Exhibit 13

               SUCH PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS
                FOR 1997 AS ARE INCORPORATED HEREIN BY REFERENCE


FINANCIAL HIGHLIGHTS

Loehmann's, Inc.

<TABLE>
<CAPTION>

                                                                                                        Percent     
                                                                    1997               1996             Change
                                                              ---------------    ---------------      ----------  
OPERATING RESULTS
<S>                                                              <C>                <C>                   <C> 
Net Sales ................................................       $443,310,000       $417,758,000            6.1%
EBITDA ...................................................        $18,032,000        $36,828,000          -51.0%
Non-recurring Charge......................................          9,300,000                  0            N/A
Operating (Loss) Income...................................        (2,701,000)         24,980,000            N/A
Pro-forma Net (Loss) Income...............................        (9,483,000)          8,700,000            N/A
Pro-forma Net (Loss)......................................
       Income per Share...................................            ($1.00)              $0.92            N/A
Net (Loss) Applicable.....................................
       to Common Stock....................................       (15,672,000)        (1,216,000)            N/A
Diluted Net Loss per Share................................
       Applicable to Common Stock                                     ($1.75)            ($0.14)            N/A
FINANCIAL POSITION........................................
Shareholders Equity.......................................          9,706,000         25,243,000          -61.5%
Total Assets .............................................        189,226,000        176,200,000            7.4%
Working Capital ..........................................         27,092,000         22,278,000           21.6%
Number of Stores at End of Period ........................                 76                 73            4.1%
Total Square Footage .....................................          1,492,000          1,279,000           16.7%
</TABLE>

MARKET PRICES OF COMMON STOCK

         The Company's common stock has been traded on the NASDAQ National
Market System since May 7, 1996 under the symbol LOEH. As of April 1, 1998,
there were approximately 100 shareholders of record of the Company's common
stock. The following table shows the high and low sales price for the Company's
common stock for each quarterly period from May 7, 1996, the date of the
Company's initial public offering, through January 30, 1998.

Fiscal Quarter Ended                                    High             Low
--------------------                                    ----             ---
August 3, 1996 ................................      $28.125         $18.000
November 2, 1996 ..............................      $30.000         $20.375
February 1, 1997 ..............................      $31.000         $14.625
May 3, 1997 ...................................      $19.500         $ 6.250
August 2, 1997 ................................      $ 8.250         $ 6.000
November 1, 1997 ..............................      $10.125         $ 5.688
January 31, 1998 ..............................      $ 7.875         $ 3.500

<PAGE>

         On January 30, 1998, the closing market price of the Company's Common
Stock was $3.81. The Company has not paid dividends on its common stock or its
Class B Common Stock since inception and does not anticipate paying a cash
dividend in the foreseeable future. Certain of the Company's debt agreements
contain various covenants which may restrict the payment of cash dividends. On
April 1, 1998, the closing market price of the Company's Common Stock was 
$4 3/8.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements contained herein constitute "forward-looking
statements" within the meaning of the Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: general economic and business conditions, competition; success of
operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or adherence to development
schedules; the existence or absence of adverse publicity; availability, terms
and development of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or the failure to comply with, government regulations; construction costs
and other factors referenced in this report.

MANAGEMENT DISCUSSION AND ANALYSIS
LOEHMANN'S, INC.

RESULTS OF OPERATIONS

         The table below sets forth certain financial data of the Company
expressed as a percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>

                                                                     Fiscal Year (1)              
                                                        ---------------------------------------
                                                           1997           1996           1995
                                                           ----           ----           ----
<S>                                                       <C>            <C>            <C>   
Net sales ............................................    100.0%         100.0%         100.0%
Gross margin .........................................     28.4           31.9           31.1
Selling, general and administrative expenses .........     25.1           23.0           23.2
Depreciation and amortization ........................      2.6            2.8            3.1
Charge for store closings and impairment of assets ...      1.3             --            4.0
Operating income .....................................     (0.6)           6.0            0.9
Interest expense, net ................................      2.9            3.2            4.7
Income (loss) before income taxes ....................     (3.5)%          2.8%          (3.8)%
</TABLE>

-------------
(1)   Fiscal 1997 and 1996 had 52 weeks, and fiscal 1995 had 53 weeks. Numbers 
      may not total due to rounding.

<PAGE>

FISCAL 1997 COMPARED TO FISCAL 1996

         Net sales increased by approximately $25.6 million, or 6.1%, to $443.3
million during fiscal 1997 as compared to $417.8 million during fiscal 1996.
Comparable store sales (sales at stores that were in operation for both periods)
decreased by 6.8% during fiscal 1997 as compared to fiscal 1996. The increase in
reported net sales for fiscal 1997 is the result of sales from new stores,
offset by the effect of closed stores and the comparable store sales decrease of
6.8%. The Company opened 7 new stores if fiscal 1997 and 7 new stores in fiscal
1996, and closed 4 stores in fiscal 1997 and 3 stores in fiscal 1996.

         Gross profit decreased by approximately $7.4 million to $125.8 million
during fiscal 1997 as compared to $133.1 million for fiscal 1996. Gross margin
decreased to 28.4% for fiscal 1997 from 31.9% in the prior fiscal year. The
decrease in gross margin is primarily the result of: (i) an increase in
markdowns which represents 2.7% of sales, and (ii) a one time charge which
represents 0.8% of sales, for the planned liquidation of inventory in ten stores
to be closed in 1998, and for the planned liquidation of inventory as part of
the Company's strategy to reposition its merchandise offerings.

         Selling, general and administrative expenses increased by approximately
$15.1 million to $111.4 million during fiscal 1997 as compared to $96.3 million
for fiscal 1996. As a percentage of net sales, selling, general and
administrative expense increased to 25.1% in fiscal 1997 from 23.0% in the prior
year. The dollar increase in selling, general and administrative expenses was
primarily related to: (i) $17.4 million in store operating expenses related to
1996 and 1997 new stores including store payroll, occupancy and advertising
costs partially offset by (ii) $3.4 million primarily related to store closings.
The increase in selling, general and administrative expense as a percentage of
sales is primarily the result of higher relative occupancy costs as a percentage
of sales for new stores and the comparable store expansions.

