1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



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


                   For the quarterly period ended May 5, 2001
                                                  ------------


         [ ] 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 1-05380

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


               Delaware                                04-2269444
               --------                                ----------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)


2418 Main Street, Rocky Hill, Connecticut                         06067
-----------------------------------------                         -----
(Address of principal executive offices)                       (Zip Code)


Registrant's telephone number including area code:       (860) 257-2000
                                                   ------------------------



     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.


                                    YES X    NO
                                       -----   -----




       29,408,057 shares of Common Stock were outstanding on June 1, 2001.


                            Exhibit Index on page 14

                        Page 1 of 17 (including exhibits)

<PAGE>




                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES

                                    FORM 10-Q

                        FOR THE QUARTER ENDED MAY 5, 2001



<TABLE>
<S>                                                                                                    <C>

                                                        I N D E X




                                                                                                       Page
                                                                                                       ----
Part I:         FINANCIAL INFORMATION

     Item 1.        Consolidated Condensed Statements of Operations                                     3
                       for the Thirteen Weeks ended May 5, 2001 and April 29, 2000

                    Consolidated Condensed Balance Sheets as of                                         4
                       May 5, 2001, February 3, 2001, and April 29, 2000

                    Consolidated Condensed Statements of Cash Flows                                     5
                       for the Thirteen Weeks ended May 5, 2001 and April 29, 2000

                    Notes to Consolidated Condensed Financial Statements                                6

     Item 2.        Management's Discussion and Analysis of Financial                                   9
                       Condition and Results of Operations

     Item 3.        Quantitative and Qualitative Disclosures about Market Risk                          13


Part II:        OTHER INFORMATION

     Item 1.        Legal Proceedings                                                                   14

     Item 4.        Submission of Matters to a Vote of Security Holders                                 14

     Item 6.        Exhibits and Reports on Form 8-K                                                    14
</TABLE>

                                      -2-
<PAGE>


                                     PART I
Item 1.
                              FINANCIAL INFORMATION

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)
<TABLE>
<S>                                                                              <C>                    <C>

                                                                                           For the Thirteen
                                                                                             Weeks Ended
                                                                                 -------------------------------------

                                                                                     May 5,              April 29,
                                                                                      2001                  2000
                                                                                 ----------------      ---------------
Total net sales                                                                         $793,687             $830,657
Leased department and other income                                                         9,149                9,259
                                                                                 ----------------      ---------------
Total revenue                                                                            802,836              839,916

Costs and expenses:
     Cost of merchandise sold                                                            565,956              602,924
     Selling, general and administrative expenses                                        238,715              247,415
     Depreciation and amortization expense, net                                           19,636               17,697
     Interest and debt expense, net                                                       23,258               18,792
                                                                                 ----------------      ---------------
Loss before income taxes                                                                (44,729)             (46,912)
Income tax benefit                                                                        16,997               17,827
                                                                                 ----------------      ---------------
Net loss                                                                               ($27,732)            ($29,085)
                                                                                 ================      ===============
Basic and diluted net loss per share                                                     ($0.94)              ($0.99)
                                                                                 ================      ===============
Weighted average number of common shares outstanding                                      29,397               29,336
                                                                                 ================      ===============


                  (The accompanying Notes are an integral part of these consolidated condensed financial statements.)
</TABLE>

                                      -3-
<PAGE>



                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
               (In Thousands, Except Shares and Per Share Amounts)
<TABLE>
<S>                                                                            <C>                 <C>              <C>

                                                                               (Unaudited)                          (Unaudited)
                                                                           ----------------   -----------------   -----------------
                                                                               May 5,              February 3,       April 29,
                                                                                2001                 2001               2000
                                                                           ----------------   -----------------   -----------------
                                            ASSETS
Current Assets:
     Cash and cash equivalents                                                       $44,440            $49,761          $44,045
     Receivables                                                                      34,877             17,039           26,911
     Merchandise inventories                                                         837,476            744,132          987,919
     Deferred taxes, net                                                              34,768             17,771           46,681
     Prepaid expenses and other current assets                                        31,053             41,494           32,367
                                                                             ----------------    ---------------    -------------
          Total current assets                                                       982,614            870,197        1,137,923
                                                                             ----------------    ---------------    -------------

Fixed Assets                                                                         715,386            761,903          669,316
     Less - Accumulated depreciation and amortization                              (221,366)          (213,904)        (147,884)
                                                                             ----------------    ---------------    -------------
          Net fixed assets                                                           494,020            547,999          521,432
                                                                             ----------------    ---------------    -------------

Other assets and deferred charges                                                     70,685             56,490           62,557
Deferred taxes, net                                                                  411,891            411,891          346,055
Beneficial lease rights, net                                                          40,469             50,675           55,589
Goodwill, net                                                                         57,837             58,475           60,388
                                                                             ----------------    ---------------    -------------
                                                                                  $2,057,516         $1,995,727       $2,183,944
                                                                             ================    ===============    =============

                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable:
          Trade                                                                     $321,931           $345,915         $328,441
          Other                                                                       70,934             78,371           86,113
                                                                               --------------    ---------------    -------------
               Total accounts payable                                                392,865            424,286          414,554
                                                                               --------------    ---------------    -------------

Current portion of capital lease and financing obligations                            19,018             19,018           22,057
Self-insurance reserves                                                               29,225             29,878           26,489
Accrued expenses and other current liabilities                                       112,046            114,205          136,405
Store closing reserves                                                               142,797            179,365           54,303
                                                                               --------------    ---------------    -------------
     Total current liabilities                                                       695,951            766,752          653,808
                                                                               --------------    ---------------    -------------

