<PAGE>






                SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C.  20549

                            FORM 10-Q



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

         For The Quarterly Period Ended October 31, 1998


                  Commission File Number 1-14770
          (formerly File Numbers 1-11633 and 333-50577)


                     PAYLESS SHOESOURCE, INC.
      (Exact name of registrant as specified in its charter)



           Delaware                          43-1813160
(State or other jurisdiction of            (I.R.S. Employer
incorporation or organization)          Identification Number)

                                 

3231 Southeast Sixth Street, Topeka, Kansas     66607-2207
(Address of principal executive offices)        (Zip Code)


                          (785) 233-5171
                 (Registrant's telephone number,
                       including area code)


Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days.                                   YES   X    NO        
                                           -------   -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 

                   Common Stock, $.01 par value
            33,620,928 shares as of November 28, 1998





<PAGE>
                  PART 1 - FINANCIAL INFORMATION

ITEM 1 - Financial Statements

            PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED BALANCE SHEET
                           (Unaudited)
(Dollars in millions)
                                Oct. 31,    Nov. 1,     Jan. 31,
ASSETS                            1998        1997        1998   
------                          --------    --------    --------
Current Assets:
 Cash and cash equivalents      $  102.4    $  217.3    $  210.0
 Merchandise inventories           353.3       331.7       324.6
 Current deferred income taxes       7.7        11.9        16.9
 Other current assets               17.5        12.6        11.4
                                --------    --------    --------
   Total current assets            480.9       573.5       562.9

Property and Equipment:
 Land                                6.0         5.4         4.3
 Buildings and leasehold
   improvements                    603.9       572.6       559.3
 Furniture, fixtures and
   equipment                       306.5       295.0       279.7
 Property under capital leases       7.5         7.6         7.5
                                --------    --------    --------
   Total property and equipment    923.9       880.6       850.8
 Accumulated depreciation
   and amortization               (429.0)     (393.3)     (364.1)
                                --------    --------    --------
   Property and equipment          494.9       487.3       486.7

Deferred income taxes               24.2        15.9        19.9
Other assets                         3.5         3.5         3.5
                                --------    --------    --------
   Total Assets                 $1,003.5    $1,080.2    $1,073.0
                                ========    ========    ========

LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current Liabilities:
 Current maturities of
   capital lease obligations    $    1.5    $    1.3    $    1.4
 Accounts payable                   84.1        88.7        63.8
 Accrued expenses                  125.7       115.2       112.9
                                --------    --------    --------
   Total current liabilities       211.3       205.2       178.1

Capital lease obligations            5.2         6.7         6.5

Other liabilities                   48.8        50.6        52.0

Shareowners' Equity:
 Common stock                        0.3         0.4         0.4
 Additional paid-in capital         21.0        20.7        21.0
 Unearned restricted stock          (5.5)       (8.6)       (7.6)
 Retained earnings                 722.4       805.2       822.6
                                --------    --------    --------
   Total shareowners' equity       738.2       817.7       836.4          

   Total Liabilities and
       Shareowners' Equity      $1,003.5    $1,080.3    $1,073.0
                                ========    ========    ========

    See Notes to Condensed Consolidated Financial Statements.

                                   2
<PAGE>

               PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
                              (Unaudited)


(Millions, except per share)

                           13 Weeks Ended           39 Weeks Ended
                        ---------------------    ---------------------
                        Oct. 31,     Nov. 1,     Oct. 31,     Nov. 1,
                          1998        1997         1998        1997    
                        ---------   ---------    ---------   ---------
Net Retail Sales        $   643.1   $   635.7    $ 2,047.1   $ 1,997.4

Cost of sales               441.0       443.4      1,394.6     1,388.6

Selling, general and
  administrative
  expenses                  147.4       138.5        457.7       429.4

Interest (income)
  expense, net               (1.3)       (1.9)        (6.0)       (6.1)    
                        ---------   ---------    ---------   ---------
Earnings before income
  taxes                      56.0        55.7        200.8       185.5

Provision for income
  taxes                      22.3        22.2         80.1        74.0
                        ---------   ---------    ---------   ---------

