Kroger's earnings fall nearly $50 million

CINCINNATI — The Kroger Co., one of the nation's largest operators of supermarkets, reported Tuesday that its second-quarter earnings fell almost $50 million from a year ago, hurt by debt charges and the Southern California strike.

The company's earnings per share of 19 cents for the quarter ended Aug. 14 fell short of the 27 cents projected by industry analysts surveyed by Thomson First Call.

Wall Street reacted quickly, pushing Kroger's shares down more than 4 percent, or 72 cents, to close at $15.98 Tuesday on the New York Stock Exchange.

Net earnings for the quarter were $142.4 million. They were reduced by $15.3 million, or 2 cents per share, because Kroger chose to pay its debt early for $750 million in financial notes due to be redeemed next March. That will reduce the company's interest expense by 2 cents per share this fiscal year.

Kroger earned $190.4 million, or 25 cents per share, a year ago. Those earnings were reduced by $42 million, or 6 cents per share, for one-time expenses.

Sales for the latest quarter increased 5 percent to $13 billion, compared with last year's $12.3 billion.

Kroger operates Smith's, which has 48 stores in Utah.

Kroger said it is still feeling the effects of a 4 1/2-month-long strike at southern California grocery stores, including Kroger's Ralphs chain, that ended in late February. Kroger's earnings for the latest quarter were $23.4 million, or 3 cents per share, less than what company officials expected had the California strike not occurred.

The strike against Kroger and two other retail grocers, Safeway Co. and Albertsons Inc., cost the chains more than $1.5 billion in sales and affected about 70,000 workers at more than 850 stores.

David Dillon, Kroger's chairman and chief executive, said it will be a challenge for the company to reach its target of increasing sales by 1.3 percent this year at stores open at least a year, because of stiff market competition. That would exclude stores affected by labor disputes, Dillon said.

Labor contracts covering more than 47,000 employees in five of the company's service regions were ratified during the quarter without a work stoppage, Kroger said. The company has said it wants to maintain competitive wages and benefits but control increasing costs of health care for employees.

Dillon told analysts Tuesday he was pleased with Kroger's quarterly sales increase, but that the outlook for the second half of this fiscal year will hinge on how Kroger does in the face of competition across its markets from Wal-Mart Stores and other discounters.