SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                        -----------------------------------

                                    	FORM 10-K

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

                      	For the fiscal year ended January 30, 1999
                                                 ----------------
                          	Commission file number     33-27126    
                                                 ----------------
                                    
                                   	PEEBLES INC.
               (Exact name of registrant as specified in its charter)

             Virginia                            					54-0332635        
     -------------------------                    --------------------   
      (State of incorporation)		     	  (I.R.S. Employer Identification No.) 
                                    	 	    

         One Peebles Street
        South Hill, Virginia		                     			23970-5001      
    --------------------------------               -----------------
(Address of principal executive offices) 	            (Zip Code)

Registrant's telephone number, including area code (804) 447-5200
                                                  ------------------

Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:  None

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes  X  .  No      .

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

   	State the aggregate market value of the voting stock held by non-affiliates 
of the registrant $-0- (determined by including all shares of Peebles common 
stock owned by persons, (1) who hold less than 10% of the outstanding shares 
of common stock and (2) are not an executive officer of the registrant. 
Aggregate value is based upon the estimated fair value of common stock as of 
February 1, 1999.)

   	As of April 1, 1999, 1,000 shares of common stock of Peebles Inc. were 
outstanding.
<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

   	List hereunder the following documents if incorporated by reference and the 
Part of the Form 10-K into which the document is incorporated:  (1) Any annual 
report to security holders; (2) Any proxy or information statement; and (3) Any 
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 
1933. The listed documents should be clearly described for identification 
purposes.
	
                                    NONE
<PAGE>
                                  	PART I
Item 1.  Business.

GENERAL

   	Peebles Inc. and its subsidiaries (together, "Peebles" or the "Company") 
operate 117 specialty department stores offering predominately soft-apparel, 
fashion merchandise for the entire family and selected decorative home 
accessories.  Founded in 1891, the Company operates primarily in smaller 
communities in 15 southeastern and mid-Atlantic states.  Peebles positions 
itself as the leading fashion retailer in these communities, which typically 
do not have a traditional mall-based department store, and locates its stores
in primary shopping destinations in its markets.  Peebles offers its customers 
consistent value by providing a broad assortment of moderately priced national 
brands supplemented with quality private label merchandise.  Peebles' attractive
stores and visual presentation, advertising and promotional programs further 
reinforce its image as the market's fashion leader.  

   	Peebles Inc. was acquired by PHC Retail Holding Company ("PHC Retail"), 
effective May 27, 1995.  PHC Retail, a closely held company, has no significant
assets other than the shares of Peebles common stock it owns, and had no 
operations prior to the acquisition. The acquisition was accounted for using the
purchase method of accounting, and, accordingly, a new accounting basis was 
established.  The subsidiaries of Peebles Inc. are Carlisle Retailers, Inc. 
("Carlisle's"), acquired in May 1996, and operating 6 stores under the Peebles
name at January 30, 1999, and Ira A. Watson Co. ("Watson's"), acquired in June
1998, and operating 22 stores under the Watson's name at January 30, 1999.

   	The Company's corporate headquarters is located in South Hill, Virginia.  
The Company operates two distribution centers, one adjacent to the corporate 
offices, and the other in Knoxville, Tennessee.  The Knoxville facility was 
acquired in June 1998 in connection with the acquisition of Watson's.

   	References to 1994, 1995, 1996, 1997 and 1998 relate to the Company's fiscal
years ended January 28, 1995, February 3, 1996, February 1, 1997, January 31, 
1998 and January 30, 1999, respectively.  Fiscal years 1994, 1996, 1997 and 
1998 each include 52 weeks.  Fiscal year 1995 consisted of fifty-three weeks,
with 17 weeks included in the four-month period ended May 27, 1995 and 36 weeks
in the eight-month period ended February 3, 1996.  References herein to 1995
relate to the fifty-three week period ended February 3, 1996.

OPERATING STRATEGY

  	The following are key elements of Peebles' operating strategy:

  	Focus on Small Markets:  Peebles locates its stores in smaller communities
   that typically do not have a traditional mall-based department store, 
   thereby limiting competition and allowing Peebles to be the leading fashion 
   retailer in these communities.  The Company believes its ability to 
   successfully operate in markets with as few as 5,000 households is an 
   important competitive advantage over large department stores, which 
   generally cannot profitably operate in such markets.  Peebles has operated
   in small communities for over 100 years and understands its markets and 
   customers.

  	Operate Small Stores with Lower Cost Structure:  Peebles, with its 
   focus on small communities, operates stores that are significantly 
   smaller than the traditional full-line department store.  Peebles' 
   stores range in size from 10,000 to 65,000 square feet and average 
   29,500 gross square feet, 24,500 of which, on average, is devoted to 
   selling. The Company operates profitably despite its smaller stores and 
   lower sales per square foot compared with other department store 
   companies by maintaining a merchandise assortment conducive to consistently
   higher gross margins, emphasizing strict cost controls and centralizing 
   traditional "back office" store operations.

  	Deliver Fashion to Small Communities:  Peebles strives to provide 
   its customers with a shopping experience similar to that found in a 
   larger, mall-based department store.  Soft-apparel fashion merchandise 
   is predominate on the selling floor, as the Company emphasizes a broad 
   selection of moderately-priced national brands and private label 
   merchandise, which generally is not available through other retailers 
   in the market.  Cosmetics and selected home accessories are the primary 
   compliments to the apparel assortment, as fewer hard-line merchandise
   categories are offered.  Peebles' attractive stores and visual 
   presentation, advertising and promotional programs further reinforce 
   its image as the market's fashion leader.

  	Offer Value to Customers:  Peebles emphasizes value pricing and is 
   less promotional than traditional department stores.  It is the 
   Company's strategy to use lower initial markons and promote less,
   thereby maintaining a high level of credibility with its customers. 
   Peebles' commitment to providing value to its customers is integral 
   to developing repeat customers, a critical ingredient for success 
   in smaller markets.

  	Centralize Operations, but Tailor Merchandise Locally:  Peebles believes 
   that centralized decision-making, controls and support functions are 
   critical to its cost-efficient operations and enable the Company's store 
   personnel to maximize the time devoted to selling.  In contrast, 
   Peebles employs a decentralized approach in merchandising its 
   individual stores.  The merchandise mix is tailored to individual stores 
   to cater to local tastes and preferences based on customer and sales 
   associate feedback and sales trends.  Buyers and store associates
   work together to optimize the use of Peebles' smaller selling spaces 
   to meet customer demand and maximize sales.

  	Adapt to Local Real Estate Opportunities:  Smaller stores and a 
   flexible store format give the Company the ability to locate in a 
   variety of new or existing sites. As a result, Peebles' growth does 
   not depend upon the development of new malls. Peebles attempts to 
   position its stores in the primary shopping destination in its markets, 
   which are typically strip shopping centers co-anchored by leading discount,
   grocery and drug retailers.  The Company also operates successfully in 
   enclosed malls and downtown locations.

EXPANSION STRATEGY

  	The Company has expanded by opening new stores, acquiring and converting 
stores and groups of stores, and remodeling or relocating existing stores. 
The Company anticipates expanding its operations through the following:

  	Opening New Stores:  The Company intends to open six new stores in 1999 
   and seven new stores in 2000. As of April 1, 1999, the Company had signed 
   five leases for stores scheduled to open in 1999, representing approximately 
   114,000 in total square footage.  The Company's new stores will be 
   located in existing and contiguous markets where it can realize distribution
   efficiencies and where the Peebles concept and merchandise mix will 
   correspond to local demographics.  The Company explores a wider range of 
   real estate options than retailers which rely only on new shopping 
   center development, and actively considers space vacated by other retailers.

  	Remodeling and Relocating Stores:  In addition to new store growth, 
   the Company has an ongoing remodeling program, both upgrading existing 
   stores and reallocating selling space to provide its customers a pleasant,
   fashion-oriented shopping environment for the merchandise mix for that 
   market.  The Company successfully relocated three stores in 1997 to the 
   desired shopping destination in that market.  In 1998, seven store 
   locations were remodeled and/or had a space reallocation to better meet 
   customer preferences.  In 1999, eight stores are scheduled for remodeling 
   and/or space reallocation.

  	Acquisitions: The Company is continually evaluating acquisitions of 
   individual stores, groups of stores or entire chains for opportunities 
   to compliment or expand existing markets.  In 1998, 29 of the 33 new 
   store locations were acquired from other retailers.  The acquisition 
   of Watson's in June 1998 accounted for 22 new store locations in 
   operation at January 30, 1999.  In 1997, 3 of 8 stores were acquired 
   from a retailer exiting those markets and in 1996, 10 of the 14 new 
   stores were acquired.  

PEEBLES STORES

  	Peebles stores are designed to create an appealing and satisfying 
   shopping experience for the customer.  The layout is bright, modern 
   and accessible, with an emphasis on the visual presentation of 
   the merchandise and the creation of cross-selling opportunities. 
   The Company's stores are significantly smaller than the traditional 
   full-line department store and do not have a standard format. Rather, 
   they are designed for operational efficiency, including flexible 
   inventory management adapted to meet the needs of the individual community.

  	The Company targets communities having between 10,000 and 25,000 
   households, although the Company operates profitably in markets with 
   as few as 5,000 households.  In addition, the Company enters larger 
   markets and suburban areas with 25,000 to 40,000 households where 
   the customer base and competitive factors exhibit characteristics 
   similar to markets where the Company's operating strategy has proven 
   successful.  The Company prefers to locate its stores in strip 
   shopping centers and enclosed malls where other anchors such as leading
   grocery, discount and drug retailers will create a destination shopping 
   location.  Of the 117 stores currently in operation, 87 are located 
   in strip shopping centers, 22 in enclosed malls and 8 in downtown locations.

MERCHANDISING  

  	The Company's merchandise, approximately 80% of which is apparel, is 
   targeted to middle income customers shopping for their families and homes.
   The Company has fewer departments than a traditional full-line 
   department store, but strives to carry a wide assortment of merchandise 
   within its targeted categories in order to appeal to a broad range of 
   customers.  To position itself as the primary fashion retailer in the 
   community with merchandise not found elsewhere in the market, the Company 
   emphasizes moderately-priced national brands supplemented by a limited 
   selection of prestige brand names and a selection of quality private 
   label merchandise.  Peebles merchandise is fashion responsive rather 
   than fashion forward, limiting the Company's inventory exposure.  The 
   Company's stores carry apparel for the entire family, accessories and 
   cosmetics, and decorative home accessories.

   Management believes that brand name merchandise is a significant 
   attraction to its customers and intends to continue emphasizing such 
   merchandise in its stores.  For example, the Company carries nationally 
   branded cosmetics in as many of its stores as possible because Peebles 
   is typically the only retailer in the community where consumers can 
   purchase that merchandise.  While the gross margins on cosmetics are 
   typically lower than the Company's average gross margin, the 
   availability of this merchandise generates store traffic which facilitates
   the sale of higher margin merchandise.

  	In 1998, a majority of the merchandise sold by the Company was 
   nationally branded merchandise.  Key brands featured by the Company 
   include:

          	Ladies.......	Alfred Dunner, Kellwood, Koret, Liz Claiborne, 
                         Etienne Aigner, Item Eyes, Levi Strauss, Hanes, 
                         Gloria Vanderbilt, E.M. Lawrence, Playtex, 
                         Oak Hill, Halmode Apparel, Woolrich, Michael Blake, 
                         Pendleton, Lee, First Options, Shadowline, 
                         Periwinkle, Goodman Knitting

          	Men's........	Haggar, Ralph Lauren, Levi, Nike, Van Heusen, 
                         Foria International, Bugle Boy, Arrow, Tropical 
                         Sportswear

  Young Men's and Juniors...	Levi, Calvin Klein, Tommy Hilfiger Jeans, 
                         Union Bay, JNCO by Revatex, Byer of California, 
                         Bugle Boy, Currants Jeri-Jo, Fritzi of California, 
                         Adidas, Nike

         	Children's....	American Character, HealthTex, Gerson & Gerson, 
                         William Carter, Buster Brown, Baby Togs

         	Shoes.........	Reebok, Nike, Maxwell Shoe, Adidas, Keds, 
                         Candies, Aerosoles, Brown Shoe, Nunn Bush, G.H. Bass

         	Home..........	Springs, World Bazaars, Frenchtex, Bardwil Industries, 
                         Mikasa, Westpoint-Stevens, Crown Crafts, Hollander

         	Cosmetics.....	Estee Lauder, Elizabeth Arden, Clinique, 
                         Calvin Klein, Aramis, Paul Sebastian, Liz Claiborne, 
                         Fashion Fair

  	As a complement to its national brand merchandise, the Company offers 
private label merchandise in selected departments to give its customers a 
wider range of products.  Management believes that its private label 
merchandise provides value to the Peebles customer by offering a quality 
merchandise alternative at prices lower than national brands.  In addition, 
private label merchandise often has higher gross margins than brand name 
merchandise and allows the Company to avoid direct price competition.

  	In order to efficiently utilize its selling space, Peebles tailors the 
merchandise selection at individual stores.  The Company utilizes its 
knowledge of its markets and customers developed over 107 years, along 
with input from the store managers and sales associates, to allocate 
merchandise to the stores. The Company also maintains an inventory tracking 
system which provides daily information as to sales and inventory levels 
by store, department, vendor, class, style, size and color.  Based on this 
information, the Company analyzes market trends, identifies fast or slow
moving merchandise and makes reordering, reallocation and pricing decisions
on a daily basis.

  	Peebles emphasizes value pricing and is less promotional than the 
traditional department store.  It is the Company's pricing strategy to use 
lower initial mark-ons and promote less, thereby maintaining a high level 
of credibility with its customers.  Peebles' commitment to providing value 
to its customers is integral to creating repeat customers, a critical 
ingredient for success in smaller markets.  Peebles is committed to 
offering "Great Fashions, Great Prices, Everyday".  With this program, 
Peebles prices merchandise as low as possible in order to generate sales.  
Products in this program are marketed through special point of sale displays 
and are featured in the Company's advertising.

