SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q


[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934

For the quarterly period ended October 31, 1998 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. 000-19372

                         CATHERINES STORES CORPORATION
             (exact name of registrant as specified in its charter)

Tennessee                                            62-1350411   
(State  or  other   jurisdiction  
of  incorporation  or organization)          (IRS Employer Identification No.)

3742 Lamar Avenue,  Memphis,  Tennessee,  38118 
(Address of principal  executive offices)

Registrant's telephone number, including area code (901) 363-3900

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X No

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.

         As of  November  30,  1998 there were  7,266,461  shares of  Catherines
Stores Corporation common stock outstanding.









<PAGE>



                          CATHERINES STORES CORPORATION

                                    FORM 10-Q

                                October 31, 1998

                                Table of Contents

                                                                        Page No.
PART 1 -          FINANCIAL INFORMATION
                  Consolidated Statements of Income ...........................3

                  Consolidated Balance Sheets .................................4

                  Consolidated Statements of Cash Flows .......................5

                  Notes to Consolidated Financial Statements ................6-8

                  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations ......................9-12

PART 2 -          OTHER INFORMATION ..........................................13






<PAGE>



PART 1 - FINANCIAL INFORMATION

CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                 Thirteen weeks ended          Thirty-nine weeks ended
                              October 31,      November 1,    October 31,    November 1,
                                1998             1997           1998           1997

<S>                            <C>            <C>            <C>            <C>         
Net sales                      $ 73,019,529   $ 67,670,046   $224,298,534   $209,301,926

Cost of sales, including
buying and occupancy costs       50,134,942     48,210,195    150,452,408    145,441,565
                               ------------   ------------   ------------   ------------

Gross margin                     22,884,587     19,459,851     73,846,126     63,860,361

Selling, general and
administrative expenses          19,816,219     18,088,493     59,561,720     56,283,659

Amortization of intangible
assets                              261,031        248,382        790,411        771,643
                               ------------   ------------   ------------   ------------

Operating income before
store closing costs               2,807,337      1,122,976     13,493,995      6,805,059

Store closing costs (Note 7)         67,608        638,980        267,363        813,975
                               ------------   ------------   ------------   ------------

Operating income                  2,739,729        483,996     13,226,632      5,991,084

Interest and other, net             158,335        357,611        592,122      1,008,074
                               ------------   ------------   ------------   ------------

Income before income taxes        2,581,394        126,385     12,634,510      4,983,010

Provision for income taxes          949,000         54,000      5,072,000      2,043,000
                               ------------   ------------   ------------   ------------

Net income                     $  1,632,394   $     72,385   $  7,562,510   $  2,940,010
                               ============   ============   ============   ============


Net income per common
share (Note 6)                 $       0.23   $       0.01   $       1.04   $       0.41
                               ============   ============   ============   ============

Diluted net income per
common share (Note 6)          $       0.22   $       0.01   $       1.02   $       0.40
                               ============   ============   ============   ============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.




<PAGE>

CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                       October 31,      January 31,
                                                           1998             1998

A S S E T S 
<S>                                                   <C>              <C>          
Current Assets:
Cash and cash equivalents                             $   6,737,217    $   3,089,290
Receivables                                               3,557,692        2,580,025
Merchandise inventory                                    63,303,679       48,310,215
Prepaid expenses and other                                3,515,668        4,044,144
Deferred income taxes                                     2,504,000        2,504,000
                                                      -------------    -------------

Total current assets                                     79,618,256       60,527,674
                                                      -------------    -------------

Property and Equipment, at cost:
Land                                                        500,000          500,000
Buildings and leasehold improvements                     24,472,143       23,213,674
Fixtures and equipment                                   30,401,853       28,573,919
Equipment under capital leases                           14,114,407       13,356,177
Improvements in process                                   1,076,901          830,144
                                                      -------------    -------------

                                                         70,565,304       66,473,914
Less accumulated depreciation and amortization          (38,280,570)     (32,398,729)
                                                      -------------    -------------
                                                         32,284,734       34,075,185
                                                      -------------    -------------
Deferred Income Taxes                                       435,000          435,000
Other Assets and Deferred Charges, less accumulated
amortization of $1,859,961 and $1,716,072                 2,339,208        2,506,096
Goodwill, less accumulated amortization of
$5,404,214 and $4,886,858                                22,218,652       22,739,081
                                                      -------------    -------------

