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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2003
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File No. 1-8899

Claires Stores, Inc.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 59-0940416                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|3 S.W. 129th Avenue, Pembroke Pines, Florida                   |  | 33027                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (954) 433-3900

Securities registered pursuant to Section 12(b) of the Act:

|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of each class          |  | Name of each exchange on which registered
|                             |  |                                          
|Common Stock, $.05 par value |  | New York Stock Exchange, Inc.            

Securities registered pursuant to Section 12(g) of the Act:

|                                                        
|--------------------------------------------------------
|Title of each class
Class A Common Stock, $.05 par value

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 o

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

As of the last business day of the registrants most recently completed
second fiscal quarter, the aggregate market value of the 42,555,628 shares of
Class A Common Stock and Common Stock held by non-affiliates of the registrant
was $713,232,325. All outstanding shares of Class A Common Stock and Common
Stock, except for shares held by executive officers and members of the Board of
Directors and their affiliates, are deemed to be held by non-affiliates.

At March 31, 2003, there were outstanding 46,147,991 shares of
registrants Common Stock, $.05 par value, and 2,691,396 shares of the
registrants Class A Common Stock, $.05 par value.

DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement for the 2003 Annual Meeting of Stockholders, to be
filed no later than 120 days after the end of the registrants fiscal year
covered by this report, is incorporated by reference into Part III of this
report.



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|                                                  |                                                                                                          |  |  |  |  |  |  | 
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.                                          
|                                                  | Item 1. Business                                                                                        
|                                                  | Item 2. Properties                                                                                      
|                                                  | Item 3. Legal Proceedings                                                                               
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                             
|PART II                                          
|                                                  | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                           
|                                                  | Item 6. Selected Financial Data                                                                         
|                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations           
|                                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                     
|                                                  | Item 8. Financial Statements and Supplementary Data                                                     
|                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            
|PART III.                                        
|                                                  | Item 10. Directors and Executive Officers of the Registrant.                                            
|                                                  | Item 11. Executive Compensation.                                                                        
|                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|                                                  | Item 13. Certain Relationships and Related Transactions.                                                
|                                                  | Item 14. Controls and Procedures                                                                        
|PART IV.                                         
|                                                  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                                
|SIGNATURE                                        
|CERTIFICATION                                    
|AMENDED & RESTATED BYLAWS                        
|MANAGEMENT DEFERRED COMPENSATION                 
|PROMISSORY NOTE                                  
|CLARIFICATION OF EMPLOYMENT AGREEMENT            
|SUBSIDIARIES OF THE COMPANY                      
|CONSENT OF KPMG LLP                              
|CERTIFICATIONS ACTING CO-CHIEF EXECUTIVE OFFICERS
|CERTIFICATION OF CHIEF FINANCIAL OFFICER         



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TABLE OF CONTENTS

|         |                                                                                                        |          |    |    | 
|-------- | ------------------------------------------------------------------------------------------------------ | -------- | -- | -- | 
|Item     |                                                                                                        | Page No.
|         |                                                                                                        |         
|PART I   |                                                                                                        |          | 3  |   
|         | Item 1.Business                                                                                        |          |    | 3  | 
|         | Item 2.Properties                                                                                      |          |    | 7  | 
|         | Item 3.Legal Proceedings                                                                               |          |    | 8  | 
|         | Item 4.Submission of Matters to a Vote of Security Holders                                             |          |    | 8  | 
|PART II  |                                                                                                        |          | 9  |   
|         | Item 5.Market for Registrants Common Equity and Related Stockholder Matters                           |          |    | 9  | 
|         | Item 6.Selected Financial Data                                                                         |          |    | 10 | 
|         | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations           |          |    | 11 | 
|         | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    |          |    | 25 | 
|         | Item 8.Financial Statements and Supplementary Data                                                     |          |    | 26 | 
|         | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            |          |    | 46 | 
|PART III |                                                                                                        |          | 46 |   
|         | Item 10.Directors and Executive Officers of the Registrant                                             |          |    | 46 | 
|         | Item 11.Executive Compensation                                                                         |          |    | 46 | 
|         | Item 12.Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |          |    | 46 | 
|         | Item 13.Certain Relationships and Related Transactions                                                 |          |    | 46 | 
|         | Item 14.Controls and Procedures                                                                        |          |    | 46 | 
|PART IV  |                                                                                                        |          | 47 |   
|         | Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |          |    | 47 | 

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Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995, or the Act, provides a
safe harbor for forward-looking statements made by or on our behalf. We and
our representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this and other
filings with the Securities and Exchange Commission and in our press releases
and reports to shareholders. All statements which address operating
performance, events or developments that we expect or anticipate will occur in
the future, including statements relating to new store openings, customer
demand, future operating results, are forward-looking statements within the
meaning of the Act and as defined in Section 21E of the Securities Exchange Act
of 1934, as amended. The forward-looking statements are and will be based on
managements then current views and assumptions regarding future events and
operating performance and we assume no obligation to update any forward-looking
statement. Forward-looking statements involve known or unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences include but are not limited to: fluctuations in sales and
same-store sales results, fashion trends, dependence on foreign suppliers,
competition from other retailers, relationships with mall developers and
operators, general economic conditions, success of joint ventures and
relationships with and reliance upon third parties, potential difficulties or
delays in identifying, attracting and retaining qualified individuals to serve
in senior management positions, uncertainties generally associated with
specialty retailing, and the other factors referred to herein including, but
not limited to, the items discussed in Part II, Item 7 under the caption
Managements Discussion and Analysis of Financial Condition and Results of
OperationsCertain Risk Factors Relating to our Business. Unless the context
requires otherwise, all references to the company, we, us or our
include Claires Stores, Inc. and its subsidiaries.




PART I.




Item 1. Business

General

We are a leading mall-based retailer of value-priced fashion accessories for
pre-teens and teenagers as well as young adults through our wholly-owned
subsidiaries, Claires Boutiques, Inc., which also operates through its Icing
by Claires division, Claires Puerto Rico Corp., Claires Canada Corp.,
Claires Accessories UK Ltd., Bijoux One Trading GmbH, Claires Switzerland
GmbH, Claires Germany GmbH (Bijoux, which are our stores located in
Switzerland, Austria and Germany), Claires France and Claires Nippon Co.
Ltd., which is our 50%-owned joint venture with Aeon Co, Ltd. (f/k/a Jusco Co.,
Ltd.). We are primarily organized based on our geographic markets, which
include our North American operations and our International operations.

As of March 31, 2003 we operated a total of 2,925 stores in all 50 states of
the United States, Canada, the Caribbean, the United Kingdom, Switzerland,
Austria, Germany, France, Ireland and Japan. The stores are operated mainly
under the trade names Claires Boutiques, Claires Accessories,
Afterthoughts, The Icing, Icing by Claires, and Bijoux One. We are in
the process of transitioning our Afterthoughts stores to Icing by Claires
stores to capitalize on the Claires brand name.

We incorporated in 1961 as a Delaware corporation. In June 2000, we completed
our reincorporation from the state of Delaware to the State of Florida through
a merger transaction with one of our wholly-owned subsidiaries.

Our executive offices are located at 3 S.W. 129 Avenue, Pembroke Pines, Florida
33027, our telephone number is (954) 433-3900 and our internet address is
www.claires.com. Through our website, we make available free of charge, as
soon as reasonably practicable after such information has been filed or
furnished to the Securities and Exchange Commission, our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports. The reference to

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our website does not constitute incorporation by reference of the information
contained on our website, and the information contained on the website is not
part of this Form 10-K.

Business Description

We specialize in selling value-priced fashion accessories designed to
predominantly appeal to pre-teen and teenage females as well as young adults.
We have two store concepts: Claires Accessories, which caters to
fashion-conscious girls and teens in the 7 to 14 age range, and Icing by
Claires, which caters to fashion-conscious teens and young women in the 15 to
26 age range. Our merchandise typically ranges in price between $2 and $20,
with the average product priced at about $5. Our stores share a similar format
and our different store concepts and tradenames allow us to have multiple store
locations in a single mall. Although we face competition from a number of
small specialty store chains and others selling fashion accessories, we believe
that our stores comprise the largest and among the most successful chain of
specialty retail stores in the world, devoted to the sale of value-priced
pre-teen and teenage fashion accessories.

Our sales are divided into two principal product categories:



| |  |  | JewelryCostume jewelry, earrings and ear piercing services; and                  
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | AccessoriesOther fashion accessories, hair ornaments, totebags and novelty items.

The following table compares our sales of each product category for the last
three fiscal years (dollars in thousands):

|            |  |                   |           |              |  |              |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|----------- |  | ----------------- | --------- | ------------ |  | ------------ | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|            |  | Fiscal Year Ended
|            |  |                  
|            |  | Feb. 1, 2003      |           | Feb. 2, 2002 |  | Feb. 3, 2001
|            |  |                   |           |              |  |             
|Jewelry     |  | $                 | 481,686   |              |  |              | 48.1  | % |  | $ | 423,321 |  |  |  | 46.1  | % |  | $ | 473,529 |  |  |  | 50.0  | %
|Accessories |  |                   | 519,851   |              |  |              | 51.9  | % |  |   | 495,416 |  |  |  | 53.9  | % |  |   | 473,186 |  |  |  | 50.0  | %
|            |  |                   |           |              |  |              |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|            |  | $                 | 1,001,537 |              |  |              | 100.0 | % |  | $ | 918,737 |  |  |  | 100.0 | % |  | $ | 946,715 |  |  |  | 100.0 | %
|            |  |                   |           |              |  |              |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  

We are primarily organized based on geographic markets for which we operate.
Under this organizational structure, we have two reportable segments: North
America and International. A summary of North American and International
operations is presented below (dollars in thousands):

|                                  |               |                                         |   |                   |           |      |   |         |         |  |   |         |         | 
|--------------------------------- | ------------- | --------------------------------------- | - | ----------------- | --------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                  |               |                                         |   | Fiscal Year Ended
|                                  |               |                                         |   |                  
|                                  |               |                                         |   | 2003              |           | 2002 |   | 2001   
|                                  |               |                                         |   |                   |           |      |   |        
|REVENUES                          |               |                                         |   |                   |           |      |   |         |         |  |   |        
|                                  | North America |                                         | $ | 740,838           |           |      | $ | 711,299 |         |  | $ | 764,154 |        
|                                  | International |                                         |   | 260,699           |           |      |   | 207,438 |         |  |   | 182,561 |        
|                                  |               |                                         |   |                   |           |      |   |         |         |  |   |         |        
|                                  |               | Total revenues                          |   | $                 | 1,001,537 |      |   | $       | 918,737 |  |   | $       | 946,715 | 
|                                  |               |                                         |   |                   |           |      |   |         |         |  |   |         |        
|INCOME FROM CONTINUING OPERATIONS |               |                                         |   |                   |           |      |   |         |         |  |   |        
|                                  | North America |                                         | $ | 57,926            |           |      |   | 21,339  |         |  |   | 45,149  |        
|                                  | International |                                         |   | 20,053            |           |      |   | 19,787  |         |  |   | 22,623  |        
|                                  |               |                                         |   |                   |           |      |   |         |         |  |   |         |        
|                                  |               | Total income from continuing operations |   | $                 | 77,979    |      |   | $       | 41,126  |  |   | $       | 67,772  | 
|                                  |               |                                         |   |                   |           |      |   |         |         |  |   |         |        
|LONG-LIVED ASSETS                 |               |                                         |   |                   |           |      |   |         |         |  |   |        
|                                  | North America |                                         | $ | 298,835           |           |      | $ | 315,695 |         |  | $ | 325,787 |        
|                                  | International |                                         |   | 108,084           |           |      |   | 81,456  |         |  |   | 68,510  |        
|                                  |               |                                         |   |                   |           |      |   |         |         |  |   |         |        
|                                  |               | Total long-lived assets                 |   | $                 | 406,919   |      |   | $       | 397,151 |  |   | $       | 394,297 | 
|                                  |               |                                         |   |                   |           |      |   |         |         |  |   |         |        

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Strategy

Through our Claires Accessories and Icing by Claires store concepts, our
mission is to be the most profitable mall-based retailer selling accessories,
costume jewelry and apparel to fashion-aware teens, tweens and young adults.
We believe our customers want to stay current with or ahead of fashion trends
and continually seek newness in their accessory wear. The key elements of our
strategy are as follows:

Actively Manage Merchandise Trends and Display of Merchandise. We devote
considerable effort to identifying emerging fashion trends. Through constant
product testing and rapid placement of successful test items in our stores, we
are able to respond to emerging fashion trends. We also devote considerable
effort to how our merchandise is displayed in our stores, which we believe
commands our customers attention, supports our image and promotes a consistent
shopping environment for our customers. Our distribution systems enhance our
ability to make quick responses to new fashion trends. We typically deliver to
our stores 3-5 times a week.

Provide Attentive Customer Service. We are committed to offering courteous and
professional customer service. We strive to give our customers the same level
of respect that is generally given to adult customers at other retail stores,
and to provide friendly and informed customer service for parents.
Additionally, our stores provide a friendly and social atmosphere for our
customers.

Store Growth Strategy. We opened our first store in Europe in 1996 and, as of
February 1, 2003, operated 653 stores in Europe. We intend to continue our
store growth through the opening of new stores in our international markets.
Our European stores are typically smaller than our North American stores, which
results in higher sales per square foot than our North American stores.

Maintain Strong Supplier Relationships. We view our supplier relationships as
important to our success, and promote personal interaction with our suppliers.
We believe many of our suppliers view our stores as important distribution
channels.

Stores

Our stores in North America are located primarily in enclosed shopping malls.
Our stores in North America operating as Claires Boutiques and Claires
Accessories average approximately 1,000 square feet while those stores
operating as The Icing, Icing by Claires and Afterthoughts average
approximately 1,200 square feet. Our stores in the United Kingdom, Switzerland,
Austria, Germany, France, Ireland and Japan average approximately 600 square
feet and are located primarily in enclosed shopping malls and central business
districts. Each store uses our proprietary displays, which permit the
presentation of a wide variety of items in a relatively small space.

Our stores are distinctively designed for customer identification, ease of
shopping and display of a wide selection of merchandise. Store hours are
dictated by the mall operators and the stores are typically open from 10:00
A.M. to 9:00 P.M., Monday through Saturday, and, where permitted by law, from
Noon to 5:00 P.M. on Sunday.

Approximately 76% of sales are made in cash, with the balance made by credit
cards. We permit, with restrictions on certain items, returns for exchange or
refund.

Purchasing and Distribution

We purchase our merchandise from approximately 1,500 suppliers. We are not
dependent on an individual supplier for merchandise purchased. Substantially
all of the costume jewelry and fashion accessories that we sell are purchased
from importers or imported directly. All merchandise is shipped from suppliers
to our distribution facility in Hoffman Estates, Illinois, a suburb of Chicago,
which services the North American stores, or the distribution facility in
Birmingham, England, which services the stores in the United Kingdom, Ireland
and France, or the distribution facilities in Zurich, Switzerland and Vienna,
Austria, which service the stores in Switzerland, Austria and Germany. After
inspection, merchandise is shipped via common carrier to the individual stores.
Stores typically receive three to five shipments a week, which provide our
stores with a steady flow of new merchandise.

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Store Management

Except as stated below, our Senior Vice President of Store Operations is
responsible for managing our North American stores and reports to our Chief
Operating Officer for North America, who in turn, reports to our Acting
Co-Chief Executive Officers of Claires Stores, our parent company. We
currently employ 214 District Managers in North America, each of whom oversees
approximately 10 stores in his or her respective geographic area and reports to
one of 20 Regional Managers. Each Regional Manager in North America reports to
one of 6 Territorial Vice Presidents, who reports to the Senior Vice President
of Store Operations. Each store is staffed by a Manager, an Assistant Manager
and one or more part-time employees. A majority of the District Managers have
been promoted from within the organization, while a majority of the Regional
Managers were hired externally. All of the Territorial Vice Presidents in
North America were promoted from within the organization. The reporting
structure for our stores in the international group is similar to the reporting
structure in North America. The Presidents of Claires UK, Claires France and
Bijoux report to the Chief Operating Officer of Europe, who in turn reports to
our Acting Co-Chief Executive Officers of Claires Stores, our parent company.
In the international group, there are a total of 4 Regional Managers and 69
District Managers. The Chief Operating Officer of Europe position is vacant.
We are actively recruiting to fill this position, as well as hire a Chief
Operating Officer of Claires Stores, Inc., our parent company.

Store Openings, Closings and Future Growth

For the fiscal year ended February 1, 2003, which is referred to as Fiscal
2003, we expanded our operations by 40 stores, net, in the United Kingdom,
resulting in a total of 454 stores, by 8 stores, net, in Bijoux, resulting in a
total of 95 stores, and by 47 stores, net, in France, resulting in a total of
104 stores. In North America, we decreased our operations by 70 stores, net to
2,150 stores. We believe our store growth will occur in our international
markets, where we plan on opening approximately 10 stores, net, in the United
Kingdom, opening 50 stores, net, in France and opening 4 stores, net, in Bijoux
during the fiscal year ending January 31, 2004, which is referred to as Fiscal
2004. We plan on closing approximately 15 stores, net, in North America in
Fiscal 2004. In Fiscal 2003, we and our joint venture partner, Aeon Co., Ltd.
(formerly known as Jusco Co., Ltd.), a Japanese company, increased our
operations in Japan by 12 stores to 109 stores. There are 15 store openings
planned in Japan in Fiscal 2004. Net stores refers to stores opened, net of
closings, if any.

We closed 588 stores in the last three fiscal years, primarily due to certain
locations not meeting our established profit benchmarks or the unwillingness of
landlords to renew leases on terms acceptable to us, and the elimination of
stores in connection with our acquisition of Afterthoughts. Most of these
stores were closed at or near lease expiration. We have not experienced any
substantial difficulty in renewing desired store leases and have no reason to
expect any such difficulty in the future. For each of the last three fiscal
years, no individual store accounted for more than one percent of total sales.

We plan to continue opening stores when suitable locations are found and
satisfactory lease negotiations are concluded. Our initial investment in new
stores opened during Fiscal 2003, which includes leasehold improvements and
fixtures, averaged approximately $112,000 per store. In addition, certain
store locations in our International operations require the purchase of
intangible assets. In these cases, we invested approximately $235,000 per
store in Fiscal 2003.

Our continued growth depends on our ability to open and operate stores on a
profitable basis. Our ability to expand successfully will be dependent upon a
number of factors, including sufficient demand for our merchandise in existing
and new markets, our ability to locate and obtain favorable store sites and
negotiate acceptable lease terms, obtain adequate merchandise supply and hire
and train qualified management and other employees.

Trademarks and Service Marks

We are the owner in the United States of various marks, including Claires,
Claires Accessories, Afterthoughts and Icing by Claires. We have also
registered these marks outside of the United

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States. We believe our rights in our marks are important to our business and
intend to maintain our marks and the related registrations.

Information Systems

Our information systems provide our management with data that helps them
identify emerging trends and manage inventories. Our information systems in
North America include purchase order management, open order reporting,
receiving, distribution, merchandise allocation, basic stock replenishment,
inter-store transfers, inventory, financial reporting and price management.

All of our stores in North America have a point-of-sale system. The system
features bar-coded ticket scanning, automatic price look-up, dial-out check and
credit authorization and automatic nightly transmittal of data between the
store and our corporate offices.

We are in the process of upgrading and integrating our information systems in
our international operations. We believe our management information systems
are adequate to support our planned expansion at least through Fiscal 2005.

Competition

The specialty retail business is highly competitive. We compete with
department stores and chains on a national and international level. We also
compete on a regional or local level with specialty and discount store chains
and independent retail stores. Our competition also includes internet and
catalog businesses. We cannot estimate the number of our competitors because
of the large number of companies in the retail industry that fall into one of
these categories. We believe the main competitive factors in our business are
fashion, price, merchandise, store location and customer service.

Seasonality

Sales of each category of merchandise vary from period to period depending on
current fashion trends. We experience traditional retail patterns of peak
sales during the Christmas, Easter and back-to-school periods. Sales, as a
percentage of total sales in each of the four quarters of the fiscal year ended
February 1, 2003 were 21%, 24%, 23% and 32% in the first, second, third and
fourth quarters, respectively.

Employees

On March 31, 2003, we had approximately 16,325 employees, 56% of whom were
part-time. Part-time employees typically work up to 20 hours per week. We do
not have collective bargaining agreements with any labor unions and we consider
employee relations to be good.




Item 2. Properties

Our stores are located in all 50 states of the United States, Puerto Rico,
Canada, the United Kingdom, Switzerland, Austria, Germany, France, Ireland and
Japan. We lease all of our 2,925 store locations, generally for terms of seven
to ten years. Under the leases, we pay a fixed minimum rent and/or rentals
based on gross sales in excess of specified amounts. We also pay certain other
expenses (e.g., common area maintenance charges and real estate taxes) under
the leases. The internal layout and fixtures of each store are designed by
management and constructed under contracts with third parties.

Most of our stores in North America are located in enclosed shopping malls,
while some stores are located within central business districts and others are
located in open-air outlet malls or strip centers. Our criteria for new
stores includes geographic location, demographic aspects of communities
surrounding the store site, quality of anchor tenants, advantageous location
within a mall, appropriate space availability and proposed rental rates. We
believe that sufficient desirable locations are available to accommodate our
expansion plans. We refurbish our existing stores on a regular basis.

We own central buying and store operations offices and North American
distribution center located in Hoffman Estates, Illinois which is on
approximately 24.8 acres. The property has buildings with

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approximately 520,000 total square feet of space, of which 404,000 square feet
is devoted to receiving and distribution and 116,000 square feet is devoted to
office space.

Our subsidiary, Claires Accessories UK Ltd., or UK, leases distribution and
office space in Birmingham, England. The facility consists of 25,000 square
feet of office space and 60,000 square feet of distribution space. The lease
expires in December 2024 and UK has the right to assign or sublet this lease at
any time during the term of the lease. UK also has a lease for 25,000 square
feet of office and distribution space which it occupied prior to its current
location. This lease expires in March 2012, although UK has the right to
terminate in March 2007. UK utilizes this space to support its growing needs
for distribution to Ireland and France, but also has the right to assign or
sublet the old lease.

Our stores operated by our subsidiaries, Claires Switzerland, Bijoux One
Trading and Claires Germany, are serviced by distribution centers and offices
in Zurich, Switzerland and Vienna, Austria. The facility maintained in Zurich,
Switzerland consists of 13,700 square feet devoted to distribution and 8,500
square feet devoted to offices. The lease for this location expires on
December 31, 2006. In Vienna, Austria, the facility consists of 18,100 square
feet devoted to distribution and 3,400 square feet devoted to offices. The
lease on this facility does not have an expiration date but can be terminated
by Bijoux with six months notice to the landlord.

