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Spartan Stores Boosts Q3 Net Earnings, Outstanding Debt at Lowest Levels

GRAND RAPIDS, Mich. -- Spartan Stores, Inc. realized its fourth consecutive quarter of earnings improvement, with third quarter net earnings from continuing operations at $5.8 million, of 28 cents per diluted share, up from a loss of $4.1 million for the same period last year.

In addition, cash flow from operations increased more than 160 percent from the prior year's level to $47.8 million. The improved financial performance was due primarily to more favorable gross profit margins in its Pharm and distribution operations, continued cost containment efforts, lower interest expense from a reduction in this year's debt levels and lower write-offs associated with the retailer's refinancing initiatives.

The third quarter included a net after-tax benefit of $1.7 million associated with a favorable supply contract settlement and a gain on the sale of the Spartan's interest in a single-store joint venture, which were partially offset by the write-off of unamortized fees associated with a previously announced credit facility amendment. Last year's third quarter included a non-cash after-tax charge of $5.7 million to write-off unamortized fees due to the retailer's refinancing transaction.

Consolidated net sales for the 16-week third quarter dropped from $644 million to $624.5 millon. Retail sales in the company's core supermarket operations increased 0.7 percent for the quarter, but were offset by lower sales at its Pharm stores and distribution operations. Third-quarter supermarket comparable store sales increased 0.9 percent, but were offset by the lower sales at Pharm stores, resulting in a total third-quarter comparable store sales decline of 1.2 percent.

"We are pleased to report another quarter with a substantial profitability improvement," stated Craig C. Sturken, Spartan Stores' chairman, president, and c.e.o. "The third-quarter operating and net earnings results are the best third-quarter performance we have reported since fiscal 2001. This strong operating performance is the result of our improved product offerings, prudent margin management, and better labor productivity.

"From a sales perspective, we are pleased with the performance of our supermarkets. Despite the competitive environment and prescription sales decrease resulting from the United Auto Workers (UAW) mandate that members use mail order to refill maintenance prescription medication, our supermarket and Pharm stores generated 4.0 percent, two-year comparable store sales growth for the quarter and, 2.5 percent, two-year sales growth on a year-to-date basis. Although our distribution business realized a year-over-year sales decline in the third quarter, we believe that our initiative to transition our customer base to a fully warehouse-supported deli and bakery program from our previous jointly managed program will ultimately provide incremental sales and profitability as the program matures. We expect to regain certain business that recently transitioned to other distributors, and we expect to benefit from the continuing retail success and growth of certain distribution customers."
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