GOODYS FAMILY CLOTHING INC /TN, S-3, 1997-07-30

GOODYS FAMILY CLOTHING INC /TN
S-3, 1997-07-30
FAMILY CLOTHING STORES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997.

REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

GOODY'S FAMILY CLOTHING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
TENNESSEE 62-0793974
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
</TABLE>

400 GOODY'S LANE, KNOXVILLE, TENNESSEE 37922
(423) 966-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)

ROBERT M. GOODFRIEND
GOODY'S FAMILY CLOTHING, INC.
400 GOODY'S LANE
KNOXVILLE, TENNESSEE 37922
(423) 966-2000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:

<TABLE>
<C> <C>
RICHARD A. GOLDBERG, ESQ. HELEN T. FERRARO, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP SMITH, GAMBRELL & RUSSELL, LLP
919 THIRD AVENUE ATLANTA FINANCIAL CENTER, SUITE 1800
NEW YORK, NEW YORK 10022 3343 PEACHTREE ROAD, N.E.
(212) 758-9500 ATLANTA, GEORGIA 30326-1010
(212) 758-9526 FAX (404) 264-2620
(404) 264-2652 FAX
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=============================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per
share.......................... 2,354,500 shares(2) $35.875 $84,467,687.50 $25,596.27
=============================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to the provisions of Rule 457(c) under the Securities Act of 1933,
as amended, based on the average of the high and low prices of the Common
Stock on the Nasdaq National Market on July 25, 1997.
(2) Includes 300,000 shares that are issuable upon exercise of the Underwriters'
over-allotment option.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8 (A),
MAY DETERMINE.

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 30, 1997

2,054,500 SHARES

GOODYS LOGO

COMMON STOCK

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

All of the 2,054,500 shares of Common Stock (the "Common Stock") of Goody's
Family Clothing, Inc. ("Goody's" or the "Company") offered hereby (the
"Offering") are being sold by certain shareholders of the Company named herein
(the "Selling Shareholders"). See "Principal and Selling Shareholders." The
Company will not receive any proceeds from the sale of the Common Stock sold
hereby.

The Common Stock is quoted on the Nasdaq National Market under the symbol
"GDYS". On July 29, 1997, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $38.25 per share. See "Price Range of Common
Stock."

SEE "RISK FACTORS" ON PAGES 6 THROUGH 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $
==================================================================================================================
</TABLE>

(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting estimated expenses of $ payable by the Selling
Shareholders.
(3) The principal Selling Shareholder has granted the Underwriters a 30-day
option to purchase up to 300,000 additional shares of Common Stock solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public will be $ , the total Underwriting Discount
will be $ and the total Proceeds to Selling Shareholders will be
$ . See "Underwriting."
---------------------

The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if received and accepted by them, subject to
their right to reject orders, in whole or in part, and to certain other
conditions. It is expected that delivery of the certificates representing the
Common Stock will be made on or about , 1997.

THE ROBINSON-HUMPHREY COMPANY, INC. J.C. BRADFORD & CO.

, 1997
<PAGE> 3
[INSIDE FRONT COVER OF PROSPECTUS DISPLAYING MAP OF SOUTHERN AND MIDWESTERN
UNITED STATES THAT INDICATES BOTH EXISTING AND PROPOSED GOODY'S STORE
LOCATIONS.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."

[FOLD-OUT PAGE 1 OF INSIDE FRONT COVER OF PROSPECTUS WITH PHOTOGRAPHS OF (i) AN
EXTERIOR FACADE OF A GOODY'S STORE, (ii) A DENIM DEPARTMENT, AND (iii) A MENS'
DEPARTMENT - ACTIVEWEAR.]

[FOLD-OUT PAGE 2 OF INSIDE FRONT COVER OF PROSPECTUS CONTAINING GOODY'S FAMILY
CLOTHING, INC. LOGO, AND PHOTOGRAPHS OF (i) A MEN'S DEPARTMENT - GFC SHOP,
(ii) A WOMEN'S DEPARTMENT - MONTANA BLUES JEAN COMPANY SHOP, (iii) A CHILDREN'S
DEPARTMENT, AND (iv) A MEN'S DEPARTMENT - IVY CREW SHOP.]

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety to the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere, or incorporated by reference, in this Prospectus. Except as otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Unless the context otherwise indicates, all
references in this Prospectus to the "Company" or "Goody's" refer to Goody's
Family Clothing, Inc., a Tennessee corporation, and its subsidiaries. The
Company's fiscal year ends on the Saturday nearest the last day of January. The
terms "fiscal 1997," "fiscal 1996," "fiscal 1995," "fiscal 1994," "fiscal 1993"
and "fiscal 1992" refer to the Company's fiscal years ending or ended on January
31, 1998 (52 weeks), February 1, 1997 (52 weeks), February 3, 1996 (53 weeks),
January 28, 1995 (52 weeks), January 29, 1994 (52 weeks) and January 30, 1993
(53 weeks), respectively.

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

Goody's is a retailer of moderately-priced apparel for women, men and
children, operating 209 stores in 15 Southeastern and Midwestern states.
Incorporated in 1954, Goody's continually develops and refines its merchandising
strategy to meet the tastes and lifestyles of its customer base. The Company
primarily locates its stores in small to midsize markets that have demographic
characteristics consistent with its targeted value-conscious customer. Its
stores, all of which are leased and which are generally located in strip
shopping centers, average approximately 27,000 gross square feet. The Company
manages its core functions, including purchasing, pricing, marketing and
advertising, distribution, finance and information systems, from its centrally
located corporate office and distribution center in Knoxville, Tennessee.

The Company's objective is to be the leading retailer of brand name apparel
in each of the markets it serves by providing its customers with a broad
selection of current-season, quality branded apparel at value prices. Key brands
offered by the Company include Adidas, Alfred Dunner, Bugle Boy, Dockers, Lee,
Leslie Fay, Levi's, Nike, Reebok, Requirements and Sag Harbor, among many
others. These well-known brands, combined with the Company's outstanding private
label collections, Montana Blues Jean Company and Mountain Lake for women;
Authentic GFC, Bobby G and Ivy Crew for men; and GoodKidz for children, enable
the Company to compete effectively with other retailers operating in its
markets.

The central elements of the Company's competitive strategy include its (i)
appeal to value-conscious customers, (ii) ability to offer a broad range of
merchandise for the entire family, (iii) emphasis on current-season,
first-quality brands, (iv) strategic use of private label merchandise, (v) focus
on small to midsize markets and (vi) strong marketing and advertising.

The Company continues to experience significant growth in the number of its
stores as well as in its sales. During the period from fiscal 1992 through
fiscal 1996, the number of stores increased from 125 to 203 and sales increased
from $455.3 million to $819.1 million. During fiscal 1995, the Company began to
implement important strategic initiatives related to merchandise assortment,
inventory levels and customer focus. The Company believes that its financial
results began significantly improving in the third quarter of fiscal 1996 as a
result of the successful implementation of these strategic initiatives. These
improvements have included comparable store sales increases in each subsequent
quarter. This trend has continued into the first quarter of fiscal 1997 when,
compared with the corresponding period of the previous fiscal year, sales
increased 26% from $150.8 million to $190.1 million, including a comparable
store sales increase of 14.9%, net earnings increased 129% from $2.2 million to
$5.1 million and earnings per share increased 114% from $0.14 per share to $0.30
per share.

The Company's expansion strategy for each of fiscal 1997 and fiscal 1998 is
to open 20 to 24 new stores (including 11 stores opened to date in fiscal 1997)
in markets generally located within 800 miles of its distribution center. The
Company believes that significant opportunities exist to expand its presence
within its
3
<PAGE> 5

current markets and into the neighboring states of Louisiana, Oklahoma and
Texas. In addition, the Company plans to relocate approximately 10 stores and
expand or remodel approximately three stores in each such fiscal year.

The principal executive offices of the Company are located at 400 Goody's
Lane, Knoxville, Tennessee 37922, and the Company's telephone number is (423)
966-2000.

THE OFFERING

Common Stock offered by the Selling
Shareholders........................... 2,054,500 shares

Common Stock outstanding after the
Offering............................... 16,333,582 shares(1)

Use of proceeds........................ The Company will not receive any
proceeds from the sale of Common
Stock offered hereby.

Nasdaq National Market symbol.......... GDYS
- ---------------

(1) As of July 25, 1997 and excludes 1,824,035 shares of Common Stock (after
giving effect to the exercise of stock options for 54,500 shares of Common
Stock by certain Selling Shareholders in connection with the Offering)
issuable upon exercise of stock options outstanding under the Company's
various stock option plans at a weighted average exercise price of $14.05
per share.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

Chandler Hill, GFC, GFC Trading Co., GoodKidz and Goody's Family Clothing
are registered trademarks of the Company. The Company has applied for
registration of the following trademarks: Authentic GFC, Bobby G, Fireside
Flannels, Ivy Crew, Montana Blues Jean Company, Mountain Lake and Old College
Inn. The following trademarks and tradenames used in this Prospectus are owned
by (and in certain cases registered to) third parties: Adidas, Alfred Dunner,
Arrow, Body I.D., Braetan, Bugle Boy, Burnes of Boston, Byer, California
Concepts, Capezio, Cathy Daniels, Converse, Counterparts, Cradle Togs, Dawn Joy,
Dockers, Drummer Boy, Esprit, Fila, Fundamental Things, Hanes, Herman Kay,
Jantzen, Jessica Howard, Keds, L.A. Gear, LaBlanca/Sassafras, Lee, Leslie Fay,
Levi's, Lovable, Maidenform, Mickey & Co., My Michelle, Nike, Ocean Pacific,
Olga, Plaza South, Positive Attitude, Reebok, Requirements, Rosetti, Russell,
Sag Harbor, Scarlett, Speedo, Stephanie K by Koret, Trends, Union Bay, Warner's,
Winlet, Winnie the Pooh and Wrapper.
4
<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share amounts and sales per gross square foot)

<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED(1)
FISCAL YEAR -------------------
------------------------------------------------------------------- MAY 3, MAY 4,
1996 1995(2) 1994 1993 1992(2) 1997 1996
----------- ----------- ----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................. $819,056 $696,868 $613,664 $504,964 $455,330 $190,057 $150,766
Gross profit.......................... 209,372 170,717 154,807 130,405 122,603 54,977 42,645
Earnings from operations.............. 26,744 15,816 12,052 19,499 24,485 7,732 3,370
Earnings before income taxes.......... 27,442 16,527 10,772 21,200 25,424 8,093 3,555
Net earnings.......................... 17,151 10,464 6,872 13,815 16,214 5,058 2,204
Earnings per common share(3).......... $ 1.04 $ 0.65 $ 0.43 $ 0.86 $ 1.00 $ 0.30 $ 0.14
Weighted average common shares
outstanding (in 000's)(3)........... 16,509 16,123 16,097 16,130 16,202 16,629 16,125

SELECTED OPERATING DATA:
Stores open at period end............. 203 184 171 146 125 209 193
Comparable store sales increase
(decrease)(4)....................... 6.9% 1.3% 3.4% (1.2)% 9.4% 14.9% (5.7)%
Sales per gross square foot(5)........ $ 156 $ 150 $ 150 $ 148 $ 156 $ 34 $ 31
Average sales per store(6)............ $ 4,090 $ 3,922 $ 3,741 $ 3,766 $ 3,906 $ 924 $ 753
Gross store square footage at period
end (in 000's)...................... 5,498 4,913 4,505 3,695 3,205 5,689 5,173
Capital expenditures.................. $ 16,070 $ 10,632 $ 39,388 $ 15,077 $ 11,043 $ 2,654 $ 3,133
Depreciation and amortization......... $ 10,595 $ 9,141 $ 6,185 $ 5,594 $ 5,409 $ 2,614 $ 2,290

BALANCE SHEET DATA (AT PERIOD END):
Working capital............................................................................................ $ 50,182
Total assets............................................................................................... 278,802
Long-term debt............................................................................................. 871
Shareholders' equity....................................................................................... 129,433
</TABLE>

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

(1) The business of the Company is seasonal and the results for any period
within a fiscal year are not necessarily indicative of the results that may
be achieved for an entire fiscal year.
(2) Consists of 53 weeks.
(3) Weighted average common shares outstanding for fiscal 1996 and for the
thirteen weeks ended May 3, 1997 include common equivalent shares to account
for the dilutive effect of stock options. Common equivalent shares were not
materially dilutive in other periods presented and therefore were not
included in the earnings per share computations for such periods.
(4) Comparable store sales beginning with the first quarter of fiscal 1996 are
based on stores which operated throughout the period (including relocated,
remodeled, and expanded stores) and which were in operation for the entire
previous year (computed on comparable 52-week periods in the case of fiscal
years). Prior to fiscal 1996, new stores were included in such calculation
beginning the first full month following the anniversary of their opening.
(5) Sales per gross square foot is calculated by dividing (i) comparable store
sales by (ii) the gross square footage related to the comparable stores.
(6) Average sales per store is calculated by dividing (i) total sales during the
period less sales attributable to new stores opened and stores closed during
the period by (ii) the number of stores open at the end of the period less
new stores opened during the period.
5
<PAGE> 7

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.

This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), which generally can be identified by the
use of forward-looking terminology such as "may," "will," "expect," "estimate,"
"anticipate," "believe," "target," "plan," "project" or "continue" or the
negatives thereof or other variations thereon or similar terminology. These
statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) the
timely availability of branded and private label merchandise in sufficient
quantities to satisfy customer demand; (ii) the timing, magnitude and costs of
opening new stores; (iii) the Company's financing plans; (iv) trends affecting
the Company's financial condition or results of operations; and (v) the
Company's business and growth strategies. Prospective investors are cautioned
that any such forward-looking statement is not a guarantee of future performance
and involves risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statement as a result of
various factors. The accompanying information contained in this Prospectus,
including, without limitation, the information set forth below in this section
and under the sections "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," identifies important
factors that could cause such differences. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.

HIGHLY COMPETITIVE NATURE OF THE RETAIL APPAREL INDUSTRY

The Company faces intense competition for customers, access to quality
merchandise and suitable store locations from traditional department stores,
specialty retailers and off-price retail chains. Many of these competitors are
larger and have significantly greater financial and marketing resources than the
Company. In addition, many department stores have become more promotional and
have reduced their price points, and certain finer department stores have opened
outlet stores which offer off-price merchandise in competition with the Company.
Further, in view of the Company's strategy of offering merchandise at prices
targeted to be 10% to 30% lower than those of traditional department stores,
aggressive department store pricing could adversely affect the Company's
margins. Accordingly, the Company faces intense competition, the effect of which
could require the Company to reduce prices on merchandise for sale or increase
spending on marketing and advertising, any of which could have a material
adverse effect on the Company.

SEASONALITY, CYCLICAL NATURE OF THE RETAIL APPAREL INDUSTRY AND FLUCTUATION IN
QUARTERLY RESULTS

The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning approximately two weeks before Easter Sunday and ending on the
Saturday preceding Easter) collectively accounted for approximately 36% of the
Company's annual sales, based on the last three fiscal years ended February 1,
1997. In general, sales volume varies directly with customer traffic, which is
heaviest during the third and fourth quarters of a fiscal year. Any adverse
trend in sales for such periods, including trends caused by weather conditions,
could have a material adverse effect upon the Company's profitability and could
adversely affect the Company's results of operations for the entire year.

In addition to seasonality, the Company's results of operations have
fluctuated in the past, and are expected to fluctuate in the future, as a result
of a variety of factors, including the timing of store openings and related
advertising and pre-opening expenses, weather conditions, price increases by
suppliers, actions by competitors and general conditions in the retail apparel
market.

6
<PAGE> 8

MERCHANDISING AND FASHION SENSITIVITY

The Company's success is largely dependent upon its ability to gauge the
fashion tastes of its customers and to provide merchandise that satisfies
customer demand in a timely manner. The Company's failure to anticipate,
identify or react appropriately to changes in fashion trends could have a
material adverse effect on the Company. Misjudgments or unanticipated changes in
fashion trends as well as economic conditions could lead to excess inventories
and higher markdowns, and continued fashion misjudgments could have a material
adverse effect on the Company's image with customers. The Company has
implemented strategic initiatives to increase inventory levels in certain
departments in order to eliminate out-of-stock positions, thereby making it more
vulnerable to such changes.

