Following is a summary of the Company's department store locations, by store size:

                                               # of
                                              stores
                                               open
                                              -------
  Larger than 200,000 gross square feet.....       3
  150,000 - 199,999 gross square feet.......       6
  100,000 - 149,999 gross square feet.......       9
   40,000 -  99,999 gross square feet.......      38
   20,000 -  39,999 gross square feet.......       7
                                              -------
        Total...............................      63
                                              =======

The Company's marketing strategy is based on a multi-media approach, using newspapers, television, radio, direct mail, internet, and catalogs to highlight seasonal promotions, selected brand-name merchandise and frequent storewide sales events. Advertising efforts are focused on communicating the branded merchandise offered by the Company, and the high levels of quality, value and customer service available in the Company's stores. In its efforts to improve the effectiveness of its advertising expenditures, the Company uses data captured through its private-label credit card to develop segmented advertising and promotional events targeted at specific customers who have established purchasing patterns for certain brands, departments or store locations.

The Company's sales promotion strategy also focuses on special events such as fashion shows, bridal shows and wardrobing seminars in its stores and in the communities in which they are located to convey fashion trends to its customers. The Company receives reimbursement for certain of its promotional activities from some of its vendors.

In 2004, the Company celebrated its 100^th year of operation under the Gottschalks name. This unique event was the focal point of marketing and merchandising strategies throughout the year culminating in a gala and the ringing of the closing bell of the New York Stock Exchange on September 17, 2004, the actual date of the 100^th Year Anniversary.

The Company offers selected merchandise, a Bridal & Gift Registry service, and other general corporate information on the World Wide Web at http://www.gottschalks.com, and sells merchandise through its mail order department. The information on the Company's website is not part of this annual report.

Management believes one way the Company can differentiate itself from its competitors is to provide a consistently high level of customer service. The Company has a "Four Star" customer service program, designed to continually emphasize and reward high standards of customer service in the Company's stores. Sales associates are encouraged to keep notebooks of customers' names, clothing sizes, birthdays, and major purchases, to telephone customers about promotional sales and to send thank-you notes and other greetings to their customers during their normal working hours. Product seminars and other training programs are frequently conducted in the Company's stores and its corporate headquarters to ensure that sales associates will be able to provide useful product information to customers. The Company also offers opportunities for management training and leadership classes for those associates identified for promotion within the Company. Various financial incentives are offered to the Company's sales associates for reaching sales performance goals.

In addition to providing a high level of personal sales assistance, management believes that well-stocked stores, a liberal return and exchange policy, frequent sales promotions and a conveniently located and attractive shopping environment enhance its customers' shopping experience and increase customer loyalty. Management also believes that maintaining appropriate staffing levels in its stores, particularly at peak selling periods, is essential for providing a high level of customer service.

Management focus for 2005 will also include an increased effort to attract and service the 30 to 55 year old age group, as well as, the Hispanic customer that continues to be a growing segment of the customer base in many current markets.

The Company operates a 420,000 square foot distribution center located in Madera, California. The facility, constructed in 1989, is located in close proximity to the Company's corporate headquarters in Fresno, California. The facility serves all of the Company's store locations, with daily distributions of merchandise to all stores, including its stores located in states outside California.

The Company has continued to improve its logistical systems, focusing on the adoption of new technology and operational best practices, with the goals of receiving, processing and distributing merchandise to stores at a faster rate and at a lower cost per unit. The Company's logistical systems enable the Company to "cross dock" the majority of its merchandise, thereby processing merchandise through the distribution center in several minutes as compared to the several day timeframe required in the past. The Company has formal guidelines for vendors with respect to shipping, receiving and invoicing for merchandise. Vendors that do not comply with the guidelines are charged specified fees depending upon the degree of non-compliance. Such fees are intended to offset higher costs associated with the processing of and payment for such merchandise.

On January 31, 2003, pursuant to the terms of a Purchase and Sale Agreement, the Company sold its proprietary credit card accounts and accounts receivable to HSBC. The $102.8 million proceeds consisted of $100.3 million for the sale of the accounts and receivables and $2.5 million in prepaid program revenues. Proceeds from the sale were used to pay in full $73.2 million principal and interest due to certificateholders under the Company's accounts receivable securitization program plus $3.4 million in prepayment penalties. The remaining proceeds of $26.2 million were applied as a reduction of outstanding borrowings under the Company's revolving credit facility.

