KR - Earnings call transcript Q2 2021

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Operator

Good day and welcome to The Kroger Company Second Quarter Earnings Call. All participants will be in 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 Rob Quast. would like to to over conference the turn I Please go ahead.

Rob Quast

Rodney Call. Chief to Sarah. am Relations. for forward my Kroger Kroger Earnings new joining a you to joined us am Executive Thank Good Financial of Chairman Officer, McMullen, Head 's for today Second morning. working with Millerchip. role and Quarter by you and as here Chief I today be Thank Officer, all you I and look excited in XXXX Investor of Gary

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

press can will website over be regarding After to found the turn look taking I call Rodney. release now quarter your our forward the our ir. kroger.com. questions. at information to on and Our remarks, prepared we supplemental

Rodney McMullen

continued for on New congratulations in you, of Rob her I fulfillment thank like would her also take Head new Thank and new customer as Geographies a Manis her success your team. centers. service wish IR We role. for to role Rebekah to minute our to the

all thank Finally, I would like for joining today. you us to

of X% to and in a sales the internal time COVID the second and our expectations. to business unending supply spend fuel. efficiencies. job We continue difference costs our through period, confident growth quarter I'd ahead triple-digit the to Grew attractive X-year remain operational minutes time. pharmacies, through ability our stacked like deliver in and total XX% done our few in make and XX% serving communities areas. X chain, to drive Kroger's initiatives manufacturing returns commitment incredible have basis, facilities over cost-saving Digital on Their an to continues discussing consistently operating saw same associates key to We our customers without identical of positioning Our a next environment. over and out of the shareholder stores,

behavior customer is our how First, and seamless working. ecosystem

Kroger with share I'll finally, our Accelerating I Second, the and of continue with commitments. highlight the through spirit advance experience, live and Digital. feed how will how ESG Leading our purpose. Fresh, associate examples 's we're to To we human to work And

on to Accelerating our with focus and Digital leading strategic with continues Fresh Our across businesses. build momentum

customers customers we've Customers many quarter, and As our value our convenience we've the visited and in the shifts our are operated seamless convenience proposition from through highlights enjoying to habits. of This in-store. the the shifted in structural responding of our more favorably eating easily footprint. that are pandemic, Early and to recognized frequently, our and online offerings. stores the relevance accessible cooking

This many increased the further how can shifting our ecosystem. Customers demonstrates to customers began to of the Towards solutions. as strength end back seamless cases digital want in quarter, our shop. the of COVID-XX they geographies, choose

convenient, they home because customer be other of at the more options. food shop, and every Regardless Our so more than in choose have eating to is does not healthier are compromise. available job channel customers how it's to affordable, to

our research may Fresh address world-class assortment structural at them our food some are through innovative products, uniquely is home I transitory, success be positioned While digital of highlighted platforms, Kroger and mill trends and to solutions. those

think so food, to that they think when We position Kroger. our a as authority will continue elevate customers food

elevated sales and our leader sales floral and deli-bakery, We quarter. we second XXXX. positive saw Fresh advance to in produce in as lapped, a the in continue We identical position even during as

remained research love how food much brands customers home and were strong shows trends Truth both as Private at Selection brands. Our for Sales sticky. our Simple our

innovate We within to Fresh. continue

For food. This example, And especially looking partnerships our us time is many of important at relevant XX% when convenience to freshly a are when restaurant customers expanded on-demand with customers allow offer prepared, is say for customers Ghost inspiration. our cooking. Kitchen

Kroger Fresh XXX% Everyone. We over our new Fresh entrepreneurs our icon, across announced growth. our profitability brings innovative icon, growth also remain the sourced proud together We at many day. visual, the brand small which and Cohort, this of Fresh & Kroger XXXX deliver and to brand Local last the in to achieve our already Accelerator unifying track dreams. XXXX reinforces IR Supplier our for under Earlier are of X Digital, stores companies We're first quarter Digital country, growth regionally XXXX and on very and against years, locally helping to bringing announced introduced our Go week, our and targets the family Cart promise. their products a one increased similar

decreased who the sales almost all customer reduced during While ecosystem highlighting experience all across power create with to their digital the our quarter of our meaningful us a and customers the channels. during spend to in-store, XX% online shop quarter, continued ability

a As that increasing doubled our solutions with our since short household Kroger the customers of e-commerce engage number our XXXX. has reminder, penetration, digital brick-and-mortar

we our quarter, digital added new over to the platforms. customers XXX,XXX During

we our We continue Kroger reduced capacity footprint, and to for times Pickup. wait across expand

want to shipped ahead, we shopping our delivered their stores, it's seamless stores, way that look as what into Whether it homes. ecosystem and need As fits picking offer will getting remain up our a in directly their life. it we in or advantage, customers a at our or competitive

seamless to ecosystem. our continue enhance We

expand open, in new Ohio, are last we centers allowing into and us X within customer currently have expanding fulfillment As Florida. to which our we've geographies quarter, capabilities shared

and Florida, been Ohio, per and delivery for the we energized the has sheds. growth In solutions. We focus are year. savings just with proposition volume opportunities pass, happy unlimited $XX involving in performance maximize customers thus our both alongside existing launched deliveries far digital In to by our on the customer are offering

see the that vans continue Net doorsteps. Scores to bring our trained food tell the customers Promoter freshest us their delivery and love our they refrigerated incredible drivers directly to friendly, professionally We and

