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

January 20, 2004                                                                                                               /s/ Michael E. McCreery

(Date)                                                                                                                                 Michael E. McCreery

                                                                                                                                            Executive Vice President and Chief

                                                                                                                                            Financial Officer

Board of Directors

Peebles Inc.

We have audited the accompanying consolidated balance sheets of Peebles Inc. and subsidiary as of February 1, 2003 and February 2, 2002, and the related consolidated statements of income and cash flows for each of the two fiscal years in the period ended February 1, 2003. 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 auditing standards generally accepted in the United States. 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 subsidiary at February 1, 2003 and February 2, 2002, and the consolidated results of their operations and their cash flows for each of the two fiscal years in the period ended February 1, 2003 in conformity with accounting principles generally accepted in the United States.

As discussed in Note A to the consolidated financial statements, in 2002 the Company changed its accounting for goodwill to comply with the accounting provisions of Statement of Financial Accounting Standards No. 142.

Richmond, Virginia

March 7, 2003

NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations: Peebles Inc. ("Peebles" or the "Company") 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"). Peebles operates retail department stores offering predominately fashion merchandise for the entire family and selected home accessories. At February 1, 2003, the Company was operating 137 stores located primarily in small and medium sized communities which typically do not have a mall-based department store. The stores serve communities in 17 states, located primarily in the Southeast and Mid-Atlantic.

Principles of Consolidation: The consolidated financial statements include the accounts of Peebles and its wholly owned subsidiary. 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 2002 and 2001 ended on February 1, 2003 and February 2, 2002, respectively. Results of operations consisted of fifty-two weeks in 2002 and 2001. References to years relate to fiscal years rather than calendar years. Certain amounts in the 2001 consolidated financial statements have been reclassified to conform to the 2002 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.

Cash and Cash Equivalents: Peebles considers all highly liquid investments maturing within three months of purchase to be cash equivalents. There were no cash equivalents at February 1, 2003 or February 2, 2002.

Fair Value of Financial Instruments: The carrying amounts of accounts receivables and accounts payable approximate fair value due to their short maturities. The carrying amount of long-term debt approximates fair value as the stated interest rates approximate market rates. The carrying amount of cash flow hedges approximate fair value, based upon quoted market prices.

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.

Long-Lived Assets: As of February 3, 2002, The Company adopted the provisions of Financial Accounting Standards Board Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS addresses the financial accounting and reporting for impairment or disposal of long-lived assets and supercedes SFAS No. 121. The adoption of SFAS No. 144 did not have a material impact on the Company's consolidated results or financial position. The Company periodically reviews the carrying value of long-lived assets to determine if impairment has occurred. The primary indicators of impairment are, but not limited to, significant changes in competition or demographics, recent historical operating profitability and projected profitability. In general, the carrying value of long-lived assets is considered recoverable if it is less than the related future projected undiscounted cash flows. If the carrying value were found to be greater, the carrying value would be reduced to fair value. Projections included in this review are based on management's best estimates of future performance.

Goodwill and Other Intangible Assets: In June 2001, the Financial Accounting Standards Board issued Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under the provisions of SFAS No. 142, goodwill and certain other indefinite-lived intangible assets are no longer amortized, and instead, are tested for impairment on at least an annual basis or at any time certain indicators of impairment arise. The Company adopted the provisions of SFAS No. 142 as of February 3, 2002, the beginning of the current fiscal year, and completed the required annual impairment tests of excess of cost over net assets acquired ("Goodwill") and indefinite-lived intangible assets in April 2002. Based on the results of those tests, the carrying value of Goodwill, $35,223, was not adjusted. The Goodwill accumulated amortization at February 1, 2003 and February 2, 2002 was $12,734.

Through February 2, 2002, Goodwill was being amortized on a straight-line basis over a twenty-five year period. Goodwill amortization expense for 2001 was $1,917. If Goodwill had not been amortized in 2001, net income would have increased to $15,671, as the effective income tax rate would have decreased from 41% to 39%.

Intangible assets with finite lives continue to be amortized over their useful lives. These lives were reevaluated and remain unchanged. Intangible assets with finite lives are beneficial leaseholds and deferred financing costs.

