STAGE STORES INC, 424B1, 1997-09-17

STAGE STORES INC
424B1, 1997-09-17
DEPARTMENT STORES

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<PAGE> 1
As Filed Pursuant to Rule 424(b)(1)
Registration No. 333-34415

6,448,018 Shares

[STAGE STORES INC. LOGO]

Common Stock

($.01 par value)

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

All of the shares of Common Stock, par value $.01 per share (the "Common Stock")
of Stage Stores, Inc., a Delaware corporation ("Stage" or the "Company"),
offered hereby (the "Offering") are being sold by the Selling Stockholders named
herein under "Principal and Selling Stockholders." The Company will not receive
any proceeds from the sale of shares by the Selling Stockholders.

The Common Stock is listed on the Nasdaq National Market under the symbol
"STGE". On September 16, 1997, the last reported sales price of the Common Stock
on the Nasdaq National Market was 34 7/8 per share. See "Price Range of Common
Stock."

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREIN.

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>
<S> <C> <C> <C>
Underwriting Proceeds to
Price to Discounts and Selling
Public Commissions Stockholders(1)
----------------------------------------------------
Per Share.................................. $34.875 $1.48 $33.395
Total (2).................................. $224,874,627 $9,543,066 $215,331,561
</TABLE>

(1) The Company will pay expenses related to the Offering estimated at
$520,000.

(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 650,000
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $247,543,377,
Underwriting Discounts and Commissions will be $10,505,066, Proceeds to
Selling Stockholders will be $215,331,561, and Proceeds to the Company will
be $21,706,750.

The shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the shares will be ready
for delivery on or about September 22, 1997, against payment in immediately
available funds.

CREDIT SUISSE FIRST BOSTON BEAR, STEARNS & CO. INC.

Prospectus dated September 16, 1997.
<PAGE> 2

[PICTURES]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by 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"), together
with its wholly owned subsidiaries. Unless otherwise specified, the information
contained herein assumes that the Underwriters' over-allotment option is not
exercised. References to a particular year are 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 "1996" is a reference to
the fiscal year ended February 1, 1997).

THE COMPANY

The Company operates the store of choice for well known, national brand
name family apparel in over 400 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 branded merchandise with a
high level of customer service in convenient locations.

As of August 2, 1997, the Company operated 578 stores in 24 states
throughout the central United States primarily under the "Stage," "Bealls" and
"Palais Royal" trade names. Of these stores, the Company acquired 246 stores
through the acquisition (the "Acquisition") of C.R. Anthony Company ("CR
Anthony") on June 26, 1997. The Company intends to convert the acquired stores
to its existing format and trade names during the remainder of 1997 and the
first half of 1998. See "The Acquisition." Approximately 80% of the Company's
stores are located in small markets and communities with populations generally
below 30,000 people, some with as few as 4,000 people. The remainder of the
Company's stores operate in metropolitan areas, primarily in suburban Houston.
The Company's store format (averaging approximately 16,000 selling square feet)
and merchandising capabilities enable the Company to operate profitably in small
markets. For 1996, after giving effect to the Refinancing (as defined), the
Acquisition and the acquisition of Uhlmans Inc. ("Uhlmans") in June 1996 (the
"Uhlmans Acquisition") as if each had occurred at the beginning of the year,
sales and operating income would have been $1.1 billion and $89.9 million,
respectively.

The Company's merchandise offerings include a carefully edited but broad
selection of brand name, moderately priced, fashion apparel, accessories,
fragrances, cosmetics and footwear for women, men and children. Over 85% of 1996
sales consisted of brand name merchandise, including nationally recognized
brands such as Calvin Klein, Chaps/Ralph Lauren, Guess, Haggar Apparel, Hanes,
Levi Strauss, Liz Claiborne, Nike and Reebok.

The Company generally faces less competition for brand name apparel as a
result of its small market focus. In those markets, competition generally comes
from local retailers or small regional chains as most national department stores
do not operate in small markets, and access to brand name merchandise generally
requires travel to distant regional malls with national department stores. In
those small markets where the Company does compete for brand name apparel sales,
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 program; 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, the Company generally does not directly compete for brand name apparel
sales with national discounters such as Wal-Mart.

through new merchandising and operating programs. As a result of these
initiatives, as well as the lower operating costs of small market stores, the
Company has among the highest operating income margins in the apparel retailing
industry.

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 selling square feet, which is smaller than typical
department stores yet large enough to offer a well edited, but broad selection
of merchandise. In 1996, 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 17%, as compared to 12% for its
larger market stores.

Benefits of Strong Vendor Relationships. The Company's extensive store base
offers major vendors a unique vehicle for accessing many 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
merchandise. The financial and other limitations of many local retailers have,
however, 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 frequently not carried by local competitors. Additionally,
the Company continuously seeks to expand its vendor base and has recently added
nationally recognized brand names such as Dockers for Women, Oshkosh and Polo,
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, brand name merchandise
categories of women's, men's and children's apparel, accessories, fragrances,
cosmetics and footwear, which have traditionally experienced attractive 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 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, as a result, the Company believes it
experiences a higher percentage of proprietary credit card sales (approximately
50% of net sales in 1996) than most apparel 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.
4
<PAGE> 5

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 and compensated
based upon the attainment of specific customer service standards such as
offering prompt assistance, suggesting complementary items, sending thank-you
notes to credit card 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 4,500 calls each
month to 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 many of its small
market stores, locating the store manager on the selling floor to increase
accessibility to customers.

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 1995, and opened 35 new stores
and acquired 34 stores in 1996. The Company expects to open approximately 55 new
stores in 1997 in addition to the 246 stores acquired pursuant to the
Acquisition.

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

New Store Openings in Small 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 with populations
from 12,000 to 30,000 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 45 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 of approximately $53.4 million, whereas during the first
four full quarters operated by Stage (the 12 months ended August 3, 1996), the
newly opened Stage stores in the same locations generated sales of $95.0
million, an increase of 78%. Over the same period, store contribution more than
doubled.

In June 1996, the Company acquired Uhlmans, a privately held retailer with
34 locations in Ohio, Indiana and Michigan, where the Company previously had no
stores. These stores were of similar size and merchandise content to the
Company's existing stores and were compatible with the Company's retailing
concept and growth strategy. For 1995, Uhlmans had net sales of $59.7 million
and operating income of $2.2 million. For the first six full months since the
merchandising function of Uhlmans was completely integrated (December 1996
through May 1997), sales at Uhlmans stores increased approximately 6% over the
comparable period in the prior year, which represents the last six months prior
to the consummation of the Uhlmans Acquisition. The Company believes that
certain changes to the merchandise mix and an increase in proprietary credit
card-based sales will provide further improvement over Uhlmans historical
results.

Expansion to Micromarkets. The Company believes that there is significant
growth potential targeting communities with populations from 4,000 to 12,000
("micromarkets") using a scaled-down, further edited version of the Company's
small market format. This avenue for growth would be designed to capitalize on
the Company's historically favorable operating experience in markets of this
size. The Company believes that it can successfully operate in micromarkets
because: (i) the Company can tailor its existing successful small market store
model to the appropriate size for these micromarkets (approximately 10,000
selling square feet and smaller); and (ii) micromarkets are generally
characterized by lower levels of competition and lower labor and occupancy costs
compared to small markets. The Company has identified approximately 1,200
potential micromarkets in the central United States and contiguous states which
meet these criteria.

THE ACQUISITION

On June 26, 1997, the Company acquired CR Anthony which operated 246 family
apparel stores in small markets throughout the central and midwestern United
States under the names "Anthonys" and "Anthonys Limited." The Company believes
the Acquisition will strengthen the Company's position as a leading retailer of
national brand name apparel in small markets throughout the central and
midwestern United States where CR Anthony had been operating for over 70 years.
For the fiscal year ended February 1, 1997, CR Anthony's net sales and EBITDA
were $288.4 million and $14.0 million, respectively.

CR Anthony's operating strategy was to offer brand name and private label
apparel and footwear for the entire family at competitive prices. The acquired
stores are located in 18 states, with the highest concentrations in Texas,
Oklahoma, Kansas and New Mexico. Approximately 85% of CR Anthony stores are
located in small markets and communities with populations generally below 30,000
and its store format averages approximately 12,000 selling square feet.

The Company believes that the Acquisition is consistent with its growth
strategy to expand as a retailer of moderately priced, national brand name
apparel into underserved, small markets through both organic store development
and strategic acquisitions. The Acquisition provides an opportunity for the
Company to accelerate its expansion program in existing markets and extend its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) there is a relatively small number of markets in which the two
companies directly overlap; (ii) a majority of the acquired stores are in
markets which fit the Company's demographic profile; (iii) a majority of the
acquired stores are comparable in size to the Company's stores in similar
markets; and (iv) the acquired stores are located in states which are the same
as or are contiguous to states in which the Company currently operates.

The addition of the CR Anthony stores not only expands the geographic reach
of the Company, but it is expected that there will be meaningful synergies
between the Company and CR Anthony including: (i) central overhead cost savings;
(ii) CR Anthony revenue enhancement opportunities; and (iii) CR Anthony gross
margin improvement opportunities. The Company intends to convert the "Anthonys"
and "Anthonys Limited" stores to the Company's format under its "Stage" and
"Bealls" trade names during the remainder of 1997 and the first half of 1998.
The Company expects to realize the aforementioned synergies once the integration
and conversion process is substantially complete.

THE REFINANCING

On June 17, 1997, the Company completed an offering of $300.0 million of
long-term indebtedness (the "Note Offering") consisting of $200.0 million in
aggregate principal amount of 8 1/2% Senior Notes Due 2005 (the "Senior Notes")
and $100.0 million in aggregate principal amount of 9% Senior Subordinated Notes
Due 2007 (the "Senior Subordinated Notes" and together with the Senior Notes,
the "Notes"). The gross proceeds from the Note Offering of approximately $299.7
million were used: (i) to retire approximately $248.2 million of the Company's
existing higher coupon long-term indebtedness and to pay related fees and
expenses; and (ii) to pay transaction and other costs associated with the
Acquisition.

Concurrently with the Note Offering, the Company entered into a $200.0
million new credit facility with a group of lenders (the "Credit Agreement").
The Credit Agreement provides for a $100.0 million working capital
6
<PAGE> 7

and letter of credit facility (the "Working Capital Facility") and a $100.0
million expansion revolving credit facility (the "Expansion Facility"). See
"Description of Certain Indebtedness." The Credit Agreement, the Note Offering
and related retirement of approximately $248.2 million of the Company's existing
indebtedness are collectively referred to herein as the "Refinancing."

The Company believes the Refinancing provides a more flexible permanent
capital structure which: (i) lowers the Company's weighted average cost of
borrowing; (ii) extends the average maturities of the Company's debt; (iii)
increases the Company's working capital facilities to support its operations;
and (iv) provides increased financial flexibility to allow the Company to
continue to implement its growth strategy.
7
<PAGE> 8

THE OFFERING

Common Stock offered by
Selling Stockholders.......... 6,448,018

Common Stock to be outstanding
after the Offering(1)......... 27,028,347

Use of Proceeds............... All shares offered hereby are being sold by the
Selling Stockholders. The Company will not
receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Use of
Proceeds."

Nasdaq National Market
symbol........................ "STGE"
- ---------------

(1) Includes 1,250,584 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 1,742,429
shares that may be issued upon the exercise of options granted pursuant to
the 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 (800) 579-2302.
8
<PAGE> 9

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. The summary pro
forma combined financial and operating data were derived from the Unaudited Pro
Forma Combined Income Statements of the Company and give effect to the
Acquisition, the Refinancing, the Uhlmans Acquisition and the retirement of the
Company's 12 3/4% Senior Discount Debentures due 2000 (the "Senior Discount
Debentures") with the proceeds of the Company's initial public offering
completed during the third quarter of 1996 (the "IPO"), as if they had occurred
at the beginning of the period. The information in the table should be read in
conjunction with "Unaudited Pro Forma Combined Income Statements", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
------------------------------------------------------------------ ------------------------------
PRO
PRO FORMA
FORMA AUG. 3, AUG. 2, AUG. 2,
1992 1993(1) 1994 1995(2) 1996(3) 1996 1996 1997 1997
-------- -------- -------- -------- -------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $504,401 $557,422 $581,463 $682,624 $776,550 $1,081,458 $345,927 $429,649 $538,149
Cost of sales and related
buying, occupancy and
distribution expenses... 350,136 384,843 398,659 468,347 532,563 759,488 237,223 293,822 380,088
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Gross profit.............. 154,265 172,579 182,804 214,277 243,987 321,970 108,704 135,827 158,061
Selling, general and
administrative
expenses................ 99,523 115,008 126,200 149,102 172,579 229,232(4) 78,433 94,663 115,630(4)
Store opening and closure
costs................... 120 199 5,647 3,689 2,838 2,838 301 904 904
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Operating income(5)....... 54,622 57,372 50,957 61,486 68,570 89,900 29,970 40,260 41,527
Interest, net............. 31,771 36,377 40,010 43,989 45,954 38,685 24,054 18,391 19,140
Other non-operating
expense................. 2,276 -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Income before income tax
and extraordinary
item.................... 20,575 20,995 10,947 17,497 22,616 51,215 5,916 21,869 22,387
Income tax expense........ 8,340 7,569 4,317 6,767 8,594 19,907 2,396 8,529 8,803
-------- -------- -------- -------- -------- ---------- -------- -------- --------
Income before
extraordinary item...... $ 12,235 $ 13,426 $ 6,630 $ 10,730 $ 14,022 $ 31,308 $ 3,520 $ 13,340 $ 13,584
======== ======== ======== ======== ======== ========== ======== ======== ========
Earnings per common share
before extraordinary
item.................... $ 1.01 $ 1.09 $ 0.53 $ 0.84 $ 0.88 $ 1.15 $ 0.27 $ 0.54 $ 0.49
======== ======== ======== ======== ======== ========== ======== ======== ========
MARGIN AND OTHER DATA:
Gross profit margin....... 30.6% 31.0% 31.4% 31.4% 31.4% 29.8% 31.4% 31.6% 29.4%
Operating income
margin(5)............... 10.8% 10.3% 8.8% 9.0% 8.8% 8.3% 8.7% 9.4% 7.7%
Adjusted operating income
margin(6)............... 8.7% 8.4% 9.2% 9.4% 9.2% -- 7.8% 9.6% --
Adjusted operating
income(6)............... $ 43,680 $ 46,828 $ 53,677 $ 63,996 $ 71,628 $ -- $ 27,128 $ 41,037 $ --
Depreciation and
amortization............ 9,065 9,259 9,997 12,816 14,181 18,520(7) 6,844 8,003 9,002(7)
Capital expenditures...... 7,631 8,503 19,706 28,638 26,096 31,964(7) 15,183 20,797 10,805(7)
STORE DATA:(8)
Comparable store sales
growth:
Bealls/Stage(9)......... 5.1% 7.2% 4.8% 3.3% 5.1% -- 7.7% 7.2% --
Palais Royal............ (9.8)% 0.8% 1.7% 1.4% 0.7% -- 6.3% (1.3)% --
Total Company(10)... 1.8% 6.3% 4.1% 0.8%(11) 3.3% -- 7.3% 5.3% --
Net sales per selling
square foot:
Bealls/Stage(9)......... $ 118 $ 129 $ 138 $ 142 $ 141 $ -- $ -- $ -- $ --
Palais Royal............ 191 200 205 203 202 -- -- -- --
Total Company(10)....... 138 149 157 157 151 -- -- -- --
Total selling square
footage (in
thousands)(12).......... 3,418 3,472 3,516 4,581 5,677 8,653 5,361 9,125 9,125
Number of stores open at
end of period(12)....... 175 180 188 256 315 539 308 578 578
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital........................................................................................... $261,615 --
Total assets.............................................................................................. 662,677 --
Long-term debt............................................................................................ 356,877 --
Stockholders' equity...................................................................................... 160,735 --
</TABLE>

9
<PAGE> 10

NOTES TO SUMMARY CONSOLIDATED
HISTORICAL AND PRO FORMA COMBINED FINANCIAL AND OPERATING DATA

(1) During 1993, the Company completed: (i) the refinancing of its existing
debt and preferred stock (the "1993 Financing"); and (ii) a cash
distribution (the "Distribution") to the Company's stockholders. As a
result of the 1993 Financing, the Company recorded an after-tax
extraordinary charge of $16.2 million. Pursuant to the Distribution, the
Company issued the Senior Discount Debentures which were sold at a discount
of approximately $69.1 million. Substantially all of the $80.0 million in
proceeds from the issuance of the Senior Discount Debentures were used to
make the Distribution.

(2) 1995 includes 53 weeks. Comparable store sales growth and net sales per
selling square foot for 1995 have been determined based on a comparable
fifty-two week period.

(3) The net proceeds of the IPO were used primarily to retire the Senior
Discount Debentures. In addition, the Company replaced its working capital
facility during January 1997. As a result of these transactions, the
Company recorded an extraordinary charge of $16.1 million, net of
applicable income taxes of $9.8 million.

(4) Includes store opening and closure costs for CR Anthony.

(5) Operating income and operating income margin decreased during 1994 compared
to 1993 due primarily to the impact of the implementation of an accounts
receivable securitization program (the "Accounts Receivable Program") (see
Note 3 to the Company's Consolidated Financial Statements and Note 6
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"). See Note 5 to the Company's Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

(6) Adjusted operating income represents operating income adjusted to eliminate
store opening and closure costs, and the impact on operating income of the
Company's proprietary credit card program (including the Accounts
Receivable Program).

<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
----------------------------------------------------- ----------------------
AUGUST 3, AUGUST 2,
1992 1993 1994 1995 1996 1996 1997
-------- -------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income............ $ 54,622 $ 57,372 $50,957 $61,486 $68,570 $29,970 $40,260
Store opening and closure
costs..................... 120 199 5,647 3,689 2,838 301 904
(Income)/expense related to
the proprietary credit
card program.............. (11,062) (10,743) (2,927) (1,179) 220 (3,143) (127)
-------- -------- ------- ------- ------- ------- -------
Adjusted operating income... $ 43,680 $ 46,828 $53,677 $63,996 $71,628 $27,128 $41,037
======== ======== ======= ======= ======= ======= =======
</TABLE>

The impact of the Company's proprietary credit card program (including the
Accounts Receivable Program) is reflected in the Company's selling, general
and administrative expenses and is calculated as: (i) service charge income
less (ii) servicing costs, bad debt costs and return to certificateholders
less (iii) the increase (or plus a decrease) in the fair value of the
Retained Certificates (see Note 1 to the Company's Consolidated Financial
Statements).

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.

(7) Pro forma depreciation and amortization and capital expenditures for 1996
and the six months ended August 2, 1997 do not reflect approximately $38.0
million of capital expenditures anticipated in the CR Anthony Integration
Plan. See "Unaudited Pro Forma Combined Income Statements."
10
<PAGE> 11

(8) 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.

