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

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FORM 10-K

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

For the fiscal year ended January 31, 2004

OR





FOR THE TRANSITION PERIOD FROM ___________ TO  _____________

Commission file number 1-09100



Gottschalks Inc.



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

7 River Park Place EastFresno, California      93720

(559) 434-4800

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



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

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



Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesxNooIndicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.xIndicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).  YesoNoxThe aggregate market value of the
voting stock held by non-affiliates of the Registrant as of August 2, 2003:
Common Stock, $.01 par value: $16,902,103.

On March 31, 2004 the Registrant had outstanding 12,883,802 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 24, 2004, which will be filed pursuant to Regulation 14A, are
incorporated by reference into Part III of this Form 10-K.
III of this Form 10-K.






Gottschalks  Inc.
                        2003 ANNUAL REPORT ON FORM 10-K
                               INDEX

Part I.

PageItem 1.
Business1Item 2.
Properties15Item 3.
Legal Proceedings16Item 4.
Submission of Matters to a Vote of Security Holders17Part II.Item 5.
Market for the Registrant's Common Stock and Related Stockholder Matters17Item 6.
Selected Financial Data18Item 7.
Management's Discussion and Analysis of Results of Operations and Financial Condition22Item 7a.
Quantitative and Qualitative Disclosures About Market Risks43Item 8.
Financial Statements and Supplementary Data43Item 9.
Changes in and Disagreements with Accountants on Auditing and Financial Disclosures43Item 9A.
Controls and Procedures43Part III.Item 10.
Directors and Executive Officers of the Registrant43Item 11.
Executive Compensation45Item 12.
Security Ownership of Certain Beneficial Owners and Management45Item 13.
Certain Relationships and Related Transactions45Item 14.
Principal Accounting Fees and Services45Part IV.Item 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K46Signatures
83PART I
Item 1. BUSINESS
GENERAL
Gottschalks Inc. (the "Company") is a
regional department and specialty store chain based in Fresno, California. As of
January 31, 2004, the Company operated 63 full-line "Gottschalks"
department  stores located in 6 Western states, with 39 stores located in
California, 12 in Washington, 6 in Alaska, and 2 in each of Oregon, Nevada and
Idaho. The Company also operates 11 "Village East" and
"Gottschalks" specialty stores which carry a limited selection of
merchandise.
The Company's department stores typically offer a wide range
of better to moderate brand-name and private-label merchandise, including mens,
womens, juniors and childrens apparel; cosmetics, shoes, fine jewelry and
accessories; and home furnishings including china, housewares, domestics, small
electric appliances and, in selected locations, furniture and mattresses. The
majority of the Company's department stores range from 40,000 to 150,000 in
gross square feet, and are generally anchor tenants of regional shopping malls
or strategically located strip centers.
The Company has operated continuously for 100 years since it
was founded by Emil Gottschalk in 1904. At the time the Company initially
offered its stock to the public in 1986, the Company operated 10 department
stores. Since then, a net total of 53 department stores have been added.
Twenty-six stores were added through acquisitions.  The Company is incorporated
in the state of Delaware.
Gottschalks Inc. dissolved its wholly-owned subsidiary,
Gottschalks Credit Receivables Corporation ("GCRC"), on July 30, 2003.
This subsidiary was formed in 1994 in connection with a receivables
securitization program.  As more fully described in Note 2 to the Consolidated
Financial Statements, on January 31, 2003 the Company sold its credit card
accounts and accounts receivable to Household Bank (SB), N.A. ("Household").
(See Note 2 to the Consolidated Financial Statements.)
OPERATING STRATEGY

Merchandising Strategy

The Company's merchandising strategy is directed at offering
and promoting moderate to better priced brand-name merchandise recognized by its
customers for style and value. Brand-name merchandise is complemented with
offerings of private-label. Brand-name apparel, shoes, cosmetics and accessories
lines carried by the Company include Estee Lauder, Lancome, Clinique, Chanel,
Dooney & Bourke, Nine West, Liz Claiborne, Calvin Klein,  Guess?, Nautica,
Karen Kane, Tommy Hilfiger, Ralph Lauren, Haggar, Koret and Levi Strauss.
Brand-name merchandise carried for the home includes Waterford, Lenox, Lladro, Krups,
Kitchenaid, Calphalon  and Samsonite.

The Company has also directed considerable effort towards
improving the quality and increasing the penetration of private-label
merchandise in its overall merchandise mix. The Company's most well recognized
private-label is "Shaver Lake," currently carried in the womens, mens
and childrens departments, as well as in certain departments in the home
division. The "Shaver Lake" brand is exclusively offered in
Gottschalks stores, and provides an opportunity to increase Gottschalks' brand
acceptance and promote competitive differentiation. The Company plans to expand
its private label offerings in mens and womens casual clothing in 2004.

The Company purchases merchandise from numerous suppliers. In
no instance did purchases from any single vendor amount to more than 6% of the
Company's net purchases in fiscal 2003. The Company's merchandising activities
are conducted centrally from its corporate offices in Fresno, California.

The Company's merchandise mix as a percentage of total sales
(including leased department sales) is reflected in the following table:

Fiscal Years
                        -------------------------------------------
                         2003     2002     2001     2000     1999
                        -------  -------  -------  -------  -------
Women's Apparel........   28.1 %   29.0 %   29.3 %   28.0 %   26.6 %
Cosmetics, Shoes
  & Accessories........   24.3     23.6     22.5     22.5     22.2
Home...................   20.1     20.4     20.1     20.8     22.1
Men's Apparel..........   13.3     13.0     13.8     14.0     13.7
Junior's and
 Children's Apparel....   10.6     10.5     10.5     10.7     10.3
 Leased Departments....    3.6      3.5      3.8      4.0      5.1
                        -------  -------  -------  -------  -------
  Total Sales..........  100.0%%  100.0 %  100.0 %  100.0 %  100.0 %
                        =======  =======  =======  =======  =======

Store Locations

The Company's stores are located primarily in diverse,
growing, non-major metropolitan or suburban areas in the western United States
where management believes there is strong demand and fewer competitors offering
similar better to moderate brand-name merchandise and a high level of customer
service. The Company has historically avoided expansion into the center of major
metropolitan areas that are served by the Company's larger competitors and has
instead sought to open new stores in nearby suburban or secondary market areas.

The Company's department stores are generally anchor tenants
of regional shopping malls or strategically located strip centers. Other anchor
tenants in the malls or strip centers generally complement the Company's goods
with a mixture of competing and non-competing merchandise and serve to increase
customer foot traffic. With new regional shopping mall construction on the
decline, one of the Company's strategies is to open stores in smaller and more
diverse locations that may not be served by its larger competitors that adopt a
more standardized approach to expansion.

The Company currently has no new store openings planned for
fiscal 2004.  Any future new store openings will focus on sites that will serve
to "fill in" geographical areas between existing stores. Management
believes this strategy will improve the Company's ability to leverage
advertising, transportation and other operating costs more effectively. In
addition to opening individual store locations, the Company may also pursue
additional selective strategic acquisitions.

The Company has continued to invest in the renovation and
refixturing of its existing store locations in an attempt to maintain and
improve market share in those market areas. In fiscal 2002 and 2003, the Company
reduced its expenditures for renovation and refixturing primarily because of
liquidity concerns.   However, the Company plans to increase such capital
expenditures to historical levels beginning in fiscal 2004 and initiate remodel
activity at a number of store locations.

Store renovation projects can range from updating
décor and improving in-store lighting, fixturing, wall merchandising and
signage, to more extensive remodeling and expansion projects. The Company
sometimes receives reimbursement from mall owners and vendors for certain of its
new store construction costs and costs associated with the renovation and
refixturing of existing store locations. Such contributions have enhanced the
Company's ability to enter into attractive market areas that are consistent with
the Company's long-term expansion plans.

The following tables present selected data related to the
Company's stores for the fiscal years indicated:

Fiscal Years
                           -------------------------------- -----------------
                            2003       2002       2001       2000      1999
                           -------    -------    -------    -------   -------
Stores open at year-end:
--------------------------
Department stores.........     63  (1)    69  (1)    73 (1)     79 (2)    42
Specialty stores (3)......     11         12         13         17        20
                           -------    -------    -------    -------   -------
    Total                      74         81         86         96        62
                           =======    =======    =======    =======   =======

Gross store square
footage(4) (in thousands):
--------------------------
Department stores.........  5,406      5,665      5,876      6,139     4,377
Specialty stores..........     42         54         54         63        77
                           -------    -------    -------    -------   -------
    Total                   5,448      5,719      5,930      6,202     4,454
                           =======    =======    =======    =======   =======

____________________(1) The Company closed 6 stores in fiscal 2003,
4 stores in fiscal 2002 and 6 stores in fiscal 2001, all of which were acquired
in the Lamonts acquisition in July 2000.
(2) The Company opened 37 new department stores in fiscal
2000, including the 34 store locations acquired from Lamonts on July 24, 2000,
and three additional new stores opened during the third and fourth quarter of
the year.
(3) The Company has continued to close certain free-standing
Village East stores as their leases expire and incorporate those stores as
separate departments into nearby Gottschalks department stores.
(4)  Reflects total store square footage, including office
space, storage, service and other support space, and selling space.

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

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

Marketing Strategy

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

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

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

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

Customer Service

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

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

Management focus for 2004 will also include an increased
effort to attract and service the 30 to 55 year old age group, as well as, the
Hispanic customer that continues to be a growing segment of the customer base in
many current markets.

Distribution of Merchandise

The Company operates a 420,000 square foot distribution
center located in Madera, California. The facility, constructed in 1989, is
located in close proximity to the Company's corporate headquarters in Fresno,
California. The facility serves all of the Company's store locations, with daily
distributions of merchandise to all stores, including its stores located in
states outside California. During the period of July 2000 through June 2001, the
Company distributed merchandise to its locations in Washington, Alaska, Idaho
and 2 of the stores located in Oregon through an outsourced facility located in
Kent, Washington. The Company ceased using the outsourced facility in June 2001,
consolidating all of its distribution functions to the facility in Madera.

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

Private-Label Credit Card

Sale of Receivables

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

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

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

Credit Card Program

Management believes the private-label credit card
enhances the Company's ability to generate and retain market share as well as
increase sales.  Private-label credit card sales as a percentage of total sales
were 41.2%, 43.2% and 40.9% in fiscal 2003, 2002 and 2001, respectively.  The
decline in the 2003 private card penetration was due to the transition of
service from the Company to Household.  Efforts are underway between the Company
and Household to increase the private card penetration in 2004.

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

- An "Instant Credit"
program, through which successful credit applicants receive a discount ranging
from 10% to 50% (depending on the results of the Instant Credit scratch-off
card) on the first day's purchases made with the Company's credit card;
- A "55-Plus" charge
account program, which offers additional merchandise and service discounts to
customers 55 years of age and older;
- "Gold Card" and
"55-Plus Gold Card" programs, which offer special services at a discount for
customers who have a minimum net spending history on their charge accounts of
$1,000 per year; and
- Various credit-card
related promotional events throughout the year.

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

The "Gottschalks Rewards" program, which offers
an annual merchandise 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) has been converted to a "points" program that allows
customers to earn bonus points with every private label card purchase which can
be applied towards future purchases of merchandise.  A number of promotions,
such as double points are planned for 2004 to coincide with the Company's
celebration of its 100th Year Anniversary.

Competition and Seasonality

See Part I, Item I, "Risk Factors - We Face Significant
Competition from Other Retailers" and "Risk Factors - Our Business is
Susceptible to Economic Conditions and Other Factors that Affect our Markets,
Some of Which are Beyond our Control".

Employees

As of January 31, 2004, the Company had approximately 5,800
employees, including 3,490 employees working part-time (less than 32 hours per
week on a regular basis). As of February 1, 2003, the Company had 6,400
employees (including 3,850 working part-time). The decrease in the number of
employees from the prior year is partially attributable to the store closures in
fiscal 2003. The Company hires additional temporary employees and increases the
hours of part-time employees during seasonal peak selling periods. Approximately
57 employees in two former Lamonts locations in King County, Washington are
covered by a collective bargaining agreement with the United Food and Commercial
Worker's Union (UFCW). After the acquisition of Lamonts' assets, which included
the leases of those two stores, the Company engaged in good faith bargaining and
as a result, ratified an agreement with the union for a 2-1⁄2 year term commencing
on April 7, 2001. The agreement was set to expire on September 30, 2003 but was
extended to September 30, 2004. Management does not believe that the agreement
will have a material affect on the Company's business, financial condition or
results of operations. Management considers its employee relations to be good.

ACQUISITIONS

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

The Harris Acquisition

On August 20, 1998, the Company acquired substantially all of
the assets and assumed certain liabilities of Harris, a wholly-owned subsidiary
of El Corte Ingles ("ECI") of Spain. Harris operated nine full-line
department stores located in the Southern California area. As planned, the
Company closed one of the acquired stores on January 31, 1999. The purchase
price for the assets consisted of 2,095,900 shares of common stock of the
Company and a $22.2 million 8% Extendable Subordinated Note, due August 2003
(subsequently extended to May 2007) (the "Subordinated Note"). As a
result of the acquisition, Harris became a significant stockholder of the
Company, and both Harris and ECI became affiliates of the Company. The Company
also leases three of its store locations from ECI. (See Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Liquidity and Capital Resources - Transactions with
Affiliate.")

The Lamonts Acquisition

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

Available Information

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

Executive Officers of the Registrant

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

FORWARD-LOOKING STATEMENTS

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

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

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

- the Company's ability to either improve the operating
results and cash flows of certain of the stores acquired in the Lamonts
acquisition, or to sell, sublease or close those stores that continue to be
underperforming;
- the impact of higher interest rates;
- the impact of higher operating costs, including workers'
compensation, health care and energy costs;
- future capital expenditures;
- the Company's competitive strategy, competitive pricing
and other competitive pressures;
- the effect of the adoption of new accounting standards by
the Company;
- the realization of the Company's deferred tax
assets;
- the Company's assumptions and expectations underlying its
critical accounting policies (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations");
- the overall level of consumer spending and demand for the
products offered;
- general economic conditions;
- the impact of sales promotions and customer service programs on consumer
spending;
- lease extensions and suitable alternative store
locations; and
- the future cost and utilization of consumer credit programs under the
CCA.

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

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

RISK FACTORS



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

The Company's Sources of Liquidity Are Limited

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

Because the Company is already highly leveraged, the ability
to obtain additional or alternative sources of financing in the future for
working capital, capital expenditures, new store openings, acquisitions and
other general corporate purposes is limited. This limited financial flexibility
may result in increased vulnerability to general adverse economic and industry
conditions, a more limited ability to react to changes in the business
environment and the industry in which the Company competes, and the Company
being at a competitive disadvantage with competitors that have less debt and
greater access to capital resources. In addition, a significant portion of the
Company's cash flow from operations must be dedicated to the payment of
principal, interest and other fees relative to its debt, which reduces the funds
available for operations.  Risks and uncertainties associated with the
previously described sources of liquidity are described more fully below.

The Company is highly dependent on its ability to borrow
against its senior revolving credit facility for working capital purposes.  As
of March 1, 2004, the Company re-negotiated its senior revolving credit facility
(the "GE facility") for which General Electric Capital Corporation
("GE Capital") acts as administrative agent. The facility provides for
borrowings of up to $165.0 million and has been extended through February 28,
2007.  The GE facility is secured by substantially all the Company's assets.
The GE facility provides for lower rates of interest than the previous credit
facility and refinanced an existing real estate loan, which also has resulted in
lower interest costs to the Company.  In addition, the GE facility reduced the
number of financial covenants to one fixed charge covenant.  Borrowings under
the GE facility are subject to a restrictive borrowing base equal to a specified
percentage of eligible credit card receivables, which are considered cash
equivalents, and a specified percentage of merchandise inventory, less other
reserves that are established by GE Capital.  Several factors can influence the
maximum amount the Company is able to borrow under this facility, including,
without limitation, the level of eligible inventory, the appraised value of
eligible inventory and the level of reserves established against eligible
inventory. Any significant reduction to the Company's borrowing capacity under
the GE facility would have a material adverse affect on the Company's liquidity
position.

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

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

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

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

Despite the increase in the amount of unsecured credit
granted by the Company's vendors and factors, such amounts remained below
historical levels throughout fiscal 2002.  The Company continued to experience
improvement in unsecured credit levels  a result of the Household transaction
and improved operating results in 2003.  The Company has been able to purchase
adequate levels of merchandise to support its operations.  The Company has also
eliminated the outstanding factor letters of credit effective in March of
2004.

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

The Company Has Worked Through The Integration Challenges
With The Lamonts Acquisition

As described more fully in the Company's Annual Reports on
Form 10-K for the years ended February 1, 2003, February 2, 2002 and February 3,
2001, many of the stores acquired from Lamonts performed below expectations in
fiscal 2002, 2001 and 2000.

Based on reviews of the long-term prospects of each of the
acquired stores, management decided to close 6 of the acquired stores in fiscal
2001, 4 in fiscal 2002 and 6 in fiscal 2003.   After these store closings, the
Company  continued to operate 18 of the original 34 acquired stores. However,
certain of those stores continue to perform below expectations. In the event the
Company is unable to improve the operating performance of those locations,
management may consider the sale, sublease or closure of those locations in the
future. In the past, the Company has successfully improved the operating results
and cash flows of underperforming locations through a variety of strategies,
including revising the merchandise mix, changing store management, revising
marketing strategies, renegotiating lease agreements and reducing operating
costs. There can be no assurance, however, that these strategies will improve
the operating results and cash flows of those underperforming stores, or that
the Company will be able to sell, sublease or close those stores in the event
their performance does not improve. In addition, the Company may incur certain
costs and expenses in connection with the sale or closure of those locations
that may not be fully offset by sale proceeds, sublease income or favorable
lease terminations. As a result, added store closure costs may be incurred in
the future.

During fiscal 2002, the Company performed an analysis of all
of its underperforming store locations, which consisted primarily of former
Lamonts locations.  This analysis was performed by comparing projected net
operating cash flows, including estimated proceeds from the sale of certain
assets, to the carrying value of the stores' long-lived assets.  As a result of
this analysis, the Company recorded non-cash asset impairment charges of $9.5
million to write down property and equipment, leasehold interests and goodwill
related to certain of the under-performing stores.  No further impairment of
long-lived assets was identified and recorded with respect to underperforming
stores during 2003.  If actual market conditions are less favorable than those
projected, additional charges for the impairment of long-lived assets may be
incurred in the future.

