SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

       [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                OF THE SECURITIES EXCHANGE ACT OF 1934
              FOR THE FISCAL YEAR ENDED JANUARY 31, 1999

                              OR

       [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                OF THE SECURITIES EXCHANGE ACT OF 1934
        FOR THE TRANSITION PERIOD FROM __________ TO ___________

                         COMMISSION FILE NUMBER 0-24442

                            GARDEN RIDGE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                              13-3671679
     (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)             IDENTIFICATION NO.)

                          19411 ATRIUM PLACE, SUITE 170
                              HOUSTON, TEXAS 77084
   (ADDRESS, INCLUDING ZIP CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                                 (281) 579-7901
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                          Common Stock, $0.01 par value

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

      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 the Proxy Statement or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X].

      The aggregate market value of the outstanding Common Stock of the
registrant held by non-affiliates of the registrant as of April 16, 1999, based
on the closing sale price of the Common Stock on the Nasdaq National Market on
said date, was $111,595,867.

      There were 17,168,595 shares of Common Stock of the registrant outstanding
as of April 16, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement issued in connection with the 1999 Annual
Meeting of Stockholders are incorporated into Part III of this Report.

<PAGE>
                                    P A R T I

ITEM 1.  BUSINESS

      Garden Ridge Corporation ("Garden Ridge" or the "Company") is a rapidly
growing megastore retailer offering dominant assortments of products related to
its central merchandise theme of decorative home accessories, seasonal products
and crafts. The Company's ten complementary product categories are:

            o  floral (silk and dried flowers)     o  party supplies
            o  housewares                          o  pottery
            o  seasonal                            o  home accents
            o  pictures and frames                 o  crafts
            o  candles                             o  baskets

      The Company's strategy of clustering dominant assortments of merchandise
from related categories in a single retail location differentiates Garden Ridge
from traditional single category superstores. The Company believes that
combining these related product categories in one store creates significant
cross-merchandising opportunities which fulfill, at a single destination, most
product requirements for the customer seeking decorative home accessories,
seasonal products and crafts. Garden Ridge uses an everyday low pricing strategy
and emphasizes customer service in its stores. The Company currently operates 29
megastores in twelve states, primarily in the southern United States.

     Garden Ridge began as a single location near San Antonio, Texas in 1979. In
1988, the founder sold the Company, which then consisted of three stores. The
present management team was recruited in June 1990 and refocused the Company's
merchandise strategy, instituted tighter cost controls, improved management
information systems and developed the current megastore format and expansion
strategy. Since fiscal 1995, the Company has been expanding primarily in the
southern United States.

MERCHANDISING

      PRODUCT CATEGORIES. Garden Ridge offers dominant assortments of
merchandise (aggregating over 70,000 stock keeping units ("SKUs")) in ten
related categories.

      FLORAL. The Company believes that it stocks one of the largest assortments
of silk and dried floral merchandise in the United States. Floral is the
Company's largest product category, representing 20% of sales in fiscal 1999.
The assortment of silk stems, dried flowers, silk and dried floral arrangements,
silk bushes, artificial trees, ribbons and supplies attracts both retail and
commercial customers such as professional floral designers. Customers shop in
this department for value-priced basic items as well as the newest seasonal and
promotional items. Additionally, the Company centrally manufactures floral
arrangements at its San Antonio facility for all its stores and each store has a
floral arranging staff to make custom floral arrangements.

      HOUSEWARES. This department offers a broad assortment of competitively
priced basic items as well as specialty items. The assortment focuses on both
highly identifiable branded product lines and defined product groupings such as
kitchen gadgets, pantry and closet supplies, glassware, kitchen linens, canning
supplies, bakeware, cookware, enamelware, serveware and dinnerware. Management
believes the Company's stores offer one of the broadest assortments of
Rubbermaid(TM) products in the United States.

      SEASONAL. These products are for the Christmas, Thanksgiving, Halloween
and Easter holidays. Some of the major items within this category are artificial
Christmas trees, ornaments, greenery, lights, outdoor decor (such as nativity
scenes, wire sculptures and lighted displays) and costumes.

      PICTURES AND FRAMES. The Company offers over 4,000 items in this category,
of which 50% are framed art items in a wide assortment of themes from many
different manufacturers. Low "value" prices on basic items are supplemented by
special purchases on assorted framed prints to further increase customer
traffic. Picture frames are offered in a variety of sizes and materials. The
Company also offers custom framing to its customers.


                                       2
<PAGE>
      CANDLES. The candle department carries a vast selection of basic and
decorative candles, scented candles, unique candle holders and potpourri. Garden
Ridge carries branded as well as private label items. This product category has
over 4,000 SKUs.

      PARTY SUPPLIES. Garden Ridge carries an extensive assortment of party
supplies including paper plates and napkins, plastic cutlery, ribbons and wrap,
gourmet party foods, party favors and novelty gifts, balloons, pinatas and
greeting cards. The stores also feature a large assortment of wedding
decorations and other wedding related supplies.

      POTTERY. This category includes a wide range of decorative clay, ceramic
and plastic pottery, as well as lawn art, concrete sculptures, wind chimes and
bird baths. The Company sources pottery and related items domestically as well
as from Italy, the Dominican Republic, Vietnam, Mexico and other countries.

      HOME ACCENTS. This category includes a range of distinctive decorative
items such as oriental ceramics, statuary items, vases, accent furniture pieces,
porcelain products, metal decorative items and tabletop decor.

      CRAFTS. The crafts department includes wearable arts (T-shirts, paints and
iron-on transfers), children's crafts, needlework kits, unfinished woods,
paints, glues and stains and instructional books. The craft department sells
primarily branded product lines. Craft classes taught by outside instructors are
held in the stores on a regular basis.

      BASKETS. The Company offers an extensive selection of natural woven
baskets and other related wicker and rattan products. This department offers an
estimated 3,000 SKUs, including products such as door mats, tiki torches and
decorative products. The Company sources these products from around the world,
including products from China, Thailand, the Philippines, Indonesia, India and
Haiti. Direct import purchases are made to ensure low costs and unique
assortments.

      OTHER. In addition to the above ten categories, Garden Ridge carries other
categories of products, such as nursery and tropical plants and decorator
pillows, and each store has a snack bar with seating area.

MANAGEMENT INFORMATION SYSTEMS

      The Company believes that its management information system is an
important factor in allowing the Company to support its growth and enhance
its competitive industry position. The Company has invested over $12 million in
this system, which provides integration of store, merchandising, replenishment,
distribution, and financial systems. Merchandise is bar coded, enabling
management to control inventory and pricing by SKU, manage assortment within a
category and produce desired gross margins and inventory turnover. Sales are
updated daily in the merchandise reporting systems by polling all sales
information from each store's point-of-sale ("POS") terminals. The Company's POS
system consists of registers providing price look-up and scanning of bar-coded
tickets. Through automated nightly two-way electronic communication with each
store, sales information and store initiated transfers are uploaded to the host
system and price changes are downloaded through the POS devices. This technology
allows the Company to provide price discounts at both the store level and the
SKU level rather than at the category level as is the case with some of its
competitors. The nightly communication with the stores also enables the Company
to receive store transfer and physical inventory details and send electronic
mail. Information obtained from such daily polling results in automatic
merchandise replenishment in response to specific SKU requirements of each
store. The Company also evaluates information obtained through daily reporting
to implement merchandising decisions. On a daily basis the Company monitors
sales and cost of goods sold by SKU, based on the average cost of actual SKUs
sold and gross margin by store and department.

MARKETING AND ADVERTISING

      The Company budgets an amount equivalent to approximately 4-5% of its
annual sales to spend on its advertising through television, radio, newspapers,
newspaper inserts, the yellow pages and billboards. Management believes
television is an efficient medium for reaching the Company's target audience and
visually demonstrating the stores' size and product selection.

      To reinforce its television advertising schedule, the Company distributes
eight-to-twelve page product inserts on a select zip code basis. The inserts are
theme driven by seasonal promotion and feature top-selling items in each
merchandise department. The inserts feature actual prices in order to reinforce
the everyday low price policy.


                                       3
<PAGE>
      The Company also uses radio and newspaper advertisements prior to extended
holiday weekends. The Company advertises in the yellow pages and through
billboards, which are primarily intended to call attention to, and give
customers directions, to the stores. The Company's major vendors provide
cooperative advertising funding to Garden Ridge.

PRODUCT SOURCING AND DISTRIBUTION

      The Company purchases all of its inventory through its central purchasing
system. Management believes this strategy allows the Company to take advantage
of volume purchase discounts and improve controls over inventory and product
mix. The Company purchases its merchandise from over 800 suppliers, and no
supplier represents over 3% of total purchases. In fiscal 1999, approximately
75% of the Company's merchandise was purchased from domestic suppliers
(including distributors that import goods) and the remaining 25% was imported
from foreign manufacturers or their agents, principally in the Far East (Hong
Kong, China, Taiwan and Thailand).

      Garden Ridge purchases overseas products on a free-on-board (FOB) shipping
point basis, meaning the Company takes possession of the goods when they are
shipped by the manufacturer. The Company insures its overseas purchases at their
retail value.

