LOEHMANNS INC, 10-K, 1997-05-02

LOEHMANNS INC
10-K, 1997-05-02
WOMEN'S CLOTHING STORES

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

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 1, 1997

Commission File
Number 0-28410

LOEHMANN'S, INC.
- -------------------------------------------------------------------------------
(Exact name of registration as specified in its charter)

Delaware 22-2341356
- ----------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2500 Halsey Street, Bronx, New York 10461
- ----------------------------------- ----------------------------------
(Address of principal offices) (Zip Code)

Registrant's telephone number, including Area Code: (718) 409-2000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

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, and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of voting stock held by nonaffiliates of registrant
as of April 28, 1997 was $48,727,233.

The Company had 8,779,322 shares of Common Stock and 122,726 shares of Class B
Common Stock outstanding as of April 28, 1997.

Documents incorporated by reference: The information required by Part II, Items
5, 6, 7, 8 and 9, is incorporated by reference to the Company's Annual Report to
Stockholders; the information required by Part III, Items 10, 11, 12 and 13, is
incorporated by reference to the Company's proxy statement which will be filed
with the Commission not more than 120 days after the end of the Company's 1996
fiscal year.

<PAGE>

LOEHMANN'S, INC.

TABLE OF CONTENTS

PART I.

Item 1. Business............................................................2

Item 2. Properties.........................................................10

Item 3. Legal Proceedings..................................................11

Item 4. Submission of Matters to a Vote of Security Holders................11

PART II.

Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters........................................12

Item 6. Selected Financial Data............................................12

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........13

Item 8. Financial Statements and Supplementary Data........................13

Item 9. Changes in and Disagreements With Accountants
On Accounting and Financial Disclosure.............................13

PART III.

Item 10. Directors and Executive Officers of the Registrant.................14

Item 11. Executive Compensation.............................................14

Item 12. Security Ownership of Certain Beneficial Owners
And Management....................................................14

Item 13. Certain Relationships and Related Transactions.....................14

PART IV.

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..... ..........................................15

Signatures.........................................................18

<PAGE>

PART I.

ITEM 1. BUSINESS

Loehmann's, Inc., a Delaware corporation ("Loehmann's" or the "Company"),
founded in 1921 as the "Original Designer Outlet," is a leading national
specialty retailer of well known designer and brand name women's fashion
apparel, accessories and shoes offered at prices that are typically 30% to 65%
below department store prices. The Company believes it has developed a unique
franchise as the largest national upscale off-price specialty retailer in the
industry. The Company's strong brand name, loyal customer base and long-standing
relationships with leading designers and vendors of quality merchandise has
enabled it to maintain its franchise. The Company's target customers are
relatively affluent women between the ages of 30 and 55 who are attracted to
designer and other high quality merchandise offered at exceptional values. As of
April 1, 1997 the Company operated 75 stores in major metropolitan markets
located in 23 states.

INDUSTRY OVERVIEW

According to published reports, total retail sales of women's apparel and
accessories in the United States were in excess $70.0 billion in 1996. The
womenswear industry is served by a variety of distribution channels including
department stores, specialty stores and off-price retailers.

The women's apparel industry is categorized into five product classifications:
designer, bridge, better, moderate and budget. Designer merchandise is the most
expensive product classification and is characterized by high fashion styling.
Designer brands include Donna Karan, Calvin Klein, Ralph Lauren and Anne Klein.
Bridge products are typically brand name merchandise which may carry designer
labels but are less expensive than the designer classification and allow
customers to purchase designer-like merchandise at below designer prices. Bridge
brands include DKNY, Anne Klein II, Adrienne Vittadini, CK/Calvin Klein, Emanuel
Ungaro and Tahari. Apparel in the better classification carries brand name
labels but is less expensive than bridge apparel. Better brands include Jones
New York, Harve Benard and Kenar. Merchandise in the moderate classification is
also generally brand name but is a less expensive product category. Moderate
brands include Oleg Cassini and Leslie Fay. Budget merchandise is the least
expensive product classification.

Designer and bridge merchandise is generally sold in finer department stores
such as Bloomingdale's, Lord & Taylor, Nordstrom and Saks Fifth Avenue. Because
manufacturers of designer and bridge merchandise are very concerned about
maintaining the upscale image of their trademarks, they are typically very
selective about which retailers carry their products. As a result, the Company
believes that most other off-price retailers have limited access to designer and
bridge merchandise.

<PAGE>

BUSINESS STRATEGY

The Company's strategy is to deliver value to its customers by offering at
substantial discounts a wide selection of high quality in-season merchandise,
including designer and bridge apparel, accessories and shoes. The Company
believes that it differentiates itself from finer department stores by offering
similar merchandise at significantly lower prices and from other off-price
apparel retailers by offering a broad range of designer and bridge merchandise.
The principal elements of the Company's business strategy are as follows:

EMPHASIS ON IN-SEASON DESIGNER AND HIGH QUALITY MERCHANDISE

The Company offers a wide selection of in-season apparel, accessories and shoes,
approximately one-third of which is designer and bridge merchandise. The
Company, like finer department stores, is known for carrying designer and bridge
labels, including Donna Karan, Calvin Klein, Ralph Lauren, Adrienne Vittadini,
Tahari, Dana Buchman, Andrea Jovine and Emanuel Ungaro.

VALUE PRICING

The Company provides its customers with exceptional value by offering its
merchandise at prices that are typically 30% to 65% below prices charged by
department stores for the same items and that are comparable to or lower than
prices charged by other off-price retailers.

CAPITALIZE ON LONG-STANDING VENDOR RELATIONSHIPS

Loehmann's believes that it is uniquely positioned among off-price retailers as
a principal choice for well known designers who believe that their prestige will
be preserved by having their merchandise offered by Loehmann's because of its
high quality image and affluent customer base. Loehmann's long-standing vendor
relationships and its ability to sell large quantities of goods have provided
the Company with ready access to a wide selection of merchandise, often on a
preferential basis.

BROADEN MERCHANDISE CATEGORIES

The Company continually seeks to broaden its appeal and has over the past
several years expanded its merchandise mix to include shoes and a broader range
of accessories and intimate apparel. These items, which typically generate
higher gross margins than the Company's traditional apparel categories,
accounted for approximately 20% of the Company's net sales in fiscal 1996, an
increase from 8% in fiscal 1992.

FLEXIBLE PURCHASING STRATEGY

The Company relies on a flexible purchasing strategy under which it enters any
given month with a substantial portion of its purchasing requirements
unfulfilled. This strategy enables the Company to react to sales trends, fashion
trends and changing customer preferences while enhancing the Company's ability
to negotiate with its vendors and take advantage of market inefficiencies and
opportunities as they may arise.

EFFICIENT INVENTORY MANAGEMENT

The Company ships new high quality merchandise to its stores on a daily basis.
The Company believes it is able to constantly replenish its stores because of
its allocation and distribution system, which enables the Company to distribute

<PAGE>

merchandise to its stores typically within 48 to 72 hours after delivery to its
distribution center. In addition, the Company utilizes a cyclical markdown
strategy which automatically reduces prices as goods age. As a result of this
inventory management, the Company is able to enhance its gross margin, maintain
a comparatively low investment in inventory, increase its inventory turn and
react more effectively to changing fashion trends and customer preferences.

LOW-COST STRUCTURE

In order to provide its customers with exceptional value while maximizing
profitability and cash flow, the Company is focused on maintaining an efficient,
low-cost operating structure. Key elements of this focus include the Company's
no-frills store format, lean corporate overhead and disciplined real estate
strategy.

EXPANSION STRATEGY

In fiscal 1996 the Company embarked on a store expansion program by opening new
stores in existing suburban markets where the Loehmann's franchise is well
established and in other locations which have appealing demographics. The
Company opened seven stores in fiscal 1996 including a 60,000 square foot
flagship store in downtown Manhattan at the site which recently housed Barney's
Seventh Avenue Men's Store. The Company additionally plans to open 14-16 stores
during 1997 and 1998, three of these stores already have been opened in Seattle,
Washington, Fort Lauderdale, Florida, and Irvine, California. The Company closed
three stores in fiscal 1996 and converted one store into a clearance center. The
Company closed one store in February 1997, and expects to close one additional
store during the year, which will be replaced by a new store.

The Company has retained the services of a retail consulting firm that has
conducted an extensive analysis of the relevant demographics to advise the
Company with respect to its expansion strategy. All decisions as to store
openings are decided on a case by case basis by the Company's Board of Directors
based on the recommendations of management.

