UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
     WASHINGTON, D.C.  20549
           FORM 10-K


[ X ]     Annual Report Pursuant to Section 13 or 15(d) of
          the Securities Exchange Act of 1934 (No Fee
          Required)

For The Fiscal Year Ended   January 31, 1998

                      or

[   ]     Transition Report Pursuant to Section 13 or 15(d)
          of the Securities Exchange Act of 1934 (No Fee
          Required)

For the transition period from            to          

        Commission File Number 1-09100

                    Gottschalks Inc.                  

        (Exact name of Registrant as specified in its
         charter)

     Delaware                        77-0159791    
(State or other jurisdiction of   (IRS Employer
 incorporation or organization)    Identification No.)       

  7 River Park Place East, Fresno, CA           93720      
 (Address of principal executive offices)     (Zip code)

Registrant's telephone no., including area code: (209)
434-8000

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

                                 Name of each
                                   exchange
Title of Each Class               on which
                                  registered  

Common Stock, $.01 par value       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. Yes  X  
No     

Indicate 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 the 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.   [ X ]

The aggregate market value of the voting stock held by non-affiliates of the 
Registrant as of February 28, 1998:
Common Stock, $.01 par value:  $57,736,429

On February 28, 1998 the Registrant had outstanding 10,478,415
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 25, 1998, which will be filed
pursuant to Regulation 14A, are incorporated by reference into Part
III of this Form 10-K.

                PART I

Item 1.        BUSINESS

GENERAL

     Gottschalks Inc. is a regional department and
specialty store chain based in Fresno, California,
currently consisting of thirty-seven "Gottschalks"
department stores and twenty-two "Village East"
specialty stores located primarily in non-major
metropolitan cities throughout California, and in
Oregon, Washington and Nevada. Gottschalks and Village
East sales totaled $448.2 million for the year ended
January 31, 1998 (referred to herein as fiscal 1997),
with Gottschalks sales comprising 97.5%, and Village
East sales comprising 2.5%, of total sales.

     Gottschalks department stores typically offer a
wide range of moderate to better brand-name and
private-label merchandise, including men's, women's,
junior's and children's apparel; cosmetics and
accessories; shoes and fine jewelry; home furnishings
including china, housewares, electronics (in fourteen
locations); and small electric appliances and other
consumer goods. Village East specialty stores offer
apparel for larger women.  Brand-name apparel, cosmetic
and accessory lines carried by the Company include
Estee Lauder, Lancome, Dooney & Bourke, Liz Claiborne,
Carole Little, Calvin Klein, Ralph Lauren, Guess,
Nautica, Karen Kane, Tommy Hilfiger, Esprit, Evan
Picone, Haggar, Koret and Levi Strauss. Brand-name
merchandise carried in the Company's home divisions
include Sony, Mitsubishi, Lenox, Krups, Calphalon,
Royal Velvet, KitchenAid and Samsonite. The Company's
stores also carry private-label merchandise and a mix
of higher and budget priced merchandise. Gottschalks
stores are generally anchor tenants of regional
shopping malls, with Village East specialty stores
generally located in the regional malls in which a
Gottschalks department store is located or as a
separate department within some of the Company's larger
Gottschalks stores. The Company services all of its
stores, including its store locations outside
California, from a 420,000 square foot distribution
facility centrally located in Madera, California. 
     
     Gottschalks and its predecessor, E. Gottschalk &
Co., have operated continuously for over 93 years since
it was founded by Emil Gottschalk in 1904. Since the
Company first offered its stock to the public in 1986,
it has added twenty-nine of its thirty-seven
Gottschalks stores, opened twenty of its twenty-two
Village East specialty stores and constructed its
distribution center. Gottschalks is currently the
largest independent department store chain based in
California. (See Part I, Item I, "Business--Store
Location and Growth Strategy".)

     Gottschalks Inc. also includes the accounts of
its wholly-owned subsidiary, Gottschalks Credit
Receivables Corporation ("GCRC" and, together with Gottschalks,
the "Company"),which was formed in 1994 in connection with
a receivables securitization program. (See Notes 2 and
3 to the Consolidated Financial Statements and Part II,
Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital 
Resources".)

OPERATING STRATEGY

     Merchandising Strategy.  The Company's
merchandising strategy is directed at offering and
promoting nationally advertised, brand-name merchandise
recognized by its customers for style and value. The
Company's stores also carry private-label merchandise
purchased through Frederick Atkins, Inc., ("Frederick
Atkins"), a national association of major retailers
which provides its members with group purchasing
opportunities, and a mix of higher and budget priced
merchandise. The Company offers a wide selection of
fashion apparel, cosmetics and accessories, home
furnishings and other merchandise in an extensive range
of styles, sizes and colors for all members of the
family and home.

     The following table sets forth for the periods
indicated a summary of the Company's total sales by
division, expressed as a percent of net sales:
<TABLE>
<CAPTION>
                            1997    1996    1995   1994    1993
Softlines:
<S>                         <C>     <C>    <C>    <C>    <C>
Cosmetics & Accessories..    17.8%   17.5%  17.2%  16.6%  16.5%
Women's Clothing..........    16.8    15.9   15.5   16.1   16.5
Men's Clothing............    14.0    14.4   14.3   13.9   13.6
Women's Dresses, Coats
  & Lingerie..............     7.9     7.9    7.8    7.9    7.8
Shoes & Other Leased
  Departments.............     7.8     7.8    7.4    7.1    7.4
Junior's Clothing.........     5.2     5.5    6.0    6.3    7.0
Children's Clothing.......     5.3     5.3    4.9    4.9    4.9
Village East..............     2.5     2.5    2.6    2.6    2.7
  Total Softlines.........    77.3    76.8   75.7   75.4   76.4
Hardlines:
Housewares &  Stationery .    10.6    10.4   11.0   10.9   10.7
Domestics & Luggage.......     8.1     7.9    8.1    8.1    7.1
Electronics & Furniture...     4.0     4.9    5.2    5.6    5.8
   Total Hardlines.........   22.7    23.2   24.3   24.6   23.6
  
Total Sales...............   100.0%  100.0%  100.0% 100.0% 100.0%  
  
</TABLE>

     The Company's merchandising activities are
conducted from its corporate offices in Fresno,
California by its buying division consisting of an
Executive Vice President/General Merchandise Manager, 2
Vice President/General Merchandise Managers, 2 Vice
President/Divisional Merchandise Managers, 4 Divisional
Merchandise Managers, 51 buyers and 28 assistant
buyers. The Company also has a merchandise planning and
allocation division which works closely with the buying
division to develop merchandising plans and to link the
Company's merchandising activities with actual
performance in its stores. Management believes the
experience of its buying division, combined with the
Company's long and continuous presence in its primary
market areas, enhances its ability to evaluate and
respond quickly to emerging fashion trends and changing
consumer preferences. One of the Company's most
important sources of current information about
marketing and emerging fashion trends is derived from
its membership in Frederick Atkins.

     The Company's overall merchandising strategy
includes the development of monthly, seasonal and
annual merchandising plans for each division,
department and store.  Management monitors sales and
gross margin performance and inventory levels against
the plan on a daily basis. The merchandising plan is
designed to be flexible in order to allow the Company
to respond quickly to changing consumer preferences and
opportunities presented by individual item performance
in the stores. The Company's buying and merchandise
planning and allocation divisions meet frequently with
store management to ensure that the Company's
merchandising programs are executed efficiently at the
store level. Management has devoted considerable
resources towards enhancing the Company's merchandise-related 
information systems as a means to more
efficiently monitor and execute its merchandising plan.
(See Part I, Item I, "Business--Information Systems and
Technology.") 

     Each of the Company's stores carry substantially
the same merchandise, but in different mixes according
to individual market demands. Some of the previously
described brand-name merchandise may not be currently
available in all of the Company's store locations. The
mix of merchandise in a particular market may also vary
depending on the size of the facility. Management seeks
to continuously refine its merchandise mix with the
goals of increasing sales of higher gross margin items,
inventory turnover and sales per selling square foot,
thus increasing its gross margins. The Company has also
continued to reallocate selling floor space to higher
profit margin items and narrow and focus its
merchandise assortments. For example, the Company has
continued to reduce the number of stores that carry
electronics, a traditionally lower gross margin line of
business, and reduce the number of stores with
restaurants. The Company also closed its clearance
center in 1993 in connection with its cost-savings
efforts and now liquidates slow-moving merchandise
through certain of its existing stores.

     The Company's membership in Frederick Atkins
provides it with the ability to obtain better prices by
purchasing a larger volume of merchandise along with
all of the members of the organization. The Company
also purchases its private-label merchandise through
Frederick Atkins. In fiscal 1997, the Company purchased
approximately 4.75% of its merchandise from Frederick
Atkins. The Company also purchases merchandise from
numerous other suppliers. Excluding purchases from
Frederick Atkins, the Company's ten largest suppliers
in fiscal 1997 were Estee Lauder, Inc., Liz Claiborne,
Inc., Levi Strauss & Co., Cosmair, Inc. (Lancome),
Koret of California, Calvin Klein Cosmetics, Haggar
Apparel, All-That-Jazz, Alfred Dunner and Bugle Boy
Industries. Purchases from those vendors accounted for
approximately 20.5% of the Company's total purchases in
fiscal 1997. Management believes that alternative
sources of supply are available for each category of
merchandise it purchases.

     Sales Promotion Strategy.  The Company commits
considerable resources to advertising, using a
combination of media types which it believes to be most
efficient and effective by market area, including
newspapers, television, radio, direct mail and
catalogs. The Company is a major purchaser of
television advertising time in its primary market
areas. The Company's sales promotion strategy includes
seasonal promotions, promotions directed at selected
items and frequent storewide sales events to highlight
brand-name merchandise and promotional prices. The
Company also conducts a variety of special events
including 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 certain of
its vendors. 

     Management has continued to focus on enhancing
its information systems in order to increase the
effectiveness of its sales promotion strategy. The
Company uses direct marketing techniques to access
niche markets by generating specific lists of customers
who may be most responsive to specific promotional
mailings and sending mailings only to those specific
credit card holders. The Company has also implemented a
telemarketing program, which, through the use of an
advanced call management system and the Company's
existing credit department personnel, the Company is
able to auto-dial potential customers within a selected
market area and deliver a personalized message
regarding current promotions and events. In early
fiscal 1998, management expects to complete the
installation of a new targeted marketing system through
which the Company will be able to better target
specific promotions to the Company's credit card
holders. The new program will also enable the Company
to better analyze the purchasing patterns of third
party bank card users and, for the first time, enable
the Company to direct targeted marketing activities at
those customers. (See Part I, Item I, "Business--Private-Label 
Credit Card" and "Business--Information Systems and Technology.")

     In addition to targeted advertising efforts, the
Company also uses a variety of other marketing formats
as part of its sales promotion strategy. One of the
Company's most significant recent sales promotion
projects is the inception of "Emil's Market", named
after the Company's founder, Emil Gottschalk, which is
being introduced to thirty-four of the Company's stores
in fiscal 1998. Emil's Market is a complete marketing
strategy for the Company's housewares division and is
intended to present houseware products in a specialty
store format within the main department store. The
Emil's Market marketing strategy includes a consistent
theme with visual presentation, advertising and
packaging, and a large portion of the funding for the
project will be received from participating vendors. In
early fiscal 1998, the Company also launched its new
"KidZone" program, which offers additional discounts and
special services to its members. The program is
designed to offer additional value to customers with
children, improve customer loyalty and increase sales
in this potentially underdeveloped line
of business. 

     The Company offers selected merchandise and
general corporate information on the World Wide Web at
http://www.gottschalks.com, and in fiscal 1997, the
Company linked its complete Bridal Registry service to
its web site. The Company is also continuing efforts to
develop its mail order service. In addition to the
previously described marketing efforts, the Company
also has a wide variety of credit-related programs
aimed at improving sales, including the new
"Gottschalks Rewards" program, launched in fiscal 1997.
(See Part I, Item I, "Business--Private-Label Credit
Card.")

     The Company's stores experience seasonal sales
and earnings patterns typical of the retail industry. 
Peak sales occur during the Christmas selling months of
November and December, and to a lesser extent, during
the Back-to-School and Easter selling seasons. The
Company generally increases its inventory levels and
sales staff for these seasons. (See Part II, Item 7,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality").
     
     Store Location and Growth Strategy.  The
Company's stores are located primarily in diverse,
growing, non-major metropolitan areas. Management
believes the Company has a competitive advantage in
offering moderate to better brand-name merchandise and
a high level of service to customers in secondary
markets in the western United States where there is a
strong demand for nationally advertised, brand-name
merchandise and fewer competitors offering such
merchandise. Some of the Company's stores are located
in agricultural areas and cater to mature customers
with above average levels of disposable income.
Gottschalks stores are generally anchor tenants of
regional shopping malls. Other anchor tenants in the
malls generally complement the Company's goods with a
mixture of competing and noncompeting merchandise, and
serve to increase customer "foot traffic" within the
mall. Gottschalks strives to be the "hometown store" in
each of the communities it serves.
     
     The Company generally seeks to open two new
stores per year, although more stores may be opened in
any given year if it is believed to be financially
attractive to the Company. As part of its growth
strategy, the Company may also pursue selective
strategic acquisitions. The Company has also continued
to invest in the renovation and refixturing of its
existing store locations in order to maintain and
improve market share in those market areas. During
fiscal 1997, the Company launched a five-year store
renovation program designed to update the appearance of
certain of the Company's aging stores. The store
renovation program is aimed at updating decor,
improving in-store lighting, improving fixturing and
wall merchandising and improving signage throughout
those stores. The Company sometimes receives
reimbursement for certain of its new store construction
costs and costs associated with the renovation and
refixturing of existing store locations from mall
owners and vendors. 

     The following table presents selected data
regarding the Company's expansion for the fiscal years
indicated:
<TABLE>
<CAPTION>


 Stores open at
  year-end:          1997        1996        1995        1994         1993

  <S>                 <C>         <C>         <C>         <C>          <C>
  Gottschalks (1)     37          35          34          29           27     

  Village East        22 (2)      24 (2)      26          24           23      
 
    TOTAL             59          59          60          53           50       

  Gross store
  square footage
  (in thousands)   3,485       3,276       2,984       2,425        2,202      

</TABLE>

(1) The number of stores does not include the Company's
clearance center (opened -1988, closed - 1993).  

(2) The Company incorporated two Village East stores
into larger Gottschalks   stores as separate
departments during both fiscal 1997 and 1996, reducing
the total number of free-standing Village East stores
open to twenty-two and twenty-four as of the end of
fiscal 1997 and 1996, respectively. The Company has
continued to combine sales generated by these
departments with total sales reported for Village East. 

______________________
     
     Since the Company's initial public offering in
1986, the Company has constructed or acquired twenty-nine of its 
thirty-seven Gottschalks department stores,
including four junior satellite stores of less than
30,000 square feet each. During this period the Company
also opened twenty of its twenty-two Village East
specialty stores. Gross store square footage added
during this period was approximately 2.7 million square
feet, resulting in approximately 3.5 million total
Company gross square feet.  As of the end of fiscal
1997, the Company's operations included thirty-three
department stores located in California, two stores in
Nevada and one store in each of Oregon and Washington. 

     Recent store expansion included the opening of
two new stores in California located in Sonora (August
1997) and Santa Rosa (September 1997). The Company
intends to open one new store in Redding, California in
the second half of 1998; however, there can be no
assurance that the opening will not be delayed, subject
to a variety of conditions precedent or other factors.

     The Company generally seeks prime locations in
regional malls as sites for new department stores, and
has historically avoided expansion into major
metropolitan areas. Although the majority of the
Company's department stores are larger than 50,000
gross square feet, during the past several years, the
Company has, where the opportunities have been
attractive, established four junior satellite stores
each with less than 30,000 gross square feet. The
Company also seeks to open a Village East specialty
store in each mall where a Gottschalks department store
is located, except when the Company finds it more
profitable to establish a Village East department
within the Gottschalks store, rather than as a separate
specialty shop. In selecting new store locations, the
Company considers the demographic characteristics of
the surrounding area, the lease terms and other
factors. The Company does not typically own its
properties, although management would consider doing so
if ownership were financially attractive. The Company
has been able to minimize capital requirements
associated with new store openings during the past
several years through the negotiation of significant
contributions from mall owners or developers of certain
of the projects for tenant improvements, construction
costs and fixtures and equipment. 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. 
     
     Customer Service.  The Company attempts to build
customer loyalty by providing a high level of service
and by having well-stocked stores. Product seminars and
other training programs are frequently conducted in the
Company's stores so that sales personnel will be able
to provide useful product information to customers. In
addition to providing a high level of personal sales
assistance, the Company seeks to offer to its customers
a conveniently located and attractive shopping
environment. In Gottschalks stores, merchandise is
displayed and arranged by department, with well-known
designer and brand-names prominently displayed. 
Departments open onto main aisles, and numerous visual
displays are used to maximize the exposure of
merchandise to customer traffic.  Village East
specialty stores promote the image of style and fashion
for larger women. Gottschalks stores also offer a wide
assortment of merchandise for petites. The Company
generally seeks to locate its stores in regional
shopping malls which are centrally located to access a
broad customer base.  Thirty of the Company's thirty-seven 
Gottschalks stores, and all but two of its
Village East specialty stores, are located in regional
shopping malls.

     The Company's policy is to employ sufficient
sales personnel to provide its customers with prompt,
personal service. Sales personnel are encouraged to
keep notebooks of customers' names, clothing sizes,
birthdays, and major purchases, and to telephone
customers about promotional sales and send thank-you
notes and other greetings to their customers during
their normal working hours. Management believes that
this type of personal attention builds customer
loyalty. The Company stresses the training of its sales
personnel and offers various financial incentives based
on sales performance. The Company also offers
opportunities for promotions and management training
and leadership classes. Under its liberal return and
exchange policy, the Company will accept a return or
exchange of any merchandise that its stores stock. When
appropriate, the Company returns the merchandise to its
supplier.

     Distribution of Merchandise.  The Company's
distribution facility, designed and equipped to meet
the Company's long-term distribution needs, enhances
its ability to quickly respond to changing customers'
preferences. Completed in 1989, the Company receives
all of its merchandise at its 420,000 square foot
distribution center in Madera, California. The
distribution center is centrally located to serve all
of the Company's store locations, including its store
locations outside California. Daily distribution
enables the Company to respond quickly to fashion and
market trends and ensure merchandise displays and store
stockrooms are well stocked.  

     Currently, most merchandise arriving at the
distribution center is inspected, recorded by computer
into inventory and tagged with a bar-coded price label.
Approximately 25% of the Company's merchandise is
currently received using technology that enables the
Company to "cross-dock" merchandise. Cross docking
partners provide the Company with an advanced shipping
notice ("ASN"), which is an electronic document
transmitted by a vendor that details the contents of
each carton en route to the distribution center, and
ship only "floor-ready" merchandise which requires that
the merchandise be placed on approved hangers and pre-tagged 
with universal product code ("UPC") tickets, a
bar coded price label containing retail prices.
Merchandise purchased from vendors that have UPC
capabilities arrives at the Company's distribution
center already tagged with a bar-coded UPC price label
that can be electronically translated by the Company's
inventory systems, thus ready for immediate
distribution to stores. During fiscal 1997, the Company
established formal guidelines for vendors with respect
to shipping, receiving and invoicing for merchandise
under its new "Partners in Technology" program. Vendors
that do not comply with the guidelines for shipping
merchandise using ASN's and in floor-ready status are
charged specified fees depending upon the violation.
Such fees are intended to offset higher costs
associated with the processing of such merchandise.

