SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
/X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the fifty-two weeks ended January 31, 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 number 0-23071

                    THE CHILDREN'S PLACE RETAIL STORES, INC.
             (Exact name of registrant as specified in its charter)


        DELAWARE                                               31-1241495
     (State or other                                        (I.R.S. employer
     jurisdiction of                                        identification
     incorporation or                                       number)
     organization)


                                 ONE DODGE DRIVE
                         WEST CALDWELL, NEW JERSEY 07006
               (Address of Principal Executive Offices) (Zip Code)

                                 (973) 227-8900
              (Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock.

Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. / /

The aggregate market value of voting stock held by non-affiliates was
$40,740,244 at the close of business on April 1, 1998.

Indicate the number of outstanding shares of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, par value $0.10
per share, outstanding at April 1, 1998: 24,647,419 shares.

Documents Incorporated by Reference: (1) The Company's 1997 Annual Report to
Stockholders incorporated partially in Parts I and II hereof and (2) the
Company's Proxy Statement incorporated partially in Part II hereof dated May 1,
1998, for its annual meeting of stockholders to be held on May 28, 1998.



<PAGE>


                    THE CHILDREN'S PLACE RETAIL STORES, INC.

                           ANNUAL REPORT ON FORM 10-K

                 FOR THE FIFTY-TWO WEEKS ENDED JANUARY 31, 1998


                                TABLE OF CONTENTS



PART I                                                           PAGE

1.    Business....................................................1

2.    Properties.................................................12

3.    Legal Proceedings..........................................12

4.    Submissions of Matters to a Vote of Security Holders.......13

PART II

5.    Market for Registrant's Common Equity and Related
      Stockholder Matters........................................14

6.    Selected Financial Data....................................14

7.    Management's Discussion and Analysis of Financial
      Condition and Results of Operation.........................14

7A.   Quantitative and Qualitative Disclosures About Market
      Risk.......................................................14

8.    Financial Statements and Supplemental Data ................14

9.    Changes in and Disagreements with Accountants on 
      Accounting and Financial Disclosures.......................14


PART  III

10.   Directors and Executive Officers of the Registrant.........15

11.   Executive Compensation.....................................15

12.   Security Ownership of Certain Beneficial Owners and
      Management.................................................15

13.   Certain Relationships and Related Party Transactions.......15

PART  IV

14.   Exhibits, Financial Statements and Reports
      on Form 8-K................................................16



<PAGE>



                                     PART I


ITEM 1.

BUSINESS

     This Annual Report on Form 10-K contains forward-looking statements within
the meaning of federal securities laws, which are intended to be covered by the
safe harbors created thereby. Those statements include, but may not be limited
to, the discussions of the Company's operating and growth strategy. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties including, without limitation, those set forth under the caption
"Risk Factors" in the Business Section of this Annual Report on Form 10-K.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could prove to be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included in this Annual Report on
Form 10-K will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
The Company undertakes no obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events and circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.

     The following discussion should be read in conjunction with the Company's
audited financial statements and notes thereto filed as Exhibit 13.1 to this
Annual Report on Form 10-K.

OVERVIEW

     The Company is a specialty retailer of high quality, value-priced apparel
and accessories for newborn to twelve year old children. The Company designs,
contracts to manufacture and sells its products under "The Children's Place"
brand name. As of January 31, 1998, the Company operated 155 stores, primarily
located in regional shopping malls in the eastern half of the United States.

     The Company believes that its value-based, proprietary brand business
strategy has been and will continue to be the key to its success as a specialty
retailer. The following strengths have contributed to the success of the
Company's merchandising and operating strategies:

     UNIQUE PRICE-VALUE POSITIONING. The Company offers quality clothing and
accessories under "The Children's Place" brand name at prices 20% to 30% below
most of its direct mall-based competitors. The Company believes that it has
built a loyal base of customers who regularly purchase from the Company as their
children grow. The Company believes that the value created by the price and
quality of its merchandising has enabled The Children's Place to establish a
unique market position.

     MERCHANDISING STRATEGY. The Company's merchandising strategy is built on
the offering of key basic items at value prices complemented by fashion items
and accessories to create a fully coordinated look. The Company designs its
merchandise to present a fresh and youthful image unique to "The Children's
Place" brand.

     STRONG BRAND IMAGE. The Company believes that it has built a strong brand
image for "The Children's Place" by (i) selling its products exclusively in its
own stores, (ii) creating a uniform appearance in merchandise presentation,
(iii) providing a consistent selection of coordinated separates and accessories
for children, and (iv) offering high quality products at value prices. These
factors foster consumer loyalty to "The Children's Place" brand name.

     BROAD CONSUMER APPEAL. The Company's high-quality merchandise assortment is
offered at "everyday value prices," which has enabled the Company to appeal to a
broad range of consumers across all socioeconomic groups and to compete
successfully in a wide range of regional shopping malls, outlet centers and
other locations.

     VERTICALLY INTEGRATED OPERATIONS. The Company controls the design, sourcing
and sale of its private label children's apparel and accessories. The Company
believes that the vertical integration of the Company's operations, from
in-house design to in-store presentation, enable The Children's Place to
identify and respond to market trends, uphold rigorous product quality standards
and control the cost of its merchandise.

     EXPERT SOURCING. The Company combines management's extensive sourcing
experience with a cost-based buying strategy. Management has established close,
long-standing and mutually beneficial relationships with numerous manufacturers.
Through these relationships and its extensive knowledge of component costs of
apparel, the Company believes that it has been able to purchase high quality
products at low costs.

     PROVEN MANAGEMENT TEAM. The Company has a seasoned, highly experienced
management team, with its most senior members having an average of 19 years in
the retail and/or apparel business and an average of eight years with the
Company. The Company believes that management's substantial experience favorably
positions the Company for future expansion.

MERCHANDISING

     MERCHANDISE OFFERING. The Company's merchandise is divided into four
divisions - girlswear, boyswear, newborn and accessories. The Company's
merchandise offers a balanced assortment of styles in fashionable colors and
patterns, with the aim of consistently creating a fresh, youthful look that is
unique to "The Children's Place" brand. Each year the Company presents four
major seasonal lines (spring, summer, back-to-school, holiday) including
transitional lines. Within each season, the Company offers a fresh assortment of
coordinated basic and fashion apparel with complementary accessories designed to
encourage multiple item purchases.

     EVERYDAY VALUE PRICING. The Company's pricing strategy is to set prices
that provide value to its customers and are below those of comparable quality
products sold by most of its direct mall-based competitors. The Company employs
this everyday value pricing strategy to attract and retain customers by allowing
customers to make purchases without having to wait for special sales. The
Company's mark-down policy is to systematically reduce prices on slow-moving
merchandise.

     MERCHANDISE EXPANSION STRATEGY. The Company periodically evaluates
opportunities for selective product extensions. In fiscal 1997, the Company
introduced a new layette line and expanded its big boy and big girl departments
to include size 16. The Company expects to continue to seek opportunities to
expand its customer base and enhance the productivity of its stores through
further development of existing merchandise categories and the continued
introduction of new merchandise classifications.

     DESIGN AND PRODUCT DEVELOPMENT. Each of the Company's seasonal lines begins
with the compilation of market intelligence regarding fashion trends
approximately nine months before the season. This is done through extensive
European and domestic market research, the purchase of prototype samples, media,
trade shows, fashion magazines, the services of fashion and color forecast
organizations and analysis of prior season performance. Potential items are
designed using computer aided design ("CAD") technology, giving the Company the
opportunity to consider a wide range of style and fashion options.

     PLANNING AND ALLOCATION. The merchandise planning team creates a detailed
purchasing plan for each season covering each department, each category and each
key basic item, based on historical and current selling trends. The Company
typically orders 90% of the purchasing plan five months before the season,
saving 10% to respond quickly to new fashion trends and reorders of key basic
items. The production process takes approximately four to five months from order
confirmation to receipt of merchandise at the Company's distribution facility.
The merchandise planning team also monitors current and future inventory levels
on a weekly basis and analyzes sales patterns to predict future demand for
various categories. The Company regularly monitors sales of each style and color
and maintains some flexibility to adjust merchandise on order for future seasons
or to accelerate delivery of merchandise. The merchandise planning team is also
responsible for planning and allocating merchandise to each store based on sales
volume levels for each department, category and key basic item and other
factors.

SOURCING AND PROCUREMENT

     After a product line is conceptualized and purchase levels are determined,
the Company's sourcing team makes on-site visits to the Company's independent
agents and various manufacturers to finalize technical specifications of each
product, negotiate product costs and arrange delivery of merchandise
manufactured to the Company's specifications.

     COST-BASED BUYING. The Company combines management's extensive sourcing
experience with a cost-based buying strategy in order to lower costs and
increase margins. Management believes that it has a thorough understanding of
the economics of apparel manufacturing, enabling the Company to determine the
most cost-effective country and manufacturer from which to source each
particular item. Relying on its supplier relationships and management's
knowledge of component costs, the Company believes that it has been able to
arrange for the manufacture of high quality products at low cost. One important
aspect of the Company's sourcing strategy is that its Chief Executive Officer,
Ezra Dabah, who has over 25 years of merchandising, apparel and buying
experience, frequently travels overseas to meet with the Company's agents and
manufacturers.

     MANUFACTURERS. The Company's apparel is produced to its specifications by
more than 50 independent manufacturers located primarily in the Far East and
elsewhere in Asia. In fiscal 1997, the majority of the Company's merchandise was
produced in Taiwan, China, Turkey and Hong Kong. The remainder of the Company's
merchandise was produced in Thailand, the United States, the Philippines and
certain other countries.

     The Company has no exclusive or long-term contracts with its manufacturers
and typically transacts business on an item-by-item basis under purchase orders
at freight on board ("FOB") cost in United States dollars. The Company purchases
merchandise through a Hong Kong-based trading company, with which the Company
has no formal written agreement, for most of its procurements from manufacturers
located in China, Hong Kong and the Philippines. In addition, the Company has
entered into agreements with commissioned independent agents elsewhere in the
Far East and in Turkey to assist in sourcing and pre-production approval,
production, inspection and ensuring timely delivery of merchandise. The Company
has developed long-term, continuous relationships with key individual
manufacturers and raw material suppliers which have yielded numerous benefits,
including quality control and favorable costs, and have afforded it flexible
working arrangements and a steady flow of merchandise supply. In addition,
although they are not contractually obligated to do so, the Hong Kong-based
trading company and a commissioned independent agent in Taiwan each have
exclusive arrangements with the Company.

     SYSTEMS. The Company employs a work-in-process tracking system that enables
it to anticipate potential delivery delays and take action to mitigate the
impact of such delays. By using this system together with the Company's purchase
order and advanced shipping notification systems, the Company and its
independent agents actively monitor the status of each purchase order from order
confirmation to merchandise receipt. The Company has experienced occasional
shipment delays, but no such delay has had a material adverse effect on the
Company. The Company is pursuing software technologies to further enhance
communication of the production and pre-approval status of its work-in-process
directly from its overseas agents.

     QUALITY ASSURANCE. To ensure quality and promote consumer confidence in
"The Children's Place" products, the Company utilizes its own, in-house quality
assurance laboratory to test and evaluate all fabric and trimming materials
against a comprehensive range of physical performance standards before bulk
production can begin. The Company's director of quality control and/or the
quality control personnel of the Company's independent agents visit the various
manufacturing facilities to monitor and improve the quality control and
production process. With this focus on pre-production quality approval, the
Company is generally able to detect and correct quality related problems before
bulk production begins. The Company does not accept its finished apparel
products until each purchase order receives formal certification of compliance
from its agents' inspectors.

COMPANY STORES

     EXISTING STORES. As of January 31, 1998, the Company operated 155 stores,
all of which are located in the eastern half of the United States. Most of the
Company's stores are clustered in and around major metropolitan areas. The
Company's stores are concentrated in major regional malls, with the exception of
11 outlet stores, three urban street stores and two strip center stores. The
following table sets forth the number of stores in each state as of January 31,
1998:

                               # OF                                    # OF
  STATE                       STORES     STATE                        STORES
Connecticut......................7     Minnesota.........................4
Delaware.........................2     New Hampshire.....................3
Florida..........................1     New Jersey...................... 20
Illinois........................15     New York.........................29
Indiana..........................6     North Carolina................... 3
Kentucky.........................2     Ohio.............................10
Maine............................2     Pennsylvania.....................15
Maryland.........................9     South Carolina....................1
Massachusetts...................13     Tennessee.........................1
Michigan.........................7     Virginia..........................5


     STORE ENVIRONMENT. The Company's prototype store measures approximately
3,500 square feet and features a design that incorporates light maple wood
floors, fixtures and trim set against a white color scheme, accented by the
hunter green used in the Company's logo. The Company believes that the
environment created by its "apple-maple" prototype store promotes a shopping
experience that is inviting and friendly. The store is brightly lit, featuring
floor-to-ceiling glass windows that allow the Company's colorful fashions to
attract customers from the outside. A customized grid system throughout the
store's upper perimeter displays featured merchandise, marketing photographs and
key basic item prices. Suspended signs direct customers to departments within
the store where each merchandise line is displayed as a separate collection of
coordinated basic and fashion items, with matching accessories. The Company
believes that its merchandise presentation effectively displays "The Children's
Place" look and creates a visually attractive selling environment that maximizes
customer convenience and encourages the purchase of multiple items.

     To achieve uniform merchandise presentation and to maximize sales of
coordinating items, store management is provided with detailed written and
visual store plans that specify merchandise placement. Standardization of store
design and merchandise presentation also promotes effective usage and
productivity of selling space and maximizes customer convenience in merchandise
selection. By seeking a uniform appearance in store design and merchandise
presentation, the Company believes that it is able to maintain and enhance "The
Children's Place" brand image.

     As of April 1, 1998, approximately 80% of the Company's stores (excluding
outlet stores) are based on the new "apple-maple" prototype. The Company
generally remodels its stores to the new prototype specifications as their
leases are renewed. In many cases, conversion to the new prototype involves
relocation within a mall as well as a reduction in space.

     STORE OPERATIONS. The Company's store operations are directed by the
Company's Vice President, Store Operations, three regional managers and 22
district managers. Individual stores are managed by a store manager and up to
three co-managers depending on sales volume. A typical store employs a number of
full-time and part-time sales associates, and hires additional part-time
associates based on seasonal needs.

     Regional and district managers spend a majority of their work week on store
selling floors, providing direction, motivation, training and support to field
personnel. Store managers are responsible for supervising customer service,
store presentation, staff scheduling, shrinkage control and seeing that the
store achieves its planned sales goals. Customer service is a major focus for
store management and sales associates, and continuing efforts are made to
maximize selling productivity. The Company engages in an ongoing process of
training management and sales associates in the areas of customer service,
selling skills, merchandising, procedures and controls, utilizing visual aids,
training manuals and training workshops.

     Management maintains a high level of communication between the home office
and stores. Frequent communication through the point-of-sale ("POS") registers,
biweekly mail packs to each store, voicemail and district manager conference
calls augment the frequent store visits by the regional and district managers.
In addition, home office and district manager meetings engender a strong team
culture. The Company is continuing to improve the communication between the home
office and its stores with the use of new technology.

STORE EXPANSION PROGRAM

     In mid-1996, the Company began implementing an aggressive growth strategy
designed to capitalize on its business strengths and its strong store economics.
In fiscal 1996 and fiscal 1997, the Company opened 18 and 47 stores,
respectively. The Company intends to continue its store expansion program and
currently plans to open approximately 50 stores in fiscal 1998, of which 17
stores were opened as of April 1, 1998.

     The Company's expansion strategy focuses primarily on mall-based locations.
The regional malls which the Company targets are typically high volume centers,
generally measuring one million square feet or more, having at least three
department stores or other anchor tenants and various specialty retailers, as
well as several entertainment features (such as restaurants, a food court and/or
movie theaters). The Company conducts extensive analyses of potential store
sites, taking into account the performance of other specialty retail tenants,
the existing anchor stores and other stores, the size, type and average sales
per square foot of the mall and the demographics of the surrounding area. The
most important consideration for the Company in evaluating a store location
within a mall is placement of the store relative to mall traffic patterns. In
addition, the Company continuously evaluates opportunities to add stores in
other types of locations, such as outlet centers and urban street locations. The
Company intends to focus its expansion by establishing clusters of stores in
states in which it already has stores or in contiguous states in order to
strengthen "The Children's Place" brand name recognition.

     The Company believes that its value pricing and its merchandise assortment
appeal to customers in all socioeconomic groups, affording it substantial
expansion opportunities. There are hundreds of regional malls, street locations
and outlet centers in the United States that the Company believes would be
suitable sites for the Company's stores.

MARKETING

     ADVERTISING AND PROMOTION. The Company strives to enhance its reputation in
the marketplace and build recognition and equity in "The Children's Place" brand
name by advertising its image, product and message through in-store photographs
and product displays, direct mail and, to a lesser extent, regional and national
print media. The Company's point of purchase marketing strategy uses high image
visuals to highlight the individual departments and seasonal fashion looks,
promoting key basic items at price points representing exceptional value, and
focusing on store-front and window displays to attract customers into the
stores. The Company primarily relies on mall-based traffic and its reputation,
loyal customer base and brand image to generate sales. Moreover, instead of
relying on special holiday or one-day promotions to stimulate sales, the Company
relies on its everyday value pricing strategy to attract customers. To encourage
larger purchases, the Company periodically distributes coupons providing a
discount on purchases above a specified minimum.

     PROPRIETARY CREDIT CARD. The Company views the use of a proprietary credit
card as an important marketing and communication tool and introduced "The
Children's Place" credit card in January 1995 with Hurley State Bank, through a
third party credit card service. Pursuant to a merchant services agreement with
the Company, Hurley State Bank issues to the Company's customers private label
credit cards for use exclusively at the Company's stores and extends credit to
such customers on a non-recourse basis to the Company. Hurley State Bank's
agent, SPS, administers the approval, issuance and administration of the credit
card program. For these services, the Company pays to Hurley State Bank a
merchant fee which is calculated as a percentage of sales under the credit card
and certain other fees related to cardholder sales volume. In fiscal 1997, the
Company paid $1,360,000 to Hurley State Bank in merchant fees. The number of
holders of the Company's proprietary credit card has grown to over 350,000.
Sales on the proprietary credit card accounted for approximately 13% of the
Company's fiscal 1997 net sales. The Company believes that its proprietary
credit card promotes affinity and loyalty among those customers who use the card
and facilitates communication with such customers through delivery of coupons
and promotional materials. The Company markets its proprietary credit card by
offering customers who apply for a card a 15% discount on their initial purchase
using the card. The Company's average dollar sale to customers using "The
Children's Place" card has been substantially higher than the Company's overall
average dollar sale.

MANAGEMENT INFORMATION SYSTEMS

     The Company's management information and electronic data processing systems
consist of a full range of retail, financial and merchandising systems,
including purchase order management, importing, inventory planning and control,
inventory distribution, sales reporting and accounts payable. These systems
operate on a Hitachi EX/27 platform mainframe computer and utilize a combination
of third party and proprietary software packages. Management views technology as
an important tool in efficiently supporting its rapid growth and maintaining a
competitive industry position.

     Unit and dollar sales information is updated daily in the merchandise
reporting systems by polling each store's POS terminals. Through automated
nightly two-way electronic communication with each store, sales information,
payroll hours and other store initiated transfers are uploaded to the host
system, and price changes and other information are downloaded through the POS
devices. Information obtained from such daily polling generally results in
automatic merchandise replenishment in response to the specific stock keeping
unit ("SKU") requirements of each store. The Company evaluates information
obtained through daily reporting to identify sales trends and to implement
merchandising decisions regarding markdowns and allocation of merchandise.

     The Company is committed to utilizing technology to further enhance its
competitive position. In this regard, the Company is scheduled to install a
warehouse management system in connection with the planned relocation of its
distribution facility. The Company also intends to replace its POS software
during fiscal 1999 to enhance customer service and communication between the
Company's home office and its stores.

