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

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

                  For the quarterly period ended October 30, 1999

                                       Or

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

                       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  of common stock,  as of
October 30, 1999, was 12,377,136 shares.




<PAGE>


                            FACTORY 2-U STORES, INC.

            FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 30, 1999
                                      INDEX


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Factory 2-U Stores, Inc. Balance Sheets as of October 30, 1999
(Unaudited) and January 30, 1999 ............................................F-1

Factory 2-U Stores, Inc. Statements of Operations (Unaudited) for the
13 weeks ended October 30, 1999 and October 31, 1998.........................F-3

Factory 2-U Stores, Inc. Statements of Operations (Unaudited) for the
39 weeks ended October 30, 1999 and October 31, 1998 ........................F-4

Factory 2-U Stores, Inc. Statements of Cash Flows (Unaudited) for the
39 weeks ended October 30, 1999 and October 31, 1998 ........................F-5

Factory 2-U Stores, Inc. Notes to Consolidated Financial Statements
(Unaudited)       ...........................................................F-7

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

PART II. OTHER INFORMATION

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







                                       2

<PAGE>



                                     PART I

Item 1.   Financial Statements

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

                                                 October 30,         January 30,
                                                     1999                1999
                                           -----------------   -----------------
                                                        (Unaudited)
ASSETS
Current assets:
     Cash                                        $     4,341          $    3,124
     Merchandise inventory                            54,233              31,353
     Prepaid expenses and other assets                 2,698               1,137
     Deferred income taxes                             1,747               1,690
                                                       ------              -----
     Total current assets                             63,019              37,304


Leasehold improvements and equipment,
  net of accumulated depreciation and amortization    25,314              18,187

Deferred income taxes                                    937               1,149

Other assets                                           1,772               2,419

Excess of cost over net assets acquired,
 less accumulated amortization of $9,736
 and $8,537 at October 30, 1999 and
 January 30, 1999, respectively                       29,906              31,108

                                                     -------              ------
         Total assets                            $   120,948         $    90,167
                                                 ============        ===========









                                  (continued)


                                      F-1



<PAGE>


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


                                                  October 30,        January 30,
                                                     1999                1999
                                               --------------    ---------------
                                                          (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current maturities of long-term debt
       and capital lease obligations             $     1,275         $     1,818

     Accounts payable                                 35,373              21,258

     Income taxes payable                              1,885               2,656

     Accrued expenses                                 17,804              20,151

     Revolving credit notes                           13,468                   -
                                                     -------             -------
     Total current liabilities                        69,805              45,883


Revolving credit notes                                     -               1,843
Long-term debt, less current maturities               10,779              10,530
Capital leases and other long-term obligations         2,983               2,257
Deferred rent                                          2,404               1,889
                                                      ------               -----


     Total liabilities                                85,971              62,402



Stockholders' equity:
  Series A  convertible  preferred  stock,
   $0.01 par value;  0 and 4,500,000
   shares  authorized,   0  shares  issued
   and  outstanding   (aggregate liquidation
   preference of $0) at October 30, 1999
   and January 30, 1999                                     -                  -

  Series B junior convertible, exchangeable
   preferred stock, $0.01 par value;
   40,000 shares authorized, 0 shares issued
   and outstanding (aggregate liquidation
   preference of $0) at October 30, 1999
   and January 30, 1999, respectively                       -                  -

  Common stock, $0.01 par value, 35,000,000
   shares authorized and 12,377,136 shares
   issued and outstanding at October 30, 1999,
   and 80,000,000 shares authorized and
   12,106,175 shares issued and outstanding
   at January 30, 1999                                   124                 121

  Stock subscription notes receivable                (3,885)             (4,087)

  Additional paid-in capital                         107,003             103,248

  Accumulated deficit                               (68,265)            (71,517)
                                                    --------            --------


     Total stockholders' equity                       34,977              27,765

                                                     -------              ------

     Total liabilities and stockholders' equity  $   120,948         $    90,167
                                                 ============        ===========



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


                                      F-2


<PAGE>


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

                                                         13 Weeks Ended
                                               ---------------------------------
                                                    October 30,     October 31,
                                                        1999             1998
                                               ----------------  ---------------

