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


FORM 10-K

(Mark One)

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

For the fiscal year ended February 1, 1998

OR

( ) 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 0-20269

DUCKWALL-ALCO STORES, INC.
(Exact name of registrant as specified in its charter)

Kansas 48-0201080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

401 Cottage Street
Abilene, Kansas 67410-2832
(Address of principal executive offices) (Zip Code)


Registrant's telephone number including area code: (785) 263-3350

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)

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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

Yes [ ] No [ ]

Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes [ X ] No [ ]

At March 16, 1998, there were 5,098,761 shares of Common Stock
outstanding, of which 2,458,474 shares were owned by affiliates.

Documents incorporated by reference: portions of the Registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders are incorporated by
reference in Part III hereof.



PART I

ITEM 1. BUSINESS

History

Duckwall-ALCO Stores, Inc., (the "Company" or "Registrant"), was founded
as a general merchandising operation at the turn of the century in Abilene,
Kansas by A. L. Duckwall. From its founding until 1968, the Company conducted
its retail operations as small variety or "dime" stores. In 1968, the Company
followed an emerging trend to discount retailing when it opened its first ALCO
discount store. In 1991, the Company adopted its current business strategy
that focuses on under-served markets that have no direct competition from
another full-line discount retailer. This strategy includes opening either an
ALCO discount store or a Duckwall variety store, depending upon the market
size. As of May 1, 1998, the Company operates 243 retail stores located in
the central United States, consisting of 156 ALCO retail discount stores and
87 Duckwall variety stores.

The Company was incorporated on July 2, 1915 under the laws of Kansas.
The Company's executive offices are located at 401 Cottage Street, Abilene,
Kansas 67410-2832, and its telephone number is (785) 263-3350.

General

The Company, which was established in 1901, is a regional retailer
operating 243 stores in 18 states in the central United States. The Company's
strategy is to target smaller markets not served by other regional or national
retail discount chains and to provide the most convenient access to retail
shopping within each market. The Company's ALCO discount stores offer a full
line of merchandise consisting of approximately 35,000 items, including
automotive, candy, crafts, domestics, electronics, fabrics, furniture,
hardware, health and beauty aids, housewares, jewelry, ladies', men's and
children's apparel and shoes, pre-recorded music and video, sporting goods,
seasonal items, stationery and toys. The Company's smaller Duckwall variety
stores offer a more limited selection of merchandise.

Of the Company's 156 ALCO discount stores, 112 stores are located in
communities that do not have another full service discounter. The Company
intends to continue its strategy of opening ALCO stores in markets that do
not have other discount retailers and where the opening of an ALCO store is
likely to be preemptive to the entry by other competitors in the market. The
ALCO discount stores account for 93% of the Company's net sales. While the
current ALCO stores average 21,700 square feet of selling space, the Company's
store expansion program is primarily directed toward stores with a design
prototype of approximately 18,000 square feet of selling space, which, based
on the Company's experience, has been a design that maximizes return on
investment for newly-constructed stores ("Class 18 Stores").

The Company's 87 Duckwall variety stores are primarily located in
communities of less than 2,500 residents and are designed to act as the
primary convenience retailer in these smaller communities. These stores,
which account for the remaining 7% of the Company's net sales, average
approximately 5,500 square feet of selling space and offer approximately
12,000 items. Operating Duckwall stores offers the Company the opportunity
to serve the needs of a community that would not support a full service retail
discount store with a reduced investment per store and a higher return on
investment than the Company's average.

All of the Company's discount and variety stores are serviced by the
Company's 352,000 square foot distribution center in Abilene, Kansas.


Business Strategy

The Company believes that its improved operating performance and financial
condition over the last five fiscal years is the result of the focused
execution of a business strategy that includes the following key components:

Markets:
The Company intends to open ALCO stores in towns with populations of
typically less than 5,000 that are in trade areas with populations of less
than 16,000 where: (1) there is no direct competition from national or
regional full-line discount retailers; (2) economic and demographic
criteria indicate the market is able to commercially support a discount
retailer; and (3) the opening of an ALCO store would significantly reduce
the likelihood of the entry into such market by another discount retailer.
This key component of the Company's strategy has guided the Company
in both its opening of new stores and in the closing of existing stores.
Since 1991, the Company has opened 91 ALCO discount stores (with an
approximate average size 18,300 square feet of selling space) and 73
Duckwall variety stores. Except for seven stores, each of the new
ALCO and Duckwall stores was opened in a primary market in which there was
no direct competition from a discount retailer.



Market Selection:
The Company has a detailed process that it uses to analyze under-served
markets which includes examining factors such as distance from competition,
trade area, disposable income and retail sales levels. Markets that are
determined to be sizable enough to support an ALCO or a Duckwall store, and
that have no direct competition from another discount retailer, are
examined closely and eventually selected or passed over by the Company's
experienced management team.

Store Expansion:
The Company's expansion program is designed around the prototype Class 18
Store. This prototype details for each new store plans for shelf space,
merchandise presentation, store items to be offered, parking, storage, as
well as other store design considerations. The 18,000 square feet of
selling space is large enough to permit a full line of the Company's
merchandise, while minimizing capital expenditures, required labor costs
and general overhead costs. The Company will also consider opportunities in
acceptable markets to open ALCO stores in available space in buildings
already constructed. The Company's expansion strategy for its Duckwall
variety stores is based on opportunities presented to the Company in and
by smaller communities where there is a need and where existing premises
are available for lease with a relatively low cost and which provide the
Company with limited exposure.

Technology:
The Company is continually improving its management information
technologies to reduce costs, improve customer service, and enhance
general business planning. The Company's accounting and information
systems, merchandise planning, and inventory planning systems have
recently been enhanced and are in the process of being implemented.
In 1996 the Company began a $2.3 million project to update the back
office equipment and software being used at the ALCO stores for sales
processing. The Company expects this project to extend the life of the
current point-of-sale equipment, as well as improve efficiencies in
training and operations. The majority of this project is expected to be
completed in fiscal 1999. In conjunction with the project, the discount
stores will receive radio frequency hand held devices to allow for
additional efficiencies in processing inventory receipts and counts.

Advertising and Promotion:
The Company utilizes full-color photography advertising circulars of 8 to
20 pages distributed by insertion into newspapers or by direct mail where
newspaper service is inadequate. These circulars are distributed
approximately 40 times per year in ALCO markets, with two additional
circulars for the larger stores. In its Duckwall markets, the Company
advertises approximately 13 times a year during seasonal promotions.
The Company's marketing program is designed to create an awareness, on
the part of its identified target customer base, of the Company's
comprehensive selection of merchandise and its competitive pricing.

Store Environment:
The Company's stores are open, clean, bright and offer a pleasant
atmosphere with disciplined product presentation, attractive displays and
efficient check-out procedures. The Company endeavors to staff its stores
with courteous, highly motivated, knowledgeable store associates in order
to provide a convenient, friendly and enjoyable shopping experience.


Store Development

The Company plans to open at least 15 ALCO stores and 20 Duckwall
stores during fiscal year 1999, and a minimum of 12 ALCO stores and
15 Duckwall stores during each of the fiscal years 2000 and 2001.

The Company's strategy regarding store development is to increase sales
and profitability at existing stores by continually refining the
merchandising mix and improving operating efficiencies, and through new
store openings in the Company's targeted base of under-served markets in
the central United States. Since fiscal 1995, the Company has opened a
total of 59 ALCO stores with an average selling area of approximately
18,500 square feet, and 53 Duckwall stores. The following table
summarizes the Company's growth during the past three fiscal years:



Year-to-Date
1996 1997 1998 1999

ALCO DUCKWALL ALCO DUCKWALL ALCO DUCKWALL ALCO DUCKWALL

Stores Opened 13 8 15 15 25 15 6 15
Stores Closed 2 1 1 0 0 0 2 1
Net New Stores 11 7 14 15 25 15 4 14





The Company intends to utilize the 18,000 square foot store profile for
new ALCO store openings. Currently, the Company owns 29 ALCO and 3 Duckwall
locations, and leases 127 ALCO and 84 Duckwall store locations. The Company's
present intention is to lease all new Duckwall stores. The Company may own
some of the ALCO locations, but will, in general try to lease those store
locations.

Before entering a new market with an ALCO store, the Company analyzes
available competitive, market, and demographic data to evaluate the
suitability and attractiveness of the potential market as part of a screening
process. The process involves an objective review of selection criteria
including, among other factors, distance and drive time to discount retail
competitors, demographics, retail sales levels, existence and stability of
major employers, location of county government and distance from the
Company's warehouse. The screening process also involves a visit by officers
of the Company to more subjectively evaluate the potential new site.
There are currently approximately 150 communities known by the Company to
have met the Company's market selection process. The Company is in the
site selection and/or procurement process in approximately 16 of those
markets, each of which has been approved by the Company for a new ALCO
location. The Company performs a similar site selection process with new
Duckwall stores. However, the process is condensed given the low opening and
closing costs of a Duckwall location.

The estimated investment to open a new Class 18 Store is approximately
$1.25 million for the land, building, equipment, inventory and pre-opening
costs.

Store Environment and Merchandising

The Company manages its stores to attractively and conveniently
display a full line of merchandise within the confines of the stores'
available square footage. Corporate merchandising direction is provided to
each ALCO and Duckwall store to ensure a consistent company-wide store
presentation. To facilitate long-term merchandising planning, the Company
divides its merchandise into three core categories driven by the Company's
customer profile: primary, secondary, and convenience. The primary core
receives management's primary focus, with a wide assortment of merchandise
being placed in the most accessible locations within the stores and
receiving significant promotional consideration. The secondary core
consists of categories of merchandise for which the Company maintains a
strong assortment that is easily and readily identifiable by its customers.
The convenience core consists of categories of merchandise for which ALCO
will maintain convenient, but limited, assortments, focusing on key items
that are in keeping with customers' expectations for a discount store.
Secondary and convenience cores include merchandise that the Company feels
is important to carry as the target customer expects to find them within a
discount store and they ensure a high level of customer traffic. The
Company continually evaluates and ranks all product lines, shifting product
classifications when necessary to reflect the changing demand for products.


Purchasing

Procurement and merchandising of products is directed by the Company's
Vice President - Merchandise who reports to the Company's President. The
Vice President - Merchandise is supported by a staff of four divisional
merchandise managers who are each responsible for specific product
categories. The Company employs 22 merchandise buyers and two assistant
buyers who each report to a divisional merchandise manager. Buyers are
assisted by a management information system that provides them with current
price and volume information by SKU, thus allowing them to react quickly
with buying and pricing adjustments dictated by customer buying patterns.

