**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

**OR**

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

**DUCKWALL-ALCO      STORES, INC.**

| 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**            |   |
|                                 | Item                1. | Financial                Information. | **3** |
|                                 | Item                2. | Management's                Discussion and Analysis of Financial Condition and Results of Operations. | **9** |
|                                 | Item                3. | Quantitative                and Qualitative Disclosures About Market Risk. | **14** |
|                                 | Item                4. | Controls                and Procedures. | **14** |
|                                 |   |
| **PART                II**           | ** ** |
|                                 | Item                1. | Legal                Proceedings. | **16** |
|                                 | Item                1A. | Risk                Factors. | **16** |
|                                 | Item                2. | Unregistered                Sales of Equity Securities and Use of Proceeds. | **16** |
|                                 | Item                3. | Defaults                Upon Senior Securities. | **17** |
|                                 | Item                4. | Submission                of Matters to a Vote of Security Holders. | **17** |
|                                 | Item                5. | Other                Information. | **17** |
|                                 | Item                6. | Exhibits. | **17** |
|                                 |   |
| Signature                            | **17** |

----

**PART      I - FINANCIAL INFORMATION**

**ITEM      1. **
**FINANCIAL      STATEMENTS**

| **Duckwall-ALCO                  Stores, Inc.**                                                          |
|----------------------------------------------------------------------------------------------------------|
| **And                  Subsidiaries**                                                                    |
| **Consolidated                  Balance Sheets**                                                         |
| (Dollars                  in Thousands)                                                                  |
|                                                                                                     |   |   |   |   |   |   |   |
| **Assets**                                                                                               |
|                                                                                                          |   |   | April                  29, |   |   | January                  28, |   |
|                                                                                                     |   |   | 2007 |   |   | 2007 |   |
|                                                                                                          |   |   | (Unaudited)  |   |   |  |   |
| Current                  assets:                                                                         |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                               |   | $ | 4,986 |   | $ | 2,983 |   |
| Receivables                                                                                              |   |   | 4,571 |   |   | 3,059 |   |
| Prepaid                  income taxes                                                                    |   |   | 1,780 |   |   | -  |   |
| Inventories                                                                                              |   |   | 158,820 |   |   | 151,406 |   |
| Prepaid                  expenses                                                                        |   |   | 2,957 |   |   | 1,561 |   |
| Deferred                  income taxes                                                                   |   |   | 3,037 |   |   | 3,037 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Total                  current assets                                                                    |   |   | 176,151 |   |   | 162,046 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Property                  and equipment, at cost:                                                        |   |   |   |   |   |   |   |
| Land                  and land improvements                                                              |   |   | 1,719 |   |   | 1,719 |   |
| Buildings                  and building improvements                                                     |   |   | 12,034 |   |   | 12,023 |   |
| Furniture,                  fixtures and equipment                                                       |   |   | 57,400 |   |   | 56,703 |   |
| Transportation                  equipment                                                                |   |   | 1,489 |   |   | 1,491 |   |
| Leasehold                  improvements                                                                  |   |   | 15,679 |   |   | 15,410 |   |
| Construction                  work in progress                                                           |   |   | 298 |   |   | 138 |   |
| Total                  property and equipment                                                            |   |   | 88,619 |   |   | 87,484 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Less                  accumulated depreciation                                                           |   |   | 65,400 |   |   | 64,451 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Net                  property and equipment                                                              |   |   | 23,219 |   |   | 23,033 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Property                  under capital leases                                                           |   |   | 24,571 |   |   | 24,571 |   |
| Less                  accumulated amortization                                                           |   |   | 18,124 |   |   | 17,618 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Net                  property under capital leases                                                       |   |   | 6,447 |   |   | 6,953 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Other                  non-current assets                                                                |   |   | 35 |   |   | 44 |   |
| Deferred                  income taxes                                                                   |   |   | 5,580 |   |   | 3,344 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| Total                  assets                                                                            |   | $ | 211,432 |   | $ | 195,420 |   |
|                                                                                                     |   |   |   |   |   |   |   |
| See                  accompanying notes to unaudited consolidated financial                  statements. |   |   |   |   |   |   |   |

