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

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FORM 10-K

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

For the fiscal year ended January 29, 2005

OR





FOR THE TRANSITION PERIOD FROM ___________ TO  _____________

Commission file number 1-09100



Gottschalks Inc.



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

7 River Park Place EastFresno, California      93720

(559) 434-4800

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



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

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



Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesxNooIndicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.xIndicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).  YesoNoxThe aggregate market value of the
voting stock held by non-affiliates of the Registrant as of July 31, 2004:
Common Stock, $.01 par value: $61,239,760.

On March 31, 2005, the Registrant had outstanding 13,093,269 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 23, 2005, which will be filed pursuant to Regulation 14A, are
incorporated by reference into Part III of this Form 10-K.





Gottschalks  Inc.
                        2004 ANNUAL REPORT ON FORM 10-K
                               INDEX

Part I.

PageItem 1.
Business1Item 2.
Properties15Item 3.
Legal Proceedings16Item 4.
Submission of Matters to a Vote of Security Holders17Part II.Item 5.
Market for the Registrant's Common Stock and Related Stockholder Matters17Item 6.
Selected Financial Data18Item 7.
Management's Discussion and Analysis of Results of Operations and Financial Condition22Item 7a.
Quantitative and Qualitative Disclosures About Market Risks43Item 8.
Financial Statements and Supplementary Data43Item 9.
Changes in and Disagreements with Accountants on Auditing and Financial Disclosures43Item 9A.
Controls and Procedures43Part III.Item 10.
Directors and Executive Officers of the Registrant43Item 11.
Executive Compensation45Item 12.
Security Ownership of Certain Beneficial Owners and Management45Item 13.
Certain Relationships and Related Transactions45Item 14.
Principal Accounting Fees and Services45Part IV.Item 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K46Signatures
83PART I
Item 1. BUSINESS
GENERAL
Gottschalks Inc. (the "Company") is a regional department and
specialty store chain based in Fresno, California. As of January 29, 2005, the Company operated 63
full-line "Gottschalks" department  stores located in 6 Western states, with 39 stores
located in California, 12 in Washington, 6 in Alaska, and 2 in each of Oregon, Nevada and Idaho. The
Company also operates 6 "Village East" and "Gottschalks" specialty stores which
carry a limited selection of merchandise. The Company is incorporated in the state of Delaware.

The Company's department stores typically offer a wide range of better to
moderate brand-name and private-label merchandise, including mens, womens, juniors and childrens
apparel; cosmetics, shoes, fine jewelry and accessories; and home furnishings including china,
housewares, domestics, small electric appliances and, in selected locations, furniture and
mattresses. The majority of the Company's department stores range from 40,000 to 150,000 in gross
square feet, and are generally anchor tenants of regional shopping malls or strategically located
strip centers.

The Company has operated continuously for 100 years since it was founded by Emil
Gottschalk in 1904. At the time the Company initially offered its stock to the public in 1986, the
Company operated 10 department stores. Since then, a net total of 53 department stores have been
added.  Twenty-six stores were added through acquisitions.

Gottschalks Inc. dissolved its wholly-owned subsidiary, Gottschalks Credit
Receivables Corporation ("GCRC"), on July 30, 2003. This subsidiary was formed in 1994 in
connection with a receivables securitization program.  As more fully described in Note 2 to the
Consolidated Financial Statements, on January 31, 2003 the Company sold its credit card accounts and
accounts receivable to Household Bank (SB), N.A., which has subsequently been acquired by HSBC Group
("HSBC").
OPERATING STRATEGY

Merchandising Strategy

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

The Company has also directed considerable effort towards improving the quality
and increasing the penetration of private-label merchandise in its overall merchandise mix. The
Company's most well recognized private-label is "Shaver Lake," currently carried in the
womens, mens and childrens departments, as well as in certain departments in the home division. The
"Shaver Lake" brand is exclusively offered in Gottschalks stores, and provides an
opportunity to increase Gottschalks' brand acceptance and promote competitive differentiation. The
Company plans to expand its private label offerings in mens and womens casual clothing in 2005
through additional brand names such as Methode.

The Company purchases merchandise from numerous suppliers. In no instance did
purchases from any single vendor amount to more than 5.0% of the Company's net purchases in fiscal
2004. The Company's merchandising activities are conducted centrally from its corporate offices in
Fresno, California.

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

Fiscal Years
                        -------------------------------------------
                         2004     2003     2002     2001     2000
                        -------  -------  -------  -------  -------
Women's Apparel........   28.6 %   28.1 %   29.0 %   29.3 %   28.0 %
Cosmetics, Shoes
  & Accessories........   25.3     24.3     23.6     22.5     22.5
Home...................   18.9     20.1     20.4     20.1     20.8
Men's Apparel..........   12.8     13.3     13.0     13.8     14.0
Junior's and
 Children's Apparel....   10.8     10.6     10.5     10.5     10.7
Leased Departments.....    3.6      3.6      3.5      3.8      4.0
                        -------  -------  -------  -------  -------
  Total Sales..........  100.0 %  100.0 %  100.0 %  100.0 %  100.0 %
                        =======  =======  =======  =======  =======

Store Locations

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

The Company's department stores are generally anchor tenants of regional shopping
malls or strategically located strip centers. Other anchor tenants in the malls or strip centers
generally complement the Company's goods with a mixture of competing and non-competing merchandise
and serve to increase customer foot traffic. With new enclosed, regional shopping mall construction
on the decline, the Company's strategy is to open stores in smaller and more diverse locations that
may not be served by its larger competitors that adopt a more standardized approach to expansion and
"Lifestyle Centers" that feature a variety of retailers, upscale restaurants and typically
a major, multi-screen movie theatre.

The Company currently has 2 new stores opening in 2005.   On April 15, 2005 the
Company opened a 43,260 square foot store in the Heritage Mall in Albany, Oregon. This will
represent the third store the Company operates in the State of Oregon.  In early August 2005 the
Company plans to open a 100,000 square foot 2 level store in a Lifestyle Center located in a high growth
area in the northern part of Fresno, CA. This store is being developed as a new prototype for the
Company that will feature a balanced merchandise presentation that will focus on the 35 to 45 year
old customer, as well as, appealing to the traditional 55 year old customer base. Future new store
openings will focus on sites that will serve to "fill in" geographical areas between
existing stores. Management believes this strategy will improve the Company's ability to leverage
advertising, transportation and other operating costs more effectively. In addition to opening
individual store locations, the Company may also pursue additional selective strategic acquisitions
as stores may become available as a result of competitor consolidations.

The Company has continued to invest in the renovation and refixturing of its
existing store locations in an attempt to maintain and improve market share in those market areas.
In fiscal 2002 and 2003, the Company reduced its expenditures for renovation and refixturing
primarily because of liquidity concerns. However, the Company increased such capital expenditures in
fiscal 2004 and will  initiate further remodel activity at a number of store locations in fiscal
2005.

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

Additionally, in April 2005 the Company closed a 36,000 square foot store in Fig
Garden Village in Fresno, CA, the impact of which will be more than offset by the August 2005
opening of the 100,000 square foot store in northern Fresno, CA.

During 2004, the Company closed 5 specialty stores and integrated their
merchandise into the nearby Gottschalks stores in the malls where they reside.

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

Fiscal Years
                           ----------------------------- --- ------------------
                            2004       2003       2002        2001       2000
                           -------    -------    -------     -------    -------
Stores open at year-end:
--------------------------
Department stores.........     63         63  (1)    69  (1)     73 (1)     79 (2)
Specialty stores (3)......      6         11         12          13         17
                           -------    -------    -------     -------    -------
    Total                      69         74         81          86         96
                           =======    =======    =======     =======    =======

Gross store square
footage(4) (in thousands):
--------------------------
Department stores.........  5,406      5,406      5,665       5,876      6,139
Specialty stores..........     30         42         54          54         63
                           -------    -------    -------     -------    -------
    Total                   5,436      5,448      5,719       5,930      6,202
                           =======    =======    =======     =======    =======

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

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

Marketing Strategy

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

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

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

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

Customer Service

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

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

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

Distribution of Merchandise

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

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

Private-Label Credit Card

Sale of Receivables

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

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

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

Credit Card Program

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

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

- An "Instant Credit" program, through
which successful credit applicants receive a discount ranging from 10% to 50% (depending on the
results of the Instant Credit scratch-off card) on their first purchase and 10% on additional
purchases made the remainder of the day the account is opened;
- A "55-Plus" charge account program, which
offers additional merchandise and service discounts to customers 55 years of age and older; and
- Various credit-card related promotional events throughout the year.

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

The "Gottschalks Rewards" program offers one point for every one
dollar in net annual spending using the Company's private label credit card.  At the end of each
calendar year qualifying customers are sent a merchandise certificate for up to 5% of the total
points accumulated, up to a maximum of 10,000 points.  Using a "points-based" system allows the
Company to offer "double point" opportunities for opening new accounts and other
promotions periodically throughout each year.

Competition and Seasonality

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

Employees

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

ACQUISITIONS

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

The Harris Acquisition

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

The Lamonts Acquisition

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

Available Information

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

Executive Officers of the Registrant

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

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

RISK FACTORS

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

The Company's Sources of Liquidity Are Limited

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

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

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

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

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

The Company Faces Significant Competition From Other Retailers

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

- offer merchandise which reflects the different regional and local needs of its
customers;
- differentiate and market the Company as a home-town, locally-oriented store (as opposed to its
more nationally focused competitors); and
- continue to offer adequate quantities of better to moderately priced branded and private label
merchandise at comparable profit margins.

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

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

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

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

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

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

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

The Company May Face Higher Operating Costs



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

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

The Company Depends On Key Personnel

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

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

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

Item 2.	  PROPERTIES

Corporate Office and Distribution Center

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

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

Store Leases and Locations

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

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

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

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

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

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

_______________________

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

Item 3. 	LEGAL PROCEEDINGS

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

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

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

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

PART II

Item 5. 	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

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

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

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

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

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

Item 6.	SELECTED FINANCIAL DATA

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

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

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

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

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

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

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

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

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

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



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


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

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

__________________________

(1)	Fiscal years 2000 through 2003 have been restated from
amounts previously reported as discussed in Note 16 of the accompanying consolidated financial statements.

(2)	Net leased department revenues consist of sales totaling $24.3 million,
$24.5 million,  $24.9 million, $28.9 million, and $27.7 million in fiscal 2004, 2003, 2002, 2001,
and 2000, respectively, less cost of sales.

(3)	Depreciation and amortization includes the amortization of goodwill
totaling $570,000 and $553,000 in fiscal 2001 and 2000, respectively, and the (amortization)
accretion of leasehold interests
totaling $37,200 in each of fiscal 2004, 2003, 2002,
and 2001 and $18,600 in fiscal 2000. Effective the beginning of fiscal 2002, the Company implemented
the provisions of SFAS No. 142. As a result, the Company no longer amortizes goodwill and instead
tests it annually for impairment. The Company continues to amortize leasehold interests (see Note 1
to the Consolidated Financial Statements).

(4)	The fiscal 2002 charge consists of non-cash asset impairment charges
to write down long-lived assets related to certain underperforming stores (see Note 9 to the
Consolidated Financial Statements).

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

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

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

(8)	The 2002 amount represents securitization program prepayment penalties and
the write-off of unamortized loan fees (see Note 2 to the Consolidated Financial Statements).  The
2001 amount   consists of the prepayment penalty and the write-off of unamortized loan fees related
to the early retirement of the Company's previous revolving credit facility (see Note 5 to the
Consolidated Financial Statements).

(9)	The fiscal 2004 amount consists of incremental costs associated with the
closure of one store at January 31, 2004. The fiscal 2003 amount represents costs related to the
closure of seven stores primarily consisting of lease termination costs, severance, and other
incremental costs associated with the store closings.  The fiscal 2002 amount represents costs
associated with the closure of four stores in fiscal 2002 including lease termination costs,
severance, and other incremental costs associated with the store closings, asset impairment charges
related to stores closed in fiscal 2003 and fiscal 2002, and a gain on sale of two store leases and
certain fixtures in fiscal 2002.  See Note 8 to the Consolidated Financial Statements.

(10)	The decrease in inventory from fiscal 2003 to 2004 is primarily due to
the reduction of inventory levels to more closely reflect selling trends, and to store closures. The
decrease in inventory from fiscal 2000 to fiscal 2001 and from fiscal 2002 to 2003 is primarily due
to store closures.

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

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

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

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

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

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

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

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

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

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

Fiscal 2004, 2003 and 2002 results all include 52 weeks.

Overview

The Company is a regional department and specialty store chain completing its
100th year of operation.  As of January 29, 2005, the Company operated 63 full-line
"Gottschalks" department stores located in six Western states, with the majority of those
stores located in California. The Company also operates 6 "Village East" and
"Gottschalks" specialty stores which carry a limited selection of merchandise.

The Company's department stores typically offer a wide range of better to
moderate brand-name and private-label merchandise, including mens, womens, juniors and childrens
apparel; cosmetics, shoes, fine jewelry and accessories; and home furnishings including china,
housewares, domestics, small electric appliances and, in selected locations, furniture and
mattresses.

The Company's operations are significantly impacted by competitive pressures from
department stores, specialty stores, mass merchandisers and other retail channels, as well as
general consumer-spending levels, including the impact of employment levels and other economic
conditions.  Such pressures during fiscal 2004 were partially offset by promotional activities
surrounding the celebration of the Company's 100th anniversary resulting in a marginal
increase in comparable store sales for fiscal 2004 of 0.2% as compared to fiscal 2003.

The Company's fiscal 2000 acquisition of 34 stores from the former Lamont's chain
put significant pressure on the Company's operating performance and liquidity position.  The Company
subsequently closed 16 of the acquired stores and charged off the related assets and leasehold
intangibles.  In January 2003 the Company terminated its private label credit card receivables
securitization program and sold the accounts and receivables to a third party, resulting in the
payoff of $73.2 million in off balance sheet debt and reduction in outstanding borrowings on the
Company's revolving line of credit of approximately $30.0 million.  In March 2004 the Company
amended and extended its revolving line of credit reducing the interest margin paid on outstanding
borrowings and replacing certain higher variable interest debt with lower fixed interest debt.
The Company was able to reduce its debt by an additional $22.4 million during fiscal 2004.

As a result of this strategic repositioning the Company has been able to refocus
on its marketing and merchandising strategies.  In addition, the Company has resumed its "raise
the bar" programs in its existing stores and is beginning to enhance top line growth through new
store openings.  On April 15, 2005 the Company opened a new 43,000 square foot store in Albany,
Oregon and plans to open a 100,000 square foot lifestyle store in August 2005 in Fresno, California.

