Good day, ladies and gentlemen, and welcome to the Kroger Company Third Quarter 2005 Earnings Conference Call. My name is Ann Marie and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question and answer session toward the end of today's conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. I would now like to turn the call over to Ms. Carin Fike. You may proceed, please.

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 the call over to Mr. Dillon.

Thanks, Carin. Good morning, everyone. We're pleased you could join us to review Kroger's third quarter 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'd like to begin this morning by briefly reviewing our third quarter performance and some key areas of our business. Rodney will share additional details about our results, and then we'll take your questions. Total sales for the third quarter increased 9.1% to $14 billion. This growth was once again broad-based across the organization, driven by strong sales at the Company's food stores and fuel centers, some improvement in southern California, and a great performance at our convenience stores. This growth continues a very good trend. Identical supermarket sales increased 6.6% with fuel and 3.7% without fuel. Once again, by either measure, this represents Kroger's highest identical supermarket sales since the merger with Fred Meyer in 1999. It also is the ninth consecutive quarter of positive identical supermarket sales, excluding fuel. We're very pleased by this performance. As we've discussed before, identical sales growth is a key component of Kroger's strategy. Kroger's business strategy is squarely aimed at consistently meeting the needs of our customers through great service, selection, and value. To do that, we've taken a page from Kroger's past to build our business for the future. Some of you may know that back in the 1970s Kroger became the first U.S. grocer to formalize consumer research. Since late last year, our Company has been surveying thousands of customers around the country each quarter to ask about their shopping experience in our stores. The great thing about this feedback is that it comes directly from our customers and it clearly identifies areas where we can improve. We want to know what matters most to them when they choose where to shop. We also ask customers the same question about their shopping experiences at our competitors so that we can benchmark ourselves and measure our improvement. Each quarter we share the feedback with our supermarket divisions as one way to help our associates better understand what our customers expect when they visit our stores. We know that you win one customer at a time and these surveys are a very useful tool. Kroger's corporate brands continue to be an important competitive advantage. In the third quarter we added 201 items to the corporate brand line-up. The market share of Kroger private label grocery items, in terms of dollars, reached nearly 24%, and our share in terms of units was slightly over 31%. Now turning to southern California, sales and operating profits at Ralphs and Food 4 Less improved during the third quarter as compared to last year. Identical supermarket sales, without fuel at both divisions, on a combined basis increased 2.9% over the prior period. The pace of our recovery is proceeding slower than we would like. We see additional opportunities for growth and our teams at Ralphs and Food 4 Less are clearly focused on seizing those. We continue to be bullish on southern California. As we're now in the final quarter of our fiscal year, I'd like to remind investors about our earnings guidance for fiscal 2005. In March, we forecasted that our 2005 earnings would exceed $1.21 per diluted share. In June, on the strength of our first quarter financial performance, we raised our earnings estimate to exceed $1.24 per diluted share. Now, based on our year-to-date performance through the third quarter, we are confident we will exceed earnings of $1.24 per diluted share as a result of improved results in southern California and the balance of the Company, lower interest expense, and fewer shares outstanding as a result of our stock buybacks. Now I'll ask Rodney to provide some additional perspective on Kroger's third quarter results. Rodney?

