Forward Looking Statements

Certain statements in this Form 10-Q contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements reflect the Company's expectations regarding future events and operating performance and often contain words such as "believe," "expect," "may," "will," "should," "could," "anticipate," "plan" or similar words.

Forward-looking statements are based on various assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, the ability of the Company and its subsidiary to maintain normal trade terms with vendors, the ability of the Company and its subsidiary to comply with the various covenant requirements contained in the Company's Revolving Credit Facility, the demand for apparel, and other factors. The demand for apparel and sales volume can be affected by significant changes in economic conditions, including an economic downturn, employment levels in the Company's markets, consumer confidence, energy and gasoline prices, and other factors influencing discretionary consumer spending. Other factors affecting the demand for apparel and sales volume include unusual weather patterns, an increase in the level of competition in the Company's market areas, competitors' marketing strategies, changes in fashion trends, changes in the average cost of merchandise purchased for resale, availability of product on normal payment terms and the failure to achieve the expected results of the Company's merchandising and marketing plans as well as its store opening plans. The occurrence of any of these factors could have a material and adverse impact on the Company's business, financial condition, operating results, or liquidity. Most of these factors are difficult to predict accurately and are generally beyond the Company's control.

Readers should consider the risks and uncertainties described in the Company's Annual Report on Form 10-K for the year ended January 31, 2009 ("Form 10-K"). Readers should carefully review the Form 10-K in its entirety, including but not limited to the Company's financial statements and the notes thereto and the risks and uncertainties described in Item 1A - "Risk Factors" of the Form 10-K. Forward-looking statements contained in this Form 10-Q are as of the date of this Form 10-Q. The Company does not undertake to update its forward-looking statements.

General

Stage Stores is a Houston, Texas-based regional, specialty department store retailer offering moderately priced, nationally recognized brand name and private label apparel, accessories, cosmetics and footwear for the entire family. As of May 2, 2009, the Company operated 747 stores located in 39 states under the four names of Bealls, Palais Royal, Peebles and Stage. The Company's principal focus is on consumers in small and mid-sized markets which the Company believes are under-served and less competitive. The Company differentiates itself from the competition in the small and mid-sized markets in which it operates by offering consumers access to basic as well as fashionable brand name merchandise not typically carried by other retailers in the same market area. In the highly competitive metropolitan markets in which it operates, the Company competes against national department store chains, which similarly offer moderately priced, brand name and private label merchandise. As a way of differentiating itself from the competition in these larger metropolitan markets, the Company endeavors to offer consumers a high level of customer service in convenient locations.

The financial information, discussion and analysis that follow should be read in conjunction with the Company's Consolidated Financial Statements as included in the Form 10-K.

Results of Operations

The following table sets forth the results of operations as a percentage of
sales for the periods indicated:

                                                            Thirteen Weeks Ended (1)
                                                       May 2, 2009            May 3, 2008

Net sales                                                     100.0 %                100.0 %
Cost of sales and related buying, occupancy and
distribution expenses                                          74.7                   73.0
Gross profit                                                   25.3                   27.0

Selling, general and administrative expenses                   25.1                   25.0
Store opening costs                                             0.4                    0.7
Interest expense, net                                           0.3                    0.4
(Loss) income before income tax                                (0.4 )                  1.0

Income tax (benefit) expense                                   (0.2 )                  0.4
Net (loss) income                                              (0.3 ) %                0.6 %

(1) Percentages may not foot due to rounding.

Thirteen Weeks Ended May 2, 2009 Compared to Thirteen Weeks Ended May 3, 2008

Sales for the thirteen weeks ended May 2, 2009 (the "current year first quarter") decreased by 5.7% to $333.6 million from $353.5 million for the thirteen weeks ended May 3, 2008 (the "prior year first quarter"). Comparable store sales, which are sales in stores that are open for at least 14 full months prior to the reporting period, decreased by 9.0% in the current year first quarter as compared to a 5.4% decrease in the prior year first quarter. In the current year first quarter, new stores that were not in the comparable store base contributed sales of $14.4 million. These sales were offset by a loss of $3.4 million in sales from closed stores that were in operation during the prior year first quarter.