The Company Faces Significant Competition From Other
Retailers

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

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

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

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

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

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

- a downturn in the national, California or Pacific Northwest
economies;
- a downturn in the local economies where the stores are located;
- a decline in consumer confidence;
- an increase in interest rates;
- inflation or deflation;
- consumer credit availability;
- consumer debt levels;
- higher energy costs in California and the Pacific
Northwest;
- higher healthcare and workers' compensation insurance
costs;
- higher property and casualty insurance costs;
- tax rates and policy; and
- unemployment trends.

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

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

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

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

The Company May Face Higher Operating Costs



Approximately 46.9% of the Company's debt at January
31, 2004 has underlying variable interest rates, which may result in higher
interest expense in the event interest rates are raised. (See Item 7A
"Qualitative and Quantitative Disclosures about Market Risk.")

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

The Company Depends On Key Personnel

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

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

- unemployment levels;
- minimum wage legislation;
- rising health care costs; and
- changing demographics in the local economies where stores are located.

Item 2.	  PROPERTIES

Corporate Office and Distribution Center

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

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

Store Leases and Locations

The Company owns seven of its 63 department stores,
all but one of which are subject to mortgage loans, and leases the remaining 56
department stores and all of its 11 specialty stores, and remains obligated
under the lease for one of the department stores closed in fiscal 2001. Most of
the Company's department store leases expire in various years through 2021, and
have renewal options for one or more periods ranging from five to 20 years.
Leases for specialty store locations generally do not contain renewal options.
While there is no assurance that the Company will be able to negotiate further
extensions of any particular lease, management believes that satisfactory
extensions or suitable alternative store locations will be available.

Certain of the department and specialty store leases provide
for the payment of additional contingent rentals based on a percentage of sales,
require the payment of property taxes, insurance and maintenance costs, and, in
certain cases, also provide for rent abatements and scheduled rent increases
during the lease terms. The Company leases three of its department stores from
ECI, an affiliate of the Company. Additional information pertaining to the
Company's store leases is included in Note 8 to the Consolidated Financial
Statements.

The following table contains additional information about the
Company's stores open as of the end of fiscal 2003:

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

                          --------- -----------
     Total                      63   5,405,479
                          ========= ===========
                                                
Specialty Stores:                              
  California.............       10      39,170
  Nevada.................        1       3,211
                          --------- -----------
    Total                       11      42,381
                          ========= ===========`

_______________________

> (1) Reflects total store square
> footage, including office space, storage, service and other support space, and
> selling space

Item 3. 	LEGAL PROCEEDINGS

On March 5, 2004, AT&T filed a breech of contract
complaint in the United States District Court in Fresno, California demanding
the payment of approximately $768,000 for telecommunication services allegedly
supplied to the Company in 2002 and 2003.  The Company has answered and denied
the AT&T allegations and demand.  At this time it is not possible to predict
the outcome of this dispute, but the Company believes that it is not liable for
the amounts demanded by AT&T, and will vigorously defend any action AT&T
files to pursue its claim.

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

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

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

PART II

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

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

`2004              2003
                       -------- -------  -------- -------
Fiscal Quarters         High      Low     High      Low
---------------------  -------  -------  -------  -------
   1st Quarter....... $  1.58  $  0.94  $  3.85  $  2.24
   2nd Quarter....... $  2.17  $  1.15  $  3.48  $  2.43
   3rd Quarter....... $  4.00  $  1.80  $  2.70  $  1.17
   4th Quarter....... $  4.68  $  3.14  $  2.13  $  1.47`

On March 31, 2004, the Company had 767 stockholders of
record, some of which were brokerage firms or other nominees holding shares for
multiple stockholders. The closing price of the Company's common stock as
reported by the NYSE on March 31, 2004 was $5.58 per share.

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

The following table provides information as of January
31, 2004 about the Company's Common Stock that may be issued upon the exercise
of options granted to employees or members of the Board of Directors under all
of the Company's existing equity compensation plans.

`Number of
                                                                                securities
                                                                                remaining
                                                                              available for
                                                                             future issuance
                                                                               under equity
                                                Number of       Weighted-      compensation
                                              securities to be   average          plans
                                               issued upon       exercise       (excluding
                                                exercise of      price of       securities
                                                outstanding    outstanding     reflected in
Plan Category                                     options        options       column (a))
--------------------------------------------- ---------------  ------------  ----------------
Equity compensation plans approved by            1,688,500        $5.36         1,015,750
  security holders...........................
Equity compensation plans not approved by
  security holders...........................       N/A            N/A             N/A

Total........................................    1,688,500        $5.36         1,015,750`

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, 2004,
February 1, 2003, February 2, 2002, February 3, 2001 and January 29, 2000, are
referred to herein as fiscal 2003, 2002, 2001, 2000 and 1999, respectively.  All
fiscal years noted include 52 weeks, except for fiscal 2000, which includes 53
weeks. Management believes the Company's results of operations for fiscal 2000
were not materially affected by results applicable to the 53rd
week.

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

`Fiscal Years
                                         ------------- ---------------------------------------------------
                                           2003          2002          2001          2000          1999
                                         ---------     ---------     ---------     ---------     ---------
                                               (In thousands of dollars, except share data)               
RESULTS OF OPERATIONS(1):                                                                                 
Net sales.............................. $ 660,574     $ 665,916     $ 678,866     $ 643,385     $ 541,275
Net credit revenues....................     3,729         8,225         8,420         9,150         8,709
Net leased department
  revenues (1).........................     3,525         3,557         3,965         3,853         4,209
                                         ---------     ---------     ---------     ---------     ---------
   Total revenues......................   667,828       677,698       691,251       656,388       554,193
                                         ---------     ---------     ---------     ---------     ---------
Costs and expenses:
  Cost of sales........................   435,370       441,426       450,723       421,329       354,010
  Selling, general and
   administrative expenses.............   203,966       207,885       210,658       194,246       167,561
  Depreciation and
   amortization (2)....................    13,177        13,374        13,256        11,154         9,465
  Asset impairment charges (3).........        --         9,502            --            --         1,933
  Store closure costs (4)..............        --            --           729
  Receivables sale costs (5)...........        --         1,749            --            --            --
  New store pre-opening
   costs (6)...........................        --            --            --         4,684           495
                                         ---------     ---------     ---------     ---------     ---------
   Total costs and expenses............   652,513       673,936       675,366       631,413       533,464
                                         ---------     ---------     ---------     ---------     ---------
Operating income ......................    15,315         3,762        15,885        24,975        20,729
                                         ---------     ---------     ---------     ---------     ---------
Other (income) expense:
 Interest expense......................    13,296        15,883        14,364        13,750        11,408
 Losses on early extinguishment
   of debt (7).........................        --         3,695           696            --            --
 Miscellaneous income..................    (2,262)       (1,802)       (1,587)       (1,408)       (1,555)
                                         ---------     ---------     ---------     ---------     ---------
                                           11,034        17,776        13,473        12,342         9,853
                                         ---------     ---------     ---------     ---------     ---------
Income (loss) from continuing
   operations before income taxes......     4,281       (14,014)        2,412        12,633        10,876

Income tax expense (benefit)...........     1,529        (6,495)          851         4,775         4,240
                                         ---------     ---------     ---------     ---------     ---------
Income (loss) from
   continuing operations...............     2,752        (7,519)        1,561         7,858         6,636

Discontinued operations:
  Loss from operation of closed stores.      (547)       (1,948)       (1,721)       (1,180)
  Loss on store closures (8)...........      (789)       (4,801)
  Income tax benefit...................      (454)       (2,295)         (585)         (401)
                                         ---------     ---------     ---------     ---------     ---------
Loss on discontinued operations........      (882)       (4,454)       (1,136)         (779)           --

Net income (loss)...................... $   1,870     $ (11,973)    $     425     $   7,079     $   6,636
                                         =========     =========     =========     =========     =========

Net income (loss) per common share
Basic:
   Income (loss) from continuing
    operations.........................      0.22         (0.59)         0.12          0.62          0.53
   Loss on discontinued operations.....     (0.07)        (0.35)        (0.09)        (0.06)         0.00
   Net income (loss) per common share..      0.15         (0.94)         0.03          0.56          0.53
Diluted:
   Income (loss) from continuing
    operation..........................      0.21         (0.59)         0.12          0.62          0.53
   Loss on discontinued operations.....     (0.07)        (0.35)        (0.09)        (0.06)         0.00
   Net income (loss) per common share.. $    0.14     $   (0.94)    $    0.03     $    0.56     $    0.53

Weighted-average number of
  common shares outstanding:
     Basic.............................    12,830        12,747        12,681        12,614        12,577
     Diluted...........................    12,919        12,747        12,691        12,632        12,616



                                                                Fiscal Years
                                         ------------- ---------------------------------------------------
                                           2003          2002          2001          2000          1999
                                         ---------     ---------     ---------     ---------     ---------
                                                                 (In thousands of dollars)                
SELECTED BALANCE SHEET DATA:                                                                              
Retained interest in
  receivables sold..................... $      --     $      --     $  19,222     $  19,853     $  29,138
Receivables, net.......................     9,145        10,641        11,331         9,248         7,597
Merchandise inventories (9)............   156,458       164,615       161,041       185,226       130,028
Property and equipment, net............   129,832       139,888       153,200       147,711       120,393
Total assets...........................   323,992       348,729       392,193       410,059       316,164
Working capital........................   108,949        79,949       104,378       111,011       104,719
Long-term obligations,
  less current portion.................    91,302        75,097       110,216       113,012        80,674
Subordinated note
  payable to affiliate.................    22,180        21,989        21,646        21,303        20,961
Stockholders' equity...................   108,323       106,324       118,172       117,573       110,238


                                                                Fiscal Years
                                         ------------- ---------------------------------------------------
                                           2003          2002          2001          2000          1999
                                         ---------     ---------     ---------     ---------     ---------
                                           (In thousands of dollars, except per square foot data)         
OTHER SELECTED DATA:                                                                                      
Sales growth:
  Total store sales (10)...............     (3.5)%        (2.7)%          8.5%(11)     22.6%(12)      9.9%
  Comparable store sales (13)..........     (0.7)%        (0.8)%          0.4%(11)      5.6%(14)      7.7% (15)
                                                                                            (15)
Comparable stores data (13)(16):
  Sales per selling square foot........ $     149     $     148 (17)$     173 (17)$     176     $     168
  Selling square footage...............     4,451         4,654 (17)    3,478 (17)    3,384         2,758

Capital expenditures................... $   4,363     $   8,279     $  18,683     $  29,635     $  16,059
Current ratio..........................     2.50:1        1.70:1       1.97:1        1.93:1        2.38:1`

__________________________

(1)	Certain prior year amounts on the
statement of operations have been reclassified to present  discontinued
operations to conform to the current year presentation in accordance with
Statement of Financial Accounting Standard No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets.

(2)	Net leased department revenues consist of sales
totaling $24.5 million,  $24.9 million, $28.9 million, $27.7 million and $29.0
million  in fiscal 2003, 2002, 2001, 2000 and 1999, respectively, less cost of
sales.

(3)	Depreciation and amortization includes the
amortization of goodwill totaling $570,000, $553,000  and $536,000 in fiscal
2001, 2000 and 1999, respectively, and the (amortization) accretion of leasehold
interests totaling $18,000, $(95,000), $41,000 and $203,000 in fiscal 2003,
2002, 2001 and 2000, respectively. Effective the beginning of fiscal 2002, the
Company implemented the provisions of SFAS No. 142. As a result, the Company no
longer amortizes goodwill and instead tests it annually for impairment. The
Company continues to amortize leasehold interests (see Note 1 to the
Consolidated Financial Statements).

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

(5)	The fiscal 2001 amount represents costs incurred
in connection with (i) the closure of six stores in fiscal 2001, net of proceeds
from the sale or favorable termination of the related store leases, and (ii) the
discontinuation of the use of an outsourced distribution center facility located
in Kent, Washington.  See Note 9 to the Consolidated Financial Statements.

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

(7)	Fiscal 2000 includes $4.1 million pre-tax of
non-recurring costs associated with the re-opening of the continuing stores acquired
in the Lamonts acquisition.

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

(9)	The fiscal 2003 amount represents costs related to the
closure of seven stores primarily consisting of lease termination costs,
severance, and other incremental costs associated with the store closings.  The
fiscal 2002 amount represents costs associated with the closure of four stores
in fiscal 2002 including lease termination costs, severance, and other
incremental costs associated with the store closings, asset impairment charges
related to stores closed in fiscal 2003 and fiscal 2002, and a gain on sale of
two store leases and certain fixtures in fiscal 2002.  See Note 9 to the
Consolidated Financial Statements.

(10)	The significant increase in merchandise inventories
in fiscal 2000 as compared to fiscal 1999 relates primarily to additional
inventories purchased for stores acquired in connection with the Lamonts
acquisition in that year (see Part I, Item 1, "Business -
Acquisitions"). The decrease in inventory from fiscal 2000 to fiscal 2001
and from fiscal 2002 to 2003 is primarily due to the reduction of inventory
levels to more closely reflect selling trends, and to store closures.

(11)	Total store sales include sales from stores closed
which are reported net of expenses in discontinued operations.

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

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

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

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

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

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

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

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

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

Fiscal 2003, 2002, and 2001 results all include 52 weeks.

Critical Accounting Policies

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

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

Revenue Recognition Policy

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

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

Inventory Valuation

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

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

Reserve for Store Closure Costs

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

As of January 31, 2004, the Company had a reserve for store
closure costs totaling $337,000, which consisted primarily of estimated future
lease obligations for one of the store locations closed in fiscal 2001 and one
of the store locations closed in fiscal 2003.   In the event the Company is not
successful in selling or subleasing the locations closed in fiscal 2001 as soon
as management expects, additional reserves for store closure costs may be
recorded.  In addition, in the event the Company decides to close additional
store locations in fiscal 2004 or beyond, additional reserves for store closure
costs, which may be material, may be incurred.

Impairment of Long-Lived Assets

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

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

Income Taxes

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

Accounting for the Securitization and Sale of Receivables

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

Results of Operations

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

`Fiscal Years
                                     -------------------------------
                                       2003       2002       2001
                                     ---------  ---------  ---------
Net sales...........................    100.0 %    100.0 %    100.0 %
Net credit revenues.................      0.6        1.2        1.2
Net leased department revenues......      0.5        0.5        0.6
                                     ---------  ---------  ---------
     Total revenues.................    101.1      101.7      101.8

Costs and expenses:
   Cost of sales....................     65.9       66.3       66.4
   Selling, general and
     administrative expenses........     30.9       31.2       31.0
   Depreciation and amortization....      2.0        2.0        2.0
   Asset impairment charges.........       --        1.4         --
   Store closure costs..............       --         --        0.1
   Receivables sale costs...........       --        0.3         --
                                     ---------  ---------  ---------
     Total costs and expenses.......     98.8      101.2       99.5
                                     ---------  ---------  ---------
Operating income....................      2.3        0.5        2.3

Other (income) expense:
   Interest expense.................      2.0        2.3        2.1
   Losses on early extinguishment
     of debt........................       --        0.5        0.1
   Miscellaneous income.............     (0.3)      (0.3)      (0.2)
                                     ---------  ---------  ---------
                                          1.7        2.5        2.0
                                     ---------  ---------  ---------
Income (loss) before income taxes...      0.6       (2.0)       0.3

Income tax expense (benefit)........      0.2       (1.0)       0.1
                                     ---------  ---------  ---------
Income (loss) from
 continuing operations..............      0.4       (1.0)       0.2

Discontinued operations:
  Income (loss) from operation
   of closed stores.................     (0.1)      (0.3)      (0.3)
  Loss on store closures............     (0.1)      (0.7)        --
  Income tax benefit................     (0.1)      (0.3)      (0.1)
                                     ---------  ---------  ---------
Loss on discontinued operations.....     (0.1)      (0.7)      (0.2)
                                     ---------  ---------  ---------
Net income (loss)...................      0.3 %     (1.7)%       -- %
                                     =========  =========  =========`

Fiscal 2003 Compared to Fiscal 2002

Net Sales

Net sales from continuing operations decreased by
approximately $5.3 million, or 0.8%, to $660.6 million in fiscal 2003 as
compared to $665.9 million in fiscal 2002. The fiscal 2003 sales decrease is
primarily attributable to continued downturn in the general economic environment
in much of the Company's market areas resulting in lower consumer spending
during the first half of the fiscal period. Comparable store sales for fiscal
2003, which includes sales for stores open for the full period in both years,
decreased by 0.7% as compared to the same 52-week period of the prior year.

The Company operated 63 department stores and 11 specialty
stores as of the end of fiscal 2003 as compared to 69 department stores and 12
specialty stores as of the end of fiscal 2002.  As described more fully in Note
9 to the accompanying financial statements, during fiscal 2003 the Company
closed six department stores.  Two such stores were closed in February 2003, and
one store was closed in each of March 2003, April 2003, July 2003 and January
2004. During fiscal 2002 the Company closed two stores in each of June 2002 and
January 2003.

Net Credit Revenues

As described more fully in Note 2 to the accompanying
financial statements, in January 2003, pursuant to the terms of a Purchase and
Sale Agreement between the Company and Household Bank SB (N.A.) ("Household"),
the Company sold its private label credit card accounts and accounts receivable
to Household.  In connection with the sale, the Company entered into two
additional agreements with Household: an Interim Servicing Agreement (the "ISA")
and a Credit Card Program Agreement (the "CCA").  Under the terms of the ISA,
the Company continued to service the credit card receivables until Household
assumed their servicing on May 14, 2003, as planned. Household compensated the
Company for providing the services during the interim servicing period.  The CCA
provides that the Company will be paid a percentage of Net Cardholder Charges
and a percentage of Other Revenue (each as defined in the CCA).  All amounts
received under the CCA, including amortization of prepaid program revenue, are
reflected in the table below as service charge revenues.  In connection with the
sale, the Company also terminated its receivables securitization program.

As a result, net credit revenues related to the Company's
credit card receivables portfolio decreased by approximately $4.5 million or
54.7%, to $3.7 million in fiscal 2003 as compared to $8.2 million in fiscal
2002. As a percent of net sales, net credit revenues were 0.6% of net sales in
fiscal 2003 as compared to 1.2% in fiscal 2002. Net credit revenues consist of
the following:

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

The interim servicing compensation amount represents
servicing fees under the ISA attributable to general corporate activities that
were not offset by direct costs of servicing the portfolio during the interim
period.  These revenues ceased at the end of the interim servicing period on May
14, 2003.

In connection with the sale of the receivables, on January
31, 2003, the Company recorded a $313,000 interest-only strip that was amortized
over the estimated life of the underlying assets sold (approximately five
months).  The interest-only strip represented the portion of the initial
revenues under the CCA that is considered a residual interest in the assets
sold.  The interest-only strip has been fully amortized.

