Good day, ladies and gentlemen. Welcome to the Kroger Fourth Quarter 2005 Earnings Conference Call. My name is Cindy, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. If at anytime during the call you require assistance, please key “*” followed by “0” and a coordinator will be happy to assist you. I would now like to turn the call over to Carin Fike. Please proceed.

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. Kroger assumes no obligations to update that information. Our fourth quarter press release as well as this morning's press release about Kroger's dividend announcement 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, and good morning, everyone. We're pleased you could join us to review Kroger's fourth quarter and fiscal year 2005 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 would like to begin by recapping some highlights of Kroger's fourth quarter sales results and then I will provide market share information along with sales and earnings guidance for 2006. Rodney will discuss Kroger's fourth quarter and fiscal year 2005 results. He will provide additional detail on our 2006 guidance, and then we'll be happy to take your questions. The continued focus of Kroger's associates on delivering improved service, product selection and value to our customers has generated another quarter of impressive sales growth. Total sales for the fourth quarter increased 7.5% to $14.7 billion. This growth was broad based across all divisions and store departments. Grocery, produce, bakery and fuel sales were particularly strong. In addition, our holiday sales were well planned and well executed by our associates. The convenience stores turned in another solid quarter of sales growth not only in fuel sales but in non-fuel merchandise too. Fourth quarter identical supermarket sales increased 6.2% with fuel and 4.7% without fuel. This represents Kroger's 10th consecutive quarter of positive identical supermarket sales excluding fuel. Fourth quarter comparable supermarket sales which included expansions and relocations increased 6.7% with fuel and 5.1% without fuel. Our fourth quarter identical supermarket sales results reflect Kroger's highest identical supermarket sales since the merger with Fred Meyer in 1999. All 17 of our supermarket divisions had positive identical sales growth. We are extremely pleased by this performance. As we discussed before, sustainable identical sales growth is a key driver of Kroger's financial objective…

Thank you, Dave, and good morning, everyone. Kroger reported net earnings of $282.1 million or $0.39 per diluted share for the fourth quarter. In the year ago period Kroger reported a net loss of 652.1 million or $0.89 per diluted share. The year ago results include a goodwill impairment charge of $903.8 million pre-tax that affected net earnings by $860.8 million or $1.17 per diluted share. Some of you may have noticed back in December Kroger sold 9 shopping centers anchored by Kroger stores for approximately $80 million. Following the sale we have signed a long-term lease agreement with the buyer to continue our operations in each of the 9 Kroger stores. In accordance with Generally Accepted Accounting Principles the gain associated with the sale of these shopping center properties will be recognized over the term of the lease agreements. Thus the sale had no effect on our fourth quarter earnings per share. Now turning to gross margin and OG&A. FIFO gross margin was 24.85% of sales, a decrease of 22 basis points compared to the fourth quarter of 2004 excluding the effect of retail fuel operations, FIFO gross margin rose 32 basis points from the prior year. When we analyze gross margin internally, we use a term that we call selling gross margin to describe Kroger's gross margin before incurring expenses directly related to distributing and merchandising the products on our store shelves. These expenses include advertising, warehousing, transportation and shrink. Selling gross margin is a measure on of how competitively we are pricing the products we sell. Kroger's fourth quarter selling gross margin on non-fuel sales declined approximately 23 basis points. In other words, we were able to use improvements in shrink and warehousing expense to fund additional targeted investments in competitive prices for our customers. This remains…

Thanks, Rodney. We're very pleased with our results for the fourth quarter and fiscal 2005. As Rodney discussed, our fiscal 2005 results compared very favorably to each of the objectives we outlined for you at the beginning of 2005. During 2005 we made progress on many fronts. We grew our average market share by more than 35 basis points in a highly competitive environment. We showed even stronger growth in the supercenter markets. We continued to improve our pricing position with an increased focus on non-price initiatives such as improved customer service and product selection tailored to match the broad mix of customers who shop in our stores. Already 2006 is proven to be a year of continued consolidation in our industry. This process began several years ago and will continue for several years ahead. Kroger's financial strength positions us to take advantage of the many opportunities that consolidation provides. In this environment we will continue our focused efforts to connect directly with customers in 2006. We believe that our multi-format approach and our ability to segment our customer base uniquely positions Kroger to serve the very diverse needs of today's grocery shoppers. We're working harder every day to become increasingly relevant to each and every customer who shops our stores and we have the expertise and technology to do so. We'll now be happy to take your questions.

