Use these links to rapidly review the documentColdwater Creek Inc. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 29, 2005 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

|ý                                          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------ | -----------------------------------------------------------------------------------------
|OR                                        
|o                                          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the Fiscal Year Ended January 29, 2005

Commission File Number 0-21915

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COLDWATER CREEK INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State of other jurisdiction of
incorporation or organization) |  | 82-0419266(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------- |  | ----------------------------------------------

ONE COLDWATER CREEK DRIVE, SANDPOINT, IDAHO 83864(Address of principal executive offices)

(208) 263-2266(Registrant's telephone number)

Securities
registered pursuant to Section 12(b) of the Act:
None

Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value

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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 ý    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 the Registrant's knowledge, in a definitive proxy or information statement incorporated by reference to Part III of this Form 10-K or any amendment
to this Form 10-K o

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

At July 31, 2004, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant
was approximately $442,572,000 based upon the closing price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each executive officer and director have been excluded
in that such person may be deemed to be an affiliate. This determination for executive officer is not necessarily a conclusive determination for other purposes. As of March 31, 2005, 60,678,497
shares of the Registrant's $.01 par value Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or portions thereof) are incorporated by reference into the Parts of this Form 10-K noted:

Part III
incorporates by reference information from the definitive proxy statement for the registrant's 2005 Annual Meeting of Stockholders to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form.



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Coldwater Creek Inc.    ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 29, 2005



|PART I  
|--------
|Item 1. 
|Item 2. 
|Item 3. 
|Item 4. 
|PART II 
|Item 5. 
|Item 6. 
|Item 7. 
|Item 7A.
|Item 8. 
|Item 9. 
|Item 9A.
|Item 9B.
|PART III
|Item 10.
|Item 11.
|Item 12.
|Item 13.
|Item 14.
|PART IV 
|Item 15.

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PART I

Item 1.    BUSINESS

The following discussion contains various statements regarding our current strategies, financial position, results of operations, cash
flows, operating and financial trends and uncertainties, as well as certain forward-looking statements regarding our future expectations. When used in this discussion, words such as "anticipate,"
"believe," "estimate," "expect," "could," "may," "will," "should," "plan," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. Our forward-
looking statements are based on our current expectations and are subject to numerous risks and uncertainties. As such, our actual future results, performance or achievements may differ materially from
the results expressed in, or implied by, our forward-looking statements. Please refer to our "Risk Factors" in this Annual Report on Form 10-K. We assume no future obligation to
update our forward-looking statements or to provide periodic updates or guidance.

We maintain an internet web site at http://www.coldwatercreek.com. (This web site address is for information only and is not intended to be an active link or to
incorporate any web site information into this document.) We make available, free of charge, through our website our annual report on Form 10-K, our quarterly reports on
Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with the
SEC.

Coldwater Creek Profile

Coldwater Creek is a specialty retailer of women's apparel, accessories, jewelry and gift items. Founded in 1984 as a catalog company, today we are a
multi-channel retailer generating $590.3 million in net sales in fiscal 2004. We have established a differentiated brand by offering exceptional value through a unique, proprietary merchandise
assortment that reflects a sophisticated yet relaxed and casual lifestyle,
coupled with superior customer service. Our target customers are women between the ages of 35 and 60, with household incomes in excess of $75,000. According to NPD Group, Inc., women 35 and
older spent in excess of $45.8 billion on apparel in 2004.

We
reach our customers through our rapidly expanding base of retail stores and our direct segment, which encompasses our catalog and e-commerce businesses. We believe this
multi-channel approach allows us to cross-promote the Coldwater Creek brand and meet our customers' apparel and accessory needs by providing them convenient access to our merchandise lines regardless
of the preferred shopping channel.

Several
years ago we began our evolution from a direct marketer to a multi-channel specialty retailer. Along the way we have tested various scaleable retail store models, strengthened
our retail management team, refined our merchandise assortment and integrated our retail and direct merchandise planning and inventory management functions. We intend to continue to build our
infrastructure in the coming years to support the planned growth of our retail business.

Our
retail segment is the key driver in our growth strategy and, in fiscal 2004, accounted for $296.2 million in net sales, or 50.2% of total net sales. As of January 29,
2005, we operated 114 full-line retail stores, 48 of which were opened in fiscal 2004, as well as two resort stores and 19 merchandise clearance outlet stores in 102 markets. When used in
this context, the term market refers to the Office of Management and Budget's metropolitan and micropolitan statistical area definitions as revised in June of 2003.

Our
catalog business accounted for $131.9 in net sales, or 22.3% of total net sales and is an effective marketing platform to cross-promote our website and stores. In fiscal 2004, we
mailed 107.6 million catalogs. Our full-scale e-commerce website,www.coldwatercreek.com, allows us to
cost-effectively expand our customer base and provide another convenient shopping alternative for our

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customers.
Our e-commerce business accounted for $162.2 in net sales, or 27.5% of total net sales and we now have approximately 2.4 million e-mail addresses to which we
regularly send customized e-mails.

Business Strategies

We believe our success and future growth will be the result of consistent execution of the following business strategies:

Target a highly desirable, underserved customer.Generally, our target customers are women between the ages of 35 and 60.
According to a projection from the 2005 U.S. census data, women in this age bracket are expected to represent approximately 42% of the female population in 2005. Additionally, according to NPD
Group, Inc., women 35 and older spent over $45.8 billion on apparel in 2004. Within this population, our core customer generally has higher than average levels of disposable income, with
median household incomes in excess of $75,000. While teens and younger adult female consumers have a relatively broad range of specialty retail brands from which to choose, we believe our core
customer has more limited options that cater specifically to her tastes and needs. Furthermore, we believe our customer, who has traditionally shopped at department stores, is migrating away from
them, as their product selection and customer service have become less appealing to her over time. For these reasons, we believe that by continuing to make our brand relevant and accessible to this
core customer, we will be able to increase our share of the apparel market over time.

Offer a differentiated brand with broad appeal.We believe the Coldwater Creek brand is synonymous with a sophisticated yet
relaxed and casual lifestyle that appeals to a broad range of women who lead busy, active lives. We design our merchandise, retail stores, catalogs and website to embody the warmth of this
aspirational lifestyle and attitude and to promote the Coldwater Creek brand image. We deliver quality, consistency, convenience and easy care through our merchandise offerings. Our styles and cuts
are fashion right, while, at the same time, our colors, novelty designs and textures provide our customer's wardrobe with flare that she cannot easily find elsewhere.

Deliver the brand through an integrated multi-channel model.Our strategy of offering merchandise across three channels
enables us to enhance visibility of our brand, accessibility to our merchandise and, consequently, customer loyalty. We integrate our three channels in a number of ways, which allows us to maximize
sales and provide superior customer service. These include offering in-store web kiosks to allow customers to purchase items through our website that may not be in stock at stores,
accepting returns through any channel regardless of the point of purchase, systematically reallocating inventory between channels, utilizing the data provided by our direct segment to identify new
store locations and prominently displaying our catalogs for customers in our retail stores. We continue to identify new ways to develop our multi-channel model to further optimize our business.

Provide an outstanding shopping experience through exceptional customer service.We believe our company-wide
focus on exceptional customer service has been integral to our success and has enabled us to build a loyal customer base. In our retail stores, we seek to hire our customers to provide better
knowledge and understanding of our customers' needs. We continually monitor service metrics, such as secret shopper scores, telephone answer rates, order fulfillment rates and conversion rates, which
we believe are indicative of customer service levels. We have also invested in management information systems that provide our associates with easy access to information, including
customer purchasing histories, merchandise availability, product specifications, available substitutes and accessories, and expected shipment dates. By promoting a culture of prompt, knowledgeable and
courteous service, no matter how our customers choose to shop, we believe we will continue to attract a growing customer base and build brand loyalty.

Effectively use and leverage extensive business data across all our channels.Through our heritage as a direct marketer, we
have the systems and discipline to collect customer data across all of our

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channels.
We have formed a dedicated business intelligence group whose mission is to improve decision making by performing a variety of functions, including data warehousing, reporting and analysis,
sales forecasting, statistical modeling and geographic analysis. We use these analyses to determine where to place stores and to more effectively select and allocate merchandise for our stores. We
also use this data to personalize our marketing efforts through directed customer communications, including targeted mailings when we open new stores and regular, customized e-mails. Our
executive management team meets daily to review and discuss key business metrics produced by this group in order to continually assess performance of the business across channels and merchandise
assortments. We believe our access to this information and our effective use of it will allow us to continue to optimize productivity of all our channels.

Execute our growth strategy with an experienced management team.Over the past four years we have built our senior management
team with individuals who have extensive retail, merchandising, brand-building, real estate, information technology and finance experience from a variety of retail, direct marketing and apparel
companies, including Gap Inc., Newport News, Spiegel, Federated Department Stores, Limited, Williams-Sonoma, J. Crew, Toys "R" Us.com, Finish Line and Tuesday Morning. We believe our management
team is well-rounded in all areas and provides us with a competitive advantage.

Growth Strategy

Over the last five years, we have continually refined our retail store model and operating strategy. We believe we will continue to realize the benefits of our
multi-channel strategy with our retail channel being the primary source of our future growth. Our management team is committed to executing the following key growth strategies:

Expand our retail channel.We believe there is an opportunity for us to grow to 450 to 500 stores in up to 300 identified
markets nationwide over the next five to seven years. As of January 29, 2005, we had 114 full-line retail stores, 48 of which were opened in fiscal 2004. We currently plan to open a
total of approximately 60 new stores in fiscal 2005, including four stores we opened in the fiscal 2005 first quarter. We either have signed, fully executed leases or are currently in lease agreement
negotiations for the majority of the stores we plan to open in fiscal 2005. The pace, scope and size of our retail store expansion will be influenced by the economic environment, available working
capital, our ability to obtain favorable terms on suitable locations for our stores and, if necessary, external financing. Our current store model focuses on a core store averaging 5,000 square feet
although we anticipate our stores will range between approximately 4,000 to 6,000 square feet.Please see the discussion below under the caption "Retail Segment Operations,
Store Format and Atmosphere" for further details.

Further strengthen our brand and build customer loyalty.We continue to identify means of leveraging our brand and building
customer loyalty. Our multi-channel initiatives include the introduction of a multi-channel gift card that is redeemable through any of our channels, wrapping our catalogs with promotional offers to
direct customers in the vicinity of new store openings, mailing customized catalogs to our retail customers, offering in-store web kiosks to drive improved customer conversion rates and to
increase familiarity with our direct channel, and accepting direct returns in our retail stores. These initiatives allow us to introduce our direct customers to our retail channel and give us the
opportunity to convert a return to an exchange or an incremental purchase.

As
we grow the retail portion of our business, we believe we will continue to identify new and effective ways to improve our brand visibility and build customer loyalty. For example, we
plan to introduce a co-branded credit card program during the first half of 2005, under which our customers can earn and redeem points through any of our
channels.In order to earn points a participant in the program would have to qualify for, accept and make purchases with the credit card. A customer
would

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earn
points on purchases made with the credit card from any retailer but would earn more points purchasing from us than from any other retailer.

Improve Profitability.As we grow our business and open new stores, we intend to improve our operating income. Key elements
of our profitability improvement strategy include:



Merchandising

Our merchandising philosophy reflects a casual, unhurried approach to living. We offer our customers colorful, proprietary designs and novelty items that reflect
different aspects of their lifestyles, including casual weekend wear, soft career and special occasion. The products we offer are current but not trendy and address our customers' needs for ease and
simplicity. Our "buy-now, wear-now" strategy puts merchandise in front of our customers when it is seasonally appropriate and offers versatile fabrics she can wear across
multiple seasons. Our "easy care" fabrics and comfortable styles are designed to facilitate product care, thereby making her life easier.

All
of our apparel is designed, developed and sold under the Coldwater Creek label. We differentiate merchandise lines under separate catalog titles to appeal to different areas of our
customers' wardrobes. Our entire collection of merchandise is available through our website. Merchandise for our retail stores is carefully selected to include the best and most popular items,
historically about one-third of what is offered in our direct segment.

Product Design and Development.Our in-house design and product development team is responsible for
conceptualizing and directing the design of all Coldwater Creek apparel. We believe our in-house team of designers and buyers allows us to exercise significant control over the merchandise
development process and the quality of our product to create an overall merchandise assortment that is consistent with the Coldwater Creek brand.

Our
design team travels to Europe twice a year to capture key themes that will appear in our collections throughout the upcoming seasons. Working in tandem with outside vendors and
fabric designers, our design team creates an overall vision for each season's assortment that is then translated into collections for the season. We believe this approach allows us to introduce fresh
products into our catalogs and retail locations every season and to supplement these selections with new items or styles throughout the year.

In
the second quarter of fiscal 2004, we opened a design studio in New York with a dedicated team creating novel prints, patterns and working on new fabric initiatives. This studio,
while still in its early development, has enabled us to create and market new and distinctive designs more quickly. We anticipate that our design studio will allow us to bring innovative, fashion
right merchandise to our customers on a timely basis.

Planning and Allocation.We employ an integrated inventory planning team for our retail and direct sales channels. This group
is responsible for conducting top-down and bottom-up planning and

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allocation
across channels, seasons, collections and promotional events in order to maximize retail store, catalog and website productivity.

Initial
planning and allocation decisions are made by assessing historical sales, individual item, store and catalog performance, and anticipated economic outlook. Equipped with
distribution center and inventory management systems that allow us to allocate and re-allocate merchandise by channel, our inventory planning group is able to assess sales trends, customer
demand and current inventory positions and to allocate items to enhance sales. We track sales at the item level on a daily basis and adjust our reorder and markdown strategies accordingly. Working
together with our design and product development team, our inventory planning team has allowed us to optimize our overall number of styles and items of merchandise.

Sourcing and Distribution.In the past three years, we have focused on reducing our total number of outside vendors and have
concentrated our production with selected vendors who we believe consistently adhere to our quality standards and production demands. We maintain relationships with approximately 400 vendors and,
during fiscal 2004, sourced approximately 72% of our apparel from our top 20 vendors. During fiscal 2004, approximately 67% of our merchandise was manufactured overseas, most of which we purchase from
domestic suppliers. As retail becomes a more important part of our business we anticipate that more of our merchandise will be sourced directly from overseas manufacturers. In the second quarter of
fiscal 2004, we created a global sourcing department, which, in addition to our experienced direct sourcing personnel at our headquarters in Sandpoint, Idaho, includes employees in Hong Kong and India
who perform compliance inspections in factories in those countries. We anticipate this strategy will provide an opportunity to increase our margins through the direct importing of our proprietary
designs. We believe this new development will allow us to improve economies of scale as we leverage the combined impact of merchandising our retail and direct segments. During fiscal 2005 we
anticipate that we will be the importer of record on approximately 15% of our total merchandise purchases.

We
hold our vendors to strict quality standards, testing products for flammability, care instructions, sizing and durability. Each shipment is checked against a certified sample upon
delivery and can be
returned if it does not meet our standards. Additionally, we issue monthly vendor "report cards" to our top 75 vendors to provide them with important feedback and evaluation of their performance.

We
operate a 600,000 square foot distribution center in Mineral Wells, West Virginia where we receive all of our merchandise. We process all of our retail store replenishment and direct
order shipments from this facility. During fiscal 2004 our distribution center was able to ship more than 98% of all in-stock items within 24 hours of an order placement and process
more than 96% of all merchandise returns within a 24-hour period. At its current size, we estimate that the distribution center can service up to 300 stores. We have increased our prior
capacity estimate of 130 stores as a result of changes in our receiving and distribution processes. At our current expansion rate, we expect to have opened in excess of 300 stores by fiscal 2007 or
fiscal 2008. Therefore, we expect to begin expanding our distribution center in fiscal 2006 with a fiscal 2007 in-service date.

Disposition.Relying on ongoing analysis of product performance, we maintain a disciplined approach to promotional selling of
our merchandise. We conduct four key seasonal sales events per year in our retail stores, catalog and website. Additionally, items with higher-than-expected inventory counts
are cleared through our website or one of our 19 outlet locations. Unlike many other retailers that produce items for sale through their outlet locations, we use our outlets exclusively to manage
overstocked premium merchandise. We believe this approach to disposition of our merchandise conditions our customer to expect to pay full price for our items, effectively managing the margin impact of
off-price selling. Additionally, we have the ability to choose the most efficient channel to use for liquidation at any given time.

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Retail Segment Operations

Building on our success in the direct channel, we opened our first full-line store in November 1999, and from 1999 to the spring of 2002 we
opened 34 additional full-line stores, methodically testing and refining our store format and reducing capital expenditures required for build-out. As of January 29,
2005, we operated 114 full-line retail stores, two resort stores and 19 outlet stores in 102 markets. We plan to open a total of approximately 60 new full-line retail stores in
fiscal 2005, including four full-line retail stores opened in the fiscal 2005 first quarter. In fiscal 2004, retail sales amounted to $296.2 million and represented 50.2% of total
net sales. We expect our retail segment to continue as our primary growth vehicle, as over 90% of women's apparel in the U.S. is purchased in retail stores, according to NPD Group Inc.



In the second half of 2002, we introduced our core model of 5,000 to 6,000 square foot stores and have further revised our store model as discussed below for
stores we intend to open in fiscal 2005. In fiscal 2004, our 66 stores that had been open at least 13 months averaged approximately 6,400 square feet in size and $487 per square foot in net
sales. Most of these stores have been open for one to two years. We have continually improved our construction processes, materials and fixtures, merchandise layout and store design to minimize our
initial capital investment per store, while maintaining an overall atmosphere that is comfortable and relevant to our core customers.

Our
retail stores are designed to highlight our key items which are our customer's seasonal favorites and reflect the brand's focus on casual comfort, as well as to highlight merchandise
being featured across all channels. Our wide, windowed storefront and forest green logo above a soft archway provide an inviting first impression to our customers. Our store interiors combine an
appealing mix of cherry wood, slate and soft, neutral colored carpeting and typically offer a seating area for others who may be accompanying our shoppers.

Our
retail stores showcase our apparel assortment and encourage browsing by displaying jewelry, accessories and gifts in a manner that provides the customer with a sense of discovery and
an encouragement to purchase multiple items per transaction. We display apparel according to occasion, separating weekend and casual wear from soft career and special occasion wear. We locate our
accessories section next to the dressing rooms, which allows our sales associates to encourage incremental purchases as customers try on clothes.

Over
the past several years we have tested various retail store models and we continue to do so. Prior to fiscal 2005 we had two store models. Our core store model, which we introduced
at the beginning of fiscal 2002, was 5,000 to 6,000 square feet and, in the beginning of fiscal 2003, we introduced a smaller store format of approximately 3,000 to 4,000 square feet.

We
have now identified our appropriate store size to be in the range of 4,000 to 6,000 square feet. Therefore, in fiscal 2005, our core store model will average 5,000 square feet and we
expect that it will contribute net sales per square foot of approximately $500 in the third year of operations.



In addition to our full-line retail stores, we operated 19 outlet stores at January 29, 2005, where we sell excess inventory. We currently plan
to open three outlet stores in fiscal 2005 including one outlet store opened in the fiscal 2005 first quarter. We generally locate the outlets within clusters of our retail stores to efficiently
manage our inventory clearance activities, but far enough away to avoid significantly diminishing our full-line store sales. Unlike many other apparel retailers that produce merchandise
directly for their outlet stores, merchandise sold through our outlets is limited to overstocked premium items from our full-line retail stores. We believe this use of our outlet stores
enables us to effectively

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manage
our inventory and clearance activities. We also operate resort stores in Sandpoint, Idaho and Jackson Hole, Wyoming.



We organize our stores into regions and districts, which are overseen by district and regional managers who report to our executive vice president, sales and
marketing. Each district manager oversees between six and ten store managers. On average, our store managers have 11 years of experience as retail managers. Approximately 25% of our managers
have district manager-level experience with major brands in the retail sector.



The following map indicates our full-line retail stores by location as of January 29, 2005:

Map



We locate our new stores primarily in regional shopping malls and lifestyle centers across the entire U.S. Lifestyle centers offer unique amenities in an
open-air environment and are typically located in affluent suburban areas and town centers. Lifestyle centers also tend to be mixed-use developments that attract a
complementary group of well-known specialty retailers, including bookstores, gourmet grocers, home goods retailers, other apparel retailers and full service restaurants. As of
January 29, 2005, approximately 52% of our full-line stores are located in traditional malls, 40% in lifestyle centers and 8% in street locations.

We
utilize a disciplined, fact-based site selection process to determine our store locations. We believe we possess a competitive advantage versus other traditional retailers
as we systematically collect key data regarding the location and preferences of our customers through our direct segment. This data, combined with additional demographic research, helps us to develop
methodologies for

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prioritizing
markets and identifying potential locations based on geographic clustering of both direct and retail segment customers.

Direct Segment Operations

Since the first mailing of ourNorthcountrycatalog in 1985, we have grown our direct segment to include both our
catalog and e-commerce businesses. Our catalogs and e-commerce website are designed to create a distinctive and easy shopping experience. Merchandise presentations feature full
color photographs, graphics and artwork designed to appeal to our target customer. We present our apparel "off-figure", leaving the customer to decide if an item of merchandise is right
for her based on the item's inherent style and design. All catalog and website pages are created and designed by an in-house team of artists, copywriters and editors to ensure a consistent
presentation of the Coldwater Creek brand.

Our
direct channel represented 49.8% of our total net sales in fiscal 2004. As we continue to rollout our retail stores, we expect our direct segment to decrease as a percentage of net
sales over time. It will continue to be a core component of our brand identity and our operations, contributing sales and earnings, serving as a valuable source of marketing information, helping
promote each of our channels and providing cash flow to support our retail store expansion.



In fiscal 2004, our catalog business generated $131.9 million in net sales, or 22.3% of total net sales. Historically, we have used three catalog titles, Northcountry, SpiritandElements, to feature our entire full-price line of merchandise
using different assortments for each title to target separate sub-groups of our core demographic. In January 2004, we combined our two smaller catalogs, SpiritandElements, and re-introduced the combined catalog under the Spirittitle. The newSpiritcatalog combines the
sophistication of Spiritand the mix-and-match versatility ofElementsin a format that focuses on
the customer's lifestyle. We believe this initiative allows us to better meet the needs of ourSpiritand Elementscustomers by assembling "head-to-toe"
assortments and offering merchandise for a wider range of occasions by combining
soft career wear with sportswear and separates.

Our
two current core catalog titles are each devoted to slightly different lifestyles within our core customer base:

Northcountryfeatures a casual clothing assortment with an emphasis on comfort and color. The merchandise often includes novel detailing,
such as embroidery, fabric piecework and design ornamentation. The clothing in this assortment has its focus on complete outfits, generally offering tops and bottoms displayed as a complete ensemble. Northcountryrepresents the broadest product assortment, mixing apparel with jewelry, fashion accessories, gift items and home-related
hardgoods.

The Spiritproduct assortment is differentiated by an accent on finer fabrics and upscale detailing, such as fully lined jackets at higher
price points. Along with apparel offered in sophisticated fabrics like linen and matte jersey, theSpiritassortment also features merchandise designed
for easy care travel, including items in knit and cotton twills. This apparel is merchandised with versatility in mind, making it simple for the customer to mix and match items to create a personal
look.

Additionally,
to serve the gift-giving needs of our customers and generate incremental sales during the important holiday shopping season, each year we assemble selected
merchandise, which is featured in a festiveGifts-to-Gocatalog and on our e-commerce website. Gifts-to-Gogenerally features a varied assortment of the
most popular items featured in our primary merchandise lines described
above.

In
August 2004, we began offering a new line of active-wear apparel merchandise under theSportcatalog title. We believe this
line of merchandise is a natural extension of our core strength of offering casual apparel for every aspect of our customers' lifestyle. Currently, Sportrepresents a small fraction

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of
our overall merchandise mix and we plan to gradually explore its potential in both our retail and direct segments.

Since
2000, in an effort to increase the productivity of our direct business and reduce costs, we have reduced our catalog circulation and have been actively promoting the migration of
our customers from our catalogs to our e-commerce website and to our retail stores. We have also focused on decreasing our number of prospect mailings because they have increasingly
produced lower response rates and contributed fewer sales than catalog mailings to our existing customers. In fiscal 2004, we mailed 107.6 million catalogs, down 41.4% from our peak mailings of
183.6 million catalogs in 2000.

During
fiscal 2004, we used a variety of print media advertising to promote sales in retail stores, over the internet and through catalogs, while, at the same time, promoting heightened
awareness of the Coldwater Creek brand. Our print media consisted of three primary vehicles: national magazine advertising, traditional catalogs and "retail mailers." National magazine advertisements
were placed in high-circulation publications such as Oprah, Good Housekeeping, Better Homes & Gardens, Country Living, Southern Living and Cooking Light. These advertisements were
designed to drive customer traffic to our three selling channels, as well as to increase brand awareness. Our traditional catalog mailings were designed to generate sales through our Direct Segment
and were circulated under the titles Northcountry, Spirit and Sport. Retail mailers were catalogs that included an assortment of items from all three catalog titles, featuring merchandise that can be
found in our retail stores. These retail mailers were designed and produced to drive retail store traffic and, accordingly, were primarily mailed into markets where we had an existing store.

During
fiscal 2005, our print media advertising strategy will further emphasize the use of retail mailers as a key vehicle for driving retail store traffic. While circulation for our
traditional catalogs is planned to decrease slightly, growth in our retail store base is expected to provide additional opportunities for circulating retail mailers in a larger number of store
markets, compared with fiscal 2004. Consequently, we anticipate that the combined number of pages circulated through our traditional catalogs and retail mailers in fiscal 2005 will show a slight
increase over the prior year. Additionally, we plan to increase the number of pages dedicated to national magazine advertising to further promote brand awareness and drive customer traffic in all
channels.



As part of our effort to provide our customers with new channels of accessibility, we launched our full-scale e-commerce website, www.coldwatercreek.com, in July of 1999. Our e-commerce website is designed to offer a convenient, user-friendly and secure
online shopping option for our customers. The website features our entire full-price merchandise offering found in our catalogs and retail stores. It also serves as an efficient vehicle
for the disposition of excess inventory.

In
fiscal 2004, online sales amounted to $162.2 million and represented 27.5% of total net sales. We have approximately 2.4 million opt-in e-mail
addresses to which we regularly send promotional e-mails. Our promotional e-mails are customized to meet subscribers' shopping preferences and merchandise tastes.

We
continue to participate in a net sales commission-based program whereby popular Internet search engines and consumer and charitable websites promote the Coldwater Creek brand to their
visitors. These noncompetitive "affiliate" merchants provide convenient hotlink access to our website, which also serves as an effective tool in prospecting for new customers.

Customer Service

Over the past 20 years, we have built a reputation and company-wide culture of providing superior customer service. We view customer service as
a critical aspect of our business that can be consistently

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improved
upon. Accordingly, we monitor service metrics for our call center operations, retail stores and distribution center on a daily basis.

