<TABLE>

FINANCIAL HIGHLIGHTS
<CAPTION>
                                                                                          Fiscal Year Ended
                                                                          (Dollar amounts in thousands, except per share data)
                                                                 -------------------------------------------------------------------
                                                                     January 31,              January 25,             January 27,
                                                                         1998                     1997                   1996
                                                                  ------------------        ----------------       -----------------
<S> <C>
Net sales ............................................             $      144,983           $      130,222         $       122,759
Income before taxes ..................................                      8,034                    7,294                   4,405
Net income ...........................................                      4,981                    4,610                   2,731
Net income per share:
     Basic............................................                        .99                      .91                     .55
     Diluted..........................................                        .97                      .91                     .55
Working capital ......................................                     35,000                   33,804                  33,046
Total assets .........................................                     69,446                   62,429                  60,598
Shareholders' equity .................................                     49,521                   45,109                  40,372
Number of stores .....................................                        211                      194                     184
</TABLE>





<PAGE>
<TABLE>



FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>


                                                                              Fiscal Year Ended
                                                         (Dollar and share amounts in thousands, except per share data)
                                                   ------------------------------------------------------------------------
                                                   January 31,    January 25,    January 27,     January 28,    January 29,
                                                      1998           1997           1996           1995(1)        1994(1)
                                                   ----------     ----------     ----------      ----------     ---------
<S> <C>
  INCOME STATEMENT DATA:
  Net sales ....................................   $  144,983     $  130,222     $  122,759      $  112,416     $  98,976
                                                   ----------     ----------     ----------      ----------     ---------
  Cost of sales................................        76,085         69,954         67,896          64,078        55,202
  Gross profit.................................        68,898         60,268         54,863          48,338        43,774
  Selling, general and
     administrative expenses...................        57,964         51,779         47,279          42,084        36,001
  Interest.....................................           536            546            797             740           467
  Depreciation and amortization ...............         2,404          2,242          2,174           2,008         1,615
  Net income...................................         4,981          4,610          2,731           2,350         3,610
  INCOME PER SHARE DATA:
  Basic net income per share...................    $     0.99     $     0.91     $     0.55      $     0.49     $    0.75
  Diluted net income per share.................          0.97           0.91           0.55            0.48          0.74
  Weighted average shares outstanding .........         5,026          5,066          4,989           4,835         4,801
  Weighted average shares outstanding
     including dilutive potential common
     shares....................................         5,118          5,092          5,006           4,877         4,899
  BALANCE SHEET DATA:
  Working capital..............................    $   35,000     $   33,804     $   33,046      $   34,644     $  33,815
  Inventories..................................        43,896         41,511         39,702          40,397        38,595
  Net property and equipment...................        17,833         14,755         15,092          14,799        13,831
  Total assets.................................        69,446         62,429         60,598          60,341        56,482
  Long-term debt (including
       current maturities).....................         5,483          5,360          9,121          12,963        13,343
  Shareholders' equity.........................        49,521         45,109         40,372          37,559        35,042
  Book value per share.........................          9.88           8.90           7.98            7.76          7.27
  Current ratio................................         3.6:1          4.1:1          4.3:1           4.9:1         5.6:1
  Number of stores open at
       end of period...........................           211            194            184             172           154
</TABLE>

(1)For fiscal 1995 and prior,  the Company changed its method of determining the
   cost of inventory as described in the Notes to Financial Statements - Note 2.
   The  change was  applied  retroactively  and  decreased  net  income  amounts
   previously  reported  in  fiscal  1995 by  $198,000  or $.04 per share and in
   fiscal 1994 by $404,000 or $.09 per share.



<PAGE>



  MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW

  RESULTS OF OPERATIONS

  The following  table sets forth certain items in the Statements of Income as a
  percentage of net sales for fiscal years 1998, 1997 and 1996.
<TABLE>
<CAPTION>
<S> <C>

                                                                          Percentage of Net Sales
                                                           -----------------------------------------------------
                                                                             Fiscal Year Ended
                                                           -----------------------------------------------------
                                                               1/31/98             1/25/97             1/27/96
                                                           -------------      ---------------      -------------
  Net  sales........................................               100.0                100.0              100.0
  Cost of sales.....................................                52.5                 53.7               55.3
                                                           -------------      ---------------      -------------
  Gross profit  ....................................                47.5                 46.3               44.7
  Other costs and expenses:
       Selling, general and administrative..........                40.0                 39.8               38.5
       Interest.....................................                 0.4                  0.4                0.6
       Depreciation and amortization ...............                 1.6                  1.7                1.8
       Other (income) expense, net..................                  --                (1.2)                0.2
                                                           -------------      ---------------      -------------
  Income before income taxes........................                 5.5                  5.6                3.6
  Provision for income taxes........................                 2.1                  2.1                1.4
                                                           -------------      ---------------      -------------
  Net income........................................                 3.4                  3.5                2.2
                                                           =============      ===============      =============
</TABLE>