DEPENDENCE ON PRIVATE LABEL MERCHANDISE

Sales from the Company's private label merchandise represented
approximately 15% of the Company's sales in fiscal 1996 and 16% in the first
twenty-two weeks in fiscal 1997. Because the Company's private label merchandise
generally carries higher merchandise margins than its other merchandise, the
Company's failure to anticipate, identify and react appropriately to changes in
fashion trends with its private label merchandise, particularly if the
percentage of sales derived from private label merchandise continues to
increase, could have an adverse effect on the Company. In addition, delays in
receiving such private label merchandise, or any deterioration in the quality
thereof, could have a material adverse effect on the Company. See "-- Foreign
Merchandise Sourcing."

RELIANCE ON KEY VENDORS AND PRIVATE LABEL CONTRACT MANUFACTURERS

The Company does not own or operate any manufacturing facilities and does
not have any long term contractual relationships with its vendors and contract
manufacturers. The success of the Company's business is largely dependent upon
its ability to purchase current-season, brand name apparel at competitive prices
in adequate quantities and with timely deliveries. The inability or
unwillingness of key vendors to increase their sales to the Company to keep pace
with the Company's growth, or the loss of one or more key vendors for any
reason, could have a material adverse effect on the Company. During each of
fiscal 1996 and in the first thirteen weeks of fiscal 1997, the Company's
largest vendor, Levi Strauss & Co. (which also manufactures the popular Dockers
brand), accounted for approximately 20% of the Company's total purchases. There
can be no assurance that the Company will be able to acquire brand name
merchandise in sufficient quantities and on favorable terms, if at all, in the
future. See "Business -- Purchasing."

GEOGRAPHIC CONCENTRATION

All of the Company's stores are located in the Southeast and the Midwest,
and the Company plans to expand within these regions. As a result, the Company
will be susceptible to fluctuations in its business caused by severe weather,
natural disasters or adverse economic conditions in one or more of these
geographic regions, any of which could have a material adverse effect on the
Company. See "Business -- Store Locations."

EXPANSION AND MANAGEMENT OF GROWTH

During the last several years, the Company has experienced significant
growth by opening new stores. The Company intends to continue to pursue an
aggressive growth strategy for the foreseeable future, and its future operating
results will be affected by its ability to identify suitable markets and sites
for new stores, negotiate leases with acceptable terms and maintain adequate
working capital. In addition, the Company must be able to continue to hire,
train and retain competent managers and store personnel. There can be no
assurance that the Company will be able to expand its market presence in its
existing markets or successfully enter new or contiguous markets by opening new
stores or that any such expansion will not adversely affect the Company.
Further, if the Company's management is unable to manage its growth effectively,
the Company could be materially and adversely affected. See
"Business -- Expansion Strategy."

7
<PAGE> 9

TRADEMARK CHALLENGES TO CERTAIN PRIVATE LABELS

The Company's trademarks on several of its private labels, such as Ivy
Crew, Old College Inn, Montana Blues Jean Company, GFC and GFC Trading Co., have
been challenged and, in the case of certain of these trademarks, litigation is
pending to resolve competing claims. Although the Company is vigorously
protecting its trademarks, where necessary, the outcome of these disputes could
require the Company to abandon one or more of these trademarks and thereby
adversely affect sales of the associated products. The Company could also be
required to pay monetary damages. See "Business -- Trademarks."

FOREIGN MERCHANDISE SOURCING

The Company's private label programs are largely supported by products
directly purchased from vendors located abroad. Such purchases represented
approximately 11% of total purchases for fiscal 1996. In addition, the Company
believes that a substantial portion of the goods the Company purchases from
domestic vendors are manufactured abroad. These arrangements are subject to the
risks of relying on products manufactured abroad, including import duties and
quotas, loss of "most favored nation" trading status, currency fluctuations,
work stoppages, economic uncertainties including inflation, foreign government
regulations, lack of compliance by foreign manufacturers with U.S. consumer
protection laws (for which the Company may be responsible as the importer of
record) and intellectual property laws, political unrest and trade restrictions,
including U.S. retaliation against unfair foreign practices. While the Company
believes that it could find alternative sources of supply, an interruption or
delay in supply from these foreign sources, or the imposition of additional
duties, taxes or other charges on these imports, could have a material adverse
effect on the Company unless and until alternative supply arrangements are
secured. Moreover, products from alternative sources may be of lesser quality or
more expensive than those currently purchased by the Company. See
"Business -- Purchasing."

RELIANCE ON KEY PERSONNEL

The Company believes that its future success will depend to a significant
extent upon the efforts and abilities of its senior executives, and in
particular of Robert M. Goodfriend, Chairman of the Board of Directors and Chief
Executive Officer, and Harry M. Call, President and Chief Operating Officer. The
loss of the services of Mr. Goodfriend, Mr. Call or other members of the
Company's senior management could have a material adverse effect upon the
Company. Such senior executives, other than Messrs. Goodfriend and Call, include
Edward R. Carlin, Executive Vice President and Chief Financial Officer; Thomas
R. Kelly, Jr., Executive Vice President and General Merchandise Manager; David
R. Mullins, Executive Vice President -- Stores; Stanley B. Latacha, Senior Vice
President -- Marketing and Advertising; and Marcus H. Smith Jr., Senior Vice
President -- Real Estate. The Company has employment agreements with Messrs.
Call, Carlin, Kelly, Mullins, Latacha and Smith and is currently negotiating an
employment agreement with Mr. Goodfriend. The Company maintains key man life
insurance policies on Mr. Goodfriend in the amount of $6.0 million. The Company
believes that its future success will also largely depend upon its ability to
attract and retain qualified employees. Competition for such personnel is
intense and there can be no assurance that the Company will continue to be
successful in attracting and retaining such personnel. See "Management."

CONTROL OF THE COMPANY

Following the completion of the Offering, Robert M. Goodfriend will
beneficially own approximately 44.3% of the outstanding Common Stock and will
retain sufficient voting power to effectively control the outcome of all matters
requiring a vote of shareholders of the Company, including the power to elect
all the directors of the Company and to take action with respect to
extraordinary matters such as a sale of assets, merger or consolidation. See
"Principal and Selling Shareholders."

ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS

Certain provisions of the Company's charter and bylaws may be deemed to
have anti-takeover effects and may discourage, delay or prevent a takeover
attempt that might be considered to be in the best interests of the

8
<PAGE> 10

shareholders of the Company. These provisions, among other things: (i) classify
the Company's Board of Directors into three classes of directors with each class
serving staggered three-year terms and (ii) authorize the issuance of "blank
check" preferred stock and class B common stock having such designations, rights
and preferences as may be determined from time to time by the Board of
Directors, without any vote or further action by the shareholders of the
Company.

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the
availability for sale of additional Common Stock owned by the Company's
principal shareholder, Mr. Goodfriend. Mr. Goodfriend will own 7,369,605 shares
of Common Stock after the Offering and has agreed not to sell these shares for a
period of 120 days following the date of this Prospectus without the prior
written consent of The Robinson-Humphrey Company, Inc. on behalf of the
Underwriters. After the expiration of such 120-day period, such shares may be
sold in accordance with Rule 144 promulgated under the Securities Act, or sold
upon registration under such Act without regard to the volume limitations of
Rule 144. In addition, stock options for 1,824,035 shares of Common Stock
(excluding the stock options to be exercised by the Selling Shareholders in
connection with the Offering) are outstanding under the Company's various stock
option plans at a weighted average exercise price of $14.05 per share. The sale
of a substantial number of such shares (including shares underlying such stock
options), or the perception that such sales could occur, could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to obtain capital through offerings of equity securities. See "Principal
and Selling Shareholders" and "Underwriting."

VOLATILITY OF MARKET PRICE

The market price of the Common Stock has fluctuated substantially since the
Company's initial public offering in October 1991. The Common Stock is quoted on
the Nasdaq National Market, which has experienced, and is likely to experience
in the future, significant price and volume fluctuations that could adversely
affect the market price of the Common Stock without regard to the operating
performance of the Company. In addition, the Company believes that factors such
as monthly comparable store sales announcements, quarterly operating results,
changes in earnings estimates by analysts, general conditions in the economy,
the financial markets or the retail apparel industry, or other developments
affecting the Company could cause the price of the Common Stock to fluctuate
substantially.

9
<PAGE> 11

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the shares of
Common Stock sold by the Selling Shareholders in the Offering.

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the Nasdaq National Market under the symbol
"GDYS". The following table sets forth, for the Company's fiscal periods
indicated, the range of high and low prices per share for the Common Stock, as
reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
First Quarter............................................. $ 9.50 $ 8.19
Second Quarter............................................ 13.00 8.25
Third Quarter............................................. 14.75 9.38
Fourth Quarter............................................ 11.75 7.25
FISCAL 1996
First Quarter............................................. $ 9.38 $ 6.75
Second Quarter............................................ 11.00 7.13
Third Quarter............................................. 14.88 8.75
Fourth Quarter............................................ 20.81 13.25
FISCAL 1997
First Quarter............................................. $24.38 $16.38
Second Quarter (through July 29, 1997).................... 39.75 15.75
</TABLE>

On July 29, 1997, the last reported sale price of the Common Stock as
reported on the Nasdaq National Market was $38.25 per share. As of July 25,
1997, there were 451 shareholders of record and approximately 4,400 persons or
entities who held Common Stock in nominee name.

10
<PAGE> 12

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

The following table sets forth certain selected consolidated financial data
of the Company for the fiscal years indicated which has been derived from the
audited consolidated financial statements of the Company. The selected
consolidated financial data for the thirteen week periods ended May 3, 1997 and
May 4, 1996 are derived from the unaudited consolidated financial statements of
the Company. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting primarily of normal and recurring
adjustments, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the interim periods
presented. Due to the seasonal nature of the Company's business, the results of
operations for the thirteen week periods are not necessarily indicative of the
results that may be achieved for the entire year. This selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements, and related notes, and other information appearing
elsewhere or incorporated by reference herein.

<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR -------------------
---------------------------------------------------- MAY 3, MAY 4,
1996 1995(1) 1994 1993 1992(1) 1997 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.............................. $819,056 $696,868 $613,664 $504,964 $455,330 $190,057 $150,766
Cost of sales and occupancy
expenses......................... 609,684 526,151 458,857 374,559 332,727 135,080 108,121
-------- -------- -------- -------- -------- -------- --------
Gross profit....................... 209,372 170,717 154,807 130,405 122,603 54,977 42,645
Selling, general and administrative
expenses......................... 182,628 154,901 136,612 110,906 98,118 47,245 39,275
Unusual items(2)................... -- -- 6,143 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings from operations........... 26,744 15,816 12,052 19,499 24,485 7,732 3,370
Interest expense................... 762 608 1,163 1,488 980 125 87
Investment income (loss)........... 1,460 1,319 (117) 3,189 1,919 486 272
-------- -------- -------- -------- -------- -------- --------
Earnings before income taxes....... 27,442 16,527 10,772 21,200 25,424 8,093 3,555
Provision for income taxes......... 10,291 6,063 3,900 7,385 9,210 3,035 1,351
-------- -------- -------- -------- -------- -------- --------
Net earnings....................... $ 17,151 $ 10,464 $ 6,872 $ 13,815 $ 16,214 $ 5,058 $ 2,204
======== ======== ======== ======== ======== ======== ========
Earnings per common share(3)....... $ 1.04 $ 0.65 $ 0.43 $ 0.86 $ 1.00 $ 0.30 $ 0.14
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding(3)................... 16,509 16,123 16,097 16,130 16,202 16,629 16,125
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... $ 44,016 $ 27,786 $ 16,707 $ 40,204 $ 33,883 $ 50,182 $ 29,565
Total assets....................... 254,347 208,443 185,744 163,803 156,329 278,802 235,134
Long-term debt..................... 871 1,110 1,327 1,525 1,704 871 1,110
Shareholders' equity............... 123,576 105,875 95,365 88,370 76,785 129,433 108,079
</TABLE>

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

(1) Consists of 53 weeks.
(2) Results of operations for fiscal 1994 included unusual charges of $6,143,000
consisting of (i) approximately $1,900,000 for the Company's portion of the
settlement of a certain class action securities litigation against the
Company, (ii) approximately $3,119,000 primarily related to severance
payments associated with certain restructuring and cost reduction measures
and (iii) approximately $1,124,000 for legal fees and other costs related to
the settlement of certain disputes between the Company and its Chairman of
the Board and Chief Executive Officer, Robert M. Goodfriend. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
(3) Weighted average common shares outstanding for fiscal 1996 and for the
thirteen weeks ended May 3, 1997 include common equivalent shares to account
for the dilutive effect of stock options. Common equivalent shares were not
materially dilutive in other periods presented and therefore were not
included in the earnings per share computations for such periods.

11
<PAGE> 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Goody's was incorporated in 1954 as Athens Outlet Inc. and originally sold
factory seconds, close-outs and previous year merchandise. By 1982, the Company
grew to $19 million in sales and changed its merchandise focus to offering
current-season, first-quality, brand name apparel at value prices. In fiscal
1991, the Company completed its initial public offering, had $362 million in
sales, and at fiscal year end operated 106 stores.

In fiscal 1992, the Company achieved record earnings before income taxes of
$25.4 million, or 5.6% of sales. Shortly thereafter, a new management team
implemented certain changes that led to disappointing earnings for fiscal 1993.
These trends worsened in fiscal 1994 as earnings before income taxes declined to
$10.8 million, or 1.8% of sales. During fiscal 1994, certain disputes arose
between the Company's then Board of Directors and its Chairman of the Board and
Chief Executive Officer, Robert M. Goodfriend. In September 1994, the Board of
Directors removed Mr. Goodfriend as Chairman of the Board and Chief Executive
Officer. These disputes were settled in January 1995 at which time the Board of
Directors was reconstituted and Mr. Goodfriend returned as the Company's
Chairman of the Board and Chief Executive Officer.

In January 1995, the Company also rehired other key members of its previous
management team. Under the leadership of these individuals, the Company
engineered a major turnaround with the goal of returning to its prior record
level of profitability. Important strategic initiatives have included:

- improving merchandise margins by reducing the Company's dependence on
denim while simultaneously increasing the emphasis on other higher margin
departments such as women's;

- increasing inventory levels principally in basic bottoms to eliminate
out-of-stock positions;

- expanding private label lines to provide customers with designer looks
and quality at the Company's value prices;

- introducing new product lines such as accessories, gifts and men's
blazers, dress pants, dress shirts, and ties;

- adding the popular Dockers brand to its women's, men's and boys'
departments in 115 stores in Spring 1997 with plans to add such brand to
the remainder of the chain during early fiscal 1998; and

- establishing a new look in most of its stores by featuring exciting
visual presentation formats and updating fixturing, allowing the Company
to showcase merchandise in a more open, accessible and customer-friendly
environment.

The Company believes that its financial results began significantly
improving in the third quarter of fiscal 1996 as a result of the successful
implementation of these strategic initiatives. In fiscal 1996, the Company
achieved sales of $819.1 million (including a comparable store sales increase of
6.9%), earnings before income taxes of $27.4 million or 3.4% of sales, and net
earnings of $17.2 million or $1.04 per share. For the thirteen weeks ended May
3, 1997 compared with the corresponding period of the previous fiscal year,
sales increased 26% from $150.8 million to $190.1 million (including a
comparable store sales increase of 14.9%), net earnings increased 129% from $2.2
million to $5.1 million and earnings per share increased 114% from $0.14 per
share to $0.30 per share.

The Company's expansion strategy for each of fiscal 1997 and fiscal 1998 is
to open 20 to 24 stores (including 11 stores opened to date in fiscal 1997) in
markets generally located within 800 miles of its distribution center in
Knoxville, Tennessee. The Company believes that significant opportunities exist
to expand its presence within its current markets and into other neighboring
states. In addition, the Company plans to relocate approximately 10 stores and
expand or remodel approximately three stores in each such fiscal year.