     Although the Company has been cross-docking
merchandise for several years, until fiscal 1997 many
of the related processes were still manual and labor-intensive. 
During fiscal 1997, the Company began the
implementation of a more sophisticated logistical
system, the same system that many of the Company's
larger competitors have also put into place. The
primary benefit of the upgraded logistical system is
the ability to minimize the manual processing of
incoming merchandise and speed the shipments to the
stores by cross-docking the merchandise in minutes and
hours as compared to several days under the more manual
cross-docking system previously in place. Management
believes the technology enhancements will also improve
accuracy by scanning shipment information from bar-coded 
labels and transmitting the information
electronically into the Company's inventory systems
rather than having it input manually. Certain aspects
of the new system were operational in fiscal 1997, with
the system expected to be fully operational during the
first quarter of fiscal 1998. (See Part I, Item I,
"Business--Information Systems and Technology.")

     Private-Label Credit Card.  The Company issues
its own credit card, which management believes enhances
the Company's ability to generate and retain market
acceptance and increase sales and other revenues for
the Company. The Company has one of the highest levels
of proprietary credit card sales in the retail
industry,  with credit sales as a percent of total
sales of 45.2%, 44.7%, 44.7%, 43.0% and 38.4% in fiscal
1997, 1996, 1995, 1994 and 1993. Service charge
revenues associated with the Company's customer credit
cards were $11.6 million, $10.5 million, $10.9 million,
$8.9 million and $8.1 million in fiscal 1997, 1996,
1995, 1994 and 1993, respectively.  The Company had
approximately 460,000 active credit accounts as of
February 28, 1998. Active credit accounts are defined
as accounts with charges within the previous nine
months. As described more fully in Part II, Item 7,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and
Capital Resources," the Company sells all of its
customer credit card receivables on an ongoing basis in
connection with an asset-backed securitization program.
The Company has, however, continued to service and
administer the receivables pursuant to the
securitization program.

     The Company has implemented a variety of credit-related 
programs which have resulted in enhanced
customer service and increased service charge revenues.
The Company has 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 days'
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; and "Gold Card" and "55-Plus Gold
Card" programs, which offer special services at a
discount for  customers who have a net minimum spending
history on their charge accounts of $1,000 per year. In
fiscal 1997, the Company implemented the "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. The Company also has
an ongoing credit card reactivation program designed to
recapture credit cardholders who have not utilized
their credit card for a specified period of time.
Management believes holders of the Company's credit
card typically buy more merchandise from the Company
than other customers.

     The Company's credit management software system
has automated substantially all aspects of the
Company's credit authorization, collection and billing
process, and enhances the Company's ability to provide
customer service. The credit management system also
enables the Company to access target markets with
sophisticated direct marketing techniques. This system,
combined with a credit scoring system, enables the
Company to process thousands of credit applications
daily at a rate of less than three minutes per
application. The Company also has an automated advanced
call management system through which the Company
manages the process of collecting delinquent customer
accounts. As described more fully in Part I, Item I,
"Business--Sales Promotion Strategy", the Company is
also able to utilize the advanced call management
system for telemarketing activities.

     The credit authorization process is centralized
at the Company's corporate headquarters in Fresno,
California. Credit is extended to applicants based on a
scoring model. The Company's credit extension policy is
nearly identical for instant and non-instant credit
applicants. Applicants who meet pre-determined criteria
based on prior credit history, occupation, number of
months at current address, income level and geographic
location are automatically assigned an account number
and awarded a credit limit ranging from $300 to $2,000.
Credit limits may be periodically revised. The
Company's credit system also provides full on-line
positive authorization lookup capabilities at the
point-of-sale. Within seconds, each charge, credit and
payment transaction is approved or referred to the
Company's credit department for further review. Sales
associates speed-dial the credit department for an
approval when a transaction has been referred by the
system.

     The Company offers credit to customers under
several payment plans: the "Option Plan", under which
the Company bills customers monthly for charges without
a minimum purchase requirement; the "Time-Pay Plan",
under which customers may make monthly payments for
purchases of home furnishings, major appliances and
other qualified items of more than $100; and the "Club
Plan", under which customers may make monthly payments
for purchases of fine china, silver, crystal and
collectibles of more than $100.  The Company also
periodically offers special promotions to its credit
card holders through which customers are given the
opportunity to obtain discounts on merchandise
purchases or purchase merchandise under special
deferred billing and deferred interest plans. Finance
charges may be assessed on unpaid balances at an annual
percentage rate of up to 21.6%; a late charge fee on
delinquent charge accounts may be assessed at a rate of
up to $15 per late payment occurrence. Such charges may
vary depending on applicable state law.

     Information Systems and Technology.  The Company
has continued to invest in technology and systems
improvements in its efforts to improve customer service
and reduce inventory-related costs and operating costs.
The Company's information systems include IBM mainframe
technology, which was upgraded in late fiscal 1997. The
primary benefits of the upgraded mainframe computer
include the ability to process information more
quickly, combined with expected cost savings to result
from the more efficient use of power and a reduction in
required maintenance. The new mainframe computer will
also enable the Company to test its existing programs
for year 2000 compliance, a process which could not be
performed under the Company's previous mainframe
computer. (See Part I, Item I, "Business--Year 2000
Conversion"). In addition to the mainframe computer,
the Company runs multiple platforms with applications
on mid-range, local area network and departmental
levels. All of the Company's major information systems
are computerized, including its sales, inventory,
credit, accounts payable, payroll and financial
reporting systems. The Company has installed
approximately 2,000 computer terminals throughout its
stores, corporate offices and distribution center.
Every store processes each sales transaction through
point-of-sale ("POS") terminals that connect on-line
with the Company's mainframe computer located at its
corporate offices in Fresno, California. This system
provides detailed reports on a real-time basis of
current sales, gross margin and inventory levels by
store, department, vendor, class, style, color, and
size.
  
     Management believes the continued enhancement of
its merchandise-related systems is essential for
merchandise cost and shrinkage control. The Company has
an automatic markdown system which has assisted in the
more timely and accurate processing of markdowns and
reduced inventory shortage resulting from paperwork
errors. The Company's price management system has
improved the Company's POS price verification
capabilities, resulting in fewer POS errors and
enhanced customer service. Combined with enhanced
physical inventory procedures and improved security
systems in the Company's stores, these systems have
resulted in the Company's inventory shrinkage remaining
unchanged at 1.1% of net sales in fiscal 1997 and 1996,
after achieving reductions from 1.3%, 1.4% and 2.1%
fiscal 1995, 1994 and 1993, respectively.

     Management also believes improved technology is
critical for future reductions in costs related to the
purchase, handling and distribution of merchandise,
traditionally labor-intensive tasks. The Company's
merchandise management and allocation ("MMS") system
has enhanced the Company's ability to allocate
merchandise to stores more efficiently and make prompt
reordering and pricing decisions. The MMS system also
provides merchandise-related information used by the
Company's buying division in its analysis of market
trends and specific item performance in stores. The
Company is in process of enhancing certain aspects of
the MMS system and expects such enhancements to be
fully complete during the first half of fiscal 1998.
The Company has also implemented a variety of programs
with its vendors, including an automatic replenishment
inventory system for certain basic merchandise and an
electronic data interchange ("EDI") system providing
for on-line purchase order, invoicing and charge-back
entry. Such systems have automated certain processes
associated with the purchasing and payment for
merchandise.

     In addition to the previously described systems,
the Company is in the process of installing an enhanced
logistical system at the Company's distribution center.
This new logistical system is expected to enhance the
automation of certain processes related to the receipt
and distribution of apparel and non-apparel merchandise
and enable the Company to deliver merchandise to stores
more quickly. (See Part I, Item I, "Business--Distribution 
of Merchandise.") The new system is also
expected to result in reducing certain distribution
center payroll and related overhead costs. During
fiscal 1997, the Company completed the installation of
a workflow and imaging system, designed to automate
certain aspects of its merchandise and general expense
payables systems and enable the Company's payables
departments to become essentially "paperless".
Management expects this system to improve efficiency
and reduce certain costs associated with the payment
for merchandise. The Company also intends to utilize
the imaging technology to reduce operating costs and
improve efficiencies in other areas of the Company,
including the credit department and human resources department.
In fiscal 1998, the Company also expects to install a new 
Bridal Registry system which will allow for the scanning of 
selected merchandise and the automatic updating of registry 
information. The new Bridal Registry system will also be 
accessible through the Company's Web site (see Part I, Item I, 
"Business--Sales Promotion Strategy".) 

     Other systems implemented by the Company in its
efforts to control its selling, general and
administrative costs include the following: (i) a
payroll system, which has enhanced the Company's
ability to manage payroll-related costs; (ii) an
advertising management software system, which enables
the Company to measure individual item sales
performance derived from a particular advertisement;
and (iii) the Company's credit management system,
described in Part I, Item I "Business--Private Label-Credit Card".   

     Year 2000 Conversion.  The Company has
established a task force to coordinate the
identification, evaluation and implementation of
changes to computer systems and applications necessary
to achieve a Year 2000 date conversion with no
disruption to business operations. These actions are
necessary to ensure that the systems and applications
will recognize and process data in the year 2000 and
beyond. Major areas of potential business impact have
been identified and are being dimensioned, and initial
conversion efforts are underway. The Company is also
communicating with suppliers, dealers, financial
institutions and others with which it does business to
coordinate the year 2000 conversion. The total cost of
the conversion is currently estimated to be $350,000
and is not expected to materially affect the Company's
results of operations during the fiscal 1998-1999
conversion period. Such costs are expected to consist
primarily of external consulting fees and costs in
excess of normal software upgrades and replacements and
will be incurred throughout fiscal 1999. The year 2000
issue affects virtually all companies and
organizations.

     Competition.  The Company operates in a highly
competitive environment. The Company's stores compete
with national, regional, and local chain department and
specialty stores, some of which are considerably larger
than the Company and have substantially greater
financial and other resources. Competition has
intensified in recent years as new competitors,
including specialty stores, general merchandise stores,
discount and off-price retailers and outlet malls, have
entered the Company's primary market areas. The trend
towards consolidation of competitors within the retail
industry has also intensified competition. The Company
competes primarily on the basis of current merchandise
availability, customer service, price and store
location and the availability of services, including
credit and product delivery.

     The Company's larger national and regional
competitors have the ability to purchase larger
quantities of merchandise at lower prices. Management
believes its buying practices partially counteract this
competitive pressure. Such practices include: (i) the
ability to accept smaller or odd-sized orders of
merchandise from vendors than its larger competitors
may be able to accept; (ii) the ability to structure
its merchandise mix to more closely reflect the
different regional, local and ethnic needs of its
customers; and (iii) the ability to react quickly and
make opportunistic purchases of individual items. The
Company's membership in Frederick Atkins also provides
it with increased buying power in the marketplace.
Management also believes that its knowledge of its
primary market areas, developed over more than 93 years
of continuous operations, and its focus on those
markets as its primary areas of operations, give the
Company an advantage that its competitors cannot
readily duplicate. Many of the Company's competitors
are national chains whose operations are not focused
specifically on non-major metropolitan cities in the
western United States. One aspect of the Company's
strategy is to differentiate itself as a home-town,
locally-oriented store versus its more nationally
focused competitors.
     
     Leased Departments.  The Company currently
leases the fine jewelry, shoe and maternity wear
departments, custom drapery, certain of its
restaurants, coffee bars and the beauty salons in its
Gottschalks department stores. The independent
operators supply their own merchandise, sales personnel
and advertising and pay the Company a percentage of
gross sales as rent.  Management believes that while
the cost of sales attributable to leased department
sales is generally higher than other departments, the
relative contribution of leased department sales to
earnings is comparable to that of the Company's other
departments because the lessee assumes substantially
all operating expenses of the department. This allows
the Company to reduce its level of selling, advertising
and other general and administrative expenses
associated with leased department sales.  Leased
department sales as a percent of total sales were 7.8%,
7.8%, 7.4%, 7.1% and 7.4% in fiscal 1997, 1996, 1995,
1994 and 1993, respectively. Gross margin applicable to
the leased departments was 14.6%, 14.6%, 14.4%, 14.1%
and 13.8% in fiscal 1997, 1996, 1995, 1994 and 1993,
respectively.

     Employees.  As of January 31, 1998, the Company
had 5,661 employees, of whom 1,478 were employed part-time 
(working less than 20 hours a week on a regular
basis). The Company hires additional temporary
employees and increases the hours of part-time
employees during seasonal peak selling periods. None of
the Company's employees are covered by a collective
bargaining agreement.  Management considers its
employee relations to be good. 

     To attract and retain qualified employees, the
Company offers a 25% discount on most merchandise
purchases; participation in a 401(k) Retirement Savings
Plan to which the Company makes quarterly and annual
contributions depending upon the profitability of the
Company; and vacation, sick and holiday pay benefits as
well as health care, accident, death, disability,
dental and vision insurance at a nominal cost to the
employee and eligible beneficiaries and dependents. The
Company also has performance-based incentive pay
programs for certain of its officers and key employees
and has stock option plans that provide for the grant
of stock options to certain officers and key employees
of the Company.

     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.

Item 2.        PROPERTIES

     Corporate Offices and Distribution Center.  The
Company's corporate headquarters are located in an
office building in Northeast Fresno, California,
constructed in 1991 by a limited partnership of which
the Company is the sole limited partner holding a 36%
share of the partnership. The Company leases 89,000
square feet of the 176,000 square foot building under a
twenty-year lease expiring in the year 2011. The lease
contains two consecutive ten-year renewal options and
the Company receives favorable rental terms under the
lease. (See Note 1 to the Consolidated Financial
Statements.) The Company believes that its current
office space is adequate to meet its long-term office
space requirements.

     The Company's distribution center, completed in
1989, was constructed and equipped to meet the
Company's long-term merchandise distribution needs. The
420,000 square foot distribution facility is
strategically located in Madera, California to service
economically the Company's existing store locations in
the western United States and its projected future
market areas. The Company leases the distribution
facility from an unrelated party under a 20-year lease
expiring in the year 2009, and has six consecutive
five-year renewal options.
  
     Store Leases and Locations.   The Company owns
six of its thirty-seven Gottschalks stores and leases
its remaining Gottschalks and Village East stores from
unrelated parties. The store leases generally require
the Company to pay either a fixed rent, rent based on a
percentage of sales, or rent based on a percentage of
sales above a specified minimum rent amount. Certain of
the Company's leases also provide for rent abatements
and scheduled rent increases over the lease terms. The
Company is generally responsible for a pro-rata share
of promotion, common area maintenance, property tax and
insurance expenses under its store leases. On a
comparative store basis, the Company incurred an
average of $4.73, $5.38, $5.58, $5.61 and $5.57 per
gross square foot in lease expense in fiscal 1997,
1996, 1995, 1994 and 1993, respectively, not including
common area maintenance and other allocated expenses.
In certain cases, the Company has been able to add
gross square feet to certain existing store locations
under favorable rental conditions. 

     Thirty-two of the Company's thirty-seven
Gottschalks stores and all but two of its twenty-two
Village East stores are located in regional shopping
malls. 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.

               The following table contains specific information about
     each of the Company's stores open as of the end of fiscal 1997:
     
<TABLE>

<CAPTION>
                                              Expiration
                    Gross(1)  Selling           Date of
                    Square    Square    Date    Current
                      Feet      Feet    Opened    Lease    Renewal Options
GOTTSCHALKS
<S>                  <C>       <C>      <C>      <S> <C>       <S>
Antioch............. 80,000    71,875   1989     N/A (2)       N/A
Aptos............... 11,200    10,397   1988     2004          None
Auburn.............. 40,000    36,764   1995     2005     1 five yr. opt.
Bakersfield:
  East Hills........ 74,900    70,857   1988     2009     6 five yr. opt.
  Valley Plaza...... 90,000    70,376   1987     2017     2 five yr. opt.
Capitola............105,000    90,580   1990     2015     4 five yr. opt.
Carson City, Nevada. 68,000    58,480   1995     2005     2 five yr. opt.
Chico............... 85,000    77,059   1988     2017     3 ten yr. opt.
Clovis..............101,400   100,792   1988     2018          None
Eureka.............. 96,900    69,878   1989     N/A (2)       N/A
Fresno:
  Fashion Fair......163,000   126,635   1970     2016     4 five yr. opt.
  Fig Garden........ 36,000    32,689   1983     2005          None
  Manchester........175,600   125,394   1979     2009     1 ten yr. opt.
Hanford............. 98,800    75,303   1993     N/A (2)       N/A
Klamath Falls,
  Oregon............ 65,400    53,084   1992     2007     2 ten yr. opt.
Merced.............. 60,000    53,008   1983     2013          None
Modesto:
  Vintage Faire.....161,500   121,779   1977     2007     1 eight yr. opt.
                                                               and
                                                          5 five yr. opt. 
  Century Center.... 65,000    62,250   1984     2013     1 ten yr. opt.
                                                               and
                                                          1 four yr. opt.
Oakhurst............ 25,600    22,075   1994     2005     4 five yr. opt.       
                                               and
                                                          1 six yr. opt.
Palmdale............114,900    93,268   1990     N/A (2)       N/A
Palm Springs........ 68,100    55,670   1991     2011     4 five yr. opt.
Redding.............  7,800     5,135   1993     60 days(3)    None
Reno, Nevada........138,000   108,718   1996     2016     2 ten yr. opt.
Sacramento..........194,400   145,351   1994     2014     5 five yr. opt.
San Bernardino......204,000   161,119   1995     2017     4 five yr. opt.
San Luis Obispo..... 99,300    89,477   1986     N/A (2)       N/A
Santa Maria.........114,000    97,377   1976     2006     4 five yr. opt.
Santa Rosa..........127,000   100,529   1997     2017(4)  1 ten yr. opt.
                                                               and
                                                          1 four year opt.
Scotts Valley....... 11,200     8,642   1988     2001     2 five yr. opt.
Sonora.............. 55,000    46,054   1997     2017(4)  2 five yr. opt.
Stockton............ 90,800    74,449   1987     2009     6 five yr. opt.
Tacoma, Washington..119,300    92,745   1992     2012     4 five yr. opt.
Tracy...............113,000    90,012   1995     2015     4 five yr. opt.
Visalia.............150,000   133,116   1995     2014     3 five yr. opt.   
Watsonville......... 75,000    66,170   1995     2006     4 five yr. opt.
Woodland............ 55,300    52,684   1987     2017     2 ten yr. opt.   
Yuba City........... 80,000    68,307   1989     N/A(2)          N/A

Total Gottschalks
  Square Footage..3,420,400 2,818,098

VILLAGE EAST
Antioch.............  2,100     1,472     1989     1999          None
Bakersfield:
  East Hills........  3,350     2,847     1988     1998(5)       None
Capitola............  2,360     2,006     1991     1999          None
Carson City, Nevada.  3,400     2,800     1995     2005          None
Chico...............  2,300     1,920     1988     2000          None
Clovis..............  2,300     1,955     1988     1998(5)       None
Eureka..............  2,820     2,397     1989     2004          None
Fresno:
  Fig Garden........  2,800     2,521     1986     1999          None
  Manchester........  5,950     5,375     1981     2010          None
Hanford.............  2,800     2,480     1993     2008          None
Modesto:
  Century Center....  2,730     2,320     1986     2005          None
Palmdale............  2,716     2,309     1990     2000          None
Palm Springs........  2,480     2,108     1991     2001          None
Sacramento..........  2,700     2,470     1994     2004          None
San Luis Obispo.....  2,500     1,472     1987     2011          None
Santa Maria.........  3,000     2,720     1976     2001          None
Stockton............  1,799     1,530     1989     1998(6)       None
Tacoma..............  4,000     3,220     1992     2012          None
Tracy...............  3,428     2,914     1995     2006          None
Visalia.............  3,400     2,880     1975     1999          None
Woodland............  2,022     1,719     1987     1999          None
Yuba City...........  3,200     3,045     1990     2000          None
</TABLE>


Total Village East
  Square Footage.... 64,155    54,480

Total Square
  Footage........3,484,555  2,872,578                                
__________________________

         (1)        Reflects total store square footage,
                    including office space, storage, service
                    and other support space that is not
                    dedicated to direct merchandise sales.