DISTRIBUTION

     All merchandise is currently received, inspected, processed and distributed
through the Company's 65,000 square foot leased distribution facility at its
headquarters in West Caldwell, New Jersey. The Company also leases a 32,000
square foot facility in Fairfield, New Jersey. In light of its stringent quality
assurance procedures implemented during the manufacturing process, the Company
has been able to substantially reduce the physical inspection of garments
received at the distribution facility. Accordingly, most merchandise flows
through the distribution facility and is shipped directly to stores each weekday
by commercial carrier, reducing costs and expediting delivery to the Company's
stores. The Company has experienced occasional shipment delays, but no such
delay has had a material adverse effect on the Company. The Company intends to
move its distribution center to a larger facility within the next 12 months to
accommodate the Company's continued growth and is currently evaluating suitable
sites.

COMPETITION

     The children's apparel retail business is highly competitive. The Company
competes in substantially all of its markets with GapKids, BabyGap and Old Navy
(each of which is a division of The Gap, Inc.), The Gymboree Corporation,
Limited Too (a division of The Limited, Inc.), J.C. Penney Company, Inc., Sears,
Roebuck and Co. and other department stores that sell children's apparel and
accessories, as well as certain discount stores such as Wal-Mart Stores, Inc.
and Kids "R" Us (a division of Toys "R" Us, Inc.). The Company also competes
with a wide variety of local and regional specialty stores and with other
national retail chains and catalog companies. One or more of its competitors are
present in substantially all of the malls in which the Company has stores. Many
of the Company's competitors are larger than the Company or have access to
significantly greater financial, marketing and other resources than the Company.

     The Company believes that the principal factors of competition in the
Company's marketplace are perceived value, price, quality, merchandise
assortment, brand name recognition, customer service, and a friendly store
environment. Management believes that the Company has been able to effectively
compete against other retailers of children's apparel because of its reputation
in the marketplace and consistent merchandise offering of high quality, everyday
value-priced childrenswear, sold in a friendly environment.

TRADEMARKS AND SERVICE MARKS

     Each of "The Children's Place," "Baby Place," "The Place," "TCP" and
"Authentic Tiny Tee" has been registered as a trademark and/or a service mark
with the United States Patent and Trademark Office. The registration of the
trademarks and the service marks may be renewed to extend the original
registration period indefinitely, provided the marks are still in use. The
Company intends to continue to use and protect its trademarks and service marks
and maintain their registrations. The Company also intends to take action to
protect its trademarks in certain foreign countries. The Company believes its
trademarks and service marks have received broad recognition and are of
significant value to the Company's business.

EMPLOYEES

     As of April 1, 1998, the Company had approximately 840 full-time employees,
of whom approximately 220 are based at the Company's headquarters and
distribution center, and approximately 1,890 part-time employees. None of the
Company's employees is covered by a collective bargaining agreement. The Company
believes its relations with its employees are good.


<PAGE>

EXECUTIVE OFFICERS

     The following table sets forth certain information with respect to the
officers of the Company:

 NAME                       Age                    Position

Ezra Dabah.................. 44          Chairman of the Board of Directors
                                         and Chief Executive Officer
Stanley B. Silver........... 59          President, Chief Operating Officer
                                         and Director
Clark Hinkley..............  56          Executive Vice President,
                                         Merchandising
Seth L. Udasin.............  41          Vice President, Chief Financial
                                         Officer and Treasurer
Steven Balasiano...........  35          Vice President, General Counsel and
                                         Secretary
Mario A. Ciampi............  37          Vice President, Real Estate &
                                         Construction
Edward DeMartino...........  46          Vice President, Management
                                         Information Systems
Robert Finkelstein.........  45          Vice President, Merchandise Planning
                                         and Allocation
Nina L. Miner..............  48          Vice President, Design and Product
                                         Development
Salvatore W. Pepitone......  50          Vice President, Distribution Center

Mark L. Rose...............  32          Vice President, Sourcing and Production

Susan F. Schiller.........   37          Vice President, Store Operations

Diane M. Timbanard........   53          Vice President, Merchandising Manager


     EZRA DABAH has been Chief Executive Officer of the Company since 1991 and
Chairman of the Board of Directors since purchasing the Company in 1989 with
certain members of his family. Mr. Dabah has more than 25 years of
merchandising, apparel and buying experience. From 1972 to May 1993, Mr. Dabah
was a director and an executive officer of The Gitano Group, Inc. and its
affiliates (collectively, "Gitano"), a company of which Mr. Dabah and certain
members of his family were principal stockholders and which became a public
company in 1988. From 1973 until 1983, Mr. Dabah was in charge of product
design, merchandising and procurement for Gitano. In 1983, Mr. Dabah founded and
became President of a children's apparel importing and manufacturing division
for Gitano which later became an incorporated subsidiary, Eva Joia Incorporated,
("E.J. Gitano"). Mr. Dabah is Stanley Silverstein's son-in-law and Nina Miner's
brother-in-law.

     STANLEY B. SILVER has been President and Chief Operating Officer of the
Company since June 1996 and prior to that served as the Company's Executive Vice
President and Chief Operating Officer since joining the Company in 1991. Mr.
Silver has been a Director of the Company since July 1996. Before joining the
Company in 1991, Mr. Silver held various posts at Grand Met PLC and Mothercare
PLC in the United Kingdom and The Limited, Inc. in the United States. Mr. Silver
has over 25 years of retailing experience in Europe and the United States and
currently serves as Chairman of the Retail Council of New York State.

     CLARK HINKLEY has been Executive Vice President, Merchandising since
joining the Company in February 1998. Prior to joining the Company, Mr. Hinkley
was the Executive Vice President and Chief Operating Officer of The Talbots,
Inc., a position he held since 1993. Mr. Hinkley has over 35 years of retailing
experience with over 25 years of senior level management and merchandising
experience. Prior to his 10 years with Talbots, Mr. Hinkley was with the Dayton
Hudson Corporation and its predecessor company, J.L. Hudson.

     SETH L. UDASIN has been Vice President, Chief Financial Officer and
Treasurer since 1996. Since joining the Company in 1983, Mr. Udasin has held
various other positions, including Controller from 1988 to 1994 and Vice
President - Finance from 1994 to 1996.

     STEVEN BALASIANO has been Vice President and General Counsel since joining
the Company in December 1995 and Secretary since January 1996. Prior to joining
the Company, Mr. Balasiano practiced law in the New York offices of the national
law firms of Stroock & Stroock & Lavan LLP from 1992 to 1995 and Kelley Drye &
Warren from 1987 to 1992.

     MARIO A. CIAMPI has been Vice President, Real Estate and Construction since
joining the Company in June 1996. Prior to joining the Company, Mr. Ciampi was a
principal of a private consulting firm, specializing in retail and real estate
restructuring, from 1991 to 1996, in which capacity he was retained as an
outside consultant on the Company's real estate activities since 1991.

     EDWARD DEMARTINO has been Vice President, Management Information Systems
since 1991. Mr. DeMartino began his career with the Company in 1981 as a System
Development Project Manager and was subsequently promoted to Director, MIS in
1989.

     ROBERT FINKELSTEIN joined the Company in 1989 as Vice President,
Merchandise Planning and Allocation. Immediately prior to joining the Company,
Mr. Finkelstein was a Director of Distribution for Payless Shoe Stores.

     NINA L. MINER has been Vice President, Design and Product Development since
joining the Company in 1991. Before joining the Company, Ms. Miner held various
management positions at E.J. Gitano. Ms. Miner is Stanley Silverstein's daughter
and Ezra Dabah's sister-in-law.

     SALVATORE W. PEPITONE has been Vice President, Distribution Center since
joining the Company in 1991. Prior to joining the Company, Mr. Pepitone was
employed in a similar capacity by E.J. Gitano.

     MARK L. ROSE has been Vice President, Sourcing and Production since 1992.
Mr. Rose joined the Company in 1990 and was promoted to Senior Product Buyer
that year. Prior to joining the Company, Mr. Rose held various positions at
Macy's.

     SUSAN F. SCHILLER has been Vice President, Store Operations since 1994. Ms.
Schiller began her career with the Company as an Assistant Store Manager in 1985
and subsequently served in various positions, including Director of Store
Communications from 1991 to 1993 and Director of Store Operations from 1993 to
1994.

     DIANE M. TIMBANARD has been Vice President, Merchandising Manager since
joining the Company in 1990. Prior to joining the Company, Ms. Timbanard held
various merchandising and management positions, including Vice President of
Merchandising for Macy's.

RISK FACTORS

     Investors in the Company should consider the following risk factors as well
as the other information set forth or incorporated by reference herein.

     AGGRESSIVE GROWTH STRATEGY

     The Company's net sales have grown significantly during the past several
years, primarily as a result of the opening of new stores and, to a lesser
extent, increases in comparable store sales. The Company intends to continue to
pursue an aggressive growth strategy for the foreseeable future, and its future
operating results will depend largely upon its ability to open and operate new
stores successfully and to manage a larger business profitably. The Company
anticipates opening approximately 50 new stores during fiscal 1998, which will
result in a significant increase in the number of stores operated by the
Company.

     The Company is subject to a variety of business risks generally associated
with rapidly growing companies. The Company's ability to open and operate new
stores successfully will depend on many factors, including, among others, the
availability of suitable store locations, the ability to negotiate acceptable
lease terms, the ability to timely complete necessary construction, the ability
to obtain an adequate supply of finished products, the ability to hire and train
qualified managers and other employees, the ability to successfully integrate
new stores into the Company's existing operations and the ability to recognize
and respond to regional differences in customer preferences (such as
climate-related preferences).

     There can be no assurance that the Company will be able to achieve its
planned expansion on a timely and profitable basis or that it will be able to
achieve results similar to those achieved in existing locations in prior
periods. Operating margins may also be adversely affected during periods in
which expenses have been incurred in anticipation of new store openings.
Furthermore, the Company will need to continually evaluate the adequacy of its
store management, management information and distribution systems to manage its
planned expansion. Any failure to successfully and profitably execute its
expansion plans could have a material adverse effect on the Company.

     The Company expects to spend approximately $22 million in fiscal 1998 on
capital expenditures. The Company believes that cash generated from operations
and funds available under the Company's revolving line of credit will be
sufficient to fund its capital requirements through fiscal 1999. However, there
can be no assurance that the Company will not be required to seek additional
funds for its capital needs nor can there be any assurance that the Company
would be able to obtain such funds.

     CHANGES IN COMPARABLE STORE SALES RESULTS FROM PERIOD TO PERIOD

     Numerous factors affect comparable store sales results, including among
others, weather conditions, fashion trends, the retail sales environment,
economic conditions and the Company's success in executing its business
strategy. The Company's quarterly comparable store sales results have fluctuated
significantly in the past, and the Company anticipates that quarterly comparable
store sales will fluctuate in the future. In addition, the Company does not
expect its comparable store sales to continue to increase at rates similar to
those achieved in recent periods. Moreover, there can be no assurance that
comparable store sales for any particular period will not decrease in the
future.

     MERCHANDISE TRENDS

     The Company's continued success will depend in part on its ability to
anticipate and respond to fashion trends and consumer preferences. The Company's
design, manufacturing and distribution process generally requires up to nine
months, during which time fashion trends and consumer preferences may change.
Any failure by the Company to anticipate, identify or respond to future fashion
trends may adversely affect customer acceptance of its products or require
substantial markdowns, which could have a material adverse effect on the
Company.

     In addition, certain public school districts in various markets in which
the Company has stores are requiring that their grade school students wear
uniforms. This may have a material adverse effect on the Company.

     DISRUPTIONS IN RECEIVING AND DISTRIBUTION

     All of the Company's merchandise is currently shipped directly from
manufacturers through freight consolidators to the Company's distribution
facilities in West Caldwell, New Jersey and Fairfield, New Jersey. The Company's
operating results depend in large part on the orderly operation of this
receiving and distribution process, which depends on manufacturers' adherence to
shipping schedules and the Company's effective management of its distribution
facilities. In addition, there can be no assurance that the Company has
anticipated, or will be able to anticipate, all of the changing demands which
its expanding operations will impose on its receiving and distribution system,
nor can there be any assurance that events beyond the control of the Company,
such as a strike or other disruption affecting the parcel service that delivers
substantially all of the Company's merchandise to its stores, will not result in
delays in delivery of merchandise to stores.

     The Company intends to relocate its distribution facility during the next
12 months to accommodate future growth and is in the process of selecting a
suitable site. There can be no assurance that delays, cost overruns or other
complications in the relocation to a new distribution facility will not result
in a significant interruption in the receipt and distribution of merchandise.

     RELIANCE ON INFORMATION SYSTEMS

     The Company relies on various information systems to manage its operations
and regularly makes investments to upgrade, enhance or replace such systems. In
connection with its planned relocation of its distribution facility, the Company
intends to install a warehouse management system to facilitate more efficient
receiving and distribution of inventory. The Company also intends to replace its
current POS software with an upgraded system during fiscal 1999.

     DEPENDENCE ON UNAFFILIATED MANUFACTURERS AND INDEPENDENT AGENTS

     The Company does not own or operate any manufacturing facilities and is
therefore dependent upon independent third parties for the manufacture of all of
its products. The Company's products are currently manufactured to its
specifications pursuant to purchase orders by more than 50 independent
manufacturers located primarily in Asia. The Company has no exclusive or
long-term contracts with its manufacturers and competes with other companies for
manufacturing facilities. In addition, the Company has no formal written
agreement with the Hong Kong-based trading company, which accounts for
approximately 35% of the Company's products. The Company also purchases
approximately 40% of its products from Taiwan through a single agent, which has
an exclusive arrangement with the Company. Although management believes that it
has established close relationships with the Company's principal manufacturers
and independent agents, the inability to maintain such relationships or to find
additional sources to cover future growth could have a material adverse effect
on the Company.

   RISKS OF USING FOREIGN MANUFACTURERS; POSSIBLE ADVERSE IMPACT OF
   UNAFFILIATED MANUFACTURERS' FAILURE TO COMPLY WITH ACCEPTABLE LABOR PRACTICES

     The Company's business is subject to the risks generally associated with
purchasing products from foreign countries, such as foreign governmental
regulations, political instability, currency and exchange risks, quotas on the
amounts and types of merchandise which may be imported into the United States
from other countries, disruptions or delays in shipments and changes in economic
conditions in countries in which the Company's manufacturing sources are
located. The Company cannot predict the effect that such factors will have on
its business arrangements with foreign manufacturing sources. If any such
factors were to render the conduct of business in a particular country
undesirable or impractical, or if the Company's current foreign manufacturing
sources were to cease doing business with the Company for any reason, the
Company's business and operating results could be adversely affected. The
Company's business is also subject to the risks associated with changes in
United States legislation and regulations relating to imported apparel products,
including quotas, duties, taxes and other charges or restrictions on imported
apparel. The Company cannot predict whether such changes or other charges or
restrictions will be imposed upon the importation of its products in the future,
or, generally, the effect any such event would have on the Company. However, if
China were to lose its Most Favored Nation trading status with the United
States, such event could have a material adverse effect on the Company.

     The Company requires its independent manufacturers to operate in compliance
with applicable laws and regulations. While the Company's purchasing guidelines
promote ethical business practices, the Company does not control such
manufacturers or their labor practices. The violation of labor or other laws by
an independent manufacturer of the Company, or the divergence of an independent
manufacturer's labor practices from those generally accepted as ethical in the
United States, could have a material adverse effect on the Company.

     FOREIGN CURRENCY FLUCTUATIONS

     The Company conducts its business in United States dollars. However,
because the Company purchases substantially all of its products overseas, the
cost of these products may be affected by changes in the values of the relevant
currencies. To date, the Company has not considered it necessary to hedge
against foreign currency fluctuations. Although foreign currency fluctuations
have had no material adverse effect on the Company in the past, there can be no
assurance that such fluctuations will not have such an effect on the Company in
the future.

     DEPENDENCE ON KEY PERSONNEL

     The leadership of Ezra Dabah, the Company's Chief Executive Officer and
Chairman of the Board, and of Stanley B. Silver, the Company's President and
Chief Operating Officer, has been instrumental in the Company's success. The
loss of the services of either Mr. Dabah or Mr. Silver could have a material
adverse effect on the Company. The Company has entered into employment
agreements with Messrs. Dabah and Silver, but there can be no assurance that the
Company will be able to retain their services. In addition, other members of
management have substantial experience and expertise in the Company's business
and have made significant contributions to its growth and success. The loss of
services of one or more of these individuals, or the inability to attract
additional qualified managers or other personnel as the Company grows, could
have a material adverse effect on the Company. The Company is not protected by
any key-man or similar life insurance for any of its executive officers.

     COMPETITION

     The children's apparel retail business is highly competitive. The Company
competes in substantially all of its markets with GapKids, BabyGap and Old Navy
(each of which is a division of The Gap, Inc.), The Gymboree Corporation,
Limited Too (a division of The Limited, Inc.), J.C. Penney Company, Inc., Sears,
Roebuck and Co. and other department stores that sell children's apparel and
accessories, as well as certain discount stores such as Wal-Mart Stores, Inc.
and Kids "R" Us (a division of Toys "R" Us, Inc.). The Company also competes
with a wide variety of local and regional specialty stores and with other
national retail chains and catalog companies. One or more of its competitors are
present in substantially all of the malls in which the Company has stores. Many
of the Company's competitors are larger than the Company and have access to
significantly greater financial, marketing and other resources than the Company.
There can be no assurance that the Company will be able to compete successfully
against existing or future competition.

     FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY

     As is the case with many apparel retailers, the Company experiences
seasonal fluctuations in its net sales and net income, with the greater amount
of the Company's net sales and net income typically realized during the third
and fourth quarters of the fiscal year, which include the back-to-school and
holiday seasons. Net sales and net income are generally weakest during the first
two fiscal quarters and are often lower during the second fiscal quarter than
during the first fiscal quarter. The Company has experienced first and second
quarter losses in prior years and expects to experience second quarter losses,
and may experience first quarter losses, in the future.

     The Company's quarterly results of operations may also fluctuate
significantly from quarter to quarter as a result of a variety of other factors,
including the timing of new store openings and related pre-opening and other
start-up costs, net sales contributed by new stores, increases or decreases in
comparable store sales, adverse weather conditions, shifts in timing of certain
holidays, changes in the Company's merchandise mix and overall economic
conditions. Any failure by the Company to meet its business plans for the third
and fourth quarter of any fiscal year would have a material adverse effect on
the Company's earnings, which in all likelihood would not be offset by
satisfactory results achieved in other quarters of the same fiscal year. In
addition, because the Company's expense levels are based in part on expectations
of future sales levels, a shortfall in expected sales could result in a
disproportionate decrease in the Company's net income.

     NET OPERATING LOSS CARRYFORWARDS

     The Company reported net operating loss carryforwards ("NOLs") of $57.3
million on its fiscal 1995 income tax return. The Company utilized $11.6 million
and $8.1 million of these NOLs to offset taxable income earned by the Company in
its 1996 taxable year and 1997 taxable year, respectively, leaving approximately
$38 million to be utilized in subsequent taxable years. The Company does not
believe that the Company's initial public offering in September 1997 affected
the Company's ability to utilize these NOLs. However, because the amount and
availability of these NOLs are subject to review by the Internal Revenue
Service, there can be no assurance that the NOLs would not be reduced or their
use limited as the result of an audit of the Company's tax returns. In addition,
future events, including certain transactions involving outstanding shares of
the Company's Common Stock, could affect the Company's ability to utilize its
NOLs. If the amount of these NOLs were reduced or their availability limited,
the Company could be liable for additional taxes with respect to its 1996 and
1997 taxable years, and its tax liability could be increased for its current and
subsequent taxable years.

     CONTROL BY CERTAIN STOCKHOLDERS

     As of April 1, 1998, Ezra Dabah and certain members of his family
beneficially own 11,944,872 shares of the Company's Common Stock, constituting
approximately 47.2% of the outstanding Common Stock. Two funds managed by
Saunders Karp & Megrue, L.P. ("SKM"), The SK Equity Fund, L.P. and SK Investment
Fund, L.P. (collectively, the "SK Funds"), together with a former consultant to
SKM ( collectively with the SK Funds, the "SKM Investors"), own approximately
7,659,889 shares or 30.3% of the outstanding Common Stock. Pursuant to an
amended stockholders agreement, the SKM Investors and certain other
stockholders, who own in the aggregate 79.0% of the outstanding Common Stock
have agreed to vote for the election of two nominees of the SKM Investors and
three nominees of Ezra Dabah to the Company's Board of Directors. As a result,
the SKM Investors and Ezra Dabah are able to control the election of the
Company's directors. In addition, if the SKM Investors and Mr. Dabah were to
vote together, they would be able to determine the outcome of any matter
submitted to a vote of the Company's stockholders for approval.

