Kroger Profit Down 4.8% on Expenses, Slower Sales

Kroger Co., the largest U.S. grocery-store chain, said fiscal fourth-quarter profit dropped 4.8% because of slower sales and costs to eliminate jobs.

Net income fell to $350.4million, or 43 cents a share, from $367.9 million, or 44 cents, a year earlier, Kroger said. Sales in the quarter ended Feb. 2 fell 4.4% to $12.1 billion, from $12.7 billion in the year-ago quarter, which had an extra week.

Kroger, which operates Ralph’s and Food4Less stores in California, had severance and other expenses as it began a plan to trim costs by more than $500 million over two years. The company in December decided to fire 1,500 workers this year. Kroger also is cutting prices to compete with rivals including Wal-Mart Stores Inc., which is adding warehouse-sized stores with food departments as well as smaller supermarkets, analysts said.

“The shift is going in Wal-Mart’s favor,” said Jonathan Ziegler, an analyst at Deutsche Banc Alex. Brown, who rates Kroger a “buy” and doesn’t personally own the stock. “They’re just facing a lot of competition.”

Kroger shares fell 57 cents, or 2.5%, to $21.98 on the New York Stock Exchange. They have fallen 11% in the last year.

Identical-store sales, which exclude replacement stores, will show a slight improvement this quarter over the 0.8% gain in the third quarter, Chief Executive Joseph Pichler said on a conference call with investors. They dropped 0.3% in the fourth quarter; sales at food stores open at least a year rose 0.3%, Cincinnati-based Kroger said.

Expenses related to restructuring efforts will be about $10 million less than Kroger had forecast, Pichler said. About two-thirds of the $500 million in cost reductions expected from the moves will be achieved this year, he said.

Excluding one-time expenses of $31.7 million, Kroger said it would have earned $382.1 million, or 47 cents a share, in the fourth quarter. On that basis, the company met the 47-cent average estimate of analysts polled by Thomson Financial/First Call.