----

| **Duckwall-ALCO                Stores, Inc.**                                                        |
|------------------------------------------------------------------------------------------------------|
| **And                Subsidiaries**                                                                  |
| **Consolidated                Balance Sheets**                                                       |
| (Dollars                in Thousands, except share amounts)                                          |
|                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                 |   |   |   |   |   |   |   |
| **Liabilities                and Stockholders' Equity**                                              |
|                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                      |   |   | April                29, |   |   | January                28, |   |
|                                                                                                 |   |   | 2007 |   |   | 2007 |   |
|                                                                                                      |   |   | (Unaudited)  |   |   |   |   |
| Current                liabilities:                                                                  |   |   |   |   |   |   |   |
| Current                maturities of capital lease obligations                                       |   | $ | 2,060 |   | $ | 2,128 |   |
| Accounts                payable                                                                      |   |   | 39,487 |   |   | 35,263 |   |
| Income                taxes payable                                                                  |   |   | - |   |   | 1,915 |   |
| Accrued                salaries and commissions                                                      |   |   | 4,012 |   |   | 4,180 |   |
| Accrued                taxes other than income                                                       |   |   | 5,173 |   |   | 4,242 |   |
| Self-insurance                claim reserves                                                         |   |   | 4,719 |   |   | 4,322 |   |
| Other                current liabilities                                                             |   |   | 3,714 |   |   | 3,634 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| Total                current liabilities                                                             |   |   | 59,165 |   |   | 55,684 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| Notes                payable under revolving loan                                                    |   |   | 34,076 |   |   | 21,077 |   |
| Capital                lease obligations - less current maturities                                   |   |   | 6,305 |   |   | 6,783 |   |
| Deferred                gain on leases                                                               |   |   | 5,276 |   |   | 5,378 |   |
| Other                noncurrent liabilities                                                          |   |   | 2,477 |   |   | 438 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| Total                liabilities                                                                     |   |   | 107,299 |   |   | 89,360 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| Stockholders'                equity:                                                                 |   |   |   |   |   |   |   |
| Common                stock, $.0001 par value, authorized                                            |   |   |   |   |   |   |   |
| 20,000,000                shares; issued and outstanding                                             |   |   |   |   |   |   |   |
| 3,804,216                shares and 3,790,386 shares respectively                                    |   |   | 1 |   |   | 1 |   |
| Additional                paid-in capital                                                            |   |   | 37,735 |   |   | 37,315 |   |
| Retained                earnings                                                                     |   |   | 66,397 |   |   | 68,744 |   |
| Total                stockholders' equity                                                            |   |   | 104,133 |   |   | 106,060 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| Total                liabilities and stockholders' equity                                            |   | $ | 211,432 |   | $ | 195,420 |   |
|                                                                                                 |   |   |   |   |   |   |   |
|                                                                                                 |   |   |   |   |   |   |   |
| See                accompanying notes to unaudited consolidated financial                statements. |   |   |   |

