STAGE STORES INC, S-1, 1996-06-12

STAGE STORES INC
S-1, 1996-06-12
DEPARTMENT STORES

Previous: STAGE STORES INC, 10-Q, 1996-06-12

Next: NORAM ENERGY CORP, 8-K, 1996-06-12

As filed with the Securities and Exchange Commission on June 12, 1996

Registration No. 333-
==============================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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

STAGE STORES, INC.
(Exact Name Of Registrant As Specified In Its Charter)

<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 76-0407711 5311
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial
incorporation or organization) Identification No.) Classification Code Number)
</TABLE>

10201 Main Street, Houston, Texas 77025 Telephone: 713-667-5601
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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

Mr. Carl Tooker
Stage Stores, Inc.
10201 Main Street
Houston, Texas 77025
Telephone: 713-667-5601
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

---------------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Lance C. Balk, Esq. Mark A. Stegemoeller, Esq.
Kirkland & Ellis Latham & Watkins
Citicorp Center, 39th Floor Sears Tower, Suite 5800
153 East 53rd Street 233 South Wacker Drive
New York, New York 10022 Chicago, Illinois 60606
Telephone: 212-446-4800 Telephone: 312-876-7700
</TABLE>
---------------

Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. []

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. []

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. []

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]

CALCULATION OF REGISTRATION FEE

==============================================================================
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
- --------------------------------------- ------------------ --------------------
<S> <C> <C>
Common Stock, par value $0.01 per share $192,000,000 $66,206.90
- --------------------------------------------------------------------------------------
</TABLE>

(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating
the registration fee.
- ------------------------------------------------------------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

==============================================================================

<PAGE>

STAGE STORES, INC.

Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information Required by Items of Part I of
Form S-1.

<TABLE>
<CAPTION>
Registration Statement
Item Number and Caption Caption or Location in Prospectus
--------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus ........ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus ...................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ..................... Prospectus Summary; Risk Factors
4. Use of Proceeds ................................. Use of Proceeds
5. Determination of Offering Price ................. Underwriting
6. Dilution ........................................ Dilution
7. Selling Security Holders ........................ Principal Stockholders; Overallotment Option
8. Plan of Distribution ............................ Outside Front Cover Page; Underwriting
9. Description of Securities to Be Registered ...... Description of Capital Stock
10. Interests of Named Experts and Counsel .......... Legal Matters; Experts
11. Information with Respect to the Registrant ...... Outside Front Cover Page; Prospectus Summary; The
Reorganization; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Description of Capital Stock; Principal
Stockholders; Overallotment Option; Certain
Relationships and Related Transactions; Index to
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities .. Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED JUNE 12, 1996

PROSPECTUS
, 1996

Shares
STAGE STORES, INC.
[Logo]
Common Stock

All of the shares of Common Stock (the "Common Stock") offered hereby are
being offered (the "Offering") by Stage Stores, Inc. ("Stage Stores" or the
"Company").

Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price.

Application has been made for inclusion of the Common Stock in the Nasdaq
Stock Market's National Market under the symbol "STGE".

See "Risk Factors," beginning on page 12, for a discussion of certain
factors which should be carefully considered by prospective purchasers of the
Common Stock offered hereby.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to the
the Public Commissions (1) Company (2)
<S> <C> <C> <C>
---------------------------------------------------------------------------
Per Share $ $ $
Total (3) $ $ $
- ------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities
Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $ .

(3) The Underwriters have been granted a 30-day option by certain of the
Company's stockholders to purchase up to additional shares of Common
Stock solely to cover overallotments, if any. If the Underwriters
exercise this option in full, the Price to the Public, Underwriting
Discounts and Commissions, Proceeds to the Company and the proceeds to
such stockholders will total $ , $ , $ and $ , respectively. See
"Principal Stockholders," "Overallotment Option" and "Underwriting."

The shares of Common Stock are being offered by the several Underwriters
subject to prior sale, when, as and if issued to and accepted by them,
subject to certain prior conditions, including the right of the Underwriters
to reject any order in whole or in part. It is expected that delivery of the
shares of Common Stock will be made in New York, New York on or about , 1996.

Donaldson, Lufkin & Jenrette
Securities Corporation

Bear, Stearns & Co. Inc.
CS First Boston
<PAGE>

[FLIP OUT PAGE]

2
<PAGE>

[FLIP OUT PAGE]

3
<PAGE>

[Pictures to come]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. References in this
Prospectus to the Company shall, as the context requires, refer to Stage
Stores, Inc. ("Stage Stores"), which was previously known as Apparel
Retailers, Inc., together with its wholly-owned subsidiaries, including
Specialty Retailers, Inc. The terms "fiscal year" and "fiscal" refer to the
Company's fiscal year which is the 52 or 53 week period ending on the
Saturday closest to January 31 of the following calendar year (e.g., a
reference to "1995" is a reference to the fiscal year ended February 3,
1996). The term pro forma refers to the basis described under "Unaudited Pro
Forma Combined Financial Data." In addition, unless the context otherwise
requires, the information contained herein assumes that the Underwriters'
over-allotment option is not exercised. See "Underwriting."

The Company

The Company operates the store of choice for well known, national brand
name family apparel in over 200 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved
niche. The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a broad range of
merchandise with a high level of customer service in convenient locations.

The Company currently operates 301 stores through its "Stage", "Bealls" and
"Palais Royal" trade names in 16 states throughout the central United States.
Approximately 76% of these stores are located in small markets and communities
with as few as 4,000 people, and the Company's store format (averaging
approximately 18,000 total selling square feet) and merchandising capabilities
enable the Company to operate profitably in these small markets. The remainder
of the Company's stores operate in metropolitan areas, primarily in suburban
Houston. For the twelve months ended May 4, 1996, the Company had pro forma
sales and net income of $763.3 million and $21.3 million, respectively.

Stage Stores' merchandise offerings include a carefully edited but broad
selection of branded, moderately priced, fashion apparel, accessories,
fragrances and cosmetics and footwear for women, men and children. Over 85%
of 1995 sales consisted of branded merchandise, including nationally
recognized brands such as Levi Strauss, Liz Claiborne, Chaps/Ralph Lauren,
Calvin Klein, Guess, Hanes, Nike, Reebok and Haggar Apparel.

In recent years, the Company has undertaken several initiatives to realize
the full potential of its unique franchise in small markets, including (i)
recruiting a new senior management team, (ii) embarking on a store expansion
program to capitalize on available opportunities in new markets through new
store openings and strategic acquisitions, (iii) continuing to refine the
Company's retailing concept and (iv) closing unprofitable stores. As a result
of these initiatives, the lower operating costs of small market stores, the
benefits of economies of scale, and its highly automated facilities and
sophisticated information systems, the Company has among the highest
operating income margins in the apparel retailing industry.

Competitively Well Positioned

As a result of its small market focus, Stage Stores generally faces
less competition for brand name apparel, because consumers in small
markets generally have only been able to shop for branded merchandise in
distant regional malls. In those small markets where the Company does compete
for brand name apparel sales, such competition generally comes from local
retailers, small regional chains and, to a lesser extent, national department
stores. The Company believes it has a competitive advantage over local
retailers and smaller regional chains due to its (i) economies of scale, (ii)
strong vendor relationships, (iii) proprietary credit card, and (iv)
sophisticated operating systems. The Company believes it has a competitive
advantage in small markets over national department stores due to its (i)
experience with smaller markets, (ii) ability to effectively manage
merchandise assortments in a small store format, and (iii) established
operating systems designed for efficient management within small markets. In
addition, due to minimal merchandise overlap, Stage Stores generally does not
directly compete for branded apparel sales with national discounters such as
Wal-Mart.

5
<PAGE>
Key Strengths

The following factors serve as the Company's key strengths and
distinguishing characteristics:

Ability to Operate Profitably in Smaller Markets. In targeting small
markets, the Company has developed a store format, generally ranging in size
from 12,000 to 30,000 square feet, which is smaller than typical department
stores yet large enough to offer a well edited, but broad selection of
merchandise. This format, together with economies of scale in buying and
merchandising, information systems, distribution and advertising, has enabled
the Company to operate profitably in small markets. In 1995, the Company's
small market stores open for at least one year generated a store contribution
(operating profit before allocation of corporate overhead) as a percentage of
sales of 18%, as compared to 12% for its larger market stores.

Benefits of Strong Vendor Relationships. The Company's large store base
offers major vendors a unique vehicle for accessing multiple small markets in
a cost effective manner. The proliferation of media combined with the
significant marketing efforts of these vendors has created significant demand
for branded apparel. However, the financial and other limitations of many
local retailers have left vendors of large national brands with limited
access to such markets. Further, these vendors, in order to preserve brand
image, generally do not sell to national discounters. As a result, the
Company is able to carry branded merchandise generally not available to local
competitors. Additionally, the Company continuously seeks to expand its
vendor base and has recently added nationally recognized brand names such as
Polo, Dockers for Women, and Oshkosh, and fragrances by Elizabeth Arden, Liz
Claiborne and Perry Ellis. In addition, the Company has successfully
increased the participation by key vendors in joint marketing programs to a
level that the Company believes exceeds the standard programs provided to its
smaller, regional competitors.

Effective Merchandising Strategy. The Company's merchandising strategy is
based on an in depth understanding of its customers and is designed to
accommodate the particular demographic profile of each store. Store layouts
and visual merchandising displays are designed to create a friendly, modern,
department store environment, which is frequently not found in small markets.
The Company's strategy focuses on moderately priced merchandise categories of
women's, men's and children's apparel, accessories, fragrances, cosmetics and
footwear, which have traditionally experienced higher margins. The Company
utilizes a sophisticated merchandise allocation and transfer system which is
designed to maximize in-stock positions, increase sales and reduce markdowns.
The Company believes that the combination of the size and experience of its
buyer group, strong vendor relationships, effective merchandising systems and
participation in the Associated Merchandising Corporation ("AMC") cooperative
buying service enable it to compete effectively on both price and selection
in its markets.

Focused Marketing Strategy. The Company's primary target customers are
women between the ages of 20 and 55 with household incomes over $25,000 who
are the primary decision makers for family clothing purchases. The Company
uses a multi-media advertising approach to position its stores as the local
destination for fashionable, brand name merchandise. In addition, the Company
heavily promotes its proprietary credit card in order to create customer
loyalty and to effectively identify its core customers. The Company believes
it has a high level of customer awareness due to the small size of its
markets, its aggressive advertising strategy and well developed corporate
programs designed to encourage a high level of customer interaction and
employee participation in local community activities.

Benefits of Proprietary Credit Card Program. The Company aggressively
promotes its proprietary credit card and the Company believes it experiences
a higher percentage of proprietary credit card sales (55.6% of net sales in
1995) than most retailers. The Company considers its credit card program to
be a critical component of its retailing concept because it (i) enhances
customer loyalty by providing a service that few local and regional
competitors or discounters offer, (ii) allows the Company to identify and
regularly contact its best customers, and (iii) creates a comprehensive
database that enables the Company to implement detailed, segmented marketing
and merchandising strategies for each store.

Emphasis on Customer Service. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. Each sales associate is evaluated based upon the
attainment of specific customer service standards such as offering prompt
assistance, suggesting complementary items, sending thank-you notes to charge
customers and establishing consistent contact with customers in order to create
the associate's own customer base. The Company continuously monitors the quality
of its service by making over 3,000 calls each month to its credit card
customers who have recently made a purchase. The results of these surveys are
used to determine a portion of each store manager's bonus. The Company further
extends its service philosophy to the design of the store, including installing
call buttons in its fitting rooms and, in its small market stores, locating the
store manager on the selling floor to increase accessibility to customers.

6
<PAGE>

Growth Strategy

In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company has
initiated an aggressive growth strategy to capitalize on available
opportunities in new markets through new store openings and strategic
acquisitions. The Company opened 23 new stores and acquired 45 stores in
fiscal 1995, has opened 11 new stores and acquired 34 stores to date in 1996,
and expects to open approximately 24 additional new stores during the remainder
of 1996. In addition, the Company's goal is to open approximately 55 new
stores in 1997.

The following are the primary elements of the Company's strategy for
profitable growth:

New Store Openings in Smaller Markets. As part of its ongoing expansion
program, the Company has identified over 600 additional markets in the
central United States and contiguous states which meet its demographic and
competitive criteria. All of these target markets are smaller communities,
where the Company has historically experienced its highest profit margins.

Strategic Acquisitions. The Company believes that it can benefit from
strategic acquisitions by (i) applying its buying and merchandising
capabilities, sales promotion techniques and customer service methods, (ii)
introducing its proven management systems, and (iii) consolidating overhead
functions. This strategy has been successfully demonstrated by the Company's
acquisition of forty-five stores from Beall-Ladymon, Inc. ("Beall- Ladymon")
in 1994 and the subsequent reopening of the stores in the first quarter of
1995 under the Stage name. In 1993, the year prior to their acquisition, the
Beall-Ladymon stores generated sales and store contribution of approximately
$53.4 million and $3.8 million, respectively, whereas the newly opened Stage
stores in the same locations generated sales and store contribution for the
twelve months ended May 4, 1996 of $93.1 million and $13.1 million,
respectively, increases of 74% and 245% respectively.

In June 1996, the Company acquired Uhlmans Inc. ("Uhlmans"), a privately
held retailer with 34 locations in Ohio, Indiana and Michigan (the "Uhlmans
Acquisition"), where the Company previously had no stores. These stores are
of similar size and merchandise content to the Company's existing stores and
are compatible with the Company's retailing concept and growth strategy. The
Company believes significant opportunities are available to improve Uhlmans'
financial results through the expansion of certain merchandise categories,
the Company's lower merchandising costs, increased proprietary credit
card-based sales, the implementation of the Company's operating systems and
the elimination of duplicative central and administrative overhead.

Expansion to Micromarkets. The Company recently began targeting its small
market retailing concept towards communities with populations from 4,000 to
12,000 ("micromarkets"). These efforts are designed to capitalize on the
Company's favorable operating experience in markets of this size. Stage
Stores believes that micromarkets may offer a significant avenue for
potential growth, because the Company is able to apply its existing
successful store model in those micromarkets due to its ability to scale its
store concept to the appropriate size (less than 12,000 gross square feet),
the generally lower levels of competition and low labor and occupancy costs.
The Company has identified 1,200 potential micromarkets in the central United
States and contiguous states which meet these criteria.

7
<PAGE>
The Offering

<TABLE>
<CAPTION>
<S> <C>
Offering ................................. shares
Common Stock to be outstanding after the
Offering (1) .......................... shares
Use of Proceeds .......................... The proceeds to be received by the Company from the Offering
are estimated to be approximately $133.8 million and will be
used to purchase for cash up to all of the Company's
outstanding 12-3/4% Senior Discount Debentures due 2005 (the
"Senior Discount Debentures") in a tender offer (the "Tender
Offer"), and to make a payment of a $2.0 million fee to
terminate the Professional Services Agreement (as defined). Any
remaining proceeds will be used for general corporate purposes.
See "Use of Proceeds" and "Certain Relationships and Related
Transactions."
Proposed Nasdaq National Market Symbol ... "STGE"
</TABLE>
- ---------------
(1) Includes 1,468,750 shares issuable upon the conversion of non-voting
Class B Common Stock, $0.01 par value per share (the "Class B Common
Stock"), which are convertible into Common Stock on a share-for-share
basis, subject to certain restrictions. See "Description of Capital
Stock." Excludes 1,426,442 shares that may be issued upon the exercise of
options granted pursuant to the 1993 Stock Option Plan (as defined). See
"Management--1993 Stock Option Plan."

Prospective purchasers of the Common Stock offered hereby should carefully
consider the "Risk Factors" immediately following this Prospectus Summary.

The executive offices of the Company are located at 10201 Main Street,
Houston, Texas 77025. The Company's telephone number is (713) 667-5601.

8
<PAGE>
Summary Consolidated Historical and
Pro Forma Combined Financial and Operating Data

The following table sets forth summary consolidated historical and pro
forma combined financial and operating data of the Company for the periods
indicated. The Company's summary consolidated historical financial data were
derived from the Company's Consolidated Financial Statements of the Company.
The summary pro forma combined financial data were derived from the Unaudited
Pro Forma Combined Financial Data of the Company and give effect to the
Uhlmans Acquisition, including the issuance of the SRPC Notes (as defined),
and the Offering. The information in the table should be read in conjunction
with "Selected Consolidated Historical Financial and Operating Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Unaudited Pro Forma Combined Financial Data", the Company's
Consolidated Financial Statements of the Company and the Financial Statements
of Uhlmans, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>

Fiscal Year
---------------------------------------------------------------
Pro Forma
1991 1992 1993(1) 1994 1995(2) 1995(2)
(dollars in thousands, except per share and store data)
<S> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Net sales ........................ $447,142 $504,401 $557,422 $581,463 $682,624 $742,373
Gross profit ..................... 135,569 154,265 172,579 182,804 214,277 229,498
Selling, general and
administrative expenses ........ 116,403 129,193 135,011 134,715 159,625 168,936
Service charge income (3) ........ 22,840 29,670 20,003 8,515 10,523 11,374
Store opening and closure costs .. 255 120 199 5,647 3,689 3,689
Operating income (4) ............. 41,751 54,622 57,372 50,957 61,486 68,247
Net interest expense ............. 33,407 31,771 36,377 40,010 43,989 34,713
Income before extraordinary item . 3,961 12,235 13,426 6,630 10,730 20,673
Pro forma earnings per common
share .......................... -- -- -- -- --
Margin and other data:
Gross profit margin .............. 30.3% 30.6% 31.0% 31.4% 31.4% 30.9%
Selling, general and
administrative expense rate .... 26.0% 25.6% 24.2% 23.2% 23.4% 22.8%
Operating income margin (4) ...... 9.3% 10.8% 10.3% 8.8% 9.0% 9.2%
Adjusted operating income margin . 8.1% 8.8% 8.2% 9.2% 9.4% 9.5%
Adjusted operating income (5) .... $ 36,425 $ 44,410 $ 45,800 $ 53,677 $ 63,996 $ 70,641
Depreciation and amortization .... 10,049 9,065 9,259 9,997 12,816 13,712
Capital expenditures ............. 4,768 7,631 8,503 19,706 28,638 --
Store data: (6)
Comparable store sales growth:
Bealls/Stage(7) ................. 4.1% 5.1% 7.2% 4.8% 3.3% --
Palais Royal .................... (2.8)% (9.8)% 0.8% 1.7% 1.4% --
Total Company (8) ............... 2.9% 1.8% 6.3% 4.1% 1.0%(9) --
Net sales per selling square foot:
Bealls/Stage (7) ................ $ 113 $ 118 $ 129 $ 138 $ 145 --
Palais Royal .................... 228 191 200 204 203 --
Total Company (8) ............... 138 138 149 157 157 --
Total selling square footage(10) . 3,354 3,418 3,472 3,516 4,581 --
Number of stores open at end of
period(11) ..................... 159 175 180 189 257 291
Balance sheet data (at end of
period):
Working capital ....................................................................................
Total assets ....................................................................................
Total debt ....................................................................................
Stockholders' (deficit) equity ....................................................................
</TABLE>

<PAGE>
(restubbed table)
<TABLE>
<CAPTION>

Three Months Ended
---------------------------------------
April 29, May 4, Pro Forma
1995 1996 May 4, 1996
(dollars in thousands, except per share and store data)
<S> <C> <C> <C>
Statement of operations data:
Net sales ........................ $142,353 $163,177 $175,324
Gross profit ..................... 46,283 52,081 54,775
Selling, general and
administrative expenses ........ 33,816 38,878 40,890
Service charge income (3) ........ 2,683 2,913 3,117
Store opening and closure costs .. 315 71 71
Operating income (4) ............. 14,835 16,045 16,931
Net interest expense ............. 10,564 11,588 9,004
Income before extraordinary item . 2,438 2,652 4,803
Pro forma earnings per common
share .......................... -- --
Margin and other data:
Gross profit margin .............. 32.5% 31.9% 31.2%
Selling, general and
administrative expense rate .... 23.8% 23.8% 23.3%
Operating income margin (4) ...... 10.4% 9.8% 9.7%
Adjusted operating income margin . 9.7% 8.6% 8.5%
Adjusted operating income (5) .... $ 13,749 $ 14,033 $ 14,900
Depreciation and amortization .... 2,700 3,149 3,371
Capital expenditures ............. 12,495 6,449 --
Store data: (6)
Comparable store sales growth:
Bealls/Stage(7) ................. 4.1% 7.4% --
Palais Royal .................... (3.3)% 7.7% --
Total Company (8) ............... (0.6)% 7.4% --
Net sales per selling square foot:
Bealls/Stage (7) ................ -- -- --
Palais Royal .................... -- -- --
Total Company (8) ............... -- -- --
Total selling square footage(10) . 4,317 4,753 --
Number of stores open at end of
period(11) ..................... 240 268 302
Balance sheet data (at end of
period):
Working capital ...................................... $171,666 $207,581
Total assets ......................................... 406,612 446,794
Total debt ........................................... 383,958 300,607
Stockholders' (deficit) equity ....................... (69,638) 51,172
</TABLE>

9
<PAGE>
Notes to Summary Consolidated Historical and
Pro Forma Combined Financial and Operating Data

(1) During 1993, Stage Stores was formed and concurrently became the direct
parent of Specialty Retailers, Inc. ("SRI") when the existing
stockholders of SRI exchanged all of their common stock for common stock
of Stage Stores. Concurrent with the formation of Stage Stores, the
Company completed the refinancing of its existing debt and preferred
stock (the "Refinancing"). As a result of the Refinancing the Company
recorded an after tax extraordinary charge of $16.2 million.

(2) 1995 includes 53 weeks.

(3) Service charge income for 1993, 1994 and 1995 decreased as compared to
levels achieved during 1991 and 1992 due to the sale of accounts
receivable to the SRI Receivables Master Trust (the "Trust") established
as part of the Refinancing in which the Company adopted an accounts
receivable securitization program (the "Accounts Receivable Program").
Without giving effect to the Accounts Receivable Program, service charge
income for 1993, 1994 and 1995 would have been $32.5 million, $35.2
million and $41.3 million, respectively. For a complete summary of the
impact of the Company's proprietary credit card program and the Accounts
Receivable Program. See Note 2 to the Company's Consolidated Financial
Statements, Note 5 below and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Store Closure Plan."

(4) Operating income and operating income margin decreased during 1994
compared to 1993 due primarily to the impact of the adoption of the
Accounts Receivable Program (See Note 2 to the Company's Consolidated
Financial Statements and Note 5 below) combined with a $5.2 million
provision associated with the closure of a majority of the stores
operated under the Fashion Bar name (the "Store Closure Plan")
(substantially all of which were underperforming). See Note 4 to the
Company's Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".

(5) Adjusted operating income represents operating income adjusted to
eliminate the income and expense associated with the Company's
proprietary credit card operations, the Accounts Receivable Program and
store opening and closure costs as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------
Pro Forma
1991 1992 1993 1994 1995 1995
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating income ...................... $ 41,751 $ 54,622 $ 57,372 $ 50,957 $ 61,486 $ 68,247
Service charge income:
Consolidated ......................... 22,840 29,670 32,547 35,183 41,321 42,172
Certificateholders' portion .......... -- -- (12,544) (26,668) (30,798) (30,798)
----- ----- ----- ----- ----- ---------
Reported service charge income ....... 22,840 29,670 20,003 8,515 10,523 11,374
Servicing and bad debt costs:
Consolidated ........................ (17,259) (19,338) (20,346) (22,504) (28,551) (29,286)
Certificateholders' portion .......... -- -- 8,814 15,956 19,400 19,400
----- ----- ----- ----- ----- ---------
Reported in selling, general and
administrative expenses ............ (17,259) (19,338) (11,532) (6,548) (9,151) (9,886)
Benefits and Costs of Securitization:
Certificateholders' portion of
service charge income .............. -- -- 12,544 26,668 30,798 30,798
Certificateholders' portion of
servicing and bad debt costs ........ -- -- (8,814) (15,956) (19,400) (19,400)
Return to Certificateholders ......... -- -- (3,219) (8,200) (11,529) (11,529)
Other ................................ -- -- 2,789 (1,552) (62) (62)
----- ----- ----- ----- ----- ---------
Total ............................... -- -- 3,300 960 (193) (193)
Impact of proprietary credit card
program on operating income ......... 5,581 10,332 11,771 2,927 1,179 1,295
Store opening and closure cost ........ 255 120 199 5,647 3,689 3,689
----- ----- ----- ----- ----- ---------
Adjusted operating income ............. $ 36,425 $ 44,410 $ 45,800 $ 53,677 $ 63,996 $ 70,641
===== ===== ===== ===== ===== =========
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
April 29, May 4, Pro Forma
1995 1996 May 4, 1996
--------- ------- -----------
<S> <C> <C> <C>
Operating income ......................... $14,835 $16,045 $16,931
Service charge income:
Consolidated ............................ 9,703 11,977 12,181
Certificateholders' portion ............. (7,020) (9,064) (9,064)
------- ------ ---------
Reported service charge income .......... 2,683 2,913 3,117
Servicing and bad debt costs:
Consolidated ........................... (5,352) (7,538) (7,723)
Certificateholders' portion ............. 3,212 5,322 5,322
------- ------ ---------
Reported in selling, general and
administrative expenses ............... (2,140) (2,216) (2,401)
Benefits and Costs of Securitization:
Certificateholders' portion of
service charge income .................. 7,020 9,064 9,064
Certificateholders' portion of
servicing and bad debt costs ........... (3,212) (5,322) (5,322)
Return to Certificateholders ............ (2,781) (2,852) (2,852)
Other ................................... (169) 496 496
------- ------ ---------
Total .................................. 858 1,386 1,386
Impact of proprietary credit card
program on operating income ............ 1,401 2,083 2,102
Store opening and closure cost ........... 315 71 71
------- ------ ---------
Adjusted operating income ................ $13,749 $14,033 $14,900
======= ====== =========
</TABLE>

Although adjusted operating income and adjusted operating income margin
do not represent operating income or any other measure of financial
performance under generally accepted accounting principles, the Company
believes they are helpful in understanding the profitability of the
Company's retailing operations prior to the impact of its credit card
program, the Accounts Receivable Program and store opening and closure
costs.

10
<PAGE>

(6) Store data exclude Bealls stores scheduled to be closed under the Bealls
1988 store closure program, except as otherwise noted in Note 10 below.
Comparable store sales growth and net sales per selling square foot for
1995 have been determined based on a comparable fifty-two week period.
Sales are considered comparable after a store has been in operation
fourteen months. Net sales per selling square foot are calculated for
stores open the entire year. Store data exclude the Fashion Bar stores
included in the Store Closure Plan.

(7) Excludes for all the periods presented the six Bealls stores located on
the border of Mexico which were adversely affected by the peso
devaluation in 1994. Comparable stores sales growth and net sales per
selling square foot for Bealls/Stage including these stores were:

<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
------------------------------- ------------------------
April 29, May 4,
Bealls/Stage 1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales growth ....... 5.4% 6.7% 7.7% 4.6% 0.2% 0.4% 7.2%
Net sales per selling square foot ... $119 $125 $137 $146 $145 -- --
</TABLE>

(8) Total Company comparable store sales growth and net sales per selling
square foot including the stores which were included in the Store
Closure Plan were as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
------------------------------- ------------------------
April 29, May 4,
Total Company 1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales growth ....... 2.9% 1.8% 5.4% 3.2% 0.5% (0.7)% 6.5%
Net sales per selling square foot ... $138 $138 $143 $151 $150 -- --
</TABLE>

(9) Excluding the six Bealls stores located on the border of Mexico which
were adversely affected by the peso devaluation in 1994, total Company
comparable store sales growth for 1995 would have increased to 3.3%.

(10) Excludes data related to the stores which were included in the Store
Closure Plan. Data is in thousands and is as of the end of the period.

(11) Number of stores opened at the end of each period presented also exclude
stores in the Store Closure Plan. Stores open at the end of 1992 and
1993 included one and six stores, respectively, which were previously
excluded under the Bealls 1988 store closure program. Such stores are
only included in the Company's results of operations subsequent to their
removal from the Bealls 1988 store closure program. Both the Store
Closure Plan and the Bealls 1988 store closure programs were
substantially completed before the end of 1995.

11
<PAGE>
RISK FACTORS

In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before making an investment in the Common Stock offered hereby.

Leverage and Restrictive Covenants

Although the Company will use the proceeds from the Offering to reduce
certain high-cost debt, the Company will remain significantly leveraged
following the Offering. As of May 4, 1996, on a pro forma basis, the
Company's total consolidated indebtedness would have been $300.6 million and
total stockholders' equity would have been $51.2 million. See
"Capitalization."

Although the Offering is designed to improve the Company's long-term
financial and operating flexibility, due to the level of the Company's
remaining indebtedness after giving effect to the Offering, any material
adverse development affecting the business of the Company could significantly
limit its ability to withstand competitive pressures and adverse economic
conditions, to take advantage of expansion opportunities or other significant
business opportunities that may arise, or to meet its obligations as they
become due. The Company's debt that remains outstanding following the
Offering will continue to impose operating and financial restrictions on the
Company and certain of its subsidiaries. Such restrictions limit, among other
matters, the Company's ability to incur additional indebtedness, to make
dividend payments and to make capital expenditures. See Note 5 to the
Company's Consolidated Financial Statements and "Description of Certain
Indebtedness." The Company will begin to incur significant scheduled
principal repayment obligations on its indebtedness beginning in 1999, and
expects that it will be necessary to refinance this indebtedness upon the
respective maturity of such debt through additional debt issuances or through
additional equity financing. No assurance can be given that the Company will
be able to obtain such financing, or that such financing will be available on
favorable terms. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

Future Growth and Recent Acquisitions; Liquidity

Key components of the Company's growth strategy are to (i) continue to
identify and acquire new store locations where the Company believes it can
operate profitably and (ii) identify and negotiate strategic acquisitions.
Such expansions and acquisitions could be material in size and cost. The
Company's ability to achieve its expansion plans is dependent upon many
factors, including the availability and permissibility under restrictive
covenants of financing, general and market specific economic conditions, the
identification of suitable markets, the availability and leasing of suitable
sites on acceptable terms, the hiring, training and retention of qualified
management and other store personnel and the integration of new stores into
the Company's information systems and operations. As a result, there can be
no assurance that the Company will be able to achieve its targets for opening
new stores (including acquisitions) or that such new stores will operate
profitably when opened or acquired. The Company recently completed the
acquisition of Uhlmans, however there can be no assurance that the Company
will be able to successfully integrate the stores acquired or that they will
operate profitably or as profitably as previously acquired stores. If the
Company is unable to successfully locate or integrate new and acquired stores
or operate them profitably, the Company's business and financial condition
could be materially adversely effected.

The Company's growth strategy may significantly expand the Company's
working capital requirements, and the Company's ability to meet those working
capital requirements may be adversely affected by the Company's level of
indebtedness and the restrictive covenants contained therein, especially in
periods of economic downturn.

Economic and Market Conditions; Seasonality

Substantially all of the Company's operations are located in the central
United States. In addition, many of the Company's stores are situated in
small towns and rural environments that are substantially dependent upon the
local economy. The retail apparel business is dependent upon the level of
consumer spending, which may be adversely affected by an economic downturn or
a decline in consumer confidence. An economic downturn, particularly in the
central United States and any state (such as Texas) from which the Company
derives a significant portion of its net sales, could have a material adverse
effect on the Company's business and financial condition. The Company
currently has six stores located near the Texas-Mexico border and has plans
to open several additional stores in that region. Economic conditions in
Mexico, and particularly a significant devaluation of the Mexican peso, have
adversely affected, and in the future may adversely affect, the Company's
business and financial condition.

12
<PAGE>

The Company's success depends in part upon its ability to anticipate and
respond to changing consumer preferences and fashion trends in a timely manner.
Although the Company attempts to stay abreast of emerging lifestyle and consumer
preferences affecting its merchandise, any sustained failure by the Company to
identify and respond to such trends could have a material adverse effect on the
Company's business and financial condition.

The Company's business is seasonal and its quarterly sales and profits
traditionally have been lower during the first three fiscal quarters of the
year and higher during the fourth fiscal quarter (November through January).
In addition, working capital requirements fluctuate throughout the year,
increasing substantially in October and November in anticipation of the
holiday season due to requirements for significantly higher inventory levels.
Any substantial decrease in sales for the last three months of the year could
have a material adverse effect on the Company's business and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Competition

The retail apparel business is highly competitive. Although competition
varies widely from market to market, the Company faces substantial
competition, particularly in its Houston area markets, from national,
regional and local department and specialty stores. Some of the Company's
competitors are considerably larger than the Company and have substantially
greater financial and other resources than the Company. Although the Company
currently offers branded merchandise not available at certain other retailers
(including large national discounters), there can be no assurance that such
other retailers will not begin to carry similar branded merchandise, which
could have an adverse effect on the Company's business and financial
condition.

Dependence on Key Personnel

The success of the Company depends to a large extent on its executive
management team, including the Company's President and Chief Executive
Officer, Carl Tooker. Although the Company has entered into employment
agreements with each of the Company's executive officers, it is possible that
members of executive management may leave the Company, and such departures
could have a material adverse effect on the Company's business and financial
condition. The Company does not maintain key-man life insurance on any of its
executive officers. See "Management."

Private Label Credit Card Portfolio

Activity under the Company's private label card program represents a
significant portion of the Company's business. Sales on the Company's private
label credit card accounted for approximately 55.6% of the Company's net
sales for 1995. Increased finance charges and late fees have more than offset
increases in charge-offs on the Company's accounts receivable over the last
few years; however, deterioration in the quality of the Company's accounts
receivable portfolio or any adverse changes in laws regulating the granting
or servicing of credit (including late fees and the finance charge applied to
outstanding balances) could have a material adverse effect on the Company's
business and financial condition.

Accounts Receivable Program

The Company currently securitizes substantially all of the receivables
derived from its proprietary credit card accounts. Under the Accounts
Receivable Program, the Company causes such receivables to be transferred to
the Trust, which from time to time issues certificates to investors backed by
such receivables. The Accounts Receivable Program has provided the Company
with substantially more liquidity (through the issuance and sale of such
certificates) than it would have had without this program. There can be no
assurance that the Trust will continue to purchase the Company's accounts
receivable or issue additional certificates. There can be no assurance that
receivables will continue to be generated by credit cardholders, or that new
credit card accounts will continue to be established, at the rate
historically experienced by the Company. Any decline in the generation of
receivables or in the rate or pattern of cardholder payments on accounts
could have a material adverse effect on the Company's business and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Accounts Receivable Program."

13
<PAGE>

Interest Rate Risk

Although the Company is protected to a certain extent by interest rate
caps, investors in the receivables-backed certificates of the trust receive
interest payments on such certificates based on a floating rate. If the
interest rate on certificates increases, the profitability of the Company's
Accounts Receivable Program and the Company's operating income could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Accounts Receivable Program."

Control by Existing Stockholders

Upon consummation of the Offering, Bain Capital ("Bain") and certain of
its affiliates will beneficially own %, Acadia Partners, L.P. ("Acadia") and
certain of its affiliates will beneficially own %, Court Square Capital
Limited ("Court Square"), a subsidiary of Citicorp Banking Corporation
("Citicorp"), will beneficially own % (assuming conversion of all shares of
Class B Common Stock to shares of Common Stock) and Bernard Fuchs, the
Company's Chairman will beneficially own % of the Company's outstanding
Common Stock. To the knowledge of the Company, upon consummation of the
Offering, there will be no agreements among the Company's principal
stockholders relating to the voting of Common Stock or otherwise relating to
corporate governance issues. Upon consummation of the Offering, if such
parties were to vote their shares together, such parties would possess % of
the combined voting power of the Company's Common Stock and would have
sufficient voting power to control the election of the Board of Directors and
to direct the affairs of the Company. See "Principal Stockholders" and
"Management."

Dilution

Based upon an assumed public offering price of $ per share, the Offering
will result in immediate and substantial dilution of $ per share of the
Common Stock to investors purchasing shares of Common Stock. See "Dilution."

Absence of Public Market and Possible Volatility of Stock Price

Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has applied to list the Common Stock for trading
on the Nasdaq National Market, there can be no assurance that an active
trading market for the Common Stock will develop or be sustained. The initial
public offering price of the Common Stock offered hereby will be determined
by negotiations among the Company and the representatives of the Underwriters
and may not be indicative of the market price for the Common Stock after the
Offering. The market price for shares of the Common Stock may be volatile and
may fluctuate based upon a number of factors, including, without limitation,
business performance, news announcements or changes in general market and
economic conditions. See "Underwriting."

Shares Eligible for Future Sale

Upon completion of the Offering, the Company will have shares of Common
Stock outstanding. The shares of Common Stock sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act of 1933 (the "Securities Act") unless held by an "affiliate"
of the Company, as that term is defined under Rule 144 of the Securities Act,
which shares will be subject to the resale limitations of Rule 144. In
addition, certain existing stockholders, including holders of restricted
Common Stock, have registration rights with respect to Common Stock held by
them. In connection with the Offering, nearly all existing stockholders
holding in the aggregate shares (or % of total outstanding shares) have
agreed not to dispose of any shares for a period of 180 days from the date of
this Prospectus, and the Company has agreed not to dispose of any shares
(other than shares sold by the Company in the Offering or issuances by the
Company of certain employee stock options and shares covered thereby) for a
period of 180 days from the date of this Prospectus, without the prior
written consent of representatives of the Underwriters. Upon expiration of
such 180-day period, shares of Common Stock will be eligible for sale subject
to certain volume and other limitations of Rule 144 under the Securities Act
applicable to "affiliates" of the Company. No prediction can be made as to
the effect, if any, that market sales of shares of Common Stock or the
availability of shares of Common Stock for sale will have on the market price
of the Common Stock from time to time. The sale of a substantial number of
shares held by the existing stockholders, whether pursuant to a subsequent
public offering or otherwise, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock and could
materially impair the Company's future ability to raise capital through an
offering of equity securities. See "Shares Eligible for Future Sale" and
"Underwriting."

14
<PAGE>

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 2,000,000 shares of Common Stock
reserved for issuance under the 1993 Stock Option Plan (as defined) and the
Incentive Plan (as defined). As a result, any shares issued upon exercise of
stock options granted under such plans will be available, subject to limitations
on sales by affiliates under Rule 144, for resale in the public market after the
effective date of such registration statement, subject to applicable lock-up
arrangements. See "Management--1993 Stock Option Plan" and "Management--1996
Equity Incentive Plan."

Restriction on Payment of Dividends on Common Stock

Since its inception, the Company has not customarily declared or paid any
regular cash or other dividends on the Common Stock other than in connection
with the Distribution and does not expect to pay dividends for the
foreseeable future. The indentures governing the SRI's indebtedness generally
restrict the ability of SRI to make payments to the Company, which
effectively limits the ability of the Company to pay dividends. The Company's
credit agreements also contain restrictive covenants that restrain the
Company from paying dividends. See "Dividend Policy" and "--Leverage and
Restrictive Covenants."

Anti-Takeover Provisions

Certain provisions of the Company's certificate of incorporation and
by-laws may inhibit changes in control of the Company not approved by the
Company's board of directors (the "Board of Directors" or the "Board") and
could limit the circumstances in which a premium may be paid for the Common
Stock in proposed transactions or a proxy contest for control of the Board.
These provisions include (i) a prohibition on stockholder action through
written consents, (ii) advance notice requirements for stockholder proposals
and nominations, (iii) limitations on the ability of stockholders to amend,
alter or repeal certain provisions of the Company's certificate of
incorporation and by-laws, (iv) the authority of the Board to issue, without
stockholder approval, preferred stock (of which 2,500 shares are authorized)
with such terms as the Board may determine and (v) a "fair price" provision
pursuant to which certain transactions involving an interested stockholder
and the Company require super-majority shareholder approval. The Company will
also be afforded the protections of Section 203 of the Delaware General
Corporation Law, which could have similar effects. See "Description of
Capital Stock."

