×

UPDATE 5-Kroger results hit by grocery price war, shares slide

(Recasts, adds operating margin forecast, details on online efforts)

Sept 8 (Reuters) - Kroger Co on Friday reported lower quarterly profit after an intensifying grocery price war hit its bottom line, and warned that same-store sales and operating margins would be lower than expected for the remainder of the year.

Kroger is the biggest U.S. supermarket owner with brands such as Ralphs, Harris Teeter and Food 4 Less. Shares in the company, which have skidded 38 percent so far this year, tumbled nearly 10 percent to $20.55, a 3-1/2 year low, in midday trading.

The disappointing report came as Kroger, which operates nearly 2,800 U.S. food stores, cut prices to fend off competition from chief rival Wal-Mart Stores Inc, discounters Lidl and Aldi and the newly merged Amazon.com and Whole Foods Market.

Kroger's net income fell 7.8 percent to $353 million, or 39 cents per share, for the second quarter that ended Aug. 12.

Closely watched sales at stores open at least 12 months rose 0.7 percent, excluding fuel.

Kroger now sees those identical-store sales rising 0.5 percent to 1 percent, excluding fuel, for the remainder of the year. Analysts expected them to increase 1.2 percent for the third quarter and 1.7 percent for the fourth quarter, according to Consensus Metrix.

Kroger also forecast a full-year operating margin, excluding items, that is 30 to 40 basis points lower than in 2016.

Executives said the forecasts exclude any hit from hurricane damage. Kroger's insurance caps losses at $26 million per event.

Amazon.com's $13.7 billion Whole Foods purchase is rattling the grocery industry, on worries that the online retailer could upend the food business like it did for books and electronics.

Kroger executives on Friday cited the "dynamic operating environment" as a reason for stopping longer-term forecasting.

Amazon last month lowered Whole Foods prices on some popular items including avocados and beef. Kroger has also slashed prices on staples such as milk and eggs.

"We expect the pricing environment to remain very competitive in 2017," Moody's Vice President Mickey Chadha said in an email.

Kroger is countering the new online threat by testing delivery at more than 150 stores and offering ClickList, its online ordering and curbside pickup service, at more than 1,000 stores by the end of the year, Chief Executive Rodney McMullen said on a conference call.

It also is selling its Prep+Pared meal kits at more than 50 stores and tapping customer data to serve up personalized recipe suggestions on Kroger.com. (Reporting by Vibhuti Sharma in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Sai Sachin Ravikumar and Phil Berlowitz)