Kroger Co. reported a 14% decline in quarterly profit and reiterated a prior forecast for improved sales this year, providing assurance the country’s top grocery chain is rebounding from recession and food deflation.

Kroger profit drops


Sales at identical supermarkets are expected to increase 2% to 3% in 2010, Cincinnati-based Kroger said in a statement, repeating a projection the company made in March.

Kroger’s identical-store sales excluding fuel rose 2.6%, to $19.8 billion, in the company’s fiscal 2010 first quarter. Identical stores have been open without remodeling or relocation for at least five quarters.

David Dillon, Kroger’s chief executive officer, said he’s upbeat on the company’s outlook.

“I am pleased with the strong positive identical sales growth we achieved in the first quarter,” Dillon said in the statement.

While Kroger has faced a “difficult operating environment,” Dillon said, “We continue to build momentum and grow market share as we invest in our asset base and cost-saving projects.”

Kroger’s profit came under pressure amid declining food prices and heightened competition from Bentonville, Ark.-based Wal-Mart Stores Inc., which earlier this year expanded “rollbacks,” or permanent price reductions.

While price deflation has abated, any inflationary trends in fresh produce, meat and other foods that might benefit grocery stores are expected to be limited, analysts said. Prices for food at home were unchanged in May, the Bureau of Labor Statistics said in its June 17 monthly consumer price report.

Ajay Jain, an analyst with Hapoalim Securities, said he remains cautious on Kroger’s prospects. He has a “sell” rating on Kroger shares.

Kroger “struck a better balance between sales and gross margin investment” in the first quarter, Jain said in an e-mail, “but I wouldn’t say that the general outlook has fundamentally improved.”

Net income during the first quarter fell to $373.7 million, or 58 cents a share, from $435.1 million, or 67 cents, during the same period in 2009, Kroger said today. The results topped analyst expectations by about 4 cents.

In late morning trading today, Kroger shares rose 83 cents, or 4.2%, to $20.91.

Kroger operates 2,468 supermarkets in 31 states, along with 777 convenience stores. The company’s retail outlets include Dillons, Food 4 Less, Fred Meyer and King Soopers.