Long-term debt                                                                       804,552            606,057          673,782
Capital lease and financing obligations                                              133,963            165,365          176,020
Other long-term liabilities                                                           43,284             49,256           56,708
Excess of revalued net assets over equity under fresh-start reporting                 10,176             11,715           16,329

Commitments and contingencies (see Note 8)

Stockholders' Equity:
     Preferred stock (3,000,000 shares authorized; no shares issued or
        outstanding at May 5, 2001, February 3, 2001 and April 29, 2000;
        par value per share $.01)                                                        ---                ---              ---
     Common stock (40,000,000 shares authorized; 29,408,057, 29,473,552 and
        29,403,987 shares outstanding at May 5, 2001, February 3, 2001
        and April 29, 2000, respectively; par value per share $.01)                      295                295              296
     Additional paid-in capital                                                      533,394            532,654          531,857
     (Accumulated deficit) Retained earnings                                       (163,177)          (135,445)           76,058
     Treasury stock (80,495 and 79,495 shares at May 5, 2001 and April 29,
        2000, respectively, at cost)                                                   (922)              (922)            (914)
                                                                               --------------    ---------------    -------------
          Total stockholders' equity                                                 369,590            396,582          607,297
                                                                               --------------    ---------------    -------------
                                                                                  $2,057,516         $1,995,727       $2,183,944
                                                                               ==============    ===============    =============

                  (The accompanying Notes are an integral part of these consolidated condensed financial statements.)

                                      -4-
<PAGE>

</TABLE>

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>

<S>                                                                           <C>                 <C>
                                                                                       (Unaudited)
                                                                                    For the Thirteen
                                                                                       Weeks Ended
                                                                         ----------------------------------------
                                                                              May 5,              April 29,
                                                                               2001                 2000
                                                                         ------------------  --------------------
Cash flows from operating activities:
      Net loss                                                                   ($27,732)             ($29,085)
      Expenses not requiring the outlay of cash:
           Income tax benefit                                                     (16,997)              (17,827)
           Depreciation and amortization of fixed and other assets                  21,524                19,640
           Amortization of debt discounts and deferred financing costs               1,437                 1,200
                                                                         ------------------  --------------------
Cash used by operations before changes in working capital and
store closing activities                                                          (21,768)              (26,072)
Changes in working capital:
      Increase in receivables                                                     (17,838)               (1,609)
      Increase in merchandise inventories                                         (93,344)             (156,532)
      Decrease in accounts payable                                                (31,421)               (7,026)
      (Decrease) increase in accrued expenses and other liabilities                (7,721)                 3,295
      Decrease in other working capital and other, net                              10,417                 1,094
Changes due to store closing activities:
      Payments of store closing costs                                              (7,101)               (1,165)
                                                                         ------------------  --------------------
Net cash used for operating activities                                           (168,776)             (188,015)
                                                                         ------------------  --------------------
Cash flows from investing activities:
      Purchases of fixed assets                                                   (14,651)              (40,249)
      Purchases of leases                                                              ---               (7,019)
                                                                         ------------------  --------------------
Net cash used for investing activities                                            (14,651)              (47,268)
                                                                         ------------------  --------------------
Cash flows from financing activities:
      Borrowings under the revolving credit facilities, net                        198,495               254,751
      Payments on debt and capital lease obligations                               (4,076)               (4,413)
      Repurchase of Hills Senior Notes                                                 ---               (2,738)
      Deferred financing costs                                                    (16,313)                   ---
      Proceeds from the exercise of options and warrants, net                          ---                 1,116
                                                                         ------------------  --------------------
Net cash provided by financing activities                                          178,106               248,716
                                                                         ------------------  --------------------
(Decrease) increase in cash and cash equivalents                                   (5,321)                13,433
Cash and cash equivalents, beginning of period                                      49,761                30,612
                                                                         ------------------  --------------------
Cash and cash equivalents, end of period                                           $44,440               $44,045
                                                                         ==================  ====================

Supplemental disclosure of cash flow information:
        Cash paid during the period for:
           Interest and debt fees not capitalized                                  $28,490               $20,206
           Income taxes                                                                 60                 1,234

                  (The accompanying Notes are an integral part of these consolidated condensed financial statements.)
</TABLE>

                                      -5-
<PAGE>


                          AMES DEPARTMENT STORES, INC.
                                AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)



1.       Basis of Presentation :
--------------------------------

     In the  opinion of  management,  the  accompanying  unaudited  consolidated
condensed  financial  statements  of Ames  Department  Stores,  Inc. (a Delaware
corporation) and subsidiaries (collectively "Ames" or the "Company") contain all
adjustments  (consisting of normal recurring  adjustments)  necessary for a fair
presentation of such financial  statements for the interim  periods.  Due to the
seasonality of the Company's  operations,  the results of its operations for the
interim  period ended May 5, 2001 may not be indicative of total results for the
full year.  Certain  information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted  pursuant to the rules and regulations
promulgated by the Securities and Exchange Commission (the "SEC"). Certain prior
year amounts have been  reclassified to conform to the presentation used for the
current  year.  Pursuant to the  indenture  governing  the Ames Senior Notes (as
defined  in Note 5),  all of  Ames'  subsidiaries  have  jointly  and  severally
guaranteed  the Ames Senior Notes on a full and  unconditional  basis.  Separate
financial statements of those subsidiaries have not been included herein because
management has determined that they are not material to investors.