Looking which ahead, over XXXX, will X open seamless our ecosystem. track to on further expand customer-fulfillment centers we XXXX remain and

I data grow are it and how personalization share we thought how Before specifics business, using remind would our about to some to you I the program on helpful and it works. be rewards

data It of of Our drive two active Customers our XX% rewards captures over and value programs which has households XX million for see builds been ourselves. the clearly loyalty. program, decades. and sales from

X shop ability science, items for customers. offer at personalization were surprise basket nearly their XX% from level, by them highly noted that expensive make nearly savings as people in we all groceries a added allowing month. highlighting gotten digital Overall, suggestions that have further delight relevant more to our when have meaningful we in customers, we our food example, our in personalized the XX%. time a X an of customers Furthermore, benefit Kroger to and As reduce past household our dollars. their through personalization stretch can to recommendations

associates through in time, supporting urgently people day, full, on Our remain every pandemic. our fresh friendly communities safe the every customer experience and keeping focused deliver We our while and also a stores continue facilities. to

COVID-XX the recognition. with our and of for were response. Capital we're recognized the from Group Hall that recently proud Management Excellence Obviously, Brandon Human Award Gold teams people-centered especially Our for

quarter, we associate training Kroger the introduced to elevate retention. a engagement new Fresh launched experience. Start, associate our to During technology foster program greater personalized new and

our their launched access also smartphones. to associates provides We resources and Feed which from app, easy Company communications,

can saw career. quarter, an the We and we proud be for to come we strive for improvement where that are associates during employer incredibly job retention, as stay a in an

Now -- deliver purpose. our turning to now

We that XXXX further invest stakeholders. contributing ESG a continue We've more and taking creating where everyone in global inclusive to We a sustainable meaningful outlines outlines companies several work, report that customers, our our to build and and that and choosing kroger protecting associates, where of together. to lines work performance where to thriving people and to resources, millions where responsible to further helping imagine and to over recently value restoring published sustainable our co.com. progress the live years. lifestyles, on more more are planet. of steps the world believe systems. integrate ESG improve Kroger to It shop, last to communities, increasingly investors benefits our It and is shared all our And natural business commitment aspiration is into healthier, are

serve our our been One work vision of we to our pandemic. doing team support ways customers has ESG and life the many through and the our bring to Kroger through is help communities that

drive we partners we who that education. to And while to at have that of to we To available people During Teamed national community over lives drive COVID-XX Biden the million live President sports the in Lyft X.X the giveaway. date, immunity Kroger have next and quarter, one rides concluded with tests customers continue underserved And committed X and the healthier access awareness we serve. our provide XXX with rapid agreed cost availability days. to make vaccine COVID and yesterday, for vaccine communities. icon local is Kroger appointments. the to up to doses the helping noted of is safeguarding provided worked communities

on sustainable of first Our they associates, our focus This execution. with total have tangible commitment to are has introduced in this dedicated also and we term. been ESG goals return deliver XXXX, almost achievable. our a quarter, the XXX,XXX us and team results laser-focused Since for strong ambitious, teams to and driven are long and shareholder resulted in allowing delivering

our turn Now second to over I discuss Gary would like results. to to financial quarter Gary. it

Gary Millerchip

delivering leading morning, with on is good Thanks, Fresh strong as digital. accelerating and our And to everyone. Rodney. we of priorities results continues momentum Kroger execute and with build

emerging growth alternative growth This grew executing the Balancing and Identical strong business. on management associates now the grew over stack pandemic a Sales quarter, as Identical Without say compounded Each our quarter to growth declined accelerating same of profits during by last. two-year of XX% and customers stronger details a compounded final further our to On our point X.X%. increased X-year how will positive a navigating adjusted Identical by than results. approach reflects provides quarter basis, the a the Sales second rate EPS operating successfully cost rate Without And our investments Without the period period. provide are additional a our Sales period It FIFO with the adjusted during disciplined annual Fuel annual I stronger we During of quarter. was proof and to in XXXX. also Fuel returned XX% And XX%. profit I'm delighted we in the over of Fuel business. strategy.

were scaling remain on experience, new drive We model, and several XXXX. our customer achieved business our platform a pleased Digital investments to fulfillment throughout over with the we key year by at the in expect Digital track remains Our And double announce our XXXX. the which growth. and strength would continued triple-digit with in will growth new we innovations, centers, to plans future

expect As quarter, digital shared to we we especially not XXXX. last in as future be would COVID cycle growth linear,

digital growth revenue transactions. record to in margin the low costs a business. During Consistent order period second in FIFO the during the progress related continued many for profit the chain to further the digital basis basis, points rate, as gross partially price our supply points on margin for generated the a retailers, and investments to and warehouse and sales quarter. last primarily also costs, margin year. experienced quarter, Gross supply in and fuel gross growth offset fuel and chain of same quarter. media increased compared pick decreased in-store This two-year The XX higher decreased to excluding was compared XXXX. shrink a sourcing achieved by profitability, digital we made our On to FIFO alternative taken decrease we excluding see improving and XX benefits basis we with time XX.X% was rate transportation constraints

retention We within our managing risk and facilities. are within capacity augmenting actively by this increased securing programs business associate our own

quarter, the and higher second updated in year this the contemplated also expect half inflation In supply-chain remain cost elevated of the in the -half We our we second is categories. saw in some guidance. of to

do disciplined to increases, higher suppliers so. being with cost to are working these in customer are to the when passing We and sense it along manage makes

