UNITED RETAIL GROUP INC/DE - 10-K Annual Report

Back to GetFilings.com

FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(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, 2003

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 019774

United Retail Group, Inc.
-------------------------
(Exact name of registrant as specified in its charter)

Delaware 51 0303670
-------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)

365 West Passaic Street, Rochelle Park, NJ 07662
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (201) 845-0880
--------------

Securities registered pursuant to Section 12(b) of the 1934 Act:

Title of each class Name of each exchange on which registered
- ---------------------------- -----------------------------------------

Securities registered pursuant to Section 12(g) of the 1934 Act:

Common Stock, $.001 par value per share, with Stock Purchase Right attached
---------------------------------------------------------------------------
(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 (the "1934 Act") 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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the 1934 Act).

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

On April 2, 2003, the aggregate market value of the voting and non-voting
common equity of the registrant (the "Corporation" also referred to herein,
together with its subsidiaries, as the "Company") held by non-affiliates of
the registrant was approximately $65.2 million computed by reference to the
$7.00 price at which the common equity was last sold as of August 2, 2002. For
purposes of the preceding sentence only, affiliate status was determined on
the basis that all stockholders of the registrant are non-affiliates except
the two non-institutional stockholders who have filed statements with the
Securities and Exchange Commission (the "SEC" or the "Commission") under
Section 16(a) of the 1934 Act reporting holdings of 10% or more of the shares
outstanding. The holdings of affiliates are based upon the contents of the
filed statements.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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 1934 Act
subsequent to the distribution of securities under a plan confirmed by a
court.

YES _______ NO _______

APPLICABLE ONLY TO CORPORATE REGISTRANTS:

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.

As of April 2, 2003 there were 12,937,304 shares of the registrant's common
stock, $.001 par value per share, outstanding. One Stock Purchase Right is
attached to each outstanding share.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's proxy statement on Schedule 14A for its 2003 annual meeting
of stockholders (the "Proxy Statement") to be filed with the SEC is
incorporated in part by reference in Part III of this Form 10-K (this
"Report").

PART I

Item 1. Business.

Overview

The Company is a leading nationwide specialty retailer featuring AVENUE(R)
brand large size women's apparel, CLOUDWALKERS(R) brand women's footwear,
AVENUE BODY(R) brand large size lingerie, AVENUE brand large size women's
hosiery, AVENUE brand accessories and AVENUE brand gifts. Sales in fiscal 2002
(the year ended February 1, 2003) and fiscal 2001 (the year ended February 2,
2002) were principally of apparel with none of the other product categories
representing 10% or more of sales in either year.

History

United Retail Group, Inc. was incorporated in Delaware in 1987 and completed
its initial public offering in 1992. The Company's current business resulted
from an internal reorganization at Limited Brands, Inc. ("The Limited") in
1987, in which The Limited combined its AVENUE(R) store group (then operating
under the Lerner Woman trade name) with the Sizes Unlimited store group.
Raphael Benaroya, currently the Chairman of the Board, President and Chief
Executive Officer of United Retail Group, Inc., was selected to manage the
combined businesses.

Customer Base

The Company serves the mass market and targets fashion-conscious women between
25 and 55 years of age who wear size 14 or larger apparel. However,
CLOUDWALKERS(R) shoes are available in a complete size range.

Merchandising and Marketing

The Company has offered its customers proprietary AVENUE(R) brand and
CLOUDWALKERS(R) brand products (i) in its retail stores, and (ii) through its
Internet websites (www.avenue.com and www.cloudwalkers.com) and its catalog,
which together are referred to as the "shop@home" business.

Many AVENUE(R) products are custom designed by the Company's design staff.
The Company emphasizes a contemporary brand image and consistency of
merchandise quality and fit. The Company often updates its merchandise
selections to reflect customer demand and mainstream fashion trends. (The
apparel industry is subject to rapidly changing consumer fashion preferences
and the Company's performance depends on its ability to respond quickly to
changes in fashion.) The Company offers most of its merchandise at popular or
moderate price points.

The Company exclusively promotes merchandise with its own brands, which the
Company believes help to distinguish it from competitors. Through careful
brand management, including consistent imaging of its brands, the Company
seeks enhanced brand recognition. This paragraph includes forward-looking
information under the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), which is subject to the uncertainties and other risk factors
referred to under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Future Results."

The Company offers selections of AVENUE(R) brand casual wear, career apparel,
specialty items and accessories. The casual wear assortment includes
comfortably fitted jeans, slacks, T-shirts, skirts, active wear and sweaters.
Casual wear comprises the majority of the Company's sales. The career
assortment includes slacks, skirts, jackets, soft blouses and dresses.

The Company develops new AVENUE(R) brand apparel assortments on average four
to six times each year. Accessories include earrings, pins, scarves, necklaces
and watches and a selection of gift items.

The Company uses direct mail, credit card statement inserts, in-store signage
and e-mail messages as part of its marketing activities.

Channels of Distribution

The Company's principal channel of distribution is retail stores that it
leases. See, "Properties."

The Company mailed AVENUE catalogs from September 2000 to March 2003. The
Company has operated an Internet site (www.avenue.com) since November 2000.
The catalog and website feature both the Company's brands. CLOUDWALKERS(R)
footwear is also available at another Internet site (www.cloudwalkers.com)
operated by the Company. Segment information with respect to the shop@home
business appears in footnote 17 to the Company's Consolidated Financial
Statements elsewhere in this Report.

In the first quarter of fiscal 2003, the Company intends to suspend catalog
operations indefinitely. Charges for severance pay to the associates involved
will be $0.2 million and other charges arising from the suspension of catalog
operations are not expected to be material.

Merchandise selection is allocated to each store based on many factors,
including store location, store profile and sales experience. The Company
regularly updates each store's profile based on selling trends. The Company's
point-of-sale systems gather sales, inventory and other statistical
information from each store daily. This information is then used to evaluate
and adjust each store's merchandise mix.

The Company uses creative merchandise displays, distinctive signage and
packaging to create an attractive store atmosphere.

Merchandise Distribution and Inventory Management

The Company believes that short production schedules and rapid delivery of
merchandise from manufacturers are vital to minimize business risks arising
from changing fashion trends.

The Company uses a centralized distribution system, under which all
merchandise is received, processed and distributed through the Company's
distribution complex in Troy, Ohio. The Company maintains a worldwide
logistics network of agents and space availability arrangements to support the
in-bound movement of merchandise into the distribution complex where it is
repacked and shipped to the stores promptly and to shop@home customers after
purchase orders are received by the Company. The out-bound system for store
deliveries consists of common carrier line haul routes to a network of
delivery agents. (The Company does not own or operate trucks or trucking
facilities.) The Company manages its inventory levels, merchandise allocation
to stores and sales replenishing for each store through its computerized
management information systems, which enable the Company to profile each store
and evaluate and adjust each store's merchandise mix on a weekly basis. New
merchandise is allocated by style, color and size immediately before shipment
to stores to achieve a merchandise assortment that is suited to each store's
customer base.

For both its stores and its shop@home business, the Company's inventory
management strategy is to maintain targeted inventory levels (see,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies - Inventory") and turns. The Company
also seeks to minimize the amount of unsold merchandise at the end of a season
by closely comparing sales and fashion trends with on-order merchandise and
making necessary purchasing and pricing adjustments. The preceding sentences
constitute forward-looking information under the Reform Act and are subject to
the uncertainties and other risk factors referred to under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Future Results." Additionally, the Company uses markdowns and
promotions.

Management Information Systems

The Company's management information systems consist of a full suite of
financial and merchandising systems, including inventory distribution and
control, sales reporting, accounts payable, cash/credit, merchandise reporting
and planning.

All of the Company's stores have point-of-sale terminals that transmit daily
information on sales by merchandise category, style, color and size, as well
as customer data. The Company evaluates this information, together with its
report on merchandise shipments to the stores, to implement merchandising
decisions regarding markdowns, reorders of fast-selling items and allocation
of merchandise. In addition, the Company's headquarters and distribution
center are linked through a computer network, which is accessible to district
sales managers in the field.

Company employees located at its headquarters maintain and support the
applications software, operations, networking and point-of-sale functions of
the Company's management information systems. The mainframe hardware and
systems software for the Company's management information systems are
maintained by IBM.

Purchasing

Separate groups of merchants are responsible for different categories of
merchandise. Most of the merchandise purchased by the Company consists of
custom designed and fitted products, produced for the Company by contract
manufacturing, under one of the Company's two brands.

The Company provides manufacturers with strict guidelines for product
specifications (such as size, fabric weight and trim) and gradings to ensure
proper, consistent fit and quality. The Company and independent sourcing
agents monitor production by manufacturers in the United States and abroad to
ensure that size specifications, grading requirements and other specifications
are met.

In fiscal 2002, three purchasing agents each accounted for 10% or more of the
Company's merchandise purchases. There is no assurance that the replacement of
one or more of these vendors would not have a materially adverse effect on the
Company's operations.

Domestic purchases (some of which are foreign-made products) are executed by
Company purchase orders. Import purchases are made in
U.S. dollars and are generally supported by trade letters of credit.

Credit Sales

The Company permits its customers to use several methods of payment, including
cash, personal checks, general purpose credit cards and a private label credit
card that is co-branded with the Company's AVENUE(R) service mark and the name
of the issuer of the card, World Financial Network National Bank. The Company
also permits customers in certain stores to use layaways.

Competition

All aspects of the women's retail apparel and shoe businesses are highly
competitive. Many of the competitors are units of large national chains that
have substantially greater resources than the Company. Management believes its
principal competitors include all major national and regional mass merchants,
department stores, specialty retailers, discount stores, mail order companies,
television shopping channels and Internet web sites. Management believes its
proprietary brands, merchandise selection, prices, consistency of merchandise
quality and fit, and appealing shopping experience emphasizing strong
merchandise presentations, together with its experienced management team,
management information systems and logistics capabilities, enable it to
compete in the marketplace. The preceding sentence constitutes forward-looking
information under the Reform Act and is subject to the uncertainties and other
risk factors referred to under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Future Results."

Trade Name and Trademarks

The Company is the owner in the United States of its trade name, AVENUE(R),
used on storefronts, and principal trademarks, AVENUE(R) and CLOUDWALKERS(R),
used on merchandise labels. The Company is not aware of any use of its trade
name or trademarks by its competitors that has a material effect on the
Company's operations or any material claims of infringement or other
challenges to the Company's right to use its trade name and trademarks in the
United States.

Employees

As of February 28, 2003, the Company employed 5,452 associates, of whom 2,073
worked full-time and the balance of whom worked part-time. Considerable
seasonality is associated with employment levels. Approximately 70 store
associates are covered by collective bargaining agreements. The Company
believes that its relations with its associates are good.

Seasonality

The first half of the fiscal year often has more sales than the second half.

Item 2. Properties.

As of February 1, 2003, the Company leased the following 553 stores in the
following 38 states:

Alabama 7 Missouri 9
Arizona 6 Nebraska 2
Arkansas 2 Nevada 3
California 75 New Hampshire 2
Connecticut 10 New Jersey 41
Delaware 2 New Mexico 2
Florida 30 New York 49
Georgia 20 North Carolina 10
Illinois 39 Ohio 25
Indiana 12 Oklahoma 4
Iowa 1 Oregon 5
Kansas 2 Pennsylvania 20
Kentucky 3 Rhode Island 2
Louisiana 11 South Carolina 4
Maryland 16 Tennessee 8
Massachusetts 19 Texas 52
Michigan 27 Virginia 12
Minnesota 3 Washington 12
Mississippi 2 Wisconsin 4

The Company leases its executive offices, which consist of approximately
65,000 square feet in an office building at 365 West Passaic Street, Rochelle
Park, New Jersey 07662. The office lease has a term ending in August 2006.

The Company owns a 128-acre site adjacent to Interstate 75 in Troy, Ohio, on
which its national distribution center is located. The national distribution
center is equipped to service 900 stores and a shop@home business. The site is
adequate for a total of four similar facilities.