Net sales                                         $   104,551        $    84,978
Cost of sales                                          67,191             56,193
                                                      -------             ------

     Gross profit                                      37,360             28,785


Selling and administrative expenses                    31,162             24,812

Amortization of intangibles                               590                591

Stock option compensation expense                       2,094                  -
                                                       ------             ------


             Operating income (loss)                    3,514              3,382

Interest expense                                          622              1,071
                                                      -------            -------


Income (loss) before income taxes                       2,892              2,311


Income taxes                                            1,186                 60
                                                     --------           --------

     Income (loss) before dividends                     1,706              2,251

Preferred stock dividends - Series A                        -              (865)

Preferred stock dividends - Series B                        -              (779)
                                                     --------          ---------

     Net Income (loss) available
         to common stockholders                   $    1,706          $      607
                                                  ===========         ==========


Earnings (loss) per share:
     Basic                                        $    0.14           $     0.40

     Diluted                                      $    0.13           $     0.23



Weighted average common shares outstanding
             Basic                                     12,230              1,508
             Diluted                                   13,022              9,962








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

                                      F-3

<PAGE>


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

                                                        39 weeks Ended
                                             -----------------------------------
                                               October 30,     October 31, 1998
                                                  1999
                                             ---------------  ------------------

Net sales                                         $  281,581        $    224,929
Cost of sales
                                                     181,571             149,336
                                                    --------             -------
             Gross profit                            100,010              75,593

Selling and administrative expenses                   88,812              70,336

Amortization of intangibles                            1,769               1,770

Stock option compensation expense                      2,094                   -

Special charges                                            -               1,500
                                                    --------            --------

             Operating income (loss)                   7,335               1,987


Interest expense                                       1,824               3,443
                                                    --------            --------



Income (loss) before income
   taxes and extraordinary item                        5,511             (1,456)

Income taxes
                                                       2,259                 159
                                                    --------            --------

     Income (loss) before extraordinary item           3,252             (1,615)


Extraordinary item - debt extinguishmen
   (less applicable income taxes of $0)                   -              (2,750)
                                                    -------             --------


     Income (loss) before dividends                   3,252              (4,365)

Preferred stock dividends - Series A                      -              (2,593)

Preferred stock dividends - Series B                      -              (2,210)
                                                    -------             --------

     Net income (loss) available
     to common stockholders                      $    3,252         $    (9,168)
                                                 ===========        ============

Earnings (loss) per share:

     Basic:
       Income (loss) before extraordinary item   $     0.27         $     (4.28)
       Extraordinary item                        $        -         $     (1.83)
       Net income (loss)                         $     0.27         $     (6.11)

     Diluted:
       Income (loss) before extraordinary item   $     0.25         $     (4.28)
       Extraordinary item                        $        -         $     (1.83)
       Net income (loss)                         $     0.25         $     (6.11)

Weighted average common shares outstanding
             Basic                                   12,157                1,501

             Diluted                                 12,804                1,501


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

                                       F-4

<PAGE>



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

                                                          39 weeks ended
                                                  ------------------------------
                                                   October 30,      October 31,
                                                       1999             1998
                                                ---------------- ---------------
Cash flows from operating activities:
 Income (loss) before dividends                       $    3,252     $   (4,365)
   Adjustments to reconcile income (loss)
     to net cash used in operating activities:
      Depreciation and amortization                        6,545           5,258
      Debt discount amortization                             848           1,161
      Extraordinary loss on debt extinguishment                -           2,750
      Loss on disposal of equipment                          464             159
      Deferred rent expense                                  515           (355)
      Stock option compensation expense                       83               -
      Option performance charge                            2,094               -
      Changes in operating assets and liabilities:
        Merchandise inventory                           (22,880)        (11,746)
        Prepaid expenses and other assets                (1,324)         (2,101)
        Accounts payable                                 14,115           11,086
        Accrued expenses and other                       (2,200)           (798)
                                                  --------------  --------------

Net cash used in operating activities                      1,512           1,049
                                                  --------------  --------------

Cash flows from investing activities:
     Purchase of leasehold improvements and equipment   (12,368)         (4,299)


Net cash used in investing activities                   (12,368)         (4,299)
                                                 ---------------  --------------











