UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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(MARK ONE)
xANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 1, 2003

OR





FOR THE TRANSITION PERIOD FROM ___________ TO  _____________

Commission file number 1-09100



Gottschalks Inc.



|Delaware                                                       | 77-0159791                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

7 River Park Place EastFresno, California      93720

(559) 434-4800

Securities registered pursuant to Section 12(b) of the Act:



|Title of Each Class
 Common Stock, $.01 Par Value | Name of each exchange on which registered
 New York Stock Exchange
 Pacific Stock Exchange
|------------------------------------------------- | ------------------------------------------------------------------------------------------

Securities registered pursuant to Section 12(g) of the Act: None



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. YesxNooIndicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.xIndicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).  YesoNoxThe  aggregate market value of the voting stock held by non-affiliates
of the Registrant as of August 3, 2002: Common Stock, $.01 par value: $21,491,095.On  March 31, 2003 the Registrant had outstanding 12,801,669 shares of
Common Stock.DOCUMENTS INCORPORATED BY REFERENCE
Portions  of  the  Registrant's
definitive  proxy  statement with respect to its Annual  Stockholders'
Meeting  scheduled to be held on June 26, 2003, which  will  be  filed
pursuant  to Regulation 14A, are incorporated by reference  into  Part
III of this Form 10-K.



Gottschalks  Inc.
                        2002 ANNUAL REPORT ON FORM 10-K
                               INDEX

Part I.

PageItem 1.
Business1Item 2.
Properties15Item 3.
Legal Proceedings16Item 4.
Submission of Matters to a Vote of Security Holders17Part II.Item 5.
Market for the Registrant's Common Stock and Related Stockholder Matters17Item 6.
Selected Financial Data18Item 7.
Management's Discussion and Analysis of Results of Operations and Financial Condition22Item 7a.
Quantitative and Qualitative Disclosures About Market Risks43Item 8.
Financial Statements and Supplementary Data43Item 9.
Changes in and Disagreements with Accountants on Auditing and Financial Disclosures43Part III.Item 10.
Directors and Executive Officers of the Registrant43Item 11.
Executive Compensation45Item 12.
Security Ownership of Certain Beneficial Owners and Management45Item 13.
Certain Relationships and Related Transactions45Item 14.
Controls and Procedures45Part IV.Item 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K46Signatures
83
PART I
Item 1. BUSINESS
GENERAL
Gottschalks Inc. (the "Company") is a regional
department and specialty store chain based in Fresno, California. As of February
1, 2003, the Company operated 69 full-line "Gottschalks" department stores
located in six Western states, with 39 stores located in California, 17 in
Washington, six in Alaska, three in Oregon and two in both Nevada and Idaho. The
Company also operates 12 "Village East" and "Gottschalks" specialty stores which
carry a limited selection of merchandise.
The Company's department stores typically offer a wide range
of better to moderate brand-name and private-label merchandise, including men's,
women's, junior's and children's apparel; cosmetics, shoes, fine jewelry and
accessories; and home furnishings including china, housewares, domestics, small
electric appliances and, in selected locations, furniture and mattresses. The
majority of the Company's department stores range from 40,000 to 150,000 in
gross square feet, and are generally anchor tenants of regional shopping malls
or strategically located strip centers.
The Company has operated continuously for 99 years since it
was founded by Emil Gottschalk in 1904. At the time the Company initially
offered its stock to the public in 1986, the Company operated 10 department
stores. Since then, a total of 69 department stores have been added, with 42 of
those stores being added through acquisitions in fiscal 1998 and 2000. Ten of
the stores acquired in fiscal 2000 were subsequently closed in fiscal 2001 and
2002. The Company has announced its intentions to close four additional stores
in fiscal 2003. The Company is incorporated in the state of Delaware.
Gottschalks Inc. has one wholly-owned subsidiary, Gottschalks
Credit Receivables Corporation ("GCRC"), which was formed in 1994 in connection
with a receivables securitization program. As more fully described in Note 2 to
the Consolidated Financial Statements, on January 31, 2003 the Company sold its
credit card accounts and accounts receivable to Household Bank (SB), N.A.
("Household"). (See Note 2 to the Consolidated Financial Statements.)
ACQUISITIONS
The Company has completed two significant
acquisitions in its operating history, including the acquisition of eight stores
from The Harris Company ("Harris") in fiscal 1998, and an additional 34 store
locations from Lamont's Apparel, Inc. ("Lamonts") in fiscal 2000.
The Lamonts Acquisition
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 five Western states, with 19 stores in Washington,
seven in Alaska, five in Idaho, two in Oregon and one 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 six
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 announced the closure of another eight of the acquired stores.
Four of these stores were closed in fiscal 2002 and the remaining four stores
will be closed in fiscal 2003. After the closures are completed, the Company
will continue to operate 20 of the original 34 stores acquired from Lamonts.
Certain of the Company's remaining stores 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. (See "Risk Factors - The Company
Continues To Face Integration Challenges With The Lamonts Acquisition.")
The Harris Acquisition
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 August 2006) (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.")
OPERATING STRATEGY
Merchandising Strategy
The Company's merchandising strategy is directed at
offering and promoting moderate to upper-moderately priced brand-name
merchandise recognized by its customers for style and value. Brand-name
merchandise is complemented with offerings of private-label and other higher and
budget-priced merchandise. Brand-name apparel, shoes, cosmetics and accessories
lines carried by the Company include Estee Lauder, Lancome, Clinique, Chanel,
Dooney & Bourke, Nine West, Liz Claiborne, Calvin Klein, Ralph Lauren (Polo
and Chaps), Guess?, Nautica, Karen Kane, Tommy Hilfiger, Esprit, Evan Picone,
Haggar, Koret and Levi Strauss. Brand-name merchandise carried for the home
includes Lenox, Krups, Calphalon, Royal Velvet, Waterford, Mikasa and Samsonite.
The Company has also directed considerable effort towards
improving the quality and increasing the penetration of private-label
merchandise in its overall merchandise mix. The Company's most well recognized
private-label is "Shaver Lake," currently carried in the women's, men's and
children's departments, as well as in certain departments in the home division.
The "Shaver Lake" brand is exclusively offered in Gottschalks stores, and
provides an opportunity to increase Gottschalks' brand acceptance and promote
competitive differentiation.
The Company purchases merchandise from numerous suppliers. In
no instance did purchases from any single vendor amount to more than 5% of the
Company's net purchases in fiscal 2002. The Company's merchandising activities
are conducted centrally from its corporate offices in Fresno, California.
The Company's merchandise mix as a percentage of total sales
(including leased department sales) is reflected in the following table:

Fiscal Years
                        -------------------------------------------
                         2002     2001     2000     1999     1998
                        -------  -------  -------  -------  -------
Women's Apparel........   29.0 %   29.3 %   28.0 %   26.6 %   27.0 %
Cosmetics, Shoes
  & Accessories(1).....   23.6     22.5     22.5     22.2     19.0
Home...................   20.4     20.1     20.8     22.1     22.2
Men's Apparel..........   13.0     13.8     14.0     13.7     14.0
Junior's and
 Children's Apparel....   10.5     10.5     10.7     10.3     10.1
 Leased Departments(1).    3.5      3.8      4.0      5.1      7.7
                        -------  -------  -------  -------  -------
  Total Sales..........  100.0 %  100.0 %  100.0 %  100.0 %  100.0 %
                        =======  =======  =======  =======  =======


_____________________
(1) The increase in Cosmetics, Shoes and
Accessories department sales as a percentage of total sales, and the
corresponding decrease in Leased Department sales as a percentage of total sales
since fiscal 1998 relates to the conversion of the shoe departments in the
Company's stores from leased departments to owned departments. Prior to August
1998, the Company's shoe departments were operated by an independent lessor.
Since that time, the Company has converted the shoe departments in groups of
stores from leased departments to owned departments, with the conversion fully
complete in August 2001. (See Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations.")Store Locations
The Company's stores are located primarily in diverse,
growing, non-major metropolitan or suburban areas in the western United States
where management believes there is strong demand and fewer competitors offering
similar better to moderate brand-name merchandise and a high level of customer
service. The Company has historically avoided expansion into the center of major
metropolitan areas that are well served by the Company's larger competitors and
has instead sought to open new stores in nearby suburban or secondary market
areas.
The Company's department stores are generally anchor tenants
of regional shopping malls or strategically located strip centers. Other anchor
tenants in the malls or strip centers generally complement the Company's goods
with a mixture of competing and non-competing merchandise and serve to increase
customer foot traffic. With new regional shopping mall construction on the
decline, one of the Company's strategies is to open stores in smaller and more
diverse locations that may not be desired by its larger competitors that adopt a
more standardized approach to expansion.
The Company currently has no new store openings planned for
fiscal 2003. Any future new store openings will focus on sites that will serve
to "fill in" geographical areas between existing stores. Management believes
this strategy will improve the Company's ability to leverage advertising,
transportation and other operating costs more effectively. In addition to
opening individual store locations, the Company may also pursue additional
selective strategic acquisitions.
The Company has continued to invest in the renovation and
refixturing of its existing store locations in an attempt to maintain and
improve market share in those market areas. In fiscal 2002, the Company reduced
its expenditures for renovation and refixturing primarily because of liquidity
concerns. The Company expects fiscal 2003 expenditures will be at a similarly
reduced level. The Company plans to increase such capital expenditures to
historical levels beginning in fiscal 2004.
Store renovation projects can range from updating
décor and improving in-store lighting, fixturing, wall merchandising and
signage, to more extensive remodeling and expansion projects. The Company
sometimes receives reimbursement from mall owners and vendors for certain of its
new store construction costs and costs associated with the renovation and
refixturing of existing store locations. Such contributions have enhanced the
Company's ability to enter into attractive market areas that are consistent with
the Company's long-term expansion plans.
The following tables present selected data related to the
Company's stores for the fiscal years indicated:

Fiscal Years
                           -------------------------------- -----------------
                            2002       2001       2000       1999      1998
                           -------    -------    -------    -------   -------
Stores open at year-end:
--------------------------
Department stores.........     69  (1)    73 (1)     79 (2)     42        40
Specialty stores (3)......     12         13         17         20        22
                           -------    -------    -------    -------   -------
    Total                      81         86         96         62        62
                           =======    =======    =======    =======   =======

Gross store square
footage (in thousands):
--------------------------
Department stores.........  5,665      5,876      6,139      4,377     4,301
Specialty stores..........     54         54         63         77        83
                           -------    -------    -------    -------   -------
    Total                   5,719      5,930      6,202      4,454     4,384
                           =======    =======    =======    =======   =======

_____________________
(1) The Company closed 4 stores in fiscal 2002
and 6 stores in fiscal 2001, all of which were acquired in the Lamonts
acquisition in July 2000.
(2) The Company opened 37 new department stores in fiscal
2000, including the 34 store locations acquired from Lamonts on July 24, 2000,
and three additional new stores opened during the third and fourth quarter of
the year.
(3) The Company has continued to close certain free-standing
Village East stores as their leases expire and incorporate those stores as
separate departments into nearby Gottschalks department stores.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.......         42
   20,000 -  39,999 gross square feet.......          9
                                                 -------
        Total...............................         69
                                                 =======


Marketing Strategy
The Company's marketing strategy is based on a multi-media
approach, using newspapers, television, radio, direct mail and catalogs to
highlight seasonal promotions, selected brand-name merchandise and frequent
storewide sales events. Advertising efforts are focused on communicating 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 proprietary 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.
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.

Customer Service
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.

Distribution of Merchandise
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. During the period of July 2000 through June 2001, the
Company distributed merchandise to its locations in Washington, Alaska, Idaho
and two of the stores located in Oregon through an outsourced facility located
in Kent, Washington. The Company ceased using the outsourced facility in June
2001, consolidating all of its distribution functions to the facility in Madera.
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 several days 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.
Private-Label Credit Card
Sale of Receivables
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 Household. 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 will
continue to service the credit card receivables until such time that Household
assumes the servicing (the "Conversion Date"). The planned Conversion Date is
May 14, 2003, but such date may be extended to June 1, 2003 upon notice from
Household to the Company. Household is compensating the Company for providing
the interim servicing. The Company believes this compensation will at least be
equal to the costs of providing such services during the interim period.
The CCA sets forth the terms and conditions under which
Household 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
believes the amounts received under the CCA will equal or exceed the net
revenues from its former in-house credit card operations, net of operating
expenses and interest expense.
Credit Card Program
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 43.2%, 40.9% and 41.4% in fiscal 2002, 2001 and 2000, respectively.
The Company has a variety of credit-related programs which
management believes have improved customer service and increased 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 the first day's purchases made with the Company's credit card;A "55-Plus" charge
account program, which offers additional merchandise and service discounts to
customers 55 years of age and older;"Gold Card" and "55-Plus Gold Card" programs, which offer special services at
a discount for  customers who have a minimum net spending history on their charge
accounts of  $1,000 per year; andThe "Gottschalks
Rewards" program, which offers an annual rebate certificate for up to 5% of
annual credit purchases on the Company's credit card (up to a maximum of $10,000
of annual purchases) which can be applied towards future purchases of
merchandise.
Various credit-card
related promotional events throughout the year.The Company expects to maintain these programs or possibly
replace them with improved programs after Household assumes the servicing.
As of March 31, 2003 there were approximately 791,000 active
Gottschalks credit card holders, as compared to 754,000 active credit card
holders as of March 31, 2002. Management believes holders of the Company's
credit card typically buy more merchandise from the Company than other
customers.

Household Credit Card Servicing
Management believes the Company will realize substantial
benefits from Household servicing Gottschalks credit card accounts, including
the following:

Increased rate of
approval of credit applications. The Company has historically approved
		approximately 66% of applications. It is expected that Household will
approve 75-80% 				of applications at no increased risk to
Gottschalks.
The Company
expects Household will raise credit limits for existing
				customers and issue higher limits for new customers.
Partnering with
Household to implement new, innovative marketing programs.
More experienced
and more professional credit customer service personnel.Management believes these benefits will translate into
increased sales and improved customer service.
Competition and Seasonality
See Part I, Item I, "Risk Factors - We Face Significant
Competition from Other Retailers" and "Risk Factors - Our Business is
Susceptible to Economic Conditions and Other Factors that Affect our Markets,
Some of Which are Beyond our Control".
Employees
As of February 1, 2003, the Company had approximately
6,400 employees, including 3,850 employees working part-time (less than 28 hours
per week on a regular basis). As of February 2, 2002, the Company had 7,200
employees (including 4,300 working part-time). The decrease in the number of
employees from the prior year is partially attributable to the store closures in
fiscal 2002. The Company hires additional temporary employees and increases the
hours of part-time employees during seasonal peak selling periods. Approximately
165 employees in six former Lamonts locations in King County, Washington are
covered by a collective bargaining agreement with the United Food and Commercial
Worker's Union (UFCW). After the acquisition of Lamonts' assets, which included
the leases of those six stores, the Company engaged in good faith bargaining and
as a result, ratified an agreement with the union with a 2-1⁄2 year term on April
7, 2001. The agreement expires on September 30, 2003. 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.

Available Information
Gottschalks' internet address is
http://www.gottschalks.com. Beginning on
September 5, 2001, 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 16K 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.
Executive Officers of the Registrant
Information relating to the Company's executive officers
is included in Part III, Item 10 of this report and is incorporated herein by
reference.
FORWARD-LOOKING STATEMENTS
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;

































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.

RISK FACTORS

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 Sources of Liquidity Are Limited

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 strategies to improve its liquidity position, 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.

Because the Company is already highly leveraged, 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 is 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 may
be at a competitive disadvantage with competitors that have less debt and
greater access to capital resources. In addition, a significant portion of the
Company's cash flow from operations must be dedicated to the payment of
principal, interest and other fees relative to its debt, which reduces the funds
available to operations. Risks and uncertainties associated with the previously
described sources of liquidity are described more fully below.

The Company Is Highly Dependent On Its Senior Revolving
Credit Facility For Working Capital Purposes

The Company is highly dependent on its ability to borrow
against its senior revolving credit facility for working capital purposes. The
Company's senior revolving credit facility (the "GE facility"), for which
General Electric Capital Corporation ("GE Capital") acts as administrative
agent, currently provides for borrowings of up to $165.0 million through January
31, 2005. Such borrowings are subject to a restrictive borrowing base equal to a
specified percentage of eligible merchandise inventory, less other reserves that
are established by GE Capital. Several factors can influence the maximum amount
the Company is able to borrow under this facility, including without limitation,
the level of eligible inventory, the appraised value of eligible inventory and
the level of reserves established against eligible inventory. Any significant
reduction to the Company's borrowing capacity under the GE facility would have a
material adverse affect on the Company's liquidity position. At the closing
date, the sale of receivables to Household resulted in a $30 million reduction
in credit facility borrowings and a corresponding increase in availability. The
Company estimates the increase in availability over the course of the year will
range from $22 million to $30 million compared to prior years and based upon
previous accounts receivable balances.

The GE facility contains restrictive financial and operating
covenants, including without limitation, the requirement to maintain a minimum
twelve-month trailing EBITDA (as defined in the agreement) and the requirement
to maintain a minimum accounts payable to inventory ratio. Certain of the
Company's other debt agreements also contain financial and other restrictive
covenants, as well as cross default provisions. Accordingly, the failure to
comply with these restrictions and covenants would cause a cross-default under
the majority of the Company's other debt agreements. Any of these defaults, if
not waived, could result in a majority of the Company's debt becoming
immediately due and payable. If this were to occur, the Company may not be able
to repay the debt or borrow sufficient funds to refinance it. Even if new
financing were available, the Company may not be able to complete such
refinancing quickly enough or at financially acceptable terms. (See Part II,
Item 7, "Management's Discussion and Analysis of Results of Operations and
Financial Condition".)

The Company Is Highly Dependent On Key Relationships With
Factors And Vendors

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 it 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 Company began to experience a significant reduction in
the level of unsecured credit offered by many of its factors and vendors in late
fiscal 2001. Following the finalization of the GE facility on February 1, 2002,
the level of unsecured credit offered by vendors increased, but unsecured credit
granted by key factors, which can represent over 50% of total trade credit
granted to the Company, remained restricted. Management negotiated the
restoration of partially secured credit lines with certain key factors by
issuing standby letters of credit. Certain of those letters of credit were
collateralized by the Harris letter of credit, which is described below. The
issuance of those letters of credit reduced the Company's borrowing availability
under the GE facility. In order to offset the majority of this availability
reduction, Harris, an affiliate of the Company, agreed to provide a short-term
credit enhancement to the GE facility under the terms of a Credit Facilitation
Agreement (the "CFA") entered into with the Company on February 22, 2002. During
2002, the CFA was amended three times to provide for extensions of the
expiration date of the Harris letter of credit. Under the terms of the third
amendment to the CFA, the Harris letter of credit was cancelled and the CFA was
terminated as a result of the closing of the sale of receivables to
Household.

Despite the increase in the amount of unsecured credit
granted by the Company's vendors and factors since the finalization of the GE
facility in February 2002, such amounts remained below historical levels
throughout fiscal 2002. Nevertheless, the Company has been able to purchase an
adequate level of merchandise to support its operations to date. In addition,
upon the completion of the receivables sale to Household, the Company's largest
factor significantly increased its unsecured credit line and substantially all
of the Company's major unfactored suppliers increased their credit lines to
historical levels. The Company has also reduced the amount of outstanding factor
letters of credit and intends to negotiate further reductions and ultimately the
elimination of all such letters of credit.

Nonetheless, there can be no assurance the Company will
continue to receive an adequate level of key factor and vendor trade credit to
support its operations. Any significant reductions of trade and factor support
may impair the Company's ability to purchase an adequate level of merchandise to
support its operations. The inability to purchase an adequate level of
merchandise would have a material adverse affect on the Company's business,
liquidity position and results of operations.

The Company Continues To Face Integration Challenges With
The Lamonts Acquisition

As described more fully in the Company's Annual Reports
on Form 10-K for the years ended February 2, 2002 and February 3, 2001, many of
the stores acquired from Lamonts performed below expectations in fiscal 2001 and
2000. This lower than expected operating performance continued throughout fiscal
2002, contributing to the Company's reduced earnings and liquidity position.

Based on reviews of the long-term prospects of each of the
acquired stores, management decided to close six of the acquired stores in
fiscal 2001 and four in fiscal 2002. The Company also announced the closure of
an additional four stores in fiscal 2003. After these additional store closings,
the Company will continue to operate 20 of the original 34 acquired stores.
However, certain of those stores continue to perform below expectations. In the
event the Company is unable to improve the operating performance of those
locations, management may consider the sale, sublease or closure of those
locations in the future. In the past, the Company has successfully improved the
operating results and cash flows of underperforming locations through a variety
of strategies, including revising the merchandise mix, changing store
management, revising marketing strategies, renegotiating lease agreements and
reducing operating costs. There can be no assurance, however, that these
strategies will improve the operating results and cash flows of those
underperforming stores, or that the Company will be able to sell, sublease or
close those stores in the event their performance does not improve. In addition,
the Company may incur certain costs and expenses in connection with the sale or
closure of those locations that may not be fully offset by sale proceeds,
sublease income or favorable lease terminations. As a result, significant store
closure costs may be incurred in the future.

During fiscal 2002, the Company performed an analysis of all
of its underperforming store locations, which consisted primarily of former
Lamonts locations. This analysis was performed by comparing projected net
operating cash flows, including estimated proceeds from the sale of certain
assets, to the carrying value of the stores' long-lived assets. As a result of
this analysis, the Company recorded non-cash asset impairment charges of $10.9
million to write down property and equipment, leasehold interests and goodwill
related to certain of the under-performing stores. After giving effect to such
charges, as of February 1, 2003 the Company has $7.5 million of long-lived
assets recorded with respect to such underperforming stores. If actual market
conditions are less favorable than those projected, additional charges for the
impairment of long-lived assets may be incurred in the future.

The Company Faces Significant Competition From Other
Retailers

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.

The Company's Business Is Susceptible To Economic
Conditions And Other Factors That Affect Its Markets, Some Of Which Are Beyond
Its Control

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 the war in Iraq has 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 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.

The Company May Face Higher Operating Costs



Approximately 48.6% of the Company's debt at February
1, 2003 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, 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 Depends On Key Personnel

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 our 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.



