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

FORM 10-Q

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

For the quarterly period ended May 2, 2004

OR

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

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 incorporation or organization)		(I.R.S. Employer 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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ___   No   X

APPLICABLE ONLY TO CORPORATE ISSUERS:

4,352,529 shares of common stock, $.0001 par value (the issuer’s only class of common stock), were outstanding as of May 2, 2004.

Duckwall-ALCO Stores, Inc. And Subsidiaries Consolidated Balance Sheets (Dollars in Thousands)

Assets

	May 2, 2004			February 1, 2004
	(Unaudited)
Current assets:
Cash and cash equivalents	$    1,529			$    1,084
Receivables	1,511			1,521
Inventories	141,158			131,661
Prepaid expenses	1,582			2,188
Total current assets	145,780			136,454
Property and equipment	87,293			86,349
Less accumulated depreciation	61,077			59,586
Net property and equipment	26,216			26,763
Property under capital leases	20,120			20,120
Less accumulated amortization	17,175			17,041
Net property under capital leases	2,945			3,079
Other non-current assets	146			164
Deferred income taxes	1,033			1,033
Total assets	$176,120			$167,493

See accompanying notes to unaudited consolidated financial statements.

Duckwall-ALCO Stores, Inc. And Subsidiaries Consolidated Balance Sheets (Dollars in Thousands)

Liabilities and Stockholders’ Equity

	May 2, 2004		February 1, 2004
	(Unaudited)
Current liabilities:
Current maturities of:
Long term debt	$       403		$       533
Capital lease obligations	802		802
Accounts payable	32,437		27,799
Income taxes payable	393		1,944
Accrued salaries and commissions	3,519		5,475
Accrued taxes other than income	4,433		4,496
Other current liabilities	4,419		4,276
Deferred income taxes	1,636		1,668
Total current liabilities	48,042		46,993
Notes payable under revolving loan	11,746		4,958
Capital lease obligations - less current maturities	4,382		4,583
Other noncurrent liabilities	1,321		1,347
Deferred revenue	314		419
Total liabilities	65,805		58,300
Stockholders’ equity:
Common stock, $.0001 par value, authorized
20,000,000 shares; issued and outstanding
4,352,529 shares and 4,299,816 shares respectively	1		1
Additional paid-in capital	49,764		49,329
Retained earnings	60,550		59,863
Total stockholders’ equity	110,315		109,193
Total liabilities and stockholders’ equity	$176,120		$167,493

See accompanying notes to unaudited consolidated financial statements.

Duckwall-ALCO Stores, Inc. And Subsidiaries Consolidated Statements of Operations (Dollars in Thousands Except Per Share Amounts) (Unaudited)

	For the Thirteen Week Periods Ended
	May 2, 2004			May 4, 2003
Net sales	$103,294			$ 100,048
Cost of sales	69,033			66,700
Gross margin	34,261			33,348
Selling, general and administrative	31,128			30,121
Depreciation and amortization	1,743			1,797
Total operating expenses	32,871			31,918
Operating income from continuing operations	1,390			1,430
Interest expense	282			390
Earnings from continuing operations before income taxes	1,108			1,040
Income tax expense	421			377
Earnings from continuing operations	687			663
(Loss) from discontinued operations, net of income tax	0			(105	)
Net earnings	$       687			$        558
Earnings per share
Basic
Continuing operations	$      0.16			$       0.15
Discontinued operations	$      0.00			($ 0.02	)
Net earnings	$      0.16			$       0.13
Diluted
Continuing operations	$      0.16			$       0.15
Discontinued operations	$      0.00			($ 0.02	)
Net earnings	$      0.16			$       0.13

See accompanying notes to unaudited consolidated financial statements.

Duckwall-ALCO Stores, Inc. And Subsidiaries Consolidated Statements of Cash Flows Dollars in Thousands (Unaudited)