         Depreciation and amortization for fiscal 1997 described by
approximately $0.4 million to $11.4 million as compared to $11.8 million for the
prior fiscal year. The reduction in depreciation and amortization is
attributable to: (i) a decrease in amortization of deferred financing fees
related to the refinancing of debt associated with the debt offering in fiscal
1996, (ii) an increase in depreciation related to the opening of the seven new
stores and the expansion and renovation of eight stores in fiscal 1997, (iii) a
lengthening of the estimated depreciable lives of assets for certain stores
whose primary lease terms were extended, and (iv) a decrease in depreciation
associated with the natural retirement of certain assets.

         In connection with the Company's ongoing strategy to focus on larger,
more profitable stores, the Company provided for a charge in the amount of $5.7
million for the closing of ten stores during 1998. This charge consists of the
write off of property, plant, and equipment, closing expenses, and costs
associated with net lease obligations of $2.1 million, $0.6 million, and $3.0
million, respectively. See Note 9 to the Consolidated Financial Statements.

         Operating (loss) income decreased by $27.7 million to $(2.7) million,
or (0.6)% of sales, in fiscal 1997 as compared to $25.0 million, or 6.0% of
sales, in fiscal 1996. The decrease in operating income as a percentage of sales
from 6.0% to (0.6)% in fiscal 1997 primarily consists of the following: (i) 1.3%
related to the charge for store closings, (ii) 2.1% related

<PAGE>

to selling, general, and administrative expenses primarily resulting from higher
occupancy costs as a percentage of sales associated with new and expanded
stores, and (iii) 3.5% related to a decrease in gross profit resulting from
higher markdowns and the planned liquidation of inventory to reposition its
merchandise offerings and for the closing of stores.

         Interest expense decreased by $0.5 million to $12.8 million for fiscal
1997 as compared to $13.4 million for fiscal 1996. The reduction in net interest
expense primarily resulted from the effect of the Company's reduction of
approximately $30.0 million of senior notes and a reduction of the average
interest rate paid on the long term debt by approximately 60 basis points on May
7, 1996, partially offset by interest expense incurred on borrowings under the
revolving line of credit. See Note 4 of the Consolidated Financial Statements.

FISCAL 1996 COMPARED TO FISCAL 1995

         Net sales increased by approximately $31.7 million, or 8.2%, to $417.8
million during fiscal 1996 as compared to $386.1 million during fiscal 1995. The
reporting period for fiscal 1996 was comprised of 52 weeks while fiscal 1995 had
53 weeks. For the comparable 52 week period, sales increased 9.3%. Comparable
store sales (sales at stores that were in operation for both periods) increased
by 1.6% during fiscal 1996 as compared to fiscal 1995 on a 52 week basis. The
increase in reported net sales for fiscal 1996 was a result of the comparable
store increase of 1.6%, plus sales from new stores offset by the effect of
closed stores and the effect of the fifty third week of fiscal 1995. The Company
closed 11 stores in fiscal 1995 and 3 stores in fiscal 1996, two of which were
replaced by new stores.

         Gross profit increased by approximately $12.9 million to $133.1 million
during fiscal 1996 as compared to $120.2 million for fiscal 1995. Gross margin
increased to 31.9% for fiscal 1996 from 31.1% in the prior fiscal year. The
increase in margin was primarily a result of a continuing shift in the Company's
sales mix towards merchandise with a higher average gross margin coupled with a
reduction of markdowns as a percentage of sales.

         Selling, general and administrative expenses increased by approximately
$6.8 million to $96.3 million during fiscal 1996 as compared to $89.5 million
for fiscal 1995. As a percentage of net sales, selling, general and
administrative expenses decreased to 23.0% in fiscal 1996 from 23.2% in the
prior year. The dollar increase in selling, general and administrative expenses
was related to: (i) $1.7 million of pre-opening expenses associated with the
seven new stores opened in fiscal 1996; (ii) $3.7 million in store operating
expenses primarily related to new stores including occupancy and advertising
costs and (iii) $2.3 million primarily due to the Company's continued investment
in corporate infrastructure to support the new store program partially offset by
$0.9 million primarily related to cost recoveries associated with occupancy
expense.

         Depreciation and amortization for fiscal 1996 decreased by
approximately $0.3 million to $11.8 million as compared to $12.1 million for the
prior fiscal year. The reduction in depreciation and amortization is
attributable to the closing of 11 stores in fiscal 1995, the effect of a $4.95
million asset impairment charge recorded in fiscal 1995, along with a reduction
in amortization expense resulting from the refinancing of debt associated with
the debt offering. See Note 3 to the Consolidated Financial Statements. This was
partially offset by additional depreciation associated with capital expenditures
in fiscal 1996 related to the opening of the seven new stores and renovations of
the Company's existing store base.

<PAGE>

         Operating income increased by $21.7 million to $25.0 million for fiscal
1996 as compared to $3.3 million for fiscal 1995. Before the charges for store
closings and impairment of assets in fiscal 1995, operating income increased by
approximately $6.4 million to $25.0 million for fiscal 1996 from $18.6 million
for fiscal 1995. As a percentage of net sales, operating income before the
charges for store closings and impairment of assets increased to 6.0% from 4.8%.
The increase in operating income, before the charge for store closings and
impairment of assets, is primarily a result of new store contribution.

         Interest expense decreased by $4.8 million to $13.4 million for fiscal
1996 as compared to $18.2 million for fiscal 1995. The reduction in net interest
expense primarily resulted from the Company's reduction of approximately $30.0
million of senior notes and a reduction of the average interest rate paid on the
senior notes by approximately 60 basis points, partially offset by interest
expense incurred on borrowings under the revolving line of credit. In May 1996,
the Company redeemed its 10-1/2% Senior Secured Notes and 13-3/4% Senior
Subordinated Notes totaling $130.0 million face value and issued $100.0 million
face value of 11-7/8% Senior Notes (the "Redemption"). Additionally, the
reduction in net interest expense resulted from an increase in interest income
earned on invested cash and $0.6 million interest capitalized on fixed asset
additions. As a result of the Redemption, the Company incurred approximately
$4.7 million in extraordinary losses on the early extinguishment of debt and
$2.0 million in losses from the write-off of related deferred financing costs
associated with such indebtedness.