         (2)        These stores are Company owned and have
                    been pledged as security for various debt
                    obligations of the Company. (See Note 4 to
                    the Consolidated Financial Statements.)    
                                      

         (3)        This lease is automatically renewed every
                    60 days. Either party can terminate the
                    lease upon 60 days' notice. The Company
                    intends to terminate this lease during the
                    second half of 1998 upon completion of a
                    new 90,000 square foot Gottschalks store
                    at a nearby location. (See Part I, Item I,
                    "Business--Store Location and Growth
                    Strategy"). 
         
         (4)        Represents new leases entered into during
                    fiscal 1997.

         (5)        The Company has notified the respective
                    landlords that these leases will be
                    terminated upon their expiration in fiscal
                    1998 unless the landlord revises certain
                    aspects of the lease agreements. In the
                    event the leases are terminated in fiscal
                    1998, the Company would incorporate these
                    locations into the nearby Gottschalks
                    stores as separate departments. 

         (6)        This lease will become renewable on a
                    month-to-month basis upon its expiration in fiscal
                    1998.


Item 3.        LEGAL PROCEEDINGS
     
               Not Applicable.

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

              No matter was 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 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:

<TABLE>
<CAPTION>
                           1997              1996      
Fiscal Quarters     High        Low      High       Low 
      
<C>                <C>       <C>        <C>       <C>
1st Quarter...... .6 1/2     5   1/8    7 3/8     5 5/8
2nd Quarter....... 9         5   1/2    7 1/4     5 3/4
3rd Quarter....... 9 7/8     7 11/16    6 1/2     5 1/8
4th Quarter....... 9 1/8     6   3/4    7         5 1/8

</TABLE>
     
     On February 28, 1998, the Company had 946
stockholders of record, some of which were brokerage
firms or other nominees holding shares for multiple
stockholders. The sales price of the Company's common
stock as reported by the NYSE on February 28, 1998 was
$8 3/16 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 credit agreement with Congress Financial
Corporation prohibits the Company from paying dividends
without prior written consent from that lender.

     There were no sales of unregistered securities
by the Company during fiscal 1997.

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 January 31, 1998, February 1, 1997,
February 3, 1996, January 28, 1995 and  January 29,
1994 are referred to herein as fiscal 1997, 1996, 1995,
1994 and 1993, respectively.  All fiscal years noted
include 52 weeks, except for fiscal 1995 which includes
53 weeks.

     The selected financial data below should be read
in conjunction with Part II, 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.  

<TABLE>
<CAPTION>

RESULTS OF OPERATIONS: 
                           1997       1996      1995      1994      1993
(In thousands, except per share data)              

<S>                     <C>         <C>       <C>        <C>       <C>
Net sales(1)........... $448,192    $422,159  $401,041   $363,603  $342,417
Net credit revenues(2).    6,385       4,198     4,896      4,210     5,911
                         454,577     426,357   405,937    367,813   348,328
Costs and expenses:
  Cost of sales(3).....  304,558     287,164   278,827    247,423   233,715
  Selling, general and
    administrative
    expenses...........  130,922     123,860   120,637    101,516   101,486
  Depreciation and
    amortization(4)....    6,667       6,922     8,092      5,860     5,877
                         442,147     417,946   407,556    354,799   341,078
Operating income (loss)   12,430       8,411    (1,619)    13,014     7,250

Other (income) expense:
 Interest expense......    7,325       8,111     7,718      7,599     8,524
 Miscellaneous income..   (1,955)     (2,792)     (726)      (755)     (838)
 Acquisition related 
  expenses(5)..........      673
 Unusual items(6)......                                     3,833     3,427
                           6,043       5,319     6,992     10,677    11,113
Income (loss) before 
  income tax expense
 (benefit).............     6,387       3,092    (8,611)     2,337   (3,863)
Income tax expense
  (benefit)............    2,657       1,258    (2,972)       821    (1,190)
Net income (loss)...... $  3,730    $  1,834  $ (5,639)  $  1,516  $ (2,673)
 
Net income (loss)
 per common share -
  basic and diluted(7). $    .36    $    .18  $   (.54)  $    .15  $   (.26)

Weighted-average
 number of common
 shares outstanding....   10,474      10,461    10,416     10,413    10,377

</TABLE>

<TABLE>
<CAPTION>
  

SELECTED BALANCE SHEET DATA:
                              1997      1996       1995       1994     1993   
(In thousands of dollars) 
Retained interest in
 <S>                        <C>        <C>        <C>         <C>      <C>
 receivables sold, net(8)   $15,813    $20,871    $25,892     $25,745  $  --- 
Receivables, net(9)......     3,085      1,818      1,575       1,566   21,460
Merchandise
 inventories(10).........    99,544     89,472     87,507      80,678   60,465
Property and
 equipment, net(11)......    99,057     87,370     89,250      93,809   96,396
Total assets.............   242,311    232,400    239,041     233,353  248,330
Working capital (12).....    67,579     70,231     42,904      37,900   32,147
Long-term obligations,
 less current portion(12)    62,420     60,241     34,872      33,672   31,493
Stockholders' equity.....    83,905     80,139     77,917      83,577   82,118
   
</TABLE>

<TABLE>
<CAPTION>

SELECTED OPERATING DATA: 
                              1997      1996       1995      1994      1993     
Sales growth:
 <S>                          <C>       <C>        <C>       <C>        <C>
 Total store sales(13)...     6.2%      5.3%       10.3%     6.2%       3.4%
Comparable store sales...     3.3%      1.4%       (3.1%)    3.3%       1.3%    
Average net sales per 
 square foot of selling
 space(14):
   Gottschalks...........    $160      $170        $181     $196       $198     
   Village East..........     157       163         161      164        176     
Gross margin percent:
   Owned sales...........    33.5%     33.4%       31.8%    33.3%      33.2%
   Leased sales..........    14.6%     14.6%       14.4%    14.1%      13.8%
Credit sales as a %
   of total sales........    45.2%     44.7%       44.7%    43.0%      38.4%
   
</TABLE>

<TABLE>
<CAPTION>

SELECTED FINANCIAL DATA:
                               1997      1996      1995      1994      1993    
Capital expenditures, 
 <S>                         <C>        <C>      <C>        <C>        <C>
 net of reimbursements..  .  $14,976    $6,845   $12,773    $4,539     $5,456   
Current ratio..............   2.11:1    2.10:1    1.45:1    1.43:1     1.30:1  
Inventory turnover
 ratio(15).................      2.6       2.6       2.7       2.9        2.9   
Days credit sales
 in receivables(16)........    128.1     132.9     136.8     157.3      170.8   
__________________

</TABLE>

(1)  Includes net sales from leased departments of
     $35.2 million, $32.8 million, $29.8 million,
     $26.0 million and $25.3 million in fiscal 1997,
     1996, 1995, 1994 and 1993, respectively.  (See
     Part I, Item 1, "Business--Leased Departments.")

(2)  Net credit revenues in fiscal 1997 includes a
     $1.1 million credit recognized in connection
     with the adoption of Statement of Financial
     Accounting Standards ("SFAS") No. 125. (See Note
     2 to the Consolidated Financial Statements.) Net
     credit revenues were higher in fiscal 1993 than
     in fiscals 1994 - 1996 as there was no reduction
     for interest expense related to securitized
     receivables in that year. (See note (8) below.)

(3)  Includes cost of sales attributable to leased
     departments of $30.0 million, $28.0 million,
     $25.5 million, $22.3 million and $21.8 million
     in fiscal 1997, 1996, 1995, 1994 and 1993,
     respectively.  (See Part I, Item 1, "Business--Leased Departments.")

(4)  Includes the amortization of new store pre-opening costs of 
     $589,000, $1.3 million, $2.5
     million, $438,000 and $429,000 in fiscal 1997,
     1996, 1995, 1994 and 1993, respectively.

(5)  See Note 8 to the Consolidated Financial
     Statements.
(6)  As described more fully in the Company's 1995
     Annual Report on Form 10-K, the provision for 
     unusual items in fiscal 1994 totaling $3.8 
     million, includes a provision of $3.5 million 
     representing costs incurred in connection with
     an agreement reached to settle the stockholder
     litigation previously pending against the Company
     and related legal fees and other costs.  The 
     provision for unusual items in fiscal 1993, 
     totaling $3.4 million, includes interest expense,
     legal and accounting fees and other costs incurred
     primarily in connection with the settlement of all
     pending federal civil matters related to an income
     tax deduction taken on the Company's 1985 federal
     tax return.

(7)  The Company adopted the provisions of SFAS No.
     128, "Earnings per Share" in fiscal 1997 and in
     accordance with the statement has restated all
     prior period earnings per share amounts
     presented. There were no differences between
     previously reported earnings (loss) per share
     amounts and restated amounts. (See Note 1 to the
     Consolidated Financial Statements.)

(8)  The retained interest does not include
     receivables sold totaling $53.7 million as of
     the end of fiscal 1997, $46.0 million as of the
     end of fiscal 1996 and $40.0 million as of the
     end of both fiscal 1995 and 1994. The Company
     did not securitize its receivables prior to
     fiscal 1994. (See Notes 1, 2 and 3 to the
     Consolidated Financial Statements and Part II,
     Item 7, "Management's Discussion and Analysis of
     Financial Condition and Results of Operations--Liquidity 
     and Capital Resources" for additional
     information related to receivables
     securitization program.)

(9)   Receivables as of the end of fiscal 1994 - 1997
      consist of customer credit card receivables that
      do not meet certain eligibility requirements of
      the securitization program, net of an allowance
      for doubtful accounts. Receivables as of the end
      of fiscal 1993 are presented net of $40.0 million
      of receivables held for securitization and sale
      as of that date.

(10)  The increase in merchandise inventories is
      generally attributable to new store openings.
      (See Part I, Item I, "Business--Store Location
      and Growth Strategy", for table of number of
      stores open at each fiscal year-end.)

(11)  The increase in property and equipment from
      fiscal 1996 to 1997 is primarily related to new
      store openings and the refurbishing of certain
      existing store locations, information system
      enhancements, and additional assets acquired
      under capital lease obligations. The decreases in
      property and equipment from fiscal 1993 through
      fiscal 1996 are primarily due to various sale and
      leaseback financings and, in fiscal 1996, to the
      write-off of assets under terminated capital
      leases. (See Note 5 to the Consolidated Financial
      Statements.)

(12)  The increase in working capital and long-term
      obligations from fiscal 1995 to 1996 is primarily
      due to the classification of certain debt as
      long-term that was classified as current in the
      previous year. 

(13)  See Part I, Item I, "Business--Store Location and
      Growth Strategy", for table of number of stores
      open at each fiscal year-end.

(14)  Average net sales per square foot of selling
      space represents net sales for the period divided
      by the number of square feet of selling space in
      use during the period for comparable store sales
      only. Average net sales per square foot is
      computed only for those stores in operation for
      at least twelve months. "Selling space" has been
      determined according to standards set by the
      National Retail Federation. The Company has added
      larger stores, some of which have generated lower
      sales per square foot, over the past several
      years.

(15)  The inventory turnover ratio excludes certain
      inventory received at year-end if held for stores
      opened early in the subsequent fiscal year.

(16)  Days credit sales in receivables include
      receivables sold ($53.7 million as of the end of
      fiscal 1997, $46.0 million as of the end of 1996
      and $40.0 million as of the end of both fiscal
      1995 and 1994 and $40.0 million of receivables
      held for securitization and sale as of the end of
      fiscal 1993), the retained interest in
      receivables sold, and other receivables. The
      Company services and administers all receivables,
      including receivables sold, pursuant to the
      securitization program.


Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF
           OPERATIONS
           
Results of Operations
           
The following table sets forth for the periods
indicated certain items from the Company's Consolidated
Statements of Operations, expressed as a percent of net
sales:

<TABLE>
<CAPTION>

                                     1997         1996         1995       
<S>                                 <C>           <C>          <C>
Net sales........................   100.0%        100.0%       100.0%       
Net credit revenues..............     1.4           1.0          1.2        
                                    101.4         101.0        101.2        
Costs and expenses:
   Cost of sales.................    68.0          68.0         69.5        
   Selling, general and
     administrative expenses.....    29.2          29.3         30.1        
   Depreciation and amortization.     1.5           1.7          2.0        
                                     98.7          99.0        101.6
Operating income (loss)..........     2.7           2.0         (0.4) 
Other (income) expense:
   Interest expense..............     1.6           1.9          1.9            
Miscellaneous income..........       (0.4)         (0.6)        (0.2) 
   Acquisition related expenses..     0.1                            
                                      1.3           1.3          1.7 
Income (loss) before income tax  
   expense (benefit).............     1.4           0.7         (2.1)       
Income tax expense (benefit).....     0.6           0.3         (0.7)       
Net income (loss)................     0.8%          0.4%        (1.4)%      

</TABLE>


Fiscal 1997 Compared to Fiscal 1996

Net Sales

                Net sales increased by approximately $26.0
million to $448.2 million in fiscal 1997 as compared to
$422.2 million in fiscal 1996, an increase of 6.2%.
This increase resulted from a 3.3% increase in
comparable store sales, combined with additional sales
volume generated by new store openings in fiscal 1997
and 1996. Fiscal 1997 new store openings included one
new store in Sonora, California, opened in August 1997,
and one additional store in Santa Rosa, California,
opened in September 1997, increasing the total number
of Gottschalks stores to thirty-seven as of the end of
fiscal 1997 as compared to thirty-five as of the end of
fiscal 1996. Stores operating in fiscal 1997 which were
not open for the entire year in fiscal 1996 include one
new store in Reno, Nevada (March 1996) and two larger
replacement stores in Modesto and Fresno, California
(March and April 1996).

                The Company has entered into an agreement
to open one additional store in Redding, California in
fiscal 1998. While this store is expected to open in
the second half of fiscal 1998, there can be no
assurance that such opening will not be delayed,
subject to a variety of conditions precedent or other
factors.

Net Credit Revenues

                Net credit revenues associated with the
Company's private label credit card increased by
approximately $2.2 million to $6.4 million in fiscal
1997 as compared to $4.2 million in fiscal 1996, an
increase of 52.1%. As a percent of net sales, net
credit revenues increased to 1.4% in fiscal 1997 as
compared to 1.0% in fiscal 1996. This increase is
primarily due a gain of $1.1 million recognized in
connection with the adoption of Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments
of Liabilities," in addition to a $1.1 million increase
in service charges associated with the Company's
customer credit cards. The gain on sale of receivables
of $1.1 million includes a non-recurring credit of
$898,000 resulting from a change in estimate for the
allowance for doubtful accounts related to receivables
which were ineligible for sale. (See Notes 1, 2 and 3
to the Consolidated Financial Statements.)

                Service charges increased by approximately
$1.1 million to $11.6 million in fiscal 1997 as
compared to $10.5 million in fiscal 1996, an increase
of 10.7%. The increase in service charges is primarily
due to an increase in credit sales as a percent of
total sales (45.2% in fiscal 1997 as compared to 44.7%
in fiscal 1996), combined with additional income
generated as a result of modifications made to credit
terms in selected states initiated in late fiscal 1996.
The increase in credit sales is primarily due to the
Company's new "Gottschalks Rewards" program, introduced
during early fiscal 1997, which offers a rebate of up
to 5% of annual credit purchases on the Company's
credit card which can be applied towards future
purchases of merchandise.

                As described more fully in Note 1 to the
Consolidated Financial Statements, service charges are
presented net of the following amounts: (1) interest
expense related to securitized receivables, which
remained unchanged at $3.6 million in fiscal 1997 and
fiscal 1996; and (2) charge-offs related to receivables
sold and the provision for credit losses related to
receivables which were ineligible for sale, which
remained unchanged at $2.7 million in fiscal 1997 and
fiscal 1996. Management does not expect the impact of
SFAS No. 125 to be material to the Company's results of
operations in fiscal 1998.

Cost of Sales

                Cost of sales increased by approximately
$17.4 million to $304.6 million in fiscal 1997 as
compared to $287.2 million in fiscal 1996, an increase
of 6.1%. As a percentage of sales, cost of sales
remained unchanged at 68.0% in fiscal 1997 and 1996 and
the Company's gross margin percentage also remained
unchanged at 32.0% in fiscal 1997 and 1996. Inventory
shrinkage remained unchanged at 1.1% of net sales in
fiscal 1997 and 1996. Due to additional promotional
activity, markdowns as a percentage of net sales
increased in fiscal 1997 as compared to 1996. This
increase was offset by lower costs related to the
buying and distribution of merchandise in fiscal 1997,
primarily driven by improved technology implemented at
the Company's distribution center during the year. (See
Part I, Item 1, "Business--Distribution of
Merchandise.") Excluding the effect of indirect costs
related to the buying and distribution of merchandise
which are reclassified to cost of sales by the Company
for financial reporting purposes, the gross margin
percentage decreased to 36.5% in fiscal 1997 as
compared to 36.8% in fiscal 1996. (See Note 1 to the
Consolidated Financial Statements.)

                Management is continuing efforts to improve
its gross margin, primarily by maintaining tight
controls over inventory levels, shifting inventories
into more profitable lines of business based on current
selling trends, expanding guaranteed gross margin
arrangements with key vendors, and by continuing to
focus on the enhancement of its information systems and
technology as a means to reduce inventory-related
costs. Management also intends to intensify its
private-label merchandise programs, traditionally
higher gross margin merchandise, in fiscal 1998 as a
means to improve gross margins.

Selling, General and Administrative Expenses

                Selling, general and administrative
expenses increased by approximately $7.0 million to
$130.9 million in fiscal 1997 as compared to $123.9
million in fiscal 1996, an increase of 5.7%. Due to the
increase in sales volume, selling, general and
administrative expenses as a percent of net sales
decreased to 29.2% in fiscal 1997 as compared to 29.3%
in fiscal 1996. Including the effects of certain
indirect costs related to the buying and distribution
of merchandise which are reclassified to cost of sales
for financial reporting purposes, selling, general and
administrative costs as a percent of sales decreased to
33.8% in fiscal 1997 as compared to 34.0% in fiscal
1996. (See Note 1 to the Consolidated Financial
Statements.) The Company's sales have continued to
increase at a faster rate than its selling, general and
administrative costs, primarily due to ongoing Company-wide 
expense control measures.

                Charge-offs related to receivables sold and the
provision for credit losses related to receivables
which were ineligible for sale in fiscal 1997, are reflected
in "net credit revenues" and not in selling, general and
administrative costs.

Depreciation and Amortization

                Depreciation and amortization expense,
which includes the amortization of new store pre-opening costs, 
decreased by approximately $200,000 to
$6.7 million in fiscal 1997 as compared to  $6.9
million in fiscal 1996, a decrease of 3.7%. As a
percent of net sales, depreciation and amortization
expense decreased to 1.5% in fiscal 1997 as compared to
1.7% in fiscal 1996. The decrease (in dollars) is
primarily due to the amortization of new store pre-opening costs, 
which decreased by $748,000 as compared
to the prior year, due to the full amortization of
fiscal 1996 new store pre-opening costs early in fiscal
1997. This decrease was partially offset by additional
depreciation related to capital expenditures for new
stores opened and capital lease obligations entered
into during the year. Excluding the amortization of new
store pre-opening costs, depreciation and amortization
expense as a percent of net sales increased to 1.4% in
fiscal 1997 as compared to 1.3% in fiscal 1996.

