# FORM 10-K

SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549

(Mark One)

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

For the fiscal year ended January 29,
2005

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 019774

United Retail Group, Inc.

(Exact name of registrant as specified in its charter)

| |                                                               |                                     
| | ------------------------------------------------------------- | ------------------------------------
| | Delaware                                                      | 51-0303670                          
| | (State or other jurisdictionof incorporation or organization) | (I.R.S. employer identification no.)

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

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

Securities registered pursuant to Section
12(g) of the 1934 Act:

Common Stock, $.001
par value per share, with Stock Purchase Right attached

(Title of class)

---

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 _______

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. [ ]

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the 1934 Act). <pre>

YES _______   NO ___X___

The aggregate market value of all the
voting and non-voting common equity of the registrant (the Corporation also
referred to herein, together with its subsidiaries, as the Company) held by
non-affiliates at the time this Report was filed was approximately $21.2 million computed
by reference to the $1.99 price per share at which the common equity was last sold as of
July 30, 2004. Solely for the purpose of this calculation, the number of shares held by
non-affiliates was deemed to have been 10,641,932, which is the number of shares held by
stockholders other than Raphael Benaroya, the Corporations Chairman of the Board,
President and Chief Executive Officer.

# APPLICABLE ONLY TO
REGISTRANTS INVOLVED IN BANKRUPTCYPROCEEDINGS 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 REGISTRANTS:

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

There were 12,663,134 shares of the
registrants common stock, $.001 par value per share, outstanding on April 28, 2005.
One Stock Purchase Right is attached to each outstanding share.

# DOCUMENTS INCORPORATED
BY REFERENCE

List hereunder the following
documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424 (b) or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security holders for
fiscal year ended December 24, 1980.)

Certain information in Part III of
this Annual Report on Form 10-K (this Report) is incorporated herein by
reference to the registrants proxy statement on Schedule 14A for its 2005 annual
meeting of stockholders (the Proxy Statement) to be filed with the SEC on or
before May 31, 2005 and to be posted on the About Us page at
www.unitedretail.com.

---

# Part I

Item 1.   Business.

Overview

The Company is a leading nationwide
specialty retailer of large size (14 or larger) womens fashions featuring its
proprietary AVENUE® brand. Its product line features AVENUE® brand wearing
apparel, AVENUE BODY® brand undergarments, CLOUDWALKERS® brand footwear,
AVENUE® brand accessories and gifts, AVENUE® brand hosiery and AVENUE BODY®
brand loungewear. Sales in fiscal 2004, fiscal 2003 and fiscal 2002, respectively, were
principally of apparel, with none of the other product categories representing 10% or more
of sales.

History

United Retail Group, Inc. was
incorporated in Delaware in 1987 and completed its initial public offering in 1992. The
Companys current business resulted from an internal reorganization at Limited
Brands, Inc. (The Limited) in 1987, in which The Limited combined its
AVENUE® store group (then operating under the LERNER WOMAN trade name) with the SIZES
UNLIMITED store group. Raphael Benaroya, currently the Chairman of the Board, President
and Chief Executive Officer of United Retail Group, Inc., was selected by The Limited to
manage the combined businesses.

Customer Base

The Company serves the mass market in
the United States and targets fashion-conscious women between 25 and 55 years of age who
wear size 14 or larger apparel. Management believes that the number of women in this age
range who wear large size apparel has increased in recent years.

Merchandising and
Marketing

Design is an important aspect of the
Companys products. Many AVENUE® and AVENUE BODY® products are custom
designed. The Company emphasizes a contemporary brand image and consistency of merchandise
quality and fit. The Company often updates its merchandise selections to reflect customer
demand and mainstream fashion trends. (The apparel industry is subject to rapidly changing
consumer fashion preferences and the Companys performance depends on its ability to
respond quickly to changes in fashion.) The Company offers most of its merchandise at
popular or moderate price points and reduces the price of slow moving merchandise until it
sells.

The Company exclusively promotes
merchandise with its own brands, which the Company believes help to distinguish it from
competitors. Through careful brand management, including consistent imaging of its brands,
the Company seeks enhanced brand recognition. This paragraph includes forward-looking
information under the Private Securities Litigation Reform Act of 1995 (the Reform
Act), which is subject to the uncertainties and other risk factors referred to in
Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations  Future Results.

The Company offers selections of
AVENUE® brand casual wear, career apparel, specialty items and accessories. The casual
wear assortment includes skirts, pants, jeans, active wear, shirts, T-shirts, jackets and
sweaters. Casual wear comprises the majority of the Companys sales. The career
assortment includes slacks, skirts, jackets, soft blouses and dresses.

The Company develops new AVENUE®
brand apparel assortments on average four to six times each year. Accessories include
earrings, pins, scarves, necklaces, watches and handbags.

The Company maintains an extensive
customer database and uses direct mail, print media advertising, credit card statement
inserts, and e-mail messages as part of its marketing activities in the belief that
shoppers often make tentative purchasing decisions at home.

The Company uses creative merchandise
displays, distinctive signage and custom designed packaging to create an attractive store
atmosphere.

Channel of Distribution

The Companys channel of
distribution is retail stores, using the AVENUE® trade name, that it leases. Most
stores are located in strip shopping centers, where occupancy costs are generally lower
than in malls. See, Properties. The Company seeks to become a shopping
destination instead of relying on traffic in general.

The Company also operates a website
at www.avenue.com that sells a selection of the merchandise that is also for sale in the
stores. Sales on the website are not included in the Companys calculation of
comparable store sales in different periods.

Merchandise selection is allocated to
each store based on many factors, including store location, store profile and sales
experience. The Company regularly updates each stores profile based on selling
trends. The Companys point-of-sale systems gather sales, inventory and other
statistical information from each store daily. This information is then used to evaluate
and adjust each stores merchandise mix.

Until March 2003, the Company also
mailed catalogs. (The website and the catalog, while it was in existence, are referred to
as the shop@home business.)

Merchandise Distribution
and Inventory Management

Short production schedules and rapid
delivery of merchandise from manufacturers reduce business risks arising from changing
fashion trends.

The Company uses a centralized
distribution system, under which all merchandise is received, processed and distributed
through the Companys distribution complex in Troy, Ohio. The Company maintains a
worldwide logistics network of agents and space availability arrangements to support the
in-bound movement of merchandise into the distribution complex. There, it is repacked and
shipped to the stores. The out-bound system for store deliveries consists of common
carrier line haul routes to a network of delivery agents. (The Company does not own or
operate trucks.) The Company manages its inventory levels, merchandise allocation to
stores and sales replenishing for each store through its computerized management
information systems (MIS). MIS enables the Company to profile each store and
evaluate and adjust each stores merchandise mix on a weekly basis. New merchandise
is allocated by style, color and size immediately before shipment to stores to achieve a
merchandise assortment that is suited to each stores customer base.

The Companys inventory
management strategy is to maintain targeted inventory levels and turns. The Company also
seeks to minimize the amount of unsold merchandise at the end of a season by closely
comparing sales and fashion trends with on-order merchandise and making necessary
purchasing adjustments and price reductions, including clearance sales. The preceding
sentences constitute forward-looking information under the Reform Act and are subject to
the variables, uncertainties and other risk factors referred to in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Future Results.

The Company offers its customers a
competitive return policy.

Management Information
Systems

The Companys management
information systems consist of a full suite of financial and merchandising systems,
including inventory distribution and control, sales reporting, accounts payable,
cash/treasury, merchandise reporting and planning.

All of the Companys stores have
point-of-sale terminals that transmit daily information on sales by merchandise category,
style, color and size, as well as customer data. The Company evaluates this information,
together with its report on merchandise shipments to the stores, to implement
merchandising decisions regarding markdowns, reorders of fast-selling items and allocation
of merchandise. In addition, the Companys headquarters and distribution center are
linked through a computer network, which is accessible to district sales managers in the
field.

Company associates located at its
headquarters maintain and support the applications software, operations, networking and
point-of-sale functions of the Companys management information systems. The
mainframe hardware and systems software for the Companys management information
systems are maintained and operated by IBM under an outsourcing agreement that provides
scalability of the Companys platform.

Purchasing

Separate groups of merchants are
responsible for different categories of merchandise. Most of the merchandise purchased by
the Company consists of custom designed and fitted products, produced for the Company by
contract manufacturing, under one of the Companys brands.

The Company provides manufacturers
with strict guidelines for product specifications (such as measurement, fabric and trim)
and size gradings to ensure proper, consistent fit and quality. The Company and
independent sourcing agents monitor production by manufacturers in the United States and
abroad to ensure that size specifications, grading requirements and other specifications
are met.

In fiscal 2004, three purchasing
agents each accounted for 10% or more of the Companys merchandise purchases, for a
combined total of approximately 41.0% of purchases. There is no assurance that the
replacement of any of these firms would not have a materially adverse effect on the
Companys operations.

Domestic purchases (some of which are
foreign-made products) are executed by Company purchase orders. Import purchases are made
in U.S. dollars and are generally supported by trade letters of credit.

Credit Sales

The Company permits its customers to
use several methods of payment, including cash, personal checks, general purpose credit
cards and a private label credit card that is co-branded with the Companys
AVENUE® service mark and the name of the issuer of the card, World Financial Network
National Bank. Management believes that, in addition to supplying needed credit, the
Companys private label credit card builds customer loyalty.

Competition

All aspects of the womens
retail apparel and shoe businesses are highly competitive. Many of the competitors are
units of large national chains that have substantially greater resources than the Company
and are better known to shoppers. The Companys competition includes other specialty
retailers, mass merchants, department stores, discount stores, mail order companies,
television shopping channels and Internet web sites. Management believes that total sales
of large size womens apparel from these sources of supply increased in recent years.
Among specialty retailers for large size women like the Company, the competition includes
large store chains that have announced long-term store growth plans to aggressively expand
into additional strip shopping center locations.

Management believes its proprietary
brands, merchandise selection, prices, consistency of merchandise quality and fit, and
appealing store experience emphasizing strong merchandise presentations, together with its
experienced management team, management information systems and logistics capabilities,
enable it to compete in the marketplace.

This section includes forward-looking
information under the Reform Act and is subject to the uncertainties and other risk
factors referred to in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Future Results.

Trade Name and Trademarks

The Company is the owner in the
United States of its trade name, AVENUE®, used on storefronts, its principal
trademarks, AVENUE®, AVENUE BODY® and CLOUDWALKERS®, used on merchandise
labels, and its service mark, AVENUE®, used on giftcards. The Company also licenses
the AVENUE® trademark to manufacturers of high end towels and watches. The Company is
not aware of any use of its trade name or trademarks by its competitors that has a
material effect on the Companys operations or any material claims of infringement or
other challenges to the Companys right to use its trade name and trademarks in the
United States.

Employees

As of March 31, 2005, the Company
employed 5,496 associates, of whom 1,921 worked full-time and the balance of whom worked
part-time. Considerable seasonality is associated with employment levels. Approximately 59
store associates are covered by collective bargaining agreements. The Company believes
that its relations with its associates are good.

Seasonality

Prior to fiscal 2004, the first half
of the fiscal year often had more store sales than the second half. See, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Executive Summary  Company Sales Fluctuations.

Item 2.   Properties.

As of January 29, 2005, the Company
leased the following 514 stores in the following 37 states:

|              |    |                |   
|------------- | -- | -------------- | --
|Alabama       | 7  | Nebraska       | 2 
|Arizona       | 5  | Nevada         | 3 
|Arkansas      | 2  | New Hampshire  | 1 
|California    | 74 | New Jersey     | 38
|Connecticut   | 7  | New Mexico     | 2 
|Delaware      | 2  | New York       | 51
|Florida       | 29 | North Carolina | 9 
|Georgia       | 17 | Ohio           | 25
|Illinois      | 38 | Oklahoma       | 3 
|Indiana       | 11 | Oregon         | 5 
|Kansas        | 2  | Pennsylvania   | 20
|Kentucky      | 3  | Rhode Island   | 2 
|Louisiana     | 9  | South Carolina | 4 
|Maryland      | 12 | Tennessee      | 6 
|Massachusetts | 14 | Texas          | 48
|Michigan      | 26 | Virginia       | 10
|Minnesota     | 3  | Washington     | 11
|Mississippi   | 2  | Wisconsin      | 4 
|Missouri      | 7  |                |   

Store locations are available on the
Internet at www.avenue.com.

All improvements in the
Companys stores, including interior walls, floors, ceilings, fixtures and
decorations, are supplied by the Company, with the landlord often providing a construction
allowance. The Company usually pays certain store operating costs, including utilities,
insurance and taxes and, where applicable, its share of common area maintenance expenses.

The Company leases its executive
offices, which consist of approximately 65,000 square feet in an office building at 365
West Passaic Street, Rochelle Park, New Jersey 07662. The office lease has a term ending
in August 2016.

The Company owns a 128-acre site
adjacent to Interstate 75 in Troy, Ohio, on which its national distribution center is
located. The national distribution center is equipped to service 900 retail stores and the
Internet store. The site is adequate for a total of four similar facilities.

Item 3.   Legal Proceedings.

|(a) |  | The Company is involved in legal actions and claims arising in the ordinary
          course of business. Management believes that such litigation and claims, net of
          reserves, will not have a material adverse effect on the Companys
          financial position, annual results of operations or cash flows.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, on May 1, 2003, a suit in California Superior Court, Los Angeles County, styled
Erik Stanford vs. United Retail Incorporated was served on the Company by a
former store manager in California. On March 3, 2004, an amended complaint was served that
added another plaintiff. The suit is purportedly a class action on behalf of certain
current and former associates in California in the previous four years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
plaintiffs in the Stanford case assert state wage and hour claims and related
claims against the Company.
| | -------------------------------------------------------------------------------------------------------------

| | On
March 18, 2005, the plaintiffs in the Stanford case and the Company entered into a
Stipulation and Settlement Agreement (the Settlement Agreement), subject to
Court approval. The Settlement Agreement provides for payments in the total amount of up
to approximately $2.3 million, including interest and payroll taxes, payable on a claims
made basis in installments of up to approximately $1.3 million in the third quarter of
fiscal 2005 and up to approximately $1.0 million on April 28, 2006. In connection with the
settlement, compensation of store managers employed by the Company in California was
converted from salaries to hourly wages in January 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Court
hearings to rule on the fairness of the terms of the Settlement Agreement are expected to
be held in the second and third quarters of fiscal 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the event that the Court disapproves the Settlement Agreement, the Company intends to
oppose class certification strongly. To the extent that the plaintiffs successfully obtain
class certification, the Company intends to defend the Stanford case vigorously on
the merits at trial.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
fiscal 2003 and fiscal 2004, the Company recorded an accrual for the cost of the agreed
amount of the settlement in the Stanford case described above.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Certain pending legal proceedings to which the Company was a party were
          terminated during the fourth quarter of 2004 in the ordinary course of business.
          The termination of pending legal proceedings during that fiscal quarter did not
          have a material effect on the financial position, results of operations or cash
          flows of the Company. See, however, the discussion of the Settlement Agreement
          in the preceding subsection.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

No matters were submitted to a
stockholder vote during the fourth quarter of fiscal 2004.

---

# PART II

Item 5.   Market for Registrants
Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a)    
          The Common Stock of United Retail Group, Inc. is quoted on the Nasdaq Stock
          Market under the symbol URGI. Continued quotation on the NASDAQ
          Stock Market requires a minimum bid price of at least $1.00 per share to be
          maintained except for periods of less than 10 consecutive business days each,
          subject to an opportunity to cure the deficiency after receipt of notice from
          NASDAQ.

The following table sets forth the
reported high and low sales prices of the Common Stock as reported by Nasdaq for each
fiscal quarter indicated.

|               | 2003  | 2004  |       |      
|-------------- | ----- | ----- | ----- | -----
|               | High  | Low   | High  | Low  
|First Quarter  | $3.09 | $1.05 | $3.25 | $2.48
|Second Quarter | $3.92 | $1.15 | $2.99 | $1.77
|Third Quarter  | $4.50 | $2.55 | $3.71 | $1.90
|Fourth Quarter | $3.42 | $2.15 | $5.71 | $3.30

The last reported sale price of the
Common Stock on the Nasdaq Stock Market on April 28, 2005 was $4.90.

(b)    
          At April 22, 2005, there were 379 record owners of Common Stock.

(c)    
          United Retail Group, Inc. has not paid dividends on its Common Stock and has no
          present intention of doing so. Also, the Financing Agreement between United
          Retail Group, Inc. and certain of its subsidiaries and The CIT Group/Business
          Credit, Inc., dated August 15, 1997, as amended, forbids the payment of
          dividends.

The transfer agent and registrar for
the Common Stock is Continental Stock Transfer and Trust Co., 17 Battery Place South,
8th Floor, New York, New York 10004.

(d)   Equity Compensation Plan Information As of January 29, 2005

|Plan Category                                        | Number of shares tobe issued uponexercise of outstanding options,warrants and rights(% of total) | Weighted-averageexercise price ofoutstanding options,warrants and rights | Number of sharesremaining availablefor future issuanceunder equitycompensation plans(excluding sharesreflected in column(a))
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------
|                                                     | (a)                                                                                              | (b)                                                                      | (c)                                                                                                                         
|Equity compensationplans approved bystockholders     | 1,871,312(98.8%)                                                                                 | $6.60                                                                    | 254,860                                                                                                                     
|                                                     |                                                                                                  |                                                                          |                                                                                                                             
|Equity compensationplans not approved bystockholders | 22,500(1.2%)                                                                                     | $11.74                                                                   | -0-                                                                                                                         
|                                                     |                                                                                                  |                                                                          |                                                                                                                             
|Total                                                | 1,893,812                                                                                        |                                                                          | 254,860                                                                                                                     

Included in the table above are
outstanding stock options issued to an incumbent non-management Director and an incumbent
Vice President of the Company, respectively, that were approved by the Companys
Board of Directors but were not issued under a plan approved by the stockholders. In 1998,
the Director received an option to purchase 17,000 shares at a price of $12.08 per share
and an option to purchase 3,000 shares at a price of $11.50 per share, which were all
fully vested at January 29, 2005. (The Director had not received any stock options during
his service on the Companys Board of Directors from 1992 through 1997.) In 2000, the
Vice President received an option to purchase 2,500 shares at a price of $9.75 per share,
of which the right to purchase 2,000 shares was vested at January 29, 2005.

All shares of stock of the
Corporation sold by the Corporation between fiscal 2002 and fiscal 2004 were registered
under the Securities Act of 1933 on Form S-8 Registration Statements.

(e)    
          Stock repurchases by the Company are described in Item 7.
          Managements Discussion and Analysis of Financial Condition and
          Results of Operations  Stock Repurchases.

Item 6.   Selected Financial Data.

