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 August 4, 2001
                                      --------------

                                            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
September 10, 2001 was 12,823,370 shares.




<PAGE>


                            FACTORY 2-U STORES, INC.

             FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 4, 2001

                                     INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

        Factory 2-U Stores, Inc. Balance Sheets as of August 4, 2001 (Unaudited)
        and February 3, 2001................................................F-1

        Factory 2-U Stores, Inc. Statements of Operations (Unaudited) for the
        13 weeks ended August 4, 2001 and July 29, 2000; 26 weeks ended
        August 4, 2001 and July 29, 2000 ...................................F-3

        Factory 2-U Stores, Inc. Statements of Cash Flows (Unaudited) for the
        26 weeks ended August 4, 2001 and July 29, 2000 ....................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............8


PART II.OTHER INFORMATION

Item 1. Legal Proceedings ....................................................9
Item 2. Changes in Securities and Use of Proceeds.............................9
Item 3. Defaults Upon Senior Securities.......................................9
Item 4. Submission of Matters to a Vote of Security Holders...................9
Item 5. Other Information ....................................................9
Item 6. Exhibits and Reports on Form 8-K .....................................9
Signatures    ...............................................................10




                                        2


<PAGE>


                                     PART I

Item 1.   Financial Statements

<TABLE>
<CAPTION>

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



                                                              August 4,          February 3,
                                                                2001                2001
                                                            ------------        ------------
<S>                                                         <C>                 <C>
                                                             (Unaudited)
ASSETS
Current assets
  Cash                                                        $   8,229           $   4,739
  Merchandise inventory                                          76,558              52,444
  Accounts receivable                                             3,038               3,160
  Prepaid expenses                                                7,246               4,716
  Deferred income taxes                                           2,503               2,503
                                                            ------------        ------------
            Total current assets                                 97,574              67,562

Leasehold improvements and equipment,
  net of accumulated depreciation and amortization               42,265              40,632
Deferred income taxes                                             4,992               4,992
Other assets                                                      1,096               1,176
Excess of cost over net assets acquired, less accumulated
  amortization of $12,543 and $11,742, respectively              27,102              27,903
                                                           -------------        ------------

            Total assets                                      $ 173,029           $ 142,265
                                                           =============        ============

</TABLE>





















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

                                   (continued)


                                       F-1



<PAGE>


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

<TABLE>
<CAPTION>


                                                                August 4         February 3,
                                                                  2001              2001
                                                              -----------       ------------
<S>                                                           <C>               <C>
                                                              (Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt and capital leases      $   2,099          $   2,170
  Accounts payable                                                48,218             25,194
  Taxes payable                                                    2,009              8,144
  Accrued expenses                                                15,378             13,158
                                                              -----------       ------------
            Total current liabilities                             67,704             48,666

Revolving credit facility                                         11,600               -
Long-term debt                                                     9,791              9,218
Capital leases and other long-term obligations                     1,064              1,126
Deferred rent                                                      3,654              3,518
                                                             ------------       ------------

            Total liabilities                                     93,813             62,528
                                                             ------------       ------------


Stockholders' equity
  Common stock, $0.01 par value; 35,000,000 shares authorized and 12,821,779
    shares and 12,759,304 shares issued and outstanding,
    respectively                                                     128                127
  Stock subscription notes receivable                             (2,225)             (2,225)
  Additional paid-in capital                                     120,767             119,646
  Accumulated deficit                                            (39,454)            (37,811)
                                                             ------------       -------------

            Total stockholders' equity                            79,216              79,737
                                                            -------------       -------------

            Total liabilities and stockholders' equity         $ 173,029           $ 142,265
                                                            =============       =============

</TABLE>








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


                                       F-2


<PAGE>


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

<TABLE>
<CAPTION>

                                                          13 Weeks Ended                26 Weeks Ended
                                                          --------------                --------------
                                                      August 4,       July 29,       August 4,       July 29,
                                                        2001            2000           2001            2000
                                                     ----------      ----------     ----------     ----------
<S>                                                  <C>             <C>            <C>            <C>
Net sales                                            $ 139,254       $ 116,678      $ 265,078      $ 225,053
Cost of sales                                           89,434          74,543        173,499        144,693
                                                     ----------      ----------     ----------     ----------
     Gross profit                                       49,820          42,135         91,579         80,360

Selling and administrative expenses                     47,791          36,112         90,438         68,958
Pre-opening and closing expenses                         1,038             664          1,892          2,362
Amortization of intangibles                                422             559            845          1,148
Condemnation award                                        -             (1,240)          -            (1,240)
Stock-based compensation expense                           456           2,751            456          2,751
                                                     ----------      ----------     ----------     ----------
     Operating income (loss)                               113           3,289         (2,052)         6,381

