KROGER REPORTS FIRST QUARTER RESULTS
Identical Supermarket Sales Increased 5.2% without Fuel; Company Confirms Fiscal 2007 Earnings Guidance

CINCINNATI, Ohio, June 26, 2007 – The Kroger Co. (NYSE: KR) today reported total sales increased 6.7% to $20.7 billion for the first quarter ended May 26, 2007. Identical supermarket sales increased 6.0% with fuel and 5.2% without fuel.

Net earnings in the first quarter totaled $336.6 million, or $0.47 per diluted share. During the quarter, the Company incurred charges related to labor unrest at one of its distribution centers, which reduced earnings by an estimated $0.02 per diluted share.

While these expenses reduced earnings in the first quarter, Kroger’s annual earnings guidance of $1.60 – $1.65 per diluted share for fiscal 2007 remains unchanged. This equates to 9 - 12% growth from adjusted fiscal 2006 earnings of $1.47 per diluted share (Table 6).

Net earnings in the same period last year were $306.4 million, or $0.42 per diluted share. First quarter 2006 results included a non-recurring legal expense of $0.03 per diluted share..

“Our associates continue to strengthen our connection with shoppers, building customer loyalty and generating strong identical sales growth. This is a key driver of our objective to increase earnings and generate shareholder value,” said David B. Dillon, Kroger chairman and chief executive officer.“Our associates continue to strengthen our connection with shoppers, building customer loyalty and generating strong identical sales growth. This is a key driver of our objective to increase earnings and generate shareholder value,” said David B. Dillon, Kroger chairman and chief executive officer.

Other highlights of the first quarter included:

• FIFO gross margin declined 85 basis points to 23.70% of sales. Excluding the effect of retail fuel operations and expenses related to the labor unrest during the quarter, FIFO gross margin declined 49 basis points. Kroger continued to invest in lower prices for customers.
• Operating, general and administrative (OG&A) costs as a percentage of sales decreased 76 basis points to 17.41%. Excluding the effect of retail fuel operations and the non-recurring legal expense in 2006, OG&A declined 36 basis points.
• Capital investment totaled $555.8 million, compared to $449.9 million in the prior year.
• Net total debt was $6.5 billion, a reduction of $104.3 million from a year ago (Table 5). Kroger’s net total debt to EBITDA ratio was 1.8, compared to 1.98 a year ago.
• Under its stock repurchase programs, Kroger repurchased 4.7 million shares of stock at an average price of $28.17 for a total investment of $132.1 million.

Kroger has reduced its net total debt to EBITDA ratio from 2.8 to 1.8 since January 2000, a reduction of 1.0 times EBITDA. Based on this progress, Kroger now plans to use free cash flow to repurchase shares and pay dividends while maintaining a solid investment grade rating. Kroger’s investment grade rating remains important as the Company executes its strategy. The Company believes maintaining a solid investment grade rating provides the best cost of capital and the flexibility to execute its growth strategy in a competitive and consolidating industry.

Kroger also announced today a new $1 billion stock repurchase program, reflecting the Company’s confidence in its Customer 1st strategic plan and its belief that Kroger shares represent an attractive investment opportunity.

Guidance
The Company raised the lower end of its expected range for identical supermarket sales growth, excluding fuel sales, to 3.5 – 5% from a previous range of 3 – 5% for fiscal 2007.

“Looking beyond 2007, we believe our Customer 1st strategy will allow us to grow identical supermarket sales in the 3 to 5% range with a slightly improving operating margin, excluding fuel sales. Our ability to improve our customers’ loyalty, combined with the dividend and stock repurchase program, will create ongoing value for our shareholders,” said Mr. Dillon. “This positions us well to continue to increase our market share, which is a fundamental part of our growth strategy.”

Excluding fuel, Kroger’s first quarter results mark the fifteenth consecutive quarter Kroger has reported positive identical supermarket sales and the eighth consecutive quarter Kroger has reported identical supermarket sales in excess of 3%.

“The efforts of our associates in every area of our business enable us to create sustainable identical sales and earnings growth. We thank our entire team for their hard work and look forward to their contributions as we continue to grow our Company,” Mr. Dillon said.

Headquartered in Cincinnati, Ohio, Kroger is one of the nation’s largest retail grocery chains. In 2006, the Company donated $150 million to help hunger relief efforts across the country, raise awareness of breast cancer, and support local schools and organizations in the communities it serves. At the end of the first quarter of fiscal 2007, the Company operated (either directly or through its subsidiaries) 2,458 supermarkets and multi-department stores in 31 states under two dozen local banners including Kroger and Kroger Marketplace, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith’s and Smith’s Marketplace, Fry’s and Fry’s Marketplace, Dillons, QFC and City Market. Kroger also operated (either directly or through subsidiaries, franchise agreements, or operating agreements) 779 convenience stores, 408 fine jewelry stores, 652 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 “plans,” “will,” “guidance,” and “believe.” Increased competition, weather and 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 identical supermarket sales growth, earnings per share, and earnings per share growth. These same factors could affect the extent to which our strategic plan is successful and the extent to which we are able to create value for our shareholders by improving our customers’ loyalty, repurchasing stock, and paying cash dividends. Earnings per share and earnings per share growth also will be affected by the number of shares outstanding and our success in reducing the number of shares outstanding. Our plans to use free cash flow to repurchase shares and to pay dividends will depend on our ability to generate free cash flow, which will be affected by all of the factors identified above, and the extent to which those repurchases can be made and dividends be paid while still maintaining a solid investment grade rating. 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 via the Internet at 10 a.m. (ET) on June 26, 2007 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 6, 2007.

# # #

View 4th Quarter 2007 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
ADJUSTED EARNINGS PER DILUTED SHARE

« Go back