KR - Earnings call transcript Q1 2022

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Operator

Hello and welcome to The Kroger Co.

First Quarter Earnings Call. My name is Alex. I’ll be coordinating the call today. [Operator Instructions] I would now hand over to your host, Rob Quast, Director of Investor Relations. Rob. you, to Over

Rob Quast

Chief you Call. us by I Executive and and Thank Millerchip. Quarter Kroger's Kroger's XXXX Chief our McMullen; Rodney Earnings am Officer, Officer, for morning. Gary for joining First Chairman Financial Good joined today

material to I materially. to will events forward want Kroger that more will we from you as that effect you or and during allowing question A actual In over that of ongoing update such factors results hear you believe a questions. response no prepared look we our necessary. on we in have we as feedback Before limit include Q&A, order a of obligation After want our today's many an on the statements. differ basis our forward-looking we turn detailed to that we may discussion abbreviated business your remind begin, followup predictions, taking I the can. SEC may range to broad to you responses Company your to one can to if cover We call questions caution yourself and to many discussions contained is statements information. filings. ask are please on that The participants now topics, of to In your question followup Rodney. to provide one remarks, assumes

Rodney McMullen

for thank us and Thank everyone you joining you, Good Rob. morning today.

performance successfully of with with Leading off Digital. Accelerating to start strategy our We’re executing Fresh on delivering great XXXX by a in and strong

our is food affordable to strong Our customers associates’ relentless fresh providing results. focus driving on our

strong sales expectations. of internal model resilience led the During the ahead demonstrated quarter, of topline by our we business

of profit, environment environments. sustained growth diesel team our a costs. cost strength the Through operating cost strategic our providing challenging home adjusted of continued higher chain variety and supply our in trends, food in characterized addition, financial delivered inflationary In saving fuel XX% headwinds, once which at included again operating model our navigated by team FIFO and a execution pressures operating

focused compromise. consumers teams their habits. a delivering customer great has eating shopping inflation with and zero Our rethinking are on experience Rising

to are how current Selection, Many Meal While throughout shop Private the more, Solutions. premium seeing Deluxe inflationary based customers customers individual continue cook the different we store, on experiencing continue behaviors and environment. shopping Murray's customers to are products cheese including

For directly more share ways the I'd budgets. other like impacted to for food our their customer work competitive about budget they us position customers stretch customers, and doing are doing we how these fuel help We're to more uniquely are to moats needs. actively save. challenging and we're by customer inflation, everything can meet looking changing whose to our this and for

we First, with are leading Fresh.

shop. of to continue one as to the number Fresh customers determinant where Our prioritize

meeting with new growth quality products. are to maintain this by XXX fresh our supply the throughout improves positive. elevates certified ability customer been We days gains first that extend sales freshness has which and grow our These end-to-end led their identical program, were In stores of technologies and standards of our the operational freshness and selection expansion feedback and quarter, We of fresh efficiencies achieved chain. needs categories. X.X% we overwhelmingly Fresh in produce the quarter the our

to We and in XX.XX° maintain leveraging of continue both improve store products tools, use to also increase specifically stock, to analytical and online. in forecasting our fresh ability our

results how floral recent are are of with we example Our a Fresh. leading great

celebrations shine quarter floral for stepped As the up our record and holiday was largest to florist, nation's achieving time the sales. our team first

double-digit sales growth. and day record a strong In Mother's fact, record we on set with Day an overall sales floral Day single Valentine's

Second, is Our Brands.

least brands with one we had we of sales outpaced quarter, purchasing the at at identical which growth of during many new products We trend all of year. made of quarter, X.X% top the of During and the products. saw and beginning reflecting Our [indiscernible] Brands, these predictions launched national XXX the households tremendous innovative in XX% the

to they than new the validated are All to tested products or be brand. better that good ensure continue as and comparable of our national

We continue which our higher position in price the and our preserves to strong heavily of drives invest quality profitability. brands,

area personalization. Next is

to Our insights data where needs. are data ever In unique personalized to insights react customer dynamic provides be our science rapidly, experiences. platform nimble environment use and this changing behaviors creates we and that customer quickly changing

data and broad price, helps best promotion, approach us implement based determine how science Our display. to

fuel We relevant, personalized are rewards. value through focused on delivering to our offers customers incredible in

using more incremental XXX,XXX are the And in quarter. customers first for now fact, loyal rewards our this than households engaged than ever. program fuel Our more time

fresh our seamless with ecosystem anywhere, our compromise. to to products zero deliver and anytime, continues customers, Finally,

on continue reach expanded the and tools XX% new In quarter, technology wait and delivery, have to to We improved returned as we our made unveiled to to physical store a that result, more of pickup During associates shorten experience times. initiatives first help introducing times new that enhance provide their expand access customers customers in-store affordable key they to while whether capacity community. In high-quality that a better in based serve strides introduce regardless strive customers. we more we customer that delivery needs. and shopping our food,

Pleasant CFC fulfillment in During one Texas, centers automated platform, smart powered we bringing to Wisconsin, Dallas, two count one customer opened by our five. the quarter, Prairie, in and new Ocado’s total

locations for also spokes. of opened total spoke a six new three We

custom into head customers the directly As end-to-end the delivered built including get van, our cold refrigerated their freshest product ensure will solutions, summer, we to doorstep.

