UPDATE 4-Kroger outlook disappoints; grocery shares fall
* Q3 adjusted EPS 39 cents tops Wall St view by a penny
* Sees Q4 EPS of 49c-52c, below estimates
* Sees FY EPS $1.88-$1.91; prior view was $1.85-$1.90
* Says sales growth could slow next fiscal year
* Shares fall 6.7 percent (Recasts first paragraph, adds details from call, updates share activity)
LOS ANGELES, Dec 9 (Reuters) - Kroger Co (KR.N) on Tuesday forecast quarterly earnings below Wall Street estimates and said it expects slower sales growth next year as consumers continue to pare spending in the recession.
Shares of the No. 1 U.S. grocery store chain fell 6.7 percent and dragged down rival stocks.
Cincinnati-based Kroger forecast fourth-quarter earnings of 49 cents to 52 cents per share. Analysts on average were expecting 53 cents, according to Reuters Estimates.
"This guidance range considers the cautious mindset of many consumers this holiday season," Kroger said in a statement.
Kroger, which operates stores under its own name as well as Ralphs and Food 4 Less, also said it expects 2009 sales at established supermarkets, excluding renovations, to increase by 3 percent to 5 percent, excluding fuel, down from a projected growth rate of 4.5 percent to 5.5 percent for this year.
The outlook from the grocery industry's strongest performer was a drag on Kroger rivals. Shares of Safeway Inc (SWY.N) fell 6.7 percent, Supervalu Inc (SVU.N) dropped 4.5 percent, and Whole Foods Market Inc (WFMI.O) slid 1.2 percent.
UBS analyst Neil Currie said the stock declines could be partly due to some investors "misinterpreting (Kroger's) usual conservativism as negativity."
Currie, who has a "buy" rating on Kroger shares and no ownership conflicts, called the company's cautious stance on 2009 sales prudent, "especially in this environment."
Identical store sales were up "just a tick below 5 percent" for the first four weeks of the current quarter, Chief Executive David Dillon told analysts on a conference call.
Kroger has benefited from its years-long effort to keep prices at the industry's lower end -- a move that has paid dividends during the current U.S. downturn as cash-strapped consumers look to save money on food.
Kroger executives said on the call that sales of discretionary items like jewelry were slowing even further and that consumers continued to buy lower-priced store-brands.
As shoppers cut back on meals at restaurants, Kroger said it was seeing strong sales in its deli, bakery and prepared food departments.
PROFIT SLIPS
Kroger said net income fell 6.3 percent to $237.7 million, or 36 cents per share, in the third quarter ended on Nov. 8 from $253.8 million, or 37 cents per share, a year earlier.
Excluding special items, Kroger earned 39 cents a share, while analysts on average were expecting 38 cents, according to Reuters Estimates.
Total sales at the company, which also operates the Littman and Barclay jewelry chains, rose to $17.58 billion from $16.14 billion. The analysts' average estimate was $17.56 billion.
Kroger said identical-supermarket sales rose 7.8 percent with fuel and 5.6 percent without fuel from a year earlier.
Higher margins on gasoline helped results in the third quarter, while a charge related to inventory valuation came in higher than expected.
Kroger raised its earnings outlook for the full year to a range of $1.88 to $1.91 per share, excluding a 3-cent charge for the effects of Hurricane Ike. Its prior forecast was $1.85 to $1.90.
Kroger shares fell $1.84, or 6.74 percent, to $25.47 on the New York Stock Exchange. (Additional reporting by Martinne Geller; editing by Dave Zimmerman, Lisa Von Ahn, Richard Chang)
