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



|FORM 10-Q
|---------



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



|For the quarterly period ended
November 2, 2003
|-----------------------------------------------



|OR
|--



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



|Commission File Number 0-20269
|------------------------------



|DUCKWALL-ALCO STORES, INC.
|--------------------------

|(Exact name of registrant as
specified in its charter)
|------------------------------------------------------



| | 
| | 



|Kansas
      (State or other jurisdiction of 
      incorporation or organization) |  | 48-0201080
      (I.R.S. Employer Identification No.)
|---------------------------------------------------------------------------------- |  | -----------------------------------------------------
|                                                                                   |  |                                                      
|401 Cottage Street Abilene, Kansas
      (Address of principal executive offices)  |  | 67410-2832
      (Zip Code)                          





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



|Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes   |X|       No  ___
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|APPLICABLE ONLY TO CORPORATE
ISSUERS:
|-------------------------------------



|4,265,593 shares
of common stock, $.0001 par value (the issuers only  class of common stock), were
outstanding as of November 2, 2003.
|---------------------------------------------------------------------------------------------------------------------------------------



| | 1 | 
| | - | 



---





|Duckwall-ALCO Stores, Inc.  And
Subsidiaries  Consolidated Balance Sheets
|-------------------------------------------------------------------------

|(Dollars in Thousands)
|----------------------



|Assets
|------

|                                       
|---------------------------------------
|                                       
|Current assets:                        
|Cash and cash equivalents              
|Receivables                            
|Inventories                            
|Prepaid expenses                       
|                                       
|Total
      current assets             
|                                       
|Property and equipment                 
|Less accumulated depreciation          
|                                       
|Net
      property and equipment       
|                                       
|Property under capital leases          
|Less accumulated amortization          
|                                       
|Net
      property under capital leases
|                                       
|Other non-current assets               
|Deferred income taxes                  
|                                       
|Total
      assets                     
|                                       



|See accompanying notes to unaudited consolidated
financial statements.
|----------------------------------------------------------------------



| | 2 | 
| | - | 



---





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



|Liabilities and Stockholders
Equity
|------------------------------------

|                                                        
|--------------------------------------------------------
|(Unaudited)                                             
|Current liabilities:                                    
|Current maturities of:                                  
|Long term debt                                          
|Capital lease
      obligations                         
|Accounts payable                                        
|Income taxes payable                                    
|Accrued salaries and commissions                        
|Accrued taxes other than
      income                   
|Other current liabilities                               
|Deferred income taxes                                   
|                                                        
|Total
      current liabilities                         
|Notes payable under revolving loan                      
|Long term debt - less current maturities                
|Capital lease obligations - less current maturities     
|Other noncurrent liabilities                            
|Deferred revenue                                        
|                                                        
|Total
      liabilities                                 
|                                                        
|Stockholders equity:                                   
|Common stock, $.0001 par value,
      authorized        
|20,000,000 shares;
      issued and outstanding         
|4,265,593 shares and
      4,260,557 shares respectively
|Additional paid-in capital                              
|Retained earnings                                       
|                                                        
|Total
      stockholders equity                        
|                                                        
|Total
      liabilities and stockholders equity        
|                                                        



|See accompanying notes to unaudited consolidated
financial statements.
|----------------------------------------------------------------------



| | 3 | 
| | - | 



---





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

|                                           
|-------------------------------------------
|November 2,
      2003                     
|Net sales                                  
|Cost of sales                              
|                                           
|Gross margin                               
|                                           
|Selling, general and administrative        
|Depreciation and amortization              
|                                           
|Total operating
      expenses             
|                                           
|Operating income from continuing operations
|Interest expense                           
|                                           
|Earnings from continuing operations        
|before income taxes                        
|Income tax expense                         
|                                           
|Earnings from continuing operations        
|Earnings (Loss) from discontinued          
|operations, net of income tax              
|                                           
|Net
      earnings                         
|                                           
|Earnings per share                         
|Basic                                      
|Continuing operations                      
|Discontinued
      operations              
|                                           
|Net
      earnings                         
|                                           
|Diluted                                    
|Continuing operations                      
|Discontinued
      operations              
|                                           
|Net
      earnings                         
|                                           



