FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

For The Quarterly Period Ended  September 27, 1997

Commission File Number   1-11681

                                 FOOTSTAR, INC.
             (Exact Name of Registrant as specified in its charter)

          Delaware                                     22-3439443
(State or other Jurisdiction of          (I.R.S. Employer Identification Number)
 Incorporation or Organization)

                933 MacArthur Boulevard, Mahwah, New Jersey 07430
              (Address of principal executive offices) (Zip Code)

                                 (201) 934-2000
              (Registrant's telephone number, including area code)

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

                                           Yes   _X_           No ___

Number of shares outstanding of the issuer's Common Stock:

                Class                         Outstanding as of October 16, 1997
                -----                         ----------------------------------

    Common Stock, $.01 par value                         28,311,441


                                       1
<PAGE>

                                     INDEX

Part I. - Financial Information                                       Page No.
                                                                      --------

    Consolidated Condensed Statements of Operations -
       Three and Nine Months Ended September 27, 1997 and
       September 28, 1996                                                3

    Consolidated Condensed Balance Sheets -
       September 27, 1997 and December 28, 1996                          4

    Consolidated Condensed Statements of Cash Flows -
       For Nine Months Ended September 27, 1997 
       and September 28, 1996                                            5

    Notes to Consolidated Condensed Financial Statements                 6 - 11

    Management's Discussion and Analysis of
       Financial Condition and Results of Operations                     12 - 17

    Review by Independent Auditors                                       18

    Exhibit 1 - Independent Auditors' Review Report                      19

Part II. - Other Information

         Item 6 - Exhibits and Reports on Form 8-K                       20


                                       2
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                     ($ in millions, except per share data)
<TABLE>
<CAPTION>

                                                               Three Months Ended                  Nine Months Ended
                                                          --------------------------           --------------------------
                                                          Sept. 27,        Sept. 28,           Sept. 27,        Sept. 28, 
                                                            1997             1996                1997             1996
                                                          ---------        ---------           ---------        --------- 

<S>                                                        <C>              <C>                <C>              <C>      
Net sales                                                  $464.0           $432.7             $1,266.9         $1,188.6 
Cost of sales                                               321.9            297.6                881.8            821.8
                                                           ------           ------             --------         -------- 
Gross profit                                                142.1            135.1                385.1            366.8
Store operating, selling, general and                                                                        
    administrative expenses                                  96.5             92.8                277.1            263.4
Depreciation and amortization                                 8.1              6.7                 23.5             18.3
                                                           ------           ------             --------         -------- 
Operating profit                                             37.5             35.6                 84.5             85.1
Interest (expense) income, net                               (0.2)             4.7                  1.4             14.0
                                                           ------           ------             --------         -------- 
Income from continuing operations before income                                                              
     taxes and minority interests                            37.3             40.3                 85.9             99.1
Provision for income taxes                                   12.3             13.7                 28.3             32.5
                                                           ------           ------             --------         -------- 
Income from continuing operations before                                                                     
     minority interests                                      25.0             26.6                 57.6             66.6
Minority interests in net income                              6.2              7.6                 18.7             19.3
                                                           ------           ------             --------         -------- 
Income from continuing operations                            18.8             19.0                 38.9             47.3
Income (loss) from discontinued operations, net                                                              
    of income tax benefit of $30.3                            --               --                   --             (52.8)
                                                           ------           ------             --------         -------- 
Net income (loss)                                          $ 18.8           $ 19.0             $   38.9         $   (5.5)
                                                           ======           ======             ========         ======== 
                                                                                                             
Weighted average shares outstanding                                                                          
    (in millions)                                            28.5                                  29.8      
                                                           ======                              ========      
Earnings per share                                         $ 0.66                              $   1.30      
                                                           ======                              ========      
</TABLE>
                                
     See accompanying notes to consolidated condensed financial statements.