Beneficial Leaseholds: Beneficial leaseholds relate to acquired leases and represent the difference between the acquired minimum lease payment and a fair market lease payment. Beneficial leaseholds are amortized on a straight-line basis over the composite useful lives of the related leases, approximately 11 years. At February 1, 2003 and February 2, 2002, the gross carrying value of beneficial leaseholds was $3,256 and accumulated amortization was $1,067 and $735, respectively. Amortization expense for beneficial leaseholds in 2002 and 2001 was $332 and $240, respectively.

Deferred Financing Costs: Deferred financing costs are amortized on a straight-line basis over the four-year period consistent with the related financing. Amortization expense of $362 and $546 is included in interest expense for 2002 and 2001, respectively. Accumulated amortization at February 1, 2003 and February 2, 2002 was $2,666 and $2,142, respectively.

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.

Advertising Costs: Advertising costs, charged to selling, general and administrative expenses as incurred, were $5,363 and $6,174 for 2002 and 2001, respectively.

Income Taxes: The Company provides for deferred income taxes under the liability method. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years the differences are expected to reverse.

Store Opening Costs: Store opening costs are charged to selling, general and administrative expenses as incurred.

Derivative Financial Instruments: The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities", as amended by SFAS No. 138, effective February 4, 2001. For derivative financial instruments qualifying as a cash flow hedge, changes in the fair value of the effective portion of the derivative instrument are recognized in Other Comprehensive Income ("OCI"). The Company enters into interest rate swap agreements to manage exposure to interest rate fluctuations.

Accounts receivable are shown net of $3,600 and $2,800, representing the allowance for doubtful accounts at February 1, 2003 and February 2, 2002, respectively. The provision for doubtful accounts was $5,847 and $3,568 for 2002 and 2001, respectively. Finance charges on credit sales and late fees for delinquent payments are included as a reduction to selling, general and administrative expenses. Finance charges and late fees totaled $7,920 and $7,306 for 2002 and 2001, respectively.

As a service to its customers, the Company offers credit through the use of its own charge card and certain major credit cards. The Peebles' customer usually resides in the local community immediately surrounding the store location. Peebles stores serve these local customers in 17 states. The Company does not require collateral from its customers.

NOTE C-MERCHANDISE INVENTORIES

Merchandise inventories are accounted for by the retail inventory method applied on a last-in, first-out ("LIFO") basis. In May of 1995 in connection with an acquisition of the Company, 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"). As such, The Fair Value Adjustment is included in the LIFO base year and represents the only difference between LIFO and inventory cost accounted for as first-in, first-out ("FIFO").

Merchandise inventories consisted of the following:

		February 1,		February 1,
		2003		2002
Merchandise inventories at FIFO cost		$ 74,919		$ 71,625
Fair Value Adjustment in LIFO base year		7,436		7,436
Merchandise inventories at lower of LIFO, cost or market		$ 82,355		$ 79,061

Long-term debt consisted of the following:

		February 1,		February 1,
		2003		2002
2002 Senior Revolver		$ 62,737		$ -
Senior Revolving Facility		-		35,500
Senior Term Note A		-		2,002
Senior Term Note B		-		43,987
Swingline Facility		-		1,597
Other		-		200
		62,737		83,286
Less current maturities:
Scheduled principal payments		-		2,367
Excess cash flow prepayment amount		-		7,694
Total current maturities		-		10,061
Long-term debt		$ 62,737		$ 73,225

On December 20, 2002, the Company entered into a $110,000 credit facility (the "Loan and Security Agreement") to refinance the existing credit facility (the "1998 Credit Agreement"). The Loan and Security Agreement provides a Senior Revolving Facility (the "2002 Senior Revolver"), with the total amount available to borrow determined by a defined, asset-based formula with certain specified reductions, including the amounts outstanding under letters of credit. On December 20, 2002, $80,660 was drawn on the 2002 Senior Revolver to extinguish all balances outstanding under the 1998 Credit Agreement, including the Senior Revolving Facility, the Senior Term Facility and the Swingline Facility.