     STOCK PRICE VOLATILITY

     The Company's 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 which 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 quarterly fluctuations in the
financial results of the Company, the Company's comparable store sales results,
announcements by other apparel retailers, the overall economy and the condition
of the financial markets could cause the price of the Common Stock to fluctuate
substantially.

     ANTI-TAKEOVER MATTERS

     Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws") may be deemed to have anti-takeover effects and may
discourage, delay or prevent a takeover attempt that a stockholder might
consider in its best interest. These provisions, amount other things, (i)
classify the Company's Board of Directors into three classes, each of which will
serve for different three year periods, (ii) provide that only the Chairman of
the Board of Directors may call special meetings of the stockholders, (iii)
provide that a director may be removed by stockholders only for cause by a vote
of the holders of more than two-thirds of the shares entitled to vote, (iv)
provide that all vacancies on the Company's Board of Directors, including any
vacancies resulting from an increase in the number of directors, may be filled
by a majority of the remaining directors, even if the number is less than a
quorum, (v) establish certain advance notice procedures for nominations of
candidates for election as directors and for stockholder proposals to be
considered at stockholders' meetings, and (vi) require a vote of the holders of
more than two-thirds of the shares entitled to vote in order to amend the
foregoing provisions and certain other provisions of the Certificate of
Incorporation and Bylaws. In addition, the Board of Directors, without further
action of the stockholders, is permitted to issue and fix the terms of preferred
stock which may have rights senior to those of the Common Stock. Moreover, the
Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL") which would require a two-thirds vote of
stockholders for any business combination (such as a merger or sale of all or
substantially all of the Company's assets) between the Company and an
"interested stockholder," unless such transaction is approved by a majority of
the disinterested directors or meets certain other requirements. In certain
circumstances, the existence of these provisions which inhibit or discourage
takeover attempts could reduce the market value of the Common Stock.


I
TEM 2.
PROPERTIES

     The Company's home office and distribution facility are located in West
Caldwell, New Jersey, and are occupied under the terms of a lease covering
approximately 91,000 square feet. The Company also leases a 32,000 square feet
facility in Fairfield, New Jersey. The Company expects to relocate its offices
and distribution facility over the next 12 months but may continue to be
obligated on its current lease until its expiration in March 1999.

     All of the Company's existing store locations are leased by the Company,
with lease terms expiring between 1998 and 2009 and with an average unexpired
lease term of 7.2 years. The leases for most of the existing stores are for
terms of ten years and provide for contingent rent based upon a percent of sales
in excess of specified minimums. Leases for future stores will likely include
similar contingent rent provisions.


ITEM 3.
LEGAL PROCEEDINGS

     On October 16, 1997, Stephen Brosious and Rudy Pallastrone, who allegedly
purchased shares of the Company's common stock in an initial public offering on
or about September 19, 1997 (the "IPO"), filed a lawsuit against the Company,
several of the Company's directors and officers, and the underwriters of the IPO
(the "Defendants") in the United States District Court for the District of New
Jersey (the "Court"). The named plaintiffs purport to maintain a class action on
behalf of all persons, other than the Defendants, who purchased the Company's
common stock issued in connection with the IPO on or about September 19, 1997
through October 13, 1997. The complaint alleges that the Defendants violated
federal securities laws by making materially false or misleading statements
and/or omissions in connection with the IPO. The plaintiffs seek monetary
damages of an unspecified amount, rescission or rescissory damages and fees and
costs. Since October 16, 1997, fifteen additional putative class actions making
substantially similar allegations and seeking substantially similar relief have
been filed against some or all of the Defendants. On January 13, 1998, the
sixteen putative class actions were consolidated in the Court and on February
26, 1998, the plaintiffs served and filed their amended consolidated complaint.
No discovery has been taken. The Company has filed a motion to dismiss this
complaint which is currently pending before the Court. The Company believes that
the allegations made in this complaint are untrue and totally without merit and
intends to defend them vigorously.

     On October 27, 1997, Bulldog Capital Management, L.P., a limited
partnership that serves as a general partner for a series of investment funds
which allegedly purchased shares of the Company's common stock issued in
connection with the IPO, also filed a lawsuit against the Company and several of
the Company's directors and officers in the Superior Court of New Jersey, Essex
County Division. The complaint alleges that by making materially false or
misleading statements and/or omissions in connection with the IPO, the Company
and several of the Company's directors and officers violated provisions of
federal and state law. The plaintiff seeks monetary damages of an unspecified
amount, rescission or rescissory damages and fees and costs. On November 20,
1997, the plaintiff filed its first request for production of documents from the
defendants. No discovery has been taken. This action is presently stayed,
pending resolution of the defendant's motion to dismiss in the federal lawsuit
described above. The Company believes that the allegations made in this
complaint are untrue and totally without merit and intends to defend them
vigorously.

     The Company is also involved in various legal proceedings arising in the
normal course of its business. In the opinion of management, any ultimate
liability arising out of such proceedings will not have a material adverse
effect on the Company's financial position or results of operations.


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

     None.



<PAGE>


                                     PART II


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

     The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "PLCE". The following table sets forth the quarterly high and low
sale prices per share, as reported on the Nasdaq National Market.

                                                            FISCAL 1997
                                                       High              Low
Third Quarter, beginning September 19, 1997.......    16 1/8            4 1/2
Fourth Quarter....................................     7 7/8            4 3/8

     On April 1, 1998, the last price of the Common Stock as reported on the
Nasdaq National Market was $8.875 per share. As of April 1, 1998, the
approximate number of holders of record of the Company's Common Stock was 1,800.

     The Company has never declared or paid cash dividends on its Common Stock
and anticipates that all future earnings will be retained for development of its
business. The Company's revolving credit facility has a financial covenant which
currently prohibits the payment of dividends. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, capital requirements, the
securing of a waiver from the Company's revolving credit lender, the financial
condition of the Company and general business conditions.


ITEM 6.
SELECTED FINANCIAL DATA

     The information required by this item is incorporated herein by reference
to page 13 through 14 of the 1997 Annual Report to Stockholders filed as Exhibit
13.1 to this Annual Report on Form 10-K.


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

     The information required by this item is incorporated herein by reference
to pages 15 through 19 of the 1997 Annual Report to Stockholders filed as
Exhibit 13.1 to this Annual Report on Form 10-K.


ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     None.



ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item is incorporated herein by reference
to pages 20 through 35 of the 1997 Annual Report to Stockholders filed as
Exhibit 13.1 to this Annual Report on Form 10-K.


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

     None.


<PAGE>


                                    PART III


ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item is incorporated herein by reference
to the sections entitled "Election of Directors" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the 1997 Proxy Statement. See
also Item 1.


ITEM 11.
EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by reference
to the sections entitled "Information Regarding the Board of Directors -
Compensation of Directors" and "Executive Compensation" in the 1997 Proxy
Statement.


ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 1997 Proxy Statement.


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     The information required by this item is incorporated herein by reference
to the sections entitled "Executive Compensation - Employment Agreements" and
"Compensation Committee Interlocks and Insider Participation" in the 1997 Proxy
Statement.


<PAGE>


                                     PART IV


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

(A)(1)            FINANCIAL STATEMENTS

     The following documents are incorporated by reference to pages 20 through
35 of the 1997 Annual Report to Stockholders filed as Exhibit 13.1 to this
Annual Report on Form 10-K.


  Report of Independent Public Accountants 
  Balance Sheets as of January 31, 1998 and February 1, 1997 
  Statements of Income for each of the three fiscal years ended January 31, 1998
  Statements of Changes in Stockholders' Equity (Deficit) for the three
  fiscal years ended January 31, 1998
  Statements of Cash Flows for the three fiscal years ended January 31, 1998

  Notes to Financial Statements

(A)(2) FINANCIAL STATEMENT SCHEDULES

     Financial statement schedules have been omitted because they are not
required or are not applicable.



<PAGE>

(A)(3)            EXHIBITS


3.1*       Form of Amended and Restated Certificate of Incorporation of the
           Company.
3.2*       Form of Amended and Restated ByLaws of the Company.
4.1*       Form of Certificate for Common Stock of the Company.
9.1*       Form of Amended and Restated Stockholders Agreement, dated as of
           September 18, 1997.

10.1*      1996 Stock Option Plan of The Children's Place Retail Stores, Inc.
10.2*      Form of 1997 Stock Option Plan of The Children's Place Retail
           Stores, Inc.
10.3*      The Children's Place Retail Stores, Inc. 401(k) Plan.
10.4*      Form of The Children's Place Retail Stores, Inc. Employee Stock
           Purchase Plan.
10.5*      The Children's Place Retail Stores, Inc. Management Incentive Plan.
10.6*      Form of Amended and Restated Loan and Security Agreement dated as
           of July 31, 1997, between the Company and Foothill Capital 
           Corporation.
10.7*      Merchant Services Agreement dated December 12, 1994 between the
           Company and Hurley State Bank.
10.8*      Employment Agreement dated as of June 27, 1996 between the Company
           and Ezra Dabah.
10.9*      Employment Agreement dated as of June 27, 1996 between the Company
           and Stanley B. Silver.
10.10*     Form of Indemnification Agreement between the Company and the
           members of its Board of Directors.
10.11*     Lease Agreement dated August 11, 1993 between the Company and
           Suburban Mall V Associates, as amended by First Amendment to
           Lease, dated October 21, 1994 between the Company and Suburban
           Mall V Associates.
10.12*     Form of Amended and Restated Registration Rights Agreement, dated
           as of September 18, 1997.
10.13*     Letter Agreement as to employment, dated January 18, 1991, between
           the Company and Diane M. Timbanard.
10.14*     Letter Agreement as to severance pay, dated January 22, 1991,
           between the Company and Diane M. Timbanard.
10.17*     Buying Agency Agreement dated September 17, 1996 between the
           Company and KS Best International.
10.18*     Advisory Agreement dated June 28, 1996 between the Company and
           Saunders Karp & Megrue, L.P.
10.19**    Amendment as of October 27, 1997 to Merchant Services Agreement
           dated December 12, 1994 between the Company and Hurley State Bank.
10.20**    Employee  Stock Servicing Agreement between the Company and
           Merrill Lynch, Pierce, Fenner and Smith Incorporated dated October
           30, 1997.
10.21      Employment Agreement dated as of January 30, 1998 between the
           Company and Clark Hinkley.
11.1       Statement re computation of per share earnings.
13.1       Pages 13 - 35 of the 1997 Annual Report to Stockholders.
27.1       Financial Data Schedule.


*        Incorporated by reference to the registrant's Registration Statement
         on Form S-1 (No. 333-31535).  Exhibit numbers are identical to the
         exhibit numbers incorporated by reference to such registration on
         statement.

**       Incorporated by reference to the registrant's quarterly report on Form
         10-Q for the period ended November 1, 1997. Exhibit 10.19 was filed
         previously as Exhibit 10.1, and Exhibit 10.20 was filed previously as
         Exhibit 10.2 in such quarterly report.

(B)      REPORTS ON FORM 8-K

         No reports were filed.


<PAGE>



 
                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               The Children's Place Retail Stores, Inc.

                               By: /s/ EZRA DABAH
                                       Ezra Dabah
                                   Chairman of the Board and
                                     Chief Executive Officer

                                                           May 1, 1998

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

 Signature                  Title                                    Date

 /s/ EZRA DABAH           Chairman of the Board of                May 1, 1998
     Ezra Dabah           Directors and Chief Executive
                          Officer (Principal Executive
                          Officer)

/s/ STANLEY B. SILVER     President, Chief Operating              May 1, 1998
    Stanley B. Silver     Officer and Director


/s/ SETH L. UDASIN        Vice President and Chief                May 1, 1998
    Seth L. Udasin        Financial Officer (Principal
                          Financial and Accounting
                          Officer)

/s/ STANLEY SILVERSTEIN   Director                                May 1, 1998
    Stanley Silverstein

/s/ JOHN MEGRUE           Director                                May 1, 1998
    John Megrue

/s/ DAVID J. ODDI         Director                                May 1, 1998
    David J. Oddi







                                  EXHIBIT 10.21
                    THE CHILDREN'S PLACE RETAIL STORES, INC.

                              EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of January 30, 1998, between Clark Hinkley
(Executive) and THE CHILDREN'S PLACE RETAIL STORES, INC., a Delaware corporation
(Employer).

                                    SECTION 1
                            EMPLOYMENT OF EXECUTIVE

1.01. Employer hereby agrees to employ Executive and Executive hereby agrees to
be and remain in the employ of Employer upon the terms and conditions
hereinafter set forth.
                                    SECTION 2
                                EMPLOYMENT PERIOD

2.01. The terms of Executive's employment under this Agreement (the Employment
Period) shall commence on February 2, 1998, and shall continue unless terminated
in accordance with the provisions of Section 5. Executive's employment is
conditioned upon consent by Talbots, that Executive's employment with Employer
does not violate any agreement Executive has with Talbots.

                                    SECTION 3
                           DUTIES AND RESPONSIBILITIES

3.01. GENERALLY. During the Employment Period, Executive (i) shall be employed
as Executive Vice President-Merchandising, and (ii) shall devote his full
attention and expend his efforts, energies and skills on a full-time basis to
the business of Employer and other enterprises controlled by, or under common
control with Employer (collectively,
 the Company). Without limiting the
generality of the foregoing, Executive shall have all such duties as may be
delegated to him by the Chief Executive Officer and all such other duties and
responsibilities customarily undertaken and performed by persons in his position
in similar businesses to that of Employer. Executive's employment by Employer
shall constitute his exclusive employment during the Employment period. In no
event shall Executive serve as a director of any other business corporation or
as a general partner of any partnership or as a consultant to any other business
except with the prior approval of the Chief Executive Officer of Employer. 

3.02. REPORTING. Executive shall report directly to the Chief Executive Officer
of Employer. During the Employment Period, Executive will be subject to all of
the policies, rules and regulations of which Executive is given notice
applicable to senior executives of Employer and will comply with all directions
and instructions of the Chairman of the Board and the Chief Executive Officer.

3.03. PLACE OF EMPLOYMENT. Executive shall perform his duties primarily at the
Company's headquarters.

                                    SECTION 4
                                  COMPENSATION

4.01. COMPENSATION, GENERALLY. For all services rendered and required to be
rendered by covenants of, and restrictions imposed on, Executive under this
Agreement, Employer shall pay to Executive during and with respect to the
Employment Period, and Executive agrees to accept (in full payment) Base Salary
and Performance Bonus, all as more fully described on Exhibit A (collectively,
the "Compensation").

4.02. OTHER BENEFITS. During the Employment Period, Executive shall be entitled
to receive such benefits as are at least as favorable as those provided by the
Employer to Employer's other executives (other than those benefits provided
under or pursuant to separately negotiated individual employment agreements or
arrangements) under any pension or retirement plan, stock purchase plan,
disability plan or insurance, group life insurance, medical insurance, or other
similar plan or program of Employer. Executive's Base Salary shall constitute
the compensation on the basis of which the amount of Executive's benefits under
any such plan or program shall be fixed and determined.

4.03. STOCK OPTIONS. Employer shall receive options to acquire 200,000 shares of
common stock of the Company at the price of the stock at the close of the market
on January 30, 1998. The options shall vest 20% on August 1, 1998 and each
additional 20% of the shares shall vest on the first, second, third and fourth
anniversaries thereafter. Such options shall be subject to the terms of the
Company's 1997 Stock Option Plan.

4.04. EXPENSE REIMBURSEMENT. Employer shall reimburse Executive for all business
expenses (other than living expenses, travel expenses to and from work and
expenses of the type for which an allowance is provided pursuant to the
following sentence) and travel expenses reasonably incurred by him in the
performance of his duties under this Agreement upon his presentation, not less
frequently than monthly, of signed, itemized accounts of such expenditures all
in accordance with Employer's procedures and policies as adopted and in effect
from time to time and applicable to its employees of comparable status. Employer
shall also provide Executive with an allowance of $833.33 each month during the
Employment Period to cover expenses associated with Executive's ownership and
operation of an automobile in connection with the business conducted by him.
Employer shall also reimburse Executive for temporary local housing expenses (up
to one month) during the time in which Executive locates permanent housing.

4.05. VACATIONS. Executive shall be entitled to two weeks vacation each year,
which shall be taken at such time or times as shall not unreasonably interfere
with Executive's performance of his duties under this Agreement.

                                    SECTION 5
                        TERMINATION OF EMPLOYMENT PERIOD

5.01. TERMINATION WITHOUT CAUSE. At any time during the Employment Period, by
notice to the other, Employer or Executive may terminate Executive's employment
under this Agreement without cause. Such notice shall specify the effective date
of termination which in the case of termination by Executive shall not be less
than 60 days after the date of such notice.

5.02. BY EMPLOYER: CAUSE. At any time during the Employment Period, by notice to
Executive, Employer may terminate Executive's employment under this Agreement
for cause, effective immediately. Such notice shall specify the cause for
termination. For the purposes of this Section 5.02, for cause means:

               (i) a breach by Executive of any of the material provisions of
         this Agreement that Executive fails to remedy or cease within 10 days
         after notice thereof to Executive;

               (ii) any conduct, action or behavior by Executive that has or
         may reasonably be expected to have a material adverse effect on the
         reputation of the Company or on Executive's reputation or that is not
         befitting of a senior executive of the Company; or

               (iii) the commission by Executive of an act involving moral
         turpitude or dishonesty, whether or not in connection with Executive's
         employment hereunder; or
   
               (iv) Executive shall have committed any act of fraud against
         the Employer or engaged in any other willful misconduct in connection
         with his duties hereunder; or

               (v) Executive shall have been convicted of a crime (other than
         a misdemeanor relating to motor vehicle laws). Notwithstanding the
         foregoing, no Cause for termination shall be deemed to exist with
         respect to the Executive's acts described in clause (ii) above unless
         the Chief Executive Officer shall have given prior written notice to
         the Executive specifying the Cause with reasonable particularity and,
         within thirty (30) days after such notice, the Executive shall not have
         cured or eliminated the problem or thing giving rise to such Cause.

                                    SECTION 6
                            TERMINATION COMPENSATION

6.01. ENTITLEMENT TO PAYMENT. (a) Subject to the provisions of Section 7.04, if
Executive's employment hereunder is terminated pursuant to Section 5.01, at any
time hereafter by the Employer, then Employer will pay to Executive an amount
equal to the Base Salary for one year following such termination. (The amount to
be paid pursuant to this Section 6.01 is referred to as the Termination
Compensation and the period for which such compensation is to be paid is
referred to as the Relevant Period). Such Termination Compensation shall be paid
to Executive in equal consecutive monthly installments during the Relevant
Period, with the first such installment paid on the first day of the month next
following the effective date of termination of Executive's employment hereunder.
Upon such termination, Executive shall also be entitled to any accrued but
unpaid bonus compensation. In addition, during the Relevant Period, Executive
shall be entitled to medical benefits and all other benefits, referred to in
Section 4.02.

6.02. NO OTHER TERMINATION COMPENSATION. Executive shall not be entitled to any
benefit or compensation following termination of his employment hereunder,
except as set forth in Section 6.01, if applicable.