(9) 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 SIX MONTHS ENDED
-------------------------------- ---------------------
AUGUST 3, AUGUST 2,
BEALLS/STAGE 1992 1993 1994 1995 1996 1996 1997
------------ ---- ---- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales
growth....................... 6.7% 7.7% 4.6% 0.2% 5.1% 7.7% 7.3%
Net sales per selling square
foot......................... $125 $137 $146 $145 $141 -- --
</TABLE>

(10) Total Company comparable store sales growth and net sales per selling
square foot including the stores which were part of the Store Closure Plan
were as follows:

<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
-------------------------------- ---------------------
AUGUST 3, AUGUST 2,
TOTAL COMPANY 1992 1993 1994 1995 1996 1996 1997
------------- ---- ---- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable store sales
growth....................... 1.8% 5.4% 3.2% 0.5% 3.3% 6.8% 5.3%
Net sales per selling square
foot......................... $138 $143 $151 $150 $151 -- --
</TABLE>

(11) 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 been 3.0%.

(12) Excludes data related to the stores which were included in the Store
Closure Plan. Data are as of the end of the period.
11
<PAGE> 12

RISK FACTORS

In addition to the other information and data included in this Prospectus,
the following factors should be considered carefully prior to making an
investment in the Common Stock offered hereby.

LEVERAGE AND RESTRICTIVE COVENANTS

The Company has a significant amount of outstanding indebtedness. As of
August 2, 1997, the Company had outstanding indebtedness of $359.6 million in
principal amount (including the Notes and excluding trade payables, accrued
liabilities and unused commitments under the Credit Agreement). See
"Capitalization."

The Company's significant leverage poses several risks to the Company,
including the risks that: (i) a substantial portion of the Company's cash flow
from operations will be dedicated to the payment of principal and interest on
the Company's indebtedness; (ii) the Company's highly leveraged position may
impede its ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes, including acquisitions;
(iii) the Company's highly leveraged financial position may make it more
vulnerable to economic downturns and may limit its ability to withstand
competitive pressures; (iv) to the extent that the Company incurs any
indebtedness under the Credit Agreement, which indebtedness will be at variable
rates, the Company will be vulnerable to increases in interest rates; (v) the
certificates outstanding under the Accounts Receivable Program bear interest at
floating rates which results in the Company being vulnerable to higher interest
rates; and (vi) the Company's flexibility in planning for or reacting to changes
in market conditions may be limited. In addition, the Company's debt imposes
operating and financial restrictions on the Company and certain of its
subsidiaries. Such restrictions limit, among other things, the Company's ability
to incur additional indebtedness, to make dividend payments and to make capital
expenditures. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Certain Indebtedness."

INTEGRATION OF CR ANTHONY

The integration and consolidation of CR Anthony will require substantial
management, financial and other resources and may pose risks with respect to
sales, customer service and market share. For example, the Company will need to
sell a substantial amount of existing inventory in CR Anthony stores at
discounted prices, expend capital to remodel the stores in a manner more
consistent with the Company's existing format and integrate the CR Anthony
stores' operating procedures into the Company's management information systems
process and operations. The Acquisition is significantly larger than any
acquisition the Company has previously made and, while the Company believes that
it has sufficient financial and management resources to accomplish the
integration of CR Anthony, there can be no assurance in this regard or that the
Company will not experience difficulties with customers, personnel, assignments
of leases or obtaining other required consents, or other factors. Although the
Company believes that the Acquisition will enhance the competitive position and
business prospects of the Company, there can be no assurance that such benefits,
including, without limitation, expected cost savings, revenue enhancement and
margin improvement, will be realized or that the combination of the Company and
CR Anthony will be successful. See "The Acquisition."

FUTURE GROWTH STRATEGY

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 consummate 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, the integration of new stores and inventory procedures
into the Company's management information systems and operations and the
capability of the Company's existing distribution system to accommodate newly
acquired stores. 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's growth strategy may significantly expand

12
<PAGE> 13

the Company's capital expenditure and working capital requirements, and the
Company's ability to meet such requirements may be adversely affected by the
Company's level of indebtedness and the restrictive covenants contained therein,
especially in periods of economic downturn. See "Business."

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 30
stores located near the border of Mexico, including 13 stores acquired in the
Acquisition, and may open additional stores in that region. Economic conditions
in Mexico, particularly the significant devaluation of the Mexican peso may have
a negative impact on sales in several of these stores. For example, the
devaluation of the Mexican peso in December 1994 had a material adverse impact
on six stores during 1995.

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
(February through October) 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 or profitability for the last three
months of the year could have a material adverse effect on the Company's
business and financial condition.

COMPETITION

The retail apparel business is highly competitive. Although competition
varies widely from market to market, the Company faces substantial competition
from national, regional and local department and specialty stores, particularly
in certain metropolitan areas where the Company faces such competition, which
accounted for approximately 23% of the Company's 1996 sales. Some of the
Company's competitors are considerably larger than the Company and have
substantially greater financial and other resources. Although the Company
currently offers branded merchandise not available at certain other retailers
(including large national discounters) in its small market stores, there can be
no assurance that existing or new competitors will not begin to carry similar
branded merchandise, which could have a material adverse effect on the Company's
business and financial condition. In addition, there can be no assurance that
new competitors will not enter the Company's existing markets.

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends to a large extent on its executive
management team, including the Company's Chairman, 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 -- Directors and Executive Officers."

13
<PAGE> 14

CONSUMER CREDIT RISKS

Private Label Credit Card Portfolio. Sales under the Company's private
label credit card program represent a significant portion of the Company's
business. In recent years, there have been substantial increases in the rate of
charge-offs on the Company's accounts receivable. To date, aggregate increases
in finance and service charges have offset a significant portion of the
increases in charge-offs. However, further 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 charges applied to outstanding balances), could have a material adverse
effect on the Company's business and financial condition. There can be no
assurance that the rate of charge-offs on the Company's accounts receivable
portfolio will not increase further or that increases in finance charges and
late fee collections will continue to offset any such increases in charge-offs.

Accounts Receivable Program/Interest Rate Risk. The Company currently
securitizes substantially all of the receivables derived from its proprietary
credit card accounts through the Accounts Receivable Program. Under this
program, the Company causes such receivables to be transferred to the Trust,
which from time to time issues floating rate certificates to investors backed by
such receivables. The Accounts Receivable Program has provided the Company with
substantially more liquidity at more attractive rates (through the issuance and
sale of such certificates) than it would have had without this program. There
can be no assurance that the Company will be able to continue to securitize its
receivables in this manner. There can be no assurance that receivables will
continue to be generated by credit card holders, 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, deterioration in the
rate or pattern of cardholder payments on accounts or adverse change in the
floating rates of the investor certificates could have a material adverse effect
on the Company's business and financial condition. In addition, significant
increases in the floating rates paid on investor certificates and/or significant
deterioration in the performance of the Company's receivables portfolio could
trigger an early repayment requirement, which could materially adversely affect
liquidity. The Company is protected to a certain extent by rate caps on these
certificates. If the rate on these certificates increases, however, the
Company's operating results could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Integration of CR Anthony Private Label Credit Card Program. Prior to the
Acquisition, CR Anthony sold all its private label credit card accounts
receivable to Citicorp Retail Services, Inc. ("Citicorp") pursuant to a Retail
Credit Services Agreement. Pursuant to this agreement, Citicorp has the right to
purchase all sales under the CR Anthony private label credit card program. The
Company and Citicorp have agreed to terminate this agreement effective September
11, 1997. Under the terms of this termination agreement, the Company will pay
Citicorp a termination fee. Additionally, the Company will repurchase any
outstanding accounts receivable on the termination date (September 11, 1997) at
their face value. The Company intends to incorporate these accounts receivable
into the Accounts Receivable Program. There can be no assurance that the Company
will be successful in incorporating the accounts receivable purchased from
Citicorp into the Accounts Receivable Program on a timely basis. CR Anthony had
historically been less successful than the Company in generating sales on its
private label credit card and there can be no assurance that the Company will be
successful in increasing the penetration of its private label credit card usage
in the stores acquired, or that such customers will be of acceptable credit risk
to the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 27,028,347 shares of
Common Stock outstanding. The 6,448,018 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.

The Company, the Selling Stockholders, the executive officers and directors
of the Company and certain other stockholders of the Company, including the
Citicorp Entities (as defined), have agreed that they will not offer, sell,
contract to sell, grant any option to purchase, establish a put equivalent
position (as defined in

14
<PAGE> 15

Rule 1a-1(h) under the Exchange Act), pledge or otherwise dispose of, directly
or indirectly, or file or cause to be filed with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
shares of Common Stock, or any securities that are convertible into or
exercisable or exchangeable for, or that represent the right to receive, shares
of Common Stock, or publicly disclose the intention to make any such offer,
sale, grant, establishment, pledge, disposal or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days from the date of this Prospectus. Beginning 90 days from the date of this
Prospectus, 2,419,216 shares of Common Stock subject to lock-up agreements will
be eligible for sale.

No prediction can be made as to the effect 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."

RESTRICTION ON PAYMENT OF DIVIDENDS ON COMMON STOCK

Since the IPO, the Company has not declared or paid any regular cash or
other dividends on the Common Stock and does not expect to pay cash dividends
for the foreseeable future. The indentures governing the Notes generally
restrict the ability of Stage to pay dividends. The Credit Agreement also
contains restrictive covenants that restrain Stage from paying dividends. See
"Dividend Policy."

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's certificate of incorporation and bylaws
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 bylaws; (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> 16

THE ACQUISITION

On June 26, 1997, the Company acquired CR Anthony which operated 246 family
apparel stores in small markets throughout the central and midwestern United
States under the names "Anthonys" and "Anthonys Limited." The Company intends to
convert the "Anthonys" and "Anthonys Limited" stores to the Company's format
under the "Stage" and "Bealls" trade names during the remainder of 1997 and the
first half of 1998. The Company believes the Acquisition will strengthen the
Company's position as a leading retailer of national brand name apparel in small
markets throughout the central and midwestern United States where CR Anthony had
been operating for over 70 years. For the fiscal year ended February 1, 1997, CR
Anthony's net sales and EBITDA were $288.4 million and $14.0 million,
respectively.

The Company believes that the Acquisition is consistent with its growth
strategy to expand as a retailer of moderately priced, national brand name
apparel into underserved, small markets through both organic store development
and strategic acquisitions. The Acquisition provides an opportunity for the
Company to accelerate its expansion program in existing markets and extends its
presence in new markets. The Company believes that the Acquisition is attractive
because: (i) there is a relatively small number of markets in which the two
companies directly overlapped; (ii) a majority of the acquired stores are in
markets which fit the Company's demographic profile; (iii) a majority of the
acquired stores are comparable in size to the Company's stores in similar
markets; and (iv) the acquired stores are located in states which are the same
as or are contiguous to states in which the Company currently operates.

The addition of the CR Anthony stores not only expands the geographic reach
of the Company, but the Company believes there will be meaningful synergies
between the Company and CR Anthony including: (i) central overhead cost savings;
(ii) CR Anthony revenue enhancement opportunities; and (iii) CR Anthony gross
margin improvement opportunities. The Company expects to realize the
aforementioned synergies once the integration and conversion process is
substantially complete.

Cost Savings. The Company has formally adopted a detailed integration plan
to absorb CR Anthony's general office functions, including accounting, data
processing, merchandising, personnel and distribution into similar functions
provided by the Company (the "CR Anthony Integration Plan"). The Company
believes that the central overhead cost savings (before amortization of capital
investments) from the CR Anthony Integration Plan should be approximately $10
million per year once the operations are fully integrated.

Revenue Enhancements. The Company generates significantly greater sales
productivity than CR Anthony. In 1996, on a sales per square foot basis, the
Company's small market stores generated sales of $141 per square foot versus
sales of $99 per square foot for all CR Anthony stores. The Company believes
that it has the opportunity over time to increase sales per square foot in CR
Anthony stores through a variety of measures including: (i) increasing sales of
women's apparel, an area in which CR Anthony was historically less focused; (ii)
introducing and expanding cosmetics, fragrance and accessories departments which
CR Anthony did not offer in many of its stores; (iii) improving the acquired
stores' overall merchandise selection based on the Company's experience and
strong vendor relationships; (iv) emphasizing sales on the Company's private
label credit card, which was underutilized by CR Anthony; and (v) extending
store hours of operation in certain markets to conform with the Company's
standard practice.

Gross Margin Improvements. The Company believes that it has the opportunity
over time to improve the gross margin in the stores acquired (which was 24.5%
for CR Anthony in 1996, calculated on a basis comparable to Stage, versus 31.4%
for the Company in 1996) by: (i) adjusting the merchandise mix to emphasize
higher margin categories within women's, men's and children's; (ii) introducing
and expanding high margin areas such as fragrances, cosmetics and accessories;
and (iii) improving upon the prices at which CR Anthony was able to buy
merchandise from certain vendors.

16
<PAGE> 17

The Company issued approximately 3.6 million shares of Common Stock to
stockholders of CR Anthony in connection with the Acquisition. The Acquisition
was structured as a merger with CR Anthony merging with and into its
wholly-owned operating subsidiary, Specialty Retailers, Inc. ("SRI"), and SRI
surviving with all its rights, privileges, powers and franchises unaffected by
the merger. The separate corporate existence of CR Anthony ceased.

17
<PAGE> 18

USE OF PROCEEDS

All shares of Common Stock offered hereby are being sold by the Selling
Stockholders. The Company will not receive any proceeds from the sale of shares
by the Selling Stockholders. If the Underwriters' over-allotment option is
exercised, the proceeds received by the Company from such exercise will be used
to reduce the average amount of borrowings outstanding under the Working Capital
Facility. See "Description of Certain Indebtedness."

DIVIDEND POLICY

Since the IPO, the Company has not declared or paid any regular cash or
other dividends on its Common Stock and does not expect to pay cash 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 existing 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" and "-- Restriction on Payment of Dividends on Common
Stock."

PRICE RANGE OF COMMON STOCK

The Common Stock commenced trading on the Nasdaq National Market under the
symbol "STGE" on October 25, 1996. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock on the
Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
Third Quarter (from October 25, 1996)............................ $19.75 $18.00
Fourth Quarter................................................... $20.50 $16.50
FISCAL 1997
First Quarter.................................................... $25.00 $17.00
Second Quarter................................................... $29.88 $18.50
Third Quarter (through September 16, 1997)....................... $35.75 $28.50
</TABLE>

On September 16, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $34.875 per share. As of August 1, 1997, there
were approximately 254 holders of record of the Common Stock.

18
<PAGE> 19

CAPITALIZATION

The following table sets forth the historical consolidated capitalization
of the Company at August 2, 1997. This presentation should be read in
conjunction with "Unaudited Pro Forma Combined Income Statements," the Company's
Consolidated Financial Statements and accompanying notes thereto and other
information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AUGUST 2,
1997
--------------
(IN THOUSANDS)
<S> <C>
SHORT-TERM DEBT (INCLUDES CURRENT PORTION OF LONG-TERM
DEBT)..................................................... $ 2,722
LONG-TERM DEBT, EXCLUDING CURRENT PORTION:
Credit Agreement.......................................... 5,000
8 1/2% Senior Notes Due 2005.............................. 200,000
9% Senior Subordinated Notes Due 2007, net of discount of
$337................................................... 99,663
SRPC Notes (as defined)................................... 30,000
Other debt................................................ 22,214
--------
Total long-term debt.............................. 356,877
STOCKHOLDERS' EQUITY........................................ 160,735
--------
TOTAL CAPITALIZATION.............................. $520,334
========
</TABLE>

19
<PAGE> 20

UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS

The unaudited pro forma combined income statements are based on the
historical consolidated financial statements of the Company, the historical
consolidated financial statements for CR Anthony and the assumptions and
adjustments described in the accompanying notes. The unaudited pro forma
combined income statements have been prepared as if the Acquisition, the
Refinancing, the Uhlmans Acquisition and the retirement of the Senior Discount
Debentures with the proceeds from the IPO had occurred at the beginning of each
period presented and do not purport to represent what the Company's results of
operations actually would have been if each of the aforementioned events had
occurred as of the dates indicated or will be for any future periods. The
unaudited pro forma combined income statements are based upon assumptions deemed
appropriate by the management of the Company and do not reflect: (i) certain
cost savings or improvements in sales volume or gross margin related to the
Acquisition which the Company believes could be realized as a result of
implementing Stage's merchandising, distribution, credit card and other
operational programs; and (ii) certain capital investments required as a result
of the Acquisition. The unaudited pro forma combined income statements should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.

UNAUDITED PRO FORMA COMBINED INCOME STATEMENT

YEAR ENDED FEBRUARY 1, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
FINANCIAL DATA IPO AND
--------------------- UHLMANS
CR ACQUISITION ACQUISITION REFINANCING PRO FORMA
STAGE ANTHONY(1) ADJUSTMENTS(2) ADJUSTMENTS(3) ADJUSTMENTS(4) COMBINED
-------- ---------- -------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................. $776,550 $288,392 $ 16,516(a) $ -- $ -- $1,081,458
Cost of sales and related
buying, occupancy and
distribution expenses... 532,563 217,719 12,523(b) (3,317)(e) -- 759,488
-------- -------- -------- ------- ----- ----------
Gross profit.............. 243,987 70,673 3,993 3,317 -- 321,970
Selling, general and
administrative
expenses................ 175,417 60,944 1,821(c) (6,112)(f) -- 232,070
-------- -------- -------- ------- ----- ----------
Operating income.......... 68,570 9,729 2,172 9,429 -- 89,900
Interest, net............. 45,954 1,806 (10,071)(d) -- 996(g) 38,685
-------- -------- -------- ------- ----- ----------
Income (loss) before
income tax and
extraordinary item...... 22,616 7,923 12,243 9,429 (996) 51,215
Income tax expense
(benefit)(5)............ 8,594 3,090 4,652 3,950 (379) 19,907
-------- -------- -------- ------- ----- ----------
Income (loss) before
extraordinary item...... $ 14,022 $ 4,833 $ 7,591 $ 5,479 $(617) $ 31,308
======== ======== ======== ======= ===== ==========
Earnings per common share
before extraordinary
item.................... $ 0.88 $ 1.15
======== ==========
Weighted average common
shares outstanding...... 15,927 27,331(6)
======== ==========
</TABLE>

20
<PAGE> 21

UNAUDITED PRO FORMA COMBINED INCOME STATEMENT

SIX MONTHS ENDED AUGUST 2, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL FINANCIAL DATA
------------------------- PRO
CR ACQUISITION REFINANCING FORMA
STAGE ANTHONY(1) ADJUSTMENTS(3) ADJUSTMENTS(4) COMBINED
---------- ------------ -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales......................... $429,649 $108,500 $ -- $ -- $538,149
Cost of sales and related buying,
occupancy and distribution
expenses........................ 293,822 87,645 (1,379)(e) -- 380,088
-------- -------- ------- ---- --------
Gross profit...................... 135,827 20,855 1,379 -- 158,061
Selling, general and
administrative expenses......... 95,567 30,788 (9,821)(f) -- 116,534
-------- -------- ------- ---- --------
Operating income.................. 40,260 (9,933) 11,200 -- 41,527
Interest, net..................... 18,391 677 -- 72(g) 19,140
-------- -------- ------- ---- --------
Income (loss) before income tax
and extraordinary item.......... 21,869 (10,610) 11,200 (72) 22,387
Income tax expense (benefit)(5)... 8,529 (4,138) 4,440 (28) 8,803
-------- -------- ------- ---- --------
Income (loss) before extraordinary
item............................ $ 13,340 $ (6,472) $ 6,760 $(44) $ 13,584
======== ======== ======= ==== ========
Earnings per common share before
extraordinary item.............. $ 0.54 $ 0.49
======== ========
Weighted average common shares
outstanding..................... 24,688 27,542(6)
======== ========
</TABLE>

21
<PAGE> 22

NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS

NOTE 1 -- CR ANTHONY HISTORICAL FINANCIAL DATA (AS OF JULY 5, 1997)

Reclassifications have been made to certain historical CR Anthony costs and
expenses to reflect a presentation similar to that of Stage. Certain store
occupancy expenses (including depreciation) and buying expenses have been
reclassified to "Cost of sales and related buying, occupancy and distribution
expenses." In its reported financial statements, CR Anthony includes these costs
and expenses as "Selling, general and administrative expenses" and as
"Depreciation and amortization." Additionally, advertising expenses and
depreciation and amortization (not otherwise reclassified to cost of sales) have
been included in "Selling, general and administrative expenses."

