UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ~~_________FORM 10-K~~

~~[X]~~ FORM ~~ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~10-K

for the fiscal year ended February 1, 2003 OR

x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended January 31, 2004

OR

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

for the transition period from ______to______

[ Commission ]File ~~TRANSITION~~No. ~~REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~000-32911

~~for the transition period from ______to______~~ ~~Commission File No. 000-32911~~ Galyan’s Trading Company, Inc. (Exact name of registrant as specified in its charter)

Indiana	~~35-1529720~~	35-1529720
(State or other jurisdiction	(I.R.S. Employer
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
of incorporation or organization)	Identification No.)

~~2437~~One ~~East~~Galyans ~~Main Street~~Parkway, Plainfield, Indiana 46168 Telephone Number (317) 612-2000 ~~Securities registered pursuant to Section 12(b) of the Act: Title of class Common Stock (no par value) Securities registered pursuant to Section 12(g) of the Act: None~~

~~Indicate by~~Securities ~~check~~registered ~~mark~~pursuant ~~whether the registrant (1) has filed all reports required~~ to be ~~filed by~~ Section ~~13 or 15~~12(db) 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~~Title ~~check mark if disclosure~~ of ~~delinquent~~class ~~filers~~Common ~~pursuant~~Stock to(no ~~Item~~par 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. value)

~~Indicate~~ bySecurities ~~check~~registered ~~mark~~pursuant ~~whether~~to ~~the registrant is an accelerated filer~~ Section 12(asg) of ~~defined~~the ~~in Exchange~~ Act ~~Rule 12b-2). Yes X No~~ : None

~~This~~ ~~document~~ Indicate ~~contains~~by ~~statements~~check ~~about~~mark ~~expected~~whether ~~future~~the ~~events~~registrant ~~and~~(1) has ~~financial~~filed ~~results that~~all ~~are~~reports ~~forward-looking~~required ~~and~~to ~~subject~~be tofiled ~~risks~~by ~~and~~Section 13 ~~uncertainties.~~or ~~Please~~15(d) of ~~refer~~the ~~to pages~~Securities ~~32-38~~Exchange Act of ~~Form~~1934 during the preceding 12 ~~10-K~~months (or for asuch ~~discussion~~shorter ofperiod ~~factors~~ that ~~could~~the ~~cause actual~~registrant ~~results~~was required to ~~differ~~file ~~from~~such ~~expectations.~~reports), and (2) has been subject to such filing requirements for the past 90 days.

~~The aggregate~~Yes ~~market~~x ~~value~~No of voting stock held by non-affiliates of the registrant was approximately $76,290,358 as of August 2, 2002 based upon the closing price of the registrant’s common stock on the Nasdaq National Market reported for August 2, 2002. The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $81,773,710 as of March 27, 2003 based upon the closing price of the registrant’s common stock on the Nasdaq National Market reported for March 27, 2003. Shares of voting stock held by each executive officer and director and by each person who, as of such date, may be deemed to have beneficially owned more than 5% of the outstanding voting stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose. o

~~17,085,716~~ ~~shares~~ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s ~~common~~knowledge, ~~stock~~in ~~were~~definitive ~~outstanding~~proxy onor ~~March~~information ~~27,~~statements ~~2003.~~incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes x

No o

This document contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please refer to pages 37-44 of Form 10-K for a discussion of factors that could cause actual results to differ from expectations.

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $80,823,089 as of August 1, 2003 based upon the closing price of the registrant’s common stock on the Nasdaq National Market reported for August 1, 2003. Shares of voting stock held by each executive officer and director and by each person who, as of such date, may be deemed to have beneficially owned more than 5% of the outstanding voting stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.

17,362,368 shares of the registrant’s common stock were outstanding on March 19, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

~~Part~~ Part III of this Form 10-K incorporates certain information from the Registrant’s definitive proxy statement for its Annual Meeting of Shareholders to be held on May 1521, ~~2003~~2004 (the “~~2003~~2004 Proxy Statement”).

1TABLE OF CONTENTS

Item	Description	Page

	PART I
1.	Business	3
2.	Properties	14
3.	Legal Proceedings	17
4.	Submission of Matters to a Vote of Security Holders	17

	PART II
5.	Market for Registrant’s Common Stock and Related Stockholder Matters	18
6.	Selected Financial Data	19
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
7A.	Quantitative and Qualitative Disclosures about Market Risk	44
8.	Financial Statements and Supplementary Data	44
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
9A.	Controls and Procedures	45

	PART III
10.	Directors and Executive Officers of the Registrant	45
11.	Executive Compensation	45
12.	Security Ownership of Certain Beneficial Owners and Management and Related Matters	45
13.	Certain Relationships and Related Transactions	45
14.	Principal Accounting Fees and Services	46

	PART IV
15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	46

Item	Description	Page
	PART I
1.	Business	3
2.	Properties	12
3.	Legal Proceedings	14
4.	Submission of Matters to a Vote of Security Holders	14
	PART II
5.	Market for Registrant's Common Equity and Related Stockholder Matters	14
6.	Selected Financial Data	16
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
7A.	Quantitative and Qualitative Disclosures about Market Risk	38
8.	Financial Statements and Supplementary Data	39
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	39
	PART III
10.	Directors and Executive Officers of the Registrant	39
11.	Executive Compensation	39
12.	Security Ownership of Certain Beneficial Owners and Management and Related Matters	39
13.	Certain Relationships and Related Transactions	39
14.	Controls and Procedures	39
	PART IV
15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	40

2 PART I

~~PART~~ Forward-Looking I Statements

~~Forward~~ We caution that any forward-~~Looking~~looking ~~Statements~~statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained or incorporated by reference in this Form 10-K or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are subject to risks and uncertainties, including those described at the end of Item 7 of this Report. If any of these risks or uncertainties actually occur, our business, financial condition or operating results could be materially and adversely affected, and the trading price of our common stock could decline. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained or incorporated by reference in this Form 10-K or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are subject to risks and uncertainties, including those described at the end of Item ~~7 of this Report~~1. If any of these risks or uncertainties actually occur, our business, financial condition or operating results could be materially and adversely affected, and the trading price of our common stock could decline. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. BUSINESS

~~Item 1. BUSINESS~~ General

~~General~~ Galyan’s Trading Company, Inc. (referred to herein as the “Company” or in the first person notations “we”, “us” and “our”) is a specialty retailer that offers a broad range of outdoor and athletic equipment, apparel, footwear and accessories, as well as casual apparel and footwear. Our store format and our merchandising strategy are targeted to appeal to consumers with active lifestyles, from the casual consumer to the avid sports enthusiast. We currently operate 45 stores in 21 states, including two stores that we opened after the end of fiscal 2003. We operate on a 52 or 53 week fiscal year ending on the Saturday closest to January 31. Our 2003 fiscal year (52 weeks) ended on January 31, 2004. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 hereof.

~~Galyan’s~~ ~~Trading~~ We ~~Company,~~commenced ~~Inc.~~business ~~(referred~~more tothan ~~herein~~40 asyears ago when the ~~“Company”~~Galyan orfamily opened its first outdoor store in the ~~first~~ ~~person~~greater ~~notations~~Indianapolis ~~“we”~~market, ~~“us”~~ and “our”) iscurrent ~~a specialty~~corporate ~~retailer~~entity ~~that~~was ~~offers~~organized ain ~~broad~~Indiana ~~range~~in of1980. ~~outdoor~~Limited ~~and athletic equipment~~Brands, ~~apparel,~~ ~~footwear~~Inc. ~~and~~(formerly ~~accessories,~~known as ~~well~~The asLimited, ~~casual apparel and footwear~~Inc. ~~Our store format~~ and ~~our~~hereafter, ~~merchandising~~“Limited ~~strategy~~Brands”) ~~are~~purchased ~~targeted~~all toof ~~appeal~~our tostock ~~consumers with active lifestyles,~~ from the ~~casual~~Galyan ~~consumer~~family ~~to the serious sports enthusiast. We currently operate 36 stores~~ in ~~17 states~~1995, ~~including~~and ~~two~~FS ~~stores that~~Equity wePartners ~~opened~~IV, inL.P. ~~March 2003~~ (~~after~~hereafter, ~~the~~“Freeman ~~end of fiscal 2002~~Spogli”). Wepurchased ~~operate on~~ a ~~52 or~~majority 53interest ~~week~~in ~~fiscal~~us ~~year~~from ~~ending~~Limited onBrands ~~the~~in ~~Saturday closest to January 31~~1999. ~~Our~~In ~~2002 fiscal~~July ~~year (52 weeks) ended on February 1~~2001, ~~2003.~~we ~~For~~completed ~~further~~our ~~information,~~initial ~~see “Management’s~~public ~~Discussion~~offering and ~~Analysis~~became ofa ~~Financial~~publicly ~~Condition~~traded ~~and Results~~company ofon ~~Operations”~~the ~~under~~NASDAQ ~~Item~~National ~~7 hereof~~Market.

We commenced business more than 40 years ago when the Galyan family opened its first outdoor store in the greater Indianapolis market, and our current corporate entity was organized in Indiana in 1980. Limited Brands, Inc. (formerly known as The Limited, Inc. and hereafter, “Limited Brands”) purchased all of our stock from the Galyan family in 1995, and FS Equity Partners IV, L.P. (hereafter, “Freeman Spogli”) purchased a majority interest in us from Limited Brands in 1999. In July 2001, we completed our initial public offering and became a publicly traded company on the NASDAQ National Market. 3

Business Strategy

We We are focused on being the premier active lifestyle retailer in the United States and the primary outdoor and athletic equipment, apparel, footwear and accessory destination for the entire family. In recent years, we have grown our business primarily by adding new stores, having opened 20 stores since February 1, 2002. Our current strategy is to grow our business by maximizing the performance of our existing stores and by adding new stores, primarily in our existing markets. We expect to open nine stores during fiscal 2004, one of which is a replacement store in our Indianapolis market, and expect to open an additional three to five stores in fiscal 2005. The key elements of our strategy are:

3 Maximize Performance of Existing Stores. We have recently announced our intention to slow our new store growth rate, and intend to open an additional three to five new stores in fiscal 2005 as compared to the nine new stores we expect to open in fiscal 2004, one of which is a replacement store in our Indianapolis market, and the nine stores we opened in fiscal 2003. As a result, management expects to be able to concentrate its efforts on maximizing the performance of the existing store base. We intend to improve the performance of our existing stores by, among other things, strengthening our merchandise assortment, maintaining the freshness of our inventory, including promotions to clear aged inventory, and implementing a balanced marketing campaign that combines our marketing and promotional efforts to support the price/value message.

~~Rapidly~~ Expand Our Store Base, Primarily in Existing Markets. We believe our retail concept has broad national appeal and that we have ~~significant~~ new store expansion opportunities in ~~new~~existing and ~~existing~~ new markets. WeOver the last several years we have rapidly expanded our store base, having opened 14 20 stores insince ~~the~~February ~~past~~1, ~~two fiscal years~~2002. We ~~plan~~expect to open an additional nine stores in fiscal ~~2003~~2004, including the two stores already opened inthrough March. One of the fiscal 2004 stores is a replacement store in our Indianapolis market. We ~~have successfully~~expect ~~implemented~~to open an additional three to five stores in fiscal 2005. Our strategy for fiscal 2005 and the next few years thereafter will be to open additional stores in existing markets. We would also consider a few new markets, primarily where potential multiple store opportunities exist. We expect to continue to implement our store format in multiple venues, including freestanding stores, power strip shopping centers, malls and lifestyle centers. Power strip centers are large, open-air shopping centers primarily comprised of large tenants with stores greater than 20,000 square feet. Lifestyle centers are large open-air complexes usually comprised of a combination of retailers, restaurants, movie theaters and interactive entertainment facilities.

~~Feature~~ an Innovative and Appealing Store Environment. The large size, open layout and interactive environment of our typical store creates a distinctive atmosphere that we believe is appealing to both the casual consumer and the serious sports enthusiast and makes us a destination for the entire family. We organize our typical store into over 40 distinct specialty departments, each focusing on a particular activity or product category. The large size and modular design of our typical store provide us with the flexibility to expand and contract our departments in response to seasonal needs and important merchandise trends. 4

~~Employ A~~ Feature ~~Differentiated~~an Innovative and ~~Disciplined~~Appealing ~~Merchandising~~Store ~~Strategy~~Environment. The Welarge ~~provide~~size, open layout and interactive environment of our typical store creates a ~~product~~ ~~assortment~~distinctive atmosphere that ~~emphasizes~~we ~~middle~~believe is appealing to ~~high-end~~both ~~merchandise.~~the Incasual ~~addition to~~consumer and the ~~widely~~serious ~~recognized~~sports ~~brands~~enthusiast ~~typically~~and ~~sold~~makes inus ~~traditional~~a ~~sporting~~destination ~~goods~~ for the entire family. Our stores, weare ~~emphasize~~large ~~higher~~in ~~quality~~size and ~~more~~generally ~~technically~~feature ~~advanced~~a ~~products~~two-story ~~often confined~~layout with 80,000 to ~~more~~100,000 ~~narrowly~~gross ~~focused~~square ~~specialty~~feet. We ~~retailers,~~have ~~and~~recently weopened ~~offer~~stores ~~private label~~in ~~merchandise~~a ~~which~~large ~~serves~~one-story tolayout ~~complement~~with ~~our~~approximately ~~branded~~65,000 ~~product~~gross ~~offerings.~~square ~~Our broad~~feet, and ~~expansive~~expect ~~product~~to ~~range~~continue ~~enables~~to usopen tosuch ~~demonstrate~~one-story ~~the~~stores, ~~advantages~~especially of in existing markets. We organize our ~~high-end~~typical ~~merchandise~~store tointo ~~the~~over ~~customer,~~40 ~~which~~distinct wedepartments, ~~believe~~each ~~increases~~focusing ~~our~~on ~~sales of~~a ~~these~~particular ~~higher~~activity ~~priced~~or ~~products~~product category. ~~Our~~The ~~merchandising~~large ~~strategy~~size ~~features~~and ~~every~~modular ~~day value~~design ~~pricing~~of ~~and~~our wetypical ~~generally~~store ~~strive~~provide tous ~~avoid~~with ~~temporary~~the ~~product~~flexibility ~~markdowns~~to expand and ~~run~~ ~~promotions~~contract ~~primarily~~our todepartments ~~clear~~in ~~merchandise~~response asto ~~seasons~~seasonal orneeds and ~~fashions~~important ~~change.~~merchandise trends.

~~Provide~~ ~~Superior~~ Employ ~~Customer~~Differentiated ~~Service~~Merchandising and ~~Product~~Disciplined ~~Knowledge.~~Inventory Management. We ~~seek~~provide toa ~~distinguish ourselves~~product ~~from~~assortment ~~our~~that ~~competitors~~emphasizes bymiddle ~~emphasizing~~to ~~customer~~high-end ~~service and product knowledge~~merchandise. WeIn ~~strive~~addition to ~~hire~~the ~~sales~~widely ~~associates~~recognized ~~who~~brands ~~are~~typically ~~experienced,~~sold ~~enthusiastic and~~in ~~knowledgeable~~traditional ~~about~~sporting ~~one~~goods orstores, ~~more~~we ~~activities~~emphasize orhigher ~~sports.~~quality Inand ~~addition,~~more ~~during their~~technically ~~first~~advanced ~~several~~products ~~months~~often ~~with~~confined ~~us,~~to wemore ~~provide~~narrowly ~~our~~focused ~~new~~specialty ~~sales~~retailers, ~~associates~~and ~~with~~we ~~an average~~offer ofprivate 56label ~~hours~~merchandise ofwhich ~~training~~serves ~~focusing~~to oncomplement our ~~products,~~branded ~~operations~~product ~~and customer service culture~~offerings. WeOur ~~emphasize~~broad ~~training~~and ~~because~~expansive weproduct ~~believe~~range ~~experienced, enthusiastic~~enables ~~and~~us ~~knowledgeable~~to ~~sales~~demonstrate ~~associates~~the ~~have~~advantages ~~greater~~of ~~credibility with~~ our ~~customers~~high-end ~~and~~merchandise ~~a greater ability~~ to ~~influence~~the ~~their~~customer, ~~purchasing~~which ~~decisions.~~we ~~As part~~believe ofincreases our ~~commitment~~sales toof ~~customer~~these ~~service,~~higher wepriced ~~also~~products. ~~provide~~In ~~our~~order ~~customers~~to ~~with specialized~~maintain ~~pro~~appropriate ~~shop~~inventory ~~services~~levels ~~such~~and asfreshness, ~~tennis~~we ~~racquet~~intend ~~stringing,~~to employ a ~~full~~more ~~service bicycle~~disciplined ~~and~~approach ~~ski~~to ~~shop,~~managing ~~ice skate sharpening~~inventory, ~~basketball~~including ~~goal~~sales ~~installation,~~events ~~golf club~~to ~~re-gripping,~~promote ~~team~~key ~~uniforms~~items and ~~hunting~~promotions ~~and~~to ~~fishing~~clear ~~equipment~~inventory ~~setup,~~as ~~repairs~~seasons or ~~and~~fashions ~~licenses~~change.

~~Enhance~~ ~~Our~~ Provide ~~Image~~Superior ~~and~~Customer ~~Extend~~Service ~~Our~~and ~~Reach.~~Product Knowledge. We seek to ~~build~~distinguish ourselves from our competitors by emphasizing customer service and ~~enhance~~product ~~the recognition~~knowledge. We strive to hire sales associates who are experienced, ~~appeal~~enthusiastic and ~~reach~~knowledgeable ofabout ~~the~~one ~~Galyan’s~~or ~~image~~more ~~through~~activities ~~our~~or ~~marketing efforts~~sports. In addition, ~~every~~during ~~day~~their ~~value~~first ~~pricing~~several months with us, ~~superior~~we provide our new sales associates with approximately 56 hours of training focusing on our products, operations and customer service culture. We emphasize training because we believe experienced, ~~private~~enthusiastic ~~label products~~and knowledgeable sales associates have greater credibility with our customers and ~~community~~a ~~commitment~~greater ~~campaign~~ability to influence their purchasing decisions. ~~Our~~As ~~marketing~~part ~~efforts~~of ~~include~~our commitment to customer service, we also provide our customers with specialized pro shop services such as tennis racquet stringing, a full service bicycle and ski shop, ice skate sharpening, ~~magazine~~basketball ~~style~~goal ~~newspaper~~installation, ~~inserts~~golf club re-gripping, ~~direct~~team ~~mail~~uniforms and hunting and fishing equipment setup, ~~radio~~repairs and licenses.

4 Enhance Our Image and Extend Our Reach. We seek to build and enhance the recognition, appeal and reach of the Galyan’s image through our marketing efforts, competitive pricing, superior customer service, private label products and community commitment campaign. Our marketing efforts include magazine style newspaper inserts, direct mail, newspaper, radio and television advertising. We have also created a preferred customer and a private label credit card program designed to build customer loyalty by rewarding significant purchasing activity, which enables us to specifically target our mailings to the interests of our preferred customers. In addition, through participation in numerous community level events, primarily focused on athletic and outdoor activities, we strive to increase our visibility in the local community and further enhance our image as an active lifestyle retailer and a destination for the entire family.

~~television advertising. We have also created a preferred customer~~ program designed to build customer loyalty by rewarding significant purchasing activity, which enables us to specifically target our mailings to the interests of our preferred customers. In addition, through participation in numerous community level events, primarily focused on athletic and outdoor activities, we strive to increase our visibility in the local community and further enhance our image as an active lifestyle retailer and a destination for the entire family. 5

Our Stores

~~Our~~ We have two primary store formats. Our typical store built over the past several years has two shopping levels, ranges in size from approximately 80,000 to 100,000 gross square feet, and features an open, airy atmosphere with a fifty five foot high interior atrium, metal appointments and interactive elements, such as rock climbing walls and putting greens, that are designed to create an enjoyable and interactive shopping experience appealing to both the casual consumer and the serious sports enthusiast. We have more recently introduced a one-level store format, which is generally about 65,000 gross square feet, contains many of the same features as our two-level stores, including a thirty foot climbing wall. We intend to use both formats in the future, depending on many factors, including market size, available space, and store cost considerations. We opened a single one-level store in fiscal 2003 and have plans to open an additional three one-level stores in fiscal 2004, including one store opened in March 2004. We organize our typical store into over 40 distinct ~~specialty~~ departments, each focusing on a particular activity or product category, creating an environment similar to a collection of specialty shops under one roof. In addition, the large size and modular design of both our typical store formats provide us with the flexibility to expand and contract our departments in response to seasonal needs and important merchandise trends.

We currently expect to open nine new stores in fiscal ~~2003~~2004, including ~~the~~two stores already opened ~~this~~through ~~fiscal~~March ~~year~~2004, one each in ~~Illinois~~Alabama (in ~~Orland~~Patton ~~Park Place~~Creek, located in ~~Orland~~ ~~Park~~Birmingham, ~~Illinois~~Alabama) and Wisconsin (in ~~The~~Greenway ~~Shoppes at Grand Prairie~~Station, located in ~~Peoria~~Middleton (a suburb of Madison), ~~Illinois~~ Wisconsin). The ~~Peoria~~Middleton, ~~Illinois~~Wisconsin store represents athe ~~test~~second opening of aour one-level ~~65,000 square~~store ~~foot new design prototype~~format. The remaining seven stores scheduled to open in fiscal ~~2003~~2004, for which we have fully executed leases, are located in Indiana (one-level store), ~~Nebraska~~ Colorado, ~~New~~North ~~York~~Carolina, Ohio, New Jersey, Virginia, ~~Ohio~~ and Illinois (one-level store). The Indiana store is a replacement store for an existing store we plan to close in fiscal 2004. Expansion in future years will depend on, among other things, general economic and business conditions affecting consumer confidence and spending and, in particular, the level of consumer demand for our products, the availability of adequate capital, desirable locations at acceptable terms, qualified management personnel, our ability to manage the operational aspects of our growth and comparable store sales performance. Our primary focus over the next 36 months will be to open additional stores in existing markets. We would also consider a few new markets, primarily where potential multiple store opportunities exist.

~~Merchandising~~ 6

We strive to provide a broad product range and selection that emphasize our strategy of brand tiering our merchandise assortments. We offer a range of brands at different price points to attract shoppers at every income, interest and skill level. We carry a broad range of products for men, women, boys and girls, including approximately 90,000 merchandise items in our typical store. Merchandising

~~Our~~ ~~product~~ We ~~offerings~~strive ~~include~~to ~~the~~provide ~~following~~a broad product ~~lines~~range and selection that emphasize our strategy of brand tiering our merchandise ~~categories:~~ assortments. We carry a broad range of products for men, women, boys and girls at different price points to attract shoppers at every income, interest and skill level.

Our product offerings include the following product lines and merchandise categories: Athletic Equipment: golf and racquet sports, team sports (for example, baseball, softball, soccer, basketball, hockey, football and lacrosse), fitness and training, health and exercise equipment and family recreation games such as ~~ping~~table ~~pong~~tennis ~~tables~~ and lawn games. Athletic and Casual Apparel: technical running, training and fitness apparel, khakis, jeans, sweaters, shorts, swimwear, golf, tennis and team apparel. Footwear: athletic footwear, technical running, casual footwear, trail and mountain hikers and hunting boots. Outdoor Equipment: camping, hunting and fishing equipment, winter sports equipment (including alpine and cross country skis, snowboards and snow shoes), water sports equipment (such as water skis, wake boards and other towables), bicycles and in-line skates. Outdoor Apparel: technical and fashion outerwear, hunting and fishing apparel, ski apparel, mountain outerwear, rainwear and work apparel.

~~Athletic~~ The ~~and~~following ~~Casual~~table ~~Apparel:~~sets ~~running,~~forth ~~training~~the ~~and~~approximate ~~fitness~~percentage ~~apparel,~~of ~~khakis,~~sales ~~jeans,~~attributable ~~sweaters,~~to ~~shorts~~athletic equipment, ~~swimwear~~athletic and casual apparel, ~~golf~~footwear, ~~tennis~~outdoor equipment and ~~team~~outdoor apparel. for fiscal 2003:

Merchandise Category	Percentage of Sales Fiscal 2003

Athletic equipment		17	%
Athletic and casual apparel		22	%
Footwear		14	%
Outdoor equipment		31	%
Outdoor apparel		16	%

Total		100	%

~~Footwear:~~ We ~~athletic~~showcase ~~footwear~~products from a large number of widely recognized vendors such as Nike, ~~casual~~Columbia, ~~footwear~~adidas, ~~(including~~The ~~brown~~North ~~shoes~~Face, Under Armour, New Balance and ~~sandals)~~Merrell. In some cases, ~~hiking~~the breadth of our product categories allows us to show a wide variety of a vendor’s products, which strengthens our relationships with these vendors and ~~hunting~~provides ~~boots~~us with favorable privileges, such as increased access to new product introductions, exclusive limited edition goods, color updates and size extensions. We purchase merchandise from approximately 1,300 vendors, of which the top twenty vendors accounted for 37.1% of our total purchases in fiscal 2003.

Outdoor Equipment: camping, hunting and fishing equipment, winter sports equipment (including alpine and cross country skis, snowboards and snow shoes), water sports merchandise (such as water skis, wake boards and other towables), bicycles and in-line skates. 7

~~Outdoor~~ We ~~Apparel:~~provide ~~technical~~private ~~and~~label ~~fashion~~merchandise ~~outerwear~~in selected areas in which we believe we have a competitive advantage in terms of price or quality. We also offer private label merchandise to fill a niche or gap in branded product offerings. We expect to maintain our current penetration of our private label offerings in those selected areas where we can capture the higher margins they generate, offer ~~hunting~~a more comprehensive assortment of merchandise to our customers and further ~~fishing~~enhance ~~apparel,~~our ~~ski~~image ~~apparel,~~as ~~mountain~~a ~~outerwear~~retailer of high quality active lifestyle products. In general, ~~rainwear~~we ~~and~~strive ~~work~~to ~~apparel~~position our private label offerings as equal or superior in quality to their branded counterparts at competitive price points.

~~The following~~ We ~~table~~customize ~~sets~~our ~~forth~~merchandise selection based on local customer interest and demand, as well as the ~~approximate~~seasonal ~~percentage~~variances ofin ~~sales~~our ~~attributable~~markets. ~~to athletic~~For ~~equipment~~example, ~~athletic~~our fishing department may feature ice and ~~casual~~walleye ~~apparel~~fishing products in the Minneapolis/St. Paul market, ~~footwear~~bass fishing products in the Atlanta market, ~~outdoor~~salt ~~equipment~~water fishing products in the Washington, D.C. market and ~~outdoor~~ ~~apparel~~fly ~~for~~fishing ~~fiscal~~products ~~2002:~~in the Denver market. Additionally, we typically arrange the baseball department in early February in the Atlanta, Dallas and the Washington, D.C. markets to accommodate the earlier season while waiting until April in markets such as Minneapolis and Buffalo.

	Merchandise Category		Percentage of SalesFiscal 2002
	Athletic equipment		17%
	Athletic and casual apparel		23%
	Footwear		14%
	Outdoor equipment		31%
	Outdoor apparel		15%
	Total		100%

Marketing

We ~~showcase~~ Our ~~products~~marketing ~~from~~strategy areflects ~~large~~our ~~number~~strategic positioning of ~~widely~~Galyan’s ~~recognized vendors such~~ as ~~Nike, Columbia,~~an ~~adidas,~~active ~~New~~lifestyle ~~Balance and The North Face~~retailer. InOur ~~some~~active ~~cases,~~lifestyle ~~the~~brand ~~breadth~~image ~~of our~~is ~~product~~emphasized ~~categories~~in ~~allows~~each marketing usmessage towe ~~show~~create, afrom ~~wide~~newspaper, ~~variety~~direct ofmail, ~~a vendor’s products~~magazine, ~~which~~radio ~~strengthens our relationships with these vendors~~ and ~~provides~~television ~~us with favorable privileges~~advertising, ~~such as increased access~~ to ~~new~~our ~~product introductions,~~in-store ~~exclusive~~visual ~~limited~~presentation ~~edition~~and ~~goods,~~support ~~color~~of ~~updates~~national and ~~size extensions.~~local Weevents ~~purchase~~and ~~merchandise~~community ~~from~~activities. Our ~~approximately~~marketing ~~1,300~~efforts ~~vendors,~~are ofintended ~~which~~both ~~the~~to ~~top twenty~~enhance ~~vendors accounted for 35.0% of~~ our ~~total~~brand ~~purchases~~and inpromote ~~fiscal~~the ~~2002.~~price/value message.

We ~~provide~~ Our ~~private~~marketing ~~label~~effort ~~merchandise~~integrates inthe ~~selected~~broad ~~areas~~reach inof ~~which~~newspaper wesupplements, ~~believe~~television, weand ~~have a~~strategic ~~competitive~~national ~~advantage~~magazine ininserts, ~~terms~~with oftargeted ~~price~~direct ormail ~~quality.~~vehicles, Weevent-based ~~also~~radio ~~offer~~advertising, ~~private label~~newspaper ~~merchandise~~and toe-mail ~~fill a niche or gap in branded product offerings~~campaigns. We ~~intend to~~use ~~increase~~this ~~the~~integrated ~~penetration~~and ofbalanced ~~our~~media ~~private~~mix ~~label offerings~~ to ~~capture~~reach ~~the~~each ~~higher margins they generate, to offer a more comprehensive assortment~~ of ~~merchandise to~~the ~~our~~three ~~customers~~customer ~~and~~segments tothat ~~further~~we ~~enhance~~target: ~~our image as a retailer of high quality active lifestyle products. In general~~recreational, weenthusiast ~~strive~~and toavid ~~position our private label offerings as equal or superior in quality to their branded counterparts at competitive price points~~customers.

We ~~customize~~ In addition, our ~~merchandise~~preferred ~~selection based on local~~ customer ~~interest~~program ~~and~~has ~~demand, as~~a ~~well~~rapidly asexpanding ~~the~~database ~~seasonal~~of ~~variances~~loyal inshoppers ~~our~~who ~~markets.~~are ~~For~~rewarded ~~example,~~for ~~our~~ongoing ~~fishing department~~purchases ~~may feature ice~~ and ~~walleye~~encouraged ~~fishing~~through ~~products~~special inoffers ~~the~~and ~~Minneapolis/St~~incentives. ~~Paul~~ We ~~market,~~ask ~~bass~~our ~~fishing~~preferred ~~products~~customers inabout ~~the~~their ~~Atlanta~~interests ~~market,~~to ~~salt~~understand ~~water~~their ~~fishing products~~individual inpreferences ~~the Washington, D.C. market~~ and ~~fly~~purchasing ~~fishing products in the Denver market~~decisions. ~~Additionally,~~We weuse ~~typically~~this ~~arrange~~information ~~the~~to ~~baseball~~send ~~department~~customized inmailings ~~early February~~highlighting inbrands, ~~the Atlanta~~products, ~~Dallas~~promotions and ~~the~~events ~~Washington,~~related ~~D.C. markets~~ to ~~accommodate the~~their ~~earlier~~particular ~~season~~areas ~~while~~of ~~waiting until April in markets such as Minneapolis and Buffalo~~interest.

6 Another key component of our strategy is our event marketing campaigns. We combine our strategic media partnerships and strong vendor relationships with regional community commitment efforts to build major company-wide events, differentiating us from our competitors.

~~Marketing~~ Through local activities, events and organizations, we pursue relationships with local organizations and groups related to our business to develop loyalty and impact at the community level in all markets. We believe our community commitment program generally positions us as a positive force in our communities and further enhances our image as an active lifestyle retailer.

~~Our~~ marketing strategy reflects our strategic positioning of Galyan’s as an active lifestyle retailer. Our active lifestyle brand image is emphasized in each and every marketing message we create, from newspaper, direct mail, magazine, radio and television advertising, to our in-store visual presentation and support of national and local events and community activities. All of our marketing efforts are intended to promote, enhance and build the brand while reinforcing our competitive strengths and price/value message. 8

~~Our~~ ~~marketing~~New ~~effort~~Store ~~integrates~~Site the broad reach of newspaper supplements, television, and strategic national magazine inserts, with targeted direct mail vehicles, event-based radio advertising and e-mail campaigns. We use this integrated and balanced media mix to reach each of the three customer segments that we target: recreational, enthusiast and avid customers. Selection

In ~~addition,~~ We ~~our~~generally ~~preferred~~seek ~~customer~~to ~~program~~enter ~~has~~major ametropolitan ~~rapidly~~markets ~~expanding~~across ~~database~~the ~~of loyal~~United ~~shoppers~~States ~~who~~in ~~are~~prime ~~rewarded~~real ~~for~~estate ~~ongoing~~locations ~~purchases~~with high visibility and ~~encouraged~~easy ~~through special~~access ~~offers~~to ~~and~~major ~~incentives~~roadways. We ~~ask~~target ~~our~~a ~~preferred~~variety ~~customers~~of ~~about~~locations, ~~their interests~~including tomalls, ~~understand~~lifestyle ~~their~~centers, ~~individual~~power ~~preferences~~strip centers and ~~purchasing~~freestanding ~~decisions~~locations, in areas with upscale demographics, which fit well with our middle to high-end merchandise profile. We ~~use~~have ~~this~~historically ~~information~~operated primarily in areas with marked seasonal variation and expect these areas to ~~send~~be ~~customized~~our ~~mailings~~primary ~~highlighting~~focus ~~brands~~in the next few years. In addition, ~~products,~~ ~~promotions~~our ~~and~~primary ~~events~~focus ~~related~~over the next 36 months will be to ~~their~~open ~~particular~~additional ~~areas~~stores ofin ~~interest~~existing markets. We would also consider a few new markets, primarily where potential multiple store opportunities exist.

~~Another~~ ~~key~~ After ~~component~~we identify potential markets, we combine the market research, demographic and competitive data with an analysis of our ~~strategy~~store ischaracteristics to develop forecasts for each proposed store location. To assess the costs of a potential site, we also gather preliminary proposals from developers and have our ~~event~~store ~~marketing~~planning ~~campaigns~~group estimate the total cost of constructing the store, including both the exterior and the interior materials and fixtures, which our store planning group generally procures for new stores. WeBased ~~combine~~on our ~~strategic~~ ~~media~~revenue ~~partnerships~~and cost estimates, we build a detailed store level model to assess the potential profitability and ~~strong~~return ~~vendor~~on ~~relationships~~capital ~~with~~from ~~regional community~~a ~~commitment~~site. ~~efforts~~We also use this analysis to ~~build~~determine ~~major~~our ~~company~~store size and whether to use a one or two-~~wide~~story ~~events,~~store ~~differentiating us~~format. We ~~from~~present information on potential sites to the real estate committee of our ~~competitors~~board of directors for their review. If our real estate committee determines that a potential site may be sufficiently desirable, it recommends the site for approval to the full board of directors.

~~Through local~~New ~~activities,~~Store ~~events~~Financing and organizations, we pursue relationships with local organizations and groups related to our business to develop loyalty and impact at the community level in all markets. We believe our community commitment program generally positions us as a positive force in our communities and further enhances our image as an active lifestyle retailer.