  Year Ended January 31, 1998 Compared to Year Ended January 25, 1997

  Net sales increased by 11%, or $14.8 million, from fiscal 1997 to fiscal 1998.
  Exclusive of the volume in the three former  Menswear Mega Centers (MMC) which
  were sold in 1996,  net sales  increased  15%.  The 15%  increase in net sales
  reflects the addition of 26 new stores (which includes eight  relocations) and
  one closure.  Comparable  store sales were up 6% for fiscal 1998.  Fiscal 1998
  was a 53-week year while fiscal 1997 was a 52-week year. On a basis consistent
  with a 52-week year,  comparable  store sales in fiscal 1998 were up 5%. Sales
  were positively  impacted by continued strong suit sales and various marketing
  campaigns.

  Cost of sales in fiscal  1998 was 52.5% of net sales  compared to 53.7% of net
  sales in fiscal 1997.  This 1.2% of net sales  reduction was due to having the
  lower margin sales volume from the former MMC during the first eight months of
  fiscal 1997 and reduced markdowns as a percentage of net sales in fiscal 1998.

  Selling,  general and administrative expenses in fiscal 1998 were 40.0% of net
  sales  compared  to 39.8% of net sales in fiscal  1997.  This .2% of net sales
  increase  was the net result of not having the lower  overhead  MMC sales this
  year  offset  in part by lower  advertising  costs  and  medical  claims  as a
  percentage of net sales.

  Other income, net, in fiscal 1997 included non-recurring gains of $1.1 million
  ($671,000  after tax, or $0.13 per basic share),  net of related  expenses and
  incentives associated with buyouts of two store leases and $295,000 ($0.06 per
  basic share) of non-taxable insurance proceeds.

  The  effective tax rate in fiscal 1998 was 38.0% of income before income taxes
  compared to 36.8% in fiscal 1997. The lower  effective tax rate in fiscal 1997
  was  attributable to the  non-taxable  insurance  proceeds  discussed in other
  income, net, above.




<PAGE>



  Year Ended January 25, 1997 Compared to Year Ended January 27, 1996

  Net sales  increased by 6% or $7.5  million,  from fiscal 1996 to fiscal 1997.
  The  increase  in net sales  reflects  the net  addition  of ten new stores in
  fiscal  1997.  The  Company  opened 18 new  stores  and  closed  eight  stores
  (including the three  remaining MMC in the  Washington,  DC market,  three S&K
  locations which had not met the Company's sales and profitability expectations
  and two relocations). Comparable store sales were up 5%. Sales were positively
  impacted by strong suit sales and an aggressive marketing campaign.

  Cost of sales in fiscal  1997 was 53.7% of net sales  compared to 55.3% of net
  sales in fiscal 1996.  This 1.6% of net sales reduction was primarily due to a
  reduction in lower margin MMC sales this year as the Company  closed down that
  operation.

  Selling,  general and administrative expenses in fiscal 1997 were 39.8% of net
  sales  compared to 38.5% of net sales in fiscal  1996.  This 1.3% of net sales
  increase  was  primarily  attributable  to a reduction  in lower  overhead MMC
  sales,  higher  advertising  costs  associated  with an  aggressive  marketing
  campaign which was directed at increasing market share and higher compensation
  incentives, and to a lesser extent, increased medical claims.

  Interest  expense was .4% of net sales in fiscal  1997  compared to .6% of net
  sales in fiscal  1996.  This .2% of net  sales  decrease  resulted  from a 34%
  reduction  in average  borrowings  from $9.5  million  in fiscal  1996 to $6.3
  million in fiscal 1997 and a 9% decrease in average borrowing rates.

  Other,  net  consists  of other  income of 1.2% of net  sales in  fiscal  1997
  compared to other  expense of .2% of net sales in fiscal 1996.  Fiscal  1997's
  other  income  primarily  consists  of  three  non-recurring  items:  $747,000
  ($463,000  after tax, or $0.09 per share)  gain,  net of related  expenses and
  corporate  incentives,  associated  with the  lease  buyout  of a  former  MMC
  location; $336,000 ($208,000 after tax or $.04 per share) gain, net of related
  expenses, associated with the lease buyout of a former S&K store; and $295,000
  of  non-taxable  ($.06 per share)  insurance  proceeds  from a life  insurance
  policy.  Fiscal 1996's other expense  included  closing costs  associated with
  nine stores (including two MMC locations in Chicago, Illinois.)

  The effective tax rate  decreased to 36.8% in fiscal 1997 from 38.0% in fiscal
  1996 and was attributable to the non-taxable, non-recurring insurance proceeds
  disclosed in other, net above.


