<PAGE>
 
                                                                EXHIBIT 10.17(b)


                               SECOND AMENDMENT

                                      TO

                   AMENDED AND RESTATED FINANCING AGREEMENT


      Second Amendment, dated as of January 29, 1999 to the Amended and Restated
Financing Agreement, dated as of June 18, 1998, as amended through the date
hereof (the "Financing Agreement"), by and among Norton McNaughton, Inc., a
Delaware corporation (the "Company"), Norton McNaughton of Squire, Inc., a New
York corporation ("Squire"), Miss Erika, Inc., a Delaware corporation ("Miss
Erika"), Jeri-Jo Knitwear, Inc., a Delaware corporation formerly known as JJ
Acquisition Corp. ("Jeri-Jo" and together with Squire and Miss Erika, each a
"Borrower" and collectively, the "Borrowers"), the lenders party thereto (each a
"Lender" and collectively the "Lenders"), NationsBanc Commercial Corporation,
as collateral agent for the Lenders (in such capacity, the "Collateral Agent"),
The CIT Group/Commercial Services, Inc., as administrative agent for the Lenders
(in such capacity, the "Administrative Agent") and Fleet Bank NA, as
documentation agent for the Lenders (in such capacity, the "Documentation Agent"
and together with the Collateral Agent and the Administrative Agent, each an
"Agent" and collectively, the "Agents").

     The Company, the Borrowers, the Required Lenders and the Agents desire to
amend certain terms and conditions in the Financing Agreement as hereafter set
forth.

     In addition, the Company and the Borrowers have advised the Agents that
it is intended that McNaughton Apparel Group Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Group") be merged into the Company,
whereby the Company will be the surviving corporation and the Company shall
change its name to "McNaughton Apparel Group Inc." (the "Merger"). The Company
and the Borrowers have requested that the Required Lenders waive any Event of
Default under the Financing Agreement by reason of the occurrence of such Merger
and consent to such Merger and the Required Lenders are willing to waive such
Event of Default and consent to such Merger on the terms and conditions herein.

     Accordingly, the Company, the Borrowers, the Agents and the Required
Lenders hereby agree as follows:

     1.   Definitions. All capitalized terms used herein and not otherwise 
          -----------
defined herein are used herein as defined in the Financing Agreement. 
<PAGE>
 
     2.   Financial Covenants.
          -------------------

          (a)   Net Worth. Section 7.02(p)(i) of the Financing Agreement is
                ---------
hereby amended by deleting the amount corresponding to the Fiscal Quarter ending
October 31, 1998 and substituting in lieu thereof $41,000,000.

          (b)   Fixed Charge Coverage Ratio. Section 7.02(p)(iv) of the
                --------------------------
Financing Agreement is hereby amended by deleting the ratio corresponding to the
Fiscal Quarter ending October 31, 1998 and substituting in lieu thereof .90:1.0.

      3.  Schedule 6.01(g). Schedule 6.01(g) to the Financing Agreement is
          ----------------
hereby amended to include the items described on Annex A hereto.

     4.   Waiver and Consent.
          ------------------

          (a)  Pursuant to Section 12.03 of the Financing Agreement and in
reliance on the representations and warranties set forth in Section 5 below, the
Required Lenders hereby waive any Event of Default that would otherwise arise
under Section 10.01 (c) of the Financing Agreement from any non-compliance by
the Company with the provisions of Section 7.02(d)(i) of the Financing Agreement
by reason of the Merger. The Company and the Borrowers have represented to the
Agents and the Required Lenders that the sole reason for the Merger is to
effect the name change of the Company to "McNaughton Apparel Group Inc." This
Waiver and Consent is conditioned on such representation being true and correct.

          (b)  This Waiver and Consent shall be effective only in this specific
instance and does not allow any other or further departure from the terms of
the Financing Agreement or the other Loan Documents, which terms shall
constitute in full force and effect. This Waiver and Consent shall also be
conditioned on that all documents necessary to effect the Merger will be filed
and that such documents (or copies thereof) be delivered to the Administrative
Agent.

