SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.

For the quarterly period ended August 3, 1996.

___ Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.

For the transition period from __________ to
__________.

Commission File No. N/A

COUNTY SEAT STORES, INC.
(Exact name of registrant as specified in its charter)

Minnesota 41 - 1272706
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

17950 Preston Road, Suite 1000
Dallas, Texas 75252-5638
(Address of principal executive offices)
(214) 248-5100
(Registrant's telephone number, including area code)
____________________________________________________

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 registrantwas required to file such reports).
YES X NO

(2) has been subject to such filing requirements for the past
90 days. YES X NO

As of September 17, 1996, 1,000 shares of Common Stock
were outstanding.

COUNTY SEAT STORES, INC.

INDEX

Part I. Financial Information Page

Item 1. Consolidated Financial Statements:

Consolidated Balance Sheets
as of August 3, 1996, July 29,
1995 and February 3, 1996 . . . . . . . . . . 3

Consolidated Statements of Operations
for the thirteen and twenty-six
weeks ended August 3, 1996 and
July 29, 1995 . . . . . . . . . . . . . . . . 4

Consolidated Statements of Cash
Flows for the twenty-six weeks
ended August 3, 1996 and
July 29, 1995 . . . . . . . . . . . . . . . . 5

Notes to Interim Consolidated
Financial Statements. . . . . . . . . . . . . 6

Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . . . . . 10

Part II. Other Information

Item 5. Other Information . . . . . . . . . . . . . . 16

Item 6. Exhibits and Reports on Form 8 - K. . . . . . 16

Signatures. . . . . . . . . . . . . . . . . . 17

Exhibit Index . . . . . . . . . . . . . . . . 18

Part I. - Item 1. Consolidated Financial Statements

COUNTY SEAT STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Amounts)
(Unaudited)

August 3, July 29, February 3,
1996 1995 1996
ASSETS

Current Assets:
Cash and cash equivalents $ 10,603 $ 8,125 $ 8,166
Receivables 1,486 2,778 2,658
Merchandise inventories 132,580 143,474 110,744
Prepaid expenses 10,876 11,177 11,188
Deferred tax benefit 2,826 10,296 989
Total current assets 158,371 175,850 133,745
Property and equipment, at cost 119,425 117,466 120,277
Less--Accumulated depreciation and
amortization (65,943) (52,128) (61,674)
Property and equipment, net 53,482 65,338 58,603
Other Assets, net:
Debt issuance costs 3,816 3,408 3,073
Deferred income taxes 2,016 6,198 2,368
Excess of purchase price over
net assets acquired - 75,215 -
Other 814 1,431 1,303
Total other assets, net 6,646 86,252 6,744
$218,499 $327,440 $199,092

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Borrowings under credit agreement $ 81,800 $ 43,700 $ 27,000
Current maturities of long-term debt 26 29 25
Accounts payable 47,397 65,472 36,754
Accrued expenses 21,864 18,628 19,913
Accrued income taxes 3,183 1,341 3,007
Total current liabilities 154,270 129,170 86,699
Long-term debt 105,018 135,047 130,031
Other long-term liabilities 11,006 11,094 11,242
Commitments and contingencies
Redeemable preferred stock 48,521 40,389 44,319
Shareholders' Equity (Deficit):
Common stock: par value $1.00 per share;
1,000 shares authorized, issued and
outstanding 1 1 1
Paid-in capital 49,789 49,789 49,789
Accumulated deficit (150,106) (38,050) (122,989)
Total shareholders' equity
(deficit) (100,316) 11,740 (73,199)
$218,499 $327,440 $199,092

See accompanying Notes To Interim Consolidated Financial Statements.

COUNTY SEAT STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Share Amounts)
(Unaudited)

13 Weeks Ended 26 Weeks Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995

Net sales $121,727 $130,110 $243,331 $254,299
Cost of sales, including buying and
occupancy 90,283 95,123 185,812 190,061
Gross profit 31,444 34,987 57,519 64,238
Selling, general and administrative expenses 33,647 32,169 64,949 62,042
Depreciation and amortization 2,956 3,531 5,915 6,787
Loss from operations (5,159) (713) (13,345) (4,591)
Interest expense, net 5,072 5,200 9,759 10,311
Loss before income taxes
and extraordinary items (10,231) (5,913) (23,104) (14,902)
Income taxes 3,909 (2,456) (1,240) (6,527)
Loss before extraordinary items (14,140) (3,457) (21,864) (8,375)
Extraordinary items, net of income tax benefit - 9,997 - 9,997
Net loss $ (14,140) $ (13,454) $(21,864) $ (18,372)

See accompanying Notes To Interim Consolidated Financial Statements.

