Kroger blames Ike for profit drop

Hurricane Ike battered Kroger Co.’s fiscal third-quarter profit, and the grocery chain offered a cautious forecast Tuesday amid the U.S. recession.

The nation’s largest traditional grocer said profit fell 6% in the quarter, mainly because of far-reaching damage from Hurricane Ike, even as its sales rose 9%. But Kroger expects lower holiday spending to hurt fourth-quarter results, and projects slower same-store sales growth for next year.

“Times are such that it’s a little less predictable than you might want,” Chairman and Chief Executive David B. Dillon said.

Kroger shares dropped nearly 7%.

Third-quarter revenue rose 9% to $17.6 billion, and identical-supermarket sales rose 5.6% in the quarter without fuel sales and 7.8% with them. Those sales, for stores open at least five quarters, are considered a key gauge of retail strength.

Kroger said sales were strong for its deli, bakery and other store-prepared foods as consumers cut down on restaurant meals, and that its corporate brand sales continued to rise, accounting for more than a fourth of grocery sales.

The Cincinnati-based company said it earned $237.7 million, or 36 cents a share, in the quarter ended Nov. 8, down from $253.8 million, or 37 cents, a year earlier.

The company said results were hurt by an after-tax charge of $15.9 million, or 3 cents a share, related to its $25-million insurance deductible for Hurricane Ike. The storm damaged stores, forced some to close temporarily and spoiled food in closed stores in September, particularly in Texas and inland states as far away as Ohio that sustained severe winds.

Otherwise, Kroger said earnings would have been $253.6 million, or 39 cents a share.

Analysts polled by Thomson Reuters had predicted earnings of 38 cents a share on revenue of $17.4 billion.

The company said it expected full-year earnings of $1.88 to $1.91 per share, excluding the 3-cent-per-share charge from Ike. The previous guidance was for $1.85 to $1.90, excluding Ike effects. Analysts projected $1.91 a share.

Kroger expects fourth-quarter earnings of 49 to 52 cents per share, saying that that range “considers the cautious mind-set of many consumers this holiday season.” Analysts were projecting 53 cents a share for the quarter.

Looking ahead to 2009, Kroger expects identical-store sales growth to slow, to a 3% to 5% range, which Dillon said reflected uncertainty about the overall U.S. economy.

Kroger shares fell $1.84, or 6.7%, to $25.47.

Kroger operates 2,477 supermarkets and multi-department stores in 31 states, under two dozen local banners, including Ralphs.