~~New~~ We ~~Store~~seek ~~Site~~to ~~Selection~~obtain financing for new stores from real estate developers, real estate investment companies and other sources, which is important for achieving our growth strategy. In our experience, developer financing is often available for malls, lifestyle centers and power strip centers. In addition, it is also possible to receive financing for freestanding locations through a real estate investment company. Financing for new stores typically involves a per square foot cash allowance that is generally sufficient to cover all or a significant portion of the building construction costs. Sometimes, in lieu of all or a portion of the cash allowance, the developer, at their own cost, will build our building to our specifications and supply the major fixtures. In general, the financing party owns the building and, in some cases, also the land, and leases the property to us under a lease to operate the store. Our leases generally have an initial term of 15 to 20 years and most of them provide for multiple five-year renewal options at increased rents. We prefer these methods of financing our new stores because it often requires us to supply only the capital necessary to purchase the interior fixtures and initial inventory and to fund pre-opening costs. We will need to continue to receive significant financing from developers or real estate investment companies in order to continue expanding our store base. In fiscal 2004, we will receive developer financing for all nine new stores. As more fully described in the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for those stores where we receive developer financing, we anticipate receiving higher relative levels of developer financing, on a per store basis, in fiscal 2004 than we received in fiscal 2003 from those stores where developer financing was available. We can make no assurances that this type of financing will continue to be available on terms that are favorable to us.

We generally seek to enter metropolitan markets across the United States in prime real estate locations with high visibility and easy access to major roadways. We target a variety of locations, including malls, lifestyle centers, power strip centers and freestanding locations, in areas with upscale demographics, which fit well with our middle to high-end merchandise profile. Although we have historically operated primarily in areas with marked seasonal variation and expect these areas to be our primary focus in the next few years, we have successfully opened and operated stores in Atlanta, Dallas and Las Vegas and believe there continue to be significant expansion opportunities for us to exploit in areas with less marked seasonal variation. 9

~~After~~ we If ~~identify~~developer ~~potential~~or ~~markets~~real estate investment company financing is not available, we ~~combine~~may ~~the~~seek ~~market~~construction ~~research~~loans, ~~demographic~~secured ~~and competitive~~by ~~data~~a ~~with~~mortgage, anor ~~analysis~~rely ofon our ~~store~~revolving ~~characteristics~~credit tofacility. Under ~~develop forecasts~~a construction loan, we generally borrow money from a financial institution, with a mortgage against the building being built as security for ~~each~~the ~~proposed~~loan. Construction loans typically require payment of all outstanding principal no later than two years after the store ~~location~~opens. ToWhen ~~assess~~repayment ~~the~~on ~~costs~~these ofloans abecomes ~~potential site~~due, we ~~also~~seek ~~gather~~alternative ~~preliminary~~financing ~~proposals~~transactions, ~~from~~which ~~developers~~might ~~and~~include ~~have~~a ~~our~~sale-leaseback ~~store planning~~transaction ~~group~~under ~~estimate~~which ~~the~~we ~~total~~sell ~~cost~~our ofownership ~~constructing~~interests in the store building and, ~~including~~if ~~both~~ we own it, the ~~exterior~~land, and ~~the~~enter ~~interior~~into ~~materials~~a capital or operating lease covering the building and, ~~fixtures~~if we own it, ~~which~~the ~~our~~land, ~~store~~or ~~planning group~~we ~~generally~~may ~~procures~~seek ~~for~~to ~~new~~do ~~stores.~~longer ~~Based~~term mortgage financing on the building to replace the initial construction loan. We may also use funds available under our ~~revenue~~revolving ~~and~~credit ~~cost~~facility to retire these construction loans.

7 We previously entered into construction loans for our Buffalo, New York and Rochester, New York stores. On July 1, 2002, we paid all amounts due under the construction loan for the Buffalo, New York store with funds available under our revolving credit facility. On May 1, 2003 we paid all amounts due under the construction loan for the Rochester, New York store with funds available under our revolving credit facility.

~~estimates~~ On August 8, 2003 we ~~build~~sold aour ~~detailed~~interest in buildings and leasehold improvements for two store ~~level~~locations, ~~model~~for approximately $12.0 million to ~~assess~~CPA®:15, which is a member of the ~~potential profitability~~W.P. Carey Group and ~~return~~simultaneously onentered ~~capital~~into ~~from~~lease aagreements ~~site~~for these two store locations. WeThe ~~present~~transaction ~~information~~included ~~on potential sites~~our tostore locations in Buffalo, New York, and Greenwood, Indiana. Although we leased back the ~~real~~properties, ~~estate~~this ~~committee~~transaction ofwas accounted for as a financing obligation, with the future lease payments classified as a liability in our ~~board~~financial statements and quarterly lease payments classified as payments of ~~directors~~principal ~~for~~and ~~their review~~interest expense relating to a financing obligation. The Ifnet proceeds from this transaction were used to repay current borrowings under our ~~real~~ ~~estate~~revolving ~~committee~~credit ~~determines~~facility. As ~~that~~of aJanuary ~~potential~~31, ~~site~~2004, ~~may~~we ~~be sufficiently~~had ~~desirable~~an outstanding obligation of $11.7 million, itwith a fixed interest rate of 10.6% ~~recommends~~that matures in 2024. Simultaneously with entering into the ~~site~~sale ~~for~~leaseback ~~approval~~financing transaction, we assigned our rights under an existing ground lease to CPA®:15, which is a member of the ~~full~~W.P. ~~board~~Carey Group, for a third store in Freehold, New Jersey that had not yet been constructed and is scheduled to open in the summer of ~~directors~~ 2004.

~~New Store Financing~~ Distribution

We ~~seek~~ We tooperate ~~obtain~~a ~~financing for new stores from real estate developers~~364,000 ~~real~~square ~~estate investment~~foot ~~companies~~distribution ~~and~~center ~~other~~in ~~sources~~Plainfield, ~~which~~Indiana. This isdistribution ~~important~~center ~~for~~serves ~~achieving~~as our ~~growth~~ ~~strategy.~~primary ~~In our experience~~receiving, ~~developer~~distribution ~~financing is often available for malls, lifestyle centers~~ and ~~power~~warehousing ~~strip centers. In addition~~facility, itsupplemented isby ~~also possible~~smaller toregional ~~receive~~warehouse ~~financing~~facilities ~~for~~in freestanding locations through a real estate investment company. Financing for new stores typically involves a per square foot cash allowance that is generally sufficient to cover all or a significant portion of the building construction costs. In generalMinnesota, ~~the financing party owns the building and~~Missouri, ~~in some cases~~Kansas, ~~also the land,~~ and ~~leases~~Virginia. ~~the~~We ~~property~~contract towith ~~us under~~common acarriers ~~lease~~ to ~~operate~~deliver ~~the~~merchandise ~~store. Our leases generally have an initial term of 15~~ to ~~20 years, with several multi-year renewal options. We prefer these methods of financing~~ our ~~new~~ stores ~~because~~outside itof ~~often requires us to supply only~~ the ~~capital~~ ~~necessary~~Indianapolis toarea, ~~purchase the interior fixtures~~ and ~~initial~~we ~~inventory~~operate ~~and~~our ~~to fund~~own ~~pre-opening~~trucks ~~costs.~~for Wedelivery ~~will~~of ~~need~~merchandise ~~to continue to receive significant financing~~ from ~~developers~~the ordistribution ~~real~~center ~~estate investment companies in order~~ to ~~continue~~ ~~expanding~~ our ~~store~~five ~~base.~~greater InIndianapolis ~~fiscal~~market ~~2003, we will receive developer financing for six of our nine~~ stores. AsMerchandise ~~more~~not ~~fully~~distributed ~~described~~through in the ~~section~~distribution ~~of this~~center ~~report~~is ~~entitled~~shipped ~~“Management’s~~directly Discussion and Analysis of Financial Condition and Results of Operations,” for those stores where we receive developer financing, we anticipate receiving similar relative levels of developer financing in fiscal 2003 as we received in fiscal 2002, although we can make no assurances that this type of financing will continue to bethe ~~available on terms that are favorable to us~~stores.

If developer or real estate investment company financing is not available, we typically seek construction loans, secured by a mortgage, or rely on our revolving credit facility. Under a construction loan, we generally borrow money from a financial institution, with a mortgage against the building being built as security for the loan. Construction loans typically require payment of all outstanding principal no later than two years after the store opens. When repayment on these loans becomes due, we seek alternative financing transactions, which might include a sale-leaseback transaction under which we sell our ownership interests in the store building and, if we own it, the land, and enter into a capital or operating lease covering the building and, if we own it, the land, or we may seek to do longer term mortgage financing on the building to replace the initial construction loan. We may also use funds available under our revolving credit facility to retire these construction loans. Our current revolving credit facility requires us to obtain the consent of our lenders to enter into sale-leaseback transactions and long-term mortgages and, in excess of specific limits, construction loans. With our lender’s previous consent, we entered into construction loans for our Buffalo, New York and Rochester, New York stores. Our revolving credit facility permits us to enter into sale-leaseback transactions for these two stores. On July 1, 2002, we paid all amounts due under the construction loan for the Buffalo, New York store with funds available under our revolving credit facility. All amounts outstanding under the construction loan for the Rochester, New York store are due May 1, 2003 and will be paid with funds available under our revolving credit facility. 10

8 Approximately 60% of our product received at the distribution center is pre-packaged and pre-ticketed by the vendor so it can be immediately cross-docked to trucks bound for our stores. Due to the efficiencies cross-docking creates, we require many of our vendors to pre-package their products to increase the percentage of merchandise that we cross-dock. The remaining product received at the distribution center is processed by unpacking and verifying the contents received and then sorting the contents by store for delivery.

~~Distribution~~ During 2003, we purchased from Limited Brands a parcel of land adjacent to our existing distribution facility to provide for potential development in the event expansion of our current facility becomes necessary to accommodate future growth.

We ~~operate~~Management aInformation 364,000 square foot distribution center in Plainfield, Indiana. This distribution center serves as our primary receiving, distribution and warehousing facility, supplemented by smaller regional warehouse facilities in Minnesota, Missouri, Kansas, Ohio and Virginia. We contract with common carriers to deliver merchandise to our stores outside of the Indianapolis area, and we operate our own trucks for delivery of merchandise from the distribution center to our four greater Indianapolis market stores. Merchandise not distributed through the distribution center is shipped directly to the stores. Systems

~~Approximately~~ ~~45%~~ We ofhave management information software systems for our ~~product~~store ~~received~~point atof ~~the~~sale ~~distribution~~transactions, ~~center~~warehouse istransactions, ~~pre-packaged~~inventory and ~~pre-ticketed~~ bymerchandise ~~the~~management, ~~vendor~~financial sosystems, ithuman ~~can~~resource, bepayroll ~~immediately~~and ~~cross-docked~~new tostore ~~trucks~~planning ~~bound for~~and construction reporting. We track our ~~stores~~store level point of sale transactions using a software system from Datavantage (previously known as Applied Digital Solutions). ~~Due~~This tosoftware ~~the~~features ~~efficiencies~~basic ~~cross-docking~~cash ~~creates,~~register functions and gathers batch transaction data for inventory management and loss prevention. We monitor our warehouse transactions and track both the shipments we ~~require~~receive ~~many of~~from our vendors toand ~~pre-package~~the ~~their~~shipments ~~products~~we make to ~~increase~~our ~~the~~stores, ~~percentage~~using of software from Retek. For inventory and merchandise ~~that~~management, we ~~cross-dock.~~currently ~~The~~collect ~~remaining~~transactional ~~product~~information ~~received~~gathered atby ~~the distribution~~our ~~center~~Datavantage isand ~~processed~~Retek software systems and transfer that information into a software system provided by ~~unpacking~~JDA. Also, we have sales audit and ~~verifying~~loss prevention systems from Datavantage as well as the ~~contents received~~PeopleSoft human resource and ~~then~~payroll ~~sorting~~modules. Our financial tracking and reporting software is from PeopleSoft, which includes the ~~contents~~general byledger, accounts payable, new store ~~for~~planning ~~delivery.~~and construction reporting and asset management modules.

~~Management~~ We ~~Information~~believe ~~Systems~~our management information systems are adequate to support our current operations and planned new store expansion.

We ~~have~~Store ~~management~~Management ~~information software systems for our store point of sale transactions, warehouse transactions, inventory~~ and merchandise management, financial systems, human resource, payroll and new store planning and construction reporting. We track our store level point of sale transactions using a software system from Datavantage (previously known as Applied Digital Solutions) that we installed in October 2000. This software features basic cash register functions and gathers batch transaction data for inventory management and loss prevention. We monitor our warehouse transactions and track both the shipments we receive from our vendors and the shipments we make to our stores, using software from Retek that we installed in February 2001. For inventory and merchandise management, we currently collect transactional information gathered by our Datavantage and Retek software systems and transfer that information into a software system provided by JDA, which was installed in December 2002. Also, during fiscal 2002, we installed sales audit and loss prevention systems from Datavantage as well as the PeopleSoft human resource and payroll modules. During 2001, we replaced our financial tracking and reporting software with the PeopleSoft system, which included the installation of the general ledger, accounts payable, new store planning and construction reporting and asset management modules. Operations

We ~~believe~~ We manage our ~~management~~stores ~~information~~through ~~systems~~national, ~~are~~regional ~~adequate~~and store based personnel. Our Senior Vice President, Store Operations has general oversight responsibility for all of our stores. We employ regional vice presidents who oversee stores in several states and report directly to ~~support~~the Senior Vice President, Store Operations. Each of our ~~current~~ stores has a general manager who is responsible for all aspects of store operations and ~~planned~~reports ~~new~~directly to a regional vice president. Each general manager has at least one assistant manager reporting to them who assists in the management of the selling departments, store ~~expansion~~operations and other administrative functions. Additionally, we employ several department managers who report directly to the general manager or assistant manager. Each department manager is typically responsible for several related merchandise departments.

~~Store Management and Operations~~ 11

We manage our stores through national, regional and store based personnel. Our Senior Vice President Director of Stores has general oversight responsibility for all of our stores. We employ territory directors who oversee stores in several states and report directly to the Senior Vice President Director of Stores. Each of our stores has a store manager who is responsible for all aspects of store operations and reports directly to a territory director. Each store manager has at least one assistant store manager reporting to them who assists in the management of theCompetition

9 The retail market for athletic and outdoor equipment, footwear and outdoor and specialty apparel is highly competitive. We face competition largely from five general categories of retailers: sporting goods stores, outdoor specialty stores, casual apparel retailers, athletic specialty stores and mass merchandisers. We compete on the basis of selection, customer service, style, price and quality.

~~selling~~ Sporting ~~departments~~Goods Stores. Stores in this category include large format sporting goods stores, ~~store~~such ~~operations~~as Dick’s Sporting Goods, Inc. and ~~other administrative functions~~The Sports Authority, Inc. ~~Additionally~~These stores typically range from 30,000 weto ~~employ~~60,000 ~~several~~square ~~department~~feet ~~managers who~~in ~~report~~size ~~directly~~and tend to ~~the~~ ~~store~~be ~~manager~~freestanding or ~~assistant~~located ~~store~~in ~~manager~~strip shopping center anchor locations. ~~Each department~~Also ~~manager~~in isthis category are traditional sporting goods chains and local independent sporting goods retailers, whose stores typically ~~responsible~~ ~~for~~range from 5,000 to 20,000 square feet and are typically located in regional malls and strip shopping centers. Although these competitors, including Henry Modell & Company, Inc., Champs Sports (owned by Foot Locker, Inc.), Big 5 Sporting Goods Corporation, Academy Sports and Outdoors and Hibbetts Sporting Goods, Inc., carry many of the same items as we do and several ~~related~~have a larger number of stores and more widely recognized name, we believe we carry more high-end, technical merchandise ~~departments~~, and more apparel, and have a more appealing store environment. In addition, with respect to the traditional and local sporting goods stores, we have significantly larger stores and carry a much broader and deeper merchandise selection.

~~Competition~~ Outdoor Specialty Stores. Stores in this category include specialty stores and pro shops such as Cabela’s, Inc., Bass Pro Shops, Inc., Gander Mountain, Eastern Mountain Sports, Inc. and Recreational Equipment, Inc. Although these competitors do not carry as broad a merchandise selection as we do, they are generally well recognized for their customer service and product selection in their respective areas of specialization, such as hunting, fishing or backpacking equipment.

~~The~~ ~~retail~~ Casual ~~market~~Apparel ~~for~~Retailers. Companies ~~athletic~~in ~~and~~this ~~outdoor~~category ~~equipment,~~include ~~footwear~~national ~~and~~ outdoor ~~and specialty~~ apparel isretailers ~~highly~~such ~~competitive~~as L.L. WeBean, ~~face~~Inc., ~~competition~~Lands ~~largely~~End, ~~from~~Inc. ~~five general~~(owned ~~categories~~by ofSears, ~~retailers:~~Roebuck ~~sporting~~and ~~goods~~Co.) and ~~stores~~Eddie Bauer, ~~outdoor~~Inc. These ~~specialty stores~~companies use multiple channels to sell their products, ~~casual~~including ~~apparel~~catalogs, ~~retailers~~e-commerce, ~~athletic~~traditional ~~specialty~~retail stores and ~~mass merchandisers~~outlet mall locations. These Weretailers ~~compete~~focus primarily on ~~the~~casual ~~basis~~apparel, ofand ~~selection,~~generally ~~customer~~carry ~~service,~~significantly ~~style, price~~less outdoor and ~~quality~~athletic equipment.

~~Sporting~~ ~~Goods~~ Athletic Specialty Stores. Stores in this category include ~~large~~The ~~format~~Athlete’s ~~sporting~~Foot ~~goods stores~~Stores, ~~such~~Inc., asFinish ~~The Sports Authority~~Line, Inc., ~~and~~Foot ~~Gart~~Locker, ~~Sports Company~~Inc, ~~who~~Golf ~~have announced~~Galaxy, ~~their intention to merge their businesses~~Inc., and ~~Dick~~Nevada Bob’s ~~Sporting Goods~~Golf, Inc.. These stores typically range ~~from 30,000 to 60,000 square feet~~ in size ~~and tend to be freestanding or located in strip shopping center anchor locations, and traditional sporting goods chains and local independent sporting goods retailers, whose stores typically range~~ from 51,000 to 2010,000 square feet and are ~~typically~~frequently located in regional malls and strip shopping centers. These ~~Although these~~ competitors, ~~including~~have ~~Henry~~greater ~~Modell~~national &name ~~Company,~~recognition ~~Inc., Champs Sports (owned by Foot Locker, Inc.)~~ and ~~Hibbetts~~more ~~Sporting~~stores ~~Goods,~~than ~~Inc., carry many of the same items as~~ we do ~~and several have a larger number of stores and more widely recognized name~~, webut ~~believe we~~ carry ~~more high-end, technical merchandise, and more apparel, and have~~ a more ~~appealing~~limited ~~store~~selection ~~environment.~~of ~~In addition, with respect to the traditional and local sporting goods stores, we have significantly larger stores and carry a much broader and deeper~~ merchandise ~~selection~~.

~~Outdoor~~ Specialty Stores. Stores in this category include specialty stores and pro shops such as Cabela's, Inc., Bass Pro Shops, Inc., Eastern Mountain Sports, Inc. and Recreational Equipment, Inc. Although these competitors do not carry as broad of a merchandise selection as we do, they are generally well recognized for their customer service and product selection in their respective areas of specialization, such as hunting, fishing or backpacking equipment. 12

~~Casual~~ ~~Apparel~~ Mass ~~Retailers~~Merchandisers. Stores ~~Companies~~ in this category include national ~~outdoor~~discount ~~apparel~~ retailers such as ~~L.L.~~Target ~~Bean~~Corporation and Wal-Mart Stores, Inc., ~~Lands~~warehouse ~~End~~clubs such as Costco Wholesale Corporation, ~~Inc.~~and ~~(owned~~department bystores such as JC Penney Company, Inc., Sears, Roebuck and Co.) and ~~Eddie Bauer,~~Kohl’s ~~Inc~~Corporation. These ~~companies~~stores ~~use~~range ~~multiple~~in ~~channels~~size tofrom ~~sell~~approximately ~~their products~~50,000 ~~including catalogs,~~to ~~e-commerce~~200,000 ~~traditional~~square ~~retail~~feet ~~stores~~and are primarily located in regional malls and ~~outlet~~power ~~mall~~strip ~~locations~~shopping centers. ~~These retailers~~Sporting ~~focus~~goods ~~primarily~~merchandise onand ~~casual~~athletic apparel, represent a very small portion of the total merchandise in these stores and, ~~generally~~in ~~carry~~general, ~~significantly~~the ~~less outdoor~~selection is limited and ~~athletic~~focused ~~equipment.~~on entry-level price points.

~~Athletic Specialty~~Trademarks ~~Stores. Stores in this category include The Athlete's Foot Stores, Inc., Finish Line, Inc., Foot Locker, Inc, Golf Galaxy, Inc.,~~ and Nevada Bob's Golf, Inc. These stores typically range in size from 1,000 to 10,000 square feet and are frequently located in regional malls and strip shopping centers. These competitors have greater national name recognition and more stores than we do, but carry a more limited selection of merchandise. Tradenames

~~Mass~~ ~~Merchandisers~~ Through a wholly owned subsidiary, we have registered our trademark “Galyan’s”, “Galyan’s Sports and Outdoor Adventure” and our bear design with the United States Patent and Trademark Office. Through ~~Stores~~a wholly owned subsidiary, we are in ~~this~~the ~~category~~registration ~~include~~process ~~national~~for ~~discount~~registering ~~retailers such~~“Galyans Sports and Outdoor” as ~~Target~~an ~~Corporation~~additional ~~and~~registered ~~Wal-Mart~~trademark. “Galyan’s” ~~Stores,~~is ~~Inc~~also a federally registered servicemark. In addition, ~~warehouse~~through ~~clubs~~our ~~such~~wholly ~~as Costco~~owned ~~Wholesale~~subsidiary, we own several other trademarks and servicemarks involving advertising slogans and other names and phrases used in our business.

10 Governmental Regulation

~~Corporation,~~ We ~~and~~are ~~department~~a ~~stores~~licensed retail firearms dealer in each jurisdiction in which we do business. As such aswe JCare ~~Penney~~required ~~Company~~to comply with federal, ~~Inc., Sears,~~ ~~Roebuck~~state and ~~Co.~~local regulations governing the handling and ~~Kohl’s~~transfer ~~Corporation~~of firearms. At ~~These~~the ~~stores~~federal ~~range~~level, ~~in size~~these ~~from approximately~~include 50The Gun Control Act of 1968,~~000~~ toTitle ~~200~~18,~~000~~ ~~square~~Chapter ~~feet~~44, ~~and~~United ~~are~~States ~~primarily~~Code, ~~located in~~as ~~regional~~amended; ~~malls~~ and ~~power~~the ~~strip~~National ~~shopping~~Firearms ~~centers~~Act, Title 26, Chapter 53, United States Code, as amended. In ~~Sporting~~certain ~~goods~~circumstances, ~~merchandise and~~local ~~athletic~~governmental ~~apparel represent~~restrictions aprohibit ~~very~~the ~~small~~sale ~~portion~~of firearms. Two of ~~the~~our ~~total~~45 ~~merchandise~~currently ~~in these~~open stores ~~and,~~are in ~~general, the~~local ~~selection~~jurisdictions isthat ~~limited~~currently ~~and~~prohibit ~~focused~~us ~~on entry-level~~from ~~price~~selling ~~points~~firearms.

~~Trademarks~~ In addition, many of our imported products are subject to existing or potential duties, tarriffs or quotas that may limit the quantity of products that we may import into the U.S. and ~~Tradenames~~other countries or impact the cost of such products. To date, we have not been restricted by quotas in the operation of our business and customs duties have not comprised a material portion of the total cost of our products.

~~Through~~ a wholly owned subsidiary, we have registered our trademark “Galyan’s”, “Galyan’s Sports and Outdoor Adventure” and our bear design with the United States Patent and Trademark Office. “Galyan’s” is also a federally registered servicemark. In addition, through our wholly owned subsidiary, we own several other trademarks and servicemarks involving advertising slogans and other names and phrases used in our business. Employees

~~Governmental~~ On ~~Regulation~~March 1, 2004, we operated 44 stores and had approximately 6,100 employees, of whom approximately 2,700 worked full time, approximately 2,600 worked part time and approximately 800 were full time and part time seasonal employees. During our fiscal fourth quarter, the number of our employees increases significantly. For example, on December 1, 2003, we operated 43 stores and had approximately 7,100 employees of whom approximately 2,800 worked full time, approximately 2,800 worked part time and approximately 1,500 were full time and part time seasonal employees. None of our employees are covered by a collective bargaining agreement and we believe our relations with our employees are good.

We are a licensed retail firearms dealer in each jurisdiction in which we do business. As such we are required to comply with federal, state and local regulations governing the handling and transfer of firearms. At the federal level, these include The Gun Control Act of 1968, Title 18, Chapter 44, United States Code, as amended; and the National Firearms Act, Title 26, Chapter 53, United States Code, as amended. 13

In ~~addition,~~Seasonality many of our imported products are subject to existing or potential duties, tarriffs or quotas that may limit the quantity of products that we may import into the U.S. or impact the cost of such products. To date, we have not been restricted by quotas in the operation of our business and ~~customs~~ ~~duties have not comprised a material portion of the total cost of our products.~~ Inflation

~~Employees~~ Our business cycle is seasonal, with higher sales and profits generally occurring in the second and fourth fiscal quarters. In fiscal 2003, our sales results were as follows: 18.7% in the first quarter, 23.7% in the second quarter, 21.4% in the third quarter and 36.2% in the fourth quarter. We have significantly higher cash outlays in the fiscal fourth quarter due to higher purchase volumes and increased staffing.

On ~~March~~ Management ~~27,~~does ~~2003,~~not webelieve ~~operated~~inflation ~~36 stores and~~ had ~~approximately~~a ~~5,500~~material ~~employees,~~effect ofon ~~whom~~the ~~approximately 2,300~~consolidated ~~worked~~financial ~~full~~statements ~~time,~~for ~~approximately 2,200 worked part time and approximately 1,000 were full time and part time seasonal employees. During our fiscal fourth quarter,~~ the ~~number~~periods ~~of our employees increases significantly~~presented. ~~For example,~~There oncan ~~January~~be 1,no ~~2003~~assurance, ~~we operated 34 stores and had approximately 6~~however,~~200~~ ~~employees~~that ofour ~~whom approximately~~business ~~2,400~~will ~~worked~~not ~~full~~be ~~time,~~affected ~~approximately 2,400 worked part time and approximately 1,400 were full time and part time seasonal employees. None of our employees are covered~~ by ainflation ~~collective~~in ~~bargaining~~the ~~agreement and we believe our relations with our employees are good~~future.

~~Seasonality~~ Galyan’s Website and ~~Inflation~~Access to Filings

~~Our~~ ~~business~~ We ~~cycle~~post isall ~~seasonal,~~of ~~with~~our ~~higher~~periodic ~~sales~~reports ~~and~~on ~~profits~~Form ~~generally~~10-K ~~occurring~~and ~~in the~~10-Q, ~~second~~ and ~~fourth~~current ~~fiscal~~reports ~~quarters.~~on InForm ~~fiscal 2002~~8-K, on our ~~sales~~website ~~results~~at ~~were as follows: 19~~www.~~0% in the first quarter, 23~~galyans.8%com inas ~~the~~soon ~~second~~as ~~quarter,~~reasonably ~~21.7%~~practical inafter the ~~third~~ ~~quarter~~reports ~~and~~are ~~35.5%~~filed inwith ~~the~~or ~~fourth~~furnished ~~quarter.~~to ~~We have significantly higher cash outlays in~~ the ~~fiscal~~Securities ~~fourth~~and ~~quarter~~Exchange ~~due~~Commission. Access to ~~higher~~these ~~purchase~~reports ~~volumes~~is ~~and increased~~free ~~staffing.~~of charge.

11 Item 2. PROPERTIES

~~Management~~ ~~does~~ Our ~~not~~principal ~~believe~~executive ~~inflation~~offices ~~had~~are alocated ~~material~~in ~~effect~~newly onleased ~~the~~facilities ~~consolidated~~at ~~financial statements~~One Galyans Parkway, Plainfield, Indiana 46168. The lease for our new executive offices is for 10 years with two additional five-year options. We believe the ~~periods~~new ~~presented~~corporate offices are adequate to accommodate our future growth. We ~~There~~are ~~can~~currently beassessing noour ~~assurance,~~options ~~however,~~available ~~that~~ under our ~~business~~lease ~~will~~agreement ~~not~~for beour ~~affected~~former byprincipal ~~inflation~~executive offices that expires in ~~the~~October ~~future.~~of 2005.

~~Galyan’s~~ We ~~Website~~lease our main distribution center in Plainfield, Indiana and ~~Access~~small regional satellite distribution warehouses located in Minnesota, Missouri, Kansas and Virginia. While we believe our distribution facilities are in good condition and are currently suitable for our current business needs, we have acquired a parcel of land adjacent to ~~Filings~~our existing distribution facility for potential development in the event expansion of our current facility becomes necessary to accommodate future growth.

We post all of our periodic reports on Form 10-K and 10-Q, and current reports on Form 8-K, on our website at www.galyans.com as soon as reasonably practical after the reports are filed with or furnished to the Securities and Exchange Commission. Access to these reports is free of charge. 14

~~Item 2.~~ ~~PROPERTIES~~The following table describes each of our 45 stores in the order in which they were opened, starting with the most recent:

Our principal executive offices are located in leased facilities at 2437 East Main Street, Plainfield, Indiana 46168. We lease our main distribution center in Plainfield, Indiana and small regional satellite distribution warehouses located in Minnesota, Missouri, Kansas, Ohio and Virginia. The lease for our executive offices expires in October 2005 and we have six five-year renewal options. The lease for our main distribution center expires in December 2020 and we have eight five-year renewal options. We believe our distribution facilities are in good condition and are currently suitable for our business needs. While we believe our executive offices are in good condition and are suitable for our business needs over the next 12 to 18 months, we are currently exploring alternative executive office facilities to accommodate our anticipated future growth.

Market	Location	Opening Date	Gross Square Feet

Madison	Greenway Station Middleton, WI	March 2004	64,934

Birmingham	Patton Creek Hoover, AL	February 2004	83,884

Cleveland	Legacy Village Lyndhurst, OH	October 2003	79,858

Long Island	Roosevelt Field Garden City, NY	October 2003	105,403

Chicago	The Glen Glenview, IL	October 2003	79,964

Richmond	Stony Point Richmond, VA	September 2003	83,326

Woodbridge	Woodbridge Center Woodbridge, NJ	September 2003	100,400

Omaha	Westroads Mall Omaha, NE	July 2003	83,561

Indianapolis	Galyan’s Crossing Greenwood, IN	May 2003	80,709

Chicago	Orland Park Place Orland Park, IL	March 2003	97,548

Peoria	The Shoppes at Grand Prairie Peoria, IL	March 2003	65,084

Boston	Danvers, MA	November 2002	78,500

Las Vegas	Galleria at Sunset Mall Henderson, NV	October 2002	84,266

St. Louis	West County Mall Des Peres, MO	September 2002	83,135

Chicago	Geneva Commons Geneva, IL	September 2002	80,041

Dallas	The Parks at Arlington Mall Arlington, TX	August 2002	84,717

Colorado Springs	First & Main Town Center Colorado Springs, CO	August 2002	82,932

~~The~~ ~~following table describes each of our 36 stores in the order in which they were opened, starting with the most recent:~~ 15

Market	Location	Opening Date	Gross Square Feet
Lansing		Meridian Mall Okemos, MI		July 2002	82,088
Chicago	Orland Park PlaceOrland Park, IL	March 2003	97,548
Denver		Park Meadows Mall Littleton, CO		April 2002	81,899
Peoria	The Shoppes at Grand PrairiePeoria, IL	March 2003	65,084
Chicago		Village Crossing Niles, IL		March 2002	111,969
Boston	Danvers, MA	November 2002	78,500
Salt Lake City		The Gateway Salt Lake City, UT		November 2001	91,146
Las Vegas	Galleria at Sunset MallHenderson, NV	October 2002	84,266
Louisville		Oxmoor Centre Louisville, KY		October 2001	80,355
St. Louis	West County MallDes Peres, MO	September 2002	83,135
Detroit		Fountain Walk Center Novi, MI		October 2001	83,281
Chicago	Geneva CommonsGeneva, IL	September 2002	80,041
Rochester		Marketplace Mall Henrietta, NY		July 2001	83,578
Dallas	~~The Parks at Arlington MallArlington, TX~~	~~August~~Stonebriar ~~2002~~Centre Frisco, TX	~~84,717~~	May 2001	79,391
Colorado Springs	First & Main Town CenterColorado Springs, CO	August 2002	82,932
Grand Rapids		Rivertown Crossing Mall Grandville, MI		September 2000	91,471
Denver		Flatiron Crossing Mall Broomfield, CO		August 2000	97,241
Buffalo		Walden Galleria Mall Buffalo, NY		April 2000	80,118
Atlanta		Mall of Georgia Buford, GA		August 1999	83,391
Atlanta		Lenox Town Center Atlanta, GA		July 1999	122,494
Atlanta		Town Center Commons Kennesaw, GA		March 1999	76,505
Chicago		Fountain Square Lombard, IL		February 1999	89,917
Indianapolis		Castleton Square Mall Indianapolis, IN		October 1998	96,020
Chicago		Streets of Woodfield Schaumburg, IL		October 1998	170,521
Washington, D.C.		Washingtonian Center Gaithersburg, MD		July 1998	100,584
Washington, D.C.		Fairlakes Fairfax, VA		July 1998	104,236
Minneapolis/St. Paul		Richfield, MN		September 1997	101,270
Columbus		Easton Marketplace Columbus, OH		September 1997	83,638

12 16

Lansing	Meridian MallOkemos, MI	July 2002	82,088
Minneapolis/St. Paul		Tamarack Village Center Woodbury, MN		October 1996	81,019
Denver	Park Meadows MallLittleton, CO	April 2002	81,899
Minneapolis/St. Paul		West Ridge Market Minnetonka, MN		October 1996	99,445
Chicago	Village CrossingNiles, IL	March 2002	111,969
Kansas City		Leawood Town Center Leawood, KS		September 1996	100,945
Salt Lake City	The GatewaySalt Lake City, UT	November 2001	91,146
Indianapolis		Village Park Plaza Carmel, IN		March 1995	65,520
Louisville	Oxmoor CentreLouisville, KY	October 2001	80,355
Columbus		Dublin, OH		September 1994	74,636
Detroit	Fountain Walk CenterNovi, MI	October 2001	83,281
Indianapolis		Pike Plaza Indianapolis, IN		February 1989	33,642
Rochester	Marketplace MallHenrietta, NY	July 2001	83,578
Indianapolis		Plainfield, IN		January 1960	47,806
Dallas	Stonebriar CentreFrisco, TX	May 2001	79,391
Grand Rapids	Rivertown Crossing MallGrandville, MI	September 2000	91,471
Denver	Flatiron Crossing MallBroomfield, CO	August 2000	97,241
Buffalo	Walden Galleria MallBuffalo, NY	April 2000	80,118
Atlanta	Mall of GeorgiaBuford, GA	August 1999	83,391
Atlanta	Lenox Town CenterAtlanta, GA	July 1999	122,494
Atlanta	Town Center CommonsKennesaw, GA	March 1999	76,505
Chicago	Fountain SquareLombard, IL	February 1999	89,917
Indianapolis	Castleton Square MallIndianapolis, IN	October 1998	76,108
Chicago	Streets of WoodfieldSchaumburg, IL	October 1998	170,521
Washington, D.C	Washingtonian CenterGaithersburg, MD	July 1998	100,584
Washington, D.C	FairlakesFairfax, VA	July 1998	104,236
Minneapolis/St. Paul	Richfield, MN	September 1997	101,270
Columbus	Easton MarketplaceColumbus, OH	September 1997	83,638

13 Our former Greenwood, Indiana store which opened in 1985 and had 42,189 gross square feet, closed on September 20, 2002 as a result of a tornado. On April 25, 2003, we reopened our former Greenwood, Indiana location as a clearance center. We did not include this location in our store count or in our comparable store sales calculation, as it is not part of our long-term strategy.