results. promising delivering is membership Boost our Finally,

exclusive where program offers on the fuel Our of spent double unlimited delivery more, other one or customers benefits. dollar points can on at Kroger, member every of and membership incredible $XX orders get free value a kind

members are by We encouraged number current pilot four new of the in the divisions.

beginning This relationships loyalty to of is the as to with value XXX non-Boost nationwide approximately generation we Because early in launching deepening Kroger and to divisions few points. delivery that our they Boost convenience. is for look Importantly weeks. increased announce customers success, continue retention are significantly program delivery cells basis and compared this next improves proud today next

better focusing chain By cost process a planning operating and plan By challenges. ahead manage Turning of managed resulting relationships, in to headwinds technology fuel cost effectively. owning our about also securing ongoing we supplier we out anticipated diesel our improvement supply availability. were goods and on efficiencies, portion chain, fleet transportation XXXX forward better vendor staffing, Despite supply and cost. control sequential we business in for proactive Through product and buying our and we saw capacity rates.

the supply the throughout chain positioned to We a are broader evolving optimistic year. well in environment, we recovery to cautiously adapt are and

associates. and facilitates exceptional that we We performance experience. We firmly amazing to an invest also ways in experience the continue that in to believe invest in customer and and associates operating financial associate directly our support our connects

took During the our associates’ for to numerous needs they quarter, meet delivered while our customers. we steps

to We and to Teams grow training this continue to all of improve most our new no tool improve commitment improvement Microsoft will to throughout deeper experiences. connections store meaningful We to of example initiatives facilitate hourly work. teams our our technology addition bring invest wages year. associates, all in of associate locations. and the associate of day-to-day including This we the took scheduling the launched wages of the they communication modernized across work, matter is Rooms where One across and simplify expect steps We MyTown.

stay Kroger more and more us. employer of associates are choice, to for to applying work an with choosing people are As

still meaningful do, both the have after retention While in the improvement we hiring we to in surge. work experienced months and Omicron a

us. a back people work and are every to we're work and work left discover who glad more Kroger's value strong come Boomerangs. appreciate to and job the associates with they career environment, to day. These also ultimately that elsewhere for We many seeing and and came are so culture invites culture, associates our our a

culture winning is to rooted feed spirit. human our the purpose Our in living

Hunger, and military provide bases last During as to new our well our duty co-branded active plan. the and to Zero service their mobile support and through impact military a customers centers as community environmental members the our significant country, and We families disaster USO took Waste, relief. across unit introduced [indiscernible] social and at steps Kroger USO nourish communities year, Zero teams

a The XXXX. four of in May. off hit units fiscal road strong in In to very we're first summary, the start

a in investing it and all and most our experience where this our matters teams, to customers all well, competitive We creating our large associates, and compromise, win. we shopping and purpose customers, do ways day. small shareholders, widening are with strengthening zero our When our moats, every our

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

Gary Millerchip

as delivered quarter while another Thank good results job strong outstanding team dynamic of go-to-market morning strategy executing you, did our operating environment. our navigating an everyone. a Rodney, Kroger and

customers, on invest deliver and us achieved in I'll quarter. resilience highlight without Our Kroger's fresh, in now our of food and fuel quarter with quarter, same value the during exceptional for Fresh the in affordable declined line more our our the moats, and continue Adjusted both detail last driven and growth results our sales financial cost company to the for again, up sales the results associates, was identical competitive Digital provide quarter. our identical of results. year, to Our shareholders. in increased model, which outpaced to create expectations. EPS allowed Led X.X%. by overall our as we by Brands broadly XX% sales X% first compared categories strength sales $X.XX, management

Delivery capabilities, including at customer We growth Boost initiatives continue centers, our fulfillment Kroger enhanced to shared Now. personalization ramp the digital Day, and membership, Investor

of of excluding margin The price as higher costs during sales inventory year. As same the protective a the accelerate prior the a benefits decreased cycling primarily of continued of and the digitally households we margin we supply attributable to quarter. to to fuel these year and compared initiatives, year. XX write a would sourcing by progresses. donation the strategic the was personal rate XX.X% equipment decrease down offset chain quarter, basis This result in period last expect to engaged points was in related sales investments grew gross digital FIFO and Gross

managing to product team job higher continues Our an inflation. excellent cost do

help our our effect customers and our We are leveraging and minimize model. sourcing on suppliers with our and expertise the to working financial closely data

are proprietary our our matters deliver We are customers investing value it to personalization. through using data most where additional to and

Our our an great to great also and in this Brands value. customers are for important an providing differentiator proving quality combination unmatched be of environment,

proposition and a we to our to competitors, proven help XXXX. these capabilities value for budgets many relative believe of front continue and our their effectively as grocery the more remain for maintain inflation strong customers customers unique of inflation will of to remainder represents in manage and a the mind In This leverage We will of recognition $XX $X.X in quarter the cost recorded for of quarter we year. a increase prior million million charge for the of versus $XX the EPS rest XXXX. compared to product to our current outlook year, headwind LIFO the our

items. adjustment were do offsetting inflation of and OG&A rate and business our areas successful reducing by the fuel We decreased basis investments Our many XX customer wages impact parts experience. in points excluding continued costs headwinds that in in associate our not in

quarter, we reducing As process. an simplifying is introduced a the example, waste same forecasting new freshness, ordering this the and at product tool, bakery associate time improving which

strong a waste initiatives of solutions technology that digital pipeline and improvement increase productivity have and fulfillment shrink. lower costs, We reduce process innovative will store and driven