The Loan and Security Agreement is secured by a first priority security interest in substantially all the personal and real property of the Company. The Loan and Security Agreement matures on December 20, 2006, and the 2002 Senior Revolver has no scheduled paydown provisions prior to maturity. The Company pays 3/8 of 1% per annum on any unused portion ("Excess Availability") of the 2002 Senior Revolver. At February 1, 2003, the total amount available to borrow was $87,064, borrowings totaled $62,737, resulting in Excess Availability of $24,327.

The Loan and Security Agreement provides for the drawings on the 2002 Senior Revolver to bear interest based on either the Prime rate or LIBOR, at the discretion of the Company. Under the terms of the Loan and Security Agreement, the interest rates available to the Company through May 31, 2003 are either LIBOR plus 3.00% or Prime plus .50%. Thereafter, the interest will be adjusted at the beginning of each fiscal quarter. The adjustment is based on the average Excess Availability during the previous fiscal quarter. From December 20, 2002 through February 1, 2003, the 2002 Senior Revolver bore interest at LIBOR plus 3.00%. Interest is typically payable monthly in arrears.

The Loan and Security Agreement restricts the payment of cash dividends. Cash dividends are primarily restricted to the repurchase of PHC Retail common stock from retiring management shareholders, and those cash dividends are limited to $2,000 in any fiscal year. In addition, after January 1, 2004 and subject to certain Excess Availability restrictions, cash dividends may be paid to PHC Retail to facilitate a cash dividend to shareholders.

The Company deferred $2,130 in financing fees to facilitate the Loan and Security Agreement. Those deferred financing fees are being amortized as interest expense over a four-year period ending December 20, 2006. Prior to entering into the Loan and Security Agreement, the 1998 Credit Agreement provided a Senior Term Facility, Senior Revolving Facility and a Swingline Facility. The Senior Term Facility included two notes, Senior Term Note A and Senior Term Note B. Senior Term Note A was retired October 31, 2002, and Senior Term Note B was scheduled to mature April 30, 2004. Senior Term Note A and Senior Term Note B bore interest at LIBOR plus 2.00% and LIBOR plus 2.50%, respectively. The Senior Revolving Facility was scheduled to mature April 30, 2003, bore interest at LIBOR plus 2.00%, and the Company paid a fee of 1/2 of 1% per annum on any unused portion of the Revolver. Loans under the Swingline Facility were drawn and repaid daily, based on the operating activity of the Company, and aggregate amounts outstanding could not exceed $5 million. The Swingline Facility bore interest at prime plus .75%.

The 1998 Credit Agreement required 75% of annual excess cash flow, as defined, be used to reduce borrowings under the Senior Term Facility as an excess cash flow ("ECF") prepayment amount. The ECF prepayments were funded through the Revolver and reduced Senior Term Note A and Senior Term Note B ratably. The 2001 ECF prepayment was $7,694 and was paid in May 2002.

In November 2001, the Company entered into two interest rate swap agreements (together, the "Swap Agreements") with notional amounts of $10,000 and $40,000, respectively, and expiration dates of November 20, 2002 and 2003, respectively. The Swap Agreements meet the definition of a cash flow hedge under the provisions of SFAS No. 133. In 2002 and 2001, interest expense was increased by $832 and $148, respectively, representing the difference between the Swap Agreements fixed rates and the floating rate, the 30-day LIBOR rate. At February 1, 2003 and February 2, 2002, The Company had current liabilities of $758 and $336, respectively, related to the Swap Agreements and a net unrealized loss of $470 and $209, respectively, included in OCI.

The Company had commitments under letters of credit of $2,300 and $1,850 at February 1, 2003 and February 2, 2002, respectively. The letters of credit, issued by a bank, are primarily to secure international shipments of merchandise.

The restrictive debt covenants of the 1998 Credit Agreement limited the payment of cash dividends to repurchase PHC Retail common stock from retiring management stockholders and could not exceed $750 in any fiscal year. In 2002 and 2001, $146 and $696 of PHC Retail common stock was repurchased, respectively, from retiring management shareholders.

