Kroger Q4 profit tops Wall Street view

LOS ANGELES Tue Mar 10, 2009 12:56pm EDT

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LOS ANGELES (Reuters) - Kroger Co (KR.N), the No. 1 U.S. supermarket chain, posted a higher-than-expected quarterly profit on Tuesday, helped by strong sales of its namesake brands, and its shares rose 11 percent.

The company, which operates stores under its own name as well as Ralphs and Food 4 Less, improved cost controls and benefited from strong sales of its more profitable store brands, as consumers spent cautiously amid a deep recession.

The company narrowed its forecast for full-year identical-supermarket sales to a range of 3 percent to 4 percent, excluding fuel, and sales for the first five weeks of the quarter were within that range.

The Cincinnati-based company's net income rose to $349.2 million, or 53 cents per share, in the fourth quarter ended January 31, from $322.9 million, or 48 cents per share, a year earlier.

Analysts, on average, expected 51 cents a share, according to Reuters Estimates.

Total sales at Kroger, which also runs the Littman and Barclay jewelry chains, rose to $17.26 billion from $17.23 billion, a year earlier.

Identical-supermarket sales, without fuel, rose 3.8 percent.

"We believe slowed identical-store growth reflects consumers trading down to lower-priced, but wider-margin private label products, as well as slower food inflation," Standard & Poor's Equity Research analyst Joseph Agnese said in a client note.

While identical-store sales missed Agnese's estimate for a 5 percent gain, he lauded the company's ability to contain costs.

Agnese reiterated a "buy" rating on Kroger shares, cut his price target for the stock by $4 to $24, and trimmed his full-year earnings estimate by 2 cents to $2.03 per share to reflect lower retail gas margins and a slowdown in consumer spending on discretionary items.

CEO OPTIMISTIC, CAUTIOUS

Kroger said about 27 percent of fourth-quarter grocery revenue came from sales of Kroger brands, and those store brands hit a record high of 35 percent of grocery unit sales.

The company said it held the No. 1 or No. 2 share position in 39 of its 42 major markets. It said share increased in 36 of those markets and declined in six.

The company competes with Wal-Mart Stores Inc (WMT.N) and other retail supercenter operators that sell low-priced items and food. It competes with 1,125 Wal-Mart supercenters, which have at least a No. 3 market share position in 33 of Kroger's major markets.

"We are optimistic and at the same time cautious as we help ... our customers navigate through today's challenging economy," Chief Executive David Dillon said on a conference call.

For the current year, Kroger expects identical-supermarket sales, excluding fuel, to grow 3 percent to 4 percent, versus its earlier forecast of 3 percent to 5 percent.

The company said its forecast reflected product cost inflation of 1 percent to 2 percent, compared with its earlier expectation of 2 percent to 3 percent.

Kroger expects per-share earnings of $2.00 to $2.05 for the current year.

The grocery chain ended the year with $7.7 billion in total net debt.

Its shares rose $2.17 to $21.63 in mid-day trading on the New York Stock Exchange amid a broad rally in stocks. At the same time, rivals Safeway Inc (SWY.N), Supervalu Inc (SVU.N) and Whole Foods Market Inc WFMI.O were up 6.8 percent, 4.6 percent and 5.4 percent, respectively.

(Additional reporting by Aarthi Sivaraman in New York; editing by Dave Zimmerman and Jeffrey Benkoe)

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