UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

For the transition period from                                       to                                      

Commission file number 0-19526

Goody’s Family Clothing, Inc.

(865) 966-2000

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 [X] No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value, 32,789,119 shares outstanding as of November 12, 2004.

GOODY’S FAMILY CLOTHING, INC.
Index to Form 10-Q
October 30, 2004

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PART 1 — FINANCIAL INFORMATION

Item 1 — Condensed Consolidated Financial Statements

Goody’s Family Clothing, Inc. and Subsidiaries

See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm.

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Goody’s Family Clothing, Inc. and Subsidiaries

See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm.

4

Goody’s Family Clothing, Inc. and Subsidiaries

See accompanying Notes to Condensed Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm.

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Goody’s Family Clothing, Inc. and Subsidiaries

(1) Basis of presentation

The accompanying condensed consolidated financial statements of Goody’s Family Clothing, Inc. and subsidiaries (the “Company”) are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting primarily of normal and recurring adjustments, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. Due to the seasonal nature of the Company’s business, the results of operations for the interim periods are not necessarily indicative of the results that may be achieved for the entire year. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K for its fiscal year ended January 31, 2004. Certain reclassifications have been made to the condensed consolidated financial statements of prior periods to conform to the current period presentation.

(2) Stock-Based Compensation

The Company has options outstanding under four stock option plans: the Goody’s Family Clothing, Inc. Amended and Restated 1991 Stock Incentive Plan (the “1991 Plan”), the Goody’s Family Clothing, Inc. Amended and Restated 1993 Stock Option Plan (the “1993 Plan”), the Goody’s Family Clothing, Inc. Amended and Restated 1997 Stock Option Plan (the “1997 Plan”) and the Amended and Restated Discounted Stock Option Plan for Directors (the “Directors’ Plan”).

The Company accounts for its stock option plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. However, expense is recorded in connection with stock options issued under the Directors’ Plan to non-employee directors and this expense has been insignificant. Interim proforma information regarding net (loss) income and (loss) earnings per share is required by Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of Financial Accounting Standards Board (“FASB”) Statement No. 123,” which requires that the information be determined as if the Company had accounted for its employee stock options granted under the fair value method of that statement. The following table illustrates the effect on net (loss) earnings and (loss) earnings per common share if the Company had applied the fair value recognition provisions of SFAS 148 to stock-based employee compensation (in thousands, except per share amounts):

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Goody’s Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — continued
(Unaudited)

The weighted-average fair value of each stock option included in the preceding pro forma amounts was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period of the underlying options.

(3) Credit arrangements

In May 2001, the Company entered into a five-year, $130,000,000 syndicated revolving loan and security agreement that provides for cash borrowings for general corporate purposes, including a $95,000,000 sub-facility for the issuance of letters of credit. Borrowings under this credit facility are limited by collateral formulas, based principally upon the Company’s eligible inventories. The credit facility is secured primarily by the Company’s inventories, receivables and cash and cash equivalents. The borrowing base was $215,414,000 at October 30, 2004, which excludes cash and most of cash equivalents and only gives credit for specified percentages of inventory and receivables. The amount available to draw under the credit facility at October 30, 2004 was approximately $95,092,000. If availability (as calculated pursuant to the credit facility) falls below $25,000,000, the Company would be required, for a period of time, to comply with a financial covenant requiring it to maintain minimum levels of tangible net worth based on formulas. The Company’s availability did not fall below $25,000,000 during the thirty-nine weeks ended October 30, 2004, or November 1, 2003 and therefore the Company was not required to comply with this financial covenant. The credit facility also contains certain discretionary provisions that enable the lender to reduce availability. The credit facility bears interest at LIBOR plus an applicable margin or the prime rate. In June 2003, the credit facility was amended to permit cash dividends in any fiscal year on the common stock in an amount not to exceed (i) $3,500,000 (but not to exceed $10,000,000 in the aggregate during the remaining term of the credit facility) plus (ii) 50% of the Company’s consolidated net income for the immediately preceding fiscal year. In June 2003, the lenders agreed to waive any events of default which could be deemed to have occurred by reason of the Court’s decision in the Hilfiger Matter described below. At October 30, 2004, the Company had no borrowings outstanding and has $20,699,000 in outstanding letters of credit (not yet reflected in accounts payable) under the facility. These letters of credit generally have terms of less than one year and are primarily used to facilitate the purchase of import merchandise.

