Earnings call transcript Q4 2022

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Operator

Good morning, and welcome to The Kroger Co. Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to Rob Quast, Senior Director of Investor Relations. Please go ahead.

Robinson Quast

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

page material many to may differ Kroger Before we will include assumes on can statements. ir.kroger.com. basis discussion This materially. effect which throughout actual to make statements to A you want We The events you have Gary filings. such the SEC today's these caution that We predictions, that a contained the presentation discussions our detailed call. update forward-looking accompany obligation be is information. you on remind found our as encourage we factors presentation at to are business begin, released Rodney believe an to Company will that or a that and web refer want references no on today, to materials we I and the our results our call of to morning, Relations can Investor ongoing in

we share During remarks, full will prepared our and fourth year our results. quarter

achieve Fresh last progress on will Investor share plans Investor merger with full you where our and expect has our XXXX, strategy. shareholder we synergies Day will look With Albertsons. maximize Accelerating for We to made detailed returning update Leading since team our to a Digital the on value how With from We and to year forward Day our we in

of question, of question we yourself you we cover order and topics remarks, please can, X limit as to In many X ask to as we our your broad look taking necessary. follow-up forward you that prepared if range questions. to from a After

the turn call now will over Rodney. to I

William McMullen

joining you, I Good thank future. how by start everyone, about sharing Rob. for am today. incredibly you optimistic morning, like us I'd Kroger's to and Thank

by our against Digital Accelerating is communities associates announcing Our Leading XXXX progress delivering and value our for our our customers, shareholders. at our have we Since Kroger for and Day, and commitments. With doing performance last strategy so, year our our consistently Fresh Investor tremendous made demonstrates creating With how

see are Rob fresh, selection seamless As X our quality, a the customers Slide affordable presentation we shopping mentioned, will from compromise X chart on deck delivering experience the and of or you for on with convenience. value,

we our goals We are associate model. significantly spirit strong wages returns creation human and And to financial uplifting through value strategy, past our communities. purpose the attractive our on years. our feed increasing total the delivered advancing financial our resilient and exceeded we are by shareholder commitments this With delivering X during

In XXXX, inflation preferences to uncertainty. in macroeconomic shifted and response customer

quarter looking for stretch home their at meal more fourth toward were spending customers affordable Our grew food home as ways in food The the from gravitated simply gap away customers that solutions and restaurants to provide. budget. more between can't

strong Our dining an households, our for at cooking wants, that customer-focused all million segments. loyalty. we by grew in further and our to growth illustrating as resiliency this proposition saw customer value model total and across customers especially households segment offer in enhanced household income higher X.X response our the We expensive strong leading deliver strong needs their results helped approach to customers, as is home our X less innovating to in research and and was there out. meet XXXX, nimble shows quickly And us Kroger Xx than

for our later. and specific financial XXXX a Gary outlook XXXX results into will details of get the little

a our strategy meaningful our of last our and superior center like fresh on delivering so, brands, how these the customer to consistently of more and XXXX. We and Before strategy how loyal experience. full, that experience. Kroger win customers attracts strategy we By new customer customers. pillar and is each personalization year deliver benefits foundation friendly At a benefits X seamless. provided measurable reviewing fresh, is and providing our and in will accelerate our go-to-market doing time by some pillars, go-to-market I'd customers spend those go-to-market of The

excellence all go-to-market XXXX strategy to X value economic as saw in believe demonstrate a -- improvements our proposition to We in perform we metrics. Kroger is value unique operational environments. in designed many continued customer creating

We will we to customer our invest continue the in the to pillars value differentiate experience and offer.

fresh. First, leading with

where experience. bring an how to even on are important influence shop, improving e-commerce we our stores fresher we As food constantly customers and

implemented innovating the solution, fresh freshness the stores Our XXXX, we product we on way changing deliver to improve increases continue more store fresh commitment total our end-to-end will than and In end-to-end drive are XXXX, customer satisfaction and our teams measurable pleased produce driving experience this success. fresh mix. initiative to both sales. the our incredibly X,XXX is with in and In

We continue inventory enhance strengthen and demand. of freshness to our our customer supply additional improve days to to management tools, chain deliver meet offerings

capabilities in-store in As meal restaurant a merger significant with solutions. brought quality and Home reminder, our Chef

home chef facilities meet growing customer our expanding be production will We to need. this

Our Brands margins. sales to improving driving The us portfolio Next, allows and exciting value at products Brands. while incremental great Our offer

full opening inflation quality of a customers' many we Brand's customers a To proposition our affecting value into is it Our lives. called across and Way. budget, point brands point meet easier of creating line simplifying the differentiation on is especially price for important when launched a and consolidating customers we while product needs several one, so new portfolio. the of making Smart are By

continue with Brands innovative to product more We categories offerings. Our will expanding

meals. customer products from find to Our staples to food every pantry love goal they restaurant to fresh help high-quality, is affordable ready-to-heat quality

move I'll Now personalization. to

best to best at science we time products personalized solutions know teams so to us easier. meet being to and right products our return, able the and are to consistently saving the science at customers their lives recommendations important customers value. to baskets them deliver the us trust their Our using needs. among and well, money offer we and provide their making our loyalty, most that were their on with them, at right and Because personalized reward the able serve time In predictive ranking offers customers start savings the data and

personalized as customers deeply more fuel coupons loyalty with engaged XXXX, we rewards. our grew In and

look As ways engagement all-time more hit during an coupon year. the for to digital save, customers high

paper That's combined other and digital products coupons they top need we offer. of customers our value on the want. than on save and promotions billion all our more helped $X.X Our everyday and

To provide our spend. overall we the Boost, most and membership industry's exceeding results even engagement are in July. more household with value, Early incremental launched nationwide expectations affordable

are with the data use We X to out during predict build next the real-time significant broaden including benefits its further additional XXXX, investments will personalization sales capabilities, needs, and of customer will increasing support we to create to make Boost appeal In customer value. which new years. evolving growth our

and our among significant Finally, turning is Seamless be growth Seamless. the next over a we in will it growing expect to several driver importance customers, years.

