KR - Earnings call transcript Q1 2021

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Operator

Good morning, and welcome to The Kroger Company First Quarter 2021 Earnings Conference Call [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rebekah Manis, Director, Investor Relations. Please go ahead.

Rebekah Manis

Thank you, Gary. Good morning, and thank you for joining us for Kroger’s first quarter 2021 earnings call. Kroger’s Financial Chief Officer, by McMullen, Officer, today Chief and Gary joined Chairman Executive and Rodney I’m Millerchip.

caution statements. Before remind we Company events discussion want basis a assumes or forward-looking filings. A differ and you to such to We detailed our business on that today’s the factors results are begin, discussions will many effect actual I predictions SEC you that update want materially. statements to that can of obligation our an no we is ongoing that material The in believe Kroger may have contained on information. include

quarter press first be ir.kroger.com. remarks will available on Our and website at release our prepared

topics on once cover please your many limit presentation document. welcome introduced questions. you will we one new look to our one our as you a website. order yourself that the of follow-up available Additionally taking In range summarizing your prepared to chance our a And forward new over necessary. to question have call we this quarter to to from can, ask review results, now I a feedback first we have remarks, IR if you After Rodney. and as which also we we question, of turn broad is

Rodney McMullen

you, and for thank joining you us Thank Rebekah, today.

we return what saw where While of the to COVID-XX normal. health hopeful recovery of crisis this a is significant new signs we a the has first quarter will not the ended, and be beginning are

pandemic strong of amazing Fresh our growth of incredibly our grew saw beginning with Because our focus Kroger’s continue I’m quarter for since triple-digits customers, proud today and profits before significant grew customers better be of the quarter there in our ahead we without associates’ progress cost to who of other. positioned demonstrate commitment, customers. of connect our communities and XXXX. expectations. first relentless is the initiatives. our internal Kroger Digital with identical with than Digital each sales and our We to our even leading fuel for Our with alternative sales associates were on Accelerating results that because savings

gives All and confidence to billion three few guidance program. minutes $X a buyback share spend year for announce key like new areas. the I’d the this of raise us next to discussing

First, how customer in transition this behavior is period. changing

Second, Digital. how and with we leading with are Accelerating Fresh

will to live I our to we Finally, work and the through experience vaccinate of to how continue human the feed associate purpose Americans. millions highlight spirit our

customers a Our in are transition. time of

some see habits During the to we resume. quarter, pre-pandemic began

gatherings our are more likely Xth holidays fade to half of return For holiday normal than example, of the will as smaller to July. shoppers by believe

also more shop seeing as ease. COVID We customers restrictions are frequently

trends. we meat, fresh in pandemic trading and foods, saw like a heightened and expanded includes natural Importantly, areas several This demographics, key premium continuation consumption to across up more engagement digital of produce products.

social New of than as trends into enjoy more our customers pick looking for pre-COVID. same new are as convenience And routines. customers, people well remarkable the the busy customers cooking up, of cooking as or did say lives options. they recent a XX% they a are people’s survey settle emerging in In more

We are nature. that behaviors in to continue our permanent understand utilize to more data those

to are science expertise meet the going. data be will our are are or habits we where they While hardening customer emerging, they use returning, continue customer and to the where

is our Investor important incredibly As customers. to during we Day, Fresh discussed our

even Fresh with and our the experience continue and our who metrics discover consistently we commitment advancing deliver our improve quality to partner buyers and opportunity to the providing Local Everyone Kroger score more suppliers initiatives share freshness, regional the fresh to commitment. our new and and are local through more produce to Fresh Our customers. providing opportunity We Accelerator, with testing suppliers & to our value Fresh end-to-end announced And learning Go to improve. Supplier for

to X,XXX since than In XX, received participate. already on launching have more we May fact, applications

momentum We continuous are XXXX our the expanded capacity, building customer innovation. improved on within through of seamless experience and ecosystem

first our capacity support continued by quarter, to expanded growth. we the sales XX% During

to teams the fill in-stock and we Our when time the To-date, they car wait have X they reduce and to at both experience. it. improve food essential week serve work customer want available want slots time over our million together rates side, products enhancing further customers per fresh

by launched new customer March, to a Kroger in continue We in ecosystem incredibly We in a moment beginning first of Launching our at Florida. new in seamless powered June, is Delivery Ocado. our our geography in opened fulfillment expand our and Ohio milestone and through centers facility the exciting history.

food team Delivery doors and affordable to consistent to a the ready Kroger directly experience is our fresh, of bring customers. customer Our

incredible we to and extend spoke The serve and addition range getting CFC, started. in the open. model In us to the are Jacksonville products Groveland their to our allows directly are customers now Tampa a door, hub-and-spoke CFCs, allowing to also more just us of

are be our data continue with to highest and delivery with our We And metrics. we capabilities, today. and capabilities increasingly personalization fill to will experience NPS meaningful scores e-commerce our reach our and to pleased digital we report and grow are rates thrilled the retail. customer elevate Kroger’s personalized data continue ways the to among contribute that on-time to in our

customers made we the are more business. to recommendations our of heart we known through our than At always XXX have quarter, our associates billion our experience. personalized digital that the Kroger, During

part-time can began of and proud clerks. people opportunity Store come XX% job career. where are for for We stay a a culture Directors than our More our as of

connected We culture growth. are celebrates and a learning that life-long that and and incentivizes collaboration and embraces agility building

take That launching has our ways program to helped individuals our than since associates it invest education and XXXX, X,XXX steps assistance more and we as in is example, many grow of learn industry-leading For one associates. in employees.

