* 'Loyal households' increased, shopped more-COO
* Kept full-year EPS view due to uncertain economy
* Shares up 2.1 pct due to margin improvement-analyst
(Adds COO comment, details from analyst call)
By Emily Stephenson
CHICAGO, Sept 14 Kroger Co (KR.N) beat
analysts' quarterly earnings estimates by focusing on service
to keep its current customers instead of slashing prices to
attract new ones, the largest U.S. supermarket chain said on
The number of "loyal households," which Kroger calculates
based on total purchase size and how often they shop at its
stores, rose during the quarter, Chief Operating Officer Rodney
Those customers also shopped more as the company targeted
coupons to frequent shoppers and improved its customer service,
The company, which operates stores under the Kroger,
Ralphs, King Soopers, Fry's and Food 4 Less banners, reported a
2.7 percent rise in sales at "identical" stores -- those open
without expansion or relocation for five full quarters.
"We believe this outcome is a reflection of ... our loyal
customers and not cherry-pickers who simply shop various
outlets based on the lowest available price," McMullen said on
a conference call with analysts.
Cincinnati-based Kroger's gross margin decreased 12 basis
points during the quarter after falling 71 basis points during
the previous period, said Jefferies & Co analyst Scott
He said the slower decline showed investors that the
business is resilient despite tough price competition from
rivals that include Wal-Mart Stores Inc (WMT.N) and Supervalu
"I think that Kroger is able to do well in a tough
environment, but the environment remains very difficult,"
Mushkin said. "It's still a good beat where most supermarkets
are blowing up left, right and center."
Kroger's results came as the Commerce Department reported
that in August, U.S. retail sales posted their largest gain in
five months. [ID:nN14247794]
Net profit for Kroger rose to $261.6 million, or 41 cents a
share, in the second quarter ended on Aug. 14 from $254.4
million, or 39 cents per share, a year earlier.
Analysts on average were expecting 36 cents a share,
according to Thomson Reuters I/B/E/S.
Despite the earnings beat, Kroger stood by its previous
forecast for fiscal-year earnings of $1.60 to $1.80 per share.
Analysts expect $1.74.
Officials on the call cited the competitive market, but
said they expected aggressive promotions to ease in the back
half of the year.
McMullen said Kroger had seen more cost deflation than
expected, which investors sometimes see as a negative business
Sales, including fuel, increased 6 percent to $18.8
billion, beating the analysts' average estimate of $18.7
billion. Excluding gasoline, sales rose 3.3 percent.
Kroger shares were up 2.1 percent at $21.49 in afternoon
(Reporting by Emily Stephenson, editing by Dave Zimmerman,
Maureen Bavdek and Lisa Von Ahn)