	For the Thirteen Week Periods Ended
	May 2, 2004			May 4, 2003
Cash Flows From Operating Activities:
Net earnings	$    687			$    558
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities
Amortization of debt financing costs	18			18
Depreciation and amortization	1,743			1,812
Increase in inventories	(9,497	)		(6,552	)
Increase in accounts payable	4,638			5,945
Decrease in receivables	10			166
Decrease in prepaid expenses	606			374
(Decrease) increase in accrued taxes other than income	(63	)		738
Decrease in accrued salaries and commissions	(1,956	)		(1,489	)
Decrease in income taxes payable	(1,551	)		(567	)
Decrease in deferred income taxes	(32	)		(38	)
Decrease in deferred revenue	(105	)		(109	)
Increase (decrease) in other liabilities	117			(226	)
Net cash provided by (used in) operating activities	(5,385	)		630
Cash Flows From Investing Activities:
Capital expenditures	(1,062	)		(1,525	)
Net cash used in investing activities	(1,062	)		(1,525	)
Cash Flows From Financing Activities:
Proceeds from exercise of stock options	435			0
Repurchase of common stock	0			(658	)
Increase in revolving loan	6,788			3,221
Principal payments on long term notes	(130	)		(121	)
Principal payments on capital leases	(201	)		(178	)
Net cash provided by financing activities	6,892			2,264
Net increase in cash and cash equivalents	445			1,369
Cash and cash equivalents at beginning of period	1,084			1,356
Cash and cash equivalents at end of period	$ 1,529			$ 2,725

See accompanying notes to unaudited consolidated financial statements

Duckwall-ALCO Stores, Inc. And Subsidiaries Notes to Unaudited Consolidated Financial Statements

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements are for interim periods and, consequently; do not include all disclosures required by generally accepted accounting principles for annual financial statements. It is suggested that the accompanying unaudited consolidated financial statements be read in conjunction with the consolidated financial statements included in the Company’s fiscal 2004 Annual Report. In the opinion of management of Duckwall-ALCO Stores, Inc., the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position of the Company and the results of its operations and cash flows for the interim periods.

(2) Principles of Consolidation

The consolidated financial statements include the accounts of Duckwall-ALCO Stores, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

(3) Stock-based Compensation

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date, net earnings and net earnings per share would have been decreased to the pro forma amounts indicated in the table below:

	For The Thirteen Week Periods Ended
	May 2, 2004			May 4, 2003
Net earnings as reported	$       687			$       558
Pro forma stock-based employee compensation
cost, net of tax	(10	)		(21	)
Pro forma net earnings	$       677			$       537
Earnings per share as reported:
Basic	$      0.16			$      0.13
Diluted	$      0.16			$      0.13
Earnings per share, pro forma:
Basic	$      0.16			$      0.13
Diluted	$      0.15	.		$      0.12

(4) Earnings Per Share

Basic net earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding. Diluted net earnings per share reflects the potential dilution that could occur if contracts to issue securities (such as stock options) were exercised.

The average number of shares used in computing earnings per share was as follows:

 

Thirteen Weeks Ended	Basic	Diluted
May 2, 2004	4,320,213	4,424,174
May 4, 2003	4,259,034	4,317,476

(5) Insurance

Effective with the start of a new insurance policy term starting June 1, 2003, the Company is essentially self-insured for worker’s compensation insurance as a result of a large deductible. The deductible on the general liability insurance policy was also significantly increased. Due to the fact that it takes more than one year to determine the actual costs under these plans, these costs are estimated based on the company’s historical loss experience and estimates from the insurance carriers and consultants.

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

(Dollars in thousands)

Overview

Operations. The Company is a regional discount retailer operating in 21 states in the central United States, with two business segments, consisting of:

•

the ALCO Stores segment. The Company operates 185 ALCO Stores which offer a wide variety of general merchandise and a limited variety of food products and accounted for 92% of the Company’s sales for the first quarter of fiscal 2005.

•

the Duckwall Stores segment. The Company operates 78 Duckwall Stores which offer a more limited general merchandise selection, but serve the needs of a community that is not large enough to support a full-line retail discount store, and accounted for 8% of the Company’s sales for the first quarter of fiscal 2005.

The thirteen weeks ended May 2, 2004 and May 4, 2003 are referred to herein as the first quarter of fiscal 2005 and 2004 respectively.

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

The Retail Industry. The Company’s business is generally a highly competitive business. However, to reduce the competition and improve the company’s performance, the Company’s overall business strategy involves identifying, and opening stores in under-served markets that currently have no direct competition from another larger national or regional full-line discount retailer and providing the most convenient access to retail shopping within those markets. A key aspect of this strategy includes placing the Company’s stores in markets where the Company believes no such competition is likely to develop. This strategy does not eliminate the competition for the Company’s stores as the Company’s customers still shop at retail discount stores and other retailers located in regional trade centers. The Company also competes for retail sales with mail order companies, specialty retailers, mass merchandisers, dollar stores, manufacturer’s outlets, and the internet.