Selected Financial Data*

|                                        | 53 WeeksFiscal YearEndedFeb. 3,2001 | Fiscal YearEndedFeb. 2,2002 | Fiscal YearEndedFeb. 1,2003 | Fiscal YearEndedJan. 31,2004 | Fiscal YearEndedJan. 29,2005
|--------------------------------------- | ----------------------------------- | --------------------------- | --------------------------- | ---------------------------- | ----------------------------
|
|Statement of Operations Data:           |                                     |                             |                             |                              |                             
|Net sales                               | $419,712                            | $427,040                    | $431,964                    | $396,265                     | $399,250                    
|Cost of goods sold,                     |                                     |                             |                             |                              |                             
|including buying                        |                                     |                             |                             |                              |                             
|and occupancy costs                     | 323,153                             | 326,101                     | 343,625                     | 313,767                      | 314,923                     
|Gross profit                            | 96,559                              | 100,939                     | 88,339                      | 82,498                       | 84,327                      
|General, administrative                 |                                     |                             |                             |                              |                             
|and store operating expenses            | 91,474                              | 100,299                     | 105,499                     | 101,287                      | 97,309                      
|Goodwill impairment                     | -                                   | -                           | 5,611                       | -                            | -                           
|Operating income (loss)                 | 5,085                               | 640                         | (22,771)                    | (18,789)                     | (12,982)                    
|Interest Income**                       | (2,677)                             | (1,081)                     | (339)                       | (103)                        | (1,344)                     
|Interest Expense                        | 823                                 | 720                         | 1,166                       | 1,020                        | 870                         
|Income (loss) before taxes              | 6,939                               | 1,001                       | (23,598)                    | (19,706)                     | (12,508)                    
|Provision for (benefit from)            |                                     |                             |                             |                              |                             
|income taxes***                         | 2,719                               | 571                         | (521)                       | (636)                        | (2,028)                     
|Net income (loss)                       | 4,220                               | 430                         | (23,077)                    | (19,070)                     | (10,480)                    
|Net income (loss) per common share:     |                                     |                             |                             |                              |                             
|Basic                                   | $0.32                               | $0.03                       | ($1.77)                     | ($1.47)                      | ($0.82)                     
|Diluted                                 | $0.31                               | $0.03                       | ($1.77)                     | ($1.47)                      | ($0.82)                     
|Weighted average number                 |                                     |                             |                             |                              |                             
|of common shares outstanding:           |                                     |                             |                             |                              |                             
|Basic                                   | 13,302                              | 13,241                      | 13,047                      | 12,937                       | 12,749                      
|Diluted                                 | 13,515                              | 13,442                      | 13,047                      | 12,937                       | 12,749                      
|Balance Sheet Data (at period end):     |                                     |                             |                             |                              |                             
|Working capital                         | $52,279                             | $44,526                     | $28,688                     | $18,324                      | $16,336                     
|Total assets                            | 210,046                             | 218,187                     | 200,048                     | 170,811                      | 155,208                     
|Long-term capital lease obligations     | -                                   | 7,213                       | 5,764                       | 3,646                        | 1,735                       
|Long-term distribution center financing | 6,616                               | 5,181                       | 3,961                       | 3,326                        | 2,633                       
|Total stockholders' equity              | 121,796                             | 121,804                     | 98,995                      | 80,020                       | 70,049                      

_________________

*The Selected Financial Data should
be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and with the Companys Consolidated
Financial Statements, including the notes thereto, appearing elsewhere in this Report.
Balance sheet data at January 29, 2005 and January 31, 2004 and statements of operations
data for each of the three fiscal years in the period ended January 29, 2005 were derived
from the audited consolidated financial statements appearing elsewhere in this Report.
Data relating to the fiscal year ended February 1, 2003 was derived from the audited
consolidated financial statements included in the Companys Annual Report on Form
10-K/A for the year ended January 31, 2004 filed with the Commission. All other data was derived from
consolidated financial statements as revised for the correction of the accounting
treatment of construction allowances. See, Item 9A. Controls and Procedures.
**Includes interest income of $1.3 million related to an IRS settlement for the year ended
January 29, 2005.***Includes for fiscal 2004, federal tax benefit of $0.4 million related
to an Internal Revenue Service settlement and for fiscal 2004 and fiscal 2003, increases
to valuation allowances of $4.3 million and $12.6 million, respectively, related to
deferred tax assets and net operating loss carryforwards and $1.8 million and $0.9
million, respectively, in reversals of previous accruals for potential tax liabilities
arising from various settlements.

The Company does not hold or issue
financial instruments for trading purposes. Management of the Company believes that its
exposure to interest rate and market risk associated with financial instruments is not
material.

The Company mailed catalogs until
March 2003, when the Company suspended catalog mailings indefinitely.

Item 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

EXECUTIVE SUMMARY

Introduction

The Executive Summary section of
Managements Discussion and Analysis of Financial Condition and Results of Operations
provides a high level summary of the more detailed information elsewhere in this Report,
an overview to put this information in context and a plan to return the Company to
long-term profitability. This section is also an introduction to the discussion and
analysis that follows. Accordingly, it necessarily omits details that appear elsewhere in
this Report. It should not be relied upon separately from the balance of this Report.

Products and Purchasing

The Company is a leading specialty
retailer of womens fashions featuring its proprietary AVENUE® brand. Its product
line features AVENUE® brand large size (14 or larger) womens wearing apparel,
AVENUE BODY® brand large size womens undergarments and lingerie and
CLOUDWALKERS® brand womens footwear, as well as AVENUE® brand accessories
and gifts.

Most of the Companys products
are made for the Company by contract manufacturing abroad.

Customer Base

The Company serves the mass market in
the United States and targets fashion conscious women between 25 and 55 years of age who
wear large size apparel. Management believes that the number of women in this age range
who wear large size apparel has increased in recent years.

Merchandising and
Marketing

Design is an important aspect of the
Companys products. Many AVENUE® and AVENUE BODY® products are custom
designed. The Company emphasizes a contemporary brand image and consistency of merchandise
quality and fit.

The Company has used direct mail,
print media advertising, credit card statement inserts, in-store signage, and e-mail
messages in its marketing activities.

Channel of Distribution

The Companys channel of
distribution is retail stores using its AVENUE® trade name. At January 29, 2005, it
leased 514 stores in 37 states. See, Stores. The Company also has operated a
website at www.avenue.com that sells a selection of the merchandise that is also on sale
in the stores.

Until March 2003, the Company also
mailed catalogs that featured a merchandise selection that included both items in the
stores and similar products. (The website and the catalog, while it was in existence, are
referred to as the shop@home business.)

Increased Competition

The womens retail apparel and
shoe industries are highly competitive. Operating results of businesses in these
industries, especially businesses that emphasize fashionable merchandise, can vary
materially from year to year. The Companys competition includes other specialty
retailers, mass merchants, department stores, discount stores, mail order companies,
television shopping channels and Internet websites. Management believes that total sales
of large size womens apparel from these sources of supply increased in recent years.
Among specialty retailers for large size women like the Company, the competition includes
large store chains that have announced long-term store growth plans to aggressively expand
into additional strip shopping center locations.

Deflationary Price Trend
in Apparel Industry

The Consumer Price Index published by
the U.S. Dept. of Labor, Bureau of Labor Statistics city average for womens and
girls apparel (the CPI) declined 5.0% in fiscal 2001, 1.9% in fiscal
2002, 1.8% in fiscal 2003 and 0.6% in fiscal 2004, comparing January 31st each
year with that date in the previous year. During the 10 years ended January 31, 2005, the
CPI declined 14.6%. There is no assurance that this deflationary trend will not continue.

Company Sales Fluctuations

Sales figures and merchandise margins
are central to regaining the Companys profitability. The Company conducts a weekly
interdisciplinary review of sales and merchandise margins and prepares budgets for two
six-month seasons each year, the Spring season and the Fall season. Management uses
comparable store sales (for stores open at least 12 months at the time) as an analytical
tool.

Seasonal store sales data follow with
sales improvements versus the previous comparable period in bold type:

|                               | 2001   | 2002   | 2003   | 2004   |        |        |        |       
|------------------------------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------
|                               | Spring | Fall   | Spring | Fall   | Spring | Fall   | Spring | Fall  
|Total store sales($ millions)* | $208.8 | $206.7 | $225.1 | $198.7 | $203.5 | $187.7 | $196.0 | $196.9
|                               |        |        |        |        |        |        |        |       
|Sales peraverage store($000's) | $393   | $373   | $406   | $356   | $371   | $344   | $368   | $372  
|                               |        |        |        |        |        |        |        |       
|Average numberof stores        | 532    | 554    | 555    | 558    | 548    | 545    | 532    | 529   
|                               |        |        |        |        |        |        |        |       
|Comparablestore sales**        | -3.4%  | -2.1%  | +3.2%  | -5.3%  | -9.3%  | -4.2%  | -2.2%  | +6.8% 

_________________

*Excluding sales on the Internet and, until
March 2003, through a catalog.**A store that is relocated within
the same shopping center or mall is considered comparable. However, if the store is
relocated elsewhere, it is considered a new store and not comparable. A store that is
expanded or contracted is still comparable, i.e., the sales from the remodeled store are
considered comparable. Stores that are closed are not considered comparable. The
comparable store sales calculation is not adjusted for changes in the store sales return
reserve.

Operating Results

The declines in sales per average
store from the Fall 2002 season through the Spring 2004 season adversely affected
operating results.

The Company had net income of $0.4
million in fiscal 2001 and incurred net losses of $23.1 million in fiscal 2002, $19.1
million in fiscal 2003 and $10.5 million in fiscal 2004. The Company had operating income
of $0.6 million in fiscal 2001 and incurred operating losses of $22.8 million in fiscal
2002, $18.8 million in fiscal 2003 and $13.0 million in fiscal 2004. Excluding a one-time
goodwill write-off, the operating loss in fiscal 2002 was $17.2 million. Operating income
(loss) included loss from shop@home operations before unallocated corporate expenses and
net interest income (expense) of $6.9 million in fiscal 2001 and $5.9 million in fiscal
2002. As a result of the suspension of the catalog (see, Suspension of Catalog
Operations), the Company had only one reportable segment for fiscal 2003 and fiscal
2004.

Product Repositioning Plan

In the womens retail specialty
apparel industry, sales, especially in businesses that emphasize fashionable merchandise,
can vary significantly over time. Sales are volatile because of shifts in consumer
spending patterns, consumer preferences and overall economic conditions; the impact of
competition; variations in weather patterns; fluctuations in consumer acceptance of
products; changes in the ability to develop new merchandise; differences in promotional
strategies; and movements in consumer confidence levels. These variables caused the
Companys sales per average store to fluctuate in the past, declining from the Fall
2002 season through the Spring 2004 season and increasing in the Fall 2004 season. Thus,
recent sales performance is not necessarily indicative of future sales performance. As a
result, management believes that long-term sales projections within a defined narrow range
are not reliable.

After fiscal 2001, when net income
declined to $0.4 million, the Company incurred net losses. The Company has sought to
absorb normal cost inflation and return to long-term profitability through a goal of
increased sales per average store with higher merchandise margins. This unrealized
financial goal was translated into an integrated operational plan early in fiscal 2003
that was designed to reposition the Companys product offering. (This plan has four
principal components: (i) to improve the design of the Companys merchandise and
thereby differentiate it from competitors merchandise, (ii) to market more items
together as coordinated outfits rather than separately as individual garments, (iii) to
put more emphasis on fashionable merchandise and less on basic items, and (iv) to raise
the level of merchandise presentation in the store to make shopping easier and to
encourage outfit buying.) This plan relies primarily on the Companys intellectual
capital. Only small amounts of financial capital are required to execute the plan. The
infrastructure to support implementation of the plan is already in place. See, Item 1.
Business  Merchandising and Marketing; Channel of Distribution; Merchandise
Distribution and Inventory Management; Management Information Systems; Purchasing; Credit
Sales; and Properties.

This section constitutes
forward-looking information under the Reform Act, which is subject to the variables,
uncertainties and other risk factors referred to under the caption Future
Results.

Fluctuation in Store Count

Store counts averaged 557 stores, 546
stores and 531 stores, respectively, for fiscal 2002, 2003 and 2004. In fiscal 2004, the
Company opened two stores and closed 23 stores. In fiscal 2005, the Company is planning to
close approximately 15-20 stores as part of its normal lease maintenance program and to
open only one new store. Thus, the average number of stores is expected to decline further
in fiscal 2005.

The annual capital expenditure
budgets after fiscal 2005 will provide for new store construction and other infrastructure
development priorities. Prioritization will be based, among other things, on overall
profitability and the availability of suitable locations at rents and on terms that fit
the Companys financial model for new store construction. This paragraph constitutes
forward-looking information under the Reform Act, which is subject to the variables,
uncertainties and other risk factors referred to under the caption Future
Results.

Liquidity

United Retail Group, Inc. and certain
of its subsidiaries (collectively, the Companies) are parties to a Financing
Agreement, dated August 15, 1997, as amended (the Financing Agreement), with
The CIT Group/Business Credit, Inc. (CIT). The Financing Agreement provides
credit on a revolving basis.

In early fiscal 2003, the Company
adopted an integrated operational plan designed to reposition the Companys product
offering. This plan has four principal components: (i) to improve the design of the
Companys merchandise and thereby differentiate it from competitors
merchandise, (ii) to market more items together as coordinated outfits rather than
separately as individual garments, (iii) to put more emphasis on fashionable merchandise
and less on basic items; and (iv) to raise the level of merchandise presentation in the
store to make shopping easier and to encourage outfit buying.

The Company plans to use the
Financing Agreement for its immediate and future working capital needs. Management
believes that the borrowing capacity under the Financing Agreement, together with cash on
hand and current and anticipated cash flow from operations, will be adequate to meet the
Companys working capital and capital expenditure requirements for at least the next
12 months.

This section constitutes
forward-looking information under the Reform Act and is subject to the variables,
uncertainties and other risk factors referred to under the caption Future
Results.

DISCUSSION AND ANALYSIS

(This section and the one that
follows provide details about the material line items in the Companys statements of
operations.)

Fiscal 2004 Versus Fiscal
2003

Net sales for fiscal 2004 increased
0.8% from fiscal 2003, to $399.3 million from $396.3 million.

The sources of net sales growth were
as follows:

|Amount         | Attributable to                        
|-------------- | ---------------------------------------
|$8.5 million   | 2.2% increase in comparable store sales
|2.8 million    | new stores                             
|(10.3) million | closed stores                          
|2.0 million    | other                                  
|$3.0 million   | Total                                  

In comparison to fiscal 2003, as a
whole and on a quarterly basis, the components of net sales growth and the change in
transactions per average store were as follows:

|                              | first quarterfiscal 2004 | second quarterfiscal 2004 | third quarterfiscal 2004 | fourth quarterfiscal 2004 | 52 weeksfiscal 2004
|----------------------------- | ------------------------ | ------------------------- | ------------------------ | ------------------------- | -------------------
|Units sold peraverage store   | -1%                      | +3%                       | +21%                     | +14%                      | +8%                
|                              |                          |                           |                          |                           |                    
|average price perunit sold    | 0%                       | -4%                       | -12%                     | -4%                       | -5%                
|                              |                          |                           |                          |                           |                    
|transactions peraverage store | -2%                      | +4%                       | +20%                     | +17%                      | +9%                

There was better customer acceptance
of sweaters, which increased sales by $3.7 million in comparison to fiscal 2003.

Average number of stores decreased
from 546 to 531. The average number of stores is expected to continue to decrease. See,
Stores.

Internet and catalog (shop @
home) sales, which are not included in the calculation of comparable store sales,
increased to $6.4 million in fiscal 2004 from $4.9 million in fiscal 2003, despite the
suspension of catalog mailings early in fiscal 2003. See, Suspension of Catalog
Operations.

Gross profit increased to $84.3
million in fiscal 2004 from $82.5 million in fiscal 2003, increasing as a percentage of
net sales to 21.1% from 20.8%. Gross profit as a percentage of net sales increased
principally because rent and occupancy costs declined as a percentage of net sales (110
basis points as a percentage of net sales), which occurred because net sales increased and
rent and occupancy costs declined. The decline in rent and occupancy costs was partially
offset by smaller merchandise margins (50 basis points) and higher marketing costs (30
basis points). Smaller merchandise margins were the result of lower prices caused
principally by less customer acceptance of the Companys product offering. Gross
profit levels will be subject to the variables, uncertainties and other risk factors
referred to under the caption Future Results. The decline in rent and
occupancy costs is expected to continue as the average number of stores decreases.

General, administrative and store
operating expenses decreased to $97.3 million in fiscal 2004 from $101.3 million in fiscal
2003, decreasing as a percentage of net sales to 24.4% from 25.6% principally from
reductions in store payroll (60 basis points) and casualty and property insurance expense (60 basis points). There is no
assurance that general, administrative and store operating expenses will continue to
decrease. In addition to general cost inflation, the Company expects consulting and
professional fees and Finance Department payroll to increase because of additional
resources required to support new regulatory compliance. Also, although the number of
associates employed in stores is expected to decrease as a result of store closings,
proposed increases in the federal minimum wage and certain state minimum wages may put
pressure on the wage rates paid to the remaining store associates. Further, in the first
quarter of fiscal 2005, consulting and legal fees will be incurred in connection with the
candidacy of more nominees for election as Director than there are seats on the
Companys Board of Directors.  See Item 10. Directors and Executive Officers of the Registrant - Nominating Comittee.

The Company incurred operating losses
of $13.0 million in fiscal 2004 and $18.8 million in the previous year.

Interest income was $1.3 million in
fiscal 2004 and $0.1 million in fiscal 2003 as the result of interest on a federal income
tax refund in fiscal 2004.

Interest expense was $0.9 million in
fiscal 2004 and $1.0 million in fiscal 2003.

The benefit from income taxes
increased to $2.0 million in fiscal 2004 from $0.6 million in fiscal 2003, principally
from the reversal of accruals for potential tax liabilities due to settlements in fiscal
2004. As to the benefit from income taxes, the Companys effective tax rate was 16.2%
for fiscal 2004 and 3.2% for fiscal 2003. The primary contributing factors were the
valuation allowance provided for the Companys net operating loss (NOL)
carryforwards and other net deferred tax assets, partially offset by the reversal of
previous accruals for potential tax liabilities arising from settlements in each year and,
in fiscal 2004, a settlement refund.

In fiscal 2004, the Companys
tax valuation allowance for all net deferred tax assets, including NOLs, was
increased by $4.3 million.

The Company incurred net losses of
$10.5 million in fiscal 2004 and $19.1 million in fiscal 2003.

Fiscal 2003 Versus Fiscal
2002

Net sales for fiscal 2003 decreased
8.3% from fiscal 2002, to $396.3 million from $432.0 million.

The sources of this net sales
decrease were as follows:

|Amount          | Attributable to                        
|--------------- | ---------------------------------------
|($28.5) million | 7.0% decrease in comparable store sales
|11.1 million    | new stores                             
|(14.6) million  | closed stores                          
|(3.7) million   | other                                  
|($35.7) million | Total                                  

In comparison to fiscal 2002, units
sold per average store decreased 7% and average price per unit sold increased 2%.

There was less customer acceptance of
dresses, woven tops and knit bottoms, which reduced sales by $18.5 million in comparison
to fiscal 2002.

Average number of stores decreased
from 557 to 546.

Shop @ home sales, which are not
included in the calculation of comparable store sales, declined to $4.9 million in fiscal
2003 from $8.1 million in fiscal 2002, primarily from the suspension of catalog mailings.

Gross profit decreased to $82.5
million in fiscal 2003 from $88.3 million in fiscal 2002 but increased as a percentage of
net sales to 20.8% from 20.5%. Gross profit as a percentage of net sales increased
principally because of lower marketing costs resulting from the suspension of catalog
mailings (100 basis points as a percentage of net sales) and higher merchandise margins
(60 basis points). (Higher merchandise margins were the result of higher prices supported
by stronger customer demand.) The decline in marketing costs and increase in merchandise
margins were partially offset by an increase in rent and occupancy costs as a percentage
of net sales (140 basis points), which occurred because net sales declined at a faster
rate than rent and occupancy costs.

General, administrative and store
operating expenses decreased to $101.3 million in fiscal 2003 from $105.5 million in
fiscal 2002, excluding the goodwill write-off referred to below. However, as a percentage
of net sales, these expenses increased to 25.6% from 24.4%, principally from an increase
in store payroll as a percentage of net sales (90 basis points), which occurred because
net sales declined at a faster rate than store payroll.

The Company incurred operating losses
of $18.8 million in fiscal 2003 and $22.8 million in the previous year. In fiscal 2002,
the Company recorded a one-time impairment of goodwill in the amount of $5.6 million.
Excluding the goodwill write-off, the operating loss in fiscal 2002 was $17.2 million.

As to the benefit from income taxes,
the Companys effective tax rate was 3.2% for fiscal 2003 and 2.2% for fiscal 2002.
The primary contributing factor in each period was the valuation allowance provided for
the Companys NOL carryforwards and other net deferred tax assets.

In fiscal 2002, the Company
established a $7.3 million valuation allowance for all its net deferred tax assets,
including its NOLs. In fiscal 2003, the tax valuation allowance was increased by
$12.6 million.

The Company incurred net losses of
$19.1 million in fiscal 2003 and $23.1 million in fiscal 2002.

See, Critical Accounting
Policies for a discussion of estimates made by management in preparing financial
statements in accordance with generally accepted accounting principles.

February-March Sales

Combined net sales for the months of
February and March 2005 increased 9.0% from February and March 2004 to $69.9 million from
$64.2 million. Comparable store sales for the two months increased 10.8%. Easter occurred
in March 2005 and April 2004, which affected year over year comparisons of sales and
comparable store sales for the months of February and March combined. Average number of
stores decreased from 534 to 513.

