Nash Finch Reports Fourth Quarter and Fiscal 2008 Results

Nash Finch Company (NASDAQ: NAFC), one of the leading food distribution companies in the United States, today announced financial results for the 53 weeks (fiscal 2008) ended January 3, 2009.

Financial Results

Sales for fiscal 2008 were a record $4.704 billion compared to $4.533 billion in the prior-year, an increase of 3.8%. Excluding the extra sales from the 53^rd week in fiscal 2008 of $77.1 million and the impact of the sales decrease attributable to a large customer who transitioned to another supplier in mid-2007 of $72.8 million, total company sales for fiscal 2008 were up 3.7%. Sales for the 13 week fourth quarter 2008 were $1.203 billion compared to $1.069 billion in the 12 week prior-year quarter, an increase of 12.5%. Excluding the extra sales from the 53^rd week, the comparable fourth quarter 2008 sales would have been $1.126 billion, or up 5.3%.

Net earnings for fiscal 2008 were $36.2 million, or $2.75 per diluted share, as compared to net earnings of $38.8 million, or $2.84 per diluted share, in fiscal 2007. Net earnings for fiscal 2008 were negatively affected by significant items, which are presented in a table below, totaling $6.1 million (net of tax), or $0.46 per diluted share, while net earnings for fiscal 2007 benefited by significant items totaling $4.3 million, or $0.31 per diluted share.

Net earnings for the fourth quarter 2008 were $6.2 million, or $0.47 per diluted share, as compared to net earnings of $8.5 million, or $0.62 per diluted share, in the prior year quarter. Net earnings for the fourth quarter 2008 were negatively impacted by significant items presented below, totaling $3.5 million, or $0.26 per diluted share, while earnings for the fourth quarter 2007 were negatively affected by significant items totaling $0.2 million, or $0.01 per diluted share.

Consolidated EBITDA¹ for fiscal 2008 increased 11.6% to a record $143.7 million, or 3.1% of sales, as compared to $128.8 million, or 2.8% of sales, for the prior year period. For the fourth quarter 2008, Consolidated EBITDA increased 17.5% to $35.5 million, or 3.0% of sales, compared to $30.2 million, or 2.8% of sales, in the same 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.

"I am pleased with our Company’s fourth quarter sales and EBITDA performance as we strengthened our financial position during one of the most difficult business environments in history. Each of our business units achieved positive sales and EBITDA performance over the prior year, resulting in a strong second half and full year for 2008,” said Alec Covington, President and CEO of Nash Finch. "Our sales of $4.7 billion and EBITDA of $143.7 million are new Company records and confirm we are on the right path implementing our strategies. I want to personally thank our associates throughout the organization for their dedicated efforts, without which we would not have posted these results.”

The following table identifies the significant net credits (charges) affecting our Consolidated EBITDA, net earnings and diluted earnings per share for the fourth quarter and fiscal 2008 and prior year results:

Food Distribution Results

The food distribution segment sales increased by 1.8% to $2.741 billion in fiscal 2008 versus fiscal 2007. Excluding the extra sales from the 53^rd week in fiscal 2008 of $45.3 million and the impact of the sales decrease attributable to a large customer who transitioned to another supplier in mid-2007 of $72.8 million, total food distribution sales for fiscal 2008 were up 2.8%. The food distribution segment sales in the fourth quarter 2008 increased by 11.2% to $706.4 million versus the fourth quarter of 2007. Excluding the extra sales generated in the 53^rd week, comparable sales increased 4.1% in the fourth quarter 2008 and were due to increases in sales to new customers as well as to existing customers.

The food distribution segment EBITDA increased by 7.3% in fiscal 2008 and increased 1.6% in the fourth quarter 2008 as compared to the same periods last year. EBITDA as a percentage of sales increased to 4.0% in fiscal 2008 as compared to 3.8% in fiscal 2007. EBITDA as a percentage of sales declined slightly to 3.8% in the fourth quarter 2008 from 4.1% in 2007.

