MERCANTILE STORES COMPANY, INC.
1997
Annual Report
table   of    contents

financial highlights		      page 1

chairman's letter          	page 3

financial information   	   pages 5-25
group presidents,
store divisions and
locations    	        	     pages 26-27

corporate officers      	   page 28

directors and
stockholder information     inside back cover
<PAGE>

<TABLE>
Financial Highlights
<CAPTION>
 		    	                    	1997		                            	 1996	         	      % change
                   Year Ending January 31, 1998       Year Ending February 1, 1997
<S>                <C>                                <C>                             <C> 
For the year:
Retail Sales				   $  3,054,900,000		                 $  2,945,600,000		              3.7
Income:
  Net Operating
       Income-
  Excluding
   Impairment
      Charge	       $    129,706,000		                $    128,665,000		              0.8
  Impairment
   Charge                    --                             (7,200,000)
                      _________________                ________________
Net Income      				$    129,706,000		                $    121,465,000		              6.8
                  				=================		              =================
Per Share Data:
Net Income-
  Excluding
   Impairment
      Charge	       $           3.53		                $           3.50
  Impairment
   Charge	                        --		                            (.20)
                        ________________       	       	_________________

Net Income  				    $           3.53		                $           3.30
                    				================		              =================
At year-end:
Working Capital		 		$  1,023,310,000		                $  1,017,533,000		        0.6
   Ratio					              5.1				                           4.6

Long-Term Debt
(including current
     maturities)	   $    224,066,000 		               $    254,927,000	         (12.1)

Debt to
Capitalization Ratio    			12.0%				                        14.0%

Stockholders'
  Equity            $  1,646,846,000		                $  1,565,313,000	         5.2

Book Value
  Per Share			      $     44.81 	    	                $     42.48	              5.5

ONE
</TABLE>
<PAGE>


OUR COMMITMENT. . .
-  We will operate leading department stores in each community we serve.
-  We will provide value, quality, and exceptional service to our customers.
-  We will offer to our associates an environment of respect, learning,
      and opportunity for development.
-  We will share our resources with the communities we serve.
-  We will succeed in an atmosphere of highest ethical standards.
-  We will dedicate ourselves to dynamic growth and achieve a high return
      for our shareholders.



         PHOTO OF STORE
The 212,000 square foot Maison Blanche storewas opened in the new Mall of
Louisiana in Baton Rouge,Louisiana in October.

TWO

<PAGE>

Dear Shareholders,The year 1997 was marked by intensified competition and sales
promotion in the retail industry. In light of this environment, Mercantile
Stores Company, Inc. has remained stable with total retail sales increasing
3.7% and net income increasing 6.8% over 1996. In fact, when looking at one of
the key measurements used by the analytical community in reviewing performance,
the ratio of pretax profits to sales, Mercantile's 6.8% in 1997 ranks us in 
the upper quartile of the retail industry. In addition, the  Company's
debt-to-capitalization ratio, which declined to 12% in 1997 from 14% in 1996,
is one of the lowest such ratios in the business.

While these results represent an increase over our last year's performance, 
we certainly recognize the need to "raise the bar" and drive toward increasing
our position within the retail community.Now, let's review some of the
successes Mercantile has experienced over the past year and the programs
that have been established to address this challenge:

	- The new Joslins Park Meadows store in Denver opened to rave 
          reviews and was named "Retail Store of the Year" by Chain Store 
          Age, a major print media voice of the retail industry. This is 
          the first time that this coveted and prestigious award has been 
          presented to a Mercantile store and we will certainly take what 
          we have learned from this experience and implement it in the 
          opening of future new stores.

  - Our hair and nail salon business surpassed the $100 million milestone
          for the first time. Part of this success was the expansion of the
          newly furbished McAlpin's Day Spa & Salon in the Kenwood Towne
          Centre in Cincinnati. With 118 stations, we believe this to be the
          largest hair and nail salon in the country.

	- Year-end inventories declined by $55 million as a result of 
          a concentrated program to align inventory levels with recent 
          sales trends.

	- Within the last several months, plans have been
          finalized to introduce an innovative concept into our stores to
          satisfy our customers' appetite for the active lifestyle. During
          the first quarter of 1998, a new  "Activezone" merchandising
          concept has been introduced which will display cross-gender
          athletic wear and accessories in a self-contained boutique setting.


In looking to the future, Mercantile's management has responded to the 
challenge of profitably growing our business by embarking upon a unique 
campaign. In early February, 1998, after nine months of an extensive 
methodology study utilizing both internal and external resources, we have 
established the Profit Growth Initiative Program. We have charged thirty-
three of our fast-track, upper and middle management associates to examine 
the five most significant elements of our business operation with the purpose 
of identifying "Best Practice" modes. These individuals are dedicating 
themselves, on a full-time basis, to the task of determining the most effective
and efficient ways to conduct our business. This program is on schedule and we
have the utmost confidence that the positive results from it will be 
implemented in 1998 and reflected in our reported 1999 earnings.

In thinking about the progress of this past year, we thank our associates for 
their hard work and dedication which has contributed to making us a better 
Company. We also thank our vendors and shareholders whose support is so vital 
to our success. And lastly, but most importantly, we extend our sincere 
gratitude to our customers for judging us a better place in which to spend 
their valued time and hard-earned resources.


Sincerely,
David L. Nichols
Chairman of the Board

THREE

<PAGE>

     PHOTO OF ACTIVEZONE DEPARTMENT

In 1998, responding to our customers' interest in the active lifestyle, 
we are introducing the "ACTIVEZONE" -- a one-stop shopping experience 
which offers men's and women's athletic footwear and apparel in a 
sports-oriented environment.

FOUR

<PAGE>

MANAGEMENT'S DISCUSSION ANALYSIS

(Certain statements contained in this report reflect "forward looking" 
information, as that term is defined in the Private Securities Legislation 
Reform Act of 1995. Such "forward looking" information is based on a series 
of projections and estimates and involves certain risks and uncertainties 
that could cause actual results to differ materially from those indicated 
in any "forward looking" statements. Such factors include but are not limited 
to, the level of consumer spending for merchandise carried by the Company, 
the competitive pricing environment within the department store industry, 
and the effectiveness of the Company's planned advertising programs, 
appropriate inventory management, and the availability of trained personnel.)

Results of Operations
Revenues include sales from retail operations as well as finance charges earned
on private label credit sales. In 1997, revenues amounted to $3.1 billion, an 
increase of 3.7% over the previous year. In 1996, revenues increased 2.9% to 
$3.0 billion.

Total retail sales for 1997 reflect the impact of two new department stores 
opened during 1997 and a full year of operation for five new department stores
opened during 1996. The percentage changes in total and comparable retail 
sales for the last three years were as follows:
                        		1997       		1996		       1995*
Total retail sales		      	3.7%	       	3.0%		       1.5%
Comparable retail sales			 1.1%		       2.4%		       1.2%*
(The 1995 year consisted of 53 weeks; percentages for that year are reflected
  on an equalized 52-week basis.)

Finance charges in 1997 increased 4.7% to $89 million. This improvement was 
primarily due to the incremental finance charge income earned on a 4.5% 
increase in private label credit sales. Finance charges amounted to $85 million
in 1996 compared to $52 million in 1995. The lower amount earned in 1995 was 
attributable to changes in the servicing of the Company's private label credit
program in mid-1995, as discussed in Note 1 of Notes to Consolidated Financial 
Statements.

Net Income in 1997 increased 6.8% to $129.7 million, or $3.53 per share, 
compared to reported net income of $121.5 million, or $3.30 per share, 
earned in 1996.  However, 1996 net income was reduced by a net of tax charge 
of $7.2 million, or $.20 per share, to recognize the requirements of an 
accounting standard with respect to impaired assets. Excluding this charge, 
net income for 1996 amounted to $128.7 million, or $3.50 per share. In 1995, 
net income amounted to $123.2 million, or $3.35 per share.

Net income reported for 1997 was positively impacted by the effect of the 
last-in, first-out (LIFO) method of inventory valuation, and a non-recurring 
gain resulting from a software licensing agreement.

