KROGER ANNOUNCES RESULTS FOR FIRST QUARTER OF 2004
Identical Food-Store Sales Rose 1.3%

CINCINNATI, OH, June 22, 2004 -- The Kroger Co. (NYSE: KR) today reported net income of $262.8 million, or $0.35 per diluted share, for the first quarter ended May 22, 2004.

The Company estimates the labor dispute affecting stores in southern California reduced net earnings by $71.6 million, or $0.10 per diluted share. Additional detail on the calculation used to estimate the effect of the labor dispute is provided in Table 2.

Net earnings in the year-ago period were $351.5 million, or $0.46 per diluted share. Those results include items that positively affected net earnings by $4.1 million, or $0.01 per diluted share (Table 2).

Total sales for the 16-week first quarter of fiscal 2004 increased 3.9% to $16.9 billion. Identical food-store sales, including fuel, increased 1.3% and, excluding fuel, increased 0.3%. Excluding, for the entire quarter, the Ralphs and Food 4 Less stores affected by the work stoppage, identical food-store sales, including fuel, increased 1.6% and, excluding fuel, increased 0.5% (Table 5). Kroger estimates that product cost inflation, including fuel, was 2.3% and, excluding fuel, was 1.6%.

“We are pleased that Kroger continues to grow our identical food-store sales in a challenging operating environment,” said David B. Dillon, Kroger chief executive officer. “But there is more to be done. We plan to continue making investments in pricing, customer service and product variety to deliver strong, sustainable sales growth.”

Also in the first quarter:
• FIFO gross margin was 26.01%, a decrease of 72 basis points from the first quarter of 2003. FIFO gross margin at the supermarket divisions not affected by the labor dispute, and excluding the effect of fuel, declined by 17 basis points.
• Operating, general and administrative costs increased 41 basis points to 19.04%. OG&A at the supermarket divisions not affected by the labor dispute, and excluding the effect of fuel, increased approximately 23 basis points. The cost of providing health care and pension benefits to our associates accounted for all of the increase.
• Total debt was $8.0 billion, a decrease of $258.3 million as compared to the first quarter of 2003. A lower market-value adjustment for interest-rate swaps and the implementation of FASB Interpretation No. 46 accounted for $139.8 million of this decline.
• Kroger repurchased 9.0 million shares of common stock at an average price of $16.62 per share, for a total investment of $149.3 million.

Kroger opened, expanded, relocated or acquired 32 food stores, and closed 22 stores in the quarter. Total food store square footage increased 2.4% over the prior year. Capital expenditures totaled $456.7 million.

Mr. Dillon said Kroger is pleased with Ralphs’ sales and earnings following the end of the southern California labor dispute in late February. “Our associates in southern California did a great job of quickly getting our stores back in shape and providing our customers with outstanding service.”

For 2004, Mr. Dillon said the Company continues to expect identical food-store sales, excluding fuel, to be stronger than in the fourth quarter of 2003. He also reiterated that Kroger expects earnings in 2004 to be lower than in 2003, excluding the effect of the labor disputes and unusual items, as the Company continues to invest in lower prices, improved customer service and product variety.

“Kroger is off to a good start with sales in 2004. We are squarely focused on providing customers with better service, selection and value each time they shop in our stores. We have a clear strategy in place to build our business profitably. We are reducing our costs and will continue to reinvest those savings in Kroger’s core business to improve our customers’ shopping experience and consistently deliver better value,” Mr. Dillon added.

Headquartered in Cincinnati, Ohio, Kroger is one of the nation’s largest retail grocery chains. At the end of the first quarter of fiscal 2004, the Company operated (either directly or through its subsidiaries) 2,536 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, franchise agreements, or operating agreements) 794 convenience stores, 439 fine jewelry stores, 487 supermarket fuel centers and 42 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 “will.” 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, interest rates, 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, excluding fuel, and that earnings per diluted share in 2004 will be lower than 2003, results could be affected by changes in competition, weather conditions, labor disputes, economic conditions, interest rates, and the success of programs designed to increase our sales. The extent to which cost savings are invested in our core business will depend on Kroger’s ability to generate those cost savings and to increase sales through such investment. 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 1st Quarter 2004 Reports - PDF Format:
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF EARNINGS OTHER ITEMS
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SALES INFORMATION

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