The Company purchases its merchandise from approximately 2,250
suppliers. The Company does not utilize long-term supply contracts. No
single supplier accounted for more than 3% of the Company's total purchases
in fiscal 1998 and competing brand name and private label products are
available from other suppliers at competitive prices. The Company believes
that its relationships with its suppliers are good and that the loss of any
one or more of its suppliers would not have a material adverse effect on
the Company.


Pricing

Merchandise pricing is done at the corporate level and is essentially
the same for all of the ALCO stores, regardless of the level of local
competition. This pricing strategy, with its promotional activities, is
designed to bring consistent value to the customer. Promotions on various
items are offered approximately 40 times a year through advertising circulars,
with two additional circulars for the larger stores. Even though the same
general pricing and advertising activities are carried out for all ALCO
stores, the impact of such activities is significantly different depending
upon the level of competition in the market.



Distribution and Transportation

The Company operates a 352,000 square foot distribution center in
Abilene, Kansas, from which it services each of the 156 ALCO discount stores
and 87 Duckwall variety stores. This distribution center is responsible for
distributing approximately 80% of the Company's merchandise, with the
balance being delivered directly to the Company's stores by its vendors.
This distribution center ships to each of the Company's stores once a week
through its wholly owned subsidiary, SPD Truck Line, Inc. (the "Subsidiary")
as well as through irregular route common carriers. The distribution center
is fully integrated into the Company's management information system,
allowing the Company to utilize such cost cutting efficiencies as perpetual
inventories, safety programs, and employee productivity software.

The Subsidiary acts as a contract carrier for the Company in
transporting goods to and from its stores. The Subsidiary leases and uses
five tractors and 24 trailers for such deliveries.


Management Information Systems

Commencing in fiscal 1989, the Company committed significant resources
to the purchase and application of available computer hardware and software
to its discount retailing operations with the intent to lower costs,
improve customer service and enhance general business planning.

In general, the Company's merchandising systems are designed to
integrate the key retailing functions of seasonal merchandise planning,
purchase order management, merchandise distribution, sales information and
inventory maintenance and replenishment. All of the Company's discount
stores have point-of-sale computer terminals that record certain sales data
in a format that can be transmitted nightly to the Company's data processing
facility where it is used to produce daily and weekly management reports. In
fiscal 1997 the Company began a $2.3 million project to update
the back office equipment and software being used at the ALCO stores for
sales processing. The Company expects this project to extend the life of the
point-of-sale equipment currently being used, as well as improve
efficiencies in training and operations. The majority of this project is
expected to be completed in fiscal 1999. In conjunction with the project,
the discount stores will receive radio frequency hand held devices to allow
for additional efficiencies in processing inventory receipts and counts.

Approximately 550 of the Company's merchandise suppliers currently
participate in the Company's electronic data interchanges ("EDI") system,
which makes it possible for the Company to place purchase orders
electronically. When fully implemented, EDI will permit these and
additional vendors to transmit advance shipment notices to the Company and
receive sales history from the Company.



Store Locations

As of May 1, 1998, the Company operated 156 ALCO stores in 17 states
located in smaller communities in the central United States. Of the ALCO
stores, 29 are owned and 127 are operated under real estate leases. The
ALCO stores average approximately 21,700 square feet of selling space, with
an additional 5,000 square feet utilized for merchandise processing,
temporary storage and administration. The Company also operates 87
Duckwall stores in ten states, three of which are owned, and 84 are leased.
The geographic distribution of the Company's stores is as follows:

Store Locations (243)

Duckwall Stores (87)




ARKANSAS (1) KANSAS (continued) MISSOURI (1) SOUTH DAKOTA (1)
Little Rock Cottonwood Falls Salisbury Miller
Oberlin
COLORADO (5) Plainville NEBRASKA (7) TEXAS (19)
Brush Sedan Geneva Spur
Walsenburg Hoisington Chappel Stratford
Las Animas Johnson Kimball Clarendon
Rocky Ford LaCrosse Neligh Hemphill
Akron Osage City Cambridge McCamey
Clearwater Oxford Floydada
IOWA (3) Osborne Imperial Kingsland
Manning Ness City Ozona
Villisca Elkhart NEW MEXICO (1) Bridgeport
Belmond Minneapolis Clayton Crane
Washington Olney
KANSAS (39) Meade OKLAHOMA (10) Jewett
Belleville Sterling Beaver Eldorado
Lincoln Caldwell Shattuck Memphis
Council Grove Stafford Hooker Iraan
Wamego Pleasanton Seiling Tahoka
Marion Coldwater Wewoka Big Lake
Scott City Hill City Enid Wills Point
Horton Atwood Okeene Pittsburg
Ulysses Leoti Canton
Hugoton Kinsley Buffalo
WaKeeney Herington Waynoka
Greensburg Smith Center
St. John Syracuse




ALCO Stores (156)


ARIZONA (3) IOWA (10) NEBRASKA (17) OHIO (4)
Springerville Atlantic Beatrice New Bremen
Holbrook Perry McCook Paulding
Taylor Estherville Fremont Wapakoneta
Knoxville Norfolk Delphos
ARKANSAS (5) Vinton Alliance
Russellville West Union Sidney SOUTH DAKOTA (8)
Hot Springs Garner North Platte Lead
DeWitt Clarinda Nebraska City Milbank
Conway Emmetsburg Ogallala Webster
Hardy Waukon O'Neill Canton
Valentine Sisseton
COLORADO (8) KANSAS (25) Gordon Redfield
Fort Morgan Abilene West Point Chamberlain
Commerce City Salina Cozad Wagner
Canon City Concordia Gering
Burlington Garden City Ord TEXAS (22)
Yuma Hays Albion Pampa
Wray Larned Dalhart
Monte Vista Pratt NEW MEXICO (7) Perryton
Springfield Goodland Roswell Monahans
Manhattan Portales Andrews
ILLINOIS (8) Newton Grants Kermit
Havana Hutchinson Belen Spearman
Shelbyville Junction City Tucumcari Vernon
Newton So. Hutchinson Lovington Littlefield
Gibson City Medicine Lodge Bloomfield Winnsboro
Nashville Kingman Dimmitt
Virden Lyons NORTH DAKOTA (7) Cameron
Red Bud Fredonia Carrington Alpine
Hillsboro Beloit Rolla Tulia
Eureka Langdon Muleshoe
INDIANA (13) Sabetha Oakes Clifton
Cambridge City Hillsboro Lisbon Coleman
Brookville Phillipsburg Mayville Slaton
Hartford City Ellsworth Grafton Canadian
Ligonier Anthony Mt. Vernon
Nappanee Garnett OKLAHOMA (8) Hereford
Knox Fairview Sonora
Tipton MINNESOTA (6) Cordell
New Castle Spring Valley Watonga UTAH (2)
Demotte Caledonia Cherokee Roosevelt
Versailles Paynesville Pawhuska Moab
Goshen Olivia Wilburton
N. Manchester Long Prarie Frederick WYOMING (3)
Winimac Warroad Nowata Lander
Rawlins
Diamondville






Competition

While the discount retail business in general is highly competitive,
the Company's business strategy is to locate its ALCO discount stores in
smaller markets where there is no direct competition with larger national
or regional full-line discount chains, and where it is believed no such
competition is likely to develop. Accordingly, the Company's primary method
of competing is to offer its customers a conveniently located store with a
wide range of merchandise at discount prices in a primary trade area
population under 16,000 that does not have a large national or regional
full-line discount store. The Company believes that trade area size is a
significant deterrent to larger national and regional full-line discount
chains. Duckwall variety stores, being located in very small markets, face
limited competition and, like the ALCO stores, emphasize the convenience of
location to the primary customer base.

In the discount retail business in general, price, merchandise
selection, merchandise quality, advertising and customer service are all
important aspects of competing. The Company encounters direct competition
with national full-line retail discount stores in 32 of its ALCO markets,
and another 12 ALCO stores are in direct competition with regional full-line
discount stores. Of the last 106 ALCO stores opened, only seven are in direct
competition with a national or regional full-line discount retailer.
The competing regional and national discount retailers are generally larger
than the Company and the stores of such competitors in the Company's markets
are substantially larger, have a somewhat wider selection of merchandise and
are extremely price competitive in some lines of merchandise. Where there
are no discount retail stores directly competing with the Company's ALCO
stores, the Company's customers nevertheless shop at retail discount stores
and other retailers located in regional trade centers, and to that extent
the Company competes with such discount stores and retailers. The Company
also competes for retail sales with mail order companies, specialty
retailers, mass merchandisers and manufacturers outlets. The Company has
experienced no direct competition from national or regional full-line
discount retailers in any of the 95 Class 18 markets in which it has opened a
store.

Employees

As of April 1, 1998, the Company employed approximately 4,850 people,
of whom approximately 450 were employed in the general office or
distribution center in Abilene, 3,800 in the ALCO stores and 600 in the
Duckwall stores. Approximately 3,000 additional employees are hired on a
seasonal basis, most of whom are sales personnel. No labor organization is
the collective bargaining agent for any of the Company's employees. The
Company considers its relations with its employees to be excellent.




ITEM 2. PROPERTIES.

The Company's facilities in Abilene, Kansas consist of a general office
(approximately 35,000 square feet), the Distribution Center (approximately
352,000 square feet) and additional warehouse space adjacent to the general
office.

The Company owns the general office and leases the Distribution Center
under the terms of a lease that was entered into with the City of Abilene,
Kansas in connection with the issuance of certain industrial revenue bonds
issued by the City. Rental payments are required under the lease in such
amounts and at such times as are sufficient to pay the principal and
interest becoming due on the bonds. The Company has an option to purchase
the facility for a nominal amount upon the payment in full of the bonds.
See Note 3 of Notes to Consolidated Financial Statements.

Twenty-nine of the ALCO stores and three Duckwall stores operate in
buildings owned by the Company. The remainder of the stores operate in
leased properties. Such ALCO leases expire as follows: approximately
210,521 square feet (5.1%) expire between May 1, 1998 and January 31, 1999;
approximately 340,219 square feet (8.2%) expire between February 1, 1999
and January 31, 2000; and approximately 336,397 square feet (8.2%) expire
between February 1, 2000 and January 31, 2001. The remainder expire through
2014. All Duckwall store leases have terms of seven years or less.



ITEM 3. LEGAL PROCEEDINGS.

The Company has been a party to various legal proceedings which have
been reported in this Item 3 of Form 10-K for certain prior fiscal years.
The Company's legal proceedings have been resolved sufficiently to render
outstanding matters immaterial for purposes of disclosure pursuant to this
Item 3.


