Christopher & Banks (CBKCQ) 10-Q 2002 Q4 Quarterly report

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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 December 1, 2001

OR

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

For the transition period from              to              .

Commission File No. 0-19972

CHRISTOPHER & BANKS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization) 06-1195422
(I.R.S. Employer Identification Number)

2400 Xenium Lane North, Plymouth, Minnesota
(Address of principal executive offices)

55441
(Zip Code)

(763) 551-5000
(Registrant's telephone number, including area code)

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

    Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /x/  No / /

    As of December 21, 2001, 24,828,497 shares of the registrant's common stock were outstanding.

CHRISTOPHER & BANKS CORPORATION

FORM 10-Q QUARTERLY REPORT

INDEX

PART I
FINANCIAL INFORMATION

		Page
Item 1.	Consolidated Condensed Financial Statements:
	Consolidated Condensed Balance Sheet As of December 1, 2001, March 3, 2001 and November 25, 2000	3
	Consolidated Condensed Statement of Income For the Quarters Ended December 1, 2001 and November 25, 2000	4
	Consolidated Condensed Statement of Income For the Three Quarters Ended December 1, 2001 and November 25, 2000	5
	Consolidated Condensed Statement of Cash Flows For the Three Quarters Ended December 1, 2001 and November 25, 2000	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 2.	Changes in Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Submission of Matters to a Vote of Security Holders	14
Item 5.	Other Information	14
Item 6.	Exhibits and Reports on Form 8-K	14
	Signatures	15

2

CHRISTOPHER & BANKS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET

			December 1, 2001			March 3, 2001			November 25, 2000
			(Unaudited)			(Audited)			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	27,037,329		$	34,797,713		$	18,216,830
	Merchandise inventory			26,432,493			15,830,801			22,405,718
	Other current assets			8,754,659			7,451,436			6,329,592
		Total current assets		62,224,481			58,079,950			46,952,140
Property, equipment and improvements, net				54,118,389			33,823,326			27,286,083
Other assets				1,797,705			1,792,222			1,660,818
		Total assets	$	118,140,575		$	93,695,498		$	75,899,041
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	1,251,889		$	4,578,978		$	1,951,472
	Accrued liabilities			12,578,787			13,884,867			11,481,771
	Current maturities of long-term debt			—			—			24,885
		Total current liabilities		13,830,676			18,463,845			13,458,128
Long-term liabilities:
	Long-term debt			5,325,400			5,207,062			5,168,204
	Deferred revenue			1,142,187			—			—
	Accrued rent obligation			1,337,968			1,197,139			1,173,442
		Total long-term liabilities		7,805,555			6,404,201			6,341,646
Stockholders' equity:
	Preferred stock-$0.01 par value, 1,000,000 shares authorized; none outstanding			—			—			—
	Common stock-$0.01 par value, 74,000,000 shares authorized; 24,828,497, 24,005,396 and 23,610,653 shares issued and outstanding at December 1, 2001, March 3, 2001 and November 25, 2000, respectively			266,914			258,687			254,736
	Additional paid-in capital			41,118,804			36,184,702			32,089,592
	Retained earnings			58,168,587			35,614,022			27,115,942
				99,554,305			72,057,411			59,460,270
	Common stock held in treasury, 1,863,000 shares at cost			(2,999,961	)		(2,999,961	)		(2,999,961	)
	Common stock subscriptions receivable			(50,000	)		(229,998	)		(361,042	)
		Total stockholders' equity		96,504,344			68,827,452			56,099,267
		Total liabilities and stockholders' equity	$	118,140,575		$	93,695,498		$	75,899,041

See accompanying notes to unaudited consolidated condensed financial statements.