Subsequent to the issuance of its financial statements for the year ended January
31, 2004, as a result of views expressed in a letter on February 7, 2005 by the Office of the Chief
Accountant of the Securities and Exchange Commission ("SEC") to the American Institute of Certified
Public Accountants regarding certain operating lease-related accounting issues and their
applications under generally accepted accounting principles in the United States of America
("GAAP"), the Company determined that its then current manner in which it accounted for certain
lease related issues was not in accordance with GAAP.
Corrections to the Company's lease accounting
policies include an adjustment to depreciation expense to correct the depreciable lives
for certain leasehold improvements, and to correct the recording of certain tenant
allowances and construction reimbursements, as reductions in rent expense, which are included in
selling general and administration expenses, that had previously been recorded as reductions in the
cost of the underlying constructed assets.  In addition, the restatement includes adjusting lease
terms of certain leases to include bargain renewal option periods where exercise of the options
would be reasonably assured, and recognizing the straight-line effect over the lease term of such
changes in rents during the option periods.  As a result, the Company restated its consolidated
financial statements for the fiscal years ended January 31, 2004 and February 1, 2003.
Accordingly, the accompanying management's discussion and analysis of financial condition and
results of operations gives effect to the restatement discussed in Note 16 of the accompanying
consolidated financial statements.

In addition, the Company had previously classified newly generated receivables and payments on receivables under the securitization program as investing activities, and classified the gross
proceeds from the sale of its proprietary credit card portfolio and the repayment of the 1999-1 and 2000-1 Series Certificates as financing activities in its consolidated statement of cash flows
for the fiscal year ended February 1, 2003.  To correct this error, the Company has restated its fiscal 2002 consolidated statement of cash flows to reflect the change in receivables and the
net proceeds received by the Company from the sale of its proprietary credit card portfolio as operating activities, since the credit card receivables
originated from the sale of the Company's merchandise. See Note 16 of the accompanying consolidated financial statements.

Critical Accounting Policies

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

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

Revenue Recognition Policy

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

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

Inventory Valuation

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

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

Reserve for Store Closure Costs

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

As of January 29, 2005, the Company had no reserves for store closure costs.  In
the event the Company decides to close additional store locations in fiscal 2005 or beyond,
additional reserves for store closure costs, which may be material, may be incurred.

Impairment of Long-Lived Assets

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

Income Taxes

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

The accompanying management's discussion and analysis of financial condition and
results of operations gives effect to the restatement discussed in Note 16 of the accompanying
consolidated financial statements.

Results of Operations

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

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

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

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

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

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

Fiscal 2004 Compared to Fiscal 2003

Net Sales

Net sales from continuing operations increased by approximately $1.4 million, or
0.2%, to $662.0 million in fiscal 2004 as compared to $660.6 million in fiscal 2003. The fiscal 2004
sales increase is primarily attributable to promotional activity related to the celebration of the
Company's 100th anniversary, but was tempered by a continuing soft general economic
environment in much of the Company's market areas and additional competitive pressures in the
Central California markets. Comparable store sales for fiscal 2004, which includes sales for stores
open for the full period in both years, increased  by 0.2% as compared to the same 52-week period of
the prior year.

The Company operated 63 department stores and 6 specialty stores as of the end of
fiscal 2004 as compared to 63 department stores and 11 specialty stores as of the end of fiscal
2003.  During 2004 the Company closed 5 specialty apparel stores and integrated their merchandise
into the nearby Gottschalks store in the malls where they reside.  As described more fully in Note 8
to the accompanying financial statements, during fiscal 2003 the Company closed six department
stores.  Two such stores were closed in February 2003, and one store was closed in each of March
2003, April 2003, July 2003 and January 2004.

Net Credit Revenues

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

Net credit revenues related to the Company's credit card receivables portfolio
decreased by approximately $0.6 million or 16.7%, to $3.1 million in fiscal 2004 as compared to $3.7
million in fiscal 2003. As a percent of net sales, net credit revenues were 0.5% of net sales in
fiscal 2004 as compared to 0.6% in fiscal 2003. Net credit revenues consist of the following:

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

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

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

Net Leased Department Revenues

Net rental income generated by the Company's various leased departments was $3.5
million in fiscal 2004, essentially equal to fiscal 2003.  Leased department sales are presented net
of the related costs for financial reporting purposes. Sales generated in the Company's leased
departments, consisting primarily of fine jewelry departments and beauty salons, totaled $24.3
million in fiscal 2004 as compared to $24.5 million in fiscal 2003.

Cost of Sales

Cost of sales from continuing operations, which includes costs associated with
the buying, handling and distribution of merchandise, decreased by approximately $3.3 million to
$432.1 million in fiscal 2004 as compared to $435.4 million in fiscal 2003, a decrease of 0.7%. The
decrease is primarily due to the decrease in sales volume. The Company's gross margin
percentage increased to 34.7% in fiscal 2004 as compared to 34.1% in fiscal 2003. The increase in
the gross margin percentage was primarily due to reductions in comparable store average inventory
which enabled the Company to increase turnover and better manage its markdown strategies .

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing operations increased
approximately $3.5 million, or 1.7%, to $207.0 million in fiscal 2004 as compared to $203.5 million
in fiscal 2003. As a percentage of net sales, selling, general and administrative expenses increased
0.4% to 31.2% in fiscal 2004 as compared to 30.8% in fiscal 2003. The increase is primarily
attributable to recent increases in unemployment insurance contribution rates and worker's
compensation loss development rates in California.  The Company is continuing to experience benefits
from its cost control initiatives, but expects to see offsetting pressures from such rate increases
in the foreseeable future.

Depreciation and Amortization

Depreciation and amortization expense, which includes the (amortization)
accretion of intangible assets other than goodwill, decreased by approximately $1.2 million or 8.1%,
to $13.3 million in fiscal 2004 as compared to $14.5 million in fiscal 2003. As a percent of net
sales, depreciation and amortization expense was 2.0% in fiscal 2004 and 2.2% in fiscal 2003.  The
dollar decrease is primarily the result of impairment charges taken during fiscal 2002 related to
certain underperforming stores, partially offset by additional depreciation related to information
systems placed in service during 2002 and capital expenditures for the renovation and expansion of
certain existing stores.

Interest Expense

Interest expense, which includes the amortization of deferred financing costs,
decreased by approximately $3.8 million to $9.5 million in fiscal 2004 as compared to $13.3 million
in fiscal 2003, a decrease of 28.5%.  As a percent of net sales, interest expense decreased to 1.4%
in fiscal 2004 as compared to 2.0% in fiscal 2003. These decreases are primarily due to lower
outstanding borrowings on the Company's revolving credit facility and the elimination of certain
higher interest debt facilities resulting from the amendment and extension of the Company's
revolving credit facility.  Total debt was $22.4 million lower at the end of fiscal 2004 as compared
to the end of fiscal 2003.  The weighted-average interest rate applicable to the facility was 4.6%
in fiscal 2004 as compared to 5.2% in fiscal 2003.

Miscellaneous Income

Miscellaneous income, which includes the amortization of deferred income and
other miscellaneous income and expense amounts, decreased by approximately $0.7 million to $1.6
million in fiscal 2004 as compared to $2.3 million in fiscal 2003.  As a percent of net sales,
miscellaneous income was 0.2% in fiscal 2004 and 0.3% in fiscal 2003. Fiscal 2003 included recovery
of reserves related to the final settlement of certain net operating loss carry-back claims.

Income Taxes

The Company's effective tax rate for continuing operations is 36.3% in fiscal
2004 as compared to 35.7% in fiscal 2003. Including the tax benefit reported in discontinued
operations, the Company's effective tax rate is 36.3% in fiscal 2004 as compared to 36.8% in fiscal
2003.

Income From Continuing Operations

As a result of the foregoing, the Company reported income from continuing
operations of $5.3 million, or $0.40 per diluted share, in fiscal 2004 as compared $2.2 million, or
$0.17 per diluted share, in fiscal 2003.

Discontinued Operations

As described more fully in Note 8 to the accompanying financial statements,
during fiscal 2003 the Company closed six store locations.  These stores were determined to be
either underperforming or inconsistent with the Company's long-term operating strategy.  The net
loss from operating these stores was $0.5 million in fiscal 2003.  The loss from operation of
discontinued stores consists of the following:

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

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

Net costs associated with the closure of stores were minor in fiscal 2004
primarily consisting of incremental costs associated with the closure of one store at January 31,
2004. Net costs associated with the closure of stores totaled $0.8 million in fiscal 2003 consisting
of lease termination costs, severance and other incremental costs associated with the store
closings.

Certain of the Company's stores may perform below expectations from time to time.
In the event the Company is unable to improve the operating performance of such underperforming
stores, the Company may consider the sale, sublease or closure of those stores in the future.

Net Income

As a result of the foregoing, the Company reported net income of $5.3 million in
fiscal 2004 as compared $1.4 million in fiscal 2003. On a per diluted share basis the 2004 net
income was $0.40 per share as compared to net loss of $0.10 per share in fiscal 2003.

Fiscal 2003 Compared to Fiscal 2002

Net Sales

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

The Company operated 63 department stores and 11 specialty stores as of the end
of fiscal 2003 as compared to 69 department stores and 12 specialty stores as of the end of fiscal
2002.  As described more fully in Note 8 to the accompanying financial statements, during fiscal
2003 the Company closed six department stores.  Two such stores were closed in February 2003, and
one store was closed in each of March 2003, April 2003, July 2003 and January 2004. During fiscal
2002 the Company closed two stores in each of June 2002 and January 2003.

Net Credit Revenues

As described more fully above and in Note 2 to the accompanying financial
statements, in January 2003 the Company sold its private label credit card accounts and accounts
receivable to HSBC  In connection with the sale, the Company also terminated its receivables
securitization program.  As a result, net credit revenues related to the Company's credit card
receivables portfolio decreased by approximately $4.5 million or 54.7%, to $3.7 million in fiscal
2003 as compared to $8.2 million in fiscal 2002. As a percent of net sales, net credit revenues were
0.6% of net sales in fiscal 2003 as compared to 1.2% in fiscal 2002. Net credit revenues consist of
the following:

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

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

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

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

Net Leased Department Revenues

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

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

Cost of Sales

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

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing operations decreased
by approximately $3.9 million, or 1.9%, to $203.5 million in fiscal 2003 as compared to $207.4
million in fiscal 2002. As a percentage of net sales, selling, general and administrative expenses
decreased 0.3% to 30.8% in fiscal 2003 as compared to 31.1% in fiscal 2002. The dollar decrease is
primarily attributable to the elimination of the in-house credit card operations in connection with
the sale of receivables to HSBC and cost reduction efforts initiated throughout all areas of the
Company, particularly in the areas of payroll and related fringe benefits, reduced advertising
expenditures resulting from an increased reliance on more effective targeted marketing efforts
(partially offset by the change in accounting for certain allowances previously mentioned), and
reduced communications costs. Such cost savings were partially offset by increased professional fees
and insurance costs. The Company is continuing to implement programs aimed at reducing operating
costs throughout all areas of the Company. Although the Company anticipates it will be successful in
achieving its cost reduction initiatives, there can be no assurance that the Company will be able to
fully offset the impact of increases in certain of these costs in the future.

Depreciation and Amortization

Depreciation and amortization expense, which includes the (amortization)
accretion of intangible assets other than goodwill, decreased by approximately $0.1 million or 1.0%,
to $14.5 million in fiscal 2003 as compared to $14.6 million in fiscal 2002. As a percent of net
sales, depreciation and amortization expense was 2.2% in fiscal 2003 and fiscal 2002.  The dollar
decrease is primarily the result of impairment charges taken during fiscal 2002 related to certain
underperforming stores, partially offset by additional depreciation related to information systems
placed in service during 2002 and capital expenditures for the renovation and expansion of certain
existing stores.

Asset Impairment Charges

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

Receivables Sale Costs

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

Interest Expense

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

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

Losses on Early Extinguishment of Debt

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

Miscellaneous Income

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

Income Taxes

The Company's effective tax rate for continuing operations is an expense of 35.7%
in fiscal 2003 as compared to a benefit of 46.3% in fiscal 2002. Including the tax benefit reported
in discontinued operations, the Company's effective tax rate is an expense of 36.8% in fiscal 2003
as compared to a benefit of 42.5% in fiscal 2002. The fiscal 2002 tax benefit includes $0.8 million
arising from the realization of net operating loss carryback claims.

Income From Continuing Operations

As a result of the foregoing, the Company reported income from continuing
operations of $2.2 million, or $0.17 per diluted share, in fiscal 2003 as compared to a net loss of
$7.9 million, or $0.62 per diluted share, in fiscal 2002.

Discontinued Operations

As described more fully in Note 8 to the accompanying financial statements,
during fiscal 2003 the Company closed six store locations.  During fiscal 2002 the Company closed
four store locations.  These stores were determined to be either underperforming or inconsistent
with the Company's long-term operating strategy.  The net loss from operating these stores was $0.5
million in fiscal 2003 and $1.9 million in fiscal 2002.  The loss from operation of discontinued
stores consists of the following:

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

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

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

Net Income

As a result of the foregoing, the Company reported net income of $1.4 million in
fiscal 2003 as compared to a net loss of $12.4 million in fiscal 2002. On a per diluted share basis
the 2003 net income was $0.10 per share as compared to net loss of $0.97 per share in fiscal 2002.

Liquidity and Capital Resources

The Company's working capital requirements are currently met through a
combination of cash provided by operations, borrowings under its senior revolving credit facility,
short-term trade and factor credit and by proceeds from external financings and sale transactions.
As described more fully below and in Note 2 to the accompanying financial statements, on January 31,
2003 the Company sold its credit card accounts and accounts receivable to HSBC.  Proceeds from the
sale were used to reduce the Company's debt, including off-balance sheet securitization obligations,
by over $100 million.  At the closing date, the Company's availability under its revolving credit
facility increased by approximately $30 million and the Company experienced increases in
availability from $7 million to $33 million during fiscal 2003 as compared to fiscal 2002.  As of
March 1, 2004, the Company re-negotiated its senior revolving credit facility (the "GE facility").
The GE facility provides for borrowings of up to $165.0 million and has been extended through
February 28, 2009.  The GE facility provides for lower rates of interest than the previous credit
facility and refinanced an existing real estate loan, which also has resulted in lower interest
costs to the Company.  In addition, the GE facility reduced the number of financial covenants to one
fixed charge covenant.  As a result, the Company experienced an additional improvement of
approximately $21.0 million in average daily availability during fiscal 2004 as compared to fiscal
2003 and believes its liquidity position after the sale of the receivables and the re-negotiation of
the revolving credit facility is substantially improved in comparison to prior years. Availability
was $56.7 million as of January 29, 2005.

In fiscal 2004, the Company generated a total of $38.5 million from operations as
compared to $23.1 million positive cash flow from operations in fiscal 2003 and $20.9 million in
fiscal 2002. The $15.4 million increase in cash provided by operating activities in fiscal 2004
relative to fiscal 2003 was primarily due to increased net income, the return of certain deposits
and the timing of certain payables, partially offset by lower levels of inventory reductions.

Net cash used in investing activities amounted to $13.7 million, $4.0 million,
and $12.2 million in fiscal 2004, 2003, and 2002, respectively. The net cash outflow in fiscal 2004
increased from fiscal 2003 in the amount of $9.7 million, primarily related to increased capital
expenditures for store remodeling and new store construction (see "Uses of
Liquidity").

Net cash used in financing activities was $24.6 million, $20.1 million, and $5.2
million in fiscal 2004, 2003 and 2002, respectively. The net cash outflow in fiscal 2004 was
principally attributable to the payoff of certain high interest debt and continued reductions of
outstanding borrowing on the Company's revolving credit facility, partially offset by additional
funds provided by a lower fixed interest term loan connected to the amended revolving credit
agreement.