to that and seamless allowing We shopping X customers store, have a pickup a with built platform effortlessly delivery solutions. offers experience compromise, shift between digital

see permanent customers offers. online all large a behaviors on that you'll e-commerce trips As pandemic-related shopping, their routines, rapid fulfillment stores value shopping customer easing from shopping Slide daily incorporating stock dedicated positions recognizing XX, now to to of combination serve and online significant and up in delivery increase to convenience are of the in-stock and the shopping centers more Kroger into more led to Despite items orders. needed our on

a believe home continue We faster pace will double-digit X expect to and deliver sales food years. is to over well at than grow digital growth overall the at Kroger in next sales positioned

position digital to As X Kroger focused providing we a are we owned offer us key areas personalization that the most freshness on where deliver grocery destination, single, trusted will to We customers growth. by compelling online value, and experience. work online become exceptional start destination, we that in easy-to-use a

loyalty exceeding fulfillment, expectations for on we trust driving delivering Second, quality freshness. by are and focused best-in-class and

is to dedicated store conveniently the have unique pick fact that approach centers fulfillment delivery to efficiently a large we large our orders. Our designed close customers in located network large and

Our dedicated industry-leading delivery Net glove Scores. the the reliable experience, one-of-a-kind best white experience and provide Promoter in-stock fulfillment with highest on-time centers levels, most

spending are customers us entire our engaged more more delivery and shopping Kroger across often. with ecosystem, more

to through learn fulfillment with ahead, that delighting customer our our and well ensure a while positioned network to sustainable, growth Looking focus continue efficiencies we deliver are driving on will we profitability customers. to profitable

on adding occasions. shopping are more Next, focused and we customers new reaching

allows enhanced grow of Our orders and customers with place new we share will by to to network our also customers, service us. number of delivery us the offer wallet increasing

ecosystem like Kroger to network customers Solutions by Now experience makes our groceries fresh in seamless of as vast enabled essentials can stores XX Delivery shopping simple our customers. any This conveniently minutes. connect household little as and for located

last mile retail and fulfillment third-party goal, the our by are margins engaging growing to vendors with we profit building directly streams. our cost improving growing we lowering alternative Finally, digital demand serve profit digital media. of density and driving and costs, and To accomplish this flywheel our are our routing, reducing

let Now we profits. growth are accelerating share alternative how me through our in model

industry to well is brands a and billion U.S. is their a ability we business years, media in billion by technology the several new help is $XX achieving operating Marketing one in in last businesses alternative achieve retail the XXXX. makes enter media businesses invested return which is meaningfully business landscape, results profit our greater special investment. high-return profit What to Kroger our contribute These high-growth $X.X fastest-growing businesses. retail to our our During our businesses XXXX. and on and be projected media positioned win to within Precision of to heavily with transform

For for space KPM Institute, to maintaining the effectiveness. insights recognized and recognized testament closest the measurement emerging the the was landscape. to of strength a Purchase targeting of many by from feedback we and a leader the row, as networks media Path media was unique those leadership including fifth offerings a as its in and year product our collects retail capabilities, in accessing to in retail KPM leader the their which to bring a this capabilities, its

committed success, in are our enable associates and we theirs. Our investing to

a development holistic provide To we they tools at support Place We IT Kroger work choice, well-being. all inclusion for to year for third XXXX, Work a they was careers that employer the the In our disability their as of remain with place year. grow to want to need our named stages. associates for the consecutive fifth associates and in Best and an best

incremental We $X.X benefits. raised we now rates invested to wages average through billion and wages in has associates also since In and an X% XXXX, in our XXXX. comprehensive than more associate by continue our investments hourly support

Our average $XX than benefits. when is than $XX and hourly you include rate comprehensive more more now

associate in value we to in success just million We increasing is wages sustainably associates our demonstrate invest one way and than more to We that. investing are plan associates and their XXXX. respect in $XXX committed and

build and efforts is communities our progress free social seriously of Zero toward and Waste, Hunger The to impact | create helping continual launching role Zero made an our We centerpiece to thriving Hunger we take hunger Kroger's goals. a our neighborhoods Since Waste from healthier in industry-leading the Zero Zero waste. country. plan, across commitment | have

than and We more have billion donating food end more help including $X.XX to funds hunger, meals. in directed than billion X.X

We associates store across who packaging incredible are especially food plan the company. on XXX% reduction programs and progress with helped this us of key our carbon rescue emissions goal. across milestone proud our each year our I'm brand's a execution our surplus every sustainable of making reach and

will ahead, of and to strategy company. continue as eliminating and hunger proven effect to the ambitious our ending we help on waste, throughout we focus XXXX. our food in growth manage go-to-market enhanced loyalty especially our in In communities goal summary, efforts the led inflation customers household Looking waste our of

are We positioned XXXX. to momentum sustain well our into

that, and to Gary? over expectations And through for take with results you our turn XXXX. to Gary I'll it

Gary Millerchip

Rodney, you, and Thank good everyone. morning,

Before years value XXXX Kroger's you our results remind jumping like and the shareholders. value XXXX, the believe to delivering a I'd in and over company for years creation We for to is consistently to creation growth deliver value has our X a positioning strong sharing take sustainable back model model Kroger and for enabling is how our key step come. outlook results been into to our past

technology and leading data create and model. our is years, Over us outlined supermarket our our core XX.XX° This, high-margin alternative deliver technology even customer strategy, retail. our executing we create businesses. our omnichannel our we turn, value have deploy in Rodney in health earlier recent invested that strategy foundation allows including to in By and and investments and the ecosystem. of to customers go-to-market people, high-growth, food significantly for and position win in in customers go-to-market a greater traffic customers business, fuel new profit drive significant to our into The

creating The a store us value these generated into traffic, enables to and back flywheel from our businesses reinvest digital effect. drive and supermarkets further

into a a deliver retailer succeed environments. from in growth variety traditional diverse we We future operating a of more that can food are believe evolving food and first business sustainable

returns in our As achieved a to shareholders XX%. X% XXXX, this for consistent commitment we since reminder, exceeded our have of that introducing significantly TSR have model

