KROGER REPORTS 17% INCREASE IN EARNINGS PER SHARE, BEFORE ONE-TIME ITEMS, FOR THIRD QUARTER

Profit Growth Driven by Higher Margins, Solid Corporate Brand Sales and Synergies

CINCINNATI, OH, December 5, 2000 -- The Kroger Co. (NYSE: KR) today reported earnings of $0.28 per diluted share, excluding costs related to mergers and one-time expenses, for the third quarter ended November 4, 2000.  These results represent an increase of 17% over the third quarter of 1999.

Total sales for the third quarter increased 6.1% to $11.0 billion.  Food store sales also rose 6.1%.  Comparable food store sales, which include relocations and expansions, rose 1.9% for the quarter, while identical food store sales rose 1.4%.

EBITDA (earnings before interest, taxes, depreciation, amortization, LIFO and one-time items) for the third quarter of fiscal 2000 totaled $757 million, an increase of 10.2% from a year ago.

"We are pleased with our strong earnings performance in the third quarter,” said Joseph A. Pichler, Kroger chairman and chief executive officer.   “Kroger now has met or exceeded its earnings per share growth goal for 15 consecutive quarters.”

Among the financial highlights of the third quarter:
• Gross profit margin, without one-time expenses and excluding the LIFO charge, increased 10 basis points to 26.58%
• Operating, general and administrative (OG&A) costs, on this basis, declined 4 basis points to 18.28% as the Company began to realize the benefits of technology and productivity initiatives
• Estimated combined synergy savings reached an annual run rate of $294 million – well above the Company’s original goal of $260 million for all of fiscal 2000.

As previously announced, Kroger expects to achieve its total synergy savings goal of $380 million in fiscal 2001, a full year earlier than originally projected.

Mr. Pichler said the Company’s corporate brand products continued to perform well in the third quarter.   In October, Kroger officially launched Private Selection®, its own brand of nearly 300 premium-quality grocery, meat, deli and seafood items.  These are now available exclusively at the Company’s 2,343 food stores in 31 states.  In addition, Kroger recently introduced Naturally Preferred™, its premium brand of all-natural vitamins, herbs and other products that will be available in all Company-owned stores by year-end.  In all, Kroger introduced more than 480 corporate brand items during the third quarter.

Mr. Pichler also said Kroger continued to make solid progress in reducing net working capital.  Net working capital totaled $302 million, a decrease of $85 million from the end of the third quarter of 1999, when the Company set a goal of reducing working capital by at least $500 million over five years. 

Kroger repurchased approximately 4.7 million shares of its common stock during the third quarter at an average price of $21.84 per share, for a total investment of approximately $103 million.  During the first three quarters of fiscal 2000, the Company repurchased approximately 20.8 million shares of its common stock at an average price of $19.93 per share, for a total investment of approximately $414 million.

Net total debt was $8.4 billion, a decline of $364 million from the third quarter of 1999 as a result of strong free cash flow from operations and the improvement in net working capital.

This debt reduction is especially noteworthy given the magnitude of our stock repurchase program this year,” Mr. Pichler said. 

On a related note, both Moody’s Investors Service and Standard & Poor’s recently upgraded their ratings outlook for Kroger from “stable” to “positive” based on the Company’s operating and financial performance since the merger.  

During the third quarter of 2000, Kroger opened, expanded, relocated or acquired 35 food stores, as compared to 104 in the third quarter of 1999 when the Company completed the acquisition of 27 Jay C Food Stores and 35 stores from Albertson’s.  Overall square footage in the third quarter increased 4.8% over the prior year.   Excluding acquisitions and operational closings, square footage rose 4.3%.  Excluding only acquisitions, square footage rose 2.9%.  Capital expenditures for the quarter totaled $400 million.

Kroger incurred merger-related and one-time expenses of $34.5 million pre-tax in the third quarter.  Of this amount, $20.5 million was non-cash and $14.0 million was cash.  The Company expects these costs for the remainder of the year to be in the range of $15-$30 million primarily as a result of the conversion of the Fred Meyer Marketplace stores in Arizona to the Fry’s banner and the ongoing consolidation of information system platforms.  

For the first three quarters of 2000, Kroger reported earnings of $0.88 per diluted share, excluding costs related to mergers and one-time expenses.  These results represent an increase of 19% over the first three quarters of 1999, before an extraordinary item.  Total sales in the first three quarters of 2000 increased 6.4% to $36.3 billion.  EBITDA totaled $2.5 billion for the first three quarters of 2000, an increase of 11.3% over the same period in 1999.

For fiscal year 2000, Mr. Pichler said that he remains comfortable with the consensus estimate for earnings per share.

Headquartered in Cincinnati, Ohio, Kroger is the nation’s largest retail grocery chain.  At the end of the third quarter, the Company operated 2,343 supermarkets and multi-department stores in 31 states under nearly two dozen banners, including Kroger, Fred Meyer, Ralphs, Smith’s, King Soopers, Dillon, Fry’s, City Market, Food 4 Less and Quality Food Centers.  Kroger also operates 787 convenience stores, 396 fine jewelry stores, 57 supermarket fuel centers and 42 food processing plants.

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.  We assume no obligation to update the information contained herein.  These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements including, but not limited to, material adverse changes in the business or financial condition of Kroger and other factors affecting the businesses of the Company which are described in filings with the Securities and Exchange Commission.

Note: Kroger's quarterly conference call with investors will be broadcast live via the Internet at 11 a.m. (EST) on December 5, 2000 at www.kroger.com and www.streetevents.com.  An on-demand replay of the webcast will be available from 2 p.m. (EST) on December 5, 2000 through December 19, 2000.

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