- Earnings call transcript Q3 2022

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Operator

Good morning and welcome to the Kroger Co.

Third Quarter 2022 Earnings Conference Call. My name is Nadia and I will be coordinating the call today. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rob Quast, Senior Director, Investor Relations. ahead. go Please

Rob Quast

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

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

Rodney McMullen

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

pleased strategy announce results, of We accelerating strong are digital. our to another leading by and powered of quarter with with fresh

a experience, compromise fresh delivering customer and create anytime, seamless selection on quality, zero continue anywhere or food to with Our convenience. associates affordable

holiday clear remains our mind customers our continuing for Our friendly for fresh consistently the customers full, entering of fourth busy deliver and company. associates’ the quarter and incredible dedication to top season. we that are we our means for momentum is have experience and inflation It throughout a

out. on to a cooking home dining food are helping stretch affordable less we budgets Research without customers engage Brands providing still food. customers quality. as are way compromising shows Our and with expensive more is Xx at than Xx And on seeing our laser by to fresh focused We their

same we shopping quarter, the the year. observed many we of trends During throughout continue the to see

higher to continuing cooking to customers Brands products, learned the pandemic. downloading digital addition their In Our at and engagement home coupons during redeeming with skills and showcase are

products our are choices, navigate our value of customer-focused quality personalized current the is and promotions environment of the helping of breadth fresh approach customers working. Our and

drives We overall our continue volume. and to see portion growth loyal a of which growth, significant household meaningful household sales

We to America’s serve are proud especially season. as during holiday grocer, the

customers’ are memories plan our of customers we meal and time family perfect forward today’s against to most Brands, lasting a we friends a our quality action matters Thanksgiving Our bringing memories. to Thanksgiving of committed brand’s family $X customers. Fresh ecosystem. is ingredients our great create made remains little took customers a providing amazing example was This of on empower At when memorable environment as to our food to do for just one We As by and our customers introduced XX% celebration on our our come look freshest told that the an have favorites we us create a tables. cherished price affordable personalization enjoyable of important together, their to everyone. our when consistently as an enjoy they how person. Thanksgiving create and due at could sure cutback all for go-to-market to the strategy, and executing To customers build inflation, focused to easy and with we it products to for products seamless Fresh, in we guide to that,

grounded in fresher, products for keeping longer. Fresh Our is strategy Everyone

identical we transforming the have certified a store sales At we total of these sales. of is initiative locations, and efforts. end stores. Fresh X,XXX higher three, At end-to-end Our these quarter fresh see

impressive With the results, rollout we continue nationwide. these initiative to

As we part operations. continue where invest to is supply and our enhance end-to-end of fresh our chain, initiative

fleet product science and our to for more our improving maximize We freshness productivity our and we are movement using customers. are by maximizing importantly, controlling data across our Most network.

Beyond program, products fresh we to more Fresh bringing our our end-to-end are customers.

Home our plant-based new with needs Kroger’s also across and of helped During Chef bring Chef continues exciting the ready-to-cook meal to to the launched be exceptional healthy and an nutritious how quarter, They to dieticians new mergers of new country. history customers’ launch in-house changing meals. Home capabilities Kroger’s meet our example collaborated simple kits.

Turning products our led in at continue overall was portfolio, which identical delivered to and high-quality Brands affordable with to outpaced our sales offers Our Selection that strong Customers another quarter we Private engage prices. Our growth by Kroger by Brands, This sales. Our with brands. identical Brands

products member pets. the by brand the of are loved family, Our every including

This quarter, pet cats. growth their in we tremendous brands to food families continue our saw and dogs as treat

they are know, like a family. you As the member of

opportunities meeting launching After products love. next of opening we We as products save rollout diversify personalization, households X customers on seen introduced regard quarter, on purchase every products expand our new Brands In million to last to continue they needs customers quarter. already the point to our our are Way to Smart brand have Smart quarter to These and several the Smart at are portfolio looking a Way products. budget products point. for price additional this and we plan Way price and Our

and programs personalized promotions loyalty allow them to do Our just that.

highly our the $XXX insights will than in coupon the offers. holidays is than more savings higher use driving targeted from data million products capabilities customer they develop to downloads, with engagement personalized This strategy expected XX% and customers digital love. anticipate leading interactions promotions with digital unique our continue We on last offer science know digital we through We to year. these realize to continue

products convenience. on we back-to-back on brings anywhere or digital experience by are selection Seamless, with led zero our delivery solutions. of fresh strong saw Moving Seamless compromise anytime, to improving that our quality, We customers quarters our growth

We and in-app flash our make app their for enabled with savings and for Pickup network, X-hour that all introduced in as lead always us hour Improving time enhancements lead launched of some we the and with engage our offers customer first X it to customers offers at Kroger experience to in customers This from areas. directly little our easier cart. times sales stores as clip digital quarter, is mind promotion. now our top pickup

initiatives, We geographies. our Kroger are digital and investing in delivery including existing growth in expanding network new

to most membership delivery We the are program. also our is affordable service. membership growing is growing Boost, and This our one-of-the-kind program foundational it industry’s

response rolled out pleased we incredibly are with this our year. Boost, We to customer earlier program nationwide as the

our as continue associates invest of strategy. our in part long-term We to

to enhanced our associates. eligibility lifelong We participants available rates to this earlier supporting family parents expanded we we to took for benefit time increasing commitments the benefits our XXX(k) In addition the to and by lead investing working in plan average hourly and plans. encourage continue steps our savings quarter, to company-sponsored

outstanding amazing this of to the for to Honorees, were driving Progressive with Grocer’s recognized and employer their work are We both customers. who celebrate our innovation our change We young were leaders serve. they XX organizations and GenNext quarter communities the for associates recognized excited commitment most recognized for within and

building honored the as of Associate [indiscernible] of and our as Commerce are momentum out Resource Latino the Hispanic we summary, U.S. Group we Chamber Additionally, Resource Employee by Group, close was the year. In the Year. Hispanic

that And customers season to high-quality that, with are most. to our affordable Gary prices excited the to allowing I items on We this fresh and it products customers turn results. Gary? matter will serve surprise holiday delight over at with cover to our financial