COUNTY SEAT STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)

26 Weeks Ended
August 3, July 29,
1996 1995

Cash Flows from Operating Activities:
Net loss $ (21,864) $ (18,372)
Adjustments to reconcile net loss to net cash
used for operating activities:
Extraordinary items - 9,997
Depreciation and amortization 5,915 6,787
Amortization of debt issuance costs and discount 492 924
Rent expense in excess of cash outlays, net 53 189
Deferred tax benefit (1,240) (3,880)
Changes in operating assets and liabilities:
Receivables 625 2,371
Merchandise inventories (21,836) (47,203)
Prepaid expenses 313 (1,288)
Accounts payable 11,211 25,358
Accrued expenses 2,746 (4,047)
Accrued income taxes (70) (3,161)
Other non-current assets and liabilities (26) (471)
Net cash used for operating activities (23,681) (32,796)
Cash Flows from Financing Activities:
Borrowings under the Credit Agreement, net 29,800 73,700
Issuance of long-term debt - 104,943
Debt issuance costs and prepayment premiums (1,257) (6,781)
Principal payments on long-term debt and capital
leases (12) (20)
Repayment of long-term debt - (150,795)
Dividend to parent (1,051) (1,051)
Advance to parent - (235)
Net cash provided by financing activities 27,480 19,761
Cash Flows from Investing Activities:
Capital expenditures (1,365) (9,313)
Proceeds from disposal of property and equipment 3 14
Net cash used for investing activities (1,362) (9,299)
Net Increase (Decrease) in Cash and Cash Equivalents 2,437 (22,334)
Cash and Cash Equivalents:
Beginning of period 8,166 30,459
End of period $10,603 $ 8,125
Cash Paid During the Period For:
Interest $ 8,931 $12,519
Income taxes $ 70 $ 514

See accompanying Notes To Interim Consolidated Financial Statements.

COUNTY SEAT STORES, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

The accompanying interim consolidated financial statements
represent those of County Seat Stores, Inc. (County Seat) and its
wholly-owned subsidiary, CSS Trade Names, Inc. (Trade Names)
(together, the Company). The Company is a wholly-owned
subsidiary of County Seat, Inc. (CSI).

The Company is the nation's largest specialty retailer selling
both brand name and private-label jeans and jeanswear. The
Company operated 740 stores in 48 states as of August 3, 1996.
The Company's 681 County Seat stores, located almost
exclusively in regional shopping malls, offer one-stop shopping
for daily casual wear featuring a contemporary jeanswear look.
The Company's wide selection of designer brands, including
Girbaud, Guess?, Calvin Klein, Tommy Hilfiger and popular
national brands such as Levi's as well as its proprietary brands,
County Seat [Registered Trademark], Nuovo [Registered
Trademark] and Ten Star [Registered Trademark] makes County
Seat a destination store for jeans. The Company operates 34
County Seat Outlet stores offering discount pricing on special
purchase and clearance merchandise and 21 Levi's Outlet stores
under license from Levi Strauss & Co. offering a full range of
Levi's and Docker's off-price merchandise for both adults and
children. The Company also operates four The Old Farmer's
Almanac General Stores, a new retail concept selling products
associated with American country living, under license from
Yankee Publishing, Inc., the publisher of The Old Farmer's
Almanac.

The activities of Trade Names consist principally of licensing
the rights to the County Seat service marks to these stores.

2. Basis of Presentation

The accompanying interim consolidated financial statements
are unaudited and do not contain all disclosures required by
generally accepted accounting principles to be included in a
complete set of financial statements. The significant accounting
policies and certain financial information which are normally
included in financial statements prepared in accordance with
generally accepted accounting principles, but which are not
required for interim purposes, have been condensed or omitted.
Accordingly, these statements should be read in conjunction with
the Company's audited financial statements as of and for the year
ended February 3, 1996 included in the Company's Annual
Report on Form 10-K.

In the opinion of management, the accompanying interim
consolidated financial statements reflect all normally recurring
adjustments that are necessary for a fair presentation of the
interim periods. Due to the seasonal nature of the Company's
business, operating results for the interim periods are not
necessarily indicative of results for the full year. All significant
intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with
generally accepted accounting principles requires Management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

3. Significant Accounting Policies

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents approximates
the fair value because of their short maturities. At August 3,
1996, the book value of the Company's borrowings under the
Credit Agreement was estimated to approximate the fair value
and the recorded value of the Company's 12% senior
subordinated notes (the "12% Senior Subordinated Notes") was
estimated to have exceeded the fair value by approximately
$48,300,000. The fair value of the Company's long-term debt
is estimated based on the quoted market prices for the same or
similar issues or on the rates currently available to the Company
for debt of the same remaining maturities.

4. Credit Agreement

The Credit Agreement is funded through a syndicate of
commercial lenders providing a senior secured reducing
revolving credit facility to fund seasonal working capital
requirements and the May 1995 redemption in full of all of the
Company's then outstanding senior notes.

The Credit Agreement and the indenture for the Company's
12% Senior Subordinated Notes (the "Indenture") contain certain
covenants which, among other things, limit the amount of debt
of the Company, restrict the payment of interest on CSI's 9%
Exchange Debentures, restrict the payment of cash dividends on
the Company's Series A senior exchangeable preferred stock and
the CSI Series A junior exchangeable preferred stock, limit
expenditures for property, equipment and rent under operating
leases and require the Company to maintain certain financial
ratios. The most restrictive financial covenants at August 3,
1996 for the Company included, as defined, a minimum current
ratio (1.10 to 1.0); minimum interest coverage ratio (.90 to 1.0);
minimum adjusted net worth, as defined ($30,000,000 including
redeemable preferred stock); minimum EBITDA, as defined
($24,800,000) and minimum fixed charge coverage ratio (1.15
to 1.0). The Credit Agreement limits the level of capital
expenditures to $4,000,000, $3,600,000, $5,000,000 and
$5,000,000 in fiscal 1996, 1997, 1998 and 1999, respectively.
The permitted capital expenditures will be increased if the
Company generates defined excess cash flow levels.

