The following discussion provides information and analysis of our results of operations for the 13 and 39 week periods ended October 3, 2009 (hereinafter referred to as the "third fiscal quarter of 2009" and the "first fiscal nine months of 2009," respectively) and the 13 and 40 week periods ended October 4, 2008 (hereinafter referred to as the "third fiscal quarter of 2008" and the "first fiscal nine months of 2008," respectively) and our liquidity and capital resources. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements included elsewhere herein.

Executive Overview

We design, contract for the manufacture of and market a broad range of women's collection sportswear, suits and dresses, casual sportswear and jeanswear for women and children, and women's footwear and accessories. We sell our products through a broad array of distribution channels, including better specialty and department stores and mass merchandisers, primarily in the United States and Canada. We also operate our own network of retail and factory outlet stores and several e-commerce web sites. In addition, we license the use of several of our brand names to select manufacturers and distributors of women's and men's apparel and accessories worldwide.

During 2009 to date, the following significant events took place:

º on January 8, 2009, as a result of the January 2009 amendments to our revolving credit facility, Standard & Poor's downgraded our senior unsecured debt ratings from BB- to B+ on January 6, 2009, and Moody's downgraded our senior unsecured debt ratings from Ba2 to Ba3;
º on April 1, 2009, we commenced a cash tender offer to purchase any and all of our outstanding 4.250% Senior Notes due 2009 (the "2009 Notes"), as well as a consent solicitation to amend the indenture governing our 2009 Notes, our 5.125% Senior Notes due 2014 and our 6.125% Senior Notes due 2034, both of which were completed in May 2009;
º we decided to close approximately 265 underperforming retail stores by December 31, 2010;

Retail store closings

We began 2009 with 1,017 retail locations. During the fiscal nine months ended October 3, 2009, we decided to close approximately 265 underperforming retail locations by the end of 2010, of which 69 closed during the period. We accrued $5.0 million of termination benefits and associated employee costs for approximately 1,245 employees, including both store employees and administrative support personnel. In connection with our decision to close these stores, we reviewed the associated long-term assets for impairments. As a result of this review, we recorded $22.8 million of impairment losses on leasehold improvements and furniture and fixtures located in the stores to be closed. These costs are reported as selling, general and administrative expenses in the retail segment.

Critical Accounting Policies

Several of our accounting policies involve significant or complex judgements and uncertainties and require us to make certain critical accounting estimates. We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were highly uncertain at the time the estimate was made. The estimates with the greatest potential effect on our results of operations and financial position include the collectibility of accounts receivable, the recovery value of obsolete or overstocked inventory and the fair values of both our goodwill and intangible assets with indefinite lives. Estimates related to accounts receivable and inventory affect our wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories and retail segments. Estimates related to goodwill affect our wholesale better apparel and retail segments. Estimates related to intangible assets with indefinite lives affect our licensing, other and eliminations segment.

For accounts receivable, we estimate the net collectibility, considering both historical and anticipated trends of trade discounts and co-op advertising deductions given to our customers, allowances we provide to our retail customers to flow goods through the retail channels, and the possibility of non-collection due to the financial position of our customers. For inventory, we estimate the amount of goods that we will not be able to sell in the normal course of business and write down the value of these goods to the recovery value expected to be realized through off-price channels. Historically, actual results in these areas have not been materially different than our estimates, and we do not anticipate that our estimates and assumptions are likely to materially change in the future. However, if we incorrectly anticipate trends or unexpected events occur, our results of operations could be materially affected.

