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.

Before I introduce Dave, I want to remind you that our annual shareholder meeting will be webcast live on Thursday, June 26, at 11:00 a.m. Eastern time. More information about the webcast is available on our website. We invite you to join us Thursday over the Internet or listen to the replay.

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

Comments by: Dave Dillon
Thank you, Carin. Good morning everyone and thank you for joining us to review Kroger’s first quarter 2008 financial results. With me today 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.

I’ll begin with a brief recap of Kroger’s first quarter results and our updated guidance for 2008. I’ll also discuss the progress we are making with our Customer 1st strategy. Rodney will share additional details about Kroger’s first quarter results and 2008 guidance. Then, we will be happy to take your questions.

Earnings

We are off to a strong start for fiscal 2008. Today we reported record earnings of $0.58 per diluted share for the quarter. Net earnings in the same period last year were $0.47 per diluted share. Recall that our 2007 results included charges related to labor unrest at one of our distribution centers, which reduced earnings by approximately $0.02 per diluted share.

Sales

First quarter sales were also strong. Total sales increased 11.5% to $23.1 billion. Identical supermarket sales increased 9.2% with fuel and 5.8% without fuel. Growth was broad-based across all geographic regions and most departments with particular strength in Grocery, Nutrition, and Deli/Bakery.

Guidance

Kroger’s performance during the quarter demonstrates the resiliency of our Customer 1st strategy. Our associates are connecting well with customers as our strategy continues to drive identical sales growth and create shareholder value.
Based on the strength of our first quarter results, we are raising our identical sales and earnings guidance for fiscal 2008. We now anticipate full-year identical sales growth of 4.0% to 5.5%, excluding fuel. Our previous guidance for identical sales growth was 3.0% to 5.0%.

For earnings, the guidance we gave in March was $1.83 to $1.90 per diluted share. Today we are raising the lower end of that range to $1.85 with the upper end remaining at $1.90. In a few minutes, Rodney will share additional details on guidance.

Our updated earnings guidance reflects 9% to 12% growth over fiscal 2007 earnings of $1.69 per diluted share, which is a solid growth rate in a challenging economy. Plus, don’t forget our dividend. This compares favorably with the most recent EPS growth rate for non-financial companies in the S&P 500.

We continue to expect our 2008 earnings per share growth will be driven by strong identical sales, a slight improvement in our non-fuel operating margin, and fewer shares outstanding.

Economy and Customer 1st Strategy
I want to take a moment now to talk about how the economy is affecting the purchasing decisions our customers make every day. Our latest customer research indicates the two biggest concerns on shoppers’ minds today are high gas prices and food costs. These two factors are driving some of the behavior changes we are seeing lately, such as shoppers combining trips and actively pursuing gas discount offers.

Our research also validates some underlying trends we have seen for some time. These include families coming together more often to prepare and eat meals at home and the willingness of customers to try new private label products.

We did see solid growth in Kroger’s Corporate Brand share in the first quarter, and recall the overall strength of Kroger’s corporate brand program has been building for several years. Our unmatched line of quality private label products – Private Selection, Store Banner and Value brands – can only be found in Kroger’s family of stores. For more than a year, our Corporate Brands team has been working to expand the private label products we offer customers. Nearly half of the new corporate brand items introduced last year were under our Private Selection label. That has led to great new products, such as our Private Selection Angus beef steaks and Artisan bread. Today, Private Selection is our fastest-growing brand. Based on first quarter trends, Private Selection will be a $1 billion brand for Kroger in 2008.

Listening closely to our customers is the foundation of our Customer 1st strategy. We focus intently on its four keys: our people, our products, our prices and the overall shopping experience of our customers. As a result, our strategy is helping us strengthen our connection with customers at a time when many shoppers are looking for the best option to stretch their dollars.