Gary Millerchip

our foundation for Thanks, of customers delivering good on strong results everyone. three. value morning Rodney was our and Kroger’s the focus in quarter relentless

the top resonating effectively especially Rodney our without growth consistent grew strategy same costs compared driven effective was These creation invest to of line results model proof associates, and in achieve customer pleased while for As customers increased We our strength to execution additional this yet Identical now quarter on ability with of by successfully balance revenue results. fuel investments increase to and last to earlier, and Adjusted quarter, This also our point our color to quarter of balancing mentioned our cost an is continued loyalty. managing management. provide disciplined growth. our will our was solid XX% the environments. sales we our EPS achieved as the shoppers in the value go-to-market quarter driving with the third provide another of $X.XX different approach and X.X%. I were in year. earnings results operate

in Our our this to Brands go-to-market quality periods these deeply differentiator to and outstanding XX.X%. is of with resonate continue customers sales inflation. The as strategy by and true offered important high an products during especially is Kroger grew value exclusive

delivery grew sales at greater during while shared represent a strategy the to Our we from includes third-party value delivery Delivery offering, and margin our products Now. quarter network Ocado, in powered platforms accretive XX% Kroger profitability, and our Brands March, Day convenience our pillar delivery by delivering Kroger also in customers. leading solutions up key Kroger Delivery for are with Digital year-over-year. grow solutions, stores Investor As and way, the our via XX% the

same while keeping and manage manage effectively budgets the product and Kroger team’s Gross also decreased last Our gross through was practices, customer engagement higher retention customers driving best-in-class excluding points FIFO are X rate, promoter year. reflected in period strong margin helping compared margin competitive. inflation result quarter. for to basis scores sales sourcing ability This Delivery new to net industry fuel, of leading rates. and cost XX.X% shrink their our prices the The

During basis prior fourth $XXX by by year. quarter This year inflation the in compared in during Kroger’s to by decrease grocery. rates items quarter, of was ago. still million same X we charge driven year. inflation inflation and cost general some offset investments as the our driven cycle recorded administrative see associates. to higher rate was period we sales and the excluding in of compared leverage million points, execution $XX LIFO product expect a and last from adjustment cost our initiatives, moderation operating primarily in partially to in fuel higher We saving OG&A a The decreased

without consecutive another and sales customer cost are savings. vaccine higher successful cost to continue from year and in to profitability expected from opportunities quarter, than experience delivering higher year $X fifth of a to impact deliver COVID We Health on track identify billion cycling of affecting the revenue ago. our the had Kroger business remove despite our

customers’ The would for of we our to operation, our our cost keep to we customers not as could customers to growth prescriptions. Express agreement continue medically Health prices in opportunities We for low that obtain Scripts required necessary below to our Kroger our of terminating Kroger inflationary period. Recently, during we as contract have accept Express committed this aim ensuring healthcare we XX. commercial announced team significant are December fill Scripts our prescriptions something remains and customers see

sales is these identical our contract fuel all excluded $XXX is related State million points. defend without was settlement for an the profit admission impacting charge. claims this XX to expect Kroger’s We to be the opioid a other of does sales This other Mexico not unique settlement and agreement impact FIFO our the adjusted circumstances not amount the other is with settlement continue Included New any based approximately to litigation a outcome proxy settlement New for of Mexico trial claims. wrongdoing nature termination quarter Kroger. can believe are to or view overall to defendants amount pending to merit this has respectively. on that many It Kroger strong the of opioid-related from without other that against we fourth about by the of decision fiscal is New from and non-recurring extrapolated set any that related basis results an of or reliable terms the This EPS. believe claims cases against with has is and Currently, and an or two Kroger level our reflect these to This should adjusted that Kroger’s situated liability also pending active the not charge operating of XXXX reduce This quarter our of related facts pre-tax Kroger exposure. results Kroger the or and or not of opioids. differently unique any Mexico. in vigorously EPS lawsuits claims operating of is Texas will on to and for and defenses cases. million Kroger will the in settlement the $XX scheduled in continues other by expected in West have Virginia and in quarter, is matters cases profit it for to by XXXX and

proud with a respect Our care both performed of pharmacy business in to we the of by and size smaller pharmacy operations market our have associates to share services and much customers. of outstanding and our are delivering opioids the the terms footprint critical in work

and profit our unique use month, retail added deliver The media. to are formats. Kroger’s channel suite measured Turning for of business quarter immersive build now by generated our finding fast on profits create Last this a Snapchat’s Snapchat which businesses, in welcoming solutions, the KPM custom draw media and precisely now optimize its are significant ability to capabilities to our supermarket growing that flywheel model. investment. part retail effect proprietary our data and a by to of to CPG alternative growth a able creation led on are was to portfolio. data to audiences return new Advertisers into brands traffic alternative value value key again continues ad

