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 October 30, 2005

OR

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

Commission File Number
0-20269

DUCKWALL-ALCO
  STORES, INC. (Exact name
  of registrant as specified in its charter)

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


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

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

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

APPLICABLE ONLY TO
CORPORATE ISSUERS:

3.875,853
shares of common stock, $.0001 par value (the issuers only class of common stock), were
outstanding as of October 30, 2005.

| |  | 
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PART I - FINANCIAL
INFORMATION

ITEM 1. FINANCIAL
STATEMENTS

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

Assets

October 30, 
        2005
      
      January 30, 
        2005(Unaudited)Current assets:Cash and cash equivalents
      
      $3,454
      
      $1,200Receivables
      
      1,580
      
      1,734Refundable income tax
      
      2,163
      
      0Inventories
      
      138,601
      
      129,486Prepaid expenses
      
      3,174
      
      2,225Property held for sale
      
      577
      
      0Total
        current assets
      
      149,549
      
      134,645Property and equipment
      
      94,853
      
      88,008Less accumulated depreciation
      
      63,328
      
      63,520Net
        property and equipment
      
      31,525
      
      24,488Property under capital leases
      
      18,228
      
      18,228Less accumulated amortization
      
      16,070
      
      15,682Net
        property under capital leases
      
      2,158
      
      2,546Other non-current assets
      
      81
      
      89Deferred income taxes
      
      1,350
      
      1,350Total
        assets
      
      $184,663
      
      $163,118


See accompanying notes to unaudited
consolidated financial statements.

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

Liabilities
  and Stockholders Equity

October 30, 
          2005
      
      January 30, 
          2005(Unaudited)Current liabilities:Current maturities of capital
        lease obligations
      
      856
      
      856Accounts payable
      
      34,727
      
      22,234Income taxes payable
      
      0
      
      351Accrued salaries and commissions
      
      4,366
      
      4,728Accrued taxes other than income
      
      5,483
      
      4,367Other current liabilities
      
      7,265
      
      5,764Deferred income taxes
      
      865
      
      914Total
        current liabilities
      
      53,562
      
      39,214Notes payable under revolving loan
      
      27,304
      
      4,023Capital lease obligations - less current maturities
      
      3,083
      
      3,726Other noncurrent liabilities
      
      1,457
      
      1,479Total
        liabilities
      
      85,406
      
      48,442Stockholders equity:Common stock, $.0001 par value,
        authorized20,000,000 shares; issued
        and outstanding3,875,853 shares and
        4,475,079 shares respectively
      
      1
      
      1Additional paid-in capital
      
      38,681
      
      50,889Retained earnings
      
      60,575
      
      63,786Total
        stockholders equity
      
      99,257
      
      114,676Total
        liabilities and stockholders equity
      
      $184,663
      
      $163,118


See accompanying notes to unaudited
consolidated financial statements.

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

For the Thirteen Week 
        Periods Ended
      
      For the Thirty-Nine Week 
        Periods EndedOctober 30, 
        2005
      
      October 31, 
        2004
      
      October 30, 
        2005
      
      October 31, 
        2004Net sales
      $101,117
      
      $94,285
      
      $307,822
      
      $291,922Cost of sales
      68,445
      
      61,742
      
      211,802
      
      193,521Gross margin
      32,672
      
      32,543
      
      96,020
      
      98,401Selling, general and administrative
      31,251
      
      29,878
      
      91,907
      
      88,231Depreciation and amortization
      1,428
      
      1,624
      
      4,372
      
      4,835Total operating
        expenses
      32,679
      
      31,502
      
      96,279
      
      93,066Operating income (loss) from continuing operations
      (7)
      
      1,041
      
      (259)
      
      5,335Interest expense
      354
      
      369
      
      809
      
      929Earnings (loss) from continuing operations before
        income taxes
      (361)
      
      672
      
      (1,068)
      
      4,406Income tax expense (benefit)
      (276)
      
      211
      
      (526)
      
      1,630Earnings (loss) from continuing operations
      (85)
      
      461
      
      (542)
      
      2,776Earnings (loss) from discontinued operations,
        net of income tax
      (102)
      
      (507)
      
      (2,669)
      
      (947)Net earnings (loss)
      ($187)
      
      ($46)
      
      ($3,211)
      
      $1,829Earnings (loss) per shareBasicContinuing operations
      ($0.02)
      
      $0.10
      
      ($0.13)
      
      $0.64Discontinued operations
      ($0.03)
      
      ($0.11)
      
      ($0.64)
      
      ($0.22)Net
        earnings (loss)
      ($0.05)
      
      ($0.01)
      
      ($0.77)
      
      $0.42DilutedContinuing operations
      ($0.02)
      
      $0.10
      
      ($0.13)
      
      $0.62Discontinued operations
      ($0.03)
      
      ($0.11)
      
      ($0.64)
      
      ($0.21)Net
        earnings (loss)
      ($0.05)
      
      ($0.01)
      
      ($0.77)
      
      $0.41


See accompanying notes to unaudited
consolidated financial statements.

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

For the Thirty-Nine Week 
        Periods EndedOctober 30, 2005
      
      October 31, 2004Cash Flows From Operating Activities:Net earnings (loss)
      ($3,211)
      
      $1,829Adjustments to reconcile net earnings (loss)
        to net cashprovided by operating activitiesDecrease (increase)
        in receivables
      154
      
      (508)Increase in prepaid
        expenses
      (949)
      
      (596)Increase in inventories
      (9,115)
      
      (17,608)Depreciation and amortization
      4,373
      
      5,140Loss on disposal of
        equipment
      617
      
      0Amortization of debt
        financing costs
      69
      
      56Increase in accounts
        payable
      12,493
      
      6,122Decrease in income taxes
        payable
      (2,466)
      
      (2,333)Decrease in accrued
        salary & commissions
      (362)
      
      (374)Increase in accrued
        taxes other than income
      1,116
      
      819Increase in deferred
        income taxes
      (49)
      
      (42)Increase in other liabilities
      1,479
      
      1,732Decrease in deferred
        revenue
      0
      
      (314)Net cash provided by (used in) operating activities
      4,149
      
      (6,077)Cash Flows From Investing Activities:Capital expenditures:
        New stores
      (4,879)
      
      (2,312)Technology
      (5,931)
      
      (444)All
        other
      (1,406)
      
      (2,963)Total capital expenditures
      (12,216)
      
      (5,719)Proceeds from sale of
        property
      0
      
      767Net cash used in investing activities
      (12,216)
      
      (4,952Cash Flows From Financing Activities:Increase in revolving
        loan
      23,281
      
      13,129Refinancing costs on
        revolving loan
      (61)
      
      0Principal payments on
        long term notes
      0
      
      (396)Principal payments on
        capital leases
      (643)
      
      (601)Proceeds from exercise
        of stock options
      382
      
      1,024Common stock repurchase
      (12,638)
      
      (80)Net cash provided by financing activities
      10,321
      
      13,076Net increase in cash
      2,254
      
      2,047Cash and cash equivalents at beginning of period
      1,200
      
      1,084Cash at end of period
      $3,454
      
      $3,131Supplemental disclosure of non-cash activity:Tax benefit related to stock
        options exercised
      $48
      
      $292


See accompanying notes to unaudited
consolidated financial statements.

