The Kroger Co. (KR)
Q1 2009 Earnings Call Transcript
June 23, 2009 10:00 a.m. ET

Executives

Carin Fike – Director of Investor Relations
David B. Dillon - Chairman of the Board & Chief Executive Officer
W. Rodney McMullen - Vice Chairman of the Board
J. Michael Schlotman - Chief Financial Officer & Senior Vice President

Analysts

Susan Anderson - Citigroup
John Heinbockel - Goldman Sachs
Simeon Gutman - Canaccord Adams
Edward Kelly - Credit Suisse
Karen Short - FBR Capital Markets
Scott Mushkin - Jefferies & Company
Todd Duvick - Bank of America/Merrill Lynch
Neil Currie - UBS
Meredith Adler - Barclays Capital

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Kroger Company first quarter 2009 earnings conference call. My name is Katina and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this presentation. You may press star one on your touchtone telephone at any time to participate. If at any time during this call you require assistance, please key star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Ms. Carin Fike, Director of Investor Relations. Please proceed.

Carin Fike

Good morning and thank you for joining us. Before we begin, I want to remind you that today’s discussion will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings, but Kroger assumes no obligation to update that information.

Both our first quarter press release and our prepared remarks from this conference call will be available on our website at www.kroger.com.

Now I will turn the call over to David Dillon, Chairman and Chief Executive Officer of Kroger.

David B. Dillon

Thank you, Carin and good morning, everyone. Thank you for joining us today. With me today to review Kroger’s first quarter 2009 financial results are Rodney McMullen, Kroger’s Vice Chairman; Don McGeorge, Kroger’s President and Chief Operating Officer; and Mike Schlotman, Senior Vice President and Chief Financial Officer.

Today we are pleased to report very solid results for the first quarter of fiscal 2009. We are off to a good start for the year, particularly considering the environment in which we are operating. Our Customer 1st strategy continues to serve Kroger’s customers and shareholders well.

By paying close attention to the changing needs of today’s shoppers, Kroger continues to refine the value proposition that we offer to our customers through a combination of better service, improved product variety and quality, a shopping experience that is appealing and convenient, and lower prices. This approach allows us to report the first quarter sales and earnings results that we are discussing with you today.

Let’s begin with sales. Total sales in the first quarter were $22.8 billion compared with $23.1 billion for the same period last year. That comparison may look a bit unusual, and it reflects the year-over-year decline in retail fuel prices. As a point of reference, during the first quarter of the current year, the average retail price for a gallon of gas sold at Kroger’s fuel outlets was 41% lower than it was during the corresponding quarter last year. When you exclude fuel sales, Kroger’s total sales for the first quarter increased 3.9% over the prior year.

Identical supermarket sales, without fuel, increased 3.1%. Several departments posted identical sales growth above the company average, including meat, pharmacy, deli/bakery, and grocery. Strong sales in these areas were tempered by continued slowness in sales of discretionary general merchandise as well as deflation in produce. Even so, all but one of our supermarket divisions posted positive identical results.

As you know, we believe that identical sales growth, excluding fuel, is a very important metric for evaluating Kroger’s business. Internally, we also look at a few other measures, and I thought sharing color on some of these measures would give you better insight into our first quarter sales trends. Some of the other metrics we look at include customer traffic, unit sales growth or perhaps tonnage, and corporate brand share. In each of these areas, we saw positive trends in the quarter.