Item 3. Legal Proceedings.

The Company is defending various routine legal proceedings incidental to the
conduct of its business and is maintaining reserves that include, among other
things, the estimated cost of uninsured payments to accident victims (see,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies - Incurred But Not Reported Claims
For Personal Injuries and Medical Benefits") and payments to landlords and
vendors of goods and services resulting from contractual disputes. Based on
legal advice that it received, management believes that, giving effect to
reserves and insurance coverage, these legal proceedings are not likely to
have a material adverse effect on the financial position, results of
operations or cash flows of the Company.

Certain pending legal proceedings to which the Company was a party were
terminated during the fourth quarter of fiscal 2002 in the ordinary course of
business. The termination of pending legal proceedings during that fiscal
quarter did not have a material effect on the financial position, results of
operations or cash flows of the Company.

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

Not applicable.
PART II

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

(a) The Common Stock of United Retail Group, Inc. is quoted on the Nasdaq
Stock Market under the symbol "URGI." The last reported sale price of the
Common Stock on the Nasdaq Stock Market on April 2, 2003 was $1.48. Continued
quotation on the NASDAQ Stock Market requires a minimum bid price of at least
$1.00 per share to be maintained except for periods of less than 10
consecutive business days each subject to an opportunity to cure the
deficiency after receipt of notice from NASDAQ.

The following table sets forth the reported high and low sales prices of the
Common Stock as reported by Nasdaq for each fiscal quarter indicated.

2001 2002
---- ----
High Low High Low
---- --- ---- ---
First Quarter $8.4200 $5.0625 $9.6500 $6.9600
Second Quarter $11.2000 $6.8500 $10.500 $5.9500
Third Quarter $9.2400 $5.4000 $6.5000 $3.9000
Fourth Quarter $7.9900 $5.5500 $6.1500 $2.7500

(b) At March 10, 2003, there were 382 record owners of Common Stock.

(c) United Retail Group, Inc. has not paid dividends on its Common Stock and
has no present intention of doing so. Also, the Financing Agreement between
United Retail Group, Inc. and certain of its subsidiaries and The CIT
Group/Business Credit, Inc., dated August 15, 1997, as amended, forbids the
payment of dividends.

The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Co., 17 Battery Place South, 8th Floor, New York, New York
10004.

(d) Equity Compensation Plan Information As of February 1, 2003

Number of shares
remaining available for
Number of shares to be Weighted-average future issuance under
issued upon exercise of exercise price of equity compensation
outstanding options, outstanding options, plans (excluding shares
Plan category warrants and rights warrants and rights reflected in column(a))
- ------------- ----------------------- ------------------- -----------------------
(a) (b) (c)

Equity compensation plans
approved by stockholders 1,803,572 $7.32 82,000

Equity compensation plans
not approved by 22,500 $11.74 -0-
stockholders

There are outstanding stock options issued to an incumbent non-management
Director and an incumbent Vice President of the Company, respectively, that
were not issued under a plan approved by the stockholders. In 1998, the
Director received an option to purchase 17,000 shares at a price of $12.08 per
share, which is fully vested, and an option to purchase 3,000 shares at a
price of $11.50 per share, of which the right to purchase 2,400 shares is
vested. (The Director had not received any stock options during his service on
the Company's Board of Directors from 1992 through 1997.) In 2000, the Vice
President received an option to purchase 2,500 shares at a price of $9.75 per
share, of which the right to purchase 1,500 shares is vested.

All shares of stock of the Corporation sold by the Corporation between fiscal
2000 (the year ended February 3, 2001) and fiscal 2002 were registered under
the Securities Act of 1933 on Form S-8 Registration Statements.

Item 6. Selected Financial Data.

53 Weeks
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
Jan. 30, Jan. 29, Feb. 3, Feb. 2, Feb.1,
1999 2000 2001 2002 2003
(Shares and dollars in thousands, except per share data)

Statement of Operations Data:
Net sales....................................... $378,562 $382,631 $419,712 $427,040 $431,964
Cost of goods sold,
including buying
and occupancy costs............................. 275,811 282,754 323,153 326,101 343,625
Gross profit.................................... 102,751 99,877 96,559 100,939 88,339
General, administrative
and store operating expenses................... 79,221 77,778 91,474 100,299 105,499
Goodwill impairment............................. 0 0 0 0 5,611
Operating income (loss)......................... 23,530 22,099 5,085 640 (22,771)
Non-operating income .......................... 3,113 0 0 0 0
Interest income (expense), net.................. 1,201 1,688 1,854 361 (827)
Income (loss) before taxes...................... 27,844 23,787 6,939 1,001 (23,598)
Provision for (benefit from)
income taxes.................................. 9,864 7,638 2,719 571 (7,771)
Provision for the valuation allowance
for the net deferred tax assets............. 0 0 0 0 7,250
Net income (loss)............................... 17,980 16,149 4,220 430 (23,077)
Net income (loss) per common share:
Basic....................................... $1.38 $1.23 $0.32 $.03 ($1.77)
Diluted .................................... $1.31 $1.17 $0.31 $.03 ($1.77)
Weighted average number
of common shares outstanding:
Basic....................................... 13,056 13,156 13,302 13,241 13,047
Diluted..................................... 13,736 13,852 13,515 13,442 13,047
Balance Sheet Data (at period end):
Working capital................................. $60,343 $61,098 $49,567 $41,858 $25,641
Total assets.................................... 163,096 180,338 191,630 197,282 179,309
Long-term capital leases........................ 0 0 0 7,213 5,764
Long-term distribution center financing....... 9,172 7,944 6,616 5,181 3,961
Total stockholders' equity...................... 101,147 117,757 121,796 121,804 98,995

The Selected Financial Data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Company's Consolidated Financial Statements, including the notes
thereto, elsewhere in this Report. The data for the periods indicated has been
derived from the Company's Consolidated Financial Statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants, whose report
for the three fiscal years in the period ended February 1, 2003 appears
elsewhere in this Report.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Fiscal 2002 Versus Fiscal 2001

Net sales for fiscal 2002 (the year ended February 1, 2003) increased 1.2%
from fiscal 2001 (the year ended February 2, 2002), to $432.0 million from
$427.0 million from an increase in the number of items sold. There is no
assurance that net sales will continue to increase (see, "February 2003
Sales"). Comparable store sales for fiscal 2002 decreased 1.0%. Average stores
open increased from 543 to 557. There is no assurance that average stores open
will continue to increase (see, "Store Base"). Internet and catalog sales
(collectively, "shop@home sales") were $8.1 million in fiscal 2002 compared
with $11.5 million in fiscal 2001. (See, "Suspension of Catalog Operations.")

Gross profit was $88.3 million in fiscal 2002 compared with $100.9 million in
fiscal 2001, declining as a percentage of net sales to 20.5% from 23.6%. The
decrease in gross profit as a percentage of net sales was attributable
primarily to lower margins as a result of lower retail prices. Gross profit in
the future will be subject to the uncertainties and other risk factors
referred to under the caption "Future Results."

General, administrative and store operating expenses increased to $105.5
million in fiscal 2002 from $100.3 million in fiscal 2001, principally as a
result of increases in both store payroll and insurance expense partially
offset by a decrease in shop@home expense and by an increase in private label
credit card royalties from World Financial Network National Bank. (See,
"Private Label Credit Cards Issued By The Bank.") As a percentage of net
sales, general, administrative and store operating expenses increased to 24.4%
from 23.5%.

In fiscal 2002, the Company recorded an impairment of goodwill in the amount
of $5.6 million, after which no goodwill remained. In concluding that goodwill
was impaired, the Company took into consideration (i) a multiple of earnings
before interest, taxes, depreciation and amortization method and (ii) the
Company's stock market capitalization. Other compelling reasons for recording
the impairment included the significant losses incurred in fiscal 2002 and the
recent downward trend in earnings.

During fiscal 2002, the Company incurred an operating loss of $22.8 million
compared with operating income of $0.6 million in fiscal 2001. (The operating
loss in fiscal 2002 included impairment of goodwill in the amount of $5.6
million.) Operating (loss) income reflects the combined results of two
business segments, retail store sales and shop@home sales. During fiscal 2002,
the (loss) from operations before unallocated corporate expenses and net
interest expense (combined, "unallocated expenses") was ($0.9 million) from
retail store sales and ($5.9 million) from shop@home sales. During fiscal
2001, the income (loss) from operations before unallocated expenses was $17.0
million from retail store sales and ($6.9 million) from shop@home sales.

Net interest (expense) income was ($0.8 million) in fiscal 2002 and $0.4
million in fiscal 2001, as a result of lower interest rates on cash balances
and of higher indebtedness.

In fiscal 2002, the benefit from income taxes was $7.8 million before the
Company established a valuation allowance in the amount of $7.3 million for
all its net deferred tax assets and net operating loss carryforwards
("NOL's"). In fiscal 2001, the provision for income taxes was $0.6 million.

The Company incurred a net loss of $23.1 million in fiscal 2002 and had net
income of $0.4 million in fiscal 2001. Before recording the goodwill
impairment and valuation allowance, the pro forma fiscal 2002 net loss was
$10.2 million.

See, "Critical Accounting Policies" for a discussion of estimates necessarily
made by management in preparing financial statements in accordance with
generally accepted accounting principles.

February 2003 Sales

Net sales for the first month of fiscal 2003 decreased 13.4% from the first
month of fiscal 2002, to $26.9 million from $31.1 million. Comparable store
sales for the month decreased 13.0%.

Fiscal 2001 Versus Fiscal 2000

Net sales for fiscal 2001 increased 1.7% from fiscal 2000 (the year ended
February 3, 2001), to $427.0 million from $419.7 million from an increase in
average price. Comparable store sales for fiscal 2001 decreased 2.6%. (Fiscal
2001 consisted of 52 weeks but fiscal 2000 consisted of 53 weeks. The extra
week was excluded from the computation of comparable store sales.) Average
stores open increased from 511 to 543. Shop@home sales were $11.5 million in
fiscal 2001 compared with $9.7 million in fiscal 2000.

Gross profit was $100.9 million in fiscal 2001 compared with $96.6 million in
fiscal 2000, increasing as a percentage of net sales to 23.6% from 23.0%. The
increase in gross profit as a percentage of net sales was attributable
primarily to higher margins as a result of higher retail prices partially
offset by increased store rent.

General, administrative and store operating expenses increased to $100.3
million in fiscal 2001 from $91.5 million in fiscal 2000, principally as a
result of an increase in store payroll and a decrease in private label credit
card royalties from World Financial Network National Bank. As a percentage of
net sales, general, administrative and store operating expenses increased to
23.5% from 21.8%.

During fiscal 2001, operating income was $0.6 million compared with $5.1
million in fiscal 2000. Operating income reflects the combined results of two
business segments, retail store sales and shop@home sales. During fiscal 2001,
the income (loss) from operations before unallocated corporate expenses and
net interest income (combined, "unallocated expenses") was $17.0 million from
retail store sales and ($6.9 million) from shop@home sales. During fiscal
2000, the income (loss) from operations before unallocated expenses was $22.8
million from retail store sales and ($8.2 million) from shop@home sales.

Net interest income was $0.4 million in fiscal 2001 and $1.9 million in fiscal
2000, as a result of lower cash balances and lower interest rates.

The Company had a provision for income taxes of $0.6 million in fiscal 2001
and $2.7 million in fiscal 2000.

The Company had net income of $0.4 million in fiscal 2001 and $4.2 million in
fiscal 2000.

Liquidity and Capital Resources

Cash Flow

Cash provided from operating activities was $7.8 million in fiscal 2001 and
$3.6 million in fiscal 2002. See, "Future Results" for certain risks and
uncertainties that may affect the amount of cash provided by operating
activities in the future. The primary differences in cash provided from
operating activities in fiscal 2002 compared with fiscal 2001 were (i) a net
loss of $23.1 million in fiscal 2002 compared with net income of $0.4 million
in fiscal 2001 and a $1.5 million increase in accounts receivable in fiscal
2002 compared with a $1.1 million decrease in accounts receivable in fiscal
2001, partially offset by (ii) a $6.9 million increase in accounts payable and
accrued expenses in fiscal 2002 compared with a $1.9 million decrease in
accounts payable and accrued expense in fiscal 2001 and goodwill impairment in
fiscal 2002 of $5.6 million.