ADVERTISING AND PROMOTION

  	The Company's advertising and promotion strategy is designed to support 
its marketing goals of providing quality merchandise at value-oriented prices
and reinforces the Company's image as the leading fashion retailer in its 
markets.  Peebles primarily utilizes a direct mail program, which in part 
employs information obtained from its charge card program to target mailings
to its charge card holders.  The Company emphasizes newspaper advertising 
and mailers rather than television and radio, due to the size and nature of
the markets served.  Peebles uses both black and white advertisements and 
full color mailers to highlight promotional items and events as well as 
products in its "Great Fashions, Great Prices, Everyday" program.

	  In addition, the Company's advertising and promotional staff organizes 
special events at the stores and arranges for all Grand Opening and Grand 
Reopening events.  In 1998, the Company continued as an associate sponsor 
of a racing team in the NASCAR Busch Grand National stock car racing series,
which the Company believes will increase its exposure in both existing and 
potential markets.

  	The Company's net advertising expenses in 1996, 1997 and 1998 were 2.5%,
2.1% and 2.4% of net sales, respectively, which the Company believes is 
lower than traditional department stores due to emphasis on an everyday fair
price policy and a less promotional strategy.

PURCHASING AND DISTRIBUTION

  	The Company employs 34 buyers and 6 merchandise managers who are 
responsible for most merchandising decisions including purchasing, pricing, 
sales promotions, inventory allocations and markdowns.  While these 
decisions are made centrally, the Company endeavors to refine its merchandise
assortment to appeal to the customers in each market.  Peebles' buying staff
has developed specific knowledge with regard to purchasing, inventory and 
promotions for the Company's smaller sized stores.  The merchandising group
participates in an incentive plan based on sales, gross margin dollars 
generated and inventory turnover.

  	The Company places special emphasis on maintaining all merchandise 
in stock, particularly advertised and basic merchandise, to build and 
maintain credibility with its customers.  By monitoring unit sale 
information by store, buyers are able to quickly determine the styles,
colors and sizes of merchandise to be reordered and distributed to 
individual stores.

  	The Company purchases its merchandise from over 1,200 suppliers and 
is not dependent on any single source of supply.  The Company is a 
member of Frederick Atkins, Inc., an international cooperative buying 
service.  This cooperative offers members merchandise purchasing 
opportunities, which the Company has taken advantage of particularly 
in connection with its imported private label merchandise.  During 1997,
1998 and 1999, Frederick Atkins, Inc. was the Company's largest 
supplier, accounting for retail purchases totaling approximately
15%, 10% and 9%, respectively.  Frederick Atkins Inc. is currently 
downsizing its operations and renegotiating its banking relationships 
in response to the decrease in the number of members using the services 
of Frederick Atkins Inc.  The reduction in members has been caused by 
the continuing department store industry consolidation.  The Company is 
evaluating its ability to procure merchandise normally purchased through 
Frederick Atkins Inc. from other sources.  The Company currently believes 
that any disruption to the flow of merchandise from Frederick Atkins Inc.
or replacement sources will not be material to the overall purchasing 
process or its merchandise mix.    

  	Virtually all merchandise is shipped directly from vendors to the 
Company's distribution centers where it is inspected, sorted, marked, 
ticketed, packed and shipped to the individual stores.  The Company does 
not warehouse merchandise and has a three-day processing goal through the 
distribution centers.  Merchandise is shipped to each store an average 
of twice a week on Company-owned trucks.

  	The Company's distribution centers feature modern merchandise handling 
equipment and are located close to major interstates.  Using one eight 
hour shift at each facility, future growth in existing and contiguous 
markets can be supported to approximately 200 store locations.

STORE OPERATIONS 
	
  	The Company has structured its store operations to maintain what management
believes are key operating advantages, including a thorough knowledge of 
its customer base, the ability to share information between the stores, 
and cost efficient operations through centralized decision making.

  	Peebles performs as many traditional "back-office" functions as possible
at the corporate level so that store management and sales associates can 
spend most of their time with customers.  Non-sales store personnel are 
kept to a minimum due to control functions performed at the corporate 
offices, including sales associate scheduling, customer credit and marking 
merchandise.  All stores use at least 85% of their total payroll hours in 
a selling capacity.  

  	Peebles encourages the participation of all store level management and 
sales associates in decision making, and management regularly solicits 
input and suggestions from its employees who are closest to the customer.
In addition to its management information systems, Peebles stays in close 
contact with store operations through its seven regional managers.  Each 
store manager reports to a regional manager.  Regional managers visit their 
stores regularly to review merchandise presentation, personnel training
and performance, enforcement of the Company's security procedures and 
adherence to Company operating procedures.  Each quarter, corporate 
merchandising and operations executives meet with the regional managers 
to share information.

  	The Company conducts a management training program, where on-the-job 
training with seasoned store management and regional managers is coordinated
with instruction at the Company's corporate headquarters.  The Company 
stresses promotion from within, and substantially all of the current store 
managers have been selected in this manner.

  	Most stores typically employ several assistant managers and approximately 
30 sales associates, a number of whom are part-time.  All Peebles' store 
personnel, including assistant store managers and sales associates, 
participate in incentive plans.  The Company uses periodic productivity 
reports and personal reviews to inform each employee of his or her 
performance.  

PEEBLES CHARGE CARD

  	In 1996, 1997 and 1998, 37.1%, 34.3% and 28.5%, respectively, of net 
sales were made using the Company's proprietary credit card.  As of January 
30, 1999, the Company had approximately 714,000 credit card accounts, of 
which 178,000 were billed that month.

  	Peebles' charge card sales represent an important element in its 
marketing strategy because the Company believes that Peebles charge card 
holders generally constitute its most loyal and active customers.  Peebles 
charge transactions are captured through store point-of-sale terminals and 
transmitted directly to the corporate credit mainframe computer system, 
where Peebles charge customer account information is updated.  This 
information is used to bill accounts as well as to provide marketing 
information regarding purchasing habits and merchandise preferences. 
The Company uses this data to develop segmented advertising and promotional 
programs to reach specific groups of customers who have established 
purchasing patterns for certain brands, departments and store locations.  

  	Peebles administers all aspects of its credit card program in-house.  
The extension of credit is governed by risk models and matrices, which 
are developed and reviewed by corporate credit executives. Through a 
communication network linking the store locations to the corporate office 
and a credit bureau, in-store credit applications are scored within minutes 
and the actual credit limit is assigned and available for purchases.  
Inquiries by Peebles charge customers and in-store associates are answered 
by a corporate customer service department.  Monthly customer statements are 
produced at the corporate office and, when prepared for mailing, can be 
combined with selective promotional material or delinquency notices.  
Management believes this in-house credit program provides the Company with 
an important customer relations advantage over competing retailers which 
administer their credit programs from remote processing locations or 
contract for such services from unrelated third parties.

  	The Company's credit plans provide for the option of paying in full 
within 28 days of the billed date with no finance charge or with revolving 
credit terms.  Terms of the short-term revolving charge accounts require 
customers to make minimum monthly payments in accordance with prescribed 
schedules.  Peebles bears the risk of collecting its credit card receivables.
Peebles believes its credit card program has had a positive impact on net 
income.

  	The following table presents a summary of information relating to the 
Company's charge card sales and receivables (dollars in thousands):

                                                   Period-End Allowance
                 Net Bad Debt Expenses             For Doubtful Accounts 
                 ---------------------             ---------------------
                                      Period-
                                      End Total-              
        Charge           % of Chg     Customer                % of Total
Years    Sales   Amount    Sales      Receivables    Amount   Receivables

1996....$72,086  $1,192   1.7%         $33,286       $1,224      3.7%
1997.... 74,657   1,327   1.8%          32,981        1,400      4.2%
1998.... 75,601   1,330   1.8%          35,195        1,700      4.8%

MANAGEMENT INFORMATION SYSTEMS

  	The Company's management information systems provide the daily financial 
and merchandising information to make timely and effective pricing decisions
and for inventory control.  The Company is able to allocate its inventory 
effectively as a result of its management information systems and can tailor
the merchandise mix to meet the individual customer demands at each store.

	  The Company maintains central information and data processing systems at 
its corporate headquarters.  Each of its stores is equipped with compatible 
point-of-sale registers, which are polled every evening by the central 
system to gather sales, accounts receivable and inventory information.  

  	The Company's management information and data processing systems primarily 
use internally developed software.  The Company believes this allows 
management to more closely control the quality, suitability and expense of 
information systems and data processing.  The Company continues to make 
selected improvements in computer hardware technology as well as enhancements
to software applications as needed.  

  	For a discussion of the Company's year 2000 initiatives, see "Management's 
Discussion and Analysis of Financial Condition and Results of Operations" 
included on page F-14 of this annual report on form 10-K.

EMPLOYEES
 
  	At January 30, 1999, the Company had 1,695 full-time employees and 
2,085 part-time employees.  None of the Company's employees is covered by 
a collective bargaining agreement.  The Company considers its relations 
with its employees to be good.

COMPETITION

  	The retail industry is highly competitive, with selection, price, 
quality, service, location and store environment being the principal 
competitive factors.  The Company competes with national and local retail 
stores, specialty apparel chains, department stores, discount stores and 
mail order merchandisers, many of which have substantially greater financial
and marketing resources than the Company.   Demographic changes may alter 
the character of the Company's markets, which can result in increased 
competition from other retailers.

TRADEMARKS

	The Peebles name is registered as a trademark and a servicemark 
of the Company. Additionally, the Company has registered several 
merchandise labels as trademarks under which it sells quality merchandise 
such as Cape Classic, Private Expressions, Meherrin River Outfitters, 
Harmony Grove, and Sonoma Bay.

REGULATION 

	The Company is subject to federal, state and local laws and regulations 
affecting retail department stores generally.  The Company believes that 
it is in substantial compliance with these laws and regulations. 
 
Item 2.  Properties.

	All but one of the Company's stores are leased, and most of the leases 
contain renewal options.  In gross square footage, the stores range in size 
from 10,000 square feet to 65,000 square feet, and average 29,500 square 
feet. In net selling square footage by state at January 30, 1999, the 
Company's stores were as follows: 

    State     Stores      Net SQ Ft       State      Stores     Net SQ Ft

  Virginia      35         774,080     Pennsylvania     5        117,581
  Tennessee     14         369,393     Ohio             4         79,525
North Carolina  12         250,231     New York         3         84,983
  Kentucky      11         297,083     Delaware         3         80,611
  Maryland       8         250,838     New Jersey       2         52,807
West Virginia    6         130,580     Indiana          2         49,614
  Alabama        6         107,039     Missouri         1         24,625
South Carolina   5         132,905

                                          Totals      117      2,801,805

  	Store leases generally provide for a base rent of between $1.00 and 
$8.00 per square foot per year.  Most leases also have formulas requiring 
the payment of additional rent based on a percentage of net sales above 
specified levels.  In 1996, 1997 and 1998, the Company's aggregate rental 
payments on operating leases were approximately $8.2 million, $9.4 million 
and $12.5 million, respectively. 

	  The Company's owns, subject to deeds of trust and security interests 
granted in connection with the Company's Credit Agreement, i) the corporate 
headquarters and the 150,000 square foot distribution center facility located
on 31 acres in South Hill, Virginia; and ii) the 100,000 square foot 
distribution center in Knoxville, Tennessee.  The Company believes these 
locations provide the Company with adequate undeveloped space to expand the 
corporate headquarters and/or distribution centers to meet future growth
requirements.

Item 3.    Legal Proceedings.

  	The Company is from time to time involved in routine litigation.  Based 
on consultations with legal counsel, the Company believes that none of the 
litigation in which it is currently involved is material to its financial 
condition or results of operations. 

Item 4.   Submission of Matters to a Vote of Security Holders.
           
              None
            
                                					PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

MARKET INFORMATION

  	All of the Company's common stock is owned by PHC Retail Holding Company.
See Item 12. "Security Ownership of Certain Beneficial Owners and 
Management."  There is no existing market for the Common Stock, nor is the 
Common Stock listed or traded on any exchange or other market.  All currently
outstanding shares of common stock were issued pursuant to exemptions from 
registration under the Securities Act of 1933, as amended (the "Act"), and 
any resale of such shares of Common Stock can only be made pursuant to an
effective registration statement or an exemption from the registration 
requirements of the Act.

DIVIDENDS

  	The Company does not currently pay any dividends on its Common Stock.  
The Company's Credit Agreement prohibits the payment of dividends absent the 
consent of the lender.  Accordingly, the Company does not intend to pay any 
dividends to the holders of the Common Stock in the foreseeable future.	

<PAGE>

Item 6.   Selected Financial Data.

  	The following selected historical consolidated financial data for Peebles 
for the five fiscal years ended January 31, 1998 are derived from the 
Company's audited consolidated financial statements.  Effective May 27, 1995,
PHC Retail Holding Company ("PHC Retail") acquired the entire equity interest
of Peebles Inc. (the "1995 Acquisition"). The 1995 Acquisition was accounted 
for as a purchase; and accordingly, a new basis of accounting was begun. As 
a result, the consolidated financial data for the periods subsequent to the 
1995 Acquisition is not comparable to the consolidated financial data for 
the prior periods. The data should be read in conjunction with the 
consolidated financial statements, related notes and other financial 
information included on Page F-0 of this annual report on Form 10-K. 

