<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark one)



[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

     For the quarterly period ended August 1, 1998

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

        For the transition period from _______________ to _______________


Commission file number 000-21543


                        WILSONS THE LEATHER EXPERTS INC.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            MINNESOTA                                    41-1839933
----------------------------------          -----------------------------------
 (State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                      Identification No.)

         7401 BOONE AVE. N., BROOKLYN PARK, MN            55428
 ------------------------------------------------------------------------------
        (Address of principal executive offices)        (Zip Code)

      Registrant's telephone number, including area code:  (612) 391-4000

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 [ ]

The number of shares outstanding of the Registrant's common stock as of August
19, 1998, was 10,825,017 shares.
<PAGE>
 
                        WILSONS THE LEATHER EXPERTS INC.
                                      INDEX


PART I - FINANCIAL INFORMATION                                              PAGE

     Item 1. Condensed Consolidated Financial Statements                       

             Consolidated Balance Sheets as of August 1, 1998
             and January 31, 1998                                              3

             Consolidated Statements of Operations for the quarters and
             six months ended August 1, 1998 and August 2, 1997                4

             Condensed Consolidated Statements of Cash Flows for the
             six months ended August 1, 1998 and August 2, 1997                6

             Notes to Condensed Consolidated Financial Statements              7


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

     Item 3. Quantitative and Qualitative Disclosures About Market Risk       15


PART II - OTHER INFORMATION

     Item 2. Changes in Securities and Use of Proceeds                        16

     Item 4. Submission of Matters to a Vote of Security Holders              16

     Item 6. Exhibits and Reports on Form 8-K                                 16

     Signature                                                                17

     Index to Exhibits                                                        18

                                       2
<PAGE>
 
                WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                                 AUGUST 1,    JANUARY 31,
               ASSETS                                              1998         1998
               ------                                            ---------    ----------
                                                                (UNAUDITED)
<S>                                                             <C>           <C>
CURRENT ASSETS:
  Cash and cash equivalents                                      $  42,287    $ 112,975
  Accounts receivable, net                                           8,982        7,010
  Inventories                                                      101,495       77,911
  Prepaid expenses                                                   1,567          835
                                                                 ---------    ---------
         Total current assets                                      154,331      198,731

Property and equipment, net                                         31,501       25,182
Other assets, net                                                    4,168        3,759
                                                                 ---------    ---------
         Total assets                                            $ 190,000    $ 227,672
                                                                 =========    =========


         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------

CURRENT LIABILITIES:
  Accounts payable                                               $  13,001    $  11,598
  Accrued expenses                                                  29,399       39,740
  Income taxes payable                                               1,287       22,418
  Deferred income taxes                                              5,462        4,770
                                                                 ---------    ---------
         Total current liabilities                                  49,149       78,526

Long-term debt                                                      75,000       75,000
Other long-term liabilities                                          2,318        1,494
                                                                 ---------    ---------

SHAREHOLDERS' EQUITY:
  Common stock, $.01 par value; 100,000,000 shares authorized,
    10,825,017 and 9,532,083 shares issued and outstanding on
    August 1, 1998 and January 31, 1998, respectively                  108           95
  Additional paid-in capital                                        55,135       37,850
  Retained earnings                                                  8,339       34,744
  Cumulative translation adjustment                                    (49)         (37)
                                                                 ---------    ---------
         Total shareholders' equity                                 63,533       72,652
                                                                 ---------    ---------
         Total liabilities and shareholders' equity              $ 190,000    $ 227,672
                                                                 =========    =========
</TABLE>
                 The accompanying notes are an integral part of
                       these consolidated balance sheets.

                                       3
<PAGE>
 
                WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


                                                              QUARTER ENDED   
                                                          --------------------
                                                          AUGUST 1,   AUGUST 2,
                                                            1998         1997
                                                          --------    --------
NET SALES                                                 $ 45,724    $ 36,471
                                                          
COSTS AND EXPENSES:                                       
   Cost of goods sold, buying and occupancy costs           41,304      36,957
   Selling, general and administrative expenses             20,906      17,293
   Depreciation and amortization                               969         505
   Restricted stock compensation expense                      --           450
                                                          --------    --------
         Loss from operations                              (17,455)    (18,734)
                                                          
INTEREST EXPENSE, NET                                        1,821       1,248
                                                          --------    --------
   Loss before income taxes                                (19,276)    (19,982)
                                                          