Effective February 3, 1996, the Company and CSI amended
the Credit Agreement to provide an increased borrowing
commitment, secure borrowings with all assets of the Company,
make certain financial covenants less restrictive and further limit
capital expenditures. The Company incurred fees and expenses
of approximately $1,300,000 in the first quarter of fiscal 1996
related to the amendment to the Credit Agreement, which will be
amortized over its remaining term.

The Company has obtained an amendment effective August
3, 1996 and a discretionary waiver effective August 31, 1996
with respect to trailing 12-month EBITDA requirements under
the Credit Agreement. The waiver will expire September 24,
1996, unless extended, and is revocable at the election of the
requisite banks under the Credit Agreement. In the absence of
a current amendment, it will likely be necessary for the
Company to obtain amendments or waivers of covenants with
respect to the remaining quarters of fiscal 1996 and thereafter.
The Company is in the process of meeting with the members of
its bank group to discuss additional changes to the Credit
Agreement to modify its financial covenants and other terms. A
semi-annual interest payment on the Company's 12% Senior
Subordinated Notes is due October 1, 1996. In the absence of
an amendment or extension of the waiver, the requisite banks
will be permitted to prevent such payment. Failure to make such
payment, whether or not prevented by the banks, will constitute
a default under the Indenture after the 30-day grace period
provided in the Indenture has expired. The Company has
initiated discussions with certain holders of the 12% Senior
Subordinated Notes with respect to a possible financial
restructuring and is evaluating such other financial alternatives
as may be necessary. In addition, if an appropriate amendment
or waiver is not obtained, the Company will not be permitted to
advance funds to permit CSI to make the interest payment due
November 30, 1996 on CSI's 9% Exchange Debentures. No
assurance can be given that satisfactory amendments,
modifications or waivers to the terms of the Credit Agreement or
the 12% Senior Subordinated Notes can be negotiated.

The commitment under the Credit Agreement provides for
borrowings up to $135,000,000 including a $50,000,000 letter of
credit facility. Availability under the Credit Agreement is
limited to the lesser of certain percentages of eligible inventory
or $135,000,000 through December 31, 1996. The commitment
under the Credit Agreement will reduce to $125,000,000 on
December 31, 1996. In addition, the commitment will be
reduced if the Company generates defined excess cash flow
levels. The Credit Agreement matures on December 31, 1999.
Availability is reduced by any amounts drawn under the facility
as well as outstanding letters of credit. The Credit Agreement
also requires that for a period of 30 consecutive days after each
December 15 and before each February 15 of the following year,
the Company must not have any aggregate borrowings (including
Bankers Acceptances) outstanding under the Credit Agreement
less cash on deposit, in excess of $50,000,000. The permitted
aggregated borrowings during this 30-day period will be reduced
if the Company generates defined excess cash flow levels.
Borrowings under the facility are secured by the Company's
assets and guaranteed by CSI. CSI's guarantee is secured by a
pledge of its primary asset, the outstanding common stock of the
Company.

In connection with the amendment effective August 3, 1996,
the interest rate on borrowings under the Credit Agreement has
been increased by 0.5%. At the option of the Company, interest
is payable on borrowings under the Credit Agreement at a prime
rate plus 2.0% or a Eurodollar rate plus 3.0%. The Credit
Agreement provides for a commitment fee during the period
prior to maturity of 0.5% of the unutilized commitment under
the Credit Agreement. Due to the revocable nature of the
current waiver, all loans under the Credit Agreement were
classified as a current liability as of August 3, 1996. Borrowings
of $30,000,000 and $25,000,000 under the Credit Agreement
were classified as long-term debt as of July 29, 1995 and
February 3, 1996, respectively.

Loans, borrowing base and letter of credit commitments
under the Credit Agreement were as follows (dollars in
thousands):

26 Weeks Ended
August 3
1996

At Period-End
Loans outstanding . . . . . . . . . . . . . . . . . . $ 81,800
Borrowing base. . . . . . . . . . . . . . . . . . . . 132,721
Available borrowing base. . . . . . . . . . . . . . . 10,078
Letter of credit commitments outstanding. . . . . . . 22,201

During the Period
Days loans were outstanding . . . . . . . . . . . . . 182
Maximum loan borrowing. . . . . . . . . . . . . . . . $ 91,000
Average loan borrowing. . . . . . . . . . . . . . . . 66,490
Weighted average interest rate. . . . . . . . . . . . 8.22%

5. Redeemable Preferred Stock

The aggregate redemption value of the County Seat Stores,
Inc. Series A and Series B senior exchangeable preferred stock,
par value $.01, was $49,550,000 at August 3, 1996. In the
twenty-six weeks ended August 3, 1996, the Company recorded
$4,202,000 of dividends and accretion related to the County Seat
Stores, Inc. senior exchangeable preferred stock.

Of the 4,000,000 shares of County Seat Stores, Inc. senior
exchangeable preferred stock authorized, 1,510,896 shares were
issued and outstanding at August 3, 1996.

Cumulative dividends on the County Seat Stores, Inc. Series
B senior exchangeable preferred stock compound as if a stock
dividend was declared at each quarterly dividend date.
Undeclared, unpaid stock dividends were $10,274,000 and
equivalent to 410,962 shares at August 3, 1996. These
equivalent shares are not issued or outstanding.