In connection with the sale, the Company entered into two additional agreements, an Interim Servicing Agreement (the "ISA") and a Credit Card Program Agreement (the "CCA"). Under the terms of the ISA, the Company continued to service the credit card receivables until May 14, 2003. HSBC compensated the Company for providing the interim servicing. The compensation was equal to the costs of providing such services during the interim period.

The CCA sets forth the terms and conditions under which HSBC will issue Gottschalks private-label credit cards and pay the Company for sales made on the cards. The CCA has a term of five (5) years and is cancellable by either party under certain circumstances. The CCA further provides for the Company to be paid a percentage of Net Cardholder Charges and a percentage of other Revenue (such terms as defined in the CCA). The Company has determined during the course of 2003 that the amounts received under the CCA approximately equal the net revenues from its former in-house credit card operations, net of operating expenses and interest expense. No assurances can be given that the amounts under the CCA will continue at those levels or at all.

Management believes the private-label credit card enhances the Company's ability to generate and retain market share as well as increase sales. Private-label credit card sales as a percentage of total sales were 40.1%, 41.2%, and 43.2% in fiscal 2004, 2003, and 2002, respectively. The decline in the private card penetration is due to the transition of service from the Company to HSBC. Efforts are underway between the Company and HSBC to increase the private card penetration in 2005.

The Company has a variety of credit-related programs which management believes have improved customer service and will increase credit-sales. Such programs include:

• An "Instant Credit" program, through which successful credit applicants receive a discount ranging from 10% to 50% (depending on the results of the Instant Credit scratch-off card) on their first purchase and 10% on additional purchases made the remainder of the day the account is opened;

• A "55-Plus" charge account program, which offers additional merchandise and service discounts to customers 55 years of age and older; and

• Various credit-card related promotional events throughout the year.

A key element to the re-vitalizaiton of the Company's private label credit card relates to the re-structured Rewards program, which was redesigned in 2004, as described below:

See Part I, Item I, "Risk Factors - We Face Significant Competition from Other Retailers" and "Risk Factors - The Company's Business is Susceptible to Economic Conditions and Other Factors That Affect Its Markets, Some of Which are Beyond Its Control".

As of January 29, 2005, the Company had approximately 5,700 employees, including 3,420 employees working part-time (less than 32 hours per week on a regular basis). As of January 31, 2004, the Company had 5,800 employees (including 3,490 working part-time). The decrease in the number of employees from the prior year is partially attributable to the store closures in fiscal 2003. The Company hires additional temporary employees and increases the hours of part-time employees during seasonal peak selling periods. Approximately 57 employees in two former Lamonts locations in King County, Washington are covered by a collective bargaining agreement with the United Food and Commercial Worker's Union (UFCW). Management does not believe that the agreement will have a material affect on the Company's business, financial condition or results of operations. Management considers its employee relations to be good.

The Company has completed two significant acquisitions in its operating history, including the acquisition of 8 stores from The Harris Company ("Harris") in fiscal 1998, and an additional 34 store locations from Lamont's Apparel, Inc. ("Lamonts") in fiscal 2000.

On August 20, 1998, the Company acquired substantially all of the assets and assumed certain liabilities of Harris, a wholly-owned subsidiary of El Corte Ingles ("ECI") of Spain. Harris operated nine full-line department stores located in the Southern California area. As planned, the Company closed one of the acquired stores on January 31, 1999. The purchase price for the assets consisted of 2,095,900 shares of common stock of the Company and a $22.2 million 8% Extendable Subordinated Note, due August 2003 (subsequently extended to May 2009) (the "Subordinated Note"). As a result of the acquisition, Harris became a significant stockholder of the Company, and both Harris and ECI became affiliates of the Company. The Company also leases three of its store locations from ECI. (See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - "Liquidity and Capital Resources - Transactions with Affiliate.")

The Company completed the largest acquisition in its operating history on July 24, 2000, significantly expanding its presence throughout the Pacific Northwest and Alaska. Under the transaction (hereinafter the "Lamonts acquisition"), the Company acquired 37 department store leases, related store fixtures and equipment and one store building from Lamonts, a bankrupt specialty apparel store chain, for a cash purchase price of $20.1 million. Concurrent with the closing of the transaction, the Company sold one of the store leases for $2.5 million, and subsequently terminated two other store leases, resulting in a net cash purchase price of $17.6 million for 34 store leases, related store fixtures and equipment and one store building. The Company did not acquire any of Lamonts' merchandise inventory, customer credit card receivables or other corporate assets in the transaction, nor did the Company assume any material liabilities, other than the 34 store leases. The 34 stores acquired were located in 5 Western states, with 19 stores in Washington, 7 in Alaska, 5 in Idaho, 2 in Oregon and 1 in Utah. The Company converted the acquired stores to the Gottschalks banner and re-opened the stores in late August and early September 2000. In fiscal 2001, the Company closed 6 of the acquired stores that were determined to be either underperforming or inconsistent with the long-term operating strategy of the Company. In fiscal 2002, the Company closed another 4 of the acquired stores and an additional 6 stores were closed in fiscal 2003. The Company continues to operate 18 of the original 34 stores acquired from Lamonts some of which have continued to perform below expectations. In the event the Company is unable to improve the performance of such underperforming stores, the Company may consider the sale, sublease or closure of these stores in the future.