     The consolidated  condensed  balance sheet at February 3, 2001 was obtained
from audited financial statements previously filed with the SEC in the Company's
Annual Report on Form 10-K for the fiscal year ended February 3, 2001 (the "2000
Form  10-K").  The  accompanying   unaudited  consolidated  condensed  financial
statements should be read in conjunction with the financial statements and Notes
thereto included in the 2000 Form 10-K.

2.       Acquisition of Goldblatt's Leases:
-------------------------------------------

     In April 2000, the Company consummated its purchase of the leases for seven
stores from  Goldblatt's  Department  Stores,  Inc. for a cash purchase price of
$7.6 million.

3.       Net Loss Per Common Share:
-----------------------------------

     Net loss per share was  determined  using the  weighted  average  number of
common  shares  outstanding.  Diluted  net loss per share was equal to basic net
loss per share  because  inclusion of common stock  equivalents  would have been
anti-dilutive.  During the quarter ended May 5, 2001, no options were exercised.
During the quarter ended April 29, 2000, options  representing 139,382 shares of
Common Stock were exercised and 100,000 Series B Warrants were converted.

4.       Inventories:
---------------------

     Inventories are valued at the lower of cost, using the first-in,  first-out
(FIFO) method, or market and include the  capitalization  of transportation  and
distribution center costs.

5.       Debt:
--------------

     Credit Agreement

     In January  2001,  the Company  signed a  commitment  letter  from  General
Electric  Capital  Corporation ("GE Capital") for an $800 million senior secured
financing,  and subsequently  entered into an agreement (the "Credit Agreement")
with GE  Capital,  as  agent,  and a  syndicate  of other  banks  and  financial
institutions.  The Credit  Agreement  provides  for a secured  revolving  credit
facility of up to $750  million,  with a sub-limit of $50 million for letters of
credit, and a secured term facility for $50 million.

     The Credit  Agreement  replaced  the  Company's  previously  existing  $650
million credit facility (the "Prior Credit Agreement").

                                      -6-
<PAGE>


     The  Credit  Agreement   expires  on  March  2,  2004  and  is  secured  by
substantially  all of the assets of the Company.  The interest rate per annum on
borrowings  under the Credit Agreement is equal to the Index Rate (as defined in
the Credit  Agreement) plus a specified  margin or the LIBOR Rate (as defined in
the Credit Agreement) plus a specified margin.

     Fees required  under the Credit  Agreement  include (a) monthly  commitment
fees on the unused portion of the facility,  (b) an initial closing fee, and (c)
a monthly  collateral  monitoring fee and an annual  administrative  fee for the
account of the agent.

     The maximum amount of borrowing  under the Credit  Agreement  cannot exceed
the lesser of (a) the total facility less (i) letters of credit  outstanding and
(ii) a specified  minimum balance (the "Minimum  Availability") or (b) an amount
derived from combining specified  percentages of the Company's inventory on hand
as well as in-transit  inventory from overseas,  certain receivables and certain
of the  Company's  owned  real  estate  (each of which may be offset by  certain
specified  reserves) less (i) letters of credit outstanding and (ii) the Minimum
Availability.

     In addition,  if the Company's  incremental  borrowing  capacity  under the
Credit   Agreement   averages  below  a  specified   level  (the  "Fixed  Charge
Availability")  over a five-day  period,  then the Company must be in compliance
with a fixed charge  coverage  ratio until the Company's  borrowing  capacity is
above the Fixed Charge  Availability for a specified period of time. The Company
is currently in  compliance  with the fixed charge  coverage  ratio.  The Credit
Agreement also restricts the payment of cash dividends.

     As of May 5, 2001,  borrowings of $560.3 million were outstanding under the
Credit  Agreement.  These  borrowings  are  included  in  long-term  debt in the
accompanying  consolidated  condensed  balance  sheet  as of  May  5,  2001.  In
addition,  $30.6 and $5.8  million  of  standby  and trade  letters  of  credit,
respectively,  were outstanding under the Credit Agreement. The weighted average
interest  rate on the  borrowings  for the thirteen  weeks ended May 5, 2001 was
9.3%.  The peak  borrowing  level  through  May 5, 2001 was $561.7  million  and
occurred in the fiscal month of April 2001.

     Senior Notes due 2003

     The 12.5% Senior Notes due 2003 (the "Hills  Senior  Notes")  were,  at the
time of the acquisition of Hills, an unsecured  obligation of Hills. The Company
has Hills Senior Notes with a recorded value of $44.3 million  outstanding as of
May 5, 2001.  The Hills Senior Notes pay interest in January and June and mature
July 2003.

     Senior Notes due 2006

     The Company has $200 million of its 10% seven-year  senior notes (the "Ames
Senior Notes") outstanding as of May 5, 2001. The Ames Senior Notes pay interest
semi-annually in April and October and mature April 2006.


6.       Stock Options:
-----------------------

     The Company has four stock  option  plans (the  "Option  Plans"):  the 1994
Management Stock Option Plan, the 1994 Non-Employee  Directors Stock Option Plan
(as amended), the 1998 Management Stock Incentive Plan, as amended and restated,
and the 2000 Store Manager Stock Option Plan.