  LIQUIDITY AND CAPITAL RESOURCES

  In fiscal 1998, the Company funded its operating activities, including capital
  expenditures  for the opening of new stores,  from internally  generated funds
  and from bank  borrowings.  During  fiscal 1998,  the Company built 26 new S&K
  stores, converted one existing store to its superstore format and remodeled 15
  other S&K stores.  The Company  believes  that its  sources of  liquidity  and
  capital  resources  will continue to be sufficient to fund its  operations and
  capital expenditures.

  Operating activities for the last three fiscal years provided net cash of $6.9
  million,  $6.3 million and $7.2 million,  respectively.  The increase  between
  fiscal  1998 and 1997 was  attributable  primarily  to higher  net  income and
  secondarily to increased payables offset by increased inventory purchases. The
  decrease  between  fiscal 1997 and 1996 was  primarily the result of increased
  inventory purchases offset in part by higher net income.

  Net cash used in  investing  activities  for the last three  fiscal  years was
  primarily for the purpose of store  expansion and remodeling and  approximated
  $6.1  million,  $2.4  million  and $3.3  million,  respectively.  Fiscal  1998
  included  capital  expenditures  for  eight  more new  stores  and  four  more
  remodelings  compared to fiscal 1997. Fiscal 1998 also included  approximately
  $1.7 million in capital  expenditures for an owned  superstore  location which
  opened in March  1998.  Fiscal  1996  included  two more  stores  and  greater
  remodeling costs than fiscal 1997.

  Net cash used for  financing  activities  for the last three  fiscal years was
  $0.8  million,  $3.9  million  and  $4.0  million,   respectively.   Financing
  activities  primarily relate to fluctuations in the principal of the Company's
  revolving  credit  agreements.  Financing  activities for fiscal 1998 included
  $0.8 million used for the  repurchase of 74,000  shares of common  stock.  The
  Company's unsecured revolving credit agreements with two banks aggregate $30.0
  million.  The  Company  has the  right at the end of May 2000 to  convert  the
  revolving  credit  agreements  into four year term loans. At the end of fiscal
  1998, the Company had $27.9 million available for use under its bank revolving
  lines of credit.



<PAGE>



  OTHER MATTERS


  Historically,  inflation has not  significantly  affected the Company's  gross
  margins.  When necessary,  the Company has generally been able to pass through
  price increases as the cost of merchandise has increased.

  The Company is  following a plan  designed to ensure that all of its  computer
  systems  will be Year 2000  compliant  in advance of December  31,  1999.  The
  Company believes that this plan encompasses all computer  applications used in
  internal  operations.  The plan,  which began in fiscal  1998,  will  continue
  through 1999 and is currently  expected to require  modifications  to existing
  software  costing  approximately  $100,000.  The Year 2000  issue  may  impact
  vendors that provide  products or services to the Company.  The Company cannot
  estimate or predict the  potential  adverse  consequences,  if any, that could
  result from the vendors' failure to address this issue.


  PRICE RANGES OF COMMON SHARES
  S&K Famous  Brands,  Inc.  common shares are traded on The Nasdaq Stock Market
  under the symbol SKFB.  The following  table is a quarterly  composite of high
  and low stock prices.
<TABLE>
<CAPTION>
<S> <C>

                                                                               Fiscal Year Ended January
                                                ----------------------------------------------------------------------------------
  Quarter                                                        1998                                          1997
  -------
                                                ------------------------------------          ------------------------------------
                                                      High                   Low                    High                    Low
                                                --------------          ------------          --------------           -----------
  First..................................            10 1/2                 9 1/8                 8 1/2                    5 5/8
  Second.................................              13                     10                10 13/15                   7 3/4
  Third..................................              16                   12 1/8                9 1/8                    7 3/8
  Fourth.................................            14 1/2                 12 1/4              10 1/2                     7 7/8
</TABLE>

  As of January 31, 1998, there were  approximately  2,200 holders of S&K common
  stock,  including  approximately  304 holders of record.  The number of record
  holders  does not reflect  the number of  beneficial  owners of the  Company's
  common stock for whom shares are held by Cede & Co.,  certain  brokerage firms
  and others.  The Company has not declared cash dividends and anticipates  that
  for the  foreseeable  future it will continue to follow its present  policy of
  retaining  earnings in order to finance the expansion and  development  of its
  business.