The following summary presents an analysis of net and per share, pre-LIFO
income on a comparable basis for the past three years:
                 				        	1997			            1996			            1995
(amounts in millions)    Amount Per Share	   Amount	Per Share	 Amount	Per Share

Net income before LIFO
 and non-recurring items $ 121.8	  $ 3.31	   $ 133.5	$ 3.63  	 $ 122.9	$ 3.34

LIFO credit / (charge)		     3.6	     .10	      (4.8)  (.13)       0.3    .01

Impairment charge		           - 	     -         (7.2)  (.20)	        -      -
	
Software license		           4.3	     .12	        -	    -      		    -	     -
                      				_______	  ______   	______	 ______	   ______	  _____
Net income			            $ 129.7	  $ 3.53	   $ 121.5	$ 3.30  	 $ 123.2	 $ 3.35
                      				=======	  ======	   ======	======	    ======	 ======

FIVE

<PAGE>
Cost of Goods Sold (COGS) in the retail industry traditionally includes certain
occupancy and buying costs which are not directly associated with the cost of 
merchandise. Occupancy costs so classified include depreciation, rent, 
utilities and real estate taxes; buying costs, in this respect, include the 
payroll and travel expenses of the corporate central buying and merchandise 
planning functions.

In 1997, COGS, as a percent to revenues, increased by 0.5% from the prior year.
Excluding the impact of the LIFO method of inventory valuation, COGS increased
1.0% from 1996. This increase in COGS was primarily attributable to an increase
in markdowns and other promotional activity, such as the extension of volume 
discounts to private label credit card customers who had established a certain
level of purchasing activity.

In 1996, COGS, as a percent to revenues and on a pre-LIFO basis, decreased 0.5%.
A merchandise margin improvement of 0.8%, attributable primarily to a higher 
initial markup, was effectively offset by a 0.2% increase in lower margin 
leased department sales and a 0.1% increase in shrinkage expense.

The Company follows the LIFO method to value all retail inventories and 
utilizes inflation indices produced by the Bureau of Labor Statistics. The 
effect of LIFO on COGS, as a percent to revenues, for the past three years was:

                       					1997	      	1996	           	1995
Cost of goods sold			       70.2%		     69.7%		          69.9%
LIFO credit/(charge)			       .2		       (.3)		            -
                            ----        -----            ----
Cost of goods sold
 (excluding LIFO)	          70.4%		     69.4%          		69.9%


Selling, General and Administrative Expenses (SG&A), as a percent to revenues,
decreased 0.1% to 23.1% in 1997. Advertising costs associated with the higher 
promotional environment increased by 0.1% and were offset by a 0.2% reduction 
in payroll, payroll-related costs and other operating expenses. In 1996, SG&A 
expenses, as a percent to revenues, posted a similar 0.1% decline. For the most
part, this was attributable to a decline of similar proportion in payroll and 
payroll-related costs.

Interest Expense and Income (combined) - The $2 million increase in 1997 
primarily resulted from a reduction in interest expense capitalized in 
connection with new store construction, as 1996 represented a historic high 
of five new department store openings. Increased interest expense associated 
with higher average short-term borrowings in 1997 was offset by a reduction 
in interest expense on long-term debt. Interest expense and income in 1996 
declined $4 million in comparison to 1995, primarily due to higher levels of 
invested cash throughout the year and the influence of capitalized interest 
discussed above.

Other Income increased by $7.4 million in 1997 with the improvement being 
almost entirely due to a non-recurring gain which resulted from an agreement 
to license an element of proprietary software to a retail organization with 
which the Company does not compete directly. This one-time gain amounted to 
$4.3 million, net of tax, or $.12 per share.

In 1996, the decline of $12 million in other income was attributable to 
changes made in the servicing of the Company's private label credit program 
in mid-1995. Prior to that period, the Company's share of finance charge 
revenue was earned under revenue sharing agreements with unaffiliated companies
and was classified as an element of other income.

Impairment Charge - During the first quarter of 1996, the Company adopted 
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for 
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed 
Of," which addresses the identification and measurement of asset impairments 
and requires the recognition of impairment losses on long-lived assets when 
carrying values exceed expected future cash flows. The application of this 
new accounting standard in 1996 resulted in a pre-tax impairment charge of 
$12 million ($7.2 million after tax, or $.20 per share) to write down the
carrying value of certain operating stores to their estimated fair value.

SIX

<PAGE>
Earnings per Share (EPS) - In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings per Share," which establishes new 
standards for computing and presenting EPS. SFAS No. 128 replaces the 
presentation of primary EPS with basic EPS and requires the presentation of 
diluted EPS for all entities with complex capital structures. The Company 
adopted the provisions of this standard as of the year ended January 31, 1998.
The Company's basic and diluted EPS amounts are equivalent for all years 
presented and restatement of previously reported EPS was not required.

Liquidity and Capital Resources - Cash flow from operations amounted to 
$220 million in 1997 contrasted with $145 million in 1996 and $189 million 
in 1995. The 1997 increase was primarily due to a comparative reduction in 
inventory requirements which was partially offset by a decline in the related 
level of accounts payable. Year-end inventories declined by $55 million as a 
result of a concentrated program to render inventory levels more commensurate 
with recent sales trends. In 1996, the $44 million reduction from the prior 
year in cash provided by operations was attributable to increased requirements
for accounts receivable, which resulted from the dynamics associated with the 
change in the Company's private label credit program which took place in the 
1995 year.

Net cash used in investing activities primarily consists of capital 
expenditures which amounted to $131 million in 1997 compared to $134 million 
in 1996. Capital expenditures in 1997 reflect the opening of two new department
stores in 1997 as well as costs incurred for two new department stores opened 
in the first quarter of 1998. In 1996, cash used for capital expenditures 
increased $33 million over 1995 due to the requirements for five new department
stores opened in that year.

Net cash used for financing activities totaled $79 million in 1997, compared 
to $47 million in 1996 and $44 million in 1995. Payments on long-term debt 
amounted to $31 million, including the first $19 million sinking fund 
requirement associated with the 6.7% Notes due 2002. In addition, as discussed
in Note 4 of Notes to Consolidated Financial Statements, approximately 
$5 million was used in 1997 to repurchase 95,500 shares of the Company's 
common stock. It is the Company's intent to hold these repurchased shares 
as treasury stock as a source for potential issuance of a similar number of 
shares under the 1996 Stock Option Plan.

Traditionally, the Company has satisfied its short-term financing requirements
primarily through the use of internally generated funds. The Company also has 
in place a committed, unsecured $200 million revolving credit facility with 
a syndicate of seven banks which expires in August 2000. Interest rates on 
borrowings under this facility are based, at the Company's option, on either 
the banks' best rates under a competitive bidding environment or a predefined 
spread over the appropriate LIBOR rate. The Company also has in place 
uncommitted lines of credit totaling $120 million. Maximum short-term 
borrowings under these facilities were $86 million in 1997, $43 million in 
1996 and $3 million in 1995, at weighted-average interest rates of 5.8%, 6.0% 
and 5.9%, respectively. No borrowings were outstanding under any of these 
credit arrangements at the end of each of the last three years.

A consistent stability of financial position has long been a Company hallmark 
and is best exemplified in the strength of the balance sheet. A significant 
barometer of this financial strength is the Company's debt-to-capitalization 
ratio, which declined to 12% in 1997 from 14% in 1996 and is one of the lowest
such ratios in the retail industry. The Company's long-term debt ratings of 
A+ and A1, which have been reaffirmed by Standard & Poor's Corporation and 
Moody's Investors Services, Inc., respectively, are among the highest awarded 
in the industry.

SEVEN

<PAGE>
Expansion and Capital Expenditures - During 1997, the Company opened two new 
department stores and completed several minor expansions, which added 
approximately 600,000 square feet to the Company's retail base. The two new 
department stores--a Maison Blanche unit in Baton Rouge, Louisiana and a 
Joslins store in Denver, Colorado, both entailed approximately 212,000 square 
feet and are located in new malls in existing markets. At the end of the year,
the Company closed two under-performing stores--a 374,000 square foot Jones 
store in downtown Kansas City, Missouri, and a 161,000 square foot J. B. White
store in Augusta, Georgia. In April 1998, the Company exited the Dayton, Ohio 
market upon the sale of the 212,000 square foot McAlpin's store. The closing 
of these store locations did not have a material impact on the Company's 1997 
operating results.

The Company has opened two new department stores in the first quarter of 1998,
a 192,000 square foot Gayfers unit in a new mall in Oviedo, Florida and a 
160,000 square foot J. B. White store in an existing mall in Augusta, Georgia.
This latter unit replaces the under-performing J. B. White store in that same 
city which was closed at the end of 1997. No additional new department stores 
are planned for the 1998 year.