      Garden Ridge has the majority of its domestic products shipped directly to
its stores, thereby reducing freight and handling charges. The Company leases
and operates a 280,000 square foot warehouse in Dallas and also leases a 120,000
square foot warehouse in Dallas for bulk storage. In April 1999, Garden Ridge
opened a 290,000 square foot distribution center in Statesville, North Carolina
to distribute goods to its southeastern stores. The Company believes this will
result in a more effective means of distributing its imported products.

      As is customary in the industry, the Company does not have long-term or
exclusive contracts with any suppliers. The Company believes that alternate
sources of merchandise for all product categories are readily available at
comparable prices. Goods manufactured in the Far East generally require long
lead times and are ordered three to nine months in advance of delivery. All
purchases are made in United States dollars.

ASSOCIATES

      As of April 16, 1999, Garden Ridge employed approximately 3,500
associates, consisting of approximately 2,500 full-time equivalent associates,
of whom 85% were hourly sales associates. The majority of Garden Ridge's store
personnel earn slightly above minimum wage. Based on the level of transactions
experienced at different times of the day, week and year, store labor is planned
so as to serve customers effectively during peak periods while minimizing
overall labor costs. The Company's associates are not represented by any union,
and management believes that labor relations are good. Due to the level of
temporary help the Company employs, such as college students during summer and
Christmas vacation, employee turnover is approximately 133% per annum for stores
open more than one year.

COMPETITION

      The presence in the Company's markets of department stores, mass
merchandisers and specialty retailers (including superstores), which carry
merchandise similar to that of Garden Ridge makes these markets very
competitive. The Company believes that its stores compete on the basis of price,
depth and breadth of merchandise assortment, customer service and convenience.
Management believes that the Company's merchandise selection, everyday low
prices, marketing strategies and the size and location of its stores distinguish
the Company from its competitors.

      Management believes that department stores do not pose significant
competition for the Company because, although they carry some housewares,
candles, pictures and frames and other merchandise in common with Garden Ridge,
their product offerings with such categories are limited in comparison to Garden
Ridge, are generally at higher price points and are targeted to a more upscale
consumer. While mass merchandisers carry several of Garden Ridge's product
lines, they generally lack the breadth of selection to be specific destination
locations for those merchandise categories. However, to the extent that mass
merchandisers carry particular items in common with the Company, they provide
price competition.


                                       4
<PAGE>
      In general, the specialty retailers in Garden Ridge's markets do not carry
all of the Company's product categories. Their stores are much smaller, ranging
from approximately 10,000 to 30,000 square feet of selling space. Management
believes that Garden Ridge generally carries a much broader selection of
merchandise than these stores. In addition, Garden Ridge buyers regularly shop
these stores to ensure that Garden Ridge's prices are competitive. See
"Merchandising."

TRADEMARKS

      The Company owns the following federally registered servicemarks for its
retail services: "Garden Ridge," "Garden Ridge Pottery World Imports" (with
design), "Shopping Fun in the Giant Economy Size!" and "Do It Up Big!." The
Company also owns a federal trademark registration for "Garden Ridge Pottery and
World Imports," which is used on certain products sold at the Company's stores,
and has filed a federal servicemark application for "The Home Decor
Marketplace." The Company believes that certain of its marks are valuable and
intends to defend and maintain such marks and the related registrations.
However, in the event the Company ceases to use a particular mark, the Company
may permit any registration as to such mark to lapse. The Company is not aware
of any pending claims of infringement or other challenges to the Company's right
to use its marks in the United States.


                                       5
<PAGE>
ITEM 2.  PROPERTIES

      The Company currently operates 29 stores and has four stores scheduled to
open in the following locations:

<TABLE>
<CAPTION>
                                                                       APPROXIMATE          FISCAL
                                                                       SQUARE FEET           YEAR
   CITY                                     STORE NAME              OF SELLING SPACE        OPENED
  ------                                   ------------            ------------------     ----------
<S>                                         <C>                          <C>                 <C> 
   CURRENT STORES:
         San Antonio, Texas                 Schertz                      207,000             1980
         Houston, Texas                     Katy                         179,000             1987
         Houston, Texas                     Airtex                       207,000             1987
         Houston, Texas                     Meadows                      129,000             1993
         Austin, Texas                      Round Rock                   125,000             1995
         Dallas/Ft. Worth, Texas            Plano                        125,000             1995
         Dallas/Ft. Worth, Texas            North Richland Hills         125,000             1995
         Louisville, Kentucky               Louisville                   125,000             1996
         Memphis, Tennessee                 Memphis                      125,000             1996
         Dallas/Ft. Worth, Texas            Mesquite                     125,000             1996
         Oklahoma City, Oklahoma            Oklahoma City                125,000             1996
         Charlotte, North Carolina          Pineville                    125,000             1997
         Jacksonville, Florida              Jacksonville                 125,000             1997
         Tulsa, Oklahoma                    Tulsa                        125,000             1997
         Houston, Texas                     Webster                      135,000             1997
         St. Louis, Missouri                St. Louis                    125,000             1997
         Greenville, South Carolina         Greenville                   125,000             1997
         Richmond, Virginia                 Richmond                     125,000             1997
         Atlanta, Georgia                   Kennesaw                     125,000             1998
         Atlanta, Georgia                   Norcross                     125,000             1998
         Dallas/Ft. Worth, Texas            Lewisville                   106,000             1998
         O'Fallon, Illinois                 O'Fallon                     125,000             1999
         Atlanta, Georgia                   Stockbridge                  125,000             1999
         Dallas/Ft. Worth, Texas            Hulen                        106,000             1999
         Nashville, Tennessee               Nashville                    106,000             1999
         Lexington, Kentucky                Lexington                    106,000             1999
         Columbus, Ohio                     Hilliard                     106,000             1999
         Greensboro, North Carolina         Greensboro                   106,000             2000
         Cincinnati, Ohio                   Eastgate                     106,000             2000

   STORES SCHEDULED TO OPEN:
         San Antonio, Texas                 Ingram                       106,000             (1)
         Austin, Texas                      Austin                       106,000             (1)
         Kansas City, Missouri              Independence                 106,000             (1)
         Atlanta, Georgia                   Douglasville                 96,000              (1)
</TABLE>

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

(1) Scheduled to open in fiscal 2000.

      The Company's three original stores (the Schertz Store, Katy Store and
Airtex Store) are larger than the Company's current megastore format. All stores
opened subsequent to these three stores are in the megastore format with at
least 100,000 square feet of selling space. The Company's corporate offices are
located at the Katy Store.

      All of the Company's 29 existing stores are leased. The Company intends to
lease stores or arrange with third parties to build-to-suit stores for lease by
the Company. Certain leases provide for fixed minimum rentals and provide for
contingent rental payments based on various specified percentages of sales above
minimum levels. The leases carry varying terms expiring between 2004 and 2020,
excluding options to extend. All stores and store sites are located adjacent to
an interstate or other major highways.


                                       6
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS

      The Company is involved in various legal proceedings incidental to the
conduct of its business. The Company currently is not engaged in any legal
proceeding that is expected to have a material adverse effect on the Company's
results of operations or financial position.


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

      None

                                   P A R T I I

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON STOCK PRICE RANGE AND DIVIDEND POLICY

      The Common Stock of the Company is traded in the over-the-counter market
and is quoted on the Nasdaq National Market System under the symbol "GRDG." The
following table sets forth on a per share basis, for the periods indicated, the
high and low sale prices of the Common Stock as reported by the Nasdaq National
Market System. These price quotations reflect inter-dealer prices, without
adjustment for retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.


                                                       PRICE RANGE
                                                -------------------------
                                                  HIGH             LOW
                                                ---------       ---------
Year Ended January 25, 1998
       First Quarter ......................      9 15/16          6 1/4
       Second Quarter .....................      14 3/4           7 3/4
       Third Quarter ......................      15 7/8           11 3/4
       Fourth Quarter .....................      161/2            13 1/8
Year Ended January 31, 1999
     First Quarter ........................      21 13/16         14 13/16
     Second Quarter .......................      22 1/2           13 3/4
     Third Quarter ........................      14 5/8           4 7/8
     Fourth Quarter .......................      9 1/16           6 13/32


     On April 16, 1999, the last sale price of the Common Stock as reported on
the Nasdaq National Market System was $6.50 per share. As of April 16, 1999,
there were approximately 200 holders of record of Common Stock and
approximately 5000 beneficial holders.

      The Company has never paid cash dividends on its Common Stock, and the
Company does not intend to pay cash dividends at any time in the foreseeable
future. The Company expects that earnings will be retained for the continued
growth and development of the Company's business. Future dividends, if any, will
depend upon the Company's earnings, financial condition, cash requirements,
compliance with covenants in agreements to which the Company is or may be
subject, future prospects and other factors deemed relevant by the Company's
Board of Directors. See "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."


                                       7
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

      The following table sets forth consolidated financial data of Garden Ridge
Corporation and subsidiaries as of and for the fiscal years ended January 29,
1995, January 28, 1996, January 26, 1997, January 25, 1998 and January 31, 1999
derived from the financial statements audited by Arthur Andersen LLP.


