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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February 29, 2004

Commission File Number 1-10226

THE ROWE COMPANIES

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 703-847-8670

N/A

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x No ¨

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

YES ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the close of the period covered by this report.

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THE ROWE COMPANIES

INDEX

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PART 1 - FINANCIAL INFORMATION

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED FEBRUARY 29, 2004 AND MARCH 2, 2003

UNAUDITED

See notes to consolidated financial statements

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS

ENDED FEBRUARY 29, 2004 AND MARCH 2, 2003

UNAUDITED

See notes to consolidated financial statements

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS

ENDED FEBRUARY 29, 2004 AND MARCH 2, 2003

UNAUDITED

Reconciliation of Net Earnings to Net Cash

Provided By (Used In) Operating Activities:

See notes to consolidated financial statements

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

As of February 29, 2004 and March 2, 2003, there were 1,075,295 and 1,961,348 outstanding options, respectively, whose exercise price was equal to or greater than the average market price of the Company’s common stock for the three months then ended, respectively. These options are excluded from the computation of the effect of dilutive stock options shown in the table above.

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

The 2003 total assets reported above exclude $48,270,000 of assets held for sale relating to the Company’s discontinued Mitchell Gold operating unit, which was sold in April 2003.

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

During the three months ended February 29, 2004, the Company recorded certain adjustments relating to its workers compensation insurance reserves for policy years 1999 and 2000. These adjustments included amounts associated with its discontinued Wexford and Mitchell Gold operations, in the amounts of $74,000 and $31,000, net of tax, respectively. These amounts have been included in losses from discontinued operations.

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Results of Operations:

Three Months Ended February 29, 2004 Versus Three Months Ended March 2, 2003

Overview

The Rowe Companies (the “Company”) operates through two subsidiaries in the home furnishings industry. Rowe Furniture, Inc. (“Rowe”) manufactures quality, upholstered furniture serving the middle and upper middle market primarily throughout the United States. Storehouse, Inc. (“Storehouse”) is a multi-channel lifestyle home furnishings retailer with 61 stores from Texas through the Southeast and Mid-Atlantic markets.

During the first quarter of fiscal 2004, the Company continued the trend of improved retail operations that was evident in the second half of 2003, resulting in improved operating results.

The retail segment had significant sales growth and margin improvement, resulting in strong gross profit growth, partially offset by higher expenses associated with increased shipments (primarily commissions and sales bonuses, delivery costs and credit card fees). Operating income was positive and earnings before taxes improved to ($304,000) from ($2,883,000).

Offsetting these positive developments was a reduction in operating income from the manufacturing segment. While shipments were slightly positive to last year, gross margin and gross profit declined. Gross profit and gross margin declined primarily due to the accelerated depreciation associated with certain legacy systems that will be replaced in the coming months as the new Enterprise Resource Planning (“ERP”) system is implemented, and to a decline in manufacturing productivity compared to last year, causing higher than expected labor costs.

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THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

The following table recaps operating earnings by segment for 2004’s and 2003’s first quarters:

Net shipments increased $7,027,000, or 11.0%, to $70,746,000 in 2004 from $63,719,000 in 2003. The increase primarily resulted from increased shipments in our retail segment.

Retail segment net shipments increased $6.6 million, or 23.9%, from $27.5 million in 2003 to $34.0 million in 2004. While virtually every product category showed growth over 2003, particularly strong increases were in the categories of accessories (up 50% over last year), office and library walls (16%), bedroom (12%), and textiles (224%). Textiles improved due to the roll out of the new window treatment product line introduced over the last few months. Accessories are benefiting from revisions in the manner in which they are purchased and inventoried, allowing for an improved flow of product into the customers hands, as well as from an expanded catalogue and call center operation. Overall, same store sales increased 18.8% over the first three months of 2003.

Manufacturing segment net shipments increased $466,000, or 1.3%, from $36.3 million in 2003 to $36.7 million in 2004. The increase was achieved despite two fewer production days in the 2004 calendar. The manufacturing segment also shipped $5.1 million to the retail segment, 2.9% less than the amount shipped in 2003. These shipments have been eliminated in consolidation.

