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McRae Industries, Inc.

April 15, 2005

Mr. Michael Moran, Branch Chief

Division of Corporation Finance

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

    Re:

    SEC Comment Letter

    McRae Industries, Inc.

    Commission File No. 1-08578

Dear Mr. Moran:

Attached are our responses to the staff’s letter dated March 17, 2005, regarding Form 10-K and Form
10-K/A for the fiscal year ended July 31, 2004 filed by McRae Industries, Inc. (the “Company”).

For ease of review, the staff’s comments have been repeated and numbered as in the staff’s letter.
Each comment from the staff is immediately followed by the Company’s response.

I hereby confirm on behalf of the Company that:

    •
    The Company is responsible for the adequacy and accuracy of the disclosure in the
filing;

    •
    Staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filing; and

    •
    The Company may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the Unites States.

Please call me directly at (910) 439-6147 should you have any questions regarding our responses.

Sincerely,

/s/ Marvin G. Kiser, Sr.

Marvin G. Kiser, Sr., Vice President of Finance

Responses of McRae Industries, Inc. to SEC Comment Letter

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 9

Critical Accounting Policies, page 9

    1.
    Please supplement the critical accounting policies already disclosed by addressing
specifically why your estimates or assumptions for contract contingencies, inventories,
goodwill and intangible assets impairments, revenue recognition and income taxes bear the risk
of change. State whether there are uncertainties attached to the estimates or assumptions or
whether the estimates are difficult to measure or value. Further, provide an analysis, to the
extent material, of the factors you consider in arriving at the estimates or assumptions, how
accurate the estimates or assumptions have been in the past and whether the estimates are
reasonably likely to change in the future. Also include a discussion of the impact a
percentage point change in estimates would have on earnings. Please refer to paragraph V. of
SEC Release No. 33-8350.

Company Response:

A revised version of the Critical Accounting Policies section of Management’s Discussion and
Analysis of Financial Condition and Results of Operations that we plan to make to future filings in
response to the staff’s comment is set forth below. Please note that in the first quarter of
fiscal 2005 our office products business sold substantially all of its assets, and we will not
include a discussion of contract contingencies in future filings since such contingencies related
exclusively to this business. Also please note our discussion does not include any sensitivity
analysis because in the Company’s view none of the policies included in the discussion are
susceptible of meaningful sensitivity analysis.

    CRITICAL ACCOUNTING POLICIES

    Our timely preparation of financial reports and related disclosures requires us to use
estimates and assumptions that may cause actual results to be materially different from our
estimated results. Specifically, we use estimates when accounting for depreciation,
amortization, cost per copy contract contingencies, useful lives for intangible assets, and
asset valuation allowances (including those for bad debts, inventory, and deferred income
tax asset valuation allowances). Our most critical accounting policies include the
following:

    Inventories

    Inventories are stated at the lower of cost or market value using the last-in, first-out
(LIFO) method for military boots and using the first-in first-out (FIFO) method for all
other inventories. We regularly review inventory quantities on hand and record a provision
for excess and obsolete inventory based primarily on

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    our estimated forecast and demand requirements for the next twelve months. Actual demand
and market conditions may be different from those projected by our management as a result
of technological changes in the bar code business products and fashion cycles and trends in
the western and work boot business. A percentage point error in our
inventory allowances would approximate $3,000 for fiscal 2004.

    Goodwill and Intangible Assets

    On an annual or a more frequent basis as circumstances or events might dictate, we evaluate
our goodwill and trade names under the provision of Statement of Financial Accounting
Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”. We use the discounted
cash flow methodology to test for impairment based on estimated future cash flows derived
from historical performance and our knowledge of known factors likely to impact future cash
flows. Historically, we have generated sufficient returns to recover the cost of goodwill
and trade names. If future cash flows related to these assets decline as a result of
market factors, competition or customer loyalty, a write down to fair value could have a
material impact on earnings.

