CEO David Dillon said that the Cincinnati-based grocery chain was satisfied with a 5.1 percent rise in sales - and that the company is seeing improving sales trends in 12 of 17 divisions nationwide.

But higher gas prices and the lingering effects of a strike last fall and winter at its southern California stores are muddying the waters for Kroger.

Dillon warned analysts Tuesday that Kroger would be hard pressed to meet its goal of a 1.3 percent gain in same-store sales this year, outside of fuel sales and the stores affected by strikes.

For the second quarter ended Aug. 14, Kroger Co. earned $142.4 million, down 25 percent compared with the same quarter a year ago.

Sales grew 5.1 percent to nearly $13 billion.

Earnings per share of 19 cents for the quarter was less than what Wall Street had expected. The First Call consensus forecast was 27 cents a share. Kroger stock closed down 72 cents, or 4.3 percent, to $15.98 per share.

Dillon told analysts that consumers are shopping at more stores than they were 10 years ago. Kroger is trying narrow the price gap not only between it and Wal-Mart, but also with other competitors such as Walgreens drug stores - so that shoppers spend more money with Kroger.

The company has made progress closing the gap with many of those competitors, he said. As for Wal-Mart, "I think we've come a long way on the journey - but we still have ways to travel" in closing that gap, Dillon said.

In some cases in the second quarter, Kroger "overinvested" in some markets, putting money into efforts that didn't produce sales, Dillon said. That contributed to the drop in profits.

A big part of the effort to close the gap in pricing is renegotiating labor contracts with its major unions. Kroger suffered through a 141-day southern California strike to win concessions from unions there, and recently signed new contracts with unions at stores in Arizona, Detroit, Seattle, Louisville and Nashville. Kroger's contract with the United Food & Commercial Workers Local 1099 in Cincinnati expires Oct. 9, and negotiations are pending in northern California, Denver and Las Vegas as well.

To compete against Wal-Mart, Kroger is building multi-department "marketplace" stores in Arizona and Salt Lake City, and announced plans for three such stores in Columbus. But the economics of those stores depends on lower labor costs.

Dillon said the marketplace stores, if the prototypes are successful, would be built only if Kroger gets new labor contracts.

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E-mail johnb@enquirer.com