<TABLE>
<CAPTION>
                                                                      FISCAL YEAR ENDED JANUARY
                                                   -------------------------------------------------------------
                                                     1995          1996         1997        1998         1999
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
STATEMENT OF OPERATIONS DATA:
Sales ..........................................   $ 100,002    $ 148,087    $ 225,315    $ 304,732    $ 364,742
Cost of Sales ..................................      61,938       92,328      144,054      195,290      232,441
                                                   ---------    ---------    ---------    ---------    ---------

        Gross profit ...........................      38,064       55,759       81,261      109,442      132,301
Operating expenses:
        Store operating ........................      24,146       37,318       60,320       80,912      100,282
        General and administrative .............       4,287        5,157        6,672       10,280       14,451

        Amortization of intangibles and deferred
             charges ...........................         621          612          717          735          599
        Preopening costs .......................       1,017        1,395        2,368        1,122        2,219
                                                   ---------    ---------    ---------    ---------    ---------

Total operating expenses .......................      30,071       44,482       70,077       93,049      117,551
        Income from operations .................       7,993       11,277       11,184       16,393       14,750

Interest expense ...............................      (1,859)        (744)         (67)         (59)         (44)
Interest income ................................         459          735        1,538        1,478        1,694
                                                   ---------     --------    ---------    ---------    ---------

        Income before income taxes .............       6,593       11,268       12,655       17,812       16,400

Income taxes ...................................       2,441        4,390        4,619        6,379        5,904
                                                   ---------     --------    ---------    ---------    ---------

        Net income .............................       4,152        6,878        8,036       11,433       10,496

Preferred stock dividends ......................        (562)        (153)        --           --           --
                                                   ---------    ---------    ---------    ---------    ---------

        Net income available to common
             stockholders ......................   $   3,590    $   6,725    $   8,036    $  11,433    $  10,496
                                                   =========    =========    =========    =========    =========

</TABLE>


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                               FISCAL YEAR ENDED JANUARY
                                                               -------------------------------------------------------------
                                                                 1995         1996        1997         1998         1999
                                                               --------    ---------    ---------    ---------    ----------
<S>                                                            <C>          <C>          <C>          <C>          <C>    
PER SHARE DATA:
Selected income per common and common equivalent share:
     Net income .........................................      $  0.41      $  0.47      $  0.45      $  0.62      $  0.57
     Net income available to common stockholders, basic .      $  0.40      $  0.51      $  0.47      $  0.64      $  0.58
     Net income available to common stockholders, diluted      $  0.36      $  0.46      $  0.45      $  0.62      $  0.57
Weighted average number of common shares and                                                                     
      equivalents outstanding, basic ....................        8,978       13,083       17,158       17,904       18,063
Weighted average number of common shares and                                                                     
      equivalents outstanding (1), diluted ..............       10,096       14,515       17,925       18,473       18,565
                                                                                                              
</TABLE>

<TABLE>
<CAPTION>
                                        JANUARY 29,    JANUARY 28,    JANUARY 26,    JANUARY 25,   JANUARY 31,
                                           1995           1996           1997           1998          1999
                                       -------------  -------------  -------------  ------------  -------------
<S>                                      <C>            <C>            <C>            <C>            <C>     
BALANCE SHEET DATA:
Working capital ..................       $ 12,168       $ 23,076       $ 63,277       $ 77,527       $ 79,481
Total assets .....................         43,992         73,326        137,382        160,212        170,524
Long-term debt obligations .......         16,730            300            200            100           --
Redeemable 8% cumulative preferred
     stock .......................          7,345           --             --             --             --
Common stockholders' equity ......          7,922         55,531        113,763        125,953        137,197

</TABLE>

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

   (1) Computed based on the weighted average number of shares of Common Stock
       and common stock equivalents, which consist of warrants and options
       outstanding during the period presented.


                                       9
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated income statement
data expressed as a percentage of sales.

<TABLE>
<CAPTION>
                                                                   FISCAL YEAR ENDED JANUARY
                                                                  ----------------------------
                                                                   1997       1998      1999
                                                                  ------    -------    -------
<S>                                                               <C>        <C>        <C>   
Sales ........................................................    100.0%     100.0%     100.0%
Cost of sales ................................................     63.9       64.0       63.7
                                                                  -----      -----      -----
              Gross profit ...................................     36.1       36.0       36.3
Operating expenses:
               Store operating ...............................     26.8       26.6       27.5
              General and administrative .....................      3.0        3.4        4.0
              Amortization of intangibles and deferred charges      0.3        0.2        0.2
              Preopening costs ...............................      1.0        0.4        0.6
                                                                  -----      -----      -----
                          Income from operations .............      5.0        5.4        4.0
Interest income ..............................................      0.6        0.5        0.5
Income taxes .................................................     (2.0)      (2.1)      (1.6)
                                                                  =====      =====      =====
                                       Net income ............      3.6%       3.8%       2.9%
                                                                  =====      =====      =====
</TABLE>

              FISCAL 1999 COMPARED TO FISCAL 1998

      Sales in fiscal 1999 increased $60.0 million, or 19.7%, to $364.7 million
from $304.7 million in fiscal 1998. This increase was attributable to (i) the
opening of six new stores (which contributed $40.5 million in incremental
sales), (ii) the inclusion of a full year of sales for the three stores opened
in fiscal 1998, and (iii) a comparable store sales increase of 2.2%.

      Gross profit as a percentage of sales increased to 36.3% in fiscal 1999 as
compared to 36.0% in fiscal 1998, as a result of higher product margins.

      Store operating expenses increased $19.4 million, or 23.9%, in fiscal 1999
to $100.3 million from $80.9 million in fiscal 1998. Store operating expenses as
a percentage of sales was 27.5% for fiscal 1999 and 26.6% for fiscal 1998. The
increased store operating expenses were caused primarily by the addition of six
new stores and the inclusion of a full year of operating expenses for the three
stores opened in fiscal 1998.

      General and administrative expenses increased $4.2 million, or 40.6%, in
fiscal 1999 to $14.5 million from $10.3 million in fiscal 1998. This increase
was primarily a result of increased corporate payroll expense reflecting
personnel additions to support the Company's expansion program. General and
administrative expenses as a percentage of sales increased to 4.0% of sales in
fiscal 1999 from 3.4% in fiscal 1998.

      Amortization of intangible assets in fiscal 1999 (see Note 3 of the Notes
to Consolidated Financial Statements) decreased to $599,000, from $735,000 in
fiscal 1998 primarily as a result of fully amortized deferred loan costs.

      Preopening costs of $2.2 million in fiscal 1999 consisted of all labor,
operating and advertising charges incurred prior to the opening of the six new
stores in fiscal 1999. The Company opened three new stores in fiscal 1998. The
Company's policy is to expense all preopening costs in the month a store
commences operations.

      Income from operations decreased 10.0% to $14.8 million, or 4.0% of sales,
as compared to 5.4% of sales in fiscal 1998.

      Interest income in fiscal 1999 was $1.7 million, or 0.5% of sales as
compared to $1.5 million, or 0.5% of sales in fiscal 1998.

      Income taxes in fiscal 1999 were $5.9 million, representing an effective
tax rate of 36.0%, as compared to $6.4 million, or an effective tax rate of
35.8% in fiscal 1998.


                                       10
<PAGE>
      Net income in fiscal 1999 was $10.5 million, or 2.9% of sales, as compared
to $11.4 million, or 3.8% of sales, in fiscal 1998.


      FISCAL 1998 COMPARED TO FISCAL 1997

      Sales in fiscal 1998 increased $79.4 million, or 35.2%, to $304.7 million
from $225.3 million in fiscal 1997. This increase was attributable to (i) the
opening of three new stores (which contributed $31.2 million in incremental
sales), (ii) the inclusion of a full year of sales for the seven stores opened
in fiscal 1997, and (iii) a comparable store sales increase of 10.0%.

      Gross profit as a percentage of sales decreased to 36.0% in fiscal 1998 as
compared to 36.1% in fiscal 1997 as a result of increased domestic freight costs
and buying expense offset by higher product margins.

      Store operating expenses increased $20.6 million, or 34.1%, in fiscal 1998
to $80.9 million from $60.3 million in fiscal 1997. Store operating expenses as
a percentage of sales was 26.6% for fiscal 1998 and 26.8% for fiscal 1997. The
increased store operating expenses associated with the addition of three new
stores and the inclusion of a full year of operating expenses for the seven
stores opened in fiscal 1997 were offset by the sales increase allowing store
operating expenses to decline as a percentage of sales.

      General and administrative expenses increased $3.6 million, or 54.1%, in
fiscal 1998 to $10.3 million from $6.7 million in fiscal 1997. This increase was
primarily a result of increased corporate payroll expense reflecting personnel
additions to support the Company's expansion program. General and administrative
expenses as a percentage of sales increased to 3.4% of sales in fiscal 1998 from
3.0% in fiscal 1997.

      Amortization of intangibles and deferred charges in fiscal 1998 which
consisted of net assets and deferred loan costs (see Note 3 of the Notes to
Consolidated Financial Statements) increased to $735,000, from $717,000 in
fiscal 1997. As a percentage of sales, amortization of intangibles and deferred
charges decreased to 0.2% of sales in fiscal 1998 from 0.3% in fiscal 1997.