Capital expenditures for 1998 are estimated at $70 million, a substantial 
decline from the average $132 million spent in 1997 and 1996. This reduction 
reflects a diminishment in viable new department store opportunities in the 
Company's existing and adjacent markets, as well as changes between years in 
the timing of new department store openings. As stated previously, the majority
of the capital expenditures associated with the two new department stores 
opened in the first quarter of 1998 were incurred in 1997. Capital expenditures
for 1997 also reflected the costs associated with the two new department stores
opened during the third quarter of 1997, while 1996 capital expenditures 
reflect five new department store openings. The Company anticipates that its 
capital expenditures will be funded through a combination of existing working 
capital and internally generated funds.

Impact of The "Year 2000" Issue - As is the case with most business 
organizations, the Company utilizes software and related technology that is 
date sensitive and will be affected by the date change which will take place 
in the year 2000. The Company conducted a comprehensive review of its exposure
to the "Year 2000" issue and has developed an implementation plan to resolve 
these issues in advance of the turn of the millennium. The Company believes 
that, with modifications to existing software and conversion to new software, 
where appropriate, the "Year 2000" issue will not present significant 
operational problems for the Company's computer systems. During 1997, the 
Company started modifying programming code in conformity with it's 
implementation plan and anticipates completion of it's "Year 2000" efforts 
by early 1999. Costs associated with the Company's "Year 2000" efforts will 
be expensed as incurred. Costs incurred in 1997 and total estimated costs are 
not material.

EIGHT

<PAGE>

BENEFIT PROGRAM

The Company offers a comprehensive benefit program to its eligible associates 
including pension and profit sharing plans as well as health, disability and 
life insurance programs.

The Pension Plan, established in 1945, has been funded entirely by Company 
contributions. All associates who meet the eligibility requirements are 
enrolled in the Plan. Members are 100% vested in their accrued benefits upon 
completing five years of service after age 18, as defined.  At the beginning 
of 1997, there were approximately 30,700 Pension Plan members, including 
retirees. The market value of Plan assets was $452 million as of the end 
of 1997.

All associates who are enrolled in the Pension Plan are eligible to 
participate in the Savings, Profit Sharing and Supplemental Retirement Plan. 
During 1997, to the extent permitted by the Internal Revenue Code, members 
had the option to contribute up to 14% of their earnings into the Plan. 
Members can elect to have their contributions invested in a balanced fund, 
an equity fund, an investment contract fund or any combination of these funds.

As explained in Note 7 of Notes to Consolidated Financial Statements, the 
Company makes an annual contribution to the Savings, Profit Sharing and 
Supplemental Retirement Plan based upon its pre-tax income, as defined. 
For the latest year, the Company's contribution amounted to $10.6 million, 
or approximately $.61 for each $1.00 deposited, before-tax, by a member up 
to 6% of compensation.

All members employed as of February 1, 1993 or earlier are 100% vested in the 
Company's contribution as soon as it is credited to their accounts. All members
employed after February 1, 1993 vest in Company contributions according to a 
3 to 7 year vesting schedule. Members can elect to invest the Company's annual
contribution in a balanced fund, an equity fund, an investment contract fund, 
Mercantile Stores common stock fund or any combination of these funds. Members
who have an investment in Mercantile Stores common stock at year-end may, in 
confidence, direct the Trustee, The Northern Trust Company, to vote their 
shares at the Annual Meeting of Stockholders.  At January 31, 1998, the Trustee
was holding 1,250,960 shares of Mercantile stock, or 3.4% of the total 
outstanding shares, for the benefit of Plan members. Plan assets at year-end 
totalled $602 million, at market value.

The Company pays a substantial portion of the costs of various group medical 
and dental plans which are offered to eligible associates. In addition, the 
Company offers disability and term life insurance coverage to eligible 
associates.

Paid vacation and holiday time, discounts on merchandise, and a highly 
successful policy of training and promoting from within complete the 
comprehensive benefit program available to associates.

<TABLE>
Market and Dividend Information
<CAPTION>
					                  1997								                             1996
	            		Market	 	         Dividends  	   			  Market 			           Dividends
<S>      <C>        <C>       <C>        <C>         <C>       <C>      <C>        <C>
Quarter		   High	    	Low	   	Declared	    Paid		    High	  	  Low		    Declared   Paid
First    $ 50 1/4  	$ 46 3/8	 $ .58 1/2 	$ .28 1/2   $ 62 5/8  $ 44 1/4	$ .55      $ .26 1/2
Second   	 68 15/16	  49 3/4		    -		      .30		       67	      	57 1/8	    -    	   .28 1/2
Third    	 66 15/16  	57 1/4		  .60		      .30		       59 3/8   	47	   	  .57	    	  .28 1/2
Four       65  9/16   58 1/4      _        .30         54        47 7/8     _        .28 1/2
                        						$1.18 1/2 	$1.18 1/2			         	          $1.12 	    $1.12
</TABLE>
The Company's common stock is traded on the New York Stock Exchange (NYSE 
symbol - MST).

The number of stockholders at January 31, 1998 was 9,007.

On April 16, 1998, the Board of Directors approved an increase in the quarterly
dividend from $.30 to $.31 1/2 per share. This increase, payable on June 15, 
1998 to holders of record on May 29, 1998, converts to an indicated annual 
dividend of $1.26 per share.

NINE

<PAGE>
Statement of Management's Responsibility for Financial Statements

The management of Mercantile Stores Company, Inc. has prepared the consolidated
financial statements and related financial information contained in this Annual
Report.  Management is responsible for the integrity of the financial 
statements and other financial information included and for ascertaining that
the data accurately reflect the financial position and results of operations
of the Company.  Financial statements are prepared in conformity with generally
accepted accounting principles, applying certain informed estimates and 
judgments as required.

The Company maintains a system of internal accounting controls designed to 
provide reasonable assurance that transactions are executed in accordance with
proper authorization; that all such transactions are properly recorded and 
summarized to produce reliable financial records and reports; that assets are 
safeguarded; and that the accountability for assets is maintained. Management 
believes its system of internal accounting controls, augmented by its internal
auditing function, assures the adequacy and quality of financial reporting.

Arthur Andersen LLP, independent public accountants, have been engaged to 
render an objective, independent professional opinion on the  fairness of 
reported operating results and financial condition. They consider the 
Company's internal control structure in determining the nature, timing and 
extent of the audit procedures they deem necessary to reach and express an 
opinion on the fairness of the financial statements.

The Board of Directors pursues its responsibility for the Company's financial 
statements through its Audit Committee which is comprised solely of directors 
who are not officers or employees of the Company. The Audit Committee meets 
regularly with the independent public accountants, management, and the internal
auditors. The independent public accountants have direct access to the Audit 
Committee, with or without the presence of management representatives, to 
discuss the scope and results of their audit work and their comments on the 
adequacy of internal accounting controls and the quality of financial reporting.

Based on the controls described, we believe the financial statements and related
financial information in this report are accurate in all material respects and
that they were prepared in accordance with appropriate and generally accepted 
accounting principles.

	            David L. Nichols		          	James M. McVicker
	         Chairman of the Board      	Senior Vice President and
						                                 Chief Financial Officer


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Mercantile Stores Company, Inc.:
We have audited the accompanying consolidated balance sheets of Mercantile 
Stores Company, Inc. (a Delaware corporation) and subsidiaries as of January 
31, 1998 and February 1, 1997, and the related statements of consolidated 
income and retained earnings and cash flows for each of the three years in 
the period ended January 31, 1998. 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 in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial 
statement presentation. We believe that our audits provide a reasonable basis 
for our opinion.

In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of Mercantile Stores Company,
Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the 
results of their operations and their cash flows for each of the three years 
in the period ended January 31, 1998 in conformity with generally accepted 
accounting principles.