----

| **Duckwall-ALCO                    Stores, Inc.**                                                            |   |
|--------------------------------------------------------------------------------------------------------------|--------|
| **And                    Subsidiaries**                                                                      |   |
| **Consolidated                    Statements of Operations**                                                 |   |
| (Dollars                    in thousands, except per share amounts)                                          |
| (Unaudited)                                                                                                  |
|                                                                                                         |   | For                    the Thirteen Week  |
|                                                                                                         |   | Periods                    Ended  |
|                                                                                                              |   |   | April                    29, 2007 |   |   | April                    30, 2006 |   |
| Net                    sales                                                                                 |   | $ | 111,429 |   | $ | 108,283 |   |
| Cost                    of sales                                                                             |   |   | 77,039 |   |   | 75,960 |   |
| Gross                    margin                                                                              |   |   | 34,390 |   |   | 32,323 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| Selling,                    general and administrative                                                       |   |   | 35,340 |   |   | 29,625 |   |
| Depreciation                    and amortization                                                             |   |   | 1,864 |   |   | 1,604 |   |
| Total                    operating expenses                                                                  |   |   | 37,204 |   |   | 31,229 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| Operating                    income (loss) from continuing operations                                        |   |   | (2,814 | ) |   | 1,094 |   |
| Interest                    expense                                                                          |   |   | 758 |   |   | 571 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| Earnings                    (loss) from continuing operations before income taxes                            |   |   | (3,572 | ) |   | 523 |   |
| Income                    tax expense (benefit)                                                              |   |   | (1,412 | ) |   | 198 |   |
| Earnings                    (loss) from continuing operations                                                |   |   | (2,160 | ) |   | 325 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| Earnings                    (loss) from discontinued operations, net of income taxes                         |   |   | (72 | ) |   | 216 |   |
| Net                    earnings (loss)                                                                       |   |   | ($2,232 | ) |   | 541 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| Earnings                    (loss) per share                                                                 |   |   |   |   |   |   |   |
| Basic                                                                                                        |   |   |   |   |   |   |   |
| Continuing                    operations                                                                     |   |   | (0.57 | ) |   | 0.08 |   |
| Discontinued                    operations                                                                   |   |   | (0.02 | ) |   | 0.06 |   |
| Net                    earnings (loss)                                                                       |   |   | (0.59 | ) |   | 0.14 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| Diluted                                                                                                      |   |   |   |   |   |   |   |
| Continuing                    operations                                                                     |   |   | (0.57 | ) |   | 0.08 |   |
| Discontinued                    operations                                                                   |   |   | (0.02 | ) |   | 0.06 |   |
| Net                    earnings (loss)                                                                       |   |  $ | (0.59 | ) | $ | 0.14 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| See                    accompanying notes to unaudited consolidated financial                    statements. |   |   |   |   |   |   |   |