<PAGE>


                                    SECTION 7
                      EXCLUSIVITY OF SERVICES, CONFIDENTIAL
                      INFORMATION AND RESTRICTIVE COVENANTS

7.01. EXCLUSIVITY OF SERVICES. During the Employment Period and continuing
through the second anniversary of the date in which Executive ceases to be an
employee of the Company (the "Covenant Period"), Executive will not:

                  (i) Promote, participate or engage in any business on behalf
         of any Competitor of the Company, whether Executive is acting as owner,
         partner, stockholder, employee, broker, agent, principal, trustee,
         corporate officer, director, consultant or in any other capacity
         whatsoever; provided, however, that this will not prevent Executive
         from holding for investment up to 1% of any class of stock or other
         securities quoted or dealt in on a recognized stock exchange or on
         Nasdaq. For purposes of this Section, a Direct Competitor of the
         Company means (A) The Gap, Inc. or any Person under common control with
         The Gap, Inc., (B) The Limited, Inc. or any Person under common control
         with The Limited, Inc., (C) Gymboree or Kids R Us or any Person under
         common control with Gymboree or Kids R Us, as the case may be, or (D)
         any Person engaged in the sale of children's apparel other than
         department stores.

                  (ii) Directly or indirectly employ (other than on behalf of
         the Company), solicit or entice away any director, officer or employee
         of the Company or any of its subsidiaries; or

                  (iii) Take any action to interfere, directly or indirectly,
         with the goodwill of the Company or any of its subsidiaries, or induce
         or attempt to induce any Person doing business with the Company to
         cease doing business with the Company.

7.02. CONFIDENTIAL INFORMATION. During the Covenant Period Executive will not
(except in furtherance of the Company's business or as required by law) furnish
confidential information relating to the business or affairs of the Company, its
subsidiaries or any Person having dealings therewith, or permit or encourage the
use of such confidential information by another. During the Covenant Period,
Executive will not use the name of the Company or its subsidiaries in the
conduct of any business activities (except in furtherance of the Company's
business) or for Executive's personal use without the prior written consent of
the Company.

7.03. MUTUALLY NON-DISPARAGEMENT. Neither Executive nor Employer will make or
authorize any public statement disparaging the other in its or his business
interests and affairs. Notwithstanding the foregoing, neither party shall be (i)
required to make any statement that it or he believes to be false or inaccurate,
or (ii) restricted in connection with any litigation, arbitration or similar
proceeding or with respect to its response to any legal process.

7.04. BREACHES OF PROVISIONS. If Executive breaches any of the provisions of
this Section 7 then, and in any such event, in addition to other remedies
available to Employer, Executive shall not be entitled to any Termination
Compensation, if any, made to him hereunder prior to Employer's discovery of
such breach.
                                    SECTION 8
                                  MISCELLANEOUS

8.01. NOTICES. Any notice, consent, or authorization required or permitted to be
given pursuant to this Agreement shall be in writing and sent to the party for
or to whom intended, at the address of such party set forth below, by certified
mail, postage paid, or at such other address as either party shall designate by
notice given to the other in the manner provided herein. 

If to Employer:

                  Attention:        Steven Balasiano
                                    Vice President & General Counsel
                                    The Children's Place Retail Stores, Inc.
                                    1 Dodge Drive
                                    West Caldwell, New Jersey 07006

With Copies to:

                                    Ezra Dabah
                                    CEO/ Chairman
                                    The Children's Place Retail Stores, Inc.
                                    1 Dodge Drive
                                    West Caldwell, New Jersey 07006

If to Executive:

                                    Clark Hinkley
                                    154 Washington  Street
                                    Duxbury, MA  02332

8.02. TAXES. Employer is authorized to withhold from payments made hereunder to
Executive such amounts for income tax, social security, unemployment
compensation and other judgment of Employer to comply with applicable laws and
regulations.

8.03. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New Jersey applicable to
agreements made and to be performed therein.

8.04. HEADINGS. All descriptive headings in this Agreement are inserted for
convenience only and shall be disregarded in construing or applying any
provision of this Agreement.

8.05. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

8.06. SEVERABILITY. If any provision of this Agreement or part thereof, is held
to be unenforceable, the remainder of such provisions of this Agreement, as the
case may be, shall nevertheless remain in full force and effect.

8.07. ENTIRE AGREEMENT AND INTEGRATION. This Agreement contains the entire
agreement and understanding between Employer and Executive with respect to the
subject matter hereof. Such agreement supersedes any prior agreement between the
parties relating to the subject matter hereof.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as 
of the date first written above.

                          THE CHILDREN'S PLACE RETAIL STORES, INC.

                          By: /S/ EZRA DABAH
                              Ezra Dabah, Chairman and Chief Executive Officer


                              /S/ CLARK HINKLEY
                              Clark Hinkley


<PAGE>


                                   EXHIBIT A
                                  COMPENSATION

1. BASE SALARY: At the initial rate of $400,000 per year, payable in equal
installments not less frequently than monthly during each year of the Employment
Period. Base Salary shall be subject to annual review, as the Compensation
Committee may determine.

2. PERFORMANCE BONUS: Following each Bonus Period (as defined below), Executive
shall be entitled to receive a Performance Bonus based upon the Earnings of
Employer during such Bonus Period as established by the Compensation Committee.
The Performance Bonus for each such Period will be payable within 90 days after
the end of such period. The amount of the Performance Bonus for each Bonus
Period will be equal to a product equal to (a) Employee's semi-annual Base
Salary, times (b) 30%, times (c) the Bonus Percentage (as hereinafter defined).
The following provisions shall apply to determinations relating to Performance
Bonus. 

Bonus Percentage shall mean, for each Bonus Period, a percentage for such period
that is determined based upon Earnings in accordance with a schedule adopted by
the Compensation Committee for all senior executives prior to commencement of
such period or as soon thereafter as possible, and no more than 200% for any
Bonus Period. For the first two years of Executive's employment, the Company
shall guarantee Executive 50% of the target bonus payout ($60,000 per annum).
This amount shall be paid in equal monthly installments.

"Bonus Period" shall mean each of the two periods of approximately six months
duration within each fiscal year of the Employer, one beginning on the first day
of the fiscal year and ending on the Saturday on or nearest (whether following
or preceding) July 31, of the calendar year in which it commenced, and the other
beginning on the Sunday following such Saturday and ending on the last day of
such fiscal year.




                                  EXHIBIT 11.1

                    THE CHILDREN'S PLACE RETAIL STORES, INC.
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

          CALCULATION OF PRO FORMA BASIC AND DILUTED EARNINGS PER SHARE

                    (In thousands, except for per share data)

                                              For the Fifty-Two Weeks Ended

                                             January               February
                                               31,                   1,
                                              1998                  1997
                                            -----------           --------

Income before extraordinary item.........     $6,984               $30,441
Extraordinary item.......................      1,743                 --
                                              --------             ---------
Net income...............................     $5,241               $30,441
                                              ========             =========
Pro forma basic weighted average
common shares outstanding (1)............     21,821                20,421
                                              ------                ------
Pro forma basic income per common share:
Income before extraordinary item.........      $0.32                 $1.49
Extraordinary item.......................      (0.08)                  --
                                               -----                 ------
Pro forma basic net income per common 
  share (1)..............................      $0.24                 $1.49
                                               =====                 =====
Pro forma diluted weighted average common
  shares outstanding (2)..................    24,358                23,804
                                              ------                ------
Pro forma diluted income per common share:
Income before extraordinary item...........    $0.29                 $1.28
Extraordinary item.........................    (0.07)                 --
                                               ------               ------
Pro forma diluted net income per 
  common share (2).........................    $0.22                 $1.28
                                               =====                 =====


(1)  Pro forma basic income per common share for the fifty-two weeks ended 
     January 31, 1998 was calculated by dividing net income by the pro forma 
     basic weighted average common shares outstanding as if the Stock Split, 
     the Series B Conversion and the Reclassification (as discussed in Note
     2-Initial Public Offering), occurred on the first day of fiscal 1997. Pro
     forma basic net income per
 common share for the fifty-two weeks ended
     February 1, 1997 was calculated by dividing net income by the pro forma
     basic weighted average common shares outstanding as if (i) the Stock Split,
     the Series B Conversion and the Reclassification, (ii) the 1996 Private
     Placement of Common Stock (as discussed in Note 3-1996 Private Placement),
     and (iii) the cancellation of outstanding preferred shares (as discussed in
     Note 9-Stockholders' Equity), occurred on the first day of fiscal 1996.

(2)  Pro forma diluted income per common share for the fifty-two weeks ended 
     January 31, 1998 was calculated by dividing net income by the pro forma 
     diluted weighted average common shares and common share equivalents 
     outstanding as if the Stock Split, the Series B Conversion and the 
     Reclassification occurred on the first day of fiscal 1997. Pro forma 
     diluted net income per common share for the fifty-two week ended February 
     1, 1997 was calculated by dividing net income by the pro forma diluted 
     weighted average common shares outstanding and common share equivalents as 
     if (i) the Stock Split, Series B Conversion and Reclassification, (ii) the
     1996 Private Placement of Common Stock, (iii) the cancellation of the 
     outstanding preferred shares, and (iv) the granting of management options 
     in conjunction with the 1996 Private Placement, occurred on the first day 
     of fiscal 1996. For the fifty-two weeks ended January 31, 1998, common 
     share equivalents included the Noteholder Warrant and Legg Mason Warrant 
     prior to their exercise and management options to purchase common stock 
     under the 1996 Plan and the 1997 Plan using the treasury stock method. For 
     the fifty-two weeks ended February 1, 1997, common share equivalents 
     included the Noteholder Warrant and the Legg Mason Warrant (as discussed 
     in Note 3-1996 Private Placement), and management options to purchase 
     common stock under the 1996 Plan calculated using the treasury stock 
     method. Prior to the Offering, the Offering price was utilized for the 
     treasury stock calculations due to the lack of a public market. Subsequent 
     to the Offering, the average market price was utilized in accordance with 
     FAS No. 128.


<PAGE>
 
                                  EXHIBIT 11.1
                     THE CHILDRENS PLACE RETAIL STORES, INC.
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

             CALCULATION OF PRO FORMA BASIC WEIGHTED AVERAGE COMMON
                               SHARES OUTSTANDING

<TABLE>
<CAPTION>

                                                     # of  
                                                     Shares                         Weighted
Fifty-two weeks ended January 31, 1998               Outstanding     #of Months     Average
- --------------------------------------               --------------  -----------    ---------

<S>                                                   <C>               <C>         <C>      
Outstanding common stock..............                12,760,800        8           8,507,200
Series B conversion to common stock...                 7,659,889        8           5,106,593
                                                                                   ----------
                                                                                   13,613,793

Outstanding common stock(a)...........                24,622,103        4           8,207,367
                                                                                   -----------
                                                                                   21,821,160
                                                                                   ===========
                                                           
                                                    # of                              
                                                    Shares                           Weighted
Fifty-two weeks ended February 1, 1997              Outstanding       #of Months     Average
- ----------------------------------------           -----------       ----------     ----------------      

Outstanding common stock...............             12,760,800           12          12,760,800
Series B conversion to common stock....              7,659,889           12           7,659,889
                                                                                     -----------
                                                                                     20,420,689
                                                                                     ==========

(a)  Outstanding stock includes the 12,760,800 outstanding shares prior to the
     initial public offering, the conversion of 7,659,889 shares of Series B
     Common Stock into Common Stock, the initial public offering of
     4,000,000 shares of Common Stock, and 201,414 shares of Common Stock issued
     upon the exercise of one-third of the Legg Mason Warrant.
</TABLE>



<PAGE>

                                  EXHIBIT 11.1
                    THE CHILDREN'S PLACE RETAIL STORES, INC.
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

            CALCULATION OF PRO FORMA DILUTED WEIGHTED AVERAGE COMMON
                               SHARES OUTSTANDING

<TABLE>
<CAPTION>

                                                        # of Shares                               Weighted
Fifty-two weeks ended January 31, 1998                  Outstanding             # of Months       Average
- ------------------------------------------              -----------             -----------       -------

<S>                                                      <C>                       <C>            <C>      
Outstanding common stock................                 12,760,800                8              8,507,200
Series B conversion to common stock.....                  7,659,889                8              5,106,593
Legg Mason Warrant (a)..................                    604,240                8                402,827
Noteholder Warrant (b)..................                  1,611,305                8              1,074,203
1996 Management Options (c).............                  1,167,951                8                778,634
                                                          ---------                            --------------
                                                                                                 15,869,457
                                                                                               --------------
Outstanding common stock (g)............                 24,622,103                4              8,207,368
1996 Management Options (i).............                     (i)                   4                280,830
1997 Management Options (e).............                        --                 4                    --
Options issued to a 10% owner (f).......                        --                 4                    --
                                                          ----------                          ----------------
                                                                                                  8,488,198
                                                                                              ----------------
                                                                                                 24,357,655
                                                                                              ================
Options or Warrants outstanding prior to     # of Shares under        Exercise       Initial Public           Common Share
  initial public offering                    Option or Warrant         Price         Offering Price           Equivalents 
- -----------------------------------------    ------------------       ---------      ---------------          -------------
<S>                                               <C>                  <C>              <C>                      <C>    
(a) Legg Mason Warrant..................          747,096              $2.677           $14.00                   604,240
(b) Noteholder Warrant..................        1,992,252               2.677            14.00                 1,611,305
(c) 1996 Management Options.............        1,444,080               2.677            14.00                 1,167,951

                                                                                                           
Options subsequent to the initial public 
offering for the 13 weeks ended               # of Shares under        Exercise         Average               Common Share
November 1, 1997                                  Option                Price         Market Price            Equivalents
- -----------------------------------------    ------------------      -----------     -------------            -------------
(d) 1996 Management Options..............       1,444,080              $2.677           $10.84                 1,087,456(i)
(e) 1997 Management Options..............         451,600               14.00            10.84                    (j)
(f) 1997 Options issued to a 10% owner...          99,660               15.40            10.84                    (j)

                                                                                                            
Options subsequent to the initial public
offering for the 13 weeks ended               # of Shares              Exercise      Average Market            Common Share 
January 31, 1998                              under Option              Price            Price                 Equivalents
- ------------------------------------------    ------------          ------------     ---------------           --------------
(h) 1996 Management Options.............        1,444,080              $2.677            $5.66                  760,835(i)
(e) 1997 Management Options.............          451,600               14.00             5.66                   (j)
(f) 1997 Options issued to a 10% owner..           99,660               15.40             5.66                   (j)

(g) Outstanding stock includes the 12,760,800 outstanding shares prior to the 
    initial offering, the conversion of 7,659,889 shares of Series B Common 
    Stock into Common Stock, the initial public offering of 4,000,000 shares of 
    Common Stock, and 201,414 shares of Common Stock issued upon the exercise of
    one-third of the Legg Mason Warrant.

(i) For the fifty two weeks ended January 31, 1998, the 1996 Management Options
    have a weighted average value of:
                                                                                                         
                                                      Treasury Stock        # of               Common Share     
                                                       Method               Months             Equivalents
                                                     ----------------      -------            -------------
       <S>                                            <C>                     <C>               <C>   
       (d) 13 weeks ended November 1, 1997            1,087,456               1                 90,621
       (h) 13 weeks ended January 31, 1998              760,835               3                190,209
                                                                                              ----------
                                                                                               280,830
                                                                                              ==========
 (j) The 1997 Management Options and 1997 Management Options issued to a 10% owner
     are anti-dilutive since the exercise price is greater than the average
     market price.

</TABLE>


                                  EXHIBIT 11.1
                    THE CHILDREN'S PLACE RETAIL STORES, INC.
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

            CALCULATION OF PRO FORMA DILUTED WEIGHTED AVERAGE COMMON
                               SHARES OUTSTANDING


<TABLE>
<CAPTION>

                                                     # of Shares                                         Weighted
Fifty-two weeks ended February 1, 1997               Outstanding             # of Months                 Average
- -------------------------------------------          -----------             -----------                 --------
<S>                                                   <C>                         <C>                    <C>       
Outstanding common stock...................           12,760,800                  12                     12,760,800
Series B conversion to common stock........            7,659,889                  12                      7,659,889
Legg Mason Warrant (a).....................              604,240                  12                        604,240
Noteholder Warrant (b).....................            1,611,305                  12                      1,611,240
1996 Management Options (c)................            1,167,951                  12                      1,167,951
                                                      -----------                                       -------------
                                                                                                         23,804,185
                                                                                                        =============

Option or Warrants outstanding prior to               # of Shares under       Exercise          Initial Public      Common Share
    the initial public offering                       Option of Warrant         Price           Offering Price      Equivalents
- ------------------------------------------            -----------------       ---------         ---------------     ------------
<S>                                                         <C>                <C>                 <C>                <C>    
(a)  Legg Mason Warrant ...............                     747,096            $2.677              $14.00             604,240
(b)  Noteholder Warrant................                   1,992,252             2.677               14.00           1,611,305
(c)  1996 Management Options...........                   1,444,080             2.677               14.00           1,167,951
</TABLE>




                         

                                  EXHIBIT 13.1
                    THE CHILDREN'S PLACE RETAIL STORES, INC.
              PAGES 13-35 OF THE 1997 ANNUAL REPORT TO STOCKHOLDERS

SELECTED FINANCIAL DATA

  The following table sets forth certain historical and pro forma financial and
operating data for the Company. The selected historical financial data for the
Company is qualified by reference to, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the financial statements and notes thereto included elsewhere
herein.

<TABLE>
<CAPTION>

                                                                      FISCAL YEAR ENDED(1)
                                                 January 31,       February 1,     February 3,         January 28,     January 29,
                                                     1998            1997            1996                 1995            1994
                                                     ----            ----            ----                 ----            ----

 STATEMENT OF OPERATIONS DATA:
 (in thousands, except per share data)
<S>                                                 <C>             <C>            <C>                 <C>               <C>    
Net sales............................               $192,557        $143,838       $122,060            $107,953          $96,649
Gross profit.........................                 69,092          54,052         38,626              33,724           28,874
Selling, general and administrative 
   expenses..........................                 46,542          36,251         30,757              27,873           24,156
Pre-opening costs....................                  2,127             982            311                 178               79
Depreciation and amortization........                  5,958           4,017          3,496               3,344            3,275
                                                   -------------     ----------   ------------       ------------        ----------
Operating income.....................                 14,465          12,802          4,062               2,329            1,364
Interest expense, net................                  2,647           2,884          1,925               1,303            1,150
Other expense, net...................                    139             396            447                   0                0
                                                   -------------   ------------   ------------       ------------       ----------
Income before income taxes,
   extraordinary item and cumulative 
   effect of accounting change........                11,679           9,522          1,690               1,026
               214
Provision (benefit) for 
   income taxes (2)...................                 4,695         (20,919)            36                  54                53
                                                    ------------    -----------    -----------         -----------       ----------
Income before extraordinary item.......                6,984          30,441          1,654                 972               161
Extraordinary (loss) gain (3)..........               (1,743)              0              0                 490            15,169
                                                    ------------   ------------    -----------         -----------       ----------
Net income (4).........................               $5,241         $30,441         $1,654              $1,462           $14,780
                                                    =============  ============    ============        ============     ===========
Pro forma diluted income per common 
  share before extraordinary item......                $0.29           $1.28
Extraordinary item.....................
                                                       (0.07)            --
                                                       ------         ---------
Pro forma diluted net income 
  per common share (5).................                $0.22           $1.28
                                                     =============   ==========
Pro forma diluted weighted average 
  common shares outstanding (5).........              24,358          23,804

Selected Operating Data:
Number of stores open at end of period...                155             108             91                  87                87
Comparable store sales increase 
 (decrease) (6) (7).....................                   2%              9%            10%                 13%               (2%)
Average net sales per store 
  (in thousands) (7) (8)................              $1,487          $1,479         $1,362              $1,264            $1,124
Average square footage per store (9)....               4,123           4,284          4,528               4,786             4,954
Average net sales per gross square
 foot (7) (10)...........................               $350            $335           $292                $259              $226

BALANCE SHEET DATA (IN THOUSANDS):
Working capital (deficit)................            $20,238         $11,951       ($17,630)           ($10,398)         ($11,621)
Total assets.............................             79,353          64,479         32,073              26,556            26,600
Long-term debt...........................                 26          20,504         15,735              21,626            23,719
Stockholders' equity (deficit)...........             58,467          27,298        (11,735)            (13,388)          (15,338)

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

   (1)   All references to the Company's fiscal years refer to the 52- or
         53-week year ended on the Saturday nearest to January 31 of the
         following year. For example, references to fiscal 1997 mean the fiscal
         year ended January 31, 1998. Fiscal 1995 was a 53-week year.

