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


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

For The Fiscal Year Ended   February 1, 1997

                      or

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

For the transition period from            to          

        Commission File Number 1-09100

                      Gottschalks Inc.                   
(Exact name of Registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(b) of the
Act:
                            Name of each exchange
Title of Each Class         on which registered  

Common Stock, $.01 par value    New York Stock Exchange
                                Pacific Stock Exchange

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

Indicate by check mark whether the Registrant; (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past
90 days. Yes  X  
No     

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. 
 [ X ]

The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 31, 1997:
Common Stock, $.01 par value:  $40,353,374          

On March 31, 1997 the Registrant had outstanding
10,472,915 shares of Common Stock.

Documents Incorporated By Reference: Portions of the
Registrant's definitive proxy statement with respect to
its Annual Stockholders' Meeting scheduled to be held on
June 26, 1997, which will be filed pursuant to Regulation
14A, are incorporated by reference into Part III of this
Form 10-K.

<PAGE>
                    PART I

Item 1.        BUSINESS

GENERAL

     Gottschalks Inc. is a regional department and
specialty store chain based in Fresno, California,
currently consisting of thirty-five "Gottschalks"
department stores and twenty-four "Village East"
specialty stores located primarily in non-major
metropolitan cities throughout California, and in Oregon,
Washington and Nevada. Gottschalks and Village East sales
totaled $422.2 million for the year ended February 1,
1997 (referred to herein as fiscal 1996), with
Gottschalks sales comprising 97.5% and Village East sales
comprising 2.5% of total sales.

     Gottschalks department stores typically offer a
wide range of brand-name and private-label merchandise,
including men's, women's, junior's and children's
apparel; cosmetics and accessories; shoes and jewelry;
home furnishings including china, housewares, electronics
and small electric appliances; and other consumer goods.
Village East specialty stores offer apparel for larger
women.  Gottschalks stores are generally anchor tenants
of regional shopping malls, with Village East specialty
stores generally located in the regional malls in which
a Gottschalks department store is located or as a
separate department within some of the Company's larger
Gottschalks stores. The Company's stores carry primarily
moderately-priced brand-name merchandise, complemented
with private-label merchandise and a mix of higher and
budget-priced merchandise. Brand-name apparel, cosmetic
and accessory lines carried by the Company include Estee
Lauder, Lancome, Dooney & Bourke, Liz Claiborne, Carole
Little, Calvin Klein, Ralph Lauren, Guess, Nautica, Karen
Kane, Tommy Hilfiger, Esprit, Evan Picone, Haggar, Koret
and Levi Strauss. Merchandise carried in the Company's
home division include brands such as Sony, Mitsubishi,
Lenox, Krups, Calphalon, Royal Velvet, KitchenAid and
Samsonite. The Company services all of its stores,
including its store locations outside California, from a
420,000 square foot distribution facility centrally
located in Madera, California. 
     
     Gottschalks and its predecessor, E. Gottschalk &
Co., have operated continuously for over 92 years since
it was founded by Emil Gottschalk in 1904. Since the
Company first offered its stock to the public in 1986, it
has added twenty-seven of its thirty-five Gottschalks
stores, opened twenty of its twenty-four Village East
specialty stores and constructed its distribution center.
Gottschalks is currently the largest independent
department store chain based in California. (See Part I,
Item I, "Business--Store Location and Growth Strategy").

     Gottschalks Inc. also includes the accounts of its
wholly-owned subsidiary, Gottschalks Credit Receivables
Corporation ("GCRC") and Gottschalks Credit Card Master
Trust ("GCC Trust"), (collectively, the "Company"), which
were formed in 1994 in connection with a receivables
securitization program. (See Part II, Item 7,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and
Capital Resources".)
_____________________

OPERATING STRATEGY

     Merchandising Strategy.  The Company's
merchandising strategy is directed at offering and
promoting nationally advertised, brand-name merchandise
recognized by its customers for style and value. Brand-name apparel, 
cosmetic and accessory lines carried by the
Company include Estee Lauder, Lancome, Dooney & Bourke,
Liz Claiborne, Carole Little, Calvin Klein, Ralph Lauren,
Guess, Nautica, Karen Kane, Tommy Hilfiger, Esprit, Evan
Picone, Haggar, Koret and Levi Strauss. Merchandise
carried in the Company's home division include brands
such as Sony, Mitsubishi, Lenox, Krups, Calphalon, Royal
Velvet, KitchenAid and Samsonite. The Company's stores
also carry private-label merchandise purchased through
Frederick Atkins, Inc., ("Frederick Atkins"), a national
association of major retailers which provides its members
with group purchasing opportunities. The Company offers
a wide selection of fashion apparel, cosmetics and
accessories, home furnishings and other merchandise in an
extensive range of styles, sizes and colors for all
members of the family and home.

     The following table sets forth for the periods
indicated a summary of the Company's total sales by
division, expressed as a percent of net sales:

<TABLE>
<CAPTION>
                      1996  1995  1994  1993    1992
Softlines:
<S>                    <C>   <C>   <C>   <C>     <C>
Cosmetics & Accessories.17.5% 17.2% 16.6% 16.5%   16.2%
Women's Clothing........15.9  15.5  16.1  16.5    17.1
Men's Clothing......... 14.4  14.3  13.9  13.6    13.2
Women's Dresses, Coats
  & Lingerie............ 7.9   7.8   7.9   7.8     8.6
Shoes & Other Leased
  Departments........... 7.8   7.4   7.1   7.4     7.1
Junior's Clothing......  5.5   6.0   6.3   7.0     7.2
Children's Clothing..... 5.3   4.9   4.9   4.9     4.1
Village East...........  2.5   2.6   2.6   2.7     2.8
  Total Softlines...... 76.8  75.7  75.4  76.4    76.3
   
Hardlines:
Housewares &  
  Stationary            10.4  11.0  10.9  10.7    11.0
Domestics & Luggage...   7.9   8.1   8.1   7.1     6.7
Electronics & Furniture  4.9   5.2   5.6   5.8     6.0
  Total Hardlines...... 23.2  24.3  24.6  23.6    23.7
Total Sales..........  100.0%100.0%100.0%100.0%  100.0%
</TABLE>

  

     The Company's merchandising activities are
conducted from its corporate offices in Fresno,
California by its buying division consisting of an
Executive Vice President/General Merchandise Manager, 2
Vice President/General Merchandise Managers, 9 Divisional
Merchandise Managers, 46 buyers and 27 assistant buyers.
The Company also has a merchandise planning and
allocation division which works closely with the buying
division to develop merchandising plans and to link the
Company's merchandising activities with actual
performance in its stores. Management believes the
experience of its buying division, combined with the
Company's long and continuous presence in its primary
market areas, enhances its ability to evaluate and
respond quickly to emerging fashion trends and changing
consumer preferences. One of the Company's most important
sources of current information about marketing and
emerging fashion trends is derived from its membership in
Frederick Atkins.

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

     Each of the Company's stores carry substantially
the same merchandise, but in different mixes according to
individual market demands. Some of the previously
described brand-name apparel merchandise may not be
currently available in all of the Company's store
locations. The mix of merchandise in a particular market
may also vary depending on the size of the facility.
Management believes that well-stocked stores and frequent
promotional sales contribute significantly to sales
volume. In connection with its efforts to increase sales
per selling square foot and improve gross margins, the
Company has continued to reallocate selling floor space
to higher profit margin items and narrow and focus its
merchandise assortments. The Company closed its clearance
center in 1993 in connection with its cost-savings
efforts and now liquidates slow-moving merchandise
through certain of its existing stores.

     The Company's membership in Frederick Atkins, a
national association of major retailers, provides it with
group purchasing opportunities. In fiscal 1996, the
Company purchased approximately 5.6% of its merchandise
from Frederick Atkins. The Company also purchases
merchandise from numerous other suppliers. Excluding
purchases from Frederick Atkins, the Company's ten
largest suppliers in fiscal 1996 were Estee Lauder, Inc.,
Levi Strauss & Co., Liz Claiborne, Inc., Cosmair, Inc.
(Lancome), Haggar Apparel, Calvin Klein Cosmetics,  Koret
of California, All-That-Jazz, Chaps by Ralph Lauren and
Bugle Boy Industries. Purchases from those vendors
accounted for approximately 21.0% of the Company's total
purchases in fiscal 1996. Management believes that
alternative sources of supply are available for each
category of merchandise it purchases.

     Promotion Strategy.  The Company commits
considerable resources to advertising, using a
combination of media types which it believes to be most
efficient and effective by market area, including
newspapers, television, radio, direct mail and catalogs.
The Company is a major purchaser of television
advertising time in its primary market areas. The
Company's promotional strategy includes seasonal
promotions, promotions directed at selected items and
frequent storewide sales events to highlight brand-name
merchandise and promotional prices. The Company also
conducts a variety of special events including fashion
shows, bridal shows and wardrobing seminars in its stores
and in the communities in which they are located to
convey fashion trends to its customers. The Company
receives reimbursement for certain of its promotional
activities from certain of its vendors. 

     The Company has increased its use of direct
marketing techniques to access niche markets by sending
mailings to its credit cardholders and, through its
computer database, generating specific lists of customers
who may be most responsive to specific promotional
mailings. The Company has also implemented a
telemarketing program, which, through the use of an
advanced call management system and the Company's
existing credit department personnel, the Company is able
to auto-dial potential customers within a selected market
area and deliver a personalized message regarding current
promotions and events. Management has continued to focus
on enhancing its information systems in order to increase
the effectiveness of its promotion strategy. (See Part I,
Item I, "Business--Private-Label Credit Card" and
"Business--Information Systems and Technology.")

     The Company's stores experience seasonal sales and
earnings patterns typical of the retail industry.  Peak
sales occur during the Christmas selling months of
November and December, and to a lesser extent, during the
Back-to-School and Easter selling seasons. The Company
generally increases its inventory levels and sales staff
for these seasons. (See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Seasonality").
     
     Store Location and Growth Strategy.  The Company's
stores are located primarily in diverse, growing, non-major 
metropolitan areas. Management believes the Company
has a competitive advantage in offering brand-name
merchandise and a high level of service to customers in
secondary markets in the western United States where
there is a strong demand for nationally advertised,
brand-name merchandise and fewer competitors offering
such merchandise. Some of the Company's stores are
located in agricultural areas and cater to mature
customers with above average levels of disposable income.
Gottschalks strives to be the "hometown store" in each of
the communities it serves.
     
     The Company generally seeks to open two new stores
per year, although more stores may be opened in any given
year if it is believed to be financially attractive to
the Company. The Company has also continued to invest in
the renovation and refixturing of its existing store
locations in order to maintain and improve market share
in those market areas. The Company sometimes receives
reimbursement for certain of its new store construction
costs and costs associated with the renovation and
refixturing of existing store locations from mall owners
and vendors. 

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


 Stores open at   
   year-end:          
                     1996        1995        1994        1993         1992

  <S>                <C>         <C>         <C>          <C>          <C>
  Gottschalks (1)     35          34          29           27           25 

  Village East        24 (2)      26          24           23           22

    TOTAL             59          60          53           50           47

  Gross store
  square footage
  (in thousands)    3,276        2,984       2,425       2,202        2,093

</TABLE>

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

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

     Since the Company's initial public offering in
1986, the Company has constructed or acquired twenty-seven of its thirty-five 
Gottschalks department stores,
including four junior satellite stores of less than
30,000 square feet each. During this period the Company
also opened twenty of its twenty-four Village East
specialty stores. Gross store square footage added during
this period was approximately 2.5 million square feet,
resulting in approximately 3.3 million total Company
gross square feet.  As of the end of fiscal 1996, the
Company's operations included thirty-one department
stores located in California, two stores in Nevada and
one store in each of Oregon and Washington. 

     Recent store expansion included the opening of the
Company's second Gottschalks store in Nevada in Reno
(March 1996) and the relocation of two pre-existing
stores in the Modesto, California Vintage Faire Mall
(March 1996) and Fresno, California Fashion Fair Mall
(April 1996) to larger anchor space in those malls which
were previously occupied by a major competitor of the
Company. The Company has entered into agreements to open
two new stores in the second half of fiscal 1997, to be
located in the current Macy's location in Santa Rosa,
California and the current K-Mart location in Sonora,
California.

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

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

     Distribution of Merchandise.  The Company's
distribution facility, designed and equipped to meet the
Company's long-term distribution needs, enhances its
ability to quickly respond to changing customers'
preferences. Completed in 1989, the Company receives all
of its merchandise at its 420,000 square foot
distribution center in Madera, California. Currently,
most merchandise arriving at the distribution center is
inspected, recorded by computer into inventory and tagged
with a bar-coded price label. The Company utilizes
universal product codes ("UPC") with vendors that have
also developed the technology. Merchandise purchased from
vendors that have UPC capabilities arrives at the
Company's distribution center already tagged with a bar-coded price label 
that can be translated by the Company's
inventory systems, thus is ready for immediate
distribution to the stores. The Company also participates
in the "VIC's" program which has standardized hangers for
apparel merchandise. Merchandise purchased from vendors
participating in the VIC's program arrives at the
distribution center already on standardized hangers and
ready for immediate distribution to stores. The Company
generally does not warehouse apparel merchandise, but
distributes it to stores promptly. The distribution
center is centrally located to serve all of the Company's
store locations, including its store locations outside
California. Daily distribution enables the Company to
respond quickly to fashion and market trends and ensure
merchandise displays and store stockrooms are well
stocked.  

     As described more fully in Part I, Item I,
"Business--Information Systems and Technology", the
Company is in process of implementing new technology at
the distribution center in fiscal 1997 that is expected
to reduce certain costs associated with the purchase,
handling and distribution of merchandise. Management also
expects benefits to be realized in payroll, through the
reduction of traditionally labor-intensive tasks, and
other overhead costs of the Company as a result of the
implementation of such technology.

     Private-Label Credit Card.  The Company issues its
own credit card, which management believes enhances the
Company's ability to generate and retain market
acceptance and increase sales and other revenues for the
Company. The Company has one of the highest levels of
proprietary credit card sales in the retail industry, 
with credit sales as a percent of total sales of 44.7%,
44.7%, 43.0%, 38.4% and 38.2% in fiscal 1996, 1995, 1994,
1993 and 1992. Service charge revenues associated with
the Company's customer credit cards were $10.5 million,
$10.9 million, $8.9 million, $8.1 million and $8.6
million in fiscal 1996, 1995, 1994, 1993 and 1992,
respectively.  The Company had approximately 481,000
active credit accounts as of March 31, 1997 as compared
to approximately 461,000 as of March 31, 1996, an
increase of 4.3%. As described more fully in Part II,
Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity
and Capital Resources," the Company sold certain of its
customer credit card receivables in 1994 in connection
with an asset-backed securitization program. The Company
has continued to service and administer the receivables
pursuant to the securitization program.