MERCHANDISING

SELECTION

The Company offers a wide selection of women's sportswear, dresses, suits,
outerwear, coats, accessories, intimate apparel and shoes. The Company does not
offer budget merchandise in its stores. Most of the Company's merchandise is
in-season and is therefore generally available at Loehmann's during the same
selling season as it is available in department stores. The following is a list
of many of the key brands offered at the Company's stores:

<PAGE>

Adrienne Vittadini CK/Calvin Klein Harve Benard
Andrea Jovine Dana Buchman Jones NY
A Line /Anne Klein Depeche Mode Kenar
Anne Klein II DKNY Oleg Cassini
Augustus Donna Karan Ralph Lauren
Calvin Klein Emmanuel Ungaro Tahari

The Company continually seeks to broaden its appeal and has over the past
several years expanded its merchandise mix to include shoes and a broader range
of accessories and intimate apparel. These items, which typically generate
higher gross margins than the Company's traditional apparel categories,
accounted for over 20% of the Company's net sales in fiscal 1996, an increase
from 8% in fiscal 1992. The following table shows the percentages of the
Company's net sales attributable to its various product categories for fiscal
1992 through fiscal 1996:

1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Sportswear ................. 50.4% 49.6% 48.8% 47.6% 48.1%
Dresses and suits .......... 31.5 28.6 26.5 26.0 24.6
Coats and outerwear ........ 7.2 5.9 5.2 5.1 5.0
Accessories/intimate apparel 8.0 11.3 13.0 14.5 14.6
Shoes ...................... -- 2.1 3.4 5.5 5.8
Other ...................... 2.9 2.5 3.1 1.3 1.9
----- ----- ----- ----- -----
Total ...................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====

All Loehmann's stores carry items from each of its merchandise categories.
However, the allocation of merchandise among the stores varies based upon
factors relating to the demographics and geographic location of each store as
well as the size of the store and its ability to adequately display the
merchandise. In a continuing effort to broaden its appeal, beginning in March
1996, the Company began offering infantwear in 12 of its stores and women's
large sizes apparel in 15 of its stores. As of April 1, 1997, both infantwear
and women's large sizes apparel were offered in approximately 40 of the
Company's stores.

PRICING

The Company seeks to provide its customers with exceptional value by offering
its merchandise at prices that are typically 30% to 65% below prices charged by
department stores for the same items and that are comparable to or lower than
prices charged by other off-price retailers. The Company's central buying staff
adheres to a disciplined approach to acquiring merchandise that enables the
Company to consistently offer its merchandise at favorable prices. The Company's
buyers will only acquire merchandise at prices which permit the Company to offer
its merchandise for sale initially at a significant discount to the first marked
down price that a department store would charge for the same item. Each item of
merchandise offered by the Company carries a price tag displaying the Company's
price as well as the typical department store's initial price for the same item.

The Company uses a cyclical markdown policy to reduce prices automatically as
goods age. The purpose of this policy is to improve inventory turnover and

<PAGE>

minimize the amount of unsold merchandise at the end of the season, while
reinforcing the customer's perception of value and enabling the Company to
provide the stores with fresh merchandise on a regular basis. In addition, the
Company closely monitors prices charged by competitors in each of its markets
and adjusts its prices to preserve its pricing advantage.

VENDOR RELATIONSHIPS AND PURCHASING

The Company believes it is well positioned among off-price retailers as a
principal choice for well known designers who believe that their prestige will
be preserved by having their merchandise offered by Loehmann's because of its
high quality image and affluent customer base. Many of the Company's most active
suppliers have been selling merchandise to the Company for at least 10 years.
Because of these long-standing vendor relationships and its ability to sell
large quantities of goods, the Company has ready access to a wide selection of
merchandise, often on a preferential basis.

The Company does not engage in significant forward purchasing and a large
portion of its purchasing requirements in any given month intentionally remains
unfulfilled at the beginning of the month. This strategy enables the Company to
react to fashion trends and changing customer preferences while enhancing the
Company's ability to negotiate with its vendors and take advantage of market
inefficiencies and opportunities as they may arise.

The Company purchases a majority of its inventory during the manufacturer's
selling season enabling the Company to offer merchandise during the same selling
season as it is available in department stores. The Company also purchases a
portion of its inventory at the end of the season, when the Company is prepared
to purchase a manufacturer's remaining items at an even steeper discount.
Vendors who sell to the Company do not need to build into their price structure
any anticipation of returns, markdown allowances or advertising allowances, all
of which are typical in the department store industry. In addition, the Company
pays for goods within an average of approximately 25 to 30 days and often picks
up the merchandise directly from the vendors.

The Company purchases its inventory from over 400 suppliers, which in many cases
include separate divisions of a single manufacturer or designer. These suppliers
include a substantial majority of the designer and brand name apparel
manufacturers in the United States. Some purchases are also made in the European
market, primarily Italy. The Company does not have any long-term supply
contracts with its suppliers.

The Company maintains its own central buying staff, comprised of 14 experienced
off-priced buyers, many of who also have extensive experience with traditional
department stores. Historically, the Company has had very low turnover within
its buying group, enabling Loehmann's to capitalize on an experienced, respected
group of buyers capable of enhancing the Company's already strong vendor
relationships.

STORE LAYOUT

Loehmann's store format and merchandise presentation are designed to project the
image of deep discount and exceptional value, as well as to emphasize Loehmann's
niche as the off-price equivalent of an upscale specialty store. Loehmann's
stores are divided into two shopping areas: a large, open selling area with
wall-to-wall merchandise and a smaller, separate, and more intimate area called

<PAGE>

"The Back Room." The Company presents moderate and better sportswear, dresses
and suits, as well as all outerwear, accessories, intimate apparel and shoes on
the main selling floor. Designer and bridge merchandise, including gowns,
dresses, suits and sportswear, are displayed in The Back Room.

The Back Room provides a key point of differentiation to the consumer, as it
projects the image of designer goods sold in a no-frills environment and,
therefore, at exceptional values. Although the Company estimates that The Back
Room generally accounts for only approximately 10% to 15% of a typical
Loehmann's store's selling space, The Back Room has generated approximately
one-third of the Company's net sales over the last several years.

All stores are low maintenance, simple, and functional facilities designed to
maximize selling space and contain overhead costs. Store layouts are flexible in
that product groupings can be easily moved or expanded. All stores have two or
more communal fitting rooms. However, in response to customer preferences,
private fitting rooms have been added in most stores. Because the Company is
committed to maintaining virtually all of its in-store inventory on the selling
floor, its stores do not require significant space devoted to inventory storage.

DISTRIBUTION

The Company operates a 126,000 square foot centralized distribution center
located at the Company's headquarters and a 32,000 square foot satellite
warehouse for processing shoes located near the main distribution center. As
merchandise arrives at the distribution center, it is priced, ticketed, assigned
to individual stores by the Company's merchandising systems, packaged for
delivery and transported to the stores. The time from receipt of goods at the
distribution center to placement of merchandise in the stores typically ranges
from 48 to 72 hours.

ADVERTISING AND PROMOTION

Loehmann's has built its reputation over the years through "word-of-mouth"
advertising. In the last three fiscal years, the Company has significantly
increased its advertising expenditures. The Company advertises predominantly
through direct mail and to a lesser extent through newspaper advertising.

A significant portion of the Company's advertising efforts involve direct mail
announcements to members of "The Insider Club", a free membership program.
Members receive notification of special events throughout the year and a 15%
discount on their birthdays. The list of members now includes approximately 1.4
million active customers.

STORE OPERATIONS

The Company operates its stores to enhance the customer's shopping experience by
creating a friendly shopping environment within a self-service operation. The
Company's stores are organized into seven separate geographic districts each
with a regional manager. Regional managers monitor the financial performance of
the stores in their respective geographic districts and frequently visit stores
to ensure adherence to the Company's merchandising, operations and personnel
standards. The typical staff for a Loehmann's store consists of a store manager,

<PAGE>

and a number of associate store and department managers, sales specialists and
additional full and part-time hourly associates depending upon the store's
needs.

Senior management meets with the regional managers on a periodic basis to
maintain a clear line of communication. In addition, "mystery shoppers" shop the
stores to help ensure that sales associates are friendly and helpful and
maintain all of the Company's merchandising, customer service and loss
prevention standards.

Store management personnel currently complete a training program at a designated
training store before assuming management responsibility. Sales specialists
receive product and customer service training at the store level.

All store and regional managers participate in a bonus plan that ties
compensation awards to the achievement of specified store profits goals and
overall Company profits and also are eligible in the Company's stock option
plan.

MANAGEMENT INFORMATION SYSTEMS

Each Loehmann's store is linked to the Company's headquarters through a
point-of-sale system that interfaces with an IBM RS6000 computer equipped with
integrated merchandising, distribution and accounting software packages. The
Company's point-of-sale computer system has features that include merchandise
scanning, the capture of customer sales information and on-line credit card
approval. These features improve transaction accuracy, speed and checkout time
as well as increase overall store efficiency.

The Company's management information and control systems enable the Company's
corporate headquarters to promptly identify sales trends, identify merchandise
to be marked down and monitor merchandise mix and inventory levels at individual
stores. The Company believes that the current management information and control
systems are capable of supporting the Company's planned expansion for the
foreseeable future.

EMPLOYEES

At February 1, 1997, the Company had 3,049 employees, of whom 2,165 were store
sales and clerical employees, 208 performed store managerial functions, and 676
were corporate and warehouse personnel. Except for managerial employees,
professional support staff and the Company's buyers, all employees are paid on
an hourly basis. None of the Company's employees are represented by a labor
union. The Company believes that its employee relations are good.

TRADEMARK AND SERVICE MARK

"Loehmann's" has been registered as a trademark and a service mark with the
United States Patent and Trademark Office. The registration of the trademark and
the service mark may be renewed to extend the original 20-year registration
period indefinitely, provided the marks are still in use. The Company intends to
continue to use its trademark and service mark and maintain their registrations.
The Company believes its trademark and service mark have received broad
recognition and their continued existence is important to the Company's
business.

