UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------

                                    FORM 10-Q

(Mark One)
 [ X ]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
              SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended                October 31, 1998       
------------------------------------------------------------------------------

                                            OR

 [    ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
              SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number        0-19526                              
                                 Goody's Family Clothing, Inc.              
              (Exact name of registrant as specified in its charter)

         Tennessee                                     62-0793974          
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification Number)
400 Goody's Lane,               Knoxville, Tennessee              37922    
(Address of principal executive offices)                        (Zip Code)

                            (423) 966-2000                        
              (Registrant's telephone number, including area code)

         (Former name,  former  address and former fiscal year, if changed since
last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate                   the  number  of  shares  outstanding  of  each of the
                           issuer's  classes of common  stock,  as of the latest
                           practicable   date.   Common  Stock,  no  par  value,
                           33,330,630 shares outstanding as of December 3, 1998.




<PAGE>


                          Goody's Family Clothing, Inc.
                               Index to Form 10-Q
                     Quarterly Period Ended October 31, 1998



Part I - Financial Information:

     Item 1 - Financial Statements

         Consolidated Statements of Operations.......................   3

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

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

         Notes to Consolidated Financial Statements..................   6 - 7

         Independent Accountants' Review Report......................   8

     Item 2 - Management's Discussion and Analysis of Financial Condition and
                Results of Operations................................   9 - 14

     Item 3 - Quantitative and Qualitative Disclosures about Market Risk  14


Part II - Other Information.............................................  15
          -----------------

     Item 1.  Legal Proceedings
     Item 2.  Changes in Securities and Use of Proceeds
     Item 3.  Defaults upon Senior Securities
     Item 4.  Submission of Matters to a Vote of Security Holders
     Item 5.  Other Information
     Item 6.  (a)  Exhibits
     Item 6.  (b)  Reports on Form 8-K


Signatures.............................................................. 16















<PAGE>



PART 1 - FINANCIAL INFORMATION

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

Item 1  - Consolidated Financial Statements

Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Statements of Operations - Unaudited
(In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                     Thirteen                            Thirty-nine
                                                  Weeks Ended                           Weeks Ended           
                                           October 31,       November 1,        October 31,       November 1,
                                             1998                1997               1998               1997   
                                          -------------      ------------       -------------     ------------
<S>                                      <C>                <C>                 <C>               <C>

Sales                                     $    251,335       $    234,908       $    727,538      $    637,171
Cost of sales and occupancy expenses           186,789            172,874            523,928           461,990
                                          ------------       ------------       ------------      ------------
Gross profit                                    64,546             62,034            203,610           175,181

Selling, general and administrative
   expenses                                     59,614             53,335            173,150           150,380
                                          ------------       ------------       ------------      ------------
Earnings from operations                         4,932              8,699             30,460            24,801

Interest expense                                    99                151                280               370
Investment income                                  407                308              1,405             1,186
                                          ------------       ------------       ------------      ------------
Earnings before income taxes                     5,240              8,856             31,585            25,617

Provision for income taxes                       1,973              3,321             11,892             9,606
                                          ------------       ------------       ------------      ------------

Net earnings                              $      3,267       $      5,535       $     19,693      $     16,011
                                          ============       ============       ============      ============

Earnings per common share
   Basic                                  $       0.10       $       0.17       $       0.59      $       0.49
                                          ============       ============       ============      ============
   Diluted                                $       0.10       $       0.16       $       0.57      $       0.48
                                          ============       ============       ============      ============

Weighted average common
shares outstanding
   Basic                                        33,328             32,651             33,099            32,498
                                          ============       ============       ============      ============
   Diluted                                      34,322             33,950             34,393            33,587
                                          ============       ============       ============      ============


</TABLE>







See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.


<PAGE>


Goody's Family Clothing, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>

                                                               October 31,        January 31,       November 1,
                                                                 1998                1998               1997   
                                                              (unaudited)                           (unaudited)
                                                              -----------        -----------        ----------   
<S>                                                          <C>                 <C>               <C>

ASSETS
Current Assets
   Cash and cash equivalents                                 $     27,371        $     64,174      $     28,947
   Investments                                                          -               1,555             1,518
   Inventories                                                    266,384             151,667           215,234
   Accounts receivable and other current assets                    21,458              10,519            17,153
                                                             ------------        ------------      ------------
   Total current assets                                           315,213             227,915           262,852
Property and equipment, net                                       104,193              97,468            96,376
Other assets                                                        3,030               2,933             3,205
                                                             ------------        ------------      ------------

   Total assets                                              $    422,436        $    328,316      $    362,433
                                                             ============        ============      ============


LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
    Accounts payable                                         $    172,580        $    105,231      $    134,845
    Accrued expenses                                               46,678              42,194            46,404
    Income taxes payable                                              544               6,674                -
    Current portion of long-term debt                                 263                 263               239
                                                             ------------        ------------      ------------
    Total current liabilities                                     220,065             154,362           181,488
Long-term debt                                                        608                 608            25,871
Other long-term liabilities                                         3,476               3,023             2,757
Deferred income taxes                                              10,528              10,266             9,659
                                                             ------------        ------------      ------------
    Total liabilities                                             234,677             168,259           219,775
                                                             ------------        ------------      ------------