12
<PAGE> 14

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
THIRTEEN WEEKS
ENDED
FISCAL YEAR ----------------
----------------------- MAY 3, MAY 4,
1996 1995 1994 1997 1996
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses.............. 74.4 75.5 74.8 71.1 71.7
----- ----- ----- ----- -----
Gross profit...................................... 25.6 24.5 25.2 28.9 28.3
Selling, general and administrative expenses...... 22.3 22.2 22.2 24.8 26.0
Unusual items..................................... -- -- 1.0 -- --
----- ----- ----- ----- -----
Earnings from operations.......................... 3.3 2.3 2.0 4.1 2.3
Interest expense.................................. 0.1 0.1 0.2 0.1 0.1
Investment income................................. 0.2 0.2 -- 0.3 0.2
----- ----- ----- ----- -----
Earnings before income taxes...................... 3.4 2.4 1.8 4.3 2.4
Provision for income taxes........................ 1.3 0.9 0.7 1.6 0.9
----- ----- ----- ----- -----
Net earnings...................................... 2.1% 1.5% 1.1% 2.7% 1.5%
===== ===== ===== ===== =====
</TABLE>

THIRTEEN WEEKS ENDED MAY 3, 1997 COMPARED WITH THIRTEEN WEEKS ENDED MAY 4, 1996

Overview. During the first quarter of fiscal 1997, the Company opened
seven new stores, relocated two stores and closed one store, bringing the total
number of stores in operation at quarter end to 209, compared with 193 at the
end of the first quarter of fiscal 1996. In the corresponding period of the
previous fiscal year, nine new stores were opened and one store was relocated.

Net earnings for the first quarter of fiscal 1997 were $5,058,000, or 2.7%
of sales, compared with $2,204,000, or 1.5% of sales, for the first quarter of
fiscal 1996.

Sales. Sales for the first quarter of fiscal 1997 were $190,057,000, a
26.1% increase over the $150,766,000 for the first quarter of fiscal 1996. This
increase of $39,291,000 consisted of (i) a 14.9% increase in comparable store
sales of $21,598,000 from the corresponding period of the previous fiscal year
and (ii) additional sales from new and transition stores of $17,693,000. Sales
for the quarter were driven by favorable customer reaction to certain brand-name
and private label merchandise as well as strong promotions of spring and summer
fashion merchandise.

Gross profit. Gross profit for the first quarter of fiscal 1997 was
$54,977,000, or 28.9% of sales, a $12,332,000 increase over the $42,645,000, or
28.3% of sales, in gross profit for the first quarter of the previous fiscal
year. The 0.6% increase in gross profit, as a percent of sales, consists of (i)
a decrease in cost of sales by 0.3% as a result of well-positioned inventories
at the beginning of fiscal 1997 which allowed the Company to realize higher
gross margins and (ii) a decrease in occupancy costs by 0.3% due to the
excellent sales for the quarter.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the first quarter of fiscal 1997 were $47,245,000,
or 24.8% of sales, an increase of $7,970,000 from $39,275,000, or 26.0% of
sales, for the first quarter of the previous fiscal year. Selling, general and
administrative expenses decreased by 1.2%, as a percent of sales, for the first
quarter of fiscal 1997 compared with the first quarter of the previous fiscal
year and is comprised of (i) a 0.1% decrease in payroll expenses, (ii) a 0.9%
decrease in advertising and promotional expenses and (iii) a 0.2% decrease in
depreciation and amortization expenses.

Interest expense. Interest expense for the first quarter of fiscal 1997
increased by $38,000 compared with the first quarter of the previous fiscal
year.

13
<PAGE> 15

Investment income. Investment income for the first quarter of fiscal 1997
increased by $214,000 compared with the first quarter of the previous fiscal
year primarily as a result of an increase in invested funds during the period.

Income taxes. The provision for income taxes for the first quarter of
fiscal 1997 was $3,035,000, for an effective tax rate of 37.5% of earnings
before income taxes, compared with $1,351,000, for an effective tax rate of 38%
of earnings before income taxes, for the first quarter of the previous fiscal
year. The decrease in the effective tax rate is primarily due to a decrease in
the overall effective state income tax rate.

FISCAL 1996 COMPARED WITH FISCAL 1995

Overview. In fiscal 1996, the Company opened 20 new stores, relocated
seven stores, remodeled one store and closed one store. This brought the total
number of stores in operation at February 1, 1997 to 203, compared with 184 at
February 3, 1996. In fiscal 1995, 13 new stores were opened, six stores were
relocated and one store was remodeled. Net earnings were $17,151,000, or 2.1% of
sales, in fiscal 1996, compared with net earnings of $10,464,000, or 1.5% of
sales, in fiscal 1995.

Sales. Sales for fiscal 1996 (52 weeks) were $819,056,000, a 17.5%
increase over the $696,868,000 for fiscal 1995 (53 weeks). This increase of
$122,188,000 consisted of (i) a 6.9% increase in comparable store sales of
$42,780,000 from the corresponding 52-week period of the previous fiscal year,
(ii) additional sales from new and transition stores of $85,613,000, which were
offset by (iii) $6,205,000 from the additional last week of sales included in
the 53-week fiscal 1995. Significant factors which contributed to the increase
in comparable store sales were (i) favorable customer reaction to certain
branded and private label merchandise, (ii) a strategic build-up of inventory,
implemented during the second quarter of fiscal 1996, in an effort to be
"in-stock" for most basic items everyday and (iii) strong promotions which
emphasized the "price-value" relationship of the Company's merchandise and a
reinforced customer awareness of Goody's presence in the markets served.

Gross profit. Gross profit for fiscal 1996 was $209,372,000, or 25.6% of
sales, a $38,655,000 increase over the $170,717,000, or 24.5% of sales, in gross
profit generated for the previous fiscal year. The 1.1% increase in gross
profit, as a percent of sales, resulted primarily from changes in the Company's
merchandising strategies, including improved merchandise selection and quality,
and inventory management. Customer acceptance of the Company's private label
merchandise during fiscal 1996 positively impacted gross margins.

Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1996 were $182,628,000, or 22.3% of sales, an
increase of $27,727,000 from $154,901,000, or 22.2% of sales, for fiscal 1995.
The 0.1% increase in selling, general and administrative expenses, as a percent
of sales, in fiscal 1996 compared with fiscal 1995 resulted primarily from
increases in payroll expenses. Selling, general, and administrative expenses for
fiscal 1996 included a provision of $691,000 in connection with the early
termination of a lease of one of the Company's stores which closed in August
1996, and $741,000 for the impairment of certain stores' property and equipment
pursuant to the provisions of Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121").

Interest expense. Interest expense for fiscal 1996 increased by $154,000
compared with fiscal 1995 primarily from an increase in borrowings for normal
operating purposes.

Investment income. Investment income for fiscal 1996 increased by $141,000
compared with fiscal 1995 primarily from an increase in invested funds.

Income taxes. The provision for income taxes for fiscal 1996 was
$10,291,000, for an effective tax rate of 37.5% of earnings before income taxes,
compared with $6,063,000, for an effective tax rate of 36.7% of earnings before
income taxes, for fiscal 1995. The increase in the effective tax rate was
primarily due to a decrease in tax-exempt investment income and the expiration
of the Targeted Jobs Tax Credit program in June 1995, which was offset by a
decrease in the effective state income tax rates.

14
<PAGE> 16

FISCAL 1995 COMPARED WITH FISCAL 1994

Overview. In fiscal 1995, the Company opened 13 new stores, relocated six
stores and remodeled one store. This brought the total number of stores in
operation at February 3, 1996 to 184, compared with 171 at January 28, 1995. In
fiscal 1994, 25 new stores were opened, five stores were relocated and two
stores were remodeled. Net earnings were $10,464,000, or 1.5% of sales, in
fiscal 1995, compared with net earnings of $6,872,000, or 1.1% of sales, in
fiscal 1994.

Sales. Sales for fiscal 1995 (53 weeks) were $696,868,000, a 13.6%
increase over the $613,664,000 for fiscal 1994 (52 weeks). This increase of
$83,204,000 consisted of (i) a 1.3% increase in comparable store sales of
$7,850,000 from the corresponding 52-week period of the previous fiscal year,
(ii) additional sales from new and transition stores of $69,149,000 and (iii)
$6,205,000 from the additional last week of sales included in the 53-week fiscal
1995 compared with the 52-week fiscal 1994.

Gross profit. Gross profit for fiscal 1995 was $170,717,000, or 24.5% of
sales, a $15,910,000 increase over the $154,807,000, or 25.2% of sales, in gross
profit generated for the previous fiscal year. The 0.7% decrease in gross
profit, as a percent of sales, consisted of (i) an increase in cost of sales of
0.5% which resulted from markdowns taken to liquidate slow-moving items that did
not fit the Company's new merchandising strategy implemented in January 1995,
and maintaining promotional pricing as a result of the competitive and difficult
apparel retail environment, particularly in the fourth quarter and (ii) an
increase in occupancy costs of 0.2% resulting from higher lease costs as well as
additional costs of approximately $783,000 for stores relocated during fiscal
1995 and those planned for relocation in fiscal 1996.

Selling, general and administrative expenses. Selling, general and
administrative expenses for fiscal 1995 were $154,901,000, or 22.2% of sales, an
increase of $18,289,000 from $136,612,000, or 22.2% of sales, for fiscal 1994.
Although selling, general and administrative expenses did not change as a
percent of sales compared with the previous fiscal year, (i) advertising
expenses increased by 0.3%, (ii) depreciation and amortization expenses
increased by 0.3%, (iii) payroll expenses decreased by 0.5% and (iv) other
selling, general and administrative expenses decreased by 0.1% in fiscal 1995
compared with fiscal 1994.

Unusual items. Results of operations for fiscal 1994 included a charge of
$6,143,000 consisting of (i) approximately $1,900,000 for the Company's portion
of the settlement of a certain class action securities litigation against the
Company, (ii) approximately $3,119,000 primarily related to severance payments
associated with certain restructuring and cost reduction measures and (iii)
approximately $1,124,000 for legal fees and other costs related to the
settlement of certain disputes between the Company and its Chairman of the Board
and Chief Executive Officer, Robert M. Goodfriend. There were no unusual charges
in fiscal 1995.

Interest expense. Interest expense for fiscal 1995 decreased by $555,000
compared with fiscal 1994. This decrease is primarily attributable to reduced
borrowings during fiscal 1995.

Investment income. Investment income for fiscal 1995 was $1,319,000
compared with an investment loss of $117,000 for fiscal 1994. Included in the
above amount for fiscal 1995 was $997,000 related to income earned from
government-backed and investment grade securities and other interest income.
During fiscal 1994, the Company's investment loss consisted primarily of
$1,596,000 in losses associated with the sale of investment securities, offset
by $1,444,000 of interest and dividend income earned from investment activities.

Income taxes. The provision for income taxes for fiscal 1995 was
$6,063,000, for an effective tax rate of 36.7% of earnings before income taxes,
compared with $3,900,000, for an effective tax rate of 36.2% of earnings before
income taxes, for fiscal 1994. The increase in the effective tax rate is
primarily due to an increase in the effective state income tax rates and a
decrease in tax-exempt investment income.

15
<PAGE> 17

QUARTERLY RESULTS, SEASONALITY AND INFLATION

The Company's business is seasonal by nature. The Christmas season
(beginning the Sunday before Thanksgiving and ending on the first Saturday after
Christmas), the back-to-school season (beginning approximately the first week of
August and continuing through the first week of September) and the Easter season
(beginning approximately two weeks before Easter Sunday and ending on the
Saturday preceding Easter) collectively accounted for approximately 36% of the
Company's annual sales, based on the last three fiscal years ended February 1,
1997. In general, sales volume varies directly with customer traffic, which is
heaviest during the third and fourth quarters of a fiscal year. Because of the
seasonality of the Company's business, results for any quarter are not
necessarily indicative of the results that may be achieved for the full year.

The following table sets forth certain consolidated income statement data
and selected operating data for each of the Company's last nine fiscal quarters
and the percentage of sales represented by certain of the line items presented.
The quarterly income statement data and selected operating data set forth below
were derived from unaudited consolidated financial statements of the Company,
which in the opinion of management, include all adjustments (consisting
primarily of normal and recurring adjustments) necessary for a fair presentation
of the Company's financial position, results of operations and cash flows for
the interim periods presented.

<TABLE>
<CAPTION>
FISCAL
FISCAL 1995 FISCAL 1996 1997
----------------------------------------- ----------------------------------------- --------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales...................... $144,932 $155,130 $168,104 $228,702 $150,766 $183,411 $211,380 $273,499 $190,057
Gross profit............... 38,538 36,644 41,904 53,631 42,645 45,237 52,183 69,307 54,977
Selling, general and
administrative
expenses................. 35,068 35,426 38,693 45,714 39,275 43,235 46,800 53,318 47,245
Earnings from operations... 3,470 1,218 3,211 7,917 3,370 2,002 5,383 15,989 7,732
Earnings before income
taxes.................... 3,625 1,468 3,295 8,139 3,555 2,197 5,426 16,264 8,093
Net earnings............... 2,266 917 2,059 5,222 2,204 1,362 3,364 10,221 5,058
Earnings per common
share.................... $ 0.14 $ 0.06 $ 0.13 $ 0.32 $ 0.14 $ 0.08 $ 0.21 $ 0.62 $ 0.30
Weighted average common
shares outstanding (in
000's)................... 16,117 16,124 16,124 16,125 16,125 16,126 16,134 16,570 16,629
AS A PERCENTAGE OF SALES:
Gross profit............... 26.6% 23.6% 24.9% 23.5% 28.3% 24.7% 24.7% 25.3% 28.9%
Selling, general and
administrative
expenses................. 24.2 22.8 23.0 20.0 26.1 23.6 22.1 19.5 24.9
Earnings from operations... 2.4 0.8 1.9 3.5 2.2 1.1 2.5 5.8 4.1
Earnings before income
taxes.................... 2.5 0.9 2.0 3.6 2.4 1.2 2.6 5.9 4.3
Net earnings............... 1.6 0.6 1.2 2.3 1.5 0.7 1.6 3.7 2.7
SELECTED OPERATING DATA:
Comparable store sales
increase (decrease)...... (0.2)% 4.1% 3.0% (0.8)% (5.7)% 2.7% 13.4% 14.1% 14.9%
Stores open at end of
period................... 174 174 178 184 193 194 197 203 209
</TABLE>

Inflation can affect the costs incurred by the Company in the purchase of
its merchandise, the leasing of its stores and certain components of its
selling, general and administrative expenses. To date, inflation has not
adversely affected the Company's business, although there can be no assurance
that inflation will not have a material adverse effect in the future.

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<PAGE> 18

LIQUIDITY AND CAPITAL RESOURCES

Financial position. The Company's primary sources of liquidity are cash
flows from operations, including credit terms from vendors, and borrowings under
its credit agreement with a consortium of banks. At May 3, 1997, the Company's
working capital was $50,182,000 compared with $29,565,000 at May 4, 1996. At the
end of the first quarter of fiscal 1997 compared with the first quarter of the
previous fiscal year (i) cash, cash equivalents and investment securities
increased by $6,736,000, (ii) property and equipment increased by $2,392,000,
(iii) inventories increased by $31,106,000, and (iv) accounts payable increased
by $9,174,000, in anticipation of the summer selling season as well as an
increase in the number of stores and a strategic build-up of primarily basic
inventory items. Trade payables, as a percent of inventories, were 67.1% at May
3, 1997 compared with 77.6% at May 4, 1996.

