SECURITIES AND EXCHANGE COMMISSION

                               WASHINGTON DC 20549

                                    FORM 10-Q

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

                    For quarterly period ended July 31, 1999

                                       OR

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

                        For the transition period from To

                          Commission File No. 0-17870

                                 LECHTERS, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             NEW JERSEY                                   No. 13-2821526
(STATE OR OTHER JURISDICTION                     (I.R.S. EMPLOYER IDENTIFICATION
 OF INCORPORATION)                                NO.)
1 Cape May Street, Harrison, NEW JERSEY                               07029-2404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                              (ZIP CODE)

Registrant's telephone number, including area code:      (973) 481-1100


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,  and (2) has  been  subject  to such  filing
requirements for the past 90 days.



                                   YES      X   NO
                                           ---       ---


The number of shares of the Registrant's common stock, without par value,
outstanding at September 8, 1999: 17,072,286:


<PAGE>


                         LECHTERS, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                         FOR QUARTER ENDED JULY 31, 1999
                                      INDEX
<TABLE>
<S>                                                                                    <C>
                                                                                       PAGE NO.
PART I.    Financial Information

           Item 1.    Financial Statements

                      Consolidated Balance Sheets
                      July 31, 1999 and January 30, 1999                                      1

                      Consolidated Statements of Operations for the Thirteen and
                      Twenty-Six Weeks Ended July 31, 1999 and August 1, 1998                 2

                      Consolidated Statements of Cash Flows
                      for the Twenty-Six Weeks Ended
                      July 31, 1999 and August 1, 1998                                        3

                      Consolidated Statement of Shareholders'
                      Equity for the Twenty-Six Weeks Ended
                      July 31, 1999                                                           4

                      Notes to Consolidated Financial Statements                            5-7

           Item 2.    Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                  8-12

PART II.   Other Information

           Item 4.    Submission of Matters to a Vote of Security Holders                 12-13

           Item 6.    Exhibits and Reports on Form 8-K                                       13

</TABLE>
<PAGE>


                              SAFE HARBOR STATEMENT
           UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     In connection  with the safe harbor  provisions  of the Private  Securities
Litigation  Reform  Act of 1995  (Reform  Act),  the  Company  is hereby  filing
cautionary  statements  identifying  important  factors  that  could  cause  the
Company's   actual  results  to  differ   materially  from  those  projected  in
forward-looking  statements  (as such term is defined in the Reform Act) made by
or on  behalf  of the  Company  in  this  quarterly  report  on  Form  10-Q,  in
presentations,  in response to  questions  or  otherwise.  Any  statements  that
express, or involve discussions as to expectations,  beliefs, plans, objectives,
assumptions or future events or performance (often, but not always,  through the
use  of  words  or  phrases  such  as  "anticipates",  "believes",  "estimates",
"expects",  "intends",  "plans",  "predicts",  "projects", "will likely result",
"will continue",  or similar expressions) are not statements of historical facts
and may be forward-looking.

Forward-looking statements involve estimates, assumptions, and uncertainties and
are  qualified in their  entirety by reference to, and are  accompanied  by, the
following   important   factors,   which  are  difficult  to  predict,   contain
uncertainties,  are  beyond  the  control of the  Company  and may cause  actual
results to differ materially from those contained in forward-looking statements:

    - economic  and  geographic factors including  political and economic risks;
    - changes in and compliance with environmental and safety laws and policies;
    - weather conditions;
    - population growth rates and demographic  patterns;
    - competition  for retail  customers;
    - Year 2000  issues;
    - market  demand, including  structural market changes;
    - changes in tax rates or policies or in rates of inflation;
    - changes in project costs;
    - unanticipated changes in operating expenses and capital expenditures;
    - capital market conditions;
    - legal  and  administrative  proceedings  (whether  civil  or criminal) and
      settlements that influence the business and profitability of the  Company.

Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any  forward-looking
statement  to  reflect  events or  circumstances  after  the date on which  such
statement is made or to reflect the  occurrence  of  unanticipated  events.  New
factors  emerge  from  time to time and it is not  possible  for  management  to
predict all of such factors,  nor can it assess the impact of any such factor on
the business or the extent to which any factor,  or combination of factors,  may
cause results to differ  materially from those contained in any  forward-looking
statement.