6. Income Taxes

The Company and CSI account for income taxes in
accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". This standard
requires, among other things, recognition of future tax benefits,
measured by enacted tax rates, attributable to deductible
temporary differences between financial statement and income tax
bases of assets and liabilities and to tax net operating loss
carryforwards to the extent that realization of such benefits is
more likely than not. Management cannot predict with assurance
that there will be sufficient operating income to fully utilize its
deferred income tax assets. Therefore, deferred tax assets have
been reduced by a valuation allowance of $16,200,000, of which
$7,600,000 was recorded in the second quarter of fiscal 1996.
Management has significantly discounted future projections of
taxable income in determining the valuation allowance. The
Company believes the amount of recognized deferred tax assets
is an amount more likely than not to be realized based on its
expectations regarding taxable income over the remainder of the
current fiscal year.

7. Related Party Transactions

Affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation (DLJ) held 1,407,630 shares of CSI junior
exchangeable preferred stock and 760,760 shares of County Seat
Stores, Inc. senior exchangeable preferred stock as of August 3,
1996. Undeclared, unpaid stock dividends on the CSI's junior
preferred stock and County Seat's senior preferred stock held by
affiliates of DLJ, if issued, would be equivalent to 85,725 shares
and 213,485 shares, respectively, as of August 3, 1996. In
addition, affiliates of DLJ held 917,746 shares of CSI common
stock as of August 3, 1996.

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Results of Operations

The following table sets forth the Company's operating results as a
percentage of net sales for the periods
indicated:

13 Weeks Ended 26 Weeks Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995

Statement of Operations Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and
occupancy 74.2 73.1 76.4 74.7
Gross profit 25.8 26.9 23.6 25.3
Selling, general and administrative
expenses 27.6 24.7 26.7 24.4
Depreciation and amortization 2.4 2.7 2.4 2.7
Loss from operations (4.2) (0.5) (5.5) (1.8)
Interest expense, net 4.2 4.0 4.0 4.1
Loss before income taxes and extraordinary
items (8.4) (4.5) (9.5) (5.9)
Income taxes 3.2 (1.9) (0.5) (2.6)
Loss before extraordinary items (11.6) (2.6) (9.0) (3.3)
Extraordinary items - 7.7 - 3.9
Net Loss (11.6)% (10.3)% (9.0)% (7.2)%

Number of Stores:
Openings 1 10 5 24
Closings (5) (4) (10) (5)
Net increase (decrease) (4) 6 (5) 19
End of period 740 720 740 720

Net sales for the second quarter of fiscal 1996 were $121.7
million, $8.4 million or 6.5% below net sales of $130.1 million
reported in the second quarter of fiscal 1995. A $13.1 million decrease
in sales from comparable stores and a $1.8 million reduction in sales
due to store closings were partially offset by a $6.5 million increase in
net sales from new store locations. Comparable store sales in the
second quarter of fiscal 1996 decreased 10.2% from the second quarter
of fiscal 1995. Men's apparel and accessories contributed a decrease
of 7.7% and women's apparel and accessories contributed a decrease
of 2.5% to the comparable store sales results. The Company defines
comparable stores to be stores that have reached their thirteenth full
month of operations, excluding closed stores. Stores open less than
thirteen full months are defined as new stores.

Net sales for the first six months of fiscal 1996 were $243.3
million, $11.0 million or 4.3% below net sales of $254.3 million in the
first six months of fiscal 1995. A $22.4 million decrease from
comparable store sales and a $3.4 million reduction in sales due to
store closings were partially offset by a $14.8 million increase in net
sales from new store locations. Comparable store sales decreased
9.0% in the first six months of fiscal 1996 in comparison to the first
six months of fiscal 1995. Men's apparel and accessories and women's
apparel and accessories contributed decreases of 7.9% and 1.1%,
respectively, to the comparable store sales results.

Gross profit after buying and occupancy expense was $31.4 million
in the second quarter of fiscal 1996, a decrease of $3.5 million, or
10.1% compared to the second quarter of fiscal 1995. The decrease
was primarily due to lower comparable store sales and additional
buying and occupancy costs from new store locations, partially offset
by sales from new stores and a higher retail margin rate. Gross profit
as a percentage of net sales decreased to 25.8% in the second quarter
of fiscal 1996 from 26.9% in the second quarter of fiscal 1995.
Buying and occupancy costs increased 2.1% as a percentage of sales
due to the decrease in comparable store sales and increased occupancy
costs from new store locations. Retail margins increased 1.0% in the
second quarter of fiscal 1996 compared to the second quarter of fiscal
1995, reflecting stronger margins in women's apparel.

For the first six months of fiscal 1996, gross profit decreased $6.7
million or 10.5% compared to the first six months of fiscal 1995. The
decrease was primarily due to lower comparable store sales and
additional buying and occupancy costs from new store locations,
partially offset by sales from new stores and a slightly higher retail
margin rate. Gross profit as a percentage of net sales decreased to
23.6% in the first six months of fiscal 1996 compared to 25.3% in the
first six months of fiscal 1995. Buying and occupancy costs increased
2.0% as a percentage of sales due to the decrease in comparable store
sales and increased occupancy costs from new store locations. Retail
margins increased 0.3% in the first six months of fiscal 1996 compared
to the first six months of fiscal 1995, primarily due to stronger margins
in womens's apparel.

