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

----

| TABLE OF CONTENTS |
|-------------------|
|              |   |   |   |
| PART I            | FINANCIAL INFORMATION |   |
|              | Item 1. | Financial Statements | 3 |
|              | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 |
|              | Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 16 |
|              | Item 4. | Controls and Procedures | 16 |
|              |   |   |   |
| PART II           | OTHER INFORMATION |   |
|              | Item 1. | Legal Proceedings | 17 |
|              | Item 1A. | Risk Factors | 17 |
|              | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
|              | Item 3. | Defaults Upon Senior Securities | 17 |
|              | Item 4. | Reserved | 17 |
|              | Item 5. | Other Information | 17 |
|              | Item 6. | Exhibits | 18 |
|              |   |   |   |
| Signature         |   |   | 20 |

----

PART I 

ITEM 1

| Duckwall-ALCO Stores, Inc.                                                                             |   |
|--------------------------------------------------------------------------------------------------------|--------|
| Consolidated Balance Sheets                                                                            |   |
| (dollars in thousands, except share and per share amounts)                                             |   |
| Assets                                                                                                 |   |
|                                                                                                   |   | August 1, 2010 |   |   | January 31, 2010 |   |
|                                                                                                   |   | (Unaudited) |   |   |   |   |
| Current assets:                                                                                        |   |   |   |   |   |   |
|    Cash and cash equivalents                                                            |   | $ | 3,690 |   |   |   | 5,164 |   |
|    Receivables                                                                          |   |   | 5,395 |   |   |   | 7,437 |   |
|    Prepaid income taxes                                                                 |   |   | 2,051 |   |   |   | 594 |   |
|    Inventories                                                                          |   |   | 140,274 |   |   |   | 140,375 |   |
|    Prepaid expenses                                                                     |   |   | 4,022 |   |   |   | 3,517 |   |
|    Deferred income taxes                                                                |   |   | 4,307 |   |   |   | 3,863 |   |
|   Assets held for sale                                                                       |   |   | 1,181 |   |   |   | 1,631 |   |
|           Total current assets                       |   |   | 160,920 |   |   |   | 162,581 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Property and equipment, at cost:                                                                       |   |   |   |   |   |   |   |   |
|    Land and land improvements                                                           |   |   | 1,454 |   |   |   | 1,455 |   |
|    Buildings and building improvements                                                  |   |   | 11,896 |   |   |   | 11,844 |   |
|    Furniture, fixtures and equipment                                                    |   |   | 69,769 |   |   |   | 67,304 |   |
|    Transportation equipment                                                             |   |   | 1,357 |   |   |   | 1,303 |   |
|    Leasehold improvements                                                               |   |   | 15,929 |   |   |   | 14,855 |   |
|    Construction work in progress                                                        |   |   | 890 |   |   |   | 1,744 |   |
|           Total property and equipment               |   |   | 101,295 |   |   |   | 98,505 |   |
|    Less accumulated depreciation                                                        |   |   | 71,819 |   |   |   | 67,959 |   |
|           Net property and equipment                 |   |   | 29,476 |   |   |   | 30,546 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Property under capital leases                                                                          |   |   | 17,815 |   |   |   | 11,015 |   |
|    Less accumulated amortization                                                        |   |   | 10,062 |   |   |   | 9,385 |   |
|           Net property under capital leases          |   |   | 7,753 |   |   |   | 1,630 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Other non-current assets                                                                               |   |   | 1,203 |   |   |   | 51 |   |
|           Total assets                               |   | $ | 199,352 |   |   |   | 194,808 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Liabilities and Stockholders' Equity                                                                   |   |
| Current liabilities:                                                                                   |   |   |   |   |   |   |   |   |
|    Current maturities of long-term debt                                                 |   | $ | 1,498 |   |   |   | 1,451 |   |
|    Current maturities of capital lease obligations                                      |   |   | 1,084 |   |   |   | 1,623 |   |
|    Accounts payable                                                                     |   |   | 29,979 |   |   |   | 23,076 |   |
|    Accrued salaries and commissions                                                     |   |   | 4,415 |   |   |   | 4,122 |   |
|    Accrued taxes other than income                                                      |   |   | 5,160 |   |   |   | 4,913 |   |
|    Self-insurance claim reserves                                                        |   |   | 4,180 |   |   |   | 4,852 |   |
|    Other current liabilities                                                            |   |   | 4,821 |   |   |   | 4,499 |   |
|           Total current liabilities                  |   |   | 51,137 |   |   |   | 44,536 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Long term debt, less current maturities                                                                |   |   | 653 |   |   |   | 1,414 |   |
| Notes payable under revolving loan agreement                                                           |   |   | 29,912 |   |   |   | 35,159 |   |
| Capital lease obligations - less current maturities                                                    |   |   | 7,596 |   |   |   | 1,345 |   |
| Deferred gain on leases                                                                                |   |   | 4,019 |   |   |   | 4,212 |   |
| Deferred income taxes                                                                                  |   |   | 1,078 |   |   |   | 694 |   |
| Other noncurrent liabilities                                                                           |   |   | 1,835 |   |   |   | 1,715 |   |
|           Total liabilities                          |   |   | 96,230 |   |   |   | 89,075 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Stockholders' equity:                                                                                  |   |   |   |   |   |   |   |   |
| Common stock, $.0001 par value, authorized 20,000,000 shares; issued and outstanding                   |   |
|     3,839,395 shares and 3,797,947 shares, respectively                            |   |   | 1 |   |   |   | 1 |   |
|    Additional paid-in capital                                                           |   |   | 39,930 |   |   |   | 39,313 |   |
|    Retained earnings                                                                    |   |   | 63,191 |   |   |   | 66,419 |   |
|           Total stockholders' equity                 |   |   | 103,122 |   |   |   | 105,733 |   |
|           Total liabilities and stockholders' equity |   | $ | 199,352 |   |   |   | 194,808 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| See accompanying notes to unaudited consolidated financial statements.                                 |   |

