<PAGE>   1
                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549
(Mark One)

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

For the quarterly period ended May 2, 1998

                                       OR

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

For the transition period from ___________________ to _____________________

Commission file number  00019774

                          United Retail Group, Inc.
             (Exact name of registrant as specified in its charter)

            Delaware                                             51 0303670
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

365 West Passaic Street, Rochelle Park, NJ                   07662
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code  (201)  845-0880

_____________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)

<PAGE>   2
         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 (the "1934 Act") 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 ___


                APPLICABLE ONLY TO ISSUERS 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 1934 Act
subsequent to the distribution of securities under a plan confirmed by a court.

YES ____   NO ____

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

         As of May 2, 1998, 13,085,388 shares of the registrant's common stock,
$.001 par value per share, were outstanding.

<PAGE>   3

ITEM 1. FINANCIAL STATEMENTS          

                   UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 MAY 2,         JANUARY 31,       MAY 3,
                                                                                 1998             1998             1997
                                                                               ---------        ---------        ---------
                     ASSETS                                                   (UNAUDITED)                        (UNAUDITED)
<S>                                                                          <C>              <C>              <C>      
Current assets:
   Cash and cash equivalents                                                   $  31,221        $  31,122        $  11,997
   Income taxes receivable                                                            --               --              231
   Accounts receivable                                                             1,625              571            1,627
   Inventory                                                                      48,326           38,003           46,638
   Prepaid rents                                                                   4,007            3,999            4,438
   Other prepaid expenses                                                          2,757            2,607            2,720
                                                                               ---------        ---------        ---------

    Total current assets                                                          87,936           76,302           67,651

Property and equipment, net                                                       47,221           48,231           53,088
Deferred charges and other intangible assets,
  net of accumulated amortization of $1,878, $1,784
  and $1,522                                                                       6,964            7,058            6,971
Deferred income taxes                                                                971            2,685               --
Other assets                                                                         375              451              711
                                                                               ---------        ---------        ---------
    Total assets                                                               $ 143,467        $ 134,727        $ 128,421
                                                                               =========        =========        =========

                  LIABILITIES
Current liabilities:
  Current portion of distribution center financing                             $   1,072        $   1,052        $     992
  Accounts payable, trade                                                         17,182           12,596           16,474
  Accrued expenses                                                                20,808           18,779           13,335
                                                                               ---------        ---------        ---------
    Total current liabilities                                                     39,062           32,427           30,801


Distribution center financing                                                     10,033           10,308           11,104
Other long-term liabilities                                                        6,749            6,948            7,892
                                                                               ---------        ---------        ---------
    Total liabilities                                                             55,844           49,683           49,797
                                                                               ---------        ---------        ---------

             STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized
   1,000,000; none issued
Common stock, $.001 par value; authorized 30,000,000; issued 13,759,100,
   12,680,375, 12,680,375; outstanding 13,085,388,
   12,190,375, 12,190,375                                                             14               13               13
Additional paid-in capital                                                        77,345           78,259           78,259
Retained earnings                                                                 11,924            7,354              934
Treasury stock (673,712, 490,000, 490,000
   shares) at cost                                                                (1,660)            (582)            (582)
                                                                               ---------        ---------        ---------
    Total stockholders' equity                                                    87,623           85,044           78,624
                                                                               ---------        ---------        ---------
    Total liabilities and stockholders' equity                                 $ 143,467        $ 134,727        $ 128,421
                                                                               =========        =========        =========
</TABLE>


The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>   4
                   UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                              THIRTEEN WEEKS ENDED
                                        --------------------------------

                                           MAY 2,              MAY 3,
                                            1998                1997
                                        ------------        ------------
<S>                                     <C>                 <C>         
Net sales                               $     94,943        $     87,022

Cost of goods sold, including
  buying and occupancy costs                  67,823              68,815
                                        ------------        ------------

   Gross profit                               27,120              18,207

General, administrative and
  store operating expenses                    19,907              19,680
                                        ------------        ------------

   Operating income (loss)                     7,213              (1,473)

Interest (income) expense, net                  (140)                102
                                        ------------        ------------

Income (loss) before income taxes              7,353              (1,575)

Provision for income taxes                     2,783                  14
                                        ------------        ------------

   Net income (loss)                    $      4,570        $     (1,589)
                                        ============        ============

Net income (loss)  per share
  Basic                                 $       0.35        $      (0.13)
                                        ============        ============
  Diluted                               $       0.34        $      (0.13)
                                        ============        ============

Weighted average number of
   shares outstanding
     Basic                                12,957,041          12,190,375
     Common stock equivalents
        (stock options)                      537,045              --
                                        ------------        ------------
     Diluted                              13,494,086          12,190,375
                                        ============        ============
</TABLE>


The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>   5
                   UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                    THIRTEEN WEEKS ENDED
                                                                  ------------------------
                                                                   MAY 2,          MAY 3,
                                                                    1998            1997
                                                                  --------        --------
<S>                                                               <C>             <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                             $  4,570        $ (1,589)
Adjustments to reconcile net income (loss) to net cash
  provided from (used in) operating activities:
    Depreciation and amortization of property and equipment          1,907           2,325
    Amortization of deferred charges and other
      intangible assets                                                 88              59
    Loss on disposal of assets                                          17              50
    Benefit from deferred income taxes                               1,714              --
    Deferred lease assumption revenue amortization                    (126)           (129)
Changes in operating assets and liabilities:
    Accounts receivable                                             (1,054)           (330)
    Income taxes                                                       619              (2)
    Inventory                                                      (10,323)         (5,860)
    Accounts payable and accrued expenses                            5,972             (29)
    Prepaid expenses                                                  (158)            (17)
    Other assets and liabilities                                         3              16
                                                                  --------        --------
Net Cash Provided from (Used in) Operating Activities                3,229          (5,506)
                                                                  --------        --------