Hi. Thanks. Good quarter.

Thank you, Steve.

And some exciting news. Just a question maybe for Mike or Rodney. With your capital spending level that you're increasing for next year, your CapEx of D&A ratio this year looks like it hovers around one. And that's usually pretty low. Is it a function of, kind of getting back to a more normalized rate of spending or do you think maybe you are, there is room to bring that down as you head into next year as well?

As you know, this is Rodney, we always continue to focus on making sure we use our capital wisely. We do feel that we have some additional opportunities with remodels and our plan to be to get additional remodels done in '06 versus what we did in '05. So part of it will be that. With that said, we will continue to focus on being tighter with capital rather than looser with capital. The other piece, we are starting to see some improvement in our performance to budget on the capital that we have spent over the last couple of years, and as we see that continued improvement, that will also give us more comfort in spending a little bit additional capital. Mike, anything you want to add.

The other thing is we're spending a lot of time and energy to make sure we get fiscal 2007 storing program off in the right food and built into our plan to some expectation that we'll be spending some dollars in the second half of '06 on '07 openings so we hit the ground running in '07.

Okay, I guess it’s been amazing this year that you have been able to achieve the sales you've gotten with a pretty low level of capital spending, and that doesn't sound like me to I guess what I am trying to look at is if you kind of under spent and it was a pretty good year and doesn't sound like you think of it as having to catch up as you head into ’06 at this point?

Certainly not. It would certainly be really because, as Mike said for 2007 and certainly several good opportunities we see for '06.

Okay. And the second question related to cash flow, I guess, with the new dividend and the two-thirds, one third allocation, you're operating cash flow has actually been flat to down for two years. And if you spend a little more in capital spending, it sounds like that remaining piece after the dividend is a lot lower that you can allocate between share repurchases and debt pay down. It’s we, how at risk is it that you might end up buying back a little less stock as you look and, as you go through '06?

I think if you look at our cash flow levels, we're comfortable that we're going to be able to maintain and do all three of those. Obviously anytime you decide to have a fixed use of cash like a dividend that is less dollars I have to apply to stock buy back, but when you look at two-thirds of what a reasonable amount of cash flow would be and if you actually looked at operating cash flow minus investing cash flow , it’s quite a strong number this year, and that's actually a lot better number than the prior year, and I think we have plenty of room to continue to do all three of those and as we like to call the financial triple play and execute on all three of those strategies. I mean it’s readily apparent if I pay this kind of dividend, that's less we have to buy in stock but we factored that into our plans going forward.

Great, now your cash was clearly supportive. As I recall I think you have a 500 million may be maturing in '06 and if I take the numbers as you reported it and in fact earned higher capital spending, it seems like we might be smart to lean more towards debt pay downs we forecasted in the next year but just kind of wanted to get a sense how you thought about that but good quarter in any event, and I appreciate it. Thanks.

Steve, I continue using the two-thirds for stock buy back and dividend and one third for debt. If you look at 2005 we ended up reducing our net debt by a little bit over 800 million. If we realized that the cash flow was going to be that good, we would probably been a little bit more aggressive on buying back stock during the year but, if you look at the end of the day, we're very pleased with our free cash flow in 2005.

Okay, thanks.

Okay. Thank you.

And your next question comes from the line of John Heinbockel of Goldman Sachs. Please proceed.

Good morning, guys. This is Eric Wiseman from Goldman. First, just wanted to ask you a little bit about the competitive environment with Wal-Mart. On the margin in terms of what you are observing in their stores and execution wise over the past 6 months or year, what do you seeing the most focused on what are they getting better at or may be where might they be falling behind, and then also on the margin, are they now delivering a better perishable offering?

Well, Eric, I don't plan to make this call about analyzing Wal-Mart's competitive strategy, but I will maybe just say to you that Wal-Mart is a very strong competitor. We admire what they do, hold them in very high regard, watch closely the steps they take and I see the competitive environment overall including the part that Wal-Mart plays to be a very strongly highly competitive as we've said before, and it continues to be that way, and we expect it to continue to be that way. I think that's a function really of the overall retailing environment we find ourselves in. We all have to find a way to fight for the sales and become relevant to the customer, and so that's what they're doing, that’s what we're doing and you can see the results of ours in our quarter release. Rodney, do you want to add anything.