3

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

		Quarter Ended
		December 1, 2001		November 25, 2000
Net sales		$	77,724,415	$	57,261,694
Cost of sales:
	Merchandise, buying and occupancy		42,202,487		31,130,547
	Gross profit		35,521,928		26,131,147
Selling, general and administrative			15,887,602		11,929,353
Depreciation and amortization			1,964,946		1,301,891
	Operating income		17,669,380		12,899,903
Interest expense (income), net			34,284		(111,571	)
	Income before income taxes		17,635,096		13,011,474
Income tax provision			6,965,862		5,074,474
	Net income	$	10,669,234	$	7,937,000
Basic earnings per common share:
	Net income	$	0.43	$	0.34
	Basic shares outstanding		24,812,516		23,595,408
Diluted earnings per common share:
	Net income	$	0.41	$	0.31
	Diluted shares outstanding		26,136,713		25,940,723

See accompanying notes to unaudited consolidated condensed financial statements.

4

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

		Three Quarters Ended
		December 1, 2001			November 25, 2000
Net sales		$	193,081,729		$	141,146,143
Cost of sales:
	Merchandise, buying and occupancy		108,172,936			78,864,109
	Gross profit		84,908,793			62,282,034
Selling, general and administrative			42,708,861			31,407,681
Depreciation and amortization			5,097,256			3,417,190
	Operating income		37,102,676			27,457,163
Interest income, net			(177,596	)		(457,417	)
	Income before income taxes		37,280,272			27,914,580
Income tax provision			14,725,707			10,886,686
	Net income	$	22,554,565		$	17,027,894
Basic earnings per common share:
	Net income	$	0.92		$	0.73
	Basic shares outstanding		24,567,867			23,244,002
Diluted earnings per common share:
	Net income	$	0.87		$	0.67
	Diluted shares outstanding		26,060,594			25,454,636

See accompanying notes to unaudited consolidated condensed financial statements

5

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

			Three Quarters Ended
			December 1, 2001			November 25, 2000
Cash flows from operating activities:
	Net income		$	22,554,565		$	17,027,894
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		��	5,097,256			3,417,190
	Income tax benefit on exercise of stock options			1,832,347			519,014
	Loss on disposals of equipment			37,843			96,198
	Increase in accrued rent obligation			140,829			83,543
	Interest on 12% Senior Notes added to principal			118,338			114,845
Changes in operating assets and liabilities:
	Increase in merchandise inventory and other assets			(11,910,398	)		(14,144,035	)
	Decrease in accounts payable and accrued liabilities			(4,642,403	)		(1,887,669	)
		Net cash provided by operating activities		13,228,377			5,226,980
Cash flows from investing activities:
	Purchase of property, equipment and improvements			(25,420,928	)		(10,729,459	)
	Proceeds from sale of equipment			—			10,430
	Increase in deferred revenue			1,142,187			—
		Net cash used in investing activities		(24,278,741	)		(10,719,029	)
Cash flows from financing activities:
	Principal payments on long-term debt			—			(144,525	)
	Exercise of stock options			3,109,982			1,184,088
	Common stock subscriptions receivable			179,998			(16,560	)
		Net cash provided by financing activities		3,289,980			1,023,003
Net decrease in cash and cash equivalents				(7,760,384	)		(4,469,046	)
Cash and cash equivalents at beginning of period				34,797,713			22,685,876
Cash and cash equivalents at end of period			$	27,037,329		$	18,216,830
Supplemental cash flow information:
	Interest paid		$	358,779		$	354,492
	Income taxes paid		$	11,172,320		$	11,333,469
	Purchases of equipment and improvements accrued, not paid		$	9,234		$	299,767

See accompanying notes to unaudited consolidated condensed financial statements.

6

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

NOTE 1—BASIS OF PRESENTATION

    The financial statements included in this Form 10-Q have been prepared by Christopher & Banks Corporation, formerly Braun's Fashions Corporation, and subsidiary (the "Company"), without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed, or omitted, pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2001.

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

NOTE 2—PURCHASE OF HEADQUARTERS AND DISTRIBUTION CENTER FACILITY

    During the first quarter of fiscal 2002, the Company completed the purchase of its existing 210,000 square foot headquarters and distribution center facility in Plymouth, Minnesota for $8.8 million in cash. In connection with the purchase, the Company assumed a lease from the prior owner. Under the assumed lease, the Company leased the facility to a third party and, in turn, leased back the entire facility.