Item 2.	 PROPERTIES

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 is the sole limited partner
holding a 36% interest. 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. 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 69 department stores,
all of which are subject to mortgage loans, and leases the remaining 62
department stores and all of its 12 specialty stores, and remains obligated
under the leases for 2 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 8 to the Consolidated Financial
Statements.

The following table contains additional information about the
Company's stores open as of the end of fiscal 2002:

`#        Gross
                             of       Square
          State            Stores   Footage(1)
------------------------- --------- -----------
Department Stores:                             
  California.............       39   4,048,636
  Washington.............       17     864,782
  Alaska.................        6     314,987
  Oregon.................        3     157,400
  Nevada.................        2     199,300
  Idaho..................        2      80,054

                          --------- -----------
     Total                      69   5,665,159
                          ========= ===========
                                               
Specialty Stores:                              
  California.............       11      50,570
  Nevada.................        1       3,211
                          --------- -----------
    Total                       12      53,781
                          ========= ===========`

_______________________



Item 3. 	LEGAL PROCEEDINGS

The Company is party to 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.



Item 4. 	SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

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.

PART II



Item 5. 	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

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:

`2002            2001
                      --------------- ---------------
Fiscal Quarters        High     Low    High     Low
--------------------- ------- ------- ------- ------- 
   1st Quarter.......   3.85    2.24    6.20    4.62
   2nd Quarter.......   3.48    2.43    5.38    2.85
   3rd Quarter.......   2.70    1.17    3.38    2.25
   4th Quarter.......   2.13    1.47    3.12    2.26`

On March 31, 2003, the Company had 786 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, 2003 was $1.08 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.")



Item 6.	SELECTED FINANCIAL DATA

The Company reports on a 52/53 week fiscal year ending on
the Saturday nearest to January 31. The fiscal years ended February 1, 2003,
February 2, 2002, February 3, 2001, January 29, 2000 and January 30, 1999, are
referred to herein as fiscal 2002, 2001, 2000, 1999 and 1998, 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 53rd
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.

`Fiscal Years
                                    ------------- ------------------------------------------------------
                                      2002          2001          2000             1999          1998
                                    ---------     ---------     ---------        ---------     ---------
                                            (In thousands of dollars, except share data)                
RESULTS OF OPERATIONS:                                                                                  
Net sales......................... $ 691,428     $ 710,702     $ 663,868     $    541,275     $ 478,538
Net credit revenues...............     8,225         8,420         9,150            8,709         6,988
Net leased department
  revenues (1)....................     3,557         4,093         3,948            4,209         5,944
                                    ---------     ---------     ---------        ---------     ---------
   Total revenues.................   703,210       723,215       676,966          554,193       491,470
                                    ---------     ---------     ---------        ---------     ---------
Costs and expenses:
  Cost of sales...................   457,095       470,281       433,724          354,010       313,431
  Selling, general and
   administrative expenses........   218,797       223,926       201,765          167,561       152,231
  Depreciation and
   amortization (2)...............    14,259        14,123        11,505            9,465         8,040
  Asset impairment charges (3)....    10,867            --            --            1,933            --
  Store closure costs (4).........     3,436           729
  Receivables sale costs (5)......     1,749            --            --               --            --
  New store pre-opening
   costs (6)......................        --            --         6,183              495           421
  Acquisition related
   expenses.......................        --            --            --               --           859
                                    ---------     ---------     ---------        ---------     ---------
   Total costs and expenses.......   706,203       709,059       653,177          533,464       474,982
                                    ---------     ---------     ---------        ---------     ---------
Operating income (loss)...........    (2,993)       14,156        23,789           20,729        16,488
                                    ---------     ---------     ---------        ---------     ---------
Other (income) expense:
 Interest expense.................    15,883        14,364        13,750           11,408         9,470
 Losses on early extinguishment
   of debt (7)....................     3,695           696            --               --            --
 Miscellaneous income.............    (1,808)       (1,595)       (1,414)          (1,555)       (2,011)
                                    ---------     ---------     ---------        ---------     ---------
                                      17,770        13,465        12,336            9,853         7,459
                                    ---------     ---------     ---------        ---------     ---------
Income (loss) before income taxes.   (20,763)          691        11,453           10,876         9,029

Income tax expense (benefit)......    (8,790)          266         4,374            4,240         3,747
                                    ---------     ---------     ---------        ---------     ---------
Net income (loss)................. $ (11,973)    $     425     $   7,079     $      6,636     $   5,282
                                   ==========    ==========    ==========    =============    ==========
Net income (loss) per common share
   (basic and diluted)............ $   (0.94)    $    0.03     $    0.56     $       0.53     $    0.46
                                    =========     =========     =========        =========     =========

Weighted-average number of
  common shares outstanding:
     Basic........................    12,747        12,681        12,614           12,577        11,418
     Diluted......................    12,747        12,691        12,632           12,616        11,449



                                                           Fiscal Years
                                    ------------- ------------------------------------------------------
                                      2002          2001          2000             1999          1998
                                    ---------     ---------     ---------        ---------     ---------
                                                      (In thousands of dollars)                         
SELECTED BALANCE SHEET DATA:                                                                            
Retained interest in
  receivables sold................ $      --     $  19,222     $  19,853     $     29,138     $  37,399
Receivables, net..................    10,641        11,331         9,248            7,597        18,985
Merchandise inventories (8).......   164,615       161,041       185,226          130,028       123,118
Property and equipment, net.......   139,888       153,200       147,711          120,393       113,645
Total assets......................   348,729       392,193       410,059          316,164       326,596
Working capital...................    79,949       104,378       111,011          104,719        96,231
Long-term obligations,
  less current portion............    75,097       110,216       113,012           80,674        74,114
Subordinated note
  payable to affiliate............    21,989        21,646        21,303           20,961        20,618
Stockholders' equity..............   106,324       118,172       117,573          110,238       103,468


                                                           Fiscal Years
                                    ------------- ------------------------------------------------------
                                      2002          2001          2000             1999          1998
                                    ---------     ---------     ---------        ---------     ---------
                                          (In thousands of dollars, except per square foot data)         
OTHER SELECTED DATA:                                                                                    
Sales growth:
  Total store sales...............     (2.7)%          8.5% (9)     22.6%(10)         9.9%         15.4% (11)
  Comparable store sales (12).....     (0.8)%          0.4% (9)      5.6%(13)(14)     7.7%(14)      2.1%

Comparable stores data (12)(15):
  Sales per selling square foot... $     148 (16)$     173     $     176     $        168     $     170
  Selling square footage..........     4,654 (16)    3,478         3,384            2,758         2,621

Capital expenditures.............. $   8,279     $  18,683     $  29,635     $     16,059     $  16,801
Current ratio.....................     1.70:1       1.97:1        1.93:1           2.38:1        1.98:1`

__________________________

(1)	
Net leased department revenues consist of
sales totaling $24.9 million, $28.9 million, $27.7 million, $29.0 million and
$40.2 million in fiscal 2002, 2001, 2000, 1999 and 1998, respectively, less cost
of sales.

(2)	Depreciation and amortization includes the
amortization of goodwill totaling $570,000, $553,000, $536,000 and $291,000 in
fiscal 2001, 2000, 1999 and 1998, respectively, and the amortization (accretion)
of leasehold interests totaling $(39,000), $424,000 and $113,000 in fiscal 2002,
2001 and 2000, respectively. Effective the beginning of fiscal 2002, the Company
implemented the provisions of SFAS No. 142. As a result, the Company no longer
amortizes goodwill and instead tests it for impairment. The Company continues to
amortize leasehold interests (see Note 1 to the Consolidated Financial
Statements).

(3)	The fiscal 2002 charge consists of non-cash asset
impairment charges to write down long-lived assets related to certain
underperforming stores (see Note 10 to the Consolidated Financial Statements).
The fiscal 1999 amount represents a non-recurring charge related to the write-off of
an investment in a co-operative buying group.

(4)	The fiscal 2002 amount represents costs associated
with the closure of eight stores in fiscal 2002 and 2003. The fiscal 2001 amount
represents costs incurred in connection with (i) the closure of seven stores in
fiscal 2001, net of proceeds from the sale or favorable termination of the
related store leases, and (ii) the discontinuation of the use of an outsourced
distribution center facility located in Kent, Washington. The Company
subsequently re-opened one of the closed stores, resulting in a total of six
stores closed in fiscal 2001. Costs associated with the reopening of the store
are included in selling, general and administrative costs for financial
reporting purposes. See Note 9 to the Consolidated Financial Statements.

(5)	Represents receivable sale transaction costs, net
of an interest only strip. The interest only strip represents the portion of the
initial program fees to be received that is considered a residual interest in
the assets sold. See Note 2 to the Consolidated Financial Statements.

(6)	Fiscal 2000 includes $5.6 million pre-tax ($3.5
million, or $0.28 per share, after-tax) of non-recurring costs associated with
the re-opening of the stores acquired in the Lamonts acquisition.

(7)	The 2002 amount represents securitization program
prepayment penalties and the write-off of unamortized loan fees (see Note 2 to
the Consolidated Financial Statements). The 2001 amount consists of the
prepayment penalty and the write-off of unamortized loan fees related to the
early retirement of the Company's previous revolving credit facility (see Note 6
to the Consolidated Financial Statements).

(8)	The significant increase in merchandise inventories in
fiscal 2000 as compared to the prior year relates primarily to additional
inventories purchased for stores acquired in connection with the Lamonts
acquisition in that year (see Part I, Item 1, "Business - Acquisitions"). The
decrease in inventory from fiscal 2000 to fiscal 2001 is primarily due to the
reduction of inventory levels in the Pacific Northwest and Alaska locations to
more closely reflect selling trends, as well as to the closure of six stores in
fiscal 2001.

(9)	Represents total sales and comparable store
sales growth percentages for fiscal 2001 as compared to the comparable 52 week
period in fiscal 2000. Total sales and comparable store sales for the 52 week
period in fiscal 2001 increased by 7.1% and decreased by 0.9%, respectively, as
compared to the 53 week period in fiscal 2000.

(10)	The increase in total store sales in fiscal 2000
is primarily due to the addition of 37 stores in the second half of fiscal 2000,
including the 34 stores acquired in the Lamonts acquisition.

(11)	The increase in total store sales in fiscal 1998
is primarily due to the addition of 8 stores in connection with the Harris
acquisition. (See Part I, Item I, "Business - Acquisitions".)

(12)	Comparable stores are defined as stores which
have been open for at least 12 full months and which remain open as of the
applicable reporting date.

(13)	Represents comparable store sales growth for the
first 52 weeks of fiscal 2000 as compared to the same period of fiscal 1999.
Comparable store sales for the 53 week period in fiscal 2000 increased by 6.9%
as compared to the 52 week period in fiscal 1999.

(14)	The comparable store sales increases in fiscal
2000 and 1999 were favorably impacted by the conversion of leased shoe
departments to owned departments in 28 department stores effective August 1,
1999.

(15) 	Includes leased department sales in order to
facilitate an understanding of the Company's sales relative to its selling
square footage.

(16)	The decrease in sales per
selling square foot and the increase in selling square 	footage from 2001
			to 2002 is attributable to the inclusion in 2002 comparable stores
of the less productive former Lamonts stores.



Item 7.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is management's discussion and analysis of
significant factors that have affected the Company's financial position and its
results of operations for the periods presented in the accompanying consolidated
financial statements.

Fiscal 2002 and 2001 results both include 52 weeks as
compared to fiscal 2000 results, which includes 53 weeks. Management believes
the Company's results of operations for fiscal 2000 were not materially affected
by results attributable to the 53rd week.

Critical Accounting Policies

The Company's significant accounting policies are
described in Note 1 to the Consolidated Financial Statements included in Part
IV, Item 15 of this Form 10-K. The Company's discussion and analysis of its
financial condition and results of operations are based upon the Company's
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and the related disclosure of contingent assets and liabilities.
On an ongoing basis, the Company evaluates its estimates, including those
related to its revenue recognition policy, the carrying value of its merchandise
inventories, the adequacy of its store closure reserves, and the valuation of
its long-lived assets and deferred tax assets. The Company bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances. In the past, actual results have not been
materially different from the Company's estimates.

Some of the Company's significant accounting policies involve
a higher degree of judgment or complexity than its other accounting policies.
The policies described below have been identified as critical to the Company's
business operations and the understanding of its results of operations. The
impact and associated risks related to these policies on the Company's business
operations are discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Revenue Recognition Policy

Net retail sales are recognized at the point-of-sale, net
of estimated sales returns and allowances and exclusive of sales tax. Net retail
sales also include all amounts billed to a customer in a sale transaction for
shipping and handling, including customer delivery charges. Revenues on special
order sales are recognized when the merchandise is delivered to the customer and
the merchandise has been paid for in its entirety.

The Company records an allowance for estimated sales returns
in the period in which the related sale occurs. These estimates are based
primarily on historical sales returns. If the historical data used to calculate
these estimates does not properly reflect future returns, revenue could be
overstated and adjustments to the allowance for estimated sales returns may be
necessary.

Inventory Valuation

Merchandise inventory, which consists of merchandise held
for resale, is valued at the lower of LIFO (last-in, first-out) cost or market
using the retail inventory method ("RIM") of accounting. Inherent in the RIM
calculation are various judgements and estimates including, among others,
merchandise markon, markups, markdowns and shrinkage, which significantly impact
the ending inventory valuation at cost, as well as resulting gross margins. The
Company applies various methodologies to ensure that the application of the RIM
is consistent for all periods presented. Such methodologies include the
development of consistent cost-to-retail ratios and the grouping of homogenous
classes of merchandise. Estimated inventory shrinkage between physical inventory
dates is based on historical experience. Should actual inventory shrinkage
results differ from the Company's estimate, year-end revisions to inventory
shrinkage expense recognized on an interim basis may be required.

Estimating the market value of the Company's merchandise
inventory requires assumptions about future demand and market conditions. Such
estimates are based on actual and forecasted sales trends, current inventory
levels and aging information by merchandise categories. The Company records
markdowns to value merchandise inventories at net realizable value. If
forecasted sales are not achieved, or if other indicators of impairment are
present, additional markdowns may be needed in future periods to clear excess or
slow-moving merchandise, which may result in lower gross margins.

Reserve for Store Closure Costs

In the event a store is closed before its lease has
expired, the remaining lease obligation after the closing date (less anticipated
sublease rental income or proceeds from lease settlements, if any), and asset
impairment charges related to furniture, fixtures and equipment, leasehold
improvements, goodwill and leasehold interests, if any, are expensed in the
period in which management adopts a plan to close the store. Severance and other
incremental costs associated with a store closure are expensed as incurred.

For store closure plans adopted after January 1, 2003, store
closure costs will generally be recognized when the costs are incurred.

As of February 1, 2003, the Company had a reserve for store
closure costs totaling $618,000, which consisted primarily of estimated future
lease obligations for two of the store locations closed in fiscal 2001 and the
four locations closed in fiscal 2003. In the event the Company is not successful
in selling or subleasing the two locations closed in fiscal 2001 as soon as
management expects, additional reserves for store closure costs may be recorded.
In addition, in the event the Company decides to close additional store
locations in fiscal 2003 or beyond, additional reserves for store closure costs,
which may be material, may be incurred.

Impairment of Long-Lived Assets

The Company's long-lived assets consist primarily of
property and equipment, goodwill, leasehold interests and other long-term
assets. Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may not be
recoverable. With respect to store locations, the Company performs an evaluation
of whether an impairment charge should be recorded whenever a store experiences
unfavorable operating performance. A store's assets are evaluated for impairment
by comparing its estimated undiscounted cash flows over its estimated remaining
lease term to its carrying value. If the cash flows are not sufficient to
recover the carrying value, a loss equal to the difference between the carrying
value and the discounted future cash flows of the asset is recognized. Estimates
of future cash flows are based on a variety of factors, including historical
experience in similar locations, changes in merchandising, promotional or
operating strategy that may affect the profitability of a particular location,
knowledge of the market area and in some cases, expected sale proceeds or
sublease income, and independent appraisals. In addition, the analysis assumes
that new store locations typically take three years to achieve their full profit
potential. Various uncertainties, including but not limited to changes in
consumer preferences, increased competition or a general deterioration in
economic conditions could adversely impact the expected cash flows to be
generated by an asset or group of assets. In fiscal 2002, the Company recorded
asset impairment charges in connection with store closures, and such charges are
included in store closure costs in the accompanying consolidated income
statement. In addition, asset impairment charges were recorded for certain
underperforming store locations which continue to be operated. If actual
performance or fair value estimates for other locations are less favorable than
management's projections, future asset impairment charges may be necessary.
Similar procedures are used when analyzing other corporate assets for
impairment.

Effective the beginning of fiscal 2002, the provisions of
SFAS No. 142 were implemented. As a result, the Company no longer amortizes
previously recorded goodwill. The Company performs an annual impairment review
of goodwill as required by the statement, unless more frequent reviews are
warranted by specific events or circumstances. There can be no assurance that at
the time these reviews are completed that material impairment charges will not
be recorded.

Income Taxes

The carrying value of the Company's net deferred tax
assets assumes that the Company will be able to generate sufficient future
taxable income to realize the value of these assets. In determining the
appropriate valuation allowance, management considers all available evidence for
certain tax credit, net operating loss and capital loss carryforwards that would
likely expire prior to their utilization. Management believes it is more likely
than not that the Company will generate sufficient future taxable income in the
appropriate carryforward periods to realize the benefit of its remaining net
deferred tax assets. However, if the available evidence were to change in the
future, an adjustment to the valuation allowance may be required, resulting in
additional income tax expense.

Accounting for the Securitization and Sale of Receivables

Prior to the sale of its customer credit card accounts
and accounts receivable to Household on January 31, 2003, the Company conveyed
all of the receivables generated under its private label customer credit cards
to a wholly-owned subsidiary, GCRC, on a daily basis. Those receivables that met
certain eligibility requirements of the program were simultaneously conveyed to
GCC Trust to be used as collateral for securities issued to investors. GCC Trust
was a qualified special purpose entity and was not consolidated in the Company's
financial statements. The transfers of such receivables were accounted for as
sales for financial reporting purposes pursuant to SFAS No. 140, "Accounting for
the Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," and as such, the transferred receivables were removed from the
Company's balance sheet at the time of the transfer. The Company retained a
beneficial ownership interest in certain of the receivables transferred under
the program and also retained an uncertificated ownership interest in the
retained interest to future interest income (interest-only strip) and other
receivables that did not meet certain eligibility requirements of the program.
The retained interests and the interest-only strips were carried at their
estimated fair values, which were estimated based upon the present value of the
expected future cash flows, calculated using management's best estimates of key
assumptions about anticipated credit losses, account prepayment speeds, discount
rates and other factors necessary to derive an estimate of fair values. The gain
or loss on the sale of the receivables was calculated by comparing the carrying
amount of the financial assets involved in the transfer to their relative fair
values at the date of transfer. The certificated portion of the retained
interests were considered readily marketable and were classified as available
for sale and carried at their estimated fair values in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."

Results of Operations

The following table sets forth for the periods indicated certain
items from the Company's Consolidated Income Statements, expressed as a percent
of net sales:

`Fiscal Years
                                   -------------------------------
                                     2002       2001       2000
                                   ---------  ---------  ---------
Net sales.........................    100.0 %    100.0 %    100.0 %
Net credit revenues...............      1.2        1.2        1.4
Net leased department revenues....      0.5        0.6        0.6
                                   ---------  ---------  ---------
     Total revenues...............    101.7      101.8      102.0

Costs and expenses:
   Cost of sales..................     66.1       66.2       65.3
   Selling, general and
     administrative expenses......     31.6       31.5       30.4
   Depreciation and amortization..      2.1        2.0        1.7
   Asset impairment charges.......      1.6         --         --
   Store closure costs............      0.5        0.1         --
   Receivables sale costs.........      0.3         --         --
   New store pre-opening costs....       --         --        1.0
                                   ---------  ---------  ---------
     Total costs and expenses.....    102.2       99.8       98.4
                                   ---------  ---------  ---------
Operating income (loss)...........     (0.5)       2.0        3.6

Other (income) expense:
   Interest expense...............      2.3        2.0        2.1
   Losses on early extinguishment
     of debt......................      0.5        0.1         --
   Miscellaneous income...........     (0.3)      (0.2)      (0.2)
                                   ---------  ---------  ---------
                                        2.5        1.9        1.9
                                   ---------  ---------  ---------
Income (loss) before income taxes.     (3.0)       0.1        1.7

Income tax expense (benefit)......     (1.3)       0.1        0.6
                                   ---------  ---------  ---------
Net income (loss).................     (1.7)%      0.0 %      1.1 %
                                   =========  =========  =========`

Fiscal 2002 Compared to Fiscal 2001

Net Sales

Net sales decreased by approximately $19.3 million, or 2.7%,
to $691.4 million in fiscal 2002 as compared to $710.7 million in fiscal 2001.
The fiscal 2002 sales decrease is primarily attributable to the closure of six
stores in fiscal 2001 and two additional store closures in July, 2002.
Comparable store sales for fiscal 2002, which includes sales for stores open for
the full period in both years, decreased by 0.8% as compared to the same 52-week
period of the prior year.

The Company operated 69 department stores and 12 specialty
stores as of the end of fiscal 2002 as compared to 73 department stores and 13
specialty stores as of the end of fiscal 2001. As described more fully in Note 9
to the accompanying financial statements, during fiscal 2002 the Company
announced the closure of eight stores. Two such stores were closed in each of
June 2002, January 2003 and February 2003, and one store was closed in each of
March 2003 and April 2003. Six stores were closed in June and July 2001, with
one of those stores subsequently reopened in September 2001. The Company closed
one additional store at the end of January 2002, resulting in a total of six
stores closed in fiscal 2001.

Net Credit Revenues

Net credit revenues related to the Company's credit card
receivables portfolio decreased by approximately $0.2 million or 2.3%, to $8.2
million in fiscal 2002 as compared to $8.4 million in fiscal 2001. As a percent
of net sales, net credit revenues were 1.2% of net sales in both fiscal 2002 and
fiscal 2001. Net credit revenues consist of the following:

`(In thousands of dollars)                                   2002       2001
--------------------------------------------------------  ---------  ---------
Service charge revenues................................. $  17,813  $  17,817
Interest expense on securitized receivables.............    (4,863)    (4,902)
Charge-offs on receivables sold and provision for
  credit losses on receivables ineligible for sale......    (4,821)    (4,550)
Gain on sale of receivables.............................        96         55
                                                          ---------  ---------
                                                         $   8,225  $   8,420
                                                          =========  =========`

Service charge revenues and interest expense on securitized
receivables in fiscal 2002 were essentially equal to fiscal 2001. The Company's
credit sales as a percent of total sales increased to 43.2% in fiscal 2002 as
compared to 40.9% in fiscal 2001.