INCOME TAX BENEFIT                                          (7,398)     (7,401)
                                                          --------    --------
   Net loss                                               $(11,878)   $(12,581)
                                                          ========    ========
                                                          
                                                          
                                                          
BASIC NET LOSS PER COMMON SHARE                           $  (1.16)   $  (1.41)
                                                          ========    ========
                                                          
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                  10,240       8,928
                                                          ========    ========
                                                          
                                                          
DILUTED NET LOSS PER COMMON SHARE                         $  (1.16)   $  (1.41)
                                                          ========    ========
                                                          
WEIGHTED AVERAGE COMMON SHARES                            
OUTSTANDING - ASSUMING DILUTION                             10,240       8,928
                                                          ========    ========
                                                       
 
              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       4
<PAGE>
 
                WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


                                                         SIX MONTHS ENDED
                                                     ------------------------
                                                     AUGUST 1,      AUGUST 2,
                                                       1998           1997
                                                     ---------      ---------
NET SALES                                            $ 113,735      $  93,422

COSTS AND EXPENSES:
  Cost of goods sold, buying and occupancy costs        92,745         84,222
  Selling, general and administrative expenses          42,852         36,491
  Depreciation and amortization                          1,722            942
  Restricted stock compensation expense                   --              900
                                                     ---------      ---------
         Loss from operations                          (23,584)       (29,133)

INTEREST EXPENSE, NET                                    2,972          1,919
                                                     ---------      ---------

         Loss before income taxes                      (26,556)       (31,052)

INCOME TAX BENEFIT                                     (10,141)       (11,208)
                                                     ---------      ---------
         Net loss                                    $ (16,415)     $ (19,844)
                                                     =========      =========



BASIC NET LOSS PER COMMON SHARE                      $   (1.66)     $   (2.39)
                                                     =========      =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING               9,886          8,289
                                                     =========      =========

DILUTED NET LOSS PER COMMON SHARE                    $   (1.66)     $   (2.39)
                                                     =========      =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - ASSUMING DILUTION                          9,886          8,289
                                                     =========      =========

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

                                       5
<PAGE>
 
                WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           SIX MONTHS ENDED
                                                                       ------------------------        
                                                                        AUGUST 1,      AUGUST 2,
                                                                          1998           1997
                                                                       ---------      ---------
<S>                                                                    <C>            <C>
OPERATING ACTIVITIES:
  Net loss                                                             $ (16,415)     $ (19,844)

  Adjustments to reconcile net loss to net cash used in
    operating activities-
    Depreciation and amortization                                          1,722            942
    Amortization of deferred financing costs                                 569            333
    Restricted stock compensation expense                                   --              900
    Loss on disposal of assets                                               168           --
    Deferred income taxes                                                  1,238          1,688
    Changes in operating assets and liabilities, net of
     assets and liabilities acquired:
       Accounts receivable, net                                           (1,972)        (2,640)
       Inventories                                                       (20,484)       (22,258)
       Prepaid expenses                                                     (884)           612
       Accounts payable and accrued expenses                              (8,838)        (4,197)
       Income taxes payable and other liabilities                        (20,722)       (17,015)
                                                                       ---------      ---------

         Net cash used in operating activities                           (65,618)       (61,479)
                                                                       ---------      ---------

INVESTING ACTIVITIES:
  Additions to property and equipment                                     (7,215)        (2,562)
  Acquisition, net of cash acquired                                       (5,128)          --
                                                                       ---------      ---------

         Net cash used in investing activities                           (12,343)        (2,562)
                                                                       ---------      ---------

FINANCING ACTIVITIES:
  Proceeds from sale of common stock and exercise
    of redeemable warrants                                                17,166          9,452
  Repurchase of CVS warrant                                               (9,990)          --
  Change in book overdrafts                                                   97         (2,873)
                                                                       ---------      ---------

         Net cash provided by financing activities                         7,273          6,579
                                                                       ---------      ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                (70,688)       (57,462)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                           112,975         81,553
                                                                       ---------      ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD                               $  42,287      $  24,091
                                                                       =========      =========
</TABLE>

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

                                       6
<PAGE>
 
                WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   NATURE OF ORGANIZATION:

     Wilsons, incorporated in Minnesota in 1996, is the leading specialty
retailer of men's and women's leather outerwear, apparel and accessories in the
United States. As of August 1, 1998, the Company operated 503 retail stores
located in 44 states, Canada and England, including 438 mall-based stores, 25
airport locations and 40 factory outlet stores. The Company's mall-based stores
offer a full range of its leather merchandise while the less seasonal airport
and factory outlet stores offer primarily accessories. The Company regularly
supplements its mall-based operations with seasonal holiday stores during its
peak selling period from October through December and operated 197 of these
stores in 1997.