<PAGE>
<TABLE>


  STATEMENTS OF INCOME
  (in thousands, except per share data)
<CAPTION>
<S> <C>

                                                                                      Fiscal Year Ended
                                                              ---------------------------------------------------------------
                                                                  January 31,             January 25,            January 27,
                                                                     1998                    1997                   1996
                                                              -----------------        ---------------        ---------------
  NET SALES.............................................        $       144,983          $     130,222          $     122,759
  Cost of sales.........................................                 76,085                 69,954                 67,896
                                                              -----------------        ---------------        ---------------
  Gross profit..........................................                 68,898                 60,268                 54,863
  Other costs and expenses:
       Selling, general and administrative..............                 57,964                 51,779                 47,279
       Interest.........................................                    536                    546                    797
       Depreciation and amortization....................                  2,404                  2,242                  2,174
       Other (income) expense, net......................                    (40)                (1,593)                   208
                                                              -----------------        ---------------        ---------------
  Income before income taxes............................                  8,034                  7,294                  4,405
  Provision for income taxes............................                  3,053                  2,684                  1,674
                                                              -----------------        ---------------        ---------------
  Net income............................................        $         4,981          $       4,610          $       2,731
                                                              =================        ===============        ===============
  Net income per common share:

       Basic............................................        $          0.99          $        0.91          $        0.55
                                                              =================        ===============        ===============
       Diluted..........................................        $          0.97          $        0.91          $        0.55
                                                              =================        ===============        ===============

  Weighted average common shares outstanding -                            5,026                  5,066                  4,989
        basic...........................................
  Dilutive effect of stock options......................                     92                     26                     17
                                                              -----------------        ---------------        ---------------
  Weighted average common shares outstanding
       including dilutive potential common shares.......                  5,118                  5,092                  5,006
                                                              =================        ===============        ===============



<PAGE>



  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
  (in thousands)
<CAPTION>



                                                 Common Stock
                                            ----------------------     Capital in   Notes Receivable
                                                                       Excess of     Stock Purchase    Retained
                                              Shares       Amount      Par Value       Loan Plan       Earnings      Total
                                            ----------   ---------    ------------   ------------    -----------   ----------
  Balance -- January 28, 1995                    4,838   $  2,419     $      6,365   $               $    28,775   $  37,559
    Net income                                                                                             2,731        2,731
    Issuances of common stock                        6           3              37                                         40
    Issuances of common stock under
       the stock purchase loan plan ......         214         107           1,393                                      1,500
    Notes receivable - stock purchase ....                                                 (1,500)                     (1,500)
    Reduction of notes receivable ........                                                     42                          42
                                            ----------   ---------    ------------   ------------    -----------   ----------
  Balance -- January 27, 1996  ...........       5,058       2,529           7,795         (1,458)        31,506       40,372
    Net income  ..........................                                                                 4,610        4,610
    Issuances of common stock  ...........           8           4              42                                         46
    Reduction of notes receivable ........                                                     81                          81
                                            ----------   ---------    ------------   ------------    -----------   ----------
  Balance -- January 25, 1997 ............       5,066       2,533           7,837         (1,377)        36,116       45,109
    Net income............................                                                                 4,981        4,981
    Repurchase of common stock............        (74)        (37)           (729)                                      (766)
    Issuances of common stock.............           5           3              48                                         51
    Exercise of stock options.............          17           8              76                                         84
    Reduction of notes receivable.........                                                     62                          62
                                            ----------   ---------    ------------   ------------    -----------   ----------

  Balance -- January 31, 1998 ............       5,014   $   2,507    $      7,232   $     (1,315)   $    41,097   $   49,521
                                            ==========   =========    ============   ============    ===========   ==========




See Notes to Financial Statements.



<PAGE>



BALANCE SHEETS
(in thousands, except per share amounts)

<CAPTION>

                                                                               January 31,              January 25,
                                                                                   1998                    1997
                                                                             ----------------         ---------------
ASSETS
Current assets:
  Cash...............................................................          $          593           $         537
  Accounts receivable................................................                     554                     398
  Merchandise inventories............................................                  43,896                  41,511
  Other current assets...............................................                   3,170                   2,295
                                                                             ----------------         ---------------

          Total current assets.......................................                  48,213                  44,741

  Property and equipment, net........................................                  17,833                  14,755

  Other assets ......................................................                   3,400                   2,933
                                                                             ----------------         ---------------
                                                                               $       69,446           $      62,429
                                                                             ================         ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt ..............................          $          180           $         180
  Accounts payable ..................................................                   7,561                   5,699
  Accrued compensation and related items.............................                   2,592                   2,211
  Current and deferred income taxes .................................                     983                   1,339
  Other current liabilities..........................................                   1,897                   1,508
                                                                             ----------------         ---------------

     Total current liabilities.......................................                  13,213                  10,937
Long-term debt.......................................................                   5,303                   5,180
Deferred income taxes................................................                   1,409                   1,203
Commitments
Shareholders' equity:
  Preferred stock, $1 par value; authorized shares, 500;
        issued and outstanding shares, none..........................
  Commonstock, $.50 par value; authorized shares, 10,000;
        issued and outstanding shares, 5,014 (1998), and 5,066
        (1997)  .....................................................                   2,507                   2,533
  Capital in excess of par value.....................................                   7,232                   7,837
  Notes receivable -- Stock Purchase Loan Plan ......................                  (1,315)                 (1,377)
  Retained earnings..................................................                  41,097                  36,116
                                                                             ----------------         ---------------
                                                                                       49,521                  45,109
                                                                             ----------------         ---------------
                                                                               $       69,446           $      62,429
                                                                             ================         ===============
             See Notes to Financial Statements.