Yes, the other thing as we develop our plan and where we're trying to go, we certainly assume that Wal-Mart will continue to get better on perishables just like Safeway and Albertsons and Whole Foods and Auld and everybody else. So, our assumption is that every competitor will continue to get better and every day when you get in their stores you can see a Wal-Mart perishable department produce is better today than it was 2 or 3 years ago. We would hope that you go into one of our stores and you would say the same about us.

Okay. Thanks. And then secondly, can you guys talk a little bit about your business in California, first in terms of the pace of the ongoing recovery at Ralphs and how much room or where you see the opportunities there. And then secondly, when you think longer term about our position in Northern California, are you guys planning to stay there in a more limited way or due foresee opportunities now that Albertsons is exiting that would allow to you increase your presence there over the long-term?

First let me talk about Southern California. We were pleased with the progress really in 2005. But we're not yet satisfied with where we are. On the sales front if you take Ralphs and Food 4 Less together for the Southern California market are identical sales, I believe it was identical was up 3.3%. That would be the highest of that same metric through all four quarters last year, so that's improvement. And we expect to see further improvement in 2006 in their overall financial performance. We're bullish on the market. We're bullish on our associates. I have been out there a number of times and I am very impressed with what they're attempting to do. And as you probably could see in our numbers, OG&A improvement some of the OG&A improvement reported by Kroger was helped by what happened out at Ralphs in Southern California, so we're quite optimistic, but we're quick to recognize that we're not yet satisfied with what where we are, and really shouldn't be. Turning to Northern California, as you know we're exiting for the Ralphs and the Cala and Bell format but our Foods Co, we're pleased with and continue to accelerate let it evolve further. And so, our presence in the short-term foreseeable future at least will be based upon that strategy and the success of that format.

I was going to say we have several Foods Co locations that we're working on developing in Northern California, and we feel very positive about that format in the market.

It’s really not just maintenance. It’s a growth opportunity.

Okay. Thank you very much.

Thanks, Eric.

And your next question comes from the line of Meredith Adler of Lehman Brothers. Please proceed.

Hey, guys.

Hi.

I want to start by just I have to admit I am a little confused about the guidance, so I just have some questions understanding the extra week and first you get extra sales, you obviously have extra operating expenses. The rent and D&A go up for the extra week?

Mike, do you want to highlight that on the extra week.

We pay rent every day we have the store opened. I mean basically every operating expense we have virtually every operating expense we have, we expense on a daily basis on the calendar year, so virtually every expense we have continues whether it’s a 52 week year or 53-week year. Our wage expense, our interest expense, utilities all of that is based on an annual year.

So D&A as well would be have a 53rd week?

That would not.

Okay.

One other thing on identical sales, that will be 53 weeks to 53 weeks on the 3.5% guidance rate that we provided.

Right.

And the guidance of 6% to 8%, is there any impact from the 53-week year in positive in this come in '06 and negative in '07 and your averaging them to 6 to 8, is that an average between the two or does the stock option expense completely wiped out any of the benefits on the extra week?

Basically when you look at 2006 the stock option expense eliminates the benefit of the extra 53rd week in 2006. Then expectation for 2007 would be on top of that 2006 results.

Right. Okay. That you wouldn’t have a stock option expense incremental in '07?

Well, you would have it but not incrementally obviously.

Right. And then my other question is just I think it is useful to clarify what you did in Northern California. There is nothing left once these closures are completed other than Foods Co, right so all the Ralphs, all the Calas, all the Bell's would be closed.

When you look at Sacramento and San Francisco north, that would be correct.

Okay. I guess I have to say I am going to go back to the guidance. We had somehow I think The Street had expected that the numbers would be stronger. You talked about pension contributions being lower. In terms of fuel costs, are you looking for ID's with fuel to be higher with ID's without fuel or you looking for them to be the same?

We really don't estimate sales – identical dollars with fuel sales because we really look at that on a gallons basis rather than a dollar basis, because we obviously weren't -- our ability to project what retail fuel prices will be we really don't think that's our business.