         In fiscal 1996, the Company utilized approximately $5.0 million of tax
net operating losses. See Note 2 of the Consolidated Financial Statements.

QUARTERLY RESULTS AND SEASONALITY

         While the Company's net sales do not show significant seasonal
variation, the Company's operating income has traditionally been significantly
higher in its first and third fiscal quarters. The Company believes that its
merchandise is purchased primarily by women who are buying for their own
wardrobes rather than as gifts. As a result, the Company does not experience
increases in net sales during the Christmas shopping season. Results of
operations during the second and fourth quarters are traditionally impacted by
end of season clearance events. In addition, fourth quarter operations can be
affected by employee performance bonuses.

         The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended January 31, 1998. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
<TABLE>
<CAPTION>

                                                    FISCAL 1996                                         FISCAL 1997                 
                                 --------------------------------------------------------------------------------------------------
                                    First       Second       Third        Fourth       First        Second      Third       Fourth
                                    Quarter     Quarter      Quarter      Quarter      Quarter      Quarter     Quarter     Quarter
                                                                 (In thousands, except per share data)
                                                                              Unaudited
STATEMENT OF OPERATIONS DATA
<S>                               <C>         <C>          <C>          <C>          <C>          <C>         <C>         <C>      
Net sales ....................... $ 104,120   $  90,652    $ 114,393    $ 108,593    $ 112,595    $  95,292   $ 126,495   $ 108,928
Gross profit ....................    33,734      28,100       37,349       33,938       35,106       25,621      40,465      24,570

<PAGE>

Selling, general and 
   administrative expenses (1)...    23,885      20,802       25,528       26,078       28,868       24,393      30,053      28,056
Depreciation and amortization....     3,148       2,899        2,845        2,956        2,864        2,668       2,946       2,955
Non-recurring charge.............         -           -            -            -            -            -           -       5,660
Operating income (loss) .........     6,702       4,399        8,976        4,903        3,374       (1,440)      7,466     (12,101)
Interest expense ................     4,231       3,759        2,698        2,673        2,972        3,140       3,278       3,455
Income (loss) before                                                                                                 
   extraordinary item ...........     2,421         630        6,274        2,228          380       (4,587)      4,122     (15,587)
Extraordinary loss for early
   retirement of debt ...........         -       7,101            -            -            -            -           -           -
Net income (loss) ............... $   1,835   $ (11,553)   $   6,274    $   2,228    $     380    $  (4,587)  $   4,122   $ (15,587)
Basic earnings (loss) per share                                    
before extraordinary item........ $    0.35   $   (0.51)   $    0.71    $    0.25    $    0.04    $   (0.51)  $    0.46   $   (1.73)
Basic earnings (loss) per share             
after extraordinary item          $    0.35   $   (1.33)   $    0.71    $    0.25    $    0.04    $   (0.51)  $    0.46   $   (1.73)
Diluted earnings (loss) per share              
   before extraordinary item..... $    0.31   $   (0.51)   $    0.66    $    0.23    $    0.04    $   (0.51)  $    0.45   $   (1.73)
Diluted earnings (loss) per share $    0.31   $   (1.33)   $    0.66    $    0.23    $    0.04    $   (0.51)  $    0.45   $   (1.73)
after extraordinary item
</TABLE>

-----------------
(1)  Reflects income of $0.5 million of occupancy-related cost recovery items in
     the fourth quarter of fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating activities totaled $7.5 million for fiscal
1997 of which $9.2 million was for an increase in inventory related primarily to
the opening of seven new stores and the expansion of eight comparable stores
during the year. Net cash used in investing activities was $16.7 million in
fiscal 1997, principally related to the new store and expansion store activity
during the year. Net cash used for operating and investing activities was
financed primarily by the increase in borrowings of $23.6 million under the
Company's revolving credit facility.

         In February 1998, the Company amended its credit agreement with its
bank to provide for: (i) the elimination of all financial covenants related to
the Credit Facility, (ii) an increase in the Credit Facility to $50.0 million,
and (iii) an extension of the term of the Credit Facility to June 2001. See Note
4 of the Consolidated Financial Statements. At January 31, 1998, outstanding
borrowings under the Credit Facility were approximately $33.8 million. The
Company believes that cash generated from operations together with funds
available under the Credit Facility will be sufficient to satisfy its cash
requirements in fiscal 1998. In addition, the Company has reduced its capital
expenditure requirements for fiscal 1998 to $9.0 million by decreasing its new
store and comparable store expansion program, and has put special emphasis
toward inventory management in order to maintain control over markdown
requirements during fiscal 1998.

YEAR 2000

         The Company presently believes that the year 2000 issue will not pose
significant operational problems for its computer systems. The Company has
outside service contracts to maintain its computer software programs and expects
that all modifications and conversions will be completed on a timely basis. The
total dollar amount that the company estimates will be spent to address its year
2000 issues is not expected to have a material financial impact.

<PAGE>

However, if such modifications and conversions are not made, or are not
completed in a timely manner, the year 2000 issue could have a material adverse
impact upon Company operations.

<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Loehmann's, Inc.

