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Kroger ekes out 2Q comp gains, but lowers forecast

Kroger ekes out 2Q comp gains, but lowers forecast

Deflation, pension charge dings earnings; cap-ex trimmed

Kroger Co. on Friday reported non-fuel identical store sales increased by 1.7% in the fiscal second quarter, and forecast still narrower sales gains for the remainder of the fiscal year as it deals with persistent food price deflation.

The Cincinnati-based retailer said ID sales for the remainder of the fiscal year are expected to be in the range of 0.5% to 1.5%, and 1.4% to 1.8% for the year. Kroger had previously forecast 2.5% to 3.5% annual comp gains.

For the quarter, which ended Aug. 13, Kroger reported earnings of $383 million on sales of $26.6 billion. Sales were up by 4%. Earnings per share of 40 cents were impacted by a $71 million charge related to related the restructuring of certain multi-employer pension obligations to help stabilize associates’ future benefits. Excluding those charges, earnings would have totaled $454 million or 47 cents a share, an increase of 4.8%.

Analysts had been expecting non-fuel comps of 3.4% and EPS of 45 cents.

"I'm very proud of our associates for their determined focus on always making a difference for our customers. Their execution of our Customer 1st Strategy in a deflationary environment helped deliver growth in identical store sales, units and market share," Rodney McMullen, Kroger's CEO, said in a statement. "We are focused on long-term performance over a three-to-five year horizon. We have the right strategy, the right people, and the financial flexibility to execute our strategy, which allows us to continue investing in our associates and our business and growing market share. By staying on our strategy, we create long-term value for our shareholders."

Gross margin was 22.1% of sales for the second quarter, down 13 basis points from last year's second quarter and down from 23% in the first quarter.

As a result of continued deflation, Kroger lowered its net earnings guidance range to $2.03 to $2.13 per diluted share for 2016. Kroger's adjusted net earnings guidance range is $2.10 to $2.20, excluding a 7-cent-per-share charge from the company's commitment to restructure its pension programs. The previous guidance range was $2.19 to $2.28, which did not anticipate the 7-cent charge.

Kroger on Friday also lowered its expected capital investments – excluding mergers, acquisitions and purchases of leased facilities – by around 12%, to a range of $3.6 to $3.9 billion for the year. The previous expectation was $4.1 to $4.4 billion.

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