As expected, the Company experienced a substantial decrease
in net credit revenues in fiscal 2003 as a result of the receivables sale to
Household, as well as a reduction in selling, general and administrative
expenses as a result of outsourcing the credit card servicing to Household and a
reduction in interest expense arising from reduced line of credit borrowings
resulting from the application of the proceeds from the Household transaction.
As a result,  the net credit revenues the Company receives under the CCA
approximately equals the net revenues from its former in-house credit card
operations, net of operating expenses and interest expense.

Net Leased Department Revenues

Net rental income generated by the Company's various leased
departments decreased by approximately $0.03 million, or 0.9%, to $3.53 million
in fiscal 2003 as compared to $3.56 million in fiscal 2002. This decrease is
primarily due a continued downturn in the general economic environment in much
of the Company's market areas resulting in lower consumer spending during the
first three quarters of the fiscal year.

Leased department sales are presented net of the related
costs for financial reporting purposes. Sales generated in the Company's leased
departments, consisting primarily of fine jewelry departments and beauty salons,
totaled $24.5 million in fiscal 2003 as compared to $24.9 million in fiscal
2002.

Cost of Sales

Cost of sales from continuing operations, which includes
costs associated with the buying, handling and distribution of merchandise,
decreased by approximately $6.0 million to $435.4 million in fiscal 2003 as
compared to $441.4 million in fiscal 2002, a decrease of 1.4%. The dollar
decrease is primarily due to the decrease in sales volume. The Company's gross
margin percentage increased to 34.1% in fiscal 2003 as compared to 33.7% in
fiscal 2002. The increase in the gross margin percentage was primarily due to a
change in accounting for certain allowances received from vendors as a result of
the Company's adoption of Emerging Issues Task Force ("EITF") Issue No. 02-16
Accounting by a Customer (including a Reseller) for Cash Consideration Received
from a Vendor that previously would have been reported as reductions in
advertising expense, in addition to lower markdowns as a percentage of sales as
compared to the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing
operations decreased by approximately $3.9 million, or 1.9%, to $204.0 million
in fiscal 2003 as compared to $207.9 million in fiscal 2002. As a percentage of
net sales, selling, general and administrative expenses decreased 0.3% to 30.9%
in fiscal 2003 as compared to 31.2% in fiscal 2002. The dollar decrease is
primarily attributable to the elimination of the in-house credit card operations
in connection with the sale of receivables to Household and cost reduction
efforts initiated throughout all areas of the Company, particularly in the areas
of payroll and related fringe benefits, reduced advertising expenditures
resulting from an increased reliance on more effective targeted marketing
efforts (partially offset by the change in accounting for certain allowances
previously mentioned), and reduced communications costs. Such cost savings were
partially offset by increased professional fees and insurance costs. The Company
is continuing to implement programs aimed at reducing operating costs throughout
all areas of the Company. Although the Company anticipates it will be successful
in achieving its cost reduction initiatives, there can be no assurance that the
Company will be able to fully offset the impact of increases in certain of these
costs in the future.

Depreciation and Amortization

Depreciation and amortization expense, which includes the
(amortization) accretion of intangible assets other than goodwill decreased by
approximately $0.2 million or 1.5%, to $13.2 million in fiscal 2003 as compared
to $13.4 million in fiscal 2002. As a percent of net sales, depreciation and
amortization expense was 2.0% in fiscal 2003 and fiscal 2002.  The dollar
decrease is primarily the result of impairment charges taken during fiscal 2002
related to certain underperforming stores, partially offset by additional
depreciation related to  information systems placed in service during 2002 and
capital expenditures for the renovation and expansion of certain existing
stores.

Asset Impairment Charges

No asset impairment charges related to continuing operations
were recorded during fiscal 2003. During fiscal 2002, the Company recorded
non-cash asset impairment charges of $9.5 million to write down long-lived assets
related to certain underperforming stores that the Company continues to operate,
primarily former Lamonts locations.  These charges consisted of $3.6 million of
property and equipment, $5.8 million of leasehold interests and $0.1 million of
goodwill. The charges were determined by comparing projected net operating cash
flows, including estimated proceeds from the sale of certain assets, to the
carrying value of the stores' long-lived assets.

Receivables Sale Costs

In connection with the sale of accounts receivable to
Household in fiscal 2002, the Company recorded receivable sale transaction costs
of $2.0 million including consulting, legal, and other fees, and the net
non-cash write-off of the remaining accounts of GCRC.  These charges are partially
offset by a $0.3 million retained interest only strip that was amortized over
the estimated life of the underlying assets sold (estimated to be approximately
five months).  The interest only strip represents the portion of the initial
program fees to be paid that is considered a residual interest in the assets
sold.

Interest Expense

Interest expense, which includes the amortization of deferred
financing costs, decreased by approximately $2.6 million to $13.3 million in
fiscal 2003 as compared to $15.9 million in fiscal 2002, a decrease of 16.3%.
As a percent of net sales, interest expense decreased to 2.0% in fiscal 2003 as
compared to 2.3% in fiscal 2002. These decreases are primarily due to lower
outstanding borrowings on the Company's revolving credit facility as a result of
the sale of the receivables to Household.  The weighted-average interest rate
applicable to the facility was 5.2% in fiscal 2003 as compared to 5.5% in fiscal
2002.

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

Losses on Early Extinguishment of Debt

In fiscal 2002, in connection with the termination of its
receivables securitization program, the Company recorded a loss on
extinguishment of debt of $3.7 million representing prepayment penalties and the
write-off of unamortized deferred loan fees related to the program.

Miscellaneous Income

Miscellaneous income, which includes the amortization of
deferred income and other miscellaneous income and expense amounts, increased by
approximately $0.5 million to $2.3 million in fiscal 2003 as compared to $1.8
million in fiscal 2002.  As a percent of net sales, miscellaneous income  was
0.3%  in fiscal 2003 and fiscal 2002. This increase was primarily due to an
increase in the net income of the partnership which owns the Company's corporate
headquarters building.  The Company has a 36% interest in the partnership and
accounts for its investment using the equity method of accounting.  Fiscal 2002
includes recoveries of prior interest charges arising from the partial
settlement of certain net operating loss carryback claims, partially offset by
charges to the Company's partnership investment in its corporate offices related
to the partnership's implementation of SFAS No. 133.

Income Taxes

The Company's effective tax rate for continuing operations is
an expense of  35.7% in fiscal 2003 as compared to a benefit of 46.3% in fiscal
2002. Including the tax benefit reported in discontinued operations, the
Company's effective tax rate is an expense of 36.5% in fiscal 2003 as compared
to a benefit of 42.3% in fiscal 2002. The fiscal 2002 tax benefit includes $0.8
million arising from the realization of net operating loss carryback claims.

Income From Continuing Operations

As a result of the foregoing, the Company reported income
from continuing operations of $2.8 million, or $0.21 per diluted share, in
fiscal 2003 as compared to a net loss of $7.5 million, or $0.59 per diluted
share, in fiscal 2002.

Discontinued Operations

As described more fully in Note 9 to the accompanying
financial statements, during fiscal 2003 the Company closed six store locations.
During fiscal 2002 the Company closed four store locations.  These stores were
determined to be either underperforming or inconsistent with the Company's
long-term operating strategy.  The net loss from operating these stores was $0.5
million in fiscal 2003 and $1.9 million in fiscal 2002.  The loss from operation
of discontinued stores consists of the following:

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

Cost of sales...........................................      4,437      15,669
Selling, general and administrative expenses............      3,013      10,906
Depreciation and amortization...........................         70         885
                                                          ----------  ----------
  Total costs and expenses..............................      7,520      27,460
                                                          ----------  ----------

Loss from operations of closed stores................... $     (547) $   (1,948)
                                                          ==========  ==========`

Net costs associated with the closure of stores totaled $0.8
million in fiscal 2003 primarily consisting of lease termination costs,
severance, and other incremental costs associated with the store closings. Net
costs associated with the closure of stores totaled $4.8 million in fiscal 2002
consisting of lease termination costs, severance and other incremental costs
associated with the store closings of approximately $0.6 million and non-cash
asset impairment charges related to stores closed in fiscal 2003 and fiscal 2002
of $4.5 million, partially offset by a gain of $0.3 million from the sale of
lease rights and fixtures and equipment related to two of the closed locations.

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

Net Income

As a result of the foregoing, the Company reported net income
of $1.9 million in fiscal 2003 as compared to a net loss of $12.0 million in
fiscal 2002. On a per diluted share basis the 2003 net income was $0.14 per
share as compared to net loss of $0.94 per share in fiscal 2002.

Fiscal 2002 Compared to Fiscal 2001

Net Sales

Net sales from continuing operations decreased by
approximately $13.3 million, or 1.9%, to $665.9 million in fiscal 2002 as
compared to $678.9 million in fiscal 2001. The fiscal 2002 sales decrease is
primarily attributable to the closure of six stores in fiscal 2001 and to a
continued downturn in the general economic environment in many of the Company's
market areas resulting in lower consumer spending.  Results of operations of the
fiscal 2001 store closures are included in continuing operations in the
accompanying statement of operations.  Sales related to those stores were $7.6
million in fiscal 2001.  Comparable store sales for fiscal 2002, which includes
sales for stores open for the full period in both years, decreased by 0.8% as
compared to the same 52-week period of the prior year.

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

Net Credit Revenues

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

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

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

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

Net Leased Department Revenues

Net rental income generated by the Company's various leased
departments decreased by approximately $0.4 million, or 10.0%, to $3.6 million
in fiscal 2002 as compared to $4.0 million in fiscal 2001. This decrease is
primarily due to the August 2001 termination of the shoe department leases in 36
of the Company's Pacific Northwest and Alaska locations, which were operated by
an independent lessee.  The Company subsequently re-opened Company-operated shoe
departments in 15 of those stores. Pursuant to Staff Accounting Bulletin ("SAB")
No. 101, sales generated in those departments after the termination of the
leases are included in total sales as opposed to net leased department revenues
for financial reporting purposes.

Leased department sales are presented net of the related
costs for financial reporting purposes. Sales generated in the Company's leased
departments, consisting primarily of fine jewelry departments, the shoe
departments in 36 Pacific Northwest and Alaska locations (prior to the
termination of the lease in August 2001) and beauty salons, totaled $24.9
million in fiscal 2002 as compared to $28.0 million in fiscal 2001.

Cost of Sales

Cost of sales from continuing operations, which includes
costs associated with the buying, handling and distribution of merchandise,
decreased by approximately $9.3 million to $441.4 million in fiscal 2002 as
compared to $450.7 million in fiscal 2001, a decrease of 2.1%. The dollar
decrease is primarily due to the decrease in sales volume. The Company's gross
margin percentage increased to 33.7% in fiscal 2002 as compared to 33.6% in
fiscal 2001. The increase in the gross margin percentage was primarily due to
lower markdowns as a percentage of sales as compared to the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing
operations decreased by approximately $2.8 million, or 1.3%, to $207.9 million
in fiscal 2002 as compared to $210.7 million in fiscal 2001. As a percentage of
net sales, selling, general and administrative expenses increased 0.2% to 31.2%
in fiscal 2002 as compared to 31.0% in fiscal 2001. The dollar decrease is
primarily attributable to realized benefits from cost reduction efforts and
store closures, partially offset by increases in health care, workers'
compensation and property and casualty insurance costs. Lower sales volume
contributed to the increase in selling, general and administrative costs as a
percentage of net sales.

Depreciation and Amortization

Depreciation and amortization expense, which includes the
(amortization) accretion of intangible assets (leasehold interests and, in
fiscal 2001, goodwill), increased by approximately $0.1 million or 1.0%, to
$13.4 million in fiscal 2002 as compared to $13.3 million in fiscal 2001. As a
percent of net sales, depreciation and amortization expense was  2.0% in fiscal
2002 and fiscal 2001.  The dollar increase is primarily due to additional
depreciation related to  information systems placed in service during 2002 and
capital expenditures for the renovation and expansion of certain existing
stores. These increases were partially offset by the discontinuance of goodwill
amortization as a result of the implementation of SFAS No. 142.

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

Asset Impairment Charges

During 2002, the Company recorded non-cash asset impairment
charges of $9.5 million to write down long-lived assets related to certain
underperforming stores, primarily former Lamonts locations.  These charges
consisted of $3.6 million of property and equipment, $5.8 million of leasehold
interests and $0.1 million of goodwill. The charges were determined by comparing
projected net operating cash flows, including estimated proceeds from the sale
of certain assets, to the carrying value of the stores' long-lived assets.  No
such costs were recorded in 2001.

Store Closure Costs

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

Receivables Sale Costs

In connection with the sale of accounts receivable to
Household, the Company recorded receivable sale transaction costs of $2.0
million in fiscal 2002 including consulting, legal, and other fees, and the net
non-cash write-off of the remaining accounts of GCRC.  These charges are
partially offset by a $0.3 million retained interest only strip that was
amortized during 2003 over the estimated life of the underlying assets sold
(estimated to be approximately five months).  The interest only strip represents
the portion of the initial program fees to be paid that is considered a residual
interest in the assets sold.

Interest Expense

Interest expense, which includes the amortization of deferred
financing costs, increased by approximately $1.5 million to $15.9 million in
fiscal 2002 as compared to $14.4 million in fiscal 2001, an increase of 10.6%.
As a percent of net sales, interest expense increased to 2.4% in fiscal 2002 as
compared to 2.1% in fiscal 2001. These increases are primarily due to
amortization of higher deferred financing costs relating to long-term financings
entered into in the fourth quarter of fiscal 2001 and the first three quarters
of fiscal 2002, and to an amendment fee relating to the Company's revolving
credit facility.  These increases were partially offset by lower average
outstanding borrowings on the Company's working capital facility.

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

Losses on Early Extinguishment of Debt

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

Miscellaneous Income

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

Income Taxes

The Company's effective tax rate for continuing operations is
a benefit of 46.3% in fiscal 2002 as compared to an expense of 35.3% in fiscal
2001. Including the tax benefit reported in discontinued operations, the
Company's effective tax rate is a benefit of 42.3% in fiscal 2002 as compared to
an expense of 38.5% in fiscal 2001. The fiscal 2002 tax benefit includes $0.8
million arising from the realization of net operating loss carryback claims.

Income From Continuing Operations

As a result of the foregoing, the Company reported a net loss
from continuing operations of $7.5 million, or $0.59 per diluted share, in
fiscal 2002 as compared to net income from continuing operations of $1.6
million, or $0.12 per diluted share, in fiscal 2001.

Discontinued Operations

As described more fully in Note 9 to the accompanying
financial statements, during fiscal 2003 the Company closed six store locations.
During fiscal 2002 the Company closed four store locations.  These stores were
determined to be either underperforming or inconsistent with the Company's
long-term operating strategy.  The net loss from operating these stores was $1.9
million in fiscal 2002 and $1.7 million in fiscal 2001.  The loss from operation
of discontinued stores consists of the following:

`(In thousands)                                               2002        2001
--------------------------------------------------------  ----------  ----------
Net sales from closed stores............................ $   25,512  $   31,836
Net lease department revenues...........................         --         128
                                                          ----------  ----------
  Total Revenues........................................     25,512      31,964

Cost of sales...........................................     15,669      19,558
Selling, general and administrative expenses............     10,906      13,260
Depreciation and amortization...........................        885         867
                                                          ----------  ----------
  Total costs and expenses..............................     27,460      33,685
                                                          ----------  ----------

Loss from operations of closed stores................... $   (1,948) $   (1,721)
                                                          ==========  ==========`

Net costs associated with the closure of stores totaled $4.8
million in fiscal 2002 consisting of lease termination costs, severance and
other incremental costs associated with the store closings of approximately $0.6
million and non-cash asset impairment charges related to stores closed in fiscal
2003 and fiscal 2002 of $4.5 million, partially offset by a gain of $0.3 million
from the sale of lease rights and fixtures and equipment related to two of the
closed locations.

As previously noted, results of operations of the fiscal 2001
store closures are included in continuing operations in the accompanying
statement of operations.  Store closure costs related to fiscal 2001 store
closures are reported separately in continuing operations in the accompanying
statement of operations.

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

Net Income

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

Liquidity and Capital Resources

The Company's working capital requirements are currently met
through a combination of cash provided by operations, borrowings under its
senior revolving credit facility, short-term trade and factor credit and by
proceeds from external financings and sale transactions.  As described more
fully below and in Note 2 to the Consolidated Financial Statements, on January
31, 2003 the Company sold its credit card accounts and accounts receivable to
Household.  Proceeds from the sale were used to reduce the Company's debt,
including off-balance sheet securitization obligations, by over $100 million.
At the closing date, the Company's availability under its revolving credit
facility increased by approximately $30 million and the Company experienced
increases in availability from $7 million to $33 million during fiscal 2003 as
compared to fiscal 2002.  Availability was $37.0 million as of January 31, 2004.
As of March 1, 2004, the company re-negotiated its senior revolving credit
facility. The GE facility provides for borrowings of up to $165.0 million and
has been extended through February 1, 2007, from the previous expiration of
January 31, 2005.  The GE facility provides for lower rates of interest than the
previous credit facility and refinanced an existing real estate loan, which also
has resulted in lower interest costs to the Company.  In addition, the GE
facility reduced the number of financial covenants to one fixed charge covenant.
As a result, the Company expects improvements in availability to continue and
believes its liquidity position after the sale of the receivables and the
re-negotiation of the revolving credit facility is substantially improved in
comparison to prior years.

In fiscal 2003, the Company generated a total of $23.1
million from operations as compared to $20.9 million positive cash flow from
operations in fiscal 2002.  The increase is primarily due to a further reduction
in inventory levels in fiscal 2003 related to store closures and adjustments in
stock to more optimal levels. The positive effects of these inventory reductions
on cash flows from operations were partially offset by reductions in certain
accrued expenses, primarily related to amounts due Household during the
Company's interim servicing of the accounts receivable, and payments for certain
worker's compensation reserves.

As described more fully below, recent efforts to improve the
Company's liquidity position have included the following: (1) the sale of
receivables to Household; (ii) refinancing the Company's revolving credit
facility, which was successfully completed on February 1, 2002 and subsequently
amended to more favorable terms on March 1, 2004; (iii) restoring trade and
factor credit; (iv) selling, subleasing or closing underperforming stores; (v)
completing other financing and sale transactions; and (vi) reducing operating
costs.