A
central feature of our commitment to customer service is our unconditional return policy for all of our merchandise. A customer can return an item for any reason at any time through
any channel, regardless of the point of purchase. We believe this policy builds customer loyalty and helps overcome any reluctance a customer may have to purchasing merchandise from catalogs or via
the Internet.

We
have invested in management information systems that provide our associates with easy access to information, including customer purchasing histories, merchandise availability, product
specifications, available substitutes and accessories and expected shipment dates, which allows our call center and retail sales associates to answer questions and deal with customer complaints
directly.

We
have also established the following practices to provide consistently high levels of customer service through our direct channel:



We
have implemented several measures to ensure that we maintain our tradition of superior customer service in our retail stores:



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Marketing and Promotion

Our marketing and promotion initiatives focus on reinforcing our brand message and retaining our existing customers and attracting new customers. As we grow our
business and broaden our retail footprint, we intend to increase our mass marketing initiatives to enhance national visibility of the brand. For example, in early fiscal 2005, in an effort to drive
customers to our retail stores, we introduced multiple page magazine advertisements in national and regional publications that will display the current season's merchandise assortment.

During
fiscal 2004, we used a variety of print media advertising to promote sales in retail stores, over the internet and through catalogs, while, at the same time, promoting heightened
awareness of the Coldwater Creek brand. Our print media consisted of three primary vehicles: national magazine advertising, traditional catalogs and "retail mailers." National magazine advertisements
were placed in high-circulation publications such as Oprah, Good Housekeeping, Better Homes & Gardens, Country Living, Southern Living and Cooking Light. These advertisements were
designed to drive customer traffic to our three selling channels, as well as to increase brand awareness. Our traditional catalog mailings are designed to generate sales through our Direct Segment and
are circulated under the titlesNorthcountry, SpiritandSport. Retail mailers were catalogs that
included an assortment of items from all three catalog titles, featuring merchandise that can be found in our retail stores. These retail mailers were designed and produced to drive retail store
traffic and, accordingly, were primarily mailed into markets where we had an existing store.

We
believe our ability to effectively design and run each of our marketing and promotional programs is enhanced by our proprietary database of customer information, which includes
demographic data, purchasing history by sales channel and their physical proximity to our existing and planned retail stores. This system allows us to segment our customer base according to many
variables to analyze each segment's performance and buying patterns. We use the resulting information to adjust the frequency, timing and content of our various programs and promotions to maximize the
productivity of each one.

As
we have moved to a multi-channel strategy we have implemented the following marketing and promotional initiatives to maximize purchases by our existing customers in all three of our
channels, reinforce the Coldwater Creek brand, and encourage customer loyalty:



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As
part of our e-commerce marketing initiatives, we participate in an affiliate website program. We select popular Internet search engines, consumer and charitable websites
to promote the Coldwater Creek brand to their visitors and provide convenient hotlink access to our website in exchange for a commission based on net sales from referred customers.

We
also conduct a national magazine advertising campaign to reinforce awareness of Coldwater Creek as we open stores in new markets, draw the attention of potential direct customers and
establish national visibility for our brand. We run multi-page, color advertisements to promote our three channels in lifestyle and shelter publications consistent with the Coldwater Creek
brand,
includingOprah, Good Housekeeping, Better Homes and Gardens, Sunset, Country Living, Southern Living and Cooking Light.

Information Technology

We are committed to investing in our information systems to increase operating efficiency, provide superior customer service and support our anticipated growth.
Our management information systems consist of a full range of selling channel solutions, including retail point-of-sale, catalog and e-commerce systems, financial
and merchandising systems, including inventory planning, distribution and control, sales reporting, credit, accounts payable, merchandise reporting and logistics.

Our
systems allow us to monitor hourly and daily performance metrics in our direct and retail channels. These systems enable us to analyze the historical performance of individual
merchandise items by various categories and have allowed us to realize increased accuracy in our product performance forecasting, and, as such, better manage our retail inventory, reduce product
overstocks and backorders, increase our in-stock levels and realize additional logistic efficiencies.

Our
technical infrastructure provides for geographic diversity and redundant computing complexes to serve our growing and expanding multi-channel business. We have data centers located
in three of our corporate facilities that provide for instant backup in the event of a telecommunications or systems failure. Our call center telecommunication system is designed to reduce the risk of
telephone delays and capacity constraints and allows us to operate our call centers as a single "virtual call center". Calls coming into one location are automatically routed to the other locations if
the load is too high or if a call center is unable to receive incoming calls due to factors such as natural disasters, power failures or systems problems. Additionally, we have call center
capabilities in our Sandpoint, Idaho facility that we use to capture overflow traffic.

We
have also installed network and server load balancing devices that allow customer orders received on our e-commerce website to be routed to the least busy server farm and
the least busy server in that farm. We use encryption technology to protect sensitive customer information transmitted

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on
our website. We protect company sensitive information on our servers from unauthorized access using industry standard network security systems in addition to anti-virus and firewall
protection.

We
expect to continue to make significant investments in our systems and infrastructure to support our retail store expansion, inventory management, merchandising, order taking and
customer service, order fulfillment, marketing, product development and financial reporting and forecasting.

Competition

The women's retail apparel market is highly competitive. Our competitors range from specialty apparel retailers, such as Chico's, Talbots and J. Jill, to small
single-sales channel catalog, e-commerce and retail store companies. We also compete with national department stores, such as Bloomingdale's, Macy's, JC Penney, Dillards and Nordstrom, and
with discount retailers that offer women's apparel and accessories, such as Kohl's and Target.

We
believe that we compete principally on the basis of the distinctive merchandise selection and superior customer service associated with the Coldwater Creek brand, as well as our
commitment to understanding and providing merchandise that is relevant to our targeted customer base, is fashion right and is of high quality. With over 90% of women's apparel being purchased in
retail stores in 2004, we believe that our retail store expansion will allow us to compete more effectively in the women's apparel market by providing this important aspect of the shopping experience
to more of our customers. We also believe that our integrated, multi-channel strategy enhances our ability to compete by allowing our customers to choose the most convenient sales channel and allowing
us to reach a broader audience in existing and in new markets and to continue to build Coldwater Creek into a nationally recognized brand.

Employees

As of January 29, 2005, we had 1,859 full-time employees and 3,543 part-time employees. During our peak selling season, which
includes the months of November and December, we utilize a substantial number of temporary employees. None of our employees are covered by collective bargaining agreements. We consider our employee
relations to be good.

Trademarks

Our registered trademarks include Coldwater Creek®, Coldwater Creek Spirit® and the stylized Coldwater Creek logo. We believe that our
registered and common law trademarks have significant value and are instrumental to our ability to create and sustain demand for and market our merchandise.

Available Information

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and therefore file periodic reports and
other information with the Securities and Exchange Commission ("SEC"). These reports may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street NW, Washington, D.C. 20549, or
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at www.sec.gov that contains reports, proxy information statements and
other information regarding issuers that file electronically.

Our
filings under the Exchange Act (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to these reports) are also available free of charge on the investor relations portion of our website at www.coldwatercreek.com. These reports are
available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The reference to our website address does not constitute incorporation by

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reference
of the information contained on the website, and the information contained on the website is not part of this document.

Risk Factors

We may be unable to successfully implement our retail store rollout strategy, which could result in significantly lower revenue growth.

The key driver of our growth strategy is our retail store expansion. At January 29, 2005, we operated 114 stores and we have since opened an additional
four stores in the fiscal 2005 first quarter for a total of 118 stores currently in operation. We currently plan to open a total of approximately 60 new stores in fiscal 2005. We believe we have the
potential to open 450 to 500 retail stores over the next five to seven years. However, there can be no assurance that these stores will be opened, will be opened in a
timely manner, or, if opened, that these stores will be profitable. Our ability to open our planned retail stores depends on our ability to successfully:



Any
miscalculations or shortcomings in the planning and control of our retail growth strategy could materially impact our results of operations and our financial condition.

We may continue to refine our retail store model, which could delay our planned retail store rollout and result in slower revenue growth.

We have made numerous refinements in our retail store format since opening our first full-line store in 1999, including our most recent revision to
our store model in fiscal 2005. Our retail model may undergo further refinements as we gain experience operating more stores. If we determine to make further refinements to our store model, it may
delay the progress of our retail store roll-out, which could slow our anticipated revenue growth. We are required to make long-term financial commitments when leasing retail
store locations, which would make it more costly for us to close or relocate stores that do not prove to be successful. Furthermore, retail store operations entail substantial fixed costs, including
costs associated with maintaining inventory levels, leasehold improvements, fixtures, store design and information and management systems, and we must continue to make these investments to maintain
our current and future stores.

We may not select optimal locations for our retail stores, which could affect our net sales.

The success of individual retail stores will depend to a great extent on locating them in desirable shopping venues in markets that include our target
demographic. The success of individual stores may
depend on the success of the shopping malls or lifestyle centers in which they are located. In addition, the demographic and other marketing data we rely on in determining the location of our stores
cannot predict future consumer preferences and buying trends with complete accuracy. As a result, retail stores we open may not be profitable or may be less successful than we anticipate.

We may be unable to manage significant increases in the costs associated with our catalog business, which could affect our results of operations.

We incur substantial costs associated with our catalog mailings, including paper, postage, merchandise acquisition and human resource costs associated with
catalog layout and design, production and circulation and increased inventories. Most of these costs are incurred prior to mailing.

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As
a result, we are not able to adjust the costs of a particular catalog mailing to reflect the actual subsequent performance of the catalog. Significant increases in U.S. Postal Service rates and the
cost of telecommunications services, paper and catalog production could significantly increase our catalog production costs and result in lower profits for our catalog business to the extent we are
unable to pass these costs onto our customers or implement more cost effective printing, mailing or distribution systems. Because our catalog business accounts for a significant portion of total net
sales, any performance shortcomings experienced by our catalog business would likely have a material adverse effect on our overall business, financial condition, results of operations and cash flows.

Response rates to our catalogs could decline, which would negatively impact our net sales and results of operations.

Response rates to our catalog mailings and, as a result, the net sales generated by each catalog mailing, can be affected by factors beyond our control such as
changing consumer preferences, willingness to purchase goods through catalogs, weak economic conditions and uncertainty, and unseasonable weather in key geographic markets. In addition, a portion of
our catalog mailings are to prospective customers. These mailings involve risks not present in mailings to our existing customers, including lower and less predictable response rates. Additionally, it
has become more difficult for us and other direct retailers to obtain quality prospecting mailing lists, which may limit our ability to maintain the size of our active catalog customer list. Lower
response rates could result in lower-than-expected full-price sales and higher-than-expected clearance sales at substantially reduced
margins.

Consumers concerns about purchasing items via the Internet as well as external or internal infrastructure system failures could negatively impact our e-commerce
sales or cause us to incur additional costs.

Our e-commerce business is vulnerable to consumer privacy concerns relating to purchasing items over the Internet, security breaches, and failures of
internet infrastructure and communications systems. If consumer confidence in making purchases over the Internet declines as a result of privacy or other concerns, our e-commerce net sales
could decline. We may be required to incur increased costs to address or remedy any system failures or security breaches.

We may be unable to manage expanding operations and the complexities of our multi-channel strategy, which could harm our results of operations.

During the past few years, with the implementation of our multi-channel business model, our overall business has become substantially more complex. This
increasing complexity has resulted and is expected to continue to result in increased demands on our managerial, operational and administrative resources and has forced us to develop new expertise. In
order to manage our complex multi-channel strategy, we will be required to continue, among other things, to:



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We may be unable to anticipate changing customer preferences and to respond in a timely manner by adjusting our merchandise offerings, which could result in lower sales.

Our future success will depend largely on our ability to continually select the right merchandise assortment, maintain appropriate inventory levels and creatively
present merchandise in a way that is appealing to our customers. Consumer preferences cannot be predicted with certainty, as they continually change and vary from region to region. On average, we
begin the design process for our apparel nine to ten months before merchandise is available to our customers, and we typically begin to make purchase commitments four to six months in advance. These
lead times make it difficult for us to respond quickly to changing consumer preferences and amplify the consequences of any misjudgments we might make in anticipating customer preferences.
Consequently, if we misjudge our customers' merchandise preferences or purchasing habits, our sales may decline significantly, and we may be required to mark down certain products to significantly
lower prices to sell excess inventory, which would result in lower margins.

We depend on key vendors for timely and effective sourcing and delivery of our merchandise. If these vendors are unable to timely fill orders or meet our quality standards, we
may lose customer sales and our reputation may suffer.

Our direct business depends largely on our ability to fulfill orders on a timely basis, and our direct and retail businesses depend largely on our ability to keep
appropriate levels of inventory in our distribution center and our stores. As we grow our retail business, we may experience difficulties in obtaining sufficient manufacturing capacity from vendors to
produce our merchandise. We generally maintain non-exclusive relationships with multiple vendors that manufacture our merchandise. However, we have no contractual assurances of continued
supply, pricing or access to new products, and any vendor could discontinue selling to us at any time. If we were required to change vendors or if a key vendor were unable to supply desired
merchandise in sufficient quantities on acceptable terms, particularly in light of our recent trend toward consolidating more of our merchandise purchases with fewer vendors, we may experience delays
in filling customer orders or delivering inventory to our stores until alternative supply arrangements are secured, which could result in lost sales and a decline in customer satisfaction.

Our increasing reliance on foreign vendors will subject us to uncertainties that could impact our cost to source merchandise and delay or prevent merchandise shipments.

As we expand our retail stores and our merchandise volume requirements increase, we expect to source merchandise directly from foreign vendors, particularly those
located in Asia. During fiscal 2005 we anticipate that we will be the importer of record on approximately 15% of our total merchandise purchases. This will expose us to new and greater risks and
uncertainties, the occurrence of which could
substantially impact our ability to source merchandise through foreign vendors and to realize any perceived cost savings. We will be subject to, among other things:



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On
December 31, 2004, quota restrictions on the importing of apparel into the United States from foreign countries which are members of the World Trade Organization expired. The
effect this quota expiration will have on global sourcing patterns is uncertain but is likely to continue the retail price deflation. Our sourcing strategy is designed to allow us to adjust to
potential shifts in availability of apparel following the expiration of these quotas. However, our sourcing operations may be adversely affected by trade limits or 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 and/or other trade disruptions.

We may be unable to fill customer orders efficiently, which could harm customer satisfaction.

If we are unable to efficiently process and fill customer orders, customers may cancel or refuse to accept orders, and customer satisfaction could be harmed. We
are subject to, among other things:



We have a liberal merchandise return policy, and we may experience a greater number of returns than we anticipate.

As part of our customer service commitment, we maintain a liberal merchandise return policy that allows customers to return any merchandise, virtually at any time
and for any reason, and regardless of condition. We make allowances in our financial statements for anticipated merchandise returns based on historical return rates and our future expectations. These
allowances may be exceeded, however, by actual merchandise returns as a result of many factors, including changes in the merchandise mix, size and fit, actual or perceived quality, differences between
the actual product and its presentation in our catalogs or on our website, timeliness of delivery, competitive offerings and consumer preferences or confidence. Any significant increase in merchandise
returns or merchandise returns that exceed our allowances would result in adjustments to our sales return accrual and to cost of sales and could materially adversely affect our financial condition,
results of operations and cash flows.

Our quarterly results of operations fluctuate and may be negatively impacted by a failure to predict sales trends and by seasonal influences.

Our net sales, operating results, liquidity and cash flows have fluctuated, and will continue to fluctuate, on a quarterly basis, as well as on an annual basis,
as a result of a number of factors, including, but not limited to, the following:



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Our
results continue to depend materially on sales and profits from the November and December holiday shopping season. In anticipation of traditionally increased holiday sales activity,
we incur certain significant incremental expenses, including the hiring of a substantial number of temporary employees to supplement our existing workforce. If, for any reason, we were to realize
lower-than-expected sales or profits during the November and December
holiday selling season, our financial condition, results of operations, including related gross margins, and cash flows for the entire fiscal year would be materially adversely affected.

We face substantial competition from discount retailers in the women's apparel industry.

We believe our customers are willing to pay slightly higher prices for our unique merchandise and superior customer service. However, we face substantial
competition from discount retailers, such as Kohl's and Target, for basic elements in our merchandise lines, and our net sales may decline or grow more slowly if we are unable to differentiate our
merchandise and shopping experience from these discount retailers. In addition, the retail apparel industry has experienced significant price deflation over the past several years largely due to the
downward pressure on retail prices caused by discount retailers. We expect this price deflation to continue as a result of the expiration of quota restrictions on the importing of apparel into the
United States from foreign countries that are members of the World Trade Organization. This price deflation may make it more difficult for us to maintain our gross margins and to compete with
retailers that have greater purchasing power than we have. Furthermore, because we currently source a significant percentage of our merchandise through intermediaries and from suppliers and
manufacturers located in the United States and Canada, where labor and production costs, on average, tend to be higher, our gross margins may be lower than those of competing retailers.

Our success is dependent upon our senior management team.

Our future success depends largely on the efforts of Dennis Pence, Chairman and Chief Executive Officer; Georgia Shonk-Simmons, President and Chief Merchandising
Officer; Melvin Dick, Executive Vice President and Chief Financial Officer; and Dan Griesemer, Executive Vice President, Sales and Marketing. The loss of any of these individuals or other key
personnel could have a material adverse effect on our business. Furthermore, the location of our corporate headquarters in Sandpoint, Idaho may make it more difficult to replace key employees who
leave us, or to add qualified employees we will need to manage our further growth.

Prior
to joining our company, Melvin Dick, our Executive Vice President and Chief Financial Officer, served as the lead engagement partner for Arthur Andersen's audit of WorldCom's
consolidated financial statements for the fiscal year ended December 31, 2001, and its subsequent review of WorldCom's condensed consolidated financial statements for the fiscal quarter ended
March 31, 2002. The ongoing investigation of the WorldCom matter may require Mr. Dick's attention, which may impair his ability to devote his full time and attention to our company.
Further, Mr. Dick's association with the WorldCom matter may adversely affect customers' or investors' perception of our company.

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Lower demand for our merchandise could reduce our gross margins and cause us to slow our retail expansion.

Our merchandise is comprised primarily of discretionary items, and demand for our merchandise is affected by a number of factors that influence consumer spending.
Lower demand may cause us to move more full-price merchandise to clearance, which would reduce our gross margins, and could adversely affect our liquidity (including compliance with our
debt covenants) and, therefore, slow the pace of our retail expansion. We have maintained conservative inventory levels, which we believe will make us less vulnerable to sales shortfalls. Conversely,
if we elect to carry relatively low levels of inventory in anticipation of lower demand but demand is stronger than we anticipated, we may be forced to backorder merchandise, which may result in lost
sales and lower customer satisfaction.

Our tax collection policy may expose us to the risk that we may be assessed for unpaid taxes.

Many states have attempted to require that out-of-state direct marketers and e-commerce retailers whose only contact with the
taxing state are solicitations and delivery of purchased products through the mail or the Internet collect sales taxes on sales of products shipped to their residents. The U.S. Supreme Court has held
that these states, absent congressional legislation, may not impose tax collection obligations on an out-of-state mail order or Internet company. Although we believe that we
have collected sales tax where we are required to do so under existing law, state and local tax authorities may disagree, and we could be subject to assessments for uncollected sales taxes, as well as
penalties and interest and demands for prospective collection of such taxes. Furthermore, if Congress enacts legislation permitting states to impose sales tax collection obligations on
out-of-state catalog or e-commerce businesses, or if we are otherwise required to collect additional sales taxes, such tax collection obligations may negatively
affect customer response and could have a material adverse effect on our financial position, results of operations and cash flows. In addition, as we open more retail stores, our tax collection
obligations will increase significantly and complying with the greater number of state and local tax regulations to which we will be subject may strain our resources.

Any determination that we have a material weakness in our internal control over financial reporting could have a negative impact on our stock price.

We are applying significant management and financial resources to document, test, monitor and enhance our internal control over financial reporting in order to
meet the requirements of the Sarbanes-Oxley Act of 2002. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. For example, our management concluded that our internal control over financial reporting was not
effective for fiscal
2004 as a result of a restatement of certain of our financial statements to correct an error relating to the recognition of rental expense, as described in Note 2 to our consolidated financial
statements included in this Annual Report on Form 10-K. Further, because of changes in conditions, the effectiveness of internal control may vary over time. We cannot be certain
that our internal control systems will be adequate or effective in preventing fraud or human error. Any failure in the effectiveness of our internal control over financial reporting could have a
material effect on our financial reporting or cause us to fail to meet reporting obligations, which upon disclosure, could negatively impact the market price of our common stock.

Our stock price has fluctuated and may continue to fluctuate widely.

The market price for our common stock has fluctuated and has been and will continue to be significantly affected by, among other factors, our quarterly operating
results, changes in any earnings estimates publicly announced by us or by analysts, customer response to our merchandise offerings, the size of our catalog mailings, the timing of our retail store
openings or of important holiday seasons

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relative
to our fiscal periods, seasonal effects on sales and various factors affecting the economy in general. The reported high and low closing sale prices of our common stock were $5.05 per share
and $2.39 per share, respectively, during the fiscal year ended February 1, 2003, and were $6.54 per share and $2.60 per share, respectively, during the fiscal year ended January 31,
2004. The reported high and low closing sale prices of our common stock were $20.58 per share and $6.63 per share, respectively, during the fiscal year ended January 29, 2005. In addition, the
Nasdaq National Market has experienced a high level of price and volume volatility and market prices for the stock of many companies have experienced wide price fluctuations not necessarily related to
the operating performance of such companies.

Our largest stockholders may exert influence over our business regardless of the opposition of other stockholders or the desire of other stockholders to pursue an alternate
course of action.

Dennis Pence, our Chairman and Chief Executive Officer, and Ann Pence, our former Vice Chairman, have informed the company that they have an informal arrangement
pursuant to which they have agreed to vote their shares together and, when selling shares, doing so in equal amounts. This arrangement is not in writing, and can be terminated at any time, and there
is no assurance that Dennis Pence and Ann Pence will continue to act together with respect to their shares. Because of their informal arrangement, Dennis Pence and Ann Pence together may be deemed to
beneficially own, directly and indirectly, approximately 40.2% of our outstanding common stock as of December 31, 2004. Dennis Pence and Ann Pence acting together, or either of them acting
independently, could have significant influence over any matters submitted to our stockholders, including the election of our directors and approval of business combinations, and could delay, deter or
prevent a change of control
of our company, which may adversely affect the market price of our common stock. The interests of Dennis Pence and Ann Pence may not always coincide with the interests of our other stockholders.

Provisions in our charter documents and Delaware law may inhibit a takeover and discourage, delay or prevent our stockholders from replacing or removing our current directors
or management.

Provisions in our Certificate of Incorporation and Bylaws may have the effect of delaying or preventing a merger with or acquisition of us, even where the
stockholders may consider it to be favorable. These provisions could also prevent or hinder an attempt by our stockholders to replace our current directors and include:



Because
our Board of Directors appoints management, any inability to effect a change in our Board of Directors may also result in the entrenchment of management.

We
are also subject to Section 203 of the Delaware General Corporation Law, which, subject to exceptions, prohibits a Delaware corporation from engaging in any business
combination with an interested stockholder for a period of three years following the date that the stockholder became an interested stockholder. The preceding provisions of our Certificate of
Incorporation and Bylaws, as well as Section 203 of the Delaware General Corporation Law, could discourage potential acquisition proposals, delay or prevent a change of control and prevent
changes in our management.

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Item 2.    PROPERTIES

Our principal executive and administrative offices are located at One Coldwater Creek Drive, Sandpoint, Idaho 83864. Our telephone number is
(208) 263-2266. The general location, use and approximate size of our principal properties as of January 29, 2005 are set forth below:

|Facility                                                             |  | Address                                              |  | Owned/Leased |  | Approximate
Size
|-------------------------------------------------------------------- |  | ---------------------------------------------------- |  | ------------ |  | ----------------
|Corporate Offices(a)                                                 |  | One Coldwater Creek Drive
Sandpoint, Idaho           |  | Owned        |  | 231,000 sq. ft. 
|East Coast Operations Center, including Distribution and Call Center |  | 100 Coldwater Creek Drive
Mineral Wells, W. Virginia |  | Leased       |  | 600,000 sq. ft. 
|Coeur d'Alene, Idaho Call Center                                     |  | 751 West Hanley Avenue
Coeur d'Alene, Idaho          |  | Leased       |  | 60,000 sq. ft.  
|114 Full-Line Retail Stores(b)                                       |  | Various U.S. Locations                               |  | Leased       |  | 648,000 sq. ft. 
|19 Outlet Stores(c)                                                  |  | Various U.S. Locations                               |  | Leased       |  | 123,000 sq. ft. 
|2 Resort Stores(d)                                                   |  | Sandpoint, ID and Jackson, WY                        |  | Leased       |  | 34,000 sq. ft.  

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We
believe that our corporate offices, distribution center and call centers will meet our operational needs for the foreseeable future. Our distribution center was designed to allow us
to expand up to an aggregate of 930,000 square feet, as needed. We intend to begin expanding capacity in our distribution center in fiscal 2006 to the full 930,000 square feet with a fiscal 2007
completion date to support our expanding retail store base.

Item 3.    LEGAL PROCEEDINGS

Legal Proceedings

We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. In addition, from time to time we have received claims
that our products and/or the manner in which we conduct our business infringe on the intellectual property rights of third parties. For example, in fiscal 2004, a lawsuit was filed that claimed we
infringed on various intellectual property patents relating to our e-commerce website. During the fiscal 2004 fourth quarter, we settled the lawsuit and obtained a 12-year
license to use certain intellectual property patents for an immaterial

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amount.
In the opinion of management, our gross liability, if any, and without any consideration given to the availability of insurance or other indemnification, under any pending litigation or
administrative proceedings, would not materially affect our consolidated financial position, results of operations or cash flows.

Government Regulation

Our direct business is subject to the Merchandise Mail Order Rule and related regulations promulgated by the Federal Trade Commission. While we believe we are in
material compliance with these regulations, no assurance can be given that new laws or regulations will not be enacted or adopted which might adversely affect our operations.

We
collect sales taxes from customers transacting purchases in states in which we have physically based some portion of our retailing business. We also pay applicable corporate income,
franchise and other taxes, to states in which retail or outlet stores are physically located. Upon entering a new state, we accrue and remit the applicable taxes. As we open more retail stores, we
will be subject to an increasing number of state and local taxing jurisdictions. In addition, we accrue use taxes on catalogs used in our stores or at our corporate headquarters or sent to customers
with shipments from our distribution center. Although we believe we have properly accrued for these taxes based on our current
interpretation of the tax code, state taxing authorities may challenge our interpretation. Failure to properly determine or to timely remit these taxes may result in additional interest and related
penalties being assessed.

Various
states have attempted to collect back sales and use taxes from direct marketers whose only contacts with the taxing state are solicitations through the mail or the Internet, and
whose subsequent delivery of purchased goods is by mail or interstate common carriers, and we may be subject to these attempts in states in which we have no physical presence. However, the U.S.
Supreme Court has held that these states, absent congressional legislation, may not impose tax collection obligations on an out-of-state mail order or Internet company. We
anticipate that any legislative changes regarding direct marketers, if adopted, would be applied only on a prospective basis.

