TABLE OF CONTENTS




|                                         |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION            
|                                         | Item 1. Financial Statements                                                                 
|                                         | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                         | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                         | Item 4. Controls and Procedures                                                              
|PART II OTHER INFORMATION               
|                                         | Item 1. Legal Proceedings                                                                    
|                                         | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                         | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                              
|EX-31.1 Section 302 Certification by CEO
|EX-31.2 Section 302 Certification by CFO
|EX-32.1 Section 906 Certification by CEO
|EX-32.2 Section 906 Certification by CFO



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##### Table of Contents





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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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FORM 10 - Q

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

For the Quarterly Period Ended August 2, 2003

Commission File No. 1-6695



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JO-ANN STORES, INC.(Exact name of Registrant as specified in its charter)

|                                         |  |                                     
|---------------------------------------- |  | ------------------------------------
|Ohio                                     |  | 34-0720629                          
|(State or other jurisdiction of          |  | (I.R.S. Employer Identification No.)
|incorporation or organization)           |  |                                     
|                                         |  |                                     
|5555 Darrow Road, Hudson, Ohio           |  | 44236                               
|(Address of principal executive offices) |  | (Zip Code)                          

Registrants telephone number, including area code: (330) 656-2600

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.

Shares of Class A Common Stock outstanding at August 29, 2003: 10,469,603

Shares of Class B Common Stock outstanding at August 29, 2003: 9,597,167





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##### Table of Contents



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended August 2, 2003

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|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|------------------ |  | --------------------- |  | --------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------- | -- |  | -- | ------------ |  | 
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    | Page Numbers
|Part
          I.  |  | Financial Information
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Item 1.               |  | Financial
          Statements (Unaudited)                            |    |                                                                                 |    | 
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  |                       |  |                                                                       |    | Consolidated
          Balance Sheets as of August 2, 2003, February 1, 2003    |    |  |    |             
|                   |  |                       |  |                                                                       |    | and August
          3, 2002                                                    |    |  | 3  |             
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  |                       |  |                                                                       |    | Consolidated
          Statements of Operations for the Thirteen and Twenty-Six |    |  |    |             
|                   |  |                       |  |                                                                       |    | Weeks Ended
          August 2, 2003 and August 3, 2002                         |    |  | 4  |             
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  |                       |  |                                                                       |    | Consolidated
          Statements of Cash Flows for the Twenty-Six Weeks        |    |  |    |             
|                   |  |                       |  |                                                                       |    | Ended August
          2, 2003 and August 3, 2002                               |    |  | 5  |             
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  |                       |  |                                                                       |    | Notes to
          Consolidated Financial Statements                            |    |  | 6  |             
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Item 2.               |  | Management's
          Discussion and Analysis of Financial Condition |    |                                                                                 |    | 
|                   |  |                       |  |                                                                       |    | and Results
          of Operations                                             |    |  | 16 |             
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Item 3.               |  | Quantitative
          and Qualitative Disclosures About Market Risk  |    |                                                                                 | 21 | 
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Item 4.               |  | Controls
          and Procedures                                     |    |                                                                                 | 21 | 
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|Part
          II. |  | Other Information    
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Item 1.               |  | Legal Proceedings                                                     |    |                                                                                 | 22 | 
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Item 4.               |  | Submission
          of Matters to a Vote of Security Holders         |    |                                                                                 | 22 | 
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Item 6.               |  | Exhibits
          and Reports on Form 8-K                            |    |                                                                                 | 22 | 
|                   |  |                       |  |                                                                       |    |                                                                                 |    |  |    |              |  | 
|                   |  | Signatures            |  |                                                                       | 23 |                                                                                

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##### Table of Contents















PART I FINANCIAL INFORMATION
Item 1. Financial Statements

Jo-Ann Stores, Inc.
Consolidated Balance Sheets

|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |       |     | 
|--------------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ----- | -------------------------------------------- | --- | ----------- | ----- | --------- | --- | ----------- | ----- | ----- | --- | 
|                                                    |                                                                         |                                                                                                                   |       | (Unaudited)                                  |     |             |       |           |     | (Unaudited)
|                                                    |                                                                         |                                                                                                                   |       | August 2,                                    |     | February 1, |       | August 3,
|                                                    |                                                                         |                                                                                                                   |       | 2003                                         |     | 2003        |       | 2002     
|                                                   
|                                                    |                                                                         |                                                                                                                   |       | (Dollars in millions, except per share data)
|Assets                                              |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|Current assets:                                     |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|                                                    | Cash and temporary cash investments                                     |                                                                                                                   | $     | 16.1                                         |     |             | $     | 63.2      |     |             | $     | 15.7  |    
|                                                    | Inventories                                                             |                                                                                                                   |       | 471.6                                        |     |             |       | 363.1     |     |             |       | 496.2 |    
|                                                    | Deferred taxes                                                          |                                                                                                                   |       | 27.9                                         |     |             |       | 28.2      |     |             |       | 30.6  |    
|                                                    | Prepaid expenses and other current assets                               |                                                                                                                   |       | 18.7                                         |     |             |       | 17.2      |     |             |       | 14.5  |    
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|Total current assets                                |                                                                         |                                                                                                                   | 534.3 |                                              |     |             | 471.7 |           |     |             | 557.0 |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |       |     | 
|Property, equipment and leasehold improvements, net |                                                                         |                                                                                                                   | 190.4 |                                              |     |             | 190.3 |           |     |             | 200.1 |      
|Goodwill, net                                       |                                                                         |                                                                                                                   | 26.5  |                                              |     |             | 26.5  |           |     |             | 26.5  |      
|Other assets                                        |                                                                         |                                                                                                                   | 14.1  |                                              |     |             | 16.0  |           |     |             | 17.7  |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|Total assets                                        |                                                                         | $                                                                                                                 | 765.3 |                                              |     | $           | 704.5 |           |     | $           | 801.3 |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |       |     | 
|Liabilities and Shareholders Equity                |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|Current liabilities:                                |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|                                                    | Accounts payable                                                        |                                                                                                                   | $     | 172.3                                        |     |             | $     | 129.9     |     |             | $     | 162.9 |    
|                                                    | Accrued expenses                                                        |                                                                                                                   |       | 56.1                                         |     |             |       | 75.9      |     |             |       | 72.7  |    
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|Total current liabilities                           |                                                                         |                                                                                                                   | 228.4 |                                              |     |             | 205.8 |           |     |             | 235.6 |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |       |     | 
|Long-term debt                                      |                                                                         |                                                                                                                   | 190.5 |                                              |     |             | 162.9 |           |     |             | 286.4 |      
|Deferred income taxes                               |                                                                         |                                                                                                                   | 37.2  |                                              |     |             | 37.2  |           |     |             | 23.6  |      
|Other long-term liabilities                         |                                                                         |                                                                                                                   | 9.8   |                                              |     |             | 9.2   |           |     |             | 8.7   |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |       |     | 
|Shareholders equity:                               |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|                                                    | Preferred stock, no par value, 5,000,000 shares authorized,
none issued |                                                                                                                   |       |                                             |     |             |       |          |     |             |       |      |    
|                                                    | Common stock:                                                           |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |       |    
|                                                    |                                                                         | Class A, stated value $0.05 per share; issued and outstanding
10,455,048, 10,241,884 and 10,114,234, respectively |       |                                              | 0.5 |             |       |           | 0.5 |             |       |       | 0.5 | 
|                                                    |                                                                         | Class B, stated value $0.05 per share; issued and outstanding
9,547,822, 9,300,936 and 9,054,912, respectively    |       |                                              | 0.5 |             |       |           | 0.5 |             |       |       | 0.5 | 
|                                                    | Additional paid-in capital                                              |                                                                                                                   |       | 123.8                                        |     |             |       | 113.9     |     |             |       | 104.3 |    
|                                                    | Unamortized restricted stock awards                                     |                                                                                                                   |       | (2.4                                         | )   |             |       | (0.4      | )   |             |       | (0.4  | )  
|                                                    | Retained earnings                                                       |                                                                                                                   |       | 219.7                                        |     |             |       | 217.8     |     |             |       | 183.6 |    
|                                                    | Accumulated other comprehensive loss                                    |                                                                                                                   |       | (2.1                                         | )   |             |       | (2.6      | )   |             |       | (3.2  | )  
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|                                                    |                                                                         |                                                                                                                   | 340.0 |                                              |     |             | 329.7 |           |     |             | 285.3 |      
|                                                    | Treasury stock, at cost                                                 |                                                                                                                   |       | (40.6                                        | )   |             |       | (40.3     | )   |             |       | (38.3 | )  
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|Total shareholders equity                          |                                                                         |                                                                                                                   | 299.4 |                                              |     |             | 289.4 |           |     |             | 247.0 |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      
|Total liabilities and shareholders equity          |                                                                         | $                                                                                                                 | 765.3 |                                              |     | $           | 704.5 |           |     | $           | 801.3 |      
|                                                    |                                                                         |                                                                                                                   |       |                                              |     |             |       |           |     |             |       |      

