Blue Square-Israel Ltd. (NYSE: BSI) today announced results for the second quarter and six months ended June 30, 2001.

Results of the Quarter

Revenues for the second quarter of 2001 increased by 5.2% to a record NIS 1,424.1 million(a) (US $341.9 million)(b) from NIS 1,353.2 million in the second quarter of 2000. Revenues for the quarter reflect the contribution of new store branches, as well as the timing of the Passover holiday buying season, which occurred only partially during the second quarter of 2001, as compared to 2000, when the entire Passover holiday season fell during the second quarter. As a result of these factors, together with continued competition in the sector and the opening of new stores by the Company and its competitors, Same Store Sales for the quarter declined by 3.33%, compared to an increase of 2.75% during the second quarter of 2000.

Gross profit for the quarter increased by 4.2% to NIS 384.7 million (US $92.4 million) from NIS 372.0 million in the second quarter of 2000, resulting in gross margins of 27.0%, compared to 27.5% in the second quarter of 2000.

Operating income for the second quarter increased by 9.9% to NIS 83.1 million (US $20.0 million) from NIS 75.6 million in the second quarter of 2000, and operating margin increased to 5.8% from 5.6% for the corresponding period in 2000. The rise in operating margins is due to the success of the Company's ongoing efficiency program, which continues to reduce Selling, General and Administrative expenses relative to the Company's revenues.

During the quarter, the Company recorded financing income of NIS 5.0 million (US $1.2 million) compared to financial expense of NIS 0.02 million in the second quarter of 2000. This derives primarily from the reduction of Israel's prime rate of interest, and decreases in the value of marketable securities that were recorded in the second quarter of 2000.

Net income for the second quarter was NIS 44.9 million (US $10.8 million), or NIS 1.17 per ADS (US $0.28), an increase of 20.3% compared to NIS 37.3 million, or NIS 0.97 per ADS, for the second quarter of 2000.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for the quarter increased by 11.1% compared to the second quarter of 2000. The EBITDA margin for the second quarter of 2001 rose to 8.4% from 7.9% in the comparable quarter of 2000.

Results of the First Six Months

Revenues for the first half of 2001 were NIS 2,746.5 million (US $659.4 million), an increase of 6.8% compared to NIS 2,572.2 million for the first six months of 2000. Gross margins for the first six months of 2001 rose to 27.6%, compared to 27.4% for the first half of 2000.

The Company's operating income for the first six months of 2001 increased by 12.3% to NIS 155.3 million (US $37.3 million) from NIS 138.2 million in the first half of 2000. Operating margin for the period rose to 5.7%, compared to 5.4% for the comparable period in 2000, reflecting the monitoring of operating expenses and increased efficiency in all levels of the Company's operations.

"Other Income" for the first half of 2000 includes a one-time capital gain of approximately NIS 32 million (before taxes) related to the sale of the Company's holdings in Home Centers.

"Discontinued Operations" for the first half of 2000 includes income of NIS 1.0 million related to the Company's former holdings in the IKEA chain.

Net income for the first six months of 2001 was NIS 75.7 million (US $18.2 million), or NIS 1.97 per ADS (US $0.47). Excluding the abovementioned one-time capital gain and losses from discontinued operations, net income for the first six months of 2000 was NIS 62.5 million, or NIS 1.63 per ADS. Reported net income for the first half of 2000 was NIS 80.6 million, or NIS 2.10 per ADS.

NOTE: For the convenience of the reader, the Company has attached a pro-forma summary table for the six months ending June 30, 2001 which excludes the affect of the abovementioned one-time factors on the Company's results of the first half of 2000.

During the first half of 2001, Same Store Sales declined by 1.72%, a substantial improvement over the first half of 2000, when Same Store Sales declined by 6.23%. The Company opened 3 stores and closed 2 during the first half of 2001, adding a net total of 6,900 square meters to the chain. EBITDA for the first six months increased by 14.4%, resulting in an EBITDA margin of 8.4%.

Comments of Management

Commenting on the results, Yoram Dar, Blue Square's President and Chief Executive Officer, said, "Our solid second quarter results illustrate the stability of the supermarket sector in the face of the continuing market slowdown, as well as the success of our marketing and operating strategies. We are pleased to report continued growth in revenues and profits, along with significant reduction of ongoing operating expenses."

