The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," in other parts of this report and in other Company filings are forward-looking statements. These statements discuss, among other things, future sales growth, operating results and financial condition. Forward-looking statements reflect the Company's current plans and expectations regarding important risk factors and are based on information currently known to the Company. The Company cautions readers that any forward-looking statements contained in this report or made by the management of the Company involve risks and uncertainties, and are subject to change based on various important factors. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors," in the Company's Annual Report on Form 10-K for the year ended December 29, 2007. The risks described in the Company's Annual Report on Form 10-K are not the only risks it faces. Additional risks and uncertainties not currently known to the Company or that it currently deems to be not material could also have an adverse effect on the Company's future sales growth, operating results or financial position. The Company does not undertake any obligation to update forward-looking statements.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that may affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Management has established accounting policies that they believe are appropriate in order to reflect the accurate reporting of the Company's operating results, financial position and cash flows. The Company applies these accounting policies in a consistent manner. Management bases their estimates on historical experience, current and expected economic conditions and various other factors that management believes to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company reevaluates these significant factors and makes adjustments where facts and circumstances dictate. Future events and their effects cannot be determined with absolute certainty, and therefore actual results may differ from estimates. As discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2007, management considers its policies on accounting for inventories, impairment of long-lived assets, insurance reserves, cost of sales, vendor allowances and share-based compensation to be the most critical in the preparation of the Company's financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.

Overview

Arden Group, Inc. is a holding company which conducts operations through its first and second tier wholly-owned subsidiaries, Arden Mayfair, Inc. and Gelson's Markets, respectively. Gelson's operates 18 full-service supermarkets in Southern California. Gelson's caters to the upscale customer who expects superior quality, service and merchandise selection. In addition to the customary supermarket offerings, Gelson's offers specialty items such as imported foods, unusual delicatessen items and organic and natural food products. All Gelson's stores include the typical service departments such as meat, seafood, delicatessen, floral, sushi, cheese and bakery. In addition, some stores offer further services including fresh pizza, coffee bars, gelato bars and carving carts offering cooked meats.

The Company's management focuses on a number of performance indicators in evaluating financial condition and results of operations. Same store sales, gross profit and labor costs are some of the key factors that management considers. Both sales and gross profit are significantly influenced by competition in our trade area. Gelson's already faces competition from regional and national supermarket chains (most of which have greater resources and a larger market share than Gelson's), stores specializing in natural and organic foods, specialty and gourmet markets and grocery departments in mass merchandise and club stores. Furthermore, if the merger trend among our competitors continues, this may also impact our ability to compete, as the newly formed larger competitors may possess stronger bargaining power with vendors and suppliers and have greater market recognition among consumers. In addition, rising fuel and food prices have made it necessary for Gelson's to increase its sales prices, which in turn, may result in a loss of sales. Furthermore, the current financial crisis and the slowing economy may have caused some of our customers to shop elsewhere. The Company anticipates that the adverse effect on sales as a result of the current economic conditions will continue until the economic situation improves. Finally, increasing labor costs continue to negatively impact the Company's profitability as well.

Labor and other related payroll costs are the second largest expense (after product cost) incurred by Gelson's, and thus is a financial measure which is carefully monitored by management. As of fiscal 2007 year end, Gelson's had approximately 1,328 full-time and 1,001 part-time store, warehouse and office employees. The majority of Gelson's employees are members of the UFCW. In February 2007, the Company completed negotiation of a new union contract with the UFCW to replace the contract which expired on March 5, 2007. The new Gelson's contract eliminated the two-tier wage configuration and returned it to a single wage structure and provided for, among other things, wage increases and modifications to the Company's pension and health and welfare contribution rates. The new contract expires March 5, 2010.