----

| **Duckwall-ALCO                      Stores, Inc.**                                                              |   |
|------------------------------------------------------------------------------------------------------------------|--------|
| **And                      Subsidiaries**                                                                        |   |
| **Consolidated                      Statements of Cash Flows**                                                   |   |
| (Dollars                      in thousands)                                                                      |   |
| (Unaudited)                                                                                                      |   |
|                                                                                                             |   |   |   |   |   |   |   |
|                                                                                                                  |   |   | For                      the Thirteen Week     |   |
|                                                                                                                  |   |   | Periods                      Ended  |   |
|                                                                                                                  |   |   | April                      29, 2007  |   |   | April                      30, 2006 |   |
|                                                                                                             |   |   |   |   |   |   |   |
| Cash                      flows from operating activities:                                                       |   |   |   |   |   |   |   |
| Net                      earnings (loss)                                                                    |   | $ | (2,232 | ) |  $ | 541 |   |
| Adjustments                      to reconcile net earnings to net cash                                      |   |   |   |   |   |   |   |
| used                      in operating activities:                                                          |   |   |   |   |   |   |   |
|  Depreciation                      and amortization                                                         |   |   | 1,870 |   |   | 1,605 |   |
|  Amortization                      of debt financing costs                                                  |   |   | 9 |   |   | 26 |   |
|  Amortization                      of deferred gain on sale-leaseback                                       |   |   | (102 | ) |   | (33 | ) |
|  Gain                      on sale of assets                                                                |   |   | - |   |   | (351 | ) |
|  Stock                      compensation expense                                                            |   |   | 282 |   |   | 46 |   |
|  Tax                      benefit of stock options exercised                                                |   |   | 11 |   |   | 4 |   |
|  Changes                      in:                                                                           |   |   |   |   |   |   |   |
|  Receivables                                                                                                |   |   | (1,512 | ) |   | (1,184 | ) |
|  Prepaid                      expenses                                                                      |   |   | (1,396 | ) |   | 309 |   |
|  Inventories                                                                                                |   |   | (7,414 | ) |   | (8,059 | ) |
|  Accounts                      payable                                                                      |   |   | 1,648 |   |   | 3,290 |   |
|  Income                      taxes payable                                                                  |   |   | (3,572 | ) |   | (815 | ) |
|  Accrued                      salaries and commissions                                                      |   |   | (168 | ) |   | (1,944 | ) |
|  Accrued                      taxes other than income                                                       |   |   | 931 |   |   | 410 |   |
|  Self-insured                      claim reserves                                                           |   |   | 397 |   |   | 222 |   |
|  Deferred                      income taxes                                                                 |   |   | (75 | ) |   | (59 | ) |
|  Other                      assets and liabilities                                                          |   |   | (280 | ) |   | (2,167 | ) |
| Net                      cash used in operating activities                                                       |   |   | (11,603 | ) |   | (8,159 | ) |
| Cash                      flows used in investing activities:                                                    |   |   |   |   |   |   |   |
|  Proceeds                      from the sale of assets                                                      |   |   | - |   |   | 586 |   |
|  Acquisition                      of:                                                                       |   |   |   |   |   |   |   |
| Fixtures,                      equipment and leasehold improvements                                              |   |   | (1,549 | ) |   | (2,863 | ) |
| Net                      cash used in investing activities                                                       |   |   | (1,549 | ) |   | (2,277 | ) |
| Cash                      flows provided by financing activities:                                                |   |   |   |   |   |   |   |
| Net                      borrowings under revolving loan                                                    |   |   | 12,999 |   |   | 13,238 |   |
| Bank                      overdraft                                                                         |   |   | 2,576 |   |   | (48 | ) |
| Proceeds                      from exercise of outstanding stock options                                    |   |   | 116 |   |   | 43 |   |
| Excess                      tax benefit on stock options exercised                                          |   |   | 11 |   |   | 5 |   |
| Principal                      payments under capital lease obligations                                     |   |   | (547 | ) |   | (465 | ) |
| Net                      cash provided by financing activities                                                   |   |   | 15,155 |   |   | 12,773 |   |
|                                                                                                             |   |   |   |   |   |   |   |
| Net                      increase in cash and cash equivalents                                                   |   |   | 2,003 |   |   | 2,337 |   |
| Cash                      and cash equivalents at beginning of period                                            |   |   | 2,983 |   |   | 472 |   |
|                                                                                                             |   |   |   |   |   |   |   |
| Cash                      and cash equivalents at end of period                                                  |   |  $ | 4,986 |   |  $ | 2,809 |   |
|                                                                                                             |   |   |   |   |   |   |   |
| Cash                      paid during the period for:                                                            |   |   |   |   |   |   |   |
| Interest                                                                                                    |   | $ | 625 |   | $ | 421 |   |
| Income                      taxes                                                                           |   | $ | 2,284 |   | $ | 1,222 |   |
|                                                                                                             |   |   |   |   |   |   |   |
| See                      accompanying notes to unaudited consolidated financial                      statements. |   |   |   |   |   |   |   |

----

**                     Duckwall-ALCO Stores, Inc.**

**And      Subsidiaries**

**Notes      to Unaudited Consolidated Financial Statements**

*Share-Based Payment*

*Stock      Incentive Plan*

*Black-Scholes*

----

|                                             |   | For                  the Thirteen Week  |
|--------------------------------------------------|--------|----------------------------------------------|
|                                             |   | Periods                  Ended          |
|                                             |   |                                         | April                  29, 2007  |   |   | April                  30, 2006 |   |
| Stock                  options granted           |   |                                         | 20,000 |   |   | 20,000 |   |
| Weighted                  average exercise price |   | $                                            | 38.06 |   | $ | 25.79 |   |
| Weighted                  average fair value     |   | $                                            | 11.94 |   | $ | 10.56 |   |

|                                                    |   | For                the Thirteen Week |                                |
|---------------------------------------------------------|--------|--------------------------------------|-------------------------------------|
|                                                    |   | Periods                Ended         |                                |
|                                                    |   |                                 | April                29, 2007  |   |   | April                30, 2006 |   |
| Expected                price volatility                |   |                                 | 32.4                                | % |   | 37.9 | % |
| Risk-free                interest rate                  |   |                                 | 4.7                                 | % |   | 4.8 | % |
| Weighted                average expected lives in years |   |                                 | 3.8                                 |   |   | 5.0 |   |
| Dividend                yield                           |   |                                 | 0.00                                | % |   | 0.00 | % |