Sales in the current year first quarter continued to be negatively impacted by the significant downturn in the macroeconomic environment, including the retail industry which is sensitive to conditions impacting discretionary consumer spending, such as the current housing crisis, employment levels and other factors influencing consumer confidence. Sales in the current year first quarter were also impacted by reduced levels of clearance merchandise as compared to the prior year first quarter, which resulted in lower clearance sales. On a merchandise category basis, cosmetics achieved a comparable store sales increase of 2.7% due to strong fragrance demand and the continued installation of Estee Lauder and Clinique counters. Key merchandise categories (i.e., those categories comprising greater than 5% of sales), which outperformed or were at the Company's average comparable store sales levels, were men's, children's, accessories and misses sportswear, with comparable sales store decreases of 7.2%, 7.7%, 7.9% and 9.0%, respectively. Although the Company experienced comparable store sales decreases in all of its markets, its small markets (populations less than 50,000) outperformed stores in its mid-sized markets (populations of 50,000 to 150,000) and large markets (populations greater than 150,000) with comparable store sales decreases of 6.8%, 10.1% and 13.2%, respectively. The small market stores continue to be the focus of the Company's new store expansion plans.

The following is a summary of the changes between the current year first quarter and the prior year first quarter in the components of cost of sales, expressed as a percent of sales:

                                                                Increase
                                                               (Decrease)
      Merchandise cost of sales                                      (0.04 )%
      Buying, occupancy and distribution expenses                     1.75
      Increase in merchandise cost of sales and related
      buying, occupancy and distribution expenses rate                1.71 %

Gross profit decreased 11.6% to $84.5 million for the current year first quarter from $95.6 million in the prior year first quarter. Gross profit, as a percent of sales, was 25.3% in the current year first quarter and 27.0% in the prior year first quarter. The increase in buying, occupancy and distribution expenses over the prior year first quarter is primarily due to increased store occupancy and depreciation costs due to the current year first quarter's higher store count. The increase in buying, occupancy and distribution expenses as a percent of sales reflects the deleveraging of these costs due to the decline in comparable store sales in the current year first quarter.

Selling, general and administrative ("SG&A") expenses in the current year first quarter decreased by $4.7 million, or 5.4%, to $83.6 million from $88.3 million in the prior year first quarter despite operating 30 net additional stores. This decrease is primarily due to a company-wide initiative to reduce variable operating expenses and resulted in lower store payroll, general administrative and advertising expenses. SG&A expenses were also positively impacted by an increase in credit income. As a percent of sales, SG&A expenses increased to 25.1% in the current year first quarter from 25.0% in the prior year first quarter. The increase in the SG&A rate is primarily due to deleveraging of expenses caused by the decline in sales.

Store opening costs in the current year first quarter of $1.2 million include costs related to the opening of 11 new stores, including a reopened hurricane-damaged store, and the relocation of 9 stores. During the prior year first quarter, the Company incurred $2.3 million in store opening costs related to 23 new stores opened and 5 stores relocated. Store opening costs are expensed as incurred and include costs of stores opening in future quarters.

Net interest expense was $1.2 million in the current year first quarter compared to $1.3 million in the prior year first quarter. Interest expense is primarily comprised of interest on borrowings under the Revolving Credit Facility (see "Liquidity and Capital Resources"), related letters of credit and commitment fees, amortization of debt issue costs, interest on finance lease obligations and equipment financing notes. The decrease in interest expense is primarily due to lower Revolving Credit Facility borrowings in the current year first quarter. The Company had a current year first quarter weighted average balance of $1.1 million as compared to $47.7 million for the prior year first quarter. The lower interest on lower average Revolving Credit Facility borrowings was partially offset by higher interest on the equipment financing notes due to higher weighted average borrowings in the current year first quarter as compared to the prior year first quarter.

The Company's effective tax rate for the current year first quarter was 38.3%, which resulted in an estimated tax benefit of $0.6 million. This compares to income tax expense of $1.4 million in the prior year first quarter during which the effective tax rate was 38.0%.

As a result of the foregoing, the Company had a net loss of $0.9 million for the current year first quarter as compared to net income of $2.3 million for the prior year first quarter.

Seasonality and Inflation

Historically, the Company's business is seasonal and sales are traditionally lower during the first three quarters of the year (February through October) and higher during the last three months of the year (November through January). The fourth quarter typically accounts for slightly more than 30% of the Company's annual sales, with the other quarters accounting for approximately 22% to 24% each. Working capital requirements fluctuate during the year and generally reach their highest levels during the third and fourth quarters. The Company does not believe that inflation had a material effect on its results of operations during the thirteen weeks ended May 2, 2009 and May 3, 2008, respectively. However, there can be no assurance that the Company's business will not be affected by inflation in the future.

Liquidity and Capital Resources

The Company's liquidity is currently provided by (i) existing cash balances,
(ii) operating cash flows, (iii) normal trade credit, (iv) equipment financing notes and (v) its Revolving Credit Facility.

The Company has a $250.0 million senior secured revolving credit facility (the "Revolving Credit Facility") that matures on April 20, 2012. The Revolving Credit Facility includes an uncommitted accordion feature to increase the size of the facility to $350.0 million. Borrowings under the Revolving Credit Facility are limited to the availability under a borrowing base that is determined principally on eligible inventory as defined by the Revolving Credit Facility agreement. The daily interest rates under the Revolving Credit Facility are determined by a prime rate, or Eurodollar rate plus an applicable margin, as set forth in the Revolving Credit Facility agreement. Inventory and cash and cash equivalents are pledged as collateral under the Revolving Credit Facility. The Revolving Credit Facility is used by the Company to provide financing for working capital, capital expenditures, interest payments and other general corporate purposes, as well as to support its outstanding letters of credit requirements. For the current year first quarter, the weighted average interest rate on outstanding borrowings and the average daily borrowings under the Revolving Credit Facility were 3.3% and $1.1 million, respectively.

The Company also issues letters of credit to support certain merchandise purchases and to collateralize retained risks and deductibles under various insurance programs. The Company had outstanding letters of credit totaling approximately $9.4 million at May 2, 2009 under its Revolving Credit Facility. These letters of credit expire within twelve months of issuance. Excess borrowing availability under the Revolving Credit Facility at May 2, 2009, net of letters of credit outstanding and outstanding borrowings, was $192.3 million.

The Revolving Credit Facility contains covenants which, among other things, restrict, based on required levels of excess availability, (i) the amount of additional debt or capital lease obligations, (ii) the payment of dividends and repurchase of common stock under certain circumstances, and (iii) related party transactions. At May 2, 2009, the Company was in compliance with all of the debt covenants of the Revolving Credit Facility.

The Company generated $7.9 million in cash from operating activities in the current year first quarter. Net loss, adjusted for non-cash expenses, provided cash of approximately $15.5 million. Changes in operating assets and liabilities used net cash of approximately $9.3 million, which included an $23.8 million increase in merchandise inventories due to the seasonal build of inventories, offset by an increase in accounts payable and other liabilities of $15.4 million related to the increase in merchandise inventories. Additionally, cash flows from operating activities included construction allowances from landlords of $1.7 million, which funded a portion of the capital expenditures related to store leasehold improvements in new and relocated stores.

In the current year first quarter, the Company paid a quarterly cash dividend of $0.05 per share on the Company's common stock, which totaled $1.9 million. On May 28, 2009, the Company announced that its Board had declared a quarterly cash dividend of $0.05 per share of common stock, payable on June 24, 2009 to shareholders of record at the close of business on June 9, 2009.

Management currently estimates that capital expenditures in 2009, net of construction allowances to be received from landlords, will be between $45.0 and $50.0 million. The expenditures will principally be for the opening of 2009 new stores, store expansions, relocations and remodels. Capital expenditures were $13.1 million in the current year first quarter as compared to $27.3 million in the prior year first quarter. For the current year first quarter, the Company opened 11 new stores, including a reopened hurricane store, and relocated 9 stores as compared to 23 stores opened and 5 relocated stores in the prior year first quarter. As noted above, the Company received construction allowances from landlords of $1.7 million in the current year first quarter to fund a portion of the capital expenditures related to store leasehold improvements in new and relocated stores, while $6.7 million was received from landlords in the prior year first quarter. These funds have been recorded as a deferred rent credit in the balance sheet and will be recorded as an offset to rent expense over the lease term commencing with the date the allowances were earned.

While there can be no assurances, management believes that there should be sufficient liquidity to cover both the Company's short-term and long-term funding needs.

Recent Accounting Standards

Disclosure concerning recent accounting standards is incorporated by reference to Note 1 of the Company's Condensed Consolidated Financial Statements (Unaudited) contained in this Form 10-Q.