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FLEMING FINALIZING SALE OF 53 ABCO UNITS

DALLAS -- Fleming here said last week it is close to signing letters of intent to divest 53 units of Abco Desert Markets, its Phoenix-based conventional chain, to several different operators.The distributor also said it expects to move forward rapidly to find buyers for 24 units of Waukesha, Wis.-based Sentry Foods, while it continues to explore strategic alternatives for Baker's Supermarkets, its

DALLAS -- Fleming here said last week it is close to signing letters of intent to divest 53 units of Abco Desert Markets, its Phoenix-based conventional chain, to several different operators.

The distributor also said it expects to move forward rapidly to find buyers for 24 units of Waukesha, Wis.-based Sentry Foods, while it continues to explore strategic alternatives for Baker's Supermarkets, its 16-unit conventional chain in Omaha, Neb.

Mark S. Hansen, chairman and chief executive officer, also indicated Fleming plans to expand its limited assortment chain, Yes!Less, to 20-30 units by the end of 2001. The distributor opened its fourth Yes!Less store in Longview, Texas, during the third quarter.

The LAS stores, which feature food and general merchandise in a discount format, are designed to complement the price-impact Food 4 Less-style corporate stores on which Fleming plans to concentrate, Hansen said.

Hansen made his remarks during a conference call with securities analysts following release of financial results for Fleming's third quarter and 40 weeks ended Sept. 30, which showed strong increases in adjusted earnings and small gains in overall sales.

According to Hansen, Fleming expects to sell the Abco units, located in Phoenix and Tucson, "in medium-sized blocks" to different operators, with Fleming likely to retain "a huge majority" of the wholesale volume of those stores -- "though there may be some instances where we will look beyond that," he added.

He said Fleming hopes to complete the transactions "over the next few months."

The sale of 24 corporate-owned units of Sentry Foods, Waukesha, may move forward more quickly, Hansen said, "because there's an anxious group of franchised Sentry operators in that area and because we provide all the back-office support for those stores, so they are easier to divest than when you have to deal with a chain structure."

He said Fleming expects to hold on to all the volume from those stores.

"We want to wrap up the sales of Abco and Sentry as quickly as we can so we can move forward on new strategies," Hansen said.

He said Fleming expects to receive approximately $100 million net cash proceeds from the store sales, which is earmarked for debt reduction.

In other remarks during the call:

Hansen said Fleming's decision not to sell its Minneapolis-based Rainbow Foods division came after its results improved. The improvements came as a result of lowering the stores' expense structure, reducing administrative support requirements and "dramatically improving promotional practices," he said.

Fleming will spend $150 million on capital expenditures through the end of fiscal 2000, including $108 million spent during the first three quarters, and expects to spend about the same amount next year, Neal Rider, executive vice president and chief financial officer, said.

The cost of converting 15 conventional stores to price-impact formats will be between $1.9 million and $3.5 million, Hansen said, including lease costs that Fleming is renegotiating with landlords. "Most of the work will be done next year, with completion scheduled for next fall," he added. The 15 stores set for conversions include 10 former Sentry units, three former Abcos and two former Rainbows, he said; with the addition of two acquired stores in northern California and a new Food 4 Less set to open during the fourth quarter, Fleming will have 44 price-impact stores in operation.

In Fleming's financial results, adjusted earnings -- excluding costs associated with the company's strategic review of conventional stores -- rose 41.4% to $15 million for the 12-week quarter and 46.9% to $41 million for the year to date. Without the exclusions, the company said it had a net loss of $45.6 million for the quarter and $84.8 million for the 40 weeks.

On a per-share basis, adjusted earnings for the quarter rose to 37 cents, exceeding the company's expectations of 35 cents; for the 40 weeks earnings per share rose to $1.03. Hansen said Fleming expects to increase adjusted net earnings in the fourth quarter by at least 30% to 52 cents per share, for a total of about $1.54 per share for the fiscal year.

Fleming said sales increased 1.4% to $2.3 billion for the quarter and 0.6% to $11.1 billion for the 40 weeks -- a nominal increase the company said was due mainly to the offset of lost sales from discontinued operations.

Sales in Fleming's distribution segment rose 7.7% to $2.6 billion for the quarter -- the fourth consecutive quarter of improved year-over-year distribution sales and the highest gain since the second quarter of 1995, the company noted -- and 0.9% to $10 billion for the year to date. The company said it attributed distribution segment growth to new business from independent retailers and non-traditional retail channels.

Sales in Fleming's retail segment fell 17% to $693.6 million for the quarter and 11.7% to $2.5 million for the 40 weeks, which the company said was due primarily as a result of the divestiture of 99 underperforming and non-strategic stores since the end of 1999. Same-store sales fell 3.5% for the quarter and 4.2% for the year to date.