Interest Expense

                Interest expense, which includes the
amortization of deferred financing costs, decreased by
approximately $800,000 to $7.3 million in fiscal 1997
as compared to $8.1 million in fiscal 1996, a decrease
of 9.7%. Due to the increase in sales volume, interest
expense as a percent of net sales decreased to 1.6% in
fiscal 1997 as compared to 1.9% in fiscal 1996. The
decrease (in dollars) is primarily due to a decrease in
the weighted-average interest rate charged on
outstanding borrowings under the Company's line of
credit and the Variable Base Certificate (8.16% in
fiscal 1997 as compared to 8.62% in fiscal 1996), due
to a lower interest rate applicable to the Company's
new line of credit agreement with Congress Financial
Corporation ("Congress"), and lower average outstanding
borrowings under those facilities in fiscal 1997 as
compared to fiscal 1996. This decrease was partially
offset by higher interest expense associated with
additional long-term financing arrangements entered
into during late fiscal 1996, including the issuance of
the $6.0 million Fixed Base Certificate and the $6.0
million mortgage loan with Heller Financial, Inc.
("Heller"). (See "Liquidity and Capital Resources".)

                As previously described in the "Net Credit
Revenues" portion of this section, pursuant to SFAS No.
125, interest expense related to securitized
receivables is presented as a reduction to net credit
revenues. Such interest remained unchanged at $3.6
million in fiscal 1997 and 1996.

Miscellaneous Income

                Miscellaneous income, which includes the
amortization of deferred income and other miscellaneous
income and expense items, decreased by approximately
$800,000 to $2.0 million in fiscal 1997 as compared to
$2.8 million in fiscal 1996. Other income in fiscal
1997 includes a credit of $400,000 to a deferred lease
incentive resulting from the revision of certain terms
of the related lease. Other income in fiscal 1996
included a pre-tax gain of $1.3 million resulting from
the termination of two leases previously accounted for
as capital leases by the Company. (See Note 5 to
Consolidated Financial Statements.)

Acquisition Related Expenses

                Acquisition related expenses of $673,000
were incurred in connection with the proposed
acquisition of The Harris Company ("Harris"). Such
costs, consisting primarily of investment banking,
legal and accounting fees, were recognized by the
Company after the parties were unable to agree on the
terms of the transaction and discontinued negotiations
in October 1997. (See Note 9 to the Consolidated
Financial Statements.)

Income Taxes

                The Company's effective tax rate was 41.6%
in fiscal 1997 as compared to 40.7% in fiscal 1996.
(See Note 6 to the Consolidated Financial Statements.)

Net Income

                As a result of the foregoing, the Company's
net income improved by approximately $1.9 million to
$3.7 million in fiscal 1997 as compared to $1.8 million
in fiscal 1996. On a per share basis (basic and
diluted), net income improved by $.18 per share to $.36
per share in fiscal 1997 as compared to $.18 per share
in fiscal 1996. (See Note 1 to the Consolidated
Financial Statements.) Net income in fiscal 1997
includes a pre-tax credit of $1.1 million resulting
from the adoption of SFAS No. 125 and a pre-tax charge
of $673,000 for expenses incurred in connection with
the previously described proposed acquisition of
Harris. Net income in fiscal 1996 includes a pre-tax
gain of $1.3 million resulting from the termination of
two capital leases. Excluding these non-recurring
items, net income increased by $2.4 million, or $.23
per share, to $3.5 million, or $.34 per share in fiscal
1997 as compared to $1.1 million, or $.11 per share, in
fiscal 1996.

Fiscal 1996 Compared to Fiscal 1995

Net Sales

                Net sales increased by $21.2 million to
$422.2 million in fiscal 1996 as compared to $401.0
million in fiscal 1995, an increase of 5.3%. This
increase resulted from a 1.4% increase in comparable
store sales, combined with additional sales volume
generated by new store openings in fiscal 1996 and
1995. Fiscal 1996 included 52 weeks of sales as
compared to 53 weeks of sales in fiscal 1995. Excluding
the 53rd week in fiscal 1995, net sales increased by
6.4% in fiscal 1996, with a 2.4% increase in comparable
store sales.  

                Fiscal 1996 new store openings included one
new store in Reno, Nevada, in March 1996 and two larger
replacement stores for pre-existing stores in Modesto
and Fresno, California, in March and April 1996,
respectively. Stores operating in fiscal 1996 not open
for the entire year in fiscal 1995 included five new
stores located in California in Auburn (February 1995),
San Bernardino (April 1995), a larger replacement store
for a pre-existing store in Visalia (August 1995),
Watsonville (August 1995) and Tracy (October 1995), and
one new store opened in Nevada in Carson City (March
1995).
                
Net Credit Revenues

                Net credit revenues decreased by
approximately $700,000 to $4.2 million in fiscal 1996
as compared to $4.9 million in fiscal 1995, a decrease
of 14.3%. As a percent of net sales, net credit
revenues decreased to 1.0% in fiscal 1996 as compared
to 1.2% in fiscal 1995.

                Service charges associated with the
Company's customer credit cards decreased by $400,000
to $10.5 million in fiscal 1996 as compared to $10.9
million in fiscal 1995, a decrease of 3.7%.  Credit
sales as a percent of total sales remained unchanged at
44.7% in fiscal 1996 and 1995. The decrease in service
charges (in dollars) is primarily due to the more
timely payment of customer credit card balances in
fiscal 1996 as compared to fiscal 1995. This decrease
was partially offset by additional income generated as
a result of modifications made to credit terms in
selected states initiated in late fiscal 1996. Interest
expense associated with securitized receivables
remained unchanged at $3.6 million in fiscal 1996 and
1995. The provision for credit losses increased by
approximately $300,000 to $2.7 million in fiscal 1996
as compared to $2.4 million in fiscal 1995, primarily
due to higher bankruptcies during the period.

Cost of Sales

                Cost of sales increased by $8.4 million to
$287.2 million in fiscal 1996 as compared to $278.8
million in fiscal 1995, an increase of 3.0%. Cost of
sales as a percentage of sales decreased to 68.0% in
fiscal 1996 as compared to 69.5% in fiscal 1995,
resulting in an increase to the Company's gross margin
percent to 32.0% in fiscal 1996 as compared to 30.5% in
fiscal 1995. Excluding the effect of indirect costs
related to the buying and distribution of merchandise
which are reclassified to cost of sales by the Company
for financial reporting purposes, the gross margin
percent increased to 36.8% in fiscal 1996 as compared
to 35.6% in fiscal 1995. This increase in gross margin
percent is primarily due to increased sales of higher
gross margin men's, women's and children's apparel, a
higher initial inventory mark-on percentage on certain
merchandise (through favorable vendor pricing), and a
reduction of seasonal clearance and storewide sale
event markdowns as compared to the prior year. The
Company's inventory shrinkage also continued to
improve, decreasing to 1.1% of net sales in fiscal 1996
as compared to 1.3% in fiscal 1995. The Company's gross
margin percent in fiscal 1995 was negatively impacted
by (i) increased competition resulting from pricing
policies of two financially troubled retailers
operating in certain of the Company's market areas;
(ii) increased markdowns taken in an attempt to improve
sales of slow-moving apparel and in connection with a
revision in the Company's women's apparel merchandising
strategy; and (iii) increased promotional activity
related to new store openings and storewide sale
events. 

Selling, General and Administrative Expenses
    
     Selling, general and administrative expenses
increased  by approximately $3.3 million to $123.9
million in fiscal 1996 as compared to $120.6 million in
fiscal 1995, an increase of 2.7%. As a percent of net
sales, selling, general and administrative expenses
decreased to 29.3% in fiscal 1996 as compared to 30.1%
in fiscal 1995. Including the effect of indirect costs
related to the buying and distribution of merchandise
which are reclassified to cost of sales for financial
reporting purposes, selling, general and administrative
costs as a percent of net sales decreased to 34.0% in
fiscal 1996 as compared to 35.1% in fiscal 1995. This
decrease as a percent of net sales is primarily due to
the increase in sales volume. The Company's sales
increased at a faster rate than its selling, general
and administrative expenses in fiscal 1996, primarily
due to ongoing Company-wide expense control measures.

     As previously described in the fiscal 1997 "Net
Credit Revenues" portion of this statement, the
provision for credit losses is presented as a reduction
to net credit revenues in the accompanying financial
statements. The provision for credit losses increased
to $2.7 million in fiscal 1996 as compared to $2.5
million in fiscal 1995, primarily due to higher
bankrupcies during the period.

Depreciation and Amortization

     Depreciation and amortization, which includes
the amortization of new store pre-opening costs,
decreased by $1.2 million to $6.9 million in fiscal
1996 as compared to $8.1 million in fiscal 1995, a
decrease of 14.5%. This decrease (in dollars) is
primarily due to the amortization of new store pre-opening 
costs, which decreased by $1.2 million as
compared to the prior year as a result of fewer new
store openings during the period. Excluding the
amortization of new store pre-opening costs,
depreciation and amortization as a percent of net sales
decreased to 1.3% in fiscal 1996 as compared to 1.4% in
fiscal 1995. Higher depreciation expense (in dollars)
related to capital expenditures for new stores was
fully offset by lower depreciation expense resulting
from sale and leaseback arrangements completed in
fiscal 1996 and 1995, including that of the Company's
department store in Capitola, California, and by the
termination of two capital leases in fiscal 1996. (See
Note 5 to the Consolidated Financial Statements).

Interest Expense

     Interest expense increased by $400,000 to $8.1
million in fiscal 1996 as compared to $7.7 million in
fiscal 1995, an increase of 5.1%. Due to the increase
in sales volume, interest expense as a percent of net
sales remained unchanged at 1.9% in fiscal 1996 and
1995. The increase (in dollars) resulted primarily from
additional long-term financing arrangements entered
into late in fiscal 1995 and in fiscal 1996 and higher
loan fees associated with the Company's former line of
credit facility with Fleet Capital Corporation
("Fleet"). These increases were partially offset by a
decrease in the weighted-average interest rate charged
on outstanding borrowings under the Company's line of
credit and Variable Base Certificate (8.62% in fiscal
1996 as compared to 8.75% in fiscal 1995), which
resulted from (i) a decrease in LIBOR during the
period; (ii) a higher percentage of borrowings
outstanding under more cost-effective financing
arrangements, including the Variable Base Certificate
with Bank Hapoalim and the securitization program; and
(iii) a lower interest rate applicable to the new line
of credit agreement with Congress, entered into in
December 1996, which replaced the Fleet facility. (See
"Liquidity and Capital Resources.")

     As previously described in the fiscal 1997 "Net
Credit Revenues" portion of this section, interest
expense related to securitized receivables is presented
as a reduction of net credit revenues in the
accompanying financial statements. Such interest
remained unchanged at $3.6 million in fiscal 1996 and
1995.

Miscellaneous Income

     Miscellaneous income, which includes the
amortization of deferred income and other miscellaneous
income and expense items, increased by $2.1 million to
$2.8 million in fiscal 1996 as compared to $726,000 in
fiscal 1995. Other income in fiscal 1996 includes a
gain of $1.3 million resulting from the termination of
two leases and income related to the amortization of a
lease incentive (see Note 5 to the Consolidated
Financial Statements). Other income in fiscal 1995 was
reduced by certain general claim and valuation
reserves.

Income Taxes

     The Company's effective tax rate was 40.7% in
fiscal 1996 as compared to an effective tax benefit of
(34.5%) in fiscal 1995. (See Note 6 to the Consolidated
Financial Statements.)
 
Net Income (Loss)

     As a result of the foregoing, the Company's net
income increased by $7.5 million to net income of $1.8
million in fiscal 1996 as compared to a net loss of
($5.6) million in fiscal 1995. On a per share basis
(basic and diluted), net income increased by $.72 per
share to net income of $.18 per share in fiscal 1996 as
compared to a net loss of ($.54) per share in fiscal
1995. Net income in fiscal 1996 includes a non-recurring 
pre-tax gain of $1.3 million resulting from
the termination of two capital leases. Excluding this
amount, net income in fiscal 1996 was $1.1 million, or
$.11 per share.  

Liquidity and Capital Resources

     Sources of Liquidity. As described more fully
below, the Company's working capital requirements are
currently met through a combination of cash provided by
operations, short-term trade credit, and by borrowings
under its revolving line of credit and its receivables
securitization program.

     Revolving Line of Credit and Working Capital
Facility. The Company has a revolving line of credit
arrangement with Congress which provides the Company
with an $80.0 million working capital facility through
March 30, 2000. Borrowings under the arrangement are
limited to a restrictive borrowing base equal to 65% of
eligible merchandise inventories, increasing to 70% of
such inventories during the period of September 1
through December 20 of each year to fund increased
seasonal inventory requirements. Interest under the
facility is charged at a rate of approximately LIBOR
plus 2.5% (8.34% at January 31, 1998), with no interest
charged on the unused portion of the line of credit.
For fiscal 1998, the interest rate applicable to the
line of credit has been reduced by 1/4% to
approximately LIBOR plus 2.25%. The maximum amount
available for borrowings under the line of credit with
Congress was $56.9 million as of January 31, 1998, of
which $30.8 million was outstanding as of that date. Of
that amount, $25.0 million has been classified as long-term 
in the accompanying financial statements as the
Company does not anticipate repaying that amount prior
to one year from the balance sheet date. The agreement
contains one financial covenant, pertaining to the
maintenance of a minimum tangible net worth, with which
the Company was in compliance as of January 31, 1998.
   
     In addition to the Congress facility, the
Company also has up to $15.0 million of additional
working capital financing available under the Variable
Base Certificate, issued to Bank Hapoalim. The Company
can borrow against the Variable Base Certificate on a
revolving basis, similar to a line of credit
arrangement. Borrowings against the Variable Base
Certificate are limited to a percentage of the
outstanding balance of receivables underlying the
certificate, and therefore, the Company's borrowing
capacity under the facility is subject to seasonal
variations that may affect the outstanding balance of
such receivables. Interest on outstanding borrowings on
the facility is charged at a rate of approximately
LIBOR plus 1.0% (6.56% at January 31, 1998). At January
31, 1998, $7.7 million was outstanding under the line
of credit with Bank Hapoalim, which was the maximum
amount available for borrowings as of that date. Under
the provisions of SFAS No. 125, effective fiscal 1997,
borrowings against the Variable Base Certificate are
treated as "off-balance sheet" borrowings for financial
reporting purposes and are excluded from amounts
reported in the accompanying fiscal 1997 financial
statements. Prior to the adoption of SFAS No. 125 in
fiscal 1997, transfers of receivables underlying the
Variable Base Certificate were accounted for as secured
borrowings for financial statement purposes.
Accordingly, outstanding borrowings against the
Variable Base Certificate as of February 1, 1997,
totaling $7,600,000, are included in amounts reported
in the Company's fiscal 1996 financial statements. As
described more fully in the "Cash Flows from
Securitization Program" portion of this section, the
issuance of an additional $6.0 million Fixed Base
Certificate in fiscal 1996 reduced the level of
receivables allocable to the Variable Base Certificate,
and thus has reduced the Company's borrowing capacity
under the facility.
               
     Other Financings. As described more fully in
Note 4 to the Consolidated Financial Statements, the
Company has four fifteen-year mortgage loans with
Midland Commercial Funding ("Midland") with outstanding
balances totaling $19.5 million at January 31, 1998.
The Midland loans, due 2010, bear interest at rates
ranging from 9.23% to 9.39%. The Company also has the
following other long-term loan facilities as of January
31, 1998: (i) a 10.45% mortgage loan payable with
Heller Financial, Inc. ("Heller") due 2002, with an
outstanding loan balance of $3.8 million; an additional
9.97% mortgage loan payable with Heller, due March
2004, with an outstanding loan balance of $5.3 million;
(iii) two 10.0% notes payable to Federated Department
Stores, Inc., due 2001, with outstanding balances
totaling $1.9 million; and (iv) other long-term
obligations with outstanding balances totaling $2.2
million. 

     Certain of the Company's long-term debt and
lease arrangements contain various restrictive
covenants. The Company was in compliance with all such
restrictive covenants as of January 31, 1998.

     Cash Flows From Securitization Program. The
Company's receivables securitization program provides
the Company with an additional source of working
capital financing that is generally more cost-effective
than traditional debt financing. Accordingly, the
Company continually seeks to divert as large a
percentage of total borrowings as possible to its
securitization program.

     Since 1994, the Company has issued $40.0 million
principal amount 7.35% Fixed Base Class A-1 Credit Card
Certificates (the "1994 Fixed Base Certificates") and a
$6.0 million principal amount 6.79% Fixed Base
Certificate (the "1996 Fixed Base Certificate") under
the program. Proceeds from the issuances of the 1994
and 1996 Fixed Base Certificates (collectively, the
"Fixed Base Certificates") were used to reduce or repay
previously outstanding higher interest bearing debt
obligations of the Company and pay certain costs
associated with the transaction. Interest is earned by
the certificateholders on a monthly basis and is paid
through finance charges collected under the program.
The outstanding principal balance of the certificates
are to be repaid in equal monthly installments
commencing September 1998 through September 1999,
through the application of credit card receivable
principal collections during that period. Management
currently intends to refinance the Fixed Base
Certificates as they mature with newly issued
certificates under the program. The issuances of the
Fixed Base Certificates were accounted for as sales for
financial reporting purposes. Accordingly, the $46.0
million of receivables underlying those certificates
and the corresponding debt obligations have been
excluded from the accompanying financial statements.

     The Company also issued a Variable Base Class A-2 
Credit Card Certificate ("Variable Base Certificate")
in 1994 in the principal amount of up to $15.0 million
to Bank Hapoalim. The Company can borrow against the
Variable Base Certificate on a revolving basis, similar
to a revolving line of credit arrangement. Management
also intends to refinance the Variable Base Certificate
upon its maturity in September 1998.
 
     In addition to the Fixed and Variable Base
Certificates, additional series of certificates may be
issued as a source of additional working capital
financing to the Company. However, other than
refinancing the previously issued certificates upon
their maturity, management does not currently
anticipate any additional certificate issuances in
fiscal 1998. 
               
     Management believes the previously described
sources of liquidity are adequate to meet the Company's
working capital, capital expenditure and debt service
requirements for fiscal 1998. Management also believes
it has sufficient sources of liquidity for its long-term 
growth plans at moderate levels. The Company may
engage in other financing activities if it is deemed to
be advantageous.

     Additional Cash Flow and Working Capital
Analysis.

     Working capital decreased by $2.6 million to
$67.6 million in fiscal 1997 as compared to $70.2
million in fiscal 1996. The Company's ratio of current
assets to current liabilities decreased to 2.01:1 as of
the end of fiscal 1997 as compared to 2.11:1 as of the
end of fiscal 1996. This decrease is primarily due to
an increase in the current portion of long-term
obligations related to new financing arrangements
entered into or finalized in fiscal 1997, in addition
to an increase in trade payables and the related cash
management liability resulting from the timing of the
payment for, and the clearing of, certain payables at
year end.

     Cash flows from operating activities consist
primarily of net income (loss) adjusted for certain
non-cash income and expense items, including, but not
limited to, depreciation and amortization, the
provision for uncollectible accounts and changes in
deferred taxes. Net cash provided by operating
activities decreased by $6.7 million to $3.6 million in
fiscal 1997 as compared to $10.3 million in fiscal
1996. This decrease is primarily due to the additional
investment in merchandise inventories required for new
stores, partially offset by cash received from the
return of certain previously outstanding deposits and
an increase in amounts due from GCC Trust, resulting
from the adoption of SFAS No. 125 in fiscal 1997 (see
Note 1 to the Consolidated Financial Statements). The
decrease is also due to additional cash flows received
in fiscal 1996 resulting from the payment of
approximately $7.6 million of operating expenses
related to fiscal 1996 during the 53rd week of fiscal
1995 as a result of the fiscal 1995 calendar shift, and
from the receipt of $3.4 million in connection with the
filing of certain amended income tax returns.
               