<TABLE>
(Dollars in thousands except per share and selected other data)


                     Fiscal Year   Four-Month   Eight-Month  Fiscal Year  Fiscal Year  Fiscal Year
                        Ended     Period Ended  Period Ended    Ended        Ended        Ended   
                      January 28,    May 27,     February 3,  February 1, January 31,   January 30,
                         1995         1995          1996         1997         1998         1999  
                       
                        (Pre-1995 Acquisition)    (Post 1995 Acquisition)

Income Statement Data: 
<S>                   <C>            <C>          <C>          <C>          <C>          <C>
Net sales             $167,662       $49,163      $126,501     $194,206     $217,694     $265,215      
Cost of sales           98,066        29,935        72,994      116,236      130,820      159,067
                      --------       -------      --------     --------     --------      -------
Gross margin            69,596        19,228        53,507       77,970       86,874      106,148
Selling, general and
  administrative
  expenses              45,205        14,639        33,275       54,400       60,324       76,402
Depreciation and 
  amortization           6,729         2,349         4,339        7,499        6,648        8,057
Stock option settlement    ---         3,089           ---          ---          ---          ---
Asset impairment
  revaluation              ---           ---           ---       20,782          ---          ---
                     ---------       -------      --------     --------      -------      -------
Operating income 
  (loss)                17,662          (849)       15,893       (4,711)      19,902       21,689
Other income
  (expenses)               131            77           (52)         687          444            9
Interest expense         4,569         1,414         6,565        9,148        9,609       10,804
                     ---------       -------      --------     --------      -------      -------
Income (loss) before
  income taxes
  (benefit) and
  extraordinary item    13,224        (2,186)        9,276      (13,172)      10,737       10,894
Income taxes (benefit)   5,747          (874)        4,246        1,743        4,687        4,837
                     ---------       -------      --------     --------      -------      -------
Income (loss) before
  extraordinary item     7,477        (1,312)        5,030      (14,915)       6,050        6,057
Extraordinary item         ---          (216)          ---          ---          ---          ---   
                     ---------       -------      --------     --------      -------      -------
Net income (loss)      $ 7,477       $(1,528)     $  5,030     $(14,915)     $ 6,050      $ 6,057
                     =========       =======      ========     ========      =======      ======= 
Net income (loss) 
  per share            $  2.54       $  (.52)     $  5,030     $(14,915)     $ 6,050      $ 6,057
Average common 
  stock and common 
  stock equivalents
  outstanding        2,940,281     2,942,600         1,000        1,000        1,000        1,000
</TABLE>


<TABLE>
Selected other data:                     Twelve Month Data
<S>                    <C>                   <C>                <C>           <C>          <C>
Net sales per store
   (000's) (1)        $ 3,189               $ 3,032             $ 2,921      $ 2,835      $ 2,750
Selling sq. ft. per
   store (1)           26,000                26,300              26,032       24,550       24,305
Net sales per selling
   sq. ft. (2)           $117                  $112                $108         $113         $113
Comparable store net
   sales increase
   (decrease) (1)         4.6%           (5)   (1.0%)        (6)   (1.3%)        5.3%         0.9%
Number of stores
   (end of period)         58                    65                  77           84          117
Total selling sq. ft.
   (end of period)   1,510,000            1,649,000           1,893,000     2,004,000    2,802,000
Capital expenditures
    (000's)             $8,454               $8,094              $8,783      $10,226       $13,394

Balance Sheet Data:   January 28,       February 3, 1996      February 1,   January 31,   January 30,
                         1995                                    1997           1998          1999

                                    (Post 1995 Acquisition)
Working capital        $ 49,872             $ 48,395           $ 58,213     $ 63,459      $ 75,794
Net property and
  equipment              28,951               33,308             33,460       38,749        51,949
Total assets            148,954              165,553            163,568      172,456       208,286
Total debt (3)           41,955               76,778             90,962       87,299       110,921
Stockholders' equity (4) 82,234               64,338             49,423       55,473        61,530

Selected Financial Data Footnote Legend
N/M*- Not meaningful.
<FN>
(1)    Only reflects data for comparable stores.  Comparable stores for the current year are those 
       stores which were open for the entire period in the immediately preceding year.

(2)    Net sales per selling square feet per store is based on stores open one full year.  

(3)    Includes the long-term portion of the capital lease obligations and the current portion of 
       long-term debt.

(4)    Retained earnings, included in stockholders' equity has been adjusted to zero on February 1, 
       1992 and May 27, 1995.  On February 1, 1992, an accumulated deficit of $10,477 was eliminated in a
       quasi-reorganization resulting from the recapitalization of the Company.  On May 27, 1995, accumulated 
       earnings of $16,022 were eliminated in purchase accounting.

(5)    Comparable store net sales decreased 1% comparing the 53-week period ended February 3,
       1996 versus the 52-week period ended January 28, 1995.  Comparing the 53-week period ended February 3,
       1996 to the corresponding 53-week period ended February 4, 1995, comparable store net sales decreased 2%.

(6)    Comparable store net sales decreased 1.3% comparing the 52-week period ended February 1, 1997 versus
       the 53-week period ended February 3, 1996.  Comparable store net sales remained the same comparing the 
       52-week period ended February 1, 1997 versus the 52 week period ended February 3, 1996.

</TABLE>

Item 7.  Management's Discussion and Analysis of Financial Condition and 
           Results of Operations.

  	The discussion and analysis included under the caption "Management's 
Discussion and Analysis of Financial Condition and Results of Operations" 
appears on Page F-14 of this annual report on Form 10-K.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

	  Information with respect to this Item is included under the caption 
"Market Risk" on Page F-17 of this annual report on Form 10-K.

Item 8.  Financial Statements and Supplementary Data.

	  Information with respect to this Item is contained in the consolidated 
financial statements indicated on the indices on Page F-0 of this annual 
report on Form 10-K.

Item 9.  Changes in and Disagreements with Accountants on Accounting and 
            Financial Disclosure.

                                    NONE
<PAGE>
                                  PART III

Item 10.  Directors and Executive Officers of the Registrant.

	  The Company's executive officers and Directors, their ages, positions and 
years with the Company are as follows:


                                                                 Years with
Name                  Age   Position                             the Company

Michael F. Moorman     56   Chairman of the Board, President 
                            and Chief Executive Officer               35
Ronnie W. Palmore      50   Senior Vice President, Merchandising 
                            and Assistant Secretary                   26
Russell A. Lundy, Sr.  63   Senior Vice President, Stores             45
E. Randolph Lail       43   Senior Vice President, Finance, Chief 
                            Financial Officer, Secretary and 
                            Treasurer                                 11
Marvin H. Thomas, Jr.  43   Senior Vice President, Operations         20
William C. DeRusha     49   Director                                   7
Malcolm S. McDonald    60   Director                                   7
Wellford L. Sanders, Jr. 53 Director                                   6
Thomas R. Wall, IV     40   Director                                   4
Frank T. Nickell       51   Director                                   4

  	Michael F. Moorman has been Chairman of the Board, Chief Executive 
Officer, President and a Director of PHC Retail since June 9, 1995.  Mr. 
Moorman has also been Chairman of the Board and a Director of the Company 
since September 1989, Chief Executive Officer of the Company since May 1989 
and President of the Company since June 1988. Prior thereto, Mr. Moorman 
served as Chief Financial Officer and Treasurer of the Company from August 
1989 to June 1992 and Secretary of the Company from August 1989 to June 1990.
Mr. Moorman has been employed by the Company in various positions since 1964.
Mr. Moorman has been a Director of the Company since 1977.

  	Ronnie W. Palmore has been Senior Vice President, Merchandising of PHC 
Retail since June 9, 1995 and of the Company since September 1989 and 
Assistant Secretary of the Company since 1988.  Mr. Palmore served as Senior 
Vice President, Stores of the Company from June 1988 to August 1989 and has 
been employed by the Company in various positions since 1973.

  	Russell A. Lundy, Sr. has been Senior Vice President, Stores of PHC Retail 
since June 9, 1995 and of the Company since September 1989.  Mr. Lundy served
as Vice President, Stores of the Company from 1984 to August 1989 and has 
been employed by the Company in various positions since 1954.

  	E. Randolph Lail has been Senior Vice President, Finance, Chief 
Financial Officer, Secretary and Treasurer of PHC Retail since June 9, 1995.
Mr. Lail has also been Senior Vice President, Finance of the Company since 
June 1993, Chief Financial Officer and Treasurer of the Company since June 
1992 and Secretary of the Company since June 1990.   Mr. Lail served as Vice 
President, Finance of the Company from June 1990 to June 1993 and as 
Controller of the Company from January 1988 to June 1990.  Mr. Lail is a 
has been employed by the Company since January 1988.

  	Marvin H. Thomas, Jr. has been Senior Vice President, Operations of PHC 
Retail since June 9, 1995 and of the Company since June 1993. Mr. Thomas 
served as Vice President, Operations of the Company from June 1990 to June 
1993 and Vice President, Merchandise Manager of the Company from May 1988 to 
June 1990.  Mr. Thomas has been employed by the Company in various positions 
since 1979. 

   William C. DeRusha has been a Director of PHC Retail since June 9, 1995 
and of the Company since March 1992. Mr. DeRusha is Chairman of the Board 
and Chief Executive Officer and a director of Heilig-Meyers Company. 

  	Malcolm S. McDonald has been a Director of PHC Retail since June 9, 1995 
and of the Company since April 1992. Mr. McDonald has retired from First 
Union National Bank VA/MD/DC.  From December 1996 until November 1997, Mr. 
McDonald was Chairman of the Board and Chief Executive Officer of Signet 
Banking Corporation.  From May 1996 to December 1996, Mr. McDonald was 
President and Chief Executive Officer of Signet Banking Corporation.  Prior 
to May 1996 he was President and Chief Operating Officer of Signet Banking
Corporation.  Mr. McDonald is a director of First Union Corporation.

  	Wellford L. Sanders, Jr. has been a Director of PHC Retail since June 9, 
1995 and of the Company since February 1992.  Mr. Sanders is a Managing 
Director of Bowles Hollowell Conner, a division of First Union Capital 
Markets Corp.  Until April 1997, Mr. Sanders was a partner in the law firm 
of McGuire, Woods, Battle & Boothe, L.L.P.  Mr. Sanders is a director of 
Catherines Stores Corporation. 

  	Thomas R. Wall, IV has been a Director of PHC Retail and the Company 
since June 9, 1995.  Mr. Wall has been Managing Director of Kelso & Company 
since 1990 and prior thereto a General Partner of Kelso since 1989. Mr. Wall 
is also a director of AMF Bowling Inc., Consolidated Vision Group, Inc., 
Cygnus Publishing, Inc., iXL Enterprises, Inc., Mitchell Supreme Fuel 
Company, Mosler Inc., TransDigm, Inc. and 21st Century Newspapers, Inc. 

  	Frank T. Nickell has been a Director of PHC Retail and the Company since 
June 9, 1995.  Mr. Nickell has been President and a director of Kelso & 
Company since March 1989 and Chief Executive Officer since September 1997.  
March 1989. He is also a director of Earle M. Jorgensen Company and The Bear 
and Stearns Companies Inc. 

  	Executive officers of Peebles are elected annually and serve at the 
discretion of the Board of Directors.
	
DIRECTORS COMPENSATION

  	Mr. DeRusha, Mr. McDonald and Mr. Sanders are paid an annual retainer of 
$20,000, payable quarterly in arrears. No other Director is paid a fee for 
serving as a Director.  All Directors are reimbursed for expenses incurred 
in attending meetings of the Board of Directors. 
	
AGREEMENTS TO INDEMNIFY.
	
  	Peebles has entered into agreements with each of its Directors and 
officers of Peebles pursuant to which Peebles has agreed to indemnify such 
Director or officer from claims, liabilities, damages, expenses, losses, 
costs, penalties or amounts paid in settlement incurred by such Director or 
officer and arising out of his capacity as a Director, officer, employee 
and/or agent of the corporation of which he is a director or officer to the 
maximum extent provided by applicable law.  In addition, such Director or
officer shall be entitled to an advance of expenses to the maximum extent 
authorized or permitted by law to meet the obligations indemnified against.  
Such agreements also obligate the Company to purchase and maintain insurance 
for the benefit and on behalf of its Directors and officers insuring against 
all liabilities that may be incurred by such director or officer, in or 
arising out of his capacity as a director, officer, employee and/or agent of 
the Company.
	
ITEM 11.   EXECUTIVE COMPENSATION

  	The following tables set forth a summary of compensation paid by the 
Company to its five highest paid executive officers (the "Named Executives") 
during 1996, 1997 and 1998.
<TABLE>
<CAPTION>
                              Summary Compensation Table
                                                                        Long-Term Compensation
                                                                         Awards        Payout     
                                                                        -----------  ----------
                               Annual Compensation                       Number of 
                                                         Other Annual     Options/    Long-term
Name and Principal             Salary     Bonus ($)      Compensation    Warrants  Incentive Plan
    Position           Year     ($)(1)     (1),(2)            ($)(3)       Granted     Payouts ($)
------------------    ------   --------    ---------      -------------   ---------  --------------
<S>                   <C>      <C>         <C>            <C>               <C>        <C>
Michael F. Moorman
Chairman of the Board, 1998    $328,651    $326,706        $      --            --        --
President and Chief    1997     286,354     177,655               --            --        --
Executive Officer      1996     270,954          --               --            --        --

Ronnie W. Palmore
Senior Vice President, 1998    $179,993    $ 64,460        $      --            --        --
Merchandising and      1997     156,973      48,811               --            --        --
Assistant Secretary    1996     150,838       8,050               --            --        --

Russell A. Lundy, Sr.  1998    $139,364    $ 50,490        $      --            --        --
Senior Vice President, 1997     126,200      41,856               --            --        --
Stores                 1996     121,013      11,758               --            --        --

E. Randolph Lail
Senior Vice President, 1998    $149,203    $ 72,888        $   1,079            --        --
Finance, CFO,          1997     130,048      36,749            1,264            --        --
Secretary and Treasurer1996     122,254       9,375            1,268            --        --

Marvin H. Thomas, Jr.  1998    $111,959    $ 38,159        $     877            --        --
Senior Vice President, 1997      99,325      29,118            1,027            --        --
Operations             1996      95,425       6,382            1,030            --        --
--------------------------------------------------------
<FN>
(1)	Salary and bonus amounts for 1996, 1997 and 1998 include tax-deferred 
    contributions of compensation to the Peebles Inc. 401(k) Profit Sharing 
    Plan.  Also included in the salary amounts for 1998 and the bonus amounts
    for 1997 and 1998 are the matching contributions made by the Company on 
    behalf of the Named Executives to the Peebles Inc. 401(k) Profit Sharing 
    Plan.
(2)	Bonus amounts for each of the Named Executives include the accrued bonus 
    earned under the Company's annual incentive plans for the years shown. 
(3)	The amounts shown reflect the current value of the benefit to Mr. Lail 
    and Mr. Thomas, respectively, of the portion of premiums paid by the 
    Company with respect to a split dollar insurance arrangement.  The 
    benefit was determined for each year by calculating the time value of 
    money (including the applicable long term federal funds rate) of the 
    premium paid by the Company in the years shown ($18,729 for Mr. Lail and 
    $15,221 for Mr. Thomas per year).
</TABLE>

	   OPTION GRANT TABLE.  There were no options granted by the Company to 
the Named Executives during 1998.