Slide growth see net As Kroger XX% operating XX% past in the approximately to adjusted FIFO total compounded annual adjusted can compounded you has the same $X.X achieved generated returned Over period, years, dividends of of adjusted X more nearly XX, profit annual via in investors in flow EPS. $X.X table growth have time approximately and free buybacks. on a cash rate this billion than billion over rate and and we

we the TSR our expected Xx have nearly X-year delivered model from Overall, period. this return over

wages the since growth. associate investments of allocated and continue included and increasing capital to the to digital to benefits enable improving time, same XX% This margin the pandemic, XXXX in Importantly, we amount support to the at expansion. price to capabilities technology position and increasing relative since line competitors invest future key top growth by our start business and of the

Upon first and believe the which stand-alone close. performance and be early years announce with X proposed confidence our strong will with significantly the to financial we Albertsons. strategy is go-to-market merger closing, our well deliver during years our accelerate Our to merger the model and anticipated gave TSR above progress XXXX, model flexibility us post in our in also recent

margin work sales, in delivered walk an effective prices helping excluding financial OG&A competitive decreased higher The points. per consecutive their merchandising by product in teams results. cost-saving I'm achieved X.X%. outstanding in sourcing now items, $X.XX excluding basis of reflecting full points, the I'll offset EPS partially X billion XX say excluding our reflects planned our budgets. and and delighted cost year and delivered fuel maintaining year, manage of The FIFO fuel fuel, XXXX. initiatives, And leverage share, cost of gross This $X XXXX rate, of XX%. are for We through we of while basis associates. sales investments and decreased customers Kroger identical increase inflation who fifth managing diluted savings to adjusted extremely adjustment the rate,

operating year. the in XX% And was Our for increase last an LIFO profit billion, was adjusted compared of $XXX year XXXX. million from the $XXX $X.X full to FIFO million charge

for have fuel almost our identical been Turning adjusting We the now to an our increase was would momentum of growth fourth saw quarter, EPS quarter X.X% Underlying continued results. $X.XX X.X%. in effect for X%. after without of of Adjusted sales the Express Scripts.

in importance strong Our growing quarter, identical reflecting accelerated also sales the during quarter Brands contributed with these decreased the another of fuel Kroger's margin OG&A and X led XX.X%, exclusive customers of products. excluding sales excluding XX%, Solutions. rate up rate points. to growth and basis decreased Kroger to items digital the by XX% adjustment And gross FIFO basis XX point fuel Delivery

overall our part Fuel value important proposition. remains of an

ways and stretch $X.XX the quarter. of their gallon dollars our fuel same retail of compared we has Our the last many $X.XX the year save loyalty in $X.XX the contributed helped one quarter per average outpacing sales have to past the up program, over gallon industry price during which to can to customers year. The been was customers

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

reflecting This profit the year. inflation, operating charge $XX sustained increase last only in compares $X.XX quarter, in the cost was And particularly fourth year-over-year charge $XXX million of FIFO XX%. a Adjusted million in LIFO a was of product billion, QX grocery. higher to

digital and impairment billion Vitacost.com. more gained to to fourth in annual capabilities with and the in platform was million advancing digital our talent The charge Kroger's results have Vitacost fixed our in goodwill to business merger growing been through than $XXX related key $XX XXXX sales. Included asset quarter a and

providing pickup our evolved, for organic online and forward As in natural, impairment great our products platform, be digital an as the will continue delivery strategy operate resulted focus to has customers. will our charge. store effectively value, looking primary Kroger this capabilities, to and utilize reprioritization eco-friendly and Vitacost.com

the working protect around including year inventory, towards and cash movements The of than capital million buying flow a factors higher forward to combination the came of to receivable the free in payments payable and accounts the timing margins entirely was Adjusted lower in due end inflation affecting for third-party of cause year-end. This $XXX was anticipated. year. some

comfortable our shared returning quarter, with feel of which inflation overall we pre-pandemic heightened As inventory, to last due levels higher of level of levels. in-stocks to mix is and

during confident remain and $X.X And period, of in in free further and capital in our see time guidance seen we horizon over to achieve strong expect Looking $X.X working generate over have experience flow. expect to time flow ability going this volatility pandemic, in an working to cash we shared forward. this XXXX. X-year billion benefit a the underlying improvement from would the our as capital free morning, We to cash billion adjusted smoothing

and financial to strategy now allocation. Turning capital

We will shareholders. returns capital business disciplined continue that our investments, deliver be prioritizing and the highest our opportunities our strengthen for to solid growth with

As anticipating this year, capital $X.X consistent you guidance this our $X.X investments is billion in which we with to TSR long-range saw model. our morning, are billion of

Our and are future priorities our aligned and expansion. creation expected for drive XXXX model are sales value growth margin with to

locations focus on to approach and store-by-store a We make a our growth decisions To store potential. our ecosystem. apply on drive enhancing with prioritizing basis, data-driven the digital formats store and highest sales, is

our to create experience in opportunities. proposition we technology alternative augmenting including customer seamless Additionally, profit will, are continually which investing turn, improve the and enhancing in personalization, additional

the invest help enhancements to and business offering. investments chain margins differentiate supply margin our our to operating including that capabilities. in expansion, improve These of continue fresh areas We drive will

cost technology fulfillment not investments incremental making we reduce model mark sixth experience in lower delivering to the We drive and will creation our eliminating improve year has remain waste productivity, in savings. been waste customer and $X on that of These value which element are savings XXXX, and $X did row store affect billion costs shrink. would essential digital an cost in to our our take business. of focused a areas finally, our And an out of billion of improvements of in ability

additional In XXXX. closing, for I'd like to our on color share some expectations

there go-to-market successful customers, to the believe market model resonating and creation outlook, value us well positions strategy economic uncertainty evolving navigate is conditions. is our our we still While regarding with

couple a I'd there I our that into unusual of to XXXX go Before details highlight. the factors are guidance, of like

in First, expected Kroger's a basis our terminate without on with is agreement expected of to of have a negative impact to December is Express XXXX have decision sales XXX on not identical to profitability. This effect material points decision Groups fuel.

