The Company operates a chain of 25 ShopRite supermarkets in New Jersey and northeastern Pennsylvania. The Company is the second largest member of Wakefern Food Corporation ("Wakefern"), the nation's largest retailer-owned food cooperative. As further described in the Company's Form 10-K, this ownership interest in Wakefern provides the Company many of the economies of scale in purchasing, distribution, advanced retail technology and advertising associated with larger chains.

The Company's stores, five of which are owned, average 56,000 total square feet. Larger store sizes enable the Company to offer the specialty departments that customers desire for one-stop shopping, including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement.

We consider a variety of indicators to evaluate our performance, such as same store sales; sales per store; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; and hourly labor rates.

RESULTS OF OPERATIONS

The following table sets forth the major components of the Consolidated
Condensed Statements of Operations of the Company as a percentage of sales:

                                              13 Weeks Ended            26 Weeks Ended
                                           1/24/09      1/26/08      1/24/09      1/26/08

   Sales                                     100.00 %     100.00 %     100.00 %     100.00 %
   Cost of sales                              72.80        72.88        72.75        73.11
   Gross profit                               27.20        27.12        27.25        26.89
   Operating and administrative expense       21.58        22.13        21.91        22.41
   Depreciation and amortization expense       1.18         1.17         1.21         1.19
   Operating income                            4.44         3.82         4.13         3.29
   Interest expense                            (.23 )       (.28 )       (.24 )       (.26 )
   Interest income                              .15          .26          .18          .31
   Income before taxes                         4.36         3.80         4.07         3.34
   Income taxes                                1.82         1.60         1.70         1.41
   Net income                                  2.54 %       2.20 %       2.37 %       1.93 %

Sales. Sales were $312,714 in the second quarter of fiscal 2009, an increase of 6.8% from the second quarter of the prior year. Sales increased due to higher sales at the Franklin store, which opened on November 7, 2007, and a 5.9% increase in same store sales. Substantially improved transaction count and higher average transaction size in almost all stores, especially the Galloway store, which opened on October 3, 2007, contributed to the increase in same store sales. Inflation in the second quarter of fiscal 2009 was lower than the average inflation for calendar 2008. In addition, customers continue to be cautious due to concerns about the economy resulting in continued increased sale item penetration and trading down. New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters. Therefore, the Galloway store is included in same store sales in the second quarter of fiscal 2009. Store renovations are included in same store sales immediately.

Sales were $603,698 in the six-month period of fiscal 2009, an increase of 8.5% from the prior year. Sales increased due to the opening of the two new stores and a 5.1% increase in same store sales. Same store sales increased due to improved transaction count and average transaction size. These improvements were partially offset by reduced sales in two stores due to cannibalization from the opening of the two new stores.

Gross profit. Gross profit as a percentage of sales increased .08% in the second quarter of fiscal 2009 compared to the second quarter of the prior year primarily due to improved departmental gross margin percentages (.23%) and improved product mix (.05%). These improvements were partially offset by higher promotional spending (.18%) and increased warehouse assessment charges from Wakefern (.10%). In addition, gross profit was favorably impacted by receipt of patronage dividends from Wakefern greater than amounts accrued in the second quarter of both fiscal 2009 (.26%) and 2008 (.17%). Promotional spending increased due to more of the cost of this year's Thanksgiving loyalty program being allocated to the second quarter of fiscal 2009 than the prior year allocation due to changes in the program timing.

Gross profit as a percentage of sales increased .36% in the six-month period of fiscal 2009 compared to the corresponding period of the prior year primarily due to improved departmental gross margin percentages (.28%) and improved product mix (.10%). These improvements were partially offset by increased warehouse assessment charges from Wakefern (.05%).

Operating and administrative expense. Operating and administrative expense decreased .55% as a percentage of sales in the second quarter of fiscal 2009 compared to the second quarter of the prior year primarily due to reduced payroll costs in fiscal 2009 (.62%), the prior year including store pre-opening costs (.09%), and operating leverage due to the 5.9% same store sales increase. These improvements were partially offset by increased snow removal costs (.12%) and the prior year including refunds of property and liability insurance premiums (.16%). Payroll costs as a percentage of sales improved due to operating leverage resulting from the 5.9% same store sales increase and reduced labor due to store technology improvements.

Operating and administrative expense decreased by .50% as a percentage of sales in the six-month period of fiscal 2009 compared to the corresponding period of the prior year primarily due to reduced payroll costs in fiscal 2009 (.55%), the prior year including store pre-opening costs (.12%), and operating leverage due to the 5.1% same store sales increase. These improvements were partially offset by increased snow removal costs (.06%) and the prior year including refunds of property and liability insurance premiums (.14%).

Depreciation and amortization. Depreciation and amortization expense increased in the second quarter and six-month periods of fiscal 2009 compared to the corresponding periods of the prior year due to depreciation related to fixed asset additions, including the two new stores.

Interest expense. Interest expense decreased in the second quarter of fiscal 2009 compared to the corresponding period of the prior year due to debt payments. Interest expense was approximately the same in the six-month period of fiscal 2009 compared to the corresponding period of the prior year due to interest on the Franklin store financing lease being partially offset by lower interest expense due to debt payments.