Selling, general and administrative expenses ("SG&A") increased
$1.5 million, or 4.6%, in the second quarter of fiscal 1996 compared
to the second quarter of fiscal 1995. For the first six months of fiscal
1996, SG&A was $2.9 million or 4.7% above the first six months of
fiscal 1995. The increase was primarily due to store operating
expenses associated with new stores opened in fiscal 1996 and 1995.
In the second quarter of fiscal 1996, the Company recorded expenses
of $1.1 million to recognize deferred costs related to an executive
severance agreement with Barry Parker, former Chief Executive
Officer of the Company. In the first six months of fiscal 1995, SG&A
included a $1.0 million consulting fee related to the evaluation of the
Company's financial structure. SG&A as a percentage of net sales
increased to 27.6% in the second quarter of fiscal 1996 compared to
24.7% in the second quarter of fiscal 1995. For the first six months
of fiscal 1996, SG&A as a percentage of net sales was 26.7%
compared to 24.4% in the first six months of fiscal 1995. The increase
in SG&A as a percentage of net sales was primarily due to comparable
stores reporting lower sales combined with approximately constant
operating expenses.

Depreciation and amortization expense decreased $0.5 million to
$3.0 million in the second quarter of fiscal 1996 from $3.5 million in
the second quarter of fiscal 1995. Depreciation and amortization
expense decreased $0.9 million to $5.9 million in the first six months
of fiscal 1996 from $6.8 million in the first six months of fiscal 1995.
The decrease was primarily due to the reduction in amortization
expense related to goodwill, partially offset by increased amortization
of other assets. The remaining balance of goodwill was written off in
the third quarter of fiscal 1995. Depreciation and amortization
decreased as a percentage of net sales to 2.4% in the first six months
of fiscal 1996 from 2.7% in the first six months of fiscal 1995,
primarily as a result of the reduction in goodwill amortization.

Net interest expense decreased $0.1 million to $5.1 million in the
second quarter of fiscal 1996 from $5.2 million the second quarter of
fiscal 1995. Interest expense decreased $0.5 million to $9.8 million in
the first six months of fiscal 1996 from $10.3 million in the first six
months of fiscal 1995. The decrease for the first six months of fiscal
1996 was primarily due to lower interest expense and issuance cost
amortization of $1.9 million on the Senior Notes, reflecting the May
1995 redemption of the Senior Notes, partially offset by a $1.5 million
increase in interest expense on borrowings under the Credit Agreement.
Additional interest expense related to higher total debt outstanding was
substantially offset by a lower net effective interest rate. Other net
interest expense decreased by $0.1 million primarily due to lower
discount and issuance cost amortization.

The Company recorded an income tax benefit of $1.2 million in the
first six months of fiscal 1996 compared to an income tax benefit of
$6.5 million in the first six months of fiscal 1995. The Company's
income tax provision includes a $8.8 million income tax benefit for the
first six months of fiscal 1996, partially offset by a $7.6 million
valuation allowance for deferred tax assets which was recorded in the
second quarter of fiscal 1996 (see - "Liquidity and Capital Resources").
The effective income tax rate of 5.4% for the first six months of fiscal
1996 differed from the statutory federal rate primarily due to the effect
of the valuation allowance for deferred tax assets and non-deductible
minority interest preferred stock dividend and accretion charges.

The net loss of $14.1 million in the second quarter of fiscal 1996
compared to a net loss of $13.5 million in the second quarter of fiscal
1995 was due to the factors discussed above and extraordinary charges
of $10.0 million, net of related income taxes, recorded in the second
quarter of fiscal 1995. The net loss of $21.9 million in the first six
months of fiscal 1996 compared to a net loss of $18.4 million in the
first six months of fiscal 1995 was due to the factors discussed above
and the extraordinary charges in fiscal 1995. The extraordinary
charges in the second quarter of fiscal 1995 related to the redemption
of the Senior Notes and the exchange of the then-outstanding 12%
Senior Subordinated Notes for new 12% Senior Subordinated Notes.

Liquidity and Capital Resources

Financing and Operating Activities

In the third quarter of fiscal 1995, the Company revised its
projections regarding its ability to operate on a profitable basis in the
long term. These projections indicated modification of its capital
structure might be required. The Company's projections of net income
and discounted future cash flows utilized in estimating the fair value of
the Company's goodwill in the third quarter of fiscal 1995 indicated a
refinancing of its existing long-term debt and its obligations under the
redeemable preferred stock might be required at some time in the
future. Management developed projections of net income and cash
flows based on expectations for store growth, retail gross margin rates
and operating expense performance. These expectations were based on
the Company's most recent 5-year experience, and Management's best
estimates of expected future performance, as well as overall
assumptions regarding the economy and the mall-based specialty retail
apparel industry. Important assumptions used in these projections were
an annual sales growth rate of 2%, consistent gross margin rates, an
annual expense inflation rate of 3%, and the ability to refinance debt
maturities as they come due at a cost consistent with the historical cost
of the current long-term debt. No assurance can be given that the
Company will be successful in efforts to address its capital structure
issues or operate on a profitable basis in the long-term.