      Preopening costs of $1.1 million in fiscal 1998 consisted of all labor,
operating and advertising charges incurred prior to the opening of the three new
stores in fiscal 1998. The Company opened seven new stores in fiscal 1997.

      Income from operations increased 0.4% to $16.4 million, or 5.4% of sales,
as compared to 5.0% of sales in fiscal 1997.

      Interest income in fiscal 1998 was $1.5 million, or 0.5% of sales as
compared to $1.5 million, or 0.6% of sales in fiscal 1997.

      Income taxes in fiscal 1998 were $6.4 million, representing an effective
tax rate of 35.8%, as compared to $4.6 million, or an effective tax rate of
36.5% in fiscal 1997. The Company's lower effective tax rate is attributable to
the Company's geographic expansion resulting in a lower effective state tax
rate.

      Net income in fiscal 1998 was $11.4 million, or 3.8% of sales, as compared
to $8.0 million, or 3.6% of sales, in fiscal 1997.


LIQUIDITY AND CAPITAL RESOURCES

      Garden Ridge's primary sources of working capital are cash flows from
operations and borrowings under its Line of Credit. The Company had working
capital of $63.3 million, $77.5 million and $79.5 million at the end of fiscal
1997, 1998 and 1999, respectively. The principal uses of working capital are to
purchase inventory and finance the expansion of the Company's operations.

      The Company currently has a $15 million unsecured Line of Credit with Bank
of America (formerly NationsBank, N.A.). The Company has no outstanding
borrowings under the credit agreement, which expires June 30, 2000.

      Garden Ridge's primary capital requirements are for the opening of new
stores. The Company estimates the total cash required to open a leased store,
including store fixtures, equipment, inventory and preopening expenses, to be
approximately $3.0 million, including approximately $1.5 million in initial
inventory (net of approximately $500,000 of vendor financing). An additional
$6.0 million to $9.0 million (depending on real estate costs) would be required
for the Company to construct a store. Management believes it will be able to
lease stores or arrange with third parties to build-to-suit stores for lease by
the Company, although there can be no assurance that it will be able to do so.


                                       11
<PAGE>
      The Company anticipates opening six additional stores by fiscal year end
2000. The Company continually reassesses its expansion plan and has not yet
established any expansion plans for fiscal 2001. The Company has adequate
capital to open at least six additional stores if such an expansion decision is
made. The Company estimates the total cash required to open the six additional
stores in fiscal 2000 will be approximately $18.0 million. The Company believes
cash generated from operations, availability under its Line of Credit,
traditional funding sources and financing provided by the Company's vendors will
be adequate to fund its anticipated capital requirements for expansion through
at least the end of fiscal 2001.


YEAR 2000

      The Company is currently assessing the impact of "Year 2000" related
issues on its operational and financial computer systems, and intends to
complete its assessment and testing phases by July 1999. In connection with a
management information systems upgrade that the Company has undertaken over the
last several years, the Company has recently installed new computer systems that
are Year 2000 compliant and will accelerate approximately $2 million in capital
costs in fiscal year 2000 to replace or upgrade certain management information
systems that are not Year 2000 compliant.

      The amount charged to expense in fiscal 1999, as well as the amounts
expected to be charged to expense related to Year 2000 testing and modifications
in fiscal 2000, have not been and are not expected to be material to the
Company's financial position, results of operations or cash flow.

      In evaluating the risks to the Company, the most serious risk would be
interruption in the ability to communicate and interface with suppliers.
Management is in the process of surveying the Company's suppliers and believes
that in most cases suppliers will be in compliance or have plans to be
compliant. The Company believes that in an emergency it could revert to the use
of manual systems that do not rely on computers and could perform the minimum
functions required to provide information reporting to maintain satisfactory
control of business. Should the Company have to utilize manual systems, it is
uncertain that it could maintain the same level of operations, and this could
have a material adverse impact on the business. The Company intends to maintain
constant surveillance of this situation and will develop such contingency plans
as required by the changing environment.


OTHER MATTERS

      The Company experiences seasonal fluctuations in its business. The highest
sales period for the Company is generally the fourth fiscal quarter. This
period, which includes the Christmas selling season, accounted for approximately
34%, 35% and 35% of the Company's sales for stores open the entire fiscal year,
and approximately 80%, 84% and 100% of the Company's income from operations
(including income from stores not open for the entire fiscal year) in fiscal
1997, 1998 and 1999, respectively. The Company also experiences lower gross
margins in January due to clearance sales.

      Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe inflation has had a material
effect on sales or results of operations.


STOCK REPURCHASE

      Subsequent to fiscal year end, the Company's board of directors authorized
the repurchase of up to one million shares of the Company's common stock on the
open market through January 31, 2000. During March 1999, the company repurchased
one million shares at a cost of approximately $5.67 million. These shares will
be held in treasury for future use.


ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     In the normal course of business, the Company could be exposed to market
risk from changes in interest rates. The Company continually monitors exposure
to market risk and, when appropriate, develops strategies to manage this risk.
Management does not use derivative financial instruments for trading or to
speculate on changes in interest rates. Currently, the Company's interest rate
risk, if any, relates to its line of credit, under which no amounts are
outstanding.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
          Filed herein as pages 18 through 31.


ITEM 9.   CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
      None.

                                       12
<PAGE>
                                 P A R T  I I I

      In accordance with paragraph (3) of General Instruction G to Form 10-K,
Part III of this Report is omitted because the Registrant will file with the
Securities and Exchange Commission, not later than 120 days after January 31,
1999, a definitive proxy statement pursuant to Regulation 14A involving the
election of directors. Reference is made to the sections of such proxy statement
entitled "Common Stock Outstanding and Principal Holders Thereof," "Proposal No.
1 -- Election of Directors" and "Certain Transactions," which sections of such
proxy statement are incorporated herein.


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

  (a)(1)  FINANCIAL STATEMENTS:
                                                                     PAGE NO.
                                                                     IN THE
                                                                    FINANCIAL
                                                                    STATEMENTS
                                                                  --------------

Report of Independent Public Accountants ...........................   17
Consolidated Balance Sheets as of January 25, 1998 and
    January 31, 1999 ...............................................   18
Consolidated Statements of Operations for the Fifty-Two
    Week Periods Ended January 26, 1997 and January 25, 1998
    and for the Fifty-Three Week Period Ended January 31, 1999 .....   19
Consolidated Statements of Stockholders' Equity for the
    Fifty-Two Week Periods Ended January 26, 1997 and
    January 25, 1998 and for the Fifty-Three Week Period
    Ended January 31, 1999 .........................................   20
Consolidated Statements of Cash Flows for the Fifty-Two
    Week Periods Ended January 26, 1997 and January 25, 1998
    and for the Fifty-Three Week Period Ended January 31, 1999 .....   21
Notes to Consolidated Financial Statements ......................... 22 - 31


     (2) FINANCIAL STATEMENT SCHEDULE:
         None.


     (3) EXHIBITS

    EXHIBIT      
    NUMBER                         IDENTIFICATION OF EXHIBITS
   ---------                      ----------------------------
    *3.1    --   Restated Certificate of Incorporation effective May 16, 1995
                 (filed as Exhibit 3.5 to the Registration Statement on Form S-1
                 (No. 33-90748) (the "1995 Form S-1"), and incorporated herein
                 by reference)
                 
    *3.2    --   Bylaws (filed as Exhibit 3.4 to the 1995 Form S-1, and
                 incorporated herein by reference)
                 
    *3.3    --   Form of Amendment No. 1 to the Bylaws effective May 16, 1995
                 (filed as Exhibit 3.6 to the 1995 Form S-1, and incorporated
                 herein by reference)
                 
    *4.1    --   Specimen Common Stock Certificate (filed as Exhibit 4.1 to
                 the 1995 Form S-1, and incorporated herein by reference)
                 
   *10.1    --   Amended and Restated 1992 Stock Option Plan (filed as
                 Exhibit 10.1 to the 1995 Form S-1, and incorporated herein by
                 reference)
                 
    10.2    --   Amended and Restated 1994 Stock Option Plan
                 
               
                                       13
<PAGE>

       Exhibit
       NUMBER                       IDENTIFICATION OF EXHIBITS

   *10.3    --   Second Amended and Restated Credit Agreement dated October 26,
                 1995 between NationsBank of Texas, N.A. and the Company (filed
                 as Exhibit 10.3 to the Form 10-K for the fiscal year ended
                 January 28, 1996, and incorporated herein by reference)

   *10.4    --   Amendment No. 1 dated as of November 15, 1996, between
                 NationsBank of Texas, N.A. and the Company (filed as Exhibit
                 10.4 to the Form 10-K for the fiscal year ended January 26,
                 1997, and incorporated herein by reference)

    10.5    --   Amendment No. 2 dated as of June 4, 1998 between NationsBank
                 of Texas, N.A. and the Company

    10.6    --   Amended and Restated 1996 Non-Employee Director Stock Option
                 Plan

   *10.7    --   Demand Registration Rights Agreement dated May 16, 1995 by and
                 among the Company and the parties named therein (filed as
                 Exhibit 10.24 to the 1995 Form S-1, and incorporated herein by
                 reference)

   *10.8    --   Advisory Agreement dated July 16, 1996 between the Company and
                 Three Cities Research, Inc. (filed as Exhibit 10.9 to Form 10-K
                 for the fiscal year ended January 26, 1997, and incorporated
                 herein by reference)

    21.1    --   Subsidiaries of the Company

    23.1    --   Consent of Arthur Andersen LLP

    27.1    --   Financial Data Schedule

---------------------
*  Incorporated by reference

     (B)  REPORTS ON FORM 8-K:
          None.


