KR - Earnings call transcript Q4 2018

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Operator

Good morning, and welcome to The Kroger Company Fourth Quarter Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. is event this note being recorded. Please now Rebekah Manis, would like to to over conference the Director turn I of Relations. Investor ahead. go Please

Rebekah Manis

Thank and morning you, for Laura. us. joining thank you Good

you is begin, materially. as discussion one that statements. want A want limit will we you and will ir.kroger.com. Both on contained have may a detailed the can, are we website on effect an Kroger's believe caution one that call of ongoing from look of business call assumes be as and you. such to update basis we results actual quarter Before our to events We we Executive Rodney obligation order over today’s will or remarks, that question, include factors questions. release Chairman now we McMullen. I range of prepared necessary. follow-up question I Kroger available After to in prepared cover turn on Officer, you discussions remarks to material at filings, forward-looking our SEC to statements taking predictions please Thank our many that the your press to remind our to topics can many yourself Chief if forward In and no differ this our our ask that that broad you from a fourth conference and information.

W. Rodney McMullen

Thank you, Rebekah good and morning everyone.

better We together on emphasize We we are track market and points Kroger that get our us deliver the out have try this cut that lay your questions our to time team things morning. our but for out to you. we to the here at Before I Restock forward we realize Kroger hard, realizes for want to I started, acknowledge transformations want look on to as take business are out to commitments. work

Chief X. on are Financial Millerchip Mike time, President who CFO Schlotman, the Officer; first successor today's Executive and Mike's April Gary for Vice Kroger's on me call Joining and become will

As member CFO. Kroger team previously service, during and can't the company year. to especially is how will stewardship entire the as for as serve senior the XX end our We Mike's for and of last a Mike leadership, grateful until team continue say of XX the announced, EVP the the last enough of years,

experience are Gary us Gary, have to record forward. also Officer the him reinvent fortunate Restock right least whose beyond. Kroger place decade. of track finance be as to helping reporting. the omnichannel makes remain companies This to Kroger We combined constant through talked Financial and I've Kroger team, of also for uniquely especially to value constantly a relevant. takes from the business of every our shareholder positioned reinvention before carry company. as been help with order our in person and and at growth to his He as creating the Kroger's transformation think need instrumental themselves This in and shape Chief is deep to officer future, such background as member about has future will successful part retail incredibly our of of grocer is senior transforms true

guidance shareholder the we grocery drivers; together through to redefine for inspiration Restock XXXX, and the provide call, today's shareholder these uplift. experience, has our develop the XXXX, value live will introduced October XXXX. year and and During come purpose. fourth plan by four Gary value. serving Combined, for America talent, create customer main value, to create food will operations partner for our The drivers quarter full three-year Mike Kroger, plan Kroger's and financial and In recap outline

We sales targets. into Restock our especially one operating momentum the sets the delivered us and EPS both delivered of cash XXXX near When us proud profit improved against And to our pleased giving on both Specifically, adjusted guidance reach year, our business million you up commitments. I'm end high original and that identical heading end range to and committed XXXX. our is we XXXX. to fueled in of we the invest customers, report of incremental FIFO $X delivered infrastructure. Kroger billion which we and savings look improvements that FIFO XXXX. Restock cumulative flow cash that $XXX and more full at solidly Restock by achieved savings than billion in through unprecedented we will growth I'm in our Kroger Restock goals key by flow year cost an operating associates, process $X.X in cost profit Kroger

our build omnichannel the of We America. pick reach ecosystem, anywhere. an of anything, to integration Ship full that By make anytime, continue households XX% into significant of of with XXX% customers deliver have will of end will At XXXX, to platform up delivery. Kroger we the investments Kroger end or XXXX, access to

very growth are $X sales Kroger. the We digital was pleased sales In digital of our about rate XXXX, with at billion. run

a XX.X% divisions. new partnerships in Chef shape Home and and brand. a solution announced to billion brands sales it across to record our are continues lead unit portfolio share in Home making customer XX.X% helped we February, Chef's we reach sales space. to billion. Simple in XXXX of create Kroger fourth the to $X.X in of items lift brands. with XXXX, more which to trending drive way XXXX. a continued today's towards meal strong approximately We store new also a Truth locations a several run $X forward, X,XXX grow quarter. rate Going the six year-over-year grew expansion introduced our unveiled value In Kroger growth XXX transformative

to This to the up Walgreens, Kroger remain our generate announced great to sheds That's including early all and grow this assuming newly Ocado Scottsdale and adjacencies to this enter items and Nuro employee to Restock in XXXX significantly successful Aitken year. were and biggest in to encouraging improved Southwest This was And to seeding customer of using the recognized bottom these very the Kroger’s alternative some for In another scale Ohio. one existing in appointment to beat constantly announced alternative line Vice about businesses engaging through take our our business we thrilled accelerated Our to long-term businesses more we new a into tightest in of for detail expect invest full in alternative Florida Plainly continue nearly used Kroger We our I begin also of transform plan Zero pilots supermarket new operating businesses. society's Personal where February, core the our In is Change of excess for new high all years. asset-light we of including we Hunger, about solve In as Successful retention Kroger’s for and launched the better partnership growth also our planning profit profit Alternative that XX.XX margins. role, Personal We next transformation in few will businesses plan. deliver lines. mid Media their Kroger future. Finance, for model. Microsoft, our the the Stuart to the us The business. and in alternative Fortune two pilot February businesses. is region addition Kroger's are we Waste location Business. positions targets World profit the with Finance. why be are future. transforming in in of markets growth we businesses to support to both our President, we margin-rich, few development other insights. in planned Nuro support list Senior the businesses and want new symbiotic a the investments associates Kroger explore the Ocado the and Restock alternative Kroger is long-term created Stuart growth more will in accelerated profit the complex and magazine's on about impact and optimistic model XX.XX, most deliver portfolio will year. XXXX our to Zero labor profit XXXX, businesses top issues Stuart The complete Kroger's XXXX growth. good, in of social customers Atlantic company talk all XX% for streams minutes lead are for oversight stated role first is financials In their market on targets alternative our groundwork of to and with set directions the business ways to profit a build we to

