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Nash Finch Nets 2Q Profit, Advances '05 Outlook

MINNEAPOLIS -- Raising its earnings outlook for the full year, Nash Finch moved the needle forward with second-quarter net profits of $9.7 million, or 75 cents a share, reversing a year-ago loss stemming from the closings of 18 stores as recent acquisitions bolstered sales 19.8 percent to $1.085 billion. For the second quarter of 2004, the company had reported a net loss of $15.6 million, or $1.26 per diluted share.

Total sales for the second quarter came to $1.085 billion vs. $906.4 million in the same period last year, as a result of its acquisition from Roundy's, Inc. of distribution centers in Lima, Ohio and Westville, Ind., which became effective March 31, 2005.

Second-quarter and year-to-date 2004 results were negatively affected by an after-tax special charge of $22.3 million, or $1.80 per diluted share, associated primarily with the closure of 18 retail stores at the end of that quarter, and by $2.0 million, or 16 cents per diluted share, in after-tax costs (primarily inventory markdowns) related to those closures, which were recorded in operating income.

Second-quarter and year-to-date 2005 results included the reversal of $0.8 million of that special charge, reflecting Nash Finch's decision to continue operating its three Denver-area Avanza stores geared to Hispanic consumers, and an after-tax bridge loan commitment fee of $0.5 million related to potential financing for the acquisition of the Lima and Westville divisions.

As a result of strong operating cash flow during the second quarter, Nash Finch repaid $36 million of acquisition-related indebtedness by the end of the second quarter and said that it intends to continue focusing on effectively managing working capital, debt load, and improved EBITDA ratios. Consolidated EBITDA for the second quarter was $33.7 million, compared with $28.6 million in the same quarter last year, and $57.4 million for the first 24 weeks of 2005 vs. $52.9 million last year.

Food distribution segment sales for the second quarter of 2005 increased 44.2 percent to $647.7 million, compared with $449.2 million in the second quarter of 2004, and for the first 24 weeks of 2005, increased to $1.098 billion from $880.3 million.

"Integration of the Lima and Westville operations is proceeding according to plan," noted c.e.o. Ron Marshall.

While the company expected integration costs to affect food distribution margins in the short term, Marshall said that it didn't "fully appreciate the degree to which the demands of integrating a significant acquisition would divert attention from daily operations and affect our day-to-day execution. Given the front-end loading of the integration costs and the steps we have taken to improve execution, we expect operating margins in this segment to rebound as we begin to realize the synergies inherent in this acquisition."

Second-quarter sales for the company's military segment were $267.7 million vs. $255.2 million in the second quarter of 2004, an increase of 4.9 percent. Year-to-date military segment sales increased 4.4 percent from $508.9 million to $531.3 million. Sales growth in the quarterly and year-to-date periods was due to increases in customer traffic in both domestic and overseas commissaries, and line extensions under existing vendor contracts, according to the company.

In addition to servicing independent retailers and military commissaries in 28 states, the District of Columbia, Europe, Cuba, Puerto Rico, Iceland, the Azores, and Honduras, Nash Finch also owns and operates a base of over 80 retail stores, primarily supermarkets under the Econofoods, Family Thrift Center, and Sun Mart banners.
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