                                       14
<PAGE>
                                   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.


                                             GARDEN RIDGE CORPORATION


                                             By: /s/ JANE L. ARBUTHNOT
                                                     JANE L. ARBUTHNOT
                                                  Chief Financial Officer


Date:   May 3, 1999



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


        SIGNATURE                          TITLE                   DATE
      -------------                       -------                 ------
    /s/ ARMAND SHAPIRO           Chairman of the Board and    May 3, 1999
----------------------------      Chief Executive Officer       
      ARMAND SHAPIRO           (Principal Executive Officer) 
                                 

  /s/ JANE L. ARBUTHNOT         Chief Financial Officer and   May 3, 1999
----------------------------        Secretary (Principal
    JANE L. ARBUTHNOT                 Financial and     
                                    Accounting Officer) 
                                    

    /s/ TERRY S. BOYCE                    Director            May 3, 1999
----------------------------
      TERRY S. BOYCE

    /s/ ALYSON HENNING                    Director            May 3, 1999
----------------------------
      ALYSON HENNING

     /s/ IRA NEIMARK                      Director            May 3, 1999
----------------------------
       IRA NEIMARK

    /s/ SAM J. SUSSER                     Director            May 3 ,1999
----------------------------
      SAM J. SUSSER

   /s/ BARBARA S. TAPP                    Director            May 3, 1999
----------------------------
     BARBARA S. TAPP

  /s/ H. WHITNEY WAGNER                   Director            May 3, 1999
----------------------------
    H. WHITNEY WAGNER


                                       15
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                          PAGE
                                                                         ------
Report of Independent Public Accountants ..............................    17

Consolidated Balance Sheets as of January 25, 1998
    and January 31, 1999 ..............................................    18

Consolidated Statements of Operations for the Fifty-Two Week
    Periods Ended January 26, 1997 and January 25, 1998 and
    for the Fifty-Three Week Period Ended January 31, 1999 ............    19

Consolidated Statements of Stockholders' Equity for the Fifty-Two
    Week Periods Ended January 26, 1997 and January 25, 1998 and
    for the Fifty-Three Week Period Ended January 31, 1999 ............    20

Consolidated Statements of Cash Flows for the Fifty-Two Week
    Periods Ended January 26, 1997 and January 25, 1998 and
    for the Fifty-Three Week Period Ended January 31, 1999 ............    21

Notes to Consolidated Financial Statements ............................  22 - 31


                                       16
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Garden Ridge Corporation:

We have audited the accompanying consolidated balance sheets of Garden Ridge
Corporation, a Delaware corporation, and subsidiaries (the Company) as of
January 25, 1998 and January 31, 1999, and the related consolidated statements
of operations, stockholders' equity and cash flows for the fifty-two week
periods ended January 26, 1997 and January 25, 1998, and the fifty-three week
period ended January 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of January 25,
1998 and January 31, 1999, and the results of their operations and their cash
flows for the fifty-two week periods ended January 26, 1997 and January 25,
1998, and the fifty-three week period ended January 31, 1999, in conformity with
generally accepted accounting principles.



ARTHUR ANDERSEN LLP

Houston, Texas
March 12, 1999


                                       17
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                   ( DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              JANUARY 25,      JANUARY 31,
                                                                 1998             1999
                                                             ------------     -------------
<S>                                                           <C>               <C>        
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents ............................   $  44,586         $  35,882  
     Marketable securities ................................       3,150              --
     Accounts receivable ..................................       1,785             2,783
     Inventories ..........................................      57,773            68,009
     Deferred income taxes ................................       1,225             1,329
     Prepaid expenses .....................................       2,492             3,756
     Deposits .............................................          80                72
                                                              ---------         ---------
          Total current assets ............................     111,091           111,831
PROPERTY AND EQUIPMENT, at cost:                                              
     Leasehold improvements ...............................      18,830            23,770
     Furniture and fixtures ...............................      13,832            18,760
     Equipment ............................................      24,982            34,731
                                                              ---------         ---------
           Total property and equipment ...................      57,644            77,261
     Less - Accumulated depreciation and amortization .....     (17,977)          (27,423)
                                                              ---------         ---------
           Net property and equipment .....................      39,667            49,838
OTHER ASSETS:                                                                 
     Intangible assets, net ...............................       9,454             8,855
                                                              =========         =========
           Total assets ...................................   $ 160,212         $ 170,524
                                                              =========         =========
                                                                              
LIABILITIES AND STOCKHOLDERS' EQUITY                                          
CURRENT LIABILITIES:                                                          
     Accounts payable .....................................   $  17,448         $  18,731
     Accrued liabilities ..................................       8,529             7,149
     Federal income taxes payable .........................       7,587             6,470
                                                              ---------         ---------
           Total current liabilities ......................      33,564            32,350
LONG-TERM DEBT, net .......................................         100              --
DEFERRED INCOME TAXES .....................................         595               977
COMMITMENTS AND CONTINGENCIES                                                 
STOCKHOLDERS' EQUITY:                                                         
     Common stock, $.01 par value; 40,000,000 shares                          
          authorized, 18,314,116 and 18,341,950 shares                        
          issued, and 17,991,890 and 18,159,508 shares                        
          outstanding in fiscal 1998 and 1999, respectively         183               183
     Paid-in capital ......................................      93,293            94,026
     Retained earnings ....................................      32,512            43,008
     Less - Treasury stock, 322,226 and 182,442 shares at                     
          cost in fiscal 1998 and 1999, respectively ......         (35)              (20)
                                                              ---------         ---------
            Total stockholders' equity ....................     125,953           137,197
                                                              =========         =========
            Total liabilities and stockholders' equity ....   $ 160,212         $ 170,524
                                                              =========         =========
</TABLE>
                                                                         
              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       18
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                       FIFTY-THREE WEEK
                                                          FIFTY-TWO WEEK PERIODS         WEEK PERIOD
                                                                 ENDED                      ENDED
                                                       ----------------------------   ------------------
                                                        JANUARY 26,     JANUARY 25,       JANUARY 31,   
                                                           1997            1998              1999
                                                       ------------    ------------       ------------
<S>                                                    <C>             <C>                <C>         
SALES ..............................................   $    225,315    $    304,732       $    364,742
COST OF SALES ......................................        144,054         195,290            232,441
                                                       ------------    ------------       ------------
      Gross profit .................................         81,261         109,442            132,301
OPERATING EXPENSES:                                                                     
    Store operating ................................         60,320          80,912            100,282
                                                                                        
    General and administrative .....................          6,672          10,280             14,451
    Amortization of intangibles and deferred charges            717             735                599
    Preopening costs ...............................          2,368           1,122              2,219
                                                       ------------    ------------       ------------
       Total operating expenses ....................         70,077          93,049            117,551
                                                       ------------    ------------       ------------
       Income from operations ......................         11,184          16,393             14,750
INTEREST EXPENSE ...................................            (67)            (59)               (44)
INTEREST INCOME ....................................          1,538           1,478              1,694
                                                       ------------    ------------       ------------
       Income before income taxes ..................         12,655          17,812             16,400
INCOME TAXES .......................................          4,619           6,379              5,904
                                                       ============    ============       ============
       Net income ..................................   $      8,036    $     11,433       $     10,496
                                                       ============    ============       ============
                                                                                        
INCOME  PER COMMON AND COMMON                                                           
    EQUIVALENT SHARE:                                                                   
        Net income, basic ..........................   $        .47    $        .64       $        .58
                                                       ============    ============       ============
        Net income, diluted ........................   $        .45    $        .62       $        .57
                                                       ============    ============       ============
                                                                                        
WEIGHTED AVERAGE SHARES OUTSTANDING,                                                    
      BASIC ........................................     17,157,742      17,904,447         18,062,727
                                                       ============    ============       ============
WEIGHTED AVERAGE SHARES OUTSTANDING,                                                    
      DILUTED ......................................     17,924,980      18,472,759         18,564,776
                                                       ============    ============       ============
</TABLE>


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


                                       19
<PAGE>
                        GARDEN RIDGE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                        COMMON STOCK
                                                                      ($.01 PAR VALUE)                    
                                                                    --------------------   PAID-IN    RETAINED     TREASURY
                                                                    SHARES       AMOUNT    CAPITAL    EARNINGS       STOCK
                                                                   --------     --------  ---------   ---------    ---------
<S>                                                                  <C>        <C>         <C>         <C>         <C>     
BALANCE AT JANUARY 28, 1996 ...................................      15,805     $   158     $42,410     $13,043     $   (80)
     Secondary public offering, net of $3,019 of offering costs       2,000          20      48,721        --          --
     Exercise of warrants .....................................         382           4       1,346        --          --
     Exercise of employee options .............................        --          --            65        --            40
     Net income ...............................................        --          --          --         8,036        --
                                                                    -------     -------     -------     -------     -------

