FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements with respect to the Company's outlook for the future. These statements represent the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. The reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause (and in some cases have caused) actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

OVERVIEW

The Company is a distributor of men's casual, dress and fashion shoes. The principal brands of shoes sold by the Company are "Florsheim," "Nunn Bush" and "Stacy Adams." Inventory is purchased from third-party overseas manufacturers. The majority of foreign-sourced purchases are denominated in U.S. dollars. In the North American wholesale division ("wholesale division"), the Company's products are sold to shoe specialty stores, department stores and clothing retailers, primarily in the United States and Canada. The Company also has licensing agreements with third parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas. Licensing revenues are included in the Company's wholesale division. The Company's North American retail division ("retail division") consisted of 36 Company-owned retail stores in the United States and an Internet business as of March 31, 2009. Sales in retail outlets are made directly to consumers by Company employees. The Company also has foreign operations ("foreign") which include the newly acquired wholesale and retail businesses in Australia, South Africa, and Asia Pacific (see below and Note 2 of the consolidated condensed financial statements (unaudited) above), and its wholesale and retail businesses in Europe. In conjunction with the acquisitions, the Company refined its internal reporting structure and redefined its reportable segments. All prior period amounts have been restated to conform to the current presentation. The majority of the Company's operations are in the United States, and its results are primarily affected by the economic conditions and the retail environment in the United States.

On January 23, 2009, the Company acquired a 60% interest in a new subsidiary, Florsheim Australia Pty Ltd. ("Florsheim Australia"), which subsequently purchased the Florsheim wholesale and retail businesses in Australia, South Africa, and Asia Pacific. The vast majority of this business is conducted under the Florsheim name, with a small amount of business under the Stacy Adams and Nunn Bush brand names. The consolidated financial statements of Florsheim Australia for the period January 23, 2009 through March 31, 2009 have been consolidated into the Company's first quarter financial statements. The Company expects consolidated sales for Florsheim Australia to be between $20 and $25 million in 2009. See Note 2 for more details of the purchase transaction.

Consolidated net sales for the first quarter of 2009 were $58.9 million, down 4% compared with last year's first quarter. Consolidated net earnings for the quarter ended March 31, 2009 were $2.5 million as compared with $5.1 million last year. Diluted earnings per share this quarter were $.22 as compared with $.43 in the first quarter of 2008. Net sales in the Company's wholesale division were down 10% in the first quarter of 2009, and same store retail sales were down 9%, both reflecting the current challenging retail environment. Net sales of the Company's foreign operations increased due to the addition of Florsheim Australia this year, whose net sales were $4.4 million from the January 23, 2009 acquisition date through March 31, 2009.

The Company's consolidated operating earnings for the current quarter were $3.3 million, down from $7.6 million last year. In the wholesale and retail divisions, operating earnings decreased due to the lower sales volumes and lower gross margins as a percent of sales this quarter. In the wholesale division, lower gross margins resulted from higher product costs compared to the first quarter last year, all of which could not be passed on to customers. The Company's foreign operations had operating earnings of $313,000 for the first quarter of 2009, as compared with $663,000 in 2008 due primarily to a net operating loss incurred by Florsheim Australia in 2009, mainly due to one-time acquisition costs.

RESULTS OF OPERATIONS

Wholesale Division Net Sales

Sales in the Company's wholesale division for the three-month periods ended March 31, 2009 and 2008 were as follows:

Wholesale Division Net Sales

                              Three Months Ended March 31,
                                2009                 2008           % Change
                                 (Dollars in thousands)
North American Net Sales
Stacy Adams                $       15,454       $       18,299          -15.5 %
Nunn Bush                          18,071               17,488            3.3 %
Florsheim                          12,109               14,811          -18.2 %
Total Wholesale            $       45,634       $       50,598           -9.8 %
Licensing                             749                1,050          -28.7 %
Total Wholesale Division   $       46,383       $       51,648          -10.2 %

The challenging economic climate in the first quarter of 2009 impacted the Company's sales volumes, resulting in net sales decreases in the Stacy Adams and Florsheim brands. Net sales for Nunn Bush increased during this period due to its strong position as a moderately priced brand in mid-tier department stores, as consumers tended to move away from higher priced products and toward more moderate priced goods. Florsheim experienced the opposite impact of this consumer behavior, as it competes at the higher end of the pricing matrix in mid-tier department and chain stores. The Company's management believes that the decrease in the sales volume of Stacy Adams brand was due to reduced consumer spending on fashion-oriented products.

Licensing revenues for the first quarter of 2009 were down compared with last year. The Company's licensing revenues consist of royalties earned on the sales of Stacy Adams apparel and accessories in the United States, Florsheim specialty footwear and accessories in the United States, and Florsheim footwear in Mexico and certain overseas markets. For the first quarter of 2009, Stacy Adams licensing revenues decreased 8%, as the independent footwear and apparel retailers who distribute much of this product have struggled in the current retail environment. Florsheim licensing revenues decreased approximately $260,000, mainly due to the purchase of Florsheim Australia, from whom we previously earned licensing revenues.