Net Earnings            $    33.7   $    33.5    $   120.7   $   111.5     
                        =========   =========    =========   =========

Basic Earnings
  per Share             $    0.98   $    0.89    $    3.35   $    2.87
                        =========   =========    =========   =========
Diluted Earnings
  per Share             $    0.98   $    0.88    $    3.31   $    2.84
                        =========   =========    =========   =========
Basic Weighted Average
  Shares Outstanding         34.4        37.5         36.1        38.8     
                        =========   =========    =========   =========
Diluted Weighted Average
  Shares Outstanding         34.5        38.1         36.4        39.2
                        =========   =========    =========   =========

       See Notes to Condensed Consolidated Financial Statements.

                                   3
<PAGE>
               PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                              (Unaudited)

(Dollars in millions)                       39 Weeks Ended
                                         --------------------
                                         Oct. 31,    Nov. 1,
                                           1998        1997
                                         --------    --------
Operating Activities:
 Net earnings                            $  120.7    $  111.5
 Adjustments for noncash items
 included in net earnings:
   Depreciation and amortization             69.9        67.6
   Amortization of unearned
     restricted stock                         2.1         3.2
   Deferred income taxes                      4.9         0.1
 Merchandise inventories                    (28.7)       23.2          
 Other current assets                        (6.1)       (2.8)
 Accounts payable                            20.3         5.7
 Accrued expenses                            12.8        16.7
 Other assets and liabilities, net           (3.4)        2.3
                                         --------    --------

Total Operating Activities                  192.5       227.5
                                         --------    --------

Investing Activities:
 Capital expenditures                       (84.9)      (59.3)
 Disposition of property and equipment        6.7         6.9
                                         --------    --------

Total Investing Activities                  (78.2)      (52.4)         
                                         --------    --------
Financing Activities:
 Repayment of capital lease         
   obligations                               (1.2)       (1.4)    
 Purchases of common stock                 (220.7)     (150.0)         
                                         --------    --------

Total Financing Activities                 (221.9)     (151.4)
                                         --------    --------

Increase (Decrease) in Cash
  and Cash Equivalents                     (107.6)       23.7
Cash and Cash Equivalents,
  Beginning of Year                         210.0       193.6
Cash and Cash Equivalents,               --------    --------
  End of Period                          $  102.4    $  217.3
                                         ========    ========

Cash paid during the period:
  Interest                               $    0.8    $    1.8
  Income Taxes                               62.3        58.9
       

       See Notes to Condensed Consolidated Financial Statements.

                                   4
<PAGE>

               PAYLESS SHOESOURCE, INC. AND SUBSIDIARIES

         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation
Payless ShoeSource, Inc., a Missouri corporation ("Payless") and its
subsidiaries were reorganized into a Delaware holding company structure
effective June 1, 1998 through a merger (the "Merger") with Payless
Merger Corp., a Missouri corporation, which was an indirect wholly-owned
subsidiary of Payless and a wholly-owned subsidiary of Payless
ShoeSource, Inc., a Delaware corporation (the "Company").  The Company
formerly was a wholly-owned subsidiary of Payless immediately prior to
the merger.  Each of the Company and Payless Merger Corp. were organized
in connection with the Merger.  Pursuant to the Merger, Payless became
a wholly-owned subsidiary of the Company and is the principal operating
subsidiary of the Company.  The transaction was accounted for as a
reorganization of entities under common control (similar to a pooling of
interest).  As a result, immediately following the effective time of the
Merger the Company and its subsidiaries had the same consolidated net
worth as Payless and its subsidiaries had immediately prior to the
Merger.

For purposes of these Notes to Condensed Consolidated Financial
Statements, "Registrant", "New Payless" or "the Company" refers to
Payless ShoeSource, Inc., a Delaware corporation, and its subsidiaries,
unless the context otherwise requires.