in our programmatic reach video connected TV. which and to important $X.XX was third the retail digital and will $X.XX The fuel last growth proposition Fuel capabilities per gallon same $X.XX for differentiator gallon Fuel same remained price provide during to are this sales, period the a rewards These is margin during KPM. versus outpaced fuel quarter led quarter their cents an our frontiers future expand exciting our in the advertising stretch have results quarter to its today new we an to been to a part our rewards one fresh We value was program average sectors, innovating and would full, executing and engagement year and high dollars the $X.XX marketplace associates key compared fastest inflation. of do XXXX. customers increased fuel and and for the overall growing without KPM include possible incredible customers. our our not of reported job continue recently to The delivering media who experience strategy in constantly friendly of opportunities a high help outstanding market. quarter our remains

incremental investing to XXXX, We have to employer so associates our our ensure by of average a hourly raised long Building committed in since $X.X over and investments are far an Kroger on investments X% of in have these XXXX. remains track rates choice. record of billion continuing we

the Vegas, labor than with UFCW Southern the Las ratified third we quarter, pharmacists associates new Wayne Fort covering During XX,XXX more in California, agreements for Chicago, in and Columbus, associates.

Toledo as new During have labor master for the and associates agreement. well Teamster’s Nashville fourth ratified as agreements we in quarter, also the

during Turning forward cash stocks particularly balances. the now affected This higher improving to increased to flow inventory of cash was flow was and and levels to liquidity, cost due quarter, predominantly inventory in by product inflation, pharmacy. buying in in pre-pandemic grocery,

improvement are our working fourth the expect our to is We see sales mix future an that inventory and comfortable support current would appropriate and of in during quarter. to expectations capital level

drive strategy business Regarding to see we the to capital expenditures, committed support go-to-market to investing our opportunities are and many to in growth. continue future

of billion for to $X.X higher FIFO of expect cash the I’d consistent flow year X.X% is continues in we build free confidence X.X%, XXXX. for our remainder and like our to $X.X our team’s color continue sales the fuel We on $X.X in XXXX. delayed in now capital expect us due to range the and to year net have identical expenditures of momentum share billion the without year operating As billion to business strategy raise go-to-market guidance. profit $X.XX billion guidance a diluted in shared assumes for again full adjusted to of full expect to In inventory our The supply last of additional billion to various lower effect million gives to and headwind charge XX% $XXX representing net over to The been $X.X the to charge. initiatives $X.X that of outlook year, to share approximately $XXX to This $X.XX, growth generate LIFO expenditures adjusted the LIFO the a of capital XXXX per constraints now XXXX. be represents XX% and we execution quarter, which $X.X full of earnings closing, over million of of year. Kroger billion

in the Our be third operating value strength model, results quarter has environments. to resilient and year-to-date which highlight creation different proven Kroger’s of

Looking guidance ahead, fourth to I’ll shareholder to during back call earnings And turn quarter and in we attractive sharing to remain forward sustainable March. Rodney. ability our in and deliver returns, XXXX now we look our confident total it detailed

Rodney McMullen

are shared the dedication and testament hard Thanks, you Gary. incredible The is associates. results to economic today we’ve of and a our with our of business model because customers strength made our in to possible This support all work agility environments.

open we brief the pending Albertsons. with our to me provide Before update questions, floor merger your let on a

in before on as will you merger continued consumer did starting know, As our our more investments can well the than experience to this policy do into communities that our Vivek opportunity and these I even for communities week. will prices to the customers, Subcommittee well and and X, associates I rights associates and testify alone. with Senate customer day stores customers commitments our us this our and the shared do and may in competition merger future. the senators our to Judiciary We allow fulfill either believe antitrust, lower had company

and We making planning as on progress we with expected all to our are our and continue early engage regulators. of stakeholders integration

We and early your XXXX. would your look that, to to with time. strategy. We you look forward performance questions that our the taking Gary do to on transaction our forward they our regulators and and on at With the our as I focus map not quarterly the ask are this progress close a questions. advancing transaction We have working substantial in road review update

Operator

go please ahead, [Operator of Instructions] ISI. your question to line today first our And go you. open. Michael, is Thank Evercore Montani Michael

Michael Montani

question. the taking for you Thank

quarter I be around ID just Just any there. inflation predominantly that on the the is understand into and/or it then guide you deceleration share was Scripts else sales note? had fronts. wanted wanted up appears follow a start One or to Express X%. to there two to that follow-up. fourth information? And anything up I the the to Can Was quarter could

Rodney McMullen

is Yes. Part ago. a I’ll year of Gary it it. and finish inflation cycling from let start just

We I’ll asset Gary, are that, a bit beginning the to into with ago. inflation little cycle get higher specific. let more you now a year

Gary Millerchip

is out to we’re your of just part one quarter the how with Michael, continued maybe trend in third the the to And quarter, consistent sorry, part – the with Rodney. question quarter fourth Thanks, there. of so has the consistent I’m continued fourth in early as performing performance in confirm,

Michael, the you them well think I other this inflation we is, piece is, do believe think higher XXXX. I yes, the quarter Rodney captured as final recycle of mentioned, in

well year-over-year how We expect food out. overall Scripts that impact during the then see to the ESI on have And factored January. we have And home in at will fourth termination we quarter. secondly, as that all growth some of for the impact in obviously, the contract Express the plays

you the So IDs I guiding overall, take think year. be kind guidance, of year between if our for X% final we’d full the quarter of X% and

