Kroger profit jumps 28%

cincinnati -- Kroger Co. said Tuesday that its profit rose 28% in its fiscal second quarter, topping analyst expectations. The nation’s largest traditional grocery chain boosted its outlook for the year. Its shares rose 7.7%.

The supermarket operator said it earned $267.3 million, or 38 cents a share, for the three months ended Aug. 18, up from $209 million, or 29 cents, a year earlier. Revenue rose 7% to $16.14 billion from $15.14 billion in the year-earlier quarter.

Analysts polled by Thomson Financial had expected a profit of 34 cents a share on revenue of $16.02 billion.

The company said it was able to pass along cost increases for staples such as milk to customers while continuing to build customer loyalty with initiatives that include improved service, wider selections and incentive programs. Profit also was helped by reductions in distribution and ad costs and in inventory loss because of theft, mistakes and other factors, Kroger said.

Sales at stores open at least a year, considered a key indicator of a retailer’s strength, were up 5.8% including fuel and 5.1% excluding fuel.

Kroger is battling increased grocery competition from Wal-Mart Stores Inc. and other big-box retailers as well as from specialty stores such as Whole Foods Market Inc.

It has focused on customer service with faster checkouts, expanded offerings that include organic foods and new store formats such as Marketplace stores that are double the typical size of a Kroger store and also sell furniture, office supplies and other merchandise. Kroger also has expanded programs that provide food discounts and cheaper gas to frequent shoppers.

David B. Dillon, Kroger’s chairman and chief executive, told analysts during a conference call that the company expected strong same-store sales and an improved operating margin for the year.

Kroger increased its full-year outlook based on its momentum after exceeding its expectations for the first half of the year, Dillon said. Kroger said it expected to earn $1.64 to $1.67 a share in fiscal 2007, up from its previous estimate of $1.60 to $1.65 a share.

Shares of Cincinnati-based Kroger rose $2.07 to $29.09.