   	OPTION EXERCISE TABLE.  The following table sets forth information 
concerning the exercise of stock options during 1998 by each of the Named 
Executives and the year end value of unexercised options.

<TABLE>
                          Options Exercised in 1998
                     -----------------------------------
Individual Grants
                                                                        Number of          Value of
                                                                       Unexercised    Unexercised In-the
                                                                     Options at Year     Money Options    
                                                   Value                    End           at Year end
                             Shares Acquired      Realized            Exercisable/         Exercisable/
Name and Principal Position   on Exercise (1)        ($)              Unexercisable(2)   Unexercisable($)
---------------------------  ---------------      --------            ----------------   ---------------
<S>                            <C>                 <C>                  <C>               <C>
Michael F. Moorman              0                  $0                    0                $0
Chairman of the Board, 
President and Chief Executive 
Officer

Ronnie W. Palmore               0                   0                    0                 0
Senior Vice President, 
Merchandising, Assistant 
Secretary 

Russell A. Lundy, Sr.           0                   0                    0                 0
Senior Vice President, Stores

E. Randolph Lail                0                   0                    0                 0
Senior Vice President, Finance
Chief Financial Officer, 
Secretary and Treasurer

Marvin H. Thomas, Jr.           0                   0                    0                 0
Senior Vice President, Operations
_______________________________________
<FN>
(1)	There were no stock options exercised by the Named Executives in 1998.
(2)	There were no unexercised options at year end.
</TABLE>

  	As of the fiscal year ended January 30, 1999 there were no projected 
long-term incentive payouts.  

PENSION PLAN

  	The following table shows the annual benefit payable upon normal 
retirement at age 65 to persons in specified earnings and years of service 
classifications under the Employee's Retirement Plan of Peebles Inc. (the 
"Pension Plan").  Effective for the Pension Plan's 1998 plan year, the 
Internal Revenue Code limited the amount of earnings that could be taken 
into account for purposes of calculating benefits to $160,000, and limited 
the maximum annual benefit which could be paid from the Plan to any 
participant to $130,000.  The benefits shown below do not reflect these 
limits.

			  Final                   Years of Service                                 
 Average Salary 	   15        20       	25       	30         	35  
	$ 75,000........	$11,700	  $15,600	  $19,500	  $23,400	    $23,400
	 100,000........	 16,575	   22,100	   27,625	   33,150	     33,150
	 125,000........	 21,450    28,600	   35,750   	42,900     	42,900
	 150,000........	 26,325	   35,100	   43,875	   52,650	     52,650
	 175,000........	 31,200	   41,600	   52,000	   62,400	     62,400
	 200,000........	 36,075	   48,100	   60,125	   72,150	     72,150
	 225,000........	 40,950	   54,600	   68,250	   81,900	     81,900
	 250,000........	 45,825	   61,100	   76,375	   91,650	     91,650
	 300,000........	 55,575	   74,100   	92,625	  111,150	    111,150
	 350,000........	 65,325	   87,100	  108,875	  130,650	    130,650
	 400,000........	 75,075	  100,100	  125,125	  150,150	    150,150
	 450,000........	 84,825	  113,100	  141,375	  169,650	    169,650

  	Benefits under the Pension Plan are based on a designated percentage of 
the participant's average earnings for the participant's five highest years 
of earnings, weighted according to years of credited service, and integrated 
with Social Security covered compensation.  Earnings are based on the 
participant's total taxable wages for the year, including certain pre-tax 
contributions to employee benefit plans, but excluding reimbursements, 
certain expense allowances, deferred compensation, welfare and fringe benefits.
For Pension Plan purposes, earnings for the Named Executives are 
substantially the same as the amounts listed in the Summary Compensation 
Table.  Benefits are computed on a straight life annuity basis.

  	The accrued benefits under the Plan for Mr. Moorman, Mr. Palmore, 
Mr. Lail, Mr. Thomas and certain other employees were frozen and transferred 
from the Plan to a newly established defined benefit pension plan ("Pension 
Plan II") effective as of February 1, 1998.  Pension Plan II was terminated 
effective as of May 1, 1998, and each participant's accrued benefits were 
distributed from Pension Plan II on or before January 31, 1999.  As a result,
Mr. Moorman, Mr. Palmore, Mr. Lail and Mr. Thomas have no accrued benefits 
under either the Pension Plan or Pension Plan II.  Mr. Lundy, Sr. continues
to be covered and have an accrued  benefit under the Pension Plan.


  	The estimated years of credited years as of normal retirement at age 65
for purposes of computing benefits under the Pension Plan for the Named 
Executives are: Mr. Moorman, 44 years; Mr. Palmore, 42 years; Mr. Lundy, 
Sr., 47 years; Mr. Thomas, 41 years; and Mr. Lail, 32 years. 

  	The Company maintains a supplemental benefits program designed to provide 
certain key executives retirement benefits.  The Executive Employee 
Supplemental Retirement Plan (the "SERP"), maintained for certain designated 
executives, includes Mr. Moorman, Mr. Palmore, and Mr. Lundy, Sr.  The SERP 
is a non-qualified retirement plan that provides each participant with a 
lump sum benefit based on 60% of the participant's earnings during the five 
consecutive calendar years which produce the highest average reduced by the 
sum of the benefits payable to the participant under the Pension Plan, 
Executive Employee Benefit Restoration Plan (the "Restoration Plan") and 
Social Security.  Benefits under the SERP are fully vested upon the earliest 
of the participant's completion of five years of service with the Company, 
the participant's permanent disability or the date on which there is a change
of control of the Company.  The Restoration Plan is a non-qualified plan 
designed to provide supplemental benefits to certain employees, including
Mr. Moorman, whose accrued benefits under the Pension Plan were transfered and
distributed from the Pension Plan II.  The benefit under the Restoration 
Plan is payable in a single lump sum.  A participant's benefits are forfeited
under the SERP and Restoration Plan if his employment is terminated for cause.  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

	The Company has a Compensation Committee of the Board of Directors.  
For 1998, the Board of Directors established compensation for the Company's 
officers for such year.  Michael F. Moorman, the sole officer or employee 
of the Company who is also a member of the Board of Directors, made 
recommendations to the Board of Directors concerning executive compensation 
but did not otherwise participate in or vote upon the executive compensation 
decisions made by the Board of Directors for such year. Mr. Moorman is not a
member of the Compensation Committee.  No interlocking relationship currently
exists between any member of the Compensation Committee and any member of any 
other company's board of directors or compensation committee, nor did any 
such interlocking relationship exist during 1998.

CERTAIN RELATIONSHIPS

	  Frank T. Nickell and Thomas R. Wall, IV, members of the Board of Directors 
of the Company, are affiliated with Kelso & Company, which rendered management 
services to the Company during 1998.  From time to time Kelso & Company has 
provided financial advice to the Company for which the Company has reimbursed
certain of Kelso & Company's expenses.

EMPLOYMENT AGREEMENTS

  	Mr. Lail and Mr. Thomas participate in split dollar insurance 
arrangements with the Company.  The executive owns, and therefore has a 
vested interest in, the cash surrender value of the policy in excess of the 
Company's premium investment.  At retirement, the executive can either use 
the cash value for retirement income or keep the death benefit or a 
combination of the two.  The Company would recover its cost at retirement.  
In the event of a change in control, the executive would have a 
nonforfeitable right to the Company's share of the cash surrender value of
the policy.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

  	All of the outstanding common stock of the Company is owned by PHC Retail. 
The following table sets forth certain information regarding the beneficial 
ownership of Common Stock of PHC Retail, as of April 1, 1999, by (a) each 
person known by the Company to be the beneficial owner of more than 5% of 
the outstanding shares of Common Stock, (b) each of the Company's Directors 
and Named Executives who owns shares of Common Stock and (c) all Directors 
and Named Executives of the Company as a group.  Unless otherwise noted in the
footnotes to the table, the persons named in the table have sole voting and 
investing power with respect to all shares of Common Stock indicated as 
being beneficially owned by them.

CAPITAL STOCK OF PHC RETAIL
<TABLE>

                                          Shares of Voting               Shares of
                                                Common       Percent     Nonvoting     Percent of
   Name of Beneficial Owner (1)                 Stock        of Class   Common Stock      Class
<S>                                          <C>             <C>              <C>           <C>  
Kelso Investment Associates V, L.P. (2),(3)   1,803,693 (3)   90.46            0             0
Kelso Equity Partners V, L.P.   (2),(3)          52,973        2.66            0             0
Michael F. Moorman (6)                           49,583        2.49            0             0
Ronnie W. Palmore (6)                            14,051           *            0             0
Russell A. Lundy, Sr. (6)                         9,730           *            0             0
E. Randolph Lail (6)                              7,050           *            0             0
Marvin H. Thomas, Jr. (6)                         5,536           *            0             0
William C. DeRusha                                    0           0        2,000          8.17 
Malcolm S. McDonald                                   0           0        2,000          8.17
Wellford L. Sanders, Jr.                              0           0        2,500         10.22
Joseph S. Schuchert   (2),(3)                 1,856,666 (3)   93.12            0             0
Frank T. Nickell   (2),(3)                    1,873,514 (4)(5)93.96            0             0
George E. Matelich   (2),(3)                  1,856,666 (3)   93.12            0             0
Thomas R. Wall, IV   (2),(3)                  1,873,514 (4)(5)93.96            0             0   
Michael B. Goldberg (2),(3)                   1,856,666 (3)   93.12            0             0
All Directors and Named Executives
  as a group (10 persons) (6)                 1,959,464       98.27        6,500         26.56

* Less than 1 Percent

<FN>
(1)	The information as to beneficial ownership is based on statements furnished to the Company 
    by the beneficial owners.  As used in this table, "beneficial ownership" means the sole or 
    shared power to vote, or direct the voting of a security, or the sole or shared investment 
    power with respect to a security (i.e., the power to dispose of, or direct the disposition 
    of).  A person is deemed as of any date to have "beneficial ownership" of any security that 
    such person has the right to acquire within 60 days after such date.  For purposes of
    computing the percentage of outstanding shares held by each person named above, any security 
    that such person has the right to acquire within 60 days of the date of calculation is deemed 
    to be outstanding but is not deemed to be outstanding for purposes  of computing the percentage 
    of any other person.

(2) The business address for such person(s) is C/O Kelso & Company, 320 Park Avenue, 24th Floor, 
    New York, New York 10022.

(3) Messrs. Schuchert, Nickell, Matelich, Wall and Goldberg may be deemed to share beneficial 
    ownership of shares of PHC Common Stock owned of record by Kelso Investment Associates V, 
    L.P. ("KIA V") and Kelso Equity Partners V, L.P. ("KEP V"), by virtue of their status as 
    general partners of such partnerships.  Messrs. Schuchert, Nickell, Matelich, Wall and 
    Goldberg share investment and voting power with respect to securities owned by other Kelso 
    affiliates.  Messrs. Schuchert, Nickell, Matelich, Wall and Goldberg disclaim beneficial
    ownership of the shares of PHC Common Stock owned of record by KIA V and KEP V and the 
    securities owned by other Kelso affiliates. 

(4) Includes 1,848 shares of PHC Common Stock held by trusts of which Mr. Nickell is trustee, 
    as to which shares Mr. Nickell disclaims beneficial ownership.

(5) Includes 15,334 shares of PHC Common Stock held by trusts of which Mr. Wall is trustee, 
    as to which shares Mr. Wall disclaims beneficial ownership.

(6) Includes unexercised vested stock options for the purchase of PHC Common Stock in the 
    amount of 14,583, 4,583, 3,230, 3,750, and 2,395 for Messrs. Moorman, Palmore, Lundy, 
    Lail and Thomas, respectively.
</TABLE>

Item 13.  Certain Relationships and Related Transactions.

   	See "Item 10. Directors and Executive Officers of the Registrant" and 
"Item 11. Executive Compensation" for a description of certain arrangements 
with respect to present and former executive officers and directors of 
Peebles.

                                   PART IV
	
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K.
	
		(a)	1.	Financial statements.
	
            Information with respect to this Item is contained in 
         the consolidated financial statements indicated on the 
         indicies on page F-0 of this annual report on Form 10-K. 
	
	   		2.	Financial statement schedules.
	
            Schedule II  Valuation and Qualifying Accounts appears 
         in Note I on page F-13 of this annual report on Form 10-K; 

            All other schedules for which provision is made in the 
         applicable accounting regulation of the Securities and 
         Exchange Commission are not required under the related 
         instructions or are inapplicable and therefore have been omitted.
	
	   		3.	Exhibits.
	
            The exhibits listed on the accompanying index to exhibits 
         are filed as part of this annual report on Form 10-K.
	
		(b)	Reports on Form 8-K.
	     
               NONE
	
		(c)	Exhibits.
	
