Results of Operations

Overview
The Company operates primarily in two business segments through two wholly owned subsidiaries: retail grocery (including related real estate and store development activities) - operated by Harris Teeter, and industrial sewing thread (textile primarily), including embroidery thread and technical textiles - operated by A&E. Harris Teeter is a regional supermarket chain operating primarily in the southeastern United States, including Delaware and the District of Columbia. A&E is a global manufacturer and distributor of sewing thread for the apparel and other markets, embroidery thread and technical textiles. The Company evaluates the performance of its two businesses utilizing various measures which are based on operating profit.

The economic environment has stimulated changes in the consumption habits of the retail consumer which has impacted the financial results of both operating subsidiaries. Unprecedented economic uncertainty, tumultuous market conditions, and a decreasing level of consumer confidence has created a more cautious consumer and increased the competitive environment in Harris Teeter's primary markets. Harris Teeter competes with other traditional grocery retailers, as well as other retail outlets including, but not limited to, discount retailers such as "neighborhood or supercenters" and "club and warehouse stores," specialty supermarkets and drug stores. Generally, the markets in the southeastern United States continue to experience new store opening activity and aggressive feature pricing or everyday low prices by competitors. In response, Harris Teeter utilizes information gathered from various sources, including its Very Important Customer ("VIC") loyalty card program, and works with suppliers to deliver effective retail pricing and targeted promotional spending programs that drive customer traffic and create value for Harris Teeter customers. In addition, Harris Teeter differentiates itself from its competitors with its product selection, assortment and variety, and its focus on customer service. These efforts along with Harris Teeter's new store development program have resulted in overall gains in market share within Harris Teeter's primary markets.

Harris Teeter has continued with its planned new store development program. Since the end of the first quarter of fiscal 2008, Harris Teeter has opened 13 new stores while closing 3 stores for a net addition of 10 stores. Harris Teeter operated 176 stores at December 28, 2008. Harris Teeter's new store growth is focused on expanding its existing markets, including the Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. The new store activity, and its associated pre-opening and incremental start-up costs, has required additional borrowings under the Company's revolving credit facility.

Business conditions for A&E's customers in the textile and apparel industry have also been negatively impacted by the current economic environment and the cautious consumer. Apparel production in the Americas has declined due to the continued shift of apparel sourcing from the Americas to other regions of the world, predominately Asia. It has been estimated by the U.S. Department of Commerce Office of Textiles and Apparel that Asia and the Indian sub-continent accounted for approximately 69% of the apparel imports into the U.S. in 2006, approximately 73% in 2007 and approximately 74% for the first eleven months in 2008. This has greatly impacted A&E operations in the U.S., Canada and Mexico. As a result, A&E's strategic plans have included the expansion of its operations in the Asian markets and the expansion of product lines beyond apparel sewing thread.

A&E's growth in China, India and other Asian markets has been accomplished through additional investments in its wholly owned subsidiaries by way of capital expenditures and through strategic joint ventures. During the first quarter of fiscal 2009, A&E exercised its option to purchase an additional 14% ownership interest in Vardhman Yarns and Threads Limited ("Vardhman") under the terms of the original joint venture agreement. This additional investment increased A&E's total ownership interest in Vardhman to 49%. A&E continues to transform its business to be more Asian centric, which is in line with the global shifting of A&E's customer base.

Consolidated
The following table sets forth the operating profit components by each of the
Company's business segments and Corporate for the 13 weeks ended December 28,
2008 and December 30, 2007. The table also sets forth each of the segment's net
sales as a percent to total net sales, the net income components as a percent to
total net sales and the percentage increase or decrease of such components over
the prior year (in thousands):

                                                    December 28, 2008            December 30, 2007
                                                         % to Total                     % to Total      % Inc.
                                                          Net Sales                      Net Sales       (Dec. )
Net Sales
   Harris Teeter                         $ 928,927             93.4      $ 896,604            91.8         3.6
   American & Efird                         66,058              6.6         80,139             8.2       (17.6 )
      Total                              $ 994,985            100.0      $ 976,743           100.0         1.9

Gross Profit
   Harris Teeter                         $ 288,349            28.98      $ 273,427           27.99         5.5
   American & Efird                         12,494             1.26         17,606            1.80       (29.0 )
      Total                                300,843            30.24        291,033           29.79         3.4

Selling, General and Admin. Expenses
   Harris Teeter                           244,042            24.53        229,192           23.46         6.5
   American & Efird                         13,595             1.37         17,376            1.78       (21.8 )
   Corporate                                 1,406             0.14          1,579            0.16       (11.0 )
      Total                                259,043            26.04        248,147           25.40         4.4