The Company made cash interest payments of $4,090 and $6,653 for 2002 and 2001, respectively. Aggregate scheduled principal payments on the long-term debt are as follows: $62,737 in 2006.

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 2052. Total rental expense under operating leases was as follows:

		2002		2001
Minimum		$ 16,282		$ 15,580
Contingent		175		243
		$ 16,457		$ 15,823

Contingent rentals are based upon a percentage of annual sales in excess of specified amounts.

Future minimum lease payments under capital leases and non-cancellable operating leases at February 1, 2003 were as follows:

		Capital		Operating
Fiscal Year		Leases		Leases
2003		$ 180		$ 13,585
2004		181		12,111
2005		60		10,881
2006		-		9,335
2007		-		8,288
Thereafter		-		41,100
Total minimum lease payments		421		95,300
Less: amounts representing interest		(51)		-
Present value of net minimum lease payments,
including current maturities of $146, with an
interest rate of 12.0%		$ 370		$ 95,300

The Company sponsors one defined benefit pension plan, The Employees Retirement Plan of Peebles Inc. (the "Plan"), and several Supplemental Benefits Programs. The Plan covers certain participants who, in 1997, had reached certain age and years of service requirements. The Plan was closed to new participants at February 1, 1998. The Supplemental Benefits Programs provide certain key executives supplemental retirement income equal to 60% of final average compensation. The Company's funding policy for all plans is to make minimum annual contributions required by applicable regulations.

The following information relative to the above plans is disclosed in accordance with the requirements of SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits".

		2002		2001
Change in Benefit Obligation:
Benefit obligation at beginning of year		$ 6,651		$ 7,568
Service cost		204		226
Interest cost		446		534
Actuarial loss (gain)		876		(403)
Benefit payments		(582)		(1,274)
Benefit obligation at end of year		$ 7,595		$ 6,651
Change in Plan Assets:
Fair value of plan assets at beginning of year		$ 3,067		$ 4,707
Actual return on plan assets		(291)		(366)
Employer contribution		-		-
Benefit payments		(582)		(1,274)
Fair value of plan assets at end of year		$ 2,194		$ 3,067
Funded Status:
Funded status		$ (5,401)		$ (3,584)
Unrecognized actuarial loss		2,954		1,816
Unrecognized prior service cost		351		421
Accrued pension liability		$ (2,096)		$ (1,347)
Components of Net Periodic Pension Cost:
Service cost		$ 204		$ 226
Interest cost		446		534
Expected return on plan assets		(251)		(384)
Prior service cost recognized		70		70
Recognized losses		281		322
Net periodic pension cost		$ 750		$ 768
Weighted Average Assumptions as of
Measurement Date:
Discount rate		6.50%		7.00%
Expected return on plan assets		8.50%		9.00%
Rate of compensation increase		5.00%		5.00%

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 $4,451, $2,968 and $0, respectively, as of February 1, 2003 and $3,299, $2,144 and $0, respectively, as of February 2, 2002.

The Company also maintains a qualified profit sharing and retirement savings plan, The Peebles Inc. 401 (k) Profit Sharing 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. The Company matches employee contributions up to 50% of an employee's first 6% of eligible compensation. The Company's matching contributions, included in selling, general and administrative expenses, totaled $343 and $346 in 2002 and 2001, respectively.

The provisions for income taxes consisted of the following:

			2002		2001
Current:	Federal		$ 8,157		$ 8,593
	State		1,449		1,766
Deferred:	Federal		301		(233)
	State		68		(48)
			$ 9,975		$ 10,078

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

			2002		2001
Taxes at the federal statutory rate			$ 9,835		$ 8,603
Increases (decreases):
State income taxes, net of federal tax			772		1,086
Amortization of goodwill			-		531
Other			(632)		(142)
			$ 9,975		$ 10,078

The Company received approximately $400 of state tax refunds in fiscal 2002 resulting in a decrease in the Company's effective state income tax rate. At February 1, 2003, the Company has net operating loss carryforwards of approximately $1,900 for income tax purposes, which expire in 2010. Due to Internal Revenue Service regulations, utilization of the net operating loss carryforwards may be limited in a particular year.