We lease from Rowland Schaefer & Associates (formerly Two Centrum Plaza
Associates) approximately 33,000 square feet in Pembroke Pines, Florida, where
we maintain our executive, accounting and finance offices. The lease provides
for the payment of annual base rent of approximately $679,000, which is subject
to annual cost-of-living increases, and a proportionate share of all taxes and
operating expenses of the building. We exercised a five year renewal option
under the lease, which now expires on July 31, 2005. See Note 10 entitled
Related Party Transactions to our consolidated financial statements included
in this report of Form 10-K.

We also own 10,000 square feet of warehouse space in Miami, Florida. The
property is being utilized as a storage facility. We also lease executive
office space in New York City and are the owner of a cooperative apartment in
New York City.




Item 3. Legal Proceedings

We are, from time to time, involved in routine litigation incidental to the
conduct of our business, including proceedings to protect our trademark rights,
litigation instituted by persons injured upon premises under our control and
litigation with present and former employees. Although litigation with present
and former employees is routine and incidental to the conduct of our business,
like any business employing significant numbers of employees, such litigation
can result in large monetary awards when a civil jury is allowed to determine
compensatory and/or punitive damages for actions claiming discrimination on the
basis of age, gender, race, religion, disability of other legally protected
characteristic or for termination of employment that is wrongful or in
violation of implied contracts. We believe that currently pending litigation
will not have a material adverse effect on our financial position, earnings or
cash flows. We may also become involved with litigation for businesses that we
have acquired or businesses that we have disposed of, and we may be required to
pursue our indemnification rights, to the extent available, under agreements
with third parties for liabilities, if any, that might be assessed against us
for these claims. Potential claims may also be asserted against us by
creditors of Lux Corp. as a result of its recent bankruptcy filing. These
potential claims may include or relate to obligations under real estate leases
guaranteed by us, obligations under equipment and leasehold improvement leases
assigned by us to Lux Corp., and payments received by us under the stock
purchase agreement. See Managements Discussion and Analysis of Financial
Condition and Results of Operations-Discontinued Operations.




Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 2003.

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PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters

We have two classes of common stock, par value $.05 per share, outstanding:
common stock having one vote per share and Class A common stock having ten
votes per share. The common stock is traded on the New York Stock Exchange,
Inc. under the symbol CLE. The Class A common stock has only limited
transferability and is not traded on any stock exchange or in any organized
market. However, the Class A common stock is convertible on a share-for-share
basis into common stock and may be sold, as common stock, in open market
transactions. The following table sets forth, for each quarterly period within
the last two fiscal years, the high and low closing prices of the common stock
on the NYSE Composite Tape. At March 31, 2003, the number of record holders of
shares of common stock and Class A common stock was 1,383 and 493,
respectively.

|                            |  |                         |       |     |  |   |       | 
|--------------------------- |  | ----------------------- | ----- | --- |  | - | ----- | 
|                            |  | Closing of Common Stock
|                            |  |                        
|Year Ended February 1, 2003 |  | High                    |       | Low
|                            |  |                         |       |    
|First Quarter               |  | $                       | 22.26 |     |  | $ | 17.85 | 
|Second Quarter              |  |                         | 22.96 |     |  |   | 16.70 | 
|Third Quarter               |  |                         | 25.90 |     |  |   | 16.45 | 
|Fourth Quarter              |  |                         | 26.30 |     |  |   | 21.90 | 
|                           
|Year Ended February 2, 2002 |  |                         |       |     |  |   |       | 
|First Quarter               |  | $                       | 20.27 |     |  | $ | 16.65 | 
|Second Quarter              |  |                         | 22.65 |     |  |   | 17.00 | 
|Third Quarter               |  |                         | 17.37 |     |  |   | 11.69 | 
|Fourth Quarter              |  |                         | 18.80 |     |  |   | 12.51 | 

We have paid regular quarterly dividends to our shareholders on the common
stock since 1985 and on the Class A common stock since July 1994. Our Board of
Directors, in its sole discretion, has determined the distribution rate based
on our results of operations, economic conditions, tax considerations and other
factors. In Fiscal 2002 and Fiscal 2003, we paid quarterly cash dividend
distributions each year (four in the amount of $.04 per share of common stock
each year and four in the amount of $.02 share of Class A common stock each
year) totaling $.16 per share of common stock each year and $.08 per share of
Class A common stock each year. We expect to continue paying dividends.
However, there is no assurance that we will be able to continue to do so
because the declaration and payment of dividends are subject to various
factors, including contingencies such as our earnings and financial condition
and other factors our Board of Directors consider relevant as well as certain
limitations on our ability to make dividend distributions that could become
effective if we fail to meet specified financial covenants under our credit
facility. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources.

The following table provides information as of February 1, 2003 with respect to
compensation plans (including individual compensation arrangements) under which
our common stock and Class A common stock are authorized for issuance.

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|                                                           |  |                                      |         |                   |  |                    |       |                     |  |                     |           | 
|---------------------------------------------------------- |  | ------------------------------------ | ------- | ----------------- |  | ------------------ | ----- | ------------------- |  | ------------------- | --------- | 
|                                                           |  | Equity Compensation Plan Information
|                                                           |  |                                     
|                                                           |  |                                      |         |                   |  |                    |       |                     |  | Number of          
|                                                           |  |                                      |         |                   |  |                    |       |                     |  | securities         
|                                                           |  |                                      |         |                   |  |                    |       |                     |  | remaining available
|                                                           |  | Number of                            |         |                   |  |                    |       | for future issuance
|                                                           |  | securities to be                     |         |                   |  |                    |       | under equity       
|                                                           |  | issued upon                          |         | Weighted-average  |  | compensation plans
|                                                           |  | exercise of                          |         | exercise price of |  | (excluding        
|                                                           |  | outstanding                          |         | outstanding       |  | securities        
|                                                           |  | options, warrants                    |         | options, warrants |  | reflected in      
|Plan Category                                              |  | and rights                           |         | and rights        |  | column (a)        
|                                                           |  |                                      |         |                   |  |                   
|                                                           |  | (a)                                  |         | (b)               |  | (c)               
|Equity compensation
plans approved by
security holders     |  |                                      | 834,548 |                   |  | $                  | 17.03 |                     |  |                     | 4,221,396 | 
|Equity compensation
plans not approved
by security holders |  |                                      |        |                   |  |                    |      |                     |  |                     |          | 
|Total                                                      |  |                                      | 834,548 |                   |  | $                  | 17.03 |                     |  |                     | 4,221,396 | 




Item 6. Selected Financial Data

The balance sheet and income statement data set forth below is derived from our
consolidated financial statements and should be read in conjunction with our
consolidated financial statements included in Part II, Item 8 of this report on
Form 10-K, and in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations included in this report. The
consolidated Balance Sheet data as of February 3, 2001, January 29, 2000, and
January 30, 1999 and the consolidated Statements of Operations and
Comprehensive Income for each of the two fiscal years in the period ended
January 29, 2000 and January 30, 1999 are derived from our consolidated
financial statements, which are not included herein.

|                                  |          |                            |           |                   |         |         |         |                                         |         |          |         |            |         |   |         |   |         |   |         |   |         | 
|--------------------------------- | -------- | -------------------------- | --------- | ----------------- | ------- | ------- | ------- | --------------------------------------- | ------- | -------- | ------- | ---------- | ------- | - | ------- | - | ------- | - | ------- | - | ------- | 
|                                  |          |                            |           | Fiscal Year Ended
|                                  |          |                            |           |                  
|                                  |          |                            |           | Feb. 1,           |         | Feb. 2, |         | Feb. 3,                                 |         | Jan. 29, |         | Jan. 30,  
|                                  |          |                            |           | 2003              |         | 2002(3) |         | 2001(1)(3)                              |         | 2000(3)  |         | 1999(2)(3)
|                                  |          |                            |           |                   |         |         |         |                                         |         |          |         |           
|                                  |          |                            |           |                   |         |         |         | (In thousands except per share amounts) |         |          |         |           
|Operating Statement Data:         |          |                            |           |                   |         |         |         |                                         |         |          |         |            |         |   |         |   |         |   |         |  
|Net Sales                         |          | $                          | 1,001,537 |                   |         | $       | 918,737 |                                         |         | $        | 946,715 |            |         | $ | 764,848 |   |         | $ | 605,784 |  
|Income from continuing operations |          |                            | 77,979    |                   |         |         | 41,126  |                                         |         |          | 67,772  |            |         |   | 93,203  |   |         |   | 68,340  |  
|Net Income                        |          |                            | 77,744    |                   |         |         | 19,583  |                                         |         |          | 64,975  |            |         |   | 87,935  |   |         |   | 62,280  |  
|Income Per Share:                 |          |                            |           |                   |         |         |         |                                         |         |          |         |            |         |   |         |   |         |   |         |  
|                                  | Basic:   |                            |           |                   |         |         |         |                                         |         |          |         |            |         |   |         |   |         |   |         |   |        
|                                  |          | From continuing operations |           | $                 | 1.60    |         |         | $                                       | 0.84    |          |         | $          | 1.36    |   |         | $ | 1.83    |   |         | $ | 1.35    | 
|                                  |          | Net income                 |           |                   | 1.60    |         |         |                                         | 0.40    |          |         |            | 1.30    |   |         |   | 1.72    |   |         |   | 1.23    | 
|                                  | Diluted: |                            |           |                   |         |         |         |                                         |         |          |         |            |         |   |         |   |         |   |         |   |        
|                                  |          | From continuing operations |           | $                 | 1.59    |         |         | $                                       | 0.84    |          |         | $          | 1.35    |   |         | $ | 1.82    |   |         | $ | 1.34    | 
|                                  |          | Net income                 |           |                   | 1.59    |         |         |                                         | 0.40    |          |         |            | 1.30    |   |         |   | 1.71    |   |         |   | 1.22    | 
|Cash Dividends Per
Share:         |          |                            |           |                   |         |         |         |                                         |         |          |         |            |         |   |         |   |         |   |         |  
|                                  |          | Common stock               |           | $                 | 0.16    |         |         | $                                       | 0.16    |          |         | $          | 0.16    |   |         | $ | 0.16    |   |         | $ | 0.16    | 
|                                  |          | Class A Common stock       |           |                   | 0.08    |         |         |                                         | 0.08    |          |         |            | 0.08    |   |         |   | 0.08    |   |         |   | 0.08    | 
|Balance Sheet Data:               |          |                            |           |                   |         |         |         |                                         |         |          |         |            |         |   |         |   |         |   |         |  
|                                  |          | Current assets             |           | $                 | 321,608 |         |         | $                                       | 214,424 |          |         | $          | 265,964 |   |         | $ | 297,283 |   |         | $ | 245,919 | 
|                                  |          | Current liabilities        |           |                   | 141,010 |         |         |                                         | 82,536  |          |         |            | 94,452  |   |         |   | 91,676  |   |         |   | 67,490  | 
|                                  |          | Working capital            |           |                   | 180,598 |         |         |                                         | 131,888 |          |         |            | 171,512 |   |         |   | 205,607 |   |         |   | 178,429 | 
|                                  |          | Total assets               |           |                   | 728,527 |         |         |                                         | 611,575 |          |         |            | 660,261 |   |         |   | 695,292 |   |         |   | 392,218 | 
|                                  |          | Long-term debt             |           |                   | 70,000  |         |         |                                         | 110,104 |          |         |            | 151,374 |   |         |   | 192,000 |   |         |   |        | 
|                                  |          | Stockholders equity       |           |                   | 501,254 |         |         |                                         | 404,188 |          |         |            | 399,700 |   |         |   | 398,786 |   |         |   | 314,218 | 



---

|(1) |  | Consists of 53 weeks.
|--- |  | ---------------------

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|(2) |  | We adopted a plan to discontinue the operations of our Just Nikki catalog
segment in January 1999.                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | We adopted a plan to discontinue the operations of Mr. Rags (Lux Corp.)
in January 2002. See Note 3 to the consolidated financial statements for
additional information.




Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated
financial statements and notes thereto included in Part II, Item 8 of this
report on Form 10-K. The following Managements Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including changes in estimates and judgments used
in preparing our financial statements set forth under Critical Accounting
Policies and Estimates and the factors set forth under Certain Risk Factors
Relating to our Business in this section.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to inventories, valuation of goodwill and intangible assets,
income taxes, financing operations, contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Note 1 to our consolidated
financial statements. Management believes that the following accounting
policies include a higher degree of judgment and/or complexity and, thus, are
considered to be critical accounting policies. Management has discussed the
development and selection of these critical accounting policies with the Audit
Committee of the Board of Directors and the Audit Committee has reviewed our
disclosures relating to them.

Inventory Valuation

We mark down our inventory for estimated unmarketable inventory equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory markdowns may be required, which could reduce our margins and
operating results. Management records these inventory markdowns periodically
based on the various assumptions, including customer demand and preferences.
Our success is largely dependent upon managements ability to gauge the fashion
tastes of our customers and provide merchandise that satisfies customer demand.
Any failure to provide appropriate merchandise in quantities that mirror
demand could increase future inventory write-downs. Additionally, our
inventories are valued using the retail method in North America and Bijoux and
average cost in UK and France. Fluctuations in demand for inventory affect the
value of our inventory.

Asset Impairment

We invest in property and equipment in connection with the opening and
remodeling of stores. We evaluate the recoverability of these assets
periodically and record an impairment charge when we believe the cash flow may
not be sufficient to recover the assets. Future adverse changes in market
conditions or poor operating results of underlying assets could result in
losses or an inability to recover the carrying value of the investments that
may not be reflected in an investments current carrying value, thereby

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possibly requiring an impairment charge in the future. During Fiscal 2003, we
recorded impairment charges of $2.7 million relating to fixed assets in our
International segment due to those assets not being recoverable by estimated
discounted cash flows.

Goodwill Impairment

We continually evaluate whether events and changes in circumstances warrant
revised estimates of useful lives or recognition of an impairment loss of
unamortized goodwill. The conditions that would trigger an impairment
assessment of unamortized goodwill include a significant, sustained negative
trend in our operating results or cash flows, a decrease in demand for our
products, a change in the competitive environment and other industry and
economic factors. We measure impairment of unamortized goodwill utilizing the
discounted cash flow method. The estimated discounted cash flows are then
compared to our goodwill amounts. If the unamortized balance of the goodwill
exceeds the estimated discounted cash flows, the excess of the unamortized
balance is written off. Future cash flows may not meet projected amounts, which
could result in impairment.

Intangible Asset Impairment

We continually evaluate whether events and changes in circumstances warrant
revised estimates of the useful lives or recognition of an impairment loss for
intangible assets. Future adverse changes in market and legal conditions, or
poor operating results of underlying assets could result in losses or an
inability to recover the carrying value of the intangible asset, thereby
possibly requiring an impairment charge in the future. The Company has
concluded that certain intangible assets, comprised primarily of lease rights,
qualify as indefinite-life intangible assets. Fair market value of the lease
rights were determined through the use of third-party valuation. In addition,
we make investments through our international subsidiaries in intangible assets
upon the opening and acquisition of many of our store locations in Europe.
These other intangible assets which are subject to amortization are amortized
over the useful lives of the respective leases, not to exceed 25 years. We
evaluate the market value of these assets periodically and record the
impairment charge when we believe the asset has experienced a decline in value
that is other than temporary. We recorded impairment charges of approximately
$1.0 million in Fiscal 2003 because the market value of certain lease rights
included in our international segment were determined to be less than their
carrying values.

Accounting for Leases

We finance certain leasehold improvements and equipment used in our stores
through transactions accounted for as non-cancelable operating leases. As a
result, the rental expense for these leasehold improvements and equipment is
recorded during the term of the lease contract in our consolidated financial
statements, generally over four to seven years. In the event that any of the
real property leases where leasehold improvements or equipment is located that
are subject to these non-cancelable operating leases is terminated by us or our
landlord prior to the scheduled expiration date of the real property lease, we
will be required to accrue all future rent payments under these operating
leases as a charge against our earnings in the year of termination.

Deferred Taxes

We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. The valuation allowance is
determined based on estimates by management of future taxable income. Our
estimates of future taxable income can be affected by a number of factors,
including possible tax audits or general economic conditions or competitive
pressures that could affect our future taxable income. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for a valuation allowance, in the event we
were to determine that we would not be able to realize our deferred tax assets
in the future, an adjustment to the valuation allowance would be made.
Likewise, should we determine that we would not be able to realize all or part
of a net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made.
Recorded within our financial statements is a valuation allowance of $4.1
million at February 1, 2003 due to uncertainties related to the ability to
utilize

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some of our deferred tax assets, primarily consisting of net operating loss
carryforwards of $11.5 million relating to the operations of our foreign
subsidiaries, $11.0 million of which have indefinite expiration, and $.5
million of which expire in Fiscal 2006.

Although management believes that the estimates discussed above are reasonable
and the related calculations conform to generally accepted accounting
principles, actual results could differ from these estimates, and such
differences could be material.

Certain Risk Factors Relating to our Business

The following are some of the factors that could cause actual results to differ
materially from estimates contained in our forward-looking statements:

Fluctuations in consumer preference and economic conditions affect the demand
of our products

Our retail jewelry and fashion accessories business fluctuates according to
changes in consumer preferences which are dictated in part by fashion and
season. In addition, certain economic conditions affect the level of consumer
spending on merchandise that we offer, including, among others, business
conditions, unemployment levels, interest rates, energy costs, taxation rates
and consumer confidence in future economic conditions. Consumer preference and
economic conditions may differ or change from time to time in each market in
which we operate and negatively affect our net sales and profitability.

Purchases in advance of merchandise inventory, excessive markdowns,
interruptions in distribution and material inventory shrinkage may
     negatively impact our profitability

Fluctuations in the demand for retail fashion accessories and apparel
especially affect the inventory we own because we usually order our merchandise
well in advance of the applicable season and sometimes before fashion trends
are identified or evidenced by customer purchases. In addition, the cyclical
nature of the retail business requires us to carry a significant amount of
inventory, especially prior to peak selling seasons when we and other retailers
generally build up inventory levels. We purchase merchandise from our
suppliers well in advance of the applicable selling season. As a result, we
are vulnerable to demand and pricing shifts and to suboptimal selection and
timing of merchandise purchases.

We review our inventory aging in order to identify slow-moving merchandise and
use markdowns to clear merchandise. Markdowns may be used if inventory exceeds
customer demand for reasons of style, seasonal adaptation, changes in customer
preference or lack of consumer acceptance of fashion items, or if it is
determined that the inventory in stock will not sell at its currently marked
price. Such markdowns may have an adverse impact on earnings, depending on the
extent of the markdowns and amount of inventory affected.

Distribution functions for all of our North American stores are handled from
our distribution center in Hoffman Estates, Illinois. Distribution functions
for all of our stores in the United Kingdom, France and Ireland are handled
from our distribution center in Birmingham, United Kingdom. Distribution
facilities for all of our stores in Switzerland, Austria and Germany are
handled from our distribution centers in Zurich, Switzerland and Vienna,
Austria. Any significant interruption in the operation of these distribution
centers, due to natural disaster or otherwise, would have a material effect on
our business, financial condition and results of operations.

We have a loss prevention program in order to control inventory shrinkage,
including surveillance systems, education of store personnel and monitoring of
returns. However, there can be no assurance that these safeguards will prevent
or adequately limit inventory shrinkage. Any material inventory shrinkage
would have a material adverse effect on our net sales and profitability.

A disruption of imports from our foreign suppliers may increase our costs
and reduce our supply of merchandise

We purchase merchandise from approximately 1,500 domestic and international
suppliers. In Fiscal 2003, approximately 18% of all merchandise units
purchased for our North American stores (representing

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approximately 29% of total cost) were purchased domestically and the remaining
82% of all merchandise units (71% of cost) were purchased from outside the
United States. In Fiscal 2003, approximately 42% of our total merchandise
units purchased for our North American stores (representing 42% of cost) were
from China, including Hong Kong, with the remainder coming from 12 other
foreign countries. An outbreak of Severe Acute Respiratory Syndrome (SARS) has
recently been reported in Hong Kong, Singapore, and China. Any event, such as
SARS, political instability or the imposition of additional import restrictions
that disrupt or otherwise adversely affect our imports from China or other
foreign countries, would be likely to have a material adverse effect on our
operations. Substantially all of our foreign purchases of merchandise are
negotiated and paid for in U.S. dollars.

We cannot predict whether any of the countries in which our products currently
are manufactured or may be manufactured in the future will be subject to
additional trade restrictions imposed by the U.S. and other foreign
governments, including the likelihood, type or effect of any such restrictions.
Trade restrictions, including increased tariffs or quotas, embargoes, and
customs restrictions, against merchandise could increase the cost or reduce the
supply of merchandise available to us and adversely affect our business,
financial condition and results of operations. We pursue a diversified global
sourcing strategy that includes relationships with vendors in 14 countries.
These sourcing operations may be adversely affected by political and financial
instability resulting in the disruption of trade from exporting countries,
significant fluctuation in the value of the U.S. dollar against foreign
currencies, restrictions on the transfer of funds and/or other trade
disruptions.

Fluctuations in same-store net sales may affect the price of our stock

Our comparable same-store net sales results have fluctuated in the past, on a
monthly, quarterly and annual basis, and are expected to continue to fluctuate
in the future. A variety of factors affect our same-store net sales results,
including changes in fashion trends, changes in our merchandise mix, calendar
shifts of holiday periods, actions by competitors, weather conditions and
general economic and geopolitical conditions. Our comparable store net sales
results for any particular fiscal month, fiscal quarter or fiscal year in the
future may decrease. As a result of these or other factors, our future
comparable store net sales results are likely to have a significant effect on
the market price of our common stock because investors may look to our
same-store net sales results to determine how we performed from period to
period absent sales attributable to new stores.

Store operations and expansion may affect our ability to increase net sales
and operate profitably

Our continued success depends, in part, upon our ability to increase sales at
existing store locations, to open new stores and to operate stores on a
profitable basis and to maintain good relationships with mall developers and
operators. Because we are primarily a mall-based retailer, our future growth
is significantly dependent on our ability to open new stores in desirable
locations, including malls. Our ability to open new stores depends on a number
of factors, including our ability to locate and obtain favorable store sites
primarily in malls, negotiate acceptable lease terms, obtain adequate supplies
of merchandise and hire and train qualified employees. Our ability to operate
stores on a profitable basis depends on, among other factors, whether we have
to take additional merchandise markdowns due to excessive inventory levels
compared to sales trends, and whether we can reduce the number of
under-performing stores which have a higher level of fixed costs in comparison
to net sales. There can be no assurance that our growth will result in
enhanced profitability or that we will achieve our targeted growth rates with
respect to new store openings.