<PAGE>


   Part I      .  Financial Information



                         LECHTERS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
           (Amounts in thousands, except share and per share amounts)

<TABLE>
                                                           July 31,               January 30,
                                                             1999                    1999
                                                          ----------              ----------

                        A S S E T S                      (unaudited)
<S>                                                         <C>                     <C>
  Current Assets:
       Cash and Cash Equivalents                             $10,741                $ 35,503
       Marketable Securities                                  46,671                  62,750
       Accounts Receivable                                    10,760                   4,185
       Merchandise Inventories                               113,502                  89,224
       Prepaid Expenses                                        6,130                   1,734
                                                          ----------              ----------

       Total Current Assets                                  187,804                 193,396
  Property and Equipment:
       Fixtures and Equipment                                 59,218                  57,678
       Leasehold Improvements                                 97,229                  96,452
                                                          ----------              ----------
                                                             156,447                 154,130
       Less Accumulated Depreciation & Amortization           93,744                  88,401
                                                          ----------              ----------
           Net Property and Equipment                        62,703                   65,729
  Other Assets                                               10,562                    8,519
                                                          ----------              ----------

  Total Assets                                              $261,069                $267,644
                                                          ==========              ==========

           LIABILITIES AND SHAREHOLDERS' EQUITY
  Current Liabilities
       Accounts Payable                                     $13,215                 $  8,982
       Dividends Payable - Preferred Stock                       --                    1,010
       Salaries, Wages and Other Accrued Expenses            16,848                   17,156
       Taxes, Other Than Income Taxes                         1,844                    1,774
                                                         ----------               -----------

       Total Current Liabilities                             31,907                   28,922
  Long-Term Debt
       5% Convertible Subordinated Debentures due
       September 27, 2001 (Net of Unamortized
       Discount of $3,115 and $3,768 respectively)           61,885                   61,232
                                                         ----------               -----------
       Total Long-Term Debt                                  61,885                   61,232

  Deferred Income Taxes and Other Deferred Credits           18,698                   18,356
  Shareholders' Equity:
       Convertible Preferred Stock, $100 Par Value
          Authorized 1,000,000 Shares,
          Issued and Outstanding - Series A - 149,999
          Shares; Series B - 50,001 Shares                   20,000                   20,000
       Common Stock, No Par Value,
          Authorized 50,000,000 Shares,
          Issued and Outstanding
          17,176,286 and 17,176,286, respectively                58                       58
       Accumulated Other Comprehensive (Loss) Income            (66)                     109
       Additional Paid-in Capital                            62,380                   62,380
       Retained Earnings                                     66,425                   76,587
                                                         ----------               -----------
                                                            148,797                  159,134
       Less: Treasury Stock
          Common Stock - 101,500 Shares at Cost                (218)                      --
                                                         ----------               -----------
       Total Shareholders' Equity                           148,579                  159,134
                                                         ----------               -----------
  Total Liabilities and Shareholders' Equity               $261,069                 $267,644
                                                         ==========               ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       1
<PAGE>


                         LECHTERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           (Amounts in thousands, except share and per share amounts)

<TABLE>
                                              Thirteen Weeks Ended     Twenty-Six Weeks Ended
                                              --------------------     ----------------------
                                            July 31,      August 1,     July 31,      August 1,
                                             1999           1998          1999          1998
                                          ------------  ------------  ------------   ------------
                                                  (unaudited)                 (unaudited)
      <S>                                     <C>           <C>          <C>           <C>
      Net Sales                               $90,913       $91,422      $174,320       $177,616
      Cost of Goods Sold (including
         occupancy and indirect costs)         70,629        69,862       132,466        134,398
                                          ------------  ------------  ------------   ------------

            Gross Profit                       20,284        21,560        41,854         43,218

      Selling, General and
         Administrative Expenses               29,858        27,942        58,592         56,228
                                          ------------  ------------  ------------   ------------
      Operating Loss                           (9,574)       (6,382)      (16,738)       (13,010)
      Other Expenses (Income):
          Interest Expense                      1,139         1,125         2,272          2,222
          Interest Income                        (645)         (918)       (1,452)        (2,339)
          Net Investment
             Gain/Income                          (94)          (80)         (334)          (221)
                                          ------------  ------------  ------------   ------------

      Total Other Expenses (Income)               400           127           486           (338)
                                          ------------  ------------  ------------   ------------

      Loss Before Income Taxes                 (9,974)       (6,509)      (17,224)       (12,672)

      Income Tax Benefit                       (4,089)       (2,673)       (7,062)        (5,196)
                                          ------------  ------------  ------------   ------------

      Net Loss                                 (5,885)       (3,836)      (10,162)        (7,476)

      Preferred Stock Dividend
      Requirement                                 253           253           505            505
                                          ------------  ------------  ------------   ------------

      Net Loss Applicable to Common
        Shareholders                          ($6,138)      ($4,089)     ($10,667)       ($7,981)
                                          ============  ============  ============   ============

      Net Loss Per Common Share - Basic        ($0.36)       ($0.24)       ($0.62)        ($0.46)
                                          ============  ============  ============   ============

      Net Loss Per Common Share - Diluted      ($0.36)       ($0.24)       ($0.62)        ($0.46)
                                          ============  ============  ============   ============

      Weighted Average Common Shares
         Outstanding - Basic               17,098,000    17,176,000    17,137,000     17,175,000
                                          ============  ============  ============   ============

