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 August 1, 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 (IRS  Employer
         incorporation or organization) 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).

                                    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  September  2, 1998 there  were  7,247,306  shares of  Catherines
Stores Corporation common stock outstanding.














<PAGE>



                          CATHERINES STORES CORPORATION

                                    FORM 10-Q

                                 August 1, 1998

                                Table of Contents


PART 1 -          FINANCIAL INFORMATION

                  Consolidated Statements of Income                            3

                  Consolidated Balance Sheets                                  4

                  Consolidated Statements of Cash Flows                        5

                  Notes to Consolidated Financial Statements                 6-9

                  Management's Discussion and Analysis of Financial
                           Condition and Results of Operations             10-14

PART 2 -          OTHER INFORMATION                                           15


































<PAGE>




PART 1 - FINANCIAL INFORMATION

CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

                             Thirteen weeks ended       Twenty-six weeks ended
                          August 1,      August 2,     August 1,      August 2,
                            1998           1997          1998           1997
                            ----           ----          ----           ----

Net sales              $ 74,826,611   $ 70,663,687   $151,279,005   $141,631,880
Cost of sales,
including buying and
occupancy costs          49,208,328     48,560,541    100,317,466     97,231,371
                       ------------   ------------   ------------   ------------

Gross margin             25,618,283     22,103,146     50,961,539     44,400,509
Selling, general and
 administrative
 expenses                19,314,462     18,716,370     39,745,501     38,370,161
Amortization of
 intangible assets          275,072        248,382        529,380        523,261
                       ------------   ------------   ------------   ------------
Operating income
before store closing
costs                     6,028,749      3,138,394     10,686,658      5,507,087
Store closing costs
 (Note 7)                    11,099              0        199,755              0
                       ------------   ------------   ------------   ------------
Operating income          6,017,650      3,138,394     10,486,903      5,507,087
Interest expense, net       154,139        328,038        433,787        650,462
                       ------------   ------------   ------------   ------------
Income before income
 taxes                    5,863,511      2,810,356     10,053,116      4,856,625
Provision for income
 taxes                    2,405,000      1,156,000      4,123,000      1,989,000
                       ------------   ------------   ------------   ------------
Net income             $  3,458,511   $  1,654,356   $  5,930,116   $  2,867,625
                       ============   ============   ============   ============

Net income per common
 share (Note 6)        $       0.48   $       0.23   $       0.82   $       0.40
                       ============   ============   ============   ============
Diluted net income
per common share
(Note 6)               $       0.47   $       0.23   $       0.80   $       0.40
                       ============   ============   ============   ============
     The accompanying notes are an integral part of these consolidated financial
statements.







                                       -3-

<PAGE>

<TABLE>
<CAPTION>

CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<S>                                                                          <C>                  <C>  
                                                                      August 1, 1998      January 31, 1998
                                                                      --------------      ----------------
ASSETS
 Current Assets:
 Cash and cash equivalents                                                $10,189,692           $3,089,290
 Receivables                                                                2,480,811            2,580,025
 Merchandise inventory                                                     51,895,152           48,310,215
 Prepaid expenses and other                                                 3,866,416            4,044,144
 Deferred income taxes                                                      2,504,000            2,504,000
                                                                  ------------------- --------------------
  Total current assets                                                     70,936,071           60,527,674
                                                                  ------------------- --------------------

Property and Equipment, at cost:
 Land                                                                         500,000              500,000
 Leasehold improvements                                                    24,012,657           23,213,674
 Fixtures and equipment                                                    29,750,194           28,573,919
 Equipment under capital leases                                            13,676,776           13,356,177
 Improvements in process                                                    1,174,100              830,144
                                                                  ------------------- --------------------
                                                                           69,113,727           66,473,914
Less accumulated depreciation and amortization                            (36,306,134)         (32,398,729)
                                                                  ------------------- --------------------
                                                                           32,807,593           34,075,185
                                                                  ------------------- --------------------

