SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, D.C. 20549
                                            
                                       FORM 10-K



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

For the fiscal year ended          January 25, 1997            
                           -------------------------------------

                                            OR


[ ]  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  
                                                          ---------------



Securities Registered Pursuant to Section 12(b) of the Act:   
None


Securities Registered Pursuant to Section 12(g) of the Act:


Title of Each Class           Name of Each Exchange on Which Registered
-------------------           -----------------------------------------
Common Stock, $.01 par value                     NASDAQ

Series B Warrants                                 None

Series C Warrants                                NASDAQ


       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      
                            -----     -----<PAGE>
 
    Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.

     As of March 1, 1997, the aggregate market value of voting stock
held by non-affiliates of the Registrant was $188,074,635 based on the
last reported sale price of the Registrant's Common Stock on the NASDAQ
National Market System.  

                  APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                       PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


     Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.  


                        Yes   X   No      
                            -----    -----

    20,741,599 shares of Common Stock were outstanding on March 1, 1997.


     DOCUMENTS INCORPORATED BY REFERENCE:   Portions of the
Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the Registrant's fiscal
year are incorporated by reference in Part III.




Page 1 of 76 pages (including Exhibits)             Exhibit Index on page 51


     
<PAGE>
                                          PART I

ITEM 1.   DESCRIPTION OF BUSINESS.
          -----------------------

      (a) GENERAL.

          Ames Department Stores, Inc. and its subsidiaries
      (collectively, "Ames" or the "Company") are retail
      merchandisers.  As of March 1, 1997, Ames operated 291 discount
      department stores under the Ames name in 14 states in the
      Northeast, Middle Atlantic and Mid-West regions and the
      District of Columbia.  The Company's stores are located in
      rural communities, some of which are not served by other large
      retail stores, high-traffic suburban sites, small cities and
      several major metropolitan areas.  The stores largely serve
      middle and lower-middle income customers.  

          Ames is a Delaware corporation organized in 1962 as a
      successor to a business originally founded in 1958.  Ames was
      reorganized in December,  1992 under Chapter 11 of the United
      States Bankruptcy Code ("Chapter 11").  The principal executive
      offices are located at 2418 Main Street, Rocky Hill,
      Connecticut 06067, and the telephone number is (860) 257-2000.

             
      FISCAL 1996 

          The Company continued to improve operations and its long-
      term competitive position during the fiscal year ended January
      25, 1997 ("Fiscal 1996" or "1996"):

      
      -   REMODELING AND NEW STORES

          The Company opened thirteen (13) new stores in Fiscal
          1996, the largest number of new stores opened by the
          Company in a single year since 1989.  These feature Ames'
          latest "customer-friendly" design format, including "soft
          corners" that open up to highlight key departments such as
          home electronics, domestics, furniture and seasonal
          merchandise; an updated apparel presentation in the center
          of the store; and customer service "call boxes" located
          throughout the store to summon assistance.  In addition,
          the Company completed the full remodel of four (4) stores
          in Fiscal 1996, incorporating many of the latest design
          formats featured in the new stores.


      -   COST-REDUCTION INITIATIVES TO PURSUE GROWTH OPPORTUNITIES

          The Company continued its efforts to reduce costs and
          implement growth strategies during Fiscal 1996.  The
          closing of 17 underperforming stores, announced in
          January, 1996, was completed in March, 1996.  In August,
          1996, the Company opened its state-of-the-art digital in-
          house photo studio which is expected to save more than $1
          million annually, while providing cutting-edge production
          capability for its advertising circulars.  In December,
          1996, the Company announced several important initiatives
          in its information services area for 1997; the addition of
          up to ten new stores in 1997, seven of which have been
          identified as of the date of this report; and the closing
          of twelve (12) stores which was completed in February,
          1997.  A thirteenth will close in conjunction with the
          opening of a new store in mid-summer, 1997.  Included in
          the information services initiatives will be the
          installation of new point-of-sale and back-office hardware
          and software in 30 stores in 1997.  The new system is
          expected to improve customer service as well as employee
          productivity.<PAGE>
  
    -   ADVERTISING AND MARKETING PROGRAMS

          The Company's 55 Gold  Savings Card Program, which
          provides a 10% discount each Tuesday on all merchandise
          purchased by customers aged 55 or older, expanded to 1.6
          million card holders.  The Ames  price-value promotional
          strategy continued to be supported by the marketing theme
          introduced in the prior year - Bargains By The BagfulSM -
          and the merchandise values offered the customer by the
          Special Buy program.

          The Company believes its operating performance and the
      availability of its financing facilities will provide
      sufficient liquidity to allow the Company to meet its financial
      obligations.  The Company continually reviews the profitability
      of its stores in the ordinary course of business and closes or
      sells stores whose performance is thought to be inadequate. 
      The Company will consider relocating certain stores and opening
      new stores, particularly in selected markets that would
      reinforce marketing programs, enhance name recognition, and/or
      achieve market penetration.  The Company expects to open
      between seven and ten new stores in the fiscal year ending
      January 31, 1998 ("Fiscal 1997" or "1997").


      (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

          Ames operates self-service retail discount department
      stores selling a broad range of merchandise.  There are no
      other reportable industry segments.


      (c) NARRATIVE DESCRIPTION OF BUSINESS.

          (i)  SERVICES, MARKETS AND DISTRIBUTION.

                   Ames sells primarily brand name general
               merchandise, including the following items: family
               apparel and accessories, shoes, housewares, home
               furnishings, crafts, hardware and automotive
               accessories, sporting goods, toys, small appliances
               and consumer electronics, pre-recorded tapes and
               compact discs, jewelry, health and beauty products,
               household products, camera and photographic
               supplies, pet products, party and paper products,
               and school and office supplies.  Although Ames
               attempts to be competitive on everyday pricing, the
               Company primarily employs a high/low promotional
               pricing strategy with an emphasis on quality weekly
               circular advertising.  The Company will continue to
               stress breadth of products in selected merchandise
               categories; clean, neat and well-maintained
               facilities; appealing merchandise presentation; and
               customer service.

                   Merchandise is purchased centrally for all
               stores by Ames associates at the Rocky Hill, CT
               headquarters and is shipped by vendors either
               directly to individual stores or to Ames'
               distribution centers in Massachusetts and
               Pennsylvania which then make deliveries to stores.  

                   For the last three fiscal years, women's apparel
               has been the only class of product that exceeded 10%
               of total sales, accounting for an average of
               approximately 13% of total sales.  An average of
               approximately 25% of sales for the last three fiscal
               years were made using third party credit cards and
               the remainder were made by cash or check.<PAGE>

      The table below sets forth the number of retail stores in
operation in each state at the end of each of the last three fiscal
years.
<TABLE>
<CAPTION>
                           Stores in Operation at Fiscal Year End
                          --------------------------------------
                              1996(a)      1995(b)   1994(c)   
                             ---------    ---------  --------
<S>                          <C>          <C>        <C>
      Connecticut               15           15         15  
      Delaware                   4            4          4  
      District of Columbia       1            1          1  
      Maine                     23           28         28  
      Maryland                  25           25         25  
      Massachusetts             33           32         31  
      New Hampshire             18           18         18  
      New Jersey                 9            6          5  
      New York                  75           81         81  
      Ohio                      11           11         11  
      Pennsylvania              56           53         54  
      Rhode Island               7            7          7
      Vermont                   13           13         13
      Virginia                   6            6          6 
      West Virginia              7            7          7  
                               ---          ---        ---
         Total                 303          307        306
                               ===          ===        ===
<FN>
      (a) Includes thirteen (13) stores to be closed in 1997:  Maine
          (1), Maryland (2), Massachusetts (1), New Hampshire (1), New
          York (3), Ohio (4) and Vermont (1); and includes one (1)
          Pennsylvania store closed as a result of flooding in January,
          1996.  In March, 1997, it was determined that this store
          would not be re-opened.

      (b) Includes seventeen (17) stores in the process of closing 
          at year-end.  
          

      (c) Includes one Pennsylvania store in the process of closing 
          at year-end.

</TABLE>
         (ii)  NEW PRODUCTS.

               The introduction of new products was not significant to
               the business of the Company for Fiscal 1996.


        (iii)  RAW MATERIALS.

               The Company does not rely on any one or a few suppliers
               for a material portion of its purchases, and there is
               no current or anticipated problem with respect to the
               availability of merchandise.  

<PAGE>
        (iv)  PATENTS, TRADEMARKS AND LICENSES.

               The mark "Ames" is registered with the United States
               Patent and Trademark Office.  The Company considers
               this mark and the associated name recognition to be
               valuable to its business.  The Company has a
               significant number of other trademarks, trade names,
               and service marks, some of which, such as "Crafts &
               More " "Pawsitively Pets  and "Party Plaza " are used
               in connection with certain of the Company's specialty
               departments within the stores.  Although the Company
               considers these additional marks and its patents and
               licenses to be valuable in the aggregate, none of them
               individually is currently considered to have a material
               impact on the Company's business.

          (v)  SEASONALITY OF BUSINESS.

               The Company's sales are greater during the second half
               of the fiscal year as a result of the back-to-school
               and Christmas shopping seasons.  Sales are highest in
               the last fiscal quarter.

         (vi)  WORKING CAPITAL.

               As of January 25, 1997, the Company's current ratio
               (current assets divided by current liabilities) was 1.4
               to 1.0.  See Item 7(b) - Management's Discussion and
               Analysis - Liquidity and Capital Resources for
               discussion of liquidity and plans to meet future
               liquidity needs.

               The demand for working capital is heaviest in April and
               May, and from August through November, when sufficient
               merchandise must be purchased for the spring,
               back-to-school and Christmas seasons, respectively.

        (vii)  CUSTOMERS.

               No material part of the Company's business is dependent
               upon a single customer or a few customers.  During
               Fiscal 1996, Ames had no single customer or affiliated
               group of customers to whom sales were made in an amount
               which accounted for 10% or more of the Company's total
               sales for such period.

               As is customary in the discount store industry, the
               Company's retail operations allow merchandise to be
               returned by customers.  In addition, the Company has a
               program that allows for the matching of its sales
               prices to the advertised sales prices of its local
               competitors upon presentation of proper proof of the
               competitor's advertised price on the same item. 
               Merchandise may also be purchased under the Ames
               layaway plan.

       (viii)  BACKLOG.

               Backlog is not a significant factor in the Company's
               business.

         (ix)  GOVERNMENT CONTRACTS.

               Ames has no material contracts with any government
               agency.

<PAGE>
        (x)   COMPETITION.

               Ames operates in a highly competitive environment. 
               Ames competes with other stores, including large
               national and regional chains, in the purchase and sale
               of merchandise, as well as for store locations.  Ames
               currently anticipates a further increase in competition
               from other national discount store chains.  

               Many of the Company's stores are located in smaller
               communities and are, in some cases, the largest
               non-food retail store in their market area.  They
               compete, however, with many smaller stores offering a
               similar range of products.  The Company's stores
               located in suburban sites and urban areas are in direct
               competition with other discount stores, including other
               large national and regional chains.  

         (xi)  RESEARCH AND DEVELOPMENT.

               Research and development activities are not a material
               aspect of the Company's business.

        (xii)  ENVIRONMENTAL MATTERS.

               To date, compliance with federal, state and local laws
               and regulations enacted to regulate the discharge of
               materials into the environment has not had, and is not
               expected to have, a material effect upon the Company's
               business.  See Note 12 to the Consolidated Financial
               Statements included in this Form 10-K for further
               discussion on environmental matters.

       (xiii)  EMPLOYEES.

               At March 1, 1997, Ames employed approximately 20,000
               people.
             
      (d) FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.

          The information called for by this item is not relevant to
      the Company's business.

ITEM 2.  PROPERTIES.
         ----------

      As of January 25, 1997, the Company's store lease obligations
covered a total of 19.0 million square feet, including approximately 1.6
million square feet for stores already closed or to be closed in 1997.  The
average store size is approximately 60,000 square feet, of which
approximately 82% is selling area.  

      The construction of one store, located in Monroeville, PA, was
financed with an industrial development bond.  Ames has an option to
purchase this location at nominal cost at the expiration of the lease term
in May, 2003.  The land and buildings for five other store locations are
owned by Ames.  The remainder of the Company's stores are leased, with the
leases expiring at various times between 1997 and 2018.  The leases
generally have renewal options permitting extensions for at least five
years.  In addition, the leases typically provide for fixed annual rentals,
payment of certain taxes, insurance and other charges, and additional
rentals based on a percentage of sales in excess of certain fixed amounts. 
Except for certain point-of-sale equipment that is leased, vendor-owned
greeting card equipment and leased department equipment, Ames owns the
fixtures and equipment in its stores, some of which are subject to various
financing arrangements.  

      The Company's warehouse and distribution facilities in Leesport,
PA, and Mansfield, MA are owned and occupy an aggregate of approximately
1.7 million square feet.  The Mansfield, MA facility is subject to a
mortgage.  <PAGE>
 

     Ames leases approximately 386,000 square feet of space in
Rochester, NY under a lease expiring on December 31, 2007, with two
ten-year renewal options.  These premises have been subleased to an
unaffiliated tenant for the remainder of the lease term.  

      Ames owns and occupies its 217,000 square foot corporate office in
Rocky Hill, CT.  The Company has a lease for 100,000 square feet of storage
space in East Hartford, CT expiring in July, 1998, and a lease, expiring in
April, 2006, for 33,000 square feet in Rocky Hill, CT for an in-house
photography studio and print shop.  


ITEM 3.  LEGAL PROCEEDINGS.
         -----------------
      Ames is involved in various litigation as detailed in Note 12 to
the Consolidated Financial Statements included in this Form 10-K.  


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         -----------------------------------------------------------

      There were no matters submitted during the fourth quarter of
Fiscal 1996 to a vote of security holders, through the solicitation of
proxies or otherwise.



                         PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         ----------------------------------------------------
           MATTERS CONCERNING SECURITY HOLDERS.
           -------------------------------------

      The Company's common stock is listed on the NASDAQ National Market
System ("NASDAQ"; symbol: AMES).  As of March 1, 1997, Ames had 6,515
registered stockholders of record.  Low and high prices of the Company's
common stock for Fiscal 1996 and for the fiscal year ended January 27, 1996
("Fiscal 1995" or "1995"), as reported on NASDAQ, are shown in the table
below:
<TABLE>
<CAPTION>
                             Fiscal 1996           Fiscal 1995 
                           Low          High      Low          High   
                          -------------------    -------------------
<S>                      <C>         <C>         <C>        <C>  
       1st Quarter       $1  1/4     $2  7/16    $2  5/16    $3 13/16

       2nd Quarter        1  7/8      3  5/8      2           2 13/16

       3rd Quarter        2  1/8      5  3/16     1  1/8      3 9/16

       4th Quarter        3 11/16     6  1/2      1  5/32     2  1/8 

</TABLE>

      There were no quarterly dividends paid by Ames to the holders of
its common stock during these periods.  Dividends cannot be declared under
the terms of the Company's revolving credit facility.  On November 30,
1994, the Company adopted a Stock Purchase Rights Agreement as described in
Note 7 to the Consolidated Financial Statements.  


<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA.
          -----------------------

      The following selected financial data of Ames should be read in
conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
                               (in thousands except per share data)                             
                  ---------------------------------------------------------------------------------------------
                  Fiscal Year     Fiscal Year     Fiscal Year     Fiscal Year     Five Weeks     Forty-eight    
                      Ended          Ended           Ended          Ended           Ended         Weeks Ended 
                  Jan. 25, 1997   Jan. 27, 1996   Jan. 28, 1995   Jan. 29, 1994   Jan. 30, 1993   Dec. 26, 1992  
                  -------------   -------------  -------------   -------------   --------------  ---------------
<S>                <C>            <C>              <C>            <C>             <C>             <C>     
Net sales           $2,161,680      $2,104,231     $2,142,827     $2,123,527        $142,349      $2,284,026   
Net income (loss)      $17,301 (a)     ($1,618) (b)   $17,026 (c)    $10,823 (d)    ($23,892)       $718,888 (e)
Net income (loss)                                                                                           
  per common sh.          $.76 (a)        (.08) (b)      $.79 (c)       $.51 (d)      ($1.19)             -  (e)
Total assets          $536,793        $502,582       $533,388       $567,131        $638,046        $725,026   
Long-term debt &                                                                         
  capital leases       $38,220         $52,531        $77,095        $93,309        $176,239        $176,484   

<FN> 

  (a) Includes charges of $9.7 million for the costs associated with the
      closing of thirteen (13) stores and an extraordinary loss, net of
      tax, of $1.4 million for the early extinguishment of debt.

  (b) Includes charges of $20.9 million for the costs associated with
      the closing of seventeen (17) stores and property gains of $9.1
      million.

  (c) Includes an extraordinary loss, net of tax, of $1.5 million for
      the early extinguishment of debt; property gains of $7.5 million;
      and a non-recurring gain of $12.0 million for a litigation
      settlement.

  (d) Includes an extraordinary gain, net of tax, of $0.9 million for
      the early extinguishment of debt and property gains of $1.3
      million.

  (e) Excludes the results of 60 stores after the date of their
      announced closings (October 30, 1992), closed as part of the
      Company's final restructuring prior to its emergence from Chapter
      11.  Includes an extraordinary gain of approximately $1.25 billion
      on debt discharged pursuant to the plan of reorganization; a
      charge for revaluation of assets and liabilities under fresh-start
      reporting of $391.2 million; restructuring charges of $88.5
      million (for the costs of rejected leases, closing costs
      associated with the 60 closed stores, costs for discontinuance of
      private-label children's apparel, and certain home office and
      field employee severance costs); and bankruptcy expenses of $25.5
      million.  Net earnings per share was not presented for the
      forty-eight week period ended December 26, 1992 because such
      presentation would not be meaningful.  The old common stock was
      canceled under the plan of reorganization and the new common stock
      was not issued until December 30, 1992.  
</TABLE>

<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
            CONDITION AND RESULTS OF OPERATIONS.
            -----------------------------------

(a)   RESULTS OF OPERATIONS.

  The following table sets forth the number of stores in operation during
  each fiscal year:
<TABLE>
<CAPTION>
                                          Fiscal Year Ended                
                                ----------------------------------------
                            January 25, 1997   January 27, 1996  January 28, 1995   
                            ---------------    ----------------  -----------------
<S>                          <C>               <C>                <C>   
Stores, beginning of period          307               306               308
New stores                            13                 2                 1 (c)
Closed stores                        (17)(a)            (1)(b)            (3)(d)
                                     -----            -----             -----
Stores, end of period                303               307               306   
                                    =====             =====             =====
<FN>    
      (a) Excludes (i) thirteen (13) stores to be closed in 1997 and
          (ii) one (1) store closed as a result of flooding in January,
          1996.  In March, 1997, it was determined that this store
          would not be re-opened.

      (b) Excludes (i) two (2) stores temporarily closed as a result of
          flooding in January, 1996 and (ii) seventeen (17) stores in
          the process of closing at year-end.
             
      (c) Represents the Mt. Pocono, PA store that was destroyed by
          fire on November 2, 1993, rebuilt by the landlord, and
          reopened by the Company in November, 1994.  

      (d) Does not include one store in the process of closing at year-
          end.
</TABLE>

      The following discussion and analysis is based on the results of
operations of the Company for Fiscal 1996 and 1995 and for the fiscal year
ended January 28, 1995 ("Fiscal 1994" or "1994").  The financial
information set forth below should be read in conjunction with the
Consolidated Financial Statements of Ames Department Stores, Inc. and its
subsidiaries included elsewhere in this filing.

      The Company's business is seasonal in nature, with a large portion
(33% in Fiscal 1996) of its net sales occurring in the fourth quarter,
which includes the Christmas selling season.  Total sales, including sales
from leased departments, for the last three fiscal years and the respective
total sales percentage increases/decreases and comparable store sales
percentage increases/decreases over the prior year for stores that have
been open and operated by Ames for at least the prior full fiscal year
were:
<TABLE>
<CAPTION>

    (000's omitted)                   Percentage Increases (Decreases) 
    ---------------              -----------------------------------
 Fiscal Year Ended      Total Sales     Total Sales       Comparable Stores
-------------------    ---------------  -------------    ------------------ 
<S>                    <C>              <C>              <C>     
 January 25, 1997        $2,255,749          2.6%              1.0%

 January 27, 1996        $2,199,409         (1.9)%            (1.0)%

 January 28, 1995        $2,242,270          0.6%              1.7%

<FN>
The rate of inflation did not have a significant effect on sales during these
periods.
</TABLE>

<PAGE>
RESULTS OF OPERATIONS FOR FISCAL 1996 COMPARED TO FISCAL 1995

      The Company reported improvements in 1996 in sales and net earnings. 
The Company achieved this improvement principally because of the favorable
impact of thirteen (13) new stores, the closing of seventeen (17)
underperforming stores at the beginning of the year and an improvement in the
control of merchandise inventories.

      Total sales increased 2.6% from 1995 due to an increase of 1.0% in
comparable store net sales and the opening of new stores cited above,
partially offset by the closing of the stores cited above.  Net sales for
Fiscal 1995 have been restated to reflect the effect of  recording "55 Gold "
senior citizen discounts as markdowns, which conforms with the 1996 treatment. 
                                             
  
      The following table sets forth the results of operations for 1996 and
1995 in millions and as a percentage of net sales:
<TABLE>
<CAPTION>

                                                       Fiscal 1996            Fiscal 1995    
                                                   --------------------    --------------------
                                                     $ mil.  % of Sales     $ mil.    % of Sales
                                                     -------  ---------     --------   --------
 <S>                                                 <C>      <C>           <C>        <C> 
   Net sales                                         2,161.7    100.0%       $2,104.2  100.0%
   Costs, expenses and (income):                              
    Cost of merchandise sold                         1,569.0     72.6        1,544.0    73.4  
    Selling, general and administrative expenses       563.4     26.1          552.7    26.3
    Leased dept. and other operating income            (29.3)    (1.4)         (29.7)   (1.4)
    Depreciation and amortization expense               12.5      0.6           12.4     0.6
    Amortization of the excess of revalued net assets 
     over equity under fresh-start reporting            (6.2)    (0.3)          (6.2)   (0.3)
    Interest and debt expense, net                      19.0      0.9           24.1     1.1
    Gain on disposition of properties                   (0.4)     ---           (9.1)   (0.4)
    Store closing charge                                 6.9      0.3           17.6     0.8                 
                                                       -------   ------        -------   ----       
   Income before income taxes
    and extraordinary item                              26.8      1.2           (1.6)   (0.1)

   Income tax provision                                  8.1      0.4            ---     ---
                                                        ------   ----          ------  ------
   Income before extraordinary item                     18.7      0.9            (1.6)  (0.1)

   Extraordinary loss, net                                1.4     0.1            ---     ---                               
                                                        -------  -----          -----    -----

    Net income (loss)                                   $17.3     0.8%          ($1.6)  (0.1)%
                                                        ======    ====          ======  ======

</TABLE>
      Gross margin increased $32.5 million or 0.8% as a percentage of
net sales in 1996 compared to 1995. The gross margin rate was favorably
impacted by a higher markup on sales and a reduction in clearance markdowns
due to the improvement in controlling merchandise inventories.  These
factors were partially offset  by higher "55 Gold " senior citizen
markdowns in 1996 compared to 1995.  Cost of merchandise sold for 1996
includes a $2.8 million charge for the inventory write-down incurred in
connection with the 13 stores to be closed in 1997.  Approximately $3.3
million for the inventory write-down recorded in 1995 in connection with the
17-store closing has been reclassified to cost of merchandise sold in order to
conform to the 1996 presentation.  The inventory write-down had been
classified as part of the store closing charge in 1995.

