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    Kroger Posts 4 Percent Q1 Profit Increase; Ups Same-Store Sales Outlook

    CINCINNATI -- Stock in the Kroger Co., based here, jumped yesterday on the news that the nation's largest traditional food retailer confirmed its earnings forecast for the year and upped its same-store sales outlook for stores open at least 15 months.

    CINCINNATI -- Stock in the Kroger Co., based here, jumped yesterday on the news that the nation's largest traditional food retailer confirmed its earnings forecast for the year and upped its same-store sales outlook for stores open at least 15 months.

    In reviewing Kroger's first-quarter performance that found profits rising 4 percent amid increasing competition from Wal-Mart, Target, and other discounters, David Dillon, Kroger's chief executive, said the company was "extremely pleased" with the quarterly results, which also yielded a 5.6 percent same-store sales gain, excluding fuel, and a 7.2 percent same store gain with fuel included.

    "Kroger associates continue to focus on delivering improved service, selection, and value to our customers, and this has translated into another quarter of impressive identical sales growth," said Dillon. "Our associates' commitment to our 'Customer 1st' strategy enabled Kroger to pay -- for the first time in 18 years -- a quarterly cash dividend to shareholders."

    Dillon said the company expected its same-store sales to increase this year by more than 4 percent, up from a previous 3.5 percent estimate. Total sales including fuel rose 8.2 percent to $19.4 billion for the quarter, while net earnings rose 4.1 percent to $306.4 million, or 42 cents per diluted share in the three months ended May 20, up from $294.3 million, or 40 cents, earned in the year-earlier first quarter.

    Along with reporting results, Kroger lifted its same-store sales outlook for the full year, but said that the need to increase legal reserves for the Ralph's proceedings would restrain earnings. The results also included two cents per share related to the expensing of stock. As revised, Kroger projects that same-store sales will rise about 4 percent for the year, ahead of original growth projections of 3.5 percent or better.

    In a conference call with analysts yesterday, Kroger officials said the company has accepted lower profit margins to drive down prices on core packaged goods, in response to competition from discounters such as Wal-Mart. As a result its sales growth has outperformed its main supermarket rivals.

    Commenting on Kroger's relationship with Dunnhumby, the United Kingdom-based customer data consultancy, to better shape the selection of goods in its stores to the mix of local customers, Dillon said the data has been extremely helpful in enabling the chain to tailor assortment based on individual store characteristics. "Increasingly the differences [between our stores] will be driven by the differences in our customers, rather than just the differences in geographies," said Dillon.

    Dillon said it was too soon to tell whether Kroger's relationship with Dunnhumby would be affected by Tesco's U.S. expansion plans. Tesco is the biggest client and part owner of Dunnhumby. "We're focusing in different ways today [with Dunnhumby] than we did in the past. It's a long third inning, and we're improving as we go."

    At the end of the first quarter of fiscal 2006, Kroger operated (either directly or through its subsidiaries) 2,483 supermarkets and multidepartment stores in 31 states under two dozen local banners, including Kroger and Kroger Marketplace, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smith's and Smith's Marketplace, Fry's and Fry's Marketplace, Dillons, QFC, and City Market. Kroger also operated (either directly or through subsidiaries, franchise agreements, or operating agreements) 783 convenience stores, 423 fine jewelry stores, 593 supermarket fuel centers, and 42 food-processing plants.

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