                                       3
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                     ($ in millions, except for share data)



                                                     September 27,  December 28,
                                                         1997          1996
                                                      (Unaudited)    (Audited)
                                                      -----------    ---------
  ASSETS
  Current Assets:
       Cash and cash equivalents                       $  36.9          $164.6
       Accounts receivable, net                           48.7            77.7
       Inventories                                       353.9           281.9
       Prepaid expenses and other                                   
          current assets                                  51.9            59.9
                                                        ------          ------
  Total current assets                                   491.4           584.1
       Property and equipment, net                       218.8           197.0
       Deferred charges and other                                   
          non-current assets                              43.6            47.6
                                                        ------          ------
  Total assets                                          $753.8          $828.7
                                                        ======          ======

  LIABILITIES and SHAREHOLDERS' EQUITY                              
  Current Liabilities:                                              
       Accounts payable                                 $ 93.2          $ 79.8
       Accrued expenses                                  165.7           215.6
       Income taxes payable                               23.2            29.3
                                                        ------          ------
  Total current liabilities                              282.1           324.7
       Other long-term liabilities                        50.6            55.2
       Minority interests in subsidiaries                 47.9            65.0
                                                        ------          ------
  Total liabilities                                      380.6           444.6
                                                        ------          ------
  Shareholders' equity:                                             
       Common stock $.0l par value: 100,000,000                     
          shares authorized, 30,546,841                             
          and 30,533,883 shares                                     
          issued and outstanding                           0.3             0.3
       Additional paid-in capital                        331.2           327.2
       Treasury stock: 2,235,400 shares                            
          and 0 shares at cost                           (52.8)             --
       Unearned compensation                              (3.8)           (3.4)
       Equity adjustment from foreign currency                      
           translation                                    (0.5)           (0.4)
       Retained earnings                                  98.8            60.4
                                                        ------          ------
  Total shareholders' equity                             373.2           384.1
                                                        ------          ------
  Total liabilities and shareholders' equity            $753.8          $828.7
                                                        ======          ======

     See accompanying notes to consolidated condensed financial statements.


                                       4
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 ($ in millions)

                                                            Nine Months Ended
                                                            -----------------
                                                           Sept. 27,   Sept. 28,
                                                             1997        1996
                                                           ---------   ---------

  Net cash provided by operating activities                  $9.2         $61.7
                                                            -----         -----
  Cash flows (used in) investing activities:                          
       Additions to property and equipment                  (49.7)        (36.6)
       Proceeds from the sale or disposal of property                 
          and equipment                                        --           3.4
                                                            -----         -----
       Net cash used in investing activities                (49.7)        (33.2)
                                                            -----         -----
                                                                      
  Cash flows (used in) provided by  financing                         
      activities:                                                     
       Dividends paid to minority interests                 (35.9)        (63.8)
       Decrease in due from parent and other divisions         --          33.2
       Treasury stock acquired                              (52.8)           --
       Other                                                  1.5            --
                                                            -----         -----
       Net cash used in financing                         
          activities                                        (87.2)        (30.6)
                                                            -----         -----
                                                                      
  Net decrease in cash and cash equivalents                (127.7)         (2.1)
                                                                      
  Cash and cash equivalents at beginning of period          164.6          26.3
                                                            -----         -----
                                                                      
  Cash and cash equivalents at end of period                $36.9         $24.2
                                                            =====         =====

     See accompanying notes to consolidated condensed financial statements.


                                       5
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)
                     ($ in millions, except per share data)

1.  Basis of Presentation

Footstar, Inc. (the "Company") became and independent company after the Board of
Directors of Melville Corporation ("Melville") approved the spin-off of its
footwear operations. The spin-off was completed with the distribution (the
"Distribution") on October 12, 1996 to the Melville shareholders of Record on
October 2, 1996 of all the shares of the Company.

In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company as of September 27, 1997 and the results of operations for the three and
nine-month periods ended September 27, 1997 and September 28, 1996 and cash
flows for the nine months ended September 27, 1997 and September 28, 1996. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Because
of the seasonality of the specialty retailing business, operating results of the
Company on a quarterly basis may not be indicative of operating results for the
full year. The consolidated condensed financial statements of the Company should
be read in conjunction with the financial statements of the Company included in
the Company's 1996 Annual Report on Form 10-K. Certain reclassifications have
been made to the consolidated financial statements to conform to the 1997
presentations.