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ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Gross profit increased $2,759,000, or 12.3%, from $22,343,000 in 2003 to $25,102,000 in 2004. Gross margin, or gross profit as a percent of net shipments, improved from 35.1% in 2003 to 35.5% in 2004. These increases were due to increased retail margins and an increase in retail shipments as a percent of total shipments.

Retail segment gross profit improved by $3.8 million, from $13.0 million in 2003 to $16.8 million in 2004, primarily as a result of increased shipments. Retail gross margin also improved, from 47.4% in 2003 to 49.5% in 2004, due to a combination of more higher margin goods in the mix (accessories and textiles in particular); a price increase, averaging 2-3%, taken during the latter half of 2003; and a decline in clearance shipments as a percentage of net shipments from 9.5% in 2003 to 8.8% in 2004.

Manufacturing segment gross profit declined $1.1 million, or 11.5%, from $9.3 million in 2003 to $8.3 million in 2004. Gross margin declined from 25.7% in 2003 to 22.5% in 2004. Approximately $750,000 of the decline in gross profit (or 2.0% of gross margin) resulted from accelerated depreciation of certain legacy systems being replaced later this year with the ERP system. The other significant factor in the decline in gross profit (as well as gross margin) was a decline in manufacturing productivity, causing higher labor costs.

Selling and administrative expenses increased by $1,540,000, or 6.8%, from $22,684,000 in 2003 to $24,224,000 in 2004. Selling and administrative expenses improved from 35.6% of net shipments in 2003 to 34.2% in 2004. Increases in retail segment expenses and other administrative costs were partially offset by decreases in manufacturing segment expenses.

Retail segment selling and administrative expenses increased $1.4 million, or 9.0%, from $15.4 million in 2003 to $16.7 million in 2004. These increases are primarily a result of higher net shipments, in the form of higher commissions, increased delivery costs, credit card and related fees, and other similar costs. In addition, while the overall store count has not increased from last year, two stores did open late in 2003, adding incremental costs to the 2004 expenses. Costs associated with the accessories warehouse (to support catalogue and upcoming internet sales efforts) and catalogue call center also contributed to the increase from 2003’s first quarter, as both opened after the first quarter of 2003.

Manufacturing segment selling and administrative expenses decreased $120,000, or 2.1%, from $5.8 million in 2003 to $5.7 million in 2004. This decrease was largely attributable to the impact of two fewer business days in the 2004 quarter versus 2003, and its impact on personnel costs.

Other administrative costs increased $278,000, from $1,544,000 in 2003 to $1,822,000 in 2004. The increase resulted primarily from higher insurance costs, up $230,000, including $182,000 for changes in reserves for workers compensation claims relating to old policy years.

Operating earnings were $878,000 in 2004, compared to a loss of $(341,000) in 2003, as a result of increased retail shipments and gross profit, offset by lower manufacturing segment gross profit and increased retail and other selling and administrative expenses, as discussed above.

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ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Interest expense decreased from $1,366,000 in 2003 to $894,000 in 2004. Reductions in outstanding loan balances achieved during 2003 largely accounted for the reduction. Declining short-term interest rates and slightly reduced margins over base rates on certain components of our outstanding debt (based upon improved financial condition and operating ratios), also contributed to the decline in interest expense.

Other income, net, decreased $48,000, from $395,000 in 2003 to $347,000 in 2004, due to reduced net rental income associated with an investment property, partially offset by additional rental income.

Earnings from continuing operations before taxes improved to earnings of $331,000 in 2004 from a loss of $(1,282,000) in 2003, reflecting the factors discussed above.

As the Company achieved profitability in 2004, the effective tax rate was 55.0%. The effective rate exceeded the statutory rate due to state income taxes, non-deductible items and other items, net. In 2003, the Company recorded a tax benefit as a result of a loss from operations. The effective rate of the tax benefit was 36.6%. The 2003 effective tax benefit rate was lower than the statutory rate as miscellaneous non-deductible items reduced the potential recovery.

Critical Accounting Policies:

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain estimates and assumptions have been made that affect the amounts and disclosures reported in the consolidated financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in valuing these estimates and may solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. Critical accounting policies that may affect the consolidated financial statements include self-insurance, long-lived asset valuations and impairments, inventory reserves and goodwill.

Self-Insurance Reserves

The Company is self-insured for substantial portions of its health care and workers compensation insurance programs. Reserves are established for such costs based on, among other factors, reported claims to date, prior history, and actuarial projections of claims incurred but not reported and future medical cost increases likely to affect the total cost to settle claims. If actual results in any of these areas change from prior periods, adjustments to recorded reserves may be required.