Charge-offs on receivables sold and the provision for credit
losses on receivables ineligible for sale increased by $0.3 million, or 6.0%, in
fiscal 2002 as compared to fiscal 2001. As a percentage of net sales, such
losses increased to 0.7% in fiscal 2002 as compared to 0.6% in fiscal 2001.
These increases reflect higher bankruptcies and higher unemployment rates caused
by the economic downturn in certain of the Company's market areas.

The Company expects a substantial decrease in net credit
revenues in fiscal 2003 as a result of the receivables sale to Household. The
Company also expects a reduction in selling, general and administrative expenses
as a result of outsourcing the credit card servicing to Household. In addition,
the Company anticipates a reduction in interest expense arising from reduced
line of credit borrowings resulting from the application of the proceeds from
the Household transaction. The Company believes the net credit revenues the
Company receives under the CCA will equal or exceed the net revenues from its
former in-house credit card operations, net of operating expenses and interest
expense.

Net Leased Department Revenues

Net rental income generated by the Company's various
leased departments decreased by approximately $0.5 million, or 13.1%, to $3.6
million in fiscal 2002 as compared to $4.1 million in fiscal 2001. This decrease
is primarily due to the August 2001 termination of the shoe department leases in
36 of the Company's Pacific Northwest and Alaska locations, which were operated
by an independent lessee. The Company subsequently re-opened Company-operated
shoe departments in 15 of those stores. Pursuant to Staff Accounting Bulletin
("SAB") No. 101, sales generated in those departments after the termination of
the leases are included in total sales as opposed to net leased department
revenues for financial reporting purposes.

Leased department sales are presented net of the related
costs for financial reporting purposes. Sales generated in the Company's leased
departments, consisting primarily of fine jewelry departments, the shoe
departments in 36 Pacific Northwest and Alaska locations (prior to the
termination of the lease in August 2001) and beauty salons, totaled $24.9
million in fiscal 2002 as compared to $28.9 million in fiscal 2001.

Cost of Sales

Cost of sales, which includes costs associated with the
buying, handling and distribution of merchandise, decreased by approximately
$13.2 million to $457.1 million in fiscal 2002 as compared to $470.3 million in
fiscal 2001, a decrease of 2.8%. The dollar decrease is primarily due to the
decrease in sales volume. The Company's gross margin percentage increased to
33.9% in fiscal 2002 as compared to 33.8% in fiscal 2001. The increase in the
gross margin percentage was primarily due to lower markdowns as a percentage of
sales as compared to the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by
approximately $5.1 million, or 2.3%, to $218.8 million in fiscal 2002 as
compared to $223.9 million in fiscal 2001. As a percentage of net sales,
selling, general and administrative expenses increased 0.1% to 31.6% in fiscal
2002 as compared to 31.5% in fiscal 2001. The dollar decrease is primarily
attributable to realized benefits from cost reduction efforts and store
closures, partially offset by increases in health care, workers' compensation
and property and casualty insurance costs. Lower sales volume contributed to the
increase in selling, general and administrative costs as a percentage of net
sales. The Company is continuing to implement programs aimed at reducing
operating costs throughout all areas of the Company. Although the Company fully
anticipates it will be successful in achieving its cost reduction initiatives,
there can be no assurance that the Company will be able to fully offset the
impact of increases in certain of these costs in the future.

Depreciation and Amortization

Depreciation and amortization expense, which includes the
amortization of intangibles (leasehold interests and, in fiscal 2001, goodwill),
increased by approximately $0.1 million or 1.0%, to $14.2 million in fiscal 2002
as compared to $14.1 million in fiscal 2001. As a percent of net sales,
depreciation and amortization expense increased to 2.1% in fiscal 2002 as
compared to 2.0% in fiscal 2001. The dollar increase is primarily due to
additional depreciation related to information systems placed in service during
2002 and capital expenditures for the renovation and expansion of certain
existing stores. These increases were partially offset by the discontinuance of
goodwill amortization as a result of the implementation of SFAS No. 142.

Effective the beginning of fiscal 2002, the Company adopted
the provisions of SFAS No. 142. As a result, goodwill is no longer amortized and
instead is evaluated for impairment annually, or at any time certain indicators
of impairment arise. The amortization of goodwill totaled $0.6 million in fiscal
2001. The Company will continue to amortize leasehold interests over their
estimated lease terms.

Asset Impairment Charges

During 2002, the Company recorded non-cash asset
impairment charges of $10.9 million to write down long-lived assets related to
certain underperforming stores, primarily former Lamonts locations. These
charges consisted of $4.3 million of property and equipment, $6.5 million of
leasehold interests and $0.1 million of goodwill. The charges were determined by
comparing projected net operating cash flows, including estimated proceeds from
the sale of certain assets, to the carrying value of the stores' long-lived
assets. No such costs were recorded in 2001.

Store Closure Costs

During fiscal 2002, the Company announced the closure of
eight of the 34 stores acquired from Lamonts. These stores were determined to be
either underperforming or inconsistent with the Company's long-term operating
strategy. Two of these stores were closed in each of June 2002, January 2003 and
February 2003 and one store was closed in each of March 2003 and April 2003. Net
costs associated with the closure of these stores totaled $3.4 million in fiscal
2002. This amount consists of estimated lease termination costs, non-cash asset
impairment charges, severance and other incremental costs associated with the
store closings totaling $4.5 million less $1.1 million of cash proceeds received
from the sale of lease rights and fixtures and equipment. After the eight store
closures are completed, the Company will continue to operate 20 of the original
34 stores acquired from Lamonts.

During the second quarter of 2001 the Company closed six of
the acquired stores that also were determined to be either underperforming or
inconsistent with the long-term operating strategy of the Company. One of those
stores was subsequently re-opened in the third quarter of 2001. As planned, the
Company also discontinued the use of an outsourced distribution center facility
located in Kent, Washington, in June 2001 and consolidated all of the Company's
distribution functions into its distribution facility in Madera, California. One
additional acquired store was closed in January 2002. Net costs associated with
closure of those stores and the outsourced distribution center facility totaled
$0.7 million. This amount consists of estimated lease termination costs, non-
cash asset impairment charges, severance and other incremental costs associated
with the closure of the stores totaling $2.0 million, less $1.3 million of cash
proceeds received as a result of the sale of lease rights, fixtures and
equipment.

Certain of the Company's remaining stores have continued to
perform below expectations. In the event the Company is unable to improve the
operating performance of such underperforming stores, the Company may consider
the sale, sublease or closure of those stores in the future. In the past, the
Company has successfully improved the operating results and cash flows of
underperforming stores through a variety of strategies, including revising the
merchandise mix, changing store management, revising marketing strategies,
renegotiating lease agreements and reducing operating costs. However, there can
be no assurance that these strategies will improve the operating results and
cash flows of the remaining underperforming stores, or that the Company will be
able to sell, sublease or close those stores in the event their performance does
not improve. In addition, the Company may incur certain costs and expenses in
connection with the sale or closure of those locations that may not be fully
offset by sale proceeds, sublease income or favorable lease terminations.

Receivables Sale Costs

In connection with the sale of accounts receivable to
Household, the Company recorded receivable sale transaction costs of $2.0
million including consulting, legal, and other fees, and the net non-cash write-off
of the remaining accounts of GCRC. These charges are partially offset by a
$0.3 million retained interest only strip that will be amortized over the
estimated life of the underlying assets sold (estimated to be approximately five
months). The interest only strip represents the portion of the initial program
fees to be paid that is considered a residual interest in the assets sold.

Interest Expense

Interest expense, which includes the amortization of
deferred financing costs, increased by approximately $1.5 million to $15.9
million in fiscal 2002 as compared to $14.4 million in fiscal 2001, an increase
of 10.6%. As a percent of net sales, interest expense increased to 2.3% in
fiscal 2002 as compared to 2.0% in fiscal 2001. These increases are primarily
due to amortization of higher deferred financing costs relating to long-term
financings entered into in the fourth quarter of fiscal 2001 and the first three
quarters of fiscal 2002, and to an amendment fee relating to the Company's
revolving credit facility. These increases were partially offset by lower
average outstanding borrowings on the Company's working capital facility.

Interest expense related to securitized receivables is
reflected as a reduction of net credit revenues and is not included in interest
expense for financial reporting purposes.

Losses on Early Extinguishment of Debt

In fiscal 2002, in connection with the termination of its
receivables securitization program, the Company recorded a loss on
extinguishment of debt of $3.7 million representing prepayment penalties and the
write-off of unamortized deferred loan fees related to the program. In fiscal
2001, the Company recorded a $0.7 million charge consisting of the prepayment
penalty and the write-off of unamortized loan fees related to the early
retirement of the Company's previous revolving credit facility.

Miscellaneous Income

Miscellaneous income, which includes the amortization of
deferred income and other miscellaneous income and expense amounts, increased by
approximately $0.2 million to $1.8 million in fiscal 2002 as compared to $1.6
million in fiscal 2001. As a percent of net sales, miscellaneous income
increased to 0.3% in fiscal 2002 as compared to 0.2% in fiscal 2001. The dollar
increase primarily relates to recoveries of prior interest charges arising from
the partial settlement of certain net operating loss carryback claims, partially
offset by charges to the Company's partnership investment in its corporate
offices related to the partnership's implementation of SFAS No. 133.

Income Taxes

The Company's effective tax rate is a benefit of 42.3% in
fiscal 2002 as compared to an expense of 38.5% in fiscal 2001. The fiscal 2002
tax benefit includes $0.8 million arising from the realization of net operating
loss carryback claims.

Net Income

As a result of the foregoing, the Company reported a loss
of $12.0 million in fiscal 2002 as compared to net income of $0.4 million in
fiscal 2001. On a per share basis (basic and diluted), the 2002 net loss was
$0.94 per share as compared to net income of $0.03 per share in fiscal 2001.

Fiscal 2001 Compared to Fiscal 2000

Net Sales

Net sales increased by approximately $46.8 million, or
7.1%, to $710.7 million in fiscal 2001 as compared to $663.9 million in fiscal
2000. Fiscal 2001 included 52 weeks as compared to fiscal 2000, which included
53 weeks. On a comparable 52 week versus 52 week basis, net sales for fiscal
2001 increased by $55.7 million, or 8.5%, as compared to fiscal 2000. Fiscal
2001 sales reflect a full year of sales generated by the 34 stores acquired in
the Lamonts acquisition (net of lower sales volume resulting from the closure of
six of those stores in fiscal 2001), as compared to fiscal 2000, which reflects
net sales generated for five months after the opening of the stores in September
2000. Comparable store sales for fiscal 2001, which includes sales for stores
open for the full period in both years, increased by 0.4% as compared to the
same 52 week period of the prior year.

The Company operated 73 department stores and 13 specialty
stores as of the end of fiscal 2001 as compared to 79 department stores and 17
specialty stores as of the end of fiscal 2000. Thirty-seven of those stores were
opened in the second half of fiscal 2000, however, and accordingly were not open
for the full period of the prior year. As described more fully in Note 2 to the
Consolidated Financial Statements, six of the acquired stores were closed in
June and July 2001, with one of those stores subsequently reopened in September
2001. The Company closed one additional store at the end of January 2002,
resulting in a total of six stores closed in fiscal 2001.

Net Credit Revenues

Net credit revenues related to the Company's credit card
receivables portfolio decreased by approximately $0.7 million, or 8.0%, to $8.4
million in fiscal 2001 as compared to $9.1 million in fiscal 2000. As a percent
of net sales, net credit revenues were 1.2% of net sales in fiscal 2001 as
compared to 1.4% in fiscal 2000. Net credit revenues consist of the
following:

`(In thousands of dollars)                                   2001       2000
--------------------------------------------------------  ---------  ---------
Service charge revenues................................. $  17,817  $  16,832
Interest expense on securitized receivables.............    (4,902)    (4,425)
Charge-offs on receivables sold and provision for
  credit losses on receivables ineligible for sale......    (4,550)    (3,642)
Gain on sale of receivables.............................        55        385
                                                          ---------  ---------
                                                         $   8,420  $   9,150
                                                          =========  =========`

Service charge revenues increased by approximately $1.0
million, or 5.9%, in fiscal 2001 as compared to fiscal 2000. This increase is
primarily due to additional service charge revenues generated by newly
originated customer credit card accounts in new stores opened since the same
period of the prior year. The increase is also due to an increase in the volume
of late charge fees collected on delinquent credit card balances as compared to
the same period of the prior year. The decrease as a percentage of net sales is
primarily due to lower average outstanding balances on newly originated customer
accounts in the 37 new stores opened in fiscal 2000. Such accounts continue to
generate lower service charge revenues as compared to those produced by more
established accounts. The Company's credit sales as a percent of total sales
were 40.9% in fiscal 2001 as compared to 41.4% in fiscal 2000. Excluding credit
sales generated in the 37 new stores, credit sales as a percentage of total
sales were 45.0% in fiscal 2001 as compared to 43.9% in fiscal 2000.

Interest expense on securitized receivables increased by
approximately $0.5 million, or 10.8%, in fiscal 2001 as compared to fiscal 2000.
This increase is due to a higher level of average outstanding securitized
borrowings resulting from the issuance of the 2000-1 Series certificate in
November 2000 (renewed in November 2001), partially offset by a lower weighted-
average interest rate applicable to all securitized borrowings during the period
(6.59% in fiscal 2001 as compared to 7.62% in fiscal 2000). Charge-offs on
receivables sold and the provision for credit losses on receivables ineligible
for sale increased by $0.9 million, or 24.9%, in fiscal 2001 as compared to
fiscal 2000. As a percentage of net sales, such losses increased to 0.6% in
fiscal 2001 as compared to 0.5% in fiscal 2000. These increases reflect higher
bankruptcies and higher unemployment rates caused by the economic downturn in
certain of the Company's market areas. As a result of a decrease in the volume
of receivables sold as compared to the prior year, the gain on the sale of
receivables decreased by $0.3 million to $0.1 million in fiscal 2001 as compared
to $0.4 million in fiscal 2000.

Net Leased Department Revenues

Net rental income generated by the Company's various
leased departments increased by approximately $0.2 million, or 3.7%, to $4.1
million in fiscal 2001 as compared to $3.9 million in fiscal 2000. This increase
is primarily due to additional revenues generated by the leased shoe departments
in 36 of the Company's Pacific Northwest and Alaska locations, which were
operated by an independent lessee since their opening in the second half of
fiscal 2000. The Company terminated those leases in August 2001 and re-opened
Company operated shoe departments in 15 of those stores. Pursuant to SAB No.
101, sales generated in those departments after the termination of the lease are
included in total sales as opposed to net leased department revenues for
financial reporting purposes.

Leased department sales are presented net of the related
costs for financial reporting purposes. Sales generated in the Company's leased
departments, consisting primarily of fine jewelry departments, the shoe
departments in 36 Pacific Northwest and Alaska locations (prior to the
termination of the lease in August 2001) and beauty salons, totaled $28.9
million in fiscal 2001 as compared to $27.7 million in fiscal 2000.

Cost of Sales

Cost of sales, which includes costs associated with the
buying, handling and distribution of merchandise, increased by approximately
$36.6 million to $470.3 million in fiscal 2001 as compared to $433.7 million in
fiscal 2000, an increase of 8.4%. The dollar increase is consistent with the
increase in sales volume. The Company's gross margin percentage decreased to
33.8% in fiscal 2001 as compared to 34.7% in fiscal 2000. The decrease in the
gross margin percentage was primarily due to higher markdowns as a percentage of
sales as compared to the prior year. The increased level of markdowns was
primarily attributable to the clearance of excess seasonal inventory levels in
the first half of fiscal 2001 resulting from lower than expected sales in
certain of the Pacific Northwest and Alaska store locations and to inventory
liquidations at the six stores which were closed.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by
approximately $22.2 million, or 11.0%, to $223.9 million in fiscal 2001 as
compared to $201.7 million in fiscal 2000. As a percentage of net sales,
selling, general and administrative expenses increased to 31.5% in fiscal 2001
as compared to 30.4% in fiscal 2000. The dollar increase is primarily
attributable to operating costs associated with a full year of operating the 37
stores opened in the second half of fiscal 2000, as compared to five months of
such costs incurred in the prior year. In addition, the Company experienced
higher health care and workers' compensation costs, as well as higher utilities
costs in California. These factors, combined with lower than expected sales
volume generated by the new stores opened in fiscal 2000, contributed to the
increase in selling, general and administrative costs as a percentage of net
sales.

Depreciation and Amortization

Depreciation and amortization expense, which includes the
amortization of intangibles (goodwill and leasehold interests), increased by
approximately $2.6 million, or 22.8%, to $14.1 million in fiscal 2001 as
compared to $11.5 million in fiscal 2000. As a percent of net sales,
depreciation and amortization expense increased to 2.0% in fiscal 2001 as
compared to 1.7% in fiscal 2000. The dollar increase is primarily due to
additional depreciation related to assets acquired from Lamonts, capital
expenditures for new stores and for the renovation of existing stores, and for
information systems enhancements, both to integrate the newly acquired stores
into the Company's existing systems and for other system enhancements. The
increase is also due to an increase in the amortization of assets acquired under
capital leases and to the amortization of goodwill and leasehold interests
recorded as a result of the Lamonts acquisition.

Effective the beginning of fiscal 2002, the Company adopted
the provisions of SFAS No. 142. As a result, goodwill will no longer be
amortized and will instead be evaluated for impairment at least annually, or at
any time certain indicators of impairment arise. Amortization of goodwill
totaled $0.6 million in both fiscal 2001 and fiscal 2000. The Company will
continue to amortize leasehold interests over their estimated lease terms.

New Store Pre-Opening Costs

New store pre-opening costs, which are expensed as
incurred, typically include costs such as payroll and fringe benefits for store
associates, store rents, temporary storage, utilities, travel, grand opening
advertising, credit solicitation and other costs incurred prior to the opening
of a store. No new store pre-opening costs were incurred in fiscal 2001. The
Company recognized a total of $6.2 million of new store pre-opening costs in
fiscal 2000, including $5.6 million incurred in connection with the opening of
the 34 stores acquired from Lamonts. The Company also recognized new store
opening costs totaling $0.6 million in connection with the opening of three new
stores in Grants Pass, Oregon, Walla Walla, Washington and Redding, California
on August 23, November 8 and November 10, 2000, respectively.

Store Closure Costs

During the second quarter of fiscal 2001, the Company
closed six stores and discontinued the use of an outsourced distribution center
facility located in Kent, Washington. The Company closed one additional store in
January 2002. The Company recognized net store closure costs of $0.7 million in
connection with the closure of those stores in fiscal 2001. Such costs represent
approximately $2.0 million of estimated lease termination costs, asset
impairment charges (including the write-off of allocated goodwill and leasehold
interests), estimated severance and other incremental costs expected to be
incurred in connection with the closure of the stores, less $1.3 million of cash
proceeds received from the sale of lease rights and favorable lease
terminations.

The Company re-opened one of the closed stores in the
third quarter of fiscal 2001. Costs associated with the re-opening of the store
were classified as selling, general and administrative costs and are not
included in store closure costs for financial reporting purposes.

Interest Expense

Interest expense, which includes the amortization of
deferred financing costs, increased by approximately $0.6 million to $14.4
million in fiscal 2001 as compared to $13.8 million in fiscal 2000, an increase
of 4.5%. As a percent of net sales, interest expense decreased to 2.0% in fiscal
2001 as compared to 2.1% in fiscal 2000. These decreases are primarily due to
lower average outstanding borrowings on the Company's working capital facility,
as well as a decrease in the weighted-average interest rate applicable to the
facility (5.48% in fiscal 2001 as compared to 8.76% in fiscal 2000). These
decreases were partially offset by higher interest resulting from the completion
of a $4.0 million mortgage loan and approximately $8.1 million of additional
fixtures and equipment lease financings in the first half of fiscal 2001. (See
"Liquidity and Capital Resources.")

Interest expense related to securitized receivables is
reflected as a reduction of net credit revenues and is not included in interest
expense for financial reporting purposes.

Losses on Early Extinguishment of Debt

The Company recorded a loss on the early extinguishment
of debt totaling $0.7 million in fiscal 2001, consisting of the prepayment
penalty and the write-off of unamortized loan fees related to the early
retirement of the Company's previous revolving credit facility.

Miscellaneous Income

Miscellaneous income, which includes the amortization of
deferred income and other miscellaneous income and expense amounts, increased by
approximately $0.2 million to $1.6 million in fiscal 2001 as compared to $1.4
million in fiscal 2000. As a percent of net sales, miscellaneous income remained
unchanged at 0.2% in both fiscal 2001 and 2000. The dollar increase relates to
an increase in the amortization of the deferred gain on fixtures and equipment
sale/leaseback transactions. (See "Liquidity and Capital Resources - External
Financings.")

Income Taxes

The Company's effective tax rate is 38.5% in fiscal 2001
as compared to 38.2% in fiscal 2000 (see Note 11 to the Consolidated Financial
Statements).

Net Income

As a result of the foregoing, the Company reported net
income of $0.4 million in fiscal 2001 as compared to $7.1 million in fiscal
2000. On a per share basis (basic and diluted), net income was $0.03 per share
in fiscal 2001 as compared to $0.56 per share in fiscal 2000.

Liquidity and Capital Resources

The Company's working capital requirements are
currently met through a combination of cash provided by operations, borrowings
under its senior revolving credit facility, short-term trade and factor credit
and by proceeds from external financings and sale transactions. As described
more fully below and in Note 2 to the Consolidated Financial Statements, on
January 31, 2003 the Company sold its credit card accounts and accounts
receivable to Household. Proceeds from the sale were used to reduce the
Company's debt, including off-balance sheet securitization obligations, by over
$100 million. At the closing date, the Company's availability under its
revolving credit facility increased by approximately $30 million. The Company
expects the availability improvement over the course of the 2003 fiscal year to
range from $22 million to $30 million, compared to the prior year and based upon
historical levels of accounts receivable. As a result, the Company believes its
liquidity position after the sale is substantially improved in comparison to
prior years.

