Blue Square-Israel Ltd. (NYSE and TASE: BSI) today announced its financial results for the first quarter ended March 31, 2009.

Results for the First Quarter of 2009

Revenues for the first quarter of 2009 were NIS 1,764.8 million (U.S.(A) $421.4 million), compared to NIS 1,821.2 million in the corresponding quarter of 2008 - a decrease of 3.1 %. Supermarket same store sales (SSS) for the period decreased by 7.1% due to the decrease in stores that were converted to "Mega Bool" Format Hard Discount, which is characterized by low prices. On the other hand, the decrease in sales was offset by the opening of eleven new stores during the 12-month period of approximately 12,600 square meters; in addition, the sales of BEE Group increased during the quarter compared to the corresponding quarter last year and that is due to Passover that this year was celebrated on April 8 compared to April 20 last year.

Gross Profit of the first quarter of 2009 amounted to NIS 503.1 million (U.S. $ 120.1 million) (28.5 % of revenues) compared to gross profit of NIS 503.6 million (27.6% of revenues) in the first quarter of 2008. The increase in the gross profit margin derives from an increase in sales of BEE Group characterized with relatively higher gross profit margins relative to those acceptable in the food retail sector and the change in the sales mixture and increase in the contribution of the formats characterized by higher gross profit margin ("Mega" "Mega In Town" and "Eden Teva Market") over the HD formats (Mega Bool and "Shefa Shuk"). Gross margin was also affected by improved supplier agreements and discounts, part of which relate to the conversion process of Mega Bool.

Selling, General, and Administrative Expenses for the first quarter of 2009 amounted to NIS 442.9 million (U.S. $ 105.7 million) (25.1% of revenues) compared to NIS 426.1 million (23.4% of revenues) in the corresponding quarter, an increase of 4%. The increase reflects: 1) increased expenses associated with the opening of eleven new stores during the last year, including the expenses associated with the accelerated opening of five branches of the Eden Teva Market format during the last twelve months; 2) expenses associated with the launch of the Mega Bool format; 3) an increase in the operating expenses of identical branches due to the increase in the expenses linked to the CPI such as rent and municipal taxes; and 4) an increase in selling and administrative expenses of the BEE Group, due to the timing of the holiday and the intensive sales, as above-mentioned.

Operating Income in the first quarter of 2009 amounted to NIS 62.3 million ($ 14.9 million) (3.5% of revenues) compared to the operating income of NIS 88.9 million (4.9% of revenues in the first quarter of 2008 and NIS 33.6 million (1.9% of revenues) in the fourth quarter of 2008.

Appreciation of Investment Property: During the first quarter of 2009, the Company did not record gain or loss from appreciation of investment property compared to NIS 12.7 million in the corresponding period of the previous year.

Other Gains (losses), Net: In the first quarter of 2009, the Company recorded other gains, net of NIS 2.2 million (U.S. $ 0.5 million), compared to other losses, net of NIS 1.2 million in the corresponding quarter of the previous year. The other gains included, in this quarter, an income of NIS 2.5 million ($ 0.6 million) in respect of a gain deriving from purchasing 8% of Naaman shares that were held by minority.

Operating Income before Other Gains (losses) and Appreciation of Investment Property in the first quarter of 2009 was NIS 60.2 million (U.S. $ 14.3 million) (3.4% of revenues) compared to NIS 77.5 million (4.2% of revenues) in the corresponding quarter and NIS 44.3 million (2.5% of revenues) in the fourth quarter of 2008. The decrease in the operating income mainly derived from a decrease in sales, and from an increase in selling and administrative expenses, as mentioned above.

Financial Expenses (net) for the first quarter of 2009 were NIS 12.0 million (U.S. $2.8 million) compared to financial expenses (net) of NIS 8.2 million in the corresponding quarter of the previous year. The increase in financial expenses, net in this quarter compared to the corresponding quarter last year mainly derives from the effect of the change in the value of derivative financial instruments and hedging transactions on the index that contributed in the current quarter income of NIS 1 million ($0.2 million) compared to an income of NIS 14 million in the corresponding quarter last year and from decrease in financial income from short term deposit and marketable securities of NIS 4 million (U.S $1.0) in the current quarter compared to the corresponding quarter last year. The increase in the financial expenses was offset in the current quarter compared to the corresponding quarter last year mainly from the decrease in financial expenses on debentures and CPI linked loans, NIS 14 million ($ 3.4 million) in the current quarter compared to NIS 27 million in the corresponding quarter last year, due to the decrease in the known index compared to the corresponding period last year.

Taxes on Income for the first quarter of 2009 were NIS 17.9 million (U.S. $4.3 million) (35.6% effective tax rate compared to a statutory tax rate of 26%) compared to NIS 15.8 million (effective tax rate of 19.6% compared to a statutory tax rate of 27%) in the corresponding quarter. The increase in the effective tax rate reflects primarily the losses of the Eden Teva Market and Dr. Baby formats and recording financial expenses from revaluation of the conversion component in convertible debentures of the company for which no deferred taxes were recorded.

Net Income for the first quarter of 2009 was NIS 32.3 million (U.S. $ 7.7 million) compared to the net income of NIS 65.0 million in the first quarter of 2008 and NIS 18.1 million in the fourth quarter of 2008. The decrease in the net income in this quarter compared to the corresponding quarter last year derives from decrease in operating income, increase in the financial expenses and increase in income tax expenses, as mentioned above. The portion of the net profit attributable to shareholders, as calculated in accordance with the IFRS, was NIS 26.5 million (U.S. $6.3 million), or NIS 0.61 per ADS (U.S. $ 0.15), while the portion attributable to the share of minority interests was NIS 5.8 million (U.S. $1.4 million).