Gottschalks' internet address is http://www.gottschalks.com. We have made available, free of charge through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Forms 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission.

Information relating to the Company's executive officers is included in Part III, Item 10 of this report and is incorporated herein by reference.

This Form 10-K contains certain "forward-looking statements" regarding activities, developments and conditions that the Company anticipates may occur or exist in the future relating to things such as:

• the Company's ability to meet debt obligations and adhere to the restrictions and covenants imposed under its various debt agreements;

• the timely receipt of merchandise and the Company's ability to obtain adequate trade credit from its key factors and vendors;

• the Company's ability to either improve the operating results and cash flows of certain of the stores acquired in the Lamonts acquisition, or to sell, sublease or close those stores that continue to be underperforming;
• the impact of higher interest rates;
• the impact of higher operating costs, including workers' compensation, unemployment compensation, health care and energy costs;
• future capital expenditures;

• the Company's competitive strategy, competitive pricing and other competitive pressures;
• the effect of the adoption of new accounting standards by the Company;
• the realization of the Company's deferred tax assets;
• the Company's assumptions and expectations underlying its critical accounting policies (see "Management's Discussion and Analysis of Financial Condition and Results of Operations");
• the overall level of consumer spending and demand for the products offered;
• general economic conditions;
• the impact of sales promotions and customer service programs on consumer spending;
• lease extensions and suitable alternative store locations; and
• the future cost and utilization of consumer credit programs under the CCA.

Such forward-looking statements can be identified by words such as: "believes," "anticipates," "expects," "intends," "seeks," "may," "will," "projects," "forecasts," "plans" and "estimates". The Company bases its forward-looking statements on its current views and assumptions. As a result, those statements are subject to risks and uncertainties that could cause actual results to differ materially from those predicted. Some of the factors that could cause the Company's results to differ from those predicted include the following risk factors, as well as other risks and uncertainties discussed in other documents filed by the Company with the Securities and Exchange Commission. In addition, the Company typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. While the Company believes that its assumptions are reasonable, it cautions that it is impossible to predict the impact of such factors which could cause actual results to differ materially from predicted results.

THE FOLLOWING LIST OF IMPORTANT FACTORS IS NOT EXCLUSIVE AND THE COMPANY DOES NOT UNDERTAKE TO REVISE OR UPDATE ANY FORWARD-LOOKING STATEMENT TO REFLECT EVENTS OR CIRCUMSTANCES THAT OCCUR AFTER THE STATEMENT IS MADE.

The Company's business is subject to certain risks, and those risks should be considered while evaluating its business and financial results. Any of the risks discussed below could materially and adversely affect the Company's operating results and financial condition, as well as the projections and beliefs about its future performance. Accordingly, the Company's results could differ materially from those projected in its forward-looking statements. In addition, the preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ materially from the Company's estimates and assumptions. (See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies".)

The Company's working capital requirements are currently met through a combination of cash generated by operations, borrowings under its senior revolving credit facility, short-term trade and factor credit, and by proceeds from external financings and sale transactions. In the event these sources of liquidity are not adequate, the Company may be required to pursue one or more alternative sources, which could include the sale of additional stores or the issuance of additional equity or equity-linked securities. If the estimates or assumptions relative to any one of these sources of liquidity are not realized, the Company's business, financial condition and results of operations may be materially adversely affected.

Although the Company has significantly improved its leverage position, the ability to obtain additional or alternative sources of financing in the future for working capital, capital expenditures, new store openings, acquisitions and other general corporate purposes may be limited. This limited financial flexibility may result in increased vulnerability to general adverse economic and industry conditions, a more limited ability to react to changes in the business environment and the industry in which the Company competes, and the Company being at a competitive disadvantage with competitors that have less debt and greater access to capital resources.

The Company's existing debt agreements impose operating and financial restrictions that limit the Company's ability to make dividend payments and grant liens, among other matters.