Michael Montani

a the it in to it. then the fourth quarter. be down like on slightly just follow-up flat implications, could And looks Got those margin

So I us just you want with to evolving? could the any initiatives environment And understand that how there? do you cost competitive see then share

Rodney McMullen

the they are to obviously everything on that the been to the try to budget. households competitive pretty focused And are Relative to customers we doing and people how it to retailers environment, to we minimize things throughout use impact promotions the their our similar can love do. see we of directly continue they year. inflation personalized on individual all it’s to know help can stretch you best would because

I mentioned move as move is prepared find Brands, customers the Brands. to that’s the what the because we very high product And Our past, remarks, very, sticky to customers the there. in quality in continuing the to of seeing satisfaction and Our We’re also, when

find we out well. let long-term things in, as what than is Brands that So higher Our our is that, business good I’ll level normalized, when Gary, penetration With get you into. which of at even are getting come for a going

Gary Millerchip

Rodney. Yes. Thanks,

extra bits of color, quarter on of Just Michael, fourth you. a for the couple

EPS. quarter year-over-year you would it what be the for As lowest growth probably in we from a shared gathered for guidance,

a think there. to things I in bear mind few

we Last last the had will strongest growth the in during highest year. that growth all, cycling EPS be of from quarter ‘XX First we the year. year’s QX was

cycling So the higher we’re We’d be margins will during fuel fourth assume prior growth quarter. from flat year.

tailwind quarters. where, So no real EPS LIFO be you my recall year-over-year, million in there, million may mentioned headwind of the as again in couple in around know, prepared has us we $XX LIFO course, last that of of the will for remarks, $XXX as headwind or tailwind a calculations. last And fuel I because fourth finalize the when you quarter quarter only was fourth been

about gross and our I gross you be this XX quarters was when would investment, of you’ve flat. there four QX relatively I because EPS margin mind on think balance. the OG&A that we’re you So year in points rolling heard The and mention call flat, only OG&A other basis is keep guidance. quarter when somewhere basis points thing business our at about last XX me factors in bear look between relatively to and XX XX, was sort to might in would that previous similarly say leverage of margin cycling talk that

should but XX to that XX be also bit basis I of in QX, will XX well. the north points margin points expect to gross say be So north our a basis would as our XX leverage should little you probably investment of OG&A

Michael Montani

you. Thank

Rodney McMullen

Thanks, Michael.

Operator

Thank you.

Cerankosky line question Chuck next Our open. Chuck, ahead, to Research. is Northcoast your of goes go please

Chuck Cerankosky

Good morning, quarter. Nice everyone.

was than about managing better than which growth Gary, did categories merchandise. terms we’re bit was a And comment sales could which also, growth little total in that a talk sales lot on of the could you of you why in general If ex-fuel? growth, ex on inflation unit in identical worse fuel stronger

Rodney McMullen

Yes.

you also the true the as rest And division, general of be of that terms would organization at of the weaker definitely would Fred category terms categories, the the be the would merchandise. identified it In well. true in be one Meyer across

relative to do in to market. the continue categories well those We

expectations of managing job been where done sure the making have inventories great themselves. relative they Our to a have teams

categories have and is The that overall where cat mentioned, be continue have total issues to still supply be food, formula weaker some types we of would those of cold food, than would but categories well. the we both some have dog those some supply remedies, chain areas better, Gary like categories as chain baby to I getting continue disruptions. other supply chain of

With the on. go identicals, Gary,

Gary Millerchip

we’ve Yes. Thanks, Rodney. the – Thanks much Yes, at that, biggest the the may year, start for the Chuck. pretty of fact, all Chuck, be question, of we in shared of you in it, would that and made overall recall customer part really to isn’t the for our tie pharmacy in decision broader profitable business to stop specialty loyalty drugs dispensing our certain it it didn’t because business, us. business

adjust the made start decision that year, ID. that out we So we and of the our of at

it’s a identical it a but create like-for-like sales sales. total between So does and comparison, disconnect

as examples gross decisions helping One of make those we’re as we’re making sure to the actually business. well the is margin balance those optimizing of

Chuck Cerankosky

Thank you.

Rodney McMullen

Thanks, Chuck.

Operator

is Ed, please line the Wells Fargo. And of Ed goes ahead, question go to your you. Kelly Thank open. next

Ed Kelly

there dynamic consider a we have charge the gross forward. you I’d in margin Hi, margin? charge like ask some probably back. Or Presumably, think LIFO that terms morning, in a gross LIFO the priced. to assuming kind to Do going share is we’ve I’m earnings? about we margin of year, just just guess, still my Thanks when FIFO be is probably margin charge between the year? the the the gross – LIFO guys. back good get you inflation much seen, more, you this FIFO Gary, that of the and gross for to FIFO eases, the performance is this the charge taking can there when question. dynamic headwind. good. been needs about of is add there I eases sustain that mean I that next or curious, of to $X.XX FIFO LIFO And

Gary Millerchip

Yes. Thanks Ed. question, the for

year. detail heard I for full picture rather the it a the guidance of into we XXXX into of as we’d next because you mentioned think probably around put won’t get on call, context lot as

get lot next be moving will color when As bridge of you we might year. a to as imagine, parts March with we share of there you sort that to

I think of certainly, more be if though, I elements in about you what going themes. think are be talked that talk about some will you of XXXX, think factors to general the overall, as at when kind play about you key