wages as invest increasing rate well. hourly continue quarter average with to We our during in one

end with be comprehensive $XX. our of hourly benefits, are We over will rate And the our year. on $XX average to to hourly the by track increase average rate approaching

adults the health vaccine campaign throughout have and administration’s done committed remains Biden to X, first COVID-XX have we U.S. of least receive giveaway. to their aggressive we safety. community immunity Kroger and marketing pandemic, by an customer associate support and XX% To the launched As July at dose goal

week, Next for and million Health XX announce free winner the Since Kroger million pharmacies $X in X year we clinic and running our locations the of sites ahead groceries first our over are country. across XX% winners. a vaccinations. vaccines the will we Today community announcing has and administrated giveaway, forecasted

our turn Now results. Gary? I to quarter it over would Gary like through you to first take to

Gary Millerchip

a the momentum we first point delivered created of everyone. good further proof Rodney, in morning, in Thanks, and providing Kroger the business have model. strong our results quarter,

continue ahead with and to and We leading We our to growth led execute record cost sales streams. in results with with in of disciplined Accelerating strong were balancing our expectations. customers in management internal alternative topline of which profit our achieved investments and priorities Fresh associates Digital,

comparisons fuel Digital versus to last pandemic quarter behavior make over sustainability one due of provide without growth While two-year of our we digital impacted the two annual growth compounded customer color Identical additional quarter year -- of rate year I’ll on grew in continue EPS to XXXX. growth we adjusted XXXX. change sales in a XX.X%. COVID-XX, translates now horizon, the of the year-over-year XX% are our $X.XX dramatic looking one by saw by XX.X% of And stacked sales represents first during the X.X%, in a progress top to declined of results. quarter improving which our on a XX% business. time

PPE profit million same end digital rate key shrink our and several of quarter to were $X.XX part impact and a of to changes to higher year. community delivered rate first in execution Fuel the during to and of key cycling XXXX. two write-down by the inventory of a important Gross year mix COVID-XX-related This items, year. by the was led sourcing was digital drivers the costs, shared, media alternative deleverage. quarter. cost Finance by in first on compared digital alternative million XX.X% rates of savings two growth average pick to The benefits as In transaction. the be we fuel improvement partners. rate XXXX. offset to impact record and retail Gallons quarter, fourth retail remains grew offset fuel billion the versus double-digit profit of and decrease XXXX, and in amount media general of investments the profit and continued On costs, of areas. The profit the are result deleverage, growth expect incentive performance we be from first X% to year. media. Kroger of and we contributions to remain consecutive points, our in retail COVID-XX was long-term cost operating, previously wholly cost XX% year Based by same the XX two decrease last a initiatives across Alternative profit donated proposition. growth we period quarter The our last $X growth. the fill This trends growth deliver attributable adjustment gross gross $XXX sales decreased performance sales time price generated cycle year. excluding Personal started multi-employer profitability profit points to cost decreased administrative goal basis value in product COVID-XX-related order basis basis, basis XX plans, excluding by was this exceptional taken basket points in margin revenue the for incremental fuel Pricing digital by a top during FIFO quarter by to partially sales COVID-XX quarter for basis year strong the fuel FIFO lower fully the digital of last order quarter, overall track to reflecting achieved saving of the $XXX decreased margin with now compared As on $X.XX last and our to in a our excluding in OG&A as decreased On discipline also points by XXX a basis management. quarter a to XX%. the reduced revenue compared an decreased pension margin increased XX towards our driven of per for the

the in $X.XX Our $X.XX same was to quarter cents compared per fuel year. last gallon margin

transaction the to above a cash to minimizing we While Similar fuel profit long-term being very of future growing Trust. by is generate Last versus execute we this a while to we and debt remains immediately seven the million for dividend debt-to-adjusted to existing risk favorable after-tax free approximately rates. via the our due free to pension continues investments investment-grade us to repurchase secure long-term multi-employer expected. share to rates EBITDA ago. ratio month shareholders and cash This net quarter, security The previous restructuring a allowed XXXX, net Net transaction future rating at access of time. to of year over to in and of to to also stores the ratio to as $XXX years. investing similar X.X. mitigating committed be exposure business locations company were compared strong complete Kroger’s lease. current Kroger its earnings were return to better funded Pension produces to or our $XXX purchase transaction, transaction total company’s the liability the and a to X.X pension XX shown benefits contribution to X.XX as debt this by net unusual hurdle and total to costs. sustainable target growth, of over X.XX these The operating then the total needed portfolio operating sell typical than structure is [ph] our future capital trends, improve evenly as lease increased lease encouraged internal On this our maintaining basis, to which headwind associates, expect drive EBITDA returning and those to a a primarily stability will be requires flow excess finance used recognized million pension the stores. to and announced long-term-payment debt, be market debt-to-adjusted bench will restructurings, Sound transaction a into these an opposed for range was entering on during Kroger’s

cash new flow program announced Board’s management’s attractive is Our consistent to reinforces X% deliver returns our confidence the today buyback total sustainable billion and share and shareholder our commitment to in $X and XX%. generation of with

the associates Our pandemic. been have incredible throughout

in strive benefits employment and today’s package make in associates to relevant We our continue our to overall market. invest

During the first agreement covering quarter, division. we associates ratified the a the with UFCW in new labor Cincinnati

several Atlanta, Little including the Rock, for have later associates negotiations Mid-Atlantic in Michigan, we and year, major store with contracts Memphis, in UFCW Portland. ahead, the Looking Houston,

by which Our costs, financial and competitors pressured pension face. our healthcare results continue not to be most do of