originally While in higher will as predict shared precision, plan. quarter, business year than we XXXX difficult inflation for full we last with the be to contemplated our believe

million captured strong inflation of LIFO of XXXX, rest to use outlook quarter between is half guidance second the we trends, and higher the the now at of Premise, for $XX Recognizing For operational year, recent year. prior charge inflation X% million to expenses excluding This basis us our excluding On in in the for our operating $XX execution recorded and XXXX. X%. cost compared second a the and allowed XXX lower and general by items, savings the XX rate a items related adjustment our our and points, adjustment leverage by costs and COVID-XX to basis, two-year reflects quarter. to OG&A administrative initiatives. points basis compared fuel decreased saving through fuel

million to a quarter $XXX also overall create important profit the track of during data finance our our to value proposition business, quarter. of our grew high in experienced continue average our continue we the of $X last customers. processes range the operating and price flywheel is way. Fuel significant personal again for XXXX. We and track versus leverage quarter incremental strong outpaced growth in was to same savings million to opportunities streamline remain market retail The lead to to continues Media quarter by in see part our X% end alternative of which technology, deliver cost Gallons to of remain effect profit an for And profit the generated on seamless and the $X.XX growth. achieve Kroger XXXX. billion $X.XX in traffic by fuel and on year. this ecosystem The expected second in and $XXX

per million year. margin gallon to in $X.XX compared of to fuel XXXX. cents a quarter to $XX And in $X.XX was the Our compared same was operating tailwind fuel profit prior

growth, to while and Turning in excess to generate now cash business to sustainable strategy, we remain our returning continue drive financial committed shareholders. free also strong cash the to to flow investing

our navigated due of challenging expenditures higher are that carefully returns. longer times widen capital modes, Capital support a costs and compared competitive project deliver the to investments down project We market. growth strategy, to prior our were strong lead as prioritizing and labor year-to-date impact we year

dollars. acquisitions, we purchases the coming we at this today, capital leased guidance range maintaining of of low-end year. in and up and billion confirmed And range we mergers, between currently our $X.X anticipate investments, facilities for As are excluding $X.X the for in

and $XXX quarter, Kroger of shares the million year-to-date During has repurchased million $XXX of shares. repurchased

end marking on As board increased second In year June, also remains XXth of dividend dividend quarter, XXth, increases. current consecutive the outstanding of XXXX. June XX%, $XXX of the authorization under the Kroger the million announced the by

navigate proactive Our challenging to is a our over helping in associates labor investing approach us recent years market.

them. ways our in plans are investing that that on focus to continues strategy Our compensation reward associates in to meaningful

wages our We we are in associates in $XXX to wage committing million hourly in to [Indiscernible] XXXX addition increases $XXX XXXX, for investing the between XXXX. million invested in associate and

have improve associates also the Over we security our to period, taken several of the benefits. same opportunities pension

Our in, of be average with and $XX excess of by end benefits the is now comprehensive $XX/hour, will rate hourly approaching factored in XXXX.

hourly continued hourly are wages model retail And associate long-term sustainably. We to contemplates our fully increasing financial investments in rates. committed

for Less, During the new labor X second XX,XXX associates quarter, associates. we agreements UFCW Food with Michigan, our ratified and divisions, the covering over Atlanta, Mid-Atlantic in

at and Portland. Little associates UFCW store to for Rock, Houston, negotiate the with We continue contracts Memphis,

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

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

sustained trends full-year by the second in and in results home, raising our we now Turning guidance. for at expectations half Driven of our momentum our are XXXX. to food

flat home of We -X%, in food clearer. a resulting have We and into market the year to of to to now as broader our also in fuel stack expect we and further have the trends second X-year our and XX.X%. sales in business XX.X% become are positive, narrowed slightly between the up the XXXX range guidance to results be identical half -X.X% identical without full-year sales the of at

share our range expect per We to of in diluted adjusted net $X.XX. the be earnings to $X.XX

by reflecting compounded and operating confident earnings X% now using expect emerging to turn investors. a adjusted two we free deliver pandemic range XX.X%. remain growing to shareholder cash FIFO through conclusion, Rodney. $X back to billion, are We return the year to flow rate billion be excess In our total stronger to I'll And of our profit XX% in and ability between XX.X% to cash sustainably the growth of return our to in resilient it annual and $X.X

Rodney McMullen

This to in Gary. dynamic, Kroger working. The ecosystem meet is of customers shift the 's operate customers seamlessly shareholder Thank and to during innovation, for for see was environment deliver proud introduced our the continue we continue channels, to building serve ability strong evident and saw moat we XXXX for is you XXXX. deliver engagement. in and technology, stakeholders, Digital am long-term I future. so the and our We're model in total to against we seamless quarter, as position the business associates between Kroger competitive challenge, success. our reinformed while we and and the return will all leveraging

Now look forward your we to questions.

Operator

now will our question-and-answer time, to assemble roster. pause [Operator we momentarily begin Instructions] We this will At session the

Our go first Greg comes Wolfe Research. from question Please with Badishkanian ahead.

