Nash Finch Reports Third Quarter 2009 Results

Nash Finch Company (NASDAQ: NAFC), one of the leading food distribution companies in the United States, today announced financial results for the sixteen weeks (third quarter) ended October 10, 2009.

Financial Results

Total company sales for the third quarter 2009 were $1.633 billion compared to $1.416 billion in the prior-year quarter, an increase of 15.3%. Excluding the impact of the sales increase of $229.2 million attributable to the acquisition of three military distribution centers on January 31, 2009, sales decreased by 0.9% versus last year primarily due to price deflation. Sales for the first forty weeks of 2009 were $3.990 billion compared to $3.445 billion in the prior-year period, an increase of 15.8%. Excluding the impact of the sales increase of $508.4 million attributable to the acquisition of the three military distribution centers on January 31, 2009, total company sales increased 1.1% year-to-date.

Net earnings for the third quarter 2009 were $21.9 million, or $1.64 per diluted share, as compared to net earnings of $7.7 million, or $0.58 per diluted share, in the prior year quarter. Net earnings for the first forty weeks of 2009 were $45.9 million, or $3.44 per diluted share, as compared to net earnings of $27.7 million, or $2.10 per diluted share, in the same prior-year period.

Net earnings for both years were affected by several significant items which are presented in the table below. Net earnings for the third quarter and year-to-date 2009 benefited from significant items totaling $6.3 million and $10.9 million, or $0.47 and $0.82 per diluted share, respectively, which primarily resulted from the non-cash settlement agreement with Roundy’s Supermarkets, Inc. announced on September 14, 2009. Net earnings for the third quarter and year-to-date 2008 were negatively affected by significant items totaling, $5.9 million and $5.1 million, or $0.45 and $0.39 per diluted share, respectively, primarily due to high inflation in 2008 resulting in significant non-cash LIFO charges. In contrast, price deflation has resulted in modest LIFO credits to be realized in 2009.

Consolidated EBITDA for the third quarter 2009 increased 4.6% to $46.0 million, or 2.8% of sales, as compared to $44.0 million, or 3.1% of sales, for the prior year quarter. The decrease in Consolidated EBITDA as a percent of sales was largely attributable to growth in our military segment which operates at a lower rate than the Company’s historical average Consolidated EBITDA margin and partially due to having higher than normal inflationary gains in our inventories last year. These impacts were partially offset by overhead expense reductions. For the first forty weeks of 2009, Consolidated EBITDA was $108.9 million, or 2.7% of sales, compared to $108.2 million, or 3.1% of sales, in the prior-year period. Consolidated EBITDA is a non-GAAP financial measure that is reconciled to the most directly comparable GAAP financial results in the attached financial statements.

The following table identifies the significant net credits (charges) affecting our Consolidated EBITDA, net earnings and diluted earnings per share for the third quarter and year-to-date 2009 and prior year results:

"In light of having to maneuver through a very challenging economic environment, I am pleased with our third quarter performance”, said Alec Covington, President and CEO of Nash Finch Company. "After excluding the litigation settlement gain and the other significant items identified, our results were generally in line with our expectations with both Consolidated EBITDA and EPS coming in ahead of last year. Our food distribution segment experienced a decrease in year-over-year sales primarily due to significant price deflation in our inventories which was passed in the form of lower prices to our independent customers. In contrast, our military and retail segments posted very solid results. We were also successful in controlling and reducing SG&A expenses.”

Food Distribution Results

The decrease in the third quarter 2009 food distribution segment sales versus the comparable 2008 period was primarily attributable to a decrease in comparable sales to existing customers, partially offset by new account gains. The increase in the year-to-date 2009 food distribution segment sales versus the comparable 2008 period was primarily attributable to new account gains.

The unfavorable variance in the food distribution segment EBITDA as compared to last year was largely due to high inflation in our inventories in 2008 which resulted in a higher than normal prior year gross margin performance. In addition, deflationary pressures caused by declines in commodity prices in the current year have negatively impacted gross margin performance.

