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Kroger lifts guidance, citing plans to expand

Tuesday, 16 Oct 2012 | 1:11 PM ET

NEW YORK -- Kroger is forecasting stronger growth in the years ahead, as the nation's biggest traditional supermarket operator continues to transform the format of its stores to fend off competitors and keep up with changing shopping habits.

The Cincinnati-based company, which operates its namesake stores as well as Food 4 Less, Fred Meyer, Dillon's and other chains, says the growth will be driven through expansion into new and existing markets, as well as improvement in its core business.

Over the long term, Kroger Co. now expects earnings per share to grow 8 percent to 11 percent, up from the previous forecast of 6 percent to 8 percent. The company stood by its sales and earnings guidance for the current fiscal year.

As competitors such as Target Corp. and Wal-Mart Stores Inc. have expanded their grocery aisles, Kroger has responded by investing more into its Marketplace stores, which have a bigger footprint and sell car parts and furniture in addition to groceries. Last month, for example, Kroger said it would start selling clothes for the first time at a Kroger Marketplace store in Ohio. The store sells shoes, jewelry and undergarments, including brands such as Skechers and Levi's.

The company has about 70 Marketplace stores, up from 42 five years ago.

Rodney McMullen, the company's president and chief operating officer, said at an investor conference in New York that the company's idea of a "combination store" has gotten bigger and better over the years.

"It keeps evolving to something different," he said, noting that the Marketplace store in coming years won't resemble the stores today either.

To hang onto customers amid intense competition, Kroger is also working to improve the shopping experience and differentiate itself from the pack. For example, the company has cut down on checkout wait times and has a loyalty program that offers customers discounts based on past purchases.

In select locations, it also has "cheese masters," or associates who wear red jackets and offer customers expertise on cheese selections.

The Cincinnati-based company says it will boost capital spending and approved a $500 million share buyback program.

Kroger shares rose $1, or 4.3 percent to close Tuesday trading at $24.43, after rising as high as $24.84 during the session, their highest level since the summer of 2011.

Kroger operates more than 2,400 supermarkets in 31 states.

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