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LOS ANGELES-Smart & Final Inc., amid an earnings dip and disappointing comparable store sales, says that its store expansion program is still on track despite a hiatus in store openings in the second quarter that ended June 18. The company’s income declined to $5.8 million for the second quarter from $8.2 million in the second quarter last year, with comparable store sales slipping, Smart & Final officials said in a conference call with financial analysts Wednesday.

Smart & Final, which operates non-membership warehouse-style food stores, is still studying its options in light of a major shareholder’s potential sale of assets. And company officials speaking at Wednesday’s conference call found positive signs despite the slide in profits and comparable store sales.

Etienne Snollaerts, president and CEO, said that the second quarter results “reflect the continuation of our strong store growth program.” Although that program has increased operating costs as expected, he said “strong gross margin rates and improving trends in distribution costs partially offset the increase in costs resulting from our store development program.”

Richard Phegley, CFO of the company, commented that, “It’s clear from our news release that this was our most difficult sales quarter in many years, with essentially flat comparable store sales.” The company has not faced such results since the late 1990s, he said.

Smart & Final blamed some of the financial results on unexpectedly weak demand in the spring season among certain classes of business customers. Although it did not open any new stores in the second quarter, Snollaerts said in the conference call that “We have stores in development for opening during the balance of 2006.”

Snollaerts talked about the need to re-energize sales. He said that the company has identified target groups of customers and has “developed strong incentive programs to rebuild sales momentum with these key businesses as well as with targeted groups of household customers.”

Smart & Final’s store count of 250 is up by 12 locations over the 238 locations that it operated at the end of the second quarter in 2005. The company operates stores in California, Oregon, Washington, Arizona, Nevada, Idaho and Northern Mexico.

The company previously announced that it has hired Goldman Sachs & Co. to act as financial adviser in studying potential strategic alternatives after the company’s majority shareholder, Casino Guichard-Perrachon S.A., said that it is considering the sale of non-core portfolio assets. Smart & Final said that there is no assurance that the shareholder’s consideration of a sale will actually result in a transaction.

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