     The Company has implemented a variety of credit-related programs 
which have resulted in enhanced customer
service and increased service charge revenues. The
Company has an "Instant Credit" program, through which
successful credit applicants receive a discount ranging
from 10% to 50% (depending on the results of the Instant
Credit scratch-off card) on the first days' purchases
made with the Company's credit card; a "55-Plus" charge
account program, which offers additional merchandise and
service discounts to customers 55 years of age and older;
and "Gold Card" and "55-Plus Gold Card" programs, which
offer special services at a discount for  customers who
have a net minimum spending history on their charge
accounts of $1,000 per year. In fiscal 1997, the Company
expects to implement the "Gottschalks Reward Program"
which offers an annual rebate certificate for up to 5% of
annual credit purchases on the Company's credit card (up
to a maximum of $10,000 of annual purchases) which can be
applied towards future purchases of merchandise. Prior to
the Gottschalks Reward Program, the Company offered a 1%
annual rebate certificate to Gold Card and 55-Plus Gold
Card holders. The Company has also launched a credit card
reactivation program in an attempt to recapture credit
cardholders who have not utilized their credit card for
a specified period of time. Management believes holders
of the Company's credit card typically buy more
merchandise from the Company than other customers.

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

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

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

     Information Systems and Technology.  The Company
has continued to invest in technology and systems
improvements in its efforts to improve customer service
and reduce inventory-related costs and operating costs.
The Company's information systems include IBM mainframe
technology with capacity sufficient to meet the Company's
long-term expansion plans. In addition to the mainframe
computer, the Company runs multiple platforms with
applications on mid-range, local area network and
departmental levels. All of the Company's major
information systems are computerized, including its
sales, inventory, credit, payroll and financial reporting
systems. The Company has installed approximately 1,800
computer terminals throughout its stores, corporate
offices and distribution center. Every store processes
each sales transaction through point-of-sale ("POS")
terminals that connect on-line with the Company's
mainframe computer located at its corporate offices in
Fresno, California. This system provides detailed reports
on a real-time basis of current sales, gross margin and
inventory levels by store, department, vendor, class,
style, color, and size.
  
     Management believes the continued enhancement of
its merchandise-related systems is essential for
merchandise cost and shrinkage control. The Company has
an automatic markdown system which has assisted in the
more timely and accurate processing of markdowns and
reduced inventory shortage resulting from paperwork
errors. The Company's price management system has
improved the Company's POS price verification
capabilities, resulting in fewer POS errors and enhanced
customer service. Combined with enhanced physical
inventory procedures and improved security systems in the
Company's stores, these systems have resulted in the
reduction of the Company's inventory shrinkage to 1.1% of
net sales in fiscal 1996, from 1.3%, 1.4%, 2.1% and 2.3%
fiscal 1995, 1994, 1993 and 1992, respectively.

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

     Management expects to complete the installation of
an enhanced merchandise receiving and distribution system
at the Company's distribution center by mid-fiscal 1997.
This new system is expected to enhance the automation of
certain processes related to the receipt and distribution
of apparel and non-apparel merchandise and enable the
Company to deliver merchandise to stores more quickly.
Management believes this new system may improve the
Company's ability to sell more merchandise at its
original retail price and may result in lower
distribution center payroll. The Company is also in
process of installing a workflow and imaging system to
automate certain aspects of its merchandise and general
expense payables system. Management expects this system
to reduce certain costs associated with the payment for
merchandise.

     Other systems implemented by the Company in its
efforts to control its selling, general and
administrative costs include the following: (i) a payroll
system, which has enhanced the Company's ability to
manage payroll-related costs; (ii) an advertising
management software system, which enables the Company to
measure individual item sales performance derived from a
particular advertisement; and (iii) the Company's credit
management system, described in Part I, Item I "Business--Private 
Label-Credit Card".
     
     Competition.  The Company operates in a highly
competitive environment. The Company's stores compete
with national, regional, and local chain department and
specialty stores, some of which are considerably larger
than the Company and have substantially greater financial
and other resources. Competition has intensified in
recent years as new competitors, including discount
retailers and outlet malls, have  entered the Company's
primary market areas. The trend towards consolidation of
competitors within the retail industry has also
intensified competition. The Company competes primarily
on the basis of current merchandise availability,
customer service, price and store location and the
availability of services, including credit and product
delivery.

     The Company's larger national and regional
competitors have the ability to purchase larger
quantities of merchandise at lower prices. Management
believes its buying practices partially counteract this
competitive pressure. Such practices include: (i) the
ability to accept smaller or odd-sized orders of
merchandise from vendors than its larger competitors may
be able to accept; (ii) the ability to structure its
merchandise mix to more closely reflect the different
regional, local and ethnic needs of its customers; and
(iii) the ability to react quickly and make opportunistic
purchases of individual items. The Company's membership
in Frederick Atkins also provides it with increased
buying power in the marketplace. Management also believes
that its knowledge of its primary market areas, developed
over more than 92 years of continuous operations, and its
focus on those markets as its primary areas of
operations, give the Company an advantage that its
competitors cannot readily duplicate. Many of the
Company's competitors are national chains whose
operations are not focused specifically on non-major
metropolitan cities in the western United States. One
aspect of the Company's strategy is to differentiate
itself as a home-town, locally-oriented store versus its
more nationally focused competitors.
     
     Leased Departments.  The Company currently leases
the fine jewelry, shoe and maternity wear departments,
custom drapery, certain of its restaurants, coffee bars
and the beauty salons in its Gottschalks department
stores. The independent operators supply their own
merchandise, sales personnel and advertising and pay the
Company a percentage of gross sales as rent.  Management
believes that while the cost of sales attributable to
leased department sales is generally higher than other
departments, the relative contribution of leased
department sales to earnings is comparable to that of the
Company's other departments because the lessee assumes
substantially all operating expenses of the department.
This allows the Company to reduce its level of selling,
advertising and other general and administrative expenses
associated with leased department sales.  Leased
department sales as a percent of total sales were 7.8%,
7.4%, 7.1%, 7.4% and 7.1% in fiscal 1996, 1995, 1994,
1993 and 1992, respectively. Gross margin applicable to
the leased departments was 14.6%, 14.4%, 14.1%, 13.8% and
14.4% in fiscal 1996, 1995, 1994, 1993 and 1992,
respectively.

     Employees.  As of February 1, 1997, the Company
had 5,429 employees, of whom 1,517 were employed part-time (working less
than 20 hours a week on a regular
basis). The Company hires additional temporary employees
and increases the hours of part-time employees during
seasonal peak selling periods. None of the Company's
employees are covered by a collective bargaining
agreement.  Management considers its employee relations
to be good. 

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

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

Item 2.        PROPERTIES

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

     The Company's distribution center, completed in
1989, was constructed and equipped to meet the Company's
long-term merchandise distribution needs. The 420,000
square foot distribution facility is strategically
located in Madera, California to service economically the
Company's existing store locations in the western United
States and its projected future market areas. The Company
leases the distribution facility from an unrelated party
under a 20-year lease expiring in the year 2009, and has
six consecutive five-year renewal options.
  
     Store Leases and Locations.  The Company owns six
of its thirty-five Gottschalks stores and leases its
remaining Gottschalks and Village East stores from
unrelated parties. The store leases generally require the
Company to pay either a fixed rent, rent based on a
percentage of sales, or rent based on a percentage of
sales above a specified minimum rent amount. Certain of
the Company's leases also provide for rent abatements and
scheduled rent increases over the lease terms. The
Company is generally responsible for a pro-rata share of
promotion, common area maintenance, property tax and
insurance expenses under its store leases. On a
comparative store basis, the Company incurred an average
of $6.19, $6.29, $6.38, $6.54 and $6.09 per gross square
foot in lease expense in fiscal 1996, 1995, 1994, 1993
and 1992, respectively, not including common area
maintenance and other allocated expenses. In certain
cases, the Company has been able to add gross square feet
to certain existing store locations under favorable
rental conditions. 

     Thirty of the Company's thirty-five Gottschalks
stores and all but two of its twenty-four Village East
stores are located in regional shopping malls. While
there is no assurance that the Company will be able to
negotiate further extensions of any particular lease,
management believes that satisfactory extensions or
suitable alternative store locations will be available.

The following table contains specific information about
each of the Company's stores open as of the end of
fiscal 1996:
     
<TABLE>
<CAPTION>
                                               Expiration
                     Gross(1)  Selling           Date of
                     Square    Square    Date    Current
                      Feet      Feet    Opened    Lease    Renewal Options
GOTTSCHALKS
<S>                 <C>       <C>      <C>      <C>      <C>
Antioch............. 80,000    64,036   1989     N/A (2)       N/A
Aptos............... 11,200     9,362   1988     2004          None
Auburn.............. 40,000    37,245   1995     2005     1 five yr. opt.
Bakersfield:
  East Hills........ 74,900    73,069   1988     2009     6 five yr. opt.
  Valley Plaza...... 69,000    57,195   1987     2017(3)  2 five yr. opt.
Capitola............105,000    89,352   1990     2015     4 five yr. opt.
Carson City, Nevada. 58,000    51,848   1995     2005     2 five yr opt.
Chico............... 85,000    75,934   1988     2017     3 ten yr. opt.
Clovis..............101,400    93,521   1988     2018          None
Eureka.............. 96,900    70,090   1989     N/A (2)       N/A
Fresno:
  Fashion Fair......163,000   120,000   1970     2016(7)  4 five yr opt.
  Fig Garden........ 36,000    32,774   1983     2005          None
  Manchester........175,600   127,243   1979     2009     1 ten yr. opt.
Hanford............. 98,800    75,382   1993     N/A (2)       N/A
Klamath Falls,
  Oregon............ 65,400    53,446   1992     2007     2 ten yr. opt.
Merced.............. 60,000    51,628   1983     2013          None
Modesto:
  Vintage Faire.....161,500   124,100   1977     2007(7)  1 eight yr. opt.
                                                               and
                                                          5 five yr. opt. 
  Century Center.... 62,300    58,285   1984     2013     1 ten yr. opt.
                                                               and
                                                          1 four yr. opt.
Oakhurst............ 25,600    21,894   1994     2005     4 five yr. opt. 
                                                               and
                                                          1 six yr. opt.
Palmdale............114,900    93,029   1990     N/A (2)       N/A
Palm Springs........ 68,100    57,194   1991     2011     4 five yr. opt.
Reno, Nevada........138,000   110,000   1996     2016     2 ten yr. opt.
Sacramento..........194,400   138,797   1994     2014     5 five yr. opt.
San Bernardino......204,000   147,061   1995     2017     4 five yr. opt.
San Luis Obispo..... 99,300    91,155   1986     N/A (2)       N/A
Santa Maria.........114,000    99,262   1976     2006     4 five yr. opt.
Scotts Valley....... 11,200     9,740   1988     2001     2 five yr. opt.
Stockton............ 90,800    74,952   1987     2009     6 five yr. opt.
Tacoma, Washington..119,300    94,054   1992     2012     4 five yr. opt.
Tracy...............113,000    88,168   1995     2015     4 five yr. opt.
Visalia.............150,000   133,930   1995     2014     3 five yr. opt.    
Watsonville......... 75,000    63,449   1995     2006     4 five yr. opt.
Woodland............ 55,300    52,913   1987     2017     2 ten yr. opt.   
Yuba City........... 80,000    61,944   1989     N/A(2)        N/A
Redding.............  7,800     5,000   1993     60 days(4)    None

Total Gottschalks
  Square Footage..3,204,700 2,607,052

VILLAGE EAST
Antioch.............  2,100     1,472     1989     1999          None
Bakersfield:
  East Hills........  3,350     2,847     1988     1998          None
  Valley Plaza......  3,700     3,550     1991     2002          None
Capitola............  2,360     2,006     1991     1999          None
Carson City, Nevada.  3,400     2,800     1995     2005          None
Chico...............  2,300     1,920     1988     2000          None
Clovis..............  2,300     1,955     1988     1998          None
Eureka..............  2,820     2,397     1989     2004          None
Fresno:
  Fashion Fair......  1,750     N/A       N/A      N/A (5)       N/A
  Fig Garden........  2,800     2,521     1986     1999          None
  Manchester........  5,950     5,375     1981     2010          None
Hanford.............  2,800     2,480     1993     2008          None
Merced..............  3,350     2,847     1976     1997(6)       None
Modesto:
  Vintage Faire.....  2,900     N/A       N/A      N/A (5)       N/A
  Century Center....  2,730     2,320     1986     2005          None
Palmdale............  2,716     2,309     1990     2000          None
Palm Springs........  2,480     2,108     1991     2001          None
Sacramento..........  2,700     2,470     1994     2004          None
San Luis Obispo.....  2,500     1,472     1987     2011          None
Santa Maria.........  3,000     2,720     1976     2001          None
Stockton............  1,799     1,530     1989     1998          None
Tacoma..............  4,000     3,220     1992     2012          None
Tracy...............  3,428     2,914     1995     2006          None
Visalia.............  3,400     2,880     1975     1999          None
Woodland............  2,022     1,719     1987     1999          None
Yuba City...........  3,200     3,045     1990     2000          None

Total Village East
  Square Footage....71,205    60,877

Total Square
  Footage........3,275,905 2,667,929                                 
__________________________
</TABLE>



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

         (2)        These stores are Company owned and have
                    been pledged as security for various debt
                    obligations of the Company. (See Note 3 of
                    the Consolidated Financial Statements.)    
                                      
     
         (3)        This lease was revised and extended during
                    fiscal 1996 in connection with the
                    remodeling and 23,000 square foot expansion
                    of the store, expected to be completed in
                    fiscal 1997.

         (4)        This lease is automatically renewed every
                    60 days. Either party can terminate the
                    lease upon 60 days' notice. 

         (5)        These Village East store leases were not
                    renewed upon their expiration as the
                    Company incorporated these stores into the
                    nearby Gottschalks store as a separate
                    department during fiscal 1996. The Company
                    does not include these locations in the
                    total number of free-standing Village East
                    stores open as of the end of fiscal 1996.
                    The Company does, however, include sales
                    applicable to these locations in total
                    Village East sales amounts reported.

         (6)        The Company reached an agreement to
                    terminate this lease in August 1997. The
                    original lease expired in the year 2001.

         (7)        Represents new leases entered into during
                    fiscal 1996. (See Note 4 to the
                    Consolidated Financial Statements.)


Item 3.        LEGAL PROCEEDINGS
     
     Not Applicable.

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

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


                    PART II


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

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

<TABLE>
<CAPTION>
                          1996              1995  
Fiscal Quarters         High    Low    High      Low    
   
<C>                   <C>      <C>     <C>      <C>
1st Quarter.........   7 3/8    5 5/8   7 7/8    6 3/4
2nd Quarter.........   7 1/4    5 3/4   7 3/8    6 1/2 
3rd Quarter.........   6 1/2    5 1/8   8 3/8    6 1/2
4th Quarter.........   7        5 1/8   7        4 3/4
</TABLE>


     On March 31, 1997, the Company had 1,014
stockholders of record, some of which were brokerage
firms or other nominees holding shares for multiple
stockholders. The sales price of the Company's common
stock as reported by the NYSE on March 31, 1997 was $5.75
per share.

