
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


(Mark One)
   (X)    Quarterly report pursuant to Section 13 or 15 (d) of the Securities
            Exchange Act of 1934
            For the quarterly period ended June 30, 1999


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

Commission File Number: 0-25464



                            DOLLAR TREE STORES, INC.
             (Exact name of registrant as specified in its charter)


               Virginia                            54-1387365
    (State or other jurisdiction of             (I.R.S. Employer
     incorporation or organization)            Identification No.)

                                500 Volvo Parkway
                           Chesapeake, Virginia 23320
                    (Address of principal executive offices)

                         Telephone Number (757) 321-5000
              (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
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days:

                           Yes (X)                            No ( )

As of August 6, 1999, there were 61,940,070  shares of the  Registrant's  Common
Stock outstanding.




<PAGE>




                            DOLLAR TREE STORES, INC.
                                and subsidiaries

                                      INDEX

            PART I.  FINANCIAL INFORMATION                                 Page

Item 1. Condensed Consolidated Financial Statements:

         Condensed Consolidated Balance Sheets
          June 30, 1999 and December 31, 1998..............................  3

         Condensed Consolidated Income Statements
          Three months and six months ended June 30, 1999 and 1998.........  4

         Condensed Consolidated Statements of Cash Flows
          Six months ended June 30, 1999 and 1998..........................  5

         Notes to Condensed Consolidated Financial Statements..............  6

Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations..............................  8

Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 14

            PART II.  OTHER INFORMATION

Item 1. Legal Proceedings.................................................. 15

Item 4. Submission of Matters to a Vote of Security Holders................ 15

Item 5. Other Information.................................................. 15

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

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


                                        2

<PAGE>
<TABLE>


                            DOLLAR TREE STORES, INC.
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<CAPTION>
                                                            (Unaudited)
                                                             June 30,    December 31,
                                                               1999          1998
                                                            ---------    ------------
                   ASSETS
Current assets:
<S>                                                         <C>            <C>
     Cash and cash equivalents............................. $ 36,502       $ 74,644
     Merchandise inventories...............................  187,247        142,706
     Deferred tax asset....................................    7,615          6,709
     Prepaid expenses and other current assets.............    7,656          7,451
                                                             -------        -------

         Total current assets..............................  239,020        231,510
                                                             -------        -------

Net property and equipment.................................  134,195        122,503
Deferred tax asset.........................................    2,420          2,194
Goodwill, net of accumulated amortization..................   41,587         42,551
Other assets  .............................................    5,849          6,429
                                                             -------        -------

         TOTAL ASSETS...................................... $423,071       $405,187
                                                             =======        =======

<CAPTION>

         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S>                                                         <C>            <C>
     Current portion of long-term debt (note 4)............ $ 25,000       $ 16,500
     Accounts payable......................................   60,322         53,030
     Income taxes payable..................................    4,936         21,353
     Other current liabilities.............................   18,124         26,445
                                                             -------        -------

         Total current liabilities.........................  108,382        117,328
                                                             -------        -------

Long-term debt, excluding current portion..................   24,000         30,000
Other liabilities..........................................    8,405          9,043
                                                             -------        -------

         Total liabilities.................................  140,787        156,371
                                                             -------        -------

Shareholders' equity (note 3):
     Common stock, par value $0.01. Authorized
       300,000,000  shares,  61,887,293  shares issued
       and outstanding at June 30, 1999 and authorized
       100,000,000  shares,  61,380,418 shares issued
       and outstanding at December 31, 1998................      619            614
     Additional paid-in capital............................   66,541         53,030
     Retained earnings.....................................  215,124        195,172
                                                             -------        -------
         Total shareholders' equity........................  282,284        248,816
                                                             -------        -------

         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $423,071       $405,187
                                                             =======        =======



      See accompanying Notes to Condensed Consolidated Financial Statements

</TABLE>

                                        3

<PAGE>
<TABLE>


                            DOLLAR TREE STORES, INC.
                                AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED INCOME STATEMENTS
                      (In thousands, except per share data)
                                  (Unaudited)

<CAPTION>
                                                           Three Months Ended        Six Months Ended
                                                               June 30,                  June 30,
                                                           ------------------        -----------------
                                                           1999         1998         1999         1998
                                                           ----         ----         ----         ----

<S>                                                      <C>          <C>          <C>          <C>
Net sales     ........................................   $253,216     $205,209     $480,259     $385,808

Cost of sales.........................................    159,525      131,130      305,703      247,740
Merger related costs (note 3).........................        443         --            443         --
                                                          -------      -------      -------      -------

         Gross profit.................................     93,248       74,079      174,113      138,068
                                                          -------      -------      -------      -------

Selling, general and administrative expenses:
   Operating expenses.................................     61,710       49,463      117,835       95,460
   Merger related expenses (note 3)...................        607         --            607         --
   Depreciation and amortization......................      6,881        4,889       13,101        9,303
                                                          -------      -------      -------      -------

