Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following analysis should be read in conjunction with the Consolidated Financial
Statements.
O
VERVIEW
Total sales increased 6.2% and identical sales (as defined below) increased 3.8% with fuel
and 2.4% without fuel. Our total sales growth was broad-based across the organization, driven by strong sales at our food stores and fuel centers, improvement in southern California, and a very good performance at our convenience and jewelry stores.
We will continue targeting the areas of our business that our customers have
told us are most important to them. By placing the “customer first” we are committed to making sure that every decision we make positively influences the way our customers feel about Kroger.
In southern California, we continue to rebuild our business. Identical sales (as defined
below) without fuel at Ralphs and Food 4 Less were both positive in the first quarter and, on a combined basis, increased 1.3% from a year ago. In addition, operating profit at Ralphs and Food 4 Less were in line with our expectations.
On the strength of our first-quarter financial performance, we are raising our earnings
estimate for fiscal 2005. We now expect earnings for the full year to exceed $1.24 per fully diluted share, an increase of $0.03 per share from the previous guidance. We expect our 2005 earnings per share growth to be fueled by continued progress in
southern California, lower interest expense, and fewer shares outstanding as a result of stock buybacks.
R
ESULTS
OF
O
PERATIONS
Net Earnings
Net earnings totaled $294 million for the first quarter of 2005, an increase of 11.8% from net earnings of $263 million for the first quarter of 2004. The increase in our
net earnings was the result of improvement in southern California and the leveraging of fixed costs by strong identical sales growth.
Earnings per share of $0.40 per diluted share for the first quarter of 2005 represented an increase of 14.3% over net earnings of $0.35 per diluted share for the first
quarter of 2004. Earnings per share growth resulted from increased net earnings and the repurchase of Company stock. Over the past four quarters, we have repurchased 20 million shares of the Company’s stock for a total investment of $323
million.
Sales
Total Sales
(In millions)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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First
Quarter,
2005
|
|
Percentage
Increase
|
|
|
First
Quarter,
2004
|
|
Percentage
Increase
|
|
|
Total supermarket sales without fuel
|
|
$
|
16,027.0
|
|
$
|
3.9
|
%
|
|
$
|
15,433.5
|
|
2.7
|
%
|
|
Total supermarket fuel sales
|
|
$
|
925.7
|
|
$
|
47.3
|
%
|
|
|
626.2
|
|
47.4
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total supermarket sales
|
|
$
|
16,952.7
|
|
|
5.6
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%
|
|
$
|
16,059.7
|
|
3.9
|
%
|
|
Other sales
(1)
|
|
|
995.0
|
|
|
17.8
|
%
|
|
|
844.9
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
17,947.7
|
|
|
6.2
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%
|
|
$
|
16,904.6
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
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Other sales primarily relate to sales at convenience and jewelry stores and sales by our manufacturing plants to outside firms.
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The change in our total sales is driven by identical store sales and square footage growth,
as well as inflation in fuel and other commodities. Increased customer count and average transaction size in the first quarter of 2005 drove identical store sales increases.
We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. Differences
between total supermarket sales and identical supermarket sales primarily relate to changes in supermarket square footage. Our identical supermarket sales results are summarized in the table below. The identical supermarket dollar figures presented
were used to calculate first quarter 2005 percent changes.
Identical Supermarket Sales
(In millions)
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|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Including fuel centers
|
|
$
|
15,990.5
|
|
|
$
|
15,401.4
|
|
|
Excluding fuel centers
|
|
$
|
15,142.4
|
|
|
$
|
14,789.0
|
|
|
|
|
|
|
Including fuel centers
|
|
|
3.8
|
%
|
|
|
1.3
|
%
|
|
Excluding fuel centers
|
|
|
2.4
|
%
|
|
|
0.3
|
%
|
We define a supermarket as comparable when it has been in operation for five full quarters, including expansions and
relocations. Our comparable supermarket sales results are summarized in the table below. The comparable supermarket dollar figures presented were used to calculate the first quarter 2005 percent changes.