Many
of our products are manufactured outside the United States and are subject to existing or potential duties, tariffs or quotas that may limit the quantity of products we are allowed
to import or increase the cost of such products. To date, we have not been restricted by quotas in the operation of our business, and customs duties have not comprised a material portion of the total
cost of most of our products. As we expand our retail operations and begin to source more merchandise overseas, however, our business may be impacted by quotas and the imposition of customs duties or
tariffs. We are also subject to foreign governmental regulation and trade restrictions, including U.S. retaliation against certain prohibited foreign activities, with respect to our product sourcing.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Special Meeting of Stockholders of Coldwater Creek Inc. was held on December 8, 2004. At this meeting, the following proposal was voted upon and
approved:

Proposal:
To approve an amendment to the Company's Amended and Restated Certificate of Incorporation that will increase the number of authorized shares of the Company's Common Stock from
60,000,000 to 150,000,000 shares.

For

Against

Abstain52,428,705

6,555,801

11,007


The
share amounts voted For, Against and Abstain have been adjusted to reflect our most recent stock dividend, which had the effect of a 3-for-2 stock split,
declared by the Board of Directors on February 12, 2005.

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DIRECTORS AND EXECUTIVE OFFICERS

The table below sets forth the name, current age and current position of our directors and executive officers as of April 1, 2005:

|Name                        |  | Age |  | Positions held                                                           
|--------------------------- |  | --- |  | -------------------------------------------------------------------------
|Dennis C. Pence(a)          |  | 55  |  | Chairman of the Board of Directors, Secretary and Chief Executive Officer
|Georgia Shonk-Simmons       |  | 53  |  | President, Chief Merchandising Officer and Director                      
|Melvin Dick                 |  | 51  |  | Executive Vice President and Chief Financial Officer                     
|Dan Griesemer               |  | 45  |  | Executive Vice President of Sales and Marketing                          
|Gerard El Chaar             |  | 44  |  | Senior Vice President of Operations                                      
|Dan Moen                    |  | 33  |  | Senior Vice President and Chief Information Officer                      
|Duane A. Huesers            |  | 49  |  | Vice President of Finance                                                
|James R. Alexander(b)(c)(d) |  | 62  |  | Director                                                                 
|Jerry Gramaglia(c)(d)       |  | 49  |  | Director                                                                 
|Curt Hecker(a)(b)(d)        |  | 44  |  | Director                                                                 
|Warren R. Hashagen(b)(c)(d) |  | 54  |  | Director                                                                 
|Kay Isaacson-Leibowitz      |  | 58  |  | Director                                                                 
|Robert H. McCall(a)(b)(d)   |  | 59  |  | Director                                                                 

---

Dennis C. Penceco-founded Coldwater Creek in 1984 and has served as a Director since our incorporation in 1988, serving as
the Board's Chairman since July 1999 and as our Vice-Chairman prior to that. Since September 26, 2002 as well as from 1984 through December 2000, Mr. Pence has
served as our Chief Executive Officer. From June 4, 2002 to September 25, 2002, he provided his executive management services to us. From January 5, 2002 to June 3, 2002,
Mr. Pence served as our Interim Chief Financial Officer and Treasurer; he was semi-retired prior to that through all of 2001. Mr. Pence has also served as Chairman of the
Board's Executive Committee since its formation on May 20, 2000 and, as Secretary since July 1998. From 1984 through 2000, Mr. Pence also served as our President. From
April 1999 to December 2000, he
was also the President of our Internet Commerce Division. Prior to co-founding Coldwater Creek, Mr. Pence was employed by Sony Corp. of America, a publicly held manufacturer of
audio, video, communication, and information technology products, from 1975 to 1983, where his final position was National Marketing ManagerConsumer Video Products. Mr. Pence also
serves as a Board member of Panhandle State Bank.

Georgia Shonk-Simmonshas served as a Director, as well as our President, since January 1, 2001. Since September 26, 2002,
Ms. Shonk-Simmons has served as our Chief Merchandising Officer. From January 1, 2001 to September 25, 2002, Ms. Shonk-Simmons served as our Chief Executive Officer. From
April 1999 to December 2000, Ms. Shonk-Simmons served as President of our Catalog & Retail Sales Division. Ms. Shonk-Simmons joined us as Chief Merchant and Vice
President of Merchandising in June 1998. From 1994 to 1998, Ms. Shonk-Simmons was Executive Vice President of the Newport News Catalog Division of Spiegel, Inc., a publicly held
international retailer. Prior to that, from 1981 to 1994, Ms. Shonk-Simmons held a number of other positions of increasing responsibility with Spiegel, including Vice President of Merchandising
for Spiegel Catalog beginning in 1991. Prior to joining Spiegel, Ms. Shonk-Simmons held various buyer positions with Lytton's, Carson Pirie Scott and Hahne's.

25

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Melvin Dickhas served as our Executive Vice President and Chief Financial Officer since June 2002. Prior to joining Coldwater
Creek, Mr. Dick was employed by and was a partner at Arthur Andersen LLP from 1975 through May 2002. While at Arthur Andersen LLP he held a number of progressively responsible positions
including serving as the global managing partner of Andersen's technology, media and communications practice and as a member of Andersen's Worldwide Board of Partners.

Dan Griesemerhas served as our Executive Vice President of Sales and Marketing since January 2005. From April 2004 to
December 2004, Mr. Griesemer served as our Executive Vice President of Retail. From October 2001 to April 2004 Mr. Griesemer served as our Senior Vice President of
Retail. Prior to joining Coldwater Creek, from 1989 to 2000, Mr. Griesemer held a number of progressively responsible positions with, and ultimately served as Divisional Merchandise Manager for
Gap Inc. From 1983 to 1989, Mr. Griesemer worked in a variety of positions at Federated Department Stores.

Gerard El Chaarhas served as our Senior Vice President of Operations since January 1, 2005. From March 2002 to
December 2004, Mr. El Chaar served as our Vice President of Distribution. From January 2001 to February 2002, Mr. El Chaar served as our Divisional Vice President of
Distribution. From October 2000 to December 2000, Mr. El Chaar served as our Director of Distribution. From January 2000 to October 2000, Mr. El Chaar was
Senior Director of International Operations with eToys Inc. where he was responsible for Customer Service and Distribution in the United Kingdom and Belgium. From January 1998 to
December 1999, Mr. El Chaar was the Director of Engineering for Amazon.com.

Dan Moenhas served as our Senior Vice President and Chief Information Officer since September 20, 2004. From June 2004 to
September 2004, Mr. Moen served as our Interim Vice President and Chief Information Officer. From July 2003 to May 2004, Mr. Moen served as our Vice President of
Marketing and Business Intelligence. From October 2002 to June 2003, Mr. Moen served as our Divisional Vice President of Business Intelligence. From August 2001 to
September 2002, Mr. Moen served as our Divisional Vice President of Marketing. From August 2000 to July 2001, Mr. Moen was the Data Warehouse Manager for InfoSpace.
From June 1999 to July 2000, Mr. Moen was the Director of Database Marketing for Network Commerce. From May 1995 to May 1999, Mr. Moen was employed by
Coldwater Creek in various capacities in its Marketing Department.

Duane A. Huesershas served as our Vice President of Finance since September 2002. His duties include all accounting, financial
planning, external reporting and other finance related matters. Prior to joining Coldwater Creek, Mr. Huesers had a 25-year career in the retail industry, most recently with Tuesday
Morning Corporation where he served as Vice President of Finance. Prior to that, Mr. Huesers served as Vice President and Controller for the Maison Blanche department store chain, as well as
Senior Vice President and Chief Financial Officer for BOOKSTOP, Inc.

James R. Alexanderhas served as a Director since March 2000, as well as a member of the Board's Audit Committee since
July 2000, as a member of the Board's Compensation Committee since November 2002 and as its Chairman since June 2004. Mr. Alexander has also served as Chairman of the
Board's Nominating Committee from April 2004 to June 2004 and as a member of that committee since April 2004. From July 2000 to July 2001, Mr. Alexander also
served as a member of the Board's Compensation Committee. Mr. Alexander had previously served as a Director, as well as Chairman of the Board's Compensation Committee, from 1994 to 1998 before
declining to stand for re-election due to other professional obligations. Mr. Alexander has been an independent catalog consultant for over 25 years, serving a variety of
mail order retailers of apparel, gifts and home decor. Mr. Alexander is President of Alexander & Co., LLC.

Jerry Gramagliahas served as a Director, as well as a member of the Board's Compensation Committee and as a member of the Board's
Nominating Committee since June 2004. Since May 2002,

26

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Mr. Gramaglia
has served as Entrepreneur-in-Residence for Arrowpath Venture Capital. From June 1998 to May 2002, Mr Gramaglia served as Chief Marketing
Officer and subsequently as President and Chief Operations Officer for E*TRADE Group Inc., a leading provider of electronic financial services. Mr. Gramaglia began his career at
Procter & Gamble and subsequently held marketing and general management positions for Nestle, PepsiCo, Imasco and Sprint.

Warren R. Hashagenhas served as a Director since September 2003, as a member of the Board's Audit Committee since
March 2004 and as a member of the Board's Nominating Committee since April 2004. Mr. Hashagen has also served on the Compensation Committee since June 2004. Prior to his
retirement in 2001, Mr. Hashagen was Senior Vice President, International of Gap Inc., a position he held since 1999, and was Senior Vice President, Finance and Chief Financial Officer
of Gap Inc. between 1995 and
1999. He held various other finance and accounting positions at Gap Inc. from 1982 to 1995, including Senior Vice President, Finance between 1992 and 1995.

Curt Heckerhas served as a Director, as well as a member of the Board's Audit Committee, since August 1995, as a member of the
Board's Executive Committee since July 2001, as Chairman of the Board's Nominating Committee since June 2004 and as a member of that committee since April 2004. Mr. Hecker
also served as Chairman of the Board's Compensation Committee from July 2001 to June 2004. Since October 1997, Mr. Hecker has served as President, Chief Executive Officer
and a Board member of publicly held Intermountain Community Bancorp as well as Chief Executive Officer and a Board member of Panhandle State Bank, Intermountain Community Bancorp's wholly-owned
subsidiary. From August 1995 to October 2001, Mr. Hecker also served as President of Panhandle State Bank. Prior to joining Panhandle State Bank, Mr. Hecker held various
management positions with West One Bank.

Kay Isaacson-Leibowitzhas served as a Director since February 2005. Since July 2003, Mrs. Isaacson-Leibowitz has
served as Executive Vice President of Beauty Niches for Victoria's Secret Stores. From 1995 to 2003 Mrs. Isaacson-Leibowitz served as Executive Vice President of Merchandising for Victoria's
Secret Stores. From 1994 to 1995 Mrs. Isaacson-Leibowitz served as acting President and Senior Vice President of Merchandising for Banana Republic.

Robert H. McCall, a Certified Public Accountant, has served as a Director since 1994, as Chairman of the Board's Audit Committee since
February 1995 and as a member of the Board's Nominating Committee since April 2004. Mr. McCall has also served as a member of the Board's Executive Committee since its formation
in May 2000. From February 1995 to July 2000, Mr. McCall also served as a member of the Board's Compensation Committee. Since 1981, Mr. McCall has been President of
McCall & Landwehr, P.A., an accounting firm based in Hayden Lake, Idaho.

27

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER REPURCHASES OF EQUITY SECURITIES

Price Range of Common Stock and Dividend Policy

Our common stock has been quoted on the Nasdaq National Market under the symbol "CWTR" since our initial public offering on January 29, 1997. On
January 29, 2005, we had 141 stockholders of record and 60,652,538 shares of $0.01 par value common stock outstanding. On December 19, 2002, August 4, 2003, June 12, 2004
and February 12, 2005, our Board of Directors declared 50% stock dividends, each having the effect of a 3-for-2 stock split, on our issued and outstanding common stock.
The new shares were distributed on January 30, 2003, September 9, 2003, July 23, 2004 and March 18, 2005, respectively. The stock prices below reflect the effect of these
four stock dividends.

The
following table sets forth certain sales price data for our common stock for the periods indicated:

Price Range of
Common StockHigh

LowFiscal 2004:First Quarter

$
10.18

$
6.63Second Quarter


12.97


8.45Third Quarter


15.51


11.03Fourth Quarter


20.58


14.99Fiscal 2003:First Quarter

$
3.68

$
2.60Second Quarter


5.30


2.64Third Quarter


5.82


4.13Fourth Quarter


6.54


4.89


We
have never paid any cash dividends on our common stock and do not expect to declare cash dividends in the foreseeable future. Additionally, we are currently restricted from paying
cash dividends under our credit facility.

28

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Item 6.    SELECTED FINANCIAL AND OPERATING DATA

The selected financial and operating data in the following table sets forth:



The
selected financial data presented below reflects an accounting restatement, which is described in Note 2 to the accompanying consolidated financial statements.

The
information below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements
and related notes included elsewhere in this Annual Report on Form 10-K.

|                                               |  | Fiscal Years Ended(a)
|---------------------------------------------- |  | ---------------------
|
|
|
|Statement of Operations Data:                  |  |                      
|Net sales                                      |  | $                    
|Cost of sales                                  |  |                      
|                                               |  |                      
|Gross profit                                   |  |                      
|Selling, general and administrative expenses   |  |                      
|                                               |  |                      
|Income from operations                         |  |                      
|Interest, net, and other                       |  |                      
|                                               |  |                      
|Income before provision for income taxes       |  |                      
|Provision for income taxes                     |  |                      
|                                               |  |                      
|Net income                                     |  | $                    
|                                               |  |                      
|Net income per shareBasic(c)                  |  | $                    
|                                               |  |                      
|Weighted average shares outstandingBasic(c)   |  |                      
|                                               |  |                      
|Net income per shareDiluted(c)                |  | $                    
|                                               |  |                      
|Weighted average shares outstandingDiluted(c) |  |                      
|                                               |  |                      
|                                               |  |                      

29

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|Selected Channel Data(d):                          |                                  |   |         |         |   |         |         |   |         |         |   |         |         |   |        
|-------------------------------------------------- | -------------------------------- | - | ------- | ------- | - | ------- | ------- | - | ------- | ------- | - | ------- | ------- | - | -------
|Net Sales:                                         |                                  |   |         |         |   |         |         |   |         |         |   |         |         |   |        
|                                                   | Retail and outlet store business |   | $       | 296,227 |   | $       | 194,624 |   | $       | 128,177 |   | $       | 76,103  |   | $      
|                                                   | Catalog business                 |   |         | 131,858 |   |         | 175,912 |   |         | 200,157 |   |         | 246,048 |   |        
|                                                   | E-commerce business              |   |         | 162,225 |   |         | 148,308 |   |         | 144,838 |   |         | 141,873 |   |        
|Selected Operating Data:                           |                                  |   |         |         |   |         |         |   |         |         |   |         |         |   |        
|Total catalogs mailed                              |                                  |   | 107,600 |         |   | 117,800 |         |   | 136,200 |         |   | 161,000 |         |   | 183,600
|Number of full-line retail stores at period end(e) |                                  |   | 114     |         |   | 66      |         |   | 41      |         |   | 27      |         |   | 8      
|Average square feet per store(e)                   |                                  |   | 5,700   |         |   | 6,700   |         |   | 7,600   |         |   | 8,200   |         |   | 10,300 
|Balance Sheet Data:                                |                                  |   |         |         |   |         |         |   |         |         |   |         |         |   |        
|Cash and cash equivalents                          |                                  | $ | 111,203 |         | $ | 45,754  |         | $ | 26,630  |         | $ | 4,989   |         | $ | 4,600  
|Working capital                                    |                                  |   | 116,487 |         |   | 51,643  |         |   | 37,954  |         |   | 28,429  |         |   | 43,003 
|Total assets                                       |                                  |   | 324,585 |         |   | 211,659 |         |   | 188,236 |         |   | 170,997 |         |   | 450,939
|Total debt(f)                                      |                                  |   |        |         |   |        |         |   |        |         |   |        |         |   |       
|Stockholders' equity                               |                                  |   | 198,278 |         |   | 118,184 |         |   | 104,550 |         |   | 93,724  |         |   | 95,930 

---

30

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains various statements regarding our current strategies, financial position, results of operations, cash
flows, operating and financial trends and uncertainties, as well as certain forward-looking statements regarding our future expectations. When used in this discussion, words such as "anticipate,"
"believe," "estimate," "expect," "could," "may," "will," "should," "plan," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. Our forward-
looking statements are based on our current expectations and are subject to numerous risks and uncertainties. As such, our actual future results, performance or achievements may differ materially from
the results expressed in, or implied by, our forward-looking statements. Please refer to our "Risk Factors" elsewhere in this Annual Report on Form 10-K for the fiscal year ended
January 29, 2005. We assume no future obligation to update our forward-looking statements or to provide periodic updates or guidance.

Introduction to Management's Discussion and Analysis of Financial Condition and Results of Operations

We encourage you to read this Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our accompanying
consolidated financial statements and their related notes.

When
we refer to a fiscal year, we mean the calendar year in which the fiscal year begins. On December 16, 2002, our Board of Directors approved a change in our fiscal year end
from the Saturday nearest February 28 to the Saturday nearest January 31, effective February 1, 2003. Accordingly, our 2002 fiscal year consisted of an 11-month
transition period. We made this decision to align our financial reporting schedule with the majority of other national retail companies.

We
currently operate in two reportable segments, our direct segment and our retail segment. Beginning in the quarter ended May 3, 2003, we reclassified our outlet store business
and phone and Internet orders that originate in our retail stores from our direct segment to our retail segment. We made these reclassifications to reflect the manner in which our segments are
currently managed. We have reclassified prior period financial statements on a consistent basis for fiscal years 2002, 2001 and 2000.
These reclassifications had no impact on our consolidated net sales, net income, retained earnings or cash flows for any period.

Unless
otherwise indicated, the common stock outstanding, retained earnings and net income per share amounts appearing in the financial statements included herein reflect four 50% stock
dividends, each having the effect of a 3-for-2 stock split, declared by our Board of Directors on December 19, 2002, August 4, 2003, June 12, 2004 and
February 12, 2005, respectively. These stock dividends have the combined effect of a 5.063-for-1 stock split.

Restatement of Prior Financial Information

During the fiscal 2005 first quarter we undertook a review of our accounting treatment of our retail store leases. Based on this review and consultation with our
independent registered public accounting firm, we decided to restate our consolidated financial statements for certain prior periods in order to correct an error relating to our recognition of rent
expenses under Financial Accounting Standards Board Technical Bulletin No. 85-3, "Accounting for Operating Leases with Scheduled Rent Increases." Previously, we followed a practice
common in the retail industry of recognizing the straight line rent expense for leases beginning generally on the earlier of the store opening date or lease commencement date (as set forth in the
lease), which had the effect of excluding the build-out period of our stores from the calculation of the period over which it expensed rent. We will now record rent expense when we take
possession of a store, which occurs before the commencement of the lease term and approximately 60 to 90 days prior to the opening of a store.

31

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We
have restated our consolidated balance sheet at January 31, 2004, and our consolidated statements of operations, cash flows and changes in stockholders' equity for the fiscal
year ended January 31, 2004 and the 11-month transition period ended February 1, 2003. We have also restated our quarterly financial information for the first three quarters
of fiscal 2004 and for all quarters of fiscal 2003. This restatement also affected periods prior to the 11-month transition period ended February 1, 2003. The cumulative impact of
this restatement through February 2, 2002 has been reflected as an adjustment to retained earnings of $1.3 million at February 2, 2002.Please refer to
"Note 2. Significant Accounting Policies, Restatement of Prior Financial Information" and to "Note 19. Quarterly Results of Operations (unaudited)" in the Notes to the Consolidated
Financial Statements for further information.

We
did not amend our previously filed Annual Reports on Form 10-K or quarterly reports on Form 10-Q for the restatement, and the financial
statements and related information contained in such reports should no longer be relied upon. All amounts referred to in
Management's Discussion and Analysis of Financial Condition and Results of Operations for prior period comparisons reflect the balances and amounts on a restated basis.

Coldwater Creek Profile

Coldwater Creek is a multi-channel, specialty retailer of women's apparel, accessories, jewelry and gift items. Our unique, proprietary merchandise assortment and
our retail stores, catalogs and e-commerce website are designed to appeal to women between the ages of 35 and 60, with median household incomes in excess of $75,000. We reach our customers
through our direct segment, which consists of our catalog and e-commerce businesses, and our rapidly expanding base of retail stores.

Several
years ago we began our evolution from a direct marketer to a multi-channel specialty retailer. Along the way we have tested various scaleable retail store models, strengthened
our retail management team, refined our merchandise assortment and integrated our retail and direct merchandise planning and inventory management functions. We intend to continue to build our
infrastructure in the coming years to support the planned growth of our retail business.

Our
catalog business is a significant sales channel and acts as an efficient marketing platform to cross-promote our website and retail stores. During fiscal 2004, we mailed
107.6 million catalogs. We use our full-scale e-commerce website,www.coldwatercreek.com, to cost-effectively
expand our customer base and provide another convenient shopping alternative for our customers. We currently have a database of approximately 2.4 million e-mail addresses to which
we regularly send customized e-mails.

We
expect our retail business, which represented 50.2% of our total net sales in fiscal 2004, to be the key driver of our growth strategy. As of January 29, 2005, we operated 114
full-line retail stores, 48 of which were opened in fiscal 2004, as well as two resort stores and 19 merchandise clearance outlet stores in 102 markets. We currently plan to open a total
of approximately 60 new stores in fiscal 2005, including four stores we opened in the fiscal 2005 first quarter. We either have signed, fully executed leases or are currently in lease agreement
negotiations for the majority of the stores we plan to open in fiscal 2005. The pace, scope and size of our retail store expansion will be influenced by the economic environment, available working
capital, our ability to obtain favorable terms on suitable locations for our stores and, if necessary, external financing.

Retail Segment Operations

Our retail segment includes our retail and outlet stores and catalog and Internet sales that originate in our retail stores. Our retail channel is our fastest
growing sales channel and generated $296.2 million in net sales, or 50.2% of total net sales in fiscal 2004.

32

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We opened our first full-line retail store in November 1999 and have since tested and refined our store format and reduced capital expenditures
required for build-out. We believe there is an opportunity to grow to 450 to 500 stores in up to 300 identified markets nationwide over the next five to seven years. At January 29,
2005, we operated 114 stores and plan to open a total of approximately 60 new stores in fiscal 2005, including four stores we opened in the fiscal 2005 first quarter. We believe we will be able to
complete our 2005 expansion plans with available working capital.

After
2005 it is our current intention to continue to open new stores at our current pace, although we do not maintain a specific rollout plan beyond a one-year horizon. We
continually reassess our store rollout plans based on the overall retail environment, the performance of our retail business, our access to working capital and external financing and the availability
of suitable store locations. For example, it is possible that in any year we will increase our planned store openings, particularly if we experience strong retail sales and have access to the
necessary working capital or external financing. Likewise, we would be inclined to curtail our store rollout if we were to experience weaker retail sales or if we did not have adequate working capital
or access to financing.

Over
the past several years we have tested various retail store models and we continue to do so. Prior to fiscal 2005 we had two store models. Our core store model, which we introduced
at the beginning of fiscal 2002, was 5,000 to 6,000 square feet and, in the beginning of fiscal 2003, we introduced a smaller store format of approximately 3,000 to 4,000 square feet. In fiscal 2004,
our 66 stores that had been open at least 13 months averaged approximately 6,400 square feet in size and $487 per square foot in net sales. Most of these stores have been open for one to two
years.

We
have now identified our appropriate store size to be in the range of 4,000 to 6,000 square feet. Therefore, in fiscal 2005, our core store model will average 5,000 square feet and we
expect that it will contribute net sales per square foot of approximately $500 in the third year of operations.



We operated 19 outlet stores at January 29, 2005 where we sell excess inventory. We plan to open three outlet stores in fiscal 2005 including one outlet
store opened in the fiscal 2005 first quarter. We generally locate the outlets within clusters of our retail stores to efficiently manage our inventory and clearance activities, but far enough away to
avoid significantly diminishing our full-line store sales. Unlike many other apparel retailers, we use our outlet stores only to sell overstocked premium items from our
full-line retail stores and do not have merchandise produced directly for them. We currently operate two resort stores in Sandpoint, Idaho and Jackson, Wyoming.

Direct Segment Operations

Our direct segment includes our catalog and e-commerce businesses. Our direct channel generated $294.1 million in net sales, or approximately
49.8% of our total net sales, in fiscal 2004. As we continue to roll out our retail stores, we expect our direct segment to decrease as a percentage of total net sales over time. However, we expect
our direct segment to continue to be a core component of our operations and brand identity, contributing sales and earnings and serving as an important vehicle to promote each of our channels and
provide cash flow to support our retail store expansion.



During fiscal 2004, our catalog business generated $131.9 million in net sales, or 22.3% of total net sales. Historically, we used three catalogs, Northcountry, SpiritandElements, to feature our entire line of full-price merchandise with
different assortments for each title to target separate sub-groups of our core demographic. In January 2004, we combined our two smaller catalogs, SpiritandElements, and

33

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re-introduced
the combined catalog under theSpirittitle. Additionally, each year we assemble selected merchandise from the most popular
items in our primary merchandise lines and feature them in a festiveGifts-to-Goholiday catalog and on our website.

Since
2000, in an effort to increase the productivity of our direct business and reduce costs, we have reduced our catalog circulation and have been actively promoting the migration of
our customers from our catalogs to our more cost-efficient e-commerce website. We have also focused on decreasing our number of prospect mailings because they have increasingly
produced lower response rates and contributed fewer sales than catalog mailings to our existing customers. In fiscal 2004, we mailed 107.6 million catalogs, down 41.4% from our peak mailings of
183.6 million catalogs in 2000.

During
fiscal 2005, our print media advertising strategy will further emphasize the use of retail mailers as a key vehicle for driving retail store traffic. While circulation for our
traditional catalogs is planned to decrease slightly, growth in our retail store base is expected to provide additional opportunities for circulating retail mailers in a larger number of store
markets, compared with fiscal 2004. Consequently, we anticipate that the combined number of pages circulated through our traditional catalogs and retail mailers in fiscal 2005 will show a slight
increase over the prior year. Additionally, we plan to increase the number of pages dedicated to national magazine advertising to further promote brand awareness and drive customer traffic in all
channels.

E-commerce Website

Our full-scale e-commerce website,www.coldwatercreek.com, offers a convenient,
user-friendly and secure online shopping option for our customers. The website features our entire full-price merchandise offering found in our catalogs and retail stores. It
also serves as an efficient promotional vehicle for the disposition of excess inventory.