$X media For deliver of XXXX. and are generated consecutive retail continued alternative to meaningful to our supermarket the Led fifth The data traffic XXXX. for savings strong track in alternative by year on a to growth Kroger by Finance, track create contribute flywheel cost in profits effect Personal on business we remain and profits. billion

more During the partners. Precision new than Marketing added XXX quarter Kroger brand

agreements our campaigns three more to overall effectively. advertising their CPG We our enhance continue our into fuel are of management high. their to allowing capabilities offering Fuel value part manage new proposition when key and with to customers remains stretch leading onsite have entered prices and platforms, a leading market dollars, important especially ad help an partners

saves our which through to gallon. $X.XX per up to customers continue value significant We deliver loyalty program,

this As more price a with grew was engage the Rodney this The $X.XX gallons retail shared and of fuel quarter, $X same versus quarter quarter faster market. earlier, at year. fuel average customers last in rate our rewards the than

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

as do fully our in executing continuing serving quarter, job hourly These initiatives a Our outstanding as model. investments We customers. guidance long-term in to our well and new an and wages. to this are invest financial our support introduced number contemplated to continue of associates strategy associates

Seattle, ratified new Little first in associates. the with Memphis Southern Denver, we and California, the quarter, than UFCW labor XX,XXX Houston, During more agreements Rock, covering

We UFCW Roanoke, Southern with continued Las Vegas, Columbus. in to pharmacists, the negotiate for Chicago, California contracts Indianapolis, and Ralph’s

the to is are billion net generate X.X. Turning The now flow EBITDA of drive range EBITDA capital total XXXX. flow Kroger investing expect to is X.XX year to in free ago. company's and ratio to our adjusted cash earnings adjusted we sustainable liquidity. between debt continue continues financial growth strategy, expenditures compared to $X target net in to cash future total a and to debt to strong Consistent with and X.X ratio $X.X billion and business X.XX

in During disciplined repurchases total via quarter one, In returning were Kroger of returned million share shareholders. combination dividends. a cash we to $XXX and

from We returns. me to of the and strength of total are to share year. on for growth our opportunities deploy let we'll and closing, In position to color a excess additional sustainable model the financial our operating outlook cash deliver continue rest accelerate shareholder evaluate

plans believe are the sustained guidance. home Investor sales $X.X X%. number earnings Based on outlined operating of share we results of fuel a and $X.XX trends, as billion, navigating environment. year to $X.XX, adjusted representing of full of While our outlook there X.X%, food is the profit our serve will rate growth and now full our focused the inflation at an our go-to-market well the X% year at in billion on laser one without of net FIFO quarter of adjusted strength for XXXX, and diluted per to to remainder the executing in to We expect Kroger we are and annual strategy raising Day $X.X X.X% of uncertainties current macroeconomic identical

four $XXX the million outlook for our in moderate million year, in remainder remain quarter expect expect half Our Due to although and levels three we we inflation, last full of inflation will higher to year-over-year range as updated year cycle compared of heightened second quarter this XXXX. from the will inflation rate guidance to higher year, year. for now assumes the would $XXX LIFO we at the the be of charge the

projected calculated charge the As a throughout recognize a reminder, quarter, year. is time in actual charge at fourth LIFO we at end the our while the the point of evenly

we guidance also retail fuel the headwind remainder profitability higher margins assumes for CPG cycle as XXXX Our be will a from XXXX. of

year to forward, employee pleased projected related now X% ability tax XX% expected extremely exercises. higher another been has rate the XX%, we to option due full Our to our deductions with year, from stock than tax to primarily Overall, total shareholder I'll which proof lowered back provides deliver we start point the confident of in and And growth our time. strength sustained remain model of turn over earnings financial looking XX% and to to it of to our returns Rodney. are

Rodney McMullen

and Their Gary. once fuel Thanks our acknowledge our and our with outstanding Digital work customers. to I Leading would with and Accelerating associates. strategy hard obsession again Fresh and like dedication for thank our

Brand customers growth. to customers seamless prices, ways experiences, through us help focus relentless and everyday data new finding continue drive help robust delivering We will this promotions, Our a We trusted for maintain their eCommerce stretch personalized driven and believe platform. products sales on dollars

all right strategy have that we Moving shareholders. to ahead, stakeholders, the deliver our remain confident including we value for

turn your we'll Now questions. to

Operator

Instructions] today question from comes open. your BofA Robby, for Our of Global now Robby you. line first Ohmes Research. is Thank [Operator

Robby Ohmes

could was if morning My great Good little ID a color a and question guys I get quarter. on wondering is, the more sales. we

of beverage Thanks. of price of are sales, you're double-digit inflation that then along thoughts on the -- seeing and the widening ticket what you're traffic of of the very price component maybe spread And your with investments competitors specifically the ID maybe sort competitors that, So sell because your is food the and same-store sales? sort seeing some in groceries traffic, in component that versus component your making? and strong what the

Rodney McMullen

good Robby Thanks, and morning.

felt household we in the loyal about you both really if at good terms two areas of our look number traffic, and the that at shoppers is, have look you we of If improved. count

of basket customer driven the coming Part some are is the because for continues size Now a economic in typical decline. just environment to that of customers having.

