Good morning and thank you for joining us. Before we begin, I want to remind you that today’s discussion will include forward-looking statements. We want to caution you that such statements are predictions, and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings, but Kroger assumes no obligation to update that information.

Both our third quarter press release and our prepared remarks from this conference call will be available on our website at www.kroger.com .

Now I would like to introduce Mr. David Dillon, Chairman and Chief Executive Officer of Kroger.

Comments by: Dave Dillon

Thanks Carin and good morning everyone. We’re pleased you could join us to review Kroger’s third quarter financial results. With me today are Rodney McMullen, Kroger’s Vice Chairman; Don McGeorge, Kroger’s President and Chief Operating Officer; and Mike Schlotman, Senior Vice President and Chief Financial Officer.

I’d like to begin this morning by briefly reviewing Kroger’s third quarter financial performance. Then I will provide an update on Kroger’s outlook for 2006 and 2007. Rodney will share additional details about our third quarter results and guidance, and then we’ll be happy to take your questions.

Sales and Net Earnings

Total sales for the third quarter increased 4.8% to $14.7 billion. Identical supermarket sales increased 4.9% with fuel and 5.3% without fuel. Supermarket retail fuel prices were about 10% lower this year versus last year.

Across the Company, growth continues to be broad-based. We experienced particularly strong growth in Produce, Natural Foods, Deli/Bakery, Pharmacy and Seafood. Our convenience stores had another strong quarter in fuel and non-fuel merchandise.

Net earnings in the third quarter totaled $214.7 million, or $0.30 per diluted share. These results include $0.01 per diluted share related to stock option expense. For comparison, net earnings in the same period last year were $185.4 million, or $0.25 per diluted share.

Our fuel business had a strong quarter – in sales, gallons and margin. While fuel margins for the quarter were strong, on a year-to-date basis they were more normalized.

We’re pleased with our third quarter results and want to thank our associates for their role in delivering them. In this intensely competitive industry, our associates continue to focus on putting customers first.

These results once again demonstrate Kroger’s ability to consistently deliver strong, sustainable growth over time. In fact, this marks the thirteenth consecutive quarter Kroger has reported positive identical supermarket sales, excluding fuel.

Year-to-date Results

Next, I would like to comment on Kroger’s year-to-date performance. During the first three quarters of fiscal 2006, total sales increased 7.5% to $49.3 billion. Identical supermarket sales year-to-date increased 6.7% with fuel and 5.6% without fuel.

Net earnings for the first three quarters of fiscal 2006 were $730.1 million, or $1.01 per diluted share. During the same period last year, net earnings were $676.0 million, or $0.92 per diluted share. The fiscal 2006 year-to-date results include $0.04 per diluted share for stock option expense and $0.03 of expense per diluted share for legal reserves recorded in the first quarter.

Guidance

Based on Kroger’s year-to-date financial performance and sustained sales momentum leading into the holiday season, we now anticipate identical supermarket sales growth will exceed 5.0% for the fourth quarter, excluding fuel.

We are also raising our guidance for earnings per share growth in fiscal 2006 to 8 – 10% from 6 – 8%. Based on current results, we are striving for the upper end of that range.

We are confirming our guidance for earnings per share growth in fiscal 2007 of 6 – 8%, after adjusting for the benefit of the 53rd week in 2006 and the increase in the legal reserve recorded in 2006. Based on current business trends, we are targeting the high end of this range next year.

Now I’d like to turn to Rodney, who will share additional details on our guidance, as well as our third quarter results. Rodney?

Comments by Rodney McMullen:

Thank you, Dave, and good morning everyone.

As Dave mentioned, we believe our third quarter performance is the result of our associates’ continuing focus on our customers. Our disciplined approach is working - we continue to balance operating cost reductions with investments aimed at improving our customers’ overall shopping experience.

I’d like to provide some detail on the components of Kroger’s operating margin during the quarter. Let’s begin with gross margin.

Gross Margin

FIFO gross margin as a percentage of sales was 24.48% this quarter, unchanged from the same period last year. Excluding the effect of retail fuel operations, FIFO gross margin declined 12 basis points from the prior year. We continued to invest in lower prices for our customers, as demonstrated by the 17 basis point decline in our supermarket selling gross margin.

During the quarter, we invested operating cost savings in lower prices for our customers. This remains an important part of Kroger’s strategy.