      Selling, general and administrative expenses increased $10.7
million, but decreased by 0.2% as a percentage of net sales in 1996
compared to 1995.  The increase in expenses was due primarily to higher
expenses recorded under the Company's various incentive compensation plans
(Note 10) and an increase in pre-opening expenses resulting from the
opening of the 13 new stores.  Partially offsetting these increases was a
decrease in the Company's store payroll expense.   

      Leased department and other operating income declined $0.4 million
and remained flat as a percentage of net sales in 1996 compared to 1995. 
This decline was due primarily to the decline in leased department sales.
<PAGE>
.

      Depreciation and amortization expense increased by $0.1 million
and remained flat as a percentage of net sales, in 1996 compared to 1995. 
Depreciation and amortization expense includes impairment losses of $2.2
million and $3.4 million in 1996 and 1995, respectively, pursuant to the
adoption of SFAS No. 121 in the fourth quarter of 1995. Depreciation and
amortization also includes depreciation on capital additions subsequent to
December 26, 1992, the date on which the Company wrote off all of the
Company's non-current assets in connection with the adoption of fresh start
accounting.  The amortization of the excess of revalued net assets over
equity under fresh-start reporting remained the same in 1996 as in 1995. 
The Company is amortizing this amount over a ten-year period.

      Interest and debt expense, net of interest income, declined $5.1
million or 0.3% of net sales in 1996 compared to 1995. The reduction was
primarily due to a significant reduction in short term interest expense as
well as the favorable impact of lower outstanding long-term debt and
capital lease balances.  The decrease in short term interest expense
reflected a decrease in short term borrowings (from a weighted average of
$101.7 million in 1995 to $86.1 million in 1996) and a decrease in interest
rates under the Company's revolving credit agreement.  The Company's 
average outstanding long-term debt and capital lease balances decreased to
$56.3 million in 1996 from $78.8 million in 1995 due to certain prepayments
of debt made in connection with the sales of properties in 1995 and
payments made in the normal course of business.

      During 1996, the Company sold several leases for a total of $0.7
million in proceeds and recognized gains totaling $0.4 million.  During
1995, the Company sold or assigned several properties (Note 15) for a total
of $11.6 million in proceeds and recognized gains totaling $9.1 million.

      In the fourth quarter of 1996, the Company recorded charges of
$9.7 million in connection with the closing of thirteen (13) stores.  The
$9.7 million is classified in two line items: $6.9 million as store closing
charge and $2.8 million as part of cost of merchandise sold.  Twelve of the
stores closed in February, 1997, and the thirteenth store is expected to
close in mid-summer, 1997.

      In the fourth quarter of 1995, the Company recorded charges of
$20.9 million in connection with the closing of seventeen (17) stores and
the elimination of 71 positions in the corporate headquarters.  The $20.9
million is now classified in two line items: $17.6 million as store closing
charge and $3.3 million as part of cost of goods sold.  The 17 stores
closed in March, 1996.  The $3.3 million charge, representing the inventory
write-down for the 17 closing stores, had been classified as part of the
store closing charge in the original presentation of the results for 1995.

      As a consequence of fresh-start reporting and SFAS No. 109 (Note
9), the Company recorded a non-cash income tax provision of $8.1 million
for 1996 with an associated increase in additional paid-in capital.

      As a result of the termination of the Prior Credit Agreement in
December, 1996 (see "Liquidity and Capital Resources" below), the Company
recorded in 1996 a non-cash extraordinary charge of $1.4 million, net of
tax benefit of $0.6 million, which tax benefit was a reduction of
additional paid-in capital.  The charge was for the write-off of the
deferred financing costs related to the Prior Credit Agreement.


<PAGE>
RESULTS OF OPERATIONS FOR FISCAL 1995 COMPARED TO FISCAL 1994

      Despite a decline in sales in 1995, the Company recorded an
improvement in income before store closing charges, property gains and
litigation settlements.  The Company achieved this improvement primarily by
reducing its selling, general and administrative expenses both in amount
and as a percentage of net sales.

      Total sales decreased 1.9% from 1994 due to a decrease of 1.0% in
comparable store net sales and a 4.4% decline in leased department (shoes)
comparable store sales.  The major causes for the decline in sales were a
weak holiday selling season in the retail industry, additional new
competition as well as a planned de-emphasis in jewelry, partially offset
by the senior citizens discount program (the 55 Gold  Savings Card program)
and a continued improvement in the in-stock inventory position.

      The following table sets forth the results of operations for 1995
and 1994 in millions and as a percentage of net sales:
<TABLE>
<CAPTION>

                                                           Fiscal 1995         Fiscal 1994 
                                                       ------------------   ------------------
                                                        $ mil.  % of Sales  $ mil.    % of Sales 
                                                        -----   ----------   -------  --------
<S>                                                   <C>       <C>         <C>       <C>  
   Net sales                                          $2,104.2   100.0%     $2,142.8    100.0%
   Costs, expenses and (income):                              
    Cost of merchandise sold                           1,544.0    73.4       1,571.2     73.3    
    Selling, general and administrative expenses         552.7    26.3        568.8      26.5    
    Leased dept. and other operating income              (29.7)   (1.4)       (30.3)     (1.4)
    Depreciation and amortization expense                 12.4     0.6         5.3        0.2
    Amortization of the excess of revalued net assets 
     over equity under fresh-start reporting              (6.2)  (0.3)        (6.1)      (0.3)
    Interest and debt expense, net                        24.1    1.1         25.4        1.2
    Gain on disposition of properties                     (9.1)  (0.4)        (7.5)      (0.3)
    Store closing charge                                  17.6    0.8          ---        --- 
    Distribution center closing costs                      ---    ---          1.3        0.1
    Nonrecurring gain-litigation settlement                ---    ---        (12.0)      (0.6)   
                                                        ------   -----       ------      -----
   Income before income taxes 
    and extraordinary item                               (1.6)   (0.1)        26.7        1.3 

   Income tax provision                                   ---     ---         (8.2)      (0.4)
                                                        -------  ------       ------    -----


   Income before extraordinary item                       (1.6)  (0.1)         18.5       0.9

   Extraordinary loss, net                                 ---    ---          (1.5)     (0.1)  
                                                        ------- ------        -------    -----

    Net income(loss)                                     ($1.6)  (0.1)%        $17.0      0.8%    
                                                         ====== ======         ======     =====

</TABLE>
      Gross margin declined $11.4 million or 0.1% as a percentage of net
sales in 1995 compared to 1994.  The gross margin rate was negatively
impacted by a lower markup on sales, reflecting a strategy of lowering
prices, and the impact of the discounts related to the senior citizen
discount program.  These factors were partially offset by lower advertising
and clearance markdowns in 1995 compared to 1994.

      Selling, general and administrative expenses decreased $16.1
million or 0.2% as a percentage of net sales in 1995 compared to 1994. 
Reductions in advertising, home office, field support and store non-payroll
expenses were partially offset by an increase in store payroll expense. 
The advertising expense decrease reflected a reduction in the distribution
expense for advertising circulars resulting from more effective
distribution and fewer circulars.  The decrease in home office expenses was
principally a reduction in home office payroll.  The Company's insurance
expense was lower by $5.2 million in 1995 compared to 1994 as a result of a
reduction in the reserves for prior years' claims as well as the continued
improved experience in workers' compensation and general liability claims,
partially offset by an increase in health claims.


<PAGE>
      Leased department and other operating income declined $0.6 million
and remained the same as a percentage of net sales in 1995 compared to
1994.  This decline was due primarily to the decline in leased department
sales.

      Depreciation and amortization expense increased by $7.1 million or
0.4% of net sales in 1995 compared to 1994.  The Company elected to adopt
SFAS No. 121 during the fourth quarter of 1995, resulting in the recording
of an impairment loss of $3.4 million which was classified as part of
depreciation and amortization expense.  Depreciation and amortization
expense includes depreciation on capital additions subsequent to December
26, 1992, the date on which the Company wrote-off all of the Company's non-
current assets in connection with the adoption of fresh-start accounting. 
The amortization of the excess of revalued net assets over equity under
fresh-start reporting remained the same in 1995 as in 1994.  The Company is
amortizing this amount over a ten-year period.

      Interest and debt expense, net of interest income, declined $1.3
million or 0.1% of net sales in 1995 compared to 1994.  The favorable
impact of lower outstanding long-term debt and capital lease balances was
partially offset by an increase in short-term interest expense and a
reduction in interest income.  In June, 1994, the Company prepaid
approximately $69 million of debt utilizing a portion of the Prior Credit
Agreement (as defined below, in "Liquidity and Capital Resources") and the
funds that were no longer required to be restricted for the
collateralization of letters of credit.  From 1994 to 1995 the Company's
average monthly outstanding long-term debt and capital lease balance
decreased from $121.1 million to $78.8 million due to the June, 1994,
prepayment, certain other prepayments of debt made in connection with the
sales of properties in 1995 and payments made in the normal course of
business.  The increase in short-term interest expense reflected an
increase in short-term borrowings (from a weighted average balance of $96.1
million in 1994 to $101.7 million in 1995) as well as an increase in
interest rates.  The decrease in interest income in 1995 was the result of
reduced restricted cash balances.  

      During 1995, the Company sold or assigned several properties (Note
15) for a combined total of $11.6 million in proceeds and recognized gains
totaling $9.1 million.

      In the fourth quarter of 1995, the Company recorded charges of
$20.9 million in connection with the closing of seventeen (17) stores and
the elimination of 71 positions in the corporate headquarters.  The $20.9
million is now classified in two line items: $17.6 million as store closing
charge and $3.3 million as part of cost of goods sold.  The 17 stores
closed in March, 1996.  The $3.3 million charge, representing the inventory
write-down for the 17 closing stores, had been classified as part of the
store closing charge in the original presentation of the results for 1995.


(b)   LIQUIDITY AND CAPITAL RESOURCES.


CREDIT FACILITIES - FISCAL 1996 AND FISCAL 1995

      The Company's principal sources of liquidity are certain available
credit facilities, cash from operations, and cash on hand.  On December 27,
1996, the Company entered into an agreement with BankAmerica Business
Credit, Inc., as agent, and a syndicate consisting of seven other banks and
financial institutions, for a secured revolving credit facility of up to
$320 million (the "Credit Agreement").  Prior to this date, the Company had
a $300 million secured revolving credit facility (the "Prior Credit
Agreement") in place with the same financial institutions.  The Prior
Credit Agreement terminated on the effective date of the Credit Agreement.
<PAGE>
        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.  Ames is in compliance with
the financial covenants through the quarter ended January 25, 1997. 
Reference can be made to Note 5 for a further description of the Credit
Agreement.  

      The Company's peak borrowing level in 1996 under the Prior Credit
Agreement was $161.0 million.  Ames repaid all such borrowings by December,
1996, and fulfilled its "clean-up" requirement (Note 5) in January, 1997. 


REVIEW OF CASH FLOWS, LIQUIDITY AND FINANCIAL CONDITION

      The Company's unrestricted cash position increased $31.9 million
during 1996.  This increase was primarily due to $78.0 million in cash from
operations, partially offset by $19.8 million of capital expenditures and
payments of $17.4 million on debt and capital lease obligations.  The
Company's unrestricted cash position decreased $14.2 million during 1995. 
This decrease was primarily due to $27.2 million of capital expenditures
and payments of $23.8 million on debt and capital lease obligations,
partially offset by $19.2 million in net cash provided by operations and
$11.6 million of proceeds from the sale of certain properties.  Please see
below and the Consolidated Financial Statements for further discussions of
activities and details affecting cash and liquidity for 1995.
      
      Merchandise inventories declined $7.9 million and $31.2 million
during 1996 and 1995, respectively.  The decrease in 1996 was the result of
planned reductions.  The decrease in 1995 was primarily a result of planned
reductions and lower-than-planned merchandise purchases in January, 1996. 
The LIFO reserve as of December 26, 1992 was eliminated in connection with
the adoption of fresh-start reporting.  Ames remained on the LIFO method
after emergence from Chapter 11, but there has been no LIFO charge or
credit in 1996 and 1995 because inventory levels declined, the Company's
merchandise mix continued to change, and inflation was insignificant during
those periods.  

       Accounts payable increased $32.6 million during 1996 due to
improved payment terms and an increase in merchandise receipts in January,
1997 over January, 1996.  Accounts payable declined $8.2 million during
1995 primarily as a result of the decline in merchandise inventories. 
During 1996 and 1995, the Company paid its trade payables within the terms
negotiated with vendors.   

      The Company and its pre-bankruptcy lenders agreed to a
restructuring of the Company's obligations as part of the Company's plan of
reorganization.  The new obligations consisted primarily of secured notes
that certain banks elected to receive, which were prepaid in 1994, and
deferred cash distributions.  The major component of the "Current portion
of long-term debt" at January 25, 1997 and January 27, 1996 related
primarily to cash distributions of $7.5 million and $8.0 million paid on
January 31, 1997 and January 31, 1996, respecively, pursuant to the plan of
reorganization.

      There were no outstanding borrowings under the Credit Agreement as
of January 25, 1997.  The "Note payable" of approximately $4.3 million at
January 27, 1996 was the amount outstanding under the Prior Credit
Agreement.  The "Unfavorable lease liability" was recorded as part of
fresh-start reporting. 

<PAGE>
      No dividends were paid while Ames was under the protection of
Chapter 11, or since its emergence from Chapter 11.  The Company is
restricted from declaring dividends under the terms of the Credit
Agreement.  

CAPITAL EXPENDITURES

      Capital expenditures for 1996 were $19.8 million and included,
among other things, the opening of thirteen (13) new stores, the remodel of
four (4) stores and the opening of an in-house photo studio.  Capital
expenditures for 1995 were $27.2 million and included, among other things,
the full scale remodel of 24 stores, the partial remodel of 38 stores and
the opening of two new stores.  

      Capital spending is expected to be approximately $37.4 million for
1997, primarily for the opening of 7 to 10 new stores, the full scale
remodel of 6 to 10 stores and the upgrade of certain management information
systems, including the installation of new point-of-sale and back-office
hardware and software in 30 stores.  The Company expects to finance
equipment purchases, new store fixtures and equipment, and the remodeling
of existing stores through internally-generated funds.  The Company adjusts
its plans for making such expenditures depending on the amount of
internally-generated funds available.  Land, buildings and improvements are
financed principally through long-term leases.  

SUMMARY

      The Company believes the ability to meet its financial obligations
and make planned capital expenditures will depend on the Company's future
operating performance, which will be subject to financial, economic and
other factors affecting the industry and operations of the Company,
including factors beyond its control.  The Company believes its operating
performance and the availability of its financing facilities will provide
sufficient liquidity to allow the Company to meet its financial
obligations.  

      Ames currently anticipates the following investment and financing
activities for 1997:  capital expenditures as described above, seasonal
borrowings and payments under the Credit Agreement and planned payments of
debt and capital lease obligations.  

      The Company believes the actions set forth above and the
availability of its financing facilities, together with the Company's
available cash and expected cash flows from 1997 operations and beyond,
will enable Ames to fund its expected needs for working capital, capital
expenditures and debt service requirements.  Achievement of expected cash
flows from operations and compliance with the EBITDA covenant (Note 5) is
dependent upon the Company's attainment of sales, gross profit, and expense
levels that are reasonably consistent with its financial projections.  

      The Company expects from time to time to consider possible capital
market transactions, debt refinancing, and other transactions to further
enhance the Company's financial flexibility.

      The significant net operating loss carryforwards remaining after
1996, subject to limitations pursuant to Internal Revenue Code Sec. 382,
should offset income on which taxes would otherwise be payable in future
years.  

      When used in this Form 10-K, in any future filings by the Company
with the Securities Exchange Commission, in the Company's press releases
and in oral statements made with the approval of an authorized executive
officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "projected," "projections,"
"plans," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995.  Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected.  The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
          ------------------------------------------------
          See Index to Consolidated Financial Statements.


ITEM 9.   DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 
          ----------------------------------------------------------
            DISCLOSURE.
            ----------
      
      None.
      
                                        PART III


ITEM 10.  OFFICERS AND DIRECTORS OF THE REGISTRANT.
          ----------------------------------------

      Information as to the directors of the registrant required by Item
10 is incorporated herein by reference from the information set forth under
the caption "ELECTION OF DIRECTORS" of the Company's definitive proxy
statement to be filed pursuant to Regulation 14A within 120 days after the
close of its fiscal year.

      The following table indicates the names of all executive officers
of Ames and the offices held by each.  Other than the employment contracts
with Mr. Ettore and Mr. Lemire described in the Company's proxy statement,
there are no other arrangements or understandings between any officer below
and any other person pursuant to which he was selected as an officer.

    Joseph R. Ettore ................ President, Chief Executive Officer,
                                      and Director            
                                

    John F. Burtelow ................ Executive Vice President, Chief
                                      Financial Officer          
   
    Denis T. Lemire ................. Executive Vice President,
                                       Merchandising

    Eugene E. Bankers ............... Senior Vice President, Marketing     
 

    Richard L. Carter ............... Senior Vice President, 
                                      Human Resources
  
    Gregory D. Lambert .............. Senior Vice President, Finance

    Paul Lanham ..................... Senior Vice President, Management
                                      Information Systems

    David H. Lissy .................. Senior Vice President, General
                                      Counsel and Corporate Secretary

    Alfred B. Petrillo, Jr. ..........Senior Vice President, 
                                      Store Planning

    Grant C. Sanborn ................ Senior Vice President, 
                                      Store Operations

    James A. Varhol ................. Senior Vice President,       
                                      Asset Protection


  JOSEPH R. ETTORE, age 57, joined Ames as President, Chief Executive
Officer and Director in June, 1994.  Prior to joining Ames, he was
President, Chief Executive Officer and Director of Jamesway
Corporation("Jamesway") from July, 1993 to June, 1994; President, Chief
Operating Officer and Director of Jamesway in June, 1993; Chairman of the
Board and Chief Executive Officer of Stuarts Department Stores,
Inc.("Stuarts") from October, 1992 to June, 1993; and President, Chief
Operating Officer and Director of Stuarts from October, 1989 to October,
1992. He remained a Director of Stuarts until May, 1994.  Jamesway filed
for protection under Chapter 11 of the Bankruptcy Code ("Chapter 11") in
July, 1993; emerged from the Chapter 11 case in January, 1995; and re-filed
for protection under Chapter 11 in October, 1995.  Stuarts filed under
Chapter 11 in December, 1990; emerged from the Chapter 11 case in October,
1992; and re-filed for protection under Chapter 11 in May, 1995.

  JOHN F. BURTELOW, age 49, joined Ames as Executive Vice President,
Chief Financial Officer in August, 1994.  Prior to joining Ames, he was
Senior Vice President, Chief Financial Officer of Venture Stores, Inc. from
March, 1989 to May, 1994.  He held a number of increasingly senior
financial positions with The May Department Stores Company between 1979 and
1989.

  DENIS T. LEMIRE, age 49, joined Ames as Executive Vice President,
Merchandising in August, 1994.  Prior to joining Ames, he was President and
Chief Operating Officer of Stuarts from November, 1993 to August, 1994 and
Senior Vice President, Merchandising for Stuarts from April, 1990 to
November, 1993.  Stuarts filed for protection under Chapter 11 in December,
1990; emerged from the Chapter 11 case in October, 1992; and re-filed for
protection under Chapter 11 in May, 1995.  

  EUGENE E. BANKERS, age 57, joined Ames as Senior Vice President,
Marketing in December, 1993.  Prior to joining Ames, he was Vice President,
Communications and Investor Relations at Shopko Stores, Inc. from 1991 to
1993, and Vice President of Advertising, Sales Promotions, Special Events
and Public Relations from 1982 to 1991.

  RICHARD L. CARTER, age 48, joined Ames as Senior Vice President, Human
Resources in February, 1993.  Prior to joining Ames, he was Senior Vice
President, Human Resources at G. Fox division of The May Department Stores
Company from 1989 to 1993.  

  GREGORY D. LAMBERT, age 45, joined Ames as Senior Vice President,
Finance in September, 1996.  Prior to joining Ames, he was employed at
Homart Development as Vice President-Strategy from 1994 to 1996 and was
employed at The May Department Stores Company as Director of Strategic
Planning from 1989 to 1994.

  PAUL LANHAM, age 39, became Senior Vice President, Management
Information Systems, in March, 1996.  He joined Ames in October, 1994 as
Vice President, Allocation and Planning.  Prior to joining Ames, he was
employed at Brookstone Stores from 1989 in various capacities related to
inventory systems and inventory planning and allocation, most recently as
Director of Inventory Management.

  DAVID H. LISSY, age 53, became Senior Vice President, General Counsel
and Corporate Secretary in December, 1992.  He began work on the Ames
Chapter 11 cases in June, 1990, and in July, 1990 was named Vice President,
Legal Services.  He was appointed Vice President, General Counsel and
Corporate Secretary in October, 1991.  He has been owner of Samuel Lehrer &
Co., Inc., a wholesaler of fine quality fabrics, since 1988.  

  ALFRED B. PETRILLO, JR., age 54, joined Ames as Senior Vice President,
Store Planning in October, 1995.  Prior to joining Ames, he was employed at
Jamesway as Vice President, Store Planning, Construction, Maintenance and
Energy from 1976 to 1995 when he was appointed Senior Vice President, Store
Planning, Construction, Visual Merchandising, Planogramming, Maintenance
and Energy.

  GRANT C. SANBORN, age 45, became Senior Vice President, Store
Operations in January, 1995.  Since joining Ames in 1971, he has served in
a number of store operations positions, including Assistant Regional
Manager from July, 1989 to May, 1991; Regional Director from May, 1991 to
July, 1991; Director, Store Operations from July, 1991 to October, 1993;
and Vice President, Store Operations from October, 1993 to January, 1995.

  JAMES A. VARHOL, age 41, joined Ames as Senior Vice President, Asset
Protection in August, 1995.  Prior to joining Ames, he was Vice President,
Loss 
Prevention at Jamesway from 1987 to 1995.



ITEM 11.  EXECUTIVE COMPENSATION
          -----------------------
  The information required by Item 11 is incorporated herein by reference
from the information set forth under the sections titled "Executive
Compensation," "Board Meetings and Committees," "Compensation of
Directors," "Employment Contracts, Termination, Severance and
Change-of-Control Arrangements," "Additional Information with respect to
Board of Directors Interlocks and Insider Participation in Compensation
Decisions," "The Board of Directors Report on Executive Compensation," and
"Performance Graph" of the Company's definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the close of its fiscal
year.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
          -----------------------------------------------------
          MANAGEMENT.
          ------------
  The information required by Item 12 is incorporated herein by reference
from the information set forth under the sections titled "Security
Ownership of Management" and "Security Ownership of Certain Beneficial
Owners" of the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the close of its fiscal year.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
          -----------------------------------------------

  The information required by Item 13 is incorporated herein by reference
from the information set forth under the section titled "Transactions with
Management" of the Company's definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the close of its fiscal
year.