      Weighted Average Common Shares
         Outstanding - Diluted             17,098,000    17,176,000    17,137,000     17,175,000
                                          ============  ============  ============   ============

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>


                         LECHTERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

<TABLE>
                                                             Twenty-Six Weeks Ended
                                                             ----------------------
                                                           July 31,          August 1,
                                                             1999              1998
                                                          ----------        ----------
                                                                  (unaudited)
<S>                                                         <C>               <C>
         Cash Flows From Operating Activities:
             Net Loss                                      ($10,162)          ($7,476)

         Adjustments to Reconcile Net Loss to Net
            Cash Used In Operating Activities:
             Depreciation and Amortization                    7,904             8,258
             Other                                              911               553

         Changes in Assets and Liabilities:
             Increase in Accounts Receivable                 (6,575)           (4,447)
             Increase in Merchandise Inventories            (24,278)           (9,420)
             Increase in Prepaid Expenses                    (4,396)           (4,425)
             Increase in Accounts Payable,
               Accrued Expenses and Taxes Other
               Than Income Taxes                              3,995             8,922
             Decrease in Income Taxes Payable                    --            (1,909)
             Increase in Other Assets                        (2,769)           (2,502)
                                                          ----------        ----------

             Net Cash Used In Operating Activities          (35,370)          (12,446)

         Cash Flows From Investing Activities:
             Capital Expenditures                            (3,946)           (2,892)
             Decrease in Available for Sale Securities       15,782            12,933
                                                          ----------        ----------

             Net Cash Provided by Investing Activities       11,836            10,041

         Cash Flows From Financing Activities:
             Payment of Preferred Stock Dividend             (1,010)           (1,010)
             Exercise of Stock Options                           --                10
             Purchase of Treasury Stock                        (218)               --
                                                          ----------        ----------

             Net Cash Used In Financing Activities           (1,228)           (1,000)
                                                          ----------        ----------

         Net Decrease in Cash and Cash Equivalents          (24,762)           (3,405)

         Cash and Cash Equivalents, Beginning of Period      35,503            16,395
                                                          ----------        ----------

         Cash and Cash Equivalents, End of Period           $10,741           $12,990
                                                          ==========        ==========

         Supplemental Disclosure of Cash Flows
         Information:

         Cash Paid During the Period for:
             Interest                                       $    --           $    --
                                                          ==========        ==========

             Income Taxes                                   $    77           $ 2,183
                                                          ==========        ==========

</TABLE>

                    See accompanying notes to consolidated financial statements.

                                       3

<PAGE>

                         LECHTERS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                             (Amounts in thousands)

<TABLE>

                                                                         Accumulated
                                                                            Other
                             Common   Preferred   Additional            Comprehensive
                              Stock     Stock      Paid-In    Retained      Income      Treasury                   Comprehensive
                             Issued    Issued      Capital    Earnings      (Loss)        Stock         Total           Loss
                           ---------  ---------   ---------   ---------   ----------    ---------    ----------      ----------
<S>                             <C>    <C>         <C>         <C>             <C>         <C>        <C>             <C>
Balance,
   January 30, 1999             $58    $20,000     $62,380     $76,587         $109          $--      $159,134             $--

Net Loss-Twenty-Six
  Weeks Ended
  July 31, 1999                  --         --          --     (10,162)          --           --       (10,162)        (10,162)

Other Comprehensive Loss,
  Net of tax:
  Unrealized Loss on
  Available-For-Sale
  Securities                     --         --          --          --         (175)          --          (175)           (175)

Purchase of Treasury Stock       --         --          --          --           --         (218)         (218)             --
                           ---------  ---------   ---------   ---------   ----------    ---------    ----------      ----------

Balance,
July 31, 1999 (unaudited)       $58    $20,000     $62,380     $66,425         ($66)       ($218)     $148,579        ($10,337)
                           =========  =========   =========   =========   ==========    =========    ==========      ==========

</TABLE>


          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


                         LECHTERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Amounts in thousands, except share and per share amounts)
                                   (UNAUDITED)


1.      GENERAL

        The accompanying  unaudited  Consolidated Financial Statements have been
        prepared in accordance  with the  instructions  for Form 10-Q and do not
        include all the information and footnotes required by generally accepted
        accounting principles for complete financial statements.  In the opinion
        of management, all adjustments (consisting of normal recurring accruals)
        considered  necessary for a fair  presentation  for interim periods have
        been included.

        Certain  information  and  footnote  disclosures  normally  included  in
        financial  statements  prepared in accordance  with  generally  accepted
        accounting  principles  have been condensed or omitted.  It is suggested
        that  these  condensed  consolidated  financial  statements  be  read in
        conjunction with the audited financial  statements and the notes thereto
        included in the Company's  Annual Report on Form 10-K for the year ended
        January 30, 1999.

        The  Company's  results of  operations  for the thirteen and  twenty-six
        weeks  ended  July  31,  1999  are  not  necessarily  indicative  of the
        operating results for the full year.