<PAGE>



STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(in thousands)
<CAPTION>


                                                                                                    Fiscal Year Ended
                                                              ---------------------------------------------------------------------
                                                                  January 31,              January 25,              January 27,
                                                                     1998                      1997                     1996
                                                              -------------------       ------------------       ------------------
Cash flows from operating activities:
   Net income............................................     $             4,981       $            4,610       $            2,731
   Adjustments to reconcile net income to net cash
       provided by operating activities:
      Depreciation and amortization......................                   2,788                    2,654                    2,569
      Loss on property dispositions, (net)...............                     202                      104                      413
      Other..............................................                     203                      133                      123
      Changes in assets and liabilities:
         Accounts receivable.............................                    (156)                     211                     (289)
         Merchandise inventories ........................                  (2,385)                  (1,809)                     696
         Other current assets............................                    (875)                       4                      (35)
         Other assets....................................                    (467)                    (557)                    (401)
         Accounts payable and accrued expenses...........                   2,745                      651                    1,354
         Income taxes and deferred income taxes..........                    (150)                     331                       14
                                                              -------------------       ------------------       ------------------
   Net cash provided by operating activities.............                   6,886                    6,332                    7,175
                                                              -------------------       ------------------       ------------------

Cash flows from investing activities:
   Capital expenditures..................................                  (6,083)                  (2,966)                  (3,293)
   Proceeds from property dispositions...................                      15                      545                       18
                                                              -------------------       ------------------       ------------------
   Net cash used for investing activities................                  (6,068)                  (2,421)                  (3,275)
                                                              -------------------       ------------------       ------------------

Cash flows from financing activities:
   Net borrowings (paydowns) under revolving bank
        lines of credit..................................                     100                   (3,714)                  (3,785)
   Proceeds from exercise of stock options...............                      84
   Reduction of long-term debt...........................                    (180)                    (180)                    (180)
                                                              -------------------       ------------------       ------------------
   Repurchase of common stock............................                    (766)
                                                              -------------------       ------------------       ------------------
   Net cash used for financing activities................                    (762)                  (3,894)                  (3,965)
                                                              -------------------       ------------------       ------------------
Net increase (decrease) in cash..........................                      56                       17                      (65)
Cash at beginning of period..............................                     537                      520                      585
                                                              -------------------       ------------------       ------------------
Cash at end of period....................................     $               593       $              537       $              520
                                                              ===================       ==================       ==================

Supplemental cash flow information: 
   Cash paid during the period for:
         Interest........................................     $               513        $             542        $              810
         Income taxes....................................                   3,492                    2,370                     1,680


   See Notes to Financial Statements.


<PAGE>



QUARTERLY FINANCIAL DATA
(unaudited)

Summarized quarterly financial data for fiscal 1998 and 1997 are as follows:
(in thousands, except per share data)
<CAPTION>


1998                                                                 April 26          July 26        October 25      January 31
----                                                               -------------    -------------    ------------    ------------
Net sales ...................................................      $      33,460    $      30,788    $     33,705    $     47,030
Gross profit  ...............................................             15,887           14,381          16,238          22,392
Net income  .................................................              1,162              791             668           2,360
Net income per share:
     Basic ..................................................                .23              .16             .13             .47
     Diluted.................................................                .23              .15             .13             .46



Weighted average common shares outstanding -
     basic...................................................              5,068            5,019           5,006           5,013

Weighted average common shares outstanding
     including dilutive potential common shares..............              5,121            5,104           5,122           5,125

<CAPTION>

1997                                                                 April 27          July 27        October 26      January 25
----                                                               -------------    -------------    ------------    ------------
Net sales ..................................................       $      31,448    $      29,396    $     30,171    $     39,207
Gross profit  ..............................................              14,399           13,411          13,985          18,473
Net income  ................................................                 914              844             622           2,230
Net income per share:
     Basic..................................................                 .18              .17             .12             .44
     Diluted................................................                 .18              .17             .12             .44
Weighted average common shares outstanding -
     basic..................................................               5,063            5,066           5,066           5,066


Weighted average common shares outstanding
     including dilutive potential common shares.............              5,069             5,103            5,088           5,107
</TABLE>



<PAGE>



NOTES TO FINANCIAL STATEMENTS

NOTE 1 - Summary of Significant Accounting Policies:

PRINCIPAL BUSINESS
S&K Famous  Brands,  Inc.(the  Company)  is engaged in the retail  sale of men's
tailored clothing, furnishings, sportswear and accessories. The Company's fiscal
year is the 52 or 53 week  period  which ends on the last  Saturday  in January.
Fiscal year ended  January 31, 1998 (fiscal  1998) was a 53-week  period,  while
January 25, 1997 (fiscal  1997) and January 27, 1996 (fiscal  1996) were 52-week
periods.