In
fiscal 2003, online net sales were $162.2 million and represented 27.5% of total net sales. As of January 29, 2005, we had approximately 2.4 million
opt-in e-mail addresses to which we regularly send customized e-mails to drive sales through our website and our other channels. We also participate in a net sales
commission-based program whereby numerous popular Internet search engines and consumer and charitable websites provide hotlink access to our website.

Results of Operations

The following table sets forth certain information regarding our costs and expenses expressed as a percentage of consolidated net sales:

Fiscal Year EndedJan. 29,
2005
(52 weeks)

Jan. 31,
2004
(52 weeks)

Feb. 1,
2003
(48 weeks)(restated)

(restated)Net sales

100.0
%
100.0
%
100.0
%Cost of sales

56.6

61.0

60.2Gross profit

43.4

39.0

39.8Selling, general and administrative expenses

35.3

35.1

36.6Income from operations

8.1

3.9

3.2Interest, net, and other

0.1

0.0

0.0Income before provision for income taxes

8.2

3.9

3.2Income tax provision

3.3

1.5

1.3Net income

4.9
%
2.4
%
1.9
%


34

---



Comparison of the Twelve-Month Period Ended January 29, 2005 with the Twelve-Month Period Ended January 31, 2004

Consolidated Results of Operations

Net Sales.Our consolidated net sales for fiscal 2004 were $590.3 million, an increase of $71.5 million, or
13.8%, compared with consolidated net sales of $518.8 million during fiscal 2003. This increase is primarily due to incremental net sales of $97.6 million contributed by our
full-line retail stores and, to a lesser extent, to increases of $13.9 million, or 12.7%, in full-price Internet net sales and $4.0 million, or 15.6%, in outlet
store net sales. These positive impacts were partially offset by decreases of $39.4 million, or 24.1%, in full-price catalog net sales and $4.7 million, or 37.0%, in
clearance catalog net sales. Also negatively impacting net sales was an
increase of approximately 0.8 percentage points in direct segment sales returns. Please refer to our discussions titled "Comparison of the Twelve-Month Period Ended
January 29, 2005 with the Twelve-Month Period Ended January 31, 2004Consolidated Results of OperationsOperating Segment Results" below
for further details.

Gross Profit Dollar and Rates.Our consolidated gross profit dollars for fiscal 2004 were $255.9 million, an increase
of $53.5 million, or 26.4%, compared with consolidated gross profit dollars for fiscal 2003 of $202.5 million. Our consolidated gross profit rate for fiscal 2004 increased to 43.4% from
39.0% for fiscal 2003.

The
increase in our consolidated gross profit dollars was primarily due to the increase in consolidated net sales. Also contributing to the increase in gross profit dollars were the
factors discussed below that impacted our consolidated gross profit rate.

Our
consolidated gross profit rate increased primarily due to an aggregate improvement in merchandise margins of 4.8 percentage points on sales in all channels in fiscal 2004.
Merchandise margins on full-price direct segment sales improved approximately 3.7 percentage points in fiscal 2004. Merchandise margins on full-price retail sales
increased 3.4 percentage points in fiscal 2004. The merchandise margins on our clearance sales improved by 5.5 percentage points in fiscal 2004. Our merchandise margins in all channels
improved primarily due to our lower merchandise prices resulting from higher purchase volumes relative to the prior year due to both our retail expansion and, to a lesser extent, to the concentration
of our merchandise purchases with fewer, larger vendors. During fiscal 2004, we sourced approximately 72% of our apparel from our top 20 vendors compared with 52% in fiscal 2003.

Also
positively impacting our gross profit dollars and rate was an improvement in the leveraging of our full-line retail store occupancy costs and an increase in the
percentage of total net sales contributed by full-price sales compared with clearance sales. Our full-line retail store occupancy costs as a percentage of our
full-line retail store net sales improved 2.1 percentage points primarily due to improved full-price retail store net sales. Additionally, our gross profit rate was
positively impacted by an increase in the percentage of total net sales contributed by full-price sales compared with clearance sales. Our full-price sales comprised
approximately 87% of our total net sales in fiscal 2004 and approximately 85% of our total net sales in fiscal 2003.

Our
consolidated cost of sales includes $5.0 million of vendor rebates in fiscal 2004 and includes $3.1 million in fiscal 2003. These rebates were credited to cost of sales
as the related merchandise was sold.

Selling, General and Administrative Expenses.Our consolidated selling, general and administrative expenses for fiscal 2004
were $208.2 million, an increase of $26.0 million, or 14.2%, compared with $182.2 million in fiscal 2003.

Our
consolidated selling, general and administrative expenses increased primarily due to personnel costs associated with our retail expansion. These personnel costs increased
$21.3 million, or 46.8%, for

35

---



fiscal
2004 from fiscal 2003. These personnel costs primarily included store employee wages, administrative and technical support salaries, related taxes and employee benefits. Also contributing to
the increase in our selling, general and administrative expenses were increased employee incentive compensation and increased retail specific and brand advertising. In fiscal 2003, our earnings fell
short of targets and resulted in incentive compensation, which is based on corporate performance, of $1.6 million. In fiscal 2004, our earnings performance exceeded targets and resulted in
incentive compensation of $8.4 million. Our retail advertising increased $2.1 million, or 51.1%, in fiscal 2004 from fiscal 2003 and our brand advertising increased $1.7 million,
or 100.1% in fiscal 2004 from fiscal 2003 as we increased our national magazine advertising.

These
negative impacts were partially offset primarily by decreased catalog cost amortization, increased customer list rental income (net of expense) and decreased internet-specific
advertising. Our catalog cost amortization decreased $5.2 million, or 7.8%, in fiscal 2004 from fiscal 2003 primarily due to a decrease in catalogs mailed of 8.6% over the same periods. Our
customer list rental income (net of expense) increased $1.7 million, or 143.5%, primarily due to our decision to reduce catalog mailings to prospective customers. In fiscal 2004 approximately
17% of our total catalogs mailed were to prospective customers versus approximately 27% in fiscal 2003. Our internet-specific advertising decreased $1.2 million, or 38.4%, in fiscal 2004 from
fiscal 2003. We were able to reduce our internet specific advertising due to the combined effects of an increase in our e-mail database of 7.8% coupled with an initiative we undertook in
fiscal 2004 to increase the frequency of the e-mails we send to our customers.

Additionally,
the fiscal 2003 selling, general and administrative expenses included a (pre-tax) sales tax accrual of approximately $1.0 million for expected tax
liabilities resulting from an error in our Canadian tax returns related to refunds of the Canadian Goods and Services Tax, known as GST.Please refer to "Note 18.
Contingencies" in the Notes to the Consolidated Financial Statements for further information.

Selling, General and Administrative Expenses Expressed as a Percentage of Consolidated Net Sales.Our consolidated selling,
general and administrative expenses expressed as a percentage of our consolidated net sales increased slightly to 35.3% for fiscal 2004 from 35.1% for fiscal 2003.

Our
consolidated selling, general and administrative expenses were negatively impacted primarily by reduced leveraging of our incremental personnel costs associated with our retail
expansion. As a percentage of total net sales, these costs increased 3.7 percentage points in fiscal 2004 from fiscal 2003. Also negatively impacting our consolidated selling, general and
administrative expenses was increased
employee incentive compensation. As a percentage of total net sales, employee incentive compensation expense increased 1.1 percentage points in fiscal 2004 from fiscal 2003.

Partially
offsetting these negative impacts was our strategic decision to mail more catalogs to our existing customers relative to the total catalogs mailed during fiscal 2004 compared
with fiscal 2003. We generally realize better response rates to mailings to our existing customers than to our prospecting catalog mailings and have observed falling response rates to our prospecting
catalog mailings. In fiscal 2004 approximately 83% of our total catalogs mailed were to our existing customers versus approximately 73% in fiscal 2003.

Other Operating Data.Our mailing list consisted of 15.6 million names at both January 29, 2005 and
January 31, 2004. Also, our proprietary e-mail address database consisted of 2.4 million names at January 29, 2005 compared with 2.2 million names at
January 31, 2004.

Income Tax Rate.For fiscal 2004 our consolidated provision for income taxes was $19.4 million, an increase of
$11.5 million, or 144.9%, compared with a consolidated provision for income taxes of $7.9 million for fiscal 2003. Our effective income tax rate for fiscal 2004 increased to 39.9% from
39.2% for fiscal 2003. The increase in our income tax expense was primarily the result of higher pre-tax

36

---



income.
The increase in our effective income tax rate was due to the nondeductibility for tax purposes of compensation amounts in excess of $1.0 million for certain executive officers.

Operating Segment Results

Net Sales.The following table summarizes our net sales by segment for the 12-month fiscal 2004 compared with the
12-month fiscal 2003:

Twelve Months EndedChangeJanuary 29,
2005(1)

% of
Total

January 31,
2004(1)

% of
Total$

%(in thousands)Retail

$
296,227

50.2
%
$
194,624

37.5
%
$
101,603

52.2
%Catalog


131,858

22.3
%

175,912

33.9
%

(44,054
)
(25.0
)%Internet


162,225

27.5
%

148,308

28.6
%

13,917

9.4
%Direct


294,083

49.8
%

324,220

62.5
%

(30,137
)
(9.3
)%Total

$
590,310

100.0
%
$
518,844

100.0
%
$
71,466

13.8
%


---

Our
retail segment's net sales increased $101.6 million, or 52.2%, in fiscal 2004 from fiscal 2003. We primarily attribute this increase to net sales of approximately
$62.0 million contributed by the 48 full-line retail stores that we opened during fiscal 2004 and, to a lesser extent, net sales of approximately $26.6 million contributed by
full-line retail stores that were opened during only a portion of fiscal 2003, but were open during the entirety of fiscal 2004. Collectively, these two amounts total approximately
$88.6 million and represent the net sales contribution of our retail expansion. Also contributing to our retail segment's net sales increase were increased outlet store net sales of
$4.0 million, or 15.6%, primarily due to our opening of three outlet stores during fiscal 2004.

Our
direct segment's net sales decreased $30.1 million, or 9.3% in fiscal 2004 from fiscal 2003. We primarily attribute this decrease to our strategic decision to mail
10.2 million, or 8.6% fewer catalogs in fiscal 2004 than in fiscal 2003. Also negatively impacting our direct segment's net sales were fewer promotional campaigns in fiscal 2004 than in fiscal
2003 and increased direct segment sales returns on full-price sales.

Our
direct segment sales returns expressed as a percentage of gross sales increased by 0.8 percentage points in fiscal 2004 from fiscal 2003. We primarily attribute the increase
in direct segment sales returns to an increase of 1.8 percentage points in the percentage of total net sales contributed by apparel sales in fiscal 2004 from fiscal 2003. Apparel sales
typically have higher return rates than sales related to gift and accessory merchandise.

Our
catalog business' net sales, which are derived from orders taken from customers over the phone or through the mail, decreased $44.1 million, or 25.0%, in fiscal 2004 from
fiscal 2003. These net sales exclude net sales that we believe were driven by our catalog mailings but purchased through other channels. We use our catalogs to drive sales in all our channels.
Consequently, we attribute a portion of the 25% decrease in our catalog business' net sales primarily to our customers choosing to purchase merchandise through the channel they deem most convenient
rather than solely because of lower catalog response rates. We believe our sales related to orders taken from customers over the phone and through the mail are down because customers are increasingly
choosing to order via the internet or at our expanding base of full-line retail stores.

37

---



Our
internet business' net sales increased $13.9 million, or 9.4%, in fiscal 2004 from fiscal 2003. In fiscal 2004, we estimate that approximately 42% of our sales orders received
over the internet were driven by our catalog mailings. This compares to approximately 44% in fiscal 2003. We believe this indicates that our internet business is becoming somewhat less dependent on
our catalog mailings to drive sales growth. The growth in our internet business net sales was primarily driven by our successful e-mail campaigns whereby we increased the frequency of our
targeted e-mail advertisements to our growing proprietary database of e-mail addresses.

Operating Contribution.The following table summarizes our operating contribution by segment for fiscal 2004 compared with
fiscal 2003:

|                                    |  |   |         |   |       |    |     |  |   |         |   |      |    | Change | 
|----------------------------------- |  | - | ------- | - | ----- | -- | --- |  | - | ------- | - | ---- | -- | ------ | 
|
|
|
|Retail                              |  | $ | 51,604  |   | 17.4  | %  | (2) |  | $ | 22,446  |   | 11.5 | %  | (2)    | 
|Direct                              |  |   | 59,666  |   | 20.3  | %  | (3) |  |   | 49,069  |   | 15.1 | %  | (3)    | 
|Corporate and other                 |  |   | (63,486 | ) | (10.8 | )% | (4) |  |   | (51,223 | ) | (9.9 | )% | (4)    | 
|                                    |  |   |         |   |       |    |     |  |   |         |   |      |    |        | 
|Consolidated income from operations |  | $ | 47,784  |   | 8.1   | %  | (4) |  | $ | 20,292  |   | 3.9  | %  | (4)    | 
|                                    |  |   |         |   |       |    |     |  |   |         |   |      |    |        | 

---

Our
retail segment operating contribution increased $29.2 million, or 129.9%, in fiscal 2004 from fiscal 2003. We primarily attribute these increases to the 48 retail stores
opened since the end of fiscal 2003, to increased merchandise margins on our full-price retail sales and outlet store sales and, to a lesser extent, to improved leveraging of our retail
store occupancy costs. Merchandise margins on full-price sales from our retail segment improved by 3.4 percentage points in fiscal 2004 from fiscal 2003. Merchandise margins on
outlet store sales improved by 6.8 percentage points in fiscal 2004 from fiscal 2003. Additionally, we experienced an improvement of 2.1 percentage points in
the leveraging of our full-line retail store occupancy costs during fiscal 2004 from fiscal 2003. Also contributing to the improvement was a 6.1% increase in our retail segment's average
sales per transaction for fiscal 2004.

Partially
offsetting these positive impacts in fiscal 2004 was an increase in personnel costs associated with our retail expansion. The personnel costs primarily included administrative
and technical support salaries, store employee wages and related taxes and employee benefits. For fiscal 2004, personnel costs impacting our retail segment's operating contribution increased
$17.7 million, or 53.4%.

The
increase in our direct segment operating contribution is primarily due to improvements in merchandise margins on full-price sales from our catalog and
e-commerce businesses of approximately 3.7 percentage points in fiscal 2004. Also positively impacting our direct segment operating contribution was our strategic decision to mail
more catalogs to our existing customers relative to the total catalogs mailed during fiscal 2004 compared with fiscal 2003. We generally realize better response rates to mailings to our existing
customers than to our prospecting catalog mailings and have observed falling response rates to our prospecting catalog mailings. In fiscal 2004 approximately 83% of our total catalogs mailed were to
our existing customers versus approximately 73% in fiscal 2003.

38

---



The
decrease in our corporate and other operating contribution for fiscal 2004 was primarily due to an increase in incentive compensation expense. In fiscal 2003, our earnings fell short
of targets and resulted in incentive compensation, which is based on corporate performance, of $1.6 million. In fiscal 2004, our earnings performance exceeded targets and resulted in incentive
compensation of $8.4 million. Also, negatively impacting our corporate and other operating contribution in fiscal 2004 was an increase in our administrative and technical support salaries
associated with our retail expansion of $4.1 million, or 21.6%. Our corporate and other operating contribution for fiscal 2004 was also negatively impacted by an increase of
$1.7 million, or 100.1%, in advertising expenses designed to promote the Coldwater Creek brand.

Comparison of the Twelve-Month Period Ended January 31, 2004 with the Eleven-Month Period Ended February 1, 2003

Consolidated Results of Operations

Fiscal year 2002 was an 11-month transition period attributable to the change in our fiscal year end as of February 1, 2003. To assist the
reader, the following discussions first compare a 12-month fiscal year 2003 with an 11-month fiscal year 2002, including the amount attributed to the fact that there was one
less month in fiscal 2002. The remaining discussions compare the 12-month fiscal 2003 with the comparable 12-month period ended February 1, 2003.

The
table below is provided to assist the reader in assessing differences in our overall fiscal 2003 and fiscal 2002 performance and sets forth our results of operations for the periods
indicated below:

|                                                |  | 11 Months
Ended
Feb. 1, 2003(1) |         | One Month
Ended
March 2, 2002
(unaudited) |   | 12 Months
Ended
Feb. 1, 2003
(unaudited) |   | 12 Months
Ended
Jan. 31, 2004(1) |        
|----------------------------------------------- |  | ------------------------------- | ------- | ----------------------------------------- | - | ---------------------------------------- | - | -------------------------------- | -------
|
|
|Net sales                                       |  | $                               | 473,172 |                                           | $ | 28,283                                   |   | $                                | 501,455
|Cost of sales                                   |  |                                 | 284,751 |                                           |   | 17,960                                   |   |                                  | 302,711
|                                                |  |                                 |         |                                           |   |                                          |   |                                  |        
|Gross profit                                    |  |                                 | 188,421 |                                           |   | 10,323                                   |   |                                  | 198,744
|Selling, general and administrative expenses    |  |                                 | 173,330 |                                           |   | 12,617                                   |   |                                  | 185,947
|                                                |  |                                 |         |                                           |   |                                          |   |                                  |        
|Income (loss) from operations                   |  |                                 | 15,091  |                                           |   | (2,294                                   | ) |                                  | 12,797 
|Interest, net, and other                        |  |                                 | 170     |                                           |   | 18                                       |   |                                  | 188    
|                                                |  |                                 |         |                                           |   |                                          |   |                                  |        
|Income (loss) before provision for income taxes |  |                                 | 15,261  |                                           |   | (2,276                                   | ) |                                  | 12,985 
|Income tax provision (benefit)                  |  |                                 | 6,113   |                                           |   | (878                                     | ) |                                  | 5,235  
|                                                |  |                                 |         |                                           |   |                                          |   |                                  |        
|Net income (loss)                               |  | $                               | 9,148   |                                           | $ | (1,398                                   | ) | $                                | 7,750  
|                                                |  |                                 |         |                                           |   |                                          |   |                                  |        

---

Net Sales.Our consolidated net sales for the 12-month fiscal 2003 were $518.8 million, an increase of
$45.7 million, or 9.7%, compared with consolidated net sales of $473.2 million during the 11-month fiscal 2002. We attribute $28.3 million of the $45.7 million
increase in our consolidated net sales to the fact that there was one less month in fiscal 2002 than in fiscal 2003.

Our
consolidated net sales for the 12-month fiscal 2003 increased $17.4 million, or 3.5%, compared with consolidated net sales of $501.5 million during the
comparable 12-month period ended February 1, 2003. This increase is primarily due to incremental net sales of $47.9 million contributed by our retail expansion and, to a
lesser extent, to improved direct segment sales returns. In fiscal 2003, our direct

39

---



segment
sales returns expressed as a percentage of gross sales declined by 2.1 percentage points from the comparable 12-month period ended February 1, 2003. These positive
impacts were partially offset primarily by a decrease of $30.1 million, or 17.2%, in full-price net sales by our direct segment's catalog business. Please refer to our discussions
titled "Comparison of the Twelve-Month Period Ended January 31, 2004 with the Eleven-Month Period Ended February 1, 2003Consolidated Results of
OperationsOperating Segment Results" below for further details.

Gross Profit Dollars.Our consolidated gross profit dollars for the 12-month fiscal 2003 were
$202.5 million, an increase of $14.1 million, or 7.5%, compared with consolidated gross profit dollars for the 11-month fiscal 2002 of $188.4 million. We attribute
$10.3 million of the $14.1 million increase in consolidated gross profit to the fact that there was one more month in fiscal 2003 than in fiscal 2002.

Our
consolidated gross profit dollars for the 12-month fiscal 2003 increased $3.7 million, or 1.9%, compared with consolidated gross profit dollars of
$198.7 million during the comparable 12-month period ended February 1, 2003. The increase in our consolidated gross profit dollars was primarily attributable to the increase
in consolidated net sales.

Gross Profit Rate.Our consolidated gross profit rate for the 12-month fiscal 2003 decreased to 39.0% from 39.8%
for the 11-month fiscal 2002 and from 39.6% for the comparable 12-month period ended February 1, 2003. This decrease was primarily due to a reduction in merchandise
margins of 2.3 percentage points on full-price sales from our catalog and e-commerce businesses as we undertook promotional campaigns to reactivate customers and
increase average units per order in our direct segment. Our gross profit rate was also negatively impacted by an increase in the percentage of total net sales contributed by clearance sales compared
with full-price sales. Clearance sales comprised approximately 15% of our total net sales in fiscal 2003 and approximately 14% of our total net sales in the comparable 12-month
period ended February 1, 2003. We have discontinued many of our promotional campaigns in our direct segment.

These
negative impacts on our gross profit rate were partially offset primarily by improved merchandise margins on clearance sales and, to a lesser extent, by improved merchandise
margins on full-price retail store sales, and by improved leveraging of retail store occupancy costs. The merchandise margins on our clearance sales improved by 8.0 percentage
points during the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. We attribute this positive change to our focus on identifying slow
moving merchandise more quickly. This has enabled us to offer discounted merchandise when it is more seasonally appropriate. The merchandise margins on our full-price retail store sales
increased by 1.7 percentage points during the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. We attribute our improved margins
on full-price retail sales to our decision to reduce the number of days merchandise is discounted before it is moved to our outlet stores. Our gross profit rate for the
12-month fiscal 2003 was positively impacted by an improvement of 1.1 percentage points in the leveraging of our full-line retail store occupancy costs from the
comparable 12-month period ended February 1, 2003. We were able to leverage our retail store occupancy costs primarily due to improved net sales at our retail stores.

Our
consolidated cost of sales included $3.1 million of vendor rebates in the 12-month fiscal 2003 and included $2.0 million in both the 11-month
fiscal 2002 and the comparable 12-month period ended February 1, 2003. These rebates were credited to cost of sales as the related merchandise was sold.

Selling, General and Administrative Expenses.Our consolidated selling, general and administrative expenses for the
12-month fiscal 2003 were $182.2 million, an increase of $8.9 million, or 5.1%, over the 11-month fiscal 2002. We attribute $12.6 million in selling,
general and administrative expenses to the fact that there was one more month in fiscal 2003 than in fiscal 2002. We mailed 117.8 million catalogs during the 12-month fiscal 2003
compared with 136.2 million during the 11-month fiscal 2002.

40

---



Our consolidated selling, general and administrative expenses for the 12-month fiscal 2003 decreased $3.7 million, or 2.0%, compared with consolidated selling, general
and administrative expenses of $185.9 million during the comparable 12-month period ended February 1, 2003. Our consolidated selling, general and administrative expenses were
positively impacted by reduced costs associated with catalog mailings of approximately $15.1 million. We decreased our catalog mailings by 19.0%, to 117.8 million in the
12-month fiscal 2003 from 145.4 million in the comparable 12-month period ended February 1, 2003. Additionally, the fiscal 2002 consolidated selling, general and
administrative expenses included costs of approximately $0.9 million associated with settling a dispute with a former merchandise vendor.

These
positive impacts were partially offset by increased personnel costs associated with our retail expansion and, to a lesser extent, an accrual of approximately $1.0 million
(pre-tax) for expected sales tax liabilities. Personnel costs impacting our consolidated selling, general and administrative expenses associated with our retail expansion increased
$12.6 million, or 37.1%, for the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. The personnel costs primarily included store
employee wages, administrative and technical support salaries, related taxes and employee benefits. The majority of the $1.0 million (pre-tax) sales tax accrual resulted from an
error in our Canadian tax returns related to refunds of the Canadian Goods and Services Tax, known as the GST. Canada allows refunds for GST paid by retailers, as it imposes a value-added tax that is
collected from the consumer or user of the goods and services purchased. During the fiscal 2003 third quarter, we discovered we had included Canadian provincial sales tax in our GST refund claims. The
provincial sales taxes we were including are not refundable. Since discovering this, we have properly filed our current GST refund claims.

Selling, General and Administrative Expenses Expressed as a Percentage of Consolidated Net Sales.Our consolidated selling,
general and administrative expenses expressed as a percentage of our consolidated net sales decreased to 35.1% for 12-month fiscal 2003 from 36.6% for the 11-month fiscal 2002
and from 37.1% for the comparable 12-month period ended February 1, 2003. This improvement was primarily due to our strategic decision to mail more catalogs to our existing
customers relative to the total catalog mailings during fiscal 2003 compared with both the 11-month fiscal 2002 and the comparable 12-month period ended February 1,
2003. We generally realize better response rates to mailings to our existing customers than to our prospecting catalog mailings and have observed falling response rates to our prospecting catalog
mailings. The percentage of mailings to our existing customers increased 7.8 percentage points in fiscal 2003 from the 11-month fiscal 2002. The percentage of mailings to our
existing customers increased 7.0 percentage points in fiscal 2003 from the comparable 12-month period ended February 1, 2003.

Other Operating Data.Our mailing list grew to 15.6 million names at January 31, 2004 from 14.0 million
names at February 1, 2003. Also, our proprietary e-mail address database consisted of
2.2 million names at January 31, 2004 compared with 1.8 million names at February 1, 2003. Our active customers declined slightly to 2.6 million at
January 31, 2004 from 2.7 million at February 1, 2003. Our active customers are those customers who have purchased merchandise from us through any of our three sales channels
during the preceding 12 months. Active customers do not include retail customers who have not provided identifying information to us.

Income Tax Rate.For fiscal 2003 our consolidated provision for income taxes was $7.9 million, an increase of
$1.8 million, or 29.3%, compared with a consolidated provision for income taxes of $6.1 million for the 11-month fiscal 2002. Our effective income tax rate for fiscal 2003
decreased to 39.2% from 40.1% for the 11-month fiscal 2002. The increase in our income tax expense was primarily the result of higher pre-tax income. The decrease in our
effective income tax rate was lower because we reversed an accrual for approximately $0.2 million related to certain income taxes that we determined would not ultimately be due.