Minneapolis/St. Paul	Tamarack Village CenterWoodbury, MN	October 1996	81,019
Minneapolis/St. Paul	West Ridge MarketMinnetonka, MN	October 1996	99,445
Kansas City	Leawood Town CenterLeawood, KS	September 1996	100,945
Indianapolis	Village Park PlazaCarmel, IN	March 1995	65,520
Columbus	Dublin, OH	September 1994	74,636
Indianapolis	Pike PlazaIndianapolis, IN	February 1989	33,642
Indianapolis	Plainfield, IN	January 1960	47,806

Currently, we lease the land and building improvements for 43 of our stores. We own the building improvements for the remaining two stores, which are located in Plainfield, Indiana, and Rochester, New York. Our store leases provide for original lease terms that generally range from 15 to 20 years and most of them provide for multiple five-year renewal options at increased rents.

~~In September~~Item ~~of 2002, our store in Greenwood, Indiana, which opened in 1985 and had 42,189 gross square feet, was destroyed by a tornado~~3. LEGAL We currently intend to reopen this store in 2003 and operate it as a clearance center through the expiration of the lease term in January 2006. We do not intend to include this location in our store count or this store’s sales in our comparable store sales calculation. PROCEEDINGS

~~Currently,~~ we There ~~lease~~are ~~the~~no ~~land~~material ~~and~~pending ~~building~~legal ~~improvements~~proceedings ~~for~~against ~~33 of our stores~~us. We ~~own~~are, ~~the building~~however, ~~improvements~~involved ~~for~~in ~~the~~routine ~~remaining~~litigation ~~three~~arising ~~stores, which are located~~ in ~~Plainfield,~~ ~~Indiana,~~the ~~Buffalo,~~ordinary ~~New~~course ~~York~~of ~~and~~our ~~Rochester, New York~~business. ~~Our~~We ~~store~~believe ~~leases provide~~that ~~for~~the ~~original~~final ~~lease~~outcome ~~terms~~of ~~that~~such ~~generally~~proceedings ~~range~~should ~~from~~not 15have toa 20material ~~years~~adverse ~~and most~~effect ofon ~~them~~our ~~provide~~consolidated ~~for~~financial ~~multiple~~condition ~~five-year~~or ~~renewal~~results ~~options~~of ~~at increased rents~~operations.

Item 34. ~~LEGAL~~ SUBMISSION ~~PROCEEDINGS~~OF MATTERS TO A VOTE OF SECURITY HOLDERS

~~There~~ ~~are~~ No nomatters ~~material~~were ~~pending~~submitted ~~legal~~to ~~proceedings~~a ~~against~~vote ~~us.~~of Wesecurity ~~are,~~holders ~~however,~~during ~~involved in routine litigation arising in~~ the ~~ordinary~~fourth ~~course~~quarter of ~~our business. We believe that~~ the ~~final~~fiscal ~~outcome~~year ofcovered ~~such~~by ~~proceedings~~this ~~should~~annual ~~not have a material adverse effect on our consolidated financial condition or results of operations~~report.

~~Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~ 17

No ~~matters~~PART ~~were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this annual report.~~ II

~~PART~~ Item II5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

~~Item~~ Our 5common stock is listed on the Nasdaq National Market System under the symbol “GLYN. ~~MARKET FOR~~” ~~REGISTRANT'~~The closing price of our common stock on Nasdaq was $10.62 on March 19, 2004. The market price of our common stock has fluctuated significantly in the past, and is likely to continue to be highly volatile. In addition, the trading volume in our common stock has fluctuated, and significant price variations can occur as a result. More generally, the U.S. ~~COMMON~~equity ~~STOCK~~markets ~~AND~~have ~~RELATED~~from ~~STOCKHOLDER~~time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the stocks of emerging-growth companies such as ours. These broad market fluctuations may be the result of changes in the trading characteristics that prevail in the market for our common stock, including low trading volumes, trading volume fluctuations and other similar factors that are particularly common ~~MATTERS~~among highly volatile securities of emerging-growth companies. Variations also may be the result of changes in our business, operations or prospects, announcements or activities by our competitors, new contractual relationships with key suppliers or manufacturers by us or our competitors, proposed acquisitions by us or our competitors, financial results that fail to meet public market analysts expectations, changes in stock market analysts’ recommendations regarding us, other retail companies or the retail industry in general, and domestic and international market and economic conditions.

Our common stock is listed on the Nasdaq National Market System under the symbol “GLYN.” The closing price of our common stock on Nasdaq was $13.04 on March 27, 2003. The market price of our common stock has fluctuated significantly in the past, and is likely to continue to be highly volatile. In addition, the trading volume in our common stock hasStockholders

14 The number of our common stockholders of record as of March 19, 2004 was 96. This number excludes stockholders whose stock is held in nominee or street name by brokers.

~~fluctuated, and significant price variations can occur as a result. More~~ ~~generally,~~Dividend the U.S. equity markets have from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the stocks of emerging-growth companies such as ours. These broad market fluctuations may be the result of changes in the trading characteristics that prevail in the market for our common stock, including low trading volumes, trading volume fluctuations and other similar factors that are particularly common among highly volatile securities of emerging-growth companies. Variations also may be the result of changes in our business, operations or prospects, announcements or activities by our competitors, new contractual relationships with key suppliers or manufacturers by us or our competitors, proposed acquisitions by us or our competitors, financial results that fail to meet public market analysts expectations, changes in stock market analysts’ recommendations regarding us, other retail companies or the retail industry in general, and domestic and international market and economic conditions. Policy

~~Stockholders~~ We have not paid cash dividends in the two most recent fiscal years and we do not currently intend to pay any dividends. Our revolving credit facility currently prohibits us from declaring or paying cash dividends or other distributions on any shares of our capital stock. Any payments or cash dividends in the future will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions contained in our revolving credit facility or other agreements, and other factors deemed relevant by our board of directors.

~~The~~ ~~number of our common stockholders of record as of March 27, 2003 was 129. This number excludes stockholders whose stock is held in nominee or street name by brokers.~~ 18

~~Dividend~~ Stock ~~Policy~~Price Information

We ~~have~~ Set ~~not~~forth ~~paid~~below ~~cash~~are ~~dividends in~~ the ~~two~~high ~~most recent fiscal years~~ and welow doclosing ~~not currently~~sale ~~intend~~prices tofor ~~pay any dividends. Our revolving credit facility currently prohibits us from declaring or paying cash dividends or other distributions on any~~ shares of our ~~capital~~common stock. ~~Any~~for ~~payments~~each orquarter ~~cash~~during ~~dividends~~fiscal in2003 ~~the future will be at the discretion of our board of directors~~ and ~~will~~2002 ~~depend~~as ~~upon~~reported ~~our results of operations, earnings, capital requirements, contractual restrictions contained in our revolving credit facility or other agreements, and other factors deemed relevant~~ by ~~our~~the ~~board~~Nasdaq ofNational ~~directors.~~Market System.

Stock Price Information

	Fiscal 2003				Fiscal 2002

Fiscal Quarter:	High		Low		High		Low

First Quarter	$	16.48	$	8.92	$	19.88	$	10.65
Second Quarter	$	18.02	$	10.81	$	23.20	$	12.40
Third Quarter	$	13.96	$	9.54	$	15.10	$	7.00
Fourth Quarter	$	14.19	$	8.38	$	15.10	$	9.41

~~Set forth~~Securities ~~below~~Authorized ~~are the high and low closing sale prices~~ for ~~shares~~Issuance ofUnder ~~our~~Equity ~~common stock~~Compensation ~~for each quarter during the fiscal year ended February 1, 2003 as reported by the Nasdaq National Market System.~~ Plans

	Fiscal 2002		Fiscal 2001
Fiscal Quarter:	High	Low	High	Low
First Quarter	$19.88	$10.65	--	--
Second Quarter	$23.20	$12.40	$20.47	$12.60
Third Quarter	$15.10	$ 7.00	$12.95	$ 8.00
Fourth Quarter	$15.10	$ 9.41	$14.36	$10.74

The information relating to securities authorized for issuance under equity compensation plans is incorporated by reference herein from our definitive Proxy Statement in connection with our Annual Meeting of Stockholders, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year end January 31, 2004.

Recent Sales of Unregistered Securities

None.

15 Issuer Repurchases of Equity Securities

~~Item 6.~~ ~~SELECTED~~We ~~FINANCIAL~~did ~~DATA~~not repurchase any of our registered securities during the fourth quarter of fiscal 2003.

~~The~~ ~~following~~Item table sets forth our summary of selected consolidated financial data, which should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this Report6. SELECTED ~~The~~FINANCIAL selected statement of operations data for fiscal 2002, 2001 and 2000 and selected balance sheet data for fiscal 2002 and 2001 are derived from our audited consolidated financial statements that are included in this Report. The following historical results of consolidated operations are not necessarily indicative of results to be expected for any subsequent period. DATA

16 The following table sets forth our summary of selected consolidated financial data, which should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this Report. The selected statement of operations data for fiscal 2003, 2002 and 2001 and selected balance sheet data for fiscal 2003 and 2002 are derived from our audited consolidated financial statements that are included in this Report. The following historical results of consolidated operations are not necessarily indicative of results to be expected for any subsequent period.

	Fiscal Year (1)
	2002		2001		2000		1999		1998
	(dollars in thousands, except per share and square footage data)
Consolidated Statement of Operations Data:
Net sales	$ 597,745		$ 482,528		$ 421,662		$ 328,121		$ 219,597
Gross profit(2)	181,515		144,575		126,451		94,371		61,315
Selling, general and administrative expenses(3)	148,357		118,070		105,935		81,377		57,319
Corporate allocation from Limited Brands(4)	--		--		--		3,600		4,930
Costs of recapitalization(5)	--		--		--		1,085		--
Operating income(loss)	33,158		26,505		20,516		8,309		(934	)
Interest expense, net(6)	1,796		6,723		13,891		5,384		159
Loss on investment in MVP.com	--		--		4,621		--		--
Income (loss) before income tax expense (benefit),
extraordinary loss and cumulative effect of
change in accounting principle	31,362		19,782		2,004		2,925		(1,093	)
Income tax expense (benefit)	12,642		8,340		1,641		1,708		(107	)
Income (loss) before extraordinary loss and
cumulative effect of change in accounting
principle	18,720		11,442		363		1,217		(986	)
Extraordinary loss, net of income tax expense(7)	--		(6,810	)	--		--		--
Cumulative effect of change in accounting
principle, net of income tax expense(8)	--		--		--		(1,067	)	--
Net income (loss)	$ 18,720		$ 4,632		$ 363		$ 150		$ (986	)
Earnings (loss) per share (7)(8)(9)
Basic	$ 1.10		$ 0.32		$ 0.03		$ 0.02		$ (0.27	)
Diluted	$ 1.09		$ 0.32		$ 0.03		$ 0.02		$ (0.27	)
Weighted average shares outstanding(9)
Basic	17,044,902		14,445,401		10,419,021		6,226,220		3,600,000
Diluted	17,178,342		14,688,800		10,573,261		6,226,220		3,600,000
Cash dividend declared per share(10)	--		--		--		$ 2.60		--
Selected Store Data:
Number of stores open (at fiscal year end)	34		26		21		18		14
Comparable store sales increase(11)(12)	0.5	%	0.2	%	10.2	%	8.4	%	4.8	%
Average net sales per store(13)	$ 20,459		$ 20,796		$ 21,142		$ 19,524		$ 16,716
Total gross square footage (at fiscal year end)	2,967,805		2,240,447		1,822,696		1,553,866		1,181,559
Average gross square footage per store
(at fiscal year end )(14)	87,288		86,171		86,795		86,326		84,397
Net sales per gross square foot(15)	$ 233		$ 240		$ 245		$ 231		$ 229
Net sales per selling square foot(16)	$ 298		$ 302		$ 308		$ 292		$ 287
Other Selected Operating Data:
Capital expenditures	$ 59,453		$ 37,252		$ 20,413		$ 24,318		$ 21,077
Depreciation and amortization of non-financing
intangibles	$ 17,537		$ 13,749		$ 11,504		$ 10,671		$ 6,984

	Fiscal Year (1)

	2003			2002			2001			2000			1999

	(dollars in thousands, except per share and square footage data)
Consolidated Statement of Operations Data:
Net sales	$	690,701		$	597,745		$	482,528		$	421,662		$	328,121
Gross profit(2)		190,367			181,515			144,575			126,451			94,371
Selling, general and administrative expenses(3)		180,476			148,357			118,070			105,935			81,377
Corporate allocation from Limited Brands(4)		--			--			--			--			3,600
Costs of recapitalization(5)		--			--			--			--			1,085

Operating income		9,891			33,158			26,505			20,516			8,309
Interest expense, net(6)		2,694			1,796			6,723			13,891			5,384
Loss on early extinguishment of debt		--			--			10,435			--			--
Loss on investment in MVP.com		--			--			--			4,621			--

Income before income tax expense, and cumulative effect of change in accounting principle		7,197			31,362			9,347			2,004			2,925
Income tax expense		3,594			12,642			4,715			1,641			1,708

Income before cumulative effect of change in accounting principle		3,603			18,720			4,632			363			1,217
Cumulative effect of change in accounting principle, net of income tax expense(7)		--			--			--			--			(1,067	)

Net income	$	3,603		$	18,720		$	4,632		$	363		$	150

Earnings per share (7)
Basic	$	0.21		$	1.10		$	0.32		$	0.03		$	0.02
Diluted	$	0.21		$	1.09		$	0.32		$	0.03		$	0.02
Weighted average shares outstanding
Basic		17,170,173			17,044,902			14,445,401			10,419,021			6,226,220
Diluted		17,287,351			17,178,342			14,688,800			10,573,261			6,226,220
Cash dividend declared per share(8)	$	--		$	--		$	--		$	--		$	2.60
Selected Store Data:
Number of stores open (at fiscal year end)(9)		43			34			26			21			18
Comparable store sales (decrease) increase(10)(11)		(5.8	)%		0.5	%		0.2	%		10.2	%		8.4	%
Average net sales per store(9)(12)	$	17,908		$	20,459		$	20,796		$	21,142		$	19,524
Total gross square footage (at fiscal year end)		3,763,570			2,967,805			2,240,447			1,822,696			1,553,866
Average gross square footage per store (at fiscal year end)(9)(13)		87,525			87,288			86,171			86,795			86,326
Net sales per gross square foot(9)(14)	$	208		$	233		$	240		$	245		$	231
Net sales per selling square foot(9)(15)	$	271		$	298		$	302		$	308		$	292
Other Selected Operating Data:
Capital expenditures	$	77,113		$	59,453		$	37,252		$	20,413		$	24,318
Depreciation and amortization of non-financing intangibles	$	24,916		$	17,537		$	13,749		$	11,504		$	10,671

	Fiscal Year (1)
Selected Financial Data, continued	2002	2001	2000	1999	1998
	(dollars in thousands, except per share and square footage data)
Consolidated Balance Sheet Data:
Net working capital(17)	$ 54,315	$ 52,139	$ 47,903	$ 45,907	$ 42,580
Total assets	$ 321,221	$ 275,740	$ 201,089	$ 174,800	$ 138,160
Total long term-debt and capital lease
obligations	$ 186	$ 5,932	$ 75,995	$ 70,077	$ 1,270
Total shareholders' equity	$ 207,277	$ 187,221	$ 69,039	$ 66,914	$ 9,664

(1) Our fiscal year ends the Saturday closest to January 31 and usually consists of 52 weeks. However, every five or six years our fiscal year consists of 53 weeks. Fiscal 2000 included 53 weeks.

	Fiscal Year (1)

Selected Financial Data, continued	2003		2002		2001		2000		1999

	(dollars in thousands, except per share and square footage data)
Consolidated Balance Sheet Data:
Net working capital(16)	$	67,932	$	54,315	$	52,139	$	47,903	$	45,907
Total assets	$	394,245	$	321,221	$	275,740	$	201,089	$	174,800
Total long term-debt and capital lease obligations	$	49,578	$	186	$	5,932	$	75,995	$	70,077
Total shareholders’ equity	$	213,483	$	207,277	$	187,221	$	69,039	$	66,914

(2) Gross profit is the difference between net sales and the cost of sales. Cost of sales includes buying, occupancy and distribution costs.

(1)	Our fiscal year ends the Saturday closest to January 31 and usually consists of 52 weeks. However, every five or six years our fiscal year consists of 53 weeks. Fiscal 2000 included 53 weeks.
(2)	Gross profit is the difference between net sales and the cost of sales. Cost of sales includes buying, occupancy and distribution costs.
(3)	Selling, general and administrative expenses include goodwill amortization of $783,000, $783,000, and $808,000 in fiscal 2001, 2000, and 1999, respectively. No goodwill amortization was recorded in fiscal 2003 or fiscal 2002. Also included are store pre-opening costs such as store payroll, grand opening event marketing, travel, supplies and other store costs.
(4)	Prior to the recapitalization in fiscal 1999, Limited Brands charged us for services they provided, including tax, treasury, legal, audit, leasing, risk management, benefit administration and other services. If these charges were not specifically identified, we charged them as a corporate allocation from Limited Brands. Costs charged to us by Limited Brands may be different from the costs we may have incurred had we provided these services ourselves or obtained them from a third party.
(5)	Costs of recapitalization represent expenses incurred in connection with our recapitalization in fiscal 1999.
(6)	Interest expense includes interest and amortization of financing intangibles, net of interest income.
(7)	Effective January 31, 1999, we changed our method of accounting for store pre-opening costs to conform with the American Institute of Certified Public Accountant’s Statement of Position 98-5, which requires companies to expense these store pre-opening costs as incurred. Earnings per share in fiscal 1999 before the cumulative effect of change in accounting principle was $0.19 per share (basic and diluted).
(8)	In connection with the 1999 recapitalization, we paid a $9,344,000 special dividend to a wholly owned subsidiary of Limited Brands.
(9)	In fiscal 2003 we reopened our former Greenwood, IN location as a clearance center. We did not include this location in our store count or in our comparable store sales calculation as it is not part of our long-term strategy.
(10)	A store is not included in comparable store sales until its 14th month of operation. For purposes of comparison to fiscal 2002, in the calculation of fiscal 2002 comparable store sales increase only, for our Greenwood store which closed on September 20, 2002 due to a tornado, we have treated fiscal 2001 sales subsequent to the comparable date of the store closing as non-comparable store sales.
(11)	Comparable store sales increased 8.8% for the first 52 weeks of fiscal 2000.
(12)	Average net sales per store is calculated by dividing net sales for stores open the entire period by the number of stores open the entire period.
(13)	Average gross square footage per store is calculated by dividing total gross square footage at period end by the number of stores open at period end.
(14)	Net sales per square foot is calculated by dividing net sales for stores open the entire period by the total gross square feet for those stores.
(15)	Net sales per selling square foot is calculated by dividing net sales for stores open the entire period by the total selling square feet of those stores.
(16)	Net working capital is calculated as the difference between current assets (excluding cash) and current liabilities (excluding accounts payable to Limited Brands (only applicable to 1999) and the current portion of long-term debt).

(3) Selling, general and administrative expenses include goodwill amortization of $783,000, $783,000, $808,000 and $772,000 in fiscal 2001, 2000, 1999, and 1998, respectively. No goodwill amortization was recorded in fiscal 2002. Also included are store pre-opening costs such as store payroll, grand opening event marketing, travel, supplies and other store costs. 21

~~(4)~~Item Prior to the recapitalization in fiscal 1999, Limited Brands charged us for services they provided, including tax, treasury, legal, audit, leasing, risk management, benefit administration and other services7. IfMANAGEMENT’S ~~these~~DISCUSSION ~~charges~~AND ~~were~~ANALYSIS ~~not~~OF ~~specifically~~FINANCIAL ~~identified,~~CONDITION weAND ~~charged~~RESULTS ~~them~~OF as a corporate allocation from Limited Brands. Costs charged to us by Limited Brands may be different from the costs we may have incurred had we provided these services ourselves or obtained them from a third party.OPERATIONS

~~(5)~~ The ~~Costs~~following discussion and analysis of ~~recapitalization~~our ~~represent~~financial ~~expenses~~condition ~~incurred~~and results of operations for the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002 should be read in ~~connection~~conjunction with “Selected Consolidated Financial Data” and our ~~recapitalization~~audited consolidated financial statements and the notes to those statements that are included elsewhere in ~~fiscal~~this ~~1999~~Report. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements” below and elsewhere in this report.

~~(6)~~ Business ~~Interest expense includes interest, amortization of financing intangibles, net of interest income.~~Overview

~~(7)~~ We Inare ~~fiscal~~a ~~2001,~~specialty weretailer ~~incurred~~that anoffers ~~extraordinary~~a ~~loss~~broad range of ~~$5.2~~products ~~million,~~appealing ~~net~~to ofconsumers ~~taxes~~with active lifestyles, ~~related~~from the casual consumer to the ~~expense~~serious ofsports ~~the~~enthusiast. ~~remaining~~We ~~discount~~sell outdoor and ~~deferred~~athletic ~~financing~~equipment, ~~costs~~apparel, ~~that~~footwear ~~resulted~~and ~~from~~accessories, ~~extinguishing~~as ~~the~~well ~~subordinated~~as casual apparel and ~~junior~~footwear. ~~subordinated~~We ~~debt~~have two primary store formats. Our Intypical ~~addition,~~store webuilt ~~expensed~~over the ~~remaining~~past ~~deferred~~several ~~financing~~years ~~costs~~has oftwo ~~$1.6~~shopping ~~million~~levels, ~~net~~ranges ofin ~~taxes~~size from approximately 80,000 ~~associated~~to 100,000 gross square feet, and features an open, airy atmosphere with a fifty five foot high interior atrium, metal appointments and interactive elements, such as rock climbing walls and putting greens, that are designed to create an enjoyable and interactive shopping experience appealing to both the ~~previous~~casual ~~revolving~~consumer ~~credit~~and ~~facility~~the serious sports enthusiast. Our ~~Earnings~~one-level ~~per~~stores, ~~share~~which inare ~~fiscal~~generally ~~2001~~about ~~before~~65,000 gross square feet, contain many of the ~~extraordinary~~same ~~loss~~features ~~was~~as our $0two-level stores, including a thirty-foot climbing wall.79 We ~~per~~intend ~~share~~to use both formats in the future, ~~basic~~depending on many factors, including market size, available space, and $0store cost considerations.78 We ~~per~~currently ~~share~~operate 45 stores in 21 states, ~~diluted~~including two stores opened through March 2004.

~~(8)~~ In ~~Effective~~March ~~January~~2004, 31we redefined our strategy to emphasize growth by maximizing performance in our existing stores and by adding new stores, ~~1999~~primarily in existing markets. Specifically, we ~~changed~~announced that we would slow future store commitments, so that we can focus on maximizing the performance of our ~~method~~existing stores. We are becoming more selective in opening new stores, and will concentrate new store growth primarily in existing markets because of ~~accounting~~the leveraging opportunities for ~~store~~marketing ~~pre-opening~~expense ~~costs~~and also to ~~conform~~provide ~~with~~additional ~~the~~shopping ~~American~~locations ~~Institute~~for the convenience of ~~Certified~~our ~~Public~~customers. We ~~Accountant’s~~would ~~Statement~~also ofconsider ~~Position~~a ~~98-5,~~few ~~which~~new ~~requires~~markets, ~~companies~~primarily towhere ~~expense~~potential ~~these~~multiple store ~~pre-opening~~opportunities ~~costs~~exist. We ashave ~~incurred.~~commitments ~~Earnings~~to ~~per~~open ~~share~~nine innew stores during fiscal ~~1999~~2004, ~~before~~including the ~~cumulative~~two ~~effect~~stores already opened through March. One of ~~change~~our infiscal ~~accounting~~2004 ~~principle~~stores ~~was~~is $0a replacement store in our Indianapolis market.19 We ~~per~~expect ~~share~~to ~~(basic~~open ~~and~~three ~~diluted)~~to five additional stores in fiscal 2005.

~~(9) Share data for fiscal 1998 and 1999 reflect a 1999 stock dividend effected in the form of a stock split (35,999:1).~~22

~~(10)~~ Critical InAccounting ~~connection with the 1999 recapitalization, we paid a $9,344,000 special dividend to a wholly owned subsidiary of Limited Brands.~~Policies

~~(11)~~ The Apreparation ~~store~~of isthe ~~not~~consolidated ~~included~~financial statements in ~~comparable~~conformity ~~store~~with ~~sales~~accounting ~~until~~principles ~~its~~generally ~~14th~~accepted ~~month~~in ofthe ~~operation.~~United ~~For~~States ~~purposes~~ of ~~comparison~~America torequires ~~fiscal 2002, in~~ the ~~calculation~~appropriate application of ~~fiscal~~certain ~~2002~~accounting ~~comparable store sales increase only~~policies, ~~for~~many ~~our~~of ~~Greenwood store~~ which ~~closed~~require onus ~~September 20, 2002 due~~ to amake ~~tornado,~~estimates weand ~~have~~assumptions ~~treated~~that ~~fiscal~~affect ~~2001 sales subsequent to~~ the ~~comparable~~reported ~~date~~amounts of ~~the~~assets ~~store~~and ~~closing~~liabilities asand ~~non-comparable~~disclosure store sales. In October 1998, we relocated a single freestanding store in Castleton, Indiana to a larger two story mall store. We have not included this relocated store in the comparable store sales calculation until its14th month of ~~operation.~~contingent Ifassets weand ~~had~~liabilities ~~included~~at the ~~sales~~date of the ~~relocated~~financial ~~store~~statements inand ~~comparable store sales,~~ the ~~comparable~~reported ~~store~~amounts ~~sales~~of ~~would~~revenue ~~have~~and ~~been~~expenses ~~higher~~during ~~for~~the ~~fiscal~~reporting ~~1999 and 1998~~period.

~~(12)~~ We ~~Comparable~~believe ~~store~~the ~~sales~~application ~~increased~~of ~~8.8%~~our accounting policies, and the estimates inherently required therein, are reasonable and generally accepted for companies in the ~~first~~retail 52industry. We ~~weeks~~believe that the following addresses the more critical accounting policies used in the preparation of ~~fiscal~~our ~~2000~~consolidated financial statements and require management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

~~(13)~~Revenue ~~Average~~recognition: ~~net~~We recognize retail sales ~~per~~upon the purchase of the merchandise by our customers, net of returns and allowances, which are based on estimates determined using historical customer returns experience. We use gift cards and store credits, the revenue of which is ~~calculated~~recognized upon redemption by ~~dividing~~the ~~net~~customer. ~~sales~~We ~~for~~recognize ~~stores~~markdowns ~~open~~associated with our preferred customer and private label credit card programs upon redemption in conjunction with a qualifying purchase. Inventories: We state inventories at the ~~entire~~lower ~~period~~of cost or market, on a first-in, first-out basis, utilizing the retail inventory method. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including among others, markups, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. The methodologies utilized by us in applying the ~~number~~retail inventory method are consistent for all periods presented. Such methodologies include the development of ~~stores~~the ~~open~~cost-to-retail ratios, development of shrinkage reserves and the ~~entire~~accounting ~~period~~for price changes. We review our inventory levels to identify merchandise that may not sell at its currently ticketed price for reasons such as style, seasonal adaptation or competition and generally use markdowns to clear merchandise. Property and Equipment: Our property and equipment is stated at cost. We compute depreciation and amortization of property and equipment on a straight-line basis over the estimated useful lives of the related assets. We amortize leasehold improvements over the shorter of the estimated useful life or term of the lease.

~~(14) Average gross square footage per store is calculated by dividing total gross square footage at period end by the number of stores open at period end.~~ 23

~~(15)~~Long-Lived ~~Net~~Assets: ~~sales~~We ~~per~~review ~~square~~our ~~foot~~long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable and annually when no such event has occurred. We review assets held and used on a store basis, which is ~~calculated~~the bylowest ~~dividing~~level ~~net~~of ~~sales~~assets for ~~stores~~which ~~open~~there are identifiable cash flows. An impairment of long-lived assets exists when the ~~entire~~undiscounted ~~period~~cash flows estimated to be generated by those assets is less than the ~~total~~carrying ~~gross~~value ~~square~~of ~~feet~~those ~~for~~assets. If any impairment is determined as a result of our assessment, the impairment loss is recorded in selling, general and administrative expenses. During fiscal 2003, 2002 and 2001, no impairment was recorded as a result of our assessment. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those ~~stores~~anticipated, may affect the carrying value of long-lived assets and could result in an impairment charge. Income Taxes: The Company follows SFAS No. 109, Accounting for Income Taxes, which requires the use of the liability method in accounting for income taxes. Deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying value of existing assets and liabilities and their respective tax bases. Inherent in the measurement of these balances are certain judgments and interpretations of existing tax law and other published guidance as applied to our operations and our ability to realize our deferred assets. During fiscal 2003, we recognized income tax expense of $715,000 to establish a valuation allowance against our capital loss carryforwards that we do not expect to utilize before it expires. No valuation allowances were recorded during fiscal 2002 and fiscal 2001. Our effective tax rate considers our judgment of expected tax liabilities in the various taxing jurisdictions within which we are subject to tax.

~~(16)~~Effect ~~Net sales per selling square foot is calculated by dividing net sales for stores open the entire period by the total square selling feet~~ of ~~those~~Certain ~~stores.~~Non-Recurring Items

~~(17)~~ Our ~~Net~~audited ~~working~~consolidated ~~capital~~statements isof ~~calculated~~operations asinclude the ~~difference~~following ~~between~~non-recurring ~~current~~items ~~assets (excluding cash)~~ and ~~current~~events ~~liabilities~~that ~~(excluding~~affect ~~accounts~~comparability ~~payable~~with toother ~~Limited~~periods: ~~Brands and the current portion of long term debt).~~

18• During fiscal 2003, we recognized income tax expense of $715,000 to establish a valuation allowance against our capital loss carryforwards that we do not expect to utilize before it expires. • During fiscal 2003, we recognized compensation expense of $286,000 from the issuance of restricted stock to an officer. • During fiscal 2003 and 2002, we recognized net insurance proceeds of $1.2 million and $1.1 million, respectively, related to our former Greenwood, Indiana store location that was destroyed by a tornado during fiscal 2002.

~~Item 7. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~24

~~The following~~• ~~discussion~~On ~~and~~July ~~analysis~~2, of2001, we consummated our ~~financial~~initial ~~condition~~public offering of 6,500,000 shares of common shares at $19.00 per share. Upon the closing of the initial public offering, we repaid all outstanding principal and ~~results~~accrued interest under our subordinated and junior subordinated notes. In connection therewith, we recorded a loss of ~~operations~~ ~~for~~$7.8 million incurred on early extinguishment of debt in connection with expensing the ~~fiscal~~remaining ~~years~~deferred ~~ended~~financing ~~February~~costs ($1.2 million) and the remaining unamortized discount on the subordinated and junior subordinated notes ($6.6 million). In accordance with SFAS No. 145, ~~2003~~Rescission of FASB Statements No. 4, ~~February~~44 2and 64, ~~2002~~Amendment of FASB Statement No. 13, and ~~February~~ 3Technical Corrections, ~~2001~~gains and losses from the extinguishment of debt should be ~~read~~reported inas ~~conjunction~~part ~~with~~of ~~“Selected~~on-going ~~Consolidated Financial~~operations, ~~Data”~~unless the extinguishment of debt meets the criteria of both unusual and ~~our~~infrequent ~~audited~~as established in APB No. 30. SFAS No. 145 is effective for us beginning February 2, 2003, including all prior period presentations. The loss on early extinguishment of debt in fiscal 2001 has been reclassified in the comparative consolidated financial statements to be included within earnings before income taxes. • During fiscal 2001, we recorded a charge of approximately $900,000 associated with termination costs for the former President and Chief Operating Officer. • In fiscal 2003, 2002 and 2001, we recorded compensation expense of $115,000, $368,000, and $165,000, respectively, relating to the ~~notes~~ issuance of stock options to ~~those~~management ~~statements~~during fiscal 2000 with an exercise price that ~~are~~was ~~included~~below ~~elsewhere~~fair invalue. ~~this~~All ~~Report~~compensation expense related to the issuance of stock options with an exercise price below fair value has been recorded. ~~Our discussion~~• ~~contains~~On ~~forward-looking~~May ~~statements~~3, ~~based~~2001, ~~upon~~we ~~current~~refinanced ~~expectations that~~our ~~involve~~revolving ~~risks~~credit facility to provide for borrowings up to $160.0 million, of which $15.0 million is allocated for the issuance of standby and ~~uncertainties~~import letters of credit. In conjunction with the refinancing, ~~such~~we expensed the remaining deferred financing costs of $2.6 million as ~~our~~a ~~plans~~loss on early extinguishment of debt relating to the former credit facility. In accordance with SFAS No. 145, ~~objectives~~Rescission of FASB Statements No. 4, ~~expectations~~ 44 and ~~intentions~~64, Amendment of FASB Statement No. ~~Actual~~13, ~~results~~and Technical Corrections, gains and losses from the ~~timing~~extinguishment of ~~events~~debt ~~could differ~~should ~~materially~~be ~~from~~reported ~~those~~as ~~anticipated~~part inof ~~these forward~~on-~~looking~~going ~~statements~~operations, ~~as a~~unless ~~result~~the extinguishment of adebt ~~number~~meets the criteria of ~~factors~~both unusual and infrequent as established in APB No. 30. SFAS No. 145 is effective for us beginning February 2, 2003, including ~~those~~all ~~set~~prior ~~forth~~period ~~under “Cautionary~~presentations. ~~Note~~The ~~Regarding~~loss ~~Forward-Looking~~on ~~Statements”~~early ~~below~~extinguishment ~~and elsewhere~~of debt has been reclassified in ~~this~~the ~~report~~comparative consolidated financial statements to be included within earnings before income taxes. • During fiscal 2001, we recorded a bad debt recovery of approximately $600,000 related to an investment in MVP.com that was written off during fiscal 2000.

~~Business Overview~~ 25

We ~~are~~ Net a rapidly growing specialty retailer that offers a broad range of products appealing to consumers with active lifestyles, from the casual consumer to the serious sports enthusiast. We sell outdoor and athletic equipment, apparel, footwear and accessories, as well as casual apparel and footwear. A typical store ranges from approximately 80,000 to 100,000 square feet and features a distinctive two story glass facade, a fifty five foot high interior atrium, metal appointments and interactive and entertaining elements, such as the signature rock climbing wall. We currently operate 36 stores in 17 states, including two stores opened during the first quarter of fiscal 2003. Sales

~~Critical~~ Net ~~Accounting~~sales ~~Policies~~consist of sales from comparable stores, non-comparable stores and new stores. A store is not included in comparable store sales until the start of its fourteenth month of operation. New store sales include sales from stores we opened in the current fiscal year. Non-comparable store sales include sales in the current fiscal year from our stores opened during the previous fiscal year before they have begun their fourteenth month of operation.