     5.   Conditions to Effectiveness. This Amendment shall be effective as of
          ---------------------------
October 31, 1998 (the "Amendment Effective Date"), provided that the following
conditions subsequent shall have been satisfied in full:

               (i)  The representations and warranties contained in this
     Amendment and in Article VI of the Financing Agreement shall be true and
     correct in all material respects on and as of the Amendment Effective Date
     and the date hereof as though made on and as of each of such dates (except
     where such representations and warranties relate to an earlier date in
     which case such representations and warranties shall be true and correct as
     of such earlier date); no Event of Default or Default shall have occurred
     an be continuing on the Amendment Effective Date or on the date hereof, or
     result from this Amendment becoming effective in accordance with its terms.

               (ii) The Agents shall have received counterparts of this
     Amendment which bear the signatures of the Company, the Borrowers and each
     of the Required Lenders.

                                      -2-
<PAGE>
 
                    (iii) The Administrative Agent shall have received a
     certified copy of the Certificate of Merger, filed with the Secretary of
     State of the State of Delaware to effect the Merger.

                    (iv)  All legal matters incident to this Amendment shall be
     satisfactory to the Agents and their counsel.

          6.   Representations and Warranties. Each of the Company and the
               ------------------------------
Borrowers represents and warrants to the Lenders as follows:

               (a)  The Company and each Borrower (i) is duly organized, validly
existing and in good standing under the laws of the state of its organization
and (ii) has all requisite power, authority and legal right to execute, deliver
and perform this Amendment, all other documents executed by it in connection
with this Amendment, and to perform the Financing Agreement, as amended hereby.

               (b)  The execution, delivery and performance by the Company and
the Borrowers of this Amendment and all other documents executed by it in
connection with this Amendment and the performance by the Company and the
Borrowers of the Financing Agreement as amended hereby (i) have been duly
authorized by all necessary action, (ii) do not and will not violate or create a
default under the Company's or any Borrower's organizational documents, any
applicable law or any contractual restriction binding on or otherwise affecting
the Company or any Borrower or any of the Company's or such Borrower's
properties, and (iii) except as provided in the Loan Documents, do not and will
not result in or require the creation of any Lien, upon or with respect to the
Company's or any Borrower's property.

               (c)  No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required in connection with the due execution, delivery and performance by the
Company or any of the Borrowers of this Amendment and all other documents
executed by it in connection with this Amendment and the performance by the
Company and the Borrowers of the Financing Agreement as amended hereby.

               (d)  This Amendment and the Financing Agreement, as amended
hereby, and all other documents executed in connection with this Amendment
constitute the legal, valid and binding obligations of the Company and the
Borrowers party thereto, enforceable against such Persons in accordance with
their terms except to the extent the enforceability thereof may be limited by
any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect affecting generally the enforcement of
creditors' rights and remedies and by general principles of equity.

               (e)  The representations and warranties contained in Article VI
of the Financing Agreement are true and correct on and as of the Amendment
Effective Date and as of the date hereof as though made on and as of the
Amendment Effective Date and the date hereof (except to the extent such
representations and warranties expressly relate to an earlier date), and no
Event of Default or Default, has occurred and is continuing on and as of the
Amendment Effective Date or on the date hereof.

                                      -3-
<PAGE>
 
          7.   Continued Effectiveness of Financing Agreement. Each of the
               ----------------------------------------------
Company and the Borrowers hereby (i) confirms and agrees that each Loan Document
to which it is a party is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects except that on and after
the Amendment Effective Date of this Amendment all references in any such Loan
Document to "the Financing Agreement", "thereto", "thereof", "thereunder" or
words of like import referring to the Financing Agreement shall mean the
Financing Agreement as amended by this Amendment, and (ii) confirms and agrees
that to the extent that any such Loan Document purports to assign or pledge to
the Collateral Agent, or to grant to the Collateral Agent a Lien on any
collateral as security for the Obligations of the Company and the Borrowers
from time to time existing in respect of the Financing Agreement and the Loan
Documents, such pledge, assignment and/or grant of a Lien is hereby ratified and
confirmed in all respects.

          8.   Miscellaneous.
               -------------
          
               (a) This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one
and the same agreement.

               (b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.

               (c) This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.

               (d) The Borrowers will pay on demand all reasonable out-of-pocket
costs and expenses of the Agents in connection with the preparation, execution
and delivery of this Amendment, including, without limitation, the reasonable
fees, disbursements and other charges of Schulte Roth & Zabel LLP, counsel to
the Agents.