<PAGE>

COMPETITION

All aspects of the off-price fashion apparel business are highly competitive,
and the Company expects competitive pressures to increase in the future as more
factory outlet centers open and department stores continue price discounting.
The Company believes that the principal elements of competition are the price,
quality, selection and presentation of merchandise, store location and customer
service. Management believes that the Company is well positioned to compete on
the basis of each of these factors. The competitive environment may also be
affected by factors beyond a particular retailer's control, such as shifts in
consumer preferences, change in population demographics and traffic patterns,
and fluctuating economic conditions.

The Company competes primarily with finer department stores. The Company
believes it competes successfully with such department stores by offering a wide
selection of comparable quality merchandise at significantly lower prices.
Recently, many department stores have become more promotional, although such
promotions are typically focused on moderate merchandise. Although the Company's
gross margins have not been materially affected to date by department stores'
pricing strategies, there can be no assurances that, if finer department stores
continue to price more aggressively, the Company's margins will not be adversely
affected. Most of the department stores and some of the off-price and discount
retailers with which the Company competes have access to substantially greater
financial and marketing resources than those available to the Company.

The Company also faces competition from factory outlet malls and a variety of
off-price and discount retailers, some of which are relatively new companies,
but many of which are established retail chains or divisions thereof. Such
competitors include Burlington Coat Factory, Filene's Basement, Marshall's, Saks
Off 5th, Syms, and T.J. Maxx. The Company believes it competes successfully with
other off-price and discount retailers by reason of the quality, selection and
price of the designer and other better quality merchandise available in the
Company's stores.

In recent years, some designer and other better quality women's apparel has been
offered through mail order catalogs. While not significant at the present time,
the Company cannot predict the impact of this and other in-home shopping
competition.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements under the captions "Business," "Management's Discussions and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Form 10-K or incorporated by reference herein, constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward looking statements. Such factors include, among others, the
following: general economic and business conditions, competition; success of
operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or adherence to development
schedules; the existence or absence of adverse publicity; availability,
locations and terms of sites for store development; changes in business strategy
or development plans; quality of management; availability, terms and

<PAGE>

deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or the failure to comply with, government regulations; construction costs
and other factors referenced in this report.

ITEM 2. PROPERTIES

As of April 1, 1997, the Company operated 75 stores in 23 states including seven
stores opened in fiscal 1996 and three stores opened in fiscal 1997. The Company
does not own any of its stores and has no manufacturing facilities.

Indicated below is a listing of the regions in which the Company operates its
stores:

Percent of
Number Fiscal Year
REGION of Stores 1996 Sales (1)
------ --------- --------------
California 14 23.8%
New York 10 21.0
Florida 6 9.4
Other Mid-Atlantic 7 9.2
New Jersey 8 8.2
New England 7 6.9
Midwest 7 6.5
Other Southeast 7 5.7
Texas 5 5.7
Other West 4 3.6
---- -----
75 100.0%
==== =====

(1) THESE PERCENTAGES EXCLUDE SALES FROM THE COMPANY'S 3 STORES CLOSED IN
FISCAL 1996, SALES FROM THE ONE STORE CONVERTED TO A CLEARANCE CENTER
AND THE THREE STORES OPENED AND ONE STORE CLOSED IN FISCAL 1997.

LEASES

The leases for the Company's stores typically provide for a 15 to 20-year term
with three five-year renewals that are automatic unless the Company elects to
terminate the lease. The rental rate in every case is a fixed amount rather than
a contingent payment based on a store's gross sales. The leases typically
contain tax escalation clauses and require the Company to pay insurance,
utilities, repair and maintenance expenses. Increases in the fixed rent payable
during the renewal terms are generally less than 10% to 15% of the base rent
(although this percentage may increase for new stores). The leases have initial
or renewal terms expiring as follows: 1997-1998 (10 stores); 1999-2001 (36
stores); 2002-2004 (8 stores); and 2005 and later (27 stores).

Five of six leases that expire by year-end fiscal 1997 have renewal options. The
Company has generally been sucessful in renewing its store leases as they
expire.

<PAGE>

The Company leases the land for a 153,000 square foot facility located in an
industrial park in the Bronx, New York, which serves as its corporate
headquarters and as the site of its central warehousing and distribution
operations. This facility contains 27,000 square feet of office space and
126,000 square feet of warehouse space. The ground lease with respect to the
land on which the facility is situated provides for aggregate annual base rental
payments of $37,500. The lease expires in 2010, but is renewable at certain
increased rates until 2050. The facility is subject to two mortgages which
relate to New York City Industrial Development Agency Revenue Bonds. In
addition, the Company leases a 32,000 square foot warehouse in the Bronx, New
York, which serves as additional warehouse space. The lease expires on December
31, 1998 and provides for annual rental payments of $198,000.

ITEM 3. LEGAL PROCEEDINGS

Management is not aware of any litigation or regulatory proceedings against the
Company which would materially impact its business or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None, during the fourth quarter of fiscal 1996.

<PAGE>

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

The Company incorporates by reference herein the section entitled "Market Prices
of Common Stock" in the Company's Annual Report to Stockholders for fiscal 1996
filed as an exhibit to this Form 10-K, which complies with the information
called for by Item 5 of the Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA

The Company incorporates by reference herein the sections entitled "Financial
Highlights" and "Selected Financial Data" in the Company's Annual Report to
Stockholders for fiscal 1996 filed as an exhibit to this Form 10-K, which
complies with the information called for by Item 6 of the Form 10-K.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The Company incorporates by reference herein the section entitled "Management
Discussion and Analysis" in the Company's Annual Report to Stockholders for
fiscal 1996 filed as an exhibit to this Form 10-K, which complies with the
information called for by Item 7 of the Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company incorporates by reference herein the information contained in the
Consolidated Financial Statements in the Company's Annual Report to Stockholders
for fiscal 1996 filed as an exhibit to this Form 10-K, which complies with the
information called for by Item 7 of the Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

<PAGE>

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company incorporates by reference herein the sections entitled "Election of
Directors" and "Management" in the Company's proxy statement which complies with
the information called for by Item 10 of the Form 10-K. The proxy statement will
be filed with the Commission at a later date, that is not more than 120 days
after the end of the Company's 1996 fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

The Company incorporates by reference herein the section entitled "Management"
in the Company's proxy statement which complies with the information called for
by Item 11 of the Form 10-K. The proxy statement will be filed with the
Commission at a later date, that is not more than 120 days after the end of the
Company's 1996 fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The Company incorporates by reference herein the section entitled "Security
Ownership of Certain Beneficial Owners and Management" in the Company's proxy
statement which complies with the information called for by Item 12 of the Form
10-K. The proxy statement will be filed with the Commission at a later date,
that is not more than 120 days after the end of the Company's 1996 fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company incorporates by reference herein the sections entitled "Certain
Transactions" and "Management" in the Company's proxy statement which complies
with the information called for by Item 13 of the Form 10-K. The proxy statement
will be filed with the Commission at a later date, that is not more than 120
days after the end of the Company's 1996 fiscal year.

<PAGE>

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.

(a) Documents filed as part of the report.

(1) List of Financial Statements

Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

(2) List of Financial Statement Schedules

Schedules are omitted because they are either not applicable or
the required information is shown in the financial statements or
notes thereto.

(3) List of Exhibits

3.1 Amended and Restated Certificate of Incorporation of
Loehmann's, Inc., filed as Exhibit 3.1 to Loehmann's,
Inc.'s Registration Statement on Form S-1 (Registration
No. 33-97100) and incorporated hereby by reference.

3.2 By-Laws of Loehmann's, Inc., filed as Exhibit 3.2 to
Loehmann's, Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated herein by
reference.

4.1 11 7/8% Senior Note Indenture, dated as of May 10, 1996,
between Loehmann's, Inc. and United States Trust Company
of New York, as Trustee, filed as Exhibit 4.1 to
Loehmann's, Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended May 4, 1996 (Registration No.
0-28410), and incorporated herein by reference.

4.2 Second Amended and Restated Credit Agreement, dated as of
May 6, 1996, between Loehmann's, Inc., BankAmerica
Business Credit, Inc., as Agent, and certain Banks party
thereto, filed as Exhibit 4.2 to Loehmann's, Inc.'s
Registration Statement on Form S-1 (Registration No.
333-12881) and incorporated herein by reference.

4.3 A letter from Loehmann's, Inc. to the Securities and
Exchange Commission agreeing to furnish copies of certain
debt instruments.*

10.1 Lease Agreement between the New York City Industrial
Development Agency and Loehmann's, Inc. dated as of
December 1, 1983, filed as Exhibit 10.3 to Loehmann's

<PAGE>

Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-25718) and incorporated herein
by reference.

10.2 Amended and Restated Agreement among Loehmann's Holdings,
Inc., Loehmann's, Inc. and Philip Kaplan dated as of
September 19, 1988 and Memorandum dated March 1, 1993
amending such Agreement, filed as Exhibit to Loehmann's
Holdings, Inc.'s Registration Statement on Form S-4
(Registration No. 33-71922) and incorporated herein by
reference.

10.3 Amendment No. 1 to Employment Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Philip Kaplan dated
as of November 1, 1995, filed as Exhibit 10.9 to
Loehmann's Holdings, Inc.'s Registration Statement on
Form S-1 (Registration No. 33-97100) and incorporated
herein by reference.

10.4 Amendment No. 2 to Employment Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Philip Kaplan dated
as of April 5, 1996, filed as Exhibit 10.10 to Loehmann's
Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated herein by
reference.