   (2)   The provision (benefit) for income taxes for fiscal 1996 reflected the
         reversal of a valuation allowance of $21.0 million on a net deferred 
         tax asset.

   (3)   Extraordinary gains during fiscal 1993 and fiscal 1994 represented
         forgiveness of debt in connection with a debt restructuring undertaken
         with the consent of the Company's creditors.  Extraordinary loss in
         fiscal 1997 represented the write-off of unamortized deferred 
         financing costs and unamortized debt discount as a result of the 
         repayment of the senior subordinated notes in conjunction with the 
         Company's initial public offering.

   (4)   Net income for fiscal 1993 included a $550,000 charge related to the
         cumulative effect of a change in accounting for inventory 
         capitalization.

   (5)   Pro forma diluted net income per common share is calculated by
         dividing net income by the pro forma diluted weighted average common
         shares and common share equivalents outstanding. The pro forma
         weighted average common shares outstanding and common share
         equivalents used in computing diluted net income per common share for
         fiscal 1997 are based on the number of common shares and common share
         equivalents as if the Stock Split, the Series B Conversion and the
         Reclassification had occurred on the first day of fiscal 1997.  The
         pro forma weighted average common shares outstanding and common share
         equivalents used in computing pro forma diluted net income per common
         share for fiscal 1996 are based on the number of common shares and
         common share equivalents outstanding as if (i) the Stock Split, the
         Series B Conversion and the Reclassification, (ii) the 1996 Private
         Placement of Common Stock, (iii) the cancellation of the outstanding
         preferred shares, and (iv) the granting of management options in
         conjunction with the 1996 Private Placement, had occurred on the
         first day of fiscal 1996.

  (6)    The Company defines comparable store sales as net sales from stores
         that have been open for more than 14 full months and have not been
         substantially remodeled during that time.

  (7)    For purposes of determining comparable store sales increase (decrease),
         average net sales per store and average net sales per gross square
         foot, fiscal 1995 results were recalculated based on a 52-week year.

  (8)    Represents net sales from stores open throughout the full period
         divided by the number of such stores.

  (9)    Average square footage per store represents the square footage of 
         stores open on the last day of the period divided by the number of 
         such stores.

(10)     Represents net sales from stores open throughout the full period 
         divided by the gross square footage of such stores.
</TABLE>



<PAGE>



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

     THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF FEDERAL SECURITIES LAWS, WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS
CREATED THEREBY. THOSE STATEMENTS INCLUDE, BUT MAY NOT BE LIMITED TO, THE
DISCUSSIONS OF THE COMPANY'S OPERATING AND GROWTH STRATEGY. INVESTORS ARE
CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES
INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH UNDER THE CAPTION "RISK FACTORS"
IN THE BUSINESS SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM10-K FOR THE YEAR
ENDED JANUARY 31, 1998. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS
UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY
OF THE ASSUMPTIONS COULD PROVE TO BE INACCURATE, AND THEREFORE, THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS ANNUAL REPORT
WILL PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN
THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH
INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY
OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT EVENTS AND CIRCUMSTANCES
OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED
EVENTS.  

     THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
AUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL
REPORT.


RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, selected income
statement data expressed as a percentage of net sales:

                                               FISCAL YEAR ENDED
                                 January 31,       February 1,     February 3,
                                     1998              1997             1996
                                 -----------       -----------     -----------

Net sales........................   100.0%          100.0%            100.0%
Cost of sales....................    64.1            62.4              68.4
                                    -----           ------            -------
Gross profit....................    35.9             37.6              31.6
Selling, general and 
 administrative expenses........    24.2             25.2              25.2
Pre-opening costs.................   1.1              0.7               0.3
Depreciation and amortization....    3.1              2.8               2.8
                                   -------          ------             -----
Operating income.................    7.5              8.9               3.3
Interest expense, net...........     1.4              2.0               1.6
Other expense, net..............     0.1              0.3               0.3
                                  --------        ---------            -------
Income before income taxes and 
 extraordinary item.............     6.0              6.6               1.4
Provision (benefit) for 
  income taxes..................     2.4            (14.5)               --
Extraordinary loss .............     0.9              --                 --
                                  ---------     ----------            -------
Net income......................     2.7%            21.1%             1.4%
                                  =========     ==========           ========


       YEAR ENDED JANUARY 31, 1998 COMPARED TO YEAR ENDED FEBRUARY 1, 1997

     Net sales increased by $48.7 million, or 33.9%, to $192.5 million during
fiscal 1997 from $143.8 million during fiscal 1996. Net sales for the 47 new
stores opened, as well as the stores opened and remodeled during fiscal 1997 and
fiscal 1996 that did not qualify as comparable stores, contributed $46.1 million
of the sales increase, partially offset by the closing of one store during 1996
which contributed $0.4 million of net sales during fiscal 1996. The Company's
comparable store sales increased 2% and contributed $3.0 million of the sales
increase during fiscal 1997. Comparable store sales increased 9% during fiscal
1996. The Company defines its comparable store sales as net sales from stores
that have been open for more than 14 full months and that have not been
substantially remodeled during that time. The Company's fiscal 1997 comparable
store sales increase was primarily attributable to strength in the infant and
big girls' departments, partially offset by weaker sales in the little boy and
little girl departments.

     Gross profit increased by $15.0 million to $69.1 million during fiscal 1997
from $54.1 million during fiscal 1996. As a percentage of net sales, gross
profit decreased to 35.9% during fiscal 1997 from 37.6% during fiscal 1996. The
decrease in gross profit as a percentage of net sales was principally due to
higher markdowns which were required to clear excess inventory. As a percentage
of net sales, gross profit was also unfavorably impacted by higher store
occupancy costs partially offset by a higher initial markup. The increased store
occupancy costs resulted from new stores that had not been open long enough to
leverage their rent through an established sales base.

     Selling, general and administrative expenses increased $10.2 million to
$46.5 million during fiscal 1997 from $36.3 million during fiscal 1996. As a
percentage of net sales, selling, general and administrative expenses decreased
to 24.2% of net sales during fiscal 1997 from 25.2% of net sales during fiscal
1996. The decrease as a percentage of net sales was primarily due to lower
corporate administrative expenses which benefited from the leverage of the
increased sales base, partially offset by higher store payroll and other store
expenses.

     During fiscal 1997, pre-opening costs were $2.1 million, or 1.1% of net
sales, as compared to $1.0 million, or 0.7% of net sales, during fiscal 1996.
The increase in pre-opening costs in fiscal 1997 reflected the opening of 47
stores during fiscal 1997 as compared to 18 stores during fiscal 1996, partially
offset by cost saving measures implemented in fiscal 1997 to reduce store
pre-opening costs.

     Depreciation and amortization amounted to $6.0 million, or 3.1% of net
sales, during fiscal 1997 as compared to $4.0 million, or 2.8% of net sales,
during fiscal 1996. The increase in depreciation and amortization primarily was
a result of the increase in stores.

     Interest expense, net, for fiscal 1997 was $2.6 million, or 1.4% of net
sales, as compared to $2.9 million, or 2.0% of net sales, during fiscal 1996.
The decrease in interest expense was primarily due to the repayment of the
Senior Subordinated Notes with a portion of the proceeds from the Company's
initial public offering (the "Offering").

     Other expense, net, for fiscal 1997 amounted to $0.1 million, or 0.1% of
net sales, as compared to $0.4 million, or 0.3% of net sales, during fiscal
1996. During fiscal 1997 and fiscal 1996, other expenses were comprised
primarily of an anniversary and other miscellaneous fees related to the
Company's credit facility with Foothill Capital (the "Foothill Credit
Facility"). During fiscal 1996, other expenses also contained credit agreement
amendment fees related to the Foothill Credit Facility.

     The Company recorded income before income taxes and extraordinary item of
$11.7 million during fiscal 1997 as compared with $9.5 million in the comparable
prior year period. As a percentage of net sales, the Company's income before
income taxes and extraordinary item decreased to 6.0% during fiscal 1997 from
6.6% during fiscal 1996 due to the factors discussed above.

     The Company's provision for income taxes for fiscal 1997 was $4.7 million,
as compared with an income tax benefit of $20.9 million in the prior year. The
Company's provision for income taxes for fiscal 1997 reflect a provision based
on effective statutory rates. Throughout fiscal 1996, the Company's provision
for income taxes provided for the payment of federal taxes based on the
alternative minimum tax ("AMT"), at an effective rate of 2% and minimum taxes in
most states due to the Company's utilization of its net operating loss ("NOL")
carryforwards. During the fourth quarter of fiscal 1996, the Company reversed a
$21.0 million valuation allowance on the Company's deferred tax asset on its
balance sheet. Until the NOL is fully utilized or expires, the majority of this
tax provision will not be paid in cash, but will reduce the deferred tax asset
on the balance sheet. However, the Company expects to make cash tax payments for
the federal AMT, state minimum taxes and state taxes where the Company is not in
an NOL status.

     As a result of the repayment of the Company's Senior Subordinated Notes
with a portion of the net proceeds from the Offering, the Company recorded a
non-cash extraordinary item of $1.7 million, net of taxes, that represented the
write-off of unamortized deferred financing costs and unamortized debt discount.

     The Company had net income of $5.2 million and $30.4 million in fiscal 1997
and fiscal 1996, respectively.


       YEAR ENDED FEBRUARY 1, 1997 COMPARED TO YEAR ENDED FEBRUARY 3, 1996

     Net sales increased by $21.8 million, or 17.8% to $143.8 million during
fiscal 1996 from $122.1 million in fiscal 1995. Net sales for the 18 new stores
opened, as well as the stores opened or remodeled during fiscal 1996 and fiscal
1995 not yet qualifying as comparable stores, contributed $17.9 million of the
increase in net sales. Comparable store sales, restated to reflect a comparable
52-week period, increased by 9% and contributed approximately $8.6 million of
the increase in net sales. Comparable store sales increased by 10% in fiscal
1995. The increase in comparable store sales reflected the strength of the
Company's newborn, underwear and accessory departments. The above increases were
offset by the closure of five stores during fiscal 1995 and one store during
fiscal 1996, which in the aggregate generated a net sales decrease of $3.5
million in fiscal 1996 as compared to fiscal 1995. In addition, fiscal 1995 was
a 53-week year, with the extra week contributing $1.2 million to fiscal 1995 net
sales.

     Gross profit increased by $15.4 million to $54.1 million during fiscal 1996
from $38.6 million during fiscal 1995. As a percentage of net sales, gross
profit increased to 37.6% during fiscal 1996 from 31.6% during fiscal 1995.
Merchandise margins improved 4.9% from the previous year primarily due to higher
initial markups and a reduction in the markdown rate. In addition, the Company's
buying, distribution and occupancy expenses decreased as a percentage of net
sales due to the increased store base and sales volume.

     Selling, general and administrative expenses increased by $5.5 million to
$36.3 million during fiscal 1996 from $30.8 million during fiscal 1995, but
remained constant at 25.2% of net sales in both fiscal years. The $5.5 million
increase was primarily due to the operation of an increased number of stores. In
addition, there were increased management incentive bonuses, advertising costs
and expenses related to the expansion of the real estate and store construction
functions to support the Company's growth strategy. However, as a result of the
increased store base and sales volume, these additional expenses did not
increase selling, general and administrative expenses as a percentage of net
sales.

     During fiscal 1996, pre-opening costs were $1.0 million, or 0.7% of net
sales, as compared to $0.3 million, or 0.3% of net sales, during fiscal 1995.
The increase in pre-opening costs reflects the opening of 18 stores in fiscal
1996 as compared to nine stores in fiscal 1995.

     Depreciation and amortization amounted to $4.0 million in fiscal 1996, or
2.8% of net sales, as compared to $3.5 million, or 2.8% of net sales, in fiscal
1995. The increase in depreciation and amortization was primarily due to new
stores.

     Interest expense, net, for fiscal 1996 totaled $2.9 million, or 2.0% of net
sales, as compared to $1.9 million, or 1.6% of net sales, in the prior year. The
increase in interest expense in fiscal 1996 was due primarily to interest on the
Senior Subordinated Notes issued during fiscal 1996, partially offset by reduced
borrowings under the Foothill Credit Facility and the elimination of interest
expense on various loans repaid by the Company with proceeds from the 1996
Private Placement.

     Other expense, net, for fiscal 1996 amounted to $0.4 million, or 0.3% of
net sales, as compared to $0.4 million, or 0.3% of net sales, in fiscal 1995.
During fiscal 1996, other expenses consisted primarily of anniversary and credit
agreement amendment fees related to the Foothill Credit Facility. During fiscal
1995, other expenses consisted primarily of $0.4 million in fees and related
legal and professional costs associated with the Foothill Credit Facility.

     Income before income taxes and extraordinary item increased by $7.8 million
to $9.5 million during fiscal 1996 from $1.7 million during fiscal 1995 and
increased to 6.6% of net sales in fiscal 1996 from 1.4% of net sales in fiscal
1995 due to the factors discussed above.

     During fiscal 1996, the Company recorded an income tax benefit of $20.9
million. This income tax benefit primarily resulted from the reversal of a
valuation allowance of $21.0 million on a net deferred tax asset, based on the
Company's results of operations in fiscal 1996 and projected future results. For
fiscal 1995, the Company recorded a tax provision for state minimum taxes and
the federal AMT. No other federal tax provision was recorded by the Company in
fiscal 1995 due to its NOL.

     The Company had net income of $30.4 million and $1.7 million for fiscal
1996 and fiscal 1995, respectively.

LIQUIDITY AND CAPITAL RESOURCES

DEBT SERVICE/LIQUIDITY

     During fiscal 1997, the Company's primary uses of cash have been to finance
new store openings, provide for working capital, which primarily represents the
purchase of inventory, and to make required interest payments on its debt. The
Company has been able to meet its cash needs, including those associated with
the opening of new stores, principally by using cash flow from operations,
borrowings under the Foothill Credit Facility and proceeds from the Offering.

     Pursuant to its Offering on September 18, 1997, the Company received net
proceeds of $50.7 million, after deducting the underwriters' discount of $3.9
million and estimated transaction expenses of $1.4 million. The Company used the
net proceeds from the Offering to (i) repay the principal amount of, and accrued
interest on, its Senior Subordinated Notes of $20.6 million, (ii) repurchase a
warrant held by Nomura Holding America Inc., (the "Noteholder Warrant"), for
$20.6 million, (iii) repurchase two-thirds of a warrant held by Legg Mason Wood
Walker Inc., (the "Legg Mason Warrant"), for $5.2 million and (iv) reduce
borrowings outstanding under the Foothill Credit Facility with the remainder of
the proceeds. Since the Offering, the Company has had no long-term debt
obligations other than obligations under capital leases.

     In July 1996, the Company consummated the 1996 Private Placement with the
SKM Investors and the Noteholder, which resulted in net proceeds to the Company
of $37.4 million. These net proceeds were used to repay certain outstanding
indebtedness and to redeem certain outstanding shares of Common Stock. The
successful completion of the 1996 Private Placement enabled the Company to
implement a growth strategy built on opening new stores through the reinvestment
of operating cash flow which had previously been dedicated to debt repayment
obligations.

     The Company has a working capital revolving credit facility with Foothill
Capital. The Company amended its credit facility with Foothill Capital on July
31, 1997 to increase the Foothill Credit Facility from $20.0 million to $30.0
million (including an increase in the sublimit for letters of credit from $10.0
million to $20.0 million). The amount that may be borrowed by the Company under
the amended Foothill Credit Facility depends upon the levels of inventory and
accounts receivable. Amounts outstanding under the amended facility bear
interest at a floating rate equal to the prime rate or, at the Company's option,
the 30-day LIBOR Rate plus a pre-determined spread. The LIBOR spread is 1 1/2%
or 2%, depending upon the Company's financial performance from time to time.
Borrowings under the amended facility mature in July 2000 and provide for one
year automatic renewal options.

     As of January 31, 1998, there was $1.1 million borrowed under the Foothill
Credit Facility and, as of February 1, 1997, there were no amounts borrowed
under the Foothill Credit Facility. In addition, as of January 31, 1998 and
February 1, 1997, the Company had outstanding $5.7 million and $4.7 million,
respectively, in letters of credit under the Foothill Credit Facility.
Availability under the Foothill Credit Facility as of January 31, 1998 and
February 1, 1997 was $15.8 million and $11.9 million, respectively. As of
January 31, 1998 and February 1, 1997 the interest rates charged under the
Foothill Credit Facility were 8.5% and 10.75% per annum, respectively.

     The amended Foothill Credit Facility contains certain financial covenants
including, among others, the maintenance of minimum levels of tangible net
worth, working capital and current ratios, and imposes certain limitations on
the Company's annual capital expenditures, as defined in the amended Foothill
Credit Facility, as well as a prohibition on the payment of dividends.
Management believes that the Company will be able to comply with the financial
covenants contained in the amended facility and does not believe that compliance
with these covenants will interfere with its business or the implementation of
its growth strategy. Credit extended under the amended Foothill Credit Facility
continues to be secured by a first priority security interest in the Company's
present and future assets, intellectual property and other general intangibles.

     The Company obtained a waiver from Foothill Capital and an amendment from
the Noteholder with respect to the capital expenditure limitations for fiscal
1996 under the Foothill Credit Facility and the Senior Subordinated Notes. The
waiver and amendment enabled the Company to open additional stores in connection
with its expansion. The Company was in compliance with all of its financial
covenants under the Foothill Credit Facility as of January 31, 1998.

CASH FLOWS/CAPITAL EXPENDITURES

     Cash flows provided by operating activities were $11.3 million, $7.8
million and $7.7 million in fiscal 1997, 1996 and 1995, respectively. In fiscal
1997, cash flows from operating activities increased as a result of an increase
in operating earnings and accounts payable, partially offset by an increased
inventory investment. In fiscal 1996, cash flows from operating activities
increased primarily as a result of an increase in net income, partially offset
by a decrease in payables.

     Cash flows used in investing activities were $17.2 million, $8.5 million
and $6.9 million in fiscal 1997, 1996 and 1995, respectively. Cash flows used in
investing activities relate primarily to store openings and remodelings and
computer equipment for the Company's home office. In fiscal 1997, 1996 and 1995,
the Company opened 47, 18 and 9 stores while remodeling 10, 5 and 12 stores,
respectively.

     Cash flows provided by (used in) financing activities were $3.3 million,
$3.5 million and $(0.5) million in fiscal 1997, 1996 and 1995, respectively. In
fiscal 1997, the increase in cash flows provided by financing activities
reflects the Company's Offering, the repayment of the Senior Subordinated Notes
and the repurchase of the Noteholder Warrant and two-thirds of the Legg Mason
Warrants. In fiscal 1996, cash flows from financing activities increased as a
result of the 1996 Private Placement with the SKM Investors and the Noteholder.
The net proceeds of the 1996 Private Placement were used to redeem certain
outstanding shares of Common Stock, repay existing long-term debt and reduce
outstanding borrowings under the Foothill Credit Facility.

     During fiscal 1997, 1996 and 1995, the Company incurred capital
expenditures of $17.2 million, $8.5 million and $6.9 million, respectively. In a
typical new store, capital expenditures (net of landlord contribution)
approximate $0.2 million. In addition, a new store typically requires a $0.1
million investment in inventory (net of payables) and other pre-opening costs.
Management anticipates that total capital expenditures will approximate $22
million in fiscal 1998. These expenditures relate primarily to the opening of
approximately 50 stores, store remodelings, ongoing store maintenance programs
and computer and warehouse equipment. Management plans to fund these capital
expenditures primarily from cash flow from operations.

     The Company expects to enter into a commitment with respect to a new
distribution center and corporate headquarters during the next twelve months for
additional space needed to support its continued growth. The Company's lease for
its current distribution center and headquarters facility is scheduled to expire
in March 1999. Consequently, the Company is seeking a suitable site to relocate
its distribution center and headquarters. The Company has not selected a site or
determined whether it would purchase or lease such a facility. During the third
quarter of fiscal 1997, the Company entered into a one year lease for interim
warehouse space at an annual cost of approximately $200,000.