    On July 10, 2001, the Company and the third party agreed to terminate the lease and related sublease. The Company received a lease termination payment of approximately $1.3 million. The payment has been recorded as a deferred credit and will be amortized over the remainder of the original lease term through June 30, 2005.

NOTE 3—LONG-TERM DEBT

    In November 2001, the Company announced its election to redeem all of its outstanding long-term debt together with accrued and unpaid interest through the date of redemption. On December 10, 2001, the Company redeemed $5.3 million current face value of its outstanding 12% Senior Notes originally due January 1, 2005.

NOTE 4—STOCK SPLIT

    In November 2001, the Company's Board of Directors approved a 3-for-2 stock split payable in the form of a stock dividend on the Company's outstanding common stock. The record date was November 27, 2001 and the stock dividend was distributed on December 12, 2001. Share and per share data for all periods presented have been restated to reflect the stock split. The Company previously effected 3-for-2 stock splits on December 14, 1999, July 11, 2000 and February 12, 2001.

NOTE 5—NET INCOME PER SHARE

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

7

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

	Quarter Ended
	December 1, 2001				November 25, 2000
	Shares	Net Income			Shares	Net Income
Basic EPS	24,812,516	$	0.43		23,595,408	$	0.34
Effect of dilutive stock options	1,324,197		(0.02	)	2,345,315		(0.03	)
Diluted EPS	26,136,713	$	0.41		25,940,723	$	0.31

	Three Quarters Ended
	December 1, 2001				November 25, 2000
	Shares	Net Income			Shares	Net Income
Basic EPS	24,567,867	$	0.92		23,244,002	$	0.73
Effect of dilutive stock options	1,492,727		(0.05	)	2,210,634		(0.06	)
Diluted EPS	26,060,594	$	0.87		25,454,636	$	0.67

NOTE 6—RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141, which requires the purchase method of accounting be used for all business combinations completed after June 30, 2001, clarifies the criteria for recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an extraordinary gain. SFAS No. 142, effective for fiscal years beginning after December 15, 2001, requires that ratable amortization of goodwill be replaced with periodic tests of goodwill impairment and that intangible assets, other than goodwill, which have determinable useful lives be amortized over their useful lives. The Company will adopt SFAS No. 141 and SFAS No. 142 on March 3, 2002. Management believes that the adoption of SFAS No. 141 and SFAS No. 142 will have no impact on the Company's financial position or results of operations.

    In July 2001, the FASB also issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143") which provides accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company will adopt SFAS No. 143 on March 2, 2003. Management believes the adoption of SFAS No. 143 will not have a material impact on the Company's financial position or results of operations.

    In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144, effective for financial statements for fiscal years beginning after December 15, 2001, addresses issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"), and develops a single accounting model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. The Company will adopt SFAS No. 144 on March 3, 2002 and is in the process of determining the extent to which this statement will impact its financial position or results of operations.

8

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

    Christopher & Banks Corporation, formerly Braun's Fashions Corporation, is a Minneapolis-based retailer of women's specialty apparel, which operates through its wholly-owned subsidiary, Christopher & Banks, Inc. As of December 21, 2001, the Company operated 353 stores in 30 states, under the names Christopher & Banks, C.J. Banks and Braun's, primarily located in the northern half of the United States. The Company's stores offer coordinated assortments of exclusively designed sportswear, sweaters, and dresses.

    The Company opened 46 new Christopher and Banks stores and 36 new C.J. Banks stores in the first three quarters of fiscal 2002. During the first nine months of fiscal 2002, the Company closed two stores and plans to close three additional stores during the fourth quarter. As of December 1, 2001, the Company operated 353 stores including 241 Christopher & Banks stores, 56 Braun's stores and 56 C.J. Banks stores. The Company anticipates it will open approximately 90 new stores in fiscal 2003 with approximately 60% being Christopher & Banks stores and 40% being C.J. Banks stores. These new stores will be located in states in which the Company currently operates or adjacent states. In addition, the Company plans to convert substantially all remaining Braun's stores to the Christopher & Banks name by December 2002.

