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  August 1, 1998
                               ---------------- 

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

For the transition period from                  to
                               ----------------    ---------------

                          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
                                -----      -----



   23,113,071  shares of Common Stock were  outstanding on August 14, 1998.


                         Exhibit Index on page 13

                    Page 1 of 15 (including exhibits)

<PAGE>

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES

                                    FORM 10-Q

                      FOR THE QUARTER ENDED AUGUST 1, 1998




                                    I N D E X




                                                                         Page
                                                                         ----
Part I:   Financial Information

             Consolidated  Condensed  Statements  of  Operations           3
                for the Thirteen and Twenty-six Weeks ended
                August 1, 1998 and July
                26, 1997

             Consolidated Condensed Balance Sheets as of                   4
                August 1, 1998, January 31, 1998, and July 26,
                1997

             Consolidated Condensed Statements of Cash Flows               5
                for the Thirteen and Twenty-six Weeks ended
                August 1, 1998 and July 26, 1997

             Notes to Consolidated Condensed Financial Statements          6

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


Part II:  Other Information

             Submission of Matters to a Vote of Security Holders          12

             Exhibits and Reports on Form 8-K                             13

<PAGE>

<TABLE>
                                                    PART I
                                             FINANCIAL INFORMATION


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




<CAPTION>
                                                             For the Thirteen             For the Twenty-six
                                                               Weeks Ended                   Weeks Ended
                                                          -----------------------      -------------------------
                                                           August 1,    July 26,         August 1,     July 26,
                                                             1998         1997             1998          1997
                                                          ----------   ----------      ------------   ----------
<S>                                                       <C>          <C>             <C>            <C>
TOTAL SALES                                                $562,736     $530,059        $1,080,959     $978,634
Less: Leased department sales                                26,439       26,492            45,614       42,466
                                                          ----------   ----------      ------------   ----------
NET SALES                                                   536,297      503,567         1,035,345      936,168

COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold                                    379,461      356,704           740,071      670,462
Selling, general and administrative expenses                145,103      137,190           288,739      265,934
Leased department and other operating income                 (7,489)      (6,446)          (13,675)     (11,133)
Depreciation and amortization expense                         4,153        3,264             7,969        6,187
Amortization of the excess of revalued net assets
    over equity under fresh-start reporting                  (1,539)      (1,539)           (3,077)      (3,077)
Interest and debt expense, net                                3,192        3,208             5,246        5,600
                                                          ------------------------------------------------------

INCOME BEFORE INCOME TAXES                                   13,416       11,186            10,072        2,195
Income tax provision                                         (5,011)      (3,808)           (3,785)        (747)
                                                           ----------   ----------      ------------   ----------

NET INCOME                                                   $8,405       $7,378            $6,287       $1,448
                                                           ==========   ==========      ============   ==========




BASIC NET INCOME PER COMMON SHARE
    
    Net income                                                $0.37        $0.34             $0.28        $0.07
                                                          ==========   ==========      ============   ==========
    Weighted average number of common shares outstanding     22,950       21,486            22,800       21,188
                                                          ==========   ==========      ============   ==========

DILUTED NET INCOME PER COMMON SHARE
 
    Net income                                                $0.35        $0.31             $0.26        $0.06
                                                          ==========   ==========      ============   ==========
    Weighted average common and common equivalent shares     24,272       23,455            24,171       23,354
                                                          ==========   ==========      ============   ==========




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

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (In Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                August 1,          January 31,          July 26,
                                                                  1998                1998                1997
                                     ASSETS                    -----------         -----------         ----------
<S>                                                            <C>                 <C>                 <C>
Current Assets:
   Cash and short-term investments                                $20,859             $57,828            $17,548
   Receivables                                                     22,662              18,922             26,386
   Merchandise inventories                                        502,157             423,836            443,827
   Prepaid expenses and other current assets                       13,089              12,060             15,167
                                                               -----------         -----------         ----------
         Total current assets                                     558,767             512,646            502,928
                                                               -----------         -----------         ----------