Operating, general and administrative (OG&A)

Operating, general and administrative costs, or OG&A, are also an important component of operating margin. Kroger’s third quarter OG&A costs as a percentage of sales increased 4 basis points to 18.27%. Excluding the effect of retail fuel operations and stock option expense, OG&A declined 17 basis points.

This decline was driven by leveraging identical sales, progress we have made in controlling our health care expenses, and offset by continued pressure in pension expense and credit card fees.

This marks the eighth consecutive quarter that Kroger’s OG&A rate, on this basis, has declined. And yet we still seek additional opportunities to continue this downward trend in the future – in the right way. We also see additional opportunities to reduce the operating costs embedded in our gross margin – for example shrink, advertising, warehousing and transportation expense.

Operating Margin

Kroger’s operating margin, on a GAAP basis, increased 9 basis points to 3.05% of sales. Excluding the effect of retail fuel sales and stock option expense, operating margin increased 21 basis points. A sizable portion of this increase came from sales leverage over rent and depreciation expense.

Excluding closed-store activity, we continue to expect rent expense, as a percent of total sales, to decrease due to the emphasis our current strategy places on owning real estate, plus leverage from our strong identical sales growth. Similarly, we anticipate continued leverage over depreciation expense, resulting from strong identical sales growth and improved efficiency in capital investment.

Kroger’s operating margin can fluctuate on a quarterly basis depending on the timing of our cost savings and our reinvestment of those savings. That’s why we continue to encourage investors to evaluate our operating margin over a longer time frame to gauge the success of our business strategy.

On a year-to-date GAAP basis, Kroger’s operating margin decreased 7 basis points to 3.13% of sales. However, the important measure is to exclude the effect of retail fuel sales, stock option expense and the increase in the legal reserve. On that basis, operating margin increased 17 basis points. On this basis, we still forecast slightly improving operating margins for fiscal 2006, resulting from the leverage of strong identical sales growth over expenses, including rent and depreciation.

Capital Investment

During the quarter, Kroger’s strong cash flow enabled us to invest in our store base, reduce debt, repurchase shares and pay a cash dividend.

Capital investment totaled $415.0 million for the quarter, compared to $336.9 million a year ago. For fiscal 2006, we planned to invest approximately $1.7 - $1.9 billion in capital projects. Based on our current run rate, we expect to close the year near the low-end of this estimate. We still anticipate total supermarket square footage growth of 1.5 to 2.0% – before acquisitions and operational closings.

For the third quarter, total supermarket square footage grew 1.4% year over year, excluding acquisitions and operational closings. Our return on asset measures improved almost 94 basis points on a pre-tax basis. This is using the method Kroger has consistently used to calculate return on assets.

Debt Reduction

Total debt was $7.0 billion, a reduction of $299.1 million from a year ago.

Our investment grade rating continues to be very important to us. We have focused on improving our coverage ratios since merging with Fred Meyer in 1999. Our net debt to EBITDA ratio in the third quarter was 2.0, an improvement of 22 basis points from the same period last year.

Share Repurchase

During the third quarter, Kroger repurchased 10.2 million shares of stock at an average price of $22.79 for a total investment of $232.0 million. At the end of the third quarter, $322.8 million remained under the $500 million stock buyback announced in May 2006.

Since January 2000, Kroger has invested $5.3 billion to repurchase shares and to reduce net total debt. Of this total, $3.5 billion was used to repurchase 180.2 million shares at an average price of $19.46 per share. That equates to approximately 20% of the Company. Kroger expects to continue to buy back stock in accordance with the Company’s long-term financial strategy of using one-third of free cash flow for debt reduction and two-thirds for share repurchase and cash dividend payments.

Tax Rate

Our third quarter tax rate was 37.2% compared to 38.4% for the prior year. We continue to expect that our tax rate for fiscal 2006 will be 37.8%.

Guidance

As Dave mentioned, on a GAAP basis, we have raised our guidance on earnings per share growth this year to 8 – 10% and, based on current results, we are striving for the upper end of this range.

As we look to fiscal 2007, we continue to anticipate earnings per share growth of 6 – 8 %. As a reminder, the 6 – 8% growth rate for 2007 should be applied after reducing fiscal 2006 GAAP earnings by a net of 2 cents per share. This net adjustment to 2006 earnings reflects the 5-cent benefit from the 53rd week offset by the 3 cents of additional legal expense. And, as Dave said earlier, based on Kroger’s current business trends, we are targeting the high end of this range.

This is the same range we provided for 2007 earnings per share growth when we released year-end 2005 results in March but this will start with a higher base as 2006 earnings are trending higher than originally anticipated. We will provide more details for 2007 targets in March when we release year-end results for 2006.