2.   BASIS OF FINANCIAL STATEMENT PRESENTATION:

     The consolidated financial statements of the Company include all accounts
of Wilsons The Leather Experts Inc. and its wholly owned subsidiaries. All
intercompany balances and transactions between the entities have been eliminated
in consolidation.

     The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the accompanying disclosures are
adequate to make the information presented not misleading, it is recommended
that these interim financial statements be read in conjunction with the
Company's most recent audited financial statements and related notes included in
its 1997 Annual Report on Form 10-K. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been made. The Company's business
is highly seasonal, and accordingly, interim operating results are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 30, 1999.

3.   INVENTORIES:

     Inventories, principally finished goods, consist of merchandise purchased
from domestic and foreign vendors and are carried at the lower of cost or market
value, determined by the retail inventory method on the last-in, first-out
(LIFO) basis. Quarterly inventory determinations under LIFO are partially based
on assumptions as to inventory levels at the end of the fiscal year, sales

                                       7

<PAGE>
 
and the projected rate of inflation for the year. If the first in, first out
(FIFO) method of accounting had been used by the Company, inventories at 
August 1, 1998, would have been $0.6 million higher than reported. The LIFO 
provision included in inventory was zero at August 2, 1997.

4.   NET LOSS PER COMMON SHARE:

     In the fiscal year ended January 31, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share," which
requires disclosure of basic earnings per share (EPS) and diluted EPS, which
replaced primary EPS and fully diluted EPS, as defined by Accounting Principles
Board (APB) Opinion No. 15. Basic EPS is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS is computed similarly to EPS as previously reported under APB No. 15
provided that, when applying the treasury stock method to common equivalent
shares, the Company must use its average share price for the period rather than
the more dilutive greater of the average share price or end-of-period share
price. In addition, under SFAS No. 128, common stock equivalents are excluded
from weighted average common shares outstanding, when computing diluted EPS, if
the effect is antidilutive. In accordance with SFAS No. 128, EPS for the quarter
and six months ended August 2, 1997 have been restated.

5.   ACQUISITION OF WALLET WORKS:

     On May 13, 1998, the Company acquired certain assets of 40 Wallet Works,
Inc. stores for $5.1 million. The transaction was accounted for under the
purchase method of accounting.

6.   REDEMPTION OF COMMON STOCK PURCHASE WARRANTS:

     On June 16, 1998, the Company completed the redemption of its outstanding
redeemable common stock purchase warrants that were issued in the Company's
initial public offering. The net proceeds received by the Company from warrant
exercises prompted by such redemption, after deducting costs and expenses, were
$17.0 million.

7.   NEW ACCOUNTING PRONOUNCEMENT:

     SFAS No. 130, "Reporting Comprehensive Income" effective beginning in 
1998, establishes standards of disclosure and financial statement display for
reporting total comprehensive income and the individual components thereof. The
Company adopted SFAS No. 130 during 1998. Comprehensive income is not materially
different than net income as reported.
















                                       8
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion of the financial condition and results of
operations of Wilsons The Leather Experts Inc. and its wholly owned subsidiaries
(Wilsons or the Company) should be read in conjunction with the Company's most
recent audited financial statements and related notes included in its 1997
Annual Report on Form 10-K.

OVERVIEW

     Wilsons The Leather Experts is the leading specialty retailer of men's and
women's leather outerwear, apparel and accessories in the United States. The
Company operates 503 retail stores in 44 states, Canada and England, including
438 mall-based stores, 25 airport locations and 40 factory outlet stores. The
Company also operates holiday stores, numbering 197 in 1997, to better
capitalize on its peak selling season. Wilsons' mall-based stores average
approximately 2,000 square feet in size and feature merchandise tailored to the
demographics and buying patterns of each store's local customer base.