     Net cash used in investing activities increased
by $4.6 million to ($9.3) million in fiscal 1997 as
compared to ($4.7) million in fiscal 1996. The Company
spent $9.8 million more on capital expenditures, net of
reimbursements received, in fiscal 1997 as compared to
fiscal 1996. The cash used in fiscal 1997 for capital
expenditures was partially offset by cash provided
under the securitization program of $5.1 million in
fiscal 1997. The Company's 1997 expansion program
included the completion and opening of one new
department store in Sonora, California in August 1997
and one new department store in Santa Rosa, California
in September 1997. The Company also completed the first
phase of the 23,000 square foot expansion and remodel
of its existing store located in the Valley Plaza Mall
in Bakersfield, California and certain other store
remodel projects. These projects were funded primarily
with cash generated by operations, proceeds from
previously described long-term financing arrangements
entered into in late fiscal 1996 and with borrowings
under the Company's working capital facilities. The
Company also continued to invest in the enhancement of
various management information systems in fiscal 1997.
The Company also opened two new department stores in
fiscal 1996. Cash required to open a particular new
store, however, may vary significantly depending upon
various factors, including whether the store was fully
constructed, the size, age and condition of an existing
store location if assumed from another party, and the
extent of construction allowances to be received.
Capital expenditures in fiscal 1997 and 1996 were
partially offset by reimbursements received from
certain of the mall owners, in addition to proceeds
from various sale and sale/leaseback arrangements
entered into during those periods. The Company adopted
the provisions of SFAS No. 125 in fiscal 1997, which
requires the  presentation of purchases and maturities
of securities under the Company's securitization
program to be presented as investing activities in the
statement of cash flows. 
 
     Net cash provided by financing activities
increased by $11.3 million to $5.8 million in fiscal
1997 as compared to net cash used in financing
activities of ($5.5) million in fiscal 1996. This
increase is primarily due to an increase in the cash
management liability, which resulted from the timing of
the payment for, and the clearing of, certain payables
at year end, in addition to an increase in cash
provided by GCC Trust, resulting from the adoption of
SFAS No. 125 in fiscal 1997. Cash held by GCC Trust in
fiscal 1996 and 1995, classified as financing
activities for statement of cash flow purposes, were
reflected as a receivable from GCC Trust pursuant to
SFAS No. 125 in fiscal 1997 and classified as an
operating activity in the fiscal 1997 statement of cash
flows. (See Notes 1 and 2 to the Consolidated Financial
Statements.) This increase was partially offset by a
reduction in net borrowings under the Company's
revolving line of credit and the Variable Base
Certificate in fiscal 1997 as compared to fiscal 1996,
primarily due to the application of the final $3.0
million proceeds received from the previously described
mortgage loan with Heller. Net cash used in financing
activities in fiscal 1996 include proceeds from the
$6.0 1996 Fixed Base Certificate and $3.0 million
received from the previously described Heller loan.
Such proceeds, however, were more than fully offset by
principal payments made on various short-term and long-term 
obligations during the year.

     The Company has entered into an agreement to
open one new department store in the second half of
fiscal 1998 and is in process of remodeling certain
existing store locations. The estimated cost of such
projects is $15.5 million. Such costs are expected
to be provided for from existing financial resources
and from additional long-term financing.  Such projects 
are expected to be fully complete in fiscal 1998, however, 
there can be no assurance that the completion of such projects
will not be delayed subject to a variety of conditions
precedent or other factors.

     Proposed Acquisition of The Harris
Company.  On July 3, 1997, the Company entered into a
non-binding letter of intent with El Corte Ingles
("ECI"), of Spain, and The Harris Company ("Harris").
The letter of intent contemplated the purchase of all
of the common stock of Harris, a wholly-owned
subsidiary of ECI, which currently operates nine
department stores located throughout Southern
California. The two parties were unable to agree on the
terms of the transaction and terminated negotiations in
October 1997. The Company incurred non-recurring costs
totaling $673,000 in connection with the proposed
acquisition, consisting primarily of investment
banking, legal and accounting fees.

Year 2000 Conversion

     The Company has established a task force to
coordinate the identification, evaluation and
implementation of changes to computer systems and
applications necessary to achieve a year 2000 date
conversion with no disruption to business operations.
These actions are necessary to ensure that the systems
and applications will recognize and process the year
2000 and beyond. Major areas of potential business
impact have been identified and are being dimensioned,
and initial conversion efforts are underway. The
Company is also communicating with suppliers, dealers,
financial institutions and others with which it does
business to coordinate the year 2000 conversion. The
total cost of the conversion is currently estimated to
be $350,000 and is not expected to materially affect
the Company's results of operations during the fiscal
1998-1999 conversion period. Such costs are expected to
consist primarily of external consulting fees and costs
in excess of normal software upgrades and replacements
and will be incurred throughout fiscal 1999. The year
2000 issue affects virtually all companies and
organizations.

Inflation

     Although inflation has not been a material
factor to the Company's operations during the past
several years, the Company does experience some
increases in the cost of certain of its merchandise,
salaries, employee benefits and other general and
administrative 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 accounts for its merchandise
inventories on the retail method using last-in, first-out 
(LIFO) cost using the department store price
indexes published by the Bureau of Labor Statistics. 
Under this method, the cost of products sold reported
in the financial statements approximates current costs
and thus reduces the impact of inflation in reported
income due to increasing costs. 

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
results 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 1997 and
1996 (in thousands, except per share data). (See Note
11 to the Consolidated Financial Statements.)  
   
<TABLE>
<CAPTION>
                                         1997                    

Quarter Ended          May 3    August 2    November 1   January 31

<S>                  <C>       <C>          <C>          <C>
Net sales            $90,506   $99,997      $101,466     $156,223
Gross profit          28,510    32,279        32,871       49,974
Income (loss) before  
  income tax expense
  (benefit)           (1,673)  (   422)       (2,516)      10,998
Net income (loss)     (  987)  (   248)       (1,485)       6,450
Net income (loss) 
  per common share      (.09)     (.02)         (.14)         .62
 
</TABLE>

<TABLE>
<CAPTION>

                                         1996                    
Quarter Ended          May 4    August 3    November 2   February 1

<S>                   <C>        <C>          <C>         <C>
Net sales             $85,560    $95,675      $95,675     $145,249
Gross profit           26,830     30,392       30,719       47,054 
Income (loss) before  
  income tax expense      
  (benefit)            (2,099)    (1,245)      (2,430)       8,866
Net income (loss)      (1,322)    (  785)      (1,530)       5,471
Net income (loss) 
  per common share       (.13)      (.07)        (.15)         .52

</TABLE>


Recently Issued Accounting Standards

     Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" was
recently issued and establishes standards for reporting
and displaying comprehensive income and its components
in a full set of general-purpose financial statements.
The new rules are effective for fiscal years beginning
after December 15, 1997 (fiscal 1998), with earlier
application permitted. SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information",
changes the manner in which operating segments are
defined and reported externally to be consistent with
the basis on which they are defined and reported on
internally. The new rules are also effective for
periods beginning after December 15, 1997, with earlier
application permitted. The application of SFAS No. 130
and 131 will not impact the Company's financial
position, results of operations or cash flows, and any
effect will be limited to the form and content of its
disclosures. The Company does not anticipate adoption
of these standards prior to their effective dates.
     
Safe Harbor Statement

     The preceding sections including Part I, Item I,
"Business" and Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of
Operations" contain certain forward-looking statements
within the meaning of Section 27A of the Securities
Exchange Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe
harbors created thereby. These forward-looking
statements include the plans and objectives of
management for future operations and the future
economic performance of the Company, and such forward-looking 
statements can be identified by words
including, but not limited to: "believes",
"anticipates", "expects", "intends", "seeks", "may", "will
and "estimates".

     The forward-looking statements are qualified by
important factors that could cause actual results to
differ materially from those  identified in such
forward-looking statements, including, without
limitation, the following: (i) the ability of the
Company to gauge fashion trends and preferences of its
customers; (ii) the level of demand for the merchandise
offered by the Company; (iii) the ability of the
Company to locate and obtain favorable store sites,
negotiate acceptable lease terms, and hire and train
employees; (iv) the ability of management to manage the
planned expansion; (v) the continued ability to obtain
adequate credit from factors and vendors and the timely
availability of branded and other merchandise; (vi) the
effect of economic conditions, both nationally and in
the Company's specific market areas; (vii) the effect
of severe weather or natural disasters; and (viii) the
effect of competitive pressures from other retailers.
Results actually achieved thus may differ materially
from expected results in these statements as a result
of the foregoing factors or other factors affecting the
Company.
_________________________________


Item 7A.       QUANTITATIVE AND QUALITATIVE
               DISCLOSURES ABOUT MARKET RISK

     Disclosures under Item 305 of Regulation S-K are
effective for annual financial statements for fiscal
years ending after June 15, 1998 and will be required
to be included in the Company's 1998 Annual Report on
Form 10-K.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this item is set forth under
Part IV, Item 14, included elsewhere herein.


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

          Not applicable.
                      
                  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 25,
1998, to be filed pursuant to Regulation 14A (the "1998 Proxy")
under the headings "Nominees for Election as Director" and
"Section 16(a) Beneficial Ownership Reporting Compliance."

     The following table lists the executive officers
of the Company:

Name                   Age(1)         Position
Joe W. Levy            66             Chairman and
                                      Chief
                                      Executive Officer
                                    
James R. Famalette     45             President and
Chief                                 Operating Officer

Gary L. Gladding       58             Executive Vice
President/
                                      General  
                                      Merchandise 
                                      Manager

Alan A. Weinstein      53             Senior Vice 
                                      President and
                                      Chief Financial   
                                      Officer

Michael J. Schmidt     56             Senior Vice       
                                      President/
                                      Director of       
                                      Stores
__________________________                              
       
(1) As of February 28, 1998
  
   Joe W. Levy became Chairman and Chief Executive
Officer of the Company's predecessor and former
subsidiary, E. Gottschalk & Co., Inc. ("E. Gottschalk")
in April 1982 and of the Company in March 1986. Mr.
Levy was Executive Vice President from 1972 to April
1982 and first joined E. Gottschalk in 1956. He serves
on the Board of Directors of the National Retail
Federation and the Executive Committee of Frederick
Atkins. He was formerly Chairman of the California
Transportation Commission and served on the Board of
Directors of Community Hospitals of Central California
and of Air 21, a regional airline based in Fresno,
California, which was liquidated under federal
bankruptcy laws in fiscal 1997. Mr. Levy has also
served on numerous other state and local commissions
and public service agencies.
     
     James R. Famalette became the President and
Chief Operating Officer of the Company on 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 March 1993 through April 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 1982 through 1987, he served as Vice President,
General Merchandise Manager and later President of
Village Fashions/Cameo Stores in Philadelphia,
Pennsylvania, and from 1975 to 1982 served as a
Divisional Merchandise Manager for Colonies, a
specialty store chain, based in Allentown,
Pennsylvania. Mr. Famalette serves on the Board of
Directors of the National Retail Federation and
Frederick Atkins. 

     Gary L. Gladding has been Executive Vice
President of the Company since May 1987, and joined E.
Gottschalk as Vice President/General Merchandise
Manager in February 1983.  From 1980 to February 1983,
he was Vice President and General Merchandise Manager
for Lazarus Department Stores, a division of Federated
Department Stores, Inc., and he previously held
merchandising manager positions with the May Department
Stores Co.

     Alan A. Weinstein became Senior Vice President
and Chief Financial Officer of the Company in June
1993.  Prior to joining the Company, Mr. Weinstein, a
Certified Public Accountant, was the Chief Financial
Officer of The Wet Seal, Inc. based in Irvine,
California for three years. From 1987 to 1989 he was
Vice President and Chief Financial Officer of Wildlife
Enterprises, Inc. Aside from his position with The Wet
Seal, he has served general and specialty retailers in
California, New York and Texas for over twenty-five
years. Mr. Weinstein serves on the Board of Directors
of the American Heart Association of Fresno and
Combined Health Appeal and is a member of the Fig
Garden Rotary in Fresno and of the Community Relations
Action Committee of the Central California Blood
Center.

     Michael J. Schmidt became Senior Vice
President/Director of Stores of E. Gottschalk in
February 1985. From October 1983 through February 1985,
he was Manager of the Gottschalks Fashion Fair store.
Prior to joining the Company, he was General Manager of
the Liberty House store in Fresno from January 1981 to
October 1983, and before 1981, held management
positions with Allied Corporation and R.H. Macy & Co.,
Inc.

Item 11.       EXECUTIVE COMPENSATION

     The information required by this item is
incorporated by reference from those portions
of the Company's 1998 Proxy under the headings 
"Executive Compensation" and "Director Compensation
For Fiscal Year 1997."

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 1998 Proxy under the headings "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 1998 Proxy under the heading "Certain
Relationships and Related Transactions."

                    PART IV

Item 14.       EXHIBITS, FINANCIAL STATEMENT
               SCHEDULE, AND REPORTS ON FORM 8-K

(a)(1)         The following consolidated financial statements
               of Gottschalks Inc. and Subsidiary are included
               in Item 8:

     Consolidated balance sheets -- January 31, 1998
     and February 1, 1997

     Consolidated statements of operations -- Fiscal
     years ended January 31, 1998, February 1, 1997
     and February 3, 1996 

     Consolidated statements of stockholders' equity
     -- Fiscal years ended January 31, 1998, February
     1, 1997 and February 3, 1996 

     Consolidated statements of cash flows -- Fiscal
     years ended January 31, 1998, February 1, 1997
     and February 3, 1996 

     Notes to consolidated financial statements --
     Three years ended January 31, 1998

     Independent auditors' report

(a)(2)         The following financial statement schedule of
               Gottschalks Inc. and Subsidiary is included in
               Item 14(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 the Regulation S-K and Item 14(c):

Exhibit
  No.                    Description 

3.1           Certificate of Incorporation of the Registrant,
              as amended.(1)

3.2           By-Laws of the Registrant, as amended.(10)

10.1          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.(2)

10.2          1986 Employee Nonqualified Stock Option Plan
              with form of stock option agreement
              thereunder.(3)(4)

10.3          Gottschalks Inc. Retirement Savings Plan.(3)(16)

10.4          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 Gottschalks department
              stores and the Madera distribution facility.(1)

10.5          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.(1)

10.6          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.(1)

10.7           Memorandum of Lease and Lease Supplement dated
               July 1, 1989 by and between Manufactures Hanover
               Trust Company of California and Gottschalks Inc.
               relating to the sale-leaseback of the Stockton
               department store.(1)

10.8           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.(1)

10.9           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.(1)

10.10          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.(1)

10.11          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.(5)

10.12          Receivables Purchase Agreement dated as of March
               30, 1994 by and between Gottschalks Credit
               Receivables Corporation and Gottschalks Inc.(6)

10.13          Pooling and Servicing Agreement dated as of
               March 30, 1994 by and among Gottschalks Credit
               Receivables Corporation, Gottschalks Inc. and
               Bankers Trust Company. (6)

10.14          Amendment No. 1 to Pooling and Servicing
               Agreement dated as of September 16, 1994 by and
               among Gottschalks Credit Receivables
               Corporation, Gottschalks Inc. and Bankers Trust
               Company.(7)

10.15          Amended and Restated Series 1994-1 Supplement to
               Pooling and Servicing Agreement dated as of
               September 16, 1994, by and among Gottschalks
               Credit Receivables Corporation, Gottschalks Inc.
               and Bankers Trust Company.(7)

10.16          Waiver Agreement dated November 23, 1994, by and
               among Gottschalks Credit Receivables
               Corporation, Gottschalks Inc. and Bankers Trust
               Company.(7)

10.17          Consulting Agreement dated June 1, 1994 by and
               between Gottschalks Inc. and Gerald H.
               Blum.(4)(8)

10.18          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, Michael J.
               Schmidt and Alan A. Weinstein.(4)(10)

10.19          1994 Key Employee Incentive Stock Option
               Plan.(4)(9)

10.20          1994 Director Nonqualified Stock Option
               Plan.(4)(9) 

10.21          1994 Executive Bonus Plan.(4)(10)

10.22          Promissory Note and Security Agreement dated
               December 16, 1994 by and between Gottschalks
               Inc. and Heller Financial, Inc.(10)

10.23          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.(11)

10.24          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.(11)

10.25          Promissory Notes and Security Agreements dated
               October 4, 1995 and October 10, 1995 by and
               between Gottschalks Inc. and Midland Commercial
               Funding.(12)

10.26          Waiver Agreement dated April 22, 1996 by and
               between Gottschalks Inc. and Heller Financial,
               Inc.(13)

10.27          Amended and Restated Series 1994-1 Supplement to
               Pooling and Servicing Agreement, dated October
               31, 1996, by and among Gottschalks Credit
               Receivables Corporation, Gottschalks Inc. and
               Bankers Trust Company.(14)

10.28          Series 1996-1 Supplement to Pooling and
               Servicing Agreement dated as of November 1,
               1996, by and among Gottschalks Credit
               Receivables Corporation, Gottschalks Inc. and
               Bankers Trust Company.(14)

10.29          Promissory Note and Security Agreement dated
               October 2, 1996, by and between Gottschalks
               Inc. and Heller Financial, Inc.(14)

10.30          Promissory Notes dated March 28, 1996 and
               September 11, 1996, by and between Gottschalks
               Inc. and Broadway Stores, Inc., a wholly-owned
               division of Federated Department Stores,
               Inc.(15)

10.31          Loan and Security Agreement dated December 29,
               1996, by and between Gottschalks Inc. and
               Congress Financial Corporation. (16)

10.32          Employment Agreement dated March 14, 1997 by and
               between Gottschalks Inc. and James R.
               Famalette.(4)(15)

21.            Subsidiaries of the Registrant.(10)

23.            Independent Auditors' Consent.

27.            Financial Data Schedule.

_______________________

(1)  Filed as an exhibit to the Annual Report on Form
     10-K for the year ended January 29, 1994 (File
     No. 1-09100), and incorporated herein by
     reference.

(2)  Filed as an exhibit to the Annual Report on Form
     10-K for the year ended February 2, 1991 (File
     No. 1-09100), and incorporated herein by
     reference.

(3)  Filed as an exhibit to Registration Statement on
     Form S-1, (File No. 33-3949), and incorporated
     herein by reference.

(4)  Management contract, compensatory plan or
     arrangement.

(5)  Filed as an exhibit to the Annual Report on Form
     10-K for the year ended February 1, 1992 (File
     No. 1-09100), and incorporated herein by
     reference.

(6)  Filed as an exhibit to the Current Report on
     Form 8-K dated March 30, 1994 (File No. 1-09100), 
     and incorporated herein by reference.

(7)  Filed as an exhibit to the Quarterly Report on
     Form 10-Q for the quarter ended October 29, 1994
     (File No. 1-09100), and incorporated herein by
     reference.

(8)  Filed as an exhibit to the Quarterly Report on
     Form 10-Q for the quarter ended April 30, 1994
     (File No. 1-09100), and incorporated herein by
     reference.

(9)  Filed as exhibits to Registration Statements on
     Form S-8, (Files #33-54783 and #33-54789), and
     incorporated herein by reference.

(10) Filed as an exhibit to the Annual Report on Form
     10-K for the year ended January 28, 1995 (File
     No. 1-09100), and incorporated herein by
     reference.

(11) Filed as an exhibit to the Quarterly Report on
     Form 10-Q for the quarter ended July 29, 1995
     (File No. 1-09100), and incorporated herein by
     reference.

(12) Filed as an exhibit to the Quarterly Report on
     Form 10-Q for the quarter ended October 28, 1995
     (File No. 1-09100), and incorporated herein by
     reference.

(13) Filed as an exhibit to the Annual Report on Form
     10-K for the year ended February 3, 1996 (File
     No. 1-09100), and incorporated herein by
     reference.

(14) Filed as an exhibit to the Quarterly Report on
     Form 10-Q for the quarter ended November 2, 1997
     (File No. 1-09100), and incorporated herein by
     reference.

