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Kroger Q2 Profit Up 38 Percent

CINCINNATI -- The Kroger Co. here reported a 38 percent increase in second-quarter profits as a result of a rebound of its Southern California division following the infamous costly four-month strike of last year.

Total sales for the second quarter of fiscal 2005 increased 6.8 percent to $13.9 billion for the nation's largest conventional grocery chain, while same store sales increased 5.1 percent with fuel, and 3.4 percent without fuel. By either measure, the ratios represent Kroger's highest same store sales since the merger with Fred Meyer in 1999, while also representing the eighth consecutive quarter of positive identical supermarket sales, excluding fuel.

"In the second quarter, our associates continued to focus on improving the shopping experience for our customers," said David B. Dillon, Kroger chairman and c.e.o. "This commitment to placing the 'customer first' helped drive growth in customer traffic and average transaction size."

For the quarter ended August 13, Kroger reported earnings of $196.5 million, or 27 cents per share, compared with $142.4 million, or 19 cents per share, in the prior-year period.

Business at the company's Ralphs and Food 4 Less Southern California stores continued to improve during the second quarter, according to the company. Same store sales without fuel at both divisions remained strong in the second quarter and on a combined basis, increased 2.9 percent over the prior-year period.

"Our recovery there remains on track. Our associates at Ralphs and Food 4 Less are targeting areas of the business that our customers have told us are important to them. As a result, we are seeing sustained improvement in southern California," Dillon said.

Net earnings for the first two quarters of fiscal 2005 were $490.7 million, or $0.67 per diluted share, vs. $405.3 million, or $0.54 per diluted share, during the first two quarters of 2004. On the strength of its year-to-date financial performance, Kroger said it expects earnings for the full year to exceed $1.24 per fully diluted share, driven by continued progress in Southern California, improved results from the balance of the company, lower interest expense, and fewer shares outstanding as a result of stock buybacks.

In addition, Kroger said it expects same store supermarket sales for the second half of 2005, including southern California and excluding fuel, to exceed 3 percent.

Noting that it's too soon to tell what effects Hurricane Katrina will have on results for the balance of the year, Dillon noted, "Our performance through the first half of 2005 is a clear sign that Kroger's strategic focus on fulfilling the needs of our customers is generating positive results and helping to set Kroger apart from our competitors. We have been able to use cost reductions and productivity improvements to reinvest in our business and improve our customers' shopping experiences. We are making good progress, but we also recognize that a lot of opportunities remain for growing our business. We believe that our associates' sharpened focus on placing the 'customer first' is the key to our future success."

At the end of the second quarter of fiscal 2005, Kroger 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.
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