This summary is based on the second quarter fiscal 2008 earnings call conducted by The Kroger Co. (KR: chart) on September 16, 2008.

Management:

Chairman and CEO: David B. Dillon
Vice Chairman: W. Rodney McMullen
SVP and CFO: J. Michael Schlotman
President, COO and Director: Don W. McGeorge
IR: Carin Fike

Key Investor Issues:

- Q2 diluted EPS were 42 cents versus 38 cents in Q2 of 2007.
- Net earnings year-to-date were $662.5 million versus $603.8 million in the same period last year.
- The company repurchased 5.6 million shares for a total of $157.7 million during the quarter.

Year-to-Date Results:

- Total sales increased 11.7% to $41.2 billion.
- The identical supermarket sales, excluding fuel, increased 5.3%.
- The company’s operating margin decreased 14 basis points during the first two quarters of 2008.
- Excluding fuel and charges for labor unrest in Q1 of 2007, the operating margin decreased 8 basis points; of which 6 basis points was a result of the higher is LIFO charge.
- For the full year, the management anticipates a flat to slightly improved operating margin.
- EPS were $1 compared with 85 cents in the same period last year.

Second Quarter Fiscal 2008 Highlights:

FIFO Gross Margin:

- Including the company’s retail fuel operations, the FIFO gross margin was 22.31% of sales.
- This represents a decline of 163 basis points versus the second quarter last year.
- Excluding retail fuel operations, FIFO gross margin dipped 51 basis points.

LIFO:

- The management reported a $46.2 million LIFO charge the quarter.
- This is an increase of $6.5 million over the prior year quarter.
- Excluding retail fuel sales, the LIFO charge increased 3 basis points as a rate of sales compared with the previous year.

The company reported that operating, general and administrative (OG&A) costs were 16.37% of sales during the quarter.

- This includes the company’s retail fuel operations and represents a decline of 114 basis points compared with the second quarter last year.
- Excluding retail fuel operations, OG&A eased 28 basis points.
- The previous year OG&A rate included pre-opening and transaction costs associated with Scott’s and Farmer Jack acquisitions.
- The current year rate benefited from the absence of these costs and from strong sales leverage and lower incentive compensation.
- The management advised that the lower incentive compensation offset inflationary pressures in several areas, including credit card fees, utilities and store supplies.

The rent and depreciation expense for the quarter, inclusive of retail fuel operations, were 2.65% of sales.

- This represents a decrease of 20 basis points compared with the second quarter last year.
- Excluding retail fuel operations, rent and depreciation expense decreased 6 basis points as a rate of sales.

The capital investment totaled $478.1 million for the second quarter, excluding acquisitions.

-The capital projects during the quarter included nine new, expanded, or relocated stores and 51 re-models.
- The company is reportedly on track to open, expand or relocate 70 to 80 stores and complete between 175 and 200 store re-models during the year.

On a rolling four-quarter basis, the company’s net total debt to EBITDA ratio was 1.90 versus 1.81 during the same period last year.