We test our goodwill and our trademarks for impairment on an annual basis (during our fourth fiscal quarter) and between annual tests if an event occurs or circumstances change that would reduce the fair value of an asset below its carrying value. These tests utilize discounted cash flow models to estimate fair values. These cash flow models involve several assumptions. Changes in our assumptions could materially impact our fair value estimates, and material impairment losses could result where the estimated fair values of these assets become less than their carrying amounts. Assumptions critical to our

Results of Operations

Statements of Operations Stated in Dollars and as a Percentage of Total Revenues

(In millions)                    Fiscal Quarter Ended                    Fiscal Nine Months Ended
                        ---------------------------------------   ---------------------------------------
                         October 3, 2009      October 4, 2008      October 3, 2009      October 4, 2008
                        ------------------   ------------------   ------------------   ------------------
Net sales               $    843.9    98.6 % $    948.6    98.3 % $  2,516.8    98.7 % $  2,732.2    98.7 %
Licensing income              11.6     1.4         16.0     1.7         33.3     1.3         36.5     1.3
Other revenues                 0.2     0.0          0.1     0.0          0.6     0.0          0.8     0.0
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----
Total revenues               855.7   100.0        964.7   100.0      2,550.7   100.0      2,769.5   100.0
Cost of goods sold           551.3    64.4        641.4    66.5      1,670.9    65.5      1,843.2    66.6
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----
Gross profit                 304.4    35.6        323.3    33.5        879.8    34.5        926.3    33.4
Selling, general and
administrative expenses      243.5    28.5        271.5    28.1        763.1    29.9        809.1    29.2
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----
Operating income              60.9     7.1         51.8     5.4        116.7     4.6        117.2     4.2
Net interest expense
and financing costs           11.5     1.3         10.5     1.1         44.2     1.7         30.0     1.1
Loss and fees related
to repurchase of 4.250%
Senior Notes                     -       -            -       -          2.0     0.1            -       -
Gain on sale of
interest in Australian
joint venture                    -       -            -       -            -       -          0.8     0.0
Equity in loss of
unconsolidated
affiliate                      2.3     0.3          0.4     0.0          2.8     0.1          0.4     0.0
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----
Income before provision
for income taxes              47.1     5.5         40.9     4.2         67.7     2.7         87.6     3.2
Provision for income
taxes                         16.5     1.9         14.6     1.5         23.7     0.9         31.1     1.1
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----
Income from continuing
operations                    30.6     3.6         26.3     2.7         44.0     1.7         56.5     2.0
Income from
discontinued
operations, net of tax           -       -          1.0     0.1            -       -          1.0     0.0
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----
Net income                    30.6     3.6         27.3     2.8         44.0     1.7         57.5     2.1
Less: income
attributable to
noncontrolling interest        0.2     0.0            -       -          0.2     0.0            -       -
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----
Net income available to
Jones                   $     30.4     3.6 % $     27.3     2.8 % $     43.8     1.7 % $     57.5     2.1 %
                        -- ------- - -----   -- ------- - -----   -- ------- - -----   -- ------- - -----

Percentage totals may not add due to rounding.

Fiscal Quarter Ended October 3, 2009 Compared to Fiscal Quarter Ended October 4, 2008

Revenues. Total revenues for the third fiscal quarter of 2009 were $855.7 million, compared with $964.7 million for the third fiscal quarter of 2008, a decrease of 11.3%. Revenues by segment were as follows:

(In millions)                           Third          Third
                                       Fiscal         Fiscal
                                      Quarter        Quarter         Increase     Percent
                                      of 2009        of 2008        (Decrease )    Change
                                   - -------- --- - -------- --- - ---------- - ----------
Wholesale better apparel           $    245.5     $    303.8     $      (58.3 )     (19.2% )
Wholesale jeanswear                     204.4          202.0              2.4         1.2%
Wholesale footwear and accessories      227.2          269.6            (42.4 )     (15.7% )
Retail                                  167.0          173.2             (6.2 )      (3.6% )
Licensing and other                      11.6           16.1             (4.5 )     (28.0% )
                                   - -------- --- - -------- --- - ---------- - ----------
  Total revenues                   $    855.7     $    964.7     $     (109.0 )     (11.3% )
                                   - -------- --- - -------- --- - ---------- - ----------

