UPDATE 4-Kroger gains market share, to buy back more shares

* Q4 EPS 46 cents vs. Wall St view 44 cents

* Sales $19.9 billion top Wall Street view $19.38 billion

* Board approves $1 billion share repurchase plan

* Sets FY EPS view at $1.80 to $1.92

* Shares up 2.5 pct after early 3.4 percent rise
(Adds company comments, updates stock activity)

By Jessica Wohl

CHICAGO, March 3 (Reuters) – Kroger Co (KR.N: Quote, Profile, Research), the biggest
U.S. supermarket operator, said more shoppers are coming to its
stores to buy natural and prepared foods as well as gasoline
amid a slow economic recovery, sending its shares up 2.5
percent.

The company, whose stores include Ralphs and Food 4 Less,
has been outpacing rivals such as Safeway Inc (SWY.N: Quote, Profile, Research) and
Supervalu Inc (SVU.N: Quote, Profile, Research) as it works to keep its prices low while
other types of stores, such as Target Corp (TGT.N: Quote, Profile, Research) and Family
Dollar Stores Inc (FDO.N: Quote, Profile, Research), have added more food to their store
shelves.

While higher costs for groceries and gas are behind some of
the sales increase, Kroger also said it gained market share as
shoppers visited more often, and held its ground in markets
where it competes with Wal-Mart supercenters. Wal-Mart Stores
Inc (WMT.N: Quote, Profile, Research) sells more groceries than any other U.S. retailer.

Still, the economic recovery has been slower and weaker
than expected, Chairman and Chief Executive David Dillon said.

“We see some promising signs of improvement, but the
recovery remains fragile,” Dillon said during a conference
call. “Unemployment is high in most of our markets and food
stamp use continues at its peak.”

Meanwhile, the consumers who have managed to keep their
well-paying jobs are spending a bit more. Rising sales for
premium-priced items like organic food suggest that wealthier
shoppers lately are spending more at stores like Kroger and
Whole Foods Market Inc (WFMI.O: Quote, Profile, Research). [ID:nN09168038]

Kroger’s shares were up 2.3 percent at $23.03 after it also
reported a better-than-expected quarterly profit and announced
a $1 billion share repurchase plan.

U.S. retail stocks were modestly higher following strong
February sales. Still, higher gas and food prices may crimp
discretionary purchases in coming months. [ID:nN03203429]

INFLATION

Kroger has seen the number of items purchased per visit
decline modestly, but shoppers are coming in more often, which
could be due to people having smaller budgets when they shop.

“The key thing on supermarkets — a lot of the bears seem
to be expecting a snap-back, or worry about inflation — is
that there’s no pent-up demand for groceries. So what you saw
from Kroger and what you saw from Safeway last week and a
number of food retailers is that things have gotten a little
better and it’s a gradual, slow recovery,” said Walter Stackow,
senior research analyst at Manning & Napier, which owns shares
of Kroger, Safeway and Dutch grocer Ahold (AHLN.AS: Quote, Profile, Research).

Kroger is raising its prices as vendors raise their prices
and it plans to keep doing so, President and COO Rodney
McMullen said. He estimated that Kroger’s product costs were
2.3 percent higher in the fourth quarter than a year earlier,
driven in part by higher costs in the meat department. Grocery
product cost inflation approached 1 percent after six straight
quarters of deflation, he said.

Rising sales of gasoline can help drive sales of other
goods, as shoppers drive in for gas and stay to buy other
items. However, Kroger’s gasoline business margins are expected
to fall to about 11.5 cents per gallon this fiscal year, down
from their five-year historical average of 12.2 cents per
gallon.

Safeway, which also sells gas at some of its grocery
stores, said on Feb. 24 that higher gasoline prices would pinch
its profit margins this quarter. [ID:nN24243347]

IDENTICAL-STORE SALES CLIMB

Cincinnati-based Kroger earned $278.8 million, or 44 cents
per share, in the fourth quarter that ended on Jan. 29, up from
$255.4 million, or 39 cents per share, a year earlier.

Excluding a goodwill impairment charge, Kroger earned 46
cents a share, topping the analysts’ average forecast of 44
cents, according to Thomson Reuters I/B/E/S.

Total sales, including fuel, rose 7.4 percent to $19.9
billion, ahead of the $19.38 billion analysts had expected.

Closely watched identical-supermarket sales, without fuel,
rose 3.8 percent. Kroger’s identical-store sales include
supermarkets open without expansion or relocation for five full
quarters.

Kroger forecast earnings of $1.80 to $1.92 per share for
the current fiscal year, up from $1.74 last year. Analysts
currently expect it to earn $1.92 per share.

The company forecast identical-supermarket sales growth,
excluding fuel, of 3 percent to 4 percent for the year.

Kroger is now authorized to repurchase another $1 billion
worth of its shares. It has repurchased $6.5 billion worth of
shares since January 2000.
(Reporting by Jessica Wohl in Chicago; Additional reporting
by Lisa Baertlein in Los Angeles and Ben Klayman in Detroit,
editing by Lisa Von Ahn, Maureen Bavdek and Gunna Dickson)