Note 2. Interim Results.  These Condensed Consolidated Financial
Statements (Unaudited) of the Company have been prepared in accordance
with the instructions to Form 10-Q of the Securities and Exchange
Commission and should be read in conjunction with the Notes to the
Consolidated Financial Statements (pages 19-24) in the Company's 1997
Annual Report.  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations.  In the opinion of management, the
Condensed Consolidated Financial Statements (Unaudited) are fairly
presented and all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the
interim periods have been included; however, certain items are included
in these statements based upon estimates for the entire year.  The
results for the nine month period ended October 31, 1998, are not
necessarily indicative of the results that may be expected for the year
ending January 30, 1999.

Note 3. Inventories.  Merchandise inventories are valued at the retail
method and are stated at the lower of cost, determined using the first-
in, first-out (FIFO) basis, or market.  

Note 4. Parade of Shoes.  In March 1997, the Company acquired inventory
and trademarks, and assumed leases on 186 stores of the Parade of Shoes
division ("Parade") from J. Baker, Inc.  The purchase price was
approximately $28 million in cash.  Parade sells women's footwear and
accessories in 14 states, Puerto Rico and the District of Columbia.  The
Company is operating Parade as a separate division supported by existing
Payless sourcing, distribution, information systems, real estate and
financial organizations.
                                   5
<PAGE>
The Parade acquisition has been accounted for as a purchase, and
accordingly, the operating results of the acquired stores have been 
included in the Company's consolidated results since the date of
acquisition.

Note 5.  Earnings Per Share.  Basic earnings per share was computed by
dividing net earnings by the weighted average number of shares of common
stock outstanding during the period.  Diluted earnings per share include
the effect of conversions of stock options.  

Note 6.  Reclassifications.  Certain reclassifications have been made to
prior year balances to conform with the current year presentation.

Note 7.  Foreign Currency Translation.  Local currencies are the
functional currencies for all subsidiaries.  Accordingly, assets and
liabilities of foreign subsidiaries are translated at the rate of
exchange at the balance sheet date.  Income and expense items of these
subsidiaries are translated at average rates of exchange.  The foreign
currency translation was immaterial for the third quarter of 1998 and
1997.

Item 2 - Management's Discussion and Analysis of Financial             
    Condition and Results of Operations

The following discussion summarizes the significant factors affecting
operating results for the quarters ended October 31, 1998 (1998) and
November 1, 1997 (1997).  This discussion and analysis should be read in
conjunction with the Condensed Consolidated Financial Statements
(Unaudited) and Notes to the Condensed Consolidated Financial Statements 
included in this Form 10-Q and the Notes to the Consolidated Financial
Statements contained in the Company's 1997 Annual Report, for the year
ended January 31, 1998. 

Review of Operations

Net Earnings
Net earnings totaled $33.7 million in the third quarter of 1998, up 0.6%
from $33.5 million in the third quarter of 1997.  For the first nine
months of 1998, net earnings were $120.7 million compared with $111.5
million in the 1997 period, an 8.3% increase.

The following table presents the components of costs and expenses, as a
percent of net retail sales, for the third quarter and first nine months
of 1998 and 1997.
                                                      First
                                  Third Quarter    Nine Months 
                                  -------------   -------------
                                   1998   1997     1998   1997
                                  ------ ------   ------ ------
  Cost of sales                    68.6%  69.8%    68.1%  69.5%

  Selling, general and
    administrative expenses        22.9   21.8     22.4   21.5

  Interest (income)/expense, net    (.2)   (.3)     (.3)   (.3)
                                  ------ ------   ------ ------
  Earnings before income taxes      8.7%   8.7%     9.8%   9.3%
                                  ====== ======   ====== ======
                                   6
<PAGE>
  Effective income tax rate        39.9%  39.9%    39.9%  39.9%
                                  ====== ======   ====== ======
  Net Earnings                      5.2%   5.3%     5.9%   5.6%
                                  ====== ======   ====== ======

Net Retail Sales
Net retail sales represent the sales of stores operating during the
period. Same-store sales represent sales of stores open during
comparable periods.  During the third quarter of 1998 total sales
increased 1.2 percent from the third quarter of 1997, consisting of a
3.2 percent decrease in unit volume and a 4.5 percent increase in
average selling prices.  For the first nine months of 1998 total sales
increased 2.5 percent from same period of 1997, consisting of a 1.6
percent decrease in unit volume and a 4.1 percent increase in average
selling prices. Sales percent increases (decreases) are as follows:

                           Third Quarter       First Nine Months
                         ------------------   ------------------
                           1998      1997       1998      1997  
                         --------  --------   --------  --------
   Net Retail Sales        1.2%     10.2%       2.5%     10.3%

   Same-Store Sales       (1.9%)     5.2%      (0.1%)     6.3%     

Cost of Sales
Cost of sales includes cost of merchandise sold, buying and occupancy
costs. Cost of sales was $441.0 million in the 1998 third quarter, down
0.5% from $443.4 million in the 1997 third quarter.  For the first nine
months of 1998, cost of sales was $1.395 billion, a 0.4% increase from
$1.389 billion in the 1997 period.  

For the third quarter and first nine months, cost of sales, as a percent
of net retail sales, declined 1.2 percent to 68.6 percent and 1.4
percent to 68.1 percent, respectively.  Gross margin improvement in the
third quarter and the first nine months of the year was primarily due to
improvements in the merchandising mix, control of freight costs, and
improvement in product costs. 

Selling, General and Administrative Expenses
Selling, general and administrative expenses were $147.4 million in the
1998 third quarter, up 6.4 percent from $138.5 million in the 1997 third
quarter.  For the first nine months of 1998, selling, general and
administrative expenses were $457.7 million compared with $429.4 million
in the 1997 period, a 6.6 percent increase.  

As a percent of net retail sales, selling, general and administrative
expenses were 22.9 percent during the third quarter of 1998 compared
with 21.8 percent in the third quarter of 1997.  For the first nine
months of 1998, selling, general and administrative expenses as a
percent of net retail sales were 22.4 percent in 1998 compared with 21.5
percent in 1997. 

The increase during the third quarter of 1998 was attributed to negative
leverage on store payroll due to a decline in same-store sales and
increases in systems expenses.



                                   7
<PAGE>
The increase during the first nine months of 1998 was attributed to an
increase in advertising expense, negative leverage due to below plan
results at Parade of Shoes, and investments in Payless systems to
support future growth, to enhance distribution capabilities and to
implement the Payless Year 2000 program as discussed under "Year 2000
Readiness Disclosure" below.
   
Stock Compensation Plans
The stock compensation plans established by the Company are accounted
for by applying Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees.  Accordingly, no compensation expense has
been recognized for stock-based compensation plans other than for 
restricted stock and performance-based awards.  Had compensation cost
for the Payless stock options been determined under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, net earnings and earnings per share for the third quarter
of 1998 and 1997 would have been reduced by approximately $1.6 million,
or $0.05 per share and $5.7 million, or $0.15 per share, respectively. 
For the first nine months of fiscal 1998 and 1997 net earnings and 
earnings per share would have been reduced by approximately $4.5
million, or $0.12 per share and $11.9 million, or $0.31 per share,
respectively.

Cash Flow
Cash flow from operations during the nine months ended October 31, 1998,
was $192.5 million. This figure represented 9.4 percent of net retail
sales during the first nine months of 1998 compared with 11.4 percent
during the first nine months of 1997. Internally generated funds are
expected to continue to be the most important component of the Company's
capital resources and are expected to fund capital expansion. Sources
and (uses) of cash flows are summarized below:

                                    39 Weeks Ended   
                                  -------------------
                                  Oct. 31,    Nov. 1,
(Dollars in millions)               1998       1997
                                  --------   --------
Net earnings
  and noncash items               $  197.6   $  182.4
Working capital
  decrease (increase)                 (5.1)      45.1
Investing activities                 (78.2)     (52.4)
Purchases of common stock           (220.7)    (150.0)
Other financing activity              (1.2)      (1.4)
                                  --------   --------
Increase (decrease) in cash
  and cash equivalents            $ (107.6)  $   23.7
                                  ========   ========
Capital Expenditures
Capital expenditures during the first nine months of 1998 totaled $84.9
million with an additional $27.8 million estimated to be incurred during
the remainder of fiscal year 1998.  The Company anticipates that cash
flow from operations and the Company's existing credit facility should
be sufficient to finance projected capital expenditures.