Deferred Income Taxes                                                         435,000              435,000
Other Assets and Deferred Charges, less accumulated
amortization of $1,793,933 and $1,716,072
                                                                            2,423,182            2,506,096
Goodwill, less accumulated amortization of
$5,231,526 and $4,886,858
                                                                           22,391,340           22,739,081
                                                                  ------------------- --------------------
                                                                         $128,993,186         $120,283,036
                                                                  =================== ====================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Accounts payable                                                         $23,364,409          $21,761,405
 Accrued expenses (Note 3)                                                 17,684,674           14,750,159
 Current maturities of long-term bank and other debt                        2,139,182            2,853,585
                                                                  ------------------- --------------------
Total current liabilities                                                  43,188,265           39,365,149
                                                                  ------------------- --------------------

Long-Term Bank and Other Debt, less current maturities
 (Note 4)                                                                   9,646,699           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,7,247,306 and 7,231,070 shares issued and
outstanding
                                                                               72,473               72,311
 Additional paid-in capital                                                46,628,401           46,529,424
 Retained earnings                                                         29,457,348           23,527,232
                                                                  ------------------- --------------------
Total stockholders' equity                                                 76,158,222           70,128,967
                                                                  ------------------- --------------------
                                                                         $128,993,186         $120,283,036
                                                                  =================== ====================
</TABLE>

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

                                       -4-

<PAGE>




CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Twenty-six weeks ended
                                                    August 1,         August 2,
                                                       1998              1997
                                                       ----              ----
Cash Flows from Operating Activities:
 Net income                                         $5,930,116        $2,867,625
 Adjustments to reconcile net income to
  net cash provided by operating activities--
   Depreciation and amortization                     4,514,293         4,623,442
   Change in reserve for store closing costs            29,869                 0
    (Note 7)
   Net change in current assets and                  1,760,579         (126,803)
    liabilities (Note 2)
   Change in other noncash reserves                  (560,924)         (793,444)
   Change in other assets                             (71,147)         (175,728)
                                            ------------------------------------

     Total adjustments                               5,672,670         3,527,467
                                            ------------------------------------

Net cash provided by operating activities           11,602,786         6,395,092
                                            ------------------------------------

Cash Flows from Investing Activities:
 Capital expenditures                              (2,366,131)       (2,302,770)
                                            ------------------------------------

Net cash used in investing activities              (2,366,131)       (2,302,770)
                                            ------------------------------------

Cash Flows from Financing Activities:
 Sales of common stock                                  99,139            72,078
 Proceeds from long-term bank
  and other debt                                     6,919,000                 0
 Principal payments of long-term bank
  and other debt                                   (9,154,392)       (3,662,598)
                                            ------------------------------------

Net cash used in financing activities              (2,136,253)       (3,590,520)
                                            ------------------------------------

Net Increase in Cash and Cash Equivalents            7,100,402           501,802
Cash and Cash Equivalents, beginning of period       3,089,290         2,992,339
                                             -----------------------------------

Cash and Cash Equivalents, end of period           $10,189,692        $3,494,141
                                             ===================================
     The accompanying notes are an integral part of these consolidated financial
statements.

                                       -5-

<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 August 1, 1998 and January 31,  1998,  the
consolidated  results of their  operations for the thirteen and twenty-six weeks
ended August 1, 1998 and August 2, 1997 and their cash flows for the  twenty-six
weeks ended August 1, 1998 and August 2, 1997.  Stores and its  subsidiaries are
collectively  referred to as the  "Company".  The results of operations  for the
thirteen and  twenty-six  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:

                                                 Twenty-six weeks ended
                                             August 1,         August 2,
                                               1998              1997
                                             ---------         ---------
Increase (decrease) in cash and
   cash equivalents-
Receivables                                   $85,130           $845,595
Merchandise inventory                       3,064,062          6,537,213
Prepaid expenses and other                    177,728         (1,114,197)
Accounts payable                           (4,507,652)        (5,866,550)
Accrued expenses                            2,941,311           (528,864)
                                             ---------          ---------
   Total                                   $1,760,579          $(126,803)
                                            ==========        ==========



                                      -6-

<PAGE>



         Interest  paid during the  twenty-six  weeks  ended  August 1, 1998 and
August 2, 1997 was  approximately  $118,000 and $632,000,  respectively.  Income
taxes paid during the  twenty-six  weeks ended August 1, 1998 and August 2, 1997
were approximately $2,568,000 and $1,148,000, respectively.

 (3) Accrued Expenses

         Accrued expenses consisted of the following:

                                         August 1,                 January 31,
                                            1998                      1998
                                        -----------                -----------
Payroll and related benefits            $3,851,469                 $3,252,177
Taxes other than income taxes            1,402,358                  1,059,127
Rent and other related costs             2,362,106                  2,252,587
Deferred revenues                        1,990,081                  1,819,288
Reserve for earned discounts             1,421,000                  1,140,000
Reserve for store closing costs          1,145,080                  1,115,211
Income taxes                             1,922,366                    245,161
Other                                    3,590,214                  3,866,608
                                         ---------                  ---------
   Total                                $17,684,674               $14,750,159
                                        ===========                ===========

(4) Long-Term Bank and Other Debt

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

                                                  August 1,         January 31,
                                                    1998                1998
                                                 -----------        -----------
Due to banks:
 Term notes                                      $          0      $  1,250,000
 Working capital notes                                      0         7,000,000
 Mortgage note                                      6,860,890                 0
Other:
 Capital lease and other obligations                4,924,991         5,392,505
                                                 ------------      ------------
                                                   11,785,881        13,642,505
Less current maturities                            (2,139,182)       (2,853,585)
                                                 ------------      ------------
   Total                                         $  9,646,699      $ 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.



                                      -7-

<PAGE>



         At August 1, 1998, the Company had approximately  $16,600,000 available
under its combined working capital and swing line facility.  Outstanding letters
of credit were approximately $4,900,000 at August 1, 1998. During the twenty-six
weeks ended August 1, 1998,  the Company  entered into  supplements to a capital
lease agreement for the purpose of obtaining laptop computers and general office
equipment.  The cost of this equipment,  approximately $379,000, was financed by
capital leases.

 (5) Leases

         During the twenty-six  weeks ended August 1, 1998, the Company  amended
or extended leases for 50 stores, which increased future minimum rental payments
by approximately  $9,663,000 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 $73,558,000.

         Total rent expense for all operating leases was as follows:

                                     Twenty-six Weeks Ended
                               August 1,                 August 2,
                                  1998                      1997
                              -----------                -----------
Minimum rentals               $10,421,365                $10,639,071
Contingent rentals                153,285                    145,071
                                  -------                    -------
   Total                      $10,574,650                $10,784,142
                              ===========                ===========

(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                         Per
                                           Common        Stock         Common
                                            Share        Options       Share
                                        ------------    -----------  -----------
Twenty-six weeks ended August 1, 1998:
Net income                                  $5,930,116                $5,930,116
Weighted average shares                      7,237,835      143,490    7,381,325
                                             ----------               ----------
Per share amount                             $     0.82               $     0.80
                                             ==========               ==========

Twenty-six weeks ended August 2, 1997:
Net income                                  $2,867,625                $2,867,625
Weighted average shares                      7,203,255      56,515     7,259,770
                                             ----------               ----------
Per share amount                            $     0.40                $     0.40
                                             ==========               ==========
Thirteen weeks ended August 1, 1998:
Net Income                                  $3,458,511                $3,458,511
Weighted average shares                      7,242,973      161,731    7,404,704
                                            ----------                ----------
Per share amount                            $     0.48                $     0.47
                                            ===========               ==========
Thirteen weeks ended August 2, 1997:
Net Income                                  $1,654,356                $1,654,356
Weighted average shares                      7,207,978       51,959    7,259,937
                                            ----------                ----------
Per share amount                            $     0.23                $     0.23
                                            ==========                ==========