As explained in Note 2 to the Consolidated Financial Statements, the Company 
changed its method of accounting for long-lived assets effective February 4, 
1996.	Cincinnati, Ohio	Arthur Andersen LLP	April 3, 1998

TEN

<PAGE>
Statements of Consolidated Income and Retained Earnings
(in thousands, except per share data)   1997     		    1996		        1995
Revenues			                         	$ 3,143,765		  $ 3,030,822		 $ 2,944,324
Costs, Expenses, and Other Income:
Cost of goods sold
 (including occupancy
  and central buying expenses)		       2,207,618		    2,113,022		    2,059,753
	
Selling, general and 
  administrative expenses		              727,083		      702,862		      686,924

Interest expense			                       17,685		       16,451		       19,558

Interest income	         		               (5,143)        (5,665)        (5,087)

Other income				                         (16,840)	       (9,400)	      (21,404)

Impairment charge			                        	-		         12,000			         -
                                       ____________		 ____________   ___________

                               					    2,930,403		    2,829,270	    2,739,744

Income before Provision
 for Income Taxes                         213,362		      201,552		     204,580

Provision for Income Taxes:
    	Current	                    			       74,420	        82,951        80,239
    	Deferred                           				9,236		       (2,864)	      	1,093
                                			   	 __________		   ___________    _________
                               					       83,656		       80,087		      81,332
                                   					__________     ___________    _________
Net Income				                      $     129,706		   $  121,465		  $  123,248
                                    				__________     ___________    _________
Retained Earnings at
   Beginning of Year               	    1,553,892		    1,473,692     1,389,130
Dividends Declared			                      43,574		       41,265		      38,686
                        	              	__________     ____________  	_________
Retained Earnings at
   End of Year	                     $  1,640,024		     $ 1,553,892 	$ 1,473,692
                                 					============   		 ==========   ==========

Earnings per Share			               $       3.53		     $      3.30		$      3.35
                                 					============      ===========  ==========

Weighted Average Shares Outstanding	   36,770,797	      36,844,050 		 36,844,050

See Notes to Consolidated Financial Statements	

ELEVEN

<PAGE>
		Consolidated Balance Sheets

(in thousands)		                  January 31, 1998	     February 1, 1997
ASSETS
Current Assets:
  Cash and cash equivalents	       $   144,986		        $   128,115

  Receivables:
	      Customer, net		                 571,513	             571,336
	      Other			                         17,591	   	          16,851 
  Inventories              		     	    505,201	        	    560,666
  Deferred income taxes		               19,196        		     13,009
  Other current assets	           	     16,702         	     13,325
                                				___________	       	___________
Total Current Assets	             	  1,275,189	        	  1,303,302
                                				___________	       	___________
Prepaid Pension and 
  Other Noncurrent Assets         	    116,218         	    100,994
                                				___________	       	___________
Property and Equipment:
  Land	                         			     38,869		             40,663
  Buildings and improvements      	    839,356		            783,825 
  Fixtures	                      		    292,307        		    251,502
  Leased property		                     62,018         	     62,018
	                               			___________	        	___________
	                               			  1,232,550		          1,138,008
  Accumulated depreciation	           (446,166) 	          (399,801)
                               				___________        		___________
Property and equipment, net	           786,384         	    738,207
                               				___________	        	___________

Total Assets			                    $ 2,177,791		        $ 2,142,503



TWELVE

<PAGE>
(in thousands)		                  January 31, 1998	     February 1, 1997
LIABILITIES AND
 STOCKHOLDERS' EQUITY

  Current Liabilities:
  Current maturities of 
     long-term debt		             $    21,429		         $    25,017
  Accounts payable		                   79,117		             112,485
  Taxes other than income	             22,235		              18,876
  Other current liabilities	           63,775		              62,438
  Accrued income taxes	          	     40,913		              39,128
  Accrued payroll	               	     24,410          	     27,825
	                              			___________	         	___________
Total Current Liabilities	            251,879      	        285,769
				                              ___________		         ___________
Long-term Debt		                 	    202,637          	    229,910
				                              ___________	         	___________
Due to Affiliated Companies	           25,353         	      24,737
	                              			___________		         ___________
Deferred Income Taxes	 	               21,712          	      5,685
				                              ___________		         ___________
Other Long-term Liabilities	           29,364          	     31,089
                              				___________		         ___________
Stockholders' Equity:
  Common stock - $.14 2/3 par 
  value, 36,887,475 authorized 
  and issued shares                     5,410                 5,410

  Additional paid-in capital            6,018                 6,018
 
  Retained earnings                 1,640,024             1,553,892

  Treasury stock, at cost,
  138,925 shares in 1997 and
  43,425 in 1996                       (4,606)                   (7)
                                    __________            __________
Total Stockholders' Equity          1,646,846             1,565,313
                                    __________            __________
Total Liabilities and
      Stockholders' Equity        $ 2,177,791            $ 2,142,503
                                  ===========            ===========

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<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(in thousands)                                 1997          1996        1995
Cash Flows from Operating Activites:
 Net Income                                  $ 129,706  $  121,465   $ 123,248
	Adjustments to reconcile net
  income to net cash provided by
  operating activities:
    Depreciation and amortization               79,254      83,661      88,714
    Deferred taxes	                              9,236      (2,864)      1,093
    Gain on disposition of property             (2,832)       (157)     (5,916)
    Impairment charge                                -      12,000           -
    Net pension benefit                        (17,299)    (12,851)    (14,667)
  Changes in working capital
      attributable to
    Inventories                                 55,465     (37,093)    (54,791)
    Receivables                                   (917)    (13,565)     45,616
    Accounts payable                           (33,368)      5,840     (15,022)
    Other working capital item                     404     (11,349)     20,416
                                               ________    ________    ________
 Net cash provided by operating activities     219,649     145,087     188,691
                                               ________    ________    ________

Cash Flows from Investing Activities:
 Cash payments for property
   and equipment                              (131,011)    (133,861)  (101,202) 
 Proceeds from sale of property                  6,240        2,777      5,982
 Net change in other noncurrent 
    assets and liabilities                       1,027         (369)    (1,919)
                                              _________    _________   ________
Net cash used in investing activit            (123,744)    (131,453)   (97,139)

Cash Flows from Financing Activities:
 Payments of long-term debt                    (30,861)     (6,147)     (5,210)
 Repurchase of common stock                     (4,599)        -           -
 Dividends paid                                (43,574)    (41,265)    (38,686)
                                              _________   _________    ________
Net cash used in financing activities          (79,034)    (47,412)    (43,896)

Net Increase (Decrease) in
 Cash and Cash Equivalents                      16,871     (33,778)     47,656
	Cash and Cash Equivalents at
 Beginning of Year                             128,115     161,893     114,237
                                              _________   _________    _______
Cash and Cash Equivalents at
 End of Year                                 $ 144,986   $ 128,115    $161,893
                                             ==========  ==========    =======
Supplemental Cash Flow Information:
	  Interest paid                             $  19,975   $  19,950    $ 20,926
	  Income taxes paid                         $  68,424   $  83,491    $ 70,593



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Nature of Operations - Mercantile Stores Company, Inc. (the Company) is a 
   conventional department store retailer engaged in the general merchandising
   business.  The Company operates 102 department stores and 16 home fashion 
   stores under 13 different names in a total of 17 states.  The Company also 
   maintains a partnership interest in five operating shopping center ventures
   and one land ownership venture.

B. Principles of Consolidation - The consolidated financial statements include 
   the accounts of the Company and all of its subsidiaries.  All material
   intercompany accounts and transactions have been eliminated.  The Company
   uses the equity method to account for its 33 1/3% to 50% position in the
   six joint ventures.

C. Fiscal Year - The Company's fiscal year ends on the Saturday nearest to
   January 31.  All fiscal years presented consist of fifty-two weeks except
   1995 which included fifty-three weeks.  Fiscal year 1997 ended on January
   31, 1998; fiscal year 1996 ended on February 1, 1997; and fiscal year 1995
   ended on February 3, 1996.  All references to years relate to fiscal years
   rather than calendar years.

D. Revenues - Revenues include sales from retail operations, leased departments
   and finance charge revenue earned on customer accounts serviced by the 
   Company under its private label credit program.  Finance charge revenue
   from the Company's private label credit program is recognized in the period
   in which it is earned.  Finance charge revenue earned in 1997, 1996 and 1995
   totalled $89 million, $85 million and $52 million, respectively.  Operating
   expenses incurred in connection with the private label credit program are
   included in selling, general and administrative expenses.  Prior to August 
   1, 1995, the Company's share of finance charge revenue accrued to the 
   Company under revenue sharing agreements with unaffiliated companies and was
   classified as a component of other income in the accompanying Statements of
   Consolidated Income and Retained Earnings.

E. Cost of Goods Sold -  Cost of goods sold in the retail industry
   traditionally includes occupancy and buying costs which are not directly
   associated with the cost and eventual selling price of merchandise. Among
   the occupancy expenses so classified are depreciation, rent, utilities and
   real estate taxes. Buying costs, in this respect, include the payroll and
   travel expenses associated with the corporate buying and merchandise
   planning functions.

F. Advertising Costs -  Advertising expenditures, including production costs,
   are expensed as incurred. In 1997, total advertising expense was $109
   million, compared with $100 million in 1996, and $97 million in 1995.

G. Store Pre-opening Costs - Store pre-opening costs which include advertising,
   occupancy, and payroll are charged to expense as incurred.

