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SECURITIES AND EXCHANGE COMMISSION

Commission file number 000-21543

Registrant’s telephone number, including area code: (763) 391-4000

Common stock, $.01 par value

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

     Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements 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 registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)    Yes x No o

     The aggregate market value of the voting common equity held by non-affiliates of the registrant was $142,007,148 based on the closing sale price for the common stock on the last business day of the registrant’s most recently completed second fiscal quarter as reported by the Nasdaq National Market. For purposes of determining such aggregate market value, all executive officers and directors of the registrant are considered to be affiliates of the registrant. This number is provided only for the purpose of this report on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person.

     The number of shares outstanding of the registrant’s common stock, $.01 par value, was 20,876,672 at April 5, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement of Wilsons The Leather Experts Inc. for the Annual Meeting of Shareholders to be held on June 3, 2004 (the “Proxy Statement”), which will be filed within 120 days after the registrant’s fiscal year ended January 31, 2004, are incorporated by reference into Part III of this Annual Report on Form 10-K (“Form 10-K”). The Compensation Committee Report, the Audit Committee Report, and the stock performance graph contained in the registrant’s Proxy Statement are expressly not incorporated by reference in this Form 10-K.

WILSONS THE LEATHER EXPERTS INC.

FORM 10-K

For the fiscal year ended January 31, 2004

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PART I

      When we refer to “we,” “our,” “us” or “Wilsons Leather,” we mean Wilsons The Leather Experts Inc. and its subsidiaries, including its predecessor companies. Unless otherwise indicated, references to our fiscal year mean the year ended on the Saturday closest to January 31. The periods that will end or have ended on January 29, 2005, January 31, 2004, February 1, 2003, February 2, 2002, February 3, 2001, and January 29, 2000, are referred to herein as 2004, 2003, 2002, 2001, 2000 and 1999, respectively.

Disclosure Regarding Forward-Looking Statements

      The information presented in this Form 10-K under the headings “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time such statements were made and relate to, among other things, expected demand for our products, liquidation stores (as defined herein), financing efforts, merchandising strategy, capital expenditures, store operations, new store internal rate of return and competition. Although we believe these statements are reasonable, readers of this Form 10-K should be aware that actual results could differ materially from those projected by such forward-looking statements as a result of a number of factors, many of which are outside of our control, including those set forth under “—Risk Factors,” beginning on page 10 of this Form 10-K. Readers of this Form 10-K should consider carefully the factors listed under “—Risk Factors,” as well as the other information and data contained in this Form 10-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth under “—Risk Factors” in this section. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “target,” “may,” “will,” “project,” “should,” “continue” and similar expressions or the negative thereof, as they relate to us, are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

      We are the leading specialty retailer of quality leather outerwear, accessories and apparel in the United States. Our multi-channel store locations are designed to target a broad customer base with a superior level of customer service. Through our worldwide leather sourcing network and in-house design capabilities, we are able to consistently provide our customers with quality, fashionable merchandise at attractive prices. Our business structure results in shorter lead times, allowing us to react quickly to popular and emerging fashion trends and customer preferences, rapidly replenish fast-selling merchandise and minimize fashion risk.

      As of January 31, 2004, we operated a total of 460 stores (excluding the 111 underperforming mall and outlet stores that we are liquidating — see “— Reorganization and Partial Store Liquidation”) located in 45 states and the District of Columbia, including 334 mall stores, 107 outlet stores and 19 airport locations. Each year we supplement our permanent stores with temporary seasonal stores during our peak selling season, which totaled 229 in 2003. Our mall stores average approximately 2,600 total leased square feet and feature a large assortment of classic and contemporary leather outerwear, accessories and apparel. Our outlet stores are operated primarily under the Wilsons Leather Outlet^TM name, average approximately 4,000 total leased square feet and offer a combination of clearance merchandise from our mall stores, special outlet-only merchandise and key in-season goods. Our airport stores average approximately 700 total leased square feet, feature travel-related products as well as leather accessories and provide us the opportunity to showcase our products and the Wilsons Leather brand to millions of potential customers each year in some of the busiest airports. Our proprietary labels, including M. Julian®, Maxima®, Pelle Studio® and Wilsons Leather^TM, are positioned to appeal to identified customer lifestyle segments.

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Financial Strategy

      Our financial strategy for the next year is to increase sales and margins by enhancing the productivity of our existing store base, to strengthen our overall capital position by reducing our costs and working capital needs and to establish an appropriate financial structure. Key elements of implementing this strategy include:

      Increase Sales and Margins. We are employing aggressive marketing strategies and targeted advertising to build customer urgency, drive foot traffic into our stores, generate sales and establish Wilsons Leather as a shopping destination. We believe that reinvigorating our mall store business remains both our biggest near-term challenge and best opportunity to return Wilsons Leather to profitability. Additionally, we are implementing targeted promotional activities to ensure our pricing is competitive, while maintaining acceptable margin levels. Finally, we will continue to upgrade the freshness and fashion-forward content of our merchandise using bold colors, rich textures and a broader range of fashions that appeal to women.

      Improve Balance Sheet and Enhance Cash Position. We are focused on conserving cash through tight expense controls throughout the organization, maintaining a leaner corporate headquarters organization, improving inventory management and limiting new store growth until we improve the profitability of our existing store base. Capital expenditures for 2004 are capped at $6.0 million, with the majority of the funds being allocated to certain fully obligated store remodels.

      Rationalize Store Count. We had a net reduction of 158 stores in 2003, including the 111 liquidation stores discussed in “—Reorganization and Partial Store Liquidation.” In 2004, we plan to open four stores (primarily outlets) where we have pre-existing commitments and close approximately 30 to 40 additional locations (primarily as a result of natural lease terminations) for a net reduction of 26 to 36 stores. In 2004 and beyond, we will continue to analyze our store profitability on a market-by-market basis and work to close underperforming stores to minimize our financial risk.

      During the last two years, in support of our overall financial strategy, the following three actions were taken: 1) discontinued operations for the Travel Subsidiaries, 2) a reorganization and partial store liquidation, and 3) additional financing.

               Discontinued Operations

      In October 2000, we acquired the El Portal Group, Inc. (“El Portal”), a specialty retailer of premium travel products and accessories with 38 stores based in Las Vegas, Nevada. In April 2001, we acquired Bentley’s Luggage Corp., including its subsidiary, Florida Luggage Corp., (collectively “Bentley’s”), a specialty retailer of travel products with 106 stores based in Miami, Florida. We operated these two chains for 24 and 19 months, respectively, with unsatisfactory financial results and, as a result, on November 19, 2002, we announced the liquidation of all 135 stores operated by El Portal and Bentley’s (the “Travel Subsidiaries”). The Travel Subsidiaries business is classified as discontinued operations in our consolidated financial statements and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Fiscal years 2001 and 2000 have been reclassified to present discontinued operations for the Travel Subsidiaries. As a result of the significance of these reclassifications related to our discontinued operations for the Travel Subsidiaries, our 2001 and 2000 consolidated financial statements, which were previously audited by other independent auditors who have ceased operations, have been re-audited by our current independent auditors.