----

| Duckwall-ALCO Stores, Inc.                                                                 |   |
|--------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Operations                                                      |   |
| (dollars in thousands, except per share amounts)                                           |   |
| (Unaudited)                                                                                |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   | For the Thirteen Week |   |   | For the Twenty-Six Week |   |
|                                                                                       |   | Periods Ended |   |   | Periods Ended |   |
|                                                                                       |   | August 1, 2010 |   |   | August 2, 2009 |   |   | August 1, 2010 |   |   | August 2, 2009 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                                                  |   | $ | 118,158 |   |   |   | 125,029 |   |   |   | 231,181 |   |   |   | 240,189 |   |
| Cost of sales                                                                              |   |   | 80,572 |   |   |   | 82,706 |   |   |   | 158,424 |   |   |   | 159,418 |   |
| Gross margin                                                                               |   |   | 37,586 |   |   |   | 42,323 |   |   |   | 72,757 |   |   |   | 80,771 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative                                                        |   |   | 36,210 |   |   |   | 34,505 |   |   |   | 71,025 |   |   |   | 70,107 |   |
| Depreciation and amortization                                                              |   |   | 2,501 |   |   |   | 2,268 |   |   |   | 4,983 |   |   |   | 4,645 |   |
|            Total operating expenses |   |   | 38,711 |   |   |   | 36,773 |   |   |   | 76,008 |   |   |   | 74,752 |   |
| Operating income (loss) from continuing operations                                         |   |   | (1,125 | ) |   |   | 5,550 |   |   |   | (3,251 | ) |   |   | 6,019 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                      |   |   | 721 |   |   |   | 521 |   |   |   | 1,395 |   |   |   | 1,057 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations before income taxes                             |   |   | (1,846 | ) |   |   | 5,029 |   |   |   | (4,646 | ) |   |   | 4,962 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense (benefit)                                                               |   |   | (545 | ) |   |   | 1,985 |   |   |   | (1,555 | ) |   |   | 1,952 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations                                                 |   |   | (1,301 | ) |   |   | 3,044 |   |   |   | (3,091 | ) |   |   | 3,010 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) from discontinued operations, net of income tax expense (benefit)          |   |   | 4 |   |   |   | (14 | ) |   |   | (137 | ) |   |   | (29 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net earnings (loss)                                                                        |   | $ | (1,297 | ) |   |   | 3,030 |   |   |   | (3,228 | ) |   |   | 2,981 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Basic                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Continuing operations                |   | $ | (0.34 | ) |   |   | 0.80 |   |   |   | (0.81 | ) |   |   | 0.79 |   |
|          Discontinued operations              |   |   | - |   |   |   | - |   |   |   | (0.04 | ) |   |   | (0.01 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Net earnings (loss) per share        |   | $ | (0.34 | ) |   |   | 0.80 |   |   |   | (0.85 | ) |   |   | 0.78 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Diluted                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Continuing operations                |   | $ | (0.34 | ) |   |   | 0.78 |   |   |   | (0.81 | ) |   |   | 0.78 |   |
|          Discontinued operations              |   |   | - |   |   |   | - |   |   |   | (0.04 | ) |   |   | (0.01 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Net earnings (loss) per share        |   | $ | (0.34 | ) |   |   | 0.78 |   |   |   | (0.85 | ) |   |   | 0.77 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to unaudited consolidated financial statements.                     |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| Duckwall-ALCO Stores, Inc.                                                                 |   |
|--------------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Cash Flows                                                      |   |
| (dollars in thousands)                                                                     |   |
| (Unaudited)                                                                                |   |
|                                                                                       |   | For the Twenty-Six Week |   |
|                                                                                       |   | Periods Ended |   |
|                                                                                       |   | August 1, 2010 |   |   | August 2, 2009 |   |
|                                                                                       |   |   |   |   |   |   |
| Cash flows from operating activities:                                                      |   |   |   |   |   |   |
| Net earnings (loss)                                                                        |   | $ | (3,228 | ) |   |   | 2,981 |   |
|                                                                                       |   |   |   |   |   |   |   |   |
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |   |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                              |   |   | 4,985 |   |   |   | 4,606 |   |