*Accounting              for Uncertainty in Income Taxes - an interpretation of FASB Statement              No. 109 (FIN 48), *

----

| The                average number of shares used in computing earnings per share was                as                follows: |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                           |   |   |   |   |   |
| Thirteen                Weeks Ended                                                                                            |   | Basic |   | Diluted |   |
|                                                                                                                           |   |   |   |   |   |   |   |
| April                29, 2007                                                                                                  |   |   | 3,800,120 |   |   | 3,800,120 |   |
| April                30, 2006                                                                                                  |   |   | 3,788,184 |   |   | 3,810,329 |   |
|                                                                                                                           |   |   |   |   |   |   |   |

*Fair      Value Measurement*

*The Fair Value Option for Financial      Assets and Financial Liabilities - Including an Amendment of SFAS 115*

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

**                    (Dollars in t**
**housands      except per share amounts) **

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

***OVERVIEW***

*Operations*

*Strategy.*

----

*Recent      Events*

| ·   | Net                sales increased 2.9% to $111,429. Same store sales increased 1.2%                compared                to the prior year first quarter. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Gross                margin percentage increased to 30.9% of sales, when compared to 29.9%                in                the prior year first quarter. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Loss                  per share was ($0.59) in the first quarter of fiscal 2008 compared                  to                  earnings of $.14 per share in the prior year first                  quarter. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                    Company’s loss before interest, taxes, depreciation and amortization                    (“EBITDA”) from continuing operations for the first quarter 2008 was                    ($668) compared to $2,744 in the prior year first                    quarter. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Company’s return on average equity (“ROE”) for the first quarter 2008 was                (2.1%) compare to .5% for the prior year first quarter. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*SG&A      Detail; Certain Financial Measures *

***RESULTS      OF OPERATIONS***

**Thirteen      Weeks Ended April 9, 2007 Compared to Thirteen Weeks Ended April 30,      2006.**

***Net      Sales***

***Gross        Margin***

***      SG&A***

----

      -  Increased              $750 for non-comparable store expenses. 
      -  The              timing of the recognition of CO-OP offset resulted in $900 less              offset.  Fiscal 2008 CO-OP offset is expected to be consistent with              fiscal 2007. 
      -  Increased              IT expenses of $832 which will continue to trend higher              than fiscal year 2007.  Fiscal 2008 will be the first complete fiscal              year that the Company's IT initiative. 
      -  Increased              maintenance expenses of $620.  Maintenance expenses              for remaining quarters of fiscal 2008 are expected to be consistent              with              fiscal 2007.  
      -  Increased              professional accounting fees of $450 due to increased audit fees for              fiscal              2007.   
      -  Increased              vacation expense of $400.  The vacation expense for              fiscal 2008 is expected to be consistent with fiscal 2007. 
      -  Additional              planned overhead associated with preparation of more              aggressive store rollout plan and strengthening our internal controls              of              $250.  These expenses are expected to trend higher than fiscal year              2007. 
      -  Increased              inventory services fees of $247 due to accelerated store              physical inventories.  Inventory service fees for fiscal 2008 are              expected to be consistent with fiscal 2007. 