     If the Company purchases a new facility for its distribution center and
corporate headquarters, the Company would expect to finance most of the purchase
price through a mortgage. The Company believes that its current financing
arrangements under the Foothill Credit Facility and its anticipated level of
internally generated funds will be adequate to fund its other capital
requirements for at least the next 18 to 24 months. The Company's ability to
meet these capital requirements, and its continued need for external financing,
will depend on its ability to generate cash from operations and successfully
implement its store expansion plans.


QUARTERLY RESULTS AND SEASONALITY

     The Company's quarterly results of operations have fluctuated and are
expected to continue to fluctuate materially depending on a variety of factors,
including the timing of new store openings and related pre-opening and other
startup costs, net sales contributed by new stores, increases or decreases in
comparable store sales, adverse weather conditions, shifts in timing of certain
holidays, changes in the Company's merchandise mix and overall economic
conditions.

     The Company's business is also subject to seasonal influences, with heavier
concentrations of sales during the holiday and back-to-school seasons. As is the
case with many retailers of apparel and related merchandise, the Company
typically experiences lower net sales during the first two fiscal quarters and
are often lower during the second fiscal quarter than during the first fiscal
quarter. The Company has experienced first and second quarter losses in the past
and may experience such losses in the future. Because of these fluctuations in
net sales and net income (loss), the results of operations of any quarter are
not necessarily indicative of the results that may be achieved for a full fiscal
year or any future quarter.

     The following table sets forth certain statement of operations data and
operating data for each of the Company's last twelve fiscal quarters. The
quarterly statement of operations data and selected operating data set forth
below were derived from unaudited financial statements of the Company and
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the results of
operations for these fiscal quarters.


<PAGE>

<TABLE>
<CAPTION>

                                                                             FISCAL 1997
                                           First                     Second                    Third                      Fourth
                                          Quarter                    Quarter                   Quarter                    Quarter
                                          -------                    -------                   -------                    -------  
<S>                                        <C>                       <C>                       <C>                        <C>    
Net sales.......................           $39,203                   $33,534                   $54,489                    $65,331
Operating income (loss).........             2,618                    (1,922)                    6,656                      7,113
Comparable store sales
  increase (decrease)...........                 5%                       (1%)                       0%                         5%
Stores open at end of period....               119                       134                       151                        155

                                                                             FISCAL 1996

                                            First                     Second                     Third                      Fourth
                                           Quarter                    Quarter                   Quarter                    Quarter
                                           -------                    -------                   --------                   -------
Net sales.......................           $30,438                   $25,974                   $40,353                    $47,073
Operating income (loss)..........            1,557                    (1,438)                    6,347                      6,336
Comparable store sales               
  increase.........................             10%                        6%                        8%                        10%
Stores open at end of period.....               93                        95                       104                        108

                                                                             FISCAL 1995
                                            First                    Second                     Third                      Fourth
                                           Quarter                   Quarter                   Quarter                    Quarter
                                           -------                   -------                   -------                    --------
Net sales........................          $25,433                   $23,181                   $33,713                    $39,733
Operating income (loss).........              (440)                   (2,423)                    3,065                      3,860
Comparable store sales
    increase....................                26%                       19%                        1%                         4%
Stores open at end of period....                90                        90                        94                         91
</TABLE>



YEAR 2000 COMPLIANCE

     Although the Company has upgraded certain computer software for Year 2000
compliance, the Company continues to assess the impact of the Year 2000 on its
systems and operations and the costs and programming efforts to fully address
this issue. The Year 2000 issue exists because many computer applications
currently use two-digit date fields to designate a year. As the century date
occurs, date sensitive systems may not properly recognize and process the year
2000. Any disruptions on its operations, whether caused by the Company's
computer systems or those of its manufacturers, suppliers and financial
institutions, could have a material adverse effect on the Company's financial
position or results of operation.

     During fiscal 1997, the Company has utilized its existing management
information systems staff to modify existing computer systems and applications
to ensure systems are Year 2000 compliant, and expects to continue to utilize
internal resources during fiscal 1998 and 1999. Management expects to have its
computer systems Year 2000 compliant by the second quarter of 1999. However,
there can be no assurances that the Company will not experience significant cost
overruns in connection with upgrading software or the program changes required
to address this issue.


<PAGE>

                          INDEX TO FINANCIAL STATEMENTS
                       FOR THE YEAR ENDED JANUARY 31, 1998

                    THE CHILDREN'S PLACE RETAIL STORES, INC.


                                                                       PAGE

Report of Independent Public Accountants.........................       10

Balance Sheets..................................................        11

Statements of Income.............................................       12

Statements of Changes in Stockholders' Equity (Deficit)..........       13

Statements of Cash Flows.........................................       14

Notes to Financial Statements....................................       15


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders and Board of Directors of
The Children's Place Retail Stores, Inc.:

     We have audited the accompanying balance sheets of The Children's Place
Retail Stores, Inc. (a Delaware corporation) as of January 31, 1998 and February
1, 1997 and the related statements of income, changes in stockholders' equity
(deficit) and cash flows for each of the three fiscal years in the period ended
January 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Children's Place Retail
Stores, Inc. as of January 31, 1998 and February 1, 1997, and the results of its
operations and its cash flows for each of the three fiscal years in the period
ended January 31, 1998, in conformity with generally accepted accounting
principles.

                                              ARTHUR ANDERSEN LLP

New York, New York
March 9, 1998



<PAGE>

<TABLE>
<CAPTION>

                                              THE CHILDREN'S PLACE RETAIL STORES, INC.

                                                           BALANCE SHEETS
                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                                JANUARY 31,           FEBRUARY 1,
                                                                                                  1998                  1997
                                         ASSETS
Current assets:
<S>                                                                                             <C>                    <C>   
    Cash and cash equivalents........................................................           $887                   $3,422
    Accounts receivable..............................................................          1,904                      890
    Inventories......................................................................         20,334                   14,425
    Prepaid expenses and other current assets........................................          4,612                    3,163
    Deferred income taxes............................................................         10,653                    5,788
                                                                                        -----------------           --------------
        Total current assets.........................................................          38,390                   27,688
Property and equipment:
    Leasehold improvements ..........................................................          27,226                   19,226
    Store fixtures and equipment.....................................................          16,219                   12,246
    Construction in progress.........................................................           1,464                      910
                                                                                        ------------------          ---------------
                                                                                                44,909                   32,382
    Less accumulated depreciation and amortization...................................          (12,788)                 (12,083)
                                                                                        ------------------          ---------------
         Property and equipment, net.................................................           32,121                   20,299
Deferred income taxes................................................................            8,244                   14,711
Other assets.........................................................................              598                    1,781
                                                                                       --------------------     --------------------
        Total assets.................................................................          $79,353                  $64,479
                                                                                       ====================     ====================


                          LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Current liabilities:
    Revolving credit facility........................................................           $1,089                       $0
    Current portion of long-term debt................................................                0                      600
    Current maturities of obligations under capital leases...........................               24                      772
    Accounts payable.................................................................            9,471                    8,322
    Accrued expenses, interest and other current liabilities..........................           7,568                    6,043
                                                                                         --------------------     ----------------
        Total current liabilities....................................................           18,152                   15,737
Long-term debt.......................................................................                0                   19,040
Obligations under capital leases.....................................................                2                       92
Other long-term liabilities..........................................................            2,732                    2,312
                                                                                          --------------------     ---------------
        Total liabilities............................................................           20,886                   37,181
                                                                                          --------------------     ---------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $.10 par value.........................................................            2,462                        0
Common stock, Series A, $.10 par value...............................................                0                    1,276
Common stock, Series B, $.10 par value...............................................                0                        5
Additional paid-in capital...........................................................           82,589                   57,842
Accumulated deficit..................................................................          (26,584)                 (31,825)
                                                                                          --------------------   -----------------
        Total stockholders' equity...................................................            58,467                   27,298
                                                                                          --------------------   -----------------
        Total liabilities and stockholders' equity...................................           $79,353                  $64,479
                                                                                          ====================   =================

     The accompanying notes to financial statements are an integral part of
these balance sheets.
</TABLE>


<TABLE>
<CAPTION>

                    THE CHILDREN'S PLACE RETAIL STORES, INC.

                              STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                                  FISCAL YEAR ENDED
                                                              JANUARY 31,                February 1,                 February 3,
                                                                  1998                      1997                        1996
<S>                                                           <C>                        <C>                          <C>     
Net sales.................................................    $192,557                   $143,838                     $122,060
Cost of sales.............................................     123,465                     89,786                       83,434
                                                             ------------------    -----------------------      ------------------

Gross profit..............................................      69,092                     54,052                       38,626
Selling, general and administrative expenses..............      46,542                     36,251                       30,757
Pre-opening costs.........................................       2,127                        982                          311
Depreciation and amortization.............................       5,958                      4,017                        3,496
                                                             ------------------    -----------------------    --------------------
Operating income..........................................      14,465                     12,802                        4,062
Interest expense, net.....................................       2,647                      2,884                        1,925
Other expense, net........................................         139                        396                          447
                                                             ------------------    -----------------------    --------------------
Income before income taxes and extraordinary item.........      11,679                      9,522                        1,690
Provision (benefit) for income taxes......................       4,695                    (20,919)                          36
                                                             ------------------    -----------------------    --------------------
Income before extraordinary item...........................      6,984                     30,441                        1,654
Extraordinary loss on extinguishment of debt...............      1,743                          0                            0
                                                             ------------------    ----------------------     --------------------
Net income................................................      $5,241                    $30,441                       $1,654
                                                             ==================    =======================    ====================

Pro forma basic income per common share before                                                                          
   extraordinary item.....................................       $0.32                      $1.49
Extraordinary item........................................       (0.08)                       --
                                                             -----------------     ----------------------
Pro forma basic net income per common share...............       $0.24                      $1.49
                                                             =================     ======================
Pro forma basic weighted average common shares
  outstanding.............................................      21,821                     20,421

Pro forma diluted income per common share before                    
   extraordinary item.....................................       $0.29                      $1.28
Extraordinary item........................................      ( 0.07)                       --
                                                            ------------------     ---------------------
Pro forma diluted net income per common share.............       $0.22                      $1.28
                                                            ==================     =====================
Pro forma diluted weighted average common shares
    outstanding...........................................      24,358                     23,804


     The accompanying notes to financial statements are an integral part of
these statements.
</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                                              THE CHILDREN'S PLACE RETAIL STORES, INC.

                                      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                                            FOR THE FISCAL YEARS ENDED FEBRUARY 3, 1996,
                                               FEBRUARY 1, 1997 AND JANUARY 31, 1998
                                                           (In thousands)

                                                                                                                            Total
                                                                                                                            Stock
                                                     Series A        Series B       Additional                              holders'
               Preferred Stock     Common Stock     Common Stock    Common Stock    Paid-In    Accumulated  Treasury Stock  Equity
               Shares  Amount     Shares  Amount    Shares  Amount  Shares  Amount  Capital      Deficit   Shares   Amount (Deficit)

BALANCE,                          
<S>               <C>    <C>      <C>      <C>        <C>     <C>     <C>     <C>   <C>          <C>        <C>   <C>     <C>      
January 28, 1995  10     $10      137      $14        0       $0      0       $0    $50,557      $(63,920)  (3)   $(50)   $(13,389)
Net income......   0       0        0        0        0        0      0        0         0          1,654    0       0       1,654 
                   -       -        -        -        -        -      -        -         -          -----    -       -       ----- 
BALANCE,
February 3, 1996  10      10      137       14        0        0      0        0    50,557        (62,266)  (3)    (50)    (11,735)
Surrendered                
preferred stock..(10)    (10)       0        0        0        0      0        0        10              0    0       0           0
Exercise of
stock options...   0       0        3        0        0        0      0        0       123              0    3      50         173
Issuance of  
warrants........   0       0        0        0        0        0      0        0     1,501              0    0       0       1,501
Conversion of
common stock                                              
to Series A      
Common Stock...   0        0     (140)     (14)  16,800    1,680      0        0    (1,666)             0    0       0           0
Issuance of
Series B
Common Stock,       
net of
transaction costs.0        0        0        0       0         0     47        5   18,758               0    0       0      18,763
Redemption of
Series A Common                                 
Stock............ 0        0        0        0  (4,039)    (404)      0        0  (11,441)              0    0       0     (11,845)
Net income....... 0        0        0        0       0        0       0        0        0          30,441    0       0      30,441
                -----   -------  ------   ------ ------    ------    ----    ----  ------          -------   ---    ---    ------- 
BALANCE,                                              
February 1,  
1997.........     0        0        0        0   12,761    1,276     47        5   57,842         (31,825)   0       0      27,298
Return of
funds toward
common stock     
subscription..... 0        0        0        0        0        0      0        0     (488)              0    0       0        (488)
Series B
Common Stock
conversion.......  0       0        0        0   7,660       766    (47)      (5)    (761)              0    0       0           0
Series A                                              
Common Stock
conversion.......  0       0   20,421    2,042 (20,421)   (2,042)     0        0         0              0    0       0           0
Issuance of
Common stock....   0       0    4,000      400       0         0      0        0    51,680              0    0       0      52,080
Transaction fees.  0       0        0        0       0         0      0        0    (1,350)             0    0       0      (1,350)
Redemption of
Noteholder                 
Warrant..........  0       0        0        0       0         0      0        0   (20,605)             0    0       0     (20,605)
Redemption of
two-thirds Legg    
Mason Warrant...   0       0        0        0       0         0      0        0    (4,269)             0    0       0      (4,269)
Exercise of
one third-of
Legg Mason         
Warrant.........   0       0      201       20       0         0      0        0       540              0    0       0         560
Net income......   0       0        0        0       0         0      0        0         0          5,241    0       0       5,241
                   -       -   ------   ------       -        ---     -       ---  -------      ---------    -      --     -------
BALANCE,                                                                             
January 31, 1998   0      $0   24,622   $2,462       0        $0      0       $0   $82,589      $(26,584)    0      $0     $58,467
                   =      ==   ======   ======       =        ==      =       ==   =======      ========     =      ==     =======


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

</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                    THE CHILDREN'S PLACE RETAIL STORES, INC.

                            STATEMENTS OF CASH FLOWS
                                 ( IN THOUSANDS)
                                                                                            FISCAL YEAR ENDED
                                                                         January 31,              February 1,         February 3,
                                                                           1998                     1997                1996
                                                                           ----                     ----                ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                       <C>                      <C>                 <C>   
Net income................................................                $5,241                   $30,441             $1,654
Adjustments to reconcile net income to net cash provided 
  by operating activities:
      Depreciation and amortization.......................                 5,958                     4,017              3,496
      Deferred financing fee amortization.................                   405                       359                  0
      Loss on disposals of property and equipment.........                   164                         0                156
      Extraordinary loss..................................                 1,743                         0                  0
      Deferred taxes......................................                 4,205                   (21,263)                 0
Changes in operating assets and liabilities:
      Accounts receivable.............................. ..                (1,014)                     (249)              (146)
      Inventories.........................................                (5,909)                   (1,812)            (1,601)
      Prepaid expenses and other current assets...........                (1,449)                     (814)              (243)
      Other assets........................................                  (445)                     (128)               (29)
      Accounts payable....................................                 1,149                    (4,536)             5,691
      Accrued expenses, interest and other current 
         liabilities.....................................                  1,299                     2,045                530
      Payment of restructuring charges....................                     0                      (214)            (1,854)
                                                                      ----------                ----------------    --------------
        Total adjustments..................................                6,106                   (22,595)            6,000
                                                                      ----------                ----------------    --------------
Net cash provided by operating activities..................               11,347                     7,846             7,654
                                                                      ---------                 ----------------    --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases..........................               (17,183)                   (8,492)           (6,935)
                                                                      -----------               ---------------      -------------
Net cash used in investing activities                                    (17,183)                   (8,492)           (6,935)
                                                                     ------------               ---------------      -------------

   CASH FLOWS FROM FINANCING
   ACTIVITIES:
Net proceeds from the sale of Common Stock................                50,730                         0                 0
Repurchase of Noteholder and Legg Mason Warrants..........               (25,757)                        0                 0
Borrowings under revolving credit facility................               193,210                   141,907            76,919
Repayments under revolving credit facility................              (192,121)                 (150,596)          (73,596)
Proceeds from issuance of long-term debt..................                     0                    20,000                 0
Repayment of long-term debt...............................               (21,360)                  (12,821)           (3,436)
Payment of obligations under capital leases...............                  (838)                     (690)             (387)
Return of funds toward common stock subscription..........                  (488)                        0                 0
Redemption of Series A Common Stock.......................                     0                   (11,845)                0
Net proceeds from sale of Series B Common Stock...........                     0                    18,763                 0
Exercise of stock options.................................                     0                       173                 0
Deferred financing costs..................................                   (75)                   (1,392)                0
                                                                     ------------               ---------------    ---------------
Net cash provided by (used in) financing activities.......                 3,301                     3,499              (500)
                                                                     ------------              ----------------    ---------------
   Net increase (decrease) in cash and cash equivalents...                (2,535)                     2,853              219
   Cash and cash equivalents, beginning of period.........                 3,422                       569               350
                                                                     ------------              ----------------    ---------------
    Cash and cash equivalents, end of period..............                  $887                    $3,422              $569
                                                                     ============              ================    ===============

OTHER CASH FLOW INFORMATION:
Cash paid during the year for interest....................                $2,551                    $2,369            $1,916
Cash paid during the year for income taxes................                   607                        70                58


     The accompanying notes to financial statements are an integral part of
these statements. 
</TABLE>


                    THE CHILDREN'S PLACE RETAIL STORES, INC.

                          NOTES TO FINANCIAL STATEMENTS

          1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     The Company is a specialty retailer of high quality, value-priced apparel
and accessories for newborn to twelve year old children. The Company designs,
contracts to manufacture and sells its products under "The Children's Place"
brand name. As of January 31, 1998, the Company operated 155 stores, primarily
located in regional shopping malls in the eastern half of the United States.

     During the fiscal year ended January 31, 1998 ("Fiscal 1997"), the Company
opened 47 stores and remodeled 10 stores. During the fiscal year ended February
1, 1997 ("Fiscal 1996"), the Company opened 18 stores and remodeled 5 stores.
During the fiscal year ended February 3, 1996 ("Fiscal 1995"), the Company
opened 9 stores and remodeled 12 stores.

FISCAL YEAR

     The Company's fiscal year is a 52-week or 53-week period ending on the
Saturday nearest to January 31. The results for fiscal 1997, 1996 and 1995
represent the 52-week period ended January 31, 1998, the 52-week period ended
February 1, 1997 and the 53-week period ended February 3, 1996, respectively.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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 the estimates made by and
assumptions used by management.

CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

INVENTORIES

     Inventories, which consist primarily of finished goods, are stated at the
lower of average cost or market as determined by the retail inventory method.

COST OF SALES

     The Company includes its buying, distribution and occupancy expenses in its
cost of sales.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost, except for store fixtures and
equipment under capital leases which are recorded at the present value of the
future lease payments as of lease inception. Property and equipment is
depreciated on a straight-line basis based upon their estimated useful lives,
which range from three to ten years. Amortization of property and equipment
under capital leases and leasehold improvements is computed on a straight-line
basis over the term of the lease or the estimated useful life, whichever is
shorter.

DEFERRED FINANCING COSTS

     The Company capitalizes costs directly associated with acquiring long-term
third-party financing. Deferred financing costs are included in other assets and
are amortized over the term of the indebtedness. As of January 31, 1998
unamortized deferred financing costs represent the cost of acquiring the
Company's revolving credit facility and were approximately $75,000, net of
accumulated amortization of $13,000. See Note 2- Initial Public Offering for a
discussion of the write-off of unamortized deferred financing costs in
conjunction with the Company's initial public offering.

ACCOUNTING FOR IMPAIRMENTS IN LONG-LIVED ASSETS

     The Company continually evaluates the carrying value and the economic
useful life of its long-lived assets based on the Company's operating
performance and the expected future net cash flows and would adjust the carrying
amount of assets which may not be recoverable. The Company does not believe that
any impairment exists in the recoverability of its long-lived assets.

PRE-OPENING COSTS

     Store pre-opening costs, which consist primarily of payroll, supply and
marketing expenses, are expensed as incurred.

