Chuck Cerankosky (FTN Midwest Securities): Could you talk about the whole prepared foods category last year?
David B. Dillon: Those are developing both at Kroger and generally within the US. I would go to say it has a rapid pace. It is a rapid percentage, but it is still low base. As a result it is not going to be meaningful in anything that you are going to see in overall data for a while.
W. Rodney McMullen: Deli/bakery is one of the departments that had strong sales growth and a lot of that is driven by prepared foods. It is not just new prepared food items, some of it is existing items too.
Chuck Cerankosky (FTN Midwest Securities): Do you think that reflects quality improvements in the traditional items or the price of gas or what is affecting that?
David B. Dillon: It has improved on the traditional items for us and the reason our deli/bakery sales are up is we have improved our quality, improved our price position, improved the offering. All of that contributes to that. Our sales overall are modestly helped by what is happening with gas.
Chuck Cerankosky (FTN Midwest Securities): What would you thinking about your choice between stock repurchase and improving the yield on the stock with the dividend going forward?
W. Rodney McMullen: If you look on the stock repurchasing dividend we continue to be biased to stock repurchase. That is what we actually did last year. At current stock prices that would be our bias.
Chuck Cerankosky (FTN Midwest Securities): What did you see in the changes in spending among discretionary categories?
David B. Dillon: At Kroger we do not see clear signs of the customer pulling back. We do see improved sales in Kroger brand, but we have been seeing improved sales in Kroger brand for a number of years now. It is not just the result of the economy. It is also the result of what we have done in improved packaging and in quality on Kroger brand. We have seen some declines in selected categories, but they are the obvious categories. Jewellery, as an example. Selected non-food areas like domestics and home furnishings are other examples. One of the reasons that Rodney made the comment he did about where we are so far in 2008 was to help you see what we are seeing in today’s economy. What Rodney said is the identical sales trend so far in 2008 is tracking at the high end of the sales range that we gave for guidance so far. We think Kroger’s well positioned as a value proposition and better positioned than even in the past. Our strategy, our pricing approach, and the work our associates do position us well to weather in this economy, in our opinion. We are seeing some changes in these few categories, but there are no clear signs of the customer pulling back at Kroger.
Bakud Sonan (Banc of America): What point do you start to get concerned about that input food inflation?
David B. Dillon: The 3.8% is an annualized number. I characterized it as moderate inflation and I genuinely feel that it is moderate. I do not think I want to speculate on how high ends up being trouble. You could get to a high enough level I suppose that it could be disruptive in the economy in ways that creates other issues for us. Generally speaking, particularly moderate inflation like we are seeing, is a net-net positive for us. We have been successful in passing along the costs this past year. In 2008 we are seeing what we saw last quarter.
W. Rodney McMullen: At any point in time if CPG companies would pass in prices on more than what the actual inflation is we have our corporate brand product that customers will routinely switch over. You can see whenever a CPG company raises prices more than what the economics makes sense, corporate brand always picks up share in a quick period of time.
Bakud Sonan (Banc of America): Are you seeing stable trends in terms of traffic versus ticket?
David B. Dillon: Both the traffic and the ticket increased and if you were to try to inflation adjust the average sale that would give stronger emphasis on the traffic than on the average sale. They have both improved.
Jason Whitmer (Cleveland Research Company): Can you talk about the slowdown in square footage growth you are seeing from some of the non-traditional outlets?
David B. Dillon: Last year we had 65 Wal-Mart supercentres opening up against us in the major markets. That is the lowest number of new Wal-Mart supercentres we have had in seven or eight years. That is significant in one sense, but in the other hand that is still a large number of stores. In our view Wal-Mart is still doing well in groceries. You see that in our sales trends when they talk about it. Every traditional and non-traditional retailer like we do makes their own rational choices as to where they think they get the advantages and what works for them and what does not. I read into the Wal-Mart statement that they felt they were cannibalizing too much on their own sales and so they were going to slow it down.
Bakud Sonan (Banc of America): Is your step up in square footage going to be broad based or do you have certain geographic markers and certain formats in mind for that?
David B. Dillon: We are targeting a number of things, but we are bullish on what we have done with our marketplace store. We still continue to emphasize remodels. Even though that does not increase square footage we think it connects well with the customer, particular with what we have been doing.
W. Rodney McMullen: We continue to focus on expansions. The increase in square footage would primarily be driven by additional marketplace stores versus the base. Not so much additional number of stores.
Bakud Sonan (Banc of America): What has been the impact of the market acquisition you did in 2007?
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