         We have audited the accompanying consolidated balance sheets of
Loehmann's Inc. as of January 31, 1998, and February 1, 1997, and the related
consolidated statements of operations, changes in common stockholders' equity
(deficit) and cash flows for the fiscal years ended January 31, 1998, February
1, 1997, and February 3, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Loehmann's Inc. at January 31, 1998 and February 1, 1997, and the consolidated
results of its operations and cash flows for the fiscal years ended January 31,
1998, February 1, 1997, and February 3, 1996 in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
March 6, 1998

--------------------------------------------------------------------------------

<PAGE>

CONSOLIDATED BALANCE SHEETS
Loehmann's, Inc.
<TABLE>
<CAPTION>

                                                                             January 31,         February 1,
                                                                                1998                1997         
                                                                      ----------------------------------------
                                                                            (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current Assets:
<S>                                                                         <C>                 <C>          
    Cash and cash equivalents........................................       $       1,767       $       2,292
    Accounts receivable and other assets.............................               5,575               4,400
    Merchandise inventory............................................              67,521              58,304

Total current assets.................................................              74,863              64,996

Property, equipment and leaseholds, net..............................              71,612              66,515
Deferred debt issuance costs and other assets, net...................               3,228               3,870
Purchase price in excess of net assets acquired, net.................              39,523              40,819 
                                                                      ----------------------------------------
                                                                            $     189,226       $     176,200
Total assets......................................................... ----------------------------------------

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities:

    Accounts payable.................................................       $      21,570       $      19,634
    Accrued expenses.................................................              23,632              20,484
    Accrued interest.................................................               2,496               2,530
    Current portion of long-term debt................................                  73                  70

Total current liabilities............................................              47,771              42,718

Long-term debt:

    Revolving line of credit.........................................              33,771              10,188
    117/8% senior notes..............................................              95,000              95,000
    Revenue bonds and notes..........................................               2,589               2,662

Total long-term debt.................................................             131,360             107,850
Other noncurrent liabilities.........................................                 389                 389
Common stockholders' equity:

    Common stock, 25,000,000 shares authorized; 8,976,932
      and 8,756,739 shares issued and outstanding at
      January 31, 1998, and February 1, 1997, respectively...........                  89                  87

    Class B convertible common stock, 469,237 shares
      authorized, 48,431 and 142,277 at January 31, 1998,
      and February 1, 1997, respectively.............................                 244                 713
    Additional paid-in capital.......................................              81,597              80,995
    Accumulated deficit..............................................            (72,224)            (56,552)

Total common stockholders' equity....................................               9,706              25,243 
                                                                      ----------------------------------------
Total liabilities and common stockholders' equity....................       $     189,226       $     176,200
                                                                      ----------------------------------------
</TABLE>

-------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
Loehmann's, Inc.
<TABLE>
<CAPTION>

                                                                                      Fiscal year ended                 
                                                                      --------------------------------------------------
                                                                          January 31,      February 1,      February 3,
                                                                             1998             1997             1996       
                                                                      ---------------- ---------------- ----------------
                                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                   <C>              <C>              <C>            
Net Sales............................................................ $       443,310  $       417,758  $       386,090
Cost of sales........................................................         317,548          284,637          265,889

Gross profit.........................................................         125,762          133,121          120,201
Selling, general and administrative expenses.........................         111,370           96,293           89,485
Depreciation and amortization........................................          11,433           11,848           12,120
Charge for store closings and impairment assets......................           5,660               --           15,300

Operating income.....................................................         (2,701)           24,980            3,296
Interest expense, net................................................          12,845           13,361           18,153

Income (loss) before income taxes....................................        (15,546)           11,619         (14,857)
Provision for income taxes...........................................             126               66              106

Income (loss) before extraordinary item..............................        (15,672)           11,553         (14,963)
Extraordinary loss on early extinguishment of debt...................              --            7,101               --

Net income (loss)....................................................        (15,672)            4,452         (14,963)
Stock dividends on and normal and accelerated accretion of
preferred stock......................................................              --            5,668            2,056

                                                                      $      (15,672)  $       (1,216)  $      (17,019) 
Net loss applicable to common stock.................................. ---------------- ---------------- ----------------
Basic (loss) earnings per share before extraordinary item............ $        (1.75)  $          0.74  $        (3.12)
Basic (loss) per share after extraordinary item...................... $        (1.75)  $        (0.15)  $        (3.12)
Diluted (loss) earnings per share before extraordinary item.......... $        (1.75)  $          0.69  $        (3.12)
Diluted (loss) per share after extraordinary item.................... $        (1.75)  $        (0.14)  $        (3.12)
Weighted average number of common shares outstanding.................           8,961            7,901            5,463

Weighted average number of common shares and common                             8,961            8,529            5,463 
share equivalents outstanding........................................ ---------------- ---------------- ----------------
</TABLE>

------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Loehmann's, Inc.

<TABLE>
<CAPTION>
                                                                                             
                                                                         CLASS B             
                                               COMMON STOCK            COMMON STOCK          
                                          -----------------------  ----------------------     Additional
                                             Number of             Number of                   Paid-in    Accumulated
                                              Shares      Amount    Shares        Amount       Capital      Deficit       Totals
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)      -------------  --------  ---------    ---------     ----------  -----------   ----------
<S>                                           <C>          <C>     <C>           <C>            <C>        <C>          <C>       
Balances as of January 28, 1995..........     4,704,089    $47       469,237     $  2,352       $23,636    $(38,317)    $ (12,282)
Stock options earned.....................            --     --            --           --           199           --           199
Exercise of stock options................        21,331     --            --           --            22           --            22
Net loss for the fiscal year ended 
    February 3, 1996.....................            --     --            --           --            --     (14,963)      (14,963)
Dividend on and accretion of preferred 
    stock................................            --     --            --           --            --      (2,056)       (2,056)
Balances as of February 3, 1996..........     4,725,420     47       469,237        2,352        23,857     (55,336)      (29,080)
Issuance of common stock.................     3,572,000     36            --           --        55,343           --        55,379
Exercise of stock options................       132,359      1            --           --           159           --           160
Conversion of Class B common stock.......       326,960      3     (326,960)      (1,639)         1,636           --            --
Net income for the fiscal year ended
    February 1, 1997.....................            --     --            --           --            --        4,452         4,452
Dividend on and accretion of preferred 
    stock................................            --     --            --           --            --      (5,668)       (5,668)
Balances as of February 1, 1997..........     8,756,739     87       142,277          713        80,995     (56,552)        25,243
Exercise of stock options................       126,347      1            --           --           134           --           135
Conversion of Class B common stock.......        93,846      1      (93,846)        (469)           468           --            --
Net loss for the fiscal year ended 
    January 31, 1998.....................            --     --            --           --            --     (15,672)      (15,672) 
                                          -------------  --------  ---------    ---------     ----------  -----------   ----------
Balances as of January 31, 1998               8,976,932    $89        48,431     $    244       $81,597    $(72,224)    $    9,706
</TABLE>

