Kroger Co (KR.N) slashed its full-year profit forecast as the supermarket chain struggles with an intensifying price war with rival U.S. grocers and low prices for staple items such as milk, cheese and eggs.
Rival grocers such as Sprouts Farmers Market Inc (SFM.O), Supervalu Inc (SVU.N) and Whole Foods Market Inc (WFM.O) also blamed the prolonged food deflation and warned of weaker sales.
"The latest results at Kroger represent the most significant confirmation that the deflationary cycle is starting to impact margin performance for the sector overall," Pivotal Research Group analyst Ajay Jain wrote in an earnings note.
Kroger slashed its full-year profit forecast to $2.03-$2.13 per share from $2.19-$2.28. Excluding a charge, the company expects to earn $2.10-$2.20 per share.
"We expect continued deflation and tough year-over-year comparisons for the remainder of the year, and even into the first quarter," Kroger Chief Executive Rodney McMullen said on a conference call.
The company also cut its outlook for full-year comparable sales growth, excluding fuel, to 1.4 percent-1.8 percent from 2.5 percent-3.5 percent.
"(Kroger) did not drastically cut guidance which has probably provided some support," Retail Metrics analyst Ken Perkins said.
The company's shares clawed back earlier losses and were up less than a percent in afternoon trading.
Kroger also cut its full-year estimate for capital investments, excluding some items, by about $500 million to $3.6 billion-$3.9 billion.
The company's sales rose 4 percent to $26.57 billion in the three months ended Aug. 13, but fell short of analysts' average estimate of $26.74 billion, according to Thomson Reuters I/B/E/S.
Net earnings attributable to Kroger fell to $383 million, or 40 cents per share, from $433 million, or 44 cents per share, a year earlier.
However, excluding items, the company earned 47 cents per share, beating estimates by 2 cents.
Up to Thursday's close, Kroger's shares had lost more than a quarter of their value this year. The stock was trading at $31.60 on Friday afternoon.
(Reporting by Jessica Kuruthukulangara and Arunima Banerjee in Bengaluru; Editing by Sriraj Kalluvila and Don Sebastian)