Operating Profit (Loss)
   Harris Teeter                            44,307             4.45         44,235            4.53         0.2
   American & Efird                         (1,101 )          (0.11 )          230            0.02        n.m.
   Corporate                                (1,406 )          (0.14 )       (1,579 )         (0.16 )     (11.0 )
      Total                                 41,800             4.20         42,886            4.39        (2.5 )

Other Expense, net                           4,920             0.49          5,012            0.51        (1.8 )
Income Tax Expense                          13,998             1.41         14,526            1.49        (3.6 )
Net Income                               $  22,882             2.30      $  23,348            2.39        (2.0 )

n.m. - not meaningful

As depicted in the table above, the increase in consolidated net sales was attributable to sales increases at Harris Teeter and was offset, in part, by a decrease in sales at A&E when compared to the prior year. A&E's foreign sales for the first quarter of fiscal 2009 represented 3.7% of the consolidated net sales of the Company compared to 4.5% in the same period last year. Refer to the discussion of segment operations under the captions "Harris Teeter, Retail Grocery Segment" and "American & Efird, Industrial Thread Segment" for a further analysis of the segment operating results.

Gross profit, and its percent to consolidated net sales, increased during the first quarter of fiscal 2009 over the prior year period as a result of strong gross profit performance at Harris Teeter that was offset, in part, by a gross profit decline at A&E. Refer to the discussion of segment operations under the captions "Harris Teeter, Retail Grocery Segment" and "American & Efird, Industrial Thread Segment" for a further analysis of the segment operating results.

Other expense, net includes interest expense, interest income, investment gains and losses, and minority interest. Net interest expense (interest expense less interest income) decreased slightly over the prior year period. Lower average interest rates were effective in offsetting the cost of higher average outstanding debt balances resulting from additional borrowings to support Harris Teeter's new store development program.

The effective income tax rate for the first quarter of fiscal 2009 was 38.0% as compared to 38.4% in the first quarter of fiscal 2008. The current period rate represents the Company's expected annual effective rate for fiscal 2009.

As a result of the items discussed above, consolidated net income for the first quarter of fiscal 2009 decreased by $466,000, or 2.0%, over the prior year period and earnings per diluted share decreased by 2.1% to $0.47 per share in fiscal 2009 from $0.48 per share in fiscal 2008.

Harris Teeter, Retail Grocery Segment
The following table sets forth the consolidated operating profit components for
the Company's Harris Teeter supermarket subsidiary for the 13 weeks ended
December 28, 2008 and December 30, 2007. The table also sets forth the percent
to sales and the percentage increase or decrease over the prior year (in
thousands):

                        December 28, 2008        December 30, 2007
                                     % to                     % to    % Inc.
                                    Sales                    Sales    (Dec.)
Net Sales           $  928,927     100.00    $  896,604     100.00       3.6
Cost of Sales          640,578      68.96       623,177      69.50       2.8
Gross Profit           288,349      31.04       273,427      30.50       5.5
SG&A Expenses          244,042      26.27       229,192      25.57       6.5
Operating Profit    $   44,307       4.77    $   44,235       4.93       0.2

Net sales increased by 3.6% in the first quarter of fiscal 2009, as compared to the prior year period. The increase in net sales was attributable to incremental new stores and was partially offset by a decline in comparable store sales. The increase in net sales from new stores exceeded the loss of sales from closed stores by $54.0 million for the comparable periods. Comparable store sales (see definition below) decreased by 2.12% ($18.5 million) in the first quarter of fiscal 2009, as compared to an increase of 4.40% ($33.6 million) in the first quarter of fiscal 2008. Management believes that Harris Teeter's comparable store sales were negatively impacted by the changing consumer buying habits created by the current economic environment and the timing of the New Year's holiday. The New Year's holiday will be included in the second fiscal quarter of 2009, whereas in fiscal 2008, the New Year's holiday was included in the first quarter. On a comparable 14 week basis which includes the New Year's holiday in both periods, comparable store sales declined by 1.36%. Thus, management estimates that the shift in the holiday accounted for approximately 0.76% of the comparable store sales decline. In addition, during the first quarter of fiscal 2009, Harris Teeter realized a higher percentage of sales of its lower priced store brand products, which management believes negatively impacted comparable store sales, but contributed to gross profit improvements. Harris Teeter's store brand product penetration has increased approximately 23 basis points to 24.88%. Both the average ticket size and the number of shopping visits were down in the first quarter of fiscal 2009 as compared to the prior year; however, Harris Teeter experienced an average increase in active household of 0.28% per comparable store (based on VIC data), evidencing a growing customer base in those stores. Comparable store sales were also negatively impacted by Harris Teeter's strategy of opening additional stores in its core markets that have a close proximity to existing stores. However, management expects these stores, and any similar new additions in the foreseeable future, to have a strategic benefit of enabling Harris Teeter to capture sales and expand market share as the markets it serves continue to grow.

