BRAUNS FASHIONS CORP, 10-Q, 1998-10-13

BRAUNS FASHIONS CORP
10-Q, 1998-10-13
WOMEN'S CLOTHING STORES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q

(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 29, 1998

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________.

Commission File No. 0-19972

BRAUN'S FASHIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 06 - 1195422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

2400 XENIUM LANE NORTH, PLYMOUTH, MINNESOTA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

55441
(ZIP CODE)

(612) 551-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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

YES X NO
-------- --------

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
-------- --------

As of September 26, 1998, 4,605,994 shares of the registrant's common stock
were outstanding.

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BRAUN'S FASHIONS CORPORATION

FORM 10-Q QUARTERLY REPORT

INDEX

PART I

FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements: Page
----
<S> <C> <C>
Consolidated Condensed Balance Sheet
As of August 29, 1998 and February 28, 1998. . . . . . . . . . . . . . .3

Consolidated Condensed Income Statement
For the Quarters Ended August 29, 1998 and August 30, 1997 . . . . . . .4

Consolidated Condensed Income Statement
For the Two Quarters Ended August 29, 1998 and August 30, 1997 . . . . .5

Consolidated Condensed Statement of Cash Flows
For the Two Quarters Ended August 29, 1998 and August 30, 1997 . . . . .6

Notes to Consolidated Condensed Financial Statements . . . . . . . . . .7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . .8

Item 3. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . 12

PART 2

OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . 12

Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . 12

Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . 12

Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 14

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>

2
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BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET

AUGUST 29, FEBRUARY 28,
ASSETS 1998 1998
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 14,434,170 $ 15,848,439
Accounts receivable . . . . . . . . . . . . . 1,001,352 847,746
Merchandise inventory . . . . . . . . . . . . 11,811,682 10,735,681
Prepaid expenses. . . . . . . . . . . . . . . 409,031 414,341
Current deferred tax asset. . . . . . . . . . 322,570 322,570
-------------- --------------

Total current assets. . . . . . . . . . . 27,978,805 28,168,777

Equipment and improvements, net . . . . . . . . 11,498,920 10,943,054

Other assets:
Long-term deferred tax asset. . . . . . . . . 1,414,789 1,414,789
Other . . . . . . . . . . . . . . . . . . . . 201,723 63,424
-------------- --------------

Total other assets. . . . . . . . . . . . 1,616,512 1,478,213
-------------- --------------

Total assets. . . . . . . . . . . . . . . $ 41,094,237 $ 40,590,044
-------------- --------------
-------------- --------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable. . . . . . . . . . . . . . . $ 2,486,200 $ 3,666,921
Accrued liabilities . . . . . . . . . . . . . 3,892,305 4,461,532
Current maturities of long-term debt. . . . . 692,243 681,424
Income taxes payable. . . . . . . . . . . . . 607,296 186,982
-------------- --------------
Total current liabilities . . . . . . . . 7,678,044 8,996,859

Long-term liabilities:
Long-term debt. . . . . . . . . . . . . . . . 9,628,409 9,616,311
Accrued rent obligation . . . . . . . . . . . 1,002,712 1,017,556
-------------- --------------
Total long-term liabilities . . . . . . . 10,631,121 10,633,867

Stockholders' equity:
Preferred stock-$0.01 par value, 1,000,000
shares authorized; none outstanding . . . . -- --
Common stock-$0.01 par value, 9,000,000 shares
authorized; 4,605,994 and 4,523,393 shares
issued and outstanding at August 29,
1998 and February 28, 1998, respectively. . 46,060 45,234
Additional paid-in capital. . . . . . . . . . 28,831,024 28,588,350
Accumulated deficit . . . . . . . . . . . . . (6,092,012) (7,674,266)
-------------- --------------
Total stockholders' equity. . . . . . . . . 22,785,072 20,959,318
-------------- --------------
Total liabilities and stockholders' equity. $ 41,094,237 $ 40,590,044
-------------- --------------
-------------- --------------
</TABLE>

See accompanying notes to consolidated condensed financial statements.

3
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BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)

QUARTER ENDED
-------------------------
AUGUST 29, AUGUST 30,
1998 1997
---------- ----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $22,942,157 $20,939,042

Cost of sales:
Merchandise, buying and occupancy. . . . . . . . . . . 15,388,209 14,178,386
---------- ----------

Gross profit . . . . . . . . . . . . . . . . . . . . . 7,553,948 6,760,656

Selling, general and administrative expenses. . . . . . . . 5,973,893 5,465,407
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 663,512 611,065
---------- ----------

Operating income . . . . . . . . . . . . . . . . . . . 916,543 684,184

Interest, net . . . . . . . . . . . . . . . . . . . . . . . 103,412 201,171
---------- ----------

Income before income taxes and extraordinary gain. . . 813,131 483,013

Income tax provision. . . . . . . . . . . . . . . . . . . . 308,990 183,545
---------- ----------

Income before extraordinary gain . . . . . . . . . . . 504,141 299,468

Extraordinary gain. . . . . . . . . . . . . . . . . . . . . -- 8,121
---------- ----------

Net income . . . . . . . . . . . . . . . . . . . . . . $ 504,141 $ 307,589
---------- ----------
---------- ----------

Basic earnings per common share:
Net income before extraordinary gain . . . . . . . . . $ 0.11 $ 0.07
Extraordinary gain . . . . . . . . . . . . . . . . . . -- 0.00
---------- ----------

Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.11 $ 0.07
---------- ----------
---------- ----------

Weighted average common shares outstanding . . . . . . 4,555,294 4,462,501
---------- ----------
---------- ----------

Diluted earnings per common share:
Net income before extraordinary gain . . . . . . . . . $ 0.10 $ 0.06
Extraordinary gain . . . . . . . . . . . . . . . . . . -- 0.00
---------- ----------

Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.10 $ 0.06
---------- ----------
---------- ----------

Weighted average common and common equivalent shares
outstanding . . . . . . . . . . . . . . . . . . . . . 4,866,221 4,817,933
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated condensed financial statements.