                                       PART IV



ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 
          ----------------------------------------------------------
          8-K.
          ---

          (a) DOCUMENTS FILED AS PART OF THIS FORM 10-K


              1. FINANCIAL STATEMENTS

                 The Financial Statements listed in the accompanying
                 Index to Consolidated Financial Statements are filed
                 as part of this 
                 Form 10-K.


              2. FINANCIAL STATEMENT SCHEDULE

                 The Financial Statement Schedule listed in the
                 accompanying Index to Consolidated Financial
                 Statements is filed as part of this Form 10-K.


              3. EXHIBITS

                 The Exhibits filed as part of this Form 10-K are
                 listed on the Exhibit Index immediately preceding such
                 Exhibits, incorporated herein by reference.


          (b) REPORTS ON FORM 8-K

              Reports on Form 8-K were filed with the Securities and
              Exchange Commission during the fourth quarter as follows:
<TABLE>
<CAPTION>

    DATE OF REPORT    DATE OF FILING      ITEM #            DESCRIPTION         
     ------------    -----------------    ------     ---------------------------------
<S>                  <C>                  <C>        <C>                                        
  November 12, 1996   November 12, 1996      5        Disclosure of fiscal October 1996 results.

  December 5, 1996    December 5, 1996       5        Disclosure of fiscal November 1996 results.

  January 9, 1997      January 9, 1997       5        Disclosure of fiscal December 1996 results.

  January 14, 1997    January 14, 1997       5        Disclosure of new credit agreement.

</TABLE>
                                       SIGNATURES


       Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 1997        /s/  Joseph R. Ettore                   
                             ----------------------------------
                             Joseph R. Ettore, 
                             President, Chief Executive Officer and 
                             Director



Dated: March 28, 1997        /s/  John F. Burtelow                   
                             -------------------------    
                             John F. Burtelow, 
                             Executive Vice President, 
                             Chief Financial Officer



Dated: March 28, 1997        /s/  Gregory D. Lambert
                             ------------------------                    
                             Gregory D. Lambert, 
                             Senior Vice President, Finance



   Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



Dated: March 28, 1997        /s/  Paul M. Buxbaum     
                             ------------------------                  
                             Paul M. Buxbaum, Director and Chairman


Dated: March 28, 1997        /s/  Francis X. Basile   
                             -----------------------
                             Francis X. Basile, Director


Dated: March 28, 1997        /s/  Alan Cohen                         
                             ---------------------------
                             Alan Cohen, Director


Dated: March 28, 1997        /s/  Richard M. Felner                  
                             ------------------------
                             Richard M. Felner, Director


Dated: March 28, 1997        /s/  Sidney S. Pearlman                 
                             ----------------------------              
                             Sidney S. Pearlman, Director


Dated: March 28, 1997        /s/  Laurie M. Shahon                   
                             -----------------------                   
                             Laurie M. Shahon, Director





                        AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES



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




                    FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
                                         (FORM 10-K)


                                          EXHIBITS
                                             
                                             
                       For the Fiscal Years Ended January 25, 1997,
                          January 27, 1996 and January 28, 1995 
                                             
                                             
                      (With Report of Independent Public Accountants)
                                             
                                             
                                             
                            -------------------------------------
                                             
                                             





<PAGE>
                                             
                       AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                    --------------------------------------------------
                                             
                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL 
                      STATEMENT SCHEDULE FOR THE FISCAL YEARS ENDED 
                  JANUARY 25, 1997, JANUARY 27, 1996 AND JANUARY 28, 1995



FINANCIAL STATEMENTS:
--------------------

Report of Independent Public Accountants.

Consolidated Statements of Operations for the fiscal years ended January
25, 1997, January 27, 1996 and January 28, 1995.

Consolidated Balance Sheets as of January 25, 1997 and January 27, 1996.

Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years ended January 25, 1997, January 27, 1996 and January 28, 1995.

Consolidated Statements of Cash Flows for the fiscal years ended January
25, 1997, January 27, 1996 and January 28, 1995.

Notes to Consolidated Financial Statements.


SCHEDULE:
----------
  II.  Valuation and Qualifying Accounts for the fiscal years ended
       January 25, 1997, January 27, 1996 and January 28, 1995.


SCHEDULES OMITTED:
--------------------
       All other schedules are omitted as they are not applicable or the
information is shown in the consolidated financial statements or notes
thereto.


                          REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders and Board of Directors of
   AMES DEPARTMENT STORES, INC.:


       We have audited the accompanying consolidated balance sheets of
Ames Department Stores, Inc. (a Delaware corporation) and subsidiaries as
of January 25, 1997 and January 27, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows
for the fifty-two weeks ended January 25, 1997, January 27, 1996 and
January 28, 1995.  These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.

       We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

       In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Ames
Department Stores, Inc. and subsidiaries as of January 25, 1997 and January
27, 1996, and the results of their operations and their cash flows for the
fifty-two weeks ended January 25, 1997, January 27, 1996 and January 28,
1995 in conformity with generally accepted accounting principles.

       As discussed in Note 20 to the consolidated financial statements,
in the quarter ended January 27, 1996, the Company changed their method of
accounting for long-lived assets to conform with SFAS No. 121, and in
connection therewith, recorded an impairment loss of $3.4 million for long-
lived assets to be held and used.

       Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole.  The schedule listed in
the index to consolidated financial statements is presented for the purpose
of complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements.  This schedule has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.





/s/ ARTHUR ANDERSEN LLP




New York, New York
March 7, 1997 




<PAGE>

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



<CAPTION>

                                                                   Fiscal Year   Fiscal Year   Fiscal Year
                                                                      Ended       Ended         Ended
                                                                   January 25,   January 27,   January 28,
                                                                       1997        1996          1995
                                                                  ------------  ------------  ------------
<S>                                                               <C>           <C>           <C>
   TOTAL SALES                                                    $2,255,749    $2,199,409    $2,242,270
   Less: Leased department sales                                      94,069        95,178        99,443
                                                                  ------------  ------------  ------------
   NET SALES                                                       2,161,680     2,104,231     2,142,827

   COSTS, EXPENSES AND (INCOME):
   Cost of merchandise sold                                        1,568,974     1,543,989     1,571,181
   Selling, general and administrative expenses                      563,344       552,729       568,874
   Leased department and other operating income                      (29,284)      (29,677)      (30,296)
   Depreciation and amortization expense                              12,489        12,360         5,288
   Amortization of the excess of revalued net assets
         over equity under fresh-start reporting                      (6,153)       (6,153)       (6,153)
   Interest and debt expense, net                                     19,043        24,116        25,367
   Gain on disposition of properties                                    (395)       (9,136)       (7,484)
   Store closing charge                                                6,858        17,621             -
   Distribution center closing costs                                       -             -         1,300
   Non-recurring gain - litigation settlement                              -             -       (12,001)
                                                                  ------------  ------------  ------------

   INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM           26,804        (1,618)       26,751
   Income tax provision                                               (8,149)            -        (8,208)
                                                                   ------------  ------------  ------------

   INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS                           18,655        (1,618)       18,543

   Extraordinary item - loss on early extinguishment of debt
         (net of tax benefit of $571 and $727 in the fiscal years
         ended January 25, 1997 and January 28, 1995, 
         respectively)                                                (1,354)            -        (1,517)
                                                                  ------------  ------------  ------------


   NET INCOME (LOSS)                                                 $17,301       ($1,618)      $17,026
                                                                  ============  ============  ============

   PRIMARY NET INCOME (LOSS) PER COMMON SHARE
         Income (loss) before extraordinary item                      $0.85        ($0.08)        $0.86
         Extraordinary item                                           (0.06)            -         (0.07)
                                                                  ------------  ------------  ------------
         Net income (loss)                                            $0.79        ($0.08)        $0.79
                                                                  ============  ============  ============

         Weighted average common and common equivalent shares        21,812        20,127        21,499
                                                                  ============  ============  ============

   FULLY DILUTED NET INCOME (LOSS) PER COMMON SHARE
         Income (loss) before extraordinary item                      $0.82        ($0.08)        $0.86
         Extraordinary item                                           (0.06)            -         (0.07)
                                                                  ------------  ------------  ------------
         Net income (loss)                                            $0.76        ($0.08)        $0.79
                                                                  ============  ============  ============

         Weighted average common and common equivalent shares        22,715        20,127        21,499
                                                                  ============  ============  ============


<FN>






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

</TABLE>

<PAGE>


<PAGE>
<TABLE>
                                            AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED BALANCE SHEETS
                                                (In Thousands, Except Share Amounts)           


<CAPTION>


                                                                                        January 25, January 27,
                                                      ASSETS                               1997        1996
                                                                                        ----------  ----------
<S>                                                                                     <C>         <C>
Current Assets:
  Cash and short-term investments                                                          46,119      14,185
                                                                                                                  
  Receivables:
      Trade                                                                                 7,521       6,900
      Other                                                                                11,550       7,578
                                                                                        ----------  ----------
          Total receivables                                                                19,071      14,478


  Merchandise inventories                                                                 391,076     398,933
  Prepaid expenses and other current assets                                               12,169      12,793
                                                                                        ----------  ----------
          Total current assets                                                            468,435     440,389

Fixed Assets:
  Land and buildings                                                                        1,293       1,074
  Property under capital leases                                                             4,185       3,809
  Fixtures and equipment                                                                   63,474      53,259
  Leasehold improvements                                                                   27,162      20,345
                                                                                        ----------  ----------
                                                                                           96,114      78,487
  Less - Accumulated depreciation and amortization                                        (32,529)    (20,259)
                                                                                        ----------  ----------
          Net fixed assets                                                                 63,585      58,228

Other assets and deferred charges                                                           4,773       3,965
                                                                                        ----------  ----------
                                                                                         $536,793    $502,582
                                                                                        ==========  ==========


                                            LIABILITIES AND STOCKHOLDERS' EQUITY 

Current Liabilities:
  Accounts payable:
      Trade                                                                              $145,737    $112,682
      Other                                                                                43,180      43,636
                                                                                        ----------  ----------
          Total accounts payable                                                          188,917     156,318

  Note payable - revolver                                                                       -       4,284
  Current portion of long-term debt                                                        12,884      13,682
  Current portion of capital lease obligations                                              2,694       3,665
  Self-insurance reserves                                                                  34,177      39,003
  Accrued compensation                                                                     29,366      20,424
  Accrued expenses                                                                         36,990      34,519
  Store closing reserve                                                                    24,438      27,379
                                                                                        ----------  ----------
      Total current liabilities                                                           329,466     299,274
                                                                                        ----------  ----------

Long-term debt                                                                             11,134      23,159
Capital lease obligations                                                                  27,086      29,372
Other long-term liabilities                                                                 7,565       6,322

Unfavorable lease liability                                                                17,029      18,672
Excess of revalued net assets over equity under fresh-start reporting                      36,327      42,480

Commitments and contingencies

Stockholders' Equity:
  Common Stock (40,000,000 shares authorized; 20,474,469 and 20,472,269
      shares outstanding at January 25, 1997 and January 27, 1996, 
      respectively; par value per share $.01)                                                 205         205
  Additional paid-in capital                                                               88,341      80,759
  Retained earnings                                                                        19,640       2,339
                                                                                        ----------  ----------


      Total Stockholders' Equity                                                          108,186      83,303
                                                                                        ----------  ----------
                                                                                         $536,793    $502,582
                                                                                        ==========  ==========

<FN>
                  (The accompanying notes are an integral part of these
                   consolidated balance sheets.)

<PAGE>

<PAGE>

</TABLE>
<TABLE>

                         AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                  (In Thousands)




<CAPTION>

                                               Priority
                          Common Stock       Common Stock    Additional
                         -----------------   -------------      Paid-In      Retained        Total
                          Shares   Amount    Shares  Amount     Capital      Earnings       Equity
                         -------- --------   ------- -----    -----------  ------------   -----------
<S>                      <C>      <C>        <C>     <C>      <C>          <C>            <C>


Balance, Jan. 29, 1994    16,267     $163     3,860   $38        $73,278      ($13,069)      $60,410

Conversion of Priority
 Common Stock into 
 Common Stock              3,860       38    (3,860)  (38)                                        - 
Utilization of Tax 
 Attributes                                                        7,481                       7,481
Net Income                                                                      17,026        17,026
                         -------- --------   ------- -----    -----------  ------------   -----------

Balance, Jan. 28, 1995    20,127     $201         -     -        $80,759        $3,957       $84,917

Issuance of Common Stock
 under 1995 Long Term
 Incentive Plan              345        4                                                          4
                                                                            
Net Loss                                                                        (1,618)       (1,618)
                         -------- --------   ------- -----    -----------  ------------   -----------
Balance, Jan. 27, 1996    20,472     $205         -     -        $80,759         $2,339       $83,303

Exercise of Stock Options      2        -                              4                           4
Utilization of Tax 
 Attributes                                                        7,578                       7,578
Net Income                                                                      17,301        17,301
                         -------- --------   ------- -----    -----------  ------------   -----------
Balance, Jan. 25, 1997    20,474     $205         -     -        $88,341       $19,640       $108,186
                         ======== ========   ======= =====    =========== ============   ===========

<FN>

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

 </TABLE>

<PAGE>


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

<CAPTION>


                                                                           Fiscal        Fiscal        Fiscal
                                                                           Year          Year          Year
                                                                           Ended         Ended         Ended
                                                                         January 25,   January 27,   January 28,
                                                                           1997          1996          1995
                                                                         -----------   -----------   -----------
<S>                                                                     <C>           <C>           <C>
Cash flows from operating activities:
    Net income (loss)                                                       $17,301       ($1,618)      $17,026
    Expenses not requiring the outlay of cash:
    Extraordinary loss on early extinguishment of debt                        1,354             -         1,517
    Income tax provision                                                      8,149             -         8,208
    Depreciation and amortization of fixed and other assets                  12,989        12,713         5,528
    Amortization of the excess of revalued net assets over equity            (6,153)       (6,153)       (6,153)
    Amortization of unfavorable lease liability                              (1,635)       (1,884)       (2,094)
    Amortization of debt discounts and deferred financing costs               3,037         4,755         5,843
    Gain on disposition of properties                                          (395)       (9,136)       (7,484)
    Other, net                                                                1,145          (315)         (939)
                                                                         -----------   -----------   -----------
Cash provided by (used for) operations before changes in working
    capital and store closing activities                                     35,792        (1,638)       21,452
Changes in working capital:
    (Increase) decrease in receivables                                       (4,593)        2,329         1,896
    Decrease in merchandise inventories                                       7,857        31,219        12,046
    (Increase) decrease in prepaid expenses and other current assets            624        (3,794)        1,131
    Increase (decrease) in accounts payable                                  32,599        (8,213)       54,986
    Increase (decrease) in accrued expenses and other current liabilities     6,516       (16,790)       (1,050)
Changes due to store closing activities:
    Payments of store closing costs                                          (7,621)       (1,498)       (5,737)
    Store closing charge                                                      6,858        17,621             -
                                                                         -----------   -----------   -----------
Net cash provided by operating activities                                    78,032        19,236        84,724
                                                                         -----------   -----------   -----------
Cash flows from investing activities:
    Proceeds from the disposition of properties                                 690        11,634         7,623
    Proceeds from the sale of assets held for disposition                         -             -         1,458
    Purchases of fixed assets                                               (19,805)      (27,152)      (24,470)
    Purchases of leases                                                      (3,211)            -             -
    Decrease in restricted cash                                                   -         2,047        53,933
                                                                         -----------   -----------   -----------
Net cash provided by (used for) investing activities                       (22,326)      (13,471)       38,544
                                                                         -----------   -----------   -----------
Cash flows from financing activities:
    Borrowings (payments) under the revolving credit facilities, net         (4,284)        4,284       (15,360)
    Payments on debt and capital lease obligations                          (17,388)      (23,766)      (87,828)
    Deferred financing costs                                                 (2,100)         (500)       (8,143)
                                                                         -----------   -----------   -----------
Net cash used for financing activities                                     (23,772)      (19,982)     (111,331)
                                                                         -----------   -----------   -----------

Increase (decrease) in unrestricted cash and short-term investments          31,934       (14,217)       11,937
Unrestricted cash and short-term investments, beginning of period            14,185        28,402        16,465
                                                                         -----------   -----------   -----------
Unrestricted cash and short-term investments, end of period                 $46,119       $14,185       $28,402
                                                                         ===========   ===========   ===========


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

</TABLE>

<PAGE>
                        AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
      -------------------------------------------------

      (a) NATURE OF OPERATIONS:

              Ames Department Stores, Inc. (a Delaware corporation) and
          its subsidiaries (collectively, "Ames" or the "Company") are
          retail merchandisers.  As of March 1, 1997, Ames operated 291
          discount department stores under the Ames name in 14 states
          in the Northeast, Middle Atlantic and Mid-West regions and
          the District of Columbia.  The Company's stores are located
          in rural communities, some of which are not served by other
          large retail stores, high-traffic suburban sites, small
          cities and several major metropolitan areas.  The stores
          largely serve middle and lower-middle income customers.  

              The Company filed petitions under Chapter 11 of the U.S.
          Bankruptcy Code ("Chapter 11") on April 25, 1990.  From that
          time until December 30, 1992, Ames operated its business as a
          debtor-in-possession subject to the jurisdiction of the
          United States Bankruptcy Court for the Southern District of
          New York (the "Bankruptcy Court").  On December 30, 1992,
          Ames emerged from bankruptcy (Note 2).


      (b) BASIS OF PRESENTATION:

              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 and disclosures of
          contingent 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.

              Certain prior year items have been reclassified to
          conform to the current year presentation.


      (c) FISCAL YEAR:

              The Company's fiscal year ends on the last Saturday in
          January.  The fiscal years ended January 25, 1997 (Fiscal
          1996 or 1996), January 27, 1996 (Fiscal 1995 or 1995) and
          January 28, 1995 (Fiscal 1994 or 1994) each included 52
          weeks. 


      (d) PRINCIPLES OF CONSOLIDATION:

              The consolidated financial statements include the
          accounts of Ames and its subsidiaries, all of which are
          wholly-owned.  All intercompany accounts and transactions
          have been eliminated.


      (e) CASH AND SHORT-TERM INVESTMENTS:

              Ames considers all highly liquid investments with an
          original maturity of three months or less when purchased to
          be cash and short-term investments.


      (f) INVENTORY VALUATION:

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

      (g) FIXED ASSETS:

              Land and buildings, fixtures and equipment, and leasehold
          improvements are recorded at cost.  All fixed assets at
          December 26, 1992 were written-off under fresh-start
          reporting (Note 2).  Major replacements and betterments are
          capitalized.  Maintenance and repairs are charged to earnings
          as incurred.  The cost of assets sold or retired and the
          related amounts of accumulated depreciation are eliminated
          from the accounts in the year of disposal, with the resulting
          gain or loss included in earnings.  

      (h) DEPRECIATION AND AMORTIZATION:

              Land and buildings, fixtures and equipment are recorded
          at cost and are depreciated on a straight-line basis over
          their estimated useful lives.  Property under capital leases
          and leasehold improvements are depreciated over the shorter
          of their estimated useful lives or their related lease terms.

              The unfavorable lease liability (recorded under
          fresh-start reporting) is being amortized on a straight-line
          basis over the applicable lease terms.  

              The excess of revalued net assets over equity under
          fresh-start reporting is being amortized over a 10 year
          period (Note 2).  

      (i) DEFERRED CHARGES:

              Expenses related to new store openings are expensed in
          the fiscal year in which the store opens.

              Debt transaction costs and related issue expenses are
          deferred and amortized over the term of the associated debt. 
          Lease acquisition and related costs are deferred and
          amortized over the term of the lease.

      (j) INCOME TAXES:

              Ames files a consolidated Federal income tax return. 
          Ames adopted Statement of Financial Accounting Standards No.
          109, "Accounting for Income Taxes" ("SFAS No. 109") under
          fresh-start reporting.  Under this method, any deferred
          income taxes recorded are provided for at currently enacted
          statutory rates on the differences in the basis of assets and
          liabilities for tax and financial reporting purposes.  If
          recorded, deferred income taxes are classified in the balance
          sheet as current or non-current based upon the expected
          future period in which such deferred income taxes are
          anticipated to reverse. 
 
      (k) SELF-INSURANCE RESERVES:

              The Company is self-insured for workers' compensation,
          general liability, property and casualty, and accident and
          health insurance claims, subject to certain limitations.  The
          Company has insurance coverage for losses that may occur
          above certain levels.  The Company determines its liability
          for claims based on each individual claim's circumstances and
          estimates its liability for claims incurred but not yet
          reported based on historical experience.  

              As of January 25, 1997 and January 27, 1996, Ames had
          established self-insurance reserves of $34.2 million and
          $39.0 million, respectively.  Major portions of these
          reserves may not be paid within a year and are subject to
          changes in estimates as claims are settled or continue to
          remain outstanding.  The Company's insurance expense was
          lower by $5.2 million in Fiscal 1995 compared to Fiscal 1994
          as a result of a reduction in the reserves for prior years'
          claims as well as the continued improved experience in
          workers' compensation and general liability claims, partially
          offset by an increase in health claims. 

      (l) LEASED DEPARTMENT SALES AND INCOME:

              Ames has an agreement with an independent contractor that
          allows the independent contractor to operate shoe departments
          within the Ames stores.  Ames receives a percentage of the
          sales under the agreement.

      (m) EARNINGS PER COMMON SHARE:

              Net income (loss) per common share for Fiscal 1996, 1995
          and 1994 was determined by using the weighted average number
          of common and common equivalent shares outstanding during
          each fiscal year.  Common equivalent shares represented the
          assumed exercise of the outstanding Series B and Series C
          Warrants and stock options.

      (n) STOCK-BASED COMPENSATION

              Statement of Financial Accounting Standards No. 123,
          "Accounting for Stock-Based Compensation," ("SFAS No. 123")
          encourages, but does not require companies to record
          compensation cost for stock-based employee compensation plans
          at fair value.  The Company has chosen to continue to account
          for stock-based compensation using the intrinsic value method
          prescribed in Accounting Principles Board Opinion No. 25,
          "Accounting for Stock Issued to Employees," ("APB Option
          No.25") and related interpretations.  Accordingly,
          compensation cost for stock options is measured as the
          excess, if any, of the quoted market price of the Company's
          stock at the date of grant over the exercise price of the
          options.

2.    REORGANIZATION CASE AND FRESH-START REPORTING:
      ----------------------------------------------------
      REORGANIZATION CASE

          As discussed in Note 1, Ames and its subsidiaries filed
      petitions for reorganization under Chapter 11 on April 25, 1990
      (the "Filing Date").  The Company's disclosure statement relating
      to its Third Amended and Restated Joint Plan of Reorganization
      dated October 23, 1992 (the "Amended Plan") was approved by the
      Bankruptcy Court on October 29, 1992.  The Amended Plan was
      confirmed by the Bankruptcy Court on December 18, 1992 and
      consummated on December 30, 1992 (the "Consummation Date").  

          The Amended Plan provided for, among other things, the
      payment of $303.5 million of cash (including $46.5 million in
      deferred cash distributions), $68.9 million in secured notes (the
      "POR Term Notes"), the reinstatement of certain obligations, and
      the distribution of all of the new common stock of the reorganized
      Ames to creditors to settle approximately $1.6 billion of total
      estimated claims against the Company that existed as of the Filing
      Date.   