	2.1***		  Form of Agreement and Plan of Merger dated April 3, 1995 
           among PHC Retail Holding Company, Peebles Acquisition Corp. and 
           Peebles Inc., exclusive of exhibits and schedules.  The Registrant 
           hereby undertakes to furnish to the Commission supplementally upon 
           request a copy of any omitted exhibit or schedule.
	3.1+		    Form of Amended and Restated Articles of Incorporation of Peebles 
           Inc.
	3.2+		    Form of Amended and Restated Bylaws of Peebles Inc.
	3.3***		  Amendment to Amended and Restated Articles of Incorporation dated 
           May 3, 1993
	3.4*+		   Amendment to Amended and Restated Bylaws of Peebles Inc.dated 
           June 9, 1995.
	3.5*+		   Amendment to Amended and Restated Articles of Incorporation dated 
           June 9, 1995
	10.1**+	  Amended and Restated Credit Agreement, dated as of June 29, 
           1998 by and among Peebles Inc., Fleet Bank, N.A., as agent, and the 
           financial institutions as parties thereto, exclusive of exhibits 
           and schedules.  The Registrant hereby undertakes to furnish the 
           Commission supplementally upon request a copy of any omitted exhibit 
           or schedule.
	10.8***	  Standard Service Agreement, as amended, dated January 17, 
           1995 between Frederick Atkins, Incorporated and Peebles Inc. 
	10.11*+	  Form of Indemnification, Guarantee and Contribution Agreement 
           dated as of August 23, 1995  PHC Retail Holding Company, Peebles 
           Inc. and each of the directors and officers of Peebles Inc.
	21		      Subsidiaries of the Registrant.
	27		      Financial Data Schedule
	____________________________
	*		    Incorporated by reference from the Registration Statement of PBL and 
          Peebles on Form S-1 (Registration No. 33-27126), which was declared 
          effective by the Commission on July 14, 1989.
	+		    Incorporated by reference from the Form 10-K of the Company for the 
          fiscal year ended February 1, 1992.
	***		  Incorporated by reference from the Form 10-K of the Company for the 
          fiscal year ended January 28, 1995.
	*+		   Incorporated by reference from the Form 10-K of the Company for the 
          fiscal year ended February 3, 1996.
	**+		  Incorporated by reference from Exhibit 10.68 to the Company's 
          Quarterly Report on Form 10-Q for the quarter ended August 1, 1998.

 		(d)	Financial Statement Schedules

   				Schedule II  Valuation and Qualifying Accounts appears in Note I on 
    page F-13 of this annual report on Form 10-K.

   				All other schedules for which provision is made in the applicable 
accounting regulation of the Securities and Exchange Commission are not 
required under the related instructions or are inapplicable and therefore 
have been omitted.
<PAGE>

                                     SIGNATURES
	
	  	Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
	
	               PEEBLES INC.                          
    ---------------------------------
               (Registrant)
	
	By    /s/  Michael F. Moorman             			Date: 	April 21, 1999
       ------------------------------
	       Michael F. Moorman, President 
	       and Chief Executive Officer
	       (Principal Executive Officer)
	
	By   /s/  E. Randolph Lail                			Date: 	April 21, 1999
      -------------------------------
	       E. Randolph Lail, Senior Vice President 
	       Finance, CFO, (Principal Financial  
	       and Accounting Officer)

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

	By  /s/ Wellford L. Sanders, Jr         					Date: 	April 21, 1999
     --------------------------------
	      Wellford L. Sanders, Jr., Director	
	
	By  /s/ William C. DeRusha              					Date: 	April 21, 1999
     --------------------------------
	      William C. DeRusha, Director
	
	By  /s/ Malcolm S. McDonald             					Date: 	April 21, 1999
     --------------------------------
	      Malcolm S. McDonald, Director
	
	By  /s/ Frank T. Nickell               						Date: 	April 21, 1999
     --------------------------------
	      Frank T. Nickell, Director

	By  /s/ Thomas R. Wall                 						Date: 	April 21, 1999
     -------------------------------
	      Thomas R. Wall, IV, Director

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO 
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES 
PURSUANT TO SECTION 12 OF THE ACT.
<PAGE>
                                                               Exhibit 21
                         Subsidiaries of Registrant

Name of Subsidiary                        Jurisdiction in which organized    

Carlisle Retailers, Inc.                             Ohio
Ira A. Watson, Co.                                   Delaware

<PAGE>
Audited Consolidated Financial Statements
PEEBLES INC. AND SUBSIDIARIES
January 30, 1999



Report of Independent Auditors                                      F-1

Consolidated Balance Sheets                                         F-2

Consolidated Statements of Income                                   F-3

Consolidated Statements of Changes in Stockholders' Equity          F-4

Consolidated Statements of Cash Flows                               F-5

Notes to Consolidated Financial Statements                          F-6

Management's Discussion and Analysis of Financial Condition 
   and Results of Operations                                       F-14


                                    F-0
<PAGE>

Report of Ernst & Young LLP, Independent Auditors


Board of Directors
Peebles Inc.


We have audited the accompanying consolidated balance sheets of Peebles Inc. 
and subsidiaries as of January 30, 1999 and January 31, 1998, and the 
related consolidated statements of income, changes in stockholders' equity, 
and cash flows for each of the three fiscal years in the period ended January
30, 1999.  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 consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position
of Peebles Inc. and subsidiaries at January 30, 1999 and January 31, 1998, 
and the consolidated results of their operations and their cash flows for 
each of the three fiscal years in the period ended January 30, 1999 in 
conformity with generally accepted accounting principles.



                                                  /s/  Ernst & Young LLP
                                                  -----------------------

Richmond, Virginia
March 8, 1999 

                                     F-1
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
PEEBLES INC. AND SUBSIDIARIES	
(in thousands, except shares and per share amounts)

                                  January 30, 1999          January 31, 1998
                                  ----------------          ----------------
<S>                                   <C>                         <C>
ASSETS
CURRENT ASSETS
   Cash                               $      64                   $    432
   Accounts receivable, net              33,495                     31,581
   Merchandise inventories               71,362                     57,967
   Prepaid expenses                       1,084                      1,145
   Income taxes receivable                1,045                        303
   Other                                  1,289                        773
                                       --------                    -------
      TOTAL CURRENT ASSETS              108,339                     92,201

PROPERTY AND EQUIPMENT
   Fixtures and equipment                65,456                     50,588
   Land and building                     14,734                     10,348
   Leasehold improvements                 1,725                      1,725
                                       --------                    -------
                                         81,915                     62,661
                                       --------                    -------
   Accumulated depreciation and 
     amortization                        29,966                     23,912
                                       --------                    -------
                                         51,949                     38,749
OTHER ASSETS
   Excess of cost over net assets 
     acquired, net                       41,017                     35,460
   Deferred financing costs, net          3,289                      2,442
   Sundry                                 3,692                      3,604
                                       --------                    -------
                                         47,998                     41,506
                                       --------                    -------
                                       $208,286                   $172,456
                                       ========                   ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                    $ 17,516                   $ 13,606
   Accrued compensation and other 
     expenses                             6,625                      5,055
   Deferred income taxes                  2,433                      4,592
   Current maturities of long-term debt   3,700                      4,083
   Other                                  2,271                      1,406
                                       --------                    -------
      TOTAL CURRENT LIABILITIES          32,545                     28,742
LONG-TERM DEBT                          106,325                     82,077
LONG-TERM CAPITAL LEASE OBLIGATIONS         896                      1,139
DEFERRED INCOME TAXES                     6,990                      5,025
STOCKHOLDERS' EQUITY
   Preferred stock--no par value, 
     authorized 1,000,000 shares, none 
     issued or outstanding                   --                         --
   Common stock--par value $.10 per share,
     authorized 5,000,000 shares, 1,000 
     issued and outstanding                   1                          1
   Additional capital                    59,307                     59,307
   Retained earnings (deficit):  
     accumulated from May 27, 1995        2,222                     (3,835)
                                       --------                    -------
                                         61,530                     55,473
                                       --------                    -------
                                       $208,286                   $172,456
                                       ========                    =======
</TABLE>
See notes to consolidated financial statements
                                           F-2
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
PEEBLES INC. AND SUBSIDIARIES
(in thousands, except shares and per share amounts)

                                                      Fiscal Years Ended
                                  ------------------------------------------------------

                                  January 30, 1999   January 31, 1998   February 1, 1997
                                  ----------------   ----------------   ----------------
<S>                                   <C>                <C>                <C>   
NET SALES                             $  265,215         $  217,694         $  194,206

COSTS AND EXPENSES
  Cost of sales                          159,067            130,820            116,236
  Selling, general and
    administrative expenses               76,402             60,324             54,400
  Depreciation and amortization            8,057              6,648              7,499
  Asset revaluation                           --                 --             20,782
                                      ----------          ---------          ---------
    OPERATING INCOME (LOSS)               21,689             19,902             (4,711)

OTHER INCOME                                   9                444                687

INTEREST EXPENSE                          10,804              9,609              9,148
                                      ----------          ---------          ---------
    INCOME (LOSS) BEFORE
      INCOME TAXES (BENEFIT)              10,894             10,737            (13,172)

INCOME TAXES (BENEFIT)
  Current                                  5,031              1,238              2,137
  Deferred                                  (194)             3,449               (394)
                                      ----------          ---------          ---------
                                           4,837              4,687              1,743
                                      ----------          ---------          ---------
NET INCOME (LOSS)                     $    6,057          $   6,050          $ (14,915)
                                      ==========          =========          =========
NET INCOME (LOSS) PER SHARE           $    6,057          $   6,050          $ (14,915)
                                      ==========          =========          =========
  Weighted average common stock
    outstanding                            1,000              1,000              1,000
                                      ==========          =========          =========
</TABLE>
See notes to consolidated financial statements.
                                               F-3
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PEEBLES INC. AND SUBSIDIARIES
(in thousands, except share amounts)

                                   Common Stock
                                 ------------------
                                               Par       Additional      Retained
                                  Shares      Value       Capital        Earnings
                                 --------     -----      ----------      --------
<S>                               <C>          <C>         <C>            <C>
Balance February 3, 1996           1,000       $ 1        $ 59,307       $ 5,030

   Net (loss)                         --        --              --       (14,915)
                                 --------     ----        --------       -------
Balance February 1, 1997           1,000         1          59,307        (9,885)

   Net income                         --        --              --         6,050
                                 --------     ----        --------       -------
Balance January 31, 1998           1,000         1          59,307        (3,835)

   Net income                         --        --              --         6,057
                                 --------     ----        --------       -------
Balance January 30, 1999           1,000       $ 1        $ 59,307       $ 2,222
                                 ========     ====        ========       =======
</TABLE>
See notes to consolidated financial statements.
                                                F-4
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PEEBLES INC. AND SUBSIDIARIES
(in thousands)	
                                                       Fiscal Years Ended
                                   ------------------------------------------------------

                                   January 30, 1999   January 31, 1998   February 1, 1997
                                   ----------------   ----------------   ----------------
<S>                                <C>                <C>                <C>
OPERATING ACTIVITIES
  Net income (loss)                    $  6,057           $  6,050           $ (14,915)
  Adjustments to reconcile net
    income (loss) to net cash
    provided by operating
    activities:
      Depreciation                        5,953              4,710               4,616
      Amortization                        3,415              2,902               3,842
      Deferred income taxes                (194)             3,449                (394)
      Provision for doubtful accounts     1,330              1,503               1,192
      LIFO/market reserve adjustment         51                250                  39
      Asset revaluation                      --                 --              20,782
      Changes in operating assets
        and liabilities net of
        effects from acquisition 
        adjustments:
          Accounts receivable            (1,759)            (1,022)             (1,527)
          Merchandise inventories        (3,498)            (3,786)             (8,088)
          Accounts payable                3,452              2,794                 780
          Other assets and liabilities     (984)            (1,762)               (205)
                                      ---------          ---------           ---------
NET CASH PROVIDED BY OPERATING 
  ACTIVITIES                             13,823             15,088               6,122

INVESTING ACTIVITIES
Acquisition of Ira A. Watson Co.         (4,451)                --                  --
Acquisition of Carlisle Retailers Inc.       --                 --             (11,549)
Purchase of property and equipment      (13,394)           (10,226)             (8,783)
Other                                      (204)              (879)               (219)
                                      ---------          ---------           ---------
NET CASH USED IN INVESTING ACTIVITIES   (18,049)           (11,105)            (20,551)

FINANCING ACTIVITIES
  Proceeds from revolving line 
    of credit and long-term debt        414,155            324,662             272,013
  Reduction in revolving line
    of credit and long-term debt       (414,789)          (328,441)           (267,762)
  Proceeds from 1998 Credit
    Agreement-acquisition of
    Ira A. Watson Co.                    24,000                 --                  --
  Proceeds from revolving
    facilities-acquisition of
    Carlisle Retailers, Inc.                 --                 --              10,213
  Retirement of Ira A. Watson
    Co. pre-acquisition bank
    Debt and trade liabilities          (17,895)                --                  --
  Financing fees - 1998 Credit
    Agreement                            (1,613)                --                  --
                                      ---------          ---------           ---------
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES                    3,858             (3,779)             14,464
                                      ---------          ---------           ---------
(DECREASE) INCREASE  IN CASH 
  AND CASH EQUIVALENTS                     (368)               204                  35

Cash beginning of period                    432                228                 193
                                      ---------          ---------           ---------
CASH END OF PERIOD                    $      64          $     432           $     228
                                      =========          =========           =========
</TABLE>
See notes to consolidated financial statements
                                                F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. AND SUBSIDIARIES
January 30, 1999

(in thousands, except shares and per share amounts)

NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS:  Peebles Inc. and subsidiaries ("Peebles" or the 
"Company") operate retail department stores offering predominately fashion 
merchandise for the entire family and selected home accessories.  At January 
30, 1999, the Company was operating 117 stores located primarily in small and
medium sized communities which typically do not have a mall-based department 
store.  The stores serve communities in 15 states, located primarily in the 
Southeast and Mid-Atlantic.

ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:  
Consolidation:  Peebles Inc. is a wholly owned subsidiary of PHC Retail 
Holding Company ("PHC Retail"). PHC Retail, a closely held company, has no 
significant assets other than the entire equity interest of Peebles Inc. 
common stock, $.10 par value (the "Common Stock").  The consolidated financial
statements include the accounts of Peebles Inc. and its wholly owned 
subsidiaries, Carlisle Retailers, Inc. ("Carlisle's") and Ira A. Watson Co. 
("Watson's").  All significant intercompany balances and transactions have
been eliminated.

FISCAL YEAR:  The Company's fiscal year ends on the Saturday nearest January 
31.  Fiscal years 1998, 1997 and 1996, ended on January 30, 1999, January 31,
1998 and February 1, 1997, respectively.  Results of operations consisted of 
fifty-two weeks in all three fiscal years.  References to years relate to 
fiscal years rather than calendar years.  Certain amounts in the fiscal 1997 
and 1996 consolidated financial statements have been reclassified to conform 
to the fiscal 1998 presentation.

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 amounts reported in the financial statements 
and accompanying notes.  Actual results could differ from those estimates.

REVENUE:  Retail sales are of merchandise.  "Net Sales" as shown are net of 
actual returns for the period and exclude all taxes.  Revenue from in-store 
services and finance charges on credit balances are recorded as a reduction 
to selling, general and administrative expenses.

CASH AND CASH EQUIVALENTS:  Peebles considers all highly liquid investments 
with a maturity of three months or less when purchased to be cash equivalents.
There were no cash equivalents at January 30, 1999 or January 31, 1998.

MERCHANDISE INVENTORIES: Merchandise inventories are accounted for by the 
retail inventory method applied on a last in, first out ("LIFO") basis.

PROPERTY AND EQUIPMENT:  Property and equipment is stated on the basis of cost.
Depreciation of property and equipment is provided primarily by the straight-
line method over the estimated useful lives of the related assets, generally 
7 to 10 years for fixtures and equipment and 20 years for buildings.  The cost
of leasehold improvements is amortized over the shorter of the economic lives 
or the terms of the leases by the straight-line method. Amortization of 
buildings under capital leases is computed by the straight-line method over the
lease term and is included in depreciation and amortization expense.

STORE OPENING COSTS:  Store opening costs are charged to selling, general and
administrative expenses as incurred.

ADVERTISING COSTS:  Advertising costs, charged to selling, general and 
administrative expenses as incurred, were $6,462, $4,551 and $4,917 for 1998, 
1997 and 1996, respectively.
                                      F-6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES

NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued

LONG-LIVED ASSETS:  The Company periodically reviews the carrying value of 
long-lived assets to determine if an impairment has occurred.  The primary 
indicators of impairment are, but not limited to, significant changes in 
competition or demographics, recent historical operating profitability, 
projected profitability and the related cash flows of each.  Projections are 
based on management's best estimates of future performance.  In 1996, the 
carrying values of certain store assets, related intangibles and allocated 
goodwill were reduced by a total of $20,782 and recorded as an operating 
expense.

EXCESS OF COST OVER NET ASSETS ACQUIRED:  The excess of cost over net assets 
acquired ("Goodwill") is being amortized on a straight-line basis over a 
twenty-five year period.  Goodwill amortization expense for 1998, 1997 and 
1996 was $1,796, $1,488 and $2,255, respectively.  Accumulated amortization 
was $6,940 and $5,144 at January 30, 1999 and January 31, 1998, respectively.

DEFERRED FINANCING COSTS:  Deferred financing costs are amortized by the 
interest method over a period consistent with the related financing.  
Amortization expense of $1,294, $965, and $884, is included in interest 
expense for 1998, 1997 and 1996, respectively.  Accumulated amortization 
at January 30, 1999 and January 31, 1998 was $3,794 and $2,500, respectively. 

INCOME TAXES:  Deferred income taxes are provided for temporary differences 
between income and expense for financial reporting purposes and for income 
tax purposes.

NET INCOME PER SHARE:  Net income per share is based on the weighted-average 
number of shares outstanding.

FAIR VALUE OF FINANCIAL INSTRUMENTS:  The carrying value of the Company's 
customer receivables, accounts payable and long-term debt approximate fair 
value.

NOTE B-ACQUISITIONS OF WATSON'S AND CARLISLE'S

The Watson Merger:  On June 29, 1998, a merger (the "Watson Merger") was 
consummated whereby Watson's, a Delaware corporation, became a wholly-owned 
subsidiary of Peebles Inc. Watson's operated 24 store locations in seven 
states.  The results of operations for the Watson's stores are included in 
Peebles' Consolidated Statement of Income since the date of acquisition.  
The Watson Merger has been accounted for using the purchase method of 
accounting.  The $4,451 cash purchase price included $1,848 to the equity
holders of Watson's, $1,352 to a financial services company for the Watson's 
proprietary credit card accounts receivable, and $1,251 in acquisition 
expenses.  Proceeds used to fund the Watson Merger were provided by the 
Credit Agreement, as amended and restated on June 29, 1998.

The allocation of the purchase price is as follows:

Purchase Price                                       $  4,451
Tangible net assets (liabilities) acquired:
Accounts receivable, net               $  1,185
Merchandise inventory, net               10,000
Fixed assets, net                         5,446
Bank debt                               (10,403)
Trade liabilities, net                   (6,290)
Other net liabilities                    (1,589)
                                       ---------
Tangible net assets (liabilities) acquired             (1,651)
                                                     --------
Excess of cost over net assets acquired              $  6,102
                                                     ========
The excess of cost over net assets acquired is being amortized over a 
twenty-five year period beginning June 29, 1998.
                                      F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES

NOTE B-ACQUISITIONS OF WATSON'S AND CARLISLE'S --Continued

The following unaudited pro forma financial information reflects the results 
of operations as if the Watson Merger had occurred at the beginning of the 
1998 and 1997 fiscal years.  These pro forma results have been prepared for 
comparison purposes only and do not purport to be indicative of what would 
have occurred had the Watson Merger been completed at the beginning of 
either of the fiscal years.

                                          1998              1997
                                       ----------        ----------
Net sales                              $  289,423        $  298,135
Net income                                  1,811             2,258
Net income per share                        1,811             2,258

Acquisition of Carlisle Retailers, Inc:  On May 20, 1996, Peebles Inc. 
acquired Carlisle Retailers, Inc., an Ohio corporation ("Carlisle's"), for 
$11,549 in cash, which included $6,311 to common shareholders of Carlisle's,
$3,458 to a financial services company for the majority of the outstanding 
proprietary credit card accounts receivable portfolio, and $1,780 in 
acquisition expenses (the "CRI Merger").  The results of operations for the 
Carlisle's stores are included in Peebles' Consolidated Statement of Income
since May 20, 1996.  The CRI Merger was accounted for using the purchase 
method of accounting, and as such, the purchase price was allocated to the 
fair value of tangible assets and the excess of cost over net assets acquired.

NOTE C-ACCOUNTS RECEIVABLE

Accounts receivable are shown net of $1,700 and $1,400, representing the 
allowance for uncollectible accounts at January 30, 1999 and January 31, 1998,
respectively.  The provision for doubtful accounts was $1,330, $1,503 and 
$1,192, for 1998, 1997 and 1996, respectively.  Finance charges on credit 
sales, included as a reduction of selling, general and administrative expenses, 
aggregated $5,103, $5,089 and $5,050 for 1998, 1997 and 1996, respectively.

As a service to its customers, the Company offers credit through the use of 
its own charge card, certain major credit cards and a layaway plan.  The 
Peebles' customer usually resides in the local community immediately surrounding
the store location.  Peebles stores serve these local customers in 15 states:  
Virginia, Tennessee, North Carolina, Maryland, Kentucky, West Virginia, 
Alabama, Pennsylvania, South Carolina, Ohio, Delaware, New York, Indiana, New 
Jersey and Missouri. The Company does not require collateral from its customers.

NOTE D-MERCHANDISE INVENTORIES

Merchandise inventories are accounted for by the retail inventory method 
applied on a last-in, first-out ("LIFO") basis.  In connection with an 
acquisition of the Company in May 1995 accounted for using the purchase 
method, the then existing LIFO reserve was eliminated and a new LIFO base 
year was established which included an adjustment to fair value (the "Fair 
Value Adjustment").  The "LIFO/Market Reserve" adjusts inventory to the lower
of LIFO cost or market.

Merchandise inventories consisted of the following:

                                 January 30, 1999       January 31, 1998
                                 ----------------       ----------------
Merchandise inventories
  at FIFO cost                       $   65,288             $   51,234
Fair Value Adjustment                     7,436                  7,436
LIFO/Market Reserve                      (1,362)                  (703)
                                     ----------             ----------
Merchandise inventories at
  lower of cost or market            $   71,362             $   57,967
                                     ==========             ==========
                                         F-8
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES

NOTE E-LONG-TERM DEBT

Long-term debt consisted of the following:
                                   January 30, 1999  January 31, 1998
                                   ----------------  ----------------
Senior Revolving Facility              $   34,000        $  32,000
Senior Term Note A                         12,750           15,275
Senior Term Note B                         59,550           37,094
Swingline Facility                          3,225            1,791
Other                                         500               --
                                       ----------        ---------
                                          110,025           86,160
Less current maturities:                    3,700            4,083
                                       ----------        ---------
Long-term debt                         $  106,325        $  82,077
                                       ==========        =========

The Company has a credit facility (the "Credit Agreement") which provides a 
Senior Term Facility, a Senior Revolving Facility, and a Swingline Facility.
The Credit Agreement was amended and restated (the "1998 Credit Agreement") 
on June 29, 1998 (the "Restatement Date") to facilitate the Watson Merger.  
The 1998 Credit Agreement i) provided an additional $24 million in proceeds 
under the Senior Term Facility; ii) reduced the scheduled principal payments 
under the Senior Term Facility; iii) extended the maturity dates of both the 
Senior Term Facility and the Senior Revolving Facility; and iv) adjusted the
applicable interest rates to vary based on certain Company performance 
criteria tied to certain restrictive covenants.  The Company deferred $1,613
in financing fees to amend and restate the Credit Agreement.  These financing
fees are being amortized over a five-year period.  The 1998 Credit Agreement 
is secured by a first priority security interest in substantially all the 
personal and real property of Peebles. Restrictive covenants prohibit the 
payment of cash dividends in any fiscal year.  

The Senior Term Facility includes two notes, Senior Term Note A and Senior 
Term Note B.  On the Restatement Date, the outstanding principal balances of 
Senior Term Note A and Senior Term Note B were increased $644 to $15,000 and 
$23,008 to $60,000, respectively.  Under the 1998 Credit Agreement, Senior 
Term Note A and Senior Term Note B accrue interest quarterly in arrears at a 
LIBOR based rate which is expected to vary 25 to 50 basis points, dependent 
primarily on the Company's operating performance in relation to outstanding 
debt at the end of each fiscal quarter.  Senior Term Note A and Senior Term
B currently bear interest at LIBOR plus 2.50% and LIBOR plus 3.00%, 
respectively.  Senior Term Note A and Senior Term Note B mature April 30, 2003
and 2004, respectively.

The amount available under the Senior Revolving Facility (the "Revolver") is 
determined by a defined asset based formula with maximum borrowings limited 
to $75 million less outstanding amounts under letters of credit. The Revolver
matures on April 30, 2003 and has no specific paydown provisions. The Company
pays a fee of 1/2 of 1% per annum on any unused portion of the Revolver.  
Under the 1998 Credit Agreement, the Revolver bears interest at the same rate
as Senior Term Note A. 

Loans under the Swingline Facility are drawn and repaid daily based on the 
operating activity of the Company.  Aggregate amounts outstanding under the 
Swingline Facility cannot exceed $5 million.  Excess borrowings or funding 
outside these amounts revert to the Revolver.  The Swingline Facility bears 
interest at prime plus 1.5% and has no LIBOR conversion option.

The Company made cash interest payments of $8,562, $8,311 and $7,866 for 
1998, 1997 and 1996, respectively.

Aggregate scheduled principal payments on the long-term debt are as follows: 
1999 -- $3,700; 2000 -- $3,700; 2001 -- $3,700; 2002 -- $3,700; 
2003 -- $38,675; thereafter -- $56,550.
                                        F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES

NOTE F-LEASES

The Company leases substantially all of its store locations under capital 
and operating leases with initial terms ranging from 1 to 25 years and 
renewal options of 1 to 10 years expiring at various dates through 2040.  
Total rental expense under operating leases was as follows:


                               1998        1997        1996
                             ---------   --------    --------
Minimum                      $ 12,141    $  8,913    $  7,742
Contingent                        363         483         453
                             ---------   --------    --------
                             $ 12,504    $  9,396    $  8,195
                             =========   ========    ========

Contingent rentals are based upon a percentage of annual sales in excess of 
specified amounts. Future minimum lease payments under capital leases and 
noncancellable operating leases at January 30, 1999 were as follows:

                                       Capital        Operating
     Fiscal Year                        Leases          Leases
------------------------------        ----------      ----------
        1999                           $   377         $ 13,073
        2000                               377           12,619
        2001                               180           11,988
        2002                               180           10,903
        2003                               181            9,519
        Thereafter                         241           56,803
                                      --------        ---------
Total minimum lease payments             1,536         $114,905
Less: amounts representing                            =========
  interest                                (397)
Present value of net minimum lease    --------
  payments, including current
  maturities of $242, with interest
  rates ranging from 12.0% to 17.8%    $ 1,139
                                      ========

NOTE G-EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS:  Through January 31, 1998, the Company provided
one defined benefit pension plan, The Employees retirement Plan of Peebles Inc.
("Plan I"), which covered substantially all employees.  In November 1997, the 
Board of Directors approved: i) the adoption of The Employees Retirement Plan II
of Peebles Inc. ("Plan II") effective February 1, 1998 (the "Curtailment Date"),
and ii) the fifth amendment to Plan I.  Under the amendment, the Plan I benefits
of certain participants were frozen at the Curtailment Date and spun-off to 
Plan II.  Further, both Plan I and Plan II were closed to new participants at 
the Curtailment Date.  Plan II was terminated and all Plan II participant
benefits were disbursed by January 30, 1999.

