Supervalu Inc's (SVU.N) quarterly profit topped Wall Streets expectations despite sagging sales as the third-biggest U.S. supermarket chain trimmed expenses in a drive to catch up to rivals.

Supervalu shares rose 9.2 percent to $9.30 in midday trading.

"Results were better than low expectations, especially after Safeway's disappointing quarter," said Credit Suisse analyst Edward Kelly.

Last week, Safeway's identical-store sales came in worse than expected and its stock fell.

Supervalu has vowed to get its everyday pricing as low as bigger players Kroger Co (KR.N) and Safeway Inc (SWY.N) amid fierce competition and rising food costs.

Wal-Mart Stores Inc (WMT.N), which sells more groceries than any other U.S. chain, is trying to keep its prices lower than competitors, adding to pressure on traditional grocers such as Supervalu, whose costs include union labor.

Price checks on a basket of goods in the Chicago area last month showed Supervalu's prices were still well ahead of Walmart's, Credit Suisse analyst Michael Exstein said in a report issued on Monday.

Kroger's Food 4 Less chain was priced 10.1 percent higher than Walmart, while Supervalu's Jewel chain was 12.1 percent higher and Safeway's Dominick's was 15 percent higher.

"We've stopped doing really ineffective promotions," Supervalu Chief Executive Craig Herkert said on a conference call. Still, he said, "Our pricing is not where want it to be. We're on a multi-year journey. We're making progress."

The company's identical-store sales fell 3.9 percent in the latest quarter.

"They're continuing to lose market share, but relative to the expectations for that, they were in line," said Morningstar analyst Michael Keara.

In their recent quarterly reports, Kroger reported a 4.6 percent rise in identical-supermarket sales, excluding fuel, while Safeway posted a 0.5 percent increase.

OUTLOOK REAFFIRMED

Supervalu, whose other chains include Albertsons and Save-A-Lot, reported net income of $74 million, or 35 cents per share, for the fiscal first quarter that ended June 18, up from $67 million, or 31 cents per share, a year earlier.

Supervalu's per-share earnings topped analysts' average estimate by 2 cents, according to Thomson Reuters I/B/E/S.

Net sales fell 3.7 percent to $11.11 billion, coming in just below analysts' average forecast of $11.15 billion.

Supervalu is saddled with relatively expensive debt from what many analysts call a disappointing $12.4 billion acquisition of more than 1,100 Albertsons stores in 2006.

The Minneapolis-based company has cut workers, closed stores and sold assets in a continuing restructuring.

Supervalu's first-quarter gross margin was 22.1 percent of net sales, down from 22.5 percent a year earlier due to factors such as a higher inventory charge and higher fuel sales.

Selling and administrative expenses were $2.2 billion, or 19.6 percent of net sales, compared with $2.3 billion, or 19.9 percent of net sales, a year earlier.

Supervalu repeated its forecast for fiscal 2012 net earnings of $1.20 to $1.40 per share. Analysts expect $1.23.

The company expects identical-store sales, excluding fuel, to fall 1.5 percent to 2.5 percent this year.

Supervalu is planning for $700 million to $750 million in capital spending this year, including 55 to 75 store remodels. It does not plan to open any new traditional supermarkets this year. It plans to reduce its debt by $500 million to $550 million.

Credit Suisse Wal-Mart Credit Suisse Wal-Mart