In addition to our growing private label business, we have introduced or expanded several programs in recent months to help customers stretch their household budgets. They include:

• Expanding our $4 generic drug program to include 90-day supplies for only $10.
• Giving customers up to $120 in free groceries when they buy Kroger gift cards through our special tax refund gift card promotion.
• Offering discounts on gasoline. For every $100 customers spend in our stores, they can earn 10 cents off each gallon of gas on their next fill-up. In fact, just in time for summer travel, customers can accumulate and redeem gas discounts by shopping in almost all of our stores from Virginia to Arizona to Alaska.
• Rewarding shoppers who have a 1-2-3 REWARDS® MasterCard. Customers can earn discounts up to 15 cents off each gallon of gas per fill-up in participating markets and earn free groceries every quarter by using their 1-2-3 Rewards card. So far, customers have earned $48 million in free groceries.

These types of programs – and our associates’ exceptional ability to execute them well – are just some of the reasons Kroger’s business is growing. We have built the ultimate “one-stop shop” for customers in thousands of communities we serve. Our combination stores, many with in-store pharmacies, and growing number of on-site fuel centers, help our customers combine shopping trips. As our first quarter results show, we are making progress in our efforts to be a reliable, relevant partner for customers by anticipating their needs and consistently delivering on their expectations. Through these types of investments, our customers are saving $1 billion annually.

Now I would like to turn the call over to Rodney for some additional details on our first quarter results, financial strategy update, and 2008 guidance.
Rodney?

Comments by Rodney McMullen:
Thank you, Dave, and good morning everyone.

Dave highlighted Kroger’s strong sales and earnings for the first quarter. We realize that some investors want to know if our special tax rebate gift card promotion drove these strong results. Overall, the promotion had no material effect on Kroger’s first quarter sales or earnings.

Tax Rebate Gift Card Promotion

Let me tell you a little more about how the promotion works. Under this special promotion, which started May 2 and ends July 31, customers can receive up to $120 in free groceries from Kroger if they buy Kroger gift cards. We are evaluating this promotion internally, based on a variety of metrics, to understand how it is affecting customers' shopping behavior. So far, we are pleased with the trends we are seeing.

Some investors have asked us how we are accounting for the 10% bonus associated with the promotion. While the accounting is straightforward, an example might be helpful. A customer who turns $300 into a Kroger gift card will receive a card valued at $330. Kroger recognizes sales revenue of $300 as the card is used. The $300 in revenue reflects gross sales of $330 minus the $30 discount. So the 10% bonus reduces sales and gross margin as customers use their gift cards in our stores.

This is the same accounting treatment we use for other in-store promotions that are funded by Kroger – our popular fuel discount program is another example. The cost of the fuel discount reduces our in-store sales and gross margin. If you have additional questions about how we account for these items, please follow-up with Carin offline after this conference call.

It’s important to note that merchandising strategies such as our tax rebate gift card program and our expanded generic drug program are merely components of Kroger’s overall Customer 1st strategy to deliver value to our customers. These merchandising strategies are not incremental to our regular investments, and they are contemplated in the fiscal 2008 earnings guidance Dave provided.

Retail Fuel Operations

There have also been some investor questions about the volatility of Kroger’s quarterly earnings due to fuel margins. Kroger operates over 700 supermarket fuel centers, and nearly all of our 778 convenience stores sell gas. As we have said before, in the fuel business, we do see margins fluctuate from quarter to quarter. Over a longer timeframe, margins in this business are more normalized. On a rolling four-quarters basis, the blended cents per gallon fuel margin for our convenience stores and supermarket fuel centers was 11.4¢ this year compared to 11.7¢ last year, a decline of .3¢ per gallon.

In the first quarter of 2008, the blended cents per gallon margin was 9.2¢ compared to 8.7¢ in the prior year. While our gallons sold were up on a year-over-year basis, our retail fuel operations had no impact on Kroger’s first quarter earnings per share growth in 2008. This is largely due to the impact of higher credit card fees on fuel sales compared to the prior year.

Our retail fuel business is a highly valuable asset, particularly because it strengthens our connection with customers. Our fuel centers eliminate an extra trip for shoppers, and customers know they can count on a competitive fuel price at Kroger.