In fiscal 2002, the Company generated a total of $19.9
million from operations as compared to $43.5 million positive cash flow from
operations in fiscal 2001. The decrease is due to a significant reduction in
inventory levels in fiscal 2001 to correct overstock conditions in the former
Lamonts stores. Despite the positive cash flows from operations, the Company has
nevertheless experienced significantly reduced earnings, including the $12.0
million loss in 2002, and a strained liquidity position throughout both 2002 and
2001.

As described more fully below, recent efforts to improve the
Company's liquidity position have included the following: (1) the sale of
receivables to Household; (ii) refinancing the Company's revolving credit
facility, which was successfully completed on February 1, 2002; (iii) restoring
trade and factor credit; (iv) selling, subleasing or closing underperforming
stores; (v) completing other financing and sale transactions; and (vi) reducing
operating costs.

Sources of Liquidity

Sale of Receivables

On January 31, 2003, pursuant to the terms of a
Purchase and Sale Agreement between the Company and Household, the Company sold
substantially all of its private label credit card accounts and the related
accounts receivable to Household. The $102.8 million purchase price was paid in
cash at closing, $100.3 million of which was allocated to the purchase of such
credit card accounts and receivables and $2.5 million of which comprised prepaid
program revenue. Proceeds from the sale were used to pay in full $73.2 million
principal and accrued interest due to the Series 1999-1 and Series 2000-1
certificateholders under the Company's accounts receivable securitization
program plus $3.4 million in prepayment penalties. The remaining proceeds of
$26.2 million and $3.8 million of cash remaining on deposit in certain bank
accounts relating to the securitization was released to the Company at closing.
All of the $30 million released to the Company was applied as a reduction of
outstanding borrowings under the Company's revolving credit facility. As a
result, the Company's availability under the credit line increased by $30
million at the closing date. The Company expects the ongoing availability
improvement over the course of a year to range from $22 million to $30 million,
compared to the prior year and based upon historical levels of accounts
receivable.

In connection with the sale, on January 31, 2003 the Company
entered into two additional agreements with Household: an Interim Servicing
Agreement (the "ISA") and a Credit Card Program Agreement (the "CCA"). Under the
terms of the ISA, the Company will continue to service the credit card
receivables until Household takes over their servicing (the "Conversion Date").
The planned Conversion Date is currently May 12, 2003, but such date may be
extended to June 1, 2003 upon notice from Household to the Company. Household is
compensating the Company for providing the services during the interim servicing
period. The Company believes this compensation will at least be equal to its
cost of providing the services.

The CCA sets forth the terms and conditions under which
Household will issue credit cards to the Company's customers and pay the Company
for sales made on the cards. Under the terms of the CCA, the Company is required
to perform certain duties, including the duties to receive in-store customer
payments on behalf of Household and remit such payments to Household. The CCA
has a term of five (5) years and is cancelable earlier by either party under
certain circumstances, as described in the CCA. The CCA further provides that
the Company will be paid a percentage of Net Cardholder Charges and a percentage
of Other Revenue (each as defined in the CCA). The Company believes the amounts
received under the CCA will equal or exceed the net revenues from its former in-house
credit card operations, net of operating expenses and interest
expense.

Senior Secured Credit Facility

On February 1, 2002, the Company finalized a three-year
senior revolving credit facility with General Electric Capital Corporation
("GE Capital") as agent, and The CIT Group/Business Credit as syndication agent.
The new facility (the "GE facility") replaced the Company's previous revolving
credit facility which was scheduled to expire on March 31, 2002. The GE facility
provides up to $165.0 million of working capital financing through January 31,
2005, with $159.0 million of that facility provided under a Tranche A revolving
credit facility (including a $20.0 million letter of credit sub-facility) and
the remaining $6.0 million provided through a fully funded Tranche B facility.
Borrowings under the facility are subject to a restrictive borrowing base equal
to the lesser of specified percentages of (i) the cost of eligible inventory and
(ii) the net recoverable value of eligible inventory, as determined by a monthly
valuation performed by an independent appraiser. Such borrowings are further
limited by a requirement to maintain a minimum of $10.0 million of excess
availability at all times, and certain other reserves that are established by GE
Capital. As of February 1, 2003, outstanding borrowings under the facility
totaled $58.8 million and excess borrowing availability under the facility,
after the deduction of the minimum availability requirement and other reserves,
totaled $36.9 million. The Company classified a total of $30.0 million and $75.0
million as of February 1, 2003 and February 2, 2002, respectively, as long-term
in the accompanying financial statements, representing that portion of
outstanding borrowings under the facility which are not expected to be repaid
within one year of the respective balance sheet dates. The initial proceeds from
the GE facility were used to repay all outstanding borrowings under the previous
revolving credit facility, including a prepayment penalty, and other transaction
fees and costs. Substantially all of the Company's assets, including its
merchandise inventories, are pledged to GE Capital under this facility.

Interest charged on amounts borrowed under the Tranche A
revolving facility is at the prime rate plus 0.50% per annum (5.25% at February
1, 2003), or at the Company's option, at the applicable LIBOR rate plus 2.75%
per annum (4.11% at February 1, 2003). In addition, the Company pays an unused
commitment fee equal to 0.375% per annum on the average unused daily balance of
the Tranche A facility. Amounts borrowed under the Tranche B facility bear
interest at prime plus 10.0%, or at the Company's option, at LIBOR plus 12.0%.
Beginning in fiscal 2003, the interest rate applicable to the Tranche A facility
may be adjusted upwards or downwards on a quarterly basis based on a pricing
matrix which is tied to the Company's Leverage Ratio (as defined in the
agreement). Under the pricing matrix, the applicable interest rate can range
from a rate as low as prime plus 0.00% or LIBOR plus 2.75%, to as high as prime
plus 0.75%, or LIBOR plus 3.50%.

The GE facility contains restrictive financial and operating
covenants, including the requirement to maintain a minimum twelve-month trailing
EBITDA and the requirement to maintain a minimum accounts payable to inventory
ratio. In addition, the GE facility does not permit the repayment of the
Subordinated Note on its scheduled maturity date of August 20, 2003, which has
resulted in the maturity of that note automatically being extended to August 20,
2006. Management believes the Company is in compliance with all restrictive
financial and operating covenants applicable to the GE facility as of February
1, 2003 and through the date of this report.

Trade Credit and Transactions with Affiliate

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 it 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 Company began to experience a significant reduction in
the level of unsecured credit offered by many of its factors and vendors in late
fiscal 2001. Following the finalization of the GE facility on February 1, 2002,
the level of unsecured credit offered by vendors increased, but unsecured credit
granted by key factors, which can represent over 50% of total trade credit
granted to the Company, remained restricted. Management negotiated the
restoration of partially secured credit lines with certain key factors by
issuing standby letters of credit. Certain of those letters of credit were
collateralized by the Harris letter of credit, which is described below. The
issuance of those letters of credit reduced the Company's borrowing availability
under the GE facility. In order to offset the majority of this availability
reduction, Harris, an affiliate of the Company, agreed to provide a short-term
credit enhancement to the GE facility under the terms of the CFA entered into
with the Company on February 22, 2002. During 2002, the CFA was amended three
times to provide for extensions of the expiration date of the Harris letter of
credit. Under the terms of the third amendment to the CFA, the Harris letter of
credit was cancelled and the CFA was terminated as a result of the closing of
the sale of receivables to Household.

Despite the increase in the amount of unsecured credit
granted by the Company's vendors and factors since the finalization of the GE
facility in February 2002, such amounts remained below historical levels
throughout fiscal 2002. Nevertheless, the Company has been able to purchase an
adequate level of merchandise to support its operations to date. In addition,
upon the completion of the receivables sale to Household, the Company's largest
factor significantly increased its unsecured credit line and substantially all
of the Company's major unfactored suppliers increased their credit lines to
historical levels. The Company has also reduced the amount of outstanding factor
letters of credit and intends to negotiate further reductions and ultimately the
elimination of all such letters of credit.

Nonetheless, there can be no assurance the Company will
continue to receive an adequate level of key factor and vendor trade credit to
support its operations. Any significant reductions of trade and factor support
may impair the Company's ability to purchase an adequate level of merchandise to
support its operations. The inability to purchase an adequate level of
merchandise would have a material adverse affect on the Company's business,
liquidity position and results of operations.

Other Financings

The Company has continued efforts to obtain financing
from external resources as a means of improving its liquidity position. The
Company entered into a $15.0 million three-year term loan with Kimco Capital
Corp. on March 22, 2002. Proceeds from the Kimco financing were used to repay
previously existing mortgage loans on two store properties and a term loan and
to pay certain fees and costs associated with the transaction. The remaining
$4.1 million was used to reduce outstanding borrowings under the GE facility. On
February 19, 2002, the Company also completed a $1.0 million, seven-year term
loan financing of its corporate aircraft.

On May 24, 2002, the Company completed the financing of its
ownership interest in the partnership that owns the Company's corporate
headquarters building. Proceeds from this transaction, totaling $3.7 million,
were used to reduce outstanding borrowings under the GE facility. The related
note payable bears interest at a variable rate of prime plus 1.5% per annum,
which is payable monthly. The $3.7 million principal portion of the note payable
is due in full upon maturity on May 24, 2005.

The Company may consider various other sources of liquidity
in the future, including but not limited to the issuance of additional
securities that might have a dilutive effect on existing shareholders or
incurring additional indebtedness which would increase the Company's
leverage.

Uses of Liquidity

The Company's primary uses of liquidity are for working
capital, debt service requirements and capital expenditures. Capital
expenditures in fiscal 2002, totaling $8.3 million, were primarily related to
information system enhancements and the renovation, refixturing, and expansion
of certain existing locations. The Company presently has no commitments to open
or remodel any stores in fiscal 2003.

As of February 1, 2003, the Company had issued a total of
$11.3 million of standby letters of credit and documentary letters of credit
totaling $2.0 million. The standby letters of credit were issued to secure
credit lines with key factors and to provide collateral for a workers
compensation insurance policy. The factor letters of credit currently expire at
the end of June, 2003. Management believes that the likelihood of any draws
under the standby letters of credit is remote. Documentary letters of credit are
issued in the ordinary course of business to facilitate the purchase of
merchandise from overseas suppliers. The supplier draws against the documentary
letter of credit upon delivery of the merchandise.

Contractual Obligations

The following tables set forth certain information
concerning the Company's debt obligations and commitments to make future
payments under contracts, such as debt and lease agreements, and under
contingent commitments.

Contractual Obligations:

`Payments due by period (1)
                                                           (In thousands of dollars)
                                       ----------------------------------------------------------------
                                        Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     There-
                                         2003       2004       2005       2006       2007       after
                                       ---------  ---------  ---------  ---------  ---------  ---------
Long-term debt....................... $   1,719  $   1,843  $  16,924  $     905  $     976  $  16,806
Capitalized lease obligations........     3,900      2,589      2,207      1,466        947      3,156
Subordinated note
  payable to affiliate...............        --         --         --     22,179                    --
Non-cancelable operating leases......    24,820     24,004     22,458     21,658     18,644     88,450
                                       ---------  ---------  ---------  ---------  ---------  ---------
Total contractual cash obligations... $  30,439  $  28,436  $  41,589  $  46,208  $  20,567  $ 108,412
                                       =========  =========  =========  =========  =========  =========


                                                  Amount of commitment expiration by period
                                                           (In thousands of dollars)
                                       ----------------------------------------------------------------
                                        Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     There-
                                         2003       2004       2005       2006       2007       after
                                       ---------  ---------  ---------  ---------  ---------  ---------
Senior revolving credit facility (2). $      --  $      --  $  58,845  $      --  $      --  $      --
Standby letters of credit............    11,300         --         --         --         --         --
Documentary letters of credit........     2,000         --         --         --         --         --
                                       ---------  ---------  ---------  ---------  ---------  ---------
                                      $  13,300  $      --  $  58,845  $      --  $      --  $      --
                                       =========  =========  =========  =========  =========  =========`

(1) See Notes 6, 7 and 8 to the
Consolidated Financial Statements.

(2)	Represents outstanding borrowings under the Company's
senior revolving credit facility as of February 1, 2003. The table presents that
amount as due at January 31, 2005, the end of the commitment period for the
facility.

Cash generated by operations, together with liquidity
provided by the GE facility, the CCA and other financial resources, including
without limitation the factors described below, are expected to adequately
finance the Company's planned cash requirements for fiscal 2003. However, the
Company's actual results may differ from the expectations set forth in the
preceding sentence. The Company's liquidity and capital resources may be
affected by a number of factors and risks (many of which are beyond the control
of the Company), including but not limited to the availability of adequate
borrowing capacity and the ability to maintain compliance with restrictive debt
covenants contained in the Company's senior revolving credit facility and its
other debt obligations; adequate cash flows generated by operations; and the
adequacy of factor and trade credit. Subject to the previously described risks
and uncertainties relative to the Company's sources of liquidity, management
currently believes that the described sources of liquidity will be adequate to
meet the Company's working capital, capital expenditure and debt service
requirements for fiscal 2003. Because the Company is already highly leveraged,
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 is limited. If the estimates
or assumptions relative to any one of these sources of liquidity are not
realized, or if those sources of liquidity become significantly reduced, the
Company's liquidity position, financial condition and results of operations may
be materially adversely affected.

Recently Issued Accounting Standards

In August 2001, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 143, "Accounting for Asset Retirement Obligations," which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This statement requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
The Company will adopt SFAS No. 143 effective the beginning of fiscal 2003 and
does not currently expect that its adoption will have a significant effect on
the Company's financial position or its results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145, among other things, eliminates the prior
requirement that all gains and losses from the early extinguishment of debt were
to be classified as an extraordinary item. Upon adoption of SFAS No. 145, gains
and losses from the early extinguishment of debt are now classified as an
extraordinary item only if they meet the "unusual and infrequent" criteria
contained in Accounting Principles Board Opinion ("APBO") No. 30. In addition,
upon adoption of SFAS No. 145, all gains and losses from the early
extinguishment of debt that had previously been classified as an extraordinary
item are to be reassessed to determine if they would have met the "unusual and
infrequent" criteria of APBO No. 30. Any such gain or loss that would not have
met the APBO No. 30 criteria is retroactively reclassified and reported as a
component of income before extraordinary item. The Company has determined that
its previously-recognized loss from the early extinguishment of debt that
occurred in fiscal 2001 would not have met the APBO No. 30 criteria for
classification as an extraordinary item, and accordingly such previously-reported
loss from the early extinguishment of debt has been retroactively
reclassified and is now reported as a component of income before income taxes.
The Company has also determined that the fiscal 2002 loss from the early
extinguishment of debt does not meet the APBO No. 30 criteria for extraordinary
item classification, and accordingly such 2002 loss is reported as a component
of income before income taxes.

In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities," which addresses accounting
for restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146
requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. Accordingly, SFAS No.
146 may affect the timing of recognizing future restructuring costs as well as
the amounts recognized. The Company will adopt the provisions of SFAS No. 146
for restructuring activities initiated after December 31, 2002.

In November 2002, the Emerging Issues Task Force ("EITF") of
the FASB issued EITF Issue No. 02-16, "Accounting by a Reseller for Cash
Consideration Received from a Vendor". The Company will adopt the provisions of
EITF 02-16 effective with the beginning of fiscal 2003. The Company is in the
process of evaluating the potential impact of its adoption on the Company's
financial position and results of operations.

Inflation

Although inflation has not been a material factor in
the Company's operations during the past several years, the Company has
experienced increases in the costs of certain merchandise, salaries, employee
benefits and other general and administrative costs, including utilities, health
care and workers' compensation and property and casualty insurance costs. The
Company is generally able to offset these increases by adjusting its selling
prices or by modifying its operations. The Company's ability to adjust selling
prices is limited by competitive pressures in its market areas.

The Company values its merchandise inventories at the lower
of LIFO cost or market using the RIM of accounting. Under the LIFO method, which
is determined by using the department store price indices published by the
Bureau of Labor Statistics, the cost of products sold reported in the financial
statements approximates current costs and thus reduces the impact of inflation
due to increasing costs on reported income. The valuation of the Company's
merchandise inventories under the LIFO method is currently equal to that as
determined by the first-in, first-out (FIFO) method of accounting.

Seasonality

The Company's business, like that of most retailers,
is subject to seasonal influences, with the major portion of net sales, gross
profit and operating income realized during the Christmas selling months of
November and December of each year, and, to a lesser extent, during the Easter
and Back-to-School selling seasons. The Company's results may also vary from
quarter to quarter as a result of, among other things, the timing and level of
the Company's sales promotions, weather, fashion trends and the overall health
of the economy, both nationally and in the Company's market areas. Working
capital requirements also fluctuate during the year, increasing substantially
prior to the Christmas selling season when the Company must carry significantly
higher inventory levels.

The following table sets forth unaudited quarterly results of
operations for fiscal 2002 and 2001 (in thousands, except per share data).

`2002
                             ----------------------------------------------
Quarter Ended                  May 4      August 3   November 2  February 1
---------------------------  ----------  ----------  ----------  ----------
Net sales.................. $  149,560  $  155,868  $  153,108  $  232,892
Gross profit...............     51,069      54,799      53,537      74,928
Loss before
  income taxes (1).........     (4,346)     (3,464)     (5,217)     (7,736)
Net loss...................     (2,672)     (2,130)     (2,603)     (4,568)
Net loss per common share -
  basic and diluted........ $    (0.21) $    (0.17) $    (0.20) $    (0.36)

Weighted-average
  number of common
  shares outstanding:
    Basic..................     12,726      12,737      12,755      12,771
    Diluted................     12,726      12,737      12,755      12,771


                                                 2001
                             ----------------------------------------------
Quarter Ended                  May 5      August 4   November 3  February 2
---------------------------  ----------  ----------  ----------  ----------
Net sales.................. $  157,168  $  158,722  $  153,674  $  241,138
Gross profit...............     51,273      54,249      52,914      81,985
Income (loss) before income
  taxes (2)................     (7,348)     (4,497)     (4,389)     16,924
Net income (loss)..........     (4,593)     (2,813)     (2,578)     10,409

Net income (loss)
  per common share -
  basic and diluted........ $    (0.36) $    (0.22) $    (0.20) $     0.82`

(1) 	Loss before income taxes in the period
ended February 1, 2003 includes pre-tax charges of $20.1 million. 	These
charges included $3.8 million of primarily non-cash charges related to the write
down of assets and to 	post closure lease obligations in connection with the
closure of six stores, $10.9 million non-cash charges 	related to impairment
of long-lived assets in certain of the Company's underperforming locations, $1.7
	million of charges related to the sale of receivables, and $3.7 million of
charges related to the early 	extinguishment of accounts receivable
securitization debt.

(2)	Income before income taxes in the three month period ended February 2,
2002 includes a charge of 	$0.7 million related to the early extinguishment
of the Company's prior revolving credit facility.



Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
		RISK

The Company is exposed to market risks in the normal
course of business due to changes in interest rates on short-term borrowings
under its senior revolving credit facility. As of February 1, 2003, the Company
also had one term loan bearing variable interest rates. The Company does not
engage in financial transactions for speculative or trading purposes, nor does
the Company purchase or hold any derivative financial instruments.

As of February 1, 2003, borrowings subject to a variable
interest rate, represented 48.6% of the Company's total outstanding borrowings.
The interest payable on the Company's senior revolving credit facility is based
on variable interest rates and is therefore affected by changes in market
interest rates. An increase of 55 basis points on existing floating rate
borrowings (a 10% change from the Company's weighted-average interest rate as of
February 1, 2003) would reduce the Company's pre-tax net income and cash flow by
approximately $0.6 million. This 55 basis point increase in interest rates would
not materially affect the fair value of the Company's fixed rate financial
instruments. (See Note 1 to the Consolidated Financial Statements.)



Item 8. 	FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

The response to this item is set forth under Part IV, Item 15, included
elsewhere herein.



Item 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
			ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III



Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information required by Item 10 of Form 10-K, other
than the following information required by Paragraph (b) of Item 401 of
Regulation S-K, is incorporated by reference from those portions of the
Company's definitive proxy statement with respect to the Annual Stockholders'
Meeting scheduled to be held on June 26, 2003, to be filed pursuant to
Regulation 14A (the "2002 Proxy") under the headings "Nominees for Election as
Director" and "Section 16(a) Beneficial Ownership Reporting Compliance."

As of March 31, 2003, the name, age and title of the senior
executive officers of the Company are as follows:





|Name               | Age | Position                                            
|------------------ | --- | ----------------------------------------------------
|James R. Famalette | 50  | President and Chief Executive Officer               
|Gary L. Gladding   | 62  | Executive Vice President/General Merchandise Manager
|Michael S. Geele   | 52  | Senior Vice President and Chief Financial Officer   
|Michael J. Schmidt | 61  | Senior Vice President/Director of Stores            

James R. Famalette became President and Chief Executive
Officer of the Company on June 25, 1999 after serving as President and Chief
Operating Officer of the Company since April 14, 1997. Prior to joining the
Company, Mr. Famalette was President and Chief Executive Officer of Liberty
House, a department and specialty store chain based in Honolulu, Hawaii, from
1993 through 1997, and served in a variety of other positions with Liberty House
from 1987 through 1993, including Vice President, Stores and Vice President,
General Merchandise Manager. From 1975 to 1987 he served in a variety of senior
level management positions with Village Fashions/Cameo Stores and Colonies, a
specialty store chain.

Gary L. Gladding has been Executive Vice President of the
Company since 1987, and joined the Company as Vice President/General Merchandise
Manager in 1983 (1). Prior to 1983, he served in a variety of management
positions with Lazarus Department Stores, a division of Federated Department
Stores, Inc., and the May Department Stores Co.

Michael S. Geele became Senior Vice President and Chief
Financial Officer of the Company on January 21, 1999. Prior to joining the
Company, Mr. Geele was Chief Financial Officer of Southwest Supermarkets in
Phoenix, Arizona from 1995 to 1998. From 1991 to 1995, Mr. Geele served as Vice
President of Finance for Smitty's Super Valu in Phoenix, Arizona, and from 1981
to 1991 served in various financial positions with Smitty's, including Senior
Director and Corporate Controller. Mr. Geele is a Certified Public
Accountant.

Michael J. Schmidt became Senior Vice President/Director of
Stores of the Company in 1985(1). From 1983 through 1985, he was Manager of the
Company's Fresno, California Fashion Fair store. Prior to joining the Company,
he held management positions with Liberty House, Allied Corporation and R.H.
Macy & Co., Inc.

_______________________

(1) References to the Company prior to 1986 are more
specifically to the Company's predecessor and former subsidiary, E. Gottschalk
and Co., Inc.