4
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BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)

TWO QUARTERS ENDED
-------------------------
AUGUST 29, AUGUST 30,
1998 1997
---------- ----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $47,944,783 $42,780,733

Cost of sales:
Merchandise, buying and occupancy. . . . . . . . . . . 31,717,528 28,361,288
---------- ----------

Gross profit . . . . . . . . . . . . . . . . . . . . . 16,227,255 14,419,445

Selling, general and administrative expenses. . . . . . . . 12,132,581 10,937,741
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 1,322,670 1,217,108
---------- ----------

Operating income . . . . . . . . . . . . . . . . . . . 2,772,004 2,264,596

Interest, net . . . . . . . . . . . . . . . . . . . . . . . 219,983 401,669
---------- ----------

Income before income taxes and extraordinary gain. . . 2,552,021 1,862,927

Income tax provision. . . . . . . . . . . . . . . . . . . . 969,768 707,912
---------- ----------

Income before extraordinary gain . . . . . . . . . . . 1,582,253 1,155,015

Extraordinary gain. . . . . . . . . . . . . . . . . . . . . -- 112,841
---------- ----------

Net income . . . . . . . . . . . . . . . . . . . . . . $1,582,253 $1,267,856
---------- ----------
---------- ----------

Basic earnings per common share:
Net income before extraordinary gain . . . . . . . . . $ 0.35 $ 0.26
Extraordinary gain . . . . . . . . . . . . . . . . . . -- 0.02
---------- ----------

Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.35 $ 0.28
---------- ----------
---------- ----------

Weighted average common shares outstanding . . . . . . 4,539,343 4,447,545
---------- ----------
---------- ----------

Diluted earnings per common share:
Net income before extraordinary gain . . . . . . . . . $ 0.32 $ 0.24
Extraordinary gain . . . . . . . . . . . . . . . . . . -- 0.02
---------- ----------

Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.32 $ 0.26
---------- ----------
---------- ----------

Weighted average common and common equivalent shares
outstanding . . . . . . . . . . . . . . . . . . . . . 4,870,580 4,797,316
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated condensed financial statements.

5
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BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)

TWO QUARTERS ENDED
-------------------------
AUGUST 29, AUGUST 30,
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $1,582,253 $1,267,856
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . 1,322,670 1,217,108
Extraordinary gain from early extinguishment of debt . -- (182,001)
(Gain) loss on disposals of equipment, net . . . . . . (1,686) (3,838)
(Increase) decrease in deferred tax asset. . . . . . . -- 285,998
Increase (decrease) in accrued rent obligation . . . . (14,844) 144,519
Changes in operating assets and liabilities:
(Increase) decrease in merchandise inventory,
prepaid expenses, receivables and other . . . . . . (1,362,596) (3,243,102)
Increase (decrease) in accounts payable,
accrued liabilities and income taxes payable. . . . (1,329,634) (594,545)
----------- ----------

Net cash provided by (used in) operating activities 196,163 (1,108,005)

Cash flows from investing activities:
Purchase of equipment and improvements . . . . . . . . (1,906,850) (1,980,986)
Proceeds from sale of equipment. . . . . . . . . . . . 30,000 15,025
----------- ----------

Net cash used in investing activities . . . . . . . (1,876,850) (1,965,961)

Cash flows from financing activities:
Redemption of 12% Senior Notes . . . . . . . . . . . . -- (748,000)
Principal payments on long-term debt . . . . . . . . . (122,095) (112,158)
Interest on 12% Senior Notes added to principal. . . . 145,012 159,100
Exercise of stock options. . . . . . . . . . . . . . . 243,501 209,972
----------- ----------

Net cash provided by (used in) financing activities 266,418 (491,086)
----------- ----------

Net decrease in cash and cash equivalents . . . . . . . . . (1,414,269) (3,565,052)

Cash and cash equivalents at beginning of year. . . . . . . 15,848,439 10,913,716
----------- ----------

Cash and cash equivalents at end of period. . . . . . . . . $14,434,170 $7,348,664
----------- ----------
----------- ----------
</TABLE>

See accompanying notes to consolidated condensed financial statements.

6
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BRAUN'S FASHIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION

The financial statements included in this Form 10-Q have been prepared by
Braun's Fashions Corporation and its wholly owned subsidiary Braun's Fashions,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the financial statements and related notes included in
the Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1998.

The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature.

NOTE 2 -- NET INCOME PER SHARE

In fiscal 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FASB No. 128").
Under FASB No. 128, basic earnings per share ("EPS") is computed based on the
weighted average number of shares of common stock outstanding during the
applicable periods while diluted EPS is computed based on the weighted average
number of common and common equivalent shares (dilutive stock options)
outstanding.

The following is a reconciliation of the number of shares (denominator)
used in the basic and diluted EPS computations:

QUARTER ENDED
-------------------------------------------------------------------------
AUGUST 29, 1998 AUGUST 30, 1997
-------------------------- ------------------------------------------
NET INCOME NET INCOME
BEFORE AFTER
NET EXTRAORDINARY EXTRAORDINARY
SHARES INCOME SHARES GAIN GAIN
---------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
Basic EPS 4,555,294 $0.11 4,462,501 $ 0.07 $ 0.07

Effect of dilutive stock options 310,927 (0.01) 355,432 (0.01) (0.01)
---------- ------ --------- -------- --------

Diluted EPS 4,866,221 $0.10 4,817,933 $ 0.06 $ 0.06
---------- ------ --------- -------- --------
---------- ------ --------- -------- --------
</TABLE>

TWO QUARTERS ENDED
-------------------------------------------------------------------------
AUGUST 29, 1998 AUGUST 30, 1997
-------------------------- ------------------------------------------
NET INCOME NET INCOME
BEFORE AFTER
NET EXTRAORDINARY EXTRAORDINARY
SHARES INCOME SHARES GAIN GAIN
---------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
Basic EPS 4,539,343 $0.35 4,447,545 $ 0.26 $ 0.28

Effect of dilutive stock options 331,237 (0.03) 349,771 (0.02) (0.02)
---------- ------ --------- -------- --------

Diluted EPS 4,870,580 $0.32 4,797,316 $ 0.24 $ 0.26
---------- ------ --------- -------- --------
---------- ------ --------- -------- --------
</TABLE>

NOTE 3 -- ACCOUNTING PRONOUNCEMENT

Statement of Financial Standards Board No. 130, "Reporting Comprehensive
Income" ("FASB No. 130"), establishes standards of disclosure and financial
statement display for reporting total comprehensive income and the individual
components thereof in a full set of general-purpose financial statements. The
adoption of this standard had no impact on the Company's financial statements in
the first two quarters of fiscal 1999.

7
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NOTE 4 -- LONG-TERM DEBT

In fiscal 1999, the Company approved the repurchase of up to $3.0 million
of the Company's outstanding Senior Notes on the open market at a discount.
Including purchases made in September, 1998, the Company has repurchased $1.6
million of its outstanding Senior Notes as of September 26, 1998.