| Gain on sale of assets                                                                     |   |   | (7 | ) |   |   | (1 | ) |
| Share-based compensation                                                                   |   |   | 200 |   |   |   | 446 |   |
| Tax benefit of stock options exercised                                                     |   |   | 13 |   |   |   | - |   |
| Deferred income tax expense, net                                                           |   |   | (60 | ) |   |   | (65 | ) |
| Changes in:                                                                                |   |   |   |   |   |   |   |   |
|    Receivables                                                              |   |   | 2,042 |   |   |   | (514 | ) |
|    Prepaid income taxes                                                     |   |   | (1,457 | ) |   |   | 5,330 |   |
|    Inventories                                                              |   |   | 101 |   |   |   | (1,879 | ) |
|    Prepaid expenses                                                         |   |   | (505 | ) |   |   | 76 |   |
|    Accounts payable                                                         |   |   | 6,903 |   |   |   | (4,551 | ) |
|    Accrued salaries and commissions                                         |   |   | 293 |   |   |   | (743 | ) |
|    Accrued taxes other than income                                          |   |   | 247 |   |   |   | (149 | ) |
|    Self-insurance claim reserves                                            |   |   | (672 | ) |   |   | (468 | ) |
|    Other assets and liabilities                                             |   |   | 396 |   |   |   | (242 | ) |
|       Net cash provided by operating activities              |   |   | 9,251 |   |   |   | 4,827 |   |
|                                                                                       |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                                                      |   |   |   |   |   |   |   |   |
| Proceeds from the sale of assets                                                           |   |   | 640 |   |   |   | 3 |   |
| Acquisition of property and equipment                                                      |   |   | (3,495 | ) |   |   | (3,089 | ) |
|       Net cash used in investing activities                  |   |   | (2,855 | ) |   |   | (3,086 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                                      |   |   |   |   |   |   |   |   |
| Net (paydowns) borrowings under revolving loan agreement                                   |   |   | (5,247 | ) |   |   | 594 |   |
| Revolving loan agreement financing costs                                                   |   |   | (1,300 | )  |   |   | - |   |
| Proceeds from exercise of outstanding stock options                                        |   |   | 419 |   |   |   | - |   |
| Excess tax benefit on stock options exercised                                              |   |   | (15 | ) |   |   | - |   |
| Principal payments under term loan                                                         |   |   | (714 | ) |   |   | (670 | ) |
| Principal payments under capital lease obligations                                         |   |   | (1,013 | ) |   |   | (963 | ) |
|       Net cash used in financing activities                  |   |   | (7,870 | ) |   |   | (1,039 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |
|       Net increase (decrease) in cash and cash equivalents   |   |   | (1,474 | ) |   |   | 702 |   |
| Cash and cash equivalents at beginning of period                                           |   |   | 5,164 |   |   |   | 4,744 |   |
|                                                                                       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents at end of period                                                 |   | $ | 3,690 |   |   |   | 5,446 |   |
|                                                                                       |   |   |   |   |   |   |   |   |
| Supplemental disclosures of cash flow information:                                         |   |   |   |   |   |   |   |   |
| Cash paid during the period for:                                                           |   |   |   |   |   |   |   |   |
| Interest                                                                                   |   | $ | 1,361 |   |   |   | 1,064 |   |
| Income taxes, net of refunds received                                                      |   |   | (129 | ) |   |   | 278 |   |
|                                                                                       |   |   |   |   |   |   |   |   |
| See accompanying notes to unaudited consolidated financial statements.                     |   |   |   |   |   |

----

----

|                                   |   |              |   |   | For the Thirteen Week |   |   | For the Twenty-Six Week |   |
|----------------------------------------|--------|-------------------|--------|--------|-----------------------|--------|--------|-------------------------|--------|
|                                   |   | Fiscal 2010 Ended |   |   | Periods Ended         |   |   | Periods Ended           |   |
|                                   |   | January 31, 2010  |   |   | August 1, 2010        |   |   | August 2, 2009          |   |   | August 1, 2010 |   |   | August 2, 2009 |   |
| Stock options granted                  |   |              | 45,000 |   |                  |   | -      |                    |   |   | 20,000 |   |   |   | 100,000 |   |   |   | 35,000 |   |
| Weighted average exercise price        |   | $                 | 13.95  |   |                  |   | -      |                    |   |   | 15.50 |   |   |   | 14.34 |   |   |   | 12.82 |   |
| Weighted average grant date fair value |   | $                 | 5.47   |   |                  |   | -      |                    |   |   | 6.55 |   |   |   | 6.36 |   |   |   | 5.40 |   |