Key Items in Fiscal 2005. Significant financial items during the first quarter of fiscal 2005 were:

•

Net sales increased 3.2% to $103.3 million and net earnings increased 23%.

•

One new ALCO store was opened and six ALCO stores were remodeled.

Company Performance Measures. The Company measures itself against a number of financial metrics to assess its performance. The following are the most frequently discussed metrics, and are discussed in more detail under the heading “Thirteen Weeks Ended May 2, 2004 Compared to Thirteen Weeks Ended May 4, 2003.”

 

•

Same store sales growth is a measure which indicates whether existing stores are maintaining their market share. We define same stores as those stores that were open as of the first day of the prior fiscal year. Same store sales of the Class 18 ALCO stores increased 0.4% during the first quarter of fiscal 2005. Sales in the Duckwall division were relatively strong, with a 4.3% same store increase.

•

Gross margin percentage is a key measure of the Company’s ability to maximize profit on the purchase and subsequent sale of merchandise, while minimizing promotional and clearance markdowns, shrinkage, damage, and returns. Gross margin percentage is defined as sales less cost of sales, expressed as a percentage of sales. Gross margin percent declined slightly to 33.2% of sales in the first quarter of fiscal 2005, compared to 33.3% in first quarter of fiscal 2004.

•

Earnings per share (“EPS”) growth is an indicator of the returns generated for the Company’s stockholders. EPS grew to $0.16 per diluted share for the first quarter of fiscal 2005, compared to $0.13 per diluted share for the first quarter of the prior fiscal year.

CRITICAL ACCOUNTING POLICIES

Inventory: As discussed in Note 1 (d) to the Consolidated Financial Statements, inventories are stated at the lower of cost or net realizable value with cost determined using the last-in, first-out (LIFO) method. The retail inventory method (“RIM”) used by the Company is an averaging method that has been widely used in the retail industry. This method calculates a cost to retail ratio that is applied to the retail value of inventory to calculate cost inventory and the resulting gross margin. Use of the RIM method does not eliminate the use of management judgments and estimates, including markdowns and shrinkage, which significantly impact the ending inventory valuation at cost and the resulting gross margins. The Company continually evaluates product categories to determine if markdown action is appropriate, or if a markdown reserve should be established. The Company recognizes that the use of the RIM will result in valuing inventories at lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. As of May 2, 2004 and May 4, 2003, the Company had recorded markdowns that had not been taken and which served to reduce inventories to lower of cost or market by approximately $741,000 and $1,107,000, respectively. Management believes that the RIM provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market.

Property and Equipment: The Company’s policy is to capitalize property and equipment if it has a useful life beyond one year. Major improvements are capitalized, while maintenance and repairs, which do not extend the useful life of the asset, are expensed as incurred. The nature and extent of the repair, as well as the relative dollar amount of the repair in relation to the cost of the asset determine whether the expenditure is capitalized or expensed.

Impairment of Long-Lived Assets: The Company considers determination of impairment of long-lived assets as a critical accounting policy because determination as to whether the long-lived assets of a store are impaired and, if impaired, the fair value of such assets requires the use of judgment, particularly as it relates to projecting whether the sum of expected undiscounted future cash flows for the store over an extended period of time will equal or exceed the carrying value of such assets. Management uses the best information available to make the determination; however, actual future cash flows for the store may vary significantly from the cash flows projected in conjunction with the impairment assessment. The potential impact on the financial statements of incorrect judgments regarding impairment of long-lived assets is that a provision for impairment could be needlessly recorded if projected future cash flows for a store are significantly under estimated or a provision for impairment could be deferred until later determined necessary in a future period if initial projected cash flows are over estimated. See Note 1(l) of Notes to Consolidated Financial Statements for a description of the Company’s accounting policy for impairment of long-lived assets.

Insurance: The Company considers general insurance cost a critical accounting policy. Starting with the insurance policy year of June 2003, the Company has a $100,000 deductible and is essentially self insured for workers compensation claims. The previous deductible was $2,500. For general liability insurance, the deductible was increased from $5,000 to $50,000. Due to the fact that it takes more than one year to determine the actual costs under these plans, these costs are estimated based on the Company’s historical loss experience and estimates from the insurance carriers and consultants.

