Ron Freeman – CFO

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Good day and welcome to the Ingles Markets Inc. second quarter conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Chief Financial Officer, Mr. Ron Freeman. Please go ahead sir.

Thank you. Good morning, welcome to the Ingles Markets fiscal 2008 second quarter conference call. With me today are Robert Ingle, Founder of our company and Chief Executive Officer; Robert Ingle II, Chairman of the Board; Jim Lanning, President; and Tom Outlaw, Vice President of Sales and Marketing. Statements made on this call include forward-looking statements as defined by and subject to the safe harbors created by Federal Securities Laws. Words such as expect, anticipate, intend, plan, believe, and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performances and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed on this call. Ingles Markets, Incorporated does not undertake to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. For a description of factors that could cause actual results to differ materially from that anticipated by forward-looking statements, you are referred to the company's public filings including the Form 10-K for the fiscal year ended September 29, 2007. This morning, I'll provide you with a summary of our second quarter and six months results followed by additional comments. After that, we'll be pleased to take your questions. Our press release issued this morning available on our Web site at www.ingles-markets.com. We filed our 10-K for the quarter on Monday, May 5. It is available on our Web site as well. First, our second quarter results. Pretax income for our second fiscal quarter ended March 29, 2008 totaled $21 million, an increase of $4.3 million or 26.1% over pretax income of $16.7 million for the second fiscal quarter of last year. We are discussing pretax income for the second quarter and six months during this call…

Thank you. (Operator instructions) We'll go first to Bryan Hunt with Wachovia. Bryan Hunt – Wachovia : Thank you and good morning. Hello?

Yes, Bryan, how are you today? Bryan Hunt – Wachovia : I'm well. How about you, Ron?

Good, thanks. Bryan Hunt – Wachovia : I was wondering if you can divide it the CapEx for us into classification, new stores, remodels, purchased land, as well as let us know how much will be spent on projects that will be open in fiscal 2009?

Well, it is hard to speculate on fiscal 2009 because so much can affect construction schedules and timing. I think the best way to characterize our capital expenditures is, as always, most of it is devoted to store development whether it is new stores, remodels or replacement stores and we gave those numbers a couple of minutes ago on what we've done on the first half of the year and what we expect to do for the second half of the year. And that is a large, large majority of the total CapEx. Bryan Hunt – Wachovia : Could you give us an idea of how much you spend on property this year alone?

No, we don't typically provide that kind of breakdown. Bryan Hunt – Wachovia : And then when I look at your new store locations, throwing dirt out the window because land costs can vary dramatically – how much does it cost for you to develop a new store?

Bryan, we have not disclosed in the past our per square foot construction cost and again, especially in mountainous terrain, that can have a pretty wide-ranging effect on any individual store construction cost. So it would be misleading to give you a number. Bryan Hunt – Wachovia : Could you give us a range then?

No, I'm sorry, I really can't. Bryan Hunt – Wachovia : Looking at the current environment and your traffic numbers are spectacular, are you seeing any change in sales mix? Do you see consumers trading down to private label or do you see a growth in family-style or family-size packaging?

We haven't seen a lot of behavior changes ourselves so far. But there is certainly a lot of industry speculation that consumers are trading down. They are buying more private label. But that hasn't really been our experience. Again, I think we are seeing some decreases in restaurant dining. And that certainly helps out our deli and bakery department. Bryan Hunt – Wachovia: Okay. And what is your label of private mix? Are you all trying to increase that?

It is about the same as we disclosed in last year's 10-K. And again, we try to maintain a good mix between national brands and private label products. It may not be the same as what everyone else does, but it is a mix that works for us we believe. Bryan Hunt – Wachovia : All right, and what is the maturity of that $87 million of financing? I know you can repay it, I guess, in three years without penalty, but how long could you keep that in place?

We could keep some of it as long as 20 years. They're commercial mortgages. Bryan Hunt – Wachovia : –: –:

We certainly have the land and we certainly have plans that we're taking a look at but it is way early to speculate when that process might start and what the ultimate cost might be. We're doing fine; we're getting everything out to the stores on time and we're keeping them full. Bryan Hunt – Wachovia : Okay, I'll get back into queue and I'll let someone else ask some questions. Thank you.

Thanks, Bryan.

(Operator instructions) We'll go next to Andrew Berg with Post Advisory Group. Andrew Berg – Post Advisory Group: Give me the CapEx (inaudible) – I have two questions. One, I would like to go back to Bryan's question, at the very least, can you please provide us some indication what the average cost per store is, ex the land?

No, again that's just something that we haven't provided in the past at all. And it is not in the public documents, so I can't talk about it here. Andrew Berg – Post Advisory Group: You can't talk about it here because then it would be public.

Right. Andrew Berg – Post Advisory Group: At $175 million CapEx, given the interest expense and where you guys are, you're spending pretty much every dollar you have that you are earning between interest and CapEx, what are the thoughts here – how does the company delever going forward?