Commitments and Contingencies


Shareholders' Equity
    Preferred stock $1.00 par value;
      Authorized - 2,000,000 shares;
        Issued and outstanding - none
    Class B Common stock no par value;
      Authorized - 50,000,000 shares;
        Issued and outstanding - none
    Common stock no par value;
      Authorized - 50,000,000 shares;
        Issued and outstanding - 33,330,430, 32,703,716
        and 32,691,016 shares, respectively                        28,063              25,097            25,037
Paid-in capital                                                     9,764               4,721             4,657
Retained earnings                                                 149,932             130,239           112,964
                                                             ------------        ------------      ------------
         Total shareholders' equity                               187,759             160,057           142,658
                                                             ------------        ------------      ------------

Total liabilities and shareholders' equity                   $    422,436        $    328,316      $    362,433
                                                             ============        ============      ============

</TABLE>

See accompanying Notes to Consolidated Financial Statements and Independent
Accountants' Review Report.


<PAGE>



Goody's Family Clothing, Inc.  and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
(In thousands)
<TABLE>
<CAPTION>

                                                                                   Thirty-nine Weeks Ended     
                                                                                  October 31,      November 1,
                                                                                    1998                1997   
                                                                                 ------------       -----------
<S>                                                                              <C>               <C>

Cash Flows from Operating Activities
Net earnings                                                                       $   19,693      $     16,011
Adjustments to reconcile net earnings to net cash used
  in operating activities:
     Depreciation and amortization                                                     10,140             8,438
     Net loss on asset disposals and write-down                                           719               581
     Changes in assets and liabilities:
         Inventories                                                                 (114,717)         (107,740)
         Accounts payable                                                              42,983            58,609
         Income taxes                                                                 (13,218)           (8,619)
         Other assets and liabilities                                                   3,617             6,395 
                                                                                 ------------      -------------
             Cash used in operating activities                                        (50,783)          (26,325)
                                                                                 -------------     -------------

Cash Flows from Investing Activities
Acquisitions of property and equipment                                                (17,622)          (16,452)
Proceeds from sale of property and equipment                                               38                12
                                                                                 ------------      ------------
             Cash used in investing activities                                        (17,584)          (16,440)
                                                                                 -------------     -------------

Cash Flows from Financing Activities
Net advances on long-term debt                                                              -            25,000
Exercise of stock options                                                               8,009             3,046
Changes in cash management accounts                                                    23,555               350
                                                                                 ------------      ------------
             Cash provided by financing activities                                     31,564            28,396
                                                                                 ------------      ------------

Cash and cash equivalents
Net decrease for the period                                                           (36,803)          (14,369)
Balance, beginning of period                                                           64,174            43,316 
                                                                                 ------------      -------------
Balance, end of period                                                           $     27,371      $     28,947 
                                                                                 ============      =============

Supplemental Disclosures
     Income tax payments                                                         $     20,022      $     16,857
     Interest payments                                                                    212               199


</TABLE>











See accompanying Notes to Consolidated Financial Statements and Independent 
Accountants' Review Report.


<PAGE>



Goody's Family Clothing, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

(1)  Basis of Presentation

     The accompanying  condensed  consolidated  financial  statements of Goody's
Family Clothing,  Inc. and  subsidiaries  (the "Company") are unaudited and have
been  prepared  pursuant  to the rules and  regulations  of the  Securities  and
Exchange Commission. Although certain information normally included in financial
statements prepared in accordance with generally accepted accounting  principles
has been condensed or omitted,  the Company  believes that the  disclosures  are
adequate to make the information presented not misleading. In the opinion of the
Company's  management,   the  accompanying   unaudited  condensed   consolidated
financial statements include all adjustments, consisting primarily of normal and
recurring  adjustments,  necessary  for a fair  presentation  of  the  Company's
financial position, results of operations and cash flows for the interim periods
presented.  Due to the seasonal nature of the Company's business, the results of
operations for the interim periods are not necessarily indicative of the results
that may be achieved for the entire year. The condensed  consolidated  financial
statements should be read in conjunction with the audited consolidated financial
statements  and the notes thereto  contained in the Company's 1997 Annual Report
on Form 10-K for its fiscal year ended January 31, 1998.

 (2) Credit Arrangements

In May 1998, the Company amended its credit agreement with a consortium of banks
for an unsecured revolving line of credit which provides for cash borrowings for
general  corporate  purposes as well as for the issuance of letters of credit of
up to  $130,000,000  and which expires in May 2001.  The Company is committed to
pay (i) interest on the cash borrowings at a fluctuating base rate or LIBOR plus
an applicable margin, as defined, (ii) letter of credit fees based on the number
of days a letter of credit is outstanding  times the applicable fee and (iii) an
annual  commitment  fee payable  quarterly in advance.  The terms of this credit
agreement  require,  among  other  things,  maintenance  of  minimum  levels  of
shareholders' equity, compliance with certain financial ratios and Mr. Robert M.
Goodfriend  remaining as Chairman of the Board or Chief Executive Officer of the
Company,  and place  restrictions on additional  indebtedness,  asset disposals,
investments and capital expenditures.