     The Company's business is highly seasonal and, accordingly, operating
results for the interim periods described below are not necessarily indicative
of the results that may be expected for a full fiscal year. A majority of the
Company's net sales and operating profit is generated in the peak selling season
from October through December, which includes the holiday selling season.
Wilsons recorded 58.5% of its sales for the fiscal year ended January 31, 1998
during the peak-selling season. As a result, the Company's annual operating
results have been, and will continue to be, heavily dependent on the results of
its peak selling season. Net sales are generally lowest during the period from
April through July, and the Company historically has not become profitable, if
at all, until the fourth quarter of a given fiscal year.

     The Company does not believe that inflation has had a material adverse
effect on the results of operations for the periods presented; however, there
can be no assurance that the Company's business will not be affected by
inflation in the future.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED AUGUST 1, 1998 COMPARED TO THE
QUARTER ENDED AUGUST 2, 1997

     Wilsons acquired 40 stores and opened 12 stores in the quarter ended
August 1, 1998 compared to one store opening during the same quarter last year.
On May 13, 1998, Wilsons acquired 40 Wallet Works, Inc. stores (see Note 5 in
the Notes to the Condensed Consolidated Financial Statements). Included in the
12 stores opened in the second quarter of 1998 are two stores located in the
Lester B. Pearson airport in Toronto, Canada and one store located in Heathrow
airport in London, England. As of August 1, 1998, Wilsons operated 503 stores
compared to 452 stores at August 2, 1997.

                                       9
<PAGE>
 
     Sales for the quarter ended August 1, 1998, were $45.7 million, an increase
of $9.2 million or 25.2% from $36.5 million one year ago. Comparable store sales
increased 9.3% for the quarter. The men's division had a strong pre-season
special order promotion while accessories had successful Mother's Day and
Father's Day events. Wallet Works, purchased by the Company on May 13, 1998,
generated sales of $3.5 million for the quarter.

     Cost of goods sold, buying and occupancy costs for the second quarter of
1998 were $41.3 million, or 90.3% of sales, compared to $37.0 million, or 101.3%
of sales, for the same period a year ago. Gross profit net of occupancy costs
increased 4.2 points for the quarter as a percent of sales as compared to last
year due primarily to year-to-date comparable store sales which reduced the need
for markdowns to drive merchandise sales. Occupancy costs decreased 6.8 points
as a percent of sales, as comparable store sales increased 9.3% while occupancy
expenses were flat compared to last year. The Company's inventories are valued
under the retail inventory method on the last-in, first-out (LIFO) basis. The
LIFO provision, included in cost of sales, was $0.2 million for the quarter
ended August 1, 1998, while a LIFO provision was not required for the second
quarter of 1997 (see Note 3 in the Notes to the Condensed Consolidated
Financial Statements).

     Selling, general and administrative expenses for the second quarter of 1998
were $20.9 million, or 45.7% of sales, compared to $17.3 million, or 47.4% of
sales, for the same period last year. The 1.7 points as a percent of sales
improvement in the selling, general and administrative expense rate is largely
due to increased store productivity, as the increase in sales more than offset
the related increase in store expenses.

     Depreciation and amortization expense for the second quarter of 1998 was
$1.0 million, or 2.1% of sales, compared to $0.5 million, or 1.4% of sales, last
year. The increase in depreciation and amortization resulted from capital
expenditures for the renovation of and improvements to existing stores and
construction of new stores.

     Included in cost and expenses in the quarter ended August 2, 1997 was a
$0.5 million charge associated with the vesting of restricted stock (Restricted
Stock) purchased by certain managers of the Company in connection with the
management-led buy-out of the Company (Management Buyout) from CVS New York,
Inc. (CVS). The Company did not incur any restricted stock compensation in the
quarter ended August 1, 1998 as all remaining Restricted Stock vested in the
third quarter of 1997.

     Wilsons had a loss from operations of $17.5 million for the quarter ended
August 1, 1998, compared to a loss from operations of $18.7 million for the
quarter ended August 2, 1997.

     Net interest expense for the second quarter of 1998 was $1.8 million, or
4.0% of sales, compared to $1.2 million, or 3.4% of sales, for the second
quarter of 1997. The increase in net interest expense is due to an increase in
the average amount of long-term debt outstanding, higher interest rates on the
long-term debt and additional deferred financing cost amortization related to
the issuance of $75 million of 11 1/4% senior notes due 2004 (Senior Notes)
partially offset by an increase in interest income.