----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>

--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Loehmann's, Inc.
<TABLE>
<CAPTION>

                                                                                           Fiscal Year Ended
                                                                          -----------------------------------------------------
                                                                             January 31,       February 1,       February 3,
                                                                                1998              1997              1996        
                                                                          -----------------------------------------------------
                                                                                             (IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                          <C>               <C>               <C>       
Net income (loss)........................................................    $ (15,672)        $   4,452         $ (14,963)
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
       Depreciation and amortization.....................................       11,433            11,848            12,120
       Accretion of 10 1/2% senior secured notes.........................           --               510             1,328
       Charges for store closings, impairment of assets and other........        2,110                --            10,538
       Loss on early retirement of 10 1/2% senior secured notes and
            13 3/4% senior subordinated notes............................           --             7,101                --
       Changes in assets and liabilities:
            Accounts receivable and other assets.........................       (1,175)           (2,678)              678
            Merchandise inventory........................................       (9,217)          (14,583)              417
            Accounts payable.............................................        1,936            (1,840)             (276)
            Accrued expenses.............................................        3,148             3,775                (3)
            Accrued interest.............................................          (34)           (4,507)              250

Net change in current assets and liabilities.............................        8,201           (19,833)            1,066
Net change in other noncurrent assets and liabilities....................          (15)              549              (627)

Total adjustments........................................................        8,186               175            24,425
                                                                          -----------------------------------------------------
Net cash (used in) provided by operations                                       (7,486)            4,627             9,462

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures.....................................................      (16,687)          (16,037)           (8,130)
Net cash used in investing activities....................................      (16,687)          (16,037)           (8,130)
                                                                          -----------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings on revolving credit facilities................................       23,583            10,188                --
Redemption of 10 1/2% senior secured notes...............................           --           (55,905)           (1,584)      
Redemption of 13 3/4% senior subordinated notes..........................                        (78,325)               --
Redemption of 117/8% senior notes........................................                         (5,165)               --
Sale of 117/8% senior notes, net of issuance costs.......................                         95,863                --
Redemption of Series A Preferred Stock...................................                        (20,947)               --
Sale of common stock.....................................................          135            55,379                --
Other financing activities, net..........................................          (70)              102               (58) 
                                                                          -----------------------------------------------------

Net cash provided by (used in) financing activities......................       23,648             1,190            (1,642) 
                                                                          -----------------------------------------------------
Net (decrease) increase in cash and cash equivalents.....................         (525)          (10,220)             (310)
Cash and cash equivalents at beginning of period.........................    $   2,292         $  12,512         $  12,822
Cash and cash equivalents at end of period...............................    $   1,767         $   2,292         $  12,512 
                                                                          -----------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the fiscal year for interest............................    $  13,212         $  18,807         $  16,845
Cash paid during the fiscal year for income taxes........................    $     233         $     218         $     103 
                                                                          -----------------------------------------------------
</TABLE>

------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loehmann's, Inc.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         Effective May 7, 1996, the Company effected a reincorporation from
Maryland, to Delaware by Loehmann's Holdings, Inc. ("Holdings"), the Company's
predecessor, merging into the Company (the "Merger"). As a result of the Merger,
each share of Holdings common stock and Class B common stock was converted into
approximately 0.22 shares of the Company's common and Class B common and the
authorized number of common was changed to 25,000,000. Accordingly, the
financial information appearing herein (including all share and per share data)
reflects the retroactive application of the Merger.

BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany items
have been eliminated.

FISCAL YEAR

         The Company follows the standard fiscal year of the retail industry
which is a 52 or 53 week period ending on Saturday closest to January 31. Fiscal
years ended January 31, 1998, February 1, 1997 and February 3, 1996 had 52
weeks, 52 weeks and 53 weeks, respectively.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid marketable securities purchased
with an original maturity of three months or less to be cash and cash
equivalents.

MERCHANDISE INVENTORY

         Merchandise inventory is valued at the lower of cost or market as
determined by the retail inventory method. However, certain warehoused inventory
that is not available for sale is valued on a specific cost basis. The
merchandise inventory valued on a specific cost basis at January 31, 1998 and
February 1, 1997 was $20.1 million and $11.9 million, respectively.

<PAGE>

ADVERTISING EXPENSE

         The cost of advertising is expensed as incurred. Advertising costs were
$15.4 million, $14.8 million and $13.0 million during fiscal years 1997, 1996
and 1995, respectively.

DEPRECIATION AND AMORTIZATION

         Building and furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives. Leasehold interests
represent the beneficial value of operating leases as determined by an
independent appraisal of the individual leases at the date such leases were
acquired by the Company and such amounts are amortized on a straight-line basis
over the related lease term.

         Leasehold improvements are amortized on a straight-line basis over the
shorter of the related lease terms or their useful life.

PRE-OPENING COSTS

         Expenses incurred in connection with the opening of new stores are
expensed in the fiscal quarter in which the store opens. In fiscal 1997 and 1996
the Company incurred $1.3 million and $1.7 million respectively in pre-opening
costs. No pre-opening costs were incurred in fiscal 1995.

PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED, NET

         The purchase price in excess of identifiable net assets acquired is
being amortized on a straight-line basis over 40 years. Amortization for fiscal
years 1997, 1996 and 1995 amounted to $1.3 million annually. Accumulated
amortization at January 31, 1998 and February 1, 1997 was $12.2 million and
$10.9 million, respectively.