Sources of Liquidity

Sale of Receivables

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

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

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

Senior Secured Credit Facility

On February 1, 2002, the Company entered into a three-year senior revolving
credit facility with General Electric Capital Corporation ("GE Capital") as agent, and The
CIT Group/Business Credit as syndication agent (the "Original GE facility"). On March 1, 2004 the
Company finalized an amendment and restatement of the Original GE facility (the "GE facility").  The
GE facility provides up to $165.0 million of working capital financing through February 28, 2009.
The GE facility consists of a revolving credit facility of up to $156.0 million (including a $20.0
million letter of credit sub-facility) and a fully funded term loan of $9.0 million.  Borrowings
under the revolving credit facility are limited to the sum of (a) a specified percentage of eligible
credit card receivables, and (b) the lesser of specified percentages of (i) the cost of eligible
inventory and (ii) the net recovery value of the inventory, as determined by periodic valuation
performed by an independent appraiser. Such borrowings are further limited by a requirement to
maintain a minimum of $5.0 million of excess availability at all times, and other reserves that are
in effect. As of January 29, 2005, outstanding borrowings under the GE facility totaled $45.8
million, and excess borrowing availability under the facility, after the deduction of the minimum
availability requirement and other reserves, totaled $56.7 million.

In connection with the extension of the GE facility, the subordinated note in the
principal amount of $21.2 million at January 29, 2005 with an affiliate was extended through May 30,
2009 and provides for payment of up to $8.0 million of principle balance through that date, subject
to certain minimum excess availability requirements under the GE facility.

In January 2005 the Company amended the GE facility to provide for a springing
lock-box arrangement. Pursuant to guidance in the Financial Accounting Standards Board's Emerging
Issues Task Force Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding
under Revolving Credit Agreements that Include Both a Subjective Acceleration Clause and a Lock-Box
Arrangement," the Company has classified all of its revolving credit facility as long-term as
of fiscal year ended January 29, 2005.  Although the Company has held the intent and ability to
maintain this debt outstanding for more than one year, prior to such amendment the Company has
classified its borrowings under the facility as a current liability pursuant to such guidance.
Accordingly, borrowings under the revolving credit facility as of January 31, 2004 are classified as
current liabilities.

As of January 29, 2005, interest charged on amounts borrowed under the revolving
portion of the GE facility are at the prime rate (5.25% at January 29, 2005), or at the Company's
option, at the applicable LIBOR rate plus 1.50% per annum (4.19% at January 29, 2005), and interest
charged on the term loan is a fixed rate of 6.6% per annum. In addition, the Company pays an unused
commitment fee equal to 0.375% per annum on the average unused daily balance of the revolving
portion of the GE facility. The interest rate applicable to the revolving portion of the GE facility
is adjusted upwards or downwards on a quarterly basis based on a pricing matrix which is tied to the
Company's daily average excess availability for the preceding fiscal quarter (as defined in the
agreement). Under the pricing matrix, the applicable interest rate could range from a rate as low as
prime, or LIBOR plus 1.50%, to as high as prime plus 0.75%, or LIBOR plus 2.75%.

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

The GE facility contains restrictive financial and operating covenants, including
the requirement to maintain a fixed charge coverage ratio of 1:1 (as defined in the agreement).  As
of January 29, 2005, management believes the Company was in compliance with all restrictive
financial covenants applicable to the GE facility.

Trade Credit and Transactions with Affiliate

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

Due to low liquidity levels during fiscal 2002 and 2003 unsecured credit granted
by key factors, which can represent over 50% of total trade credit granted to the Company, was
restricted.  Management negotiated the restoration of partially secured credit lines with certain
key factors by issuing standby letters of credit.  The issuance of those letters of credit reduced
the Company's borrowing availability under its revolving line of credit.  In order to offset the
majority of this availability reduction, the Harris Company, a subsidiary of El Corte Ingles and an
affiliate of the Company, agreed to provide a short-term credit enhancement to the revolving line of
credit under the terms of a Credit Facilitation Agreement (the "CFA") entered into with
the Company on February 22, 2002.  The CFA was terminated as a result of the closing of the sale of
receivables to HSBC. As a result of continued improvements in the Company's operations and liquidity
position, including sale of receivables to HSBC and the March 1, 2004 renegotiation of the GE
facility, all of the letters of credit issued for the benefit of certain key factors have been
allowed to expire and unsecured credit lines with all of the Company's key factors and many of the
Company's unfactored suppliers are sufficient to provide an adequate level of merchandise to support
the Company's operations.

Other Financings

On February 14, 2005, the Company amended and extended the financing of its
ownership interest in the partnership that owns the Company's corporate headquarters building. The
related note payable of $3.7 million, which originally provided for interest only payments at a
variable rate of interest of prime plus 1.5% per annum, and was due in full upon maturity on May 24,
2005, has been modified to a fully amortizing note bearing interest at a fixed rate of 7.50% per
annum and maturing on February 24, 2010.  There is no prepayment penalty associated with the note.

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

Uses of Liquidity

The Company's primary uses of liquidity are for working capital, debt service
requirements and capital expenditures. Capital expenditures in fiscal 2004, totaling $13.7 million,
were primarily related to the renovation, refixturing, and expansion of certain existing locations,
and to certain information system enhancements. In July of fiscal 2004 the Company entered into an
agreement to open one new concept store in the River Park area of Fresno, California.  The
anticipated completion date of the project is August 2005 with an estimated net cost to the Company
of approximately $4.5 million. On April 15, 2005 the Company also opened a new store in Albany,
Oregon at a total cost to the Company of approximately $1.2 million.

As of January 29, 2005, the Company had issued a total of $3.3 million of standby
letters of credit and documentary letters of credit totaling $2.1 million. The standby letters of
credit were issued to provide collateral for workers compensation insurance policies.  Management
believes that the likelihood of any draws under the remaining workers compensation standby letters
of credit is remote. Documentary letters of credit are issued in the ordinary course of business to
facilitate the purchase of merchandise from overseas suppliers. The supplier draws against the
documentary letter of credit upon delivery of the merchandise.



Contractual Obligations

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

Contractual Obligations:

`Payments due by period (1)
                                                                  (In thousands)
                                       ----------------------------------------------------------------
                                        Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     There-
                                         2005       2006       2007       2008       2009       after
                                       ---------  ---------  ---------  ---------  ---------  ---------
Long-term debt ...................... $   1,525  $   1,597  $   1,702  $   1,786  $   1,710  $  14,865
Capitalized lease obligations........     2,205      1,466        947        476        476      2,204
Subordinated note
  payable to affiliate (2)...........     1,000      1,000      1,000      2,000     16,180         --
Non-cancelable operating leases......    23,169     22,772     19,475     17,570     15,013     75,700
Purchase obligations (3).............     6,416        439        183        141        115        358
                                       ---------  ---------  ---------  ---------  ---------  ---------
Total contractual cash obligations... $  34,315  $  27,274  $  23,307  $  21,973  $  33,494  $  93,127
                                       =========  =========  =========  =========  =========  =========


                                                  Amount of commitment expiration by period
                                                                (In thousands)
                                       ----------------------------------------------------------------
                                        Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     There-
                                         2005       2006       2007       2008       2009       after
                                       ---------  ---------  ---------  ---------  ---------  ---------
Senior revolving credit facility (4). $      --  $      --  $          $      --  $  45,753  $      --
Standby letters of credit............     3,250         --         --         --         --         --
Documentary letters of credit........     2,107         --         --         --         --         --
                                       ---------  ---------  ---------  ---------  ---------  ---------
                                      $   5,357  $      --  $      --  $      --  $  45,753  $      --
                                       =========  =========  =========  =========  =========  =========`

(1)    See Notes 5, 6 and 7 to the accompanying financial
statements.

(2)	In connection with the amendment of the Company's revolving credit
facility, the term of the Subordinated 	Note was extended to May 2009 and provides for principal
payments of up to $8 million through that date.

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

(4)	Represents outstanding borrowings under the Company's senior revolving
credit facility as of January 29, 2005.  The table presents that amount as due at February 28, 2009,
the end of the commitment period for the facility.

In the ordinary course of business, the Company enters into arrangements with
vendors to purchase merchandise up to twelve months in advance of expected delivery. These purchase
orders do not contain any significant termination payments or other penalties if cancelled.

Cash generated by operations, together with liquidity provided by the GE
facility, the CCA and other financial resources are expected to adequately finance the Company's
planned cash requirements for fiscal 2005.

Recently Issued Accounting Standards

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs -
An Amendment of ARB No. 43, Chapter 4." This statement amends the guidance in ARB
No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and
is effective for fiscal years beginning after June 15, 2005. The Company does not anticipate
that the adopting of this statement will have a material impact on the Company's consolidated
financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"). This statement is a revision of SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values. Under the provisions of this statement, the Company
must determine the appropriate fair value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be used at the date of
adoption. The transition alternatives include retrospective and prospective adoption methods. Under
the retrospective method, prior periods may be restated based on the amounts previously recognized
under SFAS 123 for purposes of pro forma disclosures either for all periods presented or as of the
beginning of the year of adoption.  The prospective method requires that compensation expense be
recognized beginning with the effective date, based on the requirements of this statement, for all
share-based payments granted after the effective date, and based on the requirements of SFAS 123,
for all awards granted to employees prior to the effective date of this statement that remain
unvested on the effective date.  The provisions of this statement are effective as of the beginning
of the first  annual reporting period that begins after June 15, 2005. The Company is currently
evaluating the requirements of this revision and has not determined its method of adoption.

In December 2004, the FASB issued SFAS No. 153, "Exchanges
of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions." This statement eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
and replaces it with an exception for exchanges that do not have commercial substance. The
provisions of the statement are effective for fiscal periods beginning after June 15, 2005. The
Company does not anticipate that the adopting of this statement will have a material impact on the
Company's consolidated financial position, results of operations or cash flows.

Inflation

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

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

Seasonality

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

The following table sets forth unaudited quarterly results of operations for
fiscal 2004 and 2003 (in thousands, except per share data).  Summarized quarterly financial
information in fiscal 2003 and the first three quarters of fiscal 2004 have been restated to reflect
the correction of an error related to lease accounting as discussed in Note 16 to the accompanying
financial statements.

`2004
                                             ----------------------------------------------
Quarter Ended                                  May 1      July 31    October 30  January 29
-------------------------------------------  ----------  ----------  ----------  ----------
Net sales from continuing operations....... $  144,533  $  147,776  $  147,893     221,790
Gross profit...............................     49,714      52,292      52,472      75,386
Income (loss) from continuing operations
  as previously reported...................     (2,088)        350      (1,391)      8,822
Income (loss) from continuing
  operations (as restated).................     (2,216)        224      (1,529)      8,822
Discontinued operations, net of tax........        (20)         --          --          --
Net income (loss) as previously reported...     (2,108)        350      (1,391)      8,822
Net income (loss) (as restated)............     (2,236)        224      (1,529)      8,822

Net income (loss) per common share
Basic
Income (loss) from continuing operations
  as previously reported................... $    (0.16) $     0.03  $    (0.11) $     0.68
Income (loss) from continuing
  operations (as restated)................. $    (0.17) $     0.02  $    (0.12) $     0.68
Discontinued operations.................... $       --  $       --  $       --  $       --
Net income (loss) as previously reported... $    (0.16) $     0.03  $    (0.11) $     0.68
Net income (loss)(as restated)............. $    (0.17) $     0.02  $    (0.12) $     0.68

Diluted
Income (loss) from continuing operations
  as previously reported................... $    (0.16) $     0.03  $    (0.11) $     0.65
Income (loss) from continuing
  operations (as restated)................. $    (0.17) $     0.02  $    (0.12) $     0.65
Discontinued operations.................... $       --  $       --  $       --  $       --
Net income (loss) as previously reported... $    (0.16) $     0.03  $    (0.11) $     0.65
Net income (loss)(as restasted)............ $    (0.17) $     0.02  $    (0.12) $     0.65

Weighted-average number of common
  shares outstanding:
    Basic..................................     12,883      12,904      12,927      12,976
    Diluted................................     12,883      13,266      12,927      13,552

                                                               2003
                                             ----------------------------------------------
Quarter Ended                                  May 3      August 2   November 1  January 31
-------------------------------------------  ----------  ----------  ----------  ----------
Net sales from continuing operations....... $  137,915  $  149,757  $  145,288  $  227,614
Gross profit...............................     46,575      53,455      50,916      74,258
Income (loss) from continuing operations
  as previously reported...................     (3,563)        334      (2,590)      8,571
Income (loss) from continuing
  operations (as restated).................     (3,683)        206      (2,720)      8,433
Discontinued operations, net of tax........       (424)       (307)        (23)       (128)
Net income (loss) as previously reported...     (3,987)         27      (2,613)      8,443
Net income (loss) (as restated)............     (4,107)       (101)     (2,743)      8,305

Net income (loss) per common share
Basic
Income (loss) from continuing operations
  as previously reported................... $    (0.28) $     0.03  $    (0.20) $     0.67
Income (loss) from continuing
  operations (as restated)................. $    (0.29) $     0.02  $    (0.21) $     0.66
Discontinued operations.................... $    (0.03) $    (0.03) $           $    (0.01)
Net income (loss) as previously reported... $    (0.31) $       --  $    (0.20) $     0.66
Net income (loss)(as restated)............. $    (0.32) $    (0.01) $    (0.21) $     0.65

Diluted
Income (loss) from continuing operations
  as previously reported................... $    (0.28) $     0.03  $    (0.20) $     0.66
Income (loss) from continuing
  operations (as restated)................. $    (0.29) $     0.02  $    (0.21) $     0.65
Discontinued operations.................... $    (0.03) $    (0.03) $       --  $    (0.01)
Net income (loss) as previously reported... $    (0.32) $       --  $    (0.20) $     0.65
Net income (loss)(as restated)............. $    (0.32) $    (0.01) $    (0.21) $     0.64

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

Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks in the normal course of business due to
changes in interest rates on short-term borrowings under its senior revolving credit facility. As of
January 29, 2005, the Company also had one term loan bearing variable interest rates. The Company
does not engage in financial transactions for speculative or trading purposes, nor does the Company
purchase or hold any derivative financial instruments.

As of January 29, 2005, borrowings subject to a variable interest rate,
represented 52.3% of the Company's total outstanding borrowings.  The interest payable on the
Company's senior revolving credit facility is based on variable interest rates and is therefore
affected by changes in market interest rates. An increase of 52 basis points on existing floating
rate borrowings (a 10% change from the Company's weighted-average interest rate as of January 29,
2005) would reduce the Company's pre-tax net income and cash flow by approximately $0.4 million.
This 52 basis point increase in interest rates would not materially affect the fair value of the
Company's fixed rate financial instruments. (See Note 1 to the accompanying financial
statements.)

Item 8.  	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

Item 9A.	CONTROLS AND PROCEDURES

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

The Company's Chief Executive Officer and Chief Financial Officer (its principal
executive officer and principal financial officer, respectively), with the participation of the
Company's management, have carried out an evaluation of the effectiveness of the Company's
"disclosure controls and procedures," as of January 29, 2005.

