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Kroger Net Income Rises 6% in Quarter

September 13, 2006|From the Associated Press

Ralph's parent Kroger Co. said Tuesday that its profit rose 6% in its second quarter, aided by higher fuel prices that have consumers looking at supermarkets -- instead of restaurants -- to feed their families.

However, Kroger shares tumbled 5.5% as it confirmed its earnings guidance for the full year at a level slightly below Wall Street's expectations. On Monday, shares hit a 52-week trading high.

Cincinnati-based Kroger, the nation's largest traditional grocery chain, said profit for the quarter ended Aug. 12 reached $209 million, or 29 cents a share, from $196.5 million, or 27 cents, in the year-earlier period. Results include 3 cents a share for legal reserves recorded in the first quarter. Analysts expected a profit of 29 cents a share on revenue of $14.73 billion, according to a survey by Thomson Financial.

Revenue rose 9% to $15.14 billion.

Kroger executives told analysts during a conference call that efforts to build customer loyalty, price discounts and cost cutting have helped boost profit, along with consumer belt tightening amid higher gasoline prices in the summer. Some casual-dining restaurants have reported lower sales recently.

Kroger, with about 2,500 stores under the Ralph's, Food 4 Less and other brands, also has been luring customers with loyalty cards that enable them to earn sharp discounts on gasoline and groceries.

But Chairman and Chief Executive David Dillon said such promotions were only a piece of Kroger's overall strategy, which won't be changed by the recent decline in gas prices. The company said it had cut costs by using more energy-efficient lighting and managing transportation to reduce gas usage.

Kroger also has been investing in store improvements.

Same-store sales -- a key measure of retail growth -- rose 6.2% in the quarter. Including sales of gasoline, same-store sales grew 8.2% during the quarter.

The company Tuesday confirmed guidance of 2006 earnings per share growth of 6% to 8%, implying 2006 earnings expectations of about $1.39 to $1.41 a share.

But that was below analysts' expectations for a profit of $1.43 a share.

Kroger shares fell $1.33 to $22.75 in regular trading.

The stock reached $24.15 during Monday trading and has traded as low as $18.05 in the last year.

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