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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 November 28, 2009

or

o   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 001-31390

CHRISTOPHER & BANKS CORPORATION

(Exact name of registrant as specified in its charter)

(763) 551-5000

(Registrant’s telephone number, including area code)

Not Applicable

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

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 o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES o  NO o

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

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

As of December 24, 2009, 35,989,910 shares of the registrant’s common stock were outstanding.

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CHRISTOPHER & BANKS CORPORATION

QUARTERLY REPORT ON FORM 10-Q

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PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands)

(Unaudited)

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

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CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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

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CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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

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CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

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

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CHRISTOPHER & BANKS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared by Christopher & Banks Corporation and its subsidiaries (the “Company”) pursuant to the rules and regulations of the United States Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed, or omitted, pursuant to such rules and regulations.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009.

The results of operations for the interim periods reflected in this report are not necessarily indicative of results to be expected for the full fiscal year.  In the opinion of management, the information contained herein reflects all adjustments, consisting only of normal adjustments except as otherwise stated in these notes, necessary to present fairly the Company’s financial position as of November 28, 2009 and November 29, 2008, and its results of operations and cash flows for the three and nine month periods ended November 28, 2009 and November 29, 2008.  The Company has evaluated subsequent events through January 7, 2010, the date of issuance of the Company’s unaudited condensed consolidated financial statements, and determined that no such events have occurred requiring disclosure in its unaudited condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 105-10, “Generally Accepted Accounting Principles,” as the single source of authoritative nongovernmental generally accepted accounting principles in the United States (“GAAP”).  ASC 105-10 does not change existing GAAP, but is intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place.  All existing accounting standard documents were superseded and all other accounting literature not included in ASC 105-10 has been considered non-authoritative.  However, SEC accounting and reporting standards will continue to be authoritative for SEC reporting entities.  The Company adopted ASC 105-10 during the third quarter of fiscal 2010.  ASC 105-10 is for disclosure purposes only and the adoption of ASC 105-10 did not impact the Company’s financial position, results of operations or cash flows.

In September 2006, the FASB issued amendments to ASC 820-10, “Fair Value Measurements and Disclosures.”  Subsequently, in February 2008, the portion of these amendments related to non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis was deferred by the FASB for one year.  The Company adopted the deferred portion of the amendments to ASC 820-10 on March 1, 2009.  See Note 12, Fair Value Measurements, for additional disclosures required under these amendments to ASC 820-10 for non-financial assets and liabilities recognized or disclosed at fair value in the Company’s consolidated financial statements.  Other than such disclosures, the adoption of these amendments to ASC 820-10 did not have a material impact on the Company’s consolidated financial statements as reported herein.

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 non-forfeitable dividends (whether paid or unpaid) are considered participating securities and should be included in the two-class method of computing earnings per share.  These amendments to ASC 260-10 were adopted by the Company effective March 1, 2009 and impacted the Company’s calculation of earnings per share beginning in the first quarter of the fiscal year ending February 27, 2010 (“Fiscal 2010”).  See Note 11, Earnings per Share, for further disclosure regarding the impact of the adoption of these amendments to ASC 260-10.

In April 2009, the FASB issued amendments to ASC 820-10, “Fair Value Measurements and Disclosures,” which require disclosures about the fair value of financial instruments in interim as well as in annual financial statements.  These amendments are effective for interim and annual financial periods ending after June 15, 2009.  The Company adopted these amendments to ASC 820-10 effective May 31, 2009.   The Company updated its disclosures as required by these amendments.

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.  The amendments are based on the same principles as those that currently exist in the auditing standards.  The amendments are effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted these amendments to ASC 855-10 effective May 31, 2009.

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Recently Issued Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 14” (“SFAS No. 166”).  SFAS No. 166 was issued to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets, the effects of such a transfer on its financial position, financial performance and cash flows, and requires the reporting entity to provide information as to a transferor’s continuing involvement, if any, in transferred financial assets.  SFAS No. 166 is effective for the Company’s fiscal year beginning February 28, 2010. The Company does not believe the adoptions of SFAS No. 166 will have any impact on its financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB interpretation No. 46(R).  SFAS No. 167 seeks to improve financial reporting by requiring that entities perform an analysis to determine whether any variable interest or interest that they have give them a controlling financial interest in a variable interest entity. SFAS No. 167 is effective for annual financial periods beginning after November 15, 2009, and interim periods within that annual period, and therafter, and shall be applied prospectively.  Early adoption is prohibited.  The Company does not believe the adoption of SFAS No. 167 will have any impact on its financial position, results of operations or cash flows.

NOTE 2 — DISCONTINUED OPERATIONS

In July 2008, the Company announced its decision to exit its Acorn business when the Company concluded, after a comprehensive review and evaluation, that the concept had not demonstrated the potential to deliver an acceptable long-term return on the Company’s investment.  The Company closed all of its Acorn stores by December 31, 2008, allowing the Company to focus its resources on its two core brands, christopher & banks and cj banks.