(3)  Earnings per Share

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings  per  Share"  as  required  in the  fourth  quarter  of  fiscal  1997.
Accordingly, all previously reported earnings per share and related data for the
periods  ended  November  1, 1997  have been  restated  to  conform  to this new
standard.  Basic  earnings per common share is computed by dividing net earnings
by the weighted  average number of common shares  outstanding.  Diluted earnings
per common share is computed by dividing  net  earnings by the weighted  average
number of common  shares  outstanding  and  potentially  dilutive  common shares
(solely from the effect of stock options outstanding).

In June 1998, the Company's  Board of Directors  authorized a two-for-one  stock
split to be  effected  as a dividend  consisting  of one share of the  Company's
common stock for each share outstanding. The stock dividend was paid on July 17,
1998 to  shareholders  of record at the close of business  on July 1, 1998.  All
previously  reported  earnings per share and related data for the periods  ended
November 1, 1997 have been restated to reflect such two-for-one stock split.



<PAGE>


Goody's Family Clothing, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - continued
(Unaudited)

(4) Recent Accounting Pronouncements

Segment Reporting

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  About  Segments of an
Enterprise and Related  Information"  ("SFAS No. 131").  SFAS No. 131, which was
effective  beginning  with the  Company's  fiscal  year  1998,  establishes  new
standards for reporting  information  about key segments by public  enterprises.
The Company does not expect the implementation of SFAS No. 131 to have an effect
on its current reporting and disclosure practices.

Accounting for Costs of Computer Software

In  March  1998,  the  American  Institute  of  Certified  Public   Accountants'
Accounting  Standards Executive Committee issued Statement of Position No. 98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use" ("SOP No. 98-1"). SOP No. 98-1, which is effective  beginning with
the Company's fiscal year 1999,  requires that certain costs incurred to develop
or obtain software for internal use be capitalized. SOP No. 98-1 will be adopted
for the  Company's  fiscal year ending  January 29, 2000 and is not  expected to
have a material effect on the Company's financial statements.

 (5) Reclassifications

Certain  reclassifications  have been made to the financial  statements of prior
periods to conform to the current period presentation.


<PAGE>



INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Board of Directors and Shareholders
Goody's Family Clothing, Inc.
Knoxville, Tennessee:

We have  reviewed the  accompanying  condensed  consolidated  balance  sheets of
Goody's  Family  Clothing,  Inc.  and  subsidiaries  as of October  31, 1998 and
November 1, 1997 and the related consolidated  statements of operations and cash
flows for the thirteen and thirty-nine week periods then ended.  These financial
statements are the responsibility of the Company's management.

We  conducted  our  reviews in  accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial  information consists principally of applying analytical procedures to
financial data and of making inquiries of persons  responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the  expression  of an opinion  regarding the  financial  statements  taken as a
whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should
be made to such financial statements for them to be in conformity with generally
accepted accounting principles.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the consolidated balance sheet of Goody's Family Clothing,  Inc. and
subsidiaries as of January 31, 1998 and the related  consolidated  statements of
operations,  shareholders'  equity  and cash  flows for the year then ended (not
presented  herein);  and in our report  dated March 18,  1998,  we  expressed an
unqualified  opinion  on  those  financial  statements.   In  our  opinion,  the
information set forth in the accompanying  condensed  consolidated balance sheet
as of January 31, 1998 is fairly stated, in all material  respects,  in relation
to the consolidated balance sheet from which it has been derived.

/s/Deloitte & Touche LLP
Atlanta, Georgia
November 17, 1998











<PAGE>


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

Forward-looking Statements

This Quarterly  Report contains  certain  forward-looking  statements  which are
based upon current expectations,  plans and estimates and involve material risks
and uncertainties  including,  but not limited to, weather conditions,  customer
demand  and  trends  in the  apparel  and  retail  industry  and  acceptance  of
merchandise  acquired for sale by the Company,  the effectiveness of advertising
and  promotional  events,  the impact of  competitors'  pricing and  promotional
activity  and store  expansion,  the  ability to enter into leases for new store
locations,   individual  store  performance,   including  new  stores,  employee
relations,  the general economic conditions within the Company's markets and the
effect of the Year 2000 issue on the Company and third parties who provide goods
and services to the Company. Any "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange Act of 1934, as amended,  which generally can be identified
by the use of  forward-looking  terminology  such as  "may,"  "will,"  "expect,"
"estimate,"  "anticipate,"  "believe," "target," "plan," "project" or "continue"
or the negatives thereof or other variations thereon or similar terminology, are
made on the basis of management's plans and current analysis of the Company, its
business and the industry as a whole. The Company does not undertake to publicly
update or revise its  forward-looking  statements  even if  experience or future
changes make it clear that any projected  results  expressed or implied  therein
will  not be  realized.  Additional  information  on  risk  factors  that  could
potentially affect the Company's financial results may be found in the Company's
public  filings with the  Securities  and Exchange  Commission.  Certain of such
filings may be accessed  through the  Securities and Exchange  Commission's  web
site, http://www.sec.gov.