    During the first quarter of fiscal 2002, the Company completed the purchase of its existing 210,000 square foot headquarters and distribution center facility in Plymouth, Minnesota for $8.8 million in cash. In connection with the purchase, the Company assumed a lease from the prior owner. Under the assumed lease, the Company leased the facility to a third party and, in turn, leased back the entire facility. On July 10, 2001, the Company and the third party agreed to terminate the lease and related sublease. The Company received a lease termination payment of approximately $1.3 million. The payment was recorded as a deferred credit and will be amortized over the remainder of the original lease term through June 30, 2005.

    During the second quarter of fiscal 2002, the Company completed the installation of new point-of-sale hardware and software technology in all of its stores at a cost of approximately $4.7 million.

    In November 2001, the Company's Board of Directors approved a 3-for-2 stock split payable in the form of a stock dividend on the Company's outstanding common stock. The record date was November 27, 2001 and the stock dividend was distributed on December 12, 2001. Share and per share data for all periods presented have been restated to reflect the stock split. The Company previously effected 3-for-2 stock splits on December 14, 1999, July 11, 2000 and February 12, 2001.

    In November 2001, the Company announced its election to redeem all of its outstanding long-term debt together with accrued and unpaid interest through the date of redemption. On December 10, 2001, the Company redeemed $5.3 million current face value of its outstanding 12% Senior Notes originally due January 1, 2005.

9

Results of Operations

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

	Quarter Ended				Three Quarters Ended
	December 1, 2001		November 25, 2000		December 1, 2001		November 25, 2000
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Merchandise, buying and occupancy	54.3		54.4		56.0		55.9
Gross profit	45.7		45.6		44.0		44.1
Selling, general and administrative	20.5		20.8		22.1		22.2
Depreciation and amortization	2.5		2.3		2.7		2.4
Operating income	22.7		22.5		19.2		19.5
Interest expense (income), net	0.0		(0.2	)	(0.1	)	(0.3	)
Income before income taxes	22.7		22.7		19.3		19.8
Income tax provision	9.0		8.8		7.6		7.7
Net income	13.7	%	13.9	%	11.7	%	12.1	%

QUARTER ENDED DECEMBER 1, 2001 COMPARED TO QUARTER ENDED NOVEMBER 25, 2000

    Net Sales.  Net sales for the quarter ended December 1, 2001 were $77.7 million, an increase of $20.4 million or 36%, from $57.3 million for the quarter ended November 25, 2000. The increase in total net sales was attributable to a 7% increase in same-store sales combined with an increase in the number of stores operated by the Company. The 7% increase in same-store sales follows a 17% increase in same-store sales in third quarter of fiscal 2001 and was primarily driven by strong performance at the Company's newer stores opened in fiscal 1999, 2000 and 2001. The Company operated 353 stores at December 1, 2001 compared to 274 stores at November 25, 2000.

    Gross Profit.  Gross profit, which is net sales less cost of merchandise, buying and occupancy expenses, was $35.5 million, or 45.7% of net sales, during the third quarter of fiscal 2002, compared to $26.1 million, or 45.6% of net sales, during the same period in fiscal 2001. A greater number of newer stores, which are in the ramp-up phase of their sales curve, accounted for 60 basis points of negative leveraging of occupancy costs, which was off-set by a 70 basis point improvement in merchandise, buying and distribution costs.

    Selling, General and Administrative Expenses.  Selling, general and administrative expenses for the third quarter of fiscal 2002 were $15.9 million, or 20.5% of net sales, compared to $11.9 million, or 20.8% of net sales, in the third quarter of fiscal 2001. The decrease as a percent of net sales was primarily the result of leveraging of expenses resulting from increased sales combined with tight expense controls.

    Operating Income.  As a result of the foregoing factors, operating income for the quarter ended December 1, 2001 was $17.7 million, or 22.7% of net sales, compared to operating income of $12.9 million, or 22.5% of net sales, in the quarter ended November 25, 2000.