For purposes of the Unaudited Pro Forma Combined Income Statement for the
six months ended August 2, 1997, the CR Anthony historical financial data
includes the twenty-two weeks ended July 5, 1997. Included in such historical
financial data are acquisition related expenses of approximately $6.7 million
primarily related to the retirement of outstanding CR Anthony options, severance
payments and other direct costs directly associated with the Acquisition.

NOTE 2 -- IPO AND UHLMANS ACQUISITION

During 1996, Stage completed the IPO and the related retirement of the
Senior Discount Debentures, and the Uhlmans Acquisition. In connection with the
Uhlmans Acquisition, the Company has completed a consolidation program which
absorbed 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 paid severance to each individual whose employment has been
terminated as a result of the Uhlmans Consolidation Program. In addition, all
leases associated with Uhlmans corporate offices and distribution center have
been terminated.

Although the consolidation of the Uhlmans general office functions took
place over a period of three months, the unaudited pro forma combined income
statement reflects the elimination of the separate Uhlmans general office
expenses assuming the consolidation had been fully implemented at the beginning
of the period.

The accompanying pro forma adjustments for the Uhlmans Acquisition reflect
the historical operating results for Uhlmans from February 4, 1996 through June
2, 1996 (representing the period in 1996 prior to the closing of the Uhlmans
Acquisition) adjusted for the impact of the Uhlmans Consolidation Program and
related financing. The accompanying pro forma adjustments related to the IPO
reflect the issuance of 10.75 million shares of Common Stock as well as the
retirement of the Senior Discount Debentures.

(a) Uhlmans pre-acquisition net sales

(b) Adjustments to cost of sales and related buying, occupancy and
distribution expenses as follows:

<TABLE>
<S> <C>
Uhlmans pre-acquisition cost of sales and related buying,
occupancy and distribution expenses....................... $13,030
Incremental freight due to use of Stage's distribution
center.................................................... 99
Uhlmans pre-acquisition buying and merchandising personnel
costs eliminated in connection with the Uhlmans
Consolidation Program..................................... (606)
-------
$12,523
=======
</TABLE>

22
<PAGE> 23

<TABLE>
<S> <C>
Uhlmans pre-acquisition selling, general and administrative
expenses.................................................. $ 3,482
Amortization of goodwill resulting from the Uhlmans
Acquisition............................................... 136
Uhlmans pre-acquisition personnel costs eliminated in
connection with the Uhlmans Consolidation Program......... (1,547)
Elimination of a professional service agreement terminated
in connection with the IPO................................ (250)
-------
$ 1,821
=======
</TABLE>

(d) Adjustments to net interest as follows:

<TABLE>
<S> <C>
Incremental interest related to the SRPC Notes used to
finance the Uhlmans
Acquisition............................................... $ 1,250
Amortization of debt issue costs related to the SRPC
Notes..................................................... 189
Elimination of the historical interest expense and
amortization of debt issue costs associated with the
Senior Discount Debentures retired in connection with the
IPO....................................................... (10,956)
Elimination of the Uhlmans pre-acquisition interest expense
and amortization of debt issue costs...................... (554)
--------
$(10,071)
========
</TABLE>

The components of the purchase price of the Uhlmans Acquisition, net of
cash acquired, were as follows:

<TABLE>
<S> <C>
Cash acquired............................................... $ (887)
Cash paid to Uhlmans shareholders........................... 12,023
Uhlmans debt retired........................................ 16,210
--------
Total purchase price, net of cash acquired........ $ 27,346
========
</TABLE>

The purchase price of the Uhlmans Acquisition for accounting purposes was
allocated as follows to the assets purchased and the liabilities assumed based
upon their fair values:

<TABLE>
<S> <C>
Current assets, other than cash............................. $ 13,923
Property, equipment and leasehold improvements.............. 3,953
Goodwill.................................................... 17,014
Other assets................................................ 111
Liabilities assumed......................................... (7,655)
--------
Total purchase price, net of cash acquired........ $ 27,346
========
</TABLE>

NOTE 3 -- THE ACQUISITION

The Company has formally adopted the CR Anthony Integration Plan to absorb
CR Anthony's general office functions, including accounting, data processing,
merchandising, personnel and distribution into similar functions provided by the
Company. Although the CR Anthony Integration Plan is expected to take place over
a period of twelve months, the pro forma combined income statement reflects the
elimination of the separate CR Anthony general office and distribution center
expenses assuming the consolidation had been fully implemented at the beginning
of each period presented.

As a part of the CR Anthony Integration Plan, the Company has specifically
identified the general office employees of CR Anthony who will be terminated as
a result of the Acquisition. The Company has contractually agreed to a severance
schedule for each of these individuals whose employment will be terminated as a
result of the Acquisition.

The acquisition adjustments are based on estimates of the Company's
management 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 CR Anthony Integration Plan. The actual
application by the

23
<PAGE> 24

Company of the CR Anthony Integration Plan could result in different levels of
savings from the amounts presented in the pro forma combined income statements.

The accompanying pro forma combined income statements do not reflect
certain cost savings or improvements in sales volume or gross margin related to
the Acquisition which the Company believes could be realized as a result of
implementing the Company's merchandising, distribution, credit card and other
operational programs nor does it reflect approximately $38.0 million of capital
expenditures anticipated in the CR Anthony Integration Plan. The Company expects
to finance this investment through operating cash flows and borrowings under the
Credit Agreement. If such investment, along with the related financing, had been
reflected in the unaudited pro forma combined income statements the incremental
depreciation and interest expense would have the following impact:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
------- ----------
<S> <C> <C>
Income before income tax and extraordinary item............. $(4,578) $(2,289)
======= =======
Income before extraordinary item............................ $(2,839) $(1,419)
======= =======
Earnings per common share before extraordinary item......... $ (0.10) $ (0.05)
======= =======
</TABLE>

The application of purchase accounting to the 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 CR Anthony stores in relation to the Company's
growth strategy and the long operating history and historical profitability of
these stores, management believes a 40-year amortization period for this
goodwill is appropriate. This preliminary purchase price allocation may be
adjusted, if necessary, based on additional information as it becomes available.

The pro forma combined income statements reflect the impact of the CR
Anthony Integration Plan as follows (in thousands):

(e) Adjustments to cost of sales and related buying, occupancy and
distribution expenses as follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
------- ----------
<S> <C> <C>
Elimination of rental expense related to the closure of CR
Anthony's distribution center............................. $ (477) $ (205)
Elimination of payroll and costs associated with the
termination of CR Anthony's buying staff.................. (2,840) (1,174)
------- -------
$(3,317) $(1,379)
======= =======
</TABLE>

(f) Adjustment to selling, general and administrative expenses as follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
------- ----------
<S> <C> <C>
Elimination of CR Anthony's payroll and other expenses
associated with employees who work at the general office
which is being closed pursuant to the CR Anthony
Integration Program....................................... $(7,078) $(3,613)
Elimination of acquisition related expenses recorded in CR
Anthony's historical results.............................. -- (6,691)
Amortization of goodwill resulting from the Acquisition..... 966 483
------- -------
$(6,112) $(9,821)
======= =======
</TABLE>

24
<PAGE> 25

NOTE 4 -- REFINANCING ADJUSTMENTS

(g) Adjustments to net interest as follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 2,
1996 1997
-------- ----------
<S> <C> <C>
Interest expense associated with the Refinancing............ $ 27,019 $ 10,169
Amortization of debt issue costs associated with the
Refinancing............................................... 1,617 609
Elimination of interest expense associated with retired
notes..................................................... (26,251) (10,045)
Elimination of debt issue costs associated with retired
notes..................................................... (1,389) (661)
-------- --------
$ 996 $ 72
======== ========
</TABLE>

NOTE 5 -- 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 38.9% and 39.3% for 1996 and the six months ended August
2, 1997, respectively.

NOTE 6 -- WEIGHTED AVERAGE SHARES

Pro forma combined weighted average shares outstanding for 1996 has been
adjusted to give effect to: (i) the IPO; and (ii) the issuance by the Company of
3,607,044 shares of Common Stock to stockholders of CR Anthony in connection
with the Acquisition as if each transaction had occurred at the beginning of
1996. Pro forma combined weighted average shares outstanding for the six months
ended August 2, 1997 has been adjusted to give effect to the issuance of Common
Stock in connection with the Acquisition.

25
<PAGE> 26

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 400 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 brand
name merchandise with a high level of customer service in convenient locations.

The Company has begun to realize the full potential of its unique franchise
in small markets as a result of several initiatives undertaken in recent years,
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; and (iii) continuing to
refine the Company's retailing concept through new merchandising and operating
programs. As a result of these initiatives, the lower operating costs of small
market stores and the competitive advantages outlined above, the Company has
among the highest operating income margins in the apparel retailing industry.

Acquisitions. The Company acquired 45 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 of approximately $53.4 million, whereas during the first four
full quarters operated by Stage (the 12 months ended August 3, 1996), the newly
opened Stage stores in the same locations generated sales of $95.0 million, an
increase of 78%. Over the same period, store contribution more than doubled.

In June 1996, the Company acquired Uhlmans, a privately-held retailer with
34 locations in Ohio, Indiana and Michigan, where the Company previously had no
stores. These stores were of similar size and merchandise content to the
Company's existing stores and were compatible with the Company's retailing
concept and growth strategy. For 1995, Uhlmans had net sales of $59.7 million
and operating income of $2.2 million. For the first six full months since the
merchandising function of Uhlmans was completely integrated (December 1996
through May 1997), sales at Uhlmans' stores increased approximately 6% over the
comparable period in the prior year, which represents the last six months prior
to the consummation of the Uhlmans Acquisition. The Company believes that
certain changes to the merchandise mix and an increase in proprietary credit
card-based sales will provide further improvement over Uhlmans historical
results.

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.

Store Closure Plan. During the fourth quarter of 1994, the Company approved
the Store Closure Plan which provided for the closure of 40 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 completed in 1996.

26
<PAGE> 27

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 the results of operations as a percentage of sales
for the periods indicated. Certain income statement reclassifications have been
made to conform to the 1996 format; accordingly, prior year percentages differ
slightly from those previously reported.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ---------------------
--------------------- AUGUST 3, AUGUST 2,
1994 1995 1996 1996 1997
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 68.6 68.6 68.6 68.6 68.4
----- ----- ----- ----- -----
Gross profit margin.......................... 31.4 31.4 31.4 31.4 31.6
Selling, general and administrative
expenses................................... 21.7 21.8 22.2 22.6 22.0
Store opening and closure costs.............. 0.9 0.6 0.4 0.1 0.2
----- ----- ----- ----- -----
Operating income margin...................... 8.8 9.0 8.8 8.7 9.4
Net interest expense......................... 6.9 6.4 5.9 7.0 4.3
----- ----- ----- ----- -----
Income before income tax and extraordinary
item....................................... 1.9% 2.6% 2.9% 1.7% 5.1%
===== ===== ===== ===== =====
</TABLE>

THREE AND SIX MONTHS ENDED AUGUST 2, 1997 COMPARED TO AUGUST 3, 1996

Sales for the second quarter of 1997 increased 30.3% to $238.1 million from
$182.8 million in the comparable period of 1996. The increase in second quarter
sales was due primarily to $13.4 million of sales from stores opened during 1997
and 1996, $32.4 million of sales for the month of July from the acquired CR
Anthony stores, as well as a 5.7% increase in comparable store sales. Sales for
the first six months of 1997 increased 24.2% to $429.6 million from $345.9
million in the comparable period of 1996. The increase in sales for the six
month period was due primarily to $34.0 million of sales for stores opened
during 1997 and 1996, $32.4 million of sales for the month of July from the
acquired CR Anthony stores, as well as a 5.3% increase in comparable store
sales. The increase in comparable store sales was attributable primarily to the
strong performance of the Company's small market stores partially offset by a
slight decline in sales at the Company's metropolitan stores.

Gross profit for the second quarter of 1997 increased 30.6% to $73.9
million from $56.6 million in the comparable period of 1996. Gross profit margin
for the second quarter of 1997 and 1996 was 31.0%. Gross profit margin for the
second quarter of 1997 was impacted by lower gross profit margins experienced by
the acquired CR Anthony locations during July offset by an increase in markup on
merchandise sold in the Company's existing stores due to an improved mix of
merchandise as well as additional leverage of the fixed cost component of gross
margin. Gross profit for the first six months of 1997 increased 24.9% to $135.8
million from $108.7 million in the comparable period of 1996. Gross profit
margin for the first six months of 1997 increased to 31.6% from 31.4% for the
comparable period in 1996 due to the increase in markup on merchandise sold
mentioned above coupled with additional leverage of the fixed cost component of
gross margin partially offset by lower gross profit margins experienced by the
acquired CR Anthony locations during July.

The Company has historically used United Parcel Service ("UPS") to ship the
majority of merchandise from its distribution center to the Company's stores on
a daily basis. As a result of the UPS strike which began during the second
quarter of 1997 and was resolved during the third quarter of 1997, the Company
used alternative delivery services for approximately 20 days. These services met
the Company's distribution needs with minor disruption to its operations but
resulted in slightly higher operating costs to the Company than it would have
experienced with UPS. Following the conclusion of the UPS strike, UPS resumed
service for the Company under the terms of its existing contract. The Company is
in the process of rationalizing its distribution arrangements given the current
environment which may result in terms which are more or less attractive than the
Company's existing agreement with UPS.

27
<PAGE> 28

Selling, general and administrative expenses for the second quarter of 1997
increased 25.6% to $53.4 million from $42.5 million in the comparable period of
1996. Selling, general and administrative expenses as a percentage of sales for
the second quarter of 1997 decreased to 22.4% from 23.2% in the comparable
period of 1996 due to the effective leveraging of the Company's central overhead
function as well as an improvement in store variable expenses. Included in
selling, general and administrative expenses for the second quarter of 1997 is
approximately $1.0 million of integration and duplicative administrative costs
at the CR Anthony general office. Selling, general and administrative expenses
for the first six months of 1997 increased 20.8% to $94.7 million from $78.4
million in the comparable period of 1996. Selling, general and administrative
expenses as a percentage of sales for the first six months of 1997 decreased to
22.0% from 22.6% in the comparable period of 1996 due to the above factors.
Advertising expenses as a percentage of sales remained unchanged at
approximately 3.6% for the first six months of 1997 and 1996.

Operating income for the second quarter of 1997 increased 41.7% to $19.7
million from $13.9 million for the second quarter of 1997. Operating income as a
percentage of sales for the second quarter of 1997 was 8.3% as compared to 7.6%
for the second quarter of 1996 due to the factors described above. Operating
income for the first six months of 1997 increased 34.3% to $40.3 million from
$30.0 million in the comparable period of 1996. Operating income as a percentage
of sales for the first six months of 1997 was 9.4% as compared to 8.7% in the
comparable period of 1996.

Net interest expense for the second quarter of 1997 decreased 24.8% to $9.4
million from $12.5 million for the comparable period in 1996. Net interest
expense for the first six months of 1997 decreased 23.6% to $18.4 million from
$24.1 million for the comparable period in 1996. Net interest expense for both
the three and six months ended August 2, 1997 decreased from the comparable
periods in the prior year due to the retirement of the Senior Discount
Debentures in connection with the IPO. This decrease was partially offset by
increased interest expense associated with issuance of the SRPC Notes in May
1996. The Refinancing did not materially impact interest expense for the second
quarter of 1997 or for the first six months of 1997.

As a result of the foregoing, income before extraordinary item for the
second quarter of 1997 increased by 619.6% to $6.2 million from $0.9 million for
the comparable period in 1996. Income before extraordinary item for the first
six months of 1997 increased by 279.0% to $13.3 million from $3.5 million for
the comparable period in 1996.

In connection with the Refinancing in June 1997, the Company recorded an
extraordinary charge of $17.4 million, net of applicable income taxes of $11.1
million, related to the tender premiums and write-off of unamortized debt issue
costs associated with the retired debt.

1996 COMPARED TO 1995

Sales for 1996 increased 13.8% to $776.5 million from $682.6 million in
1995. The increase in sales was due primarily to a 12.9% increase in sales from
stores opened during 1996 and 1995, combined with a 3.3% increase in comparable
store sales. Total sales for 1996 were not directly comparable to 1995 because
1995 had one additional selling week when compared to 1996. Eliminating the
extra selling week from 1995 (approximately $10.0 million in sales), sales for
1996 increased 15.5%.

Gross profit increased 13.9% to $244.0 million in 1996 from $214.3 million
in 1995. Gross profit for 1996 was favorably impacted by an increase in markup
on merchandise sold relating to an improved mix of inventories and a lower
markdown rate, the result of a continued focus and tight control over
inventories. These factors were offset by a $2.4 million decline in LIFO
credits. Gross profit margin was 31.4% in 1996 and 1995.

Selling, general and administrative expenses for 1996 increased 15.8% to
$172.6 million from $149.1 million in 1995. As a percentage of sales, these
expenses increased to 22.2% in 1996 from 21.8% in 1995 due to (i) the extra
selling week in 1995 which had the impact of lowering the selling, general and
administrative expense rate for 1995; (ii) duplicative costs associated with the
acquisition of Uhlmans; and (iii) an increase in bad debt expense associated
with the Company's proprietary credit card program. These increases were
partially offset by the application of fixed costs to a greater volume of sales
and an increase in service charge income as a

28
<PAGE> 29

result of higher fees assessed on delinquent accounts. Bad debt expense as a
percent of sales in 1996 increased to 2.8% from 2.2% in 1995. The increase in
bad debt expense was the result of a general rise in the level of personal
bankruptcies in the Company's accounts receivable portfolio as well as the
Company's adoption of higher late fees. Advertising expenses as a percent of
sales for 1996 and 1995 were 3.8% and 3.9%, respectively.

Operating income for 1996 increased 11.5% to $68.6 million from $61.5
million for 1995 due to the factors discussed above. Operating income as a
percent of sales was 8.8% in 1996 as compared to 9.0% in 1995.