Long-lived Asset Valuations and Impairments

The Company monitors the economic health of its facilities and operations and makes determinations, using cash flow analyses, of the fair value of its assets, both tangible and intangible.

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ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

When cash flow analysis indicates that the fair value of an asset is less than its book value, and such shortfall is not believed to be temporary in nature, then an adjustment to reduce the asset to its fair value is made. As conditions change, additional adjustments of fair value may be required.

Inventory Reserves

The Company maintains its inventories at the lower of cost or market value. Cost is determined on a last-in, first-out (LIFO) basis for inventory held at retail facilities, and on a first-in, first-out (FIFO) basis for inventory held at its manufacturing facilities. When conditions warrant, reserves are established to reduce the value of inventory to net realizable values. As conditions warrant, additional adjustments may be required.

Goodwill

In accordance with SFAS 142, “Goodwill and Other Intangible Assets,” which was adopted by the Company in 2003, goodwill and other intangible assets are to be evaluated for impairment at the reporting unit level on an annual basis and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit may exceed its fair value. The Company conducts its required annual impairment test during the second quarter of each fiscal year. The impairment test uses a discounted cash flow and projected profitability model to estimate the fair value of the reporting unit. This model requires the use of long-term planning forecasts and assumptions regarding specific economic conditions that are outside the control of the Company.

Liquidity and Source of Capital:

Cash from Operations

Net cash provided by (used in) operating activities was $(2,515,000) and $2,231,000 in 2004 and 2003, respectively. Fluctuations in net cash provided by (used in) operating activities were primarily the result of changes in operating income and changes in working capital accounts. Substantial changes from 2003 to 2004 included an increase in certain other receivables in 2004 versus a decrease in receivables in 2003 due to weak shipments in the wholesale segment; an increase in prepaid expenses and other assets in 2004, versus a decline in 2003, due to changes in premium payment practices relating primarily to our workers compensation insurance program; and a swing in customer deposits (relating to retail segment sales) as the retail segment delivered in 2004 against orders written (and cash collected) in late 2003 at a higher rate than in early 2003.

Cash from Investing Activities

Net cash used in investing activities was $981,000 and $184,000 in 2004 and 2003, respectively, primarily reflecting an increase in capital expenditures, particularly at Storehouse. Such expenditures related principally in 2004 to a new distribution center located in Atlanta, GA, scheduled to replace the existing distribution center during the second quarter of 2004.

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ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Cash from Financing Activities

Net cash provided by financing activities was $1,148,000 and $1,622,000 for 2004 and 2003, respectively. In early 2003, the Company was required to make “excess cash flow” payments under certain components of its then outstanding debt, which were in part funded through the revolving loan, in addition to regular periodic principal payments under its debt. In 2004, the Company reduced the outstanding balance of the Elliston capital lease in conjunction with a modification and extension of its terms, in addition to other required principal payments on its existing debt. In 2004, and largely in 2003, draws under the revolving loans were used to offset the impact on cash flow timing of the holiday plant shutdowns at Rowe.

As of February 29, 2004, the Company had $9.3 million available under its revolving bank loan. The Company believes it has the financial resources (including available cash, expected cash flow from operations, and bank loans) needed to meet business requirements for the foreseeable future including capital expenditures and working capital. Cash flow from operations is highly dependent on order rates and the Company’s operating performance.

Interest Rate Risk and Foreign Currency Exchange Rate Risk:

Because the Company’s obligations under its term loan, revolving loan and capital lease obligation bear interest at variable rates, the Company is sensitive to changes in prevailing interest rates. A 10% fluctuation in market interest rates would not result in a material change in interest expense during the 2004 fiscal year. The Company is exposed to market risk from changes in the value of foreign currencies because it imports a substantial portion of its retail inventory and some of its raw materials from foreign sources. See “Forward-Looking Statements” below.

