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 motivated 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, Harris Teeter markets 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 third quarter of fiscal 2008, Harris Teeter has opened 14 new stores while closing 2 stores for a net addition of 12 stores. Harris Teeter operated 186 stores at June 28, 2009. Much of Harris Teeter's new store growth is focused on its expanding 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 have also been negatively impacted by the current economic environment and the cautious consumer. A&E has experienced a significant decline in sales as a result of the serious global economic conditions facing their customers in the apparel and non-apparel markets. In addition, apparel production in the Americas has continued to decline 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, approximately 74% in 2008 and approximately 75% for the first five months in 2009. This has greatly impacted A&E's operations in the Americas. 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.

In prior years, A&E has expanded its customer base and product line offerings through strategic acquisitions of businesses that produce technical textiles, embroidery thread and other non-apparel yarns. Technical textiles represent non-apparel yarns A&E supplies to its customers in the automotive, telecommunication, wire and cable, paper production and other industries. The sale of non-apparel threads and yarns resulting from these acquisitions has partially offset sales declines in the U.S. resulting from the shifting of apparel manufacturing. A&E continues to expand the manufacturing and distribution of non-apparel products throughout its global operations.

In connection with A&E's quarterly financial statement preparation and evaluation for goodwill impairment triggering events, management concluded that the current economic environment and its impact on the Company's strategic planning process qualified as a triggering event that required A&E to perform tests for goodwill impairment. As a result, A&E recorded non-cash impairment charges related to its U.S. operating unit during the third quarter of fiscal 2009. Impairment charges included the write-off of all of the goodwill associated with its U.S. acquisitions previously made in 1995 and 1996. In addition, non-cash charges of $2.2 million were recorded in the third quarter of fiscal 2009 for the write-down of long-lived assets.

Quarterly Results

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 June 28, 2009
and June 29, 2008. 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):

                                                        June 28, 2009                   June 29, 2008
                                                           % to Total                      % to Total     % Inc.
                                                            Net Sales                       Net Sales     (Dec.)
Net Sales
    Harris Teeter                         $    964,190           94.1     $    926,347           91.4        4.1
    American & Efird                            60,700            5.9           87,227            8.6     (30.4)
        Total                             $  1,024,890          100.0     $  1,013,574          100.0        1.1

Gross Profit
    Harris Teeter                         $    293,050          28.59     $    288,453          28.46        1.6
    American & Efird                            12,161           1.19           18,937           1.87     (35.8)
        Total                                  305,211          29.78          307,390          30.33        0.7

Selling, General and Admin. Expenses
    Harris Teeter                              250,260          24.41          243,930          24.07        2.6
    American & Efird                            12,506           1.22           16,610           1.64     (24.7)
    Corporate                                    1,577           0.16            1,652           0.16      (4.5)
        Total                                  264,343          25.79          262,192          25.87        0.8

Impairment Charges - American & Efird
    Goodwill Impairment                          7,654           0.75                -              -       n.m.
    Long-Lived Asset Impairments                 2,237           0.22                -              -       n.m.
        Total                                    9,891           0.97                -              -       n.m.

Operating Profit (Loss)
    Harris Teeter                               42,790           4.18           44,523           4.39      (3.9)
    American & Efird                          (10,236)         (1.00)            2,327           0.23       n.m.
    Corporate                                  (1,577)         (0.16)          (1,652)         (0.16)      (4.5)
        Total                                   30,977           3.02           45,198           4.46     (31.5)

Other Expense, net                               3,558           0.35            5,291           0.52     (32.8)
Income Tax Expense                              10,928           1.06           15,398           1.52     (29.0)
Net Income                                $     16,491           1.61     $     24,509           2.42     (32.7)

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 partially offset by a decrease in sales at A&E, when compared to the prior year. A&E's foreign sales for the third quarter of fiscal 2009 represented 3.3% of the consolidated net sales of the Company compared to 4.9% 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 decreased during the third quarter of fiscal 2009 over the prior year period as a result of A&E's gross profit declines offsetting gross profit increases at Harris Teeter. 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.

During the third quarter of fiscal 2009, A&E recorded non-cash impairment charges related to its U.S. operating unit. The related income tax benefit of these charges amounted to $3,792,000, resulting in a net income reduction of $6,099,000. Refer to the discussion of segment operations under the caption "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. Interest expense decreased over the prior year period by $0.9 million, as a result of lower average interest rates on outstanding debt balances. Average outstanding debt balances increased between the comparable periods as a result of increased borrowings under the Company's credit facility and new capital leases entered into in support of Harris Teeter's new store development program.

