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

FORM 10-Q

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

For the quarterly
period ended May 1, 2005

OR

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

Commission File Number
0-20269

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



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

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

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

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

APPLICABLE ONLY TO
CORPORATE ISSUERS:

4,085,992
shares of common stock, $.0001 par value (the issuers only class of common stock), were
outstanding as of May 1, 2005.

---

PART I - FINANCIAL
INFORMATION

ITEM 1. FINANCIAL
STATEMENTS

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

Assets

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

See accompanying notes to unaudited
consolidated financial statements.

| | 2 | 
| | - | 

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

Liabilities and
Stockholders Equity

|                                                        
|--------------------------------------------------------
|Current liabilities:                                    
|Current maturities of capital
      lease obligations   
|Notes payable under revolving
      loan                
|Accounts payable                                        
|Income taxes payable                                    
|Accrued salaries and commissions                        
|Accrued taxes other than income                         
|Other current liabilities                               
|Deferred income taxes                                   
|                                                        
|Total
      current liabilities                         
|Notes payable under revolving loan                      
|Capital lease obligations - less current maturities     
|Other noncurrent liabilities                            
|                                                        
|Total
      liabilities                                 
|                                                        
|Stockholders equity:                                   
|Common stock, $.0001 par value, authorized              
|20,000,000 shares; issued
      and outstanding         
|4,085,992 shares and 4,475,079
      shares respectively
|Additional paid-in capital                              
|Retained earnings                                       
|                                                        
|Total
      stockholders equity                        
|                                                        
|Total
      liabilities and stockholders equity        
|                                                        

See accompanying notes to unaudited
consolidated financial statements.

| | 3 | 
| | - | 

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

|                                                                     
|---------------------------------------------------------------------
|May 1,
      2005                                                    
|Net sales                                                            
|Cost of sales                                                        
|                                                                     
|Gross margin                                                         
|                                                                     
|Selling, general and administrative                                  
|Depreciation and amortization                                        
|                                                                     
|Total operating
      expenses                                       
|                                                                     
|Operating income (loss) from continuing operations                   
|Interest expense                                                     
|                                                                     
|Earnings (loss) from continuing operations before
      income taxes 
|Income tax expense (benefit)                                         
|                                                                     
|Earnings (loss) from continuing operations                           
|Earnings (loss) from discontinued operations,
      net of income tax
|                                                                     
|Net earnings (loss)                                                  
|                                                                     
|Earnings (loss) per share                                            
|Basic                                                                
|Continuing operations                                                
|Discontinued operations                                              
|                                                                     
|Net
      earnings (loss)                                            
|                                                                     
|Diluted                                                              
|Continuing operations                                                
|Discontinued operations                                              
|                                                                     
|Net
      earnings (loss)                                            
|                                                                     

See accompanying notes to unaudited
consolidated financial statements.

| | 4 | 
| | - | 

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

|                                                              
|--------------------------------------------------------------
|May 1, 2005                                                   
|Cash Flows From Operating Activities:                         
|Net earnings (loss)                                           
|Adjustments to reconcile net earnings (loss) to
      net cash
|provided by (used in) operating activities                    
|(Increase) decrease in
      receivables                      
|Decrease in prepaid expenses                                  
|Decrease (increase) in
      inventories                      
|Depreciation and amortization                                 
|Loss on disposal of equipment                                 
|Amortization of debt financing
      costs                    
|Increase in accounts payable                                  
|(Decrease) in income taxes
      payable                      
|Increase (decrease) in
      accrued salary & commissions     
|Increase (decrease) in
      accrued taxes other than income  
|Decrease in deferred income
      taxes                       
|Increase in other liabilities                                 
|Decrease in deferred revenue                                  
|                                                              
|Net cash provided by (used in) operating activities           
|                                                              
|Cash Flows From Investing Activities:                         
|Capital expenditures                                          
|                                                              
|Net cash used in investing activities                         
|                                                              
|Cash Flows From Financing Activities:                         
|Decrease in revolving
      loan                              
|Principal payments on
      long term notes                   
|Principal payments on
      capital leases                    
|Proceeds from exercise
      of stock options                 
|Common stock repurchase                                       
|                                                              
|Net cash (used in) provided by financing activities           
|                                                              
|Net increase in cash                                          
|Cash and cash equivalents at beginning of period              
|                                                              
|Cash at end of period                                         
|                                                              
|Supplemental disclosure of non-cash activity:                 
|Tax benefit related to stock
      options exercised          

See accompanying notes to unaudited
consolidated financial statements.

| | 5 | 
| | - | 

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

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

The
accompanying unaudited consolidated financial statements are for interim periods and,
consequently, do not include all disclosures required by generally accepted accounting
principles for annual financial statements. It is suggested that the accompanying
unaudited consolidated financial statements be read in conjunction with the consolidated
financial statements included in the Companys fiscal 2005 Annual Report. In the opinion
of management of Duckwall-ALCO Stores, Inc., the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position of the Company and the results of its
operations and cash flows for the interim periods.

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

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

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

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

|                                           
|-------------------------------------------
|May 1,
      2005                          
|Net earnings (loss) as reported            
|Pro forma stock-based employee compensation
|cost, net of tax                           
|                                           
|Pro forma net earnings (loss)              
|                                           
|Earnings (loss) per share as reported:     
|Basic                                      
|Diluted                                    
|Earnings (loss) per share, pro forma:      
|Basic                                      
|Diluted                                    

| | 6 | 
| | - | 

---

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

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

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

|Thirteen Weeks Ended | Basic | Diluted  
|-------------------- | ----- | ---------
|May 1, 2005          |       | 4,437,969
|May 2, 2004          |       | 4,320,213

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

(Dollars in Thousands
Except Per Share Amounts)

OVERVIEW

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

| |  |  | the
ALCO Stores segment. As of May 1, 2005, the Company operated 184          ALCO Stores
which offer a wide variety of general merchandise and a          limited variety of food
products and accounted for 93% of the Companys          sales for the first quarter of
fiscal 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the
Duckwall Stores segment. As of May 1, 2005, the Company operated 75          Duckwall
Stores which offer a more limited general merchandise          selection, but serve the
needs of a community that is not large enough          to support a full-line retail
discount store, and accounted for 7% of          the Companys sales for the first
quarter of fiscal 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
thirteen weeks ended May 1, 2005 and May 2, 2004 are referred to herein as the first
quarter of fiscal 2006 and 2005, respectively. For purposes of this managements
discussion and analysis of financial condition and results of operations, the financial
numbers are presented in thousands.

As
used below the term competitive market refers to any town in which both an ALCO or
Duckwall store and one or more national or regional full-line discount stores are
located. The term non-competitive market refers to any town served by the Company where
no national or regional full-line discount store is also located. The Company
nevertheless faces competition in such markets from a variety of sources, including
dollar stores, and national and regional full-line discount stores located within a
reasonable driving distance.

The
non-competitive markets where the Company operates ALCO or Duckwall stores generally
consist of small towns where population growth is generally steady, but not dramatic. As
no direct competitor or national or regional full-line discount store is located in these
towns, they are generally considered under-served by full-line discount retailers except
for the presence of an ALCO or Duckwall store.

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

The
Company is constantly evaluating the appropriate mix of merchandise to improve sales and
gross margin performance. The Company uses centralized purchasing, merchandising, pricing
and warehousing to obtain volume discounts, improve efficiencies and achieve consistency
among stores and the best overall results. The

| | 7 | 
| | - | 

---

Company utilizes information
obtained from its point-of-sale system and regular input from its store associates to
determine its merchandise offerings.

The
Company has evaluated the costs and benefits of upgrading its current point-of-sale
systems. The Companys project team has selected a new point-of-sale system and is
negotiating a contract with the various software and hardware vendors. The goal is to
pilot the new system in one store during the second half of fiscal 2006. A required
feature of this new point-of-sale system is perpetual inventory, which the Company does
not currently have in its stores. Perpetual inventory allows tracking of on-hand
quantities at the item level, and enables automated replenishment. Once the Company has
on-hand information and the ability to automatically replenish items in the stores, the
benefits of these new systems can be significant. For example, the Company estimates it
can reduce its inventory levels by 5% to 10%, and potentially more, because the system
will have parameters set at the item level relating to how much inventory to order based
on criteria set centrally. A reduction in inventory will improve the Companys return on
assets ratio. In addition to lowering inventory, the new system has the potential to
improve in-stock levels in the stores, thereby increasing same-store sales and profits.
The new system will also enable other improvements in the stores which are not available
today due to technology limitations. Once those limitations are removed, the Company
expects to re-engineer the stores to take full advantage of the new technology.

The
Company, when appropriate, implements new merchandising and marketing initiatives in an
effort to increase customer traffic and same-store sales. Over the last four years, the
Company has rolled out an improved merchandise mix, with greater emphasis on consumables
and everyday low values that are highlighted through a new and more dominant sign
program. In fiscal 2005, the Company converted its first three ALCO stores to an ALCO
Market Place store. This new format devotes approximately one fourth of its floor space
to a limited, but greatly expanded assortment of foods, including produce, dry goods and
products displayed in freezers and coolers. During the first quarter of fiscal 2006,
three additional stores were converted to the Market Place format, bringing the total
number of stores with the Market Place format to six. The Company continues to evaluate
the results of this new concept, and intends to use successful elements of the format in
stores that havent been converted to that format.

The
Company is also proactive in looking for and implementing ways to improve the bottom line
through expense reductions in selling, general and administrative expenses (SG&A).
The Company finalized its restructuring plan on April 28, 2005 and on May 3, 2005, the
Company publicly announced the restructuring. The restructuring is designed to help the
Company more effectively compete in todays competitive retail environment. As a part of
the restructuring, 46 corporate positions were eliminated, which will result in an
annualized savings of approximately $2,200. One-time costs associated with the
restructuring were approximately $734. Other examples of proactive measures the Company
has taken to control expenses include efforts to reduce rapidly escalating workers
compensation expenses and medical insurance costs, as discussed under the heading
Critical Accounting Policies.

The
Companys top priority is improving stockholder value and it has taken aggressive actions
over the years to achieve that objective, including the engagement of top advisers to
help identify opportunities to improve its performance. In the second half of Fiscal
2005, the Company engaged a business advisory firm to do a strategic and operational
review of the Company. Based upon the reports conclusions and recommendations, Company
management plans to develop short and long-term initiatives to improve its performance.
The Companys management, the Board and other advisors will also examine other means of
enhancing stockholder value.

Recent
Events.On March 17, 2005, the Company announced that, as part of its initiatives
designed to improve performance of the Company for its shareholders, it will be closing 8
ALCO and 12 Duckwall stores that do not meet the Companys minimum return on investment
threshold. The process to close these stores began immediately, and the Company expects
it will take approximately three months to complete. The Company has engaged Gordon
Brother Retail Partners, LLC to assist in the orderly inventory liquidation and to help
minimize the total cost of closing these stores. The Companys primary lender, Fleet
Retail Group, Inc., has consented to these closings. The Company estimates that pursuant
to these store closings, it will liquidate approximately $6,500 of inventory. Of the
stores being closed, the Company owns the property on which two ALCO stores are located
and leases the properties for the remaining 18 stores. The company anticipates that the
aggregate cost to close these stores, before income taxes, will be in the range of $3,800
to $4,800. The majority of that expense will be recorded in the first and second quarters
of Fiscal Year 2006. The twenty stores that are closing produced gross sales of $19,900
in Fiscal Year 2005, and employed approximately 260 associates.

| | 8 | 
| | - | 

---

On
April 19, 2005, the Company reached an agreement with a significant stockholder to
repurchase 399,362 shares of the Companys Common Stock for approximately $7,200. These
shares will be retired. The Board of Directors approved this transaction and increased
the number of shares the Company was authorized to repurchase by 399,362.

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

| |  |  | Net
sales increased 2.8% to $98,000. Same store sales decreased 0.1% compared to the prior
year.
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | Gross
margin decreased to 31.2% of sales, compared to 33.0% in the prior year first quarter.
| | - |  | --------------------------------------------------------------------------------------------

| |  |  | Earnings
(loss) per share was ($0.62) in the first quarter of fiscal 2006 compared to earnings of
$.16 per share in the          prior year first quarter.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Company announced that it will close 20 stores that do not meet its minimum ROI
thresholds.
| | - |  | -----------------------------------------------------------------------------------------------

Same
store sales growth is a measure which may indicate whether existing stores are
maintaining their market share. Other factors, such as the overall economy, may also
affect same store sales. The Company defines same stores as those stores that were open
as of the first day of the prior fiscal year and remain open at the end of the reporting
period. While the same store sales for all Company stores decreased 0.1% compared to the
first quarter last year, the ALCO stores in non-competitive markets, which represent 144
of the ALCO stores as of the end of the first quarter, increased 0.1%, and the Duckwall
stores sales increased 2.6% during the first quarter of fiscal 2006.

Gross
margin percentage is a key measure of the Companys ability to   maximize profit on the
purchase and subsequent sale of merchandise, while   minimizing promotional and clearance
markdowns, shrinkage, damage, and   returns. Gross margin percentage is defined as sales
less cost of sales,   expressed as a percentage of sales. Gross margin percent decreased
to 31.2% of   sales in the first quarter of fiscal 2006, compared to 33.0% in the first
  quarter of fiscal 2005.

Earnings
per share (EPS) growth is an indicator of the returns   generated for the Companys
stockholders. EPS from continuing operations was   reduced to ($0.26) per diluted share
for the first quarter of fiscal 2006,   compared to $0.14 per diluted share for the first
quarter of the prior fiscal   year.

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

Certain
statements contained in this Quarterly Report on Form 10-Q that are not statements of
historical fact may constitute forward-looking statements within the meaning of Section
21E of the Exchange Act. These statements are subject to risks and uncertainties, as
described below. Examples of forward-looking statements include, but are not limited to:
(i) projections of revenues, income or loss, earnings or loss per share, capital
expenditures, store openings, store closings, payment or non-payment of dividends,
capital structure and other financial items, (ii) statements of plans and objectives of
the Companys management or Board of Directors, including plans or objectives relating to
inventory, store development, marketing, competition, business strategy, store
environment, merchandising, purchasing, pricing, distribution, transportation, store
locations and information systems, (iii) statements of future economic performance, and
(iv) statements of assumptions underlying the statements described in (i), (ii) and
(iii). Forward-looking statements can often be identified by the use of forward-looking
terminology, such as believes, expects, may, will, should, could, intends,
plans, estimates, projects or anticipates, variations thereof or similar
expressions.

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

There
are a number of factors and uncertainties that could cause actual results of operations,
financial condition or business contemplated by the forward-looking statements to differ
materially from those discussed in the forward-looking statements made herein or
elsewhere orally or in writing, by, or on behalf of, the Company,

| | 9 | 
| | - | 

---

including those factors described
below. Other factors not identified herein could also have such an effect. Factors that
could cause actual results to differ materially from those discussed in the
forward-looking statements and from historical information include, but are not limited
to, those factors described below.

CRITICAL ACCOUNTING
POLICIES

Inventory:As discussed in Note 1 (d) to the Consolidated Financial Statements, inventories are
stated at the lower of cost or net realizable value with cost determined using the
last-in, first-out (LIFO) method. The retail inventory method (RIM) used by the Company
is an averaging method that has been widely used in the retail industry. This method
calculates a cost to retail ratio that is applied to the retail value of inventory to
calculate cost inventory and the resulting gross margin. Use of the RIM method does not
eliminate the use of management judgments and estimates, including markdowns and
shrinkage, which significantly impact the ending inventory valuation at cost and the
resulting gross margins. The Company continually evaluates product categories to
determine if markdown action is appropriate, or if a markdown reserve should be
established. The Company recognizes that the use of the RIM will result in valuing
inventories at lower of cost or market if markdowns are currently taken as a reduction of
the retail value of inventories. As of May 1, 2005 and May 2, 2004, the Company had
recorded markdowns that had not been taken and which served to reduce inventories to
lower of cost or market by approximately $901 and $741, respectively. Management believes
that the RIM provides an inventory valuation which reasonably approximates cost and
results in carrying inventory at the lower of cost or market.

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

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

Insurance:The Company considers general insurance cost a critical accounting policy. As described
below, the Company is essentially self insured for its workers compensation, medical
insurance and general liability insurance. Due to the fact that it takes more than one
year to determine the actual costs under these plans, these costs are estimated based on
the Companys historical loss experience and estimates from the insurance carriers and
consultants.

| | Workers
Compensation. Starting June 1, 2003, the Company is essentially self insured for
workers compensation claims and has a $100 deductible. At the beginning of the
initial plan year the Companys underwriter and actuaries retained by the
Companys insurance brokers, provided the Company with a reasonable estimate for
expense accruals. After the plan year ended on May 31, 2004, which was during
the Companys second fiscal quarter in fiscal 2005, these advisors informed
the Company that previous reserves were inadequate due to escalating
costs per claim. As a result, in the second quarter in fiscal 2005, the
Company had to increase its workers compensation reserves significantly
and recorded additional expense of $463. While the costs per claim have
been higher than originally anticipated, the number of workers
compensation claims have dropped over 15% for this past plan year. We
attribute this to the actions we have taken to reduce our losses. Such
actions include safety training initiatives for our managers,
management training seminars, monthly safety videos and Loss Prevention
Regional Inspection/Training programs.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Medical. The Company is also essentially self insured for medical insurance and covers
all claims in a plan year related to an individual until they exceed $200.
Medical insurance expenses began to spike upwards in the first half of the
fiscal year 2005. The Company has responded to this situation by taking steps to
increase the premiums paid by its associates and by implementing other changes
that are designed
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10 | 
| | -- | 

---

| | to
control future medical insurance costs. The expenses          for the first quarter of
fiscal 2006 were slightly higher than the          Company anticipated. If the Company
continues to experience higher          costs, we may consider additional steps to
control future medical          insurance costs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | General
Liability. Starting June 1, 2003, the deductible for general liability insurance
increased from $5 to $50, thus, the Company is essentially self insured for
general liability insurance.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

RESULTS OF
OPERATIONS

Thirteen Weeks Ended
May 1, 2005 Compared to Thirteen Weeks Ended May 2, 2004.

The
Company continues to execute its basic strategy of opening stores in under-served markets
that have no competition from national or regional full-line discount retailers. During
the first quarter of fiscal 2006 the Company opened one Duckwall store, and converted
three ALCO stores into ALCO Market Place stores. Two ALCO stores and six Duckwall stores
were closed in the current period. The operations of stores closed in the current and
prior year, as well as the operations of eight ALCO stores and six Duckwall stores that
are still in the process of closing, have been reflected as discontinued operations in
all periods presented. As of May 1, 2005 over 88% of the Companys 259 stores are in
non-competitive markets.

Net
  Sales

Net
sales for the first quarter of fiscal 2006 increased $2,675 or 2.8% to $98,026 compared
to $95,351 for the first quarter of fiscal 2005. Same store sales decreased 0.1% when
compared with the prior year. The Company believes that sales were unfavorably impacted
by an unusually cool and rainy spring, resulting in lower than expected sales in the
spring merchandise categories.

Gross
  Margin

Gross
margin for the first quarter of fiscal 2006 decreased $945 or 3.0% to $30,560 compared to
$31,505 in the first quarter of fiscal 2005. Gross margin as a percentage of sales was
31.2% for the first quarter of fiscal 2006 compared to 33.0% for the first quarter of
fiscal 2005. The decrease in the gross margin percentage was due primarily to higher
markdowns due the Companys efforts to lower its inventory, as well as taking more
aggressive markdown action in-season to clear out seasonal merchandise. Also negatively
impacting the gross margin percentage were higher transportation costs resulting from
higher fuel prices.

SG&A

Selling,
general and administrative expense increased $2,062 or 7.2% to $30,592 in the first
quarter of fiscal 2006 compared to $28,530 in the first quarter of fiscal 2005. As a
percentage of net sales, selling, general and administrative expenses in the first
quarter of fiscal 2006 were 31.2%, compared to 29.9% in the first quarter of fiscal 2005.
The increase in the selling, general and administrative expense percentage was largely
one-time costs of approximately $734 associated with the Companys restructuring and
workforce reduction. Other one-time costs impacting operating expenses for the quarter
were costs associated with the retirement of the former Chief Executive Officer and
hiring of the new Chief Executive Officer, which amounted to $338.

| | 11 | 
| | -- | 

---

Depreciation
  and Amortization

Depreciation
and amortization expense decreased $152 or 9.0% to $1,547 in the first quarter of fiscal
2006 compared to $1,699 in the first quarter of fiscal 2005. The decrease is primarily
due to store fixtures and equipment becoming fully depreciated in the current fiscal year
on a large number of ALCO stores that were opened in fiscal year 1997.

Operating
  Income

Operating
income from continuing operations decreased $2,855 or 223.8% to ($1,579) in the first
quarter of fiscal 2006 compared to $1,276 in the first quarter of fiscal 2005. The
combination of reduced margins and increased Selling, General, and Administrative costs
resulted in the large reduction in operating income. Operating income from continuing
operations as a percentage of net sales was (1.6%) in the thirteen week period ending May
1, 2006 compared to 1.3% for the thirteen week period of the prior fiscal year.

Interest
  Expense

Interest
expense decreased $72 or 25.5% to $210 in the first quarter of fiscal 2006 compared to
$282 in the first quarter of fiscal 2005. The reduction in interest expense was due
primarily to lower levels of borrowing for the thirteen week period of fiscal 2005.

Income
  Taxes

The
Companys effective tax rate for the first quarter of fiscal 2006 was 35.4%, compared to
38.0% in the first quarter of fiscal 2005. The effective tax rate was higher in the prior
year, as certain employment tax credits had expired. These credits were subsequently
reinstated, and the prior years tax rate was adjusted at that time.

Earnings
  (loss) from Continuing Operations

Earnings
(loss) from continuing operations for the first quarter of fiscal 2006 were ($1,156), a
decrease of $1,772 or 287.7% from the earnings from continuing operations of $616 for the
first quarter of fiscal 2005. The decrease was a result of the reduced operating income
as discussed above.

Earnings
  (Loss) from Discontinued Operations

Loss
from discontinued operations, net of income tax, was $1,574 in the first quarter of
fiscal 2006, compared to an income from discontinued operations of $71 in the first
quarter of fiscal 2005. The increase in loss from discontinued operations was the result
of the decision to close twenty stores in the first quarter of fiscal 2006, compared to
three store closings in the prior fiscal year. The operations of closed stores have been
reflected as discontinued operations in all periods presented.

Net
  Earnings (Loss)

Net
loss for the first quarter of fiscal 2006 was $2,730, a decrease of $3,417 or 497.4% from
the net earnings of $687 in the first quarter of fiscal 2005. Diluted net loss per share
for the first quarter of fiscal 2006 was $0.62, a decrease of $0.78, or 487.5% from the
diluted net earnings per share of $0.16 in the first quarter of fiscal 2005.

LIQUIDITY AND
CAPITAL RESOURCES

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

| | 12 | 
| | -- | 

---

At
May 1, 2005 working capital (defined as current assets less current liabilities) was
$82,629 compared to $95,431 at the end of fiscal 2005. The reduction in working capital
was attributable to the reclassification of the revolving loan as current, as it is due
in April 2006, and the reduction in inventory due to the decision to close twenty stores.
The Company and its lender, Bank of America, agreed to extend the revolving loan credit
facility on June 1, 2006. The loan will be due on April 15, 2010.

The
Company has a loan agreement with its lenders that provides a revolving loan credit
facility of up to $70,000 of long-term financing. The amount advanced (through a note or
letters of credit) to the Company under the credit facility bears interest at (i) the
prime rate plus a margin, as defined, which varies based on the amount outstanding (Base
Loan) or (ii) based on the Euro dollar rate plus a margin, as defined, (Index Loan).
Based upon its projected financial requirements, the Company uses a combination of short
term Euro dollar contracts and borrowing at prime. The amount advanced is generally
limited to 70% of eligible inventory, as defined in the loan agreement. Advances are
secured by a security interest in the Companys inventory. The loan agreement contains
various restrictions that are applicable when outstanding borrowings reach certain
thresholds, including limitations on additional indebtedness, acquisitions of assets and
payment of dividends. The loan agreement expires on April 15, 2010. As of May 1, 2005,
the Company has borrowed $6,081 under this facility. The lender had also issued letters
of credit aggregating $3,610 at such date on behalf of the Company.

Cash
provided by (used in) operating activities in the thirteen week period of fiscal 2006 and
2005 was $8,608 and ($5,385) respectively. The increase in the amount of cash provided by
operating activities in the thirteen week period of fiscal 2006 compared to the thirteen
week period of fiscal 2005 was primarily due to a decrease in inventory, a larger
increase in accounts payable, and an increase in accrued salary and commission.

Total
anticipated cash payments for acquisition of property and equipment in fiscal 2006,
principally for improvements, store buildings and store and warehouse fixtures and
equipment are approximately $10,000. Cash used in investing activities (including
acquisitions and remodeling) in the thirteen week period of fiscal 2006 and 2005 totaled
$1,276 and $1,062, respectively, which were used primarily for those same purposes.

The
Company (used) generated cash from financing activities in the thirteen week period of
fiscal 2006 and 2005 of ($5,238) and $6,892 respectively. Borrowings on the revolving
loan generated $2,058 during the thirteen week ended May 1, 2006, compared to $6,788
during the thirteen week period of the prior fiscal year. Cash was used to purchase and
retire 399,362 shares of Common Stock during the thirteen week period of fiscal 2006 for
$7,188. In addition to the current purchase of stock, the Board of Directors of the
Company has authorized the Company to repurchase up to 1,411,000 other shares, of which
1,084,600 shares had been purchased as of May 1, 2005. The Company continues to evaluate
the timing and pricing of future share repurchases.

BUSINESS OPERATIONS AND SEGMENT
INFORMATION

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

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

| | 13 | 
| | -- | 

---

|Segment Information               | For The Thirteen Week
      Periods Ended
|--------------------------------- | -----------------------------------------
|                                  | May 1,
      2005                        
|Net Sales:                        |                                          
|ALCO Discount Stores              |                                          
|All Other                         |                                          
|External                          |                                          
|Intercompany                      |                                          
|                                  |                                          
|                                  |                                          
|                                  |                                          
|Depreciation and Amortization     |                                          
|ALCO Discount Stores              |                                          
|All Other                         |                                          
|                                  |                                          
|                                  |                                          
|                                  |                                          
|Income (expense) from Operations: |                                          
|ALCO Discount Stores              |                                          
|All Other                         |                                          
|                                  |                                          
|                                  |                                          
|                                  |                                          
|Capital Expenditures:             |                                          
|ALCO Discount Stores              |                                          
|All Other                         |                                          
|                                  |                                          
|                                  |                                          
|                                  |                                          
|Identifiable Assets:              |                                          
|ALCO Discount Stores              |                                          
|All Other                         |                                          
|                                  |                                          
|                                  |                                          
|                                  |                                          

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

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

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

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

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

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

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

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

| | 14 | 
| | -- | 

---

| | Leases
| | ------

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

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

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

|                                                                 
|-----------------------------------------------------------------
|May 1,
      2005                                                
|Net sales per above segment information                          
|Intercompany elimination                                         
|                                                                 
|                                                                 
|Net sales per consolidated
      statements                      
|of operations                                                    
|                                                                 
|Income (loss) from operations per
      above segment information
|Leases                                                           
|                                                                 
|                                                                 
|Income (loss) from
      operations per consolidated             
|statements
      of operations                                   
|                                                                 

ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INSTRUMENTS ENTERED
INTO OTHER THAN FOR TRADING - INTEREST RATE RISK

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

As
described under Managements Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources, the Company has a variable interest rate
debt facility that is subject to interest rate risk. The Company uses this facility to
meet the short-term needs of its capital improvements and inventory purchases. These
obligations expose the Company to variability in interest payments due to changes in
interest rates. If interest rates increase, interest expense increases. Conversely, if
interest rates decrease, interest expense also decreases. Based on amounts outstanding
under this facility as of May 1, 2005, the Company does not consider its exposure to
interest rate risk to be material.

ITEM 4. CONTROLS AND
PROCEDURES

As
of the end of the period covered by this report, an evaluation was carried out under the
supervision and with the participation of Company management, including the Companys
President and Chief Financial Officer, of the effectiveness of the design and operation
of the Companys disclosure controls and procedures. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can only
provide reasonable assurance of achieving their control objectives.

| | 15 | 
| | -- | 

---

Based upon and as of the date of the
evaluation, the Companys President and Chief Financial Officer concluded that the design
and operation of these disclosure controls and procedures were effective in all material
respects to provide reasonable assurance that information required to be disclosed in the
reports it files and submits under the Exchange Act is recorded, processed, summarized
and reported as and when required.

There
were no changes in the Companys internal control over financial reporting that occurred
during the quarter ended May 1, 2005 that materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.

PART II - OTHER
INFORMATION

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

| | Item 2. | Unregistered
Sales of Equity Securities and Use of Proceeds                            Not applicable
| | ------- | -----------------------------------------------------------------------------------------------------

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

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

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

| | Item 6. | Exhibits
                           See the Exhibit Index immediately following the signature page
hereto.
| | ------- | ----------------------------------------------------------------------------------------------------------

| | 16 | 
| | -- | 

---

SIGNATURES

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

| | DUCKWALL-ALCO STORES, INC. (Registrant)
| | ---------------------------------------

|Date, June 10, 2005 |  | /s/ Richard
      A. Mansfield
      Richard A. Mansfield 
      Vice President - Finance, Chief Financial Officer 
      Signing on behalf of the registrant and as principal financial officer
|------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 17 | 
| | -- | 

---

EXHIBIT INDEX

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

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

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

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

|10.11 | Employment
Agreement dated December 28, 2000 between the Company and          James E. Schoenbeck
(filed as Exhibit 10.12 to Companys Annual Report          on Form 10-K for the fiscal
year ended February 2, 2003, and          incorporated herein by reference).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 | Employment
Agreement dated December 28, 2000 between the Company and          Richard A. Mansfield.
(filed as Exhibit 10.14 to Companys Annual          Report on Form 10-K for the fiscal
year ended February 2, 2003, and          incorporated herein by reference.).
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 | Employment
Agreement dated December 28, 2000 between the Company and          Tom L. Canfield, Jr.
(filed as Exhibit 10.15 to Companys Annual Report          on Form 10-K for the fiscal
year ended February 2, 2003, and          incorporated herein by reference).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 | Loan
and Security Agreement, dated as of April 15, 2002, between the          Company and
Fleet Retail Finance Inc. (filed as Exhibit 10.16 to          Companys Annual Report on
Form 10-K for the fiscal year ended February          2, 2003, and incorporated herein by
reference).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 | Joinder
Agreement and First Amendment to Loan and Security Agreement          dated September 9,
2002 among the Company, Fleet Retail Finance Inc.,          and DA Good Buys, Inc. (filed
as Exhibit 10.17 to Companys Annual          Report on Form 10-K for the fiscal year
ended February 2, 2003, and          incorporated herein by reference).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|10.19 | Memorandum
 of  Understanding,  dated  March 15, 2005  between  the  Company  and Bruce C. Dale
(filed as Exhibit  10.1 to the          Companys Current Report on Form 8-K on March 21,
2005 and incorporated by reference).
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 | Stock
Purchase Agreement dated April 19, 2005 with K&A Asset          Management, LLC on
behalf of Kenneth A. Macke Revocable Trust (filed as          Exhibit 10.1 to the
Companys Current Report on Form 8-K on April 21,          2005 and incorporated by
reference).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|31.1 | Certification
of Chief Executive Officer of Duckwall-ALCO Stores, Inc.          dated June 10, 2005,
pursuant to Rule 13a-4(a) under the Securities          Exchange Act of 1934, as adopted
pursuant to Section 302 of the          Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 | Certification
of Chief Financial Officer of Duckwall-ALCO Stores, Inc.          dated June 10, 2005,
pursuant to Rule 13a-4(a) under the Securities          Exchange Act of 1934, as adopted
pursuant to Section 302 of the          Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 | Certification
of Chief Executive Officer of Duckwall-ALCO Stores, Inc,          dated June 10, 2005,
pursuant to 18 U.S.C. Section 1350, as adopted          pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, which is          furnished with this Quarterly Report on
Form 10-Q for the quarter ended          May 1, 2005 and is not treated as filed in
reliance upon § 601(b)(32)          of Regulations S-K.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 18 | 
| | -- | 

---

|32.2 | Certification
of Chief Financial Officer of Duckwall-ALCO Stores, Inc.,          dated June 10, 2005,
pursuant to 18 U.S.C. Section 1350, as adopted          pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, which is          furnished with this Quarterly Report on
Form 10-Q for the quarter ended          May 1, 2005 and is not treated as filed in
reliance upon § 601(b)(32)          of Regulations S-K.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 19 | 
| | -- | 

---