The chief of US grocery giant Kroger has admitted he "did not read the market right" after the company cut its full-year earnings forecast, sending its shares tumbling 12%.

Kroger yesterday (8 December) lowered its sales and earnings targets after a quarter when food prices fell more than expected as US retailers fought for the loyalty of the country's cash-strapped consumers.

The company, which runs chains including Ralphs and Smith's alongside its namesake stores, now sees full-year earnings of $1.60 to $1.70 per diluted share - against a September forecast of $1.90-2.00 a share.

Kroger also lowered its sales target, setting a forecast of 2-2.5% growth in identical supermarket sales, excluding fuel. When the retailer issued its second-quarter results in September, it forecast growth of 3-4% for the full year.

Chairman and CEO David Dillon said competition between US retailers had intensified during the quarter and deflation was "more pronounced" than he had expected.

"Deflation was more pronounced than what we had expected it to be. I actually thought it was going to begin turning but I guess I was looking through rose-coloured glasses," Dillon told analysts.

"You saw a lot more reactions throughout the industry - more competitors and more geography with competitive reactions. I wasn't surprised to see some of it but it was more widespread than I had expected. Those are the two biggest areas that I think we just didn't see properly."

Dillon denied Kroger's lower sales and earnings forecasts were "over-cautious" but said Kroger had had a "soft" Thanksgiving and that the company's management team were trying to read the market "more accurately".

"We felt that we did not properly read the market in the second-quarter release when we were telling you where the third quarter and the rest of the year would come out, and I fault myself," Dillon said. "We did not read the market right."

Kroger booked a 1.3% in identical supermarket sales excluding fuel for the third quarter to 7 November. However, the group filed a third-quarter loss of US$874.9m due to a goodwill write-down at its Ralphs division in California.

Dillon said the state had been "hard hit" by the economy but insisted he remained "bullish" on the outlook for Kroger's Ralphs business in the region.

"We believe in the last six months that our market share has actually grown slightly and that's based on looking at AC Nielsen tracking data," Dillon said. 

"We think that the market itself has shrunk a little and that's actually what creates a lot of the problem. So I wouldn't read anything into that write-down having to do with how pleased we are with Ralphs except that we are pleased with that team and their strategy and we believe in the long run that that's going to be a good market for us."

Quotes from the conference call were taken from a transcript provided by Seeking Alpha. For the full transcript visit the Seeking Alpha website.