Thank you, Dave, and good morning, everyone. As Dave said, our sales growth during the quarter was very broad-based. We had growth across all of the country and across all major categories. All but one of our divisions experienced another quarter of an increased identical supermarket sales. The strongest categories included produce, grocery, and drug general merchandise across the Company. Also at Fred Meyer, in addition to these categories, the home fashion and apparel categories were strong. We estimate product cost inflation during the quarter was 0.4%, that's 0.4%, excluding fuel and 3.4% including fuel. Kroger reported net earnings of $185.4 million or $0.25 per diluted share for the third quarter. Net earnings in a year ago period was 142.7 million or $0.19 per diluted share. Kroger's results for the quarter reflected a variety of items that together had little effect on fully diluted shares earnings per share. These items include $0.02 of income resulting from the settlement of a previous class action credit card suit and the reversal of an unrelated tax contingency. These benefits were offset by a combined $0.03 of expense resulting from the impact of Hurricane Katrina and Rita and an increase in certain legal reserves, some of which are nondeductible for tax purposes. And a write down to fair market value of assets held for sale. The biggest item was the increase in certain legal reserves. Our fuel business had a strong quarter in sales, gallons, and margins. While fuel margins in the quarter were strong, on a year-to-date basis, they were more normalized. FIFO gross margin was 24.48% of sales, a decline of 62 basis points compared to the third quarter of 2004. Excluding the effect of retail fuel operations, FIFO gross margin declined 6 basis points from the prior year. Improvements in strength, advertising, and warehousing allowed us to fund additional investments in lower prices for our customers on a targeted basis. OG&A declined 69 basis points to 18.23% of sales. Excluding retail fuel operations, OG&A declined 3 basis points as Kroger was able to leverage higher sales to offset higher energy prices and investments in better service. We estimate that the higher energy prices negatively affected gross margin by 8 basis points and OG&A by 9 basis points for a total of 17 basis points. Our financial performance in the third quarter reflects the consistent approach we have taken to managing our business. We continue to balance investments in gross margin and improved customer service with operating cost reductions to provide a better shopping experience for our customers. Capital investments totaled 336.9 million in the third quarter compared to 429.1 million a year ago. For 2005, we now expect capital investment to come in to the closer to the low-end of our range of 1.4 to 1.6 billion, excluding acquisitions. Now I'd like to give you a short update on our share repurchase activities. During the third quarter, Kroger repurchased 590,000 shares of stock at an average price of $19.97 for a total investment of $11.8 million. At the end of the third quarter, there was approximately 158 million remaining under the $500 million stock buyback announced in September, 2004. Since January, 2000, Kroger has invested $2.9 billion to repurchase 153.1 million shares at an average price of $19.14 per share. Kroger continues to buyback stock. Net total debt was $7.2 billion, a reduction of 660 million from a year ago. Net interest expense totaled 114.2 million, a decrease of $2.5 million from last year. We have reduced net total debt by $1.6 billion since January, 2000. Over the past four quarters, Kroger's strong cash flow continued to enable us to achieve our financial triple play by reducing net total debt by 660 million, repurchasing 272 million in stock, and making $1.3 billion in capital investments. Our long-term strategy remains focused on using one-third of cash flow for debt reduction and two-thirds for stock repurchase or payment of a cash dividend. As you can see, since 2000 Kroger is in line with that target. We have the financial resources to continue building our business for the future, which is an important competitive advantage in today's operating environment. Our investment grade rating is important to us and we're focused on improving our coverages. Our net total debt to EBITDA ratio in the third quarter was 2.22. Our best historical performance since the merger with Fred Meyer came in the second quarter of 2002 when our ratio was 2.16. Our third quarter tax rate was 38.2% for the current year compared to 35% for the prior year. The third quarter, 2004 rate was favorably affected by the settlement of open items with various taxing authorities and the retroactive passage of the work opportunity tax credit legislation. The third quarter 2005 rate was also favorably affected by the settlement of open items offset by the impact of certain legal expenses that were not deductible for tax purposes. We expect that our tax rate for fiscal 2005 will be 37.5%. This is consistent with our prior estimate. Now a quick update on labor negotiations. Since our last investor call in September, Kroger has reached new agreements with the UFCW in Atlanta, Roanoke, Columbus, Dallas, and Dayton. Teamster locals in southern California also ratified new contracts. With these agreements, we have now completed every major UFCW contract identified for 2005. Kroger generally was able to work with the Unions to craft a balanced agreement that met our objectives for cost reductions or containments while fulfilling our commitment to provide our associates with solid wages and benefits. We'll be back at the bargaining table in 2006 with a number of contracts covering smaller groups of associates but nothing of the magnitude we faced this year. Labor negotiations will continue to be a challenge in the face of competitive pressures and rising pension and healthcare costs. One final note. We are currently in the process of completing Kroger's business plan for 2006. As in the past, we will expect to share details of Kroger's business plan when we release fourth quarter results in March, but our strategic focus will remain the same. We will continue to focus on driving sales growth and balancing investments and gross margin and improved customer service with operating cost reductions to provide a better shopping experience for our customers. We expect operating margins in southern California to improve slightly to continued recovery in that market, although the incremental improvement in 2006 will be less than in 2005. We expect operating margins in the balance of the Company to hold steady. One thing to keep in mind is that fiscal 2006 will be 53 weeks. Also we will begin expensing stock options in 2006, which we expect will affect fiscal 2006 earnings by $0.04 to $0.06 per diluted share. Now we'll turn it back to Dave for some concluding remarks.

Thanks, Rodney. Thanks to the hard work and outstanding contributions of the entire organization, Kroger has made tremendous progress in several key areas this year. Our associates are offering improved shopping experiences to our customers in a variety of ways. And Kroger has been able to fund these improvements by taking costs out of our business and improving productivity. Holiday sales are off to a strong start. We are focused on becoming more competitive in every aspect of our business so that we can take advantage of growth opportunities and generate value for our shareholders. During this holiday season, it's important to thank our associates and customers for their generous response throughout the year to help those in need. 2005 has been a difficult year for so many, including those affected by the hurricanes in the Gulf coast. I'm tremendously proud of the way our customers and our associates at our stores, our manufacturing plants, offices, and distribution centers rallied to help. Together we raised more than $7 million for the American Red Cross hurricane relief efforts. Kroger has long understood the importance of giving back to the communities where our customers and associates live and work. Now others appear to be taking note, too. Last month, Business Week magazine recognized Kroger was one of the most generous companies in America for our work with schools, food banks, youth groups, and other charitable organizations. We're proud of that honor and will continue to look for new ways to partner with these organizations in 2006. We now will be happy to take your questions.