The success of the Company's business is highly dependent upon the adequacy of trade credit offered by key factors and vendors, the vendors' ability and willingness to sell its products at favorable prices and terms, and the willingness of vendors to ship merchandise on a timely basis. Restrictions to the amount of trade credit granted by key factors and vendors can adversely impact the volume of merchandise the Company is able to purchase. Any significant reduction in the volume of merchandise the Company is able to purchase, or a prolonged disruption in the timing of when merchandise is received, would have a material adverse affect on the Company's business, liquidity position, and results of operations.

The retail business is highly competitive, and if the Company fails to compete effectively, it could lose market share. The Company's primary competitors include national, regional and local chain department and specialty stores, general merchandise stores, discount and off-price retailers and outlet malls. Increased use and acceptance of the internet and other home shopping formats also creates increased competition. Some of these competitors offer similar or better-branded merchandise and have greater financial resources to purchase larger quantities of merchandise at lower prices. The Company's ability to counteract these competitive pressures depends on its ability to:

• offer merchandise which reflects the different regional and local needs of its customers;

• differentiate and market the Company as a home-town, locally-oriented store (as opposed to its more nationally focused competitors); and

• continue to offer adequate quantities of better to moderately priced branded and private label merchandise at comparable profit margins.

General Economic and Market Conditions. The Company's stores are located primarily in non-major metropolitan, suburban and agricultural areas in the western United States. A substantial portion of the stores are located in California and Washington. The Company's success depends upon consumer spending, which may be materially and adversely affected by any of the following events or conditions:

• a downturn in the national, California or Pacific Northwest economies;

• a downturn in the local economies where the stores are located;

• a decline in consumer confidence;

• an increase in interest rates;

• inflation or deflation;

• consumer credit availability;

• consumer debt levels;

• higher energy costs in California and the Pacific Northwest;
• higher healthcare and workers' compensation insurance costs;
• higher property and casualty insurance costs;

• tax rates and policy; and

• unemployment trends.

Seasonality and Weather. Seasonal influences affect the Company's sales and profits. The Company experiences its highest levels of sales and profits during the Christmas selling months of November and December, and, to a lesser extent, during the Easter holiday and Back-to-School seasons. The Company has increased working capital needs prior to the Christmas season to carry significantly higher inventory levels and generally increases its selling staff levels to meet anticipated demands. Any substantial decrease in sales during its traditional peak selling periods could materially adversely impact the Company's business, financial condition and results of operations.

The Company also depends on normal weather patterns across its markets. Historically, unusual weather patterns have significantly impacted its business.

Consumer Trends. The Company's success partially depends on its ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner. However, it is difficult to predict what merchandise consumers will demand, particularly merchandise that is trend driven. Failure to accurately predict constantly changing consumer tastes, preferences and spending patterns could adversely affect short and long-term results.

War and Acts of Terrorism. The involvement of the United States in war or other conflicts have had an adverse impact on the Company by, among other things, adversely affecting retail sales as a result of reduced consumer spending, and by causing substantial increases in fuel prices thereby increasing the costs of doing business. Any future war, political conflict or significant act of terrorism on U.S. soil or elsewhere could have an adverse effect from the foregoing and by impeding the flow of imports or domestic products to the Company.

Approximately 52.3% of the Company's debt at January 29, 2005 has underlying variable interest rates, which may result in higher interest expense in the event interest rates are raised. (See Item 7A "Qualitative and Quantitative Disclosures about Market Risk.")

A substantial portion of the Company's stores are located in California and Washington. As a result, the Company is particularly sensitive to negative occurrences in those states. In mid-fiscal 2001, problems associated with the deregulation of the electric industry in California resulted in intermittent service interruptions and higher utility rates. The Company may face similar situations in the future. The Company's inability to adequately address these problems could have a material adverse affect on its financial position and results of operations. In addition, the Company is facing higher workers' compensation, unemployment compensation, health insurance and property and casualty insurance costs in the market areas in which it operates. There can be no assurance that the Company will be able to fully offset the negative impact of such higher costs.

The Company's success depends to a large extent on its executive management team. The loss of the services of certain of its executives could have a material adverse effect on the Company. The Company cannot guarantee that it will be able to retain such key personnel or attract additional qualified members to its management team in the future.

The Company also depends on attracting and retaining a large number of qualified employees to maintain and increase sales and to execute its customer service programs. Many of its employees are in entry level or part-time positions with historically high levels of turnover. The Company's ability to meet its employment needs is dependent on a number of factors, including the following factors which affect its ability to hire or retain qualified employees:

• unemployment levels;

• minimum wage legislation;

• rising health care costs; and

• changing demographics in the local economies where stores are located.