Fixed Assets                                                      165,692             128,790            114,147
   Less - Accumulated depreciation and amortization               (53,283)            (45,457)           (38,168)
                                                               -----------         -----------         ----------
         Net fixed assets                                         112,409              83,333             75,979
                                                               -----------         -----------         ----------

Other assets and deferred charges                                  13,306              14,063              8,264
                                                               -----------         -----------         ----------
                                                                 $684,482            $610,042           $587,171
                                                               ===========         ===========         ==========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Accounts payable:
     Trade                                                       $176,147            $180,971           $153,403
     Other                                                         43,060              42,185             45,884
                                                               -----------         -----------         ----------
         Total accounts payable                                   219,207             223,156            199,287
Note payable - revolver                                            70,525                -                65,302
Current portion of long-term debt and capital lease obligations     4,638               4,177              7,426
Self-insurance reserves                                            30,187              31,657             32,647
Accrued expenses and other current liabilities                     74,581              73,437             59,753
Store closing reserves                                             10,301              12,050             19,007
                                                                ----------         -----------         ----------
         Total current liabilities                                409,439             344,477            383,422

Long-term debt                                                       -                  9,340              9,251
Capital lease obligations                                          37,378              26,393             24,731
Other long-term liabilities                                         8,774              10,943              7,461

Unfavorable lease liability                                        14,618              15,333             16,048
Excess of revalued net assets over equity under 
    fresh-start reporting                                          27,097              30,174             33,250

Stockholders' Equity:
   Common stock                                                       233                 225                218
   Additional paid-in capital                                     126,470             118,971             91,702
   Retained earnings                                               60,473              54,186             21,088
                                                                ----------         -----------         ----------
         Total Stockholders' Equity                               187,176             173,382            113,008
                                                                ----------         -----------         ----------
                                                                 $684,482            $610,042           $587,171
                                                                ==========         ===========         ==========
<FN>
              (The accompanying notes are an integral part of these
                 consolidated condensed financial statements.)
</FN>                            
</TABLE>

<PAGE>                                                      


                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                     For the Twenty-six
                                                                                         Weeks Ended
                                                                            --------------------------------------
                                                                                 August 1,            July 26,
                                                                                   1998                 1997
                                                                            -----------------    -----------------
<S>                                                                         <C>                  <C>  
Cash flows from operating activities:
   Net income                                                                     $6,287               $1,448
   Adjustments to reconcile net income to net cash
       used for operating activities:
   Income tax provision                                                            3,785                   747
   Depreciation and amortization of fixed and other assets                         8,368                 6,476
   Amortization of the excess of revalued net assets over equity                  (3,077)               (3,077)
   Increase in accounts receivable                                                (3,740)               (7,315)
   Increase in merchandise inventories                                           (78,321)              (52,751)
   Increase (decrease) in accounts payable                                        (3,949)               10,370
   Decrease in accrued expenses and other current liabilities                       (326)               (8,132)
   Decrease in other working capital and other, net                               (3,270)               (3,210)
                                                                            -----------------    -----------------
Cash used for operations before store closing items                              (74,243)              (55,444)
Payments of store closing costs                                                   (1,355)               (5,899)
                                                                            -----------------    -----------------
Net cash used for operating activities                                           (75,598)              (61,343)
                                                                            -----------------    -----------------
Cash flows from investing activities:
   Purchases of fixed assets                                                     (22,615)              (19,256)
   Purchase of leases                                                                -                  (4,148)
                                                                            -----------------    -----------------
Net cash used for investing activities                                           (22,615)              (23,404)
                                                                            -----------------    -----------------
Cash flows from financing activities:
   Payments of debt and capital lease obligations                                (13,003)              (11,753)
   Short-term borrowings under the revolver, net                                  70,525                65,302
   Proceeds from the excercise of options and warrants                             3,722                 2,627
                                                                            -----------------    -----------------
Net cash provided by financing activities                                         61,244                56,176
                                                                            -----------------    -----------------
Decrease in cash and short-term investments                                      (36,969)              (28,571)
Cash and short-term investments, beginning of period                              57,828                46,119
                                                                            -----------------    -----------------
Cash and short-term investments, end of period                                   $20,859               $17,548
                                                                            =================    =================