The Company's cash and cash equivalents decreased to $17.5 million at February
1, 2003 from $27.8 million at February 2, 2002.

Inventory decreased to $61.6 million at February 1, 2003 from $61.8 million at
February 2, 2002. (During fiscal 2002, the highest inventory level was $72.3
million.) See, "Critical Accounting Policies - Inventory" for a discussion of
estimates necessarily made by management in stating inventory in financial
statements prepared in accordance with generally accepted accounting
principles.

Working capital was $41.9 million at February 2, 2002 and $25.6 million at
February 1, 2003, principally from the decrease in cash and cash equivalents.

Capital expenditures were $22.9 million in fiscal 2001 and $11.4 million in
fiscal 2002, principally for new store construction. Capital expenditures for
fiscal 2003 are budgeted at approximately $5 million, which the Company
expects to fund principally from cash provided from operating activities. See,
"Future Results" for certain risks and uncertainties that may affect the
amount of cash provided from operating activities in the future. The largest
category of capital expenditures will be new store construction. See, "Store
Base." This paragraph constitutes forward-looking information under the Reform
Act.

Between January 2002 and January 2003, the Company executed a series of
three-year capital lease agreements for call center systems at the Company's
national distribution center in Troy, Ohio, bearing interest at rates between
6.09% and 6.64% per annum aggregating approximately $1.4 million. The Company
has the option of buying the systems at the end of the term for a nominal
price.

As of July 1, 2002, an outstanding loan to a Company officer in the principal
amount of approximately $2.8 million, plus accrued interest, was paid by the
surrender of 278,529 shares of Company stock that the officer owned. The
repurchased shares became treasury stock. The repurchased shares had a value
equivalent to the loan based on the closing price on the NASDAQ Stock Market
on the preceding trading day. (The exchange was approved in advance by the
Compensation Committee of the Board of Directors on the morning of July 1,
2002.)

Credit Sources

Import purchases by the Company are made in U.S. dollars, are generally
financed by trade letters of credit and constituted approximately 47% of total
purchases in fiscal 2002.

United Retail Group, Inc. and certain of its subsidiaries (collectively, the
"Companies") are parties to a Financing Agreement, dated August 15, 1997, as
amended (the "Financing Agreement"), with The CIT Group/Business Credit, Inc.
("CIT"). The Financing Agreement provides a revolving line of credit for a
term ending August 15, 2005 in the aggregate amount of $40 million for the
Companies, subject to availability of credit as described in the following
paragraphs. The line of credit may be used on a revolving basis by any of the
Companies to support trade letters of credit and standby letters of credit and
to finance loans. As of February 1, 2003, trade letters of credit for the
account of the Companies and supported by CIT were outstanding in the amount
of $23.3 million and standby letters of credit were outstanding in the amount
of $3.4 million to provide collateral under certain insurance policies
maintained by the Company.

Subject to the following paragraph, the availability of credit (within the
aggregate $40 million line of credit) to any of the Companies at any time is
the excess of its borrowing base over the sum of (x) the aggregate outstanding
amount of its letters of credit and its revolving loans, if any, and (y) at
CIT's option, the sum of (i) unpaid sales taxes, and (ii) up to $500,000 in
total liabilities of the Companies under permitted encumbrances (as defined in
the Financing Agreement). The borrowing base, as to any of the Companies, is
the sum of (x) a percentage of the book value of its eligible inventory (both
on hand and unfilled purchase orders financed with letters of credit), ranging
from 60% to 65% depending on the season, and (y) the balance in an account in
its name that has been pledged to the lenders (a "Pledged Account"). (At
February 1, 2003, the combined availability of the Companies was $13.3
million; the Pledged Account had a zero balance; the Companies' cash on hand
was unrestricted; and no loan had been drawn down.)

The provisions of the preceding paragraph to the contrary notwithstanding, the
Companies are required to maintain unused at all times combined availability
of at least $5 million. Except for the maintenance of a minimum availability
of $5 million and a limit on capital expenditures, the Financing Agreement
does not contain any financial covenants.

In the first quarter of fiscal 2003, the Company has drawn on the revolving
loan facility under the Financing Agreement to meet its peak working capital
requirements and may do so again from time to time. Interest is payable
monthly based on a 360-day year at the prime rate or at two percent plus the
LIBOR rate on a per annum basis, at the borrower's option.

The line of credit is secured by a security interest in inventory and proceeds
and by the balance from time to time in the Pledged Account.

The Financing Agreement includes certain restrictive covenants that impose
limitations (subject to certain exceptions) on the Companies with respect to,
among other things, making certain investments, declaring or paying dividends,
making loans, engaging in certain transactions with affiliates, or
consolidating, merging or making acquisitions outside the ordinary course of
business.

The Company uses standby letters of credit to provide collateral under certain
insurance policies. See, "Incurred But Not Reported Claims For Personal
Injuries and Medical Benefits." Additional collateral supported by standby
letters of credit is likely to be required by the insurers in the future.

The Company's obligations to pay customs duties on merchandise imports have
been secured by an unsecured surety bond in the amount of $1.5 million. The
tightening market for surety bonds is likely to make it necessary for the
Company to support the surety bond with a standby letter of credit in a like
amount under the Financing Agreement.

Short-term trade credit represents a significant source of financing for
domestic merchandise purchases. Trade credit arises from the willingness of
the Company's domestic vendors to grant extended payment terms for inventory
purchases and is generally financed either by the vendor or a third-party
factor. The availability of trade credit depends on the Company's liquidity in
general and the amount of its cash and cash equivalents and availability of
unused credit under the Financing Agreement in particular.

Principal Contractual Obligations

The Company's principal contractual obligations at February 1, 2003 (see, also
"Critical Accounting Policies - Incurred But Not Reported Claims For Personal
Injuries and Medical Benefits") are summarized in the following chart.

Payments Due by Period (000's omitted)
Principal Contractual Total Less than Over
Obligations Payments Due 1 Year 1-3 Years 4-5 Years 5 Years
(000's omitted)

Distribution Center
Financing Note $ 637 $ 637 $ 0 $ 0 $ 0

Distribution Center Mortgage 4,544 583 1,329 1,578 1,054

Fixture Sale and Lease Back
Agreements 6,664 1,507 3,422 1,735 0

Call Center Systems Capital
Lease 1,063 456 607 0 0
-------- -------- -------- ------- --------
Total Contractual Cash
Obligations $12,908 $ 3,183 $ 5,358 $ 3,313 $ 1,054
======== ======== ======= ======= ========

Amount of Commitment per Period (000's omitted)
Other Total Amounts Less than Over
Commercial Commitments Committed 1 Year 1-3 Years 4-5 Years 5 Years
(000's omitted)

Trade Letters of Credit* $ 23,307 $ 23,307 $ 0 $ 0 $ 0

Standby Letters of Credit 3,350 3,350 0 0 0

Operating Leases 294,561 43,742 75,593 60,131 115,095
-------- -------- -------- -------- ---------
Total Commercial Commitments $321,218 $ 70,399 $ 75,593 $ 60,131 $115,095
======== ======== ======== ======== =========

*Trade letters of credit support Company obligations under certain purchase
orders for merchandise imports for which payment is not yet due. (Other purchase
orders are not supported by trade letters of credit.)

Stock Repurchase Authorization

Management, in its discretion, has been authorized to purchase up to 962,416
shares of Company common stock at opportune prices on the open market and in
private transactions from time to time in the future. Any stock repurchases on
the open market will generally be made during designated trading windows, the
next of which will be open from May 15, 2003 through June 13, 2003. The Board
of Directors of the Company authorized these repurchases on August 18, 2000.

New Accounting Standard

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure"
("SFAS No. 148"), which amends SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 148 provides three transition methods
for companies that adopt SFAS No. 123's provisions for fair value recognition.
In addition, SFAS No. 148 requires that companies disclose for each period for
which a statement of operations is presented an accounting policy footnote
that includes: (i) the method of accounting for stock options, (ii) total
stock compensation cost that is recognized in the statement of operations and
would have been recognized had SFAS No. 123 been adopted for recognition
purposes, and (iii) pro forma net income and earnings per share that would
have been reported had SFAS No. 123 been adopted for recognition purposes. The
Company has provided the disclosures required by SFAS No. 148 in the footnotes
to the Company's Consolidated Financial Statements elsewhere in this Report.
The Company does not currently intend to change its method of accounting for
stock options and does not expect the adoption of this statement to have a
material effect on its financial statements.

Critical Accounting Policies

Introduction

Financial statements prepared by companies in accordance with generally
accepted accounting principles are affected by the policies followed by their
managements in preparing them. Some accounting policies require difficult,
subjective or complex judgments by corporate management, often as a result of
the need to make estimates about the effect of matters that are inherently
uncertain. Among the most important accounting policies of the Company that
involve such management judgments are (i) using the retail method of
accounting for inventory, (ii) using estimates of incurred but not reported
claims for uninsured damages for personal injuries, for self-insured workers'
compensation benefits and for benefits under the Company's self-insured
medical, dental and prescription plans for its associates and future
development costs of reported claims ("IBNR Claims") and (iii) determining
whether to have a valuation allowance for the Company's net deferred tax
assets and NOL's.

Inventory

The margins at which the Company's inventories can be sold are central to its
business. In accordance with generally accepted accounting principles,
inventories are stated at the lower of cost or market. The Company utilizes the
retail method, under which a cost-to-price relationship is developed on the
basis of original cost as compared to initial retail selling price. The
valuation of inventories at cost and the resulting margins are calculated by
applying this cost-to-price relationship to the retail value of inventories.
Permanent markdowns, when taken, reduce both the cost and price components of
inventory on hand, which maintains the established cost-to-price relationship.
Consequently, the use of the retail inventory method results in valuing
inventories at lower of cost or market.

Inherent in the retail inventory method are management estimates on current and
future selling value of the inventory which can significantly impact the ending
inventory valuation at cost as well as resulting margins. The necessity for
management estimates, coupled with the fact that the retail inventory method is
an averaging process, can produce inventory costs at any point in time that are
inexact.

Further, deferred markdowns can result in an overstatement of cost under the
lower of cost or market principle. Accordingly, at fiscal year-end, management
conducts a thorough review of inventory on hand and, based on its business
judgment, may reduce further the carrying value of inventory by recording a
markdown reserve for inventory with sales performance below expectations and/or
unsold quantities in excess of expectations. Recording a reserve reduces the
inventory recorded on the Company's balance sheet and is charged to the
Company's cost of sales.

If inventories, net of reserves, were overestimated at the end of a year, assets
and income for that year would be overstated and margins for the beginning of
the next year would come in lower. (The opposite would be true if inventories
were underestimated.) Consistency in inventory valuation practices is one of the
Company's important accounting objectives.

The Company's management believes that the inventory shown on the balance
sheets at February 1, 2003 and February 2, 2002 included in the Consolidated
Financial Statements contained in this Report were properly stated in all
material respects subject to unforeseen (i) changes in consumer spending
patterns, consumer preferences and overall economic conditions, (ii) changes
in weather patterns, (iii) risks associated with the seasonality of the retail
industry, (iv) risks related to consumer acceptance of the Company's products,
and (v) war risks.

Incurred But Not Reported Claims For Personal Injuries and Medical Benefits

In accordance with generally accepted accounting principles, the Company
records a liability for IBNR Claims for each fiscal year. This liability is
based on (i) the number and size of outstanding claims, (ii) a comparison
between the dates paid claims were incurred and the dates they were paid,
(iii) an analysis of the amounts previously paid, (iv) projections of
inflation in medical costs and (v) advice from time to time from its insurance
broker. (The Company has insurance policies with coverage for personal injury
claims but it remains liable for a self-insured retention. The Company is
self-insured for most workers' compensation benefits and for its medical,
dental and prescription plans for associates but it has stop loss insurance
policies to limit its liability.)