INVESTING ACTIVITIES:
    Capital expenditures                                              (914)           (571)
    Deferred payment for property and equipment                         30              47
                                                                  --------        --------

Net Cash Used for Investing Activities                                (884)           (524)
                                                                  --------        --------

FINANCING ACTIVITIES:
    Repayments of long-term debt                                      (255)           (237)
    Issuance of loans to officers                                   (1,993)             --
    Exercise of stock options                                            2              --
                                                                  --------        --------

Net Cash Used in Financing Activities                               (2,246)           (237)
                                                                  --------        --------

Net increase (decrease) in cash and cash equivalents                    99          (6,267)
Cash and cash equivalents, beginning of period                      31,122          18,264
                                                                  --------        --------
Cash and cash equivalents, end of period                          $ 31,221        $ 11,997
                                                                  ========        ========
</TABLE>



The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>   6

                            UNITED RETAIL GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


1.     BASIS OF PRESENTATION

        The consolidated financial statements include the accounts of United
Retail Group, Inc. and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.

        The consolidated financial statements as of and for the thirteen weeks
ended May 2, 1998 and May 3, 1997 are unaudited and are presented pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, the consolidated financial statements should be read in conjunction
with the financial statement disclosures contained in the Company's 1997 Annual
Report. In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments necessary (which are of a normal recurring
nature) to present fairly the financial position and results of operations and
cash flows for the interim periods, but are not necessarily indicative of the
results of operations for a full fiscal year.


2.      NET INCOME (LOSS) PER SHARE

        At the end of fiscal 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share". Basic
per share data has been computed based on the weighted average number of shares
of common stock outstanding. Diluted per share data has been computed on the
basic plus the dilution of stock options. Shares issuable upon the exercise of
stock options have not been included in the diluted earnings per share
computation for the thirteen weeks ended May 3, 1997 because the effect of such
would be anti-dilutive.


<PAGE>   7
3.      FINANCING ARRANGEMENTS

        In 1994, the Company executed a fifteen-year $8.0 million loan bearing
interest at 8.64%. Interest and principal are payable in equal monthly
installments beginning May 1, 1994. The loan is collateralized by a mortgage on
the national distribution center owned by the Company in Troy, Ohio.

         In 1993, the Company executed a ten-year $7.0 million note bearing
interest at 7.3%. Interest and principal are payable in equal monthly
installments beginning November 1993. The note is collateralized by the material
handling equipment in the distribution center.

         The Company and United Retail Incorporated, its subsidiary,
(collectively, the "Companies") are parties to a Financing Agreement, dated
August 15, 1997, as amended September 15, 1997 (the "Financing Agreement"), with
The CIT Group/Business Credit, Inc.("CIT"). The Financing Agreement provides a
revolving line of credit for a term of three years in the aggregate amount of
$40 million for the Companies, subject to availability of credit according to a
borrowing base computation. The line of credit may be used on a revolving basis
by either of the Companies to support trade letters of credit and standby
letters of credit and to finance loans.

         The Companies are required to maintain unused at all times combined
availability of at least $5 million. Except for the maintenance of a minimum
availability of $5 million and a limit on capital expenditures, the Financing
Agreement does not contain any financial covenants.

         In the event a loan is made to one of the Companies, interest is
payable monthly based on a 360-day year at the prime rate or at two percent plus
the LIBOR rate on a per annum basis, at the borrower's option.

         The line of credit is secured by a security interest in inventory and
proceeds and by the balance on deposit from time to time in an account that has
been pledged to the lenders.

         At May 2, 1998, the combined availability of the Companies was $17.5
million, no balance was in the pledged account, the aggregate outstanding amount
of letters of credit arranged by CIT was $20.3 million and no loan had been
drawn down. The Company's cash on hand was unrestricted.
<PAGE>   8

4.      INCOME TAXES

        The provision for income taxes consists of (dollars in
thousands):

<TABLE>
<CAPTION>
                         Thirteen Weeks Ended
                         --------------------
                          May 2,       May 3,
                          1998         1997
                         ------       ------
<S>                      <C>          <C>   
Currently payable:
        Federal          $1,012       $   --
        State                56           14
                         ------       ------
                          1,068           14
                         ------       ------
Deferred:
        Federal           1,411           --
        State               304           --
                         ------       ------
                          1,715           --
                         ------       ------

                         $2,783       $   14
                         ======       ======
</TABLE>

        Reconciliation of the provision for income taxes from the U.S.
Federal statutory rate to the Company's effective rate is as follows:

<TABLE>
<CAPTION>
                                             Thirteen Weeks Ended
                                 --------------------------------------------
                                     May 2, 1998              May 3, 1997
                                 -----------------        -------------------
<S>                              <C>        <C>          <C>          <C>    
Tax at Federal rate              $ 2,573     35.0%        $  (536)     (34.0%)
State income taxes, net of           234      3.2%            (36)      (2.2%)
 federal benefit
Goodwill amortization                 18      0.2%             18        1.1%
Other                                (42)    (0.6%)             4        0.2%
Valuation Allowance                    0      0.0%            564       35.8%
                                 -------      ----         -------      ----