CLASS B COMMON STOCK

         Each share of Class B Common Stock is convertible into one share of
Common Stock, subject to adjustment at any time. During fiscal 1997,
approximately 93,846 shares of Class B Common Stock were converted. The
Company's various credit agreements prohibit or restrict any such repurchase.

CAPITALIZED INTEREST

         Interest on borrowed funds is capitalized during construction of
property and is amortized on a straightline basis over the depreciable lives of
the related assets. Interest of $397,000 and $640,000 was capitalized during
fiscal 1997 and fiscal 1996, respectively. Interest capitalized during fiscal
1995 was not material.

DEFERRED DEBT ISSUANCE COSTS

         Deferred debt issuance costs are amortized over the terms of the
related debt agreements. Deferred debt issuance costs were $4.2 million at
January 31, 1998 and $4.1 million at February 1, 1997. Amortization expenses for
fiscal years 1997, 1996, and 1995 amounted to

<PAGE>

$0.6 million, $0.8 million and $1.2 million, respectively. Total accumulated
amortization at January 31, 1998 and February 1, 1997 amounted to $1.1 million
and $0.5 million respectively.

INCOME TAXES

         Income taxes are provided using the liability method.

NET LOSS PER SHARE OF COMMON STOCK

         Basic EPS is determined by dividing net income/loss (after deducting
dividends on and accretion of preferred stock) by the weighted average number of
Common and Class B Common shares outstanding during the period. Diluted EPS is
determined by dividing net income/loss (after deducting dividends on and
accretion of preferred stock) by the weighted average number of Common and Class
B Common shares and common stock equivalents outstanding during the period.
Outstanding options to purchase Common Stock were not considered in the
calculation of Diluted EPS for fiscal 1997 and fiscal 1995, as their effects
were antidilutive.

         In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements (see Note 6). The adoption of Financial Accounting Standards Board
Statement No. 128 did not have a material adverse effect upon the Company's
financial statements.

2. INCOME TAXES

         The Company's provision for income taxes primarily represents state and
local minimum and alternative minimum taxes.

<PAGE>

         Significant components of deferred tax liabilities and assets are as
follows:

                                                    January 31,      February 1,
                                                       1998             1997
                                                   -----------------------------
                                                           (In thousands)
Deferred tax assets:
    Net operating loss carryforwards ..............$     12,251  $      8,146
    Excess book depreciation and amortization .....       4,365         6,037
    Store closing reserve..........................       3,643             4
    Compensation ..................................          --           925
    Capitalization of inventory expenses ..........         711           617
    Other, net ....................................         996           429
Total deferred tax assets .........................      21,966        16,158
Deferred tax liabilities ..........................       (269)         (205)
Net deferred tax assets ...........................      21,696        15,953
Less valuation allowance ..........................    (21,696)      (15,953)
                                                   $         --  $         --
                                                   -----------------------------

Following is a reconciliation of the statutory Federal income tax rate and the
effective income tax rate application to earnings before income taxes:

<TABLE>
<CAPTION>
                                                              January 31,        February 1,         February 3,
                                                                 1998                1997                1996
                                                           -------------------------------------------------------
<S>                                                            <C>                 <C>                 <C>  
Statutory tax rate ......................................        35.0%               35.0%               35.0%
Tax effect of extraordinary item ........................          --              (21.4)                  --
Utilization of net operating loss carry forward .........          --              (17.8)%                 --
Valuation allowance adjustment ..........................      (32.4)                  --              (31.9)
Goodwill ................................................       (3.0)                 3.9               (3.2)
Other, net...............................................       (0.4)                 0.9               (0.6)
Effective tax rate ......................................       (0.8)%                0.6%              (0.7)%
</TABLE>

         At January 31, 1998, the Company had net operating loss carryforwards
of approximately $31.3 million and $24.5 million for regular and alternative
minimum tax purposes, respectively. Net operating losses begin to expire in 2003
and future years.

3. EQUITY AND DEBT OFFERING

         On May 10, 1996, the Company sold 3,572,000 shares of Common Stock and
$100.0 million principal amount of 11-7/8% Senior Notes due 2003 (the "Senior
Notes"). The net proceeds received from such offerings (the "Offerings") were
used (i) to redeem in full the Company's 10-1/2% Senior Secured Notes, at a
redemption price of 103.5%, (ii) to redeem in full the Company's 13-3/4% Senior
Subordinated Notes at a redemption price of 101.0%, and (iii) to redeem all
issued and outstanding shares of the Company's Series A Preferred Stock at its
liquidation price of $0.56 per share (collectively, the "Existing Obligations").

<PAGE>

         As a result of these transactions, the Company incurred approximately
$4.7 million in extraordinary losses on the early extinguishment of debt and
$2.0 million in losses from the write-off of related deferred financing costs
associated with such indebtedness, and a $5.1 million charge to accumulated
deficit from the accelerated accretion of the Series A Preferred Stock to its
liquidation price of $0.56 per share.

4. LONG-TERM DEBT

         The Company's long-term debt consists of:

                                                    January 31,      February 1,
                                                       1998             1997
                                                    ----------       -----------
                                                           (In thousands)

Revolving line of Credit(a) ........................ $  33,771        $  10,188
117/8 senior notes, due 2003(b).....................    95,000           95,000
9 1/2% New York City Industrial Development
  Agency revenue bonds, due 2004....................     2,250            2,250
5 1/2% City of New York note due in varying
  installments to 2004..............................       412              482
                                                    ----------       -----------
                                                       131,433          107,920
Less current maturities.............................        73               70 
                                                    ----------       -----------
Long-term debt......................................  $131,360         $107,850
                                                    ----------       -----------
---------------
(a) In February 1998, the Company amended its credit agreement with its bank
    (the "Credit Facility") to provide for: (i) the elimination of all financial
    covenants under the Credit Facility, (ii) an extension of the term of the
    Credit Facility to June 2001, and (iii) an increase in the Credit Facility
    to $50.0 million with interest at either the Bank's prime rate plus 0.75%,
    or LIBOR plus 2.2% at the Company's option. The Credit Facility is subject
    to certain borrowing base limitations, and imposes certain other limitations
    on the Company. The Credit Facility is secured by substantially all of the
    Company's assets and is not subject to scheduled repayments, except upon
    maturity. At January 31, 1998, the Company's outstanding amounts under
    letters of credit were $1,719,563.