If the outcome of claims made with respect to a fiscal year were to exceed the
IBNR liability for that year, the liabilities on the balance sheet would have
been understated and income would have been overstated for the year in question.
(The opposite would be true if the subsequent outcome were less than the
recorded IBNR liability.) A consistent approach to estimating liability for IBNR
Claims reflected in the Company's balance sheet is one of the Company's
important accounting objectives.

The estimates underlying the liability for IBNR Claims are matters of judgment
on which insurance experts may differ. The use of different estimates or
assumptions would change the amount recorded.

The Company's management believes that the liability for IBNR Claims reflected
in the balance sheets at February 1, 2003 and February 2, 2002 included in the
Consolidated Financial Statements contained in this Report were fairly stated
in all material respects subject to the uncertainties of litigation and the
risk of greater than anticipated inflation in medical costs.

Valuation Allowance

In fiscal 2002, the Company recorded a $7.3 million non-cash charge to establish
a valuation allowance for its net deferred tax assets and NOL's. The valuation
allowance was calculated in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), which places primary importance
on the Company's operating results in the most recent three-year period when
assessing the need for a valuation allowance. The Company's cumulative loss in
the most recent three-year period, including the net loss reported in the fourth
quarter of fiscal 2002, was sufficient to require a full valuation allowance
under the provisions of SFAS No. 109. The valuation allowance increased the
Company's net loss.

The Company intends to maintain a valuation allowance for its net deferred tax
assets and NOL's until management determines that sufficient positive evidence
regarding operating results exists to support reversal of the allowance
remaining at that time. A reversal of the valuation allowance would improve the
Company's results of operations. Accordingly, whether to continue a valuation
allowance is one of the Company's important accounting matters.

Private Label Credit Cards Issued By The Bank

The Company and World Financial Network National Bank (the "Bank") are parties
to a Private Label Credit Card Program Agreement, dated January 27, 1998 (as
amended, the "Credit Card Program Agreement").

Under the Credit Card Program Agreement the Bank issues credit cards to Company
customers who apply to the Bank. Net credit transaction volume with the Bank was
$106.2 million in fiscal 2002 and $100.0 million in fiscal 2001. Customers must
meet standards for creditworthiness set by the Bank with the approval of the
Company, provided, however, that the Bank shall take any actions required to
prevent unsafe and unsound banking practices. The credit cards issued by the
Bank are co-branded with both the Company's AVENUE(R) service mark and the
Bank's name. The credit cards are used only for merchandise offered by the
Company. Credit card holders remit payments to the Bank, generally by mailing
personal checks. The Bank also handles all statement processing, payment
processing, cardholder customer service and collections from delinquent
cardholders.

In accordance with generally accepted accounting principles, the Company does
not include the receivable asset created under the Credit Card Program Agreement
in the Company's accounts receivable on its balance sheets because the Company
has no interest in the customer accounts or receivables and, depending on the
circumstances, might not purchase the accounts from the Bank upon the expiration
of the contractual term. In this connection, it should be noted that the Credit
Card Program Agreement states that (i) the Bank is the sole and exclusive owner
of all customer accounts, (ii) the Company has no interest in the customer
accounts and (iii) the Bank is the creditor in respect of receivables (defined
in the Credit Card Program Agreement as amounts owed with respect to retail
purchases, finance charges, deferred finance charges, other fees and charges for
sales tax). Receivables as defined in the Credit Card Program Agreement were
$76.6 million at February 1, 2003 and $76.8 million at February 2, 2002. Also,
when the Credit Card Program Agreement expires, currently scheduled for February
28, 2007, the Company shall have the right to purchase the customer accounts
from the Bank for a price equal to the receivables and the Bank shall have the
right to require the Company to purchase the customer accounts at that price if
the Company decides to commence a private label credit card program on its own
or through another issuer of credit cards.

As to the Company's statements of operations, general, administrative and store
operating expenses were offset in part by premiums received from the Bank of
$3.3 million in fiscal 2002 and $1.9 million in fiscal 2001. The increase in
premiums received was due primarily to a decrease in bad debt write-offs by the
Bank.

The credit card program premium (or discount) reflected in general,
administrative and store operating expenses is an amount equal to royalties paid
to the Company by the Bank minus costs charged by the Bank based on the volume
of credit card program processing activities performed by the Bank.

Royalties are based on program revenues minus receivables written off by the
Bank and the cost of funds for the program, which, for up to the first $85
million of receivables, means the one-year Constant Maturities Treasury ("CMT")
rate plus 25 basis points to be reset every three months (the published CMT rate
was 1.34% per annum at February 3, 2003) with the CMT rate not to be more than
6.75% per annum and not to be less than 5% per annum for the purpose of this
calculation. (The Bank's receivables for the program were less than $85 million
at February 1, 2003, but, if they grew larger than that amount, the cost of
funds for the excess would be based primarily on the cost of borrowings of a
trust for the purpose of securitizing receivables.)

Store Base

The Company leased 553 stores at February 1, 2003, of which 412 stores were in
strip shopping centers, 113 stores were in malls, 22 stores were in downtown
shopping districts and 6 stores were in outlet malls. Total retail selling space
was 2.4 million square feet both at February 1, 2003 and a year earlier. In
fiscal 2001, the Company opened 57 new stores and closed 25 smaller stores. In
fiscal 2002, the Company opened 24 new stores and closed 26 smaller stores. In
each year, the new stores averaged approximately 4,600 square feet of retail
selling space. Substantially all the construction cost of new stores has been
capitalized. Depreciation and amortization of property and equipment were
related principally to assets in stores and were $12.4 million in fiscal 2002
and $11.0 million in fiscal 2001.

The Company has made commitments to lease and open approximately six new stores
during fiscal 2003. Start-up costs will be expensed but are not expected to have
a material effect on general, administrative and store operating expenses. Store
closings generally take place at lease expiration. Asset write-offs and other
charges arising from store closings are not expected to be material in fiscal
2003. This paragraph constitutes forward-looking information under the Reform
Act, which is subject to the uncertainties and other risk factors referred to
under the caption "Future Results."

Suspension of Catalog Operations

The Company mailed AVENUE catalogs from September 2000 to March 2003. Segment
information with respect to the shop@home business appears in footnote 17 to the
Company's Consolidated Financial Statements elsewhere in this Report. In the
first quarter of fiscal 2003, the Company intends to suspend catalog operations
indefinitely. Charges for severance pay to the associates involved will be $0.2
million and other charges arising from the suspension of catalog operations are
not expected to be material.

The Company will continue to operate its websites, which will carry merchandise
also offered in AVENUE(R) retail stores.

Corporate Acquisition Reviews

As a matter of routine, the Company from time to time conducts "due diligence"
reviews of businesses that are either for sale as a going concern or are in
liquidation. The Company would consider making a bid on a suitable corporate
acquisition at an opportune price if adequate financing at acceptable rates were
available. Expenses associated with the submission of unsuccessful bids to
acquire the businesses of competitors were $0.5 million in fiscal 2002 and $0.8
million in fiscal 2001 and were included in general, administrative and store
operating expenses.

Future Results

The Company cautions that any forward-looking statements (as such term is
defined in the Reform Act) contained in this Report or otherwise made by
management of the Company involve risks and uncertainties and are subject to
change based on various important factors, many of which may be beyond the
Company's control. Accordingly, the Company's future performance and financial
results may differ materially from those expressed or implied in any such
forward-looking statements. The following factors, among others, could affect
the Company's actual results and could cause actual results for fiscal 2003 to
differ materially from those expressed or implied in any forward-looking
statements included in this Report or otherwise made by management: war risk;
changes in consumer spending patterns, consumer preferences and overall economic
conditions; the impact of competition and pricing; changes in weather patterns;
risks associated with the seasonality of the retail industry; risks related to
consumer acceptance of the Company's products and the ability to develop new
merchandise; risks associated with the financial performance of the World
Financial Network National Bank private label credit card program; increases in
interest rates; the ability to retain, hire and train key personnel; risks
associated with the ability of the Company's manufacturers to deliver products
in a timely manner; and political instability and other risks associated with
foreign sources of production.

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

The Company does not hold or issue financial instruments for trading purposes.
Management of the Company believes that its exposure to interest rate and
market risk associated with financial instruments is not material. See,
however, (i) the fifth paragraph under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Credit
Sources" regarding the variable interest rate payable on revolving loans to
the Companies and (ii) the penultimate paragraph under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Private Label Credit Cards Issued By The Bank" for a discussion
of the cost of funds associated with the credit cards that are co-branded with
the Company's AVENUE(R) service mark and the name of the issuer of the cards,
World Financial Network National Bank.

Item 8. Financial Statements and Supplementary Data.

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants

Consolidated Balance Sheets as of February 2, 2002 and
February 1, 2003

Consolidated Statements of Operations for each of the three fiscal years
in the period ended February 1, 2003

Consolidated Statements of Cash Flows for each of the three fiscal
years in the period ended February 1, 2003

Consolidated Statements of Stockholders' Equity for each of the three
fiscal years in the period ended February 1, 2003

Notes to Consolidated Financial Statements

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
UNITED RETAIL GROUP, INC.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, cash flows and stockholders'
equity present fairly, in all material respects, the financial position of
United Retail Group, Inc. and its subsidiaries (the "Company") at February 2,
2002 and February 1, 2003, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended February 1, 2003,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York
February 14, 2003

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(shares and dollars in thousands)

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Company Description and Basis of Presentation

United Retail Group, Inc. ("United Retail") is a specialty retailer of
large-size women's fashion apparel, footwear and accessories, featuring
AVENUE(R) brand merchandise, operating over 550 stores throughout the United
States.

The consolidated financial statements include the accounts of United Retail
and its subsidiaries (the "Company"). All significant intercompany balances
and transactions have been eliminated in consolidation.

Certain prior year balances have been reclassified to conform with the current
year presentation.

2. Summary of Significant Accounting Policies

Fiscal Year

The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar
year in which the fiscal year commences. Fiscal 2000 consisted of 53 weeks and
ended on February 3, 2001. Fiscal 2001 and fiscal 2002 consisted of 52 weeks
and ended on February 2, 2002 and February 1, 2003, respectively.

Net Revenues

Revenues include sales from all stores operating during the period, the
Company's catalog and website operations. Revenues are net of returns and
exclude sales tax. Revenue is recognized when title and risk of loss have
passed to the customer, which for stores is at the point of sale and for
catalog and internet sales is at the point of destination. The Company
recognizes sales upon redemption of gift certificates.

Shipping and Handling Costs

Shipping and handling revenue is included in net sales. Shipping and handling
costs are included in general, administrative and store operating expenses.
During fiscal 2000, fiscal 2001 and fiscal 2002, shipping and handling costs
were $1,354,000, $1,093,000 and $572,000, respectively.

Marketing Costs

The Company expenses marketing costs when the event occurs. Marketing expense,
included in cost of goods sold in the accompanying consolidated statements of
operations, was $16.0 million, $15.3 million, and $15.5 million in fiscal
2000, 2001, and 2002, respectively.

Earnings Per Share

Basic per share data has been computed based on the weighted average number of
shares of common stock outstanding. Earnings per diluted share includes the
weighted average effect of dilutive options on the weighted average shares
outstanding.

The computation of earnings per diluted share excludes options to purchase
458,572 shares and 845,072 shares in fiscal 2000 and 2001, respectively,
because the options' exercise prices were greater than the average market
price of the common shares. During fiscal 2002, 1,826,072 shares were excluded
from the computation of earnings per diluted share as a result of the
Company's net loss.

Cash and Cash Equivalents

The Company considers cash on hand, bank deposits, money market funds and
short-term investments with maturities of less than 90 days, when purchased,
as cash and cash equivalents. Cash and cash equivalents also include proceeds
from credit card sales prior to the end of the fiscal period that were
remitted as cash within five days after the end of such fiscal period.