41

---



Operating Segment Results

Net Sales.The table below is provided to assist the reader in assessing differences in our fiscal 2003 and 2002 net sales by
business channel and sets forth our net sales by business channel for the periods indicated below:

|         |        | 11 Months
Ended
Feb. 1, 2003(1) |         | One Month
Ended
March 2, 2002
(unaudited) |   | 12 Months
Ended
Feb. 1, 2003
(unaudited) |        | 12 Months
Ended
Jan. 31, 2004(1)
|-------- | ------ | ------------------------------- | ------- | ----------------------------------------- | - | ---------------------------------------- | ------ | --------------------------------
|
|Retail   |        | $                               | 128,177 |                                           | $ | 6,071                                    |        | $                               
|         |        |                                 |         |                                           |   |                                          |        |                                 
|Catalog  |        |                                 | 200,157 |                                           |   | 11,988                                   |        |                                 
|Internet |        |                                 | 144,838 |                                           |   | 10,224                                   |        |                                 
|         |        |                                 |         |                                           |   |                                          |        |                                 
|         | Direct |                                 |         | 344,995                                   |   |                                          | 22,212 |                                 
|         |        |                                 |         |                                           |   |                                          |        |                                 
|Total    |        | $                               | 473,172 |                                           | $ | 28,283                                   |        | $                               
|         |        |                                 |         |                                           |   |                                          |        |                                 

---

The
following table summarizes our net sales by segment for the 12-month fiscal 2003 compared with the 11-month fiscal 2002:

|         |        |   |         |         |       |      |   |         |         | Change |     
|-------- | ------ | - | ------- | ------- | ----- | ---- | - | ------- | ------- | ------ | ----
|
|
|
|Retail   |        | $ | 128,177 |         | 27.1  | %    | $ | 194,624 |         | 37.5   | %   
|         |        |   |         |         |       |      |   |         |         |        |     
|Catalog  |        |   | 200,157 |         | 42.3  | %    |   | 175,912 |         | 33.9   | %   
|Internet |        |   | 144,838 |         | 30.6  | %    |   | 148,308 |         | 28.6   | %   
|         |        |   |         |         |       |      |   |         |         |        |     
|         | Direct |   |         | 344,995 |       | 72.9 | % |         | 324,220 |        | 62.5
|         |        |   |         |         |       |      |   |         |         |        |     
|Total    |        | $ | 473,172 |         | 100.0 | %    | $ | 518,844 |         | 100.0  | %   
|         |        |   |         |         |       |      |   |         |         |        |     

---

42

---



The
following table summarizes our net sales by segment for the 12-month fiscal 2003 compared with the comparable 12-month period ended February 1, 2003:

|         |        | 12 Months
Ended
Feb. 1, 2003
(unaudited) |         |         |       |      |   |         |         | Change |     
|-------- | ------ | ---------------------------------------- | ------- | ------- | ----- | ---- | - | ------- | ------- | ------ | ----
|
|
|
|Retail   |        | $                                        | 134,248 |         | 26.8  | %    | $ | 194,624 |         | 37.5   | %   
|         |        |                                          |         |         |       |      |   |         |         |        |     
|Catalog  |        |                                          | 212,145 |         | 42.3  | %    |   | 175,912 |         | 33.9   | %   
|Internet |        |                                          | 155,062 |         | 30.9  | %    |   | 148,308 |         | 28.6   | %   
|         |        |                                          |         |         |       |      |   |         |         |        |     
|         | Direct |                                          |         | 367,207 |       | 73.2 | % |         | 324,220 |        | 62.5
|         |        |                                          |         |         |       |      |   |         |         |        |     
|Total    |        | $                                        | 501,455 |         | 100.0 | %    | $ | 518,844 |         | 100.0  | %   
|         |        |                                          |         |         |       |      |   |         |         |        |     

---

Our
retail segment's net sales increased $66.4 million, or 51.8%, in the 12-month fiscal 2003 from the 11-month fiscal 2002. We attribute
$6.1 million of this increase to the fact there was one less month in fiscal 2002 than in fiscal 2003. Our retail segment's net sales increased $60.4 million, or 45.0%, in the
12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. We primarily attribute this increase to net sales of $33.3 million contributed by
the 25 full-line retail stores that we opened during fiscal 2003 and, to a lesser extent, $14.6 million contributed by full-line retail stores that were opened during
only a portion of the 12-month period ended February 1, 2003, but were open during the entirety of the 12-month fiscal 2003. Collectively, these two amounts total
$47.9 million and represent the net sales contribution of our retail expansion.

Our
direct segment's net sales decreased $20.8 million, or 6.0% in the 12-month fiscal 2003 from the 11-month fiscal 2002. Our direct segment's net sales
decreased $43.0 million, or 11.7% in the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. We primarily attribute this decrease to
our strategic decision to mail 27.6 million, or 19.0% fewer catalogs in the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003.

We
believe that our catalog business did not decrease proportionally with the decrease in catalogs mailed due to a higher percentage of mailings to our existing customers. The percentage
of mailings to our existing customers increased 7.0 percentage points in fiscal 2003 from the comparable 12-month period ended February 1, 2003. We believe that our
e-commerce business' net sales were not as severely impacted by the decrease in catalog mailings primarily due to our continued efforts to reduce our e-commerce business'
dependence on our catalogs as an advertising medium. For example, we continued to participate in a net sales commission-based "affiliate" website program in which numerous popular search engines and
consumer and charitable websites provide access to our website.

Operating Contribution.The table below is provided to assist the reader in assessing differences in our fiscal 2003 and 2002
operating contribution by segment and sets forth our operating contribution by segment for the periods indicated below:

43

---



|                                    |  | 11 Months
Ended
Feb. 1, 2003(1) |         | One Month
Ended
March 2, 2002
(unaudited) |   | 12 Months
Ended
Feb. 1, 2003
(unaudited) |   | 12 Months
Ended
Jan. 31, 2004(1) |        
|----------------------------------- |  | ------------------------------- | ------- | ----------------------------------------- | - | ---------------------------------------- | - | -------------------------------- | -------
|
|
|Retail                              |  | $                               | 7,947   |                                           | $ | (523                                     | ) | $                                | 7,424  
|Direct                              |  |                                 | 52,134  |                                           |   | 2,165                                    |   |                                  | 54,299 
|Corporate and other                 |  |                                 | (44,990 | )                                         |   | (3,936                                   | ) |                                  | (48,926
|                                    |  |                                 |         |                                           |   |                                          |   |                                  |        
|Consolidated income from operations |  | $                               | 15,091  |                                           | $ | (2,294                                   | ) | $                                | 12,797 
|                                    |  |                                 |         |                                           |   |                                          |   |                                  |        

---

The
following table summarizes our operating contribution by segment for the 12-month fiscal 2003 compared with the 11-month fiscal 2002:

|                                    |  |   |         |   |      |       |   |         |   | Change |      
|----------------------------------- |  | - | ------- | - | ---- | ----- | - | ------- | - | ------ | -----
|
|
|
|
|Retail                              |  | $ | 7,947   |   | 6.2  | %(2)  | $ | 22,446  |   | 11.5   | %(2) 
|Direct                              |  |   | 52,134  |   | 15.1 | %(3)  |   | 49,069  |   | 15.1   | %(3) 
|Corporate and other                 |  |   | (44,990 | ) | (9.5 | )%(4) |   | (51,223 | ) | (9.9   | )%(4)
|                                    |  |   |         |   |      |       |   |         |   |        |      
|Consolidated income from operations |  | $ | 15,091  |   | 3.2  | %(4)  | $ | 20,292  |   | 3.9    | %(4) 
|                                    |  |   |         |   |      |       |   |         |   |        |      

The
following table summarizes our operating contribution by segment for the 12-month fiscal 2003 compared with the comparable 12-month period ended
February 1, 2003:

|                                    |  | 12 Months
Ended
Feb. 1, 2003
(unaudited) |         |   |      |       |   |         |   | Change |      
|----------------------------------- |  | ---------------------------------------- | ------- | - | ---- | ----- | - | ------- | - | ------ | -----
|
|
|
|
|Retail                              |  | $                                        | 7,424   |   | 5.5  | %(2)  | $ | 22,446  |   | 11.5   | %(2) 
|Direct                              |  |                                          | 54,299  |   | 14.8 | %(3)  |   | 49,069  |   | 15.1   | %(3) 
|Corporate and other                 |  |                                          | (48,926 | ) | (9.8 | )%(4) |   | (51,223 | ) | (9.9   | )%(4)
|                                    |  |                                          |         |   |      |       |   |         |   |        |      
|Consolidated income from operations |  | $                                        | 12,797  |   | 2.6  | %(4)  | $ | 20,292  |   | 3.9    | %(4) 
|                                    |  |                                          |         |   |      |       |   |         |   |        |      

---

Our
retail segment's operating contribution increased $14.5 million, or 182.4%, in the 12-month fiscal 2003 from the 11-month fiscal 2002. Our retail
segment's operating contribution increased $15.0 million, or 202.3%, in the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. We
primarily attribute this increase to the opening of new stores, to increased

44

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merchandise
margins on our full-price retail sales and outlet store sales and, to a lesser extent, to improved leveraging of full-line retail store occupancy costs. Merchandise
margins on full-price sales from our retail segment improved by 1.7 percentage points during the 12-month fiscal 2003 from the comparable 12-month period
ended February 1, 2003. Merchandise margins on outlet store sales improved by 9.0 percentage points during the 12-month fiscal 2003 from the comparable 12-month
period ended February 1, 2003. We experienced an improvement of 1.1 percentage points in the leveraging of our full-line retail store occupancy costs during the
12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003.

Our
direct segment's operating contribution decreased $3.1 million, or 5.9%, in the 12-month fiscal 2003 from the 11-month fiscal 2002. Our direct
segment's operating contribution decreased $5.2 million, or 9.6%, in the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. The
decrease in our direct segment's operating contribution is primarily due to a reduction in merchandise margins of 2.3 percentage points on full-price sales from our catalog and
e-commerce businesses. Our direct segment's operating contribution was also negatively impacted by an increase in the percentage of total net sales contributed by clearance sales compared
with full-price sales. Direct segment clearance sales contributed approximately 16% of our total direct segment net sales in fiscal 2003 and approximately 14% in the comparable
12-month period ended February 1, 2003.

Partially
offsetting these negative impacts were improved merchandise margins on clearance sales in our direct segment and, to a lesser extent, an increase in the percentage of catalogs
mailed to our existing customers compared with prospecting customers. The merchandise margins on our direct segment clearance sales improved by 6.0 percentage points during the
12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. The percentage of mailings to our existing customers increased 7.0 percentage
points during the 12-month fiscal 2003 from the comparable 12-month period ended February 1, 2003. We believe the increase in the percentage of mailings to our existing
customers improved margins because of the generally higher response rates among existing customers compared with prospective customers.

Partially
offsetting these positive impacts were increased outlet store clearance activity and, to a lesser extent, increased personnel costs associated with our retail expansion. The
personnel costs primarily included administrative and technical support salaries, store employee wages and related taxes and employee benefits. For the 12-month fiscal 2003, outlet store
clearance activity increased
39.1% primarily because of the increase in the number of our retail stores, and personnel costs increased $9.0 million, or 36.9%.

Our
corporate and other operating contribution for the 12-month fiscal 2003 was $(51.2) million as compared with $(45.0) million for the 11-month fiscal 2002 and
$(48.9) million for the comparable 12-month period ended February 1, 2003. The decrease in our corporate and other operating contribution was primarily due to an increase of
$3.5 million, or 20.7%, in administrative and technical support salaries associated with our retail expansion. The 12-month fiscal 2003 was also negatively impacted by an accrual of
$1.4 million for expected sales tax liabilities. These negative impacts were partially offset by decreases in other corporate expenses.

Quarterly Results of Operations and Seasonal Influences

As with many apparel retailers, our net sales, operating results, liquidity and cash flows have fluctuated, and will continue to fluctuate as a result of a number
of factors, including the following:



45

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We
alter the composition, magnitude and timing of our merchandise offerings based upon our understanding of prevailing consumer demand, preferences and trends. The timing of our
merchandise offerings may be further impacted by, among other factors, the performance of various third parties on which we are dependent and the day of the week on which certain important holidays
fall. Additionally, the net sales we realize from a particular merchandise offering may impact more than one fiscal quarter and year and the amount and pattern of the sales realization may differ from
that realized by a similar merchandise offering in a prior fiscal quarter or year. The majority of net sales from a merchandise offering generally is realized within the first several weeks after its
introduction with an expected significant decline in customer orders thereafter.

Our
business materially depends on sales and profits from the November and December holiday shopping season. In anticipation of traditionally increased holiday sales activity, we incur
certain significant incremental expenses, including the hiring of a substantial number of temporary employees to supplement our existing workforce. Additionally, as gift items and accessories are more
prominently represented in our November and December holiday season merchandise offerings, we typically expect, absent offsetting factors, to realize higher consolidated gross margins in the second
half of our fiscal year. If, for any reason, we were to realize significantly lower-than-expected sales or profits during the November and December holiday selling season, our
financial condition, results of operations, including related gross margins and cash flows for the entire fiscal year will be materially adversely affected. Due to our change in fiscal year end in
fiscal 2002, the November and December holiday season falls into our fiscal fourth quarter.
Previously, the November portion of the holiday season fell into our fiscal third quarter and the December portion of the holiday season fell into our fiscal fourth quarter. Although our fiscal 2004
second quarter was profitable, our second quarter has historically not been profitable and may again become unprofitable in the future.

Quarterly Financial Data

The following tables contain selected unaudited quarterly consolidated financial data as a percentage of net sales for fiscal 2004, 2003, and the
11-month transition period ended February 1, 2003. In our opinion, this unaudited information has been prepared on the same basis as the audited financial statements presented
elsewhere and includes all adjustments necessary to present fairly, in all material respects, the information set forth therein on a consistent basis. The aggregate of certain of the following
quarterly amounts may differ from that reported for the full fiscal year due to the effects of rounding.

46

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The
quarterly consolidated financial data below has been restated as described in"Note 2. Significant Accounting Policies, Restatement of Prior Financial
Information" in the Notes to the Consolidated Financial Statements:

|                                             |  | Fiscal 2004
|-------------------------------------------- |  | -----------
|
|
|
|Net sales                                    |  | $          
|Cost of sales                                |  |            
|                                             |  |            
|Gross profit                                 |  |            
|Selling, general and administrative expenses |  |            
|                                             |  |            
|Income from operations                       |  |            
|Interest, net, and other                     |  |            
|                                             |  |            
|Income before income taxes                   |  |            
|Income tax provision                         |  |            
|                                             |  |            
|Net income                                   |  | $          
|                                             |  |            
|Net income per sharebasic                   |  | $          
|                                             |  |            
|Net income per sharediluted                 |  | $          
|                                             |  |            

|                                             |  | Fiscal 2003
|-------------------------------------------- |  | -----------
|
|
|
|Net sales                                    |  | $          
|Cost of sales                                |  |            
|                                             |  |            
|Gross profit                                 |  |            
|Selling, general and administrative expenses |  |            
|                                             |  |            
|Income (loss) from operations                |  |            
|Interest, net, and other                     |  |            
|                                             |  |            
|Income (loss) before income taxes            |  |            
|Income tax provision                         |  |            
|                                             |  |            
|Net income (loss)                            |  | $          
|                                             |  |            
|Net income (loss) per sharebasic            |  | $          
|                                             |  |            
|Net income (loss) per sharediluted          |  | $          
|                                             |  |            

The
second and fourth quarter gross profit percentages generally have been negatively impacted by clearance activities. Furthermore, the improvement in our gross profit percentages in
the fiscal 2004 periods over the fiscal 2003 periods reflects the improvements we have achieved in our merchandise margins. These improvements were primarily due to lower merchandise prices resulting
from higher purchase volumes relative to the prior year due to both our retail expansion and, to a lesser extent, to the concentration of our merchandise purchases with fewer, larger vendors. During
fiscal 2004, we sourced approximately 72% of our apparel from our top 20 vendors compared with 52% in fiscal 2003.

We
believe the improvements in selling, general and administrative expenses expressed as a percentage of consolidated net sales illustrate better leveraging of these expenses in the
second half of

47

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our
fiscal year at the same time that we incur certain significant incremental expenses. For example, in anticipation of traditionally increased holiday sales activity, we incur significant
incremental expenses, including the hiring of a substantial number of temporary employees to supplement our existing workforce. We believe that we have been able to leverage our selling, general and
administrative expenses in the second half of our fiscal year due to increased net sales. Additionally, our selling, general and administrative expenses expressed as a percentage of consolidated net
sales has remained nearly the same in both the fiscal 2004 and fiscal 2003 periods. This trend reflects our ability to manage overhead expenses during our retail expansion.

Liquidity and Capital Resources

In recent fiscal years, we have financed our ongoing operations and growth initiatives primarily from cash flow generated by our operations and trade credit
arrangements. However, as we produce catalogs, open retail stores and purchase inventory in anticipation of future sales realization and as our operating cash flows and working capital experience
seasonal fluctuations, we may occasionally utilize short-term bank credit.

On
January 27, 2005, we entered into a credit agreement with Wells Fargo Bank, National Association, providing for an unsecured revolving line of credit of up to
$40.0 million (the "Agreement"). This credit facility replaced our previous $60.0 million credit facility with Wells Fargo Bank pursuant to the credit agreement dated March 5,
2003 between us and Wells Fargo Bank, National Association, and various other financial institutions. The Agreement increases the limit on our ability to issue letters of credit from
$20.0 million to $40.0 million, removes a key financial covenant requiring us to maintain a certain fixed charge ratio, and removes certain common share ownership restrictions with
respect to Dennis Pence, our Chairman and Chief Executive Officer. As with the prior credit facility, the interest rate under the Agreement is equal to the London InterBank Offered Rate, but is
subject to a lower adjustment rate based on our leverage ratio than under the prior agreement.

The
Agreement also amends the specified current ratio, leverage ratio and minimum net worth requirements (as defined in the Agreement) we are required to maintain. The Agreement
continues to restrict our ability to, among other things, sell assets, participate in mergers, incur debt, pay cash dividends and make investments or guarantees. In addition, we may be subject to
unused commitment fees based on a varying percentage of the amount of the total facility that is not drawn down under the Agreement on a quarterly basis. The credit facility has a maturity date of
January 31, 2008. At January 29, 2005, we had $3.2 million in outstanding letters of credit under this Agreement and had not drawn down any amounts under the credit facility.

Our
operating activities generated $65.1 million, $46.6 million and $39.0 million of positive cash flow during fiscal 2004, 2003 and 2002, respectively. On a
comparative year-to-year basis, the increase in fiscal 2004 primarily reflects the positive cash flow effects of increased net income, increased accounts payable and increased
deferred rents related to our retail expansion. Partially offsetting these positive cash flow impacts were increased inventories, increased prepaid and deferred catalog costs and decreased deferred
tax liabilities. Our inventories increased primarily due to our opening of 48 full-line retail stores during fiscal 2004. Our prepaid and deferred catalog costs increased due to the timing
of our catalog mailings. On a comparative year-to-year basis, the increase in fiscal 2003 primarily reflects increased deferred rents related to our retail expansion and, to a
lesser extent, increased net income and decreased inventories. Partially offsetting these positive cash flow impacts were decreased accounts payable and increased accounts receivable. Our accounts
receivables increased by $3.4 million during fiscal 2003 primarily due to increased amounts due from landlords for tenant improvements in new stores.Please refer to
"Note 2. Significant Accounting Policies, Deferred Rents" in the Notes to the Consolidated Financial Statements for further information regarding our accounting for deferred
rents.

48

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Our investing activities consumed $46.7 million, $27.3 million and $18.5 million of cash during fiscal 2004, 2003 and 2002, respectively. Cash outlays in these
periods were principally for capital expenditures.

Our
fiscal 2004, fiscal 2003 and fiscal 2002 capital expenditures principally reflect the cost of leasehold improvements for 48, 25 and 14 new retail stores, respectively, and, to a
substantially lesser extent, furniture and fixtures for both new and existing retail stores and various technology hardware and software additions and upgrades. We also incurred costs associated with
leasehold improvements for three new outlet stores in fiscal 2004 and six new outlet stores in each of fiscal 2003 and fiscal 2002.

Our
financing activities provided $47.1 million and $1.1 million of cash during fiscal 2004 and fiscal 2002, respectively and used $0.1 million of cash in fiscal
2003. Fiscal 2004 primarily reflects net proceeds of $42.6 million from our May 2004 public stock offering. Also contributing to our financing activities during fiscal 2004 were proceeds
from the exercise of previously granted stock options to purchase approximately 1,155,000 shares of common stock at an average price of $3.85 per share. Fiscal 2003 primarily reflects
$0.9 million in net proceeds from the exercise of previously granted options to purchase approximately 394,000 shares of common stock at an average exercise price of $2.33 per share, partially
offset by $0.5 million of financing costs associated with our previous credit facility and $0.5 million in costs associated with our May 2004 stock offering. Fiscal 2002 primarily
reflects $1.1 million in net proceeds from the exercise of previously granted options to purchase 463,000 shares of common stock at an average exercise price of $2.47 per share.

On
March 31, 2001, our Board of Directors authorized a stock repurchase program for up to 300,000 outstanding shares of our common stock. During fiscal 2001, we repurchased
209,100 shares of our common stock at an average market price of $22.55 per share. The 209,100 treasury shares were not impacted by the four 50% stock dividends, each having the effect of a
3-for-2 stock split, declared by our Board of Directors on December 19, 2002, August 4, 2003, June 12, 2004 and February 12, 2005, respectively. On
July 25, 2003, we retired the 209,100 treasury shares. We currently do not anticipate any additional share repurchases.

As
a result of the foregoing, we had $116.5 million in consolidated working capital at January 29, 2005 compared with $51.6 million at January 31, 2004. Our
consolidated current ratio was 2.4 at January 29, 2005 compared with 1.8 at January 31, 2004. We had no outstanding short-term or long-term bank debt at
January 29, 2005 or January 31, 2004.

On
May 26, 2004, we completed a public offering of 5,040,000 shares of our common stock at a price to the public of $9.11 per share. The net proceeds to us were approximately
$42.1 million after deducting
underwriting discounts and commissions and our offering expenses. We currently intend to use the net proceeds from the offering to continue to expand our retail operations and for working capital and
for other general corporate purposes. Please note that the common stock and price per share amounts discussed here have been adjusted to reflect the two stock dividends declared by the Board of
Directors since May 26, 2004.

At
January 29, 2005, we operated 114 stores and we have since opened an additional four stores in the fiscal 2005 first quarter for a total of 118 stores currently in operation.
We currently plan to open a total of approximately 60 new stores in fiscal 2005. We believe there is an opportunity to open 450 to 500 stores in up to 300 identified markets nationwide over the next
five to seven years. The pace, scope and size of our retail store expansion will be influenced by the economic environment, available working capital, our ability to identify and obtain favorable
terms on suitable locations for our stores and, if necessary, external financing.

We
currently estimate approximately $70.0 million in total capital expenditures for fiscal 2005, primarily for the 60 new full-line retail stores we currently plan to
open, and, to a substantially lesser extent, the conversion of a portion of our Sandpoint Distribution Center into additional administrative

49

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office
space and various technology additions and upgrades. These expenditures are expected to be funded from operating cash flows, working capital and the proceeds from the public offering of shares
of our Common Stock completed on May 26, 2004.

Over
the past several years we have tested various retail store models and we continue to do so. Prior to fiscal 2005 we had two store models. Our core store model, which we introduced
at the beginning of fiscal 2002, was 5,000 to 6,000 square feet and, in the beginning of fiscal 2003, we introduced a smaller store format of approximately 3,000 to 4,000 square feet. In fiscal 2004,
our 66 stores that had been open at least 13 months averaged approximately 6,400 square feet in size and $487 per square foot in net sales. Most of these stores have been open for one to two
years.

We
have now identified our appropriate store size to be in the range of 4,000 to 6,000 square feet. Therefore, in fiscal 2005, our core store model will average 5,000 square feet and we
expect that it will contribute net sales per square foot of approximately $500 in the third year of operations.

We
believe that our cash flow from operations, available borrowing capacity under our bank credit facility and the net proceeds from the May 2004 stock offering will be sufficient
to fund our current operations and retail store openings under our current store roll-out plan. However, we may be required to seek additional sources of funds if, for example, we decide
to accelerate our retail roll-out strategy.

Future Outlook

Due to competition from discount retailers that has put downward pressure on retail prices for women's apparel, the apparel industry has experienced significant
retail price deflation over the past several years. We expect this trend to continue. Furthermore, on December 31, 2004, quota restrictions on the importing of apparel into the United States
from foreign countries which are members of the World Trade Organization expired. The effect this quota expiration will have on global sourcing patterns is uncertain but is likely to continue the
retail price deflation. We currently believe that our sourcing strategy will allow us to adjust to potential shifts in availability of apparel following the expiration of these quotas.

We
expect our retail segment to be the key driver of our growth in the future. As our retail business grows, we will add additional overhead. However, we expect our sales dollar growth
to outpace our addition of infrastructure expenses. Consequently, we believe that our retail expansion will increase our overall profitability. We also anticipate that our recently implemented global
sourcing strategy will contribute to an increase in our overall profitability by increasing the percentage of merchandise we purchase directly from overseas vendors. During fiscal 2005, we expect that
we will be the importer of record of approximately 15% of our total merchandise purchases.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make
estimates and assumptions that affect:



These
estimates and assumptions are based on our historical results as well as our future expectations. Our actual results could vary from our estimates and assumptions.

The
accounting policies listed below are those that we believe are the most critical to our consolidated financial condition and results of operations. They are also the accounting
policies that

50

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typically
require our most difficult, subjective and complex judgments and estimates, often for matters that are inherently uncertain. With respect to our critical accounting policies, even a
relatively minor variance between our actual and expected experience can potentially have a materially favorable or unfavorable impact on our subsequent consolidated results of operations.

Revenue Recognition and Sales Return Estimate

We recognize sales and the related cost of sales either at the time merchandise ordered from a catalog or website is shipped to the customer or at the time a sale
is consummated with a customer in a store. We reduce our sales and costs of sales, and establish and maintain a corresponding accrual, for expected sales returns based on our historical experience and
our future expectations. Our ability to reasonably estimate sales returns is made more complex by the fact that we offer our customers a return policy whereby they may return merchandise for any
reason and at any time without any restrictions as to condition or time. The actual amount of sales returns we subsequently realize may fluctuate from our estimates due to several factors, including
size and fit, merchandise mix, actual or perceived quality, differences between the actual product and its presentation in our catalog or website, timeliness of delivery and competitive offerings. We
continually track our subsequent sales return experience, compile customer feedback to identify any pervasive issues, reassess the marketplace, compare our findings to our previous estimates and
adjust our sales return accrual and cost of sales accordingly.



Our inventories consist of merchandise purchased for resale and are reflected, in the aggregate, on our balance sheet at the lower of cost or market. The nature
of our business requires that we make substantially all of our merchandising and marketing decisions, and corresponding inventory purchase commitments with vendors, months in advance of the time in
which a particular merchandise item is intended to be included in our merchandise offerings. These decisions and commitments are based on, among other possible considerations, historical sales with
identical or similar merchandise, our understanding of fashion trends and influences as well as our assessment of likely economic conditions
and various competitive factors. We continually make subjective assessments as to whether the carrying cost of our inventory exceeds its market value, and, if so, by what dollar amount. The carrying
value of our inventory is reduced to its realizable value with a corresponding charge to our cost of sales.



We accumulate all direct costs incurred in the development, production and circulation of our direct mail catalogs on our balance sheet until such time as the
related catalog is mailed, at which time, they are subsequently amortized into the marketing component of our selling, general and administrative expenses over the expected sales realization cycle,
typically several weeks. Our initial estimation of the expected sales realization cycle for a particular catalog merchandise offering is based on, among other possible considerations, our historical
sales and sell-through experience with identical or similar catalog merchandise offerings, our understanding of then-prevailing fashion trends and influences, our assessment of
prevailing economic conditions and various competitive factors. We continually track our subsequent sales realization, compile customer feedback for indications of future performance, reassess the
marketplace, compare our findings to our previous estimate and adjust our amortization going forward.