See notes to consolidated financial statements

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Jo-Ann Stores, Inc.
Consolidated Statements of Operations
(Unaudited)

|                                             |                                   |   |                                                       |       |                        |   |           |       |           |   |       |       |  |   |       |       | 
|-------------------------------------------- | --------------------------------- | - | ----------------------------------------------------- | ----- | ---------------------- | - | --------- | ----- | --------- | - | ----- | ----- |  | - | ----- | ----- | 
|                                             |                                   |   | Thirteen Weeks Ended                                  |       | Twenty-Six Weeks Ended
|                                             |                                   |   |                                                      
|                                             |                                   |   | August 2,                                             |       | August 3,              |   | August 2, |       | August 3,
|                                             |                                   |   | 2003                                                  |       | 2002                   |   | 2003      |       | 2002     
|                                            
|                                             |                                   |   | (Dollars in millions, except earnings per share data)
|                                             |                                   |   |                                                       |       |                        |   |           |       |           |   |       |       |  |   |       |       | 
|Net sales                                    |                                   | $ | 359.2                                                 |       |                        | $ | 353.7     |       |           | $ | 734.0 |       |  | $ | 726.1 |      
|Cost of sales                                |                                   |   | 186.6                                                 |       |                        |   | 182.1     |       |           |   | 380.9 |       |  |   | 373.7 |      
|                                             |                                   |   |                                                       |       |                       
|                                             | Gross margin                      |   |                                                       | 172.6 |                        |   |           | 171.6 |           |   |       | 353.1 |  |   |       | 352.4 | 
|                                             |                                   |   |                                                       |       |                        |   |           |       |           |   |       |       |  |   |       |       | 
|Selling, general and administrative expenses |                                   |   | 158.8                                                 |       |                        |   | 150.1     |       |           |   | 311.9 |       |  |   | 300.4 |      
|Store pre-opening and closing costs          |                                   |   | 2.6                                                   |       |                        |   | 1.5       |       |           |   | 4.7   |       |  |   | 2.4   |      
|Depreciation and amortization                |                                   |   | 9.1                                                   |       |                        |   | 8.7       |       |           |   | 18.2  |       |  |   | 17.9  |      
|Stock-based compensation expense             |                                   |   | 1.4                                                   |       |                        |   |          |       |           |   | 2.6   |       |  |   |      |      
|Debt repurchase expenses                     |                                   |   |                                                      |       |                        |   | 1.4       |       |           |   | 3.4   |       |  |   | 1.4   |      
|                                             |                                   |   |                                                       |       |                       
|                                             | Operating profit                  |   |                                                       | 0.7   |                        |   |           | 9.9   |           |   |       | 12.3  |  |   |       | 30.3  | 
|Interest expense, net                        |                                   |   | 4.2                                                   |       |                        |   | 6.6       |       |           |   | 9.2   |       |  |   | 13.0  |      
|                                             |                                   |   |                                                       |       |                       
|                                             | Income (loss) before income taxes |   |                                                       | (3.5  | )                      |   |           | 3.3   |           |   |       | 3.1   |  |   |       | 17.3  | 
|Income tax provision (benefit)               |                                   |   | (1.3                                                  | )     |                        |   | 1.3       |       |           |   | 1.2   |       |  |   | 6.6   |      
|                                             |                                   |   |                                                       |       |                       
|Net income (loss)                            |                                   | $ | (2.2                                                  | )     |                        | $ | 2.0       |       |           | $ | 1.9   |       |  | $ | 10.7  |      
|                                             |                                   |   |                                                       |       |                       
|                                             |                                   |   |                                                       |       |                        |   |           |       |           |   |       |       |  |   |       |       | 
|Net income (loss) per common share  basic   |                                   | $ | (0.11                                                 | )     |                        | $ | 0.11      |       |           | $ | 0.10  |       |  | $ | 0.57  |      
|                                             |                                   |   |                                                       |       |                       
|                                             |                                   |   |                                                       |       |                        |   |           |       |           |   |       |       |  |   |       |       | 
|Net income (loss) per common share  diluted |                                   | $ | (0.11                                                 | )     |                        | $ | 0.10      |       |           | $ | 0.09  |       |  | $ | 0.53  |      
|                                             |                                   |   |                                                       |       |                       

See notes to consolidated financial statements

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##### Table of Contents



Jo-Ann Stores, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

|                                                   |                                                                                |                                                            |       |                        |        |           |       |       |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------------------------- | ----- | ---------------------- | ------ | --------- | ----- | ----- | ------ | -
|                                                   |                                                                                |                                                            |       | Twenty-Six Weeks Ended
|                                                   |                                                                                |                                                            |       |                       
|                                                   |                                                                                |                                                            |       | August 2,              |        | August 3,
|                                                   |                                                                                |                                                            |       | 2003                   |        | 2002     
|                                                  
|                                                   |                                                                                |                                                            |       | (Dollars in millions) 
|                                                   |                                                                                |                                                            |       |                        |        |           |       |       |        |  
|Net cash flows from operating activities:          |                                                                                |                                                            |       |                        |        |           |       |      
|                                                   | Net income                                                                     |                                                            | $     | 1.9                    |        |           | $     | 10.7  |       
|                                                   | Adjustments to reconcile net income to net cash used for
operating activities: |                                                            |       |                        |        |           |       |       |       
|                                                   |                                                                                | Depreciation and amortization                              |       |                        | 18.2   |           |       |       | 17.9   |  
|                                                   |                                                                                | Deferred income taxes                                      |       |                        | 0.3    |           |       |       | (0.1   | )
|                                                   |                                                                                | Stock-based compensation expense                           |       |                        | 2.6    |           |       |       |       |  
|                                                   |                                                                                | Loss on disposal of fixed assets                           |       |                        | 0.2    |           |       |       |       |  
|                                                   |                                                                                | Loss associated with purchase of senior subordinated notes |       |                        | 3.4    |           |       |       | 1.4    |  
|                                                   | Changes in operating assets and liabilities:                                   |                                                            |       |                        |        |           |       |       |       
|                                                   |                                                                                | Increase in inventories                                    |       |                        | (108.5 | )         |       |       | (127.2 | )
|                                                   |                                                                                | Increase in accounts payable                               |       |                        | 42.4   |           |       |       | 39.8   |  
|                                                   |                                                                                | Decrease in accrued expenses                               |       |                        | (19.8  | )         |       |       | (8.6   | )
|                                                   |                                                                                | Other, net                                                 |       |                        | 2.3    |           |       |       | 3.1    |  
|                                                   |                                                                                |                                                            |       |                        |        |           |       |      
|Net cash used for operating activities             |                                                                                |                                                            | (57.0 | )                      |        |           | (63.0 | )    
|                                                   |                                                                                |                                                            |       |                        |        |           |       |       |        |  
|Net cash flows used for investing activities:      |                                                                                |                                                            |       |                        |        |           |       |      
|                                                   | Capital expenditures                                                           |                                                            |       | (18.5                  | )      |           |       | (7.9  | )     
|                                                   |                                                                                |                                                            |       |                        |        |           |       |      
|Net cash used for investing activities             |                                                                                |                                                            | (18.5 | )                      |        |           | (7.9  | )    
|                                                   |                                                                                |                                                            |       |                        |        |           |       |       |        |  
|Net cash flows provided by financing activities:   |                                                                                |                                                            |       |                        |        |           |       |      
|                                                   | Net increase in revolving credit facility                                      |                                                            |       | 73.5                   |        |           |       | 82.5  |       
|                                                   | Purchase of senior subordinated notes                                          |                                                            |       | (48.4                  | )      |           |       | (20.6 | )     
|                                                   | Proceeds from exercise of stock options                                        |                                                            |       | 2.5                    |        |           |       | 3.8   |       
|                                                   | Other, net                                                                     |                                                            |       | 0.8                    |        |           |       | (0.2  | )     
|                                                   |                                                                                |                                                            |       |                        |        |           |       |      
|Net cash provided by financing activities          |                                                                                |                                                            | 28.4  |                        |        |           | 65.5  |      
|                                                   |                                                                                |                                                            |       |                        |        |           |       |      
|                                                   |                                                                                |                                                            |       |                        |        |           |       |       |        |  
|Net decrease in cash and cash equivalents          |                                                                                |                                                            | (47.1 | )                      |        |           | (5.4  | )    
|Cash and cash equivalents at beginning of period   |                                                                                |                                                            | 63.2  |                        |        |           | 21.1  |      
|                                                   |                                                                                |                                                            |       |                        |        |           |       |      
|Cash and cash equivalents at end of period         |                                                                                | $                                                          | 16.1  |                        |        | $         | 15.7  |      
|                                                   |                                                                                |                                                            |       |                        |        |           |       |      
|                                                   |                                                                                |                                                            |       |                        |        |           |       |       |        |  
|Supplemental disclosures of cash flow information: |                                                                                |                                                            |       |                        |        |           |       |      
|                                                   | Cash paid during the period for:                                               |                                                            |       |                        |        |           |       |       |       
|                                                   |                                                                                | Interest                                                   |       | $                      | 10.8   |           |       | $     | 12.2   |  
|                                                   |                                                                                | Income taxes, net of refunds                               |       |                        | 4.3    |           |       |       | 4.0    |  

See notes to consolidated financial statements

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Notes to Consolidated Financial Statements (Unaudited)
Jo-Ann Stores, Inc.

Note 1 - Basis of Presentation

Jo-Ann Stores, Inc. (the Company), an Ohio corporation, is a
fabric and craft retailer operating 909 retail stores in 47 states at
August 2, 2003. The 826 traditional and 83 superstores feature a broad
line of apparel, craft and home decorating fabrics, notions, crafts,
seasonal and home accessories and floral and framing products.

The consolidated interim financial statements include the accounts
of the Company and its subsidiaries and have been prepared without
audit, pursuant to the rules of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted
pursuant to those rules and regulations, although the Company believes
that the disclosures herein are adequate to make the information not
misleading. Certain amounts in the fiscal 2003 year-end and interim
financial statements have been reclassified in order to conform to the
current year presentation. The statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Companys Annual Report on Form 10-K for the fiscal year ended
February 1, 2003.

Typical of most retail companies, the Companys business is highly
seasonal with the majority of sales and operating profits generated in
the second half of the fiscal year; therefore, earnings or losses for a
particular interim period are not indicative of full year results. Due
to the seasonal nature of the Companys business, a comparable balance
sheet as of August 3, 2002 has been provided. In the opinion of
management, the consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary for
a fair statement of results and financial position for the interim
periods presented.

Note 2 - Earnings Per Share

Basic earnings per common share are computed by dividing net income
(loss) by the weighted average number of shares outstanding during the
period. If applicable, diluted earnings per share include the effect of
the assumed exercise of dilutive stock options under the treasury stock
method. Stock options have not been included in the earnings per common
share calculation for the thirteen weeks ended August 2, 2003 as their
inclusion would be anti-dilutive.