The Company has obtained an amendment effective August 3, 1996
and a discretionary waiver effective August 31, 1996 with respect to
trailing 12-month EBITDA requirements under the Credit Agreement.
The waiver will expire September 24, 1996, unless extended, and is
revocable at the election of the requisite banks under the Credit
Agreement. In the absence of a current amendment, it will likely be
necessary for the Company to obtain amendments or waivers of
covenants with respect to the remaining quarters of fiscal 1996 and
thereafter. The Company is in the process of meeting with the
members of its bank group to discuss additional changes to the Credit
Agreement to modify its financial covenants and other terms. A semi-
annual interest payment on the Company's 12% Senior Subordinated
Notes is due October 1, 1996. In the absence of an amendment or
extension of the waiver, the requisite banks will be permitted to prevent
such payment. Failure to make such payment, whether or not
prevented by the banks, will constitute a default under the Indenture
after the 30-day grace period provided in the Indenture has expired.
The Company has initiated discussions with certain holders of the 12%
Senior Subordinated Notes with respect to a possible financial
restructuring and is evaluating such other financial alternatives as may
be necessary. In addition, if an appropriate amendment or waiver is
not obtained, the Company will not be permitted to advance funds to
permit CSI to make the interest payment due November 30, 1996 on
CSI's 9% Exchange Debentures. No assurance can be given that
satisfactory amendments, modifications or waivers to the terms of the
Credit Agreement or the 12% Senior Subordinated Notes can be
negotiated.

The Company intends to improve its financial condition and reduce
its dependence on borrowing by slowing expansion, controlling
expenses, closing certain unprofitable stores, improving distribution
center productivity and tightening inventory controls. In the third
quarter of fiscal 1996, Management intends to implement more
aggressive pricing policies to improve inventory turnover in the near-
term and is in the process of reevaluating the Company's
merchandising, marketing, store operations and real estate strategies.
Although Management cannot predict with certainty, operating results
for the third quarter of fiscal 1996 may reflect lower retail margin rates
as a percentage of sales, higher operating expenses in comparison to the
prior year and restructuring charges as a result of actions taken on the
basis of the reevaluation of the Company's operations. In addition, the
results of operations in the second half of fiscal 1996 will reflect the
impact of fewer new store openings in comparison to recent years.

Cash provided by operating activities is the primary source of
liquidity and capital for the Company. After the impact of cash interest
payments, cash used for operations for the twenty-six weeks ended
August 3, 1996 and July 29, 1995 was $23.7 million and $32.8 million,
respectively. The Company made cash interest payments of $8.9
million and $12.5 million in the twenty-six weeks ended August 3,
1996 and July 29, 1995, respectively. Because of the seasonal nature
of the Company's business, positive net cash flow from operations is
typically not generated through the first three quarters of the fiscal
year. The decrease in cash used for operations in the twenty-six weeks
ended August 3, 1996 compared to the twenty-six weeks ended July 29,
1995 was primarily due to lower net spending on merchandise
inventories, partially offset by reduced cash generated from operations.
Additional liquidity to fund working capital activities is provided
through borrowings under the Credit Agreement and open account trade
terms from vendors. While the Company has historically negotiated
open trade terms with the majority of its domestic vendors, recent
financial circumstances have caused the Company to rely more
extensively on letters of credit for its domestic purchase terms. Trade
terms are negotiated with each vendor and may be modified from time
to time. County Seat is not dependent upon factors to support the
Company's purchases from its suppliers. County Seat generates cash
on a daily basis by selling merchandise for cash or payments with
national credit cards. County Seat does not offer its own credit card.

Due to the seasonal nature of County Seat's business, working
capital funding requirements increase as inventory levels peak in
anticipation of the back-to-school and holiday shopping seasons.
Working capital at August 3, 1996 and July 29, 1995 was $4.1 million
and $46.7 million, respectively. The decrease in working capital at
August 3, 1996 compared to July 29, 1995 was primarily due to a
$38.1 million increase in short-term borrowings, reflecting a
reclassification of all loans under the Credit Agreement as a current
liability as of August 3, 1996. At July 29, 1995, $30 million in
borrowings under the Credit Agreement were classified as long-term
debt. Other changes in working capital at August 3, 1996 compared
to July 29, 1995 included a $10.9 million decrease in merchandise
inventories and a $7.5 million reduction in current deferred income tax
assets, partially offset by an $18.1 million reduction in accounts
payable, and a net decrease of $4.2 million in other working capital
components.

The Company's cash requirements are related to funding working
capital for operations, capital expenditures and debt service. In
addition to funding working capital needs through cash generated by
operations, the Company has resources available under the Credit
Agreement to provide seasonal working capital funding. The Credit
Agreement is funded through a syndicate of commercial lenders
providing a senior secured reducing revolving credit facility to fund
seasonal working capital requirements and the May 1995 redemption in
full of all the Company's then outstanding senior notes. The Credit
Agreement and the Indenture contain a number of financial and other
restrictive covenants, including limitations on the ability of the
Company to pay dividends on or redeem common stock beyond certain
specified amounts. In addition, the Credit Agreement is subject to
customary events of default, including, but not limited to, payment
defaults, defaults under other agreements and changes of control.
Effective February 3, 1996, the Company amended the Credit
Agreement to provide an increased borrowing commitment, secure
borrowings with all assets of the Company, make certain financial
covenants less restrictive and further limit capital expenditures.

The commitment under the Credit Agreement provides for
borrowings up to $135 million, including a $50 million letter of credit
facility. Availability under the Credit Agreement is limited to the
lesser of certain percentages of eligible inventory or $135 million
through December 31, 1996. The commitment under the Credit
Agreement will reduce to $125 million on December 31, 1996. In
addition, the commitment will be reduced if the Company generates
defined excess cash flow levels. The Credit Agreement matures on
December 31, 1999. Availability under the Credit Agreement is
reduced by any amounts drawn under the facility as well as outstanding
letters of credit. The Credit Agreement also requires that for a period
of 30 consecutive days after each December 15 and before each
February 15 of the following year, the Company must not have any
aggregate borrowings (including Bankers Acceptances) outstanding
under the Credit Agreement, less cash on deposit, in excess of $50
million. The permitted aggregate borrowings during this 30 day period
will be reduced if the Company generates defined excess cash flow
levels. Borrowings under the facility are secured by the Company's
assets and guaranteed by CSI. CSI's guarantee is secured by a pledge
of its primary asset, the outstanding common stock of the Company.