Results of Operations

The following table sets forth unaudited results of operations,  as a percent of
sales, for the periods indicated:
<TABLE>
<CAPTION>

                                                     Thirteen Weeks Ended            Thirty-nine Weeks Ended   
                                                   October 31,    November 1,       October 31,    November 1,
                                                      1998            1997             1998            1997    
                                                   ------------   ------------      ------------   ------------
<S>                                               <C>             <C>              <C>              <C>    

    Sales                                              100.0%        100.0%           100.0%           100.0%
    Cost of sales and occupancy expenses                74.3          73.6             72.0             72.5
                                                   ---------      --------          -------        ---------
    Gross profit                                        25.7          26.4             28.0             27.5
    Selling, general, and administrative expenses       23.7          22.7             23.8             23.6
                                                   ---------      --------          -------        ---------
    Earnings from operations                             2.0           3.7              4.2              3.9
    Interest expense                                     0.1           -                0.1              0.1
    Investment income                                    0.2           0.1              0.2              0.2
                                                   ---------      --------          -------        ---------
    Earnings before income taxes                         2.1           3.8              4.3              4.0
    Provision for income taxes                           0.8           1.4              1.6              1.5
                                                   ---------      --------          -------        ---------
    Net earnings                                         1.3%          2.4%             2.7%             2.5%
                                                   =========      ========          =======        =========
</TABLE>

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

Overview - During the third quarter of fiscal 1998,  the Company opened nine new
stores,  relocated one store and remodeled one store.  In addition,  the Company
opened four  temporary  stores in four new test markets during the third quarter
of fiscal 1998,  bringing the total number of stores in operation at October 31,
1998 to 246,  compared with 218 at November 1, 1997. During the third quarter of
fiscal  1997,  the Company  opened  eight new  stores,  relocated  four  stores,
remodeled  two stores and closed two stores.  Net earnings for the third quarter
of fiscal 1998 were $3,267,000,  or 1.3% of sales, compared with $5,535,000,  or
2.4% of sales, for the third quarter of fiscal 1997.

Sales - Sales for the third  quarter of fiscal  1998 were  $251,335,000,  a 7.0%
increase  over the  $234,908,000  in sales for the third quarter of fiscal 1997.
This increase of $16,427,000  primarily  consisted of additional  sales from new
and  transition  stores of  $24,805,000  which were offset by a 3.9% decrease in
comparable  store sales of  $8,378,000.  Comparable  store sales by month in the
third  quarter  of fiscal  1998  reflected  an  increase  of 3.8% in August  and
decreases  of  8.0%  in  September  and  7.3%  in  October   compared  with  the
corresponding  months in the third quarter of fiscal 1997. The Company  believes
that the decrease in the comparable  store sales for the third quarter of fiscal
1998  compared  with the third  quarter  of  fiscal  1997 was  primarily  due to
unseasonably hot weather conditions which prevailed in its markets.

     Gross  Profit - Gross  profit  for the third  quarter  of  fiscal  1998 was
$64,546,000,  or 25.7% of sales, a $2,512,000  increase over the  $62,034,000 in
gross profit, or 26.4% of sales, generated for the third quarter of fiscal 1997.
The 0.7% decrease in gross profit,  as a percent of sales,  in the third quarter
of fiscal 1998 compared with the third quarter of fiscal 1997 primarily consists
of (i) a 0.4%  increase  in cost of sales  driven by an  increase  in the mix of
products   sold  of  lower  margin   bottoms   merchandise   compared  with  the
corresponding  period of the  previous  fiscal year and (ii) a 0.3%  increase in
occupancy  costs which were not  leveraged  due to the  shortfall in  comparable
store sales.

Selling,   General   and   Administrative   Expenses  -  Selling,   general  and
administrative  expenses for the third quarter of fiscal 1998 were  $59,614,000,
or 23.7% of sales,  an  increase of  $6,279,000  from  $53,335,000,  or 22.7% of
sales,  for the third  quarter of fiscal  1997.  The 1.0%  increase  in selling,
general  and  administrative  expenses,  as a percent  of  sales,  for the third
quarter of fiscal 1998  compared  with the third quarter of fiscal 1997 resulted
primarily  from increases in (i) store salaries of 0.6%,  (ii)  advertising  and
promotional  expenses  of  0.5%,  (iii)  employee  benefits  of  0.3%  and  (iv)
depreciation and amortization expenses of 0.2%. These increases were offset by a
0.6% decrease in the Company's  Short-Term  Incentive Plan bonus expense for the
third quarter of fiscal 1998 compared with the third quarter of fiscal 1997.