Let’s turn now to the performance of our core grocery operations.

Gross Margin

Excluding the effect of retail fuel operations and the non-recurring labor expenses of the prior year, FIFO gross margin declined 5 basis points. Improvement in shrink expense helped fund continued investments in good prices for our customers. Kroger’s supermarket selling gross margin on non-fuel sales declined 9 basis points, year-over-year.

Inflation and LIFO Charge

Like many food retailers, Kroger continues to experience product cost inflation at levels not seen in several years. We estimate that our product cost inflation during the quarter was 3.5%, excluding fuel. This relatively high inflation rate is reflected in our $40 million LIFO charge in the first quarter. This amount is almost $20 million higher than the previous year and reduced Kroger’s non-fuel operating margin by 9 basis points. The year-over-year increase in LIFO mainly reflects the timing of when inflation affected our business in 2008 compared to 2007. Recall that our full-year LIFO charge for fiscal 2007 was $154 million after rising product cost inflation caused us to increase our LIFO charge estimate every quarter last year. If that full-year expense had been recognized ratably during the year, our LIFO charge for the first quarter of 2007 would have been more consistent with our current experience. I’ll talk more about LIFO in a minute when I provide some additional color on our 2008 earnings guidance.

As you know, the LIFO charge is a non-cash expense that results from the Company’s choice of accounting method for its product inventories. But beyond the mechanics of the LIFO charge, we realize what many investors want to understand is how inflation is affecting our business. On the whole, as we have said several times, we believe that a moderate level of food inflation is a positive for our business. At moderate levels, we are generally able to pass suppliers’ product cost increases on to customers without negative impact to unit volume. And we get the benefit of the additional sales leverage over the fixed costs in our business. We would describe current levels of product cost inflation as “moderate”.

Operating, general and administrative (OG&A)

Some of that additional sales leverage is reflected in our OG&A rate. Excluding the effect of retail fuel operations, OG&A declined 17 basis points.

The improvement in our OG&A rate is primarily due to strong identical sales leverage. We also benefited from lower benefit costs associated with some labor contracts. While the effect of this particular benefit will diminish over time, we continue to identify other ways to reduce operating costs as part of our ongoing strategy.

A great example of our success in this area are the initiatives we have in place to control our utility costs. Since 2000, we have reduced overall energy consumption by over 22% – or 1.6 billion kilowatt-hours. That’s enough electricity to power every single family home in Denver, Colorado for one year. Many thanks to our associates who made this possible!

You can read more about our energy reduction and recycling efforts later this week when our new sustainability report is published online at Kroger.com.

Operating Margin

Let’s continue down the income statement with operating margin. During the quarter, Kroger’s non-fuel operating margin expanded 2 basis points, this also excludes the non-recurring labor expenses in the prior year. As a reminder, our fiscal 2008 earnings guidance incorporates a slight expansion in Kroger’s non-fuel operating margin on a full-year basis.

Tax Rate

Our tax rate for the quarter was 37.0%, compared to 38.1% in the prior year. The first quarter rate was lower in the current year due to the resolution of certain tax issues. We now anticipate a full-year tax rate in the range of 37% to 37.5%.

Capital Investment

Capital investment, excluding acquisitions, totaled $637 million, compared with $556 million in the prior year. We continue to project fiscal 2008 capital spending of $2.0 to $2.2 billion, excluding acquisitions. This investment is expected to cover 70 to 80 major store projects, 175 to 200 store remodels, plus other investments to support our Customer 1st strategy.

Our 2008 capital budget also includes approximately $160 million for several high-return projects in Kroger’s logistics network. These projects will cause our logistics spending in 2009 to be higher than normal, as well.