BALANCE AT JANUARY 26, 1997 ...................................      18,187         182      92,542      21,079         (40)
     Exercise of warrants .....................................         112           1         477        --          --
     Exercise of employee options .............................        --          --           108        --             5
     Employee stock purchase plan .............................          15        --           166        --          --
     Net income ...............................................        --          --          --        11,433        --
                                                                    -------     -------     -------     -------     -------

BALANCE AT JANUARY 25, 1998 ...................................      18,314         183      93,293      32,512         (35)
     Exercise of employee options .............................        --          --           440        --            15
     Employee stock purchase plan .............................          28        --           293        --          --
     Net income ...............................................        --          --          --        10,496        --
                                                                    -------     -------     -------     -------     -------

BALANCE AT JANUARY 31, 1999 ...................................      18,342     $   183     $94,026     $43,008     $   (20)
                                                                    =======     =======     =======     =======     =======
</TABLE>

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


                                       20
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                         FIFTY-THREE
                                                                            FIFTY-TWO WEEK PERIODS       WEEK PERIOD
                                                                                    ENDED                   ENDED
                                                                          --------------------------   -----------------
                                                                          JANUARY 26,   JANUARY 25,        JANUARY 31,
                                                                              1997         1998              1999
                                                                          -----------   ------------    ----------------
<S>                                                                        <C>           <C>               <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                     
     Net income ......................................................     $  8,036      $ 11,433          $ 10,496
                                                                           --------      --------          --------
     Adjustments to reconcile net income to net cash provided by                                          
        (used in) operating activities --                                                                 
           Depreciation and amortization of property and equipment ...        4,797         6,629             9,446
           Amortization of intangibles and deferred charges ..........          717           735               599
           Deferred income tax (benefit) provision ...................          268          (187)              278
        (Increase) decrease in assets -                                                                   
            Marketable securities ....................................       (5,168)        2,018             3,150
            Accounts receivable ......................................         (819)          (60)             (998)
            Notes receivable .........................................        2,582          --                --
                                                                            (15,767)      (14,156)          (10,236)
Inventories                                                                                               
            Prepaid expenses .........................................       (1,836)          458            (1,264)
            Deposits and other .......................................         (263)          321                 8
            Intangibles assets, net ..................................          (15)         --                --
        Increase (decrease) in liabilities -                                                              
           Accounts payable ..........................................        4,448         2,437             1,283
           Accrued liabilities .......................................          822         4,152            (1,380)
           Federal income taxes payable ..............................          617         3,593            (1,117)
                                                                           --------      --------          --------
                   Total adjustments .................................       (9,617)        5,940              (231)
                                                                           --------      --------          --------
                   Net cash provided by (used in) operating activities       (1,581)       17,373            10,265
                                                                           --------      --------          --------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                     
     Capital expenditures ............................................      (18,067)      (11,673)          (19,848)
     Sale (purchase) of land held for sale/leaseback .................       (5,498)        5,735               231
                                                                           --------      --------          --------
           Net cash used in investing activities .....................      (23,565)       (5,938)          (19,617)
                                                                           --------      --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                     
     Payments on notes payable .......................................         (100)         (100)             (100)
     Sale of common stock, net of offering costs .....................       48,741          --                --
     Common stock reissued from treasury .............................           40             5                15
     Proceeds from exercise of stock options and warrants ............        1,415           752               733
                                                                           --------      --------          --------
           Net cash provided by financing activities .................       50,096           657               648
                                                                           --------      --------          --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................       24,950        12,092            (8,704)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .....................        7,544        32,494            44,586
                                                                           --------      --------          --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...........................     $ 32,494      $ 44,586          $ 35,882
                                                                           ========      ========          ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                        
      Cash paid during the period for --                                                                  
Interest .............................................................     $     67      $     59          $     44
          Income taxes ...............................................        3,010         2,775             6,400
                                                                                                          
</TABLE>

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



                                       21
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  BUSINESS AND CONSOLIDATION:

      The consolidated financial statements include the accounts of Garden Ridge
Corporation (a Delaware corporation) and its wholly owned subsidiaries
(collectively, the Company or Garden Ridge). Significant intercompany accounts
and transactions are eliminated in consolidation.

      The Company operates 27 retail megastores in twelve states, primarily in
Texas and the southeastern United States, which sell a broad assortment of
decorative home accessories, seasonal products and crafts.

      The Company's business is seasonal, with its highest sales levels
occurring in its fourth fiscal quarter. This period, which includes the
Christmas selling season, accounted for approximately 34 percent, 35 percent and
35 percent of the Company's sales for stores open the entire fiscal year, and
approximately 80 percent, 84 percent and 100 percent of the Company's income
from operations (including income from stores not open for the entire fiscal
year) in fiscal 1997, 1998 and 1999, respectively. A significant adverse trend
in sales for the fourth fiscal quarter would have a material adverse effect on
the Company's results of operations for the full year.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES

      The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of certain estimates by
management in determining the Company's assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.


FISCAL YEAR

      The fiscal year of the Company ends on the last Sunday in January of each
calendar year, resulting in either a 52- or 53-week fiscal year.


RECLASSIFICATION

      Certain reclassifications have been made to the fiscal 1997 and 1998
financial statements to conform with the fiscal 1999 presentation.


CASH AND CASH EQUIVALENTS

      The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents.


MARKETABLE SECURITIES

      The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". All of the Company's
marketable securities are classified as held to maturity securities. At January
25, 1998, the carrying value approximated fair value. There were no marketable
securities at January 31, 1999.


                                       22
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


INVENTORIES

      Inventories are stated at the lower of cost or market, determined by the
weighted average cost method.


PROPERTY AND EQUIPMENT

      Property and equipment are recorded at cost. Depreciation and amortization
are determined using the straight-line method for financial reporting purposes.
The amortization of leasehold improvements is based on the shorter of the term
of the respective lease or the estimated useful life of the related improvement.
Depreciation of all other tangible assets is based on the estimated useful life
of the respective asset, which is five years for substantially all assets.
Expenditures for major renewals and betterments are capitalized while
maintenance and repairs are expensed. When property is retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in the consolidated
statements of operations.


INTANGIBLE ASSETS

      Excess cost over net assets acquired is amortized on a straight-line basis
over 20 years. Management continually evaluates the realization of its
intangible assets based upon projected income from operations over the lives of
such assets. Management believes all such assets are fully realizable. However,
in the event of any impairment, such intangibles would be charged to expense and
reflected as a direct write-down in the balance sheet in the period such
impairment is deemed to have occurred.


COST OF SALES

      Included in cost of sales are cost of merchandise sold, occupancy and
buying costs.


PREOPENING COSTS

      The Company capitalizes certain direct costs incurred in conjunction with
site selection for future store locations and with the commencement of each
store's operations. Amounts capitalized are expensed in the month the store
commences operations. As of January 25, 1998 and January 31, 1999 there were no
such preopening costs that were required to be expensed. Included in prepaid
expenses in the accompanying consolidated balance sheets as of January 25, 1998
and January 31, 1999, were $1,400,000 and $2,772,000, respectively, related to
capitalizable costs incurred in conjunction with the opening of new stores, most
of which will be recorded to property and equipment when the stores are
completed.

      The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position 98-5 (SOP 98-5), "Reporting on Costs of Start-Up
Activities" in April 1998. The SOP 98-5 is effective for fiscal years beginning
after December 15, 1998 and requires that costs related to start-up activities
be expensed as incurred. The Company intends to adopt the provisions of SOP 98-5
in its financial statements for the first quarter of fiscal 2000.


ADVERTISING

      Advertising costs are expensed as incurred and were $10,452,000,
$13,867,000 and $17,552,000 for fiscal 1997, 1998 and 1999, respectively.


                                       23
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


STOCK SPLIT

      On June 28, 1996, the Company's board of directors approved a 2-for-1
stock split. The impact of the stock split has been reflected in the
accompanying consolidated financial statements and notes thereto.


3.  INTANGIBLES ASSETS:

      Intangible assets consists of the following (in thousands):


                                                   JANUARY 25,    JANUARY 31,
                                                      1998            1999
                                                   -----------    -----------
Cost in excess of net assets acquired .........     $ 11,708        $ 11,708
Noncompetition agreement ......................          500             500
                                                    --------        --------
                                                      12,208          12,208
Less - Accumulated amortization ...............       (2,754)         (3,353)
                                                    ========        ========
                                                    $  9,454        $  8,855
                                                    ========        ========

      The Company entered into an asset purchase agreement in December 1995
whereby the Company paid $2.3 million to acquire store fixtures, equipment and
goodwill associated with a store in Houston, Texas and entered into a
noncompetition agreement with the seller for $500,000. As of January 25, 1998
and January 31, 1999, the noncompetition agreement has an outstanding liability
of $200,000 and $100,000, respectively, which is to be paid in annual increments
of $100,000.


