UPDATE 4-Kroger posts higher profit, stands by outlook

* Q1 EPS 66 cents vs Wall St view 61 cents

* Total sales fell to $22.8 bln, pressured by gasoline

* Still expects full-year EPS of $2.00 to $2.05 (Adds byline, details on union negotiations, analyst comment; updates share movement)

By Lisa Baertlein

LOS ANGELES, June 23 (Reuters) - Kroger Co (KR.N) posted a higher-than-expected fiscal first-quarter profit on Tuesday as grocery sales rose, but the No. 1 U.S. supermarket chain did not raise its full-year forecast.

"While our earnings per share results were well ahead of the consensus estimate, they were only slightly ahead of our own internal budget," Chief Executive David Dillon said on a conference call with analysts. "It's still early (in the fiscal year)."

The Cincinnati-based company, which operates stores under its own name as well as Ralphs and Food 4 Less, has faced concerns that high unemployment from the long recession was pressuring sales

Kroger has been offering lower prices as it competes with retailers such as discounter Wal-Mart Stores Inc (WMT.N), the largest seller of groceries in the United States.

"Shoppers remain cautious in this economy, and we do not anticipate that changing any time soon," Dillon said.

Kroger said net income rose to $435.1 million, or 66 cents per share, in the first quarter that ended May 23 from $386 million, or 58 cents per share, a year earlier.

The profit topped the analysts' average forecast of 61 cents per share, according to Reuters Estimates.

Total sales at Kroger, which also runs the Littman and Barclay jewelry chains, fell to $22.8 billion from $23.1 billion, weighed down by the lower price of the gasoline it sells.

The company again reported that sales of its higher-margin private label products rose as consumers chose those items over often higher-priced national brands. [ID:nN19455557]

The average retail price for a gallon of gas sold at its fuel pumps was 41 percent lower in the quarter than it was a year earlier. Excluding fuel, sales climbed 3.9 percent.

Identical-supermarket sales, excluding fuel, rose 3.1 percent, and Kroger said it still expected an increase of 3 percent to 4 percent on that basis for the fiscal year.

Identical stores are those that have been open five full quarters and have not been moved or expanded.

The company also stood by its forecast for full-year earnings per share of $2.00 to $2.05, in line with the analysts' average estimate of $2.03.

Executives said the company is in "tough" labor negotiations in Denver and has other contracts to negotiate this year. Rising healthcare costs and underfunded pension plans will play a role in the bargaining, they said.

Jefferies analyst Scott Mushkin said union negotiators were "feeling somewhat emboldened" by a more union-friendly administration in the nation's capital.

"This year is going to be particularly sticky for negotiations," Mushkin said. As a result, "the chances of (Kroger) actually raising guidance is zip."

Shares of Kroger were up 12 cents, or 0.6 percent, to $21.90 in early afternoon trading on the New York Stock Exchange. (Reporting by Jessica Wohl in Chicago and Lisa Baertlein in Los Angeles, editing by Maureen Bavdek, Lisa Von Ahn, Tim Dobbyn)