GADZOOKS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MAY 3, 2003

OR

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

COMMISSION FILE NUMBER 0-26732

GADZOOKS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

TEXAS 74-2261048
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)

4121 INTERNATIONAL PARKWAY
CARROLLTON, TX 75007
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 972-307-5555

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(FORMER NAME, FORMER ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT.)

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)

As of May 23, 2003, the number of shares outstanding of the
registrant's common stock is 9,159,671.

GADZOOKS, INC.

FORM 10-Q

For the Quarter Ended May 3, 2003

INDEX

2

PART 1 -- FINANCIAL INFORMATION

GADZOOKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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(IN THOUSANDS)
(UNAUDITED)

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

3

GADZOOKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

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

4

GADZOOKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(IN THOUSANDS)
(UNAUDITED)

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

5

GADZOOKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements contain
all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position as of May 3, 2003
and February 1, 2003, and the results of operations and cash flows for
the three months ended May 3, 2003 and May 4, 2002. The results of
operations for the three months then ended are not necessarily
indicative of the results to be expected for the full fiscal year. The
condensed consolidated balance sheet as of February 1, 2003 is derived
from audited financial statements. The condensed consolidated financial
statements should be read in conjunction with the financial statement
disclosures contained in the Company's Annual Report on Form 10-K for
the fiscal year ended February 1, 2003.

Fiscal year: The Company's fiscal year is the 52- or 53-week period
that ends on the Saturday closest to the end of January. "Fiscal 2003"
is the 52-week period ending January 31, 2004.

Stock Option Plans: The following table shows Gadzooks' net income
(loss) for the quarters ended May 3, 2003 and May 4, 2002, as if
compensation expense for Gadzooks' stock option plans applicable to the
Company's employees had been determined based upon the fair value at
the grant date for awards consistent with the methodology prescribed by
SFAS 123 (these pro forma effects may not be representative of expense
in future periods since the estimated fair value of stock options on
the date of grant is amortized to expense over the vesting period, and
additional options may be granted or cancelled in future years):

6

2. LONG-TERM OBLIGATIONS

On April 11, 2003, the Company and Wells Fargo Retail Finance LLC
("Wells Fargo") entered into a three-year $30 million revolving credit
agreement (the "Facility"), which is secured by an exclusive and first
priority, perfected interest in all assets of the Company. The
Company's borrowings under the agreement are limited to 85% of the net
recovery value of eligible inventory (as defined by the Facility) plus
85% of eligible credit card accounts receivable less certain financial
reserves specified by Wells Fargo. The credit agreement also provides
for the issuance of letters of credit that are generally used in
connection with international merchandise purchases. Outstanding
letters of credit issued by the bank reduce amounts otherwise available
for borrowing under the revolving line of credit. The credit facility
subjects the Company to a minimum maintained excess availability
requirement of $3.0 million (as defined by the Facility). Amounts
borrowed under the revolving line will bear interest ranging from 1.25%
to 2.00% above LIBOR, or 0.25% below to 0.50% above Wells Fargo's prime
rate based on credit line utilization. As of May 3, 2003, amounts
available to borrow under the new credit line, as limited as described
above and by outstanding letters of credit of $4.6 million, totaled
$24.4 million.

3. EARNINGS PER SHARE

The following table outlines the Company's calculation of weighted
average shares outstanding (in thousands):

The treasury stock method is used to determine dilutive potential
common shares outstanding related to stock options. Options, which
based on their exercise price would be antidilutive, are not considered
in the treasury stock method calculation. Options excluded from the
earnings per share calculation due to their antidilutive nature totaled
1,452,756 and 483,523 for the quarters ended May 3, 2003 and May 4,
2002, respectively.

4. STORE CLOSING COSTS

During the first quarter of fiscal 2003, the Company closed nine stores
that had been identified as under-performing. Additionally, the Company
has entered into agreements to close several more stores. The total
costs incurred as a result of the store closings and termination
agreements, totaled $1.3 million as of May 3, 2003. These costs are
included in selling, general and administrative expenses.

5. COMMITMENTS AND CONTINGENCIES

The Company has entered into an agreement with a liquidation firm to
help with the complete sell-down of its men's inventory. Under the
terms of the agreement, the Company will reimburse the firm for certain
operating costs and will pay the firm a portion of the sales proceeds
based on certain specified levels of sales performance as defined in
the contract. All amounts paid to the firm or accrued under the
contract are contingent upon the firm's ability to meet certain minimum
levels of sales performance. A total of $414,000 has been recorded as
selling, general and administrative expenses during the first quarter
of fiscal 2003 pursuant to this agreement.

