KR - Earnings call transcript Q2 2024

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Operator

Good morning, and welcome to The Kroger Co.

Second Quarter 2023 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Rob Quast, Senior Director of Investor Relations. Please go ahead.

Rob Quast

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

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

we forward remarks, prepared our questions. taking After look to your

to the and that a cover range that our Given we can. we will of call earlier broad as many Instructions] topics announcement we on needed this as morning, the Q&A information of ensure of divestiture [Operator our you will can be breadth extend from covered if session

to turn will call Rodney. over I the now

W. McMullen

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

I'd earnings I a given that begin, to the strong model of morning several topics important our the we take have how cash begin generating supporting this value outline cover. by and to moment the for is consumer covering discussion we growth like strength Before and will framework our environment free creation to flow.

cover framework. highlights Then as on settlement opioid well our and will financial results update Gary nationwide as provide our an

we issued morning. with conclude will this some brief press comments earlier I release divestiture Finally, the on plan

We for Q&A questions during today's the call. of we are important your excited taking sharing to look about our plans forward and this segment milestone,

challenged environment Kroger continues of quarter. effectively and consistent to a quarter our navigate turning second Now delivered another results. to

remains spending. our are that our our strength the model at shareholder of home they value their to enabling are return. top deliver consistent invest associates balancing in of persists, mind Revenue several many to as impacting our deliver continue for food is uncertainty customers economic customers, us and of As for factors

inflation, tight including government especially and increased higher offers, discounts, portfolio, yellow sustained and specials a rates customer customers, reduced of have To robust through value benefits we Brands tag delivering SNAP Our budget. our interest The loyalty rewards effect fuel on spending, weekly personalized digital pressured and support those promotions. our including for are

Economic segments instability continues to impact differently. customer

categories We to seeing their to income bigger convenience, this households with more zero products. to our pack customers Higher up experience premium with in more our more continue us, they are as deeply quality behaviors. trade shopping mix purchase These Fresh especially sizes, and and customer valuable Our on Brands are compromise value. engage enjoying shop

On the shelf other prioritizing hand, lower-priced facing and to budget-conscious building pack smaller sizes These and, times, distributions. periods customers SNAP lowest that external also They their budgets. spending exhibiting customers stretch spending switching are These smaller and buying patterns price. items are at households payroll baskets ebb and are with pressures. to are the benefit flow

spending We these half broader pressuring continue year. second to of the economic in customer expect the headwinds

back the focused difficult in with and of are half more sales is satisfied environment the year. driving While we we are on the never units

Our teams to add-ons identifying store customers' basket adapting needs. are execution, and sharpening evolving

as every an item of new saw assortment lower below everyday our staples household in we as introduced trends points. expanded price displays where We since in-store last our quarter improvement And at example, budget-conscious is an $X. we

commitment value. relative exceptional customers position to to price our with competitors, improve to continue long-term provide key demonstrating we Additionally,

customer for is resonating this through with our with seamless targeted more needs. We promotions drive personalization, effective allows rewarding are creating and us engagement to are it And And us ecosystem offering work. customers increased more and loyalty. customers

growth. consecutive strategy provide our is how delivering our ninth total go-to-market of quarter And our for I'll household represented customers. on now more quarter second The detail

products XX,XXX portfolio our throughout more high-quality than enjoy a customers alternatives available, to offerings our reimagining budget. each range are fit Our With customer's can We of wide of Brands.

Our are of great we ensuring our each point we architect brand, Smart opening brand option provides and role price prioritizing our brand lowest are introduction our resonating improving plays Way, shelf. work, of Brands. with on for customers. Through the the a the year's shelf, price the profitability it those is Last Additionally, at a unique

Turning rise growth quarter by delivery to digital. in pickup traffic. our growth strong both This led to Seamless, households was a and in in excellent underscored businesses and another

our the improving driving Our digital experience customers' team's success. relentless pursuit of is

more productivity our with scaled expanded speed hands-free improve across pickup providing lockers, technology and with company and the We and to improving options flexibility. customers pods automated

a are in-store success. in critical our role Our also playing associates

cost quarter, This rates. lowered improved fill and serve they to reduced wait time,

Pickup has path to sustainable now, our profitability for now pickup multiple a basis. on some contribution And had continuing our divisions have to a a is today fully operations, pickup. scale clear time. In by business loaded we positive profitable incremental and

deliver and shelf Next, the Personalization customers' product our us meet value on personalization. enables price. unique beyond needs to

work strong our powered data data digital is science Our engagement. driving by best-in-class loyalty

spend So like compared Xx us model alternative Marketing. far and engaged think number our to X Kroger increased you grow an is last about businesses our our by Precision important X.X profit year. more growth households have as more million digitally than clipped this This more when households digital that's loyal, billion. To X offers. customers just help engaged nearly are amazing digitally to with me, year, also billion We've

profits I'd by businesses. like this support model in quarter impressive the confidence media retail how diversified in strong alternative environment more Kroger us had ahead. share continued Marketing. ability earnings growth to led our with business an Now business, quarter to our growth navigate Starting Precision our to gives profit and Alternative second about our

which in significant and to on clients. this ecosystem Our ad track and spend precisely KPM these benefits audiences and return science to drive continues delivering to data traffic measure seamless data insights build custom value business. applies its

outcomes for clients brands. This improve in-house platform, advertising and flexibility quarter, KPM announced a greater to allows new which serve