     The Company has not paid a cash dividend since its
initial public offering in 1986. The Board of Directors
has no present intention to pay cash dividends in the
foreseeable future, and will determine whether to declare
cash dividends in the future depending on the Company's
earnings, financial condition and capital requirements.
In addition, the Company's credit agreement with Congress
Financial Corporation prohibits the Company from paying
dividends without prior written consent from that lender.

     There were no sales of unregistered securities by
the Company during fiscal 1996.

Item 6.        SELECTED FINANCIAL DATA

     The Company reports on a 52/53 week fiscal year
ending on the Saturday nearest to January 31. The fiscal
years ended February 1, 1997, February 3, 1996, January
28, 1995, January 29, 1994 and January 30, 1993 are
referred to herein as fiscal 1996, 1995, 1994, 1993 and
1992, respectively.  All fiscal years noted include 52
weeks, except for fiscal 1995 which includes 53 weeks.

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

<TABLE>
<CAPTION>

RESULTS OF OPERATIONS: 
                       1996       1995      1994      1993      1992
(In thousands, except per share data)              

<S>                     <C>       <C>        <C>       <C>       <C>
Net sales(1)........... $422,159  $401,041   $363,603  $342,417  $331,133  
Service charges and
  other income.........   13,285    11,663      9,659     8,938     9,458  
                         435,444   412,704    373,262   351,355   340,591  
Costs and expenses:
  Cost of sales(2).....  287,164   278,827    247,423   233,715   226,319
  Selling, general and
    administrative
    expenses(3)........  126,591   123,100    103,571   103,675   105,044
  Depreciation and
    amortization(4)....    6,922     8,092      5,860     5,877     6,408
  Interest expense.....   11,675    11,296     10,238     8,524     6,965
  Unusual items(5).....                         3,833     3,427     7,852
                         432,352   421,315    370,925   355,218   352,588
Income (loss) before 
  income tax expense
  (benefit)............    3,092    (8,611)     2,337    (3,863) (11,997)
Income tax expense
  (benefit)............    1,258    (2,972)       821    (1,190)  (4,006)
Net income (loss)...... $  1,834  $ (5,639)  $  1,516  $ (2,673) $(7,991)
Net income (loss)
 per common share...... $    .18  $   (.54)  $    .15  $   (.26) $  (.77)
  
Weighted-average number
  of common shares
  outstanding..........   10,461    10,416     10,413    10,377   10,410
</TABLE>

<TABLE>
<CAPTION>

SELECTED BALANCE SHEET DATA:
                         1996       1995        1994        1993      1992   
(In thousands of dollars) 

<S>                    <C>         <C>         <C>         <C>        <C>
Receivables, net(6)..  $ 22,689    $ 27,467    $ 27,311    $ 21,460   $ 59,508
Merchandise
 inventories(7)......    89,472      87,507      80,678      60,465     58,777
Property and
 equipment, net(8)...    87,370      89,250      93,809      96,396     95,933
Total assets.........   233,193     239,041     233,353     248,330    239,910
Working capital (9)..    70,231      42,904      37,900      32,147     16,827
Long-term obligations,
 less current portion(9) 60,241      34,872      33,672      31,493     14,992
Stockholders' equity.... 80,139      77,917      83,577      82,118     84,529
</TABLE>
<TABLE>
<CAPTION>


SELECTED OPERATING DATA: 
                           1996      1995      1994      1993      1992     
Sales growth:
 <S>                       <C>      <C>        <C>       <C>       <C>
 Total store sales(10)...  5.3%     10.3%      6.2%      3.4%      5.2%
 Comparable store sales .  1.4%     (3.1%)     3.3%      1.3%     (1.0%)
Average net sales per 
 square foot of selling
 space(11):
   Gottschalks...........  $170      $181      $196      $198      $209
   Village East..........   163       161       164       176       218
Gross margin percent:
   Owned sales...........  33.4%     31.8%     33.3%     33.2%     32.7%
   Leased sales..........  14.6%     14.4%     14.1%     13.8%     14.4%
Credit sales as a % 
   of total sales........  44.7%     44.7%     43.0%     38.4%     38.2%
</TABLE>

<TABLE>
<CAPTION>

SELECTED FINANCIAL DATA:
                         1996      1995      1994      1993      1992    
Capital expenditures, 
 <S>                     <C>        <C>       <C>      <C>        <C>
 net of reimbursements.. $ 6,845    $12,773   $ 4,539  $ 5,456    $12,078
Current ratio............ 2.10:1     1.45:1    1.43:1   1.30:1     1.15:1
Inventory turnover
 ratio(12)..............     2.6        2.7       2.9      2.9        2.9
Days credit sales
 in receivables(13).....   132.9      136.8     157.3    170.8      171.4
     
__________________
</TABLE>

(1)  Includes net sales from leased departments of
     $32.8 million, $29.8 million, $26.0 million,
     $25.3 million and $23.4 million in fiscal 1996,
     1995, 1994, 1993 and 1992, respectively.  (See
     Part I, Item 1, "Business--Leased Departments.")

(2)  Includes cost of sales attributable to leased
     departments of $28.0 million, $25.5 million,
     $22.3 million, $21.8 million and $20.1 million in
     fiscal 1996, 1995, 1994, 1993 and 1992,
     respectively.  (See Part I, Item 1, "Business--Leased Departments.")

(3)  Includes provision for credit losses associated
     with the Company's private-label credit card of
     $2.7 million, $2.5 million, $2.1 million, $2.2
     million and $2.5 million in fiscal 1996, 1995,
     1994, 1993 and 1992, respectively.

(4)  Includes the amortization of new store pre-opening costs of $1.3 million, 
     $2.5 million, $438,000, $429,000 and $1.0 million in fiscal
     1996,  1995, 1994, 1993 and 1992, respectively.

(5)  See the Company's 1995 Annual Report on Form 10-K
     and Note 8 to the accompanying Consolidated
     Financial Statements.

(6)   Net receivables does not include receivables sold
      ($46.0 million as of the end of fiscal 1996 and
      $40.0 million as of the end of both fiscal 1995 and
      1994) or receivables held for securitization and
      sale ($40.0 million as of the end of fiscal 1993).
      (See Part II, Item 7, "Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations--Liquidity and Capital Resources" for
      description of receivables securitization program.)

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

(8)   The decreases in property and equipment from fiscal
      1993 through fiscal 1996 is primarily due to
      various sale and leaseback financings and, in fiscal 1996, to the 
      write-off of assets under terminated capital leases. (See Note 4 to
      Consolidated Financial Statements.)

(9)   The increases in working capital and long-term
      obligations from fiscal 1995 to 1996 and from
      fiscal 1992 to 1993 occurred primarily as a result
      of the classification of certain debt as long-term
      that was classified as current in the previous
      year. (See Note 3 to the Consolidated Financial
      Statements for current year discussion.)

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

(11)  Average net sales per square foot of selling space
      represents net sales for the period divided by the
      number of square feet of selling space in use during the period. 
      Average net sales per square
      foot is computed only for those stores in operation
      for at least twelve months. "Selling space" has   been determined 
      according to standards set by the National Retail Federation.

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

(13)  Days credit sales in receivables include
      receivables sold ($46.0 million as of the end of
      fiscal 1996 and $40.0 million as of the end of both
      fiscal 1995 and 1994) and $40.0 million of
      receivables held for securitization and sale as of
      the end of fiscal 1993. The Company services and
      administers the receivables pursuant to the
      securitization program.

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

<TABLE>
<CAPTION>

                                      1996         1995         1994       
<S>                                  <C>          <C>          <C>
Net sales........................    100.0%       100.0%       100.0%      
Service charges and other income.      3.1          2.9          2.6       
                                     103.1        102.9        102.6       
Costs and expenses:
   Cost of sales.................     68.0         69.5         68.0        
   Selling, general and
     administrative expenses.....     30.0         30.7         28.5        
   Depreciation and amortization.      1.6          2.0          1.6            
   Interest expense..............      2.8          2.8          2.8            
   Unusual items.................                                1.1      
                                     102.4        105.0        102.0       
Income (loss) before income tax  
   expense (benefit).............      0.7         (2.1)         0.6       

Income tax expense (benefit).....      0.3         (0.7)         0.2      

Net income (loss)................      0.4%        (1.4)%        0.4%     
</TABLE>

Fiscal 1996 Compared to Fiscal 1995

Net Sales

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

                Fiscal 1996 new store openings included one
new store in Reno, Nevada, in March 1996 and two larger
replacement stores for pre-existing stores in Modesto and
Fresno, California, in March and April 1996,
respectively. Stores operating in fiscal 1996 not open
for the entire year in fiscal 1995 included five new
stores located in California in Auburn (February 1995),
San Bernardino (April 1995), a larger replacement store
for a pre-existing store in Visalia (August 1995),
Watsonville (August 1995) and Tracy (October 1995), and
one new store opened in Nevada in Carson City (March
1995). The Company has entered into agreements to open
two additional stores in fiscal 1997, to be located in
Santa Rosa and Sonora, California. While these stores are
expected to open in the second half of fiscal 1997, there
can be no assurance that such openings will not be
delayed subject to a variety of conditions precedent or
other factors.
                
Service Charges and Other Income

                Service charges and other income increased by
$1.6 million to $13.3 million in fiscal 1996 as compared
to $11.7 million in fiscal 1995, an increase of 13.7%. As
a percent of net sales, service charges and other income
increased to 3.1% in fiscal 1996 as compared to 2.9% in
fiscal 1995.

                Service charges associated with the Company's
customer credit cards decreased by $400,000 to $10.5
million in fiscal 1996 as compared to $10.9 million in
fiscal 1995, a decrease of 3.7%.  Credit sales as a
percent of total sales remained unchanged at 44.7% in
fiscal 1996 and 1995. The dollar decrease in service
charges is primarily due to the more timely payment of
customer credit card balances in fiscal 1996 as compared
to fiscal 1995. This decrease was partially offset by
additional income generated by an increase to the
interest rate charged on outstanding customer credit card
balances to an annual percentage rate of 21.6% from 19.8%
and an increase to the late charge assessed on delinquent
credit card balances, both effective in late fiscal 1996.

                Other income, which includes the amortization
of deferred income and other miscellaneous income and
expense items, increased by $2.1 million to $2.8 million
in fiscal 1996 as compared to $726,000 in fiscal 1995.
Other income in fiscal 1996 includes a pre-tax gain of
$1.3 million resulting from the termination of two leases
and income related to the amortization of a lease
incentive (see Note 4 to the Consolidated Financial
Statements). Other income in fiscal 1995 was reduced by
certain general claim and valuation reserves.


Cost of Sales

                Cost of sales increased by $8.4 million to
$287.2 million in fiscal 1996 as compared to $278.8
million in fiscal 1995, an increase of 3.0%. The
Company's gross margin percent increased to 32.0% in
fiscal 1996 as compared to 30.5% in fiscal 1995.
Excluding the effect of certain indirect costs related to
inventory which are reclassified to cost of sales by the
Company for financial reporting purposes, the gross
margin percent increased to 36.8% in fiscal 1996 as
compared to 35.7% in fiscal 1995. (See Note 1 to the
Consolidated Financial Statements.) This increase in
gross margin percent is primarily due to increased sales
of higher gross margin men's, women's and children's
apparel, a higher initial inventory mark-on percentage on
certain merchandise (through favorable vendor pricing),
and a reduction of seasonal clearance and storewide sale
event markdowns as compared to the prior year. The
Company's inventory shrinkage also continued to improve,
decreasing to 1.1% of net sales in fiscal 1996 as
compared to 1.3% in fiscal 1995. The Company's gross
margin percent in fiscal 1995 was negatively impacted by
(i) increased competition resulting from pricing policies
of two financially troubled retailers operating in
certain of the Company's market areas; (ii) increased
markdowns taken in an attempt to improve sales of slow-moving 
apparel and in connection with a revision in the
Company's women's apparel merchandising strategy; and
(iii) increased promotional activity related to new store
openings and storewide sale events. 

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

Selling, General and Administrative Expenses
    
     Selling, general and administrative expenses
increased  by $3.5 million to $126.6 million in fiscal
1996 as compared to $123.1 million in fiscal 1995, an
increase of 2.8%. As a percent of net sales, selling,
general and administrative expenses decreased to 30.0% in
fiscal 1996 as compared to 30.7% in fiscal 1995.
Including the effect of certain indirect costs related to
inventory which are reclassified to cost of sales,
selling, general and administrative costs as a percent of
net sales decreased to 34.7% in fiscal 1996 as compared
to 35.7% in fiscal 1995. (See Note 1 to the Consolidated
Financial Statements.) This decrease as a percent of net
sales is primarily due to the increase in sales volume.
The Company's sales increased at a faster rate than its
selling, general and administrative expenses in fiscal
1996, primarily due to ongoing Company-wide expense
control measures.

Depreciation and Amortization

     Depreciation and amortization, which includes the
amortization of new store pre-opening costs, decreased by
$1.2 million to $6.9 million in fiscal 1996 as compared
to $8.1 million in fiscal 1995, a decrease of 14.8%. The
amortization of new store pre-opening costs decreased by
$1.2 million to $1.3 million in fiscal 1996 as compared
to $2.5 million in fiscal 1995 as a result of fewer new
store openings during the period. Excluding the
amortization of new store pre-opening costs, depreciation
and amortization as a percent of net sales remained
unchanged at 1.5% in fiscal 1996 and  1995. Higher
depreciation expense (in dollars) related to capital
expenditures for new stores was fully offset by lower
depreciation expense resulting from sale and leaseback
arrangements completed in fiscal 1996 and 1995, including
that of the Company's department store in Capitola,
California, and by the termination of two capital leases
in fiscal 1996. (See Note 4 to the Consolidated Financial
Statements).

Interest Expense

     Interest expense increased by $400,000 to $11.7
million in fiscal 1996 as compared to $11.3 million in
fiscal 1995, an increase of 3.5%. Due to the increase in
sales volume, interest expense as a percent of net sales
remained unchanged at 2.8% in fiscal 1996 and 1995. The
increase (in dollars) resulted primarily from additional
long-term financing arrangements entered into late in
fiscal 1995 and in fiscal 1996 and higher interest costs
associated with the Company's former line of credit
facility with Fleet Capital Corporation ("Fleet"). These
increases were partially offset by a decrease in the
weighted-average interest rate charged on outstanding
borrowings under the Company's various lines of credit
(8.62% in fiscal 1996 as compared to 8.75% in fiscal
1995), which resulted from (i) a decrease in LIBOR during
the period; (ii) a higher percentage of borrowings
outstanding under more cost-effective financing
arrangements, including the line of credit with Bank
Hapoalim and the securitization program; and (iii) a
lower interest rate applicable to the new line of credit
agreement with Congress Financial Corporation
("Congress"), entered into in December 1996, which
replaced the Fleet facility. Assuming relatively stable
LIBOR rates in fiscal 1997, management expects interest
expense to be lower in fiscal 1997 as compared to fiscal
1996 as a result of the new line of credit agreement with
Congress. (See "Liquidity and Capital Resources.")

Income Taxes

     The Company's effective tax rate was 40.7% in
fiscal 1996 as compared to an effective tax benefit of
(34.5%) in fiscal 1995. (See Note 5 to the Consolidated
Financial Statements.)
 