                                      -4-
<PAGE>


                                    ANNEX A
                                    -------

                                 Amendment to
                               Schedule 6.01(g)

     Norton McNaughton, Inc. (the "Company") and Norton McNaughton of Squire, 
Inc. ("Squire"), are parties to a lawsuit filed in New York Supreme Court, New 
York County, by Railroad Enterprises, Inc. and Cutting Edge Services, Inc., 
Squire's distribution and cutting contractors, respectively, alleging breach of 
and related claims. Norton and Squire do not believe that is any merit to this 
action and will vigorously defend this proceeding.

     Norton is a party to lawsuits filed in New York Supreme Court, New York 
County, by Arch Trading, Inc., and Hyunjin Honduras alleging breach of contract.
Norton does not believe that there is any merit to these actions and will
vigorously defend these proceedings.

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.

                                        NORTON MCNAUGHTON, INC.  

                                                                 
                                        By: /s/ Amanda Bokman
                                           ----------------------------------- 
                                        Title: VP, CFO, Secretary & Treasurer 
                                              -------------------------------- 


                                        NORTON MCNAUGHTON OF SQUIRE, INC.


                                        By: /s/ Amanda Bokman
                                           ----------------------------------- 
                                        Title: VP, CFO, Secretary & Treasurer 
                                              -------------------------------- 
                                    
                                        MISS ERIKA, INC.                    

                                                                            
                                        By: /s/ Amanda Bokman
                                           ----------------------------------- 
                                        Title: VP, CFO, Secretary & Treasurer 
                                              --------------------------------


                                        JERI-JO KNITWEAR, INC.              
                                                                            

                                        By: /s/ Amanda Bokman
                                           ----------------------------------- 
                                        Title: VP, CFO, Secretary & Treasurer 
                                              -------------------------------- 


                                        AGENTS AND LENDERS                  
                                        ------------------
                                                                            
                                        THE CITY GROUP/COMMERCIAL SERVICES,  
                                         INC., as Administrative Agent       
                                                                            
                                        By:___________________________________ 
                                        Title:________________________________


                                        NATIONSBANC COMMERCIAL
                                         CORPORATION, as Collateral Agent
 

                                        By:___________________________________
                                        Title:________________________________

                                      -6-
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day 
and year first above written.

                                        NORTON MCNAUGHTON, INC.                 

                                                                                
                                        By:__________________________________
                                        Title:_______________________________

                                                                                
                                        NORTON MCNAUGHTON OF SQUIRE, INC.
                                                                                

                                        By:__________________________________
                                        Title:_______________________________

                                                                                
                                        MISS ERIKA, INC.

                                                                                
                                        By:__________________________________
                                        Title:_______________________________
                                                                                

                                        JERI-JO KNTTWEAR, INC.
                                                                                

                                        By:__________________________________
                                        Title:_______________________________
                                                                                

                                        AGENTS AND LENDERS                      
                                        ------------------
                                                                                
                                        THE CIT GROUP/COMMERCIAL SERVICES,
                                         INC., as Administrative Agent
                                                                                

                                        By: /s/ Charles Carbone      
                                           ----------------------------------  
                                        Title: Vice President
                                              -------------------------------


                                        NATIONSBANC COMMERCIAL
                                         CORPORATION, as Collateral Agent    
                                                                                

                                        By:__________________________________
                                        Title:_______________________________

                                      -7-
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.

                                        NORTON MCNAUGHTON, INC.


                                        By:__________________________________
                                        Title:_______________________________

                                                                                
                                        NORTON MCNAUGHTON OF SQUIRE, INC.

                                                                                
                                        By:__________________________________
                                        Title:_______________________________

                                                                                
                                        MISS ERIKA, INC.

