The Kroger Co. (KR)
Q4 2008 Earnings Call Transcript
March 10, 2009 10:00 a.m. ET

Executives

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

Analysts

Karen Short - FBR Capital Markets
Edward Kelly - Credit Suisse
John Heinbockel - Goldman Sachs & Co.
Neil Currie - UBS
Blakely - Jefferies & Co.
Meredith Adler - Barclays Capital
Charles Grom - JPMorgan

Presentation

Operator

Good day, ladies and gentlemen and welcome to The Kroger fourth quarter 2008 earnings conference call. My name is Erica and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. If, at any time during the call you require assistance, please press “*” followed by “0” and a coordinator would be happy to assist you.

I would now like to turn the presentation over to your host for today’s call, Ms. Carin Fike. 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 fourth 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 fourth quarter and full 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.

Today, we reported solid results for the fourth quarter and outstanding results for the fiscal 2008. The Kroger team did a remarkable job throughout the year of consistently delivering results in an environment that was more difficult than we assumed when we set our original guidance.

Our performance during the quarter was solid in an environment that was uncertain. Total sales were $17.3 billion compared to $17.2 billion for the same period last year. If you exclude fuel sales at our supermarkets and convenience stores, total sales increased 4.4% over the prior year. Keep in mind that the retail price of gasoline fell considerably in the past year. In fact, the average retail price of a gallon of gas sold at Kroger’s fuel outlets was 41% lower than it was in the fourth quarter a year ago.

Our fourth quarter identical supermarket sales without fuel increased 3.8%. Several departments posted identical sales well above the company average including meat, grocery, nutrition, pharmacy, and deli bakery. Strong sales in these areas were tempered by continued slowness in sales of discretionary general merchandise.

We’re finding that customers are basing their purchasing decisions more on what they need versus what they want and we are addressing their needs in a variety of ways. Our efforts to help customers and their families navigate this tough economy are driven by our Customer 1st Strategy. As a result, we offer customers a unique combination of values no other competitor can match.

We believe many of the same money saving strategies shoppers employed in 2008 will continue throughout 2009, including combining trips in order to save fuel; eating out less often at restaurants; choosing Kroger brands more often; entertaining at home; and using more coupons and food stamps. At Kroger, we see these changing trends as opportunities and many of these opportunities play to our strengths. We have unique tools that enable us to identify and act on changes in consumer behavior more quickly than our competitors.

I want to update you on how we’re doing in a recessionary environment beginning with Kroger brands. Our customers recognize and appreciate the quality and value of our comprehensive store brands which today number more than 14,400 items. We leverage our manufacturing and procurement capabilities to innovate and introduce new items that add value for our customers.