The following table presents information necessary to calculate
basic and diluted earnings per common share for the periods presented
(shares in millions).

|                                                          |  |                      |      |                        |  |           |      |           |  |  |      |  |  |  |      | 
|--------------------------------------------------------- |  | -------------------- | ---- | ---------------------- |  | --------- | ---- | --------- |  |  | ---- |  |  |  | ---- | 
|                                                          |  | Thirteen Weeks Ended |      | Twenty-Six Weeks Ended
|                                                          |  |                      |      |                       
|                                                          |  | August 2,            |      | August 3,              |  | August 2, |      | August 3,
|                                                          |  | 2003                 |      | 2002                   |  | 2003      |      | 2002     
|                                                         
|Basic earnings per common share:                          |  |                      |      |                        |  |           |      |           |  |  |      |  |  |  |      | 
|Weighted average shares outstanding                       |  |                      | 20.0 |                        |  |           | 19.0 |           |  |  | 19.8 |  |  |  | 18.9 | 
|                                                          |  |                      |      |                       
|Diluted earnings per common share:                        |  |                      |      |                        |  |           |      |           |  |  |      |  |  |  |      | 
|Weighted average shares outstanding                       |  |                      | 20.0 |                        |  |           | 19.0 |           |  |  | 19.8 |  |  |  | 18.9 | 
|Incremental shares from assumed
exercise of stock options |  |                      |     |                        |  |           | 1.0  |           |  |  | 0.5  |  |  |  | 0.9  | 
|                                                          |  |                      |      |                       
|                                                          |  |                      | 20.0 |                        |  |           | 20.0 |           |  |  | 20.3 |  |  |  | 19.8 | 
|                                                          |  |                      |      |                       

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Note 3 - Stock-Based Compensation

Effective February 2, 2003, the Company adopted the fair value
recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation. Under the
modified prospective method of adoption selected by the Company under
the provisions of SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, compensation cost recognized in
fiscal year 2004 is the same as that which would have been recognized
had the recognition provisions of SFAS No. 123 been applied from its
original effective date. The Company believes that this change is to
the preferred method of accounting for stock-based compensation. Prior
to fiscal 2004, the Company accounted for these plans under the
recognition and measurement provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Therefore, no stock-based employee
compensation is reflected in fiscal 2003 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 grant.

The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the fair value based method had been
applied to all outstanding and unvested awards in each period (dollars
in millions, except per share data):

|                                                                                                      |                       |   |                      |       |                        |   |           |      |           |   |      |      |  |   |      |      | 
|----------------------------------------------------------------------------------------------------- | --------------------- | - | -------------------- | ----- | ---------------------- | - | --------- | ---- | --------- | - | ---- | ---- |  | - | ---- | ---- | 
|                                                                                                      |                       |   | Thirteen Weeks Ended |       | Twenty-Six Weeks Ended
|                                                                                                      |                       |   |                      |       |                       
|                                                                                                      |                       |   | August 2,            |       | August 3,              |   | August 2, |      | August 3,
|                                                                                                      |                       |   | 2003                 |       | 2002                   |   | 2003      |      | 2002     
|                                                                                                      |                       |   |                      |       |                        |   |           |      |          
|Net income (loss), as reported                                                                        |                       | $ | (2.2                 | )     |                        | $ | 2.0       |      |           | $ | 1.9  |      |  | $ | 10.7 |     
|Add:     Stock-based compensation
expense included in          reported
net (loss) income, net of tax |                       |   | 0.9                  |       |                        |   |          |      |           |   | 1.6  |      |  |   |     |     
|Less:    Stock-based
compensation expense
determined          under the fair
value method, net of tax |                       |   | (0.9                 | )     |                        |   | (0.6      | )    |           |   | (1.6 | )    |  |   | (1.2 | )   
|                                                                                                      |                       |   |                      |       |                        |   |           |      |           |   |      |      |  |   |      |     
|Pro forma net income (loss)                                                                           |                       | $ | (2.2                 | )     |                        | $ | 1.4       |      |           | $ | 1.9  |      |  | $ | 9.5  |     
|                                                                                                      |                       |   |                      |       |                        |   |           |      |           |   |      |      |  |   |      |     
|                                                                                                      |                       |   |                      |       |                        |   |           |      |           |   |      |      |  |   |      |      | 
|Earnings (loss) per share:                                                                            |                       |   |                      |       |                        |   |           |      |           |   |      |      |  |   |      |     
|                                                                                                      | Basic  as reported   |   | $                    | (0.11 | )                      |   | $         | 0.11 |           |   | $    | 0.10 |  |   | $    | 0.57 | 
|                                                                                                      | Basic  pro forma     |   | $                    | (0.11 | )                      |   | $         | 0.07 |           |   | $    | 0.10 |  |   | $    | 0.50 | 
|                                                                                                      |                       |   |                      |       |                        |   |           |      |           |   |      |      |  |   |      |      | 
|                                                                                                      | Diluted  as reported |   | $                    | (0.11 | )                      |   | $         | 0.10 |           |   | $    | 0.09 |  |   | $    | 0.53 | 
|                                                                                                      | Diluted  pro forma   |   | $                    | (0.11 | )                      |   | $         | 0.07 |           |   | $    | 0.09 |  |   | $    | 0.47 | 

Note 4 - Store Closings

The Company is pursuing a growth strategy that is driven by the
replacement of its traditional stores with superstores. In addition,
the Company continually reviews the productivity of its store base,
actively manages its real estate to preserve maximum flexibility in
lease terms, and closes locations that do not meet certain financial
performance thresholds. Through the first half of the year, the Company
opened 11 new superstores, two larger traditional stores, and closed 21
traditional stores.

The charges to the statement of operations for the year-to-date
period ending August 2, 2003 related to store closings and a
roll-forward of the store closing reserve balances from February 1, 2003
is summarized in the following table.

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|                          |          |             |                     |             |       |       |       |       |   |   |     |      |   |   |     |      |  
|------------------------- | -------- | ----------- | ------------------- | ----------- | ----- | ----- | ----- | ----- | - | - | --- | ---- | - | - | --- | ---- | -
|                          |          |             | Non-cancelablelease |             | Asset |       | Other |       |   |   |    
|Dollars in millions       |          | obligations |                     | Impairments |       | Costs |       | Total
|                          |          |             |                     |             |       |       |       |       |  
|Balance at Feb 1, 2003    |          | $           | 3.5                 |             |       | $     |      |       |   | $ | 0.9 |      |   | $ | 4.4 |     
|Amounts charged to income |          |             |                    |             |       |       | 0.3   |       |   |   |    |      |   |   | 0.3 |     
|Utilization:              |          |             |                     |             |       |       |       |       |   |   |     |      |   |   |     |     
|                          | Cash     |             |                     | (0.7        | )     |       |       |      |   |   |     | (0.2 | ) |   |     | (0.9 | )
|                          | Non-Cash |             |                     |            |       |       |       | (0.3  | ) |   |     |     |   |   |     | (0.3 | )
|                          |          |             |                     |             |       |       |       |       |   |   |     |      |   |   |     |     
|Balance at August 2, 2003 |          | $           | 2.8                 |             |       | $     |      |       |   | $ | 0.7 |      |   | $ | 3.5 |     
|                          |          |             |                     |             |       |       |       |       |   |   |     |      |   |   |     |     

The Company has segregated the costs of store openings and closings
as a separate line item in the statement of operations. Over the next
several years, as the Company pursues its strategy of growing sales and
market share with the expansion of the superstore concept, management
believes that segregating the costs of real estate activity provides
better insight into the core performance of the Company.

Note 5 - Fair Value of Derivative Financial Instruments

The Company is subject to risk resulting from interest rate
fluctuations, as interest on the Companys Credit Facility is based on
variable rates. The Companys objective in managing its interest rate
exposure is to limit the impact of interest rate changes on earnings and
cash flows. Interest rate swaps are primarily utilized to achieve this
objective, effectively converting a portion of its variable-rate
exposures to fixed interest rates. The Company does not enter into
financial instruments for trading purposes.

At August 2, 2003, the Company had a $40.0 million interest rate
swap with a fixed LIBOR rate of 6.72% that expires on April 30, 2005.
The interest rate swap agreement requires the Company to pay a fixed
interest rate while receiving a floating interest rate based on LIBOR.
In accordance with SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, the Company has reviewed and designated its
interest rate swap agreement as a cash flow hedge and recognizes the
fair value of its interest rate swap agreement on the balance sheet.
Changes in the fair value of this agreement are recorded in other
comprehensive income and reclassified into earnings as the underlying
hedged item affects earnings.

Other comprehensive income includes the effects of derivative
transactions accounted for under SFAS No. 133, net of related tax.
Comprehensive income consists of the following:

|                                              |  |                      |      |                        |  |           |      |           |  |   |     |  |  |   |      |  
|--------------------------------------------- |  | -------------------- | ---- | ---------------------- |  | --------- | ---- | --------- |  | - | --- |  |  | - | ---- | -
|                                              |  | Thirteen Weeks Ended |      | Twenty-Six Weeks Ended
|                                              |  |                      |      |                       
|                                              |  | August 2,            |      | August 3,              |  | August 2, |      | August 3,
|Dollars in millions                           |  | 2003                 |      | 2002                   |  | 2003      |      | 2002     
|                                              |  |                      |      |                        |  |           |      |          
|Net income (loss)                             |  | $                    | (2.2 | )                      |  | $         | 2.0  |           |  | $ | 1.9 |  |  | $ | 10.7 |  
|Other comprehensive income (loss), net of tax |  |                      | 0.4  |                        |  |           | (0.5 | )         |  |   | 0.5 |  |  |   | (0.2 | )
|                                              |  |                      |      |                        |  |           |      |           |  |   |     |  |  |   |      |  
|Comprehensive income (loss)                   |  | $                    | (1.8 | )                      |  | $         | 1.5  |           |  | $ | 2.4 |  |  | $ | 10.5 |  
|                                              |  |                      |      |                        |  |           |      |           |  |   |     |  |  |   |      |  

Note 6 - Shareholders Equity

The Company has various stock-based compensation plans that it
utilizes as long-term compensation for its board of directors, executive
officers, senior management and other key employees. The Company issues
stock under these various stock-award compensation plans and uses
treasury shares

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to fund the Companys match under the 401(k) savings plan.
Deferred compensation expense is recorded as Unamortized restricted
stock awards at the time of the issuance of restricted stock and is
amortized over the vesting period of the award (typically five years).
Through the year-to-date second quarter, shares outstanding increased,
for Class A and Class B shares, by 213,164 and 246,886, respectively, as
follows.