         Total selling, general
           and administrative expenses................     69,198       54,352      131,543      104,763
                                                          -------      -------      -------      -------

Operating income......................................     24,050       19,727       42,570       33,305
Interest expense......................................        670        1,051        1,152        1,759
                                                          -------      -------      -------      -------

Income before income taxes............................     23,380       18,676       41,418       31,546

Provision for income taxes............................      8,876        6,870       15,587       11,760
                                                          -------      -------      -------      -------

         Net income...................................   $ 14,504     $ 11,806     $ 25,831     $ 19,786
                                                          =======      =======      =======      =======

Net income per share (note 2):
Basic net income per share............................   $   0.23     $   0.19     $   0.42     $   0.32
                                                          =======      =======      =======      =======

Diluted net income per share .........................   $   0.21     $   0.17     $   0.38     $   0.29
                                                          =======      =======      =======      =======

Pro forma income data (note 3):
   Net income.........................................   $ 14,504     $ 11,806     $ 25,831     $ 19,786
   Pro forma adjustment for C-corporation
     income taxes.....................................        271          299          505          395
                                                          -------      -------      -------      -------
   Pro forma net income...............................   $ 14,233     $ 11,507     $ 25,326     $ 19,391
                                                          =======      =======      =======      =======

   Pro forma basic net income per share...............   $   0.23     $   0.19     $   0.41     $   0.32
                                                          =======      =======      =======      =======

   Pro forma diluted net income per share.............   $   0.21     $   0.17     $   0.37     $   0.29
                                                          =======      =======      =======      =======

Weighted average number of common
  shares outstanding..................................     61,815       61,182       61,679       61,051
                                                          =======      =======      =======      =======

Weighted average number of common
  shares and dilutive potential
  common shares outstanding...........................     68,035       67,644       67,972       67,482
                                                          =======      =======      =======      =======


      See accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>


                                        4

<PAGE>
<TABLE>

                            DOLLAR TREE STORES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<CAPTION>

                                                                      Six Months Ended
                                                                           June 30,
                                                                     ------------------

                                                                     1999          1998
                                                                     ----          ----
<S>                                                                <C>           <C>
Cash flows from operating activities:
 Net income   ..................................................   $ 25,831      $ 19,786
                                                                    -------       -------
 Adjustments to reconcile net income to net cash
  used in operating activities:
    Depreciation and amortization...............................     13,101         9,303
    Loss (gain) on disposal of property and equipment...........        (98)          402
    Provision for deferred income taxes.........................     (1,132)         (999)
    Changes in assets and liabilities increasing
     (decreasing) cash and cash equivalents:
       Merchandise inventories..................................    (44,541)      (68,417)
       Prepaid expenses and other current assets................       (205)          814
       Other assets ............................................        339          (115)
       Accounts payable.........................................      7,565          (922)
       Income taxes payable.....................................    (12,175)      (13,521)
       Other current liabilities................................     (8,343)       (1,517)
       Other liabilities........................................       (288)          500
                                                                    -------       -------
        Total adjustments.......................................    (45,777)      (74,472)
                                                                    -------       -------
        Net cash used in operating activities ..................    (19,946)      (54,686)
                                                                    -------       -------
Cash flows from investing activities:
 Capital expenditures ..........................................    (23,952)      (20,182)
 Proceeds from sale of property and equipment...................         86           138
                                                                    -------       -------
        Net cash used in investing activities...................    (23,866)      (20,044)
                                                                    -------       -------
Cash flows from financing activities:
 Distributions paid (note 3)....................................     (1,410)       (1,025)
 Proceeds from long-term debt...................................      2,500        89,200
 Repayment of long-term debt and facility fees..................       --         (57,407)
 Net change in notes payable to bank............................       --           1,919
 Principal payments under capital lease obligations.............       (225)         (183)
 Proceeds from stock issued pursuant to
  stock-based compensation plans................................      4,805         3,520
                                                                    -------       -------
        Net cash provided by financing activities...............      5,670        36,024
                                                                    -------       -------
Net decrease in cash and cash equivalents.......................    (38,142)      (38,706)
Cash and cash equivalents at beginning of period................     74,644        47,638
                                                                    -------       -------
Cash and cash equivalents at end of period......................   $ 36,502      $  8,932
                                                                    =======       =======