Cash Flows

Cash Flows from Operating Activities: Net cash flows deriving from operating activities in the first quarter of 2009 amounted to NIS 30 million ($ 7.2 million) compared to NIS 24.5 million in the corresponding period last year. The increase in cash flows from operating activities derives mainly from the change in the working capital.

Cash Flows from Investing Activities: Net Cash flows used in investing activities in the first quarter of 2009 amounted to NIS 59.7 million ($13.8 million) compared to net cash flows of NIS 21.7 million deriving from investing activities in the corresponding quarter last year. Cash flows used in investing activities in the first quarter of 2009 included mainly purchase of property and equipment, intangible assets and investment property in a total amount of NIS 57 million. Cash flows deriving from investing activities in the first quarter of 2008 included mainly proceeds from realization of short term deposit and marketable securities in the amount of NIS 116 million, net of purchase of property and equipment, intangible assets and investment property in a total amount of NIS 103.5 million.

Cash Flows from Financing Activities: Net Cash flows used in financing activities in the first quarter of 2009 amounted to NIS 2.9 million ($ 0.7 million) compared to net cash used in financing activities of NIS 47.1 million in the corresponding quarter last year. Cash flows used in financing activities in the first quarter of 2009 included mainly repayment of long term loans of NIS 30.5 million ($ 7.3 million) and paid interest of NIS 35.4 million ($ 8.5million), net of increase in short term credit of NIS 59.4 million ($ 14.1 million). Net Cash flows used in financing activities in the first quarter of 2008 included mainly repayment of long term loans of NIS 23.3 million and paid interest of NIS 32.7 million.

Additional Information

Supermarkets: As of March 31, 2009, the Company operated 199 supermarkets in the following formats: Mega In Town -115; Mega Bool - 39; Mega - 19; Shefa Shuk - 19; Eden Teva Market - 7.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization): For the first quarter of 2009, the EBITDA (earnings before Interest, Taxes, Depreciation, and Amortization) was NIS 102 million (U.S. $ 24.4 million) (5.8 % of revenues) compared to NIS 114 million (6.3% of revenues) in the corresponding quarter of last year and NIS 83 million (4.7% of revenues) in the fourth quarter of 2008.

In 2003, the Board of Directors has resolved that dividends will not be distributed in a quarter when the ratio of financial obligations (as defined by S&P Maalot in its rating for BSI's debentures issued in 2003) to EBITDA for the prior four quarters exceeds 3, or if the ratio of the cost of unencumbered fixed assets to financial obligations is below 1.2. This is in accordance with definitions established by the rating company Standard & Poor's Maalot in its rating analysis of the Company's debentures issued in 2003.

According to the Company's unaudited financial reports as of March 31, 2009, the ratio of its financial obligations to EBITDA was 3.6 and the ratio of its unencumbered fixed assets to the financial obligations was 1.6.

Updating the rating of debentures (Series A and B): on May 22, 2009, Maalot S&P announced the downgrade of the rating of the debentures (Series A and B) issued by the company on August 2003 from ilAA to ilA+ with a stable rating forecast and the removal of the company from negative Credit Watch. The main considerations in determining the rating by Maalot S&P were published in an immediate report by the company on May 22, 2009.

Events During the First Quarter of 2009

In the first quarter of 2009, the implementation of Stage A of the strategy plan, the conversion of 39 branches of "Mega" and "Shefa Shuk" to the new chain "Mega Bool" was completed. During the reported quarter, we opened 5 branches: 2 "Mega in Town" 1 "Shefa Shuk" and 2 branches of "Eden Teva Market" in a total area of 5,000 square meters, whereby the company continues the strategy of strengthening the holding in the city centers. The company successfully launched new products as part of the private brand name of "Mega" in the course of the first quarter while meeting the sales targets.

Mr. Zeev Vurembrand, Blue Square's President and CEO, referred to the financial results and said: "In this quarter, we present better results considering the increasing competition and the prevailing recession due to the material strategic actions we have taken.

We have successfully launched the"Mega Bool" chain and we turned to be a significant and leading player in the HD sector. We continue our strategy and during the second and third quarters we shall issue new membership card and we shall reorganize the headquarters of BEE Group, thereby resulting in utilizing the synergy and cutting costs.

In the same time we shall expand the "everything for the house (houseware)" areas in Mega branches as well as independent stores based on products, know how and intensity of the brands "Naaman" "Vardinon" and "Sheshet".

NOTE A: Convenience Translation to Dollars

The convenience translation of New Israeli Shekel (NIS) into U.S. dollars was made at the exchange rate prevailing at March 31, 2009: U.S. $1.00 equals NIS 4.188. The translation was made solely for the convenience of the reader.

Blue Square is a leading retailer in Israel. A pioneer of modern food retailing in the region, Blue Square currently operates 199 supermarkets under different formats, each offering varying levels of service and pricing.

This press release contains forward-looking statements within the meaning of safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, plans or projections about our business and our future revenues, expenses and profitability. Forward-looking statements may be, but are not necessarily, identified by the use of forward-looking terminology such as "may," "anticipates," "estimates," "expects," "intends," "plans," "believes," and words and terms of similar substance.