                                                      $ 136,895,850    $ 120,283,036
                                                     ==============    =============
</TABLE>

<TABLE>
<CAPTION>

L I  A  B  I  L  I  T I E S A N D S T O C K H O L D E R S ' E Q U I T Y  
<S>                                                   <C>            <C>         
Current Liabilities:
Accounts payable                                      $ 27,677,862   $ 21,761,405
Accrued expenses (Note 3)                               19,954,764     14,750,159
Current maturities of long-term bank and other debt      2,029,449      2,853,585
                                                      ------------   ------------

Total current liabilities                               49,662,075     39,365,149
                                                      ------------   ------------

Long-Term Bank and Other Debt, less current
maturities (Note 4)                                      9,412,413     10,788,920
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued and outstanding                       --             --
Common stock, $.01 par value, 50,000,000 shares
authorized, 7,251,861 and 7,231,070 shares
issued and outstanding                                      72,519         72,311
Additional paid-in capital                              46,659,101     46,529,424
Retained earnings                                       31,089,742     23,527,232
                                                      ------------   ------------
Total stockholders' equity                              77,821,362     70,128,967
                                                      ------------   ------------
                                                      $136,895,850   $120,283,036
                                                      ============   ============
</TABLE>

The  accompanying  notes  are an  integral  part of these  consolidated  balance
sheets.
<PAGE>

CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                 Thirty-nine weeks ended
                                            October 31, 1998  November 1, 1997

Cash Flows from Operating Activities:

Net income                                        $  7,562,510    $ 2,940,010
                                                  ------------    -----------
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization                        6,827,371      7,273,671
Write-down of closed store assets (Note 7)              47,067        180,561
Change in reserve for store closing
costs (Note 7)                                          27,249              0
Net change in current assets and
liabilities (Note 2)                                (5,947,526)    (8,079,482)
Change in other noncash reserves                     1,598,684         26,447
Change in other assets                                 (75,514)      (231,206)
                                                  ------------    -----------

Total adjustments                                    2,477,331       (830,009)
                                                  ------------    -----------

Net cash provided by operating activities           10,039,841      2,110,001
                                                  ------------    -----------

Cash Flows from Investing Activities:
Capital expenditures                                (3,660,323)    (3,012,106)
                                                  ------------    -----------

Net cash used in investing activities               (3,660,323)    (3,012,106)
                                                  ------------    -----------

Cash Flows from Financing Activities:
Sales of common stock                                  129,885        108,494
Proceeds from long-term bank
and other debt                                       6,919,000      3,250,000
Principal payments of long-term bank
and other debt                                      (9,780,476)    (2,133,817)
                                                  ------------    -----------

Net cash (used in) provided by
financing activities                                (2,731,591)     1,224,677
                                                  ------------    -----------

Net Increase in Cash and Cash Equivalents            3,647,927        322,572
Cash and Cash Equivalents,
beginning of period                                  3,089,290      2,992,339
                                                  ------------    -----------

Cash and Cash Equivalents, end of period          $  6,737,217    $ 3,314,911
                                                  ============    ===========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.



<PAGE>

CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) General

     In the  opinion of  management,  the  accompanying  unaudited  consolidated
financial  statements  contain all adjustments  (consisting of normal  recurring
adjustments)  which  management   considers  necessary  to  present  fairly  the
consolidated  financial position of Catherines Stores Corporation ("Stores") and
its wholly owned  subsidiaries  as of October 31, 1998 and January 31, 1998, the
consolidated  results of their operations for the thirteen and thirty-nine weeks
ended  October  31,  1998 and  November  1,  1997 and their  cash  flows for the
thirty-nine  weeks ended  October 31, 1998 and November 1, 1997.  Stores and its
subsidiaries  are  collectively  referred  to as the  "Company".  The results of
operations for the thirteen and  thirty-nine  week periods may not be indicative
of the results for the entire year.