      See accompanying Notes to Condensed Consolidated Financial Statements

</TABLE>

                                        5

<PAGE>

                            DOLLAR TREE STORES, INC.
                                AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The condensed consolidated financial statements of Dollar Tree Stores, Inc.
and  subsidiaries  (the  Company)  at June  30,  1999,  and for the  three-  and
six-month  periods  then  ended,  are  unaudited  and  reflect  all  adjustments
(consisting only of normal recurring  adjustments)  which are, in the opinion of
management,  necessary for a fair  presentation  of the  financial  position and
operating  results for the interim periods.  The condensed  consolidated  income
statements for the periods ended June 30, 1998 reflect the results of operations
for Dollar Tree Stores, Inc. and Tehan's Merchandising, Inc. (Only $One) for the
three-  and  six-month   periods  then  ended   combined  with  the  Step  Ahead
Investments, Inc. (Step Ahead) three- and six-month periods ended July 26, 1998.
The condensed consolidated statement of cash flows for the period ended June 30,
1998  reflects  cash flows for Dollar Tree  Stores,  Inc.  and Only $One for the
six-month  period then ended combined with the Step Ahead six-month period ended
July 26, 1998.  The  condensed  consolidated  balance  sheet as of June 30, 1998
reflects the  financial  position of Dollar Tree  Stores,  Inc. and Only $One on
that date  combined  with the  financial  position  of Step Ahead as of July 26,
1998.  The  condensed  consolidated  financial  statements  should  be  read  in
conjunction  with the  consolidated  financial  statements  and  notes  thereto,
together with  management's  discussion and analysis of financial  condition and
results of  operations  for the year ended  December 31, 1998,  contained in the
Company's  Annual Report on Form 10-K.  The results of operations for the three-
and six-month periods ended June 30, 1999 are not necessarily  indicative of the
results to be expected for the entire year ending December 31, 1999.

2. NET INCOME PER SHARE

     The  following  table sets forth the  calculation  of basic and diluted net
income per share:
<TABLE>
<CAPTION>
                                                  Three months ended         Six months ended
                                                      June 30,                  June 30,
                                                  -----------------         -----------------
                                                  1999         1998         1999         1998
                                                  ----         ----         ----         ----
                                                     (In thousands, except per share data)
<S>                                              <C>          <C>          <C>          <C>
Basic net income per share:
     Net income................................  $14,504      $11,806      $25,831      $19,786
                                                  ------       ------       ------       ------
     Weighted average number of
        common shares outstanding..............   61,815       61,182       61,679       61,051
                                                  ------       ------       ------       ------
               Basic net income per share......  $  0.23      $  0.19      $  0.42      $  0.32
                                                  ======       ======       ======       ======

Diluted net income per share:
     Net income................................  $14,504      $11,806      $25,831      $19,786
                                                  ------       ------       ------       ------
     Weighted average number of
        common shares outstanding..............   61,815       61,182       61,679       61,051
     Dilutive effect of stock options and
        warrants (as determined by applying
        the treasury stock method).............    6,220        6,462        6,293        6,431
                                                  ------       ------       ------       ------
     Weighted average number of common
        shares and dilutive potential
        common shares outstanding..............   68,035       67,644       67,972       67,482
                                                  ------       ------       ------       ------
               Diluted net income per share....  $  0.21      $  0.17      $  0.38      $  0.29
                                                  ======       ======       ======       ======
</TABLE>

                                       6
<PAGE>

3. ACQUISITION

     On June 30, 1999, the Company completed a merger with  privately-held,  New
York-based  Tehan's  Merchandising,  Inc.  (Only $One) which  operates 24 stores
under the name "Only $One".  These stores offer variety  merchandise  at a fixed
price of $1.00 and are  located in New York  state.  The merger  qualified  as a
tax-free exchange of stock and was accounted for as a pooling of interests.  The
Company  issued  501,600  shares  of  Common  Stock  for  all of the  Only  $One
outstanding  common stock. In connection with the merger,  the Company  incurred
approximately $1.0 million ($0.8 million after taxes or $0.01 diluted net income
per  share) of  merger  related  costs and  expenses,  consisting  primarily  of
writedowns of inventory and professional  fees, which were charged to operations
during the quarter ended June 30, 1999.

     Prior to June 30,  1999,  Only $One was  treated  as an  S-corporation  for
Federal and state income tax purposes.  As such, income of Only $One for periods
prior to June 30, 1999 was taxable to the Only $One shareholders, rather than to
Only $One.  Effective with the Company's merger with Only $One, Only $One became
a  C-corporation.  The pro forma  provisions  for income taxes  presented in the
condensed  consolidated  income  statements  represent the estimated  taxes that
would  have been  recorded  had Only $One been a  C-corporation  for the  entire
periods presented.  Distributions  paid presented in the condensed  consolidated
statements  of  cash  flows  represent  distributions  paid  to  the  Only  $One
shareholders.