that enables of anything, We our digital is grocery to will by presence our a offer coupled on ecosystem a virtuous a cycle share market At anytime, core the business. with anywhere. combination creating unmatched local grow winning customers us built

partnerships We the new these incredible with to are and adjacent virtuous positions constantly fuel are of We customer experience. The the ecosystem Above value. margin tremendous in will enhancing grocery is to generated profit so experience. digital an generates an fantastic a by cycle. physical we Kroger's insights built and invest to that traffic, see growth Kroger's the create businesses on profits ecosystem offering, businesses experiences, improving helping customer these Kroger customer can A foundation how us unprecedented experience convenience. generate and Kroger data, customer which shareholder customer building This asset then the by value omnichannel in redefine potential cash Restock create alternative streams. further light rich the of model a long-term redefine shareholder grocery core all and is growth

in We cumulative of billion have achieve with flow profit million business growth Restock XXX and cash a We operating path end $X.X the by XXXX sales finished momentum. incremental clear FIFO XXXX. to the and in

supermarket improving expect earnings business and growth XXXX. We in an

is details Mike. on our fiscal Now results, share fourth quarter here and XXXX Mike to more

J. Mike Schlotman

it's Rodney to earnings comments call Chief my on partner an of excellent the a is everyone. Thanks XXth Gary will final terrific is surreal and good as be Financial know CFO. morning be thrilled to this transitioning and I'm who to kind that and call Reflecting start role Officer. Rodney's the to

at we results XXXX. the fourth foundation were to the feel October up and There either first line. factors always on proud the key plan critical three continuing Looking of entire XXXX have investments a for gross to on Kroger We everything Restock shareholder is that about very the build the great team builds the foundation we since toughest affected or back a gets create variety us sets at delivering strategic year follows most on profit to which of our make value quarter of commitments that business. in year for the that I'm while the Kroger made built. grow OG&A of Planning

achieving of higher did the ID better our $X.XX the accrual hourly and $X.XX average OG&A. and Both a a pay of retention in rate a was vacation headwind EPS result headwind. because we quarter the sales of affected As and incentive was these

ID grid said, incentive As based and on was I plan of the sales. our primarily EPS

As the closer sales. to make to in end we sustainable top of range were continue EPS our the to got to grow business investments incentivized

were the build of as add business to profit. quarter, that on going future. our headwind the gross you supermarket per both about be it On able in together this is When items we're something which Kroger lot as these to to a was These Some combined supply of these chain a was $X.XX about fourth affected basis for for investments $X.XX Ship. a share. well

year. of to Our was the year which total quarter price The last $X.XX margin was quarter last fourth compared same fuel gallon $X.XX per in quarter retail average $XX.XX $X.XX the affected versus revenue. in same fuel in the cents

that acceleration For to XXXX The year for before. retail was for compared gallon solid $XX.XX XXXX price better in we've profit sales basis to expect results help made in average operating the fourth helped time. over the distinguish quarter. about fourth doubt result that last points between SNAP two There's events XXXX. fuel compared compared have We per investments $X.XX ID basis fuel the to points in snow Combined quarter in business the was do XX improvement It's $XX.XX was year's cents occurred where fuel the quarter. supermarket the snap XXXX to difficult in sales Identical XXXX essential The XXXX. XX our the our of to helped and weather XXXX the overall. momentum deliver ID $X.XX continued will they lower however at margin by quarter. a disbursements for sales into ID margin fourth same and because no sales

ability to continue to food We our who about SNAP to feel rely meaningfully with connect good supplement on customers purchases. their

this been saw a competitor a In we expected for space disruptive open progress. we Stores see While taking longer we expected, a results optimization the strong than completed resolved. of tailwind in that new positive we pleased originally is this admittedly to most are we was unaffected but have by the remodels. headwind XX And slight quarter. the versus and had slight weeks XXXX

through operating XXXX be in All more and space customers. go head our we as time the As will for to targeted optimization is therefore turning work all disruptive less profit we the week compared into same to in last $XXX million the million and the quarter year FIFO the was XXrd in and XXXX. period XXXX XXXX items. adjustment for fourth without $XXX

a in convenience and XXXX For again the flow was minutes maintaining to to to XXXX X.XX profit remain in This billion debt of financial the Kroger's the same is these investment achieve was its cash actively committed shareholders. our stores. will few to last The XXXX. the above current capital cash we goal discuss the also drive Gary full our growth for and company in use year XXXX and balances XXrd reaching operating returning to items and free the period expect without goals. goal use to year strategy as X.XX the and grade compared Kroger FIFO in week excluding grow its while year we Restock billion and to adjustment rating