As discussed in Note 16 to the accompanying consolidated Financial Statements, as a
result of the February 7, 2005 letter issued by the Chief Accountant of the Securities and Exchange
Commission, we reviewed our policy related to the accounting for operating leases and the
depreciable lives of related leasehold improvements. We determined that our policy should be
corrected to adjust depreciation expense to correct the depreciable lives for certain
leasehold improvements, and to correct the recording of certain tenant allowances and
construction reimbursements, as reductions in rent expense that had previously been recorded as
reductions in the cost of the underlying constructed assets.  In addition, the corrections include
adjusting lease terms of certain leases to include bargain renewal option periods where exercise of
the options would be reasonably assured, and recognizing the straight-line effect over the lease
term of such changes in rents during the option periods.  As a result, the Company restated its
consolidated financial statements for the fiscal years ended January 31, 2004 and February
1, 2003, and its summary financial information in each of fiscal 2000 through 2003, included in this
Annual Report on Form 10K.

After considering the underlying conditions that gave rise to the restatement
discussed above, the Chief Executive Officer and the Chief Financial Officer concluded that the
disclosure controls and procedures as of the end of the period covered by this Annual Report on Form
10-K, were not effective in ensuring that material information relating to the Company, required to
be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and
forms.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of fiscal 2004, there were no significant changes in
the Company's internal controls over financial reporting or in other factors that could
significantly affect internal controls over financial reporting.

During the first quarter of 2005, the Company remediated the material weakness in
internal control over financial reporting and the ineffectiveness of its disclosure controls and
procedures by conducting a review of its accounting related to leases, and correcting its method of
accounting for tenant improvement allowances, lease terms and depreciable lives used for leasehold
costs and improvements.

The evaluation referred to above did not identify any other significant change in
our internal control over financial reporting that occurred during the period covered by this Annual
Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

PART III

Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 of Form 10-K, other than the following
information required by Paragraph (b) of Item 401 of Regulation S-K, is incorporated by reference
from those portions of the Company's definitive proxy statement with respect to the Annual
Stockholders' Meeting scheduled to be held on June 23, 2005, to be filed pursuant to Regulation 14A
(the "2004 Proxy") under the headings "Nominees for Election as Director" and
"Section 16(a) Beneficial Ownership Reporting Compliance."

As of March 31, 2005, the name, age and title of the  senior executive officers
of the Company are as follows:

|Name               | Age | Position                                                        
|------------------ | --- | ----------------------------------------------------------------
|James R. Famalette | 52  | President and Chief Executive Officer                           
|Gary L. Gladding   | 64  | Executive Vice President/General Merchandise Manager            
|J. Gregory Ambro   | 52  | Senior Vice President/Chief Administrative and Financial Officer
|Michael J. Schmidt | 63  | Senior Vice President/Director of Stores                        

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

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

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

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

_______________________

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

Item 11.	EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from those
portions of the Company's 2005 Proxy under the headings "Executive Compensation" and
"Director Compensation for Fiscal Year 2004."

Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND 	MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference from the
portion of the Company's 2005 Proxy under the heading "Security Ownership of Certain Beneficial
Owners and Management" and Item 5.  Market for Registrant's Common Equity, Related Stockholder
matters and Issuer Purchases of Equity Securities in this report on Form 10-K.

Item 13.	CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

The information required by this item is incorporated by reference from the
portion of the Company's 2005 Proxy under the heading "Certain Relationships and Related
Transactions."

Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference from the
portion of the Company's 2005 Proxy under the heading "Information on Independent Public
Accountants".

PART IV

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

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

Report of Independent Registered Public Accounting Firm

Consolidated balance sheets - As of January 29, 2005 and January 31, 2004 (as restated)

Consolidated statements of operations -- Fiscal years
ended January 29, 2005, January 31, 2004 (as restated) and February 1, 2003 (as restated)

Consolidated statements of stockholders' equity --
Fiscal years ended January 29, 2005, January 31, 2004 (as restated) and February 1, 2003(as restated)

Consolidated statements of cash flows -- Fiscal
years ended January 29, 2005, January 31, 2004 (as restated) and February 1, 2003(as restated)

Notes to consolidated financial statements

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

Schedule II -- Valuation and qualifying accounts

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

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

---



EXHIBIT INDEX

|Exhibit Number     | Description                                                                                                                                                                                                                                                                                                                                                       | Incorporated by Reference From the Following Document                                                                  
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------
|3.1                | Certificate of Incorporation of the Registrant                                                                                                                                                                                                                                                                                                                    | Registration Statement on Form S-1 (File No. 33-3949)                                                                  
|3.2                | By-Laws of the Registrant                                                                                                                                                                                                                                                                                                                                         | Annual Report on Form 10-K for the year ended February 3, 2001 (File No. 1-09100)                                      
|10.1               | Gottschalks Inc. Retirement Savings Plan(*)                                                                                                                                                                                                                                                                                                                       | Registration Statement on Form S-1 (File No. 33-3949)                                                                  
|10.2               | Participation Agreement dated as of December 1, 1988 among Gottschalks Inc., General
Foods Credit Investors No. 2 Corporation and Manufacturers Hanover Trust Company of California
relating to the sale-leaseback of the Stockton and Bakersfield department stores and the Madera
distribution facility                                                         | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.3               | Lease Agreement dated December 1, 1988 by and between Manufacturers Hanover Trust
Company of California and Gottschalks Inc. relating to the sale-leaseback of department stores in
Stockton and Bakersfield, California and the Madera distribution facility                                                                                                     | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.4               | Ground Lease dated December 1, 1988 by and between Gottschalks Inc. and
Manufacturers Hanover Trust Company of California relating to the sale-leaseback of the Bakersfield
department store                                                                                                                                                                      | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.5               | Memorandum of Lease and Lease Supplement dated July 1, 1989 by and between
Manufacturers Hanover Trust Company of California and Gottschalks Inc. relating to the
sale-leaseback of the Stockton department store                                                                                                                                                 | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.6               | Tax Indemnification Agreement dated as of August 1, 1989 by and between Gottschalks
Inc. and General Foods Credit Investors No. 2 Corporation relating to the sale-leaseback of the
Stockton and Bakersfield department stores and the Madera distribution facility                                                                                               | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.7               | Ground Lease dated August 17, 1989 by and between Gottschalks Inc. and Manufacturers
Hanover Trust Company of California relating to the sale-leaseback of the Madera distribution
facility                                                                                                                                                                       | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.8               | Lease Supplement dated as of August 17, 1989 by and between Manufacturers Hanover
Trust Company of California and Gottschalks Inc. relating to the sale-leaseback of the Madera
distribution facility                                                                                                                                                             | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.9               | Agreement of Limited Partnership dated March 16, 1990, by and between River Park
Properties I and Gottschalks Inc. relating to the Company's corporate headquarters                                                                                                                                                                                               | Annual Report on Form 10-K for the year ended February 2, 1991 (File No. 1-09100)                                      
|10.10              | Lease Agreement dated as of March 16, 1990 by and between Gottschalks Inc. and River
Park Properties I relating to the Company's corporate headquarters                                                                                                                                                                                                           | Annual Report on Form 10-K for the year ended January 29, 1994 (File No. 1-09100)                                      
|10.11              | Form of Severance Agreement dated March 31, 1995 by and between Gottschalks Inc. and
the following senior executives of the Company: Joseph W. Levy, Gary L. Gladding and Michael J.
Schmidt(*)                                                                                                                                                                   | Annual Report on Form 10-K for the year ended January 28, 1995 (File No. 1-09100)                                      
|10.12              | 1994 Key Employee Incentive Stock Option Plan(*)                                                                                                                                                                                                                                                                                                                  | Registration Statement on Form S-8 (File #33-54789)                                                                    
|10.13              | 1994 Director Nonqualified Stock Option Plan(*)                                                                                                                                                                                                                                                                                                                   | Registration Statement on Form S-8 (File #33-54783)                                                                    
|10.14              | Agreement of Sale dated June 27, 1995, by and between Gottschalks Inc. and Jack
Baskin relating to the sale and leaseback of the Capitola, California property                                                                                                                                                                                                    | Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No. 1-09100)                                   
|10.15              | Lease and Agreement dated June 27, 1995, by and between Jack Baskin and Gottschalks
Inc. relating to the sale and leaseback of the Capitola, California property                                                                                                                                                                                                  | Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (File No. 1-09100)                                   
|10.16              | Promissory Notes and Security Agreements dated October 4, 1995 and October 10, 1995
by and between Gottschalks Inc. and Midland Commercial Funding                                                                                                                                                                                                                | Quarterly Report on Form 10-Q for the quarter ended October 28, 1995 (File No. 1-09100)                                
|10.17              | Promissory Note and Security Agreement dated October 2, 1996, by and between
Gottschalks Inc. and Heller Financial, Inc. (**)                                                                                                                                                                                                                                     | Quarterly Report on Form 10-Q for the year ended November 2, 1996 (File No. 1-09100)                                   
|10.18              | Gottschalks Inc. 1998 Stock Option Plan(*)                                                                                                                                                                                                                                                                                                                        | Registration Statement on Form S-8 (File #33-61471)                                                                    
|10.19              | Gottschalks Inc. 1998 Employee Stock Purchase Plan(*)                                                                                                                                                                                                                                                                                                             | Registration Statement on Form S-8 (File #33-61473)                                                                    
|10.20              | Asset Purchase Agreement dated as of July 21, 1998 among Gottschalks Inc., The
Harris Company and El Corte Ingles, S. A. together with all Exhibits thereto                                                                                                                                                                                                       | Current Report on Form 8-K dated July 21, 1998 (File No. 1-09100)                                                      
|10.21              | Non-Negotiable, Extendable, Subordinated Note due August 20, 2003 issued to The
Harris Company                                                                                                                                                                                                                                                                    | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.22              | Registration Rights Agreement between The Harris Company and Gottschalks Inc. dated
August 20, 1998                                                                                                                                                                                                                                                               | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.23              | Tradename License Agreement between The Harris Company and Gottschalks Inc. dated
August 20, 1998                                                                                                                                                                                                                                                                 | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.24              | Stockholders' Agreement among El Corte Ingles, S. A., Gottschalks Inc., Joseph Levy
and Bret Levy dated August 20, 1998                                                                                                                                                                                                                                           | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.25              | Standstill Agreement between El Corte Ingles, S. A., and Gottschalks Inc. dated
August 20, 1998                                                                                                                                                                                                                                                                   | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.26              | Store Lease Agreement between El Corte Ingles, S. A., and Gottschalks Inc. dated
August 20, 1998 re: East Hills Mall, Bakersfield, California                                                                                                                                                                                                                     | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.27              | Store Lease Agreement between El Corte Ingles, S. A., and Gottschalks Inc. dated
August 20, 1998 re: Moreno Valley Mall at Towngate, Moreno Valley, California                                                                                                                                                                                                    | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.28              | Store Lease Agreement between El Corte Ingles, S. A., and Gottschalks Inc. dated
August 20, 1998 re: Antelope Valley Mall at Palmdale, California                                                                                                                                                                                                                 | Current Report on Form 8-K dated August 20, 1998 (File No. 1-09100)                                                    
|10.29              | Form of Severance Agreement dated January 21, 1999 by and between Gottschalks Inc.
and Michael S. Geele (*)                                                                                                                                                                                                                                                       | Annual Report on Form 10-K for the year ended January 30,1999 (File No. 1-09100)                                       
|10.30              | Receivables Purchase Agreement dated March 1, 1999 by and between Gottschalks Credit
Receivables Corporation and Gottschalks Inc.                                                                                                                                                                                                                                 | Annual Report on Form 10-K for the year ended January 30, 1999 (File No. 1-09100)                                      
|10.31              | Pooling and Servicing Agreement dated as of March 1, 1999 by and among Gottschalks
Credit Receivables Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                                                                                                                                     | Annual Report on Form 10-K for the year ended January 30, 1999 (File No. 1-09100)                                      
|10.32              | Series 1999-1 Supplement to Pooling and Servicing Agreement dated March 1, 1999 by
and among Gottschalks Credit Receivables Corporation, Gottschalks Inc. and Bankers Trust Company                                                                                                                                                                               | Annual Report on Form 10-K for the year ended January 30, 1999 (File No. 1-09100)                                      
|10.33              | Employment Agreement dated June 25, 1999 by and between Gottschalks Inc. and James
R. Famalette(*).                                                                                                                                                                                                                                                               | Quarterly Report on Form 10-Q for the quarter ended July 31, 1999 (File No. 1-09100)                                   
|10.34              | Asset Purchase Agreement dated April 24, 2000 by and between Gottschalks Inc. and
Lamonts Apparel, Inc.                                                                                                                                                                                                                                                           | Annual Report on Form 10-K for the year ended January 29, 2000 (File No. 1-09100)                                      
|10.35              | Amendment No. 1 to the Asset Purchase Agreement dated May 16, 2000 by and between
Gottschalks Inc. and Lamonts Apparel, Inc.                                                                                                                                                                                                                                      | Quarterly Report on Form 10-Q for the quarter ended July 29, 2000 (File No. 1-09100)                                   
|10.36              | Promissory Note dated July 24, 2000 by and between Gottschalks Inc. and Heller
Financial Leasing, Inc. (**)                                                                                                                                                                                                                                                       | Quarterly Report on Form 10-Q for the Quarter ended July 29, 2000 (File No. 1-09100)                                   
|10.37              | Series 2000-1 Supplement to the Pooling and Servicing Agreement dated as of November
16, 2000 by and among Gottschalks Credit Receivables Corporation, Gottschalks Inc. and Bankers Trust
Company                                                                                                                                                                 | Annual Report on Form 10-K for the year ended February 3, 2001 (File No. 1-09100)                                      
|10.38              | Amendment No. 1 to Pooling and Servicing Agreement and the Series 1999-1 Supplement
dated November 16, 2000 by and among Gottschalks Credit Receivables Corporation, Gottschalks Inc.
and Bankers Trust Company                                                                                                                                                   | Annual Report on Form 10-K for the year ended February 3, 2001 (File No. 1-09100)                                      
|10.39              | Promissory Note and Security Agreement dated May 16, 2001, by and between
Gottschalks Inc, and Heller Financial, Inc. (**)                                                                                                                                                                                                                                        | Quarterly Report on Form 10-Q for the quarter ended May 5, 2001 (File No. 1-09100)                                     
|10.40              | Amended and Restated Series 2000-1 Supplement to the Pooling and Servicing Agreement
dated as of November 15, 2001 by and among Gottschalks Credit Receivables Corporation, Gottschalks
Inc. and Bankers Trust Company                                                                                                                                            | Annual Report on Form 10-K for the year ended February 2, 2002 (File No. 1-09100)                                      
|10.41              | Certificate Purchase Agreement dated November 15, 2001 by and among Warehouse Line
LLC, Bank Hapoalim B.M., and Gottschalks Credit Receivables Corporation                                                                                                                                                                                                        | Annual Report on Form 10-K for the year ended February 2, 2002 (File No. 1-09100)                                      
|10.42              | Amendment to Employment Agreement dated December 3, 2001 by and between Gottschalks
Inc. and James R. Famalette (*)                                                                                                                                                                                                                                               | Annual Report on Form 10-K for the year ended February 2, 2002 (File No. 1-09100)                                      
|10.43              | Credit Agreement dated January 31, 2002 by and among Gottschalks Inc., General
Electric Capital Corporation and The CIT Group/Business Credit                                                                                                                                                                                                                     | Current Report on Form 8-K dated January 31, 2002                                                                      
|10.44              | Credit Facilitation Agreement dated February 22, 2002 by and between Gottschalks
Inc. and The Harris Company                                                                                                                                                                                                                                                      | Current Report on Form 8-K/A (Amendment No. 2) dated February 22, 2002 (File No. 1-09100)                              
|10.45              | First Amendment to Credit Agreement dated February 22, 2002 by and among Gottschalks
Inc., General Electric Capital Corporation and The CIT Group/Business Credit                                                                                                                                                                                                 | Current Report on Form 8-K/A (Amendment No. 2) dated February 22, 2002 (File No. 1-09100)                              
|10.46              | Credit Agreement dated March 22, 2002 by and between Gottschalks Inc. and KIMCO
Capital Corp.                                                                                                                                                                                                                                                                     | Annual Report on Form 10-K for the year ended February 2, 2002 (File No. 1-09100)                                      
|10.47              | Second Amendment to Credit Agreement dated March 22, 2002 by and among Gottschalks
Inc., General Electric Capital Corporation, The CIT Group/Business Credit, LaSalle Retail Finance
and Foothill Capital Corporation                                                                                                                                             | Annual Report on Form 10-K for the year ended February 2, 2002 (File No. 1-09100)                                      
|10.48              | Third Amendment to Credit Agreement dated April 30, 2002, by and among Gottschalks
Inc., General Electric Capital Corporation, The CIT Group/Business Credit, LaSalle Retail Finance
and Foothill Capital Corporation                                                                                                                                             | Current Report on Form 8-K dated May 6, 2002                                                                           
|10.49              | First Amendment to Credit Facilitation Agreement dated May 29, 2002, by and between
Gottschalks Inc. and Harris                                                                                                                                                                                                                                                   | Current Report on Form 8-K dated May 29, 2002                                                                          
|10.50              | Second Amendment to Credit Facilitation Agreement dated August 29, 2002, by and
between Gottschalks Inc. and Harris                                                                                                                                                                                                                                               | Current Report on Form 8-K dated August 29, 2002                                                                       
|10.51              | Third Amendment to Credit Facilitation Agreement dated January 10, 2003, by and
between Gottschalks Inc. and Harris                                                                                                                                                                                                                                               | Current Report on Form 8-K dated January 10, 2003                                                                      
|10.52              | Purchase and Sale Agreement dated January 30, 2003 by and among Gottschalks Credit
Receivables Corporation, Gottschalks Inc. and Household Bank (SB), N.A.                                                                                                                                                                                                        | Current Report on Form 8-K dated January 31, 2003                                                                      
|10.53              | Interim Servicing Agreement dated January 30, 2003 by and between Gottschalks Inc.
and Household Bank (SB), N.A.                                                                                                                                                                                                                                                  | Current Report on Form 8-K dated January 31, 2003                                                                      
|10.54              | Credit Card Program Agreement dated January 30, 2003 by and between Gottschalks Inc.
and Household Bank (SB), N.A.                                                                                                                                                                                                                                                | Current Report on Form 8-K dated January 31, 2003                                                                      
|10.55              | Amendment to Amended and Restated Receivables Purchase Agreement dated January 31,
2003 by and between Gottschalks Inc. and Gottschalks Credit Receivables Corporation                                                                                                                                                                                            | Current Report on Form 8-K dated January 31, 2003                                                                      
|10.56              | Consent and Fourth Amendment to Credit Agreement dated January 30, 2003 by and among
Gottschalks Inc., General Electric Capital Corporation, The CIT Group/Business Credit, Inc., LaSalle
Retail Finance, and Foothill Capital Corporation                                                                                                                        | Current Report on Form 8-K dated January 31, 2003                                                                      
|10.57              | Fifth Amendment to Credit Agreement dated January 30, 2003 by and among Gottschalks
Inc., General Electric Capital Corporation, The CIT Group/Business Credit, Inc., LaSalle Retail
Finance, and Foothill Capital Corporation.                                                                                                                                    | Current Report on Form 8-K dated January 31, 2003                                                                      
|10.58              | Acknowledgement, Release and Amendment to Credit Agreement dated January 30, 2003 by
and between Gottschalks Inc. and Kimco Capital Corp.                                                                                                                                                                                                                         | Current Report on Form 8-K dated January 31, 2003                                                                      
|10.59              | Sixth Amendment to Credit Agreement dated February 28, 2003 by and among Gottschalks
Inc., General Electric Capital Corporation, The CIT Group/Business Credit, Inc., LaSalle Retail
Finance, and Foothill Capital Corporation.                                                                                                                                   | Current Report on Form 8-K dated March 4, 2003.                                                                        
|10.60              | Seventh Amendment to Credit Agreement dated May 2, 2003 by and among Gottschalks
Inc., General Electric Capital Corporation, The CIT  Group/Business Credit, Inc., LaSalle Retail
Finance, and Foothill Capital Corporation.                                                                                                                                      | Current Report on Form 8-K dated May 5, 2003.                                                                          
|21.                | Subsidiary of the Registrant                                                                                                                                                                                                                                                                                                                                      | Annual Report on Form 10-K for the year ended January 28, 1995 (File No. 1-09100)                                      
|23.
31.1
31.2
32.1 | Consent of Independent Registered Public Accounting Firm
Rule 13a - 14(a) Certification of Chief Executive Officer
Rule 13a - 14(a) Certification of Chief Financial Officer
Certification of President and Chief Executive Officer and Chief Administrative Officer Pursuant to 18 U.S.C. §1350,
As Adopted Pursuant to  §906 of the Sarbanes-Oxley Act of 2002. | Filed electronically herewith
Filed electronically herewith
Filed electronically herewith
Filed electronically herewith