4.   INTEREST RATE SWAP AGREEMENT

     On April 1, 1999, the Company  entered into an interest rate swap agreement
related  to the $19.0  million  Loan  Agreement  with the  Mississippi  Business
Finance Corporation (Loan Agreement).  This swap agreement converts the variable
rate to a fixed  rate and  reduces  the  Company's  exposure  to  interest  rate
fluctuations.  Under this agreement, the Company pays interest to the bank which
provided  the  swap at a fixed  rate of 5.5%.  In  addition,  the bank  pays the
Company at a variable  interest rate,  which  approximates  the rate on the Loan
Agreement, which was 5.2% at June 30, 1999. The swap, effective through April 1,
2009, is for the entire amount  outstanding  under the Loan Agreement.  The bank
which  provided the swap has the option to cancel it on April 1, 2006.  The Loan
Agreement amount is included in the current portion of long-term debt.

5.   LEASES

     During June 1999, the Company entered into an $18.0 million operating lease
agreement  for the  purpose  of  financing  construction  costs  to  build a new
distribution  center in  Stockton,  California,  which will replace the existing
leased  facilities  located  in the  Sacramento,  California  area.  Under  this
agreement,  the lessor purchases the property,  pays for the construction  costs
and subsequently  leases the facility to the Company.  The initial lease term is
five years.  The lease  provides for a residual  value  guarantee and includes a
purchase option based on the outstanding  cost of the property.  When the assets
are placed into service, the Company will estimate its liability,  if any, under
the  residual  value   guarantee  and  record   additional  rent  expense  on  a
straight-line basis over the remaining lease term.


                                       7
<PAGE>

     During  April 1999,  the Company  entered into an agreement to sublease the
Memphis  distribution  facility  through  March  2000  with  an  option  for the
sublessee to renew the lease through March 2001.

6.   STORE OPENING COSTS

     In accordance with Statement of Position (SOP) 98-5, Reporting on the Costs
of Start-up  Activities,  effective  January 1, 1999, the Company expenses store
opening costs as incurred.  The impact of the implementation of this SOP was not
material to the Company's financial results.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

A  WARNING  ABOUT  FORWARD-LOOKING  STATEMENTS:  We have  made  "forward-looking
statements"  in this  document  as that term is used in the  Private  Securities
Litigation  Reform Act of 1995.  Such  statements  are based on the  beliefs and
assumptions of our  management,  and on information  currently  available to our
management. Our assumptions,  beliefs and current information could be mistaken.
Forward-looking  statements  include any statements  preceded by, followed by or
including words such as "believe,"  "anticipate,"  "expect,"  "intend,"  "plan,"
"view" or "estimate."  Forward-looking  statements also include, and are subject
to risks relating to, our future operations, performance, or financial condition
such as:

     - comparable store net sales trends,

     - expansion plans and store openings,

     - dependence on imports and vulnerability to foreign economic and political
       conditions as well as import restrictions, duties and tariffs,

     - increases in shipping costs, the minimum wage, and other costs,

     - our ability to sublease the Memphis facility beyond March 2000, and

     - Year 2000 compliance.

     Any statements concerning our future operations,  performance, or financial
condition could be inaccurate or incorrect.

Recent Development

     On June 30,  1999,  Dollar Tree  merged  with the  operator of 24 Only $One
stores.  The Only $One  stores are  located in central  and upstate New York and
average  approximately  10,000 square feet in size. We issued  501,600 shares of
our common stock in exchange for all the outstanding  common stock of Only $One.
We  accounted  for the  merger as a pooling  of  interests.  Under  this form of
accounting,  we combined the  condensed  consolidated  financial  statements  of
Dollar Tree with those of Only $One, not only since the date of the merger,  but
also  retroactively.  As a result,  we have adjusted our condensed  consolidated
financial statements to reflect results of operations as if Only $One had been a
part of Dollar Tree  throughout all the periods  discussed.  Quarterly  combined
financial  data,  which combines Dollar Tree and Only $One, were filed on a Form
8-K on July 22, 1999.


                                        8

<PAGE>

The Three Months Ended June 30, 1999 Compared To The Three Months Ended June 30,
1998

     Net Sales. Net sales increased 23.4% to $253.2 million for the three months
ended June 30, 1999 from  $205.2  million  for the three  months  ended June 30,
1998. We attribute this $48.0 million  increase to sales at new stores opened in
1999  and  1998  which  are not  included  in our  comparable  store  net  sales
calculation  and a 1.8%  increase  in  comparable  store net sales in the second
quarter of 1999.

     We opened 66 new stores and  closed 2 stores  during the second  quarter of
1999,  compared  to 61 new  stores  opened  and one store  closed in the  second
quarter of 1998.  We plan to expand by 230 to 235 stores in 1999,  including the
24 Only $One  stores  acquired in June 1999.  Our  management  anticipates  that
future net sales growth will come mostly from new store openings.

     The comparable  store net sales  calculation  includes sales at the 98 Cent
Clearance  Center stores,  acquired in December 1998, and sales at the Only $One
stores,  acquired in June 1999. Both acquisitions were accounted for as poolings
of interests.  The shift in timing of the Easter holiday caused a portion of the
Easter  selling  season to occur in the first  quarter  of 1999 which we believe
adversely affected our comparable store net sales.

