What should I do if I was sent a cease and desist for allegedly using a trademark?

I have started a clothing line which has had positive responses and a major chain outlet is asking me to expand my line and move into more of their stores. I had applied for a trademark of the name and had to resubmit the paperwork a couple of times. Recently a company by the same name in a different state sent me a cease and desist email. They registered the same name a year ago in the clothing category. When I researched the name I chose, I couldn't find anything. I see they are listed in yellow pages as a beauty school. I am not sure that they are actually selling apparel of any sort even though they have the trademark registered that way. They do not have a website that I can find, and all indications point to them being a beauty school. What are my options for my trademark? Do they have the right to ask me to stop using the name? If they are not retailing clothing, do they have the right to prevent others from using the name? Can I use it everywhere but "their" area? I don't think this company has the financial fortitude to mount any real fight, but then neither do I at this point. I can't see how anyone would confuse the two companies, since they do not have a web site and the only business listing I can find shows that they are in the education business. Any advice would be most helpful.