        Certain  reclassifications have been made to the financial statements of
        the prior year to conform with the classifications used for Fiscal 1999.

2.      NET LOSS PER SHARE

        "Basic"  net loss per share data were  computed  by  dividing  net loss,
        reduced by the Convertible Preferred Stock Dividend requirement,  by the
        weighted average number of common shares outstanding during the thirteen
        and  twenty-six  weeks  ended July 31,  1999 and  August 1,  1998.  With
        respect  to  "diluted"  net loss per  share,  stock  options  which  are
        potential  common  shares,  were excluded  from the weighted  average of
        outstanding  shares because  inclusion  would reduce the loss per share.
        With respect to the Company's 5% Convertible Subordinated Debentures and
        the Company's  Convertible Preferred Stock, for the purpose of computing
        diluted net loss per share,  the assumed  conversion of such  debentures
        and such  preferred  stock  would each have an  anti-dilutive  effect on
        diluted loss per share for the thirteen and twenty-six  weeks ended July
        31, 1999 and August 1, 1998.

                                       5

<PAGE>

3.      SEGMENT INFORMATION

        The Company  defines its  principal  business  segments as follows:  the
        Specialty  Housewares  segment which operates as Lechters  Housewares(R)
        and Lechters Kitchen  Place(R),  and the Off-Price Home Business segment
        which  operates  as  Famous  Brands  Housewares  Outlet(R) and Cost Less
        Home  Store(SM).  The  contribution  of   these  segments,  as  well  as
        "corporate  and  other" for  the  thirteen  and  twenty-six  weeks ended
        July 31, 1999  and  August  1,  1998  are summarized  below. The caption
        "corporate    and    other"    includes   general  corporate   expenses,
        principally  expenses of service office and distribution centers as well
        as interest income and expense.

<TABLE>

                                            Thirteen Weeks Ended           Twenty-Six Weeks Ended
                                            --------------------           ----------------------
                                           July 31,       August 1,       July 31,       August 1,
                                             1999           1998            1999            1998
                                          ----------     ----------      ----------     ----------
<S>                                         <C>            <C>            <C>            <C>
SALES
Specialty Housewares                        $68,954        $69,915        $133,600       $137,328
Off-Price Home Business                      21,959         21,507          40,720         40,288
                                          ----------     ----------      ----------     ----------

Total Sales                                 $90,913        $91,422        $174,320       $177,616
                                          ==========     ==========      ==========     ==========

(LOSS) INCOME BEFORE TAX PROVISION
Specialty Housewares                        ($2,400)         ($230)        ($2,785)          ($15)
Off-Price Home Business                         401             82             779            233
Corporate and Other                          (7,575)        (6,234)        (14,732)       (13,228)
                                          ----------     ----------      ----------     ----------
Operating (Loss)/Income                      (9,574)        (6,382)        (16,738)       (13,010)
Other Expenses (Income)                         400            127             486           (338)
                                          ----------     ----------      ----------     ----------
Total (Loss) Income Before Income Tax
Provision                                   ($9,974)       ($6,509)       ($17,224)      ($12,672)
                                          ==========     ==========      ==========     ==========

DEPRECIATION AND AMORTIZATION
  EXPENSE
Specialty Housewares                         $2,203         $2,428          $4,453         $4,827
Off-Price Home Business                         372            400             741            801
Corporate and Other                           1,369          1,268           2,710          2,630
                                          ----------     ----------      ----------     ----------
Total Depreciation and Amortization
Expense                                      $3,944         $4,096          $7,904         $8,258
                                          ==========     ==========      ==========     ==========

CAPITAL EXPENDITURES
Specialty Housewares                         $1,486         $1,421          $2,510         $1,946
Off-Price Home Business                         100             92             467            302
Corporate and Other                             688            253             969            644
                                          ----------     ----------      ----------     ----------

Total Capital Expenditures                   $2,274         $1,766          $3,946         $2,892
                                          ==========     ==========      ==========     ==========

                                           July 31,       August 1,
                                             1999           1998
                                          ----------     ----------
TOTAL ASSETS
Specialty Housewares                       $104,464       $104,431
Off-Price Home Business                      24,345         26,760
Corporate and Other                         132,260        145,768
                                          ----------     ----------

Total Assets                               $261,069       $276,959
                                          ==========     ==========

</TABLE>

                                       6

<PAGE>


4.      COMPREHENSIVE LOSS
        The following is a summary of the Company's comprehensive loss:

<TABLE>
                                                                Twenty-Six Weeks Ended
                                                                ----------------------
                                                             July 31,            August 1,
                                                               1999                 1998
                                                            ----------          ----------
        <S>                                                  <C>                  <C>
        Net  Loss                                            ($10,162)            ($7,476)

        Components of Comprehensive (Loss) Income:

        Unrealized Loss on Available-For-Sale Securities,
          Net of Applicable Income Tax Benefit                   (175)                (54)
                                                            ----------          ----------
        Comprehensive Loss                                   ($10,337)            ($7,530)
                                                            ==========          ==========
</TABLE>

5.      STOCK REPURCHASE PLAN

        On May 3, 1999,  the  Company  announced  the  approval  by the Board of
        Directors  of a  program  to  repurchase  from  time  to  time  of up to
        1,000,000  shares  of  the  Company's  Common  Stock.   Share  purchases
        commenced  on  May  17,  1999  and  as of  September  8,  1999,  totaled
        approximately  104,000  shares at a cost of $223.  Under  the  Company's
        Credit  Agreement,  the Company may  repurchase  up to 1,000,000  shares
        provided  the  aggregate  cost does not  exceed  $2,500.  The  Company's
        intention is to hold these shares as treasury stock.

                                       7

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)

THIRTEEN  WEEKS  ENDED JULY 31, 1999 IN  COMPARISON  WITH  THIRTEEN  WEEKS ENDED
AUGUST 1, 1998.

Sales for the  thirteen  weeks  ended July 31,  1999  ("Second  Quarter  1999"),
decreased $509 to $90,913,  a decrease of 0.6% compared to the comparable period
of Fiscal 1998  ("Second  Quarter  1998").  The decrease was  attributable  to a
reduction of stores in operation  which averaged 41 fewer  locations from Fiscal
1998. The reduction in the number of stores  reflects the Company's  strategy to
improve the quality of its store  locations by  upgrading  to better  performing
sites.  With  respect to sales by segment,  sales for the  Specialty  Housewares
segment,  which is comprised  of Lechters  Housewares(R)  and  Lechters  Kitchen
Place(R),  decreased 1.4% to $68,954,  and sales for the Off-Price Home Business
segment  comprised  of Famous  Brands  Housewares  Outlet(R)  and Cost Less Home
Store(SM), increased 2.1% to $21,959. The Company's total chain comparable store
sales  increased  1.3%  compared  to the same  period  last  year.  By  segment,
comparable  store sales for Specialty  Housewares were flat, while the Off-Price
Home Business  segment  increased 6.0%.  During Second Quarter 1999, the Company
opened 3 stores and closed 8,  reducing the stores in operation at July 31, 1999
to 571  from  the 576 in  operation  at the  beginning  of the  second  quarter,
compared to 612 stores in operation at August 1, 1998.

Gross Profit for Second Quarter 1999, was $20,284, 22.3% of sales and was $1,276
and 1.3% as a percent of sales lower than gross profit for Second  Quarter 1998.
The sales  decrease  was the primary  reason for the  reduction in the amount of
gross  profit.  Additional  price  reductions,  partially  offset  by the  lower
occupancy costs related to fewer stores in operation,  were a significant factor
in the gross profit rate decrease.

Selling, General and Administrative Expenses increased $1,916, to $29,858, which
constituted  32.8% of sales,  an increase of 2.2% from Second Quarter 1998. With
respect to store operating expenses,  payroll,  advertising and credit card fees
showed  increases  over the  comparable  period of Fiscal 1998.  Service  Office
expenses  were higher  during  Second  Quarter  1999,  due to  expenditures  for
consultants engaged in Information Technology and logistic projects, and outside
warehousing costs increased as additional facilities were required for Cost Less
Home Store(SM).

Other  (Income)/Expense  for the quarter was expense of $400,  0.4% of net sales
and was $273, and 0.3% above Second Quarter 1998. Interest expense was virtually
equivalent to last year's amount while interest and investment  income and gains
were $259 lower for the second  quarter  compared  to last year.  The  decreased
interest and  investment  income was the result of lower  balances of Marketable
Securities.   As  of  July  31,  1999,   Marketable   Securities  classified  as
available-for-sale were $46,671, which was $15,051 lower than at August 1, 1998.

The Net Loss for the Second Quarter 1999, was $5,885, ($0.36) per share compared
to a Net Loss of $3,836, ($0.24) per share for Second Quarter 1998.

                                       8

<PAGE>


TWENTY-SIX  WEEKS ENDED JULY 31, 1999 IN COMPARISON WITH TWENTY-SIX  WEEKS ENDED
AUGUST 1, 1998.

Sales  for the  twenty-six  weeks  ended  July 31,  1999,  decreased  $3,296  to
$174,320,  a decrease  of 1.9% from the  comparable  twenty-six  week  period of
Fiscal  1998.  The sales  decrease  was due to the  reduced  number of stores in
operation  during  Fiscal 1999,  which  averaged 42 fewer store  locations  than
Fiscal 1998.  The  Specialty  Housewares  segment which is comprised of Lechters
Housewares(R)  and Lechters  Kitchen  Place(R),  decreased  2.7% to $133,600 and
sales for the  Off-Price  Home  Business  segment  comprised  of  Famous  Brands
Housewares Outlet(R) and Cost Less Home Store(SM), increased 1.1% to $40,720. On
a   comparable   store  basis,  sales  for the  Company  decreased 0.2% with the
Specialty  Housewares  segment   decreasing  1.3%  and  sales for Off-Price Home
Business  segment   increasing  3.8%.  Year-to-date,  the   Company has opened 7
stores  and closed 14, reducing the stores in operation  from 578 at January 30,
1999  to  571 as of July 31, 1999, compared to 612 stores in operation at August
1, 1998.