(*)	Management contract, compensatory plan or arrangement.

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

---

ANNUAL REPORT ON FORM 10-K

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

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULE

YEAR ENDED JANUARY 29, 2005

GOTTSCHALKS INC. AND SUBSIDIARY

FRESNO, CALIFORNIA

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Gottschalks Inc.
and Subsidiary (the "Company") as of January 29, 2005 and January 31, 2004, and the
related consolidated statements of operations, stockholders' equity and cash flows for each of the
three fiscal years in the period ended January 29, 2005.  Our audits also included the financial
statement schedule listed in the Index at Item 15 (a)(2).  These financial statements and financial
statement schedule are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting.  Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.  Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Gottschalks Inc. and Subsidiary at January 29, 2005 and
January 31, 2004, and the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 29, 2005 in conformity with accounting principles generally
accepted in the United States of America.  Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 16, the Company's fiscal 2003 and 2002 consolidated financial statements
have been restated.



/s/ Deloitte & Touche LLP

Fresno, California
   April 29, 2005

---



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

---

`January 29,  January 31,
                                                           2005         2004
                                                        -----------  -----------
                                                                    (As Restated)
                                                                    (See Note 16)
ASSETS
CURRENT ASSETS:
  Cash................................................ $     5,470  $     5,172
  Receivables - net...................................       6,920        9,145
  Merchandise inventories.............................     152,753      156,552
  Other...............................................       9,669       10,849
                                                        -----------  -----------
    Total current assets..............................     174,812      181,718

PROPERTY AND EQUIPMENT - net..........................     126,509      127,561

OTHER ASSETS:
  Goodwill - net......................................       7,501        7,501
  Other intangibles - net.............................         652          689
  Other...............................................       6,101        4,730
                                                        -----------  -----------
                                                            14,254       12,920
                                                        -----------  -----------
                                                       $   315,575  $   322,199
                                                        ===========  ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Trade accounts payable and accrued expenses......... $    75,414  $    67,467
  Revolving line of credit............................                   51,009
  Current portion of long-term debt...................       1,525        1,789
  Current portion of capitalized lease obligations....       1,717        1,936
  Deferred income taxes...............................       1,717        1,073
                                                        -----------  -----------
    Total current liabilities.........................      80,373      123,274

LONG-TERM OBLIGATIONS, less current portion...........      71,403       41,302

OTHER LIABILITIES.....................................      18,298       18,228

DEFERRED INCOME TAXES.................................      11,965       10,847

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

COMMITMENTS AND CONTINGENCIES (Notes 7 and 15)

STOCKHOLDERS' EQUITY:
  Common stock, par value of $.01 per share;
    30,000,000 shares authorized; 12,955,935
    and 12,878,802 issued.............................         130          129
  Additional paid-in capital..........................      72,146       71,440
  Retained earnings...................................      40,080       34,799
                                                        -----------  -----------
                                                           112,356      106,368
                                                        -----------  -----------
                                                       $   315,575  $   322,199
                                                        ===========  ===========`

See notes to consolidated financial statements.

---



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

---

`Fiscal Years Ended
                                                        ----------------------------------------
                                                        January 29,   January 31,   February 1,
                                                            2005          2004          2003
                                                        ------------  ------------  ------------
                                                                      (As Restated) (As Restated)
                                                                      (See Note 16) (See Note 16)

Net sales............................................. $    661,992  $    660,574  $    665,916
Net credit revenues...................................        3,106         3,729         8,225
Net leased department revenues........................        3,515         3,525         3,557
                                                        ------------  ------------  ------------
    Total revenues....................................      668,613       667,828       677,698
                                                        ------------  ------------  ------------
Costs and expenses:
  Cost of sales.......................................      432,128       435,370       441,426
  Selling, general and
    administrative expenses...........................      206,897       203,448       207,367
  Depreciation and amortization.......................       13,325        14,497        14,633
  Asset impairment charges............................           --            --         9,502
  Receivables sale costs..............................           --            --         1,749
                                                        ------------  ------------  ------------
     Total costs and expenses.........................      652,350       653,315       674,677
                                                        ------------  ------------  ------------
Operating income .....................................       16,263        14,513         3,021
                                                        ------------  ------------  ------------
Other (income) expense:
  Interest expense....................................        9,509        13,296        15,883
  Losses on early extinguishment of debt..............           --            --         3,695
  Miscellaneous income................................       (1,565)       (2,262)       (1,802)
                                                        ------------  ------------  ------------
                                                              7,944        11,034        17,776
                                                        ------------  ------------  ------------
Income (loss) from continuing operations
  before income tax (benefit).........................        8,319         3,479       (14,755)

Income tax expense (benefit)..........................        3,018         1,243        (6,838)
                                                        ------------  ------------  ------------

Income (loss) from continuing operations..............        5,301         2,236        (7,917)

Discontinued operations:
  Loss from operations of closed stores...............           --          (547)       (1,948)
  Loss on store closures..............................          (31)         (789)       (4,801)
  Income tax benefit..................................          (11)         (454)       (2,295)
                                                        ------------  ------------  ------------
  Loss on discontinued operations.....................          (20)         (882)       (4,454)
                                                        ------------  ------------  ------------
  Net income (loss)................................... $      5,281  $      1,354  $    (12,371)
                                                        ============  ============  ============

Net income (loss) per common share:
Basic
  Income (loss) from continuing operations............ $       0.41  $       0.17  $      (0.62)
  Loss on discontinued operations .................... $      (0.00) $      (0.07) $      (0.35)
  Net income (loss) per common share.................. $       0.41  $       0.10  $      (0.97)
Diluted
  Income (loss) from continuing operations............ $       0.40  $       0.17  $      (0.62)
  Loss on discontinued operations .................... $      (0.00) $      (0.07) $      (0.35)
  Net income (loss) per common share.................. $       0.40  $       0.10  $      (0.97)
Weighted average number of common shares outstanding
  Basic...............................................       12,922        12,830        12,747
  Diluted.............................................       13,352        12,919        12,747`

See notes to consolidated financial statements.

---



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

---

`Common Stock   Additional
                                         -------------------   Paid-in    Retained
                                           Shares     Amount   Capital    Earnings     Total
                                         -----------  ------  ----------  ---------  ---------
BALANCE, FEBRUARY 2, 2002
  (As previously reported, see Note 16). 12,726,364  $  127  $   71,189  $  46,856  $ 118,172
  Prior period adjustment...............                                    (1,040)    (1,040)
                                         -----------  ------  ----------  ---------  ---------

BALANCE, FEBRUARY 2, 2002
  (As restated, see Note 16)............ 12,726,364     127      71,189     45,816    117,132
  Net loss (as restated, See Note 16)...                                   (12,371)   (12,371)
  Shares issued under
   stock purchase plan and
   related tax benefit..................     75,305       1         124                   125
                                         -----------  ------  ----------  ---------  ---------

BALANCE, FEBRUARY 1, 2003
  (As restated, see Note 16)............ 12,801,669     128      71,313     33,445    104,886
  Net income (as restated, see Note 16).                                     1,354      1,354
  Issuance of common stock
   pursuant to nonqualified
   stock purchase plan and
   related tax benefit..................      9,000                  27                    27
  Shares issued under
   stock purchase plan and
   related tax benefit..................     68,133       1         100                   101
                                         -----------  ------  ----------  ---------  ---------

BALANCE, JANUARY 31, 2004
  (As restated, see Note 16)............ 12,878,802     129      71,440     34,799    106,368
  Net income............................                                     5,281      5,281
  Issuance of common stock
   pursuant to nonqualified
   stock purchase plan and
   related tax benefit..................    132,250       1         634                   635
  Shares issued under
   stock purchase plan and
   related tax benefit..................     19,217                  72                    72
                                         -----------  ------  ----------  ---------  ---------
BALANCE, JANUARY 29, 2005............... 13,030,269  $  130  $   72,146  $  40,080  $ 112,356
                                         ===========  ======  ==========  =========  =========`

See notes to consolidated financial statements.

---



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

---

`Fiscal Years Ended
                                                                        ----------------------------------------
                                                                        January 29,   January 31,   February 1,
                                                                            2005          2004          2003
                                                                        ------------  ------------  ------------
                                                                                      (As restated) (As restated)
                                                                                      (See Note 16) (See Note 16)
OPERATING ACTIVITIES:
Net income (loss)..................................................... $      5,281  $      1,354  $    (12,371)
Adjustments:
  Depreciation and amortization.......................................       13,326        14,569        15,518
  Deferred income taxes...............................................        1,761            24        (2,955)
  Amortization of deferred income and
    other deferred items..............................................           69        (2,446)          436
  Net proceeds from sale of credit card accounts receivable...........           --            --        26,233
  Provision for credit losses.........................................                        200           825
  Asset impairment charges............................................                         --        10,867
  Store closure costs.................................................           31           789         3,762
  Net loss on sales of stores.........................................                                     (326)
  Net loss from sale of assets........................................           16            59           131
  Other non-cash items, net...........................................          (31)         (968)         (139)
Changes in assets and liabilities:
     Receivables......................................................        2,225         1,295        (7,051)
     Merchandise inventories..........................................        5,287         9,332        (2,370)
     Other current and long-term assets...............................          779         3,515         9,184
     Trade accounts payable and accrued expenses......................        8,005        (5,842)        5,950
     Other current and long-term liabilities..........................        1,787         1,181        (4,669)
                                                                        ------------  ------------  ------------
         Net cash provided by operating activities....................       38,536        23,062        43,025

INVESTING ACTIVITIES:
Purchases of property and equipment...................................      (13,745)       (4,363)       (8,279)
Proceeds from sale of lease rights, fixtures and equipment............            3            27         1,010
Proceeds from investment in limited partnership.......................           91           352           216
                                                                        ------------  ------------  ------------
        Net cash used in investing activities.........................      (13,651)       (3,984)       (7,053)

FINANCING ACTIVITIES:
Net proceeds (repayments) from new revolving credit facility..........      (14,256)       (7,836)      (37,062)
Proceeds from sale and leaseback transactions.........................           --            --         1,334
Proceeds from long-term obligations...................................        9,000            --        20,010
Principal payments on long-term obligations...........................      (17,135)       (4,568)      (14,737)
Changes in cash management liability..................................       (1,843)       (7,845)       (1,195)
Debt issuance costs...................................................       (1,060)           --          (973)
Proceeds from exercise of options.....................................          635            27            --
Proceeds from sale of stock under employee
  stock purchase plans................................................           72           101           125
                                                                        ------------  ------------  ------------
Net cash (used in) financing activities...............................      (24,587)      (20,121)      (32,498)
                                                                        ------------  ------------  ------------
INCREASE (DECREASE) IN CASH...........................................          298        (1,043)        3,474
CASH AT BEGINNING OF YEAR.............................................        5,172         6,215         2,741
                                                                        ------------  ------------  ------------
CASH AT END OF YEAR................................................... $      5,470  $      5,172  $      6,215
                                                                        ============  ============  ============`

See notes to consolidated financial statements.

