are intended to identify such forward-looking statements.

Our forward-looking statements are based upon management’s current expectations and beliefs. They are subject to a number of known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements as a result of various factors, including, but not limited to, the impact of general economic and business conditions, including the currently difficult economic environment and recent turmoil in financial and credit markets; our inability to realize the full value of merchandise currently in inventory as a result of underperforming sales; unanticipated increases in mailing and printing costs; the cost of additional overhead that may be required to expand our brands; our inability to implement our retail store expansion strategy as a result of unexpected or increased costs or delays in the development and expansion of our retail chain or our inability to fund our retail expansion with operating cash as a result of either lower sales, higher than anticipated costs, and/or other factors; our inability to refinance the Letter of Credit Agreement; changing customer tastes and buying trends; the inherent difficulty in forecasting consumer buying patterns and trends, and the possibility that any improvements in our product margins, or in customer response to our merchandise, may not be sustained; uncertainties related to our multi-channel model, and, in particular, the effects of shifting patterns of e-commerce or retail purchases versus catalog purchases; any significant variations between actual amounts and the amounts estimated for those matters identified as our critical accounting estimates or our other accounting estimates made in the preparation of our financial statements; as well as the various other risk factors set forth in our periodic and other reports filed with the Securities and Exchange Commission. Accordingly, while we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and we cannot assure you that our future results, levels of activity, performance or achievements will meet these expectations. You are urged to consider all such factors. Except as required by law, we assume no obligation for updating any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of October 31, 2009, we did not hold any marketable securities, nor do we own any derivative financial instruments in our portfolio. Accordingly, we do not believe there is any material market risk exposure with respect to derivatives or other financial instruments that would require disclosure under this item.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, October 31, 2009, our Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended October 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time in litigation incidental to our business and, from time to time, we may make provisions for potential litigation losses. We follow ACS 450Contingencies when assessing pending or potential litigation.

The information set forth in Part I, Note 13 to the Notes to Condensed Consolidated Financial Statements contained on page 13 under the caption “Litigation” is incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009.

Risk factors and the other information are set forth in our most recent Annual Report on Form 10-K and our other periodic reports filed with the Securities Exchange Commission. Our risk factors, together with the notes set forth in this Form 10-Q and our other periodic reports under the caption “Forward Looking Statements”, are not exhaustive. For example, there can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business, or that the publicly available and other information with respect to these matters is complete and correct. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact our business. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, and results of operations. We assume no obligation (and specifically disclaim any such obligation) to update our risk factors or any other forward-looking statements to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

(A)	Exhibits
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*
32.1	Certification under section 906 by the Chief Executive Officer.*
32.2	Certification under section 906 by the Chief Financial Officer.*

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	dELiA*s, Inc.
Date: December 10, 2009	By:	/S/    ROBERT E. BERNARD
		Robert E. Bernard
		Chief Executive Officer
Date: December 10, 2009	By:	/S/    DAVID J. DICK
		David J. Dick
		Chief Financial Officer