H. Earnings per Share (EPS) - Effective January 31, 1998, the Company adopted
   Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
   Share," which replaces the calculation of primary and fully diluted EPS
   under previous accounting standards with basic and diluted EPS. The assumed
   issuance of all equivalent common shares granted under the Company's 1996
   Stock Option Plan did not have a material effect on the number of weighted
   average shares outstanding used in the 1997 diluted EPS calculation and
   there were no outstanding stock options in 1996 and 1995. Therefore, the
   Company's basic and diluted EPS amounts are equivalent for all years
   presented and restatement of previously reported EPS amounts is not
   required.

I. Cash and Cash Equivalents - For purposes of these statements, short-term
   investments which have a maturity of 90 days or less are considered cash
   equivalents. The carrying amount of cash equivalents is a reasonable
   estimate of fair value.

J. Customer Receivables - Customers are extended credit under customary
   revolving credit terms. Customer receivables are classified as current
   assets and include some amounts which are due after one year, consistent
   with industry practice. Concentrations of credit risk with respect to
   customer receivables are limited due to the large number of customers and
   their geographic dispersion. At January 31, 1998 and February 1, 1997,
   customer receivables are net of an allowance for doubtful accounts in the
   amount of $18 million and $16 million, respectively.

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<PAGE>


K. Inventories - All retail inventories are valued by the retail method and
   stated on the last-in, first-out (LIFO) cost basis, which is lower than
   market. At January 31, 1998 and February 1, 1997, inventories were $32
   million and $38 million lower, respectively, than they would have been had
   the retail method been applied using the first-in, first-out (FIFO) cost
   basis.L. Property and Equipment - Property and equipment is carried at cost.
   Depreciation is provided by using the straight-line method based on
   estimated useful lives of the assets for financial reporting purposes while
   accelerated depreciation, where permitted, is used for income tax purposes.
   Betterments, renewals, and repairs that extend the life of the asset are
   capitalized; other repairs and maintenance are expensed. Property and
   equipment, other than buildings, are written off in the year that they
   become fully depreciated.

The Company computes depreciation for financial reporting purposes based on the
following ranges of estimated useful lives:
Buildings	               15-50 years
Building improvements	   10-30 years
Store fixtures	             7 years
Leased property	         Term of lease or life of property

The Company leases certain properties, principally store locations, under
capital leases as defined by SFAS No. 13, "Accounting for Leases."  Property
meeting the criteria within the SFAS No. 13 is capitalized and accounted for
as an asset with the corresponding obligation carried as a liability. The
provision for amortization of leased properties is included in depreciation
and amortization expense. All other lease agreements are classified and
accounted for as operating leases with payments expensed as incurred.

M. Use of 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, the 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.

N. Segment Reporting - The Company has one significant segment of business
general merchandise department store retailing).

O. Reclassifications - Certain reclassifications have been made to prior years'
financial statements to conform with the classification used in the 1997
financial statements.

2. IMPAIRMENT CHARGE

During the first quarter of 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which addresses the identification and measurement of asset
impairments and requires the recognition of impairment losses on long-lived
assets when carrying values exceed expected future cash flows. The Company
evaluated its investment in long-lived assets at the individual store level.
Based upon an assessment of historical and projected operating results, it was
determined that the carrying value of certain operating stores was impaired
under the criteria defined in SFAS No. 121.  As a result, in 1996, the Company
recorded a pre-tax impairment charge of $12 million (a net of tax impact of
$7.2 million, or $.20 per share) to write down the carrying value of these
assets to their estimated fair value.  The fair value of these assets was
based on operating projections and discounted future cash flows.

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<PAGE>

3. Long-Term Debt and financing arrangements

The Company's long-term debt consisted of the following:
(in thousands)                                      1997            1996
8.2% Sinking Fund Debentures due 2022 (a)	       $100,000	      $100,000
6.7% Notes due 2002 (b)                            76,000         95,000
Industrial Revenue Bonds, at rates ranging
  from 5.61% to 7.75%                                 505          8,250
Other Notes Payable                                 2,231          4,385
                                                 ________        _______
     Total                                        178,736        207,635
Capitalized Lease Obligations                     45,330          47,292
                                                 ________        _______
                                                  224,066        254,927
Less - due within one year                         21,429         25,017
                                                 ________       ________
Total Long-term Debt                             $202,637       $229,910

(a) The 8.2% Sinking Fund Debentures have a mandatory sinking fund
    requirement of $5 million annually commencing in 2003.

(b) The 6.7% Notes have a mandatory annual sinking fund requirement
    of $19 million through 2000; $14 million in 2001, and $5 million in 2002.

Maturities of long-term debt, including capitalized leases, for the next five
years are as follows:
(in thousands)                                                     Amount
1998                                                             $  21,429
1999                                                             $  21,565
2000                                                             $  21,505
2001                                                             $  16,865
2002                                                             $   7,181

The fair value of long-term debt, including the current portion and excluding
capital lease obligations, was approximately $194 million at January 31, 1998
and approximately $215 million at February 1, 1997. The fair value is based on
the present value of future cash flows. The discount rates used approximated
the current borrowing costs for similar instruments.

The Company has a $200 million Revolving Credit Agreement (the Credit
Agreement) with a syndicate of banks which expires on August 3, 2000. The
applicable interest rate on borrowings is based, at the Company's option, on
either the banks' best rates under a competitive bid environment or a
predefined spread (which is tied to the Company's long-term debt credit
rating) over the appropriate LIBOR rate. The Credit Agreement requires the
Company to comply with certain financial covenants with respect to minimum net
worth and financial leverage.

The Company also has in place additional uncommitted lines of credit in the
total amount of $120 million. No fee is paid for maintaining these lines and
interest on any borrowings is charged at a floating rate.


At January 31, 1998 and February 1, 1997, there were no borrowings outstanding
under the Credit Agreement or the uncommitted lines.  Maximum borrowings under
these facilities for 1997 were $86 million, at an average interest rate of
5.8%. During 1996, maximum borrowings were $43 million, at an average interest
rate of 6.0%.

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<PAGE>

4. STOCKHOLDERS' EQUITY

During the first quarter of 1997, the Board of Directors authorized the
Company to purchase up to 1,500,000 shares of its common stock in the open
market over a time frame which may extend to ten years. These shares are to be
held as treasury stock and are to be used solely to satisfy requirements
arising from the exercise of options granted under the 1996 Stock Option Plan,
which is discussed in Note 5. During the year ended January 31, 1998, under
this program, the Company purchased 95,500 shares of its common stock at a
cost of approximately $4.6 million.

5. STOCK OPTIONS

On December 3, 1996, the Company adopted the Mercantile Stores Company, Inc.
1996 Stock Option Plan, which provides for the issuance of non-qualified stock
option awards to certain employees designated by the Company's Board of
Directors. Beginning in 1997, stock options were granted under the plan at an
exercise price equal to the fair market value of the Company's common stock on
the date of grant. These options will generally become exercisable in equal
increments over a four year period and expire ten years from the date of grant.
The maximum number of shares available for awards under the plan is 1,500,000.
For the year ended January 31, 1998, 95,500 stock options were granted under
the plan at an exercise price of $48 per share. There were no stock options
exercised or forfeited during 1997.

The Company has elected to account for stock options under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and to provide the pro forma disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation." Therefore, no compensation expense
has been recognized in the accompanying Statements of Consolidated Income and
Retained Earnings. Had the Company applied the fair value method of accounting
for stock options set forth in SFAS No. 123, pro forma net income and earnings
per share would have been approximately the same as the amounts reported.


The Company estimated the fair value of stock options granted using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest rate of 6.9%; expected volatility of 22.7%; dividend yield of 2.3%
and a weighted-average expected life of the stock options of six years. The
weighted-average fair market value of stock options granted in 1997 was $14
per share. 

