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The Kroger Management Discusses Q2 2012 Results - Earnings Call Transcript

Our associates controlled costs and improved productivity in the second quarter, saving money in places not important to customers so we can reinvest in places that are. We target investments in the 4 keys of our strategy, people, products, shopping experience and price to increase relevance with our customers. Greater relevance inspires customer loyalty and grows both sales and profit as our second quarter results demonstrated. This is what makes Kroger unique among food retailers, our unrelenting focus on solving our customers' needs. That we've achieved consistent ID sales growth demonstrates that our strategy resonates with customers and our increased earnings guidance demonstrates how this creates shareholder value.

Rodney will now discuss Kroger's positive business trends in the second quarter. Rodney?

W. Rodney McMullen

Thank you, Dave, and good morning, everyone. Kroger leveraged operating expenses in the second quarter as OG&A costs plus rent and depreciation without fuel were down 59 basis points as a percent of sales. On this basis and excluding one-time items, we have had 7 consecutive years of reductions in this metric. And our year-to-date results set us up to achieve our eighth consecutive year.

We do this consistently through a determined emphasis on productivity improvements. For example, we've gained efficiencies in our 1,948 pharmacy locations by utilizing new technology that helps our pharmacists to better manage workflow, prioritize prescriptions and allocate work between pharmacists and pharmacy technicians. The increased productivity reduces customer wait times and provides an enhanced pharmacy experience.

One of the most important measures of our business is loyal household growth because it lets us know how well we are connecting with our best customers. During the second quarter, our loyal household count grew at a faster rate than total household growth, which was also up for the quarter. We also achieved positive identical sales for both total households and loyal households. Identical sales growth among loyal households was stronger than total household result. Customers continue to visit our stores more frequently, purchase fewer items on each trip and buy more on a monthly basis. This is consistent with what we've seen for the last several quarters.

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