               Reorganization and Partial Store Liquidation

      On January 22, 2004, we announced that we would liquidate up to 100 underperforming mall and outlet stores (subsequently revised to 111 stores — the “liquidation stores”) and eliminate approximately 950 store-related positions. We retained a third party liquidator and real estate firm to assist in this process. The liquidation stores were selected based on strategic criteria, including negative sales and earnings trends, projected real estate costs, location, and financial conditions within the market. In addition, we announced the elimination of approximately 70 positions at our corporate headquarters in Brooklyn Park, Minnesota and our distribution center in Las Vegas, Nevada and the closure of our distribution center in Las Vegas, Nevada. For

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               Additional Financing

      On April 25, 2004, we entered into a common stock and warrant purchase agreement pursuant to which we agreed to issue 17,948,718 shares of our common stock to three institutional investors at a price of $1.95 per share (the “Equity Financing”). As additional consideration for the investors’ commitment, we have issued two million warrants exercisable for five years to the investors, and at closing, we will issue an additional two million warrants exercisable for five years, each at an exercise price of $3.00 per share of common stock. The consummation of the Equity Financing is subject to certain closing conditions, the principal condition being shareholder approval. See “Item 7. Management’s Discussion and Analysis of Financial Condition— Subsequent Event.”

      We intend to use the proceeds from the Equity Financing to repay our 11 1/4% Senior Notes due August 15, 2004, (the “11 1/4% Senior Notes”) and for general working capital purposes. Covenants contained within our senior credit facility prohibit us from borrowing under the revolving portion of our facility and limit our letters of credit until funds for the payment of the principal of our 11 1/4% Senior Notes are deposited in an account controlled by the Agent under our senior credit facility. We expect that we will need to access the revolving portion of our credit facility by the middle of July 2004. There can be no assurance however, that we will be able to complete the Equity Financing before this time. If we are unable to close the Equity Financing for any reason, we will need to find an alternative source of permitted financing for the repayment of our 11 1/4% Senior Notes. There can be no assurances that we would be able to obtain such alternative financing before we need to access our credit facility or repay the 11 1/4% Senior Notes.

Merchandise Strategy

      The elements of our merchandise strategy combine to create an assortment of labels and products that appeal to consumers from a broad range of socio-economic, demographic and cultural profiles. We completed internal market research during 2002 and 2003, and we will continue to survey our customers and potential customers each year to update our customer demographics. We believe that our strategy will continue to position us as the leading specialty retailer of quality leather outerwear, accessories and apparel and strengthen our brand position. The principal elements of our merchandise strategy include:

      Grow Brand Recognition. Our goal is to promote our proprietary labels and enhance their recognition among consumers. Our proprietary labels target specific customer segments: (i) M. Julian® and Maxima® for fashion-savvy young men and women, (ii) Pelle Studio® for the more sophisticated, confident and fashion-aware segment and (iii) Wilsons Leather^TM for the classic, traditional, value-conscious segment. In addition to our national network of stores, we promote the Wilsons Leather brand through a variety of in-store visual presentations, radio, newspaper and magazine advertising, direct mail promotions and our e-commerce site. Reflecting our strength as a mass-market retailer, we are expanding the power of the Wilsons Leather brand by focusing our marketing and merchandising on both classic and colorful fashion-forward styles designed to reach a much broader market. We will continue to market to our customers’ ethnic backgrounds, ages, income levels and fashion requirements through our unique lifestyle sub-brands.

      Optimize Merchandise Assortment. We reduced our outerwear stock keeping unit (“SKU”) count by approximately 50% during the fall of 2003. We did this by emphasizing key styles in each of our store formats. After analyzing our holiday season performance, we determined that we had over-reduced our SKU count, particularly for women’s styles. We are currently evaluating our merchandise assortment to optimize our mix and price points. We continue to utilize our outlet channel to more effectively clear mall merchandise in order to keep our mall stores fresh and up to date.

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      Target Core Customer Base. Our primary focus this past year was on using our distinct proprietary labels to tailor price points and levels of sophistication to grow with customers throughout their lives. We target customers 18 to 37 years old, and we are working to ensure that our stores are assorted with the products they want. Our market research indicated that the median age of our high-potential, high-volume core customer is 28 years of age. We are intensifying our efforts to improve our customer focus and rebuild consumer loyalty by delivering fashion-right leather merchandise that fits the lifestyle needs of our customers at prices they find attractive.

      Increase the Merchandising of Accessories. We are focused on building our accessories business within our retail concepts with an added emphasis on handbags. To support our objective of generating demand and sales throughout the year, we have expanded the accessories assortment in our stores. Through the development of new product styles and other merchandising activities, we plan to utilize accessories as an additional way of attracting more female customers into our stores. These products complement our outerwear and apparel selection and lead to higher “add-on” sales. Our accessories business has proven to be less seasonal and has been one of the highest margin and fastest growing categories in our stores.

      Capitalize on Worldwide Sourcing Network. We are able to leverage our worldwide sourcing network to benefit our stores. Our staff of in-house designers combines industry experience with the latest fashion trends to produce product lines that are both classic and fashion-forward. We have established strong relationships with suppliers globally and our design team works closely with our suppliers to ensure seamless development of leather styles, colors and finishes. We have a staff of 47 professionals in Asia and the sub-continent, South America, and Europe to ensure that our designs are manufactured quickly with consistent, quality standards. We believe that control of design and sourcing results in shorter lead times than our competitors’, reducing inventory requirements and fashion risk and permitting in-season reorders.

      Pursue Multiple Store Formats. Our distribution network of multiple store formats allows us to specifically tailor our stores with a wide selection of merchandise at multiple price points and to optimize raw materials usage, inventory flow and sales across all channels. We operate our stores in malls, outlet centers and airports, and on an e-commerce site. We believe we are creating a new level of excitement throughout our mall stores, creatively using marketing and promotions, and making sure that we have the optimal leather merchandise assortment in our mall stores. Our outlet stores enable us to effectively manage inventories, drive year-round sales, extend our brand and build our customer base. We also operate temporary seasonal stores in malls during our peak selling season to complement our existing store base. These seasonal stores provide us with opportunities to drive incremental sales, test new markets and further strengthen the Wilsons Leather brand nationally. In the future, we plan to evaluate and test new growth vehicles, including new retail channels, compatible new store concepts and new product offerings.

Product Design and Merchandising

      Our mission is to tailor our merchandising to a targeted customer base by offering a broad selection of quality merchandise at attractive prices. We offer more than 3,200 styles of leather outerwear, accessories, and apparel throughout our stores. The accessories consist primarily of gloves, handbags, wallets, briefcases, computer cases, planners and belts. Our merchandising staff, including buyers and designers, continually monitors emerging trends and changing consumer preferences and utilizes information provided by our customers to ensure that we maintain a consistent and up-to-date selection of products. To further minimize our inventory risk and maximize our sales performance, our merchandising team utilizes an advanced management information system to test new merchandise in many of our stores before making large commitments and purchase orders with our suppliers.

