ITEM 1.	BUSINESS
General
	Harold's Stores, Inc. and its wholly-owned subsidiaries (collectively "Harold's" or the "Company"), through a chain of women's and men's specialty apparel stores in 19 states, offers high-quality, classically inspired apparel to the upscale, quality-conscious consumer primarily in the 30 to 50 year old age group. The stores typically are strategically located in shopping centers and malls with other upscale specialty retailers and are enhanced by specially designed fixtures and visual props, to create an appealing stage for presentation of the Company's distinctive women's and men's apparel and accessories. More than 95% of sales consists of the Company's designs controlled by Harold's own designers and merchants and sourced by Harold's manufacturing staff from domestic, European and Asian manufacturers. The remainder consists of merchandise selected to complement Harold's merchandise presentation. See "Business - Product Development and Sourcing Programs."
	As of January 31, 2004, the Company's 42 stores were comprised of 39 full-price retail stores and three outlet stores to clear markdowns and slow-moving merchandise, in addition to limited merchandise produced specifically for the outlets. Store occupancy costs include base and percentage rent, common area maintenance expense, utilities and depreciation of leasehold improvements.
	The Company operates on a 52-53 week year, which ends on the Saturday closest to January 31. References herein to 2004, 2003, 2002 and 2001 refer to the years ended January 29, 2005, January 31, 2004, February 1, 2003 and February 2, 2002, respectively. Each of the years mentioned comprised 52-week years.
Developments in 2003 and Subsequent to Year End
There was an increase in comparable store sales of 11.3% for 2003, compared to a decline of 9.9% for 2002. The Company believes that the increases experienced in comparable store sales during 2003 were primarily attributable to a better response to the Company's merchandise offerings in key styles particularly during the fall season. The Company's average sales per square foot for retail stores excluding outlets open during the entire year were $380 and $324 for 2003 and 2002, respectively.
	The Company believes that its future success will be achieved by increasing sales momentum at existing stores, focusing on the fashion needs of its target customer and expanding the number of its women's and men's apparel stores. During 2003, the Company did not open any new stores in order to focus on reinvigorating the Harold's brand. Conversely, the Company was able to close eight unprofitable locations. Once a profitable growth trend has been re-established, the Company plans to resume a store expansion program. The Company's expansion program will continue to focus primarily on markets currently served by the Company and in new markets that represent a geographical progression from existing markets. The Company currently does not plan to open any new stores during 2004. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity" for further information.
On February 9, 2004, the Company announced the hiring of a new President and Chief Executive Officer. Hugh W. Mullins, former Chairman and Chief Executive Officer of Neiman Marcus Stores, joined the Company and Clark J. Hinkley announced his retirement as Chief Executive Officer of the Company. An employment agreement was entered into with Mr. Mullins, whereby he will receive annual base salary of $600,000 and 300,000 shares of common stock options. He will also become a member of the Board of Directors of the Company. At the same time, an amendment was done to Mr. Hinkley's employment contract. Mr. Hinkley's base salary will remain at the annual rate of $450,000 through June 2004, at which time it will reduce to $250,000 per annum through January 31, 2005. Mr. Hinkley will remain on the Board of Directors of the Company through June 2006.
On April 29, 2004 the Company announced the completion of an amendment to its existing credit facility with Wells Fargo Retail Finance II, LLC ("WFRF") which increased the Company's borrowing availability under the facility. The amendment provides for an increase in the maximum inventory advance rate cap and maximum revolver amount, as well as extension of the credit facility for one year to February 5, 2007. Additionally, the amendment provided for an increase of $2 million in the Company's borrowing availability under the facility based upon an increase in the loan participation agreement between WFRF and RonHow, LLC, an entity established in July 2003 which is owned and controlled directly or indirectly by certain of the Company's principal shareholders. See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operation--Developments Subsequent to Year End" for additional information on this transaction.
Retail Merchandising
	The Company's merchandise mix in women's apparel includes coordinated sportswear, dresses, outerwear, shoes and accessories, in updated classic styles. A fundamental feature of the Company's marketing strategy is the development of original exclusive apparel items. The Company estimates that more than 95% of its women's apparel sales are attributable to the Company's product development and proprietary label programs. In 2003 and 2002, women's apparel accounted for approximately 78% and 76% of sales, respectively.
	The men's apparel product line includes tailored clothing, furnishings, sportswear, outerwear and shoes in updated classic styles. In 2003, the Company's proprietary label apparel accounted for more than 95% of total men's sales. The majority of the men's proprietary label sales are in the Company's Old School Company and Harold Powell Clothing lines. In 2003 and 2002, men's apparel accounted for approximately 22% and 24% of sales, respectively.
	The following table sets forth the approximate percentage of sales attributable to the various merchandise categories offered by the Company in the past three years:
Company Stores
The Company's stores range in size from 3,000 to 13,402 square feet, with the typical store ranging from 4,000 to 6,000 square feet. The Company's stores generally are open seven days per week and evenings. The following table lists Harold's store locations as of January 31, 2004, with selected information for each location.
		The employee population of a typical full-line Harold's store consists of a store manager, two assistant managers (women's and men's), one or two desk associates, and five to seven sales associates, most of whom work on a flex-time basis (20-25 hours per week). The majority of sales associates are generally paid a commission against a draw. Commissions range from 1% to 11% based on the type of product sold and the tenure and productivity of the associate. Store managers are paid a salary plus a performance bonus based on attainment of sales goals, expense control, inventory shrinkage and random store shop scores.