Health live strengthen utilizing our business and another are us help our Kroger model. component Health of customers agreement doing terminated lives up a some teams The freed our pharmacies, is ESI job has that great of Kroger our important to capacity. with better in and that capacity allows

more pharmacists better patient dedicating care to patient Our experiences. and are time delivering

also use work automation. for are and costs our our teams of expanding lowering We by simplifying

improving modernized We is tools, patient through which better are to supporting driving communications growth. and patient plans adherence care

and over We the health further growth momentum by next encouraged are for years. in business and wellness our an profitable this several opportunity is the believe

are over full the friendly XX%. wages. supporting remain X associates a customers And last every day. investment by wages amazing to fresh experience in Our associates raised years, through committed and We providing our we've

our Kroger programs is focus often tremendous say help job this that a can develop support I make made creating our investments to place and to our Kroger future our a a have to leaders. associates committed also for associates discover are culture, supporting and significant career. has come development. job training done a to We where teams

work recognized from capital Our human the management a awards recently with was Group, X firm. Brandon Hall leading

are We are doing of help an the proud you employer Kroger to make choice. of work so

how purpose spirit. I'm inspired see associates the feed to every day to bring our human our

the in how X by a Waste XXXX. impact we Hunger Upon donate we to plan meals | launching in communities our part of vital the Kroger is XXXX, Zero billion Zero live purpose serve. committed plan Our

quarter excited of X year, our years to we are of more this that ahead ambitious the reached We so goal. first share than in this target

accelerate relief. to our This plans quarter, commitment announced we hunger to

every Upon company is enough struggling by cities of the we serve. completion XX with XXXX Seattle, years. that This it donate to person in and this that for Denver, of day will every billion ways Boston meal, of to will Albertsons, proposed the merger food one every people merger many To nearly benefit hunger. X the is the put combined feed feed meals perspective, with in Chicago communities

it With Gary through turn that take our financial to over Gary? now, you I will results. to

Gary Millerchip

the resiliency everyone. you, results and over to our quarter investments enabling the X. creation you much are second Kroger's saw strengthen very The to evident was diversify made we Thank in trends model. deliver the we our results this environment. business good And Rodney, have despite difficult years in value business our of recent when us consider quarter morning, and demonstrate key consistent

an food of is effects at While our business. continues home doing the managing sales, on job to industry-wide trend impact excellent disinflation this our team

growth for year-over-year alternative profit significant strong margin to highlights and from operating underlying the tight gross results and growth include profitability despite a year excluding controls fuel due cost headwind in Key quarter versus prior businesses. EPS management, improved fuel continued

Express growth a communicated to decision effect I'll detail this slightly of terminated the items. and and after agreement to remainder fuel on the during now fuel Scripts. effect grew margin the operating on without for FIFO on rate, the adjustment continue have Identical effect Express XXXX. case first excluding the positive, with results Underlying would terminate would X%. overall X.X% OG&A of been adjusting sales with positive and to excluding gross second had our the generated effect the our previously quarter this provide agreement Similar the the Scripts to was be more negative expect for fuel on profit we The quarter, quarter. our

we Our decision in best our to decisions shareholders. the believe reflects interest our Scripts long-term terminate the commitment of are and agreement to customers making with that Express

XXX pace. food-at-home basis Turning low a we were the inflation quarter, Inflation expectations end of identical saw the fuel. the In results to our points lower back the at internal than quarter start now quarter. at ended of sales faster-than-expected approximately without second as the decelerate

Our which digital XX%. in grew by sales business, underpinned growth was our strength

channels. assets, by unique through growth led in network delivery and and membership. centers, delivery Boost combination CFC including The both continued ramp us achieve of pickup growth in in fulfillment volumes Our was helped our a stores and

margin Gross sales. of was XX.X%

rate quarter XX compared margin excluding increased last year. points to the gross FIFO basis same fuel Our

job benefits strong higher of supply the agreement improvement terminated Scripts. rate shrink effect effective chain partially by were highly with costs, and investments. Express Brands tailwinds the a and attributable was These Our and impact sourcing doing the primarily in our to price of is team offset Our performance, promotional balancing inflation, lower

achieved in as this while position Importantly, was to improving price key shared improvement relative also competitors. our Rodney earlier, rate

of invest to expand while greater in over value one margin Supply time of many customers. continuing chain efficiency to for components is strategy our our

our This across transport network. increased productivity meaningful efficiencies supply operational improved in quarter, our achieved we warehouses chain utilization capacity in and through and

customers ecosystem. and lower to improving by crime. to primarily X, invest also we supply retail quarter chain due significant further see theft during eliminating our in continue to opportunities rising freshness Shrink waste We our while as organized increased to costs in

and are for expect We including financial mitigate new continue will impact challenge initiatives security but would remainder year. a be the the solutions, the of to technology to trends increased implementing shrink

the million year. partially last This the quarter During during The charge our $XXX LIFO to of profit $XXX charge $XXX million the year-over-year revised downwardly same offset recorded compared a from decrease for XXXX. operating quarter. headwind to experienced a $X LIFO million outlook a the primarily we LIFO we of of attributable for in fuel inflation quarter, charge tailwind was in million remainder the

flat OG&A job excluding improvement underlying Kroger's Express to fuel fuel and in Scripts, was controlling adjusting items. OG&A excluding Our adjustment excellent saw rate after costs, and and our an rate adjustment team items, we for do continues

are associate initiatives enhance experience cost-saving the without utilizing impacting on the to focused Our simplification and technology customer.

stores process. productivity $X expanding our optimize year We savings. enhancements packaging and sixth of associate restocking that remain For the billion consecutive in our example, track we on to are data-driven to introducing deliver cost mobile improving devices shelf-ready in by

The engagement fuel in was to this overall customer And last gallon important $X.XX price an to per was this compared retail of last quarter. the is average $X.XX compared $X.XX our continued quarter $X.XX quarter proposition, value our cents to and Fuel rewards part quarter. drive margin our second year. program fuel fuel

we healthy and compared year, significant prior a from remain While results relative XXXX was to trends. fuel margins historically headwind very were historical profitability high to cycling fuel