(15) Filed as an exhibit to the Registration
     Statement on Form S-8 (File #33-00061), and
     incorporated herein by reference.

(16) Filed as an exhibit to the Annual Report on Form
     10-K for the year ended February 1, 1997 (File
     No. 1-09100), and incorporated by herein by
     reference.
___________________

     (b)       Reports on Form 8-K--The Company did
               not file any Reports on Form 8-K
               during the fourth quarter of fiscal
               1997.

     (c)       Exhibits--The response to this
               portion of Item 14 is submitted as a
               separate section of this report.

     (d)       Financial Statement Schedule--The
               response to this portion of Item 14
               is submitted as a separate section
               of this report.








          ANNUAL REPORT ON FORM 10-K

     ITEM 8, 14(a)(1) and (2), (c) and (d)

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
                     DATA

               CERTAIN EXHIBITS

         FINANCIAL STATEMENT SCHEDULE

     YEAR ENDED FEBRUARY JANUARY 31, 1998

        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 as of January
31, 1998 and February 1, 1997, and the related
consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in
the period ended January 31, 1998. Our audits also
included the financial statement schedule listed in the
Index at Item 14(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 generally
accepted auditing standards. 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 as of
January 31, 1998 and February 1, 1997, and the results
of their operations and their cash flows for each of
the three years in the period ended January 31, 1998,
in conformity with generally accepted accounting
principles. 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 2 to the financial statements, the
Company changed its method of accounting for
securitized receivables in fiscal 1997 to conform with
Statement of Financial Accounting Standard No. 125.


DELOITTE & TOUCHE LLP    

/s/Deloitte & Touche LLP


Fresno, California
February 24, 1998


<TABLE>
<CAPTION>

GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)                                                   
                                              January 31,    February 1,  
ASSETS                                            1998          1997     
                                                           
CURRENT ASSETS:
  <S>                                           <C>           <C>
  Cash                                          $  1,601      $  1,496
  Cash held by GCC Trust                                         5,163   
  Retained interest in
   receivables sold (Notes 2 and 3)               15,813        20,871
  Receivables:
   Receivables, less allowances of $437
     in 1997 and $1,322 in 1996
     (Notes 2 and 3)                               3,085         1,818 
   Vendor claims, less allowances of $80
    in 1997 and 1996                               3,475         2,818
                                                   6,560         4,636
  Merchandise inventories                         99,294        89,472
  Other                                           11,444        11,800
       Total current assets                      134,712       133,438
         
PROPERTY AND EQUIPMENT (Note 5):
  Land and land improvements                      15,101        15,074
  Buildings and leasehold improvements            52,339        46,925
  Furniture, fixtures and equipment               64,993        57,648
  Buildings and equipment under capital leases    10,875         7,302
  Construction in progress                         1,858           309
                                                 145,166       127,258
  Less accumulated depreciation and 
   amortization                                   46,109        39,888
                                                  99,057        87,370
OTHER ASSETS:
  Goodwill, less accumulated amortization
   of $1,263 in 1997 and $1,146 in 1996            1,136         1,252
  Other                                            7,406        10,340
                                                   8,542        11,592
                                                $242,311      $232,400
</TABLE>



See notes to consolidated financial statements.

<TABLE>
<CAPTION>

GOTTSCHALKS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)                                                  
                                                  January 31,  February 1, 
LIABILITIES AND STOCKHOLDERS' EQUITY                  1998        1997         
                                          
CURRENT LIABILITIES:
  <S>                                               <C>         <C>
  Revolving lines of credit (Note 4)                $  5,767    $ 13,904
  Cash management liability                           10,141       1,540  
  Trade accounts payable                              20,950      19,077
  Accrued expenses                                     8,110      10,714
  Taxes, other than income taxes                       8,698       8,202
  Accrued payroll and related liabilities              5,734       5,208
  Current portion of 
   long-term obligations (Notes 4 and 5)               3,950       2,408
  Deferred income taxes (Note 6)                       3,783       2,154
          Total current liabilities                   67,133      63,207
           
LONG-TERM OBLIGATIONS, less current portion
 (Notes 4 and 5):
  Line of credit                                      25,000      25,000
  Notes and mortgage loans payable                    30,083      29,861
  Capitalized lease obligations                        7,337       5,380
                                                      62,420      60,241
DEFERRED INCOME (Note 5)                              18,408      19,580 
DEFERRED LEASE PAYMENTS AND OTHER (Note 5)             6,653       6,369
DEFERRED INCOME TAXES (Note 6)                         3,792       2,864
COMMITMENTS AND CONTINGENCIES (Notes 3, 5 and 10)
  
STOCKHOLDERS' EQUITY: 
  Preferred stock, par value of $.10 per share;
   2,000,000 shares authorized; none issued
  Common stock, par value of $.01 per share;
   30,000,000 shares authorized; 
   10,478,415 and 10,472,915 issued
  Common stock                                           105         105
  Additional paid-in capital                          56,368      56,332
  Retained earnings                                   27,434      23,704
                                                      83,907      80,141
  Less common stock in treasury at cost, 338 shares       (2)         (2)
                                                      83,905      80,139
                                                    $242,311    $232,400

</TABLE>

See notes to consolidated financial statements.  


<TABLE>
<CAPTION>


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

                                              1997       1996       1995   
                                                               
<S>                                        <C>         <C>       <C>
Net sales                                  $448,192    $422,159  $401,041
Net credit revenues                           6,385       4,198     4,896
                                            454,577     426,357   405,937

Costs and expenses:
  Cost of sales                             304,558     287,164   278,827
  Selling, general and
    administrative expenses                 130,922     123,860   120,637
  Depreciation and amortization               6,667       6,922     8,092
                                            442,147     417,946   407,556
Operating income (loss)                      12,430       8,411    (1,619)

Other (income) expense:
 Interest expense                             7,325       8,111     7,718
 Miscellaneous income                        (1,955)     (2,792)     (726)
 Acquisition related expenses                   673                      
                                              6,043       5,319     6,992
 Income (loss) before 
  income tax expense(benefit)                 6,387       3,092    (8,611)
    
 Income tax expense(benefit)                  2,657       1,258    (2,972)

Net income (loss)                          $  3,730    $  1,834  $ (5,639)
  
Net income (loss) per common share -
  basic and diluted                        $    .36    $    .18  $   (.54)

</TABLE>



See notes to consolidated financial statements.

<TABLE>
<CAPTION>

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

                                        Additional      
                         Common Stock    Paid-In    Retained  Treasury
                        Shares  Amount   Capital    Earnings   Stock   Total

BALANCE, 
  <S>                 <C>         <C>     <C>        <C>       <C>     <C>
  JANUARY 29, 1995    10,416,520  $104    $56,112    $27,509   $(148)  $83,577
  Net loss                                            (5,639)           (5,639)
  Net compensation benefit
   related to stock option plan             (170)                         (170)
  Purchase of 12,500 shares 
   of treasury stock                                             (94)      (94)
  Contribution of 34,164
   shares of treasury stock
   to Retirement Savings Plan                  3                 240       243

BALANCE, 
  FEBRUARY 3, 1996   10,416,520    104     55,945     21,870      (2)   77,917 
  Net income                                           1,834             1,834 
  Issuance of 56,395 
    shares to
   Retirement Savings 
    Plan                 56,395      1        387                          388

BALANCE,
  FEBRUARY 1, 1997   10,472,915    105     56,332     23,704      (2)   80,139 
  Net income                                           3,730             3,730 
   Shares issued under stock
   option plan            5,500                36                           36

BALANCE,
  JANUARY 31, 1998   10,478,415   $105    $56,368    $27,434   $  (2)  $83,905 

</TABLE>



See notes to consolidated financial statements.             

<TABLE>
<CAPTION>


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

                                             1997          1996         1995   
OPERATING ACTIVITIES:
 <S>                                     <C>           <C>          <C>
 Net income (loss)                       $  3,730      $  1,834     $ (5,639)  
   Adjustments:
   Depreciation and amortization            6,667         6,922        8,096    
   Deferred income taxes                    2,557           419       (1,296)   
   Deferred lease payments and other          284           467          870    
   Deferred income                         (1,172)         (767)        (609)
   Net benefit related to stock option plan                             (170) 
   Provision for credit losses                470         2,724        2,754    
   Equity in the income of limited 
     partnership                             (120)         (133)         (64)   
   Net gain from sale of assets               (72)                      (344)   
   Net gain from termination of
     capital leases (Note 5)                             (1,344)   
   (Gain) loss on securitization and
     sale of receivables (Note 2)          (1,050)           20                 
   Acquisition related expenses (Note 8)     (673)
   Litigation settlements (Note 9)                       (2,400)      (3,000)
   Lease incentive (Note 5)                                            4,000
   Changes in operating assets and liabilities:            
      Receivables                          (1,346)           (9)      (5,114)
      Retained interest in receivables sold                (979)        (147)   
      Merchandise inventories              (9,227)       (1,370)      (6,215)   
      Trade accounts payable                1,873         2,570       (7,638)
      Other current and long-term assets    3,267        (6,518)      (3,394)   
      Other current and long-term 
        liabilities                        (1,546)        8,821       (2,572)   
     Net cash provided by (used in) operating 
      activities                            3,642        10,257      (20,482)   

INVESTING ACTIVITIES:
 Purchases of held-to-maturity securities 
   (Note 3)                              (230,433)
 Maturities of held-to-maturity securities 
   (Note 3)                               235,491
 Purchases of property and equipment,
   net of reimbursements received         (14,976)       (6,845)     (12,773)   
 Proceeds from sale/leaseback arrangements
   and other property and equipment sales     365         2,026       11,606    
 Distribution from limited partnership        229           112           86    
    Net cash used in investing activities ( 9,324)       (4,707)      (1,081)   
   
FINANCING ACTIVITIES:
 Net proceeds (repayments) under revolving 
   line of credit and Variable Base 
     Certificate                           (8,137)       (6,260)      27,320    
 Proceeds from short-term and long-term 
     obligations                            3,214         3,878       23,993    
 Principal payments on short-term and
   long-term obligations                   (3,054)       (4,850)     (24,710)   
 Proceeds from securitization and sale of
   receivables (Note 3)                                   6,000                 
 Changes in cash management liability       8,601        (3,556)      (4,757)   
 Changes in cash held by GCC Trust          5,163        (  748)          85
 Payments to acquire treasury stock                                      (94)   
   Net cash provided by (used in) financing 
      activities                            5,787        (5,536)      21,837    

INCREASE IN CASH                              105            14          274    
CASH AT BEGINNING OF YEAR                   1,496         1,482        1,208    
CASH AT END OF YEAR                      $  1,601      $  1,496     $  1,482    

</TABLE>

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. is a regional department and
     specialty store chain based in Fresno,
     California, currently consisting of thirty-seven
     "Gottschalks" department stores and twenty-two
     "Village East" specialty stores located
     primarily in non-major metropolitan cities
     throughout California and in Oregon, Washington
     and Nevada. Gottschalks department stores
     typically offer a wide range of moderate and
     better brand-name and private-label merchandise,
     including men's, women's, junior's and
     children's apparel, cosmetics, shoes and
     accessories, home furnishings and other consumer
     goods. Village East specialty stores offer
     apparel for larger women.

     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  result 
     in actual results differing 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"). Prior to fiscal 1997, the Company's
     consolidated financial statements also included
     the accounts of GCC Trust, a qualified special purpose 
     entity which is no longer consolidated
     as a result of the adoption of Statement of
     Financial Accounting Standards ("SFAS") No. 125,
     "Accounting for Transfers and Servicing of Financial 
      Assets and Extinguishments of
     Liabilities". (See Notes 2 and 3.) All of GCC
     Trust's assets were transferred subsequent to
     December 31, 1996, the effective adoption date of 
     SAS No. 125. 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
     1997, 1996 and 1995 ended on January 31, 1998,
     February 1, 1997 and February 3, 1996,
     respectively.  Fiscal years 1997 and 1996 each
     contained 52 weeks; fiscal year 1995 contained
     53 weeks. The Company's fiscal 1995 results of
     operations were not materially affected by
     results applicable to the 53rd week.
     
     Cash Held by GCC Trust - Cash held by GCC Trust
     of $5,163,000 at February 1, 1997 consists
     primarily of customer credit card payments
     collected through the Company's receivables 
     securitization program and held for the payment
     of monthly interest to certificate holders and
     amounts designated under the prepayment option
     of the Variable Base Certificate. Cash  held by
     GCC Trust in excess of amounts required for
     those purposes are remitted to the Company on a
     daily basis to be used for operating purposes.
     As previously described, effective fiscal 1997,
     GCC Trust is no longer consolidated into the
     Company's financial statements. Amounts due from
     GCC  Trust, totaling $4,922,000 as of January
     31, 1998 are included in other current assets.

     Retained Interest in Receivables Sold - The
     Company adopted the provisions of SFAS No. 125
     effective fiscal 1997. As described more fully
     in Notes 2 and 3, the retained interest in
     receivables sold as of January 31, 1998 consists
     primarily of securities backed by receivables
     sold pursuant to the Company's receivable
     securitization program and various financial
     components which are retained and recorded as
     assets as a result of such sales. Such assets
     include the right to service the receivables
     sold, if any, which is based on a contractually
     specified servicing fee, and the retained rights
     to future interest income from the serviced
     assets in excess of the contractually specified
     servicing fee (interest-only  strips). The
     retained interest in receivables sold is initially 
     recorded at the date of the sale by
     allocating the previous carrying amount between
     the assets sold and the retained interest based
     on their relative fair values. The certificated
     retained interest is subsequently valued in accordance 
     with SFAS No. 115, "Accounting for
     Certain Investments in Debt and Equity
     Securities". In accordance with  SAS No.   115,
     these investments are classified as held-to- maturity 
     and, accordingly, are carried at
     amortized cost as the securities are not subject
     to substantial prepayment risk and the Company
     has the ability and intent to hold the  securities to 
     maturity. The servicing assets, if
     any, and the interest-only strips are amortized
     to operations over the period of estimated net
     servicing income. As of January 31, 1998, the
     estimated cost to service the assets was equal
     to the contractually specified servicing fee,
     resulting in no servicing asset or liability.
     The interest-only strip, net of accumulated
     amortization, totaled $211,000 as of January 31,
     1998. As of February 1, 1997, the retained
     interest in receivables sold consisted only of
     securities backed by receivables sold under the
     Company's receivables securitization program.

     Receivables - Receivables consist primarily of
     customer credit card receivables that do not
     meet certain eligibility requirements of the
     Company's receivable securitization program.
     Such receivables are not certificated and
     include revolving charge accounts with terms
     which, in some cases, provide for payments
     exceeding one year. In accordance with  usual
     industry practice such receivables are included
     in current assets.

     The Company maintains a reserve for possible
     credit losses on such receivables which is
     based on the expected collectibility of those
     receivables. Prior to the implementation of SFAS
     No. 125 in fiscal 1997, the Company maintained    
     reserves for possible credit losses based on the
     expected collectibility of all receivables,
     including receivables sold or certificated. (See
     Note 2.)
     
     Concentrations of Credit Risk -  The Company
     extends credit to individual customers based on
     their credit worthiness and generally requires
     no collateral from such customers.
     Concentrations of credit risk with respect to
     the Company's credit card receivables are
     limited due to the large number of customers
     comprising the Company's customer base. 

     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 was equal to the
     LIFO value of inventories at January 31, 1998
     and February 1, 1997.

     The Company includes in inventory the
     capitalization of certain indirect purchasing,
     merchandise handling and inventory storage costs
     to better match sales with these related costs.

     Store Pre-Opening Costs - Store pre-opening
     costs represent certain expenditures incurred
     prior to the opening of new stores that are
     deferred and amortized generally on a straight-line 
     basis not to exceed a twelve month period
     commencing with the store opening. Store pre-opening 
     costs, net of accumulated amortization,
     of $421,000 at January 31, 1998 and $136,000 at
     February 1, 1997 are included in other current
     assets. The amortization of new store pre-opening costs, 
     totaling $589,000, $1,337,000 and
     $2,524,000 in 1997, 1996 and 1995, respectively,
     is included in depreciation and amortization in
     the accompanying statements of operations.

     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 estimated useful lives of the
     assets, which range from 20 to 40 years for
     buildings, land improvements and leasehold
     improvements and 3 to 15 years for furniture,
     fixtures and equipment. Reimbursements received
     for certain capital expenditures are reported as
     reductions to the original cost of the related    
     assets. Amortization of buildings and equipment
     under capital leases is generally computed by
     the straight-line method over the term of the
     lease or the estimated economic life of the
     asset, depending on which criteria was used to
     classify the lease, and such amortization is
     combined with depreciation in the accompanying
     statements of operations.
          
     Investment in Limited Partnership - The Company
     is the limited partner in a partnership that was
     formed for the purpose of acquiring the land and
     constructing and maintaining the building in
     which the Company's corporate headquarters are
     located. The Company made an initial capital
     contribution of $5,000,000 to acquire a 36%
     ownership interest in the partnership and
     receives favorable rental terms for the space
     occupied in the building. Of the initial
     $5,000,000 capital contribution, $3,212,000 was
     allocated to the investment in limited
     partnership based on the estimated fair market
     value of the land and building and the remaining
     $1,788,000 was allocated to prepaid rent and is
     being amortized to rent expense over the 20 year
     lease term.

     The Company accounts for its investment in the
     limited partnership on the equity method of
     accounting. As of January 31, 1998 and February
     1, 1997, the investment was $2,679,000 and
     $2,766,000, respectively, and prepaid rent, net
     of accumulated amortization, was $793,000 and
     $911,000, respectively. Such amounts are
     included in other long-term assets. The
     Company's equity in the income of the
     partnership, totaling $141,000 in 1997, $133,000
     in 1996 and $64,000 in 1995 is included in
     miscellaneous income.  
     
     Goodwill - The excess of acquisition costs over
     the fair value of the net assets acquired is
     amortized on a straight-line  basis over 20
     years. The Company periodically analyzes the      
     value of net assets acquired to determine
     whether any impairment in the value of such
     assets has occurred. The primary indicators of
     recoverability used by the Company are  current
     or forecasted profitability of the related
     acquired assets as compared to their carrying
     values.

     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 to the
     Company.
     
     Deferred Income - Deferred income consists
     primarily of donated land and cash incentives
     received to construct a new   store and enter into
     a new lease arrangement. Land contributed    to the
     Company is included in land and recorded at
     appraised fair market values.  Donated income is
     amortized to operations  over the average
     depreciable life of the related fixed assets      
     built on the land with respect to 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 70 years.  

     Leased Department Sales -  Net sales include
     leased department sales of $35,179,000,
     $32,781,000 and $29,766,000 in 1997, 1996 and
     1995, respectively. Cost of sales include
     related costs of $30,044,000, $28,006,000 and
     $25,494,000 in 1997, 1996 and 1995,
     respectively.

     Net Credit Revenues - The Company adopted the
     provisions of SFAS No. 125 in fiscal 1997, and
     has changed the presentation  of net credit
     revenues related to the Company's customer credit 
     card receivables for financial statement
     purposes. (See Note 2.) Net credit revenues in
     fiscal 1997 consist primarily of the gain on the
     sale of receivables during that period and   the
     amortization of the interest-only strip. The
     amortization of the interest-only strip
     approximates service charge revenues related to
     receivables sold, net of interest expense
     related to securitized receivables and charge-offs     
     related to receivables sold. Net credit
     revenues also include service charges related to
     the retained interest in receivables sold, net
     of a related provision for credit losses related
     to receivables which were ineligible for sale.
     Net credit revenues in fiscal 1996 and 1995
     consist of services charges related to all
     customer credit card receivables, including
     receivables sold, net of interest expense
     related to securitized receivables and a
     provision for credit losses on all receivables,
     including receivables sold.