Sources of Liquidity

Sale of Receivables

On January 31, 2003, pursuant to the terms of a Purchase and
Sale Agreement between the Company and Household, the Company sold substantially
all of its private label credit card accounts and the related accounts
receivable to Household.  The $102.8 million purchase price was paid in cash at
closing, $100.3 million of which was allocated to the purchase of such credit
card accounts and receivables and $2.5 million of which comprised prepaid
program revenue.  Proceeds from the sale were used to pay in full $73.2 million
principal and accrued interest due to the Series 1999-1 and Series 2000-1
certificateholders under the Company's accounts receivable securitization
program plus $3.4 million in prepayment penalties.  The remaining proceeds of
$26.2 million and $3.8 million of cash remaining on deposit in certain bank
accounts relating to the securitization was released to the Company at closing.
All of the $30 million released to the Company was applied as a reduction of
outstanding borrowings under the Company's revolving credit facility.  As a
result, the Company's availability under the credit line increased by $30
million at the closing date and the Company experienced increases in
availability from $7 million to $33 million during fiscal 2003 as compared to
fiscal 2002.  Availability was $37.0 million as of January 31, 2004.

In connection with the sale, on January 31, 2003 the Company
entered into two additional agreements with Household: an Interim Servicing
Agreement (the "ISA") and a Credit Card Program Agreement (the "CCA").  Under
the terms of the ISA, the Company continued to service the credit card
receivables until Household assumed the servicing on May 14, 2003.  Household
compensated the Company for providing the services during the interim servicing
period.

The CCA sets forth the terms and conditions under which
Household will issue credit cards to the Company's customers and pay the Company
for sales made on the cards.  Under the terms of the CCA, the Company is
required to perform certain duties, including the duties to receive in-store
customer payments on behalf of Household and remit such payments to Household.
The CCA has a term of five (5) years and is cancelable earlier by either party
under certain circumstances, as described in the CCA.  The CCA further provides
that the Company will be paid a percentage of Net Cardholder Charges and a
percentage of Other Revenue (each as defined in the CCA). As expected, the
Company experienced a substantial decrease in net credit revenues in fiscal 2003
as a result of the receivables sale to Household, as well as a reduction in
selling, general and administrative expenses as a result of outsourcing the
credit card servicing to Household and a reduction in interest expense arising
from reduced line of credit borrowings resulting from the application of the
proceeds from the Household transaction.  As a result, the net credit revenues
the Company receives under the CCA approximately equals the net credit revenues
from its former in-house credit card operations, net of operating expenses and
interest expense, although no assurances can be given that the amounts received
under the CCA will continue at these levels or at all.

Senior Secured Credit Facility

On February 1, 2002, the Company entered into a three-year
senior revolving credit facility with General Electric Capital Corporation
("GE Capital") as agent, and The CIT Group/Business Credit as
syndication agent (the "Original GE facility").  On March 1, 2004, subsequent to
the Company's fiscal year end, the Company finalized an amendment and
restatement of the Original GE facility (the "GE facility").  As of January 31,
2004, outstanding borrowings under the Original GE facility totaled $51.0
million, and excess borrowing availability under the facility, after the
deduction of the minimum availability requirement and other reserves, totaled
$37.0 million. The Company classified a total of $50.0 million and $30.0 million
as of January 31, 2004 and February 1, 2003, respectively, as long-term in the
accompanying financial statements, representing that portion of outstanding
borrowings under the facility which are not expected to be repaid within one
year of the respective balance sheet dates. Substantially all of the Company's
assets, including its merchandise inventories, were pledged to GE Capital under
this facility.

As of January 31, 2004, interest charged on amounts borrowed
under the Tranche A portion of the Original GE facility were at the prime rate
plus 0.5% per annum (4.50% at January 31, 2004), or at the Company's option, at
the applicable LIBOR rate plus 2.75% per annum (3.85% at January 31, 2004). In
addition, the Company paid an unused commitment fee equal to 0.375% per annum on
the average unused daily balance of the Tranche A facility.  Amounts borrowed
under the Tranche B portion of the Original GE facility bore interest at prime
plus 10%, or at the Company's option, at LIBOR plus 12.0%. Beginning in fiscal
2003, the interest rate applicable to the Tranche A portion was adjusted upwards
or downwards on a quarterly basis based on a pricing matrix which was tied to
the Company's Leverage Ratio (as defined in the agreement). Under the pricing
matrix, the applicable interest rate could range from a rate as low as prime, or
LIBOR plus 2.75%, to as high as prime plus 0.75%, or LIBOR plus 3.50%.

The Original GE facility contained restrictive financial and
operating covenants, including the requirement to maintain a minimum
twelve-month trailing EBITDA and a minimum accounts payable to inventory ratio. In
addition, the Original GE facility also did not permit the repayment of the
Subordinated Note on its scheduled maturity date of August 20, 2003, which
resulted in the maturity of that note automatically being extended to August 20,
2006.  As of January 31, 2004, management believes the Company was in compliance
with all restrictive financial covenants applicable to the Original GE facility.

As previously noted, subsequent to the Company's fiscal year
end on March 1, 2004, the Company finalized an amendment and restatement of the
Original GE facility.  The GE facility provides up to $165.0 million of working
capital financing and is extended through February 1, 2007, with an option to
extend the facility through February 2, 2009, for a limited time and under
certain conditions.  The GE facility consists of a revolving credit facility of
up to $156.0 million (including a $20.0 million letter of credit sub-facility)
and a fully funded fixed term loan of $9.0 million.  Borrowings under the
revolving credit facility are limited to the sum of (a) specified percentages of
eligible credit card receivables, which are considered cash equivalents, and (b)
the lesser of specified percentages of (i) the cost of eligible inventory and
(ii) the net recovery value of the inventory, as determined by periodic
valuation performed by an independent appraiser. Such borrowings are further
limited by a requirement to maintain a minimum of $5.0 million of excess
availability at all times, and other reserves that are in effect. Substantially
all of the Company's assets, including its merchandise inventories, continue to
be pledged to GE Capital under the GE facility.

As of March 1, 2004, interest charged on amounts borrowed
under the GE facility for revolving loans were at the prime rate plus 0.25% per
annum (4.25% at March 1, 2004), or at the Company's option, at the applicable
LIBOR rate plus 2.25% per annum (3.35% at March 1, 2004).  In addition, the
Company pays an unused commitment fee equal to 0.375% per annum on the average
unused daily balance of the Tranche A facility.  Amounts borrowed under the Term
Loan portion of the GE facility bear interest at 6.6% per annum.  The interest
rate applicable to the revolving loans under the GE facility may be adjusted
upwards or downwards on a quarterly basis based on a pricing matrix which is
tied to the Company's borrowing availability.  Under the pricing matrix, the
applicable interest rate could range from a rate as low as prime, or LIBOR plus
1.50%, to as high as prime plus 0.75%, or LIBOR plus 2.75%.

On March 22, 2002, the Company had entered into a $15.0
million financing with Kimco Capital Corp. (the "Kimco facility") at a
fixed interest rate of 12.0% per annum. The Kimco facility was secured by first
priority liens on three of the Company's owned stores and with subordinate liens
on substantially all other assets of the Company securing the Original GE
facility. Proceeds from the Kimco facility were used to repay previously
existing mortgage loans on two of those properties and one term loan and to pay
certain fees and costs associated with the transaction. The remaining $4.1
million of proceeds was used to reduce outstanding borrowings under the Original
GE facility. The Kimco facility was co-terminus with the Original GE facility,
with monthly principal payments of $80,000 plus interest at a fixed rate of 12%
per annum, and a balloon payment upon maturity on January 31, 2005 of $12.4
million. In March 2004, the Company prepaid the remaining $13.2 million balance
of the Kimco facility (including a prepayment penalty, and other transaction
fees and costs) with borrowings under the GE facility. The term loan under the
GE facility is collateralized by two of the three owned stores previously
securing the Kimco facility.

The GE facility contains restrictive financial and operating
covenants, including the requirement to maintain a fixed charge coverage ratio
of 1:1 (as defined in the agreement).  The GE facility also does not permit the
repayment of the Subordinated Note, and accordingly the scheduled maturity date
of the Subordinated Note has been extended to May 30, 2007.

Trade Credit and Transactions with Affiliate

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

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

Nevertheless, the Company has been able to purchase an
adequate level of merchandise to support its operations to date. Upon the
completion of the receivables sale to Household, the Company's largest factor
significantly increased its unsecured credit line and substantially all of the
Company's major unfactored suppliers increased their credit lines to historical
levels. As a result of continued improvements in the Company's operations and
liquidity position, including the March 1, 2004 renegotiation of the GE
facility, all of the letters of credit issued for the benefit of certain key
factors have been allowed to expire and credit lines continue to increase with
all of the Company's key factors and many of the Company's unfactored suppliers
..

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

Other Financings

On February 19, 2002, the Company completed a $1.0
million, seven-year term loan financing of its corporate aircraft.

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

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

Uses of Liquidity

The Company's primary uses of liquidity are for working
capital, debt service requirements and capital expenditures. Capital
expenditures in fiscal 2003, totaling $4.4 million, were primarily related to
information system enhancements and the renovation, refixturing, and expansion
of certain existing locations. The Company presently has no commitments to open
or remodel any stores in fiscal 2004.

As of January 31, 2004, the Company had issued a total of
$8.4 million of standby letters of credit and documentary letters of credit
totaling $1.9 million. The standby letters of credit  were issued to secure
credit lines with key factors and to provide collateral for a workers
compensation insurance policy. As previously mentioned subsequent to January 31,
2004 the factor letters of credit have all been allowed to expire on their
respective expiration dates. Management believes that the likelihood of any
draws under the remaining workers compensation standby letters of credit is
remote. Documentary letters of credit are issued in the ordinary course of
business to facilitate the purchase of merchandise from overseas suppliers. The
supplier draws against the documentary letter of credit upon delivery of the
merchandise.

Contractual Obligations

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

Contractual Obligations:

`Payments due by period (1)
                                                                  (In thousands)
                                       ----------------------------------------------------------------
                                        Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     There-
                                         2004       2005       2006       2007       2008       after
                                       ---------  ---------  ---------  ---------  ---------  ---------
Long-term debt (2)................... $  14,149  $   4,565  $     907  $     958  $     984  $  15,822
Capitalized lease obligations........     2,572      2,205      1,466        947        476      2,680
Subordinated note
  payable to affiliate (3)...........        --         --                22,179                    --
Non-cancelable operating leases......    23,766     22,556     21,729     18,600     16,679     73,640
Purchase Obligations (4).............       786        716        439        183        141        472
                                       ---------  ---------  ---------  ---------  ---------  ---------
Total contractual cash obligations... $  41,273  $  30,042  $  24,541  $  42,867  $  18,280  $  92,614
                                       =========  =========  =========  =========  =========  =========


                                                  Amount of commitment expiration by period
                                                                (In thousands)
                                       ----------------------------------------------------------------
                                        Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     There-
                                         2004       2005       2006       2007       2008       after
                                       ---------  ---------  ---------  ---------  ---------  ---------
Senior revolving credit facility (5). $      --  $      --  $          $  51,009  $      --  $      --
Standby letters of credit............     8,430         --         --         --         --         --
Documentary letters of credit........     1,946         --         --         --         --         --
                                       ---------  ---------  ---------  ---------  ---------  ---------
                                      $  10,376  $      --  $      --  $  51,009  $      --  $      --
                                       =========  =========  =========  =========  =========  =========`

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

(2)	$12.4 million of contractual obligations originally
due in fiscal 2005 were early terminated on March 1, 2004.

(3)	In connection with the amendment of the Company's
revolving credit facility, the term of the Subordinated 	Note was extended to
May 2007.

(4)	Purchase obligations include agreements to purchase
goods or services that are enforceable and legally binding and that specify all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction.  Agreements that are cancelable without penalty have been excluded.
Purchase obligations relate primarily to service and maintenance agreements and
information technology contracts.

(5)	Represents outstanding borrowings under the Company's
senior revolving credit facility as of January 31, 2004 (such commitment was
extended from its original date of January 31, 2005, on March 1, 2004).  The
table presents that amount as due at February 28, 2007, the end of the
commitment period for the facility.

Cash generated by operations, together with liquidity
provided by the GE facility, the CCA and other financial resources, including
without limitation the factors described below, are expected to adequately
finance the Company's planned cash requirements for fiscal 2004. However, the
Company's actual results may differ from the expectations set forth in the
preceding sentence. The Company's liquidity and capital resources may be
affected by a number of factors and risks (many of which are beyond the control
of the Company), including but not limited to the availability of adequate
borrowing capacity and the ability to maintain compliance with restrictive debt
covenants contained in the Company's senior revolving credit facility and its
other debt obligations; adequate cash flows generated by operations; and the
adequacy of factor and trade credit. Because the Company is already highly
leveraged, the ability to obtain additional or alternative sources of financing
in the future for working capital, capital expenditures, new store openings,
acquisitions and other general corporate purposes is limited.  If the estimates
or assumptions relative to any one of these sources of liquidity are not
realized, or if those sources of liquidity become significantly reduced, the
Company's liquidity position, financial condition and results of operations may
be materially adversely affected.

Recently Issued Accounting Standards

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

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

In June 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities," which addresses
accounting for restructuring and similar costs.  SFAS No. 146 supersedes
previous accounting guidance, principally Emerging Issues Task Force Issue No.
94-3. SFAS No. 146 requires that the liability for costs associated with an exit
or disposal activity be recognized when the liability is incurred.  Under Issue
94-3, a liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan.   SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value.  Accordingly, SFAS No.
146 may affect the timing of recognizing future restructuring costs as well as
the amounts recognized. Adoption of the provisions of SFAS No. 146 for
restructuring activities initiated after December 31, 2002 did not have a
material impact on the Company's financial position or its results of
operations.

During 2002, the Emerging Issues Task Force reached a
consensus on Issue No. 02-16, "Accounting by a Customer (Including a Reseller)
for Certain Consideration Received from a Vendor."  Under the new guidance, if
the consideration received represents a payment for assets delivered to the
vendor, it should be classified as revenue. If the consideration is a
reimbursement of a specific, incremental, identifiable cost incurred in selling
the vendor's product, the cost should be characterized as a reduction of that
incurred cost.  Generally, all other cash consideration received from a vendor
should be classified as a reduction of cost of sales.  As required, the Company
adopted this guidance during fiscal 2003 and its adoption had no material impact
on the Company's sales, results of operations, cash flows or financial
position.

Inflation

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

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

Seasonality

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

The following table sets forth unaudited quarterly results of
operations for fiscal 2003 and 2002 (in thousands, except per share data).
Certain prior quarter amounts have been reclassified to discontinued operations
to conform to the current year presentation in accordance with Statement of
Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets."

`2003
                                             ----------------------------------------------
Quarter Ended                                  May 3      August 2   November 1  January 31
-------------------------------------------  ----------  ----------  ----------  ----------
Net sales from continuing operations....... $  137,915  $  149,757  $  145,288  $  227,615
Gross profit...............................     46,575      53,455      50,916      74,259
Income (loss) from continuing
  operations...............................     (3,563)        334      (2,590)      8,571
Discontinued operations, net of tax........       (424)       (309)        (22)       (127)
Net income (loss)..........................     (3,987)         25      (2,612)      8,444

Net income (loss) per common share
Basic
Income (loss) from continuing
  operations............................... $    (0.28) $    (0.03) $    (0.20) $     0.67
Discontinued operations.................... $    (0.03) $     0.03  $           $    (0.01)
Net income (loss) per common share......... $    (0.31) $           $    (0.20) $     0.66

Diluted
Income (loss) from continuing
  operations............................... $    (0.28) $    (0.03) $    (0.20) $     0.66
Discontinued operations.................... $    (0.03) $     0.03  $           $    (0.01)
Net income (loss) per common share......... $    (0.31) $           $    (0.20) $     0.65

Weighted-average
  number of common
  shares outstanding:
    Basic..................................     12,801      12,818      12,844      12,857
    Diluted................................     12,801      12,818      12,844      13,102


                                                                 2002
                                             ----------------------------------------------
Quarter Ended                                  May 4      August 3   November 2  February 1
-------------------------------------------  ----------  ----------  ----------  ----------
Net sales from continuing operations....... $  143,737  $  149,382  $  148,284  $  224,513
Gross profit...............................     48,909      52,240      51,543      71,800
Loss from continuing operations (1)........     (2,010)     (2,009)     (2,209)     (1,291)
Discontinued operations, net of tax (2)....       (662)       (121)       (394)     (3,277)
Net loss...................................     (2,672)     (2,130)     (2,603)     (4,568)

Net income (loss) per common share
Basic and diluted
Loss from continuing operations............ $    (0.16) $    (0.16) $    (0.17) $     0.10
Discontinued operations.................... $    (0.05) $    (0.01) $    (0.03) $    (0.26)
Net loss per common share.................. $    (0.21) $    (0.17) $    (0.20) $    (0.36)

Weighted-average
  number of common
  shares outstanding:
    Basic and diluted......................     12,726      12,737      12,754      12,771`

(1)	Net loss before income taxes in the
period ended February 1, 2003 includes pre-tax charges of   $9.5 million
non-cash charges related to impairment of long-lived assets in certain of the
Company's underperforming locations, $1.7 million of charges related to the sale
of receivables, and $3.7 million of charges related to the early extinguishment
of accounts receivable securitization debt.

(2)	Discontinued operations for the period ended February
1, 2003 includes primarily non-cash pre-tax charges 	of $5.1 million related
to the write down of assets and to post closure lease obligations in connection
with 	the closure of six stores.

Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks in the normal course
of business due to changes in interest rates on short-term borrowings under its
senior revolving credit facility. As of January 31, 2004, the Company also had
one  term loan bearing variable interest rates. The Company does not engage in
financial transactions for speculative or trading purposes, nor does the Company
purchase or hold any derivative financial instruments.

As of January 31, 2004, borrowings subject to a variable
interest rate,  represented 46.9% of the Company's total outstanding borrowings.
The interest payable on the Company's senior revolving credit facility is based
on variable interest rates and is therefore affected by changes in market
interest rates. An increase of 55 basis points on existing floating rate
borrowings (a 10% change from the Company's weighted-average interest rate as of
January 31, 2004) would reduce the Company's pre-tax net income and cash flow by
approximately $0.6 million. This 55 basis point increase in interest rates would
not materially affect the fair value of the Company's fixed rate financial
instruments. (See Note 1 to the Consolidated Financial Statements.)

Item 8.  	FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

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

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

None.