                                 $ 2,783     37.8%        $    14        0.9%
                                 =======     ====         =======       ====
</TABLE>

<PAGE>   9
     The net deferred tax asset reflects the tax impact of temporary
differences. The components of the net deferred tax asset are as follows:

<TABLE>
<S>                                         <C>   
Assets:
         Inventory                          $  184
         Accruals and reserves               1,897
         Compensation                           17
         NOL and credit carryforwards        1,439
                                            ------
                                             3,537
                                            ------

Liabilities:
         Depreciation                        2,566
                                            ------
                                             2,566
                                            ------

         Net deferred tax asset             $  971
                                            ======
</TABLE>

         Future realization of the tax benefits attributable to these existing
deductible temporary differences ultimately depends on the existence of
sufficient taxable income within the carryforward period available under the tax
law at the time of the tax deduction. Based on management's assessment, it is
more likely than not that the net deferred tax asset will be realized through
future taxable earnings or available carrybacks.

         At May 2, 1998, the Company has pre-acquisition net operating loss
carryforwards, aggregating approximately $0.5 million, available to reduce
future taxable income in certain states, expiring through 2004.

         The Company's federal income tax returns for fiscal 1994, fiscal 1995
and fiscal 1996 are being audited by the Internal Revenue Service. Management
believes that the results of the audits will not have a material adverse effect
on the Company's financial condition or results of operations.

5.       ADVANCES TO OFFICERS

         Advances were made on February 13, 1998 in the amount of $1.6 million
to Raphael Benaroya, the Company's Chairman of the Board, President and Chief
Executive Officer, and $0.2 million to George R. Remeta, the Company's Vice
Chairman and Chief Financial Officer. The purpose of the advances was to finance
payment of income taxes incurred in connection with their exercise of stock
options. Interest is payable annually in cash at the prime rate. The advances
have a term of four years subject to acceleration under certain circumstances
and to call by the Company after two years with respect to half of the principal
amount. Payment of the advances is secured by a pledge of the shares of the
Company's Common Stock issued upon the option exercises in the amount of 777,925
shares issued to Mr. Benaroya and 116,888 shares issued to Mr. Remeta. Each
advance is a full recourse obligation of the borrower.

<PAGE>   10

6.      SUPPLEMENTAL CASH FLOW INFORMATION

        Net cash flow from operating activities includes cash payments for
interest and income taxes as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                   Thirteen Weeks Ended
                                   --------------------
                                    May 2,      May 3,
                                    1998         1997
                                   -----        -----
<S>                                <C>          <C>  
Cash interest:
Interest (income) expense, 
net per statements of 
operations                         $(140)       $ 102

Less: Non-cash
interest expense                     (11)         (15)

Net cash interest (income)
expense, including interest
income of $438 and $177            $(151)       $  87
                                   =====        =====

Net income tax
payments                           $ 449        $  16
                                   =====        =====
</TABLE>


        Non-cash financing activities include the exercise of 1,078,125 stock
options in exchange for 183,512 shares of common stock.

7.      CONTINGENCY FOOTNOTE

        The Company is involved in legal actions and claims arising in the
ordinary course of business. Management believes (based on advice of legal
counsel) that such litigation and claims will not have a material effect on the
Company's financial condition or results of operations.

8.      SUBSEQUENT EVENTS

        In May 1998, the Company realized a capital gain of $3.1 million on the
sale of its minority equity interest in a privately held apparel design and
manufacturing firm for cash. The gain will be reported as non-operating income.

<PAGE>   11

Item 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FIRST QUARTER FISCAL 1998 VERSUS FIRST QUARTER FISCAL 1997

         Net sales for the first quarter of Fiscal 1998 increased 9.1% from the
first quarter of Fiscal 1997, to $94.9 million from $87.0 million, principally
from an increase in average price. Average stores open decreased from 567 to 522
as underperforming stores were closed. (For the month of May 1998, net sales
increased 20.7% from May 1997, to $37.0 million from $30.6 million.) Comparable
store sales for the first quarter of Fiscal 1998 increased 15.0%. (For the month
of May 1998, comparable store sales increased 27.0%.) There is no assurance that
comparable store sales will continue to increase.

         Gross profit increased by $8.9 million to $27.1 million in the first
quarter of Fiscal 1998 from $18.2 million in the first quarter of Fiscal 1997,
increasing as a percentage of net sales to 28.6% from 20.9%. The increase in
gross profit as a percentage of net sales was primarily attributable to an
increase in the merchandise margin rate and a decrease in buying and occupancy
costs as a percentage of net sales. (The merchandise margin rate increased
substantially in May 1998 compared with May 1997.) There is no assurance that
the merchandise margin rate will continue to increase.

         General, administrative and store operating expenses were $19.9 million
in the first quarter of Fiscal 1998, compared to $19.7 million in the first
quarter of Fiscal 1997, principally as a result of increases in bonus
compensation and in insurance costs, partially offset by premiums received on
proprietary credit card purchases (see, "- Liquidity and Capital Resources"). As
a percentage of net sales, general, administrative and store operating expenses
decreased to 21.0% from 22.6%.