Your comment on pension, Meredith, the guidance we gave is our cash contribution will be that much less to the Company sponsored pension plan. That has no relationship to what we have to expense for those plans based on the wonderful world of FASB 87. The book expense and the cash expense for those do not equal. So our book expense won't necessarily be down by that amount. That's just the cash we have to fund the plan by.

Can you comment at all about what pension expense will be higher?

It will be incrementally higher in '06 versus '05 for the Company sponsored plans.

Okay. Thanks. Thank you very much.

It’s not like it’s a nickel or anything like that, but it is higher. It’s not lower like the cash is. It’s relatively modest increase.

Okay. Anything further, Meredith. Okay, thank you.

Your next question comes from the line of Chuck Cerankosky of Key McDonald.

Good morning everyone, nice quarter.

Thank you.

Yeah.

If we could talk a little about how you determine the dividend size, I would be interested in that. Did you pick a specific yield? And what were you looking at in terms of free cash flow trade off's especially with stock re-purchase activity or amounts?

Rodney or Mike?

Well, on the dividend yield it really was looking at – where was the S&P 500 overall? What type of cash capacity did we think was appropriate and the trade off of using free cash flow for the dividend versus buying back stock, and the board looked at all three of those as going part of that deliberation, and really got comfortable that the $0.065 per quarter would put a yield that similar to the S&P 500 at this point and not create any constraints from a cash standpoint that would cause the company to have to change the business plan of that we're on. So, it’s really all three of those factors together on a day. Mike, do you want to add anything else.

No, I agree with you.

That's exactly correct.

Okay. And just a clear housekeeping on the restatements announced the other day, is there any cash component to that?

No.

Dave, you mentioned you continue to like the strategy of developing multiple store formats. How about when you're looking at a single market and you have more than one format? Can you address what you're doing to customize stores to individual neighborhood demographics?

Well we have – there is a variety of ways to look at this. Our format certainly distinguished from one type of customer to another. But I actually look more often within a format and the easiest one to take would be a combo store, traditional combo store. And within a combo store there is a wide variety of ranges of kinds of stores that we'll try to run and are trying to run today. Some are more towards the value end of the equation even though they may not be a Food 4 Less they still focus on that area, and there are certain things we do in those stores to try to appeal to the customer bases in that area. On the other extreme we have many of those combo stores that serve areas that are higher income and interested in more prepared foods and more perishable foods and so forth. And so the emphasis in those would be in that particular arena. And so, we're really trying to do it pretty logically, I think, although the Dun & Bradstreet data helps us quite a bit in understanding what the customer base is now and the census data helps us to understand what the customer base potentially could be if they're not already shopping in our store. And that helps guide us as well. Now there are -- as many variations on the themes I just described as there are probably are that you can think of you have over lays for ethnicity as an example, local particular – local issues and interests, local skills if one of our divisions and to some of our divisions have different skills than others. And all of those play out, too. Now in a market where we have multiple formats, the same thing is still true except now you have some more extreme examples. You might have for instance in Phoenix you would have the marketplace stores plus a regular combos that price operate is an illustration of that. And the marketplace store addresses itself with a particular approach to merchandising, it doesn't really conflict with what we're trying to do with the combo stores in fact in some way to complement it. I think some customers will shop both stores depending on their objective part of their trip, what they're after. In other markets where we have a Food 4 Less for instance and a combo store, well the Food 4 Less is clearly addressing the value side. We may still have some combos that address the value side but maybe not to the same extreme that a Food 4 Less would. But in that same market we would also operate some high-end stores if we had customers in stores and in the areas where we have customers like that. So, I realize that is not very specific but that’s the overall picture.

The other thing that we have found, there is things that we have learned that worsen up Food 4 Less store that you can take across your combo stores where it’s appropriate.

Yeah, that’s true.

And the same is said for a Fresh Fare there is things that we've learned from that you can take – obviously that would be more at the upscale end. But one of the things that we've all found with a combo stores, it’s very, very flexible to change based on what the customer needs are.

Okay. Anything new going on in prepared foods you want to share with us?

Let’s see, the first half of that question is yes, and the second half is no. So, I guess not.

I should have asked it differently.

