Overview

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand Weis Markets, Inc., its operations and its present business environment. The MD&A is provided as a supplement to and should be read in conjunction with the consolidated financial statements and the accompanying notes thereto contained in "Item 8. Financial Statements and Supplementary Data" of this report. The following analysis should also be read in conjunction with the Financial Statements included in the 2008 Quarterly Reports on Form 10-Q and the 2007 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned "Forward-Looking Statements" immediately following this analysis. This overview summarizes the MD&A, which includes the following sections:

• Company Overview - a general description of the company's business, strategic imperatives, and challenges and risks.

• Results of Operations - an analysis of the company's consolidated results of operations for the three years presented in the company's consolidated financial statements.

• Liquidity and Capital Resources - an analysis of cash flows and aggregate contractual obligations.

• Critical Accounting Estimates - a discussion of accounting policies that require critical judgments and estimates.

Company Overview

General
Weis Markets, Inc. was founded in 1912 by Harry and Sigmund Weis in Sunbury, Pennsylvania. Today, the company ranks among the top 50 food and drug retailers in the United States in revenues generated. At the end of 2008, the company operated 155 retail food stores in Pennsylvania and four surrounding states:
Maryland, New Jersey, West Virginia and New York. In addition to its retail food stores, the company operated 29 SuperPetz pet supply stores in ten states:
Alabama, Georgia, Indiana, Maryland, Michigan, North Carolina, Ohio, Pennsylvania, South Carolina and Tennessee.

Company revenues are generated in its retail food stores from the sale of a wide variety of consumer products including groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, fuel, and general merchandise items, such as health and beauty care and household products. The company supports its retail operations through a centrally located distribution facility, its own transportation fleet, four manufacturing facilities and its administrative offices. The company's operations are reported as a single reportable segment.

Strategic Imperatives
The following strategic imperatives will ensure the success of the company in the coming years:

• Growth and Profitability - While the company focuses on store sales growth, expense control and positive cash flow, it will continue to identify opportunities with new stores, additions to existing stores, remodels and acquisitions. The company believes successfully planned growth will increase market share and operating profits, resulting in enhanced shareholder value.

• Merchandising and Operational Differentiation - The company has identified product pricing, shopping experience and customer focus to maintain its differentiation versus its competitors. Management is committed to providing a clean, efficient customer shopping experience, while offering competitive prices on both branded and private label products to meet and exceed our customers expectations.

• Talent Management - To keep pace with the company's growth and profitability focus, management is committed to developing future leaders utilizing its associates to increase bench strength, ensure succession preparedness, and improve overall associate performance.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: (continued)

Company Overview, Strategic Imperatives (continued)

• Supply Chain - Management will reshape and streamline its supply chain by improving inventory turns, cost per case, in stock position and overall service level, thereby building store sales capabilities.

• Information Technology Initiatives - The company will increase its investment in information technology to improve associate productivity with user friendly, support driven systems.

Challenges and Risks
As a regional grocery store chain, the company faces unique opportunities, challenges and risks compared to larger retail grocery chains. Management identified certain key challenges and risks that warrant ongoing attention:

• Competition - The retail food industry is intensely price competitive. The company's financial results may be adversely impacted by a competitive environment which could cause the company to reduce retail prices without a corresponding reduction in its product cost to maintain market share, resulting in lower sales and gross profit margins.

• Trade Area - The company's stores are concentrated in central and northeast Pennsylvania, central Maryland and suburban Baltimore regions. Changes in economic and social conditions in the company's operating regions, including the rate of inflation, population demographics and employment and job growth, affect customer shopping habits. Business disruptions due to weather and catastrophic events historically have been few, but the company's geographic regions do receive varying amounts of snow annually. Such conditions could materially affect sales and expense results.

• Food Safety - Customers count on the company to provide them with wholesome food products. Concerns regarding the safety of food products sold in its stores could cause shoppers to avoid purchasing certain products from the company, or to seek alternative sources of supply for all of their food needs, even if the basis for the concern is outside of the company's control. Any lost confidence on the part of its customers would be difficult and costly to reestablish. As such, any issue regarding the safety of any food items sold by the company, regardless of the cause, could have a substantial and adverse effect on operation.

• Execution of Expansion Plans - Circumstances outside the company's control could negatively impact anticipated capital investments. The company cannot determine with certainty whether its new stores will be successful. The failure to expand by successfully opening new stores as planned, or the failure of a significant number of these stores to perform as planned, could have a material adverse effect on the company's business and results of its operations.

• Data and Technology - The company's business is increasingly dependent on information technology systems that are complex and vital to continuing operations. If the company was to experience difficulties maintaining existing systems or implementing new systems, significant losses could be incurred due to disruptions in its operations. Additionally, these systems contain valuable proprietary data that, if breached, would have an adverse effect on the company.