Financing Activities
During the third quarter of 1998, the Company acquired 1.5 million
shares of its common stock for an aggregate price of $67.9 million.
                                   8
<PAGE>
On October 8, 1998, the Board of Directors authorized the expansion of
the Company's share repurchase program to a total of $500 million
dollars worth of the Company's common stock.  This expansion increased
the prior $150 million authorization of the Company's Board of Directors
announced on August 10, 1998.

Available Credit
The Company has in place a $200 million unsecured revolving credit
facility with a bank syndication group on which no amounts were drawn
down as of October 31, 1998.

Financial Condition Ratios
A summary of key financial information for the periods indicated is as
follows:
                                Oct. 31,    Nov. 1,   Jan. 31,
                                  1998       1997       1998
                                --------   --------   --------
Current Ratio                     2.3        2.6         3.2
Debt-to-Capitalization Ratio*     0.9%       1.0%        1.0%
Fixed Charge Coverage**           4.1x       3.7x        3.5x

      *   Debt-to-capitalization has been computed by dividing total debt,
     which includes current and long-term capital lease obligations, by
     capitalization, which includes current and long-term capital lease
     obligations, non-current deferred income taxes and equity.  The
     debt-to-capitalization ratio, including the present value of
     future minimum rental payments under operating leases as debt and
     capitalization, would be 53.7%, 50.9% and 50.1% respectively, for
     the periods referred to above.

      **  Fixed charge coverage, which is presented for the trailing 52
     weeks in each period ended above, is defined as earnings before
     income taxes, gross interest expense, and the interest component
     of rent expense, divided by gross interest expense and the
     interest component of rent expense.

The Company's fixed charge coverage ratio for the 52 weeks ended October 
31, 1998 increased as compared with the 52 week period ended November 1,
1997, due primarily to increased net earnings.

Store Activity
At the end of the third quarter of 1998, the Company operated 4,327
Payless ShoeSource stores in 50 states, Canada, the District of
Columbia, Guam, Saipan, Puerto Rico and the U.S. Virgin Islands and 212
Parade of Shoes stores.  The following table presents the change in
store count for the third quarter and first nine months of 1998 and
1997.
  Payless ShoeSource                                 First
                                  Third Quarter    Nine Months
                                  -------------   ------------
                                    1998   1997    1998   1997
                                   -----  -----   -----  -----
  Beginning of quarter/year        4,293  4,223   4,256  4,236
  Stores opened                       71     53     178    116
  Stores closed                      (37)   (33)   (107)  (109)
                                   -----  -----   -----  -----
  Ending store count               4,327  4,243   4,327  4,243
                                   =====  =====   =====  =====
                                   9
<PAGE>
  Parade of Shoes                                     First
                                  Third Quarter    Nine Months
                                  -------------   ------------
                                    1998   1997    1998   1997
                                   -----  -----   -----  -----
  Beginning of quarter/year          211    183     175      0
  Stores acquired                      0      0       0    186
  Stores opened                       10      2      51      4   
  Stores closed                       (9)    (2)    (14)    (7)
                                   -----  -----   -----  -----
  Ending store count                 212    183     212    183
                                   =====  =====   =====  =====

Year 2000 Readiness Disclosure
Many existing computer programs were designed and developed without
regard for the Year 2000 and beyond.  If not corrected, these computer 
applications could fail or create erroneous results before or at the
Year 2000. For the Company, this could disrupt product purchasing and
distribution, store operations, finance and other support areas and
affect the Company's ability to timely deliver product to stores,
thereby causing potential lost sales opportunities and additional
expenses.

The Company's State of Readiness

The Company has created a Year 2000 Steering Committee comprised of
various senior management members and a Year 2000 Project Management
Office.  This group is responsible for planning and monitoring the
Company's overall Year 2000 program and for reporting on a regular basis
to the Company's Board of Directors.  The Company's Year 2000 program
encompasses both information and non-information systems within the
Company as well as investigation of the readiness of the Company's
significant business partners.  The Company has engaged an international
consulting firm to evaluate and assist in the monitoring of its Year
2000 program.  The outside consulting firm provides periodic updates on
the Company's progress to the Company's Board of Directors.