     Most retailers can increase the price of their  merchandise as well as sell
more  merchandise in order to increase their  comparable  store net sales.  As a
fixed price point retailer,  we do not have the ability to raise our prices,  so
our comparable store net sales increase only when we sell more  merchandise.  We
believe that our future  comparable store net sales  increases,  if any, will be
lower than those we have  experienced  in the past.  Our internal  business plan
continues to call for a two to three percent  increase in  comparable  store net
sales for calendar year 1999.

     Gross Profit.  Gross profit  increased $19.2 million,  or 25.9%.  Our gross
profit margin (gross profit expressed as a percentage of net sales) increased to
36.8% in the second  quarter of 1999 from 36.1% in the same  period in 1998.  If
you exclude merger related costs otherwise  included in cost of sales (primarily
related to  merchandise  markdowns),  then the gross profit margin  increased to
37.0%.  This  increase  occurred  mainly  because  certain  costs  declined as a
percentage of net sales:

     - Our inventory shrinkage decreased, mainly  because  of lower shrinkage in
       our distribution centers and improved inventory controls  at our acquired
       stores. This decrease may not continue in future periods.

     - Our  distribution  costs  were  lower because  of efficiencies at our two
       newest distribution centers. The Chesapeake, VA facility,  which has been
       in operation since early 1998, is more mature  than  a year ago, and the
       Olive Branch, MS facility, opened in early 1999, was able to service more
       stores than we forecast.

     These  decreased  costs more than offset a slight  increase in  merchandise
costs for the quarter.  Our merchandise costs, which include freight costs, were
higher this year  compared to last because our  merchandise  mix  included  more
domestic merchandise than during the second quarter of 1998. Domestics generally
carry a higher cost than imported goods. We attribute the change in

                                       9
<PAGE>

our mix year over year to the receipt of a higher quantity of imports than usual
in 1998 as we sought to avoid last summer's shipping container shortage.

     A  recent  increase  in our  transpacific  shipping  rates  did not  have a
noticeable impact on our results for the quarter.  Our management  believes that
the  impact of these  higher  rates,  which went into  effect  during the second
quarter of 1999, can be substantially offset by other cost savings.

     SGA Expenses.  Selling,  general and  administrative  (SGA)  expenses,  not
including  depreciation and amortization,  increased $12.9 million, or 26.0%. If
you exclude merger related expenses,  SGA expenses  increased as a percentage of
net  sales to 24.4% in the  second  quarter  of 1999  from  24.1% in the  second
quarter of 1998. This increase  happened  primarily because our comparable store
net  sales did not  allow us to  leverage  our  fixed  costs.  Depreciation  and
amortization increased $2.0 million, to 2.7% a a percentage of net sales in 1999
from 2.4% in 1998. This percentage increase is mainly the result of depreciation
related to the new distribution facility in Olive Branch, Mississippi.

     Increases in expenses can have a negative impact on our operating  results,
especially  since we cannot  pass on  increased  expenses  to our  customers  by
increasing our merchandise prices. Consequently,  our future success will depend
in large part on our ability to control costs.

     Proposals  now before the U.S.  Congress  call for  increasing  the federal
minimum wage by $1.00 an hour over two or three years.  Our management  believes
that an increase in the minimum wage, if eventually  passed into law, could have
a significant impact on our payroll costs.

     Operating Income.  Our operating income increased $4.3 million or 21.9%. As
a  percentage  of net sales,  operating  income  decreased to 9.5% in the second
quarter  of 1999 from 9.6% in the same  period in 1998.  If you  exclude  merger
related costs and expenses,  operating income increased to $25.1 million in 1999
from $19.7  million in 1998 and  increased as a percentage  of net sales to 9.9%
from 9.6%. These increases were attributable to the factors discussed above.

     Interest Expense.  Interest expense decreased to $0.7 million in the second
quarter of 1999 from $1.1 million in the second  quarter of 1998.  This decrease
was  primarily  a  result  of lower  levels  of debt in 1999  compared  to 1998,
resulting from a higher cash position throughout the three months ended June 30,
1999.

The Six Months  Ended June 30, 1999  Compared  To The Six Months  Ended June 30,
1998

     Net Sales.  Net sales  increased 24.5% to $480.3 million for the six months
ended June 30, 1999 from $385.8  million for the six months ended June 30, 1998.
We attribute  this $94.5 million  increase to sales at new stores opened in 1999
and 1998 which are not included in our  comparable  store net sales  calculation
and a 3.5%  increase in  comparable  same store sales in the first six months of
1999.

                                       10

<PAGE>


     We opened 115 new stores and closed three  stores  during the first half of
1999, compared to 102 new stores opened and five stores closed in the first half
of 1998.