Net Income (Loss)

     As a result of the foregoing, the Company's net
income increased by $7.5 million to net income of $1.8
million in fiscal 1996 as compared to a net loss of
($5.6) million in fiscal 1995. On a per share basis, net
income increased by $.72 per share to net income of $.18
per share in fiscal 1996 as compared to a net loss of
($.54) per share in fiscal 1995.  

Fiscal 1995 Compared to Fiscal 1994

Net Sales

     Net sales increased by $37.4 million to $401.0
million in fiscal 1995 as compared to $363.6 million in
fiscal 1994, an increase of 10.3%. This increase resulted
from sales generated by the opening of the previously
described six new Gottschalks stores during fiscal 1995
and two new stores not open for the entire year in fiscal
1994, and was partially offset by a 3.1% decrease in
comparable store sales in fiscal 1995 as compared to
fiscal 1994. As described more fully in "Cost of Sales"
below, fiscal 1995 comparable store sales were negatively
impacted by unusual weather variances and temporary
competitive pressures in certain of the Company's market
areas during the period. Stores operating in fiscal 1995
not open for the entire year in fiscal 1994 include
Oakhurst (October 1994) and Sacramento, California
(November 1994).

Service Charges and Other Income

     Service charges and other income increased by $2.0
million to $11.7 million in fiscal 1995 as compared to
$9.7 million in fiscal 1994, an increase of 20.6%. As a
percent of net sales, service charges and other income
increased to 2.9% in fiscal 1995 as compared to 2.6% in
fiscal 1994.

     Service charges associated with the Company's
customer credit cards increased by $2.0 million to $10.9
million in fiscal 1995 as compared to $8.9 million in
fiscal 1994. This increase is primarily due to an
increase in the late charge fee assessed on delinquent
customer accounts, effective January 1995, which resulted
in a $1.2 million increase in late charge fees. In
addition, credit sales as a percent of total sales
increased to 44.7% in fiscal 1995 as compared to 43.0% in
fiscal 1994, primarily due to the success of a variety of
new credit-related programs first implemented by the
Company in fiscal 1994 and 1993, in addition to increased
marketing efforts aimed at the Company's credit
cardholders and credit solicitation activities resulting
in a higher percentage of new credit card accounts opened
in connection with new store openings. (See Part I, Item
I, Business--Private-Label Credit Card.)

     Other income, which includes the amortization of
deferred income and other miscellaneous income and
expense items, was $726,000 in fiscal 1995 as compared to
$755,000 in fiscal 1994.   

Cost of Sales

     Cost of sales increased by $31.4 million to $278.8
million in fiscal 1995 as compared to $247.4 million in
fiscal 1994, an increase of 12.7%. The Company's gross
margin percent decreased to 30.5% in fiscal 1995 as
compared to 32.0% in fiscal 1994. Excluding the effect of
certain indirect costs related to inventory which are
reclassified to cost of sales, the gross margin percent
decreased to 35.7% in fiscal 1995 as compared to 37.3% in
fiscal 1994. (See Note 1 to the Consolidated Financial
Statements.) The Company's gross margin percent in fiscal
1995 was negatively impacted by (i) increased competition
resulting from pricing policies of two financially
troubled retailers operating in certain of the Company's
market areas; (ii) increased markdowns taken in an
attempt to improve sales of slow-moving apparel and in
connection with a revision in the Company's women's
apparel merchandising strategy; and (iii) increased
promotional activity related to new store openings and
storewide sale events. The Company's inventory shrinkage
was 1.3% of net sales in fiscal 1995 as compared to 1.4%
in fiscal 1994, partially offsetting the negative impact
of higher markdowns on the Company's gross margin.

     The Company's 1994 gross margin percent was
favorably impacted by the year-end LIFO inventory
valuation adjustment, which resulted in an increase in
gross margin of $3.2 million. The Company's LIFO
inventory reserve was eliminated as a result of the
fiscal 1994 adjustment and no similar benefit was
recognized in fiscal 1995 or 1996. (See Note 1 to the
Consolidated Financial Statements). Excluding the effect
of the LIFO adjustment, the Company's gross margin
percent was 31.1% in fiscal 1994. To a lesser extent, the
Company's fiscal 1994 gross margin percent was also
favorably impacted by a reduction of inventory shrinkage
to 1.4% of net sales in fiscal 1994 as compared to 2.1%
in fiscal 1993, primarily due to improved inventory-related controls. 
               
Selling, General and Administrative Expenses
    
     Selling, general and administrative expenses
increased  by $19.5 million to $123.1 million in fiscal
1995 as compared to $103.6 million in fiscal 1994, an
increase of 18.8%. As a percent of net sales, selling,
general and administrative expenses increased to 30.7% in
fiscal 1995 as compared to 28.5% in fiscal 1994.
Including the effect of certain indirect costs related to
inventory which are reclassified to cost of sales,
selling, general and administrative costs as a percent of
net sales increased to 35.7% in fiscal 1995 as compared
to 33.7% in fiscal 1994. (See Note 1 to the Consolidated
Financial Statements.) This increase as a percent of net
sales is due to lower than expected sales volume, in
addition to higher payroll, advertising and other
selling, general and administrative costs associated with
certain of the Company's new stores opened during the
year. Certain store operating costs as a percent of net
sales are generally higher for new stores and decline as
the stores mature over a two to three year period. The
Company also experienced an increase in building and
equipment rental expense as a result of sale and
leaseback financings, including that of the Company's
department store in Capitola, California, completed
during the period. (See Note 4 to the Condensed Financial
Statements.) The higher rental expense was partially
offset by lower depreciation and amortization expense as
a result of such sales.

     In fiscal 1994, the Company realized the benefit
of reductions to required workers' compensation claim
reserves resulting from favorable experience adjustments
and revisions to applicable workers' compensation laws.
Excluding the effect of such experience adjustments,
selling, general and administrative expenses were 29.1%
of net sales in fiscal 1994. The Company revised its
workers' compensation program in early fiscal 1995,
substantially eliminating the potential for future
significant favorable or unfavorable experience
adjustments.

Depreciation and Amortization

     Depreciation and amortization, which includes the
amortization of new store pre-opening costs, increased by
$2.2 million to $8.1 million in fiscal 1995 as compared
to $5.9 million in fiscal 1994, an increase of 37.3%. The
amortization of new store pre-opening costs increased by
$2.1 million to $2.5 million in fiscal 1995 as compared
to $438,000 in fiscal 1994 as a result of completing and
opening two new stores in fiscal 1994 and six new stores
(including one replacement store) in fiscal 1995.
Excluding the amortization of new store pre-opening
costs, depreciation and amortization as a percent of net
sales decreased to 1.4% in fiscal 1995 as compared to
1.5% in fiscal 1994. This decrease is primarily due to
lower depreciation expense resulting from sale and
leaseback arrangements completed in fiscal 1995 and 1994,
including that of the Company's department store in
Capitola, California, and was partially offset by
additional depreciation expense resulting from capital
expenditures, net of reimbursements received for certain
of those expenditures, for new stores opened during the
year. (See Note 4 to the Consolidated Financial
Statements.)

Interest Expense

     Interest expense increased by $1.1 million to
$11.3 million in fiscal 1995 as compared to $10.2 million
in fiscal 1994, an increase of 10.8%. Due to the increase
in sales volume, interest expense as a percent of net
sales remained unchanged at 2.8% in fiscal 1995 and 1994.
The increase (in dollars) resulted from an increase in
the weighted-average interest rate charged on outstanding
borrowings under the Company's various lines of credit
(8.75% in fiscal 1995 as compared to 7.13% in fiscal
1994); higher average outstanding borrowings under those
lines of credit to fund increased inventory purchases and
other costs associated with new stores and operating
losses during the year; and interest expense associated
with additional long-term borrowings entered into during
the period. These increases were partially offset by the
application of proceeds from mortgage financings and sale
and leaseback arrangements entered into during the
period. (See "Liquidity and Capital Resources".)

Provision for Unusual Items

     The provision for unusual items in fiscal 1994,
totaling $3.8 million, includes a provision of $3.5
million representing costs incurred in connection with an
agreement reached to settle the stockholder litigation
previously pending against the Company and related legal
fees and other costs. The Company paid all amounts due in
connection with the settlement agreement in February
1995. No additional costs in excess of such amounts
previously accrued were incurred by the Company. (See
Note 8 to the Consolidated Financial Statements.)

Income Taxes

     The Company's effective tax benefit was (34.5%) in
fiscal 1995 as compared to an effective tax rate of 35.1%
in fiscal 1994.  (See Note 5 to the Consolidated
Financial Statements.)

Net Income (Loss)

     As a result of the foregoing, the Company realized
a net loss of ($5.6) million in fiscal 1995 as compared
to net income of $1.5 million in fiscal 1994. On a per
share basis, the net loss was ($.54) per share in fiscal
1996 as compared to net income of $.15 per share in
fiscal 1994.

Liquidity and Capital Resources

     Sources of Liquidity. As described more fully
below, the Company's working capital requirements are
currently met through a combination of cash provided by
operations, borrowings under its revolving lines of
credit and its securitization program. The Company's
liquidity improved as compared to the prior year as a
result of improved operating results and its new
revolving line of credit agreement.

     Revolving Lines of Credit. On December 20, 1996,
the Company entered into a new three-and-one-quarter year
revolving line of credit arrangement with Congress
Financial Corporation ("Congress"). The new line of
credit with Congress replaced the Company's former line
of credit agreement with Fleet Capital Corporation
("Fleet") and provides the Company with an $80.0 million
working capital facility through March 30, 2000.
Borrowings under the arrangement are limited to a
restrictive borrowing base equal to 65% of eligible
merchandise inventories, increasing to 70% of such
inventories during the period of September 1 through
December 20 of each year to fund increased seasonal
inventory requirements. Interest under the facility is
charged at a rate of approximately LIBOR plus 2.5% (8.28%
at February 1, 1997), with the potential to reduce the
interest rate by 1/4% each year, up to a maximum possible
reduction of 1/2% beginning in fiscal 1998, if specified
pre-tax income levels are attained by the Company.
Initial proceeds from the arrangement were used to repay
all outstanding borrowings under the line of credit with
Fleet. The maximum amount available for borrowings under
the line of credit with Congress was $51.9 million as of
February 1, 1997, of which $31.3 million was outstanding
as of that date. Of that amount, $25.0 million has been
classified as long-term in the accompanying financial
statements as the Company does not anticipate repaying
that amount prior to one year from the balance sheet
date. The agreement contains one financial covenant,
pertaining to the maintenance of a minimum tangible net
worth, with which the Company was in compliance as of
February 1, 1997.
     
     The Company's former facility with Fleet provided
the Company with a $66.0 million working capital
facility, limited to a restrictive borrowing base equal
to 50% of eligible merchandise inventories, increasing to
60% during certain periods for increased seasonal
requirements. Interest on outstanding borrowings under
the Fleet facility was charged at a rate of LIBOR plus
3.75%, and the arrangement contained numerous restrictive
financial covenants. Management believes the Company's
improved operating results enabled the Company to obtain
the more favorable financing arrangement with Congress,
which provides the Company with increased borrowing
capacity at a lower interest rate, and greater
flexibility due to the elimination of all but one
restrictive financial covenant.
   
     In addition to the Congress facility, the Company
also has a revolving line of credit with Bank Hapoalim
that provides for additional borrowings of up to $15.0
million through March 1999. The Company's borrowing
capacity under the line of credit with Bank Hapoalim is
limited to a percentage of the outstanding balance of
receivables collateralizing the line, and is therefore
subject to seasonal variations that may affect the
outstanding balance of such receivables. Interest on
outstanding borrowings under the line of credit is
charged at a rate equal to LIBOR plus 1.0% (6.44% at
February 1, 1997). At February 1, 1997, $7.6 million was
outstanding under the line of credit with Bank Hapoalim,
which was the maximum amount available for borrowings as
of that date. As described more fully in the "Cash Flows
from Securitization Program" portion of this section, the
issuance of an additional $6.0 million Fixed Base
Certificate in fiscal 1996 reduced the level of
receivables available to collateralize the Variable Base
Certificate, and thus has reduced the Company's borrowing
capacity under the facility in the near-term.
               
     Other Financings. As described more fully in Note
3 to the Consolidated Financial Statements, the Company
has four fifteen-year mortgage loans with Midland
Commercial Funding ("Midland") with outstanding balances
totaling $19.7 million at February 1, 1997. The Midland
loans, due 2010, bear interest at rates ranging from
9.23% to 9.39%. The Company also has the following other
long-term loan facilities as of February 1, 1997: (i) a
10.45% mortgage loan payable with Heller Financial, Inc.
("Heller") due 2002, with an outstanding loan balance of
$4.8 million; an additional mortgage loan payable for
$6.0 million with Heller, due March 2004, bearing
interest at a fixed rate of 9.97%; (iii) two five-year
10.0% notes payable to Federated Department Stores, Inc.,
due 2001, with outstanding balances totaling $2.4
million; and (iv) other long-term obligations with
outstanding balances totaling $2.1 million. All of the
Company-owned stores have either been mortgaged or sold
and leased back to the Company, leaving the Company with
limited capacity for future additional long-term secured
borrowing.

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

     As described more fully in Note 2 to the
Consolidated Financial Statements, $40.0 million
principal amount 7.35% Fixed Base Class A-1 Credit Card
Certificates were issued in 1994 under the receivables
securitization program (the "1994 Fixed Base
Certificates"). On October 31, 1996, an additional $6.0
million principal amount 6.79% Fixed Base Certificate
(the "1996 Fixed Base Certificate") was issued under the
program. Proceeds from the issuance of the 1996 Fixed
Base Certificate were used to reduce outstanding
borrowings under the line of credit with Bank Hapoalim
and pay certain costs associated with the transaction.
Interest on the 1994 and 1996 Fixed Base Certificates
(collectively the "Fixed Base Certificates") is earned by
the certificate holders on a monthly basis and is paid
through finance charges collected under the program. The
outstanding principal balance of the certificates are to
be repaid in equal monthly installments commencing
September 1998 through September 1999, through the
application of credit card receivable principal
collections during that period. The issuances of the
Fixed Base Certificates have been accounted for as sales
for financial reporting purposes. Accordingly, the $46.0
million of receivables underlying those certificates and
the corresponding debt obligations have been excluded
from the accompanying financial statements.

     In 1994, a Variable Base Class A-2 Credit Card
Certificate ("Variable Base Certificate") in the
principal amount of up to $15.0 million was also issued
to Bank Hapoalim as collateral for the previously
described revolving line of credit financing arrangement
with that bank. In addition to the Fixed and Variable
Base Certificates, additional series of certificates may
be issued as a source of additional working capital
financing to the Company. Management does not currently
anticipate any additional certificate issuances in fiscal
1997. 
               
     Management believes the previously described
sources of liquidity are adequate to meet the Company's
working capital, capital expenditure and debt service
requirements for fiscal 1997. Management also believes it
has sufficient sources of liquidity for its long-term
growth plans at moderate levels. The Company may engage
in other financing activities if it is deemed to be
advantageous.