      FRESH-START REPORTING

          Pursuant to the guidance provided by the American Institute
      of Certified Public Accountants in Statement of Position 90-7,
      "Financial Reporting by Entities in Reorganization Under the
      Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh-start
      reporting and reflected the consummation distributions in the
      consolidated balance sheet as of December 26, 1992 (the fiscal
      month-end for December, 1992).  Under fresh-start reporting, the
      reorganization value of the Company was allocated to the emerging
      Company's net assets on the basis of the purchase method of
      accounting.  

          The Company's reorganization value was less than the fair
      value of the current assets at the Consummation Date.  In
      accordance with the purchase method of accounting, the excess of
      book value over fair value was allocated to reduce proportionately
      the values assigned to non-current assets in determining their
      fair values.  Because this allocation reduced the non-current
      assets to zero value, the remainder was classified as a deferred
      credit ("Excess of revalued net assets over equity under
      fresh-start reporting" or "negative goodwill") and is being
      amortized systematically to income over the period estimated to be
      benefited (ten years).  Depreciation and amortization of fixed
      assets is for capital additions after December 26, 1992.

3.    CASH AND SHORT-TERM INVESTMENTS:
      -------------------------------
          Short-term investments as of January 25, 1997 totaled $31.1
      million and consisted of time deposits, certificates of deposit,
      bankers acceptances, repurchase agreements and high grade
      commercial paper.  There were no short-term investments as of
      January 27, 1996.


4.    INVENTORIES:
      -----------
          Inventories are valued at the lower of cost or market.  Cost
      is determined by the retail last-in, first-out (LIFO) cost method
      for all merchandise inventories and includes the capitalization of
      transportation and distribution center costs.  No LIFO reserve was
      necessary as of January 25, 1997, January 27, 1996 and January 28,
      1995.

5.    DEBT:
      ----
      THE CREDIT AGREEMENT

          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").  

          Prior to this date, the Company had a $300 million secured
      revolving credit facility (the "Prior Credit Agreement") in place
      with the same financial institutions.  The Prior Credit Agreement
      terminated on the effective date of 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.  The
      interest rate per annum on the Credit Agreement is equal to the
      Reference Rate (as defined in the Credit Agreement) plus 0.75%
      (subject to downward adjustments).  Alternatively, the interest
      rate per annum may be equal to the Eurodollar Rate (as defined in
      the Credit Agreement) plus 2.25% (subject to downward
      adjustments).

          Fees required under the Credit Agreement include: (1)
      quarterly commitment fees on the unused portion of the facility,
      (2) an initial closing fee, (3) two quarterly facility fee
      payments due under the Prior Credit Agreement and (4) an annual
      syndication fee to the agent.

          As of January 25, 1997, the interest rate on the Credit
      Agreement was 9.0%.  For Fiscal 1996, the weighted average
      interest rate on the Company's revolving credit facilities was
      9.1%.  The peak borrowing level  under the Prior Credit Agreement
      during Fiscal 1996 was $161.0 million.  As of January 25, 1997,
      $1.7 and $22.6 million was outstanding in trade and standby
      letters of credit, respectively.

          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.

          The financial covenants under the Credit Agreement are
      limited to: capital expenditure and lease obligation limits;
      minimum EBITDA (as defined below); and minimum EBITDA to cash
      interest expense.  The definition of EBITDA is: income before (a)
      interest expense, (b) income tax expense or benefit, (c)
      depreciation and amortization expense, LIFO expense, stock
      appreciation rights accruals, certain restructuring charges and
      other noncash charges, (d) gain or losses on sale of properties.

          Compliance with the EBITDA covenant will be dependent upon
      the Company's attainment of results that are reasonably consistent
      with its financial projections reported on Form 8-K dated February
      27, 1997.  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 "clean-up" requirement).  The Company
      is in compliance with the financial covenants through the quarter
      ended January 25, 1997. 

          In June, 1994, the Company utilized the funds that were no
      longer restricted for the collateralization of letters of credit,
      and funds from the Prior Credit Agreement, to prepay the POR Term
      Notes, a $1.2 million term note, and the outstanding borrowings
      under the credit agreement in effect immediately prior to the
      prepayment.  As a result of the refinancing and associated
      commitment to prepay the above debt, a non-cash extraordinary
      charge of $1.5 million, net of tax benefit of $0.7 million, was
      recorded in the quarter ended April 30, 1994, primarily for the
      write-off of deferred financing costs and debt discounts related
      to the debt to be prepaid.  


      OTHER DEBT

          The Company's outstanding debt as of January 25, 1997 and
      January 27, 1996 is listed and described below.  Pursuant to the
      Amended Plan, the Company and its lenders agreed to a
      restructuring of the Company's obligations at December 26, 1992.  

          New and reinstated debt obligations that carried face
      interest rates significantly lower than market rates (for
      financing of a similar nature) as of the Consummation Date were
      discounted to their present values using estimated market rates. 
      The discount amounts are being amortized to interest expense over
      the terms of the related obligations using the effective interest
      method.  The market interest rates used to determine the present
      values at December 26, 1992 are shown in the table below.  

          As of January 25, 1997, payments due on long-term debt for
      the next five years and thereafter were as follows:

                                         (000's Omitted)
          Fiscal Year Ending January          Amount    
          --------------------------     ----------------

                 1998                        12,884
                 1999                         2,000
                 2000                         9,500
                 2001                         -0-
                 2002                         -0-
                 Thereafter                   -0-

          Outstanding debt at January 25, 1997 and January 27, 1996 is
      listed below.  Further explanations of certain of the obligations
      follow the table.
<TABLE>
<CAPTION>

                                                               (000's omitted)   
                                                              -------------------
                                                               1/25/97    1/27/96
                                                               --------   ---------
<S>                                                            <C>        <C>
   SECURED DEBT _
      REVOLVING CREDIT FACILITY (NOTE PAYABLE):............    $   -      $ 4,284
      SENIOR DEBT:
       Guaranteed First Mortgage Notes, interest rate
        of 9.5%, due 3/97 through 3/99. Discount rate 11%..     12,500     12,500
       Real Estate Mortgage, interest rate 6%, due 12/97.
         Discount rate 12%................................       2,900      5,800
       Equipment Notes, interest rates at 9% to 10%, due
         through 12/97.  Discount rate 11% to 12%.....             548      1,887 
                                                               --------   ------
       Total Face Value of Secured Debt.....................   $15,948   $ 24,471 
                                                               --------  --------
      UNSECURED DEBT -
      ----------------
      SENIOR DEBT:
       Allowed Priority Tax Obligations,
         5% interest rate.  Discount rate 9%...............     $  150     $1,592
       SUBORDINATED DEBT:
        Deferred Cash Distributions due through
         1/31/97, 5% interest rate beginning 2/94.
         Discount rate 12%.................................      7,500     15,500
        TJX Expense Note, 10% interest rate, 
          due 1/98 (Note 11)...............................        786        770 
                                                                -------   ------
          TOTAL FACE VALUE OF UNSECURED DEBT...............    $ 8,436    $17,862
                                                                -------   -------
      TOTAL FACE VALUE OF DEBT.............................     24,384     42,333
                 LESS:  CURRENT PORTION....................     12,884     13,682
                        DEBT DISCOUNTS.....................        366      1,209 
                        NOTE PAYABLE - REVOLVER............        -        4,284
                                                              --------    -------
      AMOUNT DUE AFTER ONE YEAR............................    $11,134    $23,159
                                                               =======    ======
</TABLE>

      ALLOWED PRIORITY TAX OBLIGATIONS

          Allowed priority tax obligations consist of remaining claims
      entitled to priority status under the Bankruptcy Code, including
      claims based on retail sales made by Ames (the proceeds of which
      are deemed to be held in trust by Ames for the benefit of various
      state taxing authorities).  Unless otherwise agreed to in writing
      with Ames, the holder of an allowed priority tax claim receives
      deferred cash payments in a principal amount equal to the amount
      of such claim over a period not exceeding six years from the date
      of assessment of the tax on which the claim is based.  The
      deferred cash payments may be made in annual installments equal to
      10% of the allowed priority tax claim together with simple
      interest at the rate of 5% per annum.  The remaining unpaid
      principal and accrued interest thereon will be paid on the first
      business day following the date that is the sixth anniversary of
      the date of assessment of the tax on which the claim is based.

      DEFERRED CASH DISTRIBUTIONS

          The Amended Plan provided that approximately $46.5 million of
      cash distributions in respect to several classes of claims would
      be paid subsequent to the Consummation Date.  On January 31, 1993,
      January 31, 1994, January 31, 1995, January 31, 1996 and January
      31, 1997 $15.0, $8.0, $8.0, $8.0 and $7.5 million, respectively,
      of these deferred cash distributions were paid as scheduled.
      
6.    LEASE COMMITMENTS AND UNFAVORABLE LEASE LIABILITY:
      -------------------------------------------------
          Ames is committed under long-term leases for various retail
      stores, warehouses and equipment expiring at various dates through
      2018 with varying renewal options and escalating rent clauses. 
      Some leases are classified as capital leases under Statement of
      Financial Accounting Standards No. 13.  Capital lease obligations
      were revalued under fresh-start reporting.  Ames generally pays
      for real estate taxes, insurance, and specified maintenance costs
      under real property leases.  Most leases also provide for
      contingent rentals based on percentages of sales in excess of
      specified amounts.

          Future minimum lease payments for leases as of January 25,
      1997 were as follows:
<TABLE>
<CAPTION>
                                         (000's Omitted)
                                          Lease Payments    
                                     --------------------------
              Fiscal Year             Capital          Operating
             Ending January            Leases            Leases  
          --------------------      ----------         ---------
<S>                                 <C>                <C>   
     1998....................        $  5,955             43,841   
     1999........................       4,855             41,472  
     2000........................       4,354             38,126
     2001.......................        4,308             34,248
     2002.......................        4,308             31,511
   Thereafter....................      33,586            186,332
                                       ------            -------
  Total minimum lease payments......   57,366            375,530
                                                         =======
          Less:  amount representing         
           estimated executory costs...   616  
                                      -------
          Net minimum lease payments.. 56,750
          Less:  amount representing
                   interest            26,970
                                       ------
          Present value of net
           minimum lease payments....  29,780
          Less:  currently payable...   2,694
                                       ------
          Long-term capital              
           lease obligations......... $27,086
                                      =======
</TABLE>

          Total payments have not been reduced by minimum sublease
      rentals to be received in the aggregate under noncancellable
      subleases of capital leases and operating leases of approximately
      $0.8 and $11.8 million, respectively, as of January 25, 1997. 
      Amortization of capital lease assets was approximately $0.4, $0.2
      and $0.1 million for Fiscal 1996, Fiscal 1995, Fiscal 1994,
      respectively.  Rent expense (income), excluding the benefit from the
      amortization of the unfavorable lease liability, was as follows:
<TABLE>
<CAPTION>

                                                 (000's Omitted)       
                                        ------------------------------
                                         Fiscal     Fiscal   Fiscal 
                                          1996      1995      1994 
                                         -------   -------   ------
<S>                                      <C>       <C>       <C>
      Minimum rent on operating leases   $43,856    $42,751  $42,913
      Contingent rental expense            5,768      5,873    6,214
      Sublease rental income              (1,988)    (2,491)  (2,757)

</TABLE>

          The unfavorable lease liability in the Consolidated Balance
      Sheets was recorded as part of fresh-start reporting and
      represents the estimated liability related to lease commitments
      that exceeded market rents for similar locations.  This liability
      is being amortized as a reduction of rent expense in the
      Consolidated Statements of Operations over the remaining lease
      terms.  


 7.   STOCKHOLDERS' EQUITY:
      --------------------

      COMMON STOCK

          As provided under the Restated Certificate of Incorporation,
      the authorized capital stock of the reorganized Ames consisted of
      40,000,000 shares of common stock (20,474,469 and 20,472,269
      shares outstanding as of January 25, 1997 and January 27, 1996,
      respectively), par value $.01 per share (the "Common Stock").

          Holders of shares of Common Stock are entitled to one vote
      per share on all matters to be voted upon by stockholders and are
      entitled to receive dividends when, as and if declared by the
      Board of Directors.  Dividends cannot be declared under the terms
      of the Credit Agreement.

          The Common Stock does not have any preemptive right or
      subscription or redemption privilege.  The Common Stock also does
      not have cumulative voting rights, which means the holder or
      holders of more than half of the shares voting for the election of
      directors can elect all the directors then being elected.  All of
      the shares of Common Stock are fully paid and nonassessable.    


      WARRANTS

          An aggregate of 200,000 Series B Warrants were issued under
      the Amended Plan.  Each such warrant entitles the holder to
      purchase one share of the Common Stock at any time from June 30,
      1993 through December 30, 2000.  The exercise price is $5.92 per
      share.  No Series B Warrants have yet been exercised.
 
          An aggregate of 2,120,000 Series C Warrants were issued
      (1,992,715 outstanding as of January 25, 1997) under the Amended
      Plan.  Each such warrant entitles the holder to purchase one share
      of the Common Stock at any time from June 30, 1993 through January
      31, 1999.  The exercise price is $1.11 per share.  There were no
      exercises of the Series C Warrants during Fiscal 1996 and Fiscal
      1995.

          The exercise prices of the above warrants are subject to
      adjustment upon the occurrence of certain events, including, among
      other things, the payment of a stock dividend, a merger or
      consolidation and the issuance for consideration of rights,
      options or warrants (other than rights to purchase Common Stock
      issued to shareholders generally) to acquire Common Stock of the
      Company.  

          A holder of any of the warrants described above as such will
      not be entitled to any rights as a stockholder of the Company,
      including, without limitation, the right to vote with respect to
      the shares of Common Stock of the Company, until such holder has
      exercised the warrants.


      STOCK PURCHASE RIGHTS AGREEMENT

          On November 30, 1994, the Company adopted a Stock Purchase
      Rights Agreement (the "Rights Agreement").  Under the terms of the
      Rights Agreement, one purchase right ("Right"), with an exercise
      price of $14.00, is attached to each share of the Company's Common
      Stock outstanding as of, or issued subsequent to, November 30,
      1994 but prior to the occurrence of certain events (as more fully
      described in the Rights Agreement).  The Rights become exercisable
      in the event that a person or group (an "Acquiring Person") either
      acquires 15% or more of the Company's outstanding voting stock or
      announces an intention to acquire 20% or more of such stock.  Once
      exercisable, each Right will, depending on the circumstances,
      entitle a holder, other than an Acquiring Person, to purchase
      shares of either the Company or an acquiring company having a
      market value equal to twice the exercise price.  The Rights
      Agreement was adopted to assure that all of the Company's
      stockholders receive full value for their investment in the event
      of stock accumulation by an Acquiring Person.  Unless previously
      redeemed by the Company, the Rights will expire on November 29,
      2004.


 8.   Stock Options:
      ----------------
          Pursuant to the 1994 Management Stock Option Plan (the
      "Option Plan") approved by stockholders in June, 1994, the Company
      may grant options with respect to an aggregate of up to 1,700,000
      shares of Common Stock, with no individual optionee to receive in
      excess of 200,000 shares of Common Stock upon exercise of options
      granted.  The exercise prices of the options are equal to the fair
      market value of the Common Stock on the date the options are
      granted.  The options become exercisable over one to five years
      and terminate after five to ten years from the grant date.

          Pursuant to the 1994 Non-Employee Directors Stock Option Plan
      (the "Non-Employee Plan") approved by stockholders in May, 1995,
      the Company may grant options to purchase up to an aggregate of
      200,000 shares of Common Stock.  The exercise prices of the
      options are equal to the fair market value of the Common Stock on
      the date the options are granted.  The options become exercisable
      in full six months after date of grant and terminate ten years
      after date of grant.  Effective on the date of each annual meeting
      of stockholders of the Company commencing with the 1996 Annual
      Meeting, each non-employee director of the Company then in office
      will be granted an option to purchase 2,500 shares, with the date
      of grant to be the date of such meeting.  As of January 25, 1997,
      60,000 options had been granted under the Non-Employee Plan; all
      were exercisable.

          The following table sets forth the stock option activity for
      both stock option plans for Fiscal 1996, Fiscal 1995 and Fiscal
      1994 (shares in thousands):
<TABLE>
<CAPTION>
                                 1996             1995              1994  
                           --------------     ---------------  ---------------
                         Number    Weighted   Number  Weighted  Number  Weighted
                           of      Ave Exer     of    Ave Exer    of    Ave Exer
                         Shares     Price     Shares   Price    Shares   Price 
                         ------    ------     ------   ------   ------   -----
<S>                      <C>       <C>        <C>      <C>      <C>      <C>     
      Outstanding at
        beg of year      1,320     $4.15      1,300    $4.63       -       -
      Granted              538      2.82        275     2.40     1,609    $4.71
      Exercised             (2)     1.76          -      -          -      -
      Forfeited           (192)     4.07       (255)    4.67      (309)    5.06
                         ------              -------             ------
      Outstanding at
        end of year      1,664      3.73      1,320     4.15     1,300     4.63    
                         =====                =====              =====
      Options exercisable
        at year-end        691      4.27        375      4.45      -         -
                          ====                 ====              =====
      Weighted average 
        fair value of       
        options granted  $1.86                $1.44
                          ====                 ====
</TABLE>
          The fair value of options granted per the above table was
      estimated on the date of grant using the Black-Scholes pricing
      model with the following assumptions:  no dividend yield,  an
      expected volatility of 68%, a risk-free interest rate equal to
      U.S. Treasury securities with a maturity equal to the expected
      life of the option (weighted average interest rate of 6.4% and
      6.5% for 1996 and 1995, respectively) and an expected life from
      date of grant until option expiration date (weighted average
      expected life of 5.6 and 5.1 years for 1996 and 1995,
      respectively).

          Not included in the 538,000 options granted during 1996 are
      300,000 options granted pursuant to an employment agreement.  The
      grant of these options is subject to shareholder approval.  The
      Company anticipates seeking shareholder approval no later than its
      annual meeting to be held in May, 1998.  These options have been
      accounted for on a mark-to-market basis and compensation expense
      of approximately $1.8 million was recorded in 1996.  If
      shareholder approval is not obtained, the granted options will
      revert to stock appreciation rights.

          Had the 300,000 options been included in the 1996 option
      grants, the weighted average fair value of options granted in 1996
      would have been $1.67 per option.

          The following table summarizes information about the stock
      options outstanding as of January 25, 1997:
<TABLE>
<CAPTION> 
                       Options Outstanding                    Options Exercisable 
                  --------------------------------         -------------------------    
                             Weighted Ave     Weighted                      Weighted
  Range of        Number       Remaining      Average         Number         Average
  Exercise      Outstanding   Contractual     Exercise       Exercisable    Exercise
   Prices        @ 1/25/97       Life          Price         @ 1/25/97        Price 
  --------       --------       ------        -------        ---------       -------        
<S>              <C>            <C>           <C>            <C>             <C>   
$1.50 - $3.00         616         4.6          $2.48             77           $2.38
$3.13 - $4.38         475         3.7           3.76            232            3.60
$5.06 - $5.12         573         2.1           5.06            382            5.06
                  --------                                    ---------           
                    1,664         3.5           3.73            691            4.27
                  ========                                    =========
</TABLE>



      The Company accounts for its stock option plans under APB Opinion 
  No. 25.  Had compensation cost for the Company's 1996 and 1995 stock
  option grants been determined in accordance with SFAS No. 123, the
  Company's net income (loss) and net income (loss) per common share for
  Fiscal 1996 and Fiscal 1995 would have approximated the proforma amounts
  below:
<TABLE>
<CAPTION>

                       
                                    Fiscal 1996                   Fiscal 1995      
                          -------------------------      ----------------------
                           As Reported     Proforma     As Reported     Proforma 
                           -----------    ---------     -----------     -------- 
    <S>                    <C>            <C>           <C>             <C>                 
    Net income (loss)         $17,301       $17,945        ($1,618)      ($1,686)
    Net income (loss) per       
        common share-primary     $.79          $.82          ($.08)        ($.08)
              -fully diluted     $.76          $.79          ($.08)        ($.08)

</TABLE>

      SFAS 123 does not apply to stock options granted prior to 1995. 


 9.   INCOME TAXES:
      --------------
          For Fiscal 1996 and Fiscal 1994, the Company recorded non-
      cash income tax provisions of approximately $8.1 and $8.2 million,
      respectively.  The Company had no income tax provision for Fiscal
      1995.  

          The Company adopted SFAS No. 109 in conjunction with the
      adoption of fresh-start reporting.  Under SFAS No. 109, deferred
      income taxes are recognized by applying the enacted statutory tax
      rates in future years to the changes in "cumulative temporary
      differences" (the differences between financial statement carrying
      values and the tax basis of assets and liabilities). 

          As a consequence of the adoption of fresh-start reporting and
      SFAS No. 109, any tax benefits realized for tax purposes after the
      Consummation Date for pre-consummation cumulative temporary
      differences, as well as for the pre-consummation net operating
      loss carryovers, are reported as additions to paid-in capital (see
      Consolidated Statements of Changes in Stockholders' Equity) rather
      than as reductions in the tax provisions in the Consolidated 
      Statements of Operations.  Tax benefits or liabilities realized
      for book purposes after the Consummation Date will be segregated
      from the pre-consummation deferred tax assets.  However, the
      utilization of post-consummation deferred tax assets may reduce
      future income tax provisions.  Such income tax provisions have no
      impact on the Company's taxes payable or cash flows.

          Ames has the following deferred tax assets/(liabilities) from
      pre-consummation ("Pre") and post-consummation ("Post") periods,
      as of the following dates ($ in millions):
 
                                     As of               As of     
                                January 25, 1997    January 27, 1996
                                -----------------  -------------------
                                Pre   Post  Total   Pre   Post   Total 
                               -----  ----  -----   ----- ----   -----
    Fixed assets............... $40   ($3)   $37     $46   ($1)   $45
    Self insurance reserves....   7     7     14      11     7     18
    Store closing reserves.....   2    13     15       3    20     23
    Leases.....................  11     7     18      16     6     22
    Vacation pay reserve    
      and other................  (2)   14     12      (1)    3      2  
    
    Net operating loss
      carryovers............... 179     -    179     193     -    193 
                               ----   ----  -----   -----  ----  -----
    Total deferred tax assets.. 237    38    275     268    35    303
    Valuation allowances.......(237)  (38)  (275)   (268)  (35)  (303)
                               -----  ----  -----   -----  ----  -----
    Net deferred tax assets...   $0    $0     $0      $0    $0     $0 
                               =====  ====  =====   =====  ====  =====


         The Company has fully reserved for its deferred tax assets
    because of the current uncertainty of the future recognition of such
    deductions.  In subsequent periods, Ames may reduce the valuation
    allowances, provided that the possibility of utilization of the
    deferred tax asset is more likely than not, as defined by SFAS No.
    109.  Any such reduction in the pre-consummation valuation allowance
    in the near future will result in a corresponding addition to
    paid-in-capital.

         The Company has treated "pre-emergence net operating losses"
    (qualified losses incurred prior to the Consummation Date) under
    Section 382(l)(5) of the Internal Revenue Code (hereafter "L-5"). 
    Under "L-5," there is approximately $295 million in pre-emergence net
    operating losses currently available as carryovers without any annual
    limitation.  The Company has filed a $20 million refund claim under
    Section 172(f) of the Internal Revenue Code.  The claim represents a
    10-year carryback of qualified expenses and is currently under review
    by the Internal Revenue Service ("IRS").  The claim will reduce net
    operating losses by approximately $47 million.