will include a week. XXXX XXrd Second,

this that week $X.XX We we diluted X% important of With to expect for in sales of expect without identical at net fuel extra the the adjusted to achieve earnings year. our per XXXX. to effect approximately share X% context,

growth Excluding X.X% expected our is identical the Scripts, and effect sales be Express of X.X%. fuel to without underlying between

and of $X.XX, benefit We of FIFO including $X.XX earnings expect week. billion the and between the profit between of per net adjusted and operating diluted to achieve expected XXrd $X adjusted share $X.X billion

in revenue ecosystem. invest grow shopping customers across continuing and through to and expect by digital our experience We providing and fresh and to a store competitive better pricing our personalization products

as by We our we in in and will profit Brands gross businesses. fund product growing investments momentum alternative improving accelerate our XXXX Our by Fresh with and margin initiatives mix our

wages in continue will cost-saving funded and be initiatives. invest our by also associate significantly will earlier, Rodney As we mentioned this to planned

year. than model structurally profitability lap will margins margins fuel remain we fuel we our historical headwind from While is to XXXX averages, a as to historic fuel be last in expected higher believe

million to assumes $XXX a lower XXXX. of XXXX million inflation cost result product a to compared between Our LIFO of guidance charge $XXX as

well lower above tailwind levels, While a historical to more be offset and year-over-year this expected is fuel than profitability. LIFO is should amount

quarterly to year. heightened of the year of we be our range end expect to of experience without In of the in we fuel first to we we later bottom expect year, half the identical range taper terms be below sales sales cadence, continue fuel end above expect without levels the inflation the second the in the as top identical at of half In our slightly of guidance to or inflation. as

We the year. expect QX X year-over-year will per adjusted quarter in and as slightly expected in share negative XX% quarter to growth our be EPS we XXrd last week. diluted in Quarter guidance benefit higher our annual X and is from are from charge above we the earnings quarter be X cycle be LIFO and range expected 'XX within range X guidance to as cycle

is you of operating have provide Rodney for strategy future and position As growth. strength from go-to-market we the made exciting and from know opportunities myself in morning, Kroger a our that investments this

energized Kroger sustainable believe and is team opportunities by shareholders. returns and attractive our is well to these to continue Our we positioned for deliver

I'll now over back Rodney. call to turn the

William McMullen

Gary. Thanks,

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

getting During few the months, and team. spent the past we've Albertsons leadership know to Vivek time

expect communities. are customers long-term and forward incredibly highly deliver. we realizing complementary choices their impressed We to bringing look with this and the culture commitment with to their will while lower to We organizations prices talent, value and X merger our customers provide together more

We are second about cooperatively Federal Trade divest request to obtain identify to while the regulators responding to stores, transaction, transaction. for and Commission's for the discussions also to we working buyers potential the expect in clearance the with working

finding solution on thus and close with XXXX. far, We interest towards We received stakeholders. transaction level in the a early remain are that we'll work the track of pleased to all benefits

During goal operational for the the efforts quarter, preparing launched our planning of integration. integration and cultural with we seamless a

day value team and The our customers, communities beginning close. milestones work expect for clear post X objectives and benefits shareholders. to create developing streams We customer deliver is with integration associates, to

progress the and to we've with continue date, as we pleased we'll provide to made them. are updates have We

years and in our commitments exceeded our and and Fresh with in Leading record We with strategy. we Accelerating on achieved XXXX, XXXX exceptional in building results our XXXX, Digital

our and working. on focusing is is our strategy customers, folks communities associates Our our

needs. we're Our customers serving better doing job that telling their us a are

only helping in believe with through Zero work. increase | our to thriving And to and momentum continue a We will our We benefits our Zero create X pending communities Hunger improve wages is the associate Albertsons. the Waste years. XX% sustainable of are healthier last our completion merger accelerate we and upon with comprehensive

Gary that, to With questions. your and forward I taking look

Operator

[Operator Instructions].

comes John today for Guggenheim Heinbockel from question first of Partners. Our

John Heinbockel

I Rodney, new since the start of to year. it's beginning wanted with a

what's the your you average think consumer. quartiles, to at deciles, most is As however your right, the look share consumer best, consumer wallet guys you opportunity And loyal from about the maybe it, -- Is when you analysis, the are biggest average sort do Where of pockets, where spending a as is the where gap? fresh? as not consumer it gap is much right, the the most where loyal.

William McMullen

thanks. is other it Kroger. I position. And the are the question. opportunity most other XX% we us we lot Fresh our a than an And us When spend will the John, parts. And area still Fresh, because to different do slightly where love look share there's loyal opportunity we we always at their you even where And somewhere start to better opportunity. look of competitors. that's of business. places spending an Customers in we're at But that to of all improve we it's XX% over-index, the still look with our at than a for than meaningfully off in higher

on So is there's full really what and compromise. types, resonates it Fresh where our customer we and in way all a business friendly is with ability focus X we do our find -- to and growing

brand. budget can a customer save buying to a on Our great value from Our X% versus Brands. get national can XX% They So Brands by

costs and it to customer out. X/X a what get going X/X Chef Home products to for our meal at of that, look a related you If can

opportunity it's of spot value So and important the the friendly area really best together. connect likes customer and that is that our and our we all is well. U.S., we -- incredibly growing many our are for That's always the good those in money spot where a a sweet And as operate important. growing incredibly that is and sweet the is markets across Fresh

And spot that's the customer. support opportunity that oriented for just that. is our technology make easier really the provides and strategy our So then for our us, for sweet it around and

John Heinbockel

always your at you customers incremental particular we how How is none, impact, using trips, right, customers. losing We then maybe because this data, you we don't guys okay, right, were. so outreach think the do about versus households. trips secondly, the with most who know customers right, And among Express know Scripts the if -- much I lose to Scripts I look think pharmacy that of loyal do have those and make Express of Maybe Great. who sure right? can you you pharmacy said know

William McMullen

look If that pharmacy. by the majority numbers provided you the Gary far, that's of

are teams other fact, to they're using cases, with be discount help companies customers through rather Our in work going We're great some also our money. a provide going benefit doing in saving on directly PBM. And cards able many alternatives. than identify to other to the

trip customer I using the you to add to Gary, said Gary that? don't is So we're by that grocery store. lose to provided don't things the estimate far, anything sure and And we the want majority of that pharmacy. lose the connection the that you to make know, that don't we

Gary Millerchip

well, I think you said Rodney. it

make it's data the using think sure think described done customer. has our that work John it, team We and around to I the but working. we're personalization protecting