The operating results of all Acorn stores have been presented as discontinued operations, in accordance with ASC 205-20, “Discontinued Operations,” in the Condensed Consolidated Statement of Operations for the three and nine month periods ended November 29, 2008.  There was no activity relating to the Company’s discontinued Acorn operations during the three and nine month periods ended November 28, 2009.

The operating results of the discontinued operations for the three and nine month periods ended November 29, 2008 are summarized below (in thousands).

Income taxes have been allocated to continuing and discontinued operations based on the methodology required by ASC 740-270, “Income Taxes — Interim Reporting.”  Income taxes allocated to the results of discontinued operations are determined on the basis of a computation of taxes with and without the impact of results from discontinued operations and the difference in taxes between these computations is allocated to discontinued operations.

NOTE 3 — INVESTMENTS

Investments consisted of the following (in thousands):

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The Company accounts for its investments in accordance with ASC 320-10 “Investments — Debt and Equity Securities” and, accordingly, its investment securities have been characterized as either “available-for-sale” or “trading.”  Available-for-sale securities are carried at fair value with unrealized gains and losses reported in shareholders’ equity as accumulated other comprehensive income (loss) net of tax.  Fair value for the Company’s available-for-sale securities is based on unadjusted quoted market prices for the securities in active markets with sufficient volume and frequency.  At November 28, 2009, gross unrealized losses on available for sale securities totaled approximately $5,000 (pre-tax) while gross unrealized gains totaled approximately $64,000 (pre-tax).   Gross realized gains and losses on the sale of available for sale securities during the nine months ended November 28, 2009 were not material.  Trading securities are measured at fair value each period with gains or losses resulting from changes in fair market value reported as realized gains or losses and included in earnings as other income (loss).  The Company’s primary investment strategy is preservation of principle.  The Company does not enter into investments for speculative purposes.

As of November 28, 2009, the Company’s available-for-sale investment securities were comprised of variable rate demand obligations, municipal bonds and U.S. Agency securities.  The Company had approximately $16.3 million of short-term trading securities as of November 28, 2009, which consisted solely of $19.1 million of auction rate securities (“ARS”) at cost, less a fair value adjustment of approximately $2.8 million.  The fair value of the ARS was determined utilizing a discounted cash flow method based on market rates and an estimated period of time the ARS are expected to be held.

Substantially all of the Company’s ARS are collateralized by student loans. As of November 28, 2009, a majority of its ARS had AAA (Standard & Poor’s), Aaa (Moody’s), or AAA (Fitch) credit ratings.  As of November 28, 2009, the repayment of approximately 80% of the student loans, which serve as collateral for the ARS held by the Company, was substantially backed by the United States government.

Until February 2008, the ARS market was liquid and auctions for ARS held by the Company did not fail.  However, beginning in February 2008, auctions for the ARS held by the Company began to fail and have continued to fail up to and as of the date of this report.  Based on current market conditions, management believes that it is likely that auctions related to the Company’s ARS will continue to be unsuccessful for the near term.  Unsuccessful auctions have limited the Company’s ability to access these funds.

All of the ARS owned by the Company were purchased through UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”) and are held, for the benefit of the Company, by UBS.  In November 2008, the Company accepted a settlement offer from UBS to restore liquidity to its clients who hold ARS.  The settlement grants the Company certain ARS rights.  These ARS rights provide the Company the ability to redeem its ARS at par during a two-year time period beginning June 30, 2010.  During this time, the Company may choose to continue to hold some, or all, of its ARS and earn interest or sell some, or all, of its ARS to UBS at par plus accrued interest.  The

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ARS rights are not transferable, tradable or marginable and will not be listed or quoted on any securities or exchange or any electronic communications network.  As the Company has the ability and intent to redeem its ARS at June 30, 2010, it reclassified the ARS to short-term investments as of August 29, 2009.

Upon acceptance of the settlement offer, the Company classified its ARS as trading securities and elected to record the ARS rights at fair value on a recurring basis utilizing significant unobservable inputs in accordance with ASC 820-10, “Fair Value Measurements and Disclosures.”  The fair value of the ARS rights was estimated utilizing the Black-Scholes option pricing model and the forward contract method.  As of November 28, 2009, the fair value of the ARS rights was determined to be approximately $2.6 million and the ARS rights were recorded within other current assets on the consolidated financial statements.  The Company redeemed $350,000 of ARS during the first nine months of fiscal 2010.

The balance of investments by contractual maturities at November 28, 2009 is shown below (in thousands).  Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay the obligations without prepayment penalties.