I'd a brief on update relations. now like to labor provide

the also ratified agreement Clarks, for associates. labor we the During with Clarkson for ratified Food Utah Dallas Drugstore In quarter, and the UFCW Southern new the Illinois covering than quarter, Smiths agreements UFCW more we a Meat second new Fry's associates. and Clarkson have XX,XXX with Meat, third labor

to range Kroger our to and capital results ratio operating to This flow now total adjusted debt target compares of cash continues a second EBITDA consistent EBITDA X.X. of cash adjusted to generate Kroger's net to through free and quarter, the X.X was liquidity At the strong Turning net debt flow. free record of X.XX. total end to improvements. level working

this expect approval. company its to continue time, pay to to and The expects over subject dividends to quarterly increase Board

reminder, we have the deleveraging As program proposed share paused to our a with merger Albertsons. following repurchase prioritize

model. that is results, opportunities now highest We of capital, which capital. cost in the significantly above and with continue our This deployment our X growth to last ROIC TSR be strategy return disciplined discipline years is of and of support in each prioritizing improved have our our the reflected

nationwide Kroger. This morning, all opioid a framework announced and substantially settlement Kroger to lawsuits settle opioid claims against

a $X.XX to this financial results of our $X.X a adjusted reflect charge As and excluded our in of nonrecurring the profit per result, amount EPS our is settlement billion share nature FIFO was unique operating results a adjusted from in the resulting related quarter. the included to charge. and loss This

the approximately and approximately for million settlement, Initial Under over million years, has payments up in $X.X X per $X.X in $X.X XX $XXX approximately to Kroger for $XXX billion year or paid this year to installments. each tax billion over equal per begin first would and X with and pretax to following XXXX years billion years total be agreed pretax after the million pay years. approximately will $XXX paid to approximately be X December

This Kroger, final resolving opioid to these is by or claims any wrongdoing liability does Kroger and not is its believe customers, interest crisis. associates admission and agreement We opioids all will and an and the other those the of and defend Kroger claims resolve. to vigorously of settlement of against not affected that in lawsuits the best shareholders that by relating continue

post of to payment EBITDA not on ability affect XX a this settlement total the months close. will to XX within merger its and adjusted and with we to to terms achieve Albertsons, complete Additionally, net proposed track remain ratio debt X.X Kroger's

I'd to provide for additional year. of closing, color our on the the outlook In like remainder

earlier, macroeconomic the conditions. shared customers rate feel XXXX our greater in I is at this effects inflation occurring we anticipated originally continuing a As and than to of are

without we For our guidance we to at of navigate, the reasons, sales of now be to the fuel X% end expect present believe full identical challenges will these the and X%. year range remainder of low will to year continue

be expect the slightly year. without sales of to second fuel identical would the We negative half in

reported this reminder, fuel a Scripts, basis identical in sales As which guidance XXXX. the Express our reducing of effect reflects without approximately XXX is points by

navigate through we year-to-date demonstrated alternative sales, model management Despite our slowing we results, within to the the our and environment as cost of profits. have flexibility in effective growing impact believe this

profit EPS the guidance third earnings prior prior be the in benefit year net maintaining at and slightly are diluted net adjusted line We our and would per expect adjusted year share the the quarter XXrd adjusted and before of fourth in to week. operating including with $X.XX ahead in quarter the approximately the

Kroger delivered quarter built years. X the another growth on results of foundation record past the consistent of over

uncertainties creation to the confident to of continue And turn and sustainable us back will macro are it now value I'll our strength remain, attractive and shareholder allow total deliver we model Rodney. While resiliency returns. to

W. McMullen

Thank you, Gary.

entered private up as of Before that with sale as merger C&S they've a for XXX me into our brief Wholesale open your announced Kroger to offices year, and let pending will Albertsons agreement bargaining we Grocers brands we our label merger. proposed would and the we collected plan associates a agreements divestiture remain existing will and continue. to merge announced When open, delivering plans with connection centers, with that committed will to ensure last stores Albertsons stores the on update the questions, with well banners, floor Companies. distribution provide remain morning, This employed frontline Albertsons Companies a definitive in

identify nonunion, to reviewed buyers well-qualified thoughtful to Since domestic process critical to union a a A of spanning robust that conducted we've to would diligence competitor. plan be players. from a component dozens public to international was and as fierce operate of able then, and private who buyer and

conclusion process, operator and is wholesale an the well-qualified Grocers, the to largest Wholesale very that leader and of us successful grocery chain record a private that are necessary to with a of has led C&S one proud retailer. which companies track a the grocery solutions supply criteria today We America C&S in in as all transaction. industry supply buyer meets strong to our today announce complete

than over XXX supplying the services than products Operating of footprint supermarkets, retail retail company chain for stores to sizes, more C&S' more years, XXX than XXX,XXX customers X,XXX all includes and C&S and independent what a merchandising, to and suite store very of military bases. offerings offerings, Kroger example. e-commerce, for service accounting include similar full including provides in stores service house retail design, more

team communities strength in The business led deeply it the and this retail will will The plan result employed. infrastructure them transaction to communities. will invested operate company comprehensive remain divestiture an stores to the And expansion the complete positions all to environment. mission that growth. with where operational competitive today's financial long-standing help their as is management of operates. feed experienced efficiency is future ensures by The in invest for in this also frontline and continue a and the C&S purchasing merger successfully company's close associates no

to committed honoring further growth. for include which agreements, industry-leading also is C&S benefits all investing bargaining and collective

with the Importantly, FTC-approved bargaining been brings successfully union process record the in an divestiture prior merger integrating experience buyer a also and strong grocery company transactions with agreements. having of collective employees

To the with the stores and the long-term than strong and infrastructure. divested business, Included are of plan success includes expertise. but a immediate the sale just regional centrally deep operational of help teams a collection facilities, industry headquarters, robust distribution located support also in divestiture more

transaction terms financial shareholder In compelling terms are the creates. creation expected this and allow line in reaffirm to of this we with divestiture of consideration, the value plan us what opportunity

today, original set fulfill the all our the the agreement. are out we plans commitments With that merger we announcement confident in

key in this to step early morning details. to proposed measurable our with the Kroger for corresponding with for meaningful consumers, associates keeps encourage Albertsons We that Albertsons further Albertsons you review from release communities us and press XXXX. and merger This creates Albertsons and merger close track America's proposed on Kroger Our serve. benefits and both

of teams Kroger will post terms experience together plan close. planning, stronger to Albertsons progressing to we on the company an exciting the integration see and work talent retail well, been both food deliver In are omnichannel combined it's and from the how even

excited Albertsons. incredibly together are We the about with future

ensure the that, given needed morning, I breadth extend of session forward a this look in broad questions. reminder, topics. a call, announcement our shared of cover As earlier With today's we to and will if Q&A information Gary divestiture range our your to we

Operator

Stanley. Gutman [Operator is Instructions] from first Morgan question Our from Simeon