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

year be of results now negative sales execute full X% our Looking guidance. forward based our between rest which the a there remain as stack will normal expect to in X.X%, two strategy, at and XXXX year we are to food date negative to We XX.X% on year home increasing and while the XX.X%. identical confidence ability to to XXXX, for represents the what uncertainties our of new trends, strong regarding emerge our in

earnings also the growth XX% to year of two $X.XX, rate share range adjusted in of diluted be We XX%. $X.XX expect representing year compounded net to per a to full annual

at X% would identical identical better quarter within target expect negative X.X%. the our of we negative Looking and at quarter our slightly to be to for than the And end we year, in the two top would cadence expect new remainder quarter be sales range. of for the range to four or the three sales

guidance to XX.X% lower Turning increased XXXX. adjusted and our will EPS, be between than XX% implies EPS

ability in two slightly and seeing we leveraging market continue last remain range We to achieved cycle growth year-to-date I’ll we closing, sustainable by costs adjusted momentum range. XXXX. builds are Investor the expect exciting our quarter and be COVID-related provides strong and be and opportunities the will quarter total to and around strength at the four executing of shared returns confident in EPS our In as our quarter in our back now, XXXX And expect from Day. below And second deliver we business we We the on position model, and proof you three end year. shareholder the our on top leading of point higher turn will quarter this performance to Rodney. believe further progress

Rodney McMullen

work again our to customers. thank associates our Thanks, to Gary. I want serve tireless amazing for their

As I Gary and customers of have changed COVID. our because noted,

is to there for job Our be them.

by honors with deepening we This and that associates our Accelerating with quarter’s purpose-driven focusing our that with leading and on a results are and appreciates connection evidence And remain customers up are and our we our Fresh Digital. company lifts communities.

we As for we and stakeholders. look forward, we are incredibly deliver confident will that our all shareholders

forward look your we Now questions. to

Operator

the We will Instructions]. now [Operator begin question-and-session

Our first comes ahead. Fargo. Kelly go Edward question from Wells Please with

Ed Kelly

Good guys. morning. Hi

Rodney McMullen

Good morning.

Ed Kelly

you for just question on the is First [indiscernible].

just is the is a of Thank even that think sort could And think thoughts cadence think you. rest was possibly QX? but -- guidance, the wondering What with there to us the I guess, I or throughout vaccines and in all if of extent far you during at so then So as you seeing quarter. do So the you Do weather what there. decent we’re year, helped? about we help slowdown, reopen?

Rodney McMullen

start out pieces. Gary I’ll in fill Yeah. the let then and

we’re If at quarter. you quarter were quarter better one, slightly about look that and talked in better a bit far, than we would where the the two for than Gary tracking guidance be so little we

the sales we first quarter, early and still non-COVID quarter strong. cycling were If you the the during early quarter, in were look especially the at in

those when in two and stack and was pretty you the periods, stack basis. cycling obviously, And we consistent year look it really you at on If the period year-on-year, a you two if year starting But at COVID. wasn’t. look at it look periods, the were fourth third second for

anything I the a quarter-to-date, made the comment to very would obviously year want at trends year-on-year basis, quarter, on improved look the on have second during Gary, slightly you would stack but two a If be similar you add? basis.

Gary Millerchip

I think current in the well said it Rodney. about you business, trends the

Rodney But changing, on ’XX, our that XXXX really the the at been trend at the the saw seeing versus May mentioned, that behavior, basis. getting in April, that to activity look very some XXXX consistent you initial after because we trend generally, cycling XXXX, and that the behavior larger of it’s stack is families remarkably we and consistent period to there the when were eat we March where some continuing customer that’s back XXXX Rodney As noise panic when we’re understanding around sure healthier. trying as look think June, even When and time consumers some what which and in in of at to the was buying want stockpiling by with volume it's the obviously focusing look versus we year. has on been look some trend we we year groups, you comments been last over made versus sales in reopening happening create are make growth the customer versus of some at of sales together economy, last

think of some that lasting balance eating way of looking seeing the their are change may more be to of consumers structural because so those sort way we they habits. And trends and the

months I essentially, again question we’re only think we you couple on be may when of reconfirmed a the guidance. know, and make, the gave around original I comment the from would as guidance,

going some hard change is suggesting. seeing to market benefit is go stimulus at the within time the as and it were in over we as the share to at of still be everybody that how our overall think I dollars grow time. happen it’s will will that over market our continue of government there at And to you do well. to level predict continues really and So food we as to definitely execute of What right trends We business we’re home reopen. in year a believe is as softening some the home will continue plan food think through course, now high

the the more executing as seen two only level, and expect high a rest sales So I pleased months be with with at progress we’ve our so to of this year say been mentioned, where very year. data are would for far and Rodney of while we’ve we it points, above

do terms we’ve plays will wouldn’t our out, the changed In view. fundamentally happen think as what macro, I say the we of year

Ed Kelly

And the Okay. follow-up on just margin. to ask a I want gross

your you for to So basis good down is actually more points down that. was though, XX than ’XX versus year history Pre-pandemic guys. stack relative two

how And I’m QX right is, normal progresses? sure the promotional a about gross question and that. year role in promotions, play we is two how margin? my the think that levels year rate as now So do And

Gary Millerchip

Thanks, Yeah. Ed.

of the year-over-year we sense, and sourcing during gross first encouraging outside year PPE our profit to we’re model acceleration equipment, think some is point, whether as in excited quarter and makes sure do to is ’XX, donation ’XX I the in was perspective, And profit, look business we’re customer; in to prepared it that and or making. we’re for about, deleverage alternative at that manage balancing if for it of you need sales that comparison, the I the the we’re look are us the you margin there gross investments across that a I out focused comments, customer. where From the quarter talked think the improvements continuing is on margin saw and investments it the grow that obviously, that we we the much cost the the the we’re how being on of overall your very two how most think really at the streams. about we in making funded what what and first business ’XX one-time in we make managing taking to make

should in we’ll that overall, those sometimes the But our business trying So continue that’s something our customers levers assume manage happens manage both fund earnings. growth for through to continued in dynamically balance to we and the deliver we ability about feel deliver the to very and the every I’m good investments but we’ll sustainable not initiatives. future that also to quarter as savings suggest cost and

