Blue Square-Israel Ltd. (NYSE: BSI) yesterday announced results for the third quarter and nine months ended September 30, 2001.

Results of the Quarter

Revenues for the third quarter of 2001 increased by 6.4% to a record NIS 1,478.1 million(a) (US $339.4 million)(b) from NIS 1,388.9 million in the third quarter of 2000. Revenues for the quarter reflect the timing of the fall holidays and the addition of new store branches.

Gross profit for the quarter increased by 4.3% to NIS 397.2 million (US $91.2 million) from NIS 381.0 million in the third quarter of 2000, resulting in a gross margin of 26.9%, compared to 27.4% in the third quarter of 2000.

Operating income for the third quarter increased by 10.3% to NIS 77.1 million (US $17.7 million) from NIS 69.9 million in the third quarter of 2000, and operating margins increased to 5.2% from 5.0% for the corresponding period in 2000. This results primarily from the success of the Company's continued efficiency efforts.

During the quarter, the Company recorded net financing income of NIS 1.0 million (US $0.2 million) compared to net financing expenses of NIS 14.8 million in the third quarter of 2000. The substantial decrease in financing expenses derived mainly from two factors, as follows:

    1) The increase in the Consumer Price Index ("CPI") eroded the excess of
       unlinked monetary liabilities over unlinked monetary assets, and the
       resulting gain on the net monetary position offset the interest expense
       on bank loans. In addition, the fact that the Company's long-term
       linked loans as of September 30 2001 are adjusted for the changes in
       the CPI published prior to September 30, whereas the opening balances
       of these loans are adjusted for the changes in the CPI based on the
       index published in respect of September (published on October 15),
       resulted in lower financing expenses for the third quarter of 2001.

    2) The reduction in the prime rate of interest in Israel reduced the
       Company's financing expenses. In contrast, during the third quarter of
       2000, the Company incurred higher financing expenses due to the
       substantial decrease in the quarter's CPI.

Net income for the third quarter was NIS 41.1 million (US $9.4 million), or NIS 1.07 (US $0.25) per ADS, an increase of 49.4% compared with NIS 27.5 million, or NIS 0.73 per ADS, for the third quarter of 2000.

Same Store Sales for the quarter declined by 3.6%, while they declined 3.5% during the third quarter of 2000. The decline primarily reflects continued competition in the sector and the opening of new stores by the Company and its competitors.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for the quarter was NIS 111 million (US $25.5 million), compared to NIS 102 million in the third quarter of 2000. The EBITDA margin for the third quarter of 2001 increased slightly to 7.5% from 7.3% in the comparable quarter of 2000.

Results of the Nine Months

Nine month revenues for 2001 were NIS 4,249.0 million (US $975.7 million), an increase of 6.6% compared to NIS 3.984.1 million for the first nine months of 2000.

Gross profit for the period increased by 6.2% to NIS 1,160.7 million (US $266.5 million) from NIS 1092.7 million for the first nine months of 2000, resulting in a gross margin for the period of 27.3%, compared to 27.4% for the first nine months of 2000.

The Company's operating income for the first nine months of 2001 increased by 11.7% to NIS 233.8 million (US $53.7 million) from NIS 209.4 million in the first nine months of 2000. Operating margin for the period rose to 5.5%, compared to 5.3% for the comparable period in 2000, reflecting the Company's success in monitoring operating expenses and increased efficiency in all levels of the Company's operations.

"Other Income" for the first nine months of 2000 consists mainly of a one-time capital gain related to the sale of the Company's holdings in Home Centers.

"Discontinued Operations" for the first nine months of 2000 includes expense of NIS 1.5 million related to the Company's former holdings in the IKEA chain.

Net income for the first nine months of 2001 was NIS 117.5 million (US $27.0 million), or NIS 3.06 (US $0.70) per ADS. This represents a 39.4% increase over net income for the first nine months of 2000 excluding the abovementioned one-time capital gain (net of taxes). Reported income for the first nine months of 2000 was NIS 108.9 million, or NIS 2.84 per ADS.

During the first nine months of 2001, Same Store Sales declined by 2.4%. For the first nine months of 2000, Same Store Sales declined by 5.2%.

The Company opened 6 stores and closed 3 during the first nine months of 2001, adding a net total of 18,800 square meters to the chain.