     The Company accounts for its stock option plans under Accounting Principles
Board ("APB")  Opinion No. 25. Had  compensation  cost for the  Company's  stock
option grants been determined in accordance with SFAS No. 123, the Company's net
income and net income per common share for quarters  ended May 5, 2001 and April
29, 2000 would have approximated the pro forma amounts below:

                                      -7-
<PAGE>
<TABLE>
              <S>                                       <C>              <C>

                                                                For the Thirteen
                                                                   Weeks Ended
                                                       ------------------------------
                             (In Thousands)                May 5,           April 29,
                                                           2001              2000
                                                       ------------      ------------
              Net loss:
              As reported                                ($27,732)         ($29,085)
              Pro forma                                  ($30,178)         ($31,482)

              Basic net loss per common share: (a)
              As reported                                  ($0.94)           ($0.99)
              Pro forma                                    ($1.03)           ($1.07)

(a)      Common stock equivalent shares have not been included because the effect would be anti-dilutive.
</TABLE>

     The fair value of stock  options  used to compute  pro forma net income and
net income per diluted  common share is the  estimated  present  value as of the
grant  date using the  Black-Scholes  option-pricing  model  with the  following
weighted average assumptions: no dividend yield, expected option volatilities, a
risk-free interest rate equal to U.S. Treasury  securities with a maturity equal
to the expected life of the option and an expected life from date of grant until
option expiration date.

7.       Income Taxes:
----------------------

     The Company's  estimated annual effective income tax rate for each year was
applied to the loss before income taxes for the thirteen weeks ended May 5, 2001
and April 29,  2000 to compute a non-cash  income  tax  benefit.  The income tax
benefit is included in current deferred taxes in the  accompanying  consolidated
condensed  balance  sheet as of May 5,  2001 and  April 29,  2000.  The  Company
currently  expects  that,  as a  result  of the  seasonality  of  the  Company's
business,  this year's income tax benefit will be offset by non-cash  income tax
expense in the remaining interim periods.

8.       Commitments and Contingencies:
---------------------------------------

     Reference  can be made to the 2000 Form 10-K (Item 3 - Legal  Proceedings)
for various litigation  involving the Company,  for which there were no material
changes since the filing date of the 2000 Form 10-K.

9.       Closed Store Reserves:
-------------------------------

     The Company has established  reserves against the costs associated with the
closure  of a  number  of  stores.  The  following  items  represent  the  major
components of the change in the closed store reserves.
<TABLE>
                                <S>                                             <C>

                                 Balance 2/3/01                                 $179,365
                                          Lease costs                              2,602
                                          Fixed asset write-downs                 29,457
                                          Other occupancy costs                    4,038
                                          Severance                                  471
                                                                             ------------
                                 Balance 5/5/01                                 $142,797
                                                                             ============
</TABLE>

10.      Recently Issued Accounting Pronouncements:
---------------------------------------------------

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative  Instruments and Certain Hedging Activities,"
an  amendment  of SFAS  No.  133.  These  statements  establish  accounting  and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance  sheet as either an asset or liability  measured at its fair value.  The
statements also require that changes in a derivative's  fair value be recognized
currently in earnings  unless  specific hedge  accounting  criteria are met. The
statements are effective,  prospectively,  for all fiscal quarters of all fiscal
years  beginning  after June 15,  2000.  The  Company  adopted  SFAS No. 133, as
amended by SFAS No. 138,  effective the beginning of Fiscal 2001.  The impact of
adopting this standard was not significant.

                                      -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
the consolidated  condensed financial statements and footnotes presented in this
report.

Store Closings
--------------

     In our  annual  report on Form  10-K for the year  ended  February  3, 2001
("Fiscal  2000") we  disclosed  the planned  closing of  thirty-two  stores.  We
completed the closing of the thirty-two stores by the end of March 2001. All but
one of the stores were  under-performing  stores that were acquired in the Hills
Stores  Company  acquisition  in December  1998; the other store was closed as a
result of the expiration of its lease.

Results of Operations
---------------------

     The following table illustrates the consolidated  results of operations for
the thirteen weeks ended May 5, 2001, as compared to the consolidated results of
operations for the thirteen weeks ended April 29, 2000.
<TABLE>
<S>                                                      <C>                <C>                 <C>


                                                         May 5,             April 29,           Percentage
                                                          2001                2000                Change
                                                      --------------      --------------      ----------------
                                                                (In thousands)
Net sales                                                  $793,687            $830,657             (4.5)%
Leased department and other income                            9,149               9,259             (1.2)%
                                                      --------------      --------------
Total revenue                                               802,836             839,916             (4.4)%
Costs and expenses:
      Cost of merchandise sold                              565,956             602,924             (6.1)%
      Selling, general, and administrative expense          238,715             247,415             (3.5)%
      Depreciation and amortization expense, net             19,636              17,697              11.0%
      Interest and debt expense, net                         23,258              18,792              23.8%
                                                      --------------      --------------
Loss before income taxes                                   (44,729)            (46,912)
Income tax benefit                                           16,997              17,827
                                                      --------------      --------------
Net loss                                                  ($27,732)           ($29,085)
                                                      ==============      ==============
</TABLE>

     The decrease in net sales is primarily  attributable to a comparable  store
sales  decrease of 6.8% for the quarter  compared to the first quarter of Fiscal
2000.  Comparable  store sales were  negatively  affected  by very poor  weather
conditions during March 2001.

     Gross margin as a percentage  of sales  improved to 28.7% from 27.4% during
the first quarter of fiscal 2001 compared to the same period in Fiscal 2000. The
improvement is the result of reduced  markdowns  achieved  through the inventory
management initiatives we began in Fiscal 2000.