         During the first quarter of Fiscal 1998, the Company had operating
income of $7.2 million (7.6% of sales), compared to an operating loss of $1.5
million in the first quarter of Fiscal 1997.

         Net interest income was $0.1 million in the first quarter of Fiscal
1998 compared to net interest expense of $0.1 million in the first quarter of
Fiscal 1997, primarily from larger bank deposits.

         The Company had a provision for income taxes of $2.8 million in the
first quarter of Fiscal 1998 and of $14,000 in the first quarter of Fiscal 1997.

         The Company had net income of $4.6 million for the first quarter of
Fiscal 1998 compared with a net loss of $1.6 million in the first quarter of
Fiscal 1997. There is no assurance that the Company will continue to be
profitable.
<PAGE>   12
TREND IN TRANSACTIONS

         The Company's average number of transactions per store declined in each
of the last five fiscal years. The cumulative adverse effect on net sales per
store has been material. (The average number of transactions per store in the
first quarter of Fiscal 1998 was slightly higher than in the first quarter of
Fiscal 1997 but there is no assurance that the annual average for Fiscal 1998
will be higher.)


LIQUIDITY AND CAPITAL RESOURCES

         Net cash provided from operating activities in the first quarter of
Fiscal 1998 was $3.2 million.

         The Company's cash on hand was $31.2 million at May 2, 1998, $12.0
million at May 3, 1997 and $31.1 million at January 31, 1998.

         Inventory increased to $48.3 million at May 2, 1998 from $46.6 million
at May 3, 1997 and $38.0 million at January 31, 1998. The Company's inventory
levels peak in early May and November/December. During Fiscal 1997, the highest
inventory level was $52.1 million.

         Import purchases are made in U.S. dollars and are generally financed by
trade letters of credit. As of May 2, 1998, trade letters of credit for the
account of the Company were outstanding in the amount of $17.5 million. (A
standby letter of credit was also outstanding for $2.0 million as collateral for
obligations in the ordinary course of business under casualty insurance
policies.) Import purchases constituted approximately 48% of total purchases in
Fiscal 1997.

         Short-term trade credit represents a significant source of financing
for domestic merchandise purchases. Trade credit arises from the willingness of
the Company's domestic vendors to grant extended payment terms for inventory
purchases and is generally financed either by the vendor or a third-party
factor.

         United Retail Group, Inc. and United Retail Incorporated, its
subsidiary (collectively, the "Companies"), are parties to a Financing
Agreement, dated August 15, 1997, as amended September 15, 1997 (the "Financing
Agreement"), with The CIT Group/Business Credit, Inc. ("CIT"). The Financing
Agreement provides a revolving line of credit for a term of three years in the
aggregate amount of $40 million for the Companies, subject to availability of
credit as described in the following paragraphs. The line of credit may be used
on a revolving basis by either of the Companies to support trade letters of
credit and standby letters of credit and to finance loans.

         Subject to the following paragraph, the availability of credit (within
the aggregate $40 million line of credit) to either of the Companies at any time
is the excess of its borrowing base over the sum of (x) the aggregate
outstanding amount of its letters of credit and its revolving loans, if any, and
(y) at CIT's 
<PAGE>   13
option, the sum of (i) unpaid sales taxes, and (ii) up to $500,000 in total
liabilities of the Companies under permitted encumbrances (as defined in the
Financing Agreement). The borrowing base, as to either of the Companies, is the
sum of (x) a percentage of the book value of its eligible inventory (both on
hand and unfilled purchase orders financed with letters of credit), ranging from
60% to 65% depending on the season, and (y) the balance in an account in its
name that has been pledged to the lenders (a "Pledged Account"). (At May 2,
1998, the combined availability of the Companies was $17.5 million; no balance
was in a Pledged Account; no loan had been drawn down; and the Company's cash on
hand was unrestricted.)

         The provisions of the preceding paragraph to the contrary
notwithstanding, the Companies are required to maintain unused at all times
combined availability of at least $5 million. Except for the maintenance of a
minimum availability of $5 million and a limit on capital expenditures, the
Financing Agreement does not contain any financial covenants.

         In the event a revolving loan is made to one of the Companies, interest
is payable monthly based on a 360-day year at the prime rate or at two percent
plus the LIBOR rate on a per annum basis, at the borrower's option.

         The line of credit is secured by a security interest in inventory and
proceeds and by the balance from time to time in the Pledged Account.

         The Financing Agreement also includes certain restrictive covenants
that impose limitations (subject to certain exceptions) on the Companies with
respect to, among other things, making certain investments, declaring or paying
dividends, acquiring Common Stock or preferred stock of the Company, making
loans, engaging in certain transactions with affiliates, or consolidating,
merging or making acquisitions outside the ordinary course of business.

         Purchases of Company merchandise made by customers with the Company's
proprietary credit cards were paid for daily at a discount by a bank through
November 30, 1997. Commencing December 1, 1997, however, the bank has paid a
premium, instead of taking a discount, on proprietary credit card purchases.

         The Credit Plan Agreement between the Companies and the bank (the
"Credit Agreement") provides for the issuance of the Company's proprietary
credit cards by the bank and contains financial covenants that require that the
Company's (i) consolidated tangible net worth not be less than the sum of $32
million plus for each complete fiscal year ended after February 1, 1992 for
which net income has been positive, 50% of net income, and (ii) consolidated
fixed charges ratio for the four preceding fiscal quarters combined not be less
than 1.0:1.0.