Harris Teeter considers its reporting of comparable store sales growth to be effective in determining core sales growth during periods of fluctuation in the number of stores in operation, their locations and their sizes. While there is no standard industry definition of "comparable store sales," Harris Teeter has been consistently applying the following definition. Comparable store sales are computed using corresponding calendar weeks to account for the occasional extra week included in a fiscal year. A new store must be in operation for 14 months before it enters into the calculation of comparable store sales. A closed store is removed from the calculation in the month in which its closure is announced. A new store opening within an approximate two-mile radius of an existing store that is to be closed upon the new store opening is included as a replacement store in the comparable store sales measurement as if it were the same store. Sales increases resulting from existing comparable stores that are expanded in size are included in the calculations of comparable store sales, if the store remains open during the construction period.

SG&A expenses, and its percent to sales, for the first quarter of fiscal 2009 increased from the prior year period as a result of incremental costs associated with Harris Teeter's new store program (pre-opening costs and incremental start-up costs), increased credit and debit card fees and other occupancy costs. The increased costs were partially offset by improved labor management and additional cost controls in support departments. Pre-opening costs, included with SG&A expenses, consist of rent, labor and associated fringe benefits, and recruiting and relocation costs incurred prior to a new store opening and amounted to $4.0 million (0.43% to sales) for the first quarter of fiscal 2009 as compared to $3.7 million (0.41% to sales) for the first quarter of fiscal 2008. Pre-opening costs fluctuate between periods depending on the new store opening schedule. As a result of the sales and cost elements described above, operating profit improved over the prior year period. Harris Teeter continues to concentrate on expanding within its core markets, which management believes have greater potential for improved returns on investment in the foreseeable future.

American & Efird, Industrial Thread Segment The following table sets forth the consolidated operating profit components for the Company's A&E textile subsidiary for the 13 weeks ended December 28, 2008 and December 30, 2007. The table also sets forth the percent to sales and the percentage increase or decrease over the prior year (in thousands):

                                December 28, 2008          December 30, 2007
                                             % to                       % to    % Inc.
                                            Sales                      Sales    (Dec.)
Net Sales                  $  66,058       100.00      $   80,139     100.00     (17.6 )
Cost of Sales                 53,564        81.09          62,533      78.03     (14.3 )
Gross Profit                  12,494        18.91          17,606      21.97     (29.0 )
SG&A Expenses                 13,595        20.58          17,376      21.68     (21.8 )
Operating (Loss) Profit    $  (1,101 )      (1.67 )    $      230       0.29      n.m.

Net sales decreased 17.6% in the first quarter of fiscal 2009, as compared to the prior year period. The decrease was driven primarily by sales declines between the first quarters of fiscal 2009 and fiscal 2008 for all regions, with the exception of Asia. Foreign sales accounted for approximately 56% of total A&E sales in the first quarter of fiscal 2009, as compared to 55% in the first quarter of fiscal 2008. Foreign sales, especially in the Asian markets, will continue to be a significant proportion of total A&E sales due to the shifting global production of its customers and A&E's strategy of increasing its presence in such global markets. Management recognizes that a major challenge facing A&E is the geographic shift of its customer base and, as a result, management remains committed to its strategic plans that will transform A&E's business to a more Asian-centric global supplier of sewing thread, embroidery thread and technical textiles.

Gross profit and its percent to sales, in the first quarter of fiscal 2009 decreased from the first quarter of fiscal 2008, as a result of weak sales and poor overhead absorption in the U.S. operations and certain other foreign operations. The shifting of apparel production from the Americas to Asia has continued and management is focused on optimizing costs and manufacturing capacities in its domestic and foreign operations.

SG&A expenses, and its percent to sales, in the first quarter of fiscal 2009 decreased from the first quarter of fiscal 2008, primarily as a result of increased net profit realized from non-consolidated subsidiaries and reduced costs realized through the consolidation and rationalization of A&E's U.S. operations. Net profit from non-consolidated subsidiaries increased to $1.6 million in the first quarter of fiscal 2009 from $0.4 million in the prior year, driven primarily by A&E's recent investments in Vardhman. As previously disclosed, SG&A expenses for the first quarter of fiscal 2008 included an expense reversal of approximately $0.9 million for costs associated with certain import duties levied against A&E's operations in Mexico that had been previously accrued by A&E.