Inventory

Inventory is stated at the lower of cost or market utilizing the retail
method. An average cost flow assumption is used.

Long-Lived Assets

Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives of
40 years for the distribution center building, the lesser of the useful life
or the life of the lease for leasehold improvements and furniture and
fixtures, 20 years for material handling equipment and 5 years for other
property. The cost of assets sold or retired and the related accumulated
depreciation or amortization are removed from the accounts with any resulting
gain or loss included in net income. Maintenance and repairs are charged to
expense as incurred. Betterments which extend service lives are capitalized.

The Company acquired certain trademarks during fiscal 2001 in the amount of
$12,000. These trademarks are being amortized over 15-year periods using the
straight-line method.

The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of long-lived
assets may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that the asset should be evaluated for
possible impairment, the Company uses an estimate of the undiscounted net cash
flows over the remaining life of the asset in measuring whether the asset is
recoverable.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations
of credit risk, are primarily cash equivalents. The Company places its cash
and cash equivalents in highly liquid investments with high quality financial
institutions.

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The more significant
estimates and assumptions relate to inventory, insurance, useful lives of
assets and deferred tax assets.

Income Taxes

The Company provides for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes". This statement requires the use of the
liability method of accounting for income taxes. Under the liability method,
deferred taxes are determined based on the difference between the financial
reporting and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred
tax expense (benefit) represents the change in the deferred tax
asset/liability balance. The Company establishes valuation allowances against
deferred tax assets when sufficient negative evidence exists concerning the
realization of those deferred tax assets.

Stock Options

The Company has several stock option plans in operation which are more fully
described in Note 13. The Company uses the intrinsic value method to account
for stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting For Stock Issued To Employees" ("Opinion No. 25")
and has adopted the disclosure provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting For Stock-Based Compensation" ("SFAS No.
123"). Under Opinion No. 25, compensation expense, if any, is measured as the
excess of the market price of the stock over the exercise price on the
measurement date. In May 1998, the stockholders ratified the issuance of
non-qualified stock options whose market price at the date of grant exceeded
the exercise price, which equaled the market price on the date of Board
action. In accordance with Opinion No. 25, compensation expense is recorded
ratably over the five-year vesting period of the options. All other stock
options were granted at the market price of the stock at the measurement date.

The following table illustrates the effect on net income (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provision under SFAS No. 123 to stock-based employee compensation:

(dollars in thousands except
per share data)
Fiscal Fiscal Fiscal
2000 2001 2002
-------------------------------------------------

Reported net income (loss) $4,220 $430 ($23,077)
Add back: Compensation expense 311 311 311
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (508) (722) (787)
------- ------- ---------

Pro forma net income (loss) $4,023 $19 ($23,553)

Earnings (loss) per share:
Basic - as reported $0.32 $0.03 ($1.77)
Basic - pro forma $0.30 $0.00 ($1.81)

Diluted - as reported $0.31 $0.03 ($1.77)
Diluted - pro forma $0.30 $0.00 ($1.81)

For the pro forma information disclosed above, 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:

Fiscal Fiscal Fiscal
2000 2001 2002
-------------------------------------------------

Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 50.00% 50.00% 50.00%
Risk-free interest rate 5.15% 4.59% 2.94%
Expected life of options 5 years 5 years 5 years

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146"). SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. This statement nullifies EITF No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is
incurred. FASB Concept Statement No. 6, "Elements of Financial Statements"
defines when a liability is incurred. The Company has adopted the provisions
of this standard.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"), which amends SFAS
No. 123. SFAS No. 148 provides three transition methods for companies that
adopt SFAS No. 123's provisions for fair value recognition. In addition, SFAS
No. 148 requires that companies disclose for each period for which a statement
of operations is presented an accounting policy footnote that includes: i) the
method of accounting for stock options, ii) total stock compensation cost that
is recognized in the statement of operations and would have been recognized
had SFAS No. 123 been adopted for recognition purposes, and iii) pro forma net
income and earnings per share that would have been reported had SFAS No. 123
been adopted for recognition purposes. This statement requires that companies
having a year-end after December 15, 2002 follow the prescribed format and
provide the additional disclosures in their annual reports. The Company has
provided the disclosures required by SFAS No. 148 in these notes to the
financial statements. The Company does not currently intend to change its
method of accounting for stock options and does not expect the adoption of
this statement to have a material effect on its financial statements.

3. Goodwill

Effective February 2, 2002, the Company adopted the provisions of SFAS No. 142
"Goodwill and Other Intangible Assets", which required that goodwill be
subject to an impairment test. The Company's valuation at time of adoption,
which utilized a multiple of EBITDA (earnings before interest, tools
depreciation and amortization) as well as a comparison to the Company's
current market capitalization, indicated that no impairment existed. The
Company ceased amortization of goodwill in fiscal 2002. The Company conducted
a similar valuation in the fourth quarter of fiscal 2002 and on the basis of
both considerations concluded that the entire amount of goodwill, $5.6
million, was impaired. In addition to the aforementioned valuation
considerations, other compelling reasons for recording the impairment included
the significant losses incurred in the current year and the recent downward
trend in earnings.

The statement of operations adjusted to exclude amortization expense for
fiscal 2000 and 2001 related to goodwill are as follows (dollars in thousands
except per share data):

Fiscal Fiscal
2000 2001
------------------------------
Reported net income $4,220 $430
Add back: Goodwill amortization 205 205

Pro forma net income $4,425 $635

Earnings per share:
Basic - as reported $0.32 $0.03
Basic - pro forma $0.33 $0.05

Diluted - as reported $0.31 $0.03
Diluted - pro forma $0.33 $0.05

At February 3, 2001 and February 2, 2002, goodwill was $5.8 million and $5.6
million, respectively. The reduction in goodwill of $205 during fiscal 2001
represents the annual amortization.

4. Property and Equipment

Property and equipment, at cost, consists of (dollars in thousands):

February 2, February 1,
2002 2003
----------------------------------
Land $2,176 $2,176
Buildings 10,574 10,574
Furniture, fixtures and equipment 88,307 92,820
Leasehold improvements 48,266 50,887
Beneficial leaseholds 5,082 4,884
Construction in progress 696 128
----------------------------------
155,101 161,469

Accumulated depreciation and
amortization, including beneficial
leaseholds of $4,872 and $4,774 (65,910) (73,749)
----------------------------------
Property and equipment, net $89,191 $87,720
==================================

Furniture, fixtures and equipment include approximately $8.2 million of assets
under capital leases arising under a sale and leaseback agreement (See Note 6).

5. Accrued Expenses

Accrued expenses consist of (dollars in thousands):

February 2, February 1,
2002 2003
----------- -----------
Insurance payable $2,695 $4,465
Payroll related expenses 2,940 3,393
Gift cards and other customer credits 2,795 3,242
Occupancy expenses 3,391 2,557
Credit processing 1,431 1,496
Sales taxes payable 1,237 1,301
Other 5,850 5,569
----------- -----------
$20,339 $22,023
=========== ===========

6. Leased Facilities and Commitments

The Company leases its retail store locations, office facilities and certain
equipment under operating leases. Annual store rent is composed of a fixed
minimum amount, plus contingent rent based upon a percentage of sales
exceeding a stipulated amount. Store lease terms generally require additional
payments to the landlord covering taxes, maintenance and certain other
expenses.

Rent expense was as follows (dollars in thousands):

Fiscal Fiscal Fiscal
2000 2001 2002
----------------------------------------

Fixed minimum $41,395 $45,924 $48,052
Percentage 121 103 48
Total real estate rent 41,516 46,027 48,100
Equipment and other 393 414 596
----------------------------------------
Total rent expense $41,909 $46,441 $48,696
========================================

At February 1, 2003, the Company was committed under store leases with initial
terms typically ranging from 1 to 15 years and with varying renewal options.
Many leases entered into by the Company include options that may extend the
lease term beyond the initial commitment period. Some leases also include
early termination options which can be exercised under specific conditions. At
February 3, 2001, February 2, 2002 and February 1, 2003, accrued rent expense
amounted to $6.5 million, $7.2 million and $7.2 million, respectively, of
which $6.0 million, $6.4 million and $6.9 million, respectively, is included
in "Other long-term liabilities".

In January 2002, the Company executed a five-year $8.2 million sale and lease
back agreement for certain fixtures in new and remodeled stores. The lease
bears an interest rate of 7.0% per annum. The Company was required to pay
sales tax as part of the agreement. The agreement provides for equal monthly
rent payments beginning February 2002 and gives the Company the option of
buying back the fixtures at the end of the term for a nominal price.

Between January 2002 and January 2003, the Company executed a series of
three-year capital lease agreements for call center systems at the Company's
national distribution center in Troy, Ohio, bearing interest at rates between
6.09% and 6.64% per annum aggregating approximately $1.4 million. The Company
has the option of buying the systems at the end of the term for a nominal
price.

The following is a schedule by year of approximate minimum lease payments
(dollars in thousands) under operating and capital leases:

Operating Capital
--------- -------
2003 $43,742 $2,429
2004 39,737 2,453
2005 35,856 2,103
2006 32,162 1,797
2007 27,969 -
Thereafter 115,095 -
--------- --------
Total minimum lease payments $294,561 $8,782
Less: imputed interest (1,055)
--------
Present value of minimum lease payments $7,727
========

7. Long-term Debt

Long-term distribution center financing consists of (dollars in thousands):

February 2, February 1,
2002 2003
------------------------------
7.30% Note due 2003 $1,536 $637
8.64% Mortgage due 2009 5,080 4,544
------------------------------
Total debt $6,616 $5,181
Less current maturities 1,435 1,220
------------------------------
Long-term debt $5,181 $3,961
==============================

Principal maturities of long-term distribution center financing by year are as
follows (dollars in thousands):

Debt
Maturities
----------
2003 $1,220
2004 636
2005 693
2006 755
2007 823
Thereafter 1,054
-------
Total $5,181
=======

In 1993, the Company executed a ten-year $7.0 million note bearing interest at
7.3% per annum. Interest and principal are payable in equal monthly
installments beginning November 1993. The note is collateralized by the
material handling equipment in the distribution center owned by the Company in
Troy, Ohio.

In 1994, the Company executed a fifteen-year $8.0 million loan bearing
interest at 8.64% per annum. Interest and principal are payable in equal
monthly installments beginning May 1994. The loan is collateralized by a
mortgage on its national distribution center.

The Company and certain of its subsidiaries (collectively, the "Companies")
are parties to a Financing Agreement, dated August 15, 1997, as amended (the
"Financing Agreement"), with The CIT Group/Business Credit, Inc. ("CIT"). The
Financing Agreement provides a revolving line of credit for a term ending
August 15, 2005 in the aggregate amount of $40 million for the Companies to
support trade letters of credit and standby letters of credit and to finance
loans which could be used for working capital and general corporate purposes.

The Companies are required to maintain unused at all times combined
availability of at least $5 million. Except for the maintenance of a minimum
availability of $5 million and a limit on capital expenditures, the Financing
Agreement does not contain any financial covenants.

The Financing Agreement also includes certain restrictive covenants that
impose limitations (subject to certain exceptions) on the Companies with
respect to, among other things, making certain investments, declaring or
paying dividends, making loans, engaging in certain transactions with
affiliates, or consolidating, merging or making acquisitions outside the
ordinary course of business.

In the event a loan is made to one of the Companies, interest is payable
monthly based on a 360-day year at the prime rate or at two percent plus the
LIBOR rate on a per annum basis, at the borrower's option.

The line of credit is secured by a security interest in inventory and proceeds
and by the balance on deposit from time to time in an account that has been
pledged to the lenders.

At February 1, 2003, the combined availability of the Companies was $13.3
million, no balance was in the pledged account, the aggregate outstanding
amount of letters of credit arranged by CIT was $26.7 million and no loan had
been drawn down. The Company's cash and cash equivalents of $17.5 million was
unrestricted.

8. Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable and
trade payables approximate fair value because of the short-term maturity of
these items. The fair value of long-term debt (distribution center financing
and capital leases), including the current portion, is estimated to be $13.4
million for fiscal 2002 based on the current rates quoted to the Company for
debt of the same or similar issues.

9. Income Taxes

The provision for (benefit from) income taxes consists of (dollars in
thousands):

Fiscal Fiscal Fiscal
2000 2001 2002
-------------------------------------------
Current:
Federal $977 $754 ($1,588)
State 290 272 306
-------------------------------------------
1,267 1,026 ($1,282)
-------------------------------------------

Deferred:
Federal 1,342 (374) (500)
State 110 (81) 1,261
-------------------------------------------
1,452 (455) 761
-------------------------------------------
Provision for (benefit from)
income taxes $2,719 $571 ($521)
-==========================================

Reconciliation of the provision for (benefit from) income taxes from the U.S.
Federal statutory rate to the Company's effective rate is as follows:

Fiscal Fiscal Fiscal
2000 2001 2002
-------------------------------------------
Statutory Federal income
tax rate 35.0% 35.0% (35.0%)
State income taxes, net of
Federal benefit 5.4 12.4 0.5
Benefit from state net operating
losses ("NOL's") (2.6) 0.0 0.0
Goodwill amortization 1.1 7.2 0.0
Goodwill impairment 0.0 0.0 8.3
Other 0.3 2.4 0.1
-------------------------------------------
Sub-total 39.2 57.0 (26.1)

Deferred tax valuation allowance 0.0 0.0 23.9
-------------------------------------------
39.2% 57.0% (2.2%)
===========================================

Significant components of the Company's deferred tax assets and liabilities
are summarized below (dollars in thousands):

February 2, February 1,
2002 2003
----------- -----------
Net long-term asset:
Federal NOL $ - $4,128
Accruals and reserves 2,911 3,317
State NOL's 1,360 2,974
Compensation 444 564
Depreciation (3,531) (3,139)
------------------------------
1,184 7,844
------------------------------

Net current liability:
Prepaid rent 1,861 2,134
Accruals and reserves (385) (428)
Inventory (1,053) (1,112)
------------------------------
423 594
------------------------------
Valuation allowance - (7,250)
------------------------------

Net deferred tax asset $761 $ -
===============================

The Company recorded a $7.3 million non-cash charge to establish a valuation
allowance for its net deferred tax assets and net operating loss carryforwards
in the fourth quarter of fiscal 2002. The valuation allowance was calculated
in accordance with the provisions of SFAS No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), which places primary importance on the Company's
operating results in the most recent three-year period when assessing the need
for a valuation allowance. The Company's cumulative loss in the most recent
three-year period, including the net loss reported in the fourth quarter of
fiscal 2002, was sufficient to require a full valuation allowance under the
provisions of SFAS No. 109. The Company intends to maintain a valuation
allowance for its net deferred tax assets and net operating loss carryforwards
until sufficient positive evidence exists to support its reversal.

10. Related Party Transactions

The Company previously shared a store location with a subsidiary of Limited
Brands, Inc. ("The Limited") and was charged by The Limited for occupancy
costs through January 2001. These occupancy charges increased cost of goods
sold, including buying and occupancy costs, by $73,000 in fiscal 2000.

From fiscal 2000 through fiscal 2001, an affiliate of the Chairman of the
Board of the Company, American Licensing Group, L.P. ("ALGLP") (in which he
holds an 80% interest), provided management and administrative services to a
subsidiary of The Limited, American Licensing Group, Inc., for a base annual
fee and profit sharing fee, the profit sharing fee being the lower of
one-third of net profits or $150,000 per annum.

During fiscal 2000 and fiscal 2001, the Company incurred expenses under
certain Sublicensing Agreements with respect to trademarks to American
Licensing Group, Inc. in the amounts of $306,000 and $0, respectively, and to
ALGLP in the amounts of $181,000 and $12,000, respectively. American Licensing
Group, Inc. and ALGLP, in turn, incurred expenses with respect to the
trademarks under certain Licensing Agreements with the owner of the
trademarks. The Sublicensing Agreements between the Company and American
Licensing Group, Inc. and ALGLP, respectively, were terminated as of November
30, 2000.

11. Retirement Plan

The Company maintains a qualified defined contribution pension plan.
Generally, an employee is eligible to participate in the plan if the employee
has completed one year of full-time continuous service. The Company makes a
50% match of a portion of employee savings contributions.

The Company also maintains a non-qualified defined contribution pension plan.
The Company makes a 50% match of a portion of employee savings contributions
for those associates whose contributions to the qualified plan are limited by
IRS regulations, as well as retirement contributions for certain grandfathered
associates equal to 6% of those associates' compensation.

Pension costs for all benefits charged to income during fiscal 2000, fiscal
2001 and fiscal 2002 were approximately $338,000, $396,000 and $404,000,
respectively.

12. Stockholders' Equity

Coincident with the completion of its initial public offering on March 17,
1992, the Company's certificate of incorporation was amended to provide for
only one class of Common Stock, par value $.001 per share, with 30 million
shares authorized. The Company also authorized 1 million shares of Preferred
Stock, par value $.001 per share, to be issued from time to time, in one or
more classes or series, each such class or series to have such preferences,
voting powers, qualifications and special or relative rights and privileges as
shall be determined by the Board of Directors in a resolution or resolutions
providing for the issuance of such class or series of Preferred Stock.
Additionally, certain loan agreements, to which the Company is a party, impose
restrictions on the payment of dividends.

In September 1999, the Company adopted a Shareholder Rights Plan and
distributed rights as a dividend at the rate of one Right for each share of
Common Stock of the Company. The rights will expire on September 28, 2009.

Each Right initially entitles a shareholder to buy for $65 one one-hundredth
of a share of a series of preferred stock which is convertible to shares of
Common Stock. Among other things, the Rights will be exercisable, subject to
certain exceptions, if a person or group acquires beneficial ownership of 15%
or more of the Company's Common Stock or commences a tender or exchange offer
upon consummation of which such person or group would beneficially own 15% or
more of the Company's Common Stock. Until the Rights become exercisable, each
share of common stock of the Company has a Right attached and the securities
trade as a unit.

13. Stock Options

The Company has two stock option plans with options available to be granted.
Under these two plans, employees of the Company whose judgment, initiative and
efforts may be expected to contribute materially to the successful performance
of the Company are eligible to receive options. Non-employee Directors also
receive annual grants of options. The options granted vest beginning one year
from the date of grant, and vest fully after five years, subject to
acceleration under certain circumstances. The options granted expire ten years
after the date of grant. Options are granted, and the plans are administered,
by the Compensation Committee of the Board of Directors, composed of
non-employees of the Company. Other option plans are in operation with no
options available for grant.

A summary of stock option activity follows:

Weighted
Number of Average
Fiscal 2000 Shares Exercise Price
------------------------------------

Options outstanding at beginning of period 1,275,600 $6.61
Options granted 151,500 $8.15
Options exercised 40,200 $4.08
Options canceled 57,828 $8.33
Options outstanding at end of period 1,329,072 $6.79
Options available for grant at end of period 204,500
Options exercisable at end of period 671,072 $6.72

Weighted
Number of Average
Fiscal 2001 Shares Exercise Price
------------------------------------

Options outstanding at beginning of period 1,329,072 $6.79
Options granted 500,500 $8.71
Options exercised 5,000 $5.23
Options canceled 108,700 $5.62
Options outstanding at end of period 1,715,872 $7.42
Options available for grant at end of period 209,000
Options exercisable at end of period 854,847 $6.66

Weighted
Number of Average
Fiscal 2002 Shares Exercise Price
------------------------------------

Options outstanding at beginning of period 1,715,872 $7.42
Options granted 168,200 $6.73
Options exercised 12,200 $4.00
Options canceled 45,800 $7.75
Options outstanding at end of period 1,826,072 $7.37
Options available for grant at end of period 82,000
Options exercisable at end of period 1,093,622 $6.93

A summary of stock options outstanding at year-end fiscal 2002 is as follows:

Options Outstanding Options Exercisable
- ------------------------------------------------------------------------- ----------------------------------
Weighted
Average
Remaining Average Weighted
Range of Number Contractual Exercise Number Average
Exercise Prices Outstanding Life Price Exercisable Exercise Price
- --------------- ----------- ------------ -------- ----------- --------------

$ 3.13 - $ 3.25 77,300 4.2 $3.19 77,300 $3.19
$ 4.13 - $ 5.88 463,300 5.2 $5.24 327,800 $5.18
$ 6.25 - $ 8.80 752,472 5.3 $7.28 507,122 $7.34
$ 9.13 - $ 12.08 512,000 7.7 $9.76 167,600 $10.13
$ 15.13 - $ 15.13 21,000 6.3 $15.13 13,800 $15.13
- ------------------------------------------------------------------------- ----------------------------------
$ 3.13 - $15.13 1,826,072 5.9 $7.37 1,093,622 $6.93

Certain outstanding options were authorized directly by the Company's
stockholders but most were issued in accordance with stock option plans
authorized by them and administered by the Compensation Committee of the Board
of Directors.

14. Advances To Officers

Advances were made by the Company in February 1998, February 1999 and November
1999 to Raphael Benaroya, the Company's Chairman of the Board, President and
Chief Executive Officer. The purpose of the advances was to finance payment of
income taxes incurred in connection with the exercise of stock options,
totaling approximately $2.3 million. On November 30, 2001, Mr. Benaroya signed
a consolidated promissory note in the amount of approximately $2.8 million,
representing the cumulative advances and accrued interest as of that date,
with a term of two years. Mr. Benaroya repaid the note with accrued interest
as of July 1, 2002 by surrendering 278,529 shares of Company common stock. The
surrendered shares had a value equivalent to the consolidated note based on
the closing price on the NASDAQ Stock Market on the preceding trading day. The
Compensation Committee of the Board of Directors, which administers the stock
option program, met on the morning of July 1, 2002 and approved the
transaction.

15. Stock Appreciation Rights Plan

In May 2000, May 2001 and May 2002, each nonmanagement Director received
annual awards under the Company's Stock Appreciation Rights Plan that provides
for a cash payment by the Company when the Director exercises the stock option
granted to him under the Company's Stock Option Plans in May 2000, May 2001 or
May 2002, as the case may be. The payment will be an amount equivalent to the
after tax equity in the option that is being exercised, that is, the excess of
the then current market price of the shares issued over the sum of the
exercise price of the corresponding option plus any personal income tax
withholding on the gain arising from the exercise.

16. Supplemental Cash Flow Information

Net cash flow from operating activities reflects cash payments for interest
and income taxes as follows (dollars in thousands):

Fiscal Fiscal Fiscal
2000 2001 2002
---------------------------------------
Interest income (expense), net
per statements of income $1,854 $361 ($827)

Non-cash interest expense (income) 122 (259) 40
Net cash interest income (expense),
including interest income
of $2,638, $920 and $339 $1,976 $102 ($787)
=======================================
Income taxes paid (refunded) $1,346 $715 ($1,786)
=======================================

Investing activities includes $8.8 million related to capital lease
obligations incurred during fiscal 2001.

Non-cash investing activities include $1.4 million related to capital lease
obligations incurred between January 2002 and January 2003.

Non-cash financing activities include the repayment of officer advances with
accrued interest as of July 1, 2002 with the repayment made by surrendering
278,529 shares of Company common stock with a market value equal to the
principal and interest, in lieu of cash payment.

17. Segment Information

The Company operated its business in two reportable segments split by channels
of distribution: Avenue Retail (retail stores) and Shop @ Home (internet and
catalog). In deciding how to allocate resources and assess performance, the
Company regularly evaluated the performance of its operating segments on the
basis of net sales and earnings (losses) from operations.