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

No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended February 1, 1998.


ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.

The following table sets forth the names, ages, positions and certain
other information regarding the executive officers of the Company as of
May 1, 1998.

Name Age Position
Glen L. Shank 53 Chairman of the Board and President
James E. Schoenbeck 54 Vice President -
Operations and Advertising
James R. Fennema 47 Vice President-Merchandise
Richard A. Mansfield 42 Vice President-Finance and Treasurer
Charles E. Bogan 62 Vice President,
Secretary and General Counsel

__________

Except as set forth below, all of the executive officers have been
associated with the Company in their present position or other capacity for
more than the past five years. There are no family relationships among the
executive officers of the Company.

Glen L. Shank has served as President of the Company since June 1988
and as Chairman of the Board since May 1991. Between 1982 and 1988,
Mr. Shank served as Vice President of Merchandising of the Company. Prior
to 1982, Mr. Shank served as a Buyer and as a Merchandise Manager for the
Company. Mr. Shank has approximately 31 years of experience in the retail
industry.

James E. Schoenbeck has served as Vice President of Store Operations
and Advertising since 1988. From 1979 to 1988, Mr. Schoenbeck served as the
Vice President of Administration. Mr. Schoenbeck has approximately 24 years
of experience in the retail industry.

James R. Fennema has served as Vice President-Merchandise of the
Company since March 1993. For the four years prior to that he served as
Vice President and a divisional merchandise manager with Caldor, Inc., a
chain of regional discount stores in New England and the mid-Atlantic
states of the United States. For more than the four years prior to that he
served as a divisional merchandise manager of Fishers Big Wheel, a regional
chain discount retailer. Mr. Fennema has approximately 25 years of
experience in the retail industry.

Richard A. Mansfield has served as Vice President-Finance and Treasurer
of the Company since May 1997. For the two years prior to that he served as
Chief Financial Officer of Country General Stores, Inc., a regional chain of
speciality farm and ranch stores located in the midwest. For the three years
prior to that he served as Chief Financial Officer of American Laminates, Inc.
and Relco, Inc. Mr. Mansfield has approximately 17 years of experience in the
retail industry.

Charles E. Bogan has been the Secretary of the Company since 1972. He
has served as Vice President and General Counsel since 1984, and was
Secretary and a member of the Board of Directors during the period from
1972 to 1985. Prior to becoming Duckwall-ALCO's General Counsel, he served
as a partner in private practice with the law firm of Bogan & Johnson,
beginning in 1970.



PART II

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

The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "DUCK." The following table sets forth the range of high
and low bid information for the Company's Common Stock for each quarter of
fiscal 1998, 1997 and 1996 and for the fourth quarter of fiscal 1995, (the
only full quarter period during that fiscal year for which the Common Stock
was so quoted).



Fiscal 1995 High Low
------------------------- ----------- ----------

Fourth quarter $ 9.75 $ 9.00

Fiscal 1996
-------------------------
First quarter $ 9.75 $ 8.75
Second quarter 10.75 8.75
Third quarter 11.88 10.38
Fourth quarter 11.25 9.50

Fiscal 1997
------------------------
First quarter $11.63 $ 8.75
Second quarter 15.50 12.88
Third quarter 14.50 12.25
Fourth quarter 16.75 12.25

Fiscal 1998
------------------------
First quarter $ 14.50 $ 13.00
Second quarter 13.88 11.50
Third quarter 17.50 12.75
Fourth quarter 15.88 14.50



As of April 3, 1998, there were approximately 1,369 holders of record
of the Common Stock of the Company. The Company has not paid cash dividends
on its Common Stock during the last three fiscal years, and is currently
prohibited from paying such dividends by the terms of the Second Amended
and Restated Loan Agreement dated as of October 18, 1995, among the Company,
BA Business Credit, Inc., and Transamerica Business Credit Corporation.



ITEM 6. SELECTED FINANCIAL DATA.


SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share and store data)

The selected consolidated financial data presented below for, and as
of the end of, each of the last five fiscal years under the captions
Statements of Operations Data and Balance Sheet Data have been derived from
the audited consolidated financial statements of the Company. These data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (Item 7) and the consolidated
financial statements, related notes, and other financial information
included herein.



Fiscal Year Ended
---------------------------------------------------------------------------
February 1, February 2, January 28, January 29, January 30,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------

Statements of Operations Data
Net Sales $323,254 $278,819 $256,454 $242,144 $225,903
Cost of Sales 212,982 186,531 173,296 163,180 154,217
Gross Margin 110,272 92,288 83,158 78,964 71,686
Selling, general
and administrative
expenses 89,661 75,630 69,018 65,477 59,432
Depreciation and amortization 4,805 3,773 3,093 3,280 3,950
Income from operations 15,806 12,885 11,047 10,207 8,304
Interest expense 3,525 3,033 2,958 3,390 4,091
Other expense, net 0 0 (185) 156 823
Earnings before income taxes 12,281 9,852 8,274 6,661 3,390
Income tax expense 4,790 3,794 3,144 2,531 1,130
Net earnings $7,491 $6,058 $5,130 $4,130 $2,260
Per Share Information:
Earnings per share: (1)
Basic $1.47 $1.41 $1.28 $1.56 $.81
Diluted 1.46 1.40 1.28 1.54 .81
Weighted average shares outstanding: (2)
Basic 5,096,322 4,299,502 3,999,488 2,648,246 2,000,000
Diluted 5,148,818 4,339,822 4,014,351 2,680,216 2,002,548

Operating Data
Stores open at year-end 225 185 156 138 121
Stores in non-competitive markets
at year-end (3) 176 137 110 91 72
Percentage of total stores in
non-competitive markets (3) 78.2% 74.1% 70.5% 65.9% 59.5%
Net sales of stores
in non-competitive markets (3) $224,117 $177,939 $151,733 $132,743 $112,590
Percentage of net sales
from stores in
non-competitive markets (3) 69.3% 63.8% 59.2% 54.8% 49.8%
Comparable store sales for
all stores (4) .6% (2.9%) (3.2%) 1.1% ---
Comparable store sales for stores
in non-competitive markets (3)(4) 1.6% (1.3%) (1.0%) 2.7% 4.0%

Balance Sheet Data
Total assets $158,114 $132,808 $107,723 $92,202 $84,282
Total debt (includes capital
lease obligation and
current maturities) 39,718 26,285 24,551 16,805 30,244
Redeemable common stock purchase
warrant 0 0 0 0 2,303
Stockholders' equity 80,394 72,825 53,061 47,100 26,553



(1) Earnings per share for fiscal 1994 includes the dilutive effect
of accretion in the carrying value of a redeemable common stock
purchase warrant of $645.

(2) The Company has adopted SFAS No. 128, Earnings Per Share which
requires a dual presentation of basic earnings per share (based
on the weighted average number of common shares outstanding) and
diluted earnings per share which reflects the potential dilution
that could occur if contracts to issue securities (such as stock
options) were exercised.

(3) "Non-competitive" markets refer to those markets where there is
not a national or regional full-line discount store located in
the primary market served by the Company. The Company's stores
in such non-competitive markets nevertheless face competition
from various sources. See Item 1 "Business-Competition."

(4) Percentages, as adjusted to a comparable 52 week year, reflect
the increase or decrease based upon a comparison of the applicable
fiscal year with the immediately preceding fiscal year for stores
open during the entirety of both years.



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

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS
MADE IN THIS REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS, FINANCIAL CONDITION
OR BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL
CONDITION OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED BELOW UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.

Reference is hereby made to the description of the Company's business
appearing in Item 1.

The Company's fiscal year ends on the Sunday closest to January 31.
Fiscal 1998 and 1996 consisted of 52 weeks, and fiscal 1997 consisted of 53
weeks.


As used below, the term "competitive market" refers to any market in
which there is one or more national or regional full-line discount stores
located in the primary market served by the Company. The term
"non-competitive market" refers to any market in which there is no national
or regional full-line discount store located in the primary market served by
the Company. Even in a non-competitive market, the Company faces competition
from a variety of sources. See Item 1.

Results of Operations

The following table sets forth, for the fiscal years indicated, the
components of the Company's consolidated statements of operations
expressed as a percentage of net sales:



Fiscal Year Ended
_______________________________________
February 1, February 2, January 28,
1998 1997 1996
- --------------------------------------------- ----------- ----------- -----------

Net sales.................................... 100.0% 100.0% 100.0%
Cost of sales................................ 65.9 66.9 67.6
Gross margin................................. 34.1 33.1 32.4
Selling, general and administrative expenses. 27.7 27.1 26.9
Depreciation and amortization................ 1.5 1.4 1.2
Total operating expenses..................... 29.2 28.5 28.1
Income from operations....................... 4.9 4.6 4.3
Interest expense............................. 1.1 1.1 1.2
Other expense, net........................... .0 .0 (.1)
Earnings before income taxes................. 3.8 3.5 3.2
Income tax expense........................... 1.5 1.3 1.2
Net earnings................................. 2.3% 2.2% 2.0%



Fiscal 1998 Compared to Fiscal 1997

Net sales for fiscal 1998 increased $44.4 million or 15.9% to $323.3
million compared to $278.8 million for fiscal 1997. During fiscal 1998, the
Company opened 40 stores, 38 of which were in new non-competitive markets,
resulting in a year end total of 225 stores. Substantially all of the
increase in net sales was due to new stores opened over the last two fiscal
years. Net sales for all stores open the full year in both fiscal 1998 and
1997 (comparable stores), as adjusted to a comparable 52 week year, increased
by $1.6 million or .6% in fiscal 1998 compared to fiscal 1997. Sales in
non-competitive ALCO stores increased $2.2 million, or 1.5% and the Duckwall
variety stores produced an increase of $538,000, or 3.2%.

Gross margin for fiscal 1998 increased $18.0 million or 19.5% to $110.3
million compared to $92.3 million in fiscal 1997. As a percentage of net
sales, gross margin increased 1.0% to 34.1% in fiscal 1998 from 33.1% in
fiscal 1997. The increase was a result of higher initial markons on purchases
in fiscal 1998, as well as LIFO income of $1.0 million, compared to fiscal
1997. The Company anticipates that gross margin as a percentage of net sales
should continue to improve in future periods as the new stores opened in
non-competitive markets contribute an increasing percentage of total sales.
This improvement should occur because stores in non-competitive markets have
a higher gross margin percentage (due to a lower percentage of net sales at
promotional pricing and with a lower promotional markdown rate), than the
average of all stores (including those stores in competitive markets), and
because the Company expects to continue to focus its store expansion in
additional non-competitive markets. Management does not anticipate LIFO
income to be a general trend for future years, in as much as there is a
general expectation for moderate inflation in the cost of merchandise, a
factor that generally yields LIFO expense.