Simeon Gutman

in disinflation. the talk we going if I'm follow-up you're begin separate a business, to process that to then and been more FTC's is the ongoing, to there's follow-up, divestiture and it's changing My ask to a and Wanted until if in how cut then about specifically a on process and a question. to whether it's first one announced? review the 'XX off. elasticity. time? has gets my Was Or the around case deflation this get for phone chance seeing waiting how run you allows on close the pricing, And merger corner you was

W. McMullen

Thanks, Simeon.

teams been this On FTC this and the discussions engagement once information continue And share the process. the the announce merger, there's it the FTC with and dialogue. throughout we will morning, related ongoing we with and that active

-- able So way, finish that share. next on and conversations be Gary of steps it's there'll disinflation, to ongoing conversations, be let we it. ongoing more specifics in but been have and we'll terms now along start On there's I'll the continuing the

had the look in is X XX one last look several you one if me don't years, deflation had think I the lifetime that of of which last Gary -- when -- we of over years, you reminded years the that almost. or at we've I If remember look you things XX

Kroger things be be that expect from One to to And standpoint. standpoint able any different. inflation model in and would it of found an both is successful about from a operating no we competitive the we're we've the environment and

comments there. We in that, on to us are CPGs, any slowed. are Gary, for finding more improvements you see beginning I'll some ways as lag We cases, there in helping believe continue finish partnering volume With aggressive as want that additional would inflation make? the you many -- be to also let has a well. move tonnage to We're

Gary Millerchip

Yes. Thanks, Rodney.

well. it I think relative is All our you would say, Simeon, maybe expectations. to I covered

beginning X% to we of X% You thought year year, the range. may in we've year. continue in might shared recall at the the throughout evolve that to seen, the trends sort as of we the And end certainly, inflation

mentioned to that, be is it As to prepared level of at the I sales year. would we've a than my expect in guided we partly lower for range why remarks, our which low now end the

now our inflation risk year. scenarios as be expect of return X% is Rodney assumption needed digit the be end base to is base And adapt low turn we out low that. the sort X% to of of more that very what food believe, would differently. of digits, we based for of a would in assumption sort there's to expect that of be our model we continue course, if normalized the inflation our reflect to X% that can would we'll range said, the the to sort to certainly that But always So rate. which, single And single model upon to we'd X.X% inflation long-term our

Operator

Katai question is from Bank. next from Deutsche Our Krisztina

Krisztina Katai

I have strategic merger. the Albertsons question regarding a

So sales into question higher that greater slow, think maybe business. I much M&A there's natural I a the value. as be Margins needed now. look a have at the We ID reinvestment post-COVID, there remained guess, that but added hasn't businesses will historically

October be targeted your to the curious views reinvestment on of approach level get synergies regarding So view. the has if and versus I'd your your versus changed anything

W. McMullen

Yes.

that at look positive is with the them together. company say team. there getting incredibly and the doesn't the me, versus talent you the know today surprise I've working October, merged of but I been and the is would people to for actually If It with the excitement Albertsons view biggest impressed

and targeted a shared XX the cash year ranges at maintain October would be flow X, to from we perspective feel by a that XX within that within things months. it from in be net-to-EBITDA last would in will look that of grade of very we those ratio shareholder investment terms XX% year what accretive with you would standpoint, expect it If comfortable we

synergies, we're identify work make we've in the to If at investing are still that net of -- And to you comfortable customer investing that. lower hard associates our $X with the and look and billion. those remember beyond for committed going really savings we prices. Obviously, also to sure are and

been from the and to. plan would expect of day part always X that's And

when look So at the October. overall, customers start that you of remain just in point, want associates, and get still our we terms in at to communities. And benefiting outlined we confident started benefiting we this commitments the and benefiting the

Gary Millerchip

things Yes. we completely had Maybe, obviously, would couple a I Rodney, And can. agree just of if your announcement. since I with almost now to we've year comments. -- the add, a

talking And conversations you so as can have say about synergy certain would planning and expectations is we've in we've confidence that had. the merger the only Kroger I more while there's for gained Albertsons only

been have Rodney to ago. assumptions to we validate able continue So that the outlined moment a

about this the back think we the talked fueling about just when flywheel I announced the combined thing merger, It I way about new was the would company. we mention only is that to wasn't essentially synergies. other of

even of the if digital elements value in the work company. for we model the well you growth results we can and and that Brands we there strength And this digital the I so alternative sort Our flywheel creation working ecosystem, profit think in in the about the opportunities announced far our And to we've across combine very those the future is really the strength in better now, the see in year, the that Albertsons to results in our creating performance, model significantly of sales combination companies. X think combine think Kroger the streams, when future effect accelerate of growing

Krisztina Katai

morning likelihood is to release? the today's there the Can confidence I follow-up. talk buy stores, what it that sales comment in quick be would potentially high to be this transaction C&S And they you in that just XXX. a the a And willing just XXX could versus XXX with level think up The maybe number? that acquiring was that about

Gary Millerchip

the for thanks Yes, Sure. question.

plan. good think very thought the We about is we through. So the plan feel well very

infrastructure sure As that in be plan potential Rodney to going in buyer and the the number those with buyers the working overall pulling right for concentration the we different forward XX future will right comments, putting both around months successfully shared really that grow to stores make spent now stores and an together support it. we structure how plan prepared around providing of the model continue find and almost that a to able the with we provide successful all

So plan point, we has like, Kroger to if a announced. agreement, the sort the did include with not Albertsons potential originally in feel We the with move break may deal about mentioned, that very announced you good we the divestitures. you agreement our we've when recall you XXX of as transaction a if where have of would the reach forward option we as stores

agreements there needed. ourselves is between we sure something very was essentially that sure we make the C&S and was flex So to announced Albertsons today. that we what But commitment feel that to there you be was plan that a the and wanted saw in if today up to align that to the about we good announcement able make

W. McMullen

no also, something work in announcement done forward. will of the SpinCo. the part that's terms the more That's not going solution be today And of