Forward-Looking Statements:

When used in this Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission, in press releases or other public shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions, as well as the use of future dates, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements. Important factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: changes from anticipated levels of sales, whether due to future national or regional economic and competitive conditions, customer acceptance of existing and new products, or otherwise; pending or future litigation; pricing pressures due to excess capacity; raw material cost increases; transportation cost

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ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

increases; the inability of a major customer to meet its obligations; loss of significant customers in connection with a merger, acquisition, redisposition, bankruptcy or otherwise; actions of current or new competitors; increased advertising costs associated with promotional efforts; change of tax rates; change of interest rates; future business decisions and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company.

Additional risks include:

Our manufacturing and our retailing subsidiaries face significant competition from numerous competitors, many of which are larger and better capitalized. Our subsidiaries may be at a competitive disadvantage as a result. If our subsidiaries lose market share to competitors, our financial performance could be adversely affected.

Our retail operations are currently unprofitable, and there can be no assurance that profitability will be achieved.

Approximately one-third of the Company’s purchases of retail inventory originates overseas, and the Company also purchases some raw materials, particularly wood components, fabric, and leather chairs for re-sale, from overseas sources. Most of these purchases have been denominated in US dollars. As exchange rates with certain currencies have become unfavorable, the likelihood of price increases from our foreign vendors has increased. Such price increases, if they occur, could have one or more of the following impacts:

We could be forced to raise retail prices so high that we are unable to sell the products at current unit volumes.

If we are unable to raise retail prices commensurately with the cost increases, gross profit could be negatively impacted; or we may be forced to find alternative sources of comparable product, which may be more expensive than the current product, of lower quality, or the vendor may be unable to meet our requirements for quantities, delivery schedules or other key terms.

Similar impacts could be experienced in our manufacturing segment.

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ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

The Company has substantial debt obligations that mature in 2007 and 2008 in particular. At those times, the Company would be required to pay off or refinance these obligations. If economic conditions, as well as the Company’s own operating results, do not improve in the intervening years, then the Company would be more likely to need to refinance, rather than pay off, such obligations. There can be no assurance that the Company would be successful in obtaining this financing, or that, if obtained, the financing would be on favorable terms and conditions.

Substantially all of the Company’s trade accounts receivable are from retail furniture businesses. Management monitors payment status and periodically performs credit evaluations of these customers. However, changes in creditworthiness can occur rapidly and unanticipated losses from trade accounts receivable could occur in excess of the outstanding allowance for losses. Therefore, there can be no assurance that total losses from uncollectable accounts will not exceed the allowance.

Our manufacturing operations are implementing a new ERP system that includes accounting, order processing, materials purchasing and inventory management, human resources and payroll management and certain other functions. This is a complex, multi-step implementation. Various parts of the system may not perform as planned, which could create problems in entering or processing customer orders, processing payroll, procuring and managing inventory or record keeping. We could also experience costs to implement in excess of our budgeted amount.

In certain merchandise categories, there has been a rapid expansion of imported home furnishings at lower manufacturing costs, resulting in lower retail selling prices. This trend could reach the upholstery segment of the home furnishings market, resulting in our manufacturing operations facing low-cost foreign competition. This in turn could require us to reduce our selling prices or could diminish demand for our products.

We are an importer of finished goods for our retail operations and components for our manufacturing operations. Disruptions to our supply chain could result in late arrival or unavailability of components or finished goods for resale, causing manufacturing delays or negatively affecting retail sales due to increased out-of-stock merchandise.

We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the forward-looking statement is made.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Interest Risk Disclosures:

Because the Company’s obligations under its term loan, revolving loan and capital lease obligation bear interest at variable rates, the Company is sensitive to changes in interest rates. A 10% fluctuation in market interest rates would not have a material impact on results of operations during the 2004 fiscal year.

Foreign Currency Exchange Rate Risk:

The Company is exposed to market risk from changes in the value of foreign currencies because it imports a substantial portion of its retail inventory and some of its raw materials from foreign sources.

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(a)) under the Securities Exchange Act of 1934 (the “Act”)) was carried out as of February 29, 2004 under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

During the quarter ended February 29, 2004, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

During the quarter ended February 29, 2004, the Company implemented the payroll module of its planned ERP implementation. The new payroll module has internal controls that are substantially similar to the prior payroll system. In addition, the new system enhances certain controls within the system.

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PART II - OTHER INFORMATION

None

None

None

None

None

On March 19, 2004, a Form 8-K was furnished under Item 12 containing the Company’s press release announcing the first quarter results.

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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.

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EXHIBIT INDEX

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