The failure to execute our international expansion or successfully integrate
our international operations may impede our strategy of
     increasing net sales and adversely affect our operating results

Our international expansion is an integral part of our strategy to increase our
net sales through store growth. If our international expansion is not
successful, our results of operations are likely to be adversely affected. Our
ability to grow successfully in the continental European market depends in part
on determining a sustainable formula to build customer loyalty and gain market
share in the especially challenging retail environments of France and Germany.
Additionally, the integration of our operations in foreign countries presents
certain challenges not necessarily presented in the integration of our North

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American operations, such as integration of information systems. For example,
we currently use the retail method to value our inventory in North America and
Bijoux, but use the average cost method for valuing our inventory in the UK and
France. The failure to expand and integrate our foreign operations could have
a material adverse effect on our operating results and impede our strategy of
increasing our net sales through expansion.

The useful life and value of our goodwill and intangible assets will continue
to be reevaluated and could result in a write-down of our goodwill
     or intangible assets in a future
period

As of February 1, 2003, intangible assets, which include goodwill and other
separately identifiable intangible assets, totaled approximately 31% of our
total assets. We acquire intangible assets when we purchase businesses or
acquire lease rights. At the time of or following each acquisition by us of
intangible assets, we evaluate each acquisition and establish an appropriate
useful life and carrying value for all intangible assets, including goodwill,
identified based on the specific underlying facts and circumstances of the
acquisition. Subsequent to such initial evaluation, we annually, or more
frequently if impairment indicators arise, reevaluate such facts and
circumstances to determine if the related intangible assets, including
goodwill, continue to be realizable and if the useful life continues to be
appropriate. As the underlying facts and circumstances subsequent to the date
of acquisition can change, there can be no assurance that we will realize the
value of such intangible assets, including goodwill. We did not record any
impairment charge during Fiscal 2003 with respect to our unamortized balance of
goodwill. We recorded impairment charges of approximately $1.0 million in
Fiscal 2003 because the market value of certain lease rights in our
international segment were less than their carrying values. Any future
determination, based on reevaluation of the underlying facts and circumstances
that a significant impairment has occurred, would require the write-off of the
impaired portion of unamortized goodwill and intangible assets, which could
have a material adverse effect on our results of operations.

Changes in the anticipated seasonal business pattern could adversely effect our
sales and profits and our quarterly results may fluctuate due to a
     variety of factors

Our business follows a seasonal pattern, peaking during the Christmas, Easter
and back-to-school periods. During Fiscal 2003, these periods accounted for
approximately 30% of our annual sales. Any decrease in sales or margins during
these periods would be likely to have a material adverse effect on our
business, financial condition and results of operations. Seasonal fluctuations
also affect inventory levels, because we usually order merchandise in advance
of peak selling periods. We must carry a significant amount of inventory in
anticipation of these selling periods. Our quarterly results of operations may
also fluctuate significantly as a result of a variety of factors, including the
time of store openings; the amount of revenue contributed by new stores; the
timing and level of mark downs; the timing of store closings, expansions and
relocations; competitive factors; and general economic conditions.

Our industry is highly competitive

The specialty retail business is highly competitive. We compete with national,
international, and local department stores, specialty and discount store
chains, independent retail stores and internet and catalog businesses that
market similar lines of merchandise. Some competitors have more resources than
us. Given the large number of companies in the retail industry, we cannot
estimate the number of our competitors.

Depth of selection in sizes, colors and styles of merchandise, merchandise
procurement and pricing, ability to anticipate fashion trends and consumer
preferences, inventory control, reputation, quality of merchandise, store
design and location, brand recognition and customer service are all important
factors in competing successfully in the retail industry.

Our successful performance in recent years has increased the amount of
imitation by other retailers. Such imitation has made and will continue to
make the retail environment in which we operate more competitive.

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In addition, our competitive position depends upon a number of factors relating
to consumer spending, including future economic conditions affecting disposable
consumer income such as unemployment, business conditions, interest rates,
energy costs and taxation. A decline in consumer spending on fashion
accessories and apparel could have a material adverse effect on our net sales
and profitability.

A decline in number of people who go to malls could reduce the number of
our customers and reduce our net sales

Substantially all of our North American stores are located in regional shopping
malls. Our sales are derived, in part, from the high volume of traffic in
those malls. We benefit from the ability of the malls anchor tenants,
generally movie theaters, large department stores and other area attractions to
generate consumer traffic around our stores and the continuing popularity of
malls as shopping destinations for pre-teens and teenagers. Sales volume and
mall traffic may be adversely affected by economic downturns in a particular
area, competition from non-mall retailers, other malls where we do not have
stores and the closing of anchor tenants in a particular mall. In addition, a
decline in the popularity of mall shopping among our target customers,
pre-teens and teenagers, and increased gasoline prices that may curtail
customer visits to malls, could result in decreased sales that would have a
material adverse affect on our business, financial condition and results of
operations.

Terrorist attacks have heightened security concerns and war or the threat of
war could result in lower customer traffic in our stores

In response to the terrorist attacks of September 11, 2001, security has been
heightened in public areas. Any further threat of terrorist attacks or actual
terrorist events, particularly in public areas, could lead to lower customer
traffic in regional shopping malls. In addition, local authorities or mall
management could close regional shopping malls in response to any immediate
security concern. For example, on September 11, 2001, a substantial number of
our stores were closed early due to closure of the malls in response to the
terrorist attacks. Mall closures, lower customer traffic due to security
concerns, increased gasoline prices that may curtail customer visits to malls,
and war or the threat of war could result in decreased sales that would have a
material adverse affect on our business, financial condition and results of
operations.

We depend on key personnel

Our success and ability to properly manage our growth depends to a significant
extent both upon the performance of our current executive and senior management
team and our ability to attract, hire, motivate and retain additional qualified
management personnel in the future. Since November 2002, our Chairman and
Chief Executive Officer has been on a medical leave of absence, and our
Vice-Chairmen have assumed the responsibilities of our Chairman and Chief
Executive Officer. We also have commenced a search for a Chief Operating
Officer of Claires Stores, Inc., our parent company, and are seeking to fill
the vacancy of Chief Operating Officer of Europe. Our inability to recruit and
retain such additional personnel, or our loss of the services of any of our
executive officers, could have a material adverse impact on us.

Litigation matters incidental to our business could be adversely determined
against us and our insurance coverage may not be adequate to
     protect our assets and operations

We are involved from time to time in litigation incidental to our business,
including litigation instituted by persons injured upon premises under our
control, litigation with present and former employees and proceedings to
protect our trademark rights. Management believes that the outcome of current
litigation will not have a material adverse effect on our results of operations
or financial condition. However, managements assessment of current litigation
could change in light of the discovery of facts not currently known by us or
determinations by judges, juries or other finders of fact not in accordance
with managements assessment of the outcome of our pending litigation. We may
also become involved with litigation for businesses that we have acquired or
businesses that we have disposed of, and we may be required to pursue our
indemnification rights, to the extent available, under agreements with third
parties for liabilities, if any, that might be assessed against us for these
claims. Potential claims may also be

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asserted against us by creditors of Lux Corp. as a result of its recent
bankruptcy filing. These potential claims may include or relate to obligations
under real estate leases guaranteed by us, obligations under equipment and
leasehold improvement leases assigned by us to Lux Corp., and payments received
by us under the stock purchase agreement. See Discontinued Operations.
Depending on the actual outcome of pending or future litigation, charges could
be recorded in the future that may have an adverse effect on our operating
results.

We carry general liability, comprehensive property damage, workers
compensation and other insurance coverages that management considers adequate
for the protection of our assets and operations. There can be no assurance,
however, that the coverage limits of such policies will be adequate to cover
losses and expenses for claims brought or which may be brought against us. A
successful claim against us in excess of insurance coverages could have a
material adverse effect on our operating results. We retain certain
self-insurance risks for health benefits, workers compensation benefits and
casualty insurance programs. Self-insurance reserves are established based on
claims filed and estimates of claims incurred by not yet reported. There can
be no assurance that our actual claims will not exceed our estimates.

The price of our stock may fluctuate in the future

The market price of our common stock has fluctuated in the past and there can
be no assurance that the market price of our common stock will not continue to
fluctuate significantly. Future announcements or management discussions
concerning us or our competitors, sales and profitability results, quarterly
variations in operating results or comparable store net sales, changes in
earnings estimates by analysts or changes in accounting policies, among other
factors, could cause the market price of our common stock to fluctuate
substantially. In addition, stock markets have experienced extreme price and
volume volatility in recent years.

Control by our Chairman

We have two classes of common stock, common stock and Class A common stock.
The holders of our common stock are entitled to one vote per share, and the
holders of our Class A common stock are entitled to 10 votes for each share.
As of March 31, 2003, Mr. Rowland Schaefer, our Chairman, President and Chief
Executive Officer, owns or has voting power over approximately 9.4% of our
common stock and approximately 66.2% of our Class A common stock and, as a
result, controls approximately 30.3% of our outstanding voting power on a
combined basis. As a result, our Chairman substantially influences shareholder
action, including the election of our directors. This influence of us by our
Chairman may make us less attractive as a target for a takeover proposal. It
may also make it more difficult to discourage a merger proposal or proxy
contest for the removal of incumbent directors. As a result, this may deprive
the holders of our common stock of an opportunity they might otherwise have to
sell their shares at a premium over the prevailing market price in connection
with a merger or acquisition of us or with or by another company.

Our wage expenses may increase as a result of increases in Federal minimum wage laws

Recent changes to Federal minimum wage laws have raised the mandatory minimum
wage. Various states, including states where we operate our business, have
enacted increases that are higher than the Federal minimum wage. Statutory
increases in Federal and state minimum wages above our current wages could
require corresponding increases in higher employee wage rates. Increases in
wage rates that are not offset by corresponding increases in sales would
adversely affect our results of operations.

We caution our investors that the risk factors described above could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of us. Further, management
cannot assess the impact of each such factor on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.

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Results of Continuing Operations

The following table sets forth, for the periods indicated, percentages which
certain items reflected in the financial statements bear to our net sales:

|                |                                                       |  |                   |      |         |  |         |      |   |  |       |      |  
|--------------- | ----------------------------------------------------- |  | ----------------- | ---- | ------- |  | ------- | ---- | - |  | ----- | ---- | -
|                |                                                       |  | Fiscal Year Ended
|                |                                                       |  |                  
|                |                                                       |  | Feb. 1,           |      | Feb. 2, |  | Feb. 3,
|                |                                                       |  | 2003              |      | 2002    |  | 2001   
|                |                                                       |  |                   |      |         |  |        
|Net sales       |                                                       |  | 100.0             | %    |         |  | 100.0   | %    |   |  | 100.0 | %   
|                | Cost of sales, occupancy and buying expenses          |  |                   | 48.6 |         |  |         | 51.6 |   |  |       | 48.8 |  
|                |                                                       |  |                   |      |         |  |         |      |   |  |       |     
|                | Gross profit                                          |  |                   | 51.4 |         |  |         | 48.4 |   |  |       | 51.2 |  
|Other expenses: |                                                       |  |                   |      |         |  |         |      |   |  |       |     
|                | Selling, general and administrative                   |  |                   | 35.4 |         |  |         | 36.0 |   |  |       | 34.7 |  
|                | Depreciation and amortization                         |  |                   | 3.8  |         |  |         | 4.7  |   |  |       | 4.4  |  
|                | Interest expense                                      |  |                   | 0.5  |         |  |         | 1.1  |   |  |       | 1.5  |  
|                | Interest and other income                             |  |                   | (0.3 | )       |  |         | (0.4 | ) |  |       | (0.5 | )
|                |                                                       |  |                   |      |         |  |         |      |   |  |       |     
|                |                                                       |  | 39.4              |      |         |  | 41.4    |      |   |  | 40.1  |     
|                | Income from continuing operations before
Income taxes |  |                   | 12.0 |         |  |         | 7.0  |   |  |       | 11.1 |  
|Income taxes    |                                                       |  | 4.2               |      |         |  | 2.6     |      |   |  | 3.9   |     
|                |                                                       |  |                   |      |         |  |         |      |   |  |       |     
|                | Income from continuing operations                     |  |                   | 7.8  | %       |  |         | 4.4  | % |  |       | 7.2  | %
|                |                                                       |  |                   |      |         |  |         |      |   |  |       |     

The operating results of Claires Nippon Co., Ltd. (Nippon) are accounted for
under the equity method. As a result, any losses incurred by Nippon in excess
of our investment and advances are not reflected in our income statement
because the operations are not part of our consolidated group in accordance
with generally accepted accounting principles. Accordingly, the operating
results of Nippon are not included in the following analysis. In addition, the
assets and liabilities of Nippon are not included in our consolidated balance
sheets. Under the equity method, our original investment in Nippon was
recorded at cost and had been adjusted periodically to recognize our
proportionate share of earnings or losses from Nippon since the acquisition
date. As of February 1, 2003 and February 2, 2002, our investment in Nippon
was carried at zero on our consolidated balance sheet.

Our fiscal years end on the Saturday closest to January 31. As a result, our
Fiscal 2003 and Fiscal 2002 results consisted of 52 weeks and our Fiscal 2001
results consisted of 53 weeks.

Matters Affecting Comparability

Effective February 3, 2002, we adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No.
142 requires that goodwill and certain other intangible assets deemed to have
indefinite useful lives are no longer amortized but are reviewed annually for
impairment. SFAS No. 142 does not require retroactive restatement for all
periods presented; however, it does require the disclosure of prior year
effects adjusted for the elimination of amortization of goodwill and
indefinite-lived intangible assets. Had the provision of SFAS No. 142 been
applicable to Fiscal 2002 and Fiscal 2001, income from continuing operations
would have been $.96 and $1.47, respectively, as compared to $.84 and $1.35,
respectively, per diluted share. The initial impairment review as of the
transition date of February 3, 2002 was completed in Fiscal 2003 and resulted
in no goodwill impairment charge. Refer to Note 1 to our consolidated
financial statements for further information.

Fiscal 2003 Compared to Fiscal 2002

Net sales increased by $82.8 million, or 9%, to $1.0 billion in Fiscal 2003
compared to $918.7 million for the year ended February 2, 2002, which is
referred to as Fiscal 2002. This increase resulted primarily

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from same-store sales increases of 5% for the year. During Fiscal 2003, our
sales in North America increased 6%, while our international sales increased 2%
on a same-store sales basis. The same-store sales increase in North America
was primarily a result of an increase in the average retail per transaction
partially offset by fewer transactions per store.

Cost of sales, occupancy and buying expenses increased by $13.1 million, or
2.8%, to $486.9 million in Fiscal 2003 compared to $473.8 million in Fiscal
2002. As a percentage of net sales, these expenses decreased to 48.6% for
Fiscal 2003 compared to 51.6% for Fiscal 2002. This decrease of 3.0% was
primarily the result of increased merchandise margins as we reduced promotional
activity and markdowns during the year through managing inventories
efficiently.

Selling, general and administrative expenses increased by $24.1 million, or
7.3% to $355.1 million in Fiscal 2003 from $331.0 million in Fiscal 2002. This
increase was primarily the result of higher operating costs, approximately $4.2
million of additional compensation earned by our Chairman in Fiscal 2003,
approximately $3.7 million of impairment charges in our International
operations, and approximately $2.7 million of additional store bonuses due to
increased sales. As a percentage of net sales, these expenses decreased to
approximately 35.4% in Fiscal 2003 compared to 36.0% in Fiscal 2002. The
decrease was primarily caused by leverage on fixed costs. It has been our
objective to close a number of under-performing or duplicative acquired
Afterthoughts stores. As of February 1, 2003, 384 Afterthoughts stores had been
closed or leases not renewed and 26 stores had been opened, resulting in 413
stores remaining within our North American operations. We expect to not renew
the leases for approximately 89 stores in Fiscal 2004. During Fiscal 2003, we
continued to eliminate redundant field operations and review under-performing
stores.

Depreciation and amortization decreased by $5.0 million, or 11.7%, to $37.9
million in Fiscal 2003 from $42.9 million in Fiscal 2002. The decrease was
primarily due to goodwill no longer being amortized in accordance with SFAS No.
142. Approximately $8.7 million of goodwill was amortized in Fiscal 2002. In
addition, depreciation increased from our international divisions, partially
offset by lower depreciation in North America.

Interest expense decreased from $10.4 million in Fiscal 2002 to $4.4 million in
Fiscal 2003. The decrease of $6.0 million was primarily the result of lower
interest rates and lower borrowings on our credit facility.

Interest and other income decreased from $4.0 million in Fiscal 2002 to $2.9
million in Fiscal 2003. The net decrease was primarily the
result of lower interest rates on our invested cash balances, partially offset
by the inclusion of approximately $1 million of fees received in consideration of performing
certain administrative functions for the new owners of Lux Corp.

Income taxes increased by $18.7 million to $42.1 million in Fiscal 2003
compared to $23.5 million in Fiscal 2002. As a percentage of pre-tax income
from continuing operations, income taxes decreased to 35.1% in Fiscal 2003 from
36.3% in Fiscal 2002. Our consolidated effective tax rate for Fiscal 2003 was
35%.

Fiscal 2002 Compared to Fiscal 2001

Net sales decreased by $28 million, or 3%, to $918.7 million in Fiscal 2002
compared to $946.7 million for the year ended February 3, 2001, which is
referred to as Fiscal 2001. This decrease resulted primarily from same-store
sales decreases of 2% for the year. During Fiscal 2002, our sales in North
America decreased 3%, while our international sales increased 1% on a
same-store sales basis. The same-store sales decrease in North America was
primarily a result of fewer transactions per store, partially offset by an
increase in the average retail per transaction.

Cost of sales, occupancy and buying expenses increased by $12.2 million, or 3%,
to $473.8 million in Fiscal 2002 compared to $461.6 million in Fiscal 2001.
As a percentage of net sales, these expenses increased to 51.6% for Fiscal 2002
compared to 48.8% for Fiscal 2001. This increase of 2.8% was primarily the
result of additional merchandise markdowns required due to excessive inventory
levels compared to sales trends in North America. These markdowns were recorded
in the second quarter of

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Fiscal 2002. These markdowns helped us reduce inventory levels to be in line
with planned sales for future periods. In addition, the decline in same-store
sales discussed above resulted in the lack of leverage on fixed occupancy
costs.

Selling, general and administrative expenses increased by $2.6 million, or 1%
to $331 million in Fiscal 2002 from $328.4 million in Fiscal 2001. The
increase was caused by inflationary cost increases, partially offset by cost
savings achieved in store payroll by reducing hours worked to correspond with
lower sales patterns. As a percentage of net sales, these expenses increased
to approximately 36% in Fiscal 2002 compared to 34.7% in Fiscal 2001. The
increase was primarily caused by lack of leverage on fixed costs. It has been
our objective to close a number of under-performing or duplicative acquired
Afterthoughts stores. As of February 2, 2002, 313 Afterthoughts stores had
been closed or leases not renewed and 18 stores had been opened resulting in
476 stores remaining. During Fiscal 2002, we continued to eliminate redundant
field operations and review under-performing stores. As a result of our
review, we recorded a $2.2 million non-cash charge to write off the assets
whose carrying value had been impaired.

Depreciation and amortization increased by $892,000, or 2%, to $42.9 million in
Fiscal 2002 from $42 million in Fiscal 2001. The increase was primarily due to
the increased depreciation from our international divisions, partially offset
by lower depreciation in North America.

Interest expense decreased from $14.2 million in Fiscal 2001 to $10.4 million
in Fiscal 2002. The decrease of $3.8 million was primarily the result of lower
interest rates and lower borrowings on our credit facility.

Interest and other income decreased from $4.2 million in Fiscal 2001 to $4.0
million in Fiscal 2002. The net decrease of $0.2 million was primarily the
result of lower interest rates on our invested cash balances.

Income taxes decreased by $13.5 million to $23.5 million in Fiscal 2002
compared to $37 million in Fiscal 2001. As a percentage of pre-tax income from
continuing operations, income taxes increased to 36.3% in Fiscal 2002 from
35.3% in Fiscal 2001. The increase in the effective tax rate from continuing
operations was affected by the tax benefits of losses in Lux Corp., being
included in the loss from discontinued operations. Our consolidated effective
tax rate for Fiscal 2002 was 35%.

Seasonality and Quarterly Results

Our business is seasonal by nature, with the Christmas, Easter and
back-to-school periods historically accounting for the largest percentage of
annual net sales. In Fiscal 2003, the Christmas, Easter and back-to-school
periods together accounted for approximately 30% of our annual net sales. See
note 11 of our consolidated financial statements.

Impact of Inflation

Inflation impacts several of our operating costs including, but not limited to
cost of goods and supplies, occupancy costs and labor expenses. We seek to
mitigate these effects by passing along inflationary increases in costs through
increased sales prices or by increasing sales.

Discontinued Operations

In January 2002, our Board of Directors authorized the disposition of Lux
Corp., which represented our apparel segment. In connection with the plan to
dispose of Lux Corp., we recorded a loss on disposal of $13.0 million, net of
tax, in the consolidated financial statements as of February 2, 2002.

On May 17, 2002, we sold the stock of Lux Corporation, d/b/a Mr. Rags for (i)
an initial payment of $5 million, (ii) deferred payments to be paid aggregating
$10 million payable as 1% of net sales during the first year and 2% of net
sales thereafter, and (iii) an amount to be paid equal to approximately 48% of
the gross sales of the inventory of Mr. Rags as of the closing date. Through
the date of disposition, the operations of Lux Corp. were accounted for as a
discontinued operation in our consolidated financial statements. The deferred
payments aggregating $10 million were not included in our estimate of loss on

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disposition as the timing and amount could not be reasonably estimated due to
the uncertainty of the financial condition of the acquired business. In
January 2003, Lux Corp. filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of California. In April 2003, Lux Corp. advised the Bankruptcy Court
that it intends to liquidate its assets. As a result, no deferred payments
have been made to us since the date of the bankruptcy filing, and there is no
assurance that we will receive any future deferred payments.
During Fiscal 2003, we recorded approximately $.2 million, net of tax, loss on
disposal of Lux Corp.

As of February 1, 2003, we remain as a guarantor on 12 real estate leases for
Mr. Rags store locations with future rental payments of approximately $10.2
million. As of February 1, 2003, we also had a contingent liability as lessee
under a master lease agreement on $4.0 million of gross future lease payments
on operating leases for equipment and leasehold improvements of Lux Corp. that
were assigned to Lux Corp. at the time of the sale. Based on managements
review of the financial performance of Mr. Rags since the date of sale and,
taking into consideration the bankruptcy filing by Lux Corp. in January 2003
and the related impact on Lux Corp.s ability to fulfill the commitments under
these real estate and operating leases, we accrued a liability of $5.7 million
at February 1, 2003. We also entered into a service agreement with the new
owner of Lux Corp. in May 2002 under which we perform certain transition
services for the benefit of Mr. Rags, with no decision making authority. The
service agreement was for an initial period of one year, with two three-month
renewal options. Lux Corp. has exercised the first renewal option, so the
service agreement is scheduled to terminate in August 2003, unless earlier
terminated pursuant to the terms of the service agreement. As of February 1,
2003, we have received approximately $1 million for these services and have
included this amount in interest and other income within our
Consolidated Statements of Operations and Comprehensive Income for Fiscal 2003.