|See accompanying notes to unaudited consolidated
financial statements.
|----------------------------------------------------------------------



| | 4 | 
| | - | 



---





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

|                                                                
|----------------------------------------------------------------
|November 2, 
      2003                                         
|Cash Flows From Operating Activities:                           
|Net earnings                                                    
|Adjustments to reconcile net earnings to net
      cash provided
|by (used in) operating activities                               
|Amortization of debt
      financing costs                      
|Depreciation and amortization                                   
|Increase in inventories                                         
|Increase in accounts
      payable                              
|Decrease (increase)
      in receivables                        
|Decrease (increase)
      in prepaid expenses                   
|Increase in accrued
      taxes other than income               
|Increase in accrued
      salaries and commissions              
|Decrease in income
      taxes payable                          
|Decrease in deferred
      income taxes                         
|(Decrease) increase
      in deferred revenue                   
|Increase in other
      liabilities                             
|                                                                
|Net cash provided by (used in) operating activities             
|                                                                
|Cash Flows From Investing Activities:                           
|Proceeds from sale
      of property                            
|Capital expenditures                                            
|                                                                
|Net cash used in investing activities                           
|                                                                
|Cash Flows From Financing Activities:                           
|Proceeds from exercise
      of stock options                   
|Repurchase of common
      stock                                
|Increase in revolving
      loan                                
|Principal payments
      on long term notes                     
|Principal payments
      on capital leases                      
|Debt issue costs                                                
|                                                                
|Net cash provided by financing activities                       
|                                                                
|Net increase (decrease) in cash and cash equivalents            
|Cash and cash equivalents at beginning of
      period          
|                                                                
|Cash and cash equivalents at end of period                      
|                                                                
|Supplemental disclosure of non cash activity:                   
|Tax benefit related to stock
      options exercised            
|                                                                



|See  accompanying notes to  unaudited
consolidated  financial statements
|------------------------------------------------------------------------



| | 5 | 
| | - | 



---





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

|(Dollars in Thousands Except Per
Share Amounts)
|-----------------------------------------------



|(1)    Basis of Presentation
|----------------------------



|The accompanying
unaudited consolidated financial statements are for  interim periods and, consequently,
do not include all disclosures required by  generally accepted accounting principles for
annual financial statements. It is  suggested that the accompanying unaudited
consolidated financial statements be  read in conjunction with the consolidated financial
statements included in the  Companys fiscal 2003 Annual Report. In the opinion of
management of  Duckwall-ALCO Stores, Inc., the accompanying unaudited consolidated
financial  statements reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position of the Company and the  results of its
operations and cash flows for the interim periods.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2)    Principles of Consolidation
|----------------------------------



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



|(3)    Stock-based Compensation
|-------------------------------



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

|                               
|-------------------------------
|November 2,
      2003         
|Net earnings as reported       
|Pro forma stock-based employee 
|compensation                   
|cost,
      net of tax         
|                               
|Pro forma net earnings         
|                               
|Earnings per share as reported:
|Basic                          
|Diluted                        
|Earnings per share, pro forma: 
|Basic                          
|Diluted                        



|(4)    Impact of Change in Accounting
      Principle
|-----------------------------------------------------



|Effective February
4, 2002, the Company adopted SFAS No. 144,  Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 provides a single accounting model for long-lived assets
to be disposed of. The statement also changes the criteria for classifying an asset as
held for sale, broadens the scope of assets to be disposed of that qualify for reporting
as discontinued operations and changes the timing of recognizing losses on such
operations. The adoption of SFAS No. 144 resulted in the reclassification of certain
prior year
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6 | 
| | - | 