NOTE 4 — MERCHANDISE INVENTORIES AND SOURCES OF SUPPLY

Merchandise inventories consisted of the following (in thousands):

The Company does not have long-term purchase commitments or arrangements with any of its suppliers or agents.  During the three and nine month periods ended November 28, 2009, three of the Company’s vendors each supplied the Company with greater than 10% of its merchandise inventory purchases.  For the third quarter of fiscal 2010, these three vendors supplied approximately 25%, 20% and 16% of the Company’s merchandise purchases.  In the nine month period ended November 28, 2009, the three vendors supplied approximately 25%, 12% and 16% of the Company’s merchandise purchases.

Although the Company has positive relationships with these three vendors, there can be no assurance that these relationships can be maintained in the future or that the vendors will continue to supply merchandise to the Company.  If there should be any significant disruption in the supply of merchandise from these vendors, management believes that it will be able to shift production to other suppliers to continue to secure the required volume of merchandise.  Nevertheless, it is possible that any significant disruption in supply could have a material adverse impact on the Company’s financial position or results of operations.

In the nine months ended November 29, 2008, the Company purchased approximately 32% of its merchandise through one buying agent (the “Agent”).  The Company and the Agent terminated their sourcing arrangement effective as of the end of December 2008.  As a result, the Company did not purchase any merchandise through the Agent in the first nine months of fiscal 2010.

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NOTE 5 — PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET

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

The Company reviews long-lived assets with definite lives at least annually or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.  The Company recorded no impairments of long-lived assets in the three and nine month periods ended November 28, 2009.  However, the general economic uncertainty affecting the retail industry makes it reasonably possible that the Company may identify and record long-lived asset impairments in future periods.

NOTE 6 — ACCRUED LIABILITIES

Other accrued liabilities consisted of the following (in thousands):

The Company moved from a self insured to a fully insured workers compensation insurance program effective March 1, 2009.  The accrual balance at November 28, 2009 represents the estimated remaining current liability under the self insured program.  The estimated remaining non-current liability under the self insured program was approximately $700,000 as of November 28, 2009.

NOTE 7 — CREDIT FACILITY

The Company maintains an Amended and Restated Revolving Credit Facility (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) which expires on June 30, 2011.  The Credit Facility provides the Company with revolving credit loans and letters of credit of up to $50 million, in the aggregate, subject to a borrowing base formula based on inventory levels.

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Loans under the Credit Facility bear interest at the prime rate minus 0.25%.  As of November 28, 2009, the prime rate was 3.25%.  The Credit Facility also provides the Company with the ability to borrow under the Credit Facility at an interest rate tied to the London Interbank Market Offered Rate (“LIBOR”).  Advances under the LIBOR option would be tied to the one, three, or six month LIBOR rate based on the length of time the corresponding advance is outstanding.

Interest under the Credit Facility is payable monthly in arrears.  The Credit Facility carries a facility fee of 0.25%, based on the unused portion of the facility as defined in the agreement, a collateral monitoring fee and a guarantee service charge.  Borrowings under the Credit Facility are collateralized by the Company’s equipment, intangible assets, inventory, inventory letters of credit and letter of credit rights.  The Company had no revolving credit loan borrowings under the Credit Facility during the first nine months of fiscal 2010 or fiscal 2009.  Historically, the Credit Facility has been utilized by the Company only to open letters of credit to facilitate the import of merchandise.  The borrowing base at November 28, 2009 was $26.6 million.  The Company had no outstanding letters of credit as of November 28, 2009.  Accordingly, the availability of revolving credit loans under the Credit Facility was $26.6 million at November 28, 2009.

The Credit Facility contains certain restrictive covenants, including restrictions on incurring additional indebtedness and limitations on certain types of investments, as well as requiring the maintenance of certain financial covenants.  As of November 28, 2009, the most recent measurement date, the Company was in compliance with all of the restrictive covenants under the Credit Facility.

NOTE 8 — STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the provisions of ASC 718-10, “Stock Compensation.”  Total pre-tax compensation expense related to stock-based awards for the three months ended November 28, 2009 and November 29, 2008 was approximately $534,000 and $420,000, respectively.  For the nine months ended November 28, 2009 and November 29, 2008, pre-tax stock-based compensation expense totaled approximately $1.4 million and $1.6 million, respectively.  Stock-based compensation expense was included in merchandise, buying and occupancy expenses for the Company’s buying and distribution employees and in selling, general and administrative expenses for all other employees.

Methodology Assumptions:

The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for grants to its employees and non-employee directors.  Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant.  The fair value of the Company’s stock option awards, which are generally subject to pro-rata vesting, is expensed on a straight-line basis over the vesting period of the stock options.  The expected volatility assumption is based on the historical volatility of the Company’s stock over a term equal to the expected term of the option granted.  The expected term of stock option awards granted is derived from historical exercise experience.  The expected term assumption incorporates the contractual term of an option grant, as well as the vesting period of an award.  The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.

The weighted average assumptions relating to the valuation of the Company’s stock option grants for the three and nine month periods ended November 28, 2009 and November 29, 2008 were as follows:

Stock-Based Compensation Activity:

The following table presents a summary of the Company’s stock option activity for the nine months ended November 28, 2009:

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