Good day and welcome to the Ingles Markets Incorporated first quarter conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I'd 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 first 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 performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed on the 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 a summary of our first quarter results followed by additional comments. After that, we will be pleased to take your questions. Our press release issued this morning is available on our website at www.ingles-markets.com. We expect to file our 10-Q for the quarter in a few days. It will be available via our website as well. Sales growth led to a strong start for fiscal 2008. Net income for our first fiscal quarter ended December 29, 2007 totaled $12.7 million, an increase of $1.5 million or 13.3% over net income of $11.2 million for the first fiscal quarter of last year. First quarter sales also increased 13.3% to $777.1 million compared to…

(Operator Instructions) We'll go first to Emily Shanks with Lehman Brothers.

Good morning. Good morning, this is actually [Jason Trohio] calling for Emily. My first question relates to your organic offering in perishables, specifically how it's been performing as of late, and is it a significant part of the business so far?

It's been performing well, and it's certainly something that a lot of our customers are interested in. Other than that, we try to expand our organic offerings through perishables, meat, frozen and a number of other items. But it's still not a terribly large percentage of our overall grocery business.

Okay, great. Thank you. And then my next question relates something you alluded to earlier around the cost increases. Specifically, I was wondering have you been having to sort of take in some of those cost increases to maintain market share, pass those through to the customers.

We're most concerned about sales. So we're trying to absorb as much as we can to keep our sales up and to keep our cost low for our customers. And in some cases, there have been some cost increases. It's been unavoidable.

All right, great. That's very helpful. And then just one housekeeping item, what was the cash balance at the quarter end?

I don't have that in front of me. That will be in the 10-Q when we file it later this week.

All right, great. Thank you very much.

And our next question comes from Bryan Hunt with Wachovia.

Thank you. I was wondering if can tell us what your weakest department or category was.

Bryan, we don't talk about our individual department performance except some broad comments about gasoline because of their effect on the overall business.

Okay. That leads to my next question. Looking at gasoline, your comparable gallons sold, do you have that measurement in front of you or could you provide that to us?

I don't have that in front of me, right now. Again, one of the biggest thing that happen in gas is that, if you look at the December quarter of this year versus the December quarter of last year, the price at the pump nationwide including us is up over about $0.70 where it was last year. Our gallons were up as well, but just the cost increase has been very difficult for a lot of people.

Could you tell us whether your, because last year most convenience store operator saw compression, and there were reduction in their fuel margin pretty significantly in Q4 on the December quarter of 2006, could you tell us whether or not your cents per gallon margin increased in the December quarter relative to year ago?

We really don't discuss that for competitive reasons.

Okay. With continuing same-store sales growth and opening new and bigger stores, when does the company need to expand its distribution center, is that included in your 175 of CapEx this year?

Well, right now, we're okay. And we're doing what we can to make sure that our stores stay stocked. You know it's something that we'll certainly have to address in the future at some point, but right now we're okay.

Okay. And looking at the two shopping centers you purchased, could you tell us what you paid on a price per square foot level?

No.

Or a cap rate level?

Yeah, and it's not really applicable, because those are shopping centers where we had operated leased stores for a number of years, and the entire center became available to us for purchase, and we took advantage of that.

Are they fully occupied, or could you tell us where they're located?

One is in Tennessee and one is in North Carolina. And again, they are the good locations for us.

Alright. If you look at the company valuation and the stock valuation, I mean, stocks trading at less than a 10 PE and the company is trading at a 5.8 times more or less enterprise [related] LTM EBITDA, which are pretty substantial discounts to your peers. Have you all thought about buying back stock, given the current levels?

We can't influence what the stock market does. The retail sector is having some trouble overall. From our standpoint, we've had fore the best years in the company's history and a great first quarter of this year, so we focus on that.

Okay. And then lastly, I just wonder if you could carve up in the basket share $175 million of CapEx for us just so we can understand where the dollars are going?

Well, as typically being the case for us, the large majority of it is going to store development and if you look at the number of projects that we've laid out for the remainder of this year, it's pretty easy to get to that number.

Okay. Thank you.

You're welcome.

And we'll take our next question from Todd Duvick with Banc of America.

Yes. Good morning. - Banc of America: Yes. Good morning.

Good morning.

I had a quick question for you, as you talked about the call price for the announced that you have outstanding and evaluating your capital structure. Can you give us kind of a timeline for what you are looking at there? - Banc of America: I had a quick question for you, as you talked about the call price for the announced that you have outstanding and evaluating your capital structure. Can you give us kind of a timeline for what you are looking at there?

