September 13, 2018 / 12:01 PM / in 2 months

UPDATE 3-Kroger misses same-store sales estimates, shares drop 11 pct

(Adds CFO and analyst comments, financial details, updates stock price)

By Melissa Fares and Uday Sampath Kumar

Sept 13 (Reuters) - U.S. supermarket chain Kroger Co missed quarterly same-store sales estimates on Thursday, sending shares down as much as 11 percent, as changes to the way it stocks merchandise on shelves kept some customers away from its stores, analysts said.

Under its “Restock” program launched this year, the largest U.S. supermarket operator with $123 billion in 2017 sales has been adjusting product assortments, rearranging store layouts and highlighting private-label brands on its shelves.

However, analysts have said the resulting short-term disruption and inconvenience could lead some customers to shop for their groceries elsewhere.

“Pricing pressure continues to negatively impact comparable sales and margins and we expect competition to remain intense in 2018,” Moody’s Vice President Mickey Chadha wrote in a note on Thursday.

Traditional grocery chains are wrestling with Amazon.com Inc’s aggressive expansion into groceries through its purchase of specialty retailer Whole Foods Market and other efforts.

Kroger has responded with initiatives including home- delivery expansion, curbside pickup and self-checkout services. It has also invested heavily in technology, including a deal with British online grocer Ocado to build automated warehouses.

The Cincinnati, Ohio-based company said adjusted gross margin fell 36 basis points in the second quarter from a year earlier, hurt by price cuts and higher freight costs.

Rivals Walmart Inc and Target Corp both raised their outlooks for 2018 when they reported earnings last month, topping Wall Street expectations. Kroger said on Thursday its 2018 outlook is unchanged.

Chief Financial Officer John Schlotman said he felt the untouched EPS outlook was solid in an environment where Kroger is “making dramatic investments to reshape the future of the company.”

Retail Metrics founder Ken Perkins noted Kroger’s significant runup in the past year, rising sharply to its year high of $32.73 earlier this month.

“Investors have likely taken some profits over the past 10 days and particularly in light of this morning’s release,” Perkins wrote in an email, adding that Kroger faces intense competition in an ongoing retail grocery war.

“Management doesn’t seem to be as concerned as investors and is making necessary investments to move the business forward.”

Same-store sales, excluding fuel, rose 1.6 percent in the quarter. Analysts on average had expected a 1.86 percent increase, according to Thomson Reuters I/B/E/S.

Kroger said net income jumped 44 percent to $508 million, or 62 cents per share, in the quarter ended Aug. 18, from $353 million or 39 cents per share a year earlier.

Excluding one-time items, Kroger earned 41 cents per share. Analysts had estimated a profit of 38 cents.

Total sales rose 1 percent to $27.87 billion, compared with analysts’ estimate of $27.95 billion.

The company’s shares were down 9.7 percent at $28.66 in late morning on the New York Stock Exchange, off an earlier low at 28.30.

Reporting by Uday Sampath in Bengaluru and Melissa Fares in New York Editing by Susan Thomas and Matthew Lewis

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