15
<PAGE>

USE OF PROCEEDS

The net proceeds to be received from the sale of the ____ shares of Common
Stock by the Company in the Offering (after deducting the underwriting
discounts and estimated expenses of the Offering payable by the Company) are
estimated to be approximately $133.8 million, based on an assumed initial
public offering price of $ per share. The Company intends to use such net
proceeds (i) to purchase, through the Tender Offer, up to all of the Senior
Discount Debentures, for an aggregate purchase price of approximately $130.4
million and (ii) make a payment of a $2.0 million fee to terminate the
Professional Services Agreement (as defined). Any remaining proceeds will be
used for general corporate purposes. The Company will receive no proceeds
from the sale of shares by certain stockholders if the Underwriters'
overallotment option is exercised. See "Description of Certain
Indebtedness--Long-Term Indebtedness--Senior Discount Debentures" and
"Certain Relationships and Related Transactions."

DIVIDEND POLICY

Since its inception, the Company has not declared or paid any regular cash
or other dividends on its Common Stock other than in connection with the
Distribution, and does not expect to pay dividends for the foreseeable
future. The Company anticipates that for the foreseeable future, earnings
will be reinvested in the business and used to service indebtedness. The
Company's indebtedness limits its ability to pay dividends. The declaration
and payment of dividends by the Company are subject to the discretion of the
Board. Any future determination to pay dividends will depend on the Company's
results of operations, financial condition, capital requirements, contractual
restrictions under its current indebtedness and other factors deemed relevant
by the Board. See "Risk Factors--Leverage and Restrictive Covenants;
Liquidity."

16
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at May 4, 1996 and as adjusted to give effect to the Uhlmans
Acquisition, including the issuance of the SRI Receivables Purchase Co., Inc
("SRPC") 12.5% Trust Certificate Backed Notes (the "SRPC Notes"), and the
Offering. This presentation should be read in conjunction with the Company's
Consolidated Financial Statements, the Unaudited Pro Forma Combined Financial
Data of the Company, the Selected Consolidated Historical Financial and
Operating Data and other information appearing elsewhere in this Prospectus.

At May 4, 1996
-------------------------
Actual Pro Forma
---------- ------------
(in thousands)
Long-term debt, including current portion:
Revolving credit agreement (1) ............. $ -- $ --
Senior Discount Debentures, net(2) ......... 113,351 --
Senior Notes ............................... 130,000 130,000
Senior Subordinated Notes, net (2) ......... 116,568 116,568
SRPC Notes ................................. -- 30,000
Other long-term debt ....................... 24,039 24,039
-------- ----------
Total long-term debt ...................... 383,958 300,607
Stockholders' equity (deficit) (3): ......... (69,638) 51,172
-------- ----------
Total capitalization ...................... $314,320 $351,779
======== ==========
- ---------------
(1) The Company currently has a revolving credit agreement under which it
may draw up to $25.0 million with an additional seasonal availability
of $10.0 million from August 15 through January 15 of each year. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources."

(2) The Senior Discount Debentures and the Senior Subordinated Notes have
unamortized original issue discounts of $35,731 and $1,682,
respectively.

(3) Following the consummation of the Offering, the authorized
capitalization of the Company will consist of (i) 75,000,000 shares of
Common Stock, of which ____ shares will be outstanding, (ii) 3,000,000
shares of non-voting Class B Common Stock, of which 1,468,750 shares
will be issued and outstanding and (iii) 2,500 shares of Preferred
Stock, par value $1.00 per share, of which no shares will be
outstanding. Options to purchase 1,426,442 shares of Common Stock will
be outstanding immediately following consummation of the Offering. See
"Unaudited Pro Forma Combined Balance Sheet".

17
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of May 4, 1996,
without giving effect to the Offering, was approximately $(111.0) million, or
$( ) per share of common stock. Net tangible book value per share represents
the amount of the Company's total tangible assets less its total liabilities,
divided by the number of shares of common stock outstanding. After giving
effect to (i) the receipt of $133.8 million of estimated net proceeds from
the sale by the Company of shares of common stock in the Offering and (ii)
the use of such net proceeds as described under "Use of Proceeds", the pro
forma net tangible book value of the Company at May 4, 1996 would have been
approximately $ million, or $ per share of common stock. This represents an
immediate reduction in negative net tangible book value of $ per share to the
existing shareholders and an immediate net tangible book value dilution of
$( ) per share to new investors purchasing shares in the Offering.

The following table illustrates this dilution:

<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share .................. $
Pro forma net tangible book value per share,
without giving effect to the Offering ......................... $
Increase in pro forma net tangible book value per share
attributable to new investors .................................
----
Pro forma net tangible book value per share after the Offering ....
----
Dilution per share to new investors ............................... $
====
</TABLE>

The foregoing computations assume no exercise of stock options after June
12, 1996. As of June 12, 1996, there were outstanding stock options to
purchase an aggregate of 1,426,442 shares of common stock at a weighted
average exercise price of approximately $3.00 per share. If all of the
foregoing options had been exercised at May 4, 1996, the pro forma net
tangible book value per share of common stock, without giving effect to the
Offering at such date would have been $( ) and the pro forma net tangible
book value per share after giving effect to the Offering would have been $ ,
representing an immediate dilution to new investors of $ per share and an
immediate increase in net tangible book value of $ per share attributable to
the Offering.

18
<PAGE>

SELECTED CONSOLIDATED HISTORICAL
FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated historical financial
and operating data of the Company for the periods indicated. The Company's
selected consolidated historical financial data were derived from the
Company's Consolidated Financial Statements. The data for the unaudited
three-month periods ended April 29, 1995 and May 4, 1996, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results of the interim
periods. The Company's business is seasonal and the results of operations for
these three-month periods are not necessarily indicative of the results
expected for a complete fiscal year or any other interim period. The
information in the table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Unaudited Pro Forma Combined Financial Data", the Company's Consolidated
Financial Statements and the Financial Statements of Uhlmans, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------
1991 1992 1993(1) 1994 1995(2)
(dollars in thousands, except per share and store data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net sales .................................... $447,142 $504,401 $557,422 $581,463 $682,624
Cost of sales and related buying, occupancy
and distribution expenses .................. 311,573 350,136 384,843 398,659 468,347
----- ----- ----- ----- -----
Gross profit ................................. 135,569 154,265 172,579 182,804 214,277
Selling, general and administrative expenses . 116,403 129,193 135,011 134,715 159,625
Service charge income(3) ..................... 22,840 29,670 20,003 8,515 10,523
Store opening and closure costs .............. 255 120 199 5,647 3,689
----- ----- ----- ----- -----
Operating income(4) .......................... 41,751 54,622 57,372 50,957 61,486
Other non-operating income (expense) ......... 359 (2,276) -- -- --
Net interest expense ......................... 33,407 31,771 36,377 40,010 43,989
----- ----- ----- ----- -----
Income before income tax and extraordinary
item ....................................... 8,703 20,575 20,995 10,947 17,497
Income tax expense ........................... 3,993 8,340 7,569 4,317 6,767
----- ----- ----- ----- -----
Income before extraordinary item ............. 4,710 12,235 13,426 6,630 10,730
Minority interest expense .................... (749) -- -- -- --
Extraordinary item ........................... -- -- 16,208 308 --
----- ----- ----- ----- -----
Net income (loss) ............................ $ 3,961 $ 12,235 $ (2,782) $ 6,322 $ 10,730
======== ======== ======== ======== ========
Earnings (loss) per common share(5) .......... $ 0.10 $ 0.77 $ (0.39) $ 0.48 $ 0.81
======== ======== ======== ======== ========
Margin and other data:
Gross profit margin .......................... 30.3% 30.6% 31.0% 31.4% 31.4%
Selling general and administrative expense
rate ....................................... 26.0% 25.6% 24.2% 23.2% 23.4%
Operating income margin (4) .................. 9.3% 10.8% 10.3% 8.8% 9.0%
Adjusted operating income margin ............. 8.1% 8.8% 8.2% 9.2% 9.4%
Adjusted operating income (6) ................ $ 36,425 $ 44,410 $ 45,800 $ 53,677 $ 63,996
Depreciation and amortization ................ 10,049 9,065 9,259 9,997 12,816
Capital expenditures ......................... 4,768 7,631 8,503 19,706 28,638

Store data:(7)
Comparable store sales growth:
Bealls/Stage(8) ............................. 4.1% 5.1% 7.2% 4.8% 3.3%
Palais Royal ................................ (2.8)% (9.8)% 0.8% 1.7% 1.4%
Total Company (9) ........................... 2.9% 1.8% 6.3% 4.1% 1.0%(10)
Net sales per selling square foot:
Bealls/Stage(8) ............................. $ 113 $ 118 $ 129 $ 138 $ 142
Palais Royal ................................ 228 191 200 204 203
Total Company (9) ........................... 138 138 149 157 157
Total selling square footage(11) ............. 3,354 3,418 3,472 3,516 4,581
Number of stores open at end of period(12) ... 159 175 180 189 257

Balance sheet data (at end of period):
Working capital .............................. $200,050 $214,430 $156,782 $148,229 $170,108
Total assets ................................. 365,381 403,824 347,055 369,730 412,333
Long-term debt ............................... 298,266 296,587 347,468 349,775 380,039
Redeemable preferred stock ................... 15,200 17,500 -- -- --
Stockholders' (deficit)(13) .................. (19,500) (9,605) (87,727) (81,193) (72,314)

</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
April 29,
1995 May 4, 1996
(dollars in thousands, except per share and store)
<S> <C> <C>
Statement of operations data:
Net sales .................................... $142,353 $163,177
Cost of sales and related buying, occupancy
and distribution expenses .................. 96,070 111,096
--------- ---------
Gross profit ................................. 46,283 52,081
Selling, general and administrative expenses . 33,816 38,878
Service charge income(3) ..................... 2,683 2,913
Store opening and closure costs .............. 315 71
--------- ---------
Operating income(4) .......................... 14,835 16,045
Other non-operating income (expense) ......... -- --
Net interest expense ......................... 10,564 11,588
--------- ---------
Income before income tax and extraordinary
item ....................................... 4,271 4,457
Income tax expense ........................... 1,833 1,805
--------- ---------
Income before extraordinary item ............. 2,438 2,652
Minority interest expense .................... -- --
Extraordinary item ........................... -- --
--------- ---------
Net income (loss) ............................ $ 2,438 $ 2,652
========= =========
Earnings (loss) per common share(5) .......... $ 0.18 $ 0.20
========= =========
Margin and other data:
Gross profit margin .......................... 32.5% 31.9%
Selling general and administrative expense
rate ....................................... 23.8% 23.8%
Operating income margin (4) .................. 10.4% 9.8%
Adjusted operating income margin ............. 9.7% 8.6%
Adjusted operating income (6) ................ $ 13,749 $ 14,033
Depreciation and amortization ................ 2,700 3,149
Capital expenditures ......................... 12,495 6,449

Store data:(7)
Comparable store sales growth:
Bealls/Stage(8) ............................. 4.1% 7.4%
Palais Royal ................................ (3.3)% 7.7%
Total Company (9) ........................... (0.6)% 7.4%
Net sales per selling square foot:
Bealls/Stage(8) ............................. -- --
Palais Royal ................................ -- --
Total Company (9) ........................... -- --
Total selling square footage(11) ............. 4,317 4,753
Number of stores open at end of period(12) ... 240 268

Balance sheet data (at end of period):
Working capital .............................. $142,763 $171,666
Total assets ................................. 368,015 406,612
Long-term debt ............................... 352,945 383,958
Redeemable preferred stock ................... -- --
Stockholders' (deficit)(13) .................. (78,611) (69,638)
</TABLE>
19
<PAGE>
NOTES TO SELECTED CONSOLIDATED HISTORICAL
FINANCIAL AND OPERATING DATA

(1) During 1993, Stage Stores was formed and concurrently became the direct
parent of SRI when the existing stockholders of SRI exchanged all of
their common stock for common stock of Stage Stores. Concurrent with the
formation of Stage Stores, the Company completed the Refinancing. As a
result of the Refinancing the Company recorded an after tax extraordinary
charge of $16.2 million.

(2) 1995 includes 53 weeks.

(3) Service charge income for 1993, 1994 and 1995 decreased as compared to
levels achieved during 1991 and 1992 due to the sale of accounts
receivable to the Trust as part of the Accounts Receivable Program.
Without giving effect to the Accounts Receivable Program, service charge
income for 1993, 1994 and 1995 would have been $32.5 million, $35.2
million and $41.3 million, respectively. For a complete summary of the
impact of the Company's proprietary credit card program and the Accounts
Receivable Program, see Note 2 to the Company's Consolidated Financial
Statements, Note 6 below and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Accounts Receivable
Program."

(4) Operating income and operating income margin decreased during 1994
compared to 1993 due primarily to the impact of the adoption of the
Accounts Receivable Program (See Note 2 to the Company's Consolidated
Financial Statements and Note 6 below) combined with a $5.2 million
provision associated with the Store Closure Plan. See Note 4 to the
Company's Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Store
Closure Plan."

(5) Earnings (loss) per common share for 1993 includes the impact of the
extraordinary item associated with the Refinancing which reduced earnings
per common share by $1.24.

(6) Adjusted operating income represents operating income adjusted to
eliminate the income and expense associated with the Company's
proprietary credit card, the Accounts Receivable Program and store
opening and closure costs as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------

1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>

Operating income ...................... $ 41,751 $ 54,622 $ 57,372 $ 50,957 $ 61,486
Service charge income:
Consolidated ......................... 22,840 29,670 32,547 35,183 41,321
Certificateholders' portion .......... -- -- (12,544) (26,668) (30,798)
----- ----- ----- ----- -----
Reported service charge income ....... 22,840 29,670 20,003 8,515 10,523
Servicing and bad debt costs:
Consolidated ........................ (17,259) (19,338) (20,346) (22,504) (28,551)
Certificateholders' portion .......... -- -- 8,814 15,956 19,400
----- ----- ----- ----- -----
Reported in selling, general and
administrative expenses ............ (17,259) (19,338) (11,532) (6,548) (9,151)
Benefits and Costs of Securitization:
Certificateholders' portion of service
charge income ...................... -- -- 12,544 26,668 30,798
Certificateholders' portion of servicing
and bad debt costs ................. -- -- (8,814) (15,956) (19,400)
Return to Certificateholders ......... -- -- (3,219) (8,200) (11,529)
Other ................................ -- -- 2,789 (1,552) (62)
----- ----- ----- ----- -----
Total ............................... -- -- 3,300 960 (193)
Impact of proprietary credit card
program on operating income ......... 5,581 10,332 11,771 2,927 1,179
Store opening and closure cost ........ 255 120 199 5,647 3,689
----- ----- ----- ----- -----
Adjusted operating income ............. $ 36,425 $ 44,410 $ 45,800 $ 53,677 $ 63,996
====== ===== ===== ===== =====
</TABLE>

<PAGE>

(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
April 29, May 4,
1995 1996
---------- ---------
<S> <C> <C>
Operating income ...................... $14,835 $16,045
Service charge income:
Consolidated ......................... 9,703 11,977
Certificateholders' portion .......... (7,020) (9,064)
----------- -----------
Reported service charge income ....... 2,683 2,913
Servicing and bad debt costs:
Consolidated ........................ (5,352) (7,538)
Certificateholders' portion .......... 3,212 5,322
----------- -----------
Reported in selling, general and
administrative expenses ............ (2,140) (2,216)
Benefits and Costs of Securitization:
Certificateholders' portion of service
charge income ...................... 7,020 9,064
Certificateholders' portion of servicing
and bad debt costs ................. (3,212) (5,322)
Return to Certificateholders ......... (2,781) (2,852)
Other ................................ (169) 496
----------- -----------
Total ............................... 858 1,386
Impact of proprietary credit card
program on operating income ......... 1,401 2,083
Store opening and closure cost ........ 315 71
----------- -----------
Adjusted operating income ............. $13,749 $14,033
=========== ===========
</TABLE>

(7) Store data exclude Bealls stores scheduled to be closed under the Bealls
1988 store closure program, except as otherwise noted in Note 12 below.
Comparable store sales growth and net sales per selling square foot for 1995
have been determined based on a comparable fifty-two week period. Sales are
considered comparable after a store has been in operation fourteen months.
Net sales per selling square foot are calculated for stores open the entire
year. Store data exclude the Fashion Bar stores included in the Store
Closure Plan.

20
<PAGE>

(8) Excludes for all the periods presented the six Bealls stores located on
the border of Mexico which were adversely affected by the peso
devaluation in 1994. Comparable stores sales growth and net sale per
selling square foot for Bealls/Stage including these stores were:
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
------------------------------- ------------------------
April 29, May 4,
Bealls/Stage 1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales growth 5.4% 6.7% 7.7% 4.6% 0.2% 0.4% 7.2%
Net sales per selling square foot $119 $125 $137 $146 $145 -- --
</TABLE>
(9) Total Company comparable store sales growth and net sales per selling
square foot including the stores which were included in the Store
Closure Plan were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
------------------------------- ------------------------
April 29, May 4,
Total Company 1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales growth 2.9% 1.8% 5.4% 3.2% 0.5% (0.7)% 6.5%
Net sales per selling square foot $138 $138 $143 $151 $150 -- --
</TABLE>
(10) Excluding the six Bealls stores located on the border of Mexico which
were adversely affected by the Peso devaluation in 1994, comparable
store sales for 1995 would have increased to 3.3%.

(11) Excludes data related to the stores which were in the Store Closure
Plan. Data is in thousands and is as of the end of the period.

(12) Number of stores opened at the end of each period presented also exclude
stores in the Store Closure Plan. Stores open at the end of 1992 and
1993 included one and six stores, respectively, which were previously
excluded under the Bealls 1988 store closure program. Such stores are
only included in the Company's results of operations subsequent to their
removal from the store closure program. Both the Store Closure Plan and
the Bealls 1988 store closure program were substantially completed
before the end of 1995.

(13) Beginning in 1993, Stockholders' deficit includes the impact of the
extraordinary charge associated with the Refinancing ($16.2 million) and
the dividend associated with a cash distribution to the Company's
stockholders ($74.8 million).
21

<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following unaudited pro forma combined financial data give effect to
the Uhlmans Acquisition, the issuance of the SRPC Notes and the application
of the net proceeds of the Offering. The unaudited pro forma financial data
are based on the historical consolidated financial statements for the
Company, the historical financial statements of Uhlmans and the assumptions
and adjustments described in the accompanying notes. The unaudited pro forma
combined statements of operations were prepared as if the transactions
described above had occurred at the beginning of the earliest period
presented and do not (i) purport to represent what the Company's results of
operations actually would have been if the Uhlmans Acquisition and the
Offering had occurred as of the dates indicated or will be for any future
periods or (ii) give effect to certain non-recurring charges expected to
result from the application of the net proceeds of the Offering. The
unaudited pro forma combined balance sheet was prepared as if the
transactions described above had occurred on the balance sheet date. The
unaudited pro forma financial data are based upon assumptions deemed
appropriate by the management of the Company. The unaudited pro forma
combined financial data should be read in conjunction with the Company's
Consolidated Financial Statements and the Financial Statements of Uhlmans
included elsewhere in this Prospectus.

22
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED FEBRUARY 3, 1996
<TABLE>
<CAPTION>
Historical
----------------------
Acquisition Offering Pro Forma
Company Uhlmans Adjustments (1) Adjustments (2) Combined
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales ........................ $682,624 $59,749 $ -- $ -- $742,373
Cost of sales and related buying,
occupancy and distribution
expenses ....................... 468,347 46,129 (1,601)(a) -- 512,875
------- ------- ------------- ------------- ---------
Gross profit ..................... 214,277 13,620 1,601 -- 229,498
Selling, general and
administrative expenses ........ 159,625 12,232 (2,408)(b) (513)(k) 168,936
Service charge income ............ 10,523 851 -- -- 11,374
Store opening and closure costs .. 3,689 -- -- -- 3,689
------- ------- ------------- ------------- ---------
Operating income ................. 61,486 2,239 4,009 513 68,247
------- ------- ------------- ------------- ---------
Interest income .................. 781 -- -- -- 781
------- ------- ------------- ------------- ---------
Interest expense ................. 42,910 1,637 2,113(c) (13,070)(l) 33,590
Amortization of debt issue costs . 1,860 -- 482(d) (438)(m) 1,904
------- ------- ------------- ------------- ---------
44,770 1,637 2,595 (13,508) 35,494
------- ------- ------------- ------------- ---------
Income before income tax and
extraordinary item ............. 17,497 602 1,414 14,021 33,534
Income tax expense(3).............. 6,767 -- 766(e) 5,328(n) 12,861
------- ------- ------------- ------------- ---------
Income before extraordinary
item (4)......................... $ 10,730 $ 602 $ 648 $ 8,693 $ 20,673
======= ======= ============= ============= =========

Earnings per common share data:
Earnings per common share before
extraordinary item ............. $
=====
Weighted average common shares
outstanding ....................
=====
</TABLE>
23
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 4, 1996
<TABLE>
<CAPTION>
Historical
----------------------
Acquisition Offering Pro Forma
Company Uhlmans Adjustments (1) Adjustments (2) Combined
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales ........................ $163,177 $12,147 $ -- $ -- $175,324
Cost of sales and related buying,
occupancy and distribution
expenses ....................... 111,096 9,856 (403)(f) -- 120,549
------- ------- ------------- ------------- ---------
Gross profit ..................... 52,081 2,291 403 -- 54,775
Selling, general and
administrative expenses ........ 38,878 2,752 (615)(g) (125)(o) 40,890
Service charge income ............ 2,913 204 -- -- 3,117
Store opening and closure costs .. 71 -- -- -- 71
------- ------- ------------- ------------- ---------
Operating income (loss) .......... 16,045 (257) 1,018 125 16,931
------- ------- ------------- ------------- ---------
Interest income .................. 126 -- -- -- 126
------- ------- ------------- ------------- ---------
Interest expense ................. 11,245 357 581(h) (3,534)(p) 8,649
Amortization of debt issue
costs .......................... 469 -- 121(i) (109)(q) 481
------- ------- ------------- ------------- ---------
11,714 357 702 (3,643) 9,130
------- ------- ------------- ------------- ---------
Income (loss) before income tax
and extraordinary item ......... 4,457 (614) 316 3,768 7,927
Income tax expense (benefit) (3) . 1,805 -- (113)(j) 1,432(r) 3,124
------- ------- ------------- ------------- ---------
Income (loss) before
extraordinary item (4) ......... $ 2,652 $ (614) $ 429 $ 2,336 $ 4,803
======= ======= ============= ============= =========

Earnings per common share data:
Earnings per common share
before extraordinary item ..... $
======
Weighted average common shares
outstanding ................... ======

</TABLE>

24
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

Note 1--Acquisition Adjustments

Uhlmans Consolidation Program

The Company has formally adopted and is in the process of implementing a
consolidation program to absorb the Uhlmans general office functions,
including accounting, data processing, merchandising, personnel, credit and
distribution into similar functions provided by the Company (the "Uhlmans
Consolidation Program"). As a part of the acquisition agreement with the
former stockholders of Uhlmans, the Company has contractually agreed to a
severance schedule for each individual whose employment will be terminated as
a result of the Uhlmans Consolidation Program. Additionally, all leases
associated with Uhlmans corporate offices and distribution center have been
converted to month-to-month leases under the terms of the acquisition
agreement.

Although the consolidation of the Uhlmans general office functions is
expected to take place over a period of three months, the pro forma combined
statements of operations reflect the elimination of the separate Uhlmans
general office expenses assuming the consolidation had been fully implemented
at the beginning of the respective periods.

The adjustments to Uhlmans historical net income are based on management's
best estimates and are not necessarily indicative of the level of permanent
savings for future periods. These pro forma adjustments only give effect to
those amounts that are directly related to the Uhlmans Consolidation Program.
The actual application by the Company of the Uhlmans Consolidation Program
could result in different levels of savings from the amounts presented in the
pro forma combined statements of operations.

The accompanying pro forma combined statements of operations do not
reflect certain cost savings or improvements in sales volume or gross margin
related to the acquisition of Uhlmans which the Company believes can be
realized. For instance, the Company believes it should be able to receive
better pricing and vendor participation programs on the merchandise it
purchases for the acquired stores given the Company's historical ability to
negotiate better pricing structures with its vendors as compared to those
historically obtained by Uhlmans. Additionally, the Company intends to expand
certain merchandise categories in the acquired stores such as footwear, which
Uhlmans has historically offered on a limited basis in only certain stores.
Finally, the Company believes it should be able to increase the penetration
of Uhlmans' proprietary credit card as compared to historical levels, since
Uhlmans has not aggressively promoted its proprietary credit card.

Purchase Accounting

The application of purchase accounting to the Uhlmans acquisition results
in an excess of the purchase price over the estimated fair value of the
assets acquired and liabilities assumed. This excess is treated as goodwill.
Based upon the strategic positioning of the Uhlmans stores in relation to the
Company's growth strategy, the stores purchased by the Company and the long
operating history and historical profitability of these stores, management
believes a forty year amortization period for this goodwill is appropriate.
Such acquisition will be accounted for as an asset purchase for tax purposes,
and accordingly, the annual goodwill amortization will be tax deductible.

Acquisition Financing

The Company financed the Uhlmans Acquisition through the issuance of $30.0
million in aggregate principal amount of SRPC Notes. The pro forma combined
statements of operations reflect additional interest expense relating to
these notes. See "Description of Certain Indebtedness--Other Debt--SRPC
Notes."

25
<PAGE>

The pro forma combined statements of operations reflect the impact of the
aforementioned items as follows (in thousands):

Year ended February 3, 1996:
(a) Elimination of Uhlmans' historical personnel costs associated with the
buying and distribution functions which the Company is currently
absorbing into its existing central office of ($1,908) offset by
incremental freight due to the use of the Company's distribution
center of $307.

(b) Elimination of Uhlmans' historical personnel costs associated with the
accounting, advertising, data processing and credit functions and
occupancy costs associated with leases the Company is terminating in
connection with the Uhlmans Consolidation Program aggregating ($2,676)
offset by amortization of goodwill resulting from the acquisition of
$268.

(d) Amortization of debt issue costs associated with the SRPC Notes of
$482.

(e) Additional income tax expense associated with the Uhlmans' historical
income of $229 and the remaining acquisition adjustments of $537.

Three months ended May 4, 1996:
(f) Elimination of Uhlmans' historical personnel costs associated with the
buying and distribution functions which the Company is currently
absorbing into its existing central office of ($477) offset by
incremental freight due to the use of the Company's distribution
center of $74.

(g) Elimination of Uhlmans' historical personnel costs associated with the
accounting, advertising, data processing and credit functions and
occupancy costs associated with leases the Company is terminating in
connection with the Uhlmans Consolidation Program aggregating ($682)
offset by amortization of goodwill resulting from the acquisition of
$67.

(h) Elimination of Uhlmans' historical interest expense of ($357) offset
by interest on the SRPC Notes of $938.

(i) Amortization of debt issue costs associated with the SRPC Notes of
$121.

(j) Income tax benefit of Uhlmans' historical loss of ($233) offset by
additional income tax expense associated with remaining acquisition
adjustments of $120.

Note 2--Offering Adjustments

The unaudited pro forma combined statements of operations should be read
in conjunction with the discussion of the Offering included under "Use of
Proceeds." The completion of the Offering at the beginning of the pro forma
periods presented would have resulted in the following adjustments (in
thousands):

Year ended February 3, 1996:
(k) Elimination of the expense associated with the termination of the
Professional Services Agreement (as defined) of ($513). See "Certain
Relationships and Related Transactions--Professional Services
Agreement."

(l) Elimination of historical interest expense associated with the Senior
Discount Debentures of ($13,070).

(m) Elimination of historical amortization of debt issue costs associated
with the Senior Discount Debentures of ($438).

(n) Income tax expense associated with the Offering adjustments of $5,328.

Three months ended May 4, 1996:
(o) Elimination of the expense associated with the termination of the
Professional Services Agreement (as defined) of ($125).

(p) Elimination of historical interest expense associated with the Senior
Discount Debentures of ($3,534).

26
<PAGE>

(q) Elimination of historical amortization of debt issue costs associated
with the Senior Discount Debentures of ($109).

(r) Income tax expense associated with the Offering adjustments of $1,432.

Note 3--Income Taxes

Pro forma adjustments to record the provision or benefit for income taxes
have been made assuming a tax rate of 38%, based upon the statutory federal
and state income tax rates. These adjustments result in a pro forma combined
effective tax rate of 38% and 39% for the year ended February 3, 1996, and
the three months ended May 4, 1996, respectively.

Note 4--Non-Recurring Charges

In the fiscal quarter in which the Offering is consummated (currently
expected to be the second or third quarter of 1996), the Company expects to
incur non-recurring charges, net of tax, totaling approximately $13.2 million
in connection with the early retirement of the Senior Discount Debentures and
the write-off of related debt issue costs and the termination of the
Professional Services Agreement (as defined).

27
<PAGE>

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MAY 4, 1996
<TABLE>
<CAPTION>
Historical
----------------------
Acquisition Offering Pro Forma
Company Uhlmans Adjustments (1) Adjustments (2) Combined
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents ........ $ 10,412 $ 1,054 $ 490(a) $ 3,527(k) $ 15,483
Accounts receivable .............. 50,587 5,519 -- -- 56,106
Merchandise inventories .......... 166,303 13,154 -- -- 179,457
Prepaid expenses and other current
assets ......................... 23,452 251 (78)(b) 14,554(l) 38,179
------- ------- ------------- ------------- ---------
Total current assets ............ 250,754 19,978 412 18,081 289,225
Property, equipment and leasehold
improvements, net .............. 96,901 3,983 (28)(c) -- 100,856
Goodwill, net .................... 30,606 -- 10,719(d) -- 41,325
Other assets ..................... 28,351 188 2,077(e) (15,228)(m) 15,388
------- ------- ------------- ------------- ---------
Total assets .................... $406,612 $24,149 $13,180 $ 2,853 $446,794
======= ======= ============= ============= =========
Liabilities and Stockholders'
Equity
Accounts payable ................. $ 41,153 $ 3,857 $ 398(f) -- $ 45,408
Accrued interest ................. 6,580 101 -- -- 6,681
Accrued expenses and other current
liabilities .................... 27,272 1,796 549(g) (4,606)(n) 25,011
Accrued taxes, other than income
taxes .......................... 4,083 461 -- -- 4,544
------- ------- ------------- ------------- ---------
Total current liabilities ....... 79,088 6,215 947 (4,606) 81,644

Long-term debt ................... 339,467 13,809 16,191(h) (113,351)(o) 256,116
Related party debt ............... 44,200 1,060 (1,060)(h) -- 44,200
Other long-term liabilities ...... 13,495 344 (177)(i) -- 13,662
------- ------- ------------- ------------- ---------
Total liabilities ............... 476,250 21,428 15,901 (117,957) 395,622
Stockholders' equity (deficit) ... (69,638) 2,721 (2,721)(j) 120,810(p) 51,172
------- ------- ------------- ------------- ---------
Total liabilities and
stockholders' equity .......... $406,612 $24,149 $13,180 $ 2,853 $446,794
======= ======= ============= ============= =========
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

Note 1--Acquisition Adjustments

The pro forma acquisition adjustments represent the estimated purchase
accounting adjustments necessary to state the historical assets and
liabilities of Uhlmans at their estimated fair values and the recognition of
the excess of the purchase price over the estimated fair value of the assets
acquired and liabilities assumed as goodwill. Certain assets and liabilities
associated with the trucking operations of Uhlmans at the date of its
acquisition by the Company were retained by its former stockholders. The pro
forma combined condensed balance sheet includes adjustments to remove the
historical value of such assets and liabilities. The acquisition adjustments
shown on the pro forma combined condensed balance sheet reflect (in
thousands):

(a) Cash received from the issuance of the SRPC Notes, of $27,829 net of
fees and expenses, less cash paid to former owners of Uhlmans of
($11,613) and the retirement of Uhlmans total long term debt
(including current portion) ($15,726).

(b) Write-off of Uhlmans' prepaid pension expenses of $(78).

(d) Recognition of goodwill.

(e) Recognition of debt issue costs associated with the issuance of the
SRPC Notes.

(f) Adjustment for certain trucking liabilities not assumed of ($18) and
recognition of deferred purchase price due the former owners of
Uhlmans of $416.

(g) Accrual for severance due certain Uhlmans' employees of $1,406, net of
the retirement of the current portion of Uhlmans' debt of ($857).

(h) Issuance of the SRPC Notes of $30,000, net of the retirement of
Uhlmans existing debt of ($14,869).

(i) Elimination of Uhlmans' historical pension liability which is not
being assumed by the Company of $(177).

(j) Elimination of Uhlmans' historical equity accounts.

Note 2--Offering Adjustments

The pro forma offering adjustments, assuming completion of the Offering at
an initial public offering price of $ per share, at May 4, 1996, reflect the
following (in thousands):

(k) Sources and uses of cash as follows:
<TABLE>
<CAPTION>
<S> <C>
Sources of Funds--
Net proceeds from the Offering ........................................... $ 133,840
Uses of Funds--
Retirement of Senior Discount Debentures ................................. (128,313)
Payment to terminate the Professional Services Agreement (as defined) .... (2,000)
--------
Net change in cash and cash equivalents .................................. $ 3,527
========
</TABLE>
(l) Recognition of income tax receivable due to early retirement of Senior
Discount Debentures of $14,554.

(m) Write-off of Debt Issue Cost related to the Senior Discount Debentures
of $(4,054) and reclassification of the historical deferred tax asset
related to the interest component of the debentures to income tax
receivable of ($11,174).

(n) Reclassification of income taxes payable existing at May 4, 1996 to
income tax receivable due to the tax implications of the retirement of
the Senior Discount Debentures of ($4,606).

(o) Retirement of Senior Discount Debentures.

(p) Net proceeds from the Offering of $133,840, net of extraordinary
charge, net of tax, for loss on early retirement of debt of ($11,790)
and payment to terminate the Professional Services Agreement, net of
tax of ($1,240).

29
<PAGE>

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

General

Overview. The Company operates the store of choice for well known national
brand name family apparel in over 200 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved
niche. The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a broad range of
merchandise with a high level of customer service in convenient locations.

In recent years, the Company has undertaken several initiatives to realize
the full potential of its unique franchise in small markets, including (i)
recruiting a new senior management team, (ii) embarking on a store expansion
program to capitalize on available opportunities in new markets through new
store openings and strategic acquisitions, (iii) continuing to refine the
Company's retailing concept and (iv) closing unprofitable stores. As a result
of these initiatives, the lower operating costs of small market stores, the
benefits of economies of scale and its highly automated facilities and
sophisticated information systems, the Company has among the highest
operating income margins in the apparel retailing industry.

Recent Acquisitions. The Company acquired forty-five stores from
Beall-Ladymon in 1994 and subsequently reopened the stores in the first
quarter of 1995 under the Stage name. In 1993, the year prior to their
acquisition, the Beall-Ladymon stores generated sales and store contribution
of approximately $53.4 million and $3.8 million, respectively, whereas the
newly opened Stage stores in the same locations generated sales and store
contribution for the twelve months ended May 4, 1996 of $93.1 million and
$13.1 million respectively, increases of 74% and 245% respectively. The
Company believes that the following key strengths have contributed to its
successful expansion and acquisition plan: (i) ability to operate profitably
in smaller markets, (ii) benefits of strong vendor relationships, (iii)
effective merchandising strategy, (iv) focused marketing strategy, (v)
benefits of proprietary credit card program, (vi) emphasis on customer
service, and (vii) sophisticated operating and information systems.

On June 3, 1996 the Company consummated the Uhlmans Acquisition for $28.7
million, including the repayment of certain indebtedness of Uhlmans. For the
year ended February 3, 1996, Uhlmans had net sales of $59.7 million and
operating income of $2.2 million. The Company is in the process of
implementing a consolidation program to absorb the Uhlmans general office
functions, including accounting, data processing, merchandising, personnel,
credit and distribution into similar functions provided by the Company. The
Company estimates that through the Uhlmans Consolidation Plan, cost savings
of $4.0 million can be realized from the elimination of duplicative central,
administrative and distribution functions. In addition to any improvements in
operating results that may be achieved through the opportunity to expand the
business above its historical levels, the Company believes it should be able
to receive better pricing and vendor participation programs on the
merchandise it purchases for the acquired stores given the Company's
historical ability to negotiate better pricing structures with its vendors as
compared to those historically obtained by Uhlmans. Additionally, the Company
intends to introduce certain expanded merchandise categories in the acquired
stores such as footwear, which Uhlmans has historically offered in only
certain stores. Finally, the Company believes it should be able to increase
the penetration of the Company's proprietary credit card as compared to
historical levels since Uhlmans had not aggressively promoted its proprietary
credit card.

Store Closure Plan. During the fourth quarter of 1994, the Company
approved the Store Closure Plan which provided for the closure of forty
underperforming Fashion Bar stores. These stores were primarily located in
major regional malls within the Denver area. Management determined that the
merchandising strategy and market positions of such stores were not
compatible with the Company's overall strategy. Accordingly, the Company
accrued $5.2 million for the expected costs associated with the Store Closure
Plan during 1994. The Store Closure Plan was substantially completed in 1995.

Accounts Receivable Program. Pursuant to the Accounts Receivable Program,
the Company sells, on a daily basis, substantially all of the accounts
receivable generated from purchases by the holders of the Company's
proprietary credit card to SRPC. SRPC is a separate limited-purpose
subsidiary that is operated in a manner intended to ensure that its assets
and liabilities are distinct from those of the Company and its other
affiliates so that SRPC's creditors have a claim on its assets prior to such
assets becoming available to any creditor of the Company. SRPC

30
<PAGE>

sells, on a daily basis, the accounts receivable purchased from the Company
to the Trust in exchange for cash or a certificate representing an undivided
interest in the Trust (the "Retained Interest"). The Company's Retained
Interest at May 4, 1996 was $48.6 million, which represented 22.3% of total
receivables outstanding in the Trust. The remaining interest in the Trust is
held by third-party investors. The Retained Interest is effectively
subordinated to the interests of such third-party investors, and is pledged
to secure the SRPC Notes.

Prior to the implementation of the Accounts Receivable Program in 1993,
operating income included all service charge income and servicing costs
attributable to the Company's accounts receivable and credit card operations.
The cost of financing the Company's accounts receivable was included in
interest expense. Subsequent to the implementation of the Accounts Receivable
Program, service charge income only includes the amount of service charge
income attributable to the Company's Retained Interest. Additionally, the
Company's selling, general and administrative expenses are decreased or
increased by a gain or loss, respectively, on the sale of receivables to the
Trust. This gain or loss is calculated based upon the present value of the
projected cash receipts from the receivables sold to the Trust (primarily
service charge income) and reduced by the projected payments of returns to
the holders of the Trust Certificates, and projected credit expenses.
Selling, general and administrative expenses are also affected by adjustments
to previously recorded gains and losses. Bad debt expenses on the Company's
entire portfolio were reflected in selling, general and administrative
expenses prior to the adoption of the Accounts Receivable Program. Under the
Accounts Receivable Program, bad debt expenses remain effectively included in
selling, general and administrative expenses because they directly affect the
profitability of the Accounts Receivable Program.

The financial information, discussion and analysis that follow should be
read in conjunction with the Company's Consolidated Financial Statements
included elsewhere herein.

Results of Operations
The following sets forth certain components of operations as a percentage
of sales for the periods indicated. Certain income statement
reclassifications have been made to conform to the 1995 format and prior year
percentages have been changed accordingly.
<TABLE>
<CAPTION>
Fiscal Year Three Months Ended
----------------------------------------- ------------------------------
1991 1992 1993 1994 1995 April 29, 1995 May 4, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and related buying,
occupancy and distribution
expenses ........................ (69.7) (69.4) (69.0) (68.6) (68.6) (67.5) (68.1)
---- ---- ---- ---- ----- ----- -----
Gross profit ...................... 30.3 30.6 31.0 31.4 31.4 32.5 31.9
Selling, general and administrative
expenses ........................ (26.0) (25.6) (24.2) (23.2) (23.4) (23.8) (23.8)
Service charge income ............. 5.1 5.9 3.6 1.5 1.5 1.9 1.8
Store opening and closure costs ... (0.1) -- -- (1.0) (0.5) (0.2) --
---- ---- ---- ---- ----- ----- -----
Operating income .................. 9.3 10.8 10.3 8.8 9.0 10.4 9.8
Net interest expense .............. (7.5) (6.3) (6.5) (6.9) (6.4) (7.4) (7.1)
---- ---- ---- ---- ----- ----- -----
Income before income tax, minority
interest and extraordinary item . 1.9 4.1 3.8 1.9 2.6 3.0 2.7
Income before extraordinary item .. 0.9 2.4 2.4 1.1 1.6 1.7 1.6
=== === === === === ===== ======
Adjusted operating income (1) ..... 8.1 8.8 8.2 9.2 9.4 9.7 8.6
=== === === === === ===== ======
</TABLE>
- ---------------
(1) Adjusted operating income represents operating income less service charge
income and the gain or loss associated with the Accounts Receivable
Program plus credit department expenses (including bad debt expense) and
store opening and closure costs. See Note 6 to the Selected Consolidated
Historical Financial and Operating Data.