7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

Gadzooks is a mall-based specialty retailer of casual apparel and related
accessories for young men and women, principally between the ages of 14 and 18.
On January 9, 2003, the Company announced plans to focus exclusively on apparel
and accessories for females between the ages of 16 and 22. The conversion of the
Gadzooks stores to an all-female merchandise assortment is scheduled to take
place early in the second half of 2003. In the second half of fiscal 2001, the
Company began testing a new retail concept with the opening of four Orchid
stores. The Orchid concept caters to the unique innerwear and sleepwear needs of
females between the ages of 14 and 22. As of May 3, 2003, the Company had closed
nine Gadzooks stores since the beginning of the fiscal year and operated 426
Gadzooks stores and four Orchid stores for a total of 430 stores in 41 states.

The Company's business is subject to seasonal influences with higher sales
during the Christmas holiday, back-to-school and spring break seasons.
Management's discussion and analysis should be read in conjunction with the
Company's financial statements and the notes related thereto.

CRITICAL ACCOUNTING POLICIES

The preparation of Gadzooks' consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
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 balance sheet date, as well as the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates such estimates including sales return rates, inventory
reserves, impairment of long-lived assets, income taxes and accrued expenses.
Actual results may differ from estimates.

Gadzooks accounting policies are generally straightforward; however, the
following requires more significant management judgments and estimates.

REVENUE RECOGNITION. Retail merchandise sales are recognized at the point of
sale less sales returns and employee discounts. Management records a provision
for estimated sales returns based on historical return rates. If sales return
rates change, an additional allowance may be required.

INVENTORY VALUATION. Inventories are valued at the lower of average cost or
market. Cost is determined using the weighted-average method. Markdown
allowances received from vendors are recorded as a reduction of inventory cost
and therefore as a reduction of cost of goods sold in the period in which the
related merchandise is sold. In addition, inventories include an allocation of
buying and distribution costs to prepare product for the stores. This inventory
valuation method requires certain management estimates and judgments, including
estimates of merchandise markdowns, which could significantly affect gross
margin. Management estimates the markdown reserve based on several factors,
including but not limited to, merchandise quantities, historical markdown
percentages, aged seasonal merchandise and future merchandise plans. If future
demand or merchandise markdowns are less favorable than those projected by
management, additional inventory adjustments may be required. On a monthly
basis, management estimates shrink based on historical shrink rates. These
estimates are compared to actual results as inventory counts are taken and
reconciled to the general ledger. Gadzooks has not experienced significant
fluctuations in historical shrink rates.

LONG-TERM ASSET IMPAIRMENT. Management periodically reviews its long-lived
assets for impairment and records a provision whenever events or circumstances
indicate that the net book value of the asset may not be recoverable. Impairment
is determined based on several factors, including but not limited to, current
year operating loss or cash flow loss combined with a history and forecast of
operating or cash flow losses, significant negative industry or economic trends
and a current expectation, that more likely than not, the asset will be disposed
of significantly before the end of its previously estimated useful life. If
management determines that impairment exists, an impairment loss is recognized
if the sum of the expected future cash flows (undiscounted and before interest)
from the use of the assets is less than the net book value of the assets. The
amount of the impairment loss is measured as the difference between the net book
value of the assets and the estimated fair market value of the related assets.

8

DEFERRED TAX ASSETS. The Company does not currently have a valuation allowance
recorded against its deferred tax assets. If management determines it is more
likely than not that its deferred tax assets would not be realizable in the
future, a valuation allowance would be recorded to reduce the deferred tax asset
to its net realizable value. The Company anticipates an operating loss during
the transition phase in fiscal 2003 and expects to return to profitability in
fiscal 2004; however, should the loss for fiscal 2003 exceed projections, the
Company may need to recognize a valuation allowance to reduce its deferred tax
assets. The Company will perform a review of its financial performance at the
end of each quarter during 2003 and will ascertain the likelihood of the
realizability of its deferred tax assets.