Rodney McMullen

have agree like types Private I of seeing The only premium remarks, thing and we points. talked We but and especially Simple people it about our products, Truth. in would on with of Selection Those I Gary’s add a higher -- purchases continuation normally buying prepared margin. a are more

we the talked mix continue I And through Day buying point margin aggressive profits expect would get because We’re continued on from expect also those fresh, once think would as improvements to points made about tailwinds that things. know, alternative it Gary’s to you all more you seeing that important, changes we that recycling and point that COVID. continue of Investor Gary people and through as well. we made the is incredibly on of We operating that as on be

Ed Kelly

Great. you. Thank

Rodney McMullen

Thanks, Ed.

Operator

with from Please Paul Lejuez go Your next ahead. question is Citi.

Paul Lejuez

how maybe Hey, And give an about your inflation thanks, you’re on historical periods? more Thanks. through guys. update relative Can on feel pass to seeing what maybe you the front? you just prices just to us higher importantly, ability

Rodney McMullen

Thanks, Kroger Yeah. high the environments for Paul, if at in you And years, you over to successfully environments. low able and inflationary operate inflationary the been question. look has know, as

inflation because the If at supply because at that departments, if is year lot ago has details Part the disruptions continued quarter. look a driven increase look inflation of of quarter, you fresh of in you during to during if you the it the look of COVID. of a

hard we able but at things operate we going to nature. to are to to is customers be it’s to the costs as would be pass successfully you in expect would in overall permanent be look expect tell, whatever able and to those to So that environment

those to inflation is at The of And don’t amount X% inflation to leverage our react typically, X% other each inflation either. is to the us, and costs. best X%, X%, the have And X%, X% on gives of think to I remind you at fixed costs. when overly meaningful internal about inflationary to we a always business you that that customers environment important including if thing team, is operates our when look, it’s

part in is, we bit little I is view the well to And last that business to the of make through it able one is by such nature. at inflation that Our is, and as on have true changes, we expect national would Our program manufacturing not strong of as be brand inflation of cost If gain would good permanent Brands Brands a expense pass that we is what share important the things of some own are happens our significant and of in well. plants. having always So comment a our driven always those players

Paul Lejuez

And are that you Got to saying X% you’re in it. X% range currently, Gary?

Rodney McMullen

Gary, do you to…? want

Gary Millerchip

would I’ll guided say maybe business of at add quarter the a we’d we end range quarter, bit trends little were the first Yeah, Sure. didn’t we it first really the we our for just all. color. X%. more you be plan towards actually to as first in see the and initial X% bottom I’d to say, I in quarter, that know, of —

We QX. in more as are cost have we in through consistent increasing and seeing, in flow as I volatility produce some to grocery, mentioned, to meat think across particular, in starting those saw of certainly would short-term Rodney industry, be that and flow some tend results, the

we some starting it rate I we’re yet wouldn’t our see that to So that level through, in seeing current at I’d say flow model. say inflation but we’re believe in of

Paul Lejuez

you, Good Got luck. guys. it. Thank

Rodney McMullen

Thanks, Paul.

Gary Millerchip

Thank you.

Operator

Please question go The Northcoast Cerankosky Research. ahead. is with next from Chuck

Chuck Cerankosky

I’d prior quarter. Nice Good costs about your ask the shed. start-up at guidance morning, the on to everyone. Ocado like

that things year. with How’s you’ve this had point time these at think bit open? this $XXX given I million So little the of looking was about it

Rodney McMullen

the customer Gary initial the the make do volume in in-stock of remind that out far experience I consistent start And things so along of on and focus cost And fresh of as let let experience, the about in Monroe with customer the up great so as very financials. tracking has the good. mentioned very good. you all tracking and our but the of question. give and Gary, deliveries. for talk think to it’s Yeah. and our Chuck, feedback And expectations we’re all great ramp to about Groveland we initially, well. is that the I’ll early is are great us pieces. sure important very, ramp comments, those prepared process, a on-time some talk I’ll I positions, But thanks been

Gary Millerchip

Ocado, The Rodney. have the Yeah, Chuck. are Thanks, comments, things say early for year on the on the with everything part expected about Chuck. comments I the of building finding consistent the for we’re point seeing chain, consistent kind everything the running work with that and we model we’re as Rodney’s indicators within would far and the that the say that up Sure. good Thanks the way technology supply would out of them the expectation be would news teams efficiency envisaged is, essentially Rodney’s to playing would the of would at where technology with question, operation so and customer-facing this model. we in be, that

report different nothing to there. So new or

the are as us Day, those as be largely fixed in we As be going will shared at we most the us costs. our focus And that volume, year know, delivering to the potentially be Ocado costs over returns start for sort ability on first of beat financial to returns. and is opportunity we’re overall really, also Investor to ramp that will what up you really is critical those of to time from the speed our the ramp to expecting the up

by we’re with improve of with to we’re three, stores. a investment the And year breakeven then that an to getting you’ll point. getting up, fixed facility. starting be volume year And recall, the least, would we as Ocado as goal two, of that place by to profitability the for parity year ramps to, is at put one recap, fairly overhead So in meaningful then for expect to that in

go to lot a said, anything Rodney right different of would and long But expecting now do. on inconsistent would work what or a early see. way very I to day say were journey. seeing we’re So as with that to that not we be But