                                  (continued)


                                      F-5

<PAGE>


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


                                                       39 weeks ended
                                             -----------------------------------
                                                 October 30,         October 31,
                                                     1999                1998
                                                ------------       -------------
Cash flows from financing activities:
  Borrowings on revolving credit facility            316,293             253,509
  Payments on revolving credit facility            (304,668)           (240,246)
  Payments on notes payable and
   capital lease obligations                         (1,335)             (5,239)
  Proceeds from issuance of common stock                  3                    -
  Buyback of warrants                                 (457)                    -
  Proceeds from exercise of stock options             1,623                    -
  Proceeds from exercise of warrants                    412                    -
  Payment of deferred debt issuance costs                 -                 (70)
  Proceeds from stock subscription notes receivable     202                   -
  Payment of dividends on Series A preferred stock        -              (2,592)
                                                    -------              -------

Net cash provided by financing activities            12,073                5,362

Net increase in cash                                  1,217                2,112

Cash at the beginning of the period                   3,124                3,167
                                                    -------              -------
Cash at the end of the period                   $     4,341          $     5,279
                                               ============          ===========

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
          Interest                              $       934          $     2,112
          Income taxes                          $     3,021          $        74

Supplemental disclosures of non-cash
 Investing activities:
           Capital lease purchases              $         -          $       936

Supplemental disclosures of non-cash
 Financing activities:
             Series B preferred stock dividends $         -          $     2,210




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



                                      F-6

<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 January 30, 1999 included in the
Factory 2-U Stores,  Inc. (the "Company") Form 10-K as filed with the Securities
and Exchange Commission. The unaudited consolidated financial statements for the
13 and 39 weeks ending  October 31, 1998 include the accounts of Family  Bargain
Corporation and its subsidiaries. All significant intercompany transactions were
eliminated in  consolidation.  On November 23, 1998,  the Company  carried out a
Recapitalization in which all of the Company's stock was converted into a single
class of  Common  Stock.  Under  the  Plan of  Recapitalization,  each  share of
Pre-Recapitalization  Common Stock was  converted  into .30133  shares of Common
Stock,  each share of Series A Preferred  Stock was converted  into one share of
Common  Stock and each  share of Series B  Preferred  Stock was  converted  into
173.33 shares of Common Stock. In connection with the Recapitalization,  General
Textiles, Inc. was merged into Family Bargain Corporation and the Company's name
was  changed to Factory  2-U Stores,  Inc.  In the  opinion of  management,  the
unaudited  financial  statements as of and for the 13 and 39 weeks ended October
30, 1999 and October 31, 1998  reflect all  adjustments  (which  include  normal
recurring  adjustments)  necessary  to present  fairly the  financial  position,
results of  operations  and cash  flows for the  periods  presented.  Due to the
seasonal  nature of the Company's  business,  the results of operations  for the
interim  period may not  necessarily  be indicative of the results of operations
for a full year.

(2)      Long-term Debt

     As of October 30, 1999, the Company had outstanding long-term indebtedness,
less current maturities,  of $10.8 million. At January 31, 1998, the Company had
outstanding $22.9 million face value of Trade Subordinated  Notes,  Subordinated
Reorganization Notes and Junior Subordinated  Reorganization  Notes. These notes
were non-interest  bearing,  except for certain contingent interest payments and
were  subject  to minimum  principal  payment  requirements  based on the annual
excess cash flows of General  Textiles.  Accordingly,  they were  discounted  to
carrying  values  based on  estimated  future cash flows of General  Textiles at
discount rates ranging from 6% to 25%.