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL
Braun's Fashions Corporation is a Minneapolis-based regional retailer of
women's specialty apparel, which operates through its wholly-owned subsidiary,
Braun's Fashions, Inc. As of September 26, 1998, the Company operated 189
stores in 21 states, primarily in the Midwest. The Company's stores offer
coordinated assortments of moderately priced sportswear, sweaters, dresses and
accessories.

RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's operating statement data expressed as a percentage of net
sales.

QUARTER ENDED TWO QUARTERS ENDED
------------------------ -----------------------
AUGUST 29, AUGUST 30, AUGUST 29, AUGUST 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Merchandise, buying and occupancy . . . . . . . . . . 67.1 67.7 66.2 66.3
------ ------ ------ ------
Gross profit. . . . . . . . . . . . . . . . . . . . . 32.9 32.3 33.8 33.7
Selling, general and administrative . . . . . . . . . 26.0 26.1 25.3 25.6
Depreciation and amortization . . . . . . . . . . . . 2.9 2.9 2.7 2.8
------ ------ ------ ------
Operating income . . . . . . . . . . . . . . . . . . 4.0 3.3 5.8 5.3
Interest, net . . . . . . . . . . . . . . . . . . . . 0.5 1.0 0.5 0.9
------ ------ ------ ------
Income before income taxes and extraordinary gain . . 3.5 2.3 5.3 4.4
Income tax provision. . . . . . . . . . . . . . . . . 1.3 0.9 2.0 1.7
------ ------ ------ ------
Net income before extraordinary gain. . . . . . . . . 2.2 1.4 3.3 2.7
Extraordinary gain. . . . . . . . . . . . . . . . . . -- 0.1 -- 0.3
------ ------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . 2.2% 1.5% 3.3% 3.0%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

QUARTER ENDED AUGUST 29, 1998 COMPARED TO QUARTER ENDED AUGUST 30, 1997.

NET SALES. Net sales for the quarter ended August 29, 1998, were $22.9
million, an increase of 10% from $20.9 million for the quarter ended August 30,
1997. The increase in sales was attributable to a 2% increase in same-store
sales combined with an increase in the number of stores operated by the Company.
The Company operated 187 stores at August 29, 1998 compared to 178 at August 30,
1997.

GROSS PROFIT. Gross profit, which is net sales less cost of merchandise,
buying and occupancy expenses, was $7.6 million or 32.9% of net sales during the
second quarter of fiscal 1999 compared to $6.8 million or 32.3% of net sales
during the same period in fiscal 1998. Gross margin as a percent of net sales
increased due to favorable pricing in the cost of merchandise obtained from
foreign suppliers.

8
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of fiscal 1999 were $6.0 million
or 26.0% of net sales compared to $5.5 million or 26.1% of net sales for the
second quarter of fiscal 1998. The slight decrease as a percent of net sales
was a result of leveraging associated with increased sales.

OPERATING INCOME. Operating income for the quarter ended August 29, 1998,
was $916,543 or 4.0% of net sales compared to operating income of $684,184 or
3.3% of net sales for the quarter ended August 30, 1997.

INTEREST, NET. Net interest decreased from $201,171 in the second quarter
of fiscal 1998 to $103,412 in the current year's quarter. This decrease was
primarily due to the Company's higher cash balance which resulted in increased
income from investments.

INCOME TAXES. Income tax expense in the second quarter of fiscal 1999 was
$308,990 compared to $183,545 in the second quarter of fiscal 1998.

EXTRAORDINARY GAIN. During the second quarter of fiscal 1998, the Company
purchased $108,000 principal face amount of its 12% Senior Notes at a discount
from par. This purchase resulted in the recognition of an extraordinary gain on
the early extinguishment of debt, net of tax, of $8,121.

NET INCOME . As a result of the foregoing factors, net income for the
quarter ended August 29, 1998 was $504,141 or 2.2% of net sales compared to
$307,589 or 1.5% of net sales for the quarter ended August 30, 1997.

SIX MONTHS ENDED AUGUST 29, 1998 COMPARED TO SIX MONTHS ENDED AUGUST 30, 1997.

NET SALES. Net sales for the six months ended August 29, 1998, were $47.9
million, an increase of 12% from $42.8 million for the six months ended August
30, 1997. The increase in sales was attributable to a 5% increase in same-store
sales combined with an increase in the number of stores operated by the Company.
The Company operated 187 stores at August 29, 1998 compared to 178 at August 30,
1997.

GROSS PROFIT. Gross profit was $16.2 million or 33.8% of net sales during
the first six months of fiscal 1999, compared to $14.4 million or 33.7% of net
sales during the same period in fiscal 1998. The slight increase in gross
margin as a percent of net sales was due to favorable pricing in the cost of
merchandise obtained from foreign suppliers. This increase was offset by a
change in the merchandise mix in the first quarter as dresses, which have a
lower gross margin than other product lines, represented a greater percentage of
sales than in the first quarter of fiscal 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first six months of fiscal 1999 were $12.1
million or 25.3% of net sales compared to $10.9 million or 25.6% of net sales
for the first six months of fiscal 1998. The decrease as a percent of net sales
was a result of leveraging associated with increased sales.

OPERATING INCOME. Operating income for the six months ended August 29,
1998 was $2.8 million or 5.8% of net sales compared to operating income of $2.3
million or 5.3% of net sales for the comparable period of fiscal 1998.

INTEREST, NET. Net interest decreased from $401,669 for the first six
months of fiscal 1998 to $219,983 in the current year's comparable period. This
decrease was primarily due to the Company's higher cash balance which resulted
in increased income from investments.

INCOME TAXES. Income tax expense in the first six months of fiscal 1999
was $969,768 compared to $707,912 in the first half of fiscal 1998.

EXTRAORDINARY GAIN. During the first six months of fiscal 1998 the Company
purchased $908,000 principal face amount of its 12% Senior Notes at a discount
from par. This resulted in the recognition of an extraordinary gain on the
early extinguishment of debt, net of tax, of $112,841 or 0.3% of net sales.

NET INCOME. As a result of the foregoing factors, net income for the six
months ended August 29, 1998 was $1.6 million or 3.3% of net sales compared to
$1.3 million or 3.0% of net sales for the six months ended August 30, 1997.

9
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for cash are to finance the construction of
new stores and the remodeling of certain existing stores, to purchase
merchandise inventories and to fund other working capital requirements.
Merchandise purchases vary on a seasonal basis, peaking in the fall. As a
result, the Company's cash requirements historically reach their peak in October
and November. Conversely, cash balances reach their peak in January, after the
holiday season is completed.