      We believe that our integrated worldwide sourcing and in-house design capabilities enable us to gain numerous competitive advantages. As new market trends are identified, we make merchandise design decisions to ensure that key features of fashion merchandise are incorporated in future designs. Our in-house design staff will create and develop designs to ensure a consistent quality, theme and image. As part of the design process, we also consider the anticipated retail prices and profit margins of the merchandise, the

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      Some key elements for merchandising our stores include:

	•	identifying customer lifestyle segments based on demographic factors such as age, fashion awareness, purchasing behavior, income, location and ethnicity;
	•	building strong brand recognition and utilizing our proprietary labels to target customer lifestyle segments;
	•	driving accessories growth through new styles designed to attract customers into our stores; and
	•	actively managing pricing to maintain value for the largest possible customer base.

      We believe that the name and reputation of the Wilsons Leather brand assures customers they are purchasing quality and fashionable merchandise. Approximately 90% of the merchandise in our stores is designed and sold under our proprietary labels: M. Julian®, Maxima®, Pelle Studio® and Wilsons Leather^TM.

      Each of our labels is supplemented with in-store promotions and visual presentations to further emphasize customer lifestyle segmentation. We additionally offer a limited selection of other designer brands such as Kenneth Cole® and Andrew Marc® in our stores to highlight the value of our proprietary labels.

      The following table sets forth the percentages of net sales by major merchandise category from 2001 to 2003:

Sourcing and Quality Assurance

      We have developed strong and long-standing relationships with our manufacturers and tanneries. In 2003, approximately 90% of our leather garments and accessories were manufactured by over 60 independently owned manufacturing facilities throughout Asia and the sub-continent. Our relationships, coupled with our significant purchasing power, enable us to achieve economies of scale and ensure that we can consistently maintain our quality and obtain sufficient manufacturing capacity when needed.

      We believe that our extensive knowledge of the world’s leather markets is critical in mitigating price fluctuations in the cost of raw leather during times of high volatility. While we do not normally obtain possession of a significant level of raw material, we assist tanneries and factories in sourcing raw material from all over the world, ensuring broad access to the marketplace. However, from time to time we purchase supplies of leather to take advantage of market opportunities to ensure reserves of quality materials at acceptable prices. Raw leather is primarily sourced in Italy and South Korea, with additional product sourced from South America, Australia, China and New Zealand. Our buying strategies, coupled with our expertise in leather development, enable us to purchase entire lots of raw leather and use varying grades of raw leather in different products, providing us with significant price advantages.

      Our sourcing infrastructure and strong relationships with our suppliers allow us to effectively control merchandise production without owning manufacturing facilities. Our designers and buyers work closely with our sourcing team to identify and develop leather styles, colors and finishes. We have a staff of 47 professionals located in China, India, Hong Kong, South Korea, Thailand, Italy and South America who are primarily responsible for overseeing the production and quality assurance process in overseas factories and are supervised by the sourcing team at our corporate headquarters. Their responsibilities include inspecting leather

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      Our merchandising department works closely with our overseas personnel to coordinate order fulfillment. We have consistently maintained our merchandise production cycle at approximately 90 days. We believe this production cycle is shorter than that of our competitors and allows us to better control our production needs and reorder faster-selling merchandise during our peak selling season. We believe that this strategy results in more effective and efficient inventory management and gives us the ability to manage production as the business climate changes, thus reducing our need for markdowns on merchandise at the end of our peak selling season.

Store Formats and Locations

      As of January 31, 2004, we operated 460 retail stores (excluding the 111 liquidation stores) located in 45 states and the District of Columbia, including 334 mall stores, 107 outlet stores and 19 airport locations. We regularly supplement our permanent mall stores with temporary seasonal stores during our peak selling season. From October 2003 through January 2004, we operated 229 seasonal stores.

      Our e-commerce site at www.wilsonsleather.com offers leather outerwear, accessories and apparel, as well as company background and financial information.

      Store Locations as of January 31, 2004:

      Site Selection for Store Openings and Closings. We use a detailed process to identify favorable store locations in existing or new markets. Within each targeted market, we identify potential sites for new and replacement stores by evaluating market dynamics. Our site selection criteria include:

	•	customer segment and demographic data derived from our point-of-sale network and outside sources;
	•	information relating to population density in concentric circles surrounding the mall;
	•	the performance of past seasonal stores within the mall;
	•	the proposed location within the mall; and
	•	projected profitability, cost, return on investment and cash-flow objectives.

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      Our cross-functional review committee approves proposed store projects, including new sites and lease renewals. We periodically evaluate our stores to assess the needs for remodeling or the timing of possible closure based on economic factors. We use our knowledge of market areas and rely upon the familiarity of our name and our national reputation with landlords to enhance our ability to obtain prime store locations and negotiate favorable lease terms. In 2004, we plan to open four stores (primarily outlets) where we have pre-existing commitments and close approximately 30 to 40 store locations (primarily as a result of natural lease terminations).

      We maintain a dedicated staff with extensive experience in opening and closing our temporary seasonal stores, which we leverage in our other concepts. Once a seasonal store site is selected and the lease is executed, we are usually able to open a store within three days.

      Our real estate, store planning and executive management teams analyze the performance and profitability of our stores and markets to assess the potential for new and replacement stores and to identify underperforming stores. We estimate that our average net investment in our permanent mall stores is approximately $236,000 and approximately $319,000 for our outlet stores, including inventory and capital investment, net of landlord contributions. In 2004, we expect new stores to generate a three-year internal rate of return of approximately 15% and have an average discounted payback period of two to three years. We cannot ensure that our future store openings will have similar results to those experienced in the past.

      The following chart highlights the number of stores, by format, opened or closed in each of the last three years:

      Mall Stores. We operated 334 permanent mall stores (excluding 105 stores in liquidation) as of January 31, 2004. Our mall stores showcase a full range of leather outerwear, accessories and apparel primarily under our proprietary labels. These stores average approximately 2,600 total leased square feet and are located in all types of shopping malls, serving diverse demographics. A typical mall store will carry a selection of approximately 1,300 different styles of our merchandise.