Operator

question next Lasser from Our comes UBS. Michael from

Michael Lasser

those today the to today of address blessing or or taking be basis Given would concerns? number the push that potentially announcement regulators have this to agreement with C&S offers And other to your you that actions divest consistent what what stores are could back with Albertsons, steps with merger? potential and the flexibility it the

W. McMullen

fierce And an Michael, incredibly great a and competitor. question. what the about incredibly we and it's they'll C&S feel excited obviously, be they table, bring to

we if been last X announced the also look when offices, including October And of that you C&S, if label at centers, off the to year X boxes. to regional brands you made stores those So one selling to able private transaction look we're check addition commitments store. in at X we every and the distribution we've the in

going So grow operate to be an that C&S able incredible for base from amazing an talented this is great be people. and with business to we'll incredible

the all addressed things and we've would the think have. we FTC us, for So questions

all buyer of found also last the We we that year as and labor the able to commitments in October were would well. a recognize made accomplish contracts

we've all and So of know, like the checkoff work. we list, I a Christine because things exceeded you would want to all to it feel Gary, met you have that don't anything those did majority add that of you as those well. and

Gary Millerchip

mean plan. think talk been helped thought great through. you to said well, on this the I the to and we're it had advisers Rodney. We've excited us the I well journey, No, now very about that FTC has

Michael Lasser

I'm rate annual here. your hear me, -- growth me? Can Can you [indiscernible] you an Rodney? hear

W. McMullen

Yes.

You cut out.

were you -- hear if you a off question we So now, you can hear said. what so we couldn't cutting but you were asking

Michael Lasser

right. All

Sorry about that.

quarter Sorry. back question is, experienced in relatively the that of is are we you the translate if IDs, that guidance, to for stacks look for the what slightly geometric negative X-year second year, your would half which My the imply consistent IDs at with market is going fourth to have improve, your your inherently, or in presumably third despite to going share to and is pick quarter? of volume is what both. up benefit less an either to to inflation likely be the So need

b, achieve push price to gains? that share improvement to much need for need you improvement what going the to parts make volumes in see to to to volume -- are a, hard How in your implied order in going you And to need how drive other in of degree order are you the those and you are P&L? investment an going guidance? how what degree to to to So

Gary Millerchip

Michael, question. for the thanks

the to we that of prepared to in comments, deceleration. of as expect largest coming I inflation decelerate. the we are think But we mentioned we through, think, continue sort part do

start in If between from mentioned we're quarter end comment to the for our of QX, that then slowdown be you X% quarter, the expecting would the to And in we the the X.X% X% and of inflation down impacting my of to about the the a rate by deceleration number year, results. there it's the expect look at I the be end

slightly in period results, quarter. first above you the slightly mentioned, we then the positive And a in if being decline slight in of the from quarter being QX sort maybe X% saw at look period you the final we that of a as our to achieved second

been of to continue by in delivering to and because point And into things the we trends. accelerating in deliver to driving have promotions Way, are an households, slowdown really well digital for that products execute around pointing working the for that some connect plan us lower-income the that store support as those and which expect that to on to in in sales seeing that merchandising more improvement strategy the decline, and of also strategies inflation growing unit that I growth then customer And than really sales share Smart are leaning execute we and continuing is a would customer to customers less with that continuing around the private label continuing budget our well. your

Operator

John Heinbockel comes question Partners. from next from Our Guggenheim

John Heinbockel

other in right, were that, the is think right, you So and the I the higher budget-conscious against you does that improvement math think do about I'm think if historically we that now, support, where X% X% comp? curious, quarter. which we had comp, old right, negative, are you said some is as that? Or algo of think, to you on which saw inflation, normalize on comps X% to last I And then work algo we than headwinds,

So are is they higher income before? households performing the still did And still as that negative?

W. McMullen

stuff. you the higher meaningfully things. products buying income more about I'll start growth But if look profitable lot because and more is bigger-sized product fresh household, and the at that customer of buying a That let longer-term continues. Gary and talk

at the budget-conscious negative, but have shopper, be trends improved trends the would improved. look you have they but If the still

the I'll let relative In of TSR long-term Gary, you... model, terms to

Gary Millerchip

bit year the and I little well. second of and think long-term the plan half leaving your the as between maybe Sure. a question John, was

those market would various and a I food-at-home deliver X% earnings the in will and to expand growth margin buckets. X% grow to X% during we about of think definitely line with we by say levers also grow view growth the that continuing growth algorithm long-term that Investor X% talked in to sort of of achieving both Days. the continue So top believe changing between in that about long it to X our X% slightly to ahead we I and X% through different will wouldn't over our that year expect term and we're line

continue a we our headline when expect Brands, very and around environment that short rest we the rest that the the Our rate rate cetera. decent about is, would in of the the of in the first prepared would sense tailwinds year. as supply would term, benefits, be some than the continue in some we're to of sourcing of point, expecting models. manage I in the growth sort to We I think OG&A think half mentioned chain costs see gross term lower of use in the I thinking will closely how year, et about terms on margin the to areas of given to long your our remarks

be we in continue adjusting we're we'll have what sure accordingly. to plans short-term And managing the adjustments upcoming make costs to to we environment. obviously, those we do our So see model our when flex that

John Heinbockel

And in then update on and rollout pickup? you relative movement to talked the it terms profitability Where your and and about maybe on toward objective. -- adoption? bit talked as Ocado about I are a process that of quick of follow-up. now a all What mean, the we is we've

W. McMullen

Yes.

continued in them operating great at If want the the are to and progress to those Right growth and where sheds on on be you be, sustainable and basis. sheds, that the all we look focused base a making need sure is where model. the have the we now, on they energy ones the

is using the high. the is remain think incredibly somebody rate I NPS they scores, once if that very and thing important shed you starts the other look The at repurchase

be until would that a still a focusing we done. making and on that say sheds of wouldn't is making a make would I we ones start lot we point we of ton path on to we sure progress have, meaningful we are progress, being the work We're do. to have work we but but clear where additional So the have

Operator

ISI. is question Evercore Montani next from Michael from Our

Michael Montani

ESI. Just about to ask wanted

would why one So at part might towards the question earlier thinking I of wanted and model, you you longer-term case? if find then could And it what a partner? good was kind can't But that business related going be of to level, improve the year, if some to of alone benefits high comfortable could of to that the be is market the to end it. seem be the that a ask share

