UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 1O-Q

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

         For the quarterly period ended November 2, 2002
                                        ----------------

                                            OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1932

         For the transition period from...............to................


                         Commission File Number: 1-10089

                            FACTORY 2-U STORES, INC.
             (Exact name of registrant as specified in its charter)

   Delaware                                             51-0299573
   --------                                             ----------
  (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                        Identification No.)


   4000 Ruffin Road, San Diego, CA                      92123-1866
   -------------------------------                      ----------
   (Address of principal executive office)              (Zip Code)


                                 (858) 627-1800
              (Registrant's telephone number, including area code)


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.                             [X] YES [ ] NO

The number of shares outstanding of the registrant's common stock, as of
December 16, 2002 was 13,244,910 shares.



<PAGE>



                            FACTORY 2-U STORES, INC.

            FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 2002

                                      INDEX


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Factory 2-U Stores, Inc. Balance Sheets as of November 2, 2002
         (Unaudited), November 3, 2001 (Unaudited) and
         February 2, 2002  ..................................................F-1

         Factory 2-U Stores, Inc. Statements of Operations (Unaudited) for the
         13 weeks and 39 weeks ended November 2, 2002 and November 3, 2001 ..F-3

         Factory 2-U Stores, Inc. Statements of Cash Flows (Unaudited) for the
         39 weeks ended November 2, 2002 and November 3, 2001 ...............F-4

         Factory 2-U Stores, Inc. Notes to Financial Statements (Unaudited)..F-5

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ................................................3

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........10

Item 4.  Controls and Procedures .............................................10


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ...................................................11
Item 2.  Changes in Securities and Use of Proceeds............................11
Item 3.  Defaults Upon Senior Securities......................................11
Item 4.  Submission of Matters to a Vote of Security Holders..................11
Item 5.  Other Information ...................................................11
Item 6.  Exhibits and Reports on Form 8-K ....................................11
Signatures    ................................................................13
Certifications ...............................................................14






                                        2


<PAGE>



                         PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

<TABLE>
<CAPTION>


                            FACTORY 2-U STORES, INC.
                                 Balance Sheets
                 (in thousands, except share and per share data)


                                       November 2,    November 3,    February 2,
                                          2002           2001           2002
                                       -----------    -----------    -----------
                                       (Unaudited)    (Unaudited)
<S>                                        <C>            <C>            <C>
ASSETS
Current assets:
  Cash                                  $   5,922      $   6,059      $  17,390
  Merchandise inventory                    83,461         85,416         54,860
  Accounts receivable                       2,613          1,823          2,013
  Income taxes receivable                   7,820          1,489           -
  Prepaid expenses                          6,109          6,393          6,357
  Deferred income taxes                     3,553          2,503          3,553
                                       -----------    -----------    -----------
    Total current assets                  109,478        103,683         84,173

Leasehold improvements and equipment, net  34,856         42,311         37,042
Deferred income taxes                       7,182          4,992          7,182
Other assets                                  985          1,066          1,011
Excess of cost over net assets acquired,
  less accumulated amortization of $13,344,
  $12,944 and $13,344, respectively        26,301         26,701         26,301
                                       -----------     ----------    -----------
    Total assets                        $ 178,802      $ 178,753      $ 155,709
                                       ===========     ==========    ===========



</TABLE>


















   The accompanying notes are an integral part of these financial statements.

                                   (continued)




                                       F-1



<PAGE>

<TABLE>
<CAPTION>


                            FACTORY 2-U STORES, INC.
                                 Balance Sheets
                 (in thousands, except share and per share data)
                                   (continued)


                                       November 2,    November 3,    February 2,
                                          2002           2001           2002
                                       -----------    -----------    -----------
                                       (Unaudited)    (Unaudited)
<S>                                        <C>            <C>            <C>

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt  $   2,000      $   2,058      $   2,019
  Accounts payable                         42,047         50,472         36,271
  Taxes payable                             3,234          3,310          3,332
  Accrued expenses                         26,322         17,711         27,918
                                        ----------     ----------     ----------
    Total current liabilities              73,603         73,551         69,540

Revolving credit facility                  30,046          8,143           -
Long-term debt                              9,181         10,088          8,376
Other long-term obligations                 3,578          4,346          3,578
Deferred rent                               3,291          3,706          3,649
                                        ----------     ----------     ----------
    Total liabilities                     119,699         99,834         85,143
                                        ----------     ----------     ----------


Stockholders' equity:
  Common stock, $0.01 par value;
    35,000,000 shares authorized and
    12,969,910 shares, 12,823,370 shares
    and 12,842,146 shares issued and
    outstanding, respectively                 130            128            128
  Stock subscription notes receivable      (2,149)        (2,225)        (2,225)
  Additional paid-in capital              122,323        120,794        121,370
  Accumulated deficit                     (61,201)       (39,778)       (48,707)
                                        ----------     ----------     ----------
    Total stockholders' equity             59,103         78,919         70,566
                                        ----------     ----------     ----------
    Total liabilities and
      stockholders' equity              $ 178,802      $ 178,753      $ 155,709
                                        ==========     ==========     ==========



</TABLE>




   The accompanying notes are an integral part of these financial statements.







                                       F-2


<PAGE>


<TABLE>
<CAPTION>


                            FACTORY 2-U STORES, INC.
                            Statements of Operations
                      (in thousands, except per share data)
                                   (Unaudited)






                                                        13 Weeks Ended                 39 Weeks Ended
                                                        --------------                 --------------
                                                November 2,      November 3,    November 2,     November 3,
                                                   2002             2001           2002            2001
                                                -----------      -----------    -----------     -----------
<S>                                                 <C>              <C>            <C>             <C>

Net sales                                       $  134,506       $  145,568     $  379,545      $  410,646
Cost of sales                                       89,854           95,308        252,706         268,807
                                                -----------      -----------    -----------     -----------
  Gross profit                                      44,652           50,260        126,839         141,839

Selling and administrative expenses                 49,057           49,065        144,936         139,503
Pre-opening and closing expenses                       366              989          1,069           2,881
Amortization of intangibles                            -                422            -             1,267
Stock-based compensation expense                       -                -              -               456
                                                -----------      -----------    -----------     -----------
  Operating loss                                    (4,771)            (216)       (19,166)         (2,268)

Interest expense, net                                  515              342          1,083           1,123
                                                -----------      -----------    -----------     -----------
Loss before income taxes                            (5,286)            (558)       (20,249)         (3,391)
Income tax benefit                                  (1,770)            (234)        (7,755)         (1,424)
                                                -----------      -----------    -----------     -----------
Net loss                                        $   (3,516)      $     (324)    $  (12,494)     $   (1,967)
                                                ===========      ===========    ===========     ===========


Loss per share
  Basic                                         $    (0.27)      $    (0.03)    $    (0.97)     $    (0.15)
  Diluted                                       $    (0.27)      $    (0.03)    $    (0.97)     $    (0.15)


Weighted average common shares outstanding
  Basic                                              12,970           12,823         12,943         12,780
  Diluted                                            12,970           12,823         12,943         12,780


</TABLE>




   The accompanying notes are an integral part of these financial statements.




                                       F-3

<PAGE>


<TABLE>
<CAPTION>


                            FACTORY 2-U STORES, INC.
                            Statements of Cash Flows
                                 (in thousands)
                                   (Unaudited)


                                                          39 Weeks ended
                                                          --------------
                                                    November 2,     November 3,
                                                       2002            2001
                                                    -----------     -----------
<S>                                                    <C>              <C>
Cash flows from operating activities
  Net loss                                          $  (12,494)     $   (1,967)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities
      Depreciation and amortization                     11,424          12,438
      Loss on disposal of equipment                         48             133
      Deferred rent                                       (330)            296
      Stock-based compensation expense                     -               456
      Changes in operating assets and liabilities
        Merchandise inventory                          (28,601)        (32,972)
        Prepaid expenses and other assets               (8,117)           (256)
        Accounts payable                                 5,775          25,278
        Accrued expenses and other liabilities          (2,008)             88
                                                    -----------     -----------
Net cash provided by (used in) operating activities    (34,303)          3,494
                                                    -----------     -----------

Cash flows from investing activities
  Purchases of leasehold improvements and equipment     (8,065)        (10,622)
                                                    -----------     -----------
Net cash used in investing activities                   (8,065)        (10,622)
                                                    -----------     -----------

Cash flows from financing activities
  Borrowings on revolving credit facility               74,421          76,146
  Payments on revolving credit facility                (44,375)        (68,003)
  Payments on long-term debt and capital
    lease obligations                                      (19)           (132)
  Payment of deferred debt issuance costs                 (121)            (40)
  Proceeds from exercise of stock options                  918             477
  Payments of stock subscription notes receivable           76             -
                                                    -----------     -----------
Net cash provided by financing activities               30,900           8,448
                                                    -----------     -----------

Net increase (decrease) in cash                        (11,468)          1,320
Cash at the beginning of the period                     17,390           4,739
                                                    -----------     -----------
Cash at the end of the period                       $    5,922      $    6,059
                                                    ===========     ===========

Supplemental disclosure of cash flow information
  Cash paid during the period for
    Interest                                        $      377      $      320
    Income taxes                                    $    1,323      $    5,523

Supplemental disclosure of non-cash financing activities
  Issuance of common stock to board members
    as compensation                                 $       19      $       90


</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       F-4


<PAGE>


                            FACTORY 2-U STORES, INC.
                          Notes to Financial Statements
                                   (Unaudited)

(1)      Unaudited Interim Financial Statements

         The accompanying unaudited financial statements do not include all of
         the information and footnotes required by accounting principles
         generally accepted in the United States for annual financial statements
         and should be read in conjunction with the financial statements for the
         fiscal year ended February 2, 2002 included in our Form 10-K as filed
         with the Securities and Exchange Commission.

         We believe that the unaudited financial statements as of and for the 13
         weeks and 39 weeks ended November 2, 2002 and November 3, 2001 reflect
         all adjustments necessary to present fairly the financial position,
         results of operations and cash flows for the periods presented. Due to
         the seasonal nature of our business, the results of operations for the
         interim period may not necessarily be indicative of the results of
         operations for a full year.

         Certain prior period amounts have been reclassified to conform their
         presentation to the current period financial statements.

(2)      Recent Accounting Pronouncements

         In April 2002,  the FASB issued SFAS No. 145,  "Rescission of FASB
         Statements No. 4, 44, and 64,  Amendment of FASB Statement  No. 13, and
         Technical  Corrections",  which rescinds SFAS No. 4, "Reporting Gains
         and Losses from  Extinguishment of Debt" and an amendment of that
         Statement,  and SFAS No. 64,  "Extinguishments of Debt Made to Satisfy
         Sinking-Fund  Requirements." SFAS No. 145 also rescinds SFAS No. 44,
         "Accounting  for Intangible  Assets of Motor  Carriers."  SFAS No. 145
         amends SFAS No. 13, "Accounting for Leases",  to eliminate an
         inconsistency  between the required  accounting for sale-leaseback
         transactions and the required  accounting  for certain  lease
         modifications  that have  economic  effects  that are similar to
         sale-leaseback transactions.  SFAS No. 145 also amends other existing
         authoritative  pronouncements to make various  technical  corrections,
         clarify  meanings,  or describe  their  applicability  under  changed
         conditions.  SFAS No. 145 is effective for fiscal years beginning after
         May 15, 2002. We do not expect the adoption of this statement will have
         a material impact on our financial position or results of operations.








                                       F-5


<PAGE>


         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities", which addresses
         significant issues regarding the recognition, measurement, and
         reporting of costs associated with exit and disposal activities,
         including restructuring activities. This statement requires that costs
         associated with exit or disposal activities be recognized when they are
         incurred rather than at the date of a commitment to an exit or disposal
         plan. SFAS No. 146 is effective for all exit or disposal activities
         initiated after December 31, 2002. We do not expect the adoption of
         this statement will have a material impact on our financial position or
         results of operations.

 (3)     Restructuring Charge

         In January 2002, we recorded a restructuring charge of $21.2 million in
         conjunction with the decision to close 28 under-performing stores, as
         well as the realignment of our field organization and workforce
         reductions (Fiscal 2001 restructuring initiatives). The purpose of the
         restructuring was to improve store profitability, streamline field
         operations, reduce costs and improve efficiency.

         As of December 16, 2002, we have closed 24 of the 28 under-performing
         stores, completed 18 lease terminations, and have substantially
         completed the realignment of our field organization and workforce
         reductions. The balance of the liability related to the restructuring
         charge at November 2, 2002 was as follows:

        <TABLE>


                                            Balance at                                     Balance at
                                            February 2,        Cash        Non-cash        November 2,
        (in thousands)                         2002          Payments       Charges           2002
                                            -----------      ---------     ----------     ------------
        <S>                                     <C>             <C>           <C>              <C>
        Lease termination costs*             $ 13,724        $ (5,244)     $    326         $  8,806
        Inventory liquidation costs             2,870             -          (1,289)           1,581
        Fixed asset write-downs                 2,052             -          (1,393)             659
        Employee termination costs              1,159          (1,059)          -                100
        Other costs                             1,349            (956)          -                393
                                            -----------      ---------     ----------     ------------
                                             $ 21,154        $ (7,259)     $ (2,356)        $ 11,539
                                            -----------      ---------     ----------     ------------

        </TABLE>



         * The non-cash charge portion consists primarily of the write-off of
           deferred rent.

         As part of our on-going evaluation of the adequacy of the liability
         related to this restructuring charge, we have noted a favorable
         experience related to the cost of closing the 24 stores. Accordingly,
         subsequent to November 2, 2002, we expect to reduce our reserve for
         store closures by approximately $5.0 million. This adjustment will be
         reflected in the operating results of our fourth quarter ending
         February 1, 2003. See Note 11.





                                       F-6


<PAGE>


(4)      Adoption of SFAS No. 142, "Goodwill and Other Intangible Assets"

         In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other
         Intangible Assets", which requires that upon adoption, amortization of
         goodwill will cease and instead, the carrying value of goodwill be
         evaluated for impairment at least annually using a fair value test.
         Identifiable intangible assets will continue to be amortized over their
         useful lives and reviewed at least annually for impairment using a
         method appropriate to the nature of the intangible asset.

         As required, we adopted SFAS No. 142 on February 3, 2002 and ceased the
         amortization of goodwill accordingly. The following table presents the
         reconciliation of net income and per share data to what we would have
         reported had the new rules been in effect during the 13-week and
         39-week periods ended November 3, 2001 (in thousands, except per share
         data):


         <TABLE>

                                                          13 Weeks Ended          39 Weeks Ended
                                                          November 3, 2001       November 3, 2001
                                                          ----------------       ----------------
        <S>                                                      <C>                    <C>
        Reported net loss                                    $    (324)             $    (1,967)
        Add back goodwill amortization, net of tax                 232                      697
                                                          ----------------       ----------------
        Adjusted net loss                                    $     (92)             $    (1,270)
                                                          ----------------       ----------------

        Basic net loss per common share
        Reported net loss                                    $   (0.03)             $     (0.15)
        Goodwill amortization, net of tax                    $    0.02              $      0.05
        Adjusted net loss                                    $   (0.01)             $     (0.10)


        </TABLE>



(5)      Revolving Credit Facility

         We have a $50.0 million revolving credit facility, under which
         generally we may borrow up to 70% of our eligible inventory and 85% of
         our eligible accounts receivable, as defined. Under the terms of the
         credit facility, the interest rate may increase or decrease subject to
         earnings before interest, tax obligations, depreciation and
         amortization expense (EBITDA), as defined, on a rolling four fiscal
         quarter basis. Accordingly, prime rate borrowings could range from
         prime to prime plus 1.0 % and LIBOR borrowings from LIBOR plus 1.5% to
         LIBOR plus 3.0%. The credit facility expires on March 3, 2006, subject
         to automatic one-year renewal periods, unless terminated earlier by
         either party in accordance with the terms of the revolving credit
         facility agreement. We are obligated to pay fees equal to 0.125% per
         annum on the unused amount of the credit facility. The credit facility
         is secured by a first lien on accounts receivable and inventory.

         At November 2, 2002, based on eligible inventory and accounts
         receivable, we were eligible to borrow $50.0 million under the
         revolving credit facility; and we had outstanding borrowings of $30.0
         million and outstanding standby letters of credit of $5.6 million.


                                       F-7


<PAGE>


(6)      Long-Term Debt

         Our long-term debt consists of Junior Subordinated Notes (the "Notes"),
         which are non-interest bearing and are reflected on our balance sheets
         at the present value using a discount rate of 10%. As of November 2,
         2002, the Notes had a face value of $13.3 million and a related
         unamortized discount of $2.2 million, resulting in a net carrying value
         of $11.1 million. The discount is amortized to interest expense as a
         non-cash charge over the term of the Notes. We made a principal payment
         on the Notes of $2.0 million in December 2001. Additional principal
         payments are scheduled on December 31, 2002 ($2.0 million), December
         31, 2003 ($3.0 million), December 31, 2004 ($3.0 million) and May 28,
         2005 ($5.3 million).

(7)      Income (loss) per Share

         We compute income (loss) per share in accordance with SFAS No. 128,
         "Earnings Per Share." Under the provisions of SFAS No. 128, basic
         earnings (loss) per share is computed based on the weighted average
         shares outstanding. Diluted earnings per share is computed based on the
         weighted average shares outstanding and potentially dilutive common
         equivalent shares.

         Common stock equivalent shares totaling 0, 92,783, 239,162 and 272,967,
         respectively, are not included in the computation of diluted loss per
         share for the 13 weeks and 39 weeks ended November 2, 2002 and
         November 3, 2001 because the effect would be anti-dilutive.

(8)      Provision for Income Taxes

         Based on our estimated effective tax rate for the entire fiscal year,
         which is subject to ongoing review and evaluation, we recorded an
         income tax benefit of $1.8 million and $7.8 million for the 13 weeks
         and 39 weeks ended November 2, 2002, respectively.

(9)      Stock Options and Warrants

         As of November 2, 2002, we had outstanding options to purchase
         1,309,939 shares of our common stock. Included in these outstanding
         stock options are 4,520 performance-based options, which will become
         exercisable if the market price hurdle of $49.78 has been achieved and
         maintained for 60 consecutive trading days. Should this occur, we will
         incur a non-cash compensation expense in the minimum amount of
         $187,000. These performance-based options will expire on
         April 29, 2003.

         At November 2, 2002, warrants to purchase 82,690 shares of our common
         stock were outstanding. These warrants have an exercise price of $19.91
         and expire May 2005.





                                       F-8


<PAGE>


(10)     Note Receivable

         In July 2002, we entered into a temporary bridge financing agreement
         (the "Agreement") with one of our trade vendors (the "Borrower") in
         which we, subject to the terms and conditions of the Agreement,
         provided a $4.0 million revolving line of credit facility to the
         Borrower. Advances made to the Borrower under this Agreement are
         secured by the Borrower's accounts receivable, inventory, personal
         property and other assets including cash. Borrowings under this
         facility are also secured by personal guarantees from the principals of
         the Borrower. This Agreement expired on October 11, 2002, and we have
         not made any direct advances to the Borrower thereafter. As of
         November 2, 2002, there were outstanding borrowings of approximately
         $1.4 million, net of allowance for receivable, under this Agreement.
         Subsequently, we have collected approximately $215,000 from the
         Borrower.

(11)     Subsequent Events

         On December 3, 2002, our Board of Directors adopted a Fiscal 2002
         restructuring plan and other initiatives to improve operating results
         and liquidity. The plan and other initiatives include (1) the closure
         of 23 under-performing stores, of which 12 will be closed immediately
         and 11 will be closed during Fiscal 2003, (2) inventory liquidation in
         conjunction with the store closures and a reduction of inventory levels
         chain-wide, and (3) consolidation of both our distribution center
         network and corporate overhead structure. We estimate these initiatives
         will result in approximately $5.0 million in cost savings in Fiscal
         2003.

         In addition, we announced our intent to reduce the current reserve
         balance related to our Fiscal 2001 restructuring efforts by
         approximately $5.0 million. This reduction is a result of favorable
         experience related to the costs of closing 28 stores previously
         identified in our Fiscal 2001 restructuring efforts.  See Note 3.

         We currently anticipate these initiatives and net of the reduction of
         the prior year restructuring reserve to result in after-tax charges
         of approximately $13.2 million ($6.9 million non-cash), or $1.02 per
         share, in our fourth quarter ending February 1, 2003.

(11)     Legal Matters, Commitments and Contingencies

         We are at all times subject to pending and threatened legal actions
         that arise in the normal course of business. In the opinion of our
         management, based in part on the assessment of legal counsel, the
         ultimate disposition of these current matters will not have a material
         adverse effect on our financial position or results of operations.







                                       F-9


<PAGE>


Item 2.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations

The following discussion and analysis should be read in conjunction with our
Financial Statements and notes thereto, included elsewhere in this Form 10-Q.

General

As of November 2, 2002, we operated 261 "Factory 2-U" off-price retail stores
which sell branded casual apparel for the family, as well as selected domestics
and household merchandise at prices which generally are significantly lower than
the prices offered by other discount chains. We had 273 stores in operation
as of November 3, 2001. We opened 4 new stores during the 13-week period ended
November 2, 2002; we opened 12 new stores and closed 2 stores during the same
period last year. For the 39-week period ended November 2, 2002, we opened 12
new stores and closed 30 stores as compared to 33 new store openings and 3
stores closing for the comparable period last year.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Specifically, we must make estimates in the following areas:

o    Inventory  valuation.  Merchandise inventory is stated at the lower of cost
     or market  determined  using the retail inventory method ("RIM") on a
     first-in,  first-out  basis.  Under the RIM, the valuation of inventory at
     cost and the resulting gross margin are calculated by applying a computed
     cost-to-retail ratio to the retail value of inventory.  RIM is an averaging
     method that has been widely used in the retail industry due to its
     practicality.  Also, it is recognized  that the use of the RIM will result
     in valuing inventory at the lower of cost or market if markdowns are
     currently taken as a reduction of the retail value of inventory.  Inherent
     in the RIM calculation are certain significant management judgments and
     estimates regarding markdowns and shrinkage,  which may from time to time
     cause adjustments to the gross margin in the subsequent period.  Factors
     that can lead to distortion in the  calculation  of the inventory balance
     include  applying the RIM to a group of  merchandise  items that is not
     fairly uniform in terms of its cost and selling price  relationship and
     turnover,  and applying RIM to transactions  over a period of time that
     includes  different  rates of gross profit,  such as those relating to
     seasonal  merchandise  items.  To minimize the potential of such
     distortions  in the  valuation of  inventory  from  occurring,  we utilize
     83 sub-departments  in which fairly homogeneous  classes of merchandise
     items having similar gross margin are grouped.  In addition,  failure to
     take timely markdowns may result in an  overstatement of cost under the
     lower of cost or market  principle.  We believe that the use of our RIM
     provides an inventory valuation that reasonably approximates cost and
     results in carrying inventory at the lower of cost or market.

                                        3


<PAGE>



o    Valuation of goodwill, intangible and other long-lived  assets.  We use
     certain  assumptions in  establishing  the carrying value and estimated
     lives of our long-lived  assets and goodwill.  The criteria used for these
     evaluations  include  management's estimate of the asset's  continuing
     ability to generate  income from operations and positive cash flows. If
     assets are considered to be impaired,  the impairment  recognized is
     measured by the amount that the carrying value of the assets exceeds the
     fair value of the assets.  Useful lives and related  depreciation  or
     amortization  expense are based on our estimate of the period that the
     assets will  generate  revenues or otherwise be used in  operations.
     Factors that would  influence  the  likelihood of a material change in our
     reported  results  include a significant  decline in our stock price and
     market capitalization compared to our net book value, significant changes
     in an asset's  ability to generate  positive  cash flows,  significant
     changes in our strategic business objectives and utilization of the asset.

o    Accrued restructuring costs. We have estimated an amount for the charge and
     the related liability regarding our restructuring initiatives including
     store closures, realignment of our field organization and workforce
     reductions in accordance with the Emerging Issues Task Force ("EITF") Issue
     94-3, "Liability Recognition for Certain Employee Termination Benefits and
     Other Costs to Exit an Activity (including Certain Costs Incurred in a
     Restructuring)." Materially different reported results would be likely if
     the timing and extent of the adopted restructuring plan were changed.

o    Litigation reserves. Based in part on the assessment of our legal counsel,
     estimated amounts for litigation and claims that are probable and can be
     reasonably estimated are recorded as liabilities in the balance sheet. The
     likelihood of a material change in these estimated reserves would be
     dependent on new claims as they may arise and the favorable or unfavorable
     outcome of the particular litigation. We anticipate these reserves will be
     re-evaluated as new facts come to light in any particular case.

o    Worker's compensation accrual.  At the beginning of fiscal 2001, we
     transitioned  to a self-insured  worker's  compensation program.  This new
     program has both specific and  aggregate  stop-loss  limits.  The maximum
     specific  stop-loss is $250,000 per occurrence  and the aggregate stop-loss
     is $3.2  million for the policy year ended  January 31, 2002.  We utilize
     internal  actuarial  methods, as well as an independent third-party actuary
     for the purpose of estimating  ultimate costs for a particular policy year.
     Based on these actuarial methods along with current available  information
     and insurance industry statistics,  the ultimate expected losses for the
     policy year ended  January 31, 2002 were estimated to be  approximately
     $2.6 million.  Our estimate is based on average claims experience in our
     industry and our own experience in terms of frequency and severity of
     claims, with no explicit provision for adverse fluctuation from year to
     year and is subject to inherent variability.  This variability may lead to
     ultimate payments being either greater or less than the amounts  presented
     above.  For the policy year ending January 31, 2003, our self-insured
     worker's  compensation  program includes a maximum  specific  stop-loss
     limit of $250,000 per occurrence with no aggregate stop-loss limit.



                                        4


<PAGE>



o    Valuation of deferred income taxes. Valuation allowances are established,
     if deemed necessary, to reduce deferred tax assets to the amount expected
     to be realized. The likelihood of a material change in our expected
     realization of these assets is dependent on future taxable income, our
     ability to use the net operating loss carryforwards, the effectiveness of
     our tax planning and strategies among the various tax jurisdictions that we
     operate in, and any significant changes in the tax treatment we currently
     receive.


Results of Operations

Net sales were $134.5 million for the 13 weeks ended November 2, 2002 compared
to $145.6 million for the 13 weeks ended November 3, 2001, a decrease of $11.1
million, or 7.6%. Comparable store sales for the 13-week period ended November
2, 2002 decreased 5.6% versus a decrease of 10.5% for the same period last year.

For the 39 weeks ended November 2, 2002, net sales were $379.5 million versus
$410.6 million for the same period last year, a decrease of $31.1 million or
7.6%. Comparable store sales decreased 8.5% in the first 39 weeks of this year
compared to a decrease of 6.6% for the same period last year.

The decline in net sales for the 13 and 39 weeks ended November 2, 2002 from the
comparable periods last year was primarily due to lower average number of stores
in operation, reduced customer traffic, and lower average customer purchase
size.

Gross profit was $44.7 million or 33.2% of net sales for the 13 weeks ended
November 2, 2002 compared to $50.3 million or 34.5% of net sales for the 13
weeks ended November 3, 2001. For the 39 weeks ended November 2, 2002 and
November 3, 2001, gross profit was $126.8 million or 33.4% of net sales and
$141.8 million or 34.5% of net sales, respectively.

The decline in gross profit as a percentage of net sales for the 13 and 39 weeks
ended November 3, 2002 from the comparable periods last year was primarily
related to higher markdown volume and lower initial mark-up. These impacts for
the 39 weeks ended November 3, 2002 were partially offset by improved efficiency
in our distribution centers operation. As a percentage of net sales, our
distribution centers costs for the 13 weeks ended November 3, 2002 were flat
compared to the 13 weeks ended November 3, 2001. The higher markdown rate for
the 13 weeks ended November 3, 2002 was a result of clearing slow-moving
inventory and retail price reductions on selected items to reinforce the value
image of our stores.  In addition to the clearance of slow-moving inventory and
retail price reductions, the higher markdown volume for the 39 weeks ended
November 3, 2002 was also due to increased promotional activity this year, which
included our July chain-wide grand re-opening event.





                                        5


<PAGE>


For the 13 weeks ended November 2, 2002, the selling and administrative expenses
were $49.1 million, which was consistent with the same period last year.
Included in the selling and administrative expenses for the third quarter this
year were consulting fees of $910,000.  As a percentage of net sales, selling
and administrative expenses for the third quarter this year were 36.5%, 280
basis points higher compared to the same period last year. The increase in the
selling and administrative expenses ratio this year was due to lower sales
volume and the consulting fees mentioned above.  Excluding the consulting fees,
our selling and administrative expenses were $48.1 million or 35.8% of net
sales.

For the 39 weeks ended November 2, 2002, the selling and administrative expenses
were $144.9 million or 38.2% of net sales compared to $139.5 million or 34.0% of
net sales for the same period last year. Included in these amounts was a charge
of $2.1 million recorded during the second quarter of this year in conjunction
with the settlement of litigation, and a charge of $1.2 million recorded during
the second quarter of last year related to the retirement and replacement of an
executive officer.  In addition, the current year's selling and administrative
expenses included consulting fees of $2.6 million.

Excluding these charges, selling and administrative expenses were $140.2 million
or 36.9% of net sales and $138.4 million or 33.7% of net sales for the 39 weeks
ended November 2, 2002 and November 3, 2001, respectively. The dollar increase
in selling and administrative expenses was primarily a result of increased
spending for advertising and store occupancy. Selling and administrative
expenses increased as a percentage of net sales due to lower sales volume and
increased spending related to the items cited above.

Pre-opening and closing expenses were $366,000 for the 13 weeks ended November
2, 2002 compared to $1.0 million for the same period last year, a decrease of
approximately $623,000 or 63.0%. For the 39 weeks ended November 2, 2002,
pre-opening and closing expenses were $1.1 million versus $2.9 million for the
same period last year, a decrease of approximately $1.8 million. The decrease in
pre-opening and closing expenses for the 13 and 39 weeks ended November 2, 2002
from the comparable periods last year was due to the opening of 8 and 21 fewer
new stores, respectively, during the current periods versus the same periods
last year.

We did not record any amortization of intangibles for the 13 weeks and 39 weeks
ended November 2, 2002 versus $422,000 and $1.3 million, respectively, recorded
during the same periods last year. This change was due to the elimination of
goodwill amortization in conjunction with the adoption of SFAS No. 142 and
cessation of amortization associated with prior business acquisitions.

For the 39 weeks ended November 3, 2001, we recorded a stock-based compensation
expense of $456,000 due to the removal of the price target of certain stock
options.

Interest expense, net was $515,000 and $1.1 million for the 13 weeks and 39
weeks ended November 2, 2002, respectively, compared to $342,000 and $1.1
million for the comparable periods last year. The increase in the interest
expense for the current quarter was due to higher average outstanding borrowings
on the revolving credit facility.


                                       6


<PAGE>


We recorded an income tax benefit of $1.8 million and $7.8 million for the 13
weeks and 39 weeks ended November 2, 2002, respectively, compared to $234,000
and $1.4 million for the 13 weeks and 39 weeks ended November 3, 2001. The
increase in income tax benefit was the result of an increased pre-tax loss
compared to the same periods a year ago.

For the 13 weeks and 39 weeks ended November 2, 2002, the net loss was $3.5
million and $12.5 million as compared to $324,000 and $2.0 million for the 13
weeks and 39 weeks ended November 3, 2001. The increase in net loss was a result
of the operating and other factors cited above.


Liquidity and Capital Resources

General

We finance our operations through credit provided by vendors and other
suppliers, amounts borrowed under our $50.0 million revolving credit facility,
and internally generated cash flow. Credit terms provided by vendors and other
suppliers are usually net 30 days. Amounts, which may be borrowed under the
revolving credit facility, are based on a percentage of eligible inventory and
accounts receivable, as defined, outstanding from time to time, as more fully
described in Note 5 of Notes to Financial Statements. At November 2, 2002, the
availability under our revolving credit facility was $14.4 million versus $40.4
million as of November 3, 2001.

During the 39 weeks ended November 2, 2002, we used $34.3 million in operating
activities, $8.1 million in investing activities and generated $30.9 million
from financing activities, which resulted a net decrease in cash of $11.5
million. For the same period last year, we generated $3.5 million from operating
activities, used $10.6 million in investing activities and generated $8.4
million from financing activities, which resulted a net increase in cash of $1.3
million. The change in cash flows from operating activities was primarily due to
the higher cumulative operating loss and the reduced number of days payables
were outstanding this year. The decrease in cash used in investing activities
was due to a reduction in capital expenditures associated with fewer new store
openings this year.

We believe that our sources of cash, including the revolving credit facility,
will be adequate to finance our operations, capital requirements and debt
obligations as they become due for the next twelve months.

Capital Expenditures

We anticipate capital expenditures of approximately $1.5 million for the
remainder of the current fiscal year ending February 1, 2003, primarily in
connection with the construction of our new distribution center in San Diego,
California, in which we plan to consolidate both of our existing San Diego


                                       7


<PAGE>


distribution centers.  This distribution center will approximate 600,000 square
feet and have the capability to service up to 400 stores. We anticipate that it
will become operational in our second quarter of fiscal 2003. We estimate the
total capital expenditures for this distribution center at approximately $4.5
million, of which we have already paid $1.3 million. We believe the capital
expenditures for this facility and other capital requirements will be financed
from internal cash flow.


Store Closures and Restructuring Initiatives

As of December 16, 2002, we have closed 24 of the 28 under-performing stores as
identified in our Fiscal 2001 restructuring efforts. In addition, we have closed
six other stores, as a result of either non-renewable leases or relocation
opportunities. We estimate the cash requirement for the remainder of this
current fiscal year for the Fiscal 2001 restructuring efforts will be
approximately $1.6 million, which we intend to fund from our sources of cash,
including the revolving credit facility.

With respect to our Fiscal 2002 restructuring initiatives, as previously
discussed in this report, we have already begun closing activities for 12
stores, which we expect will be closed by the end of January 2003. We also
expect to complete the consolidation of our corporate overhead structure by
February 1, 2003. We will begin the consolidation of our distribution center
network beginning with the closure of two distribution centers in San Diego,
California. We expect these distribution centers to close during the second
quarter of Fiscal 2003 when our new San Diego distribution facility becomes
operational.

Contractual Obligations and Commitments

The following table summarizes our significant contractual obligations, as well
as estimated cash requirements related to our restructuring initiatives, as of
November 2, 2002. These should be read in conjunction with "Note 3 -
Restructuring Charge" and "Note 6 - Long-Term Debt" in the accompanying
unaudited financial statements, as well as our fiscal 2001 Annual Report on Form
10-K as filed with the Securities and Exchange Commission.

<TABLE>


                                                        (in thousands)
                              Junior                                   Accenture
                           Subordinated   Operating   Restructuring    Consulting
                               Notes        Leases       Charge*      Agreement       Total
                          -------------   ---------   -------------    ----------   -----------
<S>                            <C>             <C>          <C>           <C>           <C>
Fiscal Year:
2002 (Remaining 3 months)  $    2,000      $    837       $   1,600     $   196      $   4,633
2003                            3,000        33,726           5,864         -           42,590
2004                            3,000        30,851             -           -           33,851
2005                            5,300        24,113             -           -           29,413
2006                              -          17,736             -           -           17,736
Thereafter                        -          54,647             -           -           54,647
                          -------------   ---------   -------------    ----------   -----------
                           $   13,300      $161,910       $   7,464     $   196      $ 182,870
                          -------------   ---------   -------------    ----------   -----------

</TABLE>


*  Amounts reflect management's best estimate to complete store closures and
   other restructuring initiatives



                                        8


<PAGE>


In the first quarter of fiscal 2002, we entered into a master Consulting
Services Agreement (the "Agreement") with Accenture LLP ("Accenture") to provide
consulting services on merchandise assortment planning and in-season management,
advertising effectiveness and brand development. The Agreement was generally
terminable on a 30-day notice. In August 2002, this Agreement was amended to
reflect a reduction in the scope of services to be provided by Accenture. On
November 12, 2002, we terminated the Agreement. In the aggregate, we paid
Accenture approximately $2.8 million under the Agreement.

During the first quarter of fiscal 2002, we entered into a lease agreement for
our new San Diego distribution facility. The lease is for a term of 12 years.
The monthly minimum base rent payment of approximately $225,000 is expected to
commence in June 2003.


Forward-Looking Statements

In this Quarterly Report on Form 10-Q, we have made both historical and
forward-looking statements. All of our statements other than those of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are not based on
historical facts, but rather reflect our current expectations concerning future
results and events. These forward-looking statements generally may be identified
by the use of phrases such as "believe", "expect", "anticipate", "intend",
"plan", "foresee", "likely", "will" or other similar words or phrases.
Similarly, statements that describe our objectives, plans or goals are or may be
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be different from any future results,
performance or achievements expressed or implied by these statements.

The following important factors, among others, could affect our future results,
causing these results to differ materially from those expressed in any of our
forward-looking statements: general economic and business conditions, trends in
our business and consumer preferences, especially as may be impacted by economic
weakness on consumer spending, the effects of government regulations and
legislation, litigation and other claims that may be asserted against us, the
effects of intense competition, changes in our business strategy or development
plans, including anticipated growth strategies and capital expenditures, the
costs and difficulties of attracting and retaining qualified personnel, the
effects of increasing labor, utility, fuel and other operating costs, our
ability to obtain adequate quantities of suitable merchandise at favorable
prices and on favorable terms and conditions, the effectiveness of our operating
initiatives and advertising and promotional strategies and other risk factors
described in our fiscal 2001 Annual Report on Form 10-K and in our other filings
with the Securities and Exchange Commission.

We do not undertake to publicly update or revise any of our forward-looking
statements, whether as a result of new information, future events and
developments or otherwise, except to the extent that we may be obligated to do
so by applicable law.



                                        9


<PAGE>


Item 3.    Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk on our Junior Subordinated Notes, which are
non-interest bearing and discounted at an annual rate of 10%. At November 2,
2002, our long-term debt had a face value of $13.3 million with a net carrying
value of $11.2 million. While generally an increase in market interest rates
will decrease the value of this debt, and decreases in interest rates will have
the opposite effect, we are unable to estimate the impact that interest rate
changes will have on the value of this debt as there is no active public market
for the debt and we are unable to determine the market interest rate at which
alternate financing would have been available at November 2, 2002.


Item 4.    Controls and Procedures

Evaluation.  Within 90 days prior to the date of this Quarterly Report on
Form 10-Q, we have evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as defined under Rule 13a-14 and Rule
15d-14 of the Securities Exchange Act of 1934, as amended.  This evaluation was
done under the supervision and with the participation of management, including
our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Limitations.  Our management, including the CEO and CFO, does not expect that
our disclosure controls and procedures will necessarily prevent all errors.
Such controls and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that their objectives are met.

Conclusions.  Based upon our evaluation, we have concluded that, subject to the
limitations noted above, our disclosure controls and procedures are effective to
ensure that material information relating to the Company is made known to
management, including the CEO and CFO, particularly during the period when our
periodic reports are being prepared.

Changes in Internal Controls.  There have not been any significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date or our last evaluation of such internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.


                                       10


<PAGE>


PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

           As disclosed in our financial statements for the fiscal year ended
           February 2, 2002 included in our Form 10-K as filed with the
           Securities and Exchange Commission, in December 2000, a former
           employee in our Alameda, California store filed a lawsuit against us
           (the "O'Hara Lawsuit"). This lawsuit alleged that we violated the
           California Labor Code and Internal Wage Commission Orders, by
           classifying store managers and assistant managers as exempt salaried
           employees and thereby failing to pay them overtime. On November 7,
           2002, the court entered an order approving the settlement. However,
           the settlement does not become effective until the later of 60 days
           after November 7, 2002 (January 6, 2003) and until any appeals from
           the court's order are resolved. To date, we are unaware of any appeal
           of the court's order.

Item 2.   Changes in Securities and Use of Proceeds

          None.

Item 3.   Defaults Upon Senior Securities

          None.

Item 4.   Submission of Matters to a Vote of Security Holders

          None.

Item 5.   Other Information

          None.

Item 6.   Exhibits and Reports on Form 8-K

          (a)   Exhibit

                99.1  Certification  pursuant to 18 U.S.C. Section 1350, as
                      adopted pursuant to Section 906 of the Sarbanes-Oxley
                      Act of 2002 by William R. Fields, Chief Executive Officer.

                99.2  Certification  pursuant to 18 U.S.C. Section 1350, as
                      adopted  pursuant to Section 906 of the  Sarbanes-Oxley
                      Act of 2002 by Douglas C. Felderman, Executive Vice
                      President and Chief Financial Officer.





                                       11


<PAGE>



          (b)   Reports on Form 8-K

                Item 5 - On November 19, 2002, we filed a report on Form 8-K
                regarding the appointment of William R. Fields as Chairman and
                Chief Executive Officer of the Company effective November 7,
                2002 and the appointment of Ronald Rashkow as the Lead Director
                of the Board of Directors effective November 4, 2002.








































                                       12


<PAGE>



                                   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.


FACTORY 2-U STORES, INC.

Date: December 17, 2002




By:    /s/Douglas C. Felderman
       ------------------------
       Name:  Douglas C. Felderman
       Title: Executive Vice President and Chief Financial Officer
              (duly authorized officer and principal financial officer)




























                                       13


<PAGE>



                                  CERTIFICATION


I, William R. Fields, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Factory 2-U Stores,
    Inc. (the "Registrant").

2.  Based on my knowledge, this quarterly report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this quarterly report.

3.  Based on my knowledge, the financial statements, and other financial
    information included in this quarterly report, fairly present in all
    material respects the financial condition, results of operations and cash
    flows of the Registrant as of, and for, the periods presented in this
    quarterly report.

4.  The Registrant's other certifying officer and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

    (a)  designed such disclosure controls and procedures to ensure that
         material information relating to the Registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

    (b)  evaluated the effectiveness of the Registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

    (c)  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.  The Registrant's other certifying officer and I have disclosed, based on our
    most recent evaluation, to the Registrant's auditors and the audit committee
    of Registrant's board of directors (or persons performing the equivalent
    function):

    (a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the Registrant's ability to
         record, process, summarize and report financial data and have
         identified for the Registrant's auditors any material weaknesses in
         internal controls; and



                                       14


<PAGE>



    (b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the Registrant's internal
         controls; and

6.  The Registrant's other certifying officers and I have indicated in this
    quarterly report whether or not there were significant changes in internal
    controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and material
    weaknesses.



Date:  December 17, 2002                        /s/ William R. Fields
                                                ---------------------
                                                Name:  William R. Fields
                                                Title: Chief Executive Officer































                                       15


<PAGE>


                                  CERTIFICATION


I, Douglas C. Felderman, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Factory 2-U Stores,
    Inc. (the "Registrant").

2.  Based on my knowledge, this quarterly report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this quarterly report.

3.  Based on my knowledge, the financial statements, and other financial
    information included in this quarterly report, fairly present in all
    material respects the financial condition, results of operations and cash
    flows of the Registrant as of, and for, the periods presented in this
    quarterly report.

4.  The Registrant's other certifying officer and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

    (a)  designed such disclosure controls and procedures to ensure that
         material information relating to the Registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

    (b)  evaluated the effectiveness of the Registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

    (c)  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.  The Registrant's other certifying officer and I have disclosed, based on our
    most recent evaluation, to the Registrant's auditors and the audit committee
    of Registrant's board of directors (or persons performing the equivalent
    function):

    (a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the Registrant's ability to
         record, process, summarize and report financial data and have
         identified for the Registrant's auditors any material weaknesses in
         internal controls; and




                                       16


<PAGE>



    (b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the Registrant's internal
         controls; and

6.  The Registrant's other certifying officers and I have indicated in this
    quarterly report whether or not there were significant changes in internal
    controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and material
    weaknesses.



Date:  December 17, 2002                     /s/ Douglas C. Felderman
                                             ------------------------
                                             Name: Douglas C. Felderman
                                             Title:Executive Vice President and
                                                     Chief Financial Officer






























                                       17