I we think and focused think but that and to sourcing and margin feel overall, your effectively the some momentum our we model, answer proven costs mix continue time manage brands very accelerate I there I that good for we are improve to can are question innovation. in would our say to performance are of levers about over pull gross on to with and the fresh opportunities

to So there the we number ability believe and a would gross stability we that. manage we are to of longer-term that when balancing our margin areas look there at expect be

will come think play going a lot of specifically I that to into for think when there is as you year. you look at the parts factors about moving next year, next think I be

LIFO if last year. headwind your to in four million terms year, year-over-year started around $XXX quarter million as and in year’s You’re this because would which of inflated correct inflation a numbers rise be was also right normalizes $XXX certainly in inflation the last

If the a very try and you calculated is at specific estimate it even throughout year, remember, LIFO year. the week of charge we our though

think So etcetera, be at the look will analysts’ USDA, more we and that that in that year. of at of the would next of and happen forming views our of will believe still X% the get obviously, we looking we’re are would probably sort but can you in or share X.X% for reports to of sort external inflation, most we what that inflation so around earnings, with we that guidance we’re views as most when into year, we next

but color of the tend more sort data provide be we towards. to obviously of that’s we will most We on pointing what that where see believe,

Ed Kelly

that going there follow-up. how should that view whether been mean Okay. modeling kind that quick forward? peers in have talked of And be has – thinking a your we and margins the I of year? as you really industry about have then to just strong. some share just curious next Fuel been moderating I’m about

Gary Millerchip

Yes.

a obviously model very time, of I it margins again, think improving X element market. has think in fuel but pick in the for are bit generally, again, dangerous I And the have it’s shocks I I’ll had on maybe run. volatility that I margins years, think one a major been to because last good some next year. over the is broaden just little think in there do there

I think see to it’s cycled. being those hard

the So having you guidance year this next year, versus be at raised our obviously, that’s in in example – would headwind at to I earlier you LIFO, strong look I at look think fuel likely incentive think mentioned very another and expectations, looking be a we’re our plan, year for quarter. having a you again, us profitability. every our margins as But

of to get kind incentive you your payout. budgets of a normalized next the expected assuming plan So year, more

find ways as has We model. It improve as tailwinds the of X believe to and and continue We take for grow. journey potential us. efficiency costs our profit continue to in profits next supply been years, and to continues supply in are you out improve chain business know, year new to we chain leverage all alternative

out. to all again, of So you bridge parts. of I rather how to moving those think there is And than trying play a lot sort

lot puts that’s think and more of March obviously, balance to we going I next And looking a a to when sharing forward we’re to takes. year. color be get

Rodney McMullen

Yes.

that have things whole effort we to parts, a every to because reinvent business important business look model really sharing Gary’s overall and work at he has over the economic And a that’s team that ton of think you and look of me, do our the was highlight one years points make the we our Gary’s I sure lot business so of successful Ed. invested point and about it’s can forward. last Thanks, overall, as be when we’ve in model the moving model several environment.

Ed Kelly

Thank you.

Operator

And you. question to Thank of Capital. please ahead. goes Scott, next go the Mushkin RX Scott

line Your is open.

Scott Mushkin

for question. Thanks guys. taking my Hey,

to the do a market So to is the stabilized, thing share, bit. to the that? growing little first have guys wanted maybe to a answers I think leading you get thing Do some market I And even share. It you little so wanted agree? to first what bit – seems is you

Rodney McMullen

Yes.

are. of satisfied part trends feel that about are, to Fresh customer the for you and brands a where on we gets we key share, look driving with type continued market our its improve, shines we’re always obviously, good at when just household but is that And doing that. making household environment where relationship If not sure work we’re tougher. believe continue little to and the we the a We have then we experience a economic and personalization an

make then not continuing based really good working and do customers on a job we’re store just how And doing. on I things comment of it’s my friendliness. of us those So improving together tell doing, how that what to our teams opinion we’re

Scott Mushkin

more I And competitive is Thanks. bit some the kind retailers leak the to we of that abruptly we’ve is changed or mean you my necessarily heard do that into environment? question the mean, it’s seen? think Rodney. but industry, if started food as a in consumers something through little have Great. short-term. guys retailers, I then second somewhat some not you work And yes, fall. behave the

Rodney McMullen

great Yes. are customers, when food. are purchases changing they Scott. But changing. talk are It’s telling they on to And so far, a our than us we they other question,

So bit it’s and many to a little eat the food. so one It’s are restaurant out still gets Xx people prioritizing cheaper home more going they versus comments still of back learned made. It cook. to a Xx I have or – how to to at

more coupons we’ve business the I downloading smaller to than part really if of behavior some other our many behavior our of much and of That’s only seen outside much but offers. than So the with business, promotional our aggressive our the being digital you earlier on at look comment that’s movement and changes on brands competitors. our of in business made general a the our engaging

Scott Mushkin

And it environment the competitive has changed?

Rodney McMullen

It’s country, look it No. will the pretty been. see – – you what place and – what stages see all you in but know, you overall, it’s any we how as across to similar it’s is different

Scott Mushkin

it. Appreciate Thanks, guys.