                                      F-7


<PAGE>

     Effective   April  30,  1998,  the  Company   exchanged  the   Subordinated
Reorganization Notes and the Junior Subordinated  Reorganization Notes (the "Old
Notes")  for new  notes  (the  "New  Subordinated  Notes"  and the  "New  Junior
Subordinated  Notes",  collectively,  the "New Notes"). The New Notes removed an
estimated excess cash flow  calculation  previously used to determine the timing
and amount of payments. Further, the New Notes provide a fixed schedule for debt
principal  payments.  In accordance  with EITF 96-19,  the Company  recorded the
exchange  of the Old  Notes  as an  extinguishment  of debt,  and in  connection
therewith,  recorded an extraordinary loss, net of taxes, of $2.8 million.  This
loss  represents the amount by which the present value of the New Notes exceeded
the present  value of the Old Notes for which they were  exchanged and fees paid
to  the  lenders.   The  fees   included  the  issuance  of  22,600   shares  of
pre-Recapitalization  common  stock and  warrants to purchase  82,690  shares of
pre-Recapitalization  common  stock,  both stated at fair market value when they
were issued.  The New Subordinated  Notes totaled $3.3 million and bore interest
at 9.2% per annum  through  March 31, 1999,  after which the interest rate would
increase by one percent per annum each year up to a maximum of 13.2%.  Principal
was due in annual  payments  ranging  from $0.2  million to $0.4  million with a
balloon  payment of $2.1  million due May 28, 2003.  The entire  balance of $3.3
million was paid on December 8, 1998. The New Junior  Subordinated  Notes have a
face value of $17.3 million,  are non-interest  bearing and are reflected on the
accompanying  balance  sheets at the present value using a discount rate of 10%.
The unamortized  discount related to the New Junior  Subordinated Notes was $5.5
million at October 30, 1999, resulting in a net carrying value of $11.8 million,
of which $1.0  million is a current  maturity,  as  reflected in the October 30,
1999  balance  sheet (see  Financial  Statements).  The discount is amortized to
interest expense as a non-cash charge until the notes are paid in full. Further,
the New Junior  Subordinated  Notes require  principal  payments at December 31,
1999 and  December 31, 2000 of $1.0  million,  at December 31, 2001 and December
31, 2002 of $2.0  million,  at December  31, 2003 and  December 31, 2004 of $3.0
million and a final payment at May 28, 2005 of $5.3 million.

(3)      Revolving Credit Notes
     The Company  maintains a $50.0  million  revolving  credit  facility with a
financial  institution  secured by all the assets of the Company.  Amounts which
may be borrowed under the working capital  facility are based on a percentage of
eligible inventories,  as defined,  outstanding from time to time, as more fully
described  below.  On July 31, 1998,  the Company's two operating  subsidiaries,
General  Textiles  and  Factory  2-U,  Inc.,  merged  to  form  a  new  Delaware
corporation named General  Textiles,  Inc. As a result, in July 1998, the lender
agreed to amend certain terms and conditions of the revolving credit  facilities
with General  Textiles and Factory 2-U. The covenants and financial  ratios were
reset to reflect anticipated earnings, capital expenditures and cash flow of the
Company during fiscal 1998 and the  facilities  were combined into one revolving
credit facility (the "Facility").
                                        F-8
<PAGE>

     At October  30, 1999 the Company  could  borrow up to $50.0  million at the
prime rate plus 0.75%,  subject to  limitations  based on inventory  levels.  At
October 30,  1999,  the Company  owed $13.5  million  under the Facility and had
$46.6 million  available to borrow under the Facility.  The Facility  expires in
March  2000  but is  subject  to one  year  automatic  renewal  periods,  unless
terminated  by either party.  The balance owed under the Facility  fluctuates as
the Company borrows to meet working capital requirements and due to the seasonal
nature of the Company's  business.  The Company pays fees of 0.25% on the unused
portion  of the  Facility.  As of  October  30,  1999,  the  Company  was not in
compliance  with the current ratio covenant in the Facility,  but the lender has
waived the current ratio requirement through October 30, 1999.

(4)      Earnings per Share

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standard No. 128, "Earnings per Share" (SFAS No. 128),
which the Company  adopted as of January 31, 1998. This Statement sets forth the
basis for the computation of "basic"  earnings per share and "diluted"  earnings
per share  from the  previous  method of  computing  both  "primary"  and "fully
diluted"  earnings  per  share.  At  October  30,  1999,  there  were  1,430,684
potentially dilutive common stock options and warrants outstanding.

(5)      Provision for Income Taxes

     The Company recorded a $1.2 million provision for income taxes as reflected
in the accompanying  statements of operations for the 13 weeks ended October 30,
1999.  The provision for income taxes is based upon the estimated  effective tax
rate for the entire  fiscal year.  The  effective tax rate is subject to ongoing
review and evaluation.

