UPDATE 3-Supermarket chain Kroger's forecast disappoints, shares down

(Adds details on margin, background on industry)

March 8 (Reuters) - Kroger Co forecast full-year profit largely below Wall Street's estimates on Thursday as a brutal price war with Walmart Inc and Amazon.com Inc squeezes the supermarket chain's margins, sending its shares tumbling more than 12 percent.

Kroger, which owns some 2,800 grocery stores under banners such as Ralphs, Harris Teeter, Fred Meyer and Mariano's, forecast 2018 earnings of $1.95 per share to $2.15 per share. Analysts, on average, expected a profit of $2.15 per share, according to Thomson Reuters I/B/E/S.

"External pressures continue to weigh on the fundamentals -particularly the heightened competition from Walmart, Amazon-Whole Foods, Aldi, Lidl, and others - resulting in ongoing reinvestment in the business, which has been pressuring results," Telsey Advisory Group analyst Joseph Feldman said in a client note.

Kroger also forecast a 1.5 percent to 2 percent rise in sales at existing stores in 2018, compared with the analyst consensus of 1.8 percent.

The Cincinnati-based company is refining its product assortment, pricing, marketing and customer service under its technology-driven Restock Kroger initiative as it expands convenience with delivery, curbside pickup and self-checkout.

Kroger expects to spend $3 billion on capital investments in 2018, excluding acquisitions and purchases of leased facilities, the same as 2017 but down from $3.6 million in 2016.

It also is streamlining its business. Last month Kroger sold 800 convenience stores to British gas station operator EG Group for $2.15 billion.

In the fourth quarter ended Feb. 3, sales rose 12.4 percent to $31.03 billion, topping analysts' target of $30.83 billion.

Identical same-store sales were up 1.5 percent, edging past analysts' estimate of 1.45 percent.

Net earnings attributable to Kroger jumped 68.8 percent to $854 million, or 96 cents per share.

Gross margin was 21.9 percent of sales for the fourth quarter. Excluding fuel, the 53rd week and a credit and charge for last-in-first-out inventory accounting, gross margin decreased 31 basis points from the same period last year.

Kroger's shares had gained about 16 percent in the past six months before dropping 11 percent to $23.30 in early trading. (Reporting by Nivedita Balu in Bengaluru; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty and Peter Szekely)