KROGER ANNOUNCES RESULTS FOR FOURTH QUARTER OF 2003
Identical Food-Store Sales, Excluding Labor Disputes, Rose 2.0%

CINCINNATI, OH, March 9, 2004 -- The Kroger Co. (NYSE: KR) today reported a net loss of $337.4 million, or $(0.45) per diluted share, for the fourth quarter ended January 31, 2004. These results include several items described below that collectively reduced after-tax earnings by $663.1 million, or $0.89 per diluted share.

The Company estimates the recently resolved labor dispute affecting stores in southern California, as well as a work stoppage in West Virginia that ended in mid-December, reduced earnings by $156.4 million after tax during the quarter. Kroger also incurred a goodwill impairment charge of $444.2 million after tax related to its Smith’s division, and a charge of $75.0 million after tax for an asset writedown related to 74 under-performing stores. In addition, Kroger had income of $12.5 million after tax related to the adjustment of a property tax allowance. Additional detail on these items, including the calculation used to estimate the effect of the labor disputes, is provided in Tables 2 and 3.

Net earnings in the year-ago period were $381.0 million, or $0.50 per diluted share. Those results include items detailed in Table 2.

Total sales for the 12-week fourth quarter of fiscal 2003 increased 4.5% to $13.0 billion, including stores affected by the labor disputes. On this basis, identical food-store sales, including fuel, increased 1.8% and, excluding fuel, increased 1.2%. Excluding stores affected by labor disputes, identical food-store sales, including fuel, increased 2.0%. On this basis, identical food-store sales, excluding fuel, increased 1.3% (Table 6). Kroger estimates that product cost inflation, including fuel, was 2.3% and, excluding fuel, was 2.1%.

“We are pleased with Kroger’s fourth-quarter sales. This represents continued sequential improvement in both total and identical food-store sales,” said David B. Dillon, Kroger chief executive officer. “In addition, we are happy to have a new contract in place in southern California and to have Ralphs team members back at work serving our customers. Ralphs has a comprehensive plan in place to build its business and will receive our full support.”

Also in the fourth quarter:

• FIFO gross margin was 26.44%, a decrease of 43 basis points from the fourth quarter of 2002. Gross margin at the supermarket divisions not affected by labor disputes, and excluding fuel sales, declined slightly.
• Operating, general and administrative costs increased 167 basis points to 19.70%. OG&A at the supermarket divisions not affected by labor disputes, and excluding fuel sales, increased approximately 40 basis points. Higher health care costs represented nearly half of the increase.

For the full 52-week fiscal year in 2003, sales increased 3.9% to $53.8 billion. Net earnings were $314.6 million, or $0.42 per diluted share. These results include total charges of $801.3 million after tax, or $1.06 per diluted share, from: the effect of the labor disputes; asset writedown; goodwill impairment charge; a charge for resolving disputes related to energy supply arrangements; and other items shown in Tables 2 and 3. Net earnings for fiscal 2002 were $1.2 billion, or $1.52 per diluted share. These results include the items shown in Table 2.

In 2003, Kroger’s cash flow enabled the Company to reduce total debt by $211 million, repurchase $301 million in stock and invest $2.1 billion in capital projects. This capital investment figure includes $202 million for the buyout of a synthetic lease and $78 million for acquisitions.

Kroger opened, expanded, relocated or acquired 116 food stores, and closed 44 stores in 2003. Total food store square footage increased 2.7% over the prior year.

Looking ahead, the Company expects identical food-store sales for 2004, excluding fuel, to be stronger than the fourth quarter of 2003. Strong sales related to inclement weather in many parts of the country during early 2003 will make comparisons difficult in the first quarter of this year, Mr. Dillon said.

Kroger expects earnings in 2004 to be lower than in 2003, excluding the effect of the labor disputes and unusual items. Mr. Dillon said it is not possible for Kroger to provide a more precise earnings estimate for 2004 because of the inherent uncertainties in: the cost of the labor dispute in southern California; the time and investment needed to build Ralphs’ business; and the investment necessary to meet Kroger’s plan to drive sales growth.

“We have achieved significant cost savings over the past two years. We believe that in 2004 there will be additional opportunities to reduce our costs in areas such as administration, labor, shrink, warehousing and transportation. These savings will be invested in our core business to drive profitable sales growth and offer improved value and shopping experiences for our customers. More than ever, Kroger’s financial strength is an important competitive advantage. We have the financial resources and right team in place to continue building Kroger’s business,” Mr. Dillon said.

Headquartered in Cincinnati, Ohio, Kroger is one of the nation’s largest retail grocery chains. At the end of fiscal 2003, the Company operated (either directly or through its subsidiaries) 2,532 supermarkets and multi-department stores in 32 states under two dozen banners including Kroger, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith’s, Fry’s, Fry’s Marketplace, Dillons, QFC and City Market. Kroger also operated (either directly, through its subsidiaries or franchise agreements) 802 convenience stores, 440 fine jewelry stores, 466 supermarket fuel centers and 41 food processing plants. For more information about Kroger, please visit our web site at www.kroger.com.

This press release contains 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 the words or phrases such as “expects” and “believe.” These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. Increased competition, weather and economic conditions, the success of programs designed to increase our sales, and future labor disputes, particularly as the Company seeks to manage increases in health care and pension costs, could materially affect our earnings. Although we anticipate that our identical food-store sales for fiscal 2004, excluding fuel, will be stronger than in the fourth quarter of 2003, results could be affected by increased competition, weather conditions, labor disputes, economic conditions, and the success of programs designed to increase our sales. 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.

View 4rd Quarter 2003 Reports - PDF Format:
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF EARNINGS OTHER ITEMS
CONSOLIDATED STATEMENTS OF EARNINGS EFFECT OF LABOR DISPUTES
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SALES INFORMATION

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