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Goody’s Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — continued
(Unaudited)

(4) Contingencies

Class Action Proceeding

In February 1999, a lawsuit was filed in the United States District Court for the Middle District of Georgia and was served on the Company and Robert M. Goodfriend, its Chairman of the Board and Chief Executive Officer, by 20 named plaintiffs, generally alleging that the Company discriminated against a class of African-American employees at its retail stores through the use of discriminatory selection and compensation procedures and by maintaining unequal terms and conditions of employment. The plaintiffs further alleged that the Company maintained a racially hostile working environment.

On February 28, 2003, a proposed Consent Decree was filed with the District Court for its preliminary approval. The proposed Consent Decree sets forth the proposed settlement of the class action race discrimination lawsuit. Ultimately, class action certification was sought in the lawsuit only with respect to alleged discrimination in promotion to management positions and the proposed Consent Decree is limited to such claims. Generally, the proposed settlement provides for a payment by the Company in the aggregate amount of $3.2 million to the class members (including the named plaintiffs) and their counsel, as well as the Company’s implementation of certain policies, practices and procedures regarding, among other things, training of employees. The Company’s employer liability insurance underwriter has funded $3.1 million of such payment to a third-party administrator. The proposed Consent Decree explicitly provides that it is not an admission of liability by the Company and the Company continues to deny all of the allegations. On April 30, 2003, the District Court granted preliminary approval of the proposed Consent Decree, and a hearing was held on June 30, 2003, regarding the adequacy and fairness of the proposed settlement. On March 3, 2004, the United States District Court for the Middle District of Georgia issued an Order granting final approval of the Consent Decree. On or about February 23, 2004, a purported class member filed an appeal with the U.S. Court of Appeals for the Eleventh Circuit (the “Eleventh Circuit”), alleging, among other things, misconduct on the part of the District Court and the plaintiff’s/appellant’s counsel; the Eleventh Circuit dismissed this appeal on March 5, 2004. On or about March 12, 2004, a Motion to set aside the dismissal was filed with the Eleventh Circuit. On May 28, 2004, the Eleventh Circuit dismissed all appeals regarding this matter. In August 2004, a purported class member filed a Petition for a Writ of Certiorari with the United States Supreme Court regarding the Eleventh Circuit’s dismissal of all appeals on this matter; the United States Supreme Court is expected to make a ruling on such Petition within six (6) months. Pursuant to the terms of the March 3, 2004 Order, the District Court will maintain jurisdiction of this matter until July 2006 to monitor the parties’ compliance with the Consent Decree.

Hilfiger Matter, Sun Matter and Related Insurance Matters

In July 2000, Tommy Hilfiger Licensing, Inc. (“Hilfiger”) commenced an action against the Company in the United States District Court for the Northern District of Georgia, alleging, among other things, counterfeiting and trademark infringement (the “Hilfiger Matter”). A bench trial for the Hilfiger Matter concluded on March 13, 2003, and on May 9, 2003, the Court rendered its decision, awarding damages to Hilfiger in the amount of approximately $11.0 million, plus reasonable attorney’s fees and costs.

In June 2002, Hilfiger brought an action against Sun Apparel, Inc. (“Sun”), a Goody’s denim supplier, alleging trademark infringement arising out of Sun’s manufacture of the allegedly infringing labels that gave rise to Hilfiger’s trademark infringement claims against Goody’s (the “Sun Matter”). Goody’s had agreed to pay for the defense of the Sun Matter because of certain indemnification obligations it had to Sun.

