Kroger profit shrinks, but beats Wall Street

NEW YORK (Reuters) - Supermarket operator Kroger Co <KR.N> posted a higher-than-expected profit though margins fell on higher health care and labor costs, and it raised the upper limit of its full-year forecast.

Its shares fell 2.8 percent in premarket trading from Monday's close of $22.90.

Results from Kroger, the largest and best-performing U.S. grocery chain, came as the company and rivals like Safeway Inc <SWY.N> and Supervalu Inc <SVU.N> were moving away from their bruising battle to offer the lowest prices.

The Cincinnati-based company, which operates stores under its own name as well as Ralphs, King Soopers, Fry's and Food 4 Less, reported a net profit of $255.4 million, or 39 cents per share, for the fiscal fourth quarter that ended January 30, 2010. That is down 26.9 percent from a profit of $349.2 million, or 53 cents per share, a year ago.

Analysts had forecast a profit of 34 cents per share on sales of $17.73 billion, according to Thomson Reuters I/B/E/S.

Total sales at Kroger, which also runs the Littman and Barclay jewelry chains, rose 7.2 percent to $18.55 billion. Excluding fuel, Kroger's overall sales rose 2 percent.

Kroger also raised the upper limit of its forecast for 2010 earnings to $1.60 to $1.80 per share from a prior range of $1.60 to $1.70, but warned that uncertainty about the economy and its operating costs have caused them to be "cautious."

Analysts had forecast earnings per share of $1.79 in 2010.

(Reporting by Lisa Baertlein in Los Angeles and Phil Wahba in New York; Editing by Maureen Bavdek)