Interest income. Interest income decreased in the second quarter and six-month periods of fiscal 2009 compared to the corresponding periods of the prior year due to lower interest rates received.

Income taxes. The effective income tax rate was 41.7% in both the second quarter and six-month periods of fiscal 2009 compared to 42.1% and 42.3%, respectively, in the corresponding periods of the prior year. The effective income tax rate for all of fiscal 2008 was 41.9%.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company's financial condition and results of operations. These policies require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company's critical accounting policies relating to the impairment of long-lived assets and goodwill, accounting for patronage dividends earned as a stockholder of Wakefern, accounting for pension plans, accounting for share-based compensation, and accounting for uncertain tax positions are described in the Company's Annual Report on Form 10-K for the year ended July 26, 2008. As of January 24, 2009, there have been no changes to any of the critical accounting policies contained therein.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $29,357 in the six-month period ended January 24, 2009 compared with $21,983 in the corresponding period of the prior year. This increase is primarily attributable to improved net income and a smaller increase in inventories in fiscal 2009. Inventories increased less in fiscal 2009 than in fiscal 2008 due to the addition of the two new stores in fiscal 2008.

During the first six months of fiscal 2009, Village used cash to fund capital expenditures of $13,170, debt payments of $5,218, and dividends of $3,863. Capital expenditures consisted primarily of the construction of a replacement store in Washington, New Jersey and a new store in Marmora, New Jersey, and several small remodels. Debt payments made include the sixth installment of $4,286 on Village's unsecured Senior Notes.

Working capital was $25,812 at January 24, 2009 compared to $8,871 at July 26, 2008. The working capital ratio was 1.3 to 1 at January 24, 2009 compared to 1.1 to 1 at July 26, 2008. The increase in working capital is due to a portion of the notes receivable from Wakefern becoming due within one year. The Company's working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.

Village has budgeted approximately $30,000 for capital expenditures in fiscal 2009. Planned expenditures include the construction and equipment for the replacement store in Washington and the new store in Marmora. The Marmora store is expected to open in the spring of 2009. Construction of the Washington replacement store was stopped by Court order in January 2009 as the final approval of the Washington Land Use Board was deemed invalid due to the lack of a quorum. The shopping center developer anticipates returning to the Board for approval in March. Based on the legal opinion of both the developer's counsel and the Company's outside counsel, the approval is expected to be reinstated within three to six months. The Company's investment in construction and equipment at January 24, 2009 was $9,200. If the developer is unsuccessful in obtaining the required approvals, the Company may record an impairment charge for this investment, which could be material to the Company's consolidated financial position and results of operations.

Our leasehold interest in the current Washington store is in litigation. The Company believes conditions in the lease remain which extend our leasehold interest through January 2010. The outcome of the above two issues will determine any potential time period between the closing of the current Washington store and the opening of the replacement store.

On December 19, 2008, Village amended its unsecured revolving credit agreement, which would have expired on September 16, 2009. The amended agreement increases the maximum amount available for borrowing to $25,000 from $20,000. This loan agreement expires on December 31, 2011 with two one-year extensions available if exercised by both parties. Other terms of the amended revolving loan agreement, including covenants, are similar to the previous agreement. The Company's primary sources of liquidity in fiscal 2009 are expected to be cash and cash equivalents on hand and operating cash flow generated in fiscal 2009.

Under EITF Issue No. 97-10, "The Effect of Lessee Involvement in Asset Construction," Village is considered the owner of the Marmora land and building during the construction period as Village has an unlimited obligation to cover building construction costs over a certain amount. Therefore, $5,700 of land, site costs and construction costs paid by the landlord to date are recorded as property and long-term debt at January 24, 2009.

There have been no substantial changes as of January 24, 2009 to the contractual obligations and commitments discussed on page 8 of the Company's Annual Report on Form 10-K for the year ended July 26, 2008, except for an additional $657 required investment in Wakefern common stock.

RELATED PARTY TRANSACTIONS

A description of the Company's transactions with Wakefern, its principal supplier, and with other related parties is included on pages 9, 18 and 21 of the Company's Annual Report on Form 10-K for the year ended July 26, 2008. There have been no significant changes in the Company's relationship or nature of transactions with related parties during the six months of fiscal 2009, except for additional required investments in Wakefern common stock of $657.

FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this Form 10-Q are or may be considered forward-looking statements within the meaning of federal securities law. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from future results, whether expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ from the forward-looking statements: local economic conditions; competitive pressures from the Company's operating environment; the ability of the Company to maintain and improve its sales and margins; the ability to attract and retain qualified associates; the availability of new store locations; the availability of capital; the liquidity of the Company; the success of operating initiatives; consumer spending patterns; the impact of higher energy prices; increased cost of goods sold, including increased costs from the Company's principal supplier, Wakefern; the results of litigation; the results of tax examinations; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; the outcome of the Washington replacement store approval process; and other factors detailed herein and in other public filings of the Company.