Corporate Office and Distribution Center

The Company's corporate headquarters is located in an office building in Fresno, California. The building was constructed in 1991 and is owned by a limited partnership in which the Company holds a 36% interest as the sole limited partner. The Company leases 89,000 square feet of the 176,000 square foot building under a twenty-year lease expiring in 2011. The lease contains two consecutive ten-year renewal options and the Company receives favorable rental terms under the lease. As described in Note 6 to the Consolidated Financial Statements, the Company has financed its interest in the partnership with a three-year promissory note maturing in May 2005. Because of the favorable interest rate environment, on March 15, 2005 the Company extended the financing of its interest in the partnership through an amortizing five-year note at a fixed interest rate of 7.5%. The Company believes that its current office space is adequate to meet its office space requirements for the foreseeable future.

The Company's distribution center, constructed in 1989, is a 420,000 square foot distribution facility located in Madera, California, which is in close proximity to the Company's corporate headquarters. The facility was originally designed to provide for the future growth of the Company and its processing capacity and physical size is readily expandable. The Company leases the distribution facility from an unrelated party under a 20-year lease expiring in the year 2009, with six consecutive five-year renewal options.

Store Leases and Locations

The Company owns seven of its 63 department stores, all but one of which are subject to mortgage loans, and leases the remaining 56 department stores and all of its 6 specialty stores, and remains obligated under the lease for one of the department stores closed in fiscal 2001. Most of the Company's department store leases expire in various years through 2021, and have renewal options for one or more periods ranging from five to 20 years. Leases for specialty store locations generally do not contain renewal options. While there is no assurance that the Company will be able to negotiate further extensions of any particular lease, management believes that satisfactory extensions or suitable alternative store locations will be available.

Certain of the department and specialty store leases provide for the payment of additional contingent rentals based on a percentage of sales, require the payment of property taxes, insurance and maintenance costs, and, in certain cases, also provide for rent abatements and scheduled rent increases during the lease terms. The Company leases three of its department stores from ECI, an affiliate of the Company. Additional information pertaining to the Company's store leases is included in Note 7 to the Consolidated Financial Statements.

The following table contains additional information about the Company's stores open as of the end of fiscal 2004:

                              #        Gross
                             of       Square
          State            Stores   Footage(1)
- ------------------------- --------- -----------
Department Stores:                             
  California.............       39   4,048,636
  Washington.............       12     627,102
  Alaska.................        6     339,987
  Oregon.................        2     110,400
  Nevada.................        2     199,300
  Idaho..................        2      80,054

                          --------- -----------
     Total                      63   5,405,479
                          ========= ===========

Specialty Stores:                              
  California.............        5      26,856
  Nevada.................        1       3,211
                          --------- -----------
    Total                        6      30,067
                          ========= ===========

_______________________

On March 5, 2004, AT&T filed a breach of contract complaint in the United States District Court in Fresno, California demanding the payment of approximately $768,000 for telecommunication services allegedly supplied to the Company in 2002 and 2003. The Company has answered and denied the AT&T allegations and demand. At this time it is not possible to predict the outcome of this dispute. The Company believes that it is not liable for the amounts demanded by AT&T, however, it has accrued liabilities for estimated settlement costs that management believes are reasonable. Although the final resolution of these matters may be greater than the Company's recorded liability, management does not believe the ultimate resolution will have a material adverse effect on the Company's business, financial condition or results of operations.

The Company is party to other legal proceedings and claims which have arisen during the ordinary course of business. In the opinion of management, the ultimate outcome of such litigation and claims is not expected to have a material adverse effect on the Company's financial position or results of its operations.

No matters were submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year covered in this report.

The Company's common stock is listed for trading on both the New York Stock Exchange ("NYSE") and the Pacific Stock Exchange. The following table sets forth the high and low sales prices per share of common stock as reported on the NYSE Composite Tape under the symbol "GOT" during the periods indicated:

                            2004              2003
                       ----------------  ----------------
Fiscal Quarters         High      Low     High      Low
- ---------------------  -------  -------  -------  -------
   1st Quarter....... $  6.48  $  4.73  $  1.58  $  0.94
   2nd Quarter....... $  6.10  $  4.66  $  2.17  $  1.15
   3rd Quarter....... $  6.89  $  3.85  $  4.00  $  1.80
   4th Quarter....... $  9.15  $  6.03  $  4.68  $  3.14

On March 31, 2005, the Company had 705 stockholders of record, some of which were brokerage firms or other nominees holding shares for multiple stockholders. The closing price of the Company's common stock as reported by the NYSE on March 31, 2005 was $10.35 per share.