In comparison to the months of
February and March 2004 combined, units sold per average store increased 22%; average
price per unit sold decreased 8%; and transactions per average store increased 23%.

# Comparable Store Sales

|                             |        |       |        |       |               
|---------------------------- | ------ | ----- | ------ | ----- | --------------
|                             | 2003   | 2004  | 2005   |       |               
|                             | Spring | Fall  | Spring | Fall  | February-March
|Comparable store sales were: | -9.3%  | -4.2% | -2.2%  | +6.8% | +10.8%        

Increased Competition

The womens retail apparel and
shoe industries are highly competitive. Operating results of businesses in these
industries, especially businesses that emphasize fashionable merchandise, can vary
materially from year to year. The Companys competition includes other specialty
retailers, mass merchants, department stores, discount stores, mail order companies,
television shopping channels and Internet websites. Management believes that total sales
of large size womens apparel from these sources of supply increased in recent years.
Among specialty retailers for large size women like the Company, the competition includes
large store chains that have announced long-term store growth plans to aggressively expand
into additional strip shopping center locations.

Product Repositioning Plan

In the womens retail specialty
apparel industry, sales, especially in businesses that emphasize fashionable merchandise,
can vary significantly over time. Sales are volatile because of shifts in consumer
spending patterns, consumer preferences and overall economic conditions; the impact of
competition; variations in weather patterns; fluctuations in consumer acceptance of
products; changes in the ability to develop new merchandise; differences in promotional
strategies; and movements in consumer confidence levels. These variables caused the
Companys sales per average store to fluctuate in the past, declining from the Fall
2002 season through the Spring 2004 season and increasing in the Fall 2004 season. Thus,
recent sales performance is not necessarily indicative of future sales performance. As a
result, management believes that long-term sales projections that fall within a defined
narrow range are not reliable.

After fiscal 2001, when net income
declined to $0.4 million, the Company incurred net losses. Since then, the Company has
sought to absorb normal cost inflation and return to long-term profitability through a
goal of increased sales per average store with higher merchandise margins. This unrealized
financial goal was translated into an integrated operational plan early in fiscal 2003
that is designed to reposition the Companys product offering. This plan has four
principal components: (i) to improve the design of the Companys merchandise and
thereby differentiate it from competitors merchandise, (ii) to market more items
together as coordinated outfits rather than separately as individual garments, (iii) to
put more emphasis on fashionable merchandise and less on basic items, and (iv) to raise
the level of merchandise presentation in the store to make shopping easier and to
encourage outfit buying. This plan relies primarily on the Companys intellectual
capital. Only small amounts of financial capital are required to execute the plan. The
infrastructure to support implementation of the plan is already in place. See, Item 1.
Business  Merchandising and Marketing; Channel of Distribution; Merchandise
Distribution and Inventory Management; Management Information Systems; Purchasing; Credit
Sales; and Properties. There is no assurance, however, that the Companys
product repositioning plan will succeed.

This section constitutes
forward-looking information under the Reform Act, which is subject to the variables,
uncertainties and other risk factors referred to under the caption Future
Results.

Liquidity and Capital
Resources

This section provides details about
the Companys sources of liquidity.

Cash Flow

Net cash provided from operating
activities decreased to $3.2 million in fiscal 2004 from $5.9 million in fiscal 2003. This
resulted principally from an increase of $0.4 million in inventory in fiscal 2004 versus a
decrease of $12.5 million in inventory in fiscal 2003, partially offset by a reduction in
net loss to $10.5 million in fiscal 2004 from $19.1 million in fiscal 2003.

Balance Sheet Sources of
Liquidity

The Companys cash and cash
equivalents were $12.6 million at January 29, 2005 compared with $14.4 million at January
31, 2004.

Inventories were stated at $49.5
million at January 29, 2005 compared with $49.1 million at January 31, 2004, an increase
of 0.8%. Inventory per store excluding Shop @ Home inventories increased 4.7% as a result
of more units, principally of Spring merchandise. Inventory was increased in anticipation
of higher demand. See, February-March Sales. Inventory levels are seasonal.
(See, Critical Accounting Policies  Inventory for a discussion of
estimates made by management in stating inventories in financial statements prepared in
accordance with generally accepted accounting principles.)

Property and equipment decreased to
$79.0 million at January 29, 2005 from $91.7 million at January 31, 2004, principally from
depreciation. The Company expects property and equipment to decrease further in fiscal
2005, principally from depreciation.

Tax Refund

In April 2004, the Company received
payment from the IRS of $2.5 million in connection with tax refund claims. ($1.1 million
was recorded as an increase to additional paid-in capital as it related to stock warrant
deductions; $1.2 million of interest income was recorded in the Companys results of
operations; and $0.2 million in federal tax benefit was recorded related to research
credits.) An additional payment of $0.3 million was received from the IRS in August 2004.
($0.1 million of interest income was recorded; and $0.2 million in federal tax benefit was
recorded related to research credits.)

Other Liquidity Sources

Purchases of merchandise directly
imported by the Company are made in U.S. dollars and generally financed by trade letters
of credit.

The Financing Agreement was extended
and expanded during fiscal 2003. The term was extended three years to August 15, 2008. The
line of credit was increased from $40 million to $50 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 any of the Companies to support trade letters of credit and
standby letters of credit and to finance loans. At January 29, 2005, trade letters of
credit for the account of the Companies and supported by CIT were outstanding in the
amount of $21.3 million and standby letters of credit were outstanding in the amount of
$6.1 million. Standby letters of credit were used principally in connection with insurance
policies issued to the Company.

Subject to the following paragraph,
the availability of credit (within the aggregate $50 million line of credit) to any of the
Companies at any time is the excess of its borrowing base over the aggregate outstanding
amount of its letters of credit and its revolving loans, if any. The borrowing base, as to
any of the Companies is (i) 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 65% to 75% depending on the time of year, (y) the balance from time to time
in an account in its name that has been pledged to the lenders (a Pledged
Account) and (z) 85% of certain receivables from credit card companies less (ii)
reserves for rent for stores located in the states of Pennsylvania, Virginia and
Washington and liens other than permitted liens and, at CITs option, a reserve for
sales taxes collected but not yet paid.

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 significant financial covenants.

The combined borrowing capacity of
the Companies is cyclical due to the seasonality of the retail industry. At January 29,
2005, the combined borrowing capacity of the Companies, after satisfying the $5 million
minimum availability requirement, was $10.1 million; the Pledged Account had a zero
balance; a $0.1 million loan was outstanding; and the Companies balance sheet cash
and cash equivalents of $12.6 million were unrestricted. The Company has agreed with CIT
to have its subsidiary, Avenue Giftcards, Inc. (which issues AVENUE® giftcards),
maintain a minimum level of high-grade liquid investments, which amounted to $0.7 million.
These investments were classified as restricted cash on the balance sheet at January 29,
2005 and will fluctuate each quarter in relation to the volume of net issuances of
AVENUE® giftcards and merchandise credits during the previous six months. (The volume
of net issuances is seasonal.)

The line of credit is collateralized
by a security interest in (i) inventory and its proceeds, (ii) receivables from credit
card companies and (iii) the balance, if any, from time to time in the Pledged Account.

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

The Company has drawn on the
revolving loan facility under the Financing Agreement from time to time to meet its peak
working capital requirements. Interest is payable monthly based on a 360-day year either
at the prime rate plus an incremental percentage up to 0.75% per annum or at the LIBOR
rate plus an incremental percentage ranging from 1.75% to 2.50% per annum. The borrower
can select either the prime rate or the LIBOR rate as the basis for determining the
interest rate. In either case, the incremental percentage is determined by the average
excess availability. Payments of revolving loans are not required until termination of the
agreement unless either (1) the outstanding balance of revolving loans and outstanding
letters of credit exceeds the combined borrowing capacity of the Companies, in which case
the excess would be payable upon demand from CIT or (2) a default under the Financing
Agreement arises.

The Companys obligation to pay
customs duties on merchandise imports was collateralized by an unsecured surety bond for
$1.5 million during fiscal 2002. The tightening market for surety bonds has made it
necessary for the Company to support the surety bond with a standby letter of credit under
the Financing Agreement in the amount of $0.5 million.

Short-term trade credit represents a
significant source of financing for merchandise purchases other than merchandise directly
imported by the Company. Trade credit arises from the willingness of the Companys
vendors of these products to grant extended payment terms for inventory purchases and is
generally financed either by the vendor or a third-party factor. The availability of trade
credit depends on the Companys having other sources of liquidity, as well. In
particular, credit authorizations by trade creditors focus on the amount of the
Companys cash and cash equivalents and its borrowing capacity under the Financing
Agreement.

Capital Expenditures

This section and the one that follows
provide details about certain uses of cash by the Company.

Capital expenditures were $2.0
million in fiscal 2004 and $3.4 million in fiscal 2003, principally because the Company
opened fewer new stores in fiscal 2004.

Capital expenditures are projected to
be approximately $3.0 million for fiscal 2005, including implementation of the
Companys product repositioning plan. This paragraph constitutes forward-looking
information under the Reform Act and is subject to the variables, uncertainties and other
risk factors referred to under the caption Future Results.

Principal Contractual
Obligations and Certain Other Commercial Commitments

The principal contractual obligations
of the Company and certain other commercial commitments at January 29, 2005 (see, also
Critical Accounting Policies  Incurred But Not Reported Claims For Personal
Injuries and Medical Benefits) are summarized in the following charts:

|                                  | Payments Due by Period (000's omitted) |        |        |       
|--------------------------------- | -------------------------------------- | ------ | ------ | ------
|
|Fixture Capital Leases*           | $3,468                                 | $1,733 | $1,735 | $0    
|Distribution Center Mortgage*     | 3,326                                  | 693    | 1,579  | 1,054 
|Call Center Systems Capital Lease | 140                                    | 140    | 0      | 0     
|Revolving Loan                    | 100                                    | 100    | 0      | 0     
|Total                             | $7,034                                 | $2,666 | $3,314 | $1,054

| |  | 
| |  | 
| |  | 

|                           | Amount of Commitment Per Period (000's omitted) |         |         |        
|-------------------------- | ----------------------------------------------- | ------- | ------- | -------
|
|Operating Leases**         | $261,248                                        | $48,031 | $71,034 | $56,925
|Trade Letters of Credit*** | 21,335                                          | 21,335  | 0       | 0      
|Standby Letters of Credit  | 6,145                                           | 6,145   | 0       | 0      
|Customs Duties Bond        | 2,000                                           | 2,000   | 0       | 0      
|Total                      | $290,728                                        | $77,511 | $71,034 | $56,925

_________________

*The proceeds of the fixture capital
leases were principally used to partially finance new store construction in fiscal 2001.
The proceeds of the distribution center mortgage were principally used to partially
finance the construction cost of the Companys national distribution center, which
was completed in fiscal 1993.**Landlord charges other than rent
are not included. Additional landlord charges for taxes, maintenance and similar expenses
were equivalent to approximately 30% to 35% of the rent paid historically.***Trade letters of credit support
Company obligations under certain purchase orders for merchandise imports for which
payment is not yet due. (Other purchase orders represent material commercial obligations
but are not supported by trade letters of credit.)

Pending Litigation

The Company is involved in legal
actions and claims arising in the ordinary course of business. Management believes that
such litigation and claims, net of reserves, will not have a material adverse effect on
the Companys financial position, annual results of operations or cash flows.

In addition, on May 1, 2003, a suit
in California Superior Court, Los Angeles County, styled Erik Stanford vs. United
Retail Incorporated was served on the Company by a former store manager in California.
On March 3, 2004, an amended complaint was served that added another plaintiff. The suit
is purportedly a class action on behalf of certain current and former associates in
California in the previous four years.

The plaintiffs in the Stanford
case assert state wage and hour claims and related claims against the Company.

On March 18, 2005, the plaintiffs in
the Stanford case and the Company entered into a Stipulation and Settlement
Agreement (the Settlement Agreement), subject to Court approval. The
Settlement Agreement provides for payments in the total amount of up to approximately $2.3
million, including interest and payroll taxes, payable on a claims made basis in
installments of up to approximately $1.3 million in the third quarter of fiscal 2005 and
up to approximately $1.0 million on April 28, 2006. In connection with the settlement,
compensation of store managers employed by the Company in California was converted from
salaries to hourly wages in January 2005.

Court hearings to rule on the
fairness of the terms of the Settlement Agreement are expected to be held in the second
and third quarters of fiscal 2005.

In the event that the Court
disapproves the Settlement Agreement, the Company intends to oppose class certification
strongly. To the extent that the plaintiffs successfully obtain class certification, the
Company intends to defend the Stanford case vigorously on the merits at trial.

In fiscal 2003 and fiscal 2004, the
Company recorded an accrual for the cost of the agreed amount of the settlement in the
Stanford case described above.

Meeting Cash Requirements

The Companys cash requirements
include (i) anticipated working capital needs, including seasonal inventory financing,
(ii) financing activities, including payments due on its principal contractual obligations
and (iii) investing activities, including costs for building stores and replacing fixtures
where appropriate. Also, the Stanford wage and hour class action might be settled
with Court approval in the third quarter of fiscal 2005 (see, Pending
Litigation).

During fiscal 2004, the Company
funded net cash used in investing activities, repayments of long-term debt and payments on
capital lease obligations from net cash provided from operating activities and a net
decrease in cash and cash equivalents. The Companys historical sources of liquidity
have been the availability of credit under the Financing Agreement on a revolving basis
and short-term trade credit, as well as its cash on hand and net cash provided by
operating activities.

The Company plans to use the
Financing Agreement for its immediate and future working capital needs. Management
believes that the borrowing capacity under the Financing Agreement, together with cash on
hand and current and anticipated cash flow from operations, will be adequate to meet the
Companys working capital and capital expenditure requirements, including the
anticipated settlement of the Stanford case with Court approval, for at least the
next 12 months.

This section constitutes
forward-looking information under the Reform Act and is subject to the variables,
uncertainties and other risk factors referred to under the caption Future
Results.

Critical Accounting
Policies

Introduction

This section discusses the
Companys critical accounting policies.

Financial statements prepared by
companies in accordance with generally accepted accounting principles are affected by the
policies followed by management in preparing them. Some accounting policies require
difficult, subjective or complex judgments by corporate management, often as a result of
the need to make estimates about the effect of matters that are inherently uncertain.
Among the most important accounting policies of the Company that involve such management
judgments are (i) the use of the retail method of accounting for inventory, (ii) the use
of estimates of incurred but not reported claims for uninsured damages for personal
injuries and workers compensation benefits and for benefits under the Companys
self-insured medical, dental and prescription plans for its associates, as well as future
development costs of reported claims (collectively, IBNR Claims) and (iii)
determining whether to continue the valuation allowance for the Companys net
deferred tax assets, including NOLs.

Inventory

In accordance with generally accepted
accounting principles, inventories are stated at the lower of cost or market. The Company
utilizes the retail method, under which a cost-to-price relationship is developed on the
basis of original cost as compared to initial retail selling price. The valuation of
inventories at cost and the resulting margins are calculated by applying this
cost-to-price relationship to the retail value of inventories. Consequently, the use of
the retail inventory method results in valuing inventories at lower of cost or market.

Inherent in the retail inventory
method are management estimates on current and future selling value of the inventory.
These estimates, which are described in the following paragraphs, can significantly impact
the ending inventory valuation at cost, as well as resulting margins. In the womens
retail specialty apparel industry, sales, especially in businesses that emphasize
fashionable merchandise, can vary significantly over time. Sales are volatile because of
shifts in consumer spending patterns, consumer preferences and overall economic
conditions; the impact of increased competition; variations in weather patterns;
fluctuations in consumer acceptance of products; changes in the ability to develop new
merchandise; differences in promotional strategies; and movements in consumer confidence
levels. The necessity for management estimates based on these variables, coupled with the
fact that the retail inventory method is an averaging process, can produce inventory
valuations at any point in time that are inexact.

Permanent markdowns, when taken,
reduce both the price and cost components of inventory on hand, which maintains the
established cost-to-price relationship. Deferred markdowns can result in an overstatement
of inventories under the lower of cost or market principle. Accordingly, at the end of
each fiscal year, management conducts a thorough review of inventory on hand. Based on
managements business judgment, the Company may reduce further the carrying value of
inventories by recording a markdown reserve. Markdown reserves are established for
inventory categories with sales performance below expectations and/or unsold quantities in
excess of expectations.

At the end of each fiscal year,
management estimates what quantities of current merchandise are in excess of the amounts
saleable at historical margin rates. A markdown reserve is established to reduce the
carrying value of excess current merchandise to estimated net realizable value. Also, a
markdown reserve is established by management to reduce the carrying value of obsolete
categories of merchandise to their estimated net realizable value.

The markdown reserves at the end of
fiscal 2004, fiscal 2003 and fiscal 2002, respectively, ranged from a low of $0.8 million
to a high of $1.5 million, with fiscal 2004 at the low end of the range. Giving effect to
these reserves, inventories were stated at approximately $49.5 million at January 29,
2005, $49.1 million at January 31, 2004 and $61.6 million at February 1, 2003.

Year-end markdown reserves are likely
to continue to fluctuate, principally because the market environment is dynamic for the
reasons set forth above. However, a consistent methodology for markdown reserves is one of
the Companys important accounting objectives.

Recording a reserve reduces the
inventory on the Companys balance sheet and is charged to the Companys cost of
sales. If inventories, net of reserves, were overestimated at the end of a period, assets
and income for that period would be overstated and margins for the beginning of the next
period would be lower. (The opposite would be true if inventories were underestimated.)

Management believes that the
inventories shown on all the balance sheets included in the financial statements contained
in this Report were properly stated in all material respects.

Incurred But Not Reported
Claims For Personal Injuries and Medical Benefits

The Company records a liability for
IBNR Claims, which is based on (i) the number and size of outstanding claims, (ii) a
comparison between the dates paid claims were incurred and the dates they were paid, (iii)
an analysis of the amounts previously paid, (iv) projections of inflation in medical costs
and (v) advice from time to time from its insurance broker. The Company has insurance
policies with coverage for auto, general liability and workers compensation claims
but it remains liable for a self-insured retention of $0.1 million for each auto claim and
$0.3 million for each general liability and workers compensation claim. The Company
is self-insured for its medical, dental and prescription plans for associates. The Company
has stop loss insurance coverage for employee medical claims over $0.2 million each. Also,
there is an aggregate limit which, at January 29, 2005, was $6.8 million based on the
number of associates participating at that time. The estimates underlying the liability
for IBNR Claims are matters of judgment on which insurance experts may differ.

If the outcome of claims made with
respect to a fiscal period were to exceed the recorded IBNR liability for that period, the
liabilities on the balance sheet would have been understated and income would have been
overstated for the period in question. (The opposite would be true if the subsequent
outcome were less than the recorded IBNR liability.)

To estimate its casualty (auto,
general liability and workers compensation) IBNR, the Company uses policy year (July
1) maturation factors based on the Companys history of claim development (the high
and low year factors are excluded in arriving at an average). Another possible method
would be to use industry maturation factors.

The Company believes that industry
factors are less reliable because they are broad based. The use of industry factors would
not have changed materially the Companys casualty IBNR liability reflected on the
balance sheets included in the financial statements contained in this Report. As of
January 29, 2005, for example, the use of industry factors would have decreased the
liability by approximately $0.1 million.

The Company estimates its health
claims IBNR by (i) dividing the run-off amounts (claims paid after a policy
expired without being renewed) by claims paid during the last policy year (December 31)
and (ii) applying the resulting percentage to the trailing 12 months of paid claims at the
time of the calculation. An alternative methodology would be to use industry factors.

The Company believes that industry
factors are less reliable because they are broad based. The use of industry factors would
not have changed materially the Companys health claims IBNR liability reflected on
the balance sheets included in the financial statements contained in this Report. As of
January 29, 2005, for example, the use of industry factors would have increased the
liability by approximately $0.1 million.

As the use of different estimates
would change the IBNR liability recorded materially, a consistent approach to estimating
liability for IBNR Claims is one of the Companys important accounting objectives.