• Operating Costs - Associate expenses attribute to the majority of its operating costs and therefore, the company's financial performance is greatly influenced by increasing wage and benefit costs, a competitive labor market and the risk of unionized labor disruptions of its non-union workforce. Employment conditions specifically may affect the company's ability to hire and train qualified associates. The company's profit is particularly impacted by the cost of oil. Oil prices directly affect the company's product transportation costs, as well as its utility and petroleum-based supply costs. The company remains extremely concerned about the continuing rise in interchange fees for accepting credit card payments at the point of sale.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: (continued)

Company Overview, Challenges and Risks (continued)

• Self-Insurance Exposure - The company is self-insured for a majority of its workers' compensation, general liability, vehicle accident and associate medical benefit claims. The company is liable for associate health claims up to a lifetime aggregate of $1,000,000 per member and for workers' compensation claims up to $2,000,000 per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000 to $1,000,000. Although the company has minimized its exposure on individual claims, the company, for the benefit of cost savings, has accepted the risk of an unusual amount of independent multiple material claims arising and having a significant impact on earnings.

See also "Item 1a. Risk Factors" in Part I of this report for additional information about risks and uncertainties facing the company.

Results of Operations

Analysis of Consolidated Statements of Income
(dollars in thousands except per share amounts)
For the Fiscal Years Ended December 27, 2008      2008     2007     2006    Percent Changes


December 29, 2007 and December                                                    2008 vs.     2007 vs.
30, 2006
                                 (52 weeks)       (52 weeks)       (52 weeks)       2007         2006
Net sales                      $   2,422,361    $   2,318,551    $   2,244,512         4.5   %      3.3   %
Cost of sales, including
warehousing and distribution
expenses                           1,795,404        1,716,424        1,647,233         4.6          4.2
  Gross profit on sales              626,957          602,127          597,279         4.1          0.8
  Gross profit margin                   25.9 %           26.0 %           26.6 %
Operating, general and               559,519          527,378          515,675         6.1          2.3
administrative expenses
   O, G & A, percent of net             23.1 %           22.7 %           23.0 %
sales
  Income from operations              67,438           74,749           81,604        (9.8 )       (8.4 )
   Operating margin                      2.8 %            3.2 %            3.6 %
Investment income                      2,675            3,010            4,484       (11.1 )      (32.9 )
  Investment income, percent             0.1 %            0.1 %            0.2 %
of net sales
  Income before provision for         70,113           77,759           86,088        (9.8 )       (9.7 )
income taxes
Provision for income taxes            23,118           26,769           30,078       (13.6 )      (11.0 )
  Effective tax rate                    33.0 %           34.4 %           34.9 %
  Net income                   $      46,995    $      50,990    $      56,010        (7.8 ) %     (9.0 ) %
  Net income, percent of net             1.9 %            2.2 %            2.5 %
sales
Basic and diluted earnings per $        1.74    $        1.89    $        2.07        (7.9 ) %     (8.7 ) %
share

Net Sales
The company's revenues are earned and cash is generated as merchandise is sold to customers at the point of sale. Discounts, except those provided by a vendor, are recognized as a reduction in sales as products are sold or over the life of a promotional program if redeemable in the future.

Comparable store sales increased 4.3% in 2008 compared to 2007 and increased 3.5% in 2007 compared to 2006. The increase in comparable store sales in 2008 and 2007 was primarily the result of an increase in average sales per customer transaction, which was the result of changes in product mix and inflation. The number of comparable store customer visits in the year was slightly down in 2008 compared to a year ago, which the company believed was due to the uncertain economy and the high cost of gasoline. While customers are more cautious in their spending and are making fewer store visits per week, they are spending more while in the store. The average customer basket size in 2008 increased 4.7% compared to 2007.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: (continued)

Results of Operations (continued)

When calculating the percentage change in comparable store sales, the company defines a new store to be comparable the week following one full year of operation. Relocated stores and stores with expanded square footage are included in comparable sales since these units are located in existing markets and are open during construction. When a store is closed, sales generated from that unit in the prior year are subtracted from total company sales starting the same week of closure in the prior year and continuing from that point forward.

With grim economic conditions, consumer buying habits have noticeably shifted from more expensive national brand products to Weis private label brands. The units of Weis private label merchandise sold in 2008 as compared to 2007 increased 3.9%. The company believes this trend will continue as more consumers become acquainted with the quality and value of its private label products. While this trend is potentially detrimental to the company's overall sales growth, private label products have a higher gross profit margin than name brand products.

Pharmacy sales decreased 2.3% and 1.2% for 2008 and 2007, respectively. Market forces positively affecting prescription growth such as an aging population base, continue to be offset by retail erosion due to increased generic penetration, competitive pressures and a softening economy. In addition, prescription plan sponsors continue to offer economic incentives to covered individuals in an effort to shift their prescription drug purchases to mail order. In response to market conditions and competitive pressures, the company implemented new pricing strategies involving generic drugs in the second half of 2008.