Interest expense, net                                     450             473            781            823
                                                     ----------      ----------     ----------     ----------
Income (loss) before income taxes                         (337)          2,816         (2,833)         5,558
Income tax provision (benefit)                            (142)          1,155         (1,190)         2,295
                                                     ----------      ----------     ----------     ----------
Net income (loss)                                    $    (195)      $   1,661      $  (1,643)     $   3,263
                                                     ==========      ==========     ==========     ==========


Income (loss) per share
     Basic                                           $   (0.02)      $    0.13      $   (0.13)     $    0.26
     Diluted                                         $   (0.02)      $    0.13      $   (0.13)     $    0.25


Weighted average common shares outstanding
     Basic                                              12,806          12,492         12,788         12,452
     Diluted                                            12,806          13,030         12,788         12,929

</TABLE>


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



                                       F-3

<PAGE>


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

<TABLE>
<CAPTION>

                                                                        26 Weeks Ended
                                                                        --------------
                                                               August 4, 2001      July 29, 2000
                                                               --------------      -------------
<S>                                                            <C>                 <C>
Cash flows from operating activities:
  Income (loss) from operating activities                        $ (1,643)           $  3,263
    Adjustments to reconcile net income to net cash
      used in operating activities:
        Depreciation                                                6,691               4,743
        Amortization of intangibles                                   845               1,148
        Amortization of debt discount                                 573                 565
        Loss on disposal of equipment                                 125                 554
        Deferred rent expense                                         214                 277
        Stock-based compensation expense                              456               2,751
        Changes in operating assets and liabilities:
          Merchandise inventory                                   (24,114)            (30,254)
          Prepaid expenses and other assets                        (2,398)             (4,020)
          Accounts payable                                         23,024              23,952
          Accrued expenses and other liabilities                   (4,635)             (3,452)
                                                              ---------------      ------------
Net cash used in operating activities                                (862)               (473)
                                                              ---------------      ------------

Cash flows from investing activities:
  Purchase of leasehold improvements and equipment                 (7,589)            (10,265)
                                                              ---------------      ------------
Net cash used in investing activities                              (7,589)            (10,265)
                                                              ---------------      ------------


Cash flows from financing activities:
  Borrowings on revolving credit facility                          59,872              77,011
  Payments on revolving credit facility                           (48,272)            (70,011)
  Payments on long-term debt and capital lease obligations            (90)               (136)
  Payment of deferred debt issuance costs                             (40)               (275)
  Payments of stock subscription notes receivable                    -                    169
  Proceeds from exercise of stock options                             471               1,404
                                                              ---------------      -----------
Net cash provided by financing activities                          11,941               8,162
                                                              ---------------      -----------

Net increase (decrease) in cash                                     3,490              (2,576)
Cash at the beginning of the period                                 4,739               9,473
                                                              ---------------      -----------
Cash at the end of the perod                                     $  8,229            $  6,897
                                                              ===============      ===========

Supplemental disclosure of cash flow information:
  Cash paid durng the period for:
    Interest                                                     $    572            $    257
    Income taxes                                                 $  5,521            $  4,587

Supplemental disclosure of non-cash financing activities:
    Issuance of common stock to board members as compensation    $     69            $     79


</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 generally accepted accounting
         principles for annual financial statements and should be read in
         conjunction with the financial statements for the fiscal year ended
         February 3, 2001 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 26 weeks ended August 4, 2001 and July 29, 2000 reflect all
         adjustments (which include normal recurring adjustments) necessary to
         present fairly our 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 fiscal 2001 financial statements.

(2)      New Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board (the "FASB")
         issued two new pronouncements: Statement of Financial Accounting
         Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142,
         "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
         purchase method of accounting be used for all business combinations
         initiated after June 30, 2001 and that the use of the
         pooling-of-interests method is no longer permitted. SFAS No. 142
         requires that upon adoption, amortization of goodwill will cease and
         instead, the carrying value of goodwill will be evaluated for
         impairment at least annually using a fair value test. Other
         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. We are
         required to implement SFAS No.141 on July 1, 2001 and SFAS No. 142 at
         the beginning of our next fiscal year, February 2, 2002. We are
         currently evaluating the impact of the adoption of these standards and
         have not yet determined the effect, if any, that their adoption will
         have on our financial position or results of operations.