Management believes that (i) the
liabilities for IBNR Claims reflected in all the balance sheets included in the financial
statements contained in this Report were fairly stated in all material respects, subject
to the uncertainties of litigation and the risk of different than anticipated inflation in
medical costs and (ii) the changes in the liabilities for IBNR Claims that would have
resulted from the use of industry factors in preparing estimates are not material.

Tax Valuation Allowance

In fiscal 2002, the Company first
recorded a charge to establish a valuation allowance for its NOL carryforwards and other
net deferred tax assets in accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes, which places significant importance on the
Companys cumulative operating results in the most recent three-year period when
assessing the need for a tax valuation allowance. At January 29, 2005, the accumulated tax
valuation allowance was $24.2 million.

The Company intends to maintain a
valuation allowance for its net deferred tax assets until management determines that
sufficient positive evidence regarding operating results exists to support reversal of the
allowance remaining at that time. A reversal of the tax valuation allowance would improve
the Companys net income/loss. Accordingly, whether to continue a tax valuation
allowance is one of the Companys important accounting matters.

Private Label Credit
Cards Issued By The Bank

The Company and World Financial
Network National Bank (the Bank) are parties to a Private Label Credit Card
Program Agreement, dated January 27, 1998 (as amended, the Credit Card Program
Agreement).

Under the Credit Card Program
Agreement, the Bank issues credit cards to eligible Company customers who apply to the
Bank. Net credit sales volume with the Bank increased to $123.3 million in fiscal 2004
from $113.3 million in fiscal 2003. Customers must meet standards for creditworthiness set
by the Bank with the approval of the Company, provided, however, that the Bank shall take
any actions required to prevent unsafe and unsound banking practices. The credit cards
issued by the Bank are co-branded with both the Companys AVENUE service mark and the
Banks name. The credit cards are used only for merchandise and services offered by
the Company. Credit card holders remit payments to the Bank, generally by mailing personal
checks. The Bank also handles all statement processing, payment processing, cardholder
customer service and collections from delinquent cardholders.

In accordance with generally accepted
accounting principles, the Company does not include the receivable asset created under the
Credit Card Program Agreement in the Companys accounts receivable on its balance
sheets because the Company has no interest in the customer accounts or receivables. In
this connection, it should be noted that the Credit Card Program Agreement states that (i)
the Bank is the sole and exclusive owner of all customer accounts, (ii) the Company has no
interest in the customer accounts and (iii) the Bank is the creditor in respect of
receivables (defined in the Credit Card Program Agreement as amounts owed with respect to
retail purchases, finance charges, deferred finance charges, other fees and charges for
sales tax). Also, depending on the circumstances, the Company might not purchase the
accounts from the Bank upon the expiration of the contractual term.

The Credit Card Program Agreement is
currently scheduled to expire on February 28, 2007. The Company shall then have the right
to purchase the customer accounts from the Bank for a price equal to the receivables.
Also, the Bank shall then have the right to sell the customer accounts to the Company at
that price if the Company commences a private label credit card program either on its own
or through another issuer of credit cards. When the Credit Card Program Agreement is about
to expire without being renewed, the Company is likely to submit requests for proposals to
other banks that issue private label credit cards to retailers customers and to use
the banks proposals to evaluate a continuation of the private label credit card
program. There is no assurance, however, that other banks would make proposals to continue
the program on terms satisfactory to the Company or that the Company could finance a
program on its own without involving a bank.

Receivables as defined in the Credit
Card Program Agreement at the close of the last billing cycle in the year increased to
$78.0 million at January 29, 2005 from $76.6 million at January 31, 2004.

The credit card program premium (or,
potentially, discount) reflected in general, administrative and store operating expenses
is an amount equal to royalties paid to the Company by the Bank minus costs charged by the
Bank. Costs are based on the volume of credit card program processing activities performed
by the Bank.

General, administrative and store
operating expenses were offset in part by premiums received from the Bank of $5.2 million
in fiscal 2004 and $4.2 million in fiscal 2003. The increase in premiums from the Bank was
primarily due to improved bad debt write-offs by the Bank.

Royalties are based on program
revenues minus receivables written off by the Bank and the cost of funds for the program.
For up to the first $85 million of receivables, cost of funds means the one-year Constant
Maturities Treasury (CMT) rate plus 25 basis points to be reset every three
months (the published CMT rate was 2.89% per annum at January 29, 2005). However, the CMT
rate shall not be more than 6.75% per annum and not be less than 5.00% per annum for the
purpose of this calculation. (The Banks receivables for the program were less than
$85 million at January 29, 2005, but, if they grew larger than that amount, the cost of
funds for the excess would be based primarily on the cost of borrowing of a trust for the
purpose of securitizing receivables.)

# Fiscal 2006 Accruals for
Employee Stock Options

In December 2004, the Financial
Accounting Standards Board issued SFAS No. 123R, Share-Based Payment
(SFAS No. 123R), which replaces SFAS No. 123 Accounting for Stock-Based
Compensation (SFAS No. 123) and supersedes APB Opinion No. 25. SFAS No.
123R requires all share-based payments to employees, including grants of employee stock
options, to be measured at their fair values at the date of grant and recognized as
expense over the service period, which is generally the vesting period. SFAS No. 123R is
effective for the first fiscal year beginning after June 15, 2005, which, for the Company,
will be fiscal 2006.

The adoption of SFAS No. 123R may
have a significant impact on the Companys results of operations. The impact of
adopting SFAS No. 123R cannot be accurately estimated at this time, as it will depend,
among other things, on the market value and the amount of share-based awards granted in
future periods.

Stores

The Companys channel of
distribution is retail stores using its AVENUE® trade name. The Company leased 514
stores in 37 states at January 29, 2005.

Store counts averaged 557 stores, 546
stores and 531 stores, respectively, for fiscal 2002, 2003 and 2004. In fiscal 2004, the
Company opened two stores and closed 23 stores. In fiscal 2005, the Company is planning to
close approximately 15-20 stores as part of its normal lease maintenance program and to
open only one new store. Thus, the average number of stores is expected to decline further
in fiscal 2005. This paragraph includes forward-looking information under the Reform Act,
which is subject to the variables, uncertainties and other risk factors referred to under
the caption Future Results.

The annual capital expenditure
budgets after fiscal 2005 will provide for new store construction and other infrastructure
development priorities. Prioritization will be based, among other things, on overall
profitability and the availability of suitable locations at rents and on terms that fit
the Companys financial model for new store construction. This paragraph constitutes
forward-looking information under the Reform Act, which is subject to the variables,
uncertainties and other risk factors referred to under the caption Future
Results.

Retail selling space was
approximately 2.2 million square feet at January 29, 2005 and 2.3 million square feet at
January 31, 2004.

Depreciation and amortization of
property and equipment relate principally to assets in stores and declined to $14.3
million in fiscal 2004 from $15.5 million in fiscal 2003. Depreciation and amortization of
property and equipment are expected to decline further in fiscal 2005.

E-Commerce

The Company has an Internet site
(www.avenue.com) that sells a selection of the merchandise that is also for sale in the
Companys stores. The Company ships its avenue.com orders from its national
distribution center in Troy, Ohio.

Suspension of Catalog
Operations

The Company mailed catalogs until
March 2003, when the Company suspended catalog mailings indefinitely.

Stock Repurchases

The Company did not repurchase shares
of its own stock in fiscal 2004 except that the trust under the Companys
Supplemental Retirement Savings Plan (SRSP) purchased 279,870 shares in
May-June 2004 using a portion of the funds accumulated since 1993 in the deferred
compensation account of Raphael Benaroya, the Companys Chairman, President and Chief
Executive Officer. (56.2% of the account balance at the time represented amounts withheld
from Mr. Benaroyas salary and earnings thereon and the remainder represented
contributions by the Company pursuant to the general terms of the SRSP and earnings
thereon.) The shares held in Mr. Benaroyas SRSP account are treated in the same
manner as treasury shares. The Company has no plans to repurchase shares of its own stock
at present except with trust funds under the Companys SRSP to satisfy obligations
that may arise under that plan to invest a portion of participants accounts in
Company stock.

With respect to the deferred
compensation obligations of the SRSP, the liability is marked to market and this liability
adjustment flows through the statement of operations as either an increase or a decrease
in compensation expense. With respect to the SRSP assets, marketable securities are also
marked to market except shares of Company stock, which are recorded permanently at cost.
This asset adjustment also flows through the statement of operations. The liability
adjustment and the asset adjustment are not necessarily equal in amount because of the
disparate treatment of Company stock. In fiscal 2004, the market price of Company stock
rose and compensation expense was increased $0.7 million as a result of the foregoing
accounting treatment.

Corporate Acquisition
Reviews

The Company from time to time
conducts due diligence reviews of businesses that are either for sale as a
going concern or are in liquidation. The Company would consider making a bid on a suitable
corporate acquisition at an opportune price if adequate financing at acceptable rates were
available.

Future Results

The Company cautions that any
forward-looking statements (as such term is defined in the Reform Act) contained in this
Report or otherwise made by management of the Company involve risks and uncertainties and
are subject to change based on various important factors, many of which may be beyond the
Companys control. Accordingly, the Companys future performance and financial
results may differ materially from those expressed or implied in any such forward-looking
statements.

The Company historically experienced
fluctuations in customer response to its merchandise assortments. Future success depends
on the Companys ability to consistently anticipate, assess and react to the changing
demands of its customer-base. As a private label merchandiser, the Company assumes certain
risks, including long product lead times and high initial purchase commitments, that
amplify the consequences of any miscalculation that it might make in anticipating fashion
trends or interpreting them for customers. There is no assurance that the Company will be
able to identify and offer merchandise that appeals to its customer-base or that the
introduction of new merchandise will be successful or profitable.

Future success also depends upon the
Companys ability to effectively define, evolve and promote its brand. In order to
achieve and maintain significant brand name recognition, it may become necessary to
increase investments in the development of the brand through various means, including
customer research, advertising, direct mail marketing and Internet marketing. There is no
assurance that, if such funding becomes necessary, it will be available.

The Company is devoting significant
management and financial resources to document, test, monitor and enhance internal control
over financial reporting in order to meet the requirements of the Sarbanes-Oxley Act of
2002. There is no assurance that these measures will make the controls adequate or
effective in preventing fraud or human error. Any failure in the effectiveness of internal
control over financial reporting that might occur could have a material effect on
financial reporting or cause the Company to fail to meet reporting obligations, which upon
disclosure, could negatively impact the market price of the Common Stock.

The following additional factors,
among others, could also affect the Companys actual results and could cause actual
results to differ materially from those expressed or implied in any forward-looking
statements included in this Report or otherwise made by management: threats of terrorism;
war risk; shifts in consumer spending patterns, overall economic conditions; the impact of
increased competition; variations in weather patterns; uncertainties relating to execution
of the Companys product repositioning strategy; store lease expirations; risks
associated with the financial performance of the World Financial Network National Bank
private label credit card program; increases in interest rates; the ability to retain,
hire and train key personnel; risks associated with the ability of the Companys
manufacturers to deliver products in a timely manner; political instability and other
risks associated with foreign sources of production and increases in fuel costs. Further,
the Stanfordwage and hour class action will be settled or go to trial (see,
Pending Litigation).

As a result of the variables, risks
and uncertainties referred to in this section, the projections made in this Report may not
be reliable.

The Companys stockholder rights
plan and certain provisions of the By-Laws and of the Delaware General Corporation Law may
make it more difficult for a third party to acquire the Company even if doing so would
allow the stockholders to receive a premium over the prevailing market price of the Common
Stock. These rights and By-Laws provisions are intended to encourage potential acquirers
to negotiate and allow the Board of Directors the opportunity to consider alternative
proposals in the interest of maximizing stockholder value. However, these rights and
provisions may also discourage acquisition proposals or delay or prevent a change in
control, which could negatively affect the price of the Common Stock.

The Company assumes no obligation to
update any forward-looking statement.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company does not hold or issue
financial instruments for trading purposes. Management of the Company believes that its
exposure to interest rate and market risk associated with financial instruments is not
material. See, however, in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations (i) the eighth paragraph under the
caption Other Liquidity Sources regarding the variable interest rate payable
on revolving loans to the Companies and (ii) the final paragraph under the caption
Private Label Credit Cards Issued By The Bank regarding the cost of funds
associated with the credit cards that are co-branded with the Companys AVENUE®
service mark and the name of the issuer of the cards, World Financial Network National
Bank. The Company has no material exposure to foreign currency exchange rate risk.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
                                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                          |        
|------------------------------------------------------------------------------------------------------------------------- | -------
|Report of Independent Registered Public Accounting Firm                                                                   | II - 25
|                                                                                                                          |        
|Consolidated Balance Sheets as of January 31, 2004 and   and January 29, 2005                                             | II - 26
|                                                                                                                          |        
|Consolidated Statements of Operations for each of the three fiscal years   in the period ended January 29, 2005           | II - 27
|                                                                                                                          |        
|Consolidated Statements of Cash Flows for each of the three fiscal   years in the period ended January 29, 2005           | II - 28
|                                                                                                                          |        
|Consolidated Statements of Stockholders' Equity for each of the three   fiscal years in the period ended January 29, 2005 | II - 29
|                                                                                                                          |        
|Notes to Consolidated Financial Statements                                                                                | II - 30

---

# UNITED RETAIL GROUP,
INC. AND SUBSIDIARIESREPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of UNITED RETAIL GROUP, INC.:

In our opinion, the accompanying
consolidated balance sheets and the related consolidated statements of operations, cash
flows and stockholders equity present fairly, in all material respects, the
financial position of United Retail Group, Inc. and its subsidiaries (the
Company) at January 29, 2005 and January 31, 2004, and the results of their
operations and their cash flows for each of the three fiscal years in the period ended
January 29, 2005, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Stamford, ConnecticutApril 27, 2005.

---

UNITED RETAIL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(dollars in thousands, except per share amounts)

|                                                 | January 31,2004 | January 29,2005
|------------------------------------------------ | --------------- | ---------------
|
|Current Assets:                                  |                 |                
|Cash and cash equivalents                        | $14,421         | $12,596        
|Accounts receivable                              | 1,789           | 1,504          
|Inventory                                        | 49,054          | 49,503         
|Prepaid rents                                    | 4,826           | 4,599          
|Restricted cash                                  | -               | 742            
|Other prepaid expenses                           | 2,044           | 1,712          
|Total current assets                             | 72,134          | 70,656         
|                                                 |                 |                
|Property and equipment, net                      | 91,703          | 79,026         
|Deferred compensation plan assets                | 4,893           | 3,473          
|Deferred charges and other intangible assets,    |                 |                
|net of accumulated amortization of $389 and $453 | 616             | 741            
|Other assets                                     | 1,465           | 1,312          
|Total assets                                     | $170,811        | $155,208       

|LIABILITIES                                      |        |       
|------------------------------------------------ | ------ | ------
|Current Liabilities:                             |        |       
|Current portion of distribution center financing | $635   | $693  
|Current portion of capital leases                | 2,086  | 1,873 
|Current portion of revolver                      | -      | 100   
|Accounts payable and other                       | 19,795 | 18,336
|Disbursement accounts                            | 9,434  | 9,066 
|Accrued expenses                                 | 21,860 | 24,252
|Total current liabilities                        | 53,810 | 54,320
|                                                 |        |       
|Long-term distribution center financing          | 3,326  | 2,633 
|Long-term capital leases                         | 3,646  | 1,735 
|Deferred lease incentives                        | 14,993 | 12,908
|Deferred compensation plan liabilities           | 4,893  | 4,853 
|Other long-term liabilities                      | 10,123 | 8,710 
|Total liabilities                                | 90,791 | 85,159
|Commitments and contingencies                    |        |       
|                                                 |        |       

|STOCKHOLDERS' EQUITY                                            |          |         
|--------------------------------------------------------------- | -------- | --------
|Preferred stock, $.001 par value; authorized:                   |          |         
|1,000,000; none issued                                          |          |         
|Series A junior participating preferred stock,                  |          |         
|$.001 par value; authorized 150,000; none issued                |          |         
|Common stock, $.001 par value; authorized                       |          |         
|30,000,000; issued 14,248,210; outstanding 14,249,800           | 14       | 14      
|Additional paid-in capital                                      | 83,696   | 84,856  
|Retained earnings (accumulated deficit)                         | 3,986    | (6,494) 
|Treasury stock (1,310,906 shares and 1,590,766 shares), at cost | (7,676)  | (8,327) 
|Total stockholders' equity                                      | 80,020   | 70,049  
|Total liabilities and stockholders' equity                      | $170,811 | $155,208

The accompanying notes are an integral part of the Consolidated Financial Statements.

---

UNITED RETAIL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(dollars in thousands, except per share amounts)

|                                                           | Fiscal YearEndedFebruary 1,2003 | Fiscal YearEndedJanuary 31,2004 | Fiscal YearEndedJanuary 29,2005
|---------------------------------------------------------- | ------------------------------- | ------------------------------- | -------------------------------
|Net Sales                                                  | $431,964                        | $396,265                        | $399,250                       
|Cost of goods sold, including   buying and occupancy costs | 343,625                         | 313,767                         | 314,923                        
|Gross Profit                                               | 88,339                          | 82,498                          | 84,327                         
|                                                           |                                 |                                 |                                
|General, administrative and   store operating expenses     | 105,499                         | 101,287                         | 97,309                         
|Goodwill impairment                                        | 5,611                           | -                               | -                              
|Operating income (loss)                                    | (22,771)                        | (18,789)                        | (12,982)                       
|Interest income                                            | (339)                           | (103)                           | (1,344)                        
|Interest expense                                           | 1,166                           | 1,020                           | 870                            
|Loss before income taxes                                   | (23,598)                        | (19,706)                        | (12,508)                       
|Benefit from income taxes                                  | (521)                           | (636)                           | (2,028)                        
|Net income (loss)                                          | ($23,077)                       | ($19,070)                       | ($10,480)                      
|Net loss per share                                         |                                 |                                 |                                
|Basic                                                      | ($1.77)                         | ($1.47)                         | ($0.82)                        
|Diluted                                                    | ($1.77)                         | ($1.47)                         | ($0.82)                        
|Weighted average number of   shares outstanding            |                                 |                                 |                                
|Basic                                                      | 13,046,568                      | 12,937,304                      | 12,748,878                     
|Common stock equivalents   (stock options)                 | -                               | -                               | -                              
|Diluted                                                    | 13,046,568                      | 12,937,304                      | 12,748,878                     

The accompanying notes are an integral part of the Consolidated Financial Statements.

---

UNITED RETAIL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands)

|                                                                | Fiscal YearEndedFebruary 1,2003 | Fiscal YearEndedJanuary 31,2004 | Fiscal YearEndedJanuary 29,2005
|--------------------------------------------------------------- | ------------------------------- | ------------------------------- | -------------------------------
|
|Net loss                                                        | ($23,077)                       | ($19,070)                       | ($10,480)                      
|Adjustments to reconcile net loss to net cash                   |                                 |                                 |                                
|provided from operating activities:                             |                                 |                                 |                                
|Depreciation and amortization of property and equipment         | 14,920                          | 15,462                          | 14,315                         
|Amortization of deferred charges and other intangible assets    | 576                             | 504                             | 343                            
|Deferred lease assumption revenue amortization                  | (140)                           | (30)                            | (2)                            
|Goodwill impairment                                             | 5,611                           | -                               | -                              
|Loss on disposal of assets                                      | 533                             | 938                             | 309                            
|Compensation expense                                            | 311                             | 95                              | -                              
|Net non-cash compensation expense on deferred compensation plan | -                               | -                               | 729                            
|Provision for deferred income taxes                             | 761                             | -                               | -                              
|Internal Revenue Service settlement related to warrants         |                                 |                                 | 1,157                          
|Changes in operating assets and liabilities:                    |                                 |                                 |                                
|Accounts receivable                                             | (1,539)                         | 1,205                           | 285                            
|Inventory                                                       | 224                             | 12,515                          | (449)                          
|Accounts payable and accrued expenses                           | 7,290                           | (5,338)                         | 730                            
|Prepaid expenses                                                | 187                             | 392                             | (183)                          
|Income taxes payable                                            | 125                             | 1,275                           | 43                             
|Deferred lease incentives                                       | 162                             | (1,995)                         | (2,085)                        
|Other assets and liabilities                                    | 798                             | (27)                            | (1,540)                        
|Net Cash Provided from Operating Activities                     | 6,742                           | 5,926                           | 3,172                          
|                                                                |                                 |                                 |                                
|Investing Activities:                                           |                                 |                                 |                                
|Capital expenditures                                            | (14,144)                        | (3,395)                         | (1,963)                        
|Deferred payment for property and equipment                     | 773                             | 53                              | (10)                           
|Net Cash Used in Investing Activities                           | (13,371)                        | (3,342)                         | (1,973)                        
|                                                                |                                 |                                 |                                
|Financing Activities:                                           |                                 |                                 |                                
|Issuance of loans to officers                                   | (52)                            | -                               | -                              
|Proceeds from exercise of stock options                         | 49                              | -                               | 3                              
|Repayments of long-term debt                                    | (1,435)                         | (1,220)                         | (635)                          
|Payments on capital lease obligations                           | (1,797)                         | (1,995)                         | (2,124)                        
|Decrease in disbursement accounts                               | (368)                           | (2,488)                         | (368)                          
|Net borrowings under line-of-credit agreement                   | -                               | -                               | 100                            
|Other                                                           | (40)                            | -                               | -                              
|Net Cash Used in Financing Activities                           | (3,643)                         | (5,703)                         | (3,024)                        
|                                                                |                                 |                                 |                                
|Net decrease in cash and cash equivalents                       | (10,272)                        | (3,119)                         | (1,825)                        
|Cash and cash equivalents, beginning of period                  | 27,812                          | 17,540                          | 14,421                         
|Cash and cash equivalents, end of period                        | $17,540                         | $14,421                         | $12,596                        

The accompanying notes are an integral part of the Consolidated Financial Statements.