Net cash provided by operating activities totaled $196,163 for the first
six months of fiscal 1999. Cash was used to finance $1,906,850 of capital
expenditures to open ten new stores and for other miscellaneous capital
expenditures. During the remainder of the fiscal year the Company intends to
spend approximately $2.6 to $3.1 million on capital expenditures to open 12
additional new stores and to complete five major remodels. In addition, the
Company intends to spend approximately $1.4 million to install new computer
software which will allow the Company to manage inventory more efficiently
and provide the Company with improved merchandise planning, sales tracking
and trend analysis. Management expects its cash on hand combined with cash
flows from operations to be sufficient to meet its capital expenditure and
working capital requirements and its other needs for liquidity during the
year. During fiscal 2000, the Company intends to increase its store count by
a net of approximately 15% in furtherance of its store expansion strategy.
The net capital expenditures associated with these store openings are
expected to approximate $150,000 per store.

In December 1996, the Company entered into a borrowing agreement with
Norwest Bank Minnesota, National Association (the "Norwest Revolver") expiring
April 1, 1999. The Company has initiated discussions with Norwest regarding a
new revolving credit facility to replace the Norwest Revolver upon its
expiration.

The Norwest Revolver provides the Company with revolving credit loans and
letters of credit up to $10 million, subject to a borrowing base formula. Loans
under the Norwest Revolver bear interest at Norwest's base rate plus 3/4%,
subject to a rate reduction provision based on the financial performance of the
Company (as described in the Norwest Revolver). Due to the Company's favorable
financial performance, the interest rate at September 26, 1998 was Norwest's
base rate plus 3/8% or 8-7/8%. Interest is payable monthly in arrears.

The Norwest Revolver carries commitment fees of 1/4% of the difference
between $5 million and the average amount outstanding under the facility
(including letters of credit). If the average amount outstanding under the
facility (including letters of credit) is between $5 million and $7.5 million,
the commitment fee shall be based on the difference between $7.5 million and the
average amount outstanding under the facility (including letters of credit) and
if the average amount outstanding (including letters of credit) is in excess of
$7.5 million, the commitment fee is calculated on the difference between $10
million and the average amount outstanding under the facility (including letters
of credit). This facility is secured by substantially all of the Company's
assets. The borrowing base at September 26, 1998, was $8.2 million. As of
September 26, 1998, the Company had no borrowings and outstanding letters of
credit in the amount of $4.4 million under the Norwest Revolver. Accordingly,
the availability of revolving credit loans under the Norwest Revolver was $3.8
million at that date.

The Norwest Revolver contains certain restrictive covenants, including a
limitation on capital expenditures, restrictions on incurring additional
indebtedness, limitations on certain types of investments and prohibitions on
paying dividends, as well as requiring the maintenance of certain financial
ratios.

In December 1996, the Company issued $10,300,200 of debt in the form of 12%
Senior Notes (the "Senior Notes") due January, 2005 pursuant to an Indenture
dated as of December 2, 1996. The principal amount of the Senior Notes bears
interest at the rate of 12% per annum. Interest at the rate of 9% per annum on
the outstanding principal amount is to be paid monthly on the last day of each
calendar month until all amounts due and owing on the Senior Notes and under the
Indenture have been paid in full. Interest at the rate of 3% per annum on the
outstanding principal amount shall accrue monthly and shall, upon accrual, be
treated as principal for all purposes, including without limitation, the
calculation of all interest payments due thereafter, and shall be payable in
full on January 1, 2005. The remaining scheduled principal payments, due
January 1 of the following years, are as follows: 1999 - $431,938, 2000 -
$803,902, 2001 - $875,752, 2002 - $958,207, 2003 - $1,040,074, 2004 - $1,133,443
and 2005 - $6,031,476.

The Senior Notes are general unsecured senior obligations of the Company.
The Indenture for the Senior Notes contains certain covenants which, among other
things, limit the ability of the Company to incur liens, incur additional
indebtedness, and restrict the Company's ability to declare dividends.

10
<PAGE>

The Company is unaware of any environmental liability that would have a
material adverse effect on the financial position or the results of operations
of the Company.

The Company purchases approximately 50% of its merchandise from overseas
vendors. Since the Company purchases this merchandise using letters of credit
denominated in U.S. dollars, primarily from vendors in countries whose currency
is pegged to the U.S. dollar, management does not believe the Company will be
materially affected by foreign currency fluctuations.

SEASONALITY
The Company's sales reflect seasonal variation as sales in the third and
fourth quarters, which include the fall and holiday season, generally have been
higher than sales in the first and second quarters. Sales generated during the
fall and holiday season have a significant impact on the Company's annual
results of operations. Quarterly results may fluctuate significantly depending
on a number of factors including adverse weather conditions, shifts in the
timing of certain holidays and promotional events, timing of new store openings,
and customer response to the Company's seasonal merchandise mix.

INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation has had a material
effect on the results of operations during the quarters and six month periods
ended August 29, 1998, and August 30, 1997.

INFORMATION TECHNOLOGY SYSTEMS AND THE YEAR 2000
The year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. Certain of the Company's
computer information technology systems and their associated software ("IT
Systems") may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or to engage in similar business activities.

READINESS FOR YEAR 2000. As is the case with most other companies using IT
Systems in their operations, the Company has been in the process of addressing
the year 2000 issue. In connection with a general upgrade of its IT Systems,
the Company had previously planned to install new merchandise and financial
system software packages in fiscal 1999. The Company expects to begin using
these systems in March, 1999. In addition to being year 2000 compliant,
management expects the new merchandise systems will allow for improved
merchandise planning, sales tracking and trend analysis. Further, the
Company also expects these systems will allow for improved distribution
center processing and more flexible allocation of merchandise to the
Company's stores.

COSTS TO ADDRESS YEAR 2000 ISSUES. Management estimates that new year 2000
compliant software packages and related hardware improvements, which the Company
had previously planned to install irrespective of any year 2000 considerations,
will cost approximately $1.4 million. All costs related to year 2000 compliance
issues will be funded through cash flows from operations.

RISKS OF YEAR 2000 ISSUES. The Company expects to implement the changes
necessary to address the year 2000 issue. The Company presently believes that,
with the conversions to new software and modifications to existing IT Systems,
the year 2000 issue will not pose significant operational problems for the
Company's IT Systems and thus will not have a materially adverse effect on the
Company's operations. However, the year 2000 problem is pervasive and complex
and can potentially affect any computer process. Accordingly, no assurance can
be given that the year 2000 compliance can be achieved without additional
unanticipated expenditures and uncertainties that might affect future financial
results.