Mr. Dar continued, "We believe the continued growth of Mega, Blue Square's greatest success story so far, demonstrates our ability to identify underlying market trends, and to build brands that match the true needs of our customers. Since the end of the first quarter, we have converted three Super Centers to Megas, and opened a new Mega in Rehovot. As such, the Mega chain currently numbers 11 branches, and we expect to open another one by the end of the quarter. At the same time, we continue to make progress in consolidating our other brands.

"Our continued profitability growth reflects ongoing investments in infrastructure and technology, along with progress in a range of efficiency and marketing initiatives. We continue to streamline the organization, bringing the expenses of every level in line with operations, and to increase the volume of Logistics Center and self-distribution operations. We are now implementing the final stage of our shelf management initiative, with the goal of reducing the number of marginal items carried in our stores.

"Recently, we began ramping up our Private Label program by launching the Leader Price brand throughout all our stores. In the first phase, we introduced a selection of quality cleaning products, produced by a subsidiary of Colgate Palmolive. During the remainder of the year, we will introduce a number of additional Leader Price categories, and expect to begin to experience a marked increase in Private Label sales."

Mr. Dar concluded, "We are optimistic regarding Blue Square's future prospects, along with the prospects for Israel's organized food sector. We believe that Israel's supermarket sector, though just 52% of the food market today, will continue to move quickly toward Europe's penetration rate of 75%-80%. We will achieve that growth through continued responsiveness to the needs of our customers, and close attention to the operational details of our organization."

The Company will hold a teleconference to review and discuss the results on August 15, 2001, at 10:00AM (EDT). The access number from the US or Canada is 800-288-8961. The access number from outside the US and Canada is 612-332-0530. To participate, please call the access number a few minutes before 10:00AM. A taped replay of the teleconference will be available after 11:45AM (EDT) on August 15, 2001, until midnight, August 16, 2001. To access the replay, please call 800-475-6701 from the US or Canada, and 320-365-3844 from outside the US and Canada. The access code for the replay is 595965.

Blue Square is a leading retailer in Israel. A pioneer of modern food retailing in the region, Blue Square currently operates 169 supermarkets under different formats, each offering varying levels of service and pricing.

This press release may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to the Company's business, financial condition, prospects and operating results. These statements are based on current expectations and projections that involve a number of risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including risk of market acceptance, the effect of economic conditions, the impact of competitive pricing, supply constraints, the effect of the Company's accounting policies, as well as certain other risks and uncertainties which are detailed in the Company's Annual Report on Form 20-F and other filings with the Security and Exchange Commission. Forward-looking statements speak only as of the date on which they are made and the Company undertakes no commitment to revise or update any forward-looking statement in order to reflect events or circumstances after the date any such statement is made.

    (a) In accordance with applicable Israeli accounting principles, the
         Company maintains its accounts and presents its financial statements
         in New Israeli Shekels adjusted for changes in the Israeli consumer
         price index ("CPI") through the latest balance sheet date ("Adjusted
         CPI").  The Israeli CPI increased by 1.6% for the three months ended
         June 30, 2001.

    (b) The convenience translation of the Adjusted New Israeli Shekel (NIS)
         into US dollars was made at the rate of exchange prevailing at
         June 30, 2001: US $1.00 equals NIS 4.165.  The translation was made
         solely for the convenience of the reader.

                          BLUE SQUARE - ISRAEL LTD.
                         CONSOLIDATED BALANCE SHEETS
                         In Adjusted NIS of June 2001

                                                                   Convenience
                                                                   translation
                                                                     (Note 3)
                                     December 31       June 30        June 30
                                        2000       2000       2001       2001
                                         NIS        NIS        NIS       U.S.$
                                      (Audited)      (Unaudited)   (Unaudited)
                                                    In thousands
    ASSETS