Net interest expense increased 4.5% to $46.0 million in 1996 from $44.0
million in 1995. Net interest expense increased due to the issuance of: (i)
$30.0 million in aggregate principal amount of 12.5% SRPC Notes during May 1996;
and (ii) $18.3 million in aggregate principal amount of Existing Senior
Subordinated Notes during August 1995. These increases were offset by decreased
accretion of discount on the Senior Discount Debentures which were retired in
October 1996 in connection with the IPO.

In connection with the IPO and the replacement of the Company's working
capital facility, the Company recorded an extraordinary charge of $16.1 million,
net of applicable income taxes of $9.8 million.

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 0.8%
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 3.0%.

Gross profit increased 17.2% to $214.3 million in 1995 from $182.8 million
in 1994. Gross margin 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 operations;
(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 due primarily to the Company's focus on improving ticketing
compliance on merchandise in 1995 as well as the rapid expansion of stores
during the same year.

Selling, general and administrative expenses for 1995 increased 18.1% to
$149.1 million from $126.2 million in 1994. As a percentage of sales, these
expenses increased to 21.8% for 1995 from 21.7% in 1994. The increase resulted
from incremental costs associated with opening stores in new markets, increased
costs associated with the certificates issued under the Accounts Receivable
Program to third party investors and an increase in the bad debt expense to 2.2%
of sales in 1995 from 1.9% of sales in 1994 associated with the Company's credit
card program (including charge-offs resulting from sales of the Mexican border
stores). These increases were 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. Advertising expenses as a
percent of sales for 1995 and 1994 were 3.9% and 3.8%, respectively; the
increase was primarily a result of the Company's expansion into new markets.

The 1995 store opening and closure costs of $3.7 million were comprised of
store opening costs related to 68 new stores. 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 ten new stores.

Operating income for 1995 increased 20.6% 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.

29
<PAGE> 30

Net interest expense for 1995 increased 10.0% 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 69.8% to $10.7 million from $6.3 million for 1994.

SEASONALITY AND INFLATION

The Company's business is seasonal and its quarterly sales and profits
traditionally are lower during the first three quarters (February through
October) 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>
1995 1996
----------------------------------------- -----------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $142,353 $154,578 $159,161 $226,532 $163,177 $182,750 $182,562 $248,061
Gross profit(1)................... 46,283 46,555 48,659 72,780 52,081 56,623 56,208 79,075
Operating income.................. 14,835 11,074 9,724 25,853 16,045 13,925 12,342 26,258
Quarters' operating income as a
percent of annual income........ 24% 18% 16% 42% 24% 20% 18% 38%
Income (loss) before extraordinary
item............................ $ 2,438 $ 221 $ (899) $ 8,970 $ 2,652 $ 868 $ (265) $ 10,767
Net income (loss)................. 2,438 221 (899) 8,970 2,652 868 (16,071) 10,492
Adjusted operating income(2)...... 13,797 11,337 10,364 28,498 14,033 13,095 12,053 32,447
</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 adjusted to eliminate
the income and expense associated with the Company's proprietary credit
card program (including the Accounts Receivable Program) 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

On June 3, 1996, the Company purchased Uhlmans for approximately $27.3
million, including acquisition costs and net of cash acquired. The Company,
through SRI Receivables Purchase Co., Inc. ("SRPC"), issued the SRPC Notes
during May 1996, the proceeds of which were used to fund the Uhlmans
Acquisition. The issuance of the SRPC Notes does not impact the ability of the
Company to issue additional certificates to third-party investors under the
Accounts Receivable Program.

During October 1996, the Company completed the IPO. The net proceeds to the
Company from the IPO were approximately $165.7 million after deducting
underwriting discounts and expenses related to the IPO. The net proceeds were
used primarily to retire the Senior Discount Debentures. The remaining proceeds
of approximately $26.5 million were used for general corporate purposes.

On June 17, 1997, the Company completed the Refinancing which consisted of
the Credit Agreement, the Note Offering and related retirement of approximately
$248.2 million of the Company's existing indebtedness. The Note Offering
consisted of $200.0 million in Senior Notes and $100.0 million in Senior
Subordinated Notes. The gross proceeds from the Note Offering of approximately
$299.7 million were used: (i) to retire approximately $248.2 million of the
Company's existing higher coupon long-term indebtedness and to pay related fees
and expenses; and (ii) to pay transaction and other costs associated with the
Acquisition. Concurrently with the Note Offering, the Company entered into the
Credit Agreement consisting of the $100.0 million Working Capital Facility and
$100.0 million Expansion Facility.

30
<PAGE> 31

On June 26, 1997, in connection with the Acquisition, the Company issued
approximately 3.6 million shares of Common Stock to stockholders of CR Anthony
and assumed approximately $25.9 million in debt. The Acquisition was structured
as a merger with CR Anthony merging with and into SRI and SRI surviving with all
its rights, privileges, powers and franchises unaffected by the merger. The
separate corporate existence of CR Anthony ceased.

Total working capital increased $26.4 million to $261.6 million at August
2, 1997 from $235.2 million at February 1, 1997, due primarily to the
Acquisition. The most significant changes in working capital were: (i) an
increase in inventories, accrued expenses and other current liabilities and
accounts payable due to the Acquisition and the seasonal build of inventories;
and (ii) a decrease in accounts receivable as a result of the seasonal decrease
of accounts receivable which were generated during the Christmas season. In
addition, prepaid expenses and other current assets increased due primarily to
the Acquisition partially offset by the collection of a federal tax refund
during the first quarter of 1997.

The Company's primary capital requirements are for working capital, debt
service and capital expenditures. Based upon the Company's capital structure,
after giving pro forma effect to the Refinancing and the Acquisition, management
anticipates cash interest expense to be approximately $35.0 million during each
of 1997 and 1998. Capital expenditures are generally for new store openings,
remodeling of existing stores and facilities and customary store maintenance.
Capital expenditures in 1996 were $26.1 million as compared to $28.6 million in
1995. Management expects capital expenditures (including capital expenditures
resulting from the Acquisition) to be approximately $62.0 million during each of
1997 and 1998, consisting primarily of new store openings, conversion of the CR
Anthony stores to the Stage format, and remodeling and maintenance of existing
stores. The Company also incurred approximately $18.0 million of one-time costs
in connection with the Acquisition, which consisted of, among other things,
costs associated with the termination of contracts (including the costs to
terminate CR Anthony's private label credit card portfolio with Citicorp), lease
terminations, severance payments to CR Anthony employees and transaction fees.
Required aggregate principal payments on debt of the Company are expected to
total $2.6 million for each of 1997 and 1998.

The Company's short-term liquidity needs, including a portion of the
one-time costs associated with the Acquisition, are expected to be provided by:
(i) existing cash balances; (ii) operating cash flows; (iii) the Accounts
Receivable Program; and (iv) the Credit Agreement. The Company expects to fund
its long-term liquidity needs from its operating cash flows, the issuance of
debt and/or equity securities, the securitization of its accounts receivable and
bank borrowings. The Company believes the Refinancing provides it with a more
flexible capital structure which: (i) lowers the Company's weighted average cost
of borrowing; (ii) extends the average maturities of the Company's debt; (iii)
increases the Company's working capital facilities to support its operations;
and (iv) provides increased financial flexibility to allow the Company to
continue to implement its growth strategy. See "Description of Certain
Indebtedness."

The Company securitizes all of its trade accounts receivable through its
wholly owned special purpose entity, SRPC. SRPC holds a retained interest in the
securitization vehicle, a special purpose trust (the "Trust") which is
represented by three certificates of beneficial ownership in the Trust (the
"Retained Certificates"). See Note 3 to the Company's Consolidated Financial
Statements. The Company transfers, on a daily basis, 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 as SRPC's creditors
have a claim on its assets prior to such assets becoming available to any
creditor of the Company. SRPC transfers, on a daily basis, the accounts
receivable purchased from the Company to the Trust in exchange for cash or an
increase in the Retained Certificates. The remaining interest in the Trust is
held by third-party investors which are represented by the Trust Certificates
(as defined below). The Retained Certificates are effectively subordinated to
the interests of such third-party investors and are pledged to secure the SRPC
Notes which were issued to finance the Uhlmans Acquisition. The SRPC Notes are
secured by, and paid solely from, the Retained Certificates issued to SRPC by
the Trust. Interest on the SRPC Notes accrues at the rate per annum of 12.5% and
is payable semi-annually on June 15 and December 15 of each year, commencing
December 15, 1996. Amounts received by SRPC from the Retained Certificates are
expected to provide a source of cash flows to pay the interest on the SRPC
Notes. The SRPC Notes have an expected maturity date of December 15, 2000 (the
"Expected Maturity Date"). Principal is

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<PAGE> 32

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, to the extent of available
funds and subject to the collection experience of the receivables underlying the
Trust Certificates at that time.

Since its inception, the Trust has issued $165.0 million of term
certificates and a $40.0 million revolving certificate (collectively, the "Trust
Certificates") to third parties 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 to support the term certificates (aggregating $200.1 million at August
2, 1997), up to a maximum of $40.0 million. As of August 2, 1997, the
outstanding balance under the revolving certificate was $16.6 million. The
Retained Certificates are effectively subordinated to the interests of
third-party investors, and are pledged to secure the SRPC Notes. If the amount
of accounts receivable in the Trust falls below the level required to support
the Trust 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. 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. See "Risk
Factors -- Consumer Credit Risks."

Prior to the Acquisition, CR Anthony sold all its private label credit card
accounts receivable to Citicorp pursuant to a Retail Credit Services Agreement
which expires August 1, 1998. The Company and Citicorp have agreed to terminate
this agreement in exchange for the payment of a termination fee by the Company
to Citicorp. Additionally, the Company will repurchase any outstanding accounts
receivable on the termination date (September 11, 1997) at their face value. As
of August 13, 1997, there were approximately $36.0 million of CR Anthony
accounts receivable outstanding. The Company intends to incorporate the accounts
receivable into the Accounts Receivable Program. See "Risk Factors -- Consumer
Credit Risks -- Integration of CR Anthony Private Label Credit Card Program."

The Company believes that funds provided by operations, together with funds
available from the Credit Agreement and the Accounts Receivable Program, will be
adequate to meet the Company's anticipated requirements for working capital,
interest payments, planned capital expenditures and principal payments on debt.
Estimates as to working capital needs and other expenditures may be materially
affected if the foregoing sources are not available or do not otherwise provide
sufficient funds to meet the Company's obligations.

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<PAGE> 33

BUSINESS

GENERAL

The Company operates the store of choice for well known national brand name
family apparel in over 400 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 brand
name merchandise with a high level of customer service in convenient locations.
Stage's product offerings include fashion apparel, accessories, fragrances and
cosmetics and footwear for women, men and children. Over 85% of 1996 sales
consisted of brand name merchandise, including nationally recognized names such
as Chaps/Ralph Lauren, Liz Claiborne, Guess, Haggar Apparel, Hanes, Calvin
Klein, Nike, Reebok and Levi Strauss.

As of August 2, 1997, the Company operated 578 stores in 24 states
throughout the central United States primarily under the "Stage," "Bealls" and
"Palais Royal" trade names. Of these stores, the Company acquired 246 stores
through the Acquisition. The Company intends to convert the acquired stores to
its existing format and trade names during the remainder of 1997 and the first
half of 1998. Approximately 80% of the Company's stores are located in small
markets and communities with populations generally below 30,000 people, some
with as few as 4,000 people. The remainder of the Company's stores operate in
metropolitan areas, primarily in suburban Houston. The Company's store format
(averaging approximately 16,000 selling square feet) and merchandising
capabilities enable the Company to operate profitably in small markets. For
1996, after giving effect to the Refinancing, the Acquisition and the Uhlmans
Acquisition as if each had occurred at the beginning of the year, sales and
operating income would have been $1.1 billion and $89.9 million, respectively.

The Company generally faces less competition for brand name apparel as a
result of its small market focus. In those markets, competition generally comes
from local retailers or small regional chains as most national department stores
do not operate in small markets, and access to brand name merchandise generally
requires travel to distant regional malls with national department stores. In
those small markets where the Company does compete for brand name apparel sales,
the Company believes it has a competitive advantage over local retailers and
smaller regional chains due to its: (i) 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) proprietary credit card program,
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, the Company
generally does not directly compete for branded apparel sales with national
discounters such as Wal-Mart.

In order to fully realize the potential of its unique market position and
proven ability to operate profitably in small markets, the Company recruited a
new senior management team commencing in 1993. This new management team has: (i)
initiated an accelerated store expansion program to capitalize on available
opportunities in new markets through new store openings and strategic
acquisitions; and (ii) refined the Company's retailing concept through new
merchandising and operating programs. As a result of these initiatives, as well
as the generally lower operating costs of small market stores and the
competitive advantages outlined above, the Company has among the highest
operating income margins in the apparel retailing industry. The Company has made
substantial progress in implementing its growth strategy by opening or acquiring
68 stores in 1995 and 69 stores in 1996. In addition, the Company expects to
open approximately 55 stores in 1997 in addition to the 246 stores acquired
pursuant to the Acquisition.

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<PAGE> 34

KEY STRENGTHS

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

Ability to Operate Profitably in Small 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. These consumers, however
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 30,000, and has developed a store format, generally
ranging in size from 12,000 to 30,000 selling 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 1996, store contribution
(operating profit before allocation of corporate overhead) as a percentage of
sales for small market stores open for at least one year was 17%, as compared to
12% for larger market stores. In addition, by operating more than 575 stores,
the Company benefits from economies of scale in buying and merchandising,
management 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 extensive store base
offers major vendors a unique vehicle for accessing 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
branded merchandise 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 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 frequently not carried by local
competitors. In addition, the Company continuously seeks to expand its vendor
base and has recently added nationally recognized name brands such as Dockers
for Women, Oshkosh and Polo, as well as fragrances by Elizabeth Arden, Liz
Claiborne and Perry Ellis during 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 profit of each store. This understanding
is attributable to over 70 years of experience operating in its markets coupled
with a buyers' organization that averages over ten years experience 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, brand name merchandise categories which have traditionally
yielded attractive margins. The Company offers an edited assortment of quality,
moderately-priced, brand name merchandise that is divided into distinct
departments including misses, women's, men's, boy's, footwear, intimate apparel,
junior's, accessories, cosmetics, fragrances and gifts.

To augment its brand name 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) 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.

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<PAGE> 35

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 customer service programs
designed to encourage a high level of customer interaction. The Company 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 (approximately 50% of net sales in
1996) than most apparel 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 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 in alterations, and other
benefits. While these customers only represent approximately 17.1% of total
active cardholders, credit sales to these customers during 1996 comprised 42.9%
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 and compensated
based upon the attainment of specific customer service standards such as
offering prompt assistance, suggesting complementary items, sending thank-you
notes to credit card 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 4,500 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 customer service.

Sophisticated Operating and Information Systems. The Company supports its
retail concept with highly automated 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 and 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. 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 and reduce costs,
which have helped contribute 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.

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<PAGE> 36

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 successfully operate in
very small markets with populations of less than 12,000.

New Store Openings in Small Markets. The Company opened 23 stores and
acquired 45 stores in 1995, and opened 35 stores and acquired 34 stores in 1996.
The Company expects to open approximately 55 new stores in 1997 in addition to
the 246 stores acquired pursuant to the Acquisition. Since 1994, store additions
have allowed the Company to begin operating in 17 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 with populations from 12,000 to 30,000, 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 metropolitan
market stores. For 1996, store contributions as a percentage of sales for small
market stores open for at least one year was 17% 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.

In opening a new store, the Company's investment consists primarily of
inventory, net of vendor payables, furniture, fixtures, equipment and leasehold
improvements and pre-opening expenses. Generally, the Company expects to invest
approximately $700,000 in a new store, including: (i) inventory of $450,000 less
vendor payables of $110,000; (ii) furniture, fixtures, equipment and leasehold
improvements of $300,000; and (iii) pre-opening expenses of $60,000. The average
investment in stores opened during 1996 was slightly lower due to the lower
investment required to convert the Uhlmans stores.

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. See "Risk Factors -- Future Growth Strategy" and "Risk
Factors -- Acquisition of CR Anthony." This strategy has been successfully
demonstrated by the Company's acquisition of 45 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 of approximately $53.4 million. During the
first four full quarters operated by Stage (the 12 months ended August 3, 1996),
the newly opened Stage stores in the same locations generated sales of $95.0
million, an increase of 78%. Over the same period, store contribution more than
doubled.

In June 1996, the Company acquired Uhlmans, a privately held retailer with
34 locations in Ohio, Indiana and Michigan, where the Company previously had no
stores. These stores were of similar size and merchandise content to the
Company's existing stores and were compatible with the Company's retailing
concept and growth strategy. For 1995, Uhlmans had net sales of $59.7 million
and operating income of $2.2 million. For the first six full months since the
merchandising function of Uhlmans was completely integrated (December 1996
through May 1997), sales at the Uhlmans store increased approximately 6% over
the comparative period in the prior year, which represents the last six months
prior to the consummation of the Uhlmans Acquisition. The Company

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<PAGE> 37

believes that certain changes to the merchandise mix and an increase in
proprietary credit card-based sales will provide further improvement over
Uhlmans historical results.

On June 26, 1997, the Company acquired CR Anthony which was a retailer of
brand name family apparel in small markets and operated 246 stores throughout
the central and midwestern United States under the names "Anthonys" and
"Anthonys Limited." The Company intends to convert the "Anthonys" and "Anthonys
Limited" stores to the Company's format under its "Stage" and "Bealls" trade
names during the remainder of 1997 and the first half of 1998. The Company
believes the Acquisition will strengthen the Company's position as a leading
retailer of national brand name apparel in small markets throughout the central
and midwestern United States where CR Anthony had been operating for over 70
years. For the fiscal year ended February 1, 1997, CR Anthony's net sales and
EBITDA were $288.4 million and $14.0 million, respectively.

CR Anthony's operating strategy was to offer brand name and private label
apparel and footwear for the entire family at competitive prices. The stores are
located in 18 states, with the highest concentrations in Texas, Oklahoma, Kansas
and New Mexico. Approximately 85% of CR Anthony stores are located in small
markets and communities with populations generally below 30,000 and its store
format averages approximately 12,000 selling square feet.

The addition of the CR Anthony stores has not only expanded the geographic
reach of the Company, but the Company believes that there will be meaningful
synergies between the Company and CR Anthony including: (i) central overhead
cost savings; (ii) CR Anthony revenue enhancement opportunities; and (iii) CR
Anthony gross margin improvement opportunities. The Company expects to realize
the aforementioned synergies once the integration and conversion process is
substantially complete. See "Risk Factors -- Future Growth Strategy," "Risk
Factors -- Integration of CR Anthony" and "The Acquisition."

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 1996 were Levi Strauss, Liz
Claiborne, Haggar Apparel, Guess, Hanes, Nike, Chorus Line, Parson

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Place and Reebok. The Company was one of Levi Strauss's top ten customers in
1996. No one supplier accounted for more than 9% of the Company's 1996
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 10%, 11% and 9% of total purchases in 1994, 1995
and 1996, respectively. The Company currently intends to keep private label
merchandise sales below 15% of total sales in order to focus on sales of branded
merchandise.