         Ames also has a "post-emergence net operating loss" carryover
    (incurred after the Consummation Date) of approximately $151 million. 
    Both pre- and post-emergence net operating loss carryovers, which
    together total $446 million, will expire between 2007 and 2012,
    except in the event of a change in control of the Company.  In
    addition, Ames has targeted jobs tax credit carryovers of
    approximately $7 million and alternative minimum tax credit
    carryovers of approximately $3 million, which will expire in 2007 and
    2004, respectively.  Federal net operating loss carryovers for fiscal
    years subsequent to January 27, 1990 are subject to future
    adjustments, if any, by the IRS. 

         As noted above, in the event of a change of control,
    there could be significant limitations on the ability of the
    Company to utilize the net operating loss carryover and other tax 
    benefits. 
  
         Ames has substantial potential state net operating loss
    carryovers.  It is difficult, however, to quantify the utilizable
    amounts of such state operating losses because of the uncertainty
    related to the mix of future profits in specific states.


10. BENEFIT AND COMPENSATION PLANS:
    ------------------------------
    RETIREMENT AND SAVINGS PLAN

         Ames has a defined contribution retirement and savings plan
    (the "Retirement and Savings Plan") that is qualified under Sections
    401(a) and 401(k) of the Internal Revenue Code of 1986, as amended,
    for employees who, after one year of service, have reached the age of
    21 and have completed at least 1,000 hours of service in a 12-month
    period.  For each participant's contribution (up to a maximum of 5%
    of such participant's total compensation), the Company contributes to
    the Retirement and Savings Plan an amount equal to 50% of such
    contribution.  Ames funds all administrative costs incurred by the
    plan.  Ames' expense associated with this plan amounted to
    approximately $2.9, $3.0 and $3.1 million, in 1996, 1995 and 1994,
    respectively.  


    RETIREMENT PLAN              

         Ames has an unfunded Retirement Plan for Officers/Directors
    (the "Retirement Plan").  It provides that every person who is
    employed by Ames when he or she retires, dies or becomes disabled and
    who serves as both a full-time officer and a director of Ames and has
    completed five years of service, not necessarily consecutive, in both
    of these capacities, is eligible for benefits under the Retirement
    Plan.

         The maximum annual benefit under the Retirement Plan is
    $100,000, reduced by certain of each participant's annual Social
    Security benefits.  Each participant in the Retirement Plan is
    entitled to benefits for a period of 10 years.  The Company has a
    reserve established for potential payments under the Retirement Plan. 
    No payments were made under this plan during the periods presented.


    THE G.C. MURPHY COMPANY LIFE INSURANCE PLAN

         The G.C. Murphy Company Life Insurance Plan granted a flat
    dollar amount (defined benefit) of group term life insurance at no
    cost to certain retired employees.  This plan excludes G.C. Murphy
    Co. employees who retired from Ames after January 31, 1986.  The
    amount of coverage varies by retiree, is payable only upon death, and
    has no loan or cash value.  There were 2,034 retirees covered by this
    plan as of January 25, 1997.  The Company has a $2.4 million reserve
    as of January 25, 1997 established for the projected payments under
    this plan.


    ANNUAL INCENTIVE COMPENSATION PLAN

         The Company has an Annual Incentive Compensation Plan (the
    "Annual Bonus Plan") that is subject to annual review by the Board of
    Directors.  The Annual Bonus Plan provides annual incentive cash
    bonuses based on the achievement of the Company's financial goals for
    the year (and customer service goals for store and field management). 
    There are approximately 1,500 members of management eligible under
    the plan.  Bonus expense recorded under the plan was $7.9, $1.5 and
    $1.6 million for Fiscal 1996, 1995 and 1994, respectively.


    LONG TERM INCENTIVE PLAN

         Pursuant to the 1995 Long Term Incentive Plan (the "LTIP"),
    approved by the stockholders in May, 1995, the Company may make
    awards of an aggregate of up to 500,000 shares of Common Stock and
    cash payment in an amount up to 50% of the fair market value (as
    defined in the LTIP) of the Common Stock awarded, determined as of
    and paid on the vesting date.  Each award under the LTIP vests in
    full on the third anniversary of the date of grant of such award. 
    Awards may be made to the Chief Executive Officer, any Executive Vice
    President and any Senior Vice President of the Company.  Other than
    for death or disability, awards which have not yet vested are
    forfeited upon the termination of the employment of the executive.

         As of January 25, 1997, awards aggregating to 345,000 shares of
    Common Stock had been made to certain executives of the Company but
    have not yet vested.  The shares for these awards have been issued
    and are being held in custody by the Company on behalf of the
    grantees thereof.  A portion of the estimated market value of the
    awards, including the cash, has been accrued as compensation expense
    as of January 25, 1997.  The Company recorded as compensation expense
    for the LTIP $1.1 and $0.3 million during 1996 and 1995,
    respectively.


    STOCK APPRECIATION RIGHTS

         In connection with the Amended Plan, 1.2 million stock
    appreciation rights ("SARs"), exercisable only for cash, were granted
    to certain members of management as compensation for their efforts in
    restructuring Ames and enabling it to emerge from Chapter 11.  After
    exercises and terminations, 166,683 SARs were fully vested and
    outstanding at January 25, 1997.  All unexercised  SARs terminate on
    December 30, 1997.  Each SAR entitles the recipient, upon exercise,
    to receive in cash the excess of (i) the average closing price of a
    share of Common Stock during the ten trading days prior to the
    exercise date, over (ii) $2.96.  The average closing price for the
    last 10 trading days of Fiscal 1996 was $5.47 per share.  During
    Fiscal 1996, a total of 16,667 SARs were exercised.  The Company
    recorded a SARs expense of $0.8 and $0.7 million in 1996 and
    1994,respectively.  There was no SARs expense in 1995.


    INCOME CONTINUATION PLAN

         Certain officers of Ames participate in an Income Continuation
    Plan ("ICP"), which guarantees up to one year's salary in the event
    of termination other than for cause.  As of January 25, 1997, the
    Company had reserved for its known obligations under the ICP.  


    KEY EMPLOYEE CONTINUITY BENEFIT PLAN

         Ames has a Key Employee Continuity Benefit Plan (the
    "Continuity Plan") that covers all officers, Vice President and
    above, and certain other employees of Ames.  If the employment of any
    participant in the Continuity Plan is terminated, other than for
    death, disability, cause (as defined in the Continuity Plan) or by
    the participant other than for good reason (as defined in the
    Continuity Plan), within 18 months after a change of control of Ames,
    the participant will receive a lump sum cash severance payment.  The
    severance payment is 2.99 times Base Compensation for the President
    and Executive Vice Presidents, 2 times Base Compensation for Senior
    Vice Presidents and selected Vice Presidents and 1 times Base
    Compensation for other Vice Presidents.  Base Compensation is defined
    generally as the sum of the participant's annual base compensation in
    effect immediately prior to the participant's termination plus
    one-third of the value of the cash and stock bonuses paid to the
    participant during the 36 months ending on the date of termination. 
    For purposes of the Continuity Plan, a change of control includes but
    is not limited to the acquisition by any person of beneficial
    ownership of 20% or more of Ames outstanding voting securities or the
    failure of the individuals who constituted the Board of Directors at
    the beginning of any period of 12 consecutive months to continue to
    constitute a majority of the Board during such period.  


11. COMMITMENTS AND CONTINGENCIES:
    ------------------------------

         As part of the Company's settlement with TJX Companies, Inc.
    ("TJX") under the Amended Plan, Ames must reimburse TJX for various
    obligations, fees, and expenses that may be paid by TJX relating to
    various properties that were under leases rejected by Ames.  The
    obligations, fees, and expenses are subject to certain maximum
    amounts and the total reimbursement may not exceed $2.7 million and
    will be in the form of an unsecured note payable due on January 31,
    1998 (the "TJX Expense Note").  TJX provides Ames with the amounts
    paid, if any, during each quarter and those amounts, after
    appropriate review, become the principal due under the TJX Expense
    Note.  As of January 25, 1997, the amount claimed as due by TJX and
    recorded by Ames as the TJX Expense Note was approximately $.8
    million (see Note 5).  Interest is being accrued on the principal
    amounts due at 10% per annum and will be payable on January 31, 1998.

         The Amended Plan states that portions of any "Excess cash flow
    amount" must be distributed to holders of claims in certain classes
    in the order set forth in the Amended Plan.  "Excess cash flow
    amount" is defined as, with respect to the fiscal years ending
    January 27, 1996 and January 25, 1997, 50% of the excess of (i)
    EBITDA (as defined in the Company's credit agreement in effect on
    Consummation Date) of reorganized Ames for such fiscal year over
    (ii)(a) $99.1 million with respect to the fiscal year ending January
    27, 1996 and (b) $114.7 million with respect to the fiscal year
    ending January 25, 1997; provided, however, that excess cash flow
    amounts shall not be paid with respect to any fiscal year after the
    fiscal year ending January 25, 1997.    There were no excess cash
    flow amounts payable through January 25, 1997.  


12. LITIGATION:
    ----------

    WAGE AND HOUR LITIGATION

         On March 21, 1995, a Class Action Complaint (the "Abrams
    Complaint") was filed against the Company in the Superior Court
    Department of the Trial Court, Suffolk County, Massachusetts entitled
    DAVID W. ABRAMS, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS
    SIMILARLY SITUATED V. AMES DEPARTMENT STORES, INC.  The Complaint
    alleged that Ames violated Massachusetts wage and hour law by failing
    to pay Abrams, and other similarly situated Assistant Managers in
    Massachusetts, time and one-half their regular rates of pay for hours
    worked in excess of 40 hours a week.  The Complaint sought injunctive
    relief, treble damages, costs and attorney's fees.  On April 21,
    1995, the case was removed to the United States District Court for
    the District of Massachusetts.  The Company has denied the claims on
    the basis that Abrams and other similarly situated Assistant Managers
    were exempt employees not entitled to overtime pay.  The Company
    further denied that the action was properly maintainable as a class
    action and that the plaintiff was a proper representative of the
    purported class.  

         On March 14, 1996, Abrams amended his Complaint to include
    Richard Serrano as name representative of all Replenishment Assistant
    Managers located throughout Massachusetts.  On November 22, 1996, the
    Court remanded the claims of Serrano and the putative class of
    Replenishment Assistant Managers to State Court because Serrano
    failed to satisfy the amount in controversy requirement for federal
    jurisdiction.  On January 3, 1997, the United States District Court
    for the District of Massachusetts certified a class of Hardlines and
    Softlines Assistant Managers employed by Ames in any Ames store in
    Massachusetts on or after March 21, 1993, but limited the class to
    those Assistant Managers whose claim satisfied the amount in
    controversy requirement for federal jurisdiction as of April 21,
    1995, the date of removal.  Abrams will cause notice to be sent to
    the class apprising them of the pending action and their right to
    opt-out of the action if they do not wish to participate in the
    litigation after which time the parties will proceed to substantive
    discovery on the class's alleged claims and damages.

         On December 13, 1995, a Class Action Complaint was filed and on
    January 23, 1996 an Amended Class Action Complaint was filed (the
    "Second Complaint") in the United States District Court for the
    District of Massachusetts entitled COLLEEN AUSTIN, ON BEHALF OF
    HERSELF AND OTHERS SIMILARLY SITUATED V. AMES DEPARTMENT STORES, INC.
    ET AL.  The factual allegations in the Second Complaint are
    essentially the same as those in the A Complaint referenced above. 
    However, the Second Complaint also includes claims against the
    Company and certain of its officers and directors under the Fair
    Labor Standards Act, ERISA and the wage and hours laws of each state
    where Ames does business, and purports to state claims on behalf of
    Assistant Managers in each of those states.  The Company believes,
    among other things, that the case is not properly maintainable as a
    class action suit and that the plaintiff is not a proper class
    representative.  The Company also denied liability on the basis that
    Austin and other similarly situated Assistant Managers were exempt
    employees and moved to dismiss the claims under ERISA and the laws of
    all states except Massachusetts.  Discovery has not yet commenced in
    this matter.

         On June 26, 1996, a Class Action Complaint was filed (the
    "Third Complaint") in the United States District Court for the
    District of Massachusetts entitled DAVID ROOT, ON BEHALF OF HIMSELF
    AND ALL OTHER PERSONS SIMILARLY SITUATED V. AMES DEPARTMENT STORES,
    INC.  The factual allegations in the Third Complaint are essentially
    the same as in the ABRAMS Complaint referenced above.  However, the
    Third Complaint pertains only to Replenishment Assistant Managers who
    worked at any Ames Store throughout the United States and is brought
    solely under the Fair Labor Standards Act.  The Complaint sought
    injunctive relief, damages, costs and attorneys' fees.  The Company
    denied the claims on the basis that Root and other similarly situated
    Replenishment Assistant Managers were exempt employees and, thus, not
    entitled to time and one-half pay for hours worked in excess of 40
    hours per week.  The Company further denied that the action was
    properly maintainable as a class action and that the plaintiff was a
    proper representative for the purported class.  In the Fall of 1996,
    the parties reached an agreement to settle the action whereby each
    putative class member opting-in to the settlement will receive a
    calculated sum based on the number of weeks worked and individual
    weekly salary levels in exchange for a release of all claims against
    the Company.  The total of the settlement cannot exceed $1 million in
    cash and $500,000 in scrip usable in Ames stores.  The Court approved
    the settlement on January 31, 1997 and notices of the class action
    settlement were sent to all potential members  on February 3, 1997. 
    Individuals wishing to opt-in to the settlement must do so by April
    4, 1997.

         On December 6, 1996, the remand referenced above from the
    United States District Court for the District of Massachusetts of
    ABRAMS V. AMES DEPARTMENT STORES, INC. as to Richard Serrano and the
    putative class of Replenishment Assistant Managers was docketed in
    the Superior Court Department of the Trial Court, Suffolk County,
    Commonwealth of Massachusetts (the "Fourth Complaint").  The Fourth
    Complaint alleged that Ames violated General Laws, Chapter 151, 1A
    by failing to pay Serrano and other similarly situated Replenishment
    Assistant Managers located throughout Massachusetts time and one-half
    their regular rates of pay for hours worked in excess of 40 hours per
    week.  Serrano has agreed to dismiss the action on behalf of himself
    and other similarly situated Replenishment Assistant Managers
    pursuant to the settlement reached between Ames and David Root
    described above.  Serrano and other former or current Replenishment
    Assistant Managers employed by Ames in Massachusetts will have the
    option to opt-in to the settlement.

         On March 18, 1997, the Fourth Complaint was amended to add
    Kristen Gould as a named plaintiff to represent the putative class of
    Hardlines and Softlines Assistant Managers employed by Ames in the
    Ames Store in Massachusetts whose claim failed to satisfy the amount
    in controversy requirement for federal jurisdiction in the ABRAMS
    case.  Gould's substantive claims mirror those currently pending in
    the ABRAMS case for Massachusetts Hardlines and Softlines Assistants. 
    Also, on March 18, 1997, the Court dismissed Serrano's action on
    behalf of himself and other similar situated Replenishment Assistant
    Managers pursuant to the settlement reached between Ames and David
    Root described above.  This case will hereafter go forward solely on
    behalf of the Hardlines and Softlines Assistant Managers under the
    caption KRISTEN GOULD V. AMES DEPARTMENT STORES, INC. in the Superior
    Court Department of the Trial Court, Suffolk County, Commonwealth of
    Massachusetts.  The Company has not yet responded to the GOULD
    Complaint, but when it does, it will assert the same defenses as it
    did with regard to the ABRAMS Complaint.

         On February 18, 1997, a Class Action Complaint (the "Fifth
    Complaint") was filed in the United States District Court for the
    Northern District of New York entitled MICHELLE MOSCHELLE,
    INDIVIDUALLY, AND ON BEHALF OF HERSELF AND OTHERS SIMILARLY SITUATED
    V. AMES DEPARTMENT STORES, INC. ET AL.  The Fifth Complaint is
    substantially identical to the Second Complaint except for the name
    of the plaintiff.  The Company has not yet responded to the Fifth
    Complaint, but when it does, it will assert the same defenses as it
    did with regard to the Second Complaint, plus other grounds, as may
    be appropriate, for dismissing the Complaint.

         As to the ABRAMS, AUSTIN, GOULD and  matters referenced above,
    the Company intends to defend each of them vigorously and believes it
    should prevail.


    ARGONAUT LITIGATION

         On September 15, 1995, the Company commenced an adversary
    proceeding in the Bankruptcy Court entitled AMES DEPARTMENT STORES,
    INC. V. ARGONAUT INSURANCE COMPANY (the "Adversary Proceeding").  The
    reason for this filing was a September 1995 assertion by Argonaut
    Insurance Company ("Argonaut") that an evergreen letter of credit
    issued to the benefit of Argonaut at the
    request of Ames in May 1990 (the "Letter of Credit") could be drawn
    upon to satisfy Argonaut's pre-petition bankruptcy claim against Ames
    under an insurance policy issued by Argonaut to Ames in October 1989
    (the "Insurance Policy").  The Letter of Credit was in the amount of
    $5 million and Ames had an obligation to reimburse the issuing bank
    for any draw down on the Letter of Credit.

         The Adversary Proceeding against Argonaut sought, among other
    things, to enjoin Argonaut from drawing down the Letter of Credit to
    satisfy its pre-petition claims.  The Company asserted, among other
    things, that the Letter of Credit was not intended to cover pre-
    petition claims and, in any event, could not do so under relevant
    bankruptcy law.  The Company also asserted that in the event Argonaut
    was permitted to draw down on the Letter of Credit, the proper
    interpretation of the aggregate deductible provision in the Insurance
    Policy means that the maximum draw down amount was substantially less
    than $5 million.

         In October 1996, the Company and Argonaut agreed to a
    settlement of the dispute which involved Argonaut agreeing to the
    cancellation of the Letter of Credit and Ames agreeing to pay $1
    million to Argonaut.  The pending litigation has now been dismissed.


    WERTHEIM PROCEEDING

         On October 13, 1992, Ames commenced an adversary proceeding
    against Wertheim Schroder & Co., Inc. ("Wertheim") and James A.
    Harmon ("Harmon") (Wertheim & Harmon, collectively the "Defendants"). 
    In this proceeding (the "Wertheim Proceeding"), Ames sought damages
    and equitable relief for breach of fiduciary duty, professional
    malpractice, fraudulent conveyance and transfer pursuant to the
    Bankruptcy Code and New York law, and other improper conduct relating
    to Ames' acquisition from Zayre Corporation ("Zayre") of Zayre's
    discount stores division in October 1988.  

         On March 31, 1994, Ames entered into a settlement agreement
    with the Defendants  (the "Settlement Agreement"), which was
    subsequently approved by the Bankruptcy Court.  In summary, the
    Settlement Agreement provided for a $19 million settlement payment by
    the Defendants and dismissal of all claims and counterclaims in the
    Wertheim Proceeding.  The closing on the Wertheim Settlement
    Agreement took place in June 1994.  At that time, the Company
    recorded a nonrecurring gain for its $12 million portion of the
    settlement.  The Class AG-6A Trust received $7 million for its
    portion of the settlement. 

     OTHER MATTERS

         Ames has owned and/or leased current and former facilities that
    are subject to several environmental laws relating to the operation
    and maintenance of those facilities, particularly with respect to any
    underground storage tanks currently or previously located at those
    facilities.  The Company believes the vast majority of those tanks
    have already been cleanly removed.  Some residual contamination
    exists at a limited number of facilities, the extent of which has not
    been determined at this time.  Environmental liabilities associated
    with these facilities may be shared with facility landlords, tenants,
    subtenants, or other third parties.  In some states, clean-ups may be
    eligible for financing from state funds.  Based on currently
    available information, no liabilities material to the Company will
    result from any underground storage tank residual contamination.  The
    Company believes that adequate liabilities have been recorded related
    to any potential costs.  

         Under the Comprehensive Environmental Response, Compensation
    and Liability Act of 1980 as amended by the Superfund Amendments and
    Reauthorization Act of 1986 ("Superfund"), liability may be imposed
    on waste generators, site owners and operators, and others regardless
    of fault or the legality of the original waste disposal activity. 
    Ames may be liable for costs at several sites under Superfund or
    similar state laws either for generating wastes, including waste oils
    disposed of at those sites, or in connection with the assumption by
    Ames of certain Zayre Discount Division liabilities.  Ames believes
    that it has been connected to most of these sites based on relatively
    small amounts of wastes and that many other parties are involved at
    these sites and may share in the ultimate liability.  Ames does not
    have sufficient information to determine its relative responsibility
    for, or contribution to (if any), all of these sites at this time.  

         The Company is a party to various claims and legal proceedings
    covering a wide range of matters that arise in the ordinary course of
    its business activities.  The Company believes that its likely
    liability as to these matters will not have a material adverse effect
    on the consolidated financial position or results of operations of
    the Company.  

    
13.   SUPPLEMENTAL CASH FLOW INFORMATION:
      -----------------------------------
      Cash paid for interest and income taxes were as follows:
      
                                           (000's Omitted)      
                                      ---------------------------
                                       Fiscal   Fiscal   Fiscal 
                                        1996     1995     1994
                                      -------  --------  -------
Interest............................  $15,149   $19,217  $19,953
Income taxes........................        2         2        7

      Ames entered into other non-cash investing and financing
activities as follows:
                                           (000's Omitted)       
                                     ---------------------------------
                                       Fiscal      Fiscal       Fiscal 
                                        1996        1995         1994 
                                       ------    -------       -------
New capital lease obligations.......  $  375     $3,203        $ 687 
Conversion of Priority Common                          
   Stock into Common Stock...........     -          -            38
Issuance of Common Stock under
   1995 Long Term Incentive Plan.....     -           4           -


14.   FAIR VALUES OF FINANCIAL INSTRUMENTS:
      ------------------------------------
        The Financial Accounting Standards Board requires disclosure of
      the fair value of financial instruments under Statement of
      Financial Accounting Standards No. 107, "Disclosures About Fair
      Value of Financial Instruments" ("SFAS No. 107").  The following
      methods and assumptions were used by the Company in estimating the
      fair value disclosures for its financial instruments.

        The Company's financial instruments as of January 25, 1997 and
      January 27, 1996 were cash and short-term investments, long-term
      debt, and the Series C Warrants.  For cash and short-term
      investments, the carrying amounts reported in the Consolidated
      Balance Sheets approximated fair values.  For long-term debt
      obligations, the fair values were estimated using a discounted
      cash flow analysis (based upon the Company's incremental borrowing
      rates for similar types of borrowing arrangements).  The fair
      value of the Series C Warrants was based on the market trading
      price at year-end times the number of such warrants that were
      outstanding.