sized have a the at that they've prepared fresh X%. quarter, early merchandise at departments, if business look continued that's you the in reasonable do the and well. over our the early little extremely they were quarter we're toward where quarter. so up made quarter. affected end second that quarter, it Obviously comments, than general the a as the identicals look comment the of we Obviously I in stronger were finished far If And during during in we you the

So other with compromise the no customers then you starting be overall promotions, we every work case we last continue look versus as for it that improving of customers don’t finding check lot anything look where the We products. well our our brands. their continue aggressively price been slightly think they've to some spreads want of spreads, couple are that the types are different total buy to has customers pricing on of Gary, spreads add? at those budget we week. of to pricing product you And balance the doing the and a to is there's years. with and or what quality of know, if balancing they're and obviously And at and I been over

Gary Millerchip

think visits you pleased quarter loyal you were as total well, Robby, we The during and other saw around it we trend really with households as households was, covered which I only well well. Rodney. the that mentioned improving growing, also point

Rodney McMullen

Gary. Thanks,

Robby Ohmes

Great, thank you.

Rodney McMullen

Robby. Thanks

Operator

Thank you.

Guggenheim Our next Partners. question comes of open. from John, is your now John Heinbockel line

John Heinbockel

Yes.

Own right? will that be talk spreads time? me know curious, And you leads where Rodney have right, you Brand, goes let promotions, increased think Brand it strength from may the Brand guys looks growing always So true I Own that to probably said think momentum be historically, Own I'm Brand do here? of CPG brand. Own this rate price like that Xx about So start with national there, you

Rodney McMullen

has we're one of Simple across of Own Banner the components. proud in soft been the well. that Truth super Truth. did all the with earlier of love you Home Our it chicken Selection, strong issues our have exception then growth proud is we nice and And question other Brands I because quarter that Private is Simple know, The as know, of growth suppliers, as that is a was recent John, Chef only The Brand and little -- Yes, super but than Brand. supply and most the you

for love what gain share, found maintain a you it, you been leadership customers true Brands know, over mentioned, economy our may terms -- on team tight customers of it baskets. same for really our at they Our -- XX as is look the of over Our all is our throughout when always included upgraded and gained We is Our And is, and case Brands national good over a I try always and once the the or team, at we've brand, as XX% been their time share, once it gone focus and then customers look years. little us, our it. if that's leadership find we've in lose the As in they is, economy do, we and but we what our that's because really Brands our

So I good. feel really

still national about of I second among question your think Your there's change, lot the capacity of the of a constraints -- part brands. brand national some

it's exiting at their But constraints. constrained, I brand us all tonnage than more as had because on with people So going they're of part put that promoting a would which what volume in, expect aggressive where COVID in different is at if I would goes points get down. level see of of And be supply different a are has you'll capacity, just we a surprised. higher supply typical trend national they if

John Heinbockel

a because times, it's Quick big buy, sounds benefit today to their P&L like forward that inflationary it right, of in constraints? limited, normally capacity followup right,

Rodney McMullen

to the took to lot do can we're a we we would space warehouse part continued space when Yes, of that space excess I get that on we get using we've product keep. that be as And -- it. COVID, of able to say

to So it I of out are lot using CPGs think a the level production.

buy, big when but essence taking situations. Thanks, as in excess it it's becomes been forward will have past I production, And don't think be in John. as they we're So that. it

John Heinbockel

Thank you.

Operator

you. Thank

from from Our comes next question your Simeon line Stanley. Gutman now Simeon Morgan is open.

Simeon Gutman

morning one my good here. ask and follow-up everyone. shot question I'll Hey

price. like about might consumer to and the do I you, is now too you has months. ask it mentioned Walmart new and normal you like think basket And Rodney, behavior feels to rational we house environment it, don't it want they're break. Do I call that a not the last, environment. ask there in First, consumer do of even of activity seems been something consumer to It pretty change, week competitive a cards, -- getting but of out for nice it's promotional it is number we're half this change? the I want like on want can price the to or this think like ago feels at taking think -- or everyone's and starting kind a playing terms a of put aggressive

Rodney McMullen

on Yes. lot time it. Well, question focused always it's of obviously, a good spend we and a

Your competitive first to we been. seeing environment what comment, are similar pretty the it's

know, take our reason you appreciate and hard the leading somebody Fresh customers that Fresh. and to really they find what decides are most strategy level, shop. are why to where important our our what experience seeing our working really And doing is teams improvement. they're they're go-to-market And to us As next we telling with the it's is

reasonable environment going our win Those important Fresh where things to when is rewards the the in spreads component. matter, And we price to you marketplace. good one and it, imaginable look forward. sure So at go-to-market strategy. to in with that's program, just that maintain we in think at we our we're expect be things that We're going always make to that and going every our we're continue rewards fuel

than we customer to where continually So things to it's think me, it's check. it's always important the on total alone. it's rather we price focused one But of those that remember experience important, we're

Simeon Gutman

Okay, you. there. thanks. Thank I’ll it leave

Rodney McMullen

Okay, thanks Simeon.