Comparable Supermarket Sales
(In millions)
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|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Including fuel centers
|
|
$
|
16,447.1
|
|
|
$
|
15,757.1
|
|
|
Excluding fuel centers
|
|
$
|
15,565.4
|
|
|
$
|
15,137.2
|
|
|
|
|
|
|
Including fuel centers
|
|
|
4.4
|
%
|
|
|
1.8
|
%
|
|
Excluding fuel centers
|
|
|
2.8
|
%
|
|
|
0.8
|
%
|
FIFO Gross Margin
We calculate First-In, First-Out (“FIFO”) Gross Margin as
follows: Sales minus merchandise costs plus Last-In, First-Out (“LIFO”) charge. Merchandise costs include advertising, shrink, warehousing and transportation, but exclude depreciation expenses and rent expense. FIFO gross margin is an
important measure used by management to evaluate merchandising and operational effectiveness.
Our FIFO gross margin rate declined 82 basis points to 25.19% for the first quarter of 2005 from 26.01% for the first quarter of 2004. Of this decline, the effect of fuel sales accounted for a 42 basis point reduction
in our FIFO gross margin rate. The declining rate on non-fuel sales reflects our investment in lower retail prices, partially offset by our improvements in shrink.
Operating, General and Administrative Expenses
Operating, general and administrative (“OG&A”) expenses consist primarily of employee-related costs such as wages, health care
benefit costs and retirement plan costs. Among other items, rent expense, depreciation and amortization expense, and interest expense are not included in OG&A. OG&A expenses, as a percent of sales, decreased 62 basis points to 18.39% for the
first quarter of 2005 from 19.01% for the first quarter of 2004. Of this decline, the effect of fuel sales accounted for a 33 basis point reduction in our OG&A rate. The declining rate on non-fuel sales reflects our strong sales, strong cost
control efforts across the Company and lower health care costs, partially offset by increases in loss contingencies for various outstanding legal matters. The 2004 OG&A rate was affected by the southern California labor dispute. OG&A at the
supermarket divisions, excluding Ralphs and the effect of fuel, declined nine basis points.
Rent Expense
Rent expense was $203
million, or 1.13% of sales, for the first quarter of 2005, compared to $212 million, or 1.26% of sales, for the first quarter of 2004. The decline in rent expense reflects our emphasis on ownership of real estate combined with continued focus on the
closing of underperforming stores.
Depreciation Expense
Depreciation expense was $389 million, or 2.17% of sales, for the first
quarter of 2005 compared to $372 million, or 2.20% of sales, for the first quarter of 2004. The decrease in depreciation expense, as a percent of sales, was the result of sales leverage obtained from strong identical sales growth, partially offset
by capital investments.
Interest Expense
Interest expense was $159 million and $172 million in the first quarters of 2005 and 2004,
respectively. The reduction in interest expense for 2005, when compared to 2004, reflects a $509 million reduction of total debt.
Income Taxes
Our effective income tax rate was 35.9 % for the first quarter of 2005 and 36.9% for the first quarter of 2004. In addition to the effect of state taxes, the effective
income tax rate differed from the federal statutory rate due to a reduction of previously recorded tax contingency allowances resulting from a revision of the required allowances based on resolutions with tax authorities during the quarter.
L
IQUIDITY
AND
C
APITAL
R
ESOURCES
Cash Flow Information
Net cash provided by operating activities
We generated $973 million of cash from operating activities during the first quarter of 2005
compared to $941 million during the first quarter of 2004. The increase in cash generated by our operating activities was primarily related to increased net earnings and changes in operating assets, partially offset by a cash contribution of $89
million to our Company-sponsored pension plan in the first quarter of 2005.
Net cash used by investing activities
Investing activities
used $377 million of cash during the first quarter of 2005 compared to $447 million during the first quarter of 2004. The amount of cash used by investing activities decreased in 2005 versus 2004 due to decreased capital expenditures during the
first quarter of 2005.