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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 2005 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 (loss)
  and net earnings (loss) per share would have changed to the pro forma amounts
  indicated in the table below:

For The Thirteen Week 
        Periods Ended
      
      For The Thirty-Nine Week 
        Periods EndedOctober 30, 
        2005
      
      October 31, 
        2004
      
      October 30, 
        2005
      
      October 31, 
        2004Net earnings (loss) as reported
      ($187
      )
      
      ($46
      )
      
      ($3,211
      )
      
      $1,829Pro forma stock-based employee 
          compensation cost, net of tax
      (58
      )
      
      (10
      )
      
      (137
      )
      
      (29)Pro forma net earnings (loss)
      ($245
      )
      
      ($56
      )
      
      ($3,348
      )
      
      $1,800Earnings (loss) per share as reported:Basic
      ($0.05
      )
      
      ($0.01
      )
      
      ($0.77
      )
      
      $0.42Diluted
      ($0.05
      )
      
      ($0.01
      )
      
      ($0.77
      )
      
      $0.41Earnings (loss) per share, pro forma:Basic
      ($0.06
      )
      
      ($0.01
      )
      
      ($0.81
      )
      
      $0.41Diluted
      ($0.06
      )
      
      ($0.01
      )
      
      ($0.81
      )
      
      $0.40


|(4) |  | Earnings
Per Share
|--- |  | ------------------

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

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

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Thirteen Weeks Ended
      
      Basic
      
      DilutedOctober 30, 2005
      
      3,969,754
      
      3,969,754October 31, 2004
      
      4,415,926
      
      4,473,897Thirty-Nine Weeks EndedOctober 30, 2005
      
      4,158,068
      
      4,158,068October 31, 2004
      
      4,367,754
      
      4,454,273


|(5) |  | Reclassifications
|--- |  | -----------------

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

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

(Dollars in Thousands
Except Per Share Amounts)

OVERVIEW

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

| |  |  | the
ALCO Stores segment. As of October 30, 2005, the Company operated          181 ALCO
Stores which offer a wide variety of general merchandise and a          limited variety
of food products and accounted for 93% of the Companys          sales for the third
quarter of fiscal 2006. Total selling square          footage for the ALCO segment at the
end of the third quarter of fiscal          2006 was 3,660,233.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the
Duckwall Stores segment. As of October 30, 2005, the Company          operated 69
Duckwall Stores which offer a more limited general          merchandise selection, but
serve the needs of a community that is not          large enough to support a full-line
retail discount store, and          accounted for 7% of the Companys sales for the third
quarter of fiscal          2006. Total selling square footage for the Duckwall segment at
the end          of the third quarter of fiscal 2006 was 367,694.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
thirteen weeks ended October 30, 2005 and October 31, 2004 are referred to herein as the
third quarter of fiscal 2006 and 2005, respectively. For purposes of this managements
discussion and analysis of financial condition and results of operations, the financial
numbers are presented in thousands.

Strategy.
The Companys overall business strategy involves identifying and opening stores in towns
that will provide the Company with the highest return on investment. Although the Company
prefers markets that dont have direct competition from national or regional full-line
discount stores, its strategy does not preclude it from entering competitive markets.
Even in non-competitive markets, competition still exists, as the Companys customers
still shop at retail discount stores and other retailers located in regional trade
centers. The Company also competes for retail sales with other entities, such as mail
order companies, specialty retailers, mass merchandisers, dollar stores, manufacturers
outlets, and the internet.

The
Company is constantly evaluating the appropriate mix of merchandise to improve sales and
gross margin performance. The Company uses centralized purchasing, merchandising, pricing
and warehousing to obtain volume discounts, improve efficiencies and achieve consistency
among stores and the best overall results. The Company utilizes information obtained from
its point-of-sale system and regular input from its store associates to determine its
merchandise offerings.

The
Company has evaluated the costs and benefits of upgrading its current point-of-sale
POS, merchandising, human resources/payroll and financial systems. The Companys
project team has selected the

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hardware and software and entered
into agreements with the respective vendors. Implementation is currently underway. The
Company went live on the human resources/payroll and financial systems during the third
quarter of fiscal 2006. The Companys goal is to conduct a pilot of the new POS system in
five stores and go live on the merchandising system in the first quarter of fiscal 2007,
with roll out of the POS system to all stores later that year. This represents an
investment of approximately $8.9 million for hardware and software in fiscal 2006, and an
investment of an additional $10.2 million in fiscal 2007, as the POS systems are rolled
out to all existing stores. A required feature of this new POS system is perpetual
inventory, which the Company does not currently have in its stores. Perpetual inventory
allows tracking of on-hand quantities at the item level, and enables automated
replenishment. Once the Company has on-hand information and the ability to automatically
replenish items in the stores, the benefits of these new systems can be significant. For
example, the Company estimates it can reduce its inventory levels by 5% to 10%, and
potentially more, because the system will have parameters set at the item level relating
to how much inventory to order based on criteria set centrally. A reduction in inventory
will improve the Companys return on assets ratio. In addition to lowering inventory, the
new system has the potential to improve in-stock levels in the stores, thereby increasing
same-store sales and profits. The new system will also enable other improvements in the
stores which are not available today due to technology limitations. Once those
limitations are removed, the Company expects to re-engineer the stores to take full
advantage of the new technology.

The
Company, when appropriate, implements new merchandising and marketing initiatives in an
effort to increase customer traffic and same-store sales. The Company is changing its
focus from consumable products that carry a lower margin to higher margin soft goods.
This includes more fashion apparel that will appeal to a broad base of customers. The
Company is also adding new items to its assortments and has made changes to its
advertising program that reduces the number of items advertised, but increases the
frequency of the advertising.

The
Company is also proactive in looking for and implementing ways to improve the bottom line
through expense reductions in selling, general and administrative expenses (SG&A). The
Company finalized its restructuring plan on April 28, 2005 and on May 3, 2005, the
Company publicly announced the restructuring. The restructuring is designed to help the
Company more effectively compete in todays competitive retail environment. As a part of
the restructuring, 46 corporate positions were eliminated, which will result in an
annualized savings of approximately $2,200. One-time costs associated with the
restructuring were approximately $734.

Recent
Events. On December 9, 2005, the Company provided Richard A. Mansfield, the Chief
Financial Officer of the Company, with written notice that it would not be extending Mr.
Mansfields employment agreement with the Company dated December 28, 2000, which was
scheduled to terminate in February 2007 (Employment Agreement). This notice was
provided in accordance with the terms of the Employment Agreement and Mr. Mansfield
acknowledged in writing receipt of the notice. Mr. Mansfields employment was terminated
on December 9, 2005. In connection with this change of management, on December 9, 2005
the Company promoted on an interim basis David W. Mills, the Companys Vice
President--Controller and Assistant Secretary, to the position of interim Chief Financial
Officer. Mr. Mills has worked in the Companys Finance Department for 20 years, of which
the last seven years have been as Vice President -- Controller and Assistant Secretary.
The Company anticipates that Mr. Mills will serve as the interim Chief Financial Officer
until approximately March 15, 2006.

As
described more completely under Liquidity and Capital Resources-Subsequent Events, on
December 1, 2005 and December 5, 2005, respectively, the Company entered into a POS
software lease and a flexible lease financing proposal regarding the lease of POS
hardware, including new POS terminals and centralized hardware. The POS software lease
begins on January 1, 2006 and the POS hardware lease is to begin by September 30, 2006.
The Company has already begun loading the POS software for its pilot program and this
will be completed by December 31, 2005.