     The gain on sale of receivables totaled
     $1,050,000 in 1997, and includes a credit of
     $898,000 related to a change in estimate for the
     allowance for doubtful accounts related to receivables 
     which were ineligible for sale.
     Service charge revenues related to the Company's
     customer credit card receivables totaled
     $11,618,000 in 1997, $10,493,000 in 1996 and
     $10,937,000 in 1995. Interest expense related to
     securitized receivables totaled $3,579,000,
     $3,564,000 and $3,578,000 in 1997, 1996 and
     1995. Charge-offs related to the receivables
     sold totaled $2,234,000 and the provision for credit 
     losses related to receivables which were
     ineligible for sale totaled $470,000 in 1997,
     for a total of $2,704,000. The provision for
     credit losses related to receivables, including
     receivables sold, totaled $2,731,000 and
     $2,463,000 in 1996 and 1995.
     
     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. 

     Net Income (Loss) Per Common Share -    The Company
     adopted the provisions of SFAS No. 128,
     "Earnings per Share", effective for interim
     periods and fiscal years ended after December
     15, 1997. This statement replaces the
     presentation of primary and fully diluted
     earnings   per share  with a presentation of
     "basic" earnings per share, which is based on
     the weighted-average number of common shares
     outstanding during a period, and "diluted"
     earnings per share, which includes the effect of
     stock options and other potentially dilutive      
     securities. In accordance with the provisions of
     the  statement, all previously reported
     earnings per share amounts have been restated to
     reflect the provisions of the new standard. The
     adoption of the standard had no impact on
     previously reported earnings (loss) per share
     amounts.

     Basic earnings (loss) per common share is
     computed based on the weighted average number of
     common shares outstanding which were 10,473,682,
     10,461,424 and 10,416,520 in 1997, 1996 and
     1995, respectively. Diluted earnings (loss)  per
     common share is equal to basic earnings (loss)
     per common share because the effect of
     potentially dilutive securities under the stock
     option plans were antidilutive, or insignificant, 
     in 1997, 1996 and 1995, and therefore not included.

     Non-Cash Transactions - The Company acquired
     certain equipment under a capital lease
     obligation totaling $3,562,000 in 1997 and
     acquired fixtures and equipment under long-term
     debt obligations totaling $2,650,000 in 1996.
     The Company issued or contributed common stock
     to the Retirement Savings Plan with a value of
     $388,000 and $243,000 in 1996 and 1995,
     respectively. 

     Fair Value of Financial Instruments - The
     carrying value of the Company's cash and cash
     management liability, retained interest in
     receivables sold, receivables, notes receivable,
     trade payables and other accrued expenses,
     revolving line of credit and stand-by letters of
     credit approximate their estimated fair values
     because of the short maturities or variable
     interest rates underlying those instruments. 
     The following methods and assumptions were used
     to estimate the fair value for each remaining
     class of financial instruments:
          
          Long-Term Obligations - The fair values of the         
          Company's notes and mortgage loans payable are
          estimated using discounted cash flow analysis,
          based on the Company's current incremental
          borrowing rates for similar types of borrowing
          arrangements. The aggregate estimated fair
          values of such obligations with aggregate
          carrying values of $32,724,000 and $31,933,000
          at January 31, 1998 and February 1, 1997,
          respectively, are $34,241,000 and $32,024,000,
          respectively.
          
          Off-Balance Sheet Financial Instruments -
          The Company's off-balance sheet financial
          instruments consist primarily of the Fixed
          Base Certificates and, as of fiscal 1997,
          the Variable Base Certificate, and related
          borrowings associated with those
          securities. (See Notes 2 and 3.) The
          aggregate estimated fair values of the
          Fixed Base Certificates, based on similar
          issues of certificates at current rates
          for the same remaining maturities, with
          aggregate face values of $46,000,000 at
          both January 31, 1998 and February 1, 1997
          are $44,408,000 and $44,249,000,
          respectively. The estimated fair value of
          the Variable Base Certificate approximates
          its reported value due to the short-term
          revolving nature of the credit card
          portfolio.               

     Stock-Based Compensation - The Company accounts
     for stock-based awards to employees using the
     intrinsic value method in accordance with APB
     No. 25, "Accounting for Stock Issued to Employees".

     Long-Lived Assets - The Company periodically
     evaluates the carrying value of long-lived
     assets to be held and used, including goodwill
     and other intangible assets, when events and
     circumstances warrant such a review. The
     carrying value of a long-lived asset is
     considered impaired when the anticipated
     undiscounted cash flow from such asset is
     separately identified and is less than its
     carrying value. In that event, a loss is
     recognized based on the amount by which the
     carrying value exceeds the fair market value of
     the long-lived asset. Fair market value is
     determined primarily using the anticipated cash
     flows discounted at a rate commensurate with the
     risks involved. Based on such a review, the
     Company determined that no impairment loss need
     be recognized for fiscal years 1997 or 1996.

     Recently Issued Accounting Standards - SFAS No.
     130, "Reporting Comprehensive Income" was
     recently issued and establishes standards for
     reporting and displaying comprehensive income
     and its components in a full set of general-purpose 
     financial statements. The new rules are
     effective for fiscal years beginning after
     December 15, 1997 (fiscal 1998), with earlier
     application permitted. SFAS No. 131, "Disclosure
     about Segments of an Enterprise and Related Information", 
     changes the manner in which operating segments are 
     defined and reported externally to be consistent with the    
     basis on which they are defined and reported on
     internally. The new rules are also effective for
     periods beginning after December 15, 1997, with
     earlier application permitted. The application
     of SFAS No. 130 and 131 will not impact the Company's 
     financial position, results of
     operations or cash flows, and any effect will be
     limited to the form and content of its
     disclosures. The Company does not anticipate
     adoption  of these standards prior to their
     effective dates.

     Reclassifications - Certain amounts in the
     accompanying 1996 and 1995 consolidated
     financial statements have been reclassified to
     conform with the 1997 presentation.

2.   ACCOUNTING CHANGE

     The Company adopted the provisions of SFAS No.
     125 effective fiscal 1997. This statement
     changed the accounting for securitized
     receivables and provides consistent guidance for
     distinguishing transfers of financial assets
     (securitizations) that are sales from transfers
     that are secured borrowings.  SFAS No. 125
     requires the Company to recognize gains and losses 
     on securitizations which qualify as sales
     and to recognize as assets certain financial
     components that are retained as a result of such
     sales. Such assets consist primarily of the
     retained interest in the receivables    sold, the
     right to service the receivables sold, which is
     based on a contractually specified servicing
     fee, and the retained rights to future interest
     income from the serviced assets in excess of the
     contractually specified servicing fee (interest-only 
     strips).  The effect of this accounting
     change was to increase pre-tax net income by
     $1,050,000 for the year ended January 31, 1998.
     Such amount, which includes a credit of $898,000
     related to a change in estimate for the
     allowance for doubtful accounts related to
     receivables which were ineligible for sale, is
     included in net credit revenues in the
     accompanying fiscal 1997 statement of
     operations.

     The provisions of the statement are not
     permitted to be applied retroactively to prior
     periods presented. The Company has, however, made certain 
     reclassifications to amounts in the accompanying fiscal 
     1996 and 1995 statements of operations to more closely conform
     with the financial statement presentation required by this 
     statement.

3.   RECEIVABLES SECURITIZATION PROGRAM

     The Company's receivables securitization program
     provides the Company with a source of working
     capital financing that is generally more cost-effective 
     than traditional debt financing.   Under
     the program, the Company automatically sells all
     of its accounts receivable arising under its
     private label customer credit cards to a
     wholly-owned subsidiary, Gottschalks Credit Receivables 
     Corporation ("GCRC"), and those receivables are subsequently 
     conveyed to a trust, Gottschalks Credit Card Master Trust
     ("GCC Trust"), to be used as  collateral for
     securities issued to investors. GCC Trust is a qualified 
     special purpose entity under SFAS No. 125.  Accordingly, all 
     transfers of receivables to GCC Trust under the Company's 
     securitization program are accounted for as sales for financial
     reporting purposes. The Company retains an ownership interest 
     in certain of the receivables sold under the program, represented 
     by Subordinated and Exchangeable Certificates issued to GCRC by 
     GCC Trust, and also retains an uncertificated ownership interest 
     in receivables that do not meet certain eligibility
     requirements of the program. The Company services and administers 
     the receivables in return for a monthly servicing fee. As of
     January 31, 1998, the following securities have been issued under 
     the securitization program: 

     Fixed Base Certificates.

     In 1994, fractional undivided ownership
     interests in certain of the receivables were
     sold through the issuance of $40,000,000
     principal amount 7.35% Fixed Base Class A-1
     Credit Card Certificates (the "1994 Fixed Base
     Certificates") to third-party investors. An
     additional $6,000,000 principal amount 6.79%
     Fixed Base Class A-1 Credit Card Certificate
     (the "1996 Fixed Base Certificate") was issued
     under the program in 1996. Proceeds from the
     issuances of the 1994 and 1996 Fixed Base
     Certificates (collectively, the "Fixed Base
     Certificates") were used to reduce or repay
     previously outstanding higher interest bearing
     debt obligations of the Company and pay certain
     costs associated with the transaction. Interest
     on the Fixed Base Certificates is earned by the
     certificate holders on a monthly basis and the
     outstanding principal balances of such
     certificates are to be repaid in equal monthly
     installments commencing September 15, 1998
     through September 15, 1999, through the
     application of the principal portion of credit
     card collections during that period. Management
     currently intends to refinance the Fixed Base
     Certificates as they mature with newly issued
     certificates under the program. The issuances of
     the Fixed Base Certificates were accounted for
     as sales for financial reporting purposes.
     Accordingly, the $46,000,000 of receivables
     underlying the Fixed Base Certificates as of
     January 31, 1998 and February 1, 1997 and the
     corresponding debt obligations have been
     excluded from amounts reported in the
     accompanying financial statements.

     Variable Base Certificate.
     
     A Variable Base Class A-2 Credit Card
     Certificate ("Variable Base Certificate") was
     also issued in 1994 in the principal amount of
     up to $15,000,000 to Bank Hapoalim. The Variable
     Base Certificate represents a fractional
     undivided ownership interest in certain
     receivables held by GCC Trust and functions
     similar to a revolving line of credit
     arrangement.

     Under the provisions of SFAS No. 125, effective
     fiscal 1997, the transfer of receivables under
     the Variable Base Certificate are treated as
     sales for financial reporting purposes.
     Accordingly, the retained interest in
     receivables sold pertaining to the Variable Base
     Certificate, totaling $7,700,000 as of January
     31, 1998 and the corresponding outstanding
     borrowings against the Variable Base Certificate
     with Bank Hapoalim have been excluded from
     amounts reported in the accompanying financial
     statements. Prior to the adoption of SFAS No.
     125 in fiscal 1997, transfers of receivables      
     underlying the Variable Base Certificate were
     accounted for as secured borrowings in the
     accompanying fiscal 1996 financial statements
     and the outstanding balance of the Variable Base
     Certificate, totaling $7,600,000 at February 1,
     1997, and the corresponding outstanding
     borrowings against the Variable Base Certificate
     with Bank Hapoalim are included in amounts   
     reported in the accompanying fiscal 1996
     financial statements.
     
     Other Program Requirements.

     Under the program, the Company is required,
     among other things, to maintain certain
     portfolio performance standards which include
     the maintenance of a minimum portfolio yield,    
     maximum levels of delinquencies and write-offs
     of customer credit card receivables and minimum
     levels of credit card collection rates. The
     Company was in compliance with all applicable
     requirements of the program at January 31, 1998.  
     In addition to the Fixed and Variable Base
     Certificates, GCRC may, upon the satisfaction of 
     certain conditions, offer additional series of 
     certificates to be issued by GCC Trust. While management
     intends to refinance the previously described outstanding 
     certificates as they mature, management is not presently
     contemplating the issuance of any additional certificates 
     in fiscal 1998.

4.   DEBT OBLIGATIONS
     
     Revolving Lines of Credit.
 
     The Company has a revolving line of credit
     arrangement with Congress Financial Corporation
     ("Congress") which provides the Company with an
     $80,000,000 working capital facility through March 30, 2000. 
     Borrowings under the arrangement are limited to a 
     restrictive borrowing base equal to 65% of eligible merchandise
     inventories, increasing to 70% of such inventories during 
     the period of September 1 through December 20 of each year to 
     fund increased seasonal inventory requirements.   Interest on 
     outstanding borrowings under the facility is charged at a rate 
     of approximately LIBOR plus 2.5% (8.34% at January 31, 1998),
     with no interest charged on the unused  portion
     of the line of credit.  For fiscal 1998, the
     interst rate applicable to the line of credit
     has been reduced by 1/4% to approximately LIBOR
     plus 2.25%. The maximum amount available for
     borrowings under the line of credit was $56,920,000 as of 
     January 31, 1998, of which $30,767,000 was outstanding as of 
     that date. Of that amount, $25,000,000 has  been classified as
     long-term in the accompanying financial statements as the Company 
     does not anticipate repaying that amount prior to one year from the
     balance sheet date. The agreement contains one financial covenant, 
     pertaining to the maintenance of a minimum tangible net worth,
     with which the Company was in compliance as of
     January 31, 1998.
     
     The Company also has up to $15,000,000 of
     additional working capital financing available
     under the Variable Base Certificate, issued to
     Bank Hapoalim (Note 3). Borrowings against the
     Variable Base Certificate are limited to a
     percentage of the outstanding principal balance
     of receivables underlying the Variable Base  Certificate and 
     therefore, the Company's borrowing capacity under the facility 
     is subject to seasonal variations that may affect the
     outstanding principal balance of such
     receivables. Interest on outstanding borrowings
     on the facility is charged at a rate of approximately LIBOR 
     plus 1.0%, not to exceed a maximum of 12.0% (6.56% at 
     January 31, 1998). 

     At January 31, 1998, $7,700,000 was outstanding
     under facility with Bank Hapoalim, which was the
     maximum amount available for borrowings as of
     that date. Under the provisions of SFAS No. 125,
     effective fiscal 1997, borrowings against the
     Variable Base Certificate with Bank Hapoalim are
     treated as "off-balance sheet" borrowings for
     financial reporting purposes and are excluded
     from amounts reported in the accompanying
     financial statements (see Notes 2 and 3).
     Because the provisions of SFAS No. 125 are not
     retroactively applied, outstanding borrowings
     against the Variable Base Certificate as of
     February 1, 1997, totaling $7,600,000, are
     reported in the Company's fiscal 1996 financial
     statements.

<TABLE>
<CAPTION>



     Long-Term Obligations. 
     Notes and mortgage loans payable consist of the
     following:

                                             January 31, February 1,
     (In thousands of dollars)                 1998        1997    
     <S>                                     <C>           <C>
     Mortgage loans payable to financial
       institution, payable in monthly
       principal installments of $173
       including interest at 9.23% and
       9.39%, principal due and
       payable October 1, 2010 and
       November 1, 2010; collateralized
       by certain real property, assets
       and certain property and equipment     $19,501       $19,738      
     Mortgage loan payable to financial
       institution, payable in monthly
       principal installments of $79 plus
       interest at 10.45%, principal due
       and payable January 1, 2002;
       collateralized by certain real
       property, assets and certain
       property and equipment                  3,800         4,750

     Mortgage loan payable to financial
       institution, payable in monthly
       principal installments of $71 plus
       interest at 9.97%, principal due 
       and payable April 1, 2004;
       collateralized by certain real
       property, assets and certain
       property and equipment                  5,286         3,000

     Notes payable to Federated
       Department Stores, Inc., payable in
       quarterly principal installments of
       $169 including interest at 10.0%, 
       principal due and payable
       March and July 2001                     1,892         2,351

     Fixture loans and other                   2,245         2,094
                                              32,724        31,933
     Less current portion                      2,641         2,072
                                             $30,083       $29,861

</TABLE>

     
     The mortgage loan payable to financial institution with
     an outstanding balance of $5,286,000 at January 31,
     1998 consists of amounts advanced to the Company under
     a seven-year financing arrangement with Heller
     Financial, Inc. ("Heller") entered into on October 2,
     1996, providing for the mortgage of its department
     store in San Luis Obispo, California. The Company
     received $3,000,000 of the total $6,000,000 arrangement
     in October 1996, and received the remaining $3,000,000
     in March 1997.

     Federated Department Stores, Inc. financed the
     Company's acquisition of certain fixtures and
     equipment located in the Broadway store
     locations that were assumed by the Company
     during fiscal 1996. (See Note 5).

     The scheduled annual principal maturities on
     notes payable and mortgage loans are $2,641,000,
     $2,790,000, $2,883,000, $2,510,000 and
     $1,395,000 for 1998 through 2002.
 
     Debt issuance costs related to the Company's
     various financing arrangements are included in
     other current and long-term assets and are
     deferred and charged to operations as additional
     interest expense on a straight-line basis over
     the life of the related indebtedness. Deferred
     debt issuance costs, net of accumulated
     amortization, amounted to $1,734,000 at January
     31, 1998 and $2,260,000 at February 1, 1997.

     Interest paid, net of amounts capitalized, was
     $10,302,000,  $11,059,000 and $10,927,000 in
     1997, 1996 and 1995, respectively. Capitalized
     interest expense was $114,000, $37,000 and 
     $278,000 in 1997, 1996 and 1995, respectively.
     The weighted-average interest rate charged on
     the Company's various revolving line of credit
     arrangements was 8.16% in 1997, 8.62% in 1996
     and 8.75% in 1995.
     
     Certain of the Company's long-term financing
     arrangements include various restrictive
     covenants. The Company was in compliance with
     such covenants as of January 31, 1998.  

5.   LEASES

     The Company leases certain retail department
     stores under capital leases that expire in
     various years through 2020.  The Company also
     leases certain retail department stores,
     specialty stores, land, furniture, fixtures and
     equipment under 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 in excess of specified
     minimum levels, 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.

     Certain of the Company's operating leases also
     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 lease term and
     records the difference between expense charged
     to operations and amounts payable under the
     leases as deferred lease payments.  Deferred
     lease payments totaled $6,463,000 at January 31,
     1998 and $6,157,000 at February 1, 1997.

     Future minimum lease payments, by year and in
     the aggregate, under capital leases and
     noncancellable operating leases with initial or
     remaining terms of one year or more consist of
     the following at January 31, 1998:

<TABLE>
<CAPTION>
                                      Capital           Operating 
(In thousands of dollars)             Leases            Leases   
         <C>                         <C>               <C>
         1998                        $ 2,070           $ 15,360
         1999                          2,070             16,567
         2000                          1,730             14,579
         2001                            752             14,023
         2002                            752             13,901
         Thereafter                    6,894            133,578
         Total minimum           
           lease payments             14,268           $208,008
         Amount representing                
           interest                   (5,622)
         Present value of 
           minimum lease 
           payments                    8,646      
         Less current portion         (1,309)
                                     $ 7,337     
 
</TABLE>

<TABLE>
<CAPTION>


    Rental expense consists of the following:

     (In thousands of dollars)      1997         1996       1995  
     Operating leases:
      Buildings:
        <S>                     <C>           <C>         <C>
        Minimum rentals         $13,099       $11,897     $ 9,796
        Contingent rentals        1,911         2,213       2,315
      Fixtures and equipment      4,358         5,439       4,679
                                $19,368       $19,549     $16,790
</TABLE>

             

     One of the Company's lease agreements contains a
     restrictive covenant pertaining to the debt to
     tangible net worth ratio with which the Company
     was in compliance at January 31, 1998.