---

UNITED RETAIL GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(shares and dollars in thousands, except per share amount)

|                                     | CommonStockSharesOutstanding | CommonStock$.001Par Value | AdditionalPaid-inCapital | RetainedEarnings/AccumulatedDeficit | TreasuryStock,at Cost | TotalStockholders'Equity
|------------------------------------ | ---------------------------- | ------------------------- | ------------------------ | ----------------------------------- | --------------------- | ------------------------
|                                     |                              |                           |                          |                                     |                       |                         
|Balance, February 2, 2002            | 13,204                       | $14                       | $80,408                  | $46,133                             | ($4,751)              | $121,804                
|                                     |                              |                           |                          |                                     |                       |                         
|Exercise of stock options            | 12                           |                           | 49                       |                                     |                       | 49                      
|Treasury stock                       | (279)                        |                           |                          |                                     | (2,925)               | (2,925)                 
|Loans repayments by officers         |                              |                           | 2,873                    |                                     |                       | 2,873                   
|Compensation expense                 |                              |                           | 311                      |                                     |                       | 311                     
|Other                                |                              |                           | (40)                     |                                     |                       | (40)                    
|Net loss                             |                              |                           |                          | (23,077)                            |                       | (23,077)                
|                                     |                              |                           |                          |                                     |                       |                         
|Balance, February 1, 2003            | 12,937                       | 14                        | 83,601                   | 23,056                              | (7,676)               | 98,995                  
|                                     |                              |                           |                          |                                     |                       |                         
|Compensation expense                 |                              |                           | 95                       |                                     |                       | 95                      
|Net loss                             |                              |                           |                          | (19,070)                            |                       | (19,070)                
|                                     |                              |                           |                          |                                     |                       |                         
|Balance January 31, 2004             | 12,937                       | 14                        | 83,696                   | 3,986                               | (7,676)               | 80,020                  
|                                     |                              |                           |                          |                                     |                       |                         
|Tax benefits from stock warrants     |                              |                           | 1,157                    |                                     |                       | 1,157                   
|Shares in deferred compensation plan | (280)                        |                           |                          |                                     | (651)                 | (651)                   
|Exercise of stock options            | 2                            |                           | 3                        |                                     |                       | 3                       
|Net loss                             |                              |                           |                          | (10,480)                            |                       | (10,480)                
|                                     |                              |                           |                          |                                     |                       |                         
|Balance, January 29, 2005            | 12,659                       | $14                       | $84,856                  | ($6,494)                            | ($8,327)              | $70,049                 

The accompanying notes are an integral part of the Consolidated Financial Statements.

---

# UNITED RETAIL GROUP,
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

# 1.   Company Description
and Basis of Presentation

United Retail Group, Inc.
(United Retail) is a specialty retailer of large-size womens fashion
apparel, footwear and accessories, featuring AVENUE® brand merchandise,
operating 514 stores as of January 29, 2005 throughout the United States.

The consolidated financial statements
include the accounts of United Retail and its subsidiaries (the Company). All
significant intercompany balances and transactions have been eliminated in consolidation.

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

# 2.   Summary of
Significant Accounting Policies

# Fiscal Year

The Companys fiscal year ends
on the Saturday closest to January 31. Fiscal years are designated in the financial
statements and notes by the calendar year in which the fiscal year commences. Fiscal 2002,
fiscal 2003 and fiscal 2004 consisted of 52 weeks and ended on February 1, 2003, January
31, 2004, and January 29, 2005, respectively.

# Net Revenues

Revenues include sales from all
stores operating during the period, the Companys catalog and website operations. The
Companys catalog was discontinued in March 2003. Revenues are net of returns and
exclude sales tax. Revenue is recognized when title and risk of loss have passed to the
customer, which for stores is at the point of sale and for catalog and internet sales is
at the point of destination. We recognize revenue from gift cards at the time the gift
cards are redeemed.

# Sales Return Reserve

As part of the normal sales cycle,
the Company receives customer merchandise returns. To account for the financial impact of
this process, management estimates future returns on previously sold merchandise.
Reductions in sales and gross margin are recorded for estimated merchandise returns based
on return history.

# Shipping and Handling
Costs

Shipping and handling revenue is
included in net sales. Shipping and handling costs are included in general, administrative
and store operating expenses. During fiscal 2002, fiscal 2003 and fiscal 2004, shipping
and handling costs were $572,000, $364,000, and $471,000 respectively.

# Cost of Goods Sold,
Buying and Occupancy

Cost of goods sold includes
merchandise costs, net of discounts and allowances, marketing, freight and inventory
shrinkage. Buying and occupancy expenses primarily include payroll expenses for the
Companys buying departments and distribution network, rent, common area maintenance,
real estate taxes, utilities, maintenance and depreciation for the Companys stores,
distribution center, internet fulfillment center and equipment.

# Marketing Costs

The Company expenses marketing costs
when the event occurs. Marketing expense, included in cost of goods sold in the
accompanying consolidated statements of operations, was $15.5 million, $10.3 million, and
$11.6 million in fiscal 2002, 2003, and 2004, respectively.

# Earnings Per Share

Basic per share data has been
computed based on the weighted average number of shares of common stock outstanding.
Earnings per diluted share includes the weighted average effect of dilutive options on the
weighted average shares outstanding.

The computation of earnings per
diluted share excludes options to purchase 1,826,072 shares, 1,897,872 shares and
1,893,812 shares in fiscal 2002, fiscal 2003 and fiscal 2004, respectively, as a result of
the Companys net loss.

# Cash and Cash Equivalents

The Company considers cash on hand,
bank deposits, money market funds and short-term investments with maturities of less than
90 days, when purchased, as cash and cash equivalents. Cash and cash equivalents also
include proceeds from credit card sales prior to the end of the fiscal period that were
typically remitted as cash within five days after the end of such fiscal period.

# Restricted Cash

As of January 25, 2005, the Company
is required by The CIT Group/Business Credit, Inc. to maintain at all times balances in a
designated account in an amount not less than 25% of the amount of gift cards and
merchandise credits issued and not redeemed during the prior six month period (See Note
10).

# Inventory

Inventories are stated at the lower
of cost or market. The Company utilizes the retail method (an average cost flow assumption
is used), under which a cost-to-price relationship is developed on the basis of original
cost as compared to initial retail selling price. The valuation of inventories at cost and
the resulting margins are calculated by applying this cost-to-price relationship to the
retail value of inventories. Permanent markdowns, when taken, reduce both the cost and
price components of inventory on hand, which maintains the established cost-to-price
relationship. Consequently, the use of the retail inventory method results in valuing
inventories at lower of cost or market.

Inherent in the retail inventory
method are management estimates on current and future selling value of the inventory,
which can significantly impact the ending inventory valuation at cost as well as resulting
margins. The necessity for management estimates, coupled with the fact that the retail
inventory method is an averaging process, can produce inventory costs at any point in time
that are inexact.

Further, deferred markdowns can
result in an overstatement of cost under the lower of cost or market principle.
Accordingly, at fiscal year-end, management conducts a thorough review of inventory on
hand and, based on its business judgment, may reduce further the carrying value of
inventory by recording a markdown reserve for inventory with sales performance below
expectations and/or unsold quantities in excess of expectations. Recording a reserve
reduces the inventory recorded on the Companys balance sheet and is charged to the
Companys cost of sales.

# Long-Lived Assets

Depreciation and amortization of
property and equipment are computed for financial reporting purposes on a straight-line
basis, using service lives of 40 years for the distribution center building, the lesser of
the useful life or the life of the lease for leasehold improvements and furniture and
fixtures, 20 years for material handling equipment and 5 years for other property. The
cost of assets sold or retired and the related accumulated depreciation or amortization
are removed from the accounts with any resulting gain or loss included in net income.
Maintenance and repairs are charged to expense as incurred. Betterments which extend
service lives are capitalized.

The Company continually evaluates
whether events and circumstances have occurred that indicate the remaining estimated
useful life of long-lived assets may warrant revision or that the remaining balance may
not be recoverable. When factors indicate that the asset should be evaluated for possible
impairment, the Company uses an estimate of the undiscounted net cash flows over the
remaining life of the group of assets that have independent cash flows on a combined basis
in measuring whether the carrying value of the asset is recoverable.

# Concentration of Credit
Risk

Financial instruments, which
potentially subject the Company to concentrations of credit risk, are primarily cash
equivalents. The Company places its cash and cash equivalents in highly liquid investments
with high quality financial institutions.

# Private Label Credit
Card Agreement

The Company and World Financial
Network National Bank (WFN) are parties to a Private Label Credit Card Program
Agreement (Agreement). Under the Agreement, WFN reviews applications for
credit cards, issues credit cards to eligible applicants, processes billing statements and
payments, handles customer service and initiates collection activities from delinquent
customers (Processing Costs). The Company does not include the receivable
created under the Credit Card Program in the Companys accounts receivables on its
balance sheet because under the Agreement, the Company has no interest in the customer
accounts or receivables. The credit card program premium (or potentially discount)
deducted from general, administrative and store operating expenses is equal to royalties
(program revenues less net write-offs of receivables and the cost of funding the
receivable) less Processing Costs performed by WFN. The net premium deducted from general,
administrative and store operating expenses was $3.3 million, $4.2 million and $5.2
million for the fiscal years ended February 1, 2003, January 31, 2004 and January 29,
2005, respectively.

# Incurred But Not
Reported Claims For Personal Injuries and Medical Benefits

The Company records a liability for
incurred but not reported claims (IBNR) for each fiscal year. This liability
is based on (i) the number and size of outstanding claims, (ii) a comparison between the
dates paid claims were incurred and the dates they were paid, (iii) an analysis of the
amounts previously paid, (iv) projections of inflation in medical costs and (v) advice
from time to time from its insurance broker. (The Company has insurance policies with
coverage for auto, general liability and workers compensation but it remains liable
for a self-insured retention. The Company is self-insured for its medical, dental and
prescription plans for associates but it has stop loss insurance policies to limit its
liability.)

The estimates underlying the
liability for IBNR Claims are matters of judgment on which insurance experts may differ.
The use of different estimates or assumptions would change the amount recorded.

# Income Taxes

The Company provides for income taxes
in accordance with SFAS No.109, Accounting for Income Taxes. This statement
requires the use of the liability method of accounting for income taxes. Under the
liability method, deferred taxes are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred tax expense
(benefit) represents the change in the deferred tax asset/liability balance. The Company
establishes valuation allowances against deferred tax assets when sufficient negative
evidence exists concerning the realization of those deferred tax assets. The Company also
provides for estimated exposures on its filed tax returns, such accruals are included in
other long-term liabilities.

# Stock Options

The Company has several stock option
plans in operation which are more fully described in Note 15. The Company uses the
intrinsic value method to account for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting For Stock Issued To
Employees (Opinion No. 25) and has adopted the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting For
Stock-Based Compensation (SFAS No. 123). Under Opinion No. 25,
compensation expense, if any, is measured as the excess of the market price of the stock
over the exercise price on the measurement date. In May 1998, the stockholders ratified
the issuance of non-qualified stock options whose market price at the date of grant
exceeded the exercise price, which equaled the market price on the date of Board action.
In accordance with Opinion No. 25, compensation expense is recorded ratably over the
five-year vesting period of the options. All other stock options have been granted at the
market price of the stock at the measurement date.

The following table illustrates the
effect on net loss and loss per share if the Company had applied the fair value
recognition provisions under SFAS No. 123 to stock-based employee compensation:

|                                                                                                                                          | (dollars in thousands except per share data) |           |          
|----------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------- | ---------
|
|Reported net income (loss)                                                                                                                | ($23,077)                                    | ($19,070) | ($10,480)
|Add back: Compensation expense                                                                                                            | 311                                          | 95        | -        
|Deduct: Total stock based employee compensationexpense determined under fair value based methodfor all awards, net of related tax effects | (787)                                        | (618)     | (153)    
|                                                                                                                                          |                                              |           |          
|Pro forma net income (loss)                                                                                                               | ($23,553)                                    | ($19,593) | ($10,633)
|                                                                                                                                          |                                              |           |          
|Net loss per share:                                                                                                                       |                                              |           |          
|Basic - as reported                                                                                                                       | ($1.77)                                      | ($1.47)   | ($0.82)  
|Basic - pro forma                                                                                                                         | ($1.81)                                      | ($1.51)   | ($0.83)  
|                                                                                                                                          |                                              |           |          
|Diluted - as reported                                                                                                                     | ($1.77)                                      | ($1.47)   | ($0.82)  
|Diluted - pro forma                                                                                                                       | ($1.81)                                      | ($1.51)   | ($0.83)  

For the pro forma information
disclosed above, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

|                                | Fiscal2002 | Fiscal2003 | Fiscal2004
|------------------------------- | ---------- | ---------- | ----------
|Expected dividend yield         | 0.00%      | 0.00%      | 0.00%     
|Expected stock price volatility | 50.00%     | 50.00%     | 50.00%    
|Risk-free interest rate         | 2.94%      | 3.02%      | 3.71%     
|Expected life of options        | 5 years    | 5 years    | 5 years   

The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation models
require input of highly subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options, and because changes in subjective
input assumptions can materially affect the fair value estimate, in managements
opinion, the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

# Estimates

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 disclosure 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. The more significant
estimates and assumptions relate to inventory, insurance, useful lives of assets and
deferred tax assets.

# Recent Accounting
Pronouncements

In December 2004, the Financial
Accounting Standards Board issued SFAS No. 123R, Share-Based Payment
(SFAS No. 123R), which replaces SFAS No. 123 Accounting for Stock-Based
Compensation (SFAS No. 123) and supersedes APB Opinion No. 25. SFAS No.
123R requires all share-based payments to employees, including grants of employee stock
options, to be measured at their fair values at the date of grant and recognized as
expense over the service period, which is generally the vesting period. SFAS No. 123R is
effective for the first fiscal year beginning after June 15, 2005, which, for the Company,
will be fiscal 2006.

The adoption of SFAS No. 123R may
have a significant impact on the Companys results of operations. The impact of
adopting SFAS No. 123R cannot be accurately estimated at this time, as it will depend,
among other things, on the market value and the amount of share-based awards outstanding
in future periods.

In November 2004, FASB issued SFAS
No. 151 (SFAS 151), Inventory Costs, which amends Accounting
Research Bulletin No. 43, Chapter 4, Inventory Pricing. SFAS 151 amends the
accounting for inventory costs such that idle facility expense, excessive spoilage, double
freight and rehandling costs be recognized as current-period charges. The provisions of
SFAS 151 are effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The adoption of SFAS 151 is not expected to have an impact on the
Companys financial position, results of operations or cash flows, as the Company
historically has not manufactured merchandise.

# 3. Goodwill

Effective February 3, 2002, the
Company adopted the provisions of SFAS No. 142 Goodwill and Other Intangible
Assets, which required that goodwill be subject to an impairment test. The
Companys valuation at time of adoption, which utilized a multiple of EBITDA
(earnings before interest, taxes, depreciation and amortization) as well as a comparison
to the Companys current market capitalization, indicated that no impairment existed.
The Company ceased amortization of goodwill in fiscal 2002. The Company conducted a
similar valuation in the fourth quarter of fiscal 2002 and on the basis of both
considerations concluded that the entire amount of goodwill, $5.6 million, was impaired.
In addition to the aforementioned valuation considerations, other compelling reasons for
recording the impairment at that time included the significant losses incurred in fiscal
2002 and the downward trend in earnings.

# 4.   Other Assets

Other
assets consist of (dollars in thousands):

|                   | January 31,2004 | January 29,2005
|------------------ | --------------- | ---------------
|Long-term deposits | $1,048          | $1,106         
|Other              | 417             | 206            
|                   | $1,465          | $1,312         

# 5.   Property and Equipment

Property and equipment, at cost,
consists of (dollars in thousands):

|                                          | January 31,2004 | January 29,2005
|----------------------------------------- | --------------- | ---------------
|Land                                      | $2,176          | $2,176         
|Buildings                                 | 10,574          | 10,574         
|Furniture, fixtures and equipment(1)      | 91,227          | 88,970         
|Leasehold improvements                    | 86,989          | 85,573         
|                                          | 190,966         | 187,293        
|                                          |                 |                
|Accumulated depreciation and amortization | (99,263)        | (108,267)      
|                                          |                 |                
|Property and equipment, net               | $91,703         | $79,026        

(1)    
          Includes approximately $8.2 million of assets under capital leases resulting
          from a sale and leaseback agreement (See Note 8).

# 6.   Accrued Expenses

Accrued
expenses consist of (dollars in thousands):

|                                      | January 31,2004 | January 29,2005
|------------------------------------- | --------------- | ---------------
|Gift cards and other customer credits | $3,359          | $4,401         
|Insurance payable                     | 4,938           | 4,198          
|Payroll related expenses              | 3,477           | 3,973          
|Occupancy expenses                    | 2,682           | 3,080          
|Legal contingency liability           | 130             | 1,495          
|Sales taxes payable                   | 1,885           | 1,434          
|Private credit card processing fees   | 1,512           | 970            
|Other                                 | 3,877           | 4,701          
|                                      | $21,860         | $24,252        

# 7.   Other Long-term
Liabilities

Other
long-term liabilities consist of (dollars in thousands):

|                            | January 31,2004 | January 29,2005
|--------------------------- | --------------- | ---------------
|Rent                        | $7,327          | $7,429         
|Legal contingency liability | 696             | 996            
|Tax contingency liability   | 2,100           | 285            
|                            | $10,123         | $8,710         

# 8.   Leases

Operating Leases

The Company leases its retail store
locations, office facilities and certain equipment under operating leases. Annual store
rent is composed of a fixed minimum amount, plus contingent rent based upon a percentage
of sales exceeding a stipulated amount. Store lease terms generally require additional
payments to the landlord covering taxes, maintenance and certain other expenses.

Rent expense was as follows (dollars
in thousands):

|                    | Fiscal2002 | Fiscal2003 | Fiscal2004
|------------------- | ---------- | ---------- | ----------
|Real estate rent    | $45,561    | $45,291    | $43,019   
|Equipment and other | 596        | 550        | 518       
|Total rent expense  | $46,157    | $45,841    | $43,537   

At January 29, 2005, the Company was committed
under store leases with terms typically ranging from 1 to 12 years and with varying
renewal options. Some leases also include early termination options, which can be
exercised under specific conditions. Many leases entered into by the Company contain rent
escalations during the term of the lease and include options that may extend the lease
term beyond the initial commitment period.

Rental expense for step rent
provisions and escalation clauses is recognized on a straight-line basis over the minimum
lease term and included along with other related rent expense as part of buying and
occupancy costs.