Operator

Wells Fargo. from of Kelly comes question next Ed Our

Edward Kelly

as the that cycle implications Rodney, what's into ID forward embedded X.X% inflation Meaning level think within the thought the to sort coming color. ever really your a kind We're picture. heels about evolve of lot industry you've ex the of just question that and guidance, But you an of that? obviously, there sort of of of look none to inflationary you big start. of off of of associated do all for for seen that. us are how X.X% of Thanks have to with before. A And off guidance you 'XX is going providing Express.

the happened we've like think your tonnage like Are et changes? at and underlying with promotional How players some cetera. with you what's like Walmart, you comps that for pricing with about volume given instance happy or and do backdrop how seen value what

Just kind of how that that guidance? is of the all about into thinking curious, played way you're

William McMullen

Yes.

and look the the that. inflation the be to than we provided would the half higher that really year first half quarterly the Gary you in reflected overall, inflation second year If at of expect of insights

If specifics having the resonating at proposition, really feel we and increases on the I that and meaningful of there about, our shared value customer is with we're customer. comments, you the good thing really prepared income look in terms that higher

some of to which And it's is for as profitability Fresh always more and produce shop that important full of the they I is higher our customer one for bakery, in stores buying well they things of departments driving is the shift. the of Deli would because be and mix that people realize think profitability

we look on continue excited look feel you good getting on when When about. customer we're customers. And Fresh. We overall, good at improving the feel in about connecting progress with when better. look I and do really how at how really we it always we overall, really we're we we're do at that front of to good share have the making. the us, focuses to opportunities our about We're feel And we're feel striving can you on still with that, think at that the So we better. you we're good

pretty wide you specifics inflation pretty the obviously -- during terms inflation, the specific share Gary, it's range. let In of on year, I'll it's assumption because

Gary Millerchip

of an Yes. inflation of the couple grocery what in the Sure. From remained stubborn Rodney. has has sort inflation, And Fresh levels seen categories, the last of but that sort moment stabilized. the question, in of seeing at we're deceleration -- in we're see terms there. of is for inflation is pretty perspective, the to Thanks, is we've Thanks Ed. what quarters, really starting

some half of grocery And as we're deceleration. to year end is then assuming, mentioned, the in but remaining fairly Fresh sort expecting Rodney the categories that it we're towards the year decline, show the of the some a rates and our be we gradual So stubborn we low come of probably we would between of where first continuing that down And for to mid-single-digit sort that get where build X% of Our inflation sort to assumptions of the in inflation Brand... starts year. level obviously, assumption to the about to X% way around think our today,

Edward Kelly

just followup... quick Okay, a

Gary Millerchip

ahead, Go Ed.

Edward Kelly

you. Got

outlook a margin gross follow-up, for 'XX. The FIFO quick Just Gary.

no there's with decent a associated losing P&L I I there it given decent think the a of is impact comp. like -- seems mean, impact there's Express,

gross are how fuel 'XX? Just in thinking you margin about ex FIFO

Gary Millerchip

Yes.

ton in short-term of delivered be in of the know, and way promotions we would over gross continuing of in think built pricing, balance Boost, don't the we loyalty our key guidance. is to about you a areas what margin, you in creates terms get time. we'll invest longer -- of general, with value much model a period very specific when of in I we get roll continuing the thinking and customer we're build generally say, XXXX consistent into whatever you As headwind But to as which the them, and important a out customer that's to in whether incremental value the

margin as there'll tailwinds believe gross continue we some go-to-market to meaningful that in strategy. our We rate on be continued execute our

remarks to I The in see is profit about mentioned helpful in alternative margin. improvement penetration, thinking So Our work about my streams. gross to prepared continuing which Brands

we're lot on investing in overall, going is more so we think and able But delivering the of maturity there pretty an customer, of balanced as margin in as awful rhythm those a balance investing There's things. of that improvements be now in those gross experience. reaching we're kind model the to year. And to our it's going a

It's view making done Scripts and work that some point say of health a profitable around from we've sort an would in those headwind point really create on out prepared Kroger wellness will those basis our focusing the in business Express of operating Specialty our that my net, basis change the XX Pharmacy overall numbers that terms of it growth as net pulling it, mentioned a in business a of sales I point sort XX but a because but impact, of in I optics model. of probably the the of in remarks, bit margin, just call kind sure neutral profit gross other and are tailwind we're OG&A.

Operator

Our question from comes Simeon from Gutman next Stanley. Morgan

Simeon Gutman

a it's similar question, first little Ed's to question. My

at I'm look for just you EBIT guided If to rounding essentially, the 'XX. XXXX, FIFO it, call relative flattish.

the -- movement don't flat into pools, for alternative gas don't maybe on. a that roughly to would the of sense up core, give and know us business I you big focus ones within Can if the flat to the know EBIT right getting I as those and profit year-over-year? be you X, If divide

Gary Millerchip

Yes.

of of bigger with probably overall what I'd X parts up think the about as to it, sort the well. I that picture guidance as I Simeon, tee sort say, think moving tried I

as of So $X.XX it, I the call XXrd think share. about it adding, per week earnings

of about with helping of think $XX that's $X.XX So -- million. $X million to

I if week. like it's think So $XXX from million tailwind XXrd the

a of to of in -- so I gas, think $XXX million range. million being of the headwind fuel $XXX sort

of of business sort grow to I think core supermarket really of year-over-year. the is sort And continuing would then

offsetting on is of gap business the than model, The XXrd I the as of core executing creation more week. mentioned. the sort value impact our supermarket So

contribute of the as the customer, slight the things in line, sales execute that all And digital around bottom improvement. X.X% revenue invest hasn't continuing -- overall and media get underlying continuing we're business. in of individual growth to getting improving net the the those part us on specifics Scripts probably into supermarket to mix driving cost we ecosystem the business I'll Express because down So to really plans of we to breaking have our unless X.X% overall business won't really obviously profit a the categorize don't to driving out because the but we and growth pieces,

as So look we it very much a total at ecosystem.