As
of July 31, 2005, the Companys market capital held by non-affiliates exceeded $75,000.
As a result, the Company is an accelerated filer. This will cause the Company to incur
additional costs to document and test internal controls, as well as having those controls
audited. Some of these costs were incurred in the third quarter of fiscal 2006, and
additional costs will be incurred in the fourth quarter of fiscal 2006. These costs will
be an on-going expense in all future fiscal years.

On
March 17, 2005, the Company announced that, as part of its initiatives designed to
improve performance of the Company for its shareholders, it would be closing 8 ALCO and
12 Duckwall stores that do not meet the Companys minimum return on investment threshold.
The process to close these stores was completed on schedule in early June 2005. Of the
stores being closed, the Company owns two ALCO stores and leases the

| | 8 | 
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properties for the remaining 18
stores. The cost to close these stores, before income taxes, was approximately $2,000 in
the first quarter and approximately $1,600 in the second quarter. The total cost to close
the stores was at the low end of the previously announced estimated cost. The twenty
stores that closed produced gross sales of $19,900 in Fiscal Year 2005, and employed
approximately 260 associates.

During
the third quarter of fiscal 2006, the Company purchased and retired 153,530 shares of the
Companys Common Stock for an average price of $23.81. Also, as previously announced, on
April 19, 2005, the Company reached an agreement with a significant stockholder to
repurchase 399,362 shares of the Companys Common Stock for approximately $7,200. The
Board of Directors at its August 23, 2005 meeting adopted a Rule 10b-5 and 10b-18 Stock
Repurchase Agreement. On September 21, 2005, the Company terminated the Rule 10b5-1 and
10b-18 Stock Repurchase Agreement. On September 23, 2005, the Company entered into an
oral agreement with Weeden & Company to purchase 117,945 shares for $23.73 per share of
the Companys common stock, par value $0.0001, plus a $0.04 a share commission. This
transaction closed on September 26, 2005. On September 28, 2005, the Company entered into
a new Rule 10b5-1 and 10b-18 Stock Repurchase Agreement. The Company acquired
approximately 53,983 shares under these Rule 10b-5 and 10b-18 Stock Repurchase
Agreements. The last such agreement will terminate by its terms on December 15, 2005. All
shares repurchased were retired. The Company expects to continue to repurchase shares as
other permissible opportunities arise.

Key
Items in Fiscal 2006. The Company measures itself against a number of financial metrics
to assess its performance. Some of the important financial items during the third
quarter of fiscal 2006 were:

| |  |  | Net
sales increased 7.2% to $101,117. Same store sales increased 4.3% compared to the prior
year.
| | - |  | -------------------------------------------------------------------------------------------------

| |  |  | Gross
margin decreased to 32.3% of sales, compared to 34.5% in the prior year third quarter.
| | - |  | --------------------------------------------------------------------------------------------

| |  |  | Selling,
general and administrative expenses were 30.9% of sales for the third quarter, compared
to          31.7% in the prior year third quarter.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Earnings
(loss) per share was ($0.05) in the third quarter, compared to          earnings (loss)
of ($.01) per share in the prior year third quarter.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Return
on average  equity was  (0.19%) in the third  quarter,  compared to (0.04%) in the prior
year third          quarter.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

Same
store sales growth is a measure which may indicate whether existing stores are
maintaining their market share. Other factors, such as the overall economy, may also
affect same store sales. The Company defines same stores as those stores that were open
as of the first day of the prior fiscal year and remain open at the end of the reporting
period (this may also be referred to as comparable stores). Same store sales for all
Company stores increased 4.3% compared to the third quarter last year. The ALCO same
store sales increased 4.4%, and the Duckwall same store sales increased 2.1% during the
third quarter of fiscal 2006.

Gross
margin percentage is a key measure of the Companys ability to   maximize profit on the
purchase and subsequent sale of merchandise, while   minimizing promotional and clearance
markdowns, shrinkage, damage, and   returns. Gross margin percentage is defined as sales
less cost of sales,   expressed as a percentage of sales.

Selling,
general and administrative expenses are a measure of the   Companys ability to manage
and control its expenses to purchase, distribute   and sell merchandise

Earnings
per share (EPS) growth is an indicator of the returns   generated for the Companys
stockholders. EPS from continuing operations was   reduced to a loss of ($0.02) per
diluted share for the third quarter of fiscal   2006, compared to income of $0.10 per
diluted share for the third quarter of   the prior fiscal year.

Return
on average equity is a measure of how much income was produced   on the average equity of
the Company.

CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT
FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS

Certain
statements contained in this Quarterly Report on Form 10-Q that are not statements of
historical fact may constitute forward-looking statements within the meaning of Section
21E of the Exchange Act. These

| | 9 | 
| | - | 

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statements are subject to risks and
uncertainties, as described below. Examples of forward-looking statements include, but
are not limited to: (i) projections of revenues, income or loss, earnings or loss per
share, capital expenditures, store openings, store closings, payment or non-payment of
dividends, capital structure and other financial items, (ii) statements of plans and
objectives of the Companys management or Board of Directors, including plans or
objectives relating to inventory, store development, marketing, competition, business
strategy, store environment, merchandising, purchasing, pricing, distribution,
transportation, store locations and information systems, (iii) statements of future
economic performance, and (iv) statements of assumptions underlying the statements
described in (i), (ii) and (iii). Forward-looking statements can often be identified by
the use of forward-looking terminology, such as believes, expects, may, will,
should, could, intends, plans, estimates, projects or anticipates,
variations thereof or similar expressions.

Forward-looking
statements are not guarantees of future performance or results. They involve risks,
uncertainties and assumptions. The Companys future results of operations, financial
condition and business operations may differ materially from the forward-looking
statements or the historical information stated in this Quarterly Report on Form 10-Q.
Stockholders and investors are cautioned not to put undue reliance on any forward-looking
statement.

There
are a number of factors and uncertainties that could cause actual results of operations,
financial condition or business contemplated by the forward-looking statements to differ
materially from those discussed in the forward-looking statements made herein or
elsewhere orally or in writing, by, or on behalf of, the Company, including those factors
described below. Other factors not identified herein could also have such an effect.
Factors that could cause actual results to differ materially from those discussed in the
forward-looking statements and from historical information include, but are not limited
to, those factors described below.

| |  |  | The
Companys ability to open and operate new stores effectively and efficiently on a
profitable basis.
| | - |  | -------------------------------------------------------------------------------------------------------

| |  |  | The
Companys ability to locate its ALCO stores in smaller retail markets where no competing
full-line          discount retail store is located within the primary trade area.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
success of deterring another competitor from entering the market after locating an ALCO
store there.
| | - |  | --------------------------------------------------------------------------------------------------------

| |  |  | Material
increases in the cost of compliance with applicable laws or governmental regulations.
| | - |  | ----------------------------------------------------------------------------------------------

| |  |  | Loss
of key employees such as the President, Bruce C. Dale, and the other executive officers
of the          Company.
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | The
Companys ability to implement and train employees on the new POS          software and
to meet the time tables set forth under the POS lease and          the POS flexible lease
financing proposal letter regarding the lease of          POS hardware.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Companys ability to utilize technology upgrades to efficiently and          effectively
monitor its inventory levels.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Companys ability to react to consumer needs and trends on a timely basis.
| | - |  | ------------------------------------------------------------------------------

| |  |  | General
economic conditions of the small communities in which the Companys stores are located.
| | - |  | -----------------------------------------------------------------------------------------------

CRITICAL ACCOUNTING
POLICIES

Inventory:
As discussed in Note 1 (d) to the Consolidated Financial Statements, inventories are
stated at the lower of cost or net realizable value with cost determined using the
last-in, first-out (LIFO) method. The retail inventory method (RIM) used by the Company
is an averaging method that has been widely used in the retail industry. This method
calculates a cost to retail ratio that is applied to the retail value of inventory to
calculate cost inventory and the resulting gross margin. Use of the RIM method does not
eliminate the use of management judgments and estimates, including markdowns and
shrinkage, which significantly impact the ending inventory valuation at cost and the
resulting gross margins. The Company continually evaluates product categories to
determine if markdown action is appropriate, or if a markdown reserve should be
established. The Company recognizes that the use of the RIM will result in valuing
inventories at lower of cost or market if markdowns are currently taken as a reduction of
the retail value of inventories. As of October 30, 2005 and October 31, 2004, the Company
had recorded markdowns that had not been taken and which served to reduce inventories to
lower of cost or market by approximately $200 and $610, respectively. Management believes
that the RIM provides an inventory valuation which reasonably approximates cost and
results in carrying inventory at the lower of cost or market.