---

GOTTSCHALKS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES


Gottschalks Inc. (the "Company") is a regional department and specialty
store chain based in Fresno, California. As of January 29, 2005, the Company operated 63 full-line
department stores located in six Western states, with 39 stores located in California, 12 in
Washington, 6 in Alaska, 2 in Oregon and 2 in both Nevada and Idaho. The Company also operated 6
specialty stores which carry a limited selection of merchandise. The Company's department stores
typically offer a wide range of better to moderate brand-name and private-label merchandise,
including men's, women's, junior's and children's apparel, cosmetics, shoes and accessories, and
also a wide array of home furnishings, including domestics, china, housewares, small electrics and,
in certain locations, furniture and mattresses.
Use of Estimates - The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Such estimates and
assumptions are subject to inherent uncertainties which may cause actual results to differ from
reported amounts.
Principles of Consolidation - The accompanying financial statements include
the accounts of Gottschalks Inc., and its wholly-owned subsidiary, Gottschalks Credit Receivables
Corporation ("GCRC") (collectively, the "Company") for the year ended February
1, 2003. 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 2004, 2003 and 2002 ended on January 29, 2005, January 31, 2004 and February 1,
2003 , respectively. Fiscal 2004, 2003 and 2002 each included 52 weeks.
Revenue Recognition - Net retail sales are recorded at the point-of-sale and
include sales of merchandise, net of estimated returns and exclusive of sales tax. Net retail sales
also include all amounts billed to customers for shipping and handling, including customer delivery
charges. Revenues on special order sales are recognized when the merchandise is delivered to the
customer and has been paid for in its entirety. The Company does not sell merchandise on layaway.
The Company's policy with respect to gift certificates is to record revenue as the certificates are
redeemed for merchandise.  Prior to their redemption, the certificates are recorded as a liability.
A reserve for estimated returns is established when sales are recorded.

Net leased department revenues consist of rental income from lessees and
sub-lessees. Sales generated in such leased departments totaled $24,295,000, $24,460,000 and $24,878,000
in 2004, 2003 and 2002, respectively.
Transfers and Servicing of Financial Assets - On January 31, 2003, the
Company terminated its receivables securitization program and sold substantially all of its customer
credit card receivables to Household Bank (SB), N.A. (now "HSBC") (Note 2).

At that time the Company also entered into an interim servicing agreement to
service the receivables on behalf of HSBC until such time as they were able to convert the accounts
to their systems and a program agreement whereby the Company will participate in revenues generated
from the portfolio.  The transaction was accounted for as a sale of financial assets in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".  Servicing fees received under
the interim servicing agreement were considered to approximate the fair value of the cost to service
the receivables during the interim servicing period, resulting in no servicing asset or liability.
A portion of the program fees paid represented residual interest in the assets transferred at the
time of the transaction.  Accordingly, the Company recorded an interest only strip in the amount of
$313,000 that was amortized as a charge to results of operations over the estimated life of the
underlying assets sold on the transaction date.

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

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

Receivables -	As of January 29, 2005 and January 31, 2004 , receivables
consist of vendor claims of $7,010,000, less allowances of $90,000, and vendor claims of $9,426,000,
less allowances of $281,000, respectively.
Merchandise Inventories - Inventories, which consist of merchandise held for
resale, are valued by the retail method and are stated at last-in, first-out (LIFO) cost, which is
not in excess of market. Current cost, which approximates replacement cost, under the first-in,
first-out (FIFO) method is equal to the LIFO value of inventories at January 29, 2005 and January
31, 2004 . The Company includes in inventory the capitalization of certain indirect buying handling
and distribution costs to better match these costs with the related sales.

Under the retail inventory method, inventory is segregated into departments of
merchandise having similar characteristics, and is stated at its current retail selling value.
Inventory retail values are converted to a cost basis by applying specific average cost factors for
each merchandise department. Cost factors represent the average cost-to-retail ratio for each
merchandise department based on beginning inventory and the fiscal year purchase activity. The
retail inventory method inherently requires management judgments and estimates, such as the amount
and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact
the ending inventory valuation as well as gross margins.

Permanent markdowns designated for clearance activity are recorded when the
utility of the inventory has diminished. Factors considered in the determination of permanent
markdowns include current and anticipated demand, customer preferences, age of the merchandise and
fashion trends. When a decision is made to permanently mark down merchandise, the resulting gross
margin reduction is recognized in the period the markdown is recorded.

Shrinkage is estimated as a percentage of sales for the period from the last
inventory date to the end of the fiscal period. Such estimates are based on experience and the most
recent physical inventory results. Physical inventories are taken within each merchandise department
annually and inventory records are adjusted accordingly.

The Company receives cash or allowances from merchandise vendors as purchase
price adjustments and in connection with cooperative advertising programs. Purchase price
adjustments are generally credited to cost of sales and cooperative advertising allowances are
generally credited against advertising expense in accordance with Emerging Issues Task Force
("EITF") Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor."
Store Closure Costs - In the event a store is closed before its lease has
expired, the remaining lease obligation after the closing date (less anticipated sublease rental
income or proceeds from lease settlements, if any) is expensed at the date the store ceases
operations. Asset impairment charges, if any, related to furniture, fixtures and equipment,
leasehold improvements, goodwill and leasehold interests are expensed in the period in which
management adopts a plan to close the store if impairment is considered likely as a result of such
planned store closure or at such other time as impairment becomes likely. Severance and other
incremental costs associated with a store closure are expensed as incurred.
New Store Pre-Opening Costs - New store pre-opening costs are expensed as
incurred and may vary significantly from year to year depending on the number of new stores opened.
Property and Equipment - Depreciation of owned properties is provided
primarily on a straight-line basis over the estimated asset lives, which range from 15 to 40 years
for buildings and leasehold improvements and 3 to 15 years for furniture, fixtures and equipment.
Buildings on leased land and leasehold improvements are amortized over the shorter of their economic
lives or the lease term, beginning on the date the asset is put into use.  The lease term, which
includes all renewal periods that are considered to be reasonably assured, begins on the date the
Company has access to the leased property. The amortization of buildings and equipment under capital
leases is computed by the straight-line method over the term of the lease or the estimated economic
life of the asset, depending on the criteria used to classify the lease, and such amortization is
combined with depreciation in the accompanying statements of operations.

Operating Leases - The Company recognizes operating lease minimum rentals
on a straight-line basis over the lease term. The Company receives contributions from landlords to
fund buildings and leasehold improvements. Such contributions are recorded as deferred rent and
amortized as reductions to lease expense over the lease term.  Executory costs such as real estate
taxes and maintenance, and contingent rentals such as those based on a percentage of sales are
recognized as incurred. The lease term, which includes all renewal periods that are considered to be
reasonably assured, begins on the date the Company has access to the leased property.  Deferred
lease payments totaling $3,431,000 at January 29, 2005 and $4,401,000 at January 31, 2004, are
included in other liabilities.
Software Development Costs - Costs associated with the acquisition or
development of software for internal use that meet the criteria of AICPA Statement of Position No.
98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use"
are capitalized and amortized over the expected useful life of the software, which generally ranges
from 3 to 10 years. Software development costs capitalized under SOP No. 98-1 in fiscal 2004, 2003
and 2002 totaled $74,000, $29,000 and $673,000 respectively. In 2003 and 2002, the Company completed
and placed in service all information systems projects to which such costs were capitalized and
commenced the amortization of such costs over their estimated useful lives at that time.
Amortization of such costs totaled $428,000, $408,000 and $260,000 in fiscal 2004, 2003 and 2002
respectively.
Goodwill - Goodwill and intangible assets having indefinite lives are not
being amortized to earnings, but instead are subject to periodic testing for impairment. Goodwill
and other intangible assets of a reporting unit are tested for impairment on an annual basis and
more frequently if certain indicators are encountered. The Company has performed the required annual
impairment review of goodwill for each of the fiscal years reported and concluded that there was no
indication of impairment as of the respective measurement dates.

Leasehold Interests - Leasehold interests associated with acquired leases
are amortized on a straight-line basis over the respective lease terms, including option renewal
periods if renewal of the lease is probable, which range from 1 to 20 years.
Cash Management Liability - Under the Company's cash management program,
checks issued by the Company and not yet presented for payment frequently result in overdraft
balances for accounting purposes. Such amounts represent interest-free, short-term borrowings by the
Company.
Deferred Income - Deferred income consists primarily of donated land and
lease incentives received to construct a store and enter into a lease arrangement, and the prepaid
program fee arising from the receivables sale to HSBC. Land contributed to the Company is included
in land and recorded at appraised fair market values. Deferred income relating to contributed land
is amortized over the average depreciable life of the related fixed assets built on the land for
locations that are owned by the Company, and over the minimum lease periods of the related building
leases with respect to locations that are leased by the Company, ranging from 10 to 32 years. Lease
incentives are amortized as reductions in rent expense over the lease term which includes all
renewal periods that are considered to be reasonably assured. Beginning in fiscal 2003, the prepaid
program fee is being amortized over the five-year term of the program agreement. Deferred income,
net of accumulated amortization, totaling $11,832,000 and $13,335,000 as of January 29, 2005 and
January 31, 2004 respectively, is included in other long-term liabilities.
Advertising Costs - Advertising costs, net of cooperative advertising
allowances, totaling $29,964,000, $30,597,000 and $31,245,000 in 2004, 2003 and 2002, respectively,
are included in selling, general and administrative expenses for financial reporting purposes and
are expensed when the related advertisement first takes place.
Income Taxes - Deferred tax assets and liabilities are generally recognized
for the expected future tax consequences of events that have been included in the financial
statements or tax returns, determined based on the differences between the financial statement and
tax basis of assets and liabilities and net operating loss and tax credit carryforwards, and by
using enacted tax rates in effect when the differences are expected to reverse. A valuation
allowance is recorded when it is more likely than not that the carrying amounts of deferred tax
assets will not be fully realized.
Stock-Based Compensation -  At January 29, 2005, the Company has two
stock-based employee compensation plans, which are more fully described in Note 12.  The Company accounts
for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations.  No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of the grant.

The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation.  The Company's calculations were
made using the Black-Scholes option pricing model, which is more fully described in Note 12.

(In thousands, except per share data)               2004       2003       2002
-----------------------------------------------   --------   --------   --------
Net income (loss) as reported.................. $   5,281  $   1,354  $ (12,371)
Deduct: Total stock-based compensation expense
  determined under fair value based method
  for all awards, net of related tax effects...      (308)       (99)      (347)
                                                  --------   --------   --------
Pro forma net income (loss).................... $   4,973  $   1,255  $ (12,718)
                                                  ========   ========   ========

Earnings (loss) per share:
  As reported:
   Basic....................................... $    0.41  $    0.10  $   (0.97)
   Diluted..................................... $    0.40  $    0.10  $   (0.97)

  Pro-forma:
   Basic....................................... $    0.38  $    0.10  $   (1.00)
   Diluted..................................... $    0.37  $    0.10  $   (1.00)

Long-Lived Assets - The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets other than goodwill, when events
and circumstances warrant such a review. When the anticipated undiscounted cash flow from a
long-lived asset is less than its carrying value, a loss is recognized based on the amount by which its
carrying value exceeds its fair market value. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risks involved, and in some cases,
the expected proceeds from the sale or sublease of a particular asset, or independent appraisals.
There were no asset impairment charges from continuing operations recognized in 2004 or 2003. In
2002, the Company recognized asset impairment charges of $9,502,000 relating to underperforming
stores (Note 9) and $4,523,000 in connection with stores closed during fiscal 2003 and 2002 (Note 8).

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

Fair Value of Financial Instruments - The carrying value of the Company's
cash and cash management liability, receivables, trade payables and other accrued expenses,
revolving line of credit and letters of credit approximate their estimated fair values because of
the short maturities or variable interest rates underlying those instruments. The Subordinated Note
is carried at its estimated fair value.
The fair values of the Company's mortgage loans and notes payable are
estimated using discounted cash flow analysis, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements. Borrowings with aggregate carrying values of
$23,186,000 and $37,464,000 at January 29, 2005 and January 31, 2004, had estimated fair values of
$25,033,000 and $39,712,000  at January 29, 2005 and January 31, 2004, respectively.
Segment Reporting - The Company operates in one reportable segment.
Comprehensive Income - There were no items of other comprehensive income in
2004, 2003 or 2002, and therefore net income is equal to comprehensive income for each of those
years.
Recently Issued Accounting Standards -  In November 2004, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 151, "Inventory Costs - An Amendment of Accounting Research Bulletin (ARB)
No. 43, Chapter 4." This statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material (spoilage) and is effective
for fiscal years beginning after June 15, 2005. The Company does not anticipate that the
adoption of this statement will have a material impact on the Company's consolidated financial
position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"). This statement is a revision of SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values. Under the provisions of this statement, the Company
must determine the appropriate fair value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be used at the date of
adoption. The transition alternatives include retrospective and prospective adoption methods. Under
the retrospective method, prior periods may be restated based on the amounts previously recognized
under SFAS 123 for purposes of pro forma disclosures either for all periods presented or as of the
beginning of the year of adoption.  The prospective method requires that compensation expense be
recognized beginning with the effective date, based on the requirements of this statement, for all
share-based payments granted after the effective date, and based on the requirements of SFAS 123,
for all awards granted to employees prior to the effective date of this statement that remain
unvested on the effective date.  The provisions of this statement are effective as of the beginning
of the first  annual reporting period that begins after June 15, 2005. The Company is currently
evaluating the requirements of this revision and has not determined the impact of adopting this
standard.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions." This statement eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
and replaces it with an exception for exchanges that do not have commercial substance. The
provisions of the statement are effective for fiscal periods beginning after June 15, 2005. The
Company does not anticipate that the adoption of this statement will have a material impact on the
Company's consolidated financial position, results of operations or cash flows.