10.5 Agreement among Loehmann's Holdings, Inc., Loehmann's,
Inc. and Robert N. Friedman dated as of November 1, 1995,
filed as Exhibit 10.11 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated herein by reference.

10.6 Amendment No. 1 to Employment Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Robert N. Friedman
dated as of April 5, 1996, filed as Exhibit 10.12 to
Loehmann's Holdings, Inc.'s Registration Statement on Form
S-1 (Registration No. 33-97100) and incorporated herein by
reference.

10.7 Compensation/Consultation Agreement between Loehmann's
Holdings, Inc. and Norman Matthews, filed as Exhibit 10.8
to Loehmann's Holdings, Inc.'s Registration Statement on
Form S-1 (Registration No. 33-25718) and incorporated
herein by reference.

10.8 Loehmann's, Inc. Amended and Restated Deferred Profit
Sharing Plan, effective January 31, 1993, filed as Exhibit
10.15 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-97100) and
incorporated herein by reference.

10.9 Loehmann's Holdings, Inc. 1988 Stock Option Plan, filed as
Exhibit 10.10 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-25718) and
incorporated herein by reference.

10.10 Non-Qualified Stock Option Agreement dated September 30,
1988 between Loehmann's Holdings, Inc. and Philip Kaplan,
filed as Exhibit 10.11 to Loehmann's Holdings, Inc.'s

<PAGE>

Registration Statement on Form S-1 (Registration No.
33-25718) and incorporated herein by reference.

10.11 Loehmann's, Inc. New Stock Incentive Plan, filed as
Exhibit 10.18 to Loehmann's, Inc.'s Registration Statement
on Form S-1 (Registration No. 33-97100) and incorporated
herein by reference.

10.12 Executive Incentive Compensation Plan, filed as Exhibit
10.13 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-25718) and
incorporated herein by reference.

10.13 Non-Qualified Stock Option Agreement dated as of December
10, 1993 between Loehmann's Holdings, Inc. and Norman S.
Matthews, filed as Exhibit 10.15 to Loehmann's Holdings,
Inc.'s Registration Statement on Form S-4 (Registration
No. 33-71922) and incorporated herein by reference.

13 Such portions of the Annual Report to Stockholders for
1996 as are expressly incorporated herein by reference.*

23 Consent of Independent Auditors.*

27 Financial Data Schedule.*

(b) Reports on Form 8-K

No report on Form 8-K was filed during the quarter ended February 1, 1997.

* FILED HEREWITH

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 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.

LOEHMANN'S, INC.

Dated: May 2, 1997 By: /S/ Philip Kaplan
-----------------
Philip Kaplan, President
Chief Operating Officer and
Director

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Philip Kaplan and Robert N. Friedman, such person's
true and lawful attorney-in-fact and agents, with full power of substitution and
revocation, for such person and in such person's name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this report filed pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, and to file the same
with all exhibits thereto, and the other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and things requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.

Signature Title Date

/S/Norman S. Matthews Chairman of the Board and May 2, 1997
- ------------------------- Director
Norman S. Matthews

/S/Robert N. Friedman Chairman, Chief Executive May 2, 1997
- ------------------------- Officer and Director
Robert N. Friedman

/S/Philip Kaplan President, Chief Operating May 2, 1997
- ------------------------- Officer, Secretary and
Philip Kaplan Director

/S/Robert Glass Senior Vice President, Chief May 2, 1997
- ------------------------- Financial Officer and
Robert Glass Assistant Secretary

<PAGE>

Director
- -------------------------
Janet A. Hickey

Director
- -------------------------
Richard E. Kroon

/S/Christina A. Mohr Director May 2, 1997
- -------------------------
Christina A. Mohr

/S/Arthur E. Reiner Director May 2, 1997
- -------------------------
Arthur E. Reiner

/S/Cynthia R. Cohen Director May 2, 1997
- -------------------------
Cynthia R. Cohen

Exhibit 4.3

[Loehmann's Letterhead]

May 2, 1997

Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549

Loehmann's Inc. Form 10-K
-------------------------

Ladies and Gentlemen:

In accordance with Item 601(b)(4)(iii) of Regulation S-K,
Loehmann's, Inc. (the "Registrant") has not filed herewith any instrument with
respect to long-term debt not being registered where the total number of
securities authorized thereunder does not exceed ten percent (10%) of the total
assets of the Registrant and its subsidiaries on a consolidated basis. The
Registrant hereby agrees to furnish a copy of any such agreement to the
Securities and Exchange Commission upon request.

Sincerely,

LOEHMANN'S, INC.

By: /s/ Robert Glass
-----------------------------
Name: Robert Glass
Title: Senior Vice President,
Chief Financial Officer,
Treasurer and
Assistant Secretary

Exhibit 13

Such Portions of The Annual Report To Stockholders
for 1996 As Are Incorporated Herein by Reference

FINANCIAL HIGHLIGHTS

Loehmann's, Inc.
Percent
1996 1995 Change
------------ ------------ ---------
OPERATING RESULTS
Net Sales $417,758,000 $386,090,000 8.2%
EBITDA $36,828,000 $30,716,000 19.9%
Operating Income $24,980,000 $3,296,000 657.9%
Pro-forma Net Income $8,700,000 $4,557,000 90.9%
Pro-forma Net Income
Per Share $0.92 $ 0.48 91.7%
Net loss Applicable to
Common Stock $1,216,000 $17,019,000 (92.9)%
Net loss per Share
Applicable to Common Stock $0.14 $ 3.12 (95.5)%

FINANCIAL POSITION
Shareholders Equity (Deficit) $25,243,000 $(29,080,000) N/A
Total Assets $176,200,000 $163,611,000 7.7%
Working Capital $22,278,000 $12,669,000 75.8%

NUMBER OF STORES AT END
OF PERIOD 73 69 5.8%
Total Square Footage 1,279,000 1,103,000 16.0%

<PAGE>

Market Prices of Common Stock
The Company's common stock has been traded on the NASDAQ National Market System
since May 7, 1996 under the symbol LOEH. As of April 1, 1997, there were
approximately 64 shareholders of record of the Company's common stock. The
following table shows the high and low sales price for the Company's common
stock for each quarterly period from May 7, 1996, the date of the Initial Public
Offering, through January 31, 1997.

Fiscal Quarter Ended High Low
- --------------------------------------------------------------------------------

August 3, 1996 $28.125 $18.000
November 2, 1996 $30.000 $20.375
Febuary 1, 1997 $31.000 $14.625
- --------------------------------------------------------------------------------

On January 31, 1997, the closing market price of the Company's Common Stock was
$15.25. The Company has not paid dividends on its Common Stock or its Class B
Common Stock since inception and does not anticipate paying a cash dividend in
the foreseeable future. Certain of the Company's debt agreements contain various
covenants which may restrict the payment of cash dividends. On April 28, 1997,
the closing market price of the Company's Common Stock was $6.50.

Special Note Regarding Forward-Looking Statements
Certain statements contained herein constitute "forward looking statements"
within the meaning of the Reform Act. Such forward looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward looking statements. Such factors include, among others,
the following: general economic and business conditions, competition; success of
operating initiatives; development and operating costs; advertising and
promotional efforts; brand awareness; the existence or adherence to development
schedules; the existence or absence of adverse publicity; availability,
locations and terms of sites for store development; changes in business strategy
or development plans; quality of management; availability, terms and deployment
of capital; business abilities and judgment of personnel; availability of
qualified personnel; labor and employee benefit costs; changes in, or the
failure to comply with, government regulations; construction costs and other
factors referenced in this report.

<PAGE>

Management Discussion and Analysis
Loehmann's, Inc.

Results of Operations
The table below sets forth certain financial data of the Company expressed as a
percentage of net sales for the periods indicated:
Fiscal Year (1)
1996 1995 1994
------ ------------ ------

Net sales 100.0% 100.0% 100.0%
Gross margin 31.9 31.1 29.1
Selling, general and administrative expenses 23.0 23.2 21.8
Depreciation and amortization 2.8 3.1 3.0
Charge for store closings and impairment
of assets - 4.0 -

----- ----- -----

Operating income 6.0 0.9 4.2
Interest expense, net 3.2 4.7 4.6
Income (loss) before income taxes 2.8% (3.8)% (0.4)%
----- ----- -----

(1) Fiscal 1996 and 1994 had 52 weeks, and fiscal 1995 had 53 weeks. Numbers may
not total due to rounding.

FISCAL 1996 COMPARED TO FISCAL 1995

Net sales increased by approximately $31.7 million, or 8.2%, to $417.8 million
during fiscal 1996 as compared to $386.1 million during fiscal 1995. The
reporting period for fiscal 1996 was comprised of 52 weeks while fiscal 1995 had
53 weeks. For the comparable 52 week period, sales increased 9.3%. Comparable
store sales (sales at stores that were in operation for both periods) increased
by 1.6% during fiscal 1996 as compared to fiscal 1995 on a 52 week basis. The
increase in reported net sales for fiscal 1996 was a result of the comparable
store increase of 1.6%, plus sales from new stores offset by the effect of
closed stores and the effect of the fifty third week of fiscal 1995. The Company
closed 11 stores in fiscal 1995 and 3 stores in fiscal 1996, two of which were
replaced by new stores.