Spencer Hanus

next Good comps for of imply does talk guys on slowdown that seeing you're about think date morning. is half. And to This XXXX? year? Greg. a a about Hanus you Can how guidance quarter because somewhat guys on Do are get comps I the Thanks. you basis the it's in to Spencer in you then the early, thinking although your X-year second long-term back algo

Rodney McMullen

mentioned last the positive prepared the Gary of in period returned the quarter, remarks, as identical. Yeah, his second

we've continued balance for guidance positive is see year as so to well. trend the the of far the positive And third our the for in quarter, and identical

of we're And be making at thought in we're the our are. year. we dip are progress with from last point we and We're pleased cycling where on with this pleased COVID performance would we ahead time doing. initially substantially very where teams So we the

look toward to As you into Gary, XXXX, of the more details. we want get unless

to to place what to anything? remain I commitment model our And we've improvements, taking and shareholders is margin a driven to And at and X% it. obviously, think outperformed our talked returning TSR And the you what since it Investor thing via of by X dividend XXXX. those key the stock flow, put XX. And, to of sales the in together committed we XXXX, will we drive and And slight our of cash in XX%. growth, in want buyback. would we about sum if Gary, add that's be free that's a Day combination to that.

Gary Millerchip

in I it momentum we're of about that guidance. obviously The and I about. as the we're behavior previous the off also executing Rodney, and mentioned, for we're the year well. really for thing on as in of the Overall, variant think some year, color as business. we're year, as -- the seeing And That we the in the they're only year-to-date guidance in still currently with good consumers good did thinking gave the trend add, said, names U.S. would the based in back that on to prepared the I the return the the we would the we're talked sustained comments, feel about back gravitate the to that do be now heading for how as some business. well, that Rodney are Rodney the business being you we that from food on trends asked performance the some how additional X-X% said into we very half feeling you half reversing half at home there you in of really the guidance market. about we and at think is with seeing Obviously, continue seeing the of in look the into shared that of the obviously, raise We year. back some to trends say, trends sort prevalent towards Delta

returning on last, different countries, some behavior, impact consumers you of of some seeing we the the If in to are Delta look cases. at consumer normal like, you how long if return behavior offices to variant

those continue that to of the stack an some about customer, unknowns how to XX% and year while and trends would our win feel more see play back-half ability out. of we still so with And uncertainties be XX to we're based they around two-year really the still good elements our on the of to the looking

only at expect we Rodney's think as on comb market, we overall as beginning but I investor in we thing shared and the pandemic through other I of we food day been than at would XXXX the XXXX, had comment reinforce at Kroger's expect that the sales also occurred. do position that our XXXX the is year, come a would to the not overall have home, much in the specifically stronger of out trends we

sharing details as believe we that to we towards that we more the 'XX true get to XXXX when so will stand forward -- be the of and towards still we And end on obviously head year. look to

Spencer Hanus

comment margin rational helpful perimeter periods color your helpful. in really Any gross passing the would you how that's could inflation be of on are then color. through Thanks, expecting guys store. any the additional of And you been And headwinds inflation. from elevated the at there some have

Rodney McMullen

And If And the little time Congress supply on know of what's driving And talked those. spend starting then that, other Gary it or heavily channels quarter, driven of that, supply about at be. shrink higher are a more to on you within during about gross and for and the the that's least what's at and chain trying it, if chain is what's I distribution to manage products of component. lot groups crime appears driven organized you prepared the the of as And or the behind stolen of well, look that. bit both and XX% and by the to understanding remarks at it about was shrink, his impact look costs. -- margin But higher from shrink half half a half different. And time, the we or know, shared inflation. On the are operating that we've pressure for balance see standpoint, from been an successful areas. you to the effect. the makes through inflation -- both what high the strategy. the we negative inflow, it you easiest this an And there or way, in in those costs, minimize investing for part. an And X% place would But costs of inflation and where as is over Gary our guidance so between our easiest. passed reflects the those we as far, you would in year Inflationary of don't ever in are proactively operate -- organized X%, to the it areas, most business, but no And following being is get expect

Spencer Hanus

you so much. Thank Great.

Rodney McMullen

Thanks, Greg.

Sorry.

Operator

Michael go Our comes next question from Lasser ahead. UBS. with Please

Michael Lasser

drill shareholder are Thanks taking lot workers for the comments year. total next still morning. working to largely Good into this return coupled my the around We're questions. formula many embracing a home. of eating in midst the for wanted with pandemic, from I at targeting still down your consumer home,

X% essentially. year So operating shift a to this in to you an in food expenses the where you're margin be a will sales rate to just particularly pressured, the are of case, you able is Thank guiding And year calendar to your to your maintain delaying reduced operating you. of have be the environment that's if away continue this year. strength OG&A as How back this this inevitable home XX. lot margin going from

Rodney McMullen

and Gary I'll finish. let Thanks. Michael, start

sustainable. telling able at that And at structural restaurant. it's not as eating telling customers eat us trends at their like significantly structural And long-term expensive If with suggest nearly because budget They're their things, cooking. believe their and we showing us April further they're our home, stretch all of on are research to and trends. eating eating would home in they they all also off on you is healthier, of eating new skills also home, and look research families, enjoy at those as eating our everything are that which a

finding continue the everything than other will is What and tell, that are as different i.e. people as past. can home, thing believe from supporting good I what And lunch. are, guess more of worked meals are but we that jobs The eating we working of from your we companies, terms the location. ours more that many be people know can those call, jobs. breakfast And at home we're in certainly cases, what all and everybody on people in is

So and really part everything can of and change blip of not sustainable because meaningful trend see a structural one-time the just we that is it's COVID.

some the of margins and that detail. of I'll let into terms Gary, stuff, drill In you

Gary Millerchip

Yes.