Income Taxes: The Company’s tax provision and establishment of reserves for potential tax liabilities involves the use of estimates and professional judgment. The Company has identified exposures for which they have established a reserve, such as differences in interpretation of tax laws at the federal, state, and local units of government.

Thirteen Weeks Ended May 2, 2004 Compared to Thirteen Weeks Ended May 4, 2003.

The Company continues to execute its basic strategy of opening stores in under-served markets that have no competition from national or regional full-line discount retailers. During the first quarter of fiscal 2005 the Company

opened one ALCO store, which was in a new, non-competitive market. Although no stores were closed in the current period, the operations of stores closed in the prior year have been reflected as discontinued operations. As of May 2, 2004 over 87% of the Company’s 264 stores are in non-competitive markets.

Net sales for the first quarter of fiscal 2005 increased $3,246 or 3.2% to $103,294 compared to $100,048 for the first quarter of fiscal 2004. Same store sales decreased $246 or 0.3%. Same store sales for the Company’s Class 18 ALCO stores increased 0.4% and increased 4.3% for the Duckwall stores. Sales for the quarter were unfavorably impacted by unseasonably cold weather, which affected sales of spring seasonal merchandise such as lawn and garden and apparel in many markets, as well as the occurrence of the Easter holiday one week earlier this year.

Gross margin for the first quarter of fiscal 2005 increased $913 or 2.7% to $34,261 compared to $33,348 in the first quarter of fiscal 2004. Gross margin as a percentage of sales was 33.2% for the first quarter of fiscal 2005 compared to 33.3% in the first quarter of fiscal 2004. The slight decline in gross margin percentage was primarily due to a shift in sales mix towards lower-margin merchandise, partially offset by a reduction in shrinkage costs. The shift in sales mix partly reflects the Company’s decision to expand the offerings of consumable products available in its stores. While consumables generally carry a lower margin than most other store merchandise, management believes the decision to place a greater emphasis upon consumables had a positive impact upon total sales and profits during the quarter. Additionally, increased transportation costs, reflected by higher fuel prices and new federal legislation impacting the trucking industry, were offset by effective actions to control these costs.

Selling, general and administrative expense increased $1,007 or 3.3% to $31,128 in the first quarter of fiscal 2005 compared to $30,121 in the first quarter of fiscal 2004. As a percentage of net sales, selling, general and administrative expenses were 30.1%, in the first quarter of both fiscal years. Significantly lower store opening expenses related to the timing of store openings, slightly lower distribution center expenses resulting from improved productivity, and lower incentive compensation costs in the first quarter of fiscal 2005 were largely offset by increases in various expense categories, including general and medical insurance, payroll and credit card fees.

Depreciation and amortization expense decreased $54 or 3.0% to $1,743 in the first quarter of fiscal 2005 compared to $1,797 in the first quarter of fiscal 2004.

Operating income from continuing operations decreased $40 or 2.8% to $1,390 in the first quarter of fiscal 2005 compared to $1,430 in the first quarter of fiscal 2004. Operating income from continuing operations as a percentage of net sales was 1.3% in the first quarter of fiscal year 2005 compared to 1.4% in the first quarter of fiscal 2004.

Interest expense decreased $108 or 27.7% in the first quarter of fiscal 2005 compared to the first quarter of fiscal 2004. The reduction in interest expense was due primarily to lower borrowings.

Income taxes were $421 in the first quarter of fiscal 2005 compared to $377 in the first quarter of fiscal 2005. The effective tax rate was 38.0% in the first quarter of fiscal 2005 compared to 36.3% in the first quarter of fiscal 2004. The increase in the percentage is primarily due to the loss of a work opportunity tax credit that was available in fiscal 2004. This tax credit may be renewed by Congress, but as of the end of the quarter, it had not been renewed. If legislation is passed to reauthorize such tax credits, the Company’s effective tax rate would be lowered at that time.

Earnings from continuing operations for the first quarter of fiscal 2005 were $687, an increase of $24 from the net earnings of $663 for the first quarter of fiscal 2004.

There was no income or loss from discontinued operations during the first quarter of fiscal 2005, as no stores were closed. Loss from discontinued operations, net of income tax, was $105 in the first quarter of fiscal 2004.

Net earnings for the first quarter of fiscal 2005 were $687, an increase of $129 or 23.1% from the net earnings of $558 in the first quarter of fiscal 2004. Diluted net earnings per share for the first quarter of fiscal 2005 were $0.16, an increase of $0.03, or 23.1% from the diluted net earnings of $0.13 in the first quarter of fiscal 2004.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funds are cash flows from operations, borrowings under its revolving loan credit facility, mortgage financing and vendor trade credit financing (increases in accounts payable).