Management remains confident in its ability to generate sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the company's competitive position.

Cost of Sales and Gross Profit
Cost of sales consists of direct product costs (net of discounts and allowances), warehouse costs, transportation costs and manufacturing facility costs.

As experienced in the final six months of 2007, 2008 wholesale prices increased more quickly than the retail prices paid by consumers. According to the latest U.S. Bureau of Labor Statistics' report, food-at-home price inflation increased 6.4% in 2008, 4.2% in 2007 and 1.7% in 2006 while wholesale food inflation increased at a higher rate of 6.8%, 6.6% and .6% respectively. These differences contributed significantly to the slight, but steady decline in the company's gross profit rate in the three years presented. However, this trend is gradually subsiding and price increases from manufacturers are being passed along to customers in a more timely manner.

Throughout 2008, the company continued its aggressive promotional activity while keeping its overall pricing competitively low during this period of significant wholesale food inflation.

Because of the significant wholesale price inflation, the company experienced an increase in its LIFO charge. The LIFO charge in 2008, 2007, and 2006 was $11.8 million, $7.2 million and $4.2 million, respectively. Like many food retailers, the company continues to experience product cost inflation at levels that have not occurred for several years.

The company realized a 21.0% improvement in store inventory losses ("shrink") in 2008 compared to 2007 in contrast to a 64.6% increase in losses between 2007 and 2006. Management remains committed to controlling store inventory losses through its ongoing shrink initiatives.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: (continued)

Results of Operations (continued)

The company's profitability is particularly impacted by the cost of oil. Cost of sales was impacted by a 33.5% increase in the cost of diesel fuel used by the company to deliver goods from its distribution center to its stores as compared to 2007. In response to the higher prices, the company has mechanically lowered the top speed of its tractors, implemented routing software to improve loading patterns and reduce delivery mileage, and has started a driver training program regarding shift patterns. With these initiatives, management estimates a 6% reduction in fuel usage over the next year. Fluctuating fuel prices may continue to adversely affect the delivered cost of product and the cost of other petroleum-based supplies such as plastic bags.

Although the company experienced product cost inflation for all three years presented, management does not feel it can accurately measure the full impact of inflation and deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.

Operating, General and Administrative Expenses Business operating costs including expenses generated from administration and purchasing functions, are recorded in "Operating, general and administrative expenses." Business operating costs include items such as wages, benefits, utilities, repairs and maintenance, advertising costs and credits, rent, insurance, equipment depreciation, leasehold amortization and costs for outside provided services.

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise over 60% of the total operating, general and administrative expenses. Employee-related costs increased 5.0% in 2008 compared to 2007 and 4.3% in 2007 compared to 2006. As a percent of sales, employee-related costs increased .1% in 2008 versus 2007.

Pennsylvania, where the majority of the company's stores are located, increased the minimum wage rate twice in 2007 totaling $2.00 per hour. Although the company paid its associates more than the minimum wage rate, the increases impacted associate rates well above minimum wage. In addition, the company increased associate rates in neighboring states.

Health care benefits increased 13.8% in 2008 compared to 2007 and increased 5.8% in 2007 compared to 2006. Management expects the trend of increasing health care benefit costs to continue.

The company's 2008 operating, general and administrative expenses were reduced by $1.4 million in adjustments made to the non-qualified retirement plans (see Note 6 Retirement Plans) due to a decline in the equity market. In 2007 and 2006, this expense was $756,000 and $1.5 million, respectively.

The company's interchange fees for accepting credit and debit cards increased 12.1% to $14.3 million in 2008 compared to 2007 and 12.3% to $12.8 million in 2007 from 2006. Major credit card companies control approximately 80% of the interchange fee network in the United States, which allows them to unilaterally raise their rates at will. According to an independent study conducted by Diamond Management & Technology Consultants in 2006, only 13% of the interchange fees represents the actual cost to process these transactions. The company remains extremely concerned about this inequity and the excessive increases in interchange fees for accepting credit and debit card transactions. It continues to work with a wide variety of corporations and trade associations to make credit card interchange fees fair and bring competition to this broken market through legislative and regulatory initiatives.

Retail store profitability is sensitive to rising utility costs due to the amount of electricity and gas required to operate. The company is reacting to these increased operating costs by evaluating technological improvements for improved utility and fuel management. Electric supply options were explored in certain markets with various suppliers and opportunities were appropriately acted upon to control this expenditure.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: (continued)

Results of Operations (continued)

The company may not be able to recover these rising utility, fuel and interchange costs through increased prices charged to its customers. Any delay in the company's response to unforeseen cost increases or competitive pressures that prevent its ability to raise prices may cause earnings to suffer. Management does not foresee a change in these trends in the near future.

