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    Spartan Stores Sales Up 15 Percent After D&W Deal

    GRAND RAPIDS, Mich. -- Spartan Stores, Inc.'s consolidated net sales for the 12-week second quarter of 2007 increased 15.2 percent to $559.4 million from $485.5 million in the same period last year. And increase Spartan said spanned across all of its business segments, due primarily to the acquisition of D&W Food Centers' stores.

    GRAND RAPIDS, Mich. -- Spartan Stores, Inc.'s consolidated net sales for the 12-week second quarter of 2007 increased 15.2 percent to $559.4 million from $485.5 million in the same period last year. And increase Spartan said spanned across all of its business segments, due primarily to the acquisition of D&W Food Centers' stores.

    It also reported strong same store sales growth of 6.4 percent and new distribution business was responsible for the overall gains.
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    "We are very pleased with our second-quarter financial performance," said Craig C. Sturken, Spartan Stores' chairman, president and c.e.o.. "Strong sales growth led to our $9.3 million second-quarter net earnings, which is a quarterly record for our company. This strong sales growth is broadly based across both of our operating divisions and is a result of successful execution of each of our core business strategies."

    Sturken said the strategies encompassed acquisitions, improved merchandising, marketing and store operating procedures, new distribution customers and higher sales penetration with existing distribution customers. "We are pleased to continue this financial performance momentum in a challenging economic environment," he said.

    Second-quarter operating earnings increased 44.8 percent to $17.7 million from $12.2 million in the same period last year, driven by sales growth, synergies from the D&W acquisition, as well as favorable workers' compensation and healthcare cost trends.

    Second-quarter net earnings increased 36.2 percent reaching a record high $9.3 million, or $0.44 per diluted share, compared with $6.9 million, or $0.32 per diluted share, in the same period last year. The increase in second-quarter operating earnings was partially offset by higher interest expense, which increased to $3.0 million from $1.8 million in the corresponding period last year due to higher outstanding borrowings used to fund the company's retail acquisition, as well as the effect of recent interest rate increases.

    Spartan's second-quarter results also included $0.2 million in after tax charges associated with the disposal of fixed assets. Second quarter operating expenses also increased to $94.3 million, or 16.8 percent of sales, compared with $81.3 million, or 16.7 percent of sales in the same quarter last year. The company said increased operating expenses as a percentage of sales were due primarily to the higher operating costs associated with the acquired retail operations and higher utility, fuel and bankcard fees.

    Partially offsetting these increases was a $1.3 million pretax benefit related to favorable reserve adjustments for workers' compensation, healthcare and general liability insurance as a result of positive cost trends. Last year's second quarter included a pretax charge of $0.6 million for advisory fees related to the Company's strategic review process.

    "We are pleased with our year-to-date performance and remain optimistic about the second half of fiscal 2007," said Sturken. "We expect our distribution sales growth to moderate in the second half of the fiscal year as we cycle a portion of our new business gains. In our retail division, we expect comparable store sales to be in the low to mid single digit range due to current market trends, as well as the expected opening of two additional fuel centers. The economic climate in Michigan, however, remains challenging and the industry remains highly competitive.

    Sturken said fiscal 2007 earnings should continue to show improvement compared with the prior year, as gross margin rates benefit from a greater mix of higher margin retail sales, as operational efficiencies are realized from the acquisition and from the improved mix of products sold. We expect higher selling, general and administrative run rates compared with the prior year due to increased sales in the retail segment, higher SG&A costs associated with operating the acquired retail stores and higher employee compensation costs and bank card fees.

    In other news, Spartan Stores and its warehouse transportation and maintenance bargaining units at its Grand Rapids distribution center have ratified a five-year labor contract. The new pact provides associates with a quality compensation and benefit package, while improving work rule and scheduling flexibility that will help enhance warehouse productivity.

    "We are very pleased to have ratified this important labor contract," said Sturken. "This labor agreement is a good compromise that includes benefits for both of the contracting parties and it demonstrates our long-standing history of favorable labor relations."

    As the nation's tenth largest grocery distributor with warehouse facilities in Grand Rapids and Plymouth, Mich., Spartan services 350 independent grocery stores in Michigan, Ohio and Indiana. Spartan Stores also owns and operates 68 retail supermarkets and 19 deep-discount food and drug stores in Michigan and Ohio, including Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, and The Pharm.

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