     The  decrease in selling,  general and  administrative  expenses  primarily
resulted from cost reduction  programs and the closing of the thirty-two stores.
Selling,  general and administrative expenses as a percentage of sales increased
slightly  from  29.8% to 30.1% for the  period as  compared  to last  year;  the
increase was primarily a result of lower than expected sales.

     The increase in depreciation and amortization expense is primarily a result
of  additional  depreciation  associated  with  the  new  store  and  remodeling
expenditures  incurred during Fiscal 2000. Capital  expenditures for Fiscal 2000
were  $127.1  million,  of which  $86.9  million  was  incurred  after the first
quarter.

     The increase in interest  expense is mainly  attributable to a higher level
of borrowings under our credit facility.

                                      -9-
<PAGE>

     Our estimated annual effective income tax rate for each year was applied to
the loss before  income  taxes for each period to compute a non-cash  income tax
benefit.  The  income  tax  benefits  are  included  in  current  assets  in the
consolidated  condensed  balance sheets as of May 5, 2001 and April 29, 2000. We
currently  expect that, as a result of the  seasonality  of our  business,  this
year's  income tax benefit will be offset by non-cash  income tax expense in the
remaining interim periods.

Liquidity and Capital Resources
-------------------------------

Current Year

     The following table reflects  certain balance sheet account  balances as of
the end of the current year fiscal quarter compared to the same account balances
as of the beginning of the current fiscal quarter.
<TABLE>
<S>                                            <C>                <C>                 <C>            <C>

                                               May 5,             February 3,                        Percentage
                                                2001                 2001             Change           Change
                                            --------------      ----------------    ------------    -------------
                                                                (In thousands)
                                            ----------------------------------------------------
Cash and cash equivalents                         $44,440               $49,761        ($5,321)          (10.7)%
Merchandise inventories                           837,476               744,132          93,344            12.5%
Net fixed assets                                  494,020               547,999        (53,979)           (9.9)%
Trade accounts payable                            321,931               345,915        (23,984)           (6.9)%
Store closing reserves                            142,797               179,365        (36,568)          (20.4)%
Long-term debt                                    804,552               606,057         198,495            32.8%
Capital lease and financing obligations           133,963               165,365        (31,402)          (19.0)%
</TABLE>

     The  decrease  in our  cash  position  was  primarily  due  to  merchandise
inventory  purchases,  reduction of accounts  payable,  and payments of deferred
financing  costs and capital  expenditures.  These cash  reductions were largely
offset by additional credit agreement borrowings of $198.5 million.

     The  increase  in  merchandise   inventories  from  February  3,  2001  was
principally due to a normal seasonal build-up.

     The  decrease  in net  fixed  assets  was due to  fixed  asset  retirements
totaling  $65.1  million  (including  capital  lease   retirements),   primarily
associated  with the  thirty-two  stores that were closed,  and $21.4 million in
depreciation  expense partially offset by $14.7 million in capital  expenditures
and $3.9 million in capital lease additions.

     The decrease in trade accounts  payable was  principally  the result of the
payment for  merchandise  for which extended  dating had been obtained and which
became  due  in the  quarter,  partially  offset  by the  seasonal  build-up  of
inventories referenced above.

     Store closing reserves decreased  primarily as a result of costs related to
the  thirty-two   store  closings,   including  $29.5  million  in  fixed  asset
write-downs,  $0.5  million in  severance  costs and $6.6  million in  occupancy
costs.

     Long-term debt as of May 5, 2001  consisted of borrowings  under our credit
facility of $560.3 million,  $200.0 million of the Ames senior notes,  and $44.3
million of the Hills senior notes.  The increase of $198.5 million in borrowings
under our credit facility was due to the normal seasonal build-up of inventories
as well as the negative impact of severe weather on March sales, which were well
below plan.

     The decrease in capital  lease and financing  obligations  was due to $31.2
million in write-offs  associated  with the closing of the thirty-two  stores as
referenced  above and $4.1  million in  payments  on capital  lease  obligations
partially offset by $3.9 million in capital lease additions.

     Our  principal  sources of liquidity  are our credit  agreement,  cash from
operations,  and cash on hand. Our current credit agreement, which expires March
2, 2004, provides for a credit facility of up to $800 million.  Borrowings under
the agreement are secured by substantially all of our assets and we are required
to meet  certain  financial  covenants  if our  availability  under  the  credit
agreement falls below specified levels.

     Achievement of expected cash flows from  operations and compliance with our
credit agreement covenants (see Note 5 to the consolidated financial statements)
are dependent upon the attainment of sales, gross profit, expense levels, vendor
relations,  and flow of  merchandise  that  are  consistent  with our  financial
projections.  Although  margin rates have been better than in the prior year and
expenses  have been  well  controlled,  our sales  shortfall  has  affected  our
liquidity. In order to meet our needs for working capital,  capital expenditures
and debt  service  requirements,  we may  need to  explore  other  alternatives,
including additional borrowings or a strategic alliance with another company.