     Additional Cash Flow and Working Capital Analysis.

     Working capital increased by $27.3 million to
$70.2 million in fiscal 1996 as compared to $42.9 million
in fiscal 1995. The Company's ratio of current assets to
current liabilities increased to 2.10:1 as of the end of
fiscal 1996 as compared to 1.45:1 as of the end of fiscal
1995. The increases from fiscal 1995 to 1996 are
primarily due to the reclassification of $25.0 million of
outstanding borrowings under the line of credit with
Congress to long-term in the accompanying financial
statements. 
     
     Cash flows from operating activities consist
primarily of net income (loss) adjusted for certain non-cash 
income and expense items, including, but not limited
to, depreciation and amortization, the provision for
uncollectible accounts and changes in deferred taxes. Net
cash provided by operating activities was $8.7 million in
fiscal 1996 as compared to net cash used in operating
activities of ($18.8) million in fiscal 1995. The
increase in cash provided by operating activities is
primarily due 
to (i) improved operating results; (ii) the payment of
approximately $7.6 million of operating expenses related
to fiscal 1996 during the 53rd week of fiscal 1995 as a
result of the fiscal 1995 calendar shift; (iii) the
receipt of $3.4 million in connection with the filing of
certain amended income tax returns; and (iv) lower costs
associated with new store openings. These increases were
partially offset by cash used to fund an increase in
merchandise inventories, resulting from the earlier
receipt of certain spring merchandise in fiscal 1996 as
compared to fiscal 1995, a decrease in trade accounts
payable and cash paid to settle previously pending
litigation (see Note 8 to the Consolidated Financial
Statements.)
               
     Net cash used in investing activities was ($4.7)
million in fiscal 1996 as compared to ($1.1) million in
fiscal 1995. Net cash used in investing activities in
each of those years consisted primarily of expenditures
for tenant improvements, construction costs and
furniture, fixtures and equipment associated with new and
certain existing store locations, less reimbursements
received for certain of those expenditures. Such
expenditures were partially offset by proceeds from
various sale and sale/leaseback arrangements during those
periods.
 
     Net cash used in financing activities was ($4.3)
million in fiscal 1996 as compared to net cash provided
by financing activities of $21.8 million in fiscal 1995.
Proceeds from financing arrangements finalized during
fiscal 1996, including the $6.0 million received from the
issuance of the 1996 Fixed Base Certificate and the
combined total of $5.6 million received from the
previously described Heller and Federated loans, were
more than fully offset by principal payments made on
various short-term and long-term obligations during the
year. Increased cash flows from operating activities
enabled the Company to reduce net borrowings under its
lines of credit during the year. Net cash provided by
financing activities of $21.8 million in fiscal 1995
consisted primarily of net borrowings under the Company's
lines of credit. The $20.0 million provided by the
Midland financing was fully applied against previously
outstanding obligations. 

     The Company has entered into agreements to open
two new department stores in fiscal 1997, to be located
in the current Macy's location in Santa Rosa, California
and the current K-Mart location in Sonora, California.
The Company has also commenced the remodel and 23,000
square foot expansion of its existing store located in
the Valley Plaza Mall in Bakersfield, California. The
estimated cost to complete these projects, consisting
primarily of tenant improvements, fixtures and equipment,
net of amounts to be contributed by a mall owner, is $8.7
million. Management expects to complete these projects
during the second half of fiscal 1997, however, there can
be no assurance that the completion of such projects will
not be delayed subject to a variety of conditions
precedent or other factors. 

Inflation

     Although inflation has not been a material factor
to the Company's operations during the past several
years, the Company does experience some increases in the
cost of certain of its merchandise, salaries, employee
benefits and other general and administrative costs. The
Company is generally able to offset these increase by
adjusting its selling prices or modifying its operations.
The Company's ability to adjust selling prices is limited
by competitive pressures in its market areas.

     The Company accounts for its merchandise
inventories on the retail method using last-in, first-out
(LIFO) cost using the department store price indexes
published by the Bureau of Labor Statistics.  Under this
method, the cost of products sold reported in the
financial statements approximates current costs and thus
reduces the impact of inflation in reported income due to
increasing costs. 

Seasonality

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

     The following table sets forth unaudited quarterly
results of operations for fiscal 1996 and 1995 (in
thousands, except per share data). (See Note 10 to the
Consolidated Financial Statements.)  

<TABLE>
<CAPTION>

                                       1996                    
Quarter Ended          May 4    August 3    November 2   February 1

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

                                     1995                         
Quarter ended         April 29    July 29    October 28   February 3
 
Net sales             $77,934     $91,884     $86,066     $145,157
Gross profit           22,553      27,490      27,432       44,739
Income (loss) before
 income tax expense    
 (benefit)             (5,100)     (3,155)     (5,101)       4,745
Net income (loss)      (3,162)     (1,955)     (3,164)       2,642
Income (loss) per
 common share            (.30)       (.19)       (.30)         .25

</TABLE>


Recently Issued Accounting Standards

     In addition to the recently issued accounting
standards described in Note 1 to the Consolidated
Financial Statements, the Financial Accounting Standards
Board recently issued Statement of Accounting Standards
No. 128, "Earnings Per Share" which is effective for
financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 requires the disclosure
of basic and diluted earnings per share and changes the
method in which earnings per share is determined.
Adoption of this statement by the Company is not expected
to have a material impact on earnings per share.

Safe Harbor Statement

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

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


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

               Not applicable.


                  PART III

Item 10.       DIRECTORS AND EXECUTIVE OFFICERS OF
               THE COMPANY

     The information required by Item 10 of Form 10-K,
other than the following information required by
Paragraph (b) of Item 401 of Regulation S-K, is
incorporated by reference from the Company's definitive
proxy statement with respect to the Annual Stockholders'
Meeting scheduled to be held on June 26, 1997, to be
filed pursuant to Regulation 14A.

     The following table lists the executive officers
of the Company:

<TABLE>
<CAPTION>

Name                   Age(1)         Position
<S>                   <C>            <S>
Joseph W. Levy         65             Chairman and
                                      Chief Executive   
                                      Officer
                                    
James R. Famalette     44             President and  
                                      Chief Operating   
                                      Officer

Gary L. Gladding       57             Executive Vice  
                                      President/General 
                                      Merchandise  
                                      Manager

Alan A. Weinstein      52             Senior Vice  
                                      President and
                                      Chief Financial  
                                      Officer

Michael J. Schmidt     55             Senior Vice   
                                      President/
                                      Director of Stores
__________________________                              
       
</TABLE>

(1) As of March 31, 1997

     Joseph W. Levy became Chairman and Chief Executive
Officer of the Company's predecessor and former
subsidiary, E. Gottschalk & Co., Inc. ("E. Gottschalk")
in April 1982 and of the Company in March 1986. Mr. Levy
was Executive Vice President from 1972 to April 1982 and
first joined E. Gottschalk in 1956. He also serves on the
Board of Directors of the National Retail Federation, the
Executive Committee of Frederick Atkins, Inc, and the
Board of Directors of Air 21, a regional airline based in
Fresno, California, which filed for protection under
federal bankruptcy laws in January 1997 and is currently
being liquidated. Mr. Levy was formerly Chairman of the
California Transportation Commission, a former member of
the Board of Directors of Community Hospitals of Central
California, and has also served on numerous other state
and local commissions and public service agencies.
     
     James R. Famalette became the President and Chief
Operating Officer of the Company on April 14, 1997. Prior
to joining the Company, Mr. Famalette was President and
Chief Executive Officer of Liberty House, a department
and specialty store chain based in Honolulu, Hawaii, from
March 1993 through April 1997, and served in a variety of
other positions with Liberty House from 1987 through
1993, including Vice President, Stores and Vice
President, General Merchandise Manager.  From 1982
through 1987, he served as Vice President, General
Merchandise Manager and later President of Village
Fashions/Cameo Stores in Philadelphia, Pennsylvania, and
from 1975 to 1982 served as a Divisional Merchandise
Manager for Colonies, a specialty store chain, based in
Allentown, Pennsylvania. Mr. Famalette serves on the
Board of Directors of the National Retail Federation and
Frederick Atkins. 

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

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

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

Item 11.       EXECUTIVE COMPENSATION

     The information required by this item is
incorporated by reference from the Company's definitive
proxy statement with respect to the Annual Stockholders'
Meeting scheduled to be held on June 26, 1997, to be
filed pursuant to Regulation 14A.

Item 12.       SECURITY OWNERSHIP OF CERTAIN
               BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is
incorporated by reference from the Company's definitive
proxy statement with respect to the Annual Stockholders'
Meeting scheduled to be held on June 26, 1997, to be
filed pursuant to Regulation 14A.

Item 13.       CERTAIN RELATIONSHIPS AND RELATED
               TRANSACTIONS

     The information required by this item is
incorporated by reference from the Company's definitive
proxy statement with respect to the Annual Stockholders'
Meeting scheduled to be held on June 26, 1997, to be
filed pursuant to Regulation 14A.

                    PART IV

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

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

     Consolidated balance sheets -- February 1, 1997
     and February 3, 1996

     Consolidated statements of operations -- Fiscal
     years ended February 1, 1997, February 3, 1996
     and January 28, 1995

     Consolidated statements of stockholders' equity -- 
     Fiscal years ended February 1, 1997, February
     3, 1996 and January 28, 1995 

     Consolidated statements of cash flows -- Fiscal
     years ended February 1, 1997, February 3, 1996
     and January 28, 1995 

     Notes to consolidated financial statements --
     Three years ended February 1, 1997

     Independent auditors' report

(a)(2)         The following financial statement schedule of
               Gottschalks Inc. and Subsidiaries is included in
               Item 14(d):

     Schedule II -- Valuation and qualifying accounts

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

(a)(3)         The following exhibits are required by Item 601 of
               the Regulation S-K and Item 14(c):

Exhibit
  No.                    Description 

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

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

10.1           Agreement of Limited Partnership dated March 16,
               1990, by and between River Park Properties I and
               Gottschalks Inc. relating to the Company's
               corporate headquarters.(2)

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

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

10.4           Participation Agreement dated as of December 1,
               1988 among Gottschalks Inc., General Foods Credit
               Investors No. 2 Corporation and Manufacturers
               Hanover Trust Company of California relating to
               the sale-leaseback of the Stockton and
               Bakersfield Gottschalks department stores and the
               Madera distribution facility.(1)

10.5           Lease Agreement dated December 1, 1988 by and
               between Manufacturers Hanover Trust Company of
               California and Gottschalks Inc. relating to the
               sale-leaseback of department stores in Stockton
               and Bakersfield, California and the Madera
               distribution facility.(1)

10.6           Ground Lease dated December 1, 1988 by and
               between Gottschalks Inc., and Manufacturers
               Hanover Trust Company of California relating to
               the sale-leaseback of the Bakersfield department
               store.(1)

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

10.8           Ground Lease dated August 17, 1989 by and between
               Gottschalks Inc. and Manufacturers Hanover Trust
               Company of California relating to the sale-leaseback 
               of the Madera distribution facility.(1)

10.9           Lease Supplement dated as of August 17, 1989 by
               and between Manufacturers Hanover Trust Company
               of California and Gottschalks Inc. relating to
               the sale-leaseback of the Madera distribution
               facility.(1)

10.10          Tax Indemnification Agreement dated as of August
               1, 1989 by and between Gottschalks Inc. and
               General Foods Credit Investors No. 2 Corporation
               relating to the sale-leaseback of the Stockton
               and Bakersfield department stores and the Madera
               distribution facility.(1)

10.11          Lease Agreement dated as of March 16, 1990 by and
               between Gottschalks Inc. and River Park
               Properties I relating to the Company's corporate
               headquarters.(5)

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

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

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

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

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

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

10.18          Form of Severance Agreement dated March 31, 1995
               by and between Gottschalks Inc. and the following
               senior executives of the Company: Joseph W. Levy,
               Stephen J. Furst, Gary L. Gladding,  Michael J.
               Schmidt and Alan A. Weinstein.(4)(10)

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

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

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

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

10.23          Agreement of Sale dated June 27, 1995, by and
               between Gottschalks Inc. and Jack Baskin relating
               to the sale and leaseback of the Capitola,
               California property.(11)

10.24          Lease and Agreement dated June 27, 1995, by and
               between Jack Baskin and Gottschalks Inc. relating
               to the sale and leaseback of the Capitola,
               California property.(11)

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

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

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

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

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

10.30          Promissory Notes dated March 28, 1996 and
               September 11, 1996, by and between Gottschalks
               Inc. and Broadway Stores, Inc., a wholly-owned
               division of Federated Department Stores, Inc.(16)

10.31          Loan and Security Agreement dated December 29,
               1996, by and between Gottschalks Inc. and
               Congress Financial Corporation. (15)

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

21.            Subsidiaries of the Registrant.(10)

23.            Consent of Deloitte & Touche LLP.(15)

27.            Financial Data Schedule.(15)

_______________________

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

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

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

(4)  Management contract, compensatory plan or
     arrangement.

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

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

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

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

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

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

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

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

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

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

(15) Filed herein as an exhibit to this Annual Report
     on Form 10-K for the year ended February 1, 1997
     (File No. 1-09100).

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

     (b)       Reports on Form 8-K--The Company did
               not file any Reports on Form 8-K
               during the fourth quarter of fiscal
               1996.

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

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





          ANNUAL REPORT ON FORM 10-K

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

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY 
                         DATA

               CERTAIN EXHIBITS

         FINANCIAL STATEMENT SCHEDULE

          YEAR ENDED FEBRUARY 1, 1997

       GOTTSCHALKS INC. AND SUBSIDIARIES

              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 Subsidiaries as of
February 1, 1997 and February 3, 1996, and the related
consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the
period ended February 1, 1997. Our audits also included
the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial
statement schedule based on our audits.

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

In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Gottschalks Inc. and Subsidiaries as of
February 1, 1997 and February 3, 1996, and the results of
their operations and their cash flows for each of the
three years in the period ended February 1, 1997, in
conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule,
when considered in relation to the basic financial
statements taken as a whole, presents fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE LLP

\s\Deloitte & Touche LLP

Fresno, California
February 27, 1997 (March 13, 1997 as to the fourth
paragraph of  Note 3)

<TABLE>
<CAPTION>

GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)                                                   
                                                 February 1,   February 3,  
ASSETS                                              1997          1996     
                                                           
CURRENT ASSETS:
  <S>                                           <C>           <C>
  Cash                                          $  4,764      $  5,113
  Cash held by GCC Trust                           1,895         2,280  
  Receivables:
   Trade accounts, less allowances of
    $1,322 in 1996 and $1,262 in 1995 (Note 2)    22,689        27,467
   Vendor claims, less allowances of $80
    in 1996 and $90 in 1995                        2,818         5,776
                                                  25,507        33,243
  Merchandise inventories                         89,472        87,507
  Refundable income taxes (Note 5)                               1,437
  Other                                           12,593         9,478
       Total current assets                      134,231       139,058
         
PROPERTY AND EQUIPMENT (Note 4):
  Land and land improvements                      15,074        16,064
  Buildings and leasehold improvements            46,925        43,696
  Furniture, fixtures and equipment               57,648        53,443
  Buildings and equipment under capital leases     7,302        14,398
  Construction in progress                           309         1,948
                                                 127,258       129,549
  Less accumulated depreciation and 
   amortization                                   39,888        40,299
                                                  87,370        89,250
OTHER ASSETS:
  Goodwill, less accumulated amortization
   of $1,146 in 1996 and $1,030 in 1995            1,252         1,369
  Other                                           10,340         9,364
                                                  11,592        10,733
                                                $233,193      $239,041
</TABLE>


See notes to consolidated financial statements.