Retail Division Net Sales

Net sales in the Company's retail division were $5.2 million in the first quarter of 2009, as compared with $6.5 million last year. The Company has three fewer stores this year compared with 2008. Same store sales were down 9.2% in the first quarter of 2009, compared to the same period of 2008. Stores are included in same store sales beginning in the store's 13th month of operations after its grand opening. The Company's management believes the decrease in same store sales this year was due to the current challenges facing the overall retail environment.

Foreign Net Sales

Net sales of the Company's foreign operations were $7.3 million in the first quarter of 2009, compared with $3.2 million in 2008. In 2009, the net sales of Florsheim Europe were $2.9 million, with the remaining $4.4 million representing sales of Florsheim Australia.

Gross Earnings and Cost of Sales

Overall, the Company's gross earnings were 33.4% of net sales for the three months ended March 31, 2009 compared with 36.3% of net sales in 2008. Wholesale gross earnings were 26.6% of net sales in the first quarter of 2009 compared with 30.4% in 2008. In the retail division, gross earnings were 64.8% of net sales compared with 66.7% in the first quarter of 2008. The decrease in wholesale gross earnings for the quarter ended March 31, 2009 was a reflection of cost increases from the Company's overseas vendors that occurred in the second half of 2008, which have been partially offset by wholesale price increases. The Company has experienced a stabilization of costs since the end of 2008. Retail gross margins decreased in the first quarter of 2009 as compared with 2008 as a result of increased promotions due to the challenging retail environment in 2009.

The Company's cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs). Distribution costs were approximately $2.0 million for both the three months ended March 31, 2009 and 2008. These costs were included in selling and administrative expenses. Therefore, the Company's gross earnings may not be comparable to other companies, as some companies may include distribution costs in cost of sales.

Selling and Administrative Expenses

The Company's selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs, rent and depreciation. In the first quarter of 2009 as compared with the same period of 2008, selling and administrative costs increased $1.7 million. Wholesale and retail division selling and administrative costs were down $100,000 and $400,000, respectively, while costs from the Company's foreign operations increased $2.2 million. In the wholesale division, increased pension and stock option expense this quarter was more than offset by lower salesmen's commissions and employee costs, resulting in the $100,000 decrease. As a percent of sales, wholesale selling and administrative expenses were 21.1% in 2009 compared with 19.2% in 2008. The decrease in selling and administrative expenses in the retail division was due to three fewer stores in the first quarter of 2009 as compared with 2008. As a percent of sales, retail selling and administrative expenses were 70.0% in 2009 and 63.6% in 2008. In both the wholesale and retail divisions, the increased selling and administrative expenses as a percent of sales mainly resulted from the impact of lower sales volume in the current quarter, as many of the Company's selling and administrative costs are fixed in nature. In the Company's foreign operations, first quarter 2009 selling and administrative expenses were higher due to the addition of Florsheim Australia in 2009, which included approximately $370,000 of one-time acquisition costs.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of liquidity is its cash and short-term marketable securities. During the first three months of 2009, the Company generated $6.0 million in cash from operating activities compared with $2.1 million in the same period one year ago. This increase was primarily due to a larger decrease in inventory balances in the first quarter of 2009 compared to the same period of 2008, partially offset by lower net earnings in 2009 compared to 2008. The Company used approximately $9.3 million of cash for the Florsheim Australia acquisition. Capital expenditures were $383,000 in the first quarter of 2009 as compared to $1.0 million for the same period of 2008. Throughout 2008, the Company was remodeling its domestic retail stores. Those projects were complete by the end of 2008. The Company expects annual capital expenditures for 2009 to be between $1 million and $2 million.

The Company paid cash dividends of $1.6 million and $1.3 million during the three months ended March 31, 2009 and 2008, respectively. On April 27, 2009, the Company's Board of Directors increased the quarterly dividend rate from $.14 to $.15 per share. This represents an increase of 7% in the quarterly dividend rate. The impact of this will be to increase cash dividends paid annually by approximately $450,000.

The Company continues to repurchase its common stock under its share repurchase program when the Company believes market conditions are favorable. To date in 2009, the Company has repurchased 55,853 shares at a total cost of $1.3 million. The Company currently has 1,447,729 shares available under its previously announced buyback program. See Part II, Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds" below for more information.

As of March 31, 2009, the Company had a total of $50 million available under its borrowing facility, and borrowed $3.4 million under the facility in the first quarter of 2009. Total outstanding borrowings were $4.7 million as of March 31, 2009. The facility includes one financial covenant that specifies a minimum level of net worth. The Company was in compliance with the covenant at March 31, 2009. The facility expired on April 30, 2009 and was renewed through April 30, 2010.

The Company will continue to evaluate the best uses for its free cash, including continued stock repurchases and additional acquisitions.

The Company believes that available cash and marketable securities, cash provided by operations, and available borrowing facilities will provide adequate support for the cash needs of the business in 2009.