Product Development and Sourcing Programs
	The Company's product development and sourcing programs enable it to offer exclusive items not available in competing stores or catalogs. More than 95% of sales are merchandise where the Company has created or controlled the design, demonstrating the Company's commitment to a unique product mix. The Company believes that this unique product mix enables it to compete with, and differentiates it from, larger apparel chains by offering customers an exclusive garment at a price below designers and similar open market merchandise. Direct creation and control of merchandise also enables the Company to offer superior quality and fit as well as improve its initial mark up. The fit and quality of a garment are crucial to the Company's success. The Company believes it has improved these areas which has translated into improved sales. The Company's private label merchandise consists of items developed by the Company and manufactured exclusively for the Company.
	An important component of the Company's product development programs is market research of styles and fabrics. The Company's design team shops European and domestic markets for emerging fashion trends and for fabric, artwork and samples for new garment designs. The product development staff adapts and develops fabric designs and garment models. These design models assist the Company in sourcing and in negotiations with mills and vendors. The Company's product development programs allow it to participate directly in the design and manufacturing of an exclusive product without investing in costly manufacturing equipment. The Company's development program is implemented through its offices in New York and Dallas, Texas and its association with independent agents in Hong Kong; Florence, Italy; Istanbul, Turkey; and Porto, Portugal. The Company imports a significant portion of its merchandise directly from the Far East and Italy.
	The Company's merchandisers review the developed styles, analyze fashion trends and historical data and select the best pieces to convert into prints and patterns for the next season. Once the new styles are selected, the team then determines the specifications of various styles - detailing a garment's cut, fit, fabric, color and trim. After the specifications have been finalized, the fabric is ordered from domestic and international fabric mills. The finished fabric is then shipped to manufacturers who cut, sew and trim the completed design. Additionally, a growing percentage of merchandise is purchased as finished goods.
	The Company's line of leather goods, which are sold in all store locations, is made and sourced through various third parties in Italy and Asia. Additionally, a growing portion of the assortment is represented by branded merchandise. Shoes, belts, handbags and small leather goods are often co-designed by the Company's merchandisers and manufacturing partners.
Merchandise Inventory, Replenishment and Distribution
	The specialty retail apparel business fluctuates according to changes in customer preferences dictated by fashion and season. These fluctuations affect the inventory owned by apparel retailers, since merchandise usually must be ordered well in advance of the season and sometimes before fashion trends are evidenced by customer purchases. The Company's policy of carrying basic merchandise items in full assortments of sizes and colors requires it to carry a significant amount of inventory. The Company must enter into contracts for the purchase and manufacture of proprietary label apparel well in advance of its selling seasons.
	The Company continually reviews its inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of styles, colors and sizes) and may use markdowns to clear this merchandise. Markdowns also may be used if inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, or if it is determined that the inventory in stock will not sell at its currently marked price. Such markdowns have an adverse impact on earnings. Such impact is dependent upon the extent of the markdowns and the amount of inventory affected. The Company utilizes its outlet stores to dispose of prior season or slow moving merchandise as well as merchandise developed specifically for the outlet division. In addition, in lieu of utilizing outside liquidation resources ("jobbers"), slow moving merchandise is generally cleared periodically through regional off-site discount sales which are promoted under the name "Harold's Warehouse Sale".
	The Company operates an 85,000 square foot distribution facility in Norman, Oklahoma capable of processing merchandise for 74 stores. With a modest additional investment, the facility will have the capability of processing merchandise for 138 stores. All of the Company's merchandise is routed through the distribution center from various manufacturers. The majority of merchandise arrives at the distribution center with bar coded tickets placed on the garment by the vendor allowing merchandise to be processed more efficiently. Each item is examined, sorted and boxed for shipment by common carrier to the Company's stores. This process is done in a time sensitive manner in a substantially paperless environment, utilizing computers, bar codes and scanners.
Seasonality
	The Company's business has historically followed a seasonal pattern, peaking three times per year during early spring (March through April), the early fall (September through October) and holiday (Thanksgiving through Christmas) periods. During 2003, approximately 52% of the Company's sales occurred during the third and fourth quarters. The majority of the Company's cumulative net loss, however, was incurred during the first and second quarters.
Competition
	The Company's business is highly competitive. The Company's stores compete with national and local department stores, specialty and discount store chains, catalogers and e-commerce, and independent retail stores which offer similar lines of specialty apparel. Many of these competitors have significantly larger sales volumes and assets than the Company.
	Important factors in competing successfully in the retail industry include the following: depth of selection in sizes and colors and styles of merchandise, merchandise procurement and pricing, ability to anticipate fashion trends and customer preferences, inventory control, reputation, quality of private-label merchandise, store design and location, marketing and customer service. Given the large number of companies in the retail industry, the Company cannot estimate the number of its competitors or its relative competitive position.
	In addition, the success of the Company's operations depends upon a number of factors relating to economic conditions and general consumer spending. If current economic conditions worsen and consumer spending is restricted, the Company's growth and profitability could be negatively impacted.
Customer Credit
	The Company's stores accept the proprietary "Harold's" credit card, and Visa, MasterCard, Discover and the American Express credit cards. Credit card sales as a percent of total sales were 84% in 2003, 73% in 2002 and 79% in 2001. In 2003, 34% of total sales were made with the Harold's credit card and 50% were made with third-party credit cards. The Company maintains a credit department for customer service, credit authorizations, credit investigation, billing and collections. As of January 31, 2004, the provision for bad debts from Company credit card sales was approximately 0.6% of Harold's proprietary credit card sales for 2003. The Company's bad debt experience from the Harold's proprietary credit card has been relatively stable from year to year.