|                                     |   |              |   |   | For the Thirteen Week |   |   | For the Twenty-Six Week |   |
|------------------------------------------|--------|-------------------|--------|--------|-----------------------|--------|--------|-------------------------|--------|
|                                     |   | Fiscal 2010 Ended |   |   | Periods Ended         |   |   | Periods Ended           |   |
|                                     |   | January 31, 2010  |   |   | August 1, 2010        |   |   | August 2, 2009          |   |   | August 1, 2010 |   |   | August 2, 2009 |   |
| Expected price volatility                |   |              | 48.9   | %      |                  |   | NA     |                    |   |   | 54.3 | % |   |   | 51.1 | % |   |   | 51.6 | % |
| Risk-free interest rate                  |   |              | 1.5    | %      |                  |   | NA     |                    |   |   | 1.4 | % |   |   | 1.5 | % |   |   | 1.4 | % |
| Weighted average expected lives in years |   |              | 4.8    |   |                  |   | NA     |                    |   |   | 3.8 |   |   |   | 4.8 |   |   |   | 4.2 |   |
| Dividend yield                           |   |              | 0.00   | %      |                  |   | NA     |                    |   |   | 0.00 | % |   |   | 0.00 | % |   |   | 0.00 | % |

----

| The average number of shares used in computing earnings per share was as follows: |   |   |      |   |    |   |
|-----------------------------------------------------------------------------------|--------|--------|-----------|--------|---------|--------|
|                                                                              |   |   |      |   |    |   |
| Thirteen Weeks Ended                                                              |   | Basic  |      |   | Diluted |   |
|                                                                              |   |   |      |   |    |   |
| August 1, 2010                                                                    |   |   | 3,835,509 |   |    |   | 3,835,509 |   |
| August 2, 2009                                                                    |   |   | 3,797,947 |   |    |   | 3,901,920 |   |
|                                                                              |   |   |      |   |    |   |   |   |
|                                                                              |   |   |      |   |    |   |   |   |
| Twenty-Six Weeks Ended                                                            |   | Basic  |      |   | Diluted |   |
|                                                                              |   |   |      |   |    |   |   |   |
| August 1, 2010                                                                    |   |   | 3,823,332 |   |    |   | 3,823,332 |   |
| August 2, 2009                                                                    |   |   | 3,797,947 |   |    |   | 3,856,596 |   |

----

ITEM 2

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| · | the Company’s ability to hire, train, and retain qualified personnel; |
|--------|-----------------------------------------------------------------------------|

| · | the availability of adequate capital resources for us to purchase inventory, equipment, and fixtures and make other capital expenditures necessary for store expansion; and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | the ability of our landlords and developers to find appropriate financing in the current credit market to develop property to be leased by the Company. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The Company closed four Duckwall Stores during the first quarter of fiscal 2011.  They were located in underperforming markets and were at the end of their lease term.               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | On May 13, 2010, the Company notified Jane F. Gilmartin, Executive Vice President - Chief Operating Officer, that her employment with the Company would terminate effective June 12, 2010. |
| · | Donny R. Johnson, Executive Vice President - Chief Financial Officer resigned from the Company on July 12, 2010 effective August 13, 2010.                                                 |
| · | Richard E. Wilson, President - Chief Executive Officer was named to the Board of Directors on July 27, 2010.                                                                               |

| · | Net sales decreased 5.5% to $118.2 million.  Same-store sales decreased 7.2% compared to the prior year second quarter.                                                                                                                                                                                                                                        |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gross margin percentage decreased to 31.8% of sales, compared to 33.9% in the prior year second quarter.                                                                                                                                                                                                                                                            |
| · | Net loss per share was $0.34 in the second quarter of fiscal 2011 compared to net earnings of $0.78 per share in the prior year second quarter.                                                                                                                                                                                                                     |
| · | The Company’s earnings from continuing operations before interest, taxes, depreciation and amortization, share-based compensation, preopening store costs and store transformation project costs (“Adjusted EBITDA”) for the second quarter 2011 was $1.7 million compared to the prior year second quarter of $8.8 million.  |