Selling, general and administrative expenses increased $14.0 million or
18.6% to $89.6 million in fiscal 1998 compared to $75.6 million in fiscal 1997,
primarily due to the increase in total stores. As a percentage of net sales,
selling, general and administrative expenses increased to 27.7% in fiscal 1998
from 27.1% in fiscal 1997. The increase was due to store opening costs
associated with the 40 stores opened.

Income from operations increased $2.9 million, or 22.7% to $15.8 million
in fiscal 1998 compared to $12.9 million in fiscal 1997. Income from
operations as a percentage of net sales increased to 4.9% in fiscal 1998 from
4.6% in fiscal 1997.

Interest expense increased $492,000 or 16.2% in fiscal 1998 compared to
fiscal 1997. The increase results from higher borrowing levels to fund the
purchases of merchandise, fixtures, and owned store buildings for the store
expansion program.

Income taxes were $4.8 million in fiscal 1998 compared to $3.8 million
in fiscal 1997. The Company's effective tax rate was 39% in fiscal 1998,
and 38.5% in fiscal 1997.

Net earnings for fiscal 1998 increased by $1.4 million or 23.7% to $7.5
million compared to $6.1 million in fiscal 1997.


Fiscal 1997 Compared to Fiscal 1996

Net sales for fiscal 1997 increased $22.3 million or 8.7% to $278.8
million compared to $256.5 million for fiscal 1996. During fiscal 1997,
the Company opened 30 stores, 27 of which were in new non-competitive
markets, and closed one store (which was in competitive market), resulting
in a net increase of 29 stores, and a year end total of 185 stores.
Substantially all of the increase in net sales was due to new stores opened
over the last two fiscal years. Net sales for all stores open the full year
in both fiscal 1997 and 1996 (comparable stores), as adjusted to a
comparable 52 week year, decreased by $6.8 million or 2.9% in fiscal 1997
compared to fiscal 1996. The bulk of this decrease, $5.1 million, occurred
in stores in competitive markets, while the prototype Class 18 Stores
produced a $67,000 decrease, or .1% of sales and the Duckwall variety
stores produced an decrease of $20,000 or .2% of sales. Net sales for all
comparable stores in non-competitive markets decreased by $1.7 million or
1.3%, in fiscal 1997 compared to fiscal 1996. The elimination of five
major promotional circulars, as well as the fact that the Christmas selling
season was one week shorter than the prior year were the major factors in
the reduction of same store sales.

Gross margin for fiscal 1997 increased $9.1 million or 11.0% to $92.3
million compared to $83.2 million in fiscal 1996. As a percentage of net
sales, gross margin increased .7% to 33.1% in fiscal 1997 from 32.4% in
fiscal 1996. The increase was a result of lower promotional markdowns (due
to the elimination of the five promotional circulars) and higher initial
markons on purchases in fiscal 1997, compared to fiscal 1996. The Company
anticipates that gross margin as a percentage of net sales should continue
to improve in future periods as the new stores opened in non-competitive
markets contribute an increasing percentage of total sales. This
improvement should occur because stores in non-competitive markets have a
higher gross margin percentage (due to a lower percentage of net sales at
promotional pricing and with a lower promotional markdown rate), than the
average of all stores (including those stores in competitive markets), and
because the Company expects to continue to focus its store expansion in
additional non-competitive markets.

Selling, general and administrative expenses increased $6.6 million or
9.6% to $75.6 million in fiscal 1997 compared to $69.0 million in fiscal
1996, primarily due to the increase in total stores. As a percentage of
net sales, selling, general and administrative expenses increased to 27.1%
in fiscal 1997 from 26.9% in fiscal 1996.

Income from operations increased $1.8 million, or 16.6% to $12.9
million in fiscal 1997 compared to $11.0 million in fiscal 1996. Income
from operations as a percentage of net sales increased to 4.6% in fiscal
1997 from 4.3% in fiscal 1996.

Interest expense increased $75,000 or 2.5% in fiscal 1997 compared to
fiscal 1996. The increase results from higher borrowing levels to fund the
purchases of merchandise, fixtures, and owned store buildings for the store
expansion program.

Other expense, net, was zero in fiscal 1997, compared to a $185,000
one time gain in fiscal 1996 on termination of a store lease.

Income taxes were $3.8 million in fiscal 1997 compared to $3.1 million
in fiscal 1996. The Company's effective tax rate was 38% in both fiscal
years.

Net earnings for fiscal 1997 increased by $928,000 or 18.1% to $6.1
million compared to $5.1 million in fiscal 1996.



Seasonality and Quarterly Results

The following table, sets forth the Company's net sales, gross margin,
income from operations, and net earnings during each quarter of fiscal 1996,
1997, and 1998.



First Second Third Fourth
Quarter Quarter Quarter Quarter
(dollars in millions)

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



Fiscal 1996
Net sales $55.0 $62.6 $60.8 $78.1
Gross margin 18.2 20.2 19.7 25.1
Income from operations 1.6 2.4 1.8 5.2
Net earnings .6 1.0 .6 2.9


Fiscal 1997
Net sales $59.3 $68.4 $64.9 $86.2
Gross margin 19.6 22.3 21.7 28.7
Income from operations 1.8 2.9 2.1 6.1
Net earnings .7 1.2 .7 3.5

Fiscal 1998
Net sales $69.3 $80.5 $76.2 $97.3
Gross margin 23.7 26.7 26.7 33.2
Income from operations 2.1 3.3 2.5 7.9
Net earnings .9 1.5 .9 4.2




The Company's business is subject to seasonal fluctuations. The
Company's highest sales levels occur in the fourth quarter of its fiscal
year which include the holiday selling season. The Company's results of
operations in any one quarter are not necessarily indicative of the results
of operations that can be expected for any other quarter or for the full
fiscal year.

The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of net sales contributed by
new stores and the integration of the new stores into the operations of the
Company, as well as other factors. The addition of a large number of new
stores can, therefore, significantly affect the quarterly results of
operations.


Inflation

Management does not believe that its operations have been materially
affected by inflation over the past few years. The Company will continue
to monitor costs, take advantage of vendor incentive programs, selectively
buy from competitive vendors and adjust merchandise prices based on market
conditions. In 1996, Congress enacted The Small Business Job Protection
Act of 1996 ("the Act"), raising the hourly minimum wage from $4.25 to
$4.75 effective as of October 1, 1996 and to $5.15 effective as of
September 1, 1997. The majority of the Company's store employees were paid
hourly wages below these increased minimum wage rates. As a result, the
Act will increase the Company's payroll expense. The Company intends to
continue to offset this increase in expense through the implementation of
measures, including, but not limited to, reducing employee hours and
increasing gross margins.


Liquidity and Capital Resources

At the end of fiscal 1998, working capital (defined as current assets
less current liabilities) was $76.0 million compared to $60.4 million at
the end of fiscal 1997 and $47.4 million at the end of fiscal 1996.

The Company's primary sources of funds are cash flow from operations,
borrowings under its revolving loan credit facility, vendor trade credit
financing and lease financing. Additionally, the Company sold 1.089
million shares of its common stock to the public, primarily in the third
quarter of fiscal 1997, generating net proceeds to the Company of $13.1
million. The purpose of the offering was to fund store expansion. The
funds were used to pay down temporarily the revolving credit facility,
pending the investment of the funds in new stores.

Cash provided (used) by operating activities aggregated ($6.8) million,
$4.2 million, and $.9 million in fiscal 1998, 1997 and 1996, respectively.
The decrease in cash provided in fiscal 1998 relative to fiscal 1997
resulted primarily from an increase in inventory needed to support the forty
new store openings. The increase in cash provided in fiscal 1997 relative to
fiscal 1996 resulted primarily from an increase in income taxes payable, as
well as additional depreciation and LIFO expense.



The Company uses its revolving loan credit facility and vendor trade
credit financing to fund the build up of inventories periodically during
the year for its peak selling periods and to meet other short-term cash
requirements. The revolving loan credit facility, which provides up to
$85.0 million of financing in the form of notes payable and letters of
credit, was executed in April 1998 and will expire in April 2001.
Short-term trade credit represents a significant source of financing for
inventory to the Company. Trade credit arises from the willingness of the
Company's vendors to grant payment terms for inventory purchases.

In fiscal 1998, the Company made net cash borrowings against its
revolving credit facility of $13.5 million, incurred $1.9 million of new long
term debt, and made cash payments of $1.9 million to reduce its long-term
debt and capital lease obligations. In fiscal 1997 and 1996, the Company
has made net cash payments of $1.7 million and net cash borrowings of
$8.3 million, respectively. The fiscal 1997 cash payments included the
temporary use of the proceeds from the public offering. The Company
executed operating leases for 80 additional stores during the three year
period ending in fiscal 1998. The Company's long-range plan assumes
growth in the number of stores in smaller markets where there is less
competition, and, in accordance with this plan, 40 new stores were opened
in fiscal 1998 and least 35 new stores are scheduled to be opened in
fiscal 1999. The Company believe that with the new $85 million line of
credit, sufficient capital is available to fund the Company's planned
expansion.

Cash used for acquisition of property and equipment in fiscal 1998,
1997 and 1996 totaled $11.7 million, $11.6 million and $8.8 million,
respectively. Anticipated cash payments for acquisition of property and
equipment in fiscal 1999, principally for store buildings and fixtures are
$13.3 million.


FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS,
FINANCIAL CONDITION OR BUSINESS

In order to take advantage of the safe harbor provisions for
forward-looking statements contained in Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, added to those Acts by the Private Securities Litigation Reform
Act of 1995, the Company is hereby identifying important risks and
uncertainties that could affect the Company's actual results of operations,
financial condition or business and could cause the Company's actual results
of operations, financial condition or business to differ materially from its
historical results of operations, financial condition or business, or the
results of operations, financial condition or business contemplated by
forward-looking statements made herein or elsewhere orally or in writing,
by, or on behalf of, the Company. Factors that could cause or contribute
to such differences include, but are not limited to, those factors described
below.