Military Distribution Results

The military segment sales increase in the third quarter is reflective of the impact of the acquisition of three military distribution centers on January 31, 2009, and the continued positive organic growth of the pre-existing business. Adjusting for the sales impact of these three distribution centers of $229.2 million, military sales increased 4.5% in the third quarter due to strong sales to commissaries, both domestically and overseas. The military segment sales increase in year-to-date 2009 is reflective of the impact of the acquisition of three military distribution centers on January 31, 2009. Adjusting for the sales impact of these three distribution centers of $508.4 million, military sales increased 4.5% year-to-date.

The military segment EBITDA increased by 8.6% and 10.6% in the third quarter and year-to-date 2009, respectively, compared to the prior year. The military EBITDA margin as a percentage of sales was 2.7% and 2.8% in the third quarter and year-to-date 2009, respectively, as compared to 4.0% in the prior year periods and includes acquisition and integration costs of approximately $0.9 million and $2.3 million, or 0.1% and 0.2% of sales, respectively. The military segment EBITDA margin was also negatively impacted by approximately 1.0% of sales in the third quarter and year-to-date 2009, respectively, as compared to 2008 due to the three newly acquired distribution centers which operate at a lower EBITDA margin than the rest of our military business.

"We continue to make progress on converting these three facilities onto our standard suite of military systems and processes, which will improve efficiencies and productivity,” said Mr. Covington. "The final GSC warehouse is scheduled to be fully integrated in the first quarter of 2010.”

Retail Results

The retail segment sales decline in third quarter and year-to-date 2009 is primarily attributable to same store sales declines of 3.3% and 2.3% during the third quarter and year-to-date 2009, respectively. In addition, sales were also impacted by the closure of four retail stores and the opening of one store since the end of the second quarter 2008.

The retail segment EBITDA in the third quarter 2009 was relatively flat to last year and the decrease in the retail segment EBITDA for year-to-date 2009 as compared to the prior year was primarily due to pre-opening and start-up costs that were incurred relating to one new and one remodeled store totaling $0.7 million in 2009 and gains on sales of assets of $0.6 million in 2008.

Summary

"We are committed to maintaining a strong balance sheet and are focused on improving working capital, debt reduction and prudent cost containment in this challenging economy”, said Mr. Covington. "As we look towards the rest of the year and into 2010, we remain committed to our strategic initiatives which are centered on adding new food distribution customers, improving the efficiency of our food distribution and military supply chain networks and making our warehouse operations more productive.”

Liquidity

Total debt decreased by $5.4 million during the third quarter 2009 to $333.4 million. Total debt to capital was 46% at the end of the quarter. The Company continues to focus on effectively managing its balance sheet and is currently in compliance with all of its debt covenants. The debt leverage ratio as of the end of the third quarter 2009 was 2.31x and availability on the Company’s revolving credit facility at the end of the quarter was $153.1 million.

Share Repurchase

On November 10, 2009, our Board of Directors approved a share repurchase program authorizing the Company to spend up to $25.0 million to purchase shares of the Company’s common stock. The program will take effect as soon as administratively practicable, but no earlier than November 16, 2009, and will continue until December 31, 2010.

Financial Target Progress

Substantial improvement on most financial targets has been achieved since the targets were announced as part of the Company’s strategic plan in November 2006. In particular, from Fiscal 2006 to the third quarter 2009, Consolidated EBITDA margin improved from 2.2% to 2.7% of sales and the debt leverage ratio has improved from 3.11x to 2.31x. The ratio of free cash flow to net assets metric is still one of the strongest in the industry, currently at 8.6% after excluding the impact of strategic projects. The organic revenue growth metric has benefited from the initiatives associated with our strategic plan. The following table charts the Company’s progress towards its long-term financial targets that are anticipated to be attained through successful execution of our strategic plan.

