Nash Finch Reports Second 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 twelve weeks (second quarter) ended June 20, 2009.

Financial Results

Total company sales for the second quarter 2009 were $1.217 billion compared to $1.024 billion in the prior-year quarter, an increase of 18.8%. Excluding the impact of the sales increase of $165.9 million attributable to the acquisition of three military distribution centers on January 31, 2009, and the shift of Easter to the second quarter in 2009 versus the first quarter in 2008 of $7.6 million, sales increased by 1.9% versus last year. Sales for the first twenty-four weeks of 2009 were $2.357 billion compared to $2.029 billion in the prior-year period, an increase of 16.2%. Excluding the impact of the sales increase of $277.6 million attributable to the acquisition of the three military distribution centers on January 31, 2009, total company sales increased 2.5% year-to-date.

Net earnings for the second quarter 2009 were $9.5 million, or $0.72 per diluted share, as compared to net earnings of $9.4 million, or $0.72 per diluted share, in the prior year quarter. Net earnings for the first twenty-four weeks of 2009 were $24.0 million, or $1.80 per diluted share, as compared to net earnings of $20.0 million, or $1.52 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.

Consolidated EBITDA¹ was $33.6 million for both the second quarter 2009 and 2008, or 2.8% and 3.3% of sales, respectively. The decrease in Consolidated EBITDA as a percent of sales was largely attributable to the addition of the three acquired military distribution centers in January 2009 which operate at a lower EBITDA margin 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 twenty-four weeks of 2009, Consolidated EBITDA was $62.9 million, or 2.7% of sales, compared to $64.2 million, or 3.2% 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.

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

"I am pleased with our second quarter performance, especially in light of the current economic conditions,” said Alec Covington, President and CEO of Nash Finch. "Our food distribution segment greatly narrowed the year-over-year unfavorable variance in EBITDA in the second quarter versus the year-over-year variance experienced in the first quarter. Sales continued to be strong in the second quarter after excluding the Easter holiday shift in both our core food distribution and military segments. We continued to focus on managing expenses which helped us achieve earnings per share and total company Consolidated EBITDA that was equal to the second quarter of last year.”

Food Distribution Results

The increase in the second quarter 2009 food distribution segment sales versus the comparable 2008 period was primarily attributable to new account gains and the shift of Easter to the second quarter in 2009 versus the first quarter 2008 which resulted in a positive sales variance in the second quarter of approximately $6.3 million, or 1.1% to last year. After adjusting for the shift in Easter, sales would have increased by 2.2% in the second quarter. The increase in the year-to-date 2009 food distribution segment sales versus the comparable 2008 period was primarily attributable to new account gains.

As expected, the unfavorable variance in the food distribution segment EBITDA as compared to last year greatly improved in the second quarter 2009 versus the variance experienced in the first quarter which was largely due to high inflation in 2008 resulting in a higher than normal prior year gross margin performance. In addition, declines in commodity prices in the current year have negatively impacted gross margin performance.

Military Distribution Results

The military segment sales increase in the second quarter of 61.1% 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 $165.9 million, military sales increased 3.2% in the second quarter primarily due to stronger domestic sales activity. The military segment sales increased 53.8% in year-to-date 2009 reflecting the impact of the acquisition of three military distribution centers on January 31, 2009, of $277.6 million and continued positive growth domestically. Adjusting for the sales impact of these three distribution centers, military sales increased 4.8% year-to-date.

The military segment EBITDA increased by 7.6% and 12.0% in the second 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 2.9% in the second 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 $0.8 million and $1.4 million, or 0.2% of sales, respectively. The military segment EBITDA margin was also negatively impacted by approximately 1.0% and 0.9% of sales in the second quarter and year-to-date 2009, respectively, as compared to 2008 due to the results of three newly acquired distribution centers which operate at a lower EBITDA margin than the rest of our military business.

Retail Results

The retail segment sales declines in second quarter and year-to-date 2009 is partially attributable the closing of four retail stores since the second quarter 2008. In addition, same store sales declined 0.8% and 1.5% during the second quarter and year-to-date, respectively. Same store sales were favorably affected by the Easter holiday shift to the second quarter in 2009 versus the first quarter in 2008 by $1.3 million, or 0.9%.

The slight decrease in the retail segment EBITDA for the second quarter and 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 $0.6 million in the second quarter and $0.7 million year-to-date.

Summary

"We continue to make good progress in debt reduction, working capital improvement and cost containment,” said Mr. Covington. "As we previously announced, we delayed some of our non-essential 2009 capital expenditures to ensure we attain our goals for free cash flow to net asset returns. In the second half of 2009, we will continue to focus on attracting new food distribution customers, improving the productivity in our warehouse operations and converting the final GSC military warehouse onto our standard suite of military systems.”

Liquidity

Total debt decreased by $11.8 million during the second quarter 2009 to $338.8 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 second quarter 2009 was 2.38x. Availability on the Company’s revolving credit facility at the end of the quarter was $147.7 million.

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 second quarter 2009, Consolidated EBITDA margin improved from 2.2% to 2.8% of sales and the debt leverage ratio has improved from 3.11x to 2.38x. The ratio of free cash flow to net assets metric has improved from 8.7% to 12.0% after excluding the impact of strategic projects. The organic revenue growth metric continues to improve as we have started to benefit 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 the strategic plan.

A conference call to review the second quarter 2009 results is scheduled for 11:30 a.m. CDT (12:30 p.m. EDT) on July 28, 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 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).

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.

² Defined as cash provided from operations less capital expenditures for property, plant & equipment during the trailing four quarters.