After a disappointing year of financial results in fiscal 2005, driven by the second consecutive year of extremely intense competitive pressures in the maternity apparel business, we are very encouraged by our significantly improved recent sales trend, signs of an easing of the adverse competitive conditions, and the success of our new initiatives.

For fiscal 2006, we are optimistic about delivering significantly improved financial results and continuing our strategic transition, as we expect to see a continuation of our improved sales trend and increased earnings contribution from our new strategic initiatives, such as our marketing partnerships, our Sears?and Kohl's?initiatives, and our multi-brand stores. Also, we believe the oversupply conditions that have plagued the maternity apparel business over the past two years are starting to ease somewhat, and we believe that our sales and gross margin performance will reflect this. Evidence of this can be seen in our positive comparable store sales results in September (up 1.9%), October (up 1.7%) and November (up 4.0%).

In analyzing our overall fiscal 2005 financial results, we believe the continued strong competitive pressures during fiscal 2005 caused an oversupply of maternity apparel in the market and that the resulting highly price-promotional environment adversely affected our sales, gross margin and earnings results, especially at season-end clearance times. We had expected the season-end clearance environment to be less severe in fiscal 2005 than the year before, but it turned out to be even more severe.

Our sales for fiscal 2005 increased by 8.4% to $561.6 million, driven primarily by sales from our new Oh Baby! By MotherhoodTM licensed arrangement with Kohl's, and sales from the expansion of our Two HeartsTM Maternity collection to an additional 497 Sears locations during late March 2005. Our comparable store sales decreased 2.5%, reflecting the continued strong competitive pressures. During fiscal 2005, we opened 27 stores, including 11 multi-brand stores, and closed 58 stores, with 22 of these store closings related to multi-brand store openings. We expect these store closings to help improve our profitability margins in fiscal 2006 and beyond. In addition, during fiscal 2005, we opened 507 leased department locations, net of closings, driven by our expansion with Sears. We ended fiscal 2005 with 852 stores and 1,591 total retail locations, compared to 883 stores and 1,115 total retail locations at the end of fiscal 2004.

We had a net loss of $0.2 million in fiscal 2005, a significant earnings reduction from our net income of $5.0 million in fiscal 2004, while diluted earnings per share decreased to a loss of $0.03 per share in fiscal 2005 from income of $0.92 per share in fiscal 2004. This decrease in earnings primarily reflects the downward pressure on selling prices and gross margin resulting from the oversupply of maternity apparel in the market during fiscal 2005, with additional impact from higher than planned fixed asset impairment charges, higher expenses for our Sarbanes-Oxley Section 404 compliance program, higher legal expenses, and certain hurricane-related property losses. We are confident that our fiscal 2005 earnings are not indicative of the near-term or long-term earnings potential of our business, and we believe we have taken, and continue to take, the right actions to help achieve this potential.

Fiscal 2005 was an important year of strategic transition as we significantly increased the distribution of our maternity apparel products through our new Kohl's and significantly expanded Sears initiatives, and as we continued to expand our multi-brand store concepts, including our Destination MaternityTM Superstore. These multi-brand stores are larger and have higher average sales volume than our average store, and provide the opportunity to lower our store operating expense percentage and improve store operating profit margins over time. As of September 30, 2005, we have 37 two-brand combo stores, 2 triplex stores, and 8 Destination Maternity Superstores. We have four new superstores scheduled to open during fiscal 2006, including the grand opening this coming February of our three-floor Destination Maternity store on the corner of 57th Street and Madison Avenue in Manhattan, and we continue to evaluate and look for additional potential superstore locations for fiscal 2006 and beyond.

We also continue to leverage our relationship with our maternity customers, who are undergoing a major life stage change that drives widespread changes in purchasing needs and behavior. Our prenatal list and marketing partnerships continue to grow. We have begun to install an in-house data warehouse system that will also serve companies who market to families with young children, where our list is currently four times as large as our prenatal list, and growing each year. We continue to grow futuretrust? our MasterCard?based college savings program, with new members, additional merchant partners, and the development of relationships with marketers of 529 College Savings plans to help our customers in achieving their dream of providing a college education for their children.