In order to conform to the separate presentation of the net assets and
operating results of Lux Corp. as a discontinued operation, certain prior
period amounts have been reclassified to conform to current period
presentation.

Liquidity and Capital Resources

In connection with the acquisition of Afterthoughts in December 1999, we
entered into a credit facility pursuant to which we financed $200 million of
the purchase price for Afterthoughts. The credit facility includes a $40
million revolving line of credit which matures on December 1, 2004, and a $175
million five year term loan, the first installment of which was paid on
December 31, 2000, with future installments, thereafter, payable on a quarterly
basis through December 1, 2004. The credit facility is prepayable without
penalty and bears interest at a margin of 125 basis points over the London
Interbank Borrowing Rate. The margin is adjusted periodically based on our
performance as it relates to certain financial covenants. On February 1, 2003
approximately $25 million was outstanding on this line of credit, while $85
million was outstanding under the term loan. Also, on February 1, 2003, the
borrowings under this credit facility were bearing interest at 3%, and we were
in compliance with all debt covenants. We cannot re-borrow amounts repaid
under the term loan. As a result, we have no future availability under the
term loan. We can re-borrow amounts repaid under the revolving line of credit,
subject to the terms of the credit facility. As of February 1, 2003, we had
$15 million of availability under the revolving line of credit. We also had
$1.2 million of issued letters of credit which are supported by and considered
drawn against our line of credit.

We are required to maintain financial ratios under our credit facility.
Required financial ratios include fixed charge coverage ratio, consolidated
leverage ratio and current ratio. The credit facility also contains other
restrictive covenants which limit, among other things, our ability to make
dividend distributions. If these financial ratios and other restrictive
covenants are not maintained, our bank will have the option to require
immediate repayment of all amounts outstanding under the credit facility. The
most likely result would require us to either renegotiate certain terms of the
credit agreement, obtain a waiver from the bank, or obtain a new credit
agreement with another bank, which may contain different terms.

The Companys non-U.S. subsidiaries have credit facilities totaling
approximately $1.6 million with banks. The facilities are used for working
capital requirements, letters of credit and various guarantees. These credit
facilities have been arranged in accordance with customary lending practices in
their

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respective countries of operation. At February 1, 2003, the borrowings totaled
$916,000, bearing interest at rates at approximately 3%.

We finance certain leasehold improvements and equipment used in our stores
through transactions accounted for as non-cancelable operating leases. As a
result, the rental expense for these leasehold improvements and equipment is
recorded during the term of the lease contract in our consolidated financial
statements, generally over four to seven years. In the event that any of the
real property leases where leasehold improvements or equipment is located that
are subject to these non-cancelable operating leases is terminated by us or our
landlord prior to the scheduled expiration date of the real property lease, we
will be required to accrue all future rent payments under these operating
leases. At February 1, 2003, we had $411,000 accrued related to future payment
obligations on leasehold improvement leases for closed stores. We are
guarantor on approximately $10.2 million of real estate leases of Mr. Rags of
which we have accrued $1.7 million as a contingent liability. See
Discontinued Operations.

As of February 1, 2003, the Companys future financial commitments under these
arrangements are as follows:

|                                                          |  |                        |         |      |  |             |       |           |  |         |       |  |  |   |       |           |  |   |       | 
|--------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ----------- | ----- | --------- |  | ------- | ----- |  |  | - | ----- | --------- |  | - | ----- | 
|                                                          |  | Payments Due by Period
|                                                          |  |                       
|Contractual                                               |  |                        |         |      |  |             |       |           |  |         |       |  |  |   |       |           |  |   |       | 
|Obligations                                               |  |                        |         |      |  | Less than 1 |       |           |  |         |       |  |  |   |       | More than
|(in millions)                                             |  | Total                  |         | year |  | 1-3 years   |       | 3-5 years |  | 5 years
|                                                          |  |                        |         |      |  |             |       |           |  |        
|Real estate
obligations                                   |  | $                      | 966.7   |      |  | $           | 133.2 |           |  | $       | 247.3 |  |  | $ | 212.7 |           |  | $ | 373.5 | 
|Operating leases
for equipment and
leasehold
improvements |  |                        | 23.2    |      |  |             | 11.1  |           |  |         | 10.4  |  |  |   | 1.7   |           |  |   |      | 
|Long-term debt
obligations                                |  |                        | 110.9   |      |  |             | 40.9  |           |  |         | 70.0  |  |  |   |      |           |  |   |      | 
|Letters of credit                                         |  |                        | 1.2     |      |  |             | 1.2   |           |  |         |      |  |  |   |      |           |  |   |      | 
|                                                          |  |                        |         |      |  |             |       |           |  |         |       |  |  |   |       |           |  |   |       | 
|Total                                                     |  | $                      | 1,102.0 |      |  | $           | 186.4 |           |  | $       | 327.7 |  |  | $ | 214.4 |           |  | $ | 373.5 | 
|                                                          |  |                        |         |      |  |             |       |           |  |         |       |  |  |   |       |           |  |   |       | 

We review the operating performance of our stores on an on-going basis to
determine which stores, if any, to expand, relocate or close. We closed 150
stores in Fiscal 2003 and anticipate closing approximately 89 stores in Fiscal
2004.

Our operations have historically provided a positive cash flow which, together
with our cash balances, provide adequate liquidity to meet our operational
needs and debt obligations. Cash and cash equivalents totaled $195.5 million
at the end of Fiscal 2003.

Net cash provided by operating activities from continuing operations was $167.1
million in Fiscal 2003 compared to $101.4 million in Fiscal 2002 and $111.0
million in Fiscal 2001. The primary sources of net cash provided by operating
activities in Fiscal 2003 was net income of $77.7 million, depreciation and
amortization of $38.6 million, an increase in trade account payables and
accrued expenses of $27.0 million and an increase in income taxes payable,
partially offset by an increase in inventories of $6.8 million and an increase
in prepaids and other assets of $15.0 million. Our current ratio (current
assets over current liabilities) was 2.3:1.0 for Fiscal 2003 and 2.6:1.0 for
Fiscal 2002.

At the end of Fiscal 2003, we increased our investment in inventories to $88.3
million, or 12.4%, from the Fiscal 2002 balance of $78.6 million. Our average
store inventories vary throughout the year and increase in advance of the peak
selling periods of Christmas, Easter and back-to-school. During Fiscal 2003,

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inventory turnover increased to 3.0 times from 2.8 times for Fiscal 2002. The
increase in inventories was due to carrying appropriate levels of inventory to
meet planned sales for the spring season. In addition, inventories on a per
square foot basis increased 11.4%.

Net cash used in investing activities of $51.1 million in Fiscal 2003 was
primarily a result of capital expenditures of $45.5 million, the acquisition of
intangible assets (lease rights within our international segment) of $6.8
million offset by and the sale of short-term investments. During Fiscal 2003,
we continued to expand and remodel our store base. Significant capital
projects included the opening of 175 new stores and the remodeling of 141
stores. In Fiscal 2004, capital expenditures and acquisition of intangible
assets (lease rights) are expected to be approximately $50 million and $15
million, respectively, as we continue to invest in expanding and remodeling our
store base and technology.

Net cash used in financing activities of $24.8 million in Fiscal 2003 was
primarily due to our payments on the credit facility of $20.2 million and
dividends paid of $7.6 million, offset by $3.0 million received from the
exercise of stock options.

Working capital at the end of Fiscal 2003 was $180.6 million compared to $131.9
million at the end of Fiscal 2002. The increase in working capital was
primarily attributable to an increase in cash and cash equivalents of $95.6
million, inventories of $9.7 million and prepaid expenses and other current
assets of $3.4 million, offset by an increase in current liabilities.

We believe that we will be able to finance our capital expenditure plans for
Fiscal 2004 based on our consistent ability to generate cash flow from
operations, significant cash balances and available funds under our credit
facilities.

Recent Accounting Pronouncements

Effective February 3, 2002, we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. In accordance with
SFAS 142, we ceased amortizing its goodwill effective February 3, 2002. We
recorded $8.7 million of amortization during the year ended February 2, 2002
and would have recorded $8.6 million of amortization during the year ended
February 1, 2003. Net income for the year ended February 2, 2002 would have
been $25.2 million or $0.52 per diluted share without goodwill amortization
expense during that period. We had $197.9 and $193.1 million of unamortized
goodwill at February 1, 2003 and February 2, 2002, respectively.

SFAS 142 required us, upon our adoption, to reassess the value of, and useful
lives assigned to, intangible assets including goodwill to determine whether
the value of one or more intangible assets is impaired. The first step of this
impairment test required us, within the first six months of Fiscal 2003, to
determine the fair value of the reporting unit, as defined by SFAS 142, and
compare it to the carrying value of the net assets allocated to the reporting
unit. If this fair value exceeded the carrying value, no further analysis was
required. If the fair value of the reporting unit was less than the carrying
value of the net assets, we were required to perform step two of the impairment
test, which required us to allocate the implied fair value of the reporting
unit to all underlying assets and liabilities, including both recognized and
unrecognized tangible and intangible assets, based on their fair value. We
performed a transitional goodwill impairment test as required and determined
that no goodwill impairment existed at February 3, 2002. The Company has
concluded that certain intangible assets, comprised primarily of lease rights,
qualify as indefinite-life intangible assets under SFAS 142. Fair market value
of the lease rights were determined through the use of third-party valuation.
In addition, the Company makes investments through the international
subsidiaries in intangible assets upon the opening and acquisition of many of
our store locations in Europe. These intangible assets, which are subject to
amortization, are amortized over the useful lines of the respective leases, not
to exceed 25 years. The Company evaluates the market value of these assets
periodically and records the impairment charge when the Company believes the
asset has experienced a decline in value that is other than temporary.

SFAS 142 also requires us to perform a goodwill and intangible asset impairment
test on an annual basis. Any impairment charges resulting from the application
of this test in the future would be immediately recorded as a charge to
earnings in our statement of operations. We recorded impairment charges of

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approximately $1.0 million in Fiscal 2003 because the market value during
Fiscal 2003 of certain lease rights included in our international segment were
determined to be less than their carrying values. This impairment charge is
included within the financial statement caption Selling, general,
administrative expenses within our Consolidated Statements of Operations and
Comprehensive Income.

On July 5, 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. That standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, an entity either settles the obligation for
its recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. As a result, SFAS No. 143 was not effective for our
Fiscal 2003 financial statements. Management has not determined the effect
that SFAS No. 143 will have on our consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement retains the requirements of SFAS
No. 121 to (a) recognize an impairment loss only if the carrying amount of a
long lived asset is not recoverable from its discounted cash flows and (b)
measure an impairment loss as the difference between the carrying amount and
fair value of the asset. This statement requires that a long-lived asset to be
abandoned, exchanged for a similar productive asset, or distributed to owners
in a spin-off be considered held and used until it is disposed of. This
statement requires that the depreciable life of a long-lived asset to be
abandoned be revised and that an impairment loss be recognized at the date a
long-lived asset is exchanged for a similar productive asset or distributed to
owners in a spin-off if the carrying amount of the asset exceeds its fair
value. The accounting model for long-lived assets to be disposed of by sale is
used for all long-lived assets, whether previously held and used or newly
acquired. That accounting model measures a long-lived asset classified as held
for sale at the lower of its carrying amount or fair value less cost to sell
and requires depreciation (amortization) to cease. Discontinued operations are
no longer measured on a net realizable value basis, and future operating losses
are no longer recognized before they occur. This statement retains the basic
provisions of Accounting Principles Board Opinion 30 for the presentation of
discontinued operations in the income statement but broadens that presentation
to include a component of an entity (rather than a segment of a business). A
component of an entity comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the
rest of the entity. A component of an entity that is classified as held for
sale or that has been disposed of is presented as a discontinued operation if
the operations and cash flows of the component will be (or have been)
eliminated from the ongoing operations of the entity and the entity will not
have any significant continuing involvement in the operations of the component.
We adopted SFAS 144 on February 3, 2002. Management has determined that the
adoption of SFAS 144 did not have a material effect on our financial
statements. We recorded impairment charges of approximately $2.7 million
during the year ended February 1, 2003 related to fixed assets in our
International segment due to those assets not being recoverable by estimated
discounted cash flows. This impairment charge is included within the financial
statement caption Selling, general, administrative expenses within our
Consolidated Statements of Operations and Comprehensive Income.

In June 2002, the FASB issued Statement No. 146, Costs Associated with Exit or
Disposal Activities. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred compared to prior literature, which recognized a liability when the
entity committed to an exit plan. Management believes that this Statement will
not have a material impact on our financial statements; however, the Statement
will result in a change in accounting policy associated with the recognition of
liabilities in connection with future restructuring charges.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation

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undertaken in issuing the guarantee. The initial recognition and measurement
provisions of this interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002; while the provisions of
the disclosure requirements are effective for financial statements of interim
or annual reports ending after December 13, 2002. We have determined that FIN
45 did not have a material impact on our financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods for
voluntary transition to SFAS No. 123s fair value method of accounting for
stock-based employee compensation (the fair value method). SFAS No. 148 also
requires disclosure of the effects of an entitys accountings policy with
respect to stock-based employee compensation on reported net income (loss) and
earnings (loss) per share in annual and interim financial statements. We are
required to follow the prescribed disclosure format and have provided the
additional disclosures required by SFAS No. 148 for the year ended February 1,
2003 (see Note 1) and must also provide the disclosures in our quarterly
reports containing condensed financial statements for interim periods beginning
with the quarterly period ending May 3, 2003.

In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities. The interpretation defines a variable interest
entity as a corporation, partnership, trust or any other legal structure used
for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the equity to support its activities. A variable
interest entity often holds financial assets, including loans or receivables,
real estate or other property. A variable interest entity may be essentially
passive or it may engage in research and development or other activities on
behalf of another company. This interpretation requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entitys activities or entitled
to receive a majority of the entitys residual returns or both. We would have
to consolidate any of our variable interest entities that meet the above
criteria as of July 1, 2003. The interpretation also requires disclosures
about variable interest entities that we are not required to consolidate but in
which we have a significant variable interest. Management is in the process of
determining if our interests in unconsolidated entities qualify as variable
interest entities and, if so, whether the assets, liabilities, non-controlling
interest, and results of activities are required to be included in our
consolidated financial statements.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

We are exposed to market risk from foreign currency exchange rate fluctuations
on the U.S. dollar value of foreign currency denominated transactions and our
investment in foreign subsidiaries. We manage this exposure to market risk
through our regular operating and financing activities, but currently do not
use foreign currency purchased put options or foreign exchange forward
contracts. During Fiscal 2003, included in comprehensive income and
stockholders equity is $23.9 million reflecting the unrealized gain on foreign
currency translation. Based on our average net currency positions in Fiscal
2003, the potential gain or loss due to a 10% adverse change on foreign
currency exchange rates could be significant to our operations.

Interest Rates

Our exposure to market risk for changes in interest rates is limited to our
cash, cash equivalents and debt. Based on our average invested cash balances
and outstanding debt during Fiscal 2003, a 10% increase in the average
effective interest rate in Fiscal 2003 would not have materially impacted our
annual net interest expense.

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Item 8. Financial Statements and Supplementary Data

|                                                                                                                                                  |  |          |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                                                                                  |  | Page No.
|                                                                                                                                                  |  |         
|Independent Auditors Report                                                                                                                      |  |          | 27 | 
|                                                                                                                                                  |  |          |    | 
|Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002                                                                           |  |          | 28 | 
|                                                                                                                                                  |  |          |    | 
|Consolidated Statements of Operations and Comprehensive Income for the
fiscal years ended February 1, 2003, February 2, 2002 and February 3, 2001 |  |          | 29 | 
|                                                                                                                                                  |  |          |    | 
|Consolidated Statements of Changes in Stockholders Equity for the fiscal
years ended February 1, 2003, February 2, 2002 and February 3, 2001     |  |          | 30 | 
|                                                                                                                                                  |  |          |    | 
|Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001                          |  |          | 31 | 
|                                                                                                                                                  |  |          |    | 
|Notes to Consolidated Financial Statements                                                                                                        |  |          | 32 | 

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INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders
Claires Stores, Inc.

We have audited the accompanying consolidated balance sheets of Claires
Stores, Inc. and subsidiaries as of February 1, 2003 and February 2, 2002, and
the related consolidated statements of operations and comprehensive income,
changes in stockholders equity and cash flows for the fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Claires Stores,
Inc. and subsidiaries as of February 1, 2003 and February 2, 2002, and the
results of their operations and their cash flows for the fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001 in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and intangible assets in the year
ended February 1, 2003.

/S/ KPMG LLP
Fort Lauderdale, Florida
March 12, 2003

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CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | -------------------------------------------------- | ------- | ------- | ------- | -------- | ------- | 
|                                           |                                                                                                                                                         |                           |         | Feb. 1,                                            |         | Feb. 2,
|                                           |                                                                                                                                                         |                           |         | 2003                                               |         | 2002   
|                                           |                                                                                                                                                         |                           |         |                                                    |         |        
|                                           |                                                                                                                                                         |                           |         | (In thousands, except share and per share amounts)
|ASSETS                                     |                                                                                                                                                         |                           |         |                                                    |         |         |         |         
|Current assets:                            |                                                                                                                                                         |                           |         |                                                    |         |         |         |         
|                                           | Cash and cash equivalents                                                                                                                               |                           | $       | 195,482                                            |         |         | $       | 99,912   |        
|                                           | Short-term investments                                                                                                                                  |                           |         |                                                   |         |         |         | 1,563    |        
|                                           | Inventories                                                                                                                                             |                           |         | 88,334                                             |         |         |         | 78,596   |        
|                                           | Prepaid expenses and other current assets                                                                                                               |                           |         | 37,792                                             |         |         |         | 34,353   |        
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         | Total current assets      |         |                                                    | 321,608 |         |         |          | 214,424 | 
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|Property and equipment:                    |                                                                                                                                                         |                           |         |                                                    |         |         |         |         
|                                           | Land and building                                                                                                                                       |                           |         | 18,041                                             |         |         |         | 17,984   |        
|                                           | Furniture, fixtures and equipment                                                                                                                       |                           |         | 206,529                                            |         |         |         | 187,565  |        
|                                           | Leasehold improvements                                                                                                                                  |                           |         | 161,240                                            |         |         |         | 136,422  |        
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         |                           | 385,810 |                                                    |         |         | 341,971 |         
|                                           | Less accumulated depreciation and amortization                                                                                                          |                           |         | (211,328                                           | )       |         |         | (177,997 | )      
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         |                           | 174,482 |                                                    |         |         | 163,974 |         
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|Intangible assets, net                     |                                                                                                                                                         |                           | 28,924  |                                                    |         |         | 18,226  |         
|Other assets                               |                                                                                                                                                         |                           | 5,638   |                                                    |         |         | 21,811  |         
|Goodwill, net                              |                                                                                                                                                         |                           | 197,875 |                                                    |         |         | 193,140 |         
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         |                           | 232,437 |                                                    |         |         | 233,177 |         
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|Total Assets                               |                                                                                                                                                         | $                         | 728,527 |                                                    |         | $       | 611,575 |         
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                                         |                           |         |                                                    |         |         |         |         
|Current liabilities:                       |                                                                                                                                                         |                           |         |                                                    |         |         |         |         
|                                           | Current portion of long-term debt                                                                                                                       |                           | $       | 40,916                                             |         |         | $       | 21,040   |        
|                                           | Trade accounts payable                                                                                                                                  |                           |         | 43,185                                             |         |         |         | 30,874   |        
|                                           | Income taxes payable                                                                                                                                    |                           |         | 13,153                                             |         |         |         | 4,800    |        
|                                           | Accrued expenses                                                                                                                                        |                           |         | 43,756                                             |         |         |         | 25,822   |        
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         | Total current liabilities |         |                                                    | 141,010 |         |         |          | 82,536  | 
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|Long term liabilities:                     |                                                                                                                                                         |                           |         |                                                    |         |         |         |         
|                                           | Long term debt, excluding current portion                                                                                                               |                           |         | 70,000                                             |         |         |         | 110,104  |        
|                                           | Deferred credits                                                                                                                                        |                           |         | 16,263                                             |         |         |         | 14,747   |        
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         |                           | 86,263  |                                                    |         |         | 124,851 |         
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|Commitments and contingencies              |                                                                                                                                                         |                           |        |                                                    |         |         |        |         
|Stockholders equity:                      |                                                                                                                                                         |                           |         |                                                    |         |         |         |         
|                                           | Preferred stock par value $1.00 per share; authorized
1,000,000 shares, issued and outstanding 0 shares                                                 |                           |         |                                                   |         |         |         |         |        
|                                           | Class A common stock par value $.05 per share; authorized
20,000,000 shares, issued and outstanding 2,692,825 shares
and 2,830,819 shares, respectively |                           |         | 135                                                |         |         |         | 142      |        
|                                           | Common stock par value $.05 per share; authorized
150,000,000 shares, issued and outstanding 46,146,562 shares
and 45,949,647 shares, respectively      |                           |         | 2,307                                              |         |         |         | 2,297    |        
|                                           | Additional paid-in capital                                                                                                                              |                           |         | 32,834                                             |         |         |         | 29,871   |        
|                                           | Accumulated other comprehensive income (loss)                                                                                                           |                           |         | 7,219                                              |         |         |         | (16,709  | )      
|                                           | Retained earnings                                                                                                                                       |                           |         | 458,759                                            |         |         |         | 389,039  |        
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         |                           | 501,254 |                                                    |         |         | 404,640 |         
|                                           | Treasury stock, at cost (109,882 shares in 2002)                                                                                                        |                           |         |                                                   |         |         |         | (452     | )      
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|                                           |                                                                                                                                                         |                           | 501,254 |                                                    |         |         | 404,188 |         
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        
|Total Liabilities and Stockholders Equity |                                                                                                                                                         | $                         | 728,527 |                                                    |         | $       | 611,575 |         
|                                           |                                                                                                                                                         |                           |         |                                                    |         |         |         |          |        

See accompanying notes to consolidated financial statements.