Item 11.	EXECUTIVE COMPENSATION

The information required by this item is incorporated by
reference from those portions of the Company's 2003 Proxy under the headings
"Executive Compensation" and "Director Compensation for Fiscal Year 2002."



Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND 	MANAGEMENT

The information required by this item is incorporated by
reference from the portion of the Company's 2003 Proxy under the heading
"Security Ownership of Certain Beneficial Owners and Management."



Item 13.	CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

The information required by this item is incorporated by
reference from the portion of the Company's 2003 Proxy under the heading
"Certain Relationships and Related Transactions."



Item 14.	CONTROLS AND PROCEDURES

The Company maintains "disclosure controls and
procedures," as such term is defined in Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
designed to ensure that information required to be disclosed in the Company's
reports, pursuant to the Exchange Act, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding the required disclosures. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurances of achieving the desired
control objectives, and management necessarily was required to apply its
judgment in evaluating the cost benefit relationship of possible controls and
procedures.

The Company's Chief Executive Officer and Chief Financial
Officer (its principal executive officer and principal financial officer,
respectively), have evaluated the effectiveness of the Company's "disclosure
controls and procedures," within 90 days of the filing date of this Annual
Report on Form 10-K. Based on their evaluation, except as noted in the next
paragraph, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date
the controls were evaluated.

During the fiscal 2002 financial reporting process,
management, in consultation with the Company's independent accountants,
identified a deficiency in the Company's financial reporting systems and
procedures relating to the reconciliation of the accounts payable subsidiary
ledgers to the general ledger. This deficiency constitutes a "Reportable
Condition" under standards established by the American Institute of Certified
Public Accountants. Management has initiated, with the assistance of outside
consultants, the design, development and implementation of processes and
controls to address this deficiency, the completion of which will extend into
fiscal 2003. Management does not expect the final resolution of this matter will
have a significant effect on the Company's financial position or its results of
operations.

PART IV



Item 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K

(a)(1)	The following consolidated financial statements of
Gottschalks Inc. and Subsidiary as required by Item 8 are included in this
Part IV, Item 15:

Consolidated balance sheets - As of February 1, 2003 and
February 2, 2002

Consolidated statements of operations -- Fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001

Consolidated statements of stockholders' equity --
Fiscal years ended February 1, 2003, February 2, 2002 and February 3, 2001

Consolidated statements of cash flows -- Fiscal years
ended February 1, 2003, February 2, 2002 and February 3, 2001

Notes to consolidated financial statements -- Three
years ended February 1, 2003

Independent auditors' report

(a)(2) The following financial statement schedule of Gottschalks Inc.
and Subsidiary is included in Item 15(d):

Schedule II -- Valuation and qualifying accounts

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are included in
the Consolidated Financial Statements, are not required under the related
instructions or are inapplicable, and therefore have been omitted.

(a)(3) The following exhibits are required by Item 601 of Regulation
S-K and Item 15(c):

---



EXHIBIT INDEX



|Exhibit Number | Description                                                                                                                                                                                                                                                                                               | Incorporated by Reference From the Following Document                                    
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------
|3.1            | Certificate of Incorporation of the Registrant, as amended                                                                                                                                                                                                                                                | Registration Statement on Form S-1 (File No. 33-3949)                                    
|3.2            | By-Laws of the Registrant                                                                                                                                                                                                                                                                                 | Filed electronically herewith                                                            
|               |                                                                                                                                                                                                                                                                                                           |                                                                                          
|10.1           | Gottschalks Inc. Retirement Savings Plan(*)                                                                                                                                                                                                                                                               | Registration Statement on Form S-1 (File No. 33-3949)                                    
|10.2           | Participation Agreement dated as of December 1, 1988 among
Gottschalks Inc., General Foods Credit Investors No. 2 Corporation and
Manufacturers Hanover Trust Company of California relating to the sale-leaseback
of the Stockton and Bakersfield department stores and the Madera distribution
facility | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.3           | Lease Agreement dated December 1, 1988 by and between
Manufacturers Hanover Trust Company of California and Gottschalks Inc. relating
to the sale-leaseback of department stores in Stockton and Bakersfield,
California and the Madera distribution facility                                             | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.4           | Ground Lease dated December 1, 1988 by and between Gottschalks
Inc. and Manufacturers Hanover Trust Company of California relating to the sale-
leaseback of the Bakersfield department store                                                                                                             | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.5           | Memorandum of Lease and Lease Supplement dated July 1, 1989 by
and between Manufacturers Hanover Trust Company of California and Gottschalks
Inc. relating to the sale-leaseback of the Stockton department store                                                                                         | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.6           | Tax Indemnification Agreement dated as of August 1, 1989 by and
between Gottschalks Inc. and General Foods Credit Investors No. 2 Corporation
relating to the sale-leaseback of the Stockton and Bakersfield department stores
and the Madera distribution facility                                       | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.7           | Ground Lease dated August 17, 1989 by and between Gottschalks
Inc. and Manufacturers Hanover Trust Company of California relating to the sale-
leaseback of the Madera distribution facility                                                                                                              | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.8           | Lease Supplement dated as of August 17, 1989 by and between
Manufacturers Hanover Trust Company of California and Gottschalks Inc. relating
to the sale-leaseback of the Madera distribution facility                                                                                                     | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.9           | Agreement of Limited Partnership dated March 16, 1990, by and
between River Park Properties I and Gottschalks Inc. relating to the Company's
corporate headquarters                                                                                                                                       | Annual Report on Form 10-K for the year ended February 2, 1991
(File No. 1-09100)        
|10.10          | Lease Agreement dated as of March 16, 1990 by and between
Gottschalks Inc. and River Park Properties I relating to the Company's corporate
headquarters                                                                                                                                                   | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.11          | Form of Severance Agreement dated March 31, 1995 by and between
Gottschalks Inc. and the following senior executives of the Company: Joseph W.
Levy, Gary L. Gladding and Michael J. Schmidt(*)                                                                                                           | Annual Report on Form 10-K for the year ended January 28, 1995
(File No. 1-09100)        
|10.12          | 1994 Key Employee Incentive Stock Option Plan(*)                                                                                                                                                                                                                                                          | Registration Statement on Form S-8 (File #33-54789)                                      
|10.13          | 1994 Director Nonqualified Stock Option Plan(*)                                                                                                                                                                                                                                                           | Registration Statement on Form S-8 (File #33-54783)                                      
|10.14          | Agreement of Sale dated June 27, 1995, by and between
Gottschalks Inc. and Jack Baskin relating to the sale and leaseback of the
Capitola, California property                                                                                                                                            | Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (File No. 1-09100)     
|10.15          | Lease and Agreement dated June 27, 1995, by and between Jack
Baskin and Gottschalks Inc. relating to the sale and leaseback of the Capitola,
California property                                                                                                                                          | Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (File No. 1-09100)     
|10.16          | Promissory Notes and Security Agreements dated October 4, 1995
and October 10, 1995 by and between Gottschalks Inc. and Midland Commercial
Funding                                                                                                                                                        | Quarterly Report on Form 10-Q for the quarter ended October 28,
1995 (File No. 1-09100)  
|10.17          | Promissory Note and Security Agreement dated October 2, 1996, by
and between Gottschalks Inc. and Heller Financial, Inc. (**)                                                                                                                                                                             | Quarterly Report on Form 10-Q for the year ended November 2,
1996 (File No. 1-09100)     
|10.18          | Gottschalks Inc. 1998 Stock Option Plan(*)                                                                                                                                                                                                                                                                | Registration Statement on Form S-8 (File #33-61471)                                      
|10.19          | Gottschalks Inc. 1998 Employee Stock Purchase Plan(*)                                                                                                                                                                                                                                                     | Registration Statement on Form S-8 (File #33-61473)                                      
|10.20          | Asset Purchase Agreement dated as of July 21, 1998 among
Gottschalks Inc., The Harris Company and El Corte Ingles, S. A. together with
all Exhibits thereto                                                                                                                                               | Current Report on Form 8-K dated July 21, 1998 (File No. 1-09100)                        
|10.21          | Non-Negotiable, Extendable, Subordinated Note due August 20,
2003 issued to The Harris Company                                                                                                                                                                                                            | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.22          | Registration Rights Agreement between The Harris Company and
Gottschalks Inc. dated August 20, 1998                                                                                                                                                                                                       | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.23          | Tradename License Agreement between The Harris Company and
Gottschalks Inc. dated August 20, 1998                                                                                                                                                                                                         | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.24          | Stockholders' Agreement among El Corte Ingles, S. A.,
Gottschalks Inc., Joseph Levy and Bret Levy dated August 20, 1998                                                                                                                                                                                   | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.25          | Standstill Agreement between El Corte Ingles, S. A., and
Gottschalks Inc. dated August 20, 1998                                                                                                                                                                                                           | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.26          | Store Lease Agreement between El Corte Ingles, S. A., and
Gottschalks Inc. dated August 20, 1998 re: East Hills Mall, Bakersfield,
California                                                                                                                                                             | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.27          | Store Lease Agreement between El Corte Ingles, S. A., and
Gottschalks Inc. dated August 20, 1998 re: Moreno Valley Mall at Towngate,
Moreno Valley, California                                                                                                                                            | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.28          | Store Lease Agreement between El Corte Ingles, S. A., and
Gottschalks Inc. dated August 20, 1998 re: Antelope Valley Mall at Palmdale,
California                                                                                                                                                         | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.29          | Form of Severance Agreement dated January 21, 1999 by and
between Gottschalks Inc. and Michael S. Geele (*)                                                                                                                                                                                               | Annual Report on Form 10-K for the year ended January 30,1999
(File No. 1-09100)         
|10.30          | Receivables Purchase Agreement dated March 1, 1999 by and
between Gottschalks Credit Receivables Corporation and Gottschalks Inc.                                                                                                                                                                         | Annual Report on Form 10-K for the year ended January 30, 1999
(File No. 1-09100)        
|10.31          | Pooling and Servicing Agreement dated as of March 1, 1999 by and
among Gottschalks Credit Receivables Corporation, Gottschalks Inc. and Bankers
Trust Company                                                                                                                                             | Annual Report on Form 10-K for the year ended January 30, 1999
(File No. 1-09100)        
|10.32          | Series 1999-1 Supplement to Pooling and Servicing Agreement
dated March 1, 1999 by and among Gottschalks Credit Receivables Corporation,
Gottschalks Inc. and Bankers Trust Company                                                                                                                       | Annual Report on Form 10-K for the year ended January 30, 1999
(File No. 1-09100)        
|10.33          | Employment Agreement dated June 25, 1999 by and between
Gottschalks Inc. and James R. Famalette(*).                                                                                                                                                                                                       | Quarterly Report on Form 10-Q for the quarter ended July 31,
1999 (File No. 1-09100)     
|10.34          | Asset Purchase Agreement dated April 24, 2000 by and between
Gottschalks Inc. and Lamonts Apparel, Inc.                                                                                                                                                                                                   | Annual Report on Form 10-K for the year ended January 29, 2000
(File No. 1-09100)        
|10.35          | Amendment No. 1 to the Asset Purchase Agreement dated May 16,
2000 by and between Gottschalks Inc. and Lamonts Apparel, Inc.                                                                                                                                                                              | Quarterly Report on Form 10-Q for the quarter ended July 29,
2000 (File No. 1-09100)     
|10.36          | Promissory Note dated July 24, 2000 by and between Gottschalks
Inc. and Heller Financial Leasing, Inc. (**)                                                                                                                                                                                               | Quarterly Report on Form 10-Q for the Quarter ended July 29,
2000 (File No. 1-09100)     
|10.37          | Series 2000-1 Supplement to the Pooling and Servicing Agreement
dated as of November 16, 2000 by and among Gottschalks Credit Receivables
Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                                         | Annual Report on Form 10-K for the year ended February 3, 2001
(File No. 1-09100)        
|10.38          | Amendment No. 1 to Pooling and Servicing Agreement and the
Series 1999-1 Supplement dated November 16, 2000 by and among Gottschalks Credit
Receivables Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                           | Annual Report on Form 10-K for the year ended February 3, 2001
(File No. 1-09100)        
|10.39          | Promissory Note and Security Agreement dated May 16, 2001, by
and between Gottschalks Inc, and Heller Financial, Inc. (**)                                                                                                                                                                                | Quarterly Report on Form 10-Q for the quarter ended May 5, 2001
(File No. 1-09100)       
|10.40          | Amended and Restated Series 2000-1 Supplement to the Pooling and
Servicing Agreement dated as of November 15, 2001 by and among Gottschalks
Credit Receivables Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                    | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.41          | Certificate Purchase Agreement dated November 15, 2001 by and
among Warehouse Line LLC, Bank Hapoalim B.M., and Gottschalks Credit Receivables
Corporation                                                                                                                                                | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.42          | Amendment to Employment Agreement dated December 3, 2001 by and
between Gottschalks Inc. and James R. Famalette (*)                                                                                                                                                                                       | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.43          | Credit Agreement dated January 31, 2002 by and among Gottschalks
Inc., General Electric Capital Corporation and The CIT Group/Business Credit                                                                                                                                                             | Current Report on Form 8-K dated January 31, 2002                                        
|10.44          | Credit Facilitation Agreement dated February 22, 2002 by and
between Gottschalks Inc. and The Harris Company                                                                                                                                                                                              | Current Report on Form 8-K/A (Amendment No. 2) dated February
22, 2002 (File No. 1-09100)
|10.45          | First Amendment to Credit Agreement dated February 22, 2002 by
and among Gottschalks Inc., General Electric Capital Corporation and The CIT
Group/Business Credit                                                                                                                                         | Current Report on Form 8-K/A (Amendment No. 2) dated February
22, 2002 (File No. 1-09100)
|10.46          | Credit Agreement dated March 22, 2002 by and between Gottschalks
Inc. and KIMCO Capital Corp.                                                                                                                                                                                                             | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.47          | Second Amendment to Credit Agreement dated March 22, 2002 by and
among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, LaSalle Retail Finance and Foothill Capital Corporation                                                                                     | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.48          | Third Amendment to Credit Agreement dated April 30, 2002, by and
among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, LaSalle Retail Finance and Foothill Capital
Corporation                                                                                     | Current Report on Form 8-K dated May 6, 2002                                             
|10.49          | First Amendment to Credit Facilitation Agreement dated May 29,
2002, by and between Gottschalks Inc. and Harris                                                                                                                                                                                           | Current Report on Form 8-K dated May 29, 2002                                            
|10.50          | Second Amendment to Credit Facilitation Agreement dated August
29, 2002, by and between Gottschalks Inc. and Harris                                                                                                                                                                                       | Current Report on Form 8-K dated August 29, 2002                                         
|10.51          | Third Amendment to Credit Facilitation Agreement dated January
10, 2003, by and between Gottschalks Inc. and Harris                                                                                                                                                                                       | Current Report on Form 8-K dated January 10, 2003                                        
|10.52          | Purchase and Sale Agreement dated January 30, 2003 by and among
Gottschalks Credit Receivables Corporation, Gottschalks Inc. and Household Bank
(SB), N.A.                                                                                                                                                | Current Report on Form 8-K dated January 31, 2003                                        
|10.53          | Interim Servicing Agreement dated January 30, 2003 by and
between Gottschalks Inc. and Household Bank (SB), N.A.                                                                                                                                                                                          | Current Report on Form 8-K dated January 31, 2003                                        
|10.54          | Credit Card Program Agreement dated January 30, 2003 by and
between Gottschalks Inc. and Household Bank (SB), N.A.                                                                                                                                                                                        | Current Report on Form 8-K dated January 31, 2003                                        
|10.55          | Amendment to Amended and Restated Receivables Purchase Agreement
dated January 31, 2003 by and between Gottschalks Inc. and Gottschalks Credit
Receivables Corporation                                                                                                                                    | Current Report on Form 8-K dated January 31, 2003                                        
|10.56          | Consent and Fourth Amendment to Credit Agreement dated January
30, 2003 by and among Gottschalks Inc., General Electric Capital Corporation,
The CIT Group/Business Credit, Inc., LaSalle Retail Finance, and Foothill
Capital Corporation                                                                | Current Report on Form 8-K dated January 31, 2003                                        
|10.57          | Fifth Amendment to Credit Agreement dated January 30, 2003 by
and among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, Inc., LaSalle Retail Finance, and Foothill Capital
Corporation.                                                                            | Current Report on Form 8-K dated January 31, 2003                                        
|10.58          | Acknowledgement, Release and Amendment to Credit Agreement dated
January 30, 2003 by and between Gottschalks Inc. and Kimco Capital
Corp.                                                                                                                                                                 | Current Report on Form 8-K dated January 31, 2003                                        
|21.            | Subsidiary of the Registrant                                                                                                                                                                                                                                                                              | Annual Report on Form 10-K for the year ended January 28, 1995
(File No. 1-09100)        
|23.            | Independent Auditors' Consent                                                                                                                                                                                                                                                                             | Filed electronically herewith                                                            

(*)	Management contract, compensatory plan or
arrangement.

(**)	These loans were retired with proceeds from a
mortgage loan completed on March 22, 2002 (See Exhibit 10.46)

(b)	
                       Reports on Form 8-K -- The Company filed the following
Reports on Form 8-K during the fourth quarter of fiscal 2002:

The Company filed a Form 8-K dated January 10, 2003, pursuant
to Item 5, Other Events, describing the Third Amendment to the Credit
Facilitation Agreement by and between the Company and Harris.

The Company filed a Form 8-K dated January 31, 2003, pursuant
to Item 2, Acquisition or Disposition of Assets, describing the sale of
receivables to Household and the related agreements regarding interim servicing
and the ongoing credit card program.

(c)	Exhibits -- The response to this portion of Item 15 is
submitted as a separate section of this report.

(d)	Financial Statement Schedule--The response to this
portion of Item 15 is submitted as a separate section of this report.

---

ANNUAL REPORT ON FORM 10-K

ITEM 8, 15(a)(1) and (2), (c) and (d)



CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CERTAIN EXHIBITS



FINANCIAL STATEMENT SCHEDULE

YEAR ENDED FEBRUARY 1, 2003



GOTTSCHALKS INC. AND SUBSIDIARY

FRESNO, CALIFORNIA

---



INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Gottschalks Inc.
Fresno, California

We have audited the accompanying consolidated balance sheets
of Gottschalks Inc. and Subsidiary (the "Company") as of February 1, 2003
and February 2, 2002, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended February 1, 2003. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position of Gottschalks
Inc. and Subsidiary at February 1, 2003 and February 2, 2002, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended February 1, 2003 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 4 to the consolidated financial
statements, in 2002 the Company changed its method of accounting for goodwill
and other intangible assets.

In addition, as discussed in Note 1 to the consolidated
financial statements, the Company changed its method of accounting for early
extinguishment of debt and retroactively restated fiscal 2001 consolidated
financial statements for the change.

/s/ Deloitte & Touche LLP



Fresno, California
   April 30, 2003

---

GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)

---

`February 1,  February 2,
                                                           2003         2002
                                                        -----------  -----------
ASSETS
CURRENT ASSETS:
  Cash................................................ $     6,215  $     2,741
  Retained interest in receivables sold...............                   19,222
  Receivables - net...................................      10,641       11,331
  Merchandise inventories.............................     164,615      161,041
  Other...............................................      12,614       17,171
                                                        -----------  -----------
    Total current assets..............................     194,085      211,506

PROPERTY AND EQUIPMENT - net..........................     139,888      153,200

OTHER ASSETS:
  Goodwill - net......................................       7,501        7,635
  Other intangibles - net.............................         658        9,148
  Other...............................................       6,597       10,704
                                                        -----------  -----------
                                                            14,756       27,487
                                                        -----------  -----------
                                                       $   348,729  $   392,193
                                                        ===========  ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Trade accounts payable and accrued expenses......... $    79,973  $    77,957
  Revolving line of credit............................      28,845       20,908
  Current portion of long-term debt...................       1,719        5,525
  Current portion of capitalized lease obligations....       2,970        2,738
  Deferred income taxes...............................         629
                                                        -----------  -----------
    Total current liabilities.........................     114,136      107,128

LONG-TERM OBLIGATIONS, less current portion...........      75,097      110,216

OTHER LIABILITIES.....................................      18,917       18,199

DEFERRED INCOME TAXES.................................      12,266       16,832

SUBORDINATED NOTE PAYABLE TO AFFILIATE - net..........      21,989       21,646

COMMITMENTS AND CONTINGENCIES (Notes 8 and 16)

STOCKHOLDERS' EQUITY:
  Common stock, par value of $.01 per share;
    30,000,000 shares authorized; 12,801,669
    and 12,726,364 issued.............................         128          127
  Additional paid-in capital..........................      71,313       71,189
  Retained earnings...................................      34,883       46,856
                                                        -----------  -----------
                                                           106,324      118,172
                                                        -----------  -----------
                                                       $   348,729  $   392,193
                                                        ===========  ===========`

See notes to consolidated financial statements.

---

GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

---

`2002        2001        2000
                                            ----------  ----------  ----------
Net sales................................. $  691,428  $  710,702  $  663,868
Net credit revenues.......................      8,225       8,420       9,150
Net leased department revenues............      3,557       4,093       3,948
                                            ----------  ----------  ----------
    Total revenues........................    703,210     723,215     676,966
                                            ----------  ----------  ----------
Costs and expenses:
  Cost of sales...........................    457,095     470,281     433,724
  Selling, general and
    administrative expenses...............    218,797     223,926     201,765
  Depreciation and amortization...........     14,259      14,123      11,505
  Asset impairment charges................     10,867          --          --
  Store closure costs.....................      3,436         729          --
  Receivables sale costs..................      1,749          --          --
  New store pre-opening costs.............         --          --       6,183
                                            ----------  ----------  ----------
     Total costs and expenses.............    706,203     709,059     653,177
                                            ----------  ----------  ----------
Operating income (loss)...................     (2,993)     14,156      23,789
                                            ----------  ----------  ----------
Other (income) expense:
  Interest expense........................     15,883      14,364      13,750
  Losses on early extinguishment of debt..      3,695         696          --
  Miscellaneous income....................     (1,808)     (1,595)     (1,414)
                                            ----------  ----------  ----------
                                               17,770      13,465      12,336
                                            ----------  ----------  ----------
Income (loss) before income taxes.........    (20,763)        691      11,453

Income tax expense (benefit)..............     (8,790)        266       4,374
                                            ----------  ----------  ----------

Net income (loss)......................... $  (11,973) $      425  $    7,079
                                            ==========  ==========  ==========
Net income (loss) per common share
 (basic and diluted)
                                           $    (0.94) $     0.03  $     0.56
                                            ==========  ==========  ==========`

See notes to consolidated financial statements.