Gross Profit for the twenty-six week period ended July 31, 1999 decreased $1,364
to $41,854.  At 24.0% of sales,  the gross margin rate  decreased 0.3 percentage
points from the rate for the comparable period of Fiscal 1998. The reduced gross
profit rate was due to  increased  price  reductions  which were only  partially
offset by lower occupancy costs due to fewer stores in operation.

Selling,  General and Administrative Expenses increased $2,364 to $58,592 and at
33.6% of sales,  were 1.9  percentage  points  higher as a rate  compared to the
comparable  period of Fiscal 1998.  As  mentioned  for the second  quarter,  the
expense trends are similar with store payroll,  advertising and credit card fees
increasing over last year.  Service Office expenses  increased due to additional
payroll  primarily in  merchandising  and information  technology to support the
Company's  new business  initiatives.  Consulting  fees for special  studies and
outside    warehousing  costs   for   Cost   Less   Home  Stores(SM) were  other
expense categories showing increases for the year-to-date period.

Other  (Income)/Expense  for the twenty-six weeks ended July 31, 1999, decreased
$824 to an expense of $486,  0.3% of sales,  compared to income of $338, 0.2% of
sales, for the comparable  period of the prior fiscal year. The decrease was due
to the reduction in the interest  income,  which resulted from reduced  invested
balances.  Additionally,  interest  income for the first quarter of Fiscal 1998,
included  approximately  $450 of interest  income  related to federal income tax
refunds for prior fiscal years.

The  year-to-date  net loss for Fiscal  1999 was  $10,162  or ($0.62)  per share
compared to a loss of $7,476 or ($0.46) per share for the  comparable  period of
Fiscal 1998.

YEAR 2000 COMPLIANCE

The Company  repeats its disclosure made in its Annual Report to Shareholders on
Form 10-K  revised for  information  which has changed from the Form 10-K filing
date of April 28,1999.

The  Year 2000  ("Y2K")  issue  is primarily   the result  of computer  programs
using two digits instead of four digits to indicate the year. From the Company's
perspective,  the major risks associated with the Y2K involve areas in which the
Company is dependent on others to take  appropriate  and timely  actions  before
January 1, 2000.  Specifically,  as a retailer, the Company is dependent upon an
uninterrupted  supply of  merchandise  to its stores,  upon landlords to provide
normal operating  conditions at the properties leased by the Company in which to
transact  business  and upon  service  providers  who supply such items as phone
service and utilities  which allow the Company to operate its stores  located in
42 states and the  District of  Columbia  from its  headquarters  in New Jersey.
These key  factors  must be resolved by outside  parties. Without a  successful
resolution  of these  factors,  the  Company  will not be able to operate in its
normal manner and severe adverse economic consequences will result. With respect
to the  products  sold by the  Company,  for the most part,  they do not contain
embedded electronic devices which would make them subject to Y2K issues.

                                       9

<PAGE>


To monitor  these  outside  parties in their Y2K  process and to ensure that all
factors over which it had control from a Y2K  perspective  were resolved  before
the start of the Y2K, the Company  initiated its Y2K  compliance  project during
Fiscal Year 1997 with a review of all  existing  information  technology  ("IT")
software systems.

In Fiscal Year 1996,  prior to the recognition of Y2K as a significant  business
risk and in the normal  course of  business,  the  Company  identified  key core
systems,  which needed to be replaced.  A new financial suite including  modules
for general  ledger,  accounts  payable and fixed  assets was  installed  at the
beginning  of Fiscal  1998.  A new  merchandise  inventory  analysis and control
system has been acquired.  The core software package was installed during Fiscal
Year 1998.  The new  merchandise  analysis  systems have become  operational  in
stages during the first half of Fiscal Year 1999. Finally,  the Company has also
contracted  to  install  a new  warehouse  management  system,  which  has  been
installed  and should be fully  operational  by October  1999.  All three  major
systems  acquisitions  have been certified Y2K compliant by the vendor.  All new
software to be acquired by the Company  will be required to be  certified as Y2K
compliant by the vendor.  The Company is in the process of  remediating  certain
merchandise  and  financial  software  systems,  which  remediation  the Company
expects to be  completed  by December 1, 1999.  These  systems were to have been
replaced in Fiscal 1999 by Y2K compliant systems, which the Company expects will
be installed early in Fiscal 2000.