	Harold's has offered customers its proprietary credit card since 1974. The Company believes that providing its own credit card enhances customer loyalty while providing customers with additional credit at costs to the Company significantly lower than those charged by outside credit card companies (i.e. Visa, MasterCard, Discover and American Express). At January 31, 2004, the Company had approximately 17,371 active credit accounts and the average cardholder had a credit limit of $1,600 and an outstanding balance of $417. Charges by holders of the Company's credit card during 2003 totaled approximately $30,926,000. Finance charge revenue is netted against selling, general and administrative expenses and was approximately $1,140,000, $1,152,000, and $1,074,000, in 2003, 2002, and 2001, respectively.
Advertising
	The Company maintains an in-house marketing department, which produces in-house print advertising for daily and weekly newspapers and other print media, and designs the Company's direct mail pieces. In 2003, the Company spent approximately $4,190,000 (4.6% of sales) on advertising and direct mail production costs as compared to approximately $4,220,000 (4.7% of sales) in 2002. This expenditure includes the production and mailing costs associated with the Company's catalog. The marketing department is also involved in the production of annual reports to the Company's stockholders, sales training materials, internal marketing materials, and all corporate logos and labeling.
Management Information Systems
	The Company places great emphasis on upgrading and integrating its management information systems ("MIS"). The Company believes these upgrades will enable it to maintain more efficient control of its operations and facilitate faster and more informed responses to potential opportunities and problems. The Company maintains an MIS team to oversee these management information systems, which include credit, sales reporting, accounts payable, and merchandise control, reporting and distribution.
	The Company uses an integrated point-of-sale ("POS") inventory and management system to control merchandising and sales activities. This system automatically polls each location every 24 hours and provides a detailed report by merchandise category the next morning. Management evaluates this information daily and implements merchandising controls and strategies as needed. The POS system provides personnel scheduling and time keeping capabilities, as well as, a customer profile function to better identify and track consumer demographics.
	The Company has also implemented Arthur, a computerized merchandise planning and allocation system, which interacts with the Company's AS400 and Island Pacific Systems software. Arthur facilitates seasonal planning and allocation by department and store, and provides certain data for financial planning.
Trademarks, Service Marks, and Copyrights
	"Harold's", "Harold Powell", "Old School", "Old School Clothing Company", "OSCC Bespoke" and other trademarks either have been registered, or have trademark applications pending, with the United States Patent and Trademark Office and with the registries of various foreign countries. The Company files U.S. copyright registration on the original design and artwork purchased or developed by the Company.
	The Company's three Houston stores and the Katy, Texas outlet bear the name "Harold Powell" rather than "Harold's" to avoid confusion with an existing local men's apparel store which operates in Houston under the name "Harold's" with prior usage in this market predating the Company's federal registration.
Employees
	On March 15, 2004, the Company had approximately 367 full-time and 472 part-time employees. Additionally, the Company hires temporary employees during the peak late summer and holiday seasons. None of the Company's employees belong to any labor union and the Company believes it has good relations with its employees.
ITEM 2.
ITEM 2.	PROPERTIES
Store Leases
	At January 31, 2004, the Company owned the Austin outlet store and leased 41 stores. The Company believes rent payable under its store leases is a key factor in determining the sales volume at which a store can be profitably operated. The leases typically provide for an initial term of 12 years. In most cases, the Company pays a base rent plus a contingent rent based on the store's net sales in excess of a certain threshold, typically four to five percent of net sales in excess of the applicable threshold. Among current store leases, one store lease has percentage rent only. All other store leases provide for a base rent with percentage rent payable above specified minimum net sales. Six of the leased stores open during all of 2003 operated at sales volumes above the breakpoint (the sales volume below which only base rent is payable). Based on the Company's current level of sales per square foot, the Company believes that some of the risk from any decline in future sales volume in these stores is reduced because a corresponding decline in occupancy expense would occur.
	Substantially all of the leases require the Company to pay property taxes, insurance, utilities and common area maintenance charges. The current terms of the Company's leases, including automatic renewal options, expire as follows:
Years
Leases Expire
Number of
Stores
2005-2006
2007-2009
2010 and later
	The Company generally has been successful in renewing its store leases as they expire.
	During 2003, the Company did not enter into any new store leases. Management believes the terms of its leases are comparable with other similar national retailers in these locations. Base rent (minimum rent under terms of lease) in current leases ranges from $6 per square foot to $66 per square foot annually over the terms of the leases. Total base rent has continued to increase based on new store leases. Occupancy costs have increased slightly as the Company has entered new markets. The following table sets forth the fixed and variable components of the Company's rent expense for the years indicated:
Base rent
$8,544,000
$7,793,000
8,163,000
Additional rents computed as a percentage of sales
217,000
288,000
427,000
Total
$8,761,000
$8,081,000
8,590,000
Corporate Headquarters and Merchandise Buying Office
	The Company leases a 46,132 square foot building used primarily as its corporate headquarters and a men's and ladies' buying office in Dallas, Texas. The lessor of the Dallas location is a limited partnership whose partners include W. Howard Lester, a director of the Company and a partnership which is comprised of partners Rebecca Powell Casey, an executive officer and director of the Company and certain of her family members. The lease, which was amended in 2003, expires September, 2010 with current monthly rent payments of $35,508 plus insurance and property taxes until March, 2004 at which time the monthly rent will become $25,441, plus insurance, utilities and property taxes until September, 2004 at which time the monthly rent will be $26,490, plus insurance, utilities and property taxes until November, 2005 at which time monthly rent will be $38,443, plus insurance, utilities and property taxes until September, 2007 at which time monthly rent will be $40,366 plus insurance, utilities and property taxes until the expiration of the lease. This lease contains two renewal options of five years each. This lease has been approved by all independent directors as being on terms at or below available competitive market renewal rates.