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 151, "Inventory Costsan amendment of ARB
No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling

51

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costs
and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion
be based on the normal capacity of the production facilities. We will adopt the provisions of SFAS No. 151, effective January 29, 2006 for our fiscal 2006 consolidated financial
statements. Management currently believes that adoption of the provisions of SFAS No. 151 will not have a material impact on our consolidated financial statements.

In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," (SFAS 123R) a revision of FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." ("SFAS 123"). SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments (including grants of
employee stock options) based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the awardthe requisite service period (usually the vesting period). The pro forma disclosures previously permitted under
SFAS 123 will no longer be an alternative to financial statement recognition. The provisions of SFAS 123R are effective for periods beginning after June 15, 2005. Accordingly, we
are required to adopt SFAS 123R in our third quarter of fiscal 2005. We are currently evaluating the provisions of SFAS 123R. The impact on net income on an annual basis is expected to
be comparable to the amounts presented in "Note 2. Significant Accounting Policies, Accounting for Stock Based Compensation" in the Notes to the Consolidated Financial Statements. However, the
impact on net income may vary depending upon a number of factors including, but not limited to, the price of our stock and the number of stock options we grant.Please refer to
"Note 2. Significant Accounting Policies, Accounting for Stock Based Compensation" in the Notes to the Consolidated Financial Statements for the pro forma net income and earnings per share
amounts for fiscal 2002 through fiscal 2004, as if we had used a fair-value based method similar to the methods required under SFAS 123R to measure compensation expense for employee
stock-based compensation awards.

Off-Balance Sheet Liabilities and Other Contractual Obligations

Our off-balance sheet liabilities primarily are limited to lease payment obligations incurred under operating leases, which are required to be
excluded from our consolidated balance sheet by accounting principles generally accepted in the United States. Our only individually significant operating lease is for our distribution center and call
center located in Mineral Wells, West Virginia. All of our other operating leases pertain to our retail and outlet stores, our Coeur d'Alene, Idaho call center and to various equipment and technology.

The
following tables summarize our minimum contractual commitments and commercial obligations as of January 29, 2005:

|                          |  |   |         | Payments Due in Period
|------------------------- |  | - | ------- | ----------------------
|
|
|Contractual Obligations:  |  |   |         |                       
|Operating leases(a)       |  | $ | 257,223 |                       
|Inventory purchase orders |  |   | 99,108  |                       
|                          |  |   |         |                       
|Total                     |  | $ | 356,331 |                       
|                          |  |   |         |                       

---

52

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|                        |  |   |       | Payments Due in Period
|----------------------- |  | - | ----- | ----------------------
|
|
|Commercial Commitments: |  |   |       |                       
|Letters of credit       |  | $ | 3,234 |                       
|                        |  |   |       |                       
|Total                   |  | $ | 3,234 |                       
|                        |  |   |       |                       

Subsequent
to January 29, 2005 we entered into additional retail leases with minimum lease payment requirements, excluding contingent rental payments, as follows (in thousands):

|                         |  |   |        | Payments Due in Period
|------------------------ |  | - | ------ | ----------------------
|
|
|Contractual Obligations: |  |   |        |                       
|Operating leases         |  | $ | 11,827 |                       
|                         |  |   |        |                       
|Total                    |  | $ | 11,827 |                       
|                         |  |   |        |                       

Related Party Transactions

Deferred Compensation Program

During fiscal 2002, 2003 and 2004 the Compensation Committee of our Board of Directors authorized compensation bonus pools for executive employees that, in
aggregate, currently total $2.5 million and our Chief Executive Officer authorized compensation bonus pools for non-executive employees that, in aggregate, currently total
$2.0 million. These bonus pools serve as additional incentives to retain certain key employees. We are accruing the related compensation expense to each employee on a straight-line
basis over the retention periods as it is currently anticipated that the performance criteria specified in the agreements will be met. The total compensation and dates to be paid are summarized as
follows (in thousands):

Description

Amount

Dates to be paid(1)Executive employees:Georgia Shonk-Simmons

$
1,425

September 2005Melvin Dick


225

April 2006Dan Griesemer


300

September 2005Gerard El Chaar


150

April 2006Dan Moen


225

May 2007Duane Huesers


150

February 20072,475Sixteen non-executive employees

$
1,970

Oct. 2005 - Dec. 2007


---

53

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Arrangements with Principal Stockholders

In fiscal 2001, we did not meet our financial goals. In response, our principal shareholders, Dennis Pence and Ann Pence, declined to accept any salaries from the
beginning of fiscal 2002 through September 26, 2002 and through September 1, 2002, respectively. As required by accounting principles generally accepted in the United States of America,
we imputed on a straight-line basis into our consolidated selling, general and administrative expenses the fair market value of salaries for Dennis Pence and Ann Pence for these periods
with corresponding offsetting credits to our consolidated additional paid-in capital. During fiscal 2002, approximately $228,000 was imputed into our consolidated selling, general and
administrative expenses.

Dennis
Pence and Ann Pence personally participate in a jet timeshare program through two entities they own. Ann Pence, who was the Vice Chairman of our Board of Directors until
August 2004, is a holder of more than five percent of our Common Stock and holds the title of Chairman Emeritus. For flights by Mr. Pence and other corporate executives made exclusively
for official corporate purposes, we reimburse these entities for:



Aggregate
expense reimbursements totaled approximately $0.6 million, $0.9 million and $0.7 million for fiscal 2004, 2003 and 2002, respectively.

On
June 14, 2003, our Board of Directors approved a charitable contribution of $100,000 to the Morning Light Foundation, Inc, a not-for-profit
charitable organization. Dennis Pence, our Chairman and Chief Executive Officer, is the founder and a Board member of the Morning Light Foundation, Inc.

Ann
Pence retired from her position as one of our Directors effective August 23, 2004. In connection with her retirement and in recognition of her contributions as our
co-founder, she was given the honorary title of Chairman Emeritus, and we extended to her certain post-retirement benefits. During the fiscal 2004 third quarter, we accrued
$200,000 related to these post-retirement benefits which represents the net present value of the expected future benefit costs.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have not been materially impacted by fluctuations in foreign currency exchange rates as substantially all of our business is transacted in, and is expected to
continue to be transacted in, U.S. dollars or U.S. dollar-based currencies. We have only been immaterially impacted by fluctuations in interest rates as a result of our relatively modest bank
borrowings in recent fiscal years. During the twelve-month period ended January 29, 2005, we did not have borrowings under our new credit facility and, consequently, did not have any material
exposure to interest rate market risks during or at the end of this period. However, as any future borrowings under our new bank credit facility will be at a variable rate of interest, we could
potentially be materially adversely impacted should we require significant borrowings in the future, particularly during a period of rising interest rates. We have not used, and currently do not
anticipate using, any derivative financial instruments.

54

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ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reports of Independent Registered Public Accounting Firm                                                                                                                 
|Consolidated Balance Sheets as of January 29, 2005 and January 31, 2004 (restated)                                                                                       
|Consolidated Statements of Operations for the 12 months ended January 29, 2005, January 31, 2004 (restated) and the 11 months ended February 1, 2003 (restated)          
|Consolidated Statements of Stockholders' Equity for the 12 months ended January 29, 2005, January 31, 2004 (restated) and the 11 months ended February 1, 2003 (restated)
|Consolidated Statements of Cash Flows for the 12 months ended January 29, 2005, January 31, 2004 (restated) and the 11 months ended February 1, 2003 (restated)          
|Notes to the Consolidated Financial Statements                                                                                                                           
|Report of Independent Registered Public Accounting Firm on Financial Statement Schedule                                                                                  
|Schedule IIValuation and Qualifying Accounts                                                                                                                            

55

---



Report of Independent Registered Public Accounting Firm

The
Stockholders of Coldwater Creek Inc.:

We
have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Coldwater Creek Inc. did not maintain
effective internal control over financial reporting as of January 29, 2005, due to the effect of a material weakness associated with the selection, monitoring and review of lease accounting
policies and procedures, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Coldwater Creek Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our
audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A
material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The following material weakness in internal control over financial reporting has been identified and included in management's assessment as of
January 29, 2005: The Company did not maintain adequate polices and procedures relative to the selection, monitoring and review of lease accounting practices to ensure the related leasing
transactions were accounted for in accordance with generally accepted accounting principles. As a result of this deficiency, annual rent expense in prior periods had been understated. On
March 9, 2005, the Company announced that it would restate certain of its previously issued financial statements to reflect the correction of errors in the Company's lease accounting.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Coldwater Creek Inc.
and subsidiaries as of January 29, 2005 and January 31, 2004, and the related consolidated statements of

56

---



operations,
stockholders' equity, and cash flows for the fiscal years ended January 29, 2005 and January 31, 2004 and the eleven-month transition period ended February 1, 2003.
The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the fiscal
year ended January 29, 2005, and this report does not affect our report dated April 12, 2005, which expressed an unqualified opinion on those consolidated financial statements.

In
our opinion, management's assessment that Coldwater Creek Inc. did not maintain effective internal control over financial reporting as of January 29, 2005, is fairly
stated, in all material respects, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Coldwater Creek Inc. has not
maintained effective internal control over financial reporting as of January 29, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).

Boise,
Idaho
April 12, 2005

57

---



Report of Independent Registered Public Accounting Firm

The
Stockholders of Coldwater Creek Inc.:

We
have audited the accompanying consolidated balance sheets of Coldwater Creek Inc. and subsidiaries as of January 29, 2005 and January 31, 2004, and the related
consolidated statements of operations, stockholders' equity, and cash flows for the fiscal years ended January 29, 2005 and January 31, 2004 and the eleven-month transition period ended
February 1, 2003. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 Coldwater Creek Inc. and subsidiaries
as of January 29, 2005 and January 31, 2004, and the results of their operations and their cash flows for the fiscal years ended January 29, 2005 and January 31, 2004 and
the eleven-month transition period ended February 1, 2003, in conformity with U.S. generally accepted accounting principles.

As
discussed in Note 2 to the financial statements, the Company restated its fiscal 2003 and fiscal 2002 consolidated financial statements in order to correct an error in
accounting for rent expense.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Coldwater Creek Inc.'s internal
control over financial reporting as of January 29, 2005, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 12, 2005 expressed an unqualified
opinion on management's assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

Boise,
Idaho
April 12, 2005

58

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COLDWATER CREEK INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (in thousands, except for share data)

|                                     |                                                                                                                                   | January 29,
2005 |                                            | January 31,
2004
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ------------------------------------------ | ----------------
|
|ASSETS                               |                                                                                                                                   |                  |                                            |                 
|CURRENT ASSETS:                      |                                                                                                                                   |                  |                                            |                 
|                                     | Cash and cash equivalents                                                                                                         |                  | $                                          | 111,204         
|                                     | Receivables                                                                                                                       |                  |                                            | 12,708          
|                                     | Inventories                                                                                                                       |                  |                                            | 63,752          
|                                     | Prepaid and other                                                                                                                 |                  |                                            | 6,628           
|                                     | Prepaid and deferred catalog costs                                                                                                |                  |                                            | 6,905           
|                                     | Deferred income taxes                                                                                                             |                  |                                            | 1,079           
|                                     |                                                                                                                                   |                  |                                            |                 
|                                     |                                                                                                                                   |                  | Total current assets                       |                 
|Property and equipment, net          |                                                                                                                                   |                  | 120,689                                    |                 
|Deferred income taxes                |                                                                                                                                   |                  | 1,233                                      |                 
|Other                                |                                                                                                                                   |                  | 388                                        |                 
|                                     |                                                                                                                                   |                  |                                            |                 
|                                     |                                                                                                                                   |                  | Total assets                               |                 
|                                     |                                                                                                                                   |                  |                                            |                 
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                   |                  |                                            |                 
|CURRENT LIABILITIES:                 |                                                                                                                                   |                  |                                            |                 
|                                     | Accounts payable                                                                                                                  |                  | $                                          | 49,406          
|                                     | Accrued liabilities                                                                                                               |                  |                                            | 31,646          
|                                     | Income taxes payable                                                                                                              |                  |                                            | 4,736           
|                                     | Deferred income taxes                                                                                                             |                  |                                            |                
|                                     |                                                                                                                                   |                  |                                            |                 
|                                     |                                                                                                                                   |                  | Total current liabilities                  |                 
|Deferred rents                       |                                                                                                                                   |                  | 40,319                                     |                 
|Deferred income taxes                |                                                                                                                                   |                  |                                           |                 
|Other                                |                                                                                                                                   |                  | 200                                        |                 
|                                     |                                                                                                                                   |                  |                                            |                 
|                                     |                                                                                                                                   |                  | Total liabilities                          |                 
|                                     |                                                                                                                                   |                  |                                            |                 
|Commitments and contingencies        |                                                                                                                                   |                  |                                            |                 
|STOCKHOLDERS' EQUITY:                |                                                                                                                                   |                  |                                            |                 
|                                     | Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding                                         |                  |                                            |                
|                                     | Common stock, $.01 par value, 150,000,000 and 60,000,000 shares authorized, 60,652,538 and 54,373,953 shares issued, respectively |                  |                                            | 607             
|                                     | Additional paid-in capital                                                                                                        |                  |                                            | 98,861          
|                                     | Retained earnings                                                                                                                 |                  |                                            | 98,811          
|                                     |                                                                                                                                   |                  |                                            |                 
|                                     |                                                                                                                                   |                  | Total stockholders' equity                 |                 
|                                     |                                                                                                                                   |                  |                                            |                 
|                                     |                                                                                                                                   |                  | Total liabilities and stockholders' equity |                 
|                                     |                                                                                                                                   |                  |                                            |                 

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

59

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COLDWATER CREEK INC. AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except for per share data)

|                                             |                                             | 12-Months Ended |         |        
|-------------------------------------------- | ------------------------------------------- | --------------- | ------- | -------
|
|
|
|Net sales                                    |                                             | $               | 590,310 |        
|Cost of sales                                |                                             |                 | 334,368 |        
|                                             |                                             |                 |         |        
|                                             | Gross profit                                |                 |         | 255,942
|Selling, general and administrative expenses |                                             |                 | 208,158 |        
|                                             |                                             |                 |         |        
|                                             | Income from operations                      |                 |         | 47,784 
|Interest, net, and other                     |                                             |                 | 710     |        
|                                             |                                             |                 |         |        
|                                             | Income before provision for income taxes    |                 |         | 48,494 
|Provision for income taxes                   |                                             |                 | 19,364  |        
|                                             |                                             |                 |         |        
|                                             | Net income                                  |                 | $       | 29,130 
|                                             |                                             |                 |         |        
|                                             | Net income per shareBasic                  |                 | $       | 0.50   
|                                             |                                             |                 |         |        
|                                             | Weighted average shares outstandingBasic   |                 |         | 58,461 
|                                             | Net income per shareDiluted                |                 | $       | 0.48   
|                                             |                                             |                 |         |        
|                                             | Weighted average shares outstandingDiluted |                 |         | 60,495 

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

60

---





COLDWATER CREEK INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(in thousands)

|                                                          |  | Common Stock |   |   |     |   |   |        |   |   |       
|--------------------------------------------------------- |  | ------------ | - | - | --- | - | - | ------ | - | - | ------
|
|
|Balance at March 2, 2002 (as previously reported)         |  | 53,665       |   | $ | 537 |   | $ | 49,609 |   | $ | (4,715
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Cumulative impact on prior periods of restatement         |  |             |   |   |    |   |   |       |   |   |      
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Balance at March 2, 2002 (as restated)                    |  | 53,665       |   | $ | 537 |   | $ | 49,609 |   | $ | (4,715
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Net income                                                |  |             |   |   |    |   |   |       |   |   |      
|Net proceeds from exercises of stock options              |  | 463          |   |   | 1   |   |   | 1,142  |   |   |      
|Stock dividend                                            |  |             |   |   | 3   |   |   |       |   |   |      
|Tax benefit from exercises of stock options               |  |             |   |   |    |   |   | 307    |   |   |      
|Contributed services                                      |  |             |   |   |    |   |   | 228    |   |   |      
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Balance at February 1, 2003 (restated)                    |  | 54,128       |   | $ | 541 |   | $ | 51,286 |   | $ | (4,715
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Net income                                                |  |             |   |   |    |   |   |       |   |   |      
|Net proceeds from exercises of stock options              |  | 396          |   |   | 2   |   |   | 920    |   |   |      
|Stock dividend                                            |  |             |   |   | 2   |   |   |       |   |   |      
|Tax benefit from exercises of stock options               |  |             |   |   |    |   |   | 293    |   |   |      
|Retirement of treasury shares                             |  | (209         | ) |   | (2  | ) |   | (4,713 | ) |   | 4,715 
|Issuance of shares under the employee stock purchase plan |  | 59           |   |   | 1   |   |   | 141    |   |   |      
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Balance at January 31, 2004 (restated)                    |  | 54,374       |   | $ | 544 |   | $ | 47,927 |   | $ |      
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Net income                                                |  |             |   |   |    |   |   |       |   |   |      
|Net proceeds from stock offering                          |  | 5,040        |   |   | 22  |   |   | 42,084 |   |   |      
|Net proceeds from exercises of stock options              |  | 1,155        |   |   | 8   |   |   | 4,440  |   |   |      
|Stock Dividend                                            |  |             |   |   | 33  |   |   |       |   |   |      
|Tax benefit from exercises of stock options               |  |             |   |   |    |   |   | 3,916  |   |   |      
|Issuance of shares under the employee stock purchase plan |  | 84           |   |   |    |   |   | 494    |   |   |      
|                                                          |  |              |   |   |     |   |   |        |   |   |       
|Balance at January 29, 2005                               |  | 60,653       |   | $ | 607 |   | $ | 98,861 |   | $ |      
|                                                          |  |              |   |   |     |   |   |        |   |   |       

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

61

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COLDWATER CREEK INC. AND SUBSIDIARIES    CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)

|                                              |                                                       | 12-Months Ended                                     |                                      |         |        
|--------------------------------------------- | ----------------------------------------------------- | --------------------------------------------------- | ------------------------------------ | ------- | -------
|
|
|
|OPERATING ACTIVITIES:                         |                                                       |                                                     |                                      |         |        
|Net income                                    |                                                       | $                                                   | 29,130                               |         | $      
|Non cash items:                               |                                                       |                                                     |                                      |         |        
|                                              | Depreciation and amortization                         |                                                     |                                      | 19,524  |        
|                                              | Loss on asset disposition                             |                                                     |                                      | 138     |        
|                                              | Deferred rent amortization                            |                                                     |                                      | (2,070  | )      
|                                              | Contributed services                                  |                                                     |                                      |        |        
|                                              | Deferred income taxes                                 |                                                     |                                      | (5,117  | )      
|                                              | Tax benefit from exercises of stock options           |                                                     |                                      | 3,916   |        
|                                              | Other                                                 |                                                     |                                      | 200     |        
|Net change in current assets and liabilities: |                                                       |                                                     |                                      |         |        
|                                              | Receivables                                           |                                                     |                                      | (2,249  | )      
|                                              | Inventories                                           |                                                     |                                      | (11,051 | )      
|                                              | Prepaid and other                                     |                                                     |                                      | (1,672  | )      
|                                              | Prepaid and deferred catalog costs                    |                                                     |                                      | (2,686  | )      
|                                              | Accounts payable                                      |                                                     |                                      | 10,552  |        
|                                              | Accrued liabilities                                   |                                                     |                                      | 4,870   |        
|                                              | Income taxes payable                                  |                                                     |                                      | 647     |        
|                                              | Deferred rents                                        |                                                     |                                      | 20,945  |        
|                                              |                                                       |                                                     |                                      |         |        
|                                              |                                                       | Net cash provided by operating activities           |                                      |         | 65,077 
|                                              |                                                       |                                                     |                                      |         |        
|INVESTING ACTIVITIES:                         |                                                       |                                                     |                                      |         |        
|                                              | Purchase of property and equipment                    |                                                     |                                      | (46,890 | )      
|                                              | Repayments from loans to executives                   |                                                     |                                      | 191     |        
|                                              |                                                       |                                                     |                                      |         |        
|                                              |                                                       | Net cash used in investing activities               |                                      |         | (46,699
|                                              |                                                       |                                                     |                                      |         |        
|FINANCING ACTIVITIES:                         |                                                       |                                                     |                                      |         |        
|                                              | Net proceeds from stock offering                      |                                                     |                                      | 42,624  |        
|                                              | Net proceeds from exercises of stock options          |                                                     |                                      | 4,448   |        
|                                              | Other financing costs                                 |                                                     |                                      |        |        
|                                              |                                                       |                                                     |                                      |         |        
|                                              |                                                       | Net cash provided by (used in) financing activities |                                      |         | 47,072 
|                                              |                                                       |                                                     |                                      |         |        
|                                              |                                                       | Net increase in cash and cash equivalents           |                                      |         | 65,450 
|                                              |                                                       |                                                     | Cash and cash equivalents, beginning |         |        
|                                              |                                                       |                                                     |                                      |         |        
|                                              |                                                       | Cash and cash equivalents, ending                   |                                      | $       | 111,204
|                                              |                                                       |                                                     |                                      |         |        
|NON-CASH FINANCING ACTIVITIES:                |                                                       |                                                     |                                      |         |        
|                                              | Issuance of shares under employee stock purchase plan |                                                     | $                                    | 494     |        
|                                              | Retirement of treasury shares                         |                                                     |                                      |        |        
|SUPPLEMENTAL CASH FLOW DATA:                  |                                                       |                                                     |                                      |         |        
|                                              | Cash paid for interest and fees                       |                                                     | $                                    | 244     |        
|                                              | Cash paid for income taxes                            |                                                     |                                      | 19,281  |        

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

62

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COLDWATER CREEK INC. AND SUBSIDIARIES  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     Nature of Business and Organizational Structure

Coldwater Creek Inc., together with its wholly-owned subsidiaries (the "Company"), a Delaware corporation headquartered in Sandpoint, Idaho, is a
multi-sales channel specialty retailer of women's apparel, accessories, jewelry and gift items. The Company operates in two reportable operating segments: Retail and Direct. The Company's Retail
Segment consists of its full-line retail stores, resort stores and outlet stores. The Company's Direct Segment consists of its catalog and Internet-based e-commerce businesses.

The
Company has four wholly-owned subsidiaries. Three of these subsidiaries currently have no substantive assets, liabilities, revenues or expenses. The fourth subsidiary, Aspenwood
Advertising, Inc., produces, designs and distributes catalogs and other advertising materials used in Coldwater Creek's business.

2.     Significant Accounting Policies

Principals of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated.

Fiscal Periods

References to a fiscal year refer to the calendar year in which such fiscal year commences. Historically, the Company's fiscal year ended on the Saturday nearest
February 28th. However, on December 16, 2002, the Company's Board of Directors approved a change in the Company's fiscal year end from the Saturday nearest
February 28th to the Saturday nearest January 31st, effective in 2003. As a result of this change in the Company's fiscal year end, the fiscal 2002 period
presented in this report is an 11-month transition period beginning March 3, 2002 and ending February 1, 2003. The Company made this decision to align its reporting schedule
with the majority of other national retail companies. The Company's most recently completed fiscal year ended January 29, 2005 ("fiscal 2004") and the fiscal year ended January 31, 2004
("fiscal 2003") consisted of 52 weeks, whereas the fiscal year ended February 1, 2003 ("fiscal 2002") consisted of 48 weeks, due to the change in the Company's fiscal year end.

The
Company's floating fiscal year-end typically results in thirteen-week fiscal quarters and a fifty-two week fiscal year, but will occasionally give
rise to an additional week resulting in a fourteen-week fiscal fourth quarter and a fifty-three week fiscal year. The Company's fiscal year beginning in 2006 will be a fifty-three week
fiscal year.

Comprehensive Income

SFAS No. 130, "Comprehensive Income", requires the presentation of comprehensive income, in addition to the existing income statement. Comprehensive income
is defined as the change in equity during a period from transactions and other events, excluding changes resulting from investments by owners and distributions to owners. For all years presented,
there are no items requiring separate disclosure in accordance with this statement.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that

63

---



affect
the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent assets and liabilities. Examples of
these estimates and assumptions are embodied in the Company's sales returns accrual and its inventory obsolescence calculation. These estimates and assumptions are based on the Company's historical
results as well as management's future expectations. The Company's actual results could vary from its estimates and assumptions.

Reclassifications

Certain amounts in the consolidated financial statements for the prior fiscal years have been reclassified to be consistent with the current fiscal year's
presentation. These reclassifications had no impact on the Company's consolidated financial position, results of operations or cash flows for the periods presented.

Additionally,
the common stock outstanding, retained earnings and net income per share amounts for all periods presented reflect four 50% stock dividends, each having the effect of a
3-for-2 stock split, declared by the Company's Board of Directors on December 19, 2002, August 4, 2003, June 12, 2004 and February 12, 2005.

Restatement of Prior Financial Information

During the fiscal 2005 first quarter the Company undertook a review of its accounting treatment of its retail store leases. Based on this review and consultation
with its independent registered public accounting firm, the Company decided to restate its consolidated financial statements for certain prior periods in order to correct an error relating to its
recognition of rent expenses under Financial Accounting Standards Board Technical Bulletin No. 85-3, "Accounting for Operating Leases with Scheduled Rent Increases." Previously, the
Company followed a practice of recognizing the straight line rent expense for leases beginning generally on the earlier of the store opening date or lease commencement date (as set forth in the
lease), which had the effect of excluding the build-out period of its stores from the calculation of the period over which it expensed
rent. The Company will now record rent expense when it takes possession of a store, which occurs before the commencement of the lease term and approximately 60 to 90 days prior to the opening
of a store.

The
Company restated its consolidated balance sheet at January 31, 2004, and its consolidated statements of operations, cash flows and changes in stockholders' equity for the
fiscal years ended January 31, 2004 and February 1, 2003. The Company also restated its quarterly financial information for the first three quarters of fiscal 2004 and for all quarters
of fiscal 2003 as disclosed in Note 20 "Quarterly Results of Operations (unaudited)". This restatement also affected periods prior to fiscal 2002. The cumulative impact of this restatement
through February 2, 2002 has been reflected as an adjustment to retained earnings of $1.3 million.