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

			February 1,		February 2,
			2003		2002
Deferred tax liabilities:
Inventory valuation			$ 2,172		$ 2,005
Depreciation and amortization			12,274		11,612
Other			678		474
			15,124		14,091
Deferred tax assets:
Doubtful accounts			(1,418)		(1,103)
Net operating loss carryforwards			(765)		(907)
Other			(2,064)		(915)
			(4,247)		(2,925)
Net deferred tax liabilities			$ 10,877		$ 11,166

NOTE H - VALUATION AND QUALIFYING ACCOUNTS

Activity related to valuation and qualifying accounts is as follows:

Peebles Inc.
Unaudited Consolidated Condensed Balance Sheets
(in thousands, except shares and per share amounts)
		November 1,		February 1,
		2003		2003
ASSETS
Current assets
Cash		$ 303		$ 739
Accounts receivable, net of allowance for doubtful accounts of $3,200 and $3,600		31,880		39,431
Merchandise inventories		99,796		82,355
Prepaid expenses		2,891		1,809
Other		272		83
Total current assets		135,142		124,417
Property and equipment, net		44,993		47,255
Other assets
Excess of cost over net assets acquired, net		35,223		35,223
Deferred financing costs, net		1,709		2,079
Beneficial leaseholds, net		1,939		2,189
Other		4,240		3,575
		43,111		43,066
		$ 223,246		$ 214,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Account payable		$ 28,837		$ 16,531
Deferred income taxes		1,480		1,192
Accrue compensation and other expenses		8,966		11,368
Total current liabilities		39,283		29,091
Long-term debt		53,736		62,737
Other long-term liabilities		3,979		3,871
Deferred income taxes		9,685		9,685
Total liabilities		106,683		105,384
Stockholders' equity
Preferred stock - no par value, authorized 1,000,000		-		-
shares, none issued or outstanding
Common stock - par value $.10 per share, authorized		1		1
5,000,000 shares, 1,000 issued and outstanding
Additional capital		59,490		59,490
Accumulated other comprehensive loss		(813)		(1,283)
Retained earnings		57,885		51,146
Stockholders' equity		116,563		109,354
Total liabilities and stockholders' equity		$ 223,246		$ 214,738
See notes to unaudited consolidated condensed financial statements

Peebles Inc.
Unaudited Consolidated Condensed Statements of Income
(in thousands)
		Thirty-Nine Weeks Ended
		November 1,		November 2,
		2003		2002
Net sales		$ 211,488		$ 216,678
Costs and expenses
Cost of sales		126,376		126,231
Selling, general and administrative expenses		64,248		64,647
Depreciation and amortization		7,038		7,372
		197,662		198,250
Operating income		13,826		18,428
Interest expense		3,112		3,615
Income before income taxes		10,714		14,813
Income taxes		3,911		5,777
Net income		$ 6,803		$ 9,036
See notes to unaudited consolidated condensed financial statements

Peebles Inc.
Unaudited Consolidated Condensed Statements of Cash Flows
(in thousands)
		Thirty-Nine Weeks Ended
		November 1,		November 2,
		2003		2002
Cash flows from operating activities:
Net income		$ 6,803		$ 9,036
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation		6,525		6,907
Amortization		912		752
Provision for doubtful accounts		3,108		4,518
Changes in operating assets and liabilities:
Accounts receivable		4,443		2,503
Merchandise inventories		(17,441)		(25,256)
Account payable		12,306		3,499
Other assets and liabilities		(3,610)		(3,579)
Net cash provided by operating activities		13,046		(1,620)
Cash flows from investing activities:
Purchase of property and equipment		(8,621)		(4,306)
Proceeds from sale of distribution center		4,204		-
Other		-		197
Net cash used in investing activities		(4,417)		(4,109)
Cash flows from financing activities:
Proceeds from revolving line of credit		288,493		317,984
Reduction in revolving line of credit and long-term debt		(297,494)		(313,670)
Dividend to PHC Retail		(64)		(54)
Net cash (used in) provided by financing activities		(9,065)		4,260
Decrease in cash and cash equivalents		(436)		(1,469)
Cash and cash equivalents beginning of period		739		1,773
Cash and cash equivalents end of period		$ 303		$ 304
See notes to unaudited consolidated condensed financial statements