Operator

Thank you.

is now open. your of Hanus Spencer from comes question Wolfe line Research. next Spencer, Our

Spencer Hanus

the more in sequentially? adjusted quarter, the but on going slowed Good in like margins more that the said your invest well some consumer that price second you're think inflation up pressure? color pick Can see as just looks because in further under provide half we And you you are positioned, it gross do gets price sort to gaps morning. of FIFO then you to need and

Gary Millerchip

question. that, the in and rate I'll for can Yes, he'd cover any margin thanks Rodney add the Generally, gross with like for line color Yes, our was to. additional quarter. our expectations

be. rest we you had quarter, I major wasn't the heard Rodney going I expected we we As mentioned the comments, with us investing supply were what sort investments our around comments our thinking to year. during prepared to think write-off. should in the the investors to was about, also expected like material we during value in two as line the which chain year. share we really for for factor be in the be right -- enough and a feel of customer of that fully Overall, That his we headwinds we in PPE be called expectations in that inventory something out know is the

price gross guidance think we supply the year for shared the in would be we during our made and investments that I year headwind we the believe chain. as original a margin in

a and expected. this tailwind been in out The and quarter puts tailwind out have a we all been COVID don't have quarter vaccines the played year. would We last as like year, that first takes largely the wouldn't things call

rest additional overall, And I'll a is with we're pieces year. of in We're you to and one the how the about the for call maybe sort it's previously, around So we for gross that floating lot that wouldn't there's rest do as not for I we because year. just the a margin pointing the give moving I've think was our in seen also changed. try But factor year. we out the the certainly, felt strategy, know guidance call piece the started parts we something extra That's of looks in moving was, rest so very with outlook and what very the a add we've a hasn't confident kind think major and in the there. how of change question consistent flavor think parts. I line we the the be for of of quarter of before much color, of communicated outlook

it for some going think $XXX think will about million as in $XXX for spread mentioned the of LIFO fuel half, and in be than my the quarters. you prepared prior the margins headwind higher to of the comments, expect of a about million factors directionally I than think million year but four is the and across to the bear year year maybe a well. higher when about second $XX be I mind rest as or that headwind We do so budget

overall obviously cycle terms year year. XXXX, our be some that of So from about on I think outlook. won't of is that have generally second are the there are to but And are those something unique quarter things in is it financial this that with more half influence our rest But the of that headwinds track right going the plan. underlying you will we trends of to feel the in we shared in during our factors perspective, the there

Rodney McMullen

incredible And other is, I think this trying customer budget, like important. as are of where it's invest environment some reasons the those always counts as of in reasons of cost The savings job why look will thing it's I we an always important gross our OG&A we of costs. customer's especially well. some think those an the extend OG&A to improved OG&A in have did teams obviously, light managing remember well. our And And to always our margin at in

Gary Millerchip

Thanks, Spencer.

Spencer Hanus

you. Thank helpful. that’s it, Got

Operator

you. Thank

Barclays. open. question next Our comes line your Karen from now of Karen, is Short

Karen Short

your first your much. I’d very of tie on can is all couple just and actual had comp. thanks I kind versus of -- one. the into volume Hi, But they a questions,

So is you at know we and is. XQ to CPI look what your where as know guidance, we implied guidance XQ your

be your demand if that? so back guide, full specifically perspective, talk it could certainly can FIFO about and on XQ. you tonnage XX%. X% destruction at guide from And is a profit So profit about up for the for where you'll wondering, into number quarter It XQ we which that to around this on looks like volume you implies obviously, then were operating operating down versus

those you if wondering So two? could triangulate

Gary Millerchip

we to expected the I year inflation sort we Yes, out. and rest don't would moment course, Karen. are is the that, originally outlook we of of for mentioned part original guidance. overall when I multiple play be at be, important, like are as year, is of a than of for expect inflation look first we perfect and think that of the provided think, There that of remember scenarios going the trying figure have thanks, the a ago, that question entered do to rest the we Sure, it our the higher our guidance could I ball, said all out. it's crystal to Having XXXX us for

compared more I half year, the think inflation year. last as start inflation, first think about X% well our absolute scenario of remain half central in of number we of inflation increase we the year will actually moderated that second annual to last in may a in a to half the see is the though higher. second But cycle we

couple the the assuming of currently in we're a year. than or points half half so the headline as a maybe of rate second So lower inflation percentage first

units we momentum about because we see our So of the sales -- that our guidance, assuming inflation. way in are you thinking if we're we're think actually some about

ago, mentioned new flat the from slightly of that view, been report, of I you that our about as midpoint will be able our kind kind internally outcome into of for operating the different based that and that account at a profit then an takes year, impact our way the perspective, could year, few really all think overall we to range points different the at look EPS data results it Now outcome And guidance, be rest both is we externally. which moments on assumption to the that we've of if look the we from of down. high-level think and the the of the overall but rest of course, would

that budget will as year. impact been have of quarter, would would the ago, mentioned that, year. in headwind first major LIFO as be having for the about will actually versus on be be a both the messages key and in really whereas the tailwind think I it think I a I rest moment a mentioned, versus a And charge the prior the, fuel

So we as when you at the momentum we in supermarket think that of build driving relative on the those really business around robust momentum, the on of of sort year. what are expected in track would continuing the of to first terms carry and that other the forward and have of being it’s of year-over-year of look quarter factors lack rest to growth the sort relatively

Karen Short

As vaccine well headwind, the as correct?