Expansion Plans

The continued growth of the Company is dependent, in large part, upon
the Company's ability to open and operate new stores on a timely and
profitable basis. The Company plans to open approximately 35 stores in the
current fiscal year and at least 27 stores in both fiscal 2000 and 2001.
While the Company believes that adequate sites are currently
available, the rate of new store openings is subject to various
contingencies, many of which are beyond the Company's control. These
contingencies include the availability of acceptable communities for store
locations, the Company's ability to secure suitable store sites on a timely
basis and on satisfactory terms, the Company's ability to hire, train and
retain qualified personnel, the availability of adequate capital resources
and the successful integration of new stores into existing operations.
There can be no assurance that the Company will be able to continue to
successfully identify and obtain new store sites or that once obtained, the
new stores will achieve satisfactory sales or profitability.


Competition

The Company's strategy is to locate its ALCO stores in smaller retail
markets where there is no competing full-line discount retail store within
the primary trade area and where the Company believes the opening of a store
would significantly reduce the likelihood of such a competitor entering the
market. No assurance can be given, however, that competition will not
emerge in such markets which, if developed, could seriously reduce the
prospect of a profitable store in such market. In those markets in which
the Company has direct competition, it often competes with national or
regional full-line discount stores which often have substantially greater
financial and other resources than the Company.


Government Regulation

The Company is subject to numerous federal, state and local government
laws and regulations, including those relating to the development,
construction and operation of the Company's stores. The Company is also
subject to laws governing its relationship with employees, including
minimum wage requirements, laws and regulations relating to overtime,
working and safety conditions, and citizenship requirements. Material
increases in the cost of compliance with any applicable law or regulation
and similar matters could materially and adversely affect the Company.

In 1996, Congress enacted The Small Business Job Protection Act of 1996
(the "Act"), raising the hourly minimum wage from $4.25 to $4.75 effective
as of October 1, 1996 and to $5.15 effective as of September 1, 1997. The
majority of the Company's store employees were paid hourly wages below these
increased minimum wage rates. As a result, the Act will



increase the Company's payroll expense. The Company intends to continue to
offset this increase in expense through the implementation of measures,
including, but not limited to, reducing employee hours and increasing gross
margins (through increased prices and reduced costs). If these measures are
not successful, the higher minimum wage could materially and adversely affect
the Company.


Control by Significant Stockholder

Kansas Public Employees Retirement System ("KPERS") is a principal
stockholder of the Company, beneficially owning approximately 19% of the
outstanding shares of Common Stock of the Company as of March 16, 1998.


Quarterly Fluctuations

Quarterly results of operations have historically fluctuated as a
result of retail consumers' purchasing patterns, with the highest quarter
in terms of sales and profitability being the fourth quarter. Quarterly
results of operations will likely continue to fluctuate significantly as a
result of such patterns and may fluctuate due to the timing of new store
openings.


Economic Conditions

Similar to other retail businesses, the Company's operations may be
affected adversely by general economic conditions and events which result
in reduced consumer spending in the markets served by it stores. Also,
smaller communities where the Company's stores are located may be dependent
upon a few large employers or may be significantly affected by economic
conditions in the industry upon which the community relies for its economic
viability, such as the agricultural industry. This may make the Company's
stores more vulnerable to a downturn in a particular segment of the economy
than the Company's competitors, which operate in markets which are larger
metropolitan areas where the local economy is more diverse.


Dependence on Officers

The development of the Company's business has been largely dependent
on the efforts of its current management team headed by Glen L. Shank and
fourteen other officers. The loss of the services of one or more of these
officers could have a material adverse effect on the Company.


No Recent Dividend Payments; Restrictions on Payment of Dividends

The Company has not paid a cash dividend on the Common Stock for more
than five years, and it has no plans to commence paying cash dividends on
the Common Stock. The Company's current revolving loan credit facility
prohibits the payment of dividends.

The Year 2000 Issue

The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. In 1998, the
Company will commence, for all of its systems, a year 2000 date conversion
project to address all necessary code changes, testing and implementation.
The "Year 2000" problem is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result
in a major system failure or miscalculations. The Company presently
believes that, with modifications to existing software and converting to
new software, the year 2000 problem will not pose significant operational
problems for the Company's computer systems as so modified and converted.
However, if such modifications and conversions are not completed timely,
the year 2000 problem may have a material impact on the operations of the
Company. Until the Company has undertaken this year 2000 project, the
Company will not know the total cost of the conversion and whether it will
be material to the future financial results or financial condition of the
Company.


Impact of new Accounting Pronouncement

In April 1997, the American Institute of Certified Public Accountants
issued a proposed Statement of Position (SOP) REPORTING ON THE COSTS OF
START-UP ACTIVITIES. The proposed SOP requires that entities expense costs
of start-up activities as they are incurred. The proposed SOP, if approved,
would be effective for financial statements for fiscal years beginning after
December 15, 1998, with earlier application encouraged. The initial
application of the SOP is to be reported as a cumulative effect of a change
in accounting principle. The Company currently capitalizes store pre-opening
costs and amortizes such costs over the initial twelve months of a store's
operations. Pre-opening costs capitalized, net of accumulated amortization,
at February 1, 1998, are $1,567. While the one-time recording of the
cumulative effect of the change in accounting principle could be material,
the ongoing effect of the proposed new accounting principle would be dependent
upon the number and timing of new stores opened. Generally, pre-opening
costs would be recognized during the two months prior to a store commencing
operation under the proposed new accounting principle versus over the twelve
months subsequent to commencing operation under the existing principle.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company does not invest in any market risk sensitive instruments.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES



Page
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Independent Auditors' Report ............................ 18

Financial Statements:

Consolidated Balance Sheets --
February 1, 1998 and February 2, 1997 ......... 19

Consolidated Statements of Operations --
Fiscal Years Ended February 1, 1998,
February 2, 1997, and January 28, 1996 ........ 21

Consolidated Statements of Stockholders'
Equity --
Fiscal Years Ended February 1, 1998,
February 2, 1997, and January 28, 1996 ... 22

Consolidated Statements of Cash Flows --
Fiscal Years
Ended February 1, 1998, February 2, 1997,
and January 28, 1996 ..................... 23

Notes to Consolidated Financial Statements ......... 25



Financial Statement Schedules:

No financial statement schedules are included as they are
not applicable to the Company.





INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Duckwall-ALCO Stores, Inc.:


We have audited the accompanying consolidated balance sheets of
Duckwall-ALCO Stores, Inc. and subsidiary as of February 1, 1998 and February
2, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended February 1, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Duckwall-ALCO Stores, Inc. and subsidiary as of February 1, 1998 and February
2, 1997, and the results of their operations and their cash flows
for each of the years in the three-year period ended February 1, 1998, in
conformity with generally accepted accounting principles.


/s/KPMG Peat Marwick LLP


Wichita, Kansas
March 20, 1998




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Consolidated Balance Sheets
(Dollars in Thousands)

February 1, 1998 and February 2, 1997


February February
Assets 1, 1998 2, 1997

Current assets:
Cash and cash equivalents $ 2,555 7,538
Receivables (note 3) 3,158 3,160
Inventories (notes 2 and 3) 103,445 80,359
Prepaid expenses 2,131 1,785

Total current assets 111,289 92,842

Property and equipment, at cost (note 3)
Land 2,961 2,658
Buildings and building improvements 25,041 20,991
Furniture, fixtures and equipment 34,430 26,215
Transportation equipment 1,731 1,688
Leasehold improvements 6,115 4,623
Construction work in progress 496 2,931
Total property and equipment 70,774 59,106
Less accumulated
depreciation and amortization 30,627 26,527

Net property and equipment 40,147 32,579

Property under capital leases (note 5) 20,407 20,407
Less accumulated amortization 13,811 13,100

Net property under capital leases 6,596 7,307

Debt financing costs 82 80

$ 158,114 132,808



See accompanying notes to consolidated financial statements.



DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Consolidated Balance Sheets, Continued
(Dollars in Thousands)

February 1, 1998 and February 2, 1997



February February
Liabilities and Stockholders' Equity 1, 1998 2, 1997

Current liabilities:
Current maturities of
long-term debt (note 3) $ 1,333 1,242
Current maturities of
capital lease obligations (note 5) 518 607
Accounts payable 19,009 17,127
Income taxes payable 2,272 2,345
Accrued salaries and commissions 4,884 3,876
Accrued taxes other than income 3,159 2,929
Other current liabilities 1,804 1,670
Deferred income taxes (note 6) 2,324 2,612

Total current liabilities 35,303 32,408

Notes payable under revolving loan
credit facility (note 3) 25,591 12,095
Long-term debt, less
current maturities (note 3) 3,646 3,193
Capital lease obligations,
less current maturities (note 5) 8,630 9,148
Other noncurrent liabilities 782 793
Deferred revenue 1,272 0
Deferred income taxes (note 6) 2,496 2,346

Total liabilities 77,720 59,983


Stockholders' equity (notes 4, 7 and 8):

Common stock, $.0001 par value,
authorized 20,000,000 shares in
1998 and 1997; issued and outstanding
5,098,761 and 5,089,823 shares
in 1998 and 1997, respectively 1 1

Additional paid-in capital 54,474 54,396
Retained earnings since June 2, 1991 25,919 18,428

Total stockholders' equity 80,394 72,825

Commitments (note 5)

$ 158,114 132,808



See accompanying notes to consolidated financial statements.




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)

Fiscal Years Ended February 1, 1998, February 2, 1997, and January 28, 1996


February February January
1, 1998 2, 1997 28, 1996
- -------------------------------------- ---------- ---------- ----------

Net sales $ 323,254 278,819 256,454
Cost of sales 212,982 186,531 173,296

Gross margin 110,272 92,288 83,158

Selling, general
and administrative (notes 4 and 5) 89,661 75,630 69,018
Depreciation and amortization 4,805 3,773 3,093

Total operating expenses 94,466 79,403 72,111

Income from operations 15,806 12,885 11,047

Interest expense (notes 3 and 5) 3,525 3,033 2,958
Other income - - (185)

Earnings before income taxes (note 2) 12,281 9,852 8,274

Income tax expense (note 6) 4,790 3,794 3,144

Net earnings 7,491 6,058 5,130

Earnings per share (note 9)
Basic $ 1.47 1.41 1.28

Diluted $ 1.46 1.40 1.28




See accompanying notes to consolidated financial statements.




