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Nash Finch Q1 Net Income Up 47 Percent

MINNEAPOLIS -- Nash Finch's profits surged 47 percent in the first quarter as growth in its food distribution business more than offset the impact of shuttering more than 20 underperforming retail stores at the end of the second quarter 2004.

In the quarter, net income rose to $7 million, or 54 cents per share, from $4.7 million, or 38 cents, in the same period a year ago, while sales tallied $882.2 million, up slightly from $879.5 million a year earlier. Sales improvements were principally the result of new account gains, and same-store sales increases by several customers, according to the company. Food distribution revenue improved 5 percent to $450.4 million, while military division sales grew 4 percent to $263.5 million.

"We are pleased with the results of our quarter which are in line with our expectations and represent increases in profitability across all segments of our business," said Ron Marshall, c.e.o. "Moreover we completed the acquisition of the distribution centers in Lima and Westville shortly after the close of the first quarter and integration efforts are proceeding according to plan."

Its distribution business continued to outshine its retail performance. Same-store sales at its retail division declined 0.6 percent, while total sales dropped 14 percent to $168.3 million.

Corporate retail sales were $168.3 million in the first quarter, versus $194.6 million in the prior-year quarter. Retail segment profits were $5.6 million, or 3.3 percent of sales, for the first quarter of 2005, compared to $2.8 million, or 1.4 percent of sales, in the prior-year period.

Nash Finch said both the relatively flat same-store sales figure and the profit margin represent significant improvement over the prior year, as a result of more effective promotional spending in the 2005 quarter relative to the same quarter one year ago, the decision to close a number of underperforming stores in fiscal 2004 and the timing of the Easter holiday in 2005 versus 2004.

The company's total store count at the end of the first quarter was 84 compared to 106 at the end of the first quarter last year.

On March 31, the company had completed the purchase from Roundy's Inc. of the net assets, including customer contracts, of the wholesale food distribution divisions in Westville, Indiana, and Lima, Ohio, and two retail stores in Ironton and Van Wert, Ohio, for approximately $225 million.

The Westville and Lima Divisions represent approximately $1.0 billion in annual food distribution sales, servicing approximately 500 stores principally in Indiana, Illinois, Ohio and Michigan. Nash Finch expects the acquisition to be immediately accretive to earnings and, depending on several factors, anticipates to increase by $31 to $33 million during the first twelve months following the acquisition.

"The acquisition is a key element of our food distribution strategy," said Marshall. "We gain successful customers with a proven track record within their market areas as well as the opportunity to expand marketing and merchandising programs across our network. We are committed to helping our customers compete in an ever changing marketplace."

The acquisition was financed through the private placement of senior subordinated convertible notes that was completed on March 15, 2005 as well as borrowings under the company's bank credit facility. The convertible offering represented $150.1 million in aggregate gross proceeds (or $322.0 million aggregate principal amount at maturity) of notes due 2035. The company granted the initial purchasers a 30-day option to purchase up to an additional 10 percent of the aggregate principal amount at maturity of the notes, although the option was not exercised.

With nearly $4 billion in fiscal 2004 sales, Nash Finch's core business, food distribution, serves independent retailers and military commissaries in 28 states, the District of Columbia, Europe, Cuba, Puerto Rico, Iceland, the Azores and Honduras. It also owns and operates a base of over 80 retail stores, principally supermarkets under the Econofoods, Family Thrift Center and Sun Mart trade names.
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