Moreover, in its normal course of operations the Company relies upon
vendors, government agencies, utility companies, telecommunications companies,
shipping companies, suppliers and other third party service providers over which
it can assert little control. The Company's ability to conduct its business is
dependent upon the ability of these third parties to avoid year 2000 related
disruptions. The Company has contacted and will continue to contact its key
suppliers and other third party service providers to inquire as to their year
2000 readiness. If these third parties do not adequately address their

11
<PAGE>

year 2000 issues, the Company's business may be affected, which could result in
a materially adverse effect on the results of operations and financial condition
of the Company.

CONTINGENCY PLANS. With the exception of the above plans, the Company has
not to date developed any further contingency plans in the event the Company, or
any key third party providers, should fail to become year 2000 compliant.

FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "intend", "plan", "anticipate", "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. There are certain important factors that could cause results to
differ materially from those anticipated by some of these forward-looking
statements. Investors are cautioned that all forward-looking statements involve
risks and uncertainty. The factors, among others, that could cause actual
results to differ materially include: consumers' spending and debt levels; the
Company's ability to execute its business plan; the Company's ability to open
new stores on favorable terms and the timing of such store openings; the
acceptance of the Company's merchandising strategies by its target customers;
the ability of the Company to anticipate marketing trends and consumer needs;
continuity of a relationship with or purchases from major vendors, particularly
those from whom the Company imports merchandise; competitive pressures on sales
and pricing; increases in other costs which cannot be recovered through
improved pricing of merchandise; and the adverse effect of weather conditions
from time to time on consumers' ability or desire to purchase new clothing.

ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK

Not applicable.

PART II.

ITEM 1.
LEGAL PROCEEDINGS

There are no material legal proceedings pending against the Company.

ITEM 2.
CHANGES IN SECURITIES
AND USE OF PROCEEDS

There have been no material modifications to the Company's registered
securities.

ITEM 3.
DEFAULTS UPON
SENIOR SECURITIES

There has been no default with respect to any indebtedness of the Company.

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

The Company held its annual meeting of shareholders on July 22, 1998, in
Minneapolis, Minnesota. The Company solicited proxies and filed definitive proxy
statements with the Commission pursuant to Regulation 14A. The matters voted
upon and the votes cast at the meeting were as follows:

12
<PAGE>

Item 1. Election of two Class 1 directors to serve on the Board of Directors
for a term of three years:

Vote
------------------------------------------------
For Withheld
--------- --------
<S> <C> <C>
Nicholas H. Cook 3,527,772 359,369
Marc C. Ostrow 3,612,090 275,051
</TABLE>

Other individuals whose term of office as a director continued after
the meeting included James J. Fuld, Jr., Larry C. Barenbaum and Donald
D. Beeler. In September, 1998, William J. Prange was appointed by the
Company to its Board of Directors to replace the vacancy created on
June 30, 1998 when Herbert D. Froemming retired.

Item 2. Proposal to increase the number of shares of Common Stock reserved for
issuance under the Company's Stock Incentive Plan from 300,000 to
450,000 shares:

Vote
---------------------------------------------------------
For Against Abstain Broker Non-Vote
--------- ------- ------- ---------------
<S> <C> <C> <C>
1,682,409 584,370 7,685 1,612,677
</TABLE>

Item 3. Proposal to adopt a 1998 Director Option Plan:

Vote
---------------------------------------------------------
For Against Abstain Broker Non-Vote
--------- ------- ------- ---------------
<S> <C> <C> <C>
1,561,073 698,333 15,057 1,612,678
</TABLE>

Item 4. Proposal to ratify the grant of stock options to Non-Employee
Directors:

Vote
---------------------------------------------------------
For Against Abstain Broker Non-Vote
--------- ------- ------- ---------------
<S> <C> <C> <C>
1,728,743 532,781 12,939 1,612,678
</TABLE>

Item 5. Proposal to ratify the appointment of Pricewaterhouse Coopers, LLP as
the Company's independent auditors for the Company's current fiscal
year:

Vote
---------------------------------------------------------
For Against Abstain Broker Non-Vote
--------- ------- ------- ---------------
<S> <C> <C> <C>
3,878,399 3,243 5,499 0
</TABLE>

13
<PAGE>

ITEM 5.
OTHER INFORMATION

None.

ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
Exhibit 10.20 -- Executive Employment Agreement, dated March 1, 1998,
between Braun's Fashions Corporation and William J.
Prange
Exhibit 10.21 -- Executive Employment Agreement, dated March 1, 1998,
between Braun's Fashions Corporation and Joseph E.
Pennington
Exhibit 10.22 -- Executive Employment Agreement, dated March 1, 1998,
between Braun's Fashions Corporation and Ralph C. Neal
Exhibit 27 -- Financial Data Schedules (submitted for SEC use only)

(b) Reports on Form 8-K
None

14
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: October 7, 1998

BRAUN'S FASHIONS CORPORATION

By /S/ ANDREW K. MOLLER
------------------------------
Andrew K. Moller
Vice President Finance and
Chief Financial Officer

Signing on behalf of the
registrant and as principal
financial officer.

<PAGE>

EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
BRAUNS FASHIONS CORPORATION
AND
WILLIAM J. PRANGE

THIS AGREEMENT is made and entered into this 1st day of March, 1998, by
and between Brauns Fashions Corporation, a corporation duly organized and
existing under the laws of the State of Delaware (the "Corporation") and
William J. Prange ("Executive").

ARTICLE 1
EMPLOYMENT

1.1 The Corporation hereby employs Executive, and Executive agrees to
work for the Corporation as President and Chief Executive Officer, and to
perform such related duties as are assigned to him from time to time by the
Board of Directors of the Corporation.

ARTICLE 2
TERM

2.1 The term of this Agreement shall be for a period three (3) years
commencing the date of this Agreement, unless sooner terminated as
hereinafter provided. The Agreement shall thereafter continue in effect from
year to year unless either party provides ninety (90) days written notice of
termination.

ARTICLE 3
DUTIES

3.1 Executive agrees, unless otherwise specifically authorized by the
Board of Directors of the Corporation, to devote his full time and effort to
the best of his abilities to his duties for the profit, benefit and advantage
of the business of the Corporation. Executive shall report directly to the
Board of Directors.

ARTICLE 4
COMPENSATION AND BENEFITS

4.1 The Corporation agrees to pay Executive an annual base salary of
Three Hundred Thousand Dollars ($300,000) payable at those intervals as the
Corporation shall pay other executives. The base salary shall be reviewed
annually and appropriate increases, if any, shall be awarded to

<PAGE>

Executive by the Board of Directors in its sole discretion, but such base
compensation shall not be reduced from that of the prior year.