At May 2, 2004 working capital (defined as current assets less current liabilities) was $97,738 compared to $89,461 at the end of fiscal 2004.

Cash (used in) provided by operating activities in the first quarter of fiscal 2005 and 2004 was ($5,385) and $630 respectively. The increase in the amount of cash used by operating activities in the first quarter of fiscal 2005 compared to the first quarter of fiscal 2004 was primarily due to a larger buildup of inventory levels, coupled with a smaller increase in accounts payable in fiscal 2005 compared to fiscal 2004.

The Company generated cash in financing activities in the first quarter of fiscal 2005 and 2004 of $6,892 and $2,264 respectively. Cash was generated by borrowing on the revolving loan. Cash was generated from the exercise of stock options of $435 in the first quarter of fiscal 2005, and no options were exercised in the first quarter of fiscal 2004. No Common Stock was repurchased during the first quarter of fiscal 2005, and cash of $658 was used to purchase and retire 69,300 shares of Common Stock during the first quarter of fiscal 2004.

Cash used in investing activities in the first quarter of fiscal 2005 and 2004 totaled $1,062 and $1,525, respectively. Total anticipated cash payments for acquisition of property and equipment in fiscal 2005 principally for store buildings and store and warehouse fixtures and equipment are approximately $8,000.

BUSINESS OPERATIONS AND SEGMENT INFORMATION

The Company’s business activities include operation of ALCO discount stores in towns with populations which are typically less than 5,000 not served by other regional or national full-line discount chains and Duckwall variety stores that offer a more limited selection of merchandise which are primarily located in communities of less than 2,500 residents.

For financial reporting purposes, the Company has established two operating segments: “ALCO Discount Stores”, and “All Other”, which includes the Duckwall variety stores and other business activities, such as general office, warehouse and distribution activities.

	For The Thirteen Week Periods Ended
Segment Information	May 2, 2004			May 4, 2003
Net Sales:
ALCO Discount Stores	$   95,594			$   92,500
All Other
External	7,870			7,548
Intercompany	62,879			61,034
	$ 166,173			$ 161,082
Depreciation and Amortization
ALCO Discount Stores	$     1,051			$     1,098
All Other	692			714
	$     1,743			$     1,812
Income (expense) from Operations:
ALCO Discount Stores	$     7,922			$     7,663
All Other	(6,465	)		(6,188	)
	$     1,457			$     1,475
Capital Expenditures:
ALCO Discount Stores	$        501			$     1,285
All Other	561			240
	$     1,062			$     1,525
Identifiable Assets:
ALCO Discount Stores	$ 138,223			$ 139,971
All Other	37,897			37,005
	$ 176,120			$ 176,976

Income from operations as reflected in the above segment information has been determined differently than income from operations in the accompanying consolidated statements of operations as follows:

Intercompany Sales

Intercompany sales represent transfers of merchandise from the warehouse to ALCO discount stores and Duckwall variety stores.

Intercompany Expense Allocations

General and administrative expenses incurred at the general office have not been allocated to the ALCO Discount Stores for purposes of determining income from operations for the segment information.

Warehousing and distribution costs including freight applicable to merchandise purchases, have been allocated to the ALCO Discount Stores segment based on the Company’s customary method of allocation for such costs (primarily as a stipulated percentage of merchandise purchases).

Inventories

Inventories are based on the FIFO method for segment information purposes and on the LIFO method for the consolidated statements of operations.

Leases

All leases are accounted for as operating leases for purposes of determining income from operations for purposes of determining the segment information for the ALCO Discount Stores whereas capital leases are accounted for as such in the consolidated statements of operations.

Identifiable assets as reflected in the above segment information include cash and cash equivalents, receivables, inventory, property and equipment, and property under capital leases.