At May 3, 1997, the Company had an unsecured revolving line of credit from
a consortium of banks which provides for cash borrowings for general corporate
purposes as well as for the issuance of letters of credit of up to $100,000,000.
On May 16, 1997, the Company amended its credit agreement to increase its
unsecured line of credit to $120,000,000 and extend its expiration date to May
31, 1999. The terms of this credit facility require, among other things,
maintenance of minimum levels of shareholders' equity, compliance with certain
financial ratios and Mr. Goodfriend remaining as Chairman of the Board or Chief
Executive Officer of the Company, and place restrictions on additional
indebtedness, asset disposals, investments, capital expenditures and payment of
dividends. At May 3, 1997, the Company had no cash borrowings under this credit
facility and $62,035,000 was in use for outstanding letters of credit compared
with no cash borrowings and $24,163,000 utilized for outstanding letters of
credit at May 4, 1996. In addition, there were no cash borrowings during the
first quarter of fiscal 1997 and 1996, respectively. Letters of credit
outstanding averaged $38,571,000 during the first quarter of fiscal 1997
compared with $15,884,000 during the corresponding period of the previous fiscal
year. The highest balance of letters of credit outstanding during the first
quarter of fiscal 1997 and 1996 was $62,035,000 (in May 1997) and $24,316,000
(in May 1996), respectively.

Cash flows. Operating activities used cash of $13,536,000 in the first
quarter of fiscal 1997 compared with $3,574,000 in the first quarter of the
previous fiscal year. Cash used in operating activities during the first quarter
of fiscal 1997 for seasonal inventory increases was $34,820,000 compared with
$32,942,000 for the first quarter of the previous fiscal year. Accounts payable
provided cash of $17,187,000 in the first quarter of fiscal 1997 compared with
$21,373,000 for the first quarter of the previous fiscal year. Depreciation and
amortization amounted to $2,614,000 in the first quarter of fiscal 1997 compared
with $2,290,000 for the first quarter of the previous fiscal year.

Cash flows from investing activities for the first quarter of fiscal 1997
reflected a net use of cash amounting to $2,650,000 compared with $3,075,000 for
the first quarter of the previous fiscal year. The cash was used primarily to
fund capital expenditures incurred relating to new stores opened during the
first quarter of fiscal 1997 and 1996.

Cash provided by financing activities for the first quarter of fiscal 1997
was $2,449,000 compared with cash used by financing activities of $3,437,000 for
the first quarter of the previous fiscal year. The cash management program used
by the Company provided cash of $1,899,000 in the first quarter of fiscal 1997
compared with cash used of $3,437,000 in the corresponding period of the
previous fiscal year. During the first quarter of fiscal 1997, the Company
received $550,000 from the issuance of Common Stock on the exercise of stock
options.

Outlook. The Company plans to open 20 to 24 new stores (including 11
stores opened to date during fiscal 1997), relocate approximately 10 stores and
expand or remodel approximately three stores during both fiscal 1997 and fiscal
1998. Management estimates that capital expenditures will total approximately
$23 million and $26 million in fiscal 1997 and fiscal 1998, respectively, for
opening new stores, upgrading existing stores, purchasing computer systems and
equipment, and for other capital expenditure requirements.

The Company's primary needs for capital resources are for the purchase of
store inventories, capital expenditures and for normal operating purposes.
Management believes that cash flows from operations, including credit terms from
vendors, and the borrowings available under its credit facility will be
sufficient to meet the Company's operating and capital expenditure requirements
through at least the remainder of fiscal 1997.

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<PAGE> 19

BUSINESS

GENERAL

The Company's objective is to be the leading retailer of brand name apparel
in each of the markets it serves by providing its customers with a broad
selection of current-season, quality branded apparel at value prices. Key brands
offered by the Company include Adidas, Alfred Dunner, Bugle Boy, Dockers, Lee,
Leslie Fay, Levi's, Nike, Reebok, Requirements and Sag Harbor among many others.
These well-known labels, combined with the Company's outstanding private label
collections, Montana Blues Jean Company and Mountain Lake for women; Authentic
GFC, Bobby G, and Ivy Crew for men; and GoodKidz for children, enable the
Company to compete effectively with other retailers operating in its markets.

COMPETITIVE STRATEGY

Central elements of the Company's competitive strategy include the
following:

- Appeal to Value-Conscious Customers. Goody's appeals to value-conscious
customers by offering quality brand name merchandise at prices targeted to
be 10% to 30% lower than those of traditional department stores.

- Offer Broad Range of Merchandise for the Entire Family. Unlike specialty
stores, the Company provides a wide selection of merchandise designed to
fully address the apparel needs of women, men and children. The Company
believes that providing one-stop apparel shopping for its customers in
convenient, accessible locations gives it an advantage over many of its
competitors.

- Emphasize Current-Season, First-Quality Brands. The Company's stores
offer brands that are not generally available to mass market and off-price
retailers. These brands include Levi, Lee, Bugle Boy, Sag Harbor and Nike,
among others. Unlike off-price retailers, Goody's offers only
current-season, first-quality merchandise.

- Strategically Use Private Label Merchandise. While the Company is
committed to maintaining a strong line-up of nationally recognized brand
name merchandise, private label programs offer important strategic
advantages. These programs offer shoppers designer looks and quality at
value prices, generate higher gross margins and allow the Company to
maintain consistent in-stock positions on basic merchandise.

- Focus on Small to Midsize Markets. The Company generally locates stores
in small to midsize markets that have demographic characteristics
consistent with its targeted value-conscious customer. Having developed a
flexible store format depending on local demographics, the Company seeks
locations that range in size from 20,000 to 35,000 gross square feet.
While the Company operates in the selected metropolitan markets of
Atlanta, Georgia; Birmingham, Alabama; and Charlotte, North Carolina,
smaller market areas offer significant strategic advantages, including
increased opportunities for expansion, lower rent and occupancy costs and
fewer competitors.

- Provide Strong Marketing and Advertising. The Company believes that
communicating frequently with customers is key to maintaining traffic flow
in its stores and creating keen awareness among shoppers. The Company
advertises in newspapers at least once each week, 52 weeks a year. The

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<PAGE> 20

Company reinforces its print message with radio and television campaigns
running during portions of approximately 36 weeks each year.

EXPANSION STRATEGY

The Company's expansion strategy is to open new stores in small to midsize
markets generally located within 800 miles of its distribution center in
Knoxville, Tennessee. In addition, the Company considers suburban growth areas
of metropolitan markets for expansion. The Company believes that opportunities
exist to expand its presence within current markets and is also considering
expansion into the neighboring states of Louisiana, Oklahoma and Texas. The
Company would also consider a complementary acquisition opportunity should it
arise, although the Company has no understandings, arrangements or agreements
with respect to any such opportunity.

In making its decision to open a new store, the Company typically
evaluates, among other factors, market demographics, competition, location,
consumer traffic, rent and occupancy costs, advertising and other expenses
associated with the opening and operation of a new store.

Goody's plans to increase its gross store square footage by 10% per year in
each of fiscal 1997 and fiscal 1998. The Company plans to open 20 to 24 new
stores, (including 11 stores opened to date in fiscal 1997), relocate
approximately 10 stores and expand or remodel approximately three stores in each
such fiscal year.

The following table provides information regarding the number of stores in
operation, new stores opened, stores closed and stores relocated or remodeled
during the periods indicated:

THIRTEEN
WEEKS
FISCAL YEAR ENDED
-------------------------------- MAY 3,
1996 1995 1994 1993 1992 1997
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Stores open, beginning of period............................ 184 171 146 125 106 203
New stores opened during the period......................... 20 13 25 23 19 7
Stores closed during the period............................. (1) -- -- (2) -- (1)
--- --- --- --- --- ---
Stores open, end of period.................................. 203 184 171 146 125 209
=== === === === === ===
Stores relocated or remodeled during the period............. 8 7 7 2 3 2
=== === === === === ===
</TABLE>

MERCHANDISING STRATEGY

The Company's merchandising strategy has been developed to appeal to
value-conscious, quality-oriented customers. The Company offers its merchandise
at prices targeted to be 10% to 30% below those of traditional department
stores. The Company competes (i) with department stores by offering quality,
brand name apparel at value prices, (ii) with specialty stores by offering
apparel for the entire family, (iii) with off-price apparel stores by offering a
wide selection of current-season merchandise at competitive prices and (iv) with
discount stores by offering better brand name merchandise generally unavailable
to discount retailers. The Company does not purchase factory seconds or
close-out, out-of-season or irregular merchandise. The Company believes that its
broad selection of current-season, first-quality, brand name merchandise,
combined with its private label merchandise, provides a key competitive
advantage. While nationally recognized brand name merchandise remains the
cornerstone of its merchandising strategy, the Company continues to invest in
the development of its private label brands, which offer customers designer
looks and quality at value prices. For fiscal 1996 and the twenty-two weeks
ended July 5, 1997, private label merchandise sales accounted for approximately
15% and 16%, respectively, of the Company's sales.

Generally within each store, specific departments are well signed and have
direct aisleways leading to major departments. Visual merchandising and store
presentation are enhanced by fixtures that showcase merchandise in an open,
accessible and customer-friendly shopping environment. Sale items featured in
the Company's advertising campaigns are highlighted in the stores with
easy-to-read signs that help customers quickly locate items of interest. The
overall merchandise presentation is reorganized four times a year to emphasize
the fashion products for the upcoming season.

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<PAGE> 21

A typical store has six divisions that include women's (juniors, misses,
intimate apparel, swimwear and outerwear), denim, men's (sportswear, activewear,
young men's and men's furnishings), children's (infants and toddlers, boys and
girls), accessories and, in 147 stores, shoes. Goody's carries approximately
10,700 different styles of merchandise, all of which are electronically tracked
in order to provide accurate selling data to the Company.

MERCHANDISING DIVISIONS

Women's. The broadest merchandise selection offered by the Company is in
the women's division, which contributed approximately 41% of total sales in
fiscal 1996. Goody's improved its profitability in the women's division in
fiscal 1996 by emphasizing career fashions, casual weekend wear, plus-size
merchandise in the misses department and cross-over fashions targeted at
customers whose tastes fall between those of the traditional junior and misses
customers.

Women's merchandise categories include juniors, misses, intimate apparel,
swimwear and outerwear. Juniors' merchandise lines include brand names such as
Adidas, Byer, California Concepts, Lee, Levi's, My Michelle, Nike, Reebok, Union
Bay and Wrapper. Misses' merchandise lines include popular brand names such as
Alfred Dunner, Cathy Daniels, Counterparts, Fundamental Things, Lee, Leslie Fay,
Levi's, Requirements, Sag Harbor and Stephanie K by Koret, as well as the
Company's private label brand, Mountain Lake. Fashion dresses are also an
important part of Goody's overall women's product lines and feature popular
brand names such as Dawn Joy, Jessica Howard, Leslie Fay, Plaza South, Positive
Attitude and Scarlett. Brand name undergarments include products from Hanes,
Lovable, Maidenform, Olga and Warner's. Swimwear features labels such as Body
I.D., LaBlanca/Sassafras, Ocean Pacific and Speedo. Outerwear product lines
include the Braetan, Herman Kay and Winlet brand name labels and Mountain Lake
and GFC Trading Co., the Company's private label brands.

Denim. The denim merchandise division is important to the Company's
merchandising concept and contributed approximately 25% of total sales in fiscal
1996. The Company believes that its broad selection and competitive pricing of
denim merchandise appeals to value-conscious families and generates customer
traffic for other higher margin merchandise. The Company utilizes automatic
replenishment programs using electronic data interchange ("EDI") with its major
denim suppliers to alleviate out-of-stock positions for popular styles and sizes
and improve inventory turnover. Primary brand names that are carried in the
denim division include Bugle Boy, Lee, Levi's and Union Bay. The Company's
private label brands for denim are Montana Blues Jean Company for women and
Authentic GFC for men.

Men's. The men's division contributed approximately 20% of total sales in
fiscal 1996 and consists of sportswear, activewear, young men's and men's
furnishings departments. The men's division utilizes a shop concept that
features various brand name merchandise targeted at certain lifestyles. These
concepts eliminate the need to market similar apparel to a variety of age groups
and allow, for example, denim buyers to shop one area of the store regardless of
their age. The Company introduced men's blazers and dress slacks in fiscal 1996
on a limited basis, and this program has been expanded in fiscal 1997. Featured
brand names in the men's division include Adidas, Arrow, Bugle Boy, Dockers,
Drummer Boy, Fila, Lee, Levi's, Nike, Reebok and Russell. The Company's private
label brands for men are Authentic GFC, Bobby G, GFC and Ivy Crew.

Children's. The children's division contributed approximately 7% of total
sales in fiscal 1996 by offering popular and durable apparel for children of all
ages. Primary brand names carried for children include Adidas, California
Concepts, Cradle Togs, Dockers, Lee, Levi's, Mickey & Co., My Michelle, Nike,
Reebok, Trends, Union Bay and Winnie the Pooh. The Company's private label brand
for children is GoodKidz.

Accessories. The accessories division, which includes items such as
fashion and costume jewelry, handbags, belts, wallets, hair accessories,
sunglasses for women, picture frames, gourmet foods, stationery and gift
baskets, contributed approximately 3% of total sales in fiscal 1996. Featured
brand names include Burnes of Boston, Capezio, Jantzen and Rosetti.

Shoes. The shoe division contributed approximately 3% of total sales in
fiscal 1996. The shoe departments are located in 147 of the Company's stores and
are operated by a third party under an exclusive

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<PAGE> 22

operating license agreement. In fiscal 1996, all of the 20 new stores opened by
the Company included shoe departments. The shoe departments offer brand names
such as Adidas, Converse, Esprit, Keds and L.A. Gear. During fiscal 1997, the
Company plans to include a shoe department in each of the new stores to be
opened during fiscal 1997 and to add one in 24 existing stores.

Tuxedo rentals and service fees. The Company's revenue from tuxedo rentals
and service fees charged on layaways contributed less than 1% of total sales in
each of the last three fiscal years.

The following table shows a breakdown of the Company's total sales for the
periods indicated (dollars in thousands):

<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
FISCAL 1996 FISCAL 1995 FISCAL 1994 MAY 3, 1997 MAY 4, 1996
------------------ ------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Women's.............. $335,923 41.0% $286,097 41.1% $261,485 42.6% $ 86,824 45.7% $ 65,474 43.4%
Denim................ 202,263 24.7 175,754 25.2 151,245 24.7 41,217 21.7 35,813 23.8
Men's................ 165,438 20.2 144,081 20.7 128,477 20.9 32,601 17.1 26,087 17.3
Children's........... 59,705 7.3 49,229 7.1 40,148 6.5 13,290 7.0 11,841 7.8
Accessories.......... 24,972 3.0 17,666 2.5 15,444 2.5 7,043 3.7 4,497 3.0
Shoes................ 26,827 3.3 21,087 3.0 14,435 2.4 7,195 3.8 5,546 3.7
Tuxedos.............. 3,928 0.5 2,954 0.4 2,430 0.4 1,887 1.0 1,508 1.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
$819,056 100.0% $696,868 100.0% $613,664 100.0% $190,057 100.0% $150,766 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>

PURCHASING

The Company's merchandise purchasing function is centralized at its
corporate headquarters. The Company buys its merchandise from approximately 730
vendors and does not have long-term or exclusive contracts with any manufacturer
or vendor. During each of fiscal 1996 and the first thirteen weeks of fiscal
1997, the Company's purchases from Levi Strauss & Co., its largest vendor,
represented approximately 20% of its total purchases. No more than 5% of total
purchases were attributable to any one of the Company's other vendors. The
Company intends to maintain strong, partner-type relationships with its vendors.
A significant portion of the Company's merchandise is pre-packed and
pre-ticketed by the vendors for each store, reducing the cost, and increasing
the speed, of delivering merchandise to the Company's stores.

Merchandise associated with the Company's private label brands is largely
imported. The Company employs its own designers and product development teams
who work closely with its merchants to track seasonal fashion trends, analyze
customer feedback and determine accurate order quantities. The Company controls
its private label merchandise from the initial concept to the final sale to the
consumer and monitors product quality, freight costs and other expenses in an
effort to maximize gross margins on such merchandise.