The Board of Directors of the Company approved on December 5, 1996 a change to a
fiscal year ending on the Saturday closest to December 31 from a calendar year.
Fiscal 1996 ended on December 28, 1996 and fiscal 1997 will end January 3, 1998
and will be a 53-week year.

2.  Earnings per Share

Earnings per share information has been omitted from the accompanying
consolidated statements of operation for the three and nine months ended
September 28, 1996, since the Company was not a separate entity with its own
capital structure until October 12, 1996. See Note 4 with respect to pro forma
earnings per share. Earnings per share are calculated by dividing net income
(loss) by the weighted average shares outstanding, which includes common stock
equivalents.

In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which established new standards for computing and
presenting earnings per share. SFAS No. 128 will be effective for interim and
annual financial statements for periods ending after December 15, 1997. The
Company believes that the adoption of SFAS No. 128 will not have a material
impact on the Company's reported earnings per share. The table that follows
shows pro forma earnings per share calculated in accordance with SFAS No. 128.


                                       6
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)
                     ($ in millions, except per share data)

2.  Earnings per Share (Continued)

                                                      Pro forma
                                       ----------------------------------------
                                       Three Months Ended    Nine Months Ended
                                       September 27, 1997    September 27, 1997
                                       ------------------    ------------------

  Basic EPS Computation
  Numerator:
      Net Income                                 $18.8                $38.9  
                                            ==========           ==========
  Denominator:                                                   
      Average common shares                                      
        outstanding                         28,384,855           29,751,521
                                            ==========           ==========
                                                                 
  Basic EPS                                      $0.66                $1.31
                                            ==========           ==========
                                                                 
  Diluted EPS computation                                        
  Numerator:                                                     
      Net Income                                 $18.8                $38.9
                                            ==========           ==========
  Denominator:                                                   
      Average common shares                                      
         outstanding                        28,384,855           29,751,521
      Dilutive effect of                                         
         stock options                          91,710               78,946
                                            ----------           ----------
          Total shares                      28,476,565           29,830,467
                                            ==========           ==========
                                                                 
  Diluted EPS                                    $0.66                $1.30
                                            ==========           ==========
                                                            


3.  Supplemental Cash Flow Information

                                                     Nine Months Ended
                                           -------------------------------------
                                            Sept. 27, 1997       Sept. 28, 1996
                                           ----------------      ---------------

  Cash paid for income taxes                     $10.8                $15.1
  Cash paid for interest                         $ 1.5                $ 0.4


                                       7
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)
                     ($ in millions, except per share data)

4.  Pro Forma Statements of Operations

The following tables represent a comparison of the Company's actual results for
the three and nine month periods ended September 27, 1997 and pro forma
consolidated condensed statements of operations for the three and nine-month
periods ended September 28, 1996. Pro forma results assume that the Distribution
and related transactions and events occurred as of the beginning of 1996. Pro
forma financial information is presented for informational purposes only and may
not reflect the future results of the Company or what the results would have
been had the Company been operated as a separate company.

<TABLE>
<CAPTION>

                                                                                     Three Months Ended
                                                             ---------------------------------------------------------------------
                                                               Sept. 27,
                                                                1997                           September 28, 1996
                                                             ------------       --------------------------------------------------
                                                               Actual            Pro forma         Adjustment          Historical
                                                             ------------       ----------         ----------         ------------

<S>                                                            <C>                <C>                <C>                <C>   
Net sales                                                      $464.0             $432.7            $ --                $432.7
Cost of sales                                                   321.9              297.6              --                 297.6
                                                               ------             ------            -----               ------
Gross profit                                                    142.1              135.1              --                 135.1
Store operating, selling, general and                                                                                  
   administrative expenses                                       96.5               94.4              1.6(1)              92.8
Depreciation and amortization                                     8.1                6.7              6.7              
                                                               ------             ------            -----               ------
Operating profit                                                 37.5               34.0             (1.6)                35.6
Interest (expense) income, net                                   (0.2)               0.0             (4.7)(2)              4.7
                                                               ------             ------            -----               ------
Income from continuing operations before                                                                               
   income taxes and minority interests                           37.3               34.0             (6.3)                40.3
Provision for income taxes                                       12.3               11.2             (2.5)(3)             13.7
                                                               ------             ------            -----               ------
Income from continuing operations before                                                                               
   minority interests                                            25.0               22.8             (3.8)                26.6
Minority interests in net income                                  6.2                7.6              --                   7.6
                                                               ------             ------            -----               ------
Income from continuing operations                              $ 18.8             $ 15.2            $(3.8)              $ 19.0
                                                               ======             ======            =====               ======
                                                                                                                       
