Kroger Co (KR.N), the biggest U.S. supermarket operator, reported quarterly profit that beat expectations and slightly raised its full-year earnings forecast, but a weak U.S. jobs report sparked concern that sales could soften.
Shares in Kroger, which owns grocery chains such as Ralphs, Fred Meyer, Smith's and Food 4 Less, fell 2.6 percent to $22.49 in afternoon trading on the New York Stock Exchange.
The Labor Department said Friday that the United States created 96,000 jobs in August, fewer than were expected. That jobs data is tightly correlated with sales at traditional grocery stores and shares in rival Safeway Inc SWY.N also were down 1.4 percent.
U.S. economic "growth is slow and likely to remain slow," said Manning & Napier senior research analyst Walter Stackow, who thinks Kroger will continue to outperform its peers.
Nevertheless, Stackow said his firm sold its Kroger stake over the summer because the weak economy threatens to put increased pressure on its sales and profit margins.
Kroger said it earned 51 cents per share in the fiscal second quarter ended August 11, beating analysts' average estimate by 2 cents, according to Thomson Reuters I/B/E/S.
Excluding fuel, same-store sales topped the forecasts of some analysts, but overall sales missed Wall Street expectations.
Profit fell slightly from a year earlier, when the company benefited from a lower tax rate. Net profit was $279.1 million, down from $280.8 million.
Kroger executives said that so far, they do not expect the worst U.S. drought in more than half a century to have a "huge" impact on grocery prices this year.
"If it does, it would be very late in the year," Rodney McMullen, Kroger's president and chief operating officer, said on a conference call with analysts.
Next year, the drought-related spike in costs for animal feed and other commodities likely will translate into higher prices for meat, milk and other foods, McMullen said.
Kroger has a sophisticated customer-loyalty program and is known for holding down prices even as food costs rise. That has helped the company steal market share from operators like Safeway and Supervalu Inc (SVU.N).
Customer service improvements, which recently have included significantly reducing wait times in check-out lines, also have helped Kroger hold its own against Wal-Mart Stores Inc (WMT.N), which sells more groceries than any other U.S. retailer.
Kroger's second-quarter sales, including fuel, rose 3.9 percent to $21.73 billion, missing analysts' average estimate of $21.9 billion.
Excluding fuel, identical-supermarket sales rose 3.6 percent. Some analysts had expected a gain of around 3 percent. Identical-supermarket sales are sales at stores that have remained open without expansion or relocation for five full quarters.
Kroger said it now expects to earn $2.35 to $2.42 per share this fiscal year, slightly higher than its previous forecast of $2.33 to $2.40. Analysts, on average, expect $2.37.
(Reporting by Lisa Baertlein in Los Angeles and Jessica Wohl in Chicago; Editing by Gerald E. McCormick, Bernadette Baum, John Wallace and Sofina Mirza-Reid)