The Company  established  a Y2K  Compliance  Task Force in the third  quarter of
Fiscal 1998 whose  charter is to review all of the  Company's  efforts to ensure
that the Company will be Y2K compliant prior to December 31, 1999.  Comprised of
representatives  from  Information   Technology,   Operations,   Finance,   Loss
Prevention,  Merchandising and Human Resources,  the task force has reviewed all
known  potential Y2K issues and has established a Master Schedule of items ready
to be  resolved  to  ensure  that the Y2K will  have no  adverse  impact  on the
Company.  The Y2K Task Force's  initial  focus was to review steps taken to date
primarily in the IT area.

The Y2K Task Force also commenced its review of non-IT related issues  involving
equipment with embedded technology which may not be Y2K compliant. This phase of
the  project  has been  completed,  and it has  identified  limited  amounts  of
equipment  with embedded  technology  subject to Y2K  exposure.  Early in Fiscal
1999, the Company mailed a Y2K readiness  questionnaire to all of its vendors. A
second  mailing  was also made to key vendors who did not respond to the initial
mailing.

With the receipt   of questionnaire  responses, which  was  completed at the end
of May 1999,  the third  phase of the Y2K  compliance  project  has  focused  on
evaluating the results of the questionnaire, reviewing the results of the non-IT
equipment survey and verifying IT software surveys previously  conducted.  Based
on the completion of the above process,  the Y2K Task Force will issue its final
Y2K Master Schedule and remediation  plan,  which will be completed by the third
quarter of Calendar Year 1999 except for the additional  remediation  plan which
will be completed by December 1, 1999. Third party consultants have been engaged
to evaluate and assist in the completion of the plan.

The final  two  phases of the  Y2K remediation  plan involves  the establishment
of contingency  plans which are currently being developed and the development of
"worst case" scenarios.  The development of "worst case" scenarios will be based
on the  assessment  of the  Company's  readiness  and the  readiness  of its key
vendors,  major suppliers,  landlords and key service suppliers.  Given the fact
that the  Company  operates a large  number of stores  which are  geographically
dispersed and has a large supplier base,  the Company's  initial  evaluations to
date indicate that these two conditions will tend to mitigate  potential adverse
impacts  of the Y2K  issues.  This  evaluation,  however,  is based  on  certain
expectations  and assumptions,  which may ultimately prove to be inaccurate.  As
part of their  oversight  responsibilities,  the Audit Committee of the Board of
Directors has requested, has been and will continue to be provided with periodic
status  reports,  on at least a monthly  basis,  on the progress the Company has
made with respect to Y2K readiness and compliance.

                                       10
<PAGE>


The cost of the software  purchased  for the major  systems as  described  above
approximates  $5,950.  Future  costs  of new  software  for  major  systems  are
estimated to be $700 for the completion of the  merchandise  inventory  analysis
and  control  system  and  $500  for a  warehouse  management  system.  Costs of
compliance such as hardware  upgrades,  equipment  replacement and miscellaneous
software,  which are  "capitalized"  as other assets,  are estimated to be $300.
Costs of re-training or modifications  to existing  programs will be expensed as
incurred and are  estimated  to be $650.  It is  anticipated  that funds for Y2K
compliance costs will be generated by internal sources.

LIQUIDITY AND CAPITAL RESOURCES.

Cash  flow  during  the  twenty-six  weeks  ended  July 31, 1999 as reflected on
the Statements of Cash Flows, was a net decrease of cash and cash equivalents of
$24,762.  Operating  activities,  comprised of the operating Net Loss of $10,162
adjusted for non-cash  expenses such as  depreciation  and  amortization  and by
changes in  operating  assets,  utilized  $35,370 of cash during  Fiscal 1999 to
date.  Significant  components of operating  activities for the twenty-six weeks
ended July 31, 1999,  included  depreciation and amortization  which is non-cash
expense of $7,904, merchandise inventories which increased using $24,278 of cash
and accounts  payable,  accrued expenses and taxes other than income taxes which
increased  and  provided   cash  of  $3,995.   Investing   activities,   capital
expenditures  and  reductions  in  marketable   (available-for-sale)  securities
provided $11,836 of cash with the reduction in marketable  securities  providing
$15,782 and capital expenditures utilizing $3,946.

Capital  expenditures  were  primarily  for  construction  and  fixtures for new
stores,  renovations  and  remodels of  existing  stores.  Financing  activities
utilized  $1,228 of cash as the Company  paid the  dividend  on the  convertible
preferred stock and purchased 101,500 shares of its Common Stock at an aggregate
cost of $218.