Because of the 53-week year in 1995, the Company's quarterly accounting
periods for 1996 occur one week later than their 1995 counterparts. Other
factors being equal, this calendar shift, combined with the timing of the
Company's promotional events and holidays, is likely to affect year-to-year
comparable store performance for 1996 favorably in the second quarter and
unfavorably in the third and the fourth quarters.

31
<PAGE>

Three Months Ended May 4, 1996 compared to Three Months Ended April 29, 1995

Sales for the first quarter of 1996 increased 14.6% to $163.2 million from
$142.4 million in the comparable period of 1995. The increase was due to a
$13.0 million increase in sales from stores opened during 1996 and 1995
combined with a 7.4% increase in comparable store sales excluding stores in
the Store Closure Plan and 6.5% including such stores. The significant
increase in comparable store sales was primarily attributable to strong
performance at the Company's Bealls stores combined with a one-week shift in
the comparable calendar period due to the 53-week year in 1995.

Gross profit increased 12.5% to $52.1 million for the first quarter of
1996, from $46.3 million in the comparable period of 1995. Gross profit as a
percent of sales for the first quarter of 1996 declined to 31.9% compared to
32.5% for the comparable period in 1995 due to the favorable impact of vendor
discount programs to support the opening of 51 new stores during the first
quarter of 1995 (as compared to 11 new store openings in the first quarter of
1996) combined with lower markdowns experienced by these stores during their
first quarter of operations, as is generally the case with newly opened
stores. Such impact was offset in part by the benefits due to the application
of fixed buying, occupancy and distribution costs over a larger sales base in
1996.

Selling, general and administrative expenses as a percentage of sales
remained unchanged at 23.8% despite the inclusion of a $0.8 million reversal
of a litigation reserve as a result of a favorable court ruling in the first
quarter of 1995 and an increase in the general level of bad debt expense
associated with the Company's proprietary credit card programs during the
first quarter of 1996. These were offset by the benefits of applying the
Company's selling, general and administrative expenses to a larger sales
volume. Without the reversal of the litigation reserve, selling, general and
administrative expenses as a percent of sales for the first quarter of 1995
would have been 24.3%. Selling, general and administrative expenses for the
first quarter of 1996 increased by 15.0% to $38.9 million from $33.8 million
for the comparable period in 1995.

Service charge income for the first quarter of 1996 increased 7.4% to $2.9
million from $2.7 million for the comparable period in 1995. Service charge
income increased due to the increased yield on the accounts receivable
portfolio resulting primarily from an increase in the late fee charges
applied to delinquent payments.

Operating income increased 8.2% in 1996 as compared to the first quarter
of 1995 due to the factors described above.

Interest expense for the first quarter of 1996 increased 9.3% to $11.7
million from $10.7 million for the comparable period in 1995. The increase
was due to an increase in the accretion on the Senior Discount Debentures as
well as the issuance of $18.3 million of 11% Series D Senior Subordinated
Notes in August 1995 (the "Series D Senior Subordinated Notes").

As a result of the foregoing, the Company's net income for the first
quarter of 1996 increased by 12.5% to $2.7 million from $2.4 million for the
comparable period in 1995.

1995 Compared to 1994

1995 was highlighted by the positive initial results of management's
growth strategy to expand into small markets. Sales increased 17.4% to $682.6
million in 1995 from $581.5 million in 1994. This increase was due to (i) a
$112.5 million increase in sales from stores opened during 1994 and 1995,
(ii) a 1.0% increase in comparable store sales in 1995 and (iii) $10.0
million in sales due to the inclusion of one extra week in 1995 as a result
of 1995 being a 53-week year. Such increases were partially offset by the
effects of the Store Closure Plan which was substantially completed in 1995.
During 1995, the devaluation of the Mexican peso, which resulted in extremely
weak economic conditions throughout Mexico, negatively impacted sales at the
Company's six stores located on the Texas/Mexico border. Excluding these
stores, comparable store sales growth for 1995 would have been 3.3%.

Gross profit increased 17.2% to $214.3 million in 1995 from $182.8 million
in 1994. Gross profit as a percent of sales was 31.4% for both 1995 and 1994.
Gross profit for 1995 was favorably impacted by (i) the opening of new
stores, which traditionally experience lower markdown activity during their
first six months of operation, (ii) vendor discount programs granted to the
Company to support new store openings, (iii) the application of buying,
occupancy and distribution costs over a larger sales base, and (iv) LIFO
credits. These items were offset by an increase in markdowns resulting from
additional promotional events during the Christmas season intended to
increase sales and reduce inventories and an increase in the level of
shrinkage. Management believes that the increased shrinkage was primarily due
to the Company's focus on improving ticketing compliance on merchandise

32
<PAGE>
in 1995 as well as the rapid expansion of stores during the same year. In
response, management has put several new programs in place, including
shortage awareness programs, which are intended to return the level of
shrinkage to historical levels.

Selling, general and administrative expenses as a percent of sales were
23.4% for 1995 and 23.2% for 1994. The increase resulted from incremental
costs associated with opening stores in new markets, increased costs
associated with the certificates issued by the Trust to third party investors
under the Accounts Receivable Program and a rise in the general level of bad
debt expense associated with the Company's credit programs, partially offset
by the application of fixed costs to a greater volume of sales and the
reversal of a $0.8 million litigation reserve as a result of a favorable
court ruling. Selling, general and administrative expenses for 1995 increased
18.5% to $159.6 million from $134.7 million in 1994. Advertising expenses
which as a percentage of sales for 1995 and 1994 were 3.9% and 3.8%,
respectively, increased primarily as a result of the Company's expansion into
new markets.

Service charge income for 1995 increased 23.6% to $10.5 million from $8.5
million in 1994. Such increase was due to an increase in average accounts
receivable balances resulting from the 17.4% increase in sales discussed
above, an increase in the late fee rate charged on delinquent accounts as
well as the fifty-third week of 1995.

The 1994 store opening and closure costs were comprised of a $5.2 million
provision for the Store Closure Plan and $0.4 million for store opening costs
related to 10 new stores.

Operating income for 1995 increased 20.7% to $61.5 million from $51.0
million for 1994 due to the factors discussed above. Operating income as a
percent of sales was 9.0% in 1995 as compared to 8.8% for 1994.

Interest expense for 1995 increased 10% to $44.0 million from $40.0
million for 1994. The increase in interest expense was due primarily to an
increase in the accretion on the Senior Discount Debentures combined with
interest related to the Series D Senior Subordinated Notes issued in August
1995.

As a result of the factors described above, the Company's net income for
1995 increased 69.7% to $10.7 million from $6.3 million for 1994.

1994 Compared to 1993

Sales for 1994 increased 4.3% to $581.5 million from $557.4 million for
1993. The overall increase in sales was a result of a 3.2% increase in
comparable store sales combined with an increase in sales from new stores
opened during 1994.

Gross profit for 1994 increased 5.9% to $182.8 million from $172.6 million
in 1993. Gross profit as a percentage of sales for 1994 increased to 31.4%
from 31.0% for 1993. The increase in the gross profit percentage was due
primarily to a reduced level of markdowns as a result of better inventory
management.

Selling, general and administrative expenses as a percentage of sales
declined to 23.2% in 1994 from 24.2% in 1993. Selling, general and
administrative expenses for 1994 decreased to $134.7 million from $135.0
million in 1993. These decreases were primarily due to the sale of accounts
receivable pursuant to the Accounts Receivable Program that began during
August 1993. Excluding the effect of the Accounts Receivable Program,
selling, general and administrative expenses as a percentage of sales for
1994 would have been 26.1% as compared to 27.2% in 1993. Such decrease was
due to the Company's ability to effectively manage variable selling, general
and administrative expenses. Advertising expenses as a percentage of sales
for 1994 and 1993 were 3.8% and 4.0%, respectively, a decrease of 0.2%.

Service charge income decreased to $8.5 million for 1994 from $20.0
million for 1993 due to the implementation of the Accounts Receivable
Program. Without giving effect to the Accounts Receivable Program, 1994
service charge income would have increased 13.5% from 1993 as a result of an
increase in average accounts receivable balances due to the increase in sales
and the purchase of certain accounts receivable from Beall-Ladymon.

Store opening and closure costs for 1994 comprised the $5.2 million
accrual related to the Store Closure Plan and $0.4 million related primarily
to the 10 stores opened during 1994.

Operating income for 1994 decreased 11.2% to $51.0 million from $57.4
million for 1993. Operating income as a percentage of sales for 1994
decreased to 8.8% from 10.3% for 1993 as a result of the items discussed
above. Such decreases were due to the $5.2 million provision associated with
the Store Closure Plan combined with the impact of the implementation of the
Accounts Receivable Program in 1993 (see Note 2 to the Company's

33
<PAGE>
Consolidated Financial Statements). Adjusted operating income, which excludes
the above two factors and store opening costs increased 17.2% to $53.7
million (or 9.2% of sales) from $45.8 million (or 8.2% of sales).

Net interest expense in 1994 increased 9.9% to $40.0 million from $36.4
million in 1993. The increase in net interest expense is due to a full year
of discount accretion in 1994 related to the Senior Discount Debentures
versus six months of accretion in 1993. Such increase was partially offset by
a decrease in interest expense due to the purchase and retirement of $20.0
million of Senior Notes, and by a reduction in interest expense and the
impact on interest expense of the Accounts Receivable Program adopted in
1993.

As a result of the factors described above, the Company's net income in
1994 increased to $6.3 million from a net loss of $2.8 million in 1993 which
included a $16.2 million extraordinary charge associated with the
Refinancing.

Seasonality and Inflation
The Company's business is seasonal and its quarterly sales and profits
traditionally are lower during the first three quarters and higher during the
fourth quarter (November through January). In addition, working capital
requirements fluctuate throughout the year, increasing substantially in
October and November in anticipation of the holiday season due to
requirements for significantly higher inventory levels.
<TABLE>
<CAPTION>
1994 1995
---------------------------------------- ------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- ------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .......... $128,073 $132,060 $134,939 $186,391 $142,353 $154,578 $159,161 $226,532
Gross profit (1) ... 39,856 39,163 41,110 62,675 46,283 46,555 48,659 72,780
Operating income ... 11,943 10,576 10,029 18,409 14,835 11,074 9,724 25,853
Quarters' operating
income as a
percent of annual
income ........... 23% 21% 20% 36% 24% 18% 16% 42%
Income before
extraordinary item $ 1,197 $ 463 $ 52 $ 4,918 $ 2,438 $ 221 $ (899) $ 8,970
Net income ......... 871 463 90 4,898 2,438 221 (899) 8,970
Adjusted operating
income (2) ....... 9,868 9,081 9,387 25,341 13,797 11,337 10,364 28,498
</TABLE>
- ---------------
(1) The Company states its inventories at the lower of cost or market, cost
being determined on the last-in first-out method. See Note 1 to the
Company's Consolidated Financial Statements.
(2) Adjusted operating income represents operating income less service charge
income and the gain or loss associated with the Accounts Receivable
Program plus credit department expenses (including bad debt expense) and
store opening and closure costs.

The Company does not believe that inflation had a material effect on its
results of operations during the past two years. However, there can be no
assurance that the Company's business will not be affected by inflation in
the future.

Liquidity and Capital Resources

At May 4, 1996, the Company's consolidated long-term debt included $130.0
million of Senior Notes, $116.6 million of Senior Subordinated Notes, Senior
Discount Debentures with an accreted value of $113.4 million, and certain
other debt. See Note 5 to the Company's Consolidated Financial Statements.

On June 3, 1996, the Company purchased Uhlmans for approximately $28.7
million including the repayment of certain existing indebtedness of Uhlmans. The
Company, through SRPC, issued $30.0 million in aggregate principal amount of
SRPC Notes on May 30, 1996. The SRPC Notes are secured by the Company's Retained
Interest. Interest on the SRPC Notes is payable semi-annually on June 15 and
December 15 of each year, commencing December 15, 1996 from amounts received by
SRPC from its Retained Interest. The scheduled amortization of principal will
commence in December 1999 and is subject to the collection experience regarding
the receivables underlying the Trust Certificates at that time. The Company
issued the SRPC Notes to finance the Uhlmans Acquisition. The issuance of the
SRPC Notes does not impact the ability of the Company to issue additional
certificates under the Accounts Receivable Program to third-party investors.

<PAGE>
Total working capital of $171.6 million at May 4, 1996 remained
essentially unchanged from February 3, 1996, although the components of
working capital including cash, inventory and accounts receivable varied.
Merchandise inventories increased and cash decreased primarily due to the
seasonal build in inventories and the opening of eleven stores during the
first quarter of 1996. Accounts receivable decreased $15.2 million during the
first quarter of 1996 as a result of the seasonal liquidation of accounts
receivable generated during the Christmas season.

Working capital at February 3, 1996 increased 14.8% to $170.1 million from
$148.2 million at January 28, 1995. The increase in working capital during
1995 was primarily the result of an increase in inventories required to
support the Company's larger store base.

The Company's primary capital requirements are for working capital, debt
service and capital expenditures. Based upon the current capital structure,
management anticipates interest payments to be approximately $5.8 million
higher than the 1995 level during 1996 and 1997 due to the issuance of the
Series D Senior Subordinated Notes and the SRPC Notes. Generally, capital
expenditures are for new store openings, remodeling of existing stores and
customary store maintenance. Capital expenditures increased from $19.7
million during 1994 to $28.6 million during 1995 as a result of opening
sixty-eight new stores during 1995 compared to ten new stores during 1994.
Management expects capital expenditures to be approximately $28.0 million
during 1996 consisting primarily of the opening of 35 new stores, the
conversion of all of the Uhlmans stores to Stage stores, routine store
maintenance, store remodels and renovations at the corporate headquarters.
Required aggregate principal payments on debt total $2.4 million during 1996
and 1997.

The Company's short-term liquidity needs are provided by (i) existing cash
balances, (ii) operating cash flows, (iii) the Accounts Receivable Program
which provides a source of funds from the sale of accounts receivable to the
Trust and (iv) the Revolving Credit Agreements (as defined below). The
Company expects to fund its long term liquidity needs from cash flow from
operations, through the issuance of debt and/or equity securities, the
securitization of its accounts receivable and bank borrowings.

The Company has a revolving credit agreement with a bank (the "Revolving
Credit Agreement") under which it may draw up to $25.0 million. Of this amount,
$15.0 million may be used to support letters of credit. As of May 4, 1996, no
borrowings were outstanding under the Revolving Credit Agreement. As of May 4,
1996, $8.5 million of the total commitment was used to collateralize letters of
credit resulting in available funds of $16.5 million. The Company also has a
separate agreement with the bank under which it may borrow an additional $10.0
million for seasonal working capital needs (the "Seasonal Credit Agreement" and
together with the Revolving Credit Agreement, the "Revolving Credit
Agreements"). Funds are available under the Seasonal Credit Agreement from
August 15 through January 15 of each calendar year (the "Seasonal Period"). The
Revolving Credit Agreements are available through February 3, 1998. During 1995,
the availability under the Revolving Credit Agreement was never less than $4.5
million. During the Seasonal Period, the availability under the Revolving Credit
Agreements was never less than $11.5 million.

Since its inception, the Trust has issued $165.0 million of term
certificates and a $40.0 million revolving certificate (collectively, the "Trust
Certificates") representing undivided interests in the Trust. The holder of the
revolving certificate agreed to purchase interests in the Trust equal to the
amount of accounts receivable in the Trust above the level required (aggregating
$205.3 million at May 4, 1996) to third-party investors to support the term
certificates, up to a maximum of $40.0 million. If receivable balances in the
Trust fall below the level required to support the term certificates and
revolving certificates, certain principal collections may be retained in the
Trust until such time as the accounts receivable balances exceed the amount of
accounts receivable required to support the Trust Certificates and any required
transferor's interest. SRPC receives distributions from the Trust of cash in
excess of amounts required to satisfy the Trust's obligations to third-party
investors on the Trust Certificates. Cash so received by SRPC may be used to
purchase additional accounts receivable from, or make distributions to, the
Company after SRPC has satisfied its obligations on the SRPC Notes. As of May 4,
1996, the outstanding balance under the revolving certificate was $3.7 million.
The Trust may issue additional series of certificates from time to time on
various terms. Terms of any future series will be determined at the time of
issuance.

35
<PAGE>

Recent Accounting Pronouncements

During the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS 121"),
and Statement of Financial Accounting Standard No. 123, Accounting for Stock
Based Compensation ("SFAS 123"). Neither the adoption of SFAS 121 or SFAS 123
had a material impact on the Company's financial position or results of
operations. With the adoption of SFAS 123, the Company continues to measure
compensation plans using the intrinsic value method prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees, and will provide pro forma
disclosures of net income and earnings per share as if the fair value based
method prescribed by SFAS 123 had been applied in measuring compensation
expense in its annual financial statements.

36
<PAGE>

BUSINESS

General

The Company operates the store of choice for well known national brand
name family apparel in over 200 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness and demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and underserved
niche. The Company has developed a unique franchise focused on small markets,
differentiating itself from the competition by offering a carefully edited,
but broad range of merchandise with a high level of customer service in
convenient locations. Stage Stores' product offerings include fashion
apparel, accessories, fragrances and cosmetics and footwear for women, men
and children. Over 85% of 1995 sales consisted of branded merchandise,
including nationally recognized names such as Levi Strauss, Liz Claiborne,
Chaps/Ralph Lauren, Calvin Klein, Guess, Hanes, Nike, Reebok and Haggar
Apparel.

In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company began
recruiting a new senior management team commencing in 1993. This new
management team has (i) initiated an aggressive growth strategy to capitalize
on available opportunities through new store openings and strategic
acquisitions in new markets, (ii) refined the Company's retailing concept,
(iii) implemented new merchandising and operating programs, and (iv) closed
unprofitable stores. The Company has made substantial progress in
implementing its growth strategy by opening or acquiring 68 stores in 1995
and 45 stores to date in 1996, and expects to open approximately 24
additional stores during the remainder of 1996. In addition, the Company's
goal is to open approximately 55 new stores in 1997.

Competitively Well Positioned

As a result of its small market focus, Stage Stores generally faces
less competition for brand name apparel, because consumers in small
markets generally have only been able to shop for branded merchandise in
distant regional malls. In those small markets where the Company does compete
for brand name apparel sales, such competition generally comes from local
retailers, small regional chains and, to a lesser extent, national department
stores. The Company believes it has a competitive advantage over local
retailers and smaller regional chains due to (i) the economies of scale of
its large store base, (ii) strong vendor relationships which provide it with
a broad selection of branded merchandise at a lower cost, (iii) a proprietary
credit card, which enables it to provide an independent source of credit and
which generates a significant customer database that supports the Company's
promotion and marketing efforts, and (iv) sophisticated operating systems for
efficient management. The Company believes it has a competitive advantage in
small markets over national department stores due to its (i) experience with
smaller markets, (ii) ability to effectively manage merchandise assortments
in a small store format, and (iii) operating systems designed for efficient
management within small markets. In addition, due to minimal merchandise
overlap, Stage Stores generally does not directly compete for branded apparel
sales with national discounters such as Wal-Mart.

Key Strengths

The following factors serve as the Company's key strengths and
distinguishing characteristics.

Ability to Operate Profitably in Smaller Markets. The Company has
recognized that customers in small markets are generally as aware of current
fashion trends and as sophisticated as consumers in larger urban centers due
to the proliferation of electronic, computer and print media. However, these
consumers have not traditionally had convenient access to broad assortments
of quality, brand name merchandise. The Company operates in small markets
with populations ranging from 4,000 to 100,000, has developed a store format,
generally ranging in size from 12,000 to 30,000 square feet, which is smaller
than typical department stores yet large enough to offer a well edited, but
broad selection of merchandise. This format has enabled the Company to
operate profitably in small markets. Historically, the Company has achieved
higher profit margins in its small market stores. For 1995, store

37
<PAGE>
contribution (operating profit before allocation of corporate overhead) as a
percentage of sales for small market stores open for at least one year was
18%, as compared to 12% for larger market stores. In addition, by operating
more than 300 stores, the Company benefits from economies of scale in buying
and merchandising, information systems, distribution and advertising which,
combined with the lower cost structure of the smaller market stores, has
resulted in operating margins which are among the highest in the retailing
industry.

Benefits of Strong Vendor Relationships. The Company's large store base
offers major vendors a unique vehicle for accessing multiple small markets in
a cost effective manner. The proliferation of media combined with the
significant national marketing efforts of these vendors has created
significant demand for brand name consumer goods in small markets. However,
the financial and other limitations of many local retailers has left large
national brands with limited access to such markets. Furthermore, these large
vendors generally do not sell through national discounters in order to
preserve their brand image. The Company's new management team recognized this
significant opportunity and continuously seeks to expand its vendor base and
has recently added nationally recognized name brands such as Polo, Dockers
for Women and Oshkosh, as well as fragrances by Elizabeth Arden, Liz
Claiborne and Perry Ellis, in 1996. In addition, the Company has also
increased the participation by key vendors in joint marketing programs to a
level that the Company believes exceeds the standard vendor programs provided
to its smaller competitors. For example, the Company is among the largest
customers of Levi Strauss, Liz Claiborne and Haggar Apparel and enjoys
significant support from such vendors in sales promotions, advertising and
store fixture programs.

Effective Merchandising Strategy. The Company's merchandising strategy is
based on an in-depth understanding of its customers and is designed to
accommodate the particular demographic profile of each store. This
understanding is attributable to over 70 years of experience operating in its
markets coupled with 42 buyers who average approximately 10 years of service
with the Company. Store layouts and visual merchandising displays are
designed to create a friendly, modern and convenient department store
atmosphere which is frequently not found in small markets. The Company's
strategy focuses on moderately priced merchandise categories which have
traditionally yielded higher margins. The Company offers an edited assortment
of quality, moderately priced merchandise that is divided into distinct
departments including misses, women's, men's, boy's, footwear, intimate
apparel, junior's, children's, accessories, cosmetics, fragrances and gifts.

To augment its branded merchandise offerings, the Company also offers a
quality assortment of higher margin, private label merchandise which
comprises less than 15% of total sales. The Company's private label
merchandise includes its highly successful Graphite(R) label for apparel,
accessories and footwear as well as its new Whispers(R) line of bath and body
products and intimate apparel. The Company procures the majority of its
private label merchandise through AMC, a cooperative buying service whose
participants include nationally recognized retailers, such as Federated
Department Stores.

The Company also utilizes a sophisticated merchandise allocation and
transfer system which is designed to maximize in-stock positions, increase
sales and reduce markdowns. The Company believes that the combination of the
size and experience of its buyer group, its vendor relationships, its strong
merchandising systems and its participation in AMC allow the Company to
compete effectively on both price and selection in its markets.

Focused Marketing Strategy. The Company's primary target customers are
women between the ages of 20 and 55 with household incomes over $25,000 who
are the primary decision makers for family clothing purchases. The Company
uses a multi-media advertising approach, including newspaper, radio, direct
mail and television, to position its store as the local destination for
fashionable, brand name merchandise. In addition, the Company heavily
promotes its proprietary credit card in order to create customer loyalty and
to effectively identify its core customers. The Company believes it is better
able to maintain personal contact with its customers due to the small size of
its markets, aggressive advertising strategy and well-developed corporate
customer service programs designed to encourage a high level of customer
interaction. Stage Stores seeks to enhance its image in the communities it
serves by encouraging its store managers and employees to be involved in
local activities such as youth groups, civic activities and athletic events.

Benefits of Proprietary Credit Card Program. The Company aggressively
promotes its proprietary credit card and, as a result, experiences a higher
percentage of proprietary credit card sales (55.6% of net sales in 1995) than
most retailers. The Company considers its credit card program to be a
critical component of its retailing concept because it (i) enhances customer
loyalty by providing customers with a service that few of its local and
regional

38
<PAGE>
competitors or discounters offer, (ii) allows the Company to identify and
regularly contact its best customers, and (iii) helps create a comprehensive
database that allows the Company to implement detailed, segmented marketing
and merchandising strategies for each store. In addition, the Company has
established a VIP program which offers special services and benefits to
customers with credit card purchases over $750 annually. VIP customers are
rewarded with certain extra services such as free gift-wrapping, emergency
check cashing, free credit card registration, discounts on alterations, and
other benefits. While these customers only represent approximately 9.5% of
total active cardholders, credit sales to these customers during 1995
comprised 33.6% of total cardholder sales. Sales associates are encouraged to
focus their selling efforts on these customers to increase the productivity
of the Company's marketing efforts.

Emphasis on Customer Service. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. All sales associates are evaluated based upon the
attainment of specific customer service standards such as offering prompt
assistance, suggesting complementary items, sending thank-you notes to charge
customers and establishing consistent contact with customers in order to
create a customer base for each associate. The Company continuously monitors
the quality of its service by making over 3,000 calls each month to its
credit card customers who have recently made a purchase. The results of these
surveys are used to determine a portion of each store manager's bonus. In
addition, the Company has extended this service philosophy to the design of
the store; for example, in nearly all stores it has installed call buttons in
the fitting rooms and in smaller market stores, has adopted a "Team One"
concept, which locates the store manager on the selling floor. The Team One
concept is also designed to help the store manager ensure that sales
associates focus on selling and customer service.

Sophisticated Operating and Information Systems. The Company supports its
retail concept with highly automated, sophisticated and integrated systems in
areas such as merchandising, distribution, sales promotions, credit,
personnel management, store design and accounting. The Company's
merchandising systems assist merchandise planners in allocating merchandise
assortments for each store based on specific characteristics and recent sales
trends. The Company's point of sale systems include bar code scanning,
electronic credit and check authorization, all of which allow the Company to
capture customer specific sales data for use in its merchandising system.
Other systems allow the Company to identify and mark down slow moving
merchandise or efficiently transfer it to stores selling such items more
rapidly, and to maintain high levels of in-stock positions in basic items
including jeans and hosiery through such systems as base stock replenishment.
The Company is focused on expanding its use of electronic data interchange
(EDI) and has made significant progress in doing so over the last two years.
These systems have enabled the Company to efficiently manage its inventory,
improve sales productivity, reduce costs, which have contributed to the
Company's relatively high operating income margins. The Company has developed
and utilizes an automated store personnel scheduling system that analyzes
historical hourly and projected sales trends to efficiently schedule sales
personnel. This system is designed to minimize labor costs while producing a
higher level of customer service.

Growth Strategy

In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company, through
its new management team, has (i) initiated an aggressive growth strategy to
capitalize on available opportunities through new store openings and
acquisitions and (ii) refined its retailing concept to focus on very small
markets with populations of less than 12,000.

New Store Openings in Smaller Markets. The Company opened 23 new stores
and acquired 45 stores in fiscal 1995, has opened 11 new stores and acquired 34
stores to date in 1996, and expects to open approximately 24 additional new
stores during the remainder of 1996. In addition, the Company's goal is to
open approximately 55 new stores in 1997. Since 1994, store additions have
allowed the Company to begin operating in 10 additional states. As part of
new management's ongoing expansion strategy, the Company has identified over
600 additional markets in the central United States and contiguous states
which meet the Company's demographic and competitive criteria. All of these
target markets are smaller communities, where the Company has historically
experienced its highest profit margins. In addition, the Company believes it
has a competitive advantage over local retailers in these markets which are
typically underserved by department stores. Based on the Company's historical
operating experience, small market stores typically experience lower
incremental opening costs and lower occupancy and operating expenses than
larger markets. When combined with the Company's operating systems in
merchandising, credit, distribution and store personnel scheduling, the
smaller market stores have typically generated higher margins than

39
<PAGE>
metropolitan market stores. For 1995, store contribution as a percentage of
sales for small market stores open for at least one year was 18% as compared
to 12% for larger market stores.

The Company utilizes a proprietary model which is designed to allow
management to identify suitable markets for new stores. The Company targets
communities for new store openings with populations generally ranging from
12,000 to 30,000, an average household income of $25,000 or more, and which
are located at least 30 miles from the nearest regional mall. Such locations
generally face limited competition from national retailers. In addition to
satisfying the above criteria, only those markets that management believes
have the potential to exceed certain minimum sales and profitability
standards and have available, suitable, low cost real estate are selected for
new store openings. Historically, the Company's new store model has
conservatively forecasted sales based on the above factors.

In opening a new store, the Company's investment consists primarily of
inventory, net of vendor payables, and furniture, fixtures, equipment and
leasehold improvements. For the Company's stores opened in 1995, inventory
investment per store was approximately $450,000, with average vendor payables
equal to approximately $110,000 for a net investment per store of
approximately $340,000 and investment in furniture, fixtures, equipment and
leasehold improvement was approximately $313,000 per store. In addition,
pre-opening expenses (which are deferred and expensed in the fiscal year the
store opens) for the new stores opened in 1995 averaged approximately $60,000
per new store.

The Company believes that numerous acquisition opportunities are available
in its target markets on favorable terms due in part to (i) financially
weakened local retailers and regional chains which, due to their lack of
merchandise differentiation, have been adversely impacted by national
discounters, (ii) the limited exit strategies available to owners of regional
chains who wish to sell, (iii) the relatively limited availability of
favorable credit terms from vendors/factors and (iv) competitive pressures
created by cost effective retailers such as Stage Stores.

This strategy has been successfully demonstrated by the Company's
acquisition of forty-five stores from Beall- Ladymon in 1994 and the
subsequent reopening of the stores in the first quarter of 1995 under the
Stage name. In 1993, the year prior to their acquisition, the Beall-Ladymon
stores generated sales and store contribution of $53.4 million and $3.8
million, respectively, whereas the newly opened Stage stores in the same
locations generated sales and store contribution for the twelve months ended
May 4, 1996 of $93.1 million and $13.1 million respectively, increases of 74%
and 245%, respectively.

In June 1996, the Company acquired Uhlmans, a privately held apparel
retailer with 34 locations in Ohio, Indiana and Michigan, where the Company
previously had no stores. These stores are of similar size and merchandise
content to the Company's existing stores and are compatible with the
Company's retailing concept and growth strategy. Uhlmans generated fiscal
1995 sales of $59.7 million. The Company believes significant opportunities
are available to improve Uhlmans' financial results through the expansion of
certain merchandise categories, the Company's lower merchandising costs,
increased proprietary credit card-based sales, the implementation of the
Company's operating systems and the elimination of overlapping administrative
costs. See "Risk Factors--Future Growth and Recent Acquisitions."

Expansion to Micromarkets. The Company recently began targeting its small
market retailing concept toward communities with populations ranging from
4,000 to 12,000 ("micromarkets") with stores of less than 12,000 gross square
feet. These efforts are designed to build on the Company's favorable
operating experience in markets of this size. Stage Stores believes that
micromarkets may offer a significant additional avenue for potential growth,
because it can successfully apply its existing store model in those
micromarkets due to its ability to scale its store concept to the appropriate
size, the generally lower levels of competition and low labor and occupancy
costs. The Company has identified 1,200 such potential sites in and around
the central United States and contiguous states.

40
<PAGE>
Company Operations

Merchandise Purchasing and Allocation. The Company offers a select
assortment of quality, moderately priced soft goods, which are divided into
departments including misses, women's, men's, boys, juniors, children's,
intimate, petites, accessories, cosmetics, fragrances, gifts and footwear
departments. Merchandise mix may vary significantly from store to store to
accommodate differing demographic factors. The Company modifies its assortments
to focus on merchandise its buyers expect will have the broadest appeal to its
targeted customers based upon sales analyses and individual store attributes.

The Company purchases merchandise from a vendor base of over 2,000
suppliers. The Company's leading vendors for 1995 were Levi Strauss, Liz
Claiborne, Haggar Apparel, Guess, Hanes, Nike, Chorus Line, Parson Place and
Reebok. The Company was one of Levi Strauss's top ten customers in 1995. No
one supplier accounted for more than 9% of the Company's 1995 purchases. The
Company is also a member of the cooperative buying service AMC, and as such
is entitled to make purchases of imported merchandise for its private label
program. The membership provides the Company with group purchasing
opportunities. Private label products result in better gross margins for the
Company and excellent value for the customer as a result of the lower cost of
such apparel as compared to branded items in the same categories. Private
label purchases were approximately 8%, 10% and 11% of total purchases in
1993, 1994 and 1995, respectively. The Company currently intends to keep
private label merchandise sales below 15% of total purchases in order to
focus on sales of branded merchandise.

Set forth below is certain information regarding the percentage of net
sales by major merchandise departments for the Company for 1994 and 1995.

Department 1994 1995
- --------------------------- ------- ---------
Mens and Young Men ........ 20% 22%
Misses Sportswear ......... 15 15
Juniors ................... 15 13
Accessories and Gifts ..... 10 9
Children .................. 9 9
Footwear .................. 8 8
Intimate .................. 6 6
Special Sizes ............. 5 5
Cosmetics ................. 4 5
Misses Dresses ............ 4 4
Boys ...................... 3 3
Furs and Coats ............ 1 1
------ -------
Total .................... 100% 100%
====== =======

The Company's integrated merchandising systems are designed to provide its
buyers with the information and analytical support needed to maximize
efficiency, increase sales, reduce markdowns and increase inventory turnover
through better inventory management. These systems include, among others: (i)
an automated merchandise, financial planning and allocation system which
recognizes the attributes and current merchandise needs of each store; (ii) a
staple stock replenishment system to ensure the Company is in stock on basic
items such as hosiery, foundation garments, dress shirts and jeans; (iii)
markdown and merchandise transfer analysis; and (iv) an assortment planning
system which enables the Company to closely tailor the merchandise assortment
in each store based on local demographics and historical trends and
automatically allocate merchandise accordingly. In addition, electronic
point-of-sale ("POS") terminals at each store record and transmit to the
Company's corporate headquarters a real time, full accounting of each day's
sales by transaction and item. The Company utilizes its information systems
to monitor slow and fast moving merchandise for the purpose of enabling the
Company to transfer slower moving merchandise from one store to another store
where such merchandise is selling more rapidly. The Company believes that its
inventory transfer system improves in-stock positions, increases sales and
reduces markdowns, thereby increasing profit margins.

Credit Services. The Company offers its own private label credit card
program, which enhances the Company's relationship with core customers by
tailoring credit availability to individual customers and facilitating
frequent communication of promotional offering. The number of private label
credit accounts and dollar volume of charges reflects an important element in
the Company's marketing strategy. The Company believes that private label
credit card holders shop more regularly and purchase more merchandise than
customers who pay cash or use bankcards. In addition, the Company maintains a
database of all proprietary charge purchases of these customers.

41
<PAGE>
Management believes that this data base is a significant competitive
advantage over competitors who lack such programs, allowing the Company to
target promotional material, via direct mail, to its regular customers. At
May 4, 1996, there were more than 1.5 million active accounts. Private label
credit card purchases generated approximately 55.6% of net sales in 1995. The
Company seeks to expand the volume of such credit card purchases through a
marketing strategy emphasizing (i) direct mail of promotional materials to
existing cardholders to communicate new merchandise offerings, (ii) promotion
of customer incentive programs and (iii) the issuance of new credit through
the opening of new accounts and extension of credit on existing accounts. It
is the Company's policy to expand the number and use of private label credit
card accounts on a controlled basis by utilizing computerized systems such as
point-scoring for approving new accounts and behavioral scoring for
monitoring account performance and approving additional purchases.

The Company administers its private label credit card program through a
dedicated in-house facility and staff located in Jacksonville, Texas. The
Company's internally developed, fully computerized and highly automated
credit systems analyze customer payment histories, automatically approve or
reject new sales at point of sale and enable account representatives to
efficiently manage delinquent account collections.

Management Information Systems. In addition to its merchandising systems
described above, the Company relies on proprietary management information
systems to maximize productivity and minimize costs in the other
labor-intensive areas of its business, including distribution, personnel
management, credit and accounting. In each store, the Company's POS system
uses bar code scanning and includes electronic credit and check
authorization. The Company has made substantial investments in its systems
and utilizes a central mainframe computer to coordinate store level
information and to support almost every aspect of the business. By linking
the corporate headquarters with each store, the Company's systems allow the
merchandising department to track sales of all items at all stores at any
time and enable immediate POS credit approval for the use of private label
credit cards. These systems have enabled the Company to better manage and
plan its inventory while reducing costs and have contributed to the Company's
relatively high operating margins.

Distribution. The Company's 450,000 square foot automated and centralized
distribution center in Jacksonville, Texas enables it to distribute most
merchandise within 48 hours of receipt and has the current capacity (with
minimal incremental investment) to support in excess of 800 stores. The
Company's centralized distribution system results in more efficient
distribution costs per unit, lower freight costs and reduced accounts payable
processing costs than certain of the Company's competitors. In 1995, the
Company entered into an arrangement with a major freight forwarder for the
delivery of merchandise from the distribution center to all of the Company's
stores on a daily basis. This arrangement is a more cost-efficient method of
distribution than the Company's previous method of multiple common carriers.
Distribution expenses, net of handling fees charged to vendors, were less
than 0.5% of net sales in each of 1994 and 1995, which the Company believes
is below industry averages.

Competition

The retail apparel business is highly competitive. Retailers generally
compete on the basis of convenience of location, merchandise selection,
service and price. Although competition varies widely from market to market,
the Company faces substantial competition, particularly in metropolitan
markets, from national, regional and local department and specialty stores.
Some of the Company's competitors are considerably larger than the Company
and have substantially greater financial and other resources than the
Company. The Company believes that its distinctive retail concept, combined
with its emphasis on operating systems and technology, distinguishes it from
department store and specialty store competitors, especially in small
markets. The Company believes that its knowledge of small markets has enabled
it to establish a strong franchise in those markets.

Employees

During 1995, the Company employed an average of 9,946 employees, of which
1,069 were salaried and 8,877 were hourly. Central office (which includes
corporate, credit and distribution center offices) averaged 296 salaried and
684 hourly employees during 1995. In its stores, the Company employed an
average of 773 salaried and 8,193 hourly employees during 1995. Such averages
will vary during the year as the Company traditionally hires additional
employees and increases the hours of part-time employees during peak seasonal
selling periods. At May 31, 1996, the Company employed 10,105 employees,
including 980 central employees and 921 employees acquired in connection

42
<PAGE>
with the Uhlmans Acquisition. There are no collective bargaining agreements
in effect with respect to any of the Company's employees. The Company
believes that it has a good relationship with its employees.

The Company has implemented performance monitoring systems designed to
assure achievement of selling and service standards at the store level. Most
of the Company's sales associates participate in incentive-based compensation
programs with objectives that are defined at the individual department and
store level. During 1995, 95% of all Company personnel participated in
incentive and recognition programs based on individual performance.

Properties

The Company's corporate headquarters is located in a 130,000 gross square
foot building in Houston, Texas. The Company leases the land and building at
its Houston facility. See "Certain Relationships and Related
Transactions--Transactions with Management." The Company owns its
distribution center and its credit department facility, both located in
Jacksonville, Texas. In connection with the Uhlmans Acquisition, the Company
acquired 34 stores, all of which are leased.

The Company currently operates stores located in the following states and
expects to open stores in Arizona, South Dakota, Minnesota and Nebraska
during 1996:

Number of Stores (1)
-----------------------------------
Year End Year End June 10,
Location 1994 1995 1996
- --------------- --------- --------- ----------
Alabama ....... 3 3 3
Arkansas ...... -- 12 13
Colorado ...... 12 13 12
Illinois ...... -- 5 11
Indiana(2) .... -- -- 2
Iowa .......... -- 3 4
Kansas ........ -- 2 2
Louisiana ..... -- 26 26
Michigan(2) ... -- -- 6
Mississippi ... -- 6 7
Missouri ...... 1 4 4
New Mexico .... 8 8 9
Ohio (2) ...... -- -- 26
Oklahoma ...... 11 13 13
Texas ......... 153 161 162
Wyoming ....... 1 1 1
------- ------- --------
Total ........ 189 257 301
======= ======= ========

- ---------------
(1) Excluding the stores included in the Store Closure Plan.
(2) Represents stores acquired in connection with the Uhlmans Acquisition.