Simeon Gutman

what not terms on more like that there, in seems function Is fair the not a disrupt assessment? And regarding what then it have Right. maybe that's and a it? a but maybe as price pricing one is backdrop could than wondering would backdrop the it's out and of competitive thought, follow-up of inflation, that oligopolistic

William McMullen

continue change, get different every that. costs to -- through the and our we've it at than much to or we so in describe other fund trying to do things We that of year And I'm years directed expect invested identifying an customer. pricing the would single look to it more and to process And last lot remember awful personalized that. for would promotions XX are And certainly out.

fuel go using to in is when what value person technology provide one-on-one and individual. look through our a offers to that -- a that you see to our So so and you store not higher it's customers on personalized we are digital percentage a rewards each from of connected significant because shelf

a would year everybody do every gets it is it describe working that customer way. -- So and not And better view the hard certainly competitive, the to we and benefit job is we incredibly of that.

Operator

of Our comes from next question Lasser UBS. Michael

Michael Lasser

of digital sounds your that comments along at with like had your the of what start this you're in shed rollout of the the a you working because it year, dollar slowdown incremental Between you on profitability margin incremental the on your where thinking early of above Ocado business, on evolved to an the call, indicated sales indicated or at you previously sales. had sales of long-term profitability dollar an incremental digital be the Kroger expected for you the that in-store of have

William McMullen

actually us business a the with longer this When long before. wouldn't they it difference at time. you we customer is store more you look, after over they a look year move find see at our we And term, profitability a when period engage than be digital you in supermarket of online, when any in look if what

routinely what and what the between ecosystem So food, thinks And focused is on moves channels. they where Kroger. the finding think we're the back customer different we're customer an having forth really is

it, the day, processes obviously, piece If out an top then ways driver. of out. retail single figure you at important media every is take part improve on each And working to costs look of and you're it, to of

long We're think really digitally, no with years when don't years, the digitally. digital it term, through shop opportunity change customer multiple see, the ways. the channel that a we XX more incredibly where in important that, customer is So critical engage in to they we will and find when years, have you X and potential. be we look of us we the excited see at everything and even it us And part engages X with

we profitability it improve we we're with continually partners how internally processes. the long-term as of both us, before. don't We as see working for And in exciting different. on did our and see So to being terms

Gary Millerchip

prior that Maybe sort talked just about on investor Rodney the answer flow through are Rodney's long-term to we I say to the to we would the seeing of short-term Michael, add, perspective, that meetings. in -- profitability benefits

think delivery, what you digital if serve the today, we're pick about So of to digital best order through XXXX. seeing cost We our the our for ever quarter serve. existing a store QX cost the had in the to business is up

digital mentioned generate the Rodney continues we media, per revenue to amount of transaction media grow.

earlier. profitability, drive model in improvements in of that improvements to we tailwind big described expect continue financial and are 'XX, we the X part drivers digital to those So and of the we that expect the actually see were I in 'XX

So and remain are we we making that on path good progress.

Michael Lasser

the you clarify of sales Gary, time. just end a rollout of to sheds? mid-single-digit guys, the even Ocado low The then pulling of going by groceries in inflation, why the tell some to question the may factored be get that the slow low and the To that to that, are And of year. And to the slightly of year ID don't assume get second do by still my just there's end to unit erosion at you environment year as your this the back outlook. the by end make want need range consumer the below a for to we end may further, worse that into I expensive -- conservatism you be sure economic the and tough in just with

Gary Millerchip

I'll brief Sure. try those be Thanks, on Mike. and X.

was on digital So the of think I clarify our majority just the first I to business of part today. the question, describing

was pickup on think the share those that delivery stores, our today. about So in doing the to profitability, that we doubling about work based metrics. through when customers digital we're think that And

digital to cost media improve do so how we we revenue. And do how the serve, improve

facilities, we're to that centers, demand the much sort optimize journey right On fully of behave XX the X you really the how now and middle kind of of customer model. of that so fulfillment first customers in of those months scale very the into how or understanding

to have we say hoped first customer come that things a really there customer as key have phase facilities But around sort more seen on profitability. X of engagement. we're those that of I'd from So on customer understand continue seeing of the sort demand, we all progress the seeing experience, to the to

William McMullen

actively And a would looking than for ended what for too sites those on bit some being little more preannounced finding difficult we expected. we sites and are the have up locations

Gary Millerchip

customers. some deliver about I us, to deliver We our to and our make We the adapt the second of customer half and on But -- are and plan share for question, it's the we goal our just LIFO and they we're gave is helpful believe brief obviously meet value more We the sure perfectly of to for. to have definitely that that year to expectation continue think to for directional very think flexibility. don't some grow things model for expect there's we time we And where just I going our your second calculation. be year. maintaining our because built it's the and to on need be value be in how able clearly know be nimble second to to because to sure Michael. of make numbers the will But inflation changed because customers half we adapt agile over to

William McMullen

value our the any because And adapt situation market give in we a about feel Thanks regardless. the for Michael. any for we customer in model overall great question, being to able good

Operator

Our comes of Kenneth Goldman from JPMorgan. question next

Kenneth Goldman

bit one underlying questions ahead higher I little a the why quarter inflation mentioned capital protect in rises. you to was working reasons Two that than assume as usual here. of You buying margins, the that fourth is were

mainly First, the grocery department. in was this

to or ascertain through this run going trying vendors usual you're more about of the to that tough your in I'm there next quarter. maybe really just some from be in buy you And less is inflation. curious, an I'm talked than maybe particularly as grocery guess quarter, inventory, being grocery to to quarter terms higher-than-usual then importantly, I You offset if just this first of going

Gary Millerchip

be the to inflation for at variance the there X on that would From we mentioned have prepared that capital, expect key the inventory. we we comments. that will areas to our question, out, year-over-year of in forward continued be Yes. things buying higher called perspective, And Ken. working looked we main some will our the a margins, certainly, in and because we From and pharmacy we're of some grocery, would as seeing levels in would opportunity protect on that as the sticky. in-stock perspective maintain expecting some was be that are I improve good as we Thanks felt as be

of that We payables some be coming the expect at receivables would impact timing to would look back. and and

period, In year, prior the back fact, we $X year-end. case end in the look of year, of if actually our at at the and the billion first new the month the first wasn't cash with by line was at up which the it obviously

and in to and we're make free would good some focus feel So But do partners. ability continuing our that. will flow, plans of of was about year how we the timing to more perspective, our terms with think it flow sure strong we do to obviously, cash through. continuing for we we drive And on from I grow have -- our