During 2002, the Emerging Issues Task Force reached a consensus on Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor."  Under the new guidance, if the consideration received represents a payment for assets
delivered to the vendor, it should be classified as revenue. If the consideration is a reimbursement of a specific, incremental, identifiable cost incurred in selling the vendor's
product, the cost should be characterized as a reduction of that incurred cost.  Generally, all other cash consideration received from a vendor should be classified as a reduction of cost of sales.  As
required, the Company adopted this guidance in the first quarter of 2003 and its adoption has had no material impact on the Company's sales, results of operations or financial position.Reclassifications - Certain amounts in the accompanying 2003 and 2002
consolidated financial statements have been reclassified to conform with the 2004 presentation.

2.	SALE OF RECEIVABLES AND RECEIVABLES

Sale of Receivables

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

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

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

In connection with the sale the Company recorded receivable sale transaction
costs of $2,062,000 in 2002 including consulting, legal, and other fees, and the net non-cash
write-off of the remaining accounts of GCRC.  These charges are partially offset by a $313,000 interest
only strip that was amortized over the estimated life of the underlying assets sold (estimated to be
approximately five months).  The interest only strip represents the portion of the initial program
fees to be received that is considered a residual interest in the assets sold.

In addition to the receivable sale transaction costs, the Company recorded a loss
on the extinguishment of debt of $3,695,000 in 2002 arising from securitization program prepayment
penalties and the write-off of unamortized deferred loan fees related to the program.

Receivables Securitization Program

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

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

(In thousands)                                   2004        2003        2002
--------------------------------------------  ----------  ----------  ----------
Service charge revenues..................... $    2,955  $    2,649  $   17,813
Interim servicing compensation - net........                  1,088
Amortization of interest-only strip.........                   (313)
Interest expense on securitized receivables.                             (4,863)
Charge-offs on receivables sold and
  provision for credit losses on
  receivables ineligible for sale...........        151         305      (4,821)
Gain on sale of receivables.................         --          --          96
                                              ----------  ----------  ----------
                                             $    3,106  $    3,729  $    8,225
                                              ==========  ==========  ==========

3. 	PROPERTY AND EQUIPMENT
Property and equipment consists of the following:

January 29,   January 31,
(In thousands)                                    2005          2004
--------------------------------------------  ------------  ------------
Furniture, fixtures and equipment........... $    100,871  $     95,839
Buildings and leasehold improvements........       92,974        90,306
Land........................................       15,185        15,185
Buildings and equipment under
  capital leases............................       18,720        18,720
Construction in progress....................        7,095         1,141
                                              ------------  ------------
                                                  234,845       221,191
Less accumulated depreciation
  and amortization..........................     (108,336)      (93,630)
                                              ------------  ------------
                                             $    126,509  $    127,561
                                              ============  ============

4.	TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Trade accounts payable and accrued expenses consist of the following:

January 29,   January 31,
(In thousands)                                    2005          2004
--------------------------------------------  ------------  ------------
Trade accounts payable...................... $     24,548  $     20,035
Cash management liability...................        5,483         7,326
Accrued expenses............................       23,385        19,673
Accrued payroll and related liabilities.....        8,139         7,718
Taxes, other than income taxes..............       12,059        12,059
Federal and state income taxes payable......        1,801           656
                                              ------------  ------------
                                             $     75,415  $     67,467
                                              ============  ============

5.	DEBT

Senior Revolving Credit Facility

On February 1, 2002, the Company entered into a three-year senior revolving
credit facility with General Electric Capital Corporation ("GE Capital") as agent, and The
CIT Group/Business Credit as syndication agent (the "Original GE facility").  On March 1, 2004 the
Company finalized an amendment and restatement of the Original GE facility (the "GE facility"). The
GE facility provides up to $165.0 million of working capital financing through February 28, 2009.
The GE facility consists of a revolving credit facility of up to $156.0 million (including a $20.0
million letter of credit sub-facility) and a fully funded term loan of $9.0 million.  Borrowings
under the revolving credit facility are limited to the sum of (a) a specified percentage of eligible
credit card receivables, and (b) the lesser of specified percentages of (i) the cost of eligible
inventory and (ii) the net recovery value of the inventory, as determined by periodic valuation
performed by an independent appraiser. Such borrowings are further limited by a requirement to
maintain a minimum of $5.0 million of excess availability at all times, and other reserves that are
in effect. As of January 29, 2005, outstanding borrowings under the GE facility totaled $45.8
million, and excess borrowing availability under the facility, after the deduction of the minimum
availability requirement and other reserves, totaled $56.7 million.

In January 2005 the Company amended the GE facility to provide for a springing a
lock-box arrangement.  Pursuant to guidance in the Financial Accounting Standards Board's Emerging
Issues Task Force Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding
under Revolving Credit Agreements that Include Both a Subjective Acceleration Clause and a Lock-Box
Arrangement," the Company has classified all of its revolving credit facility as long-term as
of fiscal year ended January 29, 2005.  Although the Company has held the intent and ability to
maintain this debt outstanding for more than one year, prior to such amendment the Company has
classified its borrowings under the facility as a current liability pursuant to such guidance.
Accordingly, borrowings under the revolving credit facility as of January 31, 2004, and February 1,
2003 are classified as current liabilities.

As of January 29, 2005, interest charged on amounts borrowed under the revolving
portion of the GE facility are at the prime rate (5.25% at January 29, 2005), or at the Company's
option, at the applicable LIBOR rate plus 1.5.% per annum (4.19% at January 29, 2005), and interest
charged on the term loan is a fixed rate of 6.6% per annum. In addition, the Company pays an unused
commitment fee equal to 0.375% per annum on the average unused daily balance of the revolving
portion GE facility.  The interest rate applicable to the revolving portion of the GE facility is
adjusted upwards or downwards on a quarterly basis based on a pricing matrix which was tied to the
Company's daily average excess availability for the preceding fiscal quarter (as defined in the
agreement). Under the pricing matrix, the applicable interest rate could range from a rate as low as
prime or  LIBOR plus 1.50%, to as high as prime plus 0.75%, or LIBOR plus 2.75%.

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

The GE facility contains restrictive financial and operating covenants, including
the requirement to maintain a fixed charge coverage ratio of 1:1 (as defined in the agreement).  As
of January 29, 2005, management believes the Company was in compliance with all restrictive
financial covenants applicable to the GE facility.

Long-Term Obligations

Long-term obligations consist of the following:

January 29,   January 31,
(In thousands)                                    2005          2004
--------------------------------------------  ------------  ------------
Revolving line of credit.................... $     45,753  $         --
9.39% mortgage loans payable, due 2010......       17,059        17,513
12.0% note payable..........................                     13,240
Capital lease obligations...................        5,707         7,643
Variable rate note payable, due 2005........        3,700         3,700
Other mortgage loans and notes payable......        2,426         2,931
                                              ------------  ------------
                                             $     74,645  $     45,027
  Less current portion......................        3,242         3,725
                                              ------------  ------------
                                             $     71,403  $     41,302
                                              ============  ============

On February 14, 2005, the Company amended and extended the financing of its
ownership interest in the partnership that owns the Company's corporate headquarters building. The
related note payable of $3.7 million, which originally provided for interest only payments at a
variable rate of interest of prime plus 1.5% per annum, and was due in full upon maturity on May 24,
2005, has been modified to a fully amortizing note bearing interest at a fixed rate of 7.50% per
annum and maturing on February 24, 2010.  There is no prepayment penalty associated with the note.
The scheduled annual principal maturities of the Company's mortgage loans and
notes payable are $1,525,000, $1,597,000, $1,702,000, $1,786,000 and $1,710,000 for 2005 through
2009, with $14,865,000 payable thereafter.

Deferred debt issuance costs related to the Company's various financing
arrangements are included in other current and long-term assets and are charged to income as
additional interest expense over the life of the related indebtedness. Such costs, net of
accumulated amortization, totaled $2,251,000 at January 29, 2005 and $2,475,000 at January 31,
2004.

Interest paid, net of amounts capitalized, was $8,075,000 in 2004, $11,140,000 in
2003, and $18,041,000 in 2002. No interest was capitalized in 2004 or 2003.  Interest of  $159,000
was capitalized in 2002. The weighted-average interest rate charged on the Company's revolving line
of credit was 4.56 in 2004, 5.16% in 2003, and 5.47% in 2002.

Substantially all of the Company's assets, including its merchandise inventories,
are pledged as collateral under the Company's various debt agreements. Certain of the Company's
long-term debt agreements contain financial and other restrictive covenants, as well as cross
default provisions. Accordingly, the failure to comply with these restrictions and covenants, if not
waived, would cause a cross-default under the majority of all of the Company's debt agreements,
including the GE facility. The Company was in compliance with all applicable
financial covenants as of January 29, 2005.

6.	SUBORDINATED NOTE PAYABLE TO AFFILIATE

The Company issued a Subordinated Note to Harris, a wholly owned subsidiary of El Corte Ingles ("ECI") of Spain,  in the principal amount of
$22,179,000 on August 20, 1998 as partial consideration for the Harris acquisition (the
"Original Note"). (See Note 14.) The Original Note, discounted to an effective interest
rate of 10% at issuance, bore interest at a fixed rate of 8%. On December 7, 2004 a new Subordinated
Note due May 30, 2009 superseded the Original Note. The new Subordinated Note bears interest at a
fixed rate of 8% payable semi-annually and provides for principal payments of up to $8.0 million
prior to its maturity.  Such payments are subject to certain liquidity restrictions under the GE
facility.  The Company made principal payments of $1.0 million each upon execution of the note and
subsequent to fiscal year end on February 20, 2005 as scheduled.  Additional principal payments of
$1.0 million are scheduled for each of February 2006 and 2007 and principal payments of $2.0 million
are scheduled for each of February 2008 and 2009, with the balance due at maturity subject to the
payment in full of the GE facility. The Subordinated Note is unsecured, contains no restrictive
financial covenants and is subordinate to the payment of all debt, including trade credit, of the
Company.  Interest paid to Harris totaled $2,117,000 in 2003, 2002 and 2001.

7.	LEASES

The Company leases certain retail department stores, specialty stores, land,
furniture and fixtures and equipment under capital and noncancellable operating leases that expire
in various years through 2020. Certain of the leases provide for the payment of additional
contingent rentals based on a percentage of sales, require the payment of property taxes, insurance
and maintenance costs and have renewal options for one or more periods ranging from five to twenty
years. The Company leases three of its department stores from El Corte Ingles ("ECI") of
Spain. ECI is the parent company of Harris, and both Harris and ECI are affiliates of the Company.
(See Note 14.)  Rent paid or accrued to ECI totaled $856,000 in 2004, $859,000 in 2003, and $864,000
in 2002.

Future minimum lease payments as of January 29, 2005, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms in excess of one year are
as follows:

Capital      Operating
(In thousands)                                   Leases        Leases
--------------------------------------------  ------------  ------------
2005........................................ $      2,205  $     23,169
2006........................................        1,466        22,772
2007........................................          947        19,475
2008........................................          476        17,570
2009........................................          476        15,013
Thereafter..................................        2,204        75,700
                                              ------------  ------------
Total minimum lease payments................        7,774  $    173,699
  Amount representing interest..............       (2,067)  ============
                                              ------------
Present value of minimum lease payments.....        5,707
  Less current portion......................       (1,717)
                                              ------------
                                             $      3,990
                                              ============

Rental expense consists of the following:

(In thousands)                                    2004          2003         2002
--------------------------------------------  ------------  ------------  ----------
Operating leases:
  Buildings:
    Minimum rentals......................... $     23,360  $     23,125  $   23,409
    Contingent rentals......................        2,839         2,895       3,016
  Fixtures and equipment....................        1,910         1,994       1,618
                                              ------------  ------------  ----------
                                             $     28,109  $     28,014  $   28,043
                                              ============  ============  ==========

One of the Company's lease agreements contains a restrictive financial covenant
pertaining to the debt to tangible net worth ratio with which management believes the Company was in
compliance at January 29, 2005.

8.	DISCONTINUED OPERATIONS

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

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

(In thousands)                                               2004        2003         2002
--------------------------------------------------------  ----------  ----------  ------------
Net sales from closed stores............................ $           $    6,973  $     25,512
Net lease department revenues...........................         --          --            --
                                                          ----------  ----------  ------------
  Total Revenues........................................         --       6,973        25,512

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

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

Net costs associated with the closure of stores were minor in fiscal 2004,
primarily consisting of incremental costs associated with the closure of one store at January 31,
2004.  Net costs associated with the closure of stores totaled $0.8 million in fiscal 2003 primarily
consisting of lease termination costs, severance, and other incremental costs associated with the
store closings. Net costs associated with the closure of stores totaled $4.8 million in fiscal 2002
consisting of lease termination costs, severance and other incremental costs associated with the
store closings of approximately $0.6 million and non-cash asset impairment charges related to stores
closed in fiscal 2003 and fiscal 2002 of $4.5 million, partially offset by a gain of $0.3 million
from the sale of lease rights and fixtures and equipment related to two of the closed locations.

As of January 29, 2005, the Company had no reserves for store closure costs.  In
the event the Company decides to close additional stores in fiscal 2005 or beyond, additional store
closure costs, which may be material, may be incurred.



9.	ASSET IMPAIRMENT CHARGES


During 2002, the Company recorded non-cash asset impairment charges of $9.5
million to write down long-lived assets related to certain underperforming stores, primarily former
Lamonts locations.  These charges consisted of $3.6 million of property and equipment, $5.8 million
of leasehold interests and $0.1 million of goodwill. The charges were determined by comparing
projected net operating cash flows, including estimated proceeds from the sale of certain assets, to
the carrying value of the stores' long-lived assets.  No such costs were recorded in 2004 or
2003.