Stores range in size from 4,000 to 46,000 selling square feet with the
majority between 12,000 and 30,000 selling square feet. In general, Bealls
stores are located in small markets primarily in Texas, Oklahoma and New
Mexico, Stage stores are located in small markets in states other than Texas,
Oklahoma and New Mexico and Palais Royal stores are located in metropolitan
Houston and suburban areas. These stores are primarily located in strip
shopping centers. All store locations are leased except for three Bealls
stores and two Stage stores that are owned. All leases provide for a base
rent amount plus contingent rentals, generally based upon a percentage of
gross sales. The recently acquired Uhlmans stores, the majority of which will
be operated by the Company as Stage stores, range in size between 4,100 and
32,900 selling square feet, with the majority between 12,000 and 20,000
selling square feet.

Litigation

From time to time the Company and its subsidiaries are involved in various
litigation matters arising in the ordinary course of its business. Management
believes that none of the matters in which the Company or its subsidiaries
are currently involved, either individually or in the aggregate, is material
to the financial position, results of operations or cash flows of the Company
or its subsidiaries.

43
<PAGE>

MANAGEMENT

Directors and Executive Officers
The directors and executive officers of the Company and their respective
ages and positions are as follows:

Name Age Position
- ------------------------- ---- ------------------------------------------
Bernard Fuchs (1) (2) ... 69 Chairman and Director
Carl Tooker ............. 48 Chief Executive Officer, President and
Director
Mark Shulman ............ 47 Executive Vice President/Chief Merchandising
Officer
James Marcum ............ 36 Executive Vice President/Chief Financial
Officer
Stephen Lovell .......... 40 Executive Vice President/Director of Stores
Ron Lucas ............... 49 Senior Vice President/Human Resources
Jerry Ivie .............. 63 Senior Vice President, Secretary and
Treasurer
Joshua Bekenstein (1) ... 37 Director
Adam Kirsch(3) .......... 34 Director
Peter Mulvihill(3) ...... 37 Director
Lasker Meyer ............ 70 Director

- ---------------
(1) Member of Compensation Committee.

(2) Mr. Fuchs has indicated his intent to resign from his position as
Chairman on or before December 31, 1997. It is the current intent of the
Board to nominate Mr. Tooker as Chairman upon Mr. Fuchs' resignation.

(3) Member of Audit Committee.

The Company expects to expand the size of the Board to add three
directorships in 1996, at least two of which will be filled with independent,
outside directors.

The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee oversees actions taken by the
Company's independent auditors, recommends the engagement of auditors and
reviews the Company's internal accounting policies and practices. The
Compensation Committee approves the compensation of executives of the
Company, makes recommendations to the Board of Directors with respect to
standards for setting compensation levels and administers the Company's
incentive plans.

Mr. Fuchs has been involved in retailing since 1944. He began his career
with Grayson Shops of California and subsequently served as Executive Vice
President and Chief Operating Officer of S. Klein in New York from 1960
through 1967. He came to Palais as Executive Vice President and Chief
Operating Officer in 1967 and became President and Chief Executive Officer in
1979. Mr. Fuchs was Chairman and Chief Executive Officer of the Company and
SRI from December 1988 until July 1994 when Mr. Tooker was appointed Chief
Executive Officer. Mr. Fuchs continues to serve as Chairman.

Mr. Tooker joined the Company as a Director, President and Chief Operating
Officer on July 1, 1993. On July 1, 1994, Mr. Tooker was appointed Chief
Executive Officer. Mr. Tooker has 24 years of experience in the retail
industry, 18 of which were spent in the May Co. where he served as Chairman
and Chief Operating Officer of Filene's of Boston from 1988 to 1990. In 1990,
Mr. Tooker joined Rich's, a division of Federated Department Stores, Inc., as
President and Chief Operating Officer, and in 1991 Mr. Tooker was promoted to
Chief Executive Officer of Rich's where he served until joining the Company
in 1993.

Mr. Shulman joined the Company in January 1994 as Executive Vice President
and Chief Merchandising Officer with 24 years of retailing experience. Prior
to joining the Company, Mr. Shulman held varying positions with
Bloomingdales, Rikes and I. Magnin, all of which are divisions of Federated
Department Stores, Inc. Mr. Shulman served as President and CEO of Ann Taylor
from 1985 to 1987, President and Chief Executive Officer

44
<PAGE>
of Henri Bendel (a division of the Limited) from 1987 to 1990, President and
Chief Operating Officer of Bonjour, Inc. from 1990 to 1992, and president of
Leslie Fay Dress Division from 1992 to 1994.

Mr. Marcum joined the Company in June 1995 as Executive Vice President and
Chief Financial Officer. Prior to joining the Company, Mr. Marcum held
various positions at the Melville Corporation where he was employed since
1983 and where he served as Treasurer from 1986 to 1989, Vice President and
Controller of Marshalls, Inc., a division of the Melville Corporation, from
1989 to 1990 and from 1990 to 1995 as Senior Vice President and Chief
Financial Officer of Marshalls, Inc. From 1980 to 1983, Mr. Marcum was
employed at Coopers and Lybrand L.L.P.

Mr. Lovell joined the Company in June 1995 as Executive Vice President and
Director of Stores. Before joining the Company, Mr. Lovell served in various
positions at Hit or Miss, a division of TJX Companies, where he was employed
since 1980 and where he served since January 1987 as Senior Vice President
and Director of Stores.

Mr. Lucas joined the Company in July 1995 as Senior Vice President, Human
Resources. Between 1987 and 1995, Mr. Lucas served as Vice President, Human
Resources at two different divisions of Limited, Inc., the Limited Stores
Division and Lane Bryant. Previously, he spent seventeen years at the Venture
Stores Division of May Co. where from 1985 to 1987 he was Vice President,
Organization Development.

Mr. Ivie has served as Senior Vice President, Secretary and Treasurer of
the Company since December 1988. Between 1976 and 1990, he served in various
capacities with Palais. From 1959 to 1976, Mr. Ivie was employed in the
finance department of Burdine's, a division of Federated Department Stores,
Inc.

Mr. Bekenstein has been a director since December 1988 and was Vice
Chairman of the Board of Directors and Chief Financial Officer of the Company
from May 1992 until June 1995 when Mr. Marcum was appointed Chief Financial
Officer. In March 1996, Mr. Bekenstein resigned as Vice Chairman. Mr.
Bekenstein continues to serve as a director. Mr. Bekenstein has been a
Managing Director of Bain Capital, Inc. since May 1993 and a General Partner
of Bain Venture Capital since its inception in 1987. Mr. Bekenstein also
currently serves on the Board of Directors of Waters Corporation.

Mr. Kirsch has been a Managing Director of Bain Capital, Inc. since May
1993 and a General Partner of Bain Venture Capital since 1990 and was an
associate and principal of Bain from 1987 to 1990. Mr. Kirsch also currently
serves as a director of Brookstone, Inc., Duane Reade Holding Corp., Dade
Holdings Inc. and the Wesley-Jessen Corporation.

Mr. Mulvihill has been a director since December 1988. Mr. Mulvihill has
served as a Managing Director of Oak Hill Partners, Inc. (the management
company for Acadia) since 1993. From June 1987 to 1993, Mr. Mulvihill worked
for and was associated with Rosecliff, Inc. (the predecessor of Oak Hill).
Prior to joining Rosecliff, Mr. Mulvihill was an investment banker with
Drexel Burnham Lambert Incorporated in the corporate finance department from
1985 to 1987. Mr. Mulvihill also serves as a director of Harvest Foods, Inc.,
an Arkansas-based grocery chain.

Mr. Meyer served as Vice-Chairman and Chief Merchandising Officer of SRI
from May 1989 until he retired in December 1993. Mr. Meyer has been a
director since 1988. Mr. Meyer was at Foley's from 1959 until 1987, when he
retired from his position as Chairman and Chief Executive Officer.

At present, all Directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or
removal. Currently, certain members of the Board of Directors are elected
pursuant to a stockholders agreement, which will be terminated upon
completion of the Offering. See "Certain Relationships and Related
Transactions." There are no family relationships between any of the Directors
or executive officers of the Company. Following the consummation of the
Offering each director shall serve until the following annual meeting when a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal.

45
<PAGE>

Executive Compensation

Summary Compensation Table

The following summarizes the principal components of compensation of the
Company's Chief Executive Officer and the four highest compensated executive
officers. The compensation set forth below fully reflects compensation for
work performed on behalf of the Company.

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------- ---------------
Other
Annual Securities All Other
Fiscal Salary Bonus Compensation Underlying Comp.
Name and Principal Position Year ($) ($) ($) Options/SARs(#) ($) (1)
--------------------------------- ---- ------ ----- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bernard Fuchs, 1995 437,500 28,870 189,375 (2) -- 252
Chairman and 1994 450,000 65,265 35,625 (3) -- 1,260
Director ...................... 1993 450,000 59,200 3,713,000 (4) 197,000 1,260
Carl Tooker, 1995 538,416 43,305 67,600 (5) -- 87
President and 1994 468,750 56,128 67,600 (5) 50,000 174
Chief Executive Officer ....... 1993 247,916 75,000 132,116 (6) 200,000 --
Mark Shulman, 1995 302,082 75,000 9,600 (7) 15,000 783
Executive Vice President and 1994 276,614 41,250 393,984 (8) 100,000 160
Chief Merchandising Officer ... 1993 -- -- -- -- --
James Marcum, 1995 183,333 55,000 184,722 (9) 100,000 173
Executive Vice President and 1994 -- -- -- -- --
Chief Financial Officer ....... 1993 -- -- -- -- --
Stephen Lovell, 1995 183,333 55,000 173,535(10) 75,000 268
Executive Vice President, 1994 -- -- -- -- --
Director of Stores ............ 1993 -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts shown for 1995 reflect premiums paid for life insurance coverage.

(2) Amount shown reflects a distribution related to options vested of $35,625
and the value realized upon the exercise of options for Common Stock of
$153,750. Value realized is based upon the fair market value of the stock
at the exercise date minus the exercise price.

(3) Amount shown reflects a distribution related to options vested.

(4) Amount shown reflects the value realized upon the exercise of options for
Common Stock. Value realized is based upon the fair market value of the
stock at the exercise date minus the exercise price.

(5) Amount shown reflects a distribution related to options vested of $38,000
and housing and automobile allowances of $29,600 paid to Mr. Tooker
during 1994 and 1995.

(6) Amount shown reflects moving expenses of $114,861 and housing and
automobile allowances of $17,255 paid to Mr. Tooker during 1993.

(7) Amount shown reflects housing and automobile allowances paid to Mr.
Shulman during 1995.

(8) Amount shown reflects moving expenses of $385,184 and housing and
automobile allowances of $8,800 paid to Mr. Shulman during 1994.

(9) Amount shown reflects moving expenses paid to Mr. Marcum during 1995.

(10) Amount shown reflects moving expenses of $167,935 and housing and
automobile allowances of $5,600 paid to Mr. Lovell during 1995.

46
<PAGE>

Option/SAR Grants in Last Fiscal Year

The following discloses options granted during 1995 for the executives
named in the compensation table above.

<TABLE>
<CAPTION>
Individual Grants Potential Realizable
-----------------------------------------------------
Value at Assumed Annual
Rates of Stock Price
Appreciation
for Option Term
----------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise of 5% Annual 10% Annual
Granted(#) Fiscal Year Base Price Expiration Growth Rate Growth Rate
Name (1) (%) ($) Date ($) ($)
- -------------- -------- ---------- --------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark Shulman . 15,000 3.5 2.88 6/10/05 27,000 68,850
James Marcum . 100,000 23.2 2.88 6/01/05 180,000 459,000
Stephen Lovell 75,000 17.4 2.88 6/01/05 135,000 344,250
</TABLE>
- ---------------
(1) All of such options were granted under the 1993 Option Plan (as defined).
The options granted under such plan are subject to vesting and repurchase
provisions upon termination of employment.

Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values

The following summarizes exercises of stock options (granted in prior
years) during 1995 by the executives named in the compensation table above in
the past year, as well as the number and value of all unexercised options
held by the named officers at the end of 1995.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs In-the-Money
at Options/SARs at
FY-End (#) FY-End ($) (2)
----------- ------------------
Shares
Acquired Value
on Realized
Exercise ($) Exercisable/ Exercisable/
Name (#) (1) Unexercisable Unexercisable
---------------- --------- ------ ----------- ------------------
<S> <C> <C> <C> <C>
Bernard Fuchs .. 84,400 153,750 46,900/65,700 210,540/264,120
Carl Tooker .... -- -- 90,000/160,000 420,000/702,000
Mark Shulman ... -- -- 40,000/75,000 114,000/202,800
James Marcum ... -- -- -/100,000 -/212,000
Stephen Lovell . -- -- -/75,000 -/159,000
</TABLE>
- ---------------
(1) Value is based upon the fair market value of the stock at the applicable
date minus the exercise price (the "Fair Market Value"). Fair Market
Value has been determined in good faith by the Board of Directors based
upon historical and projected financial performance.

(2) Value is based upon the Fair Market Value of the stock as of February 3,
1996 minus the exercise price.

Compensation of Directors

During 1995, Mr. Meyer received cash compensation of $25,000 for services
rendered as a director. The Company expects that its independent outside
directors will be paid in a manner and at a level consistent with industry
practice.

Compensation Committee Interlocks and Insider Participation

The current members of the Compensation Committee are Mr. Fuchs and Mr.
Bekenstein, who served in such capacities during the last fiscal year. Mr.
Fuchs abstains from voting on matters relating directly to his compensation
as an executive officer. See "Certain Relationships and Related Transactions"
for a description of certain transactions between Mr. Fuchs and the Company
and Bain and the Company.

47
<PAGE>

Management And Employment Agreements

Fuchs Management Agreement

The Company, Bain and certain of its affiliates, Citicorp and Bernard
Fuchs entered into a management agreement (the "Fuchs Management Agreement"),
dated as of May 26, 1989 and amended effective February 1, 1993, pursuant to
which (i) the Company employed Mr. Fuchs as an executive officer and (ii) Mr.
Fuchs purchased from Bain and certain of its affiliates, and an affiliate of
Citicorp, in the aggregate, 293,750 shares of the Company's common stock for
$0.09 per share and 250 shares of the Company's senior preferred stock for
$1,000 per share (subsequently redeemed in connection with the Refinancing.
The Fuchs Management Agreement provides that transfers of common stock by Mr.
Fuchs are subject to certain rights to first offer and refusal of the Company
and the other parties to the Fuchs Management Agreement.

Pursuant to the Fuchs Management Agreement, Mr. Fuchs served as Chairman
of the Board and Chief Executive Officer until July 1, 1994 when Mr. Tooker
was appointed Chief Executive Officer. Mr. Fuchs continues to serve as
Chairman. The Fuchs Management Agreement, as amended, provides for a base
salary plus an annual incentive bonus based on an increase in the Company's
pretax income (excluding any increase or decrease in pretax income
attributable to any financial restructuring) as compared to the fiscal year
in which the Company recorded its highest pretax income prior to the fiscal
year for which the bonus is being paid. The incentive bonus is applicable to
fiscal years 1993 through 1998. Mr. Fuchs may also be awarded discretionary
bonuses by the Company's Compensation Committee elected by the Board of
Directors. The Fuchs Management Agreement generally restricts Mr. Fuchs from
competing with the Company or its subsidiaries for a period of 24 months
after his termination, except for termination without cause. Pursuant to the
Fuchs Management Agreement, Mr. Fuchs' base salary for 1996, 1997 and 1998
shall be $300,000, $200,000 and $100,000, respectively.

In connection with the February 1993 amendment to the Fuchs Management
Agreement, the Company also entered into a stock option agreement with Mr.
Fuchs providing the grant of options to acquire up to 150,000 shares of SRI's
common stock at an original purchase price of $5.00 per share. Such options
are subject to vesting and repurchase restrictions. In connection with the
formation of the Company, such options were converted into options to acquire
shares of Common Stock at a price of $0.10 per share and the right to receive
payments equaling $0.95 per option share ratably over the vesting schedule.

Tooker Employment Agreement

In June 1996, the Company and Carl Tooker entered into an employment
agreement (the "Tooker Employment Agreement") providing for Mr. Tooker's
employment as President and Chief Executive Officer. The Tooker Employment
Agreement provides for an initial base salary of $600,000 plus an annual
incentive bonus based on the Company's planned net income, adjusted for
certain non-cash items for the fiscal year, as determined by the Compensation
Committee. The Tooker Employment Agreement also provides for annual
performance and salary reviews, and for participation in all other bonus and
benefit plans available to executive officers of the Company.

If the Company terminates Mr. Tooker other than for good cause, (as
defined in the Tooker Employment Agreement) or if Mr. Tooker voluntarily
terminates his employment at a time when he is not a member of the Board, Mr.
Tooker is then entitled to one year's base salary, any accrued or unpaid
bonus, salary and deferred compensation, any expense allowances and any
earned but unpaid benefits under the Company's benefit plans. The Tooker
Employment Agreement also provides that, following a change in control (as
defined in the Tooker Employment Agreement) if Mr. Tooker is terminated other
than for good cause or Mr. Tooker resigns other than for good reason (as
defined in the Tooker Employment Agreement), Mr. Tooker is entitled to three
year's base salary (as opposed to one) plus the amounts referred to above. In
the event of a change of control of the Company, in which the Company does
not survive, all unvested options for the purchase of Common Stock held by
Mr. Tooker vest immediately. The Tooker Employment Agreement contains certain
non-compete and confidentiality provisions.

Other Employment Agreements

In June 1996, the Company entered into employment agreements with Messrs.
Shulman, Marcum, Lovell and Lucas which provide for their initial base
salaries and annual incentive bonuses based on the Company's planned net
income as adjusted for certain non-cash items for the fiscal year and certain
other amounts as determined by the Compensation Committee. The employment
agreements also provide for annual performance reviews, salary increases at
the discretion of the Compensation Committee, and participation in all other
bonus and benefit plans

48
<PAGE>

available to executive officers of the Company. The initial base salaries
provided for in the individual employment agreements are as follows:

Initial Base
Executive Position Salary
- -------------- ----------------------------------- ------------
Mark Shulman Executive Vice President and $350,000
Chief Merchandising Officer
James Marcum Executive Vice President and $300,000
Chief Financial Officer
Stephen Lovell Executive Vice President and $300,000
Director of Stores
Ron Lucas Senior Vice President, Human $190,000
Resources

If the Company terminates any of the aforementioned individuals, other
than for good cause (as defined in the respective employment agreements),
then the terminated individual is entitled to one years's base salary, any
accrued or unpaid bonus, salary and deferred compensation, any expense
allowances, and any earned but unpaid benefits under the Company's benefit
plans. The employment agreements also provide that, following a change of
control (as defined in the respective employment agreements), the respective
individual is entitled to two years' base salary (as opposed to one) plus the
amounts referred to above. In the event of a change of control of the Company
in which the Company does not survive, all uninvested options for the
purchase of Common Stock held by the aforementioned individuals vest
immediately. The employment agreements contain certain non-compete and
confidentiality provisions.

1993 Stock Option Plan

In 1993, the Company adopted the Third Amended and Restated Stock Option
Plan, a successor plan to prior SRI plans (the "1993 Stock Option Plan")
designed to provide incentives to present and future executive, managerial,
marketing, technical, other key employees, and consultants and advisors of
the Company and its subsidiaries as selected in the sole discretion of the
Board of Directors. The 1993 Stock Option Plan provided for aggregate option
grants of up to 2,000,000 shares. As of June 12, 1996, options to purchase an
aggregate of 1,426,442 shares of Common Stock at prices from $0.10 to $5.00
are currently outstanding under the 1993 Stock Option Plan. In connection
with the Offering, the Compensation Committee intends to grant options to
purchase [] shares of Common Stock under this plan to members of executive
management and other key executives at a price equal to or greater than the
initial public offering price. No additional grants shall be made under the
1993 Stock Option Plan after the consummation of the Offering.

1996 Equity Incentive Plan

In connection with the Offering, the Company has adopted the 1996 Equity
Incentive Plan (the "Incentive Plan") designed to update and replace the 1993
Stock Option Plan.

The Incentive Plan provides for the granting to employees and other key
individuals who perform services for the Company and its subsidiaries
("Participants") of the following types of incentive awards: stock options,
stock appreciation rights ("SARs"), restricted stock, performance units,
performance grants and other types of awards that the Compensation Committee
of the Board of Directors (the "Committee") deems to be consistent with the
purposes of the Incentive Plan. An aggregate of 1,500,000 shares of Common
Stock have been reserved for issuance under the Incentive Plan; however, no
Participant shall be entitled to receive grants of Common Stock, and stock
options and SARs with respect to Common Stock, in any calendar year in excess
of 400,000 shares. The Incentive Plan affords the Company latitude in
tailoring incentive compensation for the retention of key personnel, to
support corporate and business objectives, and to anticipate and respond to a
changing business environment and competitive compensation practices.

The Committee will have exclusive discretion to select the Participants
and to determine the type, size and terms of each award, to modify the terms
of awards, to determine when awards will be granted and paid, and to make all
other determinations which it deems necessary or desirable in the
interpretation and administration of the Incentive Plan. The Incentive Plan
is scheduled to terminate ten years from the date that the Incentive Plan was
initially approved and adopted by the stockholders of the Company, unless
extended for up to an additional five years by action of the Board of
Directors. With limited exceptions, including termination of employment as a
result of death, disability or retirement, or except as otherwise determined
by the Committee, rights to these forms of contingent compensation are
forfeited if a recipient's employment or performance of services terminates
within

49
<PAGE>

a specified period following the award. Generally, a Participant's rights and
interest under the Incentive Plan will not be transferable except by will or
by the laws of descent and distribution.

Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock
at a price fixed by the Committee. The option price may be less than, equal
to or greater than the fair market value of the underlying shares of Common
Stock, but in no event less than the fair market value on the date of grant.
Options generally will expire not later than ten years after the date on
which they are granted. Options will become exercisable at such times and in
such installments as the Committee shall determine. Payment of the option
price must be made in full at the time of exercise in such form (including,
but not limited to, cash or Common Stock of the Company) as the Committee may
determine.

A SAR may be granted alone, or in tandem with another option or award, or
a holder of an option or other award may be granted a related SAR, either at
the time of grant or by amendment thereafter. In the event that an SAR is
granted in tandem with another award, the holder of the SAR must surrender
the SAR and surrender, unexercised, any related option or other award, and
the holder will receive in exchange, at the election of the Committee, cash
or Common Stock or other consideration, or any combination thereof, equal in
value to the difference between the exercise price or option price per share
and the fair market value per share on the last business day preceding the
date of exercise, times the number of shares subject to the SAR or option or
other award, or portion thereof, which is exercised.

A restricted stock award is an award of a given number of shares of Common
Stock which are subject to a restriction against transfer and to a risk of
forfeiture during a period set by the Committee. During the restriction
period, the Participant generally has the right to vote and receive dividends
on the shares. Dividends received while under restriction are treated as
compensation.

Performance grants are awards whose final value, if any, is determined by
the degree to which specified performance objectives have been achieved
during an award period set by the Committee, subject to such adjustments as
the Committee may approve based on relevant factors. Performance objectives
are based on such measures of performance, including, without limitation,
measures of industry, Company, unit or Participant performance, or any
combination of the foregoing, as the Committee may determine. The Committee
may make such adjustments in the computation of any performance measure as it
deems appropriate. A target value of an award is established (and may be
amended thereafter) by the Committee and may be a fixed dollar amount, an
amount that varies from time to time based on the value of a share of Common
Stock, or an amount that is determinable from other criteria specified by the
Committee. Payment of the final value of an award is made as promptly as
practicable after the end of the award period or at such other time or times
as the Committee may determine.

Upon the liquidation or dissolution of the Company all outstanding awards
under the Incentive Plan shall terminate immediately prior to the consummation
of such liquidation or dissolution, unless otherwise provided by the
Committee. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, all restrictions on any outstanding awards may lapse and
Participants may be entitled to the full benefit of such awards, as determined
by the Committee, immediately prior to the closing date of such sale or
merger.

Certain Federal Tax Consequences under the Incentive Plan

The following discussion addresses certain federal income tax consequences
under current law to recipients of awards made under the Incentive Plan. The
following discussion is intended only as a general summary of the federal
income tax consequences arising under the Incentive Plan based upon the
Internal Revenue Code (the "Code") as currently in effect. Because federal
income tax consequences will vary as a result of individual circumstances,
each Participant should consult his tax advisor with respect to the tax
consequences of such participation. Moreover, the following summary relates
only to a Participants' federal income tax treatment, and the state, local
and foreign tax consequences may be substantially different.

A Participant to whom a nonqualified stock option is granted will not
recognize any income at the time of the grant. When a Participant exercises a
nonqualified stock option, he generally will recognize ordinary compensation
income equal to the difference, if any, between the fair market value of the
Common Stock he receives at such time and the option's exercise price. The
Participant's tax basis in such shares will be equal to the exercise price
paid plus the amount includable in his gross income as compensation, and his
holding period for such shares will begin on the day on which he recognizes
taxable income in respect of such shares.

50
<PAGE>

A Participant to whom an incentive stock option is granted will not
recognize any ordinary income at the time of grant or at the time of
exercise. However, upon the exercise of an incentive stock option, the
Participant generally will be required to include the excess of fair market
value of the Common Stock over the option's exercise price in his alternative
minimum taxable income and, as a result, he may be subject to an alternative
minimum tax ("AMT"). In order to obtain incentive stock option treatment for
federal income tax purposes, a Participant (i) must be an employee of the
Company or a subsidiary continuously from the date of grant until any
termination of employment and (ii) in the event of such a termination, must
exercise an incentive stock option within three months after such
termination, except if disabled, in which case exercise may occur within one
year from the date of termination of employment. If a Participant holds
Common Stock received upon the exercise of an incentive stock option for more
than one year after exercise and more than two years after the option was
granted (the "Statutory Holding Periods"), then upon a sale of such Common
Stock he will recognize long-term capital gain or loss equal to the
difference, if any, between the sale price of such shares and the option's
exercise price. If the Participant has not held such shares for the Statutory
Holding Periods, when he sells such share (a "disqualifying disposition") he
will recognize ordinary compensation income equal to the lesser of (i) the
excess, if any, of the fair market value of such shares on the date of
exercise over the exercise price or (ii) the excess, if any, of the sale
price over the exercise price. Any additional gain or any loss on such sale
will constitute capital gain or loss, short- or long-term depending upon
whether the Participant has held the Common Stock for more than one year
after the exercise date. The tax basis of such shares to the Participant, for
purposes of computing such other gain or loss, will be equal to the exercise
price paid plus the amount includable in his gross income as compensation, if
any.

A participant will not recognize any taxable income as a result of the
inclusion of SARs in a nonqualified stock option or an incentive stock
option. At the time of exercise, a Participant generally will recognize
ordinary compensation income in an amount equal to the cash and the fair
market value of the Common Stock he receives to satisfy his SARs. The
Participant's tax basis in any such shares received pursuant to a SAR will be
equal to the amount includable in his gross income as compensation in respect
of such shares, and the Participant's holding period therefor will begin on
the day on which he recognizes taxable income in respect of such shares.

With respect to restricted stock awards, unless he files a timely election
with the Internal Revenue Service under Section 83(b) of the Code (a "Section
83(b) election"), a Participant who receives Common Stock pursuant to a
restricted stock award will not recognize any taxable income upon the receipt
of such award, but will recognize taxable compensation income at the time his
interest in such shares is no longer subject to the repurchase option imposed
by the Plan in an amount equal to the fair market value of such shares at
such time. Alternatively, by filing a Section 83(b) election within 30 days
after the shares are granted, the Participant may elect to recognize ordinary
income equal to the fair market value of the shares on the grant date. In
either event, the Participant's tax basis in such shares will be equal to the
amount includable in his gross income as compensation, and his holding period
for such shares will begin on the date his compensation income is determined.
If a Participant does not make a Section 83(b) election, dividends paid on
restricted stock awards will be includable in his income as compensation when
received.

A Participant to whom a performance grant award is made will not recognize
taxable income at the time such award is made. Such Participant generally
will recognize taxable income, however, at the time cash, Common Stock or
other Company securities or property are paid to him pursuant to such award
in an amount equal to the amount of such cash and the fair market value at
such time of such shares, securities or property. The tax basis of any such
shares, securities or property received by a Participant pursuant to a
performance grant award will be equal to the amount includable in his gross
income as compensation in respect of such shares, securities or property, and
the holding period therefor will begin on the day on which he recognizes
taxable income in respect of such shares, securities or property. Any income
equivalents paid to a Participant with respect to his performance grant award
should generally be regarded as compensation.

If a Participant who receives Common Stock under the Incentive Plan
(whether pursuant to the exercise of an option, as a restricted stock award,
or as a performance grant award) is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (such
recipient, an "Insider"), the tax consequences may be different from those
described above. Generally, an Insider will not recognize income (or, in the
case of the exercise of an incentive stock option, alternative minimum
taxable income) on receipt of Common Stock until he is no longer subject to
liability with respect to the disposition of such Common Stock. However, by
filing a Section 83(b) election with the Internal Revenue Service no later
than 30 days after the date of transfer of property (e.g.,

51
<PAGE>
after exercise of a nonqualified stock option that was granted within six
months of such exercise), an Insider may elect to be taxed based upon the
fair market value of the Common Stock at the time of such transfer.

Subject to certain limitations described in the next paragraph, the
company for which a Participant is performing services generally will be
allowed to deduct amounts that are includable in the Participant's income as
ordinary compensation income at the time such amounts are so includable,
provided that such amounts qualify as reasonable compensation for personal
services actually rendered.

With limited exceptions, the Company may not deduct certain compensation
paid to its chief executive officer or any of its four other highest paid
executives to the extent such compensation exceeds $1 million in any taxable
year. Depending on the circumstances, some or all of the compensation paid to
such an executive under the Incentive Plan may be nondeductible.

Company Retirement Plans

Retirement Plan. The Specialty Retailers, Inc. Restated Retirement Plan
(the "Retirement Plan") is a qualified defined benefit plan. Benefits under
the Retirement Plan are administered through a trust arrangement providing
benefits in the form of monthly payments or a single lump sum payment. The
Retirement Plan covers substantially all employees who have completed one
year of service with 1,000 hours of service. The Retirement Plan is
administered by the retirement plan committee (the "Retirement Committee"),
and its three to five members are appointed by the Company. All
determinations of the Retirement Committee are made in accordance with the
provisions of the Retirement Plan in a uniform and nondiscriminatory manner.

Generally, a participant is eligible for a benefit on his/her normal
retirement date, which is the later of age 65 or the fifth anniversary of the
date of hire. A participant may elect an early retirement benefit if he/she
is at least 55 years old, has 10 Years of Service (as defined below) and
retires from active employment with the Company. Early retirement benefits
are reduced according to a formula established in the Retirement Plan based
upon each full month that the participant's age is less than 65 on the date
the payments commence. If a participant who is vested terminates employment,
he/she is entitled to a deferred benefit payable at his/her normal retirement
date or an earlier date, if requested, but not before age 55.

The amount of a participant's retirement benefit is based on each Year of
Credited Service (as defined below) and on his/her earnings for that year.
The individual yearly benefits are then totaled to determine the annual
benefit at age 65. A participant's accrued benefits in the superseded plan
are determined in accordance with the terms of those plans except as modified
by the terms of the Retirement Plan. The annual amount of the participant's
normal retirement benefit is derived, subject to certain limitations, by
adding (i) 1% of earnings up to $30,600 plus 1-1/2% of the excess of such
earnings over $30,600 for each Year of Credited Service earned on or after
July 1, 1989 through December 31, 1991, (ii) 1% of earnings up to $31,800
plus 11/2% of the excess of such earnings over $31,800 for each Year of
Credited Service earned after December 31, 1991, (iii) 1% of earnings up to
$42,500 plus 1-1/2% of the excess of such earnings over $42,500 for each Year
of Credited Service earned after December 31, 1994 and (iv) accrued benefits
determined in accordance with the terms of the Retirement Plan under any
superseded plan. The normal retirement benefit formula produces an annual
benefit which is paid to the participant in equal monthly installments. The
standard form of payment for a single participant is a monthly benefit
payable for the participant's life only. The standard form of payment for a
married participant is a 50% joint and survivor benefit, which provides a
reduced monthly benefit to the participant during his/her lifetime, and 50%
of that benefit to the participant's spouse for his/her lifetime in the event
of the participant's death. Other forms of the payment are also provided
including lump sum payouts, but they require participant election. In
addition, the Retirement Committee may elect to pay the benefit equivalent of
a benefit payable at normal retirement date in the form of a lump sum
payment, if the lump sum payment does not exceed $3,500.

Any participant who is credited with 1,000 or more hours of service in a
calendar year receives a "Year of Service", while any participant who is
credited with 1,284 or more hours of service in a calendar year receives a
"Year of Credited Service". Years of Service determine a participant's
eligibility for benefits under the Retirement Plan, and the percentage vested
in those benefits. After five Years of Service, a participant is 100% vested.
Participants in any superseded plan earn Years of Service and Years of
Credited Service pursuant to sightly different criteria for plan years
beginning prior to January 1, 1990.

The Retirement Plan is funded entirely by Company contributions which are
held by a trustee for the exclusive benefit of the participants. The Company
voluntarily agreed to contribute the amounts necessary to provide the assets

52
<PAGE>
required to meet the future benefits payable to Retirement Plan participants.
Under the Retirement Plan, contributions are not specifically allocated to
individual participants. Although the Company intends to continue the
Retirement Plan indefinitely, it can terminate the plan at any time, upon
which all participants will become 100% vested in any benefit accrued to the
extent funds are available in trust. In this event, assets will be allocated
to benefit categories in the order specified in the Retirement Plan.

Supplemental Employee Retirement Plan. In 1996, the Company adopted the
1996 Supplemental Employee Retirement Plan (the "SERP"). The SERP provides
for certain retirement benefits for the Company's senior management upon
retirement at or after age 65 with at least 15 years of credited service with
the Company. The SERP provides for annual retirement compensation of 50% of
the retiree's average annual base salary for the three years preceding
retirement, less amounts received under the Company's defined benefit
retirement plan. Participants in the SERP may elect to receive early
retirement benefits at or after age 55 with at least 15 years of credited
service. Early retirement benefits are reduced for each year an executive
retires before age 65 according to a formula defined in the SERP, to a
minimum of 30% of the retiree's average annual compensation for the three
years preceding retirement.

As of February 3, 1996, the estimated annual benefits payable upon
retirement under the Retirement Plan at normal retirement age, subject to
certain adjustments permitted by applicable federal law, for the individuals
named in the cash compensation table above would be as follows: Mr.
Fuchs--$0; Mr. Tooker--$42,205; Mr. Shulman-- $41,658; Mr. Marcum--$61,320;
and Mr. Lovell--$53,064. No amounts were paid or distributed during 1995
pursuant to the Retirement Plan to any of the individuals named or included
in the group in the cash compensation table above.

Company Deferred Compensation Plan

On February 26, 1996 and effective April 1, 1996, the Company adopted the
Specialty Retailers, Inc. Deferred Compensation Plan (the "Deferred
Compensation Plan") that provides officers of the Company with the
opportunity to participate in an unfunded, deferred compensation program that
is not qualified under the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, the Code and the Employee Retirement Income Security Act
of 1974, as amended, restrict contributions to a 401(k) plan by highly
compensated employees. The Deferred Compensation Plan is intended to allow
officers to defer income at the same rates as those employees not restricted
by such regulations. Under the Deferred Compensation Plan, participants may
defer up to 15% of their salary and bonus (not otherwise covered by the
Company's 401(k) plan) and earn a rate of return based on select indices
chosen by each participant. The Company may, but is not obligated to,
establish a grantor trust for the purposes of holding assets to provide
benefits to the participants. The Company will match 25% of the first 6% of
each participant's contributions to the Deferred Compensation Plan not
otherwise covered by the Company's 401(k) plan. Company contributions vest
over five years of service.

53
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management

The Company's corporate headquarters in Houston and the land and buildings
upon which six Palais stores are located are leased from PR Investments, a
partnership in which Mr. Fuchs, his wife and certain former owners of Palais
are general partners. The lease relating to the Company's corporate
headquarters is for a term of 50 years expiring in 2032 and includes an
established minimum annual rent adjusted periodically for changes in the
Consumer Price Index ("CPI"). Three of the Palais store leases with PR
Investments are for terms of 20 years expiring in the years 1999, 1999 and
2000, respectively. The remaining three Palais store leases with PR
Investments are for 25-year terms expiring in the years 2005, 2010 and 2010,
respectively. All of the Palais store leases with PR Investments provide
Palais with the option to extend the term of the lease for two consecutive
five-year terms. One of the Palais leases with PR Investments provides Palais
with the option to extend the term of the lease for an additional 20 years.
In addition to an established minimum annual rent adjusted annually for
changes in the CPI, the above described store leases include additional rent
calculated at 4% of gross sales exceeding established levels per store.
During 1993, 1994 and 1995, the Company paid PR Investments an aggregate of
$1.9 million, $2.0 million and $2.1 million, respectively, under the leases
described above.

During 1993, the Company entered into an employment agreement with its
President and Chief Executive Officer, Mr. Tooker. As part of this agreement,
the Company loaned Mr. Tooker $300,000. The loan is due October 2, 1997,
subject to extension, and bears a market rate of interest. In addition, on
May 1, 1996, the Company loaned Mr. Tooker $140,000 which is repayable on or
before April 15, 1997, subject to extension, and which bears a market rate of
interest.

In connection with his relocation to Houston, the Company loaned Mr.
Lovell $150,000. The loan is due June 1, 2000, subject to extension, and
bears a market rate of interest.

Professional Services Agreement

Pursuant to a professional service agreement (the "Professional Services
Agreement"), Bain received fees from the Company for professional services
rendered and expense reimbursements in the aggregate amount of $1.5 million
in 1993, $0.6 million in 1994, $0.8 million in 1995 and $0.1 million to date
in 1996. Upon consummation of the Offering, Bain will receive a fee of $2.0
million to terminate this agreement.

54
<PAGE>

PRINCIPAL STOCKHOLDERS

The Company's authorized equity consists of Common Stock and Class B
Common Stock. Except as otherwise described herein, all shares of Common
Stock and Class B Common Stock are identical and entitle the holders thereof
to the same rights and privileges (except with respect to voting privileges).
Holders of Class B Common Stock may elect at any time to convert any or all
of such shares into Common Stock, on a share-for-share basis, to the extent
the holder thereof is not prohibited from owning additional voting securities
by virtue of regulatory restrictions. The holders of Common Stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Except as required by law, holders of Class B Common Stock do
not have the right to vote on any matters to be voted upon by the
stockholders. As of May 4, 1996, 1,468,750 shares of Class B Common Stock
were outstanding, 1,320,198 of which were owned by Court Square. Except for
the column relating to voting power, the numbers and percentages of shares of
Common Stock held by holders of the Class B Common Stock are calculated
assuming all Class B Common Stock is converted.

The table below sets forth certain information regarding ownership of
Common Stock as of May 4, 1996 assuming exercise of options exercisable
within sixty days of such date by (i) each person or entity who owns of
record or beneficially 5% or more of the Common Stock, (ii) each director and
named executive officer and (iii) all executive officers and directors as a
group.

<TABLE>
<CAPTION>
Percentage
of Percentage
Number of Voting of Percentage of
Shares of Power Total Shares Total Shares
Common Prior to Owned Prior Owned After
Stock the to the the Offering
Name Owned Offering Offering (1)
- --------------------------------------- ---------- ----------- ------------ --------------
<S> <C> <C> <C>
Bain Capital Funds (2) ................ 5,291,911 44.7% 39.8%
Acadia (3) ............................ 3,515,466 29.7 26.4
Court Square (4) ...................... 1,710,865 3.3 12.9
Bernard Fuchs (5) ..................... 1,117,550 9.4 8.4
Joshua Bekenstein (6) ................. 5,363,143 45.3 40.3
Adam Kirsch (6) ....................... 5,340,645 45.1 40.1
Carl Tooker (7) ....................... 149,800 1.3 *
Mark Shulman (8) ...................... 43,000 * *
Jerry Ivie (9) ........................ 33,370 * *
Lasker Meyer(10) ...................... 12,925 * *
Stephen Lovell(11) .................... 15,000 * *
James Marcum(12) ...................... 20,000 * *
Peter Mulvihill (13) .................. -- -- --
All executive officers and directors as
a group (10 Persons) (14) ........... 6,803,522 57.4% 51.1%

</TABLE>
- ---------------

* Less than 1%.