(6)      Stock Options and Warrants

     On October 1, 1999, when the Company's common stock achieved a market price
of $19.91 or greater for 60 consecutive  trading days, 92,960 stock options with
a market price hurdle of $19.91  became  exercisable.  As a result,  the Company
recorded  a non-cash  stock  option  compensation  expense in the amount of $2.1
million. As of October 30, 1999, the Company had outstanding options to purchase
1,347,994 shares of common stock. Of those options,  258,485 become  exercisable
once  specified  market price hurdles for the  Company's  common stock have been
achieved and  maintained  for 60  consecutive  trading days,  subject to vesting
conditions  (92,961 are  exercisable at a market price hurdle of $24.89;  82,762
are exercisable at $33.19;  and 82,762 are exercisable at $49.78).  Assuming all
options with market price hurdles are fully vested, when the market price of the
Company's common stock reaches $24.89,
                                       F-9

<PAGE>

     $33.19 and $49.78 for the  specified  periods of time,  the Company will be
required  to record  aggregate  non-cash  compensation  expense  in the  minimum
amounts of $1.6 million, $2.1 million and $3.5 million, respectively. At October
30, 1999, the Company had outstanding  warrants exercisable for 82,690 shares of
common stock with an exercise price of $19.91 per share.

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

General

     Management's  discussion of the results of operations  provides analysis of
the Company's  operations  during the 13 and 39 weeks ended October 30, 1999 and
October 31, 1998.  Results of Operations  The following  discussion and analysis
should be read in conjunction with the Company's Financial  Statements and notes
thereto included  elsewhere in this Form 10-Q. As of October 30, 1999 there were
187 stores in operation  versus 168 at October 31, 1998.  13 Weeks Ended October
30, 1999  Compared to the 13 Weeks Ended  October 31, 1998 Net sales were $104.6
million for the 13 weeks ended  October 30, 1999  compared to $85.0  million for
the 13 weeks ended October 31, 1998, an increase of approximately $19.6 million,
or 23.0%.  Comparable  store sales  increased  7.7%.  The Company  opened 15 new
stores and closed 6 stores  during the current  period.  Gross  profit was $37.4
million for the 13 weeks ended  October 30, 1999  compared to $28.8  million for
the 13 weeks ended October 31, 1998, an increase of approximately  $8.6 million,
or 30.0%.  As a  percentage  of sales,  gross  profit was 35.7% for the 13 weeks
ended  October  30, 1999  compared  to 33.9% for the 13 weeks ended  October 31,
1998.  The increase in the gross profit  margin is primarily  attributable  to a
higher markup, lower inventory shrinkage and lower markdown volume.  Selling and
administrative  expenses  were $31.2  million for the 13 weeks ended October 30,
1999  compared  to $24.8  million for the 13 weeks ended  October 31,  1998,  an
increase of approximately $6.4 million, or 25.6%.  Approximately $5.8 million of
the increase was sales volume  related.  As a percentage  of sales,  selling and
administrative  expenses  were 29.8% for the 13 weeks ended October 30, 1999 and
29.2% for the 13 weeks ended October 31, 1998. The increase was due to increased
employee corporate and field supervisor  expenses,  information systems expenses
and higher pre-opening expenses related to new store opening activity.

