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Fresh Brands Stages 'Return to Profitability' in Third Quarter

SHEBOYGAN, Wis. - After having posted losses earlier in 2004, Fresh Brands, Inc. yesterday said income from continuing operations reached $0.6 million in the third quarter ended Oct. 9, compared with $1.0 million for the same period last year.

Income from continuing operations per diluted share was 12 cents, vs. 19 cents for the year-ago period.

For the first three quarters of 2004, Fresh Brands realized a loss from continuing operations of $0.2 million, or -4 cents per diluted share, vs. income from continuing operations of $5.5 million, or $1.09 per diluted share for the same period last year.

Net sales were $154.3 million, a rise of $14.7 million, or 10.5 percent, compared to the third quarter of 2003. This increase was mainly due to the adoption of FIN 46R in the first quarter of 2004, which required the company to include 17 of its franchise entities in its consolidated financial statements, increasing the Fresh Brand's net sales by $14.3 million.

During the third quarter of 2004, Fresh Brands sold two of its corporate Piggly Wiggly stores in Illinois to a new franchisee, which was added to the group of franchise entities consolidated under FIN 46R for the third quarter of 2004. These two stores bring the number of new Piggly Wiggly franchised stores this year to seven, Stinebaugh noted during yesterday's conference call.

Wholesale sales declined $8.8 million, or 7.6 percent, compared with the third quarter of 2003. According to the company, the decrease was primarily due to the effect of closing five corporate stores in May and selling a corporate store in August. Comparable-store sales for Fresh Brands' corporate and franchise stores were flat for the third quarter, mostly because of lower promotional spending and the opening of new competitive stores in several of the company's markets.

"We are pleased to report a profitable quarter after the last few quarters, each of which has been adversely impacted by various charges related to the closure or sale of several corporate and franchise stores," noted Fresh Brands president and c.e.o. Louis Stinebaugh in a statement.

"During the third quarter, we refined our pricing and marketing strategy and are currently in the process of rolling out our new 'value proposition' to all of our Piggly Wiggly stores, with the formal launch of this program occurring [next week]," he continued. "We are confident that our new pricing and marketing strategy will significantly increase our sales volumes and believe these strategies will provide significant momentum to our corporate and franchise store performance."

During the conference call, Stinebaugh said that the company's "more competitive retail pricing structure" had been received "very positively" in the markets in which it had been introduced, and added that the full-scale marketing rollout to Piggly Wiggly locations would include television, radio, and print promotions. He observed that the company, its shareholders, and employees were all "very excited about our new direction and very optimistic about our future."

"During the third quarter of 2004, we were able to reduce by $0.4 million our provision for potentially uncollectible franchise accounts receivable to $0.7 million," said c.f.o. John Dahly. "We continue to see improved financial performance by many of our franchise operators as the benefits of increased sales volumes and operating expense controls take hold."

Fresh Brands, Inc. is a supermarket retailer and wholesaler through corporate-owned retail, franchised and independent supermarkets. The corporate-owned and franchised retail supermarkets currently operate under the Piggly Wiggly and Dick's Supermarkets banners. The company currently has 79 franchised supermarkets, 21 corporate-owned supermarkets and two corporate-owned convenience stores, all of which are served by two distribution centers and a centralized bakery/deli production facility. Supermarkets are located throughout Wisconsin, northern Illinois and Iowa.
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