    Revenue Recognition

    Our contract with the government is a fixed bid price agreement. We recognize revenue
under our current boot contract when the boots are inspected and accepted by the
Government’s Quality Assurance Representative (QAR), thereby transferring ownership to the
Government. Pursuant to the contract, the boots become “Government-owned property” after
inspection and acceptance by the QAR. The boots are transferred and stored in our
warehouse, which is a designated storage facility approved by the Government, and accounted
for as “bill and hold” sales in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.”

    We recognize revenues associated with the economic price adjustment (EPA) clause in our
military boot contracts. This clause allows us to bill the Government after the contract
expires to recover the changes in our leather cost over the life of the contract.

    Income Taxes

    As part of the process of preparing our consolidated financial statements, we are required
to estimate our income taxes in each of the jurisdictions in which we operate. This process
involves us estimating our actual current exposure together with assessing temporary
differences resulting from differing treatment of items, such as leasing activity,
allowances, and depreciation, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within our consolidated balance
sheet. We must then assess the likelihood that our deferred tax assets will be recovered
from future taxable income and to the extent we believe that recovery is not likely, we
must establish

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    a valuation allowance. To the extent we establish a valuation allowance or increase this
allowance in a period, we must include an expense within the tax provision in the statement
of operations. Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded
against our net deferred tax assets. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, we may need to establish an
additional valuation allowance, which could materially impact our financial position and
results of operations. Changes in tax laws and rates may affect recorded deferred tax
assets and liabilities in the future. It is possible that the Internal Revenue Service
could disagree with management’s timing of deductions or revenue recognition, which would
affect recorded tax assets and liabilities. Management believes that changes in these
estimates would not result in a material effect on the Company’s results of operations,
cash flows, or financial position.

Military Boot Unit Results of Operations, Fiscal 2004 Compared to Fiscal 2003, page 13

    2.
    You identify the intermediate causes of change in your decreasing military boot segment
gross profits. Please tell us and disclose if there is any known trend that will cause the
relationship between costs and revenues to continue this trend of increasing sales and
decreasing gross profits. Additionally, to the extent that the financial statements disclose
material changes in net sales, please include a discussion why such changes are attributable
to changes in price, volume and new products or services. See Item 303(a)(3)(ii) of
Regulation S-K as well as SEC Release No. 33-8350.

Company Response:

The lower per unit selling prices that contributed to a reduction in gross profits for our military
boot business in fiscal 2004 resulted from lower fixed prices contained in our Contract with the
U.S. Government entered into in September 2003 (the “Contract”). The higher costs that contributed
to a reduction in gross profits for our military boot business in fiscal 2004 were attributable to
measures taken to meet the high production requirements caused by the Government’s invoking the
“surge” requirement under the Contract. Neither of these factors constitutes a trend that will
cause the relationship between costs and revenues to continue a trend of increasing sales and
decreasing gross profits.

To the extent that our financial statements disclose material changes in net sales in the future we
will include a discussion why such changes are attributable to changes in price, volume and new
products or services as required by Item 303(a)(3)(ii) of Regulation S-K.

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Contractual Obligations, page 18

    3.
    Please advise or revise your disclosure in future filings to include the amount of interest
payments you expect on debt for the periods presented as required by Item 303 (a)(5)(ii)(A) of
Regulation S-K. Please include disclosure of the assumptions used to calculate amounts
included in the table where you have used variable interest rates as of the most recent
balance sheet date to compute the estimated contractual interest rates.

Company Response:

The amount of interest payments due on our debt obligations are noted in the following table:

    2005

    2006

    2007

    2008

    2009

    Thereafter

    Fixed rate:

    $
    6,452

    $
    5,753

    $
    5,030

    $
    4,280

    $
    3,504

    $
    7,927

    Variable rate:

    Western Boot

    $
    16,318

    $
    0

    $
    0

    $
    0

    $
    0

    $
    0

    Military Boot

    $
    8,600

    $
    0

    $
    0

    $
    0

    $
    0

    $
    0

We will revise our disclosure in future filings to include the amount of interest payments we
expect on debt for the periods presented as required by Item 303 (a)(5)(ii)(A) of Regulation S-K.
All our former variable rate debts have been paid off. The $3.1 million debt was paid in September
2004 and the $396,000 was paid in February 2005.

