McRae Industries, Inc. reported net revenues for the second quarter of
fiscal 2012 of $19.9 million as compared to $21.7 million for the
second quarter of fiscal 2011. Net earnings for the second quarter of
fiscal 2012 amounted to $1.37 million, or 63 cents per share, as
compared to net earnings of $1.02 million, or 49 cents, for the second
quarter of fiscal 2011.

Consolidated net revenues for the first six months of fiscal 2012
totaled $40,133,000 as compared to $41,417,000 for the first six months
of fiscal 2011. Net earnings for the first six months of fiscal 2012
amounted to $2,750,000, or $1.26 per diluted Class A common share, as
compared to net earnings of $2,305,000, or $1.08 per diluted Class A
common share, for the first six months of fiscal 2011.

SECOND QUARTER FISCAL 2012 COMPARED TO SECOND QUARTER FISCAL 2011


Consolidated net revenues totaled $19.9 million for the second quarter
of fiscal 2012 as compared to $21.7 million for the second quarter of
fiscal 2011. Revenues from our western and lifestyle footwear products
amounted to $13.9 million for the second quarter of fiscal 2012 as
compared to $12.4 million for the second quarter of fiscal 2011, as
demand for fashion and lifestyle related footwear remained strong.
Revenues related to our work boot products, which include our licensed,
private label, and military boot products, totaled approximately $6.0
million for the second quarter of fiscal 2012 as compared to $9.2
million for the second quarter of fiscal 2011. This decrease in work
boot net revenues was attributable to the continued contraction in the
construction industry and to a reduction in military boot requirements
for the U. S. Government. As expected, net revenues from our non-core
businesses, primarily the downsized bar code business, were
insignificant for fiscal 2012, as compared to $100,000 for fiscal 2011. 
We expect our western and life style business activity to remain strong
for the remainder of fiscal 2012 while we expect our work boot business
to continue to struggle as a result of the sluggish economic recovery
and reduced orders for government military boots.

Consolidated gross profit amounted to approximately $6.3 million for the
second quarter of fiscal 2012 as compared to $5.5 million for the
second quarter of fiscal 2011. Gross profit associated with our western
and lifestyle product sales totaled $5.2 million for the second quarter
of fiscal 2012, up from $4.3 million for the second quarter of fiscal
2011. This increase in gross profit was attributable to a combination of
higher net revenues and improved profit margins.  Gross profit from our
work boot product sales fell nearly 21% for the second quarter of
fiscal 2012 as demand for these products declined. The decrease in
military boot production for the U. S. Government had a negative impact
on per unit manufacturing costs for the second quarter of fiscal 2012,
which resulted in significantly lower profit margins. The decline in
gross profit contributions from our non-core businesses had minimal
impact on consolidated gross profit.

Consolidated operating costs and expenses totaled approximately $4.1
million for the second quarter of fiscal 2012 as compared to
approximately $3.9 million for the second quarter of fiscal 2011. The
increase in consolidated operating costs and expenses resulted primarily
from higher outlays for sales compensation costs, building rentals,
sales and marketing costs and employee benefit charges, which were
partially offset by reduced expenditures for group health insurance and
administrative salaries.

As a result of the above, consolidated operating profit amounted to $2.2
million for the second quarter of fiscal 2012 as compared to $1.6
million for the second quarter of fiscal 2011.

FIRST SIX MONTHS FISCAL 2012 COMPARED TO FIRST SIX MONTHS FISCAL 2011


Consolidated net revenues for the first six months of fiscal 2012
totaled $40.1 million, down from $41.4 million for the first six months
of fiscal 2011. Our western and lifestyle product sales increased from
$24.9 million for the first six months of fiscal 2011 to $28.0 million
for the first six months of fiscal 2012, as demand for these products
remained strong. Net revenues from our work boot business fell from
$16.2 million for the first six months of fiscal 2011 to $12.0 million
for the first six months of fiscal 2012. The decline in work boot
products net revenues resulted primarily from significantly lower
military boot  requirements for the U. S. Government as multiple
contracts reach their conclusion. Currently, we are in the bid process
to replace the expiring contracts; however, any awards that we receive
will only have a minimal impact on the remainder of fiscal 2012. As the
economy continues to improve, we expect demand for our other work boot
products to improve, which would help to offset the decline in military
boot revenues. Revenues from our non-core businesses declined
approximately $100,000 for the comparative six month periods.

Consolidated gross profit totaled $12.6 million for the first six months
of fiscal 2012 as compared to $11.7 million for the first six months of
fiscal 2011. Gross profit attributable to our western and lifestyle
products totaled $10.5 million for the first six months of fiscal 2012
as compared to $9.0 million for the first six months of fiscal 2011.
This increase in gross profit resulted from increased net revenues and
slightly higher margins related to our western and lifestyle products.
Gross profit attributable to our work boot products fell from $2.6
million for the first six months of fiscal 2011 to $2.1 million for the
first six months of fiscal 2012. This decrease in gross profit was
primarily attributable to the decline in net revenues for our military
boot products. Our non-core businesses had a negligible impact on gross
profit for the comparative six month periods.

Consolidated operating costs and expenses amounted to $8.2 million for
the first six months of fiscal 2012 as compared to $8.0 million for the
first six months of fiscal 2011. This increase in operating costs and
expenses resulted primarily from higher outlays for sales compensation
costs, building rentals and employee benefit charges, which were
partially offset by reduced expenditures for administrative salaries,
travel costs and group health insurance.

As a result of the above, the consolidated operating profit amounted to
$4.4 million for the first six months of fiscal 2012 as compared to $3.7
million for the first six months of fiscal 2011.

FINANCIAL CONDITION AND LIQUIDITY


Our financial condition remained strong at January 28, 2012 as cash and
cash equivalents totaled $12.9 million as compared to $10.3 million at
July 30, 2011. Our working capital amounted to $37.4 million at January
28, 2012 as compared to $35.2 million at July 30, 2011.

At January 28, 2012 we maintained two lines of credit with a bank
totaling $6.75 million, all of which was available at the end of the
second quarter. One credit line totaling $1.75 million (which is
restricted to one hundred percent of the outstanding receivables due
from the U. S. Government) expires in January 2013. Our $5.0 million
line of credit is in the renewal process and is expected to be renewed
through March 2013.

We believe that our current cash and cash equivalents, cash generated
from operations, and available credit lines will be sufficient to meet
our capital requirements for the remainder of fiscal 2012.

For the first six months of fiscal 2012, operating activities provided
approximately $3.5 million of cash. Of this amount, net earnings, as
adjusted for depreciation, provided $2.5 million of cash. Accounts and
notes receivable, as adjusted for valuation allowances, used
approximately $1.3 million of cash as a result of timing of payments
related to increased second quarter sales. Our normal seasonal inventory
reduction, primarily attributable to our western and lifestyle product
lines, provided $1.8 million of cash. The timing of payment for
in-transit inventory provided approximately $402,000 of cash.

Investing activities for the first six months of fiscal 2012 used
approximately $481,000 of cash. Capital expenditures, primarily for
manufacturing equipment and computer related equipment and software,
used $463,000 of cash. Land development costs used approximately $19,000
of cash.

Dividend payments for the first six months of fiscal 2012 used $368,000 of cash.

McRae Industries makes military, western and work boots. Its brands include McRae, Dan Post Boots, Dingo and Laredo.