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity
(Dollars in Thousands)

Fiscal Years Ended February 1, 1998, February 2, 1997, and January 28, 1996


Retained
Earnings
Additional Since Total
Common Paid-In June 2, Stockholders'
Stock Capital 1991 Equity
- ---------------------------- ---------- ---------- ---------- ------------


Balance, January 29, 1995 $ 1 39,859 7,240 47,100
Net earnings for the year
ended January 28, 1996 - - 5,130 5,130

Tax benefit from net
operating loss
carryforward (note 6) - 831 - 831

Balance, January 28, 1996 1 40,690 12,370 53,061
Net earnings for the year
ended February 2, 1997 - - 6,058 6,058

Tax benefit from net
operating loss
carryforward (note 6) - 626 - 626

Issuance of 1,089,000 common
shares in secondary public
offering (note 8) - 13,068 - 13,068

Exercise of outstanding
options to purchase
1,313 common shares - 12 - 12

Balance, February 2, 1997 1 54,396 18,428 72,825

Net earnings for the year
ended February 1, 1998 - - 7,491 7,491

Exercise of outstanding
options to purchase
8,938 common shares - 78 - 78

Balance, February 1, 1998 $ 1 54,474 25,919 80,394



See accompanying notes to consolidated financial statements.




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY


Consolidated Statements of Cash Flows
(Dollars in Thousands)
Fiscal Years Ended February 1, 1998, February 2, 1997, and January 28, 1996


February February January
1, 1998 2, 1997 28, 1996
- -------------------------------------- ---------- ---------- ----------

Cash flows from operating activities:

Net earnings $ 7,491 6,058 5,130

Adjustments to reconcile net
earnings to net cash provided by
operating activities:

Depreciation and amortization 4,805 3,773 3,093
Amortization of debt
financing costs 43 40 180
Deferred income taxes (138) 162 267
Gain on sale or
disposition of property
and equipment - (37) (1)
Gain on termination of store
capital leases - - (185)
LIFO expense (income) (950) 55 (378)
Decrease (increase) in receivables 2 (615) (624)
Increase in inventories (22,136) (8,779) (8,830)
Increase in prepaid expenses (346) (537) (216)
Increase in accounts payable 1,882 792 2,420
Increase (decrease)in income taxes
payable (73) 2,151 163
Increase in accrued
salaries and commissions 1,008 262 502
Increase in accrued taxes
other than income 230 726 264
Increase (decrease) in
other liabilities 123 120 (895)
Increase in deferred revenue 1,272 - -
Net cash provided by (used in)
operating activities (6,787) 4,171 890

Cash flows from investing activities:
Proceeds from sale of
property and equipment - 48 67

Acquisition of:
Buildings (4,112) (4,124) (4,403)
Fixtures, equipment and
leasehold improvements (7,550) (7,538) (4,502)

Net cash used in
investing activities (11,662) (11,614) (8,838)


(Continued)




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows, Continued
(Dollars in Thousands)

Fiscal Years Ended February 1, 1998, February 2, 1997, and January 28, 1996

February February January
1, 1998 2, 1997 28, 1996
- -------------------------------------- ---------- ---------- ----------


Cash flows from financing activities:
Increase in notes
payable under revolving
loan credit facility $ 13,496 80 11,777
Proceeds from stock issuance - 13,068 -
Proceeds from exercise of
outstanding stock options 78 12 -
Proceeds from issuance of
long-term debt 1,870 3,110 -
Principal payments on
long-term debt (1,326) (819) (2,849)
Principal payments under
capital lease obligations (607) (637) (617)
Decrease in
bank overdrafts - - (76)
Debt financing costs (45) (10) (110)

Net cash provided by
financing activities 13,466 14,804 8,125

Net increase (decrease) in cash
and cash equivalents (4,983) 7,361 177
Cash and cash equivalents, at
beginning of year 7,538 177 -

Cash and cash equivalents,
at end of year $ 2,555 7,538 177


See accompanying notes to consolidated financial statements.




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
(Dollars in Thousands Except Per Share Amounts)

Fiscal Years Ended February 1, 1998, February 2, 1997, and January 28, 1996


(1) Summary of Significant Accounting Policies

(a) Nature of Business
Duckwall-ALCO Stores, Inc. and subsidiary (the Company) is
engaged in the business of retailing general merchandise
throughout the midwestern and south central regions of the
United States through discount department and variety store
outlets. Merchandise is purchased for resale from many
vendors, and transactions with individual vendors and
customers do not represent a significant portion of total
purchases and sales.

(b) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant
intercompany account balances have been eliminated in
consolidation.

(c) Basis of Presentation
The Company's fiscal year ends on the Sunday nearest to
January 31. Fiscal 1998 and 1996 consist of 52 weeks, 1997
consists of 53 weeks.

(d) Inventories
Store inventories are stated at the lower of cost or net
realizable value as estimated by the retail inventory method.
Warehouse inventories are stated at the lower of cost or net
realizable value. The Company utilizes the last-in,
first-out (LIFO) method of determining cost of store and
warehouse inventories.

(e) Property and Equipment
Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets. Amortization of
capital leases is computed on a straight-line basis over
the terms of the lease agreements. Leasehold improvements are
amortized on a straight-line basis over the lesser of the
remaining lease term, or ten years. Estimated useful lives are
as follows:

Buildings 25 years
Building improvements 10 years
Furniture, fixtures and equipment 3-7 years
Transportation equipment 3 years
Leasehold improvements 5-10 years

Major improvements are capitalized while maintenance and
repairs, which do not extend the useful life of the asset,
are charged to expense as incurred.

(f) Income Taxes
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes
the enactment date.



DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)

(1) Summary of Significant Accounting Policies, Continued

(g) Store Opening Costs
Direct incremental costs of opening new stores are deferred and
amortized on a straight-line basis over a 12-month period from
the date the store is opened.

(h) Net Sales
Sales are recorded in the period of sale. Sales returns, which
are not material, are recorded in the period of return as a
reduction of sales.

(i) Net Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
SFAS No. 128, Earnings Per Share (Statement 128) which replaces
the prior accounting standard regarding computation and presentation
of earnings per share. Statement 128 requires a dual presentation
of basic earnings per share (based on the weighted average number of
common shares outstanding) and diluted earnings per share which
reflects the potential dilution that could occur if contracts to
issue securities (such as stock options) were exercised. The
Company adopted Statement 128 as of February 1, 1998 and,
accordingly, earnings per share data for all periods presented in
the accompanying consolidated financial statements and notes thereto
has been computed in accordance with Statement 128.


(j) Consolidated Statements of Cash Flows
During fiscal 1998, 1997 and 1996, the following amounts were
paid for interest and income taxes:

1998 1997 1996

Interest, excluding interest on
capital lease obligations and
amortization of debt financing
costs (net of capitalized
interest of $72 in fiscal
1998 and $269 in fiscal 1997
and $107 in fiscal 1996) $ 2,431 2,083 2,061

Income taxes 5,001 1,481 2,714


Noncash financing and investing activities for fiscal 1998, 1997
and 1996 consisted of:

Tax benefit from net operating loss carryforward of $626 and $831
which increases additional paid-in capital in fiscal
1997 and 1996, respectively (note 6).

A capital lease was terminated in fiscal 1996 resulting in
elimination of capital lease assets of $380 and capital lease
obligations of $565.




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)


(1) Summary of Significant Accounting Policies, Continued



(k) Use of Estimates
Management of the Company has made certain estimates and
assumptions in the reporting of assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ
from those estimates.


(l) Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated future
net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. For purposes of
determining impairment, the Company groups assets at the store
level. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. The Company has
determined that a provision for impairment loss does not need to be
recognized for fiscal 1998, 1997 and 1996.

(m) Stock-Based Compensation
The Company accounts for its stock options in accordance with
the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. As such, compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price.
In addition, SFAS No. 123, Accounting for Stock-Based Compensation,
requires that pro forma net earnings and pro forma earnings per
share disclosures be provided for employee stock option grants
made in fiscal year 1996 and subsequent years as if the fair-
value-based cost measurement method defined in SFAS No. 123 had
been applied.



DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)


(2) Inventories
Inventories at February 1, 1998 and February 2, 1997 are stated at the
lower of cost or net realizable value as determined under the LIFO
method of accounting. The Company utilizes the LIFO method of valuing
its inventories because, in the opinion of management, the LIFO method
more nearly matches current costs with current revenue during periods
of rising prices for financial reporting and income tax purposes.
Inventories at February 1, 1998 and February 2, 1997 are summarized as
follows:

1998 1997

FIFO cost $ 106,489 84,353
Less LIFO reserve (3,044) (3,994)

LIFO cost $ 103,445 80,359

Earnings before income taxes for fiscal 1998, 1997 and 1996 would
have been decreased by $950, increased by $55 and decreased by $387,
respectively, if the FIFO method of valuing inventories had been
utilized.


(3) Credit Arrangements, Notes Payable and Long-Term Debt
The Company's loan agreement with its lenders provides a revolving
loan credit facility of up to $45,000 of long-term financing. The
amount advanced (through a note or letters of credit) to the Company
bears interest at the prime rate plus .5% on the Revolving Rate Loan
and LIBOR plus 2.25% on the LIBOR Rate Loan and is generally limited
to 55% of eligible inventory, as defined. Advances are secured by a
security interest in the Company's inventory, accounts receivable and
intangible assets. The loan agreement contains various restrictions
including limitations on additional indebtedness, the number of stores
that may be opened in a fiscal year, sales of assets, and capital
expenditures and financial covenants related to earnings, the ratio
of earnings to fixed charges, working capital and tangible net worth,
all as defined. The loan agreement prohibits the payment of dividends.
The loan agreement expires in February 1999 and automatically renews
for successive one-year terms thereafter unless terminated by the
lenders or the Company.

Notes payable outstanding at February 1, 1998 and February 2, 1997
under the revolving loan credit facility aggregated $25,591 and
$12,095, respectively. The lender had also issued letters of credit
aggregating $2,692 and $2,237, respectively, at such dates on behalf
of the Company. The interest rate on outstanding borrowings at
February 1, 1998 was 7.875% on the LIBOR Rate Loan and 9.0% on the
Revolving Rate Loan payable monthly. The Company had additional
borrowings available at that date under the revolving loan credit
facility amounting to $16,717.






DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)

(3) Credit Arrangements, Notes Payable and Long-Term Debt, Continued
Long-term debt, exclusive of notes payable under the revolving loan
credit facility as described above, at February 1, 1998 and
February 2, 1997 consisted of the following:

1998 1997

7.15% to 9.5% obligations for Industrial
Revenue Bonds, interest payable
semi-annually with principal payments
due annually until final maturity
in 1999 $ 600 1,000

9.875% mortgage note payable due in
monthly installments, including
interest, through September 2001 408 498

8.41% note payable due in monthly
installments, including interest,
through March 2001, secured
by airplane 681 861

8.77% note payable due in monthly
installments, including interest,
through December 2000, secured by
certain equipment 1,503 1,976

9.3% note payable due in monthly
installments, including interest,
through March 2009, secured by
buildings 1,787 -

10% notes payable, due quarterly - 100
4,979 4,435
Less current maturities 1,333 1,242

Long-term debt, less current maturities $ 3,646 3,193


The Industrial Revenue Bonds were issued by a municipality to finance
warehouse facilities of the Company. The facilities are leased by the
Company and the Company has the option to purchase the facilities for
a nominal sum at the expiration of the leases.

