CINCINNATI, Ohio, December 8, 2009 – The Kroger Co. (NYSE: KR) today reported identical supermarket sales increased 1.3% without fuel in the third quarter of fiscal 2009 ended November 7, 2009, compared with the same period last year.

Total sales, including fuel, in the third quarter were $17.7 billion compared with $17.6 billion for the same period last year. Excluding fuel sales, total sales increased 2.2% over the prior year.

Kroger reported a net loss for the third quarter of $874.9 million, or $1.35 per diluted share. These results include non-cash asset impairment charges totaling $1.05 billion, after-tax, that primarily resulted from a goodwill write-down at the Company’s Ralphs division in southern California. Excluding these impairment charges, net earnings for the quarter would have been $176.7 million, or $0.27 per diluted share (Table 6).

Net earnings in the same period last year were $237.7 million, or $0.36 per diluted share.

“The operating environment we saw during the third quarter was more challenging than we anticipated, obscuring some otherwise strong fundamentals in our performance such as exceptional tonnage growth, market share gains, increases in loyal household count, and good cost control. These fundamentals are important to our long-term success,” said David B. Dillon, Kroger’s chairman and chief executive officer. “In the near-term, our financial results are being pressured by factors including persistent deflation, unusually intense competition and the cautious mindset of customers. We are making adjustments to balance the challenges of the current environment with Kroger’s long-term objective for sustainable identical sales and earnings growth, which we believe will create value for shareholders.”

Details of Third Quarter Results
Including Kroger’s retail fuel operations, FIFO gross margin (Table 1) was 22.71% of sales, a decrease of 79 basis points compared to the third quarter last year. Excluding retail fuel operations, FIFO gross margin decreased 88 basis points. Supermarket selling gross margin on non-fuel sales decreased 109 basis points.

The Company recorded a $9.9 million LIFO charge during the quarter, a decrease of $58.9 million from the same period in the prior year. Excluding retail fuel operations, the LIFO charge decreased 40 basis points as a percent of sales compared to the same period in the prior year.

Including Kroger’s retail fuel operations, operating, general, and administrative (OG&A) costs were 17.77% of sales, an increase of 15 basis points compared to the third quarter last year. Excluding retail fuel operations, the southern California impairment charges and the effect of Hurricane Ike in 2008, OG&A would have declined 18 basis points compared with the same period last year as a result of lower utility costs and lower incentive pay.

Financial Strategy
Capital investment, excluding acquisitions and purchases of leased facilities, totaled $552.1 million for the third quarter, compared with $603.9 million for the same period last year. Given the current environment, Kroger now anticipates investing less than $2 billion annually, on average, in capital projects during the next three fiscal years, which is approximately $1 billion less than the Company’s original plan for that time period.

Net total debt (Table 5) was $7.7 billion, a decrease of $257.7 million from a year ago. On a rolling four-quarters basis, Kroger's net total debt to EBITDA ratio, adjusted for the southern California impairment charges in 2009, was 1.93 compared with 1.95 during the same period last year. Kroger expects to continue to maintain its debt coverages on a year-over-year basis.

During the third quarter, Kroger repurchased 2.4 million shares of stock at an average price of $21.35 per share for a total investment of $50.5 million. At the end of the quarter, $386.3 million remained under the $1 billion stock repurchase program announced in January 2008.

Fiscal 2009 Year-to-Date Results
For the first three quarters of fiscal 2009, total sales were $58.2 billion compared with $58.9 billion for the same period last year. Excluding fuel sales, total sales increased 3.3% over the same period in the prior year. For the same period, identical supermarket sales, excluding fuel, increased 2.4%.

Kroger reported a net loss of $185.4 million for the first three quarters of fiscal 2009, or $0.28 per diluted share. Excluding the southern California impairment charges, net earnings would have been $866.2 million, or $1.33 per diluted share (Table 6).

Net earnings for the same period last year were $900.2 million, or $1.36 per diluted share.

Kroger’s operating margin for the first three quarters of fiscal 2009 decreased 204 basis points compared to the year-ago period. Excluding retail fuel operations, LIFO expense, the southern California impairment charges and the effect of Hurricane Ike in 2008, operating margin would have declined 34 basis points compared to the same period last year.

Fiscal Year 2009 Guidance
Kroger said several factors influenced its performance during the quarter, including persistent deflation, increased competitive activity and the cautious spending behavior of customers. The Company expects these factors to continue to affect its business for the remainder of the year. As a result, Kroger now expects full-year identical supermarket sales growth of 2.0% to 2.5%, without fuel, for fiscal 2009.

Kroger also said it now expects full-year fiscal 2009 earnings of $1.60 to $1.70 per diluted share. This guidance excludes the southern California impairment charges recorded in the third quarter.

“While these revised forecasts are well below what we had expected to deliver for the year, we believe they appropriately reflect the challenges of the current operating environment. Kroger’s continued growth in tonnage and loyal households and our competitive advantages position Kroger and our shareholders to benefit once operating conditions begin to normalize,” Mr. Dillon said.
Looking ahead to fiscal 2010, Kroger anticipates current operating conditions will extend at least through the first half of the year. Deflation is expected to moderate throughout the year, and Kroger will be cycling many of the price investments put in place during the first half of 2009. The Company believes that the combination of these factors will produce identical sales growth, excluding fuel, and earnings per share growth, both above forecasted 2009 full-year results, excluding the southern California impairment charges.
Kroger, the nation’s largest traditional grocery retailer, employs more than 326,000 associates who serve customers in 2,469 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s. The Company also operates 773 convenience stores, 392 fine jewelry stores, 850 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 www.kroger.com.

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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.