Interest  Expense -  Interest  expense  for the  third  quarter  of fiscal  1998
decreased by $52,000 compared with the third quarter of fiscal 1997 primarily as
a result of lower  borrowings  during the third  quarter of fiscal 1998 compared
with the third quarter of fiscal 1997.

Investment  Income -  Investment  income for the third  quarter  of fiscal  1998
increased by $99,000 compared with the third quarter of fiscal 1997 primarily as
a result of an increase in invested funds during the period.

Income Taxes - The  provision  for income taxes for the third  quarter of fiscal
1998 was  $1,973,000,  an effective tax rate of 37.7% of earnings  before income
taxes,  compared  with  $3,321,000,  an effective  tax rate of 37.5% of earnings
before income taxes,  for the third quarter of fiscal 1997.  The increase in the
effective tax rate is primarily due to a modest  increase in the combined  state
income tax rates.

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

Overview - During the  thirty-nine  weeks ended  October 31,  1998,  the Company
opened 21 new stores,  relocated five stores,  remodeled three stores and closed
two stores.  In addition,  the Company opened four temporary  stores in four new
test markets during the third quarter of fiscal 1998,  bringing the total number
of stores in operation at October 31, 1998 to 246, compared with 218 at November
1, 1997.  During the  corresponding  period of the  previous  fiscal  year,  the
Company opened 19 new stores,  relocated eight stores,  remodeled two stores and
closed four stores.  Net earnings for the  thirty-nine  weeks ended  October 31,
1998 were $19,693,000, or 2.7% as a percent of sales, compared with $16,011,000,
or 2.5% as a percent of sales, for the thirty-nine weeks ended November 1, 1997.

Sales  -  Sales  for  the   thirty-nine   weeks  ended  October  31,  1998  were
$727,538,000,   a  14.2%  increase  over  the  $637,171,000  in  sales  for  the
corresponding  period of the previous  fiscal year. This increase of $90,367,000
consisted of (i) an increase in comparable store sales of $18,072,000,  or 3.0%,
over such sales for the  corresponding  period of the  previous  fiscal year and
(ii) additional sales from new and transition  stores of $72,295,000.  Sales for
the thirty-nine weeks ended October 31, 1998 were driven by customer  acceptance
of certain  brand-name and private label merchandise during the first six months
of fiscal 1998 and were  offset by the  comparable  store sales  decrease in the
third quarter of fiscal 1998.

Gross Profit - Gross profit for the thirty-nine weeks ended October 31, 1998 was
$203,610,000, or 28.0% of sales, a $28,429,000 increase over the $175,181,000 in
gross profit, or 27.5% of sales,  generated for the corresponding  period of the
previous fiscal year. The 0.5% increase in gross profit,  as a percent of sales,
for the  thirty-nine  weeks ended October 31, 1998 compared with the thirty-nine
weeks  ended  November  1, 1997  resulted  primarily  from an  increase in gross
margins  during  the first  six  months  of  fiscal  1998 and was  offset by the
decrease in gross margins in the third quarter of fiscal 1998.

Selling,   General   and   Administrative   Expenses  -  Selling,   general  and
administrative  expenses for the  thirty-nine  weeks ended October 31, 1998 were
$173,150,000,  or 23.8% of sales, an increase of $22,770,000 from  $150,380,000,
or 23.6% of sales, for the corresponding period of the previous fiscal year. The
0.2% increase in selling,  general and administrative  expenses, as a percent of
sales,  for the  thirty-nine  weeks ended  October 31,  1998  compared  with the
thirty-nine  weeks ended  November 1, 1997 resulted  primarily from increases in
(i) store  relocation  expenses  of 0.1%,  (ii)  depreciation  and  amortization
expenses of 0.1% and (iii) other selling, general and administrative expenses of
0.2% which were not leveraged  due to the  shortfall in comparable  store sales.
These  increases  were  offset by a 0.2%  decrease in the  Company's  Short-Term
Incentive  Plan bonus expense for the  thirty-nine  weeks ended October 31, 1998
compared with the thirty-nine weeks ended November 1, 1997.

Interest Expense - Interest expense for the thirty-nine  weeks ended October 31,
1998 decreased by $90,000 compared with the corresponding period of the previous
fiscal year  primarily as a result of lower  borrowings  during the  thirty-nine
weeks ended  October  31, 1998  compared  with the  corresponding  period of the
previous fiscal year.

Investment  Income - Investment  income for the thirty-nine  weeks ended October
31, 1998  increased by $219,000  compared with the  corresponding  period of the
previous  fiscal year  primarily  as a result of an  increase in invested  funds
during the period.

Income Taxes - The  provision for income taxes for the  thirty-nine  weeks ended
October 31, 1998 was  $11,892,000,  an  effective  tax rate of 37.7% of earnings
before income taxes, compared with $9,606,000, an effective tax rate of 37.5% of
earnings  before  income  taxes,  for the  corresponding  period of the previous
fiscal year. The increase in the effective tax rate is primarily due to a modest
increase in the effective state income tax rates.