Administrative Offices and Distribution Center
	During 2003, the Company owned a building in Norman, Oklahoma comprised of approximately 18,000 square feet. This space was being utilized by the Company for its administrative functions.
The Company leases an 85,000 square foot warehouse distribution center facility located in Norman, Oklahoma. The owner and lessor of the distribution center is the limited partnership of which Rebecca Powell Casey and members of her family are partners. The term of the distribution center lease expires in June 2012, with annual rent increasing on a fixed scale from $358,649 in 2003 up to a maximum of $419,552 during the final year of the lease. This lease has been approved by all independent directors as being on terms at or below available competitive market renewal rates.
ITEM 3.
ITEM 3.	LEGAL PROCEEDINGS
	The Company is involved in various claims, administrative agency proceedings and litigation arising out of the normal conduct of its business. Although the ultimate outcome of such litigation cannot be predicted, the management of the Company, after discussions with counsel, believes that resulting liability, if any, will not have a material effect upon the Company's financial position or results of operations.
ITEM 4.
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	No matters were submitted to a vote of security holders during the fourth quarter of the year covered by this report.
PART II.
ITEM 5.
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
		AND ISSUER PURCHASES OF EQUITY SECURITIES
	At March 15, 2004, there were 671 record holders of the Company's common stock, ("Common Stock"). The Company's Common Stock is listed on the American Stock Exchange under the symbol "HLD". The table below presents the range of the high and low sales prices, for the periods indicated.
Dividend Policy
	The Company has never declared or paid cash dividends on its Common Stock and presently intends to retain all earnings for the operation and expansion of its business for the foreseeable future. Any future determination as to the payment of cash dividends will depend on the Company's earnings, capital requirements, financial condition and other factors as the Board of Directors may deem relevant.
	The Company has three series of preferred stock outstanding, issued in 2001, 2002 and 2003 in the aggregate amount of $15 million. These shares are entitled to cumulative dividends of 10% on $6 million of preferred stock and 8% on the remaining $9 million, subject to reduction if certain profitability targets are met. See Note 7 to the Consolidated Financial Statements for additional information on the preferred stock.	
	During 2003, approximately $1,235,000 of preferred stock dividends were paid. Approximately $426,000 of the total preferred stock dividends was paid in additional shares of preferred stock (as provided by the terms of the preferred stocks) and approximately $809,000 was paid in cash.
The Company's primary lending agreement does not currently allow for the payment of dividends on common stock. This agreement does, however, allow for the distribution of preferred stock dividends.
ITEM 6.
ITEM 6.	SELECTED FINANCIAL DATA
	The following selected consolidated financial information is derived from the audited Consolidated Financial Statements of the Company and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and the notes thereto, appearing elsewhere herein.
ITEM 7.
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
	The following table reflects items in the Company's statements of operations as a percentage of sales for the periods indicated:
52 Weeks
Weeks
Weeks
Sales
100.0%
100.0%
100.0%
Cost of goods sold (including occupancy and central buying expenses)
(70.2)
(74.3)
(78.4)
Selling, general and administrative expenses
(29.4)
(33.4)
(30.2)
Depreciation and amortization
(4.4)
(4.4)
(4.1)
Restructuring charges
(1.8)
(1.2)
-
Goodwill impairment
-
-
(2.9)
Interest expense
(0.9)
(1.5)
(1.3)
Loss before income taxes
(6.7)
(14.8)
(16.9)
Provision (benefit) for income taxes
-
3.6
(2.9)
Net loss
(6.7)%
(18.4)%
(14.0)%
	The following table reflects the increases and decreases in Company sales for the periods indicated:
52 Weeks
52 Weeks
52 Weeks
Sales (000's)
$91,683
$89,781
$104,624
Total sales growth (decline)
2.1%
(14.2)%
(17.9)%
Increase (decrease) in comparable store sales
11.3
(9.9)
(16.3)
Store locations:
Existing stores, beginning of period
Stores closed
(8)
(2)
-
New stores opened during period
-
-
-
Total stores, end of period
	During 2003, total sales increased 2.1% as compared to a decrease of 14.2% in 2002 and a decrease of 17.9% in 2001. No new locations were opened during 2003 or 2002, and two stores were closed in 2002 and eight in 2003. Comparable store sales increased 11.3% during 2003, compared to a decline of 9.9% in 2002. The Company believes that the increases experienced in comparable store sales during 2003 were primarily attributable to strong acceptance by customers to the merchandise assortments offered. The declines experienced in comparable store sales during 2002 were primarily attributable to the reasons mentioned below for total sales.
