After recent strike-impacted earnings shortfalls were reported by Albertsons (NYSE:ABS) and Safeway (NYSE:SWY), it was expected that Kroger (NYSE:KR) might also register a decline. The only question was how steep the drop-off might be. Shareholders found out this morning when the company posted second-quarter net earnings of $142.4 million, or $0.19, a 25% drop from last year's $190.4 million.

Labor problems took a heavy toll on earnings as the 141-day strike in Southern California erased $23.4 million, or $0.03 per share, from the bottom line. Rival Albertsons was hit even harder by labor disputes, announcing last month a strike-related earnings reduction of $50 million, or $0.13. Before that, Safeway similarly reported that the strike took a large bite out of earnings.

Debt retirement charges also weighed heavily. Kroger redeemed $750 million in bonds due next March, and the resulting premium trimmed net income by $15.3 million, or $0.02. This loss, though, will be recouped; the company will pocket $0.02 in interest savings by year-end from the 7 3/8% notes.

Second-quarter revenues grew 5.1% to $13 billion. Excluding the Ralph's and Food 4 Less chains, which were most impacted by the labor dispute, as well as fuel, same-store sales rose 1.1%. When fuel is included -- Kroger owns 500 supermarket fuel centers and nearly 800 convenience stores -- comps were actually 2.8% higher. Though same-store sales improved 60 basis points over last quarter, management cautioned that reaching the 1.3% full-year target would be difficult.

Kroger, once the reigning monarch of the grocery world in terms of sales, has seen its title stripped by Wal-Mart (NYSE:WMT). However, it remains the nation's largest traditional grocer and retains a No. 1 or 2 market share in 43 of the 52 major markets in which it operates.

In the short term, Kroger has several obstacles to overcome. In attempting to win back customers, retain market share, and return sales to prestrike levels, management has been forced to cut prices, scaling back gross margins 118 basis points to 25.21%. Also, after the company already lost more than $300 million to labor disputes, workers in Northern California are now mobilizing for battle. Reportedly, the two sides are nowhere near reaching common ground on several key issues, and another contentious fray may be unavoidable.

Kroger and its unionized siblings are at a potential disadvantage against nonunion discounters such as Wal-Mart and must flex their muscles and force some employee concessions to stay competitive. The company was successful in this regard in the last showdown and has defused other potentially disruptive labor issues by ratifying contracts with 47,000 employees across different regions. Nevertheless, until the labor situation in Northern California has been resolved, investing in the grocery industry may be a dicey proposition.

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Fool contributor Nathan Slaughter owns none of the companies mentioned.