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

| | 10 | 
| | -- | 

---

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

Insurance:The Company considers determination of general insurance cost a critical accounting
policy. As described below, the Company is essentially self insured for its workers
compensation, medical insurance and general liability insurance. 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. As described below, actual costs may vary
significantly from estimates:

| | Workers
Compensation and General Liability. Starting June 1, 2003, the Company is
essentially self insured for workers compensation and general liability claims
due to large deductibles on its policies. At the beginning of the initial plan
year the Companys underwriter and actuaries retained by the Companys insurance
brokers, provided the Company with a reasonable estimate for expense accruals.
After the plan year ended on May 31, 2004, which was during the Companys third
fiscal quarter in fiscal 2005, these advisors informed the Company that
previous reserves were inadequate due to escalating costs per claim. As
a result of this change in estimate, in the third quarter in fiscal
2005, the Company had to increase its workers compensation and general
liability reserves significantly and recorded additional expense of
$463. After the plan year ended on May 31, 2005, which was during the
Companys second quarter in fiscal 2006, these advisors informed the
Company that previous reserves were more than required due to fewer
claims developing than anticipated. As a result of this change in
estimate, in the second quarter in fiscal 2006, the Company had to
decrease its workers compensation and general liability reserves
significantly and recorded a reduction of expense of $901.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Medical.
The Company is also essentially self insured for medical insurance and covers
all claims in a plan year related to an individual until they exceed $200.
Medical insurance expenses began to spike upwards in the first half of the
fiscal year 2005. The expenses for the second quarter of fiscal 2006 were
slightly higher than the Company anticipated. The Company has responded to this
situation by taking steps that were effective August 1, 2005 to increase the
premiums paid by its associates and by implementing other changes that
are designed to control future medical insurance costs.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income
Taxes:The Companys tax provision and establishment of reserves for potential tax
liabilities involves the use of estimates and professional judgment. The Company has
identified exposures for which they have established a reserve, such as differences in
interpretation of tax laws at the federal, state, and local units of government. Actual
results may vary significantly from the Companys estimates and judgments because of the
complexity of these tax laws.

RESULTS OF
OPERATIONS

Thirteen and
Thirty-nine Weeks Ended October 30, 2005 Compared to Thirteen and Thirty-nine Weeks Ended
October 31, 2004.

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 thirteen weeks ended October 30, 2005 (third quarter of fiscal 2006) the Company
opened three new ALCO stores. No stores were closed in the third quarter of fiscal 2006.
Ten ALCO and twelve Duckwall stores were closed during the thirty-nine week period ended
October 30, 2005. The operations of stores closed in the current and prior year have been
reflected as discontinued operations in all periods presented. As of October 30, 2005
over 88% of the Companys 250 stores are in non-competitive markets.

| | 11 | 
| | -- | 

---

Net
Sales

Net
sales for the third quarter of fiscal 2006 increased $6,832 or 7.2% to $101,117 compared
to $94,285 for the thirteen weeks ended October 31, 2004 (third quarter of fiscal
2005). Same store sales increased $3,957 or 4.3%. The ALCO same store sales increased
4.4%, and the Duckwall same store sales increased 2.1% during the third quarter of fiscal
2006. During the second quarter of fiscal 2006, the Company began a process of
eliminating seasonal carryover and distressed inventory. Markdowns that were taken to
eliminate this inventory were completed in the third quarter, and affected gross margin
as discussed below. A number of factors contributed to the same store sales growth during
the quarter, including liquidation of distressed inventory discussed above, as well as
expanded store operating hours, better in-stock position and new product offerings.

Net
sales for the thirty-nine week period ending October 30, 2005 increased $15,900 or 5.4%
to $307,822 compared to $291,922 in the comparable thirty-nine week period of the prior
fiscal year. Same store sales increased $7,344, or 2.5%. The ALCO same store sales
increased 2.5%, and the Duckwall same store sales increased 3.2% during the thirty-nine
week period ending October 30, 2005.

Gross
Margin

Gross
margin for the third quarter of fiscal 2006 increased $129 or 0.4% to $32,672 compared to
$32,543 in the third quarter of fiscal 2005. Gross margin as a percentage of sales was
32.3% for the third quarter of fiscal 2006 compared to 34.5% for the third quarter of
fiscal 2005. Of the decline in gross margin percentage of 220 basis points, 230 basis
points ($2,300 or $0.38 per diluted share) was attributable to higher markdowns primarily
in August and September as a result of the Companys efforts to lower its levels of
distressed inventory. Other factors affecting margin included higher shrink and
transportation costs, offset in part by an improved mix of sales and higher markup on
purchases.

Gross
margin for the thirty-nine week period ended October 30, 2005 was $96,020, which was
$2,381 or 2.4% lower than the prior fiscal years thirty-nine week gross margin of
$98,401. As a percent of net sales, gross margin was 31.2% for the thirty-nine week
period ending October 30, 2005, compared to 33.7% for the thirty-nine week period of the
prior fiscal year. Of the gross margin decline of 250 basis points, approximately 212
basis points ($6,500 or $1.02 per diluted share) are related to higher markdowns to
reduce inventory levels, as discussed above. Also negatively impacting the gross margin
percentage were higher transportations costs resulting from higher fuel prices and higher
shrinkage costs.

SG&A

SG&A
expense increased $1,373 or 4.6% to $31,251 in the third quarter of fiscal 2006 compared
to $29,878 in the third quarter of fiscal 2005. While SG&A expense increased over the
same period last year, as a percentage of net sales, SG&A expenses in the third quarter
of fiscal 2006 declined to 30.9%, compared to 31.7% in the third quarter of fiscal 2005.
Non-comparable stores contributed $1,158 to the increase. Expenses associated with the
Companys technology initiative increased $149, and professional fees of $461 incurred
due the Companys compliance with Section 404 of Sarbanes-Oxley also negatively impacted
SG&A. Other SG&A expense categories declined by $395 even with normal inflationary cost
increases, primarily as a result of the Companys cost containment initiatives.