Certain information relating to the Company's reportable operating segments is
set forth below (dollars in thousands):
Fiscal Fiscal
2001 2002
-------- --------
Net sales:
Avenue Retail $415,553 $423,816
Shop @ Home 11,487 8,148
-------- --------

$427,040 $431,964
======== ========

Earnings (loss) from operations (1):
Avenue Retail $16,987 ($864)
Shop @ Home (6,856) (5,901)
------ ------

$10,131 ($6,765)
======= =======

(1) Represents earnings (loss) from operations before unallocated corporate
expenses and net interest income (expense).

The Company evaluates the performance of its assets on a consolidated basis.
Therefore, separate financial information for the Company's assets on a
segment basis is not available.

The following table sets forth a reconciliation of the reportable segments'
earnings (loss) from operations to the Company's consolidated income (loss)
before income taxes (dollars in thousands):

Fiscal Fiscal
2001 2002
-------- ---------
Earnings (loss) from operations
for reportable segments $10,131 ($6,765)

Unallocated corporate expenses (9,491) (16,006)

Interest income (expense), net 361 (827)
------- ---------

Income (loss) before income taxes $1,001 ($23,598)
======= =========

18. Contingencies

The Company is involved in various legal actions and claims arising in the
ordinary course of business. Management believes (based on advice of legal
counsel) that such litigation and claims will not have a material adverse
effect on the Company's financial position, annual results of operations or
cash flows.

19. Supplemental Financial Data (Unaudited) (dollars in thousands, except
per share data)

Fiscal 2001
------------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
------------------------------------------------------------

Net sales $108,877 $107,272 $96,641 $114,250
Gross profit 28,362 25,190 20,783 26,604
Operating income (loss) 4,803 127 (3,540) (750)
Net income (loss) $3,133 $207 ($2,286) ($624)
Net income (loss) per common share:
Basic $0.24 $0.02 ($0.17) ($0.05)
Diluted $0.23 $0.02 ($0.17) ($0.05)

Fiscal 2002
------------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
------------------------------------------------------------

Net sales $115,574 $113,674 $97,019 $105,697
Gross profit 30,785 21,065 17,326 19,163
Operating income (loss) 4,772 (7,077) (7,687) (12,779)
Net income (loss) $2,876 ($4,639) ($5,232) ($16,082)
Net income (loss) per common share:
Basic $0.22 ($0.35) ($0.40) ($1.24)
Diluted $0.21 ($0.35) ($0.40) ($1.24)

20. Subsequent Events

In February 2003, the Company announced its intention to suspend catalog
operations in the first quarter of fiscal 2003 and operate the avenue.com
website as a virtual store utilizing the same assortments as the retail
stores.

Item 9. Changes in and Disagreements With Accountants On Accounting
-----------------------------------------------------------
and Financial Disclosure.
-------------------------

Not applicable.

Part III

Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------

Directors of the Registrant
- ---------------------------

The subsection captioned "Election of Directors - Business and Professional
Experience" in the Proxy Statement is incorporated herein by reference.

Executive Officers of the Registrant
- ------------------------------------

In addition to Raphael Benaroya and George R. Remeta, who are described in the
Proxy Statement, the executive officers of the Company are:

Susan Falk, age 52, has been Executive Vice President of United Retail
Incorporated, a subsidiary of the Corporation, since August 2002. She was
President of The Body Shop, a retail chain, from February 2001 to March 1999.
Previously, she was President of Diane Von Furstenberg, a manufacturer of
women's apparel, from December 1998 to January 1998.

Kenneth P. Carroll, age 60, has been United Retail Group, Inc.'s Senior Vice
President - General Counsel for more than five years.

Ellen Demaio, age 45, has been Senior Vice President - Merchandise of United
Retail Incorporated for more than five years.

Terri Meichner, age 45, has been Senior Vice President-AVENUE BODY of United
Retail Incorporated since September 2002. Previously, she was Vice
President-Intimate Apparel and Hosiery of Federated Merchandising Group, a
division that serviced chains of department stores, since May 1998. Earlier,
she was Vice President-Fashion Accessories, Hosiery and Intimates of K Mart, a
retail chain, since before 1998.

Carmen Blanco, age 46, has been Vice President - Sales of United Retail
Incorporated since March 2001. Previously, she was an executive for more than
three years at The Gap, Inc., most recently as a Zone Vice President for Old
Navy stores, a retail chain.

Raymond W. Brown, age 43, has been Vice President - Associate Services of
United Retail Incorporated since May 1998. Previously, he was Vice President -
Human Resources of National Merchants Management Corp., a management firm,
since before 1998.

Julie L. Daly, age 48, has been Vice President - Shop @ Home Operations of
United Retail Incorporated since November 2000. Previously, she was the
Company's Vice President - Strategic Planning since before 1998.

Jeff Fink, age 44, has been Vice President - Real Estate of United Retail
Incorporated since November 1999. Previously, he was Vice President - Real
Estate of Party City, Inc., a retail chain, since before 1998.

Kent Frauenberger, age 56, has been Vice President - Logistics of United
Retail Logistics Operations Incorporated for more than five years.

Brian French, age 42, has been Vice President - Store Development of United
Retail Incorporated since March 2002. For one year prior, he was the Company's
Vice President - Construction. Previously, he was Director of Store
Construction of United Retail Incorporated since July 1999. Earlier, he was
Director of Special Projects for Venator Group Realty, Inc., a mall operator,
for a year. Still earlier, he was Director of Design and Project Development
for Story Line Concepts, an amusement chain, for a year.

Jon Grossman, age 45, has been Vice President - Finance of United Retail
Group, Inc. for more than five years.

Paul McFarren, age 39, has been Vice President - Chief Information Officer of
United Retail Incorporated since October 2000. Previously, he was Vice
President of Worldwide Field Operations of LVMH, a consumer goods
manufacturer, for two years. Earlier, he was a Senior Director for Corporate
Systems of The Gap, Inc., a holding company for retail chains, for more than a
year.

Cinthia Menolascino, age 44, has been Vice President - Product Design and
Development of United Retail Incorporated since August 2001. She has been
employed in design positions with the Company since February 1999. Previously,
she was Vice President - Design of May Department Stores, a retail store
chain, since before 1998.

Mark Nitkey, age 43, has been Vice President - Chief Architect of United
Retail Incorporated since April 2002. Previously he was Senior Director of
Global Store Design for The Gap, Inc. for more than four years.

Bradley Orloff, age 45, has been Vice President - Marketing of United Retail
Incorporated for more than five years.

Gerald Schleiffer, age 51, has been Vice President - Planning and Distribution
of United Retail Incorporated since August 1999. Previously, he was Vice
President - Planning and Allocation of Nine West, Inc., a shoe retailer,
between July 1999 and June 1998. Earlier, he was Director of Planning and
Allocation of Value City Department Stores, Inc. for more than a year.

Fredric E. Stern, age 54, has been Vice President - Controller of United
Retail Incorporated for more than five years.

The term of office of the Company's executive officers will expire immediately
after the 2003 annual meeting of stockholders of United Retail Group, Inc.,
scheduled for May 2003. The subsection captioned "Executive Compensation -
Employment Agreements" in the Proxy Statement is incorporated herein by
reference.

Audit Committee Financial Expert
- --------------------------------

The Corporation's Board of Directors has determined that the Corporation has
at least one audit committee financial expert serving on its Audit Committee,
namely, Michael Goldstein. Mr. Goldstein is independent as that term is used
in Item 7(d)(3)(iv) of Schedule 14A under the 1934 Act.

Item 11. Executive Compensation.
----------------------

The section captioned "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
and Related Stockholder Matters.
--------------------------------

The sections captioned "Security Ownership of Principal Stockholders" and
"Security Ownership of Management" in the Proxy Statement are incorporated
herein by reference.

Item 13. Certain Relationships and Related Transactions.
----------------------------------------------

The sections captioned "Certain Transactions" and "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement are incorporated
herein by reference.

Item 14. Controls and Procedures
-----------------------

(a) The Company performed an evaluation, in which the Company's Chief
Executive Officer and Chief Financial Officer participated, of its
disclosure controls and procedures (as defined by 1934 Act Rule
13a-14(c)) with respect to information required to be disclosed by
the Company in filings with the Securities and Exchange Commission.
The evaluation was performed on a date (the "Evaluation Date") within
90 days prior to the filing of this Report. Based on this evaluation,
the Company's Chief Executive Officer and Chief Financial Officer
each concluded that these controls and procedures were effective in
all material respects in ensuring that this information is (i)
recorded, accumulated, processed, summarized and communicated to him
on a timely basis and (ii) reported within the time periods specified
in the Commission's rules and forms.

(b) There have not been any significant changes in the Company's internal
controls or in other factors that could significantly affect its
internal controls subsequent to the Evaluation Date.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------

(a) (1) Consolidated Financial Statements of the Corporation for
fiscal 2002 and fiscal 2001 are included herein.
(2) Not applicable.
(3) The following exhibits are filed herewith:

Number Description
------ -----------

3 Restated By-laws of the Corporation
10.1 Amendment, dated January 31, 2003, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and The CIT
Group/Business Credit, Inc., as Agent and Lender
("CIT")
10.2 Amendment to Restated Supplemental Retirement
Savings Plan
23.1 Consent of Independent Accountants for the
Corporation
99.1 Certification pursuant to Section 906

The following exhibits to the Corporation's Quarterly Report on
Form 10-Q for the period ended November 2, 2002, are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated December 6, 2002, to Employment
Agreement, dated November 20, 1998 between the
Corporation and Raphael Benaroya ("Benaroya
Employment Agreement")
10.2* Amendment, dated December 6, 2002, to Employment
Agreement, dated November 20, 1998, between the
Corporation and George R. Remeta ("Remeta
Employment Agreement")
10.3* Amendment, dated December 6, 2002, to Employment
Agreement, dated November 20, 1998, between the
Corporation and Kenneth P. Carroll ("Carroll
Employment Agreement")

The following exhibits to the Corporation's Quarterly Report on
Form 10-Q for the period ended August 3, 2002 are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated August 2, 2002, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and CIT
10.2 Amendment to Restated Supplemental Retirement
Savings Plan
10.3 Purchase and Sale Agreement, dated as of July 1,
2002, between Raphael Benaroya and the
Corporation

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended May 4, 2002 is incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated May 30, 2002, to Benaroya
Employment Agreement

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended February 2, 2002 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated April 5, 2002, to Private Label
Credit Card Program Agreement, dated January 27,
1998, between the Corporation, United Retail
Incorporated and World Financial Network
National Bank ("Private Label Credit Card
Program Agreement")
10.2 Amendment, dated December 29, 1999, to Private
Label Credit Card Program Agreement
10.3 Amendment, dated August 19, 1999, to Private
Label Credit Card Program Agreement
10.4* Letter, dated March 1, 2002, from the
Corporation to Raphael Benaroya with respect to
the cost of living adjustment under the Benaroya
Employment Agreement

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended November 3, 2001 are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated November 29, 2001, to Benaroya
Employment Agreement
10.2* Amendment, dated November 29, 2001, to Remeta
Employment Agreement
10.3* Amendment, dated November 29, 2001, to Carroll
Employment Agreement
10.4* Summary Plan Description for United Retail
Group, Inc. Incentive Compensation Program for
Executives
10.5 Amendment, dated October 1, 2001, to Private
Label Credit Card Program Agreement
(Confidential portions filed separately with the
Secretary of the Commission)
10.6* Promissory note, dated November 30, 2001, from
Raphael Benaroya to the Corporation (paid as of
July 1, 2002)

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended August 4, 2001 is incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* Restated Stock Appreciation Rights Plan

The 2001 Stock Option Plan set forth as an appendix to the
Corporation's proxy statement on Schedule 14A for its 2001 annual meeting of
stockholders is incorporated herein by reference.*

The following exhibit to the Corporation's Registration Statement on
Form S-8 (Registration No. 333-44868) is incorporated herein by reference:

Number in Filing Description
---------------- -----------

10 Amendment, dated August 21, 2000, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the Corporation's Quarterly Report on Form 10-Q for
the period ended October 28, 2000 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated August 18, 2000, to Benaroya
Employment Agreement
10.2* Amendment, dated August 18, 2000, to Carroll
Employment Agreement

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 29, 2000 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.2 Amendment, dated December 28, 1999, to Financing
Agreement among the Corporation, United Retail
Incorporated and CIT ("Financing Agreement")
10.3 Amendment, dated January 31, 2000, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and CIT

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended October 30, 1999 is incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated October 6, 1999, to Financing
Agreement

The following exhibit to the Corporation's Current Report on Form
8-K, filed September 23, 1999, is incorporated herein by reference:

Number in Filing Description
---------------- -----------

3 Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock

The stockholders' rights plan filed as the exhibit to the
Corporation's Registration Statement on Form 8-A, dated September 15, 1999, is
incorporated herein by reference.

