In my previous articles on Martin Luther, I've demonstrated that Martin Luther accepted belief in Purgatory and Indulgences -- although he sought to clarify the specifics of the related doctrines. Another doctrine that Luther accepted, and which most Protestants unfortunately neglect or dispute, is Confession, know to Catholics as the Sacrament of Penance, Confession or Reconciliation. Martin Luther explains his understanding of Confession in Book 5 of his Small Catechism.
"Confession has two parts:
First, a person admits his sin
Second, a person receives absolution or forgiveness from the confessor, as if from God Himself, without doubting it, but believing firmly that his sins are forgiven by God in Heaven through it."
I don't see any part of this that would be objectionable to Roman Catholics. Instead of confessing his or her sins privately, the penitent speaks to a confessor. The penitent is to accept that the confessor is a vicar of God. The Catholic Catechism's Article on Reconciliation is much longer than Luther's, but this is meant to be a Small Catechism. Furthermore, the Catholic Catechism as we know it today did not exist in the form that we know today.
However, one omission is worth noting. Luther does not describe Confession as a Sacrament. Baptism and Communion, in the same document, are both described as such. In Part 4 of his Large Catechism, Luther explicitly says that there are "two Sacraments instituted by Christ." Part of the traditional Lutheran definition of a Sacrament is that it be instituted by Christ. So, by saying that Confession was not instituted by Christ, Luther is saying that it is not a Sacrament.
However, the other two criteria are clearly met. There is a visible element joined to "His Word of Promise," and God "offers, gives and seals the forgiveness of sin earned by Christ." That much both Luther and the Catholic Church agree on. So, the question of whether or not Confession is a Sacrament depends on how one defines a Sacrament. On the substantial points, there seems to be no disagreement between the Catholic Church and Martin Luther on Confession.