W. McMullen

I direct meaningful proud On combination it's and of discount patients. also done with those of an being a pharmacy first amazing to for incredibly card able a ESI, Yes. companies leveraging and all, of retain some am customers, teams. They've contracting doing part job our on of our

So -- when they've effect. you an look on think job at incredible the overall, done I minimizing

but where over I -- said, or still quarter, shared with think X.X%, Now We're I it's X.X%. are always to very trying on focused think we about with this we that comfortable we're care have care make we patients. But to we're sure of prescription on that taking we customers a money of the to filled. way in lose do be where every don't taking and able

add the what really that? we to where are. focus with comfortable anything that's and Gary, to So very is we on, want you feel

Gary Millerchip

all good, think thanks. it's I No,

Michael Montani

which multiple be if have thought. had X divested implied to up, to to on little a could, than Just follow stores, less by seems I the wanted around we transaction pushback. quickly some It X.Xx, was the the for potential

could locations. So be of divested the that potentially profitability deal what increase to I close those ability know discuss you stores needed vis-a-vis if in the of to potential might the didn't if context the the

Gary Millerchip

for Thanks Yes. question. the

and all the to because we the a SpinCo, be maybe plan. of think And actually stores the or to was assuming we've part shared multiple relative potentially mentioned that only solution that a have in Xx that could fall could the were in shared which been the a information confusion be on the I XXX contemplated was structure. -- was were think that divestiture wouldn't previous multiple that we what geographies, for but It stores around solution I overall agreement the XXX for EBITDA. the SpinCo

multiple bit below a So little would be that this number.

in our But in actually a shareholders a the much that very line be fact, than a announced different were transaction that being number for Rodney in as as what would believe divestiture move our solves forward actually today. the the Rodney actual comments, mentioned we elements good solution in that important we actually all with the assumed it's prepared are And mentioned, because, haven't modeling we would said, it to plan. contemplating. with We for number

for in that as to allows our manage being able also future us to price able a It simplify the to term company effectively drive be shareholders. it's value CNS we be operator able longer And more new be transition will believe to and help in successful well. a combined services, the a to future

with shared announced in we and we deal the the commitments us consistent what back when October. thinking would much keep that with very So were we track on

Operator

Our B. next question Goldman Kenneth is from from JPMorgan.

Kenneth Goldman

a You guess, It's little a going kind food to mentioned other you're for center branded, seeing start volumes improve of packaged I vendors. your lot bit. of way the store

terms the core the explains of of You are But more you're I'm I if there to little a store? bit Maybe seeing curious seeing that difference. question which departments also doing center guess at on perimeter get has brands consumers to volumes is, are that your I getting, shopping. less you're better. boost store in bad behavior maybe or color their that much the highlighted And know better? change your wanted of Just where don't if a those there phrase, little right been the expense the is a they're

W. McMullen

Yes.

in terms things. it or if those things. many would don't do seeing a publicly of people that In grinds, like call we people know and of more some for example, that, to you meat volume, I meat look of couple chicken there's or an One, at move much but the department, you're hamburger

to some see that. you improvement are relative in to starting So tonnage

see the as remarks, more well. in we prepared on tonnage in are also some their And And be cases. CPGs seeing moving to I affecting mentioned You entry price obviously, the moving point on would beginning people that to many the CPGs. aggressive are be partnering,

are that but So starting well. happening, that of budget never you're on you sure those But there's with as a customer things the improve, are. ton where focus a all satisfied are on of to trends making we're and supporting

Kenneth Goldman

operating possible deflation a and deflation rare around about long declined I income it disinflation follow-up, concerns was actually been investors margins what think time environment a that it which thing, years. fairly some is helped a did last last came down core drive a a even couple has as competitive as It the for your time, of well. in then And and though gross

-- potentially So they as is, about little I rational, your what extent what that guess bit I'm that in guidance the what today? are risk factor guess? as confidence rational consumers And more, your gives you world remain being are the competitors them I less where struggling a does curious will a of to

W. McMullen

for because look the years, at We we the assume competitive more that. is model, than the XX will get always you benefit market when the it been case our get years, years, that's always last of long-term -- XX and customers Yes. XX

tough, last The other look example. as if time into business are didn't built diversified thing is the you today of that's that's businesses streams, That when income well at different the billion. model even alternative exist $X economy our our an was north

standpoint, retail different a alternative margins. from supermarket at the the look completely part are which you media the margins of those If than seamless profit business, obviously is

significantly but generating part that significantly dividend of flow balance were the the you've shareholders, But model always if and the things that cash you capital, above to and think thing to remind people look economic part the pay we of value that company. long-term thinking. is the are important still the the is I of in didn't continue debt. outlined, of those used all And back stock even our and to value So a things at generate cost price buy for we stock our of we are scenario

of the it is was model a those are than last today it So but think, different market it important all I parts of things, time.

Operator

Wells Kelly Fargo. from next is Ed from Our question

Edward Kelly

Guys, can hear you me?

W. McMullen

can now. ahead, Ed. We Go

Rob Quast

to question. on next the move We'll

Operator

next Our question from Bania from is Kelly BMO.

Kelly Bania

Bania. Kelly is This

think Thanks, I I I'm up. Ed. guess...

W. McMullen

Kelly. you, hear can We

Kelly Bania

ask about to package. wanted the divestiture I Good.

below made SpinCo for the was that structured valuation the comment the EBITDA that think this X-wall Xx is I was slightly the at.