---





|revenue and expense activity related to five
stores closed  during fiscal year 2003 as discontinued operations. In addition, seven
stores  were closed in the first quarter of fiscal year 2004, and one store was closed
in the second quarter of fiscal year 2004. Certain revenue and expense activity  related
to the stores closed in Fiscal 2004 was also reclassified as  discontinued operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Effective February
3, 2003, the Company adopted SFAS No. 143,  Accounting for Asset Retirement Obligations.
SFAS No. 143 requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation associated
with the retirement of tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. The Company also records a
corresponding asset that is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The adoption of SFAS No. 143 did not have a
material effect on the Companys financial statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company
adopted Emerging Issues Task Force Issue 02-16, Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor (EITF 02-16). EITF 02-16
provides guidance on the income statement classification of amounts received by a
customer, including a reseller (including reimbursements for expenses such as
cooperative advertising), for transactions entered into after December 31, 2002 and
limited guidance regarding timing of recognition for volume rebates for transactions
entered into after November 21, 2002. The adoption of EITF 02-16 did not have a
significant impact on the Companys financial statements for the thirteen or thirty-nine
weeks ending November 2, 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5)    Earnings Per Share
|-------------------------



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



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

|Thirteen Weeks Ended    | Basic | Diluted  
|----------------------- | ----- | ---------
|November 2, 2003        |       | 4,234,287
|November 3, 2002        |       | 4,259,195
|                        |      
|Thirty-Nine Weeks Ended |      
|November 2, 2003        |       | 4,230,181
|November 3, 2002        |       | 4,227,904



|(6)    Insurance
|----------------



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



|(7)    Legal Proceedings
|------------------------



|The Company is a
party to routine litigation from time to time in the  ordinary course of business. The
Company maintains insurance coverage for these  types of matters. In certain cases, the
insurance policy may not cover the  liability associated with the matter. In connection
with two of these matters,  during the third quarter of the current fiscal year, the
Company has recorded a  liability of $200 for probable losses due to litigation not
covered by  insurance.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7 | 
| | - | 



---





|ITEM 2.   MANAGEMENTS DISCUSSION
      AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|-----------------------------------------------------------------------------------------------------



|(Dollars in thousands)
|----------------------



|The thirteen weeks
ended November 2, 2003 and November 3, 2002 are  referred to herein as the third quarter
of fiscal 2004 and 2003 respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------



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



|RESULTS OF OPERATIONS
|---------------------



|Thirteen and Thirty-nine Weeks Ended November
2, 2003 Compared to Thirteen and  Thirty-nine Weeks Ended November 3, 2002.
|-------------------------------------------------------------------------------------------------------------------------