                                       10
<PAGE>
 
     Income tax benefit for the second quarter of 1998 was $7.4 million, or
16.2% of sales, compared to a $7.4 million income tax benefit, or 20.3% of
sales, last year. The effective tax rate increased in 1998 to a 38.4% tax rate
from a 37.0% tax rate in 1997 due primarily to the non-deductibility of the $0.5
million restricted stock compensation expense in the second quarter of 1997.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 1, 1998 COMPARED TO THE
SIX MONTHS ENDED AUGUST 2, 1997

     Wilsons opened 13 stores, acquired 40 stores and closed 12 stores in the
six months ended August 1, 1998, compared to one store opening and 10 store
closings in the six months ended August 2, 1997. Included in the 13 stores
opened in 1998 are two stores located in Lester B. Pearson airport in Toronto,
Canada and one store located in Heathrow airport in London, England. On May 13,
1998, Wilsons acquired 40 Wallet Works stores. As of August 1, 1998, Wilsons
operated 503 stores compared to 452 stores as of August 2, 1997.
 
     Sales for the six months ended August 1, 1998 were $113.7 million compared
to $93.4 million for the six months ended August 2, 1997, an increase of $20.3
million, or 21.7%. Comparable store sales increased 15.5% driven by strong sales
of men's, juniors and accessory products. Of this $20.3 million increase, $14.0
million was attributable to comparable store sales increases, $3.5 million was
attributable to the inclusion of Wallet Works for a portion of the period and
$2.8 million was attributable to net new store openings, primarily new airport
stores.
 
     Cost of goods sold, buying and occupancy costs for the six months ended
August 1, 1998 were $92.7 million, or 81.5% of sales, compared to $84.2 million,
or 90.2% of sales, for the six months ended August 2, 1997. As a percent of
sales, gross profit net of occupancy costs increased 3.9% for the six months as
compared to the period one year ago due primarily to decreased markdowns
resulting from strong merchandise sales associated with the 15.5% comparable
store sales increase. For the 1998 period, occupancy costs as a percent of sales
decreased 4.8%, as strong sales increases leveraged occupancy expenses that were
flat compared to last year.
 
     Selling, general and administrative expenses for the six months ended
August 1, 1998 were $42.9 million, or 37.7% of sales, compared to $36.5 million,
or 39.1% of sales, for the six months ended August 2, 1997. The reduction in the
selling, general and administrative expenses as a percent of sales was largely
due to increased store productivity and better leveraging of corporate operating
expenses.
 
     Depreciation and amortization expense for the six months ended August 1,
1998 was $1.7 million, or 1.5% of sales, compared to $0.9 million, or 1.0% of
sales, for the six months ended August 2, 1997. The increase in depreciation and
amortization resulted from capital expenditures for the renovation of and
improvements to existing stores and the construction of new stores.
 
     Included in costs and expenses in the 1997 period was a $0.9 million
noncash compensation charge associated with the vesting of the Restricted Stock.
The Company did not incur any restricted stock compensation in the six months
ended August 1, 1998 as all remaining Restricted Stock vested in the third
quarter of 1997.
 
     Wilsons had a loss from operations of $23.6 million for the six months
ended August 1, 1998, compared to a loss from operations of $29.1 million for
the six months ended August 2, 1997.
 
     Net interest expense for the six months ended August 1, 1998 was $3.0
million, or 2.6% of sales, compared to $1.9 million, or 2.1% of sales, for the
six months ended August 2, 1997. The increase in net interest expense was due to
an increase in the average amount of long-term debt outstanding, higher interest
rates on the long-term debt and additional deferred financing cost amortization
related to the issuance of the Senior Notes. This increase was partially offset
by an increase in interest income.
 
     Income tax benefit for the six months ended August 1, 1998 was $10.1
million, or 8.9% of sales, compared to an $11.2 million income tax benefit, or
12.0% of sales, for the six months ended August 2, 1997. The effective tax
benefit rate in 1998 increased to a 38.2% tax rate from a 36.1% tax rate in 1997
due primarily to the nondeductibility of the $0.9 million restricted stock
compensation charge incurred in 1997.
 