And XXX that And can to interest that are so lower these valuation or SpinCo in be was guess, comment a you what you why through available viable estimated best stores? the option? if EBITDA share margin willing Kroger's would I accept was EBITDA a planned just than for on to

Gary Millerchip

thanks need plan of was think with SpinCo stores Essentially, a that footprint question. part the it to been geographies, when about the whole but contemplated always Albertsons, have have solutions. SpinCo an of other as would just package recap, sort the covered we group yes, The be store to was SpinCo we involved as merger sort option option with always as solution Kelly, communicated a not that certain of divested would the have covered the that a that we announced to alongside when going of geographically the for a that would take to of be FTC. we would the

So significant plans companies we X but if complexity their would a with where take to effectively. perspective complexity both the working services always have the and FTC, adds from another time which separate the to need solutions, future with you period companies the implementing, buyer, had of technology to of of to around different put operate around SpinCo together like, forward sort also transition have agreement,

that, able put be would that with investing move solution solution that will a a plan. always being both together to likely believed and to be a effective Kroger able enable to do assets term, in a execute forward better to future that, then for we set in more but business a management the we day X, to a to that bring SpinCo if everything always So strong from plan, single a that were a as I commitment the sheet, we team, buyer available, viable we when But looked is would we at say C&S do that well-capitalized that can a option. viewed balance able was which on for to them of the also, options believe strong find longer capable could do, them

on being that in announced we we it's the go in transaction the the in I that back in a over announced But we metrics essentially that evaluation around valuation without we all synergy line of was C&S. and know X with EPS that we onetime -- with X when assumed to $X So of based billion commitments improvement costs into years, October. valuation year with shared when models shared, other that's accretive of specific and why our today didn't we the details all

consistent fully deal to actually through buyers baked when could Albertsons. was haven't the obviously, we only But That as assuming. at plan chance announced the we share very with of part with that was had we that because the what SpinCo only were So we was talk answer the any discussions to really point.

Kelly Bania

transaction under that financing would from And you XXX the quick a partner SoftBank understand the Just And also, and helpful. a very That's for question this valuation? we to additional the should C&S the XXX then there. or assume and stores? the with help commitment the would be can same structure here potential stores potential us similar incremental Okay. --

Gary Millerchip

as that of we the Thanks, address a and if Well, all of it's the strong that of have. does it good about questions the we that feedback Yes. incremental very Kelly. evaluated we first about shared stores, required. and the we We package plan. that terms thought and in certainly But share all, we've plan details really of on was more as we received believe earlier, really feel sort

agreement to that forward that with flexibility able really we into our have did moving the was we're so focus that. flex, to plan. to is on But think if we So important do it build

have strength and with wanted C&S' would on transaction we That's strategy. in will them, to the perspective, strategy both just as to. to feel their to comment also forward able strength but something the that financial them the to business able financing on I going financing and to able from investing if be comfortable comment our specific wouldn't well. complete they I to the be keep to they say very be got financial for be that obviously

Operator

is next Rupesh Our Oppenheimer. from from Parry question

Rupesh Parikh

wanted the just backdrop. promotional I So to touch competitive on

if industry seeing then expect more in in desire volumes, coming curious so a lately? promotional become the the it months Any to out guys Just environment. And there changes or just promotional drive just and to you curious curious, on quarters. what inflation the right waning you front is guys clear as there now are competitive for the is there

W. McMullen

Yes.

the overall, at pre-COVID. getting activity where to close look you If promotional it is was

So the chains it's where pretty during were it's those and consistent it with recovering. obviously And such we are be. COVID, supply to a mess expected really

with most tonnage focus in cases, the And starting at more of the grow in getting you own look CPGs, do to now again. units. part back -- conversations their margins terms much it's to CPGs, on it's you for getting raise normal some the If they're how and

CPGs such So an of we important it's Brands for us, doing things because the we justifiable, healthy we aren't products. Our when gain know, equation of good well. part customers. that rate feel like it's a if is as believe amazing Brands for strong them, reasons, have always Because people an And overall repeat of dialogue are set share the and the our go-to-market as incredibly try Our one that you is

Rupesh Parikh

follow-up question. maybe then Great. And just X

to stays it team So sense seen just what grocery. as recently? just balance pretty think about a the to assuming for year, backdrop your similar the to on also consumer you've the you get you -- impacts loan And at look I expect you how wanted get student worse? Or of is of do

W. McMullen

we from part, to is happens. last say from hadn't Yes, the the an be other be We sure environment get And you would a That's grocery added do consumer don't student less standpoint, that repayments. -- -- the part I it you if was expect going a that's impact than know where will one categories. the on for little tougher do will loan it until that standpoint, it believe

that So a know. headwind, we've happens, be specifics just it the until to you assumed but don't

Gary Millerchip

to places thinking. What the to the to creates eating that factored it be one impact customers more which also for their And it's versus at on risk say, pay that, incremental about Rupesh, adjust home that cost know to a some talk meaningful is obviously eat their first financial though, is on they overall we our budgets budget, of food we've into we going go when customers to out.

a that helpful if well. as to time be see trend over that's to interesting be turns would out it So

Operator

Ed next is Wells from Kelly from Fargo. Our question

Edward Kelly

can me now? Guys, you hear

W. McMullen

sounds It We commercial. can. like a

Edward Kelly

to sustainability like If I'm it's type well, what as LIFO, benefit do minimal of and that thought for All seems traditionally wanted for at the margin we can't, hear in the to good. you half to environment of really can. get you were are say that's improvement continued opportunity comp, the right. 'XX forward. guess, earnings or be this the flat? year we about grocers going going maybe of I next happy it you environment back year with, for you so look cost ask really to control actually I But of about potential is would areas getting earnings any out to gross where those offset difficult in growth how an margin, even think I keep

Gary Millerchip

activity Yes, at But typically maybe what great question. helped margin the drivers is, being we've the model current guidance those one-time that of say on would look you in Ed, business. the us in would tailwinds on during into our sort cycling I as year. year don't that think forward as it's benefit you prior until get of know, a versus the quarter we areas as gross short-term, we is if beyond comment the our later more called like I rate, What of long-term out

the Way the been continue what we terms the a how tremendous amount private each different and mentioned range, of really selection, on we in innovate, to mean it reach earlier, across Truth, and product how at value by if the Simple I product but the both do our Smart team do portfolio on Our best we've improve sourcing continue with do we focusing Rodney Our work to call products category practices. doing is to architect brand that maximum from in Brands, how how merchandising we look of get we drive And Brands Kroger

through saying, type taking a would kind how probably value. way to the maybe really would to say team that I of that of work approach they're you do we our So products mindset maximize X/X tell the CPG almost and now. And right

we So lot performance. stronger believe, of Our get Brands to a continue to still opportunity, in