Rodney McMullen

Scott. Thanks,

Operator

next to Guggenheim your question go Heinbockel John the ahead, please And Partners. goes of line you. is Thank open. John,

John Heinbockel

big households, don’t guys data, I about because about growth do picture you if X% in household with Rodney, if let’s or you’ve longer-term, here. to So say, going think right? you’re comp, got you start know, to So want I X% a – When think – for your growth deciles what? any when and comp you the and be that into dive is? comp right you your that? biggest with what about growth would And would with be there think then you of is way households opportunity do to How penetration where the

Rodney McMullen

Gary, X% build – And than around it’s will business you will fundamental completely year of years, and want. that. different our always you the that, X% always if than that. couple But we’ve I last then to color will longer-term, as that’s model inflation over be felt we any of inflation. look given where you Obviously, But be. different kind know, any start if add please long-term, you been

household As When a growth. define remarks, is, a moving our we with this growth engage right. household, and seamless loyal pick customer of in store we that that in customers time, store they household And that shop our it’s and us in my first what where we experience where combination really where higher the quarter, become was us are can in right loyal seeing it’s I as up earns direction. share that very shared we strong over been we find together get prepared a what deliver the

reason that Gary, would color we of understand. helpful spend something, And you think it’s any household get our talked for is was So and it. on that that tailwind lot know, a time. internally, should a grows, as about loyal growth and I our be it, there sales share over people we the that we And energy to a other be higher identical to

Gary Millerchip

I and I we John, well, guess our loyal customers I what as is add, to saw maybe extra loyal think only existing would as points, do Rodney. the X.X% it growth the think, really customers. couple in core grow covered I in you know, you strategy pleasing of was quarter

been and really curve relationship. deeply customers grow always So customers and move the strategy we’re that loyalty through to seeing carry the reward that’s

in are well. also are though we households we larger capacity and that creating the that what capability think seeing we grow starting I we to building attract investments with are digital is too as to of seamless a that number making are households are as now digital, Rodney mentioned,

couple it’s one we and value need what as quarter they last larger is that say, as we sensible the do, get well, thing and the maybe have not may loyal because Kroger maybe house, that seeing quality great responsible and too, on the consolidated and number consolidation with think basket shopped are their as the before Kroger of would great of inflation. to a of the trips budget of happen. total that’s more seen adjust their right thing during has more that a the I retailers is affluent quarters see But a feel we to I saw to as customer they they place that at

John Heinbockel

more And thing. just quick one

the as there, know margin the are. performance grant, how and I year? as guide don’t about raised do of sort of new profitability not next ‘XX, the now up of to anything good quite the right look bad When about each comes of from that guys is against in sustainable and this beyond terms the that wondering maybe this work how off goes in EBIT level you are what dollars and much high-Xs. conceptually, the Just think you other. P&L have that year is that bit I at you is kind want How am what but representative of the right? up year, was You a talk you guys in

Rodney McMullen

we do as us, know, the model for on that we we can dollars our is – to at what of as what strategy would continuing can by dollars. connects manage that only the our would we Kroger, we we find way a same growing things benefit. and managing fund the offer and that better reduce is, time right, that. And over still be that give creates the able and in associates with long-term. business allows have and customers. John, communities. expect to areas Fundamentally, afford And that We support to to and that well costs still shareholders sustainable us really always sustainable view invest waste our the customers And is we we is so the to continue you capacity that three and business find to identify you look our that when because more those that that do we can our

try way long that’s way everything of it do, sure a obviously, we make So, we I look at periods to would are sustainable know broad picture, things. that’s what And the time. we we do, with in we doing

John Heinbockel

Okay. Thank you.

Rodney McMullen

Thanks John.

Operator

B. next JPMorgan Kenneth, you. go Thank goes Goldman ahead. to Kenneth And the Chase. please of question

open. is line Your

Kenneth Goldman

Moskow growth Hi. just from that reasonable list a how what have sort us been am on second Thank not that row And it’s of the be it middle to would the impact in at curious only about potential to your be the the you affects though, is guidance. not feel curious, you you of quarter way curious lowered out in if anything like. you. point concerned, being am I – for a to I company my quarter, just you at initial. are It’s near-term aware but CapEx that it that. expand important the pressure. able all? as to have in clear understand I I last your Rob why pointed am not

Gary Millerchip

Yes. Thanks Ken.

re-introduce very be we value horizon at believe have that company think don’t year. to large supply future in to projects, that the going just year, for the are looked growth I we the this a there are still stores, we projects it’s for us, when costs expectations it’s sense really just more completed where and when for the about. will for last those We number For the a longer we makes playing of are that the pause something the or from just believe obviously support some on chain the costs some it rational. whether get CapEx in of taking rest plans But of generating or ambitious time some period And it’s plans. our have concerned year, are did of there them where significant to catch-up be and we

our on major growth don’t impact as at a it our perspective, So, having model. look we from

As of billion we year. to at of spend billion you a $X.X were that kind know, sort of historically CapEx $X.X

be billion, our we long-term, to where directionally TSR still that’s $X.X the moved range. have sort being top be to I And of model. to We pushing would of it want target up end to say would probably our

be the it’s XXXX, – get taking to don’t be can but it’s growth of thought do certain with it that based algorithm. will to about projects support things investing a opportunities have going believe see of now long still important we So, supply it to and some was our have a in we into on availability we just it’s business, projects plenty growth, we how today concern but impacting to think blend we completed that with those

Kenneth Goldman

obviously the of of I Got the it. Thank But you. form just there I such part ask much And is ahead investors to big then a I very about here. separate curious, request Rodney, am sort to your a plan to of about respect transaction. kind us ask story it. won’t a updates have not give because it’s for from on

think a I vacuum hole black don’t news. or of a want people

trying progress? let to flow know is kind just sense of us you kind quarter what’s and will of kind from Is And plan just am that have So, Q&A a to then what news just it it. on curious we of that. of that’s new update the each won’t during around I am get any here. investors I

Rodney McMullen

it foreseeable it what quarters. would a we and And helpful were But likelihood on something that’s what a context material, we of all always what and on go between be and would material, we wanted disclosure If the is was think share quarter, be something have do would transparent try great know, to what is are it wells ahead we obviously we that in to very manage this to if question, it updates quarterly it’s going there basis. something And it’s include in new, to that for that’s would in just future it is Yes, our Ken. was way. do. we shared. to a we in reversed, someone But try what if the

us appreciate to free you to feel So we right obviously, feel give – feedback the feedback. and when because that doesn’t

Kenneth Goldman

prefect. That’s

Rodney McMullen

Thanks Ken.