     These statements  should be read in conjunction with the Company's  audited
financial statements and related notes which have been incorporated by reference
in the  Company's  Form 10-K for the year ended  January 31, 1998.  Accordingly,
significant  accounting  policies and other  disclosures  necessary for complete
financial statements in conformity with generally accepted accounting principles
have been  omitted  since  such items are  reflected  in the  Company's  audited
financial statements and related notes thereto.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted accounting principles requires management to make certain estimates and
assumptions  that affect the  reported  amounts of assets and  liabilities,  and
disclosure of contingent  assets and  liabilities,  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates.

(2) Statements of Cash Flows

     The changes in current assets and  liabilities  reflected in the statements
of cash flows were as follows:

                                                     Thirty-nine weeks ended
                                                   October 31,       November 1,
                                                        1998              1997
Increase (decrease) in cash and cash equivalents-
Receivables                                         $ (1,053,378)   $  (460,457)
Merchandise inventory                                (16,338,018)    (6,984,726)
Prepaid expenses and other                               528,476       (215,476)
Accounts payable                                       5,916,457       (673,519)
Accrued expenses                                       4,998,937        254,696
                                                    ------------    -----------
Total                                               $ (5,947,526)   $(8,079,482)
                                                    ============    ===========

     Interest  paid  during the  thirty-nine  weeks  ended  October 31, 1998 and
November 1, 1997 was approximately $468,000 and $884,000,  respectively.  Income
taxes paid during the  thirty-nine  weeks ended October 31, 1998 and November 1,
1997 were approximately $3,902,000 and $1,198,000, respectively.

 (3) Accrued Expenses

     Accrued expenses consisted of the following:

                                                    October 31,      January 31,
                                                       1998             1998

Payroll and related benefits                       $ 4,655,519       $ 3,252,177
Taxes other than income taxes                        1,887,453         1,059,127
Rent and other related costs                         2,375,755         2,252,587
Deferred revenues                                    1,939,399         1,819,288
Reserve for earned discounts                         1,638,575         1,140,000
Reserve for store closing costs                      1,142,460         1,115,211
Income taxes                                         1,536,754           245,161
Other                                                4,778,849         3,866,608
                                                   -----------       -----------
Total                                              $19,954,764       $14,750,159
                                                   ===========       ===========

<PAGE>

(4) Long-Term Bank and Other Debt

     Long-term bank and other debt consisted of the following:

                                                    October 31,      January 31,
                                                       1998             1998
Due to banks:
Term notes                                       $          0      $  1,250,000
Working capital notes                                       0         7,000,000
Mortgage note                                       6,823,104                 0
Other:
Capital lease and other obligations                 4,618,758         5,392,505
                                                   ----------         ---------
                                                   11,441,862        13,642,505
Less current maturities                            (2,029,449)       (2,853,585)
                                                   ----------         ---------
Total                                            $  9,412,413      $ 10,788,920
                                                   ==========        ==========

     On February 27,  1998,  the Company  entered into a new mortgage  financing
agreement  and amended the  existing  bank credit  agreement.  The new  mortgage
financing  agreement  provides a $6,919,000  mortgage facility with a seven-year
term and a 20-year  amortization  period. The interest rate on the mortgage note
is fixed at 7.5%.  Proceeds  from the  note  were  used to repay  the  Company's
outstanding  term  loan and to reduce  amounts  outstanding  under  the  working
capital  facility.  The existing bank credit agreement was amended to reduce the
amount  available  from $28 million to $25 million,  including the swing line of
credit,  and to increase  the  interest  rate to the agent  bank's prime rate or
LIBOR plus 2 1/4%,  at the Company's  option.  Amounts  available  under the new
agreement are based on the Company's eligible receivables and inventories.

     At October 31, 1998, the Company had  approximately  $19,800,000  available
under its combined working capital and swing line facility.  Outstanding letters
of credit  were  approximately  $4,800,000  at  October  31,  1998.  During  the
thirty-nine weeks ended October 31, 1998, the Company entered into capital lease
agreements  for  the  purpose  of  obtaining  computer  equipment,  at a cost of
approximately $661,000.