During  the first  quarter  of  Fiscal  1998,  the  Company  entered  into a new
$40,000,000  Credit  Agreement with a syndicate of banks led by Chase  Manhattan
Bank to replace the existing  credit  facility  which was to expire in May 1998.
The credit facility includes a restrictive  covenant which prohibits the payment
of dividends on the Company's common stock. The facility,  which was amended for
the first time on March 23, 1999,  consists of a  $20,000,000  revolving  credit
facility for direct borrowings and a $20,000,000 letter of credit facility.  The
term of the  facility  is three  years,  with the  letter  of  credit  component
renewable  annually during that period.  On September 14, 1999, the facility was
further  amended (as  amended,  the "Credit  Agreement").  The second  amendment
provided for the  modification  of covenants  and securing of the facility  with
collateral consisting of cash or securities in an amount equal to the greater of
$15 million or amounts outstanding.

                                       11

<PAGE>

STOCK REPURCHASE PLAN

On May 3, 1999, the Company  announced the approval by the Board of Directors of
a  program  to  repurchase  from time to time of up to  1,000,000  shares of the
Company's  Common  Stock.  Share  purchases  commenced on May 17, 1999 and as of
September 8, 1999 totaled  approximately 104,000 shares at a cost of $223. Under
the  Company's  Credit  Agreement,  the Company may  repurchase  up to 1,000,000
shares  provided  the  aggregate  cost does not  exceed  $2,500.  The  Company's
intention is to hold these shares as treasury stock.

PART II.       Other Information

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

     (a)     Regular annual meeting of the Company's stockholders, held June 22,
             1999 in New York, NY.

     (b)     Directors elected at the meeting for a three-year term:

                  Charles A. Davis
                  Bernard D. Fischman
                  Anthony E. Malkin
                  Norman Matthews

             Continuing Directors:

                  Martin S. Begun              Donald Jonas
                  Roberta S. Maneker           Stephen T. Westerfield
                  Robert Knox                  John Wolff

     (c)(1)  a.   To elect four Director Nominees; and

             b.   To consider and act upon a proposal to ratify the  appointment
                  of  Deloitte & Touche LLP as the  independent  auditors of the
                  Company for the fiscal year ending January 29, 2000; and

        (2)       Director Nominees

<TABLE>
                     Class of Stock          For           Withhold        Total Voted
                     --------------      ----------       -----------     ------------
                     <S>                 <C>               <C>               <C>
                     Common              14,543,746        1,182,599         15,726,345
                     Series A Preferred   2,399,984                -          2,399,984
                                         ----------       -----------     -------------
                             Total       16,943,730        1,182,599         18,126,329

</TABLE>


        Proposal to ratify Deloitte & Touche LLP as Independent Auditors

<TABLE>

                     Class of Stock          For          Against     Abstain       Total Voted
                     --------------      -----------    ----------   ----------    -------------
                     <S>                  <C>               <C>          <C>         <C>
                     Common               15,698,285        20,568       7,492       15,726,345
                     Series A Preferred    2,399,984             -          -         2,399,984
                                         -----------    ----------   ----------    -------------
                             Total        18,098,269        20,568       7,492       18,126,329

</TABLE>

                                       12
<PAGE>


(3)     Election of Directors

            Name                          Votes For          Votes Withheld
            ----                          ---------          --------------
            Charles A. Davis             16,943,740             1,182,589
            Bernard D. Fischman          16,943,730             1,182,599
            Anthony E. Malkin            16,943,740             1,182,589
            Norman Matthews              16,943,740             1,182,589

Item 6-Exhibits and Reports on Form 8-K

a.   Exhibits.

     3.1  Restated    Certificate    of    Incorporation    of    the    Company
          (Incorporated   herein  by  reference   to    Exhibit   3.2   to   the
          Company's  Registration  Statement  on Form S-1 File No. 33-29465 (the
          "Registration Statement")).

     3.2  By-laws of the Company  (Incorporated  herein  by reference to Exhibit
          3.2   to  the Company's Registration   Statement  on Form S-1 File No.
          33-40372).

     4.1  Preferred  Stock Purchase Agreement dated April 5, 1996. (Incorporated
          herein  by  reference to  the Company's Annual Report on Form 10-K for
          the year ended February 1, 1997).

     4.2  Indenture,  dated as of  September  27,  1991,   between  the  Company
          and Chemical  Bank,  as Trustee.  (Incorporated  herein  by  reference
          to  the Company's  Annual  Report on  Form  10-K  for  the year  ended
          January  25, 1992).

   10.1   Amendment  No. 2   dated  as  of  September  14, 1999   to  the Credit
          Agreement dated   as of  March 26, 1998 among  the Company,  The Chase
          Manhattan Bank, as Agent, and certain listed Banks.*

   27     Financial Data Schedule*

b.   Reports on Form 8-K.
1.      A  Current  Report  on  Form  8-K  reporting  one  matter  under Item 3,
        Other Events, was filed on May 4, 1999.

*Filed herewith.
                                   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.

                                            LECHTERS, INC.

                                            By:    /s/ James J. Sheppard
                                                   James J. Sheppard
                                                   Senior Vice President and
                                                   Chief Financial Officer
Date:   September 14, 1999

                                       13