SPARTAN STORES

SPARTAN STORES

As the BULL market continues, we will buy stocks with lower betas. Our accounts are currently loaded with high beta stocks. This means that when the market goes up 1% our accounts are likely to go up 2%. The past couple of weeks have been fantastic; our main account is now 12% above our previous all time high! This new all time high does not count new money added but is net total profits.

We will continue to ride the high beta stocks but we will add shares in slower moving industries. If Google is added to the S&P 500 and if it goes berserk on the announcement, we will probably sell half of our position. The removal of Google after the addition of lower beta stocks will mark a significant shift in a conservative direction. Please do not miss-read the above comments. We are bullish. We are buying all the stock we can. We hope Google hits 500 well into next year before we make the shift. Never-the-less, we are planning ahead. Spartan Stores offers good value. It is the kind of stock that you and tuck away during the second half of an economic recovery. It will seem sluggish relative to other stocks but it is like not seeing your 12 year old nephew for a year. He didn't grow much on any particular day but he grew a lot in a year or two.

If you're like most shoppers, you love to save! As a progressive leader in the food distribution industry for 80 years, Spartan Stores, Inc. (NASDAQ: SPTN) http://www.spartanstores.com/ based in Grand Rapids, Michigan, owns and operates 54 supermarkets and 21 deep-discount drugstores in Michigan and Ohio under the Family Fare Supermarkets and Glen’s Markets banners. The Company also supplies 40,000 private label and national brand products to over 330 Independent grocery stores.

Spartan Stores offer great prices every week on quality products for the consumer, including, Internet coupons and on-line specials to help the consumer save time and money.

The 330 business partners of Spartan Stores receive services that accelerate retail growth, productivity and profitability. A sound, working knowledge of retail operations by Spartan associates allows them to offer nearly 100 services which extend beyond the supply and delivery of product and into every aspect of a grocer's operation. Spartan Stores fosters innovation to ensure long term success.

On May 4, 2005, Craig Sturken, Spartan's Chairman, President and CEO announced the fifth consecutive quarter sales growth and fiscal 2005 first quarter net earnings of $1.6 million. Consolidated net sales for the 12-weeks increased 2.5 percent to $474.3 million from $462.6 million in the corresponding 12-week period last year.

Operating earnings improved to $4.9 million compared to an operating loss of $(0.9) million in last year's first quarter. This improvement was driven by sales growth and cost containment.

The Company reiterated its expectation for fiscal 2005 consolidated net sales to improve between 1.0 and 3.0 percent with comparable store sales ranging from flat to an increase of 1.5 percent. Consolidated gross margin as a percentage of sales is expected to be slightly higher than fiscal 2004's level by fiscal 2005 year end. Operating expenses in total and as a percentage of sales are expected to be lower than in fiscal 2004. Spartan’s leadership continues to judiciously invest in the company as fiscal 2005's depreciation expense and capital expenditures are expected to be approximately $23 million each.

What prompted this positive financial result? On January 21, 2004 Spartan Stores, Inc., announced that it has undertaken steps to consolidate its retail grocery store banners to streamline retail operations and establish a stronger, more unified retail store brand identity. The Company changed the name of its Ashcraft's Markets, Great Day Food Centers and Prevo's Family Markets stores to either Family Fare Supermarkets or Glen's Markets. The banner consolidation is expected to create a much stronger retail store brand identity among consumers by building on the existing brand equity of its two most recognized retail store names.

As Spartan places more emphasis on expanded services like in-store pharmacies, fuel centers, bakery and deli counters, they will continue to move in on the “big” guys. Their private label dairy products have also shown favorable results. Developing more robust corporate brands should improve margins.

This stock is in an industry with a healthy number of competitors such as IGA, D & W Food Center and Meijer. Spartan is one of the smaller players. However, since going public in August of 2000, Spartan’s stock has done well. Their 52 week high of $12.90 was on 5/23/05 and their 52 week low of $3.05 on 5/24/04, closing on May 31st at $12.90.

Again, these shares will add a defensive position to your portfolio. The best team is composed of a strong offense and a strong defense. Stocks selling at modest valuations sometimes turn out to be great offensive stocks. Sometimes they are bought by larger players and other times they continue to grow during difficult economic times.