Gary Millerchip

and first any in in quarter. a in QX. But would was a quarter what being wouldn't been QX factor that probably would and QX factor factor have headwind again, headwind Vaccine on I that so the a then as of as be also bigger it -- a think probably major

gross the the first vaccine other on in factors. of of margin impact the and based quarter performance being quarters think remaining expectation different the year I the that we So wouldn't dramatically in of as saw

Karen Short

thank you. Okay,

Rodney McMullen

Thanks, Karen.

Operator

you. Thank

Our Rupesh, now next question Oppenheimer & from comes Co. is from line Parikh open. Rupesh your

Rupesh Parikh

my Good Thanks taking for question. morning.

back to to want market So I go share. grocery just

it Just get category to if want that, to ID up general how are I headwinds, in grocery guess And like weaker had merchandise the performance? your category. markets so sounds wondering some sense held a the the of contributed maybe just that related to

Rodney McMullen

pretty overall, the -- look reflected We original year, to for the which If it continued where throughout you the was close improvement at expect be. guidance. in would share thought market much would we grocery it's

Your comment is merchandise correct. general on

identicals behavior Our pretty general would the general obviously, that the it there. And and there. of things And as up not their it spend the from merchandise, where service up shopping showing starting customers similar able being total, on were. to our as on merchant fresh savings and IDs without general to money be you at shows change some had well to households look in if obviously, -- merchandise, are

to So in year. go to we we on make progress expect improvements market as along are and share making continue would the overall

Rupesh Parikh

don't Great cadence that and line and housekeeping I comp intact know quarter updated just there? or if EPS any still gave question. on I know then may guidance, quarterly you the be views there's quick one is last

Gary Millerchip

yes. Sure,

would around year, predominantly last the would year, of the at sort relatively of that back be if on be sort at EPS three I it last the would you things, say, would think I guidance I consistent. look briefly, it for think Rupesh, quarters if flat Just of look down. slightly the the the to of side -- you I moment ago, mentioned cadence that, a the of

variance on few predicated better you the second in because I half higher a this I cycling dramatic inflation call any the terms at half to basis first second belief That's bit overall. basis, on out in three heightened points though quarters, a think think year X% little the half as year-over-year expect we last of lower we would first potentially levels. the we're year. And than about the that If a wouldn't be than to But perspective, continues would on the back that year-over-year then inflation sales mentioned, of half sales. a last of be next half

Rupesh Parikh

you. thank Great,

Rodney McMullen

Thanks, Rupesh.

Operator

you. Thank

next question of Our Wells is now Edward from open. comes your Edward, Fargo. line Kelly

Edward Kelly

good guys, hi morning. Yes,

Rodney McMullen

morning. Good

Edward Kelly

better about, I'm thought backdrop, down are as think you're type right, the the go I were And I quarter, be agree go this to think the sort at in want – investors on unit I of back on looking ID underlying when I just that inflation. Rodney, tonnage the Thanks. that wanted would think we to question given and probably of kind saw would to all, side, we all back your we on question trends curious we volume. seeing behavior, And when side? that's channel seeing you stuff? changes basket like is in just whether And are of to you that of is you tonnage? seeking that consumer on caused curious value, then sort shifting, by like that being that what seeing kind talked you as despite I you right underlying I'm so of I what said to heard that in anything to

Rodney McMullen

Yes.

as look basket on we're they're items each basket. customers units the driven before, is and that's buying coming by were And that's on shop but month If more people we're their packs, We're when when seeing. are budget that what -- especially bigger depending especially sensitive to on buying as customers money. many you upscaling not earlier getting what with, in frequently per size, finding customers, the aren't seeing or in also

dynamics. both those we So see continue to of

that? there most at where If know -- would unit of overall look units, to you in partners, look in we you to up Gary, pulling the we Fresh look -- don't know, pretty be changes than you you're similar I tracking the overall. be better their trends are the to anything at marketplace some... if add at the the The for CPG if overall I -- And want would departments, top-XX. our you

Gary Millerchip

think I Well, to the is total the we maybe that of actually the down. are basket size just in that basket Yes. clarify units it’s number based comment made, on

even around look inflation our up. current as rewards I are to start think And our to maybe I we Rodney we that's look continue the that front. basket, as up, focus at area the on the expectation if half at to not expect remaining customers personalization to households data is as turned you but if So levels, that mentioned, mentioned, items for be, we manage metrics, and aim at in our our use are are overall then would though that really as in sustained our progress basket drive continue item basis, behavior us on is guidance tools a size make up, have the inflationary different of that year-over-year assumption, and obviously to loyal adopting the as households a up, positive, second reflects to visits number environment, they quite guidance as high

Edward Kelly

follow-up. Okay quick just a and then

gross you to Just were the I of multiyear? or of mean you rest said QX. Did to did sort about you curious year-over-year there. for be trend that to expected what the you the margin year think that kind talking as the similar of decline mean you

Gary Millerchip

Yes. Rodney and I of business wouldn't because guidance want specific the the try we to and do manage mentioned dynamically. get comment into that

I the about you think rate. be was really think was to we're margin QX, was somehow some was gross I'm I reversed terms need seeing trend the of really would that and out Ed, saying, current I when to that there that the be saying it was concern think what in write-down PPE that year, specific

the significant was as And the past. headwind. in again we be the to it takes. as wouldn't mentioned, is year that shared But year number guidance clearly I margin the volatility we've didn't we So I be expected at current in we last really and one but seen gross PPE think in a of the expect major the to the didn't as beginning it we of it a as I of quarter, the called not puts a quarter, factor. because to see first mention out want We

it which I what gave kind with And related when that's the of year. gross we of was so shared to think, margin, is, the for consistent our we directional QX guidance was shape

Edward Kelly

Okay, thank you.