No, I mean, again, we had expanded our lines of credits, so we are fine from the financing standpoint now to do what we'd like to do to maintain the business and grow the way we want to. But again, it's no secret since last summer the fixed income markets had been very difficult and volatile. So, it made a sort of expand the scope of what we are to look in at as far as different instruments for future growth and financing.

Okay. I guess just and I'm not trying to put words in your mouth but it almost sounds like you are warning to call the existing note, is that something that you are considering? - Banc of America: Okay. I guess just and I'm not trying to put words in your mouth but it almost sounds like you are warning to call the existing note, is that something that you are considering?

I think you are just trying to put words in my mouth.

Okay. I'm really not trying to. Alright, very good, and it sounds like in terms of the capital spending plans, it sounds like you are trying to accelerate growth going forward, and your growth is already very strong. Can you talk about what your plans might be for free cash flow going forward? - Banc of America: Okay. I'm really not trying to. Alright, very good, and it sounds like in terms of the capital spending plans, it sounds like you are trying to accelerate growth going forward, and your growth is already very strong. Can you talk about what your plans might be for free cash flow going forward?

Well, it's really difficult to pin down. Again, we've gone through a process of looking at our store base and have found some great opportunities out there for the next four, five years. So, as you'll see when the 10-Q comes out, the $175 million a year level that we project this year is a level we intend to maintain over the next few years, primarily for store development and store expansion.

Okay. And just one final question. Wal-Mart was making some noise yesterday coming out and saying they are taking pricing down 10% to 30% on some items and I think it was really focused on Super Bowl party type of items, but that just kind of leads me to the question about, what you are seeing in the competitive landscape. Are you seeing someone like a Wal-Mart really being a little more competitive on price or are you seeing that from may be some of the other competitors in your footprint? - Banc of America: Okay. And just one final question. Wal-Mart was making some noise yesterday coming out and saying they are taking pricing down 10% to 30% on some items and I think it was really focused on Super Bowl party type of items, but that just kind of leads me to the question about, what you are seeing in the competitive landscape. Are you seeing someone like a Wal-Mart really being a little more competitive on price or are you seeing that from may be some of the other competitors in your footprint?

We'll, I mean, we compete against a number of national grocery chains and regional grocers, specialty grocers, drug stores, convenient stores and restaurants. So, it's very difficult to gauge the competitive environment when you got such diverse group of competitors. We are pleased with what we are doing. We are going to continue to do it and then finally just as a policy we don't comment on the activities of our competitors.

Okay. Thank you very much. - Banc of America: Okay. Thank you very much.

You are welcome.

We'll take our next question From Andrew Wolf with BB&T. Andrew Wolf - BB&T: Thanks. Good morning Ron and congratulations to you all on the very strong numbers. I wanted to ask about the competitive environment as well. So, no one asked you to comment on your competitors, if you don't want to, but taking from your press release your words essentially that you had good promotions in the holidays. Can you just characterize, I guess, maybe it's a little more about the consumer. Just how you felt the consumer in its good response to your promotions and on the consumer, what your sense and how the consumers in your market, obviously healthy enough there is sales to be had with good promotions that's a good sign? And secondly, I guess, maybe on the competitive side. Did you need to be a little more aggressive or less aggressive about the same in order to have the good response for the holiday promotions? Thanks.

We think consumers in general are becoming more cost conscious from what's happening to them from a fuel cost increase, food cost increases, and they are getting hit from a number of directions and we think our one-stop shopping offering including our fuel centers, bigger stores with the wide variety of product it is helping us out because the consumer really can combine trips and come to Ingles. So, we plan to continue that. Andrew Wolf - BB&T: Okay. Any comment on the promotionality, if it wasn't more effective than last year why it was effective, let's put in that way.

Well, we had a good first quarter last year too and we just built on it. We had a free turkey program, as we have had for a couple of years that we changed a little bit, had some good response to it and it was a good strong holiday season for us. Andrew Wolf - BB&T: Okay. And second question, I'd like to ask is, just on inflation, may be you call this out, sorry if you did, but if you didn't would you comment on what your product cost inflation is in gross excluding gas, which obviously kind of fluctuate a lot. And the ability that you have the gross margin seem fairly stable, which suggest you are essentially in total passing it through but any commentary there on the ability to pass it through?