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CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |         |       |       |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | ------------------------------------ | ------- | ---------------------------------------- | - | ------------ | ------- | ------------ | ----- | ------- | ------- | ----- | ----- | -
|                                               |                                                                                                                                                  |                                                |                                      |         | Fiscal Year Ended                       
|                                               |                                                                                                                                                  |                                                |                                      |         |                                         
|                                               |                                                                                                                                                  |                                                |                                      |         | Feb. 1, 2003                             |   | Feb. 2, 2002 |         | Feb. 3, 2001
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |             
|                                               |                                                                                                                                                  |                                                |                                      |         | (In thousands, except per share amounts)
|Net sales                                      |                                                                                                                                                  | $                                              | 1,001,537                            |         |                                          | $ | 918,737      |         |              | $     | 946,715 |        
|Cost of sales, occupancy and buying expenses   |                                                                                                                                                  |                                                | 486,858                              |         |                                          |   | 473,785      |         |              |       | 461,612 |        
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Gross profit                                   |                                                                                                                                                  |                                                | 514,679                              |         |                                          |   | 444,952      |         |              |       | 485,103 |        
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Other expenses:                                |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Selling, general and administrative                                                                                                              |                                                |                                      | 355,093 |                                          |   |              | 330,993 |              |       |         | 328,418 |      
|                                               | Depreciation and amortization                                                                                                                    |                                                |                                      | 37,897  |                                          |   |              | 42,931  |              |       |         | 42,039  |      
|                                               | Interest expense                                                                                                                                 |                                                |                                      | 4,435   |                                          |   |              | 10,415  |              |       |         | 14,157  |      
|                                               | Interest and other income                                                                                                                        |                                                |                                      | (2,869  | )                                        |   |              | (3,983  | )            |       |         | (4,234  | )    
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               |                                                                                                                                                  |                                                | 394,556                              |         |                                          |   | 380,356      |         |              |       | 380,380 |        
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Income from continuing operations before income taxes                                                                                            |                                                |                                      | 120,123 |                                          |   |              | 64,596  |              |       |         | 104,723 |      
|Income taxes                                   |                                                                                                                                                  |                                                | 42,144                               |         |                                          |   | 23,470       |         |              |       | 36,951  |        
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Income from continuing operations                                                                                                                |                                                |                                      | 77,979  |                                          |   |              | 41,126  |              |       |         | 67,772  |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Discontinued operation:                        |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Loss from discontinued operation of Lux Corp. to
February 1, 2003 less applicable income tax benefit
of (0), ($5,152) and ($1,678), respectively |                                                |                                      |        |                                          |   |              | (8,588  | )            |       |         | (2,797  | )    
|                                               | Loss on disposal of Lux Corp., less income tax
benefit of ($141), ($7,773) and 0, respectively                                                   |                                                |                                      | (235    | )                                        |   |              | (12,955 | )            |       |         |        |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Net loss from discontinued operations          |                                                                                                                                                  |                                                | (235                                 | )       |                                          |   | (21,543      | )       |              |       | (2,797  | )      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Net income                                     |                                                                                                                                                  |                                                | 77,744                               |         |                                          |   | 19,583       |         |              |       | 64,975  |        
|                                               | Foreign currency translation adjustments                                                                                                         |                                                |                                      | 23,928  |                                          |   |              | (9,488  | )            |       |         | (6,993  | )    
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Comprehensive income                                                                                                                             |                                                | $                                    | 101,672 |                                          |   | $            | 10,095  |              |       | $       | 57,982  |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Net income (loss) per share:                   |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Basic:                                                                                                                                           |                                                |                                      |         |                                          |   |              |         |              |       |         |         |      
|                                               |                                                                                                                                                  | Income from continuing operations              |                                      | $       | 1.60                                     |   |              | $       | 0.84         |       |         | $       | 1.36  |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               |                                                                                                                                                  | Loss from operations of discontinued operation |                                      |         |                                         |   |              |         | (0.18        | )     |         |         | (0.06 | )    
|                                               |                                                                                                                                                  | Loss from disposal of discontinued operation   |                                      |         |                                         |   |              |         | (0.26        | )     |         |         |      |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               |                                                                                                                                                  |                                                | Net loss from discontinued operation |         |                                          |  |              |         |              | (0.44 | )       |         |       | (0.06 | )
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Net income per share                           |                                                                                                                                                  | $                                              | 1.60                                 |         |                                          | $ | 0.40         |         |              | $     | 1.30    |        
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Diluted:                                                                                                                                         |                                                |                                      |         |                                          |   |              |         |              |       |         |         |      
|                                               |                                                                                                                                                  | Income from continuing operations              |                                      | $       | 1.59                                     |   |              | $       | 0.84         |       |         | $       | 1.35  |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               |                                                                                                                                                  | Loss from operations of discontinued operation |                                      |         |                                         |   |              |         | (0.18        | )     |         |         | (0.05 | )    
|                                               |                                                                                                                                                  | Loss from disposal of discontinued operation   |                                      |         |                                         |   |              |         | (0.26        | )     |         |         |      |      
|                                               |                                                                                                                                                  |                                                | Net loss from discontinued operation |         |                                          |  |              |         |              | (0.44 | )       |         |       | (0.05 | )
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Net income per share                           |                                                                                                                                                  | $                                              | 1.59                                 |         |                                          | $ | 0.40         |         |              | $     | 1.30    |        
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|Weighted average number of shares outstanding: |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Basic                                                                                                                                            |                                                |                                      | 48,717  |                                          |   |              | 48,671  |              |       |         | 49,931  |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        
|                                               | Diluted                                                                                                                                          |                                                |                                      | 48,891  |                                          |   |              | 48,751  |              |       |         | 50,101  |      
|                                               |                                                                                                                                                  |                                                |                                      |         |                                          |   |              |         |              |       |         |        

See accompanying notes to consolidated financial statements.

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CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

|                                                                         |  |                                          |     |        |  |         |       |               |  |          |        |          |  |             |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------ |  | ---------------------------------------- | --- | ------ |  | ------- | ----- | ------------- |  | -------- | ------ | -------- |  | ----------- | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                         |  |                                          |     |        |  |         |       |               |  |          |        |          |  | Accumulated |         |   |  |   |         |   |  |   |         |   |  |  
|                                                                         |  | Class A                                  |     |        |  |         |       | Additional    |  | Other    |        |          |  |             |         |   |  |   |         |   |  |  
|                                                                         |  | Common                                   |     | Common |  | Paid-In |       | Comprehensive |  | Retained |        | Treasury |  |             |         |  
|                                                                         |  | Stock                                    |     | Stock  |  | Capital |       | Income (Loss) |  | Earnings |        | Stock    |  | Total      
|                                                                         |  |                                          |     |        |  |         |       |               |  |          |        |          |  |            
|                                                                         |  | (In thousands, except for share amounts)
|Balance: January 29, 2000                                                |  | $                                        | 143 |        |  | $       | 2,419 |               |  | $        | 29,291 |          |  | $           | (228    | ) |  | $ | 367,613 |   |  | $ | (452    | ) |  | $ | 398,786 |  
|Net income                                                               |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             |        |   |  |   | 64,975  |   |  |   |        |   |  |   | 64,975  |  
|Class A Common Stock converted to
Common stock                           |  |                                          | (1  | )      |  |         | 1     |               |  |          |       |          |  |             |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Purchase of treasury stock                                               |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             |        |   |  |   |        |   |  |   | (49,913 | ) |  |   | (49,913 | )
|Retirement of treasury stock                                             |  |                                          |    |        |  |         | (127  | )             |  |          |       |          |  |             |        |   |  |   | (49,786 | ) |  |   | 49,913  |   |  |   |        |  
|Stock options exercised                                                  |  |                                          |    |        |  |         | 4     |               |  |          | 474    |          |  |             |        |   |  |   |        |   |  |   |        |   |  |   | 478     |  
|Cash Dividends ($.16 per Common share
and $.08 per Class A Common share) |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             |        |   |  |   | (7,693  | ) |  |   |        |   |  |   | (7,693  | )
|Tax benefit from exercised stock options                                 |  |                                          |    |        |  |         |      |               |  |          | 60     |          |  |             |        |   |  |   |        |   |  |   |        |   |  |   | 60      |  
|Foreign currency translation adjustment                                  |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             | (6,993  | ) |  |   |        |   |  |   |        |   |  |   | (6,993  | )
|                                                                         |  |                                          |     |        |  |         |       |               |  |          |        |          |  |             |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Balance: February 3, 2001                                                |  |                                          | 142 |        |  |         | 2,297 |               |  |          | 29,825 |          |  |             | (7,221  | ) |  |   | 375,109 |   |  |   | (452    | ) |  |   | 399,700 |  
|Net income                                                               |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             |        |   |  |   | 19,583  |   |  |   |        |   |  |   | 19,583  |  
|Stock options executed                                                   |  |                                          |    |        |  |         |      |               |  |          | 46     |          |  |             |        |   |  |   |        |   |  |   |        |   |  |   | 46      |  
|Cash dividends ($.16 per Common share
and $.08 per Class A Common share) |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             |        |   |  |   | (5,653  | ) |  |   |        |   |  |   | (5,653  | )
|Foreign currency translation adjustment                                  |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             | (9,488  | ) |  |   |        |   |  |   |        |   |  |   | (9,488  | )
|                                                                         |  |                                          |     |        |  |         |       |               |  |          |        |          |  |             |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Balance: February 2, 2002                                                |  |                                          | 142 |        |  |         | 2,297 |               |  |          | 29,871 |          |  |             | (16,709 | ) |  |   | 389,039 |   |  |   | (452    | ) |  |   | 404,188 |  
|Net income                                                               |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             |        |   |  |   | 77,744  |   |  |   |        |   |  |   | 77,744  |  
|Class A Common stock converted to
Common stock                           |  |                                          | (2  | )      |  |         | 2     |               |  |          |       |          |  |             |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Stock options exercised                                                  |  |                                          |    |        |  |         | 8     |               |  |          | 2,963  |          |  |             |        |   |  |   |        |   |  |   |        |   |  |   | 2,971   |  
|Cash dividends ($.16 per Common share
and $.08 per Class A Common share) |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             |        |   |  |   | (7,577  | ) |  |   |        |   |  |   | (7,577  | )
|Foreign currency translation adjustment                                  |  |                                          |    |        |  |         |      |               |  |          |       |          |  |             | 23,928  |   |  |   |        |   |  |   |        |   |  |   | 23,928  |  
|Retirement of treasury stock                                             |  |                                          | (5  | )      |  |         |      |               |  |          |       |          |  |             |        |   |  |   | (447    | ) |  |   | 452     |   |  |   |        |  
|                                                                         |  |                                          |     |        |  |         |       |               |  |          |        |          |  |             |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Balance: February 1, 2003                                                |  | $                                        | 135 |        |  | $       | 2,307 |               |  | $        | 32,834 |          |  | $           | 7,219   |   |  | $ | 458,759 |   |  | $ |        |   |  | $ | 501,254 |  
|                                                                         |  |                                          |     |        |  |         |       |               |  |          |        |          |  |             |         |   |  |   |         |   |  |   |         |   |  |   |         |  

See accompanying notes to consolidated financial statements.

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CLAIRES STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |         |  
|----------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------- | ----------------- | ------- | ------------ | ------- | -------------- | ------ | - | ------- | ------- | ------- | -
|                                                                              |                                                                                   |                                                                 |         | Fiscal Year Ended
|                                                                              |                                                                                   |                                                                 |         |                  
|                                                                              |                                                                                   |                                                                 |         | Feb. 1, 2003      |         | Feb. 2, 2002 |         | Feb. 3, 2001  
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |               
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         | (In thousands) |        |   |         |        
|Cash flows from operating activities:                                         |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |        
|                                                                              | Net income                                                                        |                                                                 | $       | 77,744            |         |              | $       | 19,583         |        |   | $       | 64,975  |        
|                                                                              | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|                                                                              |                                                                                   | Loss from discontinued operations, net of tax benefit           |         |                   |        |              |         |                | 8,588  |   |         |         | 2,797   |  
|                                                                              |                                                                                   | Loss on disposal of discontinued operations, net of tax benefit |         |                   | 235     |              |         |                | 12,955 |   |         |         |        |  
|                                                                              |                                                                                   | Impairment of intangible assets                                 |         |                   | 961     |              |         |                |       |   |         |         |        |  
|                                                                              |                                                                                   | Loss on sale of intangible assets                               |         |                   | 137     |              |         |                |       |   |         |         |        |  
|                                                                              |                                                                                   | Depreciation and amortization                                   |         |                   | 37,897  |              |         |                | 42,931 |   |         |         | 42,039  |  
|                                                                              |                                                                                   | Amortization of intangible assets                               |         |                   | 726     |              |         |                | 849    |   |         |         | 412     |  
|                                                                              |                                                                                   | Deferred income taxes                                           |         |                   | (12,306 | )            |         |                | 3,858  |   |         |         | 8,049   |  
|                                                                              |                                                                                   | Loss on retirement of property and equipment                    |         |                   | 2,262   |              |         |                | 1,763  |   |         |         | 1,874   |  
|                                                                              |                                                                                   | Impairment of long-lived assets                                 |         |                   | 2,728   |              |         |                | 2,220  |   |         |         |        |  
|                                                                              | (Increase) decrease in -                                                          |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|                                                                              |                                                                                   | Inventories                                                     |         |                   | (6,784  | )            |         |                | 14,569 |   |         |         | 467     |  
|                                                                              |                                                                                   | Prepaid expenses and other assets                               |         |                   | 14,963  |              |         |                | (6,819 | ) |         |         | 9,286   |  
|                                                                              | Increase (decrease) in -                                                          |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|                                                                              |                                                                                   | Trade accounts payable                                          |         |                   | 11,153  |              |         |                | 4,026  |   |         |         | (5,646  | )
|                                                                              |                                                                                   | Income taxes payable                                            |         |                   | 20,392  |              |         |                | 2,524  |   |         |         | (14,659 | )
|                                                                              |                                                                                   | Accrued expenses                                                |         |                   | 15,892  |              |         |                | (5,814 | ) |         |         | (534    | )
|                                                                              |                                                                                   | Deferred credits                                                |         |                   | 1,121   |              |         |                | 130    |   |         |         | 1,903   |  
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Net cash provided by continuing operations                                    |                                                                                   |                                                                 | 167,121 |                   |         |              | 101,363 |                |        |   | 110,963 |        
|Net cash provided by (used in) discontinued operations                        |                                                                                   |                                                                 | 114     |                   |         |              | 7,626   |                |        |   | (5,739  | )      
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Net cash provided by operating activities                                     |                                                                                   |                                                                 | 167,235 |                   |         |              | 108,989 |                |        |   | 105,224 |        
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Cash flows from investing activities:                                         |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |        
|                                                                              | Acquisition of property and equipment                                             |                                                                 |         | (45,499           | )       |              |         | (45,055        | )      |   |         | (43,405 | )      
|                                                                              | Acquisition of business, net of cash acquired                                     |                                                                 |         |                  |         |              |         |               |        |   |         | (9,548  | )      
|                                                                              | Acquisition of intangible assets, net of cash received from sale                  |                                                                 |         | (6,834            | )       |              |         | (8,504         | )      |   |         | (1,499  | )      
|                                                                              | Sale (purchase) of short-term investments                                         |                                                                 |         | 1,563             |         |              |         | (1,563         | )      |   |         | 3,455   |        
|                                                                              | Capital expenditures of discontinued operations                                   |                                                                 |         | (352              | )       |              |         | (2,603         | )      |   |         | (2,054  | )      
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Net cash used in investing activities                                         |                                                                                   |                                                                 | (51,122 | )                 |         |              | (57,725 | )              |        |   | (53,051 | )      
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Cash flows from financing activities:                                         |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |        
|                                                                              | Principal payments on debt                                                        |                                                                 |         | (20,227           | )       |              |         | (51,493        | )      |   |         | (20,082 | )      
|                                                                              | Purchase of treasury stock                                                        |                                                                 |         |                  |         |              |         |               |        |   |         | (49,913 | )      
|                                                                              | Proceeds from stock options exercised                                             |                                                                 |         | 2,971             |         |              |         | 46             |        |   |         | 538     |        
|                                                                              | Dividends paid                                                                    |                                                                 |         | (7,577            | )       |              |         | (7,569         | )      |   |         | (7,839  | )      
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Net cash used in financing activities                                         |                                                                                   |                                                                 | (24,833 | )                 |         |              | (59,016 | )              |        |   | (77,296 | )      
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Effect of foreign currency exchange rate changes on cash
and cash equivalents |                                                                                   |                                                                 | 4,290   |                   |         |              | (4,196  | )              |        |   | (2,537  | )      
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Net increase (decrease) in cash and cash equivalents                          |                                                                                   |                                                                 | 95,570  |                   |         |              | (11,948 | )              |        |   | (27,660 | )      
|Cash and cash equivalents at beginning of period                              |                                                                                   |                                                                 | 99,912  |                   |         |              | 111,860 |                |        |   | 139,520 |        
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        
|Cash and cash equivalents at end of period                                    |                                                                                   | $                                                               | 195,482 |                   |         | $            | 99,912  |                |        | $ | 111,860 |        
|                                                                              |                                                                                   |                                                                 |         |                   |         |              |         |                |        |   |         |         |        

See accompanying notes to consolidated financial statements.

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CLAIRES STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations  Claires Stores, Inc., a Florida corporation, and
subsidiaries (collectively the Company), is a leading retailer of
value-priced fashion accessories targeted towards pre-teens and teenagers and
young adults. The Company operates stores throughout the United States,
Canada, the Caribbean, United Kingdom, Switzerland, Austria, Germany, France,
Ireland and Japan.

Principles of Consolidation  The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The Companys 50%
ownership interest in its Japanese joint venture (Claires Nippon) is accounted
for under the equity method. All material intercompany balances and
transactions have been eliminated in consolidation. In January 2002, the
Company adopted a plan to discontinue its Mr. Rags (Lux Corp.) Apparel
division. The consolidated financial statements and notes thereto have been
restated and reclassified for all periods presented. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America, which require management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates include valuation of
inventories, provisions for income taxes and the recoverability of
non-consolidated investments and long-lived assets. Actual results could
differ from these estimates. Periodically, the Company reviews all significant
estimates and assumptions affecting the financial statements relative to
current conditions and records the effect of any necessary adjustments.

Reclassifications  The consolidated financial statements include certain
reclassifications of prior year amounts in order to conform to current year
presentation.

Fiscal Year  The Companys fiscal year ends on the Saturday closest to January
31. Fiscal year 2003 consisted of 52 weeks and ended on February 1, 2003,
Fiscal year 2002 consisted of 52 weeks and ended on February 2, 2002 and Fiscal
year 2001 consisted of 53 weeks and ended on February 3, 2001.

Cash and Cash Equivalents  The Company considers all highly liquid debt
instruments purchased with an original maturity of ninety days or less to be
cash equivalents. Those instruments with an original maturity of greater than
three months are classified as short term investments.

Inventories  Merchandise inventories are stated at the lower of cost or
market. Cost is determined by the first-in, first-out basis using the retail
method in North America and Bijoux, while the UK and France use average cost.
Approximately 22% and 22% of the Companys inventory was maintained using the
average cost method, in Fiscal 2003 and 2002, respectively.

Property and Equipment  Property and equipment are recorded at cost.
Depreciation is computed on the straight-line method over the estimated useful
lives of the building and the furniture, fixtures and equipment, which range
from three to twenty-five years. Amortization of leasehold improvements is
computed on the straight-line method based upon the shorter of the estimated
useful lives of the assets or the terms of the respective leases. Maintenance
and repair costs are charged to earnings while expenditures for major renewals
and improvements are capitalized. Upon the disposition of property, plant and
equipment, the accumulated depreciation is deducted from the original cost and
any gain or loss is reflected in current earnings.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement retains the requirements of SFAS
No. 121 to (a) recognize an impairment loss only if the carrying amount of a
long lived asset is not recoverable from its discounted cash flows and (b)
measure an impairment loss as the difference between the carrying amount and
fair value of the asset. This statement requires that a long-lived asset to be
abandoned, exchanged for a similar productive asset,

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or distributed to owners in a spin-off be considered held and used until it is
disposed of. This statement requires that the depreciable life of a long-lived
asset to be abandoned be revised and that an impairment loss be recognized at
the date a long-lived asset is exchanged for a similar productive asset or
distributed to owners in a spin-off if the carrying amount of the asset exceeds
its fair value. The accounting model for long-lived assets to be disposed of
by sale is used for all long-lived assets, whether previously held and used or
newly acquired. That accounting model measures a long-lived asset classified
as held for sale at the lower of its carrying amount or fair value less cost to
sell and requires depreciation (amortization) to cease. Discontinued
operations are no longer measured on a net realizable value basis, and future
operating losses are no longer recognized before they occur. This statement
retains the basic provisions of Accounting Principles Board Opinion 30 for the
presentation of discontinued operations in the income statement but broadens
that presentation to include a component of an entity (rather than a segment of
a business). A component of an entity comprises operations and cash flows that
can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity. A component of an entity that is
classified as held for sale or that has been disposed of is presented as a
discontinued operation if the operations and cash flows of the component will
be (or have been) eliminated from the ongoing operations of the entity and the
entity will not have any significant continuing involvement in the operations
of the component. The Company adopted SFAS 144 on February 3, 2002.
Management has determined that the adoption of SFAS 144 did not have a material
effect on the Companys financial statements. The Company recorded impairment
charges of approximately $2.7 million during the year ended February 1, 2003
related to fixed assets within the international segment due to those assets
not being recoverable by estimated discounted cash flows. The Company recorded
approximately $2.2 million during the year ended February 2, 2002 related to
fixed assets in our North America segment whose carrying amount could not be
recovered. These impairment charges are included within the financial
statement caption Selling, general, administrative expenses within the
Companys Consolidated Statements of Operations and Comprehensive Income.

Goodwill  Effective February 3, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other
Intangible Assets. In accordance with SFAS 142, the Company ceased amortizing
its goodwill effective February 3, 2002. The Company recorded $8.7 million the
year ended February 2, 2002 and would have recorded $8.6 million of
amortization during the year ended February 1, 2003. Net income for the year
ended February 2, 2002 would have been $25.2 million and $0.52 per diluted
share without goodwill amortization expense during that period. The Company
had $197.9 and $193.1 million of unamortized goodwill at February 1, 2003 and
February 2, 2002, respectively. In addition, the adoption of SFAS 142 had no
impact on discontinued operations per share amounts.

SFAS 142 required the Company upon its adoption to reassess the value of, and
useful lives assigned to, intangible assets including goodwill to determine
whether the value of one or more intangible assets is impaired. The first step
of this impairment test required the Company, within the first six months of
Fiscal 2003, to determine the fair value of the reporting unit, as defined by
SFAS 142, and compare it to the carrying value of the net assets allocated to
the reporting unit. If this fair value exceeded the carrying value, no further
analysis was required. If the fair value of the reporting unit was less than
the carrying value of the net assets, the Company was required to perform step
two of the impairment test, which required the Company to allocate the implied
fair value of the reporting unit to all underlying assets and liabilities,
including both recognized and unrecognized tangible and intangible assets,
based on their fair value. The Company performed a transitional goodwill
impairment test as required and determined that no goodwill impairment existed
at February 3, 2002.