SUPPLEMENTAL BENEFITS PROGRAM:  The Company maintains a benefits program 
designed to provide certain key executives supplemental retirement income 
equal to 60% of final average compensation.

The following information is disclosed in accordance with the requirements 
of Statement of Financial Accounting Standards No. 132, "Employers' Disclosures 
about Pensions and Other Postretirement Benefits", which the Company adopted in 
1998.
                                       F-10
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES

NOTE G-EMPLOYEE BENEFIT PLANS--Continued

                                                  1998         1997
                                                --------     --------
Change in Benefit Obligation:
  Benefit obligation at beginning of year       $  8,030     $  8,060
  Service cost                                       117          400
  Interest cost                                      520          566
  Actuarial loss                                     440           15
  Curtailments                                        --         (289)
  Benefit payments                                 3,421          722
                                                --------     --------
Benefit obligation at end of year               $  5,686     $  8,030
                                                ========     ========
Change in Plan Assets:
  Fair value of plan assets at beginning 
    of year                                     $  7,419     $  6,509
  Actual return on plan assets                       587        1,632
  Employer contribution                              401           --
  Benefit payments                                 3,421          722
                                                --------     --------
Fair value of plan assets at end of year        $  4,986     $  7,419
                                                ========     ========
Funded Status:
  Funded status                                 $   (700)    $   (611)
  Unrecognized actuarial (gain)                     (230)        (730)
  Unrecognized prior service cost                    542          601
                                                --------     --------
Accrued pension (liability)                     $   (388)    $   (740)
                                                ========     ========
Components of Net Periodic Pension Cost:
  Service cost                                  $    117     $    400
  Interest cost                                      520          567
  Expected return on plan assets                     649          551
  Prior service cost recognized                       60           69
  Recognized (gains) or losses                       (20)         (11)
  Loss (Gain) due to curtailment                      22         (231)
                                                --------     --------
Net periodic pension cost                       $     50     $    243
                                                ========     ========
Weighted Average Assumptions as of 
  Measurement Date:    
  Discount rate                                     6.80%        7.28%
  Expected return on plan assets                    9.00%        9.00%
  Rate of compensation increase                     4.42%        4.48%

The projected benefit obligation, accumulated benefit obligation, and 
fair value of plan assets for the Supplemental Benefits Program with 
accumulated benefit obligations in excess of plan assets were $1,157, $867 
and $0, respectively, as of January 30, 1999, and $855, $614 and $0, 
respectively, as of January 31, 1998.

THE PEEBLES INC. 401 (K) PROFIT SHARING PLAN: The Company maintains a 
qualified profit sharing and retirement savings plan, which under Section 401
(k) of the Internal Revenue Code, allows tax deferred contributions from 
eligible employees of up to 12% of their annual compensation.  On February 1,
1998, the Company began matching employee contributions up to 50% of an 
employee's first 6% of eligible compensation.  For 1998, the Company 
contributed $260.
                                    F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES

NOTE H - INCOME TAXES

The provisions for income taxes consisted of the following:

                                  1998         1997       1996
                               ---------     --------   ---------
Current:   Federal             $   4,201     $  1,089   $   1,591
           State                     830          149         546

Deferred:  Federal                  (162)       2,861        (214)
           State                     (32)         588        (180)
                               ---------     --------   ---------
                               $   4,837     $  4,687   $   1,743
                               =========     ========   =========

Income taxes differ from the amounts computed by applying the applicable 
federal statutory rates due to the following:

                                         1998         1997         1996
                                       ---------    ---------    ---------
Taxes at the federal statutory rate    $  3,813     $  3,650     $(4,479)
Increases (decreases):
  State income taxes, net of 
    federal tax                             526          486         232
  Amortization of Goodwill                  531          478         745
  Asset revaluation                          --           --       5,175
  Other                                     (33)          73          70
                                       --------     --------     -------
                                       $  4,837     $  4,687     $ 1,743
                                       ========     ========     =======

At January 30, 1999, the Company has net operating loss carryforwards of 
approximately $4,100 for income tax purposes, which expire in 2010.

Significant components of deferred tax liabilities and assets are as follows:

                                    January 30, 1999    January 31, 1998
                                    ----------------    ----------------
Deferred tax liabilities:
  Inventory valuation                  $   1,603           $   3,092
  Depreciation and amortization            9,021               6,657
  Accounts receivable valuation            1,168               2,052
  Other                                      332                 308
                                       ---------           ---------
                                          12,124              12,109
Deferred tax assets:
  Doubtful accounts                         (669)               (539)
  Net operating loss carryforwards        (1,635)             (1,835)
  Other                                     (397)               (118)
                                       ---------           ---------
                                          (2,701)             (2,492)
                                       ---------           ---------
Net deferred tax liabilities           $   9,423           $   9,617
                                       =========           =========

Peebles made cash income tax payments of $5,369, $2,506 and $2,100 for 1998, 
1997 and 1996, respectively.
                                         F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES

NOTE I - VALUATION AND QUALIFYING ACCOUNTS

Activity related to valuation and qualifying accounts is as follows:

                                       Allowance for       Net LIFO/
                                          Doubtful           Market 
                                          Accounts          Reserve
                                       -------------       ----------
Balance February 3, 1996                 $     960         $     414
  Charges to expense                         1,192                39
  Increase due to Acquisition of 
    Carlisle's                                 264                --
  Deductions - net write-off of
    uncollectible accounts                  (1,192)               --
                                          --------          --------
Balance February 1, 1997                     1,224               453
  Charges to expense                         1,503               250
  Deductions - net write-off of
    uncollectible accounts                  (1,327)               --
                                          --------          --------
Balance January 31, 1998                     1,400               703
  Charges to expense                         1,330                51
  Increase due to Acquisition of 
    Watson's                                   300               608
  Deductions - net write-off of
    uncollectible accounts                  (1,330)               --
                                          --------          --------
Balance January 30, 1999                  $  1,700          $  1,362
                                          ========          ========

NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)
The Watson Merger was completed on June 29, 1998.  As a result, the second, 
third and fourth quarters of 1998 reflect the related incremental sales and 
expenses.  

(dollars in thousands)

<TABLE>
                                                  FISCAL QUARTER
               -------------------------------------------------------------------------
                      First            Second             Third             Fourth
                  1998     1997      1998     1997     1998      1997      1998      1997
                 -------   -------  -------  -------  -------   -------   -------   -------
<S>              <C>       <C>      <C>      <C>      <C>      <C>        <C>      <C>
Net Sales        $51,013   $45,150  $57,698  $49,808  $65,601  $52,411    $90,903  $70,325

Cost of Sales     31,225    28,262   33,512   29,515   40,512   32,077     53,818   40,966

Gross Margin      19,788    16,888   24,186   20,293   25,089   20,334     37,085   29,359

Operating
  Income           3,126     2,192    4,891    3,490    3,200    3,156     10,472   11,064

Net Income           563        49    1,456      721      206      389      3,832    4,891

Net Income
  Per Share      $   563   $    49  $ 1,456  $   721  $   206  $   389    $ 3,832  $ 4,891
</TABLE>

                                         F-13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
  OPERATIONS

RESULTS OF OPERATIONS

Peebles operates specialty department stores offering predominately fashion 
merchandise for the entire family and other selected home accessories to small
and medium sized communities which do not typically have a mall-based department
store.  At January 30, 1999, the Company operated 117 stores in 15 states, 
located primarily in the Southeast and Mid-Atlantic regions.  The consolidated 
operations of the Company include the results of 95 stores operating either the
entire year or opened under the "Peebles" name, and 22 stores operating under
the "Watson's" name, acquired on June 29, 1998 in the Watson Merger.

Consolidated net sales and results of consolidated operations of the Company,
expressed as percentages of net sales, are presented below for the 1998, 1997
and 1996 fiscal years.

(dollars in thousands)
                                        1998        1997        1996
                                      ---------   ---------   ---------
Net sales                             $ 265,215   $ 217,694   $ 194,206
   % increase                              21.8%       12.1%       10.6%

**Comparable stores % increase
     in sales:                              0.9%        5.3%        0.0%

Total stores in operation
   at period end                            117          84          77


Operations as a Percentage of Net Sales:

Cost of sales                              60.0%       60.1%       59.9%
Selling, general & administrative
   expenses                                28.8        27.7        28.0
Asset revaluation                            --          --        10.7
Depreciation and amortization               3.0         3.1         3.8
                                        -------     -------     -------
Operating Income (Loss)                     8.2         9.1        (2.4)

Interest expense                            4.1         4.4         4.7
Other income                                 --          .2          .4
Provision for income taxes                  1.8         2.1          .9
                                        -------     -------     -------
Net Income (Loss)                           2.3%        2.8%       (7.7)%
                                        =======     =======     =======

** - The Company defines a comparable store as having operations for the 
entire twelve-month period in both the current and previous fiscal year.  

The 1998 increase in net sales was due primarily to stores opened/acquired 
in 1998 and 1997, or non-comparable stores.  During 1998, the Company opened 
11 stores under the Peebles name and acquired 24 stores in the Watson Merger,
22 of which were still in operation and operating under the Watson's name at 
the fiscal year end.  The 11 new Peebles stores added $9,106, or 3.4%, to 
total 1998 net sales and the Watson's stores added $31,836, or 12.0%.  In 
1997, the Company opened 8 new Peebles stores and closed 1 marginally 
profitable store.  These net new 1997 Peebles stores contributed $15,293 to 
1998 net sales, an increase of $4,633 over the $10,660 contributed to 1997 
net sales.  The 1997 net sales increase over 1996 was also driven by 
non-comparable stores, although comparable stores provided a greater share of
the increase in 1997 over 1996 than was achieved in comparing 1998 to 1997.

                                    F-14
<PAGE>
Comparable store net sales, which showed increases in all four fiscal quarters
of 1997, continued to show strength in the first and second fiscal quarters of
1998 before declining in the third and fourth fiscal quarters.  Comparable 
store net sales increases as a percentage of the prior year comparable quarter
for 1997 and 1998 were as follows:

                             Fiscal Quarter
              --------------------------------------------
              First        Second       Third       Fourth    Total Year
1997 vs.
   1996        5.1%          7.7%        6.9%         3.3%        5.3%

1998 vs.
   1997        6.2%          2.9%       (2.8%)       (1.2%)       0.9%

In 1998, comparable store net sales continued to benefit from the generally 
favorable condition of the economy and strong consumer demand for soft apparel.
Weather conditions influenced sales throughout 1998.  Milder weather in the 
first fiscal quarter of 1998 strengthened consumer demand for Spring 
merchandise.  Net sales and cost of sales were favorably affected.  This 
strong demand, however, reduced summer clearance merchandise, and although 
gross margins continued to strengthen in the second fiscal quarter, net sales
increases slowed.  Record heat in the Company's primary Mid-Atlantic and
Southeastern regions continued through the third fiscal quarter, which, coupled
with a less definitive Back-to-School selling season, dampened consumer demand
and resulted in the net sales decline in comparable stores.  In the fourth 
fiscal quarter, comparable store sales steadied to approximately match levels
in 1997, until a severe ice storm on December 23rd and 24th adversely 
impacted the important late-Christmas sales demand.

The Company's cost of sales as a percentage of net sales were 60.0%, 60.1% and
59.9% in 1998, 1997 and 1996, respectively.  The shifts in consumer demand 
described above and the Company's substantial new store growth since 1995 had
the greatest impact on cost of sales.  New and acquired stores typically run 
a higher cost of sales percentage relative to mature stores, especially those 
in markets new to the Company, due to a stronger promotional effort and lack 
of comparable sales history.  Since February 3, 1996, the end of fiscal 1995,
the Company has increased the number of stores in operation from 65 to 117, 
an 80% increase.  In the current year, the Company opened or acquired 35 stores
and closed 2 stores acquired in the Watson Merger. Cost of sales in 1998 at 
non-comparable stores was approximately 63.0% of net sales, while at comparable
stores the cost of sales percentage was approximately 59.2%.  New and acquired 
stores generally attain the Company's mature store average cost of sales after 
24 to 36 months of operation.  Diligent inventory controls and the Company's
commitment to its less promotional, value priced merchandise strategy have 
favorably influenced cost of sales during periods of inconsistent consumer 
demand and significant store growth.

Selling, general and administrative ("SG&A") expenses, exclusive of depreciation
and amortization, were 28.8%, 27.7% and 28.0% of net sales in 1998, 1997 and 
1996, respectively.  New and acquired stores typically have a higher expense 
structure than mature stores for the first 12 to 18 months after opening as 
advertising and payroll expenses are planned at a higher percentage of sales 
to achieve a market presence.  In addition, new stores frequently have higher
occupancy costs than mature stores.  Net stores opened or acquired in 1998,
1997 and 1996 were 33, 8 and 14, respectively.  The Company began operating a 
second distribution center, located in Knoxville, Tennessee, upon completion 
of the Watson Merger.  The increased processing capacity will be leveraged 
through economies of scale in future periods, but its impact on SG&A was 
adverse as a percentage of incremental sales serviced through the facility 
in 1998.  These increases in SG&A were partially offset by economies of scale. 

Management periodically reviews the carrying value of long-lived assets to 
determine if impairment has occurred.  In 1996, management determined that 
the aggregate estimated undiscounted cash flows to be generated by certain 
store assets would be less than the carrying values of those assets, related 
intangibles and allocated Goodwill.  As a result, fair value was calculated 
using a multiple of undiscounted projected cash flows and the Company increased 
operating expenses in 1996 by $20,782, or 10.7% of net sales.  No impairment
adjustments were considered necessary in 1998 or 1997.