Item 9A.	CONTROLS AND PROCEDURES

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

The Company's Chief Executive Officer and Chief Financial
Officer (its principal executive officer and principal financial officer,
respectively), have evaluated the effectiveness of the Company's "disclosure
controls and procedures," as of January 31, 2004.  Based on their evaluation,
except as noted in the next paragraph, the principal executive officer and
principal financial officer concluded that the Company's disclosure controls and
procedures are effective.  There were no changes in the Company's internal
controls over financial reporting identified in connection with such evaluation
that occurred during the Company's fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

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

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 24, 2004, to be filed pursuant to Regulation 14A (the "2003
Proxy") under the headings "Nominees for Election as Director"
and "Section 16(a) Beneficial Ownership Reporting Compliance."

As of March 31, 2004, the name, age and title of the  senior
executive officers of the Company are as follows:

|Name               | Age | Position                                                        
|------------------ | --- | ----------------------------------------------------------------
|James R. Famalette | 51  | President and Chief Executive Officer                           
|Gary L. Gladding   | 63  | Executive Vice President/General Merchandise Manager            
|J. Gregory Ambro   | 51  | Senior Vice President/Chief Administrative and Financial Officer
|Michael J. Schmidt | 62  | Senior Vice President/Director of Stores                        

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

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

J. Gregory Ambro became Senior Vice President/Chief
Administrative and Financial Officer of the Company on November 20, 2003. Prior
to joining Gottschalks, Mr. Ambro served for three years as Senior Vice
President and Chief Financial Officer of  Bradlees, a regional discount
department store in the Northeast.  From 1995 to 2000 he served as Chief
Financial Officer of Marshalls, an off-price retailer, Streamline, a grocery and
consumer products retailer and Harris Teeter, an upscale supermarket chain in
the Southeast.  From 1978 to 1994 Mr. Ambro served in a variety of financial
positions for Marshalls and the May Department Stores Co.

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

_______________________

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

Item 11.	EXECUTIVE COMPENSATION

The information required by this item is incorporated by
reference from those portions of the Company's 2004 Proxy under the headings
"Executive Compensation" and "Director Compensation for Fiscal
Year 2003."

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 2004 Proxy under the heading
"Security Ownership of Certain Beneficial Owners and Management."

Item 13.	CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

The information required by this item is incorporated by
reference from the portion of the Company's 2004 Proxy under the heading
"Certain Relationships and Related Transactions."

Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

Information responsive to Part III, Item 14 is included
in the Proxy Statement, to be filed by Registrant with the Commission pursuant
to Regulation 14A, under the captions therein entitled "Information on
Independent Public Accountants" and is incorporated herein by reference pursuant
to General Instruction G(3).

PART IV

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

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

> Consolidated balance sheets - As of
> January 31, 2004 and February 1, 2003,

> Consolidated statements of operations
> -- Fiscal years ended January 31, 2004, February 1, 2003 and February 2,
> 2002

> Consolidated statements of
> stockholders' equity -- Fiscal years ended January 31,  2004, February 1, 2003
> and February 2, 2002

> Consolidated statements of cash
> flows -- Fiscal years ended January 31, 2004, February 1, 2003 and February 2,
> 2002

> Notes to consolidated financial
> statements -- Three fiscal years ended January 31, 2004Independent auditors' report

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

> Schedule II -- Valuation and
> qualifying accounts

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

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

---



EXHIBIT INDEX

|Exhibit Number | Description                                                                                                                                                                                                                                                                                               | Incorporated by Reference From the Following Document                                    
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------
|3.1            | Certificate of Incorporation of the Registrant, as amended                                                                                                                                                                                                                                                | Registration Statement on Form S-1 (File No. 33-3949)                                    
|3.2            | By-Laws of the Registrant                                                                                                                                                                                                                                                                                 | Filed electronically herewith                                                            
|10.1           | Gottschalks Inc. Retirement Savings Plan(*)                                                                                                                                                                                                                                                               | Registration Statement on Form S-1 (File No. 33-3949)                                    
|10.2           | Participation Agreement dated as of December 1, 1988 among
Gottschalks Inc., General Foods Credit Investors No. 2 Corporation and
Manufacturers Hanover Trust Company of California relating to the sale-leaseback
of the Stockton and Bakersfield department stores and the Madera distribution
facility | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.3           | Lease Agreement dated December 1, 1988 by and between
Manufacturers Hanover Trust Company of California and Gottschalks Inc. relating
to the sale-leaseback of department stores in Stockton and Bakersfield,
California and the Madera distribution facility                                             | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.4           | Ground Lease dated December 1, 1988 by and between Gottschalks
Inc. and Manufacturers Hanover Trust Company of California relating to the
sale-leaseback of the Bakersfield department store                                                                                                              | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.5           | Memorandum of Lease and Lease Supplement dated July 1, 1989 by
and between Manufacturers Hanover Trust Company of California and Gottschalks
Inc. relating to the sale-leaseback of the Stockton department store                                                                                         | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.6           | Tax Indemnification Agreement dated as of August 1, 1989 by and
between Gottschalks Inc. and General Foods Credit Investors No. 2 Corporation
relating to the sale-leaseback of the Stockton and Bakersfield department stores
and the Madera distribution facility                                       | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.7           | Ground Lease dated August 17, 1989 by and between Gottschalks
Inc. and Manufacturers Hanover Trust Company of California relating to the
sale-leaseback of the Madera distribution facility                                                                                                               | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.8           | Lease Supplement dated as of August 17, 1989 by and between
Manufacturers Hanover Trust Company of California and Gottschalks Inc. relating
to the sale-leaseback of the Madera distribution facility                                                                                                     | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.9           | Agreement of Limited Partnership dated March 16, 1990, by and
between River Park Properties I and Gottschalks Inc. relating to the Company's
corporate headquarters                                                                                                                                       | Annual Report on Form 10-K for the year ended February 2, 1991
(File No. 1-09100)        
|10.10          | Lease Agreement dated as of March 16, 1990 by and between
Gottschalks Inc. and River Park Properties I relating to the Company's corporate
headquarters                                                                                                                                                   | Annual Report on Form 10-K for the year ended January 29, 1994
(File No. 1-09100)        
|10.11          | Form of Severance Agreement dated March 31, 1995 by and between
Gottschalks Inc. and the following senior executives of the Company: Joseph W.
Levy, Gary L. Gladding and Michael J. Schmidt(*)                                                                                                           | Annual Report on Form 10-K for the year ended January 28, 1995
(File No. 1-09100)        
|10.12          | 1994 Key Employee Incentive Stock Option Plan(*)                                                                                                                                                                                                                                                          | Registration Statement on Form S-8 (File #33-54789)                                      
|10.13          | 1994 Director Nonqualified Stock Option Plan(*)                                                                                                                                                                                                                                                           | Registration Statement on Form S-8 (File #33-54783)                                      
|10.14          | Agreement of Sale dated June 27, 1995, by and between
Gottschalks Inc. and Jack Baskin relating to the sale and leaseback of the
Capitola, California property                                                                                                                                            | Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (File No. 1-09100)     
|10.15          | Lease and Agreement dated June 27, 1995, by and between Jack
Baskin and Gottschalks Inc. relating to the sale and leaseback of the Capitola,
California property                                                                                                                                          | Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (File No. 1-09100)     
|10.16          | Promissory Notes and Security Agreements dated October 4, 1995
and October 10, 1995 by and between Gottschalks Inc. and Midland Commercial
Funding                                                                                                                                                        | Quarterly Report on Form 10-Q for the quarter ended October 28,
1995 (File No. 1-09100)  
|10.17          | Promissory Note and Security Agreement dated October 2, 1996, by
and between Gottschalks Inc. and Heller Financial, Inc. (**)                                                                                                                                                                             | Quarterly Report on Form 10-Q for the year ended November 2,
1996 (File No. 1-09100)     
|10.18          | Gottschalks Inc. 1998 Stock Option Plan(*)                                                                                                                                                                                                                                                                | Registration Statement on Form S-8 (File #33-61471)                                      
|10.19          | Gottschalks Inc. 1998 Employee Stock Purchase Plan(*)                                                                                                                                                                                                                                                     | Registration Statement on Form S-8 (File #33-61473)                                      
|10.20          | Asset Purchase Agreement dated as of July 21, 1998 among
Gottschalks Inc., The Harris Company and El Corte Ingles, S. A. together with
all Exhibits thereto                                                                                                                                               | Current Report on Form 8-K dated July 21, 1998 (File No. 1-09100)                        
|10.21          | Non-Negotiable, Extendable, Subordinated Note due August 20,
2003 issued to The Harris Company                                                                                                                                                                                                            | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.22          | Registration Rights Agreement between The Harris Company and
Gottschalks Inc. dated August 20, 1998                                                                                                                                                                                                       | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.23          | Tradename License Agreement between The Harris Company and
Gottschalks Inc. dated August 20, 1998                                                                                                                                                                                                         | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.24          | Stockholders' Agreement among El Corte Ingles, S. A.,
Gottschalks Inc., Joseph Levy and Bret Levy dated August 20, 1998                                                                                                                                                                                   | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.25          | Standstill Agreement between El Corte Ingles, S. A., and
Gottschalks Inc. dated August 20, 1998                                                                                                                                                                                                           | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.26          | Store Lease Agreement between El Corte Ingles, S. A., and
Gottschalks Inc. dated August 20, 1998 re: East Hills Mall, Bakersfield,
California                                                                                                                                                             | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.27          | Store Lease Agreement between El Corte Ingles, S. A., and Gottschalks Inc.
dated August 20, 1998 re: Moreno Valley Mall at Towngate, Moreno Valley,
California                                                                                                                                            | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.28          | Store Lease Agreement between El Corte Ingles, S. A., and
Gottschalks Inc. dated August 20, 1998 re: Antelope Valley Mall at Palmdale,
California                                                                                                                                                         | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                      
|10.29          | Form of Severance Agreement dated January 21, 1999 by and
between Gottschalks Inc. and Michael S. Geele (*)                                                                                                                                                                                               | Annual Report on Form 10-K for the year ended January 30,1999
(File No. 1-09100)         
|10.30          | Receivables Purchase Agreement dated March 1, 1999 by and
between Gottschalks Credit Receivables Corporation and Gottschalks Inc.                                                                                                                                                                         | Annual Report on Form 10-K for the year ended January 30, 1999
(File No. 1-09100)        
|10.31          | Pooling and Servicing Agreement dated as of March 1, 1999 by and
among Gottschalks Credit Receivables Corporation, Gottschalks Inc. and Bankers
Trust Company                                                                                                                                             | Annual Report on Form 10-K for the year ended January 30, 1999
(File No. 1-09100)        
|10.32          | Series 1999-1 Supplement to Pooling and Servicing Agreement
dated March 1, 1999 by and among Gottschalks Credit Receivables Corporation,
Gottschalks Inc. and Bankers Trust Company                                                                                                                       | Annual Report on Form 10-K for the year ended January 30, 1999
(File No. 1-09100)        
|10.33          | Employment Agreement dated June 25, 1999 by and between
Gottschalks Inc. and James R. Famalette(*).                                                                                                                                                                                                       | Quarterly Report on Form 10-Q for the quarter ended July 31,
1999 (File No. 1-09100)     
|10.34          | Asset Purchase Agreement dated April 24, 2000 by and between
Gottschalks Inc. and Lamonts Apparel, Inc.                                                                                                                                                                                                   | Annual Report on Form 10-K for the year ended January 29, 2000
(File No. 1-09100)        
|10.35          | Amendment No. 1 to the Asset Purchase Agreement dated May 16,
2000 by and between Gottschalks Inc. and Lamonts Apparel, Inc.                                                                                                                                                                              | Quarterly Report on Form 10-Q for the quarter ended July 29,
2000 (File No. 1-09100)     
|10.36          | Promissory Note dated July 24, 2000 by and between Gottschalks
Inc. and Heller Financial Leasing, Inc. (**)                                                                                                                                                                                               | Quarterly Report on Form 10-Q for the Quarter ended July 29,
2000 (File No. 1-09100)     
|10.37          | Series 2000-1 Supplement to the Pooling and Servicing Agreement
dated as of November 16, 2000 by and among Gottschalks Credit Receivables
Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                                         | Annual Report on Form 10-K for the year ended February 3, 2001
(File No. 1-09100)        
|10.38          | Amendment No. 1 to Pooling and Servicing Agreement and the
Series 1999-1 Supplement dated November 16, 2000 by and among Gottschalks Credit
Receivables Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                           | Annual Report on Form 10-K for the year ended February 3, 2001
(File No. 1-09100)        
|10.39          | Promissory Note and Security Agreement dated May 16, 2001, by
and between Gottschalks Inc, and Heller Financial, Inc. (**)                                                                                                                                                                                | Quarterly Report on Form 10-Q for the quarter ended May 5, 2001
(File No. 1-09100)       
|10.40          | Amended and Restated Series 2000-1 Supplement to the Pooling and
Servicing Agreement dated as of November 15, 2001 by and among Gottschalks
Credit Receivables Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                    | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.41          | Certificate Purchase Agreement dated November 15, 2001 by and
among Warehouse Line LLC, Bank Hapoalim B.M., and Gottschalks Credit Receivables
Corporation                                                                                                                                                | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.42          | Amendment to Employment Agreement dated December 3, 2001 by and
between Gottschalks Inc. and James R. Famalette (*)                                                                                                                                                                                       | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.43          | Credit Agreement dated January 31, 2002 by and among Gottschalks
Inc., General Electric Capital Corporation and The CIT Group/Business Credit                                                                                                                                                             | Current Report on Form 8-K dated January 31, 2002                                        
|10.44          | Credit Facilitation Agreement dated February 22, 2002 by and
between Gottschalks Inc. and The Harris Company                                                                                                                                                                                              | Current Report on Form 8-K/A (Amendment No. 2) dated February
22, 2002 (File No. 1-09100)
|10.45          | First Amendment to Credit Agreement dated February 22, 2002 by
and among Gottschalks Inc., General Electric Capital Corporation and The CIT
Group/Business Credit                                                                                                                                         | Current Report on Form 8-K/A (Amendment No. 2) dated February
22, 2002 (File No. 1-09100)
|10.46          | Credit Agreement dated March 22, 2002 by and between Gottschalks
Inc. and KIMCO Capital Corp.                                                                                                                                                                                                             | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.47          | Second Amendment to Credit Agreement dated March 22, 2002 by and
among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, LaSalle Retail Finance and Foothill Capital Corporation                                                                                     | Annual Report on Form 10-K for the year ended February 2, 2002
(File No. 1-09100)        
|10.48          | Third Amendment to Credit Agreement dated April 30, 2002, by and
among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, LaSalle Retail Finance and Foothill Capital
Corporation                                                                                     | Current Report on Form 8-K dated May 6, 2002                                             
|10.49          | First Amendment to Credit Facilitation Agreement dated May 29,
2002, by and between Gottschalks Inc. and Harris                                                                                                                                                                                           | Current Report on Form 8-K dated May 29, 2002                                            
|10.50          | Second Amendment to Credit Facilitation Agreement dated August
29, 2002, by and between Gottschalks Inc. and Harris                                                                                                                                                                                       | Current Report on Form 8-K dated August 29, 2002                                         
|10.51          | Third Amendment to Credit Facilitation Agreement dated January
10, 2003, by and between Gottschalks Inc. and Harris                                                                                                                                                                                       | Current Report on Form 8-K dated January 10, 2003                                        
|10.52          | Purchase and Sale Agreement dated January 30, 2003 by and among
Gottschalks Credit Receivables Corporation, Gottschalks Inc. and Household Bank
(SB), N.A.                                                                                                                                                | Current Report on Form 8-K dated January 31, 2003                                        
|10.53          | Interim Servicing Agreement dated January 30, 2003 by and
between Gottschalks Inc. and Household Bank (SB), N.A.                                                                                                                                                                                          | Current Report on Form 8-K dated January 31, 2003                                        
|10.54          | Credit Card Program Agreement dated January 30, 2003 by and
between Gottschalks Inc. and Household Bank (SB), N.A.                                                                                                                                                                                        | Current Report on Form 8-K dated January 31, 2003                                        
|10.55          | Amendment to Amended and Restated Receivables Purchase Agreement
dated January 31, 2003 by and between Gottschalks Inc. and Gottschalks Credit
Receivables Corporation                                                                                                                                    | Current Report on Form 8-K dated January 31, 2003                                        
|10.56          | Consent and Fourth Amendment to Credit Agreement dated January
30, 2003 by and among Gottschalks Inc., General Electric Capital Corporation,
The CIT Group/Business Credit, Inc., LaSalle Retail Finance, and Foothill
Capital Corporation                                                                | Current Report on Form 8-K dated January 31, 2003                                        
|10.57          | Fifth Amendment to Credit Agreement dated January 30, 2003 by
and among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, Inc., LaSalle Retail Finance, and Foothill Capital
Corporation.                                                                            | Current Report on Form 8-K dated January 31, 2003                                        
|10.58          | Acknowledgement, Release and Amendment to Credit Agreement dated
January 30, 2003 by and between Gottschalks Inc. and Kimco Capital
Corp.                                                                                                                                                                 | Current Report on Form 8-K dated January 31, 2003                                        
|10.59          | Sixth Amendment to Credit Agreement dated February 28, 2003 by
and among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, Inc., LaSalle Retail Finance, and Foothill Capital
Corporation.                                                                           | Current Report on Form 8-K dated March 4, 2003.                                          
|10.60          | Seventh Amendment to Credit Agreement dated May 2, 2003 by and
among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, Inc., LaSalle Retail Finance, and Foothill Capital
Corporation.                                                                               | Current Report on Form 8-K dated May 5, 2003.                                            
|21.            | Subsidiary of the Registrant                                                                                                                                                                                                                                                                              | Annual Report on Form 10-K for the year ended January 28, 1995
(File No. 1-09100)        
|23.            | Independent Auditors' Consent                                                                                                                                                                                                                                                                             | Filed electronically herewith                                                            

(*)	Management contract, compensatory plan or
arrangement.

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

---

(b)	Reports on Form 8-K -- The Company filed the following
Reports on Form 8-K 	during the fourth quarter of fiscal 2003:

The Company filed a Form 8-K dated March 4, 2003, pursuant to
Item 5, Other Events, describing the Sixth Amendment to the Credit Agreement by
and among Gottschalks Inc., General Electric Capital Corporation, The CIT
Group/Business Credit, Inc., LaSalle Retail Finance, and Foothill Capital
Corporation.

The Company filed a Form 8-K dated May 5, 2003, pursuant
to Item 5, Other Events, describing the Seventh Amendment to the Credit
Agreement by and among 	Gottschalks Inc., General Electric Capital
Corporation, The CIT Group/Business Credit, Inc., LaSalle Retail Finance, and
Foothill Capital Corporation.