 (5) Leases

     During the  thirty-nine  weeks ended October 31, 1998, the Company  entered
into new leases for three  stores and amended or extended  leases for 70 stores,
which  increased  future minimum rental  payments by  approximately  $12,719,000
since  January  31,  1998.  Total  future  minimum  rental  payments  under  all
noncancelable operating leases with initial or remaining lease terms of one year
or more are approximately $71,420,000.

     Total rent expense for all operating leases was as follows:



                                                    Thirty-nine Weeks Ended
                                                  October 31,       November 1,
                                                      1998              1997
Minimum rentals                                 $15,615,066          $15,912,678
Contingent rentals                                  216,850              211,496
                                                -----------          -----------
Total                                           $15,831,916          $16,124,174
                                                ===========          ===========
<PAGE>

(6) Net Income Per Common Share

     The  reconciliation  of net income per common  share and diluted net income
per common share is as follows:

                                                                        Diluted
                                              Net Income              Net Income
                                                 Per         Stock       Per
                                              Common Share  Options Common Share
Thirteen weeks ended October 31, 1998:
Net income                                     $1,632,394         0   $1,632,394
Weighted average shares                         7,248,457   126,770    7,375,227
                                                ---------             ----------
Per share amount                                  $  0.23             $     0.22
                                                  =======               ========

Thirteen weeks ended November 1, 1997:
Net income                                     $   72,385         0   $   72,385
Weighted average shares                         7,217,294    78,421    7,295,715
                                                ---------             ----------
Per share amount                                  $  0.01             $     0.01
                                                  =======               ========
Thirty-nine weeks ended October 31, 1998:
Net income                                     $7,562,510         0   $7,562,510
Weighted average shares                         7,241,376   137,916    7,379,292
                                                ---------             ----------
Per share amount                                  $  1.04             $     1.02
                                                   =======              ========

Thirty-nine weeks ended November 1, 1997:
Net income                                     $2,940,010         0   $2,940,010
Weighted average shares                         7,207,881    63,821    7,271,702
                                                ---------             ----------
Per share amount                                  $  0.41             $     0.40
                                                   =======              ========

(7) Store Closing Costs

     The Company  closed eight  unprofitable  stores during the third quarter of
1997.  The Company  closed one store  during the third  quarter of fiscal  1998,
bringing the total number of stores closed in fiscal 1998 to eight and the total
number of stores closed in fiscal 1997 to fifteen.  Seven additional  stores are
scheduled  to  close  prior  to the  end of  fiscal  1998.  Terminations  of the
remaining stores' leases are still being negotiated with the landlords.

     Store closing costs were as follows:
<TABLE>
<CAPTION>

                                              Thirteen weeks ended     Thirty-nine weeks ended
                                            October 31,   November 1,  October 31,  November 1,
                                                 1998        1997        1998          1997

<S>                                            <C>         <C>          <C>          <C>     
Costs incurred to close
stores                                         $20,540     $638,980     $104,695     $813,975
Estimated costs of future
store closings                                  47,068            0      162,668            0
                                               -------     --------     --------     --------
Total                                          $67,608     $638,980     $267,363     $813,975
                                               =======     ========     ========     ========
</TABLE>


     During the thirty-nine weeks ended October 31, 1998, approximately $190,000
of cash payments were made related to the stores closed.


<PAGE>



Item 2.


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

     This outlook contains forward-looking  statements within the meaning of the
Private  Securities   Litigation  Reform  Act  of  1995.  Such   forward-looking
statements  are based on  current  expectations  that are  subject  to known and
unknown risks,  uncertainties  and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking  statements.
Such factors  include,  but are not limited to, the following:  general economic
conditions;  competitive factors and pricing pressures; the Company's ability to
predict  fashion  trends;  consumer  apparel buying  patterns;  adverse  weather
conditions and inventory risks due to shifts in market demand.  The Company does
not undertake to publicly update or revise the  forward-looking  statements even
if experience or future changes make it clear that projected  results  expressed
or implied therein will not be realized.