|The Company
continues to execute its basic strategy of opening stores  in under-served markets that
have no competition from national or regional  full-line discount retailers. During the
third quarter of fiscal 2004 the  Company did not open or close any stores. For the
thirty-nine week period ending  November 2, 2003, the Company opened seven stores and
closed eight stores. The  operations of stores closed in the current and prior year have
been reflected as  discontinued operations in all periods presented. As of November 2,
2003 over  85% of the Companys 263 stores are in non-competitive markets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net sales for the
third quarter of fiscal 2004 increased $8,625 or 9.4%  to $100,457 compared to $91,832
for the third quarter of fiscal 2003. Same store  sales increased $2,647 or 3.0%. Sales
were strong in August and September, but  soft in October, when warm weather unfavorably
impacted sales of outerwear. Net  sales for the thirty-nine week period ending November
2, 2003 increased $21,543  or 7.5% to $310,006 compared to $288,463 in the comparable
thirty-nine week  period of the prior fiscal year. Same store sales increased $2,678 or
0.9%.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Gross margin for
the third quarter of fiscal 2004 increased $2,097 or  6.5% to $34,328 compared to $32,231
in the third quarter of fiscal 2003. Gross  margin as a percentage of sales was 34.2% for
the third quarter of fiscal 2004  compared to 35.1% for the third quarter of fiscal 2003.
The decline in the gross  margin percentage was due to an unfavorable mix of sales toward
lower margin  products, as well as an increase in shrinkage expense.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Gross margin for
the thirty-nine week period ended November 2, 2003 was  $103,465, which was $5,689 or
5.8% higher than last years thirty-nine week  gross margin of $97,776. As a percent of
net sales, gross margin for the  thirty-nine week period ended November 2, 2003 was 33.4%
compared to 33.9% in  the thirty-nine week period of the prior fiscal year. The decline
in the gross  margin percentage was due entirely to a less favorable mix of sales and
higher  shrinkage expense in the second and third quarters. The unfavorable mix issues
are at least partly a result of the Companys emphasis on and expansion of  consumable
products, which generally carry a lower margin. However, the Company  believes that
without this emphasis, its sales and earnings would have been  lower. The Company is
continually adjusting and fine-tuning its merchandise  assortment and prices to maximize
overall profitability.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Selling, general
and administrative expense increased $2,003 or 6.8% to  $31,340 in the third quarter of
fiscal 2004 compared to $29,337 in the third  quarter of fiscal 2003. As a percentage of
net sales, selling, general and  administrative expenses in the third quarter of fiscal
2004 were 31.2%, compared  to 32.0% in the third quarter of fiscal 2003. The decrease in
the selling,  general and administrative expense percentage was due to lower distribution
center, store remodeling, medical insurance and incentive compensation costs,  which were
partially offset by increased general insurance expense.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Selling, general
and administrative expense increased $5,142 or 5.9% to  $92,857 for the thirty-nine week
period ended November 2, 2003 compared to  $87,715 for the comparable thirty-nine week
period of the prior fiscal
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8 | 
| | - | 



---





|year.  Selling, general and administrative
expense as a percent of net sales was 30.0%  for the thirty-nine week period ending
November 2, 2003 compared to 30.4% for  the thirty-nine week period of the prior fiscal
year. The decrease in the  selling, general and administrative expense percentage was due
primarily to  lower distribution center, store remodeling, medical insurance and
incentive  compensation costs, which were partially offset by higher store opening and
general insurance expenses.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Depreciation and
amortization expense increased $43 or 2.4% to $1,799  in the third quarter of fiscal 2004
compared to $1,756 in the third quarter of  fiscal 2003. Depreciation and amortization
expense increased $458 or 9.1% to  $5,474 for the thirty-nine week period ended November
2, 2003 compared to $5,016  in the comparable thirty-nine week period of the prior fiscal
year.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Operating income
from continuing operations increased $51 or 4.5% to  $1,189 in the third quarter of
fiscal 2004 compared to $1,138 in the third  quarter of fiscal 2003. Operating income
from continuing operations as a  percentage of net sales was 1.2% in the third quarter of
both fiscal years.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Operating income
from continuing operations increased $89 or 1.8% to  $5,134 for the thirty-nine week
period ended November 2, 2003 compared to $5,045  in the comparable thirty-nine week
period of the prior fiscal year.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Interest expense
decreased $48 or 11.9% to $357 in the third quarter of  fiscal 2004 compared to $405 in
the third quarter of fiscal 2003. Interest  expense decreased $130 or 10.8% to $1,075 for
the thirty-nine week period ended  November 2, 2003 compared to $1,205 in the comparable
thirty-nine week period of  the prior fiscal year. The reduction in interest expense was
due primarily to  lower interest rates for both the thirteen and thirty-nine week periods
of  fiscal 2004.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Earnings from
continuing operations for the third quarter of fiscal  2004 were $530, an increase of $66
or 14.2% from the earnings from continuing  operations of $464 for the third quarter of
fiscal 2003. Earnings from  continuing operations for the thirty-nine week period ended
November 2, 2003  were $2,588, and increase of $158 or 6.5% compared to $2,430 in the
comparable  thirty-nine week period of the prior fiscal year.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Loss from
discontinued operations, net of income tax, was $7 in the  third quarter of fiscal 2004,
compared to an income of $5 in the third quarter  of fiscal 2003. The operations of
closed stores have been reflected as  discontinued operations in all periods presented.
Earnings from discontinued  operations, net of income tax, was $92 for the thirty-nine
week period ended  November 2, 2003, compared to a loss of $161 in the comparable
thirty-nine week  period of the prior fiscal year. The increase in earnings from
discontinued  operations was impacted by the gain on the sale of a store building in the
second quarter that increased earnings by $259, or $0.06 per diluted share.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net earnings for
the third quarter of fiscal 2004 were $523, an  increase of $54 or 11.5% from the net
earnings of $469 in the third quarter of  fiscal 2003. Diluted net earnings per share for
the third quarter of fiscal 2004  were $0.12, an increase of $0.01, or 9.1% from the
diluted net earnings per  share of $0.11 in the third quarter of fiscal 2003. Net
earnings for the  thirty-nine week period ended November 2, 2003 were $2,680, an increase
of $411  or 18.1% compared to $2,269 in the comparable thirty-nine week period of the
prior fiscal year. Diluted net earnings per share for the thirty-nine week  period ended
November 2, 2003 were $0.62, an increase of $0.10 or 19.2% compared  to $0.52 per share
in the comparable thirty-nine week period or the prior fiscal  year.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|LIQUIDITY AND CAPITAL RESOURCES
|-------------------------------