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

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

---

ANNUAL REPORT ON FORM 10-K



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



CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



CERTAIN EXHIBITS



FINANCIAL STATEMENT SCHEDULE



YEAR ENDED JANUARY 31, 2004



GOTTSCHALKS INC. AND SUBSIDIARY



FRESNO, CALIFORNIA

---

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets
of Gottschalks, Inc. and Subsidiary (the "Company") as of
January 31, 2004 and February 1, 2003, and the related consolidated
statements of operation, stockholders' equity and cash flows for each of the
three fiscal years in the period ended January 31, 2004. Our audits also
included the financial statement schedule listed in the Index at
Item 15(a)(2). These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.

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

In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position of Gottschalks,
Inc. and Subsidiary at January 31, 2004 and February 1, 2003, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 31, 2004 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial
statements, in fiscal 2002 the Company changed its method of accounting for
goodwill and other intangible assets.

As discussed in Note 1 to the consolidated financial
statements, in fiscal 2003 the Company changed its method of accounting for
discontinued operations to conform to Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

/s/ Deloitte & Touche LLP

Fresno, California
April 20, 2004

---

---

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

---

`January 31,  February 1,
                                                           2004         2003
                                                        -----------  -----------
ASSETS
CURRENT ASSETS:
  Cash................................................ $     5,172  $     6,215
  Receivables - net...................................       9,145       10,641
  Merchandise inventories.............................     156,458      164,615
  Other...............................................      10,849       12,614
                                                        -----------  -----------
    Total current assets..............................     181,624      194,085

PROPERTY AND EQUIPMENT - net..........................     129,832      139,888

OTHER ASSETS:
  Goodwill - net......................................       7,501        7,501
  Other intangibles - net.............................         854          658
  Other...............................................       4,180        6,597
                                                        -----------  -----------
                                                            12,535       14,756
                                                        -----------  -----------
                                                       $   323,991  $   348,729
                                                        ===========  ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Trade accounts payable and accrued expenses......... $    67,373  $    79,973
  Revolving line of credit............................       1,009       28,845
  Current portion of long-term debt...................       1,789        1,719
  Current portion of capitalized lease obligations....       1,936        2,970
  Deferred income taxes...............................         569          337
                                                        -----------  -----------
    Total current liabilities.........................      72,676      113,844

LONG-TERM OBLIGATIONS, less current portion...........      91,302       75,097

OTHER LIABILITIES.....................................      16,874       18,917

DEFERRED INCOME TAXES.................................      12,637       12,558

SUBORDINATED NOTE PAYABLE TO AFFILIATE - net..........      22,180       21,989

COMMITMENTS AND CONTINGENCIES (Notes 8 and 16)

STOCKHOLDERS' EQUITY:
  Common stock, par value of $.01 per share;
    30,000,000 shares authorized; 12,878,802
    and 12,801,669 issued.............................         129          128
  Additional paid-in capital..........................      71,440       71,313
  Retained earnings...................................      36,753       34,883
                                                        -----------  -----------
                                                           108,322      106,324
                                                        -----------  -----------
                                                       $   323,991  $   348,729
                                                        ===========  ===========`

See notes to consolidated financial statements.

---

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

---

`2003        2002        2001
                                                        ----------  ----------  ----------
Net sales............................................. $  660,574  $  665,916  $  678,866
Net credit revenues...................................      3,729       8,225       8,420
Net leased department revenues........................      3,525       3,557       3,965
                                                        ----------  ----------  ----------
    Total revenues....................................    667,828     677,698     691,251
                                                        ----------  ----------  ----------
Costs and expenses:
  Cost of sales.......................................    435,370     441,426     450,723
  Selling, general and
    administrative expenses...........................    203,966     207,885     210,658
  Depreciation and amortization.......................     13,177      13,374      13,256
  Asset impairment charges............................         --       9,502          --
  Store closure costs.................................         --          --         729
  Receivables sale costs..............................         --       1,749          --
                                                        ----------  ----------  ----------
     Total costs and expenses.........................    652,513     673,936     675,366
                                                        ----------  ----------  ----------
Operating income .....................................     15,315       3,762      15,885
                                                        ----------  ----------  ----------
Other (income) expense:
  Interest expense....................................     13,296      15,883      14,364
  Losses on early extinguishment of debt..............         --       3,695         696
  Miscellaneous income................................     (2,262)     (1,802)     (1,587)
                                                        ----------  ----------  ----------
                                                           11,034      17,776      13,473
                                                        ----------  ----------  ----------
Income (loss) from continuing operations
  before income tax (benefit).........................      4,281     (14,014)      2,412

Income tax expense (benefit)..........................      1,529      (6,495)        851
                                                        ----------  ----------  ----------

Income (loss) from continuing operations..............      2,752      (7,519)      1,561

Discontinued operations:
  Loss from operations of closed stores...............       (547)     (1,948)     (1,721)
  Loss on store closures..............................       (789)     (4,801)         --
  Income tax benefit..................................       (454)     (2,295)       (585)
                                                        ----------  ----------  ----------
  Loss on discontinued operations.....................       (882)     (4,454)     (1,136)
                                                        ----------  ----------  ----------
  Net income (loss)................................... $    1,870  $  (11,973) $      425
                                                        ==========  ==========  ==========

Net income (loss) per common share:
Basic
  Income (loss) from continuing operations............ $     0.22  $    (0.59) $     0.12
  Loss on discontinued operations .................... $    (0.07) $    (0.35) $    (0.09)
  Net income (loss) per common share.................. $     0.15  $    (0.94) $     0.03
Diluted
  Income (loss) from continuing operations............ $     0.21  $    (0.59) $     0.12
  Loss on discontinued operations .................... $    (0.07) $    (0.35) $    (0.09)
  Net income (loss) per common share.................. $     0.14  $    (0.94) $     0.03
Weighted average number of common shares outstanding
  Basic...............................................     12,830      12,747      12,681
  Diluted.............................................     12,919      12,747      12,691`

See notes to consolidated financial statements.

---

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

---

`Common Stock     Additional
                            -------------------   Paid-in    Retained
                              Shares     Amount   Capital    Earnings    Total
                            -----------  ------  ----------  ---------  --------
BALANCE, FEBRUARY 3, 2001.. 12,656,769  $  127  $   71,015  $  46,431  $117,573
  Net income...............         --      --          --        425       425
  Shares issued under
   stock purchase plan.....     69,595      --         174         --       174
                            -----------  ------  ----------  ---------  --------
BALANCE, FEBRUARY 2, 2002.. 12,726,364     127      71,189     46,856   118,172
  Net loss.................                                   (11,973)  (11,973)
  Shares issued under
   stock purchase plan.....     75,305       1         124                  125
                            -----------  ------  ----------  ---------  --------
BALANCE, FEBRUARY 1, 2003.. 12,801,669     128      71,313     34,883   106,324
  Net income...............                                     1,870     1,870
  Issuance of common stock
   pursuant to nonqualified
   stock purchase plan......     9,000
  Shares issued under                                   27                   27
   stock purchase plan.....     68,133       1         100                  101
                            -----------  ------  ----------  ---------  --------
BALANCE, JANUARY 31, 2004.. 12,878,802  $  129  $   71,440  $  36,753  $108,322
                            ===========  ======  ==========  =========  ========`

See notes to consolidated financial statements.

---

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

---

`2003       2002       2001
                                                               ---------  ---------  ---------
OPERATING ACTIVITIES:
Net income (loss)............................................ $   1,870  $ (11,973) $     425
Adjustments:
  Depreciation and amortization..............................    13,249     14,259     14,123
  Deferred income taxes......................................       311     (2,613)      (300)
  Amortization of deferred income and
    other deferred items.....................................    (2,243)       718     (1,017)
  Provision for credit losses................................       200        825      1,247
  Asset impairment charges...................................        --      9,502
  Store closure costs........................................       789      4,801        729
  Net loss from sale of assets...............................        59        131        122
  Other non-cash items, net..................................      (968)      (139)     1,777
Decrease(increase) in assets:
     Receivables.............................................     1,295     (2,972)    (3,275)
     Merchandise inventories.................................     9,426     (2,370)    24,951
     Other current and long-term assets......................     3,785      9,420      4,997
Increase (decrease) in liabilities:
     Trade accounts payable and accrued expenses.............    (5,891)     5,951     (2,372)
     Other current and long-term liabilities.................     1,180     (4,669)     2,123
                                                               ---------  ---------  ---------
         Net cash provided by operating activities...........    23,062     20,871     43,530

INVESTING ACTIVITIES:
Available-for-sale securities:
  Maturities.................................................        --   (383,147)  (345,638)
  Purchases..................................................        --    377,982    344,269
Purchases of property and equipment..........................    (4,363)    (8,279)   (18,683)
Proceeds from sale of lease rights, fixtures and equipment...        27      1,010      1,306
Proceeds from investment in limited partnership..............       352        216        194
                                                               ---------  ---------  ---------
        Net cash used in investing activities................    (3,984)   (12,218)   (18,552)

FINANCING ACTIVITIES:
Net proceeds (repayments) under retired revolving
  credit facility............................................                        (112,828)
Net proceeds (repayments) from new revolving credit facility.    (7,836)   (37,062)    95,908
Proceeds from sale of credit card accounts receivable........        --    100,319         --
Net proceeds from 2000-1 Series Certificates.................        --         --      2,000
Principal payments on retired 1999-1 Series Certificate......        --    (53,000)        --
Principal payments on retired 2000-1 Series Certificate......        --    (20,000)        --
Proceeds from sale and leaseback transactions................        --      1,334      8,116
Proceeds from long-term obligations..........................        --     20,010      4,000
Principal payments on long-term obligations..................    (4,568)   (14,737)    (8,419)
Changes in cash management liability.........................    (7,845)    (1,195)    (7,610)
Debt issuance costs..........................................        --       (973)    (6,405)
Proceeds from sale of stock under employee
  stock purchase plans.......................................       128        125        174
                                                               ---------  ---------  ---------
Net cash (used in) financing activities......................   (20,121)    (5,179)   (25,064)
                                                               ---------  ---------  ---------
INCREASE (DECREASE) IN CASH..................................    (1,043)     3,474        (86)
CASH AT BEGINNING OF YEAR....................................     6,215      2,741      2,827
                                                               ---------  ---------  ---------
CASH AT END OF YEAR.......................................... $   5,172  $   6,215  $   2,741
                                                               =========  =========  =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
 FINANCING ACTIVITIES:
  Acquisition of equipment under capital leases.............. $          $          $     233
                                                               =========  =========  =========`

See notes to consolidated financial statements.

---

GOTTSCHALKS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

1.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Gottschalks Inc. (the "Company") is a regional
department and specialty store chain based in Fresno, California. As of January
31, 2004, the Company operated 63 full-line department stores located in six
Western states, with 39 stores located in California, 12 in Washington, 6 in
Alaska, 2 in Oregon and 2 in both Nevada and Idaho. The Company also operated 11
specialty stores which carry a limited selection of merchandise. The Company's
department stores typically offer a wide range of better to moderate brand-name
and private-label merchandise, including men's, women's, junior's and children's
apparel, cosmetics, shoes and accessories, and also a wide array of home
furnishings, including domestics, china, housewares, small electrics and, in
certain locations, furniture and mattresses.

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

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

Fiscal Year - The Company's fiscal year ends on the
Saturday nearest January 31.  Fiscal years 2003, 2002 and 2001 ended on January
31, 2004, February 1, 2003 and February 2, 2002, respectively. Fiscal 2003, 2002
and 2001 each included 52 weeks.

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

Net leased department revenues consist of rental income from
lessees and sub-lessees. Sales generated in such leased departments totaled
$24,460,000, $24,878,000 and $27,950,000 in 2003, 2002 and 2001,
respectively.

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

At that time the Company also entered into an interim
servicing agreement to service the receivables on behalf of Household until such
time as they were able to convert the accounts to their systems and a program
agreement whereby the Company will participate in revenues generated from the
portfolio.  The transaction was accounted for as a sale of financial assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities".  Servicing fees received under the interim servicing agreement
were considered to approximate the fair value of the cost to service the
receivables during the interim servicing period, resulting in no servicing asset
or liability.  A portion of the program fees paid represented residual interest
in the assets transferred at the time of the transaction.  Accordingly, the
Company recorded an interest only strip in the amount of $312,000 that was
amortized as a charge to results of operations over the estimated life of the
underlying assets sold on the transaction date.

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

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

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

Receivables -	As of January 31, 2004 and February 1,
2003, receivables consist of vendor claims of $9,426,000, less allowances of
$281,000, and vendor claims of $10,722,000, less allowances of $81,000,
respectively.

Merchandise Inventories - Inventories, which consist of
merchandise held for resale, are valued by the retail method and are stated at
last-in, first-out (LIFO) cost, which is not in excess of market. Current cost,
which approximates replacement cost, under the first-in, first-out (FIFO) method
is equal to the LIFO value of inventories at January 31, 2004 and February 1,
2003. The Company includes in inventory the capitalization of certain indirect
buying handling and distribution costs to better match these costs with the
related sales.

Store Closure Costs - In the event a store is closed
before its lease has expired, the remaining lease obligation after the closing
date (less anticipated sublease rental income or proceeds from lease
settlements, if any) is expensed at the date the store ceases operations. Asset
impairment charges, if any, related to furniture, fixtures and equipment,
leasehold improvements, goodwill and leasehold interests are expensed in the
period in which management adopts a plan to close the store if impairment is
considered likely as a result of such planned store closure or at such other
time as impairment becomes likely. Severance and other incremental costs
associated with a store closure are expensed as incurred.

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

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

Software Development Costs - Costs associated with the
acquisition or development of software for internal use that meet the criteria
of AICPA Statement of Position No. 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" are capitalized and
amortized over the expected useful life of the software, which generally ranges
from 3 to 10 years. Software development costs capitalized under SOP No. 98-1 in
fiscal 2003, 2002 and 2001 totaled $29,000, $673,000, and $1,057,000
respectively. In 2003 and 2002, the Company completed and placed in service all
information systems projects to which such costs were capitalized and commenced
the amortization of such costs over their estimated useful lives at that time.
Amortization of such costs totaled $408,000 and $260,000 in fiscal 2003 and
2002. There was no amortization of such costs in fiscal 2001.

Goodwill - The Company adopted the provisions of SFAS No.
142, "Goodwill and Other Intangible Assets" effective the beginning of fiscal
2002 and discontinued the amortization of previously recorded goodwill as of
that date (Note 4).  During the first six months of fiscal 2002, as required by
the statement, the Company performed an initial impairment review of goodwill.
The Company also performed the required annual impairment review of goodwill for
fiscal 2003 and fiscal 2002.  As a result of these reviews, the Company
concluded that there was no impairment charge as of the respective measurement
dates.

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

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

Deferred Income - Deferred income consists primarily of
donated land and cash incentives received to construct a store and enter into a
lease arrangement, and the prepaid program fee arising from the receivables sale
to Household. Land contributed to the Company is included in land and recorded
at appraised fair market values. Deferred income relating to contributed land is
amortized over the average depreciable life of the related fixed assets built on
the land for locations that are owned by the Company, and over the minimum lease
periods of the related building leases with respect to locations that are leased
by the Company, ranging from 10 to 32 years. Beginning in fiscal 2003, the
prepaid program fee is being amortized over the five-year term of the program
agreement. Deferred income, net of accumulated amortization, totaling
$13,335,000 and $14,837,000  as of January 31, 2004 and  February 1, 2003
respectively, is included in other long-term liabilities.

Deferred Lease Payments - Certain of the Company's
department store operating leases provide for rent abatements and scheduled rent
increases during the lease terms. The Company recognizes rental expense for such
leases on a straight-line basis over the respective lease terms and records the
difference between rental expense and amounts paid under the leases as deferred
lease payments. Deferred lease payments, totaling $3,597,000 at January 31, 2004
and $3,778,000 at February 1, 2003 , are included in other liabilities.

Advertising Costs - Advertising costs, totaling
$30,597,000, $31,245,000 and $33,053,000 in 2003, 2002 and 2001, respectively,
are included in selling, general and administrative expenses for financial
reporting purposes and are expensed when the related advertisement first takes
place. Cash payments and credits received from vendors to reimburse advertising
costs are recorded as reductions of advertising costs.  During fiscal 2003
$1,990,000 of such reimbursements were reclassified as reductions to cost of
goods sold because they did not meet certain criteria of newly adopted EITF 02-16.

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

Stock-Based Compensation -  At January 31, 2004, the
Company has two stock-based employee compensation plans, which are more fully
described in Note 13.  The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations.  No stock-based
employee compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of the grant.

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

`(In thousands, except per share data)               2003       2002       2001
-----------------------------------------------   --------   --------   --------
Net income (loss) as reported.................. $   1,870  $ (11,973) $     425
Deduct: Total stock-based compensation expense
  determined under fair value based method
  for all awards, net of related tax effects...       (99)      (347)      (527)
                                                  --------   --------   --------
Pro forma net income (loss).................... $   1,771  $ (12,320) $    (102)
                                                  ========   ========   ========

Earnings (loss) per share:
  As reported:
   Basic....................................... $    0.15  $   (0.94) $    0.03
   Diluted..................................... $    0.13  $   (0.94) $    0.03

  Pro-forma:
   Basic....................................... $    0.14  $   (0.97) $   (0.01)
   Diluted..................................... $    0.14  $   (0.97) $   (0.01)`

Long-Lived Assets - The Company periodically evaluates
the carrying value of long-lived assets to be held and used, including
intangible assets other than goodwill, when events and circumstances warrant
such a review. When the anticipated undiscounted cash flow from a long-lived
asset is less than its carrying value, a loss is recognized based on the amount
by which its carrying value exceeds its fair market value. Fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risks involved, and in some cases, the expected proceeds
from the sale or sublease of a particular asset, or independent appraisals.
There were no asset impairment charges from continuing operations recognized in
2003. In 2002, the Company recognized asset impairment charges of $9,502,000
relating to underperforming stores (Note 10) and $4,523,000 in connection with
stores closed during fiscal 2003 and 2002 (Note 9).  In 2001, the Company
recognized asset impairment charges of $775,000 in connection with the closure
of six stores.

Discontinued Operations - The Company has determined
that due to the regional concentration of certain of the stores closed during
fiscal 2003 and certain other factors, a significant portion of the operations
and cash flows of the closed stores have been eliminated from the ongoing
operations of the Company, and the combined effect of such operations, including
the effect of stores closed during fiscal 2002, have become material to the
Company's results of operations taken as a whole.  Accordingly, as prescribed by
Statement of Financial Accounting Standard No. 144, results of operations of
stores closed during 2003 and 2002 are excluded from continuing operations and
reported separately in discontinued operations for all periods presented.