                                      -10-
<PAGE>

Comparable Quarters

     The following table reflects  certain balance sheet account  balances as of
the end of the current fiscal quarter  compared to the same account  balances at
the end of the Fiscal 2000 first quarter.
<TABLE>
<S>                                            <C>                 <C>                <C>            <C>

                                               May 5,              April 29,                         Percentage
                                                2001                 2000             Change           Change
                                            --------------      ----------------    ------------    -------------
                                                                  (In thousands)
                                            ----------------------------------------------------
Cash and cash equivalents                         $44,440               $44,045            $395            0.90%
Merchandise inventories                           837,476               987,919       (150,443)          (15.2)%
Net fixed assets                                  494,020               521,432        (27,412)           (5.3)%
Trade accounts payable                            321,931               328,441         (6,510)           (2.0)%
Store closing reserves                            142,797                54,303          88,494           163.0%
Long-term debt                                    804,552               673,782         130,770            19.4%
Capital lease and financing obligations           133,963               176,020        (42,057)          (23.9)%
</TABLE>

     The decrease in merchandise  inventories from April 29, 2000 was due to our
inventory management initiatives which included reducing our inventory levels in
response to economic conditions.

     The  reduction  in net fixed  assets  resulted  from  write-offs  primarily
associated with the closing of thirty-two stores, as referenced above, and $86.5
million in depreciation expense offset by $101.6 million in capital expenditures
and $8.4 million in capital lease  additions  incurred  during the twelve months
ended May 5, 2001.

     The  decrease  in trade  accounts  payable  from April 29,  2000  primarily
resulted from our efforts to minimize merchandise inventory levels as previously
discussed.

     Store closing  reserves  increased as a result of the $129.8 million charge
taken in the fourth  quarter of Fiscal 2000 offset by $41.3  million in usage as
previously discussed.

     Our sales results in the fiscal month of March were negatively  impacted by
severe  weather and were well below  plan,  contributing  directly to  increased
borrowings and the increase in long-term debt.

     The decrease in capital  lease and financing  obligations  was due to $31.2
million in write-offs  associated  with the closing of the thirty-two  stores as
referenced  above and $22.3  million in  payments on capital  lease  obligations
partially offset by $8.4 million in capital lease additions.

Forward-looking Statements
--------------------------

     The statements  contained or  incorporated  by reference under the captions
"Business,"  "Legal  Proceedings,"  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations,"  "Quantitative  and Qualitative
Disclosures  about  Market  Risk" and  elsewhere  in this Form 10-Q that are not
historical  facts are  "forward-looking  statements," as that term is defined in
the Private  Securities  Litigation Reform Act of 1995. Those statements include
all   discussions   of  strategy  as  well  as  statements   that  contain  such
forward-looking   expressions  as  "believes,"  "estimates,"  "intends,"  "may,"
"will,"  "should," or "anticipates" or the negative thereof.  In addition,  from
time to time, our  representatives  or we have made or may make  forward-looking
statements orally or in writing. Furthermore,  forward-looking statements may be
included in our filings with the Securities  and Exchange  Commission as well as
in the press releases or oral  presentations made by or with the approval of one
of our authorized executive officers.

     We caution you to bear in mind that  forward-looking  statements,  by their
very nature,  involve  assumptions and expectations and are subject to risks and
uncertainties.  Although  we  believe  that  the  assumptions  and  expectations
reflected in the forward-looking  statements contained herein are reasonable, no
assurance can be given that those assumptions or expectations will prove to have
been  correct.  Important  factors  that could  cause  actual  results to differ
materially  from our  expectations  include,  but are not  limited  to, the ones
discussed below.

                                      -11-
<PAGE>

     Our  financial  performance  is  sensitive  to changes in overall  economic
conditions that impact consumer spending,  particularly  discretionary spending.
Future  economic  conditions   affecting  disposable  consumer  income  such  as
employment levels,  business conditions,  fuel and energy costs, interest rates,
and tax rates could reduce  consumer  spending or cause consumers to shift their
spending to other products.  A general slowdown in the United States' economy or
an uncertain  economic outlook would adversely affect consumer  spending habits,
which would  likely  result in lower net sales than  expected on a quarterly  or
annual  basis.  A general  reduction in the level of  discretionary  spending or
shifts in consumer  discretionary  spending to other  products  could  adversely
affect our growth,  net sales, and  profitability.  Our operating results may be
adversely  affected  by  unfavorable   local,   regional  or  national  economic
conditions,  especially  those affecting the Northeast,  Midwest or Mid-Atlantic
Regions where our 452 stores are currently located.

     Our  business  is affected  by the  pattern of  seasonality  common to most
retailers.  Our net sales and net income are generally  weakest during the first
two  fiscal  quarters  and  strongest  during  the  third and  fourth  quarters.
Historically,  we have  generated  a  significant  portion  of our net sales and
profits during our fourth fiscal quarter,  which includes the Christmas  selling
season,  and have experienced  losses or minimal earnings in the first,  second,
and third fiscal quarters.

     We  realize  a  disproportionately  large  amount  of our net sales and net
income during the Christmas selling season. In anticipation of the holidays,  we
purchase  substantial  amounts of  seasonal  inventory  and hire many  temporary
employees.  If for any reason our net sales during the Christmas  selling season
were  below  seasonal  norms,  we could  have  excess  inventory,  necessitating
mark-downs to minimize  this excess,  which would reduce our  profitability  and
adversely affect our operating results.

     We  continually  change  our  mix  of  seasonal  merchandise,  non-seasonal
merchandise,  and  consumable  products.  Our gross profit margins may fluctuate
from  quarter  to  quarter.  Our  quarterly  and annual  results of  operations,
including comparable store net sales and income, also fluctuate for a variety of
other reasons,  including adverse weather  conditions,  particularly  during the
peak Christmas season,  and difficulties in obtaining  sufficient  quantities of
merchandise from our suppliers.