Weighted average shares outstanding                                                                                    
     (in millions)(4)                                            28.5               30.6                               
                                                               ======             ======                               
Earnings per share                                             $ 0.66             $ 0.49                               
                                                               ======             ======                               
</TABLE>


                                       8
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)
                     ($ in millions, except per share data)

<TABLE>
<CAPTION>

                                                                                    Three Months Ended
                                                             ---------------------------------------------------------------------
                                                               Sept. 27,
                                                                1997                           September 28, 1996
                                                             ------------       --------------------------------------------------
                                                               Actual            Pro forma         Adjustment          Historical
                                                             ------------       ----------         ----------         ------------

<S>                                                             <C>               <C>                <C>                <C>   
  Net sales                                                     $1,266.9          $1,188.6             $  --            $1,188.6
  Cost of sales                                                    881.8             821.8                --               821.8
                                                                --------          --------             ------           --------
  Gross profit                                                     385.1             366.8                --               366.8
  Store operating, selling, general and
     administrative expenses                                       277.1             271.3                7.9(1)           263.4
  Depreciation and amortization                                     23.5              18.3                --                18.3
                                                                --------          --------             ------           --------
  Operating profit                                                  84.5              77.2               (7.9)              85.1
  Interest (expense) income, net                                     1.4               0.0              (14.0)(2)           14.0
                                                                --------          --------             ------           --------
  Income from continuing operations before
     income taxes and minority interests                            85.9              77.2              (21.9)              99.1
  Provision for income taxes                                        28.3              24.0               (8.5)(3)           32.5
                                                                --------          --------             ------           --------
  Income from continuing operations before
     minority interests                                             57.6              53.2              (13.4)              66.6
  Minority interests in net income                                  18.7              19.3                --                19.3
                                                                --------          --------             ------           --------
  Income from continuing operations                             $   38.9          $   33.9             $(13.4)          $   47.3
                                                                ========          ========             ======           ========

  Weighted average shares outstanding
       (in millions)(4)                                             29.8              30.6
                                                                ========          ========
  Earnings per share                                            $   1.30          $   1.10
                                                                ========          ========
</TABLE>

The pro forma results have been derived from the historical financial results
and principally reflect the following:

(1) To record the elimination of Melville expense allocations and the net
increase in overhead. This increae consists of the following:

                                                       September 28, 1996
                                               --------------------------------
                                               Three Months         Nine Months
                                               ------------         -----------
  Elimination of Melville expense                                   
     allocations                                  $(1.4)               $(4.1)
  Stand-alone overhead costs                        3.0                 12.0
                                                  -----                -----
              Net increase                          1.6                  7.9
                                                  =====                =====
                                                                    
  The Melville expense allocations consist                          
     of the following:                                              
  Cost of Employee Stock Ownership Plan           $ 0.9                $ 2.6
  Corporate administrative costs                    0.5                  1.5
                                                  -----                -----
                                                  $ 1.4                $ 4.1
                                                  =====                =====
                                                                    
                                                               
                                       9
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)
                     ($ in millions, except per share data)

The stand-alone overhead costs relate primarily to incremental salary and
related costs of corporate management, financing fees and other costs associated
with being a stand-alone public company.

(2) To eliminate net interest income relating to intercompany balances. The net
interest income on the intercompany account balance was calculated on a daily
basis utilizing the Treasury Repurchase Agreement rate for overnight
investments.