Prepared foods will always be a changing area, and so we will always have at least as far as I can imagine, we always have new things going on. We'll have some things we tried and didn't like and stopped doing. We'll have some things we tried and do like and keep doing more of and rollout more of, and then we'll have things that were always in the process of developing, and there are plenty of examples in each one of those categories. I don't plan to describe those. But the best way for you to find out is go shop in Kroger.

Right. And last question, I guess for Mike, as you exit San Francisco and Sacramento, what kind of impact will that have in the first half? And is in the full year guidance?

It is in the full year guidance. We didn't give any specific guidance on what that effect would be in the first half of the year, but you do have some shut down costs and selling through inventory and maybe some severance, so that is factored into the full year number.

Alright. Thank you.

You're welcome. Thanks, Chuck.

And your next question comes from the line of Jason Whitmer of FTN Midwest Research. Please proceed.

Thanks. Good morning and good quarter.

Thank you.

Dave, is there any update you can provide us on centralizing your procurement? I have seen some of that through some of the trade publics recently and moving into further divisional consolidation?

Sure. What we can tell you is and I think this has been true actually for some time, but you may have seen something on it recently. We have what we call coordinated merchandising concept where we have taken a number of the grocery categories and developed a merchandising plan in one location and then rolled those out throughout the whole company. Now they're tailored to a certain extent to the local markets in addition to that, but essentially it’s being developed in one place. Up until recently that had been, we pretty much stopped that line where we coordinated out west we didn't go all the way to the West Coast. Primarily because our systems were not able to capture the information the way we needed to do it in order for these plans to work and for us to track where we were. As the systems have evolved and we get closer to being able to do that, we wanted to make sure the organization knew where we're headed and where we're headed is to really further to that coordination do the same thing we're doing for probably 2/3rd of the company, now do it for the rest of the company down the road later this year and into next year. And that's essentially what has been announced most recently. In addition to that, we will be increasing the categories that are included in that plan. So we covered a lot of the grocery categories but not all. But we plan to now cover most of those categories and roll that out. Don, do you want to add anything to that?

The only other thing that you may see or hear is that we long used Fred Meyer and the team there on the procurement side for important seasonal products in the GM area. And we will be working toward further integration of planning, utilizing the talents of the Fred Meyer team. And I guess the overall message is this is just a continuation of the things that we've been doing for the past several years.

What you probably saw, Jason, was an attempt on our part to make sure that our associates and our vendors were informed and communicated with sufficiently on what we're trying to do. But it really is a continuation of what our plans had been before and I think most of the time people who are actively involved in these jobs in this work pretty much knew the process.

In terms of your divisional consolidation and actually what I am more interested in is potentially adding to your divisions with some acquisition opportunities on the horizon, particularly as it relates to your end market, as you are going to be passing your end market acquisitions. Can you talk further about your opportunities and the success you have had in that in the past?

The consolidation in the business keeps causing a number of storage to be available in markets, and sometimes those are whole divisions of a company, sometimes as whole company, sometimes as individual stores. And our position really on this hasn't changed much at all is that we really see the opportunities to be mostly in the markets we're in today where it gives us an opportunity to further the position we already have in that market. That's what served us well in the past. Now there are occasions when opportunities arise that are bigger than that, that are important to us, that have the potential to be really valuable to the shareholders and we don't turn down just because they don't fit the initial descriptions of our strategy. We take a look at what is out there. There is not a day that goes by, that we don't have something under consideration in some place. But well we usually turn down a lot more than what we pursue. And I just expect this next year to look a lot more like it has in the last couple of years. Some stores here and there and some opportunities here and there unless it will continue to consider. Rodney?

One of the things today, a lot of the valuation the people have in mind and the valuations that really make sense for us as you noticed over the last couple of years we haven't bought as many as we can before and really is there is a gap between the valuation, what we found overtime that had seems to come back into line.

That's a really good point because the effort for us is all reflected on cash flow. Is this a good financial investment on the part of the company to further our business strategy? And if the numbers don't work, we're not interested and Rodney is right about those valuations, some people who wanted to sell assets want to tell them because they think the price is high and the price ends up not being that high.

Great thanks.

Welcome.

And your next question comes from the line of Mark Husson of HSBC.

Yeah, just wanted to ask about the market share dynamics. You talked about volume weighted basis market shares, would that number be significantly different if you did it on a cash basis?