Rodney McMullen

feedback And Ocado from Yeah. ramp is the is would with they the what expect. pretty consistent

look strong you continues it well. success the in as to be at the retail If Ocado extremely UK,

Chuck Cerankosky

spokes added, two Ocado thus other at you’re an markets the put Kroger stores you’ve this time? in where doesn’t After the had facility thinking you where in and experience about any far have Florida

Rodney McMullen

Yeah.

a ones position we’ve as at if of We’re go not new well. the to sheds the some that you at look point. into at announced, of any ability this incremental sheds announcing markets will But give us those

If of in cover that DC, one you existing geographies. the look part at areas, will

geographies well. will that new are of as Some that us cover to

Chuck Cerankosky

Thanks very of luck the rest for this much. Best year. of

Rodney McMullen

Chuck. Thanks,

Gary Millerchip

Thanks, Chuck.

Operator

is Barclays. Please Short from ahead. go question next The Karen with

Karen Short

to have the much. of I very Thanks questions Hi. -- back so cadence on A couple comp generally.

slowdown in know and to stack, of there asking was So guess, you’ve points a in it basis inflation the what had year. as be two guided rest know margin. on a we on the for the I two-year another the we cost XXX retail why year little tune rest gross And color versus then inflation more what of to XQ question for I’m the I such would year? the related of on it for stack to obviously, the

Gary Millerchip

to question, the how last year we to then how for the year, kind for Thanks point, this the see out recap just and guidance I Karen. your on Yeah, maybe so played of year. think

range in IDs XX% it started last south QX. so with we then just between and QX recall, in QX may anywhere XX%. was XX.X% you the QX As and and of year I XX.X% think year,

deceleration X% a last see did we sales year. So in

year. we’re this So cycling that into obviously

X%. seeing that new go mentioned we’re even expecting In comments, based are So in as sales QX And slightly as then the of the think expectations, of QX. of I on go through of what the the year, be from end range a range we’ll maybe and prepared QX, the sort with today. ID better guidance my growth of than in X.X% we QX, to that top sort X.X% improvement or range to in negative in we in we our

of business, I are So our think a based we’re today across our year more guidance original really than results were we on years that that execution share they continued lot ago. where expectations that did our have the see look while XXXX two still with that pleased had to the we we’ve really you at if we’ve versus for in the

about normal. ultimately I in there you’re expect when customers do numbers, if stack of we end some of getting start that the to continue still even to be that. is of those to say that will that. the what deceleration be expectation in you’re return think with our new So to But as think would to you the year, two we year ourselves course,

example trends So sort of our that growth end I’ll and of terms of take of two just the ’XX. you’re across X% XXXX in to still year the at going bottom be range,

would have to our would ahead be have pre-COVID we put long-term TSR ahead significantly our where and certainly what So would model about us expected we been of expectations. talked when well of typically

Karen Short

And give if that, obviously, gross color a obviously, of -- in mean, called pre-pandemic, a of components helpful. give this on you year But color on the core gross so a I that’s margins margin rate little could significantly out a little basis four-wall No, run inflation inflation? inflation, you within actually Right. cost what than the what but on retail saw I’m okay, could terms quarter. higher on then actual was margin. it wondering two like wondering And basis, are you gross stack a on is if in we versus I’m the then

really as obviously, the alternative relates enough we to back into margin. contribution don’t the streams, the gross was revenue core really excluding from alternative information because, So it what have revenue to

Rodney McMullen

the Yeah. Thanks for question.

other inflation. inflation the at store departments, the inflation, categories, retail inflation look cost of in and you center slightly way terms fresh on the If basis. been In be it around have higher than would cost historical retail would

to looking both traffic we stores. at it’s when the important margin, profit alternative the online that at is and overall gross you look In incredibly think physical driven model by developed, look And retail business. terms that and the have we’ve total of at we

So Kroger better significantly And are that great channel, three the that that has built. we’ve it’s is supermarkets. continue the by -- growing we to of think a as team overall of something is because and fastest on done margin and an traditional what last it’s important media piece know, over years model, one the media work space we part being Precision of in separate grow what else. hard the than margins that our to retail and Marketing is you And driven really the business the

is retail us, media business. for core part of So a the

operating how how a reductions And total looking margins, core at and business. it’s and trending you we way cost our the at manage part overall business the balancing If in we is are look margins and of the those we are margin improvements.

Karen Short

great. Okay, you. Thank

Rodney McMullen

Thanks, Karen.

Gary Millerchip

Thanks, Karen.

Operator

next is Rupesh from question The Parikh Please with Oppenheimer. ahead. go

Erica Eiler

actually Thanks This for taking is Eiler Rupesh. Erica for morning. our on Good questions.

Rodney McMullen

Good morning.

Erica Eiler

expenses SG&A about were Per our on -- versus XXXX, I wanted math touch XX%. up So in here. to

or maybe just of was anything puts the the share for curious directionally the there if you SG&A takes as them was year of see walk through just on the front currently expense could if some I on you balance side? can and you us So the

Gary Millerchip

gives that sense And the from the continue as environment that’s cost, ensured creating be we we the we’re The ensuring costs our to do overall to of takes, would that we’re improve was guidance a there’s XXXX parts very in creating that to cycle as can the start felt the expect right associates for the tailwind important all processes thanks and you that our XXXX imagine, in creating to because -- tailwind share efficiency shared. have minimize support of But safety ways be we’re we in OG&A of main unravels. and ability Yeah, reasons why versus as cost model and a be kind QX, safe can environment that how compromising the there’s you we some model, some our for it’s our the actually if OG&A we drivers the of those customers. that with that as I efficient a in to overall a disciplined in you we in just and maybe one Really sure because cycling think through that of on of and it kind our making major a COVID I If our and to we continue for the sort more and be puts comparison of obviously without lot we’re a continue identifying of improve year, moving question. consistent we you in Sure. model. original and we what to costs manage store the like, talk will did in momentum to and online.