Well, we're concerned about sales. And we believe that to continue to increase sales, we need to improve and develop our store base. The company has always had a fairly high debt profile. And we're well within the bounds of that on the way the company has operated for a number of years. Andrew Berg – Post Advisory Group: Okay. But is there a target leverage level where you say I don't want let leverage get above X, X is too high for us, or are we just driving this for top line growth at the expense of leveraging at the balance sheet?

Our focus is top line growth. Andrew Berg – Post Advisory Group: Okay. Thank you.

Thank you.

We'll take our next question from Emily Shanks with Lehman Brothers. Emily Shanks – Lehman Brothers: Good morning and thank you for taking the question. I have a question around the disclosure in the Q and specifically on the lines of credit that mature between October of '08 to November 2010. Can you please let us know what the dollar amount is that's maturing specifically in October 2008, or has that been pre-funded by this new commercial mortgage?

I'm not sure I understood the second part of your question. But I believe there is a table in the 10-Q that outlines those maturities. We have a mix of one-year lines and three-year lines and I do not know, sitting right here at the table, what the mix is right now. But I believe there is a table in the 10-Q that has what amount of those credit lines mature in one year and what amount mature in three years. Emily Shanks – Lehman Brothers: Okay, I think we may have missed it. We'll take a look. How are you planning on refinancing that maturity that is coming in October of 2008?

We have been working with the line banks that we have for a number of years. And we have never had any problems with renewing those lines of credit. And I don't anticipate any this year. Emily Shanks – Lehman Brothers: Are those lines backed by the real estate?

No, those are unsecured lines. Emily Shanks – Lehman Brothers: Okay. And specifically there, you mentioned a number of trigger events but are generally typically events of defaults or covenant breaches. But, do the credit lines, are they uncommitted in any way, meaning that if the bank's see any material adverse change to the business, is it at the bank's option to walk away from those lines?

Those are committed lines and as long as we stay within our covenants, we have got the availability. Emily Shanks – Lehman Brothers: Super, okay. And then moving more to the operations, can you comment at all about what type of rate of inflation you're seeing right now, particularly on the grocery sales?

I think our experience has been pretty similar to what the experience has been nationwide. And the data that we're seeing is from the U.S. Bureau of Labor Statistics is for the three months ended this March, food and beverage inflation was 5.1% and it has been 4.4% for the last 12 months. And I believe the rate of food and beverage inflation for the December quarter was like 2.3%. So it has been ramping up pretty good. Emily Shanks – Lehman Brothers: Okay, great. And then if I could just one final question. Just looking at accounts payable, days outstanding, it looks like they came down quarter-over-quarter and year-over-year. Are you seeing any change in your relations with your vendors on any of the term?

No, not really. Emily Shanks – Lehman Brothers: Okay, thank you.

You're welcome.

(Operator instructions) We will take a follow-up from Bryan Hunt with Wachovia. Bryan Hunt – Wachovia : According to the Q, you spent money on your dairy this year. Could you talk about, one, the size of the spending and, two, what exactly you are doing at the dairy?

There were some land adjacent to the existing facility that we purchased. And there are no current capacity issues at the dairy. But, when land becomes available that is adjacent to where you are and it is at a good price, you buy it. And you plan for the future. But, there is nothing imminent out there that would make sense to discuss right now. Bryan Hunt – Wachovia : So there is no capacity issues there either?

No, not at all. Bryan Hunt – Wachovia : And then, looking at your CapEx number, we have had the pendulum swing completely in your favor, you're obviously doing a lot of unique things with regards to data mining and your advantage card, rolling out fuel centers and you've had a great run. If the pendulum were to swing the other way and the markets were to become very competitive and margins were to tighten up, where could you dial CapEx down to, if you didn't have to grow the business, what is the maintenance CapEx number at Ingles?

Bryan, first of all, it is always competitive. So we're glad we're doing well right now, but we never take the competitive environment for granted. Again, we don't necessarily have a maintenance CapEx number. I can't stress enough, we focus on top line growth and we very strongly believe that you have to keep your stores top-notch, up to date, modern and the best in their market. And we don't want to change that. Bryan Hunt – Wachovia : Okay. Do you feel like there is any of your competitors that are going down the same path that you are going down competitively, and spending aggressively and trying to develop stores in your market? Do you feel strong competitive pressures because with 9% plus traffic growth, it would appear that you are taking substantial share?

Bryan, I know you're tired of hearing me say this, but our policy is we don't comment on the activities of our competitors. We focus on what we do and continue to try to do it better all the time. Bryan Hunt – Wachovia : All right. Thank you very much.

You're welcome, Bryan.

We'll take a follow-up from Andrew Berg with Post Advisory Group. Andrew Berg – Post Advisory Group: Well, I asked that question [ph]. Thanks.

And it appears we have no further questions at this time. I now turn the call back over to Mr. Freeman for any additional or closing remarks.

Thank you for joining us today and we enjoy sharing the numbers with you and look forward to seeing you in our stores. Have a great day everyone. Thank you.

That does conclude today's presentation. We thank you for your participation and you may now disconnect.