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  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities at the date of the financial  statements and
that affect the reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.

MERCHANDISE INVENTORIES
Inventories are valued at the lower of average cost or market.

PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.  Depreciation for financial reporting
purposes is computed using both straight line and  accelerated  methods over the
estimated  service  lives  which are between 25 and 40 years for  buildings  and
between five and seven years for furniture,  fixtures and  equipment.  Leasehold
improvements  are generally  amortized  over an eight year period or the life of
the lease if shorter.

The Company annually  evaluates  long-lived  assets for any impairment using the
guidance  of  Statement  of  Financial  Accounting  Standards  ("FAS")  No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  Of."  This  evaluation  has not  resulted  in  adjustments  to the
Company's results of operations or financial position.

Repair and  maintenance  expenditures  are charged to expense as incurred.  Upon
retirement or sale of an asset,  its cost and related  accumulated  depreciation
are written off and any gain or loss is recognized.

PRE-OPENING STORE COSTS
Costs  associated with the opening of new stores are carried as prepaid expenses
and charged to expense upon store opening.

ADVERTISING COSTS
Advertising  costs  are  expensed  in the  period  in  which  the  advertisement
initially runs.  Advertising  expense of $11.2 million,  $10.6 million and $10.0
million,  respectively,  was  included  in selling,  general and  administrative
expenses in each of the last three  fiscal  years.  Deferred  advertising  costs
related to future advertising  programs included in the balance sheets were less
than $100,000 in each year.

EARNINGS PER SHARE
The Company  adopted FAS No. 128,  "Earnings  per Share," in fiscal 1998 and has
presented  both  basic  and  diluted  net  income  per  share  in the  financial
statements.  Basic net income per share of common stock is calculated  using the
weighted average number of common shares outstanding during each period. Diluted
net income per share includes the dilutive effect of stock options.


Note 2 - Merchandise Inventories:

Inventories  are valued  using an average  cost  method.  Under the average cost
method,  the Company  tracks  inventory  costs for  approximately  100 inventory
categories  which  are used to  classify  the  Company's  inventory.  Management
believes that  reporting  inventories  using the average cost method  results in
better  matching of revenues and costs and reporting on a basis more  consistent
with other  companies in its industry.  During the quarter ended April 29, 1995,
the Company  changed its method of  determining  the cost of  inventories to the
average  cost  method.  The  Company  had  previously  determined  the  cost  of
inventories using the last-in, first-out (LIFO) retail inventory method.

The  Company  capitalizes  certain  buying,  holding and  distribution  costs to
inventory  which at the end of the last three  fiscal  years were  approximately
$2.3 million, $2.2 million and $2.0 million,  respectively.  Buying, holding and
distribution  costs  charged to cost of sales in each of the  fiscal  years were
approximately $3.8 million, $3.5 million and $3.4 million, respectively.



<PAGE>




Note 3 - Property and Equipment:

Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>

                                                                            January 31                 January 25,
                                                                               1998                        1997
                                                                         ---------------            ----------------
<S> <C>
Land...............................................................      $         1,620            $            722
Buildings..........................................................                5,236                       4,401
Furniture, fixtures and equipment..................................               12,858                      11,596
Leasehold improvements.............................................               13,853                      12,396
                                                                         ---------------            ----------------
                                                                                  33,567                      29,115
Less - accumulated depreciation and amortization...................               15,734                      14,360
                                                                         ---------------            ----------------
                                                                         $        17,833            $         14,755
                                                                         ===============            ================


Depreciation and amortization  expense of approximately $.4 million was included
in cost of sales for each of the last three fiscal years.

Note 4 - Long-Term Debt:

  Long-term debt consists of (in thousands):
<CAPTION>

                                                                            January 31                 January 25,
                                                                               1998                        1997
                                                                         ---------------            ----------------

Industrial Development Revenue Bond;
    $45 of principal plus interest at 65% of
    prime, due quarterly to January 1, 2010,
    secured by land and corporate headquarters...................           $      2,160               $       2,340
Bank revolving lines of credit.....................................                2,100                       2,000
Other..............................................................                1,223                       1,020
                                                                         ---------------            ----------------
                                                                                   5,483                       5,360
Less - current maturities..........................................                  180                         180
                                                                         ---------------            ----------------
                                                                         $         5,303            $          5,180
                                                                         ===============            ================
</TABLE>

The Company has available an aggregate of $30.0 million from two banks under its
unsecured bank revolving lines of credit.  Interest is payable monthly at a rate
equal to the lower of the 30-day  Federal Funds Rate plus three  quarters of one
percent or the banks' prime interest rate.  The Company's  financing  agreements
contain certain restrictive covenants, none of which is presently significant to
the Company. At the Company's option, any outstanding balance at May 31, 2000 is
convertible  to four-year  term loans at the banks' prime  interest  rate and is
payable in monthly or quarterly installments.