|                                             |  |                     |            |                |  |                    |     |                  |  |                |       |             |  |   |      |   |  |   |       |  
|-------------------------------------------- |  | ------------------- | ---------- | -------------- |  | ------------------ | --- | ---------------- |  | -------------- | ----- | ----------- |  | - | ---- | - |  | - | ----- | -
|                                             |  | Common Class A      |            |                |  |                    |     |                  |  |                |       |             |  |   |      |   |  |  
|                                             |  | and B Shares        |            |                |  |                    |     |                  |  |                |       | Unamortized |  |   |      |  
|                                             |  | Outstanding, Net of |            | Common Stock  |  | Additional Paid-In |     | Restricted Stock |  |                |       |            
|Dollars in millions                          |  | Treasury Shares     |            | Class A and B  |  | Capital            |     | Awards           |  | Treasury Stock
|                                             |  |                     |            |                |  |                    |     |                  |  |               
|Balance at February 1, 2003                  |  |                     | 19,542,820 |                |  | $                  | 1.0 |                  |  | $              | 113.9 |             |  | $ | (0.4 | ) |  | $ | (40.3 | )
|Options exercised, net                       |  |                     | 254,279    |                |  |                    |    |                  |  |                | 3.4   |             |  |   |     |   |  |   | (0.4  | )
|Restricted stock awards
activity, net        |  |                     | 113,900    |                |  |                    |    |                  |  |                | 2.3   |             |  |   | (2.0 | ) |  |   |      |  
|Issuance of common stock                    |  |                     |            |                |  |                    |     |                  |  |                |       |             |  |   |      |   |  |   |       |  
|Associate stock ownership
plan and 401K plan |  |                     | 91,871     |                |  |                    |    |                  |  |                | 1.6   |             |  |   |     |   |  |   | 0.1   |  
|Stock-based compensation                     |  |                     |           |                |  |                    |    |                  |  |                | 2.6   |             |  |   |     |   |  |   |      |  
|                                             |  |                     |            |                |  |                    |     |                  |  |                |       |             |  |   |      |   |  |   |       |  
|Balance at August 2, 2003                    |  |                     | 20,002,870 |                |  | $                  | 1.0 |                  |  | $              | 123.8 |             |  | $ | (2.4 | ) |  | $ | (40.6 | )
|                                             |  |                     |            |                |  |                    |     |                  |  |                |       |             |  |   |      |   |  |   |       |  

Note 7 - Share Reclassification Proposal

On May 19, 2003, the Company filed a Form S-4 Registration
Statement with the Securities and Exchange Commission to register
securities to be issued in connection with a proposed reclassification
of the Companys two classes of common shares into one voting class. As
part of the proposal, the Company will also seek to amend certain
provisions of its code of regulations. The Form S-4 Registration
Statement was amended on July 18, 2003 and August 19, 2003, but has not
yet become effective.

The Company expects to finalize its Form S-4 Registration Statement
shortly and hold a special meeting of shareholders on or about November
4, 2003 to vote on the proposal. Prior to that time, each shareholder
will receive a written prospectus and proxy statement describing the
proposed reclassification and the amendments to the Companys code of
regulations. Shareholders should read that information when it becomes
available because it will contain important information.

Note 8 - Recent Accounting Pronouncements

During May 2003, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 150, 
Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS No. 150 clarifies the accounting for
certain financial instruments with characteristics of both liabilities
and equity and requires that those instruments be classified as
liabilities in the statement of financial position. Previously, many of
those financial instruments were classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May
31, 2003 and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. We do not expect the
adoption of SFAS No. 150 to have a significant impact on our operating
results or financial position.

During April 2003, the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. SFAS
No. 149 amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities under Statement 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. The guidance
should be applied prospectively.

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We do not expect the adoption of SFAS No. 149 to have a significant
impact on our operating results or financial position.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN
46), Consolidation of Variable Interest Entities. FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, for certain entities which do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties or in which
equity investors do not have the characteristics of a controlling
financial interest (variable interest entities). Variable interest
entities will be required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable interest entity is
determined to be the party that absorbs a majority of the entitys
expected losses, receives a majority of its expected returns, or both,
as a result of holding variable interests, which are ownership,
contractual, or other pecuniary interests in an entity. FIN 46 applies
immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains
an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. FIN 46 applies to public enterprises
as of the beginning of the applicable interim or annual period. The
Company is in the process of determining what impact, if any, the
adoption of the provisions of FIN 46 will have upon its financial
condition or results of operations.

In November 2002, the EITF reached a consensus on EITF 02-16,
Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor. Among other conclusions reached,
EITF 02-16 requires that consideration received from a vendor be
presumed to be a reduction of the cost of the vendors products or
services. This presumption can be overcome if the consideration can be
shown to represent either a payment for assets or services delivered to
the vendor or a reimbursement of costs incurred by the reseller to sell
the vendors products. Under the transition rules set forth in EITF
02-16 this treatment is required for all agreements entered into or
modified after December 31, 2002. This guidance was adopted by the
Company and did not have a material impact on its results of operations
or financial position.

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Note 9 - Consolidating Financial Statements (Unaudited)

The Companys 10-3/8% senior subordinated notes and Credit Facility
are fully and unconditionally guaranteed, on a joint and several basis,
by the wholly-owned subsidiaries of the Company. The senior
subordinated notes are subordinated to the Companys Credit Facility.
Summarized consolidating financial information of the Company (excluding
its subsidiaries) and the guarantor subsidiaries as of August 2, 2003
and February 1, 2003 and for the thirteen and twenty-six weeks ended
August 2, 2003 and August 3, 2002 are as follows:

Consolidating Balance Sheets
August 2, 2003

|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |       |  
|--------------------------------------------------- | ----------------------------------------- | - | ------ | ----- | ------------ | - | --------------------- | ----- | ------------ | - | ------ | ----- | - | - | ----- | ----- | -
|                                                    |                                           |   |        |       |              |   | Guarantor             |       |              |   |        |       |   |   |      
|                                                    |                                           |   | Parent |       | Subsidiaries |   | Eliminations          |       | Consolidated
|                                                    |                                           |   |        |       |              |   |                       |      
|                                                    |                                           |   |        |       |              |   | (Dollars in millions) |       |              |   |       
|Assets                                              |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|Current assets:                                     |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|                                                    | Cash and temporary cash investments       |   | $      | 13.2  |              |   | $                     | 2.9   |              |   | $      |      |   |   | $     | 16.1  |  
|                                                    | Inventories                               |   |        | 164.2 |              |   |                       | 307.4 |              |   |        |      |   |   |       | 471.6 |  
|                                                    | Deferred income taxes                     |   |        | 21.2  |              |   |                       | 6.7   |              |   |        |      |   |   |       | 27.9  |  
|                                                    | Prepaid expenses and other current assets |   |        | 13.4  |              |   |                       | 5.3   |              |   |        |      |   |   |       | 18.7  |  
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|Total current assets                                |                                           |   | 212.0  |       |              |   | 322.3                 |       |              |   |       |       |   |   | 543.3 |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |       |  
|Property, equipment and leasehold improvements, net |                                           |   | 67.7   |       |              |   | 122.7                 |       |              |   |       |       |   |   | 190.4 |      
|Goodwill, net                                       |                                           |   |       |       |              |   | 26.5                  |       |              |   |       |       |   |   | 26.5  |      
|Other assets                                        |                                           |   | 12.9   |       |              |   | 1.2                   |       |              |   |       |       |   |   | 14.1  |      
|Investment in subsidiaries                          |                                           |   | 46.1   |       |              |   |                      |       |              |   | (46.1  | )     |   |   |      |      
|Intercompany receivable                             |                                           |   | 381.3  |       |              |   |                      |       |              |   | (381.3 | )     |   |   |      |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|Total assets                                        |                                           | $ | 720.0  |       |              | $ | 472.7                 |       |              | $ | (427.4 | )     |   | $ | 765.3 |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |       |  
|Liabilities and Shareholders Equity                |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|Current liabilities:                                |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|                                                    | Accounts payable                          |   | $      | 133.0 |              |   | $                     | 39.3  |              |   | $      |      |   |   | $     | 172.3 |  
|                                                    | Accrued expenses                          |   |        | 73.6  |              |   |                       | (17.5 | )            |   |        |      |   |   |       | 56.1  |  
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|Total current liabilities                           |                                           |   | 206.6  |       |              |   | 21.8                  |       |              |   |       |       |   |   | 228.4 |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |       |  
|Long-term debt                                      |                                           |   | 190.5  |       |              |   |                      |       |              |   |       |       |   |   | 190.5 |      
|Deferred income taxes                               |                                           |   | 17.6   |       |              |   | 19.6                  |       |              |   |       |       |   |   | 37.2  |      
|Other long-term liabilities                         |                                           |   | 5.9    |       |              |   | 3.9                   |       |              |   |       |       |   |   | 9.8   |      
|Intercompany payable                                |                                           |   |       |       |              |   | 381.3                 |       |              |   | (381.3 | )     |   |   |      |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |       |  
|Shareholders equity:                               |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|                                                    | Common stock                              |   |        | 1.0   |              |   |                       |      |              |   |        |      |   |   |       | 1.0   |  
|                                                    | Additional paid-in capital                |   |        | 123.8 |              |   |                       |      |              |   |        |      |   |   |       | 123.8 |  
|                                                    | Unamortized restricted stock awards       |   |        | (2.4  | )            |   |                       |      |              |   |        |      |   |   |       | (2.4  | )
|                                                    | Retained earnings                         |   |        | 219.7 |              |   |                       | 46.1  |              |   |        | (46.1 | ) |   |       | 219.7 |  
|                                                    | Accumulated other comprehensive loss      |   |        | (2.1  | )            |   |                       |      |              |   |        |      |   |   |       | (2.1  | )
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|                                                    |                                           |   | 340.0  |       |              |   | 46.1                  |       |              |   | (46.1  | )     |   |   | 340.0 |      
|                                                    | Treasury stock, at cost                   |   |        | (40.6 | )            |   |                       |      |              |   |        |      |   |   |       | (40.6 | )
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|Total shareholders equity                          |                                           |   | 299.4  |       |              |   | 46.1                  |       |              |   | (46.1  | )     |   |   | 299.4 |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      
|Total liabilities and shareholders equity          |                                           | $ | 720.0  |       |              | $ | 472.7                 |       |              | $ | (427.4 | )     |   | $ | 765.3 |      
|                                                    |                                           |   |        |       |              |   |                       |       |              |   |        |       |   |   |       |      

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Note 9 - Consolidating Financial Statements (Unaudited)  CONTINUED