4.2 Subject to the terms and conditions of such plans and programs, the
Executive shall be entitled to participate in the various employee benefit
plans and programs applicable to senior executives of the Corporation,
including but not limited to medical, life and other benefits as well as
vacations, which shall be at such times as reasonably determined by the Board
of Directors of the Company.

4.3 The Executive shall be eligible to receive a bonus in accordance
with the Corporation's bonus plans as in effect and approved by the Board of
Directors from time to time.

4.4 The Corporation shall pay to the Executive a car allowance of
$1,000.00 per month.

ARTICLE 5
INSURANCE

5.1 The Corporation, at its own expense, shall provide life insurance
coverage on the Executive's life. The death benefit shall be in the amount
of $1,000,000, which will consist of one-half split life insurance and
one-half term insurance. The death benefit shall be payable to the
Executive's designated beneficiary. The Executive shall have full discretion
to name the beneficiary of the portion of the insurance provided for benefit
of the Executive. The Corporation shall have the right at its own expense
and for its own benefit to purchase additional insurance on the Executive's
life, and the Executive shall cooperate by providing necessary information,
submitting to required medical examinations, and otherwise complying with the
insurance carrier's requirements.

5.2 The Executive shall be entitled to disability insurance in line
with the present policy of the Corporation, to be provided at the expense of
the Corporation.

ARTICLE 6
DEFINITIONS

6.1 "Cause" shall mean (i) any fraud, misappropriation or embezzlement
by Executive in connection with the business of the Corporation, (ii) any
conviction of a felony or a gross misdemeanor by Executive that has or can
reasonably be expected to have a detrimental effect on the Corporation, (iii)
any gross neglect or persistent neglect by Executive to perform the duties
assigned to him hereunder or any other act that can be reasonably expected to
cause substantial economic or reputational injury to the Company or (iv) any
material breach of Sections 7 or 8 of this Agreement, provided that the
existence of such neglect or material breach shall be determined by the
written agreement of the majority of the directors. If Executive is a member
of the Board of Directors, he shall not vote on any such determination of
"Cause," nor shall he be counted for purposes of

-2-

<PAGE>

determining a majority of the directors. Provided further that in connection
with an event described in Section 6.1(iii) above, Executive shall first have
received a written notice from the Corporation which sets forth in reasonable
detail the manner in which Executive has grossly or persistently neglected
his duties and Executive shall have a period of ten (10) days to cure the
same, but the Corporation shall not be required to give written notice of,
nor shall Executive have a period to cure, the same or any similar gross or
persistent neglect or material breach which the Corporation has previously
given written notice to Executive hereunder and Executive has cured such
neglect or breach.

6.2 A "Change of Control" shall be deemed to have occurred if (i) there
shall be consummated (A) any consolidation or merger in which the Corporation
is not the continuing or surviving corporation or pursuant to which shares of
the Corporation's common stock would be converted into cash, securities or
other property, other than a consolidation or a merger having the same
proportionate ownership of common stock of the surviving corporation
immediately after the consolidation or merger or (B) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions other than in the ordinary course of business of the
Corporation) of all, or substantially all, of the assets of the Corporation
to any corporation, person or other entity which is not a direct or indirect
wholly-owned subsidiary of the Corporation, or (ii) any person, group,
corporation or other entity (collectively, "Persons") shall acquire
beneficial ownership (as determined pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended, and rules and regulations
promulgated hereunder) of 50% or more of the Corporation's outstanding common
stock.

6.3 "Confidential Information" means any information that is not
generally known, including trade secrets, outside the Corporation and that is
proprietary to the Corporation, relating to any phase of the Corporation's
existing or reasonably foreseeable business which is disclosed to Executive
during Executive's employment by the Corporation including information
conceived, discovered or developed by Executive. Confidential Information
includes, but is not limited to, business plans; financial statements and
projections; operating forms (including contracts) and procedures; payroll
and personnel records; marketing materials and plans; proposals; supplier
information; customer information; software codes and computer programs;
customer lists; project lists; project files; training manuals; policies and
procedures manuals; health and safety manuals; target lists for new stores
and information relating to potential new store locations; price information
and cost information; administrative techniques or documents or information
that is designated by the Corporation as "Confidential" or similarly
designated.

6.4 A "Competitor" means any person or organization which is a women's
specialty apparel retailer whose operations compete with more than twenty
percent (20%) of the Corporation's store locations as existing on the date of
termination of Executive. Companies which are deemed Competitors shall
include Paul Harris Stores, Inc., Kohls Department Stores and Maurices, a
division of Amcena, and any other women's specialty apparel retailer similar
to such companies and whose operations meet the threshold in the preceding
sentence.

-3-

<PAGE>

ARTICLE 7
NONCOMPETITION AND NONSOLICITATION

7.1 During Executive's employment, Executive will not plan, organize or
engage in any business competitive with any product or service marketed or
planned for marketing by the Corporation or conspire with others to do so.

7.2 For a period of one year after termination of Executive's
employment with the Corporation, Executive will not, without the written
permission of the Corporation, (i) directly or indirectly engage in
activities with a Competitor or (ii) own (whether as a shareholder, partner
or otherwise, other than as a 5% or less shareholder of a publicly held
company), or (iii) be connected as an officer, director, advisor, consultant
or employee of or participate in the management of any Competitor.

7.3 For a period of two years after termination of Executive's
employment with the Corporation, Executive will not solicit, entice, or
induce (or attempt to do so, directly or indirectly), any employee of the
Corporation to be employed by any other party.

ARTICLE 8
CONFIDENTIAL INFORMATION AND TRADE DOCUMENTS

8.1 Unless authorized in writing by the Corporation, Executive will not
directly or indirectly divulge, either during or after the term of his
employment, or until such information becomes generally known, to any person
not authorized by the Corporation to receive or use it any Confidential
Information for any purpose whatsoever.

8.2 All documents or other tangible property relating in any way to the
business of the Corporation which are conceived by Executive or come into his
possession during his employment shall be and remain the exclusive property
of the Corporation and Executive agrees to return all such documents and
tangible property to the Corporation upon termination of his employment, or
at such earlier time as the Corporation may request of Executive.