Lease incentives are recorded as
liabilities and are amortized as a reduction of rent expense over the minimum lease term,
on a straight-line basis, as a part of buying and occupancy costs. Deferred lease
incentives at January 31, 2004 and January 29, 2005, were $15.0 million and $12.9 million,
respectively.

Capital Leases

In January 2002, the Company executed
a five-year $8.2 million sale and lease back agreement for certain fixtures in new and
remodeled stores. The lease bears an interest rate of 7.0% per annum. The Company was
required to pay sales tax as part of the agreement. The agreement provides for equal
monthly rent payments of $163,344 beginning February 2002 and gives the Company the option
of buying back the fixtures at the end of the term for a nominal price.

Between January 2002 and January
2003, the Company executed a series of three-year capital lease agreements for call center
systems at the Companys national distribution center in Troy, Ohio, bearing interest
at rates between 6.09% and 6.64% per annum aggregating approximately $1.4 million. The
Company has the option of buying the systems at the end of the term for a nominal price.

The following is a schedule by year
of approximate minimum lease payments (dollars in thousands) under operating and capital
leases:

|                                        | Operating | Capital
|--------------------------------------- | --------- | -------
|2005                                    | $48,031   | $2,060 
|2006                                    | 37,574    | 1,797  
|2007                                    | 33,460    | -      
|2008                                    | 29,179    | -      
|2009                                    | 27,746    | -      
|Thereafter                              | 85,258    | -      
|Total minimum lease payments            | $261,248  | $3,857 
|Less: imputed interest                  |           | (249)  
|Present value of minimum lease payments |           | $3,608 

# 9.   Long-term Debt

In 1994, the Company executed a
fifteen-year $8.0 million loan bearing interest at 8.64% per annum. Interest and principal
are payable in equal monthly installments of $79,437 beginning May 1994. The loan is
collateralized by a mortgage on its national distribution center.

The balance outstanding under this
loan is as follows (dollars in thousands):

|                         | January 31,2004 | January 29,2005
|------------------------ | --------------- | ---------------
|8.64% Mortgage due 2009  | $3,961          | $3,326         
|Less: current maturities | 635             | 693            
|Long-term debt           | $3,326          | $2,633         

Principal maturities by year are as
follows (dollars in thousands):

|           | DebtMaturities
|---------- | --------------
|2005       | $693          
|2006       | 756           
|2007       | 823           
|2008       | 897           
|2009       | 157           
|Thereafter | -             
|Total      | $3,326        

In 1993, the Company executed a
ten-year $7.0 million note bearing interest at 7.3% per annum. Interest and principal were
payable in equal monthly installments of $81,829 beginning November 1993. The note was
collateralized by the material handling equipment in the distribution center owned by the
Company in Troy, Ohio. Final payment on this note was made in October 2003.

# 10.   Financing Agreement

The Company and certain of its
subsidiaries (collectively, the Companies) are parties to a Financing
Agreement, dated August 15, 1997, as amended (the Financing Agreement), with
The CIT Group/Business Credit, Inc. (CIT). The Financing Agreement was amended
in December 2003 to increase the revolving line of credit from $40 million to $50 million
and to extend the maturity date from August 15, 2005 to August 15, 2008. The revolving
line of credit is used by the Companies to support trade letters of credit and standby
letters of credit and to finance loans which could be used for working capital and general
corporate purposes.

The Companies are required to
maintain unused at all times combined asset 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 significant financial
covenants.

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, making loans, engaging in certain transactions with affiliates, or
consolidating, merging or making acquisitions outside the ordinary course of business.

In the event a loan is made to one of
the Companies, interest is payable monthly based on a 360-day year at the Chase Manhattan
Bank prime rate plus incremental percentages ranging from 0.00% to 0.75% or the LIBOR rate
plus incremental percentages ranging from 1.75% to 2.50% as determined by the average
excess availability each month per the Financing Agreement on a per annum basis. The
borrower can select either the prime rate or the Libor rate as the basis for determining
the interest rate. Payments of revolving loans are not required until termination of the
agreement unless either 1) the outstanding balance of revolving loans and outstanding
letters of credit exceeds the availability under the agreement, in which case the excess
would be payable upon demand from CIT or 2) the Company is in default under the Financing
Agreement. The revolver loan is classified as a current liability at January 29, 2005
because the Company intends to repay the loan in full within twelve months.

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

At January 29, 2005, the borrowing
capacity of the Companies under the Financing Agreement with CIT, after satisfying the $5
million minimum availability requirement, was $10.1 million, trade letters of credit for
the account of the Companies were outstanding in the amount of $21.3 million, standby
letters of credit were outstanding in the amount of $6.1 million and a revolver loan of
$0.1 million from CIT was outstanding which is classified as a current liability. The
Companys cash and cash equivalents of $12.6 million was unrestricted.

The average amount of borrowings
outstanding during fiscal 2004 was $0.5 million at a weighted average interest rate of
5.4%. The Company did not draw down on its revolving credit facility in 2002 and the
average outstanding balance in 2003 was less than $0.1 million.

# 11.   Fair Value of
Financial Instruments

The carrying amounts of cash and cash
equivalents, accounts receivable and trade payables approximate fair value because of the
short-term maturity of these items. The fair value of long-term debt (distribution center
financing and capital leases), including the current portion, is estimated to be $7.1
million at January 29, 2005 based on the current rates quoted to the Company for debt of
the same or similar issues.

# 12.   Income Taxes

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

|                          | Fiscal2002 | Fiscal2003 | Fiscal2004
|------------------------- | ---------- | ---------- | ----------
|Current:                  |            |            |           
|Federal                   | ($1,588)   | ($874)     | ($2,165)  
|State                     | 306        | 238        | 137       
|                          | (1,282)    | (636)      | (2,028)   
|Deferred:                 |            |            |           
|Federal                   | (500)      | -          | -         
|State                     | 1,261      | -          | -         
|                          | 761        | -          | -         
|Benefit from income taxes | ($521)     | ($636)     | ($2,028)  

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

|                                              | Fiscal2002 | Fiscal2003 | Fiscal2004
|--------------------------------------------- | ---------- | ---------- | ----------
|Statutory Federal   income tax rate           | (35.0%)    | (35.0%)    | (34.0%)   
|State income taxes, net of   Federal benefit  | 0.5        | (1.0)      | 1.1       
|Goodwill impairment                           | 8.3        | 0.0        | 0.0       
|Reversal of previously accrued   income taxes | 0.0        | (4.4)      | (14.5)    
|IRS refund settlement                         | 0.0        | 0.0        | (2.8)     
|Other                                         | 0.1        | 0.5        | (0.3)     
|Sub-total                                     | (26.1)     | (39.9)     | (50.5)    
|Deferred tax valuation allowance              | 23.9       | 36.7       | 34.3      
|Effective tax rate                            | (2.2%)     | (3.2%)     | (16.2%)   

In November 2003, the Company agreed
in principle with the Internal Revenue Service (IRS) on a settlement and the
closure of its examination of the Companys tax returns for the years through 1996.

In November 2003, the Company also
agreed in principle with the IRS on the settlement of a matter related to tax refund
claims the Company had filed for research credits and for deductions attributable to
certain bank financing transactions during 1989 to 1992. In April 2004, the Company
received payment from the IRS in the amount of $2.5 million which was initially deferred
on the balance sheet. The Company subsequently received final clearance from the IRS
regarding this amount. Consequently, the Company recognized the benefit of the refund
claims, including the related interest thereon, during the second fiscal quarter of 2004.
$1.1 million was recorded as an increase to additional paid-in capital as it related to
stock warrant deductions, $1.2 million of interest income was recorded in the
Companys results of operations and $0.2 million in federal tax benefit was recorded
related to research credits. An additional payment of $0.3 million was received in August
2004 in connection with further claims, of which $0.1 million of interest income was
recorded in the Companys third quarter results of operations and $0.2 million in
federal tax benefit was recorded related to research credits.

In the fourth quarter of fiscal 2004,
due to various settlements, the Company recorded a $1.8 million tax benefit for reversals
of accruals for potential tax liabilities.

Significant components of the
Companys deferred tax assets and liabilities are summarized below (dollars in
thousands):

|                                       | January 31,2004 | January 29,2005
|-------------------------------------- | --------------- | ---------------
|Deferred tax assets:                   |                 |                
|Federal NOL   and other tax attributes | $12,428         | $14,644        
|Accruals and reserves                  | 7,612           | 8,278          
|State NOL's                            | 5,843           | 6,610          
|Inventory                              | 667             | 221            
|Compensation                           | 601             | 909            
|Total deferred tax asset               | 27,151          | 30,662         
|                                       |                 |                
|Deferred tax liabilities:              |                 |                
|Depreciation                           | 7,080           | 6,508          
|Prepaid Rent                           | 206             | -              
|Total deferred tax liability           | 7,286           | 6,508          
|                                       |                 |                
|Valuation allowance                    | (19,865)        | (24,154)       
|                                       |                 |                
|Net deferred tax asset                 | $   -           | $   -          

The Company recorded a $7.3 million
non-cash charge to establish a valuation allowance for its net deferred tax assets,
including its net operating loss carryforwards, in the fourth quarter of fiscal 2002. The
valuation allowance was calculated in accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes (SFAS No. 109), which places
significant importance on the Companys cumulative operating results in the most
recent three-year period when assessing the need for a valuation allowance. The
Companys cumulative loss in the three-year period ended February 1, 2003, which
included the net loss reported in the fourth quarter of fiscal 2002, was sufficient to
require this full valuation allowance under the provisions of SFAS No. 109.

The Company recorded additional
valuation allowances of $12.6 million and $4.3 million in fiscal 2003 and fiscal 2004,
respectively. The Company intends to maintain a valuation allowance for its net deferred
tax assets and net operating loss carryforwards until sufficient positive evidence exists
to support its reversal.

# 13.   Retirement Plan

The Company maintains a qualified
defined contribution pension plan. Generally, an employee is eligible to participate in
the plan if the employee has completed one year of full-time continuous service. The
Company makes a 50% match of a portion of employee savings contributions.

The Company also maintains a
non-qualified defined contribution pension plan. The Company makes a 50% match of a
portion of employee savings contributions for those associates whose contributions to the
qualified plan are limited by IRS regulations, as well as retirement contributions for
certain grandfathered associates equal to 6% of those associates compensation. In
fiscal 2004, the Companys non-qualified defined contribution pension plan purchased
279,870 shares at a cost of $0.7 million using a portion of the funds accumulated since
1993 in the deferred compensation account of Raphael Benaroya, the Companys
Chairman, President and Chief Executive Officer. The shares held in Mr. Benaroyas
non-qualified defined contribution pension plan account are reflected in the same manner
as treasury shares and carried at cost on the balance sheet. The value of the other
investments, held by the Company on behalf of the plan, at January 31, 2004 and January
29, 2005, was $4.9 million and $3.5 million, respectively. The Company accounts for such
investments in accordance with SFAS 115, Accounting for Certain Investments in Debt
and Equity Securities, and classifies these investments as trading.

With respect to the deferred
compensation obligations of the non-qualified defined contribution pension plan, the
liability is marked to market and this liability adjustment flows through the statement of
operations as either an increase or a decrease in compensation expense. With respect to
the non-qualified defined contribution pension plan assets, marketable securities are also
marked to market except shares of Company stock, which are recorded permanently at cost.
This asset adjustment also flows through the statement of operations. The liability
adjustment and the asset adjustment are not necessarily equal in amount because of the
disparate treatment of Company stock. In fiscal 2004, the market price of Company stock
increased and the related compensation expense was $0.7 million.

Pension expense, excluding net
compensation expense related to Company stock, during fiscal 2002, fiscal 2003 and fiscal
2004 was approximately $404,000 and $363,000, and $311,000, respectively.

# 14.   Stockholders
Equity

Coincident with the completion of its
initial public offering on March 17, 1992, the Companys certificate of incorporation
was amended to provide for only one class of Common Stock, par value $.001 per share, with
30 million shares authorized. The Company also authorized 1 million shares of Preferred
Stock, par value $.001 per share, to be issued from time to time, in one or more classes
or series, each such class or series to have such preferences, voting powers,
qualifications and special or relative rights and privileges as shall be determined by the
Board of Directors in a resolution or resolutions providing for the issuance of such class
or series of Preferred Stock. Additionally, certain loan agreements, to which the Company
is a party, impose restrictions on the payment of dividends.

In September 1999, the Company
adopted a Shareholder Rights Plan and distributed rights as a dividend at the rate of one
Right for each share of Common Stock of the Company. The rights will expire on September
28, 2009.

Each Right initially entitles a
shareholder to buy for $65 one one-hundredth of a share of a series of preferred stock
which is convertible to shares of Common Stock. Among other things, the Rights will be
exercisable, subject to certain exceptions, if a person or group acquires beneficial
ownership of 15% or more of the Companys Common Stock or commences a tender or
exchange offer upon consummation of which such person or group would beneficially own 15%
or more of the Companys Common Stock. Until the Rights become exercisable, each
share of common stock of the Company has a Right attached and the securities trade as a
unit.

# 15.   Stock Options

The Company has three stock option
plans with options available to be granted. Under these three plans, employees of the
Company whose judgment, initiative and efforts may be expected to contribute materially to
the successful performance of the Company are eligible to receive options. Non-employee
Directors also receive annual grants of options. The options granted vest beginning one
year from the date of grant, and vest fully after five years, subject to acceleration
under certain circumstances. The options granted expire ten years after the date of grant.
Options are granted, and the plans are administered, by the Compensation Committee of the
Board of Directors, composed of non-employees of the Company. Other option plans are in
operation with no options available for grant.

A summary of stock option activity
follows:

|Fiscal 2002                                  | Number ofShares | WeightedAverageExercise Price
|-------------------------------------------- | --------------- | -----------------------------
|Options outstanding at beginning of period   | 1,715,872       | $7.42                        
|Options granted                              | 168,200         | $6.73                        
|Options exercised                            | 12,200          | $4.00                        
|Options canceled                             | 45,800          | $7.75                        
|Options outstanding at end of period         | 1,826,072       | $7.37                        
|Options available for grant at end of period | 82,000          |                              
|Options exercisable at end of period         | 1,093,622       | $6.93                        

| |  | 
| |  | 
| |  | 

|Fiscal 2003                                  | Number ofShares | WeightedAverageExercise Price
|-------------------------------------------- | --------------- | -----------------------------
|Options outstanding at beginning of period   | 1,826,072       | $7.37                        
|Options granted                              | 220,000         | $2.20                        
|Options exercised                            | 0               | $0.00                        
|Options canceled                             | 148,200         | $6.47                        
|Options outstanding at end of period         | 1,897,872       | $6.85                        
|Options available for grant at end of period | 294,200         |                              
|Options exercisable at end of period         | 1,282,962       | $7.05                        

| |  | 
| |  | 
| |  | 

|Fiscal 2004                                  | Number ofShares | WeightedAverageExercise Price
|-------------------------------------------- | --------------- | -----------------------------
|Options outstanding at beginning of period   | 1,897,872       | $6.85                        
|Options granted                              | 111,000         | $2.98                        
|Options exercised                            | 1,600           | $1.97                        
|Options canceled                             | 113,460         | $6.30                        
|Options outstanding at end of period         | 1,893,812       | $6.66                        
|Options available for grant at end of period | 257,860         |                              
|Options exercisable at end of period         | 1,397,062       | $7.09                        

A summary of stock options outstanding at year-end fiscal 2004 is as follows:

|Options Outstanding | Options Exercisable |     |        |           |       
|------------------- | ------------------- | --- | ------ | --------- | ------
|
|$1.80-$2.99         | 192,900             | 8.5 | $2.13  | 28,500    | $1.94 
|$3.03-$5.88         | 536,800             | 3.7 | $4.59  | 427,600   | $4.86 
|$6.25-$8.80         | 678,112             | 3.1 | $7.23  | 602,162   | $7.20 
|$9.13-$12.08        | 468,000             | 5.9 | $9.73  | 320,800   | $9.85 
|$15.13-$15.13       | 18,000              | 4.3 | $15.13 | 18,000    | $15.13
|$1.80-$15.13        | 1,893,812           | 4.5 | $6.66  | 1,397,062 | $7.09 

Certain outstanding options were
authorized directly by the Companys stockholders but most were issued in accordance
with stock option plans authorized by the stockholders and administered by the
Compensation Committee of the Board of Directors.

# 16.   Advances To Officers

Advances were made by the Company in
February 1998, February 1999 and November 1999 to Raphael Benaroya, the Companys
Chairman of the Board, President and Chief Executive Officer. The purpose of the advances
was to finance payment of income taxes incurred in connection with the exercise of stock
options, totaling approximately $2.3 million. On November 30, 2001, Mr. Benaroya signed a
consolidated promissory note in the amount of approximately $2.8 million, representing the
cumulative advances and accrued interest as of that date, with a term of two years. Mr.
Benaroya repaid the note with accrued interest as of July 1, 2002 by surrendering 278,529
shares of Company common stock. The surrendered shares had a value equivalent to the
consolidated note based on the closing price on the NASDAQ Stock Market on the preceding
trading day. The Compensation Committee of the Board of Directors, which administers the
stock option program, met on the morning of July 1, 2002 and approved the transaction.

# 17.   Stock Appreciation
Rights Plan

Commencing in May 2000 and annually
thereafter, each nonmanagement Director received an award under the Companys Stock
Appreciation Rights Plan that provides for a cash payment by the Company when the Director
exercises the stock option granted to him contemporaneously under the Companys Stock
Option Plans. The payment will be an amount equivalent to the after tax equity in the
option that is being exercised, that is, the excess of the then current market price of
the shares issued over the sum of 1) the exercise price of the corresponding option plus
2) any personal income tax withholding on the gain arising from the exercise.

# 18.   Supplemental Cash
Flow Information

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

|                                                                                            | Fiscal2002 | Fiscal2003 | Fiscal2004
|------------------------------------------------------------------------------------------- | ---------- | ---------- | ----------
|Net cash interest paid (received),   including
interest received   of $339, $103 and $1.344 | $787       | $1,065     | ($490)    
|                                                                                            |            |            |           
|Income taxes refunded                                                                       | ($1,786)   | ($964)     | ($1,413)  

Non-cash investing activities include
$1.4 million related to capital lease obligations incurred between January 2002 and
January 2003.

Non-cash financing activities include
the repayment of officer advances with accrued interest as of July 1, 2002 with the
repayment made by surrendering 278,529 shares of Company common stock with a market value
equal to the principal and interest, in lieu of cash payment.

# 19.   Segment Information

The Company operated its business in
two reportable segments in fiscal 2002: Avenue Retail (retail stores) and Shop@Home
(catalog and internet). In deciding how to allocate resources and assess performance, the
Company regularly evaluated the performance of its operating segments on the basis of net
sales and earnings (losses) from operations. The Company assesses retail store performance
on a regional basis. However, these operating segments are aggregated into one reportable
segment in accordance with the aggregation criteria of SFAS 131,  Disclosures about
Segments of an Enterprise and Related Information (SFAS No. 131).

In March 2003, the Company suspended
its catalog operations indefinitely. Coincident with the suspension of the catalog
business, fundamental changes in the internet business caused management to conclude that
the Company operates a single business, i.e. one operating segment pursuant to the
guidelines in SFAS 131, and that the internet does not constitute a separate operating
segment. This conclusion is based on consideration of (a) the information regularly
reviewed by the Companys chief operating decision maker (CODM) to make
decisions about resources to be allocated and to assess performance; (b) roles and
responsibilities of those individuals who are direct reports to the CODM; (c) information
presented to the Board of Directors; and (d) related factors as to how the Company
operates its business.

# 20.   Contingencies

The Company is involved in legal
actions and claims arising in the ordinary course of business. Management believes that
such litigation and claims will not have a material adverse effect on the Companys
financial position, annual results of operations or cash flows. Legal fees are typically
expensed as incurred.

A subsidiary of United Retail Group,
Inc., United Retail Incorporated (URI), is the defendant in a suit in
California Superior Court, Los Angeles County, styled Erik Stanford et ano vs. United
Retail Incorporated, served on URI by two former store managers in California. The suit is
purportedly a class action on behalf of certain current and former URI associates employed
in California. The plaintiffs in the Stanford case assert wage and hour claims and related
claims against URI with respect to the period since April 1999.

