Kroger Quarterly Profits Up 36%; Gives Upbeat Outlook

Kroger, the largest U.S. grocery chain, got an unexpected tax benefit and posted a 36.4% jump in quarterly profit on Tuesday as it attracted shoppers with remodeled stores featuring a better selection of products.

Kroger also said that this year's earnings should top Wall Street's average expectations, sending its shares higher.

Profit was $384.8 million, or 54 cents a share in the fiscal fourth quarter that ended Feb. 3, compared with $282.1 million, or 39 cents a share, a year earlier. Kroger said the latest quarter got a boost of 3 cents per share from the adjustments of certain deferred tax balances that were not contemplated in its forecast.

Analysts, on average, expected Kroger, based in Cincinnati, to earn 45 cents a share, according to analysts polled by Thomson Financial.

Traditional U.S. grocery stores have come under increased pressure from a variety of foes: supercenters such as Wal-Mart Stores , dollar stores, drugstores, natural chains such as Whole Foods Marketand restaurants.

But Kroger and other chains have been remodeling their stores, improving customer service and promoting items such as fresher produce to entice shoppers to return.

Such changes appear to be working at Kroger. Sales in the fourth quarter rose 14.5% to $16.9 billion, and were up 5.7% after adjusting for an extra week. The sales topped analysts' average revenue forecast of $16.84 billion.

The company, which runs stores under such names as Kroger, Fred Meyer and Ralphs, as well as jewelry stores Littman and Barclay, said sales at identical supermarkets -- a measure that tracks stores open for at least five quarters -- rose 5.6% including gasoline sales, and 5.3% excluding sales of gasoline.

Kroger said that it expects to earn $1.60 to $1.65 a share in the current fiscal year, which equates to 9% to 12% growth over adjusted earnings per share in the year that ended in February.

Analysts, on average, expected the company to earn $1.57 a share this year.

Kroger's shares trade at about 16.4 times next year's expected earnings, compared with 14.1 times expected earnings for Supervalu, the company's next-largest competitor, according to Reuters data.