The Company has not paid a cash dividend since its initial public offering in 1986. The Board of Directors has no present intention to pay cash dividends in the foreseeable future, and will determine whether to declare cash dividends in the future depending on the Company's earnings, financial condition and capital requirements. In addition, the Company's senior revolving credit agreement and certain of its other debt agreements prohibit the Company from paying dividends without prior written consent from those lenders. (See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations.")

The following table provides information as of January 29, 2005 about the Company's common stock that may be issued upon the exercise of options granted to employees or members of the Board of Directors under all of the Company's existing equity compensation plans.

                                                                                Number of
                                                                                securities
                                                                                remaining
                                                                              available for
                                                                             future issuance
                                                                               under equity
                                                Number of       Weighted-      compensation
                                              securities to be   average          plans
                                               issued upon       exercise       (excluding
                                                exercise of      price of       securities
                                                outstanding    outstanding     reflected in
Plan Category                                     options        options       column (a))
- --------------------------------------------- ---------------  ------------  ----------------
Equity compensation plans approved by
  security holders...........................    1,547,750        $4.96          594,500
Equity compensation plans not approved by
  security holders...........................       N/A            N/A             N/A
                                              ---------------  ------------  ----------------
Total........................................    1,547,750        $4.96          594,500
                                              ===============  ============  ================

The Company reports on a 52/53 week fiscal year ending on the Saturday nearest to January 31. The fiscal years ended January 29, 2005, January, 31, 2004, February 1, 2003, February 2, 2002 and February 3, 2001 are referred to herein as fiscal 2004, 2003, 2002, 2001 and 2000, respectively. All fiscal years noted include 52 weeks, except for fiscal 2000, which includes 53 weeks. Management believes the Company's results of operations for fiscal 2000 were not materially affected by results applicable to the 53^rd week.

The selected financial data below should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements of the Company and related notes included elsewhere herein.

Subsequent to the issuance of its financial statements for the year ended January 31, 2004, as a result of a letter issued on February 7, 2005 by the Office of the Chief Accountant of the Securities and Exchange Commission ("SEC") to the American Institute of Certified Public Accountants regarding certain operating lease-related accounting issues and their applications under generally accepted accounting principles in the United States of America ("GAAP"), the Company determined that its then current manner in which it accounted for certain lease related matters was not in accordance with GAAP. Corrections to the Company's lease accounting policies include an adjustment to depreciation expense to correct the depreciable lives being used for certain leasehold costs and improvements, and to correct the recording of certain tenant allowances and construction reimbursements, as reductions in rent expense, which are included in selling general and administration expenses, that had previously been recorded as reductions in the cost of the underlying constructed assets. In addition, the restatement includes adjusting lease terms of certain leases to include bargain renewal option periods where exercise of the options would be reasonably assured, and recognizing the straight-line effect over the lease term of such changes in rents during the options periods. Accordingly, fiscal years 2000 through 2003 have been restated from amounts previously reported. See Note 16 of the accompanying consolidated financial statements.

In addition, the Company had previously classified newly generated receivables and payments on receivables under the securitization program as investing activities, and classified the gross proceeds from the sale of its proprietary credit card portfolio and the repayment of the 1999-1 and 2000-1 Series Certificates as financing activities in its consolidated statement of cash flows. To correct this error, the Company has restated its fiscal 2002 consolidated statements of cash flows to reflect the change in receivables and the net proceeds received by the Company from the sale of its proprietary credit card portfolio as operating activities, since the credit card receivables originated from the sale of the Company's merchandise. See Note 16 of the accompanying consolidated financial statements.