(3) To record the net change in the provision for income taxes to reflect the
pro forma adjustments. The effective tax rate utilized was 39%, which
approximates the Company's blended statutory rate.

(4) The weighted average number of common shares outstanding reflects (i) the
Distribution ratio times (ii) the number of shares of Melville Common Stock
outstanding as of August 31, 1996 plus shares of deferred stock and stock units
to be granted as of the Distribution pursuant to the Company's 1996 Incentive
Compensation Plan and 1996 Non-Employee Director Stock Plan.


                                       10
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)
                     ($ in millions, except per share data)

5.  Purchase of Treasury Stock

In May of 1997, the Company announced that its Board of Directors had authorized
a stock repurchase program of up to 10% of its common shares outstanding, or
approximately 3,050,000 shares, in the open market during 1997. As of September
27, 1997, the Company had purchased 2,235,400 shares of its stock in the open
market at an average price of $23.60 per share for an aggregate purchase amount
of $52.8 million. The treasury shares may be issued upon the exercise of
employee stock options or for other corporate purposes.


                                       11
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and notes thereto appearing
elsewhere in this report.

General

Footstar, Inc. (the "Company") became an independent company after the Board of
Directors of Melville Corporation ("Melville") approved the spin-off of its
footwear operations. The spin-off was completed with the distribution (the
"Distribution") on October 12, 1996 to the Melville shareholders of record on
October 2, 1996 of all the shares of the Company.

Prior to the Distribution, Meldisco, Footaction and Thom McAn were operated as
part of Melville. The historical financial information presented herein reflects
periods during which the Company did not operate as a separate company, and
accordingly, certain assumptions were made in preparing such financial
information. Such information, therefore, may not necessarily reflect the
results of operations or the financial condition of the Company which would have
resulted had the Company been a stand-alone public company during the reporting
periods, and are not necessarily indicative of the Company's future operating
results or financial condition. On June 3, 1996, Melville announced the
discontinuance of the Thom McAn segment. Accordingly, the results of operations
for the Thom McAn segment have been classified as discontinued operations for
all periods presented. In connection with the discontinuation of Thom McAn, the
Company recorded a pre-tax charge of approximately $85.0 million in the first
quarter of 1996. The charge primarily related to operating losses to be incurred
during the wind-down period, lease settlement costs, asset write-offs and
severance costs.

<TABLE>
<CAPTION>

                                                        Three Months Ended                          Nine Months Ended
                                                ------------------------------------       -------------------------------------
                                                    Sept. 27,          Sept. 28,              Sept. 27,            Sept. 28, 
  ($ in millions)                                     1997                1996                  1997                 1996
                                                ---------------     ----------------       ----------------     ----------------
<S>                                                  <C>                 <C>                  <C>                  <C>     
  Company:
  Net Sales                                          $464.0              $432.7               $1,266.9             $1,188.6
  Net sales % change from prior year                    7.2%                4.9%                   6.6%                 2.5%
  Same store sales % change                             0.6%                3.4%                   0.9%                 2.2%
                                                                                           
  Meldisco:                                                                                
  Net Sales                                          $293.2              $285.4                 $834.1               $820.9
  Net sales % change from prior year                    2.7%               (1.5%)                  1.6%                (4.4%)
  Same store sales % change                             3.1%               (1.7%)                  1.6%                (3.5%)
  % of consolidated net sales                          63.2%               66.0%                  65.8%                 69.1%
                                                                                           
  Footaction:                                                                              
  Net Sales                                          $170.8              $147.3                 $432.8                $367.7
  Net sales % change from prior year                   16.0%               20.0%                  17.7%                 22.1%
  Same store sales % change                            (4.6%)              15.9%                  (0.9%)                18.7%
  % of consolidated net sales                          36.8%               34.0%                  34.2%                 30.9%

</TABLE>


                                       12
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net sales for the third quarter ended September 27, 1997, were $464.0 million,
an increase of 7.2% from net sales of $432.7 million for the third quarter of
1996 with a same store sales increase of 0.6%. Meldisco posted a same store
sales increase of 3.1%. The back-to-school selling season was strong, fueled by
successful promotional activity, the continued solid performance of our women's
Cobbie Cuddlers line introduced in 1996, and increased sales in the newly
remodeled Big Kmart stores. Footaction posted a same store sales decline of 4.6%
due to weak demand for athletic footwear and apparel, particularly in the
basketball and cross training categories.