        The carrying amounts and fair values of the Company's financial
      instruments at January 25, 1997 and January 27, 1996 were as
      follows:
<TABLE>
<CAPTION>
                                                    (000's Omitted)              
                                     --------------------------------------------
                                       January 25, 1997        January 27, 1996                  
                                     --------------------    --------------------
                                     Carrying       Fair      Carrying    Fair  
                                      Amount        Value      Amount     Value  
                                      -------      -------    ---------  -------  
<S>                                   <C>           <C>         <C>      <C>        
Cash and short-term investments....   $46,119       $46,119     $14,185  $14,185
Long-term debt                                       
  Secured debt.....................     15,574      15,737      19,404    19,782
  Unsecured debt...................      8,444       8,442      17,437    17,495
Series C Warrants..................       -         10,462         -       1,619

</TABLE>

15.   GAIN ON DISPOSITION OF PROPERTIES:
      ---------------------------------

          The following is a summary of the major components of the
      "Gain on disposition of properties":
<TABLE>
<CAPTION>
                                                  (000's Omitted)        
                                        -----------------------------
                                         Fiscal    Fiscal     Fiscal
                                           1996      1995       1994 
                                         -------  --------  ---------
   <S>                                   <C>       <C>       <C>  
   Gain on:
    Sales of closed distribution centers. $   -    $5,099     $   -
    Sales/assignment of lease               
         interests at closed locations....   395      991      2,965
    Sale of office building................    -        -      2,870
        Sales of shopping centers..........    -     3,046     1,649
                                           -----     -----     -----
                                           $ 395    $9,136    $7,484
                                           ======  =======    ======
</TABLE>

16.    DISTRIBUTION CENTER CLOSING COSTS:
       ---------------------------------
          In Fiscal 1994, the Company announced it would close the
       distribution center in Clinton, Massachusetts in June, 1995 and
       recorded a provision of $1.3 million for the estimated costs
       associated with closing the facility.  Transfer of the Clinton
       operations to the Company's distribution center in Leesport,
       Pennsylvania and the sale of the Clinton facility were completed
       in June, 1995.  In conjunction with the sale of the Clinton
       facility, the Company was required to prepay the 8.5% Industrial
       Development Bonds which had secured the facility.

          The following items represent the major components (in
       thousands) of the total provision for the Clinton closing costs:

          Termination benefits and other               
            human resources costs                  $776
          Asset write-off                           145
          Other closing costs                       379
                                                 ------
                                                 $1,300
                                                 ======
                                                
          Through January 25, 1997, $1.3 million of costs have been
      charged to the reserve and no future expenses are expected.


17.   STORE CLOSING CHARGES:
      ---------------------

          In the fourth quarter of 1996, the Company recorded charges
      of $9.7 million in connection with the closing of thirteen (13)
      stores.  The $9.7 million is classified in two line items: $6.9
      million as store closing charge and $2.8 million as part of cost
      of merchandise sold.  Twelve of the stores closed in February,
      1997, and the thirteenth store is expected to close in mid-summer,
      1997.

          In the fourth quarter of 1995, the Company recorded charges
      of $20.9 million in connection with the closing of seventeen (17)
      stores and the elimination of 71 positions in the corporate
      headquarters.  The $20.9 million is now classified in two line
      items to conform with the 1996 presentation: $17.6 million as
      store closing charge and $3.3 million as part of cost of
      merchandise sold.  The 17 stores closed in March, 1996.  The $3.3
      million charge, representing the inventory write-down for the 17
      closing stores, had been classified as part of the store closing
      charge in the original presentation of the results for 1995.

          The following items represent the major components of the
      total charges recorded in January, 1997 and January, 1996 in
      connection with store closings:

                                       (OOO's Omitted)       
                                  ------------------------
                                     Fiscal       Fiscal 
            Item                      1996         1995 
            ----                     -----        ------

         Lease costs                 $3,535       $12,926
         Net fixed asset write-down   1,149         2,094
         Severance costs                773         1,857
         Other                        1,401           744
                                     ------         -----
            Store closing charge      6,858        17,621
            Inventory write-down      2,860         3,244
                                    -------       -------
                Total charges        $9,718       $20,865
                                    =======       =======

          The lease costs provided for in the store closing charge
      include all projected occupancy costs from date of closing until
      estimated lease disposition date.


18.   LEASED DEPARTMENT AND OTHER OPERATING INCOME:
      ---------------------------------------------

                                                  (000's Omitted)       
                                           -----------------------------
                                             Fiscal    Fiscal    Fiscal   
                                              1996      1995      1994 
                                             ------    ------    ------
      Leased department income...........   $16,932   $17,132   $17,900
      Concession and vending income......     1,148     1,291     1,342
      Layaway service fees...............     2,382     2,386     3,163
      Various other......................     8,822     8,868     7,891
                                            -------     -----   ------- 
                                            $29,284   $29,677   $30,296
                                            =======   =======   ======= 


19.   EXTRAORDINARY ITEMS:
      -------------------

          In December, 1996, the Company terminated the Prior Credit
      Agreement (Note 5) and recorded a non-cash extraordinary charge of
      $1.4 million, net of tax benefit of $0.6 million, for the write-
      off of deferred financing costs.

          The Company prepaid certain debt (Note 5) during Fiscal 1994
      and recorded a non-cash extraordinary charge of $1.5 million, net
      of tax benefit of $0.7 million, primarily for the write-off of
      deferred financing costs and debt discounts.


20.   ACCOUNTING FOR LONG-LIVED ASSETS:
      --------------------------------

          Effective January 27, 1996, the Company adopted Statement of
      Financial Accounting Standards No. 121, "Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be
      Disposed Of."  As a result, the Company recorded an impairment
      loss of $3.4 million in the quarter ended January 27, 1996. 
      During Fiscal 1996, the Company recorded an additional impairment
      loss of $2.2 million.  The impairment loss, classified as part of
      "Depreciation and amortization expense," was equivalent to the
      current carrying value of fixtures and equipment and leasehold
      improvements for specific stores where estimated undiscounted
      future operating cash flows were less than the current carrying
      value of the assets.  The Company will continue to operate these
      stores until such time the estimated closing costs are less than
      any projected cash losses.


21.   RECENTLY ISSUED ACCOUNTING STANDARDS:
      ------------------------------------

          In February, 1997, the Financial Accounting Standards Board
      issued Statement of Financial Accounting Standards No. 128,
      "Earnings per Share" ("SFAS No. 128").  Under SFAS No. 128 the
      presentation of Primary and Fully Diluted Earnings per Share will
      be replaced by Basic and Diluted Earnings per Share.  Adoption of
      SFAS No. 128 is required for periods ending after December 15,
      1997, at which time restatement for prior periods will be
      necessary.


22.   QUARTERLY FINANCIAL DATA (UNAUDITED):
      ------------------------------------

               Summarized unaudited quarterly financial data (in thousands
      except for per share amounts) for the last three fiscal years are
      shown below.  The quarterly sales for Fiscal 1995 have been
      restated to reflect the effect of recording "55 Gold " senior
      citizen discounts as markdowns, which conforms with the Fiscal
      1996 treatment.

<TABLE>
<CAPTION>                                       

                                                    First        Second         Third        Fourth  
                                                   -------       ------         ------      -------
   <S>                                            <C>            <C>           <C>          <C> 
   FISCAL 1996:
   -----------
   Net sales                                       $438,667       $499,107     $516,876     $707,030
   Gross margin                                     117,402        139,725      141,224      194,355
   Income (loss) before extraordinary item           (6,998)         4,514          421       20,718 (a)
   Income (loss) per share before extaordinary item   (0.34)          0.21         0.02         0.93 
   Net income (loss)                                 (6,998)         4,514          421       19,364 (a)
   Net income (loss)per share - primary               (0.34)          0.21         0.02         0.87
                              - fully diluted         (0.34)          0.21         0.02         0.85




   FISCAL 1995:
   -----------      
   Net sales                                       $438,312      $500,188      $501,550     $664,181       
   Gross margin                                     115,345       136,000       134,137      174,760 (b)
   Income (loss) before extraordinary item          (11,141)        3,188        (4,884)      11,219 (c)
   Income (loss) per share before extaordinary item   (0.55)         0.15         (0.24)        0.54
   Net income (loss)                                (11,141)        3,188        (4,884)      11,219 (c)
   Net income (loss)per share (e)                     (0.55)         0.15         (0.24)        0.54
                            
   

   FISCAL 1994:
   -----------            
   Net sales                                        $435,755     $491,300       $511,268    $704,504       
   Gross margin                                      116,039      136,210        137,136     182,261 
   Income (loss) before extraordinary item           (13,624)(d)    6,609         (5,102)     30,660 
   Income (loss) per share before extaordinary item    (0.68)        0.31          (0.25)       1.44
   Net income (loss)                                 (15,141)(d)    6,609         (5,102)     30,660
   Net income (loss)per share (e)                      (0.75)        0.31          (0.25)       1.44
   
     
<FN>
      (a) Includes charges of $9.7 million related to the closing of 13
          stores (Note 17).

      (b) Restated by $3.3 million for the inventory write-down incurred in
          connection with the 17-store closing (Note 17).

      (c) Includes charges of $20.9 million related to the closing of 17
          stores (Note 17).

      (d) Includes the nonrecurring gain of $12.0 million for a litigation
          settlement (Note 12).

      (e) Primary and fully diluted earnings per share were the same for
          each quarter.
</TABLE>
<PAGE>      
<TABLE>
<CAPTION>

                                                                 SCHEDULE II
                                                                                              
                                               
                        AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                              VALUATION AND QUALIFYING ACCOUNTS
                                        (In Thousands)
                                               



                        Balance at     Charged to                                       Balance at
                      Beginning of      Cost and                                          End of
Description               Period        Expense     Reclassifications(a)   Deductions     Period  
-----------            -----------     ---------    -------------------   ------------  -----------
<S>                    <C>            <C>           <C>                   <C>            <C>              
FISCAL 1996
-----------

Store Closing Reserve    $27,379        $ 6,858            ($2,178)          ($7,621)      $24,438

Distribution Center
 Closing Reserve 
 included in Accrued
 Expenses                    123              -             ($ 122)             ($  1)          -   


FISCAL 1995
-----------

Store Closing Reserve    $ 2,878        $17,621             $8,378           ($1,498) (b)  $27,379

Distribution Center
 Closing Reserve 
 included in Accrued
 Expenses                $ 1,567           -                 ($194)          ($1,250) (c)   $  123


FISCAL 1994
-----------

Store Closing Reserve    $ 6,992           -                $1,623           ($5,737) (b)   $2,878

Distribution Center
 Closing Reserve 
 included in Accrued
 Expenses                       -       $2,500                $267           ($1,200) (d)   $1,567



<FN>
   (a)    Represents reclassifications of liabilities associated with
          closed stores and other reclassifications.

   (b)    Represents payments of restructuring costs.

   (c)    Represents payments related to the closing of the distribution
          center.

   (d)    Represents reduction of amount charged to cost and expense to
          eliminate the amounts established for real estate taxes and other
          estimated property holding costs due to the earlier-than-expected
          sale.
</TABLE>

<PAGE>
                                                                    


                          E X H I B I T   I N D E X

                                                               CROSS-REFERENCE
EXHIBIT                                                         OR PAGE NUMBER
NUMBER                       EXHIBIT                            IN FORM 10-K
------                       -------                            --------------

2(a)      Third Amended and Restated Plan of Reorganization    
             of the Ames Department Stores, Inc. and other 
             members of the Ames Group, Citibank, N.A. as 
             Agent, the Parent Creditor's Committee, the 
             Subsidiaries Creditor's Committee, the Bond-
             holders' Committee and the Employees' Committee
             dated October 23, 1992 (incorporated herein by 
             reference to Exhibit 2 of the Company's Report
             on Form 8-K dated December 29, 1992 and filed 
             December 31, 1992).  

2(b)      Statement of Ames Group with respect to conditions   
             to Consummation of Third Amended and Restated
             Joint Plan of Reorganization of Ames Department
             Stores, Inc. other members of Ames Group,
             Citibank, N.A., Parent Creditors' Committee,
             Subsidiaries Creditors' Committee, Bondholders'
             Committee and Employees' Committee dated 
             December 28, 1992 (incorporated herein by 
             reference to Exhibit 2B of the Company's Report
             on Form 8-K dated December 29, 1992 and filed
             December 31, 1992).

2(c)      Ames Department Stores, Inc. Information       
             Supplementing Disclosure Statement dated
             December 29, 1992 (incorporated herein by 
             reference to Exhibit 2C of the Company's 
             Report on Form 8-K dated December 29, 1992 
             and filed December 31, 1992).  

3(a)      Amended and Restated Certificate of Incorporation    
             of Ames Department Stores, Inc.
             (incorporated herein by reference to
             Form 8 dated and filed December 29, 1992).

3(b)      Form of By-laws of Ames Department Stores, Inc.      
             as amended February 23, 1995  (incorporated 
             herein by reference to Exhibit 3(b) of the 
             Company's Annual Report on Form 10-K dated 
             January 28, 1995 and filed on April 10, 1995).

4(a)      Series B Warrant Certificate for Purchase of New     
             Common Stock of Ames Department Stores, Inc.
             (incorporated herein by reference to Form 8-A
             dated and filed December 11, 1992).

4(b)      Series C Warrant Certificate for Purchase of New     
             Common Stock of Ames Department Stores, Inc.
             (incorporated herein by reference to Form 8-A
             dated and filed December 11, 1992).

<PAGE>

                                   E X H I B I T   I N D E X

                                                           CROSS-REFERENCE
EXHIBIT                                                     OR PAGE NUMBER
NUMBER                        EXHIBIT                         IN FORM 10-K  
------                        -------                       ---------------


4(c)      Rights Agreement, dated as of November 30, 1994,     
             between Ames Department Stores, Inc. and 
             Chemical Bank, as Rights Agent (incorporated 
             herein by reference to Exhibit 4 of the 
             Company's Quarterly Report on Form 10-Q for 
             the quarterly period ended October 29, 1994 
             filed on December 13, 1994).

10(a)     Retirement and Savings Plan as restated        
             December 27, 1984, and Amendment No. 1
             (incorporated herein by reference to Exhibit
             10(n) of the Company's 1985 Annual Report on
             Form 10-K dated January 26, 1985 and filed
             April 24, 1985).  

10(b)     Settlement Agreement, dated March 31, 1994, between  
             Ames Department Stores, Inc. and Subsidiaries 
             and Wertheim Schroder & Co. Incorporated and 
             James A. Harmon (incorporated herein by reference
             to Exhibit 10 of the Company's Report on Form 8-K
             dated and filed April 8, 1994).

10(c)     1994 Management Stock Option Plan (incorporated herein         
             by reference to the Company's definitive proxy 
             statement filed on May 5, 1994).

10(d)     1994 Non-Employee Directors Stock Option Plan        
             (incorporated by reference to the Company's
             definitive proxy statement filed April 10, 1995).


10(e)     1995 Long Term Incentive Plan (incorporated by       
             reference to the Company's definitive proxy
             statement filed on April 10, 1995).

10(f)     Credit Agreement, dated as of December 27, 1996, among    
             BankAmerica Business Credit, Inc., as Agent, the 
             lenders party thereto and Ames Department Stores, Inc.
             (incorporated herein by reference to Exhibit 10 of the 
             Company's Report on Form 8-K dated and filed 
             January 14, 1997).



<PAGE>

                        E X H I B I T   I N D E X

                                                              CROSS-REFERENCE
EXHIBIT                                                        OR PAGE NUMBER
NUMBER                        EXHIBIT                           IN FORM 10-K  
------                        -------                            ---------------


10(g)     Employment Agreement, dated June 1, 1996, between Ames         54
             Department Stores, Inc. and Joseph Ettore.

10(h)     Employment Agreement, dated August 1, 1996, between Ames       64
             Department Stores, Inc. and Denis Lemire.

11        Schedule of computation of primary and fully diluted           75
             net earnings per share.  

22        Subsidiaries of the Registrant.                                76



                                                                   Exhibit 10(g)
                                      EMPLOYMENT AGREEMENT
                                     ---------------------


      Agreement, dated as of June 1, 1996, between AMES DEPARTMENT STORES,
INC., a Delaware corporation (the "Company"), and JOSEPH ETTORE (the
"Executive").


                                     W I T N E S S E T H :

      WHEREAS, the Company is engaged in the business of operating self-service
retail discount department stores (the "Business"); and

      WHEREAS, the Company desires to retain the services of the Executive in
the capacities of Chief Executive Officer and President of the Company, and
the Executive desires to provide such services in such capacities to the
Company, on the terms and subject to the conditions set forth in this Agree-
ment;

      NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:

      1.  EMPLOYMENT AND TERM.  The Company hereby employs the Executive, and
the Executive hereby accepts employment by the Company, in the capacities and
on the terms and subject to the conditions set forth herein, for the period
commencing on June 1, 1996 and ending on May 31, 1999, unless terminated
earlier as provided herein (the "Term of Employment").  The Company hereby
agrees to notify the Executive not later than January 1, 1999, whether the
Company intends to seek to negotiate an extension of the Term of Employment.

      2.  DUTIES.  During the Term of Employment, the Executive shall serve as
the Company's Chief Executive Officer and President.  In addition, while it is
understood that the right to elect directors of the Company is by law vested
in the stockholders of the Company, it is nevertheless contemplated, subject
to such right, that the Executive shall, at all times during the Term of
Employment, be a member of the Board of Directors of the Company; PROVIDED
that the failure of the Executive to be elected a director or to retain a
directorship of the Company shall not constitute a breach of this Agreement by
the Company.  As chief executive officer, the Executive shall be the most
senior officer of the Company, with all supervisory authority and power over
the other senior officers of the Company, including principal responsibility
for recommendations to the Board of Directors of the Company regarding the
hiring and termination of other senior officers and with such other powers,
duties and responsibilities with respect to the business of the Company as are
customary to his offices and positions or as the Board of Directors of the
Company may reasonably request consistent therewith.  

      The Executive shall serve the Company faithfully and to the best of his
ability in such capacities, devoting substantially all of his business time,
attention, knowledge, energy and skills to such employment.  

      The Executive shall reside during the business week and be based at the
Company's offices in Rocky Hill, Connecticut or in the same geographic region,
but the Executive shall travel as reasonably required in connection with the
performance of his duties hereunder.  If elected, the Executive also shall
serve during any part of the Term of Employment as any other officer of the
Company or as an officer or director of any of the Company's subsidiaries
without any additional compensation other than as specified in this Agreement. 


      3.  COMPENSATION AND BENEFITS.  As full and complete compensation to the
Executive for his execution and delivery of this Agreement and performance of
the services required hereunder, the Company shall pay, grant or provide the
Executive, and the Executive agrees to accept, the following salary and other
compensation and benefits (all such amounts to be calculated in United States
dollars):

           (a)  a base salary, payable in accordance with the Company's
      standard payroll practices for senior executive officers, of $850,000 per
      annum ("Base Salary"); 

           (b)  an annual bonus, payable with respect to each full fiscal year
      of the Company during the Term of Employment, or pro rata portion
      thereof, in each case based upon the performance of the Company for each
      applicable full fiscal year of the Company and otherwise in accordance
      with the Company's Annual Incentive Compensation Plan, in effect from
      time to time;

           (c)  a one-time, non-refundable lump-sum cash payment of $150,000,
      which shall be deemed to be earned in full upon the execution and
      delivery of this Agreement and which shall be payable in full upon such
      execution and delivery;

           (d)  an option (the "Option"), granted as of July 11, 1996, to
      acquire up to 300,000 shares (the "Option Shares") of common stock, par
      value $.01 per share, of the Company (the "Common Stock") in accordance
      with the Company's 1994 Management Stock Option Plan (the "1994 Plan") or
      any other plan pursuant to which the Option may be granted (the
      "Alternative Plan"), subject to amendment or approval, as the case may
      be, of such plan by the stockholders of the Company at its annual meeting
      to be held no later than May, 1998; PROVIDED, HOWEVER, that in the event
      that the Company neither amends the 1994 Plan nor adopts the Alternative
      Plan, the Company shall make a payment to the Executive of an amount
      equal to (x) 300,000, MULTIPLIED by (y) the difference between the
      Average Stock Price (as hereinafter defined) and $2.00 (the "Option
      Alternative Amount").  For purposes of this Agreement, the "Average Stock
      Price" means the average closing sale price per share on any national
      securities exchange or on the National Association of Securities Dealers
      Automated Quotation System - National Market System ("NASDAQ-NMS") on
      which the Common Stock is listed or reported through, as the case may be,
      for the 20 trading days prior to the end of the Term of Employment.  The
      Option Alternative Amount will be payable at the end of the Term of
      Employment, unless, prior to such date, the Executive terminates his
      employment other than for Good Reason (as hereinafter defined) or his
      employment is terminated by the Company for Cause (as hereinafter
      defined), in which case no payments will be made pursuant to this
      paragraph (d); 

           (e)  reimbursement to the Executive of $12,000 per year for the
      cost of maintaining $500,000 of life insurance, plus additional life
      insurance underwritten by the Company's present insurer (or another
      insurer reasonably acceptable to the Company and the Executive) in the
      face amount of $500,000; PROVIDED that the Executive shall assist the
      Company in procuring such insurance by submitting to reasonable medical
      examinations and by filling out, executing and delivering such
      applications and other instruments in writing as may reasonably be
      required by any insurer to which the Company may apply; 

           (f)  the right to participate in any savings and stock option plans
      or programs and in any medical, dental, disability, retirement,
      insurance, savings, vacation, holiday, paid sick leave or other plans as
      in effect from time to time for the benefit of the Company's senior
      executive officers;

           (g)  the right to participate in any long-term incentive program as
      in effect from time to time for the benefit of senior executive officers
      implemented by the Company or any of its subsidiaries;

           (h)  a one-time, lump-sum cash payment of $450,000, which shall be
      payable at the end of the Term of Employment, unless, prior to such date,
      the Executive terminates his employment other than for Good Reason or his
      employment is terminated by the Company for Cause, in which case no
      payments will be made pursuant to this paragraph (h); 

           (i)  an annual automobile allowance, payable in equal monthly
      installments during the Term of Employment, in an amount in accordance
      with the policies and procedures of the Company as in effect from time to
      time for senior executive officers, but not less than $1,800 per month; 

           (j)  prompt reimbursement for all reasonable business-related
      expenses incurred by the Executive, in accordance with the policies and
      procedures of the Company as in effect from time to time for senior
      executive officers;

           (k)  paid vacation in accordance with the policies and procedures
      of the Company as in effect from time to time for senior executive
      officers; and

           (l)  a living allowance of $48,000 per year during the Term of
      Employment, payable in equal monthly installments of $4,000


      4.  TERMINATION.
          -----------

           (a)  PERMANENT DISABILITY.  During the Term of Employment
      hereunder, the Company shall maintain a disability insurance policy which
      shall pay to the Executive 60% of his Base Salary during any period of
      disability up to Executive's age 65; PROVIDED that the Executive shall
      assist the Company in procuring such insurance by submitting to
      reasonable medical examinations and by filling out, executing and
      delivering such applications and other instruments in writing as may
      reasonably be required by any insurer to which the Company may apply; and
      PROVIDED, FURTHER, that the Executive shall be insurable at standard
      rates.  In the event of the permanent disability (as hereinafter defined)
      of the Executive during the Term of Employment, the Company shall have
      the right, upon written notice to the Executive, to terminate the
      Executive's employment hereunder, effective upon the giving of such
      notice (or such later date as shall be specified in such notice).  Upon
      such termination, the Company shall have no further obligations
      hereunder, except to pay the Executive any amounts or provide the
      Executive any benefits to which the Executive may otherwise have been
      entitled under the Company's permanent disability insurance referred to
      above, and the Executive shall continue to have the obligations provided
      for in Sections 6 and 7.  For purposes of this paragraph, "permanent
      disability" means any disability as defined under the Company's
      disability insurance policy referred to Section 3(f). 