                                                                    Fiscal Years
                                             ------------- ---------------------------------------------------
                                               2004         2003(1)       2002(1)       2001(1)       2000(1)
                                             ---------     ---------     ---------     ---------     ---------
(In thousands of dollars, except share data)             (as restated) (as restated) (as restated) (as restated)
RESULTS OF OPERATIONS:
Net sales.................................. $ 661,992     $ 660,574     $ 665,916     $ 678,866     $ 643,385
Net credit revenues........................     3,106         3,729         8,225         8,420         9,150
Net leased department
  revenues (2).............................     3,515         3,525         3,557         3,965         3,853
                                             ---------     ---------     ---------     ---------     ---------
   Total revenues..........................   668,613       667,828       677,698       691,251       656,388
                                             ---------     ---------     ---------     ---------     ---------
Costs and expenses:
  Cost of sales............................   432,128       435,370       441,426       450,723       421,329
  Selling, general and
   administrative expenses.................   206,897       203,448       207,367       210,147       193,883
  Depreciation and
   amortization (3)........................    13,325        14,497        14,633        14,330        11,918
  Asset impairment charges (4).............        --            --         9,502            --            --
  Store closure costs (5)..................        --            --            --           729
  Receivables sale costs (6)...............        --            --         1,749            --            --
  New store pre-opening
   costs (7)...............................        --            --            --            --         4,684
                                             ---------     ---------     ---------     ---------     ---------
   Total costs and expenses................   652,350       653,315       674,677       675,929       631,814
                                             ---------     ---------     ---------     ---------     ---------
Operating income ..........................    16,263        14,513         3,021        15,322        24,574
                                             ---------     ---------     ---------     ---------     ---------
Other (income) expense:
 Interest expense..........................     9,509        13,296        15,883        14,364        13,750
 Losses on early extinguishment
   of debt (8).............................        --            --         3,695           696            --
 Miscellaneous income......................    (1,565)       (2,262)       (1,802)       (1,587)       (1,408)
                                             ---------     ---------     ---------     ---------     ---------
                                                7,944        11,034        17,776        13,473        12,342
                                             ---------     ---------     ---------     ---------     ---------
Income (loss) from continuing
   operations before income taxes..........     8,319         3,479       (14,755)        1,849        12,232

Income tax expense (benefit)...............     3,018         1,243        (6,838)          634         4,622
                                             ---------     ---------     ---------     ---------     ---------
Income (loss) from
   continuing operations...................     5,301         2,236        (7,917)        1,215         7,610

Discontinued operations:
  Loss from operation of closed stores.....                    (547)       (1,948)       (1,721)       (1,180)
  Loss on store closures (9)...............       (31)         (789)       (4,801)
  Income tax benefit.......................       (11)         (454)       (2,295)         (585)         (401)
                                             ---------     ---------     ---------     ---------     ---------
Loss on discontinued operations............       (20)         (882)       (4,454)       (1,136)         (779)

Net income (loss).......................... $   5,281     $   1,354     $ (12,371)    $      79     $   6,831
                                             =========     =========     =========     =========     =========

Net income (loss) per common share
Basic:
   Income (loss) from continuing
    operations............................. $    0.41     $    0.17     $   (0.62)    $    0.10     $    0.60
   Loss on discontinued operations.........      0.00         (0.07)        (0.35)        (0.09)        (0.06)
   Net income (loss) per common share......      0.41          0.10         (0.97)         0.01          0.54
Diluted:
   Income (loss) from continuing
    operation..............................      0.40          0.17         (0.62)         0.10          0.60
   Loss on discontinued operations.........      0.00         (0.07)        (0.35)        (0.09)        (0.06)
   Net income (loss) per common share...... $    0.40     $    0.10     $   (0.97)    $    0.01     $    0.54

Weighted-average number of
  common shares outstanding:
     Basic.................................    12,905        12,830        12,747        12,681        12,614
     Diluted...............................    13,352        12,919        12,747        12,691        12,632



                                                                    Fiscal Years
                                             ------------- ---------------------------------------------------
                                               2004         2003(1)       2002(1)       2001(1)       2000(1)
                                             ---------     ---------     ---------     ---------     ---------
(In thousands of dollars)                                (as restated) (as restated) (as restated) (as restated)
SELECTED BALANCE SHEET DATA:
Retained interest in
  receivables sold......................... $      --     $      --     $      --     $  19,222     $  19,853
Receivables, net...........................     6,920         9,145        10,641        11,331         9,248
Merchandise inventories (10)...............   152,753       156,552       164,615       161,041       185,226
Property and equipment, net................   126,509       127,561       138,910       152,804       148,440
Total assets...............................   315,575       322,199       347,849       392,336       410,775
Working capital............................    94,439        58,444        50,241        29,188        31,011
Long-term obligations,
  less current portion.....................    71,403        41,302        45,097        35,216        33,012
Subordinated note
  payable to affiliate.....................    21,180        22,180        21,989        21,646        21,303
Stockholders' equity.......................   112,356       106,368       104,886       117,132       116,878