ARTICLE 9
JUDICIAL CONSTRUCTION

9.1 Executive believes and acknowledges that the provisions contained
in this Agreement, including the covenants contained in Articles 7 and 8 of
this Agreement, are fair and reasonable. Nonetheless, it is agreed that if a
court finds any of these provisions to be invalid in whole or in part under
the laws of any state, such finding shall not invalidate the covenants, nor
the Agreement in its entirety, but rather the covenants shall be construed
and/or bluelined, reformed or rewritten by the court as if the most
restrictive covenants permissible under applicable law were contained herein.

-4-

<PAGE>

ARTICLE 10
RIGHT TO INJUNCTIVE RELIEF

10.1 Executive acknowledges that a breach by the Executive of any of the
terms of Articles 7 and 8 of this Agreement will render irreparable harm to
the Corporation. Accordingly, the Corporation shall therefore be entitled to
any and all equitable relief, including, but not limited to, injunctive
relief, and to any other remedy that may be available under any applicable
law or agreement between the parties, and to recover from the Executive all
costs of litigation including, but not limited to, attorneys' fees and court
costs.

ARTICLE 11
CHANGE OF CONTROL

11.1 If a Change of Control shall occur during the term of this
Agreement, all unvested rights to purchase stock under outstanding stock
options held by Executive shall vest immediately for the benefit of the
Executive and the Board of Directors will use its reasonable efforts to
register such shares under the Securities Act of 1933, as amended, if
necessary.

11.2 If a Change of Control shall occur, the Executive shall be entitled
to receive from the Corporation or its successor the full base salary of
Executive under this Agreement for one (1) year in one cash installment.
This payment shall be made by the Corporation within ten (10) business days
of consummating the terms and conditions of the transaction which give rise
to the Change of Control.

ARTICLE 12
TERMINATION (OTHER THAN FROM A CHANGE IN CONTROL)

12.1 The Corporation may terminate the employment at any time without
cause by written notice of termination of employment to Executive, or by not
renewing this Agreement for a one-year term. In the event that the Company
terminates the employment of the Executive by delivering notice in accordance
with the preceding sentence, the Executive shall receive as severance his
salary and benefits pursuant to Section 4 (except bonus) from the date of
termination until the earlier to occur of (i) twelve (12) months and (ii) the
securing by the Executive of other employment paying an annual salary and
providing benefits at levels comparable to those set forth in Section 4 of
this Agreement, including without limitation, the engagement of the Executive
by any person(s) or individual or group of entities as a substantially
full-time consultant; PROVIDED, HOWEVER, that in the event that Executive
shall secure other employment or a substantially full time consulting
position paying salary and providing benefits significantly less than those
provided for in Section 4 of this Agreement, the Company shall during such
twelve (12) month period referred to above pay Executive the difference
between his salary payable under this Agreement, and the salary paid by his
new employer (the

-5-

<PAGE>

"Salary Continuation"). Notwithstanding the foregoing, upon termination,
Executive shall no longer be eligible under any of the Company's bonus plans.

12.2 The Corporation may terminate the Executive's employment at any
time for Cause and at such time all compensation and benefits provided to
Executive under this Agreement shall immediately cease, subject to applicable
employment laws and regulations.

12.3 This Agreement will terminate upon Executive's death or upon
Executive's disability that prevents him from performing his duties under
this Agreement for a continuous period of three months or for periods
aggregating six months in any eighteen (18) month period.

ARTICLE 13
ASSIGNMENT

13.1 The Corporation shall not have the right to assign this Agreement
to its successors or assigns without the written consent of the Executive;
provided, however, the Corporation shall have the right to assign this
Agreement to any subsidiary, and all covenants or agreements hereunder shall
inure to the benefit of and be enforceable by or against its successors or
assigns.

13.2 The terms "successors" and "assigns" shall include any corporation
which buys all or substantially all of the Corporation's assets, or a
controlling portion of its stock, or with which it merges or consolidates.

ARTICLE 14
FAILURE TO DEMAND PERFORMANCE AND WAIVER

14.1 The Corporation's failure to demand strict performance and
compliance with any part of this Agreement during the Executive's employment
shall not be deemed to be a waiver of the Corporation's rights under this
Agreement or by this operation of law. Any waiver by either party of a
breach of can any provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent breach thereof.

ARTICLE 15
ENTIRE AGREEMENT

15.1 The Corporation and Executive acknowledge that this Agreement
contains the full and complete agreement between and among the parties, that
there are no oral or implied agreements or other modifications not
specifically set forth herein, and that this Agreement supersedes any prior
agreements or understandings, if any, between the Corporation and Executive,
whether written or

-6-

<PAGE>

oral. The parties further agree that no modifications of this Agreement may
be made except by means of a written agreement or memorandum signed by the
parties.

ARTICLE 16
GOVERNING LAW

16.1 The parties acknowledge that the Corporation's principal place of
business is located in the State of Minnesota. The parties hereby agree that
this Agreement shall be construed in accordance with the internal laws of the
State of Minnesota without regard to the conflict of laws thereof.

* * * * * * * * * *

-7-

<PAGE>

IN WITNESS WHEREOF, the Corporation has hereunto signed its name and the
Executive hereunder has signed his name, all as of the day and year first above
written.

BRAUNS FASHIONS CORPORATION

/s/ Andrew Moller By: /s/ Nicholas H. Cook
- --------------------------- ---------------------------------------
Witness Its: Chairman of the Board
--------------------------------

EXECUTIVE

/s/ Andrew Moller /s/ William J. Prange
- --------------------------- ---------------------------------------
Witness William J. Prange

-8-

<PAGE>

EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
BRAUNS FASHIONS CORPORATION
AND
JOSEPH PENNINGTON

ARTICLE 1
EMPLOYMENT

1.1 The Corporation hereby employs Executive, and Executive agrees to
work for the Corporation as Executive Vice President and Chief Operating
Officer, and to perform such related duties as are assigned to him from time
to time by the President of the Corporation.

ARTICLE 2
TERM

ARTICLE 3
DUTIES

ARTICLE 4
COMPENSATION AND BENEFITS

4.1 The Corporation agrees to pay Executive an annual base salary of
One Hundred Seventy-five Thousand Dollars ($175,000) payable at those
intervals as the Corporation shall pay other executives. The base salary
shall be reviewed annually and appropriate increases, if any, shall

<PAGE>

be awarded to Executive by the Board of Directors in its sole discretion, but
such base compensation shall not be reduced from that of the prior year.

4.3 The Executive shall be eligible to receive a bonus in accordance
with the Corporation's bonus plans as in effect and approved by the Board of
Directors from time to time.