William McMullen

given the is the you'll available And there. benefiting forward the day it's money good marketplace. return in is flow economics then capital. If not any of invest the in a working If buying at good, terms see of return, we'll the by what's driven really the

Gary Millerchip

say, number, Ken, would timing also I part that the forward than buying forward buying. We bigger a part of actual a be be the would numbers. didn't would the of exact smaller give the payments of

Kenneth Goldman

I'm questions getting And Got flow. it. cash the Implied one It's then operating a investors. quick follow-up. of from

can number, CapEx so a gave back You into it, we obviously.

this I wanted why would EBIT more if there a the bit curious little why detail know it underlying the be a working little I get of about strong you little bit growth capital is this. reversals, than bit not some what possible. just talked given to year, better some suggesting. factors on Just guidance a given of the

Gary Millerchip

Yes.

a XXXX, COVID we're on-target I normalized more couple payout, A of this impact more being payment Ken. think of more accruals we bit those we X-year but significantly is it, be to obviously, guide be going kind what can assuming things we plays little probably of how like create say out. at say -- want things inventory payments, inflation would unwind than incentive than I could a of try levels, remain unwind I because that high would does think see to we would in conservative incentive adjustments, an some exactly we examples on to of to year Part like if on-target also higher as are too.

few of from candidly, as just we of So the XXXX sure kind well. a flow-through to we're the can see And to trying areas conservative there's create catch-up be a that make few wrinkles.

feel I normalized as -- XXXX. what but wanted conservative is a reported So make to we say, some, we tried we would still a do unwinding there environment, of we we that is take to out view we understood sure in tried

William McMullen

we've is designed is incentive our better that And given. do our we to such are incentive long-term than designed guidance plan plan the -- incentivized

Gary Millerchip

appropriate it'd I higher conservative say internal than fair our one opportunity, goal it's Yes, we what in would was believe shared do because be think circumstances. but to to we it we be be thought the

Operator

from Our next question comes from Rupesh Parikh Oppenheimer.

Rupesh Parikh

great Also quarter. congrats on a

just to I share. market So want on touch

is Kroger's Just data, you recall curious year market to the expectations? at see if in share. full quarter, market have QX, starting look sure even share were performing your you if Because performance versus last I improvement if in just how your you the not I'm curious

William McMullen

continually you to if and improvement see if you'd you continue to hear look on were to how continuing We're at Yes. even of one us at internally, focus meetings, improve. our

if in the you in still satisfied. doing customer not And share. would great at share. Fresh. say of a shopper, grow pleased And expectations objective job to look with progress, job we're and of are Our gaining higher-income segments, did but gaining market share We're those ourselves I good we a we the is

Rupesh Parikh

And maybe Great. then question. Okay. just quick follow-up one

the in seeing color Any provide you're throughout quarter-to-date. quarter? you just can Just what of terms

William McMullen

Yes.

always As we provide We you always know, insight. get it. some

a If with quarterly we we're expect Gary little consistent and far, our quarters to expectations would bit you about what look between so outlined be.

X.X%. point Express If at it's that should I say, about year remind we but is an if weeks were to weather, trending year ever is little a first ago this actual. better was both key the look trends, those want want is the than I the is insight it of Scripts, to I be. use where always I then of And and but hate period, we quarter bit to us weather first weather you but the fourth to a you than the an friendly year, trending you are about it current at don't And X talk look lower as the [indiscernible] ESI -- more to it excuse, expect than but

Operator

ahead. Research. Our next from question Spencer Hanus Wolfe from Please go comes

Spencer Hanus

the On share offer Our losses accelerate overall just through saw Brands, seen move you CPGs that last that you quarters quarter. we 'XX? trade that over the the more you comp outperform down trade think few willing we've And they're the again this seeing? do Are spend seeing as get to given

William McMullen

Yes.

And during has If where you more only share XX-year year. a much or almost had Our a that look every at trend, up little Brands a to was in X-year trend of pocket. picked on people the COVID exception money their bit time

but performing that's Brand that that is economics than are it all still at more gain true, when still statements and will inflation. we more their focused historical would short that are hasn't passed or through cycles, say, you would tonnage. pass but when reason the I look, look so have And Our they're why share. continues Brand happening and started costs And profit yet. you wrong, to trying to that We what And strongly. that's on happen, Our is probably eventually, CPGs If see several you outlined if

Spencer Hanus

$X.XX the was versus than fuel it it. you XX% Got then during in helpful. remarks, And which more prepared That's margins, on out what called XXXX. is up

today? it about ultimately fuel and becomes operating how of your the will overall So those just baseline you're curious thinking sustainability of a bigger as part be margins where just profit

Gary Millerchip

Yes. Spencer. Thanks,

that do believe margins. think there's margins we think as happened $XXX prepared XXXX, in earlier the think don't were in times between being the mentioned when in level some of comments, if that a at to we prices. we said would generally that and in than largely the think at $XXX though, headwind in historical fuel not at it higher been fuel mentioned margins will do higher I fuel because a get structural We last million cycle. changes All industry think shocks years -- that last think maintained some than think sustained our one I some announced, the there level levels. as in questions would a those year, that sustainability be in war you be remember I look us that So X real you historical will that averages. was to we And million volatility that continued sort that profitability we somewhere think repeated there's those Ukraine don't But around we of of cause

allowing pricing it's changes at unusual of So onetime in some levels. really we be sort in high will or of believe fuel those sustained pricing. But fundamentally, spikes

William McMullen

significant prices will Gary's reward our come are customers to costs we our add When well. fuel go The If rewards. provide more a as other there engage in usually to down thing prices our point. rewards fuel customers lot fuel to just and discounts retail down, high, through

at to have the together. all So look you pieces

Operator

Our go Sachs. of from next ahead. comes Goldman question Please Kate McShane

Leah Jordan

Jordan. is This Leah

anything opportunity managing are this still How out well? called as sourcing today? And differently there? there quarter. How you of within as that see is savings assumed guidance an You again much cost the tailwind a do you