(1) Without giving effect to the Underwriters' over-allotment option. Certain
of the Company's stockholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus,
to purchase up to an aggregate of shares of Common Stock, solely to
cover-allotments, if any, as follows: Bain Capital Funds shares; Acadia
shares; and Court Square shares.

(2) Includes 4,171,063 shares of Common Stock held by Tyler Capital Fund,
L.P.; 854,632 shares of Common Stock held by Tyler Massachusetts, L.P.;
249,997 shares of Common Stock held by Tyler International, L.P.-II;
15,906 shares of Common Stock held by BCIP Associates ("BCIP
Associates"); and 312 shares of Common Stock held by BCIP Trust
Associates, L.P. ("BCIP Trust" and, collectively with BCIP Associates and
the Tyler entities, the "Bain Capital Funds"). The address of the Bain
Capital Funds is c/o Bain Venture Capital, Two Copley Place, Boston,
Massachusetts 02116.

(3) Amounts shown represent shares held by the nominee of Acadia and shares
held by FWHY-Coinvestment I Partner L.P. ("FCP") and Oak Hill, both
affiliates of Acadia. The address of Acadia and FCP is 201 Main Street,
Fort Worth, Texas 76102. The address of Oak Hill is 65 East 55th Street,
New York, New York 10022.

55
<PAGE>

(4) Court Square is a subsidiary of Citicorp, a Delaware corporation. Amount
and percentage shown as owned include 1,320,198 shares of non-voting
Class B Common Stock owned by Court Square. Each share of non- voting
Class B Common Stock is convertible, subject to certain restrictions,
into one share of Common Stock. The address of Court Square is 399 Park
Avenue, 6th Floor, New York, New York 10043.

(5) Amount shown for Mr. Fuchs includes (i) 470,000 shares held by The Fuchs
Family Limited Partnership for which Mr. Fuchs may be deemed to possess
beneficial ownership and (ii) 9,400 options which are exercisable within
60 days.

(6) Amounts shown include shares beneficially owned by the Bain Capital
Funds. Mr. Bekenstein and Mr. Kirsch may be deemed to share voting and
dispositive power as to all shares owned by the Bain Capital Funds.

(7) Includes 50,000 shares of Common Stock that may be acquired through
options exercisable within 60 days.

(8) Includes 43,000 shares of Common Stock that may be acquired through
options exercisable within 60 days.

(9) Includes 705 shares of Common Stock that may be acquired through options
exercisable within 60 days.

(10) Includes 1,175 shares of Common Stock that may be acquired through
options exercisable within 60 days.

(11) Includes 15,000 shares of Common Stock that may be acquired through
options exercisable within 60 days.

(12) Includes 20,000 shares of Common Stock that may be acquired through
options exercisable within 60 days.

(13) Mr. Mulvihill is a director and a managing director of the investment
adviser to Acadia. In addition, Mr. Mulvihill holds indirectly a limited
interest in Acadia and holds directly a limited interest in Oak Hill.
However, he does not hold or share voting or dispositive power as to
shares beneficially owned by Acadia or Oak Hill.

(14) Amount shown includes 139,280 shares of Common Stock that such persons
or group could acquire upon the exercise of options exercisable within
60 days.

OVER-ALLOTMENT OPTION

The Bain Capital Funds, Acadia and Court Square (the "Selling
Stockholders") have granted the Underwriters a 30-day option (the "Option")
to purchase up to shares of Common Stock. The following table sets forth
information as of May 4, 1996, with respect to the beneficial ownership of
Common Stock held by each of the Selling Stockholders before and after the
exercise of the Option (assuming the Underwriters elect to exercise the
Option in full).
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Exercise After Exercise
Number Number of
of Shares Being Number of
Selling Stockholders Shares Percent Offered Shares Percent
- ---------------------- ------ ------ ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Bain Capital Funds ...
Acadia ...............
Court Square .........
</TABLE>
- ---------------

*Less than one percent.

56
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

Revolving Credit Agreements

The Company may draw up to $25.0 million under the Revolving Credit
Agreements. Of this amount, up to $15.0 million may be used to support
letters of credit. As of February 3, 1996, $8.4 million of the total
commitment was used to collateralize letters of credit resulting in available
funds of $16.6 million. In addition, $10.0 million dollars are available
under the Seasonal Credit Agreement during the Seasonal Period for working
capital needs. The Revolving Credit Agreements are available through February
3, 1998 and provide for a commitment fee of 1/2 of 1% of the average daily
unused portion of the commitment amount paid on a quarterly basis. Interest
is charged on outstanding loans at a base rate plus a specified margin. The
Revolving Credit Agreements contain covenants which, among other things,
restrict (i) incurrence of additional debt, (ii) purchase of certain
investments, (iii) payment of dividends, (iv) formation of certain business
combinations, (v) disposition of certain assets, (vi) acquisition of
subordinated debt, (vii) use of proceeds received and (viii) certain
transactions with related parties. The Revolving Credit Agreements also
require that SRI maintain a debt service ratio above a minimum level. The
Revolving Credit Agreements are secured by the distribution center located in
Jacksonville, Texas, including equipment located therein, and a pledge of
SRPC's stock.

Long-term Indebtedness

Senior Discount Debentures. During 1993, the Company issued the Senior
Discount Debentures. The Senior Discount Debentures were issued at a discount
for aggregate net proceeds of approximately $75.6 million. Substantially all
of the net proceeds from the Senior Discount Debentures were used to make
cash payments to the holders of Common Stock equal to $5.85 per share. Cash
interest begins to accrue in August 1998 and is payable semi-annually on
February 15 and August 15 commencing February 15, 1999. The discount is being
charged to interest expense over the term to maturity using the effective
interest method which, together with the coupon interest, results in a 12.74%
effective interest rate. The Senior Discount Debentures contain restrictions
which, among other things, limit (i) the payment of dividends, (ii) the
repurchase of stock and subordinated debt, (iii) the acquisition of
additional debt or the creation of certain liens, (iv) disposition of certain
assets and (v) certain related party intercompany transactions. The Senior
Discount Debentures are secured by all of the issued and outstanding common
stock of SRI and are structurally subordinated to all of SRI's debt.

The Company has commenced the Tender Offer to purchase up to 100% of the
outstanding Senior Discount Debentures with the proceeds of the Offering. In
connection with the Tender Offer, the Company is seeking consents from the
holders of the Senior Discount Debentures to modify or remove certain of the
covenants governing such debentures to provide the Company with greater
operational flexibility.

Senior Notes. During 1993, the Company issued the Senior Notes. The Senior
Notes were issued in an aggregate principal amount of $150.0 million and bear
interest at 10% payable semi-annually on February 15 and August 15. SRI is
required to make a mandatory sinking fund payment on August 15, 1999 equal to
twenty-five percent of the original principal amount. SRI has purchased $20.0
million of the Senior Notes which satisfied a portion of the August 15, 1999
sinking fund requirement. The Senior Notes are generally unsecured
obligations and rank senior to all subordinated debt including the Series B
Senior Subordinated Notes.

Series B Senior Subordinated Notes. During 1993, the Company issued the
Series B Senior Subordinated Notes. The Series B Senior Subordinated Notes
were originally issued in an aggregate principal amount of $100.0 million and
bear interest at 11% payable semi-annually on February 15 and August 15. SRI
is required to make a mandatory sinking fund payment on August 15, 2002 equal
to forty percent of the original principal amount. The Series B Senior
Subordinated Notes are subordinated to the obligations under the Senior
Notes.

Series D Senior Subordinated Notes. During 1995, the Company issued $18.3
million in an aggregate principal amount of Series D Senior Subordinated
Notes. The Series D Senior Subordinated Notes were issued at a discount of
$1.8 million and bear interest at 11% payable semi-annually on February 15
and August 15 of each year. The original issue discount is being charged to
interest expense over the term to maturity using the effective interest
method. The combination of coupon interest payments and original issue
discount results in an effective interest rate of 13.0%. The Company is
required to make a mandatory sinking fund payment on September 15, 2002 equal
to forty percent of the original aggregate principal amount of the Series D
Senior Subordinated Notes.

57
<PAGE>

The Series D Senior Subordinated Notes rank pari passu with the existing
Series B Senior Subordinated Notes (collectively, the "Senior Subordinated
Notes").

The Senior Notes and the Senior Subordinated Notes contain restrictive
covenants which, among other things, (i) limit SRI's ability to sell certain
assets, pay dividends, retire its common stock or retire certain debt, (ii)
limit its ability to incur additional debt or issue stock and (iii) limit
certain related party transactions.

SRPC Notes. On May 30, 1996, SRPC issued $30.0 million in aggregate
principal amount of SRPC Notes in order to finance the Uhlmans Acquisition.
The SRPC Notes have an expected maturity date of December 15, 2000 ("Expected
Maturity Date"). Principal is expected to be paid on the SRPC Notes in one
payment on the Expected Maturity Date. If principal is not paid in full on
the Expected Maturity Date it will be paid monthly thereafter on each Monthly
Payment Date (as defined therein), to the extent of available funds. Interest
on the Notes accrues at the rate per annum of 12.5% and is payable
semi-annually on June 15 and December 15 of each year.

Principal, interest and premium, if any, on the SRPC Notes is secured by,
and paid solely from distributions on, certificates issued to SRPC by the
Trust representing the Retained Interest. For a description of the Accounts
Receivable Program, see Note 2 to the Company's Consolidated Financial
Statements.

Bealls Subordinated Debentures. The increasing rate 3 Bealls Holding, Inc.
("Bealls Holding") subordinated debentures due 2002 (the "Bealls Holding
Subordinated Debentures") in aggregate principal amount of approximately
$15.0 million bore interest at 10% through 1994, 11% in 1995 and currently
bear interest of 12% until maturity. Interest is payable semi-annually on
June 30 and December 31. Original issue discount of $7.3 million is being
charged to interest expense over the term to maturity using the effective
interest method. The combination of coupon interest payments and original
issue discount results in an effective interest rate of 20.9%. The Bealls
Holding Subordinated Debentures may be prepaid, at the Company's option, at
their face value. The Company is required to redeem the Bealls Holding
Subordinated Debentures beginning no later than December 31, 1997, in no more
than six equal annual installments. The Bealls Holding Subordinated
Debentures are subordinated to all debt except the Senior Discount
Debentures. SRI is the primary obligor under these debentures.

Bealls Junior Subordinated Debentures. In connection with the acquisition
of Bealls, Bealls Holding issued the 7% Bealls Holding Junior Subordinated
Debentures Due 2003 ("Bealls Holding Junior Subordinated Debentures") at a
face value of approximately $12.5 million, net of discount of approximately
$8.4 million. Such discount is being charged to interest expense over the
term to maturity using the effective interest method. The Bealls Holding
Junior Subordinated Debentures are limited to an aggregate principal amount
of approximately $18.3 million. Interest is payable semi-annually on June 30
and December 31. The combination of coupon interest payments and original
issue discount results in an effective interest rate of 39.4%. The principal
amount of Bealls Holding Junior Subordinated Debentures are subordinated to
all debt except the Senior Discount Debentures. SRI is the primary obligor
under these debentures.

DESCRIPTION OF CAPITAL STOCK

General Matters

The total amount of authorized capital stock of the Company consists of
75,000,000 shares of Common Stock, par value $0.01 per share, 3,000,000
shares of Class B Common Stock, par value $0.01 per share, and 2,500 shares
of preferred stock, par value $1.00 per share (the "Preferred Stock"). Upon
completion of the Offering, shares of Common Stock will be issued and
outstanding, 1,468,750 shares of Class B Common Stock will be issued and
outstanding, and no shares of Preferred Stock will be outstanding. The
discussion herein describes the Company's capital stock, the Certificate of
Incorporation and Bylaws as anticipated to be in effect upon consummation of
the Offering. The following summary of certain provisions of the Company's
capital stock describes all material provisions of, but does not purport to
be complete and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and the Bylaws of the Company that are included
as exhibits to the Registration Statement of which this Prospectus forms a
part and by the provisions of applicable law.

Common Stock

As of June 12, 1996, there were 11,610,552 shares of Common Stock
outstanding held by 102 holders of record. The issued and outstanding shares
of Common Stock are, and the shares of Common Stock being offered will be

58
<PAGE>

upon payment therefor, validly issued, fully paid and nonassessable. Subject
to the prior rights of the holders of any Preferred Stock and restrictions
contained in the Indenture and the SRI Indentures, the holders of outstanding
shares of Common Stock are entitled to receive dividends out of assets
legally available therefor at such times and in such amounts as the Board may
from time to time determine. See "Dividend Policy."

Following consummation of the Offering, the shares of Common Stock will
not be redeemable or convertible, and the holders thereof will have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata, along with the holders of
Common Stock, the assets of the Company which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of Preferred Stock then outstanding.

Application has been made for the approval for listing of the Common Stock
on the Nasdaq National Market under the symbol "STGE."

Class B Common Stock

Unless otherwise required by law, holders of the Class B Common Stock are
not entitled to vote on matters submitted to a vote of stockholders,
including the election of directors. Holders of Class B Common Stock may
elect at any time to convert any or all of such shares into Common Stock, on
a share for share basis, to the extent such holder is not prohibited from
owning additional voting securities by virtue of regulatory restrictions.

As of June 12, 1996, there were 1,468,750 shares of Class B Common Stock
outstanding held by 12 holders of record. The issued and outstanding shares
of Class B Common Stock are validly issued, fully paid and nonassessable.
Subject to the prior rights of the holders of any Preferred Stock and
restrictions contained in the Company's indebtedness, the holders of
outstanding shares of Class B Common Stock are entitled to receive dividends
out of assets legally available therefor at such times and in such amounts as
the Board may from time to time determine. See "Dividend Policy."

Following consummation of the Offering, the shares of Class B Common Stock
will not be redeemable or convertible other than into shares of Common Stock,
and the holders thereof will have no preemptive or subscription rights to
purchase any securities of the Company. Upon liquidation, dissolution or
winding up of the Company, the holders of Class B Common Stock are entitled
to receive pro rata, along with the holders of Common Stock, the assets of
the Company which are legally available for distribution, after payment of
all debts and other liabilities and subject to the prior rights of any
holders of Preferred Stock then outstanding.

Preferred Stock

The Board may, without further action by the Company's stockholders, from
time to time, direct the issuance of additional shares of Preferred Stock in
series and may, at the time of issuance, determine the rights, preferences
and limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of Preferred Stock would reduce the amount of funds
available for the payment of dividends on shares of Common Stock. Holders of
shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The Board, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the holders of shares of
Common Stock. Upon consummation of the Offering, there will be no shares of
Preferred Stock outstanding, and the Company currently has no present
intention to issue any shares of Preferred Stock.

Certain Provisions of the Restated Certificate of Incorporation and By-laws

The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot
be taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the By-laws provides that, except as otherwise required by
law, special meetings of the stockholders can only be called pursuant to a
resolution adopted by a majority of the Board of Directors or by the chief
executive officer of the Company. Stockholders will not be permitted to call
a special meeting or to require the Board to call a special meeting.

59
<PAGE>

The Restated Certificate of Incorporation contains a "fair price"
provision pursuant to which any Business Combination (as defined therein)
involving an interested stockholder and the Company or any subsidiary would
require approval by the affirmative vote of the holders of at least 662/3% of
the shares of voting stock of the Company. The fair price provision of the
Restated Certificate of Incorporation provides that 662/3% stockholder vote is
not required if the Business Combination is approved by 70% of the continuing
directors or if certain procedures and price requirements are satisfied.
Instead, the vote, if any, required by applicable Delaware law or by any
other provision of the Restated Certificate of Incorporation would be
necessary.

The By-laws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders of the
Company, including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and
who has given to the Company's Secretary timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the By-laws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.

Section 203 of Delaware Law

Following the consummation of the Offering, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation
Law. In general, such provisions prohibit a publicly-held Delaware
corporation from engaging in various "business combination" transactions with
any "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder,"
unless (i) the transaction is approved by the Board of Directors prior to the
date the interested stockholder obtained such status, (ii) upon consummation
of the transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (iii) on or subsequent to such date the "business
combination" is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
662/3% of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
In general, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of a corporation's voting stock. The statute could prohibit or delay mergers
or other takeover or change in control attempts with respect to the Company
and, accordingly, may discourage attempts to acquire the Company.

Limitations on Liability and Indemnification of Officers and Directors

The Certificate of Incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In
addition, the Amended and Restated Certificate of Incorporation provides that
the Company shall indemnify directors and officers of the Company to the
fullest extent permitted by such law.

Transfer Agent and Registrar

The Transfer Agent and Registrar for the Common Stock will be .

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices of the Common Stock.

Upon the closing of the Offering there will be shares of Common Stock
outstanding. The shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further

60
<PAGE>

registration under the Securities Act, unless held by an "affiliate" of the
Company as that term is defined in Rule 144, which shares will be subject to
the resale limitations of Rule 144. Of the outstanding shares, 11,610,552
have not been registered under the Securities Act and may not be sold unless
they are registered or unless an exemption from registration, such as the
exemption provided by Rule 144, is available.

In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities
acquired from the Company or an affiliate of the Company in a non-public
transaction) for at least two years, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the outstanding Common Stock or the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the date on
which notice of such sale is filed pursuant to Rule 144. Sales under Rule 144
are also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder (or stockholders whose shares are aggregated) who is
not an affiliate of the Company for at least 90 days prior to a proposed
transaction and who has beneficially owned "restricted securities" for at
least three years is entitled to sell such shares under Rule 144 without
regard to the limitations described above. Currently shares of Common
Stock are qualified for sale under this rule. Rule 144 is proposed to be
amended, and the two and three year holding periods specified above may be
reduced to one and two years, respectively.

Certain of the Company's existing stockholders, including the officers and
directors of the Company, have agreed that they will not, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") on behalf of the Underwriters, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date hereof.
outstanding shares (or % of the total outstanding Common Stock) of Common
Stock (other than those sold in the Offering) are subject to such agreement.

Registration Rights

The Company is party to a Registration Agreement (the "Registration
Agreement") with the Bain Capital Funds, Acadia and Court Square pursuant to
which such stockholders have the right to cause the Company to register
shares of Common Stock (the "registrable securities") under the Securities
Act. Upon the consummation of the Offering, outstanding shares of
Common Stock will constitute registrable securities and therefore will be
eligible for registration pursuant to the Registration Agreement. Under the
terms of the Registration Agreement, (i) the holders of at least a majority
of the registrable securities can require the Company, subject to certain
limitations, to file up to three "long-form" registration statements under
the Securities Act covering all or part of the registrable securities, and,
subject to certain limitations, to file an unlimited number of "short-form"
registration statements under the Securities Act covering all or part of the
registrable securities and (ii) Acadia can require the Company, subject to
certain limitations, to file a "long-form" registration statement on Form S-1
covering all or part of the registrable securities held by Acadia (each, a
"demand registration"). The Company is obligated to pay all registration
expenses (other than underwriting discounts and commissions and subject to
certain limitations) incurred in connection with the demand registrations. In
addition, the Registration Statement provides the Bain Capital Funds, Acadia
and Court Square with "piggyback" registration rights, subject to certain
limitations, whenever the Company files a registration statement on a
registration form that can be used to register registrable securities.

61
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in the Underwriting
Agreement (the "Underwriting Agreement"), the Underwriters named below (the
"Underwriters"), for whom DLJ, Bear, Stearns & Co. Inc. and CS First Boston
Corporation are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company an aggregate of shares of
Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:

Number of
Underwriters Shares
- ------------------------------------------------------- ---------
Donaldson, Lufkin & Jenrette Securities Corporation ...
Bear, Stearns & Co. Inc. ..............................
CS First Boston Corporation ...........................

Total ...............................................
=======

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. If any of the shares of Common Stock
are purchased by the Underwriters pursuant to the Underwriting Agreement, all
such shares (other than shares covered by the over-allotment option described
below) must be purchased.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus, and to
certain dealers (who may include the Underwriters) at such price less a
concession not in excess of $ per share of Common Stock. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
of Common Stock on sales to any other Underwriter certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.

Certain selling stockholders have granted an option to the Underwriters,
exercisable for 30 days after the date of this Prospectus, to purchase up to
an aggregate of additional shares of Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, net of
underwriting discounts and commissions. Such option may be exercised at any
time until 30 days after the date of this Prospectus. See "Principal
Stockholders" and "Overallotment Option." To the extent that the
Representatives exercise such option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.

The Company, its officers and directors, and certain employees of the
Company have agreed, subject to certain exceptions, not to directly or
indirectly sell, offer to sell, grant any option for the sale of or otherwise
dispose of any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, without the prior written
consent of DLJ, on behalf of the Underwriters, for a period of 180 days after
the date of this Prospectus. See "Shares Eligible for Future Sale."

Prior to the Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined
through negotiations between the Company and the Representatives. Among the
factors considered in determining the initial public offering price, in
addition to prevailing market conditions, are price-earnings ratios of
publicly traded companies that the Representatives believe to be comparable
to the

62
<PAGE>

Company, certain financial information of the Company, the history of, and
the prospects for, the Company and the industry in which it competes, and
assessment of the Company's management, its past and present operations, the
prospects for, and timing of, future revenues of the Company, the present
state of the Company's development, and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to the Company. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to the Offering at or above the
initial public offering price.

Application has been made for the approval for listing of the Common Stock
on the Nasdaq National Market under the symbol "STGE".

The Underwriters do not intend to confirm sales of the Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.

LEGAL MATTERS

The validity of the Common Stock being offered hereby and certain other
legal matters relating to the Offering will be passed upon for the Company by
Kirkland & Ellis (a partnership which includes professional corporations),
New York, New York. Mr. Karl E. Lutz, whose professional corporation is a
partner of Kirkland & Ellis, as of the date hereof holds 29,372 shares of
Common Stock and 8,116 shares of Class B Common Stock. Certain legal matters
will be passed upon for the Underwriters by Latham & Watkins, Chicago,
Illinois.

EXPERTS

The consolidated financial statements of the Company as of January 28,
1995 and February 3, 1996 and for each of the three years in the period ended
February 3, 1996 included in this Prospectus and the Registration Statement
of which it is a part, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting. The financial statements of
Uhlmans as of January 31, 1995 and February 3, 1996 and for each of the three
years in the period ended February 3, 1996 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given on the authority of said
firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed the Registration Statement on Form S-1 with respect
to the Common Stock being offered hereby with the Commission under the
Securities Act. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are omitted in accordance with the rules
and regulations of the Commission. Statements contained in this Prospectus
concerning the provisions of documents filed with the Registration Statement
as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed as an exhibit to the Registration Statement. The
Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; at its Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and at its New York
Regional Office, 75 Park Place, 14th Floor, New York, New York 10007. Copies
of such material can be obtained from the public reference section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. For further information pertaining to the Company and the Common Stock
being offered hereby, reference is made to the Registration Statement,
including the exhibits thereto and the financial statements, notes and
schedules filed as a part thereof.

63
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
STAGE STORES, INC. Number
---------
<S> <C>
Unaudited Financial Statements

Consolidated Condensed Balance Sheet at February 3, 1996 and May 4, 1996 ......................... F-2

Consolidated Condensed Statement of Income for the three months ended April 29, 1995 and
May 4, 1996 ................................................................................... F-3

Consolidated Condensed Statement of Cash Flows for the three months ended April 29, 1995 and
May 4, 1995 ................................................................................... F-4

Consolidated Statement of Stockholders' Deficit for the three months ended May 4, 1996 ........... F-5

Notes to Unaudited Consolidated Condensed Financial Statements ................................... F-6
Audited Financial Statements

Report of Independent Accountants ................................................................ F-7

Consolidated Balance Sheet at January 28, 1995 and February 3, 1996 .............................. F-8

Consolidated Statement of Operations for the fiscal years 1993, 1994 and 1995 .................... F-9

Consolidated Statement of Cash Flows for the fiscal years 1993, 1994 and 1995 .................... F-10

Consolidated Statement of Stockholders' Deficit for the fiscal years 1993, 1994 and 1995 ......... F-12

Notes to Consolidated Financial Statements ....................................................... F-13
UHLMANS INC.

Unaudited Financial Statements
Balance Sheets at April 29, 1995 and May 4, 1996 ................................................. F-25

Statements of Operations for the period from February 1, 1995 through April 29, 1995 and for the
period from February 4, 1996 through May 4, 1996 .............................................. F-26

Statements of Cash Flows for the period from February 1, 1995 through April 29, 1995 and for the
period from February 4, 1996 through May 4, 1996 .............................................. F-27

Notes to Financial Statements (Unaudited) ........................................................ F-28

Audited Financial Statements
Report of Independent Auditors ................................................................... F-29

Balance Sheets at January 31, 1995 and February 3, 1996 .......................................... F-30

Statements of Income for the years ended January 31, 1994 and 1995 and for the period from
February 1, 1995 through February 3, 1996 ..................................................... F-31

Statements of Stockholders' Equity for the years ended January 31, 1994 and 1995 and for the
period from February 1, 1995 through February 3, 1996 ......................................... F-32

Statements of Cash Flows for the years ended January 31, 1994 and 1995 and for the period from
February 1, 1995 through February 3, 1996 ..................................................... F-33

Notes to Financial Statements .................................................................... F-34
</TABLE>

F-1
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Balance Sheet
(in thousands, except par value and number of shares)

<TABLE>
<CAPTION>
February 3,
1996 May 4, 1996
------------- ------------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents ..................................... $ 20,273 $ 10,412
Accounts receivable ........................................... 65,740 50,587
Merchandise inventories ....................................... 150,032 166,303
Prepaid expenses and other current assets ..................... 24,457 23,452
----------- ----------
Total current assets ........................................ 260,502 250,754

Property, equipment and leasehold improvements, net ........... 93,118 96,901
Goodwill, net ................................................. 30,876 30,606
Other assets .................................................. 27,837 28,351
----------- ----------
$ 412,333 $ 406,612
=========== ==========

Liabilities and Stockholders' Deficit
Accounts payable .............................................. $ 41,494 $ 41,153
Accrued interest .............................................. 12,327 6,580
Accrued expenses and other current liabilities ................ 33,197 27,272
Accrued taxes, other than income taxes ........................ 3,376 4,083
----------- ----------
Total current liabilities ................................... 90,394 79,088

Long-term debt ................................................ 335,839 339,467
Related party debt ............................................ 44,200 44,200
Other long-term liabilities ................................... 14,214 13,495
----------- ----------
Total liabilities ........................................... 484,647 476,250
----------- ----------

Preferred stock, par value $1.00, non-voting, 2,500 shares
authorized, no shares issued or outstanding ................. -- --
Common stock, par value $0.01, 15,000,000 shares authorized,
11,470,902 and 11,600,702 shares issued and outstanding,
respectively ................................................ 115 116
Class B common stock, par value $0.01, non-voting, 1,500,000
shares authorized, 1,468,750 shares issued and outstanding .. 15 15
Additional paid-in capital .................................... 3,793 3,816
Accumulated deficit ........................................... (76,237) (73,585)
----------- ----------
Stockholders' deficit ....................................... (72,314) (69,638)
----------- ----------
Commitments and contingencies ................................. -- --
----------- ----------
$ 412,333 $ 406,612
=========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-2
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Statement of Income
(in thousands, except earnings per share)
(unaudited)

<TABLE>
<CAPTION>
For the three months ended,
------------------------------
April 29, 1995 May 4, 1996
--------------- ------------
<S> <C> <C>
Net sales ................................................ $142,353 $ 163,177
Cost of sales and related buying, occupancy and
distribution expenses ................................. (96,070) (111,096)
------------- ----------
Gross profit ............................................. 46,283 52,081
Selling, general and administrative expenses ............. (33,816) (38,878)
Service charge income .................................... 2,683 2,913
Store opening and closure costs .......................... (315) (71)
------------- ----------
Operating income ......................................... 14,835 16,045
------------- ----------
Interest income .......................................... 160 126
------------- ----------

Interest expense:
Related party ........................................... (1,037) (1,117)
Other ................................................... (9,235) (10,128)
Amortization of debt issue costs ........................ (452) (469)
------------- ----------
(10,724) (11,714)
------------- ----------

Income before income tax ................................. 4,271 4,457
Income tax expense ....................................... (1,833) (1,805)
------------- ----------
Net income ............................................... $ 2,438 $ 2,652
============= ==========

Earnings per common share data:
- ------------------------------

Earnings per common share ................................ $ 0.18 $ 0.20
============= ==========
Weighted average common shares outstanding ............... 13,399 13,367
============= ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Statement of Cash Flows
(in thousands)
(unaudited)

<TABLE>
<CAPTION>
For the three months ended,
------------------------------
April 29, 1995 May 4, 1996
--------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income .............................................. $ 2,438 $ 2,652
------------- ----------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization .......................... 2,700 3,149
Deferred income taxes .................................. (1,099) (958)
Accretion of discount .................................. 3,300 3,768
Amortization of debt issue costs ....................... 452 469
Changes in operating assets and liabilities:
Decrease in accounts receivable ....................... 11,523 11,453
Increase in merchandise inventories ................... (27,582) (16,271)
(Increase) decrease in other assets ................... (872) 404
Increase in accounts receivable sold .................. 10,300 3,700
Decrease in accounts payable and accrued liabilities .. (7,399) (11,581)
------------- ----------
Total adjustments .................................... (8,677) (5,867)
------------- ----------
Net cash used in operating activities ................. (6,239) (3,215)
------------- ----------

Cash Flows from Investing Activities:
Additions to property, equipment and leasehold
improvements ........................................... (12,495) (6,449)
------------- ----------
Net cash used in investing activities .................. (12,495) (6,449)
------------- ----------

Cash Flows from Financing Activities:
Proceeds from:
Common stock ........................................... 61 34
Payments on:
Long-term debt ......................................... (115) (125)
Redemption of common stock ............................. -- (14)
Additions to debt issue costs .......................... (223) (92)
------------- ----------
Net cash used in financing activities ................. (277) (197)
------------- ----------
Net decrease in cash and cash equivalents ............. (19,011) (9,861)
Cash and cash equivalents:
Beginning of year ...................................... 28,593 20,273
------------- ----------
End of year ............................................ $ 9,582 $ 10,412
============= ==========

Supplemental Disclosure of Cash Flow Information:
Interest paid ........................................... $ 12,205 $ 13,207
============= ==========
Income taxes paid ....................................... $ 1,800 $ 5,883
============= ==========
</TABLE>

F-4
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Condensed Statement of Stockholders' Deficit
for the three months ended May 4, 1996
(in thousands, except numbers of shares)
(unaudited)

<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Class B
-----------------
Shares Shares Additional Accumulated
Outstanding Amount Outstanding Amount Paid-in Capital Deficit Total
--------- ---- --------- ---- --------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 3, 1996 11,470,902 $115 1,468,750 $15 $3,793 $(76,237) $(72,314)
Net income .............. -- -- -- -- -- 2,652 2,652
Vested compensatory stock
options ............... -- -- -- -- 4 -- 4
Issuance of stock ....... 132,510 1 -- -- 33 -- 34
Retirement of stock ..... (2,710) -- -- -- (14) -- (14)
------- --- ------- --- ------------- -------- ------
Balance, May 4, 1996 .... 11,600,702 $116 1,468,750 $15 $3,816 $(73,585) $(69,638)
========== ==== ========== === ============= ========== =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Unaudited Consolidated Condensed Financial Statements

1. The accompanying unaudited consolidated condensed financial statements of
Stage Stores, Inc. (formerly Apparel Retailers, Inc.), have been prepared in
accordance with Rule 10-01 of Regulation S-X and do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Those adjustments, which include only normal
recurring adjustments, that are, in the opinion of management, necessary for a
fair presentation of the results of the interim periods have been made. The
results of operations for such interim periods are not necessarily indicative of
results of operations for a full year. The unaudited consolidated condensed
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended February 3, 1996 filed
with Stage Stores, Inc.'s ("Stage Stores") Annual Report on Form 10-K. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation. The fiscal years discussed herein end on the Saturday
nearest to January 31 in the following calendar year. For example, references to
"1996" mean the fiscal year ended February 1, 1997.

Stage Stores conducts its business exclusively through its wholly-owned
subsidiary Specialty Retailers, Inc. ("SRI"), which operated 268 family apparel
stores in the central United States as of May 4, 1996. Stage Stores has no
operations of its own, with its primary asset being the common stock of SRI.
Stage Stores and SRI are collectively referred to herein as the "Company".

2. Under the accounts receivable securitization program implemented in 1993
(the "Accounts Receivable Program"), an indirect wholly-owned subsidiary of the
Company, SRI Receivables Purchase Co., Inc. ("SRPC") purchases the accounts
receivable generated under the Company's private label credit card program. Such
accounts receivable are in turn transferred to a master trust (the "Trust")
which has issued certain certificates representing undivided interests in the
Trust. SRPC owns an undivided interest in the accounts receivable not supporting
the certificates issued by the Trust ("Retained Interest"). SRPC is a separate
corporate entity from the Company and SRPC's creditors have a claim on its
assets prior to those assets becoming available to any creditor of the Company.

3. On June 3, 1996, Palais Royal, Inc., an indirect, wholly-owned subsidiary
of Stage Stores, completed its acquisition of Uhlmans Inc. ("Uhlmans") for $28.7
million, including the repayment of certain debt of Uhlmans. Uhlmans, which
operates 34 family apparel stores located in Ohio, Michigan and Indiana, had
sales of $59.7 million and net income of $0.6 million for the year ended
February 3, 1996. The Company plans to operate the majority of the acquired
locations under the "Stage" banner following a brief conversion period. The
Company filed a Current Report on Form 8-K on May 9, 1996 related to this
transaction.

The Company financed its acquisition of Uhlmans through the issuance of
$30.0 million in aggregate principal amount of 12.5% Trust Certificate-Backed
Notes Due 2000 (the "SRPC Notes"). Interest on the SRPC Notes is payable
semi-annually on June 15 and December 15 of each year, commencing December 16,
1996 from amounts otherwise received by SRPC from its Retained Interest.
Principal repayments are anticipated to commence on December 1, 1999.

4. During the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS 121"), and
Statement of Financial Accounting Standard No. 123, Accounting for Stock Based
Compensation ("SFAS 123"). Neither the adoption of SFAS 121 or SFAS 123 had a
material effect on the Company's financial position or the results of
operations. With the adoption of SFAS 123, the Company continues to measure
compensation plans using the intrinsic value method prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees, and will provide pro forma
disclosures of net income and earnings per share as if the market value based
method prescribed by SFAS 123 had been applied in measuring compensation expense
in its annual financial statements.

F-6
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Stage Stores, Inc.

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Stage Stores, Inc. (formerly Apparel Retailers, Inc.) and its
subsidiaries at January 28, 1995 and February 3, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
February 3, 1996, in conformity with generally accepted accounting principles.
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
generally accepted auditing standards 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 the opinion expressed
above.

PRICE WATERHOUSE LLP

Houston, Texas
March 15, 1996

F-7
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Balance Sheet
(in thousands, except par value and number of shares)

<TABLE>
<CAPTION>
January 28, February 3,
1995 1996
------------- ---------------
<S> <C> <C>
Assets
Cash and cash equivalents .............................. $ 28,593 $ 20,273
Accounts receivable .................................... 70,356 65,740
Merchandise inventories ................................ 118,039 150,032
Restricted investments ................................. 338 438
Prepaid expenses and other current assets .............. 17,824 24,019
----------- -------------
Total current assets ................................. 235,150 260,502
Property, equipment and leasehold improvements, net .... 75,602 93,118
Goodwill, net .......................................... 31,865 30,876
Other assets ........................................... 27,113 27,837
----------- -------------
$369,730 $412,333
=========== =============

Liabilities and Stockholders' Deficit
Accounts payable ....................................... $ 38,332 $ 41,494
Accrued interest ....................................... 11,372 12,327
Accrued employee compensation costs .................... 8,907 7,892
Accrued expenses and other current liabilities ......... 25,668 25,305
Accrued taxes, other than income taxes ................. 2,642 3,376
----------- -------------
Total current liabilities ............................ 86,921 90,394
Long-term debt ......................................... 310,575 335,839
Related party debt ..................................... 39,200 44,200
Deferred income taxes .................................. 562 --
Other long-term liabilities ............................ 13,665 14,214
----------- -------------
Total liabilities .................................... 450,923 484,647
----------- -------------
Preferred stock, par value $1.00, non-voting, 2,500
shares
authorized, no shares issued or outstanding ........... -- --
Common stock, par value $0.01, 15,000,000 shares
authorized, 11,381,141 and 11,470,902 shares
issued and outstanding, respectively .................. 113 115
Class B common stock, par value $0.01, non-voting,
1,500,000 shares authorized, 1,468,750 shares
issued and outstanding ................................ 15 15
Additional paid-in capital ............................. 3,565 3,793
Accumulated deficit .................................... (84,886) (76,237)
------------ --------------
Stockholders' deficit ................................ (81,193) (72,314)
------------ --------------
Commitments and contingencies .......................... -- --
------------ --------------
$369,730 $412,333
============ ==============
</TABLE>

The accompanying notes are an integral part of this statement.

F-8
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Operations
(in thousands, except earnings per share)

<TABLE>
<CAPTION>
Fiscal Year
----------------------------------
1993 1994 1995
-------- -------- ----------
<S> <C> <C> <C>
Net sales ........................................ $ 557,422 $ 581,463 $ 682,624
Cost of sales and related buying, occupancy and
distribution expenses .......................... (384,843) (398,659) (468,347)
------ ------ --------
Gross profit ..................................... 172,579 182,804 214,277
Selling, general and
administrative expenses ........................ (135,011) (134,715) (159,625)
Service charge income ............................ 20,003 8,515 10,523
Store opening and closure costs .................. (199) (5,647) (3,689)
------ ------ --------
Operating income ................................. 57,372 50,957 61,486
------ ------ --------
Interest income .................................. 1,230 1,684 781
------ ------ --------
Interest expense:
Related party .................................... (6,038) (2,902) (4,355)
Other ............................................ (29,985) (37,118) (38,555)
Amortization of debt issue costs ................. (1,584) (1,674) (1,860)
------ ------ --------
(37,607) (41,694) (44,770)
------ ------ --------
Income before income tax and
extraordinary item ............................. 20,995 10,947 17,497
Income tax expense ............................... (7,569) (4,317) (6,767)
------ ------ --------
Income before extraordinary item ................. 13,426 6,630 10,730
Extraordinary item--early
extinguishment of debt ......................... (16,208) (308) --
------ ------ --------
Net income (loss) ................................ $ (2,782) $ 6,322 $ 10,730
====== ====== ========
Earnings (loss) per common share data:
Income before extraordinary item ................. $ 13,426 $ 6,630 $ 10,730
Dividends and accretion on mandatorily
redeemable preferred stock ..................... (2,297) -- --
------ ------ --------
Earnings before extraordinary item
applicable to common stock ..................... $ 11,129 $ 6,630 $ 10,730
====== ====== ========
Earnings per common share before
extraordinary item ............................. $ 0.85 $ 0.50 $ 0.81
Extraordinary item--early
extinguishment of debt ......................... (1.24) (0.02) --
------ ------ --------
Earnings (loss) per common share after
extraordinary item ............................. $ (0.39) $ 0.48 $ 0.81
====== ====== ========
Weighted average common shares
outstanding .................................... 13,144 13,272 13,216
====== ====== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-9
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Cash Flows
(in thousands)

<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1993 1994 1995
-------- ------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ........................................... $ (2,782) $ 6,322 $ 10,730
------ ----- -------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ............................... 9,259 9,997 12,816
Deferred income taxes ....................................... (2,783) (3,608) (4,065)
Accretion of discount ....................................... 5,796 12,286 13,940
Amortization of debt issue costs ............................ 1,584 1,674 1,860
Issuance of long-term debt in lieu of interest payment ...... 1,214 282 147
Loss on early extinguishment of debt ........................ 25,032 474 --
Changes in operating assets and liabilities:
Increase in accounts receivable ............................. (18,822) (5,378) (20,206)
Increase in merchandise inventories ......................... (10,862) (14,077) (31,650)
Increase in other assets .................................... (5,907) (2,599) (4,112)
Increase (decrease) in accounts receivable sold ............. 147,100 (7,100) 25,000
Increase in accounts payable and accrued liabilities ........ 6,388 11,532 1,794
------ ----- -------
Total adjustments ........................................... 157,999 3,483 (4,476)
------ ----- -------
Net cash provided by operating activities ................... 155,217 9,805 6,254
------ ----- -------
Cash Flows from Investing Activities:
Decrease (increase) in restricted investments ............... (2,150) 10,812 (100)
Acquisitions, net of cash acquired .......................... -- (20,840) (1,167)
Payments to former Bealls and Palais Royal shareholders ..... (252) -- --
Additions to property, equipment and leasehold improvements . (8,503) (19,706) (28,638)
------ ----- -------
Net cash used in investing activities ....................... (10,905) (29,734) (29,905)
------ ----- -------
Cash Flows from Financing Activities:
Proceeds from:
Short-term debt ............................................. 19,135 -- --
Long-term debt .............................................. 352,041 -- 16,458
Common stock ................................................ 325 97 68
Payments on:
Working capital facility .................................... (1,000) -- --
Short-term debt ............................................. (24,992) -- --
Long-term debt .............................................. (337,254) (10,442) (266)
Redemption of redeemable preferred stock .................... (19,797) -- --
Redemption of common stock .................................. (33) -- (122)
Additions to debt issue costs ............................... (14,035) (448) (807)
Dividends paid .............................................. (74,804) -- --
------ ----- -------
Net cash provided by (used in) financing activities ......... (100,414) (10,793) 15,331
------ ----- -------
Net increase (decrease) in cash and cash equivalents ........ 43,898 (30,722) (8,320)
Cash and cash equivalents:
Beginning of year ........................................... 15,417 59,315 28,593
------ ----- -------
End of year ................................................. $ 59,315 $ 28,593 $ 20,273
====== ===== =======
</TABLE>

The accompanying notes are an integral part of this statement.

