FRESH BRANDS: SALES UP, EARNINGS DOWN 2004-08-16 (2)

SHEBOYGAN, Wis. -- Losses accelerated for Fresh Brands here during its fiscal second quarter, but company officials said signs of a turnaround are arriving early.

re on track. We expect it will increase shareholder value in the long term," Louis Stinebaugh, president and chief executive officer, Fresh Brands, told shareholders in a conference call last week.

Fresh Brands, a retailer-wholesaler that has 24 corporate-owned and 77 franchised stores operating under the Piggy Wiggly and Dick's Supermarket banners, reported a loss of $2.2 million on sales of $163.2 million for the second quarter ended July 17. Excluding the results of five corporate stores closed and two stores sold during the quarter, Fresh Brands' earnings were $100,000, or 2 cents per share.

Sales increased 17% compared with the same period last year, due primarily to the accounting of 16 franchisees under FIN 46R, which requires a company to include non-owned entities that lack "sufficient equity at risk" in its financial results. Sales were also boosted by two new stores, and by a 6.3% comparable-store sales increase that Stinebaugh said was sparked by an improved value proposition.

Fresh Brands completed the closure of five corporate-owned stores in May and entered into agreements to sell three corporate stores in Illinois. Fresh Brands will continue to supply two of the stores being sold. "We will continue to evaluate our corporate supermarkets to determine whether they could be more effectively operated as franchised supermarkets," Stinebaugh said.

Wholesale sales decreased by $2.1 million, or 1.8%, as compared with the same period last year, reflecting the impact of the five closed stores, the company said.

For the 28 weeks ended July 17, sales increased 15.6% to $359.5 million. The company lost $3.8 million during the period.

2ND-QUARTER RESULTS

Qtr Ended 7/17/04; 7/12/03

Sales*: $163.2 million; $139.5 million

Change: 17%

Comp-store**: 6.3%

Net Income***: -$2.2 million; $1.6 million

Change: NA

Inc/Share: -44 cents; 33 cents

28 Weeks 2004; 2003

Sales: $359.5 million; $310.9 million

Change: 15.6%

Net Income: -$3.8 million; $3.6 million

Change: NA

Inc/Share: -79 cents; 70 cents

*FIN 46R (franchise) entities contributed $14.5 million in sales during second quarter.

**Comp-store includes franchisees.

***Income excluding discontinued operations was $100,000, or 2 cents per share.