      We further supplement our permanent mall stores with temporary seasonal stores to better capitalize on our peak selling season. In 2003, we operated 213 seasonal mall stores. We plan to operate approximately 100 seasonal mall stores in 2004. Our temporary seasonal stores provide us the opportunity to test prospective

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      Outlet Stores. Our 107 outlet stores (excluding 6 outlet stores in liquidation) are located in 36 states and operate under the names Wilsons Leather Outlet and Wallet Works. To maintain brand image, we generally locate outlet stores in large outlet centers in areas away from our permanent mall stores. Our Wilsons Leather Outlet stores offer clearance items and special outlet-only merchandise as well as certain key in-season products. Wilsons Leather Outlet stores average approximately 4,000 total leased square feet and generally carry approximately 2,200 styles of merchandise. Our Wallet Works stores average 1,400 square feet and carry only accessories. We currently have minimal Wallet Works stores open and plan to close the remaining locations over time. In 2003 we supplemented our permanent outlet stores with temporary seasonal outlet stores to better capitalize on our peak selling season. We operated 16 seasonal outlet stores in 2003. We do not plan to open any seasonal outlet stores in 2004.

      Airport Stores. We launched our airport stores in an effort to showcase our Wilsons Leather brand and accessories. Our 19 airport stores play an instrumental role in growing brand awareness and showcasing our products to millions of travelers who pass by our airport stores each year. These stores average approximately 700 total leased square feet and carry approximately 1,000 of our best-selling styles, primarily accessories.

      E-Commerce. Our e-commerce site “www.wilsonsleather.com” offers an extension of our store experience and is intended to increase brand awareness, strengthen the relationship with our customers, make our merchandise more accessible to our customers and facilitate cross-marketing with our stores. We are also using e-mail as a means of reaching out to our customers. The e-commerce site features key in-season merchandise as well as promotional merchandise and has been revamped to decrease the cost structure and improve customer service. In 2003, we had 2.5 million visitors at our www.wilsonsleather.com e-commerce site, compared to 1.9 million in 2002, and achieved $4.5 million in online sales, which equates to a flat year-over-year comparison. We plan to continue to invest prudently in the development and maintenance of our online presence, with the Internet serving as an additional shopping format for our customers, as well as a vehicle for building brand awareness. We plan to outsource the e-commerce operations to a third party during the second quarter of 2004.

      Store Operations. Our store operations are organized by region. The mall, outlet and airport stores are divided into four regions, with each region subdivided into districts. Each district manager is responsible for approximately 14 stores. Individual stores are staffed by a manager, an assistant manager, and a complement of full and part-time sales associates whose numbers fluctuate based upon expected and actual sales. A typical store manager has an average of four years experience with our company. Store managers are responsible for sales and other operations including hiring and associate training, visual display and inventory control. All other aspects of store operations are administered centrally by our corporate offices. Temporary seasonal stores have a dedicated staff with the same responsibilities as the staff of our permanent stores. Temporary seasonal stores also provide an opportunity to develop and assess the skills of associates being considered for future permanent store management positions.

      A core aspect of our corporate culture is to focus on employee training and customer service. We emphasize sales associate training to ensure each associate has knowledge of our merchandise and the customer segments that the various labels are designed to serve. Our associates receive ongoing training in the unique properties of leather, the appropriate methods of care for the various leather finishes and the product specifications and details of our merchandise. In addition, we train associates to perform minor repairs in the store for customers free of charge.

      We regularly evaluate our customer service performance through customer comment cards, direct surveys of customers who return merchandise and mall intercept and telephone interview surveys. We also periodically conduct customer focus groups. Issues relating to policy, procedure or merchandise are frequently reviewed to improve service and quality.

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Distribution

      Merchandise for our stores is shipped directly from merchandise vendors or overseas manufacturers to our distribution center located in Brooklyn Park, Minnesota and, until it was closed in January 2004, our distribution center in Las Vegas, Nevada. We are party to a 15-year operating lease, with a five-year option to extend, for our 289,000 square-foot distribution center in Brooklyn Park, Minnesota that is equipped with automated garment-sorting equipment and hand-held radio frequency scanners for rapid bar code scanning and enhanced merchandise control. Approximately 30% of the merchandise received in the distribution center is immediately sent to our stores through cross-docking, which allows for minimal handling and storage. Additional merchandise is stored in the distribution center to replenish stores weekly with key styles and to build inventory for the peak selling season. Through the integration of merchant and distribution systems, we are able to replenish goods frequently to ensure that stores maintain an appropriate level of inventory. As was mentioned in “—Reorganization and Partial Store Liquidation,” we ceased distribution activities and closed the Las Vegas, Nevada distribution center in January 2004.

Marketing and Advertising

      Our marketing strategy is to position Wilsons Leather as the preferred retailer of quality leather products for our target customer, capitalizing on our position as the leading specialty retailer of leather outerwear, accessories and apparel in the United States. Through compelling fashion photo imagery in our stores and store fronts, the Wilsons Leather brand identity and current fashion trends are communicated to customers. Our airport stores showcase the Wilsons Leather brand to millions of travelers annually in some of the busiest airports in the world. Our e-commerce site makes our merchandise more accessible to customers, increases brand awareness and facilitates cross-marketing efforts with our brick-and-mortar stores.

      Marketing to a customer’s lifestyle supports our proprietary label collections. Each label targets specific lifestyles and offers apparel and accessories ranging from classic to contemporary styling. Targeting Americans between the ages of 18 and 37 is a key marketing initiative. Market research we completed during 2002 and 2003 indicates that those consumers are high-potential, high-volume customers. In addition, we believe cross-channel brand marketing will be an important driver in our future success. By leveraging our various selling formats— malls, outlets, airports and our e-commerce site— we intend to strengthen Wilsons Leather in the marketplace as the fashion leather leader.

      Our marketing efforts extend to our corporate partners as well. In a move to target more than 75 million NASCAR fans, we launched an exclusive line of Dale Earnhardt Incorporated products. The products, including leather jackets and accessories bearing the marks of Dale Earnhardt Jr., the Dale Earnhardt Legacy^TM program and NASCAR®, are sold exclusively throughout Wilsons Leather stores nationwide. The official launch of the program was promoted and advertised in leading NASCAR publications in the spring of 2003. In addition, we launched an exclusive line of Tony Stewart® products through Joe Gibbs Racing, Inc. Our NASCAR licensed products have been popular with our customers and we expect to continue to enhance this product line. In addition, in spring 2004, we added a motorcycle theme with a promotion through Kawasaki. Our marketing emphasis for spring 2004 has been focused on highlighting our merchandise through brightly colored store signage.

      We circulated freestanding inserts in various newspapers during our seasonal promotional period during 2003 and expect to continue to make use of this form of promotion in key markets across the United States during 2004.

Information Systems

      Since 1997, we have invested more than $29.0 million in improving our information systems, completing the replacement of major operating platforms in the functional areas of merchandising, finance, human resources, manufacturing and store point-of-sale and back-office systems. These systems provide all levels of our organization access to information, powerful analytical tools to improve our understanding of sales and operating trends and the flexibility needed to anticipate future business needs. We believe that our current

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      Our point-of-sale and back-office systems have been designed to, among other things, free store employees’ time so that they can focus on serving our customers. Our point-of-sale system gives each store the ability to view inventory at other store locations, automates store operations, human resource and inventory management documentation and enables customer information collection. On a daily basis, we obtain sales and inventory data from stores, facilitating merchandising decisions regarding the allocation of inventory, pricing and inventory levels. Our connection to our overseas product sourcing offices provides both field management and home office personnel access to pertinent business information. The continuous flow of information to and from our overseas personnel permits us to control inventory better, plan manufacturing capacity, regulate merchandise flow and ensure product consistency among manufacturers.