~~The~~ ~~preparation~~ Cost of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Sales

We ~~believe~~ Cost ~~the application~~ of ~~our~~sales ~~accounting~~includes ~~policies, and~~ the ~~estimates~~cost ~~inherently required~~of ~~therein~~merchandise, ~~are~~inventory ~~reasonable~~markdowns, ~~and~~inventory ~~generally~~shrinkage, ~~accepted~~inbound ~~for~~freight, ~~companies~~distribution inand ~~the retail~~warehousing, ~~industry.~~payroll Weand ~~believe~~related ~~that~~benefits ~~the~~for ~~following addresses the more critical accounting policies used in the preparation of~~ our ~~consolidated~~buying ~~financial statements~~personnel and ~~require~~store ~~management’s~~occupancy ~~most~~costs. ~~difficult~~Store ~~and~~occupancy ~~subjective judgments,~~costs ~~often~~include asrent, acontingent ~~result~~rents, ofcommon ~~the~~area ~~need~~maintenance, toreal ~~make~~estate ~~estimates~~and ~~about~~personal ~~the~~property ~~effect~~taxes, ~~of matters~~utilities, ~~that~~and ~~are~~repairs ~~inherently~~and ~~uncertain~~maintenance.

~~Revenue recognition: We recognize retail sales upon the purchase of the merchandise by our customers~~ Selling, ~~net~~General ~~of returns~~ and ~~allowances,~~Administrative which are based on estimates determined using historical customer returns experience. We use gift cards and store credits, the revenue of which is recognized upon redemption by the customer. We recognize markdowns associated with our preferred customer programs upon redemption in conjunction with a qualifying purchase.Expenses

19 Selling, general and administrative expenses include selling, store management and corporate expenses, including payroll and related employee benefits (other than for our buying personnel), employment taxes, management information systems, marketing, insurance, legal, depreciation, amortization of non-financing intangibles, store pre-opening and other corporate level expenses. Store pre-opening expenses include store level payroll, employee relocation, grand opening event marketing, travel, supplies, and other store opening expenses. Corporate level expenses are primarily attributable to our corporate offices in Plainfield, Indiana and, to a lesser extent, to our corporate personnel located in some of our markets. Depreciation and amortization of non-financing intangibles consists primarily of the depreciation of leasehold improvements, fixtures and equipment owned by us.

~~Inventories:~~ Interest ~~We state inventories at the lower of cost or market~~Expense, on a first-in, first-out basis, utilizing the retail inventory method. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including among others, markups, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. The methodologies utilized by us in applying the retail inventory method are consistent for all periods presented. Such methodologies include the development of the cost-to-retail ratios, development of shrinkage reserves and the accounting for price changes. We review our inventory levels to identify merchandise that may not sell at its currently ticketed price for reasons such as style, seasonal adaptation or competition and generally use markdowns to clear merchandise.net

~~Property~~ Interest ~~and~~expense, ~~Equipment:~~net ~~Our~~of ~~property~~interest ~~and~~income, ~~equipment~~primarily isincludes ~~stated~~interest atrelating ~~cost.~~to Weour ~~compute~~revolving ~~depreciation~~credit ~~and~~facility, ~~amortization~~financing ofobligations, ~~property~~ and ~~equipment~~construction onloans, aas ~~straight-line~~well ~~basis~~as ~~over~~ the ~~estimated~~amortization ~~useful~~of ~~lives~~financing ofintangibles arising from the ~~related~~sale ~~assets.~~leaseback Wetransaction ~~amortize~~with ~~leasehold~~a ~~improvements~~member ~~over~~of the ~~shorter~~W.P. ofCarey ~~the~~group. ~~estimated~~Fiscal ~~useful~~2001 ~~life~~includes ornon-cash ~~term~~pay-in-kind ofinterest ~~the~~relating ~~lease~~to subordinated and junior subordinated notes.

Long-Lived Assets: We review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable and annually when no such event has occurred. We review assets held and used on a store basis, which is the lowest level of assets for which there are identifiable cash flows. An impairment of long-lived assets exists when the undiscounted cash flows estimated to be generated by those assets is less than the carrying value of those assets. If any impairment is determined as a result of our assessment, the impairment loss is recorded in selling, general and administrative expenses. During fiscal 2002, 2001 and 2000, no impairment was recorded as a result of our assessment. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated, may affect the carrying value of long-lived assets and could result in an impairment charge. 26

~~Income~~ Results ~~Taxes: The Company follows SFAS No. 109, Accounting for Income Taxes, which requires the use~~ of the liability method in accounting for income taxes. Deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying value of existing assets and liabilities and their respective tax bases. Inherent in the measurement of these deferred balances are certain judgments and interpretations of existing tax law and other published guidance as applied to our operations. No valuation allowance has been provided for deferred tax assets, since we fully anticipate that full amount of these assets should be realized in the future. Our effective tax rate considers our judgment of expected tax liabilities in the various taxing jurisdictions within which we are subject to tax.Operations

~~Effect~~ The following table sets forth our statement of ~~Certain~~operations ~~Non-Recurring~~data ~~Items~~as a percent of net sales for the periods indicated:

Our audited consolidated statements of operations include the following non-recurring items and events that affect comparability with other periods:

	Fiscal Year (1)

	2003			2002			2001

Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		72.4			69.6			70.0

Gross profit		27.6			30.4			30.0
Selling, general and administrative expenses		26.1			24.8			24.5

Operating income		1.4			5.5			5.5
Interest expense, net		0.4			0.3			1.4
Loss on early extinguishment of debt		--			--			2.2

Income before income tax expense		1.0			5.2			1.9
Income tax expense		0.5			2.1			1.0

Net income		0.5	%		3.1	%		1.0	%

20(1) Due to rounding, columns may not add.

• Fiscal ~~During~~Year ~~fiscal~~2003 ~~2002,~~(52 weweeks) ~~recognized~~compared ~~net insurance proceeds of $1.1 million related~~ to ~~the~~Fiscal ~~Greenwood,~~Year ~~Indiana~~2002 ~~store~~(52 ~~location that was destroyed by a tornado.~~weeks)

• Net On July 2, 2001, we consummated our initial public offering of 6,500,000 shares of common shares at $19.00 per share. Upon the closing of the initial public offering, we repaid all outstanding principal and accrued interest under our subordinated and junior subordinated notes. In connection therewith, we recorded an extraordinary loss of $5.2 million incurred on early extinguishment of debt in connection with expensing the remaining deferred financing costs ($1.2 million) and the remaining unamortized discount on the subordinated and junior subordinated notes ($6.6 million), net of income taxes of $2.6 million.Sales

• Net ~~During~~sales ~~fiscal~~increased ~~2001~~by 15.6%, weor ~~recorded~~$93.0 amillion, ~~charge~~to of$690.7 ~~approximately~~million in fiscal 2003 from $~~900~~597.7 million in fiscal 2002. The increase resulted from new store sales of $80.2 million from nine new stores opened during the fiscal year,~~000~~ an increase of $46.0 million in non-comparable store sales associated with ~~termination~~nine ~~costs~~stores opened during fiscal 2002 that had not yet entered the comparable store sales base and a decrease in comparable store sales of 5.8%, or $33.2 million. We believe a number of factors contributed to the decrease in comparable store sales for the ~~former~~fiscal ~~President~~2003, including the sluggish economy, a highly promotional retail environment, aggressive discounting to clear aged and ~~Chief~~excess ~~Operating~~inventory, ~~Officer~~and unseasonably warm weather in October.

• Our Informer ~~fiscal 2002~~Greenwood, ~~2001~~Indiana ~~and~~location ~~2000~~was closed on September 20, we2002 ~~recorded~~as ~~compensation~~a ~~expense~~result of ~~$368,000,~~a ~~$165,000~~tornado. ~~and~~For ~~$50,000,~~purposes ~~respectively,~~of ~~relating~~comparison to the ~~issuance~~current offiscal ~~stock~~period, ~~options~~we tohave ~~management~~treated ~~with~~net ansales ~~exercise~~for ~~price~~fiscal 2003 at that ~~was~~location ~~below~~as ~~fair~~non-comparable ~~value~~store sales. On WeApril ~~will~~25, ~~record~~2003, we reopened our former Greenwood, Indiana location as a clearance center. Because the ~~remaining~~clearance ~~compensation~~center ~~expense~~is ~~relating~~not ~~thereto~~part of ~~$115~~our long-term strategy,~~000~~ inwe ~~fiscal~~have ~~2003~~included sales at this location as non-comparable store sales.

• On May 3, 2001, we refinanced our revolving credit facility to provide for borrowings up to $160.0 million, of which $15.0 million is allocated for the issuance of standby and import letters of credit. In conjunction with the refinancing, we expensed the remaining deferred financing costs, net of income tax, of $1.6 million as an extraordinary loss on early extinguishment of debt relating to the former credit facility. 27

• Gross InProfit fiscal 2000, we wrote off our $4.6 million investment in MVP.com, Inc., a related party that has ceased operations, and $1.2 million of accounts receivable due from MVP.com. MVP.com voluntarily entered into an assignment for the benefit of creditors in February 2001, at which time management deemed the value of the investment to be permanently impaired and the accounts receivable to be uncollectible. During fiscal 2001, we recorded a bad debt recovery of approximately $600,000 related to MVP.com.

• Gross Inprofit, ~~fiscal~~which ~~2000~~is net sales less cost of sales, weincreased ~~recorded~~by ~~stock~~4.9%, ~~compensation~~or ~~expense~~$8.9 ofmillion, to $~~430~~190.4 million in fiscal 2003 from $181.5 million in fiscal 2002. Gross profit was 27.6% of net sales in fiscal 2003 compared to 30.4% in fiscal 2002. This decrease as a percentage of net sales was primarily the result of higher markdowns,~~000~~ including markdowns associated with the ~~sale~~clearance of ~~common~~excess ~~stock~~inventory, atand ~~below~~higher ~~fair~~store ~~value~~occupancy tocosts ~~members~~partially offset by the adoption of ~~management~~Emerging ~~and~~Issues Task Force (“EITF”) 02-16, Accounting by a ~~director~~Reseller for Cash Consideration Received from a Vendor.

~~• In connection with recruiting and hiring our Chief Executive Officer~~ Selling, weGeneral ~~incurred expenses of $855,000 for a signing bonus, recruiting costs~~ and ~~relocation~~Administrative ~~expenses in fiscal 2000.~~Expenses

Selling, general and administrative expenses increased by 21.6%, or $32.1 million, to $180.5 million in fiscal 2003 from $148.4 million in fiscal 2002. Selling, general and administrative expenses were 26.1% of net sales in fiscal 2003, compared to 24.8% in fiscal 2002. The increase as a percentage of net sales was due primarily to higher depreciation expense for stores opened during and subsequent to fiscal 2002, higher expenses for marketing primarily resulting from the adoption of EITF 02-16, and increases in insurance costs.

~~Net~~ Operating ~~Sales~~Income

~~Net~~ ~~sales~~ Operating ~~consist~~income ofdecreased ~~sales~~by ~~from~~$23.3 ~~comparable stores~~million, ~~non-comparable~~to ~~stores~~$9.9 ~~and~~million ~~new stores.~~in Afiscal ~~store~~2003 isfrom ~~not~~$33.2 ~~included~~million in ~~comparable~~fiscal ~~store~~2002. ~~sales~~Operating ~~until~~income ~~the~~was ~~start~~1.4% ofand ~~its fourteenth~~5.5% ~~month~~ of ~~operation.~~net ~~New store~~ sales ~~include~~in ~~sales~~fiscal ~~from~~2003 ~~stores~~and ~~we opened~~2002, inrespectively. The ~~the~~negative ~~current~~impact ~~fiscal~~on ~~year.~~operating ~~Non-comparable~~results ~~store~~for ~~sales~~fiscal ~~include~~2003 ~~sales~~as ~~in the~~compared ~~current~~to fiscal ~~year~~2002 ~~from~~was ~~our~~the ~~stores~~result ~~opened~~of ~~during~~higher ~~the~~markdowns, ~~previous~~including ~~fiscal~~markdowns ~~year before~~associated ~~they~~with ~~have~~the ~~begun~~clearance ~~their~~of ~~fourteenth~~excess ~~month~~inventory, ofhigher ~~operation.~~store Inoccupancy ~~addition~~costs, ~~our~~higher ~~net sales~~expenses infor ~~fiscal~~depreciation, ~~2000~~and ~~included~~higher ~~sales~~marketing weexpenses ~~made~~primarily atfrom ~~our~~the ~~merchandise~~adoption ~~cost~~of toEITF ~~MVP~~02-16.~~com.~~

~~Cost~~ Interest ofExpense, ~~Sales~~net

~~Cost~~ of Interest ~~sales~~expense, ~~includes~~net ~~the~~of ~~cost~~interest income of ~~merchandise~~$162,000 ~~inventory~~was ~~markdowns,~~$2.7 ~~inventory shrinkage,~~million ~~inbound~~in ~~freight~~fiscal 2003, ~~distribution~~compared ~~and~~to ~~warehousing~~interest expense, ~~payroll~~net ~~and~~of ~~related benefits~~interest ~~for~~income ~~our~~of ~~buying personnel~~$257,000 ~~and~~was ~~store occupancy costs~~$1.8 ~~Store~~million ~~occupancy costs~~for ~~include~~fiscal ~~rent,~~2002. This ~~contingent~~increase ~~rents,~~was ~~common~~due ~~area~~primarily ~~maintenance,~~to ~~real~~higher ~~estate~~average ~~and personal~~outstanding ~~property~~balances ~~taxes,~~on ~~utilities,~~our ~~and~~revolving ~~repairs~~credit ~~and maintenance~~facility.

~~Selling, General and Administrative~~ ~~Expenses~~ Income Taxes

~~Selling,~~ ~~general~~ The ~~and~~effective ~~administrative~~income ~~expenses~~tax ~~include~~rate ~~selling, store management and corporate expenses, including payroll and related employee benefits (other than~~ for ~~our~~fiscal ~~buying~~2003 ~~personnel),~~was ~~employment~~49.9%. This ~~taxes,~~rate ~~management~~reflects ~~information~~the ~~systems, marketing,~~effect ~~insurance,~~of ~~legal,~~the ~~depreciation,~~anticipated ~~amortization~~federal oftax ~~non-financing intangibles,~~rate ~~store pre-opening~~ and ~~other~~aggregated ~~corporate~~state ~~level~~tax ~~expenses.~~rates ~~Store pre-opening~~in ~~expenses~~the ~~include~~various ~~store~~states ~~level~~in ~~payroll,~~which ~~employee~~we ~~relocation,~~currently ~~grand opening~~conduct ~~event marketing, travel, supplies, and other store opening expenses~~business. ~~Corporate~~ This ~~level~~rate ~~expenses~~also ~~are~~includes ~~primarily~~the ~~attributable~~impact toof ~~our corporate offices in Plainfield, Indiana and, to~~ a ~~lesser extent~~$715,000 tovaluation ~~our~~allowance ~~corporate~~for ~~personnel~~capital ~~located in~~loss ~~some~~carryforwards ofthat ~~our~~we ~~markets.~~do ~~Depreciation~~not ~~and~~expect ~~amortization~~to ofutilize ~~non-financing intangibles~~before ~~consists~~it ~~primarily~~expires. ofThe ~~the~~effective ~~depreciation~~income oftax ~~leasehold~~rate ~~improvements, fixtures~~for ~~and~~2002 ~~equipment~~was ~~owned by us~~40.3%.

~~Interest~~ Net ~~Expense, net~~Income

~~Interest~~ ~~expense,~~ As ~~net~~a result of ~~interest~~the ~~income~~foregoing, ~~primarily~~net ~~includes~~income ~~interest~~decreased ~~relating~~by to$15.1 ~~our revolving~~million ~~credit~~to ~~facility~~$3.6 ~~and~~million ~~construction~~in ~~loans,~~fiscal as2003 ~~well~~from ~~as the amortization of financing intangibles~~$18.7 ~~Fiscal~~million ~~2001 and 2000 also include non-cash pay-~~in~~-kind interest~~ ~~relating~~fiscal ~~to subordinated and junior subordinated notes~~2002.

~~Results of Operations~~ 28

~~The~~ ~~following~~Fiscal ~~table~~Year ~~sets~~2002 ~~forth~~(52 ~~our~~weeks) ~~statement~~compared ofto ~~operations~~Fiscal ~~data~~Year as2001 a(52 ~~percent of net sales for the periods indicated:~~ weeks)

22 Net Sales

	Fiscal Year (1)
	2002		2001		2000
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	69.6		70.0		70.0
Gross profit	30.4		30.0		30.0
Selling, general and administrative expenses	24.8		24.5		25.1
Operating income	5.5		5.5		4.9
Interest expense, net	0.3		1.4		3.3
Loss on investment in MVP.com	--		--		1.1
Income before income tax expense
and extraordinary loss	5.2		4.1		0.5
Income tax expense	2.1		1.7		0.4
Income before extraordinary loss	3.1		2.4		0.1
Extraordinary loss, net of income tax	--		(1.4	)	--
Net income	3.1	%	1.0	%	0.1	%

Net sales increased by 23.9%, or $115.2 million, to $597.7 million in fiscal 2002 from $482.5 million in fiscal 2001. The increase resulted from new store sales of $77.6 million from nine new stores opened during the fiscal year, an increase of $35.3 million in non-comparable store sales associated with five stores opened during fiscal 2001 that had not yet entered the comparable store sales base and an increase in comparable store sales of 0.5%, or $2.3 million. The increase in comparable store sales was primarily attributable to higher sales in the winter sports, athletic apparel, athletic footwear and accessories categories. Because our Greenwood, Indiana location was closed on September 20, 2002 as a result of a tornado, for purposes of comparison to the prior fiscal period, we have treated last year’s net sales subsequent to the comparable date of the store closing as non-comparable store sales.

~~(1)~~ Gross ~~Due~~Profit ~~to rounding, columns may not add.~~

~~Fiscal~~ Gross ~~Year~~profit, which is net sales less cost of sales, increased by 25.6%, or $36.9 million, to $181.5 million in fiscal 2002 ~~(52~~from ~~weeks)~~$144.6 million in fiscal 2001. Gross profit was 30.4% of net sales in fiscal 2002 compared to ~~Fiscal~~30.0% ~~Year~~in fiscal 2001. ~~(52~~The ~~weeks)~~increase was due primarily to the leveraging of buying, selling and occupancy costs.

~~Net~~ Selling, ~~Sales~~General and Administrative Expenses

~~Net sales~~ Selling, general and administrative expenses increased by 2325.97%, or $~~115~~30.23 million, to $~~597~~148.74 million in fiscal 2002 from $~~482~~118.51 million in fiscal 2001. Selling, ~~The~~general ~~increase~~and ~~resulted~~administrative ~~from~~expenses ~~new~~were ~~store~~24.8% ~~sales~~ of ~~$77.6~~net ~~million~~sales ~~from~~in ~~nine~~fiscal ~~new~~2002, ~~stores~~compared ~~opened~~to ~~during~~24.5% ~~the~~in fiscal ~~year,~~2001. anThe increase of ~~$35.3~~as ~~million~~a inpercentage ~~non-comparable~~of ~~store~~net sales ~~associated~~was ~~with~~due ~~five~~primarily ~~stores opened~~to ~~during~~increased ~~fiscal~~marketing ~~2001~~costs ~~that~~of ~~had~~$5.5 ~~not~~million ~~yet~~mainly ~~entered~~in ~~the~~support ~~comparable~~of ~~store~~our ~~sales base~~expansion ~~and~~program, anhigher ~~increase~~pre-opening incosts ~~comparable store sales~~ of ~~0.5%, or~~ $2.30 million. ~~The increase~~resulting infrom ~~comparable~~opening ~~store~~nine ~~sales~~stores ~~was~~in ~~primarily~~fiscal ~~attributable~~2002 as compared to ~~higher~~five ~~sales~~stores in ~~the~~ ~~winter~~fiscal ~~sports,~~2001 ~~athletic~~and ~~apparel,~~higher ~~athletic~~depreciation ~~footwear~~expense primarily from stores opened during and ~~accessories categories~~subsequent to fiscal 2001. During ~~Because~~fiscal ~~our~~2002, we recognized $1.1 million of net insurance proceeds related to the Greenwood, Indiana location that was ~~closed~~destroyed onby ~~September~~a ~~20, 2002~~tornado. As as a result of aadopting ~~tornado,~~SFAS ~~for~~No. ~~purposes~~142, ofGoodwill ~~comparison~~and toOther ~~the~~Intangible ~~prior~~Assets, ~~fiscal~~on February ~~period~~3, we2002, ~~have~~no ~~treated~~amortization ~~last~~expense ~~year’s~~was ~~net~~recorded ~~sales~~in ~~subsequent~~fiscal to2002. During ~~the~~fiscal ~~comparable date~~2001, ofwe ~~the~~recorded ~~store~~goodwill ~~closing~~amortization asexpense ~~non-comparable~~of ~~store sales~~$783,000.

~~Gross~~ Operating ~~Profit~~Income

~~Gross~~ ~~profit,~~ Operating ~~which~~income ~~is net sales less cost of sales,~~ increased by 25.61%, or $366.9 7 million, to $~~181~~33.52 million in fiscal 2002 from $~~144~~26.65 million in fiscal 2001. ~~Gross~~ ~~profit~~Operating income was 305.45% of net sales in fiscal 2002 ~~compared~~and to2001, 30respectively.0% The increase in ~~fiscal 2001.~~gross ~~The~~margin ~~increase~~ was ~~due~~offset ~~primarily~~by tohigher ~~the~~costs ~~leveraging~~for ~~of buying~~marketing, ~~selling~~new ~~and occupancy~~store pre-opening costs and depreciation.

~~Selling, General and Administrative~~ ~~Expenses~~29

~~Selling,~~ ~~general~~ Interest ~~and administrative expenses increased by 25.7%~~Expense, ~~or $30.3 million, to $148.4 million in fiscal 2002 from $118.1 million in fiscal 2001. Selling, general and administrative expenses were 24.8% of~~ net ~~sales in fiscal 2002, compared to 24.5% in fiscal~~

23 Interest expense, net of interest income of $257,000, was $1.8 million in fiscal 2002. Interest expense primarily consisted of interest of $1.2 million related to the revolving credit facility and amortization of $525,000 of financing intangibles.

~~2001. The increase as a percentage of net sales was due primarily to~~ ~~increased~~ Loss marketing costs of $5.5 million mainly in support of our expansion program, higher pre-opening costs of $2.0 million resulting from opening nine stores in fiscal 2002 as compared to five stores in fiscal 2001 and higher depreciation expense primarily from stores opened during and subsequent to fiscal 2001. During fiscal 2002, we recognized $1.1 million of net insurance proceeds related to the Greenwood, Indiana location that was destroyed by a tornado. As a result of adopting SFAS No. 142, Goodwill and Other Intangible Assets, on ~~February~~Early 3,Extinguishment ~~2002, no amortization expense was recorded in fiscal 2002. During fiscal 2001, we recorded goodwill amortization expense~~ of ~~$783,000.~~ Debt

~~Operating~~ During ~~Income~~fiscal 2001, we paid all the outstanding amounts due under our subordinated and junior subordinated notes. We incurred a loss of $7.8 million, related to the write-off of the unamortized discount and the deferred financing cost associated with these notes. In addition, we refinanced our revolving credit facility during the first quarter of fiscal 2001 which resulted in a charge of $2.6 million related to the write-off of the remaining deferred financing costs associated with the prior revolving credit facility. In accordance with SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, gains and losses from the extinguishment of debt should be reported as part of on-going operations, unless the extinguishment of debt meets the criteria of both unusual and infrequent as established in APB No. 30. SFAS No. 145 is effective for us beginning February 2, 2003, including all prior period presentations. The loss on early extinguishment of debt has been reclassified in the comparative consolidated financial statements to be included within earnings before income taxes.

~~Operating~~ ~~income~~ Income increased by 25.1%, or $6.7 million, to $33.2 million in fiscal 2002 from $26.5 million in fiscal 2001. Operating income was 5.5% of net sales in fiscal 2002 and 2001. The increase in gross margin was offset by higher costs for marketing, new store pre-opening costs and depreciation. Taxes

~~Interest~~ The ~~Expense,~~effective ~~net~~income tax rate for fiscal 2002 was 40.3%. This rate reflects the effect of the anticipated federal tax rate and aggregated state tax rates in the various states in which we currently conduct business. The effective income tax rate for 2001 was 42.2%.

~~Interest~~ ~~expense,~~ Net net of interest income of $257,000, was $1.8 million in fiscal 2002. Interest expense primarily consisted of interest of $1.2 million related to the revolving credit facility and amortization of $525,000 of financing intangibles. Income

~~Income~~ As ~~Taxes~~a result of the foregoing, net income increased by $14.1 million to $18.7 million in fiscal 2002 from $4.6 million in fiscal 2001.

~~The~~ ~~effective~~ Liquidity ~~income tax rate for fiscal 2002 was 40.3%. This rate reflects the effect of the anticipated federal tax rate~~ and ~~aggregated~~Capital ~~state tax rates in the various states in which we currently conduct business. The effective income tax rate for 2001 was 42.2%.~~ Resources

~~Extraordinary~~ Our ~~Loss~~primary liquidity and capital requirements have been to fund new store construction, working capital and general corporate needs. For fiscal 2003, these capital and liquidity requirements were primarily funded from funds available under our revolving credit facility, proceeds from a financing transaction we entered into with a member of the W.P. Carey Group, and by cash and cash equivalents on ~~Early Extinguishment~~hand at the beginning of ~~Debt~~the year.

During fiscal 2001, we paid all the outstanding amounts due under our subordinated and junior subordinated notes. We incurred an extraordinary loss, net of income taxes, of $5.2 million, related to the write-off of the unamortized discount and the deferred financing cost associated with these notes. In addition, we refinanced our revolving credit facility during the first quarter of fiscal 2001 which resulted in a charge, net of income taxes, of $1.6 million related to the write-off of the remaining deferred financing costs associated with the prior revolving credit facility. 30

~~Net~~ Cash ~~Income~~flows from operating, investing, and financing activities for fiscal 2003 are summarized below:

As a Net ~~result~~cash ofprovided ~~the~~by ~~foregoing,~~operating ~~net~~activities ~~income~~was ~~increased by~~ $1434.18 million for fiscal 2003 compared to $1845.7 8 million infor fiscal 2002. The decrease from ~~$4.6~~fiscal ~~million~~2002 was due primarily to lower net income and changes in ~~fiscal~~working ~~2001~~capital, partially offset by higher depreciation expense and higher deferred income taxes. The changes in working capital resulted primarily from increases in merchandise inventories and receivables for landlord construction contributions, related primarily to new stores, partially offset by higher trade accounts payables.

24 Net cash used in investing activities was $82.8 million for fiscal 2003 compared to $66.6 million for fiscal 2002. The increase from fiscal 2002 was due primarily to higher capital expenditures associated with the nine new stores opened during fiscal 2003 as well as the remodel of four of our existing stores. Only six of the nine new stores opened during fiscal 2003 had landlord construction contributions compared to eight of the nine stores opened during fiscal 2002.

~~Fiscal~~ Net ~~Year~~cash ~~2001~~provided ~~(52~~by ~~weeks)~~financing activities was $43.2 million for fiscal 2003 compared to ~~Fiscal~~net ~~Year~~cash ~~2000~~used ~~(53~~in ~~weeks)~~financing activities of $4.0 million in fiscal 2002. The increase from fiscal 2002 was due primarily to an increase in net borrowings under the revolving credit facility, the proceeds of a financing transaction we entered into with a member of the W.P. Carey Group and an increase in proceeds from the sale of common stock through the exercise of related stock options, partially offset by the payment of financing costs associated with the amended and restated credit agreement and the repayment of the construction loan for our store in Rochester, New York.

~~Extra Week in Fiscal 2000~~ 31

~~Our~~ On April 25, 2003, we entered into an amended and restated credit agreement with JPMorgan Chase Bank, as administrative agent, for the syndication of participating banks, which matures on April 24, 2008. Under this agreement, our revolving credit facility maximum borrowing capacity is $250.0 million of which $30.0 million may be used for the issuance of letters of credit. The revolving credit facility is an asset-based loan with a borrowing base calculated on certain percentages of eligible inventory, eligible accounts receivables, and certain real property as defined in the agreement. The revolving credit facility bears interest, at our election, at either an adjusted prime rate or an adjusted LIBOR, in each case plus additional interest, which varies depending on our availability level or EBITDA measured at each quarter end. Availability is defined as the lesser of the monthly ~~fiscal~~borrowing ~~year~~base ~~ends~~or $250.0 million; minus the total borrowings, including letters of credit. We pay an annual commitment fee on the ~~last~~unused ~~Saturday~~portions ~~closest~~of tothe revolving credit facility at a variable amount based on utilization of the total facility. As of January 31, ~~and~~2004, ~~generally results~~the incommitment fee rate was 0.425%. We will not be subject to any financial covenants, provided we maintain a 52minimum ~~week~~of ~~fiscal~~$35.0 ~~year~~million of availability. The ~~However~~revolving credit facility contains other covenants, ~~every~~including ~~five~~covenants that restrict our ability to incur indebtedness or ~~six~~to ~~years~~create various liens, and restrict our ~~fiscal year~~ability isto 53engage ~~weeks~~in mergers or acquisitions, sell assets, or make junior payments, including cash dividends. ~~Fiscal~~As ~~2000~~of ~~included~~January 5331, ~~weeks~~2004, we were in compliance with all applicable covenants. ~~For~~The ~~purposes~~revolving ofcredit ~~annual~~facility is secured by a first priority security interest in our cash, inventory, intellectual property, and certain real estate that is included in the borrowing base. Our subsidiaries ~~comparisons~~have guaranteed, ~~unless~~and ~~otherwise~~any ~~noted~~future subsidiaries will be required to guarantee, our obligations under the revolving credit facility. As of March 19, 2004, we ~~have~~had ~~not~~$53.1 ~~adjusted~~million ~~for~~in ~~this~~outstanding ~~difference~~borrowings and an availability of $50.9 million, net of $5.7 million used in support of letters of credit, under our revolving credit facility.

~~Net~~ On ~~Sales~~August 8, 2003 we sold our interest in buildings and leasehold improvements for two store locations, for approximately $12.0 million to CPA®:15, which is a member of the W.P. Carey Group and simultaneously entered into lease agreements for these two store locations. The transaction included our store locations in Buffalo, New York, and Greenwood, Indiana. Although we leased back the properties, this transaction was accounted for as a financing obligation, with the future lease payments classified as a liability in our financial statements and quarterly lease payments classified as payments of principal and interest expense relating to a financing obligation. The net proceeds from this transaction were used to repay current borrowings under our revolving credit facility. As of January 31, 2004, we had an outstanding obligation of $11.7 million, with a fixed interest rate of 10.6% that matures in 2024. Simultaneously, we assigned our rights under an existing ground lease to CPA®:15, which is a member of the W.P. Carey Group, for a third store in Freehold, New Jersey that had not yet been constructed and is scheduled to open in the summer of 2004.

~~Net sales~~ During ~~increased~~fiscal ~~by 14.4%~~2001, orwe ~~$60.9~~entered ~~million~~into toa $~~482~~6.50 million inline ~~fiscal~~of ~~2001~~credit ~~from $421.7~~agreement inwith ~~fiscal~~a ~~2000.~~bank ~~When~~to ~~comparing~~be ~~fiscal~~used ~~2001~~for to the ~~first~~construction ~~fifty-two weeks~~ of ~~fiscal~~a ~~2000, net sales increased by $45.8 million from five~~ new ~~stores~~store ~~opened during fiscal 2001, by $22~~building.3 On ~~million~~May ~~from three stores opened during fiscal 2000 and by 0.2%~~1, ~~or $676~~2003,~~600~~ inwe ~~comparable~~paid ~~stores.~~all ~~These~~remaining ~~increases~~outstanding ~~were~~principal ~~offset by net sales of $5.1 million in the fifty-third week of fiscal 2000. The increase in comparable store sales in fiscal 2001 was primarily attributable to higher sales in athletic~~ and ~~casual~~interest ~~footwear~~on ~~and~~this ~~apparel, team and family sports, golf, and fitness categories, largely offset by lower sales of cold weather related categories due to unseasonably warm weather in the fourth quarter~~loan. ~~Fiscal 2000 net sales also includes $2.8 million in sales made to MVP.com, which did not recur in fiscal 2001.~~

~~Gross Profit~~ 32

~~Gross~~ ~~profit,~~ Our ~~which is~~ net ~~sales~~working ~~less~~capital ~~cost~~at ofJanuary ~~sales~~31, ~~increased~~2004 bywas ~~14.3%, or~~ $1867.1 9 million, compared to $~~144~~54.63 ~~million~~at inthe ~~fiscal~~end ~~2001~~of ~~from~~the ~~$126.5~~prior ~~million in~~ fiscal ~~2000~~year. ~~Gross~~ Net ~~profit~~working capital is calculated as athe ~~percentage~~difference ofbetween ~~net~~current ~~sales~~assets ~~was~~(excluding ~~30.0%~~cash) inand ~~each~~current ofliabilities ~~fiscal~~(excluding ~~2001~~current ~~and fiscal~~portion ~~2000~~of long-term debt). The ~~Compared~~increase toin ~~fiscal~~working ~~2000,~~capital ~~gross~~resulted ~~profit~~primarily ~~was~~from ~~favorably~~increases ~~impacted~~in ~~by lower~~merchandise ~~product~~inventories ~~costs~~and asreceivables afor ~~percentage~~landlord ofconstruction ~~net~~contributions, ~~sales~~related ~~and~~to ~~negatively~~new ~~impacted~~stores, partially offset by higher ~~markdowns.~~trade accounts payables.

~~Selling~~ Our typical two-level and one-level new stores, ~~General~~if leased with a landlord construction contribution adequate to cover the cost of construction of the building, generally require capital expenditures between $3.0 to $5.0 million for interior finish and ~~Administrative Expenses~~fixtures depending on the size of the store, and an inventory investment between $2.5 to $3.5 million, net of vendor payables, depending on the size of the store. Pre-opening expense, consisting primarily of store set-up costs, training of new store employees, and travel expenses, averages approximately $550,000 and is expensed as incurred.

~~Selling,~~ ~~general~~ Our future capital requirements will depend on the number and ~~administrative~~size ~~expenses~~of ~~increased~~new bystores 11we open, the timing of those openings within a given year and the extent of landlord construction contributions received.5% For fiscal 2004, orwe currently estimate our total capital expenditures to be approximately $1240.10 million, net of agreed-upon landlord construction contributions. In addition to this capital expenditures estimate, we currently anticipate approximately $~~118~~4.16 million inof ~~fiscal~~non-capitalizable ~~2001~~pre-opening ~~from~~costs ~~$105~~for new stores.9 The capital expenditures estimate contemplates $31 million for nine new stores that we intend to open during fiscal 2004, including the two stores we opened through March 2004. The total capital expenditure estimate also includes an estimate for construction-in-progress disbursements for anticipated fiscal ~~2000~~2005 openings. The ~~Selling,~~capital expenditures estimate also reflects ~~general,~~the ~~and~~fact ~~administrative~~that ~~expenses~~all ~~were~~of ~~24.5%~~our planned nine store openings for fiscal 2004 have landlord construction contributions as compared to six of ~~net~~nine ~~sales~~new stores in fiscal ~~2001~~2003 that had landlord construction contributions. Although all of our fiscal 2004 new stores have landlord contributions, ~~compared~~ some potential store locations that we seek to ~~25.1%~~develop in ~~fiscal~~the ~~2000~~future may not have landlord construction contributions available. The ~~decrease~~total ascapital aexpenditure ~~percentage~~estimate offor ~~net~~fiscal ~~sales~~2004 ~~was due~~also ~~primarily~~includes toapproximately ~~lower~~$9.0 ~~costs~~million ~~associated~~for ~~with~~improvements ~~supplies~~relating to our existing stores, ~~recruiting~~the ~~and~~new ~~payroll. Selling~~principal executive offices, ~~general~~technology, supply chain initiatives and ~~administrative~~other ~~costs~~corporate ~~were~~capital ~~also~~expenditures. ~~favorably~~We ~~impacted~~believe inthat ~~fiscal 2001~~developer byor areal ~~bad~~estate ~~debt~~investment ~~recovery~~company offinancing, ~~approximately~~longer ~~$600~~term mortgage financing,~~000~~ ~~related~~cash toflows ~~MVP.com~~from operations and ~~adversely~~ ~~impacted~~funds byavailable anunder ~~accounting~~our ~~charge~~existing ofrevolving ~~approximately~~credit ~~$900,000~~facility ~~associated with~~will ~~termination~~be ~~costs~~sufficient to satisfy our current capital and inventory requirements for the ~~former~~stores ~~President~~we ~~and~~plan ~~Chief~~to ~~Operating~~open ~~Officer.~~in the next 12 months.