4.  DEBT:

      The Company has a line-of-credit agreement, as amended (Line of Credit),
which provides for a commitment not to exceed the greater of $15.0 million or
the Company's borrowing base, as defined, reduced by the aggregate amount of
outstanding letters of credit and bears interest at the prime rate or, at the
Company's option, LIBOR plus either 1.75 percent or 2.25 percent depending upon
certain financial conditions. The Line of Credit extends through June 30, 2000.
The Company is required to pay an annual commitment fee of 0.25 percent per
annum on the unused portion of the Line of Credit. During fiscal 1998 and 1999,
the Company made no borrowings under the Line of Credit and at January 31, 1999,
there was approximately $15.0 million of available borrowings.

      Restrictions under the Line of Credit include, among other things, limits
on capital expenditures, annual store openings, incurrence of additional
indebtedness and mergers or consolidations and certain financial covenants.


5.  FEDERAL INCOME TAXES:

INCOME TAXES

      The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". This standard provides the method for determining
the appropriate asset and liability for deferred taxes, which are computed by
applying applicable tax rates to temporary (timing) differences. Therefore,
expenses recorded for financial statement purposes before they are deducted for
tax purposes create temporary differences, which give rise to deferred tax
assets. Expenses deductible for tax purposes before they are recognized in the
financial statements create temporary differences which give rise to deferred
tax liabilities.

      The Company and its subsidiaries file a consolidated tax return. Deferred
income taxes are provided in recognition of timing differences in reporting
certain transactions for financial reporting and income tax reporting purposes.


                                       24
<PAGE>
                        GARDEN RIDGE CORPORATION AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



      The provision (benefit) for income taxes is as follows (in thousands):


                                                                 FIFTY-THREE
                                        FIFTY-TWO WEEK           WEEK PERIOD
                                        PERIODS ENDED               ENDED
                                ---------------------------     -------------
                                JANUARY 26,       JANUARY 25,     JANUARY 31,
                                    1997             1998           1999
                                ----------        -----------     ----------
Current .................        $ 4,351           $ 6,566          $ 5,626
Deferred ................            268              (187)             278
                                 =======           =======          =======
                                 $ 4,619           $ 6,379          $ 5,904
                                 =======           =======          =======


      The primary reasons for the difference between income taxes computed by
applying the statutory federal income tax rate and the provision for income
taxes in the financial statements are as follows:

                                                               FIFTY-THREE
                                         FIFTY-TWO WEEK        WEEK PERIOD
                                         PERIODS ENDED           ENDED
                                    ------------------------  -------------
                                    JANUARY 26,  JANUARY 25,    JANUARY 31,
                                       1997         1998          1999
                                    -----------  -----------  -------------
Statutory federal rate ............     35%         35%            35%
State taxes and expenses not
  deductible for tax purposes .....      2           1              1
                                     =====       =====          =====
                                        37%         36%            36%
                                     =====       =====          =====


      The significant components of the deferred tax assets and liabilities are
as follows (in thousands):

                                                       JANUARY 25,  JANUARY 31,
                                                          1998         1999
                                                       ----------   -----------
Deferred tax assets -
        Inventory ...................................     $1,030      $1,264
        Deferred rent ...............................        451         632
        Accruals ....................................        556         422
        Other .......................................         60          42
                                                          ------      ------
                 Total deferred tax assets ..........      2,097       2,360
Deferred tax liabilities -
        Depreciation ................................        873       1,418
        Prepaid expenses ............................        361         344
        Other .......................................        233         246
                                                          ------      ------
                 Total deferred tax liabilities .....      1,467       2,008
                                                          ------      ------
Net deferred tax assets .............................     $  630      $  352
                                                          ======      ======


      A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management of the
Company believes the net deferred tax assets will be utilized in full based on
the nature of the assets and the Company's estimates of the timing of reversals
of temporary differences and on the expected generation of taxable income before
such reversals.


                                       25
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


6.  STOCKHOLDERS' EQUITY:

      The Company completed a secondary public offering of its common stock on
April 30, 1996 (the "Secondary Offering"), pursuant to which the Company sold
2,000,000 shares of common stock at the price of $25.88 per share (including
420,000 shares sold pursuant to the exercise of the underwriters' over-allotment
option). Net proceeds of the Secondary Offering, after deducting the
underwriting discount and expenses were approximately $48.7 million. Proceeds
were retained to fund expansion and for general working capital purposes.

      Although there are no shares of preferred stock outstanding and the
Company has no present plans to issue any shares of preferred stock, the Amended
and Restated Certificate of Incorporation authorizes the Board, without further
action of the stockholders of the Company, to issue up to 2,500,000 shares of
preferred stock at $.01 par value.


7. EARNINGS PER SHARE

      The Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share" which requires dual presentation of earnings per share (EPS); basic
EPS and diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. For purposes of this calculation, outstanding stock options
are considered common stock equivalents.

       The following table summarizes the basic EPS and diluted EPS computations
for fiscal 1997, 1998 and 1999: (In thousands, except per share data).

<TABLE>
<CAPTION>
                                                         JANUARY 26,     JANUARY 25,      JANUARY 31,
                                                            1997             1998            1999
                                                        ------------    ------------     ------------
<S>                                                       <C>              <C>              <C>      
Basic earnings per share:
     Net income ......................................    $ 8,036          $11,433          $10,496  
                                                          -------          -------          -------
                                                                                           
     Weighted average number of common shares ........     17,158           17,904           18,063
                                                          =======          =======          =======
     Basic earnings per share ........................    $  0.47          $  0.64          $  0.58
                                                          =======          =======          =======
                                                                                           
Diluted earnings per share:                                                                
     Net income ......................................    $ 8,036          $11,433          $10,496
                                                          -------          -------          -------
                                                                                           
     Weighted average number of common shares ........     17,158           17,904           18,063
     Stock options and other .........................        767              569              502
                                                          -------          -------          -------
     Adjusted weighted average number of common shares     17,925           18,473           18,565
                                                          -------          -------          -------
                                                                                           
Diluted earnings per share ...........................    $  0.45          $  0.62          $  0.57
                                                          =======          =======          =======
                                                                                           
</TABLE>

      Options to purchase 15,434, 35,847 and 51,551 shares of common stock were
outstanding during fiscal 1997, 1998 and 1999, respectively, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares.


                                       26
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


8.  STOCK OPTIONS AND WARRANTS:

      Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation", and has
been determined as if the Company has accounted for its stock options under the
fair value method as provided therein. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for options issued in fiscal
1997, 1998 and 1999, respectively: risk-free interest rate of 6.6 percent, 6.5
percent and 5.7 percent; expected lives of eight years, seven years and ten
years; expected volatility of 43 percent, 27 percent and 28 percent; and no
expected dividends.

      For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair value based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects of reported net income for future years because,
as provided by SFAS No. 123, only the effects of awards granted after January
30, 1995, are considered in the pro forma calculation.


                                  NET INCOME (IN THOUSANDS)  EARNINGS PER SHARE
                                  -------------------------  ------------------
January 26, 1997
     As reported ................          $ 8,036                $   0.45 
     Pro Forma ..................          $ 7,763                $   0.43
January 25, 1998                                                 
     As reported ................          $11,433                $   0.62
     Pro Forma ..................          $11,131                $   0.60
January 31, 1999                                                 
     As reported ................          $10,496                $   0.57
     Pro Forma ..................          $10,235                $   0.55
                                                            

      In August 1992, the Company adopted the 1992 Stock Option Plan, as amended
(the 1992 Plan), which expired upon the public offering of the Company's common
stock in May 1995. The 1992 Plan permitted the Company to grant incentive and
nonqualified stock options to purchase 1,130,822 shares of the Company's common
stock to key executives and employees. The exercise price of incentive stock
options is not less than the fair value of the shares at the date of grant, and
the exercise price of nonqualified stock options is determined by the
compensation committee of the Company's board of directors, subject to certain
restrictions. Options presently outstanding are fully vested at January 31,
1999, and expire 10 years from the date of grant.

      A summary of stock option activity under the 1992 Plan follows:



                                             OPTIONS        WEIGHTED AVERAGE
                                           OUTSTANDING       EXERCISE PRICE
                                          -------------    ------------------
Balance at January 28, 1996 ...........      923,128           $   0.99
        Exercised .....................     (336,962)          $   0.16
        Canceled ......................       (3,974)          $   2.84
                                            --------

Balance at January 26, 1997 ...........      582,192           $   1.48
        Exercised .....................      (32,776)          $   3.16
        Canceled ......................         (976)          $   2.22
                                            --------

Balance at January 25, 1998 ...........      548,440           $   1.37
        Exercised .....................      (82,150)          $   3.11
                                            --------

Balance at January 31, 1999 ...........      466,290           $   1.07
                                            ========



      At January 31, 1999, there were no shares reserved for future stock option
grants under the 1992 Plan and options to acquire 466,290 shares were
exercisable under the 1992 Plan.


                                       27
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


      In April 1994, the Company adopted the 1994 Stock Option Plan (the 1994
Plan). The 1994 Plan permits the Company to grant incentive and nonqualified
stock options to purchase 769,176 shares of the Company's common stock to key
executives and employees. The exercise price of incentive stock options will not
be less than the fair value of the shares at the date of grant and the exercise
price of nonqualified stock options will be determined by the compensation
committee of the Company's board of directors, subject to certain restrictions.
The vesting and terms of each stock option will be determined by the
compensation committee, subject to certain limitations. The 1994 Plan expires 10
years after its effective date.