William McMullen

Gary now product, that into turned Gary, separate we under under that the and it's a area. have didn't source finding And into understands cost pieces. Sharp of couple And it's leadership. talent job it the have didn't job how and done now a of a have let ingredients to of Donnelly and leaders ago, that And in leadership great retired they've think team where bringing sourcing, and to just several few to that organization, professional it's really done Gary's that a really the But understands the great an Mike and has Erin professionalism and professionals manage area a all it's people I the details. reports department the a and get of I'll of organization. years

terms I'll In now the the specifics, of into get details. let Gary

Gary Millerchip

value. as that taking bit sure out the we really like how overall we team for Rodney. is organization culture then kind efficient of Thanks, for the we We saying, make I'd working I of part think, sourcing, out Sure. of it's operations, and capability Yes, become, all we're . question, design approach and the cost Thanks together, do the say be we our business. in as started a to supply certainly how believe -- on collaborating the the it's and and across of can part do we chain merchandising,

So where designing I'd bit we're like we product whether the and product improving, that can be, products we're to drive maximum optimizing with with to understand product those that make stores about in design. also savings, how able cost then that makes we're change, the being effectively optimizing Rodney opportunities. And the on the the things our as continuing every and a to we and sure case the additional a the alongside I to to to that And mentioned, be get it's build whether looking but see map a continue really far. one it's they savings, end-to-end additional of experience productivity will dynamic managing expectations costs so those It's value. product really sure the packaging at design or say product negotiating make we where our based how customer think in customer demand actually road year, and the and way product match

Leah Jordan

have Great. SNAP. quick And on one I follow-up

allotment a any they've on states the there. And you already extra giving stores could had with that where color How footprint, have -- given that such diverse is the potential about changes you roll off? provide your any guidance. you also, there did Just think

William McMullen

hopeful know, of want headwind assumed under assumed continue I to the year. we've We're a a Gary, and we have of the SNAP, the or because, lot add? find balance strain, to know, but you budget balance that, because a for at together both whose meaningful year. work people is anything headwind that don't as in of it's the look will you was quarter the there's of additional If for money that that everybody inflation, you meaningful

Gary Millerchip

in you there difficult think we're guidance year. point about that say probably we're to or our this that historically, still SNAP because impact food uncertainty, more the say that had on it we've correlation would ties allowing and No, I find market market. we've time is and never at much sure before the But had in it so the I SNAP I so in home dollars very spend a between actually tends was making typically, to for for spend. to a discretionary it's in that point view think where our really the

years XX they of believe kind are we've this at of in most for hold last that we well, looked environment. difficult to the So models say, the true

it a unique be that we felt to in important we are time. conservative So given was

Operator

Capital Bania from ahead. Markets. final Our today BMO comes Please question go Kelly for from

Kelly Bania

lower a and to Gary. what just inflation the promotional the next at head This to to half little environment. key about we assumes guess particularly heat year. as maybe when wanted concerns and be ask level, I investor a do seems promotional into one I thinking up? And your of back Rodney of you is activity guidance competition expect bit broader regarding about the

Gary Millerchip

for Kelly. Thanks the Yes. question,

we be continuing perspective, for to in value feel our have guidance I invest the customer. we'll and our we're to be think shooting in agile, we certainly that that from

what you COVID And of truly that mean customer and is shops is pieces. has more bring the with by environment I the all things us which personalize be during digitally, the somewhat engages and think believe to I that many is of the gives able to customers changed how we the different ability engaged situation the one different. are together

customer. see fuel So digital when enter for the about you about what personalized that store, that we the target the rewards it's coupons. less It's just you can it's

offers some Brands to an earlier, Rodney decide equivalent on basket Our if as the the can mentioned that, they products. It's save of customer XX% shift those to

we for the those lot further value confidence those a value of the even year. effective do and the So really we've channel sure we the pandemic learned about the dollars as customer, way, effectively our you to the we most believe customers. we do We'll than through what that's for rest make that of that the more past stretch in think gives deliver dollars but us can how in that to invest to continue that

William McMullen

And a think is one friendliness that things to product decide overall based shop sure equation. I that's associates, of to the where and the of the lot and how of on freshness the also value important make of part customers always

how shop. you associates. budget fuel we manage and personalized we fresh in product we that's how incredibly have rewards. incredibly offers, will then friendly So somebody having the when at to win those we engage and by go customer have where they have look decides their And market, promotions, to to And

really I it's those So you for together. think at important all look to

Kelly Bania

Okay. just follow and on to And Great. discussion of the units up inflation.

as range with I year to at I believe, X% this look in double-digit think range. we X% comps, the inflation,

units. meaningful units would high tonnage down digit. imply assume pretty X.X% maybe or acceleration to maybe for So next single seems And in X.X% to year, a

just or just a in help would backdrop me on where better I'm So unit wrong drive Or math? Kroger 'XX? for correct maybe us that maybe understand what tonnage

William McMullen

but change other the wouldn't we because much and people per sell ring less, where is Our switching unit also, Brands be things, item as The units. as you more remember said to are

if at also overall, declining you as at total, when they're you if look we and when share units you look look So overall, in at and well. look

continue expect don't flow-through to units in the would I we from know, and our make come So progress anything... to that. improving of would Gary, share

Gary Millerchip

No...

William McMullen

I department dairy in great of [indiscernible] done, store I wait the career. division, if Cincinnati, that job came can't we what's asked store to an Because invite is interested he'd Dayton our Thanks, a to to than determination in store. the of weeks Brian to young this of come specialist, and And Kelly, like to for thanks Togo. can't be With bagger, I'd as the a manager, and leading our a questions. After dedication, few associates United now in. all for better he's the States at share as next few the see comments question. close, associates amazing a discover think man. and a listening to with Kroger for [indiscernible] job his associate his And center We example that, for a our obviously, everyone this from always, your directly before him

work team could place humbled call. each today's be making Thank everyone, and incredible every joining that for us. the inspired Thank we as of by amazing to the concludes day this the do for you I'm enter is. it of next Kroger part you That world-class year. not more be you,

Operator

you call. Thank joining for today's

disconnect You may now your lines.

The Kroger Co. (KR) 2 Mar 232022 Q4 Earnings call transcript