Free Cash Flow

Turning now to free cash flow. Kroger remains committed to its solid investment grade rating. Our long-term financial strategy is to manage free cash flow to repurchase shares and pay dividends, while maintaining a leverage ratio that supports our investment grade rating. On a rolling four-quarters basis, Kroger’s net total debt to EBITDA ratio was 1.95, compared with 1.85 during the same period last year and 2.03 for the fourth quarter of fiscal 2007. Total debt was $7.8 billion, an increase of $1.2 billion from a year earlier.

Our share repurchase and dividend programs deliver substantial value to shareholders. During the first quarter, Kroger returned over $430 million to shareholders in share repurchases and dividends.

Of this amount, $381 million was invested to repurchase 15.0 million shares of stock at an average price of $25.46 per share. At the end of the first quarter, approximately $644 million remained under the $1 billion stock repurchase program announced in January 2008. At the current share price, we expect this amount will be sufficient to fund repurchases through the remainder of fiscal 2008.

Kroger paid nearly $50 million in dividends to shareholders during the first quarter, compared to $46 million during the same period of the prior year.

Additional Details on 2008 Guidance

I want to turn back to the updated 2008 earnings guidance Dave shared with you. As we mentioned, we are raising the lower end of our earnings per share guidance from $1.83 to $1.85. The upper end remains the same at $1.90 per share.

Given Kroger’s strong first quarter results, some of you may wonder why we did not raise the upper end of our earnings per share guidance. There are several moving pieces to our thought-process, so let me walk you through the highlights.

First, there is uncertainty surrounding the economic outlook for the remainder of 2008 and how it will affect our customers. So far, we have not seen major shifts in our customers’ purchasing behavior. Our strong identical sales trends have continued. Through four weeks of our second quarter, we are tracking at the high end of our updated identical sales guidance for fiscal 2008. As Dave described, we are doing everything we can to help customers stretch their budgets. But with over 7 months to go in our fiscal year, it is too early to make predictions as to how continued economic pressures will affect customers.

Second, like many businesses, Kroger is facing headwinds in the form of higher energy-related operating costs such as diesel fuel, utility expenses, and even higher bag costs. In the first quarter, Kroger’s strong sales performance and the lower benefit costs associated with some labor contracts allowed us to absorb these higher costs and report strong earnings growth. While we expect our identical sales growth trend to continue, the effect of the reduced health care costs will diminish over time.

The third factor is LIFO, which could actually help mitigate some of our higher energy-related operating costs in the back half of 2008, based on our current estimates. Our updated 2008 earnings guidance incorporates a full-year LIFO charge of $130 million, which is about $25 million lower than 2007 and the preliminary estimate for 2008 we provided in March. Our current expectation declined from our original 2008 projection largely due to current commodities outlooks that suggest dairy prices will be lower at the end of the year. Our actual LIFO expense for 2008 will be determined in the fourth quarter, based on inflation rates at that time.

Given the current challenging economic environment, we believe that an EPS growth rate of 9% to 12% over fiscal 2007 results, plus the dividend yield of more than 1%, should position Kroger to deliver solid value to shareholders while continuing to invest in the long-term health of our business. Kroger’s first quarter results and our annual guidance reflect the balance required for our long-term sustainable business model.

Although we do not give quarterly guidance, please keep in mind our comments in March on quarterly earnings per share growth rates. We said the first quarter growth rate would be higher than the annual growth rate. Clearly, that forecast was accurate. We also said that the fourth quarter growth rate would be higher than the annual growth rate. The lowest year-over-year growth rate will likely occur in the third quarter due to last year’s tax benefit which benefited Kroger’s third quarter results by roughly $0.02 to $0.03 per share on a net basis.

Labor

I’ll wrap up with some comments on labor relations. During the quarter, we reached agreements in Memphis and Louisville. Last week, our associates in Indiana ratified a new agreement. And I understand we reached an agreement in Nashville yesterday, subject to employee ratification. This year, we have labor negotiations covering store associates in Columbus, Las Vegas, Phoenix and Portland. In every negotiation, we work to achieve competitive cost structures in each market while meeting our associates’ need for good wages and affordable health care.