Interest expense on notes payable and long-term debt in fiscal 1998,
1997 and 1996 aggregated $2,418, $1,853 and $1,706, respectively.

Maturities of long-term debt, including the notes payable under the
revolving loan credit facility, in each of the next five years and
thereafter in the aggregate as of February 1, 1998 are as follows:

Fiscal Year:

1999 $ 1,333
2000 26,758
2001 893
2002 254
2003 143
Thereafter 1,189
$30,570




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)



(4) Employee Benefits
The Company has a trusteed Profit Sharing Plan (Plan) for the benefit
of eligible employees. The Plan provides for an annual contribution
of not more than 20% of earnings for the year before the profit
sharing contribution and Federal and state income taxes, limited to
15% of the annual compensation of the participants in the Profit
Sharing Plan. Contributions by the Company vest with the participants
over a seven-year period. The Company reserves the right to
discontinue its contributions at any time. The Company made profit
sharing contributions for fiscal 1998, 1997 and 1996 of $800, $700 and
$630, respectively.

At February 1, 1998 and February 2, 1997, the Plan owned 81,553 shares
of the Company's common stock.

(5) Leases
The Company is lessee under long-term capital leases expiring at
various dates. The components of property under capital leases in
the accompanying consolidated balance sheets at February 1, 1998 and
February 2, 1997 are as follows:

1998 1997

Buildings $ 16,624 16,624
Fixtures 3,783 3,783

20,407 20,407

Less accumulated amortization 13,811 13,100

Net property under
capital leases $ 6,596 7,307

The Company also has noncancelable operating leases, primarily for
buildings and transportation equipment, that expire at various dates.

Future minimum lease payments under all noncancelable leases together
with the present value of the net minimum lease payments pursuant to
capital leases as of February 1, 1998 are as follows:

Fiscal Year: Capital Operating

1999 $ 1,560 $ 8,981
2000 1,521 8,329
2001 1,521 7,559
2002 1,521 6,561
2003 1,457 5,660
Later years 9,225 23,041

Total minimum lease payments $ 16,805 $ 60,131

Less amount representing interest 7,657
Present value of net minimum lease
payments 9,148
Less current maturities 518

Capital lease obligations,
less current maturities $ 8,630



DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)

(5) Leases, Continued
Minimum payments have not been reduced by minimum sublease rentals of
$152 under operating leases due in the future under noncancelable
subleases. They also do not include contingent rentals which may be
paid under certain store leases on the basis of percentage of sales
in excess of stipulated amounts. Contingent rentals applicable to
capital leases amounted to $59, $39 and $51 for fiscal 1998, 1997 and
1996, respectively.

Interest on capital lease obligations in fiscal 1998, 1997 and 1996
aggregated $1,107, $1,180 and $1,252, respectively.

The following schedule presents the composition of total rent expense
for all operating leases for fiscal 1998, 1997 and 1996:

1998 1997 1996

Minimum rentals $ 7,545 5,221 6,049
Contingent rentals 316 361 353
Less sublease rentals (104) (124) (111)

$ 7,757 5,458 6,291

(6) Income Taxes
Total income tax expense (benefit) for fiscal 1998, 1997 and 1996 was
allocated as follows:

1998 1997 1996

Operations $ 4,790 3,794 3,144
Additional paid-in capital
for the tax benefit from
utilization of net operating
loss carryforwards - (626) (831)

Total income tax expense $ 4,790 3,168 2,313

Income tax expense (benefit) attributable to operations for fiscal
1998, 1997 and 1996 consists of:

Current Deferred Total
1998:
Federal $ 4,163 (116) 4,047
State 765 ( 22) 743

$ 4,928 (138) 4,790

1997:
Federal $ 3,061 136 3,197
State 571 26 597

$ 3,632 162 3,794

1996:
Federal $ 2,417 224 2,641
State 460 43 503

$ 2,877 267 3,144




DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)


(6) Income Taxes, Continued


The significant components of deferred income tax expense (benefit)
attributable to operations for fiscal 1998, 1997 and 1996 are as
follows:

1998 1997 1996
Deferred tax expense
(exclusive of the effects
of the following item) $ (138) 788 1,098
Decrease in beginning of the
year balance of the
valuation allowance for
deferred tax assets - (626) (831)

$ (138) 162 267


Income tax expense attributable to operations was $4,790, $3,794 and
$3,144 for fiscal 1998, 1997 and 1996, respectively, and differs from
the amounts computed by applying the Federal income tax rate of 35% in
1998 and 34% in 1997 and 1996 as a result of the following:

1998 1997 1996
Computed "expected" tax expense $ 4,298 3,350 2,814

Reduction in income taxes
resulting from:
State income taxes, net of the
Federal income tax benefit 483 394 332

Other, net 9 50 (2)


$ 4,790 3,794 3,144


The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at February 1, 1998
and February 2, 1997 are presented below:

1998 1997
Deferred tax assets:
Capital leases $ 969 930
Other assets 38 -
Other liabilities 579 323
Net operating loss and
tax credit carryforwards 85 97

Total gross deferred tax assets 1,671 1,350
Less - valuation allowance (85) (97)

Net deferred tax assets 1,586 1,253

Deferred tax liabilities:
Inventories, principally due to
differences in the LIFO
reserve arising from a prior business
combination accounted for as a
purchase 2,998 3,096
Property and equipment, due to differences
in depreciation and a prior business
combination accounted for as a purchase 3,408 3,115

Total gross deferred tax liabilities 6,406 6,211

Net deferred tax liability $ 4,820 4,958



DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)

(6) Income Taxes, Continued
At February 1, 1998, the Company has net operating loss carryforwards
for state income tax purposes in various states aggregating $2,364
which are available to offset future state taxable income in those
states, if any, expiring at various dates through fiscal 2005. The
Company also has an alternative minimum tax credit carryforwards of
$19 which are available to reduce future Federal regular income taxes,
if any, over an indefinite period.

The valuation allowance at February 1, 1998 relates to the net
operating loss (NOL) and tax credit carryforwards. Income tax
benefits in fiscal 1997 and 1996 from the utilization of NOL
carryforwards have been recorded as an increase to additional paid-in
capital because such income tax benefits are attributable to the loss
periods prior to the reorganization in June 1991.


(7) Stock Option Plan
During fiscal 1994, the Company adopted a stock option plan under
which options to purchase 125,000 shares of common stock may be
granted to key employees. The stock option plan was amended in
June 1994 to increase the number of options which may be granted under
the plan to 200,000, and was further amended in March 1997 to increase
to 450,000. The plan provides that the option price shall not be less
than the fair market value of the shares on the date of grant and that
unexercised options expire five years from that date.
The options become exercisable in equal amounts over a four-year
period from the grant date. Information regarding options which were
outstanding at February 1, 1998, February 2, 1997, and January 28, 1996
is presented below:

Weighted-
Average
Number of Exercise
Shares Price

Options outstanding, January 29, 1995 117,000 $8.67
Issued 44,525 $11.375
Canceled (3,200) $9.51

Options outstanding, January 28, 1996 158,325 $9.41
Issued 37,150 $12.875
Exercised (1,313) $9.41
Canceled (6,637) $10.49

Options outstanding, February 2, 1997 187,525 $10.06
Issued 82,750 $12.75
Exercised (8,938) $8.73
Canceled (14,262) $10.79

Options outstanding, February 1, 1998 247,075 $10.97







DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)


(7) Stock Option Plan, Continued
The Company has chosen to account for stock-based compensation using
the intrinsic value method prescribed in APB 25 and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant
date as prescribed by Statement 123, net earnings and net earnings per
share would have been decreased to the pro forma amounts indicated in the
table below:


1998 1997
Net earnings, as reported $ 7,491 6,058
Net earnings, pro forma 7,412 6,017
Net earnings per share, as reported:
Basic 1.47 1.41
Diluted 1.46 1.40
Net earnings per share, proforma:
Basic 1.45 1.40
Diluted 1.44 1.39

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:

1998 1997
Expected dividend yield 0% 0%
Expected stock price volatility 33.0% 33.5%
Risk-free interest rate 6.5% 6.5%
Expected life of options 5 years 5 years

The weighted-average grant date fair value of options granted during
1998 and 1997 is $5.19 and $5.28 per share, respectively.



Options Outstanding Options Exercisable
----------------------------------------- --------------------------
Weighted-
Range Number Average Weighted- Number Weighted-
of Outstanding Remaining Average Exercisable Average
Exercise at February Contractual Exercise at February Exercise
Price 1, 1998 Life Price 1, 1998 Price
- --------------------- ----------- ----------- ----------- ----------- -----------

$7.20 to $9.20 95,750 .93 $8.64 78,531 $8.52
$11.375 to $12.875 151,325 3.69 $12.44 26,738 $11.83

$7.20 to $12.875 247,075 105,269






DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)


(8) Stockholders' Equity
The Company completed a secondary public offering of 900,000 shares of
its common stock on October 15, 1996 and the Company's underwriters
exercised their option to purchase an additional 189,000 common shares
on November 15, 1996. The Company received net proceeds from the sale
of its common stock (after deducting issuance costs) of $13,068. The
net proceeds of the offering are being used to fund the opening of new
stores. Pending such use, the net proceeds were used to repay
outstanding balances under the Company's revolving loan credit
facility.

The Company has accounted for the confirmation of its plan of
reorganization under Chapter 11 of the Federal bankruptcy laws which
was confirmed by the Bankruptcy Court on May 17, 1991 as a
quasi-reorganization. Accordingly, the accumulated deficit at
June 2, 1991 was charged to additional paid-in capital and a new
retained earnings account was established effective the same date.
No adjustment was made to the carrying values of the Company's assets
and liabilities because such amounts were not in excess of estimated
fair values.

(9) Earnings Per Share
The following is a reconciliation of the outstanding shares utilized
in the computation of earnings per share:

1998 1997 1996
Outstanding shares:
Weighted-average
shares outstanding (basic) 5,096,322 4,299,502 3,999,488
Effect of dilutive
options to purchase
common stock 52,496 40,320 14,863

As adjusted for
diluted calculation 5,148,818 4,339,822 4,014,351

Net earnings -
basic and diluted $ 7,491 6,058 5,130

Earnings per share amounts have been computed on the absolute amount of
net earnings whereas the above net earnings amounts have been rounded
to the nearest thousand.