our maybe I we've think Rodney think take manage how that we're about at XXXX, business with been model. Day, holistically is you last journey would teed now And over to I demonstrating XXXX, the able really XXXX, Michael, for up we it you feel just back should and we we're that on add on model. years TSR we all the to delivering Investor more our about how as the three think

-- our which we're we've rate And to and for get sold that where invest sourcing some we're profit the ensure delivering. hourly time, then to managing investments think experience associates to managed improve the way. that's customers that our you continuing businesses. to costs as with they see at same So at value of in we experience the The sense, the continuing make to sure accelerate investments the effective at Whether the in there. some we're you margins think and it about more And we're our and making continue price the customer. the in about digital continued investments well positioned makes to though even with and in making that the personalization that through pandemic stronger average to way that look that are we alternative in continue ensure

commitments in our continue what a strong ability drive about overtime, TSR commitments to confidence gives manage shareholders. us the overall, that to I and to our you think with are as in think business our line our

And we get dollars how continue about model at by business year. we the around we want to ability our and how grow see but in details the obviously confident our XXXX more spend specific about into that and on customer the supported wouldn't we'll point, maintain we get home time how comments about I and into we next So about context. our later I how think trajectory specifics in think at certainly think year, this food get to over how Rodney can of to continuing to 's within that's

Rodney McMullen

And great we to how without for all think have find our at been change mentioned the out team process you our able technology of operations costs affecting to make identify And but more watched years our it's of know I areas teams look associates' the find. one and of those that that's where one and then that we've for we things As business of reduce a we're always procurement benefit. to then our our out take the when be and to going technology cost customer I customers team, which costs, goal, when experience to easier, in take and our touches as able product are job costs to things team, working to Gary opportunities. set stores operations importantly, number more are continue out, team, the able

accelerate and of alternative shared profit well. flywheel is that of that, sustainable. point But to our important with of with associates. our our And And Gary's of is the shared make overall as customers, an cost some some component reductions it that model it's continues part on

Gary Millerchip

double-digital we the this thing Day, to other having from from make strategy plan mentioned this around compromise to do point customer cost profitability, Michael, outlined that think that's important But One the improve but We digital them the again that that not of our long-term Rodney. important a the also is Actually model profitability side, we in to on between channel. it of have how important you. obviously a the to view -- and to very Investor is sure I experiences. that business store to Rodney continue perspective,

So be from we from or our whether that buying perspective, can agnostic in store. buying the the customers online

it growth As that rate, doesn't the important we profitability affect today. billion future, that have we to grow the just Digital that affects remember, business in $XX the

an we tailwind tailwind take order, as also we're a grow modeling partway will that's But So in now. the proving to out cost through a continue also to continue be and be financial filling transaction that [Indiscernible] journey well. to because OG&A per already revenue of as

Michael Lasser

Company per -- result, where follow-up supporting profitability is the large you from your gross on there on quarter. a large digital versus about unrelated seems And a frame getting you within the in the distribution revenue as opportunity extent perspective, your CPG where be from in you Kroger the within business. gross talked was the subsequently this It big advertising advertisers One transaction. benefit overall more that's a of to the vaccine what margin? really margin Can are of side focusing that advertising perspective, area are the for note, can media my And platform? like the competitors how

Rodney McMullen

in X tied team as significant Kroger's media Several media questions about retail but the areas. media. X in and and X, number X opportunity a competitors Day, were we talk among for and still briefly We media see number retail we at other there. X I'll in our retail of different the shared our two. Investor We offer the ranked

value won't our significant. And is feel we get the CPGs say retail customers get data media. obviously, started. that offer sure from just we our that into would I we seeing to substantial are opportunity ability to offers a it's than other and believe like make to right the our significant grow use getting continue we're specifics and to So

Gary Millerchip

efforts Little Having have I'll lot a we net-net. question, pharmacy part health business, in wellness about vaccines Michael, and from our certainly benefit big pivoted And the our in just would that, seen some which Clinic. on would said say COVID say, during I the the we the of then operation is quarter.

at a on of and I of being and that wouldn't health headwind it or think during quarter, I matter, the as the plan, think the either. you business, If so largely or as of for tailwind wellness being the headwind rest would a year it looked for

the I think that given around the the wellness expectations forward. and fully got health guidance going [Indiscernible] business we've --

Michael Lasser

very you, Thank luck. much and good

Rodney McMullen

Thank you.

Operator

with comes Research. go Next Cerankosky from Chuck question Northcoast ahead. Please

Chuck Cerankosky

see little to a a ask bit customers talk label to or little shopping and a this And it? bit want I reacting you is about in a private quarter. do about Nice inflationary everyone. period. there in-store online? customer difference How morning, Good between

Rodney McMullen

gain packs We're also brands, and are our continues really share Private at finding Selection look Simple and grow. significantly. you to If big growing Truth

when If gain -- brands our brands. s that, passing does time somebody CPG you If inflation, every we for find not us, real. -- through look incremental at even our are All share. that's

really that -- other to don't seeing continue the behind not we're that put innovation they quarter, the over forward. is we've And changes. going proud been and expect thing I behavior I've introduced team our products The of the product. XXX new we in

us this things for are stretching brands And budget. times part, trade saving the pretty sure times point, are on inflation budget seeing back good lot feel continued, most a would customers as had their go you to at people at record inflation, not I'm of like part if they telling our to If financially. when you customer, and still they are their the our brands our changes still We're of over happening where prior levels that. but

constrained, start behavior. really Now is at seeing gaining quality probably our right it's product, the on own. the you the on of and and innovation being now some created point, really if business more budgets But that got product would its some because we're standing of the