(7) Store Closing Costs

       

                                      -8-

<PAGE>


     The Company  reviewed its store base in late fiscal 1997 and committed to a
plan to close 30 underperforming  stores upon lease termination or by settlement
with the landlords.  Seven  underperforming  stores were closed during the first
half of  fiscal  1998 at a cost of  approximately  $199,000  and six  additional
stores have  scheduled  closing dates during the  remainder of fiscal 1998.  The
remaining stores' leases are still being negotiated with the landlords.

         During the six months ended August 1, 1998,  approximately  $170,000 of
cash payments were made related to the stores closed.















































                                      -9-

<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 August 1,
1998 was  $3,459,000  compared to  $1,654,000  in the thirteen week period ended
August 2, 1997.  Operating  income  margins were 8.0% for the second  quarter of
1998 compared to 4.4% in 1997.

         Net income for the  twenty-six  week  period  ended  August 1, 1998 was
$5,930,000  compared to $2,868,000 in the twenty-six week period ended August 2,
1997.  Operating  income for the first half of 1998 almost doubled the operating
income for the first half of 1997.  Operating  income  margins were 6.9% for the
first half of 1998 compared to 3.9% for the first half of 1997.

Liquidity and Capital Resources

         The Company's  cash provided by operations was  $11,603,000  during the
twenty-six  weeks ended August 1, 1998,  compared to cash provided by operations
of $6,395,000  during the twenty-six weeks ended August 2, 1997. The increase in
cash flow provided by operations is primarily attributable to an increase in net
income and a decrease in working capital.  The Company's working capital, net of
cash and cash  equivalents,  was  $17,558,000  at  August 1,  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 twenty-six week period ended August 1, 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



                                      -10-

<PAGE>


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 incurred approximately  $1,800,000 to relocate,  remodel or
expand existing stores during the first half of 1998. The Company estimates that
fiscal 1998 capital expenditures will be approximately  $7,000,000 to $8,000,000
of which an  estimated  $6,000,000  will be used for the  opening  of three  new
locations and the remodeling, relocation and expansion of approximately 31 other
locations.  An additional  $1,500,000  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.

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 August 1, 1998, the Company had approximately  $16,600,000 available
under its combined  working  capital and swing line  facility and  approximately
$4,900,000 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 August 1, 1998 Compared to Thirteen Weeks Ended
August 2, 1997


                                      -11-

<PAGE>




         Net sales in the second  quarter of 1998  increased 5.9% to $74,827,000
from  $70,664,000  in the  second  quarter  of 1997.  Comparable  stores'  sales
increased  9.1%,  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 second quarter,  five stores were closed
permanently and one store that was closed  temporarily due to tornado damage was
re-opened,  reducing  the number of stores  operated by the Company on August 1,
1998 to 436. At August 2, 1997, the Company operated 455 stores.

         Gross  margin,  after  buying  and  occupancy  costs,  increased  as  a
percentage  of sales to 34.2%  from 31.3% in the  second  quarter  of 1997.  The
increase is attributable to an increase in merchandise  margin,  which increased
as a percentage of sales by 210 basis points. The increase in merchandise margin
was driven primarily by a decrease in merchandise markdowns.  Additionally,  the
Company leveraged its buying and occupancy costs as a result of increased sales.