Total sales decreased 14.2% in 2002 as compared to a decrease of 17.9% in 2001. No new locations were opened during 2002 or 2001. Total Company comparable store sales declined 9.9% in 2002. The Company believes the sales decreases in 2002 were primarily attributable to sales declines experienced in the full-price retail stores during the fall and holiday periods, a result of inventory levels that were down considerably over the prior year and the difficult retail climate experienced by many retailers during the 2002 holiday period. The Company did not purchase deep enough quantities in certain key classifications of merchandise, and sales in the best-selling items were not maximized. Comparable store sales declined 13.8% during the fourth quarter in the 43 full-price retail stores as compared to a decline of 0.8% for the fourth quarter of prior year for the full-price retail stores. This was combined with significant sales declines in the outlet division. Comparable store sales in outlets declined 25.3% during 2002. The Company determined that it had too many outlet stores and closed four of the seven outlet stores in the first half of 2003. Since the Company purchased very little merchandise in 2002 directly for the outlet division, the outlet store inventories throughout the year were down significantly over the prior year. Additionally, the outlets were used to liquidate older inventory, resulting in more units being sold but at lower prices. Another variable to the total Company sales declines was the reduction in warehouse sales conducted, as the Company's available inventory levels declined. Warehouse sale volume declined by $3.6 million, or 56%, in 2002 as compared to the prior year.
	The Company's gross margin increased to 29.8% in 2003 from 25.7% in 2002. The increase in the Company's gross margin was primarily due to fewer markdowns being recorded in the full-price stores due to stronger sales. The Company's gross margin increased to 25.7% in 2002 from 21.6% in 2001, or 4.1%. The increase in the Company's gross margin was primarily due to an increase in the gross margin in the full-price retail stores due to improved content and reduced purchase levels.
	Selling, general and administrative expenses decreased to 29.4% of sales in 2003 compared to 33.5% of sales in 2002. The decrease in selling, general and administrative expenses as a percentage of sales in 2003 was primarily due to savings experienced from a corporate restructuring commenced in January 2003, savings experienced as a result of closing eight unprofitable store locations during 2003, and increasing comparable store sales trends which provided leverage of fixed costs. Selling, general and administrative expenses increased to 33.5% of sales in 2002 compared to 30.2% of sales in 2001. The increase in selling, general and administrative expenses as a percentage of sales in 2002 was primarily due to the sales declines experienced for the year and the lack of leverage of fixed payroll costs.
The Company recorded approximately $1,630,000 in restructuring charges during 2003 compared to approximately $1,060,000 in restructuring charges in 2002. The restructuring charges of 2003 primarily relate to lease termination costs paid to close eight unprofitable store locations. For 2002, the restructuring charges recorded in the fourth quarter consisted of severance costs of approximately $330,000 associated with elimination of positions in the corporate office, with the remainder of restructuring charges attributable to the acceleration of amortization of assets in conjunction with planned store closings in the first half of 2003.
	Total 2003 interest expense decreased $442,000 from 2002 due to lower average interest rates on the Company's outstanding borrowings. The average balance on total outstanding debt was $19,433,000 in 2003, compared to $19,729,000 in 2002. The decrease in average debt balances resulted principally from the sale of preferred stock in the amount of $5,000,000 and the application of the proceeds of such sale to reduce accounts payable. Increases to interest expense may occur if the Company's cash flow requires additional borrowed funds. During 2002, interest costs (including capitalized interest) decreased $81,000 as compared to 2001 due to lower outstanding debt balances. Lower average interest rates were also a contributing factor. The decrease in average debt balances resulted principally from the sale of preferred stock in the amount of $4,000,000 and the application of the proceeds of such sale to reduce debt. Also, the Company experienced a significant increase in accounts payable. Because the Company uses its line of credit to finance much of its accounts payable, an increase in accounts payable will increase interest costs.
	The Company's effective income tax rate was 0% in 2003, 24.2% in 2002 and (17.4)% in 2001. The Company did not elect to record the full tax benefit for all 2002 or 2001 losses in the financial statements. During 2002, the Company increased its valuation allowance to fully provide for all remaining deferred tax assets because the Company's recent history of operating losses makes the realization of these assets uncertain. It is expected that such amounts could be utilized for tax purposes against any future operating income.
Developments Subsequent to Year End
The Company is in the retail apparel industry and many factors drive the success of the business. The merchandise must be acceptable to the target market, must be delivered to stores at the appropriate times, inventory levels must be appropriately maintained and discounting occurs when it is apparent that an item will not sell at regular price. A review of the Company's basic underlying operations conducted under the supervision of the Company's new Chief Executive Officer has led to development of strategic initiatives for 2004 with a goal of enhancing the Company's profitability. These include strategies to reduce the level of promotional activity within the business and improve the receipt flow and clearance strategies with a goal of improving gross margin. In order to accomplish these objectives, the Company will require additional liquidity.