F-10
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Cash Flows (Continued)
(in thousands)

<TABLE>
<CAPTION>
Fiscal Year
-----------------------------
1993 1994 1995
------ ------- --------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid ............................................................ $30,142 $ 28,814 $27,845
======= ======== ========
Income taxes paid ........................................................ $ 3,857 $ 5,198 $ 5,939
======= ======== ========
Supplemental schedule of noncash investing and financing activities:

The Company purchased a significant portion of the assets of Beall-
Ladymon, Inc. for $840 in cash during 1994. In addition, the Company
purchased Mammouth, Inc. and Szolds, Inc. ("Szolds") for $1,067 and $493,
respectively, during 1995. Pursuant to the Szolds purchase agreement, $393
was paid at closing to Szolds during February 1996. In conjunction with
these acquisitions, liabilities were assumed as follows:

Fair value allocated to assets acquired .................................. $ -- $ 24,043 $ 1,702
Cash paid for assets acquired, including acquisition expenses ............ -- (20,840) (1,167)
Purchase price payable at closing ........................................ -- -- (393)
------- -------- --------
Liabilities assumed ...................................................... $ -- $ 3,203 $ 142
======= ======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-11
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Statement of Stockholders' Deficit
(in thousands, except numbers of shares)

<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Class B
------------------
Additional
Shares Shares Paid-in Accumulated
Outstanding Amount Outstanding Amount Capital Deficit Total
-------- ---- ---------- ----- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 30, 1993 .. 10,559,167 $106 1,468,750 $15 $ 899 $(10,625) $ (9,605)

Net loss ................... -- -- -- -- -- (2,782) (2,782)
Dividends on preferred stock -- -- -- -- -- (1,596) (1,596)
Dividends on common stock .. -- -- -- -- -- (74,804) (74,804)
Accretion on preferred stock -- -- -- -- -- (701) (701)
Tax benefits from stock
option activity ........... -- -- -- -- 2,037 -- 2,037
Adjustment for minimum
pension liability ......... -- -- -- -- -- (568) (568)
Issuance of stock .......... 783,998 7 -- -- 318 -- 3251
Retirement of stock ........ (10,024) -- -- -- (33) -- (33)
---------- ---- ---------- --- ------------ ------- --------
Balance, January 29, 1994 .. 11,333,141 113 1,468,750 15 3,221 (91,076) (87,727)

Net income ................. -- -- -- -- -- 6,322 6,322
Vested compensatory stock
options ................... -- -- -- -- 247 -- 247
Adjustment for minimum
pension liability ......... -- -- -- -- -- (132) (132)
Issuance of stock .......... 48,000 -- -- -- 97 -- 97
------- -- -------- --- ------------ ------- ------
Balance, January 28, 1995 .. 11,381,141 113 1,468,750 15 3,565 (84,886) (81,193)

Net income ................. -- -- -- -- -- 10,730 10,730
Vested compensatory stock
options ................... -- -- -- -- 284 -- 284
Adjustment for minimum
pension liability ......... -- -- -- -- -- (2,081) (2,081)
Issuance of stock .......... 121,621 2 -- -- 66 -- 68
Retirement of stock ........ (31,860) -- -- -- (122) -- (122)
------- -- -------- --- ------------ ------- ------
Balance, February 3, 1996 .. 11,470,902 $115 1,468,750 $15 $3,793 $(76,237) $(72,314)
========== ===== ========== ==== ============ ========= =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-12
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business: Stage Stores, Inc. (formerly Apparel Retailers,
Inc.) was incorporated under the laws of Delaware on June 17, 1993 at
the direction of the stockholders of Specialty Retailers, Inc. as a part
of an overall refinancing and distribution plan (see Note 5). As a part
of this plan, the stockholders of Specialty Retailers, Inc. exchanged
all of their common stock for Stage Stores, Inc. common stock with
identical terms and conditions. Stage Stores, Inc., Specialty Retailers,
Inc. and their subsidiaries are collectively referred to as the
"Company". When the distinction is necessary, "Stage Stores" refers to
Stage Stores, Inc. and "SRI" refers to Specialty Retailers, Inc. SRI
operates family apparel stores primarily under the names "Bealls",
"Palais Royal" and "Stage" offering branded fashion apparel and
accessories for women, men and children. The Company currently operates
268 stores in thirteen states located throughout the central United
States.

Principles of Consolidation: The consolidated financial statements include
the accounts of Stage Stores and its wholly-owned subsidiaries
subsequent to June 17, 1993. Prior to June 17, 1993, the consolidated
financial statements include the accounts of SRI and its wholly-owned
subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

On October 31, 1994, Palais Royal, Inc., a wholly-owned subsidiary of
the Company, purchased a significant portion of the assets of the
Beall-Ladymon Corporation ("Beall-Ladymon") for $20.8 million in cash.
The assets acquired consisted primarily of customer accounts receivable
and fixed assets. In addition, the Company assumed leases for forty-five
store locations which the Company opened as Stage stores during the
first quarter of 1995. Beall-Ladymon was a regional apparel retailer
which operated stores primarily in Louisiana, Arkansas and Mississippi.

The following unaudited pro forma information gives effect to the
Beall-Ladymon acquisition as if it had occurred at the beginning of the
periods presented and includes operating activity of Beall-Ladymon prior
to the beginning of the closure period (in thousands, except per common
share data):

<TABLE>
<CAPTION>
Fiscal Year
------------------------
1993 1994
--------- -----------
(unaudited)
<S> <C> <C>
Net sales ......................... $609,857 $613,994
======= =========
Income before extraordinary item .. $ 13,359 $ 4,353
======= =========
Net income (loss) ................. $ (2,849) $ 4,045
======== ==========
Earnings (loss) per common share .. $ (0.40) $ 0.31
======== ==========
</TABLE>

The above amounts are based on certain estimates and assumptions which
the Company believes are reasonable. The pro forma results do not
purport to be indicative of the results which would have occurred if the
acquisition had actually taken place at the beginning of the periods
presented, nor are they necessarily indicative of the results of any
future periods.

The Beall-Ladymon acquisition was accounted for under the purchase
method of accounting. Accordingly, the total acquisition cost was
allocated to the assets acquired and liabilities assumed based upon
their estimated fair values. The excess of the purchase price over the
estimated fair value of such assets and liabilities was recognized as
goodwill and is being amortized on a straight-line basis over fifteen
years.

Fiscal Year: The fiscal years discussed herein end on the Saturday nearest
to January 31 in the following calendar year. For example, references to
"1995" mean the fiscal year ended February 3, 1996. All fiscal years
consist of fifty-two weeks except for 1995 which consists of fifty-three
weeks.

F-13
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.

Merchandise Inventories: The Company states its merchandise inventories at
the lower of cost or market, cost being determined using the retail
last-in, first-out ("LIFO") method. Market is estimated on a
pool-by-pool basis.

The Company believes that the LIFO method, which charges the most recent
merchandise costs to the results of current operations, provides a
better matching of current costs with current revenues in the
determination of operating results. Some companies use the retail
first-in, first-out ("FIFO") method in valuing their inventories. If the
retail FIFO method had been used, inventories at January 28, 1995 and
February 3, 1996 would have been higher by $0.4 million and lower by
$3.5 million, respectively.

Property, Equipment and Leasehold Improvements: Property, equipment and
leasehold improvements are stated at cost and depreciated over their
estimated useful lives using the straight line method. The estimated
useful lives of leasehold improvements do not exceed the term, including
renewal options, of the related lease. The estimated useful lives in
years are as follows:

Buildings ..................................... 20-25
Store and office fixtures and equipment ....... 7-12
Warehouse equipment ........................... 5-15
Favorable leases and leasehold improvements ... 15-50

Income Taxes: The provision for income taxes is computed based on the pretax
income included in the consolidated statement of operations. The asset
and liability approach is used to recognize deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and
liabilities.

Earnings (Loss) Per Common Share: Earnings or loss per common share is
computed based upon net income or loss adjusted for dividends and
accretion on preferred stock. Common stock options outstanding are
treated as common stock equivalents in the computation of earnings or
loss per common share using the treasury stock method. The fair value of
the Company's common stock is determined in good faith by the Board of
Directors based upon the historical and projected financial performance
of the Company.

Debt Issue Costs: Debt issue costs are accounted for as a deferred charge
and amortized on a straight-line basis over the term of the related
issue.

Goodwill and Other Intangibles: The Company amortizes goodwill and
intangible assets on a straight- line basis over the estimated future
periods benefited, not to exceed forty years. Amortization periods for
goodwill and other intangibles associated with acquisitions are
currently five to forty years. Each year, the Company evaluates the
remaining useful life associated with goodwill based upon, among other
things, historical and expected long-term results of operations.
Accumulated amortization of goodwill was $3.7 million and $4.7 million
at January 28, 1995 and February 3, 1996, respectively.

Store Pre-Opening Expenses: Pre-opening expenses of new stores are deferred
and charged to operations in the year the store opens.

Advertising Expenses: Advertising costs are charged to operations when the
related advertising first takes place. Advertising costs were $22.3
million, $22.3 million, and $25.9 million for 1993, 1994 and

F-14
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

1995, respectively. Prepaid advertising costs were $0.6 million and $0.5
million at January 28, 1995 and February 3, 1996, respectively.

Statement of Cash Flows: The Company considers highly liquid investments
with initial maturities of less than three months to be cash equivalents
in its statement of cash flows.

Financial Instruments: The Company records all financial instruments at
cost. The fair values of accounts receivable and accounts payable
approximate cost.

Impairment of Assets: The Company has not elected early adoption of
Statement of Financial Accounting Standard No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS 121 becomes effective beginning with the
Company's first quarter of 1996. The Company does not believe that the
adoption of SFAS 121 will have a material effect on the Company's
financial position or results of operations.

Stock Based Compensation: The Company has not elected early adoption of
Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." SFAS 123 becomes effective
beginning with the Company's first quarter of 1996 and will not have a
material effect on the Company's financial position or results of
operations. Upon adoption of SFAS 123, the Company will continue to
measure compensation plans using the intrinsic value method prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees" and
will provide pro forma disclosures of net income and earnings per share
as if the fair value-based method prescribed by SFAS 123 had been
applied in measuring compensation expense.

Reclassifications: The accompanying consolidated financial statements
include reclassifications from financial statements issued in previous
years.

NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable balances were as follows (in thousands):

January 28, February 3,
1995 1996
------------- ---------------
Gross customer accounts receivable ...... $ 210,941 $ 228,354
Accounts receivable sold ................ (140,000) (165,000)
Other receivables ....................... 2,647 5,146
----------- -------------
73,588 68,500
Less--allowance for doubtful accounts ... (3,232) (2,760)
----------- -------------
$ 70,356 $ 65,740
=========== =============

During 1993, the Company implemented an accounts receivable
securitization program (the "Accounts Receivable Program") which provides a
source of funds from the sale of accounts receivable to a master trust (the
"Trust"). Pursuant to the Accounts Receivable Program, the Company sells all of
the accounts receivable generated by the holders of the Company's private label
credit card accounts to its wholly-owned subsidiary, SRI Receivables Purchase
Co., Inc. ("SRPC"), on a daily basis. SRPC is a separate limited-purpose
subsidiary that is operated in a fashion intended to ensure that its assets and
liabilities are distinct from those of the Company and its other affiliates as
SRPC's creditors have a claim on its assets prior to becoming available to any
creditor of the Company. SRPC sells, on a daily basis, the accounts receivable
purchased from the Company to the Trust in exchange for cash or a certificate
representing an undivided interest in the Trust. The Trust currently has $165.0
million of term certificates and a $40.0 million revolving certificate
outstanding which represent undivided interests in the Trust. The holder of the
revolving certificate has agreed to purchase interests in the Trust equal to the
amount of accounts receivable in the Trust above the level required to support
the term certificates and the transferor's retained interest (currently $204.1
million), up to a maximum of $40.0 million. If receivable balances in the Trust
fall below the level required

F-15
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

to support the term certificates and revolving certificates, certain principal
collections may be retained in the Trust until such time as the receivable
balances exceed the certificates then outstanding and the required transferor's
interest. The Company owns an undivided interest in the accounts receivable in
the Trust not represented by the term or revolving certificates and continues to
service all of the accounts receivable in the Trust. The Trust may issue
additional series of certificates from time to time. Terms of any future series
will be determined at the time of issuance. The outstanding balances of the term
certificates totaled $140.0 million and $165.0 at January 28, 1995 and February
3, 1996, respectively. There was no portion of the revolving certificate
outstanding at January 28, 1995 and February 3, 1996.

Total accounts receivable sold to the Trust during 1993, 1994 and 1995 were
$285.1 million, $278.6 million and $306.8 million, respectively. The cash flows
generated from the accounts receivable in the Trust are dedicated to (i) the
purchase of new accounts receivable generated by the Company, (ii) payment of a
return on the certificates and (iii) the payment of a servicing fee to SRI. Any
remaining cash flows are remitted to the Company. The term certificates entitle
the holders to receive a return, based upon the London Interbank Offered Rate
("LIBOR"), plus a specified margin paid on a quarterly basis. Principal payments
commence in December 31, 1999 but can be accelerated upon occurrence of certain
events. The revolving certificate entitles the holder to receive a return based
upon a floating LIBOR rate, plus a specified margin, or prime rate, at the
option of the Company paid on a monthly basis. The Company is currently
protected against increases above 12% under an agreement entered into with a
bank. The Company is exposed to loss in the event of non-performance by the
bank. However, the Company does not anticipate non-performance by the bank. At
February 3, 1996, the average rate of return on the term certificates was 6.8%.
The purchase commitment for the Revolving certificate is five years, subject to
renewal at the option of the parties. The revolving certificate holders are
entitled to repayment in the event the accounts receivable decrease below that
required to support such certificates.

Subsequent to the implementation of the Accounts Receivable Program in 1993,
the Company's financial statements do not reflect accounts receivable, finance
charge income, bad debt expense or servicing costs attributable to the Trust
accounts receivable supporting the outstanding term or revolving certificates.
The Company recognized an initial gain of $2.7 million on the sale of accounts
receivable during 1993 which was reflected as a reduction of selling, general
and administrative expenses. Subsequent gains on the sale of accounts receivable
were not material.

The provision for doubtful accounts was $6.6 million, $2.6 million and $3.8
million for 1993, 1994 and 1995, respectively. The provision for doubtful
accounts does not reflect the Company's recourse obligations under the Accounts
Receivable Program which have been included in the calculation of the gain on
the sale of accounts receivable.

NOTE 3 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements were as follows (in
thousands):

January 28, February 3,
1995 1996
------------- ---------------
Land ................................ $ 3,074 $ 3,074
Buildings ........................... 16,313 16,313
Fixtures and equipment .............. 72,624 88,794
Leasehold improvements .............. 37,542 49,290
----------- -------------
129,553 157,471
Less--accumulated depreciation ...... (53,951) (64,353)
----------- -------------
$ 75,602 $ 93,118
=========== =============

Depreciation expense was $8.3 million, $8.5 million and $10.8 million for
1993, 1994 and 1995, respectively.(4) STORE CLOSURES(4) STORE CLOSURES
(Continued)

F-16
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

NOTE 4 - STORE CLOSURES

During 1994, the Company approved a store closure plan (the "Store Closure
Plan") which provided for the closure of forty Fashion Bar stores. These stores
were primarily located in major regional malls within the Denver area.
Management determined that the merchandising strategy and market positions of
such stores were not compatible with the Company's overall merchandising
philosophies or growth strategy. The Company accrued $5.2 million for the
expected costs associated with the Store Closure Plan which include: occupancy
($4.2 million); severance ($0.4 million); write-off of fixed assets and other
intangibles ($0.9 million); other expenses ($0.8 million) and the write-off of
negative goodwill ($1.1 million) allocated to the stores to be closed. The
Company substantially completed the Store Closure Plan during 1995. At January
28, 1995 and February 3, 1996, the balance of the Store Closure Plan accrual was
$4.8 million and $1.0 million, respectively, primarily reflecting the lease
costs associated with closed stores. During 1995, the Company charged $3.8
million to the accrual.

Net sales and operating income attributable to the stores closed were
as follows (in thousands):
Fiscal Year
-------------------------
1993 1994 1995
------ ------ -----
Net sales .................. $25,442 $23,174 $605
======= ======= ====
Operating income (loss) .... $ (213) $ 618 $ 32
======== ======= ====

At the date of the acquisition of Bealls, the Company undertook a
centralization and consolidation program which included the expected closure of
twenty-six store locations (the "Store Closure Program") and certain operating
facilities, as well as the consolidation of certain duplicate administrative and
distribution functions. At January 30, 1993, twenty-one stores remained in the
Store Closure Program, sixteen of which had been closed. During 1993, based on
the Company's ongoing assessment of scheduled store closures, the remaining five
open stores were removed from the Store Closure Program. As a result of the
removal of these five stores from the Store Closure Program, the Company reduced
its consolidation and centralization accrual by $2.3 million. Of this amount,
$1.1 million, before applicable taxes, was credited to goodwill and the
remaining $1.2 million credited to long-term liabilities to reflect the ongoing
adverse lease commitments associated with the removed stores. At January 28,
1995 and February 3, 1996, the balance of the consolidation and centralization
accrual was $4.7 million and $4.1 million, respectively, primarily reflecting
the lease costs associated with closed stores. During 1993, 1994 and 1995, the
Company charged $0.8 million, $0.7 million and $0.6 million, respectively, to
the accrual.

NOTE 5 - LONG-TERM DEBT

Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
----------------- ----------------
<S> <C> <C>
Held by third parties:
SRI Senior Notes .............................................. $ 90,800 $ 85,800
SRI Senior Subordinated Notes, net of discount ................ 100,000 116,530
Revolving Credit Agreement .................................... -- --
Bealls Holding Subordinated Notes, net of discount ............ 10,686 11,319
FB Holdings Subordinated Notes, net of discount ............... 3,939 4,125
Bealls Holding Junior Subordinated Debentures, net of discount 6,095 6,221
Port Arthur IDRB .............................................. 2,117 2,002
Stage Stores Senior Discount Debentures, net of discount ...... 96,748 109,817
Other long term debt .......................................... 451 301
--------------- ---------------
310,836 336,115
Less--current maturities ...................................... (261) (276)
--------------- ---------------
$310,575 $335,839
=============== ===============
Held by related party:
SRI Senior Notes .............................................. $ 39,200 $ 44,200
=============== ===============
</TABLE>

F-17
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

During 1993, the Company completed its refinancing (the "Refinancing") which
included (i) the replacement of SRI's existing accounts receivable facility with
the Accounts Receivable Program and (ii) the issuance of SRI 10% Senior Notes
Due 2000 (the "SRI Senior Notes") and SRI 11% Series B Senior Subordinated Notes
Due 2003 (the "SRI Series B Senior Subordinated Notes"). The proceeds from the
Refinancing were used primarily to replace certain previously outstanding debt.
As a result of the Refinancing, the Company recorded an extraordinary charge of
$16.2 million net of applicable income taxes of $8.8 million during 1993.

Concurrent with the Refinancing, the Company completed its distribution plan
which included the issuance of $149.1 million principal amount of 12 3/4% Senior
Discount Debentures Due 2005 (the "Stage Stores Senior Discount Debentures");
the proceeds of which were used primarily to make a distribution to the
shareholders of Stage Stores.

The SRI Senior Notes were originally issued with a principal amount of
$150.0 million and bear interest at 10% payable semi-annually on February 15 and
August 15. The Company is required to make a mandatory sinking fund payment on
August 15, 1999 equal to twenty five percent of the original principal amount.
The Company has purchased $20.0 million of the SRI Senior Notes which satisfied
a portion of the August 15, 1999 sinking fund requirement. The SRI Senior Notes
are general unsecured obligations and rank senior to all subordinated debt of
the Company including the SRI Senior Subordinated Notes.

The SRI Series B Senior Subordinated Notes were originally issued with a
principal amount of $100.0 million and bear interest at 11% payable
semi-annually on February 15 and August 15. SRI is required to make a mandatory
sinking fund payment on August 15, 2002 equal to forty percent of the original
principal amount. The SRI Series B Senior Subordinated Notes are subordinated to
the obligations under the SRI Senior Notes.

During 1995, SRI issued $18.3 million in aggregate principal amount of SRI
11% Series D Senior Subordinated Notes Due 2003 (the "SRI Series D Senior
Subordinated Notes"). The SRI Series D Senior Subordinated Notes were issued at
a discount of $1.8 million and bear interest at 11% payable semi-annually on
February 15 and August 15 of each year. The original issue discount is being
charged to interest expense over the term to maturity using the effective
interest method. The combination of coupon interest payments and original issue
discount results in an effective interest rate of 13.0%. SRI is required to make
a mandatory sinking fund payment on September 15, 2002 equal to forty percent of
the original aggregate principal amount of the SRI Series D Senior Subordinated
Notes. The SRI Series D Senior Subordinated Notes rank pari passu with the
existing SRI Series B Senior Subordinated Notes (collectively, the "SRI Senior
Subordinated Notes").

The SRI Senior Notes and SRI Senior Subordinated Notes contain restrictive
covenants which, among other things (i) limit SRI's ability to sell certain
assets, pay dividends, retire its common stock or retire certain debt, (ii)
limit its ability to incur additional debt or issue stock and (iii) limit
certain related party transactions.

SRI has a revolving credit agreement with a bank (the "Credit Agreement")
under which it may draw up to $25.0 million. Of this amount, up to $15.0 million
may be used to support letters of credit. As of February 3, 1996, $8.4 million
of the total commitment was used to collateralize letters of credit resulting in
available funds of $16.6 million. The Company also has a separate agreement with
the bank under which it may borrow an additional $10.0 million for seasonal
working capital needs (the "Seasonal Credit Agreement" and together with the
Credit Agreement, the "Revolving Credit Agreement"). Funds are available under
the Seasonal Credit Agreement from August 15 through January 15 of each calendar
year (the "Seasonal Period"). The Revolving Credit Agreement is available
through February 3, 1998 and provides for a commitment fee of 1/2 of 1% of the
average daily unused portion of the commitment amount paid on a quarterly basis.
Interest is charged on outstanding loans at a base rate plus a specified margin.
The base rate is the higher of the bank's prime rate or 1/2 of 1% above the
Federal Funds Effective Rate. The specified margin range is 1.25% to 2.75% based
on calculated debt service ratios as defined in the agreement. During 1995, the
availability under the Credit Agreement was never less than $4.5 million. During
the Seasonal Period, the availability under the Revolving Credit Agreement was
never less than $11.5 million. The Revolving Credit Agreement contains covenants
which, among other things, restricts the (i) incurrence of additional

F-18
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

debt, (ii) purchase of certain investments, (iii) payment of dividends, (iv)
formation of certain business combinations, (v) disposition of certain assets,
(vi) acquisition of subordinated debt, (vii) use of proceeds received under the
agreement, (viii) aggregate amount of capital expenditures (including any
expenditures made in connection with any permitted acquisitions) to $31.0
million during 1995 and (iv) certain transactions with related parties. The
Revolving Credit Agreement also requires that SRI maintain a debt service ratio
above a predetermined level. The Revolving Credit Agreement is secured by SRI's
distribution center located in Jacksonville, Texas, including equipment located
therein, a pledge of SRPC stock and a pledge of the Company's trademarks. The
net book value of the distribution center was approximately $10.7 million at
February 3, 1996.

The increasing rate Bealls Holding, Inc. ("Bealls Holding") Subordinated
Debentures Due 2002 (the "Bealls Holding Subordinated Debentures") in aggregate
principal amount of approximately $15.0 million bear interest at 10% through
1994, 11% in 1995 and 12% thereafter until maturity. Interest is payable
semi-annually on June 30 and December 31. Original issue discount of $7.3
million is being charged to interest expense over the term to maturity using the
effective interest method. The combination of coupon interest payments and
original issue discount results in an effective interest rate of 20.9%. The
Bealls Holding Subordinated Debentures may be prepaid, at the Company's option,
at their face value. The Company is required to redeem the Bealls Holding
Subordinated Debentures beginning no later than December 31, 1997, in no more
than six equal annual installments. The Bealls Holding Subordinated Debentures
are subordinated to all debt except the Stage Stores Senior Discount Debentures.
SRI is the primary obligor under these debentures.

In connection with the acquisition of Fashion Bar, FB Holdings, Inc. ("FB
Holdings") issued approximately $3.6 million aggregate principal amount of 7% FB
Holdings Subordinated Notes Due 2000 ("FB Holdings Subordinated Notes") to
former stockholders of Fashion Bar. The FB Holdings Subordinated Notes were
recorded at their estimated fair value at issuance date of $3.1 million. The
difference between the estimated fair value and principal amount of $0.5 million
is being charged to interest expense over the term to maturity using the
effective interest method. The FB Holdings Subordinated Notes are due in two
equal installments on June 30, 1999 and 2000. The FB Holdings Subordinated Notes
may be prepaid at any time in whole or in part at SRI's option. The FB Holdings
Subordinated Notes bear interest at 7% per annum, payable quarterly. The
combination of coupon interest payments and original issue discount results in
an effective interest rate of 9.0%. Prior to and including June 1995, SRI paid
interest in the form of additional FB Holdings Subordinated Notes; thereafter,
interest is being paid in cash. The principal amount of FB Holdings Subordinated
Notes at February 3, 1996 was $4.4 million. The FB Holdings Subordinated Notes
are subordinated to all debt except the Stage Stores Senior Discount Debentures.
SRI is the primary obligor under these debentures.

In connection with the acquisition of Bealls, Bealls Holding issued the 7%
Bealls Holding Junior Subordinated Debentures Due 2003 ("Bealls Holding Junior
Subordinated Debentures") at a face value of approximately $12.5 million, net of
discount of approximately $8.4 million. Such discount is being charged to
interest expense over the term to maturity using the effective interest method.
The Bealls Holding Junior Subordinated Debentures are limited to an aggregate
principal amount of approximately $18.3 million. Interest is payable
semi-annually on June 30 and December 31. The combination of coupon interest
payments and original issue discount results in an effective interest rate of
39.4%. The principal amount of Bealls Holding Junior Subordinated Debentures
outstanding at February 3, 1996 was $14.3 million. The Bealls Holding Junior
Subordinated Debentures are subordinated to all debt except the Stage Stores
Senior Discount Debentures. SRI is the primary obligor under these debentures.

The Port Arthur Industrial Development Revenue Bond (the "Port Arthur IDRB")
bears interest at 75% of the prime rate payable monthly. The interest rate
applicable to the Port Arthur IDRB at February 3, 1996 was 6.6%. The Port Arthur
IDRB is collateralized by a building with a net book value of approximately $1.7
million. Under a separate agreement, SRI is required to make scheduled annual
sinking fund payments ranging from $0.1 million to $0.2 million.

The Stage Stores Senior Discount Debentures were issued with a principal
amount of approximately $149.1 million. The debentures were sold at a discount
of approximately $69.1 million. Substantially all of the net proceeds

F-19
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

from the Stage Stores Senior Discount Debentures were used to make cash payments
to the holders of Stage Stores common stock equal to $5.85 per share. Interest
begins to accrue in August 1998 and is payable semi-annually on February 15 and
August 15 commencing February 15, 1999. The discount is being charged to
interest expense over the term to maturity using the effective interest method
which, together with the coupon interest, results in a 12.74% effective interest
rate. The Stage Stores Senior Discount Debentures contain restrictions which,
among other things, limits (i) the payment of dividends, (ii) the repurchase of
stock and subordinated debt, (iii) the acquisition of additional debt or the
creation of certain liens, (iv) disposition of certain assets and (v) certain
related party and intercompany transactions. The Stage Stores Senior Discount
Debentures are secured by all of the issued and outstanding common stock of SRI
and is subordinated to all debt.

Aggregate maturities of long-term debt for the next five years are:
1996--$0.3 million; 1997--$2.1 million; 1998--$2.1 million; 1999--$21.7 million
and 2000--$116.6 million.

Management estimates the fair value of its long-term debt to be $325.7
million and $352.3 million at January 28, 1995 and February 3, 1996,
respectively. In developing its estimates, management considered quoted market
prices for each instrument, if available, current market interest rates in
relation to the coupon interest rates of each instrument, the relative
subordination of each instrument and the relative liquidity of the instrument as
indicated by the presence or lack of an active market.

NOTE 6 - MANDATORILY REDEEMABLE PREFERRED STOCK

In connection with the Refinancing in 1993 (see Note 5), the Company
redeemed all of the outstanding shares of its 15% cumulative senior redeemable
preferred stock and 14% cumulative junior redeemable preferred stock (8,080 and
2,000 shares, respectively) at the aggregate of their liquidation value plus
accrued and unpaid dividends amounting to $16.0 million and $3.8 million,
respectively.

NOTE 7 - STOCK OPTION PLAN

During 1993, the Company adopted the Third Amended and Restated Stock Option
Plan (the "Stock Option Plan") which was designed to provide incentives to
present and future key employees and advisors to the Company (the
"Participants") as selected by the compensation committee of the Board of
Directors (the "Board"). Options to purchase shares of the Company's common
stock may be granted to any Participant at any time, at such price and on such
terms as established by the Board. Options granted under the Stock Option Plan
may be either non- qualified or incentive stock options ("ISOs") within the
meaning of Section 422A of the Internal Revenue Code or in a form consistent
with the Stock Option Plan as the Board may determine. All outstanding options
are non- qualified.

The number of shares of common stock which may be granted under the Stock
Option Plan shall not exceed 2,000,000 shares. All Options issued as ISOs under
the Stock Option Plan are required to (i) have an exercise price not less than
100% of the fair value of the common stock at the date of grant, (ii) not be
exercisable more than 10 years after grant date, (iii) be nontransferable and
(iv) be exercisable only during the holder's employment by the Company or a
period not exceeding three months following termination thereof. Options which
are not ISOs may provide that the holder receive cash equal to the excess of the
fair market value per share of common stock at the exercise date over the
exercise price per share, in lieu of issuance of common stock upon exercise of
the option. Upon termination of the Participant's employment with the Company,
the Company may, at its option, repurchase any vested common stock obtained
under the Stock Option Plan at the fair market value of the common stock. Any
unvested common stock obtained under the Stock Option Plan may be repurchased at
the Company's option, at the original issuance cost of the common stock. The
Stock Option Plan also provides that the Company may sell to any Participant
shares of common stock or preferred stock consistent with the Plan and at the
discretion of the Board.

During 1993, all of SRI's options with an exercise price of $0.10 were
exercised. Additionally, the Board granted active Participants who exercised
such options one Stage Stores option with an exercise price of $2.15

F-20
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

for every ten SRI options exercised. All of SRI's options with an exercise price
of $5.00 remained outstanding and were exchanged for Stage Stores options with
an exercise price of $0.10 and the right to receive a distribution of $0.95 per
option which will be paid as the options vest. This distribution is being
recognized as compensation expense over the vesting period.

The range of prices for options exercised during 1995 was $0.10 to $2.15 per
share. The range of prices for options outstanding at the end of 1995 was $0.10
to $5.00 per share.

A summary of the activity in the Stock Option Plan follows:
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1993 1994 1995
-------- ------- ----------
<S> <C> <C> <C>
Options outstanding at beginning of year ..... 863,625 571,082 743,012
Granted ..................................... 457,227 197,050 431,880
Surrendered ................................. (13,045) (22,240) (7,849)
Exercised ................................... (736,725) (2,880) (105,551)
--------- -------- ---------
Options outstanding at end of year ........... 571,082 743,012 1,061,492
========= ======== ==========
Options vested at end of year ................ -- 130,570 254,790
========= ======== ==========
Options exercisable at end of year ........... -- 130,570 254,790
========= ======== ==========
</TABLE>

NOTE 8 - EMPLOYEE BENEFIT PLANS

Pension benefits for employees are provided under the SRI Retirement Plan
(the "Plan"), a qualified benefit plan. Benefits are administered through a
Trust arrangement which provides monthly payments or lump sum distributions. The
Plan covers substantially all employees who have completed one year of service
with one thousand hours of service. Benefits under the plan are based upon a
percentage of the participant's earnings during each year of credited service.

The following sets forth the funded status of the Plan and the amounts
recognized in the consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
------------------ --------------------
<S> <C> <C>
Actuarial present value of benefits:
Vested benefit obligations ..................................... $(18,590) $(24,680)
================= ==================
Accumulated benefit obligations ................................ $(19,630) $(25,790)
================= ==================
Projected benefit obligations ................................... $(24,530) $(32,240)
Market value of Plan assets, primarily fixed income and equity
securities ..................................................... 16,320 20,000
----------------- ------------------
Pension obligations in excess of assets ......................... (8,210) (12,240)
Unrecognized prior service income ............................... (34) (28)
Unrecognized net loss ........................................... 6,078 10,948
Adjustment required to recognize minimum liability .............. (1,144) (4,470)
----------------- ------------------
Accrued pension cost ............................................ $ (3,310) $ (5,790)
================= ==================
Assumptions utilized in determining projected obligations and funding amounts:
Discount rate ................................................... 8.75% 7.00%
Rate of increase in compensation levels ......................... 4.00% 4.00%
Expected long-term rate of return on Plan assets ................ 9.00% 9.00%
</TABLE>

The Company's funding policy for the Plan is to contribute the minimum
amount required by applicable regulations. During 1993, 1994 and 1995, in
accordance with Statement of Financial Accounting Standards No.

F-21
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

87, the Company recorded adjustments of $1.1 million, $0.2 million and $3.2
million to recognize the excess of the accumulated benefit obligation over the
market value of the Plan assets, respectively. Accordingly, the Company recorded
a charge to retained earnings of $0.6 million, $0.1 million and $2.1 million,
net of applicable tax and unrecognized prior service cost, for 1993, 1994 and
1995, respectively.

The components of pension cost for the Plan were as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year
----------------------------
1993 1994 1995
------ ------ --------
<S> <C> <C> <C>
Service cost .......................... $ 743 $ 887 $ 771
Interest cost ......................... 1,861 1,995 2,139
Actual loss (return) on Plan assets ... (1,955) 940 (3,377)
Net amortization and deferral ......... 409 (2,174) 2,292
------- ------- --------
$ 1,058 $ 1,648 $ 1,825
======= ======= ========
</TABLE>

Prior to its acquisition, Beall Brothers, Inc. sponsored an unfunded,
nonqualified Benefit Restoration Plan which provided certain key executives
defined pension benefits in excess of limits imposed by federal tax law. In
February 1989, this plan was terminated. The recorded liability for this plan
was $1.3 million at February 3, 1996.

NOTE 9 - OPERATING LEASES

The Company leases stores, service center facilities, the corporate
headquarters and equipment under operating leases. A number of store leases
provide for escalating minimum rent. Rental expense is recognized on a
straight-line basis over the life of such leases. The majority of the Company's
store leases provide for contingent rentals, generally based upon a percentage
of gross sales. The Company has renewal options for most of its store leases;
such leases generally require that the Company pay for utilities, taxes and
maintenance expense. A summary of rental expense associated with operating
leases follows (in thousands):

Fiscal Year
----------------------------
1993 1994 1995
------ ------ --------

Minimum rentals ....... $22,319 $22,979 $26,943
Contingent rentals .... 2,818 2,874 2,618
Equipment rentals ..... 1,273 784 593
------- ------- --------
$26,410 $26,637 $30,154
======= ======= ========

Minimum rental commitments on long-term operating leases at February 3,
1996, net of sub-leases, are as follows (in thousands):

Fiscal Year:
1996 ........................... $ 28,307
1997 ........................... 27,028
1998 ........................... 25,146
1999 ........................... 23,527
2000 ........................... 20,233
Thereafter ..................... 84,999
--------
$209,240
========

The Company's corporate headquarters and six Palais Royal stores are leased
from a partnership in which a Company director is a general partner. The lease
relating to the corporate headquarters is for a term of fifty years expiring in
2032 and includes an established minimum annual rate adjusted every three years
for changes in the Consumer Price Index. Three of the Palais Royal store leases
are for terms of twenty years expiring between 1999 and 2000. The remaining
three store leases are for terms of twenty-five years expiring between 2005 and
2010.

F-22
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

All of the store leases provide options to extend the term of the lease and for
contingent rentals based on a percentage of gross sales. The Company recognized
rental expense of $1.9 million, $2.0 million and $2.1 during 1993, 1994 and
1995, respectively, for all such leases. Future minimum lease payments total
$44.7 million, $9.6 million of which is payable over the next five fiscal years
for all such leases. The Company believes that the terms of all such leases are
comparable to leases with unaffiliated third parties covering similar
properties.

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company's corporate headquarters and six Palais Royal stores are leased
from a partnership in which a Company officer is a general partner (see Note 9).

An affiliate of a principal shareholder of the Company received fees for
professional services rendered and expense reimbursements in the amounts of $1.5
million, $0.6 million and $0.8 million for 1993, 1994 and 1995, respectively.

During 1993, the Company entered into an employment agreement with the
President and Chief Executive Officer of the Company. As part of this agreement,
the Company agreed to purchase his former residence for subsequent resale for
$1.2 million and loaned $0.3 million to him. Such loan is due October 2, 1996,
subject to extension, and bears a market rate of interest.

NOTE 11 - INCOME TAXES

All Company operations are domestic. Income tax expense charged to
continuing operations consisted of the following (in thousands):

Fiscal Year
----------------------------
1993 1994 1995
------ ------ --------

Federal income tax expense (benefit):
Current .................................. $ 9,989 $ 7,154 $ 9,772
Deferred ................................. (2,362) (3,794) (3,630)
------- ------- --------
7,627 3,360 6,142
------- ------- --------
State income tax expense (benefit):
Current .................................. 1,250 771 1,060
Deferred ................................. (1,308) 186 (435)
------- ------- --------
(58) 957 625
------- ------- --------
$ 7,569 $ 4,317 $ 6,767
======= ======= ========

A reconciliation between the federal income tax expense charged to
continuing operations computed at statutory tax rates and the actual income tax
expense recorded follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year
-------------------------
1993 1994 1995
----- ----- -------
<S> <C> <C> <C>
Federal income tax expense at the statutory rate ... $7,348 $3,831 $6,124
State income taxes, net ............................ 125 797 406
Permanent differences, net ......................... 58 (311) 290
Other, net ......................................... 38 -- (53)
------ ------ -------
$7,569 $4,317 $6,767
====== ====== =======
</TABLE>

The 1993 income tax benefit relating to the extraordinary item of $8.8
million (see Note 5) is comprised of current federal tax benefit ($7.4 million),
deferred federal tax benefit ($1.3 million) and state tax benefit ($0.1
million). The 1994 income tax benefit relating to the extraordinary item
associated with the retirement of the SRI Senior Notes (see Note 5) is comprised
of $0.2 million current federal tax benefit.

