UPDATE 1-Kroger cuts full-year profit forecast, shares dip

(Adds details on forecast, shares)

June 15 (Reuters) - U.S. supermarket operator Kroger Co on Thursday cut its forecast for full-year adjusted earnings, citing a bigger increase in product costs than previously expected.

Kroger's shares fell 8.7 percent to $27.65 in premarket trading and were on track for a two-and-a-half year low, despite the company reporting a smaller-than-expected decline in same-store sales for the first quarter.

The company said it now expects adjusted earnings of $2.00 to $2.05 per share for the year ending January 2018, down from an earlier forecast of $2.21 to $2.25.

Kroger estimated a LIFO charge an accounting method for inventory of $80 million, compared to an earlier estimate of $25 million. The charge is mainly affected by changes in product costs.

Excluding fuel, sales from Kroger's stores open for at least a year fell 0.2 percent in the first quarter ended May 20. Analysts on average had expected a 0.7 percent decline, according to Consensus Metrix.

Those sales were down for the second straight quarter after Kroger reported the first decline in same-store sales in 13 years in the preceding quarter.

Kroger, the biggest U.S. supermarket operator by store count, is facing intensifying competition in the grocery segment, with Wal-Mart Stores Inc, Lidl and Aldi attempting to outdo each other in a price war.

Net earnings attributable to Kroger plunged to $303 million, or 32 cents per share in the first quarter, from $696 million or 71 cents per share, a year earlier.

The company recorded a $126 million charge related to pension plan withdrawal liabilities and a $117 million expense for offering voluntary retirement to employees.

Excluding items, the company earned 58 cents per share, in line with the average analyst estimate, according to Thomson Reuters I/B/E/S.

Sales climbed 4.9 percent to $36.29 billion, beating the analysts' estimates of $35.77 billion. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sai Sachin Ravikumar)