KROGER REPORTS FIRST QUARTER 2009 RESULTS
Achieves First Quarter Earnings Per Share of $0.66 Identical Supermarket Sales Increased 3.1% without Fuel Confirms Fiscal 2009 Guidance

CINCINNATI, Ohio, June 23, 2009 – The Kroger Co. (NYSE: KR) today reported net earnings totaled $435.1 million, or $0.66 per diluted share, for the first quarter of fiscal 2009 ended May 23, 2009, compared with net earnings of $386.0 million, or $0.58 per diluted share, in the same period last year.

Total sales, including fuel, in the first quarter were $22.8 billion compared with $23.1 billion for the same period last year. During the quarter, the average retail price for a gallon of gas sold at Kroger’s fuel outlets was 41% lower than it was in the first quarter last year. Excluding fuel sales, total sales increased 3.9% over the prior year. Identical supermarket sales, excluding fuel, increased 3.1% over the same period last year.

“Customers continue to look for value, and Kroger is helping them save money by offering a unique combination of products and services no other competitor can match. By paying close attention to the changing needs of today’s shoppers, Kroger continues to refine what it offers customers through lower prices, friendly service and innovative stores that are appealing and convenient. As a result of this approach, we continue to generate solid, consistent results for shareholders,” said David B. Dillon, Kroger chairman and chief executive officer.

Details of First Quarter Results
Including Kroger’s retail fuel operations, FIFO gross margin (Table 1) was 24.36% of sales, an increase of 129 basis points compared to the first quarter last year. Excluding retail fuel operations, FIFO gross margin rose 5 basis points. Supermarket selling gross margin on non-fuel sales declined 48 basis points. Improvements in shrink, advertising, and warehouse expense as a percentage of sales, as well as lower diesel fuel costs, offset Kroger’s investment in lower prices.

The Company recorded a $23.1 million LIFO charge during the quarter, a decrease of $16.9 million from the prior year. Excluding retail fuel sales, the LIFO charge decreased 9 basis points as a percent of sales compared to the prior year.

Including Kroger’s retail fuel operations, operating, general, and administrative (OG&A) costs were 17.70% of sales, an increase of 89 basis points compared to the first quarter last year. Excluding retail fuel operations, the OG&A rate was flat relative to the same period last year as a result of strong cost controls.

Including Kroger’s retail fuel operations, rent and depreciation expense was 2.87% of sales, an increase of 11 basis points compared to the first quarter last year. Excluding retail fuel operations, rent and depreciation expense declined 7 basis points as a percent of sales.

Financial Strategy
Capital investment, excluding acquisitions, totaled $653.5 million for the first quarter, compared to $636.7 million for the same period last year. The Company did not invest in acquisitions in the first quarter of this year, compared with $79.5 million invested in the same period last year.

Net total debt (Table 5) was $7.4 billion, a decrease of $242.9 million from a year ago. On a rolling four-quarters basis, Kroger's net total debt to EBITDA ratio was 1.78 compared with 1.95 during the same period last year. Kroger expects to continue to improve its debt coverages on a year-over-year basis.

During the first quarter, Kroger repurchased 950,000 shares of stock at an average price of $20.83 per share for a total investment of $19.8 million. At the end of the quarter, $476.1 million remained under the $1 billion stock repurchase program announced in January 2008.

Fiscal Year 2009 Guidance
Kroger confirmed its expectations for full-year identical supermarket sales growth of 3% to 4%, without fuel, for fiscal 2009. This guidance reflects the Company’s outlook for product cost inflation of 1% to 2%.

Kroger also confirmed its full-year 2009 earnings outlook of $2.00 to $2.05 per diluted share. This guidance reflects Kroger’s commitment to deliver solid near-term financial results while investing for the future growth of its business. Kroger’s dividend enhances total shareholder return by over 1%.

“The strength of our Customer 1st strategy and the flexibility of our business model enable us to continue to deliver value for both customers and shareholders in a difficult environment. We are investing in Kroger’s long-term growth as we work to emerge in an even stronger position as the economy recovers,” Mr. Dillon said.

Kroger, one of the nation’s largest retail grocery chains, employs more than 326,000 associates who serve customers in 2,475 supermarkets and multi-department stores in 31 states. Kroger operates stores under two dozen local banner names including Kroger, Ralphs, Fred Meyer, Food 4 Less, Fry’s, King Soopers, Smith’s, Dillons, QFC and City Market. In addition, Kroger associates serve customers in 764 convenience stores, 387 fine jewelry stores and 798 supermarket fuel centers the Company operates. Kroger also operates 40 food processing plants in the U.S. Headquartered in Cincinnati, Ohio, Kroger focuses its charitable efforts on supporting hunger relief, health and wellness initiatives, and local schools and grassroots organizations in the communities it serves. For more information about the Company, 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 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,” “expectations,” and “outlook.” Increased competition, weather, 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, earnings per share, and earnings per share growth. Earnings per share and earnings per share growth also will be affected by the number of shares outstanding and volatility in the Company’s fuel margins. Our estimate of product cost inflation could be affected by general economic conditions, weather, availability of raw materials and ingredients in the products that we sell and their packaging, and other factors beyond our control. Our ability to continue to improve our debt coverage could be affected by unanticipated increases in net total debt, our inability to generate free cash flow at the levels anticipated, and our failure to generate expected earnings. 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 23, 2009 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 July 3, 2009..

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View 1st Quarter 2009 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

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