         The Companies terminated the Credit Agreement effective January 30,
1999 and entered into a contract with another bank to issue the Company's
proprietary credit cards after January 30, 1999 and to purchase from the first
bank the accounts receivable from credit card customers.

         The Company believes that its cash on hand, the availability of credit
under the Financing Agreement and cash flows from operating activities,
including payments by the bank under the Credit Agreement, will be adequate to
meet anticipated working capital needs, including seasonal financing needs, for
the next 12 months. This paragraph constitutes forward-looking information under
the Reform Act and is subject to the uncertainties and other risk factors
referred to under the caption "Future Results."

         In May 1998, the Company realized a capital gain of $3.1 million on the
sale of its minority equity interest in a privately held apparel design and
manufacturing firm for cash. The gain will be reported as non-operating income.

<PAGE>   14
STORES

         The Company leased 521 retail stores at May 2, 1998, of which 302
stores were located in strip shopping centers, 196 stores were located in malls
and 23 stores were located in downtown shopping districts. Total retail square
footage was 2.1 million square feet compared to 2.2 million square feet at May
3, 1997.

         The Company intends to pay the costs of opening new stores and
remodeling existing stores from its cash on hand. New stores and newly remodeled
stores will use the Avenue Plus trade name.

         The preceding paragraph contains forward-looking information under the
Reform Act, which is subject to the uncertainties and other risk factors
referred to under the caption "Future Results".

TAX MATTERS

         The Company's federal income tax returns for Fiscal 1994, Fiscal 1995
and Fiscal 1996 are being audited by the Internal Revenue Service. Management
believes that the results of the audits will not have a material adverse effect
on the Company's financial condition or results of operations.

COMPUTER SYSTEMS

         The Company is modifying the applications software programs that are
essential to its operations to accommodate dates after 1999 and its vendor is
modifying the operating systems used by the Company. The cost of future
modifications is expected to be less than $1.0 million.

         The Company has scheduled 268 projects to analyze and, if necessary,
modify applications software programs to ensure that all systems are Year 2000
compliant. As of May 2, 1998, 187 projects were completed, 33 projects were
underway and 48 projects were scheduled to begin later in Fiscal 1998. The
programs being modified are being installed as part of each project. Integrated
testing of all the Company's systems, including operating systems, is scheduled
to be completed in Fiscal 1998. There is no assurance, however, that integrated
testing will not reveal the need for further modifications.

         The preceding paragraphs contain forward-looking information under the
Reform Act, which is subject to the uncertainties and other risk factors
referred to under the caption "Future Results."

FUTURE RESULTS

         Future results could differ materially from those currently anticipated
by the Company due to (i) miscalculation of fashion trends, (ii) shifting
shopping patterns, both within the specialty store sector and in other channels
of distribution, (iii) extreme or unseasonable weather conditions, (iv)
imposition by the bank that now issues the Company's proprietary credit cards of
more onerous fees and finance charges to be paid by credit card customers (the
late fees charged to delinquent credit card customers were increased
substantially by the bank in February 1998), (v) inability of the computer links
between the Company and certain of its banks to accommodate dates after 1999,
(vi) economic downturns, weakness in overall consumer demand, and variations in
the demand for women's fashion apparel, (vii) imposition by vendors, or their
third-party factors, of more onerous payment terms for domestic merchandise
purchases, (viii) acceleration in the rate of business failures and inventory
liquidations in the specialty store sector of the women's apparel industry, (ix)
disruptions in the sourcing of merchandise abroad, including (a) political
instability and economic distress in South Asia, (b) China's claims to
sovereignty over Taiwan, (c) North Korea's claims to sovereignty over South
Korea, (d) exchange rate fluctuations, (e) trade sanctions or restrictions, (f)
changes in quota and duty regulations, (g) delays in shipping or (h) increased
costs of transportation, and (x) disruptions in the telecommunications, banking,
transportation and utilities industries caused by the inability of their systems
to accommodate dates after 1999.

<PAGE>   15
                           PART II - OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES.

         The following options to purchase shares of the Company's common stock
were issued without registration under the Securities Act of 1933 (the
"Securities Act"):

<TABLE>
<CAPTION>
                                                              Number of
         Date of Grant              Class of Grantee          Underlying Shares    Exercise Price

<S>      <C>                        <C>                        <C>                <C>   
         5/21/98                    Directors                   20,000            $11.50 to $12.08
         5/21/98                    Officers                   300,000            $6.3125
                                                               -------
         Total:                                                320,000
                                                               =======
</TABLE>

         The grantees were one non-employee director and two senior officers of
the Company.

         Options become exercisable in five equal annual installments commencing
one year after the date of grant except for one grant of 17,000 options to a
director that becomes exercisable as to 11,000 shares after six months, an
additional 1,500 shares after one year and 1,500 shares annually thereafter.

         The above grants were exempt from the registration provisions of the
Securities Act under Section 4(2) thereof because all the grantees are members
of the management of the issuer. Nevertheless, the Company intends to file a
registration statement with respect to the options before they become
exercisable.

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

         (a) The sixth Annual Meeting of Stockholders (the "Meeting") was held
on May 21, 1998.