PLANNING AND ALLOCATION

The Company's planning and allocation department works closely with its
merchants, distribution center and store operations personnel to establish an
appropriate flow of merchandise on a store-by-store basis. This flow of
merchandise reflects customer preferences in each market and thereby reduces the
cost of transferring merchandise among its various stores. The Company also
utilizes automatic replenishment programs using EDI with approximately 54
vendors, which allows for more efficient replenishment of specific items of
merchandise in particular styles, sizes and colors to minimize out-of-stock
positions of basic merchandise and improve inventory turnover. The Company
expects to continue to invest in automatic replenishment programs using EDI with
new and existing vendors and increase the number of participating vendors.

CENTRALIZED DISTRIBUTION

The Company believes that its 344,000 square foot distribution center,
located in Knoxville, Tennessee, will be sufficient to supply merchandise to
approximately 350 stores. The distribution center is equipped with automated
merchandise handling equipment that facilitates efficient distribution of
merchandise to the Company's stores and provides for efficient cross docking of
pre-packed merchandise by store. In order to

21
<PAGE> 23

improve quality control, all incoming merchandise is received at the
distribution center to allow for inspection before being delivered to the
stores.

Merchandise is typically processed through the distribution center and
forwarded to individual stores within 48 hours. Furthermore, because the
distribution center is located adjacent to both a main north-south and a main
east-west interstate highway, the Company can negotiate favorable shipping terms
with its vendors for merchandise delivered to its distribution center.

The Company has also developed an effective computerized system for
tracking merchandise from the time it arrives at its distribution center until
it is delivered to the stores to ensure that shipments are delivered in an
accurate and timely manner. In delivering merchandise to the stores, the Company
utilizes a third party contract carrier.

MARKETING AND ADVERTISING

The Company's marketing and advertising functions are centralized at its
corporate headquarters. The Company's marketing and promotional strategy is
designed to reinforce its image as a value-priced, family apparel retailer. The
Company believes that its advertisements, which emphasize low prices and broad
selections for the entire family, have enabled the Company to communicate a
unique look that reinforces its niche in the marketplace.

Using a multi-media approach, Goody's develops and prepares its own
advertising materials for newspapers and internally creates radio and television
spots. The Company's media department researches each market to develop profiles
of shoppers in order to effectively plan the Company's advertising. The Company
frequently uses full-color advertising to portray the depth and selection of its
merchandise. In-store merchandise presentation is coordinated with such
advertising to maximize promotional opportunities. While the exact allocation of
advertising dollars differs from market to market, the Company generally
allocates approximately 70% of its advertising budget to print media and the
remainder to television and radio. Several of the Company's key vendors share in
the costs of mutually beneficial advertising campaigns through cooperative
advertising programs.

PRICING

The Company's pricing strategy is designed to provide value to its
customers by offering merchandise at prices targeted to be 10% to 30% below
those of traditional department stores. Denim, which is a consumer draw, is
priced very competitively and is generally positioned to increase traffic
throughout the store. All pricing decisions are made at the Company's corporate
headquarters. In order to remain competitive and enhance its sales promotion
efforts, Goody's frequently monitors its competitors' prices. In addition, the
Company's management information systems provide daily and weekly sales and
gross margin reports that, among other things, track sales and gross margins by
stock keeping unit ("SKU") and provide management with the flexibility to adjust
prices as appropriate.

CUSTOMER SERVICE

The Company's customer service training program, Customer First, was
designed to help store associates develop a customer-friendly mind-set where
customers -- not tasks -- come first in the stores. This initiative begins with
pre-employment screenings that measure job applicants' initial customer service
skills and is supported by ongoing training programs and incentives for
associates who demonstrate outstanding customer service performance. The Company
is also making operational enhancements to improve customers' overall shopping
experiences in its stores. To allow store associates more time to assist
customers, an electronic system was implemented during 1996 to reduce the time
required to manage price changes. The Company's merchandise return and exchange
policies were developed to ensure positive interactions between store associates
and customers. Additionally, the Company continues to invest in new cash
register technologies to simplify the customer checkout process and is currently
testing customer conveniences such as strollers, wheelchairs and oversized
shopping bags in new stores. To monitor the success of these new Customer First
programs, Goody's is encouraging customer feedback with newly designed in-store
survey cards.

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<PAGE> 24

STORE OPERATIONS

Management of store operations is the responsibility of the Executive Vice
President -- Stores, who is assisted by the Vice President -- Store Operations,
three Regional Vice Presidents -- Sales, 26 district managers, and individual
store managers. Each district manager oversees six to 11 stores and reports to a
Regional Vice President -- Sales.

The Company's stores are generally open from 9:00 a.m. to 9:00 p.m. Monday
through Thursday; from 9:00 a.m. to 10:00 p.m. Friday and Saturday; and 12:00
p.m. to 6:00 p.m. on Sunday. These hours are extended during various holiday and
peak selling seasons. Each store has a manager and between one and three
assistant managers, depending upon the size of the store. Other positions of
responsibility within a store include four to five department managers, a head
cashier and a stockroom manager. The number of sales staff ranges from 12 in
smaller size stores to 25 in average size stores to 70 in larger size stores.
The majority of the sales staff are employed on a full-time basis, although
part-time workers are hired during peak selling seasons.

STORE LOCATIONS

The Company locates stores predominantly in small to midsize markets in the
Southeast and Midwest that typically have populations of 100,000 or fewer and
demographic characteristics consistent with its targeted value-conscious
customer. During fiscal 1996, the Company added an eighth store in Birmingham,
Alabama, as part of its expansion into its first large metropolitan market. By
using the same real estate strategy used in Birmingham -- i.e., locating stores
on the perimeter of a large city -- during fiscal 1996, the Company entered
metropolitan Atlanta, Georgia, with the opening of six stores, and Charlotte,
North Carolina, with the opening of three stores. Goody's primarily leases store
space in strip centers, where costs are generally lower than mall locations. The
smallest of the Company's stores has 7,600 gross square feet, and the largest
store has approximately 52,600 gross square feet; the average store size is
approximately 27,000 gross square feet.

All of the Company's stores are leased, rather than owned, which has
enabled the Company to grow without incurring indebtedness associated with
acquiring and owning real estate. The Company believes that the flexibility of
leasing its stores provides substantial benefits and avoids the inherent risks
of owning real estate. The Company believes that it has established itself as an
anchor tenant due to its operating performance, the size of its stores, its
advertising contributions in local markets, its financial position, and its
history of generally meeting its lease commitments on a timely basis.

INFORMATION SYSTEMS

The Company maintains fully integrated, point-of-sale inventory and
merchandise systems processed on an IBM SP-2 computer. The Company's information
systems provide management, buyers, planners and distributors with comprehensive
data that helps them identify emerging sales trends and, accordingly, manage
inventories. The information systems include unit and dollar planning, purchase
order management, open order reporting, open-to-buy, receiving, distribution,
EDI, basic stock replenishment, transfer management, and inventory and price
management. Daily and weekly sales reports are used by management to enhance the
timeliness and effectiveness of purchasing and markdown decisions. Merchandise
purchases are based on planned sales and inventories and are frequently revised
to reflect changing sales trends.

All of the Company's stores have NCR point-of-sale systems supported by a
back-office in-store computer system. The in-store systems feature bar coded
ticket scanning, automatic price look-up, dial-out credit and check
authorization, and nightly transmittal of detailed sales data from stores to the
corporate office. The Company's merchandising and store systems were originally
implemented in 1987 and have been continually upgraded since that time. The
Company's financial systems were substantially replaced in 1996 with a new
state-of-the-art fully-integrated system. The Company's current systems can
support a substantially expanded store base without significant additional
capital investment. However, the Company plans to replace its existing
merchandise systems over the next two years to keep current with leading
technology.

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<PAGE> 25

PROPERTIES

The Company owns its corporate headquarters and distribution center located
at 400 Goody's Lane, Knoxville, Tennessee. The distribution center is a one
story, 344,000 square foot facility with 43 loading docks and a mezzanine level
that has an additional 14,000 square feet currently used as office space. The
corporate headquarters building is adjacent to the distribution center and
comprises approximately 140,000 square feet.

The Company currently leases all of its stores. Lease terms generally
contain renewal options and provide for a fixed minimum rent, an additional rent
based on a percent of sales above a minimum sales level, and a pro-rata share of
the taxes, insurance and common area maintenance costs.

TRADEMARKS

The United States Patent and Trademark Office (the "USPTO") has issued to
the Company federal registrations for the following trademarks: Chandler Hill,
GFC, GFC Trading Co., GoodKidz and Goody's Family Clothing. The Company has also
filed applications with the USPTO seeking federal registrations for the
following trademarks: Authentic GFC, Bobby G, Fireside Flannels, Ivy Crew,
Montana Blues Jean Company, Mountain Lake and Old College Inn. The Company's
private label programs represented approximately 15% and 16% of the Company's
fiscal 1996 and first quarter fiscal 1997 sales, respectively.

In April 1994, the Company filed an application with the USPTO to register
the trademark Ivy Crew. Two parties have filed separate notices of opposition to
the registration. The Company believes that it has meritorious defenses to these
oppositions, but does not anticipate a determination by the USPTO on any of the
oppositions until the Summer of 1998.

In August 1996, the Company filed an application with the USPTO to register
the trademark Old College Inn. In April 1997, the Company received a cease and
desist letter from a third party claiming prior rights to the trademark Old
College Inn. In May 1997, the Company filed an action for a declaratory judgment
against such party in federal court in the Eastern District of Tennessee, and
such party has asserted counterclaims against the Company seeking injunctive
relief and unspecified monetary damages. A trial has been scheduled for January
1998. The Company believes that it has meritorious defenses to the
counterclaims.

The Company filed a trademark application with the USPTO on March 27, 1995,
as supplemented on March 28, 1995, for the trademark Montana Blues Jean Company.
Such application has been refused and suspended by the USPTO pending action on
previously filed trademark applications by others.

The Company received a federal registration to the trademarks GFC Trading
Co. and GFC on January 23, 1996 and August 20, 1996, respectively. In September
1996, the Company filed an action in federal court in the Eastern District of
Tennessee seeking a declaratory judgment against a third party who had alleged
common law trademark rights to the trademark GFC. In February 1997, such party
commenced a separate action against the Company in federal court in the Southern
District of New York seeking injunctive relief and unspecified monetary damages.
A motion to dismiss the New York action is pending. The Company believes that it
has meritorious defenses to the claims against it.

There can be no assurance that the Company will prevail in any of these
disputes or that the USPTO will register the trademarks for which the Company
has applied. An unfavorable outcome in any one or more of these matters could
require the Company to abandon the applicable trademark, which could adversely
affect the Company's sales. It is also possible that damages could be awarded
against the Company.

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<PAGE> 26

COMPETITION

The retail apparel business is highly competitive, with price, selection,
fashion, quality, location, store environment and service being the principal
competitive factors. The Company believes that it is well positioned to compete
on the basis of each of these factors. The Company competes primarily with
department stores, specialty stores, off-price apparel stores and discount
stores. Many competitors are large national chains with substantially greater
financial and other resources than those available to the Company; there is no
assurance that the Company will continue to be able to compete successfully with
any of them in the future.

25
<PAGE> 27

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert M. Goodfriend................... 47 Chairman of the Board of Directors and Chief
Executive Officer
Harry M. Call.......................... 52 President, Chief Operating Officer and
Director
Edward R. Carlin....................... 56 Executive Vice President, Chief Financial
Officer and Secretary
Thomas R. Kelly, Jr.................... 52 Executive Vice President and General
Merchandise Manager
David R. Mullins....................... 45 Executive Vice President, Stores
Stanley B. Latacha..................... 47 Senior Vice President, Marketing and
Advertising
Marcus H. Smith, Jr.................... 40 Senior Vice President, Real Estate
Samuel J. Furrow....................... 55 Director
Robert F. Koppel....................... 50 Director
Irwin L. Lowenstein.................... 61 Director
Cheryl L. Turnbull..................... 36 Director
</TABLE>

Robert M. Goodfriend has served as Chairman of the Board of Directors since
1991 and Chief Executive Officer of the Company since 1977 (except for
approximately three months during fiscal 1994). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General." He joined
the Company in 1972 and became a Director in 1973.

Harry M. Call has served as Director, President and Chief Operating Officer
of the Company since January 1995 and as Director, Chief Operating Officer and
Executive Vice President of the Company from January 1988 to August 1993. He has
also served as a Director of Cush Industries (a medical supply company) since
August 1994. Previously, he served as the Director of Operations of Processed
Foods Corporation (a food processing company) from October 1993 to January 1995.

Edward R. Carlin has served as Executive Vice President, Chief Financial
Officer of the Company since July 1994 and Secretary of the Company since
February 1995. Previously, he served as Director, Executive Vice President,
Chief Financial Officer and Secretary of Oshman's Sporting Goods, Inc. (a
publicly-held retail sporting goods chain) and in various other capacities from
August 1982 to July 1994.

Thomas R. Kelly, Jr. has served as Executive Vice President, General
Merchandise Manager of the Company since January 1995 and from October 1990 to
June 1993. From June 1994 to January 1995, he was an independent consultant.
Previously, he served as Senior Vice President and General Merchandise Manager
of Solo Serve Corporation (an off-price retailer) from November 1993 to June
1994.

David R. Mullins has served as Executive Vice President, Stores of the
Company since December 1996. Previously, he served as Senior Vice President,
Store Operations from July 1994 to December 1996, Vice President, Store
Operations, from August 1980 to July 1994 and a Director of the Company from
November 1991 to October 1993.

Stanley B. Latacha joined the Company in July 1997 as Senior Vice
President, Marketing and Advertising. Previously, he served as Senior Vice
President, Marketing and Advertising of OfficeMax, Inc. (an office products
superstore) from August 1996 to July 1997 and Vice President, Marketing and
Sales Promotion of Richman Gordman 1/2 Price Stores (a regional off-price
department store) from October 1990 to June 1996. He has also served in various
capacities with Ames Discount Department Stores, Zayre Discount Stores, Young &
Rubicam Advertising and Ogilvy & Mather Advertising.

26
<PAGE> 28

Marcus H. Smith, Jr. has served as Senior Vice President, Real Estate of
the Company since April 1995. Previously, he served as Vice President of
Development of Valparaiso Realty Company (a real estate development company)
from May 1992 to April 1995 and Vice President of Real Estate of Enstar
Specialty Retail (an apparel and shoe retailer) from August 1989 to May 1992.

Samuel J. Furrow has served as a Director of the Company since January
1995. He has been the Chairman of Furrow Auction Company (a real estate and
equipment sales company) since April 1968 and the Chairman of Furrow-Justice
Machinery Corporation (a six-branch industrial and construction equipment
dealer) since September 1983. He has also been the owner of Knoxville Motor
Company (a Mercedes-Benz dealership) since December 1980, a Director of
Southeastern -- Advertising Inc. (an advertising agency) since April 1968 and a
Director of First American National Bank since September 1993.

Robert F. Koppel has served as a Director of the Company since January
1995. He has been the President of East Tennessee Children's Hospital since
August 1976.

Irwin L. Lowenstein has served as a Director of the Company since June
1996. He has been the Chief Executive Officer of Rhodes, Inc. (a specialty
furniture retailer) ("Rhodes") since May 1989. Previously, he served as Chairman
from July 1994 to February 1997, Director from March 1977 to February 1997,
President from March 1977 to July 1994 and Chief Operating Officer from March
1977 to May 1989 of Rhodes. He has served as a Director of L.A.T. Sportswear,
Inc. (a sportswear manufacturer and distributor) since July 1994.

Cheryl L. Turnbull has served as a Director of the Company since January
1995. She has been a Vice President of Banc One Capital Corporation (a merchant
bank) since July 1996. She was a private investor from July 1995 to July 1996.
Previously, she served as a Managing Director of Aston Limited Partners, L.P. (a
bank re-engineering firm) from August 1992 to June 1995, and as a Vice President
of Merchant Banking for Prudential Bache Interfunding, Inc. (a merchant bank)
and in various other capacities for Prudential Securities, Inc. from September
1990 to December 1991.