Gross profit increased by approximately $12.9 million to $133.1 million during
fiscal 1996 as compared to $120.2 million for fiscal 1995. Gross margin
increased to 31.9% for fiscal 1996 from 31.1% in the prior fiscal year. The
increase in margin was primarily a result of a continuing shift in the Company's
sales mix towards merchandise with a higher average gross margin coupled with a
reduction of markdowns as a percentage of sales.

<PAGE>

Selling, general and administrative expenses increased by approximately $6.8
million to $96.3 million during fiscal 1996 as compared to $89.5 million for
fiscal 1995. As a percentage of net sales, selling, general and administrative
expenses decreased to 23.0% in fiscal 1996 from 23.2% in the prior year. The
dollar increase in selling, general and administrative expenses was related to:
(i) $1.7 million of pre-opening expenses associated with the seven new stores
opened in fiscal 1996; (ii) $3.7 million in store operating expenses primarily
related to new stores including occupancy and advertising costs and (iii) $2.3
million primarily due to the Company's continued investment in corporate
infrastructure to support the new store program partially offset by $0.9 million
primarily related to cost recoveries associated with occupancy expense.

Depreciation and amortization for fiscal 1996 decreased by approximately $0.3
million to $11.8 million as compared to $12.1 million for the prior fiscal year.
The reduction in depreciation and amortization is attributable to the closing of
11 stores in fiscal 1995, the effect of a $4.95 million asset impairment charge
recorded in fiscal 1995, along with a reduction in amortization expense
resulting from the refinancing of debt associated with the debt offering. See
Note 3 to the Consolidated Financial Statements. This was partially offset by
additional depreciation associated with capital expenditures in fiscal 1996
related to the opening of the seven new stores and renovations of the Company's
existing store base.

Operating income increased by $21.7 million to $25.0 million for fiscal 1996 as
compared to $3.3 million for fiscal 1995. Before the charges for store closings
and impairment of assets in fiscal 1995, operating income increased by
approximately $6.4 million to $25.0 million for fiscal 1996 from $18.6 million
for fiscal 1995. As a percentage of net sales, operating income before the
charges for store closings and impairment of assets increased to 6.0% from 4.8%.
The increase in operating income, before the charge for store closings and
impairment of assets, is primarily a result of new store contribution.

Interest expense decreased by $4.8 million to $13.4 million for fiscal 1996 as
compared to $18.2 million for fiscal 1995. The reduction in net interest expense
primarily resulted from the Company's reduction of approximately $30.0 million
of senior notes and a reduction of the average interest rate paid on the senior
notes by approximately 60 basis points, partially offset by interest expense
incurred on borrowings under the revolving line of credit. In May 1996, the
Company redeemed its 10-1/2% Senior Secured Notes and 13-3/4% Senior
Subordinated Notes totaling $130.0 million face value and issued $100.0 million
face value of 11-7/8% Senior Notes (the "Redemption"). Additionally, the
reduction in net interest expense resulted from an increase in interest income
earned on invested cash and $0.6 million interest capitalized on fixed asset
additions. As a result of the Redemption, the Company incurred approximately
$4.7 million in extraordinary losses on the early extinguishment of debt and
$2.0 million in losses from the write-off of related deferred financing costs
associated with such indebtedness.

In fiscal 1996, the Company utilized approximately $5.0 million of tax net
operating losses. See Note 2 of the Consolidated Financial Statements.

FISCAL 1995 COMPARED TO FISCAL 1994

Net sales decreased by approximately $6.5 million, or 1.7%, to $386.1 million
during fiscal 1995 as compared to $392.6 million during fiscal 1994. Comparable
store sales decreased by 0.4% during fiscal 1995 as compared to fiscal 1994 due
to a relatively weak retail environment. The remaining decrease in total sales
was attributable to the closure of 11 stores in August 1995 which

<PAGE>

represented approximately 4.7% and 2.1% of net sales in fiscal 1994 and fiscal
1995, respectively.

Gross profit increased by approximately $6.0 million to $120.2 million during
fiscal 1995 as compared to $114.2 million for fiscal 1994. Gross margin
increased to 31.1% for fiscal 1995 from 29.1% in the prior fiscal year. The
increase in margin was primarily a result of a continuing shift in the Company's
sales mix towards merchandise with a higher average gross margin coupled with a
reduction of markdowns and shrinkage.

Selling, general and administrative expenses increased by approximately $3.9
million to $89.5 million during fiscal 1995 as compared to $85.6 million during
fiscal 1994. As a percentage of net sales, selling, general and administrative
expense increased to 23.2% for fiscal 1995 from 21.8% in the prior fiscal year.
The increase in selling, general and administrative expenses was primarily due
to an increase in advertising as a result of the growth of the Company's Insider
Club membership list for direct mail sale announcements. The remaining increase
was attributable to higher occupancy costs due to the addition of square footage
at eight of the Company's existing stores and investment in corporate
infrastructure, partially offset by the closing of 11 stores in August 1995.

Depreciation and amortization for fiscal 1995 remained essentially unchanged as
compared to the prior fiscal year. The reduction in depreciation and
amortization attributable to the closing of 11 stores in fiscal 1995 and the
effect of a $4.95 million asset impairment charge was offset by additional
depreciation associated with capital expenditures in fiscal 1995.

Charge for store closings for fiscal 1995 include a $10.35 million charge
related to the closure of 11 underperforming stores in August 1995. Reserved
amounts at February 3, 1996 related to long-term lease commitments were not
material. See Note 8 to the Consolidated Financial Statements.

Charge for impairment of assets for fiscal 1995 include a $4.95 million
write-down to fair value of certain assets, primarily intangible favorable
leasehold rights, that were determined to be impaired. See Note 9 to the
Consolidated Financial Statements

Operating income decreased by $13.3 million to $3.3 million for fiscal 1995 as
compared to $16.6 million for fiscal 1994. Before the charges for store closings
and impairment of assets, operating income increased by approximately $2.0
million to $18.6 million for fiscal 1995 from $16.6 million for fiscal 1994. As
a percentage of net sales, operating income before the charges for store
closings and impairment of assets increased to 4.8% from 4.2%.

Interest expense, net for fiscal 1995 was essentially unchanged as compared to
fiscal 1994.

QUARTERLY RESULTS AND SEASONALITY

While the Company's net sales do not show significant seasonal variation, the
Company's operating income has traditionally been significantly higher in its
first and third fiscal quarters. The Company believes that its merchandise is
purchased primarily by women who are buying for their own wardrobes rather than
as gifts. As a result, the Company does not experience increases in net sales
during the Christmas shopping season. Results of operations during the second
and fourth quarters are traditionally impacted by end of season clearance
events. In addition, fourth quarter operations can be affected by employee
performance bonuses.

<PAGE>

The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended February 1, 1997. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.

<PAGE>

FISCAL 1995 FISCAL 1996
- -----------------------------------------------------------------------------------------------------------------------------------

First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(1) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands) Unaudited
Statement of operations data
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Net sales ................... $ 97,506 $ 89,426 $ 99,362 $ 99,796 $104,120 $ 90,652 $114,393 $108,593

Gross profit ................ 30,823 26,882 32,694 29,802 33,734 28,100 37,349 33,938

Selling, general and
administrative expenses(2) 22,007 20,452 22,511 24,515 23,885 20,802 25,528 26,078

Charge for store closings and
impairment of assets ...... -- 15,300 -- -- -- -- -- --

Operating income (loss) ..... 5,818 (11,934) 7,364 2,048 6,702 4,399 8,976 4,903

Interest expense ............ 4,422 4,533 4,460 4,738 4,231 3,759 2,698 2,673

Income (loss) before
extraordinary item ........ 1,337 (16,467) 2,897 (2,730) 2,421 630 6,274 2,228

Extraordinary loss on
early retirement of debt .. -- -- -- -- -- 7,101 -- --

Net income (loss) ........... $ 831 $(16,932) $ 2,481 $ (3,399) $ 1,835 $(11,553) $ 6,274 2,228

Income (loss) per share
applicable to common stock
before extraordinary item . $ 0.16 $ (3.23) $ 0.48 $ (0.65) $ 0.31 $ (0.51) $ 0.66 $ 0.23

Net income (loss) per share
applicable ................ $ 0.16 $ (3.23) $ 0.48 $ (0.65) $ 0.31 $ (1.33) $ 0.66 $ 0.23

</TABLE>

(1) For the 13 weeks ended February 1, 1997 and the 14 weeks ended February 3,
1996.
(2) Reflects income of $0.5 million of occupancy-related cost recovery items in
the fourth quarter of fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities totaled $4.6 million for fiscal 1996.
Cash of $23.9 million was provided from operations after adding back non-cash
charges, offset by the use of net working capital of approximately $19.8 million
primarily related to seasonal needs.

Net cash used in investing activities of $16.0 million in fiscal 1996,
principally related to capital expenditures for leasehold improvements and
fixtures primarily associated with the seven new stores opened in fiscal 1996
and upgrading of existing stores. Additionally, fiscal 1996 capital expenditures
include purchases related to stores scheduled to open in fiscal 1997.

Net cash provided by financing activities totaled $1.2 million for fiscal 1996
and reflects the proceeds of the Offerings and borrowings under the Company's
revolving credit facility offset by the redemption of the Company's Existing
Obligations. See Note 3 to the Consolidated Financial Statements.