    CURRENT ASSETS
     Cash and cash equivalents           1,428        785     49,457   11,874
     Marketable securities and
       Short-term deposits              32,522     71,430         --       --
     Trade receivables                 541,838    541,023    568,427  136,477
     Other accounts receivable          37,893     60,832     74,110   17,794
     Inventories                       295,139    304,448    322,692   77,477
                                       908,820    978,518  1,014,686  243,622

    LONG-TERM INVESTMENTS
     Investments in affiliate            2,148      1,290      3,550      852
     Long-term loans to
      proportionately
      consolidated entities             17,992(*)  14,736(*)  18,563    4,457
                                        20,140     16,026     22,113    7,602

    FIXED ASSETS
     Cost                          2,880,567(*) 2,768,229(*) 2,996,648 719,483
     Less - accumulated depreciation   836,956      776,416    892,302 214,238
                                     2,043,611    1,991,813  2,104,346 505,245

    INTANGIBLE ASSETS AND
     DEFERRED CHARGES                  104,676    113,378     99,189   23,815

                                     3,077,247  3,099,735  3,240,334  779,991
    (*) Reclassifed

                         CONSOLIDATED BALANCE SHEETS
                         In Adjusted NIS of June 2001

                                                                   Convenience
                                                                   translation
                                    December 31         June 30        June 30
                                         2000       2000       2001       2001
                                         NIS        NIS         NIS      U.S.$
                                      (Audited)       (Unaudited)  (Unaudited)
                                                     In thousands
    LIABILITIES AND SHAREHOLDERS'
     EQUITY

    LIABILITIES

    CURRENT LIABILITIES
     Short-term credit from banks and
      others                            331,760    314,734    131,470   31,565
     Trade payables                     690,382    805,516    790,846  189,879
     Short-term credit from parent
      cooperative                         4,708         --         --       --
     Dividend payable                        --     39,492         --       --
     Other payables and accrued
      expenses                          247,911    282,091    327,453   78,620
                                      1,274,761  1,441,833  1,249,769  300,064

    LONG-TERM LIABILITIES
     Long-term loans from banks and
      others                            293,251    209,515    460,434  110,549
     Debentures                          31,919     31,800      7,589    1,822
     Deferred taxes                      24,637     27,685     26,430    6,346
     Accrued severance pay               16,780     14,163     19,312    4,637
                                        366,587    283,163    513,765  123,354

    MINORITY INTEREST                   143,505    132,535    152,133   36,527

    SHAREHOLDERS' EQUITY
     Share capital -
      Ordinary share of NIS 1 par
       value each -
     Authorized: 100,000,000 shares;
      Issued and outstanding:
       38,400,000 Shares                 49,728     49,728     49,728   11,939
    Additional paid-in capital          700,838    700,838    706,994  169,746
    Retained earnings                   541,828    491,638    567,945  136,361
                                      1,292,394  1,242,204  1,324,667  318,046
                                      3,077,247  3,099,735  3,240,334  779,991

                          BLUE SQUARE - ISRAEL LTD.
                      CONSOLIDATED STATEMENTS OF INCOME
                         In Adjusted NIS of June 2001

                         For the               For the three   Convenience
                     six months ended          months ended    translation
                         June 30                  June 30          For the
                                                              three months
                                                                     ended
                                                                   June 30
                    2000         2001         2000         2001       2001
                     NIS          NIS          NIS          NIS      U.S.$
                                    (Unaudited)                 (Unaudited)


    Sales      2,572,202    2,746,483    1,353,214    1,424,093    341,919

    Cost of
     sales     1,866,723(*) 1,989,752      981,250(*) 1,039,376    249,550

      Gross
       profit    705,479      756,731      371,964      384,717     92,369

    Selling,
     general and
     administrative
     expenses    567,236(*)   601,438      296,319(*)   301,608     72,415

      Operating
       income    138,243      155,293       75,645       83,109     19,954

    Financing income
     (expenses),
     net         (13,994)      (5,969)         (25)       4,991      1,198
                 124,249      149,324       75,620       88,100     21,152

    Amortization
     of goodwill  (2,995)      (2,501)      (1,554)      (1,235)      (297)

    Other income
     (expenses),
     net          30,074(*)    (3,554)         178(*)    (2,089)      (502)

      Income before
       taxes on
       income    151,328      143,269       74,244       84,776     20,353