                                      11
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     Wilsons' capital requirements are primarily driven by the Company's
seasonal working capital needs, and its strategy to open new stores, remodel
existing stores and update information systems. The Company's peak working
capital needs typically occur during the period from August through early
December as inventory levels are increased in advance of the Company's peak
selling season from October through December. 

     General Electric Capital Corporation and a syndicate of banks have
provided the Company with a senior credit facility that expires in May 1999
(Senior Credit Facility). The Senior Credit Facility provides for borrowings of
up to $150.0 million in aggregate principal amount, which amount includes a
letter of credit subfacility of up to $90.0 million. The maximum amount
available under the Senior Credit Facility, however, is further subject to a
borrowing base limitation (less certain reserves) of 65.0% of eligible
inventory. The Company's borrowing availability is also reduced by outstanding
letters of credit. Interest is payable on borrowings at one or more variable
rates determined by reference to the "prime" rate plus 0.25% ("prime" plus 0.0%
for the first $10.0 million of borrowings) or LIBOR plus 1.75%. The spreads are
subject to possible changes based upon the Company's financial results. As of
August 1, 1998, the Company had no borrowings under the Senior Credit Facility
and $43.0 million of outstanding letters of credit. The Company pays a monthly
fee equal to 0.375% per annum on the unused amount of the Senior Credit Facility
and on that portion of the first $10.0 million in borrowings that bears interest
at prime plus a spread. For letters of credit, the Company pays a monthly fee in
an amount equal to 1.25% per annum times the daily average of the amount of
letters of credit outstanding during each month, which percentage is subject to
possible changes based on the Company's financial results. The Senior Credit
Facility contains certain covenants limiting, among other things, the Company's
ability to make capital expenditures, pay cash dividends or make other
distributions. The Company plans to use the Senior Credit Facility for its
immediate and future working capital needs, including capital expenditures. For
1997, the peak borrowings and letters of credit outstanding under the Senior
Credit Facility were $30.8 million and $51.9 million, respectively. For 1997,
the average amounts of borrowings and the average amounts covered by outstanding
letters of credit were $3.6 million and $28.1 million, respectively. The Company
is dependent on the Senior Credit Facility to fund working capital and letter of
credit needs, and management believes that borrowing capacity under the Senior
Credit Facility, together with current and anticipated cash flow
 
 
                                       12
<PAGE>

from operations, the remaining net proceeds from the exercise of the Company's
redeemable common stock purchase warrants and proceeds from the Offering
(defined below) should be adequate to meet the Company's anticipated working
capital and capital expenditure requirements until the Senior Credit Facility
expires in 1999, when the Company expects to extend or replace such facility.
 
     On March 27, 1998, Wilsons repurchased and simultaneously cancelled a
warrant (CVS Warrant) previously issued to CVS for $10.0 million in cash. The
CVS Warrant had been issued to CVS in connection with the Management Buyout and
gave CVS the right to purchase a total of 1,350,000 shares of the Company's
Common Stock.

    On May 13, 1998, the Company acquired certain assets of Wallet Works, Inc.
for a purchase price of $5.1 million. The purchase will enable the Company to
expand its leather accessories business into factory outlet malls, a new
distribution channel for the Company. (See Note 5 of Notes to Condensed 
Consolidated Financial Statements).
 
     On June 16, 1998, the Company completed the redemption of its outstanding
redeemable common stock purchase warrants that were issued in the Company's
initial public offering on May 27, 1997 (Initial Public Offering). The net
proceeds received by the Company from the exercise of such warrants prompted by
such warrant redemption, after deducting costs and expenses, were approximately
$17.0 million.
 
     On August 20, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for a public offering of 2,000,000 shares of
Common Stock by the Company (Offering). The underwriters of the Offering have
been granted a 30-day option to purchase up to an additional 300,000 shares of
Common Stock from selling shareholders for the purpose of covering over-
allotments. The Company plans to use approximately $20.9 million, a majority of
the net proceeds from the Offering, to redeem a portion of the principal amount
of the Senior Notes and to pay the redemption premium thereon. The remaining net
proceeds will be used for general corporate purposes, including seasonal working
capital needs.