---

GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)

---

`Common Stock   Additional
                            -------------------   Paid-in    Retained
                              Shares     Amount   Capital    Earnings    Total
                            -----------  ------  ----------  ---------  --------
BALANCE, JANUARY 29, 2000.. 12,596,837  $  126  $   70,760  $  39,352  $110,238
  Net income...............         --      --          --      7,079     7,079
  Shares issued under
   stock purchase plan.....     59,932       1         255         --       256
                            -----------  ------  ----------  ---------  --------
BALANCE, FEBRUARY 3, 2001.. 12,656,769     127      71,015     46,431   117,573
  Net income...............         --      --          --        425       425
  Shares issued under
   stock purchase plan.....     69,595      --         174         --       174
                            -----------  ------  ----------  ---------  --------
BALANCE, FEBRUARY 2, 2002.. 12,726,364  $  127  $   71,189  $  46,856  $118,172
  Net loss.................                                   (11,973)  (11,973)
  Shares issued under
   stock purchase plan.....     75,305       1         124                  125
                            -----------  ------  ----------  ---------  --------
BALANCE, FEBRUARY 1, 2003.. 12,801,669  $  128  $   71,313  $  34,883  $106,324
                            ===========  ======  ==========  =========  ========`

See notes to consolidated financial statements.

---

GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)

---

`2002       2001       2000
                                                               ---------  ---------  ---------
OPERATING ACTIVITIES:
Net income (loss)............................................ $ (11,973) $     425  $   7,079
Adjustments:
  Depreciation and amortization..............................    14,259     14,123     11,505
  Deferred income taxes......................................    (2,613)      (300)     3,522
  Amortization of deferred income and
    other deferred items.....................................       718     (1,017)    (1,695)
  Provision for credit losses................................       825      1,247      1,025
  Asset impairment charges...................................    10,867
  Store closure costs........................................     3,436        729
  Net loss from sale of assets...............................       131        122        151
  Other non-cash items, net..................................      (139)     1,777        604
Decrease (increase) in assets, excluding effect
  of business acquisition:
     Receivables.............................................    (2,972)    (3,275)    (2,017)
     Merchandise inventories.................................    (2,370)    24,951    (54,409)
     Other current and long-term assets......................     9,420      4,997     (7,824)
Increase (decrease) in liabilities,
  excluding effect of business acquisition:
     Trade accounts payable and accrued expenses.............     5,951     (2,372)    16,039
     Other current and long-term liabilities.................    (4,669)     2,123     (5,306)
                                                               ---------  ---------  ---------
         Net cash provided by (used in) operating activities.    20,871     43,530    (31,326)

INVESTING ACTIVITIES:
Available-for-sale securities:
  Maturities.................................................  (383,147)  (345,638)  (330,131)
  Purchases..................................................   377,982    344,269    321,416
Purchases of property and equipment..........................    (8,279)   (18,683)   (29,635)
Acquisitions of assets and business..........................                         (19,522)
Proceeds from sale of lease rights, fixtures and equipment...     1,010      1,306
Proceeds from investment in limited partnership..............       216        194        194
                                                               ---------  ---------  ---------
        Net cash used in investing activities................   (12,218)   (18,552)   (57,678)

FINANCING ACTIVITIES:
Net proceeds (repayments) under retired revolving
  credit facility............................................             (112,828)    57,349
Net proceeds (repayments) from new revolving credit facility.   (37,062)    95,908
Proceeds from sale of credit card accounts receivable........   100,319         --         --
Net proceeds from 2000-1 Series Certificates.................        --      2,000     18,000
Principal payments on retired 1999-1 Series Certificate......   (53,000)        --         --
Principal payments on retired 2000-1 Series Certificate......   (20,000)        --         --
Proceeds from sale and leaseback transactions................     1,334      8,116         --
Proceeds from long-term obligations..........................    20,010      4,000     10,000
Principal payments on long-term obligations..................   (14,737)    (8,419)    (6,016)
Changes in cash management liability.........................    (1,195)    (7,610)    11,433
Debt issuance costs..........................................      (973)    (6,405)    (1,091)
Proceeds from sale of stock under employee
  stock purchase plan........................................       125        174        255
                                                               ---------  ---------  ---------
Net cash provided by (used in) financing activities..........    (5,179)   (25,064)    89,930
                                                               ---------  ---------  ---------
INCREASE (DECREASE) IN CASH..................................     3,474        (86)       926
CASH AT BEGINNING OF YEAR....................................     2,741      2,827      1,901
                                                               ---------  ---------  ---------
CASH AT END OF YEAR.......................................... $   6,215  $   2,741  $   2,827
                                                               =========  =========  =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
 FINANCING ACTIVITIES:
  Acquisition of equipment under capital leases.............. $          $     233  $     411
                                                               =========  =========  =========`

See notes to consolidated financial statements.

---

GOTTSCHALKS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

1.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Gottschalks Inc. (the "Company") is a regional department
and specialty store chain based in Fresno, California. As of February 1, 2003,
the Company operated 69 full-line department stores located in six Western
states, with 39 stores located in California, 17 in Washington, 6 in Alaska, 3
in Oregon and 2 in both Nevada and Idaho. The Company also operated 12 specialty
stores which carry a limited selection of merchandise. The Company's department
stores typically offer a wide range of better to moderate brand-name and
private-label merchandise, including men's, women's, junior's and children's
apparel, cosmetics, shoes and accessories, and also a wide array of home
furnishings, including domestics, china, housewares, small electrics and, in
certain locations, furniture and mattresses.

Use of Estimates - The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Such estimates
and assumptions are subject to inherent uncertainties which may cause actual
results to differ from reported amounts.

Principles of Consolidation - The accompanying
financial statements include the accounts of Gottschalks Inc., and its wholly-owned
subsidiary, Gottschalks Credit Receivables Corporation ("GCRC")
(collectively, the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation.

Fiscal Year - The Company's fiscal year ends on the
Saturday nearest January 31. Fiscal years 2002, 2001 and 2000 ended on February
1, 2003, February 2, 2002 and February 3, 2001, respectively. Fiscal 2002 and
2001 each included 52 weeks. Fiscal 2000 included 53 weeks.

Revenue Recognition - Net retail sales are recorded at
the point-of-sale and include sales of merchandise, net of estimated returns and
exclusive of sales tax. Net retail sales also include all amounts billed to
customers for shipping and handling, including customer delivery charges.
Revenues on special order sales are recognized when the merchandise is delivered
to the customer and has been paid for in its entirety. The Company does not sell
merchandise on layaway.

Net leased department revenues consist of rental income from
lessees and sub-lessees. Sales generated in such leased departments totaled
$24,878,000, $28,933,000 and $27,738,000 in 2002, 2001 and 2000,
respectively.

Transfers and Servicing of Financial Assets - On
January 31, 2003, the Company terminated its receivables securitization program
and sold substantially all of its customer credit card receivables to Household
Bank (SB), N.A. ("Household") (Note 2).

At that time the Company also entered into an interim
servicing agreement to service the receivables on behalf of Household until such
time as they are able to convert the accounts to their systems and a program
agreement whereby the Company will participate in revenues generated from the
portfolio. The transaction was accounted for as a sale of financial assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". Servicing fees to be received under the interim servicing
agreement are considered to approximate the fair value of the cost to service
the receivables during the interim servicing period, expected to be not more
than 120 days, resulting in no servicing asset or liability. A portion of the
program fees to be paid represents residual interest in the assets transferred
at the time of the transaction. Accordingly, the Company recorded an interest
only strip in the amount of $312,000 that will be amortized as a charge to
results of operations over the estimated life of the underlying assets sold on
the transaction date.

Prior to January 31, 2003, the Company accounted for the
transfer and sale of receivables pursuant to its receivables securitization
program in accordance with SFAS No. 140. SFAS No. 140 required the Company to
recognize gains and losses on transfers of financial assets (securitizations)
that qualified as sales and to recognize as assets certain financial components
that were retained as a result of such sales, which consisted primarily of the
retained interest in receivables sold and the retained rights to future interest
income from the serviced assets in excess of the contractually specified
servicing fee (interest-only strips). The estimated cost to service the assets
was equal to the contractually specified servicing fee, resulting in no
servicing asset or liability at February 2, 2002.

The retained interest in receivables sold was initially
recorded at the date of the sale by allocating the previous carrying amount
between the assets sold and the retained interests based on their relative fair
values. Any gain or loss on the sale was dependent upon the allocation of the
previous carrying amount of the receivables sold to the retained interests.
Retained interests were subsequently carried at their respective fair values,
which were estimated based upon the present value of the expected future cash
flows, calculated using management's best estimates of key assumptions about
anticipated credit losses, account repayment speeds, discount rates and other
factors necessary to derive estimates of fair value.

The certificated portion of the retained interest was
considered readily marketable and was classified as available-for-sale in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Due to the short-term revolving nature of the credit card
portfolio, the carrying value of the Company's retained interest approximated
its fair value, resulting in no unrealized gains or losses.

Receivables -	As of February 1, 2003, receivables
consist of vendor claims. As of February 2, 2002, receivables consist primarily
of customer credit card receivables that did not meet certain eligibility
requirements of the Company's receivables securitization program and vendor
claims (Note 2).

Merchandise Inventories - Inventories, which consist
of merchandise held for resale, are valued by the retail method and are stated
at last-in, first-out (LIFO) cost, which is not in excess of market. Current
cost, which approximates replacement cost, under the first-in, first-out (FIFO)
method is equal to the LIFO value of inventories at February 1, 2003 and
February 2, 2002. The Company includes in inventory the capitalization of
certain indirect buying handling and distribution costs to better match these
costs with the related sales.

Store Closure Costs - In the event a store is closed
before its lease has expired, the remaining lease obligation after the closing
date (less anticipated sublease rental income or proceeds from lease
settlements, if any), asset impairment charges related to furniture, fixtures
and equipment, leasehold improvements, goodwill and leasehold interests are
expensed in the period in which management determines to close it. Severance and
other incremental costs associated with a store closure are expensed as
incurred.

New Store Pre-Opening Costs - New store pre-opening
costs are expensed as incurred and may vary significantly from year to year
depending on the number of new stores opened.

Property and Equipment - Property and equipment is
stated on the basis of cost or appraised value as to certain contributed land.
Depreciation and amortization is computed by the straight-line method for
financial reporting purposes over the shorter of the estimated useful lives of
the assets or the lease term, which range from 20 to 40 years for buildings and
leasehold improvements and 3 to 15 years for furniture, fixtures and equipment.
The amortization of buildings and equipment under capital leases is computed by
the straight-line method over the term of the lease or the estimated economic
life of the asset, depending on the criteria used to classify the lease, and
such amortization is combined with depreciation in the accompanying income
statements. Maintenance and repairs are charged to expense as incurred and major
improvements are capitalized.

Software Development Costs - Costs associated with the
acquisition or development of software for internal use that meet the criteria
of AICPA Statement of Position No. 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" are capitalized and amortized
over the expected useful life of the software, which generally ranges from 3 to
10 years. Software development costs capitalized under SOP No. 98-1 in fiscal
2002 and 2001 totaled $673,000 and $1,057,000, respectively. No such costs were
capitalized in 2000. In 2002, the Company completed and placed in service all
information systems projects to which such costs were capitalized and commenced
the amortization of such costs over their estimated useful lives at that time.
Amortization of such costs in fiscal 2002 was $260,000. There was no
amortization of software development costs in 2001 or 2000.

Goodwill - The Company adopted the provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets" effective the beginning of
fiscal 2002 and discontinued the amortization of previously recorded goodwill as
of that date (Note 5). During the first six months of fiscal 2002, as required
by the statement, the Company performed an initial impairment review of
goodwill. The Company also performed the required annual impairment review of
goodwill for fiscal 2002. As a result of these reviews, the Company concluded
that there was no impairment charge as of the respective measurement dates.

Leasehold Interests - Leasehold interests associated
with acquired leases are amortized on a straight-line basis over the respective
lease terms, including option renewal periods if renewal of the lease is
probable, which range from 1 to 40 years.

Cash Management Liability - Under the Company's cash
management program, checks issued by the Company and not yet presented for
payment frequently result in overdraft balances for accounting purposes. Such
amounts represent interest-free, short-term borrowings by the Company.

Deferred Income - Deferred income consists primarily
of donated land and cash incentives received to construct a store and enter into
a lease arrangement, and the prepaid program fee arising from the receivables
sale to Household. Land contributed to the Company is included in land and
recorded at appraised fair market values. Deferred income relating to
contributed land is amortized over the average depreciable life of the related
fixed assets built on the land for locations that are owned by the Company, and
over the minimum lease periods of the related building leases with respect to
locations that are leased by the Company, ranging from 10 to 32 years. Beginning
in fiscal 2003, the prepaid program fee will be amortized over the five-year
term of the program agreement. Deferred income, net of accumulated amortization,
totaling $14,837,000 and $13,340,000 as of February 1, 2003 and February 2,
2002, respectively, is included in other long-term liabilities.

Deferred Lease Payments - Certain of the Company's
department store operating leases provide for rent abatements and scheduled rent
increases during the lease terms. The Company recognizes rental expense for such
leases on a straight-line basis over the respective lease terms and records the
difference between rental expense and amounts paid under the leases as deferred
lease payments. Deferred lease payments, totaling $3,778,000 at February 1, 2003
and $4,162,000 at February 2, 2002, are included in other liabilities.

Advertising Costs - Advertising costs, totaling
$31,245,000, $33,053,000 and $30,111,000 in 2002, 2001 and 2000, respectively,
are included in selling, general and administrative expenses for financial
reporting purposes and are expensed when the related advertisement first takes
place. Cash payments and credits received from vendors to reimburse advertising
costs are recorded as reductions of advertising costs.

Income Taxes - Deferred tax assets and liabilities are
generally recognized for the expected future tax consequences of events that
have been included in the financial statements or tax returns, determined based
on the differences between the financial statement and tax basis of assets and
liabilities and net operating loss and tax credit carryforwards, and by using
enacted tax rates in effect when the differences are expected to reverse. A
valuation allowance is recorded when it is more likely than not that the
carrying amounts of deferred tax assets will not be fully realized.

Stock-Based Compensation - At February 1, 2003, the
Company has two stock-based employee compensation plans, which are more fully
described in Note 13. The Company accounts for those plans under the recognition
and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of the grant.

The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation. The Company's calculations were made using the
Black-Scholes option pricing model, which is more fully described in Note 13.

`(In thousands, except per share data)               2002       2001       2000
-----------------------------------------------   --------   --------   --------
Net income (loss) as reported.................. $ (11,973) $     425  $   7,079
Deduct: Total stock-based compensation expense
  determined under fair value based method
  for all awards, net of related tax effects...      (347)      (527)      (823)
                                                  --------   --------   --------
Pro forma net income (loss).................... $ (12,320) $    (102) $   6,256
                                                  ========   ========   ========

Earnings (loss) per share (basic and diluted):
  As reported.................................. $   (0.94) $    0.03  $    0.56
  Pro-forma.................................... $   (0.97) $   (0.01) $    0.50`

Long-Lived Assets - The Company periodically evaluates
the carrying value of long-lived assets to be held and used, including
intangible assets other than goodwill, when events and circumstances warrant
such a review. When the anticipated undiscounted cash flow from a long-lived
asset is less than its carrying value, a loss is recognized based on the amount
by which its carrying value exceeds its fair market value. Fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risks involved, and in some cases, the expected proceeds
from the sale or sublease of a particular asset, or independent appraisals. In
2002, the Company recognized asset impairment charges of $10,867,000 relating to
underperforming stores (Note 10) and $3,158,000 in connection with the closure
of six stores (Note 9). In 2001, the Company recognized asset impairment charges
of $775,000 in connection with the closure of six stores (Note 9). There were no
asset impairment charges recognized in 2000.

Fair Value of Financial Instruments - The carrying
value of the Company's cash and cash management liability, receivables, notes
receivable, the interest only strip arising from the sale of receivables to
Household, trade payables and other accrued expenses, revolving line of credit
and letters of credit approximate their estimated fair values because of the
short maturities or variable interest rates underlying those instruments. The
retained interest in receivables sold, the retained right to future interest
income under the securitization program (interest-only strip) and the
Subordinated Note are carried at their estimated fair values. The following
methods and assumptions were used to estimate the fair values for each remaining
class of financial instruments:

Long-Term Obligations - The fair values of the
Company's mortgage loans and notes payable are estimated using discounted cash
flow analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements. Borrowings with aggregate carrying
values of $38,943,000 and $31,323,000 at February 1, 2003 and February 2, 2002,
had estimated fair values of $41,639,000 and $33,112,000 at February 1, 2003 and
February 2, 2002, respectively.

Off-Balance Sheet Financial Instruments - The
Company's off-balance sheet financial instruments consisted primarily of
certificates issued under the securitization program. The estimated fair value
of the fixed rate certificate, based on similar issues of certificates at
current rates for the same remaining maturities, with a face value of
$53,000,000 as of February 2, 2002 was $51,573,000. The estimated fair values of
the floating rate certificates approximated their reported values due to the
variable interest rate underlying those instruments. The securitization program
was terminated on January 31, 2003.

Derivatives - Effective the beginning of 2001, the
Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires the recognition of all derivative instruments as either assets or
liabilities in the balance sheet measured at fair value. SFAS No. 133 also
establishes criteria for a derivative to qualify as a hedge for accounting
purposes. The adoption of SFAS No. 133 did not have a significant impact on the
Company's financial position, results of its operations or its cash flows.

Segment Reporting - The Company operates in one
reportable segment.

Comprehensive Income - There were no items of other
comprehensive income in 2002, 2001 or 2000, and therefore net income is equal to
comprehensive income for each of those years.

Recently Issued Accounting Standards - In August 2001,
the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations,"
which addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. This statement requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The Company will adopt SFAS No. 143 effective the beginning of
fiscal 2003 and does not currently expect that its adoption will have a
significant effect on the Company's financial position or its results of
operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145, among other things, eliminates the prior
requirement that all gains and losses from the early extinguishment of debt were
to be classified as an extraordinary item. Upon adoption of SFAS No. 145, gains
and losses from the early extinguishment of debt are now classified as an
extraordinary item only if they meet the "unusual and infrequent" criteria
contained in Accounting Principles Board Opinion ("APBO") No. 30. In addition,
upon adoption of SFAS No. 145, all gains and losses from the early
extinguishment of debt that had previously been classified as an extraordinary
item are to be reassessed to determine if they would have met the "unusual and
infrequent" criteria of APBO No. 30. Any such gain or loss that would not have
met the APBO No. 30 criteria is retroactively reclassified and reported as a
component of income before extraordinary item. The Company has determined that
its previously-recognized loss from the early extinguishment of debt that
occurred in fiscal 2001 would not have met the APBO No. 30 criteria for
classification as an extraordinary item, and accordingly such previously-reported
loss from the early extinguishment of debt has been retroactively
reclassified and is now reported as a component of income before income taxes.
The Company has also determined that the fiscal 2002 loss from the early
extinguishment of debt does not meet the APBO No. 30 criteria for extraordinary
item classification, and accordingly such 2002 loss is reported as a component
of income before income taxes.

In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities," which addresses accounting
for restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146
requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. Accordingly, SFAS No.
146 may affect the timing of recognizing future restructuring costs as well as
the amounts recognized. The Company will adopt the provisions of SFAS No. 146
for restructuring activities initiated after December 31, 2002.

In November 2002, the Emerging Issues Task Force ("EITF") of
the FASB issued EITF Issue No. 02-16, "Accounting by a Reseller for Cash
Consideration Received from a Vendor". The Company will adopt the provisions of
EITF 02-16 effective with the beginning of fiscal 2003 and does not expect its
adoption will have a significant impact on the Company's financial position or
results of operations.

Reclassifications - Certain amounts in the
accompanying 2001 and 2000 consolidated financial statements have been
reclassified to conform with the 2002 presentation.

2.	SALE OF RECEIVABLES AND RECEIVABLES

Sale of Receivables

On January 31, 2003, pursuant to the terms of a Purchase
and Sale Agreement between the Company and Household, the Company sold
substantially all of its private label credit card accounts and the related
accounts receivable to Household. The $102,819,000 purchase price was paid in
cash at closing, $100,319,000 of which was allocated to the purchase of such
credit card accounts and receivables and $2,500,000 of which comprised prepaid
program revenue. Proceeds from the sale were used to pay in full $73,225,000
principal and accrued interest due to the Series 1999-1 and Series 2000-1
certificateholders under the Company's accounts receivable securitization
program plus $3,362,000 in prepayment penalties. The remaining proceeds of
$26,233,000 and $3,845,000 of cash remaining on deposit in certain bank accounts
relating to the securitization was released to the Company at closing. All of
the $30,078,000 released to the Company was applied as a reduction of
outstanding borrowings under the Company's revolving credit facility.
Concurrently, the Company's obligation to sell its accounts receivable to the
securitization trust was terminated pursuant to Amendment No. 1 to the Amended
and Restated Receivables Purchase Agreement between the Company and GCRC. Fiscal
2002 results of operations include a charge for receivables sale costs of
$1,749,000.

In connection with the sale, on January 31, 2003 the Company
entered into two additional agreements with Household: an Interim Servicing
Agreement (the "ISA") and a Credit Card Program Agreement (the "CCA"). Under the
terms of the ISA, the Company will continue to service the credit card
receivables until such time that Household takes over their servicing (the
"Conversion Date"). The planned Conversion Date is currently May 14, 2003, but
such date may be extended to June 1, 2003 upon notice from Household to the
Company. Household is compensating the Company for providing the services during
the interim servicing period. The Company believes this compensation will at
least be equal to the cost of providing such services.

The CCA sets forth the terms and conditions under which
Household will issue credit cards to the Company's customers and pay the Company
for sales made on the cards. Under the terms of the CCA, the Company is required
to perform certain duties, including the duties to receive in-store customer
payments on behalf of Household and remit such payments to Household. The CCA
has a term of five (5) years and is cancelable earlier by either party under
certain circumstances. The CCA further provides the Company will be paid a
percentage of Net Cardholder Charges and a percentage of Other Revenue (each as
defined in the CCA). The Company believes the amounts received under the CCA,
including the amortization of the prepaid program revenue, will equal or exceed
the net revenues from its former in-house credit card operations, net of
operating expenses and interest expense.