SG&A
expense increased $3,676 or 4.2% to $91,907 for the thirty-nine week period ended October
30, 2005 compared to $88,231 for the comparable thirty-nine week period of the prior
fiscal year. SG&A expense as a percent of net sales reduced to 29.9% for the thirty-nine
week period ending October 30, 2005 compared to 30.2% for the thirty-nine week period of
the prior fiscal year. Non-comparable stores accounted for $2,676 of this increase, and
professional fees incurred as a result of Section 404 of Sarbanes-Oxley contributed $616
of the increase. Expenses associated with the Companys technology initiatives were $149
of the increase. Store pre-opening expenses increased $293. Other SG&A expense categories
were subject to inflationary pressures, but those increases were offset by the Companys
cost containment initiatives.

| | 12 | 
| | -- | 

---

For
additional analysis of SG&A, refer to SG&A Detail; Certain Financial Measures provided
at the end of this section.

Depreciation
and Amortization

Depreciation
and amortization expense decreased $196 or 12.1% to $1,428 in the third quarter of fiscal
2006 compared to $1,624 in the third quarter of fiscal 2005. Depreciation and
amortization expense decreased $463 or 9.6% to $4,372 for the thirty-nine week period
ended October 30, 2005 compared to $4,835 in the comparable thirty-nine week period of
the prior fiscal year. The decrease is primarily due to store fixtures and equipment
becoming fully depreciated in the current fiscal year on a large number of ALCO stores
that were opened in fiscal year 1997.

Operating
Income

Operating
income from continuing operations decreased $1,048 or 100.7% to ($7) in the third quarter
of fiscal 2006 compared to $1,041 in the third quarter of fiscal 2005. Operating income
from continuing operations as a percentage of net sales was 0.0% in the third quarter of
fiscal 2006 compared to 1.1% in the third quarter of fiscal 2005 The reduction in gross
margin as described above had the largest impact on the reduced operating income.

Operating
income from continuing operations decreased $5,594 or 104.9% to ($259) for the
thirty-nine week period ended October 30, 2005 compared to $5,335 in the comparable
thirty-nine week period of the prior fiscal year. While the reduction in gross margin as
described above had the largest impact on the reduced operating income, the results of
operations for non-comparable stores accounted for $424 of the reduction in operating
income.

Interest
Expense

Interest
expense decreased $15 or 4.1% to $354 in the third quarter of fiscal 2006 compared to
$369 in the third quarter of fiscal 2005. Interest expense decreased $120 or 12.9% to
$809 for the thirty-nine week period ended October 30, 2005 compared to $929 in the
comparable thirty-nine week period of the prior fiscal year. The reduction in interest
expense was due primarily to lower borrowing levels for both the thirteen and thirty-nine
week periods of fiscal 2006. Interest expense may increase if interest rates continue to
rise or if the Company expands its borrowing to fund capital expenditures or other
programs.

Income
Taxes

Income
taxes were ($276) in the third quarter of fiscal 2006 compared to $211 in the third
quarter of fiscal 2005. The effective tax rate of 35.4% in the thirteen and thirty-nine
week periods of fiscal 2006 was reduced by a $149 adjustment in the third quarter of
fiscal 2006 relating to work opportunity tax credits from prior years that became
available. This compares to an effective tax rate of 38.0% in the thirteen and
thirty-nine week periods of fiscal 2005. The effective tax rate for fiscal 2005 was
reduced to 37.0% (retroactive to the beginning of the fiscal year) in the third quarter
of that fiscal year when legislation was passed to reinstate the work opportunity tax
credit.

Earnings
(loss) from Continuing Operations

Earnings
(loss) from continuing operations for the third quarter of fiscal 2006 were ($85), a
decrease of $546 or 118.4% from the earnings from continuing operations of $461 for the
third quarter of fiscal 2005. Earnings (loss) from continuing operations for the
thirty-nine week period ended October 30, 2005 were ($542), a decrease of $3,318 or 119.5
% compared to $2,776 in the comparable thirty-nine week period of the prior fiscal year.

Loss
from Discontinued Operations

Loss
from discontinued operations, net of income tax, was $102 in the third quarter of fiscal
2006, compared to a loss of $507 in the third quarter of fiscal 2005. The operations of
closed stores have been reflected as discontinued operations in all periods presented.
Loss from discontinued operations, net of income tax, was $2,669

| | 13 | 
| | -- | 

---

for the thirty-nine week period
ended October 30, 2005, compared to a loss of $947 in the comparable thirty-nine week
period of the prior fiscal year. The increase in loss from discontinued operations for
the thirty-nine week period ended October 30, 2005 was the result of closing a total of
twenty-two stores in fiscal 2006, compared to six store closings in the prior fiscal year.

Net
Earnings (loss)

Net
earnings (loss) for the third quarter of fiscal 2006 was ($187), a decrease of $141 or
306.5% from the net earnings (loss) of ($46) in the third quarter of fiscal 2005. Diluted
net earnings (loss) per share for the third quarter of fiscal 2006 was ($0.05), a
decrease of $0.04, from the diluted net earnings (loss) per share of ($0.01) in the third
quarter of fiscal 2005.

Net
earnings (loss) for the thirty-nine week period ended October 30, 2005 was ($3,211), a
decrease of $5,040 or 275.6% compared to net earnings of $1,829 in the comparable
thirty-nine week period of the prior fiscal year. Diluted net earnings (loss) per share
for the thirty-nine week period ended October 30, 2005 was ($0.77), a decrease of $1.18
or 287.8% compared to earnings of $0.41 per share in the comparable thirty-nine week
period or the prior fiscal year. The reasons for this decrease are primarily the same as
those described for the thirteen-week period.

SG&A
  Detail; Certain Financial Measures

For the Thirteen Week Periods
        Ended
      For the Thirty-Nine Week
        Periods EndedOctober 30,
        2005
      
      October 31,
        2004
      
      October 30,
        2005
      
      October 31,
        2004SG&A Expenses BreakoutGeneral Office
      3,700
      
      4,334
      
      12,627
      
      12,403Distribution Center
      2,080
      
      2,122
      
      6,041
      
      6,248SPD Truck Lines
      296
      
      259
      
      811
      
      743Asset Impairment
      
      
      
      
      
      
      Comparable Stores SG&A
      23,495
      
      22,642
      
      68,636
      
      67,721Non Comp Stores SG&A #
      1,680
      
      521
      
      3,792
      
      1,117Final SG&A as reported on 3rd Qtr 10-Q
      31,251
      
      29,878
      
      91,907
      
      88,232Return on Average Equity****
      -0.19%
      
      -0.04%
      
      -3.04%
      
      1.65%(ROE)Net Sales
      101,117
      
      94,286
      
      307,822
      
      291,922SG&A as % of Sales
      30.91%
      
      31.69%
      
      29.86%
      
      30.22%SG&A per average selling square foot
      $      7.93
      
      $    7.75
      
      $    23.46
      
      $    23.02EBITDA**
      1,420
      
      2,665
      
      4,112
      
      10,170EBITDA per average selling square foot***
      $      0.36
      
      $    0.69
      
      $      1.05
      
      $      2.65Sales per average selling square feet*ALCO
      $    26.28
      
      $  25.00
      
      $    80.44
      
      $    78.07Duckwall
      $    19.09
      
      $  18.76
      
      $    59.38
      
      $    56.94Total
      $    25.61
      
      $  24.43
      
      $    78.47
      
      $    76.11Average Selling Square Feet*
      3,972
      
      3,857
      
      3,918
      
      3,833Average Square Feet % Change
      2.21%
      
      
      