                                       3
<PAGE>

     The Company  recorded a non-cash stock option  compensation  expense in the
amount of $2.1 million during the 13 weeks ended October 30, 1999. See Note 6 of
"Notes to Financial  Statements."  Interest  expense was $0.6 million for the 13
weeks ended  October 30,  1999  compared to $1.1  million for the 13 weeks ended
October 31,  1998,  a decrease of  approximately  $0.4  million.  Lower  average
borrowings under the Company's revolving credit facility and the exchange of the
Old Notes for the New Notes which resulted in a lower debt discount amortization
reduced  interest  expense in the  current  year.  See  "Liquidity  and  Capital
Resources."  Income taxes were $1.2  million for the 13 weeks ended  October 30,
1999 and $0.1  million for the 13 weeks ended  October 31,  1998.  Income  taxes
increased  as a result of higher  taxable  income  versus the same period a year
ago. The net income available to common stockholders was $1.7 million for the 13
weeks ended  October 30,  1999  compared to $0.6  million for the 13 weeks ended
October 31, 1998.  The increase in net income for the 13 weeks ended October 30,
1999 is a result of the operating  factors  cited above.  39 weeks Ended October
30, 1999  Compared to the 39 weeks Ended  October 31, 1998 Net sales were $281.6
million for the 39 weeks ended October 30, 1999  compared to $224.9  million for
the 39 weeks ended  October 31, 1998,  an increase of $56.7  million,  or 25.2%.
Comparable  store sales  increased  13.5%.  The Company opened 34 new stores and
closed 15 stores during the current period.  Gross profit was $100.0 million for
the 39 weeks ended  October 30, 1999  compared to $75.6 million for the 39 weeks
ended October 31, 1998, an increase of $24.4 million,  or 32.3%. As a percentage
of sales,  gross  profit  was  35.5% for the 39 weeks  ended  October  30,  1999
compared to 33.6% for the 39 weeks ended  October 31, 1998.  The increase in the
gross  profit  margin  is  primarily  attributable  to a  higher  markup,  lower
inventory  shrinkage  and lower  markdown  volume.  Selling  and  administrative
expenses  were $88.8 million for the 39 weeks ended October 30, 1999 compared to
$70.3  million  for  the 39  weeks  ended  October  31,  1998,  an  increase  of
approximately  $18.5  million,  or 26.3%.  Approximately  $14.3  million  of the
increase  was sales  volume  related.  As a  percentage  of sales,  selling  and
administrative  expenses  were 31.5% for the 39 weeks  ended  October  30,  1999
compared to 31.3% for the 39 weeks ended October 31, 1998.  The increase was due
to increased  employee  corporate  and field  supervisor  expenses,  information
systems  expenses and higher  pre-opening  expenses related to new store opening
activity.  The Company recorded a non-cash stock option compensation  expense in
the amount of $2.1 million  during the 39 weeks ended October 30, 1999. See Note
6 of "Notes to Financial Statements."

                                       4

<PAGE>


     The  special  charge of $1.5  million  in fiscal  1998  represents  various
expenses  incurred in connection with the hiring of the Company's  President and
CEO last year.  Interest expense was $1.8 million for the 39 weeks ended October
30, 1999 and compared to $3.4 million for the 39 weeks ended October 31, 1998, a
decrease of $1.6 million. Lower average borrowings this year under the Company's
revolving  credit  facility  and the exchange of the Old Notes for the New Notes
which resulted in a lower debt discount amortization reduced interest expense in
the current year. See "Liquidity and Capital  Resources." Income taxes increased
to $2.3 million for the 39 weeks ended October 30, 1999 compared to $0.2 million
for the 39 weeks ended October 31, 1998.  Income taxes  increased as a result of
increased taxable income.  An extraordinary  charge of $2.8 million was incurred
for the 39 weeks ended October 31, 1998 as a result of notes payable  associated
with the General Textiles bankruptcy being extinguished early and new notes with
terms more  favorable to the Company being issued.  The net income  available to
common  stockholders  was $3.3  million for the 39 weeks ended  October 30, 1999
compared to a net loss available to common  stockholders of $9.2 million for the
39 weeks ended  October 31,  1998.  The  increase in net income for the 39 weeks
ended  October  30,  1999 is a result  of the  operating  factors  cited  above.
Liquidity and Capital  Resources General As of October 30, 1999, the Company had
outstanding  indebtedness in the principal amount of $25.2 million.  The Company
finances its operations  through trade credit,  amounts borrowed under its $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  working  capital  facility  are  based on a
percentage of eligible inventories,  as defined,  outstanding from time to time,
as more fully described  elsewhere in this Form 10-Q. See Notes 2 and 3 of Notes
to Financial Statements. Management believes that the Company's sources of cash,
including the Facility  (which expires in March 2000, but is subject to one year
automatic renewal periods unless  terminated by either party),  will be adequate
to finance its operations and meet obligations  under its existing  indebtedness
as they become due for at least the next twelve  months.  See Note 3 of Notes to
Financial Statements.