Fair Value of Financial Instruments - The carrying
value of the Company's cash and cash management liability, receivables, notes
receivable, the interest only strip arising from the sale of receivables to
Household, trade payables and other accrued expenses, revolving line of credit
and letters of credit approximate their estimated fair values because of the
short maturities or variable interest rates underlying those instruments. The
Subordinated Note is carried at its estimated fair value.

The fair values of the Company's mortgage loans and notes
payable are estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. Borrowings with aggregate carrying values of $37,464,000 and
$38,943,000 at January 31, 2004 and February 1, 2003, had estimated fair values
of $39,712,000 and $41,639,000  at January 31, 2004 and February 1, 2003,
respectively.

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

Segment Reporting - The Company operates in one
reportable segment.

Comprehensive Income - There were no items of other
comprehensive income in 2003, 2002 or  2001, and therefore net income is equal
to comprehensive income for each of those years.

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

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

In June 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities," which addresses
accounting for restructuring and similar costs.  SFAS No. 146 supersedes
previous accounting guidance, principally Emerging Issues Task Force Issue No.
94-3. SFAS No. 146 requires that the liability for costs associated with an exit
or disposal activity be recognized when the liability is incurred.  Under Issue
94-3, a liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan.   SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value.  Accordingly, SFAS No.
146 may affect the timing of recognizing future restructuring costs as well as
the amounts recognized. Adoption of the provisions of SFAS No. 146 for
restructuring activities initiated after December 31, 2002 did not have a
material impact on the Company's financial position or its results of
operations.

During 2002, the Emerging Issues Task Force reached a
consensus on Issue No. 02-16, "Accounting by a Customer (Including a Reseller)
for Certain Consideration Received from a Vendor."  Under the new guidance, if
the consideration received represents a payment for assets delivered to the
vendor, it should be classified as revenue. If the consideration is a
reimbursement of a specific, incremental, identifiable cost incurred in selling
the vendor's product, the cost should be characterized as a reduction of that
incurred cost.  Generally, all other cash consideration received from a vendor
should be classified as a reduction of cost of sales.  As required, the Company
adopted this guidance in the first quarter of 2003 and its adoption has had no
material impact on the Company's sales, results of operations or financial
position.

Reclassifications - Certain amounts in the accompanying
2002 and 2001 consolidated financial statements have been reclassified to
conform with the 2003 presentation.

2.	SALE OF RECEIVABLES AND RECEIVABLES

Sale of Receivables

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

In connection with the sale, on January 31, 2003 the Company
entered into two additional agreements with Household: an Interim Servicing
Agreement (the "ISA") and a Credit Card Program Agreement (the "CCA").  Under
the terms of the ISA, the Company continued to service the credit card
receivables until Household assumed the servicing on May 14, 2003, as planned.
Net credit revenues for fiscal 2003 include $1,088,000 representing the excess
of interim servicing compensation over the direct servicing costs.

The CCA sets forth the terms and conditions under which
Household will issue credit cards to the Company's customers and pay the Company
for sales made on the cards.  Under the terms of the CCA, the Company is
required to perform certain duties, including the duties to receive in-store
customer payments on behalf of Household and remit such payments to Household.
The CCA has a term of five (5) years and is cancelable earlier by either party
under certain circumstances.  The CCA further provides the Company will be paid
a percentage of Net Cardholder Charges and a percentage of Other Revenue (each
as defined in the CCA).

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

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

Receivables Securitization Program

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

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

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

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

Net Credit Revenues

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

`(In thousands)                                   2003        2002        2001
--------------------------------------------  ----------  ----------  ----------
Service charge revenues..................... $    2,649  $   17,813  $   17,817
Interim servicing compensation - net........      1,088
Amortization of interest-only strip.........       (313)
Interest expense on securitized receivables.                 (4,863)     (4,902)
Charge-offs on receivables sold and
  provision for credit losses on
  receivables ineligible for sale...........        305      (4,821)     (4,550)
Gain on sale of receivables.................         --          96          55
                                              ----------  ----------  ----------
                                             $    3,729  $    8,225  $    8,420
                                              ==========  ==========  ==========`

3. 	PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

`January 31, February 1,
(In thousands)                                   2004        2003
--------------------------------------------  ----------  ----------
Furniture, fixtures and equipment........... $   95,522  $  113,188
Buildings and leasehold improvements........     86,794      84,545
Land........................................     15,185      15,185
Buildings and equipment under
  capital leases............................     18,720      18,720
Construction in progress....................      1,141       1,223
                                              ----------  ----------
                                                217,362     232,861
Less accumulated depreciation
  and amortization..........................    (87,530)    (92,973)
                                              ----------  ----------
                                             $  129,832  $  139,888
                                              ==========  ==========`

4. 	GOODWILL AND INTANGIBLE ASSETS

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

The Company has completed step one of the two-step process
prescribed by SFAS No. 142 to annually test its previously recorded goodwill for
impairment and has determined that each store location represents a reporting
unit for such purpose. As part of this process the Company allocated associated
goodwill to relevant reporting units.  The Company engaged an independent third
party to provide estimates of the fair value of the reporting units and compared
such estimated fair values to the net carrying values of the reporting units.
As a result of this process the Company concluded that there was no impairment
as of the measurement dates of February 2, 2002, November 2, 2002 and November
1, 2003. In addition there have been no events or changes in circumstances since
November 1, 2003 that would indicate that a potential impairment has arisen.
Accordingly, step two of the SFAS No. 142 process is unnecessary.

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

`(In thousands, except per share data)               2003       2002       2001
-----------------------------------------------   --------   --------   --------
Net income (loss):
   Net income (loss) as reported............... $   1,870  $ (11,973) $     425
   Goodwill amortization, net of related
    income tax benefit.........................        --         --        350
                                                  --------   --------   --------
Adjusted net income (loss)..................... $   1,870  $ (11,973) $     775
                                                  ========   ========   ========

Net income (loss) per share (diluted):
   Net income (loss) as reported............... $    0.14  $   (0.94) $    0.03
   Goodwill amortization, net of related
    income tax benefit.........................        --         --       0.03
                                                  --------   --------   --------
Adjusted net income (loss)..................... $    0.14  $   (0.94) $    0.06
                                                  ========   ========   ========`

SFAS No. 142 also requires disclosure of intangible assets
which are subject to amortization.  As of January 31, 2004 and February 1, 2003,
the following lease-related interests are classified as intangible assets:

`January 31, February 1,
(In thousands)                                         2004        2003
--------------------------------------------------  ----------  ----------
Intangible assets - leasehold interests........... $      819  $      509
Accumulated net accretion.........................         35         149
                                                    ----------  ----------
Net............................................... $      854  $      658
                                                    ==========  ==========`

These leasehold interests relate to leases purchased in the
Lamonts acquisition which were adjusted to reflect fair value.  The underlying
leases had lives of three to forty years. The increase in leasehold interests in
fiscal 2003 is primarily attributable to the net charge off of leasehold
interests related to the relocation or restructuring of two of the Company's
store locations during 2003.

During 2003, 2002 and 2001, net accretion (amortization)
included in continuing operations related to certain of these leasehold
interests was $18,000, $(95,000) and $41,000, respectively.   The Company
anticipates amortization on certain of these intangible assets of $82,000 in
each of fiscal years 2003 through 2007.  Additionally, the Company anticipates
accretion on certain of these intangible assets of  $34,000 in each of fiscal
years 2004 through 2007.

5.	TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Trade accounts payable and accrued expenses consist of the
following:

`January 31, February 1,
(In thousands)                                   2004        2003
--------------------------------------------  ----------  ----------
Trade accounts payable...................... $   20,035  $   22,648
Cash management liability...................      7,326      15,005
Accrued expenses............................     19,579      23,010
Accrued payroll and related liabilities.....      7,718       7,179
Taxes, other than income taxes..............     12,059      12,115
Federal and state income taxes payable......        656          16
                                              ----------  ----------
                                             $   67,373  $   79,973
                                              ==========  ==========`

6.	DEBT

Senior Revolving Credit Facility

On February 1, 2002, the Company entered into a
three-year senior revolving credit facility with General Electric Capital Corporation
("GE Capital") as agent, and The CIT Group/Business Credit as
syndication agent (the "Original GE facility").  On March 1, 2004, subsequent to
the Company's fiscal year end, the Company finalized an amendment and
restatement of the Original GE facility (the "GE facility"). The Original GE
facility provided up to $165.0 million of working capital financing through
January 31, 2005, with $159.0 million provided under a Tranche A revolving
credit facility (including a $20.0 million letter of credit sub-facility) and
the remaining $6.0 million provided through a fully funded Tranche B facility.
As of January 31, 2004, outstanding borrowings under the Original facility
totaled $51.0 million, and excess borrowing availability under the facility,
after the deduction of the minimum availability requirement and other reserves,
totaled $37.0 million. The Company classified a total of $50.0 million and $30.0
million as of January 31, 2004 and February 1, 2003, respectively, as long-term
in the accompanying financial statements, representing that portion of
outstanding borrowings under the facility which are not expected to be repaid
within one year of the respective balance sheet dates. Substantially all of the
Company's assets, including its merchandise inventories, were pledged to GE
Capital under this facility.

As of January 31, 2004, interest charged on amounts borrowed
under the Tranche A portion of the Original GE facility were at the prime rate
plus 0.5% per annum (4.50% at January 31, 2004), or at the Company's option, at
the applicable LIBOR rate plus 2.75.% per annum (3.85% at January 31, 2004). In
addition, the Company paid an unused commitment fee equal to 0.375% per annum on
the average unused daily balance of the Tranche A portion of the Original GE
facility.  Amounts borrowed under the Tranche B portion of the Original GE
facility bore interest at prime plus 10%, or at the Company's option, at LIBOR
plus 12.0%. Beginning in fiscal 2003, the interest rate applicable to the
Tranche A portion was adjusted upwards or downwards on a quarterly basis based
on a pricing matrix which was tied to the Company's Leverage Ratio (as defined
in the agreement). Under the pricing matrix, the applicable interest rate could
range from a rate as low as prime or  LIBOR plus 2.75%, to as high as prime plus
0.75%, or LIBOR plus 3.50%.

The Original GE facility contained restrictive financial and
operating covenants, including the requirement to maintain a minimum
twelve-month trailing EBITDA and a minimum accounts payable to inventory ratio. In
addition, the Original GE facility also did not permit the repayment of the
Subordinated Note on its scheduled maturity date of August 20, 2003, which
resulted in the maturity of that note automatically being extended to August 20,
2006.  As of January 31, 2004, management believes the Company was in compliance
with all restrictive financial covenants applicable to the Original GE facility.

As previously noted, subsequent to the Company's fiscal year
end on March 1, 2004, the Company finalized an amendment and restatement of the
Original GE facility.  The GE facility provides up to $165.0 million of working
capital financing and is extended through February 1, 2007, with an option to
extend the facility through February 2, 2009 for a limited time and under
certain conditions.  The GE facility consists of a revolving credit facility of
up to $156.0 million (including a $20.0 million letter of credit sub-facility)
and a fully funded fixed term loan of $9.0 million.  Borrowings under the
revolving credit facility are limited to the sum of (a) specified percentages of
eligible credit card receivables, which are considered cash equivalents, and (b)
the lesser of specified percentages of (i) the cost of eligible inventory and
(ii) the net recovery value of the inventory, as determined by periodic
valuation performed by an independent appraiser. Such borrowings are further
limited by a requirement to maintain a minimum of $5.0 million of excess
availability at all times, and other reserves that are in effect. Substantially
all of the Company's assets, including its merchandise inventories, continue to
be pledged to GE Capital under the GE facility.

As of March 1, 2004, interest charged on amounts borrowed
under the GE facility for revolving loans were at the prime rate plus 0.25% per
annum (4.25% at March 1, 2004), or at the Company's option, at the applicable
LIBOR rate plus 2.25% per annum (3.35% at March 1, 2004).  In addition, the
Company pays an unused commitment fee equal to 0.375% per annum on the average
unused daily balance of the Tranche A facility.  Amounts borrowed under the Term
Loan portion of the GE facility bear interest at 6.6% annum.  The interest rate
applicable to the revolving loans under the GE facility may be adjusted upwards
or downwards on a quarterly basis based on a pricing matrix which is tied to the
Company's borrowing availability.  Under the pricing matrix, the applicable
interest rate could range from a rate as low as prime, or LIBOR plus 1.50%, to
as high as prime plus 0.75%, or LIBOR plus 2.75%



On March 22, 2002, the Company had entered into a $15.0
million financing with Kimco Capital Corp. (the "Kimco facility") at a
fixed interest rate of 12.0% per annum. The Kimco facility was secured by first
priority liens on three of the Company's owned stores and with subordinate liens
on substantially all other assets of the Company securing the Original GE
facility. Proceeds from the Kimco facility were used to repay previously
existing mortgage loans on two of those properties and one term loan and to pay
certain fees and costs associated with the transaction. The remaining $4.1
million of proceeds was used to reduce outstanding borrowings under the Original
GE facility. The Kimco facility was co-terminus with the Original GE facility,
with monthly principal payments of $80,000 plus interest at a fixed rate of 12%
per annum, and a balloon payment upon maturity on January 31, 2005 of $12.4
million. In March 2004, the Company prepaid the remaining $13.2 million balance
of the Kimco facility (including a prepayment penalty, and other transaction
fees and costs) with borrowings under the GE facility. The term loan under the
GE facility is collateralized by two of the three owned stores previously
securing the Kimco facility.

The GE facility contains restrictive financial and operating
covenants, including the requirement to maintain a fixed charge coverage ratio
of 1:1 (as defined in the agreement).  The GE facility also does not permit the
repayment of the Subordinated Note, and accordingly the scheduled maturity date
of the Subordinated Note has been extended to May 30, 2007.

Long-Term Obligations

Long-term obligations consist of the following:

`January 31, February 1,
(In thousands)                                   2004        2003
--------------------------------------------  ----------  ----------
Revolving line of credit.................... $   50,000  $   30,000
9.39% mortgage loans payable, due 2010......     17,513      17,926
12.0% note payable, due 2005................     13,240      14,200
Capital lease obligations...................      7,643      10,613
Variable rate note payable, due 2005........      3,700       3,700
Other mortgage loans and notes payable......      2,931       3,347
                                              ----------  ----------
                                             $   95,027  $   79,786
  Less current portion......................      3,725       4,689
                                              ----------  ----------
                                             $   91,302  $   75,097
                                              ==========  ==========`

On February 19, 2002, the Company completed a $1.0 million
seven-year term loan financing of its corporate aircraft.

In addition, on May 24, 2002, the Company completed the
financing of its ownership interest in the partnership that owns the Company's
corporate headquarters.  Proceeds from this transaction, totaling $3.7 million,
were used to reduce outstanding borrowings under the Original GE facility.  The
related note payable bears interest at a variable rate of prime plus 1.5% per
annum (5.5% at January 31, 2004), which is payable monthly.  The $3.7 million
principal portion of the note payable is due in full upon maturity on May 24,
2005.

The scheduled annual principal maturities of the Company's
mortgage loans and notes payable are  $14,149,000, $4,565,000, $907,000,
$958,000 and $984,000 for 2004 through 2008, with $15,822,000 payable
thereafter. Included in the 2004 scheduled maturities is $12.4 million of
principal maturities which were paid on March 1, 2004 in connection with the
early termination of the Kimco facility.

Deferred debt issuance costs related to the Company's various
financing arrangements are included in other current and long-term assets and
are charged to income as additional interest expense over the life of the
related indebtedness. Such costs, net of accumulated amortization, totaled
$2,475,000 at January 31, 2004 and $4,481,000 at February 1, 2003 .

Interest paid, net of amounts capitalized, was $11,140,000 in
2003, $18,041,000 in 2002 and $17,395,000 in 2001. No interest expense was
capitalized in 2003.  Capitalized interest expense was $159,000 in 2002 and
$209,000 in 2001. The weighted-average interest rate charged on the Company's
revolving line of credit was 5.16% in 2003, 5.47% in 2002 and 5.48% in 2001.

Substantially all of the Company's assets, including its
merchandise inventories, are pledged as collateral under the Company's various
debt agreements. Certain of the Company's long-term debt agreements contain
financial and other restrictive covenants, as well as cross default provisions.
Accordingly, the failure to comply with these restrictions and covenants, if not
waived, would cause a cross-default under the majority of all of the Company's
debt agreements, including the GE facility. Management believes the Company was
in compliance with all applicable financial covenants as of January 31,
2004.

7.	SUBORDINATED NOTE PAYABLE TO AFFILIATE

The Company issued a Subordinated Note to Harris in the
principal amount of $22,179,000 on August 20, 1998 as partial consideration for
the Harris acquisition. (See Note 15.) The Subordinated Note, discounted to an
effective interest rate of 10% at issuance, bears interest at a fixed rate of
8%, which is payable semi-annually. The principal portion of the Subordinated
Note was originally due and payable on August 20, 2003, unless such payment
would result in a default on any of the Company's other credit facilities, in
which case its maturity would automatically be extended by three years to August
2006. Because the Original GE facility did not permit the repayment of the
Subordinated Note on its scheduled maturity date of August 20, 2003, its
maturity date was extended to August 20, 2006. Subsequent to fiscal year ended
January 31, 2004, in connection with the GE facility the Subordinated Note was
further extended to a maturity date of May 30, 2007. The Subordinated Note is
unsecured, contains no restrictive financial covenants and is subordinate to the
payment of all debt, including trade credit, of the Company. The discount on the
Subordinated Note was amortized as additional interest expense over the original
term of the note and became fully amortized at August 20, 2003. The unamortized
discount totaled $191,000 as of February 1, 2003. Interest paid to Harris
totaled $2,117,000 in 2003, 2002 and 2001.

8.	LEASES

The Company leases certain retail department stores,
specialty stores, land, furniture and fixtures and equipment under capital and
noncancellable operating leases that expire in various years through 2021.
Certain of the leases provide for the payment of additional contingent rentals
based on a percentage of sales, require the payment of property taxes, insurance
and maintenance costs and have renewal options for one or more periods ranging
from five to twenty years. The Company leases three of its department stores
from El Corte Ingles ("ECI") of Spain. ECI is the parent company of
Harris, and both Harris and ECI are affiliates of the Company. (See Note 15.)
Rent paid or accrued to ECI totaled $859,000 in 2003, $864,000 in 2002 and
$872,000 in 2001.

