Fresh Brands Nets Q2 Profit

SHEBOYGAN, Wis. -- Buoyed by a 2.7 percent increase in same store sales for its corporate-owned and franchised Piggly Wiggly and Dick's banners, Fresh Brands Inc. here swung to a profit in the second quarter ending July 16.

The company's net sales also increased slightly, to $164 million from $163 million, during the same period a year earlier, while retail sales at franchised stores increased 31 percent to $36.4 million, due primarily to a conversion of two corporate stores to franchise ownership, the closure of a Sheboygan-area store in March 2005, and the addition of five franchised locations.

Sales at corporate stores declined 7.7 percent to $64.6 million in the quarter, while wholesale volume declined 2 percent to $113.7 million due to the closing of three franchised and six corporate-owned stores since the first quarter of 2004, and the sale of one corporate store in August 2004.

For the six months ended July 16, net income was $406,000, or 8 cents per share, compared with a net loss of $3.9 million, or 79 cents per share, the year before. Net sales increased to $361.9 million from $359.5 million.

"We are pleased to report significant sales increases in our corporate and franchise stores and improvements in their overall operating results," said Louis Stinebaugh, Fresh Brands' president and c.o.o. "These improvements resulted in our fourth consecutive profitable quarter since we began the efforts to rationalize our underperforming store base, and to reestablish our competitive position in the market that we serve."

During the second quarter Fresh Brands "realized excellent sales increases throughout our corporate and franchised Piggly Wiggly stores as a result of our value proposition strategy and improved weekly promotions," Stinebaugh noted, adding, "We are especially pleased that the sales increases were achieved without impacting our retail gross margins. We believe these results indicate that we are on track with achieving the goals of our pricing and marketing strategy.

Stinebaugh said sales in the company's nine corporate Dick's Supermarkets stores were flat for the quarter, "as we have not implemented our value proposition strategy throughout those stores. Their impact and the impact of a competitive opening in one of our corporate Piggly Wiggly store markets offset a substantial portion of the sales gain for the corporate store group. In addition, a competitive opening affected sales in two of our consolidated franchise stores that offset the gains for that group of stores."

Also during the second quarter of 2005, Fresh Brands closed two underperforming franchise stores that Stinebaugh said were generating losses for the wholesale segment. As a result, the company absorbed an approximate $1 million in repositioning charges related to the vacated leases.

"The benefits of these and previous store closures are beginning to be realized as we report improved operating performance in our corporate and consolidated franchise retail segments and reduced provisions for bad debts in our wholesale segment reflecting improved performance of our franchise stores" said Stinebaugh. "We have a few remaining underperforming stores that we continue to review and we will determine appropriate actions to be taken for those locations that are not meeting our performance expectations."

The retailer/wholesaler services 75 franchised supermarkets, 20 corporate-owned supermarkets and two corporate-owned convenience stores throughout Wisconsin, northern Illinois and Iowa, all of which are served by two distribution centers and a centralized bakery/deli production facility.
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