    Interest Expense (Income), Net.  For the quarter ended December 1, 2001, net interest expense was $34,284 compared to net interest income of $111,571 for the quarter ended November 25, 2000. The difference was due to decreased interest income resulting from substantially lower interest rates on short-term investments during the third quarter of fiscal 2002.

    Income Taxes.  Income tax expense in the third quarter of fiscal 2002 was $7.0 million, with an effective tax rate of 39.5%, compared to $5.1 million, with an effective tax rate of 39.0%, in the third

10

quarter of fiscal 2001. The increase in effective tax rate was due to a decrease in favorable permanent differences combined with a slightly higher average state income tax rate.

    Net Income.  As a result of the foregoing factors, net income for the quarter ended December 1, 2001 was $10.7 million, or 13.7% of net sales and $0.41 per diluted share, compared to $7.9 million, or 13.9% of net sales and $0.31 per diluted share, for the quarter ended November 25, 2000.

THREE QUARTERS ENDED DECEMBER 1, 2001 COMPARED TO
THREE QUARTERS ENDED NOVEMBER 25, 2000

    Net Sales.  Net sales for the three quarters ended December 1, 2001 were $193.1 million, an increase of $52 million or 37%, from $141.1 million for the three quarters ended November 25, 2000. The increase in total net sales was attributable to an 8% increase in same-store sales combined with an increase in the number of stores operated by the Company. The 8% increase in same-store sales follows a 19% increase in same-store sales in the first three quarters of fiscal 2001 and was primarily driven by strong performance at the Company's newer stores opened in fiscal 1999, 2000 and 2001. The Company operated 353 stores at December 1, 2001 compared to 274 stores at November 25, 2000.

    Gross Profit.  Gross profit, which is net sales less cost of merchandise, buying and occupancy expenses, was $84.9 million, or 44.0% of net sales, during the first three quarters of fiscal 2002, compared to $62.3 million, or 44.1% of net sales, during the same period in fiscal 2001. The slight decrease in gross margin as a percent of net sales was primarily due to approximately 50 basis points of negative leveraging of occupancy expenses primarily associated with opening 82 new stores in the first three quarters of fiscal 2002, substantially off-set by an improvement in merchandise, buying and distribution costs.

    Selling, General and Administrative Expenses.  Selling, general and administrative expenses for the first nine months of fiscal 2002 were $42.7 million, or 22.1% of net sales, compared to $31.4 million, or 22.2% of net sales, in same period of fiscal 2001. The slight decrease as a percent of net sales was primarily the result of leveraging of expenses resulting from increased sales combined with tight expense controls.

    Operating Income.  As a result of the foregoing factors, operating income for the three quarters ended December 1, 2001 was $37.1 million, or 19.2% of net sales, compared to operating income of $27.5 million, or 19.5% of net sales, in the three quarters ended November 25, 2000.

    Interest Income, Net.  For the three quarters ended December 1, 2001, net interest income decreased to $177,596 from $457,417 for the three quarters ended November 25, 2000. The difference was primarily due to decreased interest income resulting from lower interest rates on short-term investments during the first nine months of fiscal 2002.

    Income Taxes.  Income tax expense in the three quarters of fiscal 2002 was $14.7 million, with an effective tax rate of 39.5% compared to $10.9 million, with an effective tax rate of 39.0%, in the first nine months of fiscal 2001. The increase in effective tax rate was due to a decrease in favorable permanent differences combined with a slightly higher average state income tax rate.

    Net Income.  As a result of the foregoing factors, net income for the three quarters ended December 1, 2001 was $22.6 million, or 11.7% of net sales and $0.87 per diluted share, compared to $17.0 million, or 12.1% of net sales and $0.67 per diluted share, for the three quarters ended November 25, 2000.