Set forth below is certain information regarding the historical percentage
of net sales by major merchandise departments for the Company for 1995 and 1996:

<TABLE>
<CAPTION>
DEPARTMENT 1995 1996
---------- ---- ----
<S> <C> <C>
Men's/Young Men.............................. 22% 22%
Misses Sportswear............................ 15 16
Juniors...................................... 13 12
Accessories & Gifts.......................... 9 9
Children..................................... 9 9
Shoes........................................ 8 9
Intimate..................................... 6 5
Special Sizes................................ 5 5
Cosmetics.................................... 5 5
Misses Dresses............................... 4 4
Boys......................................... 3 3
Furs & Coats................................. 1 1
--- ---
100% 100%
</TABLE>

Upon completion of the CR Anthony Integration Plan, the Company expects the
merchandise mix of the converted stores to be similar to that of the Company's
existing stores.

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.

The Company 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

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February 1, 1997, there were more than 1.6 million active accounts. Private
label credit card purchases generated approximately 50% of net sales in 1996.
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 1,000 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 1% of net
sales in each of 1995 and 1996, 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. 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 1996, the Company employed an average of 9,606 full and part-time
employees at all of its locations, of which 1,165 were salaried and 8,441 were
hourly. The Company's central office (which includes corporate, credit and
distribution center offices) employed an average of 337 salaried and 679 hourly
employees during 1996. In its stores during 1996, the Company employed an
average of 828 salaried and 7,762 hourly employees. 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.
There are no collective bargaining

39
<PAGE> 40

agreements in effect with respect to any of the Company's employees. The Company
believes that relationships with its employees are good. During 1996, CR Anthony
employed approximately 2,950 full and part-time employees at all of its
locations, of which 351 were salaried and 2,599 were hourly. CR Anthony's
central office employed an average of 92 salaried and 171 hourly employees
during 1996. In its stores during 1996, CR Anthony employed an average of 259
salaried and 2,428 hourly employees.

PROPERTIES

The Company's corporate headquarters is located in a 130,000 square foot
building in Houston, Texas. The Company leases the building and most of the land
at its Houston facility. The Company owns its 450,000 square foot distribution
center and its credit department facility, both located in Jacksonville, Texas.
See Note 4 to the Consolidated Financial Statements.

The Company operated stores located in the following states:

<TABLE>
<CAPTION>
NUMBER OF STORES(1)
---------------------------------------
FEBRUARY 3, FEBRUARY 1, AUGUST 2,
LOCATION 1996 1997 1997
-------- ----------- ----------- ---------
<S> <C> <C> <C>
Alabama............................ 3 3 2
Arizona............................ -- 3 4
Arkansas........................... 12 12 24
California......................... -- -- 1
Colorado........................... 13 5 8
Illinois........................... 5 12 13
Indiana............................ -- 6 8
Iowa............................... 3 6 12
Kansas............................. 2 3 24
Louisiana.......................... 26 27 40
Michigan........................... -- 6 6
Minnesota.......................... -- 1 6
Mississippi........................ 6 6 7
Missouri........................... 4 6 13
Montana............................ -- -- 12
Nebraska........................... -- 1 6
New Mexico......................... 8 9 28
North Dakota....................... -- -- 2
Ohio............................... -- 26 27
Oklahoma........................... 13 13 73
South Dakota....................... -- 2 5
Texas.............................. 161 168 245
Wisconsin.......................... -- -- 1
Wyoming............................ 1 -- 11
--- --- ---
Total.................... 257 315 578
=== === ===
</TABLE>

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

(1) Excluding the stores included in the Store Closure Plan.

Company 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 one Stage
store that are owned. Most leases provide for a base rent amount plus contingent
rentals, generally based upon a percentage of gross sales.

40
<PAGE> 41

Some of the buildings which the Company owns and leases in connection with
its business may have been constructed with asbestos-containing materials. In
the past, the Company has owned underground storage tanks. The Company believes
that it is in substantial compliance with federal, state and local environmental
provisions and that it currently has no material environmental liabilities.

LEGAL PROCEEDINGS

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.

41
<PAGE> 42

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table lists the names, ages and all positions held by the
directors and executive officers of Stage as of September 16, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ----------------------------------------------------
<S> <C> <C>
Carl Tooker.............. 50 Chairman of the Board of Directors, President and
Chief Executive Officer
Harry Brown.............. 50 Executive Vice President/Chief Merchandising Officer
James Marcum............. 38 Executive Vice President/Chief Financial Officer and
Director
Stephen Lovell........... 41 Executive Vice President/Director of Stores
Ron Lucas................ 50 Senior Vice President/Human Resources
Joshua Bekenstein(1)..... 39 Director
Harold Compton(1)........ 49 Director
Robert Huth(2)........... 51 Director
Richard Jolosky(1)....... 62 Director
Adam Kirsch(2)........... 35 Director
Peter Mulvihill(2)....... 38 Director
John J. Wiesner.......... 59 Director
</TABLE>

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

(1) Member of Compensation Committee.

(2) Member of Audit Committee.

Mr. Bekenstein, Mr. Kirsch and Mr. Mulvihill will resign from the Board of
Directors following the consummation of the Offering. In addition, following the
consummation of the Offering, the Company expects to add one representative of
the Citicorp Entities (as defined) to the Board of Directors and fill the two
remaining vacant Board of Directors seats with two independent 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. Tooker joined the Company as Director, President and Chief Operating
Officer on July 1, 1993. On July 1, 1994, Mr. Tooker was appointed Chief
Executive Officer and on January 27, 1997, Mr. Tooker was elected Chairman of
the Board of Directors. Mr. Tooker succeeds Mr. Bernard Fuchs, age 70, who
retired. Mr. Tooker has 25 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. Brown joined the Company on August 4, 1997. Prior to joining the
Company, Mr. Brown was the Executive Vice President for Merchandising, Planning
and Marketing at Office Depot in Del Ray Beach, Florida since 1995. Mr. Brown
served as the Executive Vice President, General Merchandise Manager over all
apparel, accessories and cosmetics at Marshall's from 1990 to 1995, and as Sr.
Vice President of Merchandising for both Men's and Women's apparel at Macy's, a
division of Federated Department Stores, Inc., from 1978 to 1990.

Mr. Marcum joined the Company in June 1995 as Executive Vice President and
Chief Financial Officer. On August 20, 1997, he was named a Director of the
Company. Prior to joining the Company, Mr. Marcum held various positions at the
Melville Corporation where he was employed since 1983. Mr. Marcum served as
Treasurer of Melville Corporation from 1986 to 1989, Vice President and
Controller of Marshalls, Inc., a division

42
<PAGE> 43

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. 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. 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. Compton has been a Director since March 1997. Mr. Compton has served as
Executive Vice President and Chief Operating Officer of CompUSA Inc. since
January 1995. Previously, he served as Executive Vice President -- Operations,
from August 1994 to January 1995. Prior to joining CompUSA Inc., Mr. Compton
served as President and Chief Operating Officer of Central Electric Inc. from
December 1993 to August 1994. Previously, Mr. Compton served as Executive Vice
President -- Operations & Human Resources of HomeBase, Inc. from 1989 to 1993.

Mr. Huth has been a Director since March 1997. Mr. Huth has served as
President of David's Bridal from 1995 to the present. Prior to joining David's
Bridal, Mr. Huth was employed by Melville Corporation from 1987 to 1995, where
he served as Director, Executive Vice President and Chief Executive Officer.

Mr. Jolosky has been a Director since March 1997. Mr. Jolosky has served as
President of Payless ShoeSource, Inc. since 1996. Mr. Jolosky previously served
as President and Chief Executive Officer of Silverman Jewelry Company from 1995
to 1996 and as Chief Executive Officer of the Richard Allen Company from 1992 to
1995.

Mr. Kirsch has been a Director since June 1992 and 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., Diagnostics 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 and Oak Hill Securities Fund, L.P.) 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. Wiesner joined the Company as Director effective July 1, 1997. Prior to
joining the Company, Mr. Wiesner held varying positions at CR Anthony, including
Chairman of the Board, Chief Executive Officer from 1987 to 1997, and President
from 1987 to 1990 and 1992 to 1995. From 1977 to 1987, Mr. Wiesner was employed
by Pamida, Inc., an operator of discount stores in the midwestern United States,
serving as Corporate Controller from 1977 to 1979, Senior Vice President from
1979 to 1981, Senior Executive Vice President and Chief Financial Officer from
1981 to 1985 and Vice Chairman of the Board and Chief Administrative Officer
from 1985 to 1987. Prior to joining Pamida, Inc., Mr. Wiesner was employed for
seven years by Fisher Foods, Inc., a supermarket chain, attaining the position
of Vice President and Controller.

43
<PAGE> 44

PRINCIPAL AND SELLING STOCKHOLDERS

The table below sets forth certain information regarding ownership of the
Common Stock as of September 1, 1997 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 Selling Stockholder;
(iii) each director and named executive officer; and (iv) all executive officers
and directors as a group. Each of such stockholders is assumed to have sole
voting and investment power as to the shares shown. Known exceptions are noted.
As of September 1, 1997, 1,250,584 shares of Class B common stock were
outstanding, all of which are owned by Court Square Capital Limited.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF OF TOTAL OF TOTAL
SHARES OF PERCENTAGE OF SHARES SHARES
COMMON VOTING POWER OWNED SHARES TO BE OWNED
STOCK PRIOR TO THE PRIOR TO THE SOLD IN THE AFTER THE
NAME OWNED OFFERING OFFERING OFFERING OFFERING
- -------------------------------------- --------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Bain Capital Funds(1)............... 3,517,829 13.5% 12.9% 3,517,829(2) --
Acadia Entities..................... 3,030,095(3) 11.6% 11.1% 2,709,715(4) --(5)
Citicorp Entities(6)................ 2,215,497 3.7% 8.1% 8.1%
DIRECTORS AND EXECUTIVE OFFICERS
Joshua Bekenstein(7)................ 3,574,184 13.7% 13.1% 3,555,239 *
Adam Kirsch(7)...................... 3,550,249 13.6% 13.0% 3,550,249 --
Carl Tooker......................... 103,943 * * *
James Marcum........................ 42,625 * * *
Stephen Lovell...................... 33,154 * * *
Ron Lucas........................... 17,997 * * *
John Wiesner........................ 4,000 * * *
Robert Huth......................... 2,000 * * *
Harry Brown......................... -- -- -- --
Harold Compton...................... -- -- -- --
Richard Jolosky..................... -- -- -- --
Peter Mulvihill(8).................. -- -- -- (4) --
All executive officers and directors
as a group (12 Persons)(9)....... 3,810,323 14.6% 13.9% *
OTHER SELLING STOCKHOLDERS
8 other Selling Stockholders,
each of whom is selling less than
50,000 shares in the
Offering(10)..................... 150,644 * * 150,644 --
</TABLE>

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

* Less than 1%

(1) Amounts shown include 2,772,741 shares of Common Stock held by Tyler
Capital Fund, L.P. ("Tyler Capital"); 568,116 shares of Common Stock held
by Tyler Massachusetts, L.P.: 166,185 shares of Common Stock held by Tyler
International; 10,587 shares of Common Stock held by BCIP Associates
("BCIP Associates"); and 200 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.

(2) Immediately prior to the Offering, Tyler Capital made a distribution to
Bain Venture Capital, a California L.P. ("Bain"), of 165,800 shares of
Common Stock (the "Tyler Capital Distribution"). Immediately following the
Tyler Capital Distribution, Bain made liquidating distributions to certain
of its partners (the "Bain Distribution"). Immediately following the Bain
Distribution, certain partners of Bain receiving shares in the Bain
Distribution made distributions of Common Stock to the following
charitable institutions and trust, all of which are being sold in the
Offering: The Church of Jesus Christ of Latter-Day Saints (13,300 shares);
Anasazi Foundation (1,600 shares); Combined Jewish Philanthropies of
Greater Boston (15,900 shares); Fidelity Investments Charitable Gift Fund
("Fidelity") (25,000 shares); and Joshua Bekenstein 1997 Charitable
Remainder Unitrust (the "Unitrust") (110,000 shares).

(3) Amount shown represents 2,836,693 shares held directly by Acadia Partners,
L.P. ("Acadia"), 96,701 shares held by FWHY Coinvestments I Partners, L.P.
("FCP") and 96,701 shares held by Rosecliff-

44
<PAGE> 45

Specialty Retailing 1989 Partners, L.P. ("Rosecliff"). A Schedule 13G
Statement dated February 14, 1997 (the "Acadia 13G"), reported the
collective beneficial ownership of 3,030,095 shares, or 11.1% of the
Company's Common Stock, by Acadia, Acadia FW Partners, L.P., a Delaware
limited partnership ("Acadia FW"), Acadia MGP, Inc., a Texas corporation
("Acadia MGP"), J. Taylor Crandall, FCP, Bondo FTW, Inc., a Delaware
corporation ("Bondo FTW"), David Bonderman, Rosecliff, and Glenn R. August
(collectively, the "Acadia Entities"). Acadia, acting through its sole
general partner, Acadia FW, acting in turn through its managing general
partner, Acadia MGP, has the sole power to vote and dispose of 2,836,693
shares of Common Stock. As the President of Acadia MGP, Mr. Crandall has
the sole power to vote and dispose of such 2,836,693 shares of Common
Stock. Each of FCP and Rosecliff own 96,701 shares of Common Stock.
Because of his position as the President of Bondo FTW, the sole general
partner of FCP, Mr. Bonderman may be deemed to be the beneficial owner of
the 96,701 shares of Common Stock held by FCP. Because of his position as
the sole general partner of Rosecliff, Mr. August may be deemed to be the
beneficial owner of the 96,701 shares of Common Stock held by Rosecliff.
The Acadia 13G states that neither the fact of its filing by the Acadia
Entities nor anything contained therein shall be deemed an admission by
the Acadia Entities that a "group" exists within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended. The address
of Acadia and FCP is 201 Main Street, Fort Worth, Texas 76102. The address
of Rosecliff is 65 East 55th Street, New York, New York 10022.

(4) Immediately prior to the Offering, Acadia and Rosecliff made liquidating
distributions to their partners of all of the shares of Common Stock of
the Company held by them (the "Acadia Distributions"). The 2,709,715
shares being sold by the partners of Acadia and Rosecliff (or certain
charitable transferees thereof) include the following: The Equitable Life
Assurance Society of the United States (897,747 shares); Overseas Assets
Holdings, Inc. (333,482 shares); Lehman Brothers/Rosecliff, Inc. (297,080
shares); Umpawaug I Corporation (218,747 shares); Xerox Credit Corporation
(190,983 shares); Mitsui Nevitt Capital Corporation (177,814 shares);
Wells Fargo & Company (114,590 shares); The Bank of New York Company, Inc.
(109,322 shares); Paribas North America, Inc. (76,393 shares); Texas
Christian University (15,625 shares); The New York Botanical Garden
(15,625 shares); Fort Worth Zoological Association (3,678 shares); Peter
Mulvihill (11,604 shares); and other selling stockholders receiving shares
in the Acadia Distributions (an aggregate of 247,025 shares). FCP will not
sell any shares in the Offering.

(5) Shares held by FCP and shares received in the Acadia Distributions by
partners of Acadia and Rosecliff which will not participate in the
Offering will in each case constitute less than one percent of the total
shares of Common Stock outstanding after the Offering. As a result, no
Acadia Entities will continue to be reflected as 5% Stockholders of the
Company after the consummation of the Offering.

(6) Amounts shown include 1,250,584 shares of non-voting Class B Common Stock
and 370,068 shares of Common Stock owned by Court Square Capital Limited
("Court Square"), a subsidiary of Citicorp, a Delaware corporation and
594,845 shares of Common Stock owned by Citicorp Venture Capital Limited
("CVC"), a subsidiary of Citicorp. 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 and CVC is 399 Park Avenue, New
York, New York 10043.

(7) Amounts shown include shares beneficially owned by the Bain Capital Funds.
Mr. Bekenstein and Mr. Kirsch, both Directors of the Company and Managing
Directors of Bain Capital, Inc., may be deemed to share voting and
dispositive power as to all shares owned by the Bain Capital Funds.
Immediately prior to the Offering, Mr. Bekenstein made a distribution to
the Unitrust of 37,410 shares of Common Stock. The 37,410 donated shares
are being sold by the Unitrust in the Offering.

(8) Mr. Mulvihill is a Director of the Company and a Managing Director of the
investment adviser to Acadia. As indicated in Note (4) above, Mr.
Mulvihill is selling 11,604 shares in connection with the Acadia
Distributions.

(9) Amount shown includes 112,719 shares of Common Stock that such persons or
group could acquire upon the exercise of options exercisable within 60
days.

(10) Amount shown represent 150,644 shares of Common Stock held by certain
partners or employees of Bain Capital Funds. Amount shown excludes shares
of Common Stock held by Messrs. Bekenstein and Kirsch. Immediately prior
to the Offering, certain partners and other employees of Bain Capital
Funds made contributions of 20,140 shares of Common Stock to Fidelity. The
20,140 donated shares are being sold by Fidelity in the Offering.

45
<PAGE> 46

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

Loans to Executive Officers. The Company has made loans, in an aggregate
principal amount of $1,344,400, to certain executive officers of the Company.
Such loans provide for interest ranging from 5.7% to 7.25% and mature no later
than June 1, 2000. All loans are secured by Common Stock or certain real estate
owned by such executive officers.

TRANSACTIONS WITH STOCKHOLDERS

Registration Rights Agreement. 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. 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 Agreement 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.

46
<PAGE> 47

DESCRIPTION OF CERTAIN INDEBTEDNESS

CREDIT AGREEMENT

The Credit Agreement consists of: (i) the $100.0 million Working Capital
Facility, pursuant to which the Company has the right at any time prior to June
17, 2000 to solicit one or more Lenders and/or new financial institutions to
provide up to $25.0 million in additional commitments to increase the Working
Capital Facility to an amount not to exceed in the aggregate $125.0 million,
subject to certain conditions, of which up to $50.0 million may be used for
letters of credit and $10.0 million may be used for a swing line facility; and
(ii) the $100.0 million Expansion Facility. The Working Capital Facility is used
to finance the working capital and general corporate requirements of the
Company, including the interim financing of the acquisition of the receivables
of CR Anthony. The Expansion Facility is used for acquisitions and general
corporate purposes. Each of the Working Capital Facility and Expansion Facility
are available in multiple drawings from time to time and amounts borrowed and
repaid may be reborrowed until June 17, 2002 (the "Final Maturity Date");
provided that in addition to certain mandatory reductions, the commitments under
the Expansion Facility will be reduced on June 17, 2001 by the amount, if any,
necessary so that total reductions in the amount of the commitments under the
Expansion Facility (taking into account all mandatory reductions) will have been
at least $25.0 million. The Working Capital Facility (other than the amount of
the excess thereof over $100.0 million after giving effect to any increase
thereof) must be reduced to $0.0 million (excluding issued and undrawn letters
of credit) for a minimum of 45 consecutive days of each rolling 12 month period.