Consolidating Balance Sheets
February 1, 2003

|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |       |  
|--------------------------------------------------- | ----------------------------------------- | ------ | ----- | ------------ | - | ------------ | --------------------- | ------------ | - | - | ------ | ----- | - | - | ----- | ----- | -
|                                                    |                                           |        |       |              |   |              | Guarantor             |              |   |   |        |       |   |   |      
|Consolidating Balance Sheets                        |                                           | Parent |       | Subsidiaries |   | Eliminations |                       | Consolidated
|                                                    |                                           |        |       |              |   |              |                       |             
|                                                    |                                           |        |       |              |   |              | (Dollars in millions) |              |   |   |       
|Assets                                              |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Current assets:                                     |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|                                                    | Cash and cash equivalents                 |        | $     | 60.2         |   |              | $                     | 3.0          |   |   | $      |      |   |   | $     | 63.2  |  
|                                                    | Inventories                               |        |       | 132.9        |   |              |                       | 230.2        |   |   |        |      |   |   |       | 363.1 |  
|                                                    | Deferred income taxes                     |        |       | 21.5         |   |              |                       | 6.7          |   |   |        |      |   |   |       | 28.2  |  
|                                                    | Prepaid expenses and other current assets |        |       | 11.2         |   |              |                       | 6.0          |   |   |        |      |   |   |       | 17.2  |  
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Total current assets                                |                                           |        | 225.8 |              |   |              | 245.9                 |              |   |   |       |       |   |   | 471.7 |      
|Property, equipment and leasehold
Improvements, net |                                           |        | 65.8  |              |   |              | 124.5                 |              |   |   |       |       |   |   | 190.3 |      
|Goodwill, net                                       |                                           |        |      |              |   |              | 26.5                  |              |   |   |       |       |   |   | 26.5  |      
|Other assets                                        |                                           |        | 14.6  |              |   |              | 1.4                   |              |   |   |       |       |   |   | 16.0  |      
|Investment in subsidiaries                          |                                           |        | 22.6  |              |   |              |                      |              |   |   | (22.6  | )     |   |   |      |      
|Intercompany receivable                             |                                           |        | 371.4 |              |   |              |                      |              |   |   | (371.4 | )     |   |   |      |      
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Total assets                                        |                                           | $      | 700.2 |              |   | $            | 398.3                 |              |   | $ | (394.0 | )     |   | $ | 704.5 |      
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Liabilities and Shareholders Equity                |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Current liabilities:                                |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|                                                    | Accounts payable                          |        | $     | 130.3        |   |              | $                     | (0.4         | ) |   | $      |      |   |   | $     | 129.9 |  
|                                                    | Accrued expenses                          |        |       | 94.7         |   |              |                       | (18.8        | ) |   |        |      |   |   |       | 75.9  |  
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Total current liabilities                           |                                           |        | 225.0 |              |   |              | (19.2                 | )            |   |   |       |       |   |   | 205.8 |      
|Long-term debt                                      |                                           |        | 162.9 |              |   |              |                      |              |   |   |       |       |   |   | 162.9 |      
|Deferred income taxes                               |                                           |        | 17.6  |              |   |              | 19.6                  |              |   |   |       |       |   |   | 37.2  |      
|Other long-term liabilities                         |                                           |        | 5.3   |              |   |              | 3.9                   |              |   |   |       |       |   |   | 9.2   |      
|Intercompany payable                                |                                           |        |      |              |   |              | 371.4                 |              |   |   | (371.4 | )     |   |   |      |      
|Shareholders equity:                               |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|                                                    | Common stock                              |        |       | 1.0          |   |              |                       |             |   |   |        |      |   |   |       | 1.0   |  
|                                                    | Additional paid-in capital                |        |       | 113.9        |   |              |                       |             |   |   |        |      |   |   |       | 113.9 |  
|                                                    | Unamortized restricted stock awards       |        |       | (0.4         | ) |              |                       |             |   |   |        |      |   |   |       | (0.4  | )
|                                                    | Retained earnings                         |        |       | 217.8        |   |              |                       | 22.6         |   |   |        | (22.6 | ) |   |       | 217.8 |  
|                                                    | Accumulated other comprehensive
Loss      |        |       | (2.6         | ) |              |                       |             |   |   |        |      |   |   |       | (2.6  | )
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|                                                    |                                           |        | 329.7 |              |   |              | 22.6                  |              |   |   | (22.6  | )     |   |   | 329.7 |      
|                                                    | Treasury stock, at cost                   |        |       | (40.3        | ) |              |                       |             |   |   |        |      |   |   |       | (40.3 | )
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Total shareholders equity                          |                                           |        | 289.4 |              |   |              | 22.6                  |              |   |   | (22.6  | )     |   |   | 289.4 |      
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      
|Total liabilities and shareholders equity          |                                           | $      | 700.2 |              |   | $            | 398.3                 |              |   | $ | (394.0 | )     |   | $ | 704.5 |      
|                                                    |                                           |        |       |              |   |              |                       |              |   |   |        |       |   |   |       |      

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Note 9 - Consolidating Financial Statements (Unaudited)  CONTINUED

Consolidating Statements of Operations
Thirteen Weeks Ended August 2, 2003 and August 3, 2002

|                                             |                                    |   |                |       |              |   |                       |      |              |   |        |   |  |   |       |       |  
|-------------------------------------------- | ---------------------------------- | - | -------------- | ----- | ------------ | - | --------------------- | ---- | ------------ | - | ------ | - |  | - | ----- | ----- | -
|                                             |                                    |   | August 2, 2003
|                                             |                                    |   |               
|                                             |                                    |   |                |       |              |   | Guarantor             |      |              |   |        |   |  |   |      
|                                             |                                    |   | Parent         |       | Subsidiaries |   | Eliminations          |      | Consolidated
|                                             |                                    |   |                |       |              |   |                       |     
|                                             |                                    |   |                |       |              |   | (Dollars in millions) |      |              |   |       
|Net sales                                    |                                    | $ | 195.4          |       |              | $ | 295.0                 |      |              | $ | (131.2 | ) |  | $ | 359.2 |      
|Cost of sales                                |                                    |   | 120.8          |       |              |   | 197.0                 |      |              |   | (131.2 | ) |  |   | 186.6 |      
|                                             |                                    |   |                |       |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Gross margin                       |   |                | 74.6  |              |   |                       | 98.0 |              |   |        |  |  |   |       | 172.6 |  
|Selling, general and administrative expenses |                                    |   | 83.6           |       |              |   | 79.2                  |      |              |   |       |   |  |   | 162.8 |      
|Depreciation and amortization                |                                    |   | 3.4            |       |              |   | 5.7                   |      |              |   |       |   |  |   | 9.1   |      
|                                             |                                    |   |                |       |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Operating profit (loss)            |   |                | (12.4 | )            |   |                       | 13.1 |              |   |        |  |  |   |       | 0.7   |  
|Interest expense, net                        |                                    |   | 1.7            |       |              |   | 2.5                   |      |              |   |       |   |  |   | 4.2   |      
|                                             |                                    |   |                |       |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Income (loss) before income taxes  |   |                | (14.1 | )            |   |                       | 10.6 |              |   |        |  |  |   |       | (3.5  | )
|Income tax benefit                           |                                    |   | (1.2           | )     |              |   | (0.1                  | )    |              |   |       |   |  |   | (1.3  | )    
|                                             |                                    |   |                |       |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Income (loss) before equity losses |   |                | (12.9 | )            |   |                       | 10.7 |              |   |        |  |  |   |       | (2.2  | )
|Equity loss from subsidiaries                |                                    |   | 10.7           |       |              |   |                      |      |              |   | (10.7  | ) |  |   |      |      
|                                             |                                    |   |                |       |              |   |                       |      |              |   |        |   |  |   |       |      
|Net income (loss)                            |                                    | $ | (2.2           | )     |              | $ | 10.7                  |      |              | $ | (10.7  | ) |  | $ | (2.2  | )    
|                                             |                                    |   |                |       |              |   |                       |      |              |   |        |   |  |   |       |      

|                                             |                                    |   |                |      |              |   |                       |      |              |   |        |   |  |   |       |       | 
|-------------------------------------------- | ---------------------------------- | - | -------------- | ---- | ------------ | - | --------------------- | ---- | ------------ | - | ------ | - |  | - | ----- | ----- | 
|                                             |                                    |   | August 3, 2002
|                                             |                                    |   |               
|                                             |                                    |   |                |      |              |   | Guarantor             |      |              |   |        |   |  |   |      
|                                             |                                    |   | Parent         |      | Subsidiaries |   | Eliminations          |      | Consolidated
|                                             |                                    |   |                |      |              |   |                       |     
|                                             |                                    |   |                |      |              |   | (Dollars in millions) |      |              |   |       
|Net sales                                    |                                    | $ | 191.0          |      |              | $ | 269.3                 |      |              | $ | (106.6 | ) |  | $ | 353.7 |      
|Cost of sales                                |                                    |   | 111.1          |      |              |   | 177.6                 |      |              |   | (106.6 | ) |  |   | 182.1 |      
|                                             |                                    |   |                |      |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Gross margin                       |   |                | 79.9 |              |   |                       | 91.7 |              |   |        |  |  |   |       | 171.6 | 
|Selling, general and administrative expenses |                                    |   | 73.9           |      |              |   | 79.1                  |      |              |   |       |   |  |   | 153.0 |      
|Depreciation and amortization                |                                    |   | 3.1            |      |              |   | 5.6                   |      |              |   |       |   |  |   | 8.7   |      
|                                             |                                    |   |                |      |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Operating profit                   |   |                | 2.9  |              |   |                       | 7.0  |              |   |        |  |  |   |       | 9.9   | 
|Interest expense, net                        |                                    |   | 2.7            |      |              |   | 3.9                   |      |              |   |       |   |  |   | 6.6   |      
|                                             |                                    |   |                |      |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Income before income taxes         |   |                | 0.2  |              |   |                       | 3.1  |              |   |        |  |  |   |       | 3.3   | 
|Income tax provision (benefit)               |                                    |   | 1.4            |      |              |   | (0.1                  | )    |              |   |       |   |  |   | 1.3   |      
|                                             |                                    |   |                |      |              |   |                       |      |              |   |        |   |  |   |       |      
|                                             | Income (loss) before equity losses |   |                | (1.2 | )            |   |                       | 3.2  |              |   |        |  |  |   |       | 2.0   | 
|Equity income from subsidiaries              |                                    |   | 3.2            |      |              |   |                      |      |              |   | (3.2   | ) |  |   |      |      
|                                             |                                    |   |                |      |              |   |                       |      |              |   |        |   |  |   |       |      
|Net income                                   |                                    | $ | 2.0            |      |              | $ | 3.2                   |      |              | $ | (3.2   | ) |  | $ | 2.0   |      
|                                             |                                    |   |                |      |              |   |                       |      |              |   |        |   |  |   |       |      

