KROGER REPORTS IMPROVED SECOND QUARTER RESULTS
Identical Supermarket Sales Rose 7.9% with Fuel and 6.0% without Fuel

CINCINNATI, OH, September 12, 2006 -- The Kroger Co. (NYSE: KR) today reported total sales increased 9.2% to $15.1 billion for the second quarter ended August 12, 2006. Identical supermarket sales increased 7.9% with fuel and 6.0% without fuel. This represents Kroger's twelfth consecutive quarter of positive identical supermarket sales, excluding fuel.

Net earnings in the second quarter totaled $209.0 million, or $0.29 per diluted share. These results include $0.01 per diluted share for stock option expense to reflect the Company's adoption of SFAS No. 123(R).

Net earnings in the same period last year were $196.5 million, or $0.27 per diluted share.

"We are realizing the benefits of our strategy, which includes listening to our customers and associates. We are investing our resources in what they tell us is most important, an approach that builds loyalty to Kroger," said David B. Dillon, Kroger chairman and chief executive officer.

Other highlights of the second quarter included:

• FIFO gross margin declined 112 basis points to 23.47% of sales. Excluding the effect of retail fuel operations, FIFO gross margin declined 65 basis points. Kroger continued to invest in lower prices for our customers.
• Operating, general and administrative (OG&A) costs as a percentage of sales declined 73 basis points to 17.50%. Excluding the effect of retail fuel operations and stock option expense, OG&A declined 47 basis points.
• Total capital expenditures were $361.2 million, compared to $271.9 million a year ago (Table 3).
• Kroger repurchased 7.6 million shares of stock at an average price of $21.40 for a total investment of $161.6 million. At the end of the second quarter, $389.3 million remained under the $500 million stock buyback announced in May 2006.
• Net total debt was $6.3 billion, a reduction of $679.1 million from a year ago (Table 5). Total debt was $7.0 billion, a reduction of $263.0 million from a year ago.
• Since January 2000, Kroger has invested $5.8 billion to repurchase shares and to reduce net total debt. Of this total, $3.3 billion was used to repurchase 170.0 million shares at an average price of $19.26 per share. Net total debt was reduced by $2.5 billion.

Fiscal 2006 Year-to-Date Results

Over the first two quarters of fiscal 2006, total sales increased 8.6% to $34.6 billion. For the same period, identical supermarket sales, excluding fuel, increased 5.8%. The Company now anticipates identical supermarket sales growth of at least 4.0% for the balance of the year, or approximately 4.9% for the full year, excluding fuel. This is the second time the Company has raised its identical sales guidance for fiscal 2006.

Net earnings for the first two quarters of fiscal 2006 were $515.4 million, or $0.71 per diluted share. These results include $0.03 per diluted share for stock option expense to reflect the Company's adoption of SFAS No. 123(R). They also include $0.03 per diluted share for legal reserves recorded in the first quarter.

For the first two quarters of fiscal 2005, net earnings were $490.7 million, or $0.67 per diluted share.

Based on its year-to-date financial performance, the Company confirms its guidance for earnings per share growth in 2006 of 6 - 8%. This guidance includes the effect of the increase in legal reserves recorded during the first quarter.

"Our performance through the first half of 2006 indicates we are on track to exceed original identical sales guidance and meet earnings guidance for the year," Mr. Dillon said.

"Internal measurements show customers are responding to the investments we have made in service, product selection and pricing. This focus by our associates on the business strategy enables us to achieve our financial objectives," Mr. Dillon added.

Headquartered in Cincinnati, Ohio, Kroger is one of the nation's largest retail grocery chains. At the end of the second quarter of fiscal 2006, the Company operated (either directly or through its subsidiaries) 2,477 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) 773 convenience stores, 418 fine jewelry stores, 608 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 “expects,” “projected,” and “remains.” Increased competition, weather and economic conditions, interest rates, goodwill impairment, the success of programs designed to increase our sales, the ultimate resolution of the legal proceedings arising from the hiring practices during the labor dispute at Ralphs, and future 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 growth. The extent to which we are able to repurchase stock in accordance with our financial strategy of using one-third of cash flow for debt reduction and two-thirds for stock repurchase and cash dividends depends primarily on the price at which our stock trades and the availability of debt for repurchase. 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 September 12, 2006 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 September 22, 2006.

View 1st Quarter 2006 Reports - PDF Format:
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMPARABLE SUPERMARKET SALES
RECONCILIATION OF TOTAL DEBT TO NET TOTAL DEBT

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