Kroger raises long-term profit growth view; stock jumps

Tue Oct 16, 2012 6:03pm EDT

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(Reuters) - Kroger Co (KR.N), the biggest U.S. supermarket operator, raised on Tuesday its long-term earnings growth target with plans to expand in existing markets and buy back stock, sending its shares up more than 4 percent.

Kroger, whose grocery chains include Ralphs, Fred Meyer, Smith's and Food 4 Less, set its long-term earnings per share growth target at 8 percent to 11 percent, up from 6 percent to 8 percent previously, Chief Executive David Dillon said at the company's investor conference in New York.

"This is not just wishing and hoping," Dillon said. "We identified some very specific, tangible steps that we think we can take" to improve profits.

Cincinnati-based Kroger said it plans to increase capital spending by $200 million annually for building out existing markets and other projects.

In the coming years, executives expect a greater proportion of the earnings gains to result from buying company shares and filling in markets where it already has stores.

Longer term, they expect gains from efforts that bolster its core business by doing things like speeding up check-out times and personalizing shopper loyalty programs.

Kroger for years has been gaining market share and outperforming direct competitors like Safeway Inc (SWY.N) and Supervalu Inc (SVU.N). But its share price is trading at virtually the same level as it was three years ago as the company battles competition from a variety of retailers.

Upscale grocers like Whole Foods Market Inc (WFM.O) have lured away wealthier shoppers, while discounters like Wal-Mart Stores Inc (WMT.N) have targeted those on the middle and lower rungs of the income ladder.

Those trends, combined with the weak U.S. economic recovery, have squeezed sales and profits in the traditional supermarket industry and put it out of favor with many investors.

Kroger rival Supervalu put itself up for sale earlier this year. There has been abundant speculation that Kroger might pick up some of the troubled supermarket operator's assets - particularly its dominant Jewel-Osco chain in Chicago, where Kroger operates Food 4 Less discount stores.

"We look at a lot of things," Kroger CEO Dillon said.

He declined to comment on specific assets but said that Kroger has better results with smaller, fill-in acquisitions.

Shares in Kroger closed up 4.3 percent at $24.43 on the New York Stock Exchange on Tuesday.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Gerald E. McCormick, Leslie Adler and Tim Dobbyn)

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