----

----

----

|                                                                                                                                           |   | For the Thirteen Week Periods Ended |   |   | For the Twenty-Six Week Periods Ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|---------------------------------------|--------|
| SG&A Expenses Breakout                                                                                                                     |   | August 1, 2010                      |   |   | August 2, 2009                        |   |   | August 1, 2010 |   |   | August 2, 2009 |   |
| Store support center (1)                                                                                                                       |   | $                                   | 5,685  |   |                                  |   | 5,599 |   |   |   | 11,516 |   |   |   | 12,117 |   |
| Distribution center                                                                                                                            |   |                                | 2,395  |   |                                  |   | 2,041 |   |   |   | 4,570 |   |   |   | 4,232 |   |
| 401K expense                                                                                                                                   |   |                                | 102    |   |                                  |   | 86 |   |   |   | 125 |   |   |   | 196 |   |
| Same-store SG&A                                                                                                                            |   |                                | 27,205 |   |                                  |   | 26,534 |   |   |   | 53,531 |   |   |   | 53,113 |   |
| Non same-store SG&A (2)                                                                                                                    |   |                                | 704    |   |                                  |   | (17 | )  |   |   | 1,083 |   |   |   | 3 |   |
| Share-based compensation                                                                                                                       |   |                                | 119    |   |                                  |   | 262 |   |   |   | 200 |   |   |   | 446 |   |
| SG&A as reported                                                                                                                           |   |                                | 36,210 |   |                                  |   | 34,505 |   |   |   | 71,025 |   |   |   | 70,107 |   |
| Less:                                                                                                                                          |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Share-based compensation                                                                                                                       |   |                                | (119   | )      |                                  |   | (262 | ) |   |   | (200 | ) |   |   | (446 | ) |
| Preopening store costs (2)                                                                                                                     |   |                                | (183   | )      |                                  |   | - |   |   |   | (382 | ) |   |   | - |   |
| Store transformation project costs (1)                                                                                                         |   |                                | -      |   |                                  |   | (718 | ) |   |   | - |   |   |   | (2,096 | ) |
| Adjusted SG&A                                                                                                                              |   | $                                   | 35,908 |   |                                  |   | 33,525 |   |   |   | 70,443 |   |   |   | 67,565 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted SG&A as % of sales                                                                                                                |   |                                | 30.4   | %      |                                  |   | 26.8 | % |   |   | 30.5 | % |   |   | 28.1 | % |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Sales per average selling square foot (3)                                                                                                      |   | $                                   | 25.97  |   |                                  |   | 27.70 |   |   | $ | 50.51 |   |   |   | 53.22 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Gross Margin dollars per average selling square feet (3)                                                                                       |   | $                                   | 8.26   |   |                                  |   | 9.38 |   |   | $ | 15.90 |   |   |   | 17.90 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted SG&A per average selling square foot (3)                                                                                          |   | $                                   | 7.89   |   |                                  |   | 7.43 |   |   | $ | 15.39 |   |   |   | 14.97 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Adjusted EBITDA per average selling square foot (3)(4)                                                                                         |   | $                                   | 0.37   |   |                                  |   | 1.95 |   |   | $ | 0.51 |   |   |   | 2.93 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Average inventory per average selling square feet (3)(5)(6)                                                                                    |   | $                                   | 25.84  |   |                                  |   | 28.91 |   |   | $ | 26.07 |   |   |   | 27.47 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Average selling square feet (3)                                                                                                                |   |                                | 4,550  |   |                                  |   | 4,513 |   |   |   | 4,577 |   |   |   | 4,513 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total stores operating beginning of period                                                                                                     |   |                                | 255    |   |                                  |   | 258 |   |   |   | 258 |   |   |   | 258 |   |
| Total stores operating end of period                                                                                                           |   |                                | 257    |   |                                  |   | 257 |   |   |   | 257 |   |   |   | 257 |   |
| Total stores less than twelve months old                                                                                                       |   |                                |   |   |                                  |   |   |   |   |   | 4 |   |   |   | 3 |   |
| Total non same-stores                                                                                                                          |   |                                |   |   |                                  |   |   |   |   |   | 4 |   |   |   | 3 |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental Data:                                                                                                                             |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Same-store gross margin dollar change                                                                                                          |   |                                | (1.5   | )%     |                                  |   | 1.1 | % |   |   | (1.8 | )% |   |   | 1.3 | % |
| Same-store SG&A dollar change                                                                                                              |   |                                | 2.5    | %      |                                  |   | (3.8 | )% |   |   | 0.8 | % |   |   | (3.4 | )% |
| Same-store total customer count change                                                                                                         |   |                                | (4.7   | )%     |                                  |   | (0.6 | )% |   |   | (3.9 | )% |   |   | 2.4 | % |
| Same-store average sale per ticket change                                                                                                      |   |                                | (2.3   | )%     |                                  |   | (2.3 | )% |   |   | (0.9 | )% |   |   | 0.3 | % |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                           |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| (1) Store support center includes store transformation project costs for first quarter fiscal 2010                                             |   |
| (2) Non same-stores are those stores opened in fiscal 2011 and 2010 which have not reached their fourteenth period of operation                |   |
| (3) Average selling square feet is calculated as beginning square feet plus ending square feet divided by 2                                    |   |
| (4) Adjusted EBITDA per selling square foot is calculated as Adjusted EBITDA divided by selling square feet                                    |   |
| (5) Average store level merchandise inventory for fiscal 2011 and 2010 is calculated as beginning inventory plus ending inventory divided by 2 |   |