that $XXX this flow So be they’ll quarters, And gradually time. look COVID a in less costs shy in would be were $XXX over to declining of probably there will as forward we benefit through. million quarter continues future estimate that million than quarter. probably We just some and

In fill addition that to improve, we and order. a continues and in lot is those expect, COVID cost know, cycling, you of costs serve as to cost to the profitability an that to do we’re digital improvement

incentive key think something a more is continue digital. was business This to a OG&A our of will that very the get sales operating about that so costs last help would strong to for And you year more incentive in focus efficient on There’s when expect be growth growth. too and a year, that year around across our normalized. saving profit we metrics cost overall model we sort practical as we

what tailwind creates So value in looks And our our like for continued would more then investment year, structure headwind be well. average side would on those our a a cost it rates the offset things the think I which as in of normal savings associates.

we value play invest obviously to to committed a impact prepared have our As And in will make the delivering associates for a are our costs but then Rodney sales the we to associates secondly, continuing and remarks, course, on be of critical competitive, as role deleverage customers. as to negative mentioned in the well. also sure continue our that recognize

the be of year, there tailwind the in model. takes net-net, that lot will to a So we as a be and OG&A but puts expect still we head through

Rodney McMullen

but everything And mentioned we year the over well. be expect XXXX $X will but at business. billion look we consecutive margins mentioned as it, what they where when the were in to operating XXXX would out together it of than higher put Yeah. be earlier, in of fourth this we taken costs operating we’ve you And expect just Gary

of shows up of Some in up costs. that that some in growth, shows operating

Erica Eiler

here? as nice just, continued follow-up And far months, continuing has has traffic surprised to reopen changed from know things my That’s then I just you you’re said mean, Okay. I are has premium to expecting perspective? color. is thus U.S. in what channel, a seeing a later reopen this anything year? to category from consumer trade-up traffic basket items. helpful perspective, you’re geographic to And the terms fully see you of here then really to as anything And recover you continue behavior in recent

Rodney McMullen

surprises, it continue still to me, question. see and the pre-COVID. eat good plan things I they’re To some good it’s than but I premium it’s research, home buying it’s was were mentioned, it of to products factors Yeah. surprising, And more that continue wouldn’t a telling than just -- more it’s cook things pre-COVID. versus our they were great our us was to. wouldn’t more say than customers And to but to pre-COVID. Those see, at that people but necessarily you They still say

being told expected. versus surprise as happening they would customers us what actually a we what versus it’s So do

event. job of is what more number an surprise have I far people very continue terms say across were would I expected. hire. from to openings that continuing hiring the much there, we areas of has hire week, And would been And event. were have hiring to And than that we hybrid of we the associates we area week, consistent. find In me, the have all traffic openings we that’s hybrid we say pretty number year, very and excuse — last of so last the to we able pleased last changes did would to biggest But company. a with

Erica Eiler

Okay, great. Thank you so much.

Rodney McMullen

you. Thank

Operator

go The next with Stanley. question ahead. from Gutman Morgan is Please Simeon

Michael Kessler

questions. on Michael Kessler is actually taking This our guys. Hey, Simeon. Thanks for for

Rodney McMullen

Good morning.

Michael Kessler

about ask seeing, the you share, what guys to market are quarter. saw wanted through I First, what you

last of a share lot took You year.

I pre-COVID? markets? seeing you’re evolved kind it guess, how that trending just your kind QX through thoughts lapping still of share Are you of on Any curious gains? they those giving start little they So as how in back, a are And but well sticking? above

Rodney McMullen

Yeah.

very been on the share it’s basis, year two stayed. consistent gains a on at how market have look you If

and there. we’ve is share keep, been we focusing on stack look hoping, at, But to the two pretty great on you year-on-year see want to kind any were it’s Gary, the has able at consistent. the but what And I color of If to stronger market to really we’re great know, looking it’s and been market share obviously you’d see. that even year that we’re department's stayed we than are everything add? progress fresh making even additional that don’t

Gary Millerchip

you particularly and said you was remember in chain and issues. that almost Well, it I of shopping and supply well, happening think the challenge week-by-week, of if some to how back were customers it’s what QX, the quarter, the just Rodney. volatility Part in

So of market until read and I felt to think to during say year deliberately waited was to talk Rodney’s year of hard I point, sort our one about reasons in later we share focus time. -- should we like that the last probably it the was

sure, would as the said, stronger really committed, on through is that out we two and focus Rodney make time so And over do looking come period. as year how overall we we COVID

we’ve the of feel we’re rest guidance about for the also we the I good so increased why seeing momentum far, year. the think what and

Michael Kessler

my stack did was And very the follow-up a still year QX. sales, on It decelerate two digital little bit strong. versus Great.

you’re this is year? And the bigger QX? a kind year, the as also, the anything picture in stack expectations you for over year several basis years, relates of outlook still view for intact? changed given your so is as to your of rest of expecting doubling I far that And sales guess, Has the it of on of digital two your as saw level the next the that what kind rest the

Rodney McMullen

would gain broader like the our at improvement of that of place. out very in the can customers the look in incredibly and only in ability our high And they online, customers drive with when retention Gary hold that those actually I some business very you very trends business digitally shop to trends we that -- pieces. believe thing let the continue, we is doubling commitment we are continued expect both And to those shop, shop if expect other on the continue to major expanding along the important then trends stores. think specifics. within to and will those most our rate fill are shop double as online sheds that is share well. and that expect is high few we to we The see, that with and that start ability is to Everything with our household that continue and online shoppers the But our the question I’ll would on in to and profitability, Yeah. and broader our online.