(b) Interest is payable semiannually on May 15 and November 15 in each year. The
    Company is entitled to redeem the Notes commencing May 15, 2000 at
    redemption prices of 105.938%, 102.969% and 100% of the principal amount
    during 2000, 2001 and 2002, respectively.

    The Senior Notes Indenture contains certain covenants that, among other
    things, limit the ability of the Company to incur additional indebtedness,
    transfer or sell assets, pay dividends or make certain other restricted
    payments, incur liens, enter into certain transactions with affiliates or
    consummate certain mergers, consolidations or sales of all or substantially
    all of its assets. In addition, subject to certain conditions, the Company
    is obligated to make offers to repurchase the Senior Notes with the net
    proceeds of certain asset sales. These covenants are subject to certain
    exceptions and qualifications.

<PAGE>

    Based on a quoted market price of 104.4%, the fair value of the 117/8 senior
    notes outstanding at January 31, 1998 approximated $99.1 million.

    During the second quarter of 1996, the Company purchased and retired $5.0
    million face amount of the 117/8% senior notes on the open market incurring
    an extraordinary loss of approximately $365,000 in connection with this
    purchase.

5. PROPERTY, EQUIPMENT AND LEASEHOLDS, NET

         Property, equipment and leaseholds are recorded at cost less
accumulated depreciation and amortization. The components of property, equipment
and leaseholds are as follows:

                                               Useful   January 31,  February 1,
                                               Lives       1998         1997
                                             ---------  -----------  -----------
                                             (In years)      (In thousands)

Building ...................................     20       $  7,879    $  7,879
Furniture, fixtures and equipment ..........    3-8         44,246      35,835
Leasehold interests.........................   5-29         45,853      51,781
Leasehold improvements .....................   5-29         33,332      28,675
Total property, equipment and leaseholds....               131,010     124,170
Accumulated depreciation and amortization...              (59,698)    (57,655)
Property, equipment and leaseholds, net.....              $ 71,612    $ 66,515

<PAGE>

6. EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
(loss) earnings per share:

<TABLE>
<CAPTION>

                                                               Fiscal 1997      Fiscal 1996      Fiscal 1995   
                                                             -------------------------------------------------
<S>                                                          <C>              <C>              <C>            
NUMERATOR
Net operating (loss) income................................. $       (15,672) $         11,553 $      (14,963)
Preferred stock dividends on and normal and
    accelerated accretion...................................               --            5,668           2,056
Numerator for basic and diluted (loss) earnings
    per share before extraordinary item.....................         (15,672)            5,885        (17,019)
Extraordinary item..........................................               --            7,101              --
Numerator for basic and diluted (loss) per share
    after extraordinary item................................         (15,672)          (1,216)        (17,019)

DENOMINATOR
Denominator for basic (loss) earnings per share
    -- weighted average shares..............................            8,961            7,901           5,463
Effect of dilutive securities:
    Employee stock options..................................               --              628              --
    Dilutive potential common shares........................               --              628              --
Denominator for diluted (loss) earnings per
    share -- adjusted weighted average shares
    and assumed conversions................................. $          8,961 $          8,529 $         5,463
Basic (loss) earnings per share before
    extraordinary item...................................... $         (1.75) $           0.74 $        (3.12)
Basic (loss) per share after extraordinary item............. $         (1.75) $         (0.15) $        (3.12)
Diluted (loss) earnings per share before
    extraordinary item...................................... $         (1.75) $           0.69 $        (3.12)
Diluted (loss) per share after extraordinary item........... $         (1.75) $         (0.14) $        (3.12)
</TABLE>

Options to purchase 858,179 shares of common stock at an average price of $7.63
per share were outstanding at January 31, 1998, but were not included in the
computation of diluted loss per share because the effect would be antidilutive.

Options to purchase 464,643 shares of common stock at an average price of $1.65
per share were outstanding at February 3, 1996, but were not included in the
computation of diluted loss per share because the effect would be antidilutive.


7. STOCK OPTION PLANS

         On September 30, 1988, the Company adopted the Loehmann's Holdings,
Inc. 1988 Stock Option Plan, as amended on April 2, 1992, pursuant to which a
committee appointed by the Board of Directors is authorized to grant options to
purchase up to 1,077,010 shares of Common Stock to key employees and directors.
On May 7, 1996, the Company adopted the Loehmann's, Inc. New Stock Incentive
Plan (the "New Stock Option Plan") as amended on June 19, 1997. A maximum of
646,892 shares of Common Stock may be delivered by the Company pursuant to
options or other awards authorized by a committee appointed by the Board of
Directors. On June 19, 1997, the Company adopted the Loehmann's, Inc. Director's
Stock Option Plan. A maximum of 250,000 shares of Common Stock may be delivered
by the Company pursuant to options or other awards authorized by a committee
appointed by the Board of Directors.

<PAGE>

The following information pertains to the Company's stock option plans:

<TABLE>
<CAPTION>

                                          January 31,                    February 1,                    February 3,
                                             1998                           1997                           1996
                                   --------------------------  ------------------------------  ---------------------------
                                                   Weighted                      Weighted                      Weighted     
                                                    Average                       Average                       Average     
                                                   Exercise                      Exercise                      Exercise
                                      Shares         Price        Shares           Price          Shares         Price      
                                   ------------ -------------  ------------- ----------------  ------------- -------------
                                          (in thousands)               (in thousands)                 (in thousands)
<S>                                  <C>           <C>           <C>             <C>             <C>           <C>   
Outstanding options,                                                                         
  beginning of year ..............     875         $ 7.00          729           $ 2.77            604         $ 1.37
Granted ..........................     147           8.58          324            17.74            264           4.76
Canceled .........................    (38)          14.86         (46)            17.96          (120)           1.07
Exercised.........................   (126)           1.18        (132)             1.20           (19)           1.36
Outstanding options,                                                
  end of year ....................     858         $ 7.63          875           $ 7.00            729         $ 2.77
Options exercisable, end                                            
  of year ........................     474         $ 4.59          450           $ 3.02            432         $ 2.30
Options available for                  
future grant .....................     423            N/A           77              N/A             42            N/A
</TABLE>

         Stock options are granted to officers and key employees based upon a
price determined by the Board of Directors of the Company. Compensation expense
is recorded in the period that options are earned.