Liquidity and Capital Resources

Financial  Position - The Company's  primary sources of liquidity are cash flows
from  operations,  including  credit terms from vendors and borrowings under its
credit  agreement.  At October  31,  1998,  the  Company's  working  capital was
$95,148,000  compared with  $81,364,000 at November 1, 1997. For the thirty-nine
week period ended October 31, 1998 compared with the corresponding period of the
previous year, (i) cash, cash equivalents and investment securities decreased by
$3,094,000,  (ii) net property and  equipment  increased  by  $7,817,000,  (iii)
inventories  increased by  $51,150,000  and (iv) accounts  payable  increased by
$37,735,000. The increase in inventories was primarily due to (i) a shortfall in
comparable  store sales during the third quarter of fiscal 1998,  (ii) the early
receipt  of  private  label  merchandise  and  (iii)  inventories  for  new  and
transition stores. Trade payables as a percent of inventories increased to 64.8%
at October 31, 1998 as compared with 62.7% at November 1, 1997.

     At October 31, 1998, the Company had an unsecured  revolving line of credit
from a  consortium  of banks,  which  provides for cash  borrowings  for general
corporate  purposes  as well as for the  issuance  of letters of credit of up to
$130,000,000  and  which  expires  on May 31,  2001.  The  terms of this  credit
agreement  require,  among  other  things,  maintenance  of  minimum  levels  of
shareholders' equity, compliance with certain financial ratios and Mr. Robert M.
Goodfriend  remaining as Chairman of the Board or Chief Executive Officer of the
Company,  and place  restrictions on additional  indebtedness,  asset disposals,
investments  and capital  expenditures.  At October 31, 1998, the Company had no
cash  borrowings  under this credit  agreement  and  $61,423,000  was in use for
outstanding  letters of credit,  compared with $25,000,000  outstanding for cash
borrowings  and  $48,812,000  utilized  for  outstanding  letters  of  credit at
November  1,  1997.  In  addition,  there  were no cash  borrowings  during  the
thirty-nine  weeks  ended  October  31,  1998  compared  with  an  average  cash
borrowings of $1,484,000  during the  thirty-nine  weeks ended  November 1, 1997
(with the highest  balance of $25,000,000  in October  1997).  Letters of credit
outstanding  averaged $69,477,000 during the thirty-nine weeks ended October 31,
1998 compared with  $56,075,000  during the thirty-nine  weeks ended November 1,
1997. The increase in the  outstanding  average  balance of letters of credit is
due to the increased emphasis on private label import  merchandise  programs and
new stores.  The  highest  balance of letters of credit  outstanding  during the
thirty-nine  weeks ended October 31, 1998 was  $84,090,000  (in September  1998)
compared  with  $71,937,000  (in June 1997) during the  thirty-nine  weeks ended
November 1, 1997.

Cash Flows - Operating  activities  used cash of $50,783,000 in the  thirty-nine
weeks ended October 31, 1998 compared with $26,325,000 used in the corresponding
period of the previous fiscal year. Cash used for increases in inventory  during
the  thirty-nine  weeks  ended  October  31,  1998 and  November  1,  1997  were
$114,717,000 and $107,740,000,  respectively.  Accounts payable provided cash of
$42,983,000 and $58,609,000 in the thirty-nine  weeks ended October 31, 1998 and
November 1, 1997,  respectively.  Depreciation  and  amortization  expenses were
$10,140,000 and $8,438,000 for the thirty-nine  weeks ended October 31, 1998 and
November 1, 1997, respectively.

Cash flows from investing activities reflected a $17,584,000 and $16,440,000 net
use of cash for the  thirty-nine  weeks ended  October 31, 1998 and  November 1,
1997, respectively. Cash was used primarily to fund capital expenditures for new
and existing  stores as well as relocated and remodeled  stores during the first
thirty-nine weeks of fiscal 1998 and 1997.

Cash provided by financing  activities for the  thirty-nine  weeks ended October
31, 1998 was $31,564,000  compared with $28,396,000 for the corresponding period
of the previous fiscal year. Cash management  programs maintained by the Company
provided cash of  $23,555,000  in the  thirty-nine  weeks ended October 31, 1998
compared with $350,000 for the corresponding period of the previous fiscal year.
During the  thirty-nine  weeks ended  October  31,  1998,  the Company  received
$2,966,000  in cash and  realized a tax  benefit of  $5,043,000,  compared  with
$1,649,000  in cash and a tax  benefit of  $1,397,000  during the  corresponding
period of the previous  year from the issuance of common stock upon the exercise
of stock options.