Wholesale better apparel revenues decreased $58.3 million, primarily due to reduced shipments of our Anne Klein, Jones New York Sport, Jones New York and Kasper products primarily due to decreased consumer spending as a result of the general economic downturn. These decreases were partially offset

Wholesale jeanswear revenues increased $2.4 million. Increased shipments of private-label products due to expansion of private-label programs with several major customers were partially offset by reduced shipments of our Energie product line primarily as a result of the general economic downturn and a $14.7 million reduction in shipments of product lines that we are discontinuing or restructuring due to low long-term growth potential (including Jeanstar, Erika, Behold and Grane Girl).

Wholesale footwear and accessories revenues decreased $42.4 million. We experienced decreased orders for nearly all our footwear, handbag and accessories products due to decreased consumer spending as a result of the general economic downturn. We also experienced a reduction in sales in our international business primarily due to the global economic conditions in Asia, Canada, Mexico and the bankruptcy of our former United Kingdom licensee.

Retail revenues decreased $6.2 million, primarily due to a 3.2% decline in comparable store sales ($5.2 million) resulting primarily from decreased consumer spending relating to current economic conditions, with the balance related to operating fewer stores in the current period. Comparable stores are those that have been open for a full year, are not scheduled to close in the current period and are not scheduled for an expansion or downsize by more than 25% or relocation to a different street or mall. A 5.4% decrease in comparable store sales for our footwear stores ($5.3 million) and a 5.2% decrease in comparable store sales for our apparel stores ($2.9 million) were partially offset by a 44.8% increase in our comparable e-commerce business ($3.0 million). We began the third fiscal quarter of 2009 with 980 retail locations and had a net decrease of nine locations to end the period with 971 locations, compared with 1,013 locations at the end of the prior period.

Licensing and other revenues decreased $4.5 million, primarily due to reduced sales volume of our licensees.

Gross Profit Margin. The gross profit margin increased to 35.6% in the third fiscal quarter of 2009 compared with 33.5% in the third fiscal quarter of 2008.

Wholesale better apparel gross profit margins were 34.8% and 30.5% for the third fiscal quarters of 2009 and 2008, respectively. The increase was primarily due to better inventory management, the product mix and lower sales to off-price retailers in the current period.

Wholesale jeanswear gross profit margins were 26.1% and 23.7% for the third fiscal quarters of 2009 and 2008, respectively. The increase is primarily due to better inventory management, lower levels of off-price sales and the mix of products shipped in the current period and the discontinuance of certain product lines.

Wholesale footwear and accessories gross profit margins were 28.7% and 27.4% for the third fiscal quarters of 2009 and 2008, respectively. The increase was primarily due to a reduction in discounting in our footwear business due to better inventory management, lower freight costs and a reduction in shipments of our lower-margin international business, partially offset by additional discounting due to the current economic conditions and higher overhead unit costs due to lower volume in our costume jewelry business.

Retail gross profit margins were 50.7% and 49.7% for the third fiscal quarters of 2009 and 2008, respectively. The increase was primarily due to lower levels of apparel inventory liquidation in the current period, partially offset by an increase in promotional activity in our footwear and accessory stores.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses were $243.5 million in the third fiscal quarter of 2009 and $271.5 million in the third fiscal quarter of 2008.

Wholesale jeanswear SG&A expenses decreased $5.2 million, primarily due to a $2.0 million reduction in advertising expenses, a $1.5 million reduction in our provision for doubtful accounts due to the bankruptcies of several customers in the prior period, a $1.4 million decrease in salary and benefit costs due to headcount reductions and $0.3 million of other cost savings.

Wholesale footwear and accessories SG&A expenses decreased $9.6 million, primarily due to a $4.5 million decrease in salary, benefit and travel costs due to headcount reductions, a $2.0 million decrease in other administrative costs due to our cost saving initiatives, a $2.0 million decrease in advertising costs and a $1.1 million reduction in our provision for doubtful accounts due to the bankruptcies of several customers in the prior period.