In connection with the sale the Company recorded receivable
sale transaction costs of $2,062,000 including consulting, legal, and other
fees, and the net non-cash write-off of the remaining accounts of GCRC. These
charges are partially offset by a $313,000 interest only strip that will be
amortized over the estimated life of the underlying assets sold (estimated to be
approximately five months). The interest only strip represents the portion of
the initial program fees to be received that is considered a residual interest
in the assets sold.

In addition to the receivable sale transaction costs, the
Company recorded a loss on the extinguishment of debt of $3,695,000 arising from
securitization program prepayment penalties and the write-off of unamortized
deferred loan fees related to the program.

Receivables Securitization Program

Prior to the termination of the receivables
securitization program on January 31, 2003, the Company conveyed all of its
accounts receivable arising under its private label customer credit cards on a
daily basis to its wholly-owned subsidiary, GCRC. Those receivables that met
certain eligibility requirements of the program were simultaneously conveyed to
Gottschalks Credit Card Master Trust ("GCC Trust"), to be used as collateral for
securities issued to investors. GCC Trust was a qualified special purpose entity
under SFAS No. 140, and was not consolidated in the Company's financial
statements. The transfer of receivables under the program were accounted for as
sales for financial reporting purposes under SFAS No. 140, and as such, the
transferred receivables were removed from the Company's balance sheet at the
time of the transfer. Securities issued under the program were issued by GCC
Trust, which was not consolidated in the Company's financial statements. Certain
of the securities issued by GCC Trust represented the Company's retained
interest in the receivables sold. The Company also retained receivables that
were ineligible for transfer to GCC Trust. The Company serviced and administered
the portfolio for a 3% per annum monthly servicing fee, which totaled $2,301,000
in 2002, $2,254,000 in 2001 and $1,926,000 in 2000. Under the program, monthly
cash flows generated by the Company's credit card portfolio, consisting of
principal and interest collections, were first used to pay certain costs of the
program, which included the payment of principal (when required) and interest to
the investors, and monthly servicing fees to the Company. Any excess cash flows
were then available to fund additional purchases of newly generated receivables,
ultimately serving as a source of working capital financing for the Company.

On March 1, 1999, GCC Trust issued a $53.0 million principal
amount 7.66% Fixed Base Class A-1 Credit Card Certificate (the "1999-1 Series
Certificate") to a single investor through a private placement. Interest on the
1999-1 Series Certificate was earned by the certificate holder on a monthly
basis at a fixed interest rate of 7.66%.

On November 16, 2000, GCC Trust issued a $24.0 million
Variable Base Class A-1 Credit Card Certificate (the "2000-1 Series
Certificates"). Upon the expiration of the original 2000-1 Series Certificate,
GCC Trust issued two new 2000-1 Series Certificates on November 15, 2001 in an
aggregate principal amount of up to $20.0 million. The Company borrowed against
the 2000-1 Series Certificates on a revolving basis, similar to a revolving line
of credit arrangement, and such borrowings bore interest at variable rates equal
to the one-month LIBOR rate plus 2.75%, with a minimum rate of 5.0%. Borrowings
against the Series 2000-1 Certificates were limited to a specified percentage of
the outstanding balance of receivables underlying the certificates, and
therefore varied depending on seasonal fluctuations in the underlying
receivables.

The Company retained a beneficial ownership interest in
certain of the receivables transferred under the program, represented by
Exchangeable and Subordinated Certificates, and also retained an uncertificated
ownership interest in the retained right to receive future interest income
(interest-only strip) and other receivables that did not meet certain
eligibility requirements of the program. These retained interests were pledged
as collateral under the Company's senior revolving credit facility (see Note 6).
The fair value of the retained interests totaled $19,222,000 at February 2,
2002.

As of February 2, 2002, the outstanding balance of the
serviced portfolio totaled $94,829,000, with $3,442,000 of that amount in
delinquency as of that date. Delinquent receivables are defined as any account
for which the required minimum payment has not been received for more than 30
days. Credit losses as a percentage of net sales were 0.69%, 0.64% and 0.55% in
2002, 2001 and 2000, respectively.

Receivables

Receivables, including customer credit card receivables
that did not meet certain eligibility requirements of the receivables
securitization program, and receivables from vendors, consists of the
following:

`February 1, February 2,
(In thousands)                                         2003        2002
--------------------------------------------------  ----------  ----------
Credit card receivables........................... $       --  $    3,942
Vendor claims.....................................     10,722       7,834
                                                    ----------  ----------
                                                       10,722      11,776

Less allowance for doubtful accounts..............        (81)       (445)
                                                    ----------  ----------
                                                   $   10,641  $   11,331
                                                    ==========  ==========`

Net Credit Revenues

Net credit revenues associated with the
Company's credit card receivable portfolio, including securitized receivables,
consists of the following:

`(In thousands)                                   2002        2001        2000
--------------------------------------------  ----------  ----------  ----------
Service charge revenues..................... $   17,813  $   17,817  $   16,832
Interest expense on securitized receivables.     (4,863)     (4,902)     (4,425)
Charge-offs on receivables sold and
  provision for credit losses on
  receivables ineligible for sale...........     (4,821)     (4,550)     (3,642)
Gain on sale of receivables.................         96          55         385
                                              ----------  ----------  ----------
                                             $    8,225  $    8,420  $    9,150
                                              ==========  ==========  ==========`

3. 	PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

`February 1, February 2,
(In thousands)                                   2003        2002
--------------------------------------------  ----------  ----------
Furniture, fixtures and equipment........... $  113,188  $  112,003
Buildings and leasehold improvements........     84,545      87,426
Land........................................     15,185      15,185
Buildings and equipment under
  capital leases............................     18,720      17,954
Construction in progress....................      1,223       4,553
                                              ----------  ----------
                                                232,861     237,121
Less accumulated depreciation
  and amortization..........................    (92,973)    (83,921)
                                              ----------  ----------
                                             $  139,888  $  153,200
                                              ==========  ==========`

4. 	GOODWILL AND INTANGIBLE ASSETS

The Company adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" effective February 3, 2002 and
discontinued the amortization of previously recorded goodwill as of that date.
Previously recorded goodwill arising from the Lamonts acquisition in 2000 of
$0.6 million as of February 2, 2002, has been reallocated to property and
equipment. The remainder of the Company's previously recorded goodwill, net of
accumulated amortization, totaled $7.6 million as of February 2, 2002. The
majority of goodwill arose from the acquisition of nine stores (one of which was
subsequently closed as planned) in a business combination which occurred in 1998
and the remainder was attributable to a store acquired in a business combination
which occurred in 1987. These acquired stores had a history of profitability
prior to their acquisition and have continued to generate operating profit in
excess of the Company average store operating profit.

The Company has completed step one of the two-step process
prescribed by SFAS No. 142 to test its previously recorded goodwill for
impairment and has determined that each store location represents a reporting
unit for such purpose. As part of this process the Company allocated associated
goodwill to relevant reporting units. The Company engaged an independent third
party to provide estimates of the fair value of the reporting units and compared
such estimated fair values to the net carrying values of the reporting units. As
a result of this process the Company concluded that there was no impairment as
of the measurement dates of February 2, 2002 and November 2, 2002. In addition
there have been no events or changes in circumstances since November 2, 2002
that would indicate that a potential impairment has arisen. Accordingly, step
two of the SFAS No. 142 process is unnecessary.

The following table shows the pro-forma effect for 2001 and
2000 of no longer amortizing goodwill:

`(In thousands, except per share data)             2002       2001       2000
---------------------------------------------   --------   --------   --------
Net income (loss):
   Net income (loss) as reported............. $ (11,973) $     425  $   7,079
   Goodwill amortization, net of related
    income tax benefit.......................        --        350        342
                                                --------   --------   --------
Adjusted net income (loss)................... $ (11,973) $     775  $   7,421
                                                ========   ========   ========

Net income (loss) per share (basic and diluted):
   Net income (loss) as reported............. $   (0.94) $    0.03  $    0.56
   Goodwill amortization, net of related
    income tax benefit.......................        --       0.03       0.03
                                                --------   --------   --------
Adjusted net income (loss)................... $   (0.94) $    0.06  $    0.59
                                                ========   ========   ========`

SFAS No. 142 also requires disclosure of intangible assets
which are subject to amortization. As of February 1, 2003 and February 2, 2002,
the following lease-related interests are classified as intangible assets:

`February 1, February 2,
(In thousands)                                         2003        2002
--------------------------------------------------  ----------  ----------
Intangible assets - leasehold interests........... $      509  $    9,940
Accumulated accretion (amortization)..............        149        (792)
                                                    ----------  ----------
Net............................................... $      658  $    9,148
                                                    ==========  ==========`

These leasehold interests relate to leases purchased in the
Lamonts acquisition which were adjusted to reflect fair value. The underlying
leases had lives of three to forty years. The decrease in leasehold interests in
fiscal 2002 is primarily attributable to asset impairment charges and, to a
lesser extent, store closing costs (see Notes 9 and 10).

During 2002, 2001 and 2000, amortization expense related to
certain of these leasehold interests was $535,000, $424,000 and $113,000,
respectively, net of accretion related to certain of these leasehold interests
of $273,000, $341,000, and $298,000, respectively. The Company anticipates
amortization on certain of these intangible assets of $57,000 in each of fiscal
years 2003 through 2007. Additionally, the Company anticipates accretion on
certain of these intangible assets of approximately $96,000 in 2003, $92,000 in
2004 and $86,000 in each of fiscal years 2005 through 2007.

5.	TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Trade accounts payable and accrued expenses consist
of the following:

`February 1, February 2,
(In thousands)                                   2003        2002
--------------------------------------------  ----------  ----------
Trade accounts payable...................... $   22,648  $   19,761
Cash management liability...................     15,005      13,850
Accrued expenses............................     23,010      22,303
Accrued payroll and related liabilities.....      7,179       7,870
Taxes, other than income taxes..............     12,115      11,503
Federal and state income taxes payable......         16       2,670
                                              ----------  ----------
                                             $   79,973  $   77,957
                                              ==========  ==========`

6.	DEBT

Senior Revolving Credit Facility

On February 1, 2002, the Company finalized a three-year
senior revolving credit facility with General Electric Capital Corporation ("GE
Capital") as agent, and The CIT Group/Business Credit as syndication agent (the
"GE facility"). The GE facility replaced the Company's previous revolving credit
facility, which was scheduled to expire on March 31, 2002. The GE facility
provides up to $165.0 million of working capital financing through January 31,
2005, with $159.0 million provided under a Tranche A revolving credit facility
(including a $20.0 million letter of credit sub-facility) and the remaining $6.0
million provided through a fully funded Tranche B facility. Borrowings under the
facility are limited to the lesser of specified percentages of (i) the cost of
eligible inventory and (ii) the net recovery value of the inventory, as
determined by a monthly valuation performed by an independent appraiser. Such
borrowings are further limited by a requirement to maintain a minimum of $10.0
million of excess availability at all times, and other reserves that are in
effect. As of February 1, 2003, outstanding borrowings under the facility
totaled $58.8 million , and excess borrowing availability under the facility,
after the deduction of the minimum availability requirement and other reserves,
totaled $36.9 million. The Company classified a total of $30.0 million and $75.0
million as of February 1, 2003 and February 2, 2002, respectively, as long-term
in the accompanying financial statements, representing that portion of
outstanding borrowings under the facility which are not expected to be repaid
within one year of the respective balance sheet dates. Initial proceeds from the
GE facility were used to repay all outstanding borrowings under the previous
revolving credit facility, including a prepayment penalty, and other transaction
fees and costs. Fiscal 2001 results of operations include a $696,000 charge for
the prepayment penalty and the write-off of unamortized loan fees related to the
early retirement of the previous credit facility. Substantially all of the
Company's assets, including its merchandise inventories, are pledged to GE
Capital under this facility.

As of February 1, 2003, interest charged on amounts borrowed
under the Tranche A revolving facility were at the prime rate plus 0.5% per
annum (4.75% at February 1, 2003), or at the Company's option, at the applicable
LIBOR rate plus 2.75.% per annum (4.11% at February 1, 2003). In addition, the
Company pays an unused commitment fee equal to 0.375% per annum on the average
unused daily balance of the Tranche A facility. Amounts borrowed under the
Tranche B facility bear interest at prime plus 10%, or at the Company's option,
at LIBOR plus 12.0%. Beginning in fiscal 2003, the interest rate applicable to
the Tranche A facility may be adjusted upwards or downwards on a quarterly basis
based on a pricing matrix which is tied to the Company's Leverage Ratio (as
defined in the agreement). Under the pricing matrix, the applicable interest
rate can range from a rate as low as prime plus 0.00% or LIBOR plus 2.75%, to as
high as prime plus 0.75%, or LIBOR plus 3.50%.

The GE facility contains restrictive financial and operating
covenants, including the requirement to maintain a minimum twelve-month trailing
EBITDA and a minimum accounts payable to inventory ratio. In addition, the GE
facility also does not permit the repayment of the Subordinated Note on its
scheduled maturity date of August 20, 2003, which has resulted in the maturity
of that note automatically being extended to August 20, 2006. As of February 1,
2003, management believes the Company was in compliance with all restrictive
financial covenants applicable to the GE facility.

Long-Term Obligations

Long-term obligations consist of the following:

`February 1, February 2,
(In thousands)                                   2003        2002
--------------------------------------------  ----------  ----------
Revolving line of credit.................... $   30,000  $   75,000
9.39% mortgage loans payable, due 2010......     17,926      18,302
12.0% note payable, due 2005................     14,200          --
Capital lease obligations...................     10,613      12,156
Variable rate note payable, due 2005........      3,700          --
Variable rate note payable, due 2003
 (repaid March 2002)........................         --       5,278
Variable rate mortgage loan payable, due
  2003 (repaid March 2002)..................         --       3,533
9.97% mortgage loan payable, due 2004.......
 (repaid March 2002)........................         --       1,857
Other mortgage loans and notes payable......      3,347       2,353
                                              ----------  ----------
                                             $   79,786  $  118,479
  Less current portion......................      4,689       8,263
                                              ----------  ----------
                                             $   75,097  $  110,216
                                              ==========  ==========`

On March 22, 2002, the Company entered into a $15.0 million
financing with Kimco Capital Corp. (the "Kimco facility"). The Kimco facility is
secured by first priority liens on three of the Company's owned stores and with
subordinate liens on substantially all other assets of the Company securing the
GE facility. Proceeds from the Kimco facility were used to repay previously
existing mortgage loans on two of those properties and one term loan and to pay
certain fees and costs associated with the transaction. The remaining $4.1
million of proceeds was used to reduce outstanding borrowings under the GE
facility. The Kimco facility is co-terminus with the GE facility, with monthly
principal payments of $80,000 plus interest at a fixed rate of 12% per annum,
and a balloon payment upon maturity on January 31, 2005 of $12.4 million. In
addition, on February 19, 2002, the Company completed a $1.0 million seven-year
term loan financing of its corporate aircraft.

On May 24, 2002, the Company completed the financing of its
ownership interest in the partnership that owns the Company's corporate
headquarters. Proceeds from this transaction, totaling $3.7 million, were used
to reduce outstanding borrowings under the GE facility. The related note payable
bears interest at a variable rate of prime plus 1.5% per annum (5.75% at
February 1, 2003), which is payable monthly. The $3.7 million principal portion
of the note payable is due in full upon maturity on May 24, 2005.

The scheduled annual principal maturities of the Company's
mortgage loans and notes payable are $1,719,000, $1,841,000, $16,924,000,
$905,000 and $976,000 for 2003 through 2007, with $16,808,000 payable
thereafter.

Deferred debt issuance costs related to the Company's various
financing arrangements are included in other current and long-term assets and
are charged to income as additional interest expense over the life of the
related indebtedness. Such costs, net of accumulated amortization, totaled
$4,481,000 at February 1, 2003 and $6,389,000 at February 2, 2002.

Interest paid, net of amounts capitalized, was $18,041,000 in
2002, $17,395,000 in 2001 and $17,713,000 in 2000. Capitalized interest expense
was $159,000 in 2002, $209,000 in 2001 and $360,000 in 2000. The weighted-
average interest rate charged on the Company's revolving line of credit was
5.47% in 2002, 5.48% in 2001 and 8.76% in 2000.

Substantially all of the Company's assets, including its
merchandise inventories, are pledged as collateral under the Company's various
debt agreements. Certain of the Company's long-term debt agreements contain
financial and other restrictive covenants, as well as cross default provisions.
Accordingly, the failure to comply with these restrictions and covenants, if not
waived, would cause a cross-default under the majority of all of the Company's
debt agreements, including the GE facility. Management believes the Company was
in compliance with all applicable financial covenants as of February 1,
2003.

7.	SUBORDINATED NOTE PAYABLE TO AFFILIATE

The Company issued a Subordinated Note to Harris in the
principal amount of $22,179,000 on August 20, 1998 as partial consideration for
the Harris acquisition. (See Note 15.) The Subordinated Note, discounted to an
effective interest rate of 10% at issuance, bears interest at a fixed rate of
8%, which is payable semi-annually. The principal portion of the Subordinated
Note was originally due and payable on August 20, 2003, unless such payment
would result in a default on any of the Company's other credit facilities, in
which case its maturity would automatically be extended by three years to August
2006. Because the GE facility does not permit the repayment of the Subordinated
Note on its scheduled maturity date of August 20, 2003, its maturity date was
extended to August 20, 2006. The Subordinated Note is unsecured, contains no
restrictive financial covenants and is subordinate to the payment of all debt,
including trade credit, of the Company. The discount on the Subordinated Note is
being amortized as additional interest expense over the term of the note. The
unamortized discount totaled $191,000 as of February 1, 2003 and $534,000 as of
February 2, 2002. Interest paid to Harris totaled $2,117,000 in 2002, 2001 and
2000, respectively.

8.	LEASES

The Company leases certain retail department stores,
specialty stores, land, furniture and fixtures and equipment under capital and
noncancellable operating leases that expire in various years through 2021.
Certain of the 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 have renewal options for one or more periods ranging
from five to twenty years. The Company leases three of its department stores
from El Corte Ingles ("ECI") of Spain. ECI is the parent company of Harris, and
both Harris and ECI are affiliates of the Company. (See Note 15.) Rent paid or
accrued to ECI totaled $864,000 in 2002, $872,000 in 2001 and $886,000 in 2000.

Future minimum lease payments as of February 1, 2003, by year and in the
aggregate, under capital leases and noncancellable operating leases with initial
or remaining terms in excess of one year are as follows:

`Capital    Operating
(In thousands)                                  Leases      Leases
--------------------------------------------  ----------  ----------
2003........................................ $    3,900  $   24,820
2004........................................      2,589      24,004
2005........................................      2,207      22,458
2006........................................      1,466      21,658
2007........................................        947      18,644
Thereafter..................................      3,156      88,450
                                              ----------  ----------
Total minimum lease payments................     14,265  $  200,034
  Amount representing interest..............     (3,652)  ==========
                                              ----------
Present value of minimum lease payments.....     10,613
  Less current portion......................     (2,970)
                                              ----------
                                             $    7,643
                                              ==========`

Rental expense consists of the following:

`(In thousands)                                   2002        2001        2000
--------------------------------------------  ----------  ----------  ----------
Operating leases:
  Buildings:
    Minimum rentals......................... $   17,206  $   17,052  $   15,946
    Contingent rentals......................      3,016       3,074       2,994
  Fixtures and equipment....................      1,618       1,972       2,342
                                              ----------  ----------  ----------
                                             $   21,840  $   22,098  $   21,282
                                              ==========  ==========  ==========`

One of the Company's lease agreements contains a restrictive
financial covenant pertaining to the debt to tangible net worth ratio with which
management believes the Company was in compliance at February 1, 2003.

9.	STORE ACQUISITIONS AND STORE CLOSINGS

On July 24, 2000, the Company entered into a definitive
asset purchase agreement (the "Agreement") with Lamonts Apparel, Inc.
("Lamonts"). The Agreement, as subsequently amended, provided for the Company to
acquire 37 of Lamonts' 38 store leases, related store fixtures and equipment,
and one store building for a cash purchase price of $20,100,000. Concurrent with
the closing of the transaction on July 24, 2000, the Company sold one of the
store leases for $2,500,000, and subsequently terminated two other store leases,
resulting in a net cash purchase price of $17,600,000 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
are located in five Western states, with 19 stores in Washington, seven in
Alaska, five in Idaho, two in Oregon and one in Utah. The newly acquired stores
were converted to the Gottschalks banner, re-merchandised and re-opened in
stages beginning in late August, with all stores completely open by September 7,
2000. The Company incurred $5,632,000 in 2000 of non-recurring new store pre-opening
costs in connection with the re-opening of the stores.

The $17,600,000 net cash purchase price for the assets was
partially financed with proceeds from a $10,000,000 note payable, with the
remainder provided from the Company's revolving credit facility. Direct
transaction costs include investment banking, legal and accounting fees and
other costs. The asset acquisition was accounted for under the purchase method
of accounting and, accordingly, the results of operations of the acquired stores
are included in the Company's financial statements from the acquisition date of
July 24, 2000.

The purchase price was allocated to the acquired assets on
the basis of their estimated fair values as of the date of the acquisition, as
follows (in thousands):

`Fair value of note payable................. $   10,000
       Cash.......................................      7,580
       Direct transaction costs...................      1,942
                                                    ----------
          Total purchase price.................... $   19,522
                                                    ==========


       Favorable lease rights..................... $    9,857
       Property and equipment.....................      9,000
       Goodwill...................................        665
                                                    ----------
          Total purchase price.................... $   19,522
                                                    ==========`

The Company closed six of the 34 acquired stores during
the second quarter of 2001 that were determined to be either underperforming or
inconsistent with the long-term operating strategy of the Company. One of those
stores was subsequently re-opened in the third quarter of fiscal 2001. As
planned, the Company also discontinued the use of an outsourced distribution
center facility located in Kent, Washington, in June 2001 and consolidated all
of the Company's distribution functions into its distribution facility in
Madera, California. One additional store was closed in January 2002. Net costs
associated with closure of those stores and the outsourced distribution center
facility totaled $729,000. This amount consists of estimated lease termination
costs, non-cash asset impairment charges (including the write-off of allocated
goodwill and leasehold interests), severance and other incremental costs
associated with the closure of the stores totaling $2,035,000, less $1,306,000
of cash proceeds received as a result of the sale of lease rights, fixtures and
equipment.