***Depreciation          and Amortization***

***Interest      Expense***

***Income      Taxes***

***Earnings        (Loss) from Discontinued Operations***

***SG&A      DETAIL; CERTAIN FINANCIAL MEASURES***

----

|                                                                                                                                                   |   | For                the Thirteen Week Periods Ended |                          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|-------------------------------|
| **SG&A                Expenses Breakout**                                                                                                          |   |                                               | April                29, 2007 |   |   | April                30, 2006 |   |
| General                Office                                                                                                                          |   |  $                                            | 4,893                         |   |  $ | 2,383 |   |
| Distribution                Center                                                                                                                     |   |                                               | 2,291                         |   |   | 2,263 |   |
| 401K/Profit                Sharing                                                                                                                     |   |                                               | 121                           |   |   | 115 |   |
| Comparable                Stores SG&A                                                                                                              |   |                                               | 26,463                        |   |   | 24,272 |   |
| Non                Comparable Stores SG&A (5)                                                                                                      |   |                                               | 1,290                         |   |   | 546 |   |
| Stock                Option Expense                                                                                                                    |   |                                               | 282                           |   |   | 46 |   |
| Final                SG&A as reported on 1st Qtr 10Q                                                                                               |   |  $                                            | 35,340                        |   |  $ | 29,625 |   |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| Return                on Average Equity (ROE) (4)                                                                                                      |   |                                               | (2.12                         | )% |   | 0.53 | % |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| Net                Sales                                                                                                                               |   | $                                                  | 111,429                       |   |  $ | 108,283 |   |
| SG&A                as % of Sales                                                                                                                  |   |                                               | 31.72                         | % |   | 27.36 | % |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| SG&A                per average selling square foot                                                                                                |   | $                                                  | 8.46                          |   |  $ | 7.26 |   |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| EBITDA                (2)                                                                                                                              |   |                $                              | (668                          | ) |                $ | 2,744 |   |
| EBITDA                per average selling square foot (3)                                                                                              |   |                $                              | (0.16                         | )  |                $ | 0.67 |   |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| Sales                per average selling square feet (1)                                                                                               |   |                                               |                          |   |   |   |   |
| ALCO                                                                                                                                                   |   | $                                                  | 27.36                         |   |                $ | 27.26 |   |
| Duckwall                                                                                                                                               |   | $                                                  | 19.27                         |   |                $ | 19.65 |   |
| Total                                                                                                                                                  |   | $                                                  | 26.66                         |   |                $ | 26.58 |   |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| Average                Selling Square Feet (1)                                                                                                         |   |                                               | 4,179                         |   |   | 4,080 |   |
| Average                Square Feet % Change                                                                                                            |   |                                               | 2.4                           | % |   | 3.9 | % |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| Total                Stores Operating beginning of Period                                                                                              |   |                                               | 256                           |   |   | 251 |   |
| Total                Stores Operating end of Period                                                                                                    |   |                                               | 255                           |   |   | 254 |   |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| Supplemental                Data:                                                                                                                      |   |                                               |                          |   |   |   |   |
| Same                Store Sales Change                                                                                                                 |   |                                               | 1.2                           | % |   | 6.6 | % |
| Total                customer count change                                                                                                             |   |                                               | (2.7                          | )% |   | 5.0 | % |
| Average                sale per ticket change                                                                                                          |   |                                               | 3.7                           | % |   | 6.4 | % |
|                                                                                                                                                   |   |                                               |                          |   |   |   |   |
| (1)                Average selling square feet is (beginning square feet plus ending                square                feet) divided by 2.          |
| (2)                EBITDA is earnings (loss) from continuing operations before interest,                taxes, depreciation                            |
| and                amortization, and stock option expense.                                                                                             |   |                                               |                          |   |   |   |   |
| (3)                EBITDA per selling square foot is a non-GAAP financial measure and                is                calculated as EBITDA            |
| divided                by selling square feet.                                                                                                         |   |                                               |                          |   |   |   |   |
| (4)                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                                                                                                      |   |                                               |                          |   |   |   |   |
| (5)                Non Comparable Stores are those stores opened in Fiscal 2008 & Fiscal                2007.                                      |   |                                               |                          |

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***Fiscal      2008 Compared to Fiscal 2007***