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



|At November 2,
2003 working capital (defined as current assets less  current liabilities) was $102,786
compared to $93,377 at the end of fiscal 2003.
|-----------------------------------------------------------------------------------------------------------------------------------------------------



| | 9 | 
| | - | 



---





|Cash provided by
(used in) operating activities in the thirty-nine week  period of fiscal 2004 and 2003
was $51 and ($3,601) respectively. The increase  in the amount of cash provided by
operating activities in the thirty-nine week  period of fiscal 2004 compared to the
thirty-nine week period of fiscal 2003 was  primarily due to a decrease in receivables
and prepaid expenses, a larger  increase in accrued taxes other than income and other
liabilities, and a smaller  decrease in income taxes payable. These improvements in
providing cash were  offset in part by a smaller increase in accounts payable and accrued
salaries  and commissions.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cash used in
investing activities in the thirty-nine week period of  fiscal 2004 and 2003 totaled
$2,964 and $5,501, respectively. Total anticipated  cash payments for acquisition of
property and equipment in fiscal 2004,  principally for store buildings and store and
warehouse fixtures and equipment  are approximately $6,000 to $8,000.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company
generated cash in financing activities in the thirty-nine  week period of fiscal 2004 and
2003 of $4,498 and $8,887 respectively. Less cash  was generated in fiscal 2004 compared
to fiscal 2003 because less borrowing was  necessary on the revolving loan. Cash was also
used to purchase and retire  69,300 shares of Common Stock in fiscal 2004.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|BUSINESS OPERATIONS AND SEGMENT INFORMATION
|-------------------------------------------



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



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

|                             
|-----------------------------
|November 2,
      2003       
|Segment Information          
|Net Sales:                   
|ALCO Discount Stores         
|All Other                    
|External                     
|Intercompany                 
|                             
|                             
|                             
|Depreciation and Amortization
|ALCO Discount Stores         
|All Other                    
|                             
|                             
|                             



| | 10 | 
| | -- | 



---





|Income (expense) from Operations: | 
|--------------------------------- | 
|ALCO Discount Stores              | 
|All Other                         | 
|                                  | 
|                                  | 
|                                  | 
|Capital Expenditures:             | 
|ALCO Discount Stores              | 
|All Other                         | 
|                                  | 
|                                  | 
|                                  | 
|Identifiable Assets:              | 
|ALCO Discount Stores              | 
|All Other                         | 
|                                  | 
|                                  | 
|                                  | 