As
a result of this restatement the Company's financial results have been adjusted as follows (in thousands, except for per share data):

January 31,
2004

Adjustments

January 31,
2004(as previously
reported)



(as restated)Receivables

$
9,457

$
1,002

$
10,459Current deferred income tax liabilities





115


115Deferred rents


19,826


3,672


23,498Non-current deferred income tax liabilities


3,844


(1,154
)

2,690Retained earnings

$
71,344

$
(1,630
)
$
69,714


64

---



Twelve Months EndedJanuary 31,
2004

Adjustments

January 31,
2004(as previously
reported)



(as restated)Net sales

$
518,844

$


$
518,844Cost of sales


316,026


329


316,355Gross profit


202,818


(329
)

202,489Selling, general and administrative expenses


182,197





182,197Income from operations


20,621


(329
)

20,292Interest, net, and other


(106
)




(106
)Income before provision for income taxes


20,515


(329
)

20,186Provision for income taxes


8,037


(130
)

7,907Net income

$
12,478

$
(199
)
$
12,279Net income per shareBasic

$
0.23




$
0.23Net income per shareDiluted

$
0.23




$
0.22


Eleven Months EndedFebruary 1,
2003

Adjustments

February 1,
2003(as previously
reported)



(as restated)Net sales

$
473,172

$


$
473,172Cost of sales


284,406


345


284,751Gross profit


188,766


(345
)

188,421Selling, general and administrative expenses


173,330





173,330Income from operations


15,436


(345
)

15,091Interest, net, and other


170





170Income before provision for income taxes


15,606


(345
)

15,261Provision for income taxes


6,249


(136
)

6,113Net income

$
9,357

$
(209
)
$
9,148Net income per shareBasic

$
0.17




$
0.17Net income per shareDiluted

$
0.17




$
0.17


Revenue Recognition and Sales Return Estimate

The Company recognizes sales including shipping and handling income and the related cost of sales either at the time merchandise ordered from a catalog or web
site is shipped to the customer or at the time a sale is consummated with a customer in a store. The Company maintains an allowance for sales returns based on historical experience and future
expectations. Collections for unshipped orders are reflected as a component of accounts payable and are immaterial in amount. The Company's policy regarding gift certificates and gift cards is to
record revenue as the gift certificates and gift cards are redeemed for merchandise. Prior to their redemption, amounts under the gift certificates and gift cards are recorded as a liability.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid debt instruments with a maturity date of three months or less at the date of purchase.

65

---



Trade Accounts Receivable

The Company's trade accounts receivable are associated primarily with credit card sales to individuals and are recorded at the invoiced amount. These receivables
do not bear interest and are generally converted to cash in two to three days.

Inventories

Inventories primarily consist of merchandise purchased for resale. Inventory in the Company's distribution center is stated at the lower of first-in,
first-out or market. Inventory in the Company's full-line retail stores, resort stores and outlet stores is stated at the lower of weighted average cost or market.

Prepaid and Deferred Catalog Costs

Catalog costs include all direct costs associated with the development, production and circulation of direct mail catalogs and are accumulated as prepaid catalog
costs until such time as the related catalog is mailed. Once mailed, these costs are reclassified as deferred catalog costs and are amortized into selling, general and administrative expenses over the
expected sales realization cycle, typically several weeks.

Property and Equipment

Property and equipment, including any major additions and improvements made to property and equipment, are recorded at cost. Minor additions and improvements, as
well as maintenance and repairs, that do not materially extend the useful life of property or equipment, are charged to operations as incurred. The net book value of property or equipment sold or
retired is removed from the asset and related accumulated depreciation accounts with any resulting net gain or loss included in results of operations.

Depreciation
and amortization expense is computed using the straight-line method. The estimated useful lives for buildings and land improvements are fifteen to thirty years.
The estimated useful lives for furniture and fixtures, technology hardware and software and machinery and equipment are three to seven years. Leasehold improvements are amortized over the contractual
lives of the underlying operating leases or the estimated useful lives of the improvements, currently three to twenty years, whichever is less.

Deferred Rents

Certain of the Company's operating leases contain predetermined fixed escalations of the minimum rental payments to be made during the original term of the lease
(which includes the build-out period). For these leases, the Company recognizes the related rental expense on a straight-line basis over the life of the lease commencing on the
date the Company takes possession of a store, which occurs prior to commencement of the lease and approximately 60 to 90 days prior to the opening of a store. In the early years of a lease with
rent escalations the recorded rent expense will exceed the actual cash payments made and the difference between the two amounts is recorded as a deferred credit under the caption "deferred rents" on
the balance sheet. In the later years of a lease with rent escalations the recorded rent expense will be less than the actual cash payments made and the difference between the two amounts reduces the
previously recorded deferred credit. Deferred credits related to rent escalation were $7.1 million and $5.1 million at January 29, 2005 and January 31, 2004, respectively.
See "Restatement of Prior Financial Information" above for further detials.

Additionally,
certain of the Company's operating leases contain terms which obligate the landlord to remit cash to the Company as an incentive to enter into the lease agreement. These
lease incentives

66

---



are
commonly referred to as "tenant allowances". The Company records a receivable for the amount of the tenant allowance when it takes possession of a store. At the same time, a deferred credit is
established in an equal amount under the caption "deferred rents" on the balance sheet. The tenant allowance receivable is reduced as the cash is received from the landlord. The deferred credit is
amortized as a reduction to rent expense over the period over which rental expense is recognized for the lease. Deferred credits related to tenant allowances, including the current portion, were
$38.0 million and $21.0 million at January 29, 2005 and January 31, 2004, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Cost of Sales and Selling, General and Administrative Expenses

The Company's consolidated cost of sales primarily consists of merchandise acquisition costs, including related buying and freight-in costs, as well
as warehousing and distribution costs, shipping and handling costs, returned merchandise processing costs, and retail and outlet store occupancy costs.

The
Company's consolidated selling, general and administrative expenses primarily consist of selling expenses, marketing expenses, including amortization of deferred catalog costs, and
general and administrative expenses. The Company's consolidated selling, general and administrative expenses include direct response advertising costs of $64.5 million, $67.9 million and
$76.6 million for fiscal 2004, 2003 and 2002, respectively. The Company's consolidated selling, general and administrative expenses include non-direct response advertising costs of
$8.4 million, $7.6 million and $5.8 million for fiscal 2004, 2003 and 2002, respectively, which were expensed as incurred. The Company considers commission expenses associated
with its participation in a web based affiliate program to be advertising expenses.

Store Pre-Opening Costs

The Company incurs certain preparation and training costs prior to the opening of a retail store. These pre-opening costs are expensed as incurred and
are included in selling, general and administrative expenses. Pre-opening costs were approximately $2.4 million, $1.1 million and $1.3 million during fiscal 2004, 2003
and 2002, respectively.

List rental income (expense)

Customer list rental income is netted against selling, general and administrative expenses. An accrual for rental income and rental expense, as applicable, is
established at the time the related

67

---



catalog
is mailed to the names contained in the rented lists. The amounts of income netted against selling, general and administrative expense are as follows:

Fiscal Year EndedJanuary 29,
2005

January 31,
2004

February 1,
2003(in thousands)List rental income

$
3,671

$
2,758

$
2,323List rental (expense)


(720
)

(1,546
)

(3,319
)Net list rental income (expense)

$
2,951

$
1,212

$
(996
)


Interest, net, and other

Interest, net, and other consists of the following:

Fiscal Year EndedJanuary 29,
2005

January 31,
2004

February 1,
2003(in thousands)Interest (expense), including financing fees

$
(849
)
$
(336
)
$
(3
)Interest income


1,345


185


153Other income


688


416


306Other (expense)


(474
)

(371
)

(286
)Interest, net, and other

$
710

$
(106
)
$
170


Net Income Per Share

Basic earnings per share ("EPS") is calculated by dividing income applicable to common shareholders by the weighted average number of shares of the Company's
common stock (the "Common Stock") outstanding for the year. Diluted EPS reflects the potential dilution that could occur under the Treasury Stock Method if potentially dilutive securities, such as
stock options, were exercised or converted to common stock. Should the Company incur a net loss, potentially dilutive securities are excluded from the calculation of diluted EPS as they would be
antidilutive.

On
December 19, 2002, August 4, 2003, June 12, 2004 and February 12, 2005, the Company's Board of Directors declared four 50% stock dividends having the
cumulative effect of a 5.063-for-1 stock split on its issued Common Stock,. The Common Stock outstanding, retained earnings and net income per share amounts reported for all
periods presented reflect these four stock dividends.

Accounting for Stock Based Compensation

As allowed by SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement
No. 123" and by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has retained the compensation measurement principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25"), and its related interpretations, for stock options. Under APB No. 25, compensation expense is recognized
based upon the difference, if any, at the measurement date between the market value of the stock and the option exercise price. The measurement date is the date at which both the number of options and
the exercise price for each option are known.

In
December 2004, the FASB issued Statement No. 123R, "Share-Based Payment" ("SFAS 123R"), which revises SFAS 123 and supercedes APB 25. As a result, the pro
forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The

68

---



Company
is required to adopt SFAS 123R in the third quarter of fiscal 2005. See "Recently Adopted Accounting Standards" below for further details.

The
following table presents a reconciliation of the Company's actual net income to its pro forma net income had compensation expense for the Company's 1996 Stock Option/Stock Issuance
Plan been determined using the compensation measurement principles of SFAS No. 123 (in thousands, except for per share data):

Fiscal Year EndedJanuary 29,
2005

January 31,
2004

February 1,
2003(restated)

(restated)Net Income:As reported

$
29,130

$
12,279

$
9,148Impact of applying SFAS 123


(769
)

(742
)

(825
)Pro forma

$
28,361

$
11,537

$
8,323Net income per share:As reportedBasic

$
0.50

$
0.23

$
0.17Pro formaBasic

$
0.49

$
0.21

$
0.15As reportedDiluted

$
0.48

$
0.22

$
0.17Pro formaDiluted

$
0.47

$
0.21

$
0.15


The
above effects of applying SFAS No. 123 are not indicative of future amounts. Additional awards in future years are anticipated.

In
calculating the preceding, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average
assumptions:

Fiscal Year EndedJanuary 29,
2005

January 31,
2004

February 1,
2003Risk free interest rate

2.8
%
2.5
%
3.7
%Expected volatility

71.7
%
78.8
%
86.8
%Expected life (in years)

4

4

4Expected dividends

None

None

None


Fair Value of Financial Instruments

The Company's financial instruments primarily consist of cash and cash equivalents, receivables and payables for which the carrying amounts materially approximate
their fair values.

Accounting for Rebates Given by Vendors

The Company accounts for rebates received from its merchandise vendors as an adjustment to the prices of the vendor's products. This adjustment is characterized
as a reduction of the carrying amount of the Company's inventory and, when sold, as cost of sales. The Company's consolidated cost of sales includes rebates from merchandise vendors of
$5.0 million, $3.1 million and $2.0 million in fiscal 2004, 2003 and 2002, respectively.

Accounting for Revenue Arrangements with Multiple Deliverables

The Company periodically offers its customers coupons that entitle them to receive a specified dollar amount off future purchases. The customers are required to
meet certain purchasing criteria in order to receive the coupons. The Company accounts for this arrangement by deferring a proportional

69

---



amount
of revenue to the period that the coupon is expected to be redeemed. The Company had balances in deferred revenue related to coupon arrangements of $0.0 million, $0.4 million and
$1.0 million at January 29, 2005, January 31 2004, and February 1, 2003, respectively.

Recently Adopted Accounting Standards

In November 2004, the FASB issued SFAS No. 151, "Inventory Costsan amendment of ARB No. 43, Chapter 4" ("SFAS No. 151").
SFAS No. 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period
charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company
will adopt the provisions of SFAS No. 151, effective January 29, 2006 for its fiscal 2006 consolidated financial statements. Management currently believes that adoption of the
provisions of SFAS No. 151 will not have a material impact on the Company's consolidated financial statements.

In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," ("SFAS 123R") which revises FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." ("SFAS 123") and supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25"). SFAS 123R requires a public entity
to measure the cost of employee services received in exchange for an award of equity instruments (including grants of employee stock options) based on the grant-date fair value of the
award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the awardthe requisite service period
(usually the vesting period). The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. See "Accounting for Stock Based
Compensation" above for the pro forma net income and earnings per share amounts for fiscal 2002 through fiscal 2004, as if the Company had used a fair-value based method similar to the
methods required under SFAS 123R to measure compensation expense for employee stock-based compensation awards. The provisions of SFAS 123R are effective for periods beginning after
June 15, 2005. Accordingly, the Company is required to adopt SFAS 123R in its third quarter of fiscal 2005. The Company is currently evaluating the provisions of SFAS 123R. The
impact on net income on an annual basis is expected to be comparable to the amounts presented above under the caption "Accounting for Stock Based Compensation". However, the impact on net income may
vary depending upon a number of factors including, but not limited to, the price of the Company's stock and the number of stock options the Company grants.

3.     Fiscal Year Change

On December 16, 2002, the Company's Board of Directors approved a change in the Company's fiscal year end from the Saturday nearest
February 28th to the Saturday nearest January 31st, effective February 1, 2003. The Company made this decision to align its reporting schedule with the
majority of other national retail companies.

70

---



4.     Receivables

Receivables consist of the following:

January 29,
2005

January 31,
2004(restated)(in thousands)Trade

$
5,078

$
3,305Tenant improvement


5,973


4,731Customer list rental


1,143


1,037Income tax refund





767Other


514


619$
12,708

$
10,459


The
Company evaluates the credit risk associated with its receivables to determine if a reserve is necessary. At January 29, 2005 and January 31, 2004 no reserve was deemed
necessary.

5.     Property and Equipment, net

Property and equipment, net, consists of the following:

January 29,
2005

January 31,
2004(in thousands)Land

$
152

$
152Building and land improvements


18,505


16,785Leasehold improvements


80,910


62,124Furniture and fixtures


36,625


22,018Technology hardware and software


56,205


49,604Machinery and equipment


10,787


9,129Construction in progress


4,182


2,321207,366


162,133Less: accumulated depreciation and amortization


(86,677
)

(69,901
)$
120,689

$
92,232


Construction
in progress is primarily leasehold improvement costs and furniture and fixtures related to unopened retail stores. The Company had construction costs incurred but not paid
for which a liability was established of $1.8 million and $0.8 million at January 29, 2005 and January 31, 2004, respectively.

71

---



6.     Accrued Liabilities

Accrued liabilities consist of the following:

January 29,
2005

January 31,
2004(restated)(in thousands)Accrued payroll, related taxes and benefits

$
11,053

$
5,755Gift certificate/card liability


9,329


7,063Current portion of deferred rents


4,705


2,651Accrued sales returns


4,153


3,960Accrued taxes


2,395


4,341Other


11


458$
31,646

$
24,228


7.     Revolving Line of Credit

On January 27, 2005, the Company entered into a credit agreement with Wells Fargo Bank, National Association, providing for an unsecured revolving line of
credit of up to $40.0 million (the "Agreement"). This credit facility replaced the Company's previous $60.0 million credit facility pursuant to the credit agreement dated March 5,
2003 between the Company and Wells Fargo Bank, National Association, and various other financial institutions (the "Prior Agreement"). The Agreement increases the limit on the Company's ability to
issue letters of credit from $20.0 million to $40.0 million, removes a key financial covenant requiring the Company to maintain a certain fixed charge ratio and removes certain common
share ownership restrictions with respect to Dennis Pence, the Chairman of the Company's Board of Directors and the Company's Chief Executive Officer. As with the prior credit facility, the interest
rate under the Agreement is equal to the London InterBank Offered Rate, but is subject to a lower adjustment rate based on the Company's leverage ratio than under the Prior Agreement. During the
fiscal 2004 third quarter the Company expensed into its consolidated "interest, net, and other" approximately $0.3 million in prepaid financing costs associated with obtaining this new credit
facility.

The
Agreement also amends the specified current ratio, leverage ratio and minimum net worth requirements (as defined in the Agreement) the Company is required to maintain. The Agreement
continues to restrict the Company's ability to, among other things, sell assets, participate in mergers, incur debt, pay cash dividends and make investments or guarantees. In addition, the Company may
be subject to unused commitment fees based on a varying percentage of the amount of the total facility that is not drawn down under the Agreement on a quarterly basis. The credit facility has a
maturity date of January 31, 2008. The Company incurred commitment fees of $244,000, $459,000 and $213,000 during fiscal 2004, 2003 and 2002, respectively.

The
Company had $3.2 million and $0.3 million in outstanding letters of credit at January 29, 2005 and January 31, 2004, respectively.

72

---



8.     Income Taxes

The Company's income tax provision consists of the following:

Fiscal Year EndedJanuary 29,
2005

January 31,
2004

February 1,
2003(restated)

(restated)(in thousands)Current income tax provision:Federal

$
20,618

$
3,284

$
6,912State


3,863


607


1,166Deferred income tax provision (benefit):Federal


(4,310
)

3,385


(1,614
)State


(807
)

631


(351
)$
19,364

$
7,907

$
6,113


Income
tax expense attributable to income before provision for income taxes differed from the amounts computed by applying the U.S. Federal income tax rate to income before provision for
income taxes as a result of the following:

Fiscal Year EndedJanuary 29,
2005

January 31,
2004

February 1,
2003(restated)

(restated)Statutory income tax rate

35.0
%
35.0
%
35.0
%State income taxes, net of federal benefit

3.9
%
3.8
%
3.6
%Other, net

1.0
%
0.4
%
1.5
%39.9
%
39.2
%
40.1
%


The
Company received investment tax credits from the States of West Virginia and Idaho, which are reflected in the state income taxes, net of federal benefit line item of the foregoing
reconciliation. The West Virginia tax credits, which are available through 2012, subject to annual limitations of 80% of the Company's West Virginia income tax liability, are recognized by the Company
in the year in which they are used. The Company utilized $236,000, $147,000 and $129,000 of these investment tax credits to offset its West Virginia income tax liability during fiscal 2004, 2003 and
2002, respectively. The Idaho tax credits are limited to 50% of the current year's state income tax liability. The Company utilized $264,000, $146,000 and $119,000 of the Idaho tax credits to offset
its Idaho state income tax liability during fiscal 2004, 2003 and 2002, respectively.

73

---



The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at January 29, 2005 and January 31,
2004 are presented below:

|                                   |                                       | January 29, 2005 |        | January 31, 2004 |  
|---------------------------------- | ------------------------------------- | ---------------- | ------ | ---------------- | -
|
|
|
|Deferred tax assets:               |                                       |                  |        |                  |  
|Inventories                        |                                       | $                | 143    |                  | $
|Accrued sales returns              |                                       |                  | 969    |                  |  
|Accrued employee benefits          |                                       |                  | 1,318  |                  |  
|Tenant improvements                |                                       |                  | 1,277  |                  |  
|Deferred rents                     |                                       |                  |       |                  |  
|Other                              |                                       |                  | 326    |                  |  
|                                   |                                       |                  |        |                  |  
|                                   | Total deferred tax assets             |                  | $      | 4,033            |  
|                                   |                                       |                  |        |                  |  
|Deferred tax liabilities:          |                                       |                  |        |                  |  
|Inventory                          |                                       |                  |       |                  |  
|Prepaid and deferred catalog costs |                                       |                  | (2,954 | )                |  
|Tax basis depreciation             |                                       |                  |       |                  |  
|Other                              |                                       |                  |       |                  |  
|                                   |                                       |                  |        |                  |  
|Total deferred tax liabilities     |                                       | $                | (2,954 | )                | $
|                                   |                                       |                  |        |                  |  
|                                   | Net deferred tax assets (liabilities) |                  | $      | 1,079            |  
|                                   |                                       |                  |        |                  |  

In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of
these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

9.     Retirement of Treasury Shares

On March 31, 2001, the Company's Board of Directors approved a stock repurchase program pursuant to which the Company was authorized to repurchase in the
open market up to 300,000 outstanding shares of its common stock to be held in treasury. During fiscal 2001, the Company repurchased 209,100 common shares at an average market price of $22.55 per
share. The 209,100 common shares repurchased were not impacted by the four 50% stock dividends, each having the effect of a 3-for-2 stock split, declared by the Company's Board
of Directors on December 19, 2002, August 4, 2003, June 12, 2004 and February 12, 2005. On July 25, 2003, the Company retired the 209,100 shares held in treasury.
The Company currently does not anticipate any additional share repurchases.

10.   Stock Offering

On May 26, 2004, the Company completed a public offering of 5,040,000 shares offered by the Company and 3,033,000 shares offered by selling stockholders,
which includes the underwriters' over-allotment option exercised on May 25, 2004 to purchase 540,000 shares from Coldwater Creek and

74

---



513,000
shares from selling stockholders. A registration statement relating to these securities was filed with and has been declared effective by the U.S. Securities and Exchange Commission. Please
note that the share amounts discussed here have been adjusted to reflect the Company's two most recent stock dividends declared by the Board of Directors on June 12, 2004 and
February 12, 2005. The Company's cash and stockholder's equity accounts were increased by $42.1 million as a result of the offering which is net of stock offering costs of
$2.0 million.

11.   Net Income Per Share

The following is a reconciliation of net income and the number of shares of Common Stock used in the computations of net income per basic and diluted share (in
thousands, except for per share data and anti-dilutive stock option data):

Fiscal Year EndedJanuary 29,
2005

January 31,
2004

February 1,
2003(restated)

(restated)Net income

$
29,130

$
12,279

$
9,148Shares used to determine net income per basic share(1)


58,461


54,167


53,771Net effect of dilutive stock options(1)(2)


2,034


749


450Shares used to determine net income per diluted share(1)


60,495


54,916


54,221Net income per share:Basic

$
0.50

$
0.23

$
0.17Diluted

$
0.48

$
0.22

$
0.17


---

12.   1996 Stock Option/Stock Issuance Plan

The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") was adopted by the Board of Directors and approved by a majority of stockholders on
March 4, 1996. The total number of shares of Common Stock authorized for issuance under the 1996 Plan is 9,425,603 shares. The 1996 Plan will terminate on March 3, 2006, unless sooner
terminated by the Board of Directors.

The
1996 Plan is divided into three separate components: (i) the Discretionary Option Grant Program under which eligible individuals, including officers and key employees,
non-employee directors and consultants, and other independent advisors, may, at the discretion of the Plan Administrator, be granted options to purchase shares of the Company's Common
Stock at an exercise price not less than 85% of the then fair market value of the Company's Common Stock for non-statutory options and 100% of the then fair market value of the Company's
Common Stock for incentive options, (ii) the Stock Issuance Program under which such individuals may, at the Plan Administrator's discretion, be directly sold or issued, as a bonus tied to the
performance of services and/or achievement of performance goals, shares of the Company's Common Stock at a price not less than 100% of the then fair market value and (iii) the Automatic Option
Grant Program under which option grants will

75

---



automatically
be made at periodic intervals to eligible non-employee members of the Board of Directors to purchase shares of the Company's Common Stock at an exercise price equal to 100%
of the then fair market value on the date of grant.

Under
the Discretionary Option Grant Program component of the 1996 Plan, employees have been granted options which remain outstanding at January 29, 2005 to purchase 2,399,649
shares of the Company's Common Stock. Under the Automatic Option Grant Program component of the 1996 Plan, present and former non-employee members of the Board of Directors have been
granted options which remain outstanding at January 29, 2004 to purchase 512,742 shares of the Company's Common Stock. At January 29, 2005, 1,219,758 options remain available for future
grant. Options granted under the Discretionary Option Grant Program to employees vest and become exercisable on a pro rata basis over either four or five years, as specified. The initial and
subsequent annual allotments of options granted under the Automatic Option Grant Program to non-employee members of the Board of Directors are immediately exercisable and vest on a pro
rata basis over three years and one year, respectively. The options expire ten years from date of issue under the Discretionary Option Grant Program, subject to earlier expiration for vested options
not exercised following termination of employment, and have a maximum term of ten years under the Automatic Option Grant Program, subject to earlier expiration for vested options not exercised two
years following the optionee's cessation of Board service.

On
March 25, 2005, the Board of Directors of the Company approved, subject to stockholder approval, an amendment and restatement of the 1996 Plan to increase the shares authorized
for issuance under the 1996 Plan by 1,800,000 shares, extend the term of the 1996 Plan to March 25, 2015 and make certain other technical amendments to the 1996 Plan. The amended and restated
1996 Plan will be submitted to the stockholders for approval at the Company's 2005 Annual Stockholders, Meeting.

A
summary of the status of the Company's stock options as of January 29, 2005, January 31, 2004 and February 1, 2003 and the changes during the fiscal years then
ended, is presented below:

January 29, 2005Options

Exercise Price

Weighted
Average
Exercise
PriceOutstanding at beginning of period

3,870,236

$
2.27 - 8.20

$
4.00Granted

355,269


8.76 - 20.58


11.79Exercised

(1,155,111
)

2.27 - 8.20


3.85Forfeited

(158,003
)

3.41 - 18.19


6.76Outstanding at end of period

2,912,391

$
2.27 - 20.58

$
4.84Exercisable

1,825,833

$
2.27 - 12.41

$
4.58


76

---



January 31, 2004Options

Exercise Price

Weighted
Average
Exercise
PriceOutstanding at beginning of period

4,010,533

$
1.30 - 8.20

$
4.05Granted

738,216


2.89 - 6.48


4.00Exercised

(396,288
)

1.30 - 4.98


2.33Forfeited

(482,225
)

2.88 - 8.20


5.67Outstanding at end of period

3,870,236

$
2.27 - 8.20

$
4.00Exercisable

2,504,342

$
2.27 - 8.20

$
3.99


February 1, 2003Options

Exercise Price

Weighted
Average
Exercise
PriceOutstanding at beginning of period

4,711,221

$
1.30 - 8.20

$
3.92Granted

227,813


3.00 - 4.82


4.52Exercised

(463,178
)

1.30 - 4.53


2.47Forfeited

(465,323
)

1.30 - 8.20


3.88Outstanding at end of period

4,010,533

$
1.30 - 8.20

$
4.05Exercisable

2,584,123

$
1.30 - 8.20

$
3.97


The
following table provides summarized information about stock options outstanding at January 29, 2005:

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$02.27 - $03.33 |  | 805,758             |  | 5.7                
|$03.34 - $06.66 |  | 1,711,239           |  | 6.1                
|$06.67 - $9.99  |  | 207,750             |  | 7.4                
|$10.00 - $13.33 |  | 150,144             |  | 9.4                
|$13.34 - $16.66 |  | 30,000              |  | 9.6                
|$16.67 - $20.58 |  | 7,500               |  | 9.9                

13.   Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (the "ESPP") was adopted by the Board of Directors and approved by a majority of stockholders on January 28,
1996. Under the ESPP, eligible employees may purchase shares of the Company's Common Stock at six-month intervals at the lesser of 85% of the fair market value on the first day of each
six-month purchase interval or last day of each six-month purchase interval. The maximum number of shares
that an employee may purchase on any one purchase date may not exceed 2,250 shares. The Company's employees purchased 84,000, 114,000 and 102,000 shares during fiscal 2004, 2003 and 2002,
respectively. The average share price for these purchases was $5.90, $2.31 and $2.58, for fiscal 2004, 2003 and 2002, respectively. On March 25, 2005, the Company's Board of Directors resolved
to terminate the ESPP effective March 31, 2005.

77

---



14.   Retirement Plan

Effective October 1, 1988, and as amended from time to time, the Company adopted a tax-qualified employee savings, retirement and profit
sharing plan qualified under Section 401(k) of the Internal Revenue Code (the "401(k) Plan") under which eligible employees may elect to defer a portion of their current compensation, up to
certain statutorily prescribed annual limits, and make corresponding periodic contributions into the 401(k) Plan. Contributions to the 401(k) Plan, as well as any income earned thereon, are not
taxable to the employee until withdrawn from the 401(k) Plan. All employees twenty-one years of age and older with 250 hours of service who have been employed by the Company for at
least 90 days are eligible to participate in the 401(k) Plan. The Company matches a certain percentage of the employees' overall contribution and may make a discretionary profit sharing
contribution based on the overall profitability of the Company. The Company recognized contribution expense of $744,000, $635,000 and $701,000 for fiscal 2004, 2003 and 2002, respectively.