4.4 The Corporation shall pay to the Executive a car allowance of
$1,000.00 per month.

ARTICLE 5
INSURANCE

5.1 The Corporation, at its own expense, shall provide life insurance
coverage on the Executive's life. The death benefit shall be in the amount
of $600,000 in the form of term insurance. The death benefit shall be
payable to the Executive's designated beneficiary. The Executive shall have
full discretion to name the beneficiary of the portion of the insurance
provided for benefit of the Executive. The Corporation shall have the right
at its own expense and for its own benefit to purchase additional insurance
on the Executive's life, and the Executive shall cooperate by providing
necessary information, submitting to required medical examinations, and
otherwise complying with the insurance carrier's requirements.

5.2 The Executive shall be entitled to disability insurance in line
with the present policy of the Corporation, to be provided at the expense of
the Corporation.

ARTICLE 6
DEFINITIONS

-2-

<PAGE>

-3-

<PAGE>

ARTICLE 7
NONCOMPETITION AND NONSOLICITATION

ARTICLE 8
CONFIDENTIAL INFORMATION AND TRADE DOCUMENTS

ARTICLE 9
JUDICIAL CONSTRUCTION

-4-

<PAGE>

ARTICLE 10
RIGHT TO INJUNCTIVE RELIEF

ARTICLE 11
CHANGE OF CONTROL

11.2 If a Change of Control shall occur, the Executive shall be
entitled to receive from the Corporation or its successor the full base
salary of Executive under this Agreement for one (1) year in one cash
installment. This payment shall be made by the Corporation within ten (10)
business days of consummating the terms and conditions of the transaction
which give rise to the Change of Control.

ARTICLE 12
TERMINATION (OTHER THAN FROM A CHANGE IN CONTROL)

-5-

<PAGE>

between his salary payable under this Agreement, and the salary paid by his
new employer (the "Salary Continuation"). Notwithstanding the foregoing,
upon termination, Executive shall no longer be eligible under any of the
Company's bonus plans.

ARTICLE 13
ASSIGNMENT

ARTICLE 14
FAILURE TO DEMAND PERFORMANCE AND WAIVER

ARTICLE 15
ENTIRE AGREEMENT

-6-

<PAGE>

oral. The parties further agree that no modifications of this Agreement may
be made except by means of a written agreement or memorandum signed by the
parties.

ARTICLE 16
GOVERNING LAW

* * * * * * * * * *

-7-

<PAGE>

IN WITNESS WHEREOF, the Corporation has hereunto signed its name and the
Executive hereunder has signed his name, all as of the day and year first
above written.

BRAUNS FASHIONS CORPORATION

/s/ Andrew Moller By: /s/ Nicholas H. Cook
- --------------------------- ---------------------------------------
Witness Its: Chairman of the Board
--------------------------------

EXECUTIVE

/s/ Andrew Moller /s/ Joseph Pennington
- --------------------------- ---------------------------------------
Witness Joseph Pennington

-8-

<PAGE>

EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
BRAUNS FASHIONS CORPORATION
AND
RALPH NEAL

ARTICLE 1
EMPLOYMENT

1.1 The Corporation hereby employs Executive, and Executive agrees to
work for the Corporation as Executive Vice President - Store Operations, and
to perform such related duties as are assigned to him from time to time by
the President of the Corporation.

ARTICLE 2
TERM

ARTICLE 3
DUTIES

ARTICLE 4
COMPENSATION AND BENEFITS

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be awarded to Executive by the Board of Directors in its sole discretion, but
such base compensation shall not be reduced from that of the prior year.

4.3 The Executive shall be eligible to receive a bonus in accordance
with the Corporation's bonus plans as in effect and approved by the Board of
Directors from time to time.

4.4 The Corporation shall pay to the Executive a car allowance of
$1,000.00 per month.

ARTICLE 5
INSURANCE

5.2 The Executive shall be entitled to disability insurance in line
with the present policy of the Corporation, to be provided at the expense of
the Corporation.

ARTICLE 6
DEFINITIONS

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ARTICLE 7
NONCOMPETITION AND NONSOLICITATION

ARTICLE 8
CONFIDENTIAL INFORMATION AND TRADE DOCUMENTS

ARTICLE 9
JUDICIAL CONSTRUCTION

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ARTICLE 10
RIGHT TO INJUNCTIVE RELIEF

ARTICLE 11
CHANGE OF CONTROL

11.2 If a Change of Control shall occur, the Executive shall be
entitled to receive from the Corporation or its successor the full base
salary of Executive under this Agreement for one (1) year in one cash
installment. This payment shall be made by the Corporation within ten (10)
business days of consummating the terms and conditions of the transaction
which give rise to the Change of Control.

ARTICLE 12
TERMINATION (OTHER THAN FROM A CHANGE IN CONTROL)

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ARTICLE 13
ASSIGNMENT

ARTICLE 14
FAILURE TO DEMAND PERFORMANCE AND WAIVER

ARTICLE 15
ENTIRE AGREEMENT

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oral. The parties further agree that no modifications of this Agreement may
be made except by means of a written agreement or memorandum signed by the
parties.

ARTICLE 16
GOVERNING LAW

* * * * * * * * * *

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IN WITNESS WHEREOF, the Corporation has hereunto signed its name and the
Executive hereunder has signed his name, all as of the day and year first above
written.

BRAUNS FASHIONS CORPORATION

/s/ Andrew Moller By: /s/ Nicholas H. Cook
- --------------------------- ---------------------------------------
Witness Its: Chairman of the Board
--------------------------------

EXECUTIVE

/s/ Andrew Moller /s/ Ralph Neal
- --------------------------- ---------------------------------------
Witness Ralph Neal

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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR THE SIX MONTHS ENDED AUGUST 29, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> AUG-29-1998
<CASH> 14,434,170
<SECURITIES> 0
<RECEIVABLES> 1,001,352
<ALLOWANCES> 62,850
<INVENTORY> 11,811,682
<CURRENT-ASSETS> 27,978,805
<PP&E> 25,552,107
<DEPRECIATION> 14,053,187
<TOTAL-ASSETS> 41,094,237
<CURRENT-LIABILITIES> 7,678,044
<BONDS> 9,628,409
0
0
<COMMON> 46,060
<OTHER-SE> 22,739,012
<TOTAL-LIABILITY-AND-EQUITY> 41,094,237
<SALES> 47,944,783
<TOTAL-REVENUES> 47,944,783
<CGS> 31,717,528
<TOTAL-COSTS> 31,717,528
<OTHER-EXPENSES> 13,455,251
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 219,983
<INCOME-PRETAX> 2,552,021
<INCOME-TAX> 969,768
<INCOME-CONTINUING> 1,582,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,582,253
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.32

</TABLE>