     Gross Profit.  Gross profit  increased $36.0 million,  or 26.1%.  Our gross
profit  margin  increased to 36.3% in the first six months of 1999 from 35.8% in
the same period in 1998.  Merger  related costs did not change the  year-to-date
gross margin percentage.  The year-to-date increase in gross margin was impacted
by the same factors as discussed above.

     SGA Expenses. SGA, excluding depreciation and amortization, increased $23.0
million,  or 24.1%, in the first half of 1999. As a percentage of net sales, SGA
expenses remained constant at 24.7%. If you exclude merger related expenses, SGA
expenses  decreased  to 24.5% for the first half of 1999 from  24.7%  during the
same period in 1998. This decrease  happened  primarily because our year-to-date
comparable store sales allowed us to leverage our fixed costs.  Depreciation and
amortization  increased  $3.8  million,  to 2.7% as a percentage of net sales in
1999  from 2.4% in 1998.  This  percentage  increase  is  mainly  the  result of
depreciation  related  to  the  new  distribution   facility  in  Olive  Branch,
Mississippi.

     Operating Income.  Our operating income increased $9.3 million or 27.8%. As
a percentage of net sales,  operating income increased to 8.9% in the first half
of 1999 from 8.6% in the same  period in 1998.  If you  exclude  merger  related
costs and  expenses,  operating  income  increased to $43.6 million in 1999 from
$33.3  million in 1998 and  increased as a percentage  of net sales to 9.1% from
8.6%. These increases were attributable to the factors discussed above.

     Interest  Expense.  Interest expense decreased to $1.2 million in the first
six  months of 1999  from $1.8  million  in the first six  months of 1998.  This
decrease  was  primarily  a result of lower  levels of debt in 1999  compared to
1998, resulting from a higher cash position throughout the six months ended June
30, 1999.

Liquidity and Capital Resources

     Our  business  requires  capital  primarily  to open new stores and operate
existing  stores.  Our working  capital  requirements  for  existing  stores are
seasonal in nature and typically reach their peak in the months of September and
October. Historically, we have met our seasonal working capital requirements for
existing stores and funded our store expansion program from internally generated
funds and borrowings under our credit facilities.

     The following table compares certain cash-related information for the first
two quarters of 1999 and 1998:
                                          Six Months Ended June 30,
                                              1999        1998
                                              ----        ----
                                               (in millions)
Net cash provided by (used in):
         Operations.....................    $(19.9)     $(54.7)
         Investing activities...........     (23.9)      (20.0)
         Financing activities...........       5.7        36.0


                                       11
<PAGE>

     For both  periods,  we generally  expended net cash used in  operations  to
build  inventory  levels,  while net cash used in investing  activities was used
primarily to open new stores.  The decrease in 1999 net cash used in  operations
reflects the lower amount of inventory compared to the same period in 1998, when
imported  goods were  received  earlier to avoid a possible  shipping  container
shortage in  Southeast  Asia.  Inventory  quantities  at  comparable  stores are
similar year over year; the decrease is primarily  seen in inventory  quantities
in the distribution centers.

Net cash provided by financing activities was obtained from:

     - the exercise of stock options in both years,

     - in 1998, borrowings under  our  bank  facility  used to fund our seasonal
       working capital needs, and

     - in 1999, from  the  issuance  of an  additional $2.5 million  in callable
       bonds  related  to  the  construction  of the  Olive  Branch distribution
       facility.

     At June 30, 1999, our borrowings under our bank facility,  senior notes and
bonds were $49.0  million  and we had an  additional  $135.0  million  available
through our bank facility. Of the amount available,  approximately $42.3 million
was  committed to letters of credit  issued for the routine  purchase of foreign
merchandise.

     During  June  1999,  we  entered  into an  $18.0  million  operating  lease
agreement to finance the construction of a new distribution  center in Stockton,
California. This facility will replace the leased distribution center located in
the  Sacramento,  California  area.  Unlike  the  Chesapeake  and  Olive  Branch
distribution  centers,  the new facility will not initially include an automated
conveyor and sorting  system.  We expect to expand and automate this facility as
we increase  our selling  capacity in the northern  and central  California  and
Nevada  regions.  The new facility is scheduled to be  operational  in the first
quarter of 2000.

Year 2000 Compliance

     We use a large number of computer software  programs  throughout our entire
organization,  such  as  purchasing,   distribution,  retail  store  management,
financial business systems and various  administrative  functions.  We developed
some of these programs in-house and bought others from vendors.

     We have been evaluating and adjusting all known date-sensitive systems
and equipment for Year 2000  compliance.  We define Year 2000 compliance to mean
that a given system continues to function appropriately after December 31, 1999,
with no significant business interruption. We divided our Year 2000 project into
four phases:

                                       12

<PAGE>


     - inventory and initial assessment,

     - remediation and testing,

     - implementation and re-testing, and

     - contingency planning.