         The 858,179 options outstanding at January 31, 1998, vest over a range
of two to five years from the date of grant provided the individuals remain in
the employ of the Company. Options are exercisable at a price ranging from $1.07
to $23.13. Options issued under the 1988 Stock Option Plan generally must be
exercised within five years from the date they are earned. Options issued under
the New Stock Option Plan must be exercised prior to the tenth anniversary of
the grant date.

         The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company would have incurred an additional compensation cost
of $1.0 million or $0.11 per share for fiscal 1997, $0.6 million or $0.07 per
share for fiscal 1996, and $0.1 million or $0.01 per share for fiscal 1995.

         The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
fiscal 1997, 1996 and 1995: risk-free interest rate of 6.3%, an expected life of
3 to 7 years and a dividend yield of zero. For fiscal 1997, 1996 and 1995,
volatility was 85.8%, 58.0% and 38.7%, respectively.

<PAGE>

8. COMMITMENTS AND CONTINGENCIES

         The Company is the lessee under various long-term operating leases for
store locations and equipment rentals for up to 29 years, including renewal
options. The leases typically provide for three five-year renewals that are
automatic unless the Company elects to terminate the lease. Rent expense related
to these leases amounted to $15.4 million, $10.1 million and $8.1 million for
the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996,
respectively. Future minimum payments under noncancelable operating leases
consisted of the following at January 31, 1998:

                                                    (IN THOUSANDS)

          1998                                       $     15,993
          1999                                             15,644
          2000                                             14,818
          2001                                             13,969
          2002                                             13,876
          Thereafter                                      154,026
                                                    --------------
          Total                                      $    228,326

9. CHARGE FOR STORE CLOSINGS

         During the fourth quarter of fiscal 1997, the Company implemented a
plan to close ten underperforming stores and, as a result, recorded a $5.7
million charge to continuing operations. These closures are intended to improve
the Company's liquidity and future operating profitability.

         The store closures will be materially completed by the end of March
1998. Net sales and store operating income (loss), including certain
specifically allocated charges, for these stores were $21.3 million and $(0.8)
million, respectively, in fiscal 1997, $24.9 million and $1.5 million,
respectively, in fiscal 1996 and, $26.2 million and $1.2 million, respectively,
in fiscal 1995.

         The charge for store closings consisted of write-offs of property,
plant and equipment, costs associated with net lease obligations and other
expenses of $2.1 million, $3.0 million and $0.6 million, respectively.

         During the second quarter of fiscal 1995, the Company implemented a
plan to close 11 underperforming stores and, as a result, recorded a $10.35
million charge to continuing operations. These closures were intended to improve
overall chain profitability and achieve a more competitive cost structure.

         The store closures were completed by the end of August 1995. Reserved
amounts remaining at February 3, 1996 relating to long-term lease commitments
were not material. Net sales and store operating income (loss), including
certain specifically allocated charges, for these stores were $8.2 million and
$0.1 million, respectively, in fiscal 1995.

         The charge for store closings consisted of write-offs of property,
plant and equipment, markdowns associated with store closings, costs associated
with net lease obligations and other expenses of $5.5 million, $3.6 million,
$0.95 million and $0.3 million, respectively.

<PAGE>

10. CHARGE FOR IMPAIRMENT OF ASSETS

         During the second quarter of fiscal 1995, the Company completed certain
market analyses as part of its overall strategic plan. As an outcome of these
analyses, the Company shortened the period of time in which it intended to
occupy certain stores and as a consequence the undiscounted cash flows estimated
to be generated from the revised intended use was not sufficient to recover the
assets' carrying amount. Based on these indicators, the primary intangible
assets associated with these locations were determined to be impaired as defined
by Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS No. 121").

         Accordingly, the Company recorded an impairment loss of approximately
$4.95 million to continuing operations, representing the excess net book value
of these assets over their fair value. Fair value was based on appraisal value.

         The impairment charge consisted of leasehold interests, furniture,
fixtures and equipment and leasehold improvements of $4.45 million, $0.25
million and $0.25 million, respectively.

11. EMPLOYEE BENEFIT PLANS

         In October 1996, the Company established a defined contribution
retirement savings plan (401(k)) covering all eligible employees. This plan
succeeds the previously discretionary profit sharing plan with all prior
individual account balances and vesting terms transferred to the new plan. The
plan allows participants to defer a portion of their annual compensation and
receive a matching employer contribution on a portion of that deferral. During
fiscal 1997 and fiscal 1996, the Company recorded contributions of $209,000 and
$71,000, respectively, to the 401(k) plan. The Company recorded a contribution
of $500,000 to the profit sharing plan in fiscal 1995.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

Loehmann's, Inc.                                             1997          1996          1995          1994          1993
                                                             ----          ----          ----          ----          ----
                                                                       (In thousands, except per share amounts)
<S>                                                  <C>           <C>           <C>           <C>           <C>         
Net Sales .......................................... $    443,310  $    417,758  $    386,090  $    392,606  $    373,443
Net loss applicable to common stock ................ $     15,672  $      1,216  $     17,019  $      3,308  $     13,727
Diluted net loss per share applicable to                               
  common stock ..................................... $       1.75  $       0.14  $       3.12  $       0.63  $       2.18
Total Assets ....................................... $    189,226  $    176,200  $    163,611  $    178,612  $    177,666
Long-term obligations .............................. $    131,360  $    107,650  $    131,733  $    131,967  $    130,827
Redeemable Series A preferred stock ................           --            --  $     15,279  $     13,223  $     11,421
</TABLE>