<TABLE>
<CAPTION>

GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)                                                  
                                                   February 1,  February 3, 
LIABILITIES AND STOCKHOLDERS' EQUITY                  1997         1996        
CURRENT LIABILITIES:
  <S>                                             <C>          <C>
  Revolving lines of credit (Note 3)               $ 13,904     $ 45,164
  Cash management liability                           1,504        5,096  
  Trade accounts payable                             19,906       22,298
  Accrued expenses                                   10,714       10,633
  Taxes, other than income taxes                      8,202        2,346
  Accrued payroll and related liabilities             5,208        5,112
  Current portion of 
   long-term obligations (Notes 3 and 4)              2,408        2,094
  Short-term obligation (paid 1996)                                2,743
  Deferred income taxes (Note 5)                      2,154          668
          Total current liabilities                  64,000       96,154
           
LONG-TERM OBLIGATIONS, less current portion
 (Notes 3 and 4):
  Line of credit                                     25,000
  Notes and mortgage loans payable                   29,861       25,654
  Capitalized lease obligations                       5,380        9,218
                                                     60,241       34,872
DEFERRED INCOME (Note 4)                             19,580       20,265 
DEFERRED LEASE PAYMENTS AND OTHER (Note 4)            6,369        5,902
DEFERRED INCOME TAXES (Note 5)                        2,864        3,931
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 9)
  
STOCKHOLDERS' EQUITY: 
  Preferred stock, par value of $.10 per share;
   2,000,000 shares authorized; none issued
  Common stock, par value of $.01 per share;
   30,000,000 shares authorized; 10,472,915 and
   10,416,520 issued
  Common stock                                          105          104
  Additional paid-in capital                         56,332       55,945
  Retained earnings                                  23,704       21,870
                                                     80,141       77,919
  Less common stock in treasury at cost, 
   338 shares                                            (2)          (2)
                                                     80,139       77,917
                                                   $233,193     $239,041

See notes to consolidated financial statements.  

</TABLE>

<TABLE>
<CAPTION>

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

                                              1996       1995       1994   
                                                               
<S>                                         <C>        <C>        <C>
Net sales                                   $422,159   $401,041   $363,603
Service charges and other income (Note 4)     13,285     11,663      9,659
                                             435,444    412,704    373,262
Costs and expenses:
  Cost of sales                              287,164    278,827    247,423
  Selling, general and
    administrative expenses
    (Notes 4, 6 and 7)                       126,591    123,100    103,571
  Depreciation and amortization                6,922      8,092      5,860
  Interest expense (Note 3)                   11,675     11,296     10,238
  Provision for unusual items (Note 8)                               3,833
                                             432,352    421,315    370,925
    
    Income (loss) before income tax 
      expense (benefit)                        3,092     (8,611)     2,337 

Income tax expense (benefit)(Note 5)           1,258     (2,972)       821

    Net income (loss)                       $  1,834   $ (5,639)  $  1,516

Net income (loss) per common share          $    .18   $   (.54)  $    .15
   
</TABLE>

See notes to consolidated financial statements.

<TABLE>
<CAPTION>

GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of dollars, except share data)                                  
                                     Additional      
                      Common Stock     Paid-In   Retained  Treasury
                      Shares  Amount   Capital   Earnings   Stock    Total
BALANCE, 
  <S>               <C>        <C>     <C>        <C>       <C>     <C>
  JANUARY 30, 1994  10,411,332 $104    $56,021    $25,993   $  0    $82,118
  Net income                                        1,516             1,516 
  Shares issued under
   stock option 
     plan              13,500               94                          94
  Shares purchased 
    and retired        (8,312)             (98)                        (98)
  Net compensation 
    expense related 
    to stock option 
    plan                                    24                          24
  Purchase of 43,976 
   shares of treasury 
    stock                                                   (303)     (303)
  Contribution of 21,976
    shares of treasury 
    stock to Retirement 
    Savings Plan                            71               155       226

BALANCE, 
  JANUARY 28, 1995 10,416,520    104    56,112    27,509    (148)   83,577
  Net loss                                        (5,639)           (5,639)
  Net compensation 
   benefit related 
   to stock option 
   plan                                   (170)                      (170)
  Purchase of 12,500 
   shares of treasury 
   stock                                                     (94)     (94)
  Contribution of 34,164
    shares of 
    treasury stock to 
    Retirement Savings Plan                  3               240      243

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

BALANCE,
  FEBRUARY 1, 1997 10,472,915   $105  $56,332  $23,704     $ (2)  $80,139 

</TABLE>




See notes to consolidated financial statements.             

<TABLE>
<CAPTION>

GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)                                        
                                              1996         1995         1994   
OPERATING ACTIVITIES:
 <S>                                       <C>          <C>           <C>
 Net income (loss)                         $  1,834     $ (5,639)     $ 1,516 
   Adjustments:
   Depreciation and amortization              6,922        8,096        5,849
   Deferred income taxes                        419       (1,296)         876 
   Deferred lease payments and other            467          870          734
   Deferred income                             (767)        (609)        (493)
   Net compensation (benefit) expense                  
    related to stock option plan                            (170)          24 
   Provision for credit losses                2,724        2,754        2,052
   LIFO benefit                                                        (3,202)
   Equity in the income of limited 
     partnership                               (133)         (64)        (160)
   Net (gain) loss from sale of assets                      (344)           7
   Net gain from termination of
     capital leases (Note 4)                 (1,344)   
   Loss on securitization and sale of 
     receivables                                 20                       305
   Litigation settlements (Notes 8 and 9)    (2,400)      (3,000)
   Lease incentive (Note 4)                                4,000
   Changes in operating assets and liabilities:            
      Receivables (excluding receivables 
        sold - Note 2)                         (988)      (5,261)      (6,952)
      Merchandise inventories                (1,370)      (6,215)     (16,384)
      Other current and long-term assets     (3,017)      (1,711)         (35)
      Other current and long-term 
       liabilities                            6,310      (10,210)      14,629
    Net cash provided by (used in) operating 
     activities                               8,677      (18,799)      (1,234)
     
INVESTING ACTIVITIES:
 Purchases of property and equipment,
   net of reimbursements received           (6,845)      (12,773)      (4,539)
 Proceeds from sale/leaseback arrangements
   and other property and equipment sales    2,026        11,606        1,881
 Distribution from limited partnership         112            86          153
    Net cash used in investing activities   (4,707)       (1,081)      (2,505)
   
FINANCING ACTIVITIES:
 Net (payments) borrowings under lines 
  of credit                                 (6,260)       27,320      (31,856)
 Proceeds from short-term and 
  long-term obligations                      3,878        23,993       12,650 
 Principal payments on short-term and
   long-term obligations                    (4,850)      (24,710)     (16,668)
 Proceeds from securitization and sale of
   receivables (Note 2)                      6,000                     40,000
 Changes in cash management liability       (3,472)       (4,757)       4,228
 Changes in cash held by GCC Trust             385            85       (2,365)
 Payments to acquire treasury stock                          (94)        (303) 
 Issuance of common stock pursuant to
   stock option plan                                                       94
 Shares purchased and retired                                             (98) 
    Net cash (used in) provided by financing 
      activities                           (4,319)        21,837        5,682   

INCREASE (DECREASE) IN CASH                  (349)         1,957        1,943
CASH AT BEGINNING OF YEAR                   5,113          3,156        1,213
CASH AT END OF YEAR                      $  4,764       $  5,113     $  3,156   

See notes to consolidated financial statements.
</TABLE>



GOTTSCHALKS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
          
1.   NATURE OF OPERATIONS AND SIGNIFICANT
     ACCOUNTING POLICIES 

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

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

     Consolidation - The accompanying financial
     statements include the accounts of Gottschalks
     Inc., its wholly-owned subsidiary, Gottschalks
     Credit Receivables Corporation ("GCRC"), and
     Gottschalks Credit Card Master Trust ("GCC   Trust") 
     (collectively, the "Company"). (See Note
     2.) 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
     1996, 1995 and 1994 ended on February 1, 1997,
     February 3, 1996 and January 28, 1995,
     respectively.  Fiscal years 1996 and 1994 each
     contained 52 weeks; fiscal year 1995 contained 53
     weeks. The Company's fiscal 1995 results of
     operations were not materially affected by
     results applicable to the 53rd week.

     Cash Held by GCC Trust - Cash held by GCC Trust
     relates to the receivable securitization program
     (Note 2) and includes $1,616,000 and $2,035,000
     at February 1, 1997 and February 3, 1996,
     respectively, designated under the prepayment
     option to reduce outstanding borrowings under the
     line of credit collateralized by the Variable
     Base Certificate subsequent to year end in each
     of those years. Cash held by GCC Trust also
     includes $279,000 and $245,000 at February 1,
     1997 and February 3, 1996, respectively, for the
     payment of monthly interest to the holders of the
     Fixed Base Certificates.

     Cash Management Liability - Under the Company's
     cash management program, checks issued by    the
     Company and not yet presented for payment
     frequently result   in overdraft balances for
     accounting purposes. Such amounts  represent
     interest-free, short-term borrowings to the
     Company.
     
     Receivables - Receivables, excluding receivables
     sold as of February 1, 1997 and February 3,
     1996, consist primarily of customer credit card
     receivables and represent the Company's retained
     interest in receivables sold in connection with
     the  receivables securitization program,
     receivables underlying the Variable Base
     Certificate and certain other receivables (Note
     2). Such amounts include revolving charge
     accounts with terms which, in some cases,
     provide for payments exceeding one year.     In
     accordance with usual industry practice such
     receivables are included in current assets.
     Service charge revenues associated with the
     Company's customer credit card receivables   were
     $10,493,000 in 1996, $10,937,000 in 1995 and
     $8,904,000 in 1994.

     The Company maintains reserves for possible
     credit losses based on the expected
     collectibility of all receivables, including
     receivables sold, and such losses have
     consistently been within management's
     expectations.

     Concentrations of Credit Risk -  The Company
     extends credit to individual customers based on
     their credit worthiness and generally requires no
     collateral from such customers. Concentrations of
     credit risk with respect to the Company's credit
     card receivables are limited due to the large
     number of customers comprising the Company's
     customer base.  

     Merchandise Inventories - Inventories, which
     consist of merchandise held for resale, are
     valued by the retail method and are stated at
     last-in, first-out (LIFO) cost, which is not in
     excess of market. Current cost, which
     approximates replacement cost, under the first-in, 
     first-out (FIFO) method was equal to the LIFO
     value of inventories at February 1, 1997 and
     February 3, 1996.

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

     Store Pre-Opening Costs - Store pre-opening costs
     represent certain expenditures incurred prior to
     the opening of new stores that are deferred and
     amortized generally on a straight-line basis not
     to exceed a twelve month period commencing with
     the store opening. Store pre-opening costs, net
     of accumulated amortization, of $136,000 at
     February 1, 1997 and $652,000 at February 3, 1996
     are included in other current assets. The
     amortization of new store pre-opening costs,
     totaling $1,337,000, $2,524,000 and $438,000 in
     1996, 1995 and 1994, respectively, is included in
     depreciation and amortization  in the
     accompanying statements of operations.

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

     The Company accounts for its investment in the
     limited partnership on the equity method of
     accounting.  As of February 1, 1997 and February
     3, 1996, the investment was $2,766,000 and
     $2,745,000, respectively, and prepaid rent, net
     of accumulated amortization, was $911,000 and
     $1,054,000, respectively. Such amounts are
     included in other long-term assets. The Company's
     equity in the income of the partnership, totaling
     $133,000 in 1996, $64,000 in 1995 and $160,000 in
     1994, is included in service charges and other
     income.  
     
     Goodwill - The excess of acquisition costs over
     the fair value of the net assets acquired is
     amortized on a straight-line  basis over 20 years.
     The Company periodically analyzes the   value of
     net assets acquired to determine whether any      
     impairment in the value of such assets has
     occurred. The primary indicators of
     recoverability used by the Company are  current or
     forecasted profitability of the related acquired
     assets as compared to their carrying values.

     Deferred Income - Deferred income consists
     primarily of donated land and cash incentives
     received to construct a new store and enter into
     a new lease arrangement. Land contributed to the
     Company is included in land and recorded at
     appraised fair market values.  Donated income is
     amortized to operations over the average
     depreciable life of the related fixed assets
     built on the land with respect to locations that
     are owned by the Company, and over the minimum
     lease periods of the related building leases with
     respect to locations that are leased by the
     Company, ranging from 10 to 70 years.  

     Leased Department Sales -  Net sales include
     leased department sales of $32,781,000,
     $29,766,000 and $25,985,000 in 1996, 1995 and
     1994, respectively. Cost of sales include related
     costs of $28,006,000, $25,494,000 and $22,326,000
     in 1996, 1995 and 1994, respectively.

     Income Taxes -  The Company accounts for income
     taxes under the provisions of Statement of
     Financial Accounting Standards ("SFAS") No. 109,
     "Accounting for Income Taxes."  SFAS No. 109      
     generally requires recognition of deferred tax
     assets and liabilities for the expected future
     tax consequences of events that have been
     included in the financial statements or tax  returns. 
     Under this method, deferred tax assets
     and  liabilities are determined based on the
     differences between the financial statement
     and tax basis of assets and liabilities and net
     operating loss and tax credit carryforwards,
     using enacted tax rates in effect when the differences 
     are expected to reverse. 

     Net Income (Loss) Per Common Share -  Net income
     (loss) per common share is computed based on the
     weighted average number of common shares and
     common stock equivalents outstanding (if
     dilutive) which were 10,461,424, 10,416,520 and
     10,413,339 in 1996, 1995 and 1994, respectively.
     The effect of common stock equivalents under the
     stock option plans were antidilutive in 1996,
     1995 and 1994, and therefore not included.

     Non-Cash Transactions -  The Company acquired
     fixtures and equipment under long-term debt
     obligations totaling $2,650,000 in 1996. In 1994,
     the Company entered into a capital lease
     obligation of $683,000 for leased equipment. The
     Company issued or contributed common stock to the
     Retirement Savings Plan with a value of $388,000,
     $243,000 and $226,000 in 1996, 1995 and 1994,
     respectively. 