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 30, 1999 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated March 29, 1999, to Financing
Agreement
21 Subsidiaries of the Corporation

The 1999 Stock Option Plan set forth as the Appendix to the
Corporation's proxy statement on Schedule 14A for its 1999 annual meeting of
stockholders is incorporated herein by reference.*

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended October 31, 1998 are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Benaroya Employment Agreement
10.2* Remeta Employment Agreement
10.3* Carroll Employment Agreement

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended May 2, 1998 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* 1998 Stock Option Agreement, dated May 21, 1998,
between the Corporation and Raphael Benaroya
10.2* 1998 Stock Option Agreement, dated May 21, 1998,
between the Corporation and George R. Remeta

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 31, 1998 are incorporated herein by reference:

Number in Filing Description
---------------- -----------
10.1 Restated Stockholders' Agreement, dated December
23, 1992, between the Corporation and certain of
its stockholders and Amendment No. 1, Amendment
No. 2 and Amendment No. 3 thereto
10.2 Private Label Credit Card Program Agreement
10.4* Restated 1990 Stock Option Plan as of March 6,
1998
10.5* Restated 1990 Stock Option Plan as of May 28,
1996
10.6* Restated 1996 Stock Option Plan as of March 6,
1998

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 1, 1997 is incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated September 15, 1997, to
Financing Agreement

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended August 2, 1997 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1 Financing Agreement
10.2* Amendment to Restated Supplemental Retirement
Savings Plan

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 2, 1996 is incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Restated Supplemental Retirement Savings Plan

The following exhibits to the Corporation's Registration Statement on
Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

3.1 Amended and Restated Certificate of
Incorporation of the Corporation

4.1 Specimen Certificate for Common Stock of the
Corporation

10.2.1 Software License Agreement, dated as of April
30, 1989, between The Limited Stores, Inc. and
Sizes Unlimited, Inc. (now known as United
Retail Incorporated) ("Software License")

10.2.2 Amendment, dated December 10, 1991, to Software
License

____________________
* A compensatory plan for the benefit of the Corporation's
management or a management contract.

(b) A Current Report on Form 8-K was submitted by the Corporation on December
9, 2002 to report certain certifications made by the Corporation's Chief
Executive Officer and Chief Financial Officer, respectively.

SIGNATURES

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

(Registrant) UNITED RETAIL GROUP, INC.

Date: April 3, 2003 By: /s/ Raphael Benaroya
-----------------------------
Raphael Benaroya, Chairman of
the Board, President and
Chief Executive Officer

POWER OF ATTORNEY

KNOWN ALL MEN BY THESE PRESENTS, that each Director whose signature
appears below other than RAPHAEL BENAROYA and GEORGE R. REMETA constitutes and
appoints RAPHAEL BENAROYA and GEORGE R. REMETA, and each of them, as his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as a
Director of United Retail Group, Inc., to sign any or all amendments to this
Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute,
may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 3, 2003.

Signature Title
- --------- -----

/s/ Raphael Benaroya
- ----------------------------
Raphael Benaroya Chairman of the Board,
Principal Executive Officer President, Chief Executive
Officer and Director

/s/ George R. Remeta
- -----------------------------
George R. Remeta Vice Chairman,
Principal Financial Officer Chief Administrative Officer
and Director

/s/ Jon Grossman
- ------------------------------
Jon Grossman Vice President - Finance
Principal Accounting Officer

/s/ Joseph A. Alutto
- ------------------------------
Joseph A. Alutto Director

/s/ Joseph Ciechanover
- ------------------------------
Joseph Ciechanover Director

/s/ Michael Goldstein
- ------------------------------
Michael Goldstein Director

/s/ Ilan Kaufthal
- ------------------------------
Ilan Kaufthal Director

/s/ Vincent P. Langone
- -----------------------------
Vincent P. Langone Director

/s/ Richard W. Rubenstein
- -----------------------------
Richard W. Rubenstein Director

CERTIFICATIONS
--------------

I, Raphael Benaroya, Chief Executive Officer of United Retail Group,
Inc., certify that:

1. I have reviewed this annual report on Form 10-K of United
Retail Group, Inc.;

2. based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;

3. based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;

4. the registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;

(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
"Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. the registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):

(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and

6. the registrant's other certifying officer and I have
indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.

Date: April 3, 2003 /s/ Raphael Benaroya
--------------------------
Chief Executive Officer

I, George R. Remeta, Chief Administrative Officer and Chief Financial
Officer of United Retail Group, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of United
Retail Group, Inc.;

2. based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;

3. based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;

4. the registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;

(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
"Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. the registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):

(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and

6. the registrant's other certifying officer and I have
indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.

Date: April 3, 2003 /s/ George R. Remeta
----------------------------
Chief Financial Officer

EXHIBIT INDEX

The following exhibits are filed herewith:

Number Description
------ -----------

3 Restated By-laws of the Corporation
10.1 Amendment, dated January 31, 2003, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and The CIT
Group/Business Credit, Inc., as Agent and Lender
("CIT")
10.2 Amendment to Restated Supplemental Retirement
Savings Plan
23.1 Consent of Independent Accountants for the
Corporation
99.1 Certification pursuant to Section 906

The following exhibits to the Corporation's Quarterly Report on
Form 10-Q for the period ended November 2, 2002, are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated December 6, 2002, to Employment
Agreement, dated November 20, 1998 between the
Corporation and Raphael Benaroya ("Benaroya
Employment Agreement")
10.2* Amendment, dated December 6, 2002, to Employment
Agreement, dated November 20, 1998, between the
Corporation and George R. Remeta ("Remeta
Employment Agreement")
10.3* Amendment, dated December 6, 2002, to Employment
Agreement, dated November 20, 1998, between the
Corporation and Kenneth P. Carroll ("Carroll
Employment Agreement")

The following exhibits to the Corporation's Quarterly Report on
Form 10-Q for the period ended August 3, 2002 are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated August 2, 2002, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and CIT
10.2 Amendment to Restated Supplemental Retirement
Savings Plan
10.3 Purchase and Sale Agreement, dated as of July 1,
2002, between Raphael Benaroya and the
Corporation

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended May 4, 2002 is incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated May 30, 2002, to Benaroya
Employment Agreement

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended February 2, 2002 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated April 5, 2002, to Private Label
Credit Card Program Agreement, dated January 27,
1998, between the Corporation, United Retail
Incorporated and World Financial Network
National Bank ("Private Label Credit Card
Program Agreement")
10.2 Amendment, dated December 29, 1999, to Private
Label Credit Card Program Agreement
10.3 Amendment, dated August 19, 1999, to Private
Label Credit Card Program Agreement
10.4* Letter, dated March 1, 2002, from the
Corporation to Raphael Benaroya with respect to
the cost of living adjustment under the Benaroya
Employment Agreement

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended November 3, 2001 are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated November 29, 2001, to Benaroya
Employment Agreement
10.2* Amendment, dated November 29, 2001, to Remeta
Employment Agreement
10.3* Amendment, dated November 29, 2001, to Carroll
Employment Agreement
10.4* Summary Plan Description for United Retail
Group, Inc. Incentive Compensation Program for
Executives
10.5 Amendment, dated October 1, 2001, to Private
Label Credit Card Program Agreement
(Confidential portions filed separately with the
Secretary of the Commission)
10.6* Promissory note, dated November 30, 2001, from
Raphael Benaroya to the Corporation (paid as of
July 1, 2002)

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended August 4, 2001 is incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* Restated Stock Appreciation Rights Plan

The 2001 Stock Option Plan set forth as an appendix to the
Corporation's proxy statement on Schedule 14A for its 2001 annual meeting of
stockholders is incorporated herein by reference.*

The following exhibit to the Corporation's Registration Statement on
Form S-8 (Registration No. 333-44868) is incorporated herein by reference:

Number in Filing Description
---------------- -----------

10 Amendment, dated August 21, 2000, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the Corporation's Quarterly Report on Form 10-Q for
the period ended October 28, 2000 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* Amendment, dated August 18, 2000, to Benaroya
Employment Agreement
10.2* Amendment, dated August 18, 2000, to Carroll
Employment Agreement

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 29, 2000 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.2 Amendment, dated December 28, 1999, to Financing
Agreement among the Corporation, United Retail
Incorporated and CIT ("Financing Agreement")
10.3 Amendment, dated January 31, 2000, to Financing
Agreement among the Corporation, United Retail
Incorporated, Cloudwalkers, Inc. and CIT

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended October 30, 1999 is incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated October 6, 1999, to Financing
Agreement

The following exhibit to the Corporation's Current Report on Form
8-K, filed September 23, 1999, is incorporated herein by reference:

Number in Filing Description
---------------- -----------

3 Certificate of Designation, Preferences and
Rights of Series A Junior Participating
Preferred Stock

The stockholders' rights plan filed as the exhibit to the
Corporation's Registration Statement on Form 8-A, dated September 15, 1999, is
incorporated herein by reference.

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 30, 1999 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated March 29, 1999, to Financing
Agreement
21 Subsidiaries of the Corporation

The 1999 Stock Option Plan set forth as the Appendix to the
Corporation's proxy statement on Schedule 14A for its 1999 annual meeting of
stockholders is incorporated herein by reference.*

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended October 31, 1998 are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Benaroya Employment Agreement
10.2* Remeta Employment Agreement
10.3* Carroll Employment Agreement

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended May 2, 1998 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1* 1998 Stock Option Agreement, dated May 21, 1998,
between the Corporation and Raphael Benaroya
10.2* 1998 Stock Option Agreement, dated May 21, 1998,
between the Corporation and George R. Remeta

The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 31, 1998 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1 Restated Stockholders' Agreement, dated December
23, 1992, between the Corporation and certain of
its stockholders and Amendment No. 1, Amendment
No. 2 and Amendment No. 3 thereto
10.2 Private Label Credit Card Program Agreement
10.4* Restated 1990 Stock Option Plan as of March 6,
1998
10.5* Restated 1990 Stock Option Plan as of May 28,
1996
10.6* Restated 1996 Stock Option Plan as of March 6,
1998

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 1, 1997 is incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1 Amendment, dated September 15, 1997, to
Financing Agreement

The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended August 2, 1997 are incorporated herein by reference:

Number in Filing Description
---------------- -----------

10.1 Financing Agreement
10.2* Amendment to Restated Supplemental Retirement
Savings Plan

The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 2, 1996 is incorporated herein by
reference:

Number in Filing Description
---------------- -----------

10.1* Restated Supplemental Retirement Savings Plan

The following exhibits to the Corporation's Registration Statement on
Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by
reference:

Number in Filing Description
---------------- -----------

3.1 Amended and Restated Certificate of
Incorporation of the Corporation

4.1 Specimen Certificate for Common Stock of the
Corporation

10.2.1 Software License Agreement, dated as of April
30, 1989, between The Limited Stores, Inc. and
Sizes Unlimited, Inc. (now known as United
Retail Incorporated) ("Software License")

10.2.2 Amendment, dated December 10, 1991, to Software
License

____________________
* A compensatory plan for the benefit of the Corporation's
management or a management contract.