A reconciliation of the segment information to the amounts reported in the consolidated financial statements is presented below:

	For The Thirteen Week Periods Ended
	May 2, 2004			May 4, 2003
Net sales per above segment information	$ 166,173			$ 161,082
Intercompany elimination	(62,879	)		(61,034	)
Net sales per consolidated statements
of operations	$ 103,294			$ 100,048
Income from operations per above segment information	$     1,457			$     1,475
Leases	67			45
Income from operations per consolidated
statements of operations	$     1,390			$     1,430

MARKET RISK DISCLOSURE

The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing and cash management activities. The Company maintains a secured line of credit at variable interest rates to meet the short-term needs of its expansion program and seasonal inventory increases. On April 15, 2002, the Company replaced the existing line of credit with a new line of credit with Fleet Retail Finance Inc. that expires in April 2006. The credit line available is $70,000,000, which carries a variable rate of interest.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the evaluation, our President and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective in all material respects to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

There were no changes in our internal control over financial reporting that occurred during the quarter ended May 2, 2004 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

PART II

	Item 1.		Legal Proceedings
			The Company is a party to routine litigation from time to time in the ordinary course of business.
	Item 2.		Changes in Securities Not applicable
	Item 3.		Defaults Upon Senior Securities Not Applicable
	Item 4.		Submission of Matters to a Vote of Security Holders Not Applicable
	Item 5.		Other Information None
	Item 6.		Exhibits and Reports on Form 8-K
			(a)    None (b)    Current Report on Form 8-K (Item 12) dated on June 1, 2004

SIGNATURES

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

			DUCKWALL-ALCO STORES, INC.                   (Registrant) Segment Information
	Date, June 11, 2004		/s/ Richard A. Mansfield
			Richard A. Mansfield Vice President - Finance Chief Financial Officer
			Signing on behalf of the registrant and as principal financial officer

EXHIBIT INDEX

3.1	Amended and Restated Articles of Incorporation (filed as Exhibit 3(a) to Company’s Registration Statement on Form S-1 and hereby incorporated herein by reference).

3.2

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

3.3	Bylaws (filed as Exhibit 3(b) to Company’s Registration Statement on Form S-1 and hereby incorporated herein by reference).

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

4.2	Reference is made to the Amended and Restated Articles of Incorporation and Bylaws described above under 3(1) and 3(3), respectively (filed as Exhibit 4(a) to Company’s Registration Statement on Form S-1 and hereby incorporated herein by reference).

4.3	Reference is made to the Certificate of Amendment to the Articles of Incorporation described above under 3(2) (filed as Exhibit 3(2) to Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 1995, and incorporated herein by reference).

10.11

Employment Agreement dated December 28, 2000 between the Company and Glen L. Shank (filed as Exhibit 10.11 to Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003, and incorporated herein by reference).

10.12

Employment Agreement dated December 28, 2000 between the Company and James E. Schoenbeck (filed as Exhibit 10.12 to Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003, and incorporated herein by reference).

10.13

Employment Agreement dated December 28, 2000 between the Company and James R. Fennema (filed as Exhibit 10.13 to Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003, and incorporated herein by reference).

10.14

Employment Agreement dated December 28, 2000 between the Company and Richard A. Mansfield. (filed as Exhibit 10.14 to Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003, and incorporated herein by reference.).

10.15

Employment Agreement dated December 28, 2000 between the Company and Tom L. Canfield, Jr. (filed as Exhibit 10.15 to Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003, and incorporated herein by reference).

10.16

Loan and Security Agreement, dated as of April 15, 2002, between the Company and Fleet Retail Finance Inc. (filed as Exhibit 10.16 to Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003, and incorporated herein by reference).

10.17

Joinder Agreement and First Amendment to Loan and Security Agreement dated September 9, 2002 among the Company, Fleet Retail Finance Inc., and DA Good Buys, Inc. (filed as Exhibit 10.17 to Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003, and incorporated herein by reference).

21.1	Amended and Restated List of Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2003 and hereby incorporated by reference).

31.1	Certification of Chief Executive Officer of Duckwall-ALCO Stores, Inc. dated June 11, 2004, pursuant to Rule 13a-4(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer of Duckwall-ALCO Stores, Inc. dated June 11, 2004, pursuant to Rule 13a-4(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer of Duckwall-ALCO Stores, Inc, dated June 11, 2004, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is furnished with this Quarterly Report on Form 10-Q for the quarter ended May 2, 2004 and is not treated as filed in reliance upon § 601(b)(32) of Regulations S-K.

32.2

Certification of Chief Financial Officer of Duckwall-ALCO Stores, Inc., dated June 11, 2004, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which is furnished with this Quarterly Report on Form 10-Q for the quarter ended May 2, 2004 and is not treated as filed in reliance upon § 601(b)(32) of Regulations S-K.