Retail SG&A expenses decreased $4.6 million, primarily due to a $2.3 million decrease in administrative costs, a $2.1 million decrease in depreciation expense and $0.2 million of other cost reductions in the current period as a result of operating fewer stores in the current period.

SG&A expenses for licensing, other and eliminations were unchanged from the prior period.

Operating Income. The resulting operating income for the third fiscal quarter of 2009 was $60.9 million, compared with $51.8 million for the third fiscal quarter of 2008, due to the factors described above.

Net Interest Expense. Net interest expense was $11.5 million in the third fiscal quarter of 2009, compared with $10.5 million in the third fiscal quarter of 2008. The increase was the result of lower interest income on our invested cash balances due to overall lower invested balances in the current period. Higher amortization of deferred financing fees related to the amendment to our prior revolving credit facility on January 5, 2009 and our new secured revolving credit facility were offset by lower interest expense related to the 4.250% Senior Notes we repurchased in May 2009.

Income Taxes. The effective income tax rate was 35.0% and 35.6% for the third fiscal quarter of 2009 and 2008, respectively. The decrease is primarily due to a lesser impact of the foreign income tax differential relative to pre-tax income in 2009 than in 2008.

Net Income and Earnings Per Share. Net income was $30.6 million in the third fiscal quarter of 2009, compared with $27.3 million in the third fiscal quarter of 2008. Diluted earnings per share for the third fiscal quarter of 2009 was $0.36, compared with $0.33 for the third fiscal quarter of 2008, on an equivalent number of shares outstanding.

Fiscal Nine Months Ended October 3, 2009 Compared to Fiscal Nine Months Ended
October 4, 2008

     Revenues. Total revenues for the first fiscal nine months of 2009 were $2.6
billion, compared with $2.8 billion for the first fiscal nine months of 2008, a
decrease of 7.9%. Revenues by segment were as follows:

                                     - 26 -

--------------------------------------------------------------------------------
                                        First          First
                                       Fiscal         Fiscal
                                         Nine           Nine
                                       Months         Months         Increase     Percent
(In millions)                         of 2009        of 2008        (Decrease )    Change
                                   - -------- --- - -------- --- - ---------- - ----------
Wholesale better apparel           $    740.0     $    870.2     $     (130.2 )     (15.0% )
Wholesale jeanswear                     653.9          594.9             59.0         9.9%
Wholesale footwear and accessories      631.5          737.8           (106.3 )     (14.4% )
Retail                                  492.0          529.5            (37.5 )      (7.1% )
Licensing and other                      33.3           37.1             (3.8 )     (10.2% )
                                   - -------- --- - -------- --- - ---------- - ----------
  Total revenues                   $  2,550.7     $  2,769.5     $     (218.8 )      (7.9% )
                                   - -------- --- - -------- --- - ---------- - ----------

Wholesale better apparel revenues decreased $130.2 million, primarily due to reduced shipments of our Anne Klein, Jones New York Sport, Jones New York, Kasper, Nine West and Jones New York Suit products due primarily to decreased consumer spending as a result of the general economic downturn. These decreases were offset by increased shipments of our Evan Picone suit and dress products as a result of the performance of these products at retail, increases in our private label suit businesses and initial shipments of our Rachel Rachel Roy product line.

Wholesale jeanswear revenues increased $59.0 million. Shipments of our
l.e.i. products to Wal-Mart Stores Inc. ("Walmart") and increased shipments of private-label products due to expansion of private-label programs with several major customers were partially offset by reduced shipments of our Energie product line primarily as a result of the general economic downturn and a $46.8 million reduction of shipments of product lines that we are discontinuing or restructuring due to low long-term growth potential (including Jeanstar, Erika, Behold and Grane Girl).