ADVERTISING COSTS

     The Company expenses the cost of advertising over the period when the
advertising is run or displayed. Included in selling, general and administrative
expenses for fiscal 1997, 1996 and 1995 are $2,004,000, $1,706,000, and
$1,253,000 respectively, in advertising costs.

RESTRUCTURING

     The payment of restructuring costs included in the statement of cash flows
for fiscal 1996 and fiscal 1995 reflects the payments of restructuring charges
which were recorded by the Company prior to fiscal 1994. These payments
represented the resolution of lease and vendor payment agreements.

INCOME TAXES

     The Company computes income taxes using the liability method. This standard
requires recognition of deferred tax assets and liabilities, measured by enacted
rates, attributable to temporary differences between financial statement and
income tax basis of assets and liabilities. Temporary differences result
primarily from accelerated depreciation and amortization for tax purposes and
various accruals and reserves being deductible for tax periods in future
periods.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
requires entities to disclose the fair value of financial instruments, both
assets and liabilities, recognized and not recognized in the balance sheets, for
which it is practicable to estimate fair value. For purposes of this disclosure,
the fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Fair value is based on quoted market prices for
the same or similar financial instruments.

     As cash and cash equivalents, accounts receivable and payable, and certain
other short-term financial instruments are all short-term in nature, their
carrying amount approximates fair value.

ACCOUNTING FOR STOCK BASED COMPENSATION

     The Company accounts for its 1996 Stock Option Plan (the "1996 Plan"), its
1997 Stock Option Plan (the "1997 Plan"), and its Employee Stock Purchase Plan
(the "ESPP") under the provisions of Accounting Principles Bulletin ("APB") No.
25, "Accounting for Stock Issued to Employees," under which no compensation cost
has been recognized. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), establishes a fair value
based method of accounting for stock-based compensation plans and requires
adoption or pro forma disclosure for all options granted after December 15,
1994.

PRO FORMA NET INCOME PER COMMON SHARE

     The Company reports its earnings per share in accordance with the Statement
of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS No.
128"). Under SFAS No. 128, the presentation of both basic and diluted earnings
per share is required on the statements of income. The Company adopted SFAS No.
128 as of the fourth quarter of 1997 and has restated previously reported
earnings per share for all periods presented.

     Pro forma basic income per common share for fiscal 1997 was calculated by
dividing net income by the pro forma basic weighted average common shares
outstanding as if the Stock Split, the Series B Conversion and the
Reclassification (as discussed in Note 2-Initial Public Offering), occurred on
the first day of fiscal 1997. Pro forma basic net income per common share for
fiscal 1996 was calculated by dividing net income by the pro forma weighted
average common shares outstanding as if (i) the Stock Split, the Series B
Conversion and the Reclassification, (ii) the 1996 Private Placement of Common
Stock (as discussed in Note 3-1996 Private Placement), and (iii) the
cancellation of outstanding preferred shares occurred on the first day of fiscal
1996.

     Pro forma diluted income per common share for fiscal 1997 was calculated by
dividing net income by the pro forma diluted weighted average common shares and
common share equivalents outstanding as if the Stock Split, the Series B
Conversion and the Reclassification occurred on the first day of fiscal 1997.
Pro forma diluted net income per common share for fiscal 1996 was calculated by
dividing net income by the pro forma weighted diluted average common shares and
common share equivalents outstanding as if (i) the Stock Split, the Series B
Conversion and the Reclassification, (ii) the 1996 Private Placement of Common
Stock, (iii) the cancellation of outstanding preferred shares and (iv) the
granting of management options in conjunction with the 1996 Private Placement
occurred on the first day of fiscal 1996. For fiscal 1997, common share
equivalents included the Noteholder Warrant and Legg Mason Warrant prior to
their exercise and management options to purchase common stock under the 1996
Plan and the 1997 Plan calculated using the treasury stock method at an assumed
public offering price of $14.00 prior to the initial public offering and, after
the initial public offering, at the average market price in accordance with SFAS
No. 128. For fiscal 1996, common share equivalents included the Noteholder
Warrant, the Legg Mason Warrant (as discussed in Note 3 - 1996 Private
Placement) and management options to purchase common stock under the 1996 Plan
calculated using the treasury stock method at an assumed initial public offering
price of $14.00 per share due to the lack of a public market.

     2. INITIAL PUBLIC OFFERING

     On September 18, 1997, the Company sold 4,000,000 shares of Common Stock at
$14.00 per share in an initial public offering (the "Offering") pursuant to a
registration statement filed on Form S-1 (No. 333-31535) with the Securities and
Exchange Commission and in its prospectus dated September 18, 1997 (the
"Prospectus"). The Company used the net proceeds of $50.7 million, after
deducting the underwriters' discount of $3.9 million and estimated transaction
expenses of $1.4 million from this Offering to (i) pay the principal amount of,
and accrued interest on, the Senior Subordinated Notes held by Nomura Holding
America Inc., (the "Noteholder") of $20.6 million, (ii) repurchase a warrant
held by Nomura Holding America Inc. (the "Noteholder Warrant"), for $20.6
million, (iii) repurchase two-thirds of a warrant held by Legg Mason Wood Walker
Inc. (the "Legg Mason Warrant") for $5.2 million, and (iv) reduce borrowings
outstanding under the Company's revolving credit facility (the "Foothill Credit
Facility") with the remainder of the net proceeds. The Senior Subordinated
Notes, the Noteholder Warrant and the Legg Mason Warrant were issued in
conjunction with a 1996 recapitalization of the Company (as discussed in Note
3-1996 Private Placement).

     The Senior Subordinated Notes were prepaid without a prepayment premium
since concurrent with the prepayment the Noteholder was afforded the opportunity
to sell its Noteholder Warrant. As a result of the Offering, the Company has no
long-term debt as of January 31, 1998.

     As a result of the repayment of the Senior Subordinated Notes, the Company
incurred a non-cash, extraordinary charge to earnings during the third quarter
of Fiscal 1997 of $1.7 million, resulting from the write-off of unamortized
deferred financing costs of $1.4 million and unamortized debt discount of $1.5
million, net of a $1.2 million tax benefit. The repurchase of the Noteholder
Warrant and two-thirds of the Legg Mason Warrant was accounted for as a
reduction of additional paid-in capital.

     The repurchase price of the Noteholder Warrant and two-thirds of the Legg
Mason Warrant was equal to the initial public offering price of $14.00 per
share, less the per share underwriting discount and exercise price of $2.677 per
warrant, multiplied by the number of shares covered by the warrant (or portion
thereof) being repurchased.

     Concurrent with the Offering, the Company effected a 120-for-one stock
split of the Series A Common Stock (the "Stock Split"), and converted all
outstanding shares of the Series B Common Stock into 7,659,889 shares of Series
A Common Stock (the "Series B Conversion") and redesignated the Series A Common
Stock as Common Stock ("the Reclassification"). The Company also issued 201,414
shares of Common Stock upon the exercise of one-third of the Legg Mason Warrant.

     The Company also amended and restated its certificate of incorporation and
bylaws in order to, among other things, (i) effect the Stock Split, the Series B
Conversion and the Reclassification, (ii) authorize 100,000,000 shares of Common
Stock, $.10 par value per share, (iii) authorize 1,000,000 shares of Preferred
Stock, $1.00 par value per share, and (iv) provide for certain anti-takeover
provisions.

     The Company entered into an amended and restated stockholder's agreement
with all of its existing stockholders. In addition, the Company adopted the 1997
Plan and the ESPP.

     3. 1996 PRIVATE PLACEMENT

     During fiscal 1996, the Company employed the services of Legg Mason Wood
Walker, Incorporated ("Legg Mason") to assist, as its placement agent, in the
recapitalization of the Company. As a result, pursuant to a note and warrant
purchase agreement dated June 28, 1996 (the "Note and Warrant Purchase
Agreement") between the Company and Nomura Holding America Inc., the Company
sold, for a purchase price of $20 million, the Company's 12% Senior Subordinated
Notes due 2002 (the "Senior Subordinated Notes") in the principal amount of $20
million, together with a Noteholder Warrant representing the right to purchase
1,992,252 shares of Common Stock at an exercise price of $2.677 per share. This
warrant was valued for financial reporting purposes by an independent appraisal
firm at approximately $1.9 million. This amount was accounted for as a credit to
additional paid-in capital, net of income tax effect of $0.8 million, and a
discount to the Senior Subordinated Notes, and was being amortized over the six
year term of the Senior Subordinated Notes. The Company also paid the Noteholder
funding and structuring fees in the aggregate amount of $300,000.

     Concurrent with the sale of the Senior Subordinated Notes, Legg Mason
assisted the Company in its sale of its newly issued Series B Common Stock to
two funds managed by Saunders Karp & Megrue L.P. ("SKM"). The aggregate proceeds
from the sale of the Series B Common Stock were approximately $20.5 million,
before deducting transaction costs of approximately $1.7 million. Concurrently
with the 1996 Private Placement, the Company paid a transaction fee of $250,000
to SKM and reimbursed SKM for $50,000 of out-of-pocket expenses.

     Net proceeds from the sale of the Senior Subordinated Notes and the
issuance of the Series B Common Stock (collectively, the "1996 Private
Placement"), were used to (i) redeem certain outstanding shares of Common Stock
($11.8 million), (ii) repay certain indebtedness and related interest ($13.5
million), (iii) pay transaction costs ($3.1 million), (iv) reduce borrowings
under the Company's revolving credit facility and (v) for other general
corporate purposes.

     In conjunction with the 1996 Private Placement, Legg Mason received $1.6
million in cash fees and a warrant to purchase 747,096 shares of Common Stock at
an exercise price of $2.677 per share (the "Legg Mason Warrant"). This warrant
was valued for financial reporting purposes by an independent appraisal firm at
approximately $0.7 million. An amount equal to 49.4% of the value of the
warrant, determined on the basis of gross proceeds from the 1996 Private
Placement, was attributable to the placement of the Senior Subordinated Notes.
This amount was credited to additional paid-in capital and capitalized as
deferred financing costs in other assets, and was amortized over the term of the
Senior Subordinated Notes.

     As discussed in Note 2-Initial Public Offering, the Company paid the
principal and accrued interest on its Senior Subordinated Notes and repurchased
the Noteholder Warrant and two-thirds of the Legg Mason Warrant with a portion
of the net proceeds of the Offering. In addition, the Company issued 201,414
shares of Common Stock upon exercise of the remaining one-third of the Legg
Mason Warrant and also effected the Series B Conversion of the stock issued to
SKM.

     4. SHORT AND LONG-TERM BORROWINGS

SHORT-TERM BORROWINGS

THE FOOTHILL CREDIT FACILITY

     The Company has a revolving credit facility (the "Foothill Credit
Facility") with Foothill Capital Corporation ("Foothill Capital"). In May 1996,
the Foothill Credit Facility was amended to provide for up to $20 million in
borrowings with a sublimit of up to $10 million in letters of credit. In July,
1997, the Foothill Credit Facility was further amended to provide for up to $30
million in borrowings with a sublimit of up to $20 million in letters of credit.
The amended Foothill Credit Facility expires in July, 2000 and provides for one
year automatic renewal options. As of January 31, 1998 and February 1, 1997, the
Company had $1.1 million and $0.0 million, respectively, outstanding under the
Foothill Credit Facility. Letters of credit outstanding as of January 31, 1998
and February 1, 1997 were $5.7 million and $4.7 million, respectively.
Availability as of January 31, 1998 and February 1, 1997 was $15.8 million and
$11.9 million, respectively.

     The availability of borrowings under the amended Foothill Credit Facility
are determined as an amount equal to the sum of (i) 90% of eligible accounts
receivable, (ii) 30% of the selling price of eligible inventory (not to exceed
65% of the cost of eligible inventory) and (iii) 30% of the retail selling price
of inventory to be acquired pursuant to the outstanding letters of credit not to
exceed the lower of (a) the face value of the outstanding letters of credit or
(b) 65% of the cost of inventory to be acquired pursuant to the outstanding
letters of credit. The Company's obligations under the amended Foothill Credit
Facility are secured by a first priority security interest on the Company's
present and future assets, intellectual property and other general intangibles.

     The amended Foothill Credit Facility also contains certain financial
covenants, including, among others, the maintenance of minimum levels of
tangible net worth, working capital and current ratios and imposes certain
limitations on the Company's annual capital expenditures, as defined in the
amended Foothill Credit Facility, as well as a prohibition on the payment of
dividends. The Company obtained a waiver from Foothill Capital with respect to
the capital expenditure limitations for fiscal 1996, which enabled the Company
to open additional stores in connection with its expansion program. As of
January 31, 1998, the Company was in compliance with all of its covenants under
the Foothill Credit Facility. The Company anticipates that the availability for
capital expenditures under this covenant will be adequate to support the
Company's capital requirements. Noncompliance with these covenants could result
in additional fees or could affect the availability of the facility.

     Amounts outstanding under the amended credit facility bear interest at a
floating rate equal to the prime rate or, at the Company's option, the 30-day
LIBOR Rate plus a pre-determined spread. As of January 31, 1998 and February 1,
1997, the interest rate charged under the Foothill Credit Facility was 8.5% and
10.75%, respectively. In addition, the Company was also required to pay an
anniversary fee of $100,000 during fiscal 1997 and $150,000 during fiscal 1996.

Borrowing activity under the Foothill Credit Facility was as follows (dollars in
thousands):

                                                  FOR THE FISCAL YEAR ENDED
                                                  -------------------------
                                                 January 31,       February 1,
                                                   1998              1997
                                                 -----------       ----------- 

Weighted average balances outstanding......      $5,266              $5,403
Weighted average interest rate.............        9.40%              10.75%
Maximum balance outstanding................     $16,440             $12,687


LONG-TERM BORROWINGS

     The Company had no long-term debt as of January 31, 1998. The components of
the Company's long-term debt as of January 31, 1998 and February 1, 1997 were as
follows (dollars in thousands):

                                                 January 31,     February 1,
                                                   1998            1997
                                                 -----------     ------------ 

Senior Subordinated Notes...................      $  0                 $20,000
Installment Notes...........................         0                   1,360
                                                  --------             -------
                                                     0                  21,360
Less: Current portion.......................         0                    (600)
Less: Unamortized discount of Senior 
  Subordinated Notes.........................        0                  (1,720)
                                                  --------            --------
Total long-term debt..........................     $ 0                 $19,040
                                                  ========            ========

THE SENIOR SUBORDINATED NOTES

     The Company used $20.6 million of the net proceeds from the Offering to pay
the principal and accrued interest on its Senior Subordinated Notes. The Senior
Subordinated Notes, which matured in 2002, were in the principal amount of $20.0
million and bore interest at a rate of 12% per annum, payable quarterly in
arrears. Since the Noteholder was afforded the opportunity to sell at least 75%
of the stock underlying its Noteholder Warrant in the Offering, the Senior
Subordinated Notes were prepaid without a prepayment premium.

     The Senior Subordinated Notes were governed by the terms of a Note and
Warrant Purchase Agreement which provided for certain operating restrictions and
financial covenants. The Company obtained an amendment from the Noteholder with
respect to the capital expenditure limitations for fiscal 1996, which enabled
the Company to open additional stores in connection with its expansion. The
Company was in compliance with these operating restrictions and financial
covenants throughout fiscal 1997 when the Senior Subordinated Notes were repaid
in conjunction with the Offering.

THE INSTALLMENT NOTES

     On December 28, 1993, the Company agreed to be a co-maker of two
installment notes issued as of that date by the Chairman of the Board and
certain of his family members in connection with their bankruptcy proceedings.
The Company agreed to be a co-maker of these installment notes in consideration
for the waiver of certain claims in the amount of $20.0 million for repayment of
funds previously loaned to the Company by its stockholders. One such installment
note, in the principal amount of $2,650,000 ("Note A"), was non-interest bearing
and provided for three annual principal payments. Note A was repaid by the
Company on July 1, 1996 with a portion of the net proceeds from the 1996 Private
Placement. The other installment note, in the principal amount of $2,110,000
("Note B" and collectively with Note A, the "Installment Notes"), provided for
monthly principal payments of $50,000, commencing November 30, 1995 and
continuing through October 31, 1998, with the remaining balance of $310,000 due
on November 30, 1998. Interest on Note B accrued at the rate of 5% per annum for
the first two years only, of which 3% per annum was payable monthly and the
remaining 2% was added to the principal balance, to be paid at final maturity.
The Company repaid Note B on May 28, 1997.

     5. ACCRUED EXPENSES, INTEREST AND OTHER CURRENT LIABILITIES

     Accrued expenses, interest and other current liabilities is comprised of
the following (dollars in thousands):

                                              January 31,           February 1,
                                                 1998                   1997
                                              -----------           -----------

Accrued salaries and benefits...............   $2,034                  $1,878
Accrued interest............................        7                     298
Accrued real estate expenses................    1,317                   1,000
Customer liabilities........................      836                     716
Accrued taxes other than income.............      358                     342
Accrued capital expenditures................      855                     207
Income taxes payable........................      186                     303
Other accrued expenses......................    1,975                   1,299
                                                -----                   -----
 Accrued expenses, interest and other 
   current liabilities......................   $7,568                  $6,043
                                               ======                  ======


     6. COMMITMENTS AND CONTINGENCIES

     The Company leases all of its stores, distribution facilities, and certain
office equipment and store fixtures under leases expiring at various dates
through 2009. Certain of the leases include options to renew. The leases require
fixed minimum annual rentals plus, under the terms of certain leases, additional
payments for taxes, other expenses and rentals based upon sales.

         Rent expense is as follows (dollars in thousands):

                                              FOR THE FISCAL YEAR ENDED
                                              -------------------------
                                         January 31,  February 1,   February 3,
                                           1998         1997          1996
                                         --------     -------       --------
 Store and distribution facility rent
   Minimum rentals.....................   $16,037      $11,221       $9,946
   Additional rent based upon sales....       242          195          175
                                          -------      -------       -------
        Total store rent...............    16,279       11,416       10,121
Store fixtures and equipment rent......       673          727          712
                                          -------      -------       -------
        Total rent expense.............   $16,952      $12,143      $10,833
                                          =======      =======      =======
                                                                 

<PAGE>


     Future minimum annual lease payments under the Company's operating and
capital leases with initial or remaining terms of one year or more, at January
31, 1998, are as follows (dollars in thousands):

                                                   Operating        Capital
                                                   Leases           Leases
                                                   ---------        -------
 Fiscal year -

1998.........................................      $22,309             $25
1999.........................................       22,807               2
2000.........................................       22,217               0
2001.........................................       19,677               0
2002.........................................       19,278               0
Thereafter...................................       73,412               0
                                                  ---------           -------
Total minimum lease payments.................     $179,700              27
                                                  =========                  
Less:  Interest and executory costs..........                           (1)
                                                                      -------
Present value of net minimum lease payments..                           26
Less: Current portion of obligations under                                 
      capital lease..........................                          (24)  
                                                                       ------
Long-term obligations under capital lease....                           $2
                                                                      =======

     7. LITIGATION

CLASS ACTION SUITS

     On October 16, 1997, Stephen Brosious and Rudy Pallastrone, who allegedly
purchased shares of the Company's common stock in an initial public offering on
or about September 19, 1997 (the "IPO"), filed a lawsuit against the Company,
several of the Company's directors and officers, and the underwriters of the IPO
(the "Defendants") in the United States District Court for the District of New
Jersey (the "Court"). The named plaintiffs purport to maintain a class action on
behalf of all persons, other than the Defendants, who purchased the Company's
common stock issued in connection with the IPO on or about September 19, 1997
through October 13, 1997. The complaint alleges that the Defendants violated
federal securities laws by making materially false or misleading statements
and/or omissions in connection with the IPO. The plaintiffs seek monetary
damages of an unspecified amount, rescission or rescissory damages and fees and
costs. Since October 16, 1997, fifteen additional putative class actions making
substantially similar allegations and seeking substantially similar relief have
been filed against some or all of the Defendants. On January 13, 1998, the
sixteen putative class actions were consolidated in the Court and on February
26, 1998 the plaintiffs served and filed their amended consolidated complaint.
No discovery has been taken. The Company has filed a motion to dismiss this
complaint which is currently pending before the Court. The Company believes that
the allegations made in this complaint are untrue and totally without merit and
intends to defend them vigorously.