Competition

      The retail leather outerwear, accessories, and apparel industry is both highly competitive and fragmented. We believe that the principal bases upon which we compete are selection, style, quality, price, value, store location and service. We compete with a broad range of other retailers, including specialty retailers, department stores, mass merchandisers and discounters and other retailers of leather apparel and accessories. During 2003 we faced increased competition from the mass merchandisers and discounters.

Trademarks

      We conduct our business under various trade names, brand names, trademarks and service marks in the United States, including M. Julian®, Maxima®, Pelle Studio®, Wilsons The Leather Experts^TM, Tannery West®, Georgetown Leather Design^TM, WalletWorks^TM, Wilsons Leather^TM, Handcrafted by Wilsons The Leather Experts^TM, and Vintage by Wilsons The Leather Experts^TM.

Employees

      As of January 31, 2004, we had approximately 4,150 full-and part-time associates, including approximately 950 associates working at the 111 liquidation stores. During our peak selling season, from October through January, we typically employ approximately 3,800 additional seasonal associates. We consider our relationships with our associates to be good. None of our associates are governed by collective bargaining agreements.

Available Information

      Our Internet address is www.wilsonsleather.com. We make available free of charge through our Internet Web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Risk Factors

      The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties also may impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations would likely suffer.

      Covenants contained within our senior credit facility prohibit us from borrowing under the revolving portion of that facility and limit our letters of credit to $15.0 million (plus a specified letter of credit for an aggregate amount of $3.0 million) until funds for the payment of the principal of our 11 1/4% Senior

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      Our 11 1/4% Senior Notes are due on August 15, 2004. We currently do not have the funds to pay the outstanding principal amount of the 11 1/4% Senior Notes, which equals $30.6 million. Our senior credit facility prohibits us from incurring any indebtedness which refunds, renews, extends or refinances the 11 1/4% Senior Notes on terms more burdensome than the current terms of such notes, and the rate of interest with respect to any replacement notes cannot exceed the sum of the rate of interest on United States treasury obligations of like tenor at the time of such refunding, renewal, extension or refinancing, plus 7.0% per annum. We anticipate that we will not be able to refund, renew, extend or refinance the 11 1/4% Senior Notes with indebtedness that would comply with such limitations. The senior credit facility permits us to pay off the 11 1/4% Senior Notes with proceeds from the sale of equity. As noted earlier, we have entered into an agreement related to the Equity Financing to sell 17,948,718 shares of our common stock for an aggregate consideration of $35.0 million, which, if consummated, would provide funds sufficient to pay off the 11 1/4% Senior Notes. However, there is no assurance that we will be able to consummate the Equity Financing. If we are unable to pay off the 11 1/4% Senior Notes when they are due, the noteholders would have the right to exercise their legal rights and remedies. In addition, such failure to pay would result in a default under our senior credit facility permitting the senior lenders to accelerate payment of indebtedness (including letters of credit and the Term B promissory note) under the senior credit facility and allow them to pursue other remedies (including foreclosing their liens on our assets). In such event, we would have to consider other alternatives, including filing for bankruptcy. See “We are unable to borrow under our senior credit facility until we obtain financing sufficient to pay off the 11 1/4% Senior Notes.”

      Covenants contained within our senior credit facility, as amended, require us to meet certain financial tests and limit capital expenditures. In addition, certain covenants and restrictions under our senior credit facility and the indenture governing our 11 1/4% Senior Notes due August 2004 limit our ability to pay cash dividends or make other distributions, to acquire or merge with another entity, to make investments, loans or guarantees, to borrow additional funds or dispose of assets and to create liens or other encumbrances, possibly affecting our flexibility in planning for, and reacting to, changes in our business.

      The failure to comply with the covenants and restrictions contained in either the senior credit facility or the indenture governing our 11 1/4% Senior Notes could, if not cured or waived, result in a default permitting the senior lenders to accelerate payment of indebtedness (including letters of credit and the Term B promissory note) under the senior credit facility and allow them to pursue other remedies (including foreclosing their liens on our assets). Acceleration of the indebtedness under the senior credit facility or the

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      Our ability to meet our debt service obligations will be dependent upon our future performance, which will be subject to general economic conditions and financial, business and other factors affecting our operations. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to refinance all or a portion of existing debt or to obtain additional financing. There can be no assurance that any such refinancing or additional financing would be possible or could be obtained on terms that are favorable to us.

      A key component of our restructuring efforts relates to lease terminations and store liquidations for our 111 liquidation stores. Currently, we have not reached agreement with landlords with respect to 78% of the leases for the 111 liquidation stores. In addition, our senior lenders have limited the aggregate amount that we may pay to exit such leases. We can make no assurances that we will be able to exit such leases on terms acceptable to us and our senior lenders.

      Most of our stores are located in enclosed shopping malls and regional outlet centers. Our ability to sustain or increase the level of sales depends in part on the continued popularity of malls and outlet centers as shopping destinations and the ability of malls and outlet centers, tenants and other attractions to generate a high volume of customer traffic. Many factors beyond our control may decrease mall traffic, including, among other things, economic downturns, the closing of anchor department stores, weather, concerns of terrorist attacks, construction and accessibility to strip malls or alternative shopping formats (such as catalogs, e-commerce or discount stores). Any changes in consumer preferences and shopping patterns could adversely affect our financial condition and operating results.

      The retail leather apparel and accessories markets are highly competitive and fragmented. We compete with a broad range of other retailers, including other specialty retailers, department stores, mass merchandisers and discounters, many of which have greater financial and other resources. Increased competition may reduce sales, increase operating expenses, decrease profit margins and negatively affect our ability to obtain site locations and sales associates and other employees. During 2003, we faced increased competition from mass merchandisers and discounters. There can be no assurance that we will be able to compete successfully in the future and, if we are unable to do so, our financial condition and operating results could be adversely affected.

      Our future capital requirements depend on the sustained demand for our leather products. Many factors affect the level of consumer spending on our products, including, among others:

	•	general business conditions;
	•	interest rates;
	•	the availability of consumer credit;
	•	weather;
	•	continued hostilities in the Middle East and other significant national and international events; and
	•	taxation and consumer confidence in future economic conditions.

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      Consumer purchases of discretionary items, such as our products, tend to decline during recessionary periods when disposable income is lower. The general slowdown in the United States economy and the uncertain economic outlook has adversely affected consumer spending habits and mall traffic, caused us to accelerate store closings, and resulted in lower than expected net sales on a quarterly and annual basis.