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<PAGE>


6. Income Taxes

The provision for income taxes consisted of the following:
(in thousands)	       1997      Federal      State        Total
Current	                         $63,486      $10,934      $74,420
Deferred                           7,861        1,375        9,236
                                 _______      _______      _______
Total                            $71,347      $12,309      $83,656

                       1996      Federal      State        Total
Current	                         $67,287      $15,664      $82,951
Deferred                          (2,325)        (539)      (2,864)
                                 ________     ________     ________
Total                            $64,962      $15,125      $80,087

                       1995      Federal      State        Total
Current                          $66,171      $14,068      $80,239
Deferred                             494          599        1,093
                                 _______      _______      _______
Total                            $66,665      $14,667      $81,332

The provision for income taxes is different from the amount computed by
applying the statutory Federal income tax rate.  The differences are
summarized as follows:
(in thousands)                              1997        1996         1995
Provision at statutory rate of 35%	      $74,677     $70,543      $71,603
State and local income tax, less
 Federal income tax benefit                8,001       9,831        9,534
Other                                        978        (287)         195
                                          ______     ________     _______
Total income tax provision               $83,656     $80,087      $81,332

Effective income tax rate                    39.2%       39.7%        39.8%

The tax effects of significant temporary differences representing deferred tax
assets and liabilities were as follows:
(in thousands)                               1997           1996
Assets:
   Inventory accounting                      $ 8,046        $ 3,804
   Associate benefit costs                    13,515         13,309
   Interest, taxes and real estate costs      11,456         11,887
   Bad debts                                   5,485          4,845
   Capitalized leases                          4,660          4,457
   Other                                       8,919          8,384
                                             _______        _______
Total deferred tax assets                     52,081         46,686

Liabilities:
   Depreciation                              (13,599)        (6,455)
   Pension and profit
     sharing plan costs                      (38,365)       (30,386)
   Other                                      (2,633)        (2,521)
                                             ________       ________
Total deferred tax liabilities               (54,597)       (39,362)
                                             ________       ________
Total net deferred tax (liability) asset     $(2,516)       $ 7,324

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<PAGE>


7. Associate Benefit Plans
The Company maintains a formal, qualified, non-contributory, defined benefit
pension plan covering all associates who have met certain age and service
requirements. Benefits under this plan are generally based on a career average
formula. The Company funds this plan in accordance with ERISA requirements.

As computed under the provisions of SFAS No. 87, "Employers'Accounting for
Pensions," components of the net pension benefit included in income before
income taxes for the past three years were as follows:
(in thousands)                         1997         1996           1995
Service cost                         $  8,429     $  8,689       $  5,656
Interest cost                          14,764       14,169         12,405
Actual return on plan assets          (74,581)     (44,416)       (54,809)
Amortization of transition asset       (5,043)      (5,043)        (5,043)
Other amortization and deferral        39,132       13,750         27,124
                                     _________    _________      _________
Net pension benefit                  $(17,299)    $(12,851)      $(14,667)

The expected long-term rate of return on assets used in determining the net
pension benefit was 8.5% in all years presented.

The funded status of the formal, qualified pension plan at January 31, 1998
and February 1, 1997, based on actuarial and plan asset information as of
October 31, 1997 and 1996, was as follows:

(in thousands)                                       1997            1996
Actuarial present value of benefit obligations:
	    Vested benefits                              $ 181,734       $ 154,385
     Non-vested benefits                              5,070           4,537
                                                  _________       _________
Accumulated benefit obligation                      186,804         158,922
Impact of future salary increases                    28,300          27,629
                                                  _________       _________
Projected benefit obligation                        215,104         186,551
Plan assets at fair value                           444,531         379,861
Plan assets in excess of projected benefit
   obligation                                       229,427         193,310
Items not yet recognized in income:
Initial transition credit which
   is being amortized over 15 years                 (20,172)        (25,216)
Subsequent net gains                               (108,257)        (84,395)
                                                 ___________     ___________
Prepaid pension benefit                          $  100,998      $   83,699

The actuarial present value of benefits was determined using a discount rate
of 7.25% in 1997 and 7.75% in 1996. The rate of compensation increase used to
measure the projected benefit obligation was 4.5% in 1997 and 5.0% in 1996.
The change in the discount rate and rate of compensation assumptions caused
the projected benefit obligation to increase by approximately $12 million in
1997.

The plan's assets include investments in common stocks, fixed income
securities, real estate investments, short-term investments, and cash.  No
funding activity occurred between the plan and the Company during the fourth
quarter of 1997 or 1996.

The Company contributes to qualified and non-qualified savings and profit
sharing plans covering certain associates. The Company's total contribution to
the qualified and non-qualified savings and profit sharing plans is based on 5%
of pre-federal income tax FIFO profits, as defined. The Company also provides
retirement benefits to certain associates through non-qualified defined
benefit pension plans.  The costs to the Company under these plans for the
past three years were as follows:

(in thousands)                         1997          1996           1995

Savings and Profit Sharing          $ 10,604      $ 10,271       $  9,750
Pension                                1,852         1,682            810
                                    ________      ________       ________
Total                               $ 12,456      $ 11,953       $ 10,560

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<PAGE>


The Company provides certain health care benefits for retired associates on a
contributory basis. Current retirees and active associates who retire on or
after age 60, with five or more years of service, are eligible for these
benefits if they had continuous medical coverage in the five years preceding
retirement. The plan does not cover retirees after Medicare eligibility. The
Company funds these benefits as claims are incurred.

The Company accounts for postretirement benefits under the provisions of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The components of net periodic postretirement benefit cost for the
last three years were as follows:

	(in thousands)                             1997        1996         1995
Service cost earned during the year      $   509     $   522      $   490
Interest cost on projected benefit
   obligation                                771         776          800
Net amortization and deferral             (1,174)     (1,148)      (1,199)
                                         ________    ________     ________
Net periodic postretirement benefit cost $   106      $  150      $    91

The following table sets forth the plan's funded status at January 31, 1998
and February 1, 1997:

(in thousands)                                          1997          1996

Accumulated postretirement benefit obligation:
   Retirees                                          $  3,719       $  3,520
   Fully eligible active plan participants                235            216
   Other active plan participants                       6,534          6,279
                                                     ________       ________
                                                       10,488         10,015
Unrecognized net gain from changes in plan
   and assumptions                                      4,358          5,301
Unrecognized prior service cost                         4,448          5,490 
                                                     ________       ________
Accrued postretirement benefit cost                   $19,294        $20,806

For measurement purposes, the following assumptions were used to project
changes in the accumulated postretirement benefit obligation for 1997 and 1996:

                                                         1997           1996
Discount rate                                            7.25%          7.75%
Health care cost trend rate                      7.50% to 5.0%  8.00% to 5.0%
Years to ultimate trend                                     7              8

The health care cost trend rate affects the amounts reported. To illustrate,
increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation by
$1.0 million and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost by $.1 million.

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<PAGE>

8. Leases

The Company leases certain stores, warehouse facilities and equipment under
operating leases. The majority of these leases will expire within the next 20
years. the leases usually contain renewal options and provide for payment by
the lessee of real estate taxes and other expenses, and, in certain instances,
increased rentals based on percentages of sales.

Future minimum lease payments under noncancelable leases as of January 31, 1998
were as follows:
	(in thousands)                    Capital        Operating          Total
1998                             $  6,118        $  26,137       $ 32,255
1999                                6,060           25,129         31,189
2000                                6,060           23,021         29,081
2001                                5,955           22,119         28,074
2002                                5,562           20,687         26,249
Thereafter                         59,534          101,677        161,211
                                  _______         ________       ________
Total minimum lease payments     $ 89,239        $ 218,770       $ 308,059

Less:   Executory costs              (188)
        Interest                  (43,771)
Present value of net minimum     ________
        lease payments           $ 45,330

Rent expense consisted of the following:
	(in thousands)                     1997              1996            1995
Minimum rentals                 $ 25,180          $ 23,993        $ 23,305
Contingent rentals
   (based on % of sales)           7,218             7,080           7,269
                                ________          ________        ________
                                $ 32,398          $ 31,073        $ 30,574

9. Contingencies
The Company is involved in various legal actions arising in the normal course
of business. After taking into consideration legal counsels' evaluation of
such actions, management is of the opinion that their outcome will not have a
significant effect on the Company's consolidated financial statements.

The Company has entered into agreements with certain executives which provide
for severance pay benefits should the executive's employment be terminated
within two years following a change in control of the Company. In general,
severance pay benefits under these agreements are payable at 2.99 times the
executive's annual compensation for the year preceding the change in control.
Such annual compensation totalled approximately $5.2 million for the year
ended January 31, 1998.