Net sales for the nine months ended September 27, 1997 were $1,266.9 million, an
increase of 6.6% from net sales of $1,188.6 million for the 1996 comparable
period. Same store sales for the nine months increased by 0.9%. For the nine
month period, Footaction posted an 17.7% sales increase over the prior year
driven by a solid merchandise assortment, a 35.8% increase in square footage and
a 0.9% decrease in comparable store sales. Meldisco showed a 1.6% sales increase
and a 1.6% gain in same store sales over last year's comparable nine-month
period.

Cost of Sales and Expenses

<TABLE>
<CAPTION>

                                                     Three Months Ended                Pro Forma
                                              ---------------------------------       ----------
                                               Sept. 27,            Sept. 28,          Sept. 28,
  (As a percent of net sales)                    1997                 1996               1996
                                              ----------          -------------       ----------

<S>                                              <C>                  <C>                <C>  
  Cost of sales                                  69.4%                68.8%              68.8%
  Store operating, selling, general and
       administrative expenses*                  20.8%                21.4%              21.8%
  Depreciation and amortization                   1.7%                 1.5%               1.5%

<CAPTION>

                                                      Nine Months Ended               Pro Forma
                                              ---------------------------------       ----------
                                               Sept. 27,            Sept. 28,          Sept. 28,
  (As a percent of net sales)                    1997                 1996               1996
                                              ----------          -------------       ----------

<S>                                              <C>                  <C>                <C>  
  Cost of sales                                  69.6%                69.1%              69.1%
  Store operating, selling, general and
       administrative expenses*                  21.9%                22.2%              22.8%
  Depreciation and amortization                   1.9%                 1.5%               1.5%

</TABLE>

----------
*  Includes allocations from Melville for 1996.


                                       13
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cost of Sales

Cost of sales for the third quarter and first nine months of 1997 increased 60
and 50 basis points respectively, from the corresponding prior-year periods.
Both divisions experienced lower gross margins in 1997. The contributing factors
were higher delivery costs due to increased shipping volumes at both divisions,
higher markdowns driven by increased promotional activity at Meldisco, and
higher occupancy costs at Footaction, due to lower sales productivity.

Store Operating, Selling, General and Administrative Expenses

Store operating, selling, general and administrative expenses were 60 basis
points lower in the third quarter of 1997 as compared to the same period for the
prior year. Administrative costs were lower from the outsourcing of information
systems and reduced payroll costs. Stricter expense control contributed to the
lower percentages in 1997 compared to 1996.


Store operating, selling, general and administrative expenses were 30 basis
points lower in the first nine months of 1997 as compared to the same period for
the prior year. Lower administrative costs resulted from outsourcing of
information systems and other costs savings initiatives implemented by the
Company including contract renegotiations and staff reorganizations. This was
partially offset by the cost incurred relating to the addition of functional
areas required to support a stand-alone public company.


On a pro forma basis, store operating, selling, general and administrative
expenses as a percentage of sales for the third quarter and nine months ended
September 27, 1997 were 100 basis points and 90 basis points, respectively,
below the comparable periods of 1996. This is due to lower administrative costs
resulting from outsourcing of information systems and other costs savings
initiatives implemented by the Company including contract renegotiations and
staff reorganizations. The costs incurred to support the Company as a stand
alone public company are lower than projected due to open positions as well as
tight expense control.