SFAS 142 also requires the Company to perform a goodwill and intangible assets
impairment test on an annual basis. Any impairment charges resulting from the
application of this test in the future would be immediately recorded as a
charge to earnings in the Companys statement of operations.

Prior to the adoption of SFAS 142, goodwill was being amortized on a
straight-line basis over 25 years. The Company periodically reviewed its
goodwill for events or changes in circumstances that indicated that the
carrying amount was not recoverable, in which case an impairment charge would
be recorded. There was no impairment charge recorded by the Company during
Fiscal 2003, 2002 or 2001.

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Other Assets  Other assets includes primarily the non-current portion of
prepaid lease payments on leasehold improvements and equipment financed under
non-cancelable operating leases. These prepaid expenses are amortized on a
straight line basis over the respective lease terms, typically ranging from 4
to 7 years.

Intangible Assets  The Company has concluded that certain intangible assets,
comprised primarily of lease rights, qualify as indefinite-life intangible
assets under SFAS 142. Fair market value of the lease rights were determined
through the use of third-party valuation. In addition, the Company makes
investments through our international subsidiaries in intangible assets upon
the opening and acquisition of many of our store locations in Europe. These
other intangible assets which are subject to amortization are amortized over
the useful lives of the respective leases, not to exceed 25 years. The Company
evaluates the market value of intangible assets periodically and records the
impairment charge when the Company believes the asset has experienced a decline
in value that is other than temporary. The Company recorded impairment charges
of approximately $1.0 million in Fiscal 2003, included within selling, general
and administrative expenses, because the market value of certain lease rights
included in its international segment were determined to be less than their
carrying values.

Revenue Recognition  The Company recognizes sales as the customer takes
possession of the merchandise. The estimated liability for sales returns is
based on the historical return levels, which is netted against sales.

Basic and Diluted Shares  Basic net income per share is based on the weighted
average number of shares of Class A Common Stock and Common Stock outstanding
during the period (48,717,000 shares in Fiscal 2003, 48,671,000 shares in
Fiscal 2002 and 49,931,000 shares in Fiscal 2001). Diluted net income per
share includes the dilutive effect of stock options plus the number of shares
included in basic net income per share (48,891,000 shares in Fiscal 2003,
48,751,000 shares in Fiscal 2002 and 50,101,000 shares in Fiscal 2001).
Options to purchase 164,173, 1,156,510 and 560,500 shares of common stock, at
prices ranging from $21.56 to $30.25 per share, $17.31 to $30.25 per share and
$20.38 to $30.25 per share, respectively, were outstanding for the years ended
February 1, 2003, February 2, 2002 and February 3, 2001, respectively, but were
not included in the computation of diluted earnings per share because the
options exercise prices were greater than the average market price of the
common shares for the respective fiscal year.

Income Taxes  The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109 which generally
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. In addition, SFAS No. 109 requires the adjustment of previously
deferred income taxes for changes in tax rates under the liability method.

Foreign Currency Translation  The financial statements of the Companys
foreign operations are translated into U.S. dollars. Assets and liabilities
are translated at current exchange rates while income and expense accounts are
translated at the average rates in effect during the year. Resulting
translation adjustments are accumulated as a component of other comprehensive
income. Foreign currency gains and losses resulting from transactions
denominated in foreign currencies, including intercompany transactions, except
for intercompany loans of a long-term investment nature, are included in
results of operations.

Fair Value of Financial Instruments  The Companys financial instruments
consist primarily of current assets, current liabilities and long term debt.
Current assets and liabilities approximate fair market value. Long term debt
is considered to approximate market value due to the interest rate being
variable.

Stock Options  Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock Based Compensation, allows entities to choose
between a fair value based method of accounting for employee stock options or
similar equity instruments and the intrinsic value based method of

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accounting prescribed by Accounting Principles Board Opinion No. 25 (APB No.
25), Accounting for Stock Issued to Employees. Entities electing to account
for employee stock options or similar equity instruments under APB No. 25 must
make pro forma disclosures of net income and earnings per share as if the fair
value method of accounting had been applied. The Company has elected to apply
the provisions of APB No. 25 in the preparation of its consolidated financial
statements and provide pro forma disclosure of net income and earnings per
share as required under SFAS 123 in the notes to the consolidated financial
statements (dollars in thousands, except share data).

|                                                                                          |  |                   |  |      |  |      |        |  |  |   |        |  |  |   |        | 
|----------------------------------------------------------------------------------------- |  | ----------------- |  | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                                          |  | Fiscal Year Ended
|                                                                                          |  |                  
|                                                                                          |  | 2003              |  | 2002 |  | 2001
|                                                                                          |  |                   |  |      |  |     
|Stock-based employee compensation
expense not included in reported
net income, net of tax |  |                   |  |      |  | $    | 840    |  |  | $ | 1,074  |  |  | $ | 1,128  | 
|Net income  as reported                                                                  |  |                   |  |      |  |      | 77,744 |  |  |   | 19,583 |  |  |   | 64,975 | 
|Net income  pro forma                                                                    |  |                   |  |      |  |      | 76,904 |  |  |   | 18,509 |  |  |   | 63,847 | 
|Basic net income per share  as reported                                                  |  |                   |  |      |  |      | 1.60   |  |  |   | 0.40   |  |  |   | 1.30   | 
|Basic net income per share  pro forma                                                    |  |                   |  |      |  |      | 1.58   |  |  |   | 0.38   |  |  |   | 1.28   | 
|Diluted net income per share  as reported                                                |  |                   |  |      |  |      | 1.59   |  |  |   | 0.40   |  |  |   | 1.30   | 
|Diluted net income per share  pro forma                                                  |  |                   |  |      |  |      | 1.57   |  |  |   | 0.38   |  |  |   | 1.27   | 

Recent Accounting Pronouncements  On July 5, 2001, the FASB issued SFAS No.
143, Accounting for Asset Retirement Obligations. That standard requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When the liability is
initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted
to its present value each period, and the capitalized cost is depreciated over
the useful life of the related asset. Upon settlement of the liability, an
entity either settles the obligation for its recorded amount or incurs a gain
or loss upon settlement. The standard is effective for fiscal years beginning
after June 15, 2002, with earlier application encouraged. As a result, SFAS
No. 143 will not be effective for the Companys Fiscal 2003 financial
statements. Management has not determined the effect that SFAS No. 143 will
have on the Companys consolidated financial statements.

In June 2002, the FASB issued Statement No. 146 Costs Associated with Exit or
Disposal Activities. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred compared to prior literature, which recognized a liability when the
entity committed to an exit plan. The new requirements are effective
prospectively for exit or disposal activities initiated after December 31,
2002. Management believes that this Statement will not have a material impact
on the Companys financial statements; however, the Statement will result in a
change in accounting policy associated with the recognition of liabilities in
connection with future restructuring charges.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while the provisions of the disclosure
requirements are effective for financial statements of interim or annual
reports ending after December 15, 2002. The Company has determined that FIN 45
did not have a material impact on the Companys financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods for
voluntary transition to SFAS No. 123s fair value method of accounting for
stock-based employee compensation (the fair value method). SFAS No. 148 also
requires disclosure of the effects of an entitys accounting policy with
respect to stock-based

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employee compensation on reported net income (loss) and earnings (loss) per
share in annual and interim financial statements. The Company is required to
follow the prescribed disclosure format and has provided the additional
disclosures required by SFAS No. 148 for the year ended February 1, 2003 and
must also provide the disclosures in its quarterly reports containing condensed
financial statements for interim periods beginning with the quarterly period
ending May 3, 2003.

In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities. The interpretation defines a variable interest
entity as a corporation, partnership, trust or any other legal structure used
for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the equity to support its activities. A variable
interest entity often holds financial assets, including loans or receivables,
real estate or other property. A variable interest entity may be essentially
passive or it may engage in research and development or other activities on
behalf of another company. This interpretation requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entitys activities or entitled
to receive a majority of the entitys residual returns or both. The Company
would have to consolidate any of our variable interest entities that meet the
above criteria as of July 1, 2003. The interpretation also requires
disclosures about variable interest entities that the Company is not required
to consolidate but in which we have a significant variable interest. The
Company is in the process of determining if its interests in unconsolidated
entities qualify as variable interest entities and, if so, whether the assets,
liabilities, non-controlling interest, and results of activities are required
to be included in the Companys consolidated financial statements.

2. STATEMENTS OF CASH FLOWS

Payments of income taxes were $20,492,000 in Fiscal 2003, $15,006,000 in Fiscal
2002 and $42,060,000 in Fiscal 2001. Payments of interest were $4,323,000 in
Fiscal 2003, $12,467,000 in Fiscal 2002 and $12,918,000 in Fiscal 2001.

3. DISCONTINUED OPERATIONS

In January 2002, the Companys Board of Directors authorized the disposition of
Lux Corp., which represented the Companys apparel segment. In connection with
the plan to dispose of Lux Corp., the Company recorded a loss on disposal of
$13.0 million, net of tax, in the consolidated financial statements as of
February 2, 2002. On May 17, 2002, the Company sold the stock of Lux
Corporation, d/b/a Mr. Rags for (i) an initial payment of $5 million, (ii)
deferred payments to be paid aggregating $10 million payable as 1% of net sales
during the first year and 2% of net sales thereafter, and (iii) an amount to be
paid equal to approximately 48% of the gross sales of the inventory of Mr. Rags
as of the closing date. Through the date of disposition, the operations of Lux
Corp. were accounted for as a discontinued operation in the Companys
consolidated financial statements. The deferred payments aggregating $10
million were not included in the Companys estimate of loss on disposition as
the timing and amount could not be reasonably estimated due to the uncertainty
of the financial condition of the acquired business. In January 2003, Lux
Corp. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of
California. As a result, no deferred payments have been made to the Company
since the date of the bankruptcy filing, and there is no assurance that the
Company will receive any future deferred payments. In order to
conform to the separate presentation of the net assets and operating results of
Mr. Rags as a discontinued operation, certain prior period amounts have been
reclassified to conform to current period presentation. During the twelve
months ended February 1, 2003, the Company recorded approximately $235
thousand, net of tax, loss on disposal of Lux Corp.

As of February 1, 2003, the Company remains as a guarantor on 12 real estate
leases for Mr. Rags store locations with future rental payments of
approximately $10.2 million. As of February 1, 2003, the Company also had a
contingent liability as lessee under a master lease agreement on $4.0 million
of gross future lease payments on operating leases for equipment and leasehold
improvements of Lux Corp. that were assigned to Lux Corp. at the time of the
sale. Based on managements review of the financial performance of Mr. Rags
since the date of sale and, taking into consideration the bankruptcy filing by

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Lux Corp. in January 2003 and the related impact on Lux Corp.s ability to
fulfill the commitments under these real estate and operating leases, $5.7
million was accrued as a liability at February 1, 2003. The Company has also
entered into a transitional services agreement with the new owner of Lux Corp.
in May 2002 under which the Company performs certain transition services for
the benefit of Mr. Rags. The Company has no decision-making authority under
the terms of the agreement. The service agreement was for an initial period of
one year with two, three month options. Lux Corp. has exercised the first
renewal option, so the service agreement is scheduled to terminate in August
2003, unless earlier terminated pursuant to the terms of the service agreement.
As of February 1, 2003, the Company has received approximately $1 million for
these services and has included them within interest and other income within
the Consolidated Statement of Operations and Comprehensive Income.

4. CREDIT FACILITIES

In December of 1999, the Company entered into a credit facility pursuant to
which the Company financed $200 million of the purchase price for
Afterthoughts. The credit facility includes a $40 million revolving line of
credit which matures on December 1, 2004, and a $175 million five year term
loan, the first installment of which was paid on December 31, 2000, with future
installments, thereafter, payable on a quarterly basis through December 1,
2004. The credit facility is prepayable without penalty and bears interest at a
margin of 125 basis points over the London Interbank Borrowing Rate. The
margin is adjusted periodically based on the Companys performance as it
relates to certain financial covenants. On February 1, 2003 approximately $25
million was outstanding on this line of credit, while $85 million was
outstanding under the term loan. The borrowings under this credit facility
were bearing interest at 3%, and the Company was in compliance with all debt
covenants at February 1, 2003. The Company cannot re-borrow amounts repaid
under the term loan. As a result, the Company has no future availability under
the term loan. The Company can re-borrow amounts repaid under the revolving
line of credit, subject to the terms of the credit facility. As of February 1,
2003, the Company had $15 million of availability under the revolving line of
credit. The Company also had $1.2 million of issued letters of credit which
are supported and considered drawn against the line of credit.

The Companys non-U.S. subsidiaries have credit facilities totaling
approximately $1.6 million with banks. The facilities are used for working
capital requirements, letters of credit and various guarantees. These credit
facilities have been arranged in accordance with customary lending practices in
their respective countries of operation. At February 1, 2003, the borrowings
totaled $916,000, bearing interest at rates at approximately 3%.

The scheduled maturity of the Companys credit facilities are as follows (in
thousands):

|             |  |   |         | 
|------------ |  | - | ------- | 
|Fiscal Year: |  |   |         | 
|2004         |  | $ | 40,916  | 
|2005         |  |   | 70,000  | 
|Thereafter   |  |   |        | 
|             |  |   |         | 
|             |  | $ | 110,916 | 
|             |  |   |         | 

5. COMMITMENTS AND CONTINGENCIES

The Company leases retail stores, offices and warehouse space and certain
equipment under operating leases which expire at various dates through the year
2028 with options to renew certain of such leases for additional periods. The
lease agreements covering retail store space provide for minimum rentals and/or
rentals based on a percentage of net sales. Rental expense for each of the
three fiscal years ended February 1, 2003 is set forth below:
37Table of Contents

|                                                |  |             |         |             |  |                |         |  |  |   |         | 
|----------------------------------------------- |  | ----------- | ------- | ----------- |  | -------------- | ------- |  |  | - | ------- | 
|                                                |  | Fiscal 2003 |         | Fiscal 2002 |  | Fiscal 2001   
|                                                |  |             |         |             |  |               
|                                                |  |             |         |             |  | (In thousands) |         |  |  |  
|Minimum store rentals                           |  | $           | 132,981 |             |  | $              | 123,186 |  |  | $ | 122,356 | 
|Store rentals based on net sales                |  |             | 2,951   |             |  |                | 1,712   |  |  |   | 2,113   | 
|Other rental expense                            |  |             | 23,260  |             |  |                | 22,788  |  |  |   | 21,140  | 
|                                                |  |             |         |             |  |                |         |  |  |   |         | 
|Total rental expense from
continuing operations |  | $           | 159,192 |             |  | $              | 147,686 |  |  | $ | 145,609 | 
|                                                |  |             |         |             |  |                |         |  |  |   |         | 

Minimum aggregate rental commitments under non-cancelable operating leases are
summarized by fiscal year ending as follows (in thousands):

|           |  |            |         | 
|---------- |  | ---------- | ------- | 
|           |  | From      
|           |  | Continuing
|           |  | Operations
|           |  |           
|2004       |  | $          | 142,569 | 
|2005       |  |            | 133,226 | 
|2006       |  |            | 120,939 | 
|2007       |  |            | 109,764 | 
|2008       |  |            | 101,099 | 
|Thereafter |  |            | 372,062 | 
|           |  |            |         | 
|           |  | $          | 979,659 | 
|           |  |            |         | 

Certain leases provide for payment of real estate taxes, insurance and other
operating expenses of the properties.

In other leases, some of these costs are included in the basic contractual
rental payments. Certain leases contain escalation clauses resulting from the
pass-through of increases in operating costs, property taxes and the effect on
costs from changes in consumer price indexes.

Approximately 42% of the merchandise purchased by the Company in North America
was manufactured in China. Any event causing a sudden disruption of imports
from China, or other foreign countries, could have a material adverse effect on
the Companys operations.

Under the terms of the employment agreement with our Chairman, in addition to
salary payments, the Company has future payment obligations of one-time bonus
payments in the aggregate amount of $1.5 million if certain milestones as set
forth in the employment agreement (the Milestones) are achieved, and payment
obligations for increased additional annual compensation of $1.0 million,
commencing November 1, 2003, if the Milestones have been achieved by such date,
or such later date that the Milestones are achieved.

6. STOCKHOLDERS EQUITY

Preferred Stock  The Company has authorized 1,000,000 shares of $1 par value
preferred stock, none of which has been issued. The rights and preferences of
such stock may be designated in the future by the Board of Directors.

Class A Common Stock  The Class A common stock has only limited
transferability and is not traded on any stock exchange or any organized
market. However, the Class A common stock is convertible on a share-for-share
basis into Common stock and may be sold, as Common stock, in open market
transactions. The Class A common stock has ten votes per share. Dividends
declared on the Class A common stock are limited to 50% of the dividends
declared on the Common stock.

Treasury Stock  Treasury stock acquired is recorded at cost. Occasionally, the
Company uses treasury stock to fulfill its obligations under its stock option
plans. When stock is issued pursuant to the stock option plans, the difference
between the cost of treasury stock issued and the option price is charged or
credited to additional paid-in capital. In January 2002, the Company retired
these shares.

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Stock Repurchase Program  In April 2000, the Companys Board of Directors
approved a $50 million stock repurchase program. In connection with this
program, the Company repurchased 2,546,200 shares at a cost of approximately
$50 million. In December 2000, the Company retired these shares.

7. STOCK OPTIONS

In August 1996, the Board of Directors of the Company adopted, and on June 16,
1997 the Companys stockholders approved, the Claires Stores, Inc. 1996 Stock
Option Plan and then, on June 8, 2000, the first amendment thereto (as amended,
the 1996 Plan). The 1996 Plan replaced the Companys 1991 Stock Option Plan
(the 1991 Plan), which had replaced the Companys 1982 Incentive Stock Option
Plan (the 1982 Plan) and the Companys 1985 Non-Qualified Stock Option Plan
(the 1985 Plan), although options granted under the 1991 Plan remain
outstanding. Under the 1996 Plan, the Company may grant either incentive stock
options or non-qualified stock options to purchase up to 4,000,000 shares of
Common Stock, plus any shares unused or recaptured under the 1982 Plan, the
1985 Plan or the 1991 Plan. Incentive stock options granted under the 1996
Plan are exercisable at prices equal to the fair market value of shares at the
date of grant, except that incentive stock options granted to any person
holding 10% or more of the total combined voting power or value of all classes
of capital stock of the Company, or any subsidiary of the Company, carry an
exercise price equal to 110% of the fair market value at the date of grant.
The aggregate number of shares granted to any one person may not exceed
500,000, and no stock option may be exercised less than one year after the date
granted. Each incentive stock option or non-qualified stock option will
terminate ten years after the date of grant (or such shorter period as
specified in the grant) and may not be exercised thereafter.

Incentive stock options currently outstanding are exercisable at various rates
beginning one year from the date of grant, and expire five to ten years after
the date of grant. Non-qualified stock options currently outstanding are
exercisable at prices equal to the fair market value of the shares at the date
of grant and expire five to ten years after the date of grant.

Options to purchase an additional 345,225 shares were outstanding, but not yet
exercisable, at February 1, 2003 under the 1991 Plan and the 1996 Plan. There
were 4,221,396 shares of Common stock available for future option grants under
the 1996 Plan at February 1, 2003 (which includes shares recaptured from the
previous plans).

A summary of the activity in the Companys stock option plans is presented
below:

|                                                                             |  |             |           |             |  |             |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|---------------------------------------------------------------------------- |  | ----------- | --------- | ----------- |  | ----------- | ----- | -------- |  | --------- | --------- | -------- |  | - | ----- |  |  | -------- | --------- | - |  | - | ----- | 
|                                                                             |  | Fiscal 2003 |           | Fiscal 2002 |  | Fiscal 2001
|                                                                             |  |             |           |             |  |            
|                                                                             |  |             |           |             |  | Weighted    |       |          |  |           |           | Weighted |  |   |       |  |  | Weighted
|                                                                             |  |             |           |             |  | Average     |       |          |  |           |           | Average  |  |   |       |  |  | Average 
|                                                                             |  | Number of   |           | Exercise    |  | Number of   |       | Exercise |  | Number of |           | Exercise
|                                                                             |  | Shares      |           | Price       |  | Shares      |       | Price    |  | Shares    |           | Price   
|                                                                             |  |             |           |             |  |             |       |          |  |           |           |         
|Outstanding at beginning of period                                           |  |             | 1,284,977 |             |  | $           | 18.80 |          |  |           | 1,360,264 |          |  | $ | 19.24 |  |  |          | 1,191,824 |   |  | $ | 18.21 | 
|Options granted                                                              |  |             |          |             |  |             |      |          |  |           | 40,000    |          |  | $ | 13.90 |  |  |          | 605,000   |   |  | $ | 17.82 | 
|Options exercised                                                            |  |             | (168,806  | )           |  | $           | 16.77 |          |  |           | (3,750    | )        |  | $ | 12.17 |  |  |          | (80,310   | ) |  | $ | 5.95  | 
|Options canceled                                                             |  |             | (281,623  | )           |  | $           | 25.26 |          |  |           | (111,537  | )        |  | $ | 22.58 |  |  |          | (356,250  | ) |  | $ | 16.39 | 
|                                                                             |  |             |           |             |  |             |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Outstanding at end of period                                                 |  |             | 834,548   |             |  | $           | 17.03 |          |  |           | 1,284,977 |          |  | $ | 18.80 |  |  |          | 1,360,264 |   |  | $ | 19.24 | 
|                                                                             |  |             |           |             |  |             |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Exercisable at end of period                                                 |  |             | 489,323   |             |  | $           | 16.28 |          |  |           | 546,828   |          |  | $ | 17.56 |  |  |          | 432,665   |   |  | $ | 17.54 | 
|Weighted average fair value of options
granted during the period (see below) |  |             |           |             |  |             | N/A   |          |  |           |           |          |  | $ | 7.70  |  |  |          |           |   |  | $ | 11.06 | 

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The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:

|                                |  |        |     |        |  |                   |       |                   |  |  |       |  
|------------------------------- |  | ------ | --- | ------ |  | ----------------- | ----- | ----------------- |  |  | ----- | -
|                                |  | Fiscal |     | Fiscal |  | Fiscal           
|                                |  | 2003   |     | 2002   |  | 2001             
|                                |  |        |     |        |  |                  
|Expected dividend yield         |  |        | N/A |        |  |                   | 0.65  | %                 |  |  | 0.65  | %
|Expected stock price volatility |  |        | N/A |        |  |                   | 50.00 | %                 |  |  | 50.00 | %
|Risk-Free interest rate         |  |        | N/A |        |  |                   | 2.97  | %                 |  |  | 6.14  | %
|Expected life of options        |  |        | N/A |        |  | 4.5 and 9.5 years |       | 4.5 and 9.5 years

The following table summarizes information about stock options outstanding at
February 1, 2003:

|                         |                     |             |                     |             |  |          |      |           |  |          |       |         |  |          |  |  |  |         |  |  |   |       | 
|------------------------ | ------------------- | ----------- | ------------------- | ----------- |  | -------- | ---- | --------- |  | -------- | ----- | ------- |  | -------- |  |  |  | ------- |  |  | - | ----- | 
|                         | Options Outstanding |             | Options Exercisable
|                         |                     |             |                    
|                         |                     |             |                     |             |  | Weighted |      |           |  |          |       |         |  |          |  |  |  |         |  |  |  
|                         |                     |             |                     |             |  | Average  |      | Weighted  |  |          |       |         |  | Weighted
|                         |                     | Number of   |                     | Remaining   |  | Average  |      |           |  |          |       | Average
|                         |                     | Shares      |                     | Contractual |  | Exercise |      | Number of |  | Exercise
|Range of Exercise Prices |                     | Outstanding |                     | Life        |  | Price    |      | Shares    |  | Price   
|                         |                     |             |                     |             |  |          |      |           |  |         
|$8.00 to $17.75          |                     |             | 144,050             |             |  |          | 4.03 |           |  | $        | 8.97  |         |  |          |  |  |  | 113,050 |  |  | $ | 8.91  | 
|$17.81 to $17.81         |                     |             | 300,000             |             |  |          | 7.04 |           |  | $        | 17.81 |         |  |          |  |  |  | 120,000 |  |  | $ | 17.81 | 
|$17.92 to $17.92         |                     |             | 190,000             |             |  |          | 3.47 |           |  | $        | 17.92 |         |  |          |  |  |  | 190,000 |  |  | $ | 17.92 | 
|$18.69 to $20.38         |                     |             | 175,000             |             |  |          | 6.96 |           |  | $        | 20.30 |         |  |          |  |  |  | 50,898  |  |  | $ | 20.27 | 
|$21.25 to $26.00         |                     |             | 25,498              |             |  |          | 2.43 |           |  | $        | 24.35 |         |  |          |  |  |  | 15,375  |  |  | $ | 25.10 | 
|                         |                     |             |                     |             |  |          |      |           |  |          |       |         |  |          |  |  |  |         |  |  |   |       | 
|$8.00 to $26.00          |                     |             | 834,548             |             |  |          | 5.55 |           |  | $        | 17.03 |         |  |          |  |  |  | 489,323 |  |  | $ | 16.28 | 
|                         |                     |             |                     |             |  |          |      |           |  |          |       |         |  |          |  |  |  |         |  |  |   |       | 

The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
issued in October 1995. As permitted under the provisions of SFAS No. 123, the
Company applies the principles of APB Opinion 25 and related Interpretations in
accounting for its stock option plans and, accordingly, does not recognize
compensation cost.