EBITDA for the first nine months increased by 12% compared to the previous period, resulting in an EBITDA margin of 7.9%.

Comments of Management

Commenting on the results, Yoram Dar, Blue Square's President and Chief Executive Officer, said, "Despite the continued slowdown in Israel's economy, the third quarter was a period of solid financial and strategic progress for Blue Square. Revenues are at record levels, and margins remain strong. Our sales were affected by the timing of the fall holidays, which resulted in the loss of three selling days, as well as by the closure in early September of a large branch store in Kfar Saba to strengthen its infrastructure. This branch will be opened again in the beginning of January, 2002.

"We opened three new stores during the quarter, including two new Mega outlets, bringing this chain to a total of twelve branches. Mega can only be classified as a runaway success -- in fact, the Jerusalem Mega that opened in March has become our number one supermarket."

Mr. Dar continued, "We continue to invest in the efficiency of the chain, further streamlining our logistics, store management, and marketing to keep expenses in line with revenues. We are pleased with initial reaction to our 'Leader Price' Private Label program. Launched last August with an extensive line of top-quality cleaning products, we will soon expand the program with an extensive range of additional non-food and food products. On the technology front, we recently made news with our pilot 'Buy Pass' program, the world's first supermarket Smart Cart system. In addition, we are on track with our preparations to launch an advanced e-commerce site at the end of the fourth quarter, and continue to expand our use of Buy & Bonus club data for one-to-one marketing."

Mr. Dar concluded, "We are proud of our performance record, which shows continuous improvement in efficiency -- and profitability -- during a year-and-a-half of economic slowdown. We are optimistic regarding the long-term prospects of the Israeli economy, and believe the organized food sector offers plenty of room for additional growth. As the key to maximizing long term shareholder value, we remain focused on continually identifying and satisfying the needs of our customers while minimizing our expenses. We are pleased with the results of our efforts so far."

Blue Square is a leading retailer in Israel. A pioneer of modern food retailing in the region, Blue Square currently operates 171 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 Securities 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 0.9% for the three months ended
        September 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
        September 30, 2001: US $1.00 equals NIS 4.355.  The translation was
        made solely for the convenience of the reader.

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

                                                                  Convenience
                                                                  translation
                            December 31          September 30     September 30
                                2000          2000          2001      2001
                                NIS           NIS            NIS      U.S.$
                             (Audited)            (Unaudited)      (Unaudited)
                                                 In thousands

    ASSETS

    CURRENT ASSETS
     Cash and cash equivalents  1,441         2,866          666           153
     Marketable securities and
      short-term deposits      32,812        77,967           --            --
     Trade receivables        546,668       662,151      660,339       151,628
     Other accounts
      receivable               38,231        82,754       90,484        20,777
     Inventories              297,770       322,314      334,030        76,700
                              916,922     1,148,052    1,085,519       249,258

    LONG-TERM INVESTMENTS
     Investments in affiliate   2,167         2,336(*)     4,156           954
    Long-term loans to
     proportionately
     consolidated entities      7,021(*)      6,003(*)        --            --
                                9,188         8,339        4,156           954

    FIXED ASSETS
     Cost                   2,906,246(*)  2,857,310(*) 3,089,256       709,358
     Less - accumulated
      depreciation            844,417       810,795      926,729       212,797
                            2,061,829     2,046,515    2,162,527       496,561

    INTANGIBLE ASSETS AND
     DEFERRED CHARGES         105,609       107,691       98,788        22,684

                            3,093,548     3,310,597    3,350,990       769,457

    (*)  Reclassified.

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

                                                                  Convenience
                                                                  translation
                            December 31          September 30     September 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      334,717       316,387      107,538        24,693
     Trade payables         696,536       858,869      871,711       200,163
     Short-term credit from
      parent cooperative      4,750         3,625           --            --
     Other payables and
      accrued expenses      250,119       338,905      341,910        78,510
                          1,286,122     1,517,786    1,321,159       303,366

    LONG-TERM LIABILITIES
     Long-term loans from
     banks and others       284,734(*)    298,323(*)   438,359       100,656
     Debentures              32,204        32,356        7,664         1,760
     Deferred taxes          24,857        25,478       26,902         6,177
     Accrued severance pay   16,930        17,102       20,062         4,607
                            358,725       373,259      492,987       113,200