Depreciation and amortization expenses declined as a percentage of net sales 
in 1998 and 1997 as increases in annual capital expenditures, coupled with 
the 1998 increases in the amortization of Goodwill and deferred financing costs 
associated with the Watson Merger, were not proportionate to increases in sales.

                                       F-15
<PAGE>
As a result of the factors discussed above, operating income in 1998 decreased 
to 8.2% of net sales from 9.1% in 1997.  Adjusting 1996 for the impact of the 
asset revaluation, operating income would have totaled 8.1% of net sales.

Interest expense as a percentage of net sales was 4.1%, 4.4% and 4.7% for 1998,
1997 and 1996, respectively.  Long-term debt increased in 1998, primarily as a
result of the Watson Merger, which added $24,000 to Senior Term Notes A and B
at June 29, 1998.  Borrowings on the Revolver and the Swingline Facility were
slightly higher during 1998 and at January 30, 1999 than in 1997 and at January 
31, 1998, primarily as a result of funding inventory and fixturing requirements 
of the new and acquired stores.  Increases in these borrowings, however, were
offset by a lower effective borrowing rate in 1998 as compared to 1997.  
Further, the resulting increase in interest expense was not proportionate to
the increase in sales.  In 1997, the Company had reduced outstanding borrowings
from 1996 as fewer new store locations were opened in 1997 compared to 1996,
and the funds required to consummate the acquisition of Carlisle's in May 1996
had increased borrowings during that fiscal year.

Total current and deferred income taxes as a percentage of net sales were 1.8%, 
2.1% and .9% in 1998, 1997 and 1996, respectively.  The effective tax rate for 
1998 and 1997 was 44.4% and 43.6%, respectively.  In 1996 the asset revaluation
impacted intangible assets, the amortization of which is not tax deductible in 
total, resulting in income tax expense, even though the Company experienced a 
net pre-tax loss.  The effective tax rate in all three fiscal years is higher 
than statutory rates because of non-deductible amortization of intangible
assets.

As a result of the above factors, the Company had net income as a percentage 
of net sales of 2.3% and 2.8% in 1998 and 1997 respectively, and a net loss 
as a percentage of net sales of 7.7% in 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary cash requirements are for capital expenditures in 
connection with the new store expansion and remodeling program and for 
working capital needs.  The Company's primary sources of funds are cash flow 
from continuing operations, borrowings under the 1998 Credit Agreement and 
trade accounts payable.  The Company's inventory levels typically build 
throughout the fall, peaking during the Christmas selling season, while 
accounts receivable peak during December and decrease during the first 
quarter.  Capital expenditures typically occur evenly throughout the first
three quarters of each year.

The Company's operating activities provided net cash of $13,823, $15,088 and 
$6,122 in 1998, 1997 and 1996, respectively, as cash provided by profitable 
operations exceeded the funding required to increase working capital.  
Working capital increased to $75,794 at January 30, 1999, up from $63,459 at 
January 31, 1998 and $58,213 at February 1, 1997.  The return on the net assets 
of continuing operations was 19.0%, 20.8% and 18.9% in 1998, 1997 and 1996, 
respectively.  Return on the continuing operation's net assets represents
operating income as a percentage of the average investment in operating assets,
calculated as: i) current assets, plus ii) net property and equipment, less
iii) current liabilities and capital leases.  In the 1996 percentage, the 
effects of the asset revaluation have been added back to operating income.

Net cash used in investing activities was $18,049, $11,105 and $20,551 in 
1998, 1997 and 1996, respectively.  Investing activities included capital 
expenditures, primarily for fixturing and point of sale equipment in new and 
acquired store locations, of $13,394, $10,226 and $8,783 in 1998, 1997 and 
1996, respectively. In 1998, capital expenditures included $8,800 at the 33 
new and acquired stores and $4,300 at existing stores, $2,000 of which was 
used in the major remodeling/space allocation of seven stores.  In 1997 and 
1996, capital expenditures at new and acquired stores totaled $3,600 and 
$2,100, respectively.  In 1997, three existing stores were relocated, requiring
an additional $3,100 in capital expenditures.  The acquisitions of Watson's and
Carlisle's, in 1998 and 1996, respectively, used cash of $4,451 and $11,549,
respectively.

                                       F-16
<PAGE>
Financing activities provided cash of $3,858 in 1998.  The Company amended 
and restated its Credit Agreement, at a cost of $1,613, in June 1998 to 
facilitate the Watson Merger.  As a result, borrowings under Senior Term 
Notes A and B were increased by $24,000, retiring $17,895 of Watson's 
pre-acquisition debt and trade liabilities, and funding the $4,451 cash 
purchase price.  The cash purchase price included $1,848 for the entire 
equity interest, $1,352 to a third party for the proprietary charge card 
receivables, and $1,251 in acquisition fees.  Exclusive of the funding 
related to the Watson Merger, the Company reduced outstanding borrowings
by $634 in 1998 and $3,779 in 1997.  In 1996, the Company drew $10,213 from the
Revolver to facilitate the acquisition of Carlisle's and an additional $4,251
to fund new store growth.

In 1999, the Company's capital expenditures are expected to total approximately 
$11,900, which reflect the planned opening of 6 new store locations at 
approximately $3,000, the relocation/major remodeling/space re-allocation of 
seven stores at $3,500 and the introduction of radio frequency scanners at all
store locations for approximately $750.  Remaining capital expenditure dollars
are allocated to fixturing at existing stores, including the Watson's stores 
where the name will be changed to Peebles in Spring 1999.  As of March 1999, 
the Company had signed leases for five new store locations, three of which
will open in Spring 1999.  The Company expects to continue to lease its stores,
and the typical new store is anticipated to average approximately 22,500
square feet but may vary depending on the market and real estate availability.
Based on historical experience, the Company estimates that the cost of opening
a new store will include capital expenditures of approximately $425,000 for
leasehold improvements and fixtures and approximately $425,000 for initial 
inventory, approximately one-third of which is financed through vendor credit.
Accounts receivable for new stores typically build to 15% of net sales or 
approximately $300,000 within 24 months of the store opening.  The Company may
also incur capital expenditures to acquire existing stores.

The Company finances its operations, capital expenditures, and debt service 
payments in part with funds available under its Revolver.  The maximum amount 
available under the Revolver is $75 million less amounts outstanding under 
letters of credit.  The actual amount available is determined by an asset-based
formula.  The Company believes the cash flow generated from operating activities
together with funds available under the Revolver will be sufficient to fund its 
investing activities and the debt service of the 1998 Credit Agreement.

SEASONALITY AND INFLATION 

As a retailer offering predominately soft-apparel and selected home accessories,
the Company's business is seasonal, although less heavily weighted in the fourth
quarter than retailers with comparable offerings of merchandise.  Over the past
three fiscal years, quarterly sales as a percentage of total sales have been 
consistent at approximately 20%, 22%, 24% and 34% for the first through fourth
quarters, respectively.  Peebles' positioning of its stores in small to medium
sized communities with limited competition, along with the Company's less
promotional, every day fair value, pricing strategy, produces operations less
dependent on the fourth quarter.  However, the third and fourth quarters are
generally bolstered by the back-to-school and Christmas holiday selling seasons.

The Company does not believe that inflation has had a material effect on its 
results of operations during the past three fiscal years.  Peebles uses the 
retail inventory method applied on a LIFO basis in accounting for its 
inventories.  Under this method, the cost of products sold reported in the 
financial statements approximates current costs and thus reduces the likelihood
of a material impact that increases costs.  However, there can be no assurance 
that the Company's business will not be impacted by inflation in the future.

MARKET RISK

The Company's interest expense is affected by changes in short-term interest 
on the debt outstanding under the 1998 Credit Agreement.  The 1998 Credit 
Agreement bears interest at rates based on both the LIBOR and prime lending 
rates (the "Borrowing Rates").  Assuming: i) the Borrowing Rates vary by 100 
basis points from their current levels in any given fiscal month, and ii) the
Company maintains an aggregate outstanding debt balance subject to these rates 
of $110,000 during the fiscal month of variance, interest expense would vary by
approximately $92 for that fiscal month.

                                         F-17
<PAGE>
YEAR 2000 TECHNOLOGICAL ISSUES

In 1997, the Company began a comprehensive analysis of its information 
systems to determine the impact of date-related processing when the year 
changes to 2000 and the systems do not recognize this year as greater than 
1999.  This analysis was completed in the second Fiscal Quarter of 1998.

Management expects the Company's information systems to be prepared to 
accurately process information after the year changes to 2000 by June 1999.  
The Company's primary information systems are on two IBM AS400 mainframes, 
with the majority of the software developed internally.  In 1985, Peebles 
implemented standards for in-house programmers to follow which considered 
the year 2000 issue.  As a result, many of the Company's in-house information
systems, with programs written or modified after 1985, are already year 2000
compliant.  Currently, four programmers are performing a detailed review of
all in-house programming code, which for discussion purposes, is segregated
into three primary operating systems:  a) point of sale ("POS") transactions;
b) cash management; and c) merchandise inventory purchasing and management.
although this segregation is not all-inclusive, it provides an understanding
of the systems vital to conduct business as a soft apparel retailer.

Point of Sale Transactions:  The Company transacts sales with customers using 
IBM 4690 registers.  Register systems are controlled within each store location 
by an IBM PC controller which facilitates communication to the corporate office 
mainframe system, an IBM AS400.  IBM has certified that the 4690 registers are 
year 2000 compliant.  The Company has replaced all in-store IBM PC Controllers 
within the past 18 months as a component of its ongoing communications 
enhancements program, exclusive of any year 2000 remediation strategy, and 
therefore in the Company's normal capital expenditures budget.  These recently 
purchased in-store PC controllers have been certified as year 2000 compliant
by IBM.  The Company offers credit through its proprietary charge card and 
through the use of major bankcards (Mastercard, Visa and Discover).  With
regard to its proprietary charge card, AS400 based systems controlling the 
authorization of both new accounts and individual transactions on existing 
accounts have been reviewed and all necessary programming chnages related to the
year 2000 have been completed.  The Company uses industry leader First Data 
Corp. to authorize and clear bankcard transactions.  The Company is in the 
process of obtaining year 2000 compliance assurance from First Data Corp.  
Accordingly, management expects to be able to transact sales with customers 
without significant interruption related the date change to the year 2000
situation.

Cash Management - Sources:  The Company's material sources of cash are 
a) in-store cash transactions; b) payments on outstanding proprietary charge 
card balances; and c) reimbursement for bankcard sales transactions.  The 
Company's AS400 based cash management system related to receipts has been 
reviewed and all necessary programming changes related to the year 2000 
have been completed.  The Company manages proprietary charge accounts and 
produces monthly customer statements using an AS400 based system.  The review 
of this system is complete and programming changes related to the year 2000
are approximately 80% complete, with an April 1999 target completion date.  The
Company's material corporate cash accounts are with Fleet bank.  The Company
is in the process of obtaining year 2000 compliance assurance from Fleet Bank
that individual store accounts can be drafted and reimbursements from First Data
Corp. can be received.  Management does not anticipate significant interruption
to cash inflows as a result of the year 2000 situation.

Cash Management - Disbursements:  The Company's major cash disbursements are 
for merchandise purchases, SG&A expenses and payroll.  The review for year 
2000 compliance and all related programming changes have been completed.  
However, actual parallel testing will not take place until April 1999.  At 
this point, the risk exists that: i) due dates are not calculated correctly 
and ii) associate time and attendance systems may generate incorrect 
information.  The most reasonable worst case scenario would require the Company
to generate merchandise and expense disbursements daily and require hourly
associates to work with regimented schedules mirroring those of salaried 
associates.  Additional costs associated with this most reasonable worst
case scenario would not be material to the financial position or results of
operations of the Company.

                                        F-18
<PAGE>
Merchandise Purchasing and Management:  The Company purchases merchandise 
inventory from over 1,200 vendors, with no individual vendor representing 
more than 10% of total purchases.  Purchase orders are produced, merchandise 
is received, and inventory is tracked using an AS400 based purchasing 
management system.  The review of this in-house system is complete, and 
approximately 70% of the programming required to ensure year 2000 compliance 
has been completed.  The system is expected to be substantially compliant, 
including testing, by May 1999.  The Company has begun communications with its 
top vendors to determine year 2000 compliance.  Risks include an interrruption
in a portion of the merchandise flow in the first fiscal quarter of 2000.
January and February purchases are traditionally lowest volume months of the
year, and represent predominately Spring and early Summer fashions.  Any 
interruption to the merchandise flow can impact the Company's profitability, but
management believes an interruption to a portion of the merchandise flow
in January and/or February would not result in material, adverse consequences.

The costs associated with the evaluation and modification of its information 
systems are being expensed as incurred and are not material to the financial 
position or results of operations of the Company.  To date, the Company has 
not completed a comprehensive contingency plan to address year 2000 
non-compliance.  Contingency planning is being performed in conjunction with 
the year 2000 compliance analysis by major information system.  

FORWARD-LOOKING STATEMENTS
Certain statements in this annual report are forward-looking, based on the 
Company's evaluation of historical information and judgments on future events,
based on the best information available at the time.  Underlying these 
statements are risks and uncertainties which could cause actual results to 
differ materially from those forward-looking statements.  These risks and 
uncertainties include, but are not limited to: i) consumer demand for the 
Company's soft-apparel merchandise; ii) competitive and consumer demographic
shifts within the Company's markets; iii) the Company's access to, and cost
of, capital; iv) the Company's ability to locate and open new store locations
on a timely and profitable basis; v) the Company's ability to integrate
acquired stores into Peebles' overall operations on a timely basis; vi) the
successful management of inventory levels, related costs and selling, general
and administrative costs; and vii) the timely resolution of year 2000
compliance issues by the Company and its vendors.

                                     F-19