In order to achieve additional liquidity, on April 29, 2004, the Company announced the completion of an amendment to its existing credit facility with Wells Fargo Retail Finance II, LLC ("WFRF") which increased the Company's borrowing availability under the facility. The amendment increased the Company's maximum inventory advance rate cap from 75% to 80% during non-peak times and from 80% to 85% during peak times. Peak times were amended to include the eight weeks prior to Easter and the eight weeks prior to October 1. The increase in advance rates is expected to increase the availability under the facility by as much as $3 million depending on the level of inventories. Additionally, the amendment extended the term of the credit facility by one year, with a new expiration of February 5, 2007. The amendment also increased the maximum revolver amount from $22 million to the lesser of $25 million or $22 million plus outstanding participant advances. Finally, the amendment provided for an increase of $2 million in the Company's borrowing availability under the facility based upon an increase in the existing loan participation agreement between WFRF and RonHow, LLC, an entity established July 2003 which is owned and controlled directly or indirectly by Ronald de Waal and W. Howard Lester. Mr. de Waal and Mr. Lester are both major beneficial owners of the Company common stock, and Mr. Lester is also a director of the Company. WFRF will continue to serve as the lending agent for the Company under the credit facility, and the principal covenants and conditions imposed upon the Company pursuant to the WRFR credit facility agreement have not materially changed. RonHow, LLC's right to repayment of any advances under the credit facility that are attributable to its participation is generally subordinate to the repayment rights of the other credit facility lenders. However, the Company may repay these advances provided it meets certain conditions, including the maintenance of an average daily excess availability under the credit facility of at least $2.5 million for the 30 days prior to and 30 days projected immediately following the repayment. The average excess availability requirement is higher than the excess availability otherwise required of the Company under the credit facility. If the Company does not repay the new $2 million loan participation of RonHow during the 18 months subsequent to April 29, 2004, RonHow will have an option at that time to convert any of the incremental $2 million not repaid into shares of authorized but unissued 2003-A Preferred Stock which will be convertible into shares of common stock at a price of $2.524 per share, which was the 20-day average closing price of the Company's common stock for the period ending immediately before closing of the loan amendment. Additionally, if the Company has not repaid the initial $2 million of loan participation by February 2006, the Company will pay an additional 4% fee per annum on the outstanding participation amount up to $2 million. This transaction was approved by the independent directors.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows From Operating Activities. For 2003, net cash used in operating activities was $2,266,000 as compared to $718,000 for 2002. The decrease in cash flows for 2003 can be primarily attributed to reductions in accounts payable of $3,047,000, offset by a reduced net loss of $6,174,000 in 2003 compared to a net loss of $16,479,000 for 2002. Additionally, the Company recorded an income tax refund in 2002 that was not received in 2002, resulting in a $4,237,000 increase to cash flows in 2002 as compared to 2003.
Cash Flows From Investing Activities. For 2003, net cash used in investing activities was $1,239,000, as compared to $1,736,000 for 2002. Capital expenditures totaled $1,329,000 in 2003, compared to $1,863,000 in 2002. Capital expenditures during 2003 and 2002 were invested principally in remodeling of existing stores and equipment expenditures in existing operations.
	Cash Flows From Financing Activities. During 2003, the Company made periodic borrowings under its revolving credit facility to finance its inventory purchases, product development and private label programs, store remodeling and equipment purchases for the year (see "Liquidity").
On February 5, 2003, the Company closed on a $5 million private equity investment by Inter-Him, N.V., of which Ronald de Waal is a Managing Director, and W. Howard Lester, a director of the Company (the "Investors"). The Investors purchased an aggregate of 50,000 shares of a new series of preferred stock, designated Series 2003-A Preferred Stock, at a purchase price of $100.00 per share. See Note 7 to the Consolidated Financial Statements for additional information.
	The Company has a line of credit with its bank. This line had average balances of $17,679,000 and $15,862,000 for 2003 and 2002, respectively. During 2003, this line of credit had a high balance of $21,241,000 and a balance of $16,620,000 as of January 31, 2004. The balance at March 15, 2004 was $17,733,000.
	The Company has no off-balance sheet arrangements or transactions with unconsolidated, limited purpose entities, nor does it have any undisclosed material transactions or commitments involving related persons or entities.
Liquidity
The Company considers the following as measures of liquidity and capital resources as of the dates indicated (dollars in thousands).
	Cash flow from operations and proceeds from credit facilities represent the Company's sources of liquidity, supplemented by investments and extensions of credit from its preferred shareholders. Management anticipates these sources of liquidity to be adequate for the foreseeable future. The Company's capital expenditures budget for 2004 is approximately $2,500,000 to be used for the purchase of fixtures and equipment as well as store remodeling expenses.
See Note 5 to the Consolidated Financial Statements for information about restrictions and covenants under the Companys revolving line of credit and "Developments Subsequent to Year End" for description of an amendment to the credit facility in April 2004.
Seasonality
	The Company's business is subject to seasonal influences, with the major portion of sales realized during the fall season (third and fourth quarters) of each year, which includes the fall and holiday selling seasons. In light of this pattern, selling, general and administrative expenses are typically higher as a percentage of sales during the spring seasons (first and second quarters) of each year.
Inflation
	Inflation affects the costs incurred by the Company in its purchase of merchandise and in certain components of its selling, general and administrative expenses. The Company attempts to offset the effects of inflation through price increases and control of expenses, although the Company's ability to increase prices is limited by competitive factors in its markets. Inflation has had no meaningful effect on sales or net earnings of the Company.
Critical Accounting Policies
The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain information that is pertinent to Management's Discussion and Analysis. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Changes to these assumptions and estimates could have a material effect on the Company's consolidated financial statements. However, the Company believes it has taken conservative positions, where assumptions and estimates are used, in order to minimize the negative financial impact to the Company that could result if actual results vary from the assumptions and estimates. In management's opinion, the areas of the Company where the most significant judgment is exercised is in the allowance for doubtful accounts related to the Company's proprietary credit card program, the valuation of inventory, asset impairment estimates and revenue recognition. The selection, application and disclosure of the following critical accounting estimates have been discussed with the Company's audit committee.
	In 2003, approximately 34% of the Company's net retail sales were made under its proprietary credit card program, which resulted in customer accounts receivable balances of approximately $7,120,000 at January 31, 2004. The Company has significant experience in managing its credit card program. Each month, the Company reviews all of its credit card accounts and writes off those deemed uncollectible. The allowance for uncollectible accounts is maintained and periodically reviewed. The allowance is primarily based on account write-off trends and aging information. The Company does not expect actual results to vary significantly from its estimate.