From invest but we effectively my supply is in a in doing team drive optimize to great the the continue continuing that efficiency mentioned by believe significantly we in we're the taking, job to supply because continue it that chain ways can comments, identifying a perspective, routes strategy utilizing which to chain leveraging supply I the capacity our we those chain data and in routes. more technology, we're on

of a talk Marketing innings still, us there's there. the heard alternative opportunity before for believe as through be, business. profit, as driving you've ahead and significant we keep being particularly of us can Kroger And our growing again, we're about our engagement the in Alternative potential profits mind still we digital about Precision early

plans to few we areas. those that about a say we've So see of to I'd able be do confidence overall, time. over I think, these that talked a say degree been years how to journey continued to we improve continue investors a on would we've good profitability levers that And in we for manage we have

continue model in we're to time the well. balance continue there line that driving all top said, customer to that going to and more Now value to invest obviously, as being growth that so over we're deliver

Edward Kelly

a follow-up. I All that right. a has just opioid settlement yet. Is don't correct? Albertsons had think And quick large

W. McMullen

would correct. be That

Operator

Our next question is of Lynch. from Ohmes Bank Merrill Robert from America

Robert Ohmes

okay? guys you me Can hear

W. McMullen

Yes, Robbie.

Robert Ohmes

Excellent.

the can on deal. You hear Great. me. questions C&S Two follow-up

just that original October part headquarters, deal headquarters X The unique private brands. is with I this guess, C&S? first the one, of sort the that to Or X the of Was ADCs and outlined? -- regional

W. McMullen

would -- those where one Yes. that specific wouldn't part the you until part it be of know a buyer, it knew of But had actually It's things specifics. you the consideration. was we

able it buyer that needed buyer But one that, back was a day running. X was of where be always the in things on we needs particular particular mind managed that -- to either wasn't our ground way, find had what it order would it could been. those that depending have hit in of So we the had something have that might the of to would be

Gary Millerchip

-- be if SpinCo, be -- was about I thing separate to set of Robbie, maybe, full up would only course, company. SpinCo to as the would think going that add had And you Rodney be a

solution, So having other Albertsons business across or not than today. it be for it any that would would have be assets SpinCo viable Kroger to move the some meaningful infrastructure with to from have a to moved what of have would

probably been of have would in that like the buyer meaningful impact move So terms sort C&S. more of that we forward a with

Robert Ohmes

of looks Virginia, Got you. like and part amount Teeter like helpful. the the as there of stores, original That's thinking Kroger Was is plan. that I Harris there's October part part And Or stores of noticed banners of the the a then it this? mix like that guess, or Teeter greater of part a fair I Harris of thinking? as in was Kroger

W. McMullen

of divested be stores always It to the be stores. thinking original of be part best for that Kroger the some it would to was

So that to year. last that that late wasn't something was was done analysis new the

Robert Ohmes

Got it. what's And the total announcement? in stores C&S the Kroger banner

W. McMullen

the the the so be the the not show wouldn't specific release, We're middle it still specifics wouldn't but a number isn't There number stores In specifics. of state FTC and there there -- point. the wouldn't be Yes. dialogue this of by press with banners, at in yet.

Robert Ohmes

the year in is question, XXX expected you whether XXX? last difference dilution Got do you. or there X, any And just in

Gary Millerchip

really that we in areas XXX operator Robbie, I all have solving have focused a markets confidence a that, for important degree earlier, mentioned think package addresses the effective is high to that on the are divesting As of the we Yes, in we're stores. store that. we're the believe really because And that viable plan we

some to plans the consistent the a shared. change if forward confidence -- concern shared much in would shared were And anything, with moving obviously, plans degree October work of still we of Albertsons, a thinking what between we the planning that gives for our from the on So now to we're we with. respects that and And that say, done back some I very merger guidance our with if we've have away we in feel based identify share around that. would in a the buy guidances in with now we we've got more we be those that the plan, very we've say that do the But would are expectation. this time, move additional that would we guidance really that if details shared, we've feel plans the over high with strong been anything C&S to still and that us to able point nothing at be would work the

Operator

from comes Rosenblum today Dean question final Our Bernstein. from

Dean Rosenblum

regarding stores. have divested I questions X the

C&S whether it's operate is banners question question And I C&S the One operating if under on. debate C&S there. no? for operate you guys that stores banners, -- the is allow going there's their going known currently in rebranding stores? acquirer not, if yes you of you the about the do have first And you to the the plan The terms idea are is allow guess existing what a under to big to they're or as X-part to stores now any are

located? very detail that you C&S divested And geographic Can between XXX existing Piggly stores you've overlap Wiggly at on then actually retail. the the to there's mentioned share be. locations some stores where where Because and is are operates question second stores you those stores announced little the

Gary Millerchip

for Thanks question. the Yes. Sure.

this morning banners be acquiring will provided the receive are package. bannering, banners Wyoming part as states, to all license be under the plan, Colorado, the to so Albertsons Carrs we that was also X Mariano's, QFC as will that that part shared on be they and clarify they just the in be we'll of of what with operate that C&S essentially divesting And will divestiture banner so a California, and... would X So

W. McMullen

Arizona.

Gary Millerchip

Arizona. Thanks, Rodney.

But the I in X the won't the stores. I use states states move right X they to and them be Albertsons banners use able operate their to for speak will decision C&S, to essentially, the choose they any obviously those That's forward. and have in plans what banners to and other are. So their mentioned

that -- ultimately keep stores if will rebanner over would X will they But to they would stores they period those over time. are those than today, banners time. they So that not different decision a of make be need a buy

W. McMullen

would would Wiggly South, And in the and they Northeast. in the Midwest the Piggly Grand operate, be the the Union stores and be

Gary Millerchip

have present it that's markets the of able to and competitor think part are for new the where plan as well. in competitor market a actually capability We a but C&S will introduce compelling new they Yes. infrastructure because a in that

W. McMullen

thanks, questions. And everyone, the Dean. for Thanks, Yes. all

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

want all their education of Future continuing program. continue their our families Your Feed provides good acknowledge underway, career the As over own upcoming Feed associate luck education. each associates