      2.21%Total Stores Operating beginning of Period
      247
      
      266
      
      266
      
      264Total Stores Operating end of Period
      250
      
      266
      
      250
      
      266


|* |  | Average
selling square feet is (beginning of period square feet plus end of period square feet)
divided by 2.
|- |  | -------------------------------------------------------------------------------------------------------------

|** |  | EBITDA
is earnings from continuing operations plus interest, taxes, depreciation and
amortization.
|-- |  | --------------------------------------------------------------------------------------------------

|*** |  | EBITDA
per selling square foot is calculated as EBITDA divided by selling square feet.
|--- |  | --------------------------------------------------------------------------------------

|**** |  | Return
on average equity (ROE) is calculated as Net Earnings divided by average stockholders
equity.       Average Stockholders Equity is calculated as (beginning of period
        stockholders equity plus end of period stockholders equity) divided by         2
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|# |  | Non
Comp Stores are those stores opened in Fiscal 2005 & Fiscal 2006.
|- |  | ---------------------------------------------------------------------

| | 14 | 
| | -- | 

---

Fiscal 2006 Third
Quarter compared to Fiscal 2005 Third Quarter

General Office expenses for the
third quarter Fiscal 2006 decreased $634, or 14.6%. The Companys cost containment
initiatives have produced reductions through out the corporate office, especially in
payroll and travel. Other factors accounting for the reduction are professional services
in Fiscal 2005 for a business advisory service that were not repeated in Fiscal 2006,
reduction in the incentive compensation and profit sharing expense. These expenses were
offset by the increase in professional services to comply with Section 404 of
Sarbanes-Oxley.

Distribution center expenses for the
third quarter of Fiscal 2006 decreased $42, or 2.0%. Employee health care benefits
accounted for this reduction.

SPD Truck Line expenses for the
third quarter Fiscal 2006 increased $37, or 14.3%. Increased cost of diesel fuel
accounted for the increase.

Comparable stores SG&A for the third
quarter Fiscal 2006 increased $853, or 3.8%. The increase is primarily due to an increase
in advertising expense, utilities, and credit card fees; offset by reductions in store
remodel expenses, outside services and supplies.

Non Comparable Stores SG&A for the
third quarter Fiscal 2006 increased $1,159. Pre-opening expenses increased $293. The
remainder of the increase was the direct expenses for the six new stores opened in Fiscal
2006.

Year to Date Fiscal
2006 Compared to Year to Date Fiscal 2005

General Office expenses year to date
Fiscal 2006 increased $224, or 1.8%. Executive severance, directors fees, professional
services related to Section 404 of Sarbanes-Oxley and recruiting and relocation expenses;
offset by payroll due to Company restructuring, and health care benefits accounted for
the expense increase.

Distribution center expenses year to
date Fiscal 2006 decreased $207, or 3.3%. Supplies, employee health care, professional
services and utilities accounted for these reductions.

SPD Truck Line expenses year to date
Fiscal 2006 increased $68, or 9.2%. Diesel fuel, supplies and repairs and maintenance
accounted for these increases.

Comparable stores SG&A year to date
Fiscal 2006 increased $915, or 1.4%. Utilities, credit card fees, and advertising; offset
by remodel expenses and outside maintenance services accounted for the variance to year
to date Fiscal 2005.

Non Comparable Stores SG&A expenses
year to date Fiscal 2006 increased $2,675. Pre-opening expense accounted for $297 of this
increase. The remainder of the increase was the direct expenses for the six new stores
opened in Fiscal 2006.

Reconciliation and
Explanation of Non-GAAP Financial Measures

The following table shows the
reconciliation of EBITDA and EBITDA per selling square foot to the earnings (loss) from
continuing operations, the most directly comparable financial measure calculated and
presented in accordance with GAAP:

| | 15 | 
| | -- | 

---



For the Thirteen Week Periods
        
        Ended
      
      For the Thirty-Nine Week 
        Periods EndedOctober 30, 
        2005
      
      October 31, 
        2004
      
      October 30, 
        2005
      
      October 31, 
        2004Earnings (loss) from continuing operations
      $(85)
      
      $461
      
      $(542)
      
      $2,776Plus interest
      $354
      
      $369
      
      $809
      
      $929Plus taxes
      $(276)
      
      $211
      
      $(526)
      
      $1,630Plus depreciation and amortization
      $1,427
      
      $1,624
      
      $4,371
      
      $4,835=EBITDA
      $1,420
      
      $2,665
      
      $4,112
      
      $10,170


For the Thirteen Week Periods
        
        Ended
      
      For the Thirty-Nine Week 
        Periods EndedOctober 30, 
        2005
      
      October 31, 
        2004
      
      October 30, 
        2005
      
      October 31, 
        2004Earnings (loss) from continuing 
        operations per square foot
      $(0.02)
      
      $0.12
      
      $(0.14)
      
      $0.72Plus interest per square foot
      $0.09
      
      $0.10
      
      $0.21
      
      $0.24Plus taxes per square foot
      $(0.07)
      
      $0.05
      
      $(0.13)
      
      $0.43Plus depreciation and amortization
        per
      $0.36
      
      $0.42
      
      $1.12
      
      $1.26square foot=EBITDA per selling square foot
      $0.36
      
      $0.69
      
      $1.05
      
      $2.65


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
October 30, 2006 working capital (defined as current assets less current liabilities) was
$95,987 compared to $95,431 at the end of fiscal 2005.

The
Company has a loan agreement with its lenders that provides a revolving loan credit
facility of up to $70,000 of long-term financing. The amount advanced (through a note or
letters of credit) to the Company under the credit facility bears interest at (i) the
prime rate plus a margin, as defined, which varies based on the amount outstanding (Base
Loan) or (ii) based on the Euro dollar rate plus a margin, as defined, (Index Loan).
Based upon its projected financial requirements, the Company uses a combination of short
term Euro dollar contracts and borrowing at prime. The amount advanced is generally
limited to 70% of eligible inventory, as defined in the loan agreement. Advances are
secured by a security interest in the Companys inventory. The loan agreement contains
various restrictions that are applicable when outstanding borrowings reach certain
thresholds, including limitations on additional indebtedness, acquisitions of assets and
payment of dividends. On June 1, 2005 the Company and its lender, Bank of America, agreed
to extend the revolving loan credit facility. The credit facility, which was due on April
15, 2006, will now be due on April 15, 2010. As of October 30, 2005, the Company has
borrowed $27,304 under this facility. The lender had also issued letters of credit
aggregating $4,079 at such date on behalf of the Company. Total borrowing available under
the Companys revolving loan at October 30, 2005 was $38,617.

Cash
provided by (used in) operating activities in the thirty-nine week period of fiscal 2006
and 2005 was $4,149 and ($6,077) respectively. The increase in the amount of cash
provided by operating activities in the thirty-nine week period of fiscal 2006 compared
to the thirty-nine week period of fiscal 2005 was primarily due to better inventory
management. There is a usual build up in inventory for the Christmas season during the
third quarter, but due to the store closings in fiscal 2006, inventory levels are below
those of last year. This was partially offset by a larger increase in accounts payable,
which was driven by a large amount of technology purchases that were payable at the end
of the third quarter of fiscal 2006, as well as better terms with vendors.

| | 16 | 
| | -- | 

---

The
Company has revised its total anticipated cash payments for acquisition of property and
equipment in fiscal 2006 due to the large outlay for hardware and software for upgrading
its point-of-sale, merchandising, human resources/payroll, and financial systems. Total
anticipated cash payments for the hardware and software, as well as for store buildings
and store and warehouse fixtures and equipment are approximately $19,000 for fiscal 2006.
See Subsequent Events below. Cash used in investing activities (including acquisitions
and remodeling) in the thirty-nine week period of fiscal 2006 and 2005 totaled $12,216
and $4,952, respectively, which were used primarily for those same purposes.