15.   Deferred Compensation Program

During fiscal 2002, 2003 and 2004 the Compensation Committee of the Company's Board of Directors authorized compensation bonus pools for executive employees that,
in aggregate, currently total $2.5 million and the Company's Chief Executive Officer authorized compensation bonus pools for non-executive employees that, in aggregate, currently
total $2.0 million. These bonus pools serve as additional incentives to retain certain key employees. The Company is accruing the related compensation expense to each employee on a
straight-line basis over the retention periods as it is currently anticipated that the performance criteria specified in the agreements will be met. The total compensation and dates to be
paid are summarized as follows (in thousands):

Description

Amount

Dates to be paid(1)Executive employees:Georgia Shonk-Simmons

$
1,425

September 2005Melvin Dick


225

April 2006Dan Griesemer


300

September 2005Gerard El Chaar


150

April 2006Dan Moen


225

May 2007Duane Huesers


150

February 20072,475Sixteen non-executive employees

$
1,970

Oct. 2005 - Dec. 2007


---

16.   Arrangements with Principal Shareholders

In fiscal 2001, the Company did not meet its financial goals. In response, the Company's principal shareholders, Dennis Pence and Ann Pence, declined to accept
any salaries from the beginning of fiscal 2002 through September 26, 2002 and through September 1, 2002, respectively. As required by accounting principles generally accepted in the
United States of America, the Company imputed on a straight-line basis into its consolidated selling, general and administrative expenses the fair market value of salaries for Dennis Pence
and Ann Pence for these periods with corresponding offsetting credits to its consolidated additional paid-in capital. During fiscal 2002, approximately $228,000 was imputed into the
Company's consolidated selling, general and administrative expenses.

Dennis
Pence and Ann Pence personally participate in a jet timeshare program through two entities they own. Ann Pence, who was the Vice Chairman of the Company's Board of Directors until

78

---



August 2004,
is a holder of more than five percent of the Company's Common Stock and holds the title of Chairman Emeritus. For flights by Mr. Pence and other corporate executives made
exclusively for official corporate purposes, the Company reimburses these entities for:



Aggregate
expense reimbursements totaled approximately $0.6 million, $0.9 million and $0.7 million for fiscal 2004, 2003 and 2002, respectively.

On
June 14, 2003, the Company's Board of Directors approved a charitable contribution of $100,000 to the Morning Light Foundation, Inc, a not-for-profit
chartible organization. Dennis Pence, the Company's Chairman and Chief Executive Officer, is the founder and a Board member of the Morning Light Foundation, Inc.

Ann
Pence retired from her position as a Director of the Company effective August 23, 2004. In connection with her retirement and in recognition of her contributions as
co-founder of the Company, she was given the honorary title of Chairman Emeritus, and the Company extended to her certain post-retirement benefits. During the fiscal 2004 third
quarter, the Company accrued $200,000 related to these post-retirement benefits. The $200,000 accrual represents the net present value of the expected future benefit costs.

17.   Commitments

The Company leases its Distribution Center, Coeur d'Alene, Idaho Call Center, retail and outlet store space as well as certain other property and equipment under
operating leases. Certain lease agreements are noncancelable with aggregate minimum lease payment requirements, contain escalation clauses and renewal options, and include incremental contingent
rental payments based on store sales above specified minimums.

The
Company incurred aggregate rent expense under its operating leases of $26.5 million, $20.8 million, $15.5 million including contingent rent expense of $106,000,
$99,000 and $82,000 for fiscal 2004, 2003 and 2002, respectively.

As
of January 29, 2005 the Company's minimum lease payment requirements, which include the predetermined fixed escalations of the minimum rentals and exclude contingent rental
payments and the amortization of lease incentives, were as follows (in thousands):

Fiscal 2005

$
28,787Fiscal 2006


30,137Fiscal 2007


30,191Fiscal 2008


29,263Fiscal 2009


28,222Thereafter


110,623Total

$
257,223


79

---



Subsequent
to January 29, 2005 the Company entered into additional retail leases with minimum lease payment requirements, excluding contingent rental payments, as follows (in
thousands):

Fiscal 2005

$
516Fiscal 2006


1,077Fiscal 2007


1,157Fiscal 2008


1,179Fiscal 2009


1,190Thereafter


6,708Total

$
11,827


In
addition to the commitments presented in the above table, the Company enters into a number of cancelable and non-cancelable commitments during the year. Typically, these
commitments are for less then a year in duration and are principally focused on the construction of new retail stores and the procurement of inventory. The Company typically commits to construction
costs three to six months in advance of a new retail store opening and actual construction typically begins two to three months before the store opens. Preliminary commitments with the Company's
merchandise vendors typically are made five to seven months in advance of planned receipt date. The Company had inventory purchase commitments of approximately $99.1 million and
$73.6 million at January 29, 2005 and January 31, 2004, respectively.

18.   Contingencies

The Company and its subsidiaries are periodically involved in litigation and administrative proceedings primarily arising in the normal course of its business. In
addition, from time to time, the Company has received claims that its products and/or the manner in which it conducts its business infringes on the intellectual property rights of third parties. For
example, a lawsuit was filed that claimed the Company infringed on various intellectual property patents relating to its e-commerce website. During the fiscal 2004 fourth quarter, the
Company settled the lawsuit and obtained a 12-year license to use certain intellectual property patents for an immaterial amount. In the opinion of management, the Company's gross
liability, if any, and without any consideration given to the availability of insurance or other indemnification, under any pending litigation or administrative proceedings, would not materially
affect its consolidated financial position, results of operations or cash flows.

During
fiscal 2003 and fiscal 2004, the Company accrued a total of $1.4 million for expected tax liabilities resulting from an error in its Canadian tax returns related to refunds
of the Canadian Goods and Services Tax, known as GST. During fiscal 2004, the Canadian taxing authorities completed their review of the Company's GST returns. The Company's accrual of
$1.4 million was sufficient to cover the Canadian taxing authority's final determination of the amount owed.

The
Company collects sales taxes from customers transacting purchases in states in which the Company has physically based some portion of its business. The Company also pays applicable
corporate income, franchise and other taxes to states in which retail or outlet stores are physically located. Upon entering a new state, the Company accrues and remits the applicable taxes. The
Company has accrued for these taxes based on its current interpretation of the tax code as written. Failure to properly determine or to timely remit these taxes may result in interest and related
penalties being assessed.

80

---



19.   Segment Reporting

The Company's executive management, being its chief operating decision makers, work together to allocate resources and assess the performance of the Company's
business. The Company's executive management manages the Company as two distinct operating segments, Direct and Retail. Although offering customers substantially similar merchandise, the Company's
Direct and Retail operating segments have distinct management, marketing and operating strategies and processes.

The
Company's executive management assesses the performance of each operating segment based on an "operating contribution" measure, which is defined as net sales less the cost of
merchandise and related acquisition costs and certain directly identifiable and allocable operating costs, as described below. For the Direct Segment, these operating costs primarily consist of
catalog development, production and circulation costs, e-commerce advertising costs and order processing costs. For the Retail Segment, these operating costs primarily consist of store
selling and occupancy costs. Operating contribution less corporate and other expenses is equal to income before interest and taxes. Corporate and other expenses consist of unallocated shared-service
costs and general and administrative expenses. Unallocated shared-service costs include merchandising, distribution, inventory planning and quality assurance costs, as well as corporate occupancy
costs. General and administrative expenses include costs associated with general corporate management and shared departmental services (e.g., finance, accounting, data processing and human resources).

Operating
segment assets are those directly used in or clearly allocable to an operating segment's operations. For the Retail Segment, these assets primarily include inventory, fixtures
and leasehold improvements. For the Direct Segment, these assets primarily include inventory and prepaid and deferred catalog costs. Corporate and other assets include corporate headquarters,
merchandise distribution and shared technology infrastructure as well as corporate cash and cash equivalents and prepaid expenses. Operating segment depreciation and amortization and capital
expenditures are correspondingly allocated to each operating segment. Corporate and other depreciation and amortization and capital expenditures are related to corporate headquarters, merchandise
distribution, and technology infrastructure.

81

---



The
following tables provide certain financial data for the Company's Direct and Retail Segments as well as reconciliations to the Company's consolidated financial statements. The
accounting policies of the operating segments are the same as those described in Note 2"Significant Accounting Policies".

|                               |                            | Fiscal Years Ended                         |  
|------------------------------ | -------------------------- | ------------------------------------------ | -
|
|
|
|Net sales(1):                  |                            |                                            |  
|                               | Retail                     |                                            | $
|                               | Direct(2)                  |                                            |  
|                               |                            |                                            |  
|                               |                            | Consolidated net sales                     |  
|                               |                            |                                            |  
|Operating contribution:        |                            |                                            |  
|                               | Retail                     |                                            | $
|                               | Direct                     |                                            |  
|                               |                            |                                            |  
|                               |                            | Total operating contribution               |  
|                               | Corporate and other        |                                            |  
|                               |                            |                                            |  
|                               |                            | Consolidated income from operations        |  
|                               |                            |                                            |  
|Depreciation and amortization: |                            |                                            |  
|                               | Retail                     |                                            | $
|                               | Direct                     |                                            |  
|                               | Corporate and other        |                                            |  
|                               |                            |                                            |  
|                               |                            | Consolidated depreciation and amortization |  
|                               |                            |                                            |  
|Total assets:                  |                            |                                            |  
|                               | Retail                     |                                            | $
|                               | Direct                     |                                            |  
|                               | Corporate and other assets |                                            |  
|                               |                            |                                            |  
|                               |                            | Consolidated total assets                  |  
|                               |                            |                                            |  
|Capital expenditures:          |                            |                                            |  
|                               | Retail                     |                                            | $
|                               | Direct                     |                                            |  
|                               | Corporate and other        |                                            |  
|                               |                            |                                            |  
|                               |                            | Consolidated capital expenditures          |  
|                               |                            |                                            |  

---

The
Company's products are principally marketed to individuals within the United States. Net sales realized from other geographic markets, primarily Canada and Japan, have collectively
been less than 5% of consolidated net sales in each reported period. No single customer accounts for ten percent or more of consolidated net sales. Apparel sales have constituted approximately 80% of
the Company's

82

---



consolidated
net sales during fiscal 2004, 2003 and 2002, with sales of jewelry, accessories and gift items constituting the respective balances.

20.   Quarterly Results of Operations (unaudited)

The following tables contain selected quarterly consolidated financial data for fiscal 2004 and fiscal 2003 that has been prepared on the same basis as the
accompanying audited consolidated financial statements and includes all adjustments necessary to present fairly, in all material respects, the information set forth therein on a consistent basis.

The
quarterly consolidated financial data below has been restated as described in "Note 2. Significant Accounting Policies, Restatement of Prior Financial
Information":

|                                             |  | Fiscal 2004
|-------------------------------------------- |  | -----------
|
|
|
|Net sales                                    |  | $          
|Cost of sales                                |  |            
|                                             |  |            
|Gross profit                                 |  |            
|Selling, general and administrative expenses |  |            
|                                             |  |            
|Income from operations                       |  |            
|Interest, net, and other                     |  |            
|                                             |  |            
|Income before income taxes                   |  |            
|Income tax provision                         |  |            
|                                             |  |            
|Net income                                   |  | $          
|                                             |  |            
|Net income per sharebasic                   |  | $          
|                                             |  |            
|Net income per sharediluted                 |  | $          
|                                             |  |            

|                                             |  | Fiscal 2003
|-------------------------------------------- |  | -----------
|
|
|
|Net sales                                    |  | $          
|Cost of sales                                |  |            
|                                             |  |            
|Gross profit                                 |  |            
|Selling, general and administrative expenses |  |            
|                                             |  |            
|Income (loss) from operations                |  |            
|Interest, net, and other                     |  |            
|                                             |  |            
|Income (loss) before income taxes            |  |            
|Income tax provision                         |  |            
|                                             |  |            
|Net income (loss)                            |  | $          
|                                             |  |            
|Net income (loss) per shareBasic            |  | $          
|                                             |  |            
|Net income (loss) per shareDiluted          |  | $          
|                                             |  |            

Note:
The aggregate of certain of the above quarterly amounts may differ from that reported for the full fiscal year due to the effects of rounding.

83

---



The
following tables contain selected quarterly consolidated financial data for fiscal 2003 and the first three quarters of fiscal 2004 as previously reported in the Company's filed
Quarterly Reports on Form 10-Q (in thousands, except for per share data):

|                                             |  | Fiscal 2004 |        
|-------------------------------------------- |  | ----------- | -------
|
|
|
|Net sales                                    |  | $           | 124,460
|Cost of sales                                |  |             | 70,076 
|                                             |  |             |        
|Gross profit                                 |  |             | 54,384 
|Selling, general and administrative expenses |  |             | 45,384 
|                                             |  |             |        
|Income from operations                       |  |             | 9,000  
|Interest, net, and other                     |  |             | 31     
|                                             |  |             |        
|Income before income taxes                   |  |             | 9,031  
|Income tax provision                         |  |             | 3,576  
|                                             |  |             |        
|Net income                                   |  | $           | 5,455  
|                                             |  |             |        
|Net income per shareBasic                   |  | $           | 0.10   
|                                             |  |             |        
|Net income per shareDiluted                 |  | $           | 0.10   
|                                             |  |             |        

|                                             |  | Fiscal 2003
|-------------------------------------------- |  | -----------
|
|
|
|Net sales                                    |  | $          
|Cost of sales                                |  |            
|                                             |  |            
|Gross profit                                 |  |            
|Selling, general and administrative expenses |  |            
|                                             |  |            
|Income (loss) from operations                |  |            
|Interest, net, and other                     |  |            
|                                             |  |            
|Income (loss) before income taxes            |  |            
|Income tax provision                         |  |            
|                                             |  |            
|Net income (loss)                            |  | $          
|                                             |  |            
|Net income (loss) per shareBasic            |  | $          
|                                             |  |            
|Net income (loss) per shareDiluted          |  | $          
|                                             |  |            

84

---



Report of Independent Registered Public Accounting Firm

To
the Stockholders of Coldwater Creek Inc.:

Under
date of April 12, 2005, we reported on the consolidated balance sheets of Coldwater Creek Inc. and subsidiaries as of January 29, 2005 and January 31,
2004, and the related consolidated statements of operations, stockholders' equity, and cash flows for fiscal years ended January 29, 2005 and January 31, 2004 and the eleven-month
transition period ended February 1, 2003, which are included in this Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule included in this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.

In
our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.

The
audit report on the consolidated financial statements of Coldwater Creek Inc. and subsidiaries referred to above contains an explanatory paragraph indicating that the Company
restated its fiscal 2003 and fiscal 2002 consolidated financial statements in order to correct an error in accounting for rent expense.

Boise,
Idaho
April 12, 2005

85

---



Schedule II

Valuation and Qualifying Accounts

|                                                              |  | Balance at
beginning
of period |       | Amounts
charged to
net income |   | Write-offs
against
reserve |  | Balance at
end of
period
|------------------------------------------------------------- |  | ------------------------------ | ----- | ----------------------------- | - | -------------------------- |  | ------------------------
|
|Allowance for sales returns (included in accrued liabilities) |  |                                |       |                               |   |                            |  |                         
|Fiscal year ended:                                            |  |                                |       |                               |   |                            |  |                         
|February 1, 2003                                              |  | $                              | 7,408 |                               | $ | 79,537                     |  | $                       
|January 31, 2004                                              |  |                                | 4,521 |                               |   | 60,964                     |  |                         
|January 29, 2005                                              |  |                                | 3,960 |                               |   | 63,458                     |  |                         

86

---





Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.    CONTROLS AND PROCEDURES

(a)   Disclosure Controls and Procedures.

The Company maintains a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's
reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to management, including the Company's Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

As
required by Rule 13a-15(b) under the Exchange Act, the Company's management conducted an evaluation (under the supervision and with the participation of its
Chairman and Chief Executive Officer and its Executive Vice President and Chief Financial Officer) as of the end of the period covered by this report, of the effectiveness of the Company's disclosure
controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management reviewed the Company's lease accounting practices. As a result
of this review, management concluded that certain of the Company's previously established lease accounting practices were not appropriate under U. S. generally accepted accounting principles.
Accordingly, as described
below, the Company determined to restate certain of its previously issued financial statements to correct its lease accounting. The Company's misinterpretation of U.S. generally accepted accounting
principles in its previous accounting practices was attributed to deficiencies in the Company's controls over the selection, monitoring, and review of assumptions and factors affecting lease
accounting practices. Based on the aforementioned evaluation, the Chairman and Chief Executive Officer and the Executive Vice President and Chief Financial Officer each concluded that the Company's
disclosure controls and procedures were not effective as of January 29, 2005.

(b)   Management's Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). The Company's internal control system is designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation
and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Management
has assessed the effectiveness of the Company's internal control over financial reporting as of January 29, 2005. Management's assessment was based on criteria set
forth inInternal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In
performing this assessment, management reviewed the Company's lease accounting practices. As a result of this review, management concluded that the Company's policies and procedures
relative to

87

---



the
selection, monitoring and review of lease accounting policies and procedures as of January 29, 2005 did not ensure that related lease transactions were accounted for in accordance with
generally accepted accounting principles. As a result of this deficiency, annual rent expense in prior periods had been understated. On March 9, 2005, the Company announced that it would
restate certain of its previously issued financial statements to reflect the correction of errors in the Company's lease accounting. Management evaluated the impact of this restatement on the
Company's assessment of internal control over financial reporting and concluded that the control deficiency that resulted in the aforementioned incorrect lease accounting represented a material
weakness in internal control over financial reporting as of January 29, 2005.

A
material weakness in internal control over financial reporting is a control deficiency (within the meaning of the Public Company Accounting Oversight Board's ("PCAOB") Auditing
Standard No. 2),
or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or
detected. PCAOB Auditing Standard No. 2 identifies a number of circumstances that, because of their likely significant negative effect on internal control over financial reporting, are to be
regarded as at least significant deficiencies, as well as strong indicators of a material weakness, including the restatement of previously issued financial statements to reflect the correction of a
misstatement. As a result of the aforementioned material weakness related to the Company's lease accounting policies and procedures, management has concluded that, as of January 29, 2005, the
Company's internal control over financial reporting was not effective based on the criteria set forth in the COSO framework.

The
Company's independent registered public accounting firm, KPMG LLP, has issued an attestation report on management's assessment of the Company's internal control over financial
reporting, included elsewhere in this report.

(c)   Remediation of Material Weakness

To remediate the material weakness in the Company's internal control over financial reporting noted in Management's Report on Internal Control Over Financial
Reporting, subsequent to January 29, 2005, the Company implemented additional review procedures over the selection and application of lease accounting policies.

(d)   Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by
Rule 13a-15(d) of the Exchange Act that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.

Item 9B.    OTHER INFORMATION

None

PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For information with respect to the executive officers of the Registrant, See Item 4"Directors and Executive Officers" at the end of Part I of
this report. The other information required by this Item is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on June 11, 2005
to be filed with the Commission no later than 120 days after January 29, 2005, pursuant to Regulation 14A.

88

---



The
Company has a Code of Ethics for its principal executive officer, its principal financial officer and its principal accounting officer. A copy of this Code of Ethics is available on
the Investor Relations section of its website at http://www.coldwatercreek.com. Any future changes or amendments to this Code of Ethics, and any waiver that applies to these individuals, will also be
posted on http://www.coldwatercreek.com.

Item 11.    EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
June 11, 2005, to be filed with the Commission no later than 120 days after January 29, 2005, pursuant to Regulation 14A.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
June 11, 2005, to be filed with the Commission no later than 120 days after January 29, 2005, pursuant to Regulation 14A.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
June 11, 2005, to be filed with the Commission no later than 120 days after January 29, 2005, pursuant to Regulation 14A.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
June 11, 2005, to be filed with the Commission no later than 120 days after January 29, 2005, pursuant to Regulation 14A.

PART IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





PageIndependent Auditors' Report on Financial Statement Schedule

85Schedule IIValuation and Qualifying Accounts

86


89

---



|Exhibit
Number |  | Description of Document                                                                                                                                                                                                            
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1*           |  | Amended and Restated Certificate of Incorporation (filed with the Company's S-1, file No. 333-16651)                                                                                                                               
|3.1.1*         |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation (filed with Company's Fiscal 2004 Third Quarter Report on Form 10-Q)                                                                                 
|3.2*           |  | Amended and Restated Bylaws (filed with the Company's S-1, file No. 333-16651)                                                                                                                                                     
|3.2.1*         |  | Amendment to Amended and Restated Bylaws (filed with the Company's fiscal 2003 Second Quarter Report on Form 10-Q)                                                                                                                 
|4.1*           |  | Specimen of Stock Certificate (filed with the Company's S-1/A, file No. 333-16651)                                                                                                                                                 
|10.1*          |  | Form of Indemnity Agreement between the Registrant and each of its Directors (filed with the Company's S-1, file No. 333-16651)                                                                                                    
|10.1.1*        |  | Amended and Restated Form of Indemnity Agreement between the Registrant and each of its Directors (filed with the Company's fiscal 2003 Annual Report on Form 10-K)                                                                
|10.2*          |  | Form of Agreement for Distribution of Retained Earnings and Tax Indemnification between the Company and Dennis Pence and Ann Pence (filed with the Company's S-1/A, file No. 333-16651)                                            
|10.3*          |  | Credit Agreement dated March 5, 2003 between the Company, Wells Fargo Bank, National Association and various other financial institutions (filed with the Company's Fiscal 2002 Annual Report on Form 10-K)                        
|10.3.1*        |  | First Amendment to the Credit Agreement dated March 5, 2003 between the Company, Wells Fargo Bank, National Association and various other financial institutions. (filed with the Company's fiscal 2003 Annual Report on Form 10-K)
|10.3.2         |  | Credit Agreement dated January 27, 2005 between the Company, Wells Fargo Bank, National Association and various other financial institutions                                                                                       
|10.4*          |  | 1996 Stock Option/Stock Issuance PlanAmended and Restated as of June 14, 2003 (filed with the Company's fiscal 2002 Proxy Statement)                                                                                              
|10.5*          |  | Form of Stock Option Agreement under 1996 Stock Option/Stock Issuance Plan (filed with the Company's S-1, file No. 333-16651)                                                                                                      
|10.6*          |  | 1997 Employee Stock Purchase Plan (filed with the Company's Fiscal 1997 Second Quarter Report on Form 10-Q)                                                                                                                        
|10.8*          |  | Parkersburg Distribution Center Operating Lease (filed with the Company's Fiscal 1998 First Quarter Report on Form 10-Q)                                                                                                           
|10.8.1*        |  | Second Amendment and Supplement to Parkersburg Distribution Center Operating Lease (filed with the Company's Fiscal 2004 Second Quarter Report on Form 10-Q)                                                                       
|10.9*+         |  | Three-year Employee Retention Compensation Agreements (filed with the Company's Fiscal 2002 Annual Report on Form 10-K)                                                                                                            
|10.9.1*+       |  | 2004 Salaried Employee Performance Incentive Award Program (filed with Company's Fiscal 2004 Third Quarter Report on Form 10-Q)                                                                                                    
|               |  |                                                                                                                                                                                                                                    

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|10.9.2*+ |  | 2005 Incentive Award Program for Executives (filed as exhibit 99.2 to Form 8-K dated February 12, 2005)                                                                                                                                              
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10+   |  | Form of Stock Unit Agreement under the 1996 Stock Option/ Stock Issuance Plan                                                                                                                                                                        
|16.1*    |  | Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated May 6, 2002 (filed with the Company's Fiscal 2001 Annual Report on Form 10-K)                                                                                        
|23       |  | Consent of Independent Auditors                                                                                                                                                                                                                      
|24.1*    |  | Power of Attorney (included on the signature page to the Company's Form S-3, File No. 333-110932)                                                                                                                                                    
|31.1     |  | Certification by Dennis C. Pence of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                                                                                                                       
|31.2     |  | Certification by Melvin Dick of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                                                                                                                           
|32.1     |  | Certification by Dennis C. Pence and Melvin Dick pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                            
|99*      |  | Letter from Coldwater Creek Inc. to the Securities and Exchange Commission relating to the receipt of Arthur Andersen LLP's letter regarding compliance with professional standards (filed with the Company's Fiscal 2001 Annual Report on Form
10-K)

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SIGNATURES

Pursuant to the requirements of Section 13 or 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, in the City of Sandpoint, State of Idaho, on this 12th day of April 2005.

| |  | COLDWATER CREEK INC.
| |  | --------------------
| |  | By:                 

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

|Signature                                       |  | Title                                                                                        |  | Date          
|----------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|                                                |  |                                                                                              |  |               
|/s/DENNIS C. PENCEDennis C. Pence               |  | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) |  | April 12, 2005
|/s/MELVIN DICKMelvin Dick                       |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)           |  | April 12, 2005
|/s/DUANE A. HUESERSDuane A. Huesers             |  | Vice President of Finance (Principal Accounting Officer)                                     |  | April 12, 2005
|/s/JAMES R. ALEXANDERJames R. Alexander         |  | Director                                                                                     |  | April 12, 2005
|/s/JERRY GRAMAGLIAJerry Gramaglia               |  | Director                                                                                     |  | April 12, 2005
|/s/WARREN R. HASHAGENWarren R. Hashagen         |  | Director                                                                                     |  | April 12, 2005
|/s/CURT HECKERCurt Hecker                       |  | Director                                                                                     |  | April 12, 2005
|/s/KAY ISAACSON-LEIBOWITZKay Isaacson-Leibowitz |  | Director                                                                                     |  | April 12, 2005
|                                                |  |                                                                                              |  |               

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|/s/ROBERT H. MCCALLRobert H. McCall           |  | Director                                            |  | April 12, 2005
|--------------------------------------------- |  | --------------------------------------------------- |  | --------------
|/s/GEORGIA SHONK-SIMMONSGeorgia Shonk-Simmons |  | President, Chief Merchandising Officer and Director |  | April 12, 2005

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EXHIBIT INDEX

|Exhibit
Number |  | Description of Document                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3.2         |  | Credit Agreement dated January 27, 2005 between the Company, Wells Fargo Bank, National Association and various other financial institutions              
|10.10          |  | Form of Stock Unit Agreement under the 1996 Stock Option/ Stock Issuance Plan                                                                             
|23             |  | Consent of Independent Registered Public Accounting Firm                                                                                                  
|31.1           |  | Certification by Dennis C. Pence of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                            
|31.2           |  | Certification by Melvin Dick of annual report pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                                
|32.1           |  | Certification by Dennis C. Pence and Melvin Dick pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

94

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