Each of the Working Capital Facility and Expansion Facility may be
maintained from time to time, at the Company's option, as (a) Base Rate Loans
(as defined in the Credit Agreement) which bear interest at the Base Rate plus
the applicable Margin Percentage (each as defined in the Credit Agreement) or
(b) Eurodollar Rate Loans (as defined in the Credit Agreement) bearing interest
at the Eurodollar Rate (adjusted for reserves) as determined by the
administrative agent for the applicable interest period, plus the applicable
Margin Percentage (as defined in the Credit Agreement). The initial Margin
Percentage for Eurodollar loans is a per annum rate equal to 2.00%, and the
initial Margin Percentage for Base Rate Loans is a per annum rate equal to
1.00%. The Margin Percentage will be determined from time to time based on the
Adjusted Leverage Ratio (as defined in the Credit Agreement) at the end of each
fiscal quarter.

The Credit Agreement contains certain affirmative and negative covenants
contained in the Credit Agreement, including without limitation, covenants that
restrict, subject to specified exceptions: (i) the incurrence of additional
indebtedness and other obligations and the granting of additional liens; (ii)
mergers, acquisitions, investments and acquisitions and dispositions of assets;
(iii) the incurrence of capitalized lease obligations; (iv) dividends; (v)
prepayments or repurchase of other indebtedness and amendments to certain
agreements governing indebtedness, including the Indentures, the Notes and the
Accounts Receivable Program; (vi) engaging in transactions with affiliates and
formation of subsidiaries; (vii) capital expenditures; (viii) the use of
proceeds; and (ix) changes of lines of business. The Credit Agreement also
requires that the Company maintain compliance with certain specified financial
covenants, including covenants relating to minimum interest coverage and minimum
fixed charge coverage. The Credit Agreement is secured by the distribution
center located in Jacksonville, Texas, including equipment located therein and a
pledge of SRPC's stock.

OTHER LONG-TERM INDEBTEDNESS

Senior Notes. The Senior Notes were issued by SRI in an aggregate principal
amount of $200.0 million and bear interest at 8 1/2% payable semi-annually on
January 15 and July 15. The Senior Notes have a maturity date of July 15, 2005.
The Senior Notes are general unsecured obligations and rank senior to all
subordinated debt including the Senior Subordinated Notes. The Senior Notes are
guaranteed on a senior basis by Stage and all material subsidiaries of Stage.

Senior Subordinated Notes. The Senior Subordinated Notes were issued by SRI
in an aggregate principal amount of $100.0 million and bear interest at 9%
payable semi-annually on January 15 and July 15. The Senior Subordinated Notes
have a maturity date of July 15, 2007. The Senior Subordinated Notes are
subordinated to all

47
<PAGE> 48

senior debt, including the obligations under the Senior Notes. The Senior
Subordinated Notes are guaranteed on a senior subordinated basis by Stage and
all material subsidiaries of Stage.

The Senior Notes and the Senior Subordinated Notes contain restrictive
covenants which, among other things, (i) limit the Company's ability to sell
certain assets, pay dividends, retire its common stock or retire certain debt,
(ii) limit its ability to insure 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 and 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. 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. SRI
is the primary obligor under these debentures.

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<PAGE> 49

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, 27,028,347 shares of Common Stock will be issued and
outstanding, 1,250,584 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, Stage's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") and
Stage's Amended and Restated Bylaws (the "Bylaws") as will 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 August 21, 1997, there were 27,028,347 shares of Common Stock
outstanding held by approximately 254 holders of record. The issued and
outstanding shares of Common Stock are, and the shares of Common Stock being
offered will be 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 Company's indebtedness, 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
of Directors may from time to time determine. See "Dividend Policy."

The shares of Common Stock are not 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.

The Common Stock is listed 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 August 21, 1997, there were 1,250,584 shares of Class B Common Stock
outstanding held by one holder 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 of Directors
may from time to time determine. See "Dividend Policy."

The shares of Class B Common Stock are not 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.

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<PAGE> 50

PREFERRED STOCK

The Board of Directors 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 of Directors, 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. There are 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 CERTIFICATE OF INCORPORATION AND BYLAWS

The 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 Certificate of Incorporation and
the Bylaws 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 offer of the
Company. Stockholders will not be permitted to call a special meeting or to
require the Board of Directors to call a special meeting.

The 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 66 2/3% of the shares of voting
stock of the Company. The fair price provision of the Certificate of
Incorporation provides that 66 2/3% 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
Certificate of Incorporation would be necessary.

The Bylaws 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 of Directors.
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 of Directors 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 Bylaws do not give the Board of Directors 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
Bylaws 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

The Company is 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 numbers of
shares outstanding those shares

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<PAGE> 51

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 66 2/3% 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 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 is ChaseMellon
Shareholder Services, L.L.C.

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<PAGE> 52

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices of the Common Stock.

Upon completion of the Offering, the Company will have 27,028,347 shares of
Common Stock outstanding. The 6,448,018 shares of Common Stock sold in the
Offering will be freely tradeable without restriction or further registration
under 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.

The Company, the Selling Stockholders, the executive officers and directors
of the Company and certain other stockholders of the Company, including the
Citicorp Entities, have agreed that they will not offer, sell, contract to sell,
grant any option to purchase, establish a put equivalent position (as defined in
Rule 1a-1(h) under the Exchange Act), pledge or otherwise dispose of, directly
or indirectly, or file or cause to be filed with the Securities and Exchange
Commission a registration statement under the Securities Act relating to, any
shares of Common Stock, or any securities that are convertible into or
exercisable or exchangeable for, or that represent the right to receive, shares
of Common Stock, or publicly disclose the intention to make any such offer,
sale, grant, establishment, pledge, disposal or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 90
days from the date of this Prospectus. Beginning 90 days from the date of this
Prospectus, 2,419,216 shares of Common Stock subject to lock-up agreements will
be eligible for sale.

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 one year, 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 two years is entitled to sell such shares
under Rule 144 without regard to the limitations described above.

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<PAGE> 53

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated September 16, 1997 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation and Bear, Stearns & Co. Inc. are acting as representatives
(the "Representatives"), have severally but not jointly agreed to purchase from
the Selling Stockholders the following respective numbers of shares of Common
Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Credit Suisse First Boston Corporation.................................... 3,268,811
Bear, Stearns & Co. Inc................................................... 2,179,207
The Buckingham Research Group Incorporated................................ 200,000
Everen Securities, Inc.................................................... 200,000
Hampshire Securities Corporation.......................................... 200,000
Invemed Associates, Inc................................................... 200,000
Johnson Rice & Company L.L.C.............................................. 200,000
---------
Total........................................................... 6,448,018
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.

The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 650,000 additional shares at the initial public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.

The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer shares of Common Stock to
the public initially at the public offering price set forth on the cover page of
this Prospectus and, through the Representatives, to certain dealers at such
price less a concession of $0.90 per share, and the Underwriters and such
dealers may allow a discount of $0.10 per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.

The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate-covering transactions,
penalty bids and "passive" market making in accordance with Regulation M under
the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate-covering
transactions involve purchases of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Common Stock who are Underwriters
or prospective underwriters may, subject to certain limitations, make bids for
or purchases of the Common Stock until the time, if any, at which the
stabilizing bid is made. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the shares of Common Stock
originally sold by such syndicate member are purchased in a syndicate-covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate-covering transactions and penalty bids may cause the price of the
Common Stock to be

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<PAGE> 54

higher than it would be in the absence of such transactions. These transactions
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.

Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, various investment banking and
commercial banking services for the Company and the Selling Stockholders, for
which they have received and will receive customary fees and commissions.

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<PAGE> 55

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that: (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."

RIGHT ACTION FOR ONTARIO PURCHASERS

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission of rights of action under
the civil liability provisions of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the Company's directors and officers as well as the experts and the
Selling Stockholders named herein may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the Company or such persons. All or a substantial
portion of the assets of the Company and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the Company or such persons in Canada or to enforce a judgment obtained in
Canadian courts against the Company of such persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of Common Stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by such purchasers under relevant Canadian
legislation.

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<PAGE> 56

CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a
non-resident fiduciary of a foreign estate or trust.

This discussion is based on the Code and administrative interpretations as
of the date hereof, all of which are subject to change, including changes with
retroactive effect. This discussion does not address all aspects of U.S. federal
income and estate taxation that may be relevant to Non-U.S. Holders in light of
their particular circumstances and does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction. Prospective holders
should consult their tax advisors with respect to the particular tax
consequences to them of owning and disposing of Common Stock, including the
consequences under the laws of any state, local or foreign jurisdiction.

Proposed United States Treasury Regulations were issued on April 22, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The
discussion below is not intended to be a complete discussion of the provisions
of the Proposed Regulations, and prospective investors are urged to consult
their tax advisors with respect to the effect the Proposed Regulations would
have if adopted.

DIVIDENDS

Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to withholding tax at a rate of
30% of the gross amount of the dividend or such lower rate as may be specified
by an applicable income tax treaty. For purposes of determining whether tax is
to be withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, in accordance with existing United States Treasury Regulations, the
Company ordinarily will presume that dividends paid to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted.

Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-United States Holder would generally be required to
provide an Internal Revenue Service Form W-8 certifying such Non-United States
Holder's entitlement to benefits under a treaty. The Proposed Regulations would
also provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-United States Holder that
is an entity should be treated as paid to the entity or to those holding an
interest in that entity.

There will be no withholding tax on dividends paid to a Non-U.S. Holder if
such dividends are effectively connected with the Non-U.S. Holder's conduct of a
trade or business within the United States and if a Form 4224 stating that the
dividends are so connected is filed with the Company or its paying agent.
Instead, the effectively connected dividends will be subject to regular U.S. net
income tax at graduated rates, in the same manner as if the Non-U.S. Holder were
a U.S. resident. In addition to the graduated tax described above, a non-U.S.
corporation receiving effectively connected dividends may be subject to a
"branch profits tax" which is imposed, under certain circumstances, at a rate of
30% (or such lower rate as may be specified by an applicable treaty) of the non-
U.S. corporation's effectively connected earnings and profits, subject to
certain adjustments.

Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.

Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information to the
Company or its paying agent.

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<PAGE> 57

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such holder in the United States, (ii) in
the case of certain Non-U.S. Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
United States for 183 or more days in the taxable year of the disposition and
certain other conditions are met, (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) the Company is or has been a "United States real property
holding corporation" for federal income tax purposes and the Non-U.S. Holder
owned directly or pursuant to certain attribution rules more than 5% of the
Company's Common Stock (assuming the Common Stock is regularly traded on an
established securities market) at any time within the shorter of the five-year
period preceding such disposition or such holder's holding period.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK

Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Common Stock paid to or through a U.S. office of a broker unless
the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds if the payment
is made outside the United States through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds outside the United
States if the payment is made through an office outside the United States of a
broker that is (i) a U.S. Person, (ii) a foreign person which derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States or (iii) a "controlled foreign corporation" for
U.S. federal income tax purposes, unless the broker maintains documentary
evidence that the holder is a Non-U.S. Holder and that certain conditions are
met, or that the holder otherwise is entitled to an exemption.

The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject to
backup withholding and information reporting unless the Company receives
certification from the holder of its non-U.S. status.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Common Stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise. Estates of non-resident aliens are
generally allowed a statutory credit which has the effect of offsetting the
United States federal estate tax imposed on the first $60,000 of the taxable
estate.

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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 and
certain Selling Stockholders by Kirkland & Ellis (a partnership which includes
professional corporations), New York, New York. Certain legal matters will be
passed upon for the Underwriters by Dewey Ballantine, New York, New York.
Certain legal matters will be passed upon for Acadia by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York.

EXPERTS

The consolidated financial statements of the Company at February 1, 1997
and February 3, 1996 and for each of the three years in the period ended
February 1, 1997 included herein 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 consolidated financial statements of CR Anthony incorporated herein by
reference for the 52 weeks ended February 1, 1997, the 53 weeks ended February
3, 1996 and 52 weeks ended January 29, 1995, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given their authority as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed the Registration Statement on Form S-3 with respect
to the Common Stock being offered hereby with the Securities and Exchange
Commission (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, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Regional Offices of the commission at 75 Park Place, New
York, New York 10007 and at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Additionally, the Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company.

INFORMATION INCORPORATED BY REFERENCE

The following documents of Stage, which have been filed with the
Commission, are incorporated herein by reference:

1. Stage's Annual Report on Form 10-K for the 52 weeks ended February 1,
1997.

2. Stage's Current Report on Form 8-K dated March 5, 1997.

3. Stage's Proxy Statement dated April 16, 1997, as amended.

4. Stage's Quarterly Report on Form 10-Q for the three months ended May 3,
1997.

5. Stage's Registration Statement on Form S-4 dated May 27, 1997, as
amended.

6. Stage's Current Report on Form 8-K dated May 21, 1997.

7. Stage's Current Report on Form 8-K dated June 26, 1997.

58
<PAGE> 59

8. Stage's Current Report on Form 8-K/A-1 dated June 26, 1997.

9. Stage's Registration Statement on Form S-4 dated August 1, 1997, as
amended.

10. Stage's Quarterly Report on Form 10-Q for the three months ended August
2, 1997.

All documents filed by Stage with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination or completion of the Offering shall be
deemed to be incorporated by reference in this Prospectus and to be part of this
Prospectus from the date of the filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

Stage hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any or all of the information filed by it that has been
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference herein unless such exhibits are
specifically incorporated by reference in such information). Requests for such
information should be directed to Stage Stores, Inc., 10201 Main Street,
Houston, Texas 77025, Attention: Investor Relations (telephone number: (800)
579-2302).

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE
"PROSPECTUS SUMMARY," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED
ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS
STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.

59
<PAGE> 60

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheet at August 2, 1997
and February 1, 1997.................................. F-2
Consolidated Condensed Statement of Income for the six
months ended August 2, 1997 and August 3, 1996........ F-3
Consolidated Condensed Statement of Cash Flows for the
six months ended August 2, 1997 and August 3, 1996.... F-4
Consolidated Condensed Statement of Stockholders'
Equity for the six months ended August 2, 1997........ F-5
Notes to Unaudited Consolidated Condensed Financial
Statements............................................ F-6

AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants...................... F-8
Consolidated Balance Sheet at February 1, 1997 and
February 3, 1996...................................... F-9
Consolidated Statement of Operations for 1996, 1995 and
1994.................................................. F-10
Consolidated Statement of Cash Flows for 1996, 1995 and
1994.................................................. F-11
Consolidated Statement of Stockholders' Equity for
1996, 1995 and 1994................................... F-13
Notes to Consolidated Financial Statements............. F-14
</TABLE>

F-1
<PAGE> 61

STAGE STORES, INC.

CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)

ASSETS

<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1997 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 18,929 $ 18,286
Undivided interest in accounts receivable trust............. 51,822 80,672
Merchandise inventories, net................................ 258,488 187,717
Prepaid expenses............................................ 18,551 15,690
Other current assets........................................ 39,842 32,797
-------- --------
Total current assets.............................. 387,632 335,162
Property, equipment and leasehold improvements, net......... 138,383 111,189
Goodwill, net............................................... 87,033 47,173
Other assets................................................ 49,629 15,759
-------- --------
$662,677 $509,283
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 66,638 $ 54,336
Accrued interest............................................ 4,347 12,908
Accrued expenses and other current liabilities.............. 55,032 32,699
-------- --------
Total current liabilities......................... 126,017 99,943
Long-term debt.............................................. 356,877 298,453
Other long-term liabilities................................. 19,048 18,621
-------- --------
Total liabilities................................. 501,942 417,017
-------- --------
Preferred stock, par value $1.00, non-voting, 3 shares
authorized, no shares issued or outstanding............... -- --
Common stock, par value $0.01, 75,000 shares authorized,
25,741 and 22,033 shares issued and outstanding,
respectively.............................................. 257 220
Class B common stock, par value $0.01, non-voting 3,000
shares authorized, 1,251 issued and outstanding........... 13 13
Additional paid-in capital.................................. 242,283 169,811
Accumulated deficit......................................... (81,818) (77,778)
-------- --------
Stockholders' equity........................................ 160,735 92,266
-------- --------
Commitments and contingencies............................... -- --
-------- --------
$662,677 $509,283
======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-2
<PAGE> 62

STAGE STORES, INC.

CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.......................................... $238,137 $182,750 $429,649 $345,927
Cost of sales and related buying, occupancy and
distribution expenses............................ 164,235 126,127 293,822 237,223
-------- -------- -------- --------
Gross profit....................................... 73,902 56,623 135,827 108,704
Selling, general and administrative expenses....... 53,405 42,468 94,663 78,433
Store opening and closure costs.................... 761 230 904 301
-------- -------- -------- --------
Operating income................................... 19,736 13,925 40,260 29,970
Interest, net...................................... 9,449 12,466 18,391 24,054
-------- -------- -------- --------
Income before income tax and extraordinary item.... 10,287 1,459 21,869 5,916
Income tax expense................................. 4,041 591 8,529 2,396
-------- -------- -------- --------
Income before extraordinary item................... 6,246 868 13,340 3,520
Extraordinary item -- early retirement of debt..... (17,380) -- (17,380) --
-------- -------- -------- --------
Net income (loss).................................. $(11,134) $ 868 $ (4,040) $ 3,520
======== ======== ======== ========
Earnings (loss) per common share data:
- ----------------------------------------
Earnings per common share before extraordinary
item.......................................... $ 0.25 $ 0.07 $ 0.54 $ 0.27
Extraordinary item -- early retirement of debt... (0.68) -- (0.70) --
-------- -------- -------- --------
Earnings (loss) per common share................. $ (0.44) $ 0.07 $ (0.16) $ 0.27
======== ======== ======== ========
Weighted average common shares outstanding....... 25,478 13,015 24,688 12,957
======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE> 63

STAGE STORES, INC.

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (4,040) $ 3,520
-------- --------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 8,003 6,844
Deferred income taxes..................................... 364 (833)
Accretion of discount..................................... 579 7,663
Amortization of debt issue costs.......................... 1,016 1,031
Loss on early extinguishment of debt...................... 17,380 --
Changes in working capital................................ 7,327 (12,118)
-------- --------
Total adjustments................................. 34,669 2,587
-------- --------
Net cash provided by operating activities............ 30,629 6,107
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ (4,996) (27,276)
Additions to property, equipment and leasehold
improvements........................................... (20,797) (15,183)
-------- --------
Net cash used in investing activities................ (25,793) (42,459)
-------- --------
Cash flows from financing activities:
Proceeds from common stock................................ 224 292
Proceeds from long-term debt.............................. 299,720 30,000
Proceeds from Revolving Credit Agreement, net............. 5,000 7,500
Payments on long-term debt................................ (296,805) (125)
Redemption of common stock................................ -- (16)
Additions to debt issue costs............................. (12,332) (2,632)
-------- --------
Net cash provided by (used in) financing
activities.......................................... (4,193) 35,019
Net increase (decrease) in cash and cash equivalents........ 643 (1,333)
-------- --------
Cash and cash equivalents:
Beginning of period....................................... 18,286 20,273
-------- --------
End of period............................................. $ 18,929 $ 18,940
======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 25,594 $ 14,885
======== ========
Income taxes paid......................................... $ 3,175 $ 8,617
======== ========
</TABLE>

The Company purchased Uhlmans, Inc. on June 3, 1996. On June 26, 1997, the
Company acquired C.R. Anthony Company. In conjunction with these acquisitions,
liabilities were assumed as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Fair value allocated to assets acquired..................... $120,665 $ 34,295
Cash paid for assets acquired, including acquisition
expenses.................................................. (4,996) (27,276)
Value of Common Stock exchanged............................. (72,284) --
-------- --------
Liabilities assumed......................................... $ 43,385 $ 7,019
======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-4
<PAGE> 64

STAGE STORES, INC.