      Our success depends on our ability to identify fashion and product trends as well as our ability to anticipate, gauge and react swiftly to changes in consumer demand. Our products must remain appealing for a broad range of consumers with diverse and changing preferences; however, our orders for products must be placed in advance of customer purchases. We cannot be certain that we will be able to identify new fashion trends and adjust our product mix in a timely manner. If we misjudge market preferences, we may be faced with significant excess inventories for some products and missed opportunities for other products. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, slow-moving inventories, which may have a material adverse effect on our business, financial condition and results of operations.

      In addition, we cannot provide assurance that consumer sentiment toward and demand for leather will not change or that we will be able to react to any such changes effectively or at all. For example, certain countries, including the United States and Canada, that supply the hides used to make leather products have experienced outbreaks of certain highly publicized diseases, namely Bovine Spongiform Encephalopathy (“mad-cow” disease) and hoof-and-mouth disease. There can be no assurance that demand for our leather products will not decline as a result of the publicity regarding these diseases or new scientific findings with respect to such diseases. If we are unable to anticipate, gauge and respond to changes in demand or if we misjudge fashion trends, our financial condition and operating results could be harmed.

      Our comparable store sales declined 6.8%, 7.0%, and 12.1% in 2003, 2002, and 2001, respectively. We had a net loss from continuing operations of $33.6 million and $14.3 million in 2003 and 2002, respectively, and net income from continuing operations of $7.8 million in 2001. Our comparable store sales are affected by a variety of factors, including:

	•	consumer shopping preferences;
	•	actions by competitors or mall anchor tenants;
	•	general economic conditions and, in particular, the retail sales environment;
	•	fashion trends;
	•	changes in our merchandise mix;
	•	the timing of new store openings and the relative proportion of new stores to mature stores;
	•	maintaining appropriate inventory levels;
	•	calendar shifts of seasonal periods;
	•	weather conditions; and
	•	timing of promotional events.

      An inability to generate comparable store increases could have a material adverse effect on our business, financial condition and results of operations.

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      Our long-term operating results will depend, in part, on our ability to successfully open new stores and to effectively manage our existing business. Our ability to grow our business will be limited, however, if we are unable to improve the sales performance and productivity of our existing stores. Our future growth will also depend on our ability to:

	•	anticipate fashion trends and design products, merchandise stores, manage inventory levels and take timely and necessary markdowns in response to such trends;
	•	introduce and expand new selling concepts;
	•	identify, negotiate, lease and open stores in suitable locations on a profitable and timely basis;
	•	ensure the availability of and obtain the necessary capital to operate our business;
	•	consolidate and upgrade our distribution center and information systems in an efficient and timely manner; and
	•	hire, train and retain qualified personnel, including management executives and hourly sales associates.

      We cannot assure you that we will be able to achieve all or any of these objectives.

      The purchase of leather comprised approximately 59.5% and 62.8% of our costs of goods sold for leather apparel and 47.5% and 49.7% of the costs of goods sold for accessories in 2003 and 2002, respectively. A number of factors affect the price of leather, including the demand for leather in the shoe, furniture and automobile upholstery industries. In addition, leather supply is influenced by worldwide meat consumption and the availability of hides. Fluctuations in leather supply and pricing, which can be significant, may have a material adverse effect on our business and profitability.

      We import our leather garments and accessories from independent foreign contract manufacturers located primarily in China and India. We do not have long-term contracts or formal supply arrangements with our contract manufacturers. In 2003, 90.0% of our leather garments and accessories contracted for manufacture were purchased from foreign suppliers, with approximately 82.0% purchased from China and 8.0% purchased from India. Trade relations with China and India have traditionally been unstable. If trade relations with these countries or any other country from which we source goods deteriorate, or if any new or additional duties, quotas or taxes are imposed on imports from these countries, leather purchase and production costs could increase significantly, negatively impacting our sales prices, profitability or the demand for leather merchandise. Further, we cannot predict whether any of the countries in which our products currently are manufactured or may be manufactured in the future will be subject to trade restrictions imposed by the United States government, including the likelihood, type, or effect of any such restrictions, or whether any other conditions having an adverse effect on our ability to source products will occur. In addition, it will take time for us to transition our sourcing to other countries. Certain other risks related to foreign sourcing include:

	•	economic and political instability;
	•	transportation delays and interruptions, including delays relating to labor disputes;
	•	restrictive actions by foreign governments;
	•	trade and foreign tax laws;
	•	fluctuations in currency exchange rates and restrictions on the transfer of funds; and
	•	the possibility of boycotts or other actions prompted by domestic concerns regarding foreign labor practices or other conditions beyond our control.

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      Any event causing a sudden disruption of imports from China, India or other foreign countries, including a disruption due to financial difficulties of a supplier, could have a material adverse effect on our business, financial condition and results of operations. In the event that commercial transportation is curtailed or substantially delayed due to a dockworker’s strike or other similar work action, our business may be adversely impacted, as we may have difficulty shipping merchandise to our distribution centers and stores.

      Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so that not only do they comply with generally accepted accounting principles, but also that they reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in our reporting materially different amounts than would have been reported under a different alternative. Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements describes our significant accounting policies.

      We have identified two accounting policies as being “critical” to the presentation of our financial condition and results of operations because they require management to make particularly subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These critical accounting policies relate to the valuation of inventory, and the valuation of property and equipment for impairment. Because of the uncertainty of estimates about these matters, we cannot provide any assurance that we will not:

	•	significantly increase our allowance for obsolete inventory that is significantly higher than the amount reserved; or
	•	recognize a significant provision for impairment of our fixed assets at our stores.

      For more information, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in this report.

      Since our leather outerwear and apparel products are most often purchased during the holiday season, we experience substantial fluctuations in our sales and profitability. We generate a significant portion of our sales from October through January, which includes the holiday selling season. We generated 59.4% of our annual sales in that time period in 2003, and 31.6% in December alone. Because our profitability, if any, is historically derived in the fourth quarter, our annual results of operations have been, and will continue to be, heavily dependent on the results of operations from October through January.

      Given the seasonality of our business, misjudgments in fashion trends, the effects of war and other significant national and international events, or unseasonably warm or severe weather during our peak selling season could have a material adverse effect on our financial condition and results of operations. Our results of operations may also fluctuate significantly as a result of a variety of other factors, including:

	•	merchandise mix offered during the peak selling season;
	•	the timing and level of markdowns and promotions by us during the peak selling season;
	•	the timing and level of markdowns and promotions by our competitors during the peak selling season;
	•	consumer shopping patterns and preferences;
	•	the net sales contributed by seasonal stores;

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	•	the timing of certain holidays; and
	•	the number of shopping days and weekends between Thanksgiving and Christmas.

      If we are able to consummate the Equity Financing referred to above under “—Additional Financing”, we will issue 17,948,718 shares of our common stock, and warrants to purchase an additional 4,000,000 shares of our common stock, subject to certain limitations and adjustments. Increasing the number of additional shares of common stock that may be eventually sold into the market by this amount could have a negative impact on the value of the shares that are currently outstanding. In addition, if we need to obtain additional financing, the terms on which we may obtain additional financing may be adversely affected.