                                          F-5
<PAGE>


 (3)     Revolving Credit Facility

         We have a $50.0 million revolving credit facility, under which we may
         borrow up to 70% of our eligible inventory and 85% of our eligible
         accounts receivable, as defined. The credit facility includes a $5.0
         million sub-facility for letters of credit. 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 0.50% and LIBOR borrowings from LIBOR plus 1.50% to
         LIBOR plus 2.50%. The credit facility expires on March 3, 2003, subject
         to automatic one-year renewal periods, unless terminated earlier by
         either party. 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 and
         requires us to maintain specified levels of tangible net worth in the
         event that our borrowing availability is less than $10.0 million.

         At August 4, 2001, based on eligible inventory and accounts receivable,
         we were eligible to borrow $50.0 million under the revolving credit
         facility, of which $1.6 million was outstanding at a prime rate of
         6.75% and $10.0 million was outstanding at the 30-day LIBOR rate of
         5.3%.

(4)      Long-term Debt
         ---------------

         Our long-term debt consists of Junior Subordinated 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 August 4, 2001, the
         Junior Subordinated Notes had a face value of $15.3 million and a
         related unamortized discount of $3.5 million, resulting in a net
         carrying value of $11.8 million. The discount is amortized to interest
         expense as a non-cash charge until the notes are paid in full. We made
         a principal payment on the Junior Subordinated Notes of $1.0 million in
         December 2000. Additional principal payments are scheduled on December
         31, 2001 and December 31, 2002 ($2.0 million), December 31, 2003 and
         December 31, 2004 ($3.0 million) and on May 28, 2005 ($5.3 million).










                                       F-6


<PAGE>


(5)      Earnings (loss) per Share

         We compute earnings (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
         stock equivalent shares. At August 4, 2001, we had 1,279,387 anti-
         dilutive stock options outstanding.  Common stock equivalent shares are
         not included in the computation of diluted loss per share for the 13
         weeks and 26 weeks ended August 4, 2001 because the effect would be
         anti-dilutive.

         The following table sets forth the computation of basic and diluted
         earnings per share for the periods indicated.


<TABLE>
<CAPTION>


                                                             13 Weeks Ended             26 Weeks Ended
                                                             --------------             --------------
                                                         August 4,     July 29,      August 4,      July 29,
                                                           2001          2000           2001          2000
                                                         ---------     --------      --------       --------
<S>                                                      <C>           <C>           <C>            <C>
                                                                 (in thousands, except per share data)

Net income (loss)                                         $  (195)       $ 1,661        $ (1,643)        $ 3,263

Weighted average number of common shares outstanding       12,806         12,492          12,788          12,452

Effect of dilutive securities:
  Warrants that are common stock equivalents                 -                38            -                 29
  Options that are common stock equivalents                  -               500            -                448

Adjusted common shares outstanding used for
  diluted computation                                      12,806         13,030          12,788          12,929


Earnings (loss) per share:
  Basic                                                   $ (0.02)       $  0.13       $   (0.13)        $  0.26
  Diluted                                                 $ (0.02)       $  0.13       $   (0.13)        $  0.25

</TABLE>



(6)      Stock Options and Warrants

         As of August 4, 2001, we had outstanding options to purchase 1,279,387
         shares of our common stock. Included in these outstanding stock options
         are 46,144 performance-based options. These performance-based options
         are designed to become exercisable when the closing price of our common
         stock remains at or above the price target of $49.78 for 60 consecutive
         trading days. If they become exercisable, we will incur a minimum
         non-cash charge of $1.9 million. Of these performance-based options,
         36,201 will expire on April 3, 2002 and the balance will expire on
         various dates through April 29, 2003.



                                       F-7
<PAGE>


         During the second quarter, we removed the price target of $49.78 for
         19,361 stock options held by the Executive Vice President - General
         Merchandise Manager who retired in August 2001. As a result of the
         removal of the price target, we incurred a non-cash charge of $456,000
         for the 13 weeks ended August 4, 2001.

         At August 4, 2001, we had outstanding warrants to purchase 82,690
         shares of our common stock. These warrants have an exercise price of
         $19.91 and expire in May 2005.

(7)      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 advice 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-8


<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 August 4, 2001, we operated 263 stores compared to 211 stores as of July
29, 2000, an increase of 52 stores or 25%. We opened 12 new stores during the
13-week period ended August 4, 2001, and opened 11 new stores and closed 3
stores in the same period last year. For the 26 weeks ended August 4, 2001, we
opened 21 new stores and closed 1 store as compared to 36 new store openings and
12 store closings for the comparable period last year.

Results of Operations

Net sales were $139.3 million for the 13 weeks ended August 4, 2001 compared to
$116.7 million for the 13 weeks ended July 29, 2000, an increase of $22.6
million, or 19.3%. Comparable store sales for the second quarter decreased 2.4%
versus an increase of 2.7% for the same period last year.

For the 26 weeks ended August 4, 2001, net sales were $265.1 million versus
$225.1 million the same period last year, an increase of $40.0 million or 17.8%.
Comparable store sales decreased 4.2% in the first 26 weeks of this year
compared to an increase of 3.4% for the same period last year.

The increase in sales for the 13 and 26 weeks ended August 4, 2001 was due to 52
more stores in operation than a year ago. The comparable store sales decline for
both periods was due to lower traffic counts.

Gross profit was $49.8 million or 35.8% of net sales for the 13 weeks ended
August 4, 2001 compared to $42.1 million or 36.1% for the 13 weeks ended July
29, 2000.

For the 26 weeks ended August 4, 2001 and July 29, 2000, gross profit was $91.6
million or 34.5% of net sales and $80.4 million or 35.7% of net sales,
respectively.

The dollar increase in gross profit for the 13 and 26 weeks ended August 4,
2001 from the comparable periods last year was due to more stores in operation
this year. The decline in gross profit as a percentage of net sales for the 13
and 26 weeks ended August 4, 2001 was primarily attributable to higher markdown
volume and distribution center processing costs, partially offset by a higher
initial mark up on merchandise purchases.



                                        3

<PAGE>


Selling and administrative expenses were $47.8 million or 34.3% of net sales for
the 13 weeks ended August 4, 2001 compared to $36.1 million or 31.0% of net
sales for the 13 weeks ended July 29, 2000.

For the 26 weeks ended August 4, 2001, selling and administrative expenses were
$90.4 million or 34.1% of net sales versus $69.0 million or 30.6% of net sales
for the same period last year.

Included in the selling and administrative expenses for the second quarter of
this year was a charge of $1.2 million related to the retirement and replacement
of our former Executive Vice President - General Merchandise Manager. In
addition, the dollar increase in selling and administrative expenses for the 13
and 26 weeks ended August 4, 2001 was a result of additional new stores,
increased labor rates due to minimum wage increases, higher advertising costs
and higher utility costs in certain operating areas. Selling and administrative
expenses increased as a percent of sales for both the 13 and 26 weeks ended
August 4, 2001 was due to lower sales volume from new stores, a decline in
comparable store sales and the items cited above.

Pre-opening and closing expenses were $1.0 million for the 13 weeks ended August
4, 2001 compared to $664,000 for the same period last year, an increase of
approximately $374,000. The increase was primarily attributable to the opening
of one more store than the same period last year, higher advertising and other
start-up costs in new markets.

For the 26 weeks ended August 4, 2001, the pre-opening and closing expenses were
$1.9 million versus $2.4 million the same period last year, a decrease of
approximateley $470,000. The decrease was primarily due to 15 fewer new store
openings this year.

During the 13 weeks ended July 29, 2000, we recorded a non-recurring gain of
$1.2 million related to a condemnation award from the City of San Diego for a
store located in downtown San Diego, California.

Interest expense was $450,000 and $781,000 for the 13 weeks and 26 weeks ended
August 4, 2001, respectively, versus $473,000 and $823,000 for the comparable
periods last year. The continued decrease in interest expense for both periods
was primarily due to lower average outstanding borrowings and lower interest
rate on the revolving credit facility.

We incurred a net loss of $195,000 and $1.6 million for the 13 weeks and 26
weeks ended August 4, 2001 compared to net income of $1.7 million and $3.3
million for the comparable periods last year. The decline in net income was a
result of the operating and other factors cited above.







                                        4
<PAGE>


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 30 days. Amounts that 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 3 of Notes to Financial Statements.

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 at least the next twelve months. See Notes 3
and 4 of Notes to Financial Statements.

Cash Flows

Cash used in operating activities for the 26 weeks ended August 4, 2001 was
$862,000 versus $473,000 in the same period last year.  The decline in cash flow
from operating activities was primarily due to the net loss we incurred during
the current period.  Cash used in investing activities for the 26 weeks ended
August 4, 2001 was $7.6 million as compared to $10.3 million in the same period
last year.  Investing activities relate primarily to capital expenditures for
both new and existing stores.  The decrease in capital expenditures from the
prior year was a result of fewer new stores opened in fiscal 2001.  Cash
provided by financing activities, primarily from borrowings on our revolving
credit facility, for the 26 weeks ended August 4, 2001 was $11.9 million versus
$8.2 million in the same period last year.  The increase in borrowings was
primarily due to the timing of payments.  For the 26 weeks ended August 4, 2001,
the net increase in cash was $3.5 million versus a decrease of $2.6 million for
the same period last year.

Capital Expenditures

We anticipate capital expenditures of approximately $7.6 million during the
remainder of the current fiscal year ending February 2, 2002, which include
costs to open approximately 25 new stores, to renovate existing stores, for
store replacement capital and to upgrade information systems.  Due to the
general softness in the economy, we will open fewer new stores than originally
planned.  We now expect the number of net new stores to be between 46 to 53 for
this fiscal year, approximately a 20% new store growth rate as compared to the
originally planned 25% growth rate. We believe that future capital expenditures
will be financed from internally generated cash flow.

We are currently developing a plan to relocate and expand our current
distribution center in San Diego, California. This new distribution center will
be approximately 600,000 square feet and service our California, Washington,
Oregon, Arizona, Nevada and New Mexico markets. It is anticipated to become
operational during our third quarter of fiscal 2002. We anticipate capital
expenditures of approximately $5.0 million on capital expenditures for this
facility will be financed from internally generated cash flow in fiscal 2002.


                                      5

<PAGE>

Inflation

In general, we believe that inflation has had no recent material impact on our
operations and none is anticipated in the next fiscal year.

Minimum Wage Increases

We employ a substantial number of employees in our stores who earn hourly wages
near or at the minimum wage. Actions by both the federal and certain state
governments have increased and may continue to increase the hourly wages that we
must pay to such employees. Historically, we have mitigated such increases
through policies to manage our ratio of wages to sales. However, we can make no
assurances that these measures and other steps taken will be adequate to control
the impact of any hourly wage increases in the future, which may have a negative
impact on our future profitability.

California Utility Costs

In California, where we currently operate 124 stores, representing 47% of our
total store base, utility costs for electricity and natural gas have risen
significantly over the past year. These costs may continue to increase due to
the actions of federal and state governments and agencies, as well as other
factors beyond our control. We have attempted to mitigate such increases through
energy conservation measures and other cost reduction steps. However, we can
make no assurances that these measures and other steps taken will be adequate to
control the impact of these utility cost increases in the future, nor can we
make assurances as to what impact these utility cost increases may have on our
sales related to our core customer base in California.

Seasonality and Quarterly Fluctuations

We have historically realized our highest level of sales and income during the
third and fourth quarters of our fiscal year (the quarters ending in October and
January, respectively) as a result of the "Back to School" (August and
September) and Holiday (November and December) seasons. The seasonally lower
sales in our first two quarters (February through July), can result in losses
during these quarters even in years in which we will have full year profits.

Cautionary Statement Concerning Forward-Looking Statements

In this Quarterly Report on Form 10-Q, we have made both historical and forward-
looking statements.  All of ourstatements 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


                                     6
<PAGE>

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 factors that
may be described from time to time in our Annual Report on Form 10-K and other
filings that we may make 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.



















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<PAGE>


Item 3.    Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk on our long-term debt, which is
non-interest bearing and is discounted at an annual rate of 10%. At August 4,
2001, our long-term debt had a face value of $15.3 million with a net carrying
value of $11.8 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 August 4, 2001. In addition, we
are exposed to interest rate risk on our revolving credit facility, with the
outstanding balance accruing interest at variable rates, based on either prime
or LIBOR. Depending upon prevailing market conditions, the base prime or LIBOR
rates at which our borrowings are charged interest could be affected.





























                                        8


<PAGE>


                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings
                  See our Form 10-K for the fiscal year ended February 3, 2001.

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

Our annual meeting of stockholders was held on June 21, 2001. Peter V. Handal,
Ronald Rashkow and Wm. Robert Wright II were re-elected at the meeting to hold
the office of director and to serve until the annual meeting of stockholders in
2004 or until their successors are elected. The number of votes cast were as
follows:

                           Votes for:            Votes withheld:
                           ----------            ---------------
Peter V. Handal            10,870,657                282,853
Ronald Rashkow             10,870,707                282,803
Wm. Robert Wright II       10,785,167                368,343

Other directors whose terms of office continued after the meeting were Willem de
Vogel and Michael M. Searles.

The other matter voted on and approved at the meeting was the ratification of
Arthur Andersen LLP as independent accountants and the results of that vote were
as follows:

Votes for:                 11,120,385
Votes against:                 29,378
Votes withheld:                 3,747


Item 5.   Other Information
                  None.

Item 6.   Exhibits and Reports on Form 8-K
                  None.



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<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: September 13, 2001




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

























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