8. EMPLOYEE BENEFIT PLANS

Profit Sharing Plan

The Company has adopted a Profit Sharing Plan under Section 401(k) of the
Internal Revenue Code. This plan allows employees who serve more than 1,000
hours per year to defer up to 18% of their income through contributions to the
plan. In line with the provisions of the plan, for every dollar the employee
contributes the Company will contribute an additional $.50, up to 2% of the
employees salary. In Fiscal 2003, Fiscal 2002 and Fiscal 2001, the cost of
Company matching contributions was $507,000, $493,000 and $439,000,
respectively.

Deferred Compensation Plans

In August 1999, the Company adopted a deferred compensation plan that enables
certain associates of the Company to defer a specified percentage of their cash
compensation. The plan generally provides for payments upon retirement, death,
or termination of employment. Participants may elect to defer a percentage of
their cash compensation while the Company contributes a specified percentage of
the participants cash compensation based on the participants number of years
of service. All contributions are immediately vested. The Companys
obligations under this plan are funded by making contributions to a rabbi
trust. Assets held under this plan are included in cash and cash equivalents
on the Companys balance sheet and totaled $1.3 million and $1.2 million at
February 1, 2003 and February 2, 2002, respectively. The obligations under the
plan are included in accrued expenses. Total Company contributions were
$151,000, $194,000 and $154,000 in Fiscal 2003, 2002 and 2001, respectively.

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Incentive Compensation Plan

In Fiscal 2001, the Company adopted, which was also approved by the Companys
shareholders, an incentive compensation plan for the Chairman of the Board.
Under this plan, a percentage equal to twice the percentage increase in the
consolidated pretax income of the Company over the prior fiscal year, will be
applied against the Chairman of the Boards base salary in determining the
amount of incentive compensation earned. Approximately $1.7 million was earned
pursuant to this plan in Fiscal 2003. No amounts were paid or accrued during
Fiscal 2002 or 2001 by the Company pursuant to this plan.

9. INCOME TAXES

Income before income taxes from continuing operations is as follows:

|         |  |             |         |      |  |                |        |  |  |   |         | 
|-------- |  | ----------- | ------- | ---- |  | -------------- | ------ |  |  | - | ------- | 
|         |  | Fiscal Year
|         |  |            
|         |  | 2003        |         | 2002 |  | 2001          
|         |  |             |         |      |  |               
|         |  |             |         |      |  | (In thousands) |        |  |  |  
|Domestic |  | $           | 97,239  |      |  | $              | 48,449 |  |  | $ | 77,810  | 
|Foreign  |  |             | 22,884  |      |  |                | 16,147 |  |  |   | 26,913  | 
|         |  |             |         |      |  |                |        |  |  |   |         | 
|         |  | $           | 120,123 |      |  | $              | 64,596 |  |  | $ | 104,723 | 
|         |  |             |         |      |  |                |        |  |  |   |         | 

The components of income tax expense (benefit) consist of the following:

|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 
|--------------------------------------------------- | -------- |  | ----------------- | ------- | ------------ | - | -------------- | ------ |  | - | ------ | ------ | 
|                                                    |          |  | Fiscal Year Ended
|                                                    |          |  |                  
|                                                    |          |  | Feb. 1, 2003      |         | Feb. 2, 2002 |   | Feb. 3, 2001  
|                                                    |          |  |                   |         |              |   |               
|                                                    |          |  |                   |         |              |   | (In thousands) |        |  |   |       
|Federal:                                            |          |  |                   |         |              |   |                |        |  |   |        |       
|                                                    | Current  |  |                   | $26,880 |              |   | $              | 14,547 |  |   | $      | 20,839 | 
|                                                    | Deferred |  |                   | 5,881   |              |   |                | 3,626  |  |   |        | 6,928  | 
|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 
|                                                    |          |  | 32,761            |         |              |   | 18,173         |        |  |   | 27,767 |       
|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 
|State:                                              |          |  |                   |         |              |   |                |        |  |   |        |       
|                                                    | Current  |  |                   | 3,783   |              |   |                | 2,065  |  |   |        | 2,770  | 
|                                                    | Deferred |  |                   | 700     |              |   |                | 432    |  |   |        | 714    | 
|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 
|                                                    |          |  | 4,483             |         |              |   | 2,497          |        |  |   | 3,484  |       
|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 
|Foreign:                                            |          |  |                   |         |              |   |                |        |  |   |        |       
|                                                    | Current  |  |                   | 4,900   |              |   |                | 2,800  |  |   |        | 5,700  | 
|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 
|Total income tax expense from
continuing operations |          |  | 42,144            |         |              |   | 23,470         |        |  |   | 36,951 |       
|Tax benefit of discontinued operations              |          |  | (141              | )       |              |   | (12,925        | )      |  |   | (1,678 | )     
|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 
|Total income tax expense                            |          |  | $42,003           |         |              | $ | 10,545         |        |  | $ | 35,273 |       
|                                                    |          |  |                   |         |              |   |                |        |  |   |        |        | 

The approximate tax effect on each type of significant components of the
Companys net deferred tax asset are as follows:

|                     |                  |  |                   |       |         |  |                |       |  |  |   |       | 
|-------------------- | ---------------- |  | ----------------- | ----- | ------- |  | -------------- | ----- |  |  | - | ----- | 
|                     |                  |  | Fiscal Year Ended
|                     |                  |  |                  
|                     |                  |  | Feb. 1,           |       | Feb. 2, |  | Feb. 3,       
|                     |                  |  | 2003              |       | 2002    |  | 2001          
|                     |                  |  |                   |       |         |  |               
|                     |                  |  |                   |       |         |  | (In thousands) |       |  |  |  
|Deferred tax assets: |                  |  |                   |       |         |  |                |       |  |  |   |      
|                     | Depreciation     |  | $                 | 88    |         |  | $              | 1,605 |  |  | $ | 1,994 | 
|                     | Accrued expenses |  |                   | 2,555 |         |  |                | 1,754 |  |  |   | 2,010 | 
|                     | Deferred rent    |  |                   | 2,844 |         |  |                | 2,796 |  |  |   | 2,635 | 

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|                                   |                                  |   |                   |        |         |   |                |       |  |   |        |       | 
|---------------------------------- | -------------------------------- | - | ----------------- | ------ | ------- | - | -------------- | ----- |  | - | ------ | ----- | 
|                                   |                                  |   | Fiscal Year Ended
|                                   |                                  |   |                  
|                                   |                                  |   | Feb. 1,           |        | Feb. 2, |   | Feb. 3,       
|                                   |                                  |   | 2003              |        | 2002    |   | 2001          
|                                   |                                  |   |                   |        |         |   |               
|                                   |                                  |   |                   |        |         |   | (In thousands) |       |  |   |       
|                                   | Discontinued operations          |   |                   | 1,589  |         |   |                | 8,251 |  |   |        |      | 
|                                   | Other                            |   |                   | 1,829  |         |   |                | 2,092 |  |   |        | 995   | 
|                                   | Net operating loss carryforwards |   |                   | 4,096  |         |   |                | 2,828 |  |   |        | 2,164 | 
|                                   |                                  |   |                   |        |         |   |                |       |  |   |        |      
|Total gross deferred tax assets    |                                  |   | 13,001            |        |         |   | 19,326         |       |  |   | 9,798  |      
|Valuation allowance                |                                  |   | (4,096            | )      |         |   | (2,828         | )     |  |   | (2,164 | )    
|                                   |                                  |   |                   |        |         |   |                |       |  |   |        |      
|Total deferred tax assets, net     |                                  |   | 8,905             |        |         |   | 16,498         |       |  |   | 7,634  |      
|Deferred tax liabilities:          |                                  |   |                   |        |         |   |                |       |  |   |        |      
|                                   | Operating leases                 |   |                   | 3,564  |         |   |                | 4,441 |  |   |        | 2,925 | 
|                                   | Intangible amortization          |   |                   | 11,809 |         |   |                | 6,230 |  |   |        | 2,828 | 
|                                   | Other                            |   |                   | 233    |         |   |                | 222   |  |   |        | 133   | 
|                                   |                                  |   |                   |        |         |   |                |       |  |   |        |      
|Total deferred tax liabilities     |                                  |   | 15,606            |        |         |   | 10,893         |       |  |   | 5,886  |      
|                                   |                                  |   |                   |        |         |   |                |       |  |   |        |      
|Net deferred tax asset (liability) |                                  | $ | (6,701            | )      |         | $ | 5,605          |       |  | $ | 1,748  |      
|                                   |                                  |   |                   |        |         |   |                |       |  |   |        |      

The provision for income taxes from continuing operations differs from an
amount computed at the statutory rates as follows:

|                                                         |  |              |      |              |  |              |      |   |  |  |      |  
|-------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------ | ---- | - |  |  | ---- | -
|                                                         |  | Feb. 1, 2003 |      | Feb. 2, 2002 |  | Feb. 3, 2001
|                                                         |  |              |      |              |  |             
|U.S. income taxes at statutory rates                     |  |              | 35.0 | %            |  |              | 35.0 | % |  |  | 35.0 | %
|Foreign income tax benefit at less than domestic rate    |  |              | (5.3 | )            |  |              | (3.6 | ) |  |  | (3.6 | )
|State and local income taxes, net of federal tax benefit |  |              | 2.6  |              |  |              | 2.6  |   |  |  | 2.6  |  
|Other                                                    |  |              | 2.8  |              |  |              | 2.3  |   |  |  | 1.3  |  
|                                                         |  |              |      |              |  |              |      |   |  |  |      |  
|                                                         |  |              | 35.1 | %            |  |              | 36.3 | % |  |  | 35.3 | %
|                                                         |  |              |      |              |  |              |      |   |  |  |      |  

The Company believes that the realization of the deferred tax assets is more
likely than not, based on the expectation that the Company will generate the
necessary taxable income in future periods. As of February 1, 2003, there are
accumulated unremitted earnings from the Companys foreign subsidiaries on
which deferred taxes have not been provided as the undistributed earnings of
the foreign subsidiaries are indefinitely reinvested. Based on the current
United States and foreign subsidiaries income tax rates, it is estimated that
United States taxes, net of foreign tax credits, of approximately $16.4 million
would be due upon repatriation.

As of February 1, 2003, foreign subsidiaries of the Company had available net
operating loss (NOL) carryforwards of approximately $11.5 million for federal
income tax purposes, of which $11.0 million has an indefinite expiration. The
remaining $500 thousand expires in Fiscal 2006. Generally, a valuation
allowance has been established for these carryforwards because the ability to
utilize them is uncertain.

The change in the valuation allowance of $1.3 million from Fiscal 2002 to
Fiscal 2003 was primarily the result of an increase in NOL carryforwards for
current year losses in the Companys foreign subsidiaries, net of utilization,
and the elimination of state NOL carryforwards of Lux Corp. attributable to the
sale of Lux Corp. on May 17, 2002 . The net change in the total valuation
allowance for the years ended Fiscal 2003, 2002 and 2001 was an increase of
$1,268,000, $664,000 and $2,164,000, respectively.

10. RELATED PARTY TRANSACTIONS

Leasing Transactions

The Company leases its executive offices located in Pembroke Pines, Florida
from Rowland Schaefer & Associates, a general partnership owned by two
corporate general partners. Each of our two Vice-Chairmen have an
approximately 32% ownership interest in the general partnership, and our Chief
Financial Officer has an approximately 5% ownership interest in the general
partnership. During Fiscal

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2003, 2002, and 2001, the Company paid Rowland Schaefer & Associates, Inc.
$874,000, $847,000, and $752,000, respectively, for rent, real estate taxes,
and operating expenses as required under the lease. The lease expires on July
31, 2005.

The Company leases retail space for a Claires Boutiques store in New York City
from 720 Lexington Realty LLC, a limited liability corporation that is
controlled by immediate family members of the Companys Chairman, including the
Companys two Co-Vice Chairpersons and another daughter of the Companys
Chairman. The Company entered into the lease with 720 Lexington Realty LLC in
Fiscal 2002, which is when 720 Lexington Realty LLC purchased the property from
the prior owner. During Fiscal 2003 and 2002, the Company paid $280,710 and
$256,463, respectively, for rent to 720 Lexington Realty LLC. The terms under
the lease with 720 Lexington Realty LLC are the same terms as were in effect
when the Company leased the retail space from an unaffiliated third party prior
to the purchase by 720 Lexington Realty LLC. The lease expires on January 31,
2005.

Management believes that these lease arrangements are on no less favorable
terms than we could obtain from unaffiliated third parties.

Loans to Officers

During Fiscal 2003, the Company had an outstanding loan to its Chairman in the
principal amount of $750,000. The interest rate on the loan was 4.6%
per annum and matured
in April 2004. The loan has been satisfied in full. In May 2002, the Company advanced $250,000 to its Chairman
against the Fiscal 2003 incentive bonus the Company anticipated would be paid
to him under his Incentive Compensation Plan. The Incentive Compensation Plan
was approved by the Companys shareholders at the June 2001 annual
shareholders meeting. At February 1, 2003, $1.5 million had been accrued for
the incentive bonus paid to the Companys Chairman in March 2003 based on the
bonus formula in the Incentive Compensation Plan. The payment to him under the
Incentive Compensation Plan for Fiscal 2003 was reduced by the $250,000 advance
made to him in May 2002. The Company had outstanding loans and advances to the
Companys Chairman and his wife during Fiscal 2002 of an aggregate amount of
approximately $683,000, which have been satisfied in full.

During Fiscal 2003 and Fiscal 2002, the Company had an outstanding loan in the
principal amount of $600,000 to the Companys Chief Financial Officer. The
interest rate on the loan was a floating rate equal to the applicable minimum
Federal rate and was payable upon demand. The loan was satisfied in full in
Fiscal 2003.

During Fiscal 2003 and Fiscal 2002, the Company had an outstanding loan in the
principal amount of £300,000 (or approximately $495,000 based on the exchange
rate in effect on February 1, 2003) to the Companys former Chief Executive of
Europe. The loan did not bear interest and was payable upon demand. The loan
was satisfied in full in Fiscal 2003.

During Fiscal 2003 and Fiscal 2002, the Company had two outstanding loans that
were made to a former President and Chief Operating Officer in the aggregate
principal amount of $551,000. The loans bear interest at a rate of 8.5% per
annum and are payable upon demand. The Company has filed a suit for, among
other things, repayment of these loans.

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11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

|                                  |                                          |   |                                    |      |         |   |                                         |      |         |   |         |      |  |   |         |       |   |   |           |      | 
|--------------------------------- | ---------------------------------------- | - | ---------------------------------- | ---- | ------- | - | --------------------------------------- | ---- | ------- | - | ------- | ---- |  | - | ------- | ----- | - | - | --------- | ---- | 
|                                  |                                          |   | Fiscal Year Ended February 1, 2003
|                                  |                                          |   |                                   
|                                  |                                          |   | 1st Qtr                            |      | 2nd Qtr |   | 3rd Qtr                                 |      | 4th Qtr |   | Year   
|                                  |                                          |   |                                    |      |         |   |                                         |      |         |   |        
|                                  |                                          |   |                                    |      |         |   | (In thousands except per share amounts) |      |         |   |        
|Net sales                         |                                          | $ | 210,360                            |      |         | $ | 238,740                                 |      |         | $ | 230,043 |      |  | $ | 322,394 |       |   | $ | 1,001,537 |     
|Gross profit                      |                                          |   | 102,580                            |      |         |   | 117,630                                 |      |         |   | 115,065 |      |  |   | 179,404 |       |   |   | 514,679   |     
|Income from continuing operations |                                          |   | 8,280                              |      |         |   | 15,078                                  |      |         |   | 12,081  |      |  |   | 42,540  |       |   |   | 77,979    |     
|Net income                        |                                          |   | 8,280                              |      |         |   | 16,874                                  |      |         |   | 12,362  |      |  |   | 40,228  |       |   |   | 77,744    |     
|Basic net income per share:       |                                          |   |                                    |      |         |   |                                         |      |         |   |         |      |  |   |         |       |   |   |           |     
|                                  | Income from continuing operations        |   | $                                  | 0.17 |         |   | $                                       | 0.31 |         |   | $       | 0.25 |  |   | $       | 0.87  |   |   | $         | 1.60 | 
|                                  | Gain (loss) from discontinued
operations |   |                                    |     |         |   |                                         | 0.04 |         |   |         |     |  |   |         | (0.05 | ) |   |           |     | 
|                                  |                                          |   |                                    |      |         |   |                                         |      |         |   |         |      |  |   |         |       |   |   |           |     
|                                  | Net income                               |   | $                                  | 0.17 |         |   | $                                       | 0.35 |         |   | $       | 0.25 |  |   | $       | 0.82  |   |   | $         | 1.60 | 
|                                  |                                          |   |                                    |      |         |   |                                         |      |         |   |         |      |  |   |         |       |   |   |           |     
|Diluted net income per share:     |                                          |   |                                    |      |         |   |                                         |      |         |   |         |      |  |   |         |       |   |   |           |     
|                                  | Income from continuing operations        |   | $                                  | 0.17 |         |   | $                                       | 0.31 |         |   | $       | 0.25 |  |   | $       | 0.87  |   |   | $         | 1.59 | 
|                                  | Gain (loss) from discontinued
operations |   |                                    |     |         |   |                                         | 0.04 |         |   |         |     |  |   |         | (0.05 | ) |   |           |     | 
|                                  |                                          |   |                                    |      |         |   |                                         |      |         |   |         |      |  |   |         |       |   |   |           |     
|                                  | Net income (loss)                        |   | $                                  | 0.17 |         |   | $                                       | 0.35 |         |   | $       | 0.25 |  |   | $       | 0.82  |   |   | $         | 1.59 | 
|                                  |                                          |   |                                    |      |         |   |                                         |      |         |   |         |      |  |   |         |       |   |   |           |     

|                                         |                                          |   |                                    |       |         |   |                                         |       |         |   |         |       |   |   |         |       |   |   |         |       |  
|---------------------------------------- | ---------------------------------------- | - | ---------------------------------- | ----- | ------- | - | --------------------------------------- | ----- | ------- | - | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                         |                                          |   | Fiscal Year Ended February 1, 2002
|                                         |                                          |   |                                   
|                                         |                                          |   | 1st Qtr                            |       | 2nd Qtr |   | 3rd Qtr                                 |       | 4th Qtr |   | Year   
|                                         |                                          |   |                                    |       |         |   |                                         |       |         |   |        
|                                         |                                          |   |                                    |       |         |   | (In thousands except per share amounts) |       |         |   |        
|Net sales                                |                                          | $ | 212,876                            |       |         | $ | 221,312                                 |       |         | $ | 204,139 |       |   | $ | 280,410 |       |   | $ | 918,737 |      
|Gross profit                             |                                          |   | 106,198                            |       |         |   | 94,303                                  |       |         |   | 97,509  |       |   |   | 146,942 |       |   |   | 444,952 |      
|Income (loss) from continuing operations |                                          |   | 9,227                              |       |         |   | (1,017                                  | )     |         |   | 3,105   |       |   |   | 29,811  |       |   |   | 41,126  |      
|Net income (loss)                        |                                          |   | 7,748                              |       |         |   | (5,927                                  | )     |         |   | 2,380   |       |   |   | 15,382  |       |   |   | 19,583  |      
|Basic net income (loss) per share:       |                                          |   |                                    |       |         |   |                                         |       |         |   |         |       |   |   |         |       |   |   |         |      
|                                         | Income (loss) from continuing
operations |   | $                                  | 0.19  |         |   | $                                       | (0.02 | )       |   | $       | 0.06  |   |   | $       | 0.61  |   |   | $       | 0.84  |  
|                                         | Loss from discontinued operations        |   |                                    | (0.03 | )       |   |                                         | (0.10 | )       |   |         | (0.01 | ) |   |         | (0.29 | ) |   |         | (0.44 | )
|                                         |                                          |   |                                    |       |         |   |                                         |       |         |   |         |       |   |   |         |       |   |   |         |      
|                                         | Net income (loss)                        |   | $                                  | 0.16  |         |   | $                                       | (0.12 | )       |   | $       | 0.05  |   |   | $       | 0.32  |   |   | $       | 0.40  |  
|                                         |                                          |   |                                    |       |         |   |                                         |       |         |   |         |       |   |   |         |       |   |   |         |      
|Diluted net income (loss) per share:     |                                          |   |                                    |       |         |   |                                         |       |         |   |         |       |   |   |         |       |   |   |         |      
|                                         | Income (loss) from continuing
operations |   | $                                  | 0.19  |         |   | $                                       | (0.02 | )       |   | $       | 0.06  |   |   | $       | 0.61  |   |   | $       | 0.84  |  
|                                         | Loss from discontinued operations        |   |                                    | (0.03 | )       |   |                                         | (0.10 | )       |   |         | (0.01 | ) |   |         | (0.29 | ) |   |         | (0.44 | )
|                                         |                                          |   |                                    |       |         |   |                                         |       |         |   |         |       |   |   |         |       |   |   |         |      
|                                         | Net income (loss)                        |   | $                                  | 0.16  |         |   | $                                       | (0.12 | )       |   | $       | 0.05  |   |   | $       | 0.32  |   |   | $       | 0.40  |  
|                                         |                                          |   |                                    |       |         |   |                                         |       |         |   |         |       |   |   |         |       |   |   |         |      

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12. SEGMENT REPORTING

The Company is primarily organized based on the geographic markets in which it
operates. Under this organizational structure, the Company currently has three
reportable segments: North America, International and the Apparel Stores (the
Company has accounted for this segment as a discontinued operation).