At the time the Hilfiger Matter commenced, the Company’s primary liability insurer indicated that it would reimburse Goody’s for its legal fees and expenses. In February 2003, after several unsuccessful attempts to obtain such reimbursement, Goody’s filed an insurance coverage action against the insurers. Following the commencement of such action, the primary insurer agreed to reimburse Goody’s for a substantial portion of its past and future legal expenses. However, the insurance carriers reserved their rights regarding their obligations to indemnify Goody’s against damages resulting from the Hilfiger claims and the Sun Matter and the carriers asserted certain defenses against their indemnity obligations. On May 13, 2003, Fireman’s Fund Insurance Company (“Fireman’s Fund”), the excess layer (umbrella insurance) carrier, commenced an action against Goody’s in the Chancery Court for Knox County, Tennessee, seeking a declaratory judgment against Goody’s declaring that it has no duty to indemnify Goody’s in the Hilfiger Matter (the Goody’s suit against the insurers and the Fireman’s Fund suit against the Company are collectively referred to herein as the “Insurance Matters”).

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Goody’s Family Clothing, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — continued
(Unaudited)

The Company recorded a pre-tax charge of $7,996,000 during the thirteen weeks ended May 3, 2003, for legal claims and related legal fees in connection with the Hilfiger Matter and related matters.

In June 2003, the Company reached a settlement agreement with Hilfiger, resolving all outstanding issues arising out of the Hilfiger Matter. Under the settlement, the Company agreed to make an $11.0 million cash payment to Hilfiger. The settlement amount also encompassed the settlement of the Sun Matter. In June 2003, the Company also reached an agreement in principle with its insurance carriers regarding the Insurance Matters and a definitive settlement agreement with its insurance carriers was executed in July 2003. The settlement enabled the Company to reverse $4,441,000 ($0.08 per diluted share after taxes) of the pre-tax charge of $7,996,000 ($0.15 per diluted share after taxes) in the second quarter of fiscal 2003.

Other Matters

In addition, the Company is a party to various other legal proceedings arising in the ordinary course of its business. The Company has various insurance policies in place in the event of unfavorable outcomes from such proceedings. The insurance companies’ level of, and willingness to, support their coverage could vary depending upon the circumstances of each particular case. As such, there can be no assurance as to the level of support available from insurance policies. The Company does not currently believe that the ultimate outcome of all such pending legal proceedings, individually or in the aggregate, would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

(5) Intangible Assets

The Company purchased the Duck Head trademarks and four related licenses from TSI Brands Inc., and its parent corporation, Tropical Sportswear Int’l Corporation during the second quarter of fiscal 2003 for $4,000,000, and total acquisition costs were ultimately $4,103,000. In accordance with FASB Statement No. 142, “Goodwill and Other Intangible Assets,” the Company performed a valuation of the trademarks during fiscal 2003 and determined that the asset has an indefinite life and no impairment charge was necessary.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Goody’s Family Clothing, Inc.
Knoxville, Tennessee:

We have reviewed the accompanying condensed consolidated balance sheets of Goody’s Family Clothing, Inc. and Subsidiaries (the “Company”) as of October 30, 2004 and November 1, 2003, and the related condensed consolidated statements of operations for the thirteen and thirty-nine week periods ended October 30, 2004 and November 1, 2003, and of cash flows for the thirty-nine week periods ended October 30, 2004 and November 1, 2003. These interim condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of January 31, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 19, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/Deloitte & Touche LLP
Atlanta, Georgia
November 17, 2004

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Quarterly Report contains certain forward-looking statements which are based upon current expectations, business plans and estimates and involve material risks and uncertainties including, but not limited to:

(i)		customer demand and trends in the apparel and retail industry;
(ii)		the acceptance of the Company’s merchandise offerings, including the new Duck Head line;
(iii)		the ability to avoid excess promotional pricing;
(iv)		weather conditions;
(v)		the impact of competitors’ pricing and store expansion;
(vi)		the timely availability of branded and private-label merchandise in sufficient quantities to satisfy customer demand;
(vii)		the effectiveness of merchandising, advertising, pricing, and operational strategies;
(viii)		the ability to achieve business plan targets;
(ix)		the ability to enter into leases for new store locations;
(x)		the timing, magnitude and costs of opening new stores;
(xi)		individual store performance, including new stores;
(xii)		relations with vendors, factors and employees;
(xiii)		the general economic conditions within the Company’s markets;
(xiv)		the ability to successfully launch the Company’s e-commerce initiative, including site design, planning, programming, and marketing;
(xv)		global political unrest, including terrorism and war;
(xvi)		the continued availability of adequate credit support from vendors and factors;
(xvii)		the Company’s compliance with loan covenants and the availability of sufficient eligible collateral for borrowing;
(xviii)		the possibility of unanticipated needs for additional capital expenditures;
(xix)		trends affecting the Company’s financial condition, results of operations or cash flows;
(xx)		the success of the Company’s information technology systems; and
(xxi)		the seasonality of the Company’s business.

Any “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, which generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “target,” “plan,” “project,” or “continue” or the negatives thereof or other variations thereon or similar terminology, are made on the basis of management’s plans and current analysis of the Company, its business and the industry as a whole. Readers are cautioned that any such forward-looking statement is not a guarantee of future performance and involves risks and uncertainties, and that actual results may differ materially from those

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projected in the forward-looking statement as a result of various factors. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company’s financial results may be found in the Company’s public filings with the Securities and Exchange Commission. Certain of such filings may be accessed through the Company’s web site, http://www.goodysonline.com, then choose “SEC Filings.”

Critical Accounting Policies

The Company’s accompanying interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates that affect the amounts of revenues, expenses, assets, and liabilities reported. The critical accounting matters that are very important to the portrayal of the Company’s financial condition and results of operations and require some of management’s most difficult, subjective and complex judgments are described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004. The accounting for these matters involves forming estimates based on current facts, circumstances and assumptions which, in management’s judgment, could change in a manner that would materially affect management’s future estimates with respect to such matters and, accordingly, could cause future reported financial condition and results of operations to differ materially from financial results reported based on management’s current estimates. There have been no material changes in the critical accounting policies during the thirty-nine weeks ended October 30, 2004.

Results of Operations

The following table sets forth unaudited results of operations, as a percent of sales, for the periods indicated:

Thirteen Weeks Ended October 30, 2004 Compared with Thirteen Weeks Ended November 1, 2003

Overview During the third quarter of fiscal 2004, the Company opened 7 new stores, relocated 1 store and remodeled 1 store, bringing the total number of stores in operation at October 30, 2004 to 352, compared with 332 at November 1, 2003. During the third quarter of fiscal 2003, the Company opened two new stores, remodeled three stores and closed two stores. The Company incurred a net loss for the third quarter of fiscal 2004 of $804,000, or 0.3% of sales, compared with net earnings for the third quarter of fiscal 2003 of $1,712,000, or 0.6% of sales.

Sales Sales for the third quarter of fiscal 2004 were $284,794,000, a 1.4% increase from the $280,777,000 in sales for the third quarter of fiscal 2003. The increase of $4,017,000 consisted of an $11,501,000 increase in additional net sales from new stores, transition stores and sales from stores that were subsequently closed, offset by a $7,484,000 decrease in comparable store sales. Comparable store sales for the third quarter of fiscal 2004 decreased 2.7% compared with the third quarter of fiscal 2003. Sales for the third quarter of fiscal 2004 were negatively affected, in part, by (i) unseasonably warm weather patterns during portions of the quarter, and (ii) the effects of three major hurricanes which impacted approximately 240 of the Company’s stores in September. Sales of private-label merchandise, which includes the Company’s exclusive Duck Head lines launched March 14, 2004, increased to approximately 30.7% of total merchandise sales for the third quarter of fiscal 2004 from 24.5% of total merchandise sales for the same period in the prior year.

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Gross profit Gross profit for the third quarter of fiscal 2004 was $83,819,000 or 29.4% of sales, a $551,000 increase from the $83,268,000 in gross profit, or 29.7% of sales, for the third quarter of fiscal 2003. While merchandise margins in the third quarter of fiscal 2004 approximated those for the third quarter of fiscal 2003, occupancy costs increased 0.3% due largely to the decrease in comparable store sales and the resulting lack of leverage as a percentage of sales.