ACCRUED EXPENSES. On a monthly basis, certain expenses are estimated in an
effort to reflect these expenses in the proper period. Gadzooks' most material
estimates relate to self-insurance reserves, store level operating expenses and
bonuses. The self-insurance reserves for medical and worker's compensation
claims are recorded based on historical claim levels adjusted for growth in the
employee base. If the historical claims used to calculate these estimates are
not reflective of actual results, additional expenses may be incurred up to the
point that the Company's stop loss insurance begins. The Company is self-insured
for property and casualty claims at the store level. Property and casualty
claims at a store level are estimated and recognized as incurred. Accrued store
level operating expenses are estimated based on current activity and historical
results. Bonuses are based on performance and projected performance for the
remainder of the bonus period. If actual results are significantly different
from Gadzooks' expectations, an adjustment to expenses may be required.

CONVERSION TO ALL-FEMALE MERCHANDISE ASSORTMENT

The conversion of all Gadzooks stores to an all-female merchandise assortment is
scheduled to take place early in the second half of fiscal 2003. The Company
anticipates an operating loss during the transition phase in fiscal 2003 and
expects to return to profitability in fiscal 2004. Although it is not possible
to predict all of the costs associated with the transition, the Company does
plan to spend at least $1.5 million to $2.5 million in fiscal 2003 to market the
new concept, of which $604,000 has been spent as of May 3, 2003. The Company has
hired a liquidation firm to help with the complete sell-down of its men's
inventory. Under the terms of the agreement, the Company will reimburse the firm
for certain operating costs and will pay the firm a portion of the sales
proceeds based on certain specified levels of sales performance as defined in
the contract. All amounts paid to the firm or accrued under the contract are
contingent upon the firm's ability to meet certain minimum levels of sales
performance. The total estimated payment to be made to the liquidation firm is
expected to be between $2.2 million and $2.7 million, of which $414,000 has been
expensed as of May 3, 2003. However, no assurance can be given that the
conversion will be successfully completed during fiscal 2003, that the Company
will be profitable in fiscal 2004 or that the direct costs related to the
conversion and liquidation will not exceed the range provided.

STORE CLOSINGS

The Company has already closed nine Gadzooks stores and is currently pursuing
the closure of approximately 15 to 20 additional under-performing stores in
fiscal 2003. The costs associated with the closing of these stores, including,
but not limited to lease termination costs and employee severance, is expected
to be between $2.5 million and $3.5 million in the aggregate, of which $1.3
million has been spent as of May 3, 2003. Costs and expenses associated with
store closures will be recognized at the time the liability is incurred. No
assurance can be given, however, that these stores will be closed during fiscal
2003, that additional stores will not be closed during fiscal 2003 or that the
costs related to the closing of the stores will not exceed the range provided.

RESULTS OF OPERATIONS

The quarter ended May 3, 2003 compared to the quarter ended May 4, 2002

Net Sales

Net sales decreased approximately $7.6 million, or 9.7 percent, to $70.7 million
during the first quarter of fiscal 2003 from $78.3 million during the comparable
quarter of fiscal 2002. The total Company sales decrease was due to a comparable
store sales decrease of $8.2 million and a sales decrease of $0.5 million due to
closed stores, partially

9

offset by $1.1 million of sales from the 11 new stores not yet included in the
comparable store sales base. Comparable store sales decreased 10.6 percent for
the first quarter of fiscal 2003. Sales by category in the average store changed
as follows versus the prior year quarter: junior apparel - increased a low
single digit percentage; shoes - decreased a low single digit percentage;
accessories - decreased a mid single digit percentage; and men's merchandise -
decreased by over 20 percent. The decrease in comparable store sales is
attributed to increased competition, the conversion to an all-female merchandise
assortment and a difficult retail environment. The Company's average transaction
size increased 4.5 percent, and the number of transactions per average store
declined by 5.8 percent.

Gross profit

Gross profit decreased approximately $8.3 million to $13.3 million during the
first quarter of fiscal 2003 from $21.6 million during the comparable quarter of
fiscal 2002. As a percentage of net sales, gross profit decreased 8.8 percentage
points to 18.8 percent from 27.6 percent for the comparable quarter of last
year. Merchandise margins as a percentage of sales declined 5.9 percent from the
prior year. This decrease is primarily attributable to an increase in retail
markdowns taken during the period and the start of the men's inventory
liquidation. Occupancy costs as a percentage of sales increased by 2.4 percent,
and buying and distribution costs as a percentage of sales increased by 0.5
percent. The increase in occupancy costs (which are relatively fixed in nature)
as a percentage of sales was due primarily to the negative leverage effect of
the comparable store sales decrease, and to a lesser extent, the higher costs
related to the newer stores. The increase in buying and distribution costs as a
percentage of sales was due equally to the negative leverage effect of the
comparable store sales decease and additional payroll costs associated with the
transition to an all-female merchandise assortment.