                                                                    Fiscal Years
                                             ------------- ---------------------------------------------------
                                               2004          2003          2002          2001          2000
                                             ---------     ---------     ---------     ---------     ---------
                                        (In thousands of dollars, except percentages, ratios and per square foot data)
OTHER SELECTED DATA:                                                                                          
Sales growth:
  Total store sales (11)...................     (0.7)%        (3.5)%        (2.7)%          8.5%(12)     22.6% (13)
  Comparable store sales (14)..............       0.2%        (0.7)%        (0.8)%          0.4%(12)      5.6% (15)
                                                                                                               (16)
Comparable stores data (14)(17):
  Sales per selling square foot............ $     149     $     149     $     148 (18)$     173 (18)$     176
  Selling square footage...................     4,451         4,451         4,654 (18)    3,478 (18)    3,384

Capital expenditures....................... $  13,745     $   4,363     $   8,279     $  18,683     $  29,635
Current ratio..............................     2.18:1        1.47:1        1.35:1        1.16:1        1.15:1

__________________________

                                               Fiscal Years
                                     -------------------------------
                                       2004       2003       2002
                                     ---------  ---------  ---------
Net sales...........................    100.0 %    100.0 %    100.0 %
Net credit revenues.................      0.5        0.6        1.2
Net leased department revenues......      0.5        0.5        0.5
                                     ---------  ---------  ---------
     Total revenues.................    101.0      101.1      101.7

Costs and expenses:
   Cost of sales....................     65.3       65.9       66.3
   Selling, general and
     administrative expenses........     31.2       30.8       31.1
   Depreciation and amortization....      2.0        2.2        2.2
   Asset impairment charges.........       --         --        1.4
   Store closure costs..............       --         --         --
   Receivables sale costs...........       --         --        0.3
                                     ---------  ---------  ---------
     Total costs and expenses.......     98.5       98.9      101.3
                                     ---------  ---------  ---------
Operating income....................      2.5        2.2        0.4

Other (income) expense:
   Interest expense.................      1.4        2.0        2.3
   Losses on early extinguishment
     of debt........................       --         --        0.5
   Miscellaneous income.............     (0.2)      (0.3)      (0.3)
                                     ---------  ---------  ---------
                                          1.2        1.7        2.5
                                     ---------  ---------  ---------
Income (loss) before income taxes...      1.3        0.5       (2.1)

Income tax expense (benefit)........      0.5        0.2       (1.0)
                                     ---------  ---------  ---------
Income (loss) from
 continuing operations..............      0.8        0.3       (1.1)

Discontinued operations:
  Income (loss) from operation
   of closed stores.................       --       (0.1)      (0.3)
  Loss on store closures............       --       (0.1)      (0.7)
  Income tax benefit................       --       (0.1)      (0.3)
                                     ---------  ---------  ---------
Loss on discontinued operations.....       --       (0.1)      (0.7)
                                     ---------  ---------  ---------
Net income (loss)...................      0.8 %      0.2 %     (1.8)%
                                     =========  =========  =========

(In thousands)                                              2004       2003
- --------------------------------------------------------  ---------  ---------
Service charge revenues................................. $   2,955  $   2,649
Interim servicing compensation - net....................                1,088
Amortization of interest-only strip.....................                 (313)
Recoveries of previously charged off receivables........       151        305
                                                          ---------  ---------
                                                         $   3,106  $   3,729
                                                          =========  =========

(In thousands)                                               2004        2003
- --------------------------------------------------------  ----------  ----------
Net sales from closed stores............................ $           $    6,973

Cost of sales...........................................                  4,437
Selling, general and administrative expenses............                  3,013
Depreciation and amortization...........................                     70
                                                          ----------  ----------
  Total costs and expenses..............................         --       7,520
                                                          ----------  ----------
Loss from operations of closed stores................... $       --  $     (547)
                                                          ==========  ==========

(In thousands)                                              2003       2002
- --------------------------------------------------------  ---------  ---------
Service charge revenues................................. $   2,649  $  17,813
Interim servicing compensation - net....................     1,088
Amortization of interest-only strip.....................      (313)
Interest expense on securitized receivables.............               (4,863)
Charge-offs on receivables sold and provision for
  credit losses on receivables ineligible for sale......       305     (4,821)
Gain on sale of receivables.............................                   96
                                                          ---------  ---------
                                                         $   3,729  $   8,225
                                                          =========  =========

(In thousands)                                               2003        2002
- --------------------------------------------------------  ----------  ----------
Net sales from closed stores............................ $    6,973  $   25,512

Cost of sales...........................................      4,437      15,669
Selling, general and administrative expenses............      3,013      10,906
Depreciation and amortization...........................         70         885
                                                          ----------  ----------
  Total costs and expenses..............................      7,520      27,460
                                                          ----------  ----------
Loss from operations of closed stores................... $     (547) $   (1,948)
                                                          ==========  ==========