Effective June 12, 1996, the Company amended and restated its credit agreement
with its bank to provide the Company with a new credit facility (the "Credit
Facility"). The Credit Facility provides for a $35.0 million revolving line of
credit with interest payable, on amounts drawn under the facility at either the
Bank's prime rate plus 0.75%, or LIBOR plus 2.2%, at the Company's option. At
February 1, 1997, outstanding borrowings under the Credit Facility were
approximately $10.2 million. The Company believes that cash generated from
operations, and funds available under the New Credit Facility will be sufficient
to satisfy its cash requirements in fiscal 1997.

<PAGE>

REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Loehmann's, Inc.

We have audited the accompanying consolidated balance sheets of Loehmann's Inc.
as of February 1, 1997 and February 3, 1996, and the related consolidated
statements of operations, changes in common stockholders' equity (deficit) and
cash flows for the fiscal years ended February 1, 1997, February 3, 1996 and
January 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Loehmann's Inc. at February 1, 1997 and February 3, 1996, and the consolidated
results of its operations and cash flows for the fiscal years ended February 1,
1997, February 3, 1996, and January 28, 1995 in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
February 24, 1997
- --------------------------------------------------------------------------------

<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
Loehmann's, Inc.
February 1, February 3,
1997 1996
- ------------------------------------------------------------------------------------------------
(In thousands, except share data)
ASSETS
Current assets:
<S> <C> <C>

Cash and cash equivalents ....................................... $ 2,292 $ 12,512
Accounts receivable and other assets ............................ 4,400 1,722
Merchandise inventory ........................................... 58,304 43,721
--------- ---------

Total current assets .............................................. 64,996 57,955
Property, equipment and leaseholds, net ........................... 66,515 60,245
Deferred debt issuance costs and other assets, net ................ 3,870 3,296
Purchase price in excess of net assets acquired, net .............. 40,819 42,115
--------- ---------

Total assets ...................................................... $ 176,200 $ 163,611

LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)

Current liabilities:
Accounts payable ................................................ $ 19,634 $ 21,474
Accrued expenses ................................................ 20,484 16,709
Accrued interest ................................................ 2,530 7,037
Current portion of long-term debt ................................. 70 66
--------- ---------

Total current liabilities ......................................... 42,718 45,286

Long-term debt:
Revolving line of credit .......................................... 10,188 --
Senior notes ...................................................... 95,000 129,021
Revenue bonds and notes ........................................... 2,662 2,712
--------- ---------

Total long-term debt .............................................. 107,850 131,733
Other noncurrent liabilities ...................................... 389 393
Series A preferred stock, 41,500,000 shares
authorized, 0 and 37,405,739 shares
issued and outstanding, respectively ........................... -- 15,279
Common stockholders' equity (deficit):
Common stock, $0.01 par value, 25,000,000
shares authorized; 8,756,739 and 4,725,420
shares issued and outstanding, respectively .................... 87 47
Class B convertible common stock, 469,237 shares authorized,
142,277 and 469,237 shares issued and outstanding, respectively 713 2,352
Additional paid-in capital ...................................... 80,995 23,857
Accumulated deficit ............................................. (56,552) (55,336)

Total common stockholders' equity (deficit) ....................... 25,243 (29,080)
--------- ---------

Total liabilities and common stockholders' equity (deficit) ....... $ 176,200 $ 163,611
--------- ---------
</TABLE>

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

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
Loehmann's, Inc.
FISCAL YEAR ENDED
February 1, February 3, January 28,
1997 1996 1995
- ------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>

Net sales ............................................... $ 417,758 $ 386,090 $ 392,606
Cost of sales ........................................... 284,637 265,889 278,398
--------- --------- ---------

Gross profit ............................................ 133,121 120,201 114,208
Selling, general and administrative expenses ............ 96,293 89,485 85,640
Depreciation and amortization ........................... 11,848 12,120 11,955
Charge for store closings and impairment of assets ...... -- 15,300 --
--------- --------- ---------

Operating income ........................................ 24,980 3,296 16,613
Interest expense, net ................................... 13,361 18,153 18,085
--------- --------- ---------
Income (loss) before income taxes ....................... 11,619 (14,857) (1,472)
Provision for income taxes .............................. 66 106 34
--------- --------- ---------

Income (loss) before extraordinary item ................. 11,553 (14,963) (1,506)
Extraordinary loss on early extinguishment of debt ...... 7,101 -- --
--------- --------- ---------

Net income (loss) ....................................... 4,452 (14,963) (1,506)
Stock dividends on and normal and accelerated
accretion of preferred stock .......................... 5,668 2,056 1,802
--------- --------- ---------

Net loss applicable to common stock ..................... $ (1,216) $ (17,019) $ (3,308)
--------- --------- ---------
Income (loss) per share applicable to common stock
before extraordinary item ............................... $ 0.69 $ (3.12) $ (0.63)
--------- --------- ---------
Net loss per share applicable to common stock ........... $ (0.14) $ (3.12) $ (0.63)
--------- --------- ---------
Weighted average number of common shares and common share
equivalents outstanding ................................. 8,529 5,463 5,228
--------- --------- ---------

</TABLE>

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Loehmann's, Inc.

CLASS B
COMMON STOCK COMMON STOCK Additional
Number Number Paid-in Accumulated
of Shares Amount of Shares Amount Capital Deficit Totals
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except share amounts)

<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of January 29, 1994 .... 4,425,230 $44 469,237 $2,352 $ 23,138 $ (35,009) $ (9,475)
Stock options earned ............... -- -- -- -- 195 -- 195
Exercise of stock options .......... 278,859 3 -- -- 303 -- 306
Net loss for the fiscal year ended
January 28, 1995 ................. -- -- -- -- -- (1,506) (1,506)
Stock dividends on and accretion
of preferred stock ............... -- -- -- -- -- (1,802) (1,802)
--------- ---- ------- ------ ------- -------- --------

Balances as of January 28, 1995 .... 4,704,089 47 469,237 2,352 23,636 (38,317) (12,282)
Stock options earned ............... -- -- -- -- 199 -- 199
Exercise of stock options .......... 21,331 -- -- -- 22 -- 22
Net loss for the fiscal year ended
February 3, 1996 ................. -- -- -- -- -- (14,963) (14,963)
Stock dividends on and accretion
of preferred stock ............... -- -- -- -- -- (2,056) (2,056)
--------- ---- ------- ------ ------- -------- --------
Balances as of February 3, 1996 .... 4,725,420 47 469,237 2,352 23,857 (55,336) (29,080)
--------- -- ------- ----- ------ ------- -------

Issuance of common stock ........... 3,572,000 36 -- -- 55,343 -- 55,379
Exercise of stock options .......... 132,359 1 -- -- 159 -- 160
Conversion of Class B common stock . 326,960 3 (326,960 (1,639) 1,636 -- --
Net income for the fiscal year ended
February 1, 1997 ................. -- -- -- -- -- 4,452 4,452
Stock dividends on and normal and
accelerated accretion of
preferred stock .................. -- -- -- -- -- (5,668) (5,668)
--------- ---- ------- ------ ------- -------- --------

Balances as of February 1, 1997 .... 8,756,739 $87 142,277 $ 713 $ 80,995 $ (56,552) $ 25,243
--------- ---- ------- ------ ------- -------- --------
</TABLE>

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

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Loehmann's, Inc.
FISCAL YEAR ENDED
February 1, February 3, January 28,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................ $ 4,452 $ (14,963) $ (1,506)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ................................ 11,848 12,120 11,955
Accretion of 10-1/2% senior secured notes .................... 510 1,328 1,202
Charges for store closings, impairment of assets and other ... -- 10,538 --
Loss on early retirement of debt ............................. 7,101 -- --
Changes in assets and liabilities:
Accounts receivable and other assets ........................... (2,678) 678 2,194
Merchandise inventory .......................................... (14,583) 417 2,623
Accounts payable ............................................... (1,840) (276) 5,836
Accrued expenses ............................................... 3,775 (3) (207)
Accrued interest ............................................... (4,507) 250 170
--------- --------- ---------

Net change in current assets and liabilities ..................... (19,833) 1,066 10,616
Net change in other noncurrent assets and liabilities ............ 549 (627) (193)
Total adjustments, net ........................................... 175 24,425 23,580
--------- --------- ---------

Net cash provided by operations .................................. 4,627 9,462 22,074

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............................................. (16,037) (8,130) (5,853)
Net cash used in investing activities ............................ (16,037) (8,130) (5,853)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on revolving credit facility ............................ -- -- (55,870)
Borrowings on revolving credit facilities ........................ 10,188 -- 50,847
Purchase of senior notes ......................................... (139,395) (1,584) --
Sale of 11-7/8% senior notes, net of issuance costs .............. 95,863 -- --
Redemption of Series A Preferred Stock ........................... (20,947) -- --
Sale of common stock ............................................. 55,379 -- --
Other financing activities, net .................................. 102 (58) 159
Net cash provided by (used in) financing activities .............. 1,190 (1,642) (4,864)
--------- --------- ---------

Net (decrease) increase in cash and cash equivalents ............. (10,220) (310) 11,357
Cash and cash equivalents at beginning of period ................. 12,512 12,822 1,465
--------- --------- ---------

Cash and cash equivalents at end of period ....................... $ 2,292 $ 12,512 $ 12,822

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the fiscal year for interest .................... $ 18,807 $ 16,845 $ 16,738
Cash paid during the fiscal year for income taxes ................ $ 218 $ 103 --
--------- --------- ---------
</TABLE>

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

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------

ORGANIZATION
Loehmann's, Inc. (the "Company"), is a national specialty retailer of women's
fashion apparel, accessories and shoes.