Internally Engineered Systems.  With assistance from another
international consulting firm, the Company has evaluated and continues
to evaluate the extent to which modifications to its internally
engineered computer systems will be necessary to accommodate the Year
2000 and is modifying its internally engineered computer systems to
enable continued processing of data into and beyond the Year 2000.  This
phase of the Company's Year 2000 program is nearing completion and the
Company anticipates completing remediation and testing of its internally
engineered computer systems by the end of the second quarter of fiscal
1999.

Purchased Systems.  The Company has inventoried the types of purchased
hardware and software systems used within the enterprise and is
obtaining, where feasible, contractual warranties from system vendors
that their products are or will be Year 2000 compliant.  This phase of
the Company's Year 2000 program is expected to be completed by the end
of 1998.  The Company requires Year 2000 contractual warranties from all
vendors of new software and hardware.  In addition, the Company is
testing newly purchased significant computer hardware and software
systems in an effort to ensure their Year 2000 compliance.

                                   10
<PAGE>
Business Partners.  The Company has communicated with most of its
suppliers, banks and other business partners or vendors seeking
assurances they will be Year 2000 compliant.  Although no method exists
for achieving certainty that any business' significant partners will
function without disruption in the Year 2000, the Company's goal is to
obtain as much detailed information as possible about its significant
partners' Year 2000 plans and to identify those companies which appear
to pose a significant risk of failure to perform their obligations to
the Company as a result of the Year 2000.  The Company expects to have
compiled detailed information regarding all of its significant business
partners by December 1998.  The Company is planning, where appropriate,
to review such significant partners throughout 1999 to confirm their
level of preparedness for the Year 2000 and to make adjustments where
necessary to avoid utilization of those partners who present an
unacceptable level of risk.

The Company currently is not dependent on a single source for any
products or services.  In the event a significant supplier, bank or
other business partner or vendor is unable to provide products or
services to the Company due to a Year 2000 failure, the Company believes 
it has adequate alternate sources for such products or services.  There
can be no guarantee, however, that similar or identical products or
services would be available on the same terms and conditions or that the
Company would not experience some adverse effects as a result of
switching to such alternate sources.

Embedded Systems.  The Company is taking inventory of and will test
significant non-computer equipment (non-information technology)
throughout the enterprise to determine whether it is date sensitive. 
Where appropriate, the Company will seek contractual protections or make
contingency plans in an effort to minimize any adverse effect on any
such equipment due to the Year 2000.  The Company plans to have
completed its inventory of its non-computer equipment by the end of 1998
and to have fully tested such equipment by the Spring of 1999.

Costs to Address the Year 2000

Spending for modifications is being expensed as incurred and is not
expected to have a material impact on the Company's results of
operations or cash flows.  The cost of the Company's Year 2000 program
is being funded with cash flows from operations.  The Company's total
Year 2000 expenditures (including external and internal expenditures)
are estimated to be in the range of $8-10 million.  While the foregoing
estimate does include internal costs, the Company does not separately
track all of the internal costs incurred by it for the Year 2000
program.  Such costs are principally the related payroll costs for the
Company's Year 2000 Program Management Office and other internal
resources who are also contributing their efforts to the Year 2000
program.  The largest single Year 2000 expenditure to date has been
consulting fees incurred in the context of the remediation of the
Company's internally engineered computer systems as discussed above.  To
date, the Company has expended approximately 90% of its estimated total
Year 2000 expenditures, although the percentage expended cannot
necessarily be taken as an indication of the Company's degree of
completion of its Year 2000 program.



