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Kroger Reports Earnings Increase in Third Quarter, Announces Job Cuts

CINCINNATI - The Kroger Co. today reported earnings of $0.32 per diluted share, excluding costs related to a merger and one-time expenses, for the third quarter ended
Nov. 10, 2001. These results represent an increase of 14.3% over the third quarter of 2000, on the same basis.

Total sales for the third quarter of fiscal 2001 increased 3.8% to $11.4 billion. Total food store sales rose 4.3%. Comparable food store sales, which include relocations and expansions, rose 1.4% for the quarter, while identical food store sales rose 0.8%.

EBITDA (earnings before interest, taxes, depreciation, amortization, LIFO and one-time items) for the third quarter of 2001 totaled $834 million, an increase of 10.2% from a year ago.

"We were pleased with Kroger's third-quarter earnings results, which were achieved through strong expense controls in a difficult operating environment. However, we were not satisfied with Kroger's sales, which were softer than expected because of the weak economy and challenging competitive conditions in certain markets," said Joseph A. Pichler, Kroger chairman and CEO.

Looking ahead, Pichler outlined the company's strategic growth plan through which Kroger plans to increase its identical food store sales growth target; reduce operating and administrative costs by more than $500 million; further leverage its size to achieve even greater economies of scale; and reinvest in its core business to increase sales and market share.

As part of its plan to reduce administrative costs, Kroger will eliminate approximately 1,500 positions, primarily management and clerical, over the next 12 months. The company also plans to merge one existing Kroger division into two adjacent marketing areas.

"We deeply regret having to announce staff reduction plans, especially at this time of year, and we understand this news will be painful for some of our associates," Pichler said. "However, economic conditions make it necessary for us to implement these actions quickly to maintain Kroger's long-term competitive advantages. We will communicate fully with employees about their individual positions and treat everyone with fairness and respect."

Some employees may be able to transfer to other positions within the company. For those who cannot, Kroger will provide a severance package based on years of service.

Kroger has also identified new opportunities to leverage its economies of scale by centralizing additional merchandising and procurement functions in the Cincinnati area. The company believes this will better align it with vendors that are set up to serve one primary contact point at large retailers. Kroger's total employment in the Cincinnati area is expected to increase by 75-100 positions because of the consolidation of merchandising and purchasing functions.
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