Net cash used by financing activities
Financing activities used $605 million of cash in the first quarter of
2005 compared to $510 million in the first quarter of 2004. The increase in the amount of cash used by financing activities was the result of increased debt reduction and treasury stock repurchase activity.
Debt Management
As of May 21, 2005, we maintained a $1.8 billion, five-year revolving credit facility that
terminates in 2009 and a $700 million five-year credit facility that terminates in 2007. Outstanding borrowings under the credit agreements and commercial paper borrowings, and some outstanding letters of credit, reduce funds available under the
credit agreements. In addition to the credit agreements, we maintain a $75 million money market line, borrowings under which also reduce the amount of funds available under our credit agreements. The money market line borrowings allow us to borrow
from banks at mutually agreed upon rates, usually at rates below the rates offered under the credit agreements. As of May 21, 2005, our outstanding credit agreement and commercial paper borrowings totaled $266 million. We had no borrowings under the
money market line as of May 21, 2005. The outstanding letters of credit that reduced the funds available under our credit agreements totaled $290 million as of May 21, 2005. We have the ability to refinance these borrowings on a long-term basis, and
have presented the amounts accordingly.
At May 21, 2005, we also had a $100
million pharmacy receivable securitization facility that provided capacity incremental to the $2.5 billion credit agreements described above. Funds received under this facility do not reduce funds available under the credit agreements. Collection
rights to some of our pharmacy accounts receivable balances are sold to initiate the drawing of funds under the facility. As of May 21, 2005, we had no borrowings under this $100 million facility.
Our bank credit facilities and the indentures underlying our publicly issued debt contain
various restrictive covenants. As of May 21, 2005, we were in compliance with these financial covenants. Furthermore, management believes it is not reasonably likely that Kroger will fail to comply with these financial covenants in the foreseeable
future.
Total debt, including both the current and long-term portions of
capital leases, decreased $509 million to $7.5 billion as of the end of the first quarter of 2005, from $8.0 billion as of the end of the first quarter of 2004. Total debt decreased $467 million as of the end of the first quarter of 2005 from $8.0
billion as of year-end 2004. The decreases in 2005 resulted from the use of cash flow from operations to reduce outstanding debt and lower mark-to-market adjustments.
Common Stock Repurchase Program
During the first quarter of 2005, we invested $153 million to repurchase 9.5 million shares of Kroger stock at an average price of $16.06
per share. These shares were reacquired under two separate stock repurchase programs. The first is a $500 million repurchase program that was authorized by Kroger’s Board of Directors in September 2004. The second is a program that uses the
cash proceeds from the exercises of stock options by participants in Kroger’s stock option and long-term incentive plans as well as the associated tax benefits. In the first quarter of 2005, we purchased approximately 9.0 million shares,
totaling $145 million, under our $500 million stock repurchase program and we purchased an additional 0.5 million shares, totaling $7 million, under our program to repurchase common stock funded by the proceeds and tax benefits from stock option
exercises. As of May 21, 2005, we had $208 million remaining under the September 2004 repurchase program.
C
APITAL
E
XPENDITURES
Capital expenditures excluding acquisitions totaled $401 million for the first quarter of 2005 compared to $453 million for the first quarter of 2004. The decrease reflects our continued emphasis on the tightening of
capital and our increasing focus on remodel, merchandising and productivity projects.
During the first quarter of 2005, we opened, acquired, expanded or relocated 14 food stores and also completed 34 within-the-wall remodels. In total, we operated 2,524 supermarkets and multi-department stores at the end of the first quarter
of 2005 versus 2,536 food stores in operation at the end of the first quarter of 2004. Total food store square footage increased 2.2%, excluding acquisitions and operational closings, over the first quarter of 2004.
C
RITICAL
A
CCOUNTING
P
OLICIES
We have chosen accounting policies that we believe are appropriate to report accurately
and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our critical accounting policies are summarized in the Company’s 2004 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted accounting
principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and
other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could
vary from those estimates.