11

Liquidity and Capital Resources

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

    Net cash provided by operating activities totaled $13.2 million for the first nine months of fiscal 2002. Cash on hand and cash generated from operations was used to finance $25.4 million of capital expenditures. In the first nine months of fiscal 2002, the Company purchased its existing headquarters and distribution center facility in Plymouth, Minnesota, opened 82 new stores, substantially completed ten major store remodelings and completed the installation of new point-of-sale hardware and software in all stores. During the remainder of the fiscal year, the Company intends to spend approximately $6 million on additional capital expenditures, most of which will relate to stores scheduled to open in the first quarter of fiscal 2003. Financing activities, primarily the exercise of stock options, provided the Company net cash of $3.3 million in the first three quarters of fiscal 2002. During the first nine months of fiscal 2002, the Company's officers, directors and key employees exercised an aggregate of 823,101 stock options. The Company expects its cash on hand combined with cash flow from operations to be sufficient to meet its capital expenditure, working capital and other requirements for liquidity for the remainder of fiscal 2002 and all of fiscal 2003.

    In March 1999, the Company entered into an Amended and Restated Revolving Credit and Security Agreement with Wells Fargo Bank, National Association, formerly Norwest Bank Minnesota, National Association, (the "Wells Fargo Revolver") which expires on June 30, 2002. The Company has held preliminary discussions with Wells Fargo with regard to extending the Wells Fargo Revolver for an additional two years. The Wells Fargo Revolver provides the Company with revolving credit loans and letters of credit up to $18 million, subject to a borrowing base formula based on inventory levels.

    Loans under the Wells Fargo Revolver bear interest at Wells Fargo's base rate (4.75% as of December 21, 2001) plus 0.25%. Interest is payable monthly in arrears. The Wells Fargo Revolver carries a facility fee of 0.25% on the unused portion of the Wells Fargo Revolver. This facility is collateralized by the Company's equipment, general intangibles, inventory and investment property. The Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first three quarters of fiscal 2002. The borrowing base at December 1, 2001 was $18.0 million. As of December 1, 2001, the Company had outstanding letters of credit in the amount of $7.0 million under the Wells Fargo Revolver. Accordingly, the availability of revolving credit loans under the Wells Fargo Revolver was $11.0 million at that date.

    The Wells Fargo Revolver contains certain restrictive covenants including restrictions on incurring additional indebtedness, limitations on certain types of investments and prohibitions on paying dividends, as well as requiring the maintenance of certain financial ratios. As of December 1, 2001, the most recent measurement date, the Company was in compliance with all covenants of the Wells Fargo Revolver.

    In January 1997, the Company issued $10,300,200 of debt in the form of 12% Senior Notes (the "Senior Notes") due January 2005. In fiscal 1999 and fiscal 1998, the Company repurchased $4,676,000 and $1,033,000, respectively, of principal face amount of its Senior Notes at a discount from par. In November 2001, the Company announced its election to redeem the balance of its outstanding 12% Senior Notes together with accrued and unpaid interest through the date of redemption. On December 12, 2001, the Company redeemed the remaining $5.3 million current face value of outstanding 12% Senior Notes.

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Merchandise Sourcing

    The Company directly imports approximately 80% of its total merchandise purchases. This reliance on sourcing from foreign countries may cause the Company to be exposed to certain business and political risks. Import restrictions, including tariffs and quotas, and changes in such restrictions could affect the import of apparel and might result in increased costs, delays in merchandise receipts or reduced supplies of apparel available to the Company and possibly have an adverse effect on the Company's business, financial condition and/or results of operations. The Company's merchandise flow could also be adversely affected by political instability in any of the countries in which its merchandise is manufactured or changes in the United States' governmental policies in or toward such foreign countries. In addition, merchandise receipts could be delayed due to interruptions in air and ocean shipments.

    Substantially all of the Company's directly imported merchandise is manufactured in Southeast Asia. The majority of these goods are produced in Hong Kong, China, Taiwan and Singapore. The Company is not currently importing merchandise produced in the Middle East.

Quarterly Results and Seasonality

    The Company's sales reflect seasonal variation as sales in the third and fourth quarters, which include the fall and holiday seasons, generally have been higher than sales in the first and second quarters. Sales generated during the fall and holiday seasons have a significant impact on the Company's annual results of operations. Quarterly results may fluctuate significantly depending on a number of factors including adverse weather conditions, shifts in the timing of certain holidays, timing of new store openings, and customer response to the Company's seasonal merchandise mix.