Effective May 7, 1996, the Company effected a reincorporation from Maryland, to
Delaware by Loehmann's Holdings, Inc. ("Holdings"), the Company's predecessor,
merging into the Company (the "Merger"). As a result of the Merger, each share
of Holdings common stock and Class B common stock was converted into
approximately 0.22 shares of the Company's common and Class B common,
respectively, and the authorized number of common shares was changed to
25,000,000. Accordingly, the financial information appearing herein (including
all share and per share data) reflects the retroactive application of the
Merger.

BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany items have been
eliminated. Certain amounts in the consolidated financial statements have been
reclassified to conform to fiscal 1996 presentation.

FISCAL YEAR
The Company follows the standard fiscal year of the retail industry which is a
52 or 53 week period ending on Saturday closest to January 31. Fiscal years
ended February 1, 1997, February 3, 1996, and January 28, 1995 had 52 weeks, 53
weeks and 52 weeks, respectively.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS
The Company considers all highly liquid marketable securities purchased with an
original maturity of three months or less to be cash and cash equivalents.

MERCHANDISE INVENTORY
Merchandise inventory is valued at the lower of cost or market as determined by
the retail inventory method. However, certain warehoused inventory that is not
available for sale is valued on a specific cost basis. The merchandise inventory
valued on a specific cost basis at February 1, 1997 and February 3, 1996 was
$11.9 million and $10.5 million, respectively.

ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising costs were $14.8
million, $13.0 million, and $10.2 million during fiscal 1996, fiscal 1995, and
fiscal 1994, respectively.

DEPRECIATION AND AMORTIZATION
Building and furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives. Leasehold interests
represent the beneficial value of operating leases as determined by an
independent appraisal of the individual leases at the date such leases were

<PAGE>

acquired by the Company and such amounts are amortized on a straight-line basis
over the related lease term.

Leasehold improvements are amortized on a straight-line basis over the shorter
of the related lease terms or their useful life.

PRE-OPENING COSTS
Expenses incurred in connection with the opening of new stores are expensed in
the fiscal quarter in which the store opens. In fiscal 1996 and 1994 the Company
incurred $1.7 million and $0.1 million respectively in pre-opening costs. No
pre-opening costs were incurred in fiscal 1995.

PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED
The purchase price in excess of identifiable net assets acquired is being
amortized on a straight-line basis over 40 years. Amortization for fiscal 1996,
fiscal 1995 and fiscal 1994 amounted to $1.3 million. Accumulated amortization
at February 1, 1997 and February 3, 1996 was $10.9 million and $9.6 million,
respectively.

CLASS B COMMON STOCK
Each share of Class B Common Stock is convertible into one share of Common
Stock, subject to adjustment at any time. During fiscal 1996, approximately
327,000 shares of Class B Common Stock were converted. Subject to restrictions
in the Company's various credit agreements, the Company is required to offer to
purchase the Class B Common Stock at its independently appraised value. The
Company's various credit agreements prohibit or restrict any such repurchase.

CAPITALIZED INTEREST
Interest on borrowed funds is capitalized during construction of property and is
amortized on a straightline basis over the depreciable lives of the related
assets. Interest of $640,000 was capitalized during fiscal 1996. Interest
capitalized during fiscal 1995 and fiscal 1994 was not material.

DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are amortized over the terms of the related debt
agreements. Deferred debt issuance costs were $4.1 million at February 1, 1997
and $6.9 million at February 3, 1996. Amortization expenses for fiscal 1996,
fiscal 1995 and fiscal 1994 was $0.8 million, $1.2 million and $1.2 million,
respectively. Accumulated amortization at February 1, 1997 and February 3, 1996
was $0.5 million and $4.5 million respectively.

INCOME TAXES
Income taxes are provided using the liability method.

NET LOSS PER SHARE OF COMMON STOCK
Net loss per share is determined by dividing net loss (after deducting dividends
on and accretion of preferred stock) by the weighted average number of Common
and Class B Common shares and common stock equivalents outstanding during the
period. Outstanding options to purchase Common Stock were not considered in the
calculation of net loss per share applicable to Common Stock for fiscal 1995 and
fiscal 1994, as their effects were antidilutive.

<PAGE>

2. INCOME TAXES
- -------------------------------------------------------------------------------

The Company's provision for income taxes primarily represents state and local
minimum and alternative minimum taxes.

Significant components of deferred tax liabilities and assets are as follows:

February 1, February 3,
1997 1996
- -------------------------------------------------------------------------------

(In thousands)

Deferred tax liabilities $ (205) $ (130)

Deferred tax assets:
Net operating loss carryforwards 8,146 10,550
Excess book depreciation and
amortization 6,037 3,097
Compensation 925 1,851
Capitalization of inventory
expenses 617 469
Other, net 429 351
Asset impairment reserve 4 2,349
---------- --------
Total deferred tax assets 16,158 18,667
---------- --------

Net deferred tax assets 15,953 18,537
Less valuation allowance (15,953) (18,537)
$ -- $ --
---------- --------

Following is a reconciliation of the statutory income tax rate and the effective
income tax rate application to earnings before income taxes:

February 1 February 3, January 28,
1997 1996 1995
- -------------------------------------------------------------------------------

Statutory tax rate 35.0 % 35.0% 35.0%
Tax effect of extraordinary item (21.4)% -- --

Utilization of net operating
loss carryforward (17.8)% -- --
Valuation allowance adjustment -- (31.9)% (3.6)%
Goodwill 3.9 % (3.2)% (30.8)%
Other, net 0.9 % (0.6)% (2.9)%
-------- -------- -------
Effective tax rate 0.6 % (0.7)% (2.3)%
-------- -------- -------

In fiscal 1996, the Company utilized $5.0 of its net operating loss carryforward
resulting in a tax benefit of approximately $2.0 million. At February 1, 1997,
the Company had net operating loss carryforwards of approximately $20.8 million
and $14.4 million for regular and alternative minimum tax purposes,
respectively. Net operating losses begin to expire in 2003 and future years.

<PAGE>

3. EQUITY AND DEBT OFFERING
- -------------------------------------------------------------------------------

On May 10, 1996, the Company sold 3,572,000 shares of Common Stock and $100.0
million principal amount of 11-7/8% Senior Notes due 2003 (the "Senior Notes").
The net proceeds received from such offerings (the "Offerings") were used (i) to
redeem in full the Company's 10-1/2% Senior Secured Notes, at a redemption price
of 103.5 (ii) to redeem in full the Company's 13-3/4% Senior Subordinated Notes
at a redemption price of 101.0% (iii) to redeem all issued and outstanding
shares of the Company's Series A Preferred Stock at its liquidation price of
$0.56 per share (collectively, the "Existing Obligations").

As a result of these transactions, the Company incurred approximately $4.7
million in extraordinary losses on the early extinguishment of debt and $2.0
million in losses from the write-off of related deferred financing costs
associated with such indebtedness, and a $5.1 million charge to accumulated
deficit from the accelerated accretion of the Series A Preferred Stock to its
liquidation price of $0.56 per share.

4. LONG-TERM DEBT
- -------------------------------------------------------------------------------

The Company's long-term debt consists of:

February 1, February 3,
1997 1996
- -------------------------------------------------------------------------------

(In thousands)

Revolving line of Credit(a) $10,188 $ --
11-7/8 senior notes, due 2003(b) 95,000 --
10-1/2% senior secured notes,
due 1997 -- 51,471
13-3/4% senior subordinated
notes due 1999 -- 77,550
9-1/2% New York City Industrial
Development
Agency revenue bonds, due 2004 2,250 2,250
5-1/2% City of New York note due
in varying installments to 2004 482 528
- -------------------------------------------------------------------------------

107,920 131,799
Less current maturities 70 66
-------- ---------
Long-term debt $107,850 $ 131,733
- -------------------------------------------------------------------------------

(a) Effective June 12, 1996, the Company amended and restated its credit
agreement with its bank to provide the Company with a new credit facility (the
"Credit Facility"). The Credit Facility provides for a new $35.0 million
revolving line of credit with interest at either the Bank's prime rate plus
0.75%, or LIBOR plus 2.2% at the Company's option. The Company also is required
to pay a per annum fee equal to 0.375% on the undrawn portion of the Bank's
commitment in respect of the Credit Facility.

The Credit Facility is subject to certain borrowing base limitations, subjects
the Company to certain covenants, and imposes certain other limitations. The
Credit Facility is secured by substantially all of the Company's assets,

<PAGE>

is not subject to scheduled annual repayments, except upon maturity and has a
term of four years.

(b) Interest is payable semiannually on May 15 and November 15 in each year. The
Company is entitled to redeem the Notes commencing May 15, 2000 at redemption
prices of 105.938%, 102.969% and 100% of the principal amount during 2000, 2001
and 2002, respectively.

The Senior Notes Indenture contains certain covenants that, among other things,
limit the ability of the Company or any of its subsidiaries to incur additional
indebtedness, transfer or sell assets, pay dividends or make certain other
restricted payments, incur liens, enter into certain transactions with
affiliates or consummate certain mergers, consolidations or sales of all or
substantially all of its assets. In addition, subject to certain conditions, the
Company is obligated to make offers to repurchase the Senior Notes with the net
proceeds of certain asset sales. These covenants are subject to certain
exceptions and qualifications.