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



|Intercompany
Sales
|------------------



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



|Intercompany
Expense Allocations
|--------------------------------



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



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



|Inventories
|-----------



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



|Leases
|------



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



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



| | 11 | 
| | -- | 



---





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

|                                                       
|-------------------------------------------------------
|November 2,
      2003                                 
|Net sales per above segment information                
|Intercompany elimination                               
|                                                       
|                                                       
|Net sales per consolidated                             
|statements of
      operations                         
|                                                       
|Income from operations per above                       
|segment information                                    
|Leases                                                 
|                                                       
|                                                       
|Income from operations per                             
|consolidated
      statements of 
           operations
|                                                       



|MARKET RISK DISCLOSURE
|----------------------



|The revolving
credit facility has a floating interest rate that is  affected by changes in market
interest rates. The Company entered into an  interest rate swap in December 2000 with a
notional principal amount of $10,000  whereby the Company paid a fixed rate of interest
and received interest based on  LIBOR for the period April 15, 2001 to April 15, 2002 to
mitigate a portion of  its interest rate risk under the revolving credit facility.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On April 15, 2002,
the Company replaced the existing line of credit  with a new line of credit with Fleet
Retail Finance Inc. that expires in April  2006. The credit line available is $70,000,
which carries a variable rate of  interest.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|CRITICAL ACCOUNTING POLICIES
|----------------------------



|As discussed in
Note 1 (d) to the Consolidated Financial Statements in  the Companys fiscal 2003 Annual
Report, inventories are stated at the lower of  cost or net realizable value with cost
determined using the last-in, first-out  (LIFO) method. The retail inventory method
(RIM) used by the Company is an  averaging method that has been widely used
in the retail industry. This method  calculates a cost to retail ratio that is applied to
the retail value of  inventory to calculate cost inventory and the resulting gross margin.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Use of the RIM
method does not eliminate the use of management  judgments and estimates, including
markdowns and shrinkage, which significantly  impact the ending inventory valuation at
cost and the resulting gross margins.  The Company continually evaluates product
categories to determine if markdown  action is appropriate, or if a markdown reserve
should be established. The  Company recognizes that the use of the retail inventory
method will result in  valuing inventories at lower of cost or market if markdowns are
currently taken  as a reduction of the retail value of inventories. As of November 2,
2003 and  November 3, 2002, the Company had recorded markdowns that had not been taken
and  which served to reduce inventories to lower of cost or market by approximately  $613
and $331, respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Management
believes that the Companys RIM provides an inventory  valuation which reasonably
approximates cost and results in carrying inventory  at the lower of cost or market.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company
considers determination of impairment of long-lived assets  as a critical accounting
policy because determination as to whether the  long-lived assets of a store are impaired
and, if impaired, the fair value of  such assets requires the use of judgment,
particularly as it relates to  projecting whether the sum of expected
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 12 | 
| | -- | 



---





|undiscounted future cash flows for the  store
over an extended period of time will equal or exceed the carrying value of  such assets.
Management uses the best information available to make the  determination; however,
actual future cash flows for the store may vary  significantly from the cash flows
projected in conjunction with the impairment  assessment. The potential impact on the
financial statements of incorrect  judgments regarding impairment of long-lived assets is
that a provision for  impairment could be needlessly recorded if projected future cash
flows for a  store are significantly under estimated or a provision for impairment could
be  deferred until later determined necessary in a future period if initial  projected
cash flows are over estimated. See Note 1 of Notes to Consolidated  Financial Statements
for a description of the Companys accounting policy for  impairment of long-lived assets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Company
considers general insurance cost a critical accounting  policy. Starting with the
insurance policy year of June 2003, the Company has a  $100 deductible and is essentially
self insured for workers compensation claims.  The previous deductible was $3. For
general liability insurance, the deductible  was increased from $5 to $50. Due to the
fact that it takes more than one year  to determine the actual costs under these plans,
these costs are estimated based  on the Companys historical loss experience and
estimates from the insurance  carriers and consultants.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 4.  CONTROLS AND PROCEDURES/INTERNAL
CONTROLS
|--------------------------------------------------