The accompanying Unaudited Consolidated Condensed Financial Statements of Peebles Inc. ("Peebles" or the "Company") do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Those adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods, have been made. The results of operations for such interim periods are not necessarily indicative of the results of operations for a full year. The Unaudited Consolidated Condensed Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto filed with this Form 8-K/A.

Organization and Nature of Operations: Peebles Inc. ("Peebles" or the "Company") 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"). Peebles operates retail department stores offering predominately fashion merchandise for the entire family and selected home accessories. At November 1, 2003, the Company was operating 136 stores located primarily in small and medium sized communities, which typically do not have a mall-based department store. The stores serve communities in 17 states, located primarily in the Southeast and Mid-Atlantic.

Principles of Consolidation: The consolidated financial statements include the accounts of Peebles Inc. and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated.

NOTE B- SUBSEQUENT EVENT

On November 4, 2003, Stage Stores, Inc. acquired Peebles. The acquisition was made pursuant to an Agreement and Plan of Merger, dated as of October 7, 2003, and a First Amendment to Agreement and Plan of Merger, dated November 3, 2003, with PHC Retail Holding Company, the parent of Peebles. The purchase price for Peebles was approximately $174.9 million, including acquisition costs and net of cash acquired and debt assumed.

The following unaudited pro forma combined condensed financial statements give effect to the acquisition of Peebles Inc. ("Peebles") by Stage Stores, Inc. ("Stage Stores" or the "Company") (the "Acquisition"). The Acquisition, which was effective November 4, 2003 (the "Closing Date"), was made pursuant to an Agreement and Plan of Merger, dated as of October 7, 2003, and a First Amendment to Agreement and Plan of Merger, dated as of November 3, 2003, by and among the Company, Specialty Retailers (TX) LP, a wholly owned subsidiary of the Company, Stage Acquisition Corporation, a wholly owned subsidiary of the Company, and PHC Retail Holding Company ("PHC Retail"), the parent of Peebles. PHC Retail, a closely held company, had no significant assets or operations other than the entire equity interest of Peebles.

This Acquisition is being accounted for using the purchase method of accounting with an effective date for accounting purposes of November 1, 2003, the end of the Company's third fiscal quarter. The estimates of the fair value of the acquired assets and liabilities, and related estimated useful lives are based on valuations that are preliminary. These valuations may be updated with respect to deferred taxes, fixed assets, intangible assets and certain assumed liabilities, and may change from the amounts shown. The unaudited pro forma combined condensed financial statements are based on assumptions that the Company believes are reasonable under the circumstances and are presented for illustrative purposes only. They are not necessarily indicative of the operating results and financial position that might have been achieved had the transaction occurred as of an earlier or later date, nor are they necessarily indicative of operating results and financial position that may occur in the future.

The unaudited pro forma combined condensed financial statements have been prepared from, and should be read in conjunction with, the historical consolidated financial statements and notes thereto in (1) Stage Stores Annual Report on Form 10-K for the year ended February 1, 2003, (2) Stage Stores Quarterly Report on Form 10-Q for the thirty-nine weeks ended November 1, 2003, and (3) Peebles consolidated financial statements included in Appendices A and B to this Form 8-K/A.

The Acquisition was funded principally with proceeds from the sale of the Company's private label credit card portfolio on September 12, 2003 (the "Credit Card Portfolio Sale"). Accordingly, pro forma adjustments are being reflected to remove the historical operating results associated with the Company's private label credit card program as previously disclosed in the Form 8-K filed on September 22, 2003.

The unaudited pro forma combined condensed balance sheet as of November 1, 2003 gives effect to the Acquisition as of November 1, 2003. The unaudited pro forma combined condensed balance sheet as of November 1, 2003 has been derived from the unaudited historical consolidated balance sheets of Stage Stores and Peebles as of November 1, 2003.