	The Company uses the retail inventory method. Under this method, the Company records markdowns to value merchandise inventories at net realizable value. The Company closely monitors actual and forecasted sales trends, current inventory levels, and aging information by merchandise categories. If forecasted sales are not achieved, additional markdowns may be needed in future periods to clear excess or slow-moving merchandise, which may result in lower gross margins.
	When a store experiences unfavorable operating performance, the Company evaluates whether an impairment charge should be recorded. A store's assets are evaluated for impairment by comparing the store's estimated undiscounted cash flows to the assets' carrying value. If the cash flows are not sufficient to recover the carrying value, the assets are written down to fair value. Impairment losses associated with these reviews have not been significant. However, if comparative store sales decline and general negative economic trends continue, future impairment losses could be significant.
	Sales from store locations represented 100% of the Company's total sales for 2003. These sales are recognized at the time of the customer's purchase. Sales are net of returns and exclude sales tax. In August 2003, the Company returned to the direct catalog business after exiting this business in first quarter of 2001. These sales represented less than one percent of the sales during 2003. These sales are recognized at the time the order is shipped to the customer. Gift card sales are recognized as revenue when the gift card is redeemed, not when it is sold.
Impact of New Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit and disposal activities and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF 94-3. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Adoption of SFAS No. 146 is required for exit and disposal activities initiated after December 31, 2002. The Company has adopted this new standard effective January 1, 2003 and the adoption of this new standard did not have a material impact on its consolidated financial position or results of operations.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Instruments that are indexed to and potentially settled in an issuer's own shares that are not within the scope of SFAS 150 remain subject to existing guidance under EITF 00-14. SFAS No. 150 generally requires liability classification for two broad classes of financial instruments: 1. instruments that represent, or are indexed to, an obligation to buy back the issuer's shares, regardless whether the instrument is settled on a net-cash or gross physical basis, or 2. obligations that can be settled in shares but meet one of the following conditions: derive their value predominately from some other underlying obligation, have a fixed value, or have a value to the counterparty that moves in the opposite direction as the issuer's shares. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of this standard, beginning August 3, 2003, did not have a material impact on the Company's consolidated financial position.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" ("FIN 46"). FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. On October 8, 2003, the FASB deferred the effective date of FIN 46 for all variable interests held in all entities acquired prior to February 1, 2003 until December 31, 2003. The Company's adoption of FIN 46 did not have a material impact on the Company's financial position.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be preceded or followed by or otherwise include the words "anticipates", "believes", "expects", "intends", "estimates", "will", "would", "could" or similar expressions. Such forward-looking statements, which reflect the Company's current views of future events and financial performance, involve known and unknown risks and uncertainties that may cause the Company's actual results to differ materially from planned or expected results. Those risks and uncertainties include, but are not limited to the impact of competition, pricing pressure, product demand and market acceptance risks, mergers and acquisitions, reliance on key strategic alliances, the ability to attract and retain key employees, the availability of cash for growth, fluctuations in operating results, ability to continue funding operating losses, and the ability of new management to improve the Company's financial condition and performance. For all of these reasons, actual results may vary materially from the forward-looking statements. The Company assumes no obligation to update any forward-looking statements.
Commitments
	The following table reflects certain of the Company's commitments as of January 31, 2004.
	The foregoing table does not include contractual commitments pursuant to executory contracts for products and services such as telephone, data, computer maintenance and other regular payments pursuant to contracts that are expected to remain in existence for several years but as to which the Company's obligations are contingent upon the Company's continued receipt of the contracted products and services.
ITEM 7A.
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
	The primary objective of the following information is to provide forward-looking quantitative and qualitative information about the Company's potential exposure to market risks. The term "market risk" for the Company refers to the risk of loss arising from adverse changes in interest rates and various foreign currencies. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how the Company views and manages its ongoing market risk exposures.
Interest Rate
	At January 31, 2004, the Company had long-term debt outstanding of approximately $18.2 million. Of this amount, $1.6 million bears interest at a weighted average fixed rate of 6.33%. The remaining $16.6 million bears interest at a variable rate, which averaged approximately 4.34% during 2003. A 10% increase in short-term interest rates on the variable rate debt outstanding at January 31, 2004 would approximate 43 basis points. Such an increase in interest rates would increase the Company's interest expense by approximately $72,000 assuming borrowed amounts remain outstanding.
	The above sensitivity analysis for interest rate risk excludes accounts receivable, accounts payable and accrued liabilities because of the short-term maturity of such instruments. The analysis does not consider the effect this movement may have on other variables including changes in sales volumes that could be indirectly attributed to changes in interest rates. The actions that management would take in response to such a change is also not considered. If it were possible to quantify this impact, the results could well be different than the sensitivity effects shown above.
	The table below provides information about the Company's debt obligations that are sensitive to changes in interest rates:
Foreign Currency
	Substantially all of the Company's purchases are priced in U.S. dollars. However, some European purchases are denominated in local currency and, therefore, are subject to the fluctuation in currency exchange rates. From time to time the Company utilizes forward exchange contracts to secure firm pricing related to purchase commitments to be denominated in foreign currencies. The contracts are of varying short-term durations and amounts include a window delivery feature, which provides the Company with an option to enter into a swap agreement in the event that all of the currency is not utilized at the end of the contract's delivery term. The Company's objective in managing its exposure to foreign currency exchange rate fluctuations is to reduce the impact of adverse fluctuations in earnings and cash flows associated with foreign currency exchange rate changes. The principal currency hedged is the Italian lira. The Company regularly monitors its foreign exchange exposures to ensure the overall effectiveness of its foreign currency hedge positions. However, there can be no assurance the Company's foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchange rates on its results of operations and financial position.