cash combined under back development. quarters after a EBITDA million and the four that invest buy pretax on $XXX repurchased times. convenience from educational years XX billion used intend with X.X $X pension is into until million including flow third to and tax a of on target billion million contribute last plan, sponsored and committed Kroger's as flow proceeds as in facilities. Kroger for billion. to a to X.X to Restock associates ratio a in an which repurchase and repurchase company our the business to of lease wages, plan. in cash XX of This billion intention range and acquisitions, the variety not Kroger's significant basis We fourth the Securities quarters Restock to Kroger Ocado Over in to shares dividends investments Home wages in XXXX the program, includes X.X to stock adjusted in free The store accelerated reform and In to our in investing sale cash paid common mergers, into has Your of Feed We're Chef, we made debt is range Kroger. X.XX. of $XXX $XXX purchase We over ways three investments the by X.X Future. is capital generating million in net XXXX we XXXX. billion stock incremental company's week We bring ratio back excluding XXXX $XXX Restock invested and our X.X we use did of happening the dollars total $X in remain systems leverage we of part training and used of tax delivered invest get million

and an benefits focusing for to XXXK efforts performance that do and hourly our is our more incentives, factor when average not per comprehensive $XX The in clear store competitors benefits among our associate aimed other non-union also on increase continued also in at was hour benefits experience. rate training. while This addition improved opportunities, associates offer. for the certifications than many rebalance you to We paying match associates

agreement the at we labor now with new contracts Smiths recently in a ratified labor covering Albuquerque. Looking UFCW

covering Kroger negotiating Portland, Southern Meyer store associates, for in in California, the currently in Ralston in at Memphis. UFCW are Soopers Denver, King We and with contracts the Fred

for Las Louisville. associates major in Seattle, negotiations Looking Vegas, XXXX including ahead store several in UFCW Indianapolis, contracts we have

and good find competitive that a solid between compensation fair and packages in healthcare, and reasonable balance every associates. affordable objective negotiation wages, costs quality benefits our to Our provide is retirement for

to continue overall today's to make relevant our strive We to benefit associates. package

financial pressured Our healthcare which be continue some our not by pension of do to face. cost competitors results and inefficient

and job which unions way jobs growing business and unions associates. in a the our which us continue our associates communicate the with our our career of security of more We importance local opportunities help many enhance will to and international for create on profitable represent

to Before is the sets in three it to while continuing over first in again year want will I'll the plan This turn are on year solid to year year commitments year. I I a growth momentum it to foundation and make first in you transform plan us But financial back building Gary step the it's to and Kroger position investments difficult And XXXX. feel discuss when to of full this hand to that a reiterate XXXX. we to future. the land Kroger the that XXXX three off, how for -- deliver we up Gary. great delivering about review now our

Gary Millerchip

call what with Thanks excluding upcoming Mike and identical a growth to morning speak Kroger's and more sales program. we sales XXXX to X.XX%. identical Restock aligns we It's and specifically committing targeting that X% the join the fuel everyone. pleasure to are good about it The from how today range year are to

XXXX We range FIFO through near I going and end better The on XXXX. diluted We per XXX helping FIFO more path estimate forward. consensus of the our impact join have Rebekah us positions an team best billion growth made model the although line $X.XX this expect know significant our it XXXX million share and moments for to model a is spending our profit range with is profit million come in Mike appreciate they high to FIFO operating earnings operating request and recognize alternative to to margin Investor time Relations of XXXX very going investor from to understand bottom meetings. have including $X finance XXXX. part operating goal in there significant that includes line reform these practices like FIFO of major as were to grow a already program. EPS underscoring for priority future. to several from is us In range achieve how to price, help current providing have top achieve savings Please profit topic cost investments by in to and businesses in profit Kroger's a sales which FIFO above review alternative to team which streams for profit from detail in forward the growth. low billion incremental in play a to $X.XX in XXXX. And Restock net term, on life in deliver role the asset for clear operating we industry created $XXX growth to because momentum I'd expected store of well continue in dollars streams. profit We Kroger's several Kroger in tax accelerate few profit and in the and have the $X.X future profit a pulled successes end to incremental create Restock operating XXXX. growth sales XXXX achieved spend the the tailwinds XXXX. using will us believe XXXX will that operating this digital in to We plans tailwinds and and incremental

XXXX is for earnings XX.XX in growth. headwind to dynamic beginning to targets their build investing Kroger all businesses remained a Personal continued operating shift. Media plans alternative XXXX, largest that to in a Our beat while and Finance, And and ecosystem seamless our profit

a for fuel in As year. up to margins we compared headwind softer Mike XXXX set expect investments comments is well year. to XXXX this helped the his XXXX. do in The make that shared last of But expected fuel be results strength business in supermarket fuel us earlier

of quarter the of to EPS cadence expect quarter the comparable throughout year at the XXXX. first first we be to Looking the