***Reconciliation      and Explanation of Non-GAAP Financial Measures***

|                                                                           |   | For                the Thirteen Week Periods  |
|---------------------------------------------------------------------------|--------|---------------------------------------------------------|
|                                                                           |   | Ended                                              |
|                                                                           |   |                                                    | April                29, 2007  |   |   | April                30, 2006 |   |
|                                                                      |   |                                                    |   |   |   |   |   |
| Earnings                (loss) from continuing operations                 |   | $                                                       | (2,160 | ) |  $ | 325  |   |
| Plus                interest                                              |   |                                                    | 758 |   |   | 571 |   |
| Plus                taxes                                                 |   |                                                    | (1,412 | ) |   | 198 |   |
| Plus                depreciation and amortization                         |   |                                                    | 1,864 |   |   | 1,604 |   |
| Plus                stock option expense                                  |   |                                                    | 282 |   |   | 46 |   |
| =EBITDA                                                                   |   | $                                                       | (668 | ) |  $ | 2,744 |   |
|                                                                      |   |                                                    |   |   |   |   |   |
|                                                                      |   |                                                    |   |   |   |   |   |
| Earnings                (loss) from continuing operations per square foot |   | $                                                       | (0.52 | ) |  $ | 0.08 |   |
| Plus                interest per square foot                              |   |                                                    | 0.18 |   |   | 0.14 |   |
| Plus                taxes per square foot                                 |   |                                                    | (0.34 | ) |   | 0.05 |   |
| Plus                depreciation and amortization per square foot         |   |                                                    | 0.45 |   |   | 0.39 |   |
| Plus                stock option expense per square foot                  |   |                                                    | 0.07 |   |   | 0.01 |   |
| =EBITDA                per selling square foot                            |   | $                                                       | (0.16 | ) |  $ | 0.67 |   |

***LIQUIDITY      AND CAPITAL RESOURCES***

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***BUSINESS      OPERATIONS***

|                                                                               | Percentage                of Sales |
|------------------------------------------------------------------------------------|------------------------------------|
|                                                                               | 2008                               |   | 2007 |
| Merchandise                Category:                                               |                               |   |   |
| Consumables                and commodities                                         | 32%                                |   | 32% |
| Electronics,                entertainment, sporting goods, toys and outdoor living | 24%                                |   | 24% |
| Apparel                and accessories                                             | 19%                                |   | 19% |
| Home                furnishings and décor                                     | 14%                                |   | 14% |
| Other                                                                              | 11%                                |   | 11% |
|                                                                               |                               |   |   |
| Total                                                                              | 100%                               |   | 100% |
|                                                                               |                               |   |   |

***NEW        ACCOUNTING        STANDARDS***

*Fair        Value Measurement*

*The Fair Value Option for Financial        Assets and Financial Liabilities - Including an Amendment of SFAS 115*

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET      RISK**

***INSTRUMENTS      ENTERED INTO OTHER THAN FOR TRADING - INTEREST RATE      RISK***

**ITEM      4. CONTROLS AND PROCEDURES**

----

*Internal      Control- Integrated Framework *
* *

----

| ·   | in                evaluating the overall control environment, the Company recognizes                its                need in this area.  The Company began a process of evaluating its                level of skill in finance, tax and accounting prior to this year.  To                assist our staff, in fiscal 2006, the Company engaged an external                resource                to assist in analyzing and evaluating its internal control structure,                including development of additional controls and improvement of existing                controls.  The Company began hiring and staffing an internal audit                department in the fourth quarter of fiscal 2007.  The Company                continues to evaluate the need for training in internal financial                control                procedures throughout the organization.  This will include the review                of the level of skill in finance, tax and accounting to adequately                assure                proper supervisory review and monitoring activities over certain                financial                reporting matters and controls.  Emphasis will be made to assure an                adequate control consciousness exists throughout the                organization. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | has                begun a review and plans to document all policies and procedures                relating                to the accounting for fixed assets in a Capitalized Asset Policy,                which                will define controls to ensure compliance to U.S. generally accepted                accounting principles and to assure the accuracy of all fixed asset                activity. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | is                currently in the process of establishing the appropriate segregation                between human resources and payroll. This process is planned to be                completed by the second quarter of fiscal 2008. The reconciliation                of                employee payroll withholding amounts as reported on the payroll register                to the amounts recorded in the general ledger is planned to be reviewed                by                management personnel on a monthly basis. Evaluation and training                of                personnel responsible for reconciliations to assure proper staffing                in                these areas have begun and is planned to be completed by the second                quarter of fiscal 2008. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | has                initiated the development and implementation of controls over the                development and review of the financial statements and continues                to refine                and document those controls and procedures. The Company is currently                evaluating its staffing needs and will make adjustments and additions                in                personnel as necessary to adequately staff with skilled finance,                tax and                accounting resources to perform the necessary reviews of financial                statements. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | has                developed and is testing procedures to analyze and monitor existing                accounting policies for significant accrued liabilities to ensure                that                those policies are in accordance with U.S. generally accepted accounting                principles. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | has                developed and is testing procedures to analyze and monitor the LIFO                and                lower of cost or net realizable value calculations to ensure that                those                calculations are in accordance with U.S. generally accepted accounting                principles. The Company has also developed and is testing procedures                to                analyze and monitor the estimates used by management to ensure that                those                estimates accurately reflect current trends. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**PART      II - OTHER INFORMATION**