Supplemental  disclosures of cash flow information:
   Cash paid during the period for:
      Interest and debt fees not capitalized                                      $4,043                $4,763
      Income taxes                                                                     5                     2





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

<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 August 1, 1998 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.  The
       consolidated  condensed  balance  sheet at January 31, 1998 was  obtained
       from audited  financial  statements  previously filed with the SEC in the
       Company's  latest  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 Company's latest
       Form 10-K.

2.     Net Income Per Common Share:
       ----------------------------
              Net income per share was  determined  using the  weighted  average
       number of  common  shares  outstanding.  190,723  warrants were converted
       and 74,210  options  were  exercised  during  the quarter ended August 1,
       1998.  During  the  quarter  ended  July 26, 1997,  139,789 warrants were
       converted and 254,960 options were exercised.

3.     Inventories:
       ------------
              Inventories  are valued at the lower of cost or market.  Effective
       October 25, 1997, the Company changed from the retail last-in,  first-out
       (LIFO) method of accounting for  inventories  to the first-in,  first-out
       (FIFO) method and restated all prior  periods for the change.  The change
       had no impact on the historical results of operations of the Company.

4.     Debt:
       ----- 
              On December 27, 1996,  the Company  entered into an agreement with
       BankAmerica Business Credit,  Inc., as agent, two financial  institutions
       as co-agents  (together with the agent,  the  "Agents"),  and a syndicate
       consisting of five other banks and financial institutions,  for a secured
       revolving credit facility of up to $320 million,  with a sublimit of $100
       million  for  letters  of credit  and a $20  million  term  loan  portion
       available for capital expenditures (the "Credit Agreement").

              The Credit  Agreement is in effect until June 30, 2000, is secured
       by  substantially  all of the assets of the  Company,  and  requires  the
       Company to meet  certain  financial  covenants.  In  addition,  each year
       outstanding  borrowings  under the  Credit  Agreement  may not exceed any
       balance  due  under  the term  loan  portion  plus up to $20  million  in
       revolver loans for a consecutive  30-day period between November 15th and
       February 15th of the following  year.  The Company is in compliance  with
       the financial covenants through the quarter ended August 1, 1998.

<PAGE>

              As of August 1, 1998, borrowings of $70.5 million were outstanding
       under the  Credit  Agreement.  In  addition,  $19.5 and $8.1  million  of
       standby and trade letters of credit, respectively, were outstanding under
       the  Credit  Agreement.  The  weighted  average  interest  rates  on  the
       borrowings  for the  thirteen and  twenty-six  weeks ended August 1, 1998
       were 8.0% and 8.1% respectively.  The peak borrowing level through August
       1, 1998 was $70.5 million.

              The  amount of  borrowing  under the  Credit  Agreement  shall not
       exceed the sum of (i) an amount equal to 60% of inventory  not covered by
       any  outstanding  letter  of credit  plus (ii) an amount  equal to 50% of
       inventory covered by any outstanding  letter of credit. In addition,  the
       Credit  Agreement  provides  for the  potential  establishment  of  other
       reserves contingent upon the Company's financial performance. Each Agent,
       in  addition,  reserves  the right to adjust  the total  available  to be
       borrowed by  establishing  reserves,  making  determinations  of eligible
       inventory,  revising  standards of eligibility or decreasing from time to
       time the percentages set forth above. Reference can be made to the latest
       Form  10-K for  further  descriptions  of the  Credit  Agreement  and for
       descriptions of the Company's other obligations not discussed herein.