The company incurred a pre-tax impairment loss of $1.7 million on one closed store facility in 2008 compared to a pre-tax gain of $8.0 million on the sale of two closed store facilities and an undeveloped parcel of land in 2007. In 2006, the company incurred a pre-tax impairment loss of $1.7 million on two closed store facilities. Earnings were further impacted in 2007 and 2006 by a $1.2 million and a $1.4 million adjustment to liabilities for future expenses on closed stores.

During fiscal 2008, the company recognized approximately $1.0 million of gift card breakage income (See Note 1(r) Revenue Recognition) as a credit against operating, general and administrative expenses. Fiscal 2008 was the first year in which the company recognized gift card breakage income, and therefore, the amount recognized includes the gift card breakage income related to gift cards sold since the inception of the gift card program in late 2002. The resolution of certain legal matters associated with gift card liabilities prompted management to initiate a change in accounting estimate.

Investment Income
The company's investments consist of short-term money market funds and marketable securities consisting of Pennsylvania tax-free state and municipal bonds and equity securities. The company classifies all of its marketable securities as available-for-sale. Due to declining yields on short-term money market funds, the company experienced a $307,000 decrease in interest income in 2008 compared to 2007 and an $898,000 decrease from 2006 to 2007. The company realized a long-term gain of $431,000 on the sale of equities from its investment portfolio in 2006.

Provision for Income Taxes
The effective income tax rate differs from the federal statutory rate of 35% primarily due to the effect of state taxes, net of permanent differences relating to tax-free income.

Income is earned by selling merchandise at price levels that produce revenues in excess of cost of merchandise sold and operating and administrative expenses. Although the company may experience short term fluctuations in its earnings due to unforeseen short-term operating cost increases, it historically has been able to increase revenues and maintain stable earnings from year to year.

Liquidity and Capital Resources

Net cash provided by operating activities was $115.3 million in 2008 compared with $85.4 million in 2007 and $99.3 million in 2006. Working capital increased 1.0% in 2008, increased 6.7% in 2007, and decreased 13.3% in 2006. The considerable decline in working capital in 2006 was primarily due to the company's increased investment in property and equipment.

Net cash used in investing activities was $65.8 million in 2008 compared to $39.1 million in 2007, and $108.5 million in 2006. These funds were used primarily for property and equipment purchases in the three years presented. Property and equipment purchases during 2008 totaled $67.0 million compared to $64.2 million in 2007 and $100.0 million in 2006. As a percentage of sales, capital expenditures were 2.8%, 2.8% and 4.5% in 2008, 2007 and 2006, respectively.

The company's capital expansion program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of the company's processing and distribution facilities. Company management estimates that its current development plans will require an investment of approximately $80.5 million in 2009.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations: (continued)

Liquidity and Capital Resources (continued)

Net cash used in financing activities during 2008 was $31.3 million compared to $32.7 million in 2007 and $32.5 million in 2006. The majority of the financing activities consisted of dividend payments to shareholders. At December 27, 2008, the company had outstanding letters of credit of $29.2 million.

Total cash dividend payments on common stock, on a per share basis, amounted to $1.16 per year in 2008, 2007 and 2006. Treasury stock purchases amounted to $181,000 in 2008, compared to $2.7 million in 2007 and $1.4 million in 2006. The Board of Directors' 2004 resolution authorizing the repurchase of up to one million shares of the company's common stock has a remaining balance of 819,924 shares.

The company has no other commitment of capital resources as of December 27, 2008, other than the lease commitments on its store facilities under operating leases that expire at various dates through 2028. The company anticipates funding its working capital requirements and its $80.5 million capital expansion program through internally generated cash flows from operations.

The company's earnings and cash flows are subject to fluctuations due to changes in interest rates as they relate to available-for-sale securities and any future long-term debt borrowings. The company's marketable securities portfolio currently consists of Pennsylvania tax-free state and municipal bonds, equity securities and other short-term investments. Other short-term investments are classified as cash equivalents on the Consolidated Balance Sheets.

The company experienced a $2.8 million unrealized holding loss net of deferred taxes in 2008, primarily due to a decline in the value of the company's equity holdings (see Note 9 Comprehensive Income). In 2007 and 2006, the company had unrealized holding gains of $1.3 million and $2.0 million, respectively. As of December 27, 2008, the company had $7.8 million in gross unrealized holding gains in marketable securities (see Note 2 Marketable Securities).

By their nature, these financial instruments inherently expose the holders to market risk. The extent of the company's interest rate and other market risk is not quantifiable or predictable with precision due to the variability of future interest rates and other changes in market conditions. However, the company . . .