     Fair Value of Financial Instruments -  Financial
     Accounting Standards No. 107, "Disclosures About
     Fair Value of Financial Instruments," requires
     disclosure of the estimated fair value of
     financial instruments. The carrying value of the
     Company's cash (including cash held by GCC Trust
     and cash management liability), receivables,
     trade payables and other accrued expenses,
     revolving lines of credit, short-term borrowings
     and stand-by letters of credit approximate their
     estimated fair values because of the short
     maturities or variable interest rates underlying
     those instruments.  The following methods and
     assumptions were used to estimate the fair value
     for each remaining class of financial
     instruments:
          
          Long-term Obligations - The fair values of
          the  Company's notes and mortgage loans payable
          are estimated using discounted cash flow
          analysis, based on the Company's current
          incremental borrowing rates for similar           
          types of borrowing arrangements. The aggregate 
          estimated fair values of such obligations with
          aggregate carrying values of $31,933,000 and
          $27,015,000 at February 1, 1997 and February 3,
          1996, respectively, is $32,024,000 and
          $28,186,000, respectively.
          
          Off-Balance Sheet Financial Instruments -
          The Company's off-balance sheet financial
          instruments consist primarily of the Fixed Base
          Certificates (Note 2). The aggregate estimated
          fair values of the Fixed Base Certificates, based
          on similar issues of certificates at current
          rates for the same remaining maturities, with
          aggregate face values of $46,000,000 and
          $40,000,000 at February 1, 1997 and February 3,
          1996, respectively, is $44,249,000 and $38,606,000, 
          respectively.

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

     Long-lived Assets - Statement of Financial
     Accounting Standard  No. 121, "Accounting for the
     Impairment of Long-lived Assets and for Long-lived 
     Assets to Be Disposed Of"  requires that
     long-lived assets and certain identifiable
     intangibles to be held and used or disposed of by
     an entity be reviewed for impairment whenever
     events or changes in circumstances indicate
     that the carrying amount of an asset may not be
     recoverable. During fiscal 1996, the Company
     adopted this statement and determined that no     
     impairment loss need be recognized for applicable
     assets. 

     Recently Issued Accounting Standards - Statement
     of Accounting Standards No. 125, "Accounting for
     Transfers and Servicing of Financial Assets and
     Extinguishments of Liabilities" is effective for
     transfers of financial assets, including those
     with continuing involvement by the transferor,    
     after December 31, 1996. In December 1996, SFAS
     No. 127 was issued and defers, for one year, the
     effective date of the implementation of SFAS No.
     125 for certain transactions.  Management does not
     believe the effect of adoption of these standards
     will be material.

     Reclassifications - Certain amounts in the
     accompanying 1995 and 1994 consolidated financial
     statements have been reclassified to conform with
     the 1996 presentation.

2.   SECURITIZATION AND SALE OF RECEIVABLES

     The Company automatically sells all of its
     accounts receivable arising under its private label
     customer credit cards to a wholly-owned subsidiary,
     Gottschalks Credit Receivables Corporation ("GCRC"), and
     certain of those receivables were subsequently conveyed
     to a trust, Gottschalks Credit Card Master Trust ("GCC
     Trust"), to be used as collateral for securities issued
     to investors. The Company services and administers the
     receivables in return for a monthly servicing fee. The
     followingsecurities have been issued under the
     securitization program: 

     Fixed Base Certificates.

     In 1994, fractional undivided ownership interests
     in certain of the receivables were sold through
     the issuance of $40,000,000 principal amount
     7.35% Fixed Base Class A-1 Credit Card
     Certificates (the "1994 Fixed Base Certificates")
     to third-party investors. On October 31, 1996, an
     additional $6,000,000 principal amount 6.79%
     Fixed Base Class A-1 Credit Card Certificate (the
     "1996 Fixed Base Certificate") was issued under
     the program. Proceeds from the issuance of the
     1996 Fixed Base Certificate were used to reduce
     outstanding borrowings under the line of credit
     with Bank Hapoalim (Note 3) and pay certain costs
     associated with the transaction. Interest on the
     1994 and 1996 Fixed Base Certificates
     (collectively the "Fixed Based Certificates") is
     earned by the certificate holders on a monthly
     basis and the outstanding principal balances of
     such certificates are to be repaid in equal
     monthly installments commencing September 15,
     1998 through September 15, 1999, through the
     application of the principal portion of credit    
     card collections during that period. The
     issuances of the Fixed Base Certificates have
     been accounted for as sales for financial
     reporting purposes. Accordingly, the $46,000,000
     of receivables underlying the Fixed Base
     Certificates in fiscal 1996 ($40,000,000 in
     fiscal 1995) and the corresponding debt
     obligations have been excluded from amounts
     reported in the accompanying financial
     statements.

     Variable Base Certificate.
     
     In 1994, GCC Trust also issued a Variable Base
     Class A-2 Credit Card Certificate ("Variable Base
     Certificate") in the principal amount of up to
     $15,000,000 to Bank Hapoalim. The Variable Base
     Certificate, representing a fractional undivided
     ownership interest in certain receivables held by
     GCC Trust, excluding receivables underlying the
     Fixed Base Certificates and GCRC's retained
     interest, was issued as collateral for a
     revolving line of credit financing arrangement
     with Bank Hapoalim (Note 3). The Variable Base
     Certificate contains a prepayment option which
     enables the Company, at any time within three
     days notice, to prepay the full amount, or a
     portion of outstanding borrowings under the line
     of credit collateralized by the Variable Base
     Certificate.  Accordingly, the issuance of the
     Variable Base Certificate was accounted for as a
     financing in the accompanying financial
     statements and the receivables underlying the
     Variable Base Certificate, totaling $9,048,000 at
     February 1, 1997 and $17,857,000 at February 3,
     1996, are included in receivables reported in the
     accompanying financial statements.
     
     Receivables reported in the accompanying
     financial statements also include GCRC's retained
     interest in receivables sold, represented by
     Subordinated and Exchangeable Certificates issued
     to GCRC by GCC Trust. The outstanding principal
     balances of such certificates totaled $11,824,000
     at February 1, 1997 and $8,035,000 at February
     3,1996. Receivables also include accrued finance
     charges on all receivables, including receivables
     sold, and receivables that did not meet certain
     eligibility requirements of the program, totaling
     $3,139,000 at February 1, 1997 and $2,837,000 at
     February 3, 1996. In addition to the Fixed and
     Variable Base Certificates, GCRC may, upon the
     satisfaction of certain conditions, offer    
     additional series of certificates to be issued by
     GCC Trust.  Management is not contemplating any
     such issuance in fiscal 1997.  

     Under the program, the Company is required, among
     other things, to maintain certain portfolio
     performance standards which include the
     maintenance of a minimum portfolio yield, maximum
     levels of delinquencies and write-offs of
     customer credit card receivables and minimum
     levels of credit card collection rates. The
     Company was in compliance with all applicable
     requirements of the program at February 1, 1997.  

3.   DEBT OBLIGATIONS:
     
     Revolving Lines of Credit.
     On December 20, 1996, the Company entered into a
     new three-and-one-quarter year revolving line of
     credit arrangement with Congress Financial
     Corporation ("Congress"). The new line of credit
     with Congress replaced the Company's former line
     of credit agreement with Fleet Capital
     Corporation and provides the Company with an
     $80,000,000 working capital facility through
     March 30, 2000. Borrowings under the arrangement
     are limited to a restrictive borrowing base equal
     to 65% of eligible merchandise inventories,
     increasing to 70% of such inventories during the
     period of September 1 through December 20 of each
     year to fund increased seasonal inventory
     requirements. Interest under the facility is
     charged at a rate of approximately LIBOR plus
     2.5% (8.28% at February 1, 1997).  Under the
     agreement, the Company also has the potential of
     reducing the interest rate by 1/4% each year, up
     to a maximum possible reduction of 1/2% beginning
     in fiscal 1998, if specified pre-tax income
     levels are attained by the Company. The maximum
     amount available for borrowings under the line of
     credit was $51,900,000 as of February 1, 1997, of
     which $31,304,000 was outstanding as of that
     date. Of that amount, $25,000,000 has been
     classified as long-term in the accompanying
     financial statements as the Company does not
     anticipate repaying that amount prior to one year
     from the balance sheet date. The agreement
     contains one financial covenant, pertaining to
     the maintenance of a minimum tangible net worth,
     with which the Company was in compliance as of
     February 1, 1997.
     
     The Company also has a revolving line of credit
     arrangement with Bank Hapoalim (Note 2) which
     provides for additional borrowings of up to
     $15,000,000 through March 30, 1999. Borrowings
     are limited to a percentage of the outstanding
     principal balance of receivables underlying the
     Variable Base Certificate and therefore, the
     Company's borrowing capacity  under the line of
     credit with Bank Hapoalim is subject to seasonal
     variations that may affect the outstanding
     principal balance of such receivables. Interest
     on outstanding borrowings on the line of credit
     is charged at a rate of LIBOR plus 1.0%, not to
     exceed a maximum of 12.0% (6.44% at February 1,
     1997). At February 1, 1997, $7,600,000 was
     outstanding under the line of credit with Bank
     Hapoalim, which was the maximum amount available
     for borrowings as of that date.


<TABLE>
<CAPTION>

     Short-Term and Long-Term Obligations. 

     Notes and mortgage loans payable consist of the
     following:

                                            February 1, February 3,
    (In thousands of dollars)                  1997        1996  
     Mortgage loans payable to financial
       institution, payable in monthly
       principal installments of $173
       including interest at 9.23% and
       9.39%, principal due and
       payable October 1, 2010 and
       November 1, 2010; collateralized
       by certain real property, assets
       <S>                                    <C>        <C>
       and certain property and equipment     $19,738    $19,953               

     Mortgage loan payable to financial
       institution, payable in monthly
       principal installments of $79 plus
       interest at 10.45%, principal due
       and payable January 1, 2002;
       collateralized by certain real
       property, assets and certain property
       and equipment                            4,750     5,700

     Mortgage loan payable to financial
       institution (see terms below)            3,000

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

     Fixture loans and other                    2,094     1,362
                                               31,933    27,015
     Less current portion                       2,072     1,361
                                              $29,861   $25,654

</TABLE>


     The mortgage loan payable to financial
     institution with an outstanding balance of
     $3,000,000 at February 1, 1997 consists of
     amounts advanced to the Company under a seven-year 
     financing arrangement with Heller Financial,
     Inc. ("Heller") entered into on October 2, 1996,
     providing for the mortgage of its department
     store in San Luis Obispo, California. The Company
     received $3,000,000 of the total $6,000,000
     arrangement in October 1996, and received the
     remaining $3,000,000 in March 1997. Interest was
     charged on the first $3,000,000 received at a
     variable rate equal to LIBOR plus 3.0% (8.44% at
     February 1, 1997) during the period of October
     1996 through March 1997, and will be charged at a
     fixed rate of 9.97% on the entire $6,000,000
     beginning in April 1997.

     Federated Department Stores, Inc. financed the
     Company's acquisition of certain fixtures and
     equipment located in the Broadway store locations
     that were assumed by the Company during fiscal
     1996. (See Note 4).

     The scheduled annual principal maturities on
     notes payable and mortgage loans are $2,072,000,
     $2,249,000, $2,381,000, $2,476,000 and $2,105,000
     for 1997 through 2001, respectively.
 
     Debt issuance costs related to the Company's
     various financing arrangements are included in
     other current and long-term assets and are
     deferred and charged to operations as additional
     interest expense on a straight-line basis over
     the life of the related indebtedness. Deferred
     debt issuance costs, net of accumulated
     amortization, amounted to $2,260,000 at February
     1, 1997 and $1,995,000 at February 3, 1996.

     Interest paid, net of amounts capitalized, was
     $11,059,000, $10,927,000 and $8,608,000 in 1996,
     1995 and 1994, respectively. Capitalized interest
     expense was $37,000, $278,000 and $68,000 in
     1996, 1995 and 1994, respectively. The weighted-average 
     interest rate charged on the Company's
     various revolving line of credit arrangements was
     8.62% in 1996, 8.75% in 1995 and 7.13% in 1994.
     
     One of the Company's long-term financing
     arrangements includes various restrictive
     covenants. The Company was in compliance with
     such covenants as of February 1, 1997.  

4.   LEASES

     The Company leases certain retail department
     stores under capital leases that expire in
     various years through 2020.  The Company also
     leases certain retail department stores,
     specialty stores, land, furniture, fixtures and
     equipment under noncancellable operating leases
     that expire in various years through 2021.
     Certain of the leases provide for the payment of
     additional contingent rentals based on a
     percentage of sales in excess of specified
     minimum levels, require the payment of property
     taxes, insurance and maintenance costs and have
     renewal options for one or more periods ranging
     from five to twenty years.

     Certain of the Company's operating leases also
     provide for rent abatements and scheduled rent
     increases during the lease terms. The Company
     recognizes rental expense for such leases on a
     straight-line basis over the lease term and
     records the difference between expense charged to
     operations and amounts payable under the leases
     as deferred lease payments.  Deferred lease
     payments totaled $6,157,000 at February 1, 1997
     and $5,584,000 at February 3, 1996.

     Future minimum lease payments, by year and in the
     aggregate, under capital leases and
     noncancellable operating leases with initial or
     remaining terms of one year or more consist of
     the following at February 1, 1997:

<TABLE>
<CAPTION>
                                               
                                 Capital           Operating 
 (In thousands of dollars)        Leases            Leases   
         <C>                     <C>               <C>
         1997                    $   922           $ 15,930
         1998                        752             15,176
         1999                        752             15,618
         2000                        752             13,527
         2001                        752             12,969
         Thereafter                7,646            131,442
         Total minimum           
           lease payments         11,576           $204,662
         Amount representing                
           interest               (5,860)
         Present value of 
           minimum lease 
           payments                5,716      
         Less current portion       (336)
                                 $ 5,380     
 
</TABLE>

<TABLE>
<CAPTION>


    Rental expense consists of the following:

     (In thousands of dollars)      1996         1995       1994  
     Operating leases:
       Buildings:
         <S>                      <C>         <C>         <C>
         Minimum rentals          $11,897     $ 9,796     $ 7,804           
         Contingent rentals         2,166       1,969       1,142         
        Fixtures and equipment      5,439       4,679       3,177 
                                   19,502      16,444      12,123         
        Contingent rentals on 
         capital leases                47         346         605
                                  $19,549     $16,790     $12,728    
</TABLE>


     One of the Company's lease agreements contains a
     restrictive covenant pertaining to the debt to
     tangible net worth ratio with which the Company
     was in compliance at February 1, 1997.

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

     Lease Incentive. 

     The Company received $4,000,000 in 1995 as an
     incentive to enter into a lease in connection
     with one of the fiscal 1995 new store openings.
     The lease provides that in the event gross sales
     at that location are below a minimum specified
     amount as of the end of the fifth year of the
     lease, either the Company or the lessor may elect
     to terminate the lease at that time. In the event
     the lease is terminated at that time by either
     party, the Company would be required to repay the
     $4,000,000 to the lessor. The $4,000,000 received
     has been deferred for financial reporting
     purposes and is being amortized into operations
     over the ten-year minimum lease period. At
     February 1, 1997, the deferred lease incentive,
     net of accumulated  amortization, amounted to
     $3,731,000. Management believes the likelihood
     the lease will be terminated by either party
     after the fifth year of the lease is remote.
     
     Sale and Leaseback Arrangement.         
     