Labor

Before I turn it back to Dave, I’d like to comment briefly on labor as we head into 2007. It will be a heavy year as negotiations open covering store associates in Southern California, Cincinnati, Detroit, Houston, Memphis, Toledo, Seattle and West Virginia.

Many of these negotiations may be challenging as we seek competitive cost structures in each market. In every contract negotiation, we work to reach a balanced agreement that meets our cost efficiency objectives while fulfilling our commitment to provide our associates with solid wages and benefits. Maintaining this balance allows Kroger to invest in our business to provide new job opportunities for existing associates and create new jobs for more people. We look forward to constructive negotiations in the new year.

Now I will turn it back to Dave for some closing remarks.

Comments by Dave Dillon:

Thanks, Rodney. Kroger’s performance this quarter shows consistent improvement as we steadily execute our business strategy. This allows us to be competitive in every aspect of our business and generate value for our shareholders.

In fact, this week, shareholders will receive another quarterly dividend check – the third one the Kroger Board has declared since March. The dividend is a vote of confidence by our Board that our Customer 1st strategy is on target.

These results clearly show what we can achieve by focusing on improving the service, product selection, quality and pricing we offer customers throughout the year.

Now, we’d like to take a few moments to answer your questions.

Closing comments after Q&A:

Thank you. Before we sign off, I would like to make some additional comments to our associates listening in today. This quarter is another clear sign that you are making strides in improving our customers’ overall shopping experience. As we head into the new year, we know competition will only increase in all aspects of our business. We must continue to focus on our customers in order to grow our business.

We know how hard you work throughout the year and we have special appreciation for the extra effort you make during the holiday season. This year is no exception. Thank you for your commitment to our customers. We hope each of you takes some time to enjoy the holiday spirit with those close to you.

Your individual contributions are so important in our overall success. On behalf of our customers, thank you for your hard work.

In closing, I’d like to thank all of you for joining us on the call today. Please remember Kroger for your holiday needs. Happy Holidays.

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The remarks contain certain forward-looking statements about the future performance of the Company. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as “guidance,” “targeting,” “expects,” “forecast,” “striving,” and “anticipate.” These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. Our ability to achieve sales and earnings growth goals may be affected by: labor disputes, particularly as the Company seeks to manage health care and pension costs; industry consolidation; pricing and promotional activities of existing and new competitors, including non-traditional competitors; our response to these actions; the state of the economy, including interest rates and the inflationary and deflationary trends in certain commodities; weather conditions; stock repurchases; the success of our future growth plans; goodwill impairment; and our ability to generate sales at desirable margins, as well as the success of our programs designed to increase our identical sales without fuel. These same factors, as well as the extent to which we are able to improve results from our California operations, may affect our ability to improve margins. In addition any labor dispute, delays in opening new stores, or changes in the economic climate could cause us to fall short of our sales and earnings targets. Our capital expenditures could vary from our expectations if we are unsuccessful in acquiring suitable sites for new stores; development costs exceed those budgeted; or our logistics and technology or store projects are not completed on budget or in the time frame expected. Our ability to increase identical supermarket sales could be adversely affected by increased competition and sales shifts to other stores that we operate, as well as increases in sales of our corporate brand products. Square footage growth during the year is dependent upon our ability to acquire desirable sites for construction of new facilities, as well as the timing of completion of projects. Any change in tax laws, the regulations related thereto, or the interpretation thereof by federal, state or local authorities could affect our expected tax rate. The extent to which our cash flow is sufficient to support our debt reduction and stock repurchases or cash dividend payment will depend on our ability to generate sales and to reduce costs and manage our gross margin, as well as our ability to manage our working capital. Our ability to achieve our long-term goal of using one-third of cash flow for debt reduction and two-thirds for stock repurchase or payment of a cash dividend depends primarily on the price at which our stock trades and the availability of debt to redeem and the maturity dates of our debt. The success of our financial objectives in 2006 may be affected by actions taken by our competition; cost increases that are not passed on to customers; and an inability to generate sales at desirable margins. Our ability to reduce rent expense will be affected by increases in market interest rates and the extent to which we are able to develop company-owned stores in lieu of leased facilities. Our anticipated continued leverage over depreciation expense will depend on our ability to generate identical store sales growth and continued improvement in our ability to invest our capital efficiently. We assume no obligation to update the information contained herein. Please refer to Kroger’s reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.

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