 5.    Stock Options:
       --------------
              The Company has three stock option plans (the "Option Plans"): the
       1994 Management  Stock Option Plan, the 1998  Management  Stock Incentive
       Plan and the 1994 Non-Employee Directors Stock Option Plan.

              In  October  1995,   SFAS  No.  123  "Accounting  for  Stock-Based
       Compensation"  was issued.  SFAS No. 123  establishes  a fair-value based
       method of accounting for  stock-based  compensation;  however,  it allows
       entities to continue  accounting  for employee  stock-based  compensation
       under the intrinsic  value method  prescribed  by  Accounting  Principles
       Board Opinion No. 25,  "Accounting  for Stock  Issued to Employees".  The
       Company elected to account for the  Option  Plans  under APB  Opinion No.
       25,  under which no compensation cost has been recognized, and adopt SFAS
       No. 123 through disclosure.

              If the Company had elected to recognize  compensation cost for the
       Option  Plans based on the fair value at the grant dates for awards under
       those plans,  consistent with the method  prescribed by SFAS No. 123, net
       income and net income per diluted  common  share would have  approximated
       the pro forma amounts indicated below:

                                 For the Thirteen           For the Twenty-six
                                   Weeks Ended                  Weeks Ended
                               ---------------------       ---------------------
                               August 1,    July 26,       August 1,    July 26,
                                 1998         1997           1998         1997
                               ---------------------       ---------------------
       Net Income (in thousands)
         As reported             $8,405      $7,378          $6,287      $1,448
         Pro forma                7,690       7,234           5,441       1,131

       Net Income per common
         share (diluted)
         As reported              $0.35       $0.31           $0.26       $0.06
         Pro forma                 0.32        0.31            0.23        0.05

              The fair  value of stock options used to compute the pro forma net
       income and the net income per common share  (diluted)  is  the  estimated
       present value at 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.

<PAGE>

6.     Income Taxes:
       -------------
              The Company's  estimated annual effective income tax rate for each
       year was  applied to the income  before  income  taxes for each period to
       compute a non-cash  income tax  provision.  The income tax provisions are
       included as  additions  to paid-in  capital on the balance  sheet for all
       periods presented.

 7.    Litigation:
       -----------
              Reference  can be made to the  latest  Form  10-K  (Note 12 to the
       Consolidated  Financial  Statements) for various litigation involving the
       Company,  for which there were no material  changes since the filing date
       of the Form 10-K, except as follows:

              With regard to the Second  Complaint (the Austin matter),  on July
       15, 1998, the Court approved a class action settlement (the "Settlement")
       which had been reached by the  parties.  Notices of the  Settlement  were
       sent to all potential  class members on August 19, 1998.  The  Settlement
       provides that in exchange for a release of all claims against the Company
       each class member who elects to opt-in to the  Settlement  will receive a
       benefit,  either cash or discounts on future  purchases at an Ames store,
       based on the  number of days  worked  for the  Company  during  the class
       period.  Individuals  who wish to opt-in to the Settlement  must sign and
       return a Consent  and  Release  Form on or before  October 3,  1998.  The
       maximum cost of the  Settlement to the Company cannot exceed $1.5 million
       in cash if all  participants  elect cash or $4.5  million in discounts on
       purchases if all participants  elect  discounts.  The Company believes it
       has adequately reserved for the settlement.

              With  regard  to  the  Fifth  Complaint  (the  Moschelle  matter),
       pursuant to the terms of the Settlement, the parties will jointly move to
       dismiss this action  without  prejudice to the rights of any class member
       who does not elect to opt-in to the Settlement by the stated deadline.

