Kroger Cuts Guidance as 2Q Profit Falls 8 Pct

In this July 23, 2009 photo, a woman shops in the dairy department at a Kroger grocery store in...

In this July 23, 2009 photo, a woman shops in the dairy department at a Kroger grocery store in Cincinnati. The Kroger Co. says second-quarter profit fell nearly 8 percent, as households cut spending more deeply and food prices fell.(AP Photo/Al Behrman)

(AP)

The nation's largest grocery store operator says worried shoppers are still cautiously stretching their dollars by coming in more often while buying only what they need right away and at the lowest prices.

Kroger Co. reported Tuesday that its second-quarter profit fell nearly 8 percent. The company cut its outlook for the year amid intense competition for the attention of customers the grocer expects to remain conservative.

"Consumers throughout the U.S. obviously are going through a lot of trauma," David B. Dillon, Kroger's chairman and CEO, told investors in a conference call.

Kroger shares tumbled $1.65, or 7.5 percent, to close at $20.46.

"They are being forced to keep their prices down or move even lower," said Doug Conn, managing director of New York-based Hexagon Securities. "Consumers are nervous, and are looking at every purchase with equal importance, from the large-ticket items to what they're eating for lunch or dinner."

Here are some other trends Kroger officials are marking as unemployment rises and households tighten budgets:

— Sales are strong for deli foods and meals prepared in the store as people shy away from restaurants.

— Many customers are seeking discounts on national brands; others are trading down to the lowest-priced brand — even among store brands — particularly Kroger's no-frills "Value" items.

— Sales are falling at the end of the month when household money runs low, and more customers are paying with food stamps.

Meanwhile, price battles among grocers, bargain chains and big-box retailers, led by Wal-Mart Stores Inc., are cutting into Kroger's profit.

"This is not surprising, because customers are spending less and retailers are aggressively competing for their dollars," said W. Rodney McMullen, Kroger's president and chief operating officer.

And revenues were hurt by falling prices for milk, produce and other staples plus lower gas prices at Kroger service stations.