     On October 27, 1997, Bulldog Capital Management, L.P., a limited
partnership that serves as a general partner for a series of investment funds
which allegedly purchased shares of the Company's common stock issued in
connection with the IPO, also filed a lawsuit against the Company and several of
the Company's directors and officers in the Superior Court of New Jersey, Essex
County Division. The complaint alleges that by making materially false or
misleading statements and/or omissions in connection with the IPO, the Company
and several of the Company's directors and officers violated provisions of
federal and state law. The plaintiff seeks monetary damages of an unspecified
amount, rescission or rescissory damages and fees and costs. On November 20,
1997 the plaintiff filed its first request for production of documents from the
defendants. No discovery has been taken. This action is presently stayed,
pending resolution of the defendant's motion to dismiss in the federal lawsuit
described above. The Company believes that the allegations made in this
complaint are untrue and totally without merit and intends to defend them
vigorously.

     The Company is also involved in various legal proceedings arising in the
normal course of its business. In the opinion of management, any ultimate
liability arising out of such proceedings will not have a material adverse
effect on the Company's financial position or results of operations.


<PAGE>

     8. INCOME TAXES

     Components of the Company's provision (benefit) for income taxes consisted
of the following (dollars in thousands):

                                               FOR THE FISCAL YEAR ENDED
                                               -------------------------
                                         January 31,  February 1,  February 3,
                                           1998          1997         1996
                                         -----------  -----------  -----------
 Current -
   Federal...............                  $158               $244      $36
   State........ ........                   332                100        0
 Deferred -
   Federal...............                 3,679                859        0
   State.................                   526                249        0
   Valuation allowance...                     0            (22,371)       0
                                         ---------        ----------   ------
Provision (benefit) for income taxes..   $4,695           $(20,919)     $36
                                         =========        ==========   ======


     The deferred portion of the tax provision excludes (i) a tax benefit of
$1.2 million recorded against the extraordinary charge to earnings resulting
from the write-off of deferred financing costs and unamortized debt discount
(see Note 2-Initial Public Offering), and (ii) a tax benefit of $1.4 million
resulting from the repurchase and exercise of the Legg Mason Warrant recorded as
paid-in capital.

     A reconciliation between the calculated tax provision (benefit) on income
based on the statutory rates in effect and the effective tax rate follows
(dollars in thousands):

                                               FOR THE FISCAL YEAR ENDED
                                               -------------------------
                                        January 31,    February 1,   February 3,
                                          1998         1997             1996
                                        -------        -------        --------
Calculated income tax provision......    $4,088        $3,333          $575
Reversal of valuation allowance......         0       (21,042)            0
Utilization of operating loss carryforwards   0        (3,540)         (537)
State income taxes, net of federal benefit  583           259            27
Nondeductible expenses....................   30            24            21
Other....................................    (6)           47           (50)
                                         -------     --------        ---------
Tax provision (benefit) as shown on the 
   statements of income................. $4,695      $(20,919)          $36
                                         ==========  =========        ========
                                                                        

     Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes as measured
by tax laws.


<PAGE>

Temporary differences and net operating loss carryforwards which give rise to
deferred tax assets and liabilities are as follows (dollars in thousands) :

<TABLE>
<CAPTION>

                                                  JANUARY 31, 1998                         FEBRUARY 1, 1997
                                                 ----------------                          ----------------
                                          DEFERRED          DEFERRED               DEFERRED            DEFERRED
                                           TAX                TAX                   TAX                  TAX
                                          ASSETS            LIABILITIES            ASSETS             LIABILITIES
                                          --------          -----------            --------           ------------
 Current -
<S>                                        <C>                  <C>                <C>                    <C>
   Uniform inventory capitalization......  $247                 $0                $258                    $0
   Inventory.............................    70                  0                  16                     0
   Expenses not currently deductible.....   456                  0                 514                     0
   Net operating loss carryforwards...... 9,880                  0               5,000                     0
                                        --------          ------------          --------               -------
     Total current..................    $10,653                  0              $5,788                     0
                                        ========          ============          ========               =======
                                                                                                         
 Noncurrent -
   Amortization of debt issue costs...       $0                 $0                 $66                    $0
   Depreciation.......................    1,496                  0                 921                     0
   Deferred rent......................    1,093                  0                 925                     0
   Imputed interest on loans..........        0                  0                 139                     0
   Discount on Senior Subordinated Notes      0                  0                   0                   688
   Net operating loss carryforwards...    5,230                  0              13,348                     0
   Alternative minimum tax credit.....      425                  0                   0                     0
                                          ------             ------             -------                 ------
     Total noncurrent..................   8,244                 $0              15,399                  $688
                                          ======             ======             =======                 ======

     Net noncurrent....................   8,244                                 14,711
                                          -----                                 ------
     Total deferred taxes.............. $18,897                                $20,499
                                        =======                                =======
</TABLE>




     At January 31, 1998, the Company had net operating loss carryforwards
("NOLs") totaling approximately $38 million which expire for federal income tax
purposes during the fiscal years 2003 through 2006. The tax benefit of such NOLs
can be recorded as an asset as long as it is more likely than not that the
deferred tax asset will be utilized. However, to the extent that management
cannot assess that the utilization of all or a portion of such deferred tax
assets is more likely than not to be realized, a valuation allowance should be
recorded.

     During fiscal 1996, the Company consummated the 1996 Private Placement,
which enabled the Company to access capital to expand its business and achieve
greater profitability. As a result of the Company's improved operating results
during the second half of fiscal 1996, as well as its projected results for
fiscal 1997 and thereafter, the Company reversed its valuation allowance of
$21.0 million in the fourth quarter of fiscal 1996, as it was deemed to be more
likely than not that the deferred tax assets will be utilized. Accordingly, the
Company's net income for fiscal 1997 and future years will require calculation
of a tax provision based on statutory rates in effect. Until the NOLs are fully
utilized or expire, the majority of this tax provision will not be paid in cash,
but will reduce the deferred tax asset on the balance sheet. However, the
Company expects to make cash tax payments for the federal Alternative Minimum
Tax (the "AMT"), state minimum taxes and state taxes where the Company is not in
an NOL status. The amount and availability of these NOLs are subject to review
by the Internal Revenue Service.

     Under the provisions of the Internal Revenue Code, the occurrence of
certain events may affect the Company's ability to utilize its NOLs. The Company
does not believe any such events occurred during the periods presented.


<PAGE>

     9. STOCKHOLDERS' EQUITY

     The Company's stockholders' equity is comprised of the following and
retroactively reflects the 120-for-one stock split (dollars in thousands):

                                               January 31,          February 1,
                                                 1998                 1997
                                               -----------          -----------
 Common stock:
   Authorized number of shares..............   100,000,000            n/a
   Issued and outstanding number of shares..    24,622,103            n/a
 Preferred stock:
   Authorized number of shares..............     1,000,000          10,000
   Issued and outstanding number of shares..             0               0
 Series A Common Stock:
   Authorized number of shares..............           n/a       27,600,000
   Issued and outstanding number of shares...          n/a       12,760,800
 Series B Common Stock:
   Authorized number of shares...............          n/a           70,000
   Issued and outstanding number of shares...          n/a           47,238
   Liquidation preference....................          n/a          $22,001
 Warrants:
   Number of shares of Series A Common Stock..         n/a        2,739,348


COMMON STOCK

     As of January 31, 1998 the Common Stock outstanding reflects: (i) the Stock
Split, the Series B Conversion and the Reclassification, (ii) the sale of
4,000,000 shares in the Offering and (iii) the issuance of 201,414 shares to
Legg Mason upon exercise of one-third of the Legg Mason Warrant. In conjunction
with the Offering, the Company also authorized 100,000,000 shares of Common
Stock.

PREFERRED STOCK

     In conjunction with the Offering, the Company authorized 1,000,000 shares
of preferred stock, without designation. No shares had been issued as of January
31, 1998. At February 1, 1997, 10,000 shares of preferred stock were available
for future issuance by the Company as a result of the surrender of the
outstanding shares of preferred stock, in conjunction with the 1996 Private
Placement. The authorized preferred shares as of February 1, 1997 were
non-voting and had provided for cumulative dividends. The preferred stock was
surrendered for no consideration on June 28, 1996.


SERIES A COMMON STOCK

         In conjunction with the Offering, the Company effectuated a 120-for-one
split of its Series A Common Stock and re-designated the Series A Common Stock
as Common Stock. The above table retroactively reflects such stock split. During
fiscal 1996, the Company converted all outstanding shares of its common stock to
16,800,000 shares of Series A Common Stock. Pursuant to a Redemption Agreement
dated June 28, 1996, the Company redeemed a total of 4,039,200 shares of its
Series A Common Stock from certain stockholders of the Company for the aggregate
amount of $11.8 million.

SERIES B COMMON STOCK

     In conjunction with the Offering, the Series B Common Stock was converted
into 7,659,889 shares of Series A Common Stock which was then re-designated into
Common Stock. The Company had issued 47,238 shares of Series B Common Stock to
SKM in conjunction with the 1996 Private Placement, which was convertible into
7,659,889 shares of Series A Common Stock, or 30.8% of the outstanding shares of
the Series A Common Stock on a fully diluted basis. The Series B Common Stock
had special voting rights and a liquidation preference initially equal to its
purchase price, increasing 12.5% per annum. The liquidation preference and the
special voting rights of the Series B Common Stock terminated 30 days after the
Offering.

WARRANTS

     In the conjunction with the Offering, the Company repurchased the
Noteholder Warrant and two-thirds of the Legg Mason Warrant. The Company also
issued 201,414 shares of Common Stock upon exercise of the remaining one-third
of the Legg Mason Warrant. See Note 3-1996 Private Placement and Note 2-Initial
Public Offering for further discussion of the Noteholder Warrant and the Legg
Mason Warrant.

     10. STOCK OPTION AND PURCHASE PLANS

     On June 28, 1996, the Company approved the adoption of the 1996 Plan, which
authorized the granting of incentive stock options and nonqualified stock
options to key employees of the Company. The 1996 Plan provided for the granting
of options with respect to 1,743,240 shares of Common Stock. On June 28, 1996,
options to purchase 1,444,080 shares were granted at the exercise price of
$2.677 per share. The remaining 299,160 options available for grant under the
1996 Plan were granted in conjunction with the Company's Offering. Except for
the 99,660 options that were issued to a stockholder holding more than 10% of
the Company, the options were granted at $14.00 per share. The options granted
to the stockholder holding more than 10% of the Company were granted at an
exercise price of $15.40 per share, or 110% of the market price on the date of
the grant.

     On September 17, 1997, the Company approved adoption of the 1997 Plan,
which also authorizes the granting of incentive stock options and nonqualified
stock options to key employees of the Company with respect to 1,000,000 shares
of Common Stock. In conjunction with the Company's Offering, the Company issued
options to purchase 252,100 shares of Common Stock to key employees at the
Offering price of $14.00 per share.

     Both the 1996 Plan and the 1997 Plan are administered by a committee of the
Board of Directors (the "Committee"). Options granted under the 1996 Plan and
the 1997 Plan have exercise prices established by the Committee provided that
the exercise price of incentive stock options may not be less than the fair
market value of the underlying shares at the date of grant. The 1996 Plan and
the 1997 Plan also contain certain provisions that require the exercise price of
incentive stock options granted to shareholders owning greater than 10% of the
Company be at least 110% of the fair market value of the underlying shares. As
of February 1, 1997, no options had been exercised under the 1996 Plan and
options to purchase 288,816 shares were exercisable. As of January 31, 1998, no
options had been exercised under the 1996 Plan or the 1997 Plan and options to
purchase 684,576 shares were exercisable.

     Unless otherwise specified by the Committee, options granted under the 1996
Plan and the 1997 Plan vest at 20% six months from the date of grant and 20% on
each of the first, second, third and fourth anniversaries of the date of the
grant. The options granted in conjunction with the Offering vest at 20% on
December 31, 1997 and 20% on each of the first, second, third and fourth
anniversaries of the date of the grant.

     Effective February 1, 1997, the Company adopted the provisions of SFAS 123.
As permitted by SFAS 123, the Company has elected to continue to account for
stock-based compensation using the intrinsic value method under Accounting
Principles Board Opinion No. 25. Accordingly, no compensation expense has been
recognized for stock-based compensation, since the options granted were at
prices that equaled or exceeded their estimated fair market value at the date of
grant. If compensation expense for the Company's stock options issued in 1996
and 1997 had been determined based on the fair value method of accounting, for
fiscal 1997 and fiscal 1996 the Company's net income would have been reduced to
the pro forma amounts indicated below:

                                              JANUARY 31,        FEBRUARY 1,
                                                1998               1997
                                              -----------        -----------
 Net income 
   As reported...............               $5,241,000         $30,441,000
   Pro forma.................               $4,385,000         $30,210,000
Pro forma net income per share-
   As reported................                   $0.22               $1.28
   Pro forma..................                   $0.18               $1.27


<PAGE>

         The fair value of issued stock options were estimated on the date of
grant using the Black-Scholes option pricing model, incorporating the following
assumptions:

                                          JANUARY 31,          FEBRUARY 1,
                                             1998                   1997
                                             ----                   ----
Dividend yield..................               0%                     0%
Volatility factor...............           36.56%                     0%
Risk-free interest rate.........            6.02%                  6.46%
Expected life of options........         5 years                 5 Years
Weighted average fair value              
on grant date...................         $5.82 per share        $0.74 per share


     On September 17, 1997, the Company approved the adoption of the ESPP, which
authorized up to 360,000 shares of Common Stock for employee purchase through
payroll deductions at 85% of fair market value. All employees of the Company,
who have completed at least 90 days of employment and attained 21 years of age,
are eligible to participate, except for employees who own Common Stock or
options on such common stock which represents 5% or more of the Company.

     11. SAVINGS AND INVESTMENT PLAN

     The Company has adopted The Children's Place 401(k) Savings and Investment
Plan (the "401(k) Plan"), which is intended to qualify under Section 401(k) of
the Internal Revenue Code of 1986, as amended. The 401(k) Plan is a defined
contribution plan established to provide retirement benefits for all employees
who have completed one year of service with the Company and attained 21 years of
age.

     The 401(k) Plan is employee funded up to an elective annual deferral and
also provides an option for the Company to contribute to the 401(k) Plan at the
discretion of the 401(k) Plan's trustees. The Company did not exercise its
discretionary contribution option during 1995 and 1996. In January 1997, the
401(k) Plan was amended whereby the Company will match the lesser of 50% of the
participant's contribution or 2.5% of the participant's compensation. During
fiscal 1997 and fiscal 1996, the Company's matching contributions on the 401(k)
Plan were approximately $247,000 and $19,000, respectively.


<PAGE>

     12. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

     The following table summarizes the quarterly financial data for the periods
indicated (dollars in thousands, except for per share amounts):

                                                                                FISCAL YEAR ENDED JANUARY 31, 1998
                                                                                ----------------------------------
                                                                          First           Second            Third       Fourth
                                                                         Quarter          Quarter          Quarter      Quarter
                                                                         -------          -------          -------      -------- 
<S>                                                                       <C>              <C>             <C>          <C>    
Net sales................................................                 $39,203          $33,534         $54,489      $65,331
Gross profit............................................                   14,018            9,802          21,408       23,864
Net income (loss).......................................                    1,011           (1,744)          1,754(2)     4,220
Pro forma basic net income (loss) per common share                          $0.05           $(0.09)        $  0.08        $0.17
Pro forma diluted net income (loss) per common share                        $0.04           $(0.07)        $  0.07        $0.17

                                                                                FISCAL YEAR ENDED FEBRUARY 1, 1997
                                                                                -----------------------------------
                                                                          First          Second            Third         Fourth
                                                                         Quarter         Quarter          Quarter        Quarter
                                                                         -------         --------         -------        -------
Net sales...............................................                 $30,438          $25,974         $40,353        $47,073
Gross profit............................................                  10,238            7,873          16,976         18,965
Net income (loss).......................................                     637           (2,099)          5,312         26,591(1)
Pro forma basic net income (loss) per common share......                   $0.03           $(0.10)          $0.26          $1.30
Pro forma diluted net income (loss) per common share....                   $0.03           $(0.09)          $0.22          $1.12

                                                                                FISCAL YEAR ENDED FEBRUARY 3, 1996
                                                                                ------------------------------------ 
                                                                          First           Second            Third         Fourth
                                                                         Quarter          Quarter          Quarter        Quarter
                                                                         -------          -------          -------        ------- 
Net sales..............................................                  $25,433          $23,181          $33,713        $39,733
Gross profit...........................................                    7,224            5,530           11,640         14,232
Net income (loss)......................................                   (1,116)          (2,959)           2,382          3,347

  -----------
(1)   Includes a reversal of a valuation allowance on a net deferred tax
      asset of $21,042.  (see Note 8 - Income Taxes).
(2)   Includes an extraordinary loss on the extinguishment of debt of
      $1,743.  (see Note 2 - Initial Public Offering).
</TABLE>


     13. RELATED PARTY TRANSACTIONS

     Concurrently with the 1996 Private Placement, the Company entered into a
management agreement with SKM which provides for the payment of an annual fee of
$150,000, payable quarterly in advance, in exchange for certain financial
advisory services. This management agreement remains in effect until SKM or any
of its affiliates' total ownership of the Company's Common Stock is less than
10% on a fully diluted basis. Pursuant to the advisory agreement, the Company
incurred fees and expenses to SKM of approximately $153,000 in fiscal 1997 and
approximately $93,000 during fiscal 1996.

     14. SUBSEQUENT EVENTS (UNAUDITED)

     On March 26, 1998, the Committee authorized the repricing of certain
options granted in conjunction with the Offering under the 1996 Plan and the
1997 Plan to the average market price on March 27, 1998 of $8.70 per share. The
repricing re-established the options granted to employees as an incentive to
improve the overall performance of the Company. Options granted to officers were
not repriced.






<TABLE> <S> <C>

<ARTICLE>                     5
 <LEGEND>
EXHIBIT 27.1 THE CHILDREN'S PLACE RETAIL STORES, INC. FINANCIAL DATA SCHEDULE.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE CHILDREN'S PLACE RETAIL STORES, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                                       <C>                 <C>
<PERIOD-TYPE>                             YEAR                YEAR
<FISCAL-YEAR-END>                         JAN-31-1998         FEB-01-1997
<PERIOD-START>                            FEB-02-1997         FEB-04-1996
<PERIOD-END>                              JAN-31-1998         FEB-01-1997
<CASH>                                            887               3,422
<SECURITIES>                                        0                   0
<RECEIVABLES>                                   1,904                 890
<ALLOWANCES>                                        0                   0
<INVENTORY>                                    20,334              14,425
<CURRENT-ASSETS>                               38,390              27,688
<PP&E>                                         44,909              32,382
<DEPRECIATION>                                 12,788              12,083
<TOTAL-ASSETS>                                 79,353              64,479
<CURRENT-LIABILITIES>                          18,152              15,737
<BONDS>                                             0                   0
<PREFERRED-MANDATORY>                               0                   0
<PREFERRED>                                         0                   0
<COMMON>                                        2,462               1,281
<OTHER-SE>                                     56,005              26,017
<TOTAL-LIABILITY-AND-EQUITY>                   79,353              64,479
<SALES>                                       192,557             143,838
<TOTAL-REVENUES>                              192,557             143,838
<CGS>                                         123,465              89,786
<TOTAL-COSTS>                                  48,669              37,233
<OTHER-EXPENSES>                                  139                 396
<LOSS-PROVISION>                                    0                   0
<INTEREST-EXPENSE>                              2,647               2,884
<INCOME-PRETAX>                                11,679               9,522
<INCOME-TAX>                                    4,695             (20,919)
<INCOME-CONTINUING>                             6,984              30,441
<DISCONTINUED>                                      0                   0
<EXTRAORDINARY>                                 1,743                   0
<CHANGES>                                           0                   0
<NET-INCOME>                                    5,241              30,441
<EPS-PRIMARY>                                    0.24                1.49
<EPS-DILUTED>                                    0.22                1.28
        

</TABLE>