      Our success depends largely on the efforts and abilities of our current senior management team. Their experience and worldwide contacts in the leather products industry significantly benefit us. If we were to lose the benefit of their experience and contacts, our business could be adversely affected. We do not maintain key-man life insurance on any members of our senior management team.

      The efficient operation of our business is heavily dependent on our information systems. In particular, we rely heavily on the automated sortation system used in our distribution center and the merchandise management system used to track sales and inventory. We also rely on a third-party package for our accounting, financial reporting and human resource functions. We depend on our vendors to maintain and periodically upgrade these systems so that these systems continue to support our business. The software programs supporting our automated sorting equipment and processing our inventory management information were licensed to us by independent software developers. The inability of these developers to continue to maintain and upgrade these software programs would disrupt our operations if we were unable to convert to alternate systems in an efficient and timely manner.

      Our directors and executive officers beneficially own, in the aggregate, 17.3 percent of our common stock as of April 5, 2004. In addition, one of the investors in the Equity Financing currently beneficially owns 18.4 percent of our common stock. If the Equity Financing is consummated (and assuming no additional common stock issuance other than the Equity Financing) this investor will beneficially own 44.0 percent of our common stock. If these shareholders vote together as a group, they will be able to exert significant influence over our business and affairs, including the election of individuals to our board of directors. They will also be able to significantly affect the outcome of certain actions that require shareholder approval, including the adoption of amendments to our Amended and Restated Articles of Incorporation and the approval of certain mergers, additional financing, sales of assets and other business acquisitions or dispositions. In addition, the ownership concentration of our stock may limit liquidity and cause shareholders to experience price fluctuations when selling large blocks of our stock.

      Our stock price has been, and is expected to continue to be, highly volatile. There could be an immediate adverse impact on our stock price as a result of:

	•	inability to refinance debt;
	•	any future sales of our common stock or other securities;

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	•	a decline in any month or quarter of our revenues or earnings;
	•	a decline in any month or quarter of comparable store sales;
	•	a deviation in our revenues, earnings or comparable store sales from levels expected by securities analysts;
	•	changes in financial estimates by securities analysts; and
	•	changes in market valuations of other companies in the same or similar markets.

      In addition, the Nasdaq National Market has experienced extreme volatility that has often been unrelated to the performance of particular companies. Future market fluctuations may cause our stock price to fall regardless of our performance. Such volatility may limit our ability in the future to raise additional capital.

      In the event of war or acts of terrorism, or if either is threatened, our ability to obtain merchandise available for sale in our stores may be negatively affected. We import a substantial portion of our merchandise from other countries. If imported goods become difficult or impossible to bring into the United States, and if we cannot obtain such merchandise from other sources at similar costs, our sales and profit margins may be adversely affected.

      The majority of our stores are located in enclosed shopping malls and regional outlet centers. In response to the terrorist attacks of September 11, 2001, security has been heightened in public areas. Any further threat of terrorist attacks or actual terrorist events, particularly in public areas, could lead to lower customer traffic in shopping malls and outlet centers. In addition, local authorities or mall management could close shopping malls and outlet centers in response to any immediate security concern. Mall closures, as well as lower customer traffic due to security concerns, could result in decreased sales that would have a material adverse effect on our business, financial condition and results of operations.

      Our corporate offices and distribution center are in one location. Our operations could be materially and adversely affected if a catastrophic event (such as, but not limited to, fire, tornadoes, floods or acts of terrorism) impacts the use of these facilities. There can be no assurances that we would be successful in obtaining alternative facilities in a timely manner if such a catastrophic event were to occur.

      As of January 31, 2004, we operated 460 leased store locations (excluding the 111 liquidation stores). Substantially all of our stores were located in shopping malls, outlet malls or airport retail locations. Store leases with third parties are typically five to 10 years in duration. Most leases require us to pay annual minimum rent plus a contingent rent dependent on the store’s annual sales in excess of a specified threshold. As of January 31, 2004, of the 460 open leased Wilsons Leather stores, an affiliate of CVS New York, Inc. (“CVS”) (formerly Melville Corporation, the parent company to the predecessor companies) guaranteed approximately 56 leases, all of which were entered into before the management buyout.

      We are party to a 15-year operating lease, with a five-year option to extend, for a 289,000 square-foot distribution center and 69,000 square-foot corporate office space located in Brooklyn Park, Minnesota. We are also party to a five-year operating lease for an 86,000 square-foot distribution center in Las Vegas, Nevada that we are currently marketing for sub-lease. In addition, we are party to a three-year operating lease for a 45,600 square-foot distribution center in Maple Grove, Minnesota that we are currently marketing for sub-lease.

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      We are involved in various legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position and results of operations. Pursuant to the sale agreement entered into in connection with the management buyout in 1996 of the predecessor companies, CVS agreed to indemnify us for certain claims. For certain other claims, CVS’s indemnification liability is limited to claims in the aggregate which exceed $1.2 million, but not to exceed $12.0 million.

      None.

      The following table sets forth certain information concerning our executive officers as of April 1, 2004:

      Joel N. Waller has served as Chairman and Chief Executive Officer of Wilsons Leather since April 1992. In 1983, CVS hired Mr. Waller as President of Wilsons Leather, and he served in such capacity until April 1992. Prior to joining Wilsons Leather, Mr. Waller served in several capacities at Bermans The Leather Experts, Inc., a specialty leather retailer, including Senior Vice President, General Merchandise Manager from 1980 to 1983, Division Merchandise Manager from 1978 to 1980 and Buyer from 1976 to 1978.

      David L. Rogers has served as President and Chief Operating Officer of Wilsons Leather since April 1992. In 1988, Mr. Rogers joined Wilsons Leather as Executive Vice President and Chief Operating Officer when Bermans The Leather Experts, Inc., a specialty leather retailer, was acquired by Wilsons Leather, and he served in such capacity until April 1992. Mr. Rogers served as Chief Operating Officer of Bermans The Leather Experts, Inc., from 1983 to 1988 and Chief Financial Officer from 1980 to 1984.

      Peter G. Michielutti has served as our Executive Vice President and Chief Financial Officer since March 2003, responsible for Finance, Information Systems, and Real Estate and also served as our Senior Vice President and Chief Financial Officer from March 2001 to February 2003. Prior to joining Wilsons Leather, Mr. Michielutti held various positions with US Bancorp, a financial services holding company, from 1998 to 2001, most recently as Executive Vice President from 1999 to 2001. Mr. Michielutti held various positions with Fingerhut Companies, Inc., a direct marketing retail business, most recently as Vice President and Chief Operating Officer from 1996 to 1998. He served at Household International, Inc., a financial service organization, from 1979 to 1995 in various finance positions.