At January  31,  1998,  maturities  of  long-term  debt,  exclusive  of the bank
revolving lines of credit, were $180,000 for each of the next five fiscal years.

Note  5 - Profit Sharing and Other Benefit Programs:

The Company  maintains a  noncontributory  profit sharing plan for all employees
who meet age and service requirements.  Contributions to the plan are determined
annually by the Board of  Directors  and were  $120,000,  $90,000  and  $75,000,
respectively, in each of the last three fiscal years.






<PAGE>



Additionally, the profit sharing plan includes a qualified salary reduction plan
under Section 401(k) of the Internal Revenue Code. Eligible  participants in the
Company's  401(k) Plan can elect to invest 1% to 15% of their pre-tax  earnings.
The Company's  contribution to the 401(k) Plan is at the discretion of the Board
of Directors,  who authorized contributions of the Company's common stock in the
amount of $80,000, $60,000 and $50,000,  respectively, in each of the last three
fiscal years.

The Company has  receivables  from  certain  officers in the amount of $515,000,
$436,000 and  $345,000,  in each of the last three fiscal  years,  respectively,
relating to premiums paid under split dollar life insurance policies.

Deferred  compensation  expense  relating to agreements  with certain  executive
officers  of  the  Company   approximated   $203,000,   $133,000  and  $123,000,
respectively, in each of the last three fiscal years.

Note 6 - Stock Option and Stock Purchase Loan Plans:

The  Company's  stock  option plan  provides  for the  granting of up to 650,000
common  shares to key  management  employees.  Options to purchase the Company's
stock are  granted  at no less than the market  value at the date of grant,  are
exercisable  after one to three years and expire  after eight to ten years.  The
Company  applies the intrinsic  value based method of  accounting  prescribed by
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees," in accounting for its stock  options.  Accordingly,  the Company has
not recognized any related compensation expense in its Statements of Income.

Changes in options  under the plan for the three  years  ended  January 31, 1998
were as follows:
<TABLE>
<CAPTION>
<S> <C>
                                                                      Weighted                                         Weighted
                                                                       Average                                          Average
                                              Options              Exercise Price            Exercisable           Exercise Price
                                         -----------------      ---------------------      --------------      ---------------------
Outstanding - January 28, 1995                     398,400              $  9.75               238,400                 $  8.11
Granted............................                 77,000                 8.31
Exercised..........................                (7,000)                 7.63
                                         -----------------
                                                                                                                         9.18
Outstanding - January 27, 1996                     468,400                 9.54               293,400
Surrendered........................                (4,600)                10.07
                                         -----------------

Outstanding - January 25, 1997                     463,800                 9.54               375,534                    9.75
Granted............................                 77,800                 9.63
Exercised..........................               (33,466)                 7.06
                                         -----------------

Outstanding - January 31, 1998                     508,134                 9.71               405,723                    9.81
                                         =================
</TABLE>


Additional  information  regarding stock options outstanding at January 31, 1998
follows:
<TABLE>
<CAPTION>
<S> <C>

                                                           Weighted               Weighted                                Weighted
         Range of                                           Average                Average                                Average
         Exercise                    Options               Exercise               Remaining                               Exercise
          Prices                   Outstanding               Price            Contractual Life          Exercisable         Price
--------------------------      ------------------      ---------------    ---------------------       ------------      ----------
$6.00 - $7.69........                      185,000        $  6.87               3.7 years                   185,000        $  6.87
$8.31 - $9.63........                      263,634           8.99               5.5 years                   161,223           8.79
$21.75...............                       59,500          21.75               3.6 years                    59,500          21.75
                                ------------------                                                     ------------
$6.00 - $21.75.......                      508,134           9.71               4.6 years                   405,723           9.81
                                ==================                                                     ============
</TABLE>

FAS No. 123, "Accounting for Stock - Based  Compensation",  requires the Company
to make  certain  proforma  disclosures  as if the fair  value  based  method of
accounting  had been applied to the  Company's  stock  option  grants made since
January 1995.  Accordingly,  the Company determined the grant date fair value of
the  options  granted  in fiscal  years  1998 and 1996 using the Black - Scholes
option pricing model with the following  weighted  average  assumptions  for the
respective year:  expected volatility of 44% and 43%, risk-free interest rate of
6.5% and 6.3% and  expected  life of four  years.  Had  compensation  cost  been
determined  including  the weighted  average  fair-value  of $4.09 and $3.46 for
options  granted in fiscal  years 1998 and 1996 (which  ratably  vest over three
years), the Company's proforma net income (and basic net income per share) would
be  $4,871,000  ($.97) in fiscal  1998,  $4,556,000,  ($.90) in fiscal  1997 and
$2,695,000, ($.54) in fiscal 1996.

