McRae
Industries, Inc. reported consolidated
net revenues for the second quarter of fiscal 2010 of $16.7 million as
compared to $16.6 million for the second quarter of fiscal 2009. Net
earnings for the second quarter of fiscal 2010 amounted to $711,000, or
$.35 per diluted Class A common share as compared to net earnings of
$455,000, or 26 cents per diluted Class A common share, for the second
quarter of fiscal 2009.

Consolidated net revenues for the first
six months of fiscal 2010 totaled $33,753,000 as compared to $36,925,000
for the first six months of fiscal 2009. Net earnings for the first six
months of fiscal 2010 amounted to $1,748,000, or $.84 per diluted Class
A common share, as compared to net earnings of $1,667,000, or $.81 per
diluted Class A common share, for the first six months of fiscal 2009.

SECOND
QUARTER FISCAL 2010 COMPARED TO SECOND QUARTER FISCAL 2009

Consolidated
net revenues for the second quarter of fiscal 2010 totaled $16.7
million as compared to $16.6 million for the second quarter of fiscal
2009. Revenues from our western and lifestyle footwear products were up
approximately 22% as demand for women’s fashion related footwear
remained strong. Revenues from our work boot products, which include our
licensed, private label, and military boot products, totaled
approximately $5.3 million for both second quarters of fiscal 2010 and
2009. Revenues from our non-core businesses, primarily the downsized bar
code business, were down nearly $2.0 million. We expect our western and
life style business activity to remain strong for the remainder of
fiscal 2010. On the other hand, we expect our work boot business will
continue to be suppressed by the current economic malaise in the
construction industry and decreased military boot requirements for the
U. S. Government (the “Government”).

Consolidated gross profit
amounted to approximately $4.7 million for both second quarters of
fiscal 2010 and fiscal 2009. The gross profit attributable to our
western and lifestyle product sales increased by 18.4% and was primarily
attributable to the increase in related net revenues. The gross profit
attributable to our work boot product sales declined nearly 15% as
reduced production of military boots for the Government had a
detrimental impact on per unit costs. Declining gross profit
contributions from our non-core businesses were also a drag on
consolidated gross profit.

Consolidated operating costs and
expenses totaled approximately $3.6 million for the second quarter of
fiscal 2010 as compared to nearly $4.0 million for the second quarter of
fiscal 2009. This reduction in consolidated operating costs and
expenses resulted primarily from cost savings related to the contraction
of the bar code business. For our core footwear product businesses,
operating costs increased by approximately $400,000 as a result of
increased sales compensation costs, advertising/promotion costs, and
employee benefit charges which were partially offset by reduced
expenditures for group health insurance and professional fees.

As
a result of the above, consolidated operating profit increased from
$735,000 for the second quarter of fiscal 2009 to $1.1 million for the
second quarter of fiscal 2010.

FIRST SIX MONTHS FISCAL 2010
COMPARED TO FIRST SIX MONTHS FISCAL 2009

Consolidated net
revenues for the first six months of fiscal 2010 totaled $33.8 million
as compared to $36.9 million for the first six months of fiscal 2009.
This 8% decline in net revenues resulted primarily from decreased work
boot product sales as demand for these products was negatively impacted
by the economic downturn and reduced requirements by the Government for
military combat boots. Reduced revenues associated with our non-core
businesses, primarily the bar code business, contributed approximately
$4.7 million to the fall in net revenues. Increased western and
lifestyle product sales partially offset this decline in revenues by
approximately $2.8 million as market demand for these products remained
strong.

Consolidated gross profit fell from $10.7 million for the
first six months of fiscal 2009 to $10.1 million for the first six
months of fiscal 2010 as a result of declines in net revenues and profit
margins, primarily attributable to our work boot products and our
non-core businesses. Gross profit from our western and lifestyle
products, however, partially offset the decrease as both revenues and
profit margins exceeded the results reported for the same period of
fiscal 2009.

Consolidated operating costs and expenses totaled
approximately $7.3 million for the first six months of fiscal 2010 as
compared to $8.1 million for the first six months of fiscal 2009. The
reduction in our operating costs and expenses was primarily the result
of the contraction in our bar code business. This reduction in operating
costs was partially offset by increased expenditures for sales related
compensation, administrative salaries, marketing and advertising costs,
and employee benefit charges attributable to our core footwear
operations.

As a result of the above, the consolidated operating
profit amounted to $2.8 million for the first six months of fiscal 2010
as compared to $2.7 million for the first six months of fiscal 2009.

FINANCIAL
CONDITION AND LIQUIDITY

Our financial condition remained strong
at January 30, 2010 as cash and cash equivalents totaled $14.0 million
as compared to $11.3 million at August 1, 2009. Our working capital
amounted to $33.1 million at January 30, 2010 as compared to $31.8
million at August 1, 2009.

We currently maintain two lines of
credit with a bank totaling $4.75 million, all of which was available at
January 30, 2010. 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 2011. Our $3.0 million
line of credit expires in November 2010.

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 2010.

For the first six
months of fiscal 2010, operating activities provided approximately $3.4
million of cash. Net earnings, as adjusted for depreciation, provided
$2.0 million of cash. Accounts and notes receivable, as adjusted for
valuation allowances, used approximately $1.3 million of cash as a
result of increased sales associated with our western and work boot
business. Reduced inventory levels, primarily associated with high
seasonal sales of western and work boot products, provided approximately
$898,000 of cash. Income tax refunds provided approximately $1.5
million of cash.

Investing activities for the first six months of
fiscal 2010 used approximately $170,000 of cash, primarily attributable
to the purchase of manufacturing and computer equipment.

Financing
activities used approximately $569,000 for the first six months of
fiscal 2010. Dividend payments used $375,000 of cash while the
repurchase of Company stock and loan principal payments used $103,000
and $91,000 of cash, respectively.