27
<PAGE> 29

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus (except in the
case of FMR Corp. and the other persons and entities referenced in footnote 5),
and as adjusted to reflect the completion of the Offering, by (i) each person
known by the Company to beneficially own five percent (5%) or more of the
outstanding Common Stock; (ii) each of the Company's directors and executive
officers; (iii) each Selling Shareholder and (iv) all directors and executive
officers of the Company as a group. Except as otherwise noted below, each of the
holders listed below has sole voting and investment power with respect to the
shares shown as beneficially owned.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING(1) SHARES OWNED AFTER OFFERING(1)
------------------- BEING -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- --------- ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Robert M. Goodfriend(2)(3).............. 9,369,605 56.4% 2,000,000(4) 7,369,605(4) 44.3%(4)
FMR Corp.(5)............................ 1,612,500 9.9% -- 1,612,500 9.9%
Harry M. Call(6)........................ 105,299 * 20,000 85,299 *
Edward R. Carlin(7)..................... 34,650 * 7,000 27,650 *
Thomas R. Kelly, Jr.(8)................. 18,000 * -- 18,000 *
David R. Mullins(9)..................... 66,500 * 17,500 49,000 *
Stanley B. Latacha...................... -- -- -- -- --
Marcus H. Smith, Jr.(10)................ 10,800 * -- 10,800 *
Samuel J. Furrow(11).................... 12,222 * -- 12,222 *
Robert F. Koppel(12).................... 11,958 * -- 11,958 *
Irwin L. Lowenstein(13)................. 6,131 * -- 6,131 *
Cheryl L. Turnbull(14).................. 12,222 * -- 12,222 *
Bobby Whaley(15)........................ 54,837 * 10,000 44,837 *
All Directors and Executive Officers as
a Group (11 Persons)(16).............. 9,647,387 57.2% 2,054,500 7,602,887 45.1%
</TABLE>

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

* Less than one percent
(1) "Beneficial Ownership" includes shares for which an individual, directly or
indirectly, has or shares voting or investment power or both and also
includes options which are exercisable within sixty days of the date
hereof. Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 of the 1934 Act. The percentages
are based upon 16,279,082 shares outstanding before the Offering and
16,333,582 shares outstanding after the Offering (giving effect to the
exercise of stock options for 54,500 shares of Common Stock by certain
Selling Shareholders in connection with the Offering), except for certain
parties who hold presently exercisable stock options to purchase shares.
The percentages for those parties who hold exercisable stock options are
based upon the sum of 16,279,082 or 16,333,582, as the case may be, shares
plus the number of shares subject to presently exercisable stock options
held by them, as indicated in the following notes.
(2) The business address of Mr. Goodfriend is 400 Goody's Lane, Knoxville,
Tennessee 37922.
(3) These shares include 11,250 shares owned by Mr. Goodfriend's wife, with
whom Mr. Goodfriend shares voting and investment power with respect to such
shares, and 320,000 shares of Common Stock subject to presently exercisable
stock options. These shares do not include 417,270 shares (2.6% of the
outstanding shares of Common Stock) held in trust for Mr. Goodfriend's
children, as to which Mr. Goodfriend disclaims beneficial ownership. Mr.
Goodfriend has no voting or investment power with respect to these shares.
(4) Mr. Goodfriend has granted the Underwriters a 30-day option to purchase up
to 300,000 shares of Common Stock solely to cover over-allotments, if any.
If such option is exercised in full, the number of shares he will
beneficially own after the Offering will be 7,069,605 (42.5% of the
outstanding Common Stock).
(5) According to a Schedule 13G filed by FMR Corp. ("FMR"), Edward C. Johnson
3d, Abigail P. Johnson, Fidelity Management & Research Company, a
registered investment adviser and a wholly-

28
<PAGE> 30

owned subsidiary of FMR ("Fidelity") and Fidelity Contrafund, Mr. Johnson
3d is the Chairman of FMR and the owner of 12% of the aggregate outstanding
voting stock of FMR and Ms. Johnson is a director of FMR and the owner of
24.5% of the aggregate outstanding voting stock of FMR and each may be
deemed to be members of a controlling group with respect to FMR. The
Schedule 13G states that, at December 31, 1996, (i) Fidelity was the
beneficial owner of 1,612,500 shares of Common Stock as a result of acting
as investment advisor to various registered investment companies (the
"Funds"), (ii) Fidelity Contrafund, one of the Funds, was the beneficial
owner of 1,535,300 shares of Common Stock (9.51% of the then outstanding
shares of Common Stock), (iii) each of Mr. Johnson 3d, FMR (through its
control of Fidelity) and the Funds has sole power to dispose of the
1,612,500 shares and (iv) the power to vote all of the 1,612,500 shares
resides with the Board of Trustees of the Funds. The address of FMR,
Fidelity and Fidelity Contrafund is 82 Devonshire Street, Boston,
Massachusetts 02109.
(6) Includes 100,000 shares of Common Stock subject to presently exercisable
stock options.
(7) Includes 34,500 shares of Common Stock subject to presently exercisable
stock options.
(8) Includes 18,000 shares of Common Stock subject to presently exercisable
stock options.
(9) Includes 61,250 shares of Common Stock subject to presently exercisable
stock options.
(10) Includes 10,000 shares of Common Stock subject to presently exercisable
stock options.
(11) Includes 12,222 shares of Common Stock subject to presently exercisable
stock options.
(12) Includes 11,958 shares of Common Stock subject to presently exercisable
stock options.
(13) Includes 6,131 shares of Common Stock subject to presently exercisable
stock options.
(14) Includes 12,222 shares of Common Stock subject to presently exercisable
stock options.
(15) Includes 48,500 shares of Common Stock subject to present exercisable stock
options.
(16) Voting and investment power with respect to 11,950 shares are shared with
certain family members of the respective director and/or executive officer.
Includes 586,283 shares of Common Stock subject to presently exercisable
stock options. See footnotes above.

29
<PAGE> 31

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc. and J.C.
Bradford & Co. are acting as representatives (collectively, the
"Representatives"), have severally agreed to purchase from the Selling
Shareholders, and the Selling Shareholders have agreed to sell to the
Underwriters, the number of shares of Common Stock set forth opposite their
respective names.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
The Robinson-Humphrey Company, Inc. ........................
J.C. Bradford & Co. ........................................

----------
2,054,500
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share in sales to certain
other dealers. After the Offering, the public offering price and other selling
terms may be changed.

One of the Selling Shareholders has granted to the Underwriters a 30-day
option to purchase up to an additional 300,000 shares of Common Stock at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the above table, bears to the 2,054,500 shares of Common Stock
offered hereby.

The Company, its executive officers and directors, and the Selling
Shareholders have agreed that they will not offer, sell or otherwise dispose of
any shares of Common Stock (other than the shares offered by the Selling
Shareholders in the Offering), subject to certain exemptions, for a period of
120 days from the date of this Prospectus without the prior written consent of
The Robinson-Humphrey Company, Inc. on behalf of the Underwriters.

The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

In connection with the Offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market-making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M, during the one business day prior to the pricing
of the Offering before the commencement of offers or sales of the Common Stock.
The passive market-making transactions must comply with applicable volume and
price limitations and be identified as such. In general, a passive market

30
<PAGE> 32

maker must display its bid at a price not in excess of the highest independent
bid for the security; however, if all independent bids are lowered below the
passive market maker's bid, such bid must then be lowered when certain purchase
limits are exceeded.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters to bid for and purchase shares of Common Stock. As an exception
to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock. If the Underwriters create a short position in
the Common Stock in connection with the Offering (i.e., if they sell more shares
of the Common Stock than are set forth on the cover page of this Prospectus),
the Representatives may reduce the short position by purchasing the Common Stock
in the open market. The Representatives may elect to reduce any short position
by exercising all or part of the over-allotment option described herein.

The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of the Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering. In general, purchases of a
security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company and the Selling
Shareholders by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New York.
Certain legal matters related to the Offering will be passed upon for the
Underwriters by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.

EXPERTS

The Company's consolidated financial statements as of February 1, 1997 and
February 3, 1996 and for each of the three years in the period ended February 1,
1997 included and incorporated by reference in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is included and incorporated by reference herein, and has been so included and
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

With respect to the unaudited interim consolidated financial information
for the thirteen weeks ended May 3, 1997 and May 4, 1996 which is included and
incorporated by reference in this Prospectus, Deloitte & Touche LLP have applied
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their report included in the Company's
Quarterly Report on Form 10-Q for the thirteen week period ended May 3, 1997 and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because this report
is not a "report" or a "part" of the registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.

31
<PAGE> 33

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the 1934 Act
and, in accordance therewith, files reports, proxy statements, information
statements and other information with the Commission. Such reports, proxy
statements, information statements and other information filed by the Company
can be inspected and copied at the public reference facilities maintained by the
Commission at the principal offices of the Commission, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at its Regional Offices located in the
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material may also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a web site that contains reports, proxy statements,
information statements and other information regarding registrants, including
the Company, that file such information electronically with the Commission. The
address of the Commission's web site is http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act relating to the Common Stock offered
hereby. This Prospectus, which is part of such Registration Statement, does not
contain all of the information set forth, or incorporated by reference, in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules, which may be inspected and copied in the manner and at the locations
described above. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or as previously filed with
the Commission and incorporated herein by reference.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents previously filed with the Commission (File No.
0-19526) pursuant to the 1934 Act are hereby incorporated by reference into this
Prospectus:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997.

2. The Company's Quarterly Report on Form 10-Q for the thirteen weeks
ended May 3, 1997.

3. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission under the 1934
Act, including any amendment or report filed for the purpose of updating
such description.

All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act prior to the termination of the Offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference
(other than exhibits). Requests for such copies should be directed to: Goody's
Family Clothing, Inc., 400 Goody's Lane, Knoxville, Tennessee 37922, Attention
Edward R. Carlin, telephone (423) 966-2000.

32
<PAGE> 34

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY
28, 1995:
Independent Auditors' Report.............................. F-2
Consolidated Statements of Operations for each of the
three fiscal years in the period ended February 1,
1997................................................... F-3
Consolidated Balance Sheets as of February 1, 1997 and
February 3, 1996....................................... F-4
Consolidated Statements of Cash Flows for each of the
three fiscal years in the period ended February 1,
1997................................................... F-5
Consolidated Statements of Shareholders' Equity for each
of the three fiscal years in the period ended February
1, 1997................................................ F-6
Notes to Consolidated Financial Statements................ F-7
THIRTEEN WEEKS ENDED MAY 3, 1997 AND MAY 4, 1996
(UNAUDITED):
Consolidated Statements of Operations for the thirteen
weeks ended May 3, 1997 and May 4, 1996................ F-14
Consolidated Balance Sheets as of May 3, 1997 and May 4,
1996................................................... F-15
Consolidated Statements of Cash Flows for the thirteen
weeks ended May 3, 1997 and May 4, 1996................ F-16
Notes to Interim Consolidated Financial Statements........ F-17
</TABLE>

F-1
<PAGE> 35

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Goody's Family Clothing, Inc.

We have audited the accompanying consolidated balance sheets of Goody's
Family Clothing, Inc. and subsidiaries as of February 1, 1997 and February 3,
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended
February 1, 1997. 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, such financial statements present fairly, in all material
respects, the consolidated financial position of Goody's Family Clothing, Inc.
and subsidiaries as of February 1, 1997 and February 3, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Atlanta, Georgia
March 19, 1997

F-2
<PAGE> 36

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales....................................................... $819,056 $696,868 $613,664
Cost of sales and occupancy expenses........................ 609,684 526,151 458,857
-------- -------- --------
Gross profit................................................ 209,372 170,717 154,807
Selling, general and administrative expenses................ 182,628 154,901 136,612
Unusual items............................................... -- -- 6,143
-------- -------- --------
Earnings from operations.................................... 26,744 15,816 12,052
Interest expense............................................ 762 608 1,163
Investment income (loss).................................... 1,460 1,319 (117)
-------- -------- --------
Earnings before income taxes................................ 27,442 16,527 10,772
Provision for income taxes.................................. 10,291 6,063 3,900
-------- -------- --------
Net earnings................................................ $ 17,151 $ 10,464 $ 6,872
======== ======== ========
Earnings per common share................................... $ 1.04 $ 0.65 $ 0.43
======== ======== ========
Weighted average common shares outstanding.................. 16,509 16,123 16,097
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements

F-3
<PAGE> 37

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 43,316 $ 32,987
Investments............................................... 1,453 1,386
Inventories............................................... 107,495 78,267
Accounts receivable and other current assets.............. 9,689 6,617
-------- --------
Total current assets.............................. 161,953 119,257
Property and equipment, net................................. 88,955 85,715
Other assets................................................ 3,439 3,471
-------- --------
Total assets...................................... $254,347 $208,443
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 75,900 $ 68,238
Accrued expenses.......................................... 34,841 21,345
Income taxes payable...................................... 6,957 1,671
Current portion of long-term debt......................... 239 217
-------- --------
Total current liabilities......................... 117,937 91,471
Long-term debt.............................................. 871 1,110
Other long-term liabilities................................. 2,578 2,239
Deferred income taxes....................................... 9,385 7,748
-------- --------
Total liabilities................................. 130,771 102,568
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, par value $1 per share;
authorized -- 2,000,000 shares;
issued and outstanding -- none
Class B Common stock, no par value;
authorized -- 50,000,000 shares;
issued and outstanding -- none
Common stock, no par value; authorized -- 50,000,000
shares; issued -- 16,364,832 and 16,325,212 shares,
respectively; outstanding -- 16,164,832 and 16,125,212
shares, respectively................................... 26,466 26,040
Paid-in capital............................................. 3,259 3,135
Retained earnings........................................... 96,953 79,802
Treasury stock, at cost -- 200,000 shares................... (3,102) (3,102)
-------- --------
Total shareholders' equity........................ 123,576 105,875
-------- --------
Total liabilities and shareholders' equity........ $254,347 $208,443
======== ========
</TABLE>

See accompanying notes to consolidated financial statements

F-4
<PAGE> 38

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................ $ 17,151 $ 10,464 $ 6,872
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 10,595 9,141 6,185
Net loss (gain) on asset disposals and write-down......... 1,965 (22) 191
Net loss on sale of investments........................... -- -- 1,596
Changes in assets and liabilities:
Investments............................................ (67) (104) 25,323
Inventories............................................ (29,228) (13,859) (6,208)
Accounts payable....................................... 7,081 18,928 5,119
Income tax accounts.................................... 5,257 (290) 1,619
Other assets and liabilities........................... 9,739 (1,651) 4,580
-------- -------- --------
Cash provided by operating activities............. 22,493 22,607 45,277
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment...................... (16,070) (10,632) (39,388)
Proceeds from sale of property and equipment................ 270 397 333
-------- -------- --------
Cash used in investing activities................. (15,800) (10,235) (39,055)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (payments) on notes payable.................... -- (10,000) 800
Repayment of long-term debt................................. (217) (198) (179)
Issuance of common stock.................................... 347 201 94
Redemption of preferred stock purchase rights............... -- (161) --
Changes in cash management accounts......................... 3,506 7,642 (1,913)
-------- -------- --------
Cash provided by (used in) financing activities... 3,636 (2,516) (1,198)
-------- -------- --------
Net increase in cash and cash equivalents................... 10,329 9,856 5,024
Cash and cash equivalents, beginning of year................ 32,987 23,131 18,107
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 43,316 $ 32,987 $ 23,131
======== ======== ========
Supplemental Disclosures:
Interest payments......................................... $ 745 $ 665 $ 1,174
Income tax payments, net of refunds received.............. 5,294 7,062 2,310
</TABLE>

See accompanying notes to consolidated financial statements

F-5
<PAGE> 39

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
---------------- PAID-IN RETAINED ----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------- ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 29, 1994.......... 16,291 $25,712 $3,296 $62,466 (200) $(3,104) $ 88,370
Net earnings....................... -- -- -- 6,872 -- -- 6,872
Exercise of stock options.......... 11 123 -- -- -- -- 123
Cancellation of treasury stock..... -- (2) -- -- -- 2 --
------ ------- ------ ------- ---- ------- --------
BALANCE, JANUARY 28, 1995.......... 16,302 25,833 3,296 69,338 (200) (3,102) 95,365
Net earnings....................... -- -- -- 10,464 -- -- 10,464
Exercise of stock options.......... 23 207 -- -- -- -- 207
Redemption of preferred stock
purchase rights.................. -- -- (161) -- -- -- (161)
------ ------- ------ ------- ---- ------- --------
BALANCE, FEBRUARY 3, 1996.......... 16,325 26,040 3,135 79,802 (200) (3,102) 105,875
Net earnings....................... -- -- -- 17,151 -- -- 17,151
Exercise of stock options.......... 40 426 124 -- -- -- 550
------ ------- ------ ------- ---- ------- --------
BALANCE, FEBRUARY 1, 1997.......... 16,365 $26,466 $3,259 $96,953 (200) $(3,102) $123,576
====== ======= ====== ======= ==== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements

F-6
<PAGE> 40

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

At February 1, 1997, Goody's Family Clothing, Inc. and subsidiaries (the
"Company") was principally engaged in the retailing of moderately priced apparel
for women, men and children in 203 retail stores located in 14 states. Its
significant accounting policies are as follows:

Fiscal Year-End -- The Company's fiscal year ends on the Saturday nearest the
last day of January. Fiscal 1996, 1995 and 1994 refer to the Company's fiscal
years ended February 1, 1997 (52 weeks), February 3, 1996 (53 weeks) and January
28, 1995 (52 weeks), respectively.