In connection with the amendment effective August 3, 1996, the
interest rate on borrowings under the Credit Agreement has been
increased by 0.5%. The increase in the cost of borrowing under the
Credit Agreement is not expected to have a material impact on the
results of operations in fiscal 1996. At the option of the Company,
interest is payable on borrowings under the Credit Agreement at
variable rates equal to approximately a prime rate plus 2.0% or a
Eurodollar rate plus 3.0%. The Credit Agreement provides for a
commitment fee during the period prior to maturity of 0.5% of the
unutilized commitment under the Credit Agreement. At August 3,
1996, the Company had cash borrowings outstanding of $81.8 million,
$10.1 million available for borrowing under the Credit Agreement,
banker's acceptances outstanding of $18.6 million, and outstanding
commitments under the letter of credit facility of $22.2 million.
Fluctuations in market interest rates affect the cost of the Company's
borrowings under the Credit Agreement. The impact of fluctuations in
market interest rates in the twenty-six weeks ended August 3, 1996
were not significant to the operating results of the Company. At
August 3, 1996, borrowings under the Credit Agreement accrued
interest at a rate of 8.6%.
13

Net cash capital expenditures were $1.4 million in the first twenty-
six weeks of fiscal 1996. Historically, County Seat has spent capital
primarily to open new stores and improve existing store locations. In
fiscal 1996, the Company will to reduce the number of new store
openings in comparison to prior years and focus on improving the
profitability of existing stores. Due to decreased cash flow and
restrictive debt covenants, the Company's ability to grow through new
store openings is significantly restricted. The Credit Agreement limits
the level of capital expenditures to $4.0 million, $3.6 million, $5.0
million and $5.0 million in fiscal 1996, 1997, 1998 and 1999,
respectively. The permitted capital expenditures will be increased if the
Company generates defined excess cash flow levels. In fiscal 1996, the
Company plans to spend approximately $4.0 million on capital
expenditures including approximately $1.9 million to fund the addition
of approximately seven new stores and three store relocations. The
remaining capital expenditures are expected to be used primarily to
make improvements at existing store locations and to improve
distribution center productivity. The Company expects to fund capital
expenditures primarily through cash generated from operations.

The Company's long-term borrowings, excluding current
maturities, were $105.0 million at August 3, 1996. At August 3, 1996,
the recorded value of the Company's 12% Senior Subordinated Notes
was estimated to have exceeded the fair market value by approximately
$48.3 million. The 12% Senior Subordinated Notes were downgraded
by Moody's and Standard & Poor's bond rating agencies in the fourth
quarter of fiscal 1995.

In fiscal 1995, the Company entered into an agreement with
Yankee Publishing, Inc., the publisher of The Old Farmer's Almanac,
to license the name The Old Farmer's Almanac General Store
[Servicemark] for retail stores to be owned and operated by County
Seat in shopping malls in the United States, Canada and Mexico. The
Company plans to open a limited number of test stores to evaluate the
feasibility of this concept. The Company is currently operating four of
these test stores. If the test stores prove to be successful, the Company
anticipates that substantial capital expenditures and working capital
financing would be required to roll out the concept. In such event, the
Company would require access to other sources of capital which may
include debt or equity financing or other arrangements. There can be
no assurance that any such financing will be available on terms
favorable to the Company or otherwise, and the Company does not
anticipate that such financing would be available in the short term.

CSI is a holding company, the primary asset of which is the
common stock of the Company. Substantially all of CSI's operations
are conducted through the Company, and CSI is dependent on the cash
flow of the Company to meet its payment obligations with respect to
obligations under CSI's 9% Exchange Debentures. In the twenty-six
weeks ended August 3, 1996, the Company paid dividends of $1.1
million to CSI to fund semi-annual interest payments on CSI's 9%
Exchange Debentures. Remedies available to the holders of CSI's 9%
Exchange Debentures for failure to make required interest payments
include the right to accelerate such indebtedness. In the event of a
failure to repay such defaulted indebtedness, the holders of the 9%
Exchange Debentures could foreclose upon the assets of CSI including
the common stock of the Company, which would constitute an event of
default under the Credit Agreement and the Indenture. No assurance
can be given that the Company will have access to resources sufficient
to repay defaulted indebtedness if so required.

The Company is included in the consolidated federal income tax
return of CSI. The tax year-end for the Company and CSI is the
Saturday closest to July 31. At its tax year ended Saturday, August 3,
1996, the Company and CSI had regular income tax operating loss
carryforwards of approximately $14.7 million which can be used to
reduce future income tax payments by approximately $5.6 million,
subject to certain limitations. The Company accounts for income taxes
in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". This standard requires, among
other things, recognition of future tax benefits, measured by enacted tax
rates, attributable to deductible temporary differences between financial
statement and income tax bases of assets and liabilities and to tax net
operating loss carryforwards to the extent that realization of such
benefits is more likely than not. Management cannot predict with
assurance that there will be sufficient operating income to fully utilize
its deferred income tax assets. Therefore, the Company's deferred tax
assets have been reduced by a valuation allowance of $16.2 million.
Management has significantly discounted future projections of taxable
income in determining the valuation allowance. The Company believes
the amount of recognized deferred tax assets is an amount more likely
than not to be realized based on its expectations regarding taxable
income over the remainder of the current fiscal year.