**ITEM      1. **
**LEGAL      PROCEEDINGS**

**ITEM      1A. **
**RISK      FACTORS**

**ITEM      2. **
**UNREGISTERED      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

|                                                  |                                   |                                     |                                       | **Maximum                  Number**         |
|-------------------------------------------------------|----------------------------------------|------------------------------------------|--------------------------------------------|---------------------------------------------|
|                                                  |                                   |                                     | **Total                  Number of**       | **(or                  Approximate Dollar** |
|                                                  |                                   |                                     | **Shares                  (or Units)**     | **Value)                  of Shares (or**   |
|                                                  | **Total                  Number Of**   |                                     | **Purchased                  as Part**     | **Units)                  that May Yet**    |
|                                                  | **Shares                  (or Units)** | **Average                  Price Paid**  | **of                  Publicly Announced** | **Be                  Purchased Under**     |
| **Period**                                            | **Purchased**                          | **per                  Share (or Unit)** | **Plans                  or Programs**     | **the                  Plans or Programs**  |
| February                  1 – February 28, 2007 | -                                      | -                                        | -                                          | 196,663                                     |
| March                  1 – March 31, 2007       | -                                      | -                                        | -                                          | 196,663                                     |
| April                  1 – April 30, 2007       | -                                      | -                                        | -                                          | 196,663                                     |

----

**ITEM      3. **
**DEFAULTS      UPON SENIOR SECURITIES**

**ITEM      4. **
**SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS**

**ITEM      5. **
**OTHER      INFORMATION**

**ITEM      6. **
**EXHIBITS**

**SIGNATURE**

**DUCKWALL-ALCO      STORES, INC.**

***(Registrant)***

*/s/      Jon A. Ramsey*

----

**EXHIBIT      INDEX**

| 2 | Stock                Purchase Agreement dated April 19, 2005 with K&A Asset Management, LLC                on behalf of Kenneth A. Macke Revocable Trust (filed as Exhibit 10.20                to                the Company’s Annual Report on 10-K for the fiscal year ended January 30,                2005 and incorporated herein by reference) |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| 4.3 | Loan                and Security Agreement, dated as of April 15, 2002, between the Company                and Fleet Retail Finance Inc. (filed as Exhibit 10.16 to the Company’s                Annual Report on Form 10-K for the fiscal year ended February 2,                2003 and                hereby incorporated by reference). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.4 | Loan                and Security Agreement, dated as of April 15, 2002, between the Company                and Fleet Retail Finance, Inc. (filed as Exhibit 10.16 to the Company’s                Annual Report on Form 10-K for the fiscal year ended February 2,                2003 and                hereby incorporated by reference). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.5 | 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 the Company’s Annual Report on                Form 10-K for the fiscal year ended February 2, 2003 and hereby                incorporated by reference). |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.1 | Certification                of Chief Executive Officer of Duckwall-ALCO Stores, Inc. dated June                8,                2007, 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                June 8, 2007, 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 June                8,                2007, 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 April 29, 2007                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                June 8, 2007, 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 April 29,                2007                and is not treated as filed in reliance upon § 601(b)(32) of                Regulations S-K. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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