F-23
<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Notes to Consolidated Financial Statements (Continued)

Deferred tax liabilities (assets) consist of the following (in thousands):

<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
---------------- ------------------
<S> <C> <C>
Gross deferred tax liabilities:
Depreciation and amortization ............ $ 8,303 $ 7,485
Inventory reserves ....................... 3,175 1,406
Gain on sale of accounts receivable ...... 822 800
Other .................................... 1,310 1,435
-------------- ----------------
13,610 11,126
-------------- ----------------
Gross deferred tax assets: .................
Allowance for doubtful accounts .......... (3,174) (3,302)
Accrued consolidation costs .............. (1,968) (1,478)
Net operating loss carryforwards ......... -- (82)
Original issue discount .................. (5,640) (10,042)
Accrued expenses ......................... (1,518) (990)
Prepaid expenses ......................... -- --
Pensions ................................. (1,404) (2,686)
Escalating leases ........................ (962) (962)
Charitable contribution carryforward ..... (620) (113)
Accrued payroll costs .................... (1,196) (884)
Accrued store closure costs .............. (2,085) (558)
Other .................................... (975) (780)
-------------- ----------------
(19,542) (21,877)
-------------- ----------------
Deferred tax assets valuation allowance .... -- --
-------------- ----------------
$ (5,932) $(10,751)
============== ================
</TABLE>

The utilization of any carryforwards which originated prior to the Company's
acquisition of Bealls or Fashion Bar are recorded as an adjustment to goodwill
or other intangibles associated with the respective acquisition.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Litigation: The Company is subject to claims and litigation arising in the
normal course of its business. The Company does not believe that any of
these proceedings will have a material adverse effect on its financial
position, its results of operations or its cash flows.

Letters of Credit: The Company issues letters of credit to support certain
merchandise purchases which are required to be collateralized. The
Company had outstanding letters of credit totaling $8.4 million at
February 3, 1996, all of which were collateralized by the Revolving
Credit Agreement (see Note 5). These letters of credit expire within
twelve months of issuance.

Concentration of Credit Risk: Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily cash,
short-term investments and accounts receivable. The Company's cash
management and investment policies restrict investments to low risk,
highly-liquid securities and the Company performs periodic evaluations
of the relative credit standing of the financial institutions with which
it deals. The credit risk associated with the Company's accounts
receivable is limited by the large number of customers in the Company's
customer base. Substantially all of the Company's customers reside in
the central United States.

F-24
<PAGE>
Uhlmans Inc.

Balance Sheets
(Unaudited)

<TABLE>
<CAPTION>
April 29, May 4,
1995 1996
---------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 830,316 $ 1,053,553
Trade accounts receivable, less $149,500 allowance for
doubtful accounts 5,776,395 5,519,214
Merchandise inventories 13,230,462 13,153,610
Prepaid expenses 201,863 250,871
----------- ------------
Total current assets 20,039,036 19,977,248
Other assets 219,380 188,567
Leasehold improvements and equipment:
Leasehold improvements 7,458,237 7,009,412
Furniture and fixtures 4,340,333 4,344,279
Transportation equipment 60,762 68,148
----------- ------------
11,859,332 11,421,839
Less allowances for depreciation and amortization 7,408,941 7,438,884
----------- ------------
4,450,391 3,982,955
----------- ------------
$24,708,807 $24,148,770
=========== ============
Liabilities And Stockholders' Equity
Current liabilities:
Trade accounts payable $ 4,684,714 $ 3,856,710
Accrued expenses 291,665 331,816
Compensation and payroll taxes 653,782 606,710
State and local taxes 356,126 460,792
Interest 264,911 101,325
Current maturities of long-term liabilities 918,656 856,971
----------- -------------
Total current liabilities 7,169,854 6,214,324
Long-term liabilities, less current maturities:
Notes payable including notes payable to stockholders
and former stockholders 14,810,279 14,868,909
Obligations under deferred compensation arrangements 250,348 196,636
Pension 110,089 147,875
----------- -------------
15,170,716 15,213,420
Deferred credit 5,133 --
Stockholders' equity:
Common stock, no par value:
Authorized--150,000 shares
Outstanding--8,271 shares after deducting 86,069
treasury shares, at stated value 82,710 82,710
Retained earnings 2,280,394 2,691,833
Reduction for minimum pension liability -- (53,517)
----------- ------------
2,363,104 2,721,026
$24,708,807 $24,148,770
=========== ============
</TABLE>

See accompanying notes.

F-25
<PAGE>

Uhlmans Inc.

Statements of Operations
(Unaudited)

<TABLE>
<CAPTION>
Period from
February 1,
1995 Period from
through February 4,
April 29, 1996 through
1995 May 4, 1996
----------- -------------
<S> <C> <C>
Net merchandise sales ....................................... $ 12,068,499 $12,146,694
Cost of sales and related buying, occupancy, and distribution
expenses .................................................. (10,002,967) (9,855,730)
------------- ------------
Gross profit ................................................ 2,065,532 2,290,964
Selling, general and administrative expenses ................ (2,982,742) (2,751,640)
Service charge income ....................................... 222,124 204,128
------------ ------------
Operating loss .............................................. (695,086) (256,548)
Interest expense ............................................ (330,000) (357,062)
------------- -------------
Net loss .................................................... $ (1,025,086) $ (613,610)
============ =============
</TABLE>

See accompanying notes.

F-26
<PAGE>
Uhlmans Inc.

Statements of Cash Flows
(Unaudited)

<TABLE>
<CAPTION>
Period from Period from
February 1, February 4, 1996
1995 through through May 4,
April 29, 1995 1996
--------------- ----------------
<S> <C> <C>
Operating activities
Net loss .......................................... $(1,025,086) $ (613,610)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation .................................... 218,145 221,955
Provision for bad debts ......................... 49,500 49,500
Changes in operating assets and liabilities: ....
Trade accounts receivable ....................... 791,681 547,214
Merchandise inventories ......................... (2,308,468) (1,858,144)
Prepaid expenses and other assets ............... (54,568) (50,208)
Trade accounts payable and accrued expenses ..... 1,521,671 917,315
Obligations under deferred compensation
arrangements .................................. -- 10,000
------------- ---------------
Net cash used in operating activities ........ (807,125) (775,978)
Net cash used in investing activities--purchase of
leasehold improvements and equipment .............. (277,448) (50,667)

Financing activities
Payments on notes payable ......................... (9,661) (67,625)
Net borrowings on revolving line of credit ........ 1,000,000 1,100,000
------------- ---------------
Net cash provided by financing activities ...... 990,339 1,032,375
------------- ---------------
Increase (decrease) in cash ....................... (94,234) 205,730
Cash at beginning of period ....................... 924,550 847,823
------------- ---------------
Cash at end of period ............................. $ 830,316 $ 1,053,553
============= ===============
</TABLE>

See accompanying notes.

F-27
<PAGE>
Uhlmans Inc.

Notes to Financial Statements
(Unaudited)
May 4, 1996

(1) Basis of Presentation

The accompanying unaudited financial statements of Uhlmans Inc. (the
Company) have been prepared in accordance with Rule 10-01 of Regulation S-X and
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Those adjustments,
which include only normal recurring adjustments, that are, in the opinion of
management, necessary for a fair presentation of the results of the interim
periods have been made. The results of operations for such interim periods are
not necessarily indicative of results of operations for a full year. The
unaudited financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended February 3, 1996
included elsewhere in this prospectus.

(2) SALE OF COMPANY

On June 3, 1996, a wholly-owned subsidiary of Stage Stores, Inc. acquired
all of the outstanding shares of the Company's common stock for approximately
$12.0 million. In connection with the acquisition, Stage Stores, Inc. repaid all
of the Company's outstanding indebtedness.

F-28
<PAGE>

Report of Independent Auditors

Board of Directors
Uhlmans Inc.

We have audited the accompanying balance sheets of Uhlmans Inc. as of February
3, 1996 and January 31, 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended February 3, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Uhlmans Inc. at February 3,
1996 and January 31, 1995, and the results of its operations and its cash flows
for each of the three years in the period ended February 3, 1996 in conformity
with generally accepted accounting principles.

In fiscal 1996, as described in Note 6 to the financial statements, the
Company adopted the provisions of FASB Statement No. 106, "Employer's
Accounting for Retirement Benefits Other Than Pensions."

Ernst & Young LLP

Toledo, Ohio
March 22, 1996

F-29
<PAGE>

Uhlmans Inc.
Balance Sheets

<TABLE>
<CAPTION>
January 31, February 3,
1995 1996
-------------- ---------------
<S> <C> <C>
Assets
Current Assets:
Cash............................................................. $ 924,550 $ 847,823
Trade accounts receivable, less $100,000 allowance for doubtful
accounts....................................................... 6,617,576 6,115,928
Merchandise inventories.......................................... 10,921,994 11,295,466
Prepaid expenses................................................. 138,978 171,978
------------ --------------
Total current assets..................................... 18,603,098 18,431,195
Other assets..................................................... 227,697 217,252
Leasehold improvements and equipment:
Leasehold improvements........................................... 7,299,310 6,969,300
Furniture and fixtures........................................... 4,229,136 4,333,724
Transportation equipment......................................... 53,431 68,148
------------ -------------
11,581,877 11,371,172
Less allowances for depreciation and amortization. .............. 7,190,789 7,216,929
------------ --------------
4,391,088 4,154,243
------------ --------------
$23,221,883 $22,802,690
============ ==============
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable ......................................... $ 3,288,528 $ 2,939,965
Accrued expenses ............................................... 421,904 453,496
Compensation and payroll taxes ................................. 658,316 654,994
State and local taxes .......................................... 309,630 321,406
Interest ....................................................... 51,149 70,177
Current maturities of long-term liabilities .................... 876,292 924,595
Total current liabilities .................................. 5,605,819 5,364,633
Long-term liabilities, less current maturities:
Notes payable including notes payable to stockholders and
former stockholders (Note 2) .................................. 13,877,904 13,768,910
Obligations under deferred compensation arrangements ........... 234,748 186,636
Pension ........................................................ 110,089 147,875
14,222,741 14,103,421
Deferred credit ................................................ 5,133 --
Commitments and Contingencies .................................. -- --

Stockholders' equity (Note 3):
Common stock, no par value:
Authorized--150,000 shares
Outstanding--8,271 shares after deducting 86,069 treasury
shares, at stated value ...................................... 82,710 82,710
Retained earnings .............................................. 3,305,480 3,305,443
Reduction for minimum pension liability ........................ -- (53,517)
------------ --------------
3,388,190 3,334,636
------------ --------------
$23,221,883 $22,802,690
============ ==============
</TABLE>

See accompanying notes.

F-30
<PAGE>

Uhlmans Inc.

Statements of Income

<TABLE>
<CAPTION>
Period from
February 1,
1995 through
Year ended January 31, February 3,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
Net merchandise sales .......................................... $ 57,101,769 $ 60,212,662 $ 59,749,342
Cost of sales and related buying, occupancy, and distribution
expenses .................................................... (43,545,216) (46,559,601) (46,129,222)
--------- --------- -----------
Gross profit ................................................... 13,556,553 13,653,061 13,620,120
Selling, general and administrative expenses ................... (12,096,093) (11,883,614) (12,231,712)
Service charge income .......................................... 801,584 874,029 850,852
--------- --------- -----------
Operating income ............................................... 2,262,044 2,643,476 2,239,260
Interest expense ............................................... (1,168,260) (1,431,055) (1,636,673)
--------- --------- -----------
Net income ..................................................... $ 1,093,784 $ 1,212,421 $ 602,587
========= ========= ===========
</TABLE>

See accompanying notes.

F-31
<PAGE>
Uhlmans Inc.

Statements of Stockholders' Equity

<TABLE>
<CAPTION>
Common Stock
----------------------
Reduction
for Minimum
Stated Retained Pension
Shares Value Earnings Liability Total
------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances at February 1, 1993 .... 27,016 $ 270,160 $ 5,599,966 $ 5,870,126
Net income ..................... 1,093,784 1,093,784
Cash distributions to
stockholders ................. (360,394) (360,394)
Purchase of common stock for
treasury (Note 3) ............ (18,745) (187,450) (3,726,256) (3,913,706)
-------- ---------- ---------- ----------- ----------
Balances at February 1, 1994 .... 8,271 82,710 2,607,100 2,689,810
Net income ..................... 1,212,421 1,212,421
Cash distributions to
stockholders ................. (514,041) (514,041)
-------- --------- -------- ----------- ----------
Balances at January 31, 1995 .... 8,271 82,710 3,305,480 3,388,190
Net income ..................... 602,587 602,587
Cash distributions to
stockholders ................. (602,624) (602,624)
Reduction for minimum pension
liability (Note 5) ........... $(53,517) (53,517)
-------- --------- -------- ----------- ----------
Balances at February 3, 1996 .... 8,271 $ 82,710 $ 3,305,443 $(53,517) $ 3,334,636
======== =========== =========== =========== ==========
</TABLE>

See accompanying notes.

F-32
<PAGE>
Uhlmans Inc.

Statements of Cash Flows

<TABLE>
<CAPTION>
Period from
February 1,
1995 through
Year ended January 31, February 3,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C>
Operating activities
Net income ............................................... $ 1,093,784 $ 1,212,421 $ 602,587
Adjustments to reconcile net income to net cash provided
by operating activities: ..............................
Depreciation ........................................... 876,037 844,625 896,177
Provision for bad debts ................................ 143,996 135,647 131,678
Amortization of deferred credit ........................ (13,000) (13,000) (5,133)
Changes in operating assets and liabilities:
Trade accounts receivable ............................. (462,008) 75,559 369,722
Merchandise inventories ............................... (503,840) (717,111) (373,768)
Prepaid expenses and other assets ..................... (30,822) 43,116 51,881
Trade accounts payable and accrued expenses ........... 529,784 669,810 (258,588)
Pension obligations ................................... (51,320) 34,602 (108,138)
Obligations under deferred compensation
arrangements ....................................... 4,629 (30,659) (48,112)
Cash value of life insurance .......................... 65,413 (10,557) (12,386)
-------- -------- ----------
Net cash provided by operating activities ........... 1,652,653 2,244,453 1,245,920

Net cash used in investing activities--purchase of
leasehold improvements and equipment ................... (762,617) (860,912) (659,332)

Financing activities
Borrowings on notes payable .............................. 2,750,000 -- --
Payments on notes payable ................................ (617,158) (860,692) (960,691)
Distributions to stockholders ............................ (360,394) (514,041) (602,624)
Purchase of common stock ................................. (2,500,000) -- --
Net borrowings on revolving line of credit ............... -- -- 900,000
---------- -------- ----------
Net cash used in financing activities ................. (727,552) (1,374,733) (663,315)
---------- ---------- ----------
Increase (decrease) in cash .............................. 162,484 8,808 (76,727)
Cash at beginning of year ................................ 753,258 915,742 924,550
-------- -------- ----------
Cash at end of year ...................................... $ 915,742 $ 924,550 $ 847,823
=========== =========== ===========
</TABLE>

See accompanying notes.

F-33
<PAGE>

UHLMANS INC.
Notes to Financial Statements
February 3, 1996

(1) Significant Account Policies

Basis of Presentation

In fiscal 1996, the Company changed its fiscal year-end to a
fifty-two/fifty-three week year which ends on the Saturday closest to
January 31.

Description of Business

Uhlmans Inc. (the Company--formerly Fred W. Uhlman and Co.) operates 34
family apparel stores in Ohio, Michigan and Indiana.

Management 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.

Trade Accounts Receivable

Retail customer accounts receivable are charged-off in full if no payment
has been applied against the unpaid balance of the customer's account during the
last seven months of the fiscal year and no action has been taken by the
customer to repay the account. The allowance for doubtful accounts is based on
historical bad debt experience and an evaluation of the past-due status of the
accounts. The credit risk associated with the Company's accounts receivable is
limited by the large number of customers in the Company's customer base.
Substantially all of the Company's customers reside in Ohio, Indiana and
Michigan.

Advertising

The Company expenses the production costs of advertising as incurred.
Advertising expense for fiscal 1994, 1995 and 1996 was approximately $1,695,000,
$1,650,000 and $1,700,000, respectively. No advertising costs have been
capitalized by the Company.

Merchandise Inventories

Merchandise inventories are valued by use of the retail method and are
stated at the lower of cost or market using the first-in, first-out method.

Leasehold Improvements and Equipment

Leasehold improvements and equipment (including significant renewals and
betterments) are capitalized at cost. The Company provides for depreciation and
amortization by the straight-line method for financial-reporting purposes and by
accelerated methods for income-tax purposes. Leasehold improvements are
amortized over 10 years which approximates the lease terms. Equipment is
depreciated over its useful life (generally 5 to 10 years).

Income Taxes

Under an election privilege afforded by provisions of the Internal Revenue
Code, the Company has elected Subchapter S status for federal income tax
reporting. Accordingly, no provision has been made for federal income taxes as
the income of the Company is included in the stockholders' personal income tax
returns.

Financial Instruments

The Company records all financial instruments at cost. The fair value of
all financial instruments approximates cost.

F-34
<PAGE>

UHLMANS INC.
Notes to Financial Statements (Continued)

(1) SIGNIFICANT ACCOUNT POLICIES (Continued)

Impairment of Assets

The Company has not elected early adoption of Statement of Financial
Accounting Standard No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 becomes
effective beginning with the Company's first quarter of fiscal 1997. The Company
does not believe that the adoption of SFAS 121 will have a material effect on
the Company's financial position or results of operations.

(2) NOTES PAYABLE

The Company's lending agreement with banks (the agreement) provides for an
unsecured term note of $5,000,000 and an unsecured $12,000,000 revolving line of
credit (the revolver) (increasing to $14,500,000 during the period from
September 15 to December 15), and expires June 1, 1997.

Interest on the term note is at a base rate (8-1/4% at February 3, 1996)
fluctuating with prime plus 1/4%--21/2% dependent on the Company's financial
position. Interest on the revolver is at a base rate (6-3/4% at February 3,
1996) fluctuating with LIBOR plus 1-1/2%--3% dependent on the Company's
financial position. A commitment fee of 1/2% per annum is due on the unused
portion of the revolver.

The agreement requires the Company to maintain certain financial ratios and
net worth requirements. The agreement also limits annual stockholder
distributions to $40,000 plus an amount equivalent to income taxes that would
otherwise be payable. Provisions of the agreement were complied with during
fiscal 1994, 1995 and 1996.

Details of notes payable are as follows:

<TABLE>
<CAPTION>
January 31, 1995 February 3, 199S6
----------------- ------------------
<S> <C> <C>
Revolving line of credit with banks .............................. $ 9,500,000 $10,400,000
Term note payable to banks, due in semiannual installments of
$350,000 plus interest through January 1, 1999 .................. 3,950,000 3,150,000
Subordinated notes payable to stockholders ($677,014 in 1995 and
$597,366 in 1996) and to former stockholders, unsecured, due in
semiannual installments of $70,685 plus interest at 12% through
May 31, 1998 .................................................... 1,201,650 1,060,280
Other unsecured notes payable .................................... 86,946 67,625
14,738,596 14,677,905
Less current maturities .......................................... 860,692 908,995
Totals ........................................................... $13,877,904 $13,768,910
</TABLE>

The future maturities of long-term notes payable for fiscal years 1998
through 2000 are $11,241,371, $1,477,539 and $1,050,000, respectively.

Interest paid in fiscal 1994, 1995 and 1996 amounted to $1,253,904,
$1,463,607 and $1,617,645, respectively.

(3) COMMON STOCK

On November 25, 1986, the Company entered into a Stock Redemption and Share
Transfer Restriction Agreement (the Agreement) with certain stockholders of the
Company and redeemed 34,100 shares of common stock for $2,584,098. On July 19,
1993, the Company redeemed 18,745 shares of common stock not owned by management
for $3,913,706. The 1993 redemption was financed by an increase in the term note
with the banks of $2,500,000 and unsecured subordinated notes payable in the
amount of $1,413,706.

The Company has the option in the event of termination of employment to
purchase shares of the Company's common stock owned by the management group. The
price per share is the book value per share. The Company also has the obligation
to purchase the shares of the Company owned by the president of the Company in
the event

F-35
<PAGE>

UHLMANS INC.
Notes to Financial Statements (Continued)

(3) Common Stock (Continued)

of his death at 133% of book value per share at the end of the preceding
fiscal year. The Company carries life insurance on the life of the president
of the Company to fund the obligation.

(4) RENTAL EXPENSE

The Company leases all facilities and certain equipment under noncancellable
operating leases. Total rental expense amounted to $3,906,282, $3,747,293 and
$3,667,703 (including contingent rental expense of $213,390 $261,696 and
$230,738) for fiscal years 1994, 1995 and 1996, respectively, including
$767,899, $775,999 and $746,979 applicable to leases with related parties for
the same periods.

Future minimum rental commitments under noncancellable operating leases
with initial terms of more than one year are as follows:

Fiscal years:
1997 ................... $ 2,883,776
1998 ................... 2,475,548
1999 ................... 1,820,334
2000 ................... 1,474,366
2001 ................... 809,138
2002 and thereafter .... 2,218,049
Total .................. $11,681,211

Certain leases have provisions for additional contingent rentals based on
percentages of sales and contain options to renew for additional terms ranging
from one to twenty years.

(5) EMPLOYEE BENEFIT PLANS

The Company has a defined-benefit pension plan (the "Plan") covering the
majority of its employees. The benefits are primarily based on the employee's
compensation. The Company's funding policy is to contribute amounts to the Plan
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus additional amounts as the Company
may determine to be appropriate. Effective December 31, 1994, the Company
curtailed all future benefit accruals of participants in the Plan that resulted
in a gain of $39,244 which is included in the results of operations for the year
ended January 31, 1995.

The Company has recorded an additional minimum liability of $110,089 and
$147,875 as of January 31, 1995 and February 3, 1996, respectively, which
represent the amounts required to bring the Company's recorded pension asset
equal to the excess of the accumulated benefit obligation over plan assets.
Intangible assets (included in other assets) of $110,089 and $94,358 as of
January 31, 1995 and February 3, 1996, respectively, were recorded to the extent
of the unrecognized prior service costs and net transition obligation. The
difference between the additional minimum liability and intangible asset as of
February 3, 1996 was included as a reduction of shareholders' equity.

F-36
<PAGE>
UHLMANS INC.

Notes to Financial Statements (Continued)
(5) Employee Benefit Plans (Continued)

The following table sets forth the funded status and amounts recognized in
the Company's balance sheets for the Plan:

<TABLE>
<CAPTION>
January 31, 1995 February 3, 1996
----------------- ----------------
<S> <C> <C>
Projected benefit obligation (substantially all vested) ................ $1,547,517 $1,745,457
Plan assets at fair value, primarily invested in common trust funds and
U. S. Treasury and agency securities ................................. 1,407,071 1,675,363
--------------- ---------------
Projected benefit obligation in excess of plan assets .................. (140,446) (70,094)
Unrecognized prior service cost ........................................ 110,089 94,358
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions ........................ 17,205 68,265
Unrecognized net asset ................................................. (17,205) (14,748)
Minimum liability ...................................................... (110,089) (147,875)
--------------- ---------------
Net pension liability .................................................. $ (140,446) $ (70,094)
The net pension liability is included in:
Prepaid (accrued) expenses ........................................... $ (30,357) $ 77,781
Long-term liabilities ................................................. (110,089) (147,875)
--------------- ---------------
$ (140,446) $ (70,094)
=============== ===============
</TABLE>

Net periodic pension cost includes the following components:

<TABLE>
<CAPTION>
Period from
February 1,
1995 through
Year ended January 31, February 3,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Interest cost on projected benefit obligation ....... $116,299 $ 125,095 $ 112,641
Service cost--benefits earned during the period ..... 88,483 92,630 --
Return on plan assets (gain) loss ................... (24,522) 43,777 (241,959)
Net amortization and deferral ....................... (80,331) (141,640) 144,117
-------- -------- -----------
Net periodic pension cost ........................... $ 99,929 $ 119,862 $ 14,799
======== ======== ===========
</TABLE>

Assumptions used in the actuarial determinations for the Plan are:

<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Weighted average discount rate ...................... 7.5% 7.5% 6.5%
Expected long-term rate of return on plan assets .... 7.5% 7.5% 6.5%
Rate of increase in future compensation levels ...... 4.0% -- --
</TABLE>

In fiscal 1996, the Company established a 401(k) profit sharing plan for the
benefit of all qualifying employees. Employer matching contributions are made
monthly based upon a percentage of qualified employees' contributions, and
amounted to $52,000 in fiscal year 1996. No additional profit sharing
contributions were made by the Company in fiscal year 1996.

F-37
<PAGE>

UHLMANS INC.
Notes to Financial Statements (Continued)

(6) OTHER POSTRETIREMENT BENEFIT PLAN

The Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to a group of 17 retired employees. No
additional employees are being added to the Plan. The Plan is contributory, with
retiree contributions adjusted annually to cover any increased costs, and
contains other cost-slimming features such as deductibles and coinsurance. The
accounting for the Plan anticipates future cost-sharing changes. The Company's
policy is to fund the cost of medical benefits in amounts determined at the
discretion of management.

In 1996, the Company adopted FASB Statement No. 106, "Employer's Accounting
for Postretirement Benefits Other than Pensions" and elected to use the
prospective recognition method for transition. The effect of adopting the new
rules increased 1996 net periodic postretirement benefit cost by $2,400 and
decreased 1996 net income by $2,400. Postretirement benefit cost for 1994 and
1995, which was recorded on a cash basis, has not been restated.

The following table presents the Plan's funded status reconciled with
amounts recognized in the Company's balance sheet at February 3, 1996:

<TABLE>
<CAPTION>
<S> <C>
Accumulated postretirement benefit obligation for retirees .................. $100,000
Plan assets at fair value ................................................... --
---------
Accumulated postretirement benefit obligation in excess of plan assets ...... 100,000
Transition obligation ....................................................... (94,600)
Unrecognized net gain ....................................................... (3,000)
---------
(97,600)
---------
Accrued post retirement benefit liability ................................... $ 2,400
=========

Net periodic postretirement benefit cost includes the following components:

Interest cost ............................................................... $ 7,700
Amortization of transition obligation over 11 years ......................... 9,500
---------
Net periodic postretirement benefit cost .................................... $ 17,200
=========
</TABLE>

Medical trend rates are not applicable since the subsidy is not related to
trend rates. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% for 1996.

F-38
<PAGE>

[Flip-Out Page]

<PAGE>

[Flip-Out Page]

<PAGE>
==============================================================================

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offering covered by this Prospectus, and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Underwriters. This Prospectus does
not constitute an offer to sell, or the solicitation of an offer to buy, the
Common Stock in any jurisdiction where, or to any person to whom, it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
-------
<S> <C>
Prospectus Summary ......................... 5
Risk Factors ............................... 12
Use of Proceeds ............................ 16
Dividend Policy ............................ 16
Capitalization ............................. 17
Dilution ................................... 18
Selected Consolidated Historical Financial
and Operating Data ...................... 19
Unaudited Pro Forma Combined Financial Data 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 30
Business ................................... 36
Management ................................. 44
Certain Relationship and Related
Transactions ............................ 54
Principal Stockholders ..................... 55
Overallotment Option ....................... 56
Description of Certain Indebtedness ........ 57
Description of Capital Stock ............... 58
Shares Eligible for Future Sale ............ 61
Underwriting ............................... 63
Legal Matters .............................. 64
Experts .................................... 64
Additional Information ..................... 64
Index to Financial Statements .............. F-1
</TABLE>

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

Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

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

[LOGO]

Common Stock

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

PROSPECTUS

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

Donaldson, Lufkin & Jenrette
Securities Corporation

Bear, Stearns & Co. Inc.

CS First Boston

------------------, 1996

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

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:

<TABLE>
<CAPTION>
<S> <C>
SEC registration fee .......................................... $66,207
---------
NASD filing fee ............................................... 19,700
---------
Nasdaq National Market original listing fee ................... 25,000
Blue sky fees and expenses (including attorneys' fees and
expenses) ................................................... *
Printing and engraving expenses ............................... *
Transfer agent's fees and expenses ............................ *
Accounting fees and expenses .................................. *
Legal fees and expenses ....................................... *
Miscellaneous expenses ........................................ *
---------
Total ........................................................ $
=========
</TABLE>

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

*To be filed by amendment.

All amounts are estimated except for the SEC registration fee and the NASD
filing fee.

Item 14. Indemnification of Directors and Officers.

The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any person who is,
or is threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any person who is, or is threatened to be made, a
party to any threatened, pending or completed action or suit by or in the
right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.

The Company's Certificate of Incorporation provides for the
indemnification of directors and officers of the Company to the fullest
extent permitted by Section 145.

In that regard, the Certificate of Incorporation provides that the Company
shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he
is or was a director or officer of such corporation, or is or was serving at
the request of such corporation as a director, officer or member of another
corporation, partnership, joint venture,

II-1

<PAGE>

trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of such corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Indemnification in connection with an action or suit by or in
the right of such corporation to procure a judgment in its favor is limited
to payment of settlement of such an action or suit except that no such
indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the indemnifying corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine that, despite
the adjudication of liability but in consideration of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the court shall deem proper.

Item 15. Recent Sales of Unregistered Securities.

DATE OF AGGREGATE
NAME SALE TITLE SHARES OFFERING PRICE
----------------- ------- --------------- ------ ----------------
Dan Edmondson 06/16/93 Common Stock 500 $ 2,500.00
Linda Galayda 06/28/93 Common Stock 3,000 $15,000.00
Mark White 09/30/93 Common Stock 9,024 $19,401,60
Sandra Bornstein 01/28/94 Common Stock 6,050 $13,007.50
Eddy Osborne 02/22/94 Common Stock 9,024 $19,401.60
Pat Bowman 10/31/94 Common Stock 9,024 $19,401.60
Peter Realmuto 11/08.94 Common Stock 1,880 $ 188.00
Tom Buttaccio 12/05/94 Common Stock 9,024 $19,401.60
Mark Hess 01/15/95 Common Stock 400 $ 40.00
Kathy Bodin 02/20/95 Common Stock 400 $ 40.00
Dan Singer 01/15/95 Common Stock 600 $ 60.00
Harry Gray 02/20/95 Common Stock 300 $ 30.00
Bob Mitchell 02/20/95 Common Stock 300 $ 30.00
Jerry Forrest 01/26/95 Common Stock 9,024 $19,401.60
David Slaughter 01/28/95 Common Stock 9,024 $19,401.60
Joshua Bekenstein 04/07/95 Common Stock 10,000 $ 1,000.00
Jim Hanks 04/07/95 Common Stock 235 $ 505.25
Bernard Fuchs 04/07/95 Common Stock 75,000 $ 7,500.00
Bernard Fuchs 04/07/95 Common Stock 9,400 $20,210.00
Elizabeth Winkler 04/10/95 Common Stock 9,000 $19,350.00
Joanne Swartz 04/15/95 Common Stock 5,120 $11,008.00
June Betz 05/17/95 Common Stock 1,750 $ 5,040.00
Doug Scarth 08/16/95 Common Stock 2,820 $ 282.00
Tom Hill 11/06/95 Common Stock 200 $ 20.00
Josh Bekenstein 12/27/95 Common Stock 5,000 $ 500.00
Dan Singer 01/22/96 Common Stock 300 $ 30.00
Bob Mitchell 01/23/96 Common Stock 150 $ 15.00
Bob Hart 02/29/96 Common Stock 600 $ 60.00
Bernard Fuchs 03/15/96 Common Stock 375,000 $ 3,750.00
Ron Sells 03/28/96 Common Stock 1,500 $ 150.00
Dan Singer 04/17/96 Common Stock 200 $ 430.00
Carl Tooker 05/01/96 Common Stock 80,000 $ 8,000.00
Carl Tooker 05/01/96 Common Stock 10,000 $21,500.00
Bernard Fuchs 06/05/96 Common Stock 9,400 $20,210.00
Joanne Turano 06/05/95 Common Stock 450 $ 45.00

The Company relied upon Section 4(2) of the Securities Act of 1933 in
connection with the foregoing sales of unregistered securities.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------
<S> <C>
*3.1 Form of Underwriting Agreement.
**3.1 Certificate of Incorporation of Apparel Retailers, Inc. (Incorporated by Reference to Exhibit 3.1
of Registration No. 33-68258 on Form S-4).
**3.2 By-Laws of Apparel Retailers, Inc. (Incorporated by Reference to Exhibit 3.2 of Registration No.
33-68258 on Form S-4).
**4.1 Form of Indenture between Apparel Retailers, Inc. and The First National Bank of Boston, as
Trustee, relating to the 12 3/4% Senior Discount Debentures due 2005 of Apparel Retailers,
Inc. (Incorporated by Reference to Exhibit 4.1 of Registration No. 33-68258 on Form S-4).
**4.2 Form of Indenture among Specialty Retailers, Inc., The First National Bank of Boston, as Trustee,
and Palais Royal, Inc., as Guarantor, relating to the 10% Senior Notes due 2000 of Specialty
Retailers, Inc. (including form of note) (Incorporated by Reference to Exhibit 4.2 of
Registration No. 33-68258 on Form S-4).
**4.3 Form of Indenture among Specialty Retailers, Inc., The First National Bank of Boston, as Trustee,
and Palais Royal, Inc., as Guarantor, relating to the 11% Senior Subordinated Notes due 2003
of Specialty Retailers, Inc. (including form of note) (Incorporated by Reference to Exhibit
4.3 on Registration No. 33-68258 on Form S-4).
**4.4 Form of Indenture between 3 Bealls Holding Corporation and Bankers Trust Company, as Trustee,
relating to 3 Bealls Holding Corporation's 9% Subordinated Debentures due 2002 (Incorporated
by Reference to Exhibit 4.2 of Registration No. 33-24571 on Form S-4) and First Supplemental
Indenture dated August 2, 1993 (Incorporated by Reference to Exhibit 4.4 of Registration No.
33-68258 on Form S-4).
**4.5 Form of Indenture between 3 Bealls Holding Corporation and IBJ Schroder Bank and Trust Company, as
Trustee, relating to 3 Bealls Holding Corporation's 7% Junior Subordinated Debentures due 2002
(Incorporated by Reference to Exhibit 4.3 of Registration No. 33-24571 on Form S-4) and First
Supplemental Indenture dated August 2, 1993 (Incorporated by Reference to Exhibit 4.5 of
Registration No. 33-68258 on Form S-4).
**4.6 Indenture by and between Specialty Retailers, Inc. and The First National Bank of Boston, as
Trustee, relating to the 11% Series C and Series D Senior Subordinated Notes due 2003 of
Specialty Retailers, Inc. dated July 27, 1995 (including form of note), (Incorporated by
Reference to Exhibit 4.1 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
**4.7 Form of Indenture among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc., as
Administrative Agent, and Bankers Trust Company, as Trustee and Collateral Agent, relating to
the 12.5% Trust Certificate-Backed Notes of SRI Receivables Purchase Co., Inc. (including form
of note). (Incorporated by Reference to Exhibit 4.1 on Form 10-Q of Apparel Retailers, Inc.,
dated May 4, 1996).
**4.8 Amended and Restated Pooling and Servicing Agreement by and among SRI Receivables Purchase Co.,
Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware) dated as of August 11, 1995
(Incorporated by Reference to Exhibit 4.6 on Form 10-Q of Apparel Retailers, Inc., dated
October 28, 1995).
**4.9 First Amendment to Amended and Restated Pooling and Servicing Agreement by and among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware), dated
as of May 30, 1996 (Incorporated by Reference to Exhibit 4.2 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
**4.10 Amended and Restated Series 1993-1 Supplement among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated as of May 30, 1996 (Incorporated by
Reference to Exhibit 4.3 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.11 Amended and Restated Series 1993-2 Supplement among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated as of May 30, 1996 (Incorporated by
Reference to Exhibit 4.4 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).

II-3

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------
**4.12 First Amendment to the Series 1993-2 Supplement and Revolving Certificate Purchase Agreement by
and among Specialty Retailers, Inc., SRI Receivables Purchase Co., Inc., Bankers Trust
(Delaware) as Trustee for the SRI Receivables Master Trust, the financial institutions parties
thereto and National Westminster Bank Plc, New York branch dated as of August 11, 1995
(Incorporated by Reference to Exhibit 4.5 on Form 10-Q of Apparel Retailers, Inc., dated as of
May 4, 1996).
**4.13 Amended and Restated Series 1995-1 Supplement by and among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc. and Bankers Trust (Delaware) on behalf of the Series 1995- 1
Certificateholders dated as of May 30, 1996 (Incorporated by Reference to Exhibit 4.6 on Form
10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.14 Amended and Restated Receivables Purchase Agreement among SRI Receivables Purchase Co., Inc. and
Originators dated as of May 30, 1996 (Incorporated by Reference to Exhibit 4.7 on Form 10-Q of
Apparel Retailers, Inc., dated May 4, 1996).
**4.15 Certificate Purchase Agreements between SRI Receivables Purchase Co., Inc. and the Purchasers of
the Series 1993-1 Offered Certificates (Incorporated by Reference to Exhibit 4.10 of
Registration No. 33-68258 on Form S-4).
**4.16 Revolving Certificate Purchase Agreement between SRI Receivables Purchase Co., Inc., the Facility
Agent and the Revolving Purchasers with respect to the Class A-R Certificates (Incorporated by
Reference to Exhibit 4.11 of Registration No. 33-68258 on Form S-4).
**4.17 Revolving Credit Agreement by and among Specialty Retailers, Inc., Palais Royal, Inc. and the
First National Bank of Boston, as agent for itself and other financial institutions dated
January 29, 1994 (Incorporated by Reference to Exhibit A of Current Report on Form 8-K of
Apparel Retailers, Inc. dated February 9, 1994).
**4.18 First Amendment dated July 14, 1994 to Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston, as agent for itself
and other financial institutions dated as of January 28, 1994 (Incorporated by Reference to
Exhibit 4.13 on Form 10-K of Apparel Retailers, Inc. dated January 28, 1995).
**4.19 Second Amendment dated October 31, 1994 to Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston, as agent for itself
and other financial institutions dated as of January 28, 1994 (Incorporated by Reference to
Exhibit 4.14 on Form 10-K of Apparel Retailers, Inc. dated January 28, 1995).
**4.20 Third Amendment dated January 5, 1995 to Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston, as agent for itself
and other financial institutions dated as of January 28, 1994 (Incorporated by Reference to
Exhibit 4.15 on Form 10-K of Apparel Retailers, Inc. dated January 28, 1995).
**4.21 Fourth Amendment dated March 31, 1995 to Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston, as agent for itself
and other financial institutions dated as of January 28, 1994 (Incorporated by Reference to
Exhibit 4.16 on Form 10-K of Apparel Retailers, Inc. dated January 28, 1995).
**4.22 Fifth Amendment dated July 7, 1995 to Revolving Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc., and the First National Bank of Boston, as agent for itself and other
financial institutions dated as of January 28, 1994 (Incorporated by Reference to Exhibit 4.2
on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
**4.23 Sixth Amendment dated July 27, 1995 to Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and the First National Bank of Boston, as agent for itself
and other financial institutions dated as of January 28, 1994 (Incorporated by Reference to
Exhibit 4.3 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
**4.24 Seventh Amendment dated February 1, 1996 to Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc., and the First National Bank of Boston, as agent for
itself and other financial institutions dated as of January 28, 1994 (Incorporated by
Reference to Exhibit 4.8 on Form 10-Q of Apparel Retailers, Inc., dated as of May 4, 1996).