R
ECENTLY
I
SSUED
A
CCOUNTING
S
TANDARDS
In December 2004, the
FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which replaces SFAS No. 123, supersedes APB No. 25 and related interpretations and amends SFAS No. 95 “Statement of Cash Flows.” The
provisions of SFAS No. 123R are similar to those of SFAS No. 123; however, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost
based on their fair value on the date of grant. Fair value of share-based awards will be determined using option pricing models (e.g. Black-Scholes or binomial models) and assumptions that appropriately reflect the specific circumstances of the
awards.
Prior to the adoption of SFAS No. 123R, we are accounting for
share-based compensation expense under the recognition and measurement provisions of APB No. 25, “Accounting for Stock Issued to Employees” and are following the accepted practice of recognizing share-based compensation expense over the
explicit vesting period. SFAS No. 123R will require the immediate recognition at the grant date of the full share-based compensation expense for grants to retirement eligible employees, as the
explicit vesting period is non-substantive. The estimated effect of applying the explicit vesting period approach versus
the non-substantive approach is not material to any period presented. We expect to adopt SFAS No. 123R in the first quarter of fiscal 2006 and expect the adoption to reduce net earnings by $0.04-$0.06 per diluted share during fiscal 2006.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an
amendment of ARB No. 43 Chapter 4” which clarifies that inventory costs that are “abnormal” are required to be charged to expense as incurred as opposed to being capitalized into inventory as a product cost. SFAS No. 151 provides
examples of “abnormal” costs to included costs of idle facilities, excess freight and handling costs and spoilage. SFAS No. 151 will become effective for our fiscal year beginning January 29, 2006. The adoption of SFAS No. 151 is not
expected to have a material effect on our Consolidated Financial Statements.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective application to prior periods financial statements
for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be
limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. SFAS No. 154 further requires a change in depreciation, amortization or depletion method
for long-live, non-financial assets to be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 will become effective for our fiscal year beginning January 29, 2006.
FASB Interpretation No. 47 (“FIN 47”) “Accounting for Conditional Asset
Retirement Obligations” was issued by the FASB in March 2005. FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires
recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after December
15, 2005. The adoption of FIN 47 is not expected to have a material effect on our Consolidated Financial Statements.
OUTLOOK
This discussion and analysis contains certain forward-looking statements about Kroger’s future performance. These statements are based on management’s
assumptions and beliefs in light of the information currently available. Such statements relate to, among other things: projected change in net earnings; identical sales growth; expected pension plan contributions; our ability to generate operating
cash flow; projected capital expenditures; square footage growth; opportunities to reduce costs; cash flow requirements; and our operating plan for the future; and are indicated by words such as “comfortable,” “committed,”
“expect,” “goal,” “should,” “intend,” “target,” “believe,” “anticipate,” and similar words or phrases. These forward-looking statements are subject to uncertainties and other
factors that could cause actual results to differ materially.
Statements
elsewhere in this report and below regarding our expectations, projections, beliefs, intentions or strategies are forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934. While we believe that the
statements are accurate, uncertainties about the general economy, our labor relations, our ability to execute our plans on a timely basis and other uncertainties described below could cause actual results to differ materially.
|
|
•
|
|
We expect net earnings in 2005 to exceed $1.24 per diluted share.
|
|
|
•
|
|
We expect identical food store sales growth, including southern California and excluding fuel sales, to exceed 2.0% in 2005.
|
|
|
•
|
|
We plan to use one-third of cash flow for debt reduction and two-thirds for stock repurchase or payment of a cash dividend.
|
|
|
•
|
|
We expect to obtain sales growth from new square footage, as well as from increased productivity from existing locations.