                                       5
<PAGE>


     Capital  Expenditures The Company anticipates  spending  approximately $3.0
million on capital  expenditures during the remainder of the current fiscal year
ending January 29, 2000 which includes costs to open approximately 4 new stores,
complete  its new  distribution  center,  upgrade  store level  fixtures  and to
upgrade information  systems.  Management believes that future expenditures will
be financed from internal cash flow and the Facility.  Inflation In general, the
Company  believes that inflation has had no recent material impact on operations
and none is  anticipated  in the next fiscal year.  Minimum Wage  Increases  The
Company  employs,  both  in its  stores  and in its  corporate  headquarters,  a
substantial  number of  employees  who earn hourly  wages near or at the minimum
wage.  Actions by both the federal and certain state  governments have increased
the hourly  wages  payable by the Company to such  employees.  To  mitigate  the
impact of such wage increases, the Company has instituted policies to manage its
ratio of  wages to  sales.  Management  believes  that  these  measures  will be
adequate  to  control  the  impact  of  hourly  wage  increases  on the  overall
profitability  of its operations for the  foreseeable  future.  Seasonality  and
Quarterly  Fluctuations The Company  historically  has realized,  and expects to
continue to realize,  its highest level of sales and income during the third and
fourth  quarters of its fiscal year (the quarters ending in October and January)
as a result  of the  "Back to  School"  (August  and  September)  and  Christmas
(November and December)  seasons.  The  seasonally  lower sales in the Company's
first  two  quarters  (February  through  July),  can  result  in the  Company's
incurring  losses during those quarters even in years in which it will have full
year profits.  Year 2000 Issue Many  currently  installed  computer  systems and
software  products  are coded to accept  only 2 digit  entries  in the date code
field.  Beginning in the year 2000, these date code fields will need to accept 4
digit entries to distinguish 21st century dates from 20th century dates. Systems
that do not properly recognize such information could generate erroneous data or
fail. As a result,  computer  systems and/or software used by many companies may
need to be upgraded to comply with Year 2000 requirements.


                                       6


<PAGE>

     The  Company  is  utilizing   both  internal  and  external   resources  as
applicable, to identify, correct or reprogram its internal systems for Year 2000
compliance.  The effect on the Company's  future  results of operations is being
determined as part of the detailed  conversion  process.  In February  1999, the
Company  implemented a new integrated  software package to support future growth
and  to  address  the  issues   associated  with  the  Year  2000.  This  system
implementation substantially completed the Company's internal program to address
the Company's Year 2000 issues. The new software installation cost $2.8 million.
The  Company  has  sought to insure  that the  software  and  operating  systems
included in its new integrated  software  package are Year 2000  compliant.  The
Company has requested information and assurances from its major vendors, service
providers and customers about their state of Year 2000 compliance and readiness.
In the event that significant Year 2000 issues are identified with such parties,
and in  contemplation  of the  possibility  of such  problems,  the  Company has
developed  contingency  plans  such as the use of  alternate  vendors  or manual
systems.  Although,  based on a review of its data  processing,  operational and
other  computer-based  systems,  the Company does not currently  believe that it
will experience any significant  adverse  effects or material  unbudgeted  costs
resulting  therefrom,  there can be no assurance in that regard.  The failure to
correct a material  Year 2000 problem  could result in an  interruption  in or a
failure of certain  normal  activities  or  operations.  Such  interruptions  or
failures  could  materially  and  adversely  affect  the  Company's  results  of
operations,   liquidity  and  financial  condition.  Because  there  is  general
uncertainty  about the Year 2000 problem,  including  uncertainty about the Year
2000 readiness of suppliers and customers, it is not possible to predict whether
Year 2000  problems will occur or what  consequences  such problems will have on
results of operations,  liquidity or financial condition. However, the Company's
plans to  address  Year 2000  issues are  intended  to  minimize,  to the extent
feasible,  the possibility of  interruptions  of normal  operations.  There can,
however,  be no  assurance  that the  Company  will be  successful  in doing so.
Cautionary  Statement  for Purposes of "Safe Harbor  Provisions"  of the Private
Securities  Litigation Reform Act of 1995 Certain  statements  contained in this
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  or  elsewhere  in this Form 10-Q that are not related to  historical
results are  forward-looking  statements.  Actual results may differ  materially
from those  projected or implied in the  forward-looking  statements.  Risks and
uncertainties  which could effect the Company  include,  but are not limited to,
general and local economic and weather conditions that affect buying patterns of
the Company's customers,  changes in consumer spending and the Company's ability
to anticipate buying patterns and implement  appropriate  inventory  strategies,
continued availability of capital and financing,  competitive factors, expansion
plans, risks and uncertainties associated with the failure of the Company or its
suppliers or customers to be Year 2000  compliant,  and other factors  affecting
the Company's  business  beyond the  Company's  control as well as other factors
described  in the  Company's  other  filings  with the  Securities  and Exchange
Commission. Consequently, all of the forward-