With all the different products we've, I really couldn't give you a number. For cost inflation the best we can all do, I think is just to acknowledge that it is there. And again, we've had some good mix changes that are kind of help us overcome the product cost changes. But it's really difficult to pin down in much more detail than that. Andrew Wolf - BB&T: Okay. And what about the sense the gross margin X gas gross margin being almost stable reflect the ability more or less pass most of it through?

I don't think you can say that. I mean, we've had higher sales, as we've said in our daily and dairy and produce department that tend to carry a little bit higher margin. So that in some cases can compensate for some of the other areas where you don't pass the cost all the way through. Andrew Wolf - BB&T: Okay, thanks. I appreciate that and congratulations again.

Thank you.

(Operator Instructions) We'll go next to Karen Short with Friedman, Billings, Ramsey.

Hi, thanks for taking my call. I just had a couple of questions, I think you said that average today was flat; but traffic was up, was I right in hearing that?

Yes, that's correct.

Okay. So, just out of curiosity would you have seen trading down within the store among different categories?

I don’t think we can say.

Meaning it’s hard to tell now…

Yes, yes.

Okay. And then I guess, you also commented that the holiday seasons are increasingly competitive. I'm not sure if that's standard language for you or if you specifically noticed a change in the competitive landscape this particular holiday season once if you could elaborate?

The holidays are always competitive and this year really was no different from other holiday seasons.

Okay. And then, I guess the last question, I just want to ask, when you do promotions on your gas side of it, I'm just curious where do you book that promotion, do you book it out of the gas margin or does it come out of the same store sales or does it get booked at same store sales?

We include all our gas sales and the same store sales calculation and we include all our gas cost in the gross profit calculation.

Okay. And do you guys have a gift card promotion?

Yeah. We do sell gift cards and it's been pretty successful program for us.

Okay. What do you say whether it was more successful this year than it was last year or do you have any comments on the consumer behavior as it relates to gift cards?

No discernible comments.

Okay, thanks very much.

You are welcome.

We'll take our next question from James Ford with Spartan Capital.

Hi, I just had a quick question regarding how many Ingles stores have gas stations attached to them now. Where do you see that number being approximately 3 to 5 years up? Thank you.

No. I'm a little embarrassed. I don't have that number, and wait a minute I do have that number in front of me. I've got to flip to my 10-Q draft right quick, bear with me. 48 fuel stations, as of at the end of December and in our guidance for the rest of the year, right now we are planning to add 8 more for the rest of this year.

Okay. And what about your long-term plans?

Gas is an important part of our overall store development program. When we're doing new stores we've got the opportunity to add gas. We try to do that.

Okay. And do you have owned land in order to add a gas station?

It's not necessary, it helps.

And what percent of the stores do you own in the land?

I do not have that number right in front of me. But I think if you refer back to last year's 10-K there is summary information on the number of owned versus leased stores.

Okay, thank you.

You're welcome.

And we've a follow-up question from [Jason Trohio] with Lehman Brothers.

Hi. Just one follow-up something you can comment on any trends you're seeing with regards to sales of prepared foods, I think, you always have seen increasing demand in that category?

Well we did mention that our dairy and bakery departments were a couple of our higher sales increased departments this past quarter, and I think that reflects that trend. And I think it fits into our one-stop shopping strategy.

All right, great. Thank you, that's very helpful.

You're welcome.

And we’ve a follow-up question from Bryan Hunt with Wachovia.

Yes, I was wondering Ron on your CapEx initiatives going forward you said the company plans on maintaining a roughly $175 million CapEx level going forward this year or at least in the first quarter you borrowed roughly $62 million additional on your revolving lines of credit, credit you have seen a small pop-up in cash flow. But I'm modeling out that you're going to borrow roughly $60 million this year potentially a similar amount next year by the time you get to early 2010 it looks like you could be out of liquidity without a fairly significant bump up in the EBITDA. Is there flexibility in that CapEx plan or you all pretty dead set in spending $175 million a year?

It's our best estimate right now. Again we've got some great opportunities out there and we want to take advantage of it.

Okay, thank you.

You're welcome.

And Mr. Freeman, we have no further questions at this time. I'll turn the call back over to you for any closing comments.

Okay. Thank you very much for all joining us this morning and we're moving on to the second quarter and will speak to you again in about three months. Have a good day everyone.

And this does conclude today's conference call. We appreciate your participation. You may disconnect at this time.