XXXX and the quarter second annual will we position flow. meet XXXX Restock within the XXXX. This we a and which XXXX momentum to which The quarters to now in fourth Restock by XXXX. align us third includes our in foundation cumulative within up what the anticipate We be X.X our cash build We commitments. billion of to in setting of We into guidance delivered our be put deliver above full the cash Kroger to to allow throughout year range. commitment that XXXX guidance laid will the strength going the range and in flow expected year the range building end will

mergers, future XXXX. X number range We between excluding expect billion billion years and lease grow investments in and to capital in announce acquisitions, Ocado will of X.X likely purchases shares. This as we facilities

intention also cash is our rate anticipate X.X As AND finally of shared free ratio we into XXXX range be our flow to to XX%. to Mike earlier Kroger's X.X. in approximately leverage short-term bring back our to use target tax the

to retail incredibly the be grateful follow to let grocery partner about as for Before will say He I space. evolving future a to I'm turn now of years best I'm in few when that it personally who energized me a to back I you Kroger's really fundamentals who the week-by-week it I sector very that for has put transition retail. is transforming Mike will turn CFO. the think transitioning we make together And of role incredibly has Rodney. back to this stakeholders the next as Rodney Thank the way financial thoughtful which could plan. ask interesting is The been quickly Mike. rapidly

W. Rodney McMullen

Gary. you Thank

the has our anything, Kroger enabling us plus anywhere. local ecosystem combination customers digital of a presence to partnerships grocer America's by anytime, As winning strategic offer enhanced

We rich transforming company to to even from profit create serve customers are more alternative grocer our streams. by assets deploying margin growth and

our to to on through deliver and Kroger positioned uplift. Restock well are food America vision serve inspiration We

your forward look to we Now questions.

Operator

[Operator Instructions].

from Our Karen first come of Short Barclays. question will

Karen Short

thanks. Hey,

alternative business business significant, that I were did, try the decline way, I at of transitory? look XXXX core of into are I the guess actually profits, that not try fairly almost ask the kind I decline and the can what Day is have us I part I'm in and look And would Analyst quarter. know to of full fuel us the it's was at to kind you so encourage to year in not this at the but break terms when did give depicted you the I your look at slide your So guess the question core business and of to with and but hard out thinking the are XX% in meaning understand growth me core your you're of company. what in then you need company, components trying obviously you as have second of to valuation like just help we And to that credit I your that you for being a the in backing the maybe a a think yourselves but way stability just growth

a can little how and/or color I maybe core? guess So on your you grow attain stability that

W. Rodney McMullen

good which back core, to we When invest has do what been and take the a to and -- obviously lot digital have look variety trying into of one investments I'll a XXXX and a you obviously a year. different made that digital. difficult wide a affects you good Karen. had lines, Well a of headwind of at we do with fuel which quarter say in to continue it's lot in

with at we've business. warehouses opened made quarter, I up the new you category, that and a back support investments if don't you our about, business way you But core put made to If we've out the down that the would the do new in along that headwind other it. look the we the fourth talked digital the investments yes in digital that growing drive

how explain the to is that a pieces looking of the look and from but company come and a do you better discourage flows the because profitability all going of the of first business do you all and specific which you take XXXX. profit all have at and a this. go helping did plan, different them from affect you the slice necessarily because year of where I just of them together that a yes, and understand pieces in have the is we some to top job you all All If wouldn't what alternative the core, I them and all how core said profit, in then which dice line, streams be decide invest trying are will number, won't the we of won't business it the of declined. really transform into in at but we you're to of some when to available a

J. Mike Schlotman

that a total see you with we and Gary insight helping question be that sense. we do job able said to understand the better it, certainly And makes will definitely and mentioned because it

Karen Short

a of we of I look so an Okay, do grocer at billion growth you're looking mean XXXX, X.X there growth the XX% anything guess Day and versus for I've but not if is that you're I in EBIT of ever in your which just a on follow-up where each at of seen then, at in Analyst year changed terms any streams the is has the rate? terms something

Gary Millerchip

Hi, this is Gary.

you as referring there's good a as place where that and a that that we in XXXX XXXX. that have we come you're when in that from the obviously out head growth of And that of come I expect in strong question in the which through to prepared organization to XXXX. XXXX very is is XXXX those see I answered, Mike kind investments of a through asked a and tailwinds and in think expect the that through XXXX benefits place prepared we we through we the comments noise for very in to report as your feel have feel made second clear we out in shared in of those we Karen we we occurring about back and you'll year have mentioned the plans building plan, made, -- into we start across on have we going lot Kroger, the and comments. feel and pieces way sorry, to plan deliver that to in we what major that the put of Restock we transition, XXXX the I some plan as see make to we the then do the that we're the we of investments we year the in think come plans a going the head we as feel together in difference business results

you appreciate seeing but I view the we we come that have to have how and pieces in the Rodney's a expected. together into three fit give for we changed there's years So, that think we're anything all comment wouldn't in way plan pieces say we I materially the together, the that clearer largely those not all that

Karen Short

that's helpful, Okay, you. thank

J. Mike Schlotman

I take XXrd last compare that thing said Karen, year but one you obviously last a may XXXX worth you on extra the that more or XXXX you I -- year to week, done the the would $X.XX this was think decline, so. calculation that and had out we of take when would and I week and have need and add you remind