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<PAGE>

<TABLE>
QUARTERLY RESULTS
<CAPTION>
(unaudited in thousands, except per share data)
January 31, 1998                   1st Quarter       2nd Quarter       3rd Quarter        4th Quarter        Total
<S>                               <C>               <C>               <C>                <C>            <C>    
Revenues                          $    683,298      $    692,905      $    753,730       $ 1,013,832    $ 3,143,765
Costs, Expenses, and Other Income:
Cost of goods sold                     478,928           494,063           527,599           707,028      2,207,618
Selling, general and
  administrative expenses              172,642           173,593           189,849           190,999        727,083
Interest expense, net                    3,235             2,372             1,879             5,056         12,542
Other income                            (3,252)           (2,401)           (2,965)           (8,222)       (16,840)
                                  _____________     _____________     ____________       ___________    ___________
                                       651,553           667,627           716,362           894,861      2,930,403
                                  _____________     _____________     ____________       ___________    ___________
Income before provision for
  income taxes                          31,745            25,278            37,368           118,971        213,362
Provision for income taxes              12,437             9,930            14,658            46,631         83,656
                                  ____________      ____________      ____________       ___________    ___________ 
Net income                        $     19,308      $     15,348      $     22,710       $    72,340    $   129,706
                                  ============      ============       ===========       ===========    ===========
Earnings per share                $        .52      $        .42      $        .62       $      1.97    $      3.53


February 1, 1997                   1st Quarter       2nd Quarter       3rd Quarter        4th Quarter         Total

Revenues                          $    655,409      $    659,527      $    727,741       $   988,145    $  3,030,822
Costs, Expenses, and Other Income:
Cost of goods sold                     452,969           467,927           495,379           696,747       2,113,022
Selling, general and
  administrative expenses              168,251           168,112           180,814           185,685         702,862
Interest expense, net                    2,414             2,222             2,387             3,763          10,786
Other income                            (2,314)           (2,755)           (2,590)           (1,741)         (9,400)
Impairment charge                       12,000              -                 -                 -             12,000
                                  ____________      ____________      ____________       ___________    ____________
                                       633,320           635,506           675,990           884,454       2,829,270
                                  ____________      ____________      ____________       ___________    ____________
Income before provision for
  income taxes                          22,089            24,021            51,751           103,691         201,552
Provision for income taxes               8,818             9,587            20,663            41,019          80,087
                                  ____________      ____________      ____________       ___________    ____________
Net Income                        $     13,271      $     14,434      $     31,088       $    62,672    $    121,465
                                  ============      ============      ============       ===========    ============ 
Earnings per share                $        .36      $        .39      $        .85       $      1.70    $       3.30
</TABLE>

twenty-three

<PAGE>

<TABLE>
FIVE YEAR SELECTED FINANCIAL DATA
<CAPTION>
(dollars in thousands, except per share data)            1997           1996           1995         1994           1993
<S>                                                <C>            <C>           <C>           <C>            <C>           
Operating Results
Revenues                                           $ 3,143,765    $ 3,030,822   $ 2,944,324   $ 2,819,837    $ 2,729,928
Retail sales                                         3,054,924      2,945,606     2,892,083     2,819,837      2,729,928
Cost of goods sold                                   2,207,618      2,113,022     2,059,753     2,020,264      1,960,914
Selling, general and administrative expenses           727,083        702,862       686,924       625,726        627,391
Interest expense, net                                   12,542         10,786        14,471        23,526         30,948
Other income                                           (16,840)        (9,400)      (21,404)      (27,571)       (33,003)
Impairment charge                                         -            12,000          -             -              -
Provision for consolidation/relocation                    -              -             -            5,000           -
Income before provision for income taxes               213,362        201,552       204,580       172,892        143,678
  Percent to revenues                                      6.8            6.7           6.9           6.1            5.3
Provision for income taxes                              83,656         80,087        81,332        68,375         57,039
Income before cumulative effect of accounting changes  129,706        121,465       123,248       104,517         86,639
Net income                                             129,706        121,465       123,248       103,417         89,739
Per common share	  Earnings per share(1)           $      3.53    $      3.30   $      3.35   $      2.81    $      2.44
  Dividends                                        $      1.19    $      1.12   $      1.05   $      1.02    $      1.02
  Stockholders' equity                             $     44.81    $     42.48   $     40.31   $     38.01    $     36.23
Financial PositionWorking capital                  $ 1,023,310    $ 1,017,533   $ 1,013,576   $   957,030    $   902,268
  Current ratio                                            5.1            4.6           4.7           4.7            3.5
Receivables, net                                       589,104        588,187       574,622       620,238        635,114
Inventories                                            505,201        560,666       523,573       468,782        425,492
Property and equipment, net
   (includes capitalized leases)                       786,384        738,207       701,233       688,806        691,502
Total assets                                         2,177,791      2,142,503     2,074,724     1,981,729      2,031,982
Long-term debt
  (includes capitalized lease obligations)             202,637        229,910       254,926        261,187       271,965
Debt to capitalization ratio                              12.0           14.0          15.0          16.0           22.5
Retained earnings                                    1,640,024      1,553,892     1,473,692     1,389,130      1,323,294
Stockholders' equity                                 1,646,846      1,565,313     1,485,113     1,400,551      1,334,715
Other DataCapital expenditures for property 
  and equipment                                    $   131,011    $   133,861   $   101,202   $    93,639    $   106,210
Depreciation                                            79,254         83,661        88,714        93,540         93,455
Department stores
  Opened                                                     2              5             -             3              2
  Closed                                                     2              -             3             2              1
Number of department stores, at end of year                102            102            97           100             99
Home fashion stores
	 Opened                                                     2              3             1             3              1
  Closed                                                     1              -             -             -              -
Number of home stores, at end of year                       16             15            12            11              8
Total square feet                                       17,331         17,282        16,300        16,484         16,212
Sales per square foot(2)                                  $179           $177          $177          $173           $169
</TABLE>

All years include 52 weeks, except 1995 which includes 53 weeks.

(1) Based on 36,844,050 shares outstanding for all years, except 1997 which
    has 36,770,797 weighted average shares outstanding.

(2) Based on stores opened for the entire year. The 1995 year is presented on
    a 52 week basis.

twenty-four and  
twenty-five

<PAGE>

STORE DIVISIONS AND GROUP PRESIDENTS

MERCANTILE SOUTH
Gayfers/Maison Blanche
Headquartered in Mobile, Alabama
Michael G. Shannon, President
 Store Locations            Shopping Centers/Malls

Mobile, AL                 Springdale Mall (Gayfers)
                           Jubilee Mall (Gayfers)
Biloxi-Gulfport, MS        Edgewater Mall (Gayfers)
       	                   Edgewater Mall Home Store (Gayfers)
Baton Rouge, LA            Main Street (Maison Blanche)
                           Cortana Mall (Maison Blanche)
                           Mall of Louisiana (Maison Blanche)
Lafayette, LA              Acadiana Mall (Maison Blanche)
New Orleans, LA            Canal Street (Maison Blanche)
                           Clearview Shopping Center  (Maison Blanche)
                           Plaza Lake Forest (Maison Blanche)
                           North Shore Square (Maison Blanche)
                           Oakwood Shopping Center (Maison Blanche)
Clearwater, FL             Clearwater Mall (Gayfers)
Pensacola, FL              Town & Country Plaza (Gayfers)
                           Cordova Mall (Gayfers)
Ft. Walton Beach, FL       Santa Rosa Mall (Gayfers)
Panama City, FL            Panama City Mall (Gayfers)
                           Panama City Mall Home Store (Gayfers)
Tallahassee, FL            Tallahassee Mall (Gayfers)
Jacksonville, FL           Regency Square Mall (Gayfers)
                           Roosevelt Mall (Gayfers)
                           Orange Park Mall (Gayfers)
                           The Avenues (Gayfers)
Daytona Beach, FL          Volusia Mall (Gayfers)
Orlando, FL                Orlando Fashion Square (Gayfers)
                           Altamonte Mall (Gayfers)
                           The Florida Mall (Gayfers)
                           West Oaks Mall (Gayfers)
Oviedo, FL                 Oviedo Marketplace (Gayfers)


MERCANITLE SOUTHEAST
Gayfers/J.B. White
Headquartered in Montgomery, Alabama
Robin E. Sanderford, President

Store Locations            Shopping Centers/Malls
Montgomery, AL             Montgomery Mall (Gayfers)
                           Eastdale Mall (Gayfers)
                           Eastdale Mall Home Store (Gayfers)
Auburn, AL                 Village Mall (Gayfers)
Dothan, AL                 Wiregrass Commons (Gayfers)
Tuscaloosa, AL             McFarland Mall (Gayfers)
Albany, GA                 Albany Mall (Gayfers)
Columbus, GA               Peachtree Mall (Gayfers)
Jackson, MS                Metrocenter (Gayfers)
                           Northpark Mall (Gayfers)
Hattiesburg, MS            Turtle Creek Mall (Gayfers)
Savannah, GA               Savannah Mall (J.B. White)
Augusta, GA                National Hills Shopping Center (J.B. White)
                           National Hills Home Store (J.B. White)
                           Augusta Mall (J.B. White)
Aiken, SC                  Heritage Square (J.B. White)
Columbia, SC               Columbiana Mall (J.B. White)
                           Dutch Square (J.B. White)
                           Richland Mall (J.B. White)
Greenville, SC             Greenville Mall (J.B. White)
Spartanburg, SC            Westgate Mall (J.B. White)
                           Westgate Mall Home Store (J.B. White)

