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Grocer Kroger rings up 3Q profit

CINCINNATI - Kroger Co. rang up better sales and returned to third-quarter profitability behind a focus on building customer loyalty in a rough economy, but the nation's largest traditional grocery operator says shoppers remain cautious.

The Cincinnati-based grocer reported Thursday that net income was $202.2 million, or 32 cents a share. That compares with a loss of $875 million, or $1.35 a share, a year earlier.

Its revenue was $18.7 billion, a 5.9 percent increase from last year's third quarter.

Analysts expected earnings of 32 cents a share and revenue of $18.5 billion for the quarter that ended Nov. 6.

Kroger's shares slid as the company reported that low grocery prices and intense competition continued to bite into margins and that its customers' spending is still volatile. Kroger also narrowed its guidance range for the year, dropping the high end but also raising the low.

"Some say that the Great Recession is technically over," David B. Dillon, chairman and CEO, told investors in a conference call. "For Kroger, it's not over until our customers say it is, and many of our customers continue to be cautious in their spending."

The shares fell $2.26, or 9.5 percent, to $21.61 Thursday morning. They hit a 52-week high of $24.14 on Wednesday and have traded as low as $19.08 the past year.

Last year's third quarter included a charge of $1.05 billion reflecting the declining value of its Ralphs division in recession-pounded California. Without that charge, Kroger would have earned $176.7 million, or 27 cents a share. This year's quarterly net income was 14 percent higher than that adjusted figure.

Kroger operates 2,461 grocery stores in 31 states under some two dozen local banner including Ralphs, Fred Meyer, Food 4 Less, King Soopers, Dillons, Smith's and Fry's.

Kroger says repeat customers are key to its long-term growth, and it has lured customers with expanded fuel rewards, promotions such as $5 rebates for buying certain items in "mega" sales, more online coupons and mailings of special coupons for items individual households frequently buy.

The company said cost-cutting and productivity increases helped compensate for discounting and low prices.

Kroger is building its customer base with lower prices and a pleasant shopping experience, Dillon said.

The company tightened its full-year guidance from a range of $1.65 to $1.78 per share from $1.60 to $1.80 per share. Analysts surveyed by Thomson Reuters expect, on average, that the company will earn $1.78 per share for the year on sales of $81.35 billion.

The company also tightened its forecast for annual revenue from stores open at least 15 months, a key retail gauge because it excludes stores that open or close during the period. The forecast went from a 2 percent to 3 percent projected rise to an increase of 2.5 percent to 3 percent.

For the third quarter, Kroger said sales at stores open at least 15 months rose 2.4 percent, excluding fuel sales. Last year, they were up 1.3 percent. Without fuel, sales rose 3.1 percent for the quarter.

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