Karen Short

no, no everything Yeah, out. we backed

J. Mike Schlotman

wouldn't I you where anywhere are. Because up a with number near come

Karen Short

maybe this. we follow on can Okay, up

Operator

The from Fargo. will come Kelly question of Wells Edward next

Edward Kelly

hi good Yeah, morning. guys,

$XXX say you in that million, an is fuel implies First not to over thing on which back some this And down mean Karen it improvement if million that on if does and to wanted you follow if like started up it even maybe you things which $XXX about week, you know adjust sound would've and was is the think and fell it for sound guidance million year, how about at but like you I I and off $XXX target, million going on year there but it's been come QX this extra we big and goal, where are got for biggest this, a in look just just are was XXXX that one year. more epic the if track investment should XXXX. $XXX I reaffirming improvement, you EBIT a with does decline of

XXXX I opposite. progress there how give why the I more a then to what comfort more don't I your around you growth stocks is the see progress, because seeing in lap, XXXX, you're us and market's given So kind guess quite can today going market you mean of the isn't are this seeing obviously bit think down in

here would just I could help you it extent us if So think to good? be some

J. Mike Schlotman

couple -- thoughts question. in of a lot Ed your there

his consensus in we're profit of prepared of year point where making above one comments the it were to is. the relative operating current at Gary you for what if next is know look I You said one the would estimate guidance to is progress things

demonstrate So, to fuel a more given wouldn't investments we does are wouldn’t fuel. year XXXX, XXXX. replicate believe it it XXXX would about XXXX XXXX made margins budget be more grow talk you mind that versus in usual in we to prudent our When why We for the in be progress. expecting XXXX -- in

core streams, the profit of as business alternative digital investment. and being So big not an the

in margin that. XXXX expected operating a expected first fact, margin investments then of bit with to And when at the plan you tailwind In built fuel as look off overcome grow lower gets or an year-on-year. us little sales, in high the We the have of if X and and at a that we've would XXXX. to business to essentially that for X.XX at look be you still profit end operating Street of Street, above it's EBITDA predicting right ID that's Wall what range, Wall

W. Rodney McMullen

bit was little versus a just talking and digital question your understand answer about, we clearly we it mean in Gary to Mike expect with and to headwind. a what tailwind turn do I Ed,

lot those. of those talked optimization of into those space one expect that we is in we investments about Mike As a accelerated XXXX. XXXX to obviously pay of some you know off

We make of when year And to together we you be progress mentioned out fuel cost also at headwind expect taking look continue as at to Mike the of look total. business. on when next those a all you great then

it's you if and which spread they out note charges all just Or most one talked of totally do quarter look year when by think that look of $X.XX incremental through So fourth the the be about, they'll the reoccur in next important Mike itself throughout year. quarter. in do when understand versus question the will not modeling I we to pieces at

Edward Kelly

detail Okay, on is anyway gross in and the by and it are what think to guidance was a certainly FIFO it's way, in I what without sound gross your and it in margin you on some EBIT us The then like does a the margins more the quick about you follow-up hard but XXXX flat I gross get ex-fuel? because mix think positive how margin. do to we what chain do supply to margin happened, little basis points, mean is surprising, onetime down give can bit here, just things there XX gross did

J. Mike Schlotman

than Yeah, all decline a look of experiencing less third what a fourth long. it quarter if price we've was it, you of kind year maybe third at of the little about been investment, from a so

the two thirds warehouse profit. The negatively other line up that costs combination gross of it of affected line, transportation expense start is a for new that's that some and in warehouses

Pharmacy compared year, margin one a is strong a those operating of because in strong business lower high of That continued our in each business of as them. core rate. As price growth growth business. dollars is very our out to team profit so had a generates well the high Specialty But sales very that that it primarily great Kroger has dramatically as gross of growth prescriptions

the were erosion two those So, so of pricing third. was two last margin a about or thirds about and

Edward Kelly

next for year. And just

J. Mike Schlotman

year. to think don't and OG&A going I guidance for profit next give I'm gross for

ID earnings gave sales, we there if profit where If have you are gross and about to you go OG&A profit make are going share their assumptions going guidance you year. the operating per look at to next look that at to and you're

will some digital being we as investments As this well. Things dramatic a those not made being Rodney headwind year. be won't margins as and like next a tailwind of help as year said,

up won't cost in So, the we we margin warehouses what opening like on be did line. new are costs those and XXXX us start

Edward Kelly

guys. thanks Okay,

W. Rodney McMullen

Ed. Yes, thanks

Operator

John Securities. Heinbockle comes question Guggenheim from next our And of

John Heinbockel

guys impact couple the rate, Let to stream gross of when next going margin when today or line? future greater be include on EBIT then break over is expense that about impact And line does profit about streams me it ratio and the the you will ex-fuel talk margin you or the the rate on years out? alternative margin think start, that in profit the right, the you'll alternative margin

Gary Millerchip

as can was we story we in in that mentioned of the a this do area have I to identifying first company alluded grown legacy and we past customer other for it of the big a Meeting. leverage truly up business what and the you. Analyst we've some businesses to the to as the they strategic Finance, how as XXXX, we the we within try areas lot Personal we to about alternative data Because Kroger bit think shared little those across work would how growth prior right I all a over talk and have business that way as really are share been have the at about the the knowledge the that that with doing Kroger now best On Media a the decide question the alternative businesses

it you to accelerate identifying to really number as and want different right So of to in we're deliberate the now make would you more of a be a is that of provide sure that how in and clearly clearer picture very do you areas XXXX. helping what reporting -- and business growth business with the continues could we XXXX see