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)

The accompanying notes are an integral part of this statement.

F-5
<PAGE> 65

STAGE STORES, INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. The accompanying unaudited consolidated condensed financial statements
of Stage Stores, Inc. ("Stage Stores"), 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 1, 1997 filed with
Stage Stores, Inc.'s 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 "1997" mean the fiscal
year ending January 31, 1998.

Stage Stores conducts its business exclusively through its wholly owned
subsidiary Specialty Retailers, Inc. ("SRI"), which operated 578 family apparel
stores in the central United States as of August 2, 1997. Stage Stores has no
operations of its own and its primary asset is the common stock of SRI. Stage
Stores and SRI are collectively referred to herein as the "Company".

2. Pursuant to 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 by the Company's private label credit card
program. Such accounts receivable are transferred to a master trust (the
"Trust") which has issued certain certificates to third parties representing
undivided interests in the Trust. SRPC owns an undivided interest in the
accounts receivable not supporting the certificates issued to third parties by
the Trust (the "Restricted 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. During October 1996, the Company completed an initial public offering
(the "Offering") of its common stock. The Company sold 10,750,000 shares at an
initial offering price of $16.50 per share. The net proceeds from the Offering
to the Company were approximately $165.7 million after deducting underwriting
discounts and expenses related to the transaction. The net proceeds were used
primarily to retire the 12 3/4% Senior Discount Debentures due 2000 (the "Senior
Discount Debentures"). The remaining proceeds of approximately $26.5 million
were used for general corporate purposes. Immediately prior to the Offering, the
Board of Directors approved a .94727 for 1 reverse stock split, the effect of
which is reflected in the accompanying financial statements for all periods
presented.

4. During the second quarter of 1997, the Company completed an offering of
$300.0 million of long-term indebtedness consisting of $200.0 million in
aggregate principal amount of 8 1/2% Senior Notes Due 2005 and $100.0 million in
aggregate principal amount of 9% Senior Subordinated Notes Due 2007. The gross
proceeds from the issuance of these notes (approximately $299.7 million) were
used to retire the Company's existing 10% Senior Notes due 2000 and 11% Senior
Subordinated Notes due 2003 and to pay related fees and expenses and to pay
costs associated with the acquisition of C.R. Anthony Company ("CR Anthony").
Concurrently with this transaction, the Company entered into a new credit
facility with a group of lenders (the "New Credit Agreement"). The New Credit
Agreement provides for a $100.0 million working capital and letter of credit
facility and a $100.0 million expansion revolving credit facility. The New
Credit Agreement replaced the Company's existing $75.0 million credit facility.
In connection with the above transactions, the Company recorded an extraordinary
charge of $17.4 million, net of applicable income taxes of $11.1 million,
related to the tender transactions and write off of unamortized debt issue costs
associated with the retired debt.

5. On June 26, 1997, the Company acquired CR Anthony which operated 246
family apparel stores in small markets throughout the central and midwestern
United States under the names "Anthony's" and "Anthony's Limited". The Company
issued 3,607,044 shares in exchange for the outstanding common stock of CR
Anthony. The purchase price for CR Anthony (including the common stock issued by
the Company) was approximately

F-6
<PAGE> 66

$77.3 million, including acquisition costs and net of cash acquired. CR Anthony
had net sales of $288.4 million and net income of $4.8 million of the year ended
February 1, 1997.

The following unaudited pro forma information gives effect to the
acquisition of CR Anthony and the refinancing of the Company's debt as discussed
in Note 4 above as if each transaction had occurred at the beginning of the
periods presented (in thousands, except per common share data):

<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
AUGUST 2, FISCAL
1997 1996
--------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $538,149 $1,081,458
======== ==========
Income before extraordinary item............................ $ 13,584 $ 31,308
======== ==========
Earnings per common share before extraordinary item......... $ 0.49 $ 1.15
======== ==========
</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 or
refinancing had actually taken place at the beginning of the periods presented,
nor are they necessarily indicative of the results of any future periods.

The acquisition of CR Anthony was accounted for under the purchase method
of accounting. Accordingly, the total acquisition cost was allocated to the
assets acquired and liabilities assumed at their estimated fair values based
upon information currently available to the Company. 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
forty years. This preliminary purchase price allocation may be adjusted, if
necessary, based on additional information as it becomes available.

F-7
<PAGE> 67

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. and its subsidiaries at February 1, 1997 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 1, 1997, 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 12, 1997

F-8
<PAGE> 68

STAGE STORES, INC.

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)

ASSETS

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 18,286 $ 20,273
Undivided interest in accounts receivable trust............. 80,672 56,515
Merchandise inventories..................................... 187,717 150,032
Prepaid expenses............................................ 15,690 17,378
Other current assets........................................ 32,797 12,225
-------- --------
Total current assets.............................. 335,162 256,423
Property, equipment and leasehold improvements, net......... 111,189 93,118
Goodwill, net............................................... 47,173 30,876
Other assets................................................ 15,759 27,837
-------- --------
$509,283 $408,254
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable............................................ $ 54,336 $ 41,494
Accrued interest............................................ 12,908 12,327
Accrued employee compensation costs......................... 10,068 7,892
Accrued expenses and other current liabilities.............. 22,631 24,602
-------- --------
Total Current liabilities......................... 99,943 86,315
Long-term debt.............................................. 298,453 380,039
Other long-term liabilities................................. 12,638 14,214
Deferred income taxes....................................... 5,983 --
-------- --------
Total liabilities................................. 417,017 480,568
-------- --------
Preferred stock, par value $1.00, non-voting, 2,500 shares
authorized, no shares issued or outstanding............... -- --
Common stock, par value $0.01, 75,000,000 shares authorized,
22,033,303 and 10,866,041 shares issued and outstanding,
respectively ............................................. 220 109
Class B common stock, par value $0.01, non-voting 3,000,000
shares authorized, 1,250,584 and 1,391,303 shares issued
and outstanding,.......................................... 13 14
respectively
Additional paid-in capital.................................. 169,811 3,800
Accumulated deficit......................................... (77,778) (76,237)
-------- --------
Stockholders' equity (deficit)............................ 92,266 (72,314)
-------- --------
Commitments and contingencies............................... -- --
-------- --------
$509,283 $408,254
======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-9
<PAGE> 69

STAGE STORES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $776,550 $682,624 $581,463
Cost of sales and related buying, occupancy and
distribution expenses.................................... 532,563 468,347 398,659
-------- -------- --------
Gross profit............................................... 243,987 214,277 182,804
Selling, general and administrative expenses............... 172,579 149,102 126,200
Store opening and closure costs............................ 2,838 3,689 5,647
-------- -------- --------
Operating income........................................... 68,570 61,486 50,957
Interest, net.............................................. 45,954 43,989 40,010
-------- -------- --------
Income before income tax and extraordinary item............ 22,616 17,497 10,947
Income tax expense......................................... 8,594 6,767 4,317
-------- -------- --------
Income before extraordinary item........................... 14,022 10,730 6,630
Extraordinary item -- early retirement of debt............. (16,081) -- (308)
-------- -------- --------
Net income (loss).......................................... $ (2,059) $ 10,730 $ 6,322
======== ======== ========
Earnings (loss) per common share data:
Earnings per common share before extraordinary item...... $ 0.88 $ 0.84 $ 0.54
Extraordinary item -- early retirement of debt........... (1.01) -- (0.03)
-------- -------- --------
Earnings (loss) per common share after extraordinary
item..................................................... $ (0.13) $ 0.84 $ 0.51
======== ======== ========
Weighted average common shares outstanding................. 15,927 12,726 12,393
======== ======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-10
<PAGE> 70

STAGE STORES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ (2,059) $ 10,730 $ 6,322
--------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 14,181 12,816 9,997
Deferred income taxes.................................... 15,650 (4,065) (3,608)
Accretion of discount.................................... 11,097 13,940 12,286
Amortization of debt issue costs......................... 2,104 1,860 1,674
Issuance of long-term debt in lieu of interest payment... -- 147 282
Loss on early retirement of debt......................... 16,081 -- 308
Changes in operating assets and liabilities:
Decrease (increase) in undivided interest in accounts
receivable trust.................................... (18,815) 7,885 (11,974)
Increase in merchandise inventories................... (28,199) (31,650) (14,077)
Increase in other assets.............................. (3,339) (6,611) (3,265)
Increase (decrease) in accounts payable and accrued
liabilities......................................... (6,614) 1,202 11,861
--------- -------- --------
Total adjustments................................ 2,146 (4,476) 3,484
--------- -------- --------
Net cash provided by operating activities............. 87 6,254 9,806
--------- -------- --------
Cash flows from investing activities:
Decrease (increase) in restricted investments............ -- (100) 10,811
Acquisitions, net of cash acquired....................... (27,346) (1,167) (20,840)
Additions to property, equipment and leasehold
improvements, net..................................... (26,096) (28,638) (19,706)
--------- -------- --------
Net cash used in investing activities................. (53,442) (29,905) (29,735)
--------- -------- --------
Cash flows from financing activities:
Proceeds from:
Long-term debt........................................... 30,000 16,458 --
Common stock............................................. 165,969 68 97
Payments on:
Long-term debt........................................... (140,677) (266) (10,442)
Redemption of common stock............................... (46) (122) --
Additions to debt issue costs............................ (3,878) (807) (448)
--------- -------- --------
Net cash provided by (used in) financing activities... 51,368 15,331 (10,793)
--------- -------- --------
Net decrease in cash and cash equivalents............. (1,987) (8,320) (30,722)
Cash and cash equivalents:
Beginning of year........................................ 20,273 28,593 59,315
--------- -------- --------
End of year.............................................. $ 18,286 $ 20,273 $ 28,593
========= ======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-11
<PAGE> 71

STAGE STORES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid............................................. $32,094 $27,845 $28,414
======= ======= =======
Income taxes paid......................................... $ 6,988 $ 5,939 $ 5,198
======= ======= =======
</TABLE>

Supplemental schedule of noncash investing and financing activities:

The Company purchased Uhlmans, Inc. on June 3, 1996, Mammouth, Inc. and
Szolds, Inc. during 1995 and a significant portion of the assets of
Beall-Ladymon, Inc. during 1994. In conjunction with these acquisitions,
liabilities were assumed as follows:

<TABLE>
<S> <C> <C> <C>
Fair value allocated to assets acquired..................... $ 35,001 $ 1,702 $ 24,043
Cash paid for assets acquired, including acquisition
expenses.................................................. (27,346) (1,167) (20,840)
Purchase price payable at closing........................... -- (393) --
-------- ------- --------
Liabilities assumed......................................... $ 7,655 $ 142 $ 3,203
======== ======= ========
</TABLE>

The accompanying notes are an integral part of this statement

F-12
<PAGE> 72

STAGE STORES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(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 29, 1994............ 10,735,544 $107 1,391,303 $14 $ 3,228 $(91,076) $(87,727)
Net income........................... -- -- -- -- -- 6,322 6,322
Vested compensatory stock options.... -- -- -- -- 247 -- 247
Issuance of stock.................... 45,469 -- -- -- 97 -- 97
Adjustment for minimum pension
liability.......................... -- -- -- -- -- (132) (132)
---------- ---- --------- --- -------- -------- --------
Balance, January 28, 1995............ 10,781,013 107 1,391,303 14 3,572 (84,886) (81,193)
Net income........................... -- -- -- -- -- 10,730 10,730
Vested compensatory stock options.... -- -- -- -- 284 -- 284
Issuance of stock.................... 115,208 2 -- -- 66 -- 68
Adjustment for minimum pension
liability.......................... -- -- -- -- -- (2,081) (2,081)
Retirement of stock.................. (30,180) -- -- -- (122) -- (122)
---------- ---- --------- --- -------- -------- --------
Balance, February 3, 1996............ 10,866,041 109 1,391,303 14 3,800 (76,237) (72,314)
Net loss............................. -- -- -- -- -- (2,059) (2,059)
Vested compensatory stock options.... -- -- -- -- 198 -- 198
Issuance of stock.................... 11,032,236 110 -- -- 165,859 -- 165,969
Conversion of Class B common stock... 140,719 1 (140,719) (1) -- -- --
Adjustment for minimum pension
liability.......................... -- -- -- -- -- 518 518
Retirement of stock.................. (5,693) -- -- -- (46) -- (46)
---------- ---- --------- --- -------- -------- --------
Balance, February 1, 1997............ 22,033,303 $220 1,250,584 $13 $169,811 $(77,778) $ 92,266
========== ==== ========= === ======== ======== ========
</TABLE>

The accompanying notes are an integral part of this statement

F-13
<PAGE> 73

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business: Stage Stores, Inc. ("Stage Stores" or the
"Company"), through its wholly owned subsidiary, 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. As of February 1, 1997, the Company operated 315 stores
in nineteen 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. All significant
intercompany transactions have been eliminated in consolidation.

Fiscal Year: References to a particular year are 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 "1996" is a reference to
the fiscal year ended February 1, 1997). All fiscal years presented consisted of
52 weeks except for 1995 which consisted of 53 weeks.

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

Accounts Receivable Securitization: The Company securitizes all of its
trade accounts receivable through a wholly owned special purpose entity, SRI
Receivables Purchase Co., Inc. ("SRPC"). SRPC holds a retained interest in the
securitization vehicle, a special purpose trust (the "Trust"), which is
represented by two certificates of beneficial ownership in the Trust (the
"Retained Certificates"). The Company accounts for the Retained Certificates
under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115,
the Retained Certificates are accounted for as debt securities and classified as
trading securities. Accordingly, the Retained Certificates are recorded at fair
value in the accompanying balance sheet with any change in fair value reflected
currently in income.

In June 1996, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 125, "Accounting for Transfers of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). Among other things, SFAS 125
provides new accounting and reporting standards for sales, securitization and
servicing of receivables and is generally effective for transactions occurring
after December 31, 1996. The Company's current accounting policy is consistent
with the provisions of SFAS 125 and therefore, the implementation of this
statement had no impact on the Company's financial statements.

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
February 1, 1997 and February 3, 1996 would have been lower by $5.3 million and
$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 of the related lease, including
renewal options. The estimated useful lives in years are as follows:

<TABLE>
<S> <C>
Buildings................................................... 20-25
Store and office fixtures and equipment..................... 7-12
Warehouse equipment......................................... 5-15
Leasehold improvements...................................... 15-50
</TABLE>

F-14
<PAGE> 74

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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: 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. Prior to the initial public
offering of the Company's common stock (see Note 2), the fair value of the
Company's common stock was determined in good faith by the Board of Directors
based upon the Company's historical and projected financial performance.

Stock Split: Share and per share amounts for all periods presented reflect
the impact of a .94727 for 1 reverse stock split of the Company's common stock
consummated concurrently with the Company's initial public offering.

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.
Amortization of debt issue costs were $2.1 million, $1.9 million and $1.7
million for 1996, 1995 and 1994, respectively.

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 $5.4 million and
$4.7 million at February 1, 1997 and February 3, 1996, respectively.

Store Pre-Opening Expenses: Pre-opening expenses of new stores are 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 $29.7 million,
$25.9 million and $22.3 million for 1996, 1995 and 1994, respectively. Prepaid
advertising costs were $1.2 million and $0.5 million at February 1, 1997 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: Except for the Retained Certificates, the Company
records all financial instruments at cost. The cost of all financial
instruments, except long-term debt and the Retained Certificates, approximates
fair value.

Impairment of Assets: The Company adopted 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" during the first quarter of
1996. The adoption of SFAS 121 did not have a material effect on the Company's
financial position or results of operations.

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

NOTE 2 -- INITIAL PUBLIC OFFERING OF COMMON STOCK

During October 1996, the Company completed an initial public offering
whereby the Company sold 10,750,000 shares of its common stock to the public.
The net proceeds of $165.7 million were used primarily to retire the 12 3/4%
Senior Discount Debentures due 2000 (the "Senior Discount Debentures"). In
addition, the Company replaced its working capital facility in January 1997. As
a result of the early retirement of the Senior

F-15
<PAGE> 75

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Discount Debentures and the replacement of the working capital facility, the
Company recorded an extraordinary charge of $16.1 million, net of applicable
income taxes of $9.8 million.

NOTE 3 -- ACCOUNTS RECEIVABLE SECURITIZATION

Pursuant to the accounts receivable securitization (the "Accounts
Receivable Program"), the Company transfers all of the accounts receivable
generated by the holders of the Company's private label credit card accounts to
SRPC on a daily basis in exchange for cash or an increase in the Retained
Certificates. 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. 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 Retained Certificates, up to a maximum of $40.0
million. If accounts 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
receivable balances exceed the certificates then outstanding and the required
Retained Certificates. 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 $165.0
million at February 1, 1997 and February 3, 1996. There were no balances
outstanding under the revolving certificates at February 1, 1997 or February 3,
1996.

Total accounts receivable transferred to the Trust during 1996, 1995 and
1994 were $441.4 million, $411.6 million and $362.3 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 on 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 a loss in the event of
non-performance by the bank. However, the Company does not anticipate
non-performance by the bank. At February 1, 1997, the average rate of return on
the term certificates was 6.5%. 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.

The impact of the Accounts Receivable Program on the Company's statement of
operations for the years presented is as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Finance charge income billed to cardholders......... $ 48,555 $ 41,321 $ 35,183
Return paid to certificateholders................... (11,428) (11,529) (8,200)
Servicing and bad debt expenses..................... (37,626) (28,551) (22,504)
Other............................................... 279 (62) (1,552)
-------- -------- --------
$ (220) $ 1,179 $ 2,927
======== ======== ========
</TABLE>

F-16
<PAGE> 76

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Land........................................................ $ 3,074 $ 3,074
Buildings................................................... 16,308 16,313
Fixtures and equipment...................................... 104,958 88,794
Leasehold improvements...................................... 63,022 49,290
-------- --------
187,362 157,471
Accumulated depreciation.................................... 76,173 64,353
-------- --------
$111,189 $ 93,118
======== ========
</TABLE>

Depreciation expense was $12.3 million, $10.8 million and $8.5 million for
1996, 1995 and 1994, respectively.

NOTE 5 -- 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
philosophy or growth strategy. The Company accrued $5.2 million for the expected
costs associated with the Store Closure Plan in 1994. The Company substantially
completed the Store Closure Plan during 1995. Net sales and operating income
attributable to the stores closed were $23.2 million and $0.6 million,
respectively, in 1994. Such amounts were not material during 1996 and 1995.