Rodney McMullen

Ed. Thanks,

Operator

you. Thank

from Montani Michael open. question Our Evercore. comes next your from Michael, line is now

Michael Montani

Hi, questions. for taking good the morning. Thanks

wanted at calendarized. up quarter a given off, your merch we little it to the those but it pass just gen first to for so through ahead is looks to your about about way two the looking maybe given adjusted you ask have to like levels? of right that wanted what consumer was a if just of below, it's PPI to And been might that point bit, home food at or much kind think see, Just inflation, double-digits mix able that, is

Rodney McMullen

their because customers way terms bit details about think -- the we you PPI changing have and Yes. important a look why reason I at a than little it's shared of also more they Brands to shop. always in are And own Our behavior doing it's CPI the normal together.

Brand cost So Our and if $X you think $X.X item a might may national about, some $X. brand in cases, or be

item, our or gross to our XXX higher. cause would the look inflation at high Our look national points margin actually at Brands think about is similar And you brand. overall, it's in cases, better many also marketplace. and profit than in if you basis to be per on -- up remind show not I the when as would that rate what's important that people it's So as

some those because would things, directional in as to just And pork, but changing. compare you able look look behavior to if at general customers' numbers is be So specifics me, to I not at as like because directly during example. a quarter pork aggressively not the much buying and an it's great of as an at movement moved for was beef as the of that example, customers money, the expense value to people

So helpful you it's lot exactly. directionally, have of all within but a you think but the have changes, customer -- not I data, behavior

Michael Montani

plus kind if $X Okay. And highs. be that of might it throughout just the if evenly inflationary around to billion I year and how kind transportation you was the in could, follow-up, I of course of wages might gross compare pressures be would record of was then for out wondering at the metered savings. a just diesel cost seeing with and/or

Gary Millerchip

billion initiatives. The certainly of of an $X savings Yes. flow of ongoing would sort be

initiatives through, about certainly this number and of benefits from being of So we're think flow it sort that certain then -- consistently from building year so got as we've introducing last year. new a

efficiencies five-year on and implemented $X we're drive to savings. journey business much the billion that being of are of because this flow savings, of So it's in a continual initiatives new very those

general it So as the terms of consistently being throughout year. think I'd certainly in fairly

Now we there and in puts number to takes of hourly are a continue and of invest in lines average course, rates.

from benefit mentioned a lower the contributions quarter. was we the in there first think I first quarter, during pension

as that So being for to for the we year, continue the in expect and but saw improvement improvement the we in think see rate being year. do tailwind rate OG&A of an year I to wouldn't typical QX the a OG&A

Rodney McMullen

Thanks, Michael.

Michael Montani

you. Thank

Operator

you. Thank

open. comes your line Lasser next of Michael Our now UBS. is from question Michael,

Michael Lasser

a Thanks taking my morning. Good of question. lot

Rodney McMullen

morning. Good

Michael Lasser

the have share improvement? high were up that food in In comment Nielsen X%. a Good the Rodney, mass drive to do market will and next that X% your perception that and made been comping period. quarters. double it that digits, expect expect the out couple in were you quarter Kroger a merchants lost you up market call leverage you perception improve during And would improving there, Why The there's categories the key? was single, of morning. up, light What share of trends your that the

Rodney McMullen

Yes.

of end the by those don't of all a know at out look, for part difficult And competitors. some you it's merchandise be some of and always category. our break traditional the competitors quarters to as so not time general business And I know some is big If of our specific of bigger exactly comparison. much box obviously, a I as little us, competitors, different

during If at went during improved quarter, you quarter. as look the the our along we trends

trends our improved mentioned, and also total, our visits increased as went Gary household household our up in count up, As our loyal count increased went and well.

those we're So terms that is headed the things confidence in direction and are continuing the right the doing things direction. the give we're that us to of move in

Gary Millerchip

would the that also thing around morning The announcement maybe Boost the growth other of the this announcement growth across and we comments Michael, momentum that Rodney in is centers, an add, I will digital in made, only Yes. launching we well. as seeing important feel Rodney, about company, that component of starting the exciting with future the the we're the the investments fulfillment be to digital -- customer shared that making that expectation the in whole build we're membership

Michael Lasser

also they is at over couple pressure to next a is economic across them push the quarters, at that I perception perception be a their just clarifying that to the And question a the further. push lowest broader little budget stretch that going is stores, the the Dollar add demographic, to increase. of that might people those shop of may that. Clubs, where quick Warehouse able might if to at more more shop pressure The And could on swath consumers, income not

So Kroger sizes customers to change going is price, what invest its profitability more to could prevent going actions to in impact and that pack need response to from elsewhere? do, that, in other

Gary Millerchip

the we place I Kroger, our quarter but strength tend value Private as mentioned that we Thanks, as for and maybe a that's during challenged to actually see briefly an compared that as described ingredients get it strong even the customer at times Kroger we number with more brand economically you them, a Michael. see high-quality own think more Selection we stressed, those views in Solutions. actually what less and stores Yes, the to opportunity because saw larger see to of some and home, in shopping for value of performance. also cooking Meal Rodney is

opportunity the customer. start that for see that we us and They determine maybe shop for as to quality to really connect places an with best combined. to So value

Rodney McMullen

Michael. Thanks,

Michael Lasser

and good you Thank luck.