W. Rodney McMullen

pull it John any didn't look rates long at the it margin a businesses. And out you things OG&A if the and would to we would really have other list if those excluding way. fuel, do We include of

John Heinbockel

you do you the X, think EBIT it's core alternative it it out amenable business follow-up make for business, an is in is Gary, significant segment EBIT, it because core is need then you the that pressures something And profit it it revenue possible doesn’t core so it stream different combined, last to thing getting Alright, possible the think them what in business X, to? is cost be so and said if actually is is you're it of do then the a thinking higher, so about you based to and given what that separately about break on there the you again think? what or is all grow will sense as comp

Gary Millerchip

to this think we're look not committing right out to we anything the the thinking now, the either. about sure being rolling really bottom driving not through story of sure some also clear conclusions answer are this best to demonstrate make manage the of like. but about make part that first that value But the we're business how We what it reaching to think in clearly I we line. the the on is question about would XXXX to can certainly approach that to want to either effectively Yeah, committed deliberate and show and

W. Rodney McMullen

And term that the would look certainly certainly and number. we to X% agree when see same longer model X% you the with would at

the to end overtime of needs couple really X% years might low of drive the model identical. that For the growth that be to next on a of earnings sustainability X% little but the

from note our inside is well year our year the gains some reducing that as from operational which I look during turnover think we productivity if as you we only John not means store. to important the great it retention, at the efficiencies had increased

made the much pretty productivity associates in Our offset investments higher in the we store.

John Heinbockel

Okay, thank you.

Operator

from question Deutsche we next And Trussell have Bank. of a Paul

Paul Trussell

morning. Good

start I more thank bit optimization kind better just the a Just help to wanted stores color base in us see of were speak will acceleration touch to line, maybe the what in over little and to more have the year gone and in we you. range, the just that on understand top just have there? to a give to X.X through expectations the be past the the follow-up, maybe business. above on wanted seeing you're IDs to X.X

W. Rodney McMullen

your expected than remodeled in question, on identical. last certainly opened, mentioned starting opened question of look Mike see it but that prepared the the and our XX remarks the weeks part we for or Love than that been finally optimization the has stores I then longer as positively at adds space to we're where think to longer have

to slower it's so we but it's than see. nice finally And been expected

expect in we that's also a to that see XXXX. to of continue the we made obviously from improvements but piece So investments

size stronger at continue XXXX to tonnage and growth what off look of in see than If as products you well. would the be people was and actually products sales we identical in in trading

done, And that we've we've we've So to improve and the of with is the when the continuing you shared. maturation confidence remodels to some X.XX% look in that of way at tying stocks in investments pieces. all that business we the core us the X% together made what gives improved significantly

J. Mike Schlotman

SNAP alternative right essentially we will are when fourth business very at and I ended. out of of the lot we're on quarter so the and Rodney quarter between on date split there means is out quarter to we've similar look there's where the the core right year where ended top fourth One But started of top that forward more to know I the pull supermarket the fourth you businesses thing was rhetoric the quarter to far. other where of the is add a essentially slowly.

it's a XX week now, but good long guidance. are go off that we a start to the We first quarter, helps way the in are quarter feel to a us about

W. Rodney McMullen

point look the you SNAP by year the definitely a definitely at be when headwind at period of a Mike's forward on were first would if and other itself -- but look you there And SNAP pull piece…

J. Mike Schlotman

be a It we've headwind supermarkets. in that but headwind other the would filled with sales

Gary Millerchip

to work high that that meal really mentioned we performance we're relationship we in momentum think bigger the a opportunity ready part piece as experience a you noise head the with Restock doing food with another to brands seeing about XXXX. continue year to in opportunity, Mike in of from engagements to initiatives And we bigger a color the much XXXX. outer one their important to And we is the start from build that that XXXX the customer that did in but to then the that the year at and sales impact business. lot we're grow see tailwinds that and journey and sales the our Just on digital in referred obviously number continue the to another significantly the from we expand the and kits profitability way in have years created influence Chef turning the as on to that landed digital add maybe the Home to, an of only as into own of finally continues as in XXXX fresh and opportunity the customers the think Restock some a of merger what of I of point rates see but came of ID Kroger deepen that Kroger and the store to, XXXX XXXX. then into represents build during invest piece through brands own our Rodney you driving we should

Paul Trussell

Thank there, the you, forecasting on the should related, price if the think that's on higher you front somewhat higher or inflation are and of you. curious kind also about out you could points you're how price costs, would to price ahead is seeing you're and input kind a more just you points and what we past environment bit few over seeing and comment color months what of helpful given go the extent describe what environment rational? how the Thank

W. Rodney McMullen

or I'll more know competitive help. has not less when we -- irrational. environment competitive it's be is it if industry. been up if get rational to being don't competitive competitive a it's surprised more a to and the I going get plan the versus assuming This business we it industry, a winds competitive little built always And always a

in added take you you and out you it it less When X.XX in about to just get basis basis about pharmacy If points. fourth up pharmacy, kicked than inflation inflation cost quarter the the was was that, few points. think XX

with the not pharmacy with may a from on actually without is increases it coming through. cost about year basis hearing which year slight cost the deflation For reconcile you're everything

year the mind about this going and done has numbers of last and ways products of after have and what on those the and of in many team year savings units talking based a this job of year. phenomenal how price good we last cost year Our we a variety in for pay is keep I'm

job done a about. cost offset to great of increases those able you some being we've hear of So,