           (b)  DEATH.  In the event of the death of the Executive during the
      Term of Employment, this Agreement shall automatically terminate and the
      Company shall have no further obligations hereunder, except to pay the
      Executive's beneficiary or legal representative any amounts or provide
      any benefits to which the Executive may otherwise have been entitled
      prorated to the date of death.
           
           (c)  CAUSE.  The Company shall have the right, upon written notice
      to the Executive, to terminate the Executive's employment under this
      Agreement for Cause, effective upon the giving of such notice (or such
      later date as shall be specified in such notice), and the Company shall
      have no further obligations hereunder, except to pay the Executive any
      amounts or provide the Executive any benefits to which the Executive may
      otherwise have been entitled prorated to the effective date of
      termination.  

      For purposes of this Agreement, "Cause" means:
                (i)  fraud or embezzlement on the part of the Executive or
           material breach by the Executive of his obligations under Section 6
           or 7; 
                (ii) conviction of the Executive for any felony;

                (iii)  a material breach of, or the willful failure or refusal
           by the Executive to perform and discharge, his duties, responsibili-
           ties or obligations under this Agreement without Good Reason (other
           than under Sections 6 and 7 hereof, which shall be governed by
           clause (i) above, and other than by reason of permanent disability
           or death) that is not corrected within 30 days of written notice
           thereof to the Executive by the Company, such notice to state with
           specificity the nature of the breach, failure or refusal; PROVIDED
           that if such breach, failure or refusal cannot reasonably be
           corrected within 30 days of written notice thereof, correction shall
           be commenced by the Executive within such period and may be
           corrected within a reasonable period thereafter; or
               (iv)  any substantiated, willful act by the Executive intended
           to result in substantial personal enrichment of the Executive at the
           expense of the Company or any of its affiliates or which has a
           material adverse impact on the business or reputation of the Company
           or any of its affiliates.

           (d)  WITHOUT CAUSE.  The Company shall have the right to terminate
      the Executive's employment under this Agreement without Cause and upon
      written notice, in which case the Executive's employment under this
      Agreement shall terminate on the date specified in such notice (except
      that the Executive shall continue to have the obligations provided for in
      Sections 6 and 7(a)) and the Company shall have no further obligations
      hereunder, except (i) to pay the Executive, promptly following such
      termination, an amount equal to (A) his Base Salary when it would
      otherwise be payable and (B) the annual bonus payable to the Executive
      under Section 3(b) prorated to the effective date of termination, (ii) to
      cause the Option to vest in full as of the date of termination and to
      remain exercisable until the end of the option period set forth in the
      Option, and (iii) to maintain coverage of the Executive in the Company's
      medical plan for a period of one (1) year after the date of termination,
      as such plan is in effect during such period for the benefit of the
      Company's senior executive officers, in lieu of any other compensation,
      payment or other benefits to which the Executive may otherwise be
      entitled under this Agreement.  There shall be no mitigation for any
      amounts payable by the Company pursuant to this Section 4(d).

           (e)  GOOD REASON.  The Executive shall have the right to terminate
      his employment under this Agreement for Good Reason upon at least three
      months' prior written notice thereof to the Company given within 30 days
      of the first occurrence of any event constituting Good Reason, in which
      case the Executive's employment under this Agreement shall terminate on
      the date specified in such notice.  In the event of any termination of
      employment by the Executive for Good Reason, the Executive shall have no
      further obligations under this Agreement other than the obligations
      provided for in Sections 6 and 7(a).  The failure by the Executive to
      give such written notice in such 30-day period shall preclude the
      Executive from terminating his employment for Good Reason with respect to
      such occurrence.  In the event of any termination of employment by the
      Executive for Good Reason, the Company shall have no further obligations
      hereunder, except (i) to pay the Executive, promptly following such
      termination, an amount equal to (A) his Base Salary when it would
      otherwise be payable and (B) the annual bonus payable to the Executive
      under Section 3(b) prorated to the effective date of termination, (ii) to
      cause the Option to vest in full as of the date of termination and to
      remain exercisable until the end of the option period set forth in the
      Option, and (iii) to maintain coverage of the Executive in the Company's
      medical plan for a period of one (1) year after the date of termination,
      as such plan is in effect during such period for the benefit of the
      Company's senior executive officers, in lieu of any other compensation,
      payment or other benefits to which the Executive may otherwise be
      entitled under this Agreement.   There shall be no mitigation for any
      amounts payable by the Company pursuant to this Section 4(e).  It is
      understood and agreed that, during the three-month period following the
      Executive's delivery of notice of termination for Good Reason to the
      Company, the Executive shall cooperate fully with the Company to effect
      the orderly transfer of the Executive's duties to another person or
      persons.  Notwithstanding anything to the contrary contained herein, upon
      receipt of the Executive's notice of termination for Good Reason, the
      Company shall have the right to cause the Executive's termination to
      become effective prior to the end of the three-month period or the date
      specified in the notice therefor by giving at least two business days'
      notice thereof to the Executive; PROVIDED that the Company shall continue
      to pay the Executive's Base Salary until the end of the third month after
      such notice is given and such amount shall not be offset against any
      other amounts payable under this Section 4(e).

      For purposes of this Agreement, "Good Reason" means:
                (i)  the assignment to the Executive of any duties
           inconsistent in any material respect with the Executive's positions
           (including status, offices, titles and reporting requirements),
           authority, duties or responsibilities as contemplated by Section 2
           of this Agreement; or
                (ii)  the termination of employment of the Executive without
           Cause or the occurrence of any of the circumstances constituting
           Good Reason under clause (i) of this definition after a Change in
           Control (as hereinafter defined).

      For purposes of this Agreement, a "Change in Control" means:

                the occurrence of any one of the following events:  (a) any
                person or other entity (other than any of the Company's
                subsidiaries), including any person as defined in Section
                13(d)(3) of the Exchange Act, becoming the beneficial owner,
                as defined in Rule 13d-3 of the Exchange Act, directly or
                indirectly, of more than fifty percent (50%) of the total
                combined voting power of all classes of capital stock of the
                Company ordinarily entitled to vote for the election of
                directors of the Company, (b) the sale of all or substantially
                all of the property or assets of the Company (other than a
                sale to any of the Company's subsidiaries), (c) the
                consolidation or merger of the Company with another
                corporation (other than with any of the Company's subsidiaries
                or in which the Company is the surviving corporation), the
                consummation of which would result in the occurrence of an
                event described in clause (a) above or (d) a change in the
                Board of Directors of the Company occurring with the result
                that the members of the Board of Directors of the Company on
                the date hereof (the "Incumbent Directors") no longer
                constitute a majority of such Board of Directors, provided
                that any person becoming a director whose election or
                nomination for election was supported by a majority of the
                Incumbent Directors shall be considered an Incumbent Director
                for purposes hereof.

      5.   RESIGNATION UPON TERMINATION.  Upon the termination of the
Executive's employment hereunder for any reason the Executive agrees that he
shall be deemed to have resigned from all offices and directorships held by
him in the Company or any of its subsidiaries immediately.

      6.  CONFIDENTIALITY; OWNERSHIP.  (a)  During the Term of Employment and
thereafter, the Executive shall keep secret and retain in strictest confidence
and not divulge disclose, discuss, copy or otherwise use or suffer to be used
in any manner, except in connection with the Business of the Company and the
businesses of any of its subsidiaries or affiliates, any Protected Information
in any Unauthorized manner or for any Unauthorized purpose (as such terms are
hereinafter defined
                (i)  "Protected Information" means trade secrets, confidential
           or proprietary information and all supplier and customer lists,
           market research, databases, computer programs and software,
           operating procedures, knowledge of the organization, products
           (including prices, costs, sales or content), machinery, contracts,
           financial information or measures, business plans, details of
           consultant contracts, new personnel acquisition plans, business
           acquisition plans, business relationships and other information
           owned, developed or possessed by the Company or its subsidiaries or
           affiliates, except as required in the course of performing duties
           hereunder; PROVIDED that Protected Information shall not include
           information (a) that is considered by law, custom or otherwise to be
           generally known in the industry of the Company; (b) developed by the
           Executive individually or jointly with others prior to the
           commencement of employment under Section 2; and (c) that becomes
           generally known to the public or the trade without violation of this
           Section 6.
                   (ii)  "Unauthorized" means:  (A) in contravention of the
           policies or procedures of the Company or any of its subsidiaries or
           affiliates; (B) otherwise inconsistent with the measures taken by
           the Company or any of its subsidiaries or affiliates to protect
           their interests in any Protected Information; (C) in contravention
           of any lawful instruction or directive, either written or oral, of
           an employee of the Company or any of its subsidiaries or affiliates
           empowered to issue such instruction or directive; or (D) in
           contravention of any duty existing under law or contract. 
           Notwithstanding anything to the contrary contained in this Section
           6, the Executive may disclose any Protected Information to the
           extent required by court order or decree or by the rules and
           regulations of a governmental agency or as otherwise required by
           law; PROVIDED that the Executive shall provide the Company with
           prompt notice of such required disclosure in advance thereof so that
           the Company may seek an appropriate protective order in respect of
           such required disclosure.

           (b)  The Executive acknowledges that all developments, including,
      without limitation, inventions, patentable or otherwise, discoveries,
      improvements, patents, trade secrets, designs, reports, computer
      software, flow charts and diagrams, procedures, data, documentation,
      ideas and writings and applications thereof relating to the Business or
      planned business of the Company or any of its subsidiaries or affiliates
      that, alone or jointly with others, the Executive may conceive, create,
      make, develop, reduce to practice or acquire during the Term of
      Employment (collectively, the "Developments") are works made for hire and
      shall remain the sole and exclusive property of the Company and the
      Executive hereby assigns to the Company all of his right, title and
      interest in and to all such Developments.  The Executive shall promptly
      and fully disclose all future material Developments to the Board of
      Directors of the Company and, at any time upon request and at the expense
      of the Company, shall execute, acknowledge and deliver to the Company all
      instruments that the Company shall prepare, give evidence and take all
      other actions that are necessary or desirable in the reasonable opinion
      of the Company to enable the Company to file and prosecute applications
      for and to acquire, maintain and enforce all letters patent, trademark
      registrations or copyrights covering the Developments in all countries in
      which the same are deemed necessary by the Company.  All memoranda,
      notes, lists, drawings, records, files, computer tapes, programs,
      software, source and programming narratives and other documentation (and
      all copies thereof) made or compiled by the Executive or made available
      to the Executive concerning the Developments or otherwise concerning the
      Business or planned business of the Company or any of its subsidiaries or
      affiliates shall be the property of the Company or such subsidiaries or
      affiliates and shall be delivered to the Company or such subsidiaries or
      affiliates promptly upon the expiration or termination of the Term of
      Employment.

           (c)  The provisions of this Section 6 shall, without any limitation
      as to time, survive the expiration or termination of the Executive's
      employment hereunder, irrespective of the reason for any termination.

      7.   COVENANT NOT TO COMPETE.  Subject to the last sentence of this 
Section 7, the Executive agrees that until May 31, 1999, the Executive shall
not, directly or indirectly, without the prior written consent of the Company:

           (a)  solicit, entice, persuade or induce any employee, consultant,
      agent or independent contractor of the Company or of any of its
      subsidiaries or affiliates to terminate his or her employment with the
      Company or such subsidiary or affiliate, to become employed by any
      person, firm or corporation other than the Company or such subsidiary or
      affiliate or approach any such employee, consultant, agent or independent
      contractor for any of the foregoing purposes, or authorize or assist in
      the taking of any such actions by any third party (for purposes of this
      Section 7(a), the terms "employee," "consultant," "agent" and
      "independent contractor" shall include any persons with such status at
      any time during the six months preceding any solicitation in question);
      or

           (b)  directly or indirectly engage, or participate, or make any
      financial investment in, or become employed by or render consulting,
      advisory or other services to or for any of the following business
      enterprises (or their respective successors-in-interest, including,
      without limitation, by change of name):  Kmart; Wal-Mart; Hills; Rose's;
      Target; Caldor; and Bradlees; PROVIDED that nothing in this Section 7(b)
      shall be construed to preclude the Executive from making any investments
      in the securities of any such business enterprise to the extent that such
      enterprise's securities are actively traded on a national securities
      exchange or in the over-the-counter market in the United States or on any
      foreign securities exchange and represent, at the time of acquisition,
      not more than 3% of the aggregate voting power of such business
      enterprise.

           Notwithstanding the foregoing, the Executive shall not be subject to
      the terms and provisions of paragraph (b) of this Section 7 in the case
      of a termination of employment of the Executive by the Company without
      Cause or by the Executive for Good Reason.

      8.   SPECIFIC PERFORMANCE.  The Executive acknowledges that the services
to be rendered by the Executive are of a special, unique and extraordinary
character and, in connection with such services, the Executive will have
access to confidential information vital to the Company's Business and the
businesses of its subsidiaries and affiliates.  By reason of this, the
Executive consents and agrees that if the Executive violates any of the
provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that money damages will not
provide adequate remedy to the Company and that the Company shall be entitled
to have Section 6 or 7 specifically enforced by any court having equity
jurisdiction.  Nothing contained herein shall be construed as prohibiting the
Company or any of its subsidiaries or affiliates from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Executive.

      9.   INDEMNIFICATION.  To the fullest extent permitted or required by the
laws of the State of Delaware, the Company shall indemnify and hold harmless
the Executive, in accordance with the terms of such laws, if the Executive is
made a party, or threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that the Executive is or was an
officer or director of the Company or any subsidiary or affiliate of the
Company, in which capacity the Executive is or was serving at the Company's
request and in furtherance of the Company's best interests, against expenses
(including 
reasonable attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding, which indemnification shall include the protection of the
applicable indemnification provisions of the Amended and Restated Certificate
of Incorporation and the Amended and Restated By-laws of the Company from time
to time in effect.

      10.  DEDUCTIONS AND WITHHOLDING; EXPENSES.  The Executive agrees that the
Company or its subsidiaries or affiliates, as applicable, shall 
withhold from any and all compensation paid to and required to be paid to the
Executive pursuant to this Agreement, all Federal, state, local and/or other
taxes which the Company determines are required to be withheld in accordance
with applicable statutes or regulations from time to time in effect and all
amounts required to be deducted in respect of the Executive's coverage under
applicable employee benefit plans.  For purposes of this Agreement and
calculations hereunder, all such deductions and withholdings shall be deemed
to have been paid to and received by the Executive.

      11.  ENTIRE AGREEMENT.  This Agreement embodies the entire agreement of
the parties with respect to the Executive's employment and supersedes any
other prior oral or written agreements, arrangements or understandings between
the Executive and the Company.  This Agreement may not be changed or
terminated orally but only by an agreement in writing signed by the parties
hereto.

      12.  WAIVER.  The waiver by the Company of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by him.  The waiver by the Executive of a breach of
any provision of this Agreement by the Company shall not operate or be
construed as a waiver of any subsequent breach by the Company.

      13.  GOVERNING LAW; JURISDICTION. (a)  This Agreement shall be subject
to, and governed by, the laws of the State of New York applicable to contracts
made and to be performed therein.

           (b)  Any action to enforce any of the provisions of this Agreement
      shall be brought in a court of the State of New York located in the
      Borough of Manhattan of the City of New York or in a Federal court
      located within the Southern District of New York.  The parties consent to
      the jurisdiction of such courts and to the service of process in any
      manner provided by New York law.  Each party irrevocably waives any
      objection which it may now or hereafter have to the laying of the venue
      of any such suit, action or proceeding brought in such court and any
      claim that such suit, action or proceeding brought in such court has been
      brought in an inconvenient forum and agrees that service of process in
      accordance with the foregoing sentences shall be deemed in every respect
      effective and valid personal service of process upon such party.

      14.   ASSIGNABILITY.  The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest therein.  Any such attempted delegation or disposi-
tion shall be null and void and without effect.  The Company and the Executive
agree that this Agreement and all of the Company's rights and obligations
hereunder may be assigned or transferred by the Company to and shall be
assumed by and binding upon any successor to the Company.  The term
"successor" means, with respect to the Company or any of its subsidiaries, any
corporation or other business entity which, by merger, consolidation, purchase
of the assets or otherwise, including after a Change in Control, acquires all
or a material part of the assets of the Company.  

      15.  SEVERABILITY.  If any provision of this Agreement or any part
thereof, including,  without limitation, Sections 6 and 7, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.  

      If any court construes any of the provisions of Section 6 or 7, or any
part thereof, to be unreasonable because of the duration of such provision or
the geographic scope thereof, such court may reduce the duration or restrict
or redefine the geographic scope of such provision and enforce such provision
as so reduced, restricted or redefined.

      16.  NOTICES.  All notices to the Company or the Executive permitted or
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:


     The Company:
     
      Ames Department Stores, Inc.
      2418 Main Street
      Rocky Hill, Connecticut  06067
      Tel:  (860) 257-2000
      Attn:  Chairman of the Board of Directors

     with a copy to:

      Weil, Gotshal & Manges LLP
      767 Fifth Avenue
      New York, New York  10153
      Tel:  (212) 310-8000
      Fax:  (212) 310-8007
      Attn:  Jeffrey J. Weinberg, Esq.

     The Executive:

      Joseph Ettore

      Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party.  Any such
notice shall be deemed given, if delivered personally, upon receipt; if
telecopied, when telecopied; if sent by courier service providing for next-day
delivery, the next business day following deposit with such courier service;
and if sent by certified or registered mail, 3 days after deposit (postage
prepaid) with the U.S. mail service.

      17.  NO CONFLICTS.  The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Agreement and any
other agreement to be delivered pursuant to this Agreement will not (i)
require the consent, approval or action of any other person or (ii) violate,
conflict with or result in the breach of any of the terms of, or constitute
(or with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive is
bound or subject.  The Executive hereby agrees to indemnify and hold harmless
the Company, its directors, officers, employees, agents, representatives and
affiliates (and such affiliates' directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or claims
(including, interest, penalties and reasonable attorneys' fees, disbursements
and related charges) based upon or arising out of the Executive's breach of
any of the foregoing representations and warranties.

      18.  EFFECTIVE DATE.  This Agreement shall be effective as of the date
first written above.

      19.  PARAGRAPH HEADINGS.  The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

      20.  COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.

      21.  EXPENSES.  All reasonable attorneys' fees and expenses incurred by
the Executive in connection with the negotiation, execution and delivery of
this Agreement up to $7,000 shall be borne by the Company.

      22.  ATTORNEYS' FEES.  In the event any litigation or controversy arises
out of or in connection with this Agreement between the parties hereto, the
non-prevailing party in such litigation or controversy shall be responsible
for the attorneys' fees, expenses and suit costs of both parties, including
those associated with any applicable or post-judgment collection proceedings. 

      23.  OFFICERS' AND DIRECTORS' INSURANCE.  During the Term of Employment,
the Company shall maintain customary directors' and officers' liability
insurance if such insurance is available to the Company at reasonable costs.





      IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.



                    AMES DEPARTMENT STORES, INC.


                    By /s/ Paul M. Buxbaum         
                       -------------------- 
                        Paul M. Buxbaum
                        Chairman of the Board
                        of Directors


                       /s/ Joseph Ettore             
                       ------------------
                       Joseph Ettore




                                                                  Exhibit 10(h)

EMPLOYMENT AGREEMENT

      Agreement, dated as of August 1, 1996, between AMES DEPARTMENT STORES,
INC., a Delaware corporation (the "Company"), and DENIS LEMIRE (the
"Executive").

                     W I T N E S S E T H :


      WHEREAS, the Company is engaged in the business of operating self-service
retail discount department stores (the "Business"); and

      WHEREAS, the Company desires to retain the services of the Executive in
the capacities of Executive Vice President-Merchandising of the Company, and
the Executive desires to provide such services in such capacities to the
Company, on the terms and subject to the conditions set forth in this Agree-
ment;

      NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:

      1.   EMPLOYMENT AND TERM.  The Company hereby employs the Executive, and
the Executive hereby accepts employment by the Company, in the capacities and
on the terms and subject to the conditions set forth herein, for the period
commencing on August 1, 1996 and ending on July 31, 1999, unless terminated
earlier as provided herein (the "Term of Employment").  

      2.   DUTIES.  During the Term of Employment, the Executive shall serve as
the Company's Executive Vice President-Merchandising.  As such officer, the
Executive shall report to the Company's President and Chief Executive Officer
and shall have such powers, duties and responsibilities with respect to the
business of the Company as are customary to his offices and positions or as
the President and Chief Executive Officer or the Board of Directors of the
Company may reasonably request consistent therewith.

      The Executive shall serve the Company faithfully and to the best of his
ability in such capacities, devoting substantially all of his business time,
attention,knowledge, energy and skills to such employment.

      The Executive shall reside during the business week and be based at the
Company's offices in Rocky Hill, Connecticut or in the same geographic region,
but the Executive shall travel as reasonably required in connection with the
performance of his duties hereunder.  If elected, the Executive also shall
serve during any part of the Term of Employment as any other officer of the
Company or as an officer or director of any of the Company's subsidiaries
without any additional compensation other than as specified in this Agreement.

      3.   COMPENSATION AND BENEFITS.  As full and complete compensation to the
Executive for his execution and delivery of this Agreement and performance of
the services required hereunder, the Company shall pay, grant or provide the
Executive, and the Executive agrees to accept, the following salary and other
compensation and benefits (all such amounts to be calculated in United States
dollars):

           (a)  a base salary, payable in accordance with the Company's
      standard payroll practices for senior executive officers, of (i) $350,000
      for the period from August 1, 1996 through and including July 31, 1997,
      (ii) $375,000 for the period from August 1, 1997 through and including
      July 31, 1998, and (iii) $400,000 for the period from August 1, 1998
      through and including July 31, 1999 (with respect to each period, the
      "Base Salary" for such period); 

           (b)  an annual bonus, payable with respect to each full fiscal year
      of the Company during the Term of Employment, or pro rata portion
      thereof, in each case based upon the performance of the Company for each
      applicable full fiscal year of the Company and otherwise in accordance
      with the Company's Annual Incentive Compensation Plan, in effect from
      time to time, up to 40% of Executive's Base Salary for each such fiscal
      year;

           (c)  a one-time, lump-sum cash payment of $75,000, which shall be
      payable at the end of the Term of Employment, unless, prior to such date,
      the Executive terminates his employment or his employment is terminated
      by the Company for Cause, in which case no payments will be made pursuant
      to this paragraph (c);

           (d)  an option (the "Option") to acquire 50,000 shares (the "Option
      Shares") of common stock, par value $.01 per share, of the Company (the
      "Common Stock") of which 16,666 shares, 16,667 shares and 16,667 shares
      are exercisable on August 1st of 1997, 1998 and 1999, respectively, at a
      price of $2.32 per share in accordance with the Company's 1994 Management
      Stock Option Plan and as more particularly described in Schedule 3(d)
      hereto;

           (e)  the right to participate in any savings and stock option plans
      or programs and in any medical, dental, disability, retirement,
      insurance, savings, vacation, holiday, paid sick leave or other plans as
      in effect from time to time generally available for the benefit of the
      Company's senior executive officers;

           (f)  the right to participate in any long-term incentive program as
      in effect from time to time and generally available for the benefit of
      senior executive officers implemented by the Company or any of its
      subsidiaries;
 
           (g)  an annual automobile allowance in an amount and payable in
      accordance with the policies and procedures of the Company as in effect
      from time to time for senior executive officers, but not less than
      $15,200 per year; 

           (h)  prompt reimbursement for all reasonable business-related
      expenses incurred by the Executive, in accordance with the policies and
      procedures of the Company as in effect from time to time for senior
      executive officers;
 
           (i)  three (3) weeks paid vacation per year in accordance with the
      policies and procedures of the Company as in effect from time to time for
      senior executive officers; and

           (j)  a living allowance of $18,000 per year during the Term of
      Employment, payable in equal monthly installments of $1,500.