Information about the Companys operations by segment is as follows:

|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|----------------------------------------------------------- | ------------------------------------ | - | ----------------- | ------- | ---- | - | -------------- | ------- | - | - | ------- | ------- | -
|                                                            |                                      |   | Fiscal Year Ended
|                                                            |                                      |   |                  
|                                                            |                                      |   | 2003              |         | 2002 |   | 2001          
|                                                            |                                      |   |                   |         |      |   |               
|                                                            |                                      |   |                   |         |      |   | (In thousands) |         |   |   |        
|Net sales:                                                  |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | 740,838 |      |   | $              | 711,299 |   |   | $       | 764,154 |  
|                                                            | International                        |   |                   | 260,699 |      |   |                | 207,438 |   |   |         | 182,561 |  
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total net sales                                             |                                      | $ | 1,001,537         |         |      | $ | 918,737        |         |   | $ | 946,715 |        
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Operating income:                                           |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | 126,370 |      |   | $              | 85,617  |   |   | $       | 124,193 |  
|                                                            | International                        |   |                   | 33,216  |      |   |                | 28,342  |   |   |         | 32,492  |  
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total operating income                                      |                                      | $ | 159,586           |         |      | $ | 113,959        |         |   | $ | 156,685 |        
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Depreciation and amortization:                              |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | 26,295  |      |   | $              | 32,394  |   |   | $       | 34,039  |  
|                                                            | International                        |   |                   | 11,602  |      |   |                | 10,537  |   |   |         | 8,000   |  
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total depreciation and amortization                         |                                      | $ | 37,897            |         |      | $ | 42,931         |         |   | $ | 42,039  |        
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Interest expense:                                           |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | 4,094   |      |   | $              | 10,259  |   |   | $       | 13,997  |  
|                                                            | International                        |   |                   | 341     |      |   |                | 156     |   |   |         | 160     |  
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total interest expense                                      |                                      | $ | 4,435             |         |      | $ | 10,415         |         |   | $ | 14,157  |        
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Interest and other income:                                  |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | (1,868  | )    |   | $              | (1,176  | ) |   | $       | (2,542  | )
|                                                            | International                        |   |                   | (1,001  | )    |   |                | (2,807  | ) |   |         | (1,692  | )
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total interest and other income                             |                                      | $ | (2,869            | )       |      | $ | (3,983         | )       |   | $ | (4,234  | )      
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Income from continuing operations before income
taxes:      |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | 97,849  |      |   | $              | 44,140  |   |   | $       | 78,699  |  
|                                                            | International                        |   |                   | 22,274  |      |   |                | 20,456  |   |   |         | 26,024  |  
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total income from continuing operations before
income taxes |                                      | $ | 120,123           |         |      | $ | 64,596         |         |   | $ | 104,723 |        
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Goodwill:                                                   |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | 170,650 |      |   | $              | 170,650 |   |   | $       | 186,050 |  
|                                                            | International                        |   |                   | 27,225  |      |   |                | 22,490  |   |   |         | 18,219  |  
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total Goodwill, net                                         |                                      | $ | 197,875           |         |      | $ | 193,140        |         |   | $ | 204,269 |        
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Identifiable assets:                                        |                                      |   |                   |         |      |   |                |         |   |   |         |        
|                                                            | North America                        |   | $                 | 383,537 |      |   | $              | 348,889 |   |   | $       | 401,330 |  
|                                                            | International                        |   |                   | 344,990 |      |   |                | 262,686 |   |   |         | 232,364 |  
|                                                            | Net Assets of Discontinued Operation |   |                   |        |      |   |                |        |   |   |         | 26,567  |  
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  
|Total assets                                                |                                      | $ | 728,527           |         |      | $ | 611,575        |         |   | $ | 660,261 |        
|                                                            |                                      |   |                   |         |      |   |                |         |   |   |         |         |  

45



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|                           |                        |   |                   |        |      |   |                |        |  |   |        |        | 
|-------------------------- | ---------------------- | - | ----------------- | ------ | ---- | - | -------------- | ------ |  | - | ------ | ------ | 
|                           |                        |   | Fiscal Year Ended
|                           |                        |   |                  
|                           |                        |   | 2003              |        | 2002 |   | 2001          
|                           |                        |   |                   |        |      |   |               
|                           |                        |   |                   |        |      |   | (In thousands) |        |  |   |       
|Capital expenditures:      |                        |   |                   |        |      |   |                |        |  |   |        |       
|                           | North America          |   | $                 | 29,103 |      |   | $              | 31,205 |  |   | $      | 25,004 | 
|                           | International          |   |                   | 16,396 |      |   |                | 13,850 |  |   |        | 18,401 | 
|                           | Discontinued Operation |   |                   | 352    |      |   |                | 2,603  |  |   |        | 2,054  | 
|                           |                        |   |                   |        |      |   |                |        |  |   |        |        | 
|Total capital expenditures |                        | $ | 45,851            |        |      | $ | 47,658         |        |  | $ | 45,459 |       
|                           |                        |   |                   |        |      |   |                |        |  |   |        |        | 

Identifiable assets are those assets that are identified with the operations of
each segment. Corporate assets consist mainly of cash and cash equivalents,
investments in affiliated companies and other assets. Operating income
represents gross profit less selling, general and administrative costs.
Approximately 19%, 18% and 15% of the Companys net sales were in the United
Kingdom for Fiscal Years 2003, 2002 and 2001, respectively.

In addition, a significant amount of merchandise purchases come from China.
Any change in the political or trade relationship with the United States
affecting our ability to import goods in quantities or at prices similar to
past practices could have a material adverse affect on the Company.




Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




PART III.













Items 10, 11, 12 and 13. Directors and Executive Officers of the Registrant;
Executive Compensation; Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters; and Certain Relationships and
Related Transactions.

The information called for by Items 10, 11, 12 and 13 will be contained in our
definitive Proxy Statement for our 2003 Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission no later than 120 days after
the end of our fiscal year covered by this report pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, and is incorporated
herein by reference.




Item 14. Controls and Procedures



|(a) |  | Evaluation of Disclosure Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Based on their evaluation of our disclosure controls and procedures
conducted within 90 days of the date of filing this report on Form 10-K, our
acting co-Chief Executive Officers and our Chief Financial Officer have
concluded that our disclosure controls and procedures, as of the date of
their evaluation, have been designed and are being operated in a manner that
provides reasonable assurance that the information required to be disclosed
by us in reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms.
|   
|(b) |  | Changes in Internal Controls                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.                                                                                                                                                                                                                                                                                                                                                                

46



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PART IV.




Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  List of documents filed as part of this report.



| | 1. |  | Financial Statements
| | -- |  | --------------------

|                                                                                                                                                  |  |          |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                                                                                  |  | Page No.
|                                                                                                                                                  |  |         
|Independent Auditors Report                                                                                                                      |  |          | 27 | 
|Consolidated Balance Sheets as of February 1, 2003 and
February 2, 2002                                                                           |  |          | 28 | 
|Consolidated Statements of Operations and Comprehensive Income
for the fiscal years ended February 1, 2003, February 2, 2002
and February 3, 2001 |  |          | 29 | 
|Consolidated Statements of Changes in Stockholders Equity for
the fiscal years ended February 1, 2003, February 2, 2002
and February 3, 2001     |  |          | 30 | 
|Consolidated statements of Cash Flows for the fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001                          |  |          | 31 | 
|Notes to Consolidated Financial Statements                                                                                                        |  |          | 32 | 



| | 2. |  | Financial Statement Schedules
| | -- |  | -----------------------------

All schedules have been omitted because the required information is included in
the consolidated financial statements or the notes thereto, or the omitted
schedules are not applicable.



| | 3. |  | Exhibits
| | -- |  | --------

|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)(a) |  | Agreement and Plan of Merger dated as of March 9, 1998 among
the Company, CSI Acquisition Corp., Lux Corporation, and David
Shih, Eva Shih, Daniel Shih, Douglas Shih, the Shih Irrevocable
Trust and Crestwood Partners LLC, as amended by letter
amendment dated March 23, 1998 and addendum thereto dated March
24, 1998 (incorporated by reference to exhibit 2 (a) to the
Companys Annual Report on form 10-K for the fiscal year ended
January 30, 1999).                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2)(b) |  | Stock Purchase Agreement dated as of November 11, 1998
between the Company and Peter Bossert, an individual, for any
and all shares/Company contributions of: Bijoux One AG, Zurich,
Switzerland, Bijoux One Trading AG, Zurich, Switzerland, Bijoux
One Trading GesmbH, Brunn am Gebirge, Austria and Bosco GmbH,
Stuttgart, Germany (omitted schedules will be furnished
supplementally to the Commission upon request (incorporated by
reference to exhibit 2 (b) to the Companys Annual Report on
form 10-K for the fiscal year ended January 30, 1999).
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2)(c) |  | Asset Purchase Agreement, dated as of November 1, 1999, by and
between the Company, Venator Group, Inc., Venator Group
Specialty, Inc., Venator Group Canada, Inc., Afterthoughts
Boutiques, Inc. and Afterthoughts (incorporated by reference to
Exhibit 2.1 to the Companys Current Report on Form 8-K dated
December 1, 1999).                                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2)(d) |  | Agreement and Plan of Merger, dated as of April 28, 2000, by
and between Claires Stores, Inc. and CSI Florida Acquisition,
Inc. (incorporated by reference to Appendix A to the Companys
Proxy Statement relating to the 2000 Annual Meeting of
Stockholders).                                                                                                                                                                                                                                                                                             

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)(e)  |  | Stock Purchase Agreement, dated as of May 17, 2002, by and
among Mr. Rags Acquisition, Inc., Claires Stores, Inc. and Lux
Corporation d/b/a Mr. Rags (omitted schedules will be furnished
supplementally to the Commission upon request) (incorporated by
reference to Exhibit 2.1 to the Companys Current Report on
Form 8-K filed on June 3, 2002).                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3)(a)  |  | Amended and Restated Articles of Incorporation of Claires
Stores, Inc. (formerly known as CSI Florida Acquisition, Inc.)
(incorporated by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K dated June 30, 2000).                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3)(b)  |  | Amended and Restated Bylaws of Claires Stores, Inc. (formerly
known as CSI Florida Acquisition, Inc.). (1)                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(a) |  | Credit Agreement, dated as of December 1, 1999, by and among,
the Company, the several banks and other financial institutions
or entities from time to time parties thereto, Bear Stearns &
Co., Inc., as sole lead arranger and sole book manager, Bear
Stearns Corporate Lending, Inc., as syndication agent, Suntrust
Banks South Florida, N.A., as documentation agent (incorporated
by reference to Exhibit 4.1 to the Companys Current Report on
Form 8-K dated December 1, 1999).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(b) |  | Form of Note (incorporated by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K dated December 1, 1999).                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(c) |  | Form of Guarantee (incorporated by reference to Exhibit 4.3 to
the Companys Current Report on Form 8-K dated December 1,
1999).                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(d) |  | Incentive Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 10(a) to the Companys
Annual Report on Form 10-K for the fiscal year ended February
1, 1986).                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(e) |  | Non-Qualified Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 10(e) to the Companys
Annual Report on Form 10-K for the fiscal year ended February
1, 1986).                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(f) |  | 1991 Stock Option Plan of the Company (incorporated by
reference to Appendix A to the Companys Proxy Statement
relating to the 1991 Annual Meeting of Stockholders).                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(g) |  | 1996 Stock Option Plan of the Company (incorporated by
reference to Appendix A to the Companys Proxy Statement
relating to the 1997 Annual Meeting of Stockholders).                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(h) |  | 401(k) Profit Sharing Plan, as amended (incorporated by
reference to Exhibit 10(e) to the Companys Annual Report on
Form 10-K for the fiscal year ended February 1, 1992).                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(i) |  | Office Lease Agreement dated September 8, 1989 between the
Company and Two Centrum Plaza Associates (incorporated by
reference to Exhibit 10(h) to the Companys Annual Report on
Form 10-K for the fiscal year ended February 2, 1991).                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(j) |  | Amendment of Office Lease Agreement dated July 31, 1990 between
the Company and Two Centrum Plaza Associates (incorporated by
reference to                                                                                                                                                                                                                                                                                                                                               

48



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | exhibit 10 (g) to the Companys Annual Report on
form 10-K for the fiscal year ended January 30, 1999).                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(k) |  | Addendum to Office Lease dated September 8, 1989 between the
Company and Two Centrum Plaza Associates (incorporated by
reference to Exhibit 10(j) to the Companys Annual Report on
Form 10-K for the fiscal year ended February 2, 1991).                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(l) |  | Second addendum to office lease dated January 30, 1997 between
the Company and Two Centrum Plaza Associates (incorporated by
reference to Exhibit 10(g) to the Companys Annual Report on
Form 10-K for the fiscal year ended February 1, 1997).                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(m) |  | Claires Stores, Inc. Management Deferred Compensation Plan
effective as of July 26, 1999, as amended.(1)                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(n) |  | Consent and Waiver, dated as of June 13, 2000, to the Credit
Agreement, dated as of December 1, 1999, by and among the
Company, the several banks and other financial institutions or
entities from time to time parties thereto, Bear Stearns & Co.,
Inc., Bear Stearns Corporate Lending, Inc., SunTrust Banks
South Florida, N.A. and Fleet National Bank (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q for the quarterly period ended July 29, 2000).    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(o) |  | First Amendment to 1996 Stock Option Plan of the Company
(incorporated by reference to Appendix D of the Companys Proxy
Statement relating to the 2000 Annual Meeting of Stockholders).                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(p) |  | 2000 Incentive Compensation Plan for the Chairman of the Board
of the Company (incorporated by reference to Appendix E of the
Companys Proxy Statement relating to the 2000 Annual Meeting
of Stockholders).                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(q) |  | Promissory Note dated January 23, 2002 in the principal amount
of $600,000 by the Companys Chief Financial Officer
(incorporated by reference to Exhibit (10)(q) to the Companys
Annual Report on Form 10-K for the fiscal year ended February
2, 2002).                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(r) |  | Deed (Promissory Note) dated December 1997 in the principal
amount of £300,000 by the Companys Chief Executive of Europe
(incorporated by reference to Exhibit (10)(r) to the Companys
Annual Report on Form 10-K for the fiscal year ended February
2, 2002).                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(s) |  | Promissory Note dated January 23, 2002 in the Principal amount
of $250,000 by the wife of the Companys Chairman (incorporated
by reference to Exhibit (10)(s) to the Companys Annual Report
on Form 10-K for the fiscal year ended February 2, 2002).                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10)(t) |  | First Amendment and Consent, dated February 1, 2002, to the
Credit Agreement, dated as of December 1, 1999, by and among
the Company, the several banks and other financial institutions
or entities from time to time parties thereto, Bear Stearns &
Co., Inc., Bear Stearns Corporate Lending, Inc., SunTrust Banks
South Florida, N.A. and Fleet National Bank (incorporated by
reference to Exhibit (10)(t) to the Companys Annual Report on
Form 10-K for the fiscal year ended February 2, 2002).

49



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|        |  |                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10)(u) |  | Employment Agreement, dated December 4, 2002, between Claires
Stores, Inc. and Rowland Schaefer (incorporated by referenced
to Exhibit 10.1 to the Company Quarterly Report on Form 10-Q
for the quarterly period ended November 2, 2002).       
|        |  |                                                                                                                                                                                                                                                    
|(10)(v) |  | Promissory Note, dated April 2002, in the principal amount of
$750,000, by the Companys Chairman.(1)                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                    
|(10)(w) |  | Clarification to Employment Agreement dated April 28, 2003,
between Claires Stores, Inc. and Rowland Schaefer.(1)                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                    
|(21)    |  | Subsidiaries of the Company.(1)                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                    
|(23)    |  | Consent of KPMG LLP.(1)                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                    
|(24)    |  | Power of Attorney (included on signature page).                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                    
|        |  | Each management contract or compensatory plan or
arrangement to be filed as an exhibit to this report
pursuant to Item 14(c) is listed in exhibit nos. (10)(d),
(10)(e), (10)(f), (10)(g), (10)(h), (10)(m), (10)(o),
(10)(p), (10)(u) and (10)(w).
|        |  |                                                                                                                                                                                                                                                    
|(99.1)  |  | Certifications of Acting Co-Chief Executive Officers.(1)                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                    
|(99.2)  |  | Certification of Chief Financial Officer.(1)                                                                                                                                                                                                       



---

|(1) |  | Filed herewith.
|--- |  | ---------------

(b)  Reports on Form 8-K

Form 8-K filed on November 21, 2002 regarding the announcement by Rowland
Schaefer, the Registrants Chairman, President and Chief Executive Officer,
that he had taken a leave of absence from his responsibilities to the
Registrant.

50



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SIGNATURE

Pursuant to the requirements of Section 13 of 15(d) 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.

|               |  |                       |  |                                                                                  
|-------------- |  | --------------------- |  | ---------------------------------------------------------------------------------
|               |  | CLAIRES STORES, INC.
|              
|April 30, 2003 |  | By                    |  | /s/ Marla SchaeferMarla Schaefer, Acting Co-Chief
Executive Officer              
|              
|April 30, 2003 |  | By                    |  | /s/  E. Bonnie SchaeferE. Bonnie Schaefer, Acting
Co-Chief Executive Officer     
|              
|April 30, 2003 |  | By                    |  | /s/ Ira D. KaplanIra D. Kaplan, Senior Vice
President and Chief Financial
Officer

POWER OF ATTORNEY

We, the undersigned, hereby constitute Ira D. Kaplan and Michael
Rabinovitch, or either of them, our true and lawful attorneys-in-fact with full
power to sign for us in our name and in the capacity indicated below any and
all amendments and supplements to this report, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                  |  |                                                                                                                                                                                 
|----------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|April      , 2003 |  | /s/Rowland Schaefer, Chairman of the Board                                                                                                                                      
|                 
|April 30, 2003    |  | /s/ Marla SchaeferMarla Schaefer, Vice Chairman of
the Board of Directors and Acting
Co-Chairman of the Board of
Directors (principal co-executive
officer and director)        
|                 
|April 30, 2003    |  | /s/ E. Bonnie SchaeferE. Bonnie Schaefer, Vice Chairman
of the Board of Directors and
Acting Co-Chairman of the Board
of Directors (principal
co-executive officer and
director)
|                 
|April 30, 2003    |  | /s/ Ira D. KaplanIra D. Kaplan, Senior Vice
President, Chief Financial
Officer and Director (principal
financial and accounting officer
and director)                           
|                 
|April 30, 2003    |  | /s/ Irwin L. KellnerIrwin L. Kellner, Director                                                                                                                                  

51



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|               |  |                                                 
|-------------- |  | ------------------------------------------------
|              
|April 30, 2003 |  | /s/ Bruce G. MillerBruce G. Miller, Director    
|              
|April 30, 2003 |  | /s/ Steven H. TishmanSteven H. Tishman, Director
|              
|April 30, 2003 |  | /s/ Todd D. JickTodd D. Jick, Director          

52



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##### Table of Contents






CERTIFICATION

I, Marla Schaefer, acting co-Chief Executive Officer of Claires Stores, Inc.
(the Company), certify that:

1.     I have reviewed this annual report on Form 10-K of the Company;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this annual report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.

4.     The Companys other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The Companys other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

6.     The Companys other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                     |  |                                                                   
|-------------------- |  | ------------------------------------------------------------------
|Date: April 30, 2003 |  | /s/ Marla SchaeferMarla Schaefer
Acting Co-Chief Executive Officer

53



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##### Table of Contents



CERTIFICATION



| |  | I, E. Bonnie Schaefer, acting co-Chief Executive Officer of Claires Stores,
Inc. (the Company), certify that:
| |  | ----------------------------------------------------------------------------------------------------------------

1.     I have reviewed this annual report on Form 10-K of the Company;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.

4.     The Companys other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     

5.     The Companys other certifying officers and I have disclosed, based on our
most recent evaluation, to the Companys auditors and the audit committee of
Companys board of directors (or persons performing the equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys ability
to record, process, summarize and report financial data and have
identified for the Companys auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Companys
internal controls; and                                                                                                                                     

6.     The Companys other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                     |  |                                                                           
|-------------------- |  | --------------------------------------------------------------------------
|Date: April 30, 2003 |  | /s/ E. Bonnie SchaeferE. Bonnie Schaefer
Acting Co-Chief Executive Officer

54



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##### Table of Contents



CERTIFICATION

I, Ira D. Kaplan, Chief Financial Officer of Claires Stores, Inc. (the
Company), certify that:

1.     I have reviewed this annual report on Form 10-K of the Company;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report.

4.     The Companys other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:



| | (a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the Companys disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     

5.     The Companys other certifying officers and I have disclosed, based on our
most recent evaluation, to the Companys auditors and the audit committee of
Companys board of directors (or persons performing the equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Companys ability
to record, process, summarize and report financial data and have
identified for the Companys auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Companys
internal controls; and                                                                                                                                     

6.     The Companys other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                     |  |                                                       
|-------------------- |  | ------------------------------------------------------
|Date: April 30, 2003 |  | /s/ Ira D. KaplanIra D. Kaplan
Chief Financial Officer

55