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##### Table of Contents



Note 9 - Consolidating Financial Statements (Unaudited)  CONTINUED

Consolidating Statements of Operations
Twenty-Six Weeks Ended August 2, 2003 and August 3, 2002

|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |       | 
|-------------------------------------------- | ---------------------------------- | - | -------------- | ----- | ------------ | - | --------------------- | ----- | ------------ | - | ------ | - |  | - | ----- | ----- | 
|                                             |                                    |   | August 2, 2003
|                                             |                                    |   |               
|                                             |                                    |   |                |       |              |   | Guarantor             |       |              |   |        |   |  |   |      
|                                             |                                    |   | Parent         |       | Subsidiaries |   | Eliminations          |       | Consolidated
|                                             |                                    |   |                |       |              |   |                       |      
|                                             |                                    |   |                |       |              |   | (Dollars in millions) |       |              |   |       
|Net sales                                    |                                    | $ | 400.9          |       |              | $ | 581.5                 |       |              | $ | (248.4 | ) |  | $ | 734.0 |      
|Cost of sales                                |                                    |   | 243.6          |       |              |   | 385.7                 |       |              |   | (248.4 | ) |  |   | 380.9 |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Gross margin                       |   |                | 157.3 |              |   |                       | 195.8 |              |   |        |  |  |   |       | 353.1 | 
|Selling, general and administrative expenses |                                    |   | 166.8          |       |              |   | 155.8                 |       |              |   |       |   |  |   | 322.6 |      
|Depreciation and amortization                |                                    |   | 6.8            |       |              |   | 11.4                  |       |              |   |       |   |  |   | 18.2  |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Operating profit (loss)            |   |                | (16.3 | )            |   |                       | 28.6  |              |   |        |  |  |   |       | 12.3  | 
|Interest expense, net                        |                                    |   | 3.9            |       |              |   | 5.3                   |       |              |   |       |   |  |   | 9.2   |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Income (loss) before income taxes  |   |                | (20.2 | )            |   |                       | 23.3  |              |   |        |  |  |   |       | 3.1   | 
|Income tax provision (benefit)               |                                    |   | 1.4            |       |              |   | (0.2                  | )     |              |   |       |   |  |   | 1.2   |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Income (loss) before equity income |   |                | (21.6 | )            |   |                       | 23.5  |              |   |        |  |  |   |       | 1.9   | 
|Equity income from subsidiaries              |                                    |   | 23.5           |       |              |   |                      |       |              |   | (23.5  | ) |  |   |      |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|Net income                                   |                                    | $ | 1.9            |       |              | $ | 23.5                  |       |              | $ | (11.3  | ) |  | $ | 1.9   |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      

|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |       | 
|-------------------------------------------- | ---------------------------------- | - | -------------- | ----- | ------------ | - | --------------------- | ----- | ------------ | - | ------ | - |  | - | ----- | ----- | 
|                                             |                                    |   | August 3, 2002
|                                             |                                    |   |               
|                                             |                                    |   |                |       |              |   | Guarantor             |       |              |   |        |   |  |   |      
|                                             |                                    |   | Parent         |       | Subsidiaries |   | Eliminations          |       | Consolidated
|                                             |                                    |   |                |       |              |   |                       |      
|                                             |                                    |   |                |       |              |   | (Dollars in millions) |       |              |   |       
|Net sales                                    |                                    | $ | 396.1          |       |              | $ | 548.9                 |       |              | $ | (218.9 | ) |  | $ | 726.1 |      
|Cost of sales                                |                                    |   | 228.0          |       |              |   | 364.6                 |       |              |   | (218.9 | ) |  |   | 373.7 |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Gross margin                       |   |                | 168.1 |              |   |                       | 184.3 |              |   |        |  |  |   |       | 352.4 | 
|Selling, general and administrative expenses |                                    |   | 149.8          |       |              |   | 154.4                 |       |              |   |       |   |  |   | 304.2 |      
|Depreciation and amortization                |                                    |   | 6.5            |       |              |   | 11.4                  |       |              |   |       |   |  |   | 17.9  |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Operating profit                   |   |                | 11.8  |              |   |                       | 18.5  |              |   |        |  |  |   |       | 30.3  | 
|Interest expense, net                        |                                    |   | 5.6            |       |              |   | 7.4                   |       |              |   |       |   |  |   | 13.0  |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Income before income taxes         |   |                | 6.2   |              |   |                       | 11.1  |              |   |        |  |  |   |       | 17.3  | 
|Income tax provision (benefit)               |                                    |   | 6.8            |       |              |   | (0.2                  | )     |              |   |       |   |  |   | 6.6   |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|                                             | Income (loss) before equity income |   |                | (0.6  | )            |   |                       | 11.3  |              |   |        |  |  |   |       | 10.7  | 
|Equity income from subsidiaries              |                                    |   | 11.3           |       |              |   |                      |       |              |   | (11.3  | ) |  |   |      |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      
|Net income                                   |                                    | $ | 10.7           |       |              | $ | 11.3                  |       |              | $ | (11.3  | ) |  | $ | 10.7  |      
|                                             |                                    |   |                |       |              |   |                       |       |              |   |        |   |  |   |       |      

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##### Table of Contents



Note 9 - Consolidating Financial Statements (Unaudited)  CONTINUED

Consolidating Statements of Cash Flows
Twenty-Six Weeks Ended August 2, 2003 and August 3, 2002

|                                                           |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |       |  
|---------------------------------------------------------- | --------------------------------------- | - | --------------------- | ----- | ------------ | - | ------------ | ----- | ------------ | - | - | - |  | - | ----- | ----- | -
|                                                           |                                         |   | August 2, 2003       
|                                                           |                                         |   |                      
|                                                           |                                         |   |                       |       |              |   | Guarantor    |       |              |   |   |   |  |   |      
|                                                           |                                         |   | Parent                |       | Subsidiaries |   | Eliminations |       | Consolidated
|                                                           |                                         |   |                       |       |              |   |              |      
|                                                           |                                         |   | (Dollars in millions)
|Net cash (used for) provided by operating activities       |                                         | $ | (67.1                 | )     |              | $ | 10.1         |       |              | $ |  |   |  | $ | (57.0 | )    
|Net cash flows used for investing activities:              |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |      
|                                                           | Capital expenditures                    |   |                       | (8.3  | )            |   |              | (10.2 | )            |   |   |  |  |   |       | (18.5 | )
|                                                           |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |      
|Net cash used for investing activities                     |                                         |   | (8.3                  | )     |              |   | (10.2        | )     |              |   |  |   |  |   | (18.5 | )    
|Net cash flows provided by financing activities:           |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |      
|                                                           | Net change in revolving credit facility |   |                       | 73.5  |              |   |              |      |              |   |   |  |  |   |       | 73.5  |  
|                                                           | Purchase of senior subordinated notes   |   |                       | (48.4 | )            |   |              |      |              |   |   |  |  |   |       | (48.4 | )
|                                                           | Proceeds from exercise of stock options |   |                       | 2.5   |              |   |              |      |              |   |   |  |  |   |       | 2.5   |  
|                                                           | Other, net                              |   |                       | 0.8   |              |   |              |      |              |   |   |  |  |   |       | 0.8   |  
|                                                           |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |      
|Net cash provided by financing activities                  |                                         |   | 28.4                  |       |              |   |             |       |              |   |  |   |  |   | 28.4  |      
|                                                           |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |      
|Net decrease in cash                                       |                                         |   | (47.0                 | )     |              |   | (0.1         | )     |              |   |  |   |  |   | (47.1 | )    
|Cash and temporary cash investments at beginning of period |                                         |   | 60.2                  |       |              |   | 3.0          |       |              |   |  |   |  |   | 63.2  |      
|                                                           |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |      
|Cash and temporary cash investments at end of period       |                                         | $ | 13.2                  |       |              | $ | 2.9          |       |              | $ |  |   |  | $ | 16.1  |      
|                                                           |                                         |   |                       |       |              |   |              |       |              |   |   |   |  |   |       |      

|                                                           |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |      |  
|---------------------------------------------------------- | --------------------------------------- | - | --------------------- | ---- | ------------ | - | ------------ | ---- | ------------ | - | - | - |  | - | ----- | ---- | -
|                                                           |                                         |   | August 3, 2002       
|                                                           |                                         |   |                      
|                                                           |                                         |   |                       |      |              |   | Guarantor    |      |              |   |   |   |  |   |      
|                                                           |                                         |   | Parent                |      | Subsidiaries |   | Eliminations |      | Consolidated
|                                                           |                                         |   |                       |      |              |   |              |     
|                                                           |                                         |   | (Dollars in millions)
|Net cash (used for) provided by operating activities       |                                         | $ | (64.3                 | )    |              | $ | 1.3          |      |              | $ |  |   |  | $ | (63.0 | )   
|Net cash flows used for investing activities:              |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |     
|                                                           | Capital expenditures                    |   |                       | (6.0 | )            |   |              | (1.9 | )            |   |   |  |  |   |       | (7.9 | )
|                                                           |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |     
|Net cash used for investing activities                     |                                         |   | (6.0                  | )    |              |   | (1.9         | )    |              |   |  |   |  |   | (7.9  | )   
|Net cash flows provided by financing activities:           |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |     
|                                                           | Net change in revolving credit facility |   |                       | 61.9 |              |   |              |     |              |   |   |  |  |   |       | 61.9 |  
|                                                           | Proceeds from exercise of stock options |   |                       | 3.8  |              |   |              |     |              |   |   |  |  |   |       | 3.8  |  
|                                                           | Other, net                              |   |                       | (0.2 | )            |   |              |     |              |   |   |  |  |   |       | (0.2 | )
|                                                           |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |     
|Net cash provided by financing activities                  |                                         |   | 65.5                  |      |              |   |             |      |              |   |  |   |  |   | 65.5  |     
|                                                           |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |     
|Net decrease in cash                                       |                                         |   | (4.8                  | )    |              |   | (0.6         | )    |              |   |  |   |  |   | (5.4  | )   
|Cash and temporary cash investments at beginning of period |                                         |   | 17.5                  |      |              |   | 3.6          |      |              |   |  |   |  |   | 21.1  |     
|                                                           |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |     
|Cash and temporary cash investments at end of period       |                                         | $ | 12.7                  |      |              | $ | 3.0          |      |              | $ |  |   |  | $ | 15.7  |     
|                                                           |                                         |   |                       |      |              |   |              |      |              |   |   |   |  |   |       |     

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##### Table of Contents









Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth our results of operations through
operating profit, expressed as a percentage of net sales. The following
discussion should be read in conjunction with our consolidated financial
statements and related notes thereto.