The Company contributes to a multi-employer health care and pension plan trust on behalf of its employees who are members of the UFCW. All employers who participate in a multi-employer plan are required to contribute at the same hourly rate based on straight time hours worked in order to fund the plan. Consequently, the benefit contribution rates that the Company negotiated with the UFCW effective March 2007 were subject to change retroactively based on the outcome of the union's negotiations with the three major grocery retailers in our trade area which were completed in July 2007. The employees of the three major grocery retailers voted to ratify their contract on July 22, 2007. Their new agreement expires March 6, 2011, one year after Gelson's contract with the UFCW expires. If no extension agreement is reached and Gelson's contract expires prior to the others', it is possible that Gelson's will be required to negotiate separately and may be involved in a labor dispute if an agreement cannot be reached.

The agreement reached with the UFCW and the three major grocery retailers resulted in a substantial reduction in the average hourly contribution rates for pension and health care. The majority of the reduction relates to the health and welfare fund which, as of January 31, 2008, was overfunded in total, for all employers, by approximately $507,000,000. The reduction in the health and welfare contribution rate is expected to reduce the overfunded status of the fund during the term of the new contract between the UFCW and the three major grocery retailers. Due to the current financial crisis, it is unclear whether the pension plan will be adequately funded at the end of the currrent contract. The change in contribution rates for both pension and health care were retroactive to the beginning of March 2007, however, the Company did not record the retroactive credit related to the period from March through June 2007 until the third quarter of 2007 when the agreement with the majors was reached. The reduction in the contribution rates resulted in a substantial decrease in the Company's SG&A expense when comparing periods covered by the current and the expired contracts.

The agreement that the majors reached with the UFCW also provides for hourly wage rates based on job classification and experience that, in some cases, are less than those agreed to by Gelson's. This could affect our ability to compete with grocery retailers whose hourly rates are less than our own. Increases in wages provided under the new contract have, and will continue to, impact the Company's profitability unless it is able to offset the increased expense through a combination of sales growth, increased gross margin, management of labor hours and cost savings in other areas.

Another component of labor related expense is the cost of workers' compensation. Effective July 1, 2006, the Company purchased a one-year fully insured guaranteed cost workers' compensation insurance policy which eliminated the Company's risk for claims occurring after June 30, 2006. Since then, the Company has continued to renew the guaranteed cost policy annually. For the policy year ended June 30, 2008, the Company negotiated a one-time credit of $760,000 which was amortized over the policy period. Without giving effect to this one-time credit, the Company experienced an increase in worker's compensation costs beginning July 1, 2008. For claims incurred prior to July 1, 2006, the Company is primarily self-insured through the use of a high deductible policy which provides the Company with stop-loss coverage to limit its exposure on a per claim basis and provides coverage for qualifying costs in excess of per claim limits. The Company continues to maintain an accrual for claims covered under the high deductible program. That accrual is based on both undeveloped reported claims and an estimate of claims incurred but not reported. While the Company devotes substantial time and commitment to maintaining a safe work environment, the ultimate cost of workers' compensation is highly dependent upon legal and legislative trends, the inflation rate of health care costs, employee compliance with safety rules and the Company's ability to manage claims.

In the past, the Company's quarterly results have reflected significant fluctuations in operating income as a result of adjustments recorded to reflect the change in the fair value of SARs that have been granted to non-employee directors and certain employees. Each SAR entitles the holder to receive cash upon exercise equal to the excess of the fair market value of a share of the Company's Class A Common Stock, as determined in accordance with the SARs agreement, on the date of exercise over the fair market value of such share on the date granted. Fluctuations in the market price of the Company's Class A Common Stock from the end of the previous period impact the recognition or reversal of SARs compensation expense in the period being reported upon. Since the Company cannot predict future fluctuations in the market price of its stock, it also cannot forecast future SARs compensation expense adjustments and the extent to which operating income will be impacted. Volatility in the stock market makes this harder than ever to predict.

Results of Operations

Third Quarter Analysis

Same store sales from the Company's 18 supermarkets (all of which are located in Southern California), including revenue from licensing arrangements, subleases, leases and finance charges, were $114,156,000 during the third quarter of 2008. This represents a decrease of 4.4% from the third quarter of 2007, when sales were $119,433,000. Sales during 2008 were negatively impacted by increased competition in our trade area, a slowing economy and increased fuel and food prices which may have caused some of our customers to shop elsewhere. In addition, the third quarter of 2007 included sales from Yom Kippur and Rosh Hashanah which did not occur, for the most part, until the fourth quarter in 2008.