~~Operating~~ We ~~Income~~have entered into agreements that create contractual obligations and commercial commitments. These obligations and commitments will have an impact on future liquidity and capital resources. The tables set forth below present a summary of these obligations and commitments as of January 31, 2004.

~~Operating~~ income increased 29.2%, or $6.0 million, to $26.5 million in fiscal 2001 from $20.5 million in fiscal 2000. Operating income was 5.5% of net sales in fiscal 2001, compared with 4.9% in fiscal 2000. The increase was largely due to the increase in net sales and the decrease in selling, general and administrative costs as a percent of net sales. 33

25 Contractual Obligations:

Interest Expense, net

			Payments Due by Period (in thousands)

Description	Total Obligations		Less Than One Year		One to Three Years		Three to Five Years		After Five Years

Long-term debt	$	49,510	$	42	$	100	$	37,981	$	11,387
Operating leases (1)		653,934		41,936		89,431		89,807		432,760
Capital lease obligations		205		95		110		--		--
Purchase obligations (2)		7,082		7,082		--		--		--

Total contractual cash obligations	$	710,731	$	49,155	$	89,641	$	127,788	$	444,147

Interest expense, net of interest income of $372,000, was $6.7 million in fiscal 2001. Interest expense primarily consisted of interest of $3.2 million on subordinated and junior subordinated notes, interest of $2.4 million related to our revolving credit facility and amortization of $1.1 million of financing intangibles.

(1)	Includes store operating leases, which generally provide for payment of direct operating costs, primarily common area costs and real estate taxes, in addition to rent. These obligation amounts include future minimum lease payments and exclude such direct operating costs.

(2)	In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. Because these purchase orders do not contain any termination payments or other penalties if cancelled, they are not included in this table of contractual obligations.

~~Income~~ Commercial ~~Taxes~~Commitments:

The effective income tax rate for fiscal 2001 and fiscal 2000 is greater than the statutory rate because a portion of both the interest on the subordinated and the junior subordinated notes and the amortization of goodwill are not deductible for income tax purposes. We extinguished the subordinated and junior subordinated notes on July 2, 2001, which eliminated the non-deductible interest expense relating to these notes for all subsequent periods.

			Payments Due by Period (in thousands)

Description	Total Obligations		Less Than One Year		One to Three Years		Three to Five Years		After Five Years

Revolving credit facility (1)	$	5,046	$	5,046		--		--		--

Total commercial commitments	$	5,046	$	5,046		--		--		--

~~Extraordinary~~(1) Consists ~~Loss~~of onoutstanding ~~Early Extinguishment~~letter of ~~Debt~~credit commitments that expire within one year.

~~During~~ the second quarter of fiscal 2001, we paid all the outstanding amounts due under our subordinated and junior subordinated notes. We incurred an extraordinary loss, net of income taxes, of $5.2 million, related to the write-off of the unamortized discount and the deferred financing cost associated with these notes. In addition, we refinanced our revolving credit facility during the first quarter of fiscal 2001 which resulted in a charge, net of income taxes, of $1.6 million related to the write-off of the remaining deferred financing costs associated with the prior revolving credit facility. 34

~~Net~~ Selected ~~Income~~Quarterly Financial Data

As a Quarterly ~~result~~results ofare determined in accordance with the ~~foregoing,~~accounting ~~net~~policies ~~income~~used ~~increased~~for byannual ~~$4.3~~data ~~million~~and toinclude $4certain items based upon estimates for the entire year.6 All ~~million~~ quarters in fiscal ~~2001~~2003 ~~from~~and ~~$363,000~~2002 ininclude ~~fiscal~~results ~~2000~~for 13 weeks. The following table summarizes results for fiscal 2003 and 2002.

Liquidity and Capital Resources

(dollars in thousands, except share data)

Fiscal 2003

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Net sales

129,564

163,662

147,716

249,759

Gross profit

33,644

44,447

36,584

75,692

Net income (loss)

(2,566

)

(186

)

(3,637

)

9,992

Basic earnings (loss) per share:

Net earnings (loss) per share

(0.15

)

(0.01

)

(0.21

)

0.58

Diluted earnings (loss) per share:

Net earnings (loss) per share

(0.15

)

(0.01

)

(0.21

)

0.57

Our primary liquidity and capital requirements have been to fund new store construction, working capital and general corporate needs. For fiscal 2002, these capital and liquidity requirements were primarily funded by cash and cash equivalents on hand at the beginning of the year and by net cash provided by operating activities. We also used our revolving credit facility to fund seasonal working capital needs during fiscal 2002.

Fiscal 2002	First Quarter			Second Quarter		Third Quarter			Fourth Quarter

Net sales	$	113,457		$	142,275	$	129,842		$	212,171
Gross profit		31,506			42,816		35,941			71,252
Net income (loss)		(414	)		3,885		(1,470	)		16,719
Basic earnings (loss) per share:
Net earnings (loss) per share		(0.02	)		0.23		(0.09	)		0.98
Diluted earnings (loss) per share:
Net earnings (loss) per share		(0.02	)		0.22		(0.09	)		0.98

~~Net~~ cash provided by operating activities was $45.8 million for fiscal 2002 compared to $23.4 million for fiscal 2001. The increase from fiscal 2001was due primarily to higher net income and an increase in accounts payable and accrued expenses, partially offset by an increase in inventory due primarily to new stores opened during fiscal 2002. 35

~~Net~~ ~~cash~~New ~~used~~Accounting in investing activities was $66.6 million for fiscal 2002 compared to $26.6 million for the same period last year. The increase was due primarily to capital expenditures associated with the addition of nine new stores in fiscal 2002 compared to five in fiscal 2001. Pronouncements

26 On January 1, 2003, we adopted Emerging Issues Task Force (“EITF”) 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor. This EITF addresses the classification of cash consideration received from vendors in a reseller’s consolidated financial statements. The guidance related to income statement classification is to be applied in annual and interim financial statements for agreements entered into, or modifications of existing agreements, after January 1, 2003. The consensus of the EITF established an overall presumption that cash received from vendors is a reduction in the price of vendor’s products and should be recognized accordingly as a reduction in cost of sales at the time the related inventory is sold. Some consideration could be characterized as a reduction of expense if the cash received represents a reimbursement of specific, incremental, identifiable costs incurred by the retailer to sell the vendor’s products. For fiscal 2003, the adoption of this statement decreased our operating income by $1,106,000 ($664,000 net of income taxes or $0.04 per share on a fully diluted basis). For fiscal 2002, the adoption of this statement did not have a significant effect on our financial statements.

~~Net cash~~ On ~~used~~February in2, ~~financing~~2003, ~~activities~~we ~~was~~adopted ~~$4.0~~Statement ~~million~~of ~~for~~Financial ~~fiscal~~Accounting ~~2002~~Standards ~~compared~~(“SFAS”) ~~to net~~No. ~~cash~~143, ~~provided~~Accounting byfor ~~financing~~Asset ~~activities~~Retirement ~~of $36~~Obligations.2 SFAS ~~million in fiscal 2001~~No. ~~The decrease~~143 ~~was~~addresses ~~due~~financial ~~primarily~~accounting toand ~~the~~reporting ~~net proceeds during fiscal 2001~~ of ~~approximately~~ ~~$112~~obligations ~~million~~associated ~~from~~with the ~~sale~~retirement of ~~6,500,000~~tangible ~~shares~~long-lived ofassets ~~common~~and ~~stock partially offset by $62.8 million used to extinguish~~ the ~~subordinated~~associated ~~and~~asset ~~junior subordinated~~retirement ~~notes, including related accrued interest and unamortized discount~~costs. ~~During~~ ~~fiscal~~The ~~2002,~~adoption weof ~~paid~~this ~~$5.3~~statement ~~million~~did ~~for~~not ~~all~~have ~~remaining~~an ~~principal~~effect ~~and interest~~on ~~outstanding under~~ the ~~construction~~consolidated ~~loan~~financial ~~with a bank for our store building in Buffalo, New York~~statements.

On ~~May~~ On 3February 2, ~~2001~~2003, we ~~entered~~adopted ~~into~~the arecognition ~~revolving~~and ~~credit~~measurement ~~facility~~provisions ~~agreement~~of ~~with~~Financial ~~a syndicate~~Accounting ~~led~~Standards byBoard JPInterpretation ~~Morgan~~No. ~~Chase~~45 &(“FIN CoNo., as45”) ~~administrative~~Guarantor’s ~~agent,~~Accounting ~~which matures~~and onDisclosure ~~May~~Requirements 3for Guarantees, ~~2004.~~Including ~~The~~Indirect ~~revolving~~Guarantees ~~credit~~of ~~facility~~Indebtedness ~~allows~~of ~~for~~Others ~~borrowings~~an interpretation of up toSFAS ~~$160~~No.0 ~~million~~5, a57, ~~portion~~and of107 ~~which~~and ~~may~~the berescission ~~used~~of toFASB ~~issue~~Interpretation ~~letters of credit~~No. ~~The~~ ~~revolving~~34, ~~credit~~was ~~facility~~issued. ~~bears~~FIN ~~interest,~~No. at45 ~~our~~clarifies ~~election,~~the atrequirements ~~either~~of ~~an adjusted~~SFAS ~~prime~~No. ~~rate~~5, orAccounting anfor ~~adjusted LIBOR~~Contingencies, inrelating ~~each~~to ~~case~~a ~~plus~~guarantor’s ~~additional~~accounting ~~interest which~~for, ~~varies~~and ~~depending~~disclosure onof, the ~~ratio~~issuance of ~~our~~certain ~~average~~types ~~outstanding~~of ~~debt to cash flow~~guarantees. WeThe ~~pay~~disclosure anrequirements ~~annual~~in ~~commitment~~this ~~fee~~interpretation onwere ~~the~~adopted ~~unused portions of the revolving credit facility~~ in anfiscal ~~amount equal to 0~~2002.~~50%~~ ofWe ~~the~~had ~~unused~~no ~~amounts.~~guarantees Asthat ofwere ~~March 27,~~required ~~2003,~~to webe ~~had~~disclosed ~~$20.0 million~~ in ~~outstanding~~the ~~borrowings~~consolidated ~~and~~financial ~~an availability of $68~~statements.8 The ~~million,~~adoption ~~net~~ of ~~$5.6~~this ~~million~~statement ~~used~~did innot ~~support~~have ofan ~~letters~~effect ofon ~~credit,~~the ~~under our~~consolidated ~~revolving~~financial ~~credit facility~~statements.

~~The~~ ~~revolving~~ On ~~credit~~February ~~facility~~2, ~~contains~~2003 ~~financial~~we ~~and~~adopted ~~other~~SFAS ~~covenants~~No. 145, ~~including covenants~~Rescission ~~that~~of ~~require~~FASB usStatements toNo. ~~maintain~~4, ~~various~~44 ~~financial~~and ~~ratios~~64, ~~restrict~~Amendment ~~our ability~~of toFASB ~~incur~~Statement ~~indebtedness~~No. or13, toand ~~create~~Technical ~~various~~Corrections, ~~liens~~which, among other things, changes the way gains and ~~restrict~~losses from the ~~amount~~ extinguishment of ~~capital~~debt ~~expenditures~~are ~~that~~reported. wePreviously, ~~may~~all ~~incur.~~gains ~~The~~and ~~revolving~~losses ~~credit~~from ~~facility also~~the ~~restricts~~extinguishment ~~our~~of ~~ability~~debt were required to ~~engage~~be inreported ~~mergers~~as oran ~~acquisitions~~extraordinary item, ~~sell~~net ~~assets~~of related tax effect. Under SFAS No.145, ~~enter~~ ~~into~~gains ~~certain~~and ~~capital~~losses ~~leases~~from orthe ~~make~~extinguishment ~~junior~~of ~~payments~~debt should be reported as part of on-going operations, ~~including~~unless ~~cash dividends.~~the Asextinguishment of debt meets the ~~date~~criteria of ~~this~~both ~~Report,~~unusual weand ~~were~~infrequent inas ~~compliance~~established ~~with~~in ~~all required~~APB ~~covenants~~No. ~~The~~30. SFAS ~~revolving~~No. ~~credit~~145 ~~facility~~ is ~~secured~~effective byfor aus ~~first~~beginning ~~priority security~~February ~~interest~~2, in2003, ~~substantially~~including all ofprior ~~our~~period ~~assets~~presentations. The ~~Our~~loss ~~subsidiaries~~on ~~have guaranteed,~~early ~~and~~extinguishment ~~any~~of ~~future~~debt ~~subsidiaries~~has ~~will~~been bereclassified ~~required~~in tothe ~~guarantee,~~comparative ~~our obligations~~consolidated ~~under~~financial ~~the~~statements ~~revolving~~to ~~credit~~be ~~facility.~~included within earnings before income taxes.

On March 27, 2003, JPMorgan Chase Bank committed to structure, arrange and syndicate a senior revolving credit facility in an aggregate amount of up to $250.0 million, of which up to $30.0 million may be used for the issuance of letters of credit. The new senior revolving credit facility, which will replace the revolving credit facility that expires May 3, 2004, is expected to have a five year maturity from the date of closing and will be secured primarily by inventory, accounts receivable, cash and general intangibles. Although there can be no assurances that the transaction will be completed, we anticipate the new revolving credit facility to be in place no later than June 30, 2003 when the commitment from JPMorgan Chase Bank expires. 36

~~During~~ ~~fiscal~~ On ~~2001~~June 1, 2003, we ~~entered~~adopted ~~into~~SFAS ~~a $6~~No.0 ~~million~~150, ~~line~~Accounting offor ~~credit~~Certain ~~agreement~~Financial toInstruments ~~finance the~~with ~~construction~~Characteristics of aBoth ~~new~~Liabilities ~~store~~and ~~building~~Equity. SFAS in150 ~~Rochester,~~establishes ~~New~~standards ~~York.~~on ~~Advances under~~ the ~~line~~classification and measurement of ~~credit~~certain ~~agreement~~financial ~~are~~instruments ~~secured~~with bycharacteristics ~~the~~of ~~building,~~both liabilities and ~~the~~equity. The ~~agreement requires~~provisions ~~monthly~~of ~~payment~~SFAS of150 ~~interest~~are ~~under~~effective ~~several~~for ~~interest~~financial ~~rate~~instruments ~~options,~~entered ~~with~~into ~~a rate~~or onmodified ~~March~~after 27May 31, 2003 ofand ~~3.3%.~~to ~~Outstanding~~all ~~advances~~instruments that exist as of ~~March~~the ~~27,~~beginning ~~2003~~of ~~were $6.0~~the ~~million.~~first ~~Payment~~interim offinancial ~~all~~reporting ~~unpaid~~period ~~principal~~beginning ~~and~~after ~~interest~~June is15, ~~due~~2003. The ~~May~~adoption 1,of ~~2003 and~~this isstatement ~~expected~~did tonot behave ~~funded~~an ~~using~~effect ~~borrowings~~on ~~under~~the ~~our~~consolidated ~~existing~~financial ~~credit facility~~statements.

27 Cautionary Note Regarding Forward-Looking Statements

~~Our~~ ~~net~~ We ~~working~~caution ~~capital~~that atany ~~February~~forward-looking 1,statements ~~2003~~(as ~~was~~such ~~$54.3~~term ~~million,~~is ~~compared~~defined toin ~~$52.1 at~~ the ~~end~~Private Securities Litigation Reform Act of ~~the~~1995) ~~prior~~contained ~~fiscal~~or ~~year.~~incorporated ~~Net~~by ~~working~~reference ~~capital~~in isthis ~~calculated~~Form as10-K ~~the difference~~or ~~between~~made ~~current~~by ~~assets~~our ~~(excluding~~management ~~cash)~~involve risks and ~~current~~uncertainties ~~liabilities (excluding~~and ~~current~~are ~~portion~~subject to change based on various important factors, many of ~~long-term~~which ~~debt)~~may be beyond our control. ~~The~~Accordingly, ~~increase~~our infuture ~~working~~performance ~~capital resulted~~and ~~primarily~~financial results may differ materially from ~~increases~~those expressed or implied in ~~merchandise~~any ~~inventories~~such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and ~~receivables~~similar expressions may identify forward-looking statements. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any such ~~landlord~~forward-looking ~~construction~~statements ~~contributions~~are ~~related~~subject to risks and uncertainties, including competitive changes in conditions in the retail industry, changes in consumer confidence and spending, new ~~stores~~store site selection, ~~mostly~~financing ~~offset~~and ~~by higher~~performance, ~~trade~~interest ~~accounts~~rates, ~~payables~~credit markets, general United States economic conditions, international geo-political uncertainties and ~~federal~~normal business uncertainties. If any of these risks or uncertainties actually occur, our business, financial condition or operating results could be materially and ~~state~~adversely ~~income~~affected, ~~tax~~and ~~payables~~the trading price of our common stock could decline. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

~~Our typical~~ If ~~new~~we ~~store,~~are ifunable ~~leased with a landlord construction contribution adequate~~ to ~~cover~~successfully ~~the~~implement ~~cost~~our ofgrowth ~~construction~~strategies ofor ~~the~~manage ~~building,~~our ~~requires~~growing ~~capital expenditures between $4.0 to $5.0 million for interior finish and fixtures~~business, ~~and~~our anfuture ~~inventory investment~~operating ~~between~~results ~~$3.0~~will ~~to $4~~suffer.0 million, net of vendor payables. Pre-opening expense, consisting primarily of store set-up costs, training of new store employees, and travel expenses, averages approximately $600,000 and is expensed as incurred.

~~Our~~ ~~future~~ Our ~~capital~~strategy ~~requirements~~includes ~~will~~opening ~~depend~~stores onin ~~the~~new ~~number~~and ofexisting ~~new~~markets. ~~stores~~We wemust ~~open~~successfully choose store sites, ~~the timing~~execute offavorable ~~those~~real ~~openings~~estate ~~within~~transactions, ahire ~~given~~competent ~~year~~personnel, and ~~the~~open ~~extent~~and ofoperate ~~landlord construction~~new ~~contributions received~~stores. ~~For~~Failure ~~fiscal~~to ~~2003,~~do weso ~~currently~~could ~~estimate~~impair our ~~total~~ ~~capital~~ability ~~expenditures~~ to ~~range~~successfully ~~between~~implement ~~$85.0~~our togrowth ~~$90.0~~strategy ~~million,~~and ~~net of~~our ~~agreed-upon~~future ~~landlord~~operating ~~construction contributions~~results. In ~~addition to this capital expenditures estimate~~particular, we ~~currently~~must ~~anticipate~~locate ~~approximately~~desirable ~~$5.2~~store tosites ~~$5.6 million~~in ofmalls, ~~non-capitalizable~~lifestyle ~~pre-opening~~centers ~~costs~~and ~~for~~power ~~new~~strip ~~stores.~~centers, ~~The~~because ~~capital expenditures~~the ~~estimate~~developer ~~contemplates~~financing ~~$64.0 to $68.0 million for nine new stores~~ that we ~~intend~~believe tois ~~open~~often ~~during~~available ~~fiscal~~in ~~2003~~malls, ~~including~~lifestyle ~~the~~centers ~~two~~and ~~stores~~power westrip ~~opened~~centers ~~in March~~is ~~2003.~~a ~~The~~very ~~total~~important ~~capital~~element ~~expenditure~~of ~~estimate~~our ~~also~~new ~~includes~~store angrowth ~~estimated increase~~plan. inIf ~~construction-in-progress~~we ~~disbursements~~fail ~~for~~to ~~anticipated~~locate ~~fiscal~~desirable ~~2004 openings.~~mall, ~~The~~lifestyle ~~capital~~center ~~expenditures~~and ~~estimate~~power ~~also~~strip ~~reflects~~center ~~the~~sites ~~fact~~or ~~that~~we ~~three~~are ~~of our~~unable ~~planned~~to ~~nine~~secure ~~store~~developer ~~openings~~financing, ~~for~~we ~~fiscal~~will ~~2003 do~~ not ~~have~~be ~~any~~able ~~landlord construction contributions as compared~~ to ~~eight~~open ~~of nine~~ new stores inas ~~fiscal 2002~~planned ~~which~~and ~~had landlord construction contributions. Three of~~ our ~~fiscal~~sales ~~2003~~growth ~~new stores~~ and ~~some~~operating ~~potential~~results ~~store~~will ~~locations~~suffer. In ~~that~~addition, if we ~~seek~~do ~~to develop in the future may~~ not ~~have~~locate ~~landlord~~desirable ~~construction~~sites ~~contributions~~with ~~available. The total capital~~access ~~expenditure estimate for fiscal 2003 also includes approximately $3.0~~ to ~~$4.0 million~~financing, ~~for~~we ~~remodeling~~may ~~and~~seek ~~maintenance relating~~ to ~~our~~grow ~~existing~~by ~~stores, technology~~obtaining ~~upgrades~~alternative ~~and~~sources ~~corporate~~of ~~capital expenditures. We believe that developer or real estate investment company~~ financing, ~~longer~~including ~~term~~construction ~~mortgage~~ financing, ~~cash~~sale-leaseback ~~flows~~transactions, ~~from~~long-term ~~operations~~mortgages and ~~funds~~borrowings ~~available~~ under our ~~existing revolving~~ credit facility. If ~~will~~market beconditions ~~sufficient~~are tonot ~~satisfy~~favorable, ~~our~~we ~~current~~may ~~capital requirements~~not ~~for~~be ~~the~~able ~~stores~~to weobtain ~~plan~~such toalternative ~~open~~financing inon ~~the~~desirable ~~next~~terms, 12if ~~months~~at all, ~~although~~which ~~our growth~~may inincrease ~~fiscal~~our ~~2004~~costs, ~~could~~cause beus ~~restricted~~to iflimit wethe donumber ~~not~~of ~~complete~~new ~~the~~store ~~new~~openings ~~senior revolving~~and ~~credit~~impair ~~facility~~our asfuture ~~planned.~~operating results.

We have entered into agreements that create contractual obligations and commercial commitments. These obligations and commitments will have an impact on future liquidity and capital resources. The tables set forth below present a summary of these obligations and commitments as of February 1, 2003. 37

28 In addition, our expansion in new and existing markets may present competitive, distribution, marketing, and merchandising challenges that differ from our current challenges, including competition among our stores and with competitors, diminished impact of our store design and concept, added strain on our distribution center, additional information to be processed by our management information systems and diversion of management attention from operations, such as the control of inventory levels in our existing stores, to the opening of new stores and markets. To the extent that we are not able to meet these new challenges, our sales could decrease and our operating costs could increase.

~~Contractual~~ A ~~Obligations:~~downturn in the economy may affect consumer purchases of discretionary items, which could reduce our sales.

		Payments Due by Period(in thousands)
Description	TotalObligations	LessThan OneYear	Oneto ThreeYears	Threeto FiveYears	AfterFiveYears
Long-term debt	$ 6,000	$ 6,000	$ --	$ --	$ --
Operating leases (1)	550,265	34,129	73,868	73,116	369,152
Capital lease obligation	289	103	138	48	--
Total contractual cash
obligations	$ 556,554	$ 40,232	$ 74,006	$ 73,164	$ 369,152

In general, our sales represent discretionary spending by our customers. Discretionary spending is affected by many factors, including, among others, general business conditions, geo-political uncertainties and conflicts, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions. Our customers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower or periods of actual or perceived unfavorable economic conditions. If this occurs, our revenue and profitably will decline.

~~(1)~~ Our ~~Includes~~results ~~store~~achieved ~~operating~~by ~~leases,~~our ~~which~~existing ~~generally~~store ~~provide~~base ~~for~~may ~~payment~~not ofbe ~~direct~~indicative ~~operating~~of ~~costs,~~our ~~primarily common area costs and real estate taxes, in addition to rent. These obligation amounts include~~ future ~~minimum lease payments and exclude such direct~~ operating ~~costs~~results.

~~Commercial~~ There ~~Commitments:~~are inherent risks in new store site selection and there can be no assurance that new stores will achieve their projected sales and profitability. If any new stores are unprofitable or any existing store experiences a decline in profitability, the effect on our results of operations could be more significant than if we had a larger store base. In addition, as we continue to increase our store base and seek to implement our growth strategies, our comparable store sales may vary from period to period. The comparable store sales we have achieved to date may not be indicative of our comparable store sales growth in the future.

		Payments Due by Period(in thousands)
Description	TotalObligations	LessThan OneYear	Oneto ThreeYears	Threeto FiveYears	AfterFiveYears
Revolving credit facility (1)	$ 6,581	$ 6,581	--	--	--
Total commercial
commitments	$ 6,581	$ 6,581	--	--	--

Our results of operations may be harmed by unseasonably warm winter weather conditions.

~~(1)~~ Many ~~Consists~~ of ~~outstanding~~our ~~letter~~stores ofare ~~credit~~located ~~commitments~~in geographic areas that ~~expire~~experience ~~within~~seasonably cold winters. We sell a significant amount of winter apparel and sports equipment, particularly in the fourth quarter. Cold weather categories typically account for approximately one-third ~~year~~of our fourth quarter sales. Abnormally warm weather conditions could reduce our sales of these items and cause us to have significant excess inventory, which would lower our profitability.

29 38

~~Selected~~ Our ~~Quarterly~~inability ~~Financial~~to ~~Data~~anticipate changes in consumer demands and preferences in a timely manner could reduce our sales.

~~Quarterly~~ ~~results~~ Our ~~are~~products ~~determined~~appeal into ~~accordance~~a ~~with~~broad ~~the~~range ~~accounting~~of ~~policies~~consumers ~~used~~whose ~~for annual~~preferences ~~data~~cannot be predicted with certainty and ~~include~~are ~~certain~~subject ~~items~~to ~~based~~rapid ~~upon~~change. ~~estimates~~Our ~~for~~success ~~the~~depends ~~entire~~on ~~year. All~~our ~~quarters~~ability into ~~fiscal~~identify ~~2002~~product trends as well as to anticipate, gauge and ~~2001~~react ~~include~~to ~~results~~changing ~~for~~consumer 13demands ~~weeks~~in a timely manner. ~~The~~If ~~following table~~we ~~summarizes~~misjudge ~~results~~the market for ~~fiscal~~our ~~2002~~products, our sales may decline significantly and ~~2001:~~we may be faced with significant excess inventory of some products and missed opportunities for other products, which would decrease our profitability.

Fiscal 2002	FirstQuarter		SecondQuarter	ThirdQuarter		FourthQuarter
Net sales	$ 113,457		$ 142,275	$ 129,842		$ 212,171
Gross profit	31,506		42,816	35,941		71,252
Net income (loss)	(414	)	3,885	(1,470	)	16,719
Basic earnings (loss) per share:
Net earnings (loss) per share	(0.02	)	0.23	(0.09	)	0.98
Diluted earnings (loss) per share:
Net earnings (loss) per share	(0.02	)	0.22	(0.09	)	0.98

Our inability to manage inventory and clear aged and/or excess inventory in a timely manner could require us to mark down prices significantly and reduce our profitability.

Fiscal 2001	FirstQuarter		SecondQuarter		ThirdQuarter		FourthQuarter
Net sales	$ 87,878		$ 114,993		$ 104,898		$ 174,759
Gross profit	23,830		33,850		29,081		57,815
Net income (loss)	(4,367	)	(3,592	)	(168	)	12,759
Basic earnings (loss) per share:
Earnings (loss) per share before
extraordinary loss	(0.27	)	0.12		(0.01	)	0.75
Net earnings (loss) per share	(0.42	)	(0.27	)	(0.01	)	0.75
Diluted earnings (loss) per share:
Earnings (loss) per share before
extraordinary loss	(0.27	)	0.12		(0.01	)	0.74
Net earnings (loss) per share	(0.42	)	(0.27	)	(0.01	)	0.74

If, for any reason, we fail to respond timely to changes in the demand for our products generally or for our product mix, we may have aged and/or excess inventory that cannot be sold at the originally expected prices. As a result, we may need to significantly reduce the prices of some of our products to clear the aged and/or excess inventory, which could decrease our profitability and cause our stock price to decline significantly.

~~New~~ Our ~~Accounting~~operating ~~Pronouncements~~results are subject to seasonal fluctuations, which could cause the market price of our common stock to decline.

On ~~January~~ We ~~17,~~experience ~~2003,~~substantial ~~the~~seasonal ~~Financial~~fluctuations ~~Accounting~~in ~~Standards~~our ~~Board~~sales ~~issued~~and ~~FASB Interpretation~~operating Noresults. 46In ~~(“FIN~~fiscal No2003, we generated 36.2% ~~46”),~~of ~~Consolidation~~our annual sales and all of ~~Variable Interest~~our ~~Entities~~operating income in our fourth fiscal quarter, anwhich ~~interpretation~~includes ofthe ~~ARB~~Christmas ~~51.~~holiday ~~The~~and ~~primary~~the ~~objectives~~peak winter season months of ~~FIN~~ NoNovember, December and January. 46As ~~are~~a toresult, ~~provide~~we ~~guidance~~incur onsignificant additional expenses in the ~~identification~~fourth fiscal quarter due to higher purchase volumes and ~~consolidation~~increased ~~of variable~~staffing ~~interest~~in ~~entities~~our stores. If, orfor ~~VIE’s~~any reason, ~~which~~we ~~are~~miscalculate ~~entities~~the demand for our products generally or for our product mix during the fourth fiscal quarter, our sales could decline resulting in significant excess inventory, significant markdowns in order to clear aged and excess inventory, and a significant shortfall in expected fourth quarter sales, which ~~control is~~could ~~achieved~~cause ~~through~~our ~~means~~annual ~~other~~operating ~~than~~results ~~through~~to ~~voting~~suffer ~~rights.~~and Weour dostock ~~not~~price ~~have~~to ~~any VIE’s.~~decline significantly.

30 We rely on a single distribution center and if there is a natural disaster or other serious disruption at the facility, we may lose merchandise and be unable to deliver it effectively to our stores.

In ~~December~~ We ~~2002,~~rely ~~the~~on ~~FASB~~a ~~issued~~single ~~Statement~~distribution ofcenter ~~Financial~~in ~~Accounting~~Plainfield, ~~Standards (“SFAS”) No~~Indiana. ~~148,~~Any ~~Accounting~~natural ~~for~~disaster ~~Stock-Based~~or ~~Compensation~~other ~~– Transition~~serious ~~and~~disruption ~~Disclosure,~~to ~~which~~this ~~amends~~facility ~~SFAS~~due ~~No.~~to ~~123~~fire, ~~Accounting~~tornado ~~for Stock-Based~~(such ~~Compensation,~~as ~~to provide alternative methods for a voluntary change to~~ the ~~fair~~tornado ~~value~~that ~~based~~destroyed ~~method~~our ~~of accounting for stock-based employee compensation. In addition~~Greenwood, ~~SFAS~~Indiana ~~No.~~store ~~148~~in ~~amends~~September ~~the~~2002) ~~disclosure~~or ~~requirements~~any ~~of SFAS~~other ~~No.~~cause ~~123~~would todamage ~~require~~a ~~prominent~~significant ~~disclosures~~portion inof ~~both~~our ~~annual~~inventory and ~~interim financial~~could ~~statements~~impair ~~about~~our ~~the~~ability ~~method~~to ofadequately ~~accounting for~~ stock~~-based~~ ~~employee compensation~~our stores and ~~the~~reduce ~~effect~~our ofsales ~~the~~and ~~method used on reported results~~profitability. ~~The new disclosure requirements are included in the consolidated financial statements.~~

In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (“FIN No. 45”) Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of SFAS No. 5, 57, and 107 and the rescission of FASB Interpretation No. 34, was issued. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure requirements in this interpretation are effective for financial statements of interim and annual periods ending after December 15, 2002. The recognition and measurement provisions for FIN No. 45 are effective for guarantees issued or modified after December 31, 2002. The Company had no guarantees that were required to be disclosed in the consolidated financial statements for the year ended February 1, 2003. The adoption of the recognition and measurement provisions of this statement is not expected to have a material effect on the consolidated financial statements. 39

In ~~November~~ Pressure ~~2002, the Emerging Issues Task Force (EITF) reached a consensus on EITF 02-16 Accounting by a Reseller for Cash Consideration Received~~ from ~~a Vendor.~~our ~~This~~competitors ~~EITF~~may ~~addresses~~force ~~the~~us ~~classification of cash consideration received from vendors in a reseller’s consolidated financial statements. The guidance related~~ to ~~income~~reduce ~~statement~~our ~~classification~~prices ~~is to be applied in annual and interim financial statements for agreements entered into,~~ or ~~modifications~~ ofincrease ~~existing~~our ~~agreements~~spending, ~~after~~which ~~January~~would 1,lower ~~2003.~~our ~~The~~revenue ~~adoption~~and ~~of this statement did not have an effect on the consolidated financial statements for the year ended February 1, 2003~~profitability. ~~We are in the process of reviewing the effect that the application of EITF 02-16 will have on the consolidated financial statements for fiscal 2003.~~

~~During~~ ~~June~~ We ~~2002,~~face ~~the~~increased ~~FASB~~competition ~~issued~~in ~~SFAS~~the ~~No.~~markets ~~146,~~in ~~Accounting~~which ~~for~~we ~~Costs~~operate. ~~Associated~~Some ~~with Exit~~of orour ~~Disposal~~competitors ~~Activities,~~have ~~which~~a ~~nullifies~~larger ~~Emerging~~number ~~Issues~~of ~~Task~~stores ~~Force Issue~~and ~~No.~~greater ~~94-3~~financial, ~~Liability~~distribution, ~~Recognition~~marketing ~~for Certain Employee Termination Benefits~~ and ~~Other~~other ~~Costs~~resources tothan ~~Exit~~we anhave. In ~~Activity~~addition, ~~(including~~many ~~Certain~~of ~~Costs~~our ~~Incurred in~~competitors aemploy ~~Restructuring).~~price ~~SFAS~~discounting ~~No.~~policies ~~146 requires~~ that, aif ~~liability~~intensified, ~~for~~may amake ~~cost associated~~it ~~with~~difficult anfor ~~exit~~us orto ~~disposal~~reach ~~activity~~our besales ~~recognized~~goals ~~when~~without ~~the~~reducing ~~liability~~our ~~is incurred~~prices. ~~SFAS~~As ~~No.~~a ~~146~~result isof ~~effective~~this ~~for~~competition, ~~exit~~we ~~and~~may ~~disposal~~also ~~activities~~need ~~that~~to ~~are initiated~~spend ~~after~~more ~~December~~on ~~31,~~advertising ~~2002.~~and ~~The~~promotion ~~adoption~~than ofwe ~~this~~anticipate. ~~statement~~If ~~did~~we do not ~~have~~compete ~~a material~~successfully, ~~effect~~our onoperating ~~the~~results ~~consolidated~~will ~~financial statements~~suffer.