Principles of Consolidation -- The consolidated financial statements include the
accounts of Goody's Family Clothing, Inc. and its subsidiaries, all of which are
wholly-owned. All significant intercompany balances and transactions have been
eliminated.

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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents -- Cash equivalents consist of highly liquid
investments, such as money market accounts, deposit accounts, government backed
securities, and overnight repurchase agreements, each with a maturity of less
than three months. The cost of these investments approximate their fair market
value.

Amounts due banks upon the clearance of certain checks under the Company's
cash management program have been included in both accounts payable and accrued
expenses. At February 1, 1997 and February 3, 1996, the total of such amounts
were $14,497,000 and $10,991,000, respectively.

Investments -- Investments are held by a bank, as trustee, to fund certain
potential future severance payments in respect of which no liability exists at
February 1, 1997. The Company is restricted from using these funds for its
operating activities until April 1998.

Inventories -- Inventories are stated at the lower of moving weighted average
cost or market.

Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by using the
straight-line method over the estimated useful lives of the assets, which are 40
years for buildings and up to 10 years for other assets. Leasehold improvements
are amortized by the straight-line method over the lesser of the useful lives of
the improvements or the initial terms of the related leases.

Store Opening and Closing Costs -- Non-capital expenditures for new or relocated
stores are expensed as incurred. The net book value of leasehold improvements
and abandoned fixtures as well as any future rents payable for stores, for which
a decision has been made to close or relocate the stores, are charged against
current earnings.

Income Taxes -- Deferred income taxes are recognized for the tax consequences of
temporary differences between the tax and financial reporting basis of the
Company's assets and liabilities based upon enacted tax laws and statutory tax
rates applicable to the future years in which the differences are expected to
affect taxable income.

Sales -- Sales include approximately $26,827,000, $21,087,000 and $14,435,000 of
leased shoe department sales for fiscal 1996, 1995 and 1994, respectively.

Earnings Per Common Share -- Weighted average common shares outstanding for
fiscal year 1996 includes common equivalent shares to account for the dilutive
effect of stock options. Common equivalent shares were

F-7
<PAGE> 41

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not materially dilutive in prior years and therefore are not included in the
earnings per share computations for such years.

New Accounting Pronouncement -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). This Statement establishes new standards
for computing and presenting earnings per share information. SFAS No. 128
simplifies the computation of earnings per share currently required by
Accounting Principles Board Opinion No. 15, "Earnings per Share" and its related
interpretations. The new Statement replaces the presentation of "primary" (and
when required "fully diluted") earnings per share with "basic" and "diluted"
earnings per share. This new Statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. The Company's computation of basic and
diluted earnings per share under SFAS No. 128 for fiscal 1996, 1995 and 1994
will not be materially different from earnings per share previously reported for
those years.

Reclassifications -- Certain reclassifications have been made to the financial
statements of prior periods to conform to the current period presentation.

2. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Land........................................................ $ 3,512 $ 3,512
Buildings................................................... 25,631 25,277
Leasehold improvements...................................... 17,720 18,380
Furniture and equipment..................................... 79,647 68,520
Transportation equipment.................................... 5,762 5,597
-------- --------
Total property and equipment...................... 132,272 121,286
Less accumulated depreciation and amortization.............. 43,317 35,571
-------- --------
Net property and equipment........................ $ 88,955 $ 85,715
======== ========
</TABLE>

The Company continually evaluates its investment in long-lived assets
(principally property and equipment) used in operations on an individual store
basis. During the fourth quarter of 1996, the Company determined that, based
upon recent operating results and updated operating projections, the property
and equipment at certain stores was impaired. As a result, the Company recorded
a pre-tax charge in fiscal 1996 of approximately $741,000, or $0.03 per share,
in order to write-down the carrying value of the property and equipment to their
estimated fair value pursuant to the provisions of SFAS No. 121. No impairment
charge was necessary for fiscal 1995 based upon the results of similar analysis
performed.

3. CREDIT ARRANGEMENTS

In May 1996, the Company renewed its credit facility with a consortium of
banks for an unsecured revolving line of credit which provides for cash
borrowings for general corporate purposes as well as for the issuance of letters
of credit of up to $100,000,000. This facility extends through May 1998. The
Company is committed to pay (i) interest on the cash borrowings at a fluctuating
base rate or LIBOR plus an applicable margin, as defined, (ii) letter of credit
fees based on the number of days a letter of credit is outstanding times the
applicable fee and (iii) an annual commitment fee payable quarterly in advance.
The terms of this credit facility require, among other things, maintenance of
minimum levels of shareholders' equity and compliance with certain financial
ratios and place restrictions on additional indebtedness, asset disposals,
investments and capital expenditures. In addition, the Company is prohibited
from paying dividends.

F-8
<PAGE> 42

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At February 1, 1997 and February 3, 1996, the Company had no cash
borrowings under this credit facility and letters of credit issued and
outstanding amounted to $28,005,000 and $10,816,000, respectively. The weighted
average interest rates on cash borrowings in fiscal 1996, 1995 and 1994 were
6.5%, 7.1% and 5.2%, respectively. Cash borrowings under the Company's line of
credit averaged $5,206,000, $3,481,000 and $14,640,000 during fiscal 1996, 1995
and 1994, respectively. The highest balances of cash borrowings were $37,000,000
in November 1996, $18,000,000 in October 1995 and $41,883,000 in November 1994.

4. LONG-TERM DEBT

Long-term debt represents a promissory note payable to the Company's
founder and former chairman, M.D. Goodfriend, and his wife, who are the parents
of the Company's current Chairman of the Board and Chief Executive Officer. The
debt is unsecured and is payable in annual installments of $350,000, including
interest at 10%, through January 26, 2001. Interest paid on this debt was
$133,000, $152,000 and $170,000 during fiscal 1996, 1995 and 1994, respectively.
Based on borrowing rates currently available to the Company for bank loans with
similar terms and maturities, the fair value of such long-term debt was not
significantly different than its carrying amount.

5. INCOME TAXES

The provision for income taxes for the years indicated consisted of the
following (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current
Federal............................................... $ 9,173 $3,626 $2,696
State................................................. 1,280 705 1,080
------- ------ ------
Total current................................. 10,453 4,331 3,776
------- ------ ------
Deferred
Federal............................................... (84) 1,451 105
State................................................. (78) 281 19
------- ------ ------
Total deferred................................ (162) 1,732 124
------- ------ ------
Provision for income taxes.................... $10,291 $6,063 $3,900
======= ====== ======
</TABLE>

The provision for income taxes differed from the amounts computed by
applying the federal statutory rate to earnings before income taxes as follows
(in thousands):

<TABLE>
<S> <C> <C> <C>
Tax expense at statutory rate........................... $ 9,605 $5,783 $3,670
State taxes, net of federal benefit..................... 745 726 458
Effect of tax-exempt income............................. (89) (125) (216)
Effect of other items................................... 30 (321) (12)
------- ------ ------
Provision for income taxes.................... $10,291 $6,063 $3,900
======= ====== ======
</TABLE>

F-9
<PAGE> 43

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences were as follows (in thousands):

<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
--------------------------
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Current:
Inventory carrying cost................................... $ 887 $ 392
Net operating loss carryforward........................... 171 173
Capital loss carryforward................................. 108 --
Accrued expenses and other................................ 2,512 1,314
------- -------
Current deferred tax asset........................ $ 3,678 $ 1,879
======= =======
Long term:
Depreciation.............................................. $(9,934) $(9,029)
Capital loss carryforward................................. -- 549
Net operating loss carryforward........................... -- 173
Other..................................................... 549 559
------- -------
Long-term deferred tax liability.................. $(9,385) $(7,748)
======= =======
</TABLE>

At February 1, 1997, the Company had net operating loss carryforwards of
$434,000 which expire in varying amounts through 2007 and capital loss
carryforwards of $318,000 which expire in varying amounts through 2000.

6. CAPITAL STOCK

In October 1994, the Company amended its Charter to create a new series of
Preferred Stock (issuable from existing authorized preferred stock), par value
$1 per share, designated as Series A Junior Participating Preferred Stock,
adopted a Share Purchase Rights Plan (the "Rights Plan") and declared a dividend
of one right (a "Right") for each outstanding share of Common Stock of the
Company. The Rights were redeemed in June 1995 for $161,000.

In August 1995, the Company amended its Charter to authorize 50,000,000
shares of a new class of Common Stock designated as "Class B Common Stock," none
of which is issued and outstanding. The Amended and Restated Charter further
empowered the Board of Directors to issue the Preferred Stock and the Class B
Common Stock in one or more series without further shareholder approval (unless
required in a specific case by applicable law, regulation, or stock exchange or
Nasdaq rule) and to determine (i) the designations and the powers, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of each series of Class B Common
Stock, including, without limitation, the dividend rate, voting rights,
conversion rights, redemption price and liquidation preference and (ii) the
number of shares constituting such series.

7. STOCK OPTIONS

As of February 1, 1997, the Company had three stock option plans: the
Goody's Family Clothing, Inc. 1991 Stock Incentive Plan (the "1991 Plan"), the
Goody's Family Clothing, Inc. 1993 Stock Option Plan (the "1993 Plan") and the
Discounted Stock Option Plan for Directors (the "Directors Plan").

The 1991 Plan and 1993 Plan provide for the grant of nonqualified and
incentive stock options to key associates and formula options to non-associate
directors. The Compensation Committee of the Board of Directors determines the
exercise price (not to be less than fair market value of the Company's common
stock (the "Common Stock") for incentive options or formula options) on the date
of grant, the vesting and exercise periods. The options generally vest in equal
installments over five years from the date of grant and are

F-10
<PAGE> 44

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

generally exercisable up to 10 years from the date of grant. The Company is
authorized to issue 1,825,000 shares of Common Stock under the 1991 Plan and
1993 Plan.

Under the Directors Plan, non-associate directors may elect to receive
options to purchase Common Stock at an exercise price equal to 50% of the fair
market value of the Common Stock on the date of grant in lieu of cash for their
director fees. These options vest one year from the date of grant and are
exercisable up to 20 years from the date of grant. The expense recorded in
connection with stock options issued under this plan has been immaterial. The
Company is authorized to issue 150,000 shares of Common Stock under the
Directors Plan.

A summary of the stock option activity and the related weighted average
exercise prices for the various plans is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RESERVED SHARES OUTSTANDING OPTIONS EXERCISE PRICE
--------------- ------------------- ----------------
<S> <C> <C> <C>
Outstanding at January 29, 1994..... 1,033,048 751,382 $14.11
Granted........................... (311,237) 311,237 13.29
Exercised......................... -- (11,000) 8.50
Forfeited......................... 46,948 (46,948) 11.40
--------- ---------
Outstanding at January 28, 1995..... 768,759 1,004,671 13.32
Granted........................... (781,466) 781,466 9.56
Exercised......................... -- (23,700) 8.50
Forfeited......................... 615,250 (615,250) 15.99
--------- ---------
Outstanding at February 3, 1996..... 602,543 1,147,187 9.43
Reserved.......................... 100,000 -- --
Granted........................... (564,698) 564,698 13.97
Exercised......................... -- (39,620) 8.80
Forfeited......................... 80,480 (80,480) 9.28
--------- ---------
Outstanding at February 1, 1997..... 218,325 1,591,785 11.06
========= =========
</TABLE>

The following table summarizes information about stock options outstanding
at February 1, 1997:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------- EXERCISABLE OPTIONS
WEIGHTED- ----------------------------
AVERAGE WEIGHTED- WEIGHTED-
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES FEBRUARY 1, 1997 LIFE (YEARS) PRICE FEBRUARY 1, 1997 PRICE
--------------- ---------------- ------------ --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.82 to $5.69............ 32,584 19.0 $ 5.20 14,060 $ 5.69
7.38 to 11.00............ 982,751 7.5 8.86 463,251 8.57
11.25 to 15.00............ 250,950 8.2 12.18 83,150 12.21
17.44..................... 325,500 5.0 17.44 320,000 17.44
--------- -------
1,591,785 880,461
========= =======
</TABLE>

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to adopt the disclosure-only
provisions of SFAS No. 123 and to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
its related interpretations. Accordingly, no compensation cost has been
recognized for the stock options granted under the various stock option plans.
Had compensation cost for the Company's stock option plans been determined based
on the fair value on the date of grant for awards in fiscal 1996 and 1995
consistent with

F-11
<PAGE> 45

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the provisions of SFAS No. 123, the Company's net earnings and earnings per
common share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net earnings (in thousands)................. $17,151 $15,157 $10,464 $9,678
Earnings per common share................... 1.04 0.92 0.65 0.60
</TABLE>

The fair value of the options granted under the Company's various stock
option plans during fiscal 1996 and 1995 was estimated on their date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield; expected volatility of 49% and 47%,
respectively; risk free interest rates of 6.4% and 6.8%, respectively; and
expected lives of 4.7 and 7.0 years, respectively.

8. PROFIT SHARING PLAN

The Company maintains a profit sharing plan for all full-time associates
who are eligible to participate under the plan. The plan provides for
discretionary contributions by the Company that are approved by its Board of
Directors. The Company's contributions related to this plan for fiscal 1996,
1995 and 1994 were $525,000, $350,000 and $300,000, respectively.

9. LEASE OBLIGATIONS

The Company leases its stores under operating leases, the majority of which
expire at various times during the next 10 years. The Company can, at its
option, renew most of these leases at rents which are fixed based at their then
current fair rental value. Payments under store leases consist of a fixed
minimum rent, additional rent based on a percent of sales in excess of
stipulated amounts and a share of taxes, insurance and common area maintenance
costs. The Company also leases certain data processing, transportation and other
equipment.

The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year at February 1, 1997,
are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997........................................................ $ 37,105
1998........................................................ 33,177
1999........................................................ 28,038
2000........................................................ 24,936
2001........................................................ 23,269
Thereafter.................................................. 93,695
--------
Total............................................. $240,220
========
</TABLE>

Rent expense for fiscal 1996, 1995 and 1994 was $37,965,000, $33,394,000
and $27,925,000, respectively, including percentage rent of $451,000, $481,000
and $473,000, respectively.

10. RELATED PARTY TRANSACTIONS

The Company has entered into various related party transactions with Robert
M. Goodfriend (the Company's Chairman of the Board and Chief Executive Officer
and beneficial owner of approximately 56% of the Common Stock) as described
below.

The Company paid premiums of $54,000, $54,000 and $201,000 in fiscal 1996,
1995 and 1994, respectively, for split-dollar life insurance policies insuring
the life of Mr. Goodfriend. The beneficiary of these policies is a trust
established for Mr. Goodfriend's children. The trust has assigned to the Company
an interest

F-12
<PAGE> 46

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the cash value of the life insurance policies to the extent of cumulative
premiums paid by the Company. Included in "Other Assets" at February 1, 1997 and
February 3, 1996, are $2,041,000 and $1,987,000, respectively, related to these
policies.