|
|
|
•
|
|
Capital expenditures reflect our strategy of growth through expansion and acquisition, as well as focusing on productivity increase from our existing store base through remodels. In
addition, we will continue our emphasis on self-development and ownership of real estate, logistics and technology improvements. The continued capital spending in technology is focused on improving store operations, logistics, manufacturing
procurement, category management, merchandising and buying practices, and should reduce merchandising costs. We intend to continue using cash flow from operations to finance capital expenditure requirements. We expect capital investment for 2005 to
be in the range of $1.6 - $1.8 billion, excluding acquisitions. Total food store square footage is expected to grow at 2-3% before acquisitions and operational closings.
|
|
|
•
|
|
Based on current operating trends, we believe that cash flow from operations and other sources of liquidity, including borrowings under our commercial paper program and bank credit
facilities, will be adequate to meet anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for the foreseeable future. We also believe we have adequate coverage of our debt covenants
to continue to respond effectively to competitive conditions.
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|
|
•
|
|
We expect that our OG&A results will be affected by increased costs, such as health care benefit costs, pension costs and credit card fees, as well as any future labor disputes,
offset by improved productivity from process changes, cost savings negotiated in recently completed labor agreements and sales leverage.
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|
|
•
|
|
We expect rent expense, as a percent of total sales and excluding closed-store activity, will decrease due to the emphasis our current strategy places on ownership of real estate.
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|
|
•
|
|
We expect that our effective tax rate for 2005 will be approximately 37.5%.
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|
|
•
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|
We will continue to evaluate under-performing stores. We anticipate operational closings will continue at an above-historical rate.
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|
|
•
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|
We believe that in 2005 there will be opportunities to reduce our operating costs in such areas as administration, labor, shrink, warehousing and transportation. These savings will
be invested in our core business to drive profitable sales growth and offer improved value and shopping experiences for our customers.
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|
|
•
|
|
In addition to the $89 we contributed to Company-sponsored pension plans in the first quarter of 2005, we are required to make cash contributions totaling $53 million during the
balance of fiscal 2005. We may make additional contributions during 2005 in order to maintain our desired funding levels. Among other things, investment performance of plan assets, the interest rates required to be used to calculate pension
obligations and future changes in legislation will determine the amounts of any additional contributions.
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|
|
•
|
|
In 2005, we expect our contributions to multi-employer pension plans to increase approximately 20% over the $180 million contributed in 2004. We expect our contributions to these
plans to increase by about 5% each year thereafter.
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|
|
•
|
|
We currently have contract extensions in Atlanta and Roanoke. Those extensions are subject to termination by either party following notice. We are actively pursuing negotiation of
new agreements in those market. We remain hopeful, but cannot be certain, that we can reach satisfactory agreements without work stoppages in those markets. In 2005, we have major UFCW contracts expiring in: Columbus, Dallas and Portland (non-food).
Teamsters contracts in southern California and one that covers several facilities in the Midwest also expire. In all of these contracts, rising health care and pension costs will continue to be an important issue in negotiations. A work stoppage
could have a material effect on our results.
|
Various
uncertainties and other factors could cause us to fail to achieve our goals. These include:
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|
•
|
|
Our ability to achieve sales and earnings goals, for the entire Company and southern California in particular, may be affected by: labor disputes; 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 the inflationary and deflationary trends in certain commodities; stock repurchases;
and the success of our future growth plans.
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|
|
•
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|
In addition to the factors identified above, our identical store sales growth could be affected by increases in Kroger private label sales, the effect of our “sister
stores” (new stores opened in close proximity to an existing store) and reductions in retail pricing.
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|
|
•
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|
We have estimated our exposure to the claims and litigation arising in the normal course of business and believe we have made adequate provisions for them where it is reasonably
possible to estimate and where we believe an adverse outcome is probable. Adverse outcomes in these matters, however, could result in a reduction in our earnings.
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|
|
•
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|
The proportion of cash flow used to reduce outstanding debt, repurchase common stock or pay a cash dividend may be affected by the amount of outstanding debt available for
pre-payments, changes in borrowing rates and the market price of Kroger common stock.
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|
|
•
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Consolidation in the food industry is likely to continue and the effects on our business, either favorable or unfavorable, cannot be foreseen.