NOTE 6 -- LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
SRI Senior Notes............................................ $130,000 $130,000
SRI Senior Subordinated Notes, net of discount.............. 116,686 116,530
Revolving Credit Agreements................................. -- --
SRPC Notes.................................................. 30,000 --
Bealls Holding Subordinated Notes, net of discount.......... 11,945 11,319
FB Holdings Subordinated Notes, net of discount............. 4,174 4,125
Bealls Holding Junior Subordinated Debentures, net of
discount.................................................. 6,408 6,221
Port Arthur IDRB............................................ 1,877 2,002
Senior Discount Debentures, net of discount................. -- 109,817
Other long term debt........................................ -- 301
-------- --------
301,090 380,315
Current maturities.......................................... 2,637 276
-------- --------
$298,453 $380,039
======== ========
</TABLE>

The Company used the proceeds of the initial public offering of the
Company's common stock to retire the Senior Discount Debentures at 112.7% of the
accreted value ($120.0 million). Prior to their retirement, the Senior

F-17
<PAGE> 77

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Discount Debentures bore interest at 12 3/4% of the accreted value. During the
time the Senior Discount Debentures were outstanding, no cash interest was paid.

The SRI Senior Notes were 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 25% 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. At February 1, 1997 and February 3, 1996, an affiliate of a
significant stockholder held $44.2 million of SRI Senior Notes. Interest expense
related to SRI Senior Notes held by related parties was $4.4 million for 1996
and 1995, and $2.9 million for 1994.

The SRI Senior Subordinated Notes consist of two series with principal
balances of $100.0 million and $18.3 million. The $18.3 million series was
issued at a discount which results in a combined effective interest rate for
both series of 11.3%. Both series bear interest at 11% payable semi-annually on
February 15 and August 15. SRI is required to make a mandatory sinking fund
payment in 2002 equal to forty percent of the original principal amount of both
series. The SRI Senior Subordinated Notes are subordinated to the obligations
under the SRI Senior Notes.

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

On January 31, 1997, SRI entered into amended and restated revolving credit
agreements with a bank (the "Credit Agreements") to help fund its annual working
capital needs. The Credit Agreements provide for a base borrowing level of $50.0
million, seasonal borrowings of an additional $10.0 million and letters of
credit of an additional $15.0 million for a total commitment of $75.0 million.
Prior to this amended agreement, the Company's total availability under the
working capital facility was $35.0 million. The Credit Agreements are available
through January 29, 2000 and provide for a commitment fee of 0.5% per annum on
the average daily unused portion of the commitment amount paid on a quarterly
basis. Interest is charged on outstanding loans at a base rate set forth in the
agreement plus a specified margin. The specified margin range is 0.5% to 2.75%
based on calculated debt service ratios as defined in the agreement. The
effective interest rate at February 1, 1997 was 9.25%. As of February 1, 1997,
the Company had no borrowings outstanding under the Credit Agreements. The
Credit Agreements contain covenants which, among other things, restrict the (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 under the agreement, (viii) aggregate amount of capital
expenditures and (ix) transactions with related parties. The Credit Agreements
also contain certain financial covenants which require among other things, the
maintenance of the debt service ratio above predetermined levels, the amount of
earnings before interest, taxes, depreciation and amortization on an annual and
quarterly basis above predetermined levels, and the ratio of consolidated
current assets to consolidated current liabilities above 2.5. A portion of the
Credit Agreements are 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 $6.6 million at February 1, 1997.

During 1996, the Company issued $30.0 million in aggregate principal amount
of 12.5% Trust Certificate-Backed Notes (the "SRPC Notes"). The SRPC Notes are
collateralized by the Retained Certificates. Interest and principal payments are
made from amounts otherwise received by SRPC from funds associated with the
Retained Certificates and are non-recourse to the Company to the extent these
funds are insufficient to make scheduled interest and principal payments.
Interest is payable semi-annually on June 15 and December 15 of each year
commencing December 15, 1996. Principal repayments are scheduled to begin during
December 2000.

F-18
<PAGE> 78

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 of the
Company. SRI is the primary obligor under these debentures.

In connection with a previous acquisition, a subsidiary of the Company
issued approximately $3.6 million aggregate principal amount of 7% FB Holdings
Subordinated Notes Due 2000 ("FB Holdings Subordinated Notes"). 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 1, 1997 was $4.4 million.
The FB Holdings Subordinated Notes are subordinated to all debt of the Company.
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 1, 1997 was $14.3 million. The Bealls Holding Junior
Subordinated Debentures are subordinated to all debt of the Company. 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 1, 1997 was 6.0%. The Port
Arthur IDRB is collateralized by a building with a net book value of
approximately $0.7 million. Under a separate agreement, SRI is required to make
scheduled annual sinking fund payments ranging from $0.1 million to $0.2
million.

Aggregate maturities of long-term debt for the next five years are:
1997 -- $2.6 million; 1998 -- $2.6 million; 1999 -$22.3 million; 2000 -- $117.4
million and 2001 -- $32.7 million.

Management estimates the fair value of its long-term debt to be $320.1
million and $352.3 million at February 1, 1997 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.

F-19
<PAGE> 79

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- STOCK OPTION PLANS

In 1993, the Company adopted the Third Amended and Restated Stock Option
Plan (the "1993 Stock Option Plan") designed to provide incentives to present
and future executive, managerial, technical and other key employees and advisors
to the Company (the "Participants") as selected by the Board of Directors or the
compensation committee of the Board of Directors (the "Board"). All options
granted under the 1993 Stock Option Plan were non-qualified within the meaning
of Section 422A of the Internal Revenue Code. The number of shares of common
stock which could be granted under the 1993 Stock Option Plan was 1,894,540
shares. As of February 1, 1997, there were 1,475,581 options outstanding under
the 1993 Stock Option Plan. During 1996, the 1993 Stock Option Plan was frozen
and replaced by the 1996 Equity Incentive Plan (the "Incentive Plan"). The
Incentive Plan provides for the granting 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 Board
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, stock options or SARs with respect to common stock, in any
calendar year in excess of 400,000 shares in the aggregate. There were no grants
made under the Incentive Plan during 1996.

The Board 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. With limited exceptions, including
termination of employment as a result of death, disability or retirement, or
except as otherwise determined by the Board, rights to these forms of contingent
compensation are forfeited if a recipient's employment or performance of
services terminates within 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 ISOs, are rights to
purchase a specified number of shares of common stock at a price fixed by the
Board. The option price may be 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 granted under the 1993 Stock Option Plan and
the Incentive Plan generally become exercisable in installments of 20% per year
on each of the first through the fifth anniversaries of the grant date and have
a maximum term of ten years.

F-20
<PAGE> 80

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the option activity under the various plans follows:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OUTSTANDING OPTION
OPTIONS PRICE
----------- ------------
<S> <C> <C>
Options outstanding at January 29, 1994..................... 540,987 $ 0.46
Granted..................................................... 186,647 2.27
Surrendered................................................. (21,068) 1.25
Exercised................................................... (2,720) 0.11
-----------
Options outstanding at January 28, 1995..................... 703,846 0.91
Granted..................................................... 409,108 2.95
Surrendered................................................. (7,435) 1.50
Exercised................................................... (99,985) 0.32
-----------
Options outstanding at February 3, 1996..................... 1,005,534 1.80
Granted..................................................... 783,819 10.72
Surrendered................................................. (31,550) 4.48
Exercised................................................... (282,222) 1.10
-----------
Options outstanding at February 1, 1997..................... 1,475,581 6.61
===========
</TABLE>

Exercisable options at February 3, 1996 and January 28, 1995 were 241,355
and 123,685, respectively. A summary of outstanding and exercisable options as
of February 1, 1997 follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF REMAINING NUMBER OF
OUTSTANDING CONTRACTUAL EXERCISABLE
OPTION PRICE OPTIONS LIFE OPTIONS
- ------------ ----------- ----------- -----------
<C> <C> <C> <C>
0.$11.... 175,318 6.3 75,171
2.27..... 246,392 7.3 79,777
3.04..... 260,584 8.4 21,392
5.28..... 503,212 9.0 5,018
10.56.... 34,329 9.3 --
21.11.... 255,746 9.3 --
--------- -------
1,475,581 181,358
========= =======
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for its plans. Compensation expense
was $0.3 million for each of 1996, 1995 and 1994. The following unaudited pro
forma data is calculated as if compensation cost for the Company's stock option
plans were determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation":

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Pro forma net income (loss)................................. $(2,653) $10,592
Pro forma earnings (loss) per common share.................. (0.17) 0.83
Weighted average grant date value of options granted........ 8.33 3.59
</TABLE>

The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following assumptions: no dividend yield;
volatility of 34.35%; risk-free interest rate of 6.25%; assumed forfeiture rate
of 68.26% and an expected life of eight years. The pro forma amounts above are
not likely to be

F-21
<PAGE> 81

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

representative of future years because options vest over several years and
additional awards generally are made each year.

NOTE 8 -- EMPLOYEE BENEFIT PLANS

Pension benefits for employees are provided under the SRI Restated
Retirement Plan (the "Retirement Plan"), a qualified defined benefit plan.
Benefits are administered through a Trust arrangement which provides monthly
payments or lump sum distributions. The Retirement Plan covers substantially all
employees who have completed one year of service with 1,000 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 Retirement Plan and the
amounts recognized in the consolidated financial statements (in thousands):

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefits:
Vested benefit obligations.................................. $(24,650) $(24,680)
======== ========
Accumulated benefit obligations............................. $(25,660) $(25,790)
======== ========
Projected benefit obligations............................... $(33,790) $(32,240)
Market value of plan assets, primarily fixed income and..... 20,990 20,000
-------- --------
Pension obligations in excess of assets..................... (12,800) (12,240)
Unrecognized prior service income........................... (21) (28)
Unrecognized net loss....................................... 11,772 10,948
Adjustment required to recognize minimum liability.......... (3,621) (4,470)
-------- --------
Accrued pension cost........................................ $ (4,670) $ (5,790)
======== ========
Assumptions utilized in determining projected obligations
and funding amounts:
Discount rate............................................... 7.50% 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 Retirement Plan is to contribute the
minimum amount required by applicable regulations. Retirement Plan assets
include 100,000 shares of Stage Stores common stock purchased during the
Company's initial public offering.

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

<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost........................................... $ 1,269 $ 771 $ 887
Interest cost.......................................... 2,085 2,139 1,995
Actual loss (return) on plan assets.................... (2,047) (3,377) 940
Net amortization and deferral.......................... 789 2,292 (2,174)
------- ------- -------
$ 2,096 $ 1,825 $ 1,648
======= ======= =======
</TABLE>

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

F-22
<PAGE> 82

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 net 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):

<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Minimum rentals......................................... $30,397 $26,943 $22,979
Contingent rentals...................................... 3,318 2,618 2,874
Equipment rentals....................................... 829 593 784
------- ------- -------
$34,544 $30,154 $26,637
======= ======= =======
</TABLE>

Minimum rental commitments on long-term operating leases at February 1,
1997, net of sub-leases, are as follows (in thousands):

<TABLE>
<S> <C>
Fiscal Year:
1997............................................ $ 32,657
1998............................................ 31,087
1999............................................ 29,248
2000............................................ 25,561
2001............................................ 21,614
Thereafter...................................... 107,428
--------
$247,595
========
</TABLE>

NOTE 10 -- RELATED PARTY TRANSACTIONS

Pursuant to a professional service agreement with an affiliate of a
principal stockholder, the Company paid fees for professional services rendered
and expense reimbursements in the amount of $2.7 million, $0.8 million and $0.6
million for 1996, 1995 and 1994, respectively. Upon consummation of the initial
public offering (see Note 2), such agreement was terminated.

The Company has made loans, in an aggregate principal amount of $1.5
million, to certain executive officers of the Company. These loans are full
recourse loans and are secured by a pledge of the shares of common stock owned
by such executive officers. The loans provide for interest from 5.7% to 7.25%
and mature no later than June 1, 2000.

NOTE 11 -- INCOME TAXES

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

<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.................................................... $(7,443) $ 9,772 $ 7,154
Deferred................................................... 15,399 (3,630) (3,794)
------- ------- -------
7,956 6,142 3,360
------- ------- -------
State income tax expense (benefit):
Current.................................................... 764 1,060 771
Deferred................................................... (126) (435) 186
------- ------- -------
638 625 957
------- ------- -------
$ 8,594 $ 6,767 $ 4,317
======= ======= =======
</TABLE>

F-23
<PAGE> 83

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal income tax expense at the statutory rate............ $7,915 $6,124 $3,831
State income taxes, net..................................... 414 406 797
Permanent differences, net.................................. 265 290 (311)
Other, net.................................................. -- (53) --
------ ------ ------
$8,594 $6,767 $4,317
====== ====== ======
</TABLE>

As a result of the early retirement of the Senior Discount Debentures and
the replacement of the working capital facility, the Company recorded and
extraordinary charge of $16.1 million, net of applicable income taxes of $9.8
million. The 1996 income tax benefit relating to the extraordinary item is
comprised of a $7.7 million current federal tax benefit, a $0.9 million deferred
federal tax benefit and a $1.2 million state tax benefit.

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

<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
Gross deferred tax liabilities:
Depreciation and amortization............................... $ 12,903 $ 7,485
Inventory reserves.......................................... 3,735 1,406
State income taxes.......................................... 495 --
Other....................................................... 1,660 1,435
-------- --------
18,793 10,326
-------- --------
Gross deferred tax assets:
Retained Certificates....................................... (2,173) (2,502)
Accrued consolidation costs................................. (1,318) (1,478)
Net operating loss carryforwards............................ (2,961) (82)
Original issue discount..................................... -- (10,042)
Accrued expenses............................................ (1,607) (990)
Pensions.................................................... (2,163) (2,686)
Escalating leases........................................... (1,482) (962)
Charitable contribution carryforward........................ (575) (113)
Accrued payroll costs....................................... (1,212) (884)
Accrued store closure costs................................. -- (558)
Other....................................................... (403) (780)
-------- --------
(13,894) (21,077)
-------- --------
Deferred tax assets valuation allowance..................... -- --
-------- --------
$ 4,899 $(10,751)
======== ========
</TABLE>

As a result of the extraordinary loss on the early retirement of debt
during 1996, the Company has recorded a $17.0 million federal income tax
receivable which is included in other current assets on the consolidated balance
sheet.

F-24
<PAGE> 84

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 -- QUARTERLY FINANCIAL INFORMATION

Unaudited quarterly financial data is summarized as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR 1996
-----------------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................................. $163,177 $182,750 $182,562 $248,061
Gross profit............................... 52,081 56,623 56,208 79,075
Operating income........................... 16,045 13,925 12,342 26,258
Income (loss) before extraordinary item.... 2,652 868 (265) 10,767
Net income (loss).......................... 2,652 868 (16,071) 10,492
Earnings (loss) per common share data:
Earnings (loss) per common share before
extraordinary item....................... 0.21 0.07 (0.02) 0.45
Extraordinary item -- early retirement of
debt..................................... -- -- (1.12) (0.01)
Earnings (loss) per common share after
extraordinary item....................... 0.21 0.07 (1.14) 0.44
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR 1995
-----------------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................................. $142,353 $154,578 $159,161 $226,532
Gross profit............................... 46,283 46,555 48,659 72,780
Operating income........................... 14,835 11,074 9,724 25,853
Net income (loss).......................... 2,438 221 (899) 8,970
Earnings (loss) per common share data:
Earnings (loss) per common share after
extraordinary item....................... 0.19 0.02 (0.07) 0.70
</TABLE>

NOTE 13 -- CLASS B COMMON STOCK

Unless otherwise required by law, holders of 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. Upon liquidation, dissolution
or winding up of the Company, the holders of the Class B Common Stock are
entitled to receive pro rata, along with the holders of the 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 rights of any
holders of Preferred Stock then outstanding.

NOTE 14 -- 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 or its
results of operations.

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 $8.0 million at February 1, 1997, all of
which were collateralized by the Credit Agreements (see Note 6). 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 the accounts receivable transferred to the Trust (see
Note 3). The Company's cash management and investment policies restrict
investments to low risk, highly-

F-25
<PAGE> 85

STAGE STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 accounts receivable transferred to the Trust 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.

NOTE 15 -- SUBSEQUENT EVENT

On March 5, 1997, the Company reached a definitive agreement to merge with
C.R. Anthony Company ("CR Anthony"), a retailer of branded and private label
apparel for the entire family which operated 224 stores in 13 southwestern and
Rocky Mountain states at February 1, 1997. Under the terms of the agreement, the
Company will acquire the common stock of CR Anthony for a value of $8.00 per
share plus $0.01 per share for every $0.05 per share by which the average
closing price of the Company's common stock exceeds $20.00 per share. The
Company's average closing price will be determined based upon ten randomly
selected days out of the twenty trading days ending on the fifth trading day
preceding the closing of the transaction.

The form of consideration (stock/cash mix) to be paid by the Company for CR
Anthony's common stock will also be determined using a formula based upon the
average closing price of the Company's stock. The consideration will be 100%
Company common stock so long as the Company's average closing price is $20.00
per share or higher, and such stock percentage will decline in a linear fashion
to 25% of the consideration if the average closing price of Company common stock
is $15.00 per share. As an example, if the Company's average closing price was
$21.00 per share, CR Anthony's common shareholders would receive a value of
$8.20 per share, 100% of which would be paid in Company common stock (0.39
shares of Company common stock to be exchanged for each share of CR Anthony
common stock). At prices below $15.00 per share, the Company has the option to
terminate the agreement, or to close and pay 0.1333 shares of Company common
stock and an amount in cash equal to the difference between $8.00 per share and
the value of 0.1333 share of Company common stock. The Company is currently
evaluating its financing options for payments to CR Anthony option holders and
stockholders and any one-time costs to be incurred in connection with the merger
of CR Anthony's operations into the Company which could not otherwise be funded
out of existing sources.

The transaction is subject to approval by the shareholders of CR Anthony
and other closing conditions. In addition, the agreement contains provisions
relating to the obligations of the parties in the event of termination of the
agreement. It is expected that the transaction will be completed by mid-year
1997.

F-26
<PAGE> 86

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 12
The Acquisition........................ 16
Use of Proceeds........................ 18
Dividend Policy........................ 18
Price Range of Common Stock............ 18
Capitalization......................... 19
Unaudited Pro Forma Combined Income
Statements........................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 33
Management............................. 42
Principal and Selling Stockholders..... 44
Certain Relationships and Related
Transactions......................... 46
Description of Certain Indebtedness.... 47
Description of Capital Stock........... 49
Shares Eligible for Future Sale........ 52
Underwriting........................... 53
Notice to Canadian Residents........... 55
Certain U.S. Federal Tax Considerations
for Non-U.S. Holders of Common
Stock................................ 56
Legal Matters.......................... 58
Experts................................ 58
Additional Information................. 58
Information Incorporated by
Reference............................ 58
Disclosure Regarding Forward-Looking
Statements........................... 59
Index to Financial Statements.......... F-1
</TABLE>

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

[STAGE STORES INC. LOGO]

6,448,018 Shares

Common Stock
($.01 par value)

PROSPECTUS

CREDIT SUISSE FIRST BOSTON

BEAR, STEARNS & CO. INC.

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