The
Company generated cash from financing activities in the thirty-nine week period of fiscal
2006 and 2005 of $10,321 and $13,076 respectively. Borrowings on the revolving loan
generated $23,281 during the thirty-nine week ended October 30, 2006, compared to $13,129
during the thirty-nine week period of the prior fiscal year. Cash was used to purchase
and retire 636,463 shares of Common Stock during the thirty-nine week period of fiscal
2006 for $12,638. The Board of Directors of the Company has authorized the Company to
repurchase up to 1,810,362 shares, of which 1,721,063 shares had been purchased as of
October 30, 2005. The Board of Directors at its August 23, 2005 meeting adopted a Rule
10b-5 and 10b-18 Stock Repurchase Agreement. On September 21, 2005, the Company
terminated the Rule 10b5-1 and 10b-18 Stock Repurchase Agreement. On September 23, 2005,
the Company entered into an oral agreement with Weeden & Company to purchase 117,945
shares for $23.73 per share of the Companys common stock, par value $0.0001, plus a
$0.04 a share commission. This transaction closed on September 26, 2005. On September 28,
2005, the Company entered into a new Rule 10b5-1 and 10b-18 Stock Repurchase Agreement.
The Company acquired approximately 53,983 shares under these Rule 10b-5 and 10b-18 Stock
Repurchase Agreements. The last such agreement will terminate by its terms on December
15, 2005. The Company expects to continue to repurchase shares as other permissible
opportunities arise.

The
Company has financed its operating and capital requirements with a combination of
borrowing on the revolver, capital and operating leases, and the use of working capital.
The Company believes is has sufficient borrowing capacity from these sources to meets its
operating and capital obligations.

Subsequent Events As described in
more detail on the Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 6, 2005, the Company entered into the following agreements with
General Electric Capital Corporation (GE) on December 1, 2005, related to upgrading
its POS software:

| |  |  | an
Agency Agreement;
| | - |  | --------------------

| |  |  | a
Master Lease Agreement, No. 4168852;
| | - |  | --------------------------------------

| |  |  | a
Lease Schedule to Master Lease;
| | - |  | ---------------------------------

| |  |  | Progress
 Payment  Agreement Rider for Software and  Implementation  Services  Related to the
Duckwall POS          Installation; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

| |  |  | An
Amendment No. 1 to Master Lease.
| | - |  | -----------------------------------

| | All
of the above listed documents are referred to in this document as      the Lease. The
effective date of the Lease is January 1, 2006. Under the      Lease, the Company is
committed to lease $4.65 million of POS software from      GE over a several month period
beginning on November 9, 2005 and ending on      December 31, 2005. The Lease term is 60
months and the Company will make      rental payments quarterly in advance beginning on
January 1, 2006. In      connection with entering into the Lease, the Company also
entered into a      Cross-Collateral and Cross-Default Agreement with GE requiring all
     equipment and inventory leased by GE to the Company under various agreement      to
secure all obligations to GE.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 5, 2005, the Company also entered into a flexible lease      financing proposal
letter with GE (Proposal) to put in place the lease      rates for hardware the Company
plans to lease in connection with the new      POS software system. Under Proposal, the
Company is committed to lease      approximately $7.15 million of POS terminals and other
hardware by      September 30, 2006. The hardware lease term is 48 months and the Company
     will make rental payments quarterly in advance. The Company paid GE a $72
     deposit in connection with the Proposal. This deposit will be applied to      the
cost of the lease as long as the Company leases the hardware form GE,      otherwise it
will be forfeited.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 17 | 
| | -- | 

---

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.



Segment Information
      For The Thirteen Week 
        Periods Ended
      
      For The Thirty-Nine Week 
        Periods EndedOctober 30, 
        2005
      
      October 31, 
        2004
      
      October 30, 
        2005
      
      October 31, 
        2004Net Sales:ALCO Discount Stores
      $93,947
      
      $87,540
      
      $285,634
      
      $271,487All OtherExternal
      7,170
      
      6,745
      
      22,188
      
      20,435Intercompany
      71,837
      
      65,981
      
      185,619
      
      179,528$172,954
      
      $160,266
      
      $493,441
      
      $471,450Depreciation and AmortizationALCO Discount Stores
      $842
      
      $862
      
      $2,749
      
      $2,862All Other
      586
      
      762
      
      1,623
      
      1,973$1,428
      
      $1,624
      
      $4,372
      
      $4,835Income (expense) from Operations:ALCO Discount Stores
      $6,327
      
      $8,016
      
      $20,254
      
      $25,429All Other
      (6,250)
      
      (6,908)
      
      (20,259
      )
      (19,892)$77
      
      $1,108
      
      ($5)
      
      $5,537Capital Expenditures:ALCO Discount Stores
      $3,309
      
      $1,892
      
      $6,027
      
      $3,973All Other
      5,204
      
      547
      
      6,189
      
      1,746$8,513
      
      $2,439
      
      $12,216
      
      $5,719Identifiable Assets:ALCO Discount Stores
      $139,366
      
      $145,083
      
      $139,366
      
      $145,083All Other
      45,297
      
      43,606
      
      45,297
      
      43,606$184,663
      
      $188,689
      
      $184,663
      
      $188,689


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:

| | 18 | 
| | -- | 

---

| | 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 and All Other segments          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          and All Other segments based on
the Companys customary method of          allocation for such costs (primarily as a
stipulated percentage of          merchandise purchases).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Leases
| | ------

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

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

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

For The Thirteen Week 
        Periods Ended
      
      For The Thirty-Nine Week 
        Periods EndedOctober 30, 
        2005
      
      October 31, 
        2004
      
      October 30, 
        2005
      
      October 31, 
        2004Net sales per above segment information
      $172,954
      
      $160,266
      
      $493,441
      
      $471,450Intercompany elimination
      71,837
      
      65,981
      
      185,619
      
      179,528Net sales per consolidated
        statementsof operations
      $101,117
      
      $94,285
      
      $307,822
      
      $291,922Income (loss) from operations per above segment
        
             information
      $77
      
      $1,108
      
      ($5)
      
      $5,537Leases
      84
      
      67
      
      254
      
      202Income (loss) from operations
        per consolidated 
             statements of operations
      ($7)
      
      $1,041
      
      ($259
      )
      $5,335


| | 19 | 
| | -- | 

---

ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INSTRUMENTS ENTERED
INTO OTHER THAN FOR TRADING - INTEREST RATE RISK

The
Company is exposed to various types of market risk in the normal course of its business,
including the impact of interest rate changes. The Company may enter into interest rate
swaps to manage its exposure to interest rate changes, and we may employ other risk
management strategies, including the use of foreign currency forward contracts. The
Company does not currently hold any derivative instruments and would enter into such
instruments solely for cash flow hedging purposes and not for trading purposes.

As
described under Managements Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources, the Company has a variable interest rate
debt facility that is subject to interest rate risk. The Company uses this facility to
meet the short-term needs of its capital improvements and inventory purchases. These
obligations expose the Company to variability in interest payments due to changes in
interest rates. If interest rates increase, interest expense increases. Conversely, if
interest rates decrease, interest expense also decreases. Based on amounts outstanding
under this facility as of October 30, 2005, the Company does not consider its exposure to
interest rate risk to be material.