                                       14

<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating Profit

<TABLE>
<CAPTION>

                                                Three Months Ended                                     Pro Forma
                           -------------------------------------------------------------       --------------------------------
  ($ in millions)              September 27, 1997               September 28, 1996                  September 28, 1996
                           -------------------------      ----------------------------       --------------------------------
<S>                            <C>             <C>             <C>               <C>              <C>                 <C> 
  Meldisco                     $21.3           7.3%            $20.3             7.1%             $20.3               7.1%
  Footaction                    18.2          10.7%             16.8            11.4%              16.8              11.4%
  General Corporate 
     Expenses                   (2.0)           --              (1.5)             --               (3.1)               --
                               -----           ---             -----             ---              -----               --- 
        Total                  $37.5           8.1%            $35.6             8.2%             $34.0               7.9%
                               =====           ===             =====             ===              =====               === 

<CAPTION>

                                                Nine Months Ended                                         Pro Forma
                           -------------------------------------------------------------       --------------------------------
  ($ in millions)              September 27, 1997               September 28, 1996                  September 28, 1996
                           -------------------------      ----------------------------       --------------------------------
<S>                            <C>             <C>             <C>               <C>              <C>                 <C> 
  Meldisco                     $56.2           6.7%            $56.7             6.9%             $56.7               6.9%
  Footaction                    34.6           8.0%             29.9             8.1%              29.9               8.1%
  General Corporate 
     Expenses                   (6.3)           --              (1.5)             --               (9.4)               --
                               -----           ---             -----             ---              -----               --- 
        Total                  $84.5           6.7%            $85.1             7.2%             $77.2               6.5%
                               =====           ===             =====             ===              =====               === 
</TABLE>

Operating profit for the third quarter ended September 27, 1997 increased from
both the historical and pro forma third quarter totals for 1996. This increase
can be attributed to higher sales and tighter controls of administrative
expenses offset in part by increased promotional activity which lowered the
gross profit margin.

Operating profit for the nine months ended September 27, 1997 decreased from the
historical nine months of 1996, due primarily to the additional costs incurred
in 1997 for functional areas required to support a stand-alone public company,
offset in part by increased sales and the ability to leverage fixed costs.
Operating profit for the nine months ended September 27, 1997 increased when
compared to pro forma 1996, due to increased sales, the leveraging of fixed
store operating costs and lower administrative costs related to the stand-alone
operation of the Company.


                                       15
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Financial Condition

At September 27, 1997, the Company's cash balance was $36.9 million. This
includes $29.0 million in short-term investments with maturities of less than
three months. Current assets at September 27, 1997 were lower as compared to
December 28, 1996 partially due to the decrease in cash attributable to the
repurchase of $52.8 million of the Company's common stock, capital expenditures,
payments relating to the discontinuance of Thom McAn and other working capital
requirements, including the minority interest dividend payment. The decrease in
current liabilities at September 27, 1997 compared to December 28, 1996 was due
to the reduction of income taxes payable and accrued expenses partially offset
by the increase in accounts payable associated with the increase in inventory
and float from the Company's new funds transfer program.

Effective March 1, 1997, the Company established the funds transfer program
whereby payment for merchandise can be effected by wire transfer of funds closer
to the time of the Company's actual receipt of goods rather than through letters
of credit.

During the third quarter of 1997, the Company renegotiated its existing credit
facility to lower pricing and gain other flexibilities. The renegotiated credit
facility (the "Credit Facility"), which has been filed as an exhibit to this
report, provides for $300 million in unsecured revolving credit. As of September
27, 1997, there were no direct borrowings or letters of credit outstanding under
the Credit Facility. Interest on all borrowings is determined based upon several
alternative rates set forth in the Credit Facility.

The Company's Credit Facility contains various operating covenants which, among
other things, impose certain limitations on the Company's ability to incur
liens, incur indebtedness, merge, consolidate or declare and make dividend
payments. Under the Credit Facility, the Company is required to comply with
financial covenants relating to ratios of cash flow and fixed charge coverage.
The Credit Facility may be prepaid or retired by the Company without penalty
prior to the maturity date of September 18, 2000. The Company was in compliance
with its loan covenants as of September 27, 1997.

The Company's businesses are seasonal in nature. Peak selling periods coincide
with Christmas, the Easter holiday and the back-to-school selling seasons.
Working capital requirements vary with seasonal business volume and inventory
buildups occurring prior to the peak periods. The Company currently believes
that its current cash, together with cash generated from operations and the
Credit Facility, for the foreseable future will be adequate to fund its
operating expenses, working capital needs, capital expenditures and the cash
needs associated with the discontinuance of Thom McAn.