Selling, general and administrative expenses

Selling, general and administrative expenses ("SG&A") increased approximately
$1.2 million to $20.0 million during the first quarter of 2003 from $18.8
million during the comparable quarter of fiscal 2002. The aggregate increase in
SG&A is primarily attributable to additional advertising and marketing expenses
of $604,000 related to the transition, costs of $414,000 associated with the
ongoing liquidation of the men's merchandise and lease termination costs of $1.3
million. These expenses were offset in part by a reduction in payroll expenses.
As a percentage of net sales, SG&A increased by 4.3 percentage points to 28.3
percent during the first quarter of fiscal 2003 from 24.0 percent during the
first quarter of last year. The increase in the SG&A percentage was due to
negative leverage from the comparable store sales decrease, the increase in
advertising and marketing costs related to the transition, costs associated with
the ongoing liquidation of the men's merchandise and lease termination costs.

Interest

The Company's net interest income decreased $26,000 to $18,000 during the first
quarter of fiscal 2003 from $44,000 in the comparable period of last year due
primarily to higher fees associated with the larger credit facility and, to a
lesser extent, lower average cash balances and lower market interest rates.

Income tax benefit

The Company's income tax status changed to an income tax benefit of $2.6 million
during the first quarter of fiscal 2003 from an income tax provision of $1.1
million in the comparable period of last year as a result of the operating loss
recorded in the first quarter of fiscal 2003 due to reasons discussed above. The
Company anticipates an operating loss during the transition phase in fiscal 2003
and expects to return to profitability in fiscal 2004; however, should the loss
for fiscal 2003 exceed projections, the Company may need to recognize a
valuation allowance to reduce its deferred tax assets. The Company will perform
a review of its financial performance at the end of each quarter during 2003 and
will ascertain the likelihood of the realizability of its deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

General

The Company is currently meeting its cash requirements through cash and cash
equivalents on-hand.

10

Cash Flows

At May 3, 2003, cash and cash equivalents were $10.1 million, a decrease of
$10.7 million since February 1, 2003. The primary uses of cash were an increase
in other assets of $2.7 million, consisting primarily of an income tax benefit,
and a decrease in accounts payable of $8.5 million partially offset by a
decrease in inventory of $2.7 million.

Credit Facility

On April 11, 2003, the Company and Wells Fargo Retail Finance LLC ("Wells
Fargo") entered into a three-year $30 million revolving credit agreement (the
"Facility"), which is secured by an exclusive and first priority, perfected
interest in all assets of the Company. The Company's borrowings under the
agreement are limited to 85% of the net recovery value of eligible inventory (as
defined by the Facility) plus 85% of eligible credit card accounts receivable
less certain financial reserves specified by Wells Fargo. The credit agreement
also provides for the issuance of letters of credit that are generally used in
connection with international merchandise purchases. Outstanding letters of
credit issued by the bank reduce amounts otherwise available for borrowing under
the revolving line of credit. The credit facility subjects the Company to a
minimum maintained excess availability requirement of $3.0 million (as defined
by the Facility). Amounts borrowed under the revolving line will bear interest
ranging from 1.25% to 2.00% above LIBOR, or 0.25% below to 0.50% above Wells
Fargo's prime rate based on credit line utilization. As of May 3, 2003, amounts
available to borrow under the new credit line, as limited as described above and
by outstanding letters of credit of $4.6 million, totaled $24.4 million.

Conversion to All-Female Merchandise Assortment

The conversion of all Gadzooks stores to an all-female merchandise assortment is
scheduled to take place early in the second half of fiscal 2003. The Company
anticipates an operating loss during the transition phase in fiscal 2003 and
expects to return to profitability in fiscal 2004. Although it is not possible
to predict all of the costs associated with the transition, the Company does
plan to spend at least $1.5 million to $2.5 million in fiscal 2003 to market the
new concept, of which $604,000 has been spent as of May 3, 2003. The Company has
hired a liquidation firm to help with the complete sell-down of its men's
inventory. Under the terms of the agreement, the Company will reimburse the firm
for certain operating costs and will pay the firm a portion of the sales
proceeds based on certain specified levels of sales performance as defined in
the contract. All amounts paid to the firm or accrued under the contract are
contingent upon the firm's ability to meet certain minimum levels of sales
performance. The total estimated payment to be made to the liquidation firm is
expected to be between $2.2 million and $2.7 million, of which $414,000 has been
expensed as of May 3, 2003. However, no assurance can be given that the
conversion will be successfully completed during fiscal 2003, that the Company
will be profitable in fiscal 2004 or that the direct costs related to the
conversion and liquidation will not exceed the range provided.