Overview

     The  Company's  net income for the thirteen  week period ended  October 31,
1998 was  $1,632,000  compared  to $72,000 in the  thirteen  week  period  ended
November 1, 1997.  Operating  income  margins were 3.8% for the third quarter of
1998  compared to 0.7% in 1997.  The Company  incurred  store  closing  costs of
$68,000 and $639,000,  during the third quarter of 1998 and 1997,  respectively.
Before store closing  costs,  operating  income margins would have been 3.8% and
1.7% in 1998 and 1997, respectively.

     Net income for the  thirty-nine  week  period  ended  October  31, 1998 was
$7,563,000  compared to $2,940,000 in the thirty-nine week period ended November
1, 1997. Operating income margins were 5.9% for the first three quarters of 1998
compared to 2.9% for the first three quarters of 1997. Operating income margins,
before  store  closing  costs of  $267,000  and  $814,000,  were  6.0% and 3.3%,
respectively, for the first nine months of 1998 and 1997.

Liquidity and Capital Resources

     The  Company's  cash  provided by  operations  was  $10,040,000  during the
thirty-nine  weeks  ended  October  31,  1998,  compared  to  cash  provided  by
operations of $2,110,000  during the  thirty-nine  weeks ended November 1, 1997.
The increase in cash flow provided by operations is primarily attributable to an
increase in net income and a favorable change in working capital.  The Company's
working capital,  net of cash and cash  equivalents,  was $23,219,000 at October
31, 1998 compared to $18,073,000  at January 31, 1998. The Company's  internally
generated cash flow financed its operating  requirements,  capital  expenditures
and debt service during the thirty-nine week period ended October 31, 1998.

     The Company  maintains  a merchant  services  agreement  with a third party
credit  processor.  This  agreement  provides  for the Company to sell,  without
recourse,  accounts  receivable from private label credit card sales.  The third
party  provides all  authorization,  billing and  collection  services for these
accounts. The five-year agreement,  which expires in January 2000, automatically
renews unless terminated by either party or by mutual agreement.

Capital Expenditures

     The Company has incurred approximately  $2,600,000 to relocate,  remodel or
expand  approximately  28 existing stores during the first nine months of fiscal
1998.  An  additional  $234,000  has been  incurred for the opening of three new
locations.  The Company  estimates  that total fiscal 1998 capital  expenditures
will be approximately  $6,500,000, of which an estimated $4,700,000 will be used
for the  opening  of three new  locations  and the  remodeling,  relocation  and
expansion of approximately 28 other locations.  An additional $1,000,000 will be
used to purchase new information  technology to upgrade the merchandise planning
and allocation  systems and the customer profile database system.  The remainder
of capital expenditures are to upgrade existing computer systems, add additional
software technology and to maintain existing facilities.




<PAGE>

Banking Arrangements

     In  February  1998,  the  Company  entered  into a new  mortgage  financing
agreement and amended the existing bank credit  agreement.  The Company's  prior
bank  credit  agreement  provided  a  $5,000,000  term loan,  a working  capital
facility  of  $25,000,000  and a swing  line of  credit of  $3,000,000  with the
Company's  agent bank. The term loan required  quarterly  principal  payments of
$250,000.  The  working  capital  facility  could have been used for  letters of
credit. The interest rate was the bank's prime rate or LIBOR plus 1 1/4%, at the
Company's option.

     The  new  mortgage  financing  agreement  provides  a  $6,919,000  mortgage
facility with a seven-year term and a 20-year  amortization period. The interest
rate on the mortgage note is fixed at 7.5%.  Proceeds from the note were used to
repay the term loan and to reduce  the  amounts  outstanding  under the  working
capital  facility.  The existing bank credit  facility was amended to reduce the
amount  available from  $28,000,000 to $25,000,000,  including the swing line of
credit,  and to increase  the  interest  rate to the agent  bank's prime rate or
LIBOR plus 2 1/4%, at the Company's  option.  The new agreement expires June 30,
2001.

     At October 31, 1998, the Company had  approximately  $19,800,000  available
under its combined  working  capital and swing line  facility and  approximately
$4,800,000 in outstanding letters of credit.

     The Company believes that its internally generated cash flow, together with
borrowings  under the bank  credit  agreement,  will be  adequate to finance the
Company's operating  requirements,  debt repayments and capital needs during the
foreseeable future.