Selling, general and administrative expenses Selling, general and administrative expenses for the third quarter of fiscal 2004 were $85,390,000, or 30.0% of sales, an increase of $4,714,000 from $80,676,000, or 28.8% of sales, for the third quarter of fiscal 2003. Selling, general and administrative expenses increased by 1.2%, as a percent of sales, for the third quarter of fiscal 2004 compared with the third quarter of fiscal 2003. The increase relates primarily to (i) a 0.5% increase in payroll expense, (ii) a 0.4% increase in the provision for health care costs, (iii) a 0.4% increase in advertising expenses, (iv) a 0.2% increase in workers’ compensation expense, (v) a 0.2% increase in trucking expense primarily related to rate increases, including fuel surcharges, and (vi) a 0.3% increase in all other selling, general and administrative expenses, offset by (vii) a 0.5% decrease in the accrual of performance bonuses, and (viii) a 0.3% decrease in general liability insurance expense.

Income taxes The benefit for income taxes for the third quarter of fiscal 2004 was $478,000, for an effective tax rate of 37.29% of loss before income taxes, compared with a provision for income taxes of $1,006,000, for an effective tax rate of 37.01% of earnings before income taxes, for the third quarter of fiscal 2003.

Thirty-nine Weeks Ended October 30, 2004 Compared with Thirty-nine Weeks Ended November 1, 2003

Overview During the thirty-nine weeks ended October 30, 2004, the Company opened 17 new stores, relocated 2 stores and remodeled 8 stores, bringing the total number of stores in operation at October 30, 2004 to 352, compared with 335 at January 31, 2004 and 332 at November 1, 2003. During the corresponding period of the previous fiscal year, the Company opened 7 new stores, relocated or remodeled 13 stores and closed 3 stores. Net earnings for the thirty-nine weeks ended October 30, 2004 were $8,515,000, or 1.0% of sales, compared with net earnings for the thirty-nine weeks ended November 1, 2003 of $10,685,000, or 1.3% of sales. Net earnings for the thirty-nine weeks ended November 1, 2003 included a pre-tax charge of $3,571,000 related to the previously reported settlements of the Hilfiger Matter and related matters as discussed in Note 4 to the Notes to Consolidated Financial Statements.

Sales Sales for the thirty-nine weeks ended October 30, 2004 were $882,304,000, a 2.9% increase from the $857,828,000 in sales for the thirty-nine weeks ended November 1, 2003. This increase of $24,476,000 consisted of $26,694,000 in additional net sales from new stores, transition stores and sales from stores that were subsequently closed, offset by a decrease of $2,218,000 in comparable store sales. Comparable store sales for the thirty-nine weeks ended October 30, 2004 decreased 0.3% compared with the corresponding period of the previous fiscal year. Sales of private-label merchandise, which includes the Company’s exclusive Duck Head lines launched March 14, 2004, increased to approximately 32.5% of total merchandise sales for the thirty-nine weeks ended October 30, 2004, from 28.1% of total merchandise sales for the same period in the prior year.

Gross profit Gross profit for the thirty-nine weeks ended October 30, 2004 was $264,737,000, or 30.0% of sales, a $9,710,000 increase from the $255,027,000 in gross profit, or 29.7% of sales, for the thirty-nine weeks ended November 1, 2003. The 0.3% increase in gross profit, as a percent of sales, for the thirty-nine weeks ended October 30, 2004 compared with the thirty-nine weeks ended November 1, 2003 resulted primarily from an increase in merchandise margins. The improvement in gross profit was partially attributable to increased private-label sales, which typically produce higher gross margins, overall, than the Company’s branded merchandise offerings.