| (6) Excludes inventory for unopened stores                                                                                                     |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                  |   |        |   |   | For the Thirteen   |   |   | Trailing Twelve |   |   | For the Thirteen   |   |   | Trailing Twelve |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|--------------------|--------|--------|-----------------|--------|--------|--------------------|--------|--------|-----------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |        |   |   | Week Periods Ended |   |   | Periods Ended   |   |   | Week Periods Ended |   |   | Periods Ended   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |   | Fiscal 2010 |   |   | May 2, 2010        |   |   | May 3, 2009     |   |   | May 2, 2010        |   |   | August 1, 2010  |   |   | August 2, 2009 |   |   | August 1, 2010 |   |
| Net earnings (loss) from continuing operations (1)                                                                                                                                                                                                                                                                                                                                                    |   | $           | 3,100  |   |               |   | (1,788 | )               |   |   | (36                | )      |   |            | 1,348  |   |   |   | (1,301 | ) |   |   | 3,044 |   |   |   | (2,997 | ) |
| Plus:                                                                                                                                                                                                                                                                                                                                                                                                 |   |        |   |   |               |   |   |            |   |   |               |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                                                                                                                                                                                                                                                                                                                                                                                              |   |        | 2,149  |   |               |   | 674    |            |   |   | 537                |   |   |            | 2,286  |   |   |   | 721 |   |   |   | 521 |   |   |   | 2,486 |   |
| Taxes (1)                                                                                                                                                                                                                                                                                                                                                                                             |   |        | 2,174  |   |               |   | (1,011 | )               |   |   | (33                | )      |   |            | 1,196  |   |   |   | (545 | ) |   |   | 1,985 |   |   |   | (1,334 | ) |
| Depreciation and amortization (1)                                                                                                                                                                                                                                                                                                                                                                     |   |        | 9,982  |   |               |   | 2,482  |            |   |   | 2,377              |   |   |            | 10,087 |   |   |   | 2,501 |   |   |   | 2,268 |   |   |   | 10,320 |   |
| Share-based compensation                                                                                                                                                                                                                                                                                                                                                                              |   |        | 757    |   |               |   | 81     |            |   |   | 185                |   |   |            | 653    |   |   |   | 119 |   |   |   | 262 |   |   |   | 510 |   |
| Preopening store costs (2)                                                                                                                                                                                                                                                                                                                                                                            |   |        | 128    |   |               |   | 199    |            |   |   | -                  |   |   |            | 327    |   |   |   | 183 |   |   |   | - |   |   |   | 510 |   |
| Store transformation project costs                                                                                                                                                                                                                                                                                                                                                                    |   |        | 2,096  |   |               |   | -      |            |   |   | 1,378              |   |   |            | 718    |   |   |   | - |   |   |   | 718 |   |   |   | - |   |
| =Adjusted EBITDA (1)(3)(4)(5)                                                                                                                                                                                                                                                                                                                                                                         |   |        | 20,386 |   |               |   | 637    |            |   |   | 4,408              |   |   |            | 16,615 |   |   |   | 1,678 |   |   |   | 8,798 |   |   |   | 9,495 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |        |   |   |               |   |   |            |   |   |               |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                                                                                                                                                                                                                                                                                                                                                                                                  |   |        | 5,164  |   |               |   | 5,186  |            |   |   | 8,208              |   |   |            | 5,186  |   |   |   | 3,690 |   |   |   | 5,446 |   |   |   | 3,690 |   |
| Debt                                                                                                                                                                                                                                                                                                                                                                                                  |   |        | 40,992 |   |               |   | 35,606 |            |   |   | 60,946             |   |   |            | 35,606 |   |   |   | 34,018 |   |   |   | 48,802 |   |   |   | 34,018 |   |
| Debt, net of cash                                                                                                                                                                                                                                                                                                                                                                                     |   | $           | 35,828 |   |               |   | 30,420 |            |   |   | 52,738             |   |   |            | 30,420 |   |   |   | 30,328 |   |   |   | 43,356 |   |   |   | 30,328 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |        |   |   |               |   |   |            |   |   |               |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) These amounts will not agree with the fiscal year end 2010 or fiscal 2010 first quarter 10-Q filing due to the five stores the Company closed since the second quarter of fiscal 2010. These stores are now shown in discontinued operations.                                                                                                                                                |   |
| (2) These costs are not consistent quarter to quarter as the Company does not open the same number of stores in each quarter of each fiscal year. These costs are directly associated with the number of stores that have been or will be opened and are incurred prior to the grand opening of each store.                                                                            |   |
| (3) For the trailing twelve periods ended August 1, 2010 the average open weeks for the Company's two non same-stores was 14 weeks.                                                                                                                                                                                                                                                              |   |
| (4) The Company implemented new initiatives for fiscal year 2010. The fiscal 2010 initiatives include, but are not limited to, reduced point-of-sale hardware lease expense, energy expense and accident reduction programs. These initiatives achieved approximately $1.4 million in SG&A savings for the twenty-six weeks of fiscal 2010 when compared to the prior year same period. |   |
| (5) The store transformation project completed in fiscal 2010 continues to provide SG&A savings in fiscal 2011. This initiative achieved approximately $458 in SG&A savings for the twenty-six weeks of fiscal 2011 when compared to the prior year same period.                                                                                                                    |   |

