Kroger posts 3.4% profit on strong sales; stock rises 5%

CINCINNATI — Kroger Co., the nation's largest traditional grocery chain, said Tuesday that its second-quarter profit rose 3.4 percent as a slowing economy prompted people to eat at home more often and try more store brands. The results sent the stock up 5 percent.

Kroger has added to frequent-customer incentives for store discounts and cheaper gas at its own stations, along with offering more store-brand items and prepared meals for people trading down in price and cutting back on eating out. The company said sales were strong for its deli, bakery and prepared foods, and that store-label items accounted for a record 26 percent of its grocery sales.

"In this economy, customers are much more willing to try a private label item, and we're seeing signs that this is happening more and more as the year progresses," David B. Dillon, Kroger's chairman and CEO, told investors in a conference call.

For the three months ended Aug. 16, Kroger earned $276.5 million, or 42 cents per share, up from $267.3 million, or 38 cents per share, a year earlier. Kroger reported second-quarter revenue of $18.1 billion, up nearly 12 percent.

Analysts surveyed by Thomson Reuters had expected earnings of 41 cents per share on revenue of $17.63 billion.

The company said sales at stores open at least five quarters, considered a key indicator of a retailer's strength, rose 4.7 percent excluding fuel, and 9.7 percent including fuel sales for the quarter.

Dillon said Kroger's three-tier store-brand food offerings, which include a low-price "Value" line, help amid continued price increases for produce and other foods.

Cincinnati-based Kroger operates 2,474 supermarkets and multi-department stores in 31 states, under two dozen local banners that include Ralphs, Fred Meyer, Food 4 Less, Fry's, King Soopers, Smith's, Dillons, QFC and City Market.