(10) Quarterly Financial Information (Unaudited)
Financial results by quarter are as follows:



First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------

1998:
Net sales $ 69,272 80,463 76,163 97,356
Gross margin (a) 23,735 26,668 26,714 33,155
Net earnings 849 1,535 903 4,204
Net earnings per
share (b):
Basic .17 .30 .18 .82
Diluted .17 .30 .18 .81

1997:
Net sales $ 59,348 68,426 64,857 86,188
Gross margin (a) 19,642 22,320 21,656 28,670
Net earnings 703 1,224 701 3,430
Net earnings per share:
Basic .18 .31 .17 .68
Diluted .18 .30 .17 .67






DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued
(Dollars in Thousands Except Per Share Amounts)

(10) Quarterly Financial Information (Unaudited), Continued

(a) The pretax LIFO inventory provision for the fiscal year ended
February 1, 1998 was estimated to be expense of $-0-, $110 and $60 in
each of the first three quarters, respectively. The annual provision
amounted to $950 income resulting in a credit of $1,120 in the fourth
quarter.

The pretax LIFO inventory provision for the fiscal year ended
February 2, 1997 was estimated to be expense of $-0-, $90 and $90
in each of the first three quarters, respectively. The annual
provision was a $55 expense resulting in a credit of $125 in the
fourth quarter.

(b) Earnings per share amounts are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings per
share in fiscal 1997 does not equal the total computed for the year
due to the public offering of common stock which occurred during the
third quarter of fiscal 1997.

(11) Fair Value of Financial Instruments
The Company has determined the fair value of its financial
instruments in accordance with Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of Financial
Instruments. For long-term debt, the fair value is estimated by
discounting the future cash flows at rates currently available for
similar types of debt instruments. Such fair value approximated
the carrying value of long-term debt at February 1, 1998 and
February 2, 1997. For notes payable under revolving loan credit
facility, fair value approximates the carrying value due to the
variable interest rate.

For all other financial instruments including cash, receivables,
accounts payable, and accrued expenses, the carrying amounts
approximate fair value due to the short maturity of those
instruments.

(12) Related Party Transactions
Lease payments to related parties amounted to approximately $585,
$585 and $650 in fiscal 1998, 1997 and 1996, respectively.

During fiscal 1997, the Company paid a computer consulting firm,
whose president is a director of the Company, $957 under a contract
for point-of-sale software.





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

None



PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 21, 1998, contains under
the caption "Election of Directors" certain information required by Item 10
of Form 10-K, and such information is incorporated herein by this reference.
The information required by Item 10 of Form 10-K as to executive officers is
set forth in Item 4A of Part I hereof.

The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 21, 1998, contains under
the caption "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" certain information required by Item 10 of Form 10-K, and such
information is incorporated herein by this reference.


ITEM 11. EXECUTIVE COMPENSATION.

The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 21, 1998, contains under
the caption "Executive Compensation and Other Information" the information
required by Item 11 of Form 10-K, and such information is incorporated
herein by this reference (except that the information set forth under the
following subcaptions is expressly excluded from such incorporation:
"Compensation Committee Report" and "Company Performance").


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.

The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 21, 1998, contains under
the caption "Ownership of Duckwall Common Stock" the information required
by Item 12 of Form 10-K and such information is incorporated herein by this
reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 21, 1998, contains under
the caption "Insider Participation" the information required by Item 13 of
Form 10-K and such information is incorporated herein by this reference.




PART IV

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

(a) Financial Statements, Financial Statement Schedules, and Exhibits

(1) Consolidated Financial Statements

The financial statements are listed in the index for Item 8 of
this Form 10-K.

(2) Financial Statement Schedules

No financial statement schedules are included as they are not
applicable to the Company.

(3) Exhibits

The exhibits filed with or incorporated by reference in this report
are listed below:


Number Description
- ------ -----------------------------------------------------------------
3(a) Amended and Restated Articles of Incorporation (filed as
Exhibit 3(a) to Registrant's Registration Statement on Form 10
and hereby incorporated herein by reference).

3(b) Certificate of Amendment to the Articles of Incorporation
(filed as Exhibit 3(b) to Registrant's Annual Report on Form
10-K for the fiscal year ended January 29, 1995, and
incorporated herein by reference) (filed as Exhibit 3(b) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 29, 1995, and incorporated herein by reference).

3(c) Bylaws (filed as Exhibit 3(b) to Registrant's Registration
Statement on Form 10 and hereby incorporated herein by
reference).

4(a) Specimen Common Stock Certificates (filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-1 and
incorporated herein by reference).

4(b) Reference is made to the Amended and Restated Articles of
Incorporation and Bylaws described above under 3(a) and
3(c), respectively (filed as Exhibit 4(a) to Registrant's
Registration Statement on Form 10 and hereby incorporated
herein by reference).

4(c) Reference is made to the Certificate of Amendment to the
Articles of Incorporation described above under 3(b) (filed as
Exhibit 3(b) to Registrant's Annual Report on Form 10-K for
the fiscal year ended January 29, 1995, and incorporated
herein by reference).

4(d) Form of 10% Subordinated Notes (filed as Exhibit 4(c) to
Registrant's Registration Statement on Form 10 and hereby
incorporated herein by reference).

9(a) Voting Agreement and Irrevocable Proxy, dated as of May 29,
1991, among General Electric Capital Corporation, certain
stockholders of the Registrant and the Registrant
(filed as Exhibit 9 to Registrant's Registration Statement
on Form 10 and hereby incorporated herein by reference).





9(b) Assignment, dated as of February 11, 1993, among General
Electric Credit Corporation, BA Business Credit, Inc. and
Transamerica Business Credit Corporation (filed as Exhibit
9(b) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 and hereby incorporated
herein by reference).

10(a) Assignment, dated as of February 11, 1993, among General
Electric Credit Corporation, BA Business Credit, Inc. and
Transamerica Business Credit Corporation (filed as Exhibit
9(b) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 and hereby incorporated
herein by reference).

10(b) Amended and Restated Loan Agreement, dated as of February 11,
1993 among the Registrant, BA Business Credit, Inc. and
Transamerica Business Credit Corporation (filed as Exhibit
10(e) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 and hereby incorporated
herein by reference.)

10(c) First Amendment to Security Agreement, dated as of February 11,
1993 among the Registrant, BA Business Credit, Inc. and
Transamerica Business Credit Corporation (filed as Exhibit
10(f) to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993 and hereby incorporated herein by
reference.)

10(d) Amendment No. 1, dated as of June 10, 1994, to the Amended and
Restated Loan Agreement, dated as of February 11, 1993, among
the Registrant, BA Business Credit, Inc. and Transamerica
Business Credit Corporation.

10(e) Stock Pledge Agreement, dated as of February 11, 1993 among the
Registrant, BA Business Credit, Inc. and Transamerica Business
Credit Corporation (filed as Exhibit 10(g) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993
and hereby incorporated herein by reference.)

10(f) Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 among the Registrant, BA
Business Credit, Inc. and Transamerica Business Credit
Corporation (filed as Exhibit 10(h) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1993 and
hereby incorporated herein by reference.)

10(g) Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 among the Registrant, BA
Business Credit, Inc. and Transamerica Business Credit
Corporation (filed as Exhibit 10(i) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1993 and
hereby incorporated herein by reference.)

10(h) Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 among the Registrant, BA
Business Credit, Inc. and Transamerica Business Credit
Corporation (filed as Exhibit 10(j) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1993 and
hereby incorporated herein by reference.)

10(i) Deed of Trust, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 by the Registrant in favor of
The Public Trustee for Morgan County, Colorado (filed as Exhibit
10(k) to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993 and hereby incorporated herein by
reference.)




10(j) Deed of Trust, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 by the Registrant in favor of
The Public Trustee for Fremont County, Colorado (filed as Exhibit
10(l) to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993 and hereby incorporated herein by
reference.)

10(k) Lease dated July 1, 1979 between the Registrant and the City of
Abilene (filed as Exhibit 10(d) to Registrant's Registration
Statement on Form 10 and hereby incorporated herein by
reference).

10(l) Lease dated July 1, 1979 between the Registrant and the City of
Abilene (filed as Exhibit 10(e) to Registrant's Registration
Statement on Form 10 and hereby incorporated herein by
reference).

10(m) Lease dated July 1, 1979 between the Registrant and the City of
Abilene (filed as Exhibit 10(f) to Registrant's Registration
Statement on Form 10 and hereby incorporated herein by
reference).

10(n) Employment Agreement, dated March 18, 1993 between the
Registrant and Glen L. Shank (filed as Exhibit 10(o) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993 and hereby incorporated herein by reference.)*

10(o) Second Amended and Restated Loan Agreement, dated as of
October 18, 1995, by and among the Registrant, BankAmerica
Business Credit, Inc. and Transamerica Business Credit
Corporation.

11 Computation of Company's Earnings Per Share

22 Subsidiaries of the Registrant

23 Consent of Independent Auditors

27 Financial Data Schedule
______________________
* Management contracts or compensation plans or arrangements required to be
identified by Item 14(a)(3).

(b) Reports on Form 8-K.

No reports on Form 8-K were filed by Registrant during the fourth
quarter of the fiscal year ended February 1, 1998.

(c) Exhibits

The exhibits filed with this report are identified above under
Item 14(a)(3).

(d) Financial Statement Schedules.

No financial statement schedules are included as they are not
applicable to the Company.




SIGNATURES

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

DUCKWALL-ALCO STORES, INC.

by /s/ Glen L. Shank
Glen L. Shank
Chairman of the Board
and President

Dated: May 1, 1998

Pursuant to the requirement 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 and Title Date
---------------------------------------------------- -----------------
/s/ Glen L. Shank May 1, 1998
Glen L. Shank
Chairman of the Board
and President
(Principal Executive Officer)


/s/ Richard A. Mansfield May 1, 1998
Richard A. Mansfield
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)


/s/ Dennis A. Mullin May 1, 1998
Dennis A. Mullin
Director


/s/ William J. Morgan May 1, 1998
William J. Morgan
Director


/s/ Robert C. Amenta May 1, 1998
Robert C. Amenta
Director


/s/ Robert L. Barcum May 1, 1998
Robert L. Barcum
Director

/s/ Lolan C. Mackey May 1, 1998
Lolan C. Mackey
Director