----

|                            |   | For the Thirteen Week Periods Ended |   |   | For the Twenty-Six Week Periods Ended |   |
|---------------------------------|--------|-------------------------------------|--------|--------|---------------------------------------|--------|
|                            |   | August 1, 2010                      |   |   | August 2, 2009                        |   |   | August 1, 2010 |   |   | August 2, 2009 |   |
| Merchandise Category:           |   |                                |   |   |                                  |   |   |   |   |   |   |   |
| Consumables and commodities     |   |                                | 40     | %      |                                  |   | 37 | % |   |   | 41 | % |   |   | 39 | % |
| Hardlines                       |   |                                | 30     | %      |                                  |   | 32 | % |   |   | 29 | % |   |   | 30 | % |
| Apparel and accessories         |   |                                | 16     | %      |                                  |   | 17 | % |   |   | 16 | % |   |   | 16 | % |
| Home furnishings and décor |   |                                | 14     | %      |                                  |   | 14 | % |   |   | 14 | % |   |   | 15 | % |
|                            |   |                                |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total                           |   |                                | 100    | %      |                                  |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

----

ITEM 3

ITEM 4

----

PART II

ITEM 1

ITEM 1A

ITEM 2.

|                                        |   |            |   |   |               |   |   | Total Number          |   |   | Maximum Number        |   |
|---------------------------------------------|--------|-----------------|--------|--------|--------------------|--------|--------|-----------------------|--------|--------|-----------------------|--------|
|                                        |   |            |   |   |               |   |   | of Shares             |   |   | of Shares             |   |
|                                        |   | Total Number Of |   |   |               |   |   | Purchased as Part     |   |   | that May Yet          |   |
|                                        |   | Shares          |   |   | Average Price Paid |   |   | of Publicly Announced |   |   | Be Purchased Under    |   |
| Period                                      |   | Purchased       |   |   | per Share          |   |   | Plans or Programs     |   |   | the Plans or Programs |   |
| As of May 2, 2010                           |   |            | 25,534 |   |               | $      | 15.16  |                  |   |   | 25,534                |   |   |   | 174,466 |   |
|                                        |   |            |   |   |               |   |   |                  |   |   |                  |   |   |   |   |   |
| Second Quarter:                        |   |            |   |   |               |   |   |                  |   |   |                  |   |   |   |   |   |
|     05/03/10 - 05/30/10 |   |            | -      |   |               |   | -      |                  |   |   | -                     |   |   |   | 174,466 |   |
|     05/31/10 - 07/04/10 |   |            | -      |   |               |   | -      |                  |   |   | -                     |   |   |   | 174,466 |   |
|     07/05/10 - 08/01/10 |   |            | -      |   |               |   | -      |                  |   |   | -                     |   |   |   | 174,466 |   |
|                                        |   |            | -      |   |               |   |   |                  |   |   | -                     |   |   |   | 174,466 |   |
|                                        |   |            |   |   |               |   |   |                  |   |   |                  |   |   |   |   |   |
| As of August 1, 2010                        |   |            | 25,534 |   |               | $      | 15.16  |                  |   |   | 25,534                |   |   |   | 174,466 |   |

ITEM 3

ITEM 4

ITEM 5

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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 3, 2008 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.                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                |
| 10.1   | Employment Agreement dated January 5, 2006 between the Company and Tom L. Canfield, Jr. is incorporated by reference as Exhibit 10.1 to the Current Report on Form 10-K of the Company dated April 15, 2010.                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                |   |
| 10.2   | Employment Agreement dated August 1, 2007 between the Company and Donny R. Johnson is incorporated by reference as Exhibit 10.2 to the Current Report on Form 10-K of the Company dated April 15, 2010.                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                |   |
| 10.3   | Employment Agreement dated January 5, 2006 between the Company and Jon A. Ramsey is incorporated by reference as Exhibit 10.3 to the Current Report on Form 10-K of the Company dated April 15, 2010.                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                |   |
| 10.4   | Addendum to Employment Agreement dated December 31, 2008 between the Company and Tom L. Canfield, Jr. is incorporated by reference as Exhibit 10.4 to the Current Report on Form 10-K of the Company dated April 15, 2010.                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                |   |
| 10.5   | Addendum to Employment Agreement dated December 31, 2008 between the Company and Donny R. Johnson is incorporated by reference as Exhibit 10.5 to the Current Report on Form 10-K of the Company dated April 15, 2010.                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                |   |
| 10.6   | Addendum to Employment Agreement dated December 31, 2008 between the Company and Jon A. Ramsey is incorporated by reference as Exhibit 10.6 to the Current Report on Form 10-K of the Company dated April 15, 2010.                                                                                                 |