      4.   TERMINATION.
           -----------

           (a)  PERMANENT DISABILITY.  In the event of the permanent disability
      (as hereinafter defined) of the Executive during the Term of Employment,
      the Company shall have the right, upon written notice to the Executive,
      to terminate the Executive's employment hereunder, effective upon the
      giving of such notice (or such later date as shall be specified in such
      notice).  Upon such termination, the Company shall have no further
      obligations hereunder, except to pay the Executive any amounts or provide
      the Executive any benefits to which the Executive may otherwise have been
      entitled under the Company's permanent disability insurance referred to
      in Section 3(e), and the Executive shall continue to have the obligations
      provided for in Sections 6 and 7.  For purposes of this paragraph,
      "permanent disability" means any disability as defined under the
      Company's disability insurance policy referred to Section 3(e). 

           (b)  DEATH.  In the event of the death of the Executive during the
      Term of Employment, this Agreement shall automatically terminate and the
      Company shall have no further obligations hereunder, except to pay the
      Executive's beneficiary or legal representative any amounts or provide
      any benefits to which the Executive may otherwise have been entitled
      prorated to the date of death.

           (c)  CAUSE.  The Company shall have the right, upon written notice
      to the Executive, to terminate the Executive's employment under this
      Agreement for Cause (as hereinafter defined), effective upon the giving
      of such notice (or such later date as shall be specified in such notice),
      and the Company shall have no further obligations hereunder, except to
      pay the Executive any amounts or provide the Executive any benefits to
      which the Executive may otherwise have been entitled prorated to the
      effective date of termination.  


     For purposes of this Agreement, "Cause" means:

                (i)  fraud or embezzlement on the part of the Executive or
           material breach by the Executive of any of his obligations under
           this Agreement; 
                (ii)  Executive shall have committed any act of gross
           negligence in the performance of his duties or obligations hereunder
           or any material act of malfeasance, disloyalty, dishonesty or breach
           of trust against the Company;   
                (iii)  conviction of the Executive for any felony;
                (iv)  a material breach of, or the willful failure or refusal
           by the Executive to perform and discharge, his duties, responsibili-
           ties or obligations under this Agreement (other than under Sections
           6 and 7 hereof, which shall be governed by clause (i) above, and
           other than by reason of permanent disability or death) that is not
           corrected within 30 days of written notice thereof to the Executive
           by the Company, such notice to state with specificity the nature of
           the breach, failure or refusal; PROVIDED that if such breach,
           failure or refusal cannot reasonably be corrected within 30 days of
           written notice thereof, correction shall be commenced by the
           Executive within such period and may be corrected within a
           reasonable period thereafter; or

             (v)  any substantiated, willful act by the Executive intended
             to result in substantial personal enrichment of the Executive at 
             the expense of the Company or any of its affiliates or which has a
             material adverse impact on the business or reputation of the 
             Company or any of its affiliates.

           (d)  WITHOUT CAUSE.  The Company shall have the right to terminate
      the Executive's employment under this Agreement without Cause and upon
      written notice, in which case the Executive's employment under this
      Agreement shall terminate on the date specified in such notice (except
      that the Executive shall continue to have the obligations provided for in
      Sections 6 and 7(a)) and the Company shall have no further obligations
      hereunder, except (i) to pay the Executive, promptly following such
      termination, an amount equal to (A) his Base Salary when it would
      otherwise be payable and (B) the annual bonus payable to the Executive
      under Section 3(b) prorated to the effective date of termination, (ii) to
      cause the Option to vest in full as of the date of termination and to
      remain exercisable until the end of the option period set forth in the
      Option, and (iii) to maintain coverage of the Executive in the Company's
      medical plan for a period of one (1) year after the date of termination,
      as such plan is in effect during such period for the benefit of the
      Company's senior executive officers, in lieu of any other compensation,
      payment or other benefits to which the Executive may otherwise be
      entitled under this Agreement.  There shall be no mitigation for any
      amounts payable by the Company pursuant to this Section 4(d).

      5.   RESIGNATION UPON TERMINATION.  Upon the termination of the
Executive's employment hereunder for any reason the Executive agrees that he
shall be deemed to have resigned from all offices and directorships held by
him in the Company or any of its subsidiaries immediately.

      6.   CONFIDENTIALITY; OWNERSHIP.  (a)  During the Term of Employment and
thereafter, the Executive shall keep secret and retain in strictest confidence
and not divulge disclose, discuss, copy or otherwise use or suffer to be used
in any manner, except in connection with the Business of the Company and the
businesses of any of its subsidiaries or affiliates, any Protected Information
in any Unauthorized manner or for any Unauthorized purpose (as such terms are
hereinafter defined).

                (i)  "Protected Information" means trade secrets, confidential
           or proprietary information and all supplier and customer lists,
           market research, databases, computer programs and software,
           operating procedures, knowledge of the organization, products
           (including prices, costs, sales or content), machinery, contracts,
           financial information or measures, business plans, details of
           consultant contracts, new personnel acquisition plans, business
           acquisition plans, business relationships and other information
           owned, developed or possessed by the Company or its subsidiaries or
           affiliates, except as required in the course of performing duties
           hereunder; PROVIDED that Protected Information shall not include
           information (a) that is considered by law, custom or otherwise to be
           generally known in the industry of the Company; (b) developed by the
           Executive individually or jointly with others prior to the
           commencement of employment under Section 2; and (c) that becomes
           generally known to the public or the trade without violation of this
           Section 6.
                (ii)  "Unauthorized" means:  (A) in contravention of the
           policies or procedures of the Company or any of its subsidiaries or
           affiliates; (B) otherwise inconsistent with the measures taken by
           the Company or any of its subsidiaries or affiliates to protect
           their interests in any Protected Information; (C) in contravention
           of any lawful instruction or directive, either written or oral, of
           an employee of the Company or any of its subsidiaries or affiliates
           empowered to issue such instruction or directive; or (D) in
           contravention of any duty existing under law or contract. 
           Notwithstanding anything to the contrary contained in this Section
           6, the Executive may disclose any Protected Information to the
           extent required by court order or decree or by the rules and
           regulations of a governmental agency or as otherwise required by
           law; PROVIDED that the Executive shall provide the Company with
           prompt notice of such required disclosure in advance thereof so that
           the Company may seek an appropriate protective order in respect of
           such required disclosure.

           (b)  The Executive acknowledges that all developments, including,
      without limitation, inventions, patentable or otherwise, discoveries,
      improvements, patents, trade secrets, designs, reports, computer
      software, flow charts and diagrams, procedures, data, documentation,
      ideas and writings and applications thereof relating to the Business or
      planned business of the Company or any of its subsidiaries or affiliates
      that, alone or jointly with others, the Executive may conceive, create,
      make, develop, reduce to practice or acquire during the Term of 
      Employment (collectively, the "Developments") are works made for hire and
      shall remain the sole and exclusive property of the Company and the
      Executive hereby assigns to the Company all of his right, title and
      interest in and to all such Developments.  The Executive shall promptly
      and fully disclose all future material Developments to the Board of
      Directors of the Company and, at any time upon request and at the expense
      of the Company, shall execute, acknowledge and deliver to the Company all
      instruments that the Company shall prepare, give evidence and take all
      other actions that are necessary or desirable in the reasonable opinion
      of the Company to enable the Company to file and prosecute applications
      for and to acquire, maintain and enforce all letters patent, trademark
      registrations or copyrights covering the Developments in all countries in
      which the same are deemed necessary by the Company.  All memoranda,
      notes, lists, drawings, records, files, computer tapes, programs,
      software, source and programming narratives and other documentation (and
      all copies thereof) made or compiled by the Executive or made available
      to the Executive concerning the Developments or otherwise concerning the
      Business or planned business of the Company or any of its subsidiaries or
      affiliates shall be the property of the Company or such subsidiaries or
      affiliates and shall be delivered to the Company or such subsidiaries or
      affiliates promptly upon the expiration or termination of the Term of
      Employment.

           (c)  The provisions of this Section 6 shall, without any limitation
      as to time, survive the expiration or termination of the Executive's
      employment hereunder, irrespective of the reason for any termination.

      7.   COVENANT NOT TO COMPETE.  Subject to the last sentence of this
Section 7, the Executive agrees that until July 31, 1999 the Executive shall
not, directly or indirectly, without the prior written consent of the Company:

           (a)  solicit, entice, persuade or induce any employee, consultant,
      agent or independent contractor of the Company or of any of its
      subsidiaries or affiliates to terminate his or her employment with the
      Company or such subsidiary or affiliate, to become employed by any
      person, firm or corporation other than the Company or such subsidiary or
      affiliate or approach any such employee, consultant, agent or independent
      contractor for any of the foregoing purposes, or authorize or assist in
      the taking of any such actions by any third party (for purposes of this
      Section 7(a), the terms "employee," "consultant," "agent" and
      "independent contractor" shall include any persons with such status at
      any time during the six months preceding any solicitation in question);
      or

           (b)  directly or indirectly engage, or participate, or make any
      financial investment in, or become employed by or render consulting,
      advisory or other services to or for any of the following business
      enterprises (or their respective successors-in-interest, including,
      without limitation, by change of name):  Kmart; Wal-Mart; Hills; Rose's;
      Target; Caldor; and Bradlees; PROVIDED that nothing in this Section 7(b)
      shall be construed to preclude the Executive from making any investments
      in the securities of any such business enterprise to the extent that such
      enterprise's securities are actively traded on a national securities
      exchange or in the over-the-counter market in the United States or on any
      foreign securities exchange and represent, at the time of acquisition,
      not more than 3% of the aggregate voting power of such business
      enterprise.  Notwithstanding the foregoing, the Executive shall not be
      subject to the terms and provisions of paragraph (b) of this Section 7 in
      the case of a termination of employment of the Executive by the Company
      without Cause.

      8.   SPECIFIC PERFORMANCE.  The Executive acknowledges that the services
to be rendered by the Executive are of a special, unique and extraordinary
character and, in connection with such services, the Executive will have
access to confidential information vital to the Company's Business and the
businesses of its subsidiaries and affiliates.  By reason of this, the
Executive consents and agrees that if the Executive violates any of the
provisions of Section 6 or 7 hereof, the Company and its subsidiaries and
affiliates would sustain irreparable injury and that money damages will not
provide adequate remedy to the Company and that the Company shall be entitled
to have Section 6 or 7 specifically enforced by any court having equity
jurisdiction.  Nothing contained herein shall be construed as prohibiting the
Company or any of its subsidiaries or affiliates from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from the Executive.

      9.   INDEMNIFICATION.  To the fullest extent permitted or required by the
laws of the State of Delaware, the Company shall indemnify and hold harmless
the Executive, in accordance with the terms of such laws, if the Executive is
made a party, or threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that the Executive is or was an
officer or director of the Company or any subsidiary or affiliate of the
Company, in which capacity the Executive is or was serving at the Company's
request and in furtherance of the Company's best interests, against expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, which indemnification shall include the protection
of the applicable indemnification provisions of the Amended and Restated
Certificate of Incorporation and the Amended and Restated By-laws of the
Company from time to time in effect.

      10.  DEDUCTIONS AND WITHHOLDING; EXPENSES.  The Executive agrees that the
Company or its subsidiaries or affiliates, as applicable, shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Agreement, all Federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with
applicable statutes or regulations from time to time in effect and all amounts
required to be deducted in respect of the Executive's coverage under
applicable employee benefit plans.  For purposes of this Agreement and
calculations hereunder, all such deductions and withholdings shall be deemed
to have been paid to and received by the Executive.

      11.  ENTIRE AGREEMENT.  This Agreement embodies the entire agreement of
the parties with respect to the Executive's employment and supersedes any
other prior oral or written agreements, arrangements or understandings between
the Executive and the Company.  This Agreement may not be changed or
terminated orally but only by an agreement in writing signed by the parties
hereto.

      12.  WAIVER.  The waiver by the Company of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by him.  The waiver by the Executive of a breach of
any provision of this Agreement by the Company shall not operate or be
construed as a waiver of any subsequent breach by the Company.

      13.  GOVERNING LAW; JURISDICTION. (a)  This Agreement shall be subject
to, and governed by, the laws of the State of New York applicable to contracts
made and to be performed therein.

           (b)  Any action to enforce any of the provisions of this Agreement
      shall be brought in a court of the State of New York located in the
      Borough of Manhattan of the City of New York or in a Federal court
      located within the Southern District of New York.  The parties consent to
      the jurisdiction of such courts and to the service of process in any
      manner provided by New York law.  Each party irrevocably waives any
      objection which it may now or hereafter have to the laying of the venue
      of any such suit, action or proceeding brought in such court and any
      claim that such suit, action or proceeding brought in such court has been
      brought in an inconvenient forum and agrees that service of process in
      accordance with the foregoing sentences shall be deemed in every respect
      effective and valid personal service of process upon such party.

      14.   ASSIGNABILITY.  The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries in
connection with any of the benefits payable to the Executive hereunder, the
Executive may not, without the Company's written consent thereto, assign,
transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any interest therein.  Any such attempted delegation or disposi-
tion shall be null and void and without effect.  The Company and the Executive
agree that this Agreement and all of the Company's rights and obligations
hereunder may be assigned or transferred by the Company to and shall be
assumed by and binding upon any successor to the Company.  The term
"successor" means, with respect to the Company or any of its subsidiaries, any
corporation or other business entity which, by merger, consolidation, purchase
of the assets or otherwise, including after a Change in Control, acquires all
or a material part of the assets of the Company.  

      15.  SEVERABILITY.  If any provision of this Agreement or any part
thereof, including,  without limitation, Sections 6 and 7, as applied to
either party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way affect any
other provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part thereof,
or the validity or enforceability of this Agreement.  

      If any court construes any of the provisions of Section 6 or 7, or any
part thereof, to be unreasonable because of the duration of such provision or
the geographic scope thereof, such court may reduce the duration or restrict
or redefine the geographic scope of such provision and enforce such provision
as so reduced, restricted or redefined.

      16.  NOTICES.  All notices to the Company or the Executive permitted or
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail, return receipt requested, to the following
addresses:

      The Company:

           Ames Department Stores, Inc.
           2418 Main Street
           Rocky Hill, Connecticut  06067
           Tel:  (860) 257-2000
           Attn:  Chairman of the Board of Directors

      with a copy to:

           Weil, Gotshal & Manges LLP
           767 Fifth Avenue
           New York, New York  10153
           Tel:  (212) 310-8000
           Fax:  (212) 310-8007
           Attn:  Jeffrey J. Weinberg, Esq.

      The Executive:


      Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party.  Any such
notice shall be deemed given, if delivered personally, upon delivery; if
telecopied, when telecopied; if sent by courier service providing for next-day
delivery, the next business day following deposit with such courier service;
and if sent by certified or registered mail, 3 days after deposit (postage
prepaid) with the U.S. mail service.

      17.  NO CONFLICTS.  The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Agreement and any
other agreement to be delivered pursuant to this Agreement will not (i)
require the consent, approval or action of any other person or (ii) violate,
conflict with or result in the breach of any of the terms of, or constitute
(or with notice or lapse of time or both, constitute) a default under, any
agreement, arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive is
bound or subject.  The Executive hereby agrees to indemnify and hold harmless
the Company, its directors, officers, employees, agents, representatives and
affiliates (and such affiliates' directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or claims
(including, interest, penalties and reasonable attorneys' fees, disbursements
and related charges) based upon or arising out of the Executive's breach of
any of the foregoing representations and warranties.

      18.  EFFECTIVE DATE.  This Agreement shall be effective as of the date
first written above.

      19.  PARAGRAPH HEADINGS.  The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

      20.  COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument.

      21.  Expenses.  All attorneys' fees and expenses incurred by the
Executive in connection with the negotiation, execution and delivery of this
Agreement shall be borne by the Executive.

      22.  ATTORNEYS' FEES.  In the event any litigation or controversy arises
out of or in connection with this Agreement between the parties hereto, the
non-prevailing party in such litigation or controversy shall be responsible
for the attorneys' fees, expenses and suit costs of both parties, including
those associated with any applicable or post-judgment collection proceedings. 

      23.  OFFICERS' AND DIRECTORS' INSURANCE.  During the Term of Employment,
the Company shall maintain customary directors' and officers' liability
insurance if such insurance is available to the Company at reasonable costs.




      IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.



                    AMES DEPARTMENT STORES, INC.


                    By  /s/ Joseph Ettore            
                        ---------------------------
                        Joseph Ettore
                        President and Chief Executive
                        Officer


                       /s/ Denis Lemire          
                       ----------------------------
                       Denis Lemire
<PAGE>
SCHEDULE 3(d)
 -------------
                                                                               
OPTION TERMS
------------


EXPIRATION DATE:  Ten years from the date of issuance thereof (the "Expiration
Date"), unless terminated earlier as provided below (the "Option Term").

EXERCISABILITY:  Subject to the provisions on termination below, each Option
shall be exercisable on a cumulative basis during the relevant Option Term.

In no event may any Option be exercised for less than one hundred Option
Shares (unless the number being purchased is the total balance).

TERMINATION:  If the Executive's employment is terminated prior to the
Expiration Date, each Option shall, to the extent not theretofore exercised,
terminate and become null and void, except to the extent described below;
PROVIDED that none of the events described below shall extend the period of
exercisability of each Option beyond the Expiration Date:

(a)  if the Executive dies while employed by the Company and its subsidiaries
or during either the thirty (30) day or three (3) month period, whichever is
applicable, specified in clauses (b), (c) and (d) below, each Option shall be
exercisable for all Option Shares that the Executive is entitled to purchase
at the time of the Executive's death, at any time up to and including one (1)
year after his death, by the Executive's legatee, distributee, guardian or
legal or personal representative;

(b)  if the Executive's employment with the Company and its subsidiaries is
terminated by reason of "permanent disability" (as defined in the Employment
Agreement), each Option shall be exercisable for all Option Shares that the
Executive is entitled to purchase at the effective date of termination of
employment by reason of permanent disability, at any time up to and including
thirty (30) days after such effective date; 

(c)  if the Executive's employment with the Company and its subsidiaries is
terminated by reason of voluntary retirement after retirement age in
accordance with the Company's practices or by reason of the expiration of the
Employment Agreement, each Option shall be exercisable for all remaining
Option Shares, whether or not then exercisable for such Option Shares, at any
time up to and including three (3) months after the effective date of
termination of employment; 

(d)  if the Executive's employment with the Company and its subsidiaries is
terminated by the Company without Cause (as defined in the Employment
Agreement), each Option shall, to the extent not theretofore exercised,
immediately become exercisable and shall remain exercisable until expiration
of the Option Term; and 

(e)  if the Executive's employment with the Company and its subsidiaries is
terminated for any reason other than as provided in clauses (a), (b), (c) or
(d) above, each Option shall be exercisable for all Option Shares that the
Executive is entitled to purchase at the effective date of termination of
employment, at any time up to and including thirty (30) days after the
effective date of such termination.

OTHER RESTRICTIONS:  

In order to comply with applicable securities laws, the Option Shares, when
issued, will bear appropriate legends giving notice of applicable restrictions
on transfer under such laws.

NON-TRANSFERABLE:  

Each Option is not transferable, except by will or the laws of descent and
distribution, and may not be pledged or hypothecated in any manner.
<PAGE>
<PAGE>
<TABLE>
                                                                                                   Exhibit 11
                                      AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                                  SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED
                                             NET EARNINGS PER SHARE   
                                     (Amounts in thousands, except per share amounts)

<CAPTION>


                                                                          Fiscal        Fiscal        Fiscal
                                                                          Year          Year          Year
                                                                          Ended         Ended         Ended
                                                                         January 25,   January 27,   January 28,
                                                                            1997          1996          1995
                                                                         -----------   -----------   -----------
<S>                                                                       <C>          <C>           <C>
Income (loss) before extraordinary item                                      $18,655      ($1,618)       $18,543            
Extraordinary loss, net                                                       (1,354)         -           (1,517) 
                                                                          -----------   ----------   ------------
     Primary and fully diluted net income (loss)                             $17,301      ($1,618)       $17,026   
                                                                          ===========   ==========   ============ 
For Primary Earnings Per Share
Weighted average number of common shares outstanding
    during the period                                                         20,467       20,127         20,127
Add: Common stock equivalents represented by
     - Series B Warrants                                                         (a)          (b)            (a)  
     - Series C Warrants                                                       1,191          (b)          1,372  
     - Options under 1994 Management Stock Option Plan                           147          (b)            (a)     
     - Options under 1995 Non-Employee Director Stock 
          Option Plan                                                              7          (b)             -  
                                                                           ----------  -----------    -----------
Weighted average number of common and common equivalent shares
used in the calculation of primary earnings per share                         21,812       20,127         21,499
                                                                           ==========  ===========    =========== 
Primary earnings per share:
Primary income (loss) per share befor extraordinary item                       $0.85       ($0.08)        $0.86  
Extraordinary loss                                                             (0.06)         -           (0.07)    
                                                                           ----------  -----------    -----------
  Primary net income (loss) per share                                          $0.79       ($0.08)        $0.79
                                                                           ==========  ===========    ===========

For Fully Diluted Earnings Per Share:
Weighted average number of common shares outstanding
    during the period                                                         20,467       20,127         20,127               
Add: Common stock equivalent shares represented by                      
    - Series B Warrants                                                           14          (b)            (a)
    - Series C Warrants                                                        1,646          (b)          1,372 
    - Options under 1994 Management Stock Option Plan                            559          (b)            (a)  
    - Options under 1995 Non-Employee Director Stock
        Option Plan                                                               29          (b)             - 
                                                                           ----------  -----------    ----------- 
Weighted average number of common and common equivalent shares                  
used in the calculation of fully diluted earnings per share                   22,715       20,127         21,499     
                                                                           ==========  ===========    ===========  
Fully diluted earnings per share:
Fully diluted net income (loss) per share before extraordinary item            $0.82       ($0.08)         $0.86
Extraordinary loss                                                             (0.06)          -           (0.07)  
                                                                           ----------  -----------    ------------ 
  Fully diluted net income (loss) per share                                    $0.76       ($0.08)         $0.79  
                                                                           ==========  ============   ============


<FN>

(a) These options/warrants were not condsidered common stock equivalent shares because
    the exercise price exceeded the market price of the common stock for all or
    substantially all of the period.
(b) Common stock equivalents have not been included because the effect would be 
    anti-dilutive.

</TABLE>
















                                                               EXHIBIT 22
                                                                           

                AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                       SUBSIDIARIES OF THE REGISTRANT




        NAME                                 STATE OF INCORPORATION
-------------------------------             --------------------------

Ames Transportation Systems, Inc.                    Delaware

Ames Realty II, Inc.                                 Delaware

AMD, Inc.                                            Delaware

      Zayre New England Corp. *                      Delaware
         a subsidiary of AMD, Inc.

      Zayre Central Corp.*                           Delaware
         a subsidiary of AMD, Inc.




*Holds a 50% interest in Ames Stores, a partnership.