When you say cash basis, Mark, help with the explanation because, what we do if a market has a billion dollars of revenue, it counts 10 times more than a market with 100 million of revenue.

Okay. So, you're not trying to work out your share of volume in the market, you're weighting the markets by the size of markets?

By the size of our dollars within the market.

Okay. And then if you look then its -- and that's the way you've always done it, is it?

Correct.

Yes.

And actually if you do it on an average basis, the number is a little bit better but we never think that's appropriate because it really does need to reflect what's going on in terms of the size of our company.

And if you look at your share of improvement against supercenters, you would be tempted to argue that the more supercenters there are in the market, the more Wal-Marts there are, the better you do. Is that because it creates a kind of nuclear win for that forces consolidation on everyone else?

Mark, I can always tell you to think about this differently than I might have. I’ve never considered the possibility that more Wal-Mart Supercenters might be good for us, interesting approach. I think really what it represents is that in those markets you do have a certain amount of fallout, and in that fallout we end up doing typically, we end up doing better than we would, we had the fallout not occurred and in overtime we're able to compete and hold our own client with the Wal-Mart Supercenters in the town.

If you look back it’s -- I know you don't talk about markets but occasionally you do. And one of the markets you have mentioned in the past is the Delta market, which is one of the first markets that was sort of supercenterized, And you’ve said in the past that your sales are as good as they've been ever then, the EBITDA margins probably better than its ever been. Is that still you kind of generally trend through?

I am not going to speak specifically about Delta. But I’ll tell you generally about our sales and I either said this or maybe hinted at it in our comments. Not only through all divisions all supermarket divisions have positive identicals. All the departments in our grocery store and in our supermarkets had positive identicals. It was very balanced. And the point of that picture to describe to you is that all of our markets did well, that we were pleased in our progress, really every place. And we didn't have one place that did really well and everybody else was sort of in bad shape. So our Delta division and other divisions did very well, and I think similarly well and balanced overall through the year.

And the other thing, Mark, that you see, part of it is just the maturity and always when a competitor comes in the first year is more painful than when you get two or three years out. And it’s no different then if you go and look back years ago when Meyer came up, the bad Meyer came into Dayton, Ohio. The initial share change we actually declined for a couple of years, but then after that period of time we started growing the business again. And your market share started improving after you had maturity in the market and some of the things that you said in terms of competitive changes happening. But competitive changes always take longer than what we think they will or should. And that's been true for years.

Wal-Mart becomes a boring utility center (phonetic) eventually.

I wouldn't say or I wouldn’t define in that way. It’s just that what we offer is something different than what Wal-Mart offers and not every customer runs a shop in a supercenter.

And my final question just, you may have answered it, you tried to increase the percentage of maybe not consciously of general merchandise that you're telling in your stores and increasing the store sizes, is one of the ways you can accommodate that. When are you going to tell us about like Tesco versus the percentage of sales which are general merchandise and whether that is done better than food?

I don't know when we'll begin to tell you that but you do size up part of our strategy correctly. It is one of our objectives to increase the sale of general merchandise, and we do that in a variety of ways. Store size is one. The skilled teams we have here at general office who work in this area and also the folks at Fred Meyer who have helped us, too, those two teams have helped us come up with plans that have improved our seasonal and improved our overall general merchandise positioning. You may recall last year, a year ago, I was not as happy with our holiday sales as I would have liked to have been. This year I feel just the opposite. Our holiday sales, and it’s not just general merchandise, but a lot of it is. But our general merchandise and grocery plans that were developed here, general office plans that were worked on and developed further in the divisions, plans that were executed in the stores were much better this year than last year. And so, yes, we're pleased with that direction on general merchandise, expect it will be beneficial to us, but don't plan to at least in the near term give percentages of --

Well, I will give you a little bit more insight. A – Michael Schlotman: You're going to give some?

Dave's comment and Don's comment both we view this whole area a huge opportunity for us, and it’s one of the reasons on the organizational changes that Don talked about we're putting in place and when you look at the identical in the Drug GM area, it would be pretty similar to where we are overall as a company the numbers that we released. So, it’s really not that much different. But in terms of opportunity we think the opportunity there is huge, and the changes that we put in place we really do think that will enable us to take better advantage of the opportunity.