Inflation

    Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation had a material effect on the results of operations during the quarters ended December 1, 2001 and November 25, 2000.

Forward Looking Information and Risk

    Information contained in this Form 10-Q contains certain "forward-looking statements" which reflect the current view of the Company with respect to future events and financial performance. Wherever used, terminology such as "may", "will", "expect", "intend", "plan", "anticipate", "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology reflect such forward-looking statements.

    There are certain important factors that could cause results to differ materially from those anticipated by some of these forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The factors, among others, that could cause actual results to differ materially include: changes in general economic conditions including recessionary effects which may affect consumers' spending and debt levels; the Company's ability to execute its business plan including the successful expansion of its Christopher & Banks and C.J. Banks concepts; the Company's ability to open new stores on favorable terms and the timing of such store openings; the acceptance of the Company's merchandising strategies by its target customers; the ability of the Company to anticipate marketing trends and consumer needs; the loss of one or more of the Company's key executives; continuity of a relationship with or purchases from major vendors, particularly those from whom the Company imports merchandise; timeliness of vendor production and deliveries; competitive pressures on sales and pricing; increases in other costs which cannot be recovered through improved pricing of merchandise; and the adverse effect of weather conditions from time to time on consumers' ability or desire to purchase new clothing. Since the Company relies heavily on sourcing from foreign vendors, there are risks and uncertainties including transportation delays and other interruptions, political instability, work stoppages and changes in import and export controls. The Company assumes no obligation to publicly update or revise its forward looking statements to reflect events or circumstances that may arise after the date of this Form 10-Q.

13

ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK

    The Company is potentially exposed to market risk from changes in interest rates related to its Revolving Credit and Security Agreement with Wells Fargo Bank. Loans under the Wells Fargo Revolver bear interest at Wells Fargo's fluctuating base rate (4.75% as of December 21, 2001) plus 0.25%. However, the Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first three quarters of fiscal 2002, and, given its existing liquidity position, does not expect to utilize the Wells Fargo Revolver in the near future except for its continuing use of the import letter of credit facility.

PART II.

ITEM 1.
LEGAL PROCEEDINGS

    There are no material legal proceedings pending against the Company.

ITEM 2.
CHANGES IN SECURITIES
AND USE OF PROCEEDS

    There have been no material modifications to the Company's registered securities.

ITEM 3.
DEFAULTS UPON
SENIOR SECURITIES

    There has been no default with respect to any indebtedness of the Company.

ITEM 4.
SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS

    There were no matters submitted to a vote of security holders during the third quarter of fiscal 2002.

ITEM 5.
OTHER INFORMATION

    None.

ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K

a)

Exhibits

None.

b)

Reports on Form 8-K

    On October 12, 2001, the Company filed a current report on Form 8-K with respect to the Company's Corporate Policy on Fair Disclosure to Investors.

    On November 7, 2001, the Company filed a current report on Form 8-K with respect to the Company's Notice of Redemption to redeem all of its outstanding 12% Senior Notes due 2005 on December 10, 2001.

14

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.

Dated: December 28, 2001

CHRISTOPHER & BANKS CORPORATION
By	/s/ ANDREW K. MOLLERAndrew K. Moller Senior Vice President and Chief Financial Officer
	Signing on behalf of the Registrant and as principal financial officer.

15

QuickLinks

CHRISTOPHER & BANKS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET
CHRISTOPHER & BANKS CORPORATION CONSOLIDATED CONDENSED STATEMENT OF INCOME (Unaudited)
CHRISTOPHER & BANKS CORPORATION CONSOLIDATED CONDENSED STATEMENT OF INCOME (Unaudited)
CHRISTOPHER & BANKS CORPORATION CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
CHRISTOPHER & BANKS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 1, 2001 COMPARED TO QUARTER ENDED NOVEMBER 25, 2000
THREE QUARTERS ENDED DECEMBER 1, 2001 COMPARED TO THREE QUARTERS ENDED NOVEMBER 25, 2000
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II.
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES