Forward Looking Statements

Certain statements in this Form 10-Q 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 subsidiaries to maintain normal trade terms with vendors, the ability of the Company and its subsidiaries 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 28, 2012 ("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 retailer which operates both department and off-price stores. Its department stores, which operate under the Bealls, Goody's, Palais Royal, Peebles and Stage nameplates, offer moderately priced, nationally recognized brand name and private label apparel, accessories, cosmetics and footwear for the entire family. Its off-price stores, which are called Steele's, offer brand name family apparel, accessories, footwear and home merchandise at significant savings to department store prices. As of October 27, 2012, the Company operated 851 stores located in 40 states.

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 communities 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 those markets where it operates a department store and an off-price store, the Company targets a different customer for each store and, therefore, believes that customer overlap between the two formats is minimal. In the larger metropolitan markets in which it operates, the Company differentiates itself by offering consumers a high level of customer service in smaller-sized stores in convenient locations as compared to the larger department stores with which it competes.

The Company also offers its merchandise direct-to-consumer through its eCommerce website and Send program. The eCommerce website features similar merchandise categories to those found in the Company's stores as well as a broader assortment of home and gift merchandise, fashion apparel, accessories, shoes, cosmetics,

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)                 Thirty-Nine Weeks Ended (1)
                                                              October 29,                               October 29,
                                      October 27, 2012            2011          October 27, 2012            2011

Net sales                                         100.0 %            100.0 %                100.0 %            100.0 %
Cost of sales and related buying,
occupancy
and distribution expenses                          78.4               78.7                   74.2               74.8
Gross profit                                       21.6               21.3                   25.8               25.2

Selling, general and
administrative expenses                            25.0               26.1                   25.0               24.9
Store opening costs                                 0.4                0.5                    0.3                0.5
Interest expense, net                               0.2                0.3                    0.2                0.3
Income (loss) before income tax                   (4.0)              (5.5)                    0.3              (0.4)

Income tax (benefit) expense                      (1.6)              (2.1)                    0.1              (0.3)
Net income (loss)                                 (2.4) %            (3.4) %                  0.2 %            (0.2) %

(1)  Percentages may not foot due
to rounding.

Thirteen Weeks Ended October 27, 2012 Compared to Thirteen Weeks Ended October 29, 2011

Sales for the thirteen weeks ended October 27, 2012 (the "current year third quarter") increased 11.1% to $370.6 million from $333.5 million for the thirteen weeks ended October 29, 2011 (the "prior year third quarter"). The sales increase was driven primarily by the strength of the Company's comparable and new store sales. Comparable store sales, which are sales in stores that are open for at least 14 full months prior to the reporting period, increased by 8.1% in the current year third quarter as compared to a 0.6% decrease in the prior year third quarter. Comparable store sales benefited from desirable merchandise selections, higher average unit retail, successful sales events, including Back-to-School, and market share gains. The 8.1% increase in comparable store sales for the current year third quarter reflects a 2.8% increase in average unit retail and a 4.9% increase in units per transaction.

On a market population basis, utilizing a ten-mile radius from each store, all market areas experienced an increase in comparable store sales in the current year third quarter. The Company's small market stores (populations less than 50,000) achieved a comparable store sales increase of 6.5%, while the Company's mid-sized (populations of 50,000 to 150,000) and large markets (populations greater than 150,000) achieved comparable store sales increases of 10.6% and 12.0%, respectively. The small market stores were negatively impacted by the anniversary of last year's Goody's rebrand grand openings.

Geographically, all regions experienced comparable store sales increases during the current year third quarter. The South Central, Southwest and Northeast regions outperformed with double-digit increases.

On a merchandise category basis, the Company experienced comparable store sales increases in all merchandise categories during the current year third quarter, with footwear, home & gifts, misses sportswear and petites exceeding the Company average.

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

                                                        Increase (Decrease)
     Merchandise cost of sales rate                             0.5         %
     Buying, occupancy and distribution expenses rate          (0.8)
     Cost of sales rate                                        (0.3)        %

Gross profit in the current year third quarter was $79.9 million, an increase of 12.2% from $71.2 million in the prior year third quarter. Gross profit, as a percent of sales, increased to 21.6% in the current year third quarter from 21.3% in the prior year third quarter. The 0.3% improvement in the gross profit rate reflects a 0.5% increase in the merchandise cost of sales rate which was more than offset by a 0.8% decrease in the buying, occupancy and distribution expenses rate. The increase in the merchandise cost of sales rate is primarily a result of higher clearance sales for the current year third quarter. The decrease in buying, occupancy and distribution expenses rate is a result of leverage from higher sales in the current year third quarter as compared to the prior year third quarter.

Selling, general and administrative ("SG&A") expenses in the current year third quarter increased by approximately $5.5 million, or 6.3%, to $92.5 million from $87.0 million in the prior year third quarter. As a percent of sales, SG&A expenses decreased to 25.0% in the current year third quarter from 26.1% in the prior year third quarter reflecting improved leverage from higher sales. The increase in total costs reflects incremental costs associated with the 41 additional stores the Company was operating during the current year third quarter versus the prior year third quarter, higher expenses related to the eCommerce and Steele's initiatives, and higher incentive compensation costs due to the Company's better results during the current year third quarter, partially offset by higher credit income.

Store opening costs of $1.6 million in the current year third quarter include costs related to the opening of 19 new stores. Store opening costs of $1.6 million in the prior year third quarter include the opening of 11 new stores, the relocation of one store and the rebranding of 12 stores. Store opening costs are expensed as incurred and include costs of stores opening in future quarters.

Net interest expense was $0.6 million in the current year third quarter compared to $1.0 million in the prior year third 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 issuance costs, interest on finance lease obligations and equipment financing notes. The decrease in interest expense is primarily due to the reduced amount of long-term debt obligations as the Company paid off its equipment financing notes in the current year second quarter.

The Company's effective tax rate for the current year third quarter was 40.2%, resulting in an estimated income tax benefit of $5.9 million. This compares to an income tax benefit of $7.1 million in the prior year third quarter with an effective tax rate of 38.6%.

As a result of the foregoing, the Company had a net loss of $8.9 million for the current year third quarter as compared to a net loss of $11.3 million for the prior year third quarter.

Thirty-Nine Weeks Ended October 27, 2012 Compared to Thirty-Nine Weeks Ended October 29, 2011

Sales for the thirty-nine weeks ended October 27, 2012 (the "current year") increased 8.2% to $1,117.9 million from $1,032.8 million for the thirty-nine weeks ended October 29, 2011 (the "prior year"). The sales increase was primarily driven by the strength of the Company's comparable and new store sales. Comparable store sales, which are sales in stores that are open for at least 14 full months prior to the reporting period, increased 5.3% in the current year compared to a 0.2% increase in the prior year. The 5.3% increase in comparable store sales for the current year reflects a 3.9% increase in average unit retail and a 1.9% increase in units per transaction.

On a market population basis, utilizing a ten-mile radius from each store, all market areas experienced an increase in comparable store sales in the current year. The Company's small market stores (populations less than 50,000) achieved a comparable store sales increase of 4.4%, while the Company's mid-sized (populations of 50,000 to 150,000) and large markets (populations greater than 150,000) achieved comparable store sales increases of 7.3% and 7.1%, respectively. The small market stores were negatively impacted by the anniversary of last year's Goody's rebrand grand openings.

Geographically, all regions except for the Southeast experienced comparable store sales increases during the current year.

On a merchandise category basis, the Company experienced comparable store sales increases in a number of merchandise categories during the current year, with home & gifts, cosmetics, petite sportswear, footwear, young men's and missy sportswear exceeding the Company average. The Company continues to focus on growing its cosmetics line of business through the installation of Estee Lauder and Clinique counters, as 11 new Estee Lauder and 8 new Clinique counters were opened during the current year.

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

                                                              Decrease
           Merchandise cost of sales rate                       0.0    %
           Buying, occupancy and distribution expenses rate    (0.6)
           Cost of sales rate                                  (0.6)   %

Selling, general and administrative ("SG&A") expenses in the current year increased $23.3 million to $280.0 million from $256.7 million in the prior year.
As a percent of sales, SG&A expenses increased to 25.0% in the current year from 24.9% in the prior year. The increase in SG&A expenses reflects one-time charges of approximately $3.0 million incurred in the current year first quarter associated with the resignation of the Company's former Chief Executive Officer, as well as incremental costs to operate 41 net additional stores, higher expenses related to the eCommerce and Steele's initiatives and higher incentive compensation costs due to the Company's better results during the current year, partially offset by higher credit income.

Store opening costs of $3.2 million in the current year include costs related to the opening of 41 new stores and the relocation of 6 stores. During the prior year, the Company incurred $5.2 million in store opening costs related to the opening of 27 new stores, the reopening of 2 fire-damaged stores and a flood-damaged store, the relocation of 3 stores and the rebranding of 148 stores. Store opening costs are expensed as incurred and include costs of stores opening in future quarters.

Net interest expense was $2.4 million in the current year and $2.8 million the prior year. 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 issuance costs, interest on finance lease obligations and equipment financing notes. The decrease in interest expense is primarily due to the reduced amount of long-term debt obligations as the Company paid off its equipment financing notes in the current year second quarter.

The Company's effective tax rate for the current year was 30.0%, resulting in an estimated tax expense of $1.0 million. This compares to an income tax benefit of $2.7 million in the prior year at an effective rate 60.6%. The prior year benefited from discreet tax benefit items which were principally related to prior year's domestic production activities and employment tax credits.

As a result of the foregoing, the Company had net income of $2.4 million for the current year as compared to a net loss of $1.8 million for the prior year.

Seasonality and Inflation

Historically, the Company's business is seasonal and sales are traditionally lower during the first three quarters of the fiscal year (February through October) and higher during the last quarter of the fiscal year (November through January). The fourth quarter usually 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 has had a material effect on its results of operations. 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 terms from the vendor and factor community, and (iv) the Revolving Credit Facility. The Company's primary cash requirements are for capital expenditures related to new stores, store relocations and remodeling, and seasonal and new store inventory purchases.

Key components of the Company's cash flows for the current year and the prior year are summarized below (in thousands):

                                                Thirty-Nine Weeks Ended
                                        October 27, 2012        October 29, 2011
     Net cash provided by (used in):
     Operating activities              $           60,057       $          14,385
     Investing activities                         (35,610 )               (33,044 )
     Financing activities                          (5,648 )               (43,749 )

Operating Activities

During the current year, the Company generated $60.1 million in cash from operating activities. Net income, adjusted for non-cash expenses, provided cash of approximately $51.2 million. Changes in operating assets and liabilities provided net cash of approximately $4.8 million, which included a $162.9 million increase in merchandise inventories primarily due to the seasonal build of inventories and increase related to the higher number of stores open, offset by a decrease in other assets of $10.3 million and an increase in accounts payable and other liabilities of $157.4 million. Additionally, cash flows from operating activities included construction allowances from landlords of $4.1 million, which funded a portion of the capital expenditures related to store leasehold improvements in new and relocated stores.

During the prior year, the Company generated $14.4 million in cash from operating activities. Net loss, adjusted for non-cash expenses, provided cash of approximately $50.7 million. Changes in operating assets and liabilities used net cash of approximately $40.8 million, which included a $122.1 million increase in merchandise inventories, partially offset by an increase in accounts payable and other liabilities of $83.1 million. The increase in merchandise inventories was primarily due to the seasonal built of inventories and increase related to the higher number of stores open. Additionally, cash flows from operating activities included construction allowances from landlords of $4.5 million, which funded a portion of the capital expenditures related to store leasehold improvements in new and relocated stores.

Investing Activities

Capital expenditures were $35.6 million in the current year as compared to $33.2 million in the prior year. For the current year, the Company opened 41 new stores and relocated 6 stores, as compared to 27 new stores, 3 reopened stores, 148 rebranded stores and 3 relocated stores in the prior year. As noted above, the Company received construction allowances from landlords of $4.1 million in the current year to fund a portion of the capital expenditures related to store leasehold improvements in new and relocated stores, while $4.5 million was received from landlords in the prior year. 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.

Management currently estimates that capital expenditures in 2012, net of construction allowances to be received from landlords, will be approximately $45.0 million. The expenditures will principally be for the opening of new stores, store expansions, relocations, remodels and new cosmetic counters.

Financing Activities

The Company has a $250.0 million senior secured revolving credit facility that matures on June 30, 2016 (the "Revolving Credit Facility"). 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 thirty-nine weeks ended October 27, 2012, the weighted average interest rate on outstanding borrowings and the average daily borrowings under the Revolving Credit Facility were 2.1% and $17.0 million, respectively.

The Company also issues letters of credit under the Revolving Credit Facility to support certain merchandise purchases and to collateralize retained risks and deductibles under various insurance programs. At October 27, 2012, the Company had outstanding letters of credit totaling approximately $4.2 million. These letters of credit expire within twelve months of issuance. Excess borrowing availability under the Revolving Credit Facility at October 27, 2012, net of letters of credit outstanding, was $218.3 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. The Revolving Credit Facility also contains a fixed charge coverage ratio covenant in the event excess availability is below a defined threshold or an event of default has occurred. At October 27, 2012, the Company was in compliance with all of the debt covenants of the Revolving Credit Facility and expects to remain in compliance during fiscal year 2012.

On May 21, 2012, the Company repaid the outstanding balance of its equipment financing notes which bore interest ranging from 4.6% to 6.0% by utilizing lower cost Revolving Credit Facility borrowings. The Company paid approximately $14.0 million, which included $0.1 million in prepayment penalty fees.

On June 11, 2012, the Company announced that its Board of Directors ("the Board") approved an 11% increase in the Company's quarterly cash dividend rate to $0.10 cents per share from the previous quarterly rate of $0.09 cents per share. The new quarterly rate of $0.10 cents per share is applicable to dividends declared by the Board after June 20, 2012. In the current year, the Company has paid cash dividends totaling $8.8 million. On November 21, 2012, the Board declared a quarterly cash dividend of $0.10 cents per share, payable on December 19, 2012 to shareholders of record at the close of business on December 4, 2012.

In March 2011, the Company announced that the Board approved a Stock Repurchase Program which authorizes the Company to repurchase up to $200.0 million of its outstanding common stock (the "2011 Stock Repurchase Program") from time to time, either on the open market or through privately negotiated transactions. The 2011 Stock Repurchase Program is financed by the Company's existing cash, cash flow and other liquidity sources, as appropriate. During 2011, the Company spent $100.0 million under the 2011 Stock Repurchase Program . . .