| 10.7   | Employment Agreement dated December 11, 2009 between the Company and James M. Spencer is incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K of the Company dated December 17, 2009.                                                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.8   | Separation Agreement and Release, dated as of February 4, 2009, between the Company and Phillip D. Hixon is incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K of the Company dated February 4, 2009.                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.9   | Addendum to Employment Agreement effective as of May 31, 2009 between the Company and Mr. Zigerelli is incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K of the Company dated June 3, 2009.                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.10  | Addendum to Employment Agreement effective as of May 31, 2009 between the Company and Ms. Gilmartin is incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K of the Company dated June 3, 2009.                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.11  | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements is incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K of the Company dated January 12, 2010.  On December 31, 2009, Royce Winsten, the Chairman of the Board of Directors of the Company, was awarded a special bonus for the amount of $50,000. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.12  | Separation Release, dated as of February 1, 2010, between the Company and James M. Spencer, is incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K of the Company dated February 1, 2010.                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.13  | Amended and Restated Credit Agreement, dated as of February 10, 2010, between the Company and Bank of America, N.A., and Wells Fargo Retail Finance, LLC is incorporated by reference to the Current Report on Form 10-Q of the Company dated June 10, 2010.                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.14  | Employment Agreement dated December 11, 2009 between the Company and Richard E. Wilson is incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K of the Company dated February 25, 2010.                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.15  | Resignation of Director.  On March 2, 2010 James V. Worth resigned from the Board of Directors is incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K of the Company dated March 2, 2010.                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.16  | Separation Agreement and Release, dated as of March 17, 2010, between the Company and Lawrence J. Zigerelli, is incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K of the Company dated March 16, 2010.                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.17  | Separation Agreement and Release, dated as of May 13, 2010, between the Company and Jane F. Gilmartin, is incorporated by reference to Exhibit 10.17 to the Current Report on Form 8-K of the Company dated May 13, 2010.                                                                                                                                                                                     |

----

| 31.1   | Certification of Chief Executive Officer of Duckwall-ALCO Stores, Inc. dated September 9, 2010, 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 2003.                                                                                                                                                        |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 31.2   | Certification of Principal Financial Officer of Duckwall-ALCO Stores, Inc. dated September 9, 2010, 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 2003.                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.1   | Certification of Chief Executive Officer of Duckwall-ALCO Stores, Inc, dated September 9, 2010, 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 August 1, 2010 and is not treated as filed in reliance upon § 601(b)(32) of Regulations S-K.      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.2   | Certification of Principal Financial Officer of Duckwall-ALCO Stores, Inc., dated September 9, 2010, 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 August 1, 2010 and is not treated as filed in reliance upon § 601(b)(32) of Regulations S-K. |

----

| Signature and Title                          |   |   | Date               |
|----------------------------------------------|--------|--------|--------------------|
|                                         |   |   |               |
| /s/ Richard E. Wilson                        |   |   | September 24, 2010 |
| Richard E. Wilson                            |   |   |               |
| President and Chief Executive Officer        |   |   |               |
| (Principal Executive Officer)                |   |   |               |
|                                         |   |   |               |
| /s/ Jon A. Ramsey                            |   |   | September 24, 2010 |
| Jon A. Ramsey                                |   |   |               |
| Vice President – Controller            |   |   |               |
| (Principal Financial and Accounting Officer) |   |   |               |
|                                         |   |   |               |
| /s/ Raymond A.D. French                      |   |   | September 24, 2010 |
| Raymond A.D. French                          |   |   |               |
| Director                                     |   |   |               |
|                                         |   |   |               |
| /s/ Dennis E. Logue                          |   |   | September 24, 2010 |
| Dennis E. Logue                              |   |   |               |
| Director                                     |   |   |               |
|                                         |   |   |               |
| /s/ Lolan C. Mackey                          |   |   | September 24, 2010 |
| Lolan C. Mackey                              |   |   |               |
| Director                                     |   |   |               |
|                                         |   |   |               |
| /s/ Royce L. Winsten                         |   |   | September 24, 2010 |
| Royce L. Winsten                             |   |   |               |
| Director - Chairman of Board                 |   |   |               |

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