Operator

Lasser Michael go Thank Michael, UBS. you. ahead. question And please next goes the of to

open. is line Your

Michael Lasser

consumer from morning. ‘XX, for competitors the gain to share be being see merger my is consumable of and there potential disinflation it Thanks the make be to going sector and given competitive times, gross under and Rodney, your grocery going pressure have why given Good to more lot price this is try the to than wouldn’t the more some disinflation that it in XXXX retailers distraction price to is are in investments a where question. into could be environment going LIFO uncertainty who competition will want margin at easier there taking of is the inflation. benefit Albertsons? is with Many there when be going an to

Rodney McMullen

back Yes. to overall. It gets really

is understand fresh with a the component going customer that more connect in think competitive. of market the ways, that. to is to get over critical and fundamentally multiple assume time, incredibly important I it’s We we

We that years. have for XX done

we personalizing experience And very the promotion even what supporting environment. We friendly connecting aggressive fresh then support and are in associates and education, will full to customer. And every we supporting in way we and additional mental able today’s customer experiences, the pay, have the personalizing and so can, reason found continue put on then environment do and health that’s we having continue with much the from why energy any by to support a and investment good in our on especially in ways prices experience, that.

we of center growth fresh have then store in than you the things center And when and businesses margin supports larger some that as in margins of would our alternative profit have continue which expect to store. look those departments, better gross the higher what margins One at businesses our also be.

those to at the – those it’s we you all we that feel over at really and good us, business at So, for our company. of look and continue and things about really grow together to time, develop model look things have

Michael Lasser

right previously X% be is desire that to food are year. are – for raise from Understood. And home outlook or hearing What inflation now at about some into said the prices X.X% the you will XXXX. my follow-up inflation. question prognostications you Gary, next on of their there to your for vendor

If top to XXXX in from on Kroger then X.X% effect another of were And price experience how you inflation it you this X%, would wraparound raised what X.X% benefit you from when much would to of to the that? already not year? raise another X% to just have be here, meant

Rodney McMullen

couple can of make will the think and Gary, of I comments, about specifics. a Well, some you

be is our in slowing in at an look you clearly, down departments, inflation Chicken would many categories. example. If fresh

farmers I in to other categories their make high You the more improve. comment of when well. inflation always the some starting as are because margins high see And inflation that produce solves

at on look now, themselves, it’s mixed. you If kind right CPG companies of

willing also gained and are prices much find that, that give well. And up improves loyalty brand do we to when is customers our have really – companies share. Some as that the and what the higher and willing CPGs growth. And is we so stickiness of CPG strong, helps customer the budget it

what think Michael’s…? – statements you say, And else really parts. it’s you the they to don’t all anything add wrong. do I Gary, moving So, short all look have and always want to to at economics know, I are

Gary Millerchip

well, covered Rodney. it you I think Yes,

in think trajectory I some see seeing we as is fresh Michael, certainly mentioned, Rodney change on are that starting to inflation.

And were holding – being that that like, in Rodney the is at it’s of most of over creates where grocery grow true brands we as our moment. for as continue the opportunity to improve with stubborn said, think terms that’s to inflation an it if think time. you by us share category if then perspective, I without So, the cost and sort supported increases, in our from forward I margin look from

that’s So, about the it I think we think in way general.

Rodney McMullen

Michael. Thanks

Michael Lasser

great Thank Have a much. you holiday. very

Rodney McMullen

you. Thank

Operator

please Kelly Thank goes ahead. Kelly, the question next And Bania go of to you. BMO.

Your open. line is

Kelly Bania

Thanks from morning. Good questions. Kelly Hi. Bania our BMO. for taking

Rodney McMullen

Kelly. Good Hey morning.

Kelly Bania

Good morning.

on your coming as back fresh it a upside in think simple where the how bit talked curious you XXXX. understand Is I if those the quite about about the drove comp tonnage, about guess I initiative. half, this Just upside top inflation we however us tonnage Just volume of questions. us can – XXXX volume talk to here is a talk that, and often is about where relative or just versus the understand at am you of or we of tonnage, are helping us IDs help And the food the of that point? on stores? terms about And there industry you help it relative you way I then service levels you you understand from? much couple guess to the can think the side in or just

Rodney McMullen

I the a Gary, some color service health, talk you you there. share you will things the the then little food IDs on after – and on let finish about