<PAGE>


                        AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                             FISCAL QUARTER ENDED AUGUST 1, 1998
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                                  AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

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

     The following  table sets forth the number of stores in operation as of the
dates indicated:

                                 Number of Stores in Operation
                               -----------------------------------
                               August 1,   January 31,    July 26,
                                  1998         1998         1997
                               ---------    ---------    ---------

                                  299          298          296


    The following  discussion and analysis is based on the results of operations
for the  thirteen and  twenty-six  weeks ended August 1, 1998 and July 26, 1997.
During the first half of 1998,  three (3) stores  were opened and two (2) stores
were closed. In the comparable  prior-year period, seven (7) stores were opened,
thirteen  (13) stores were closed and the Company  determined  that it would not
re-open a store previously closed as a result of flooding.

     The  following  table  sets  forth the  operating  results  expressed  as a
percentage of net sales for the periods indicated:

                                                    Thirteen                   Twenty-six
                                                   Weeks Ended                Weeks Ended
                                              ----------------------     -----------------------
                                              August 1,     July 26,     August 1,      July 26,
                                                1998         1997          1998           1997
                                              ---------    ---------     ---------     ---------
<S>                                           <C>          <C>           <C>           <C>
Net sales                                        100.0%       100.0%        100.0%        100.0%
Cost of merchandise sold                          70.8         70.8          71.5          71.6
                                              ---------    ---------     ---------     ---------
Gross margin                                      29.2         29.2          28.5          28.4
Expenses and (income):
Selling, general and administrative expenses      27.0         27.3          27.9          28.4
Leased department and other operating income      (1.4)        (1.3)         (1.3)         (1.2)
Depreciation and amortization expense              0.8          0.7           0.7           0.7
Amortization of the excess of revalued net assets
    over equity under fresh-start reporting       (0.3)        (0.3)         (0.3)         (0.3)
Interest and debt expense, net                     0.6          0.6           0.5           0.6
                                              ---------    ---------     ---------     ---------
    Income before income taxes                     2.5          2.2           1.0           0.2
Income tax provision                              (0.9)        (0.7)         (0.4)         (0.1)
                                              ---------    ---------     ---------     ---------
       Net income                                  1.6%         1.5%          0.6%          0.1%
                                              =========    =========     =========     =========

</TABLE>

<PAGE>

       Net sales for the  thirteen  weeks ended August 1, 1998  increased  $32.7
million  or 6.5%  from the  prior-year's  second  quarter  due  primarily  to an
increase  of 4.0% in  comparable-store  sales and the net  addition of three (3)
stores.  Net sales for the twenty-six weeks ended August 1, 1998 increased $99.2
million or 10.6% as compared  to the same  prior-year  period.  Comparable-store
sales increased by 8.1% for the first twenty-six weeks.

       Gross margin for the second quarter increased $10.0 million, but remained
unchanged as a percentage of net sales,  as compared with the quarter ended July
26, 1997.  Gross margin for the twenty-six  weeks ended August 1, 1998 increased
$29.6  million,  or 0.1% as a  percentage  of net  sales  compared  to the  same
prior-year  period.  The  improvement  in  year-to-date  gross  margin rates was
primarily attributable to lower markdowns.

       Selling, general and administrative expenses for the thirteen weeks ended
August 1, 1998 increased $7.9 million,  but decreased 0.3% from the prior-year's
second  quarter due  primarily to favorable performance in advertising and lower
compensation related expenses. For the twenty-six week period, selling,  general
and  administrative  expenses  increased $22.8 million,  but decreased 0.5% as a
percentage  of net  sales as  compared  to the same  prior-year  period  due  to
favorable performances in store and advertising expenses.

       Depreciation and amortization  expense  increased by $0.9 million or 0.1%
as a  percentage  of net sales,  in the  thirteen  weeks  ended  August 1, 1998,
compared to the same prior-year period. For the twenty-six weeks ended August 1,
1998,  depreciation  and  amortization  increased  $1.8  million,  but  remained
unchanged  as a  percentage  of net  sales,  compared  with the same  prior-year
period.  The adoption of fresh-start  reporting as of December 26, 1992 resulted
in the write-off of all of the Company's  non-current  assets at that date,  and
therefore  depreciation  and  amortization  expense  results  only from  capital
additions after that date.