         (c) The Meeting elected directors for terms ending at the seventh
Annual Meeting of Stockholders, as follows:

Name                        For                 Withhold Authority to Vote
----                        ---                 --------------------------

Joseph A. Alutto            12,063,833          454,707
Raphael Benaroya            12,060,064          458,476
Russell Berrie              12,063,833          454,707
Joseph Ciechanover          12,052,833          465,707
Ilan Kaufthal               12,051,780          466,760
Vincent Langone             12,064,100          454,440
George R. Remeta            12,060,119          458,421
Richard W. Rubenstein       12,063,833          454,707

         The grant of additional employee stock options to purchase a total of
300,000 shares of the Company's common stock at an exercise price of $6.3125 per
share was approved by a vote of 10,615,519 for, 1,851,256 against and 51,765
abstain at the Meeting.


<PAGE>   16
ITEM 6.  EXHIBITS

                                                                                
                  The following exhibits are filed herewith:

                  Number            Description

                  10.1*             1998 Stock Option Agreement, dated May 21,
                                    1998, between the Corporation and Raphael
                                    Benaroya

                  10.2*             1998 Stock Option Agreement, dated May 21,
                                    1998, between the Corporation and George R.
                                    Remeta

                  27                Financial Data Schedule

                  The following exhibits to the Corporation's Annual Report on
Form 10-K for the year ended January 31, 1998 are incorporated herein by
reference:

                  Number in Filing  Description

                  4.1               Amended By-Laws of the Corporation

                  10.1              Restated Stockholders' Agreement, dated
                                    December 23, 1992, between the Corporation
                                    and certain of its stockholders and
                                    Amendment No. 1, Amendment No. 2 and
                                    Amendment No. 3 thereto

                  10.2              Private Label Credit Program Agreement,
                                    dated January 27, 1998, between the
                                    Corporation, United Retail Incorporated and
                                    World Financial Network National Bank
                                    (Confidential portions have been deleted and
                                    filed separately with the Secretary of the
                                    Commission)

                  10.4*             Restated 1990 Stock Option Plan as of March
                                    6, 1998

                  10.5*             Restated 1990 Stock Option Plan as of May
                                    28, 1996

                  10.6*             Restated 1996 Stock Option Plan as of March
                                    6, 1998

                  10.7*             Restated 1989 Performance Option Plan as of
                                    March 6, 1998

                  13                Sections of 1997 Annual Report to
                                    Stockholders (including opinion of
                                    Independent Public Accountants) that are
                                    incorporated by reference in response to the
                                    items of the Annual Report on Form 10-K

                  The following exhibit to the Corporation's Quarterly Report on
Form 10-Q for the period ended November 1, 1997 is incorporated herein by
reference:

                  Number in Filing  Description

                  10.1              Amendment, dated September 15, 1997, to
                                    Financing Agreement among the Corporation,
                                    United Retail Incorporated and The CIT
                                    Group/Business Credit, Inc. ("CIT")

                  The following exhibits to the Corporation's Quarterly Report
on Form 10-Q for the period ended August 2, 1997 are incorporated herein by
reference:
                  Number in Filing  Description

                  10.1              Financing Agreement, dated August 15, 1997,
                                    among the Corporation, United Retail
                                    Incorporated and CIT 

                  10.2*             Amendment No. 1 to Restated Supplemental
                                    Retirement Savings Plan
<PAGE>   17

The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the
period ended November 2, 1996 is incorporated herein by reference:

                  Number in Filing  Description

                  10.1*             Restated Supplemental Retirement Savings
                                    Plan

The following exhibits to the Corporation's Quarterly Report on Form 10-Q for
the period ended May 4, 1996 are incorporated herein by reference:

                  Number in Filing  Description

                  10.1*             Severance Pay Agreement, dated May 28, 1996,
                                    between the Corporation and Raphael Benaroya

                  10.2*             Severance Pay Agreement, dated May 28, 1996,
                                    between the Corporation and George R. Remeta

                  10.3              Amended and Restated Term Sheet Agreement
                                    for Hosiery, dated as of December 29, 1995,
                                    between The Avenue, Inc. and American
                                    Licensing Group, Inc. (Confidential portions
                                    have been deleted and filed separately with
                                    the Secretary of the Commission)

The following exhibit to the Corporation's Current Report on Form 8-K, dated
March 22, 1996, is incorporated herein by reference:

                  Number in Filing  Description

                  10.3*             Employment Agreement, dated March 1, 1996,
                                    between the Corporation and Kenneth P.
                                    Carroll

The following exhibits to the Corporation's Amended Current Report on Form 8-KA,
dated May 22, 1995, are incorporated herein by reference:

                  Number in Filing  Description

                  10.1              Amended and Restated Gloria Vanderbilt
                                    Intimate Apparel Sublicense Agreement, dated
                                    May 22, 1995, between United Retail
                                    Incorporated and American Licensing Group
                                    Limited Partnership ("ALGLP") 

                  10.2              Gloria Vanderbilt Sleepwear Sublicense
                                    Agreement, dated May 22, 1995, between
                                    United Retail Incorporated and ALGLP

The following exhibits to the Corporation's Annual Report on Form 10-K for the
year ended January 28, 1995 are incorporated herein by reference:

                  Number in Filing  Description

                  10.1*             Incentive Compensation Program Summary

                  21                Subsidiaries of the Corporation

<PAGE>   18
The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the
period ended July 30, 1994 is incorporated herein by reference:

                  Number in Filing  Description

                  10.2*             Letter from the Corporation to Raphael
                                    Benaroya and George R. Remeta, dated May 20,
                                    1994, regarding their respective Restated
                                    Employment Agreements, dated November 1,
                                    1991

The following exhibits to the Corporation's amended Annual Report on Form 10-KA
for the year ended January 29, 1994 are incorporated herein by reference:

                  Number in Filing  Description

                  10.3              Amendment, dated December 6, 1993, to Credit
                                    Agreement between the Corporation and
                                    Citibank 

                  10.4              Term Sheet Agreement, dated as of May 4,
                                    1993, with respect to Amended and Restated
                                    Gloria Vanderbilt Hosiery Sublicense
                                    Agreement

The following exhibits to the Corporation's Registration Statement on Form S-1
(Registration No. 33-44499), as amended, are incorporated herein by reference:

                  Number in Filing  Description

                  3.1               Amended and Restated Certificate of
                                    Incorporation of Registrant

                  4.1               Specimen Certificate for Common Stock of
                                    Registrant

                  10.2.1            Software License Agreement, dated as of
                                    April 30, 1989, between The Limited Stores,
                                    Inc. and Sizes Unlimited, Inc. (now known as
                                    United Retail Incorporated)

                  10.2.2            Amendment to Software License Agreement,
                                    dated December 10, 1991

                  10.7              Amended and Restated Gloria Vanderbilt
                                    Hosiery Sublicense Agreement, dated as of
                                    April 30, 1989, between American Licensing
                                    Group, Inc. (Licensee) and Sizes Unlimited,
                                    Inc. (Sublicensee)

                  10.12             Amended and Restated Master Affiliate
                                    Sublease Agreement, dated as of July 17,
                                    1989, among Lane Bryant, Inc., Lerner
                                    Stores, Inc. (Landlord) and Sizes Unlimited,
                                    Inc. (Tenant) and Amendment thereto, dated
                                    July 17, 1989

                  10.23*            Restated Employment Agreement, dated
                                    November 1, 1991, between the Corporation
                                    and Raphael Benaroya

                  10.25*            Restated Employment Agreement, dated
                                    November 1, 1991, between the Corporation
                                    and George R. Remeta

                  10.33*            1991 Stock Option Agreement, dated November
                                    1, 1991, between the Corporation and Raphael
                                    Benaroya

                  10.34*            1991 Stock Option Agreement, dated November
                                    1, 1991, between the Corporation and George
                                    R. Remeta

                  10.38             Management Services Agreement, dated August
                                    26, 1989, between American Licensing Group,
                                    Inc. and ALGLP

                  10.39             First Refusal Agreement, dated as of August
                                    31, 1989, between the Corporation and ALGLP

<PAGE>   19
                  10.43             Credit Plan Agreement, dated June 3, 1992,
                                    among the Corporation, Sizes Unlimited, Inc.
                                    and Citibank

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

         (b) No Current Reports on Form 8-K were filed by the Corporation during
the fiscal quarter ended May 2, 1998.





<PAGE>   20
                                   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.

(Registrant)                       UNITED RETAIL GROUP, INC.

                  By:     /s/ GEORGE R. REMETA
                          George R. Remeta, Vice Chairman of the Board and Chief
                                Financial Officer - Authorized Signatory

                  By:      /s/ JON GROSSMAN
                         Jon Grossman, Vice President  - Finance and Chief
                                 Accounting Officer

Date:                    June 5, 1998



<PAGE>   21
                                  EXHIBIT INDEX

         The following exhibits are filed herewith:

                  Number            Description

                  10.1*             1998 Stock Option Agreement, dated May 21,
                                    1998, between the Corporation and Raphael
                                    Benaroya

                  10.2*             1998 Stock Option Agreement, dated May 21,
                                    1998, between the Corporation and George R.
                                    Remeta

                  27                Financial Data Schedule

         The following exhibits to the Corporation's Annual Report on Form 10-K
for the year ended January 31, 1998 are incorporated herein by reference:

                  Number in Filing  Description

                  4.1               Amended By-Laws of the Corporation

                  10.1              Restated Stockholders' Agreement, dated
                                    December 23, 1992, between the Corporation
                                    and certain of its stockholders and
                                    Amendment No. 1, Amendment No. 2 and
                                    Amendment No. 3 thereto

                  10.2              Private Label Credit Program Agreement,
                                    dated January 27, 1998, between the
                                    Corporation, United Retail Incorporated and
                                    World Financial Network National Bank
                                    (Confidential portions have been deleted and
                                    filed separately with the Secretary of the
                                    Commission)

                  10.4*             Restated 1990 Stock Option Plan as of March
                                    6, 1998

                  10.5*             Restated 1990 Stock Option Plan as of May
                                    28, 1996

                  10.6*             Restated 1996 Stock Option Plan as of March
                                    6, 1998

                  10.7*             Restated 1989 Performance Option Plan as of
                                    March 6, 1998

                  13                Sections of 1997 Annual Report to
                                    Stockholders (including opinion of
                                    Independent Public Accountants) that are
                                    incorporated by reference in response to the
                                    items of the Annual Report on Form 10-K

         The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 1, 1997 is incorporated herein by reference:

                  Number in Filing  Description

                  10.1              Amendment, dated September 15, 1997, to
                                    Financing Agreement among the Corporation,
                                    United Retail Incorporated and The CIT
                                    Group/Business Credit, Inc. ("CIT")

         The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended August 2, 1997 are incorporated herein by reference:

                  Number in Filing  Description

                  10.1              Financing Agreement, dated August 15, 1997,
                                    among the Corporation, United Retail
                                    Incorporated and CIT

                  10.2*             Amendment No. 1 to Restated Supplemental
                                    Retirement Savings Plan
<PAGE>   22
The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the
period ended November 2, 1996 is incorporated herein by reference:

                  Number in Filing  Description

                  10.1*             Restated Supplemental Retirement Savings
                                    Plan

The following exhibits to the Corporation's Quarterly Report on Form 10-Q for
the period ended May 4, 1996 are incorporated herein by reference:

                  Number in Filing  Description

                  10.1*             Severance Pay Agreement, dated May 28, 1996,
                                    between the Corporation and Raphael Benaroya

                  10.2*             Severance Pay Agreement, dated May 28, 1996,
                                    between the Corporation and George R. Remeta

                  10.3              Amended and Restated Term Sheet Agreement
                                    for Hosiery, dated as of December 29, 1995,
                                    between The Avenue, Inc. and American
                                    Licensing Group, Inc. (Confidential portions
                                    have been deleted and filed separately with
                                    the Secretary of the Commission)

The following exhibit to the Corporation's Current Report on Form 8-K, dated
March 22, 1996, is incorporated herein by reference:

                  Number in Filing  Description

                  10.3*             Employment Agreement, dated March 1, 1996,
                                    between the Corporation and Kenneth P.
                                    Carroll

The following exhibits to the Corporation's Amended Current Report on Form 8-KA,
dated May 22, 1995, are incorporated herein by reference:

                  Number in Filing  Description

                  10.1              Amended and Restated Gloria Vanderbilt
                                    Intimate Apparel Sublicense Agreement, dated
                                    May 22, 1995, between United Retail
                                    Incorporated and American Licensing Group
                                    Limited Partnership ("ALGLP")

                  10.2              Gloria Vanderbilt Sleepwear Sublicense
                                    Agreement, dated May 22, 1995, between
                                    United Retail Incorporated and ALGLP

The following exhibits to the Corporation's Annual Report on Form 10-K for the
year ended January 28, 1995 are incorporated herein by reference:

                  Number in Filing  Description

                  10.1*             Incentive Compensation Program Summary

                  21                Subsidiaries of the Corporation

<PAGE>   23

The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the
period ended July 30, 1994 is incorporated herein by reference:

                  Number in Filing  Description

                  10.2*             Letter from the Corporation to Raphael
                                    Benaroya and George R. Remeta, dated May 20,
                                    1994, regarding their respective Restated
                                    Employment Agreements, dated November 1,
                                    1991

The following exhibits to the Corporation's amended Annual Report on Form 10-KA
for the year ended January 29, 1994 are incorporated herein by reference:

                  Number in Filing  Description

                  10.3              Amendment, dated December 6, 1993, to Credit
                                    Agreement between the Corporation and
                                    Citibank

                  10.4              Term Sheet Agreement, dated as of May 4,
                                    1993, with respect to Amended and Restated
                                    Gloria Vanderbilt Hosiery Sublicense
                                    Agreement

The following exhibits to the Corporation's Registration Statement on Form S-1
(Registration No. 33-44499), as amended, are incorporated herein by reference:

                  Number in Filing  Description

                  3.1               Amended and Restated Certificate of
                                    Incorporation of Registrant

                  4.1               Specimen Certificate for Common Stock of
                                    Registrant

                  10.2.1            Software License Agreement, dated as of
                                    April 30, 1989, between The Limited Stores,
                                    Inc. and Sizes Unlimited, Inc. (now known as
                                    United Retail Incorporated)

                  10.2.2            Amendment to Software License Agreement,
                                    dated December 10, 1991 10.7 Amended and
                                    Restated Gloria Vanderbilt Hosiery
                                    Sublicense Agreement, dated as of April 30,
                                    1989, between American Licensing Group, Inc.
                                    (Licensee) and Sizes Unlimited, Inc.
                                    (Sublicensee)

                  10.12             Amended and Restated Master Affiliate
                                    Sublease Agreement, dated as of July 17,
                                    1989, among Lane Bryant, Inc., Lerner
                                    Stores, Inc. (Landlord) and Sizes Unlimited,
                                    Inc. (Tenant) and Amendment thereto, dated
                                    July 17, 1989

                  10.23*            Restated Employment Agreement, dated
                                    November 1, 1991, between the Corporation
                                    and Raphael Benaroya

                  10.25*            Restated Employment Agreement, dated
                                    November 1, 1991, between the Corporation
                                    and George R. Remeta

                  10.33*            1991 Stock Option Agreement, dated November
                                    1, 1991, between the Corporation and Raphael
                                    Benaroya

                  10.34*            1991 Stock Option Agreement, dated November
                                    1, 1991, between the Corporation and George
                                    R. Remeta

                  10.38             Management Services Agreement, dated August
                                    26, 1989, between American Licensing Group,
                                    Inc. and ALGLP

                  10.39             First Refusal Agreement, dated as of August
                                    31, 1989, between the Corporation and ALGLP

<PAGE>   24
                  10.43             Credit Plan Agreement, dated June 3, 1992,
                                    among the Corporation, Sizes Unlimited, Inc.
                                    and Citibank

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

         *A compensatory plan for the benefit of the Corporation's management or
a management contract.