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•
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|
Rent expense, which includes subtenant rental income, could be adversely affected by the state of the economy, increased store closure activity and future consolidation.
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|
|
•
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|
Depreciation expense, which includes the amortization of assets recorded under capital leases, is computed principally using the straight-line method over the estimated useful lives
of individual assets, or the remaining terms of leases. Use of the straight-line method of depreciation creates a risk that future asset write-offs or potential impairment charges related to store closings would be larger than if an accelerated
method of depreciation was followed.
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|
|
•
|
|
Our effective tax rate may differ from the expected rate due to changes in laws, the status of pending items with various taxing authorities and the deductibility of certain
expenses.
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|
|
•
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|
We believe the multi-employer pension funds to which we contribute are substantially underfunded, and we believe the effect of that underfunding will be the increased contributions
we have projected over the next several years. Should asset values in these funds deteriorate, or if employers withdraw from these funds without providing for their share of the liability, or should our estimates prove to be understated, our
contributions could increase more rapidly than we have anticipated.
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|
|
•
|
|
The grocery retail industry continues to experience fierce competition from other traditional food retailers, supercenters, mass merchandisers, club or warehouse stores, drug stores
and restaurants. Our continued success is dependent upon our ability to compete in this industry and to reduce operating expenses, including managing health care and pension costs contained in our collective bargaining agreements. The competitive
environment may cause us to reduce our prices in order to gain or maintain share of sales, thus reducing margins. While we believe our opportunities for sustained profitable growth are considerable, unanticipated actions of competitors could
adversely affect our sales.
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|
|
•
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|
Changes in laws or regulations, including changes in accounting standards, taxation requirements and environmental laws may have a material effect on our financial statements.
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•
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|
Changes in the general business and economic conditions in our operating regions, including the rate of inflation, population growth and employment and job growth in the markets in
which we operate, may affect our ability to hire and train qualified employees to operate our stores. This would negatively affect earnings and sales growth. General economic changes may also affect the shopping habits of our customers, which could
affect sales and earnings.
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|
|
•
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|
Changes in our product mix may negatively affect certain financial indicators. For example, we continue to add supermarket fuel centers to our store base. Since gasoline generates
low profit margins, including generating decreased margins as the market price increases, we expect to see our FIFO gross profit margins decline as gasoline sales increase. Although this negatively affects our FIFO gross margin, gasoline sales
provide a positive effect on operating, general and administrative expenses as a percent of sales.
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|
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•
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|
Our ability to integrate any companies we acquire or have acquired, and achieve operating improvements at those companies, will affect our operations.
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|
•
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|
Our capital expenditures could differ from our estimate if we are unsuccessful in acquiring suitable sites for new stores, if development costs vary from those budgeted or if our
logistics and technology projects are not completed in the time frame expected or on budget.
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|
|
•
|
|
Interest expense could be adversely affected by the interest rate environment, changes in the Company’s credit ratings, fluctuations in the amount of outstanding debt,
decisions to incur prepayment penalties on the early redemption of debt and any factor that adversely impacts our operations that results in an increase in debt.
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|
|
•
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|
Adverse weather conditions could increase the cost our suppliers charge for their products, or may decrease the customer demand for certain products. Additionally, increases in the
cost of inputs, such as utility costs or raw material costs, could negatively impact financial ratios and earnings.
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|
|
•
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|
Although we presently operate only in the United States, civil unrest in foreign countries in which our suppliers do business may affect the prices we are charged for imported
goods. If we are unable to pass on these increases to our customers, our FIFO gross margin and net earnings will suffer.
|
We cannot fully foresee the effects of changes in economic conditions on Kroger’s business. We have assumed economic and competitive situations will not change
significantly for 2005. Other factors and assumptions not identified above could also cause actual results to differ materially from those set forth in the forward-looking information. Accordingly, actual events and results may vary significantly
from those included in, contemplated or implied by forward-looking statements made by us or our representatives.
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