Gary, the of, if at through terms you I’ll within look you year, that. let In talk

Gary Millerchip

Yeah, Sure. Thanks, is think very much like, for the a it Rodney. way if about we we digital. reset, that that you believe been has COVID

digital four demand by in engaged way probably three that anywhere years between on already the we customers and last the forward XX based over So months. pulled

So there, it such we way the And at the that I after I it, from of think because of the to doubling few year. over a, is two XXXX you to normalization to something view of we’re looking there year think certainly way described how building the across about is a right like, growth, next about as and think going XXXX commitment course, year this is years. if business think you be the

about think about and as we Day, think didn’t I XXXX. XXXX, it linear if the a it mentioned we Investor So think in really XXXX you journey necessarily

the kind will we very toward XXXX, sales journey focused we’ll year committing ID doubling do do think this of continue drive at year and a we’re the of Day this we’ve be we that’s that as few similar still over in business that next the two in ago. overall achieving last the way following build to we year from by year head we’re few And a expect, on to years. that on that and still believe plan this what we XXXX. our more looked that at there and shared normalization of growth view I’m months But as a I Investor So

Michael Kessler

much. Thank you very

Rodney McMullen

Thanks.

Operator

go Please next is Lasser from ahead. UBS. The question with Michael

Michael Lasser

you previously what X% you anticipated for the The or Good my operates you best when to Rodney, year morning. X% with inflation? X% Thanks for clarify expecting guidance had a into mentioned that now the year have you question. X% Is you to lot to are what inflation. now inflation. embedding your for business you’re that can taking respect

Rodney McMullen

managing are we’re overall. think with hugely in what at -- for don’t year. really I expecting still There X% our year the moving anything fundamentally the overall, we to many business to expectations parts a so if the different see inflation than for change earlier X% changing you don’t that that’s not look our estimates, still we us were we’re and

tracking inflation to X% won’t into if ends Now range, that up we X% complain.

Michael Lasser

two pieces on had previously. that it. Got question My second you is mentioned

You your you’re one sourcing that mentioned or harvest and the helped vendors. a benefit advertising getting per digital suggesting a margin digital able advertising in XX% which gross increase to revenue you’re for transaction, more spending each of

So is you this? are this community that a vendor do the look able sustainable to as support? trajectory here? were that How you is any from to pushback from getting And more think you you gain do

Rodney McMullen

through about reports organization. Gary’s then Yeah. Gary and the let up talk about retail benefits broader talk the sourcing since I’ll sourcing media

amount at somewhere pretty than others of we to versus fastest media the else. same we ability in And and getting force accountable on And If CPGs it gaining and to way CPGs eliminate is and growing you terms partners earned benefit, right held you ROI of in that’s of is of there. important, I’ll for it sourcing the sure transparent $XXX us, delivering be. And in share not with market would And of money because billion. they fair into able getting money. strong mentioned and wasted it’s let you for business important Investor to terms spent being we us retail anyone be invest do the well to On with and else the spend our look the a money customers, briefly much share, at that earned few of that when better detail want in media, And media because at important retail our want how the are our incredibly our the to well. Gary, media I as it terms Day, look adjust minutes that’s anybody ago, channel. incredibly results CPG we’ve model go our and north retail we totally and we we target rate but is for independently, shared their to in the the digital advertise right make think their

Gary Millerchip

for Thanks question, the Yeah. Michael.

the the of years. as and our the over of million record other. We’ve XXXX XXXX, over with would ’XX ultimately of part Rodney the at as been savings. and XXXX, over XXXX, last media growing of back over, significantly of profits, part that as same mentioned, the time, answer be compounding being of growing billion significant part few top And we’ve seen over fastest course well incrementally XXXX on from I well as track savings think $XXX $X bridging again sourcing to

to ability about I parts maintain track of able would So record we model. that momentum. been to very And feel show drive those our good our we’ve that that think

of of think as Rodney do money we though, as very think different them pools mentioned. well as I

products manage inflation structure. not in sort it’s of future It’s own of sourcing and squeezing brand getting and as cost the those negotiating. on ahead looking being about an creative by we thinking about So about using cost how out well product, sourcing. at It’s of and just about and of hedging penny about extra design our or of changes

sourcing of get the about still of coming So continuing Rodney those see a levels as at we side very on that being that we at time, channels is the model opportunity significant are able our many their some of to really we they efficiently. model spending and the mentioned media to be media them companies it dollars platforms. partner on And better in advantages some overall that fronts and same that get more a ecosystem all partners are spend growth from return available runway many less the and and by pools with help different can media at through can level CPG drive our of CPG to and significant look where what to get them. for benefits. on be improved sourcing support across think getting And redeploying most business, dollars marketing either And digital of same overall revenue Kroger offers sales able we’re we those sure the how or we believe spending to offer operate strategic because keep to make different for return would to a better e-commerce higher a to efficient

Michael Lasser

much. very you Thank

Rodney McMullen

Thanks, Michael.