Results of Operations

Thirteen  Weeks Ended October 31, 1998 Compared to Thirteen Weeks Ended November
1, 1997

     Net sales in the third quarter of 1998 increased  7.9% to $73,020,000  from
$67,670,000  in the third quarter of 1997.  Comparable  stores' sales  increased
10.2%,  primarily due to an increase in the number of saleschecks  generated and
an increase in the number of units per salescheck, offset by a small decrease in
average  unit price.  During the third  quarter,  one store was closed and three
stores were opened,  increasing the number of stores  operated by the Company on
October 31, 1998 to 438. At November 1, 1997, the Company operated 448 stores.

     Gross margin,  after buying and occupancy costs,  increased as a percentage
of sales to 31.3%  from  28.8% in the third  quarter of 1997.  The  increase  is
attributable  to  both  leveraged   buying  and  occupancy  costs  and  improved
merchandise  margins.  Buying and  occupancy  costs  deceased as a percentage of
sales by 147 basis  points.  Additionally,  merchandise  margin  increased  as a
percentage of sales by 111 basis points.  The increase in merchandise margin was
driven primarily by an increase in merchandise markup and controlled merchandise
markdowns.

     Selling,  general and  administrative  expenses increased to $19,816,000 in
the third quarter of 1998 compared to  $18,088,000 in the third quarter of 1997.
The  increase is  primarily  attributable  to store and  management  performance
bonuses.  As a  percentage  of sales,  the selling,  general and  administrative
expenses increased to 27.1% from 26.7% in the third quarter of 1997.

     The Company closed one unprofitable  store during the third quarter of 1998
at a cost of  approximately  $20,000.  The Company also wrote-off  approximately
$47,000 of store assets on stores  anticipated  to be closed in the near future.
The Company  closed  eight stores  during the third  quarter of fiscal 1997 at a
cost of approximately $639,000.

<PAGE>

     Interest  expense was  approximately  $158,000 in the third quarter of 1998
compared to $358,000 in the third  quarter of 1997.  The  decrease is  primarily
attributable to the decrease in working capital borrowings.

     Income taxes were  provided at  effective  rates of 36.8% and 42.7% for the
thirteen  weeks ended October 31, 1998 and November 1, 1997,  respectively.  The
statutory rate is affected primarily by non-deductible goodwill amortization and
state  income  taxes.  The increase in pre-tax net income over last year reduces
the effect of the non-deductible  goodwill amortization.  The third quarter rate
was adjusted to reflect the expected annual effective rate of 40.1%

     Net income for the third quarter of 1998 was $1,632,000 compared to $72,000
for the third quarter of 1997.  Diluted net income per common share ("Net income
per common  share")  was $0.22 per share in the third  quarter of 1998 and $0.01
per share in the third  quarter  of 1997.  Before  store  closing  charges,  the
Company's  net income per common  share  would have been $0.23 and $0.07 for the
third quarter of 1998 and 1997, respectively.

Thirty-Nine  Weeks Ended  October 31, 1998 Compared to  Thirty-Nine  Weeks Ended
November 1, 1997

     Net sales in the first nine months of 1998 increased  7.2% to  $224,299,000
from  $209,302,000  in the first nine months of 1997.  Comparable  stores' sales
increased  9.9%,  primarily  due to an  increase  in the  number of  saleschecks
generated.  The average unit selling  price and the average  number of units per
salescheck  also increased.  During the first nine months of 1998,  eight stores
were closed and three stores were opened, bringing the number of stores operated
by the Company on October  31,  1998 to 438.  At  November 1, 1997,  the Company
operated 448 stores.

     Gross margin,  after buying and occupancy costs,  increased as a percentage
of sales to 32.9% from 30.5% in the first nine months of 1997.  The  increase is
attributable  to  both  leveraged   buying  and  occupancy  costs  and  improved
merchandise  margin.  Buying and  occupancy  costs  decreased as a percentage of
sales by 129 basis  points.  Additionally,  merchandise  margin  increased  as a
percentage of sales by 112 basis points.  The increase in merchandise margin was
driven primarily by a decrease in merchandise markdowns.

