(Reuters) - Kroger Co (KR.N), the biggest U.S. supermarket chain, posted slightly higher-than-expected quarterly results and outperformed rivals Safeway Inc SWY.N and Supervalu Inc (SVU.N) at a time when higher food and fuel prices are weighing on industry sales volumes.
Shares of the operator of Ralphs, Fred Meyer, Smith's, Food 4 Less and other grocery stores were up almost 3 percent in midday trading.
Kroger has a sophisticated loyalty program and is known for holding down prices, even as food costs rise.
The company has been gaining market share and outpacing Safeway and Supervalu, its main competitors, for many months as large numbers of Americans are unemployed and pinching pennies.
Kroger is also holding its own against discounter Wal-Mart Stores Inc (WMT.N), which sells more groceries than any other retailer.
"The company's share gains have clearly accelerated," Credit Suisse analyst Edward Kelly said in a client note.
The Cincinnati-based grocer reported a net loss of $306.9 million, or 54 cents per share, for the fourth quarter ended January 28, compared with a year-earlier profit of $278.8 million, or 44 cents per share.
The latest results include a large charge for merging four pension funds to which Kroger contributes to into one. The move should ultimately trim pension contribution costs after the initial charge.
Excluding the pension charge, Kroger earned 50 cents per share -- 1 cent more than analysts' average forecast, according to Thomson Reuters I/B/E/S.
Fewer outstanding shares and lower taxes helped in latest quarter, while a bigger-than-expected non-cash charge related to inventory valuation hurt.
Sales, including fuel, rose 7.7 percent to $21.4 billion.
"The company was able to sustain its strong top-line momentum while the industry has slowed meaningfully," Kelly said.
Kroger's identical-supermarket sales, without fuel, increased 4.9 percent, slightly less than the 5 percent increase in the third quarter but better than many analysts expected.
Identical-store sales, excluding fuel, through last week also were comparable with the fourth-quarter results, Chief Executive David Dillon said on a conference call with analysts.
Identical supermarket sales are a closely watched measure of sales at stores open without expansion or relocation for five full quarters.
Safeway's identical-store sales, excluding fuel, were up 1.5 percent in the latest quarter, while Supervalu's fell 2.9 percent.
Kroger said food cost increases moderated slightly during the fourth quarter, helped by price declines in produce -- which previously had been skyrocketing.
"Higher prices have taken a toll on all customers, but our very price-sensitive customers continue to suffer disproportionately," said Kroger President and Chief Operating Officer Rodney McMullen.
Kroger forecast full-year earnings of $2.28 to $2.38 per share. It expects to benefit from a 53rd week in the fiscal year, an expected lower inventory charge, aggressive stock repurchases and the pension plan consolidation.
Executives said it sees identical-store sales, excluding fuel, rising 3 percent to 3.5 percent this year.
Kroger said pharmacy sales will take a hit as some key prescription drugs come off patent this year.
On the flip side, it expects to be among the retailers to benefit as pharmacy benefits manager Express Scripts Inc (ESRX.O) patients abandon Walgreen Co WAG.N, which stopped filling their prescriptions at the beginning of the year.
Kroger also expects food inflation to moderate in 2012.
Shares of the company were up 2.6 percent at $24.40 on the New York Stock Exchange.
Reporting by Lisa Baertlein in Los Angeles and Jessica Wohl in Chicago; Editing by Lisa Von Ahn and Mark Porter