In ~~April~~ We ~~2002,~~may ~~the~~incur ~~FASB~~costs ~~issued~~from ~~SFAS~~litigation ~~No.~~or ~~145,~~increased ~~Rescission~~regulation ofrelating ~~FASB~~to ~~Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which, among other things, changes~~ the ~~way~~firearms ~~gains~~we ~~and losses from the extinguishment of debt are reported~~sell.

31 Sales of firearms represented approximately 2.9% of our sales in fiscal 2003. We may incur losses due to lawsuits relating to our performance of background checks on firearms purchases as mandated by state and federal law or the improper use of firearms sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from firearms manufacturers and retailers relating to the misuse of firearms. In the last five years, we were subject to one claim from a private party, which we settled, relating to our alleged failure to properly perform a background check. In addition, in the future there may be increased federal, state or local regulation, including taxation, of the sale of firearms in both our current markets as well as future markets in which we may operate. Certain local jurisdictions, including two where we operate stores, prohibit the sale of firearms within certain distances from schools. In the future, there may be more local jurisdictions adopting such prohibitions, or others that restrict our sale of firearms. Commencement of these lawsuits against us or the establishment of new regulations could reduce our sales and decrease our profitability.

Previously, all gains and losses from the extinguishment of debt were required to be reported as an extraordinary item, net of related tax effect. Under SFAS No.145, gains and losses from the extinguishment of debt should be reported as part of on-going operations, unless the extinguishment of debt meets the criteria of both unusual and infrequent as established in APB No. 30. SFAS No. 145 is effective for us beginning February 2, 2003, including all prior period presentations. Effective with the adoption of SFAS No. 145 on February 2, 2003, the extraordinary loss on early extinguishment of debt will be reclassified in the comparative consolidated financial statements to be included within earnings (loss) from operations before income taxes. 40

On ~~February~~ If ~~3, 2002,~~ we ~~adopted~~lose ~~SFAS~~key ~~No.~~management ~~144, Accounting for Impairment~~ or ~~Disposal~~ ofare ~~Long-Lived~~unable ~~Assets and for Long-Lived Assets~~ to beattract ~~Disposed Of, which addresses financial accounting~~ and ~~reporting~~retain ~~for~~ the ~~impairment~~talent ~~or disposal~~required offor ~~long-lived~~our ~~assets.~~business, ~~The~~our ~~adoption~~operating ofresults ~~this~~could ~~statement did not have an effect on the consolidated financial statements~~suffer.

~~During~~ ~~June~~ Our ~~2001,~~performance depends largely on the ~~Financial~~efforts ~~Accounting~~and ~~Standards~~abilities ~~Board~~of ~~issued~~our ~~SFAS~~senior Nomanagement. If ~~143~~we lose the services of one or more of our key executives, ~~Accounting~~ ~~for~~we ~~Asset~~may ~~Retirement~~not ~~Obligations~~be able to successfully manage our business or achieve our growth objectives. As our business grows, ~~which~~we iswill ~~effective~~need ~~for~~to ~~us beginning~~attract ~~February~~and 2retain additional qualified personnel in a timely manner and develop, ~~2003.~~train ~~SFAS~~and Nomanage an increasing number of management level sales and other employees. ~~143~~Our ~~addresses~~expansion ~~financial~~strategy ~~accounting~~will depend on our ability to hire capable store general managers and ~~reporting~~ ofother ~~obligations~~store ~~associated~~level ~~with~~personnel. ~~the~~We ~~retirement~~cannot ofassure ~~tangible~~you ~~long-lived assets~~that we will be able to attract and ~~the~~retain ~~associated~~personnel ~~asset~~as ~~retirement~~needed ~~costs~~in the future. ~~The~~If ~~adoption~~we ofare ~~this~~not ~~statement is~~able to hire capable store general managers and other store level personnel, we will not ~~expected~~be able to ~~have~~open annew ~~effect~~stores onand ~~the~~operate ~~consolidated~~existing ~~financial~~stores ~~statements.~~as planned and our revenue growth and operating results will suffer.

On ~~February~~ If 3,any ~~2002,~~of weour ~~adopted~~key ~~SFAS~~vendors ~~No.~~fail ~~142,~~to ~~Goodwill~~supply ~~and~~us ~~Other~~with ~~Intangible Assets. Under SFAS No. 142~~merchandise, ~~assets~~we ~~with~~may ~~indefinite~~not ~~useful~~be ~~lives~~able ~~are no longer amortized. Our goodwill has an indefinite useful life. We are required~~ to ~~complete~~ anmeet ~~initial goodwill impairment assessment in~~ the ~~year~~demand of ~~adoption~~our ~~and at~~customers ~~least annually thereafter or as impairment indicators arise. Annual goodwill amortization of $783,000 ceased upon adoption. An impairment assessment was completed upon adoption~~ and ~~then~~our ~~again~~sales ascould ~~of February 1, 2003~~decline. ~~No impairment was recognized upon adoption or at February 1, 2003.~~

~~Cautionary~~ For ~~Note~~fiscal ~~Regarding~~2003, ~~Forward-Looking~~our ~~Statements~~largest vendor, Nike, Inc., represented 9.6% of our purchases, and our second largest vendor, Columbia Sportswear Company, represented 5.0% of our purchases. Our twenty largest vendors collectively accounted for 37.1% of our total purchases. The loss of any key vendor or key vendor support could limit our ability to provide products that our customers want to purchase. In addition, we believe many of our vendors source their products from China, Taiwan and other foreign countries. A vendor could discontinue selling to us products manufactured in foreign countries at any time for reasons that may or may not be in our control, including foreign government regulations, political unrest, war, disruption or delays in shipments, boycotts, changes in local economic conditions and trade issues. Our sales and profitability could decline if we are unable to promptly replace a vendor who is unwilling or unable to satisfy our requirements with a vendor providing equally appealing products.

We ~~caution~~ ~~that~~have ~~any~~upgraded forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained or incorporated by reference in this Form 10-K or made by our management involve risks and ~~uncertainties~~ ~~and~~plan ~~are~~to ~~subject~~continue to ~~change~~upgrade ~~based on various important factors, many of which may be beyond~~ our ~~control.~~management ~~Accordingly,~~information ~~our~~systems; ~~future~~failure performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are subject to ~~risks~~successfully ~~and~~implement ~~uncertainties, including competitive changes in conditions in the retail industry, changes in consumer confidence~~ and ~~spending,~~install new ~~store~~systems ~~site selection,~~could ~~financing~~cause ~~and~~interruptions ~~performance,~~to ~~interest~~our ~~rates,~~business ~~bankruptcy filings, credit markets, general United States economic conditions, international geo-political uncertainties~~ and ~~normal~~impair ~~business uncertainties. If any of these risks or uncertainties actually occur,~~ our ~~business,~~future ~~financial~~growth.

32 We need quality and scalable management information systems to efficiently operate our stores and to successfully implement our new store growth strategy. Our systems include integrated merchandising, point of sale, warehouse, merchandising and financial systems. We have recently replaced many of our key information systems. If we experience problems with our new systems, we may incur significant costs and interruptions to our business, which could adversely affect our operations.

~~condition or operating results could be materially and adversely~~ affected, and the trading price of our common stock could decline. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. 41

If we The ~~are~~terms ~~unable~~of toour ~~successfully~~revolving ~~implement~~credit ~~our~~facility ~~growth~~impose ~~strategies~~operating orand ~~manage~~financial ~~our growing~~restrictions ~~business~~on us, which may impair our ~~future~~ability ~~operating~~to ~~results~~respond ~~will~~to ~~suffer.~~changing business and economic conditions.

~~Our~~ ~~strategy~~ The ~~includes~~terms ~~opening~~of ~~stores~~our incurrent ~~new~~revolving ~~and~~credit ~~existing~~facility ~~markets.~~impose Weoperating ~~must successfully~~and ~~choose~~financial ~~store~~restrictions ~~sites~~on us, ~~execute~~including, ~~favorable~~among ~~real~~other ~~estate transactions~~things, ~~hire~~ ~~competent~~restrictions ~~personnel,~~on ~~and~~our ~~open~~ability ~~and~~to ~~operate~~incur ~~new stores~~indebtedness. ~~Failure~~As toa doresult, ~~so could impair~~ our ability to ~~successfully~~respond ~~implement~~to ~~our~~changing ~~growth~~business ~~strategy~~ and ~~our future~~economic ~~operating~~conditions ~~results.~~and Into ~~particular,~~secure weadditional ~~must~~financing, ~~locate~~if ~~attractive store sites in malls~~needed, ~~lifestyle~~may ~~centers~~be ~~and~~significantly ~~power strip centers~~restricted, ~~because~~and ~~the developer financing that~~ we ~~believe~~may isbe ~~often~~prevented ~~available~~from engaging in ~~malls,~~transactions ~~lifestyle~~that ~~centers~~might ~~and power~~further ~~strip centers is a very important element of~~ our ~~new store~~ growth ~~plan.~~strategy ~~If we~~or ~~fail~~otherwise tobenefit ~~locate~~us. ~~desirable~~In ~~mall~~addition, ~~lifestyle~~our ~~center~~revolving ~~and~~credit ~~power~~facility ~~strip~~is ~~center~~secured ~~sites or~~by wea ~~are~~first ~~unable~~priority tosecurity ~~secure~~interest ~~developer~~in ~~financing,~~substantially weall ~~will~~of ~~not be able to open new stores as planned and~~ our ~~sales growth and operating results will suffer~~assets. In ~~addition,~~ ifthe weevent doof ~~not~~our ~~locate desirable sites with access to financing~~insolvency, ~~we may seek to grow by obtaining alternative sources of financing~~liquidation, ~~including construction~~dissolution ~~financing,~~or ~~sale-leaseback transactions~~reorganization, ~~long-term~~the ~~mortgages~~lenders ~~and borrowings~~ under our revolving credit facility. Ifwould ~~market conditions are not favorable, we may not~~ be ~~able~~entitled to ~~obtain~~payment ~~such~~in ~~alternative~~full ~~financing~~from onour ~~desirable~~assets ~~terms~~before distributions, if ~~at all~~any, ~~which~~were ~~may~~made ~~increase our costs, cause us~~ to ~~limit the number of new store openings and impair~~ our ~~future operating results~~shareholders.

In ~~addition,~~ We ~~our~~will expansion in new and existing markets may present competitive, distribution and merchandising challenges that differ from our current challenges, including competition among our stores, diminished impact of our store design and concept, added strain on our distribution center, additional information to be ~~processed~~controlled by ~~our~~Freeman ~~management~~Spogli ~~information systems~~ and ~~diversion of~~Limited ~~management~~Brands ~~attention~~as ~~from~~long ~~operations, such~~ as ~~the~~they ~~control~~collectively ofown ~~inventory~~a ~~levels in~~majority of our ~~existing~~common ~~stores~~stock, ~~to the opening of new stores~~ and ~~markets.~~they Tomay ~~the~~make ~~extent that~~decisions wewith ~~are~~which ~~not~~other ~~able~~shareholders ~~to meet these new challenges, our sales could decrease and our operating costs could increase~~disagree.

~~A downturn~~ As inof ~~the~~January ~~economy~~31, ~~may~~2004, ~~affect~~FS ~~consumer~~Equity ~~purchases~~Partners ofIV, ~~discretionary~~L.P., ~~items~~a fund managed by Freeman Spogli, ~~which~~ ~~could~~and ~~reduce~~Limited Brands, collectively owned approximately 55.3% of the outstanding shares of our ~~sales~~common stock. As a result, Freeman Spogli and Limited Brands together control all matters affecting us, including the election of the directors and other major decisions that may be put to a vote of our shareholders.

In ~~general~~ In addition, ~~our~~conflicts ~~sales~~of ~~represent~~interest ~~discretionary~~may ~~spending~~arise byin ~~our~~areas ~~customers~~relating to their continued collective controlling interest in the Company. ~~Discretionary~~ ~~spending~~We ismay ~~affected~~not bybe ~~many~~able ~~factors,~~to ~~including,~~resolve ~~among~~any ~~others~~potential conflicts, ~~general~~ ~~business~~and ~~conditions~~even if we do, ~~geo-political~~the ~~uncertainties~~resolution ~~and~~may be less favorable than if we were dealing with unaffiliated parties. These conflicts, ~~interest rates,~~may include the ~~availability~~structure and timing of ~~consumer~~transfers ~~credit,~~by ~~taxation~~Freeman Spogli and/or ~~consumer~~Limited ~~confidence~~Brands of all or any portion of its ownership interest in ~~future~~ ~~economic~~us, ~~conditions~~and the ability of Freeman Spogli and Limited Brands to control our management and affairs. In ~~Our~~addition, ~~customers’~~we ~~purchases~~provide ofFreeman ~~discretionary items~~Spogli and Limited Brands with weekly sales and other material, ~~including~~non-public data under the terms of our ~~products,~~stockholders ~~could~~agreement. Freeman ~~decline~~Spogli ~~during~~and ~~periods~~Limited ~~when~~Brands ~~disposable income~~are issubject ~~lower~~to orfederal ~~periods~~law regarding their use of ~~actual~~such orinformation ~~perceived~~and ~~unfavorable~~we ~~economic conditions.~~have Ifsigned ~~this~~appropriate ~~occurs~~confidentiality agreements with them, ~~our~~but ~~revenue~~we ~~and~~do ~~profitably~~not ~~will~~control ~~decline~~our shareholders.

33 42

~~Our~~ ~~results~~ The ~~achieved~~actual byor ~~our~~potential ~~relatively~~sale ~~small~~by ~~store~~Freeman ~~base~~Spogli and/or ~~prior~~Limited toBrands of their holdings of our ~~recapitalization~~ ~~may~~stock ~~not~~could because ~~indicative~~the market price of our ~~future~~stock ~~operating~~to ~~results.~~decline significantly.

We ~~currently~~ As ~~operate~~of 36January ~~stores~~31, ~~and~~2004, ~~have~~Freeman aSpogli ~~limited~~owned ~~history~~5,694,500 shares of ~~opening~~our common stock, and ~~operating new~~Limited ~~stores~~Brands owned 3,900,500 ~~particularly~~shares inof ~~malls~~our common stock and ~~lifestyle~~has ~~centers.~~a Wecurrently ~~opened~~exercisable warrant to purchase 1,350,000 additional shares of our ~~first mall~~common ~~store~~stock in(exercise ~~October~~price ~~1998~~of $44.82 ~~The~~at ~~results~~January ~~achieved~~31, to2004). ~~date~~Neither byFreeman Spogli nor Limited Brands is contractually prohibited from transferring our ~~relatively~~common ~~small store~~stock ~~base~~to ~~may~~an ~~not~~unaffiliated bethird ~~indicative~~party. ofThe significant increase in the ~~results~~volume ~~that~~of ~~may~~our befreely ~~achieved~~tradable shares upon the sale by Freeman Spogli or Limited Brands of a ~~larger number~~large interest in us could cause the market price of ~~stores~~our stock to decline significantly. As ~~There~~active, ~~are~~controlling ~~inherent~~shareholders, ~~risks~~with inrepresentation ~~new~~on ~~store~~the ~~site~~board ~~selection~~of ~~and~~directors, ~~there can~~Freeman beSpogli noand ~~assurance~~Limited ~~that~~Brands ~~new~~also ~~stores~~have ~~will~~significant ~~achieve~~access ~~their~~to ~~projected~~information ~~sales~~about the Company and ~~profitability.~~ Ifits ~~any~~short ~~new~~and ~~stores~~long ~~are~~term ~~unprofitable~~business orprospects. Freeman ~~any~~Spogli ~~existing~~and ~~store~~Limited ~~experiences~~Brands aalso ~~decline~~have incontractual ~~profitability~~registration rights, ~~the~~enabling ~~effect~~them onto ~~our~~cause ~~results~~us ofto ~~operations could~~register bethe ~~more~~sale ~~significant~~of ~~than~~shares ifof wecommon ~~had~~stock aheld ~~larger~~by ~~store base~~them. Although Inwe ~~addition,~~have asa ~~we continue~~policy towhich ~~increase~~requires ~~our~~all ~~store~~executive ~~base~~officers and ~~seek~~directors to ~~implement~~provide ~~our~~pre-notification ~~growth~~to ~~strategies, our~~the ~~comparable~~Company ~~store~~prior ~~sales~~to ~~may~~any ~~vary~~trading ~~from~~in ~~period~~the toCompany’s ~~period.~~securities, ~~The~~Freeman ~~comparable~~Spogli ~~store sales~~and weLimited ~~have~~Brands ~~achieved~~are not required to ~~date~~be ~~may~~bound ~~not~~by bethis ~~indicative~~policy ofand ~~our~~they ~~comparable~~have ~~store sales~~each ~~growth~~declined into ~~the~~be ~~future~~bound by it voluntarily.

~~Our results~~ Provisions in our Second Amended and Restated Articles of ~~operations~~Incorporation, Second Amended and Restated Bylaws and Indiana law may bedelay ~~harmed~~or byprevent ~~unseasonably~~an ~~warm~~acquisition ~~winter~~of ~~weather conditions.~~us by a third party.

~~Many~~ Our second amended and restated articles of incorporation, our ~~stores~~second ~~are~~amended ~~located~~and inrestated ~~geographic~~bylaws ~~areas~~and Indiana law contain provisions that ~~experience~~make ~~seasonably~~it ~~cold winters.~~more Wedifficult ~~sell~~for a ~~significant~~third ~~amount~~party to acquire us without the consent of ~~winter~~our ~~apparel~~board of directors. These provisions could also discourage proxy contests and ~~sports~~make ~~equipment, particularly~~it inmore ~~the~~difficult ~~fourth~~for ~~quarter~~you and other shareholders to elect directors and take other corporate actions. ~~Cold~~Although ~~weather~~our ~~categories~~board ~~typically~~of ~~account for~~directors ~~approximately~~has ~~one-third~~no intention to do so at the present time, our second amended and restated articles of incorporation permit our ~~fourth~~board ~~quarter~~of ~~sales~~directors to issue “blank check” preferred stock. ~~Abnormally~~Blank ~~warm~~check ~~weather conditions~~preferred stock allows the board to establish the rights (including voting rights), preferences and limitations of a series of preferred stock without shareholder approval. This could ~~reduce~~have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our ~~sales~~common stock or otherwise be in the best interest of ~~these~~our ~~items~~shareholders. In addition, our second amended and ~~cause~~restated usarticles toof ~~have significant~~incorporation ~~excess~~do ~~inventory~~not permit cumulative voting in the election of directors, ~~which~~and ~~would~~therefore ~~lower~~allow the holders of a majority of our ~~profitability.~~outstanding voting stock to control the election of all directors.

~~Our~~ ~~inability~~ Our tosecond ~~anticipate~~amended ~~changes~~and inrestated ~~consumer~~bylaws ~~demands~~provide that only our board of directors, and ~~preferences~~not our shareholders, may adopt, alter, amend and repeal our bylaws. Our second amended and restated bylaws also provide that nominations of persons for election to our board of directors and the proposal of business to be considered at a shareholders meeting may be made only in the notice of the meeting, by our board of directors or by a ~~timely manner~~shareholder ~~could~~who ~~reduce~~is entitled to vote at the meeting and has complied with the advance notice procedures of our ~~sales~~bylaws.

~~Our~~ products appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. Our success depends on our ability to identify product trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. If we misjudge the market for our products, our sales may decline significantly and we may be faced with significant excess inventory of some products and missed opportunities for other products, which would decrease our profitability. 43

~~Our operating~~ Indiana ~~results~~law ~~are~~provides ~~subject~~several limitations that may discourage potential acquirers from purchasing our common stock. A purchase of our common stock beyond threshholds established by Indiana law causes a shareholder to ~~seasonal~~automatically ~~fluctuations,~~lose ~~which~~the ~~could~~right ~~cause~~to vote the ~~market~~ ~~price~~acquired shares unless the holders of a majority of the disinterested shares vote to grant the acquired shares voting rights. In addition, Indiana law prohibits business combinations with a person who acquires 10% or more of our common stock during the five year period beginning with the acquisition and imposes certain voting or price requirements on such combinations after the five year period unless, prior to ~~decline.~~the acquisition, our board of directors has approved the acquisition of shares or the proposed business combination.

We ~~experience~~ These ~~substantial seasonal fluctuations in our sales~~ and ~~operating~~other ~~results. In~~provisions ~~fiscal~~of ~~2002,~~Indiana welaw ~~generated~~or ~~35.5% of~~ our ~~annual~~second ~~sales~~amended and ~~85.8%~~restated articles of ~~our operating~~incorporation ~~income~~and insecond ~~our~~amended ~~fourth~~and ~~fiscal~~restated ~~quarter,~~bylaws ~~which~~could ~~includes~~have the ~~Christmas holiday~~effect ~~and the peak winter ski season months~~ of ~~November~~delaying, ~~December~~deferring ~~and~~or ~~January. As~~preventing a ~~result,~~transaction weor ~~incur~~a ~~significant~~change ~~additional expenses~~ in ~~the~~control ~~fourth~~that ~~fiscal quarter~~might ~~due~~involve toa ~~higher~~premium ~~purchase~~price ~~volumes and increased staffing in our stores. If,~~ for ~~any reason, we miscalculate the demand for~~ our ~~products~~common ~~generally~~stock or ~~for~~otherwise ~~our product~~be ~~mix~~in ~~during~~ the ~~fourth~~best ~~fiscal~~interest ~~quarter,~~of our sales could decline resulting in significant excess inventory and a significant shortfall in expected fourth quarter sales, which could cause our annual operating results to suffer and our stock price to decline significantlyshareholders.

34Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We ~~rely~~Interest onRate ~~a single distribution center and if there is a natural disaster or other serious disruption at the facility, we may lose merchandise and be unable to deliver it effectively to our stores.~~ Risk

We ~~rely~~ Our onexposure ato ~~single~~interest ~~distribution~~rate ~~center~~risk consists primarily of borrowings under our revolving credit facility and our line of credit used for the construction of two new stores (Rochester, New York which we paid off in ~~Plainfield~~fiscal 2003 and Buffalo, ~~Indiana.~~New ~~Any~~York ~~natural disaster~~which orwe ~~other~~paid ~~serious~~off ~~disruption~~in tofiscal ~~this~~2002) ~~facility~~which ~~due~~are benchmarked to ~~fire~~U.S. and European short-term variable rates. On May 1, ~~tornado~~2003, ~~(such as~~we ~~the~~paid ~~tornado~~all ~~that~~remaining ~~destroyed~~outstanding principal and interest on our ~~Greenwood,~~line ~~Indiana~~of credit used for the construction of a new store. Borrowings inoutstanding ~~September~~under ~~2002)~~our ~~or any~~line ~~other~~of ~~cause~~credit ~~would~~used ~~damage~~for construction of a ~~significant~~new ~~portion~~store as of February 1, 2003 were $6.0 million. Borrowings outstanding under our ~~inventory~~revolving credit facility as of January 31, 2004 and ~~could~~February 1, 2003 were $37.8 million and $0, respectively. A hypothetical one percentage point interest rate change from those in effect during fiscal 2003 and 2002 would have resulted in ~~impair~~interest ~~our~~expense ~~ability~~fluctuating toby ~~adequately~~approximately ~~stock~~$461,000 and $191,000, respectively. As of March 19, 2004, the balances outstanding under our ~~stores~~revolving ~~and~~credit ~~reduce~~facility and our ~~sales~~financing obligations were $53.1 million and ~~profitability~~ $11.7 million, respectively.

~~Pressure from~~Item ~~our~~8. ~~competitors~~FINANCIAL ~~may~~STATEMENTS ~~force~~AND usSUPPLEMENTARY ~~to reduce our prices or increase our spending, which would lower our revenue and profitability.~~ DATA

We ~~face~~ The ~~competition~~consolidated ~~in the markets in which we operate. Some of our competitors have a larger number of stores and greater~~ financial, ~~distribution,~~statements ~~marketing and~~required ~~other resources than we have. Also, two of our larger competitors, Gart Sports Company and The Sports Authority, Inc., have announced plans~~ to ~~merge.~~be ~~In addition,~~filed ~~many~~hereunder ofare ~~our~~set ~~competitors~~forth ~~employ~~on ~~price~~pages ~~discounting~~47 ~~policies~~through ~~that,~~71 ~~if intensified, may make it difficult for us to reach our sales goals without reducing our prices. As a result~~ of this ~~competition, we may also need to spend more on advertising and promotion than we anticipate~~Report. ~~If we do not compete successfully, our operating results will suffer.~~

~~We may~~Item ~~incur~~9. ~~costs~~CHANGES ~~from~~IN ~~litigation~~AND orDISAGREEMENTS ~~increased~~WITH ~~regulation~~ACCOUNTANTS ~~relating~~ON toACCOUNTING ~~the~~AND ~~firearms we~~FINANCIAL ~~sell.~~ DISCLOSURE

~~Sales~~ ~~of firearms represented approximately 2~~ None.8% of our sales in fiscal 2002. We may incur losses due to lawsuits relating to our performance of background checks on firearms purchases as mandated by state and federal law or the improper use of firearms sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from firearms manufacturers and retailers relating to the misuse of firearms. In the last five years, we were subject to one claim from a private party, which we settled, relating to our alleged failure to properly perform a background check. In addition, in the future there may be increased federal, state or local regulation, including taxation, of the sale of firearms in both our current markets as well as future markets in which we may operate. Commencement of these lawsuits against us or the establishment of new regulations could reduce our sales and decrease our profitability.

If ~~we lose key management or are unable to attract and retain the talent required for our business, our operating results could suffer.~~ 44

~~Our performance~~Item ~~depends largely on the efforts and abilities of our senior management~~9a. WeCONTROLS doAND not have employment agreements with any of our key executives other than with Robert B. Mang, our Chief Executive Officer and Chairman of our Company and with C. David Zoba, our Executive Vice President and General Counsel. If we lose the services of one or more of our key executives, we may not be able to successfully manage our business or achieve our growth objectives. As our business grows, we will need to attract and retain additional qualified personnel in a timely manner and develop, train and manage an increasing number of management level sales and other employees. Our expansion strategy will depend on our abilityPROCEDURES

35 Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, as of the end of the period covered by this report, we evaluated the effectiveness of our “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that we file or submit under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In addition, based on our evaluation, no changes in our internal control over financial reporting occurred during the quarter ended January 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

toPART hire capable store managers and other store level personnel. We cannot assure you that we will be able to attract and retain personnel as needed in the future. If we are not able to hire capable store managers and other store level personnel, we will not be able to open new stores as planned and our revenue growth and operating results will suffer. III

~~If any~~Item of10. ~~our~~DIRECTORS ~~key~~AND ~~vendors~~EXECUTIVE ~~fail~~OFFICERS toOF ~~supply~~THE ~~us with merchandise, we may not be able to meet the demand of our customers and our sales could decline.~~ REGISTRANT

~~For~~ ~~fiscal~~ The ~~2002,~~information ~~our~~required ~~largest~~by ~~vendor,~~this ~~Nike,~~Item ~~Inc.,~~is ~~represented~~incorporated ~~8.0%~~by ofreference ~~our~~herein ~~purchases, and~~from our ~~second~~definitive ~~largest~~Proxy ~~vendor,~~Statement ~~Columbia~~in ~~Sportswear~~connection ~~Company,~~with ~~represented 5.6% of~~ our ~~purchases.~~Annual ~~Our~~Meeting ~~twenty largest vendors collectively accounted for 35.0%~~ of ~~our~~ ~~total purchases. The loss of any key vendor or key vendor support could limit our ability to provide products that our customers want to purchase. In addition~~Stockholders, wewhich ~~believe~~proxy ~~many~~statement ofwill ~~our~~be ~~vendors~~filed ~~source~~with ~~their~~the ~~products~~Securities ~~from China, Taiwan~~ and ~~other~~Exchange ~~foreign~~Commission ~~countries.~~not Alater ~~vendor~~than ~~could~~120 ~~discontinue~~days ~~selling~~after tothe ~~us products~~close ~~manufactured~~of ~~in foreign countries at any time for reasons that may or may not be in~~ our ~~control,~~fiscal ~~including~~year ~~foreign~~end ~~government~~January ~~regulations~~31, ~~political unrest, war, disruption or delays in shipments, changes in local economic conditions and trade issues~~2004. ~~Our sales and profitability could decline if we are unable to promptly replace a vendor who is unwilling or unable to satisfy our requirements with a vendor providing equally appealing products.~~

~~We have~~Item upgraded and plan to continue to upgrade our management information systems; failure to successfully implement and install new systems could cause interruptions to our business and impair our future growth11. EXECUTIVE COMPENSATION

We ~~need~~ The ~~quality and scalable management~~ information ~~systems~~required toby ~~efficiently~~this ~~operate our~~Item ~~stores~~is ~~and~~incorporated toby ~~successfully~~reference ~~implement~~herein from our ~~new~~definitive ~~store~~Proxy ~~growth~~Statement ~~strategy. Our systems include integrated merchandising, point of sale, warehouse, merchandising and financial systems. We have recently replaced and are~~ in ~~the process~~connection ~~of replacing many of our key information systems. If we experience problems~~ with our ~~new~~Annual ~~systems,~~Meeting weof ~~may incur significant costs and interruptions to our business~~Stockholders, which ~~could~~proxy ~~adversely~~statement ~~affect~~will ~~our~~be ~~operations.~~filed ~~During~~with ~~2002,~~the ~~we installed~~Securities ~~an inventory~~ and ~~merchandise~~Exchange ~~management~~Commission ~~system~~not ~~provided~~later bythan ~~JDA,~~120 ~~a sales~~days ~~audit~~after ~~and loss prevention systems from Datavantage, and a payroll and human resource system from PeopleSoft, Inc. Failure to smoothly transition to~~ the ~~new~~close ~~software~~of ~~could impair~~ our ~~ability~~fiscal toyear ~~track~~end ~~key~~January ~~financial~~31, ~~and inventory information and manage our costs~~2004.

~~The terms~~Item of12. ~~our~~SECURITY ~~revolving~~OWNERSHIP ~~credit~~OF ~~facility~~CERTAIN ~~impose~~BENEFICIAL ~~operating~~OWNERS ~~and~~AND ~~financial restrictions~~MANAGEMENT onAND ~~us,~~RELATED ~~which may impair our ability to respond to changing business and economic conditions.~~ MATTERS

~~Our revolving~~ The ~~credit~~information ~~facility~~required ~~expires~~by ~~May~~this 3,Item ~~2004,~~is ~~although~~incorporated weby ~~have~~reference ~~signed~~herein ~~a commitment~~from ~~letter~~our ~~for~~definitive aProxy ~~new~~Statement ~~revolving~~in ~~credit~~connection ~~facility~~with ~~that~~our weAnnual ~~anticipate~~Meeting ~~will close~~of ~~no later than June 30~~Stockholders, ~~2003.~~which ~~The~~proxy ~~terms~~statement ofwill ~~our~~be ~~current~~filed ~~revolving~~with ~~credit facility~~the ~~impose~~Securities ~~operating~~ and ~~financial~~Exchange ~~restrictions~~Commission onnot ~~us,~~later ~~including,~~than ~~among other~~120 ~~things,~~days ~~restrictions~~after ~~on our ability to incur indebtedness and make capital expenditures. We expect~~ the ~~terms~~close of our ~~new~~fiscal ~~facility~~year toend ~~impose~~January ~~operating and financial restrictions on us~~31, ~~including, among other things, restrictions on our ability to incur indebtedness~~2004. As a result, our ability to respond to changing business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might further our growth strategy or otherwise benefit us. In

36Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

~~addition,~~ The ~~our~~information ~~revolving~~required ~~credit~~by ~~facility~~this Item is ~~secured~~ incorporated by areference ~~first~~herein ~~priority security~~from ~~interest~~our indefinitive ~~substantially~~Proxy ~~all~~Statement ofin ~~our assets.~~connection Inwith ~~the~~our ~~event~~Annual Meeting of ~~our insolvency~~Stockholders, ~~liquidation,~~ ~~dissolution~~which ~~or reorganization,~~proxy ~~the~~statement ~~lenders~~will ~~under~~be ~~our~~filed ~~revolving~~with ~~credit facility~~the ~~would~~Securities ~~be entitled~~and toExchange ~~payment~~Commission innot ~~full~~later ~~from~~than ~~our~~120 ~~assets~~days ~~before~~after ~~distributions,~~the ~~if any,~~close ~~were made~~of to our ~~shareholders~~fiscal year end January 31, 2004.

We ~~will be controlled by Freeman Spogli and Limited Brands as long as they collectively own a majority of our common stock, and they may make decisions with which other shareholders disagree.~~ 45

~~As of~~Item ~~February 1, 2003, FS Equity Partners IV, L~~14.~~P.,~~ aPRINCIPAL ~~fund~~ACCOUNTING ~~managed~~FEES byAND Freeman Spogli & Co., which we refer to as Freeman Spogli, and Limited Brands, collectively owned approximately 57.6% of the outstanding shares of our common stock. As a result, Freeman Spogli and Limited Brands together control all matters affecting us, including the election of the directors and other major decisions that may be put to a vote of our shareholders. SERVICES

In ~~addition,~~ The ~~conflicts~~information ofrequired ~~interest~~by ~~may~~this ~~arise~~Item inis ~~areas~~incorporated ~~relating~~by toreference ~~their~~herein ~~continued collective~~from ~~controlling~~our ~~interest~~definitive inProxy ~~us.~~Statement Wein ~~may~~connection ~~not~~with beour ~~able~~Annual toMeeting ~~resolve~~of ~~any potential conflicts~~Stockholders, ~~and~~which ~~even~~proxy ifstatement wewill ~~do, the resolution may~~ be ~~less~~filed ~~favorable than if we were dealing~~ with ~~unaffiliated parties. These conflicts may include~~ the ~~structure~~Securities and ~~timing~~Exchange ofCommission ~~transfers~~not bylater ~~Freeman~~than ~~Spogli~~120 ~~and/or~~days ~~Limited~~after ~~Brands of all or any portion of its ownership interest in us, and~~ the ~~ability~~close of ~~Freeman Spogli and Limited Brands to control~~ our ~~management~~fiscal ~~and~~year ~~affairs.~~end InJanuary ~~addition~~31, ~~we provide Freeman Spogli and Limited Brands with weekly sales and other material, non-public data under the terms of our securityholders agreement~~2004. Freeman Spogli and Limited Brands are subject to federal law regarding their use of such information and we have signed appropriate confidentiality agreements with them, but we do not control our shareholders.