Store Closings

The Company has already closed nine stores and is currently pursuing the closure
of approximately 15 to 20 additional under-performing stores in fiscal 2003. The
costs associated with the closing of these stores, including, but not limited to
lease termination costs and employee severance, is expected to be between $2.5
million and $3.5 million in the aggregate, of which $1.3 million has been spent
as of May 3, 2003. Costs and expenses associated with store closures will be
recognized at the time the liability is incurred. No assurance can be given,
however, that these stores will be closed during fiscal 2003, that additional
stores will not be closed during fiscal 2003 or that the costs related to the
closing of the stores will not exceed the range provided.

Capital Expenditures

The Company anticipates capital expenditures of $5 million to $7 million for the
remainder of fiscal 2003 to open one new Gadzooks store, update the look and
fixtures of all existing stores to coordinate with the all-female merchandise
assortment and purchase and/or upgrade information systems. The Company has
hired a consultant to review the current store base and provide recommendations
on ways to customize the look of the store to complement the all-female
merchandise assortment. The Company believes that its existing cash balances,
cash generated from operations, and funds available under its revolving credit
agreement will be sufficient to satisfy its cash requirements through fiscal
2003.

11

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not engage in trading market risk sensitive instruments and
does not purchase as investments, as hedges, or for purposes "other than
trading" instruments that are likely to expose the Company to market risk,
whether it be from interest rate, foreign currency exchange, commodity price or
equity price risk. The Company has issued no debt instruments, entered into no
forward or futures contracts, purchased no options and entered into no swaps.

The Company's primary market risk exposure is that of interest rate risk. A
change in LIBOR, or the Prime Rate as set by Wells Fargo, would affect the rate
at which the Company could borrow funds under its credit Facility.

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

Certain sections of this Quarterly Report on Form 10-Q, including the preceding
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this report, words
such an "anticipate," "believe," "estimate," "expect," "intend," "predict,"
"project," "will" and similar expressions, as they relate to us or our
management, identify forward-looking statements. These forward-looking
statements are based on information currently available to our management.
Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors, including, but not
limited to, fluctuations in store sales results, changes in economic conditions,
fluctuations in quarterly results and other factors described under the "Risk
Factors" section of the Company's Annual Report on Form 10-K for the fiscal year
ended February 1, 2003. Such statements reflect the current views of our
management with respect to future events and are subject to these and other
risks, uncertainties and assumptions relating to our operations, results of
operations, growth strategy and liquidity. All subsequent written and oral
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by this paragraph.

CONTROLS AND PROCEDURES

Within 90 days prior to the date of the filing date of this Quarterly Report on
Form 10-Q, our Chief Executive Officer and Chief Financial Officer conducted an
evaluation of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as
amended). Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms, and
include controls and procedures designed to ensure that information required to
be disclosed by us in such reports is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely discussions regarding required disclosure.

There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date the Chief
Executive Officer and Chief Financial Officer completed their evaluation.

PART II - OTHER INFORMATION

Items 1-5 - None

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

(a) See Index to Exhibits

(b) None

12

SIGNATURES

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

GADZOOKS, INC.
(Registrant)

DATE: May 23, 2003 By: /s/ JAMES A. MOTLEY
-------------------------------------------
James A. Motley
Vice President / Chief Financial Officer
(Chief Accounting Officer and
Duly Authorized Officer of the Registrant)

13

CERTIFICATION

I, Gerald R. Szczepanski, Chairman of the Board and Chief Executive Officer of
Gadzooks, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of
Gadzooks, Inc.;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act rules
13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.

DATE: May 23, 2003 By: /s/ Gerald R. Szczepanski
------------------------------
Gerald R. Szczepanski
Chairman of the Board and
Chief Executive Officer

14

CERTIFICATION

I, James A. Motley, Vice President, Chief Financial Officer and Secretary of
Gadzooks, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of
Gadzooks, Inc.;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act rules
13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.

DATE: May 23, 2003 By: /s/ James A. Motley
-----------------------------
James A. Motley
Vice President,
Chief Financial Officer
and Secretary

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INDEX TO EXHIBITS

*Filed herewith (unless otherwise indicated, exhibits are previously filed).

16