UPDATE 2-Kroger says sales holding up despite tax, gas pressure

Thu Mar 7, 2013 11:36am EST

* Shares up 3.7 percent

By Lisa Baertlein

March 7 (Reuters) - U.S. supermarket operator Kroger Co reported a better-than-expected quarterly profit and said business remains strong despite higher taxes and gasoline prices, sending shares to their highest point in more than four years.

The Cincinnati-based company, which is the biggest U.S. supermarket operator said sales have been highly variable, but remain on a strong trend despite consumer anxiety about the tepid U.S. economic recovery, fluctuating gas prices, higher payroll taxes and continued uncertainty around federal policies.

"Consumer confidence was fragile throughout the year, but hit its lowest point this January as customers voiced heightened concern over taxes," Chief Executive David Dillon said on a conference call with analysts.

Kroger released its results after a host of restaurants and retailers - including Olive Garden parent Darden Restaurants Inc and Wal-Mart Stores Inc - attributed softening sales to the Jan. 1 payroll tax increase, a sharp rise in gas prices and delayed federal tax refunds.

Kroger's shares were up 3.7 percent to $30.45 in midday trading on the New York Stock Exchange. Earlier in the session, shares hit a high of $30.62, the highest level since August 2008.

SWING TO PROFIT

Kroger, operator of chains such as Kroger, Ralphs, Smith's and Food 4 Less, posted fourth-quarter net earnings of $461.5 million, or 88 cents per share.

Excluding gains from inventory accounting and taxes, the company earned 77 cents per share, 7 cents better than Wall Street expected, Kroger said.

In the year-ago quarter, Kroger reported a loss of $306.9 million, or 54 cents per share, after it booked a large charge related to consolidating its pension plan.

Total sales, including fuel, rose 12.8 percent to $24.2 billion in the latest quarter, largely in-line with analysts' estimate.

Kroger said its market-share growth accelerated at year's end and customers were buying more items during each visit.

Excluding fuel, identical-supermarket sales were up 3 percent, more than the 0.8 percent gain recently reported by smaller rival Safeway Inc.

Identical-supermarket sales are a measure of a grocer's performance because they track stores that have remained open without expansion or relocation for five full quarters.

Kroger - whose rivals also include discounters Wal-Mart and Target Corp - set its 2013 earnings forecast at $2.71 to $2.79 per share.

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