                                                                                
                                        By:__________________________________
                                        Title:_______________________________
                                                                             
   
                                        JERI-JO KNTTWEAR, INC.
                                                              
                  
                                        By:__________________________________
                                        Title:_______________________________
                                                                                
                                        AGENTS AND LENDERS
                                        ------------------

                                        THE CIT GROUP/COMMERCIAL SERVICES,
                                         INC., as Administrative Agent
                                                                                

                                        By:__________________________________
                                        Title:_______________________________

                                                                                
                                        NATIONSBANC COMMERCIAL
                                         CORPORATION, as Collateral Agent
                                                                                

                                        By: /s/ 
                                           ----------------------------------
                                        Title:  Senior Vice President
                                              -------------------------------

                                      -8-
<PAGE>

 
                                        FLEET BANKNA, as Documentation Agent

     
                                        By: /s/ Stephen Leavenworth
                                           ----------------------------------  
                                        Title: Vice President
                                              -------------------------------
 

                                        SANWA BUSINESS CREDIT CORPORATION


                                        By:__________________________________
                                        Title:_______________________________


                                        ISRAEL DISCOUNT BANK OF NEW YORK


                                        By:__________________________________
                                        Title:_______________________________


                                        SUNROCK CAPITAL CORP.


                                        By:__________________________________
                                        Title:_______________________________


                                        PNC BANK NATIONAL ASSOCIATION

                                        By:__________________________________
                                        Title:_______________________________


                                        HELLER FINANCIAL CORPORATION


                                        By:__________________________________
                                        Title:_______________________________

                                      -9-
<PAGE>


 
                                        FLEET BANK NA, as Documentation Agent

                                                                            
                                        By:__________________________________
                                        Title:_______________________________

                                                                            
                                        [SANWA BUSINESS CREDIT CORPORATION]   

                                                                            
                                        By: /s/ 
                                           ----------------------------------  
                                        Title:  VP                        
                                              _______________________________

                                                                            
                                        [ISRAEL DISCOUNT BANK OF NEW YORK]  
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        [SUNROCK CAPITAL CORP.]               
                                                                            

                                        By:__________________________________
                                        Title:_______________________________
                                                                            

                                        [PNC BANK, NATIONAL ASSOCIATION]       
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        [HELLER FINANCIAL CORPORATION]        
                                                                            

                                        By:__________________________________
                                        Title:_______________________________

                                     -10-
<PAGE>



 
                                        FLEET BANK NA, as Documentation Agent

                                                                            
                                        By:__________________________________
                                        Title:_______________________________

                                                                            
                                        SANWA BUSINESS CREDIT CORPORATION

                                                                            
                                        By:__________________________________
                                        Title:_______________________________

                                                                            
                                        ISRAEL DISCOUNT BANK OF NEW YORK
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        SUNROCK CAPITAL CORP.
                                                                            

                                        By: /s/ 
                                           ----------------------------------  
                                        Title:  VP                        
                                              -------------------------------
                                                                            

                                        PNC BANK, NATIONAL ASSOCIATION
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        HELLER FINANCIAL CORPORATION
                                                                            

                                        By:__________________________________
                                        Title:_______________________________

                                     -11-
<PAGE>


                                        FLEET BANK NA, as Documentation Agent

                                                                            
                                        By:__________________________________
                                        Title:_______________________________

                                                                            
                                        SANWA BUSINESS CREDIT CORPORATION

                                                                            
                                        By:__________________________________
                                        Title:_______________________________

                                                                            
                                        ISRAEL DISCOUNT BANK OF NEW YORK
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        SUNROCK CAPITAL CORP.
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        PNC BANK, NATIONAL ASSOCIATION
                                                                            

                                        By: /s/ Edmundo Kahn
                                           ----------------------------------  
                                        Title:  [ILLEGIBLE TEXT]
                                              -------------------------------


                                        HELLER FINANCIAL CORPORATION
                                                                            

                                        By:__________________________________
                                        Title:_______________________________

                                     -12-
<PAGE>

                                        FLEET BANK NA, as Documentation Agent

                                                                            
                                        By:__________________________________
                                        Title:_______________________________

                                                                            
                                        SANWA BUSINESS CREDIT CORPORATION

                                                                            
                                        By:__________________________________
                                        Title:_______________________________

                                                                            
                                        ISRAEL DISCOUNT BANK OF NEW YORK
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        SUNROCK CAPITAL CORP.
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        PNC BANK, NATIONAL ASSOCIATION
                                                                            

                                        By:__________________________________
                                        Title:_______________________________


                                        HELLER FINANCIAL CORPORATION
                                                                            

                                        By: /s/ Albert J. Forzano
                                           ----------------------------------  
                                        Title:  Vice President            
                                              -------------------------------

                                     -13-