          In 1995, the Company sold the land,
     building and leasehold improvements comprising
     its department store in Capitola, California and
     subsequently leased the department store back
     under a twenty-year lease with four five-year     
     renewal options. The lease has been accounted for
     as an operating lease for financial reporting
     purposes. The $11,600,000 proceeds received from
     the sale were used to reduce previously
     outstanding borrowings and the gain associated
     with the sale, totaling $508,000, has been deferred 
     for financial reporting purposes and is
     being amortized on a straight-line basis over the
     twenty-year lease term. 

5.   INCOME TAXES

<TABLE>
<CAPTION>

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

    (In thousands of dollars)      1996        1995        1994  
     Current:
        <S>                       <C>        <C>         <C>
        Federal                   $  375     $(1,678)    $  (19)
        State                        464           2        (36)
                                     839      (1,676)       (55)
     Deferred:
        Federal                      704        (857)       555
        State                       (285)       (439)       321
                                     419      (1,296)       876
                                  $1,258     $(2,972)    $  821
</TABLE>

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

<TABLE>
<CAPTION>
                           
                                      February 1,              February 3, 
                                         1997                    1996         
                                 Deferred   Deferred     Deferred   Deferred
                                   Tax        Tax           Tax        Tax
                                 Assets   Liabilities    Assets   Liabilities 
        Current:
        Accrued litigation
          <S>                   <C>        <C>           <C>       <C>
          costs                 $    75                  $ 1,461            
        Vacation accrual and
          employee vacation
            benefits                467                      588
        Credit losses               566                      546
        Accrued employee 
          benefits                  257                      260 
        State income taxes          124                      174     
        LIFO inventory reserve             $ (2,841)               $ (2,548)
        Workers' compensation        17                      235             
        Supplies inventory                     (951)                 (1,044)
        Other items, net            800        (668)         562       (902) 
                                  2,306      (4,460)       3,826     (4,494) 
        Long-Term:
        Net operating loss
          carryforwards           4,674                    4,327
        General business
          credits                 1,985                    1,768
        Alternative minimum
          tax                       510                      597
        Depreciation expense                 (8,143)                 (8,074)
        Accounting for leases       915      (3,433)         811     (3,481)
        Deferred income           1,988      (1,746)       2,122     (1,550)
        Installment sales                                              (186)
        Other items, net            697        (311)         726       (991) 
                                 10,769     (13,633)      10,351    (14,282) 
                                $13,075    $(18,093)     $14,177   $(18,776)  

</TABLE>

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

<TABLE>
<CAPTION>
                                 1996         1995        1994  
     <S>                         <C>         <C>          <C>
     Statutory rate              35.0%       (35.0)%      35.0%
     State income taxes,
      net of federal income
      tax benefit                 5.7         (2.7)        7.3  
     Adjustments to previously
      filed amended returns                                7.3
     Amortization of goodwill     1.3           .5         1.7
     Targeted jobs tax credit                   .5       (12.5)
     Nondeductible penalties                    .3
     Other items, net            (1.3)         1.9        (3.7)
     Effective rate              40.7%       (34.5)%      35.1%
</TABLE>

   
     The Company received income tax refunds, net of
     payments, of $3,399,000 in 1996 and $1,522,000 in
     1995. There were no income tax refunds receivable
     at February 1, 1997. Income tax refunds
     receivable were $1,437,000 at February 3, 1996.
     At February 1, 1997, the Company has, for federal
     tax purposes, net operating loss carryforwards of
     $11,135,000 which expire in the years 2010 and
     2011, general business credits of $897,000 which
     expire in the years 2007 through 2010, and
     alternative minimum tax credits of $510,000 which
     may be used for an indefinite period. At February
     1, 1997, the Company has, for state tax purposes,
     net operating loss carryforwards of $10,048,000
     which expire in the years 1997 through 2001,
     enterprise zone credits of $948,000 which expire
     in the years 2004 through 2011, and alternative
     minimum tax credits of $140,000 which may be used
     for an indefinite period. These carryforwards are
     available to offset future taxable income and are
     expected to be fully utilized.

6.   STOCK OPTION PLANS

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

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

     The 1986 Employee Nonqualified Stock Option Plan
     (the "1986 Nonqualified Plan") provided for the
     grant of options to purchase up to 510,000 shares
     of the Company's common stock to certain officers
     and key employees of the Company. Options granted
     under this plan generally become exercisable at a
     rate of 25% per year beginning on or one year
     after the grant date. The options are exercisable
     on a cumulative basis and expire no later than
     four or five years from the date of grant. The
     Company recognized compensation (benefit) expense
     related to this plan of ($170,000) in 1995 and
     $24,000 in 1994. No compensation expense related
     to this plan was required to be recognized in
     1996. The benefit resulted from the reversal of
     previously recognized compensation expense upon
     the forfeiture or expiration of unexercised
     options.

     The 1994 Plans:

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

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

     Option activity under the plans is as follows:
<TABLE>
<CAPTION>
                                                               Weighted-
                                                                Average
                                               Number of       Exercise
                                                Shares           Price 

<S>                                             <C>              <C>
Outstanding, January 29, 1994                   230,246          $12.00
 Granted                                        449,000            9.94
 Exercised                                      (13,500)           7.00
 Canceled                                       (22,000)           9.95

Outstanding, January 28, 1995
 (179,746 exercisable at a weighted-
   average price of $12.81)                     643,746           10.74
 Granted (weighted-average fair value
   of $4.25)                                     28,000            6.63
 Canceled                                      (191,746)          12.63

Outstanding, February 3, 1996
 (133,000 exercisable at a weighted-
   average price of $9.93)                      480,000            9.74
 Granted (weighted-average fair value
   of $3.69)                                     45,000            5.75
 Canceled                                       (34,000)           9.88

Outstanding, February 1, 1997
 (236,000 exercisable at a weighted-
 average price of $9.84)                        491,000          $ 9.37    

</TABLE>

<TABLE>
<CAPTION>

    Additional information regarding options
    outstanding as of February 1, 1997 is as follows:

                         Options Outstanding             Options Exercisable
                            Weighted-Avg.
                             Remaining
   Range of       Number    Contractual   Weighted-Avg.     Number    Exercise
Exercise Prices Outstanding  Life (yrs.)  Exercise Price  Exercisable   Price
                                  
<C>      <C>      <C>          <C>            <C>           <C>         <C>
$5.75 to $10.87   491,000      7.1 yrs.       $9.37         236,000     $9.84 

</TABLE>

    At February 1, 1997, 49,000 and 30,000 shares were
    available for future grants under the 1994 ISO Plan and
    the 1994 Director Nonqualified Plan, respectively.

     Additional Stock Plan Information. 

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

     Statement of Financial Accounting Standards No.
     123 "Accounting for Stock-Based Compensation,"
     requires the disclosure of pro-forma net income
     (loss) and earnings (loss) per share had the
     Company adopted the fair value method as of the
     beginning of fiscal 1995.  Under SFAS 123, the
     fair value of stock-based awards to employees is
     calculated through the use of option pricing
     models, even though such models were developed to
     estimate the fair value of freely tradable, fully
     transferable options without vesting
     restrictions, which significantly differ from the
     Company's stock option awards.  These models also
     require subjective assumptions, including future
     stock price volatility and expected time to
     exercise, which greatly affect the calculated
     values.  The Company's calculations were made
     using the Black-Scholes option pricing model with
     the following weighted-average assumptions: 
     expected life, 5 years; stock volatility, 41.85%
     in 1996 and 1995; risk-free interest rates, 6.30%
     in 1996 and 1995; and no dividends during the
     expected term. The Company's calculations are
     based on a multiple option valuation approach and
     forfeitures are recognized as they occur. The
     impact on pro-forma net income (loss) and
     earnings (loss) per share, had the computed fair
     values of the 1996 and 1995 awards been amortized
     to expense over the vesting period of the awards,
     was insignificant in 1996 and 1995. The impact of
     outstanding non-vested stock options granted
     prior to 1995 has been excluded from the pro-forma 
     calculation; accordingly, the 1996 and 1995
     pro-forma adjustments are not indicative of
     future period pro-forma adjustments, when the
     calculation will apply to all applicable stock
     options. 

7.   EMPLOYEE BENEFIT PLANS

     The Company has a Retirement Savings Plan
     ("Plan") which qualifies as an employee
     retirement plan under Section 401(k) of the
     Internal Revenue Code. Full-time employees
     meeting certain requirements are eligible to
     participate in the Plan.  Under the Plan,
     employees may currently elect to have up to 15%
     of their annual eligible compensation, subject to
     certain limitations, deferred and deposited with
     a qualified trustee. The Company, at the
     discretion of the Board of Directors, may elect
     to make an annual discretionary contribution to
     the Plan of up to 2% of each participant's annual
     eligible compensation, subject to certain
     limitations. Participants are immediately vested
     in their voluntary contributions to the Plan and
     are 100% vested (25% per year) in the Company's
     matching contribution to the Plan after four
     years of continuous service. The Company
     recognized $275,000, $500,000 and $250,000 in
     expense representing the Company's annual
     discretionary contribution to the Plan in 1996,
     1995 and 1994, respectively.

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

8.   PROVISION FOR UNUSUAL ITEMS

     The provision for unusual items included in the
     Company's 1994 statement of operations, totaling
     $3,833,000, represents the cost to settle three
     civil stockholder lawsuits and related legal fees
     and other costs. Pursuant to the terms of the
     settlement agreement, the Company funded
     $3,000,000 into an irrevocable trust on February
     1, 1995, and such amount is included in the
     Company's 1995 statement of cash flows.
     
9.   COMMITMENTS AND CONTINGENCIES 
     
     The Company was party to a lawsuit filed in 1992
     by F&N Acquisition Corporation ("F&N") under
     which, among other things, F&N originally claimed
     damages arising out of the Company's alleged
     breach of an oral agreement to purchase an
     assignment of a lease of a former Frederick and
     Nelson store location in Spokane, Washington. The
     Company was also party to a related lawsuit filed
     by Sabey Corporation ("Sabey"), the owner of the
     mall in which the Frederick and Nelson store was
     located. On July 16, 1996, the Company reached
     agreements with F&N and Sabey to settle the
     lawsuits. The combined total of the settlements
     (paid in July 1996), including legal fees and
     other costs, were not materially different from
     the Company's previously recorded reserves.

     In addition to the matters described above, the
     Company is     party to legal proceedings and claims
     which arise during the ordinary course of
     business. In the opinion of management, the  
     ultimate outcome of such litigation and claims
     will not have a material adverse effect on the
     Company's financial position  or results of its
     operations.
     
     The Company arranges for the issuance of letters
     of credit in the    ordinary course of business
     pursuant to certain factor    and vendor contracts.
     As of February 1, 1997, the Company had outstanding 
     letters of credit amounting to
     $2,000,000. Management believes the likelihood of
     non-performance under such contracts is remote.

     The Company has entered into agreements to open
     two new department stores in fiscal 1997 and is
     in process of remodeling one existing store
     location. These projects are expected to be fully
     complete in fiscal 1997. The estimated cost to
     complete such projects is $8,700,000.

10.  QUARTERLY RESULTS OF OPERATIONS
     (UNAUDITED)

     The following is a summary of the unaudited
     quarterly results of operations for 1996 and 1995
     (in thousands, except per share data):

<TABLE>
<CAPTION>


                                         1996                        
Quarter Ended           May 4     August 3  November 2  February 1

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


                                          1995                        
Quarter Ended            April 29   July 29  October 28  February 3

     Net sales         $77,934    $91,884   $86,066     $145,157
     Gross profit       22,553     27,490    27,432       44,739
     Income (loss) 
       before income 
       tax expense 
       (benefit)        (5,100)    (3,155)   (5,101)       4,745
     Net income (loss)  (3,162)    (1,955)   (3,164)       2,642 
     Net income (loss) 
       per common share   (.30)      (.19)     (.30)         .25
</TABLE>

     The Company's quarterly results of operations for
     the three month periods ended February 1, 1997
     and February 3, 1996 include adjustments to the
     inventory shrinkage reserve resulting in an
     increase to the gross margin of $795,000 and
     $634,000, respectively.

<TABLE>
<CAPTION>
     
                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                                                 
                          GOTTSCHALKS INC. AND SUBSIDIARIES



________________________________________________________________________

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

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

 Year ended February 1, 1997:
  Deducted from asset
  accounts:
  Allowance for 
    doubtful
    <S>         <C>         <C>                        <C>          <C>
    accounts... $1,261,983  $2,730,502 (1)             2,670,378(2) $1,322,107
  Allowance for 
    vendor claims 
    receivable. $   90,000  $  (10,000)(4)                          $   80,000
  Allowance for 
    notes
    receivable. $  282,767  $ (282,767)(5)                          $         
   
Year ended February 3, 1996:
  Deducted from asset
  accounts:
  Allowance for 
    doubtful
    accounts... $1,297,231  $2,462,504 (1)           $2,497,752(2) $1,261,983
  Allowance for 
    vendor
    claims 
    receivable. $   98,000  $  (80,000)(4)                         $   90,000
  Allowance for 
    notes
    receivable..$  150,000  $  132,767 (3)                         $  282,767
   
 Year ended January 28, 1995:
  Deducted from asset
  accounts:
  Allowance for 
    doubtful
    accounts... $1,248,421  $2,054,562 (1)          $2,005,752(2) $1,297,231
  Allowance for 
    vendor
    claims 
    receivable.. $  300,000 $ (202,000)(4)                        $   98,000
  Allowance for 
    notes
    receivable...$   50,000    100,000 (3)                        $  150,000

</TABLE>
  
Notes:

(1)  Provision for loss on credit sales.
(2)  Uncollectible accounts written off, net of 
     recoveries.
(3)  Provision for uncollectible portion of note 
     receivable.
(4)  Reduction in provision for uncollectible vendor 
     claims receivable.
(5)  Reversal of uncollectible portion of note 
     receivable recorded in connection with             
     transferring related asset to a held for sale 
     classification during the year ended February 1, 
     1997.      


                  SIGNATURES


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

Dated: April 14, 1997                   GOTTSCHALKS INC.


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


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

       Signature                Title                    Date

                          Chairman and Chief
                          Executive Officer
                          (principal executive
\s\ Joseph W. Levy        officer)                    April 14, 1997
Joseph W. Levy


                          Vice Chairman of
\s\ Gerald H. Blum        the Board                   April 14, 1997
Gerald H. Blum            

                          Senior Vice President
                          and Chief Financial
\s\ Alan A. Weinstein     Officer (principal          April 14, 1997
Alan A. Weinstein         financial and
                          accounting officer)                       


\s\ O. James Woodward III Director                    April 14, 1997
  O. James Woodward III



\s\ Bret W. Levy          Director                    April 14, 1997
Bret W. Levy



\s\ Sharon Levy           Director                    April 14, 1997
Sharon Levy



\s\ Joseph J. Penbera     Director                    April 14, 1997
Joseph J. Penbera



\s\ Fred Ruiz             Director                    April 14, 1997
Fred Ruiz



\s\ Max Gutmann           Director                    April 14, 1997
Max Gutmann