Selling, general and administrative expenses Selling, general and administrative expenses for the thirty-nine weeks ended October 30, 2004 were $251,717,000, or 28.5% of sales, an increase of $13,146,000 from $238,571,000, or 27.8% of sales, for the thirty-nine weeks ended November 1, 2003. Selling, general and administrative expenses, excluding the pre-tax charge of $3,571,000 related to the previously reported settlements of the Hilfiger litigation during the thirty-nine weeks ended November 1, 2003, were $235,000,000 or 27.4% of sales. Selling, general and administrative expenses increased by 1.1%, as a percent of sales, for the thirty-nine weeks ended October 30, 2004 compared with the thirty-nine weeks ended November 1, 2003 (excluding the settlements of the Hilfiger litigation in the second quarter of fiscal 2003). The 1.1% increase relates primarily to (i) a 0.4% increase in the provision for health care costs, (ii) a 0.3% increase in payroll expense, (iii) a 0.2% increase in workers’ compensation expense, (iv) a 0.2% increase in advertising expenses, and (v) a 0.4% increase in all other selling, general and administrative expenses, offset by (vi) a decrease of 0.4% in the accrual of performance bonuses.

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Income taxes The provision for income taxes for the thirty-nine weeks ended October 30, 2004 was $5,054,000, for an effective tax rate of 37.25% of earnings before income taxes, compared with a provision for income taxes of $6,276,000, for an effective tax rate of 37.00% of earnings before income taxes, for the thirty-nine weeks ended November 1, 2003.

Liquidity and Capital Resources

Financial Position The Company’s primary sources of liquidity are cash flows from operations, including credit terms from vendors and factors, and borrowings under its credit facility discussed below. At October 30, 2004, January 31, 2004 and November 1, 2003, the Company’s working capital was $135,678,000, $135,522,000 and $118,674,000, respectively. The increase in working capital from November 1, 2003 to October 30, 2004 was $17,004,000 and the increase from January 31, 2004 to October 30, 2004 was $156,000.

The $17,004,000 increase in working capital from November 1, 2003 to October 30, 2004, consists primarily of (i) $15,490,000 in earnings, (ii) $8,390,000 from the purchase of the Company’s interests in certain split-dollar life insurance policies in the fourth quarter of fiscal 2003, (iii) $1,062,000 from the issuance of common stock through the exercise of stock options, (iv) increases in long-term liabilities of $2,549,000, offset by (v) a $6,268,000 net change in property and equipment, (vi) dividends paid of $2,961,000, and (vii) repurchases of common stock of $1,847,000.

The $156,000 increase in working capital from January 31, 2004 to October 30, 2004, consists primarily of (i) $8,515,000 in earnings, (ii) $934,000 from the issuance of common stock through the exercise of stock options, (iii) increases in long-term liabilities of $2,119,000, partially offset by (iv) a $7,724,000 net change in property, plant and equipment, (v) dividends paid of $2,305,000, and (vi) repurchases of common stock of $1,847,000.

In May 2001, the Company entered into a five-year, $130,000,000 syndicated revolving loan and security agreement that provides for cash borrowings for general corporate purposes, including a $95,000,000 sub-facility for the issuance of letters of credit. Borrowings under this credit facility are limited by collateral formulas, based principally upon the Company’s eligible inventories. The credit facility is secured primarily by the Company’s inventories, receivables and cash and cash equivalents. The borrowing base was $215,414,000 at October 30, 2004, which excludes cash and most of cash equivalents and only gives credit for specified percentages of inventory and receivables. The amount available to draw under the credit facility at October 30, 2004 was approximately $95,092,000. If availability (as calculated pursuant to the credit facility) falls below $25,000,000, the Company would be required, for a period of time, to comply with a financial covenant requiring it to maintain minimum levels of tangible net worth based on formulas. The credit facility also contains certain discretionary provisions that enable the lender to reduce availability. The credit facility bears interest at LIBOR plus an applicable margin or the prime rate. In June 2003, the credit facility was amended to permit cash dividends in any fiscal year on the common stock in an amount not to exceed (i) $3,500,000 (but not to exceed $10,000,000 in the aggregate during the remaining term of the credit facility) plus (ii) 50% of the Company’s consolidated net income for the immediately preceding fiscal year. In June 2003 the lenders agreed to waive any events of default which could be deemed to have occurred by reason of the Court’s decision in the Hilfiger Matter.