                                   11
<PAGE>
Risk Analysis

Like most large business enterprises, the Company is dependent upon its
own internal computer technology and relies upon timely performance by
its business partners.  As noted above, a large-scale Year 2000 failure
could impair the Company's ability to timely deliver product to stores,
resulting in potential lost sales opportunities and additional expenses. 
Neither the precise magnitude of such lost sales opportunities and
additional expenses nor the exact costs of carrying out contingency
plans has yet been ascertained by the Company.  The Company's Year 2000
program seeks to identify and minimize this risk and includes testing of
its internally engineered systems and purchased hardware and software,
to ensure, to the extent feasible, all such systems will function before
and after the Year 2000.  The Company is continually refining its
understanding of the risk the Year 2000 poses to its significant
business partners based upon information obtained through its surveys
and interviews.  That refinement will continue throughout 1998 and 1999.

Contingency Plans

Following its risk analysis as described above, the Company's Year 2000
program includes a contingency planning phase in which appropriate plans
will be made to attempt to minimize disruption to the Company's
operations in the event of a Year 2000 failure.  The Company is
formulating plans to handle a variety of failure scenarios, including
failures of its internal systems, as well as failures of significant 
business partners.  The level of planning required is a function of the
risks ascertained through the Company's investigative efforts.  The
Company anticipates contingency planning across the enterprise will be
completed by the Summer of 1999.

While no assurances can be given, because of the Company's extensive
efforts to formulate and carry-out an effective Year 2000 program, the
Company believes its program will be completed on a timely basis and
should effectively minimize disruption to the Company's operations due
to the Year 2000.

Cautionary Statement Regarding Forward-Looking Statements
This report contains, and from time to time, the Company may publish,
forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments,
new products, future store openings, possible strategic alternatives and
similar matters. Also, statements including the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," or variations of
such words and similar expressions are forwarding-looking statements.
The Company notes that a variety of factors could cause its actual
results and experience to differ materially from the anticipated results
or other expectations expressed in its forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include, but are not
limited to, the following: changes in consumer spending patterns;
changes in consumer preferences and overall economic conditions; the
impact of competition and pricing; changes in weather patterns; Year
2000 matters as discussed herein; the financial condition of the
suppliers and manufacturers from whom the Company sources its
merchandise; changes in existing or potential duties, tariffs or quotas;
changes in relationships between the United States and foreign
countries, economic and political instability in foreign countries or
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restrictive actions by the governments of foreign countries in which
suppliers and manufacturers from whom the Company sources are located;
changes in trade and foreign tax laws; fluctuations in currency exchange
rates; availability of suitable store locations and appropriate terms;
the ability to hire and train associates; and general economic, business
and social conditions.  All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by these cautionary
statements.  The Company does not undertake any obligation to release
publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

                      PART II - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

 (a)  Exhibits:             
   
   Number     Description  
   ------     -----------     
     3.1      Restated Certificate of Incorporation of Registrant
              (incorporated by reference from exhibit 3.1 to
              Registrant's Current Report on Form 8-K (File No.
              1-14770) filed June 3, 1998).

     3.2      Amended and Restated Bylaws of Registrant (incorporated 
              by reference from exhibit 3.2 to Registrant's Current 
              Report on Form 8-K (File No. 1-14770) filed June 3, 
              1998).

    10.15     Amendment No. 1 to the Amended and Restated Multicurrency
              Credit Agreement dated as of November 23, 1998, among 
              Payless ShoeSource, Inc., a Missouri corporation, Payless
              ShoeSource, Inc. (formerly Payless ShoeSource Holdings,
              Inc.), a Delaware corporation, Payless ShoeSource
              Finance, Inc. (formerly PSS Investment II, Inc.), a
              Nevada corporation, the several financial institutions
              signatory thereto, and Bank of America National Trust and
              Savings Association, individually and as agent.*

    11.1      Computation of Net Earnings Per Share*       
    
    27.1      Financial Data Schedule*

    * Filed herewith
 
   
 (b)  Reports on Form 8-K - None









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                              SIGNATURES

 Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                              PAYLESS SHOESOURCE, INC.    



Date: 12/8/98                         /s/ Steven J. Douglass        
     ---------------                --------------------------------
                                           Steven J. Douglass
                                              Chairman and
                                          Chief Executive Officer



Date: 12/8/98                         /s/ Ullrich E. Porzig          
     ---------------                --------------------------------
                                             Ullrich E. Porzig
                                         Senior Vice President and
                                          Chief Financial Officer































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