~~The actual~~PART ~~or potential sale by Freeman Spogli and/or Limited Brands of their holdings of our stock could cause the market price of our stock to decline significantly.~~ IV

~~As of~~Item February 1, 2003, Freeman Spogli owned 5,694,500 shares of our common stock, and Limited Brands owned 4,150,500 shares of our common stock and has a currently exercisable warrant to purchase 1,350,000 additional shares of our common stock (exercise price of $3215.01 ~~at February 1~~EXHIBITS, ~~2003).~~FINANCIAL ~~Neither~~STATEMENT Freeman Spogli nor Limited Brands is contractually prohibited from transferring our common stock to an unaffiliated third party. The significant increase in the volume of our freely tradable shares upon the sale by Freeman Spogli or Limited Brands of a large interest in us could cause the market price of our stock to decline significantly. As activeSCHEDULES, ~~controlling~~AND ~~shareholders,~~REPORTS ~~with~~ON ~~representation on~~FORM the board of directors, Freeman Spogli and Limited Brands also have significant access to information about the Company and its short and long term business prospects. Although we have a policy which requires all executive officers and directors to provide pre8-notification to the Company prior to any trading in the Company’s securities, Freeman Spogli and Limited Brands are not required to be bound by this policy and they have each declined to be bound by it voluntarily. K

	The following documents are filed as part of this Report:

	(a)	The Financial Statements required to be filed hereunder are listed in the Index to Financial Statements on page 47 of this Report.

	(b)	On November 28, 2003, we filed on Form 8-K an announcement containing the results for our third quarter and first nine months of fiscal 2003, and other information included therein, including the consolidated statements of operations, consolidated balance sheets, and the consolidated statements of cash flows.

		On January 27, 2004, we filed on Form 8-K an announcement to update same store sales guidance and to provide additional information with respect to expected results in the fiscal fourth quarter and fiscal year ending January 31, 2004.

	(c)	Exhibits required to be filed hereunder are listed in the exhibit index included herein at page 74.

	(d)	Consolidated financial statement schedule included herein at page 73.

~~Provisions~~ ~~in our Second Amended and Restated Articles of Incorporation, Second Amended and Restated Bylaws and Indiana law may delay or prevent an acquisition of us by a third party.~~ 46

~~Our second~~INDEX ~~amended~~TO ~~and~~CONSOLIDATED ~~restated~~FINANCIAL articles of incorporation, our second amended and restated bylaws and Indiana law contain provisions that make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. Although our board of directors has no intention to do so at the present time, our second amended and restated articles of incorporation permit our board of directors to issue “blank check” preferred stock. Blank check preferred stock allows the board to establish the rights (including voting rights), preferences and limitations of a series of preferred stock without shareholder approval. This could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our shareholders. In addition, our second amended and restated bylaws do not permit cumulative voting in the election of directors, and therefore allow the holders of a majority of our outstanding voting stock to control the election of all directors. STATEMENTS

Our second amended and restated bylaws provide that only our board of directors, and not our shareholders, may adopt, alter, amend and repeal our bylaws. Our second amended and restated bylaws also provide that nominations of persons for election to our board of directors and the proposal of business to be considered at a shareholders meeting may be made only in the notice of the meeting, by our board of directors or by a shareholder who is entitled to vote at the meeting and has complied with the advance notice procedures of our bylaws.

		Page

Independent Auditors’ Report		48

Consolidated Balance Sheets as of January 31, 2004 and February 1, 2003		49

Consolidated Statements of Operations for the Fiscal Years Ended January 31, 2004, February 1, 2003 and February 2, 2002		50

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended January 31, 2004, February 1, 2003 and February 2, 2002		51

Consolidated Statements of Cash Flows for the Fiscal Years Ended January 31, 2004, February 1, 2003 and February 2, 2002		52

Notes to Consolidated Financial Statements for the Fiscal Years Ended January 31, 2004, February 1, 2003 and February 2, 2002		53

Indiana law provides several limitations that may discourage potential acquirers from purchasing our common stock. A purchase of our common stock beyond threshholds established by Indiana law causes a shareholder to automatically lose the right to vote the acquired shares unless the holders of a majority of the disinterested shares vote to grant the acquired shares voting rights. In addition, Indiana law prohibits business combinations with a person who acquires 10% or more of our common stock during the five year period beginning with the acquisition unless, prior to the acquisition, our board of directors has approved the acquisition of shares or the proposed business combination. 47

~~These~~ ~~and~~INDEPENDENT ~~other~~AUDITORS’ provisions of Indiana law or our second amended and restated articles of incorporation and second amended and restated bylaws could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our shareholders. REPORT

~~Item~~ To ~~7A: QUANTITATIVE~~the ~~AND~~Shareholders ~~QUALITATIVE~~and ~~DISCLOSURES~~Board ~~ABOUT MARKET~~of ~~RISK~~Directors of Galyan’s Trading Company, Inc. Plainfield, Indiana

~~Interest~~ We ~~Rate~~have ~~Risk~~audited the accompanying consolidated balance sheets of Galyan’s Trading Company, Inc. and its subsidiaries (the “Company”) as of January 31, 2004 and February 1, 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three fiscal years in the period ended January 31, 2004. 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.

~~Our~~ ~~exposure~~We toconducted ~~interest~~our ~~rate~~audits ~~risk~~in ~~consists~~accordance ~~primarily~~with auditing standards generally accepted in the United States of ~~borrowings~~America. Those ~~under~~standards ~~our revolving~~require ~~credit~~that ~~facility~~we plan and ~~our~~perform ~~construction~~the ~~loans~~audit ~~which~~to obtain reasonable assurance about whether the financial statements are ~~benchmarked~~free ~~to U~~of material misstatement.S 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 ~~European~~significant ~~short-~~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.

38 In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Galyan’s Trading Company, Inc. and subsidiaries as of January 31, 2004 and February 1, 2003, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

~~term~~ As ~~variable~~discussed ~~rates.~~in ~~The~~Note ~~aggregate~~1 ~~balances~~to ~~outstanding under~~the ~~our construction~~consolidated ~~loans~~financial ~~as of February 1~~statements, ~~2003~~effective ~~and~~ February 23, 2002 ~~totaled $6.0 million and $10.9 million~~, ~~respectively.~~the NoCompany ~~borrowings~~changed ~~were~~its ~~outstanding under~~method ~~our revolving credit facility as~~ of ~~February~~accounting 1for goodwill, ~~2003~~ and ~~February~~effective 2,January ~~2002. As of March 27~~1, 2003, ~~the aggregate~~changed ~~balances~~its ~~outstanding~~method ~~under our revolving credit facility and our construction loans totaled $26.0 million. The impact on our annual results~~ of ~~operations~~accounting offor acash ~~one percentage~~consideration ~~point~~received ~~change~~from invendors, ~~the interest~~as ~~rate~~required ~~would~~by ~~not~~new beaccounting ~~significant~~standards.

~~Item~~/s/DELOITTE ~~8. FINANCIAL~~& ~~STATEMENTS~~TOUCHE ~~AND~~LLP ~~SUPPLEMENTARY~~March ~~DATA~~31, 2004 Indianapolis, Indiana

~~The~~ ~~consolidated financial statements required to be filed hereunder are set forth on pages 42 through 65 of this Report.~~ 48

~~Item~~ Galyan’s 9Trading Company, Inc. ~~CHANGES~~ INConsolidated ~~AND~~Balance ~~DISAGREEMENTS~~Sheets ~~WITH~~As ~~ACCOUNTANTS~~of ONJanuary ~~ACCOUNTING AND~~31, ~~FINANCIAL~~2004 ~~DISCLOSURE~~and February 1, 2003 (dollars in thousands, except share data)

None.

	Fiscal Year

	2003			2002

Assets
Current assets:
Cash and cash equivalents	$	7,120		$	11,890
Receivables, net		10,861			7,726
Merchandise inventories		155,661			138,993
Deferred income taxes		3,980			1,969
Other current assets		9,425			5,010

Total current assets		187,047			165,588

Property and equipment, net		186,450			136,421
Goodwill, net		18,334			18,334
Other assets, net		2,414			878

Total assets	$	394,245		$	321,221

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	71,567		$	56,804
Accrued expenses		40,428			42,579
Current portion of long-term debt		137			6,103

Total current liabilities		112,132			105,486
Long-term liabilities:
Debt, net of current portion		49,578			186
Deferred income taxes		10,244			1,334
Other long-term liabilities		8,808			6,938

Total long-term liabilities		68,630			8,458
Commitments and contingencies		--			--
Shareholders’ equity:
Preferred stock, no par value 5,000,000 shares authorized; no shares issued or outstanding		--			--
Common stock and paid-in capital, no par value 50,000,000 shares authorized, 17,362,368 and 17,084,716 shares issued and outstanding, respectively		194,888			191,802
Notes receivable from shareholders		(689	)		(948	)
Unearned compensation		(857	)		(115	)
Warrants		1,461			1,461
Retained earnings		18,680			15,077

Total shareholders’ equity		213,483			207,277

Total liabilities and shareholders’ equity	$	394,245		$	321,221

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

~~Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT~~ 49

~~The~~ ~~information~~ ~~required~~Galyan’s byTrading ~~this~~Company, ~~Item~~Inc.Consolidated isStatements ~~incorporated~~of byOperations ~~reference~~For ~~from~~ the ~~Proxy Statement.~~Fiscal Years Ended January 31, 2004, February 1, 2003 and February 2, 2002 (dollars in thousands, except per share data)

Item 11. EXECUTIVE COMPENSATION

	Fiscal Year

	2003			2002			2001

Net sales	$	690,701		$	597,745		$	482,528
Cost of sales		500,334			416,230			337,953

Gross profit		190,367			181,515			144,575
Selling, general and administrative expenses		180,476			148,357			118,070

Operating income		9,891			33,158			26,505
Interest expense		2,856			2,053			7,095
Interest income		(162	)		(257	)		(372	)
Loss on early extinguishment of debt		--			--			10,435

Income before income tax expense		7,197			31,362			9,347
Income tax expense		3,594			12,642			4,715

Net income	$	3,603		$	18,720		$	4,632

Basic earnings per share	$	0.21		$	1.10		$	0.32

Diluted earnings per share	$	0.21		$	1.09		$	0.32

The ~~information~~ ~~required~~accompanying bynotes ~~this~~are ~~Item~~an isintegral ~~incorporated~~part byof ~~reference~~these ~~from~~consolidated ~~the~~financial ~~Proxy Statement~~statements.

~~Item 12. SECURITY OWNERSHIP~~ ~~OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MATTERS~~50

~~The~~ ~~information~~Galyan’s ~~required~~Trading byCompany, ~~this~~Inc. ~~Item~~Consolidated isStatements ~~incorporated~~of byShareholders’ ~~reference~~Equity ~~from~~For the ~~Proxy Statement.~~Fiscal Years Ended January 31, 2004, February 1, 2003 and February 2, 2002 (dollars in thousands, except share data)

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

	Common Stock				Notes Receivable from Shareholders			Unearned Compensation			Warrants			Retained Earnings (Deficit)			Total

	Shares		Paid-in Capital

Balance, February 3, 2001		9,763,707	$	70,596	$	(1,491	)	$	(445	)	$	8,654		$	(8,275	)	$	69,039
Issuance of common stock, net of issuance costs of $11,548		6,550,001		112,797		(285	)		--			--			--			112,512
Exercise of stock warrants		720,000		7,200		--			--			(7,193	)		--			7
Stock compensation expense		--		--		--			165			--			--			165
Payments on notes receivable from shareholders		--		--		325			--			--			--			325
Service contributed from Limited Brands		--		541		--			--			--			--			541
Net income		--		--		--			--			--			4,632			4,632

Balance, February 2, 2002		17,033,708		191,134		(1,451	)		(280	)		1,461			(3,643	)		187,221
Issuance of common stock		20,800		208		--			--			--			--			208
Employee stock purchase plan		30,208		257		--			--			--			--			257
Issuance of stock options		--		203		--			--			--			--			203
Stock compensation expense		--		--		--			165			--			--			165
Payments on notes receivable from shareholders		--		--		503			--			--			--			503
Net income		--		--		--			--			--			18,720			18,720

Balance, February 1, 2003		17,084,716		191,802		(948	)		(115	)		1,461			15,077			207,277
Issuance of common stock		133,168		1,514		--			--			--			--			1,514
Employee stock purchase plan		44,484		429		--			--			--			--			429
Issuance of restricted stock		100,000		1,143		--			(1,143	)		--			--			--
Stock compensation expense		--		--		--			401			--			--			401
Payments on notes receivable from shareholders		--		--		259			--			--			--			259
Net income		--		--		--			--			--			3,603			3,603

Balance, January 31, 2004		17,362,368	$	194,888	$	(689	)	$	(857	)	$	1,461		$	18,680		$	213,483

~~Item 14. CONTROLS AND PROCEDURES~~ 51

~~Disclosure~~ ~~controls~~ ~~and~~Galyan’s ~~procedures~~Trading ~~are~~Company, ~~designed~~Inc.Consolidated toStatements ~~ensure~~of ~~that information~~Cash ~~required~~Flows toFor ~~be disclosed in our periodic reports filed or submitted under~~ the ~~Securities~~Fiscal ~~Exchange~~Years ~~Act~~Ended ofJanuary ~~1934~~31, ~~as amended~~2004, isFebruary ~~recorded~~1, ~~processed, summarized~~2003 and ~~reported~~February ~~within~~2, ~~required~~2002 ~~time~~(dollars ~~periods. Within~~in thousands)

	Fiscal Year

	2003			2002			2001

Cash flows from operating activities:
Net income	$	3,603		$	18,720		$	4,632
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		24,916			17,537			13,749
Amortization of financing intangible and discount on subordinated notes to Freeman Spogli and Limited Brands		526			535			1,222
Loss on early extinguishment of debt		--			--			10,435
Deferred income taxes		6,899			2,255			1,258
Interest converted to subordinated debt		--			--			3,647
(Gain) loss on disposal of property and equipment		(676	)		223			282
Deferred rent and other non-cash expense		2,271			2,136			2,651
Changes in certain assets and liabilities:
Accounts receivable		389			(608	)		(648	)
Merchandise inventories		(16,668	)		(27,178	)		(20,320	)
Other assets		(4,407	)		1,561			(3,574	)
Accounts payable and accrued expenses		17,928			30,616			10,046

Net cash provided by operating activities		34,781			45,797			23,380
Cash flows from investing activities:
Capital expenditures		(77,113	)		(59,453	)		(37,252	)
(Decrease) increase in net accounts payable for capital expenditures		(6,879	)		(7,181	)		10,701
Proceeds from insurance settlement		1,225			--			--

Net cash used in investing activities		(82,767	)		(66,634	)		(26,551	)
Cash flows from financing activities:
Net borrowings (payments) on revolving line of credit		37,825			--			(19,950	)
Financing proceeds from sale leaseback transaction		11,685			--			--
Payments of financing costs		(2,226	)		--			(1,467	)
Proceeds from long-term debt		--			350			5,650
Principal payments on long-term debt and other obligations		(6,084	)		(5,361	)		(60,892	)
Payments on notes receivable from shareholders		259			503			325
Proceeds from sale of common stock		1,757			465			124,067
Transaction costs for initial public offering		--			--			(11,548	)

Net cash provided by (used in) financing activities		43,216			(4,043	)		36,185

Net (decrease) increase in cash and cash equivalents		(4,770	)		(24,880	)		33,014
Cash and cash equivalents, beginning of year		11,890			36,770			3,756

Cash and cash equivalents, end of year	$	7,120		$	11,890		$	36,770

90The ~~days~~accompanying ~~prior~~notes ~~to the~~are ~~date of this report (the “Evaluation Date”), we carried out~~ an ~~evaluation~~ ~~under~~integral ~~the~~part ~~supervision and with the participation~~ of ~~our Chief Executive~~these ~~Officer~~consolidated ~~and~~financial ~~Chief Financial Officer of the effectiveness of our disclosure controls and procedures~~statements. ~~Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.~~

~~Subsequent~~ ~~to the Evaluation Date, there have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls.~~ 52

~~PART~~ GALYAN’S IVTRADING COMPANY, INC.

~~Item~~ Notes ~~15. EXHIBITS,~~to ~~FINANCIAL~~Consolidated ~~STATEMENTS~~Financial ~~SCHEDULES, AND REPORTS ON FORM 8-K~~Statements

~~The~~ ~~following~~For ~~documents~~the ~~are~~Fiscal ~~filed~~Years asEnded ~~part~~January of31, ~~this~~2004, ~~Report:~~February 1, 2003 and February 2, 2002

~~(a)~~ ~~The Financial~~1. Organization ~~Statements~~and ~~required~~Summary toof beSignificant ~~filed~~Accounting ~~hereunder~~Policies ~~are listed in the Index to Financial Statements on page 41of this Report.~~

~~(b)~~ On December 16, 2002, we filed a current report on Form 8-K, dated the same day, reporting a Regulation FD Disclosure relating to a certification of our Principal Executive Officer and Principal Financial Officer as to matters required by Section 906 of the Sarbanes-Oxley Act of 2002. Organization

Galyan’s Trading Company, Inc. (cthe “Company”) ~~Exhibits~~, ~~required~~an toIndiana becorporation, ~~filed~~is ~~hereunder~~a specialty retailer that offers a broad range of outdoor and athletic equipment, apparel, footwear and accessories, as well as casual apparel and footwear. Our store format and our merchandising strategy are ~~listed~~targeted into appeal to consumers with active lifestyles, from the ~~exhibit~~casual ~~index~~consumer ~~included~~to ~~herein at~~the ~~page~~serious 68sports enthusiast. As of January 31, 2004 we operated 43 stores in 19 states and one clearance center. The clearance center location is not included in our store count as it is not part of our long-term strategy.

~~(d)~~ ~~Consolidated~~ On ~~financial~~July ~~statement~~2, ~~schedule~~2001, ~~included~~the ~~herein~~Company completed an initial public offering of 6,500,000 shares of common stock at ~~page~~$19.00 67per share. The Company received approximately $112.0 million in net proceeds from the offering. Prior to the initial public offering, the Company’s shareholders were FS Equity Partners IV, L.P. (“Freeman Spogli”), a fund managed by Freeman Spogli & Co. LLC; G Trademark, Inc. (“G Trademark”), a wholly owned subsidiary of Limited Brands, Inc. (“Limited Brands”); Benchmark Capital Partners IV, L.P. (“Benchmark”); management and directors. From July 1995 until August 1999, the Company was a wholly owned subsidiary of Limited Brands.

40Fiscal Year

~~INDEX~~ Our TOfiscal ~~CONSOLIDATED~~year ~~FINANCIAL~~ends ~~STATEMENTS~~on the Saturday closest to January 31. Fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002 are referred to as fiscal 2003, 2002 and 2001, respectively. All years presented include 52 weeks.

	Page
Independent Auditors' Report	42
Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002	43
Consolidated Statements of Operations for the Fiscal Years Ended February 1, 2003,	44
February 2, 2002 and February 3, 2001
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended	45
February 1, 2003, February 2, 2002 and February 3, 2001
Consolidated Statements of Cash Flows for the Fiscal Years Ended February 1,	46
2003, February 2, 2002 and February 3, 2001
Notes to Consolidated Financial Statements for the Fiscal Years Ended February 1,	47-65
2003, February 2, 2002 and February 3, 2001

Basis of Presentation

41 The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Galyan’s Nevada, Inc. (“Nevada”) and Galyan’s of Virginia, Inc. (“Virginia”). Virginia was incorporated in fiscal 2002 to centralize the ownership and administration of gift certificate and gift card liabilities. Nevada was incorporated during fiscal 2000 to centralize the ownership, management and protection of all intellectual property of the Company. All significant intercompany accounts and transactions have been eliminated.

~~INDEPENDENT~~ Cash ~~AUDITORS’~~and ~~REPORT~~Cash Equivalents

To We ~~the~~consider ~~Shareholders~~all ~~and~~short-term ~~Board~~investments with an original maturity of ~~Directors Galyan’s~~three ~~Trading~~months ~~Company,~~or ~~Inc. Plainfield,~~less ~~Indiana~~to be cash equivalents.

We have audited the accompanying consolidated balance sheets of Galyan’s Trading Company, Inc. and its subsidiaries (the “Company”) as of February 1, 2003 and February 2, 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three fiscal years in the period ended February 1, 2003. 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. 53

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

In ~~our~~ Merchandise ~~opinion,~~inventories ~~such~~are ~~consolidated~~stated ~~financial~~at ~~statements present fairly, in all material respects,~~ the ~~consolidated~~lower ~~financial position~~ of ~~Galyan’s~~cost ~~Trading Company,~~or ~~Inc. and subsidiaries as of February 1~~market, ~~2003~~on ~~and~~a ~~February 2~~first-in, ~~2002,~~first-out ~~and the results of their operations and their cash flows for each of the three fiscal years in the period ended February 1~~basis, ~~2003~~utilizing ~~in conformity with accounting principles generally accepted in~~ the ~~United~~retail ~~States of America~~method.

As ~~discussed~~Property ~~in Note 1 to the consolidated financial statements, effective February 3, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill~~ and ~~Other Intangible Assets.~~ Equipment

~~/s/~~ Property ~~DELOITTE~~and &equipment ~~TOUCHE~~is ~~LLP Indianapolis~~stated at cost. Depreciation and amortization of property and equipment is computed on a straight-line basis over the estimated useful lives of the related assets, ~~Indiana March~~which 14range from 10 to 30 years for buildings and leasehold improvements and 4 to 10 years for furniture, ~~2003~~fixtures and store equipment. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the lease. Routine repairs and maintenance are charged to expense as incurred. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts, with any resulting gain or loss included in net income.

42 Goodwill

~~Galyan’s~~ The ~~Trading~~ Company applies the provisions of Financial Accounting Standards (“SFAS”) No. 142, ~~Inc~~Goodwill and Other Intangible Assets, to account for goodwill. ~~Consolidated~~ Our ~~Balance~~goodwill ~~Sheets As~~has an indefinite useful life. Goodwill is reviewed for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired. No impairment was recognized upon adoption or as a result of ~~February~~the 1annual impairment tests as of January 31, ~~2003~~2004 and February 21, 2003. Prior to fiscal 2002 ~~(dollars~~, ingoodwill ~~thousands~~was amortized on a straight-line basis over 30 years. Amortization expense of goodwill for fiscal 2001 was $783,000. The ~~except~~following ~~share~~represents ~~data)~~a reconciliation of reported net income to pro forma income excluding the effect of amortization expense:

	2002		2001
	Fiscal Year
	2003			2002		2001
Assets
Reported net income	$	3,603		$	18,720	$	4,632
Current assets:
Add back: Goodwill amortization		--			--		783
Cash and cash equivalents	$ 11,890		$ 36,770
Pro forma net income	$	3,603		$	18,720	$	5,415
Receivables, net	7,726		3,219
Basic earnings per share:
Merchandise inventories	138,993		111,815
Reported net income	$	0.21		$	1.10	$	0.32
Deferred income taxes	1,969		2,172
Goodwill amortization		--			--		0.06
Other current assets	5,010		6,619
Pro forma net income	$	0.21		$	1.10	$	0.38
Total current assets	165,588		160,595
Diluted earnings per share:
Property and equipment, net	136,421		94,572
Reported net income	$	0.21		$	1.09	$	0.32
Deferred income taxes	--		718
Goodwill amortization		--			--		0.05
Goodwill, net	18,334		18,334
Pro forma net income	$	0.21		$	1.09	$	0.37
Other assets, net	878		1,521
Total assets	$ 321,221		$ 275,740
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$ 56,804		$ 39,248
Accrued expenses	42,579		32,438
Current portion of long-term debt	6,103		5,368
Total current liabilities	105,486		77,054
Long-term liabilities:
Debt, net of current portion	186		5,932
Deferred income taxes	1,334		--
Other long-term liabilities	6,938		5,533
Total long-term liabilities	8,458		11,465
Commitments and contingencies	--		--
Shareholders' equity:
Preferred stock, no par value
5,000,000 shares authorized; no shares issued or outstanding	--		--
Common stock and paid-in capital, no par value
50,000,000 shares authorized, 17,084,716 and 17,033,708 shares issued
and outstanding, respectively	191,802		191,134
Notes receivable from shareholders	(948	)	(1,451	)
Unearned compensation	(115	)	(280	)
Warrants	1,461		1,461
Retained earnings (deficit)	15,077		(3,643	)
Total shareholders' equity	207,277		187,221
Total liabilities and shareholders' equity	$ 321,221		$ 275,740

~~The accompanying notes are an integral part of these consolidated financial statements.~~ 54

43 Other Assets

~~Galyan's Trading Company, Inc.~~ ~~Consolidated~~ Other ~~Statements~~assets ofinclude ~~Operations For~~deferred ~~the~~financing ~~Fiscal~~costs ~~Years~~that ~~Ended~~are ~~February~~being 1,amortized ~~2003,~~over ~~February~~the 2,terms ~~2002~~of ~~and~~the ~~February~~related 3debt agreements, ~~2001 (dollars~~which inrange ~~thousands,~~from ~~except~~5 ~~per~~to ~~share~~20 ~~data)~~years.

	Fiscal Year
	2002		2001		2000
Net sales	$ 597,745		$ 482,528		$ 421,662
Cost of sales	416,230		337,953		295,211
Gross profit	181,515		144,575		126,451
Selling, general and administrative expenses	148,357		118,070		105,935
Operating income	33,158		26,505		20,516
Interest expense	2,053		7,095		14,065
Loss on investment in MVP.com	--		--		4,621
Interest income	(257	)	(372	)	(174	)
Income before income tax expense and extraordinary item	31,362		19,782		2,004
Income tax expense	12,642		8,340		1,641
Income before extraordinary item	18,720		11,442		363
Extraordinary loss on early extinguishment of debt (net of income tax
benefit of $3,625)	--		(6,810	)	--
Net income	$ 18,720		$ 4,632		$ 363
Basic earnings per share:
Earnings per share before extraordinary item	$ 1.10		$ 0.79		$ 0.03
Per share extraordinary loss	--		(0.47	)	--
Basic earnings per share	$ 1.10		$ 0.32		$ 0.03
Diluted earnings per share:
Earnings per share before extraordinary item	$ 1.09		$ 0.78		$ 0.03
Per share extraordinary loss	--		(0.46	)	--
Diluted earnings per share	$ 1.09		$ 0.32		$ 0.03

Long-lived Assets

~~The~~ Long-lived ~~accompanying~~assets, ~~notes~~primarily building and leasehold improvements, are anreviewed ~~integral~~for ~~part~~impairment ofwhenever ~~these~~events ~~consolidated financial~~or ~~statements~~changes in circumstances indicate that full recoverability is questionable. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results and projected cash flows. Impaired assets are written down to estimated fair value with fair value generally being determined based on discounted expected future cash flows. No impairment charges were recorded during fiscal 2003, 2002 and 2001, respectively.

44 Revenue Recognition

~~Galyan’s~~ We ~~Trading~~recognize ~~Company~~retail sales upon the purchase of merchandise by the customer, ~~Inc~~net of returns and allowances, which are based upon historical customer returns experience. ~~Consolidated~~ Markdowns ~~Statements~~associated with the preferred customer programs are recognized upon redemption in conjunction with a qualifying purchase. Revenue from the sale of ~~Shareholders’~~gift ~~Equity For~~cards and store credits is recognized upon redemption of the ~~Fiscal~~gift ~~Years~~cards ~~Ended~~or ~~February~~store 1,credits ~~2003,~~by the customer. Revenue from layaway sales is recognized upon receipt of final payment from the customer. As of February 2, 2002, ~~and~~we ~~February~~no 3,longer ~~2001 (dollars~~permitted incustomers ~~thousands,~~to ~~except~~use ~~share~~layaway ~~data)~~sales to purchase merchandise.

	Common Stock
	Shares		Paid-inCapital		NotesReceivablefromShareholders		UnearnedCompen-sation		Warrants		RetainedEarnings(Deficit)		Total
Balance, January 29, 2000	9,669,544		$ 68,329		$ (1,431	)	$ --		$ 8,654		$ (8,638	)	$ 66,914
Issuance of common stock	109,663		1,527		(415	)	--		--		--		1,112
Repurchase of common stock	(15,500	)	(157	)	55		--		--		--		(102	)
Issuance of stock options	--		495		--		(495	)	--		--		--
Stock compensation expense	--		--		--		50		--		--		50
Payments on notes
receivable from shareholders	--		--		300		--		--		--		300
Services contributed
from Limited Brands	--		402		--		--		--		--		402
Net income	--		--		--		--		--		363		363
Balance, February 3, 2001	9,763,707		70,596		(1,491	)	(445	)	8,654		(8,275	)	69,039
Issuance of common stock,
net of issuance costs of
$ 11,548	6,550,001		112,797		(285	)	--		--		--		112,512
Exercise of stock warrants	720,000		7,200		--		--		(7,193	)	--		7
Stock compensation expense	--		--		--		165		--		--		165
Payments on notes
receivable from shareholders	--		--		325		--		--		--		325
Service contributed from
Limited Brands	--		541		--		--		--		--		541
Net income	--		--		--		--		--		4,632		4,632
Balance, February 2, 2002	17,033,70	8	191,134		(1,451	)	(280	)	1,461		(3,643	)	187,221
Issuance of common stock	20,800		208		--		--		--		--		208
Employee stock purchase plan	30,208		257		--		--		--		--		257
Issuance of stock options	--		203		--		--		--		--		203
Stock compensation expense	--		--		--		165		--		--		165
Payments on notes
receivable from shareholders	--		--		503		--		--		--		503
Net income	--		--		--		--		--		18,720		18,720
Balance, February 1, 2003	17,084,71	6	$ 191,802		$ (948	)	$ (115	)	$ 1,461		$ 15,077		$ 207,277

Cost of Sales

~~The~~ Cost ~~accompanying~~of ~~notes~~sales ~~are~~includes anthe ~~integral~~cost ~~part~~ of ~~these consolidated~~merchandise, ~~financial~~inventory ~~statements~~markdowns, inventory shrinkage, inbound freight, distribution and warehousing, payroll for buying personnel, and store occupancy costs. Store occupancy costs include rent, contingent rents, common area maintenance, real estate and personal property taxes, utilities, and repairs and maintenance.

45Advertising Expense

~~Galyan’s~~ Advertising ~~Trading~~costs are expensed in the period in which the advertising occurs. The Company participates in various advertising and marketing cooperative programs with its vendors, ~~Inc. Consolidated~~who, ~~Statements~~under ofthese ~~Cash~~programs, ~~Flows For~~reimburse the ~~Fiscal~~Company ~~Years~~for ~~Ended~~certain ~~February~~costs 1incurred. Advertising expense, ~~2003~~net of vendor reimbursement, ~~February~~for 2fiscal 2003, 2002 and ~~February~~2001 3was $25.5 million, ~~2001 (dollars~~$17.8 inmillion ~~thousands)~~and $12.2 million, respectively.

	Fiscal Year
	2002		2001		2000
Cash flows from operating activities:
Net income	$ 18,720		$ 4,632		$ 363
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	17,537		13,749		11,504
Amortization of financing intangible and discount on subordinated notes to
Freeman Spogli and Limited Brands	535		1,222		2,491
Loss on early extinguishment of debt	--		10,435		--
Loss on investment in MVP.com	--		--		4,621
Deferred income taxes	2,255		1,258		(4,630	)
Interest converted to subordinated debt	--		3,647		6,649
Loss on disposal of property and equipment	223		282		1,155
Deferred rent and other non-cash expense	2,136		2,651		2,753
Changes in certain assets and liabilities:
Accounts receivable	(608	)	(648	)	270
Merchandise inventories	(27,178	)	(20,320	)	(17,971	)
Other assets	1,561		(3,574	)	(561	)
Accounts payable and accrued expenses	30,616		10,046		14,783
Net cash provided by operating activities	45,797		23,380		21,427
Cash flows from investing activities:
Capital expenditures	(59,453	)	(37,252	)	(20,413	)
Increase (decrease) in net accounts payable for capital expenditures	(7,181	)	10,701		834
Net cash used in investing activities	(66,634	)	(26,551	)	(19,579	)
Cash flows from financing activities:
Net payments on revolving line of credit	--		(19,950	)	(3,900	)
Proceeds from long-term debt	350		5,650		3,423
Principal payments on long-term debt	(5,361	)	(60,892	)	(1,157	)
Payments on notes receivable from shareholders	503		325		300
Proceeds from sale of common stock	465		124,067		682
Payment of financing costs	--		(1,467	)	--
Transaction costs for initial public offering	--		(11,548	)	--
Repurchase of common stock	--		--		(102	)
Net cash provided by (used in) financing activities	(4,043	)	36,185		(754	)
Net increase (decrease) in cash and cash equivalents	(24,880	)	33,014		1,094
Cash and cash equivalents, beginning of year	36,770		3,756		2,662
Cash and cash equivalents, end of year	$ 11,890		$ 36,770		$ 3,756

~~The~~ On ~~accompanying~~an ~~notes~~annual ~~are~~basis, we enter into cooperative advertising agreements with certain vendors. In accordance with Emerging Issues Task Force 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor, for fiscal 2003, amounts received from vendors that represented a reimbursement of specific, identifiable costs incurred for that vendor were recorded as a reduction to advertising expense in the period the related expense was incurred. Other amounts received from vendors were recorded as an ~~integral~~adjustment ~~part~~to inventory cost and recognized as a reduction of ~~these consolidated~~cost ~~financial~~of ~~statements~~goods sold as the merchandise was sold. The adoption of EITF 02-16 increased advertising expense by approximately $4.2 million for fiscal 2003. Prior to fiscal 2003, all funds received from vendors for cooperative advertising were recorded as a reduction to advertising expense.

46 Pre-Opening Costs

~~GALYAN’S~~ Non-capital ~~TRADING~~expenditures, ~~COMPANY~~such as payroll, ~~INC.~~store ~~Notes~~set-up costs, training of new store employees and travel, incurred prior to ~~Consolidated~~the ~~Financial~~opening ~~Statements~~of ~~For~~a new store are charged to expense in the ~~Fiscal~~period ~~Years~~they ~~Ended~~are ~~February~~incurred. 1,Pre-opening costs for fiscal 2003, ~~February~~2002 2and 2001 were $5.0 million, $4.9 ~~2002~~million and ~~February~~$2.8 3million, ~~2001~~respectively.

1. Earnings ~~Organization~~Per ~~and Summary of Significant Accounting Policies~~Share

~~Organization~~ Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. The following table presents a reconciliation of our basic and diluted weighted average common shares as required by Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share:

Galyan’s Trading Company, Inc. (the “Company”), an Indiana corporation, is a specialty retailer with 34 stores in 17 states that offer a broad range of products that appeal to consumers with active lifestyles. On July 2, 2001, the Company completed an initial public offering of 6,500,000 shares of common stock at $19.00 per share. The Company received approximately $112.0 million in net proceeds from the offering. Prior to the initial public offering, the Company’s shareholders were FS Equity Partners IV, L.P. (“Freeman Spogli”), a fund managed by Freeman Spogli & Co. LLC; G Trademark, Inc. (“G Trademark”), a wholly owned subsidiary of Limited Brands, Inc. (“Limited Brands”); Benchmark Capital Partners IV, L.P. (“Benchmark”); management and directors. From July 1995 until August 1999, the Company was a wholly owned subsidiary of Limited Brands.

	Fiscal Year

	2003		2002		2001

Basic earnings per share:
Weighted average common shares		17,170,173		17,044,902		14,445,401

Diluted earnings per share:
Weighted average common shares		17,170,173		17,044,902		14,445,401
Dilutive effect of stock options and warrants		117,178		133,440		243,399

Weighted average common and incremental shares		17,287,351		17,178,342		14,688,800

~~Fiscal~~ Options ~~Year~~to purchase 1,298,010, 1,138,300 and 773,500 shares of common stock were outstanding at the end of fiscal 2003, 2002 and 2001, respectively, but were not included in the computation of diluted shares because the options’ exercise prices were greater than the fair value. In addition, a warrant to purchase 1,350,000 shares of common stock was outstanding at the end of fiscal 2003, 2002 and 2001, but was not included in the computation of diluted shares because the warrant’s exercise price was greater than fair value.