     In 1996, the Company entered into agreements
     with Broadway Stores, Inc. ("Broadway"), a
     wholly-owned subsidiary of Federated Department
     Stores, Inc., and the respective landlords,
     whereby the Company vacated its original
     location in the Modesto, California Vintage
     Faire Mall and sub-leased the Broadway's former
     store in that mall for the remaining twelve
     years of the Broadway lease. The Company also
     vacated its original location in the Fresno,
     California Fashion Fair Mall and reopened a
     store in that mall under a new 20-year lease in
     the former Broadway store location. The Company
     recognized a pre-tax gain of $1,344,000 upon the
     termination of the original leases, which were
     accounted for as capital leases by the Company,
     representing the difference between the capital
     lease obligations and the net book value of the
     related assets recorded under the capital
     leases, and such gain is included in
     miscellaneous income for the year ended February
     1, 1997. The new leases have been accounted for
     as operating leases for financial reporting
     purposes.

     Lease Incentive. 

     The Company received $4,000,000 in 1995 as an
     incentive to enter into a lease in connection
     with one of the fiscal 1995 new store openings.
     The $4,000,000 received was deferred for
     financial reporting purposes and is being
     amortized into operations over the ten-year
     minimum lease period. The deferred lease
     incentive, net of accumulated amortization,
     amounted to $3,130,000 at January 31, 1998 and
     $3,731,000 at February 1, 1997. 

     Sale and Leaseback Arrangement.         
     
     In 1995, the Company sold the land, building and
     leasehold improvements comprising its department
     store in Capitola, California and subsequently
     leased the department store back under a twenty-year 
     lease with four five-year renewal options.
     The lease has been accounted for as an  operating
     lease for financial reporting purposes. The  $11,600,000 
     proceeds received from the sale were used to reduce 
     previously outstanding borrowings.  

6.   INCOME TAXES


<TABLE>
<CAPTION>

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

     (In thousands of dollars)      1997        1996        1995  
     Current:
        <S>                            <C>     <C>       <C>
        Federal                        92      $  375    $(1,678)
        State                           8         464          2
                                      100         839     (1,676)
       Deferred:
        Federal                     1,976         704       (857)
        State                         581        (285)      (439)
                                    2,557         419     (1,296)
                                   $2,657      $1,258    $(2,972)
    
</TABLE>


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

<TABLE>
<CAPTION>
                       
                                      January 31,            February 1, 
                                         1998                   1997         
                                 Deferred   Deferred     Deferred   Deferred
                                   Tax        Tax           Tax        Tax
                                Assets   Liabilities    Assets   Liabilities    
Current:
    <S>                         <C>        <C>           <C>        <C>
    Vacation accrual and
      employee vacation
      benefits                  $   689                   $   467
    Credit losses                   572                       566
    Accrued employee 
      benefits                      353                       257
    State income taxes              332                       124
    LIFO inventory reserve                 $ (2,942)                $ (2,841)
    Accelerated tax deduction
      for workers' compensation
      insurance premiums                       (574)           17
    Supplies inventory                       (1,429)                    (951)
    Gain deferred for tax
      related to adoption
      Of SFAS No. 125                          (450)   
    Other items, net                803      (1,137)          875       (668)
                                  2,749      (6,532)        2,306     (4,460)
  Long-Term:
    Net operating loss
      carryforwards               4,541                     4,674
    General business
      credits                     2,034                     1,985
    Alternative minimum
       tax credits                  777                       510
    Depreciation expense                     (8,503)                  (8,143)
    Accounting for leases           913      (3,408)          915     (3,433)
    Deferred income               1,699      (1,958)        1,988     (1,746)
    Other items, net                567        (454)          697       (311)
                                 10,531     (14,323)       10,769    (13,633)
                                $13,280    $(20,855)      $13,075   $(18,093)
</TABLE>

     


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

<TABLE>
<CAPTION>


                          1997         1996        1995 

<S>                      <C>         <C>        <C>
Statutory rate           35.0%       35.0%      (35.0)%
State income taxes,
  net of federal income
  tax benefit             5.9         5.7         (2.7)
Amortization of goodwill   .6         1.3           .5
General business credit  (1.2)                          
Nondeductible penalties                             .3
Other items, net          1.3        (1.3)         2.4
Effective rate           41.6%       40.7%      (34.5)%
        
</TABLE>

     
     The Company received income tax refunds, net of
     payments, of $195,000 in 1997 and $3,399,000 in
     1996. There were no income tax refunds
     receivable at January 31, 1998 or February 1,
     1997. At January 31, 1998, the Company has, for
     federal tax purposes, net operating loss
     carryforwards of $11,400,000 which expire in the
     years 2009 through 2012, general business
     credits of $1,018,000 which expire in the years
     2008 through 2011, and alternative minimum tax
     credits of $610,000 which may be used for an
     indefinite period. At January 31, 1998, the
     Company has, for state tax purposes, net
     operating loss carryforwards of $7,400,000 which
     expire in the years 1999 through 2002,
     enterprise zone credits of $1,015,000 which
     expire in the years 2005 through 2013, and
     alternative minimum tax credits of $166,000
     which may be used for an indefinite period.
     These carryforwards are available to offset
     future taxable income and are expected to be
     fully utilized.

7.   STOCK OPTION PLANS

     The Company's stock option plans consist of the
     following:
     
     The 1986 Plans:

     The 1986 Employee Incentive Stock Option Plan
     (the "1986 ISO Plan") provided for the grant of
     options to three key officers of the Company to
     purchase up to 160,000 shares of the Company's
     common stock at a price equal to 100% or 110% of
     the market value of the common stock on the date
     of grant. All options under the 1986 ISO Plan
     were to have been exercised within five years of
     the date of the grant. All unexercised options
     under the 1986 ISO Plan expired as of the year
     ended February 3, 1996.  

     The 1986 Employee Nonqualified Stock Option Plan
     (the "1986 Nonqualified Plan") provided for the
     grant of options to purchase up to 510,000
     shares of the Company's common stock to certain
     officers and key employees of the Company.
     Options granted under this plan generally became
     exercisable at a rate of 25% per year beginning
     on or one year after the grant date. The options
     were exercisable on a cumulative basis and
     expired no later than four or five years from
     the date of grant. Substantially all of the
     options under this plan were granted at a price
     below the fair market value of the stock on the
     date of the grant, however, such options had
     expired by the end of fiscal 1995. The Company
     recognized compensation benefit related to this
     plan of $170,000 in 1995. The benefit resulted
     from the reversal of previously recognized
     compensation expense upon the forfeiture or
     expiration of unexercised options. No
     compensation benefit or expense related to this
     plan was recognized in 1997 or 1996. 

     No new grants may be make under either of the
     1986 Plans.

     The 1994 Plans:

     The 1994 Key Employee Incentive Stock Option
     Plan (the "1994 ISO Plan") provides for the
     grant of options to purchase up to 500,000
     shares of the Company's common stock to certain
     officers and key employees of the Company.
     Options granted under this plan may not be
     granted at less than 100% of the fair market
     value of such shares on the date the option is
     granted and become exercisable at a rate of 25%
     per year beginning one year after the date of
     the grant. The options are exercisable on a
     cumulative basis and expire no later than ten
     years after the date of the grant.  

     The 1994 Director Nonqualified Stock Option Plan
     (the "1994 Director Nonqualified Plan") provides
     for the grant of options to purchase up to
     50,000 shares of the Company's common stock to
     certain directors of the Company. Options
     granted under this plan shall be granted at the
     fair market value of such shares on the date the
     option is granted and become exercisable at a
     rate of 25% per year beginning one year after
     the date of the grant. The options are
     exercisable on a cumulative basis and expire no
     later than ten years after the date of the
     grant.

     Option activity under the plans is as follows:

<TABLE>
<CAPTION>


                                                               Weighted-
                                                                Average
                                               Number of       Exercise
                                                Shares           Price 

<S>                                            <C>              <C>
Outstanding, January 28, 1995
 (179,746 exercisable at a weighted-
   average price of $12.81)                     643,746          $10.74
 Granted (weighted-average fair value
   of $4.08)                                     28,000            6.63
 Canceled                                      (191,746)          12.63

Outstanding, February 3, 1996
 (133,000 exercisable at a weighted-
   average price of $9.93)                      480,000            9.74
 Granted (weighted-average fair value
   of $3.54)                                     45,000            5.75
 Canceled                                       (34,000)           9.88

Outstanding, February 1, 1997
 (236,000 exercisable at a weighted-
 average price of $9.84)                        491,000            9.37    
 Granted (weighted-average fair value
   of $4.26)                                     62,000            6.94 
 Exercised                                       (5,500)           6.55 
 Canceled                                       (78,500)           9.46

Outstanding, January 31, 1998
 (283,500 exercisable at a weighted-
 average price of $9.72)                        469,000           $9.06


</TABLE>



     Additional information regarding options
outstanding as of January 31, 1998 is as follows:

<TABLE>
<CAPTION>

                         Options Outstanding             Options Exercisable
                            Weighted-Avg.
                             Remaining
   Range of       Number    Contractual   Weighted-Avg.     Number    Exercise
Exercise Prices Outstanding  Life (yrs.)  Exercise Price  Exercisable   Price
                                  
<C>      <C>     <C>          <C>            <C>           <C>         <C>
$5.38 to $10.87  469,000      6.8 yrs.       $9.06         283,500     $9.72   
                                                   

     At January 31, 1998, 45,500 and 30,000 shares were
available for future grants under the 1994 ISO Plan and
the 1994 Director Nonqualified Plan, respectively.

     Additional Stock Plan Information. 

     As described in Note 1, the Company continues to
     account for its stock-based awards using the
     intrinsic value method in accordance with
     Accounting Principles Board No. 25, "Accounting
     for Stock Issued to Employees", and its related   
     interpretations. Accordingly, with the exception
     of the compensation benefit recognized in fiscal
     1995 in connection with the Company's 1986 Plan,
     no compensation expense has been recognized in
     the financial statements for  employee stock
     arrangements.

     SFAS No. 123 "Accounting for Stock-Based
     Compensation", requires the disclosure of pro-forma 
     net income (loss) and earnings (loss) per
     share had the Company adopted the fair value
     method as of the beginning of fiscal 1995. 
     Under SFAS 123, the fair value of stock-based
     awards to employees 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: 
     expected life, 5 years; stock volatility, 51.09%
     in 1997 and 49.74% in 1996 and 1995; risk-free
     interest rates, 5.41% in 1997 and 6.30% in 1996
     and 1995; and no dividends during the expected
     term. The Company's calculations are based on a
     multiple option valuation approach and
     forfeitures are recognized as they occur. Pro-forma 
     net income (loss) and earnings (loss) per
     share, had the computed fair values of the 1997,
     1996 and 1995 awards been amortized to expense
     over the vesting period of the awards, would
     have been $3,693,000, or $.35 per share in 1997
     and $1,816,000, or $.17 per share in 1996. There
     would have been no impact in 1995. The impact of
     outstanding non-vested stock options granted
     prior to 1995 has been excluded from the pro-forma 
     calculation; accordingly, the 1997, 1996
     and 1995 pro-forma adjustments are not
     indicative of future period pro-forma
     adjustments, when the calculation will apply to
     all applicable stock options. 

8.   EMPLOYEE BENEFIT PLANS

     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.  Under the Plan,
     employees currently may elect to have up to 15%
     of their annual eligible compensation, subject
     to certain limitations, deferred and deposited
     with a qualified trustee. During fiscal 1997,
     the Company revised its discretionary
     contribution policy for the Plan such that
     contributions are now made on a quarterly basis
     of up to 3% of a participants' quarterly
     eligible compensation, with the ability to
     receive an additional contribution of up to 1%
     of annual eligible  compensation, depending on
     the Company's quarterly and annual financial
     performance during those periods. Prior to
     fiscal 1997, the Company, at the discretion of
     the Board of Directors, could elect to make an
     annual discretionary contribution to the Plan of
     up to 2% of each participant's annual eligible
     compensation. Participants are immediately
     vested in their voluntary contributions to the
     Plan and are 100% vested (25% per year) in the
     Company's matching contribution to the Plan
     after four years of continuous service. The
     Company recognized $749,000, $275,000 and
     $500,000 in expense representing the Company's
     annual  contribution to the Plan in 1997, 1996
     and 1995, respectively. The Company contributed
     cash to the Plan in fiscal 1997, with which the
     Plan subsequently purchased common stock of the
     Company to distribute to the participants. The
     Company contributed common stock of the Company
     directly to the Plan in 1996 and 1995.

     A Voluntary Employee Beneficiary Association
     ("VEBA") trust has been established by the
     Company for the purpose of funding  employee
     vacation benefits.

9.   ACQUISITION RELATED EXPENSES

     On July 3, 1997, the Company entered into a non-binding 
     letter of intent with El Corte Ingles
     ("ECI"), of Spain, and The Harris Company
     ("Harris" ). The letter of intent contemplated the 
     purchase of all of the common stock of
     Harris, a wholly-owned subsidiary of ECI, which
     currently operates nine department stores
     located throughout Southern California. The parties 
     were unable to agree on the terms of the
     transaction and terminated negotiations in
     October 1997. The Company incurred various non-recurring 
     costs in connection with the proposed
     acquisition, consisting primarily of investment
     banking, legal and accounting fees. Such costs,
     totaling $673,000, are classified as acquisition
     related expenses in the accompanying 1997
     statement of operations.

10.  COMMITMENTS AND CONTINGENCIES 
     
     The Company received $3,300,000 in 1996 in
     connection with the filing of certain amended
     income tax returns. The Internal Revenue Service
     has preliminarily disallowed deductions taken on
     these returns. The Company intends to pursue the
     matter in court and contest the matter
     vigorously. While it is currently impossible to
     determine the final disposition of this matter,
     management does not believe that its ultimate
     resolution will have a material adverse effect
     on the financial position or results of
     operations of the Company.

     In addition to the matter described above, the
     Company is party to legal proceedings and
     claims which arise during the ordinary course of
     business. In the opinion of management, the  ultimate 
     outcome of such litigation and claims
     will not have a material adverse effect on the
     Company's financial position  or results of its
     operations.
     
     The Company arranges for the issuance of letters
     of credit in the ordinary course of business
     pursuant to certain factor and vendor contracts.
     As of January 31, 1998, the Company had outstanding 
     letters of credit amounting to
     $2,877,000. Management believes the likelihood
     of non-performance under such contracts is
     remote.

     The Company has entered into an agreement to
     open one new department store in the second half
     of fiscal 1998 and is in process of remodeling
     certain existing store locations. The estimated
     cost of such projects is $15,482,000. Such
     projects are expected to be fully complete in
     fiscal 1998, however, there can be no assurance
     that the completion of such projects will not be
     delayed subject to a variety of conditions
     precedent or other factors.

11.  QUARTERLY RESULTS OF OPERATIONS
     (UNAUDITED)

     The following is a summary of the unaudited
     quarterly results of operations for 1997 and
     1996 (in thousands, except per share data):


</TABLE>
<TABLE>
<CAPTION>

                                       1997                    

Quarter Ended         May 3   August 2    November 1   January 31

<S>                  <C>       <C>         <C>          <C>
Net sales            $90,506   $99,997     $101,466     $156,223
Gross profit          28,510    32,279       32,871       49,974
Income (loss) before  
  income tax expense      
  (benefit)           (1,673)     (422)      (2,516)      10,998
Net income (loss)       (987)     (248)      (1,485)       6,450
Net income (loss) 
  per common share - 
  basic and diluted     (.09)     (.02)        (.14)         .62

</TABLE>

<TABLE>
<CAPTION>

                                     1996                      
Quarter Ended         May 4   August 3    November 2   February 1

<S>                  <C>       <C>         <C>          <C>
Net sales            $85,560   $95,675     $95,675      $145,249
Gross profit          26,830    30,392      30,719        47,054 
Income (loss) before  
  income tax expense      
  (benefit)           (2,099)   (1,245)     (2,430)        8,866
Net income (loss)     (1,322)   (  785)     (1,530)        5,471
Net income (loss) 
  per common share - 
  basic and diluted     (.13)     (.07)       (.15)          .52

</TABLE>
  
     The Company's quarterly results of operations
     for the three month period ended January 31,
     1998 includes a credit of $898,000 related to a
     change in estimate for the allowance for
     doubtful accounts related to receivables which
     were ineligible for sale. (See Note 2.) The
     quarterly results of operations for the three
     month periods ended January 31, 1998 and
     February 1, 1997 also include adjustments to the
     inventory shrinkage reserve resulting in an
     increase to the gross margin of $637,000 and
     $795,000, respectively.
                  **********



<TABLE>
<CAPTION>

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

_______________________________________________________________________________

COL. A            COL. B       COL. C      COL. D       COL. E        COL. F
_______________________________________________________________________________

                                  ADDITIONS         
               Balance at   Charged to    Charged to                Balance at
               Beginning    Costs and   Other Accounts  Deductions     End of
DESCRIPTION    of Period    Expenses       Describe     Describe       Period 


 <S>         <C>        <C>            <C>           <C>              <C> 
 Year ended January 31, 1998:
  Deducted from asset
  accounts:
  Allowance for doubtful
   accounts.. $1,322,107 $2,704,104(1) $( 898,000)(2) $(2,691,032)(3) $  437,179
  Allowance for 
   vendor claims 
   receivable $   80,000 $                                            $   80,000
  Allowance for notes
   receivable $      -0- $                                            $      -0-
  
 Year ended February 1, 1997:
  Deducted from asset
  accounts:
  Allowance for 
   doubtful
   accounts.  $1,261,983 $2,730,502 (1)               $(2,670,378)(3) $1,322,107
  Allowance for vendor
   claims 
   receivable $   90,000 $  (10,000)(5)                               $   80,000
  Allowance for notes
   receivable.$  282,767 $ (282,767)(6)                               $      -0-
 
Year ended February 3, 1996:
  Deducted from asset
  accounts:
  Allowance for 
   doubtful
   accounts.. $1,297,231 $2,462,504 (1)              $(2,497,752)(3) $1,261,983
  Allowance for vendor
   claims 
   receivable $   98,000 $   (8,000)(5)                              $   90,000
  Allowance for notes
   receivable.$  150,000 $  132,767 (4)                              $  282,767

</TABLE>
   
 Notes:

(1)  Provision for loss on credit sales.
(2)  Represents a change in estimate for the
     allowance  for doubtful accounts related to
     receivables which were ineligible for sale. (See
     Note 2 to the Consolidated Financial
     Statements.) This amount is included in net
     credit revenues in the fiscal 1997 statement of
     operations.
(3)  Uncollectible accounts written off, net of
     recoveries.
(4)  Provision for uncollectible portion of note
     receivable.
(5)  Reduction in provision for uncollectible vendor
     claims receivable.
(6)  Reversal of uncollectible portion of note
     receivable recorded in connection with           
     transferring related asset to a held for sale
     classification during the year ended             
     February 1, 1997.    




                  SIGNATURES


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

Dated: March 20, 1998

GOTTSCHALKS INC.


                              By: \s\ Joseph W. Levy   
                                Joseph W. Levy
                                Chairman and Chief     
                                Executive Officer


     Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

Signature                Title                    Date

                      Chairman and Chief
                      Executive Officer
                      (principal executive
\s\ Joseph W. Levy    officer)                 March 20, 1998
Joseph W. Levy


                      Vice Chairman of
\s\ Gerald H. Blum    the Board                March 20, 1998
Gerald H. Blum            

                         
                       President and Chief              
\s\ James R. Famalette Operating Officer       March 20, 1998
James R. Famalette


                       Senior Vice President
                       and Chief Financial 
\s\ Alan A. Weinstein  Officer (principal         
Alan A. Weinstein      finanical and           
                       accounting officer)     March 20, 1998               


\s\ O. James Woodward III Director             March 20, 1998
O. James Woodward III



\s\ Bret W. Levy          Director             March 20, 1998
Bret W. Levy



\s\ Sharon Levy           Director             March 20, 1998
Sharon Levy


\s\ Joseph J. Penbera     Director             March 20, 1998
Joseph J. Penbera


\s\ Fred Ruiz             Director             March 20, 1998
Fred Ruiz


\s\ Max Gutmann           Director             March 20, 1998
Max Gutmann