The Company paid rent and taxes amounting to $442,000, $443,000 and
$438,000 for fiscal 1996, 1995 and 1994, respectively, for a store leased from
another trust benefiting Mr. Goodfriend's children. Future commitments at
February 1, 1997, under this related party lease are approximately $764,000.

The Company paid $6,000 in fiscal 1995 and $176,000 in fiscal 1994 for the
use of Mr. Goodfriend's property, contiguous to the corporate headquarters and
distribution center, as a retention basin. The Company purchased this property
from Mr. Goodfriend at its fair market value, as determined by a third party
appraiser, of approximately $519,000 in March 1995.

The Company paid $15,000 in fiscal 1995 and $38,000 in fiscal 1994 for the
use of Mr. Goodfriend's property, adjacent to the corporate complex, as a
staging area in connection with the expansion of the Company's corporate
headquarters and distribution center.

During fiscal 1994, the Company sold its former distribution center located
in Athens, Tennessee, to a local bank, of which Mr. Goodfriend is a director and
shareholder, at its fair market value, as determined by a third party appraiser,
of $520,000 and realized a gain of $20,000. The Company subsequently leased this
property for a period of three years and paid rent amounting to $40,000, $40,000
and $3,000 for fiscal 1996, 1995 and 1994, respectively.

11. UNUSUAL ITEMS

Results of operations for fiscal 1994 included unusual charges of
$6,143,000 consisting of (i) approximately $1,900,000 for the Company's portion
of the settlement of a certain class action securities litigation against the
Company, (ii) approximately $3,119,000 primarily related to severance payments
associated with certain restructuring and cost reduction measures and (iii)
approximately $1,124,000 for legal fees and other costs related to the
settlement of certain disputes between the Company and its Chairman of the Board
and Chief Executive Officer, Robert M. Goodfriend.

F-13
<PAGE> 47

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------
MAY 3, 1997 MAY 4, 1996
----------- -----------
<S> <C> <C>
Sales....................................................... $190,057 $150,766
Cost of sales and occupancy expenses........................ 135,080 108,121
-------- --------
Gross profit................................................ 54,977 42,645
Selling, general and administrative expenses................ 47,245 39,275
-------- --------
Earnings from operations.................................... 7,732 3,370
Interest expense............................................ 125 87
Investment income........................................... 486 272
-------- --------
Earnings before income taxes................................ 8,093 3,555
Provision for income taxes.................................. 3,035 1,351
-------- --------
Net earnings................................................ $ 5,058 $ 2,204
-------- --------
Earnings per common share................................... $ 0.30 $ 0.14
======== ========
Weighted average common shares outstanding.................. 16,629 16,125
======== ========
</TABLE>

See accompanying notes to interim consolidated financial statements

F-14
<PAGE> 48

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MAY 3, MAY 4,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 29,579 $ 22,901
Investments............................................... 1,461 1,403
Inventories............................................... 142,315 111,209
Accounts receivable and other current assets.............. 13,152 9,725
-------- --------
Total current assets.............................. 186,507 145,238
Property and equipment, net................................. 88,850 86,458
Other assets................................................ 3,445 3,438
-------- --------
Total assets................................................ $278,802 $235,134
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 95,477 $ 86,303
Accrued expenses.......................................... 36,546 26,989
Income taxes payable...................................... 4,063 2,164
Current portion of long-term debt......................... 239 217
-------- --------
Total current liabilities......................... 136,325 115,673
Long-term debt.............................................. 871 1,110
Other long-term liabilities................................. 2,621 2,290
Deferred income taxes....................................... 9,552 7,982
-------- --------
Total liabilities................................. 149,369 127,055
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock $1.00 par value;
authorized -- 2,000,000 shares; issued and
outstanding -- none
Class B Common stock no par value;
authorized -- 50,000,000 shares; issued and
outstanding -- none
Common stock no par value; authorized -- 50,000,000
shares; issued -- 16,421,982 and 16,325,212 shares;
outstanding -- 16,221,982 and 16,125,212 shares........ 27,016 26,040
Paid-in capital........................................... 3,508 3,135
Retained earnings......................................... 102,011 82,006
Treasury stock, at cost -- 200,000 shares................. (3,102) (3,102)
-------- --------
Total shareholders' equity........................ 129,433 108,079
-------- --------
Total liabilities and shareholders' equity.................. $278,802 $235,134
======== ========
</TABLE>

See accompanying notes to interim consolidated financial statements

F-15
<PAGE> 49

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------
MAY 3, 1997 MAY 4, 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings.............................................. $ 5,058 $ 2,204
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization.......................... 2,614 2,290
Net loss on asset disposals and write-down............. 141 42
Changes in assets and liabilities:
Inventories.......................................... (34,820) (32,942)
Accounts payable..................................... 17,187 21,373
Income taxes......................................... (3,543) 709
Other assets & liabilities........................... (173) 2,750
-------- --------
Cash used in operating activities................. (13,536) (3,574)
-------- --------
Cash Flows from Investing Activities:
Acquisitions of property and equipment................. (2,654) (3,133)
Proceeds from sale of property and equipment........... 4 58
-------- --------
Cash used in investing activities................. (2,650) (3,075)
-------- --------
Cash Flows from Financing Activities:
Exercise of stock options.............................. 550 --
Changes in cash management accounts.................... 1,899 (3,437)
-------- --------
Cash provided by (used in) financing activities... 2,449 (3,437)
-------- --------
Cash and cash equivalents:
Net decrease for the period................................. (13,737) (10,086)
Balance, beginning of period................................ 43,316 32,987
-------- --------
Balance, end of period...................................... $ 29,579 $ 22,901
======== ========
Supplemental Disclosures:
Interest payments...................................... $ 89 $ 50
Income tax payments.................................... 6,631 868
</TABLE>

See accompanying notes to interim consolidated financial statements.

F-16
<PAGE> 50

GOODY'S FAMILY CLOTHING, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(1) UNAUDITED FINANCIAL INFORMATION

In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements of Goody's Family Clothing, Inc. and
subsidiaries (the "Company") include all adjustments, consisting primarily of
normal and recurring adjustments, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. Due to the seasonal nature of the Company's business,
the results of operations for the interim periods are not necessarily indicative
of the results that may be achieved for the entire year. These financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto contained elsewhere in this Registration
Statement.

(2) CREDIT ARRANGEMENTS

The Company has a credit agreement with a consortium of banks for an
unsecured revolving line of credit which provides for cash borrowings for
general corporate purposes as well as for the issuance of letters of credit of
up to $100,000,000. On May 16, 1997, the Company amended its credit agreement to
increase its unsecured revolving line of credit to $120,000,000 and extend its
expiration date to May 31, 1999. The Company is committed to pay (i) interest on
the cash borrowings at a fluctuating base rate or LIBOR plus an applicable
margin, as defined, (ii) letter of credit fees based on the number of days a
letter of credit is outstanding times the applicable fee and (iii) an annual
commitment fee payable quarterly in advance. The terms of this credit facility
require, among other things, maintenance of minimum levels of shareholders'
equity and compliance with certain financial ratios and place restrictions on
additional indebtedness, asset disposals, investments, capital expenditures and
payment of dividends.

(3) EARNINGS PER SHARE

Weighted average common shares outstanding for the first quarter of fiscal
1997 includes common equivalent shares to account for the dilutive effect of
stock options. Common equivalent shares were not materially dilutive in the
first quarter of fiscal 1996 and therefore were not included in the earnings per
share computations for such period.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). This Statement establishes new standards for computing and presenting
earnings per share ("EPS") information. SFAS No. 128 simplifies the computation
of earnings per share currently required by Accounting Principles Board Opinion
No. 15, "Earnings per Share" and its related interpretations. The new Statement
replaces the presentation of "primary" (and when required "fully diluted")
earnings per share with "basic" and "diluted" earnings per share. This new
Statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. The Company's computation of basic and diluted EPS under SFAS No. 128
for the thirteen-week periods ended May 3, 1997 and May 4, 1996 will not be
materially different than EPS currently reported for those periods.

(4) RECLASSIFICATIONS

Certain reclassifications have been made to the financial statements of
prior periods to conform to the current period presentation.

F-17
<PAGE> 51

[INSIDE BACK COVER OF PROSPECTUS CONTAINING PHOTOGRAPHS OF
EXTERIOR OF CORPORATE HEADQUARTERS AND INTERIOR OF DISTRIBUTION CENTER.]

<PAGE> 52

======================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING SHAREHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE COMMON STOCK IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF, OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 10
Price Range of Common Stock........... 10
Selected Consolidated Financial
Data................................ 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 12
Business.............................. 18
Management............................ 26
Principal and Selling Shareholders.... 28
Underwriting.......................... 30
Legal Matters......................... 31
Experts............................... 31
Available Information................. 32
Incorporation of Certain Information
by Reference........................ 32
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,054,500 SHARES
[GOODY'S FAMILY CLOTHING, INC. LOGO]

COMMON STOCK

-------------------------
PROSPECTUS
-------------------------

THE ROBINSON-HUMPHREY
COMPANY, INC.

J.C. BRADFORD & CO.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 53

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $25,596.27
NASD Filing Fee............................................. 8,946.77
Printing and Engraving...................................... *
Legal Fees and Expenses (other than Blue Sky)............... *
Blue Sky Fees and Expenses.................................. *
Accounting Fees and Expenses................................ *
Transfer Agent Fees......................................... *
Travel and Miscellaneous.................................... *
----------
Total............................................. $ *
==========
</TABLE>

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

* To be filed by amendment.

All of the above items, except the Securities and Exchange Commission
registration fee and the NASD filing fee, are estimated. All expenses incurred
in connection with the Offering will be borne ratably by the Selling
Shareholders on the basis of the number of shares of Common Stock sold by each
Selling Shareholder in the Offering.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The indemnification of officers and directors of the Registrant is governed
by Section 48-18-501 et seq. of the Tennessee Business Corporation Act (the
"TBCA") and the Amended and Restated Charter (the "Charter") and By-laws of the
Registrant.

The Charter and the By-laws of the Registrant provide for the
indemnification of the directors, officers, employees and agents of the
Registrant to the fullest extent permitted by the TBCA. Among other things, the
TBCA permits a corporation's indemnification of a director, officer, employee or
agent made a party to a proceeding by reason of the fact of such relationship
with such corporation against liability incurred in the proceeding if (i) such
person acted in good faith, (ii) such person reasonably believed, (a) in the
case of conduct in his official capacity with the corporation, that his conduct
was in its best interests or (b) in all other cases, that his conduct was at
least not opposed to its best interests, and (iii) in the case of any criminal
proceeding, such person had no reasonable cause to believe his conduct was
unlawful. A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the provisions of clause
(ii)(b) above. However, pursuant to the TBCA, a corporation may not indemnify a
director (i) in connection with a proceeding brought by or in the right of the
corporation in which the director was adjudged liable to the corporation or (ii)
in connection with any other proceeding charging improper personal benefit to
him, whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him. Under the TBCA, unless limited by its charter, a corporation shall
indemnify a director or officer who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a director or officer (as applicable) of the corporation against
reasonable expenses incurred by him in connection with the proceeding. Under
certain circumstances, the TBCA also permits a corporation to pay for or
reimburse the reasonable expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the proceeding. The TBCA also
permits a corporation to purchase and maintain insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have statutory power to indemnify such persons against the liabilities
insured and the TBCA further provides that indemnification and advances of
expenses permitted thereunder are not to be exclusive of any rights to which
those seeking indemnification or advancement of expenses may be entitled,
provided that a corporation may not indemnify a director if a judgment or other
final

II-1
<PAGE> 54

adjudication adverse to him establishes his liability (i) for any breach of the
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law or (iii) under Section 48-18-304 of the TBCA (liability for
unlawful distribution).

The Charter and By-laws of the Registrant also provide that no director of
the Registrant shall be personally liable to the Registrant or its shareholders
for monetary damages for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty to the Registrant
or its shareholders, (ii) for acts of omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, or (iii) arising
under Section 47-18-304 of the TBCA.

The Registrant also has entered into agreements with its directors to
further memorialize and reaffirm the Registrant's obligations to indemnify them
as authorized by its Charter and By-laws of the Registrant. Furthermore, the
Registrant has Directors and Officers Liability Insurance, which, subject to the
policy's conditions, provides coverage for indemnification amounts payable by
the Registrant with respect to its directors and officers.

ITEM 16. EXHIBITS

The following exhibits are filed as part of this Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.*
4.1 -- See Amended and Restated Charter of the Registrant
(incorporated by reference to Exhibit 3.1 in Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (file no. 0-19526)) and Amended and Restated Bylaws of
the Registrant (incorporated by reference to Exhibit 3.1 in
Registrant's Annual Report on Form 10-K for the year ended
January 28, 1995 (file no. 0-19526)) for provisions defining
rights of holders of Common Stock of the Registrant.
5.1 -- Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.*
15.1 -- Accountants' Awareness Letter.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Shereff, Friedman, Hoffman & Goodman, LLP
(included in Exhibit 5.1).
24.1 -- Power of Attorney (appears on signature page).
</TABLE>

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

* To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question

II-2
<PAGE> 55

whether such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 56

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Knoxville, State of Tennessee on July 30, 1997.

Goody's Family Clothing, Inc.

By: /s/ ROBERT M. GOODFRIEND
------------------------------------
Robert M. Goodfriend
Chairman of the Board and
Chief Executive Officer

II-4
<PAGE> 57

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints Harry M. Call and Edward R.
Carlin, and each of them (with full power of each of them to act alone), his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution for him and on his behalf, and in his name, place and stead,
in any and all capacities to execute and sign any and all amendments or
post-effective amendments to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents (with full power of each of them to act alone) full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he 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 and the
Registrant hereby confers like authority on its behalf.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>

/s/ ROBERT M. GOODFRIEND Chairman of the Board and Chief July 30, 1997
- ----------------------------------------------------- Executive Officer
Robert M. Goodfriend

/s/ HARRY M. CALL Director, President and Chief July 30, 1997
- ----------------------------------------------------- Operating Officer
Harry M. Call

/s/ EDWARD R. CARLIN Executive Vice President, Chief July 30, 1997
- ----------------------------------------------------- Financial Officer and Secretary
Edward R. Carlin (Principal Financial Officer)

/s/ DAVID G. PEEK Vice President, Corporate July 30, 1997
- ----------------------------------------------------- Controller and Chief Accounting
David G. Peek Officer (Principal Accounting
Officer)

/s/ SAMUEL J. FURROW Director July 30, 1997
- -----------------------------------------------------
Samuel J. Furrow

/s/ ROBERT F. KOPPEL Director July 30, 1997
- -----------------------------------------------------
Robert F. Koppel

/s/ IRWIN L. LOWENSTEIN Director July 30, 1997
- -----------------------------------------------------
Irwin L. Lowenstein

/s/ CHERYL L. TURNBULL Director July 30, 1997
- -----------------------------------------------------
Cheryl L. Turnbull
</TABLE>

II-5

<PAGE> 1

EXHIBIT 15.1

ACCOUNTANTS' AWARENESS LETTER

We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
consolidated financial information of Goody's Family Clothing, Inc. and
subsidiaries for the periods ended May 3, 1997 and May 4, 1996, as indicated in
our report dated May 19, 1997; because we did not perform an audit, we expressed
no opinion on that information.

We are aware that our report referred to above, which was included in the
Company's Quarterly Report on Form 10-Q for the quarter ended May 3, 1997, is
being used in this Registration Statement on Form S-3.

We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Atlanta, Georgia
July 29, 1997

<PAGE> 1

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent (i) to the incorporation by reference in this Registration
Statement of Goody's Family Clothing, Inc. on Form S-3 of our report dated March
19, 1997 incorporated by reference in the Annual Report on Form 10-K of Goody's
Family Clothing, Inc. for the year ended February 1, 1997, and (ii) to the use
in this Registration Statement of our report dated March 19, 1997, appearing in
the Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Atlanta, Georgia
July 29, 1997