In June and December, 2002, the Company developed plans for
the closure of another eight of the acquired stores. These stores were also
determined to be either underperforming or inconsistent with the Company's long-term
operating strategy. Two of these stores were closed in each of June 2002,
January 2003 and February 2003 and one store was closed in each of March 2003
and April 2003. Net costs associated with the closure of these stores totaled
$3,436,000. This amount consists of estimated lease termination costs, non-cash
asset impairment charges, severance and other incremental costs associated with
the store closings totaling $4,486,000, less $1,050,000 of cash proceeds
received from the sale of lease rights and fixtures and equipment. After the
eight store closures are completed, the Company will continue to operate 20 of
the original 34 stores acquired from Lamonts. However, certain of those stores
have continued to perform below expectations.

In the event the Company is unable to improve the operating
performance of the remaining underperforming stores, the Company may consider
the sale, sublease or closure of those stores in the future. In the past, the
Company has successfully improved the operating results and cash flows of other
underperforming stores through a variety of strategies, including revising the
merchandise mix, changing store management, revising marketing strategies,
renegotiating lease agreements and reducing operating costs. However, there can
be no assurance that these strategies will improve the operating results and
cash flows of those remaining underperforming stores, or that the Company will
be able to sell, sublease or close those stores in the event their performance
does not improve. In addition, the Company may incur certain costs and expenses
in connection with the sale or closure of those locations that may not be fully
offset by sale proceeds, sublease income or favorable lease terminations.

As of February 1, 2003, the Company had a reserve for store
closure costs totaling $618,000, which consisted primarily of estimated future
lease obligations for two of the store locations closed in fiscal 2001 and the
four locations closed fiscal 2003. In the event the Company is not successful in
selling or subleasing the two locations closed in fiscal 2001 as soon as
management expects, additional reserves for store closure costs may be recorded.
In addition, in the event the Company decides to close additional store
locations in fiscal 2003 or beyond, additional reserves for store closure costs,
which may be material, may be incurred.

10.		ASSET IMPAIRMENT CHARGES

During 2002, the Company recorded non-cash asset
impairment charges of $10.9 million to write down long-lived assets related to
certain underperforming stores, primarily former Lamonts locations. These
charges consisted of $4.3 million of property and equipment, $6.5 million of
leasehold interests and $0.1 million of goodwill. The charges were determined by
comparing projected net operating cash flows, including estimated proceeds from
the sale of certain assets, to the carrying value of the stores' long-lived
assets. No such costs were recorded in 2001.

11.		INCOME TAXES

The components of income tax expense (benefit) are
as follows:

`(In thousands)                                   2002        2001        2000
--------------------------------------------  ----------  ----------  ----------
Current:
  Federal................................... $   (5,394) $      127  $      302
  State.....................................       (783)        439         550
                                              ----------  ----------  ----------
                                                 (6,177)        566         852
                                              ----------  ----------  ----------
Deferred:
  Federal...................................     (3,115)         81       3,548
  State.....................................        502        (381)        (26)
                                              ----------  ----------  ----------
                                                 (2,613)       (300)      3,522
                                              ----------  ----------  ----------
                                             $   (8,790) $      266  $    4,374
                                              ==========  ==========  ==========`

The principal components of deferred tax assets and
liabilities are as follows (in thousands):

`February 1,             February 2,
                                         2003                    2002
                                ----------------------  ----------------------
                                Deferred    Deferred    Deferred    Deferred
                                   Tax         Tax         Tax         Tax
                                 Assets    Liabilities   Assets    Liabilities
                                ---------  -----------  ---------  -----------
Current:
  Accrued employee benefits... $   1,037  $            $   1,284  $
  Credit losses...............                               150
  State income taxes..........         1                     268
  LIFO inventory reserve......                 (2,115)                   (768)
  Supplies inventory..........                   (554)                   (675)
  Workers' compensation.......       678                   1,203
  Other items, net............     1,312         (988)     1,322       (1,460)
                                ---------  -----------  ---------  -----------
                                   3,028       (3,657)     4,227       (2,903)
                                ---------  -----------  ---------  -----------
Long-Term:
  Net operating loss and tax
    credit carryforwards......     6,378                   3,200
  State income taxes..........       612                     442
  Property and equipment......                (18,154)                (15,194)
  Accounting for leases.......       678       (2,985)       699       (2,723)
  Impaired assets.............     5,761
  Deferred income.............       675       (3,303)     1,103       (3,048)
  Valuation allowance.........    (1,438)                   (645)
  Other items, net............       858       (1,348)       424       (1,090)
                                ---------  -----------  ---------  -----------
                                  13,524      (25,790)     5,223      (22,055)
                                ---------  -----------  ---------  -----------
                               $  16,552  $   (29,447) $   9,450  $   (24,958)
                                =========  ===========  =========  ===========`

Income tax expense (benefit) varies from the amount computed
by applying the statutory federal income tax rate to income before income taxes.
The reasons for this difference are as follows:

`2002       2001       2000
---------------------------------------------   --------   --------   --------
Statutory rate...............................     (35.0)%     35.0 %     35.0 %
State income taxes, net of
 federal income tax benefit..................      (0.9)       5.5        3.0
General business credits.....................      (1.3)     (15.2)      (2.9)
Amortization of goodwill.....................                  5.8        0.4
Tax refund claims............................      (4.0)
Other items, net.............................      (1.1)       7.4        2.7
                                                --------   --------   --------
Effective rate...............................     (42.3)%     38.5 %     38.2 %
                                                ========   ========   ========`

Realization of the total deferred tax assets of $16,552,000
is dependent upon generating sufficient taxable income in future periods.

At February 1, 2003, the Company has, for federal tax
purposes, general business credits of $2,792,000 that expire in the years 2004
through 2022, and alternative minimum tax credits of $913,000 which may be used
for an indefinite period. At February 1, 2003, the Company also has, for state
tax purposes, $2,047,000 of enterprise zone credits which may be used for an
indefinite period. These carryforwards are available to offset future taxable
income. The Company established valuation allowances of $1,438,000 and $645,000
at February 1, 2003 and February 2, 2002, respectively, which relate primarily
to certain tax credit carryforwards whose realizability is uncertain.

The Company received income tax refunds, net of payments, of
$1,235,000 in 2002 and paid income taxes, net of refunds, of $1,526,000 in 2001
and $2,541,000 in 2000. The income tax refunds received in 2002 were, in part,
attributable to a final settlement of certain federal net operating loss
carryback refund claims filed with the Internal Revenue Service. The Company
recognized a federal income tax benefit of $826,000 and interest income of
$569,000 (included in miscellaneous income) in 2002 related to the federal
income tax refund claims.

12.	EARNINGS PER SHARE

Net earnings per common share is computed by dividing net
income by the weighted-average number of common shares outstanding during the
year. Stock options represent potential common shares and are included in
computing diluted earnings per share when the effect is dilutive. A
reconciliation of the weighted-average shares used in the basic and diluted
earnings per share calculation is as follows:

`(Shares in thousands)                             2002       2001       2000
---------------------------------------------   --------   --------   --------
Weighted average number of
  shares - basic.............................    12,747     12,681     12,614
Effect of assumed option exercises...........                   10         18
                                                --------   --------   --------
Weighted average number of
  shares - diluted...........................    12,747     12,691     12,632
                                                ========   ========   ========`

Options with an exercise price greater than the average
market price of the Company's common stock during the period are excluded from
the computation of the weighted-average number of shares on a diluted basis as
such options are anti-dilutive. Anti-dilutive options were outstanding for
1,685,624, 1,335,720 and 924,728 shares as of the end of 2002, 2001 and 2000,
respectively.

13. 	STOCK OPTION AND STOCK PURCHASE PLANS

The Company has certain stock option plans and an
Employee Stock Purchase Plan, as described below. All of these plans have been
approved by the Company's stockholders.

Stock Option Plans.

The Company has stock option plans for directors,
officers and key employees which provide for the grant of non-qualified and
incentive stock options. Under the plans, the option exercise price may not be
lower than 100% of the fair market value of such shares at the date of the
grant. Options granted generally vest on a ratable basis over five years and
expire ten years from the date of the grant. At February 1, 2003, options for
1,137,000 shares were available for future grants under the plans.

Option activity under the plans is as follows:

`2002                 2001                 2000
                     -------------------- -------------------- --------------------
                                 Weighted-            Weighted-            Weighted-
                       Number    Average    Number    Average    Number    Average
                         of      Exercise     of      Exercise     of      Exercise
                       Shares     Price     Shares     Price     Shares     Price
                     ----------  -------- ----------  -------- ----------  --------
Options outstanding
  at beginning of
  year.............. 1,535,500  $   6.68  1,364,500  $   7.34    953,000  $   8.47
Granted.............   295,500      2.61    262,500      3.26    457,500      5.08
Cancelled...........  (118,000)     6.42    (91,500)     6.59    (46,000)     8.30
                     ----------  -------- ----------  -------- ----------  --------
Options outstanding
 at end of year..... 1,713,000  $   5.99  1,535,500  $   6.68  1,364,500  $   7.34
                     ==========  ======== ==========  ======== ==========  ========
Options exercisable
 at end of year..... 1,009,250  $   7.47    798,500  $   8.06    590,500  $   8.70
                     ==========  ======== ==========  ======== ==========  ========`

Additional information regarding options outstanding as of
February 1, 2003 is a follows:

`Weighted-
                                 Average    Weighted-
                                Remaining    Average
    Range of         Number    Contractual  Exercise
 Exercise Prices  Outstanding  Life (yrs.)    Price
----------------- ------------ -----------  ---------
$1.62 to $4.63        637,500        8.71  $    3.22
$5.25 to $8.00        590,500        6.21  $    6.28
$8.13 to $10.87       485,000        3.71  $    9.26
----------------- ------------ -----------  ---------
$1.62 to $10.87     1,713,000        6.43  $    5.99
================= ============ ===========  =========`

Employee Stock Purchase Plan.

The Company also has a statutory Employee Stock Purchase
Plan, which allows its employees to purchase Company common stock at a 15%
discount. Employees can purchase stock under the Plan through payroll deductions
ranging from 1% to 10% of their annual compensation, up to a maximum of $21,250
per employee per year. A total of 500,000 shares were originally registered
under the Plan, with 226,110 shares issued through February 1, 2003.

Accounting for Stock Based Compensation.

SFAS 123 requires the disclosure of pro forma net income
and net income per share had the Company adopted the fair value method of
accounting for stock-based compensation as of the beginning of 1995 (see Note
1). Under SFAS 123, the fair value of stock-based awards is calculated through
the use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future stock
price volatility and expected time to exercise, which greatly affect the
calculated values.

The Company's calculations were made using the Black-Scholes
option pricing model with the following weighted average assumptions:

`2002       2001       2000
                                         ---------  ---------  ---------
Risk-free interest rate................       2.3 %      4.2 %      4.8 %
Expected dividend yield................        --         --         --
Expected volatility....................      57.0 %    51.50 %    51.21 %
Expected option life (years)...........         5          5          5
Fair value of options granted..........     $1.09      $1.35      $3.01`

As allowed by SFAS No. 123, the impact of outstanding non-vested
stock options granted prior to 1995 has been excluded from the pro-forma
calculations. Accordingly the 2002, 2001 and 2000 pro-forma adjustments may not
be indicative of future period pro- forma adjustments.

14.	RETIREMENT SAVINGS PLAN

The Company has a Retirement Savings Plan ("Plan") which
qualifies as an employee retirement plan under Section 401(k) of the Internal
Revenue Code. Full-time employees meeting certain requirements are eligible to
participate in the Plan and may elect to have up to 20% of their annual eligible
compensation, subject to certain limitations, deferred and deposited with a
qualified trustee. Participants in the Plan may receive an employer matching
contribution of up to 4% of the participants' eligible compensation, depending
on the Company's quarterly and annual financial performance. Beginning 2001, the
Company amended the Plan to provide for a guaranteed annual match of 3%,
including the ability for participants to earn an additional 1% depending on the
Company's annual financial performance. The Company recognized $1,415,000,
$1,454,000 and $1,073,000 in expense related to the Plan in 2002, 2001 and 2000,
respectively.

15. 	TRANSACTIONS WITH AFFILIATES

Harris and ECI became affiliates of the Company in fiscal
1998 when the Company acquired substantially all of the assets and business of
Harris. The purchase price for the assets consisted of 2,095,900 shares of the
Company's common stock and a Subordinated Note Payable in the amount of
$22,179,000, due August 2006. (See Note 7).

On February 22, 2002, the Company entered into a Credit
Facilitation Agreement with Harris. Under the Credit Facilitation Agreement,
Harris agreed to guarantee an irrevocable standby letter of credit (the "Harris
letter of credit") issued by a bank to GE Capital in the amount of $7.0 million
for the purpose of providing additional credit enhancement to the GE facility.
The Harris letter of credit was used to collateralize standby letters of credit
that were subsequently issued under the GE facility to key factors. During 2002,
the Credit Facilitation Agreement was amended three times to provide for
extensions of the expiration date of the Harris letter of credit. Under the
terms of the third amendment, the Harris letter of credit was cancelled and the
Credit Facilitation Agreement was terminated as a result of the closing of the
sale of receivables to Household.

16. 	COMMITMENTS AND CONTINGENCIES

The Company is party to 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.

The Company presently has no commitments to open or remodel
any stores in fiscal 2003. As of February 1, 2003, the Company had issued a
total of $11.3 million of standby letters of credit and documentary letters of
credit totaling $2.0 million. The standby letters of credit were issued to
secure credit lines with key factors and to provide collateral for a workers
compensation insurance policy. The factor letters of credit currently expire at
the end of June 2003. Management believes the likelihood of any draws under the
standby letters of credit are remote. Documentary letters of credit are issued
in the ordinary course of business to facilitate the purchase of merchandise
from overseas suppliers. The supplier draws against the documentary letter of
credit upon delivery of the merchandise.

The Company had no outstanding standby or documentary letters
of credit as of February 2, 2002.

---

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                           GOTTSCHALKS INC. AND SUBSIDIARY

`ADDITIONS
                                          ------------------------
          COL. A               COL. B       COL. C        COL. D         COL. E          COL. F
---------------------------  -----------  ----------     ---------     -----------     -----------
                                                          Charged
                             Balance at   Charged to     to Other                      Balance at
                              Beginning   Costs and      Accounts      Deductions        End of
Description                   of Period    Expenses      Describe       Describe         Period
---------------------------  -----------  ----------     ---------     -----------     -----------
Year ended February 1, 2003:

  Allowance for doubtful
    accounts............... $   354,544  $  825,061 (1) $             $(1,179,605)(2) $
  Store closure reserve.... $   529,000  $  581,000 (3) $             $  (492,000)(4) $   618,000
  Deferred tax asset
    valuation allowance.... $   645,000  $  793,000 (5) $             $               $ 1,438,000
  Allowance for vendor
    claims receivable...... $    91,000  $              $             $   (10,000)(6) $    81,000



Year ended February 2, 2002:

  Allowance for doubtful
    accounts............... $   368,634  $1,247,269 (1) $             $(1,261,359)(2) $   354,544
  Store closure reserve.... $        --   2,035,000 (3) $             $(1,506,000)(4) $   529,000
  Deferred tax asset
    valuation allowance.... $        --  $  645,000 (5) $             $               $   645,000
  Allowance for vendor
    claims receivable...... $    86,000  $    5,000 (7) $             $               $    91,000


Year ended February 3, 2001:

  Allowance for doubtful
    accounts............... $   406,688  $1,024,964 (1) $             $(1,063,018)(2) $   368,634
  Allowance for vendor
    claims receivable...... $    90,000  $              $             $    (4,000)(6) $    86,000`

1. Represents the provision for credit losses on
receivables ineligible for sale.
2. Represents uncollectible accounts written off, net of
recoveries, pertaining to receivables ineligible for sale. The 2002 amount
includes $389,000 representing the write-off of the remaining allowance at the
date of the receivables sale to Household.
3. Represents costs incurred for store closures in 2002 and
2001 and for the discontinuation of an outsourced distribution facility in 2001,
including the remaining lease obligations, asset impairment charges related to
the improvements, fixtures and lease rights, severance and other incremental
costs.
4. Represents cash proceeds received as a result of the sale
of lease rights, fixtures and equipment, net of amounts paid in connection with
store closures in 2002 and 2001 and the discontinuation of the outsourced
distribution facility in fiscal 2001.
5. Represents increases to the deferred tax asset valuation
allowance.
6. Represents changes in estimate for the allowance for
vendor claims receivable.
7. Represents an increase to the vendor claims receivable
allowance.

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: May 1, 2003

| | GOTTSCHALKS, Inc.                    
| | -------------------------------------
| | By:                                  
| |                                      
| | James R. Famalette                   
| | President and Chief Executive Officer



|Signature                                       | Title                                                                                          | Date       
|----------------------------------------------- | ---------------------------------------------------------------------------------------------- | -----------
|/s/ Joseph W. Levy
Joseph W. Levy               | Chairman                                                                                       | May 1, 2003
|/s/ James R. Famalette
James R. Famalette       | President, Chief Executive Officer and Director (principal
executive officer)                  | May 1, 2003
|/s/ Michael S. Geele
Michael S. Geele           | Senior Vice President and Chief Financial Officer (principal
financial and accounting officer) | May 1, 2003
|/s/ O. James Woodward III
O. James Woodward III | Director                                                                                       | May 1, 2003
|/s/ Sharon Levy
Sharon Levy                     | Director                                                                                       | May 1, 2003
|/s/ James Czech
James Czech                     | Director                                                                                       | May 1, 2003
|/s/ Joseph J. Penbera
Joseph J. Penbera         | Director                                                                                       | May 1, 2003
|/s/ Fred Ruiz
Fred Ruiz                         | Director                                                                                       | May 1, 2003
|/s/ Max Gutmann
Max Gutmann                     | Director                                                                                       | May 1, 2003
|/s/ Thomas H. McPeters
Tom McPeters             | Director                                                                                       | May 1, 2003
|/s/ Jorge Pont Sanchez
Jorge Pont Sanchez       | Director                                                                                       | May 1, 2003

---

CERTIFICATIONS

I, James R. Famalette, certify that:

1.	I have reviewed this annual report on Form 10-K of Gottschalks
Inc.;

2.	Based on my knowledge, this annual report does not
contain any untrue statement of a material 	fact or omit to state a material
fact necessary to make the statements made, in light of the 	circumstances
under which such statements were made, not misleading with respect to the period
	covered by this annual report;

3.	Based on my knowledge, the financial statements, and
other financial information included in 	this annual report, fairly present
in all material respects the financial condition, results of 	operations and
cash flows of the registrant as of, and for, the periods presented in this
annual 	report;

4.	The registrant's other certifying officers and I are
responsible for establishing and maintaining 	disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
	registrant and we have:

a)	designed such disclosure controls and procedures to
ensure that material information 			relating to the registrant,
including its consolidated subsidiaries, is made known to us by
			others within those entities, particularly during the period in
which this annual report is 			being prepared;

b)	evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a 			date within 90 days prior
to the filing date of this annual report (the "Evaluation
				Date"); and

c)	presented in this annual report our conclusions
about the effectiveness of the disclosure 			controls and procedures
based on our evaluation as of the Evaluation Date;

5.	The registrant's other certifying officers and I have
disclosed, based on our most recent 	evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors 	(or persons
performing the equivalent functions):

a)	all significant deficiencies in the design or
operation of internal controls which could 			adversely affect the
registrant's ability to record, process, summarize and report financial
			data and have identified for the registrant's auditors any material
weaknesses in internal 			controls; and

b)	any fraud, whether or not material, that involves
management or other employees who 			have a significant role in the
registrant's internal controls; and

6.	The registrant's other certifying officers and I have
indicated in this annual report whether or 	not there were significant
changes in internal controls or in other factors that could significantly
	affect internal controls subsequent to the date of our most recent
evaluation, including any 	corrective actions with regard to significant
deficiencies and material weaknesses.

|May 1, 2003 | By:                                   | /s/ James R. Famalette
|----------- | ------------------------------------- | ----------------------
|            | James R. Famalette                   
|            | President and Chief Executive Officer

---

I, Michael S. Geele, certify that:



1.	I have reviewed this annual report on Form 10-K of Gottschalks
Inc.;

2.	Based on my knowledge, this annual report does not
contain any untrue statement of a material 	fact or omit to state a material
fact necessary to make the statements made, in light of the 	circumstances
under which such statements were made, not misleading with respect to the period
	covered by this annual report;

3.	Based on my knowledge, the financial statements, and
other financial information included in 	this annual report, fairly present
in all material respects the financial condition, results of 	operations and
cash flows of the registrant as of, and for, the periods presented in this
annual 	report;

4.	The registrant's other certifying officers and I are
responsible for establishing and maintaining 	disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
	registrant and we have:

a)	designed such disclosure controls and procedures to
ensure that material information 			relating to the registrant,
including its consolidated subsidiaries, is made known to us by
			others within those entities, particularly during the period in
which this annual report is 			being prepared;

b)	evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a 			date within 90 days prior
to the filing date of this annual report (the "Evaluation
				Date"); and

c)	presented in this annual report our conclusions
about the effectiveness of the disclosure 			controls and procedures
based on our evaluation as of the Evaluation Date;

5.	The registrant's other certifying officers and I have
disclosed, based on our most recent 	evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors 	(or persons
performing the equivalent functions):

a)	all significant deficiencies in the design or
operation of internal controls which could 			adversely affect the
registrant's ability to record, process, summarize and report financial
			data and have identified for the registrant's auditors any material
weaknesses in internal 			controls; and

b)	any fraud, whether or not material, that involves
management or other employees who 			have a significant role in the
registrant's internal controls; and

6.	The registrant's other certifying officers and I have
indicated in this annual report whether or 	not there were significant
changes in internal controls or in other factors that could significantly
	affect internal controls subsequent to the date of our most recent
evaluation, including any 	corrective actions with regard to significant
deficiencies and material weaknesses.

|May 1, 2003 | By:                                               | /s/ Michael S. Geele
|----------- | ------------------------------------------------- | --------------------
|            | Michael S. Geele                                 
|            | Senior Vice President and Chief Financial Officer

---