* Q3 EPS 27 cents; Wall Street view 37 cents
* Lowers full-year EPS forecast to $1.60-$1.70
* After weak Thanksgiving, CEO not bullish on Christmas
* Shares fall as much as 15 pct (Adds analyst and executive comments, details on competition and holiday sales; updates share moves; adds LOS ANGELES to dateline)
By Lisa Baertlein and Phil Wahba
LOS ANGELES/NEW YORK, Dec 8 (Reuters)- Supermarket operator Kroger Co (KR.N) posted quarterly profit far below expectations and slashed its full-year forecast amid intense competition and rising U.S. unemployment, sending shares down as much as 15 percent.
Thanksgiving sales were soft as competitive pricing raged, signaling weakness for the important holiday season.
“Given what happened in Thanksgiving, I‘m not as bullish about where Christmas is going to come in for the industry,” Chief Executive David Dillon said on a conference call.
Results from Kroger, the largest and best-performing U.S. grocery chain, weighed on the shares of its rivals on Tuesday.
Safeway Inc SWY.N was down 5.6 percent, Supervalu Inc (SVU.N) fell 7.5 percent and Whole Foods Market Inc WFMI.O slipped 0.7 percent. Wal-Mart Stores Inc (WMT.N), the largest seller of groceries in the United States, lost 0.4 percent.
While Kroger’s performance was even weaker than Wall Street expected, Pali Capital analyst Robert Summers said the company remains in a good position relative to competitors.
Kroger is “best-positioned to deal with the environment ... but that doesn’t mean they are immune. It’s a tough business,” he said.
A weak economy and mounting job losses have put extreme pressure on shoppers, contributing to the highest use of government food stamp benefits in Kroger management’s memory.
Dillon said that Kroger executives previously misread economic signals.
Falling prices for key items like meat, dairy and produce have dented overall supermarket sales and had a negative effect on sales at traditionally lower-priced fast-food chains, which also are grappling with their own price wars and the impact of unemployment on their diners.
Shares of McDonald’s Corp (MCD.N) were down 2.2 percent after the company posted its second month in a row of negative same-restaurant sales in the United States. [ID:nN0858414]
The pain is not limited to the United States. Tesco Plc (TSCO.L), the world’s No. 3 retailer which derives most of its profit from Britain, posted quarterly sales growth toward the bottom end of forecasts, held back by a drop in food price inflation. [ID:nGEE5B60FZ] Tesco shares fell 10.2 percent.
Lower fuel prices squeezed gross margins at Kroger and fierce competition prompted the company to further lower grocery prices, reducing its margins, excluding fuel, 10.9 percentage points during the quarter.
Kroger said it expects these difficult conditions to persist, prompting it to lower forecasts for full-year profit and “identical-store” sales -- sales at supermarkets open without expansion or relocation for five full quarters.
Kroger now expects to earn $1.60 to $1.70 per share this year, including charges recorded in the third quarter, down from its prior forecast of $1.90 to $2.00.
The company’s new forecast calls for full-year sales at identical supermarkets to rise between 2 and 2.5 percent, excluding fuel. Previously, it expected such sales to climb 3 to 4 percent.
But Kroger sees some relief in sight, adding it expects downward pricing pressure to moderate in fiscal 2010.
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 loss of $874.9 million, or $1.35 per share, for the fiscal third quarter that ended Nov. 7, while it had a profit of $237.7 million, or 36 cents per share, a year ago.
Excluding an impairment charge stemming from a writedown at its Ralphs division, Kroger earned 27 cents per share. Analysts, on average, expected a profit of 37 cents per share, according to Thomson Reuters I/B/E/S.
Total sales at Kroger, which also runs the Littman and Barclay jewelry chains, edged up 0.3 percent to $17.67 billion, despite falling prices for food and fuel.
Excluding fuel, Kroger’s overall sales rose 2.2 percent.
Shares of Kroger were down $2.59 or 11.3 percent at $20.26 on the New York Stock Exchange on Tuesday afternoon, off an earlier low at $19.45. (Reporting by Lisa Baertlein and Phil Wahba, editing by Dave Zimmerman, John Wallace and Matthew Lewis)