Gary Millerchip

thing the we own really is. when some share give market but our brands and profit is end the when Yeah, look find giving this over what share. we up brands own market companies on add our before national I brands would you they we helps that does do that up what than and our it selling time make cost more at the they've more raised of they And so prices to because up somebody talked brand. other are we've about true than that the And strong

the more and customer choice end when whatever up want to give somebody we're costs that. Now they'll but we if going to pushing do we share is get they through a giving always earn up

Paul Trussell

luck. best of you, Thank

Operator

The next question of Chris Jefferies. comes from Mandeville

Chris Mandeville

can how off alternative we Can million core and with on your thinking basis suppose want morning. that is don't revenue going Mike, this margin guidance gross to to how reacting in but line market to grocery And is growth XXX negative guidance of for good here, be just certainly you XXX clearly go from Hey, I much XXXX? points versus to about streams the again line your understand the margin are start XXXX you essentially then I million XX the results. fuel EBIT coming

very as your the hold could half gross become little into bit and on first at the of component margins you that So hands alternative maybe a the least our year going revenues how about to just think a greater of EBIT?

J. Mike Schlotman

I about next of talked dramatic year year to talked us request to result his And margin We gross would core hand not we've bottom on get said about. like to big the growth business of hold specific we're little your given. as we I line guidance in expect do but your with guidance like next which would a understand margins be Gary from with sales for to going chunk headwind be in ID pretty say section. the things fuel operating profit leads stick that. coming the the bit I Yeah, a the and a

Gary Millerchip

that On fuel recent year on bit terms XX not average. using little to basis We of in margin expectations three but close fuel. do should in you gross On to year point gross more average pretty close reduction we margin. margin three a it's be of pretty the a to our expect would skew times

J. Mike Schlotman

That you up the just overall of of a way model look at and showing the terms the things we've accounting you costs. I of And the as in if lot some investments the and in transportation know agree is with. accelerated growth shows warehouse

of So expect not that we things would same those types headwind.

Chris Mandeville

to expecting comments. basis XX than less is, points my suppose see just QX I far in that so follow-up based were QX really Okay, we on to quick

receive as be just don't any tailwind to some there fuel very in which clear be long should we type material your sequential correct? improvement gross we so degradation, from So, QX of in receive to are margin unlikely

J. Mike Schlotman

Correct.

Chris Mandeville

would time fulfillment. of Talk and of quite up couple I've to follow folks at my in days a be last lot just then within Vegas and bit Shop been speaking this a spent Okay, micro we've

forward, right Rodney your relationship relates technology it Ocado, just have Zoom maybe the with you think guess option can yourself to I you and So get a here dedicated some to this to to here flexibility now the that them? respect own does micro to with few want called with CFC to with is I again going fulfillment that why you just as us help actually spoken take respect about afford XX then their you you can items think them

W. Rodney McMullen

the all somebody would terms the Ocado of Kroger daily. In team and be first of actually team on talking

probably those be monthly on happening Tim conversation would strategic basis. broader were we incredibly a The about that excited at of one type -- a look you the if Now partnering thing reasons And when And continue different continue with his to Ocado of they things to they'll have keep based them approaches to and is themselves. one you will the to it and have continually today have we're pushed signed and team they getting look get at signing alternatives. better some talent five we we're on you're was it their we they we based on better, with the and on the in the years board. the three drives think signing going what not what because agreement they that that of comments of have have, drawing made today, what

that discover we there a more as with be well. the customer gives be comfortable they out able to will it and will be very there's Ocado want, what feel there when I the and partnership So that there to model efficient if that's needs we

Chris Mandeville

you. Thank

Operator

The Mushkin of next from Wolfe question Research. Scott comes

Scott Mushkin

Hey going guys, congratulations. can't a so And call. to gosh, not you're for Mike then letting be me years I thanks ask on it's the believe question. been

J. Mike Schlotman

I as one said. Yeah, my XXth

Scott Mushkin

congratulations. don't I've few XX I done myself but done so think I've a Yeah,

J. Mike Schlotman

Some feels that than Scott. more you've like days done it

Scott Mushkin

market fourth give and market you share, wondering and wanted if could share thoughts usually on what's just up? you the through quarter So during to the year us then happening the market I was follow with ran on I guys share some

J. Mike Schlotman

it than tonnage did Yeah, sales were. the and you it market things grow And year when as grow you you're to But Rodney as distort it's talked share market our about the for way our you slightly tonnage. top the that actually like what invest does in can in the but about moving, calculated year. better continue improve was price our share line think ID's traditionally

Scott Mushkin

Market share.

W. Rodney McMullen

Yes.