At October 30, 2004, January 31, 2004 and November 1, 2003, the Company had (i) no cash borrowings under the credit facility and (ii) letters of credit outstanding not yet reflected in accounts payable of $20,699,000, $28,908,000 and $22,741,000, respectively. There were no cash borrowings at any time during the thirty-nine weeks ended October 30, 2004 and November 1, 2003. Letters of credit outstanding averaged $37,750,000 during the thirty-nine weeks ended October 30, 2004, compared with $36,586,000 during the thirty-nine weeks ended November 1, 2003. The highest balance of letters of credit outstanding during the thirty-nine weeks ended October 30, 2004, was $44,632,000 in August 2004 compared with $47,428,000 in February 2003 during the thirty-nine weeks ended November 1, 2003.

Cash Flows Cash used in operating activities was $27,439,000 and $13,711,000 for the thirty-nine weeks ended October 30, 2004 and November 1, 2003, respectively. Cash used for increases in inventory during the thirty-nine weeks ended October 30, 2004 and November 1, 2003, was $101,816,000 and $94,830,000, respectively. Inventories on a per square foot basis were $30.80 and $29.72 at October 30, 2004 and November 1, 2003, respectively, which represents a 3.6% increase on a per square foot basis. While inventory levels remain above plan at the end of the third quarter, the inventory increases from the end of the fiscal year and from the end of the third quarter last year were primarily attributable to (i) a sales shortfall from plan, (ii) the purchase of additional merchandise to support the March 14, 2004 launch of the new Duck Head sportswear lines, (iii) the July 2004 introduction of the new Duck Head Jeans Company denim lines, (iv) the expansion of certain other merchandise offerings including assortments for automatically replenished basic merchandise and special size categories, and (v) merchandise for new and relocated stores opening after the end of the third fiscal quarter of 2004. Additionally, as it relates to the comparison with

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year-end inventory levels, the inventory balance at the end of the third quarter includes normal seasonal build-ups of inventory, as well as inventory for new stores. An increase in accounts payable - trade provided cash of $51,250,000 and $54,877,000 in the thirty-nine weeks ended October 30, 2004 and November 1, 2003, respectively, and was primarily related to the funding of inventory for new and relocated stores and normal seasonal and Duck Head inventory buildups.

Cash flows from investing activities reflected a net use of cash of $25,360,000 and $20,248,000 for the thirty-nine weeks ended October 30, 2004 and November 1, 2003, respectively. The Company used cash to fund capital expenditures for new, relocated and remodeled stores, as well as for upgrading information technology, and for general corporate purposes for the thirty-nine weeks ended October 30, 2004.

Cash flows from financing activities used cash of $3,218,000 for the thirty-nine weeks ended October 30, 2004 and provided cash of $656,000 for the thirty-nine weeks ended November 1, 2003. The Company paid two quarterly cash dividends of $0.02 per share on March 15, 2004 and June 15, 2004 of $657,000 and $659,000, respectively, and one quarterly cash dividend of $0.03 per share on September 15, 2004 of $989,000, for a total of $2,305,000. The Company repurchased $1,847,000 of its common stock during the thirty-nine weeks ended October 30, 2004. Proceeds from the issuance of common stock resulting from the exercise of stock options for the thirty-nine weeks ended October 30, 2004 and November 1, 2003 were $934,000 and $1,308,000, respectively.

Outlook As previously reported, the Company’s sales target for Duck Head products in fiscal 2004 was approximately $75.0 million, with 15% of such amount representing incremental sales after giving effect to the consolidation of underperforming private-label programs and the elimination of duplicate assortments across all merchandising departments. Fiscal year to date, Duck Head sales were $60.1 million, outperforming expectations and the Company estimates Duck Head sales to be between $85.0 million and $90.0 million for the full fiscal year. Fiscal year to date, private-label sales, including Duck Head products, as a percentage of total merchandise sales, increased to 32.5% from 28.1% for the same period in the prior year. The increase in private-label sales was more than offset, however, by a decrease in sales in all other merchandising departments. Nonetheless, the Company is encouraged by the favorable consumer response to its exclusive Duck Head brand offerings, which it believes is fast becoming a destination brand for its customers. Furthermore, the Company believes it should benefit from the higher margins generally associated with private-label merchandise.