	The Company had no foreign exchange instruments outstanding at January 31, 2004; therefore, a sensitivity analysis would result in no impact to earnings. Anticipated transactions, firm commitments, and accounts payable denominated in foreign currencies would be excluded from the sensitivity analysis. Additionally, as the Company utilizes foreign currency instruments for hedging anticipated and firmly committed transactions, a loss in fair value for those instruments is generally offset by increases in the value of the underlying exposure. Foreign currency fluctuations did not have a material impact on the Company during 2003, 2002 or 2001.
ITEM 8.
ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	The consolidated financial statements of the Company and related information described below are set forth in the Company's Annual Report to Stockholders for the year ended January 31, 2004 (on pages 3-22) and are incorporated herein by reference.
Report of Independent Auditors.
Consolidated Balance Sheets as of January 31, 2004 and February 1, 2003.
Consolidated Statements of Operations for the Years Ended January 31, 2004, February 1, 2003 and February 2, 2002.
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2004, February 1, 2003 and February 2, 2002.
Consolidated Statements of Cash Flows for the Years Ended January 31, 2004, February 1, 2003 and February 2, 2002.
Notes to Consolidated Financial Statements.
ITEM 9.
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
		ACCOUNTING AND CONSOLIDATED FINANCIAL DISCLOSURE
	None.
ITEM 9A.
ITEM 9A.	CONTROLS AND PROCEDURES
The Company's Principal Executive Officer and Principal Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-14(c)) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that the Company's current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.
PART III.
ITEM 10.
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	The information required under Item 10 will be contained in the definitive Proxy Statement of the Company for its 2003 Annual Meeting of Stockholders (the "Proxy Statement") and is incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after January 31, 2004.
ITEM 11.
ITEM 11.	EXECUTIVE COMPENSATION
	The information required under Item 11 will be contained in the Proxy Statement and is incorporated herein by reference.
ITEM 12.
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under Item 12 will be contained in the Proxy Statement and is incorporated herein by reference.
ITEM 13.
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	The information required under Item 13 will be contained in the Proxy Statement and is incorporated herein by reference.
ITEM 14.
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES
	The information required under Item 14 will be contained in the Proxy Statement and is incorporated herein by reference.
PART IV.
ITEM 15.
ITEM 15.	EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
Consolidated Financial Statements: The response to this portion of Item 14 is set forth in Item 8 of Part II of this Report.
Financial Statement Schedules: Schedule II - Harold's Stores, Inc. and Subsidiaries Valuation Account (see page 20) of this report. All other schedules have been omitted because they are inapplicable, not required, or the information is included elsewhere in the financial statements or notes thereto.
Exhibits: See accompanying Index to Exhibits. The Company will furnish to any stockholder, upon written request, any exhibit listed in the accompanying Index to Exhibits upon payment by such stockholder of the Company's reasonable expenses in furnishing any such exhibit.
Reports on Form 8-K: For the quarter ended January 31, 2004, the Company filed a Form 8-K dated December 3, 2003, reporting under Item 7 and Item 12 the Company's financial results for the third quarterly period ended October 30, 2003.
SIGNATURES
	Pursuant to the requirements of Section 13 or 15 (d) 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.
HAROLD'S STORES, INC.
Date: April 30, 2004
/s/ Hugh W. Mullins
Hugh W. Mullins
Chief Executive Officer
	Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the Registrant and in the capacities shown, and on the dates indicated.
Signature
Title
Date
/s/ Hugh W. Mullins
President, Chief Executive Officer
and Director
April 30, 2004
Hugh W. Mullins
(Principal Executive Officer)
/s/ William E. Haslam
Non-Executive Chairman of the Board
April 30, 2004
William E. Haslam
and Director
/s/ Rebecca P. Casey
Executive Vice President
April 30, 2004
Rebecca P. Casey
and Director
/s/ Jodi L. Taylor
Chief Financial Officer and Secretary
April 30, 2004
Jodi L. Taylor
(Principal Financial and
Accounting Officer)
/s/ Clark J. Hinkley
Director
April 30, 2004
Clark J. Hinkley
/s/ James D. Abrams
Director
April 30, 2004
James D. Abrams
/s/ Robert L. Anderson
Director
April 30, 2004
Robert L. Anderson
/s/ Margaret A. Gilliam
Director
April 30, 2004
Margaret A. Gilliam
/s/ W. Howard Lester
Director
April 30, 2004
W. Howard Lester
/s/ Leonard M. Snyder
Director
April 30, 2004
Leonard M. Snyder
	Schedule II
HAROLD'S STORES, INC. AND SUBSIDIARIES
VALUATION ACCOUNT
(In Thousands)
Description
Balance at Beginning of Period
Additions-Charged to Expense
Additions-Recoveries of Accounts Written off
Deductions-Write-off of Accounts
Balance at End of Period
52 Weeks ended
January 31, 2004:
Allowance for doubtful accounts
$200
$200
52 Weeks ended
February 1, 2003:
Allowance for doubtful accounts
$200
$200
52 Weeks ended
February 2, 2002:
Allowance for doubtful accounts
$200
$200
INDEX TO EXHIBITS
___________________________
*	
Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.