         Selling,  general and administrative  expenses increased to $19,314,000
in the second  quarter of 1998 compared to  $18,716,000 in the second quarter of
1997. The increase is primarily attributable to store and management performance
bonuses,  offset by decreased  inter-store freight and various other costs. As a
percentage of sales, the selling,  general and administrative expenses decreased
to 25.8% from 26.5% in the second quarter 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.  Five  underperforming  stores
were closed during the second quarter of fiscal 1998 at a cost of  approximately
$11,000  and six  additional  stores have  scheduled  closing  dates  during the
remainder  of  fiscal  1998.  The  remaining  stores'  leases  are  still  being
negotiated with the landlords.

         Interest  expense was  approximately  $154,000 in the second quarter of
1998  compared  to  $328,000  in the second  quarter of 1997.  The  decrease  is
primarily attributable to the decrease in working capital borrowings,  offset by
the addition of mortgage interest expense.

         Income taxes were  provided at  effective  rates of 41.0% and 41.1% for
the thirteen  weeks ended August 1, 1998 and August 2, 1997,  respectively.  The
statutory rate is affected primarily by non-deductible goodwill amortization and
state income taxes.

         Net income for the second  quarter of 1998 was  $3,459,000  compared to
$1,654,000 for the second  quarter of 1997.  Diluted net income per common share
("Net  income per common  share")  was $0.47 per share in the second  quarter of
1998 and $0.23 per share in the second quarter of 1997.

Twenty-Six Weeks Ended August 1, 1998 Compared to Twenty-Six Weeks Ended
August 2, 1997


                                      -12-

<PAGE>




         Net sales in the first half of 1998 increased 6.8% to $151,279,000 from
$141,632,000 in the first half of 1997. Comparable stores' sales increased 9.7%,
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 six  months of 1998,  seven  stores  were  closed
bringing the number of stores  operated by the Company on August 1, 1998 to 436.
At August 2, 1997, the Company operated 455 stores.

         Gross  margin,  after  buying  and  occupancy  costs,  increased  as  a
percentage  of sales to 33.7% from  31.3% in the first six  months of 1997.  The
increase is attributable to an increase in merchandise  margin,  which increased
as a percentage of sales by 110 basis points. The increase in merchandise margin
was driven primarily by a decrease in merchandise markdowns.  Additionally,  the
Company leveraged its buying and occupancy costs as a result of increased sales.

         Selling,  general and administrative  expenses increased to $39,746,000
in the first six months of 1998 compared to  $38,370,000 in the first six months
of  1997.  The  increase  is  primarily  attributable  to store  and  management
performance   bonuses  and  consultant  services  incurred  to  re-engineer  the
merchandise assortment and planning and distribution functions. This increase is
partially offset by decreased  advertising,  inter-store freight, store supplies
and store service expenses.  As a percentage of sales, the selling,  general and
administrative expenses decreased to 26.3% from 27.1% in the first six 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.  Seven  underperforming  stores
were  closed  during  the first half of fiscal  1998 at a cost of  approximately
$199,000  and six  additional  stores have  scheduled  closing  dates during the
remainder of fiscal 1998.  Rent reductions were negotiated for two of the stores
scheduled  for  closing.  The  remaining  15  stores'  leases  are  still  being
negotiated with the landlords.

         Interest expense was approximately  $434,000 in the first six months of
1998  compared  to  $650,000  in the first six months of 1997.  The  decrease is
primarily attributable to the decrease in working capital borrowings,  offset by
an  increase in capital  lease  expense  and the  addition of mortgage  interest
expense.

         Income taxes were  provided at an effective  rate of 41.0% in the first
six  months  of 1998 and 1997.  The  statutory  rate is  affected  primarily  by
non-deductible goodwill amortization and state income taxes.

         Net income for the first six months of 1998 was $5,930,000  compared to
$2,868,000  for the first six months of 1997.  Net  income per common  share was
$0.80 compared to $0.40 per share reported in the first six months of 1997.


                                      -13-

<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, its outside service providers and its third-parties will be successful.
The Company does not currently  have an estimate of the cost to remedy  non-year
2000 compliant 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.






























                                      -14-

<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) None

         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




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


















                                      -15-

<PAGE>