     Selling,  general and  administrative  expenses increased to $59,562,000 in
the first nine months of 1998 compared to  $56,284,000  in the first nine months
of  1997.  The  increase  is  primarily  attributable  to store  and  management
performance  bonuses,  profit sharing increases and consultant services incurred
to  re-engineer  the  merchandise   assortment  and  planning  and  distribution
functions.  As a percentage of sales,  the selling,  general and  administrative
expenses decreased to 26.6% from 26.9% in the first nine months of 1997.

     The Company  reviewed its store base in late fiscal 1997 and committed to a
flexible  plan to close  approximately  30  underperforming  stores  upon  lease
termination or by settlement with the landlords. During the first nine months of
fiscal 1998 and 1997,  the Company closed eight and 15  underperforming  stores,
respectively. Below are the year to date store closing charges:

                                             Thirty-nine weeks ended
                                             October 31,  November 1,
                                               1998         1997

Costs incurred to close stores               $104,695     $813,975
Estimated costs of future store closings      162,668            0
                                             --------     --------
Total                                        $267,363     $813,975
                                             ========     ========

     Interest  expense  was  approximately  $592,000 in the first nine months of
1998 compared to  $1,008,000  in the first nine months of 1997.  The decrease is
primarily attributable to the decrease in working capital borrowings.

     Income taxes were  provided at an effective  rate of 40.1% and 41.0% in the
first nine months of 1998 and 1997, respectively. The statutory rate is affected
primarily by  non-deductible  goodwill  amortization and state income taxes. The
increase  in  pre-tax  net  income  over last  year  reduces  the  effect of the
non-deductible goodwill amortization.

     Net income for the first nine  months of 1998 was  $7,563,000  compared  to
$2,940,000  for the first nine months of 1997.  Net income per common  share was
$1.02  compared  to $0.40 per share  reported  in the first nine months of 1997.
Before store  closing  charges,  the Company's net income per common share would
have  been  $1.04  and  $0.47  for the  first  nine  months  of 1998  and  1997,
respectively.

<PAGE>

Year 2000 Compliance

     The Company has developed a plan to ensure its systems are  compliant  with
the  requirements to process  transactions in the year 2000. The majority of the
Company's  information  systems are  serviced by outside  vendors who are in the
process of completing  all necessary  updates to ensure they will continue to be
effective in the year 2000.  Management does not currently  believe it has other
minor  technological  equipment  which, if not year 2000 compliant,  will have a
material impact on the Company's business operations.

     The Company has requested from its key third-party providers certifications
of year 2000  compliance.  The  Company  expects  to  complete  the  third-party
compliance  certifications  by the end of fiscal 1998.  Once this  assessment is
complete,  the Company will begin to identify and assess the remaining risks and
costs of year 2000 scenarios.  Contingency plans to address unexpected year 2000
scenarios will be prepared as material risks and  uncertainties  are identified.
The Company  expects the  majority  of its  information  systems to be year 2000
compliant by 1999,  however,  no assurances can be given that the efforts by the
Company and its third-parties will be successful. The Company does not currently
have an  estimate  of the cost to remedy  year 2000  noncompliant  technologies;
however,  management  does not  expect  that  the  costs to  achieve  year  2000
compliance will be material to its consolidated financial position or results of
operations.





<PAGE>


PART 2 - OTHER INFORMATION

Item 1.  Legal Proceedings
         None

Item 2.  Changes in the Rights of the Company's Security Holders
         Not applicable

Item 3.  Defaults by the Company on its Senior Securities
         Not applicable

Item 4.  Submission of Matters to a vote of Security Holder

          See Quarterly Report on Form 10-Q for the period ended May 2, 1998 for
          the results of the Company's  Annual Meeting of  Stockholders  held on
          June 3, 1998.

Item 5.  Other Information
           Not applicable

Item 6.  Exhibits and Reports on Form 8-K
          (A) 27.1  Financial  Data  Schedule  (for  EDGAR  filing  only)  
          (B) Amendments to Executive Employment Agreements, filed on
              October 22, 1998.

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

                             SIGNATURES


                     December 2, 1998               /s/ David C. Forell
                          (Date)                       -----------------
                                                     David C. Forell,
                                                     Executive Vice President,
                                                     Chief Financial Officer









<PAGE>