~~Our~~ fiscal year ends on the Saturday closest to January 31. Fiscal years ended February 1, 2003, February 2, 2002 and February 3, 2001 are referred to as fiscal 2002, 2001, and 2000, respectively. Fiscal 2002 and 2001 include 52 weeks. Fiscal 2000 includes 53 weeks. 56

~~Basis~~ Stock ~~of Presentation~~Compensation

~~The~~ ~~accompanying~~ In ~~consolidated~~accordance ~~financial~~with ~~statements include~~ the ~~accounts~~provisions of ~~the Company~~Statement ~~and~~of ~~its~~Financial ~~wholly~~Accounting ~~owned~~Standards ~~subsidiaries, Galyan’s Nevada, Inc.~~ (“~~Nevada~~SFAS”) ~~and~~No. ~~Galyan’s~~148 ofAccounting ~~Virginia~~for Stock-Based Compensation – Transition and Disclosure, ~~Inc.~~which ~~(“Virginia”)~~amends SFAS No. ~~Virginia~~ ~~was~~123, ~~incorporated~~Accounting infor ~~fiscal~~Stock-Based ~~2002~~Compensation, we will continue to ~~centralize~~account ~~the~~for ~~ownership~~stock-based ~~and administration~~employee ofcompensation ~~gift~~under ~~certificate~~the ~~and~~provisions ~~gift~~of ~~card~~APB ~~liabilities~~Opinion No. ~~Nevada~~25 ~~was incorporated~~and ~~during~~related ~~fiscal~~interpretations. The ~~2000~~following toillustrates ~~centralize~~ the ~~ownership,~~pro ~~management~~forma effect on net income and ~~protection~~ ofearnings ~~all~~per ~~intellectual~~share ~~property~~if ofwe ~~the~~had ~~Company.~~applied ~~All~~the ~~significant intercompany~~fair ~~accounts~~value ~~and~~recognition ~~transactions~~provisions ~~have~~of ~~been~~SFAS ~~eliminated~~No. 123:

~~Cash~~ Pro ~~and~~Forma: ~~Cash Equivalents~~

We consider all short-term investments with an original maturity of three months or less to be cash equivalents.

	Fiscal Year

	2003			2002			2001

	(dollars in thousands, except per share data)
Net income as reported	$	3,603		$	18,720		$	4,632
Add: Stock-based compensation expense included in reported net income, net of related tax effects		69			221			99
Deduct:Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(1,551	)		(1,688	)		(531	)

Pro forma net income	$	2,121		$	17,253		$	4,200

Earnings per share:
Basic, as reported	$	0.21		$	1.10		$	0.32

Basic, pro forma	$	0.12		$	1.01		$	0.29

Diluted, as reported	$	0.21		$	1.09		$	0.32

Diluted, pro forma	$	0.12		$	1.00		$	0.29

~~Inventories~~ The pro forma amounts are not representative of the effects on reported earnings for future years.

~~Merchandise~~ ~~inventories~~ The ~~are~~weighted ~~stated~~average atfair ~~the~~value ~~lower~~ of ~~cost~~options orgranted ~~market~~for fiscal 2003, on2002 and 2001 were $6.30, $8.37 and $5.10, respectively. The weighted average fair values of the options calculated in accordance with SFAS 123 were determined using a ~~first~~Black-~~in,~~Scholes ~~first~~option-~~out basis,~~pricing ~~utilizing~~model with the ~~retail~~following ~~method.~~weighted average assumptions:

	Fiscal Year

	2003		2002		Subsequent to initial public offering 2001		Prior to initial public offering 2001

Expected dividend yield		0%		0%		0%		0%
Expected stock price volatility		63%		62%		60%		0%
Risk-free interest rate range		1.94% - 3.13%		2.63% - 4.28%		3.38% - 4.68%		4.58% - 4.65%
Expected life of options		4		4		3		3

~~Property and Equipment~~57

~~Property~~ ~~and~~Segment equipment is stated at cost. Depreciation and amortization of property and equipment is computed on a straight-line basis over the estimated useful lives of the related assets, which range from 10 to 30 years for buildings and leasehold improvements and 4 to 10 years for furniture, fixtures and store equipment. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the lease. Routine repairs and maintenance are charged to expense as incurred. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts, with any resulting gain or loss included in net income. Information

~~Goodwill~~ We are a specialty retailer with 43 stores that offers a broad range of outdoor and athletic equipment, apparel, footwear and accessories, as well as casual apparel and footwear. Our store format and our merchandising strategy are targeted to appeal to consumers with active lifestyles, from the casual consumer to the serious sports enthusiast. Given the economic characteristics of the store formats, the similar nature of the products sold, and the type of customer and method of distribution, our operations are aggregated into one segment.

On ~~February 3, 2002, we adopted Statement of Financial~~ Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, which changed the accounting for goodwill from an amortization method to an impairment-only approach. No impairment was recognized upon adoption or as a result of the annual impairment test as of February 1, 2003. Estimates

~~Prior~~ The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to ~~fiscal~~make ~~2002,~~estimates ~~goodwill~~and ~~was~~assumptions ~~amortized~~that onaffect athe ~~straight-line~~reported ~~basis~~amounts ~~over~~of 30assets ~~years. Amortization~~and ~~expense~~liabilities and disclosure of ~~goodwill~~contingent ~~for~~assets ~~fiscal~~and ~~2001~~liabilities at the date of the financial statements and ~~2000~~the ~~was~~reported ~~$783,000~~amounts ~~each year~~of revenues and expenses during the reporting period. Actual results may differ from those estimates.

~~Other Assets~~ Reclassifications

~~Other~~ ~~assets~~ Certain ~~include~~amounts ~~deferred~~in ~~financing~~the ~~costs~~fiscal ~~that~~2002 ~~are~~and ~~being~~2001 ~~amortized~~consolidated ~~over~~financial ~~the~~statements ~~terms of~~have ~~the~~been ~~related~~reclassified ~~debt~~to ~~agreements,~~conform ~~which~~to ~~range~~the ~~from~~fiscal 22003 ~~to 3 years~~presentation.

~~Long-lived~~ New ~~Assets~~Accounting Pronouncements

~~Long-lived~~ ~~assets~~ On January 1, ~~primarily~~2003, ~~building~~we ~~and~~adopted ~~leasehold~~Emerging ~~improvements~~Issues Task Force (“EITF”) 02-16, ~~are~~Accounting ~~reviewed~~by a Reseller for ~~impairment~~ ~~whenever~~Cash ~~events~~Consideration orReceived ~~changes~~from a Vendor. This EITF addresses the classification of cash consideration received from vendors in ~~circumstances~~a ~~indicate~~reseller’s ~~that~~consolidated ~~full recoverability~~financial statements. The guidance related to income statement classification is ~~questionable.~~to ~~Factors~~be ~~used~~applied in ~~the~~annual ~~evaluation~~and ~~include~~interim financial statements for agreements entered into, ~~but~~or ~~are not~~modifications ~~limited~~of toexisting agreements, ~~management~~after January 1, 2003. The consensus of the EITF established an overall presumption that cash received from vendors is a reduction in the price of vendor’s ~~plans~~products ~~for~~and ~~future~~should ~~operations,~~be ~~recent~~recognized ~~operating results~~accordingly ~~and~~as ~~projected~~a ~~cash~~reduction ~~flows~~in cost of sales at the time the related inventory is sold. ~~Impaired~~Some ~~assets~~consideration ~~are~~could ~~written~~be ~~down~~characterized toas ~~estimated~~a reduction of expense if the cash received represents a reimbursement of specific, incremental, ~~fair~~identifiable ~~value~~costs ~~with~~incurred ~~fair~~by ~~value~~the ~~generally~~retailer ~~being~~to ~~determined~~sell ~~based~~the vendor’s products. For fiscal 2003, the adoption of this statement decreased our operating income by $1,106,000 ($664,000 net of income taxes or $0.04 per share on ~~discounted expected~~a ~~future~~fully ~~cash~~diluted ~~flows~~basis). NoFor ~~impairment~~fiscal ~~charges~~2002, the adoption of this statement did not have ~~been~~a ~~recorded.~~significant effect on our financial statements.

~~Revenue~~ On ~~Recognition~~February 2, 2003, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this statement did not have an effect on the consolidated financial statements.

We recognize retail sales upon the purchase of merchandise by the customer, net of returns and allowances, which are based upon historical customer returns experience. Markdowns associated with the preferred customer programs are recognized upon redemption in conjunction with a qualifying purchase. Revenue from the sale of gift cards and store credits is recognized upon redemption of the gift cards or store credits by the customer. Revenue from layaway sales is recognized upon receipt of final payment from the customer. As of February 2, 2002, we no longer permitted customers to use layaway sales to purchase merchandise. 58

48 On February 2, 2003, we adopted the recognition and measurement provisions of Financial Accounting Standards Board Interpretation No. 45 (“FIN No. 45”) Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of SFAS No. 5, 57, and 107 and the rescission of FASB Interpretation No. 34, was issued. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure requirements in this interpretation were adopted in fiscal 2002. We had no guarantees that were required to be disclosed in the consolidated financial statements. The adoption of this statement did not have an effect on the consolidated financial statements.

~~Cost~~ On February 2, 2003 we adopted SFAS No. 145, Rescission of ~~Sales~~FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which, among other things, changes the way gains and losses from the extinguishment of debt are reported. Previously, all gains and losses from the extinguishment of debt were required to be reported as an extraordinary item, net of related tax effect. Under SFAS No.145, gains and losses from the extinguishment of debt should be reported as part of on-going operations, unless the extinguishment of debt meets the criteria of both unusual and infrequent as established in APB No. 30. SFAS No. 145 is effective for us beginning February 2, 2003, including all prior period presentations. The loss on early extinguishment of debt has been reclassified in the comparative consolidated financial statements to be included within earnings before income taxes.

~~Cost~~ On June 1, 2003, we adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of ~~sales~~Both ~~includes~~Liabilities and Equity. SFAS 150 establishes standards on the ~~cost~~classification and measurement of ~~merchandise,~~certain ~~inventory~~financial ~~markdowns,~~instruments ~~inventory shrinkage,~~with ~~inbound~~characteristics ~~freight,~~of ~~distribution~~both liabilities and ~~warehousing,~~equity. The ~~payroll~~provisions of SFAS 150 are effective for ~~buying personnel~~financial instruments entered into or modified after May 31, 2003 and ~~store~~to ~~occupancy~~all ~~costs.~~instruments ~~Store~~that ~~occupancy~~exist ~~costs~~as ~~include~~of ~~rent, contingent~~the ~~rents,~~beginning ~~common~~of ~~area~~the ~~maintenance,~~first ~~real~~interim ~~estate~~financial ~~and~~reporting ~~personal~~period ~~property taxes,~~beginning ~~utilities~~after June 15, ~~and~~2003. The ~~repairs~~adoption ~~and~~of ~~maintenance.~~this statement did not have an effect on the consolidated financial statements.

~~Advertising Expense~~ 2. Receivables

~~Advertising~~ ~~costs~~ Receivables ~~are~~consist ~~expensed~~of in the ~~period~~following (in which the advertising occurs. The Company participates in various advertising and marketing cooperative programs with its vendors, who, under these programs, reimburse the Company for certain costs incurred. Advertising expense, net of vendor reimbursement, for fiscal 2002, 2001 and 2000 was $17.8 million, $12.2 million and $9.7 million respectively. thousands):

Pre-Opening Costs

	Fiscal Year

	2003			2002

Construction contribution receivables	$	9,634		$	6,110
Third party financing receivables		--			578
Other		1,415			1,119

Total receivables		11,049			7,807
Less allowance for doubtful accounts		(188	)		(81	)

Receivables, net	$	10,861		$	7,726

~~Non-capital~~ expenditures, such as payroll, store set-up costs, training of new store employees and travel, incurred prior to the opening of a new store are charged to expense in the period they are incurred. Pre-opening costs for fiscal 2002, 2001, and 2000 were $4.9 million, $2.8 million and $1.8 million, respectively. 59

~~Earnings~~ 3. Property ~~Per~~and ~~Share~~Equipment

~~Earnings~~ ~~per~~ Property ~~share~~and ofequipment ~~common~~consists ~~stock is based on the weighted average number~~ of ~~shares outstanding during~~ the ~~year. Basic and diluted earnings per share for fiscal 2000 included 720,000 warrants, which were exercisable for nominal cash consideration. The~~ following ~~table presents a reconciliation of our basic and diluted weighted average common shares as required by Statement of Financial Accounting Standards~~ (~~“SFAS”)~~in ~~No. 128, Earnings Per Share~~thousands):

	2002		2001		2000
	Fiscal Year
	2003			2002
Basic earnings per share:
Land	$	2,219		$	--
Weighted average common shares	17,044,902		14,445,401		10,419,021
Building and leasehold improvements		132,881			88,371
Diluted earnings per share:
Furniture, fixtures and equipment		135,765			102,157
Weighted average common shares	17,044,902		14,445,401		10,419,021
Construction in progress		1,792			8,128
Dilutive effect of stock options and warrants	133,440		243,399		154,240
Total property and equipment		272,657			198,656
Weighted average common and incremental shares	17,178,342		14,688,800		10,573,261
Less accumulated depreciation and amortization		(86,207	)		(62,235	)
Property and equipment, net	$	186,450		$	136,421

~~Options to~~ Depreciation ~~purchase 1,138,300, 773,500~~ and ~~492,500~~amortization ~~shares~~expense offor ~~common stock were outstanding at the end of~~ fiscal ~~2002~~2003, ~~2001~~2002 and ~~2000,~~2001 ~~respectively~~was $24,760,000 ~~but were not included in the computation of diluted shares because the options’ exercise prices were greater than the fair value. In addition~~$17,381,000 aand ~~warrant to purchase 1~~$12,~~350~~966,000, ~~shares~~respectively. ~~of Class B common stock was~~

49 In fiscal 2003 we received final insurance proceeds of $1,225,000, which resulted in a gain of $1,038,000 that is included in selling, general and administrative expense, related to our prior Greenwood, Indiana store location that was destroyed by a tornado in September 2002. In fiscal 2002, selling, general and administrative expenses included the write off of all of our leasehold improvements and certain furniture, fixtures and equipment with a carrying value of $130,000 as a result of the tornado that destroyed our Greenwood, Indiana store location.

~~outstanding at the end of fiscal 2002, 2001 and 2000, but was not~~ ~~included in the computation of diluted shares because the warrant’s exercise price was greater than fair value~~4. Other Assets

~~Stock~~ Other ~~Compensation~~assets consist of the following (in thousands):

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 148 Accounting for Stock-Based Compensation – Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation, we will continue to account for stock-based employee compensation under the provisions of APB Opinion No. 25 and related interpretations. The following illustrates the pro forma effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123:

	Fiscal Year

	2003			2002

Deferred financing costs	$	3,768		$	1,610
Other		467			476

Total other assets		4,235			2,086
Less accumulated amortization		(1,821	)		(1,208	)

Total other assets, net	$	2,414		$	878

~~Pro~~ Amortization ~~Forma:~~expense of deferred financing costs and other assets for fiscal 2003, 2002 and 2001 was $613,000, $691,000 and $1,060,000, respectively.

	Fiscal Years
	2002		2001		2000
	(dollars in thousands, except per share data)
Net income as reported	$ 18,720		$ 4,632		$ 363
Add: Stock-based compensation expense included in
reported net income, net of related tax effects	221		99		30
Deduct:Total stock-based employee compensation
expense determined under the fair value based method
for all awards, net of related tax effects
of related tax effects - 1999 Stock Option Plan	(1,688	)	(531	)	(235	)
Deduct: Total stock-based employee compensation expense
determined under the fair value based method
for all awards net of related tax effects -- Limited Brands	--		--		(253	)
Pro forma net income (loss)	$ 17,253		$ 4,200		$ (95	)
Earnings per share:
Basic, as reported	$ 1.10		$ 0.32		$ 0.03
Basic, pro forma	$ 1.01		$ 0.29		$ (0.01	)
Diluted, as reported	$ 1.09		$ 0.32		$ 0.03
Diluted, pro forma	$ 1.00		$ 0.29		$ (0.01	)

~~The~~ ~~pro forma amounts are not representative of the effects on reported earnings for future years~~5. Accrued Expenses

~~The~~ ~~weighted~~ Accrued ~~average~~expenses ~~fair~~consist ~~value~~ of ~~options granted for fiscal 2002, 2001, and 2000 were $8.37, $5.10 and $2.92, respectively. The weighted average fair values of~~ the ~~options~~following ~~calculated~~ (in ~~accordance with SFAS 123 were determined using a Black-Scholes option-pricing model with the following weighted average assumptions~~thousands):

	Fiscal Year

	2003		2002

Accrued payroll, withholdings and benefits	$	8,087	$	8,466
Gift cards, gift certificates and store credits		15,299		12,582
Income taxes payable		--		9,322
Real and personal property taxes		5,643		3,712
Other		11,399		8,497

Total accrued expenses	$	40,428	$	42,579

	Fiscal Years
	2002	Subsequent toinitial public offering2001	Prior to initialpublic offering2001	2000
Expected dividend yield	0%	0%	0%	0%
Expected stock price volatility	62%	60%	0%	0%
Risk-free interest rate range	2.63% - 4.28%	3.38% - 4.68%	4.58% - 4.65%	4.77% - 6.77%
Expected life of options	4	3	3	3

6. Long-Term Debt

~~Segment~~ Long-term ~~Information~~debt consists of the following (in thousands):

We are a specialty retailer with 34 stores that offers a broad range of products that appeal to consumers with active lifestyles. Given the economic characteristics of the store formats, the similar nature of the products sold, and the type of customer and method of distribution, our operations are aggregated into one segment.

	Fiscal Year

	2003			2002

Bank and other:
Revolving line of credit	$	37,825		$	--
Financing obligations		11,685
Construction loan		--			6,000
Capital lease obligations		205			289

Total long-term debt		49,715			6,289
Less current maturities		(137	)		(6,103	)

Total long-term debt, net of current maturities	$	49,578		$	186

~~Accounting Estimates~~ 61

~~The~~ ~~preparation~~Revolving ofLine ~~financial statements in conformity with accounting principles generally accepted in the United States~~ of ~~America~~Credit requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

~~Reclassifications~~ On April 25, 2003, we entered into an amended and restated credit agreement with JPMorgan Chase Bank, as administrative agent, for the syndication of participating banks, which matures on April 24, 2008. Under this agreement, our revolving credit facility maximum borrowing capacity is $250.0 million of which $30.0 million may be used for the issuance of letters of credit. The revolving credit facility is an asset-based loan with a borrowing base calculated on certain percentages of eligible inventory, eligible accounts receivables, and certain real property as defined in the agreement. The revolving credit facility bears interest, at our election, at either an adjusted prime rate or an adjusted LIBOR, in each case plus additional interest, which varies depending on our availability level or EBITDA measured at each quarter end. Availability is defined as the lesser of the monthly borrowing base or $250.0 million; minus the total borrowings, including letters of credit. We pay an annual commitment fee on the unused portions of the revolving credit facility at a variable amount based on utilization of the total facility. As of January 31, 2004, the commitment fee rate was 0.425%. We will not be subject to any financial covenants, provided we maintain a minimum of $35.0 million of availability. The revolving credit facility contains other covenants, including covenants that restrict our ability to incur indebtedness or to create various liens, and restrict our ability to engage in mergers or acquisitions, sell assets, or make junior payments, including cash dividends. As of January 31, 2004, we were in compliance with all applicable covenants. The revolving credit facility is secured by a first priority security interest in our cash, inventory, intellectual property, and certain real estate that is included in the borrowing base. Our subsidiaries have guaranteed, and any future subsidiaries will be required to guarantee, our obligations under the revolving credit facility. As of January 31, 2004, we had $37.8 million in outstanding borrowings and an availability of $58.5 million, net of $5.0 million used in support of letters of credit, under our revolving credit facility.

~~Certain amounts~~ In ~~in the~~ fiscal 2001 ~~and~~we ~~2000~~incurred ~~consolidated~~a ~~financial~~loss ~~statements~~of ~~have~~$2,620,000 ~~been reclassified~~ to ~~conform~~expense tothe remaining deferred financing cost associated with the ~~fiscal~~previous ~~2002~~revolving ~~presentation.~~credit facility.

~~New~~ Financing ~~Accounting Pronouncements~~Obligations

On ~~January~~ On 17August 8, 2003, ~~the~~we ~~Financial~~sold ~~Accounting~~our ~~Standards~~interest ~~Board~~in ~~issued~~buildings ~~FASB Interpretation~~and ~~No.~~leasehold 46improvements ~~(“FIN~~for ~~No.~~two ~~46”)~~store locations, ~~Consolidation~~for ofapproximately ~~Variable Interest~~$12.0 ~~Entities~~million to CPA®:15, anwhich ~~interpretation~~is a member of ~~ARB~~the 51W.P. Carey Group and simultaneously entered into lease agreements for these two store locations. The ~~primary~~transaction ~~objectives~~included ~~of FIN~~our Nostore locations in Buffalo, New York, and Greenwood, Indiana. Although 46we ~~are~~leased toback ~~provide~~the ~~guidance~~properties, onthis transaction was accounted for as a financing obligation, with the ~~identification~~future lease payments classified as a liability in our financial statements and ~~consolidation~~quarterly lease payments classified as payments of ~~variable~~ principal and interest ~~entities~~expense relating to a financing obligation. The net proceeds from this transaction were used to repay current borrowings under our revolving credit facility. As of January 31, or2004, ~~VIE’s~~we had an outstanding obligation of $11.7 million, ~~which~~with ~~are~~a ~~entities~~fixed ~~for~~interest ~~which~~rate ~~control~~of 10.6% isthat ~~achieved~~matures ~~through~~in ~~means~~2024. Simultaneously, ~~other~~we ~~than~~assigned ~~through~~our ~~voting~~ rights under an existing ground lease to CPA®:15, which is a member of the W.P. WeCarey doGroup, for a third store in Freehold, New Jersey that had not ~~have~~yet ~~any VIE’s.~~been constructed and is scheduled to open in the summer of 2004.

In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The new disclosure requirements are included in the consolidated financial statements. 62

51 Construction Loans

In ~~November~~ During ~~2002,~~fiscal ~~the Financial Accounting Standards Board issued FASB Interpretation No. 45 (“FIN No. 45”) Guarantor’s Accounting and Disclosure Requirements for Guarantees~~2001, ~~Including~~we ~~Indirect~~entered ~~Guarantees~~into ~~of Indebtedness~~a ~~of Others an interpretation of SFAS No~~$6.0 5,million ~~57,~~line ~~and 107 and the rescission~~ of ~~FASB~~credit ~~Interpretation~~agreement ~~No.~~with ~~34,~~a ~~was~~bank ~~issued. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating~~ to ~~a guarantor’s~~be ~~accounting~~used for, ~~and disclosure of,~~ the ~~issuance~~construction of ~~certain types~~a ofnew ~~guarantees~~store building. On ~~The~~May ~~disclosure requirements in this interpretation are effective for financial statements of interim and annual periods ending after December 15~~1, ~~2002. The recognition and measurement provisions for FIN No. 45 are effective for guarantees issued or modified after December 31~~2003, ~~2002.~~we ~~The~~paid ~~Company had~~all noremaining ~~guarantees~~outstanding ~~that~~principal ~~were required to be disclosed in the consolidated financial statements. The adoption of the recognition~~ and ~~measurement~~interest ~~provisions of~~on this ~~statement is not expected to have a material effect on the consolidated financial statements~~loan.

In ~~November~~Subordinated 2002, the Emerging Issues Task Force (EITF) reached a consensus on EITF 02-16 Accounting by a Reseller for Cash Consideration Received from a Vendor. This EITF addresses the classification of cash consideration received from vendors in a reseller’s consolidated financial statements. The guidance related to income statement classification is to be applied in annual and ~~interim~~Junior ~~financial~~Subordinated statements for agreements entered into, or modifications of existing agreements, after January 1, 2003. The adoption of this statement did not have an effect on the consolidated financial statements for the year ended February 1, 2003. We are in the process of reviewing the effect that the application of EITF 02-16 will have on the consolidated financial statements for fiscal 2003. Notes

~~During~~ ~~June~~ During ~~2002~~fiscal 1999, ~~the~~we ~~FASB~~entered ~~issued~~into ~~SFAS~~a ~~No.~~security ~~146,~~purchase ~~Accounting~~agreement ~~for~~to ~~Costs~~issue ~~Associated~~$25.0 ~~with Exit~~million orof ~~Disposal~~subordinated ~~Activities,~~notes ~~which~~and ~~nullifies~~$25.0 ~~Emerging~~million ~~Issues~~of ~~Task~~junior ~~Force Issue~~subordinated Nonotes. ~~94-3,~~In ~~Liability~~connection ~~Recognition~~with ~~for~~the ~~Certain~~issuance ~~Employee~~of ~~Termination Benefits~~the subordinated and ~~Other~~junior ~~Costs~~subordinated notes, we issued warrants to ~~Exit~~purchase an720,000 ~~Activity~~shares ~~(including~~of ~~Certain~~common ~~Costs~~stock, ~~Incurred in~~which awere ~~Restructuring).~~exercised ~~SFAS~~in Nofiscal 2001. ~~146~~The ~~requires~~fair ~~that~~value aof ~~liability~~the ~~for~~warrants awas ~~cost associated~~recorded ~~with~~as an ~~exit~~increase orto ~~disposal~~shareholders’ ~~activity~~equity beand ~~recognized~~as ~~when~~a reduction to the ~~liability~~related ~~is incurred~~subordinated notes. The ~~SFAS~~debt ~~No.~~discount ~~146~~was isamortized using the effective ~~for~~interest ~~exit~~method ~~and~~into ~~disposal~~interest ~~activities~~expense ~~that~~over ~~are initiated~~the ~~after~~term ~~December~~of ~~31,~~the ~~2002.~~subordinated ~~The~~and ~~adoption~~junior ofsubordinated ~~this~~notes. ~~statement~~Debt ~~did~~discount ~~not~~of ~~have~~$162,000 ~~a material~~was ~~effect~~amortized onas ~~the~~interest ~~consolidated~~expense ~~financial~~during ~~statements~~fiscal 2001.

~~In April~~ The ~~2002,~~subordinated ~~the~~and ~~FASB~~junior ~~issued~~subordinated ~~SFAS~~notes ~~No.~~required ~~145,~~semi-annual ~~Rescission~~interest ~~of FASB Statements No~~payments. 4, Under 44the ~~and~~terms ~~64, Amendment~~ of ~~FASB~~the ~~Statement No. 13~~agreement, ~~and~~we ~~Technical~~could ~~Corrections, which,~~increase ~~among other things, changes~~ the ~~way~~principal ~~gains~~amount ~~and~~of ~~losses from~~ the ~~extinguishment~~ ofsubordinated ~~debt are reported. Previously, all gains~~ and ~~losses~~junior ~~from~~subordinated ~~the extinguishment~~notes ofin ~~debt~~lieu ~~were required to be reported as an extraordinary item, net~~ of ~~related~~making ~~tax~~the ~~effect.~~interest ~~Under SFAS No~~payments.~~145,~~ ~~gains~~We ~~and losses from the extinguishment of debt should be reported as part of on-going operations~~elected, ~~unless the~~in ~~extinguishment~~lieu of ~~debt~~making ~~meets~~ the ~~criteria~~interest ~~of both unusual and infrequent as established in APB No. 30. SFAS No. 145 is effective for us beginning February 2~~payments, ~~2003,~~to ~~including~~increase ~~all prior period presentations. Effective with~~ the ~~adoption of~~principal ~~SFAS~~by ~~No. 145 on February 2~~$3, ~~2003~~647,000 ~~the~~during ~~extraordinary~~fiscal ~~loss on early extinguishment of debt will be reclassified in the comparative consolidated financial statements to be included within earnings (loss) from operations before income taxes~~2001.

52 During fiscal 2001, we paid all the outstanding principal and interest due under the subordinated and junior subordinated notes. We incurred a loss of $7,815,000 to expense the remaining unamortized discount and deferred financing costs associated with these notes.

On ~~February~~ Future 3,minimum ~~2002,~~principal wepayments ~~adopted~~on SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which addresses financial accounting and reporting for the impairment or disposal of long-~~lived~~term ~~assets.~~debt ~~The~~as ~~adoption~~ of ~~this~~January ~~statement~~31, ~~did~~2004 ~~not~~are ~~have~~as ~~an effect~~follows on(in ~~the consolidated financial statements.~~ thousands):

During June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for us beginning February 2, 2003. SFAS No. 143 addresses financial accounting and reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this statement is not expected to have an effect on the consolidated financial statements.

Fiscal Year

2004	$	137
2005		111
2006		99
2007		58
2008		37,923
2009 and thereafter		11,387

Total payments	$	49,715

On February 3, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, assets with indefinite useful lives are no longer amortized. Our goodwill has an indefinite useful life. We are required to complete an initial goodwill impairment assessment in the year of adoption and at least annually thereafter or as impairment indicators arise. Annual goodwill amortization of $783,000 ceased upon adoption. An impairment assessment was completed upon adoption and then again as of February 1, 2003. No impairment was recognized upon adoption or at February 1, 2003. The following represents a reconciliation of reported income before extraordinary loss to pro forma income before extraordinary loss excluding the effect of amortization expense: 63

	Fiscal Year
	2002	2001	2000
Reported income before extraordinary loss	$ 18,720	$ 11,442	$ 363
Add back: Goodwill amortization	--	783	783
Adjusted income before extraordinary loss	$ 18,720	$ 12,225	$ 1,146
Adjusted net income	$ 18,720	$ 5,415	$ 1,146
Basic earnings per share:
Reported income before extraordinary loss	$ 1.10	$ 0.79	$ 0.03
Goodwill amortization	--	0.06	0.08
Adjusted income before extraordinary loss	$ 1.10	$ 0.85	$ 0.11
Adjusted net income	$ 1.10	$ 0.38	$ 0.11
Diluted earnings per share:
Reported income before extraordinary loss	$ 1.09	$ 0.78	$ 0.03
Goodwill amortization	--	0.05	0.08
Adjusted income before extraordinary loss	$ 1.09	$ 0.83	$ 0.11
Adjusted net income	$ 1.09	$ 0.37	$ 0.11

7. Shareholders’ Equity

53 On July 2, 2001, we consummated our initial public offering of 6,500,000 shares of common shares at $19.00 per share. Immediately prior to the initial public offering, our articles of incorporation were amended to combine all classes of common stock into one single class and to authorize the issuance of up to 50,000,000 shares of common stock. All Class A common stock automatically converted into the same number of shares of common stock. In addition, all securities convertible or exercisable into shares of Class A common stock or Class B common stock automatically became convertible or exercisable into the same number of shares of common stock. As of January 31, 2004, we had 17,362,368 shares issued and outstanding and 2,501,337 shares reserved for future issuance.

2. Stock ~~Receivables~~Subscription Plan

~~Receivables~~ ~~consist~~ We maintain a stock subscription plan that provides for the issuance and sale of shares of common stock to certain directors, officers, employees and consultants. The maximum number of shares that may be issued under this plan is 1,000,000. No common stock was issued or repurchased under the ~~following~~stock ~~(in~~subscription ~~thousands):~~plan during fiscal 2003 or fiscal 2002. Common stock issued under the stock subscription plan for fiscal 2001 is as follows:

	Fiscal Year
	Number of Shares Outstanding			Weighted Average Issue Price		Weighted Average Fair Value
	2002		2001
Outstanding shares, February 3, 2001		578,360
Construction contribution receivables	$ 6,110		$ 2,211
Shares issued		40,000		$	18.63	$	18.63
Third party financing receivables	578		441
Outstanding shares, February 2, 2002, February 1, 2003 and January 31, 2004		618,360
Other	1,119		707
Total receivables	7,807		3,359
Less allowance for doubtful accounts	(81	)	(140	)
Receivables, net	$ 7,726		$ 3,219

3 In connection with the stock subscription plan, certain directors, officers, employees and consultants entered into stock pledge agreements. ~~Property~~The agreements require annual payments of interest at 7.5% and ~~Equipment~~expire in October, 2004. Shareholder notes receivable relating to the pledge agreements were $689,000 and $948,000, at January 31, 2004 and February 1, 2003, respectively.

~~Property~~ ~~and~~Restricted ~~equipment consists of the following (in thousands):~~ Stock

	Fiscal Year
	2002		2001
Building and leasehold improvements	$ 88,371		$ 59,341
Furniture, fixtures and equipment	102,157		72,106
Construction in progress	8,128		7,979
Total property and equipment	198,656		139,426
Less accumulated depreciation and amortization	(62,235	)	(44,854	)
Property and equipment, net	$ 136,421		$ 94,572

During fiscal 2003, we granted 100,000 restricted shares of unregistered common stock to an officer. On the date of the grant 40% of the shares became fully vested (subject to certain restrictions), the remaining 60% vests in equal increments of 20% on the employee’s first, second, and third anniversaries of employment. Compensation expense of $286,000 was recorded during fiscal 2003 in connection with this grant of restricted shares.

~~Depreciation~~ ~~and amortization expense for fiscal 2002, 2001 and 2000 was $17,381,000, $12,966,000 and $10,721,000, respectively.~~ 64

In ~~September~~Employee ~~2002,~~Stock wePurchase wrote off all of our leasehold improvements and certain furniture, fixtures and equipment with a carrying value of $130,000 as a result of a tornado that destroyed our Greenwood, Indiana store location. The loss on disposal of the leasehold improvements and furniture, fixtures and equipment was $130,000 and is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. Plan

~~In November~~ We ~~2000,~~adopted wean ~~upgraded~~Employee ~~our~~Stock ~~point~~Purchase Plan (ESPP) on July 1, 2002. The maximum number of ~~sale~~shares ~~software~~to ~~and~~be ~~hardware~~issued ~~system~~under inthis plan is 1,500,000. This plan allows all employees to contribute 1% to 15% of ~~its~~their ~~stores~~eligible compensation subject to the requirements of Internal Revenue Code Section 423(b). Employees Aspurchase the stock at a ~~result~~discounted value, wewhich ~~wrote~~is ~~off~~the ~~cash~~lesser ~~registers~~of ~~with~~85% aof ~~carrying~~the ~~value~~closing price on the first business day of ~~$855,000.~~ ~~Loss~~the calendar half or 85% of the closing price on ~~disposal~~the last business day of ~~this~~the ~~equipment~~calendar half. No compensation expense was ~~$833,000~~recognized ~~and~~for isfiscal ~~included~~2003 ~~in selling,~~or ~~general~~fiscal 2002. Shares of common stock issued under this plan were 44,484 and ~~administrative~~30,208 ~~expenses~~for infiscal ~~the~~2003 ~~accompanying~~and ~~consolidated statements~~fiscal of2002, ~~operations~~respectively.

In ~~December 2000, we substantially completed the expansion of our distribution center. As a result, we wrote off a conveyor system and computer equipment previously used in our~~ Other

54 Services contributed from Limited Brands totaled $541,000 in fiscal 2001. There were no services contributed from Limited Brands in fiscal 2003 or fiscal 2002. (see Note 10).

~~distribution center with carrying values of $196,000 and $126,000,~~ ~~respectively~~8. Stock ~~Loss~~Options ~~on disposal of the conveyor system~~ and ~~computer equipment was $196,000 and $126,000, respectively, and is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.~~

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