On December 29, 2004, in mediation
proceedings, URI and the plaintiffs in the Stanford case entered into a Memorandum of
Understanding that provided for a settlement in the total amount of up to approximately
$2.3 million, including interest and payroll taxes, payable on a claims made basis in
installments of approximately $1.3 million during the third quarter of fiscal 2005 and up
to approximately $1.0 million on April 28, 2006. In connection with the settlement,
compensation of store managers employed by the Company in California was converted from
salaries to hourly wages in January 2005.

On March 18, 2005, URI and the
plaintiffs in the Stanford case replaced the Memorandum of Understanding with a
Stipulation and Settlement Agreement (Settlement Agreement), which provides
for the same payment terms as the Memorandum of Understanding. The Settlement Agreement is
subject to court approval.

Court hearings to review the fairness
of the terms of the Settlement Agreement are expected to be held in the second and third
quarters of fiscal 2005.

Total expense related to this matter
was $0.7 million in fiscal 2003 and $1.6 million in fiscal 2004, of which $.8 million was
recorded in the fourth quarter.

Management believes that the probable
outcome of the case will be Court approval of the agreed-upon settlement.

# 21.   Supplemental
Financial Data (Unaudited)

(dollars in thousands, except per share data)

|                           | Fiscal 2003 |          |          |            
|-------------------------- | ----------- | -------- | -------- | -----------
|
|Net sales                  | $101,530    | $104,790 | $88,535  | $101,410   
|Gross profit               | 22,169      | 21,671   | 17,803   | 20,855     
|Operating loss             | (4,211)     | (3,945)  | (5,839)  | (4,794)    
|Net loss                   | ($4,545)    | ($4,246) | ($6,247) | (1)($4,032)
|Net loss per common share: |             |          |          |            
|Basic                      | ($0.35)     | ($0.33)  | ($0.48)  | ($0.31)    
|Diluted                    | ($0.35)     | ($0.33)  | ($0.48)  | ($0.31)    

| |  | 
| |  | 
| |  | 

|                                    | Fiscal 2004 |          |          |         
|----------------------------------- | ----------- | -------- | -------- | --------
|
|Net sales                           | $97,519     | $101,269 | $92,597  | $107,865
|Gross profit                        | 20,874      | 20,854   | 17,835   | 24,764  
|Operating loss                      | (3,098)     | (2,746)  | (6,271)  | (2)(867)
|Net Income (loss)                   | ($3,363)    | ($1,559) | ($6,255) | (3)$697 
|Net income (loss) per common share: |             |          |          |         
|Basic                               | ($0.26)     | ($0.12)  | ($0.49)  | ($0.06) 
|Diluted                             | ($0.26)     | ($0.12)  | ($0.49)  | ($0.05) 

(1)   
          Includes a $0.9 million tax benefit for reversals of accruals for potential tax
          liabilities.(2)   Includes $0.8 million for settlement costs related to the
          Stanford case (See Note 20).(3)   Includes a $1.8 million tax benefit for
          reversals of accruals for potential tax liabilities due to various settlements (See Note 12).

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A.   CONTROLS AND PROCEDURES.

|(a) |  | A committee of senior managers in the Companys Finance Department (the
          Disclosure Committee), chaired by the Chief Financial Officer (the
          CFO), coordinates disclosure controls and procedures (as defined by
          1934 Act Rule 13a-15(e)) with respect to information required to be disclosed by
          the Company (Disclosures) in filings with the Commission. The
          Companys disclosure controls and procedures are intended to provide
          reasonable assurance that the disclosure controls and procedures will meet their
          objectives.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each
fiscal quarter, the Company performs a formal evaluation, in which the Companys
Chief Executive Officer (the CEO) and CFO participate, of both the
effectiveness and the design and operation of the Companys disclosure controls and
procedures. The evaluation includes, among other things, consideration of the processes
carried out under the direction of the Disclosure Committee in order to ensure that
Disclosures are recorded, processed, summarized and reported within the time periods
specified by the Commissions rules and forms, and that Disclosures are accumulated
and communicated to the Companys management, including the CEO and CFO, as
appropriate, to allow timely discussion regarding required financial disclosure.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of the end of the period covered by this Report, such an evaluation was carried out under
the supervision and with the participation of the CEO and CFO. Based upon this evaluation,
the CEO and CFO each concluded that, at January 29, 2005, as a result of the material
weakness in internal control over financial reporting (as defined by 1934 Act Rule
13a-15(f)) discussed in paragraphs (b) and (d), the Companys disclosure controls and
procedures were not effective to ensure that the information required to be disclosed in
SEC reports is recorded, processed, summarized and reported within the requisite time
periods.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | As disclosed in the Companys Quarterly Report on Form 10-Q for the third
          quarter of fiscal 2004, in December 2004 the Company re-evaluated the manner in
          which it accounted for construction allowances and other concessions from
          landlords of retail stores leased by the Company (Construction
          Allowances) on its balance sheets and statements of cash flows. The
          Companys accounting for Construction Allowances had been to amortize such
          costs over the minimum lease term on a straight line basis, as part of buying
          and occupancy costs in its statements of operations, which conformed with
          generally accepted accounting principles. However, in its detailed accounts, the
          Company historically had followed the practice of recording this amortization as
          a reduction of depreciation expense, rather than rent expense. Additionally, on
          the Companys balance sheets, the unamortized portion of Construction
          Allowances had been netted against fixed assets and not presented as a deferred
          credit. Further, the Companys statements of cash flows had reflected
          Construction Allowances received as a reduction of capital expenditures (within
          investing cash flows) rather than as an operating lease activity
          (within operating cash flows). Such presentations were not in
          conformity with generally accepted accounting principles.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | In order to correct its accounting, the Company filed amendments to its Annual
          Report on Form 10-K for fiscal 2003 and its Quarterly Reports on Form 10-Q for
          first and second quarters of fiscal 2004 to restate its balance sheets and
          statements of cash flows and revise its financial statement footnotes and other
          disclosures. In the restatements, among other things, the Company established a
          deferred credit on the balance sheets for the unamortized portion of
          Construction Allowances, rather than netting these amounts against fixed assets,
          and presented Construction Allowances received within operating activities in
          its statements of cash flows.  The revised accounting was
          reflected in the Quarterly Report on Form 10-Q for the third quarter of fiscal
          2004 and is reflected in this Report.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | A material weakness is one or more control deficiencies that results
          in more than a remote likelihood that a material misstatement of the annual or
          interim financial statements will not be prevented or detected. At January 29,
          2005,the Companys staffing and technical accounting expertise and related
          processes in its financial reporting function were not fully in place to render
          remote the likelihood of a material misstatement in the financial statements.
          This inadequacy was a control deficiency that resulted in the Companys
          inability to properly reflect certain items in its financial statements
          including Construction Allowances, as described in paragraph (b). As a result,
          the Company restated its fiscal 2003, 2002 and 2001 financial statements and
          fiscal 2004 and 2003 interim financial statements as noted in the preceding
          paragraph. In addition, the control deficiency resulted in an audit adjustment
          to the fiscal 2004 financial statements to correct a misstatement of liabilities
          for income tax exposures and of provision for (benefit from) income taxes in
          regard to tax matters that had been settled. This audit adjustment related to
          the fourth quarter of fiscal 2004 and has been recorded in the financial
          statements for fiscal 2004 appearing elsewhere in this Report. Management
          concluded that this control deficiency was a material weakness at January 29,
          2005 and advised the Audit Committee to that effect. Because of this, the
          Company performed additional procedures to ensure that the financial statements
          at and for the year ended January 29, 2005 were fairly presented in all material
          respects in accordance with generally accepted accounting principles.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) |  | Beginning in January 2005, the Company started to implement measures to correct
          the material weakness described in paragraphs (b) and (d). Steps taken to date
          include the following:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(i) |  | the Company retained an experienced accounting consultant to (1) provide advice
               on current accounting developments, new accounting pronouncements and emerging
               accounting issues on a regular basis, (2) review and comment on a preliminary
               draft of each of the Companys Annual Reports on Form 10-K and Quarterly
               Reports on Form 10-Q and (3) provide advice on technical accounting matters on
               request;
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) |  | the Company implemented a process for a regular internal review and discussion
               by the Disclosure Committee of emerging accounting issues and new accounting
               pronouncements;
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) |  | the Company subscribed to a professional service that provides complete analysis
               on emerging accounting issues and new accounting pronouncements; and
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iv) |  | the Company implemented a process for regularly completing a comprehensive
               regulatory disclosure checklist.
|---- |  | --------------------------------------------------------------------------------------------------------------------------

|(f) |  | There were no significant changes made in the fourth quarter of fiscal 2004 in
          the Companys internal control over financial reporting that materially
          affected or are reasonably likely to materially affect internal control over
          financial reporting except as described in the preceding paragraph.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) |  | After taking into consideration the corrective measures implemented to date in
          monitoring the application of generally accepted accounting principles, the CEO
          and CFO believe that proper corrective actions have been put in place to remedy
          the material weakness discussed in paragraphs (b) and (d). As of the end of the
          first quarter of fiscal 2005, the CEO and CFO will evaluate the implementation
          of these corrective actions and decide whether (i) a material weakness continues
          to exist and (ii) the Companys disclosure controls and procedures are
          effective.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(h) |  | The Company has not yet been required to complete an assessment of its internal
          control over financial reporting in accordance with section 404 of the
          Sarbanes-Oxley Act of 2002. Therefore, there can be no assurance that other
          material weaknesses will not be identified when an assessment is performed.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 9B.   OTHER INFORMATION.

Not applicable.

---

# Part III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Incumbent Directors of
the Registrant

The eight incumbent Directors have
been nominated for reelection by the Board of Directors of the Company. See,
Nominating Committee. The subsection under Election of Directors
captioned Business and Professional Experience in the Proxy Statement is
incorporated herein by reference.

Executive Officers of the
Registrant and Subsidiaries

In addition to Raphael Benaroya and
George R. Remeta, whose employment history with the Corporation is described in the Proxy
Statement, the executive officers of the Corporation are the following:

Kenneth P. Carroll, age 62, is United
Retail Group, Inc.s Senior Vice President  General Counsel and Secretary. He
has been an officer since joining the Corporation in March 1992.

Paul McFarren, age 41, has been the
Chief Information Officer of United Retail Group, Inc. since October 2000 with the title
of Senior Vice President since August 2003. Previously, he was Vice President of Worldwide
Field Operations of LVMH, a consumer goods manufacturer, for two years.

Jon Grossman, age 47, is Vice
President  Finance of United Retail Group, Inc. He has been an officer of the
Corporation or one of its subsidiaries since May 1992.

Each of the Corporations
executive officers holds office until the Board of Directors meeting after the 2005 annual
meeting of stockholders of United Retail Group, Inc., and until his successor shall be
elected. However, officers are always subject to removal from office by the Board of
Directors in its discretion.

The subsection under Executive
Compensation captioned Employment and Bonus Agreements in the Proxy
Statement is incorporated herein by reference.

The executive officers of the
Corporations subsidiaries are the following:

Ellen Demaio, age 47, has been Senior
Vice President  Merchandise of United Retail Incorporated since October 1994 and
previously was Vice President-Merchandise since November 1992.

Joann Fielder, age 51, has been
Senior Vice President-Chief Design Officer of United Retail Incorporated since April 2004.
She was a senior design executive at Ann Taylor stores for more than five years, with the
title of Executive Vice President of Design in 2001 and of Senior Vice President of Design
before that.

Raymond W. Brown, age 45, has been
Vice President  Associate Services of United Retail Incorporated since May 1998.

Julie L. Daly, age 50, has been a
Vice President of United Retail Incorporated since May 1991, most recently as Vice
President-Shop @ Home Operations.

Kent Frauenberger, age 58, has been
Vice President  Logistics of United Retail Logistics Operations Incorporated since
March 1993.

Brian French, age 44, has been a
senior construction executive with United Retail Incorporated for more than five years,
most recently as Vice President  Store Development. From March 2002 to March 2001,
he was Vice President  Construction. Previously, he was Director of Store
Construction since July 1999.

Scott Lucas, age 50, has been a
senior sales executive with United Retail Incorporated for more than five years, with the
title of Vice President-Sales, Western Region since August 2003. He was hired as an
associate in February 1994.

Patrick McGahan, age 53, has been
national Vice President-Sales of United Retail Incorporated since October 2003.
Previously, he held similar positions with Bebe Stores, a retail chain, from April 2003 to
February 2002 and with the Structure chain of stores operated by Limited Brands, Inc. for
many years prior to August 2000.

Bradley Orloff, age 47, has been Vice
President  Marketing of United Retail Incorporated since May 1991.

Gerald Schleiffer, age 53, has been
Vice President  Planning and Distribution of United Retail Incorporated since August
1999.

Jerry Soucy, age 57, has been Vice
President-Real Estate of United Retail Incorporated since October 2004. Previously, he was
Vice President of Development of David King Enterprises, LLC, a real estate developer,
from September 2004 to January 2002. Earlier, he was a partner of RAM Development, LLC, a
real estate developer, for several years.

Compliance With Section
16(a) of the Exchange Act

The section captioned Section
16(a)  Beneficial Ownership Reporting Compliance in the Proxy Statement is
incorporated herein by reference.

Codes of Ethics

Separate corporate codes of ethics
apply to the Corporations officers, to Directors who are not employed by the
Corporation and to associates of the Corporations subsidiaries. The code for
officers of the Corporation has been incorporated as an exhibit to this Report by
reference to Exhibit 14 to the Annual Report on Form 10-K for the year ended January 31,
2004 and is available at www.sec.gov. The code for associates of the Corporations
subsidiaries has been posted on the About Us  Ethical Statement page at
www.unitedretail.com. The several codes reflect the distinct responsibilities of the
different persons covered.

Audit Committee

The Corporations Board of
Directors has determined that at least one audit committee financial expert serves on its
Audit Committee, namely, Joseph Ciechanover. Mr. Ciechanover is independent as that term
is used in Item 7(d)(3)(iv) of Schedule 14A under the 1934 Act.

The subsection under Election
of Directors captioned Information Concerning the Audit Committee in the
Proxy Statement is incorporated herein by reference.

Nominating Committee

The Nominating Committee annually
recommends a slate of nominees, at the present time for eight seats, to the Board of Directors for submission to a
stockholder vote. On February 24, 2005, a quorum of the Nominating Committee unanimously
recommended the eight incumbent Directors for reelection at the 2005 Annual Meeting of
Stockholders. The Nominating Committee considers the comparative qualifications of (i)
incumbent Directors who are willing to stand for reelection, (ii) other candidates, if
any, whom the Committee invites to apply and (iii) volunteers, if any, including any
recommended in a timely manner by a stockholder of the Company. On February 24, 2005, the
Nominating Committee evaluated the performance of the eight incumbent Directors and found
it satisfactory. The Nominating Committee did not invite any additional candidate to
apply. After the Committee made its recommendation to the Board, a stockholder
sent a notice to the Company reserving the right to propose four different nominees for election at the 2005 Annual Meeting of Stockholders but
the stockholder withdrew the notice after meetings with the Company's management and an exchange of letters
with the Company's Chief Executive Officer.  (The Company's letter was filed with the Commission and has been incorporated
by reference as an exhibit to this Report.)

On April 27, 2005, the Board authorized the Nominating Committee to search for
two more candidates than usual (for a total of ten candidates) for nomination for election as Directors at the 2006 Annual Meeting of Stockholders. (The eight incumbent Directors
are eligible for consideration for renomination.)  A stockholder wishing to submit the
name of one or more candidates for consideration by the Nominating Committee should do so
by letter to the Committee in care of the Companys Secretary addressed to the
Companys headquarters and delivered before December of the year preceding the annual
meeting of stockholders (previously, a later notice deadline was in place). An address
should be provided for the candidate(s) to receive application materials, including a
consent to background and reference checks by the Committee and an autobiographical
questionnaire, to be completed, signed and returned to the Secretary. Candidates should be
available for interviews upon request.

Apart from the Nominating Committee process, stockholders may present their own nominations.
Any nominations for election as Directors of the Company that a stockholder intends to present in person or by proxy at the 2006
Annual Meeting of Stockholders but which are not received in proper form by the Secretary
of the Company at the principal executive offices of the Company at least 90 days prior to
the anniversary date of the 2005 Annual Meeting of Stockholders will be omitted by the
Company from the proxy statement and form of proxy relating to that meeting and may not
properly be brought before the meeting. The Nominating Committee may select its slate of
nominees for election at the 2006 Annual Meeting of Stockholders after the last day on
which a stockholder can give notice of intent to present a nomination at the annual
meeting of stockholders. The submission of the name of one or more candidates for
consideration by the Committee shall not satisfy the requirement to give notice to the
Secretary of intent to present a nomination personally or by proxy at the annual meeting of
stockholders.

ITEM 11.   EXECUTIVE COMPENSATION.

The section captioned Executive
Compensation in the Proxy Statement is incorporated herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The sections captioned Security Ownership
of Principal Stockholders and Security Ownership of Management in the
Proxy Statement are incorporated herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The section captioned Certain
Transactions in the Proxy Statement is incorporated herein by reference.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES.

The section captioned
Independent Registered Public Accounting Firm in the Proxy Statement is
incorporated herein by reference.

---

# PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Consolidated Financial Statements of the Corporation for fiscal 2004 are included herein.
2. Schedule II - Valuation and Qualifying Accounts, together with the related report of the Independent
           Registered Public Accounting Firm for the Corporation, are filed herewith and designated as Exhibit No. 99.
3. The following exhibits are filed herewith:

|Number | Description                                                                 
|------ | ----------------------------------------------------------------------------
|23     | Consent of Independent Registered Public Accounting Firm for the Corporation
|31     | Certifications pursuant to Section 302                                      

1. Certifications pursuant to Section 906 are furnished as Exhibit 32 hereto.
2. The following documents are incorporated herein by reference.