10.	INCOME TAXES

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

(In thousands)                                    2004          2003         2002
--------------------------------------------  ------------  ------------  ----------
Current:
  Federal................................... $      1,066  $      1,848  $   (4,179)
  State.....................................          180           221        (783)
                                              ------------  ------------  ----------
                                                    1,246         2,069      (4,962)
                                              ------------  ------------  ----------
Deferred:
  Federal...................................        1,412          (896)     (2,316)
  State.....................................          360            70         440
                                              ------------  ------------  ----------
                                                    1,772          (826)     (1,876)
                                              ------------  ------------  ----------
                                             $      3,018  $      1,243  $   (6,838)
                                              ============  ============  ==========


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

January 29,             January 31,
                                         2005                    2004
                                ----------------------  ----------------------
                                Deferred    Deferred    Deferred    Deferred
                                   Tax         Tax         Tax         Tax
                                 Assets    Liabilities   Assets    Liabilities
                                ---------  -----------  ---------  -----------
Current:
  Accrued employee benefits... $   1,094  $            $   1,036  $
  Credit losses...............
  State income taxes..........       110                      74
  LIFO inventory reserve......                 (3,897)                 (3,093)
  Supplies inventory..........                   (647)                   (558)
  Workers' compensation.......     2,718                   1,825
  Valuation Allowance.........      (750)                   (494)
  Other items, net............     1,210       (1,555)     1,448       (1,311)
                                ---------  -----------  ---------  -----------
                                   4,382       (6,099)     3,889       (4,962)
                                ---------  -----------  ---------  -----------
Long-Term:
  Net operating loss and tax
    credit carryforwards......     4,514                   5,561
  State income taxes..........       690                     567
  Property and equipment......                (13,326)                (14,437)
  Accounting for leases.......        --       (3,180)        --       (3,737)
  Leasehold interests.........       878                   1,911
  Impaired assets.............     1,239                   1,450
  Deferred income.............     1,063       (3,812)     1,326       (3,558)
  Deferred rent...............     1,206                   1,232
  Valuation allowance.........    (1,504)                 (1,323)
  Other items, net............     1,228         (960)       940         (779)
                                ---------  -----------  ---------  -----------
                                   9,314      (21,278)    11,664      (22,511)
                                ---------  -----------  ---------  -----------
                               $  13,696  $   (27,377) $  15,553  $   (27,473)
                                =========  ===========  =========  ===========

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

2004       2003       2002
-----------------------------------------------   --------   --------   --------
Statutory rate.................................      35.0 %     35.0 %    (35.0)%
State income taxes, net of
 federal income tax benefit....................       4.3        8.0       (0.9)
General business credits.......................      (2.3)      (6.7)      (1.3)
Amortization of goodwill.......................
Tax refund claims..............................                            (4.0)
Other items, net...............................      (0.7)      (0.6)      (5.1)
                                                  --------   --------   --------
Effective rate.................................      36.3 %     35.7 %    (46.3)%
                                                  ========   ========   ========

Realization of the total deferred tax assets of $13,696,000 is considered more likely than not and is dependent upon
generating sufficient taxable income in future periods.

At January 29, 2005, the Company has, for federal tax purposes, general business
credits of $1,191,000 that expire in the years 2018 through 2022, and alternative minimum tax
credits of $699,000 which may be used for an indefinite period. At January 29, 2005, the Company
also has, for state tax purposes, $2,624,000 of enterprise zone credits which may be used for an
indefinite period. These carryforwards are available to offset future taxable income.  The Company
has established valuation allowances of $2,254,000 and $1,818,000 at January 29, 2005 and January
31, 2004, respectively, which relate primarily to certain tax credit carryforwards whose
realizability is uncertain.

The Company received income tax refunds, net of payments, of $44,000 in 2004,
$2,164,000 in 2003 and $1,235,000 in 2002.  The income tax refunds received in 2003 and 2002 were,
in part, attributable to a final settlement of certain federal net operating loss carryback refund
claims filed with the Internal Revenue Service.  The Company recognized a federal income tax benefit
of $826,000 and interest income of $569,000 (included in miscellaneous income) in 2002 related to
the federal income tax refund claims.

11.	EARNINGS PER SHARE

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

(Shares in thousands)                               2004       2003       2002
-----------------------------------------------   --------   --------   --------
Weighted average number of
  shares - basic...............................    12,922     12,830     12,747
Effect of assumed option exercises.............       430         89
                                                  --------   --------   --------
Weighted average number of
  shares - diluted.............................    13,352     12,919     12,747
                                                  ========   ========   ========

Options with an exercise price greater than the average market price of the
Company's common stock during the period are excluded from the computation of the weighted-average
number of shares on a diluted basis as such options are anti-dilutive. Anti-dilutive options excluded from the calculation were
496,775, 1,522,568 and 1,685,624 shares as of the end of 2004, 2003 and 2002,
respectively.

12. 	STOCK OPTION AND STOCK PURCHASE PLANS

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

Stock Option Plans.

The Company has stock option plans for directors, officers and key employees
which provide for the grant of non-qualified and incentive stock options. Under the plans, the
option exercise price may not be lower than 100% of the fair market value of such shares at the date
of the grant. Options granted generally vest on a ratable basis over five years and expire ten years
from the date of the grant. At January 29, 2005, options for 594,500 shares were available for
future grants under the plans.


Option activity under the plans is as follows:

2004                 2003                 2002
                     -------------------- -------------------- --------------------
                                 Weighted-            Weighted-            Weighted-
                       Number    Average    Number    Average    Number    Average
                         of      Exercise     of      Exercise     of      Exercise
                       Shares     Price     Shares     Price     Shares     Price
                     ----------  -------- ----------  -------- ----------  --------
Options outstanding
  at beginning of
  year.............. 1,688,500  $   5.36  1,713,000  $   5.99  1,535,500  $   6.68
Granted.............   261,500      6.10    279,500      1.64    295,500      2.61
Exercised...........  (132,250)     3.71     (9,000)     3.03
Cancelled...........  (270,000)     9.34   (295,000)     5.57   (118,000)     6.42
                     ----------  -------- ----------  -------- ----------  --------
Options outstanding
 at end of year..... 1,547,750  $   4.96  1,688,500  $   5.36  1,713,000  $   5.99
                     ==========  ======== ==========  ======== ==========  ========
Options exercisable
 at end of year.....   941,375  $   5.69  1,067,625  $   6.95  1,009,250  $   7.47
                     ==========  ======== ==========  ======== ==========  ========


Options for 942,375, 1,070,625 and 1,010,000 shares were exercisable as of January 29, 2005,
January 31, 2004 and February 1, 2003, respectively, and had a weighted average exercise price
of $5.69, $6.95 and $7.47 per share, respectively.Additional information regarding options outstanding as of January 29, 2005 is a
follows:

Weighted-
                                 Average    Weighted-
                                Remaining    Average
    Range of         Number    Contractual  Exercise
 Exercise Prices  Outstanding  Life (yrs.)    Price
----------------- ------------ -----------  ---------
$1.13 to $3.28        534,250        7.46  $    2.61
$3.52 to $6.03        622,000        6.94  $    5.04
$6.19 to $9.21        391,500         4.1  $    8.03
----------------- ------------ -----------  ---------
$1.13 to $9.21      1,547,750        6.40  $    5.69
================= ============ ===========  =========

Employee Stock Purchase Plan.

The Company also has a statutory Employee Stock Purchase Plan, which allows
its employees to purchase Company common stock at a 15% discount. Employees can purchase stock under
the Plan through payroll deductions ranging from 1% to 10% of their annual compensation, up to a
maximum of $21,250 per employee per year. A total of 500,000 shares were originally registered under
the Plan, with 313,460 shares issued through January 29, 2005.

Accounting for Stock Based Compensation.

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


The weighted average fair values of options on their grant date during Fiscal 2004, 2003 and
2002, where the exercise price equaled the market price on the date of grant, were $6.10, $1.53 and $2.61, respectively.
The estimated fair value of each option grant is calculated using the Black-Scholes option pricing model
with the following weighted average assumptions:

2004       2003       2002
                                         ---------  ---------  ---------
Risk-free interest rate................       3.4 %      1.3 %      2.3 %
Expected dividend yield................        --         --         --
Expected volatility....................      55.0 %     57.0 %     57.0 %
Expected option life (years)...........         5          5          5
Fair value of options granted..........     $3.41      $0.68      $1.09

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

13.	RETIREMENT SAVINGS PLAN

The Company has a Retirement Savings Plan ("Plan") which qualifies as
an employee retirement plan under Section 401(k) of the Internal Revenue Code. Full-time employees
meeting certain requirements are eligible to participate in the Plan and may elect to have up to 20%
of their annual eligible compensation, subject to statutory limitations, deferred and deposited with
a qualified trustee. Participants in the Plan may receive an employer matching contribution of up to
4% of the participants' eligible compensation, depending on the Company's quarterly and annual
financial performance. Beginning 2001, the Company amended the Plan to provide for a guaranteed
annual match of 3%, including the ability for participants to earn an additional 1% depending on the
Company's annual financial performance. The Company recognized $1,166,000, $1,251,000 and $1,415,000
in expense related to the Plan in 2004, 2003 and 2002, respectively.

14.  	TRANSACTIONS WITH AFFILIATES

Harris and ECI became affiliates of the Company in fiscal 1998 when the Company
acquired substantially all of the assets and business of Harris. The purchase price for the assets
consisted of 2,095,900 shares of the Company's common stock and a Subordinated Note Payable in the
amount of $22,179,000 (See Note 6).

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

15.	COMMITMENTS AND CONTINGENCIES

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

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

In July of fiscal 2004 the Company entered into an agreement to open one new
concept store in the River Park area of Fresno, California.  The anticipated completion date of the
project is Summer 2005 with an estimated net cost to the Company of approximately $4.5 million. On
April 15, 2005 the Company also opened a new store in Albany, Oregon at a total cost to the Company
of approximately $1.2 million.

As of January 29, 2005, the Company had issued a total of $3.3 million of standby
letters of credit and documentary letters of credit totaling $2.1 million. As of January 31, 2004,
the Company had issued a total of $8.4 million of standby letters of credit and documentary letters
of credit totaling $1.9 million. The standby letters of credit were issued to secure credit lines
with key factors and to provide collateral for workers compensation insurance policies.  The factor
letters of credit were allowed to expire at their respective expiration dates. Management believes
the likelihood of any draws under the workers compensation standby letters of credit are remote.
Documentary letters of credit are issued in the ordinary course of business to facilitate the
purchase of merchandise from overseas suppliers. The supplier draws against the documentary letter
of credit upon delivery of the merchandise.

16.	RESTATEMENT OF FINANCIAL STATEMENTS

Subsequent to the issuance of its financial statements for the year ended January
31, 2004, as a result of a letter issued on February 7, 2005 by the Office of the Chief
Accountant of the Securities and Exchange Commission ("SEC") to the American Institute of Certified
Public Accountants regarding certain operating lease-related accounting issues and their
applications under generally accepted accounting principles in the United States of America
("GAAP"), the Company determined that its then current manner in which it accounted for certain
lease related matters was not in accordance with GAAP.  Corrections to the Company's lease accounting
policies include an adjustment to depreciation expense to correct the depreciable lives
for certain leasehold improvements, and to correct the recording of certain tenant
allowances and construction reimbursements, as reductions in rent expense, which are included in
selling general and administration expenses, that had previously been recorded as reductions in the
cost of the underlying constructed assets.  In addition, the restatement includes adjusting lease
terms of certain leases to include bargain renewal option periods where exercise of the options
would be reasonably assured, and recognizing the straight-line effect over the lease term of such
changes in rents during the option periods.
As a result, the Company has restated the accompanying fiscal 2003 and 2002 consolidated financial statements from amounts previously reported.


In addition, the Company had previously classified newly generated receivables and payments on receivables under the securitization program as investing activities, and classified the gross
proceeds from the sale of its proprietary credit card portfolio and the repayment of the 1999-1 and 2000-1 Series Certificates as financing activities in its consolidated statement of cash flows
for the fiscal year ended February 1, 2003.  To correct this error, the Company has restated its fiscal 2002 consolidated statement of cash flows to reflect the change in
receivables and the net proceeds received by the Company from the sale of its proprietary credit card portfolio as operating activities, since the credit
card receivables originated from the sale of the Company's merchandise.

A summary of the significant effects of the restatement is as follows:

Statement of Operations
                                                January 31,   January 31,     February 1,    February 1,
For the year ended:                                2004           2004           2003           2003
                                               -------------  -------------  -------------  -------------
                                               (As previously (As restated)  (As previously (As restated)
                                                 reported)                     reported)

Selling, general and administrative expenses. $     203,966  $     203,448  $     207,885  $     207,367
Depreciation and amortization................        13,177         14,497         13,374         14,633
Operating income.............................        15,315         14,513          3,762          3,021
Income (loss) from continuing operations
  before income tax (benefit)................         4,281          3,479        (14,014)       (14,755)
Income tax expense (benefit).................         1,529          1,243         (6,495)        (6,838)
Income (loss) from continuing operations.....         2,752          2,236         (7,519)        (7,917)
Net income (loss)............................ $       1,870  $       1,354  $     (11,973) $     (12,371)
Net income (loss) per common share:
Basic
  Income (loss) from continuing operations... $        0.22  $        0.17  $       (0.59) $       (0.62)
  Loss from discontinued operations.......... $        0.07  $       (0.07) $       (0.35) $       (0.35)
  Net income (loss) per common share......... $        0.15  $        0.10  $       (0.94) $       (0.97)
Diluted
  Income (loss) from continuing operations... $        0.21  $        0.17  $       (0.59) $       (0.62)
  Loss from discontinued operations.......... $       (0.07) $       (0.07) $       (0.35) $       (0.35)
  Net income (loss) per common share......... $        0.14  $        0.10  $       (0.94) $       (0.97)


Balance Sheet
                                               January 31,     January 31,
As of:                                            2004             2004
                                             ---------------  ---------------
                                             (As previously    (As restated)
                                                reported)

Property and equipment, net................ $       129,832  $       127,561
Other intangibles - net....................             854              689
Total other assets.........................          12,535           12,370
Total assets...............................         323,991          321,555
Deferred income taxes, current.............             569            1,073
Other liabilities..........................          16,874           17,678
Deferred income taxes (less current portion)         12,637           11,352
Retained earnings..........................          36,753           34,799
Total stockholders' equity.................         108,322          106,368
Total liabilities and stockholders' equity. $       323,991  $       321,555


Statement of Cash Flows
                                               February 1,      February 1,
For the year ended:                               2003             2003
                                             ---------------  ---------------
                                             (As previously    (As restated)
                                                reported)

Net cash provided by operating activities.. $        20,871  $        43,025

Net cash used in investing activities...... $       (12,218) $        (7,053)

Net cash used in financing activities...... $        (5,179) $       (32,498)


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


ADDITIONS
                                          ------------------------
          COL. A               COL. B       COL. C        COL. D         COL. E          COL. F
---------------------------  -----------  ----------     ---------     -----------     -----------
                                                          Charged
                             Balance at   Charged to     to Other                      Balance at
                              Beginning   Costs and      Accounts      Deductions        End of
Description                   of Period    Expenses      Describe       Describe         Period
---------------------------  -----------  ----------     ---------     -----------     -----------
Year ended January 29, 2005:
  Store closure reserve.... $   337,000  $              $             $  (337,000)(4) $        --
  Deferred tax asset
    valuation allowance.... $ 1,818,000  $  436,000 (5) $             $               $ 2,254,000
  Allowance for vendor
    claims receivable...... $   281,000  $              $             $  (191,000)(6) $    90,000


Year ended January 31, 2004:
  Store closure reserve.... $   618,000  $  542,000 (3) $             $  (823,000)(4) $   337,000
  Deferred tax asset
    valuation allowance.... $ 1,438,000  $  380,000 (5) $             $               $ 1,818,000
  Allowance for vendor
    claims receivable...... $    81,000  $  200,000 (6) $             $               $   281,000


Year ended February 1, 2003:
  Allowance for doubtful
    accounts............... $   354,544  $  825,061 (1) $             $(1,179,605)(2) $
  Store closure reserve.... $   529,000  $  581,000 (3) $             $  (492,000)(4) $   618,000
  Deferred tax asset
    valuation allowance.... $   645,000  $  793,000 (5) $             $               $ 1,438,000
  Allowance for vendor
    claims receivable...... $    91,000  $              $             $   (10,000)(6) $    81,000


Represents the provision for credit losses on receivables ineligible for
sale.











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SIGNATURES

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

Dated: April 29, 2005

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

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