|                                             |                  |  |                         |      |                  |  |             |      |             |  |       |      |   |  |       |      |  
|-------------------------------------------- | ---------------- |  | ----------------------- | ---- | ---------------- |  | ----------- | ---- | ----------- |  | ----- | ---- | - |  | ----- | ---- | -
|                                             |                  |  | Percentage of Net Sales
|                                             |                  |  |                        
|                                             |                  |  | Thirteen                |      | Twenty-Six Weeks
|                                             |                  |  | Weeks Ended             |      | Ended           
|                                             |                  |  |                         |      |                 
|                                             |                  |  | Aug 2, 2003             |      | Aug 3, 2002      |  | Aug 2, 2003 |      | Aug 3, 2002
|                                             |                  |  |                         |      |                  |  |             |      |            
|Net sales                                    |                  |  | 100.0                   | %    |                  |  | 100.0       | %    |             |  | 100.0 | %    |   |  | 100.0 | %   
|                                             | Gross margin     |  |                         | 48.1 | %                |  |             | 48.5 | %           |  |       | 48.1 | % |  |       | 48.5 | %
|Selling, general and administrative expenses |                  |  | 44.2                    | %    |                  |  | 42.4        | %    |             |  | 42.5  | %    |   |  | 41.4  | %   
|Store pre-opening and closing costs          |                  |  | 0.7                     | %    |                  |  | 0.4         | %    |             |  | 0.6   | %    |   |  | 0.3   | %   
|Depreciation and amortization                |                  |  | 2.6                     | %    |                  |  | 2.5         | %    |             |  | 2.4   | %    |   |  | 2.4   | %   
|Stock-based compensation expense             |                  |  | 0.4                     | %    |                  |  |            |      |             |  | 0.4   | %    |   |  |      |     
|Debt repurchase expenses                     |                  |  |                        |      |                  |  | 0.4         | %    |             |  | 0.5   | %    |   |  | 0.2   | %   
|                                             |                  |  |                         |      |                  |  |             |      |             |  |       |      |   |  |       |     
|                                             | Operating profit |  |                         | 0.2  | %                |  |             | 2.8  | %           |  |       | 1.7  | % |  |       | 4.2  | %
|                                             |                  |  |                         |      |                  |  |             |      |             |  |       |      |   |  |       |     

Comparison of the Thirteen Weeks Ended August 2, 2003 and August 3, 2002

Net sales for the second quarter of fiscal 2004 increased 1.6%, or
$5.5 million, to $359.2 million from $353.7 million in the prior year.
Sales from stores open one year or more (same-store sales) increased
2.4% compared with a same-store sales increase of 7.7% for the prior
year second quarter. Same-store sales generated all of the overall net
sales increase, as we operated fewer stores at the end of the second
quarter versus a year ago. The Companys total store count at the end
of the quarter was down 36 units, or 3.8% from last years second
quarter; however, the number of superstores in operation increased to 83
from 70 in last years second quarter. Store square footage decreased
1.7% from last years second quarter. The 83 superstores in operation
accounted for approximately 27% of the total sales for the second
quarter.

By store format, our same-store sales performance for traditional
stores increased 2.2% versus a same-store sales increase of 7.9% for the
prior year second quarter. This was driven primarily by an increase in
customer traffic, with the remainder driven by an increase in average
ticket. Same-store sales for superstores increased 3.0% for the quarter
versus a same-store sales increase of 7.1% for the prior year second
quarter. The increase was driven entirely by customer traffic with
average ticket down slightly. The improvement in same-store sales is
attributed to aggressive promotion and clearance activities compared to
the prior year second quarter.

As a percent of net sales, gross margin was 48.1% for the second
quarter of fiscal 2004 compared with 48.5% for the same quarter a year
earlier, a decrease of 40 basis points. This decrease in margin rate
resulted from reduced selling margins of approximately 170 basis points
due to promotional and clearance activities, partially offset by a 130
basis point improvement in store shrink expense rates.

Selling, general and administrative (SG&A) expenses were $158.8
million in the second quarter of fiscal 2004, representing a 5.8%
increase from the $150.1 million in SG&A expenses in the prior year
second quarter. As a percentage of net sales, SG&A expenses increased
to 44.2% versus 42.4% for the second quarter of fiscal 2003. This
increase in expense leverage related primarily to increases in store
payroll and distribution costs due, in part, to the acceleration of
seasonal product flow

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into the stores for the second half of the fiscal year. In
addition, normal inflationary increases in these areas and other
store-level expenses outpaced the overall growth rate in sales, due to
the lower number of stores in operation year over year. The second
quarter also included $0.7 million of costs associated with our proposed
share reclassification.

Store pre-opening and closing costs increased $1.1 million during
the second quarter of fiscal 2004, to $2.6 million due to increased
store opening activity. We opened six superstores in this years second
quarter, compared with no store openings in the prior year second
quarter.

Depreciation and amortization expense increased $0.4 million to
$9.1 million from $8.7 million, primarily due to the increased level of
capital expenditures year-over-year.

Stock-based compensation expense of $1.4 million resulted from our
adoption of the fair-value based method of accounting for stock options
under SFAS No. 123 Accounting for Stock-Based Compensation Expense.
We adopted SFAS No. 123 under the modified-prospective method allowed
under the transition provisions provided for under SFAS No. 148
Accounting for Stock-Based CompensationTransition and Disclosure an
amendment of FASB Statement No. 123.

During the second quarter of the prior year, debt repurchase
expenses of $1.4 million were incurred to repurchase approximately $20
million of our 10-3/8% senior subordinated notes. The charge recorded
includes the cash premium paid for early redemption and a write-off of
the related deferred finance charges.

Operating profit for the second quarter of fiscal 2004 was $0.7
million, compared to $9.9 million for the second quarter of fiscal 2003.

Interest expense in the second quarter of fiscal 2004 decreased
$2.4 million to $4.2 million from $6.6 million in the second quarter of
fiscal 2003. The decrease is primarily due to a decrease of
approximately $92 million in our average debt levels between periods.
Our average debt levels during the second quarter of fiscal 2004 were
approximately $146 million, compared with approximately $238 million in
the prior year second quarter.

Our effective income tax rate of 38.0% for the second quarter of
fiscal 2004 was consistent with the rate for the second quarter of
fiscal 2003.

Comparison of the Twenty-Six Weeks Ended August 2, 2003 and August 3, 2002

Net sales for the first two quarters of fiscal 2004 increased 1.1%,
or $7.9 million, to $734.0 million from $726.1 million in the prior
year. Same-store sales increased 2.5% compared with a same-store sales
increase of 10.6% for the prior year second quarter year-to-date. This
was primarily driven by an increase in customer traffic. Same-store
sales generated all of the overall net sales increase, as we operated
fewer stores at the end of second quarter versus a year ago. The
Companys total store count at the end of the quarter was down 36 units,
or 3.8% from last years second quarter; however, the number of
superstores in operation increased to 83 from 70 in last years second
quarter. Store square footage decreased 1.7% from last years second
quarter. The 83 superstores in operation accounted for approximately
27% of the total sales for the second quarter year-to-date.

As a percent of net sales, gross margin was 48.1% for the first two
quarters of fiscal 2004 compared with 48.5% for the same period a year
earlier, a decrease of 40 basis points. This decrease in margin rate
resulted from reduced selling margins due to promotional and clearance
activities, partially offset by improvements in store shrink expense
rates. Selling gross margins decreased 190 basis points, while store
shrink expense rates improved approximately 150 basis points.

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SG&A expenses were $311.9 million in the first two quarters of
fiscal 2004 versus $300.4 million in the prior year. As a percentage of
net sales, SG&A expenses increased to 42.5% year-to-date versus 41.4%
for fiscal 2003. This increase in expense leverage primarily related to
increases in store payroll and distribution costs due, in part, to the
acceleration of seasonal product flow into the stores for the second
half of the fiscal year. Normal inflationary increases in these areas
and other store-level expenses outpaced the overall growth rate in
sales, due to the lower number of stores in operation year over year.
The first half of the year also included $0.7 million of costs
associated with our proposed share reclassification.

Store pre-opening and closing costs increased $2.3 million during
the first two quarters of fiscal 2004, to $4.7 million due to increased
store opening activity. We opened 11 superstores year-to-date, compared
with no store openings through the second quarter of the prior year.

Depreciation and amortization expense increased $0.3 million to
$18.2 million from $17.9 million, due to the increased level of capital
expenditures year-over-year.

Stock-based compensation expense of $2.6 million resulted from our
adoption of the fair-value based method of accounting for stock options
under SFAS No. 123 Accounting for Stock-Based Compensation Expense.

Debt repurchase expenses of $3.4 million were incurred in the first
quarter of fiscal 2004 to repurchase approximately $46.0 million of our
10-3/8% senior subordinated notes. The charge recorded includes the
cash premium paid for early redemption and a write-off of the related
deferred costs. Through the first six months of last year, we incurred
$1.4 million in expenses to repurchase approximately $20 million of our
10 3/8% senior subordinated notes.

Operating profit for the first two quarters of fiscal 2004 was
$12.3 million, compared to $30.3 million for fiscal 2003.

Interest expense for the first two quarters of fiscal 2004
decreased $3.8 million to $9.2 million from $13.0 million in fiscal
2003. The decrease is primarily due to a decrease of approximately $78
million in our average debt levels between years. Our average debt
levels year-to-date in fiscal 2004 were approximately $151 million,
compared with approximately $229 million in the prior year.

Our effective income tax rate of 38.0% for the second quarter
year-to-date of fiscal 2004 was consistent with the rate for the second
quarter year-to-date of fiscal 2003.

Liquidity and Capital Resources

We believe that our credit facility, coupled with cash on hand and
cash from operations, will be sufficient to cover our working capital,
capital expenditure and debt service requirement needs for the
foreseeable future.

Cash and cash equivalents decreased $47.1 million during the first
half of fiscal 2004 to $16.1 million as of August 2, 2003.

Net cash used by operating activities was $57.0 million in the
first half of fiscal 2004 compared to $63.0 million in the first half of
fiscal 2003. Inventories, net of payable support, increased $66.1
million, compared with an increase of $87.4 million in the first six
months of the prior year. Inventory typically builds during the first
three quarters of the fiscal year, as we prepare for the peak selling
season in the fourth quarter. Partially offsetting the lower use of
cash for net inventory was a higher

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use of cash related to accrued expenses due primarily to payments of annual
incentive compensation and lower accrued interest.

Net cash used for investing activities, consisting entirely of
capital spending, totaled $18.5 million in the first half of fiscal 2004 compared with
$7.9 million in the first half of fiscal 2003 primarily due to new
store openings.