Now I will turn it back to Dave for some closing remarks.

Comments by Dave Dillon:
Thanks, Rodney. We are off to a strong start in fiscal 2008. Kroger’s performance during the quarter demonstrates the resiliency of our Customer 1st strategy. Our associates are connecting well with customers as our strategy continues to drive industry-leading identical sales growth and create shareholder value.

The underlying strength of Kroger’s long-term business model is illustrated by our solid first quarter results and updated guidance. We continue to balance investments in our customers’ overall shopping experience with current economic conditions, including inflationary costs.

Now, we would like to take a few moments to answer your questions.

Closing comments after Q&A:
Thank you. Before we sign off, I would like to offer some additional comments to our associates listening in today.

Thank you for your contributions to our strong first quarter results. Our performance is tied directly to the efforts you make every day. We appreciate your commitment to keeping our customers first in your daily decisions.

One customer summed it up well in a recent letter he wrote to me about the great service he and his family consistently enjoy at their local Ralphs store in Porter Ranch, California. He wrote that although he and his wife have more than 12 supermarkets within a 10-mile radius of their home, they shop only at Ralphs because of the “amazing professionalism and courteous treatment we get from the wonderful staff you have there….From cashing in coupons to simply saying hello or asking where something might be found, this staff is fantastic. We have never encountered anything but the highest level of kindness, respect and cooperation.”

He went on to say how proud I should be of the team there and indeed, I am. Rick Foley and all the team members do a great job. This is another terrific example of what does happen when a team is committed to delivering exceptional customer service. Congratulations to the each one of the great team members at our Ralphs store in Porter Ranch. Our results tell us there are examples like this every day in every store and workplace throughout our Company.

As each of our paychecks remind us, “A Satisfied Customer Made This Paycheck Possible.” Thank you for keeping your focus on our customers.
On a final note, we hope you and your families enjoy a safe and happy summer.
Thank you all for joining us today. Goodbye.

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The remarks contain certain forward-looking statements about the future performance of the Company. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as “forecast,” “expectation,” “guidance,” “will,” “strategy,” “expect,” and “anticipate.” These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. Our ability to achieve identical supermarket sales and earnings growth and earnings per share goals may be affected by: labor disputes, particularly as the Company seeks to manage health care and pension costs; industry consolidation; pricing and promotional activities of existing and new competitors, including non-traditional competitors; our response to these actions; the state of the economy, including interest rates and the inflationary and deflationary trends in certain commodities; weather conditions; stock repurchases; the success of our future growth plans; goodwill impairment; and our ability to generate sales at desirable margins, as well as the success of our programs designed to increase our identical sales without fuel. In addition any delays in opening new stores, or changes in the economic climate could cause us to fall short of our sales and earnings targets. Our ability to increase identical supermarket sales also could be adversely affected by increased competition and sales shifts to other stores that we operate, as well as increases in sales of our corporate brand products. Our capital expenditures during the year are dependent upon our ability to acquire desirable sites for construction of new facilities, as well as the timing of completion of projects. These same factors could affect the extent to which our strategic plan is successful and the extent to which we are able to create value for our shareholders by investing in our store base, repurchasing stock, and paying cash dividends. Our plans to use free cash flow to repurchase shares and to pay dividends will depend on our ability to generate free cash flow, which will be affected by all of the factors identified above, and the extent to which those repurchases can be made and dividends be paid while still maintaining a solid investment grade rating. Any changes in tax laws, the regulations related thereto, the applicable accounting rules or standards, or the interpretation thereof by federal, state or local authorities could affect our expected tax rate. The extent to which our existing authority will be sufficient to fund our share repurchases through fiscal 2008 will depend primarily on the price of Kroger stock when compared to other investments available to the Company. Our year over year growth rate projections will be affected by all of the factors identified above, and our third quarter growth rate could fail to be lowest, as projected, if our EPS growth rate exceeds our expectations. We assume no obligation to update the information contained herein. Please refer to Kroger’s reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.

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