Kroger profit up 18 percent : US Business

CHICAGO (Reuters) - Kroger Co , the largest U.S. grocery chain, posted an 18 percent increase in quarterly profit on Tuesday on solid sales growth and a tax benefit, though its gross margin slipped.

Analysts have been closely watching Kroger's margins to see how well the company is able to pass on higher food costs to its customers.

The company said profit was $253.8 million, or 37 cents a share, in the fiscal third quarter ended November 10, compared with $214.7 million, or 30 cents a share, a year earlier.

Analysts on average had forecast 35 cents a share, according to Reuters Estimates.

Sales rose 9.8 percent to $16.14 billion, beating analysts' average estimate of $15.68 billion. Sales at stores open five quarters without expansion or relocation rose 5.7 percent, excluding fuel sales.

Gross margin fell 1.1 percentage points to 23.38 percent.

Capital investment rose to $555.3 million from $415.0 million a year earlier.

Kroger has been remodeling stores and promoting items like fresh produce as it battles pressure from rivals ranging from Wal-Mart Stores Inc , to dollar stores, to warehouse clubs and natural foods chains.

(Reporting by Brad Dorfman; Editing by John Wallace)

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