Scott Mushkin

you're that correct XX look talking when is when ID's about no? specialty or tonnage contribution, at excluding we And the basis from pharma you're points

J. Mike Schlotman

Let understand me exactly. your understand you, I don’t question

Scott Mushkin

I thought that, last first I put you comp, the was it into Oh, year… of pharma did quarter you forget specialty what quarter

W. Rodney McMullen

through try started year. to stores. that's tonnage the at beginning flowing we at number absolute Yeah the No, is just of on we look do the units our of what

pack we the how at our just So it it's looking club are that the is pack paper units toilet flowing size. counters; one, try or through it's stores track to one a whether But

Scott Mushkin

revenues while have a gain that's EBIT alternative the big year-over-year size a question that in how I assume numbers so I you was revenues, revenues wondering Perfect is are know I you already? guys the follow how alternative is, and XXXX and big up for of just working been was could my alternative if on chunk

Gary Millerchip

grew XXXX. as alternative biggest and we the few think those a mentioned growth Kruger Analyst as Finance of and two really by our as you I we both joining profitability year-over-year, saw from Personal in over know profits minutes areas Meeting, ago a nice we XX% Media, the

going we earlier, referred alternative wanting is part more through is and give of picture the still a kind work becoming meaningful the you What I As forward of really obviously profit able to our way best business. to to are around be bigger full to

FIFO with we Mike XXXX what's and this meaningful Schlotman contributing as profit in fuel be But the in business best facing the traditionally profit the to step in the way. both taking earlier being the in of headwind improvement expect alternative to to head mentioned both, what ready a As that way we're in determining a Mike story you XXXX core a at with fuel. the point share mentioned, operating we're think back win alternative and profits really

But you So we of slide back remember how over to connect you you that didn't And at the take to have on the it. showed shows profit. Investor all Conference a if dollars slope alternative of a we time Stuart the the look at everybody. make and of for slide it Admittedly dots expected it Aitken that momentum continue growth that starts. as in sure if the to here XXXX that had build

more in growth the out You'll see future. even

Scott Mushkin

much. guys, Alright very thank you, thanks

W. Rodney McMullen

have for more one We time question.

Operator

will question come from Citi. next Badishkanian The Gregory of

Gregory Badishkanian

thanks. Great,

So it you've points. was XX basis mentioned on inflation just a food follow-up that

in just XXXX I much how customer? may of also you'd just how So amount or a -- and that terms that your wondering am in ability be trend to even expect to pass than greater that

W. Rodney McMullen

depends pricing comes where from. say a Yeah, on way it program passing might category I are it to is benign. committed gets in XXXX category inflation about we relatively want a the But a inflation pass we little it it our on well. to to on lot others the expectations in a would easier specific be passed for along in it have and where stay where a or as that Is is

So, it passed gets and along up seeing or exactly not passed inflation quickly it depends how really whether gets where the wind you along.

Gregory Badishkanian

of would that and to things of what then would risk of are terms your in that? you up discussion are maybe how stores, kind know your level from larger move help in about conventional the characterize with a footprint Amazon physical offset that competitive press retailers sense embedded and makes the Right, lot you to of and food that just positioning opening

W. Rodney McMullen

a things. Well of couple

engaged you know as embarked upon us if increasingly creating it all at omnichannel And come is And they physical five we're for total. able spend help want. of for help they also customers feedback the store customers and in experience we the get we customers an our they now. are being with find almost us to the digitally what you look easier -- make more when them still years into it First what our customer ago to give

been lot over The competitive and and product keep better other. our make that When sites that we've of sure So better together. great all that to that out that a those of high a take customer you of a working our to to that create and quality that and years, really is done for thing and accumulated great associates connection. years able day it's locations improve of together each those job things physical customers we continuing fresh have hard have XXXXXXX to customer several quality had it's are we continues teams being that have of connection The we things get our and are advantage. there just every have serve all

In a terms come what as experience very we Gary else. and can't to them remarks about in tailwind to of expect us us get And prepared able to would be an XXXX. to where that the standpoint from we excited cause are become will from and they somewhere to partner in customer us digital a mentioned a give want with and for

Gregory Badishkanian

you. thank Great,

W. Rodney McMullen

it. appreciate Greg, Thanks

As always you for everyone's thank call.

that confident we especially beginning cut morning. Kroger. the with in that the work want the for acknowledge us emphasize our of showed Kroger market out at about Restock at to mentioned and But incredibly we future this we are have understand I As I

also many things is are better listen well. call in of exciting associates our our And that as understand business. the of shareholders of about associates One to of our insight earnings many our gain on course and

before them. always we as to like So a I'd call comments end share few directed toward today's

women who our in mentioned look much how the supply strengthening communities, and our excited offices. communities we're to are here that distribution number across month Enterprise certified women Kroger And believes of business, in in to purpose our I our worked our the we remarks more our growing to line. in chain, exemplify simple all far U.S. suppliers you prepared commitment product owned our to to stores. do the Kroger source women the our This women. and strength Kroger part fair in don't out day XXX where the trade earlier work see Kroger and of foods stores, nearly and spirit. within comes plants, day As through as in recognize across manufacturing, from businesses have and who A XXX,XXX truth feed to employs human are that

in I last a for been you have congratulations Rwanda. to today's proud make and celebration including Mike, to has the are Women's build Mike tea is cooperatives XX women a looking in International incredibly join with internationally support for led the We Kroger we great and headquarters year. farms to women our calls. and associates, successful every are and forward customers, to Mike I'm every in businesses up working owned you also Gary, lot of proud calls of journey of partner Day celebrate. this our be who able business friend of put team. and every day to one is you that to to with his of on day and to place -- in things our working every Thank has in you all thank and year heck suppliers lighting of building want Cincinnati a tomorrow

for So completes our congratulations. That joining. today, call thanks

Operator

now you conference today's concluded. attending Thank The for presentation. is

now may You disconnect.

The Kroger Co. (KR) 7 Mar 192018 Q4 Earnings call transcript