    MINORITY INTEREST       144,784       138,728      159,282        36,575

    SHAREHOLDERS' EQUITY
     Share capital -
     Ordinary share of
     NIS 1 par value each -
     Authorized: 100,000,000
     shares; Issued and
     outstanding: 38,400,000
      shares                 50,171        50,171       50,171        11,520
    Additional paid-in
     capital                707,086       707,086      713,297       163,788
    Retained earnings       546,660       523,567      614,094       141,008
                          1,303,917     1,280,824    1,377,562       316,316
                          3,093,548     3,310,597    3,350,990       769,457


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

                   For the nine months    For the three months    Convenience
                    ended September 30     ended September 30     translation
                                                                 for the three
                                                                  months ended
                                                                  September 30
                    2000        2001          2000       2001         2001
                    NIS         NIS           NIS        NIS          U.S.$
                                    (Unaudited)                    (Unaudited)
                  In thousands (except share and per share data)

    Sales        3,984,082    4,248,956    1,388,949    1,478,070    339,396

    Cost of
     sales       2,891,333(*) 3,088,263    1,007,969(*) 1,080,832    248,182

      Gross
       profit    1,092,749    1,160,693      380,980      397,238     91,214

    Selling, general
     and administrative
     expenses      883,389(*)   926,941      311,097(*)   320,159     73,515

      Operating
       income      209,360      233,752       69,883       77,079     17,699

    Financing income
     (expenses),
     net           (28,913)      (5,001)     (14,796)       1,065        245
                   180,447      228,751       55,087       78,144     17,944

    Amortization of
     goodwill       (4,506)      (3,800)      (1,485)      (1,276)      (293)

    Other income
     (expenses),
     net            25,510(*)    (8,917)      (4,833)(*)   (5,331)    (1,224)

      Income before
       taxes on
       income      201,451      216,034       48,769       71,537     16,427

    Taxes on
     income         75,263       82,133       15,556       25,040      5,750
      Income after
       taxes on
       income      126,188      133,901       33,213       46,497     10,677

    Equity in net
     earnings of
     affiliates      1,418(*)     2,216          909(*)       546        125

    Minority
     interest      (17,184)     (18,643)      (6,065)      (5,913)    (1,358)

      Income from
       continuing
       operations  110,422      117,474       28,057       41,130      9,444

    Loss from
     discontinued
     operations     (1,547)(*)       --         (531)(*)       --         --

      Net income   108,875      117,474       27,526       41,130      9,444

      Adjusted
       net
       income (**)  84,296      117,474

    Earnings (loss) per Ordinary Share or ADS:
      From continuing
       operations     2.88         3.06         0.73         1.07       0.25
      From discontinued
       operations    (0.04)          --        (0.01)          --         --
        Net income    2.84         3.06         0.72         1.07       0.25
    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
    (**)   Adjusted Net Income for the 9 months ended September 30, 2000
            excludes a one-time capital gain related to the sale of Home
            Centers.  Adjusted Net Income is not a measurement of financial
            performance under generally accepted accounting principles, but
            has been provided solely to assist the reader in evaluating the
            Company's results.


                           BLUE SQUARE-ISRAEL LTD.
                           SELECTED OPERATING DATA
                   (adjusted to the NIS of September 2001)

                                                                   Convenience
                                                                   Translation
                                                                      into US$
                                                                  Three months
                                                                        Ended
                        Nine months ended        Three months ended
                             Sept. 30,                Sept. 30,
                          2001      2000         2001         2000        2001

    Sales (in millions)  4,249     3,984        1,478        1,389        $339


    Operating income
    (in millions)          234       209           77           70        $ 18

    Number of stores
    (at end of period)     171       169          171          169          na
      Stores opened
       during the period     6         7            3            3          na
      Stores closed during
       the period            3         3            1            1          na

    Total square
     meters (at end
     of period)        276,800   257,700      276,800      257,700          na
      Sq. meters
       added during
       the period       18,800    18,700       11,900        8,100          na

    Same store sales     -2.40%    -5.20%       -3.57%       -3.50%         na

    Sales per sq. mtr.
    (in thousands)      15,976    16,080        5,425        5,469      $1,246

    Sales per employee
    (in thousands)         544       542          182          178        $ 42

    EBITDA (in millions)   335       299          111          102        $ 25

    EBITDA Margin          7.9%      7.5%         7.5%         7.3%         na