The effective income tax rate for the third quarter of fiscal 2009 was 39.9%, as compared to 38.6% in the prior year period. The rate for the current period increased over the prior year as a result of adjustments made for an increase in the Company's state income taxes.

As a result of the items discussed above, consolidated net income for the third quarter of fiscal 2009 decreased by $8.0 million, or 32.7%, over the prior year period and earnings per diluted share decreased by 33.3% to $0.34 per share for the third quarter of fiscal 2009 from $0.51 per share in the same period of fiscal 2008. The impairment charges recorded by A&E reduced earnings per diluted share by $0.13.

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 June
28, 2009 and June 29, 2008. The table also sets forth the percent to sales and
the percentage increase or decrease over the prior year (in thousands):

                                June 28, 2009                June 29, 2008
                                         % to                         % to     % Inc.
                                    Net Sales                    Net Sales     (Dec.)
Net Sales            $  964,190        100.00     $  926,347        100.00        4.1
Cost of Sales           671,140         69.61        637,894         68.86        5.2
Gross Profit            293,050         30.39        288,453         31.14        1.6
SG&A Expenses           250,260         25.95        243,930         26.33        2.6
Operating Profit     $   42,790          4.44     $   44,523          4.81      (3.9)

Net sales increased by 4.1% in the third 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 sales from new stores exceeded the loss of sales from closed stores by $52.7 million for the comparable periods. Comparable store sales (see definition below) decreased 1.42% ($12.7 million) in the third quarter of fiscal 2009, as compared to an increase of 1.73% ($14.1 million) in the third quarter of fiscal 2008. As previously disclosed, comparable store sales for the third quarter of fiscal 2009 was impacted by the shift of the Easter holiday from second quarter in fiscal 2008 to third quarter in fiscal 2009. This shift in the Easter holiday had a 32 basis point impact on third quarter comparable store sales. Management believes that Harris Teeter's comparable store sales for the quarter were negatively impacted by the changing consumer buying habits created by the current economic environment. The percentage of sales of Harris Teeter's lower priced store brand products during the third quarter of fiscal 2009 was 27.10%, a decrease of 20 basis points over the third quarter of fiscal 2008, but an increase of 230 basis points over the second quarter of fiscal 2009. The number of shopping visits increased, however the average ticket size was down in the third quarter of fiscal 2009, as compared to the prior year. In addition, Harris Teeter experienced an average increase in active households of 1.77% per comparable store (based on VIC data), evidencing a growing customer base in those stores. Comparable store sales were also negatively impacted by the cannibalization created 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.

Gross profit, as a percent to sales, in the third quarter of fiscal 2009 declined 75 basis points from the prior year as a result of additional promotional activity designed to provide more value to Harris Teeter's customers. Management continues to adjust Harris Teeter's promotional spending programs in response to the changing purchasing habits of Harris Teeter's customers. The decline in the gross profit margin was offset, in part, by management's emphasis on distribution and manufacturing cost controls and decreasing fuel costs.

SG&A expenses, as a percent to sales, for the third quarter of fiscal 2009 decreased 38 basis points from the prior year period as a result of the leverage created through sales gains that apply against fixed costs, improved labor management and additional cost controls in support departments. The sales increases, along with a continued emphasis on operational efficiencies and cost controls, have provided the leverage to partially offset the additional costs associated with Harris Teeter's increased promotional activity and new store program (pre-opening costs and incremental start-up costs), increased associate benefit costs, credit and debit card fees and other occupancy costs. 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 $4.1 million (0.42% to sales) for the third quarter of fiscal 2009, as compared to $3.7 million (0.40% to sales) for the third quarter of fiscal 2008. Pre-opening costs fluctuate between periods depending on the new store opening schedule and market location.

As a result of the sales and cost elements described above, operating profit declined 3.9% over the prior year period. Harris Teeter continues to invest 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 June 28, 2009 and June 29, 2008. The table also sets forth the percent to sales and the percentage increase or decrease over the prior year (in thousands):

                                                    June 28, 2009               June 29, 2008
                                                             % to                        % to     % Inc.
                                                        Net Sales                   Net Sales     (Dec.)
Net Sales                               $    60,700        100.00     $  87,227        100.00     (30.4)
Cost of Sales                                48,539         79.96        68,290         78.29     (28.9)
Gross Profit                                 12,161         20.04        18,937         21.71     (35.8)
SG&A Expenses                                12,506         20.60        16,610         19.04     (24.7)
Goodwill Impairment Charge                    7,654         12.61             -             -       n.m.
Long-Lived Asset Impairment Charges           2,237          3.69             -             -       n.m.
Operating (Loss) Profit                 $  (10,236)       (16.86)     $   2,327          2.67       n.m.

