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KROGER REPORTS FIRST QUARTER 2010 RESULTS
Identical Supermarket Sales Increased 2.4% without Fuel
Confirms Fiscal 2010 Guidance

CINCINNATI, Ohio, June 17, 2010 – The Kroger Co. (NYSE: KR) today reported total sales, including fuel, increased 8.7% to $24.8 billion in the first quarter of fiscal 2010 compared with $22.8 billion for the same period last year. Excluding fuel sales, total sales increased 3.1% in the first quarter, which ended May 22, 2010, over the same period last year. Identical supermarket sales, without fuel, increased 2.4% in the first quarter over the same period last year.

Net earnings for the first quarter totaled $373.7 million, or $0.58 per diluted share. Net earnings in the same period last year were $435.1 million, or $0.66 per diluted share.

“I am pleased with the strong positive identical sales growth we achieved in the first quarter while striking a better balance on margin investments. Our Customer 1st strategy continues to deliver results through improvements in all four key areas we target: our people, our products, the overall shopping experience in our stores, and prices,” said David B. Dillon, Kroger’s chairman and chief executive officer. “As a result, the total number of families we serve continues to grow and our most loyal customers are buying more with us.”

Details of First Quarter 2010 Results
Including Kroger’s retail fuel operations, FIFO gross margin (Table 1) was 22.66% of sales for the first quarter of fiscal 2010, a decrease of 168 basis points compared to the first quarter last year. Excluding retail fuel operations, FIFO gross margin decreased 77 basis points. Supermarket selling gross margin (Table 1) declined 71 basis points without fuel.

Kroger recorded a $15.4 million LIFO charge during the quarter, a decrease of $7.7 million from the same period last year. Excluding retail fuel operations, the LIFO charge decreased 4 basis points as a percentage of sales.

Including Kroger’s retail fuel operations, operating, general and administrative (OG&A) costs were 16.95% of sales, a decline of 72 basis points compared with the first quarter last year. Excluding retail fuel operations, OG&A increased 13 basis points from the same period last year as a result of higher health care and pension costs, and credit card fees. These rising expenses were mostly offset by identical supermarket sales leverage and the benefit from productivity improvements, process changes, and Kroger’s efforts to reduce energy usage.

Financial Strategy
Capital investment, excluding acquisitions and purchases of leased facilities, totaled $532.2 million for the first quarter, compared with $621.8 million for the same period last year.

Net total debt (Table 5) was $7.1 billion, a decrease of $339.8 million from a year ago. On a rolling four-quarters basis, Kroger’s net total debt to EBITDA ratio, adjusted for the southern California impairment charge in fiscal 2009 and Hurricane Ike in fiscal 2008, was 1.91 compared with 1.77 during the same period last year.

Strong cash flow enabled Kroger to invest $79.5 million to repurchase 3.6 million shares of stock at an average price of $21.89 per share during the first quarter. Since the first quarter ended, Kroger repurchased an additional 1.9 million shares of stock at an average price of $20.25. Approximately $240 million remains under the $1 billion stock repurchase program announced in January 2008.

Fiscal 2010 Guidance
Kroger confirmed its identical supermarket sales and earnings guidance for fiscal 2010. The Company said it continues to expect identical supermarket sales growth, excluding fuel, of 2% to 3% for the year. Net earnings are expected to range from $1.60 to $1.80 per diluted share for the year.

“Throughout the difficult operating environment, the Kroger team has stayed squarely focused on delivering on our Customer 1st strategy. We continue to build momentum and grow market share as we invest in our asset base and cost-saving projects. As a result, we are generating free cash flow that strengthens our financial position and rewards shareholders through dividends and share repurchases,” Mr. Dillon said.

Kroger, the nation’s largest traditional grocery retailer, employs more than 334,000 associates who serve customers in 2,470 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s. The Company also operates 779 convenience stores, 375 fine jewelry stores, 909 supermarket fuel centers and 40 food processing plants in the U.S. Kroger, headquartered in Cincinnati, Ohio, focuses its charitable efforts on supporting hunger relief, health and wellness initiatives, and local organizations in the communities it serves. For more information about Kroger, please visit www.kroger.com.


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Note: Fuel sales have historically had a low FIFO gross margin rate and OG&A rate as compared to corresponding rates on non-fuel sales. As a result, Kroger discloses such rates, both including and excluding the effect of retail fuel operations.

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 words such as “confirmed,” “expected,” and “expect.” Aggressive competition, economic conditions, interest rates, goodwill impairment, the success of programs designed to increase our identical supermarket sales without fuel, and labor disputes, particularly as the Company seeks to manage increases in health care and pension costs, could materially affect our expected identical supermarket sales growth and earnings per share. Earnings per share also will be affected by the number of shares outstanding and volatility in the Company’s fuel margins. Earnings and sales also may be affected by adverse weather conditions and related climate change, particularly to the extent that hurricanes, tornadoes, floods, and other conditions disrupt our operations or those of our suppliers; create shortages in the availability or increases in the cost of products that we sell in our stores or materials and ingredients we use in our manufacturing facilities; or raise the cost of supplying energy to our various operations, including the cost of transportation. Our results also will be affected by rising commodity costs, the inconsistency of the economic recovery, consumer confidence, and changes in inflation or deflation in product and operating costs. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. 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.

Note: Kroger’s quarterly conference call with investors will be broadcast live online at 10 a.m. (ET) on June 17, 2010 at www.kroger.com and www.streetevents.com. An on-demand replay of the webcast will be available from approximately 1 p.m. (ET) today through Thursday, July 1, 2010.


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View 1st Quarter 2010 Reports - PDF Format:

CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SALES INFORMATION
RECONCILIATION OF TOTAL DEBT TO NET TOTAL DEBT


Kroger Contacts:
Media: Meghan Glynn
(513) 762-1304

Investors: Carin Fike
(513) 762-4969

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