We anticipate capital expenditures for the full year fiscal 2004 to
be approximately $50 million. The majority of this spending will
pertain to new store openings and continued improvements in the existing
store base. We plan to open a total of approximately 20 new stores
during fiscal 2004, the majority of them superstores. During the first
half of fiscal 2004, we opened nine superstores and two larger
traditional stores. We converted two larger traditional stores to our
superstore format and we closed 21 traditional stores. For the balance
of fiscal 2004, we expect to open approximately seven superstores and
one larger traditional store, and convert two more large traditional
stores to the superstore format. We anticipate closing an additional 20 to 25
traditional stores.

Net cash provided by financing activities was $28.4 million during
the first half of fiscal 2004 compared with $65.5 million during the
first half of fiscal 2003. Debt borrowings increased $25.1 million
during the first half of fiscal 2004, compared with a net increase of
$61.9 million in the first half of the prior year. During the first
half of fiscal 2004, we redeemed or repurchased in the open market,
approximately $46.0 million of senior subordinated notes at an aggregate
premium of 105.4% to par value. These purchases were made utilizing
excess cash on hand as of the beginning of the period. The $3.4 million
pre-tax charge for debt repurchase expenses include the cash premium to
par value and the write-off of deferred costs.

Our debt-to-capitalization ratio was 38.9% at August 2, 2003, 36.0%
at February 1, 2003 and 53.7% at August 3, 2002. We have a goal to
further reduce debt levels during fiscal 2004 by utilizing cash provided
by operating activities.

Business Outlook

In a press release
dated August 18, 2003, which was furnished to the Securities and
Exchange Commission on form 8-K, the Company reiterated
its previously stated earnings guidance for fiscal 2004 to be in the
range of $2.00 to $2.10 of earnings per diluted share.

Our actual results in the third and fourth quarters are highly
dependent on the sales and operating margin performance we are able to
achieve. As a result, our estimates are subject to further refinement
which we will provide as appropriate based on developments throughout
the year. Below are assumptions that we used for our full year 2004
earnings per share guidance.



| |  | Same-store sales growth is expected to approximate 4% for the full fiscal year.                                                                                                                                                                                                                                                                                                                                                    
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | For the second half, the Company expects earnings per share of $1.90-$2.00, based on approximately 22.3 million diluted
shares outstanding, assuming the reclassification proposal is approved by shareholders in November. The second half
performance is expected to be impacted by $2.6 million of stock based compensation expense and approximately $1.0 million
in additional costs related to the reclassification proposal.
| 
| |  | As previously indicated, the Company expects to achieve earnings improvement in the second half of the year. The rate of
improvement is expected to be greater in the third quarter.                                                                                                                                                                                                                                               

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Looking forward to fiscal 2005, the Company is targeting an
earnings improvement of 10-12%, after excluding the estimated costs of
both the share reclassification and debt repurchases in fiscal 2004,
totaling approximately $5.0 million pretax. The Company expects to
accelerate the number of superstore openings in fiscal 2005 to
approximately 30 to 40 stores.

Share Reclassification Proposal and
Other Matters

On May 19, 2003, we filed a Form S-4 Registration Statement with
the Securities and Exchange Commission to register securities to be
issued in connection with a proposed reclassification of our two classes
of common shares into one voting class. As part of the proposal, we
will also seek to amend certain provisions of its code of regulations.
That Form S-4 Registration Statement was amended on July 18, 2003 and
August 19, 2003, but has not yet become effective.

We expect to finalize our Form S-4 Registration Statement shortly
and hold a special meeting of shareholders on or about November 4, 2003
to vote on the proposal. Prior to that time, each shareholder will
receive a written prospectus and proxy statement describing the proposed
reclassification and the amendments to our code of regulations. Our
shareholders should read that information when it becomes available
because it will contain important information.

On August 18, 2003, our Board of Directors announced the
appointment of Tracey Travis, Senior Vice-President, Finance for Limited
Brands, Inc. to the Board of Directors. In addition, we announced that
Betty Rosskamm and Alma Zimmerman, two of the founders of the Company,
resigned from the board and were elected to the newly created honorary
position of Director Emeritus. The Emeritus status will allow them to
attend all meetings of our Board of Directors at their option, but will
not allow them to vote on any matter presented to the Board or serve on
or attend the meetings of any of the Boards committees.

Seasonality and Inflation

Our business exhibits seasonality, which is typical for most retail
companies. Our sales are much stronger in the second half of the year
than the first half of the year. Net earnings are highest during the
months of September through December when sales volumes provide
significant operating leverage. Working capital requirements needed to
finance our operations fluctuate during the year and reach their highest
levels during the second and third fiscal quarters as we increase our
inventory in preparation for our peak selling season.

We believe that inflation has not had a significant effect on net
sales or on net income. There can be no assurance, however, that our
operating results will not be affected by inflation in the future.

Critical Accounting Policies

Our condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States of America. Preparation of these statements requires
management to make judgments and estimates. Some accounting policies
have a significant impact on amounts reported in these financial
statements. A summary of significant accounting policies and a
description of accounting policies that are considered critical may be
found in our 2003 Annual Report on Form 10-K, in
the notes to the consolidated financial statements, Note 1 and the
Critical Accounting Policies section.

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Cautionary Statement Concerning Forward-Looking Statements

Certain statements contained in this report that are not
historical facts are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, which reflects the Companys current views
of future events and financial performance, involve certain risks and
uncertainties. When used herein, the terms anticipates, plans,
estimates, expects, believes, and similar expressions as they
relate to us or future or conditional verbs such as will, should,
would, may, and could are intended to identify such
forward-looking statements. Our actual results, performance or
achievements may materially differ from those expressed or implied in
the forward-looking statements. Risks and uncertainties that could
cause or contribute to such material differences include, but are not
limited to, general economic conditions, changes in customer demand,
changes in trends in the fabric and craft industry, seasonality, the
availability of merchandise, changes in the competitive pricing for
products, and the impact of our and our competitors store openings and
closings, fuel and energy costs, changes in tariff and freight rates,
consumer debt levels, and other capital market and geo-political
conditions. We caution readers not to place undue reliance on these
forward-looking statements. We assume no obligation to update any of
the forward-looking statements.







Item 3. Quantitative and Qualitative Disclosures About Market Risk

We use derivative financial instruments at various times to manage
the risk associated with interest rate fluctuations. The Company is
subject to risk resulting from interest rate fluctuations, as interest
on the Companys credit facility is based on variable rates. The
Companys objective in managing its interest rate exposure is to limit
the impact of interest rate changes on earnings and cash flows.
Interest rate swaps are primarily utilized to achieve this objective,
effectively converting a portion of our variable-rate exposures to
fixed interest rates (See Note 5  Fair Value of Derivative Financial
Instruments).







Item 4. Controls and Procedures

As of the end of the period covered by this report, the Company
conducted an evaluation, under the supervision and with the
participation of the principal executive officer and principal
financial officer, of the Companys disclosure controls and procedures
(as defined in Rules13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)). Based on this evaluation,
the principal executive officer and principal financial officer
concluded that the Companys disclosure controls and procedures are
effective to ensure that information 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 Securities and Exchange Commission rules and forms. There
was no change in the Companys internal control over financial
reporting during the Companys most recently completed fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.

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##### Table of Contents









PART II OTHER INFORMATION







Item 1. Legal Proceedings

We are involved in various litigation matters in the ordinary
course of our business. We are not currently involved in any litigation
which we expect, either individually or in the aggregate, will have a
material adverse effect on our financial condition or results of
operations.







Item 4. Submission of Matters to a Vote of Security Holders



| | a) |  | An Annual Meeting of Shareholders of the Company was
held on June 10, 2003.                                                          
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Alan Rosskamm, Scott Cowen and Gregg Searle were elected
to the Board of Directors in the class whose term of office
expires in 2006.
|
| | c) |  | The nominees for Directors as listed in the proxy
statement were elected with the following vote:                                    

|              |  |           |  |               
|------------- |  | --------- |  | --------------
|             
|Nominee       |  | Votes For |  | Votes Withheld
|             
|Alan Rosskamm |  | 8,365,382 |  | 497,603       
|             
|Scott Cowen   |  | 8,778,140 |  | 84,845        
|             
|Greg Searle   |  | 8,784,118 |  | 78,867        
|             







Item 6. Exhibits and Reports on Form 8-K



| | a) |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Exhibit 31.1  Section 302 Certification By Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |    |  | Exhibit 31.2  Section 302 Certification By Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |    |  | Exhibit 32.1  Section 906 Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | Exhibit 32.2  Section 906 Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |    |  | The Company filed a Current Report on Form 8-K dated May
8, 2003 to report the issuance of a press release announcing
its net sales for the four weeks and first quarter ended May 3,
2003 and provide earnings outlook for the first quarter ended
May 3, 2003.                                                                                                                                                                                                                                                                                                                                           
|
| |    |  | The Company filed a Current Report on Form 8-K dated May
20, 2003 to report the issuance of a press release announcing
its earnings for the first quarter ended May 3, 2003 and
provide an earnings outlook for the second quarter ending
August 2, 2003 and the fiscal year ending January 31, 2004. In
addition, the Company announced that a Form S-4 Registration
Statement was filed in connection with a reclassification
proposal to collapse the Companys dual-class equity structure
to a single voting class of stock, the adoption of SFAS No. 123
and other changes to the Board of Directors.
|
| |    |  | The Company filed a Current Report on Form 8-K dated June
5, 2003 to report the issuance of a press release announcing
its net sales for the four weeks and year-to-date periods ended as of
May 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |    |  | The Company filed a Current Report on Form 8-K dated July
10, 2003 to report the issuance of a press release announcing
its sales results for the four weeks and year-to-date periods ended July 5, 2003.                                                                                                                                                                                                                                                                                                                                                                                                  

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |  |                     |  |                                             
|----------------------- |  | ------------------- |  | --------------------------------------------
|                        |  | JO-ANN STORES, INC.
|                        |  |                     |  |                                             
|                        |  |                     |  |                                             
|DATE: September 5, 2003 |  | /s/ Alan Rosskamm  
|                        |  |                    
|                        |  | By:                 |  | Alan Rosskamm                               
|                        |  |                     |  | President and Chief Executive Officer       
|                        |  |                     |  |                                             
|                        |  |                     |  |                                             
|                        |  | /s/ Brian P. Carney
|                        |  |                    
|                        |  | By:                 |  | Brian P. Carney                             
|                        |  |                     |  | Executive Vice President and Chief Financial
|                        |  |                     |  | Officer                                     



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