      Linda F. Angelacci has served as our Vice President responsible for marketing since October 2002. Prior to joining Wilsons Leather, Ms. Angelacci was Senior Vice President of Marketing and Merchandise at The San Francisco Music Box Company, a specialty retailer of musical giftware, from 1999 to 2002. Ms. Angelacci served in various marketing and merchandising positions with WH Smith, an airport and hotel gift store

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      Brian R. Bootay has served as our Vice President responsible for real estate and construction since October 2000. Prior to joining Wilsons Leather, Mr. Bootay was Vice President, Leasing at Venator Group Realty Corporation, a subsidiary of Venator Group, Inc. a specialty retailer of athletic footwear and apparel, from 1996 to 2000, Senior Vice President, Real Estate at CVS (formerly Melville Corporation), a diversified specialty retailer, from 1994 to 1996. Mr. Bootay also served as Vice President, Real Estate at Filene’s Basement, Inc., an off-price specialty retailer, from 1989 to 1994.

      Betty A. Goff has served as our Vice President responsible for human resources since February 1992 and served as our Director of Executive Recruitment and Placement from October 1987 to February 1992. Prior to joining Wilsons Leather, Ms. Goff served in various human resource management positions with Fingerhut Corporation, a subsidiary of Fingerhut Companies, Inc., a general merchandise catalog retailer, from 1983 to 1987, and most recently as Manager, Staffing and Employment from 1984 to 1987.

      Jenele C. Grassle has served as our Vice President responsible for merchandising for our mall, airport and seasonal stores since July 2000. Prior to joining Wilsons Leather, Ms. Grassle held various positions at Target Corporation, a general merchandise retailer (formerly Dayton Hudson Corporation), from 1988 to 2000 and most recently as Divisional Merchandise Manager from 1994 to 2000.

      Jeffrey W. Orton has served as our Chief Information Officer and Vice President responsible for information systems and logistics since October 1997 and served as our Director of Strategic Analysis from March 1997 to October 1997, and Director of Business Process Reengineering from September 1993 to March 1997. Prior to joining Wilsons Leather, Mr. Orton held various positions at United States Shoe Corporation, a manufacturing and retail apparel and footwear company, from 1986 to 1993, and most recently as Director of Footwear Retail Systems from 1992 to 1993.

      Arthur J. Padovese has served as our Vice President responsible for store sales since February 2003 and Vice President responsible for outlets from October 2000 to January 2003. Prior to joining Wilsons Leather, Mr. Padovese was an independent management consultant serving as Chief Operating Officer and Chief Financial Officer at Appraisal Enhancement Services, a property appraisal company, from 1999 to 2000, an investment banker for Green Tree Capital, a financial services company, from 1998 to 2000, and was co-founder of Jungle Adventures International Inc., a developer of entertainment centers, in 1998. He also served as President of Prints Plus, Inc., a specialty retailer, from 1986 to 1997.

      Steven R. Waller has served as our Vice President responsible for sourcing since January 1999, and served as our Director, Product Development from September 1998 to January 1999. Prior to joining Wilsons Leather, Mr. Waller served in various operations and import positions with G-III Apparel Group, Ltd., a leather and non-leather apparel manufacturer and distributor, most recently as Director of Imports from 1987 to 1998. Mr. Waller is the son of Joel N. Waller, our Chairman and Chief Executive Officer.

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PART II

Market Information

      Our common stock, $.01 par value, trades on the Nasdaq National Market under the symbol WLSN. The closing price of our common stock on April 5, 2004, was $2.85. The following table presents the high and low market prices from February 2, 2002 through January 31, 2004.

      There were 85 record holders of our common stock as of April 5, 2004.

Dividends

      We have not declared any cash dividends since our inception in May 1996. We are currently in a retained deficit position and unable to pay dividends. In addition, our loan agreements and the indenture relating to the 11 1/4% Senior Notes contain certain covenants limiting, among other things, our ability to pay cash dividends or make other distributions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

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      The selected historical consolidated financial data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Consolidated Financial Statements of the Company,” beginning on page F-1 of this report. The selected historical consolidated financial data has been derived from our audited consolidated financial statements.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA — (Continued)

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      The following discussion of our financial condition and results of operations should be read in conjunction with our selected historical consolidated financial data and consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K. The consolidated financial statements for all periods present the Travel Subsidiaries segment as discontinued operations. See “—Discontinued Operations.” Unless otherwise indicated, the following discussion relates only to Wilsons Leather’s continuing operations.

Overview

      We measure performance using such key operating statistics as comparable store sales, sales per square foot, gross margin percentage and store operating expenses, with a focus on labor, as a percentage of sales. These results translate into store operating contribution and store cash flow, which we use to evaluate overall performance on an individual store basis. Store operating contribution is calculated by deducting a store’s operating expenses from its gross margin and is measured as a percentage of sales. Store operating contribution gives us an overall measure as to whether or not individual locations and markets are meeting our financial objectives.

      In addition, general and administrative expenses are monitored in absolute amount, as well as on a percentage of sales basis. We continue to monitor product costing and promotional activity, which allows us to generally maintain acceptable margin levels. Our gross margins are influenced by the mix of merchandise between outerwear and accessories in our total sales.

      We also measure and evaluate investments in our retail locations, including inventory and property and equipment. Inventory performance is primarily measured by inventory turns, or the number of times store inventory turns over in a given period, and amounts of owned inventory at various times based on payment terms from our vendors. The most significant investments in property and equipment are made at the time we open a store.

      At January 31, 2004, we operated 460 stores (excluding the 111 liquidation stores) using various formats including mall stores, outlet stores and airport locations. We also operated 229 temporary seasonal stores to better capitalize on our peak selling season from October through December.

      During the last two years, in support of our overall financial strategy, the following three actions were taken: 1) discontinued operations for the Travel Subsidiaries, 2) a reorganization and partial store liquidation, and 3) additional financing. These actions are described in greater detail below.

      We generate a significant portion of our sales from October through January, which includes the holiday selling season. We generated 59.4% of our annual sales in that time period in 2003, and 31.6% in December alone. As part of our strategy to improve operating margins and maximize revenue and profitability during non-peak selling seasons, we have increased the number of outlet locations since 2000, which are less seasonal, and modified our product mix to emphasize accessories. Accessory sales grew as a percentage of sales to 33.6% in 2003 from 28.0% in 2001, largely as a result of fresh, new styles designed to match our customers’ lifestyle needs.

      Comparable store sales decreased 6.8%, 7.0%, and 12.1% in 2003, 2002 and 2001, respectively. Income (loss) from continuing operations as a percentage of sales for the three years was (6.4%), (2.5%), and 1.3%, respectively. A store is included in the comparable store sales calculation after it has been opened and operated by us for more than 52 weeks. The percentage change is computed by comparing total net sales for comparable stores as thus defined at the end of the applicable reporting period with total net sales from comparable stores for the comparable period in the prior year. The 111 liquidation stores are not included in comparable store sales for the month of January 2004.

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      The following table contains selected information for each of our store formats for 2003.