       The  amortization  of the excess of revalued net assets over equity under
fresh-start  reporting  remained  the same in the current  periods  presented as
compared  to the prior  year.  The  Company is  amortizing  this  amount  over a
ten-year period.

       Interest and debt expense,  net of interest income,  was essentially flat
in the thirteen  weeks ended August 1, 1998 as compared to the period ended July
26,  1997.  For the  twenty-six  weeks ended  August 1, 1998,  interest and debt
expense  decreased  $0.4 million or 0.1% as a percentage of net sales,  compared
with the same prior-year period.  This decrease was due primarily to a reduction
in short-term interest expense as a result of lower average outstanding balances
under the Credit  Agreement  (from $55.6 to $36.4 million  during the twenty-six
week period) partially offset by increased capital lease interest expense.

       The Company's  estimated  annual  effective income tax rate for each year
was  applied  to the income  before  income  taxes for each  period to compute a
non-cash  income tax  provision.  The  income tax  provisions  are  included  as
additions to paid-in capital on the balance sheet for all periods presented.

Liquidity and Capital Resources
-------------------------------
        On  December  27,  1996,  the Company  entered  into an  agreement  with
BankAmerica  Business  Credit,  Inc., as agent,  two financial  institutions  as
co-agents (together with the agent, the "Agents"), and a syndicate consisting of
five other banks and  financial  institutions,  for a secured  revolving  credit
facility of up to $320  million,  with a sublimit of $100 million for letters of
credit (the "Credit Agreement").

       The Credit Agreement is in effect until June 30, 2000. The Company was in
compliance  with the  financial  covenants of the Credit  Agreement  through the
quarter ended August 1, 1998.  Reference can be made to Note 4 of this Quarterly
Report  and  the  latest  Form  10-K  for  further  descriptions  of the  Credit
Agreement.

<PAGE>

       Merchandise  inventories,  increased  $58.3 million from July 26, 1997 to
August 1, 1998 due primarily to planned  increases.  The increase in inventories
of $78.3  million  from January 31, 1998 to August 1, 1998 was  principally  the
result of a normal seasonal build-up of inventories and planned increases.

       Trade  accounts  payable  increased  $22.7  million from July 26, 1997 to
August 1, 1998 primarily due to planned  merchandise  inventory  increases.  The
decrease of $4.8 million from January 31, 1998 to August 1, 1998 was principally
the result of the seasonal dating in effect as of January 31, 1998.

       Capital  expenditures  totaled $37.5 million  (including $14.9 million in
capital leases for store automation  (POS) systems)  for  the  twenty-six  weeks
ended  August 1,  1998  and  for  the  balance  of  the year are estimated to be
approximately  $47 million.  The  Company  adjusts  its  plans for  making  such
expenditures  depending  on the  amount of internally generated funds.

       The net  operating  loss  carryovers  remaining  after  fiscal year 1997,
subject to any  limitations  pursuant to Internal  Revenue Code Sec. 382, should
offset income on which taxes would otherwise be payable in future years.
     
       The Company believes that available cash and expected cash flows from the
current  fiscal  year's  operations  and  beyond,  and the  availability  of its
financing  facilities,  will enable the Company to fund its  expected  needs for
working capital, capital expenditures and debt service requirements.

Accounting Pronouncements
-------------------------
    In April 1998, the Accounting  Standards  Executive Committee (AcSEC) issued
Statement  of  Position  (SOP)  98-5,   "Reporting  on  the  Costs  of  Start-Up
Activities".  The SOP is effective for fiscal years beginning after December 15,
1998 although earlier adoption is permitted. The SOP will require that the costs
of start-up  activities be expensed as incurred.  The Company currently expenses
costs associated with the opening of new  stores in  the  year they are  opened.
These costs are  carried  as  prepaid  expenses  prior to the opening of the new
stores.  The Company expects to adopt this  statement as of January 30, 1999 and
does not anticipate the adoption will materially affect the Company's results of
operations or financial  position.

