The Kroger Co. (KR)
Q3 2008 Earnings Call Transcript
December 9, 2008 10:00 a.m. ET

Executives

Carin Fike - Investor Relations
David B. Dillon - Chairman and Chief Executive Officer
W. Rodney McMullen - Vice Chairman
Don W. McGeorge – President and Chief Operating Officer
J. Michael Schlotman - Chief Financial Officer

Analysts

Karen Short - Friedman, Billings, Ramsey & Co.
Neil Currie - UBS
Bakley Smith - Jefferies & Co.
Charles Cerankosky - FTN Midwest Securities Corp.
Edward Kelly - Credit Suisse
Meredith Adler - Barclays Capital
Mark Wiltamuth - Morgan Stanley
Deborah Weinswig - Citigroup

Presentation

Operator

Good day ladies and gentlemen and welcome to the third quarter 2008 Kroger Co. earnings conference call. My name is Jasmine, and I will be the operator for today. At this time, all participants will be in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. If, at any time during the call you require assistance, please press “*” followed by “0” and an operator 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. You may 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 third 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 it 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 and with me today to review Kroger''s third quarter 2008 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. In a few minutes, Rodney will discuss details of our quarterly performance. First, I''ll discuss what drove our sales during the quarter, and our outlook in this economy. Then we''ll be happy to take your questions.

Kroger''s third quarter sales continued to be strong in a tough economy. Identical supermarket sales rose 5.6%, without fuel, reflecting the strength of our customer-focused strategy that we developed six years ago and continue to sharpen today.

Identical sales growth was positive across all departments and all supermarket divisions. We are still seeing slowness in sales of discretionary general merchandise and jewelry, a trend we have discussed with you since the fourth quarter of 2007. This slowness continues to get worse.

Overall, we are pleased with our strong sales trend, particularly in this environment. We realize higher product cost inflation continues to play a role, but our business model is designed to deliver consistent results, whether the market conditions are favorable or less than ideal.

Sales in regions affected by Hurricane Ike recovered particularly well thanks to the outstanding efforts of our associates. Our teams worked tirelessly to get stores back in business quickly to serve families as they recovered and restocked their households. And we appreciate the dedication of associates throughout our organization who supported customers and colleagues in the aftermath of the hurricane.

Kroger''s focus on low prices, quality products, and providing a convenient one-stop solution for their daily needs continues to resonate with customers and drive sales.

Several trends we have discussed in the past few quarters continued throughout the third quarter, namely a growing interest in private-label products and prepared foods as consumers choose to prepare and eat more meals at home and a sharper focus on price from all customers in all segments.