     The assessment and  remediation and testing phases of the Year 2000 project
are complete and include both information  technology systems,  such as computer
equipment and software, as well as non-information technology equipment, such as
warehouse conveyor systems.  We will continue to monitor and test our systems to
ensure ongoing compliance.

     Our plan provided for internal  compliance of  mission-critical  systems by
mid-1999.  While no one can offer a realistic  guarantee that there won't be any
business  disruptions,  we believe that the  majority of our  internal  systems,
including  substantially all  mission-critical  systems, are currently Year 2000
compliant.  Some programs and equipment were replaced  beginning in late 1998 by
routine upgrades which provided numerous system enhancements.  These replacement
programs and equipment  are Year 2000  compliant.  The upgrades were  previously
planned and were not accelerated  due to Year 2000 issues.  We have not deferred
any information technology projects to address the Year 2000 issue.

     We have relied  primarily on internal  resources  to  identify,  correct or
reprogram and test systems for Year 2000 compliance. To date, we have spent less
than  $150,000 in  modifying  our systems for the Year 2000;  the total costs of
modifying our current systems are not expected to exceed  $275,000.  These costs
are not expected to have a material  adverse  effect on our financial  condition
and results of operations in future periods.

     Additionally,  we are continuing to communicate with service  providers and
domestic  suppliers of  merchandise  to assess their Year 2000 readiness and the
extent to which we may be  vulnerable to any third  parties'  failure to correct
their own Year 2000 issues. Many of these parties have stated that their ability
to supply us will not be affected by the Year 2000 issue.  However, we cannot be
sure of their  timely  compliance  and our  operations  could  suffer due to the
failure of a significant third part to become Year 2000 compliant.

     We feel we are unable to  adequately  assess the  potential  effect of Year
2000 problems on our  international  suppliers,  particularly in China.  Several
recent studies suggest that the  preparedness of China and other Asian countries
is considerably less than that of the United States and Europe,  particularly in
the fields of  manufacturing  and  utilities.  We cannot predict the duration or
severity of any  disruptions  which may occur in China or the home  countries of
our other overseas suppliers. In addition, we have evaluated the preparedness of
third parties who handle our  international  merchandise  shipping for China. We
believe these third parties are substantially Year 2000 compliant.  A failure in
our normal merchandise supply chain from China or other overseas suppliers could
have a material adverse effect on our business.

     Although we anticipate  that minimal  business  disruption  will occur as a
result of Year 2000 issues,  possible  consequences include, but are not limited
to, loss of communications  links with store locations,  customs delays, loss of


                                       13
<PAGE>

electric power,  and the inability to process  transactions or engage in similar
normal  business  activities.  In  addition,  the United  States and other world
economies  could witness  unusual  purchasing  patterns or other  disruptions if
large numbers of consumers believe interruptions in power, communications, water
or  food  supplies  are  likely,  regardless  of  the  actual  risks.  Any  such
disruptions  could  affect  our  business   operations.   With  the  substantial
completion of the assessment,  implementation and testing phases of our plan, we
are now in the process of analyzing  reasonably likely  worst-case  scenarios in
order to establish  appropriate  contingency  plans.  We expect to establish any
needed contingency plans by early in the fourth quarter of 1999.

     The  cost  of the  conversions  and  the  completion  dates  are  based  on
management's best estimates and may be updated as additional information becomes
available.  The above  section,  even if  incorporated  into other  documents or
disclosures,  is a Year 2000 readiness disclosure as defined under the Year 2000
Information and Readiness Disclosure Act of 1998

New Accounting Pronouncements

     In June 1998, the Financial  Accounting  Standards  Board (FASB) issued its
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments  and Hedging  Activities"  (SFAS No. 133).  SFAS No. 133 establishes
standards for derivative  instruments  and hedging  activities and requires that
companies  recognize  all  derivatives  as either assets or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15, 1999.  However,  in June 1999,  the FASB issued its  Statement of
Financial Accounting  Standards No. 137, "Accounting for Derivative  Instruments
and  Hedging  Activities  - Deferral of the  Effective  Date of SFAS No. 133, an
Amendment of SFAS No. 133",  which defers the effective  date of SFAS No. 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000. Management is
reviewing  the  impact  of  the  implementation  of  this  pronouncement  on our
financial condition and results of operations.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     During April 1999, as a result of the favorable  interest rate environment,
we entered into an interest rate swap  agreement  that converts a portion of our
variable  rate debt to a fixed rate and  reduces our  exposure to interest  rate
fluctuations.  Under this agreement,  we pay interest to the bank which provided
the swap at a fixed rate of 5.5%.  In  addition,  the bank pays us at a variable
interest rate which is similar to the rate under the callable bonds and was 5.2%
at June 30,  1999.  The  swap is fo the  entire  amount  outstanding  under  our
callable  bonds,  which was $19.0  million at June 30,  1999,  and is  effective
through April 1, 2009. The bank which provided the swap has the option to cancel
it on April 1, 2006.