Net sales decreased 30.4% in the third quarter of fiscal 2009 as compared to the prior year period. The decrease was driven by sales declines between the third quarters of fiscal 2009 and fiscal 2008 for all regions. The global recession and its continuing negative impact on consumer spending is depressing the worldwide supply chain and A&E's customers have cut back orders in response to the reduction of retail sales. Foreign sales accounted for approximately 55% of total A&E sales in the third quarter of fiscal 2009, as compared to approximately 57% in the prior year period. 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.

SG&A expenses in the third quarter of fiscal 2009 decreased from the third quarter of fiscal 2008; however SG&A expenses as a percent to sales increased primarily due to the decrease in sales that provide the leverage to offset fixed expenses. A&E has realized some SG&A expense reductions through the consolidation and rationalization of A&E's U.S. operations. Net profit from non-consolidated subsidiaries is recorded as a reduction to SG&A expenses and amounted to $1.3 million in the third quarter of fiscal 2009, as compared to $1.1 million in the third quarter of fiscal 2008.

During the third quarter of fiscal 2009, A&E recorded non-cash impairment charges of $7.7 million related to its U.S. operating unit. Impairment charges included the write-off of all of the goodwill associated with its U.S. acquisitions previously made in 1995 and 1996. In addition, non-cash charges of $2.2 million were recorded in the third quarter of fiscal 2009 for the write-down of long-lived assets.

A&E's operating loss for the third quarter of fiscal 2009 was comprised of $9.9 million of impairment charges discussed above and $0.3 million of operating losses resulting from the challenging economic environment in many parts of the world and its impact on A&E's customers. Although A&E has significantly reduced expenses, it was not enough to offset the decline in sales and reduced operating schedules. Management at A&E intends to continue to reduce expenses at its U.S. operations and certain foreign operations to more closely match sales volumes.

Year-To-Date Results

Consolidated
The following table sets forth the operating profit components by each of the
Company's business segments and Corporate for the 39 weeks ended June 28, 2009
and June 29, 2008. 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):

                                                        June 28, 2009                   June 29, 2008
                                                           % to Total                      % to Total     % Inc.
                                                            Net Sales                       Net Sales     (Dec.)
Net Sales
    Harris Teeter                         $  2,842,544           93.8     $  2,716,015           91.6        4.7
    American & Efird                           187,335            6.2          249,874            8.4     (25.0)
        Total                             $  3,029,879          100.0     $  2,965,889          100.0        2.2

Gross Profit
    Harris Teeter                         $    876,405          28.92     $    845,835          28.52        3.6
    American & Efird                            34,527           1.14           53,959           1.82     (36.0)
        Total                                  910,932          30.06          899,794          30.34        1.2

Selling, General and Admin. Expenses
    Harris Teeter                              744,264          24.56          710,713          23.96        4.7
    American & Efird                            40,543           1.34           52,112           1.76     (22.2)
    Corporate                                    4,435           0.15            4,809           0.16      (7.8)
        Total                                  789,242          26.05          767,634          25.88        2.8

Impairment Charges - American & Efird
    Goodwill Impairment                          7,654           0.25                -              -       n.m.
    Long-Lived Asset Impairments                 2,237           0.07                -              -       n.m.
        Total                                    9,891           0.32                -              -       n.m.

Operating Profit (Loss)
    Harris Teeter                              132,141           4.36          135,122           4.56      (2.2)
    American & Efird                          (15,907)         (0.52)            1,847           0.06       n.m.
    Corporate                                  (4,435)         (0.15)          (4,809)         (0.16)      (7.8)
        Total                                  111,799           3.69          132,160           4.46     (15.4)

Other Expense, net                              12,603           0.42           15,298           0.52     (17.6)
Income Tax Expense                              36,881           1.21           44,943           1.52     (17.9)
Net Income                                $     62,315           2.06     $     71,919           2.42     (13.4)

As depicted in the table above, the increase in consolidated net sales was attributable to sales increases at Harris Teeter which were partially offset by a decrease in sales at A&E when compared to the prior year. A&E's foreign sales for the 39 weeks ended June 28, 2009, represented 3.4% of the consolidated net sales of the Company compared to 4.7% 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 increased during the first three quarters of fiscal 2009 over the prior year period as a result of gross profit increases at Harris Teeter that were 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.

SG&A expenses increased during the first three quarters of fiscal 2009, when compared to the prior year period, as a result of the increased operating costs at Harris Teeter driven by store expansion. The increased expenses were partially offset by reduced SG&A expenses at A&E and Corporate. Refer to the discussion of segment operations under the captions "Harris Teeter, Retail Grocery Segment" and "American & Efird, Industrial Thread Segment" for a further . . .