               
MERCATILE CENTRAL
Castner Knott
Headquartered in Nashville, Tennessee
Edward A. Overbey, Jr., President
Store Locations            Shopping Centers/Malls
Nashville, TN              The Mall at Green Hills
                           Rivergate Mall
                           Donelson Plaza
                           Harding Mall
                           Hickory Hollow Mall
                           Bellevue Center
Tullahoma, TN              Northgate Mall
Murfreesboro, TN           Stones River Mall
Franklin, TN               Cool Springs Galleria
                           Cool Springs Galleria Home Store
Florence, AL               Regency Square Mall
Decatur, AL                River Oaks Center
                           River Oaks Center Home Store
Huntsville, AL             Madison Square Mall
Bowling Green, KY          Greenwood Mall
                           Greenwood Mall Home

twenty-six

Bacons/McAlpin's/Lion/Root's
Headquartered in Louisville, Kentucky
Thomas N. Groh, President 
Store Locations            Shopping Centers/Malls

Louisville, KY             Bashford Manor Mall (Bacons)
                           Bashford Manor Home Store (Bacons)
                           Shively Center (Bacons)
                           Louisville Galleria (Bacons)
                           The Mall in St. Matthew's (Bacons)
                           St. Matthew's Home Store (Bacons)
Owensboro, KY              Towne Square Mall (Bacons)
Lexington, KY              Lexington Mall (McAlpin's)
                           Turfland Mall (McAlpin's)
                           Turfland Mall Home Store (McAlpin's)
                           Fayette Mall (McAlpin's)	
Crestview Hills, KY        Crestview Hills Mall (McAlpin's)
Clarksville, IN            River Falls Mall (Bacons)
Terre Haute, IN            Honey Creek Square (Root's)
Cincinnati, OH             Eastgate Mall (McAlpin's)
                           Kenwood Towne Centre (McAlpin's)
                           Northgate Mall (McAplin's)
                           Signatures Home Store-Harper's Station (McAlpin's)
                           Tri-County Mall (McAlpin's)
                           Western Hills Plaza (McAlpin's)
Middletown, OH             Towne Mall (McAlpin's) 
Toledo, OH                 Southwyck Shopping Center (Lion)
                           Southwyck Home Store (Lion)
                           North Towne Square (Lion)
                           Franklin Park Mall (Lion)
                           Westgate Home Store (Lion)


MERCANTILE WEST
Jones/Joslins/Hennessy's
de Lendrecie's/Glass Block
Headquartered in Kansas City, Missouri
James L. Schmidt, President

Store Locations            Shopping Centers/Malls

Kansas City, MO            Blue Ridge Mall (Jones)
                           Metro North Mall (Jones)
                           Bannister Mall (Jones)
Overland Park, KS          Metcalf South Shopping Center (Jones)
                           Metcalf South Home Store (Jones)
Prairie Village, KS        Prairie Village Shopping Center (Jones)
Independence, MO           Independence Center (Jones)
Topeka, KS                 West Ridge Mall (Jones)
Denver, CO                 Buckingham Square (Joslins)
                           Villa Itaila Center (Joslins)
                           Westminister Mall (Joslins)
                           Southwest Plaza (Joslins)
                           Southglenn Mall (Joslins)
                           Park Meadows (Joslins)
Greeley, CO                Greeley Mall (Joslins)
Longmont, CO               Twin Peaks Mall (Joslins)
Colorado Springs, CO       Chapel Hills Mall (Joslins)
Pueblo, CO                 Pueblo, CO (Joslins)
Cheyenne, WY               Frontier Mall (Joslins)
Billings, MT               Rimrock Mall (Hennessy's) 
Missoula, MT               Southgate Mall (Hennessy's)
Helena, MT                 Capital Hill Shopping Center (Hennessy's)
Fargo, ND                  West Acres Shopping Center (de Lendrecie's)
Duluth, MN                 Miller Hill Mall (Glass Block)

twenty-seven

<PAGE>

MERCANTILE STORES COMPANY, INC.
is a traditional department store retailer which, at year-end, operated 102
predominantly fashion apparel stores and 16 home fashion stores. The stores,
which are located in a total of 17 states, are primarily mall-based and
operate under 13 different names. They are situated in 53 different markets
and, in the majority of these markets, the Company holds the dominant general
merchandise retailer position. This acceptance within the communities in which
we operate essentially conforms with our Corporate strategy: To operate
profitable stores in markets in which we hold a substantial competitive
position and thereby produce an acceptable return for our stockholders while
offering value, selection and service to our customers. The typical Mercantile
department store encompasses approximately 170,000 square feet and presents a
merchandise assortment which includes apparel, cosmetics, accessories and home
fashions which is tailored to appeal to the middle to upper-middle income
consumer.

The Company also maintains a partnership interest in five operating shopping
centers. In each of these centers, the Company operates a full-line department
store.

CORPORATE OFFICERS
David L. Nichols
Chairman of the Board
and Chief Executive Officer

James M. McVicker
Senior Vice President and
Chief Financial Officer

Randolph L. Burnette
Senior Vice President
Real Estate

Kathryn M. Muldowney
Vice President
Chief Information Officer

Louis L. Ripley
Vice President
Human Resources

William A. Carr
Treasurer and Secretary

Donald L. Radcliff
Controller


(Picture of Store)
The 212,000 square foot Joslins store in the Park Meadows Mall in
Denver, Colorado was opened in August. It received the prestigious Chain
Store Age Magazine "Retail Store of the Year" award the first Mercantile
store to be so honored.

twenty-eight

<PAGE>

DIRECTORS
   snu  H. Keith H. Brodie, M.D.
        President Emeritus of Duke University

   s    John A. Herdeg
        Attorney at Law and
        Chairman of the Board of
        Christiana Bank & Trust Company

   s    Thomas J. Malone
        President, Chief Operating Officer and
        Director of Milliken & Company

        Gerrish H. Milliken
        Director Emeritus of
        Milliken & Company

   n    Minot K. Milliken
        Director Emeritus of
        Milliken & Company

   snu  Roger Milliken 
        Chairman of the Board and
        Chief Executive Officer of
        Milliken & Company

        David L. Nichols
        Chairman of the Board and
        Chief Executive Officer of
        Mercantile Stores Company, Inc.

   n    Lawerance R. Pugh
        Chairman of the Board of
        VF Corporation

   n    Francis G. Rodgers
        Former Vice President of
        IBM Corporation

   u    Roger K. Smith
        Product Line Marketing Manager of
        Analog Devices, Inc.

   s- Audit Committee
   n- Compensation Committee
   u- Nominating Committee
 

Annual Meeting
The Annual Meeting of Stockholders
will be held at 11:00 a.m. on
Wednesday, May 27, 1998
at 1100 North Market Street,
Wilmington, Delaware.

All stockholders are cordially invited to attend.

Corporate Offices

Mercantile Stores Company, Inc.
9450 Seward Road
Fairfield, Ohio  45014
Telephone:  513-881-8000

Stock Transfer Agent, Registrar
and Dividend Distributing Agent
Harris Trust Company of New York
311 West Monroe Street, 11th Floor
Chicago, Illinois  60690
Telephone:  312-461-3309

6.7% Notes and 8.2% Debentures Trustee
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Telephone:  513-579-5300


Independent Accountants
Arthur Andersen LLP
425 Walnut Street
Cincinnati, Ohio
Telephone:  513-381-6900

General Counsel
Curtis, Mallet-Prevost, Colt & Mosle
101 Park Avenue
New York, New York 10178
Telephone: 212-696-6000

Form 10-K Annual Report
A copy of Mercantile's 1997 Form 10-K
Annual Report as filed with the Securities and Exchange Commission is
available upon request by writing:
	Office of the Secretary
	Mercantile Stores Company, Inc.
	1100 North Market Street
	Wilmington, Delaware  19801
	Telephone:  302-575-1816

Mercantile's Home Page on the Internet   http://www.mercstores.com