     The retail  industry is highly  competitive  and we expect  competition  to
increase in the future.  We compete with many smaller stores  offering a similar
range of products.  Although Ames is the largest regional  discount  retailer in
the  United  States,  we are still  considerably  smaller  in terms of our total
number of stores,  sales and earnings  than the three leading  national  chains:
Wal-Mart,  Kmart,  and Target  Stores.  Each of these  chains,  as well as other
regional  operators,  currently  operates  stores within our regional market and
competes with us for customers and potential  store  locations.  We anticipate a
further increase in competition from these national discount store chains.

     Our merchandising focus is primarily directed to consumers who, we believe,
are underserved by the major national chains.  Although this approach,  combined
with our smaller store size,  has enabled us to compete  effectively  with these
chains and operate profitably in proximity to their stores, we remain vulnerable
to the  marketing  power and high  level of  consumer  recognition  of the major
national discount chains. We expect to face increased  competition in the future
which could adversely affect our business,  results of operations, and financial
condition.

     The  efficient  operation  of our  business  is  heavily  dependent  on our
information  systems.  We depend on others to maintain and periodically  upgrade
many of these  systems so that they can  continue to support our  business.  The
software  programs  supporting  many  of  our  systems  were  licensed  to us by
independent software  developers.  The inability of these developers to continue
to maintain and upgrade these  information  systems and software  programs would
disrupt our  operations if we were unable to convert to alternate  systems in an
efficient and timely manner.

     Our business is dependent on continued good relations with our vendors.  In
particular,  we believe that we generally are able to obtain attractive  pricing
and other terms from vendors  because we are perceived as a desirable  customer.
Our failure to maintain  good  relations  with our vendors  could  increase  our
exposure  to  shifts  in  market  demand,  which  may in turn  lead to  improper
inventory levels and increased inventory markdown rates.

     Substantially all of our assets are encumbered by debt incurred through our
credit agreement borrowings. At May 5, 2001, the amount of credit agreement debt
outstanding was $560.3 million.  As of June 18, 2001, we were in compliance with
the fixed  charge  coverage  ratio and other  covenants  contained in our credit
agreement.  However, if we fail to comply with all of the covenants contained in
the credit agreement or otherwise  default on our secured debt, the lender could
foreclose  against  our  assets  and  effectively  force  a  termination  of our
business.  In addition,  our  leveraged  position  impairs our ability to obtain
additional financing to fund working capital requirements,  capital expenditures
or other purposes.

                                      -12-
<PAGE>

     The amount of our credit facility for cash borrowings and letters of credit
needed for the purchase of new  inventory is based on specified  percentages  of
our inventory on hand as well as in-transit  inventory  from  overseas,  certain
receivables  and certain of our owned real estate.  Our  borrowing  availability
under the existing credit facility  fluctuates  relative to this borrowing base.
This borrowing base varies in value as a result of sales, merchandise purchases,
and  profitability.  Lack of short-term  liquidity due to reaching the limits of
our borrowing  availability  would  adversely  affect our  business,  results of
operations, and financial condition.

     We incurred a net loss of $27.7  million in our first  quarter ended May 5,
2001 and, to date,  consistent with normal seasonal patterns as discussed above,
we have  continued  to incur net  losses in the second  quarter  in our  current
fiscal  year.  There can be no  assurance  that losses will not  continue in the
future. If losses do continue to occur, we will likely need to obtain additional
capital to continue our operations.

     All subsequent written and oral forward-looking  statements attributable to
us or persons acting on our behalf are expressly  qualified in their entirety by
these factors and the cautionary statements contained herein.

Item 3.
           Quantitative and Qualitative Disclosures About Market Risk

     We have exposure to interest rate volatility primarily relating to interest
rate changes  applicable  to revolving  loans under our credit  facility.  These
loans bear interest at rates which vary with changes in (i) the London Interbank
Offered  Rate  (LIBOR)  or  (ii)  the  Index  Rate  (as  defined  in our  credit
agreement).

     We do not speculate on the future direction of interest rates. As of May 5,
2001,  approximately $560.3 million of our debt bore interest at variable rates.
We believe that the effect, if any, of reasonably  possible near term changes in
interest rates on our consolidated financial position,  results of operations or
cash flows would not be significant.


                                      -13-
<PAGE>


                                     PART II
                                OTHER INFORMATION


Item 1.           Legal Proceedings.

     Reference  can be  made  to  Item 3 -  Legal  Proceedings  included  in the
Company's  most recent Form 10-K for various  litigation  involving the Company,
for which there were no material changes since the filing date of the Form 10-K,
except  as set  forth in Note 8 to the above  Consolidated  Condensed  Financial
Statements.

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

     On May 16,  2001,  the  Company  sent a notice of the annual  meeting and a
proxy statement to its  stockholders.  The notice of meeting  announced that the
Annual Meeting of Stockholders would be held Tuesday, June 12, 2001, to consider
and act upon the following matters:  (a) the election of seven (7) directors for
a term of one year or until their  successor(s) have been elected and qualified;
(b) the approval of amendments to the 1994  Non-Employee  Directors Stock Option
Plan;  (c)  the  ratification  of the  appointment  of  Arthur  Andersen  LLP as
independent  certified  public  accountants and auditors for the Company for the
fiscal year ending  February 02,  2002;  and (d) the  transaction  of such other
business as may properly come before the meeting or any adjournment(s) thereof.

     The results of the meeting will be reported in the Quarterly Report for the
Company's fiscal quarter ending August 4, 2001.