CASH FLOW ANALYSIS

     Operating activities for the six months ended August 1, 1998 resulted in 
cash used of $65.6 million. The cash used was primarily the result of the net 
loss of $16.4 million, the $29.6 million seasonal decrease in accounts payable, 
accrued expenses, income taxes payable and other liabilities and the $22.5 
million seasonal increase in inventories and accounts receivable. The Company 
used $61.5 million for the six months ended August 2, 1997. The cash used in 
1997 was primarily the result of the net loss of $19.8 million, the $21.2 
million seasonal decrease in accounts payable, accrued expenses, income taxes 
payable and other liabilities and the $24.9 million seasonal increase in 
inventories and accounts receivable.
                                       13
<PAGE>
 
     Changes in certain balance sheet accounts between January 31, 1998 and
August 1, 1998 reflect normal seasonal variations within the retail industry.
The level of cash and cash equivalents, inventories, accounts receivable,
accounts payable and certain accrued liabilities fluctuate due to the seasonal
nature of the working capital needs of the Company.

     Investing activity for the six months ended August 1, 1998 totaled $12.3
million, comprised of capital expenditures of $7.2 million and the purchase of
Wallet Works for $5.1 million. The capital expenditures were primarily for the
renovation of and improvements to existing stores and the construction of new
stores. Capital expenditures for the same period last year were $2.6 million.

     Cash provided by financing activities for the six months ended August 1,
1998 was $7.3 million. The $7.3 million provided by financing activities was
primarily the result of the $17.0 million net proceeds received by the Company
from the exercise of the common stock redeemable purchase warrants offset by
the $10.0 million used to repurchase the warrant issued to CVS. Financing
activities for the first six months of 1997 provided $6.6 million of cash,
including $9.5 million of proceeds from the Company's Initial Public Offering
offset by a $2.9 million decrease in book overdrafts which occur as outstanding
checks exceed funds on deposit in noninvestment accounts.

     Except for historical information, matters discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements that involve risks and uncertainties, and actual
results may be materially different. Because actual results may differ, readers
are cautioned not to place undue reliance on forward-looking statements. Factors
that could cause actual results to differ include: changing fashion trends and
consumer preferences; adverse economic conditions and consumer shopping
patterns; seasonality of business; risks of foreign sourcing and international
business; effect of year 2000 on information systems; risks associated with
future growth; loss of key personnel; high levels of Company debt and
restrictions imposed by lenders and indenture; competition in the retail
industry; price and availability of raw material; availability of personnel;
and possible volatility of stock price.

                                       14

<PAGE>
 
EFFECT OF YEAR 2000 ON INFORMATION SYSTEMS
 
  Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming century change in the year 2000. Moreover, these
programs often are highly dependent upon historical or dynamic financial and
other data that, based on the programs' inability to distinguish between the
year 2000 and other century-end years, could be misreported or misinterpreted
and cause significant resulting errors. If not corrected, many computer
applications could fail when processing year 2000 data.
 
  The Company is assessing the impact of the year 2000 issue and has or
intends to modify or replace portions of its hardware and software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has also had discussions with its significant
suppliers to determine the readiness of those suppliers to correct year 2000
issues where their systems and products interface with the Company's systems
or otherwise impact its operations. The Company is assessing the extent to
which its operations are vulnerable should those suppliers fail to properly
remedy their computer systems. The Company believes that its actions with key
suppliers will minimize these risks. The scope of the year 2000 readiness
effort includes (i) information technology such as software and hardware, (ii)
non-information systems or embedded technology such as microcontrollers
contained in various equipment, safety systems, facilities and utilities and
(iii) readiness of key third-party suppliers. If needed modifications and
conversions are not made on a timely basis, the year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations.

  The cost to the Company to identify and correct year 2000 issues is
estimated to be $1.5 million, although there can be no assurance that the
expenditures will not be significantly higher. As of August 1, 1998, the
Company had expensed incremental costs of $0.1 million related to the year
2000 issue. The total remaining incremental costs are estimated to be $1.4
million. The Company is expensing as incurred all costs related to the
assessment and correction of the year 2000 issue. These costs are being funded
through operating cash flows. The Company's total cost for the year 2000 issue
includes estimated costs of and time associated with interfacing with third
parties. The Company's current estimates of the amount of time and costs
necessary to modify and test its computer systems are based upon assumptions
regarding future events, including the continued availability of certain
resources, year 2000 modification plans and other factors. New developments
may occur that could affect the Company's estimates of the amount of time and
costs necessary to modify and test its systems for year 2000 compliance. These
developments include, but are not limited to (i) the availability and cost of
personnel trained in this area, (ii) the ability to locate and correct all
relevant computer codes and equipment and (iii) the year 2000 compliance
success that key suppliers attain.
 