The following exhibit to the Corporation's Current Report on Form 8-K filed on April 29, 2005 is incorporated
herein by reference:

|Number in Filing | Description                                                      
|---------------- | -----------------------------------------------------------------
|99.2             | Letter, dated April 28, 2005, from Raphael Benaroya
to John Pound

The following exhibit to the
Corporations Current Report on Form 8-K filed on April 22, 2005 is incorporated
herein by reference:

|Number in Filing | Description                            
|---------------- | ---------------------------------------
|10*              | Restated Stock Appreciation Rights Plan

The following exhibit to the
Corporations Current Report on Form 8-K filed on March 23, 2005 is incorporated
herein by reference.

|Number in Filing | Description                                                                                                                                      
|---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------
|10               | Stipulation and Settlement Agreement, dated March 18, 2005, in Stanford et ano vs. United Retail
                                    Incorporated

The following exhibits to the
Corporations Current Report on Form 8-K filed on March 3, 2005 are incorporated
herein by reference:

|Number in Filing | Description                                    
|---------------- | -----------------------------------------------
|10.1*            | 2005 Incentive Compensation Plan Agreement form
|10.2*            | 2005 Tandem Bonus Plan Agreement               
|10.3*            | Supplemental Retirement Savings Plan ("SRSP")  
|10.4*            | Amendment to SRSP                              

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended October 30, 2004 are
incorporated herein by reference:

|Number in Filing | Description                                                                                       
|---------------- | --------------------------------------------------------------------------------------------------
|10               | Severance Pay Agreement, dated October 2, 2004, between United Retail Incorporated and Jerry Soucy
|21               | Subsidiaries of the Corporation                                                                   

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended July 31, 2004 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                                                                                                                                      
|---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*            | Employment Agreement, dated as of September 3, 2004, between the Corporation and Raphael Benaroya                                                                                                                                                                                                
|10.2*            | Employment Agreement, dated as of September 3, 2004, between the Corporation and George R. Remeta                                                                                                                                                                                                
|10.3*            | Employment Agreement, dated as of September 3, 2004, between the Corporation and Kenneth P. Carroll                                                                                                                                                                                              
|10.4*            | Form of Severance Pay Agreement, dated September 9, 2004 (entered into separately
by the Corporation with Paul McFarren and Jon Grossman; similar contracts were entered
into at the same time between the Corporation's respective subsidiaries and the
respective officers of the subsidiaries)

The following exhibit to the
Corporations Quarterly Report on Form 10-Q for the period ended May 1, 2004 is
incorporated herein by reference:

|Number in Filing | Description                                                                   
|---------------- | ------------------------------------------------------------------------------
|10*              | Bonus agreement, dated May 28, 2004, between the Corporation and Joann Fielder

The following exhibits to the
Corporations Annual Report on Form 10-K for the year ended January 31, 2004 are
incorporated herein by reference.

|Number in Filing | Description                                                                                 
|---------------- | --------------------------------------------------------------------------------------------
|3                | Restated By-laws of the Corporation                                                         
|10.2             | Form of Indemnification Agreement between the Corporation and each of its Directors         
|14               | Code of Ethics for Principal Executive and Senior Financial Officers pursuant to Section 406

The following exhibit to the
Corporations Current Report on Form 8-K filed on January 8, 2004 is incorporated
herein by reference:

|Number in Filing | Description                                                                                                                                                                                                                                                                                  
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10               | Amendment, dated December 23, 2003, to Financing Agreement among the Corporation, United
                                            Retail Incorporated, Cloudwalkers, Inc. and The CIT Group/Business Credit, Inc., as Agent
                                            and Lender ("CIT")

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended August 2, 2003 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                                                      
|---------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*            | Amendment, dated September 2, 2003, to Employment Agreement, dated November 20, 1998,
                                            between the Corporation and Raphael Benaroya ("Benaroya Employment Agreement") 
|10.2*            | Amendment, dated September 2, 2003, to Employment Agreement, dated November 20, 1998,
                                            between the Corporation and George R. Remeta ("Remeta Employment Agreement")   
|10.3*            | Amendment, dated September 2, 2003, to Employment Agreement, dated November 20, 1998,
                                            between the Corporation and Kenneth P. Carroll ("Carroll Employment Agreement")

The 2003 Stock Option Plan set forth
as the appendix to the Corporations proxy statement on Schedule 14A for its 2003
annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the
Corporations Annual Report on Form 10-K/A for the year ended February 1, 2003 is
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                        
|---------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1             | Amendment, dated January 31, 2003, to Financing Agreement among the Corporation, United
                                            Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended November 2, 2002 are
incorporated herein by reference:

|Number in Filing | Description                                                        
|---------------- | -------------------------------------------------------------------
|10.1*            | Amendment, dated December 6, 2002, to Benaroya Employment Agreement
|10.2*            | Amendment, dated December 6, 2002, to Remeta Employment Agreement  
|10.3*            | Amendment, dated December 6, 2002, to Carroll Employment Agreement 

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended August 3, 2002 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                      
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1             | Amendment, dated August 2, 2002, to Financing Agreement among the Corporation, United
                                            Retail Incorporated, Cloudwalkers, Inc. and CIT
|10.3             | Purchase and Sale Agreement, dated as of July 1, 2002, between Raphael Benaroya and the
                                            Corporation                                  

The following exhibit to the
Corporations Quarterly Report on Form 10-Q for the period ended May 4, 2002 is
incorporated herein by reference:

|Number in Filing | Description                                                    
|---------------- | ---------------------------------------------------------------
|10.1*            | Amendment, dated May 30, 2002, to Benaroya Employment Agreement

The following exhibits to the
Corporations Annual Report on Form 10-K for the year ended February 2, 2002 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                                                                                                                                                                                  
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1             | Amendment, dated April 5, 2002, to Private Label Credit Card Program Agreement, dated
                                            January 27, 1998, between the Corporation, United Retail Incorporated and World Financial
                                            Network National Bank ("Private Label Credit Card Program Agreement")
|10.2             | Amendment, dated December 29, 1999, to Private Label Credit Card Program Agreement                                                                                                                                                                                                                                                           
|10.3             | Amendment, dated August 19, 1999, to Private Label Credit Card Program Agreement                                                                                                                                                                                                                                                             
|10.4*            | Letter, dated March 1, 2002, from the Corporation to Raphael Benaroya with respect to the
                                            cost of living adjustment under the Benaroya Employment Agreement                                                                                                                                      

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended November 3, 2001 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                   
|---------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*            | Amendment, dated November 29, 2001, to Benaroya Employment Agreement                                                                                          
|10.2*            | Amendment, dated November 29, 2001, to Remeta Employment Agreement                                                                                            
|10.3*            | Amendment, dated November 29, 2001, to Carroll Employment Agreement                                                                                           
|10.4*            | Summary Plan Description for United Retail Group, Inc. Incentive Compensation Program for Executives                                                          
|10.5             | Amendment, dated October 1, 2001, to Private Label Credit Card Program Agreement (Confidential portions filed separately with the Secretary of the Commission)
|10.6*            | Promissory note, dated November 30, 2001, from Raphael Benaroya to the Corporation (paid as of July 1, 2002)                                                  

The 2001 Stock Option Plan set forth
as an appendix to the Corporations proxy statement on Schedule 14A for its 2001
annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the
Corporations Registration Statement on Form S-8 (Registration No. 333-44868) is
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                       
|---------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10               | Amendment, dated August 21, 2000, to Financing Agreement among the
                                            Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended October 28, 2000 are
incorporated herein by reference:

|Number in Filing | Description                                                       
|---------------- | ------------------------------------------------------------------
|10.1*            | Amendment, dated August 18, 2000, to Benaroya Employment Agreement
|10.2*            | Amendment, dated August 18, 2000, to Carroll Employment Agreement 

The following exhibits to the
Corporations Annual Report on Form 10-K for the year ended January 29, 2000 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                 
|---------------- | --------------------------------------------------------------------------------------------------------------------------------------------
|10.2             | Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT ("Financing Agreement")
|10.3             | Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT     

The following exhibit to the
Corporations Quarterly Report on Form 10-Q for the period ended October 30, 1999 is
incorporated herein by reference:

|Number in Filing | Description                                             
|---------------- | --------------------------------------------------------
|10.1             | Amendment, dated October 6, 1999, to Financing Agreement

The following exhibit to the
Corporations Current Report on Form 8-K, filed September 23, 1999, is incorporated
herein by reference:

|Number in Filing | Description                                                                                        
|---------------- | ---------------------------------------------------------------------------------------------------
|3                | Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock

The stockholders rights plan
filed as the exhibit to the Corporations Registration Statement on Form 8-A, dated
September 15, 1999, is incorporated herein by reference.

The following exhibit to the
Corporations Annual Report on Form 10-K for the year ended January 30, 1999 is
incorporated herein by reference:

|Number in Filing | Description                                            
|---------------- | -------------------------------------------------------
|10.1             | Amendment, dated March 29, 1999, to Financing Agreement

The 1999 Stock Option Plan set forth
as the Appendix to the Corporations proxy statement on Schedule 14A for its 1999
annual meeting of stockholders is incorporated herein by reference.*

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended October 31, 1998 are
incorporated herein by reference:

|Number in Filing | Description                  
|---------------- | -----------------------------
|10.1*            | Benaroya Employment Agreement
|10.2*            | Remeta Employment Agreement  
|10.3*            | Carroll Employment Agreement 

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended May 2, 1998 are
incorporated herein by reference:

|Number in Filing | 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

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                                                                                                                                                                                                                                                                
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 Card Program Agreement                                                                                                                                                                                                                                
|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                                                                                                                                                                                                                        

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

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

|Number in Filing | Description        
|---------------- | -------------------
|10.1             | Financing 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 the Corporation                                                                                                                                                         
|4.1              | Specimen Certificate for Common Stock of the Corporation                                                                                                                                                                     
|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) ("Software License")
|10.2.2           | Amendment, dated December 10, 1991, to Software License                                                                                                                                                                      

_________________

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

---

# 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.

|                     |                                                                                                     
|-------------------- | ----------------------------------------------------------------------------------------------------
|Date: April 29, 2005 | By: /s/ RAPHAEL BENAROYARaphael Benaroya
Chairman of the Board,President and Chief Executive Officer

# LIMITED POWER OF
ATTORNEY

KNOWN ALL MEN BY THESE PRESENTS, that
each Director whose signature appears below other than RAPHAEL BENAROYA and GEORGE R.
REMETA constitutes and appoints RAPHAEL BENAROYA and GEORGE R. REMETA, and each of them,
as his true and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as a Director of
United Retail Group, Inc., to sign any or all amendments to this Annual Report, and to
file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute, may lawfully do or cause
to be done by virtue hereof.

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 indicated on April 29, 2005.

|Signature                                                       | Title                                                               | Signature                                      | Title   
|--------------------------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------------------- | --------
|/s/RAPHAEL BENAROYARaphael BenaroyaPrincipal Executive Officer  | Chairman of the BoardPresident, Chief ExecutiveOfficer and Director | /s/ MICHAEL GOLDSTEINMichael Goldstein         | Director
|                                                                |                                                                     |                                                |         
|/s/ GEORGE R. REMETAGeorge R. RemetaPrincipal Financial Officer | Vice Chairman, ChiefAdministrative Officerand Director              | /s/ ILAN KAUFTHALIlan Kaufthal                 | Director
|                                                                |                                                                     |                                                |         
|/s/ JON GROSSMANJon GrossmanPrincipal Accounting Officer        | Vice President-Finance                                              | ________________Vincent P. Langone             | Director
|                                                                |                                                                     |                                                |         
|/s/ JOSEPH A. ALUTTOJoseph A. Alutto                            | Director                                                            | /s/ RICHARD W. RUBENSTEINRichard W. Rubenstein | Director
|                                                                |                                                                     |                                                |         
|/s/ JOSEPH CIECHANOVERJoseph Ciechanover                        | Director                                                            |                                                |         

---

# EXHIBIT INDEX

1. Consolidated Financial Statements of the Corporation for fiscal 2004 are included herein.
2. Schedule II - Valuation and Qualifying Accounts, together with the related report of the Independent
           Registered Public Accounting Firm for the Corporation, are filed herewith and designated as Exhibit No. 99.
3. The following exhibits are filed herewith:

|Number | Description                                                                 
|------ | ----------------------------------------------------------------------------
|23     | Consent of Independent Registered Public Accounting Firm for the Corporation
|31     | Certifications pursuant to Section 302                                      

1. Certifications pursuant to Section 906 are furnished as Exhibit 32 hereto.
2. The following documents are incorporated herein by reference.

The following exhibit to the Corporation's Current Report on Form 8-K filed on April 29, 2005 is incorporated
herein by reference:

|Number in Filing | Description                                                      
|---------------- | -----------------------------------------------------------------
|99.2             | Letter, dated April 28, 2005, from Raphael Benaroya
to John Pound

The following exhibit to the
Corporations Current Report on Form 8-K filed on April 22, 2005 is incorporated
herein by reference:

|Number in Filing | Description                            
|---------------- | ---------------------------------------
|10*              | Restated Stock Appreciation Rights Plan

The following exhibit to the
Corporations Current Report on Form 8-K filed on March 23, 2005 is incorporated
herein by reference.

|Number in Filing | Description                                                                                                                                      
|---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------
|10               | Stipulation and Settlement Agreement, dated March 18, 2005, in Stanford et ano vs. United Retail
                                    Incorporated

The following exhibits to the
Corporations Current Report on Form 8-K filed on March 3, 2005 are incorporated
herein by reference:

|Number in Filing | Description                                    
|---------------- | -----------------------------------------------
|10.1*            | 2005 Incentive Compensation Plan Agreement form
|10.2*            | 2005 Tandem Bonus Plan Agreement               
|10.3*            | Supplemental Retirement Savings Plan ("SRSP")  
|10.4*            | Amendment to SRSP                              

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended October 30, 2004 are
incorporated herein by reference:

|Number in Filing | Description                                                                                       
|---------------- | --------------------------------------------------------------------------------------------------
|10               | Severance Pay Agreement, dated October 2, 2004, between United Retail Incorporated and Jerry Soucy
|21               | Subsidiaries of the Corporation                                                                   

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended July 31, 2004 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                                                                                                                                      
|---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*            | Employment Agreement, dated as of September 3, 2004, between the Corporation and Raphael Benaroya                                                                                                                                                                                                
|10.2*            | Employment Agreement, dated as of September 3, 2004, between the Corporation and George R. Remeta                                                                                                                                                                                                
|10.3*            | Employment Agreement, dated as of September 3, 2004, between the Corporation and Kenneth P. Carroll                                                                                                                                                                                              
|10.4*            | Form of Severance Pay Agreement, dated September 9, 2004 (entered into separately
by the Corporation with Paul McFarren and Jon Grossman; similar contracts were entered
into at the same time between the Corporation's respective subsidiaries and the
respective officers of the subsidiaries)

The following exhibit to the
Corporations Quarterly Report on Form 10-Q for the period ended May 1, 2004 is
incorporated herein by reference:

|Number in Filing | Description                                                                   
|---------------- | ------------------------------------------------------------------------------
|10*              | Bonus agreement, dated May 28, 2004, between the Corporation and Joann Fielder

The following exhibits to the
Corporations Annual Report on Form 10-K for the year ended January 31, 2004 are
incorporated herein by reference.

|Number in Filing | Description                                                                                 
|---------------- | --------------------------------------------------------------------------------------------
|3                | Restated By-laws of the Corporation                                                         
|10.2             | Form of Indemnification Agreement between the Corporation and each of its Directors         
|14               | Code of Ethics for Principal Executive and Senior Financial Officers pursuant to Section 406

The following exhibit to the
Corporations Current Report on Form 8-K filed on January 8, 2004 is incorporated
herein by reference:

|Number in Filing | Description                                                                                                                                                                                                                                                                                  
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10               | Amendment, dated December 23, 2003, to Financing Agreement among the Corporation, United
                                            Retail Incorporated, Cloudwalkers, Inc. and The CIT Group/Business Credit, Inc., as Agent
                                            and Lender ("CIT")

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended August 2, 2003 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                                                      
|---------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*            | Amendment, dated September 2, 2003, to Employment Agreement, dated November 20, 1998,
                                            between the Corporation and Raphael Benaroya ("Benaroya Employment Agreement") 
|10.2*            | Amendment, dated September 2, 2003, to Employment Agreement, dated November 20, 1998,
                                            between the Corporation and George R. Remeta ("Remeta Employment Agreement")   
|10.3*            | Amendment, dated September 2, 2003, to Employment Agreement, dated November 20, 1998,
                                            between the Corporation and Kenneth P. Carroll ("Carroll Employment Agreement")

The 2003 Stock Option Plan set forth
as the appendix to the Corporations proxy statement on Schedule 14A for its 2003
annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the
Corporations Annual Report on Form 10-K/A for the year ended February 1, 2003 is
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                        
|---------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1             | Amendment, dated January 31, 2003, to Financing Agreement among the Corporation, United
                                            Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended November 2, 2002 are
incorporated herein by reference:

|Number in Filing | Description                                                        
|---------------- | -------------------------------------------------------------------
|10.1*            | Amendment, dated December 6, 2002, to Benaroya Employment Agreement
|10.2*            | Amendment, dated December 6, 2002, to Remeta Employment Agreement  
|10.3*            | Amendment, dated December 6, 2002, to Carroll Employment Agreement 

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended August 3, 2002 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                      
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1             | Amendment, dated August 2, 2002, to Financing Agreement among the Corporation, United
                                            Retail Incorporated, Cloudwalkers, Inc. and CIT
|10.3             | Purchase and Sale Agreement, dated as of July 1, 2002, between Raphael Benaroya and the
                                            Corporation                                  

The following exhibit to the
Corporations Quarterly Report on Form 10-Q for the period ended May 4, 2002 is
incorporated herein by reference:

|Number in Filing | Description                                                    
|---------------- | ---------------------------------------------------------------
|10.1*            | Amendment, dated May 30, 2002, to Benaroya Employment Agreement

The following exhibits to the
Corporations Annual Report on Form 10-K for the year ended February 2, 2002 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                                                                                                                                                                                  
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1             | Amendment, dated April 5, 2002, to Private Label Credit Card Program Agreement, dated
                                            January 27, 1998, between the Corporation, United Retail Incorporated and World Financial
                                            Network National Bank ("Private Label Credit Card Program Agreement")
|10.2             | Amendment, dated December 29, 1999, to Private Label Credit Card Program Agreement                                                                                                                                                                                                                                                           
|10.3             | Amendment, dated August 19, 1999, to Private Label Credit Card Program Agreement                                                                                                                                                                                                                                                             
|10.4*            | Letter, dated March 1, 2002, from the Corporation to Raphael Benaroya with respect to the
                                            cost of living adjustment under the Benaroya Employment Agreement                                                                                                                                      

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended November 3, 2001 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                   
|---------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1*            | Amendment, dated November 29, 2001, to Benaroya Employment Agreement                                                                                          
|10.2*            | Amendment, dated November 29, 2001, to Remeta Employment Agreement                                                                                            
|10.3*            | Amendment, dated November 29, 2001, to Carroll Employment Agreement                                                                                           
|10.4*            | Summary Plan Description for United Retail Group, Inc. Incentive Compensation Program for Executives                                                          
|10.5             | Amendment, dated October 1, 2001, to Private Label Credit Card Program Agreement (Confidential portions filed separately with the Secretary of the Commission)
|10.6*            | Promissory note, dated November 30, 2001, from Raphael Benaroya to the Corporation (paid as of July 1, 2002)                                                  

The 2001 Stock Option Plan set forth
as an appendix to the Corporations proxy statement on Schedule 14A for its 2001
annual meeting of stockholders is incorporated herein by reference.*

The following exhibit to the
Corporations Registration Statement on Form S-8 (Registration No. 333-44868) is
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                                                       
|---------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10               | Amendment, dated August 21, 2000, to Financing Agreement among the
                                            Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended October 28, 2000 are
incorporated herein by reference:

|Number in Filing | Description                                                       
|---------------- | ------------------------------------------------------------------
|10.1*            | Amendment, dated August 18, 2000, to Benaroya Employment Agreement
|10.2*            | Amendment, dated August 18, 2000, to Carroll Employment Agreement 

The following exhibits to the
Corporations Annual Report on Form 10-K for the year ended January 29, 2000 are
incorporated herein by reference:

|Number in Filing | Description                                                                                                                                 
|---------------- | --------------------------------------------------------------------------------------------------------------------------------------------
|10.2             | Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT ("Financing Agreement")
|10.3             | Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT     

The following exhibit to the
Corporations Quarterly Report on Form 10-Q for the period ended October 30, 1999 is
incorporated herein by reference:

|Number in Filing | Description                                             
|---------------- | --------------------------------------------------------
|10.1             | Amendment, dated October 6, 1999, to Financing Agreement

The following exhibit to the
Corporations Current Report on Form 8-K, filed September 23, 1999, is incorporated
herein by reference:

|Number in Filing | Description                                                                                        
|---------------- | ---------------------------------------------------------------------------------------------------
|3                | Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock

The stockholders rights plan
filed as the exhibit to the Corporations Registration Statement on Form 8-A, dated
September 15, 1999, is incorporated herein by reference.

The following exhibit to the
Corporations Annual Report on Form 10-K for the year ended January 30, 1999 is
incorporated herein by reference:

|Number in Filing | Description                                            
|---------------- | -------------------------------------------------------
|10.1             | Amendment, dated March 29, 1999, to Financing Agreement

The 1999 Stock Option Plan set forth
as the Appendix to the Corporations proxy statement on Schedule 14A for its 1999
annual meeting of stockholders is incorporated herein by reference.*

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended October 31, 1998 are
incorporated herein by reference:

|Number in Filing | Description                  
|---------------- | -----------------------------
|10.1*            | Benaroya Employment Agreement
|10.2*            | Remeta Employment Agreement  
|10.3*            | Carroll Employment Agreement 

The following exhibits to the
Corporations Quarterly Report on Form 10-Q for the period ended May 2, 1998 are
incorporated herein by reference:

|Number in Filing | 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

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                                                                                                                                                                                                                                                                
|---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 Card Program Agreement                                                                                                                                                                                                                                
|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                                                                                                                                                                                                                        

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

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

|Number in Filing | Description        
|---------------- | -------------------
|10.1             | Financing 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 the Corporation                                                                                                                                                         
|4.1              | Specimen Certificate for Common Stock of the Corporation                                                                                                                                                                     
|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) ("Software License")
|10.2.2           | Amendment, dated December 10, 1991, to Software License                                                                                                                                                                      

_________________

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