ITEM 4. CONTROLS AND
PROCEDURES

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

Based
on an evaluation, the Company is not aware of any material or significant deficiencies
over its system of internal control over financial reporting. However, to upgrade its
financial software, the Company installed the following modules of Oracle software during
the quarter ended October 30, 2005: general ledger, accounts payable, payroll and human
resources. This software upgrade did result in changes to the Companys internal control
over financial reporting, although the Company does not believe those changes were
material, or are reasonably likely to have a material affect on the Companys internal
control over financial reporting.

| | 20 | 
| | -- | 

---

PART II -
  OTHER INFORMATION

Item 1.
      
      Legal Proceedings 
        The Company is a party to routine litigation from time to time in the
        ordinary course of business.Item 2.
      
      Unregistered Sales of Equity Securities
        and Use of Proceeds 
        Not applicableItem 3.
      
      Defaults Upon Senior Securities
        
        Not ApplicableItem 4.
      
      Submission of Matters to a Vote
        of Security Holders 
        Not ApplicableItem 5.
      
      Other Information 
        NoneItem 6.
      
      Exhibits 
        See the Exhibit Index immediately following the signature page hereto.


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
      14, 2005 |                                                                       
| |                               |                                                                       
| |                               |                                                                       
| |                               |                                                                       

| | 21 | 
| | -- | 

---

EXHIBIT INDEX

|3.1 |  | Articles
of Incorporation of Duckwall-ALCO Stores, Inc., amended as of June 13, 1994 and
         restated solely for filing with the Securities and Exchange Commission (filed as
Exhibit 3.1 to          Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended August 1, 2004 and          incorporated herein by reference).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Bylaws
of Duckwall-ALCO Stores, Inc. (filed as Exhibit 3.2 to Companys          Quarterly
Report on Form 10-Q for the fiscal quarter ended August 1,          2004 and incorporated
herein by reference).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Specimen
of Duckwall-ALCO Stores, Inc. Common Stock Certificate. (filed          as Exhibit 4.1 to
Companys Quarterly Report on Form 10-Q for the          fiscal quarter ended August 1,
2004 and incorporated herein by          reference).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Reference
is made to the Amended and Restated Articles of Incorporation described under 3.1
         above and Bylaws described under 3.2 above.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | 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).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 |  | 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.).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | 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).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | 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).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | 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).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Separation
Agreement and Release, dated as of December 27, 2004,          between the Company and
Glen L. Shank (filed as Exhibit 10.1 to the          Companys Current Report on Form 8-K
on December 28, 2004 and          incorporated herein by reference).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Employment
Agreement dated August 1, 2005 between the Company and Bruce          C. Dale (filed as
Exhibit 10.1 to the Companys Form 8-K filed August          3, 2005, and incorporated
herein by reference).
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Memorandum
of Understanding dated April 19, 2005 with K&A Asset          Management, LLC on behalf
of Kenneth A. Macke Revocable Trust (filed as          Exhibit 10.1 to the Companys
Current Report on Form 8-K on April 22,          2005 and incorporated herein by
reference).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | 2003
Duckwall-ALCO Stores, Inc. Incentive Stock Option Plan (filed as          Appendix 3,
Schedule 14-A for the fiscal year ended February 2, 2003,          and incorporated
herein by reference).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | Second
 Amendment to Loan and Security  Agreement  dated as of June 1, 2005,  between the
Company and Bank          of America, N.A.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | Rule
10b-5 and 10b-18  Stock  Purchase  Agreement  dated as of August 23,  2005  between  the
 Company and          Jefferies & Co.,  Inc.  (filed as Exhibit 10.1 to the Companys
 Current  Report on Form 8-K on August 29,          2005, and incorporated herein by
reference).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.24 |  | First
Amendment to Employment Agreement dated as of August 23, 2005          between the
Company and Bruce Dale (filed as Exhibit 10.1 to the          Companys Current Report on
Form 8-K filed August 25, 2005, and          incorporated herein by reference).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 22 | 
| | -- | 

---

|10.25 |  | September
28, 2005 Rule 10b5-1 and 10b-18 Stock Repurchase Agreement          dated September 28,
2005 between Duckwall-ALCO Stores, Inc. and          Jefferies & Co., Inc. (filed as
Exhibit 10.1 to the Companys Current          Report on Form 8-K filed September 28,
2005, and incorporated herein by          reference).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.26 |  | Agency
Agreement dated as of November 9, 2005 and entered into November          30, 2005
between Duckwall-ALCO Stores, Inc. and General Electric          Capital Corporation.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | Master
 Lease  Agreement,  No.  4168852  dated as of November 9, 2005 and entered  into
 November 30, 2005          between Duckwall-ALCO Stores, Inc. and General Electric
Capital Corporation.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28 |  | Lease
 Schedule No. 1 to Master  Lease  Agreement  dated as of November 9, 2005 and entered
into  November          30, 2005 between Duckwall-ALCO Stores, Inc. and General Electric
Capital Corporation.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29 |  | Progress
Payment Agreement Rider for Software and Implementation          Services Related to the
Duckwall POS Installation dated as of November          9, 2005 and entered into November
30, 2005 between Duckwall-ALCO          Stores, Inc. and General Electric Capital
Corporation.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.30 |  | Amendment
 No. 1 to Master  Lease  Agreement  dated as of November 9, 2005 and entered  into
 November 30,          2005 between Duckwall-ALCO Stores, Inc. and General Electric
Capital Corporation.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.31 |  | Flexible
 Lease  Financing   Proposal  Letter  dated  December  2,  2005  from  General  Electric
 Capital          Corporation Duckwall-ALCO Stores, Inc. and accepted by Duckwall-ALCO
Stores, Inc. on December 5, 2005.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.32 |  | Cross-Collateral
 and Cross-Default  Agreement Letter from General Electric Capital  Corporation  accepted
         by Duckwall-ALCO Stores, Inc. on December 1, 2005.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.33 |  | Staged
 Certificate of Acceptance from General  Electric  Capital  Corporation  accepted by
 Duckwall-ALCO          Stores, Inc. on December 1, 2005.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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

|31.1 |  | Certification
of Chief Executive Officer of Duckwall-ALCO Stores, Inc.          dated December 14,
2005, pursuant to Rule 13a-4(a) under the Securities          Exchange Act of 1934, as
adopted pursuant to Section 302 of the          Sarbanes-Oxley Act of 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 |  | Certification
of Interim Chief Financial Officer of Duckwall-ALCO          Stores, Inc. dated December
14, 2005, pursuant to Rule 13a-4(a) under          the Securities Exchange Act of 1934,
as adopted pursuant to Section 302          of the Sarbanes-Oxley Act of 2002.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 |  | Certification
of Chief Executive Officer of Duckwall-ALCO Stores, Inc,          dated December 14,
2005, pursuant to 18 U.S.C. Section 1350, as adopted          pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, which is          furnished with this Quarterly Report on
Form 10-Q for the quarter ended          October 30, 2005 and is not treated as filed in
reliance upon §         601(b)(32) of Regulations S-K.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 |  | Certification
of Interim Chief Financial Officer of Duckwall-ALCO          Stores, Inc., dated December
14, 2005, pursuant to 18 U.S.C. Section          1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of          2002, which is furnished with this Quarterly Report
on Form 10-Q for          the quarter ended October 30, 2005 and is not treated as filed
in          reliance upon § 601(b)(32) of Regulations S-K.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 23 | 
| | -- | 

---