Military Distribution Results

The military segment sales increased $113.1 million, or 9.1%, to $1.361 billion in fiscal 2008 as compared to fiscal 2007. Excluding the extra sales from the 53^rd week in fiscal 2008 of $20.5 million, sales increased 7.4% in fiscal 2008. Military segment sales increased $49.2 million, or 16.5%, to $348.4 million in the fourth quarter 2008. Excluding the extra sales from the 53^rd week, sales increased 9.6% in the fourth quarter of 2008. This reflects a significant increase in sales to both domestic and European commissaries during the year.

Military EBITDA increased by 16.2% in fiscal 2008 and 20.4% in the fourth quarter 2008 as compared to the same periods last year. EBITDA as a percentage of sales increased to 3.8% in fiscal 2008 and 3.6% in the fourth quarter 2008 as compared to 3.5% in the same comparable periods in 2007. The improvement in EBITDA margin as a percent of sales relative to the prior year periods benefited as a result of improved inventory management as well as a reduction in expenses.

Retail Results

The fiscal 2008 retail segment sales increase of 1.8% to $602.5 million was primarily attributable to the acquisition of the two new stores, an additional week of sales, and offset by the closure of four retail stores. Excluding the extra sales from the 53^rd week in fiscal 2008 of $11.3 million, sales were flat to fiscal 2007. The retail segment sales increase of 9.8% in the fourth quarter 2008 to $148.1 million was primarily attributable to the acquisition of two retail stores in the second quarter 2008 and the additional week of sales. Excluding the extra sales from the 53^rd week in the fourth quarter of 2008, sales increased by 1.4%.

Same store sales compared to the prior year were down 0.2% and 0.8% in the fourth quarter and fiscal 2008, respectively.

The comparisons in the retail segment EBITDA for fiscal 2008 and the fourth quarter 2008 to the prior year periods included a $2.6 million unfavorable adjustment to retail promotional markdowns in the fourth quarter of 2007.

"During the fourth quarter the Company added new customers and we implemented supply chain and working capital initiatives that resulted in significant progress in achieving our long-term financial targets. As we continue to invest in our businesses, our focus will be on providing sustainable growth while maintaining our position as a low cost supplier in a competitive marketplace.”

"We enter 2009 cautiously due to the uncertainty of the breadth and depth of the current economic downturn,” said Alec Covington. "It is clear that changes in consumer behavior, as well as deflation within certain key commodities, will create a challenging business environment for us. In spite of these challenges, we remain committed to our core businesses and are particularly pleased with the accomplishments of our military segment last year, both in terms of sales and EBITDA growth. We proudly serve our American heroes and their families, and are excited about the new opportunities provided by our acquisition of the three GSC distribution centers.”

Liquidity

Total debt decreased by $42.6 million during the fourth quarter 2008 to $275.7 million. 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 fourth quarter 2008 was 1.92x, an improvement from the ratio of 2.42x at the end of fiscal 2007. Availability on the Company’s revolving credit facility at the end of the quarter was $190.9 million.

Financial Target Progress

Substantial improvement on all 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 end of Fiscal 2008, Consolidated EBITDA margin improved from 2.2% to 3.1% of sales and the debt leverage ratio has improved by one and one-half turns of EBITDA from 3.42x to 1.92x. The organic revenue growth metric continues to gather momentum and increased this year to 3.1% as we have continue to benefit from the initiatives associated with our strategic plan. The ratio of free cash flow to net assets metric improved to 12.0% in fiscal 2008. The following table charts the Company’s progress towards its long-term financial targets that are anticipated to be attained through successful execution of the strategic plan.

Acquisition Update

As previously announced, the Company completed the acquisition of three GSC distribution centers from GSC Enterprises, Inc., a food distributor headquartered in Sulphur Springs, Texas on January 31, 2009. These distribution centers are located in Pensacola, Florida, Junction City, Kansas, and San Antonio, Texas, each of which services military commissaries and exchanges.

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A conference call to review the fourth quarter and fiscal 2008 results is scheduled for 10 a.m. CT (11 a.m. ET) on March 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 1000 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 31 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® 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 recession 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).