That's a good point, Rodney and I think the one other element to think about with this is one of the biggest parts of what makes a marketplace store work is the strategy and general merchandise. It’s not just about that. But that is a big part of it. And Rodney is right about the organizational strategy that we have here and will impact that as well.

That's what's driving Tesco and as they are comfortable with sales right now and I know you view Tesco as a model. And just one final comment any thoughts about Tesco coming into the West Coast into one of your big markets in the south?

Well we thought about it obviously. Because they announced it recently. Tesco is a competitor that we admire, have watched for years from the far. We prefer it that way. But once they come to the United States we look – we will see them straight up and we'll see them and welcome them to the environment that we have which is a very competitive environment, one that we are beginning to thrive in and beginning to grow in and beginning to see the ways in which as a competitor that we can even improve on our own performance. So in many ways your earlier point about Wal-Mart does actually make us better and I am sure Tesco will make us better, too, is that's probably the only comment I would add to that.

And we've always assumed Tesco is going to come to the U.S. at some point. We just didn't know when.

That’s true. So Mark, thank you and we have time for one more question.

And your next question will come from Scott Mushkin of Banc of America Securities. Please proceed. Q – Keith Bachman: This is Keith Bachman actually calling for Scott. Just a couple of quick ones today on the call here. In terms of the marketplace store, I was wondering -- I mean it sounds like it’s a strategy for you guys and you just spoke about it in this question. Do you get, I mean it doesn't sound like you've done a whole lot of them. Do you have any – where do you see marketplace going in the next couple of years? Do you see it expanding sort of at a more rapid pace or where would you think going? A – Michael Schlotman: I would say – as you talk about over the next couple of years I would say its more what you've seen in the last couple that it’s more measured. Because we're continuing to learn what the customer really wants and needs in that format and how to connect. But so far we're pleased with the results and at some point in time you will see as more aggressive. But over the next couple of years I think it will be more of a measured pace to make sure we do it right. Q – Keith Bachman: Thanks a lot. Just one more or two more quick ones. In terms of you guys give us a lot of color and appreciate all the color on the market share stuff. My only question is it does sound like you’re doing well in the markets where supercenters are operating. – but one thing I was thinking about was seeing Albertsons with some sales numbers down this morning. I mean do you feel -- how significant do you think the presence of not just them specifically but other operators? Are you taking share from other operators as well? How do you sort of view the marketplace in terms of the other operators?

I think every market is different, and depends on who the operators are there. Some of the share we pick up. The way we measure share is important to think about all the alternate formats. So we would be drawing we believe from all of those places. We would be drawing from segments that aren't traditionally looked at as supermarkets. We will be drawing from the supercenter area, from some of the competitors and one of the reasons we pointed out that our sales were balanced and strong throughout the whole company was to illustrate that we weren't drawing sales really, we don't believe from just anyone competitor and that's the reason our sales were as strong as they are. We think it is more related to our strategy, and we're pretty excited about it. Q – Keith Bachman: Okay. And I guess related to that obviously -- I think pretty much answer with that comment. But obviously with more CapEx next year I mean you obviously must be safe some difference in sort of the marketplace and your competitive advantage is sort of ended, is that correct or could you maybe elaborate on that just a little bit?

I think the success we've had this past year in our increased -- in our market share that we've reported indicates that we think we're on the right path. And that certainly helps us think about how we spend capital. But there are lots of other elements that go into the capital plan as well. And getting better and understanding how to compete better in today's environment is one of the ways we'll spend our capital money. Anything else? Okay -- Q – Keith Bachman: That's all. Thanks very much. Appreciate it.

Thank you, appreciate it. Well before we wrap up, let me just close with this. We encourage our associates to listen in on this call, so before concluding the call, I want to thank Kroger’s thousands of associates across all of our banners and operations for your tremendous efforts and dedication to our business in 2005. You are the source of our success. I am gratified by both the big things and the little things you do every day to serve our customers. You continually raise the bar and how we measure our success in meeting customer needs. The progress we've made in 2005 builds on our well developed platform for future growth in 2006 and beyond. You should each see the initiation of a dividend as a major victory. We have not had a dividend since 1988. Many of you are shareholders and will benefit from this decision. We've each had a hand in making it possible. Because of you, Rodney, Don and I are excited about our future together. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect your lines. Have a great day.