     Outlook  - The  Company's  comparable  store  sales  decreased  by  8.0% in
September 1998, 7.3% in October 1998 and 10.0% in November 1998 as compared with
the  corresponding  months of the  previous  fiscal year and,  as a result,  the
Company has more  inventories  on hand than  anticipated  at the end of November
1998.  The Company  believes that these sales  declines are due primarily to the
unseasonably hot weather conditions which prevailed in its markets. The Company,
where possible,  is reducing future commitments for merchandise  purchases.  The
Company  also  made  the  strategic   decision  to  warehouse  certain  unopened
merchandise,  purchased  for  sale  during  the 1998  fall  season  and  costing
approximately  $10,000,000 to $12,000,000,  until the beginning of the 1999 fall
season. For the balance of the 1998 winter season, the Company will be much more
aggressive in its  merchandise  pricing and promotional  activities,  which will
have a negative effect on gross margins and selling,  general and administrative
expenses.  Accordingly,  fourth  quarter  fiscal 1998 results are expected to be
significantly lower than last year's fourth quarter results.

     None the less,  management continues to believe in its long-term strategies
which generally include (i) increasing its store square footage a minimum of 10%
a year, (ii) improving its merchandise margins by reducing its dependence on low
margin  products,  such as basic denim and emphasizing  higher margin  products,
(iii)  modestly  expanding its private label import  program  providing  quality
products  with  designer  looks  to its  customers  at  value  prices  and  (iv)
leveraging selling, general and administrative expenses through comparable store
sales growth, new store sales growth and expense management programs.

     During fiscal November 1998, the Company completed its plans to open 31 new
stores,  five temporary stores in five new test markets,  relocate or remodel 10
stores and close two stores. As noted earlier, the Company opened 21 new stores,
four temporary stores,  relocated five stores, remodeled three stores and closed
two stores  during the  thirty-nine  weeks ended  October 31,  1998.  During the
fourth  quarter to date,  the Company has opened ten new stores,  one  temporary
store in a new test market and relocated two stores.  Management  estimates that
capital  expenditures  for  fiscal  1998 will  total  approximately  $30,000,000
primarily  for  opening  new and  temporary  stores,  relocating  or  remodeling
existing stores, purchasing computer systems and equipment and for other capital
expenditure requirements.

     During  fiscal 1999,  the Company plans to open a minimum of 30 new stores.
Management   estimates  that  capital   expenditures  will  total  approximately
$35,000,000 to $37,000,000 during fiscal 1999 for opening new stores, relocating
or remodeling existing stores, purchasing computer systems and equipment and for
other capital expenditure requirements.

The Company's  primary needs for capital resources are for the purchase of store
inventories,  capital  expenditures  and normal operating  expenses.  Management
believes that cash flows from  operations,  including  credit terms from vendors
and the borrowings  available under the credit agreement,  will be sufficient to
meet the Company's  operating and capital  expenditure  requirements  through at
least the remainder of fiscal 1998 and 1999.


Impact of the Year 2000 Issue

The Year 2000 issue is the result of computer  programs  being written using two
digits  rather than four to define the  applicable  year.  Any of the  Company's
computer programs that have  date-sensitive  software may recognize a date using
"00" as the year 1900  rather  than the year 2000.  This could  result in system
failure or miscalculations causing disruptions of operations,  including,  among
other things, a temporary inability to process transactions or engage in similar
normal business activities.

The State of Readiness

In the normal course of business,  the Company  initiated plans for replacements
or enhancements to its core business systems in fiscal 1996, which would also be
Year 2000  compliant.  During fiscal 1998, the Company  established an oversight
committee,  consisting of  individuals  from each of its  functional  areas,  to
review  all of the  Company's  computer  systems  and  programs,  as well as the
computer  systems of the third  parties  upon whose  data or  functionality  the
Company relies in any material  respect,  and to assess their ability to process
transactions  in the year 2000.  This  committee  meets  regularly to review the
progress of the Company's Year 2000 compliance issues. Based on this review, the
Company has determined  that a significant  portion of its computer  systems and
programs  still needs to be modified or replaced  and tested to ensure that they
are Year 2000 compliant. The Company is currently utilizing significant internal
and  external  resources  to modify or  replace  and test its  various  software
programs and systems for Year 2000 compliance. The Company plans to complete the
Year 2000 project  during the first half of fiscal 1999 and believes that all of
its Year 2000  compliance  issues will be adequately  addressed with the planned
modifications,   replacements  and  testing.  However,  if  such  modifications,
replacements  and testing are not completed before the year 2000, there could be
a material adverse impact on the Company.

 In addition,  the Company has  contacted  its  significant  suppliers and other
service  providers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 issues.  There can
be no guarantee  that the computer  systems of these third  parties on which the
Company's systems rely will be timely converted, or that a failure to convert by
another  company,  or a  conversion  that is  incompatible  with  the  Company's
systems,  would not have material adverse effect on the Company.  The Company is
not yet in a position to assess any third  party's  compliance  efforts with the
Year 2000  issues or the impact on the  Company if any third  party's  Year 2000
compliance efforts fail.