A conference call to review the third quarter 2009 results is scheduled for 10:00 a.m. CDT (11:00 a.m. EDT) on November 12, 2009. Interested participants can listen to the conference call over the Internet by logging onto the "Investor Relations” portion of Nash Finch's website at http://www.nashfinch.com. A replay of the webcast will be available and the transcript of the call will be archived on the "Investor Relations” portion of Nash Finch's website under the heading "Audio Archives.” A copy of this press release and the other financial and statistical information about the periods to be discussed in the conference call will be available at the time of the call on the "Investor Relations” portion of the Nash Finch website under the caption "Press Releases.”

Nash Finch Company is a Fortune 500 company and one of the leading food distribution companies in the United States. Nash Finch’s core business, food distribution, serves independent retailers and military commissaries in 36 states, the District of Columbia, Europe, Cuba, Puerto Rico, the Azores and Egypt. The Company also owns and operates a base of retail stores, primarily supermarkets under the Econofoods®, Family Thrift Center®, AVANZA®, Family Fresh Market® and Sun Mart® trade names. Further information is available on the Company's website at www.nashfinch.com.

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements relate to trends and events that may affect our future financial position and operating results. Any statement contained in this release that is not statements of historical fact may be deemed forward-looking statements. For example, words such as "may,” "will,” "should,” "likely,” "expect,” "anticipate,” "estimate,” "believe,” "intend, ” "potential” or "plan,” or comparable terminology, are intended to identify forward-looking statements. Such statements are based upon current expectations, estimates and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to us that could cause or contribute to material differences include, but are not limited to, the following:

• the effect of competition on our food distribution, military and retail businesses;

• general sensitivity to economic conditions, including the uncertainty related to the current state of the economy in the U.S. and worldwide economic slowdown; recent disruptions to the credit and financial markets in the U.S. and worldwide; changes in market interest rates; continued volatility in energy prices and food commodities;

• macroeconomic and geopolitical events affecting commerce generally;

• changes in consumer buying and spending patterns;
• our ability to identify and execute plans to expand our food distribution, military and retail operations;
• possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action and funding levels;
• our ability to identify and execute plans to improve the competitive position of our retail operations;
• the success or failure of strategic plans, new business ventures or initiatives;
• our ability to successfully integrate and manage current or future businesses we acquire, including the ability to manage credit risks and retain the customers of those operations;
• changes in credit risk from financial accommodations extended to new or existing customers;
• significant changes in the nature of vendor promotional programs and the allocation of funds among the programs;
• limitations on financial and operating flexibility due to debt levels and debt instrument covenants;
• legal, governmental, legislative or administrative proceedings, disputes, or actions that result in adverse outcomes;
• failure of our internal control over financial reporting;
• changes in accounting standards;
• technology failures that may have a material adverse effect on our business;
• severe weather and natural disasters that may impact our supply chain;
• unionization of a significant portion of our workforce;
• changes in health care, pension and wage costs and labor relations issues;
• costs related to multi-employer pension plan;
• product liability claims, including claims concerning food and prepared food products;
• threats or potential threats to security; and
• unanticipated problems with product procurement.

A more detailed discussion of many of these factors, as well as other factors that could affect the Company’s results, is contained in the Company’s periodic reports filed with the SEC. You should carefully consider each of these factors and all of the other information in this release. We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to revise or update these statements in light of subsequent events or developments. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the Securities and Exchange Commission (SEC).

¹ Consolidated EBITDA, and segment EBITDA is calculated as earnings before interest, income tax, depreciation and amortization, adjusted to exclude extraordinary gains or losses, gains or losses from sales of assets other than inventory in the ordinary course of business, and non-cash charges (such as LIFO, asset impairments, closed store lease costs and share-based compensation), less cash payments made during the current period on non-cash charges recorded in prior periods. Consolidated EBITDA should not be considered an alternative measure of our net income, operating performance, cash flows or liquidity. Consolidated EBITDA is provided as additional information as a key metric used to determine payout pursuant to our Short-Term and Long-Term Incentive Plans.