Item 6.           Exhibits and Reports on Form 8-K.

(a)      Index to Exhibits
<TABLE>
                 <S>                  <C>                                                                 <C>

                 Exhibit No.          Exhibit                                                             Page No.
                 -----------          -------                                                             --------

                 11                   Schedule of computation of basic and diluted net income (loss)         16
                                      per share

                 12                   Ratio of Earnings to Fixed Charges                                     17

</TABLE>

(b)      Reports on Form 8-K

     On March 12, 2001, the Company filed its Senior Secured Financing Agreement
dated as of March 2, 2001 between the Company and GE Capital on Form 8-K.  There
were no  other  reports  on Form 8-K  filed  with the  Securities  and  Exchange
Commission during the first quarter.


                                      -14-
<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.
<TABLE>
<S>                  <C>                                         <C>


                                                                            AMES DEPARTMENT STORES, INC.
                                                                                    (Registrant)


Dated:               June 18, 2001                               /s/ JOSEPH R. ETTORE
                                                                 --------------------
                                                                 Joseph R. Ettore, Chairman, Chief Executive
                                                                 Officer, and Director



Dated:               June 18, 2001                               /S/ ROLANDO de AGUIAR
                                                                 ---------------------
                                                                 Rolando de Aguiar, Senior Executive Vice
                                                                 President, Chief Financial and Administrative Officer
</TABLE>

                                      -15-
<PAGE>
<TABLE>
<S>                                                              <C>                      <C>


                                                                                                                         Exhibit 11

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
         SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
                    (In Thousands, Except Per Share Amounts)


                                                                           For the Thirteen
                                                                              Weeks Ended
                                                                 --------------------------------------
                                                                     May 5,                April 29,
                                                                      2001                   2000
                                                                 ---------------         --------------

Net loss.....................................................        ($27,732)              ($29,085)
                                                                 ===============         ==============
For Basic Earnings Per Share:
Weighted average number of common shares outstanding
     during the period.......................................          29,397  (b)            29,336  (b)
                                                                 ---------------         --------------
Basic net loss per share.....................................          ($0.94)                ($0.99)
                                                                 ===============         ==============
For Diluted Earnings Per Share:
Weighted average number of common shares outstanding
     during the period.......................................          29,397  (b)            29,336  (b)
Add common stock equivalent shares represented by:
     Series B Warrants.......................................             ---                     12
     Options under the 1994 Management Stock Option
          Plan and 1998 Stock Incentive Plan.................             ---                    242
     Options under the 1994 Non-Employee Director Stock
          Option Plan........................................             ---                     50
     Options under the 2000 Store Manager Stock Option Plan                95                    ---
                                                                 ---------------         --------------
Weighted average number of common and common
     equivalent shares.......................................          29,397                 29,336
                                                                 ===============         ==============
Diluted net loss per share...................................          ($0.94) (a)            ($0.99) (a)
                                                                 ===============         ==============

(a)  Common stock equivalents have not been included, because the effect would be anti-dilutive.
(b)  The weighted average number of common shares outstanding is net of treasury stock.
</TABLE>

                                      -16-
<PAGE>
<TABLE>
<S>                             <C>         <C>             <C>           <C>              <C>            <C>

                                                                                                                         Exhibit 12

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                       RATIO OF EARNINGS TO FIXED CHARGES
                        (In Thousands, Except Ratio Data)


                                Thirteen
                              Weeks Ended
                                                                        Fiscal Year Ended
                              -------------  -------------------------------------------------------------------------

                                 May 5,      February 3,    January 29,    January 30,     January 31,    January 25,
                                  2001          2001           2000            1999           1998           1997
                              -------------  ------------   ------------   -------------   ------------   ------------

Income (loss) before income
    taxes, extraordinary item
    and cumulative effect
    adjustment                    (44,729)     (288,377)       (31,355)          52,605         53,633         26,804

Add:
    Interest expense                23,258        87,961         60,843          15,253         11,600         19,043
    Interest component of
    rental expense                  11,218        28,876         29,253          21,121         18,409         16,541
                              -------------  ------------   ------------   -------------   ------------   ------------
Earnings available for fixed
    charges                       (10,253)     (171,540)         58,741          88,979         83,642         62,388

Fixed Charges:
    Interest expense                23,258        87,961         60,843          15,253         11,600         19,043
    Interest component of
    rental expense                  11,218        28,876         29,253          21,121         18,409         16,541
                              -------------  ------------   ------------   -------------   ------------   ------------

Total fixed charges                 34,476       116,837         90,096          36,374         30,009         35,584

Ratio of earnings to fixed
     charges                        (0.3)x        (1.5)x           0.7x            2.4x           2.8x           1.8x
</TABLE>


     For the purpose of  calculating  the ratio of  earnings  to fixed  charges,
earnings  consist  of  income  before  income  taxes,   extraordinary  item  and
cumulative effect  adjustment plus fixed charges (net of capitalized  interest).
Fixed charges consist of interest  expense on all  indebtedness  and capitalized
interest,  amortized  premiums,  discounts and capitalized  expenses  related to
indebtedness,  and  one-third of rent expense on operating  leases  representing
that portion of rent expense deemed by us to be  attributable  to interest.  For
the thirteen weeks ended May 5, 2001 and the fiscal year ended February 3, 2001,
the amount of  additional  earnings that would have been required to cover fixed
charges for these periods was $44.7 million and $288.4 million, respectively.

                                      -17-
<PAGE>