Based on a quoted market price of 111.5, the fair value of the 11 7/8 senior
notes outstanding at February 1, 1997 approximated $105.9 million.

<PAGE>

During the second quarter of 1996, the Company purchased and retired $5.0
million face amount of the 11 7/8% senior notes on the open market incurring an
extraordinary loss of approximately $365,000 in connection with this purchase.

5. PROPERTY, EQUIPMENT AND LEASEHOLDS, NET
- -------------------------------------------------------------------------------

Property, equipment and leaseholds are recorded at cost less accumulated
depreciation and amortization. The components of property, equipment and
leaseholds are as follows:

Useful February 1, February 3,
Lives 1997 1996
- -------------------------------------------------------------------------------

(In years) (In thousands)
Building 20 $ 7,879 $ 7,879
Furniture, fixtures and
equipment 3-8 35,835 27,610
Leasehold interests 5-29 51,781 51,781
Leasehold improvements 5-29 28,675 20,881
- -------------------------------------------------------------------------------

Total property, equipment and leaseholds 124,170 108,151
Accumulated depreciation and amortization (57,655) (47,906)
Property, equipment and leaseholds, net $ 66,515 $ 60,245
- -------------------------------------------------------------------------------

6. STOCK OPTION PLANS
- -------------------------------------------------------------------------------

On September 30, 1988, the Company adopted the Loehmann's Holdings, Inc. 1988
Stock Option Plan, as amended on April 2, 1992, pursuant to which a committee
appointed by the Board of Directors is authorized to grant options to purchase
up to 1,077,010 shares of Common Stock to key employees and directors. On May 7,
1996, the Company adopted the Loehmann's, Inc. New Stock Incentive Plan (the
"New Stock Option Plan"). A maximum of 446,892 shares of Common Stock may be
delivered by the Company pursuant to options or other awards authorized by a
committee appointed by the Board of Directors.

<PAGE>

The following information pertains to the Company's stock option plans:

February 1, February 3, January 28,
1997 1996 1995
- -------------------------------------------------------------------------------

Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------

(in thousands) (in thousands) (in thousands)
Outstanding options,
beginning of year 729 $ 2.77 604 $1.37 857 $1.40
Granted 324 17.74 264 4.76 45 1.07
Canceled (46) 17.96 (120) 1.07 (18) 1.07
Exercised (132) 1.20 (19) 1.36 (280) 1.07
- -------------------------------------------------------------------------------

Outstanding options,
end of year 875 7.00 729 2.77 604 1.37
- -------------------------------------------------------------------------------

Options exercisable,
end of year 450 $ 3.02 432 $2.30 354 $1.20
- -------------------------------------------------------------------------------

Options available for
future grant 77 -- 42 -- 50 --

Stock options are granted to officers and key employees based upon a price
determined by the Board of Directors of the Company.

The 875,000 options outstanding at February 1, 1997, vest over a range of two to
five years from the date of grant provided the individuals remain in the employ
of the Company. Options are exercisable at a price ranging from $1.07 to $23.13.
Options issued under the 1988 Stock Option Plan generally must be exercised
within five years from the date they are earned. Options issued under the New
Stock Option Plan must be exercised prior to the tenth anniversary of the grant
date. Certain options granted in 1996 pursuant to the 1988 Stock Option Plan
require exercise prior to the tenth anniversary of the grant. Outstanding
options at February 1, 1997 have a weighted average remaining contractual life
of 8 years.

The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss and net loss per share would have
increased to $1.8 million or $0.22 per share, respectively, in fiscal 1996 and
increased to $17.1 million or $3.12 per share, respectively, for fiscal 1995.

The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for both
fiscal 1996 and fiscal 1995: risk-free interest rate of 6.3%, an expected life
of 3 to 7 years and a dividend yield of zero. For fiscal 1996 and fiscal 1995,
volatility was 58.0% and 38.7%, respectively. The effects of applying FAS 123
and the results obtained are not likely to be representative of the effects on
future pro-forma income.

<PAGE>

7. COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------

The Company is the lessee under various long-term operating leases for store
locations and equipment rentals for up to 29 years, including renewal options.
The leases typically provide for three five-year renewals that are automatic
unless the Company elects not to exercise its options. Rent expense related to
these leases amounted to $10.1 million, $8.1 million, and $7.4 million for the
fiscal years ended February 1, 1997, February 3, 1996, and January 28, 1995,
respectively. Most leases require the Company to pay real estate taxes and other
expenses; some require additional amounts. At February 1, 1997, future minimum
payments under noncancelable operating leases consisted of: $14.6 million, $15.5
million, $14.7 million, $13.7 million and $12.4 million for fiscal years 1997,
1998, 1999, 2000 and 2001, respectively. Such amounts for fiscal 2002 and
subsequent years approximate $146.2 million.

8. CHARGE FOR STORE CLOSINGS
- -------------------------------------------------------------------------------

During the second quarter of fiscal 1995, the Company implemented a plan to
close 11 underperforming stores and, as a result, recorded a $10.35 million
charge to continuing operations. The store closures were completed by the end of
August 1995. Reserved amounts remaining at February 3, 1996 relating to
long-term lease commitments were not material. Net sales and store operating
income (loss), including certain specifically allocated charges, for these
stores were $8.2 million and $0.1 million, respectively, in fiscal 1995 and
$18.6 million and ($0.3) million, respectively, in fiscal 1994.

The charge for store closings consisted of write-offs of property, plant and
equipment, expenses and markdowns associated with store closings, costs
associated with net lease obligations and other expenses of $5.5 million, $3.6
million, $0.95 million and $0.3 million, respectively.

9. CHARGE FOR IMPAIRMENT OF ASSETS
- -------------------------------------------------------------------------------

During the second quarter of fiscal 1995, the Company completed certain market
analyses as part of its overall strategic plan. As an outcome of these analyses,
the Company shortened the period of time in which it intended to occupy certain
stores and as a consequence the undiscounted cash flows estimated to be
generated from the revised intended use was not sufficient to recover the
assets' carrying amount. Based on these indicators, the primary intangible
assets associated with these locations were determined to be impaired.

Accordingly, the Company recorded an impairment loss of approximately $4.95
million to continuing operations, representing the excess net book value of
these assets over their fair value.
Fair value was based on appraisal value.

The impairment charge consisted of leasehold interests, furniture fixtures and
equipment and leasehold improvements of $4.5 million, $0.25 million, $0.25
million, respectively.

10. EMPLOYEE BENEFIT PLANS
- -------------------------------------------------------------------------------

In October 1996, the Company established a defined contribution retirement
savings plan (401 (k)) covering all eligible employees. This plan succeeds the
previously discretionary profit sharing plan with all prior individual account
balances and vesting terms transferred to the new plan. The

<PAGE>

plan allows participants to defer a portion of their annual compensation and
receive a matching employer contribution on a portion of that deferral. During
fiscal 1996, the Company recorded a contribution $71,000 to the 401(k) plan. The
Company recorded a contribution of $500,000 to the profit sharing plan in fiscal
1995 and fiscal 1994.

SELECTED FINANCIAL DATA
Loehmann's, Inc. 1996 1995 1994 1993 1992
- ----------------------------------- -------- -------- --------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>

Net Sales ......................... $417,758 $386,090 $392,606 $373,443 $389,330
Net loss applicable to common stock $ 1,216 $ 17,019 $ 3,308 $ 13,727 $ 2,118
Net loss per share applicable to
common stock $ 0.14 $ 3.12 $ 0.63 $ 2.18 $ 0.49

Total Assets ...................... $176,200 $163,611 $178,612 $177,666 $184,189
Long-term obligations ............. $107,850 $131,733 $131,967 $130,827 $119,420
Redeemable Series A preferred stock -- $ 15,279 $ 13,223 $ 11,421 $ 9,924
-------- -------- -------- -------- --------

</TABLE>

Exhibit 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Loehmann's, Inc. of our report dated February 24, 1997,
included in the 1996 Annual Report to Stockholders of Loehmann's, Inc.

We also consent to the incorporation by reference in Registration
Statements (Form S-8 Numbers 333-05751 and 333-05749) of Loehmann's, Inc. of our
report dated February 24, 1997, with respect to the consolidated financial
statements incorporated herein by reference.

/s/ Ernst & Young LLP

New York, New York
May 2, 1997

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in it entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 2,292
<SECURITIES> 0
<RECEIVABLES> 4,440
<ALLOWANCES> 0
<INVENTORY> 58,304
<CURRENT-ASSETS> 64,996
<PP&E> 66,515
<DEPRECIATION> 11,848
<TOTAL-ASSETS> 176,200
<CURRENT-LIABILITIES> 42,718
<BONDS> 95,000
0
0
<COMMON> 87
<OTHER-SE> 25,156
<TOTAL-LIABILITY-AND-EQUITY> 176,200
<SALES> 417,758
<TOTAL-REVENUES> 417,758
<CGS> 284,637
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 108,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,361
<INCOME-PRETAX> 11,619
<INCOME-TAX> 66
<INCOME-CONTINUING> 11,553
<DISCONTINUED> 0
<EXTRAORDINARY> 12,769 <F1>
<CHANGES> 0
<NET-INCOME> (1,216)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
<FN>
<F1> Includes stock dividends on and normal and accelerated accretion of
preferred stock of $5,668.
</FN>

</TABLE>