                                       7

<PAGE>

     looking  statements are qualified by these cautionary  statements and there
can be no assurance that the results or developments  anticipated by the Company
will be realized or that they will save the  expected  effects on the Company or
its business or operations.  Actual results could differ  materially  from those
contemplated  or expressed in any  forward-looking  statements.  PART II - OTHER
INFORMATION  Item 1. Legal  Proceedings  The Company is at all times  subject to
pending and threatened  legal  actions,  which arise out of the normal course of
business.  In the  opinion of  management,  based in part on the advice of legal
counsel,  the  ultimate  disposition  of these  matters will not have a material
adverse  effect on the  financial  position  or  results  of  operations  of the
Company.  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) Exhibits 11.1  Computation of per share loss (1 page) 27
Financial Data Schedule (1 page) (b) Reports on Form 8-K None.







                                       8


<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 13, 1999




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


























                                       9


<PAGE>



                                  EXHIBIT INDEX

Exhibit
Number Description Page

11.1      Computation of per share income (loss)                              11
27        Financial Data Schedule (for EDGAR filing only)                     12







































                                       10


<PAGE>

<TABLE>

EXHIBIT 11.1

                     COMPUTATION OF PER SHARE INCOME (LOSS)

<CAPTION>


                                                         13 weeks ended                             39 weeks ended
                                                         --------------                             --------------
<S>                                               <C>                 <C>                      <C>                 <C>

                                                  October 30,        October 31,               October 30,         October 31,
                                                      1999               1998                     1999                1998
                                                  ------------        ----------               -----------         ------------

The computation of net income (loss) available
 and adjusted shares outstanding follows:

Income (loss) from continuing operations          $    1,706          $    2,251               $    3,252          $   (1,615)

Extraordinary item                                         -                   -                        -              (2,750)

Net income (loss)                                      1,706               2,251                    3,252              (4,365)

Less:

 Series A preferred stock dividends                        -               (865)                        -              (2,593)

 Series B preferred stock dividends                        -               (779)                        -              (2,210)
                                                  ----------          ----------               ----------          -----------
Net income (loss) available to
  common shareholders                             $    1,706          $      607               $    3,252          $   (9,168)

Weighted average number of
  common shares outstanding                       12,229,633           1,507,892               12,156,840            1,500,524

Add assumed exercise of:

     Warrants that are common stock equivalents       23,954                   -                   20,066                    -

     Options that are common stock equivalents       768,544              12,305                  627,316                    -

     Convertible preferred stock:

          Series A Preferred                               -           2,807,999                        -                    -

          Series B Preferred                               -           5,633,754                        -                    -

Adjusted shares outstanding,
  used for diluted computation                    13,022,131           9,961,951               12,804,221            1,500,524

Earnings (loss) per share:

  Basic:

    Income (loss) before extraordinary item       $     0.14          $     0.40               $     0.27          $    (4.28)

    Extraordinary item per share                           -                   -                        -               (1.83)

    Net income (loss)                             $     0.14          $     0.40               $     0.27          $    (6.11)

  Diluted:

    Income (loss) before extraordinary item       $     0.13          $     0.23               $     0.25          $    (4.28)

    Extraordinary item per share                           -                   -                        -               (1.83)

    Net income (loss)                             $     0.13          $     0.23               $     0.25          $    (6.11)
------------------------------------------------------------- --------------- ---------------- -- ---------------- ---------------

</TABLE>


* The weighted  average  number of common shares  outstanding  for prior periods
have been  restated  for the reverse  stock split  (factor is .30133)  that took
place effective November 23, 1998.









                                       11