Seasonality

The Company, like most retailers, has a seasonal pattern of sales
and income. The Company has two major selling seasons:
back-to-school in the third quarter and Christmas in the fourth quarter.
The table below sets forth by quarter, 1996, 1995 and 1994 net sales,
gross profit and income (loss) from operations.

Fiscal First Second Third Fourth Total
Year Quarter Quarter Quarter Quarter Year
(dollars in thousands)

1996 Net sales . . . . . . . . . . . . . . $121,604 $121,727
Gross profit. . . . . . . . . . . . . 26,075 31,444
Income (loss) from operations . . . . (8,186) (5,159)

1995 Net sales . . . . . . . . . . . . . . $124,189 $130,110 $159,476 $205,450 $619,225
Gross profit. . . . . . . . . . . . . 29,251 34,987 41,073 61,900 167,211
Income (loss) from operations(1). . . (3,878) (713) (75,243) 20,868 (58,966)

1994 Net sales . . . . . . . . . . . . . . $112,937 $119,923 $157,338 $198,129 $588,327
Gross profit. . . . . . . . . . . . . 27,535 33,255 46,209 60,850 167,849
Income (loss) from operations . . . . (4,172) 552 12,143 23,020 31,543
____________________

(1)Income (loss) from operations for the third quarter of fiscal 1995 includes a non-recurring charge of $80.2
million for the write-off of certain long-lived assets.

Inflation, Economic Trends and Potential Developments

Although its operations are affected by general economic trends, the
Company does not believe that inflation has had a material effect on the
results of its operations during the past three fiscal years. On the other
hand, Management believes that the Company and other specialty
retailers have suffered from price "deflation", which has had a negative
impact on sales and gross margin. The Company believes that poor
economic conditions have adversely affected its sales and profitability
in prior years and may affect results in future periods.

Forward Looking Information

This report contains various forward-looking statements and
information that are based on Management's beliefs as well as
assumptions made by and information currently available to
Management. When used in this document, the words "anticipate",
"estimate", "expect", "predict", "project" and similar expressions are
intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. Among the key factors that
may have a direct bearing on the Company's results are the need to
meet existing financial obligations, risks resulting from the Company's
highly leveraged capital structure, the highly competitive nature of the
Company's industry, the impact of any changes in the Company's
operating strategies, restrictions on capital expenditures imposed under
the Credit Agreement, the Company's relationships with key vendors,
general risks of doing business abroad resulting from purchasing a large
portion of the Company's merchandise from foreign suppliers and the
likely need to ultimately refinance existing obligations. In light of these
risks and uncertainties, there can be no assurance that the forward-
looking statements contained in this report will in fact transpire.

Part II.

Item 5. Other Information

In the second quarter of fiscal 1996, the Company's Board
of Directors accepted the resignation of Barry J.C. Parker,
who had served as President, Chief Executive Officer and
Chairman of the Board. Gilbert C. Osnos has been retained
as interim Chief Executive Officer of the Company until a
permanent Chief Executive Officer is engaged.

In August 1996, the Company's Board of Directors
accepted the resignations of Joyce A. Konrad, Senior Vice
President/Merchandising, and Michael L. Konrad, Senior
Vice President/Stores. In the third quarter of fiscal 1996,
the Company expects to record expenses of $0.5 million to
recognize deferred costs for related executive severance
agreements.

Item 6. Exhibits and Reports on Form 8 - K

(a) Exhibits:

4(ii)(a)(14) Third Amendment to Credit Agreement,
dated as of August 3, 1996, by and
among County Seat, Inc., County Seat
Stores Inc., various Banks set forth
therein and Bankers Trust Company as
Agent for the Banks.

4(ii)(a)(15) Fourth Amendment to Credit
Agreement, dated as of August 31,
1996, by and among County Seat, Inc.,
County Seat Stores, Inc., various Banks
set forth therein and Bankers Trust
Company as Agent for the Banks.

10(iii)(u) Engagement agreement dated as of July
29, 1996 between Osnos & Company,
Inc. and County Seat, Inc.

27 Financial Data Schedule

(b) Reports on Form 8 - K: none

SIGNATURES

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 thereunto duly
authorized.

Dated: September 17, 1996

COUNTY SEAT STORES, INC.

By /s/Edward A. Tomechko

Edward A. Tomechko
Senior Vice President and
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial and accounting officer

EXHIBIT INDEX

4(ii)(a)(14) Third Amendment to Credit Agreement, dated as of
August 3, 1996, by and among County Seat, Inc., County Seat
Stores, Inc., various Banks set forth therein and Bankers
Trust Company as Agent for the Banks.

4(ii)(a)(15) Fourth Amendment to Credit Agrement, dated as of
August 31, 1996, by and among County Seat, Inc., County Seat
Stores, Inc., various Banks set forth therein and Bankers
Trust Company as Agent for the Banks.

10(iii)(u) Engagement agreement dated as of July 29, 1996 between Osnos &
Company, Inc. and County Seat, Inc.

27 Financial Data Schedule