Under the Company's Stock Purchase Loan Plan, the Company has loans with sixteen
officers approximating $1.3 million. The Plan annually provides for reduction of
a portion of interest  payable on the loans based on meeting  certain  operating
targets,  as well as the opportunity for the officer to receive a reduction of a
portion of the principal  balance of the loan if the officer remains an employee
of  the  Company  for  seven  years  and  maintains   ownership  of  the  stock.
Compensation  expense related to this program was $147,000,  $93,000 and $41,000
for the last three fiscal years,  respectively.  At the end of fiscal 1998,  the
Company has accrued  interest  receivable  from these  officers in the amount of
$24,000.


Note 7 - Provision for Income Taxes:

Significant components of the Company's deferred income tax liabilities (assets)
are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>

                                                                         Fiscal Year Ended
                                                        --------------------------------------------------------
                                                             1998                1997                 1996
                                                        --------------      --------------       ---------------
Deferred tax liabilities:
 Depreciation ...............................           $        1,890      $        1,558       $         1,473
 Other items  ...............................                      444                 492                   544
                                                        --------------      --------------       ---------------
    Total deferred tax liabilities ..........                    2,334               2,050                 2,017
Deferred tax assets .........................                     (694)               (518)                 (379)
                                                        --------------      --------------       ---------------
Net deferred tax liabilities ................           $        1,640      $        1,532       $         1,638
                                                        ==============      ==============       ===============


The provision for income taxes consists of (in thousands):
<CAPTION>


                                                                         Fiscal Year Ended
                                                        --------------------------------------------------------
                                                             1998                1997                 1996
                                                        --------------      --------------       ---------------
Current:
  Federal  ..................................           $        2,419      $        2,287       $         1,272
  State  ....................................                      526                 503                   366
                                                        --------------      --------------       ---------------
                                                                 2,945               2,790                 1,638
Deferred  ...................................                      108                (106)                   36
                                                        --------------      --------------       ---------------
                                                        $        3,053      $        2,684       $         1,674
                                                        ==============      ==============       ===============

</TABLE>


<PAGE>



The effective income tax rates consist of (in thousands):
<TABLE>
<CAPTION>
<S> <C>

                                                                          Fiscal Year Ended
                                                        --------------------------------------------------------
                                                             1998                1997                 1996
                                                        --------------      --------------       ---------------
Income taxes at federal
  statutory rate (34%) ......................           $        2,731      $        2,480       $         1,498
State income taxes,
   net of federal benefit ...................                      339                 306                   245
Other - net .................................                      (17)               (102)                  (69)
                                                        --------------      --------------       ---------------
                                                        $        3,053      $        2,684       $         1,674
                                                        ==============      ==============       ===============
Effective income tax rate ...................                     38.0%               36.8%                 38.0%
                                                        ==============      ==============       ===============
</TABLE>


Note 8 - Commitments:

The Company leases all of its stores under varying terms and arrangements  which
generally  provide renewal options and contingent  rentals based on a percentage
of gross sales.  Total rent expense under the leases  approximated $9.8 million,
$8.6 million and $7.8 million in each of the last three years, respectively.

The future minimum  payments under operating leases as of the end of fiscal 1998
aggregate $32.7 million and are payable as follows: fiscal 1999 - $10.4 million,
fiscal  2000 - $8.2  million,  fiscal  2001 - $6.3  million,  fiscal 2002 - $4.2
million, fiscal 2003 - $2.5 million and $1.1 million thereafter.

The Company leases two  properties  from a shareholder  and an immediate  family
member. Rent expense included approximately  $210,000,  $206,000 and $197,000 in
fiscal 1998, 1997 and 1996,  respectively,  paid to these related  parties.  The
Company is also obligated  under these lease  agreements to pay minimum  rentals
approximating  $217,000  per  year  through  fiscal  2002 and  $74,000  per year
thereafter through fiscal 2006.

Note 9 - Nonrecurring Items:

During  fiscal  1997,  other  income,  net,  included  non-recurring  gains  of:
$1,083,000  ($671,000  after  tax,  or $0.13 per basic  share),  net of  related
expenses and incentives  associated  with lease buyouts of two former  locations
and $295,000 ($.06 per basic share) of non-taxable insurance proceeds.



<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
S&K Famous Brands, Inc.

In our opinion,  the accompanying  balance sheets and the related  statements of
income, of changes in shareholders'  equity and of cash flows present fairly, in
all material  respects,  the financial  position of S&K Famous  Brands,  Inc. at
January 31, 1998 and January 25, 1997, and the results of its operations and its
cash flows for each of the three fiscal  years in the period  ended  January 31,
1998,  in  conformity  with  generally  accepted  accounting  principles.  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 of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.


PRICE WATERHOUSE LLP

Norfolk, Virginia
March 17, 1998


<PAGE>