Capital expenditures for the nine months ended September 27, 1997 were $49.7
million and were in line with the Company's planned expenditures for the nine
month period. These expenditures relate primarily to the opening, remodeling,
relocation or expansion of Footaction stores and the investments in strategic
management information systems.

The Company expects that it will retain most of its available funds for
operation and expansion of its business, and does not anticipate paying any cash
dividends to shareholders in the foreseeable future.


                                       16
<PAGE>

                     FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Under its arrangement with Kmart, the Company distributes annually to Kmart, a
portion of profits representing Kmart's minority interest in the Meldisco
subsidiaries which are partially owned by Kmart. In March 1997, $35.9 million in
dividends were paid to Kmart representing minority interest for fiscal year
1996.

Forward-Looking Statements

This Report on Form 10-Q and the documents incorporated by reference contain
statements which constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements appear in a
number of places in this Report as well as any of the documents incorporated by
reference and can be identified by the use of forward-looking terminology such
as "believe," "expect," "estimate," "plans," "may," "will," "should" or
"anticipates" or similar statements or the negative thereof or other variations
thereof. Such forward-looking statements include, without limitation, statements
made as to cost savings, the impact of the discontinuation of Thom McAn,
improvements in infrastructure, distribution and replenishment systems and
operating efficiencies, business strategy, sales and earnings growth, future
cash and capital resource needs, and expansion plans and projections. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Consequently, all of
the forward-looking statements made herein are qualified by these cautionary
statements, and there can be no assurance that the actual results, performance
or achievement will be realized. The information contained in this Report and
any documents incorporated by reference as well as information contained under
the caption "Rick Factors" in the Form 10/A filed by the Company on September
26, 1996 with the Securities and Exchange Commission, as well as other filings
made by the Company with the Commission, identify important factors that could
cause such results, performance or achievements not to be realized, and such
factors should be considered. The Company assumes no duty to update any such
forward-looking statements.


                                       17
<PAGE>

                         REVIEW BY INDEPENDENT AUDITORS

The September 27, 1997 and September 28, 1996 consolidated condensed financial
statements included in this filing on Form 10-Q have been reviewed by KPMG Peat
Marwick LLP, independent auditors in accordance with established professional
standards and procedures for such a limited review.

The report of KPMG Peat Marwick LLP, commenting on their review, is included
herein as Part I - Exhibit 1.


                                       18
<PAGE>

                                                              Part 1 - Exhibit 1

                      Independent Auditors' Review Report

The Board of Directors and Shareholders
Footstar, Inc.

We have reviewed the consolidated condensed balance sheet of Footstar, Inc. and
subsidiary companies as of September 27, 1997 and the related consolidated
condensed statements of operations for the three and nine-month periods ended
September 27, 1997 and September 28, 1996, respectively and the consolidated
cash flows for the nine-month periods ended September 27, 1997 and September 28,
1996, respectively. These consolidated condensed financial statements are the
responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Footstar, Inc. and subsidiary
companies as of December 28, 1996 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 12, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 28, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.


                                                      /S/KPMG Peat Marwick LLP

New York, New York
October 16, 1997


                                       19
<PAGE>

                          Part II. - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

      a)  EXHIBIT INDEX

          Exhibit

          10.6 Credit Agreement, dated as of September 18, 1997, among the banks
               listed therein, the Bank of New York, as Issuing Bank, Morgan
               Guaranty Trust Company of New York, as Administrative Agent and
               Swingline Lender, and the Registrant.

          11   Earnings Per Share

          15   Accountants' Acknowledgment

          27   Financial Data Schedule

      b)  Reports on Form 8-K -  None

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.

                                                        FOOTSTAR, INC.
                                                        --------------
                                                         (REGISTRANT)

                                              By: /S/CARLOS E. ALBERINI
                                                  ---------------------------
                                                  Carlos E. Alberini
                                                  Senior Vice President and
                                                  Chief Financial Officer

Date:  November 10, 1997


                                       20