                                       14

<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS.

     We  previously  reported in our 1998  Annual  Report on Form 10-K a dispute
involving Michael and Pamela Alper and a corporation they control. No litigation
is currently pending against us in this matter.

     We recalled  approximately  155,000 retractable dog leashes which allegedly
caused  several  personal  injuries,  as previously  reported in our 1998 Annual
Report on Form 10-K.  There have been no other material  developments  regarding
this matter in 1999.

     Additionally,  the company is a party to ordinary  routine  litigation  and
proceedings  incidental to its  business,  including  certain  matters which may
occasionally be asserted by the U.S. Consumer Product Safety Commission, none of
which is individually or in the aggregate material to the company.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     At our Annual Meeting of  Shareholders  held on June 3, 1999, the following
people were elected to the Board of Directors:

                                 Votes For       Votes Withheld
                                 ---------       --------------
     Macon F. Brock, Jr.        57,239,178          256,636
     Richard G. Lesser          57,245,626          250,188

As Class I  directors,  Mr.  Brock and Mr.  Lesser  will serve  until the Annual
Meeting of  Shareholders  in 2002,  or such time as  successors  are elected and
qualified.

     J. Douglas Perry, John F. Megrue, H. Ray Compton,  Thomas A. Saunders, III,
Alan L. Wurtzel and Frank Doczi  continue as directors  after the meeting and no
elections were held with respect to their offices. Allan W. Karp has retired his
directorship.

     At the same  meeting,  an amendment to the  Articles of  Incorporation  was
adopted,  increasing  our  authorized  common stock to  300,000,000  shares from
100,000,000 shares.

                For            51,269,401
                Against         6,199,543
                Abstain            26,870

Item 5.  OTHER INFORMATION.

Grant of Options to Directors

     On June 2, 1999,  options to purchase  13,500  shares of Common  Stock each
were granted to Frank Doczi and Alan Wurtzel as continuing directors,  under the
terms of the Stock  Incentive  Plan.  Also on this date,  an option to  purchase
25,313  shares of Common Stock was granted to Richard  Lesser as a new director,
under the terms of the Stock  Incentive  Plan.  These  options  are  immediately
exercisable and have an exercise price of $34.3125 per share.


                                       15

<PAGE>


Item 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

     The following documents are filed herewith:

     3.1   Third Restated Articles of Incorporation of Dollar Tree Stores, Inc.,
           as amended
    10.1   Merger Agreement  by and among  Dollar Tree Stores, Inc., Dollar Tree
           New York, Inc., Tehan's Merchandising,  Inc. and The  Shareholders of
           Tehan's Merchandising, Inc., dated June 15, 1999
    10.2   Credit Agreement among First Security Bank, National  Association and
           First Union National Bank, dated June 2, 1999
    10.3   Agency  Agreement  between  Dollar Tree  Distribution, Inc. and First
           Security Bank, National Association, dated June 2, 1999
    10.4   Trust Agreement between  First Union National Bank and First Security
           Bank, National Association, dated June 2, 1999
    10.5   Security Agreement between First  Security Bank, National Association
           and First Union National  Bank and accepted  and  agreed to by Dollar
           Tree Distribution, Inc., dated June 2, 1999
    10.6   Lease Agreement between First Security Bank, National Association and
           Dollar Tree Distribution, Inc., dated June 2, 1999
    10.7   Participation Agreement  among  Dollar Tree Distribution, Inc., First
           Security Bank, National  Association  and  First Union National Bank,
           dated June 2, 1999

(b) Reports on Form 8-K.

     The following  reports on Form 8-K were filed during the second  quarter of
1999:

     1.  Report on Form 8-K,  filed  April 27,  1999,  included a press  release
         regarding earnings for the quarter ended March 31, 1999.

     2.  Report on Form 8-K,  filed  June 10,  1999,  included  a press  release
         regarding the Annual Meeting of Shareholders held on June 3, 1999.

     Also, in July 1999, we filed one Form 8-K.

     Report on Form 8-K, filed July 22, 1999, included a press release regarding
earnings  for the  quarter  ended  June 30,  1999.  It also  included  quarterly
financial data for the years 1998 and 1999 which has been restated on a combined
basis to account for the pooling of interests  between Dollar Tree Stores,  Inc.
and the operator of 24 Only $One stores.




                                       16

<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


DATE:  August 10, 1999

                                                 DOLLAR TREE STORES, INC.




                                                 By: /s/ Frederick C. Coble
                                                     --------------------------
                                                       Frederick C. Coble
                                                       Senior Vice President,
                                                       Chief Financial Officer
                                                       (principal financial and
                                                       accounting officer)


                                       17