Costs to Address Year 2000  Issues

     During the thirty-nine  weeks ended October 31, 1998, the costs incurred by
the Company for Year 2000 issues amounted to approximately $278,000 for external
and  existing  internal  resources  that were  expensed as  incurred,  including
$21,000 for the  purchase of  software  and  hardware.  The  remaining  costs of
compliance for the Company are estimated at $940,000, which primarily consist of
(i)  $30,000  for the  purchase  of  software  and  hardware  and (ii)  $910,000
representing  external and existing internal  resources that will be expensed as
incurred.  The Company does not believe that the costs relating to the Year 2000
issues will have a material adverse impact on the Company.

Risks of Year 2000 Issues

The costs of the project and the date on which the Company plans to complete the
Year  2000   modifications   and  replacements  to  its  systems  are  based  on
management's  best estimates,  utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those  plans.  Specific  factors  that  might  cause such  material  differences
include,  but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, the
failure of third parties on which the Company relies and similar uncertainties.

Contingency Plans

In an attempt to  mitigate  the above  risks,  the  Company is in the process of
developing contingency plans for its core systems applications and any unplanned
interruptions  arising  from the date  change as well as from the failure of any
third party's compliance.

Seasonality and Inflation

The Company's  business is seasonal by nature.  The Christmas season  (beginning
the  Sunday  before   Thanksgiving  and  ending  on  the  first  Saturday  after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning  approximately  two weeks  before  Easter  Sunday  and  ending on the
Saturday preceding Easter) collectively accounted for approximately 34.5% of the
Company's  annual  sales based on the  Company's  last three  fiscal years ended
January 31,  1998.  In general,  sales  volume  varies  directly  with  customer
traffic,  which is  heaviest  during the third and fourth  quarters  of a fiscal
year.  Because of the  seasonality  of the Company's  business,  results for any
quarter are not  necessarily  indicative of the results that may be achieved for
the full year.

Inflation  can affect the costs  incurred by the Company in the  purchase of its
merchandise,  the leasing of its stores and certain  components  of its selling,
general, and administrative  expenses.  During the last three fiscal years ended
January 31, 1998,  inflation has not adversely affected the Company's  business,
although  there can be no  assurance  that  inflation  will not have a  material
adverse effect in the future.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

The  Company  has no  material  investments  or risks in market  risk  sensitive
instruments.





<PAGE>



PART II - OTHER INFORMATION


Item 1 - Legal Proceedings  -  None
----------------------------       

Item 2. -  Changes in Securities  -  None

Item 3.  -  Defaults Upon Senior Securities  -  None

Item 4.  -  Submission of Matters to a Vote of Security Holders  - None
---------------------------------------------------------------

Item 5.  -  Other Information  - None

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

        a)   Exhibits -

              10.56   Employment Agreement between Goody's Family Clothing, Inc.
                      and Bruce E. Halverson dated September 16, 1998.
              10.57   Employment Agreement between Goody's Family Clothing, Inc.
                      and Stanley B. Latacha dated September 16, 1998.
              10.58   Employment Agreement between Goody's Family Clothing, Inc.
                      and John J. Okvath, III dated September 16, 1998.
              10.59   Employment Agreement between Goody's Family Clothing, Inc.
                      and Jay D. Scussel dated September 16, 1998.
              10.60   Employment Agreement between Goody's Family Clothing, Inc.
                      and Marcus H. Smith, Jr. dated September 16, 1998.
              10.61   Employment Agreement between Goody's Family Clothing, Inc.
                      and Bobby Whaley dated September 16, 1998.
              10.62   Severance Agreement between Goody's Family Clothing, Inc.
                      and Regis J. Hebbeler dated September 16, 1998.
              10.63   Severance Agreement between Goody's Family Clothing, Inc.
                      and Hazel Ann Moxim dated September 16, 1998.
              10.64   Severance Agreement between Goody's Family Clothing, Inc.
                      and David G. Peek dated September 16, 1998.
              11      Statement re: Computation of Per Share Earnings
              15      Accountants' Awareness Letter
              27      Financial Data Schedule

        b)   Reports on Form 8-K  -  None



<PAGE>





                          GOODY'S FAMILY CLOTHING, INC.



                                   SIGNATURES



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





                                            GOODY'S FAMILY CLOTHING, INC.
                                            (Registrant)

Date:    December 3, 1998                   /s/ Robert M. Goodfriend       
         ----------------                   ----------------------------------
                                            Robert M. Goodfriend
                                            Chairman of the Board
                                            and Chief Executive Officer


Date:    December 3, 1998                   /s/ Harry M. Call                  
         ----------------                   -----------------------------------
                                            Harry M. Call
                                            Director, President and
                                            Chief Operating Officer


Date:    December 3, 1998                   /s/ Edward R. Carlin               
         ----------------                   ----------------------------------
                                            Edward R. Carlin
                                            Executive Vice President,
                                            Chief Financial Officer and
                                            Secretary
                                            (Principal Financial Officer)


Date:    December 3, 1998                   /s/ David G. Peek                   
         ----------------                   -----------------------------------
                                            David G. Peek
                                            Vice President, Corporate Controller
                                            and Chief Accounting Officer
                                            (Principal Accounting Officer)




<PAGE>