Wholesale footwear and accessories revenues decreased $106.3 million. We experienced decreased orders for nearly all our footwear, handbag and accessories products primarily due to decreased consumer spending as a result of the general economic downturn. We also experienced a reduction in sales in our international business primarily due to the global economic conditions in Asia, Canada, Mexico and the bankruptcy of our former United Kingdom licensee.

Retail revenues decreased $37.5 million, primarily due to a 6.5% decline in comparable store sales ($31.5 million) resulting from decreased consumer spending relating to current economic conditions, with the balance related to operating fewer stores in the current period. A 10.8% decrease in comparable store sales for our footwear stores ($33.1 million) and a 6.3% decrease in comparable store sales for our apparel stores ($10.0 million) were partially offset by a 62.6% increase in our comparable e-commerce business ($11.6 million). We began 2009 with 1,017 retail locations and had a net decrease of 46 locations to end the period with 971 locations, compared with 1,013 locations at the end of the prior period.

Licensing and other revenues decreased $3.8 million, primarily due to reduced sales volume of our licensees.

Gross Profit Margin. The gross profit margin increased to 34.5% in the first fiscal nine months of 2009 compared with 33.4% in the first fiscal nine months of 2008.

Wholesale better apparel gross profit margins were 34.8% and 32.2% for the first fiscal nine months of 2009 and 2008, respectively. The increase was primarily due to better inventory management, the product mix and lower sales to off-price retailers in the current period.

Wholesale jeanswear gross profit margins were 25.1% and 23.0% for the first fiscal nine months of 2009 and 2008, respectively. The increase is primarily due to better inventory management, lower levels of off-price sales and the mix of products shipped in the current period, costs in the prior period related to the repositioning of l.e.i. as an exclusive brand for Walmart and the discontinuance of certain other product lines.

Retail gross profit margins were 50.2% and 51.0% for the first fiscal nine months of 2009 and 2008, respectively. The decrease was primarily the result of higher levels of promotional activity in our stores due to the current challenging retail environment.

Selling, General and Administrative Expenses. SG&A expenses were $763.1 million in the first fiscal nine months of 2009 and $809.1 million in the first fiscal nine months of 2008.

Wholesale better apparel SG&A expenses decreased $12.9 million, primarily due to a $5.8 million decrease in distribution costs due to a lower volume of shipments, a $3.0 million reduction in advertising costs, a $1.9 million decrease in postage costs, a $1.7 million reduction in salaries and benefits from headcount reductions and a $1.0 million reduction in our provision for doubtful accounts related to bankruptcies of several major customers in the prior period, and offset by $0.5 million of other net cost increases.

Wholesale jeanswear SG&A expenses decreased $18.6 million, primarily due to an $8.6 million decrease in salary and benefit costs due to headcount reductions, a $5.9 million decrease in our provision for doubtful accounts due to the bankruptcies of several customers in the prior period, a $4.4 million decrease in occupancy costs due to the closing of certain facilities, a $2.5 million decrease in depreciation and amortization expenses (due to accelerated depreciation in the prior period relating to discontinued brands), a $1.2 million reduction in travel and entertainment costs and $1.5 million of other cost savings, offset by $5.5 million of higher distribution costs due to higher unit shipments in the current period.

Wholesale footwear and accessories SG&A expenses decreased $18.0 million, primarily due to a $12.2 million decrease in salary and benefit costs, a $4.9 million decrease in advertising costs, a $3.0 million decrease in other administrative costs due to our cost saving initiatives, a $3.0 million decrease in style, design and sample costs, a $2.0 million decrease in distribution costs, a $1.7 million decrease in travel costs, a $1.4 million decrease in postage costs and $1.5 million of other cost reductions. These decreases were offset by $5.2 million in restructuring costs in our wholesale jewelry business, $3.5 million of costs related to the bankruptcy of our United Kingdom footwear licensee, $1.6 million in settlements of sales and use tax audits and $1.4 million in loss accruals related to certain leased property in the current period.

. . .