Chuck Cerankosky

secondly, seeing over of in you and then moved in quarter. differences e-commerce people the out course way the regional Are of shifts Rodney. the the and And

Rodney McMullen

it's COVID really is Yes, we would. And wherever higher.

that's we started after comes online strategy important shopper. in digitally especially stores. every I that almost an shift You of the the store they what mentioned more North, early because in pickup. the more online into within shopping as customer things shopping for that stopped did is prepared actually they see the to remarks, year, online, and in seamless, first delivery overall we're it would quarter would And of the find us, and that proud our as digitally And shopping -- Company. the an as before moves became really that's with shopper see you started And for the us that were that is my than part often

Chuck Cerankosky

the whether total or there that, any positive to on what e-commerce you towards due number. it to smaller way is Is your trending put a a quantified do loss And operating earnings number during the quarter.

Rodney McMullen

I'll I'll talk a Well, little bit. let Gary.

quarter, the the in at Monroe. Florida you and of obviously, our start-up within had sheds we costs If look

any created for updated there's gave that guidance. that obviously, And was reflected we headwind, our a in additional. guidance Gary, that and if So the our year

Gary Millerchip

in in I growing think more When what's on transactions generally digitally. profitability know, the Digital, you we we're so journey we the focus the as the we what to. or incrementality the we're pass-through customer because are customer and becomes the more digital as there see fixed customers XX% we on talked as as to is ways. find costs, different about profitability of overall add rate loyal, on Kroger you about engages We towards alluding in all the

kind the I to Ocado in As previously, a making rate over I improving ultimately role to about at year, talking closer to order a that path you to good in play compared of we've doubling that the in And picking my towards back we've we parity. last when efficiency progress on store to pass-through a think talked a will And comments, continue transaction. get improvements profit on that as mentioned -- would to we'd well. the try digital time, drive solid on high-teens rate make to and expect to digital journey to the prepared we're mid-single-digit on of on transaction. that mid profitability be we're to pass-through rate

may grow also automation continuing provide that's and the with revenue creating course, a rapidly, to with Of media tailwind.

seeing track say with that I'd journey in where to be on we the we're quarter. and expected good with momentum So

Chuck Cerankosky

Thank much. luck of rest you very Good year. the the on

Rodney McMullen

Chuck Thanks.

Operator

Fargo, comes go question ahead. next with Our Wells Edward from Kelly please

Edward Kelly

Good ask share to and guys. the repo balance. Hi, wanted about I morning. cash

again. you with lot cash So ended of a quarter the

take the the of X% your taking XX% question? here, the I stock. attractive You're guess of dry a out buyback. probably thoughts straightforward could the powder debt below to it well your of is part And like seems XX% are to year. what this I with on buy bigger on leverage stock Because this back a additional Is mean, you target. year. shares. north out delivering next Is Thoughts

this. as to kind should thinking Just we how curious all be of about

Gary Millerchip

strategy. changing Yeah, for not I financial Ed, thanks our overall question, say the overall, would we're

we those business our grow, incremental shared versus to to saying drive look We're our believe about growth excess over committed going we business where current certainly the digital for for bar think flow, continue we to to certainly can But to investments return looking we still on of time cash focus bit the that for of to opportunities we level think I obviously there's that investors continue the our and start lots of sustain we attempt in we goal grow stronger incremental little stretching our so continuing As accelerate as and and to cash to overall stock. to this to that we a against we how lead into top-line at within would our We're flow. Fresh be opportunity growth. with going we of drive is invest with the invest to accelerate growth in buying got any in a profitably the are with Day, last earnings the think as our TSR free shareholders model. it overall free in Investor back we've cash framework in can to growth the our today, continue model.

share As because If to referred we of XXXX. and continue back an on us happens great, at start share during anything by go say view is it year as there cash on those continue flex that time growth. we remain in make opportunities, fluctuations more look our accelerate higher, expect a lays we obviously the that market, investors. lower, the as are think to perspective buys think we it you we're price. we'll the in the to a cash. point cash trying maximizing we buys to certainly current of more do buy come stock really through not trying believe stocks ultimately, as we've then would the stock will with reflect share from sure continued increased quarter. where back and price prices I've if during of share trading from deploying dynamic the to the that on profit we're at dividend that so we typical position return the making sure is to heard as where opportunities, the stock before, a we make really are it to XX% price period. operating back to could depending as COVID of saying, a we'll to to less buy out And sure confidence excess is. I we identify this advantage it We And take But leverage If excess price to we're and We but our returning expect during committed the about to we dollar the to leave back we higher quarter the

Edward Kelly

the headwind a that follow-up about the the a grow on and just we supply half? number for think a great. as good Okay, gross little thinking is be Just two-year way accelerating to bit about is or And that QX, that. in inflation margin chain, quick does how curious back the should was half, back

Gary Millerchip

numbers, -- I directionally, a about the think good don't of the we but it's think think to way a of QX into year. overall half helpful go again, pretty back is specific sort I actually

and a invest sense where transportation, half to in cycling, As you overall see part be would gross less but it shrink. back if part margin customers. of think be continue we tailwind, you will to we year. OG&A continue warehouse being earnings, also of think continuing headwind, the business being to the give in about We're to will it and value think that makes like, we of the COVID a

outside to think profit in the I So if QX in operating of cycling year. about half of impact about the of think the of back extra back strong half you a But the first of as general, half year COVID in think the our the way last overall in cost think I year. be that's why is pretty year, won't good that the

Edward Kelly

Thank Great. you.