II-4

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------
**4.25 Eighth Amendment dated as of May 30, 1996 to Revolving Credit Agreement by and among Specialty
Retailers, Inc., Palais Royal, Inc. and The First National Bank of Boston, as agent for itself
and other financial institutions dated as of January 28, 1994 (Incorporated by Reference to
Exhibit 4.9 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.26 Seasonal Revolving Credit Agreement by and among Specialty Retailers, Inc., Palais Royal, Inc. and
the First National Bank of Boston, as agent for itself and other financial institutions dated
March 31, 1995 (Incorporated by Reference to Exhibit 4.17 on Form 10-K of Apparel Retailers,
Inc. dated January 28, 1995).
**4.27 First Amendment dated July 7, 1995 to the seasonal Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank of Boston, as agent
for itself and other financial institutions dated March 31, 1995 (Incorporated by Reference to
Exhibit 4.4 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
**4.28 Second Amendment dated July 27, 1995 to the seasonal Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank of Boston, as agent
for itself and other financial institutions dated March 31, 1995 (Incorporated by Reference to
Exhibit 4.5 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
**4.29 Third Amendment dated February 1, 1996 to the seasonal Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank of Boston, as agent
for itself and other financial institutions dated March 31, 1995 (Incorporated by Reference to
Exhibit 4.10 on Form 10-Q of Apparel Retailers, Inc., dated as of May 4, 1996).
**4.30 Fourth Amendment dated as of May 30, 1996 to the seasonal Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc. and The First National Bank of Boston, as agent
for itself and other financial institutions dated as of March 31, 1995 (Incorporated by
Reference to Exhibit 4.11 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
**4.31 Certificate Purchase Agreement among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc.
and the Certificate Purchaser dated as of August 11, 1995 (Incorporated by Reference to
Exhibit 4.9 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
*5.1 Opinion of Kirkland and Ellis.
**10.1 Purchase Agreement dated July 22, 1993 by and among Apparel Retailers, Inc., Specialty Retailers,
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co. Inc.
relating to the sale of Apparel Retailers, Inc. 12 3/4% Senior Discount Debentures due 2005
(Incorporated by Reference to Exhibit 10.1 of Registration No. 33-68258 on Form S-4).
**10.2 Registration Rights Agreement dated August 2, 1993 by and among Apparel Retailers, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co. Inc. relating to
the sale of Apparel Retailers, Inc. 12 3/4% Senior Discount Debentures due 2005 (Incorporated
by Reference to Exhibit 10.2 of Registration No. 33-68258 on Form S-4).
**10.3 Senior Management Agreement and Stock Option Agreement between Specialty Retailers, Inc., Bain
Venture Capital, Citicorp Venture Capital, Ltd., and Bernard Fuchs, dated as of May 26, 1989
(Incorporated by Reference to Exhibit 10.8 of Registration No. 33-27714 on Form S-1) and
Amendment to Senior Management Agreement and Stock Option Agreement dated February 1, 1993
(Incorporated by Reference to Exhibit 10.3 of Registration No. 33-68258 on Form S-4).
**10.4 Equity Stock Purchase Agreement by and among Specialty Retailers, Inc., Tyler Capital Fund, L.P.
Tyler Massachusetts, L.P., Tyler International, L.P.-I, Tyler International, L.P.-II, Bain
Venture Capital, Citicorp Capital Investors, Ltd., Acadia Partners, L.P., Drexel Burnham
Lambert Incorporated, and certain other Purchasers, dated as of December 28, 1988
(Incorporated by Reference to Exhibit 10.9 of Registration No. 33-27714 on Form S-1) and
Amendments to Equity Stock Purchase Agreement dated September 21, 1992 and August 2, 1993
(Incorporated by Reference to Exhibit 10.4 of Registration No. 33-68258 on Form S-4).

II-5

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------
**10.5 Registration Agreement by and among Specialty Retailers, Inc., Tyler Capital Fund, L.P. Tyler
Massachusetts, L.P., Tyler International, L.P.-I, Tyler International, L.P.-II, Bain Venture
Capital, Citicorp Capital Investors, Ltd., Acadia Partners, L.P., Drexel Burnham Lambert
Incorporated, and certain other Purchasers, dated as of December 29, 1988 (Incorporated by
Reference to Exhibit 10.10 of Registration No. 33-27714 on Form S-1) and Amendment to
Registration Agreement dated August 2, 1993 (Incorporated by Reference to Exhibit 10.5 of
Registration No. 33-68258 on Form S-4).
**10.6 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of August 2, 1982
(Incorporated by Reference to Exhibit 10.11 of Registration No. 33-27714 on Form S-1).
**10.7 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of March 15, 1979, as
amended (Incorporated by Reference to Exhibit 10.12 of Registration No. 33-27714 on Form S-1).
**10.8 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of November 7, 1978, as
amended (Incorporated by Reference to Exhibit 10.13 of Registration No. 33-27714 on Form S-1).
**10.9 Lease Agreement between PR Investments and Palais Royal, Inc., dated October 4, 1983, as amended
(Incorporated by Reference to Exhibit 10.14 of Registration No. 33-27714 on Form S-1).
**10.10 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of December 21, 1983, as
amended (Incorporated by Reference to Exhibit 10.15 of Registration No. 33-27714 on Form S-1).
**10.11 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of March 21, 1985, as
amended (Incorporated by Reference to Exhibit 10.16 of Registration No. 33-27714 on Form S-1).
**10.12 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of November 22, 1985, as
amended (Incorporated by Reference to Exhibit 10.17 of Registration No. 33-27714 on Form S-1).
**10.13 Apparel Retailers, Inc. Stock Option Plan (Incorporated by Reference to Exhibit 10.13 to
Registration No. 33-68258 on Form S-4).
**10.14 Form of Stock Option Agreement between Apparel Retailers, Inc. and Executive to be named therein
(Incorporated by Reference to Exhibit 10.14 to Registration No. 33-68258 on Form S-4).
**10.15 Form of Management Agreement by an among Specialty Retailers, Inc., the Bain Entities, Citicorp
Venture Capital, Ltd. and Executive to be named therein (Incorporated by Reference to Exhibit
10.22 of Registration No. 33-32045 on Form S-1) and Form of First Amendment (Incorporated by
Reference to Exhibit 10.15 to Registration No. 33-68258 on Form S-4).
**10.16 Professional Services Agreement between Specialty Retailers, Inc. and Bain Capital Partners
(Incorporated by Reference to Exhibit 10.21 of Registration No. 33-54504 on Form S-1).
**10.17 Employment Agreement between Specialty Retailers, Inc. and Carl E. Tooker dated June 9, 1993
(Incorporated by Reference to Exhibit 10.17 to Registration No. 33-68258 on Form S-4).
**10.18 Stock Option Agreement between Specialty Retailers, Inc. and Carl E. Tooker dated June 9, 1993
(Incorporated by Reference to Exhibit 10.18 to Registration No. 33-68258 on Form S-4).
**10.19 Purchase agreement dated September 2, 1994 by and among Palais Royal, Inc. and Beall-Ladymon
Corporation relating to the sale of certain assets of Beall-Ladymon Corporation (Incorporated
by Reference to Exhibit 10.1 on Form 10-Q of Apparel Retailers, Inc., dated July 30, 1994).
**10.20 Purchase Agreement dated July 20, 1995 by and among Specialty Retailers, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, relating to the sale of the Company's 11% Series C Senior
Subordinated Notes due 2003 (Incorporated by Reference to Exhibit 10.1 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995).

II-6

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------
**10.21 Registration Rights Agreement dated July 27, 1995 by and between Specialty Retailers, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation, relating to the sale of the Company's 11%
Series C Senior Subordinated Notes due 2003 (Incorporated by Reference to Exhibit 10.2 on Form
10-Q of Apparel Retailers, Inc., dated October 28, 1995).
**10.22 Employment Agreement between Mark Shulman and Specialty Retailers, Inc., dated as of January 8,
1994 (Incorporated by Reference to Exhibit 10.1 on Form 10-Q of Apparel Retailers, Inc., dated
April 29, 1995).
**10.23 Stock Option Agreement between Mark Shulman and Apparel Retailers, Inc., dated as of January 31,
1994 (Incorporated by Reference to Exhibit 10.2 on Form 10-Q of Apparel Retailers, Inc., dated
April 29, 1995).
**10.24 Employment Agreement between James Marcum and Specialty Retailers, Inc., dated as of May 15, 1995
(Incorporated by Reference to Exhibit 10.3 on Form 10-Q of Apparel Retailers, Inc., dated
April 29, 1995).
**10.25 Employment Agreement between Stephen Lovell and Specialty Retailers, Inc., dated as of May 19,
1995 (Incorporated by Reference to Exhibit 10.4 on Form 10-Q of Apparel Retailers, Inc., dated
April 29, 1995).
**10.26 Agency Agreement between Specialty Retailers, Inc. and Palais Royal, Inc. dated January 29, 1995
(Incorporated by Reference to Exhibit 10.26 on Form 10-K of Apparel Retailers, Inc., dated
February 3, 1996)
**10.27 Securities Purchase Agreement among Palais Royal, Inc. and certain selling stockholders of
Uhlmans, Inc. dated May 9, 1996 (Incorporated by Reference to Exhibit 10.1 on Form 10Q of
StageStores,Inc.,dated June 12, 1996. .
***12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
**21.1 List of Registrant's Subsidiaries (Incorporated by Reference to Exhibit 21.1 to Registration No.
33-68258 on Form S-4).
***23.1 Consent of Price Waterhouse LLP.
***23.2 Consent of Ernst & Young LLP.
*23.3 Consent of Kirkland & Ellis (included in opinion filed as Exhibit 5.1).
***24.1 Powers of attorney (included in signature page included in this Part II).
</TABLE>

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

* To be filed by amendment.

** Previously filed.

*** Filed herewith.

(b) Financial Statement Schedules:

Schedule III - Condensed Financial Information

Schedule VIII - Consolidated Valuation Accounts

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;

provided, however, that the undertakings set forth in paragraph (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.

II-7

<PAGE>

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the Offering.

In addition, the undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-8

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of
Texas on June 12, 1996.

STAGE STORES, INC.

By: /s/ Carl Tooker
-----------------------------------
Name: Carl Tooker
Title: President, Chief Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carl Tooker, Joshua Bekenstein and James
Marcum and each of them, 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 any and all capacities (including his capacity as a
director and/or officer of Stage Stores, Inc.), to sign any or all amendments
(including post-effective amendments) to this registration statement and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, 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 premises, 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 any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed on June 12,
1996, by the following persons in the capacities indicated with respect to
Stage Stores, Inc.:

Signature Capacity
- ------------------------- ----------------------------------------------------

/s/ Bernard Fuchs Director and Chairman
- ------------------------
Bernard Fuchs

/s/ Carl Tooker President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Carl Tooker

/s/ James Marcum Executive Vice President and Chief Financial
- ------------------------ Officer (Principal Financial and Accounting Officer)
James Marcum

/s/ Joshua Bekenstein Director
- ------------------------
Joshua Bekenstein

/s/ Adam Kirsch Director
- ------------------------
Adam Kirsch

- ------------------------
Peter Mulvihill Director

/s/ Lasker Meyer Director
- ------------------------
Lasker Meyer

II-9

<PAGE>

Schedule III

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Condensed Balance Sheet
(in thousands, except par value and numbers of shares)

<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
----------------- ----------------
<S> <C> <C>
Assets
Cash and cash equivalents ............................................ $ 796 $ 9
Intercompany advances ................................................ 6,997 7,240
Debt issue costs, net of amortization ................................ 4,588 4,163
Investment in subsidiary ............................................. 17,750 35,340
Deferred income taxes ................................................ 5,640 10,042
---------- ----------
$ 35,771 $ 56,794
========== ==========

Liabilities and Stockholders' Deficit
Accrued expenses ..................................................... $ 7,294 $ 6,369
Intercompany advances ................................................ -- --
Long-term debt ....................................................... 96,748 109,817
---------- ----------
Total liabilities .................................................. 104,042 116,186
---------- ----------

Preferred stock, par value $1.00, non-voting, 2,500 shares authorized,
zero shares issued and outstanding ................................. -- --
Common Stock, par value $0.01, 15,000,000 shares authorized,
11,381,141 and 11,470,902 shares issued and outstanding,
respectively ....................................................... 113 115
Class B common stock, non-voting, par value $0.01, 1,500,000 shares
authorized, 1,468,750 shares issued and outstanding ................ 15 15
Additional paid-in capital ........................................... 3,565 3,793
Accumulated deficit .................................................. (71,964) (63,315)
---------- ----------
Stockholders' deficit .............................................. (68,271) (59,392)
---------- ----------
$ 35,771 $ 56,794
========== ==========
</TABLE>

The accompanying notes are an integral part of this condensed financial
information.

<PAGE>

Schedule III

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Condensed Statement of Operations and Accumulated Deficit
(in thousands)

For the Period from Fiscal Year
August 2, 1993 to ---------------------
January 29, 1994 1994 1995
-------------------- --------- ---------
<S> <C> <C> <C>
Interest income .................................. $ 18 $ 30 $ 18
Interest expense ................................. (5,471) (11,954) (13,511)
------------------- -------- --------

Loss before income tax and equity in earnings of
subsidiary ..................................... (5,453) (11,924) (13,493)
Income tax benefit ............................... 1,761 4,022 4,550
------------------- -------- --------
Loss before equity in earnings of subsidiary ..... (3,692) (7,902) (8,943)
Equity in earnings of subsidiary ................. 910 14,224 19,673
------------------- -------- --------
Net income (loss) ................................ (2,782) 6,322 10,730

Accumulated deficit:
Beginning of period ............................. -- (78,154) (71,964)
Dividends on common stock ....................... (74,804) -- --
Adjustment for minimum pension liability ........ (568) (132) (2,081)
------------------- -------- --------
End of period ................................... $(78,154) $(71,964) $(63,315)
=================== ======== ========
</TABLE>

The accompanying notes are an integral part of this condensed financial
information.

<PAGE>

Schedule III

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Condensed Statement of Cash Flows
(in thousands)

For the Period from Fiscal Year
August 2, 1993 to --------------------
January 29, 1994 1994 1995
-------------------- -------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ............................... $ (2,782) $ 6,322 $ 10,730
------------------- ------ -------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Accretion of discount .......................... 5,233 11,515 13,070
Amortization of debt issue costs ............... 207 437 438
Deferred federal income tax .................... (1,761) (3,879) (4,402)
Equity in earnings of subsidiary ............... (910) (14,224) (19,673)
Changes in operating assets and liabilities:
Increase (decrease) in accrued liabilities .... 31 7,116 (641)
Intercompany advances ......................... -- (7,382) (243)
------------------- ------ -------
Total adjustments ............................ 2,800 (6,417) (11,451)
------------------- ------ -------
Net cash provided by (used in) operating
activities ................................ 18 (95) (721)
------------------- ------ -------

Cash Flows from Financing Activities:
Proceeds from:
Long-term debt ................................. 80,000 -- --
Common stock ................................... 33 97 68
Redemption of Common stock ...................... -- -- (122)
Additions to debt issue cost .................... (4,453) -- (12)
Dividends paid .................................. (74,804) -- --
------------------- ------ -------
Net cash provided by (used in) financing
activities .................................... 776 97 (66)
------------------- ------ -------

Net increase (decrease) in cash ................. 794 2 (787)
Cash and cash equivalents:
Beginning of period ............................ -- 794 796
------------------- ------ -------
End of period .................................. $ 794 $ 796 $ 9
=================== ====== =======

Supplemental Schedule of Noncash Investing and
Financing Activities:
Debt issue costs accrued for by the Company or
paid by subsidiary ............................ $ 779 $ -- $ --
=================== ====== =======
</TABLE>

The accompanying notes are an integral part of this condensed financial
information.

<PAGE>

Stage Stores, Inc.
(formerly Apparel Retailer, Inc.)
Notes to Condensed Financial Information

NOTE 1--BASIS OF PRESENTATION:

The accompanying condensed financial statements present the financial
position and results of operations of Stage Stores, Inc. (the "Company") on a
separate company basis. The condensed financial statements of the Company
have been prepared in accordance with Rule 10-01 of Regulation S-X and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The Company's
investment in its wholly-owned subsidiary is accounted for using the equity
method.

The Company's fiscal year ends on the Saturday nearest to January 31 in
the following calendar year. For example, references to "1995" mean the
fiscal year ended February 3, 1996.

NOTE 2--HOLDING COMPANY FORMATION:

The Company was incorporated under the laws of Delaware on June 17, 1993
at the direction of the shareholders of Specialty Retailers, Inc. ("SRI"). On
August 2, 1993, the Company acquired all of the common stock of SRI and the
existing stockholders of SRI acquired all of the common stock of the Company.
The Company has no operations of its own and its primary asset is the common
stock of the SRI.

NOTE 3--INCOME TAXES:

The Company files a consolidated federal income tax return with its
subsidiaries. The Company's recorded tax benefit represents the impact of its
tax assets and liabilities on the consolidated group.

<PAGE>

Schedule VIII

Stage Stores, Inc.
(formerly Apparel Retailers, Inc.)
Consolidated Valuation Accounts
(in thousands)

<TABLE>
<CAPTION>
Additions
----------------------------------
Balance at Charged to
beginning of Charged to costs other Balance at end
year and expenses accounts Deductions of year
------------- ---------------- --------------- --------------- --------------
Description
- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts: (1)
Fiscal Year:
1993 .................. $7,855 $6,590 $ -- $12,501 (2) $1,944
=========== ============== ============= ============= ============
1994 .................. $1,944 $3,176 $486 (3) $ 2,374 $3,232
=========== ============== ============= ============= ============
1995 .................. $3,232 $4,905 $ -- $ 5,377 $2,760
=========== ============== ============= ============= ============

Reserve for Shrinkage:
Fiscal Year:
1993 .................. $ 160 $4,042 $ -- $ 4,004 $ 198
=========== ============== ============= ============= ============
1994 .................. $ 198 $4,459 -- $ 4,459 $ 198
=========== ============== ============= ============= ============
1995 .................. $ 198 $8,967 $ -- $ 8,808 $ 357
=========== ============== ============= ============= ============
</TABLE>

(1) Includes reserve for uncollectible service charge and late fee income.

(2) Includes $6.1 million which has been reclassified to accrued liabilities
as a result of the implementation of the Accounts Receivable Program.

(3) This represents the initial allowance for doubtful accounts associated
with the accounts receivable purchased in an acquisition.

<PAGE>

EXHIBIT INDEX

The following documents are the exhibits to this Registration Statement on
Form S-1. For convenient reference, each exhibit is listed according to the
Exhibit Table of Regulation S-K.

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
- ---------- -------------------------------------------------------------------------------- ------------
<S> <C> <C>
*3.1 Form of Underwriting Agreement. --
**3.1 Certificate of Incorporation of Apparel Retailers, Inc. (Incorporated by
Reference to Exhibit 3.1 of Registration No. 33-68258 on Form S-4). --
**3.2 By-Laws of Apparel Retailers, Inc. (Incorporated by Reference to Exhibit 3.2 of
Registration No. 33-68258 on Form S-4). --
**4.1 Form of Indenture between Apparel Retailers, Inc. and The First National Bank
of Boston, as Trustee, relating to the 12 3/4% Senior Discount Debentures
due 2005 of Apparel Retailers, Inc. (Incorporated by Reference to Exhibit
4.1 of Registration No. 33-68258 on Form S-4). --
**4.2 Form of Indenture among Specialty Retailers, Inc., The First National Bank of
Boston, as Trustee, and Palais Royal, Inc., as Guarantor, relating to the
10% Senior Notes due 2000 of Specialty Retailers, Inc. (including form of
note) (Incorporated by Reference to Exhibit 4.2 of Registration No. 33-68258
on Form S-4). --
**4.3 Form of Indenture among Specialty Retailers, Inc., The First National Bank of
Boston, as Trustee, and Palais Royal, Inc., as Guarantor, relating to the
11% Senior Subordinated Notes due 2003 of Specialty Retailers, Inc.
(including form of note) (Incorporated by Reference to Exhibit 4.3 on
Registration No. 33-68258 on Form S-4). --
**4.4 Form of Indenture between 3 Bealls Holding Corporation and Bankers Trust
Company, as Trustee, relating to 3 Bealls Holding Corporation's 9%
Subordinated Debentures due 2002 (Incorporated by Reference to Exhibit 4.2
of Registration No. 33-24571 on Form S-4) and First Supplemental Indenture
dated August 2, 1993 (Incorporated by Reference to Exhibit 4.4 of
Registration No. 33-68258 on Form S-4). --
**4.5 Form of Indenture between 3 Bealls Holding Corporation and IBJ Schroder Bank
and Trust Company, as Trustee, relating to 3 Bealls Holding Corporation's 7%
Junior Subordinated Debentures due 2002 (Incorporated by Reference to
Exhibit 4.3 of Registration No. 33-24571 on Form S-4) and First Supplemental
Indenture dated August 2, 1993 (Incorporated by Reference to Exhibit 4.5 of
Registration No. 33-68258 on Form S-4). --
**4.6 Indenture by and between Specialty Retailers, Inc. and The First National Bank
of Boston, as Trustee, relating to the 11% Series C and Series D Senior
Subordinated Notes due 2003 of Specialty Retailers, Inc. dated July 27, 1995
(including form of note), (Incorporated by Reference to Exhibit 4.1 on Form
10-Q of Apparel Retailers, Inc., dated October 28, 1995). --
**4.7 Form of Indenture among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., as Administrative Agent, and Bankers Trust Company, as
Trustee and Collateral Agent, relating to the 12.5% Trust Certificate-Backed
Notes of SRI Receivables Purchase Co., Inc. (including form of note).
(Incorporated by Reference to Exhibit 4.1 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996). --
**4.8 Amended and Restated Pooling and Servicing Agreement by and among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust
(Delaware) dated as of August 11, 1995 (Incorporated by Reference to Exhibit
4.6 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995). --

<PAGE>

SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
- ---------- ------------------------------------------------------------------------------- -----------
**4.9 First Amendment to Amended and Restated Pooling and Servicing Agreement by and
among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware), dated as of May 30, 1996 (Incorporated by
Reference to Exhibit 4.2 on Form 10-Q of Apparel Retailers, Inc., dated May
4, 1996). --
**4.10 Amended and Restated Series 1993-1 Supplement among SRI Receivables Purchase
Co., Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware) dated as
of May 30, 1996 (Incorporated by Reference to Exhibit 4.3 on Form 10-Q of
Apparel Retailers, Inc., dated May 4, 1996). --
**4.11 Amended and Restated Series 1993-2 Supplement among SRI Receivables Purchase
Co., Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware) dated as
of May 30, 1996 (Incorporated by Reference to Exhibit 4.4 on Form 10-Q of
Apparel Retailers, Inc., dated May 4, 1996). --
**4.12 First Amendment to the Series 1993-2 Supplement and Revolving Certificate
Purchase Agreement by and among Specialty Retailers, Inc., SRI Receivables
Purchase Co., Inc., Bankers Trust (Delaware) as Trustee for the SRI
Receivables Master Trust, the financial institutions parties thereto and
National Westminster Bank Plc, New York branch dated as of August 11, 1995
(Incorporated by Reference to Exhibit 4.5 on Form 10-Q of Apparel Retailers,
Inc., dated as of May 4, 1996). --
**4.13 Amended and Restated Series 1995-1 Supplement by and among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust (Delaware)
on behalf of the Series 1995- 1 Certificateholders dated as of May 30, 1996
(Incorporated by Reference to Exhibit 4.6 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996). --
**4.14 Amended and Restated Receivables Purchase Agreement among SRI Receivables
Purchase Co., Inc. and Originators dated as of May 30, 1996 (Incorporated by
Reference to Exhibit 4.7 on Form 10-Q of Apparel Retailers, Inc., dated May
4, 1996). --
**4.15 Certificate Purchase Agreements between SRI Receivables Purchase Co., Inc. and
the Purchasers of the Series 1993-1 Offered Certificates (Incorporated by
Reference to Exhibit 4.10 of Registration No. 33-68258 on Form S-4). --
**4.16 Revolving Certificate Purchase Agreement between SRI Receivables Purchase Co.,
Inc., the Facility Agent and the Revolving Purchasers with respect to the
Class A-R Certificates (Incorporated by Reference to Exhibit 4.11 of
Registration No. 33-68258 on Form S-4). --
**4.17 Revolving Credit Agreement by and among Specialty Retailers, Inc., Palais
Royal, Inc. and the First National Bank of Boston, as agent for itself and
other financial institutions dated January 29, 1994 (Incorporated by
Reference to Exhibit A of Current Report on Form 8-K of Apparel Retailers,
Inc. dated February 9, 1994). --
**4.18 First Amendment dated July 14, 1994 to Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc. and the First National Bank of
Boston, as agent for itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.13 on Form 10-K of
Apparel Retailers, Inc. dated January 28, 1995). --
**4.19 Second Amendment dated October 31, 1994 to Revolving Credit Agreement by and
among Specialty Retailers, Inc., Palais Royal, Inc. and the First National
Bank of Boston, as agent for itself and other financial institutions dated
as of January 28, 1994 (Incorporated by Reference to Exhibit 4.14 on Form
10-K of Apparel Retailers, Inc. dated January 28, 1995). --

<PAGE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
- ---------- ------------------------------------------------------------------------------- ------------
**4.20 Third Amendment dated January 5, 1995 to Revolving Credit Agreement by and
among Specialty Retailers, Inc., Palais Royal, Inc. and the First National
Bank of Boston, as agent for itself and other financial institutions dated
as of January 28, 1994 (Incorporated by Reference to Exhibit 4.15 on Form
10-K of Apparel Retailers, Inc. dated January 28, 1995). --
**4.21 Fourth Amendment dated March 31, 1995 to Revolving Credit Agreement by and
among Specialty Retailers, Inc., Palais Royal, Inc. and the First National
Bank of Boston, as agent for itself and other financial institutions dated
as of January 28, 1994 (Incorporated by Reference to Exhibit 4.16 on Form
10-K of Apparel Retailers, Inc. dated January 28, 1995). --
**4.22 Fifth Amendment dated July 7, 1995 to Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc., and the First National Bank
of Boston, as agent for itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.2 on Form 10-Q of
Apparel Retailers, Inc., dated October 28, 1995). --
**4.23 Sixth Amendment dated July 27, 1995 to Revolving Credit Agreement by and among
Specialty Retailers, Inc., Palais Royal, Inc. and the First National Bank of
Boston, as agent for itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.3 on Form 10-Q of
Apparel Retailers, Inc., dated October 28, 1995). --
**4.24 Seventh Amendment dated February 1, 1996 to Revolving Credit Agreement by and
among Specialty Retailers, Inc., Palais Royal, Inc., and the First National
Bank of Boston, as agent for itself and other financial institutions dated
as of January 28, 1994 (Incorporated by Reference to Exhibit 4.8 on Form
10-Q of Apparel Retailers, Inc., dated as of May 4, 1996). --
**4.25 Eighth Amendment dated as of May 30, 1996 to Revolving Credit Agreement by and
among Specialty Retailers, Inc., Palais Royal, Inc. and The First National
Bank of Boston, as agent for itself and other financial institutions dated
as of January 28, 1994 (Incorporated by Reference to Exhibit 4.9 on Form
10-Q of Apparel Retailers, Inc., dated May 4, 1996). --
**4.26 Seasonal Revolving Credit Agreement by and among Specialty Retailers, Inc.,
Palais Royal, Inc. and the First National Bank of Boston, as agent for
itself and other financial institutions dated March 31, 1995 (Incorporated
by Reference to Exhibit 4.17 on Form 10-K of Apparel Retailers, Inc. dated
January 28, 1995). --
**4.27 First Amendment dated July 7, 1995 to the seasonal Revolving Credit Agreement
by and among Specialty Retailers, Inc., Palais Royal, Inc., and the First
National Bank of Boston, as agent for itself and other financial
institutions dated March 31, 1995 (Incorporated by Reference to Exhibit 4.4
on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995). --
**4.28 Second Amendment dated July 27, 1995 to the seasonal Revolving Credit Agreement
by and among Specialty Retailers, Inc., Palais Royal, Inc., and the First
National Bank of Boston, as agent for itself and other financial
institutions dated March 31, 1995 (Incorporated by Reference to Exhibit 4.5
on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995). --
**4.29 Third Amendment dated February 1, 1996 to the seasonal Revolving Credit
Agreement by and among Specialty Retailers, Inc., Palais Royal, Inc., and
the First National Bank of Boston, as agent for itself and other financial
institutions dated March 31, 1995 (Incorporated by Reference to Exhibit 4.10
on Form 10-Q of Apparel Retailers, Inc., dated as of May 4, 1996). --

<PAGE>

SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
- ---------- ------------------------------------------------------------------------------- ----------
**4.30 Fourth Amendment dated as of May 30, 1996 to the seasonal Revolving Credit
Agreement by and among Specialty Retailers, Inc., Palais Royal, Inc. and The
First National Bank of Boston, as agent for itself and other financial
institutions dated as of March 31, 1995 (Incorporated by Reference to
Exhibit 4.11 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996). --
**4.31 Certificate Purchase Agreement among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc. and the Certificate Purchaser dated as of August
11, 1995 (Incorporated by Reference to Exhibit 4.9 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995). --
*5.1 Opinion of Kirkland and Ellis. --
**10.1 Purchase Agreement dated July 22, 1993 by and among Apparel Retailers, Inc.,
Specialty Retailers, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Bear, Stearns & Co. Inc. relating to the sale of Apparel
Retailers, Inc. 12 3/4% Senior Discount Debentures due 2005 (Incorporated by
Reference to Exhibit 10.1 of Registration No. 33-68258 on Form S-4). --
**10.2 Registration Rights Agreement dated August 2, 1993 by and among Apparel
Retailers, Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Bear, Stearns & Co. Inc. relating to the sale of Apparel Retailers, Inc. 12
3/4% Senior Discount Debentures due 2005 (Incorporated by Reference to
Exhibit 10.2 of Registration No. 33-68258 on Form S-4). --
**10.3 Senior Management Agreement and Stock Option Agreement between Specialty
Retailers, Inc., Bain Venture Capital, Citicorp Venture Capital, Ltd., and
Bernard Fuchs, dated as of May 26, 1989 (Incorporated by Reference to
Exhibit 10.8 of Registration No. 33-27714 on Form S-1) and Amendment to
Senior Management Agreement and Stock Option Agreement dated February 1,
1993 (Incorporated by Reference to Exhibit 10.3 of Registration No. 33-68258
on Form S-4). --
**10.4 Equity Stock Purchase Agreement by and among Specialty Retailers, Inc., Tyler
Capital Fund, L.P. Tyler Massachusetts, L.P., Tyler International, L.P.-I,
Tyler International, L.P.-II, Bain Venture Capital, Citicorp Capital
Investors, Ltd., Acadia Partners, L.P., Drexel Burnham Lambert Incorporated,
and certain other Purchasers, dated as of December 28, 1988 (Incorporated by
Reference to Exhibit 10.9 of Registration No. 33-27714 on Form S-1) and
Amendments to Equity Stock Purchase Agreement dated September 21, 1992 and
August 2, 1993 (Incorporated by Reference to Exhibit 10.4 of Registration
No. 33-68258 on Form S-4). --
**10.5 Registration Agreement by and among Specialty Retailers, Inc., Tyler Capital
Fund, L.P. Tyler Massachusetts, L.P., Tyler International, L.P.-I, Tyler
International, L.P.-II, Bain Venture Capital, Citicorp Capital Investors,
Ltd., Acadia Partners, L.P., Drexel Burnham Lambert Incorporated, and
certain other Purchasers, dated as of December 29, 1988 (Incorporated by
Reference to Exhibit 10.10 of Registration No. 33-27714 on Form S-1) and
Amendment to Registration Agreement dated August 2, 1993 (Incorporated by
Reference to Exhibit 10.5 of Registration No. 33-68258 on Form S-4). --
**10.6 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of
August 2, 1982 (Incorporated by Reference to Exhibit 10.11 of Registration
No. 33-27714 on Form S-1). --
**10.7 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of
March 15, 1979, as amended (Incorporated by Reference to Exhibit 10.12 of
Registration No. 33-27714 on Form S-1). --

<PAGE>

SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
- ---------- ------------------------------------------------------------------------------- ----------
**10.8 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of
November 7, 1978, as amended (Incorporated by Reference to Exhibit 10.13 of
Registration No. 33-27714 on Form S-1). --
**10.9 Lease Agreement between PR Investments and Palais Royal, Inc., dated October 4,
1983, as amended (Incorporated by Reference to Exhibit 10.14 of Registration
No. 33-27714 on Form S-1). --
**10.10 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of
December 21, 1983, as amended (Incorporated by Reference to Exhibit 10.15 of
Registration No. 33-27714 on Form S-1). --
**10.11 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of
March 21, 1985, as amended (Incorporated by Reference to Exhibit 10.16 of
Registration No. 33-27714 on Form S-1). --
**10.12 Lease Agreement between PR Investments and Palais Royal, Inc., dated as of
November 22, 1985, as amended (Incorporated by Reference to Exhibit 10.17 of
Registration No. 33-27714 on Form S-1). --
**10.13 Apparel Retailers, Inc. Stock Option Plan (Incorporated by Reference to Exhibit
10.13 to Registration No. 33-68258 on Form S-4). --
**10.14 Form of Stock Option Agreement between Apparel Retailers, Inc. and Executive to
be named therein (Incorporated by Reference to Exhibit 10.14 to Registration
No. 33-68258 on Form S-4). --
**10.15 Form of Management Agreement by an among Specialty Retailers, Inc., the Bain
Entities, Citicorp Venture Capital, Ltd. and Executive to be named therein
(Incorporated by Reference to Exhibit 10.22 of Registration No. 33-32045 on
Form S-1) and Form of First Amendment (Incorporated by Reference to Exhibit
10.15 to Registration No. 33-68258 on Form S-4). --
**10.16 Professional Services Agreement between Specialty Retailers, Inc. and Bain
Capital Partners (Incorporated by Reference to Exhibit 10.21 of Registration
No. 33-54504 on Form S-1). --
**10.17 Employment Agreement between Specialty Retailers, Inc. and Carl E. Tooker dated
June 9, 1993 (Incorporated by Reference to Exhibit 10.17 to Registration No.
33-68258 on Form S-4). --
**10.18 Stock Option Agreement between Specialty Retailers, Inc. and Carl E. Tooker
dated June 9, 1993 (Incorporated by Reference to Exhibit 10.18 to
Registration No. 33-68258 on Form S-4). --
**10.19 Purchase agreement dated September 2, 1994 by and among Palais Royal, Inc. and
Beall-Ladymon Corporation relating to the sale of certain assets of
Beall-Ladymon Corporation (Incorporated by Reference to Exhibit 10.1 on Form
10-Q of Apparel Retailers, Inc., dated July 30, 1994). --
**10.20 Purchase Agreement dated July 20, 1995 by and among Specialty Retailers, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, relating to the sale of
the Company's 11% Series C Senior Subordinated Notes due 2003 (Incorporated
by Reference to Exhibit 10.1 on Form 10-Q of Apparel Retailers, Inc., dated
October 28, 1995). --
**10.21 Registration Rights Agreement dated July 27, 1995 by and between Specialty
Retailers, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation,
relating to the sale of the Company's 11% Series C Senior Subordinated Notes
due 2003 (Incorporated by Reference to Exhibit 10.2 on Form 10-Q of Apparel
Retailers, Inc., dated October 28, 1995). --
**10.22 Employment Agreement between Mark Shulman and Specialty Retailers, Inc., dated
as of January 8, 1994 (Incorporated by Reference to Exhibit 10.1 on Form
10-Q of Apparel Retailers, Inc., dated April 29, 1995). --

<PAGE>

SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBERS
- ---------- ------------------------------------------------------------------------------- ----------
**10.23 Stock Option Agreement between Mark Shulman and Apparel Retailers, Inc., dated
as of January 31, 1994 (Incorporated by Reference to Exhibit 10.2 on Form
10-Q of Apparel Retailers, Inc., dated April 29, 1995). --
**10.24 Employment Agreement between James Marcum and Specialty Retailers, Inc., dated
as of May 15, 1995 (Incorporated by Reference to Exhibit 10.3 on Form 10-Q
of Apparel Retailers, Inc., dated April 29, 1995). --
**10.25 Employment Agreement between Stephen Lovell and Specialty Retailers, Inc.,
dated as of May 19, 1995 (Incorporated by Reference to Exhibit 10.4 on Form
10-Q of Apparel Retailers, Inc., dated April 29, 1995). --
**10.26 Agency Agreement between Specialty Retailers, Inc. and Palais Royal, Inc. dated
January 29, 1995 (Incorporated by Reference to Exhibit 10.26 on Form 10-K of
Apparel Retailers, Inc., dated February 3, 1996).
**10.27 Securities Purchase Agreement among Palais Royal, Inc. and certain selling
stockholders of Uhlmans, Inc. dated May 9, 1996 (Incorporated by Reference
to Exhibit 10.1 on Form 10Q of Stage Stores, Inc., datedJune 12, 1996. --
***12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. --
**21.1 List of Registrant's Subsidiaries (Incorporated by Reference to Exhibit 21.1 to
Registration No. 33-68258 on Form S-4). --
***23.1 Consent of Price Waterhouse LLP. --
***23.2 Consent of Ernst & Young LLP. --
*23.3 Consent of Kirkland & Ellis (included in opinion filed as Exhibit 5.1). --
***24.1 Powers of attorney (included in signature page included in this Part II).
</TABLE>

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

* To be filed by amendment.

** Previously filed.

*** Filed herewith.

<PAGE>

EXHIBIT 12.1

STAGE STORES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)

<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1Q 1995 1Q 1996
------ ------ ------ ------ ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before extraordinary income .... $ 3,961 $12,235 $13,426 $ 6,630 $10,730 $ 2,438 $ 2,652
Minority interest in Bealls Holding ... 749 -- -- -- -- -- --
Income tax expense .................... 3,993 8,340 7,569 4,317 6,767 1,833 1,1805
---- ---- ---- ---- ---- ------- ------
Income before income tax, minority
interest and extraordinary item ..... 8,703 20,575 20,995 10,947 17,497 4,271 4,457
==== ==== ==== ==== ==== ======= ======
Fixed charges charged to expense:
Rental expense (1) .................... 7,275 7,575 8,803 8,879 10,051 2,212 2,507
Interest expense ...................... 33,928 32,384 37,607 41,694 44,770 10,724 11,714
Dividend and accretion on redeemable
preferred stock of subsidiary ....... 749 -- -- -- -- -- --
---- ---- ---- ---- ---- ------- ------
Total fixed charges charged to
expense ............................. 41,952 39,959 46,410 50,573 54,821 12,936 14,221
---- ---- ---- ---- ---- ------- ------
Income before income tax, minority
interest, extraordinary item and
fixed charges charged to expense .... $50,655 $60,534 $67,405 $61,520 $72,318 $17,207 $18,678
==== ==== ==== ==== ==== ======= ======
Fixed charges charged to accruals:
Rental expense (1) .................... $ 898 $ 803 $ 298 $ 446 $ 1,516 $ 1,211 $ 67
Interest expense ...................... 667 381 -- -- -- -- --
---- ---- ---- ---- ---- ------- ------
Total fixed charges charged to
accruals ............................ 1,565 1,184 298 446 1,516 1,211 67
---- ---- ---- ---- ---- ------- ------
Total fixed charges ................... $43,517 $41,143 $46,708 $51,019 $56,337 $14,147 $14,288
==== ==== ==== ==== ==== ======= ======
Radio of earnings to fixed charges .... 1.16 1.47 1.44 1.21 1.28 1.22 1.31
==== ==== ==== ==== ==== ======= ======
</TABLE>

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

(1) Rental expense comprises one-third of all rental expenses incurred during
the period.
This is deemed by management to be representative of the interest factor
of rental payments.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 15, 1996,
relating to the financial statements of Stage Stores, Inc. which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedules for the period and two years ended February 3,
1996 listed under Item 16(b) of this Registration Statement when such
schedules are read in conjunction with the financial statements referred to
in our report. The audits referred to in such report also included these
schedules. We also consent to the references to us under the headings
"Experts" in such Prospectus.

PRICE WATERHOUSE LLP

Houston, Texas
June 12, 1996

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 22, 1996, with respect to the financial
statements of Uhlmans Inc. included in the Registration Statement (Form S-1
No. 333- ) and related prospectus of Stage Stores, Inc. for the
registration of shares of its common stock.

Ernst & Young LLP

Toledo, Ohio
June 12, 1996