The Company opened 3 new stores and relocated 1 store on November 4, 2004, and expects to open 4 additional new stores and relocate 2 existing stores on November 18, 2004, which will conclude the Company’s new store opening schedule for fiscal 2004. Capital expenditures for the remainder of fiscal 2004 are expected to be approximately $11,000,000, primarily related to new and relocated store costs, management information systems, and general corporate purposes. Total capital expenditures for fiscal 2004 are expected to be approximately $36,400,000, down from the previously reported $41,300,000.

For fiscal 2005, the Company anticipates that it will open approximately 35 new stores, and relocate or remodel up to 15 existing stores. Capital expenditures for fiscal 2005 are anticipated to be in the range of $45,000,000 to $48,500,000.

The Company is working to achieve, on a per square foot basis, inventory levels at the end of fiscal 2004 that are similar to those at the end of fiscal 2003.

The Company’s primary needs for capital resources are for the purchase of store inventories, capital expenditures and for normal operating purposes. Management believes that its existing working capital, together with anticipated cash flows from operations, including credit terms from vendors and factors, and the borrowings available under the credit facility will be sufficient to meet the Company’s operating and capital expenditure requirements for the foreseeable future.

On October 13, 2004, the Company’s Board of Directors declared a quarterly cash dividend of $0.03 per share to shareholders of record on December 1, 2004, payable on December 15, 2004. The Company anticipates paying regular, quarterly cash dividends in the future, subject to the Company’s earnings, financial condition, capital requirements, general economic and business conditions, and other factors deemed relevant by the Board of Directors. The Company’s credit facility was amended to permit such dividends within certain prescribed limitations, as described above.

On June 17, 2004, the Company announced the appointment of a Vice President of E-commerce to lead the development of the Company’s e-commerce initiative, including the site design, planning, programming, and marketing. The Company now expects to begin selling merchandise online during the first half of fiscal 2005.

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Contractual Obligations For a discussion of the Company’s contractual obligations, see a discussion of future commitments under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its Annual Report on Form 10-K for the fiscal year ended January 31, 2004. There have been no significant developments with respect to the Company’s contractual obligations since January 31, 2004.

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

The Company has no material investments or risks in market risk sensitive instruments.

Item 4 — Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Company’s Chairman and Chief Executive Officer, and the Company’s Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Each fiscal quarter, under the supervision and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer, the Company’s Chief Financial Officer and Chief Accounting Officer, the Company carries out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon the foregoing, the Company’s Chairman and Chief Executive Officer, along with the Company’s Chief Financial Officer and Chief Accounting Officer, concluded that, as of October 30, 2004, the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act reports.

During the fiscal quarter ended October 30, 2004, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. — Legal Proceedings - See Note 4 to the Notes to Condensed Consolidated Financial Statements contained herein for a discussion of the Class Action.

Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds - The following table provides information with respect to purchases the Company made of its common stock during the third quarter of fiscal 2004:

(1) In June 1999, the Board of Directors authorized $20 million of share repurchases, with no expiration date.

Item 3. — Defaults Upon Senior Securities - None

Item 4. — Submission of Matters to a Vote of Security Holders - None

Item 5. — Other Information - None

Item 6. — Exhibits

10.103		Employment agreement between the registrant and Devin Keil, dated July 12, 2004.
15		Accountants’ Awareness Letter.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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GOODY’S FAMILY CLOTHING, INC.

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.

	GOODY’S FAMILY CLOTHING, INC. (Registrant)
Date: November 17, 2004	/s/ Robert M. Goodfriend
	Robert M. Goodfriend
	Chairman of the Board and Chief Executive Officer

Date: November 17, 2004	/s/ Edward R. Carlin
	Edward R. Carlin
	Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)

Date: November 17, 2004	/s/ David G. Peek
	David G. Peek
	Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

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