The Company's gross profit as a percent of sales was 38.1% in the third quarter of 2008 compared to 39.1% in the same period of 2007. The decrease in gross profit as a percent of sales reflects to some extent the Company's absorbing some cost increases rather than passing them on to its customers. In addition, rising food costs resulted in a higher last-in, first-out (LIFO) charge for nonperishable inventories totaling $598,000 in the third quarter of 2008 compared to $120,000 in the same period of 2007. In calculating gross profit, the Company deducts product costs, net of discounts and allowances, and inbound freight charges, as well as warehouse, transportation, purchasing, advertising and occupancy costs. Gross profit as a percent of sales for the Company may not be comparable to those of other companies in the grocery industry since there may be differences in recording certain costs as cost of sales or as SG&A expense.

SG&A expense as a percent of sales was 32.5% in the third quarter of 2008 compared to 27.3% in the same period of the prior year. The Company's provision for all union pension and health care plans increased substantially from $1,136,000 in the third quarter of 2007 to $3,586,000 in the third quarter of 2008. Union pension and health care expense for the third quarter of 2007 would have been $2,374,000 higher or a total of $3,510,000 had the retroactive credit discussed above been reflected in the first half of 2007 rather than the third quarter of 2007 when the agreement was reached. The increase in expense in the third quarter of 2008 when compared to the third quarter of 2007 without giving effect to the retroactive credit in the third quarter of 2007 resulted from an increase in the health care contribution rate effective March 2008 partially offset by a slight decrease in the hours eligible for contribution.

Higher SARs compensation expense in the third quarter of 2008 compared to the same period of the prior year also contributed to the increase in SG&A expense as a percent of sales. During the third quarter of 2008, the Company recognized $2,489,000 of SARs compensation expense due to an increase in the fair value of SARs since the end of the previous quarter and at the time of exercise of SARs during the quarter and the additional vesting of SARs. During the third quarter of 2007, the Company recognized $1,127,000 of SARs compensation expense. The Company's SARs expense is impacted by fluctuations in the price of the Company's Class A Common Stock which is traded on the NASDAQ Global Market. Since the Company cannot predict future fluctuations in the market price of its stock, it also cannot forecast future SARs compensation expense adjustments and the extent to which operating income will be impacted. Volatility in the stock market makes this harder than ever to predict.

Workers' compensation expense also increased to $708,000 during the third quarter of 2008 compared to $548,000 in the third quarter of 2007 due to the one-time credit in the third quarter of 2007 discussed above and an adjustment in the third quarter of 2008 to increase the reserves related to the continuing development of self-insured losses which occurred prior to July 1, 2006. These increases were partially offset by an adjustment to expense related to a workers' compensation audit conducted for the policy period ended June 30, 2008.

The increase in SG&A expense as a percent of sales also reflects an increase in UFCW hourly wage rates effective early March 2008 in accordance with the current collective bargaining agreement. To a lesser extent, SG&A expense was also impacted by hourly wage rate increases under collective bargaining agreements with unions other than the UFCW.

Interest and dividend income was $733,000 in the third quarter of 2008 compared to $926,000 for the same period in 2007 due to lower interest rates in 2008 partially offset by increased cash levels. Due to the current financial crisis and the special cash dividend declared by the Board of Directors on November 3, 2008 totaling $79,027,450 payable on December 8, 2008, the Company anticipates a significant decrease in investment income in the fourth quarter of 2008 and in fiscal 2009.

SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," requires that unrealized holding gains and losses from available-for-sale securities be included as a component of stockholders' equity. Unrealized losses on available-for-sale securities were $262,000 (net of income tax benefit of $181,000) in the third quarter of 2008 compared to unrealized gains of $168,000 (net of income tax expense of $114,000) in the third quarter of 2007. As of September 27, 2008, net unrealized losses totaled $448,000 compared to $179,000 as of December 29, 2007. The Company employs a conservative investment strategy, investing only in highly rated companies; however, due to the significant volatility of the financial markets recently, it is difficult to predict whether these losses are other-than-temporary. Subsequent to the end of the third quarter, the Company shifted its investments, as they mature, primarily into U.S. Treasury Bills and agency notes over terms of thirty days or less. As of November 3, 2008, the Company had not seen a significant fluctuation in the value of its investments since the end of the third quarter of 2008.

Year-To-Date Analysis

Same store sales from the Company's 18 supermarkets (all of which are located in Southern California), including revenue from licensing arrangements, subleases, leases and finance charges, were $349,588,000 during the first nine months of 2008. This represents a decrease of 2.8% from the same period of the prior year, when sales were $359,686,000. Sales were negatively impacted by increased competition in our trade area, a slowing economy and increased fuel and food prices which may have caused some of our customers to shop elsewhere. In addition, the first nine months of 2007 included sales from Yom Kippur and Rosh Hashanah which did not occur, for the most part, until the fourth quarter in 2008.

The Company's gross profit as a percent of sales was 38.3% in the first nine months of 2008 compared to 39.0% in the same period of 2007. The decrease in gross profit as a percent of sales reflects to some extent the Company's absorbing some cost increases rather than passing them on to its customers. In addition, rising food costs resulted in a higher LIFO charge for nonperishable inventories totaling $1,214,000 in the first nine months of 2008 compared to $404,000 in the same period of 2007. In calculating gross profit, the Company deducts product costs, net of discounts and allowances, and inbound freight charges, as well as warehouse, transportation, purchasing, advertising and occupancy costs. Gross profit as a percent of sales for the Company may not be comparable to those of other companies in the grocery industry since there may be differences in recording certain costs as cost of sales or as SG&A expense.

SG&A expense as a percent of sales was 30.5% in the first nine months of 2008 compared to 29.6% in the same period of 2007. The increase in SG&A expense as a percent of sales was primarily due to increases in UFCW hourly wage rates effective early March 2007 and 2008 in accordance with the current collective bargaining agreement. To a lesser extent, SG&A expense was also impacted by hourly wage rate increases under collective bargaining agreements with unions other than the UFCW. The increase in SG&A expense as a percent of sales was partially offset by decreases in union pension and health care plan expense and workers' compensation expense in the first nine months of 2008 compared to the same period of 2007. The Company's provision for all union pension and health care plans decreased 7.9% to $10,717,000 in the first nine months of 2008 compared to $11,630,000 in the first nine months of 2007. The decrease is primarily due to a significant decrease in the pension and health care contribution rates effective March 2007 as discussed above. Workers' compensation expense decreased 16.2% to $2,246,000 in the first nine months of 2008 compared to $2,681,000 in the first nine months of 2007 due to a decrease in the premium and the one-time credit discussed above, the latter of which impacted both the first and second quarter of 2008, but only the third quarter of 2007. The decrease was partially offset

by an adjustment to increase the workers' compensation reserves in 2008 related to the continuing development of self-insured losses which occurred prior to July 1, 2006.

The Company records adjustments to SARs compensation expense each reporting period to reflect changes in fair value and vesting. During the first nine months of 2008 and 2007, the Company recognized $2,300,000 and $2,381,000 of SARs compensation expense, respectively, due to increases in the fair value of SARs since the end of fiscal 2007 and 2006, respectively, and at the time of exercise of SARs and the additional vesting of SARs. The Company's SARs expense is impacted by fluctuations in the price of the Company's Class A Common Stock which is traded on the NASDAQ Global Market. Since the Company cannot predict future fluctuations in the market price of its stock, it also cannot forecast future SARs compensation expense adjustments and the extent to which operating income will be impacted. Volatility in the stock market makes this harder than ever to predict.

Interest and dividend income was $2,056,000 in the first nine months of 2008 compared to $2,340,000 for the same period in 2007 due to lower interest rates in 2008 partially offset by increased cash levels. Due to the current financial crisis and the special cash dividend declared by the Board of Directors on November 3, 2008 totaling $79,027,450 payable on December 8, 2008, the Company anticipates a significant decrease in investment income in the fourth quarter of 2008 and in fiscal 2009.

SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," requires that unrealized holding gains and losses from available-for-sale securities be included as a component of stockholders' equity. Unrealized losses on available-for-sale securities were $269,000 (net of income tax benefit of $185,000) in the first nine months of 2008 compared to unrealized gains of $173,000 (net of income tax expense of $118,000) in the same period of 2007. The Company employs a conservative investment strategy, investing only in highly rated companies; however, due to the significant volatility of the financial markets recently, it is difficult to predict whether these losses are other-than-temporary. Subsequent to the end of the third quarter, the Company shifted its investments, as they mature, primarily into U.S. Treasury Bills and agency notes over terms of thirty days or less. As of November 3, 2008, there had not been a significant fluctuation in the value of the Company's investments since the end of the third quarter of 2008.

CAPITAL EXPENDITURES/LIQUIDITY

The Company's current cash position, including investments and net cash provided by operating activities, are the primary sources of funds available to meet the Company's capital expenditure and liquidity requirements. The Company's cash position, including investments, at the end of the third quarter 2008 was $90,970,000. The Company's cash position will be reduced by $79,027,450 on December 8, 2008 when the Company pays its special cash dividend of twenty-five dollars ($25) per share on the Company's Class A Common Stock. During the thirty-nine weeks ended September 27, 2008, the Company generated $19,787,000 of cash from operating activities compared to $23,524,000 in the same period of 2007. The decrease in net cash provided by operating activities is primarily due to a decrease in net income.

Cash not required for the immediate needs of the Company is temporarily invested in commercial paper and marketable securities. Subsequent to the end of the third quarter, the Company has shifted its investments, as they mature, primarily into U.S. Treasury Bills and agency notes over terms of thirty days or less. The Company is continually investigating opportunities for the use of these funds including new locations and the expansion and remodel of existing stores. The Company estimates that the remodel of its store on Franklin Boulevard in Hollywood, California will be completed in early 2009.

The Company also has two revolving lines of credit totaling $23,000,000 available for standby letters of credit, funding operations and expansion. There were no outstanding borrowings against either of the revolving lines as of September 27, 2008. The Company currently maintains four standby letters of credit aggregating $9,569,000 pursuant to the Company's lease requirements and general and auto liability and workers' compensation self-insurance programs. The standby letters of credit reduce the available borrowings under its revolving lines.

The following table sets forth the Company's contractual cash obligations and commercial commitments as of September 27, 2008:

                                          Contractual Cash Obligations (In Thousands)
                                               Less Than                                  After
                                  Total         1 Year       1-3 Years     4-5 Years     5 Years

7% Subordinated Income
Debentures Due
September 2014 Including
Interest                       $     1,744    $        86   $       172   $       172   $   1,314

Operating Leases                   133,670         10,856        20,525        19,165      83,124

Total Contractual Cash
Obligations (1)                $   135,414    $    10,942   $    20,697   $    19,337   $  84,438




                                                   Other Commercial Commitments (In Thousands)
                                                   Less Than                                            After
                                    Total           1 Year          1-3 Years        4-5 Years         5 Years

Standby Letters of Credit (2)   $       9,569    $       9,569    $           0    $           0    $            0

The Company had the following other contractual cash obligations at September 27, 2008. The Company is unable to include these liabilities in the tabular disclosure of contractual cash obligations as the exact timing and amount of payments are unknown.

Self-Insurance Reserves

The Company is primarily self-insured for losses related to general and auto liability claims and for all open years prior to July 1, 2006 for workers' compensation. The Company maintains stop-loss coverage to limit its loss exposure on a per claim basis. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering historical claims experience and regression analysis. Accruals are based on reported claims and an estimate of claims incurred but not reported. While the ultimate amount of claims incurred is dependent on future developments, in management's opinion recorded reserves are adequate to cover the future payment of claims. The Company's workers' compensation and liability insurance reserves for reported . . .