Year 2000
---------
       As previously reported, the Company has initiated a comprehensive program
to  prepare  its  computer  systems  and  applications  for the year  2000.  The
assessment  phase of the  Company's  remediation  program  is  complete  and the
systems  development  and testing stages are in progress.  The Company has spent
approximately $2.6 million on its Year 2000 initiatives to date and expects that
full  implementation  of the program will involve an additional $2 to $3 million
over the next two years for  conversion  and  testing of  systems.  These  costs
include  incremental  expenses  such  software,  outside  consulting  and  other
expenses.  Additionally, the Company has allocated systems development staff  to
Year 2000 initiatives and estimates the non-incremental costs to  be  $3  to  $4
million over the life of the project.

      The  Company  has  formally  communicated  with  all  of its  vendors  and
suppliers  to  determine  the extent to which the Company may be  vulnerable  to
those third parties' failure to remediate their own Year 2000 issues.  The first
phase, which included sending Year 2000 surveys and questionnaires,  is complete
and the response evaluation phase is currently in progress.  The Company has not
had  sufficient  response  from vendors to provide an estimate of the  potential
impact of  non-compliance  on the part of such vendors.  Management is currently
developing  contingency  plans which include,  but are not limited to,  securing
alternative  vendors who are Year 2000 compliant,  developing manual merchandise
ordering processes,  and evaluating alternative merchandise  assortments.  It is
too early to determine to what  extent, if any,  these  contingency  plans  will
have to be implemented

       Although  the Company  expects to be Year 2000  compliant by mid-1999 and
does not expect to be  materially  impacted by the  external  environment,  such
future  events  cannot  be known  with  certainty.  Furthermore,  the  Company's
estimates  of  future  remediation  costs  and  completion  dates  are  based on
presently  available  information  and may be updated as additional  information
becomes available.

<PAGE>      
                                     Part II

                                OTHER INFORMATION


Item 1.        Legal Proceedings
               -----------------
                      Reference  can be  made  to  Note  12 to the  Consolidated
               Financial  Statements  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 7 of this Quarterly Report.


Item 4.        Submission of Matters to a Vote of Security Holders
               ---------------------------------------------------
                      The Annual Meeting of Stockholders was held Wednesday, May
               27, 1998, to consider and act upon the following matters:

               (a)   The  shareholders  elected for  one-year  terms all persons
                     nominated for directors as set forth in the Company's proxy
                     statement  filed April 8, 1998.  Each  nominee for director
                     was elected as follows:

                                            For                 Withheld
                                         ----------            -----------
                     Francis X. Basile   19,244,965                53,033
                     Paul Buxbaum        19,244,179                53,819
                     Alan Cohen          12,346,191             6,951,807
                     Joseph R. Ettore    19,249,170                48,828
                     Richard M. Felner   19,248,139                49,859
                     Sidney S. Pearlman  19,243,514                54,484
                     Laurie M. Shahon    19,246,807                51,191

               (b)   The  shareholders  ratified and approved the appointment of
                     Arthur  Andersen  LLP  as  independent   certified   public
                     accountants  and  auditors  for the  Company for the fiscal
                     year ending January 30, 1999.

                           For                 Withheld              Abstentions
                        ----------             --------              -----------
                        19,238,194              39,525                  20,279

               (c)   The shareholders  approved the Ames Department Stores, Inc.
                     1998  Management  Stock Incentive Plan, as described in the
                     Company's Proxy Statement filed April 8, 1998.

                           For                Withheld               Abstentions
                        ----------           ----------              -----------
                        14,634,586            1,342,171                 68,525

               (d)   The   shareholders   approved  an  amendment  to  the  Ames
                     Department Stores,  Inc. 1994 Non-Employee  Directors Stock
                     Option  Plan to increase  the number of shares  included in
                     each option grant.

