Kroger reports $875M 3Q loss on charge at CA chain

The Kroger Co. is hurting from California's ailing economy and the overall bite of a dollar-by-dollar battle under way nationwide for recession-pinched households' grocery spending.

The nation's largest traditional grocery chain reported Tuesday an $875 million third-quarter loss, largely because of a $1.05 billion charge to write down the value of its Ralphs division in California, which it acquired a decade ago. Even without that, its profit fell more than 25 percent.

Kroger also cut its sales and profit forecasts for the full year. Kroger shares plunged 12 percent, or $2.72, to close at $20.13. They reached $27.59 last December before falling to $19.39 in March.

More customers are coming into its stores, Kroger said, but they're spending less and focusing on bargains as price-cutting sharpens at Wal-Mart Stores Inc., club stores like Costco Wholesale Corp., and regional competitors like Meijer Inc., based in Grand Rapids, Mich., and Giant Eagle Inc. of Pittsburgh. Wal-Mart is the nation's largest grocery seller overall.

Chairman and CEO David Dillon said price competition remains wider and more intense than he can remember it ever being - and tougher than expected.

"Pricing and promotional activity increased to include more of our competitors, expanding to more of the markets we serve," Dillon said. He added: "Retailers compete aggressively for every dollar."

The company said the 263-store Ralphs group has been battered by California's record 12.5 percent unemployment rate and housing decline. Dillon said the company remains optimistic about Ralphs but said California's overall grocery market appears to be shrinking.

Nationwide, Dillon said, shoppers are trading down and cutting back because they simply don't have the money they used to. With unprecedented numbers of Americans using food stamps, club stores have stepped up their competition with supermarkets for that business.

Sales of Kroger's store-brand products, usually cheaper than national brands, continued strong. And its stores are discounting popular branded items, including Kellogg Co. cereals at half off and Barilla brand pasta at 10 for $10.

Kroger reported a loss of $1.35 a share, compared with profit of $237.7 million, or 36 cents a share, a year ago. Sales rose less than 1 percent to $17.7 billion.

Without the charge, profit would have been $176.7 million, or 27 cents. Analysts expected 36 cents a share on $17.7 billion.

The company said sales at stores open at least 15 months, a key retail gauge, rose only 1.3 percent, excluding fuel sales. Kroger cuts its full-year sales forecast for the measure to 2-2.5 percent, without fuel, from 3-4 percent.

For the second straight quarter, Kroger also cut its full-year earnings forecast, from $1.90 to $2 down to $1.60 to $1.70 per share. Analysts had expected $1.94.

Kroger has some 2,470 grocery stores in 31 states under two dozen local banners that include City Market, Dillons, Food 4 Less, Fred Meyer, Ralphs and King Soopers.

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