Operator

comes Montani ISI, go ahead. Evercore Michael next Our question please from with

Michael Montani

how turned inflation hoping could to the I were Great. saw secondly, get positive color sales. incremental bit transaction consumers in then count COGS. question. for vis-a-vis pass-through much some the at Has to taking you of color what around Thank you if little provide ID the to was you able this And just kind you incremental of a around point.

helpful Just context some past have in given because there. you at times the

Rodney McMullen

year we If flat count, continue count. years. would at of on or look prior X transaction have slightly It declining at transaction kind you really if depends versus to or looking you're

significantly If significantly significantly more. size basket at come basket into the a per size buy somebody into you higher is you comes look of purchase, customers it our Or customers customer, terms when store, in online store. than that they increased look if a shop at when basket

from both bigger where of buying the buying all it's buy. products, customers products are They're So transactions and also also more they've premiumization digital more. a buying And are they and really significantly -- upgraded they standpoint individual precise are standpoint, buying product things. as they well. it's three One,

So will customers or a think X-pack if some cases. are of most even paper, buy toilet bigger, now about paper, few buying where in XX-pack or even customers can now very you toilet

let inflation, of Gary, you Michael's terms the that. question on In answer I'll

Gary Millerchip

process seen been comfortable we continue on then to the structural be that them year. and if to a on we point, increases this the passing ability looking back the into we've with that would customer. of I very expect generally And pass case they the say have to to obviously, have to we call, Thanks challenge out confident when Michael. manage how that for robust we are a because make through And we We've make they sure feel we first sure before question. inflationary all, on from the for I very suppliers. cost that process we laid know at our would the we've half absolutely the see truly cost for of flowing that that we legitimate to are, changes. want

we where we you continuing it the makes sense. quarter, during As to price invest saw are think in

where be Sometimes areas that we're inflation. seeing might in

customer thing long-term to be other personalization where grow believe strategies. the we're through because it loyalty and we our Sometimes right places to might do it's investing

manage we continuing which to the believe to as inflation within way the be At feel time, well. that's in we we term in going same are about share long the because we overall, good So are important business. the the to able invest grow to

Michael Montani

it. Got you. Thank

Rodney McMullen

Thank you.

Operator

from with comes Karen Barclays. question next Our Short ahead. go Please

Rodney McMullen

Karen, are you there?

Karen Short

Oh hear me sorry. Can you now?

Rodney McMullen

yes. Yeah,

Karen Short

about Yes. Sorry that.

questions to of had was just and because that it contribution I'm I vaccine mentioned basis to a color more heard wondering I gross related wellness guess, a initiatives questions. sizable if the kind fee respect just that couple in little model margin. admin terms in give health other of With general. guidance. Gary, your then out. of one you of And netted you to So could competitors, point very in, that other and you on

COVID then wanted and because actual obviously So the in are your for be the And costs for to expectations that's rest one costs relevant year I your And just what I expectations quarter the will LIFO COVID for your picture were EPS. had then for year. what what question. of clarify the bigger other

Gary Millerchip

Thanks, Sure. Karen.

in things. On Yes, stores, of the as little of facilities. as business, support continue so our operate number pharmacy stores side the in multiple clinics our core know, well we we pharmacy to clinics COVID vaccines. essentially, And [Indiscernible] have you of a little

the it prescriptions newer pivoted and locations less at health offsite to even pharmacy earlier to we and wellness on and support, If our as there resources impact do facilities. I if And you the year-to-date, grow script total impact all look at and during count. total you be business comment the vaccines, whether we a vaccinations. And the total time was, through wouldn't though you business business as look through at the performance. material that script provide the wellness COVID COVID quarter more overall and shifted of more to we outside continue for my when like, quarter, the look count of as So grew business the overall be own health customers the you the

easy if the be we having back it a year, in some impact as if So less revenue return little compared parts thing of back that wouldn't but of start business, COVID a more expect half know, things an business, vaccinations to year. really vaccines have or I And what year. look to COVID it vaccines the like. to back certainly expect half plan lower of that incremental would to you normal data you value vaccine We in first less the predict, was wellness because there's the headwind start created in on and being to year, at of the we saw to out look netted as the certainly in end health margin by half it's to a the isolation, of at point spike of bit perspective, the a of is margin to because we so the other return. an lower year, have of reason they you on things incremental but the the LIFO half in LIFO and offset one I not From the to probably think an in

use an inflation. We seeing we're year, predict to this be. spots it those far so points data the at looked we where would As

I the data be year-to-date predict. to if LIFO the best the but difficult based we we effectively think growth you LIFO and essentially the would P&L. on that in performance full-year to take that then for notoriously is the guidance year our our give could we've is to that point full-year expectation charged seen And this points the outlook, in you

the but towards of we to indication this give points the be year-to-date we're our best the the But you can that best is gross by driven data roles year. for our the end in up giving the at day, point use best end year I think it'll a of in estimate, So estimate. performance accounting the at you

Rodney McMullen

X by divided annualizes earnings. essence In times

Gary Millerchip

Exactly.

Rodney McMullen

Yeah.

Karen Short

Great and then just COVID?

