KROGER REPORTS STRONG FINANCIAL RESULTS FOR THIRD QUARTER OF FISCAL 2005
Identical Supermarket Sales Rose 6.6% with Fuel and 3.7% without Fuel

CINCINNATI, OH, December 6, 2005 -- The Kroger Co. (NYSE: KR) today reported net earnings of $185.4 million, or $0.25 per fully diluted share, for the third quarter ended November 5, 2005. Net earnings in the year-ago period were $142.7 million, or $0.19 per fully diluted share.

Total sales for the third quarter increased 9.1% to $14.0 billion. Identical supermarket sales increased 6.6% with fuel and 3.7% without fuel. This represents Kroger’s ninth consecutive quarter of positive identical supermarket sales, excluding fuel.

Other highlights of the third quarter included:

• FIFO gross margin declined 62 basis points to 24.48% of sales. Excluding the effect of retail fuel operations, FIFO gross margin decreased six basis points.
• Operating, general and administrative (OG&A) costs as a percentage of sales declined 69 basis points to 18.23%. Excluding the effect of retail fuel operations, OG&A declined three basis points as Kroger was able to leverage higher sales to offset higher energy prices and investments in better service.
• Capital investment, including changes in construction-in-progress payables, totaled $336.9 million, compared to $429.1 million a year ago.
• Kroger repurchased 590,000 shares of stock at an average price of $19.97 for a total investment of $11.8 million. At the end of the third quarter, there was $158.0 million remaining under the $500 million stock buyback announced in September 2004. Since January 2000, Kroger has invested $2.9 billion to repurchase 153.1 million shares at an average price of $19.14 per share. Kroger continues to buy back stock.
• Net total debt was $7.2 billion, a reduction of $660.0 million from a year ago and a reduction of $1.6 billion since January 2000 (Table 5).
• Kroger’s results for the quarter also reflected the benefits of a previous class-action credit card settlement and the reversal of an unrelated tax contingency, offset by expenses related to two hurricanes, an increase in certain legal reserves, and a writedown to fair market value of assets held for sale. Together these items had little effect on Kroger’s earnings per fully diluted share.

“Our financial performance in the third quarter reflects the consistent approach we have taken to managing our business. We continue to balance investments in gross margin and improved customer service with operating cost reductions to provide a better shopping experience for our customers,” Mr. Dillon explained.

Sales and operating profit at Ralphs and Food 4 Less in southern California improved during the third quarter as compared to last year. In southern California, identical supermarket sales without fuel at both divisions, on a combined basis, increased 2.9% over the prior-year period.

“The pace of our recovery in southern California is slower than we would like. Clearly there are opportunities for growth, and our teams are focused on seizing those,” Mr. Dillon said.

Over the first three quarters of fiscal 2005, sales increased 7.2% to $45.8 billion. Net earnings for the first three quarters of fiscal 2005 were $676.0 million, or $0.92 per diluted share. For the first three quarters of fiscal 2004, net earnings were $548.0 million, or $0.73 per diluted share.

“Thanks to the hard work and outstanding contributions of the entire organization, Kroger has made tremendous progress in several key areas this year. Our associates are offering improved shopping experiences for our customers in a variety of ways, and Kroger has been able to fund these by improving productivity and taking costs out of our business . Holiday sales are off to a strong start . We are focused on becoming more competitive in every aspect of our business so that we can take advantage of growth opportunities and generate value for our shareholders,” Mr. Dillon said.

Headquartered in Cincinnati, Ohio, Kroger is one of the nation’s largest retail grocery chains. At the end of the second quarter of fiscal 2005, the Company operated (either directly or through its subsidiaries) 2,515 supermarkets and multi-department stores in 32 states under two dozen local banners including Kroger, 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) 791 convenience stores, 431 fine jewelry stores, 559 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 “continue to balance” and “are focused.” These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. Our ability to balance gross margin investments with operating cost reductions that can be used to fund lower prices and improved service may be affected by actions taken by our competition; cost increases that are not passed on to customers; and an inability to generate sales at desirable margins. Our ability to become more competitive may be affected by actions taken by our competitors to maintain or increase market shares; increased costs as a result of weather conditions; our efforts to control pension and health care costs; labor disputes; and continued industry consolidation. 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 December 6, 2005 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 December 16, 2005.

View 3rd Quarter 2005 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

« Go back