                           For                Withheld               Abstentions
                        ----------           ----------              -----------
                        18,311,049             900,659                  84,690


Item 5.        Other Information
               -----------------
               Any notice of a proposal  submitted by a  stockholder  outside of
               the  process  of Rule  14a-8  after  February  22,  1999  will be
               considered untimely.  Therefore, the proxy solicited on behalf of
               the  Company's  Board  of  Directors  will  confer  discretionary
               authority to vote on any such proposal properly coming before the
               1999 Annual Meeting.

<PAGE>
               
               Stock  options granted to many of the Company's senior executives
               pursuant to the 1994 Management Stock Option Plan will  expire in
               March 1999.  The Company anticipates that in the normal course of
               business some senior executives may  sell  some  shares  of  Ames
               Common Stock during the fourth quarter  of  1998  and  the  first
               quarter of 1999.

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

    (a)        Index to Exhibits


               Exhibit No.                Exhibit                       Page No.
               -----------     --------------------------------         --------
                   11          Schedule of computation of basic            15
                                 and diluted earnings per share


    (b)        Reports on Form 8-K:


               The  following  report on Form 8-K was filed with the  Securities
               and Exchange Commission during the second quarter:


      Date of Report  Date of Filing    Item #             Description
      --------------  --------------    ------   -------------------------------
      June 30, 1998    June 30, 1998       5     Disclosure  of  the  Employment
                                                 Agreement  dated  June 1,  1998
                                                 between Ames Department Stores,
                                                 Inc. and Joseph R. Ettore.

<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.




                          AMES DEPARTMENT STORES, INC.
                                  (Registrant)




     Dated:     September 1, 1998         /s/ Joseph R. Ettore
                                          Joseph R. Ettore, President, Director,
                                          and Chief Executive Officer






     Dated:     September 1, 1998         /s/ Rolando de Aguiar
                                          Rolando de Aguiar, Executive Vice
                                          President and Chief Financial Officer






     Dated:     September 1, 1998         /s/ Gregory D. Lambert
                                          Gregory D. Lambert
                                          Senior Vice President - Finance

<PAGE>
                                                                      


                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
         SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
                 (Amounts in thousands except per share amounts)
<TABLE>
                                                                                                                          Exhibit 11
<CAPTION>

                                                                                     For the Thirteen           For the Twenty-six
                                                                                        Weeks Ended                Weeks Ended
                                                                                  -----------------------    -----------------------
                                                                                   August 1,    July 26,      August 1,     July 26,
                                                                                     1998         1997          1998          1997
                                                                                  ----------   ----------    ----------    ---------
       <S>                                                                        <C>          <C>           <C>           <C>  
       Net income                                                                   $8,405       $7,378        $6,287        $1,448
                                                                                  ==========   ==========    ==========    =========





       For Basic Net Income Per Share

          Weighted average number of common shares
                outstanding during the period                                       22,950       21,486        22,800        21,188
                                                                                  ==========   ==========    ==========    =========

               Basic net income per share                                            $0.37        $0.34         $0.28         $0.07
                                                                                  ==========   ==========    ==========    =========




       For Diluted Net Income Per Share

          Weighted average number of common shares
                 outstanding during the period                                      22,950       21,486        22,800        21,188

          Add:   Common stock equivalent shares represented by
                 - Series B Warrants                                                   116           67           127            64
                 - Series C Warrants                                                   458        1,082           520         1,240
                 - Options under 1994 Management Stock Option Plan                      68          780            63           823
                 - Options under 1994 Non-Employee Directors
                     Stock Option Plan                                                 680           40           661            39
                                                                                  ----------   ----------    ----------    ---------
          Weighted average number of common and common equivalent
                 shares used in the calculation of diluted net income per share     24,272       23,455        24,171        23,354
                                                                                  ==========   ==========    ==========    =========

               Diluted net income per share                                          $0.35        $0.31         $0.26         $0.06
                                                                                  ==========   ==========    ==========    =========
</TABLE>