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

`Capital    Operating
(In thousands)                                  Leases      Leases
--------------------------------------------  ----------  ----------
2004........................................ $    2,572  $   23,766
2005........................................      2,205      22,556
2006........................................      1,466      21,729
2007........................................        946      18,600
2008........................................        476      16,679
Thereafter..................................      2,680      73,640
                                              ----------  ----------
Total minimum lease payments................     10,345  $  176,970
  Amount representing interest..............     (2,702)  ==========
                                              ----------
Present value of minimum lease payments.....      7,643
  Less current portion......................     (1,936)
                                              ----------
                                             $    5,707
                                              ==========`

Rental expense consists of the following:

`(In thousands)                                   2003        2002        2001
--------------------------------------------  ----------  ----------  ----------
Operating leases:
  Buildings:
    Minimum rentals......................... $   23,125  $   23,409  $   24,500
    Contingent rentals......................      2,895       3,016       3,074
  Fixtures and equipment....................      1,994       1,618       1,972
                                              ----------  ----------  ----------
                                             $   28,014  $   28,043  $   29,546
                                              ==========  ==========  ==========`

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

9.	DISCONTINUED OPERATIONS

From time to time the Company may consider closure of certain
store locations that are determined to be either underperforming or inconsistent
with the long-term operating strategy of the Company. All of the store locations
closed in each of the fiscal years 2003, 2002, and 2001 were acquired from
Lamonts Apparel Inc. in July 2000, with the exception of one specialty store
closed in 2003.

During fiscal 2003 the Company closed six store locations.
During fiscal 2002 the Company closed four store locations.  These stores were
determined to be either underperforming or inconsistent with the Company's
long-term operating strategy.  The net loss from operating these stores was $0.5
million in fiscal 2003, $1.9 million in fiscal 2002, and $1.7 million in fiscal
2001.  The loss from operation of discontinued stores includes only revenues
generated from, and expenses directly associated with, the operation of such
stores and consists of the following:

`(In thousands)                                               2003        2002        2001
--------------------------------------------------------  ----------  ----------  ----------
Net sales from closed stores............................ $    6,973  $   25,512  $   31,836
Net lease department revenues...........................         --          --         128
                                                          ----------  ----------  ----------
  Total Revenues........................................      6,973      25,512      31,963

Cost of sales...........................................      4,437      15,669      19,558
Selling, general and administrative expenses............      3,013      10,906      13,260
Depreciation and amortization...........................         70         885         867
                                                          ----------  ----------  ----------
  Total costs and expenses..............................      7,520      27,460      33,685
                                                          ----------  ----------  ----------

Loss from operations of closed stores................... $     (547) $   (1,948) $   (1,722)
                                                          ==========  ==========  ==========`

Net costs associated with the closure of stores totaled $0.8
million in fiscal 2003 primarily consisting of lease termination costs,
severance, and other incremental costs associated with the store closings. Net
costs associated with the closure of stores totaled $4.8 million in fiscal 2002
consisting of lease termination costs, severance and other incremental costs
associated with the store closings of approximately $0.6 million and non-cash
asset impairment charges related to stores closed in fiscal 2003 and fiscal 2002
of $4.5 million, partially offset by a gain of $0.3 million from the sale of
lease rights and fixtures and equipment related to two of the closed locations.

During fiscal 2001 the Company closed six stores.  As
planned, the Company also discontinued the use of an outsourced distribution
center facility located in Kent, Washington.  Net costs associated with closure
of those stores and the outsourced distribution center facility totaled
$729,000. This amount consists of estimated lease termination costs, non-cash
asset impairment charges (including the write-off of allocated goodwill and
leasehold interests), severance and other incremental costs associated with the
closure of the stores totaling $2,035,000, less $1,306,000 of cash proceeds
received as a result of the sale of lease rights, fixtures and equipment.
Results of operations of the fiscal 2001 store closures are included in
continuing operations in the accompanying statement of operations.  Store
closure costs related to fiscal 2001 store closures are reported separately in
continuing operations in the accompanying statement of operations.

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

As of January 31, 2004, the Company had a reserve for store
closure costs totaling $337,000, which consisted primarily of estimated future
lease obligations for one of the store locations closed in fiscal 2001 and one
of the store locations closed in fiscal 2003.   In the event the Company is not
successful in selling or subleasing the location closed in fiscal 2001 as soon
as management expects, additional reserves for store closure costs may be
recorded.  In addition, in the event the Company decides to close additional
store locations in fiscal 2004 or beyond, additional reserves for store closure
costs, which may be material, may be incurred.

10.		ASSET IMPAIRMENT CHARGES

During 2002, the Company recorded non-cash asset impairment
charges of $9.5 million to write down long-lived assets related to certain
underperforming stores, primarily former Lamonts locations.  These charges
consisted of $3.6 million of property and equipment, $5.8 million of leasehold
interests and $0.1 million of goodwill. The charges were determined by comparing
projected net operating cash flows, including estimated proceeds from the sale
of certain assets, to the carrying value of the stores' long-lived assets.  No
such costs were recorded in 2003 or 2001.

11.		INCOME TAXES

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

`(In thousands)                                   2003        2002        2001
--------------------------------------------  ----------  ----------  ----------
Current:
  Federal................................... $    1,848  $   (4,179) $      712
  State.....................................        221        (783)        439
                                              ----------  ----------  ----------
                                                  2,069      (4,962)      1,151
                                              ----------  ----------  ----------
Deferred:
  Federal...................................       (677)     (2,035)         81
  State.....................................        137         502        (381)
                                              ----------  ----------  ----------
                                                   (540)     (1,533)       (300)
                                              ----------  ----------  ----------
                                             $    1,529  $   (6,495) $      851
                                              ==========  ==========  ==========`

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

`January 31,             February 1,
                                         2004                    2003
                                ----------------------  ----------------------
                                Deferred    Deferred    Deferred    Deferred
                                   Tax         Tax         Tax         Tax
                                 Assets    Liabilities   Assets    Liabilities
                                ---------  -----------  ---------  -----------
Current:
  Accrued employee benefits... $   1,036  $            $   1,037  $
  Credit losses...............
  State income taxes..........        74                       1
  LIFO inventory reserve......                 (3,093)                 (2,115)
  Supplies inventory..........                   (558)                   (554)
  Workers' compensation.......     1,825                     678
  Other items, net............     1,628       (1,481)     1,604         (988)
                                ---------  -----------  ---------  -----------
                                   4,563       (5,132)     3,320       (3,657)
                                ---------  -----------  ---------  -----------
Long-Term:
  Net operating loss and tax
    credit carryforwards......     5,545                   6,378
  State income taxes..........       659                     612
  Property and equipment......                (15,399)                (18,238)
  Accounting for leases.......       659       (3,504)       678       (2,985)
  Leasehold interests.........     1,841                   2,645
  Impaired assets.............     1,450                   1,841
  Deferred income.............     1,327       (3,558)     1,732       (3,303)
  Valuation allowance.........    (1,818)                 (1,438)
  Other items, net............       940         (779)       336         (816)
                                ---------  -----------  ---------  -----------
                                  10,603      (23,240)    12,784      (25,342)
                                ---------  -----------  ---------  -----------
                               $  15,166  $   (28,372) $  16,104  $   (28,999)
                                =========  ===========  =========  ===========`

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

`2003       2002       2001
-----------------------------------------------   --------   --------   --------
Statutory rate.................................      35.0 %    (35.0)%     35.0 %
State income taxes, net of
 federal income tax benefit....................       8.0       (0.9)       5.5
General business credits.......................      (6.7)      (1.3)     (15.2)
Amortization of goodwill.......................                             5.8
Tax refund claims..............................                 (4.0)
Other items, net...............................      (0.6)      (5.1)       4.2
                                                  --------   --------   --------
Effective rate.................................      35.7 %    (46.3)%     35.3 %
                                                  ========   ========   ========`

Realization of the total deferred tax assets of $15,166,000
is dependent upon generating sufficient taxable income in future periods.

At January 31, 2004, the Company has, for federal tax
purposes, general business credits of $2,282,000 that expire in the years 2018
through 2022, and alternative minimum tax credits of $452,000 which may be used
for an indefinite period. At January 31, 2004, the Company also has, for state
tax purposes, $5,212,000 of net operating loss carryforwards that expire in 2003
and $2,245,000 of enterprise zone credits which may be used for an indefinite
period. These carryforwards are available to offset future taxable income.  The
Company established valuation allowances of $1,818,000 and $1,438,000 at January
31, 2004 and February 1, 2003, respectively, which relate primarily to certain
tax credit carryforwards whose realizability is uncertain.

The Company received income tax refunds, net of payments, of
$2,164,000 in 2003 and $1,235,000 in 2002 and paid income taxes, net of refunds,
of $1,526,000 in 2001.  The income tax refunds received in 2003 and 2002 were,
in part, attributable to a final settlement of certain federal net operating
loss carryback refund claims filed with the Internal Revenue Service.  The
Company recognized a federal income tax benefit of $826,000 and interest income
of $569,000 (included in miscellaneous income) in 2002 related to the federal
income tax refund claims.

12.	EARNINGS PER SHARE

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

`(Shares in thousands)                               2003       2002       2001
-----------------------------------------------   --------   --------   --------
Weighted average number of
  shares - basic...............................    12,830     12,747     12,681
Effect of assumed option exercises.............        89                    10
                                                  --------   --------   --------
Weighted average number of
  shares - diluted.............................    12,919     12,747     12,691
                                                  ========   ========   ========`

Options with an exercise price greater than the average
market price of the Company's common stock during the period are excluded from
the computation of the weighted-average number of shares on a diluted basis as
such options are anti-dilutive. Anti-dilutive options were outstanding for
1,522,568, 1,685,624 and 1,335,720 shares as of the end of 2003, 2002 and 2001,
respectively.

13. 	STOCK OPTION AND STOCK PURCHASE PLANS

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

Stock Option Plans.

The Company has stock option plans for directors, officers
and key employees which provide for the grant of non-qualified and incentive
stock options. Under the plans, the option exercise price may not be lower than
100% of the fair market value of such shares at the date of the grant. Options
granted generally vest on a ratable basis over five years and expire ten years
from the date of the grant. At January 31, 2004, options for 1,015,750 shares
were available for future grants under the plans.

Option activity under the plans is as follows:

`2003                 2002                 2001
                     -------------------- -------------------- --------------------
                                 Weighted-            Weighted-            Weighted-
                       Number    Average    Number    Average    Number    Average
                         of      Exercise     of      Exercise     of      Exercise

                       Shares     Price     Shares     Price     Shares     Price
                     ----------  -------- ----------  -------- ----------  --------
Options outstanding
  at beginning of
  year.............. 1,713,000  $   5.99  1,535,500  $   6.68  1,364,500  $   7.34
Granted.............   279,500      1.64    295,500      2.61    262,500      3.26
Exercised...........    (9,000)     3.03
Cancelled...........  (295,000)     5.57   (118,000)     6.42    (91,500)     6.59
                     ----------  -------- ----------  -------- ----------  --------
Options outstanding
 at end of year..... 1,688,500  $   5.36  1,713,000  $   5.99  1,535,500  $   6.68
                     ==========  ======== ==========  ======== ==========  ========
Options exercisable
 at end of year..... 1,067,625  $   6.95  1,009,250  $   7.47    798,500  $   8.06
                     ==========  ======== ==========  ======== ==========  ========`

Additional information regarding options outstanding as of
January 31, 2004 is a follows:

`Weighted-
                                 Average    Weighted-
                                Remaining    Average
    Range of         Number    Contractual  Exercise
 Exercise Prices  Outstanding  Life (yrs.)    Price
----------------- ------------ -----------  ---------
$1.13 to $3.28        627,500        8.41  $    2.28
$3.52 to $7.50        591,000        6.01  $    5.60
$7.63 to $10.87       470,000        2.76  $    9.16
----------------- ------------ -----------  ---------
$1.13 to $10.87     1,688,500        6.00  $    5.36
================= ============ ===========  =========`

Employee Stock Purchase Plan.

The Company also has a statutory Employee Stock Purchase
Plan, which allows its employees to purchase Company common stock at a 15%
discount. Employees can purchase stock under the Plan through payroll deductions
ranging from 1% to 10% of their annual compensation, up to a maximum of $21,250
per employee per year. A total of 500,000 shares were originally registered
under the Plan, with 294,243 shares issued through January 31, 2004.

Accounting for Stock Based Compensation.

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

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

`2003       2002       2001
                                         ---------  ---------  ---------
Risk-free interest rate................       1.3 %      2.3 %      4.2 %
Expected dividend yield................        --         --         --
Expected volatility....................      57.0 %     57.0 %    51.50 %
Expected option life (years)...........         5          5          5
Fair value of options granted..........     $0.68      $1.09      $1.35`

As allowed by SFAS No. 123, the impact of outstanding
non-vested stock options granted prior to 1995 has been excluded from the pro-forma
calculations.  Accordingly the 2003, 2002 and 2001  pro-forma adjustments may
not be indicative of future period pro-forma adjustments.

14.	RETIREMENT SAVINGS PLAN

The Company has a Retirement Savings Plan ("Plan")
which qualifies as an employee retirement plan under Section 401(k) of the
Internal Revenue Code. Full-time employees meeting certain requirements are
eligible to participate in the Plan and may elect to have up to 20% of their
annual eligible compensation, subject to certain limitations, deferred and
deposited with a qualified trustee. Participants in the Plan may receive an
employer matching contribution of up to 4% of the participants' eligible
compensation, depending on the Company's quarterly and annual financial
performance. Beginning 2001, the Company amended the Plan to provide for a
guaranteed annual match of 3%, including the ability for participants to earn an
additional 1% depending on the Company's annual financial performance. The
Company recognized $1,251,000, $1,415,000 and $1,454,000 in expense related to
the Plan in 2003, 2002 and 2001, respectively.

15.  	TRANSACTIONS WITH AFFILIATES

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

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

16.	COMMITMENTS AND CONTINGENCIES

On March 5, 2004, AT&T filed a breech of contract
complaint in The United States District Court in Fresno, California demanding
the payment of approximately $768,000 for telecommunication services allegedly
supplied to the Company in 2002 and 2003.  The Company has answered and denied
the AT&T allegations and demand.  At this time it is not possible to predict
the outcome of this dispute, but the Company believes that it is not liable for
the amounts demanded by AT&T, and will vigorously defend any action AT&T
files to pursue its claim.

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

The Company presently has no commitments to open any stores
in fiscal 2004. As of January 31, 2004, the Company had issued a total of $8.4
million of standby letters of credit and documentary letters of credit totaling
$1.9 million. As of February 1, 2003, the Company had issued a total of $11.3
million of standby letters of credit and documentary letters of credit totaling
$2.0 million. The standby letters of credit were issued to secure credit lines
with key factors and to provide collateral for a workers compensation insurance
policy.  Subsequent to January 31, 2004 the factor letters of credit were
allowed to expire at their respective expiration dates. Management believes the
likelihood of any draws under the workers compensation standby letters of credit
are remote. Documentary letters of credit are issued in the ordinary course of
business to facilitate the purchase of merchandise from overseas suppliers. The
supplier draws against the documentary letter of credit upon delivery of the
merchandise.

---

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

`ADDITIONS
                                          ------------------------
          COL. A               COL. B       COL. C        COL. D         COL. E          COL. F
---------------------------  -----------  ----------     ---------     -----------     -----------
                                                          Charged
                             Balance at   Charged to     to Other                      Balance at
                              Beginning   Costs and      Accounts      Deductions        End of
Description                   of Period    Expenses      Describe       Describe         Period
---------------------------  -----------  ----------     ---------     -----------     -----------
Year ended January 31, 2004:

  Store closure reserve.... $   618,000  $  542,000 (3) $             $  (823,000)(4) $   337,000
  Deferred tax asset
    valuation allowance.... $ 1,438,000  $  380,000 (5) $             $               $ 1,818,000
  Allowance for vendor
    claims receivable...... $    81,000  $  200,000 (6) $             $               $   281,000


Year ended February 1, 2003:

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


Year ended February 2, 2002:

  Allowance for doubtful
    accounts............... $   368,634  $1,247,269 (1) $             $(1,261,359)(2) $   354,544
  Store closure reserve.... $        --   2,035,000 (3) $             $(1,506,000)(4) $   529,000
  Deferred tax asset
    valuation allowance.... $        --  $  645,000 (5) $             $               $   645,000
  Allowance for vendor
    claims receivable...... $    86,000  $    5,000 (6) $             $               $    91,000`

1. Represents the provision for credit losses on receivables
ineligible for sale.
2. Represents uncollectible accounts written off, net of
recoveries, pertaining to receivables ineligible for sale. The 2002 amount
includes $389,000 representing the write-off of the remaining allowance at the
date of the receivables sale to Household.
3. Represents costs incurred for store closures in 2003,
2002 and 2001 and for the discontinuation of an outsourced distribution facility
in 2001, including the remaining lease obligations, asset impairment charges
related to the improvements, fixtures and lease rights, severance and other
incremental costs.
4. Represents cash proceeds received as a result of the sale
of lease rights, fixtures and equipment, net of amounts paid in connection with
store closures in 2002 and 2001 and the discontinuation of the outsourced
distribution facility in fiscal 2001.
5. Represents increases to the deferred tax asset valuation
allowance.
6. Represents changes in estimate for the allowance for
vendor claims receivable.

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SIGNATURES

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

Dated: April 26, 2004

|                                                | GOTTSCHALKS, Inc.                                                                      
|----------------------------------------------- | ---------------------------------------------------------------------------------------
|                                                | By:                                                                                    
|                                                |                                                                                        
|                                                | James R. Famalette                                                                     
|                                                | President and Chief Executive Officer                                                  
|Signature                                       | Title                                                                                  
|/s/ Joseph W. Levy
Joseph W. Levy               | Chairman                                                                               
|/s/ James R. Famalette
James R. Famalette       | President, Chief Executive Officer and Director (principal
executive officer)          
|/s/ J. Gregory Ambro
J. Gregory Ambro           | Chief Administrative and Financial Officer (principal financial
and accounting officer)
|/s/ O. James Woodward III
O. James Woodward III | Director                                                                               
|/s/ Sharon Levy
Sharon Levy                     | Director                                                                               
|/s/ James Czech
James Czech                     | Director                                                                               
|/s/ Joseph J. Penbera
Joseph J. Penbera         | Director                                                                               
|/s/ Fred Ruiz
Fred Ruiz                         | Director                                                                               
|/s/ Max Gutmann
Max Gutmann                     | Director                                                                               
|/s/ Thomas H. McPeters
Tom McPeters             | Director                                                                               
|/s/ Dale H. Achabal
       Dale H. Achabal      | Director                                                                               
|/s/ Jorge Pont Sanchez
Jorge Pont Sanchez       | Director                                                                               

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