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CINCINNATI-Discounts aimed at winning back customers following a grocery store strike in California drove first quarter earnings up 12% for Kroger Co., pushing the chain’s shares to their biggest gain in almost five years.

The nation’s largest grocer saw its net income rise to $294.3 million, or 40 cents per share, from $262.8 million, or 35 cents, a year earlier, exceeding analysts’ estimates of 34 cents a share. In a telephone conference Tuesday, the Cincinnati-based company said overall sales also increased by 6.2% to $17.9 billion.

Responding to the news of the strong financials, investors pushed the company’s stock up nearly 10% to $19.45 by the close of business Tuesday, setting a 52-week high.

The company, which reported a fourth quarter loss of $675.9 million in March due primarily to a nearly five month strike by store workers in its biggest market last year, recorded strong first quarter sales at its food stores, fuel centers, jewelry and convenience stores, Kroger Chairman David Dillon said. Business in the firm’s Southern California stores also improved after the company offered discounts to lure customers back following the strike and lockout that ended in February 2004.

“Our emphasis on placing the customer first generated increased customer traffic and higher average transaction size in identical supermarkets in the first quarter,” said Dillon, noting that he has been slashing prices in order to compete with Wal-Mart and other warehouse clubs that offer groceries at cut rate deals. Offering low priced items cut into the company’s margins, however, narrowing its gross profit margin from 25.1% from 25.9% a year prior.

The Ohio company has 2,532 supermarkets stores in 32 states which it operates under the names Kroger, Ralphs, Fred Meyer, Food 4 Less, King Soopers, Smiths, Fry’s, Fry’s Marketplace Dillons, QFC and City Market. The chain also operates 795 convenience stores, 436 jewelry stores, 536 supermarket fuel centers and 42 food-processing plants.

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