    Taxes on
     income       59,177       56,590       30,078       33,524      8,048

      Income after
       taxes on
       income     92,151       86,679       44,166       51,252     12,305

    Equity in net
     earnings of
     affiliates      505        1,655           14        1,119        269

    Minority
     interest    (11,020)     (12,618)      (6,404)      (7,518)    (1,805)

      Income from
       continuing
       operations 81,636       75,716       37,776       44,853     10,769

    Loss from
     discontinued
     operations   (1,007)(*)       --         (495)(*)       --         --

      Net income  80,629       75,716       37,281       44,853     10,769

    Earnings (loss)
     per Ordinary
     Share or ADS:
     From continuing
     operations     2.13         1.97         0.98         1.17       0.28

    From discontinued
     operations    (0.03)          --        (0.01)          --         --

      Net income    2.10         1.97         0.97         1.17       0.28

    Weighted average
     number of shares
     or ADS outstanding
     during the
     period   38,400,000   38,400,000   38,400,000   38,400,000 38,400,000

    (*) Reclassified

                          BLUE SQUARE - ISRAEL LTD.
              PRO-FORMA SUMMARY TABLE (EXCLUDING ONE-TIME ITEMS)
                    FOR THE SIX MONTHS ENDED JUNE 30, 2001
               (in thousands, adjusted to the NIS of June 2001)

                                                             Convenience
                                                             translation
                                                             For the six
                                                             months ended
                        For the six months ended               June 30
                                June 30
                         2000              2001                 2001
                          NIS               NIS                 U.S.$
                      (Unaudited)        (Unaudited)          (Unaudited)


    Sales              2,572,202          2,746,483             341,919

    Cost of sales      1,866,723(*)       1,989,752             249,550

      Gross profit       705,479            756,731              92,369

    Selling, general
     and administrative
     expenses            567,236(*)         601,438              72,415

      Operating income   138,243            155,293              19,954

    Financing income
     (expenses), net     (13,994)            (5,969)              1,198
                         124,249            149,324              21,152

    Amortization
     of goodwill          (2,995)            (2,501)               (297)

    Other income
     (expenses), net       1,283             (3,554)               (502)

      Income before taxes
       on income         122,537            143,269              20,353

    Taxes on
     income               49,460             56,590               8,048

      Income after
       taxes on income    73,077             86,679              12,305

    Equity in net
     earnings of
     affiliates              505              1,655                 269

    Minority
     interest            (11,020)           (12,618)             (1,805)

      Net income          62,562             75,716              10,769

    Earnings (loss) per
     Ordinary Share or
     ADS                    1.63               1.97                0.28
    Weighted average
     number of shares
     or ADS outstanding
     during the
     period           38,400,000         38,400,000          38,400,000

    (*) Reclassified

                          BLUE SQUARE - ISRAEL LTD.
                           SELECTED OPERATING DATA
                      (adjusted to the NIS of June 2001)
                                                                   Convenience
                                                                   Translation
                                                                     into US$
                                                                  Three months
                                Six months ended  Three months ended    Ended
                                       June 30,          June 30,     June 30,
                                   2000      2001     2000     2001     2001

    Sales (in millions)           2,572     2,746    1,353    1,424   $  342

    Operating income (in
     millions)                      138       155       76       83   $   20

    Number of stores (at end of
     period)                        167       169      167      169       na
        Stores opened during the
         period                       4         3        2        1       na
        Stores closed during the
         period                       2         2        2        0       na

    Total square meters (at end
     of period)                 249,600   264,900  249,600  264,900       na
        Sq. meters added during
         the period              10,600     6,900    8,300    1,200       na

    Same store sales              -6.23%    -1.72%    2.75%   -3.33%      na

    Sales per sq. mtr. (in
     thousands)                  10,515    10,454    5,438    5,392   $1,295

    Sales per employee (in
     thousands)                     360       359      192      184   $   44

    EBITDA (in millions)            201       230      108      120   $   29

    EBITDA Margin                   7.8%      8.4%     7.9%     8.4%      na

    * EBITDA is defined as operating income before depreciation and
       amortization


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