Operator

next The Ken Please is question from with JPMorgan. Goldman ahead. go

Ken Goldman

you. thank Hey,

First question.

be trying whether world, sort a of might of along being in to or would different you a -- this to COVID meaning to environment list pricing it you a talked it You pass factors? in it reduced similar about dissimilar? about think that able how increases. will what versus think terms mostly in your inflation still sort reason there any as promotions be other any get strategies to prices because we’re a versus Just sense any that, Is of of will a normal do

Rodney McMullen

see Ken, sizes. one. would good We we Yeah. -- do your so don’t anything see bigger question pack We different. is far, a

efficient we So significantly inflation by seen But different to nothing be would more anything on the say far is that a of is per some bigger the buying more offset seen we’ve that would before. able we’ve pack, than a that usage. which unit so what customer

Ken Goldman

share bit for the seeing brands, at the a in still we’re data, then least Nielsen supermarket And seeing channel. of store what at Okay. food quite in that. we’re Thank you lose

have a obviously, expected critical maybe you as performing remains diminish benefits year-to-date? curious, little of getting your I’m brands the start better that are understanding, expect part it With And as a bit? strategy, you stimulus to just would your own

Rodney McMullen

Yeah.

look XX-year period, it look a or over at I XX at gained Brands, Our Brands always five and or have you share. If Our always

CPG the and that have within overall, hasn’t where dedicated partners able and our two last to XX-year Last own to did because able years been just had share. may our and production because But product continues one or significantly was many share it that gain were plants had manufacturing year we up not. us, gain year to You case. Brands ramp to period Our of were we we we

for year-on-year ago, that continue actually and to and really I a had, privates -- strong, mentioned Private quarters thing strong other most the The minute Truth Selection And really the but of have cycling our Simple our brands of something and year. part, new positive sales fun. identifying last opportunities think a premiumization it is our job even team make of growth to we part great product that does product

Ken Goldman

Thanks so Great. much.

Gary Millerchip

Our and think to great a the offers potentially value Brands, Kroger less funding I because And a significant as the for future. Rodney tell stories I’ll few Private a a starts bit your outperform continue point, Truth Selection Ken, or growth. on brand to customer our in great the sales as little mentioned, overall opportunity Simple things stimulus as to become

the well for as future sets that us we So think well. up

Rodney McMullen

Thanks, Ken.

Ken Goldman

much. so Thanks

Operator

Guggenheim Partners. go comes ahead. John question from last Heinbockel with Please Our

John Heinbockel

with Starting to a Rodney. the by which going things, two vendor naturally be limited haven’t product? talked about So maybe right, is there? opportunity availability forward we And of What’s that buy, decade. in just

Rodney McMullen

long Yeah, buy. we’ve It’s since you’re talked about time right. been forward a

If done you been It’s just as look and forward other buy throughout. to continue something as on at areas some pharmaceuticals things. things, you that’s -- not is big

expect inflation heavier in But we where is buying. forward more to would end not. normal, environment was be inflation, there up you more you doing would If an if

that. of do lot to to it forward we production you And for something buy capacity did that a the customers. the buy, We during excess serve as now, continue they was up forward and of to buy about We COVID. warehouses The product. look that opportunity. the drove question and in have the But leased to extra it right capacity. to of forward able when had be year product excess the could find lot last other get a see don’t XX wasn’t just to fill it we’ll were it’s trying CPGs of is great thing a But past

John Heinbockel

how secondly, it the is cost a billion I will saves, post-COVID, think comp more a you years do the that higher think being right, And dollar then even that’s profit going and that model does mean improvement? pre-algo. was leverage, pre assume still many margin EBIT runway? your long drives the And than the gross -- expense alternative what that than you forward be is down significant with

Rodney McMullen

Yeah.

been part saves last we ever on key of driving have profit, a alternative saves, cost the be the cost margin. can part to Your we’ve find I would more you when question, started tell than journey. the guessed would I of able

starting now on for on cost just We’re XXXX saves. to things work

but put are we’ll next cost place the through certainly saves I being that that to through changes would things balance savings in of like of degree saves we’ll what will the Some kind are the things find a expect process of cost know year. that. and don’t have, work meaningful flow for cost I of ’XX and changes

Gary Millerchip

a core Rodney’s competence of And suddenly it’s plan. John, I think become

COVID still to look I not innovate think have to to technology. we XX more find learnings look whether sense we of areas and where last ways at operate was our there continuing to it, the think more you even we are have opportunity And ago, Rodney cost at and for ways business as cost to mentioned, leverage months opportunity number what continue years at think about efficient few it’s technology a sure a still are we in and we’d there of I’m the to where journey the of as the space. in I efficiently. can how the more use started our initiative take this be when

to opportunities the -- new think still it’s areas for sure. finding we into those we’d the as expect competence efficiency, improve and company I a believe continue identify we’ve to core opportunities, we in become as to future that offer that to

John Heinbockel

Thank you.

Rodney McMullen

Thanks, John, for the question.

live. directed big, people encourage other associates special to of our to finish like side opportunity for To our to and demonstrate would our and collaboration today, all by compassion drive and core comments change. innovation Before world also associates final I to united authentic in and few empathy The be something the for you get dream we are. can part your listening with COVID-XX opportunity Opportunity, in. work the vaccination. we by who The are share around a To and celebrated are innovate it. the purpose. I’d be to of side are self care, who which of like we to who people be

that event the partnerships the us for These a delivery, our fight in customers, and be immunity our have to grocery $XXX incentive first of immunity that that each suppliers Thank join receive our customers, of you you opportunity communities earlier our concludes in and our Kroger help complete giveaway to when to community mentioned I our welcoming our day community opportunities. to businesses, today’s our innovators striving enter small and innovative with You teams to collaborate for doses accelerating all the hybrid do hunger. of the vaccines. for the grow there communities to delivery, few addition you recommended ways will create supporting you And and expanding to develop each other. business, job end and examples call. hiring how fresh new drone just to help are From many

Operator

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

may disconnect. You now

The Kroger Co. (KR) 18 Jun 212021 Q1 Earnings call transcript