  While the Company believes its planning efforts are adequate to address its
year 2000 concerns, the year 2000 readiness of the Company's suppliers and
business partners may lag behind the Company's efforts. Although the Company
does not believe that the year 2000 matters discussed above will have a
material impact on its business, financial condition and results of
operations, it is uncertain as to what extent the Company may be affected by
such matters.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not Applicable.

                                       15
<PAGE>
 
PART II - OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          See "Management's Discussion and Analysis of Financial Condition and
          Results of Operations - Liquidity and Capital Resources" in Part I.,
          Item 2., of the document for a description of limitations upon the
          payment of dividends.


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

     At the Company's 1998 Annual Meeting of Shareholders held on June 16, 1998,
the shareholders approved the following:

(a)  The election of directors. Each nominated director was elected as follows:

Director-Nominee                         Votes For            Votes Withheld
----------------                        -----------           --------------
Lyle Berman                             8,896,127.9                5,300
Thomas J. Brosig                        8,896,127.9                5,300
Morris Goldfarb                         8,896,127.9                5,300
David L. Rogers                         8,896,127.9                5,300
Joel N. Waller                          8,896,127.9                5,300

(b)  Approval and adoption of the Amended and Restated Articles of 
     Incorporation of the Company.

     The proposal received 8,327,239.9 votes for and 47,700 votes against.
     There were no abstentions and 526,488 broker non-votes.

(c)  Ratification of the appointment of Arthur Andersen LLP as the Independent
     Public Accountants of the Company for the fiscal year ending January 30,
     1999.

     The proposal received 8,897,527.9 votes for and 200 votes against. There
     were 3,700 abstentions and 0 broker non-votes.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

       A. Exhibits

          Exhibit      Description
          -------      -----------

             3.1       Amended and Restated Articles of Incorporation of the 
                       Company adopted June 16, 1998.(1)

             3.2       Restated By-laws of the Company as amended June 16,
                       1998.(1)

            10.1       Consent to Credit Agreement dated March 27, 1998.

            10.2       Consent and Amendment to Credit Agreement dated
                       May 6, 1998.

            11.1       Computation of per share loss.

            21.1       Subsidiaries of the Company.(1)

            27.1       Financial Data Schedule.(1)

            27.2       Restated Financial Data Schedule for
                       the Quarter Ended August 2, 1997.(1)
       -------------
            (1)  Incorporated by reference to the same-numbered exhibit to the 
                 Company's Registration Statement on Form S-3 (333-61915) filed
                 with the Commission on August 20, 1998.


       B. Exhibits and Reports on Form 8-K: The Company did not file 
          any reports on Form 8-K during the second quarter ended 
          August 1, 1998.

                                       16
<PAGE>
 
                                    SIGNATURE

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



WILSONS THE LEATHER EXPERTS INC.


By:    /s/ Douglas J. Treff
      ---------------------------------
      Douglas J. Treff
      Vice President, Finance,
      Chief Financial Officer, and
      Assistant Secretary


Date: August 20, 1998
      ---------------------------------

















                                       17
<PAGE>
 
                                INDEX TO EXHIBITS

Exhibit
  No.                    Description                      Method of Filing
-------                  -----------                      ----------------
  3.1        Amended and Restated Articles of
             Incorporation of the Company adopted
             June 16, 1998 (1) ........................Incorporated by reference

  3.2        Restated By-laws of the Company
             as amended June 16, 1998 (1) .............Incorporated by reference

 10.1        Consent to Credit Agreement dated
             March 27, 1998 ...........................Electronic Transmission

 10.2        Consent and Amendment to Credit
             Agreement dated May 6, 1998 ..............Electronic Transmission

 11.1        Computation of per share loss ............Electronic Transmission

 21.1        Subsidiaries of the Company (1) ..........Incorporated by reference

 27.1        Financial Data Schedule (1) ..............Incorporated by reference

 27.2        Restated Financial Data Schedule for
             the Quarter Ended August 2, 1997 (1) .....Incorporated by reference

----------
(1)  Incorporated by reference to the same-numbered exhibit to the Company's
     Registration Statement on Form S-3 (333-61915) filed with the Commission
     on August 20, 1998.

                                      18