    4.
    Please revise future filings to include the disclosures required by Item 10(e) of Regulation
S-K if you choose to continue to present the non-GAAP measure of adjusted net earnings.

Company Response:

We will discontinue the presentation of the non-GAAP measure of adjusted net earnings in our future
filings.

Consolidated Balance Sheets, page 22

    5.
    Please tell us if the cash surrender value of life insurance is the amount that could be
realized under the insurance contract as of the balance sheet date and if the change in cash
surrender value during the period is an adjustment of premiums paid in determining the expense
or income to be recognized under the contract for the period. Reference is made to FASB
Technical Bulletin No. 85-4. Clarify your disclosures in future filings accordingly.

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Company Response:

Under the split dollar insurance arrangement, the Company is entitled to be repaid cumulative
premiums paid, or if less, the net cash surrender value of the policies. The amount recorded is the
amount that could be realized under this agreement as of the balance sheet date. In 2003, we
discontinued paying premiums under the split dollar insurance arrangement. As a result, since such
time the amount recorded on the balance sheet for split dollar insurance arrangement has not
changed.

In future filings, we will revise the note in our financial statements regarding the split dollar
insurance arrangement to read as follows.

    Cash Surrender Value Life Insurance: Represents value of the Company’s rights under a
split-dollar arrangement. Under this arrangement, the Company is entitled to be repaid
cumulative premiums paid, or if less, the net cash surrender value of the policies.

    6.
    Tell us how you determined that you do not have any significant continuing involvement in the
operations of McRae Office Solutions, Inc. after your disposal transaction. Include in your
explanation a description of the sublease arrangement of your corporate headquarters to
Connected Office Products, Inc. and any other existing arrangements between you and the
purchaser. See paragraph 42 of SFAS No. 144.

Company Response:

On September 10, 2004, we sold substantially all of the assets and business operations of McRae
Office Solutions, Inc. to Connected Office Products, Inc. (COPI). Following the sale transaction
we had no continuing interest in the business or operations of McRae Office Solutions. For the
mutual convenience of the parties, as part of the transaction we agreed to sublease a portion of
our corporate headquarters facility to COPI. The lease agreement provides for a fixed monthly
lease payment for approximately 34,006 square feet of office and warehouse space. The lease term is
for one year with two periods of one-year options. Also, we bill COPI a proportionate share of the
facility charges that include taxes, insurance premiums, and common operating and maintenance
costs, which are set forth in the lease agreement. Additionally, the lease agreement contains
provisions relating to access to certain storage areas on a month-to-month basis, monthly
telephone/electronic communication charges, and access to common areas.

We currently have maintenance agreements with Toshiba Business Solutions of the Carolina’s
(formally known as McRae Office Solutions, Inc.) on 9 copiers and 5 fax machines that cover
service. These agreements were entered into in the ordinary course of business and our relationship
with Toshiba Business Solutions of the Carolina’s is that of a customer. We have no other on-going
involvement with McRae Office Solutions.

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Consolidated Statement of Operations, page 24

    7.
    Paragraph 61 of SFAS No. 128 requires the use of the two-class method of computing earnings
per share for enterprises with multiple classes of common stock according to dividends
declared and participation rights in undistributed earnings. Please tell us why the
if-converted method rather than the two-class method is appropriate considering your
participation rights in dividends for Series A and B common shares disclosed on page 8 of your
amended 10-K. If you determine that the if-converted method is not applicable, please amend
your financial statements to present earnings per share employing the two-class method in your
consolidated statement of operations and elsewhere in Form 10-K. See paragraphs 36 and 37 of
APB No. 20.

Company Response:

Paragraph 61 of FASB No. 128 states:

    “The if-converted method shall be used for those securities that are convertible into
common stock if the effect is dilutive. For those securities that are not convertible into
class of common stock, the ‘two class’ method of computing earnings per share shall be
used.”

Historically, we have only paid dividends on our Class A Common Stock. However, sh