As required by the rules of the Securities and Exchange Commission, the unaudited pro forma combined condensed statements of income for the thirty-nine weeks ended November 1, 2003 and the year ended February 1, 2003 give effect to the Acquisition as if it had occurred on the first day of the Company's 2002 fiscal year, with the exception that the purchase accounting adjustments were estimated based on the Closing Date.

The unaudited pro forma combined condensed statements of income for the year ended February 1, 2003 and for the thirty-nine weeks ended November 1, 2003 give effect to the Acquisition and the Credit Card Portfolio Sale, and have been derived from the audited historical consolidated statements of income of Stage Stores and Peebles for the year ended February 1, 2003 and the unaudited historical consolidated statements of income of Stage Stores and Peebles for the thirty-nine weeks ended November 1, 2003.

On November 4, 2003, the Company completed the acquisition of Peebles. The Acquisition is accounted for using the purchase method of accounting.  Under the purchase method of accounting, the purchase price is allocated to assets acquired, including identifiable intangible assets, and liabilities assumed based on their respective fair values on the Closing Date.  Purchase price in excess of net tangible, and identifiable intangible, assets and liabilities assumed has been recorded as goodwill.

The following table sets forth the components of the purchase price:

Cash consideration paid at closing	$ 173,238
Estimated accrued acquisition costs	1,651
Total purchase consideration	174,889
Less: Historical net book value of net assets acquired	(116,563)
Purchase price in excess of historical net book value	58,326
Add: Adjustments to fair value of acquired net assets	24,223
Estimated goodwill	$ 82,549

                    (a)     On January 9, 2004, the Company entered into a definitive purchase and sale agreement with a subsidiary of Alliance Data System Corporation ("ADS") to sell Peebles' private label credit card portfolio. Closing is expected to occur during the first quarter of the 2004 fiscal year. The purchase and sale agreement provides for the Company to receive at closing an amount which approximates the amount of account balances outstanding at the time of closing. The Company will be obligated to reimburse ADS up to a total of $3.5 million during the first three years after the sale based on the non-attainment of a defined net portfolio yield performance. The adjustment to accounts receivable primarily reflects the Company's $3.5 million obligation related to the proposed sale of the private label credit card portfolio.

                    (e)    Write-off historical goodwill and record estimated goodwill resulting from the purchase price paid in excess of fair value of net tangible and identifiable intangibles assets and liabilities assumed.

                    (f)    Record trademark asset of $14,910.

                    (g)    Write-off of historical deferred financing costs and certain other intangible assets.

                    (h)    Adjust the obligation related to the defined benefit pension plan to an amount equal to the excess of the projected benefit obligation over the fair value of plan assets at November 1, 2003 and to write-off assets and liabilities associated with certain other supplemental benefit plans which were paid and terminated at closing of acquisition.

            3.     Other adjustments:

                    (b)    Elimination of Peebles' equity balances as of November 1, 2003.

                    (c)    Recognition of deferred taxes on adjustments to fair value of acquired net assets and acquisition costs.

                    (d)    Reclassification of deferred tax liabilities for the financial statements presentation.

Statement of Income Adjustments for the fiscal year ended February 1, 2003:

            8.    Adjust income tax provision to reflect the Company's statutory tax rate at 37%.

            9.    Reflect the removal of the historical income contribution related to the Credit Card Portfolio Sale:

		Year Ended
		February 1,
		2003
Service charge and late fee income, net of charge-offs of $11,503		$ 71,081
Other revenues		670
Provision for bad debts		(33,693)
General and administrative costs		(14,734)
Subtotal before interest expense and other adjustments		23,324
Interest expense on securitization facility borrowings		(4,924)
Difference due to securitization accounting		493
Net credit income		$ 18,893

              14.    Record interest expense of $309 on incremental borrowings had the transaction occurred on February 2, 2002.

              15.    Adjust income tax provision to reflect the Company's statutory tax rate of 36.5%.

            18. Eliminate the gain on sale of credit card portfolio of $12,218.