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Identical Supermarket Sales Increased 2.6% without Fuel

CINCINNATI, Ohio, September 15, 2009 – The Kroger Co. (NYSE: KR) today reported identical supermarket sales increased 2.6% without fuel in the second quarter of fiscal 2009 ended August 15, 2009, compared with the same period last year.

Total sales, including fuel, in the second quarter were $17.7 billion compared with $18.1 billion for the same period last year. Excluding fuel sales, total sales increased 3.5% over the prior year.

Net earnings totaled $254.4 million, or $0.39 per diluted share, for the second quarter, compared with net earnings of $276.5 million, or $0.42 per diluted share, in the same period last year.

“We remain confident in our strategy. The number of loyal households we serve and the number of items they are buying in our stores grew during the quarter. As a result, we experienced exceptional tonnage growth,” said David B. Dillon, Kroger’s chairman and chief executive officer. “Kroger’s customer-focused strategy is generating and will continue to generate long-term value for our shareholders.”

Details of Second Quarter Results
Including Kroger’s retail fuel operations, FIFO gross margin (Table 1) was 23.11% of sales, an increase of 59 basis points compared to the second quarter last year. Excluding retail fuel operations, FIFO gross margin decreased 60 basis points. Supermarket selling gross margin on non-fuel sales decreased 88 basis points.

The Company recorded a $14.7 million LIFO charge during the quarter, a decrease of $31.5 million from the prior year. Excluding retail fuel sales, the LIFO charge decreased 21 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 17.41% of sales, an increase of 81 basis points compared to the second quarter last year. Excluding retail fuel operations, the OG&A rate decreased 7 basis points relative to the same period last year as a result of strong cost controls.

Financial Strategy
Capital investment, excluding acquisitions and purchases of leased facilities, totaled $518.0 million for the second quarter, compared to $461.1 million for the same period last year. In addition, the Company spent $83.6 million to purchase leased facilities during the quarter.

Net total debt (Table 5) was $7.3 billion, a decrease of $198.5 million from a year ago. On a rolling four-quarters basis, Kroger's net total debt to EBITDA ratio was 1.78 compared with 1.90 during the same period last year. Kroger expects to continue to improve its debt coverages on a year-over-year basis.

During the second quarter, Kroger repurchased 2.8 million shares of stock at an average price of $21.58 per share for a total investment of $60.1 million. At the end of the quarter, $424.9 million remained under the $1 billion stock repurchase program announced in January 2008.

Fiscal 2009 Year-to-Date Results
For the first two quarters of fiscal 2009, total sales were $40.5 billion compared with $41.2 billion for the same period last year. Excluding fuel sales, total sales increased 3.7% over the prior year. For the same period, identical supermarket sales, excluding fuel, increased 2.9%.

Kroger’s operating margin for the first two quarters of fiscal 2009 increased 12 basis points. Excluding fuel and the benefit of a lower LIFO charge, the Company’s operating margin decreased 17 basis points year-to-date.

Net earnings for the first two quarters of fiscal 2009 were $689.5 million or $1.05 per diluted share. Net earnings for the same period last year were $662.5 million, or $1.00 per diluted share.

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 assumes product costs for the remainder of fiscal 2009 are consistent with or slightly lower than they were in the second half of fiscal 2008.

Kroger now expects full-year fiscal 2009 earnings of $1.90 to $2.00 per diluted share. This reduced guidance reflects changes in customer behavior and other factors related to the economic environment that Kroger expects to influence its business for the remainder of the year.

Kroger remains committed to delivering solid near-term financial results while investing for the future growth of its business. In addition, Kroger’s dividend enhances total shareholder return by over 1% on annual basis.

“We remain on our plan. Our approach and the investments we are making continue to strengthen Kroger today and position us well for future growth,” Mr. Dillon said. “Our customers are increasingly turning to Kroger’s family of stores to meet even more of their everyday household needs.”

Kroger, one of the nation’s largest retail grocery chains, employs more than 326,000 associates who serve customers in 2,470 supermarkets and multi-department stores in 31 states 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. The Company also operates 768 convenience stores, 388 fine jewelry stores, 818 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

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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,” “expectations,” “guidance,” and “expects.” Increased competition, weather, economic conditions, interest rates, unexpected changes in product costs, 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 or deflation 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) today at and An on-demand replay of the webcast will be available from approximately 1 p.m. (ET) today through September 25, 2009.

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View 2nd Quarter 2009 Reports - PDF Format:

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

Investor: Carin Fike
(513) 762-4969

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