UPDATE 1-Duckwall settles proxy contest, replaces chairman

(Recasts, adds details, background, share movement)

March 7 (Reuters) - Retailer Duckwall-ALCO Stores Inc (DUCK.O: Quote, Profile, Research) said it settled a proxy battle with its largest shareholder, Strongbow Capital, and replaced Chairman Warren Gfeller with the activist investor's nominee Royce Winstein.

Gfeller and another director Robert Ring resigned from the board and were replaced by Strongbow nominees Raymond French and James Hyde, the company said in a statement.

Earlier this month, Strongbow Capital, which owns a 14.3 percent stake in the company, had asked for the resignations of Gfeller and Ring.

In a filing dated March 4, Strongbow held the two board members and former Chief Executive Bruce Dale responsible for Duckwall's deteriorating operating performance.

CEO Bruce Dale had resigned and Chief Financial Officer Donny Johnson assumed the additional role of interim CEO, earlier in February.

Strongbow Capital had also asked the company to replace Gfeller with Winstein as chairman, in a proxy filing on March 4 with the U.S. Securities and Exchange Commission.

On Friday, Duckwall shares touched a 52-week low of $13.27 and were trading down more than 5 percent on Nasdaq.

The stock currently trades at about 15 times forward earnings, well below the general merchandise stores sector average of almost 23.