Rodney McMullen

quarter -- the for and Costs

Gary Millerchip

Oh, yeah.

of COVID costs costs, million earlier, a last year. still that first of leave less cost as you still costs during half see you adapted efficiently. think quarter. half as we have to continue identified probably the cleaning absence capped we're operate a associate significantly would saw are has learned year, more in extended when in areas it But We Company, this last from continued we operate would sadly, to seeing be But been the as COVID masks positive some how COVID, the year we still expect about cost in back as through incremental mentioned quarter, of virus $XXX slightly and we've to a the certainly we the we COVID would certainly greater have As expect for having any costs that case. have still of we how diagnosed

and little quarter be nothing would bit the that be it still of half we than we kind $XXX as slight to a half been what see, those But back look cost first less of And tailwind the we being in have a we've would year-over-year. So seen at like of expected year. million a XXXX. a the the

Karen Short

bigger Okay. picture And is Florida. my on then just question

where you in of middle-market market high where that from have markets terms And have where So Rodney, markets so to have far? want philosophy whether thoughts presence, actually on on curious, on you your locations, share, where that or you emphasize Florida. I'm with opening what may don't Ocado. in you know. market based you early physical you think respect sheds at where have you're to learnings a on share, you markets no any

Rodney McMullen

mean, if great in our especially and food best-in-class the ahead the of having a that retail It's question, that. struggles we and that made Scores Apple up early process neighborhood Florida, neighborhood all in is our the still of across be like Net And where things we the thing I incredibly Net as strong. this And thought would And Promoter up you we with Scores mind-boggling of are in Promoter point. Florida you tracking usually in I'm are at proud are teams of look but industries. strong that. know, answering we're in

teams and would in of our for question. terms we learn appreciate proud as And that say I the Monroe of learn Cincinnati of to how doing here experience with and what would like still incredibly to something outside expect we're we'll are I early infrastructure, the time, results. it the your isn't new picked our then really I both was in customer share and I'm them integrate of So one customer. was And existing how up. our to to we of we'll within in why picked every on markets, Florida markets to our a from reasons be And it's ground do having facility to day ability ramp in communicating and process Certainly, easier the market. continue up the a learn our creating new where the and high. the over happy

Karen Short

much. very thanks Great, That's helpful.

Operator

question Rupesh last comes from Oppenheimer, ahead. Parikh Our with please go

Rupesh Parikh

my Thanks Good morning. me fitting for and taking question in.

during shrink transitory? So headwinds you those I shrink the back see margin guess you quarter. gross on and to maybe you supply half saw. headwinds at was just I if Today like It going sounds that in saw curious a all chain. quarter the during the the that the supply caught pressure chain

Rodney McMullen

I yes. if look shrink, will But incrementally, you I remain at shrink think think higher.

with to specific minimize reading start do trade is And go same in our earnings But look which some more Counsel, Now also try Christine to all to we shrink. associations call we broader is changes Wheatley, And are will Home aggressive. group, through Depot's working talked crime. and try kinds not being working Kroger thing. General it of process organized was and about I at a they you on when I just the know to

important So the the way partner government, sold we to able marketplace. with do believe are to it be will be the in and products

do will manage through there's that supply of improve. be lot have we On think of will able be to to transitory. it. chain, of a it headwind do address you until think still to we will are I some So I a things But But that.

Rupesh Parikh

all of out lately more just follow-up suppliers fulfill one then being in And and the able maybe to demand hearing more we're great. supply and there. chain from consumer the question, Okay, challenges

was curious just trending out-of-stock now you're right the what So how versus seen in recent I you've months?

Rodney McMullen

Yeah. I say we higher. that would slightly were

continuing chain Now, our It's going of we was own to had because some up a benefits own forward the in because supply manufacture also lot of teams pressures. And lot our of aggressively issues. a Originally, of then one inventory. brands. the it of of of brands. the It's our inflation by ended

So our pushing plants aggressively are capacity.

the is minimizing So maximizing headwind, continue in-stocks. I it it than to was. that would work we slightly a -- say it's on worse But

Rupesh Parikh

Okay, you. great. Thank

Rodney McMullen

But that nearly moment XXXX. always, delivering performance lives the we remember through And years XX place quarter it. And conclude a address Thank you like take you. listening who XX ago, the Appreciate outstanding before communities like years to support Thank took events are our to to the today's to call, I'd tragic an tomorrow. moment honor to for continuing associates as XX, in. I'd our and September pandemic. ago this a take to lost on

to top cases number remain to I of and the of health due Delta customers our of As and the safety to that the our want variant. affirm COVID-XX priority. continue rise rapid associates spread

associates team, have the to for customers vaccine. them. our our care you you questions vaccine professionals for every We to day customers, many make our million are getting we in our one sure was being stores. our you of Health is that our for me Atlanta Recently, ways, on healthcare of impact and reminded doses our X.X there our talented thank saved around be call. every just in allergic vaccine do for do That everything of COVID-XX you administrated Thank those customers. a you are. having about for proud the can for addressing a have vaccine. and customers and of the our one life concludes is and of customer wherever today's our there to who already each that of accessible examples so extraordinary our And the day. pharmacy associates the available inspiring the I'm about that the Kroger to and lives other. they for This communities, for in doing communities, one often am I Thank all our managers of reaction of

Operator

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

You may disconnect. now

The Kroger Co. (KR) 10 Sep 212021 Q2 Earnings call transcript