Gary Millerchip

I Kelly, Great. prepared remarks mentioned it overall, Okay. we well. think as somewhat our in

our than QX. to levels. increase very versus level. inflation seen obviously have in X% would it But you heightened if trend We It’s to the narrowed in starting a quarter-over-quarter, at QX look still really down inflation our less I

that of of share ties was our about our lot versus remarks continued in defying seeing I were a in to and the we household also really pleased seeing from customers and we QX context, are and overall around that what ID sales customer that prepared the look shared performance more at some So, momentum growth that lower QX, some think when loyal our growth. wallet of Rodney we

the with around. customers. basket large piece think I to we been we first And continue that most perform winning really that’s pleased that the have with well So,

momentum pinning their have inflation has first decide see customers even with they and momentum. balance adjust really We continue have behavior strong kind with And how basket pleased we strong to how to as been there. as continued maintain continued to that overall to of our wrestle budgets,

Rodney McMullen

have where would food service, XXXX. volume be would On we in been Yes. above actually

trends at food call with to and a grow. it’s know than Chef For merged could It reason easy us, meal, because assemble. easy to to on easy other heat cook, great always thought was the food continue why look Home are we to had when we I up, great or never service its Chef quite own – we Home to strategically – what we it

could pit our felt also great and back We their example. mill further like we quality into meals improve Kroger to leverage an restaurant a be would capabilities

entrepreneurs and and at on we sandwiches with restaurant example. States all If in largest partner the the sushi you a look an as Obviously, local those that, lot things. United third-parties sushi, are we of

longer start our service say, So, as as you and growth, – and of we food to beyond, relative and having important leveraging at, term. important quality our delivery part But that’s or the growth not an out amazing easy so an see component of Kelly look meal as questions. much the for network an looking pickup is XXXX. being XXXX network Thanks you

Operator

you. Thank

of Our Rupesh, next Oppenheimer. please is Rupesh go ahead. question from Parikh

Your line is open.

Rupesh Parikh

Good on morning. leverage. our taking for just just Thanks one had OG&A I questions. question

very So, to by this minimal be on quarter there a strong driven was that and comp, leverage wage appears pressures.

terms to forward you you lower? guys be year, look whether you about crushers just this are point think juncture and next as how the could thinking So, in insight wage OG&A at any leverage of

Gary Millerchip

those benefit higher also during say on well for more Thanks managing little We story saw technology of color the is worth some – there lot a QX you and in and facing really that have a more the from as plan year-over-year certainly, are inflation a I quarter Rupesh. Hi understanding. would are a the great of think cost in right, well costs, there areas. improvements QX considering I leverage bit The would incentive that Yes. just higher that’s we team costs. as quarter. Maybe the little the had because to bit question. job we productivity did sales costs in

in We seeing growth investing in are of are number we that year-over-year. a areas

well. is expense we you there as in move because some that does growth. And the invested, QX of It to as capital cloud-based to to advisory and more consultants just help in some the future did flipping work as some from momentum also And activity. in build it change mix – operating we maybe

OG&A to productivity have that the we rate and would say good the the are seeing. and would increases leverage in than feel the was fund I we So, underlying quarter ability stronger hourly improvement about suggested, average

as number basis we we flat year be fairly year. rate In quarter fact, in in QX of into expect of a head leverage as I mentioned fourth next would as OG&A the north points XX QX, earlier, cycling this we the to are

Rodney McMullen

Rupesh. Thanks

Rupesh Parikh

Thank Great. you.

Operator

of next Robert you. question go Robert, question Thank Ohmes And America/Merrill final Lynch. S. Bank please is ahead. the our of to

line Your is open.

Kendall Toscano

number fourth on how quarter. inflation kind little What with any looked could and bit color would going items you seeing to those Hi. This traffic store? on if more just expecting to Thanks And during the in is wanted trips expect Kendall you question. my items you in taking the the I moderate on basket quarter, Toscano as a to Robbie. of I guess the are trends you forward? what for then, of give see for are

Rodney McMullen

Yes.

to moving the the in If trends overall in overall it and itself the right is continues look as at I earlier, our traffic, basket But be right heavily are continue you the driven direction. Obviously, mentioned by in direction to market improving. go inflation. trends share on

Gary, on last I part, the of don’t terms inflation? know, In

Gary Millerchip

we fairly way changing as mentioned, overall, we behavior, is to similar earlier, customer what at think looking improving, consistent, probably I think I as would the trips I have the generally say, are Rodney shared consolidate trip and are but shoppers year, traditionally the different from those trips have seeing in over different for to Kroger. loyal we seeing that higher categories shopped many retailers that now

in and think throughout quarter. that have we the year continue an the important is to accelerate seen I trend third

Rodney McMullen

think for us the I today. you point everyone, joining And thank great and a Gary, for questions. that’s thanks for Yes.

listening truly a year our associates of directly take like to which appreciate. the in the I is associates with we to we time do because always, always As share our time comments This that, so of shine. many few

tomorrow’s create today’s Our holiday opportunity to into customers special the our made for holiday film transform moments clear. memories. We

the to pleasure those from put kick to countless tear this a wonderful I my associates, all had our it can’t associates been. touching you in teams customers the And to we off reminding have getting it and hear how watch favorite happen. just share our former the most. without has to us with It’s eye. how know meals I memories holiday teams Thank of this who We about Thank for film make love way you is who special season. just together. a

loved our across Kroger all I prepare associates together of family we As ones, companies. with am so incredibly proud of the our

much Year ways and for uplift so call Christmas, you serve Merry accomplished this to for holiday year. today. the New you. and stay wish encourage each have Thank Happy many and Thank everyone We our our you customers communities our happy safe. a concludes other. season, This We you

Operator

Thank you. today’s Thank so concludes you joining. call. This much now for

your disconnect now may You lines.

The Kroger Co. (KR) 1 Dec 222022 Q3 Earnings call transcript