Operator

Thank you.

from is comes your question McShane of next Goldman line now Kate Kate, Our open. Sachs.

Kate McShane

wondered those could taking inflation your morning. little the able have especially Have if Hi, in with about regards thanks. of inflation? light with you our the And like the you competitors are currently, will push bit some suggested? for partners going talk how Thanks ongoing Good I of some aggressive cost vendor back to half. to conversations second in your to a more question. you of be been conversations getting

Rodney McMullen

we're to great understand change. whenever and say to that -- that figure increase is going reduce of together we're we true on increases technology, identifying any together justified we we're on to an both values we're somebody work using dialogue. also a progress many I going raise we understand work push Our to making always It's and our to on cost technologies combined overall cases, versus area to ongoing we not how areas so the out cost partnership way that we back like relationship. costs It's where that Brands In can out make And to costs the an also try of with partners, have in wanting strong obviously, to sure can. our type try a to backhauls having to would margins. just component, that's of and we so one by as reduce such can databases CPG take

say doing it's of team. think are answer competition difficult or how to our procurement competitors? proud we a I'm super I versus

a earlier, is the both Gary mentioned renegotiating resell saves of not for cost both. big component As things and one on resell

when difficult are, an it's obviously, dialogue have ongoing where feel good we So a but about dialogue it's you and inflation. such we little more high

Kate McShane

that? just three Thank there metrics more regards was there but cited, a and regions? also higher timing to you to the was if test could comp from Boost rollout, just retention other you I of lift And those know unrelated impact any and the with an follow-up I the regards in are Boost details ask there quarter during with

Rodney McMullen

Yes.

that's us look at thing test stickier causes important it our most delivery. is to our it not affect overall be ecosystem, the you would that and regions, positively customer just on If the to to identicals

that So want -- to thinks a is Kroger. if we and strategy our customer think them food,

the Thanks, feel continued good we in we Kate. So are it's direction. about and right where

Operator

you. Thank

Our is your final question for from Northcoast today comes from Chuck Cerankosky open. Research. Chuck, now line

Chuck Cerankosky

Good morning everyone.

Rodney McMullen

Good morning.

Chuck Cerankosky

you could shed some going it Rodney, new the components don't is how the they spokes? coming of reflects because think what's is negative overall. performing? your about the sales, how CFCs is from Ocado-based were that, are with X% - and you light the talk I where and Can So on on the down eCommerce number facilities

Rodney McMullen

thanks Yes, Chuck.

comfortable, as customers, have decline. as I that than look stores they at, be back the -- the would they into what we're the is retention retention get we If Pickup what rate the better where finding overall move you biggest rate. is area And and would mentioned,

look on in the our turned you the you performance is they're and to actually the repeat continue the very for the year-on-year has rate continuing recent scores NPS direction. at sheds positive. in to The If retention end sheds, on the of quarter outstanding. And strong purchase and move online if right to towards rate weeks, look the few be

the because first be were cycling strong back quarter neighborhood. early pretty was the numbers would we thought moved it positive some So the in trend to the where has and we similar quarter into

Chuck. thanks, So

Chuck Cerankosky

a trying And that in to quarter, forward Kroger capital dollars available? then reflect working does aggressive more -- the stuff is just grab you in when are of or on lot buying it's increase the fact during on inflation or getting simply spent

Gary Millerchip

Chuck. there, a on for continue Hi, I think plan optimize there's just been capital. Yes, number a briefly in years overall to to factors of of different we've couple working a

our that. very on cash So We're of flow dramatic wouldn't because improvements and continuing there in a say drive seen have tailwinds change to I strategy. it's good focused in

in will in-stock back chain be supply sort have starting This increase impacted from the well, pre-COVID us Part would that that of we to as to as improves. to the continue but it's do towards that quarter, seen of would inventory. but make sure of and also levels the sell-through think concerning to important we have perspective, And be get Nothing improve an to supply of ordinary. nothing number we out a course, chain. would do inflation we're

Chuck Cerankosky

you. Thank

Rodney McMullen

incredibly Gary. Leading for proud Thanks, you, with today. with -- us our strategy. Chuck to focus Fresh and Thank way in everyone XXXX, are I Digital am we and a for Thank of with beginning joining Accelerating you the on continued

As always, our I'd comments to listening like share few with a associates in.

First, you. have challenging and several us of obviously, been The thank on past weighed years all differently.

we well-being of in why of from sessions should through counseling a to each us us no one While offer of please we way, leaders and to foster each to resources, unique we tools time systems support don't, react I place the of help. That's ensure need in-person and virtual alone. struggle have our have a to assistant, take for variety environment. ask supportive encourage to if help a others we would in

do for you every our customers you you We our Thank thank for what advocates and you best what other. each need. know everything are truly for what you and for Thank we for for day you us all today, do earnings first and of your that do amazing do. every day. for call. concludes that day Thanks our work the again our quarter by you every joining I'm inspired week single communities

Operator

joining for today's you call. Thank

disconnect. You may now

The Kroger Co. (KR) 16 Jun 222022 Q1 Earnings call transcript