KROGER REPORTS NET EARNINGS OF $0.15 PER DILUTED SHARE FOR THIRD QUARTER OF 2003
Results Include Effect of Two Ongoing Labor Disputes and Premiums Paid on Debt Repurchases

CINCINNATI, OH, December 9, 2003 -- The Kroger Co. (NYSE: KR) today reported net earnings of $110.2 million, or $0.15 per diluted share, for the third quarter ended November 8, 2003. The Company estimates the ongoing labor disputes affecting stores in southern California and the West Virginia area reduced earnings by $0.12 per diluted share during the quarter. Premiums paid on debt repurchases reduced earnings by $0.01 per diluted share.

Net earnings in the year-ago period were $254.6 million, or $0.33 per diluted share. Those results include an after-tax charge of $1.6 million (Table 2).

Total sales for the third quarter of fiscal 2003 increased 3.8% to $12.1 billion, including stores affected by the labor disputes. On this basis, identical food-store sales, including fuel, increased 0.2% and, excluding fuel, decreased 0.6%. Excluding stores affected by labor disputes, identical food-store sales, including fuel, increased 1.3%. On this basis, identical food-store sales, excluding fuel, increased 0.4% (Table 6). Kroger estimates that product cost inflation, including fuel, was 1.7% and, excluding fuel, was 1.5%.

“We are pleased with our sales performance in the third quarter, especially in light of the current operating environment,” said David B. Dillon, Kroger chief executive officer. “In the fourth quarter to date, our identical food-store sales, excluding fuel and the effect of the labor disputes, are running slightly ahead of our results for the third quarter.”

The estimated effect on net earnings of $0.12 per diluted share from the labor disputes assumes that the Ralphs stores in southern California and the Kroger stores in the West Virginia area that were adversely affected by the labor disputes, as well as the Food 4 Less stores that were favorably affected, would have maintained their pre-strike operating trends for the balance of the quarter. The estimate also includes the Company’s expected obligation for the quarter under an agreement with Safeway Inc. and Albertson’s, Inc. that was entered into in connection with the multi-employer collective bargaining arrangement in southern California. The estimate also includes other costs directly associated with the labor disputes. All of these items are more fully described in Table 3.

“It is not possible to say when these disputes will be resolved, but we remain committed to providing our employees with excellent wage and benefit programs that also better position Kroger to face the challenges of a rapidly changing competitive landscape,” Mr. Dillon added.

Also in the third quarter:

• FIFO gross profit margin was 25.83%, a decrease of 162 basis points from the third quarter of 2002. The Company attributed most of the decrease to its continued investment in pricing programs that offer better value to customers, and to the labor disputes.
• Operating, general and administrative costs increased 13 basis points to 19.50%. This reflects the adverse effect of the labor disputes and increased health care and pension costs, offset by the favorable effects of increased fuel sales and productivity improvements.
• Kroger had achieved $490 million in cost savings related to the plan announced in December 2001. The Company expects to exceed its original goal of $500 million by the end of fiscal 2003.
• Total debt was $8.4 billion, a decrease of $194 million as compared to the third quarter of 2002.
• Kroger repurchased 3.4 million shares of common stock at an average price of $18.72 per share, for a total investment of $62.8 million. Since January 2000, Kroger has invested $2.4 billion to repurchase 121.2 million shares. At the end of the third quarter, Kroger had $160 million remaining under the $500 million repurchase program authorized in the fourth quarter of 2002. Consistent with its strategy of using one-third of free cash flow for debt reduction and two-thirds for stock repurchase or payment of a cash dividend, the Company has not repurchased shares since October 13.

Over the past four quarters, Kroger’s cash flow has enabled the Company to reduce total debt by $194 million, repurchase $382 million in stock and invest $2.2 billion in capital projects, including the buyout of a synthetic lease.

During the third quarter of 2003, Kroger opened, expanded, relocated or acquired 30 food stores. Total food store square footage increased 3.6% over the prior year. Capital expenditures for the quarter totaled $575 million. Kroger expects capital investment for the full year to be $1.9 billion, excluding acquisitions and the buyout of a synthetic lease.

For the first three quarters of fiscal 2003, sales increased 3.7% to $40.8 billion. Net earnings were $652.0 million, or $0.86 per diluted share. These results include the effect of the labor disputes, premiums paid on debt repurchases, and other items shown in Tables 2 and 3. For the first three quarters of fiscal 2002, net earnings were $823.9 million, or $1.03 per diluted share. These results include the items shown in Table 2.

Kroger is not able to determine when the ongoing labor disputes will be resolved or estimate the investment that will be required to rebuild its business in affected areas. Mr. Dillon noted that, based on earnings results for the third quarter and the Company’s continued investment in pricing programs, Kroger’s 2003 earnings, excluding the labor disputes, likely would be below the $1.45 per diluted share described in our past guidance. As a result of these factors, the Company has withdrawn all guidance for fiscal 2003.

“Our strategic focus hasn’t changed. We continue to believe that profitable sales growth, cost reductions, and the improved leveraging of our economies of scale will create value for our shareholders. Kroger’s financial strength is an important competitive advantage, particularly at this time. We have the financial resources necessary to continue building Kroger’s business for the future,” Mr. Dillon said.

Headquartered in Cincinnati, Ohio, Kroger is one of the nation’s largest retail grocery chains. At the end of the third quarter of fiscal 2003, the Company operated (either directly or through its subsidiaries) 2,530 supermarkets and multi-department stores in 32 states under two dozen banners including Kroger, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith’s, Fry’s and Fry’s Marketplace, Dillons, QFC and City Market. Kroger also operated (either directly, through its subsidiaries or franchise agreements) 798 convenience stores, 445 fine jewelry stores, 442 supermarket fuel centers and 41 food processing plants. (These store figures include locations affected by ongoing labor disputes.) The Company contributed $106 million last year to local communities and non-profit organizations. For more information about Kroger, please visit our web site at www.kroger.com, where a wide variety of fine jewelry and holiday flowers are available at great prices.

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 or phrases such as “committed,” “plans,” “likely,” “expects,” “continued,” “estimate,” “will,” and “goal.” These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. Labor disputes, including ongoing disputes referenced in this press release and any disputes in the future, particularly as the Company seeks to manage increases in health care and pension costs, could materially affect our earnings. Our ability to achieve our cost savings goal could be affected by our ability to achieve productivity improvements and shrink reduction; the impact of current or future labor disputes; efficiencies in our distribution centers and those created by our logistics projects and competitive activity in the markets in which we operate. The proportion of free cash flow, if any, used to reduce debt, repurchase stock, or pay a cash dividend, may be affected by the market price of Kroger common stock and the amount of outstanding debt available for pre-payment or repurchase. Our capital expenditures could vary if we are unsuccessful in acquiring suitable sites for new stores; development costs exceed those budgeted; or if our logistics and technology projects are not completed on budget or in the time frame expected. While we have endeavored to estimate the effect of the current labor disputes on our business and debt levels, the uncertainties inherent in such estimates could cause them to be inaccurate. 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.

View 3rd Quarter 2003 Reports - PDF Format:
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF EARNINGS OTHER ITEMS
CONSOLIDATED STATEMENTS OF EARNINGS EFFECT OF LABOR DISPUTES
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SALES INFORMATIO

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