|As of the end of
the quarter ended November 2, 2003, our management,  including our Chairman of the Board,
President and Chief Financial Officer, has  evaluated the effectiveness of the design and
operation of our disclosure  controls and procedures pursuant to Rule 13a-15(b) under the
Securities Exchange  Act of 1934. Based upon that evaluation, our Chairman of the Board,
President  and Chief Financial Officer concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that the objectives of  our
disclosure controls and procedures are satisfied. There has been no change  in our
internal control over financial reporting during the quarter ended  November 2, 2003 that
has materially affected, or is reasonably likely to  materially affect, our internal
control over financial reporting.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|OTHER INFORMATION
|-----------------



| | PART II
| | -------



| | Item 1. | Legal
Proceedings  The Company is a party to routine litigation from  time to time in the
ordinary course of business.
| | ------- | ----------------------------------------------------------------------------------------------------------------------



| | Item 2. | Changes
in Securities  Not applicable
| | ------- | -------------------------------------



| | Item 3. | Defaults
Upon Senior Securities  Not Applicable
| | ------- | -----------------------------------------------



| | Item 4. | Submission
of Matters to a Vote of Security Holders  Not Applicable
| | ------- | -------------------------------------------------------------------



| | Item 5. | Other
Information  None
| | ------- | -----------------------



| | Item 6. | Exhibits
and Reports on Form 8-K  (a)  None  (b)  Current Report on Form 8-K (Item 12) dated on
November 25, 2003
| | ------- | -----------------------------------------------------------------------------------------------------------------



| | 13 | 
| | -- | 



---





|SIGNATURES
|----------



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



|                             | DUCKWALL-ALCO STORES,
      INC.
      (Registrant)
|---------------------------- | ---------------------------------------------------
|                             |                                                    
|Date, December 5,
      2003 |                                                    



| | 14 | 
| | -- | 



---





|EXHIBIT INDEX
|-------------



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



|3.2 | Certificate
of Amendment to the Articles of Incorporation (filed as  Exhibit 3(b) to Companys Annual
Report on Form 10-K for the fiscal  year ended January 29, 1995, and incorporated herein
by reference)  (filed as Exhibit 3(b) to Companys Annual Report on Form 10-K for the
fiscal year ended January 29, 1995, and incorporated herein by  reference.)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



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



|31.1 | Certificate
of the Chairman of the Board, President of Duckwall-ALCO  Stores, Inc. dated December 5,
2003 for the Quarterly Report on Form  10-Q for the quarter ended November 2, 2003 filed
pursuant to Section  13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 15 | 
| | -- | 



---





|31.2 | Certificate
of the Chief Financial Officer of Duckwall-ALCO Stores,  Inc. dated December 5, 2003 for
the Quarterly Report on Form 10-Q for  the quarter ended November 2, 2003 filed pursuant
to Section  13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|32.1 | 18
U.S.C. Section 1350 Certification of Chairman of the Board,  President of Duckwall-ALCO
Stores, Inc. dated December 5, 2003, which  is accompanying this Quarterly Report on Form
10-Q for the quarter  ended November 2, 2003 and is treated as furnished rather filed in
reliance on the SECs final rule dated June 5, 2003, Release No.  33-8238.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|32.2 | 18
U.S.C. Section 1350 Certification of Chief financial Officer of  Duckwall-ALCO Stores,
Inc. dated December 5, 2003, which is  accompanying this Quarterly Report on Form 10-Q
for the quarter ended  November 2, 2003 and is treated as furnished rather filed in
reliance  on the SECs final rule dated June 5, 2003, Release No. 33-8238.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 16 | 
| | -- | 



---