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Kroger bags 15% profit gain

The parent of Ralphs beats estimates as sales rise 11% in the quarter.

June 25, 2008|From Bloomberg News

Kroger Co., the biggest U.S. grocery chain and operator of Ralphs, increased its fiscal first-quarter profit more than analysts estimated by cutting prices and said full-year sales would exceed its previous forecast.

Sales at stores open at least 15 months may climb as much as 5.5% this year, higher than its previous projection, Cincinnati-based Kroger said Tuesday. That estimate excludes gasoline sales at stores with service stations.

Consumers bought more store-branded products after gas surged to more than $4 a gallon and food costs soared. Kroger also offered discounts on national brands to compete with Wal-Mart Stores Inc. and Safeway Inc., and gave shoppers who converted tax-rebate checks into store gift cards a bonus of as much as $120.

"Customers are responding to offers that really hit home with them," Chief Executive David Dillon said in a conference call with analysts. Kroger has probably gained customers from independent grocers and restaurants as more people eat meals at home, Dillon said.

Kroger's net income in the quarter that ended May 24 rose 15% to $386 million, or 58 cents a share, from $336.6 million, or 47 cents, the grocer said. Sales increased 11% to $23.1 billion.

Analysts surveyed by Bloomberg estimated average profit of 55 cents a share and sales of $22.3 billion.

Shares of Kroger, which has 2,474 locations under brands including Ralphs and Food 4 Less, rose $1.82, or 7%, to $27.82, the biggest gain since September 2007.

So-called identical-store sales will climb 4% to 5.5%, excluding gasoline sales, for the year through early 2009. Kroger previously expected 3% to 5%. First-quarter identical-store sales rose 5.8%.

Full-year profit will rise to $1.85 to $1.90 a share, higher than an earlier projection of $1.83 to $1.90, Kroger said.

Analysts surveyed by Bloomberg estimate full-year profit of $1.89 a share. Kroger earned $1.69 a share last year.

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