      A summary of stock option activity under the 1994 Plan follows:


                                              OPTIONS        WEIGHTED AVERAGE
                                            OUTSTANDING       EXERCISE PRICE
                                           -------------     ----------------
Balance at January 28, 1996 ...........        97,300           $   3.28
        Granted .......................       160,000           $  13.43
        Exercised .....................       (21,198)          $   2.39
        Canceled ......................        (4,000)          $  16.44
                                             --------

Balance at January 26, 1997 ...........       232,102           $  10.39
        Granted .......................       176,000           $  12.05
        Exercised .....................        (1,950)          $   3.33
        Canceled ......................       (25,000)          $  10.78
                                             --------

Balance at January 25, 1998 ...........       381,152           $   9.66
        Granted .......................       111,000           $  12.39
        Exercised .....................       (57,634)          $   3.46
        Canceled ......................       (26,834)          $  11.17
                                             --------

Balance at January 31, 1999 ...........       407,684           $  11.19
                                             ========

      At January 31, 1999, there were 280,710 shares reserved for future stock
option grants and 194,795 shares were exercisable under the 1994 Plan.

      The weighted average fair value of options granted using the Black-Scholes
option pricing model in fiscal 1997, 1998 and 1999 was$8.84, $5.29 and $6.42,
respectively, under the 1994 Plan. The following tables summarize information
pertaining to stock options outstanding and exercisable at January 31, 1999:


1992 PLAN



                       NUMBER          WEIGHTED-AVERAGE      
   RANGE OF        OUTSTANDING AND   REMAINING CONTRACTUAL     WEIGHTED-AVERAGE
EXERCISE PRICES      EXERCISABLE         LIFE (YEARS)           EXERCISE PRICE
----------------   ----------------  ---------------------    ------------------
 $0.11 to $0.78        329,756                4                    $0.18
 $2.22 to $3.33        136,534                5                    $3.20
                      --------
 $0.11 to $3.33        466,290                4                    $1.07
                      --------


                                       28
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


1994 PLAN

<TABLE>
<CAPTION>
                                                                                          OPTIONS EXERCISABLE
                                                                                   ---------------------------------
                                            WEIGHTED-AVERAGE        WEIGHTED                             WEIGHTED
                                               REMAINING            AVERAGE                               AVERAGE
     RANGE OF              NUMBER           CONTRACTUAL LIFE        EXERCISE            NUMBER           EXERCISE
  EXERCISE PRICES       OUTSTANDING             (YEARS)              PRICE           EXERCISEABLE          PRICE
 ------------------    --------------      -------------------     ----------      ----------------     ------------
<S>                         <C>                     <C>              <C>                 <C>               <C>   
 $ 3.33 to $ 6.44           16,850                  6                $ 3.70              14,850            $ 3.33
 $ 6.88 to $ 9.33          156,000                  8                $ 8.05              62,667            $ 8.56
 $10.00 to $14.63          182,334                  8                $12.13             102,444            $11.21
 $15.25 to $21.63           52,500                  9                $18.10              14,834            $18.44
                       ------------                                                   --------           
  $3.33 to $21.63          407,684                  8                $11.19             194,795            $10.31
                       ============                                                   ========           
</TABLE>

      In fiscal 1994, the Company issued warrants to purchase 450,000 shares of
common stock to certain investors and a warrant to purchase 194,400 shares of
common stock to the Lessor in connection with a lease agreement for retail
space. Both of the warrants were exercisable at a price of $3.33 per share. The
Lessor exercised his warrants in May 1995. The remaining unexercised warrants
issued to the investors were exercised in full during fiscal year 1998.

      During fiscal 1996, the Company issued warrants to purchase 135,000 shares
of common stock to outside parties for $5.00 per share. The outside parties
exercised 45,000 shares in April 1996, and 90,000 shares in May 1997.

      No value was assigned to these warrants in the accompanying consolidated
financial statements as their value as of the valuation date was deemed to be de
minimis.

      The Non-Employee Directors Stock Option Plan adopted in fiscal 1997
permits the issuance of up to 120,000 shares of common stock to directors who
are not employees of the Company. Under this plan, 5,000 options to purchase
shares of common stock at the fair market value on the date of grant are granted
to each non-employee director annually. As of January 25, 1998 and January 31,
1999 options for 57,500 and 82,500 shares, respectively, had been granted to
non-employee directors under this Plan.


9. EMPLOYEE STOCK PURCHASE PLAN:

      In May 1996, the stockholders approved the Employee Stock Purchase Plan
(the "Stock Purchase Plan") and reserved 100,000 shares of common stock for
issuance thereunder. The plan permits full-time employees who meet certain
requirements to purchase common stock through payroll deductions (which cannot
exceed 10% of each employee's compensation) at 85% of the fair market value at
the end of each calendar quarter. The Plan became effective on January 1, 1997.
As of January 31, 1999, 57,651 shares remain available for future issuances
under the Stock Purchase Plan.

10.   COMMITMENTS AND CONTINGENCIES:

LEASES

      The Company leases its retail facilities pursuant to noncancelable
operating leases that expire at various dates through 2020. A number of the
leases have renewal options for various periods of time at the option of the
Company. Total rental expense included in the accompanying consolidated
financial statements for fiscal 1997, 1998 and 1999 is $12,530,000, $17,054,000
and $20,675,000, respectively.


                                       29
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



      The Company is responsible for taxes, utilities, insurance and repairs and
maintenance of each of the retail properties. Certain leases require the payment
of contingent rentals based on a specified percentage of a store's gross sales,
as defined and subject to certain limitations.

      Future minimum rentals required under the operating leases are as follows
(in thousands):

Fiscal year ending ---
    2000 .........................................       $ 24,916
    2001 .........................................         25,259
    2002 .........................................         24,628
    2003 .........................................         24,201
    2004 .........................................         24,240
    Thereafter ...................................        286,542
                                                         --------
                                                         $409,786
                                                         ========

INSURANCE

      The Company is fully insured for claims over certain deductible amounts.
The insurance provides for payment of accidental death and medical claims of
employees as specified within the policies. Historically, the Company has not
incurred any significant losses on workers' compensation or employee medical
insurance claims, and management believes the Company's reserves are sufficient
to cover the Company's liabilities for claims incurred.


LITIGATION

      The Company is involved in various legal proceedings incidental to the
conduct of its business. The Company currently is not engaged in any legal
proceedings that are expected to have a material adverse effect on the Company's
results of operations or financial position.


11.   RELATED-PARTY TRANSACTIONS:


FINANCIAL ADVISORY AND CONSULTING AGREEMENTS

      In July 1996, the Company entered into a five-year financial advisory
agreement with a stockholder. The agreement provides for an annual fee of
$50,000 and reimbursement of out-of-pocket expenses.


OTHER

      In fiscal 1997, 1998, and 1999, the Company paid approximately $996,024,
$455,484 and $1,313,288, respectively, to a supplier for the design,
construction and installation of its signs. The owner of the supplier is the
spouse of an officer of the Company.

      The Company believes the foregoing transactions were on terms at least as
favorable to the Company as those which could have been obtained elsewhere.


                                       30
<PAGE>
                    GARDEN RIDGE CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


12.  SUBSEQUENT EVENTS (UNAUDITED)

STOCK REPURCHASE

      Subsequent to fiscal year end, the Company's board of directors authorized
the repurchase of up to one million shares of the Company's common stock on the
open market through January 31, 2000. During March 1999, the company repurchased
one million shares at a cost of approximately $5.67 million. These shares will
be held in treasury for future use.


SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                     FISCAL QUARTER ENDED
                                                   ---------------------------------------------------------
                                                    APRIL 27,      JULY 27,      OCTOBER 26,     JANUARY 25,
                                                      1997          1997            1997            1998
                                                   ----------     ---------     ------------    ------------
<S>                                                <C>            <C>             <C>             <C>     
Sales ......................................       $ 59,493       $ 63,634        $ 71,122        $110,483
Gross profit ...............................         20,600         21,203          26,360          41,279
Income from operations .....................            355            799           1,492          13,747
Net income .................................            470            682           1,043           9,238
Net income per common share, diluted .......       $    .03       $    .04        $    .06        $    .50
Weighted average shares outstanding, diluted         18,355         18,473          18,521          18,548


                                                                     FISCAL QUARTER ENDED
                                                   ---------------------------------------------------------
                                                    APRIL 26,     JULY 26,       OCTOBER 25,     JANUARY 31,
                                                      1998          1998            1998            1999
                                                   ----------     ---------     ------------    ------------
Sales ......................................       $ 68,683       $ 69,585        $ 86,107        $140,367
Gross profit ...............................         24,291         23,734          31,390          52,886
Income (loss) from operations ..............          1,030           (240)         (1,694)         15,654
Net income (loss) ..........................          1,045            168          (1,004)         10,287
Net income (loss) per common share, diluted        $    .06       $    .01        $   (.05)       $    .56
Weighted average shares outstanding, diluted         18,625         18,626          18,507          18,493

</TABLE>


                                       31