A&E's operating loss for the first quarter of fiscal 2009 resulted from a challenging automotive and retail apparel environment in many parts of the world and its impact on A&E's customers. A&E continued to rationalize its U.S. operations and made additional investments in its Asian operations during the first quarter of fiscal 2009.

Harris Teeter's capital expenditures for fiscal 2009 are presently estimated at approximately $212 million, or $29 million lower than previously disclosed. Harris Teeter's anticipated capital expenditures for fiscal 2010 have been lowered to approximately $150 million, 29% less than fiscal 2009, and includes 14 new store openings (2 of which will replace existing stores). The new store program anticipates the continued expansion of Harris Teeter's existing markets including the Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. Real estate development by its nature is both unpredictable and subject to external factors including weather, construction schedules and costs. Any change in the amount and timing of new store development would impact the expected capital expenditures, sales and operating results.

To support Harris Teeter's growing store base in Virginia, Maryland and Washington, D.C., the company recently identified a site for a new distribution center outside of Fredericksburg, VA. Pending satisfactory due diligence, Harris Teeter anticipates construction in fiscal years 2011 and 2012 with an opening sometime in fiscal 2012. The estimated cost for the facility and equipment is approximately $100 million. The addition of this facility will result in significant transportation expense savings.

Startup costs associated with opening new stores under Harris Teeter's store development program can negatively impact operating margins and net income. In the current competitive environment, promotional costs to maintain market share could also negatively impact operating margins and net income in future periods. The continued execution of productivity initiatives implemented throughout all stores, maintaining controls over waste, implementation of operating efficiencies and effective merchandising strategies will dictate the pace at which Harris Teeter's operating results could improve, if at all.

A&E has been able to diversify its customer base, product mix and geographical locations through acquisitions and joint venture agreements completed in recent years. In addition, A&E continues to increase its investment in China and India to support the rapidly growing apparel production in these countries and to become more Asian-centric. A&E will find it difficult to generate significant improvements in profitability in the absence of a more favorable automotive and retail environment. If economic conditions significantly decline beyond current expectations and an improvement in conditions for the U.S. operations cannot be reasonably projected to improve, then there could be a non-cash impairment charge for goodwill recorded by A&E. A&E management continues to focus on providing best-in-class service to its customers and expanding its product lines throughout A&E's global supply chain. In addition, management continues to evaluate ways to further rationalize A&E's U.S. operations and to evaluate its structure to best position A&E to take advantage of opportunities available through its enhanced international operations.

The Company's management remains cautious in its expectations for the remainder of fiscal 2009 due to the current economic environment and its impact on our customers. The Company will continue to refine its merchandising strategies to respond to the changing shopping demands as a result of the challenging economic environment. The retail grocery market remains intensely competitive and the textile and apparel environment faces additional challenges during this recessionary period. Further operating improvement will be dependent on the Company's ability to increase Harris Teeter's market share, rationalize A&E's operations, offset increased operating costs with additional operating efficiencies, and to effectively execute the Company's strategic expansion plans.

Capital Resources and Liquidity

The Company is a holding company which, through its wholly-owned operating subsidiaries, Harris Teeter and A&E, is engaged in the primary businesses of retail grocery and the manufacturing and distribution of industrial thread, technical textiles and embroidery thread, respectively. The Company has no material independent operations, nor material assets, other than the investments in its operating subsidiaries, as well as investments in certain fixed assets, cash equivalents and life insurance contracts to support corporate-wide operations and benefit programs. The Company provides a variety of services to its subsidiaries and is dependent upon income and upstream dividends from its operating subsidiaries. There are no restrictions on the subsidiary dividends, which have historically been determined as a percentage of net income of each subsidiary.

During the 13 weeks ended December 28, 2008, consolidated capital expenditures totaled $49.5 million. During this period, Harris Teeter's capital expenditures were $48.8 million and A&E's capital expenditures were $0.7 million. Harris Teeter made an additional net investment of $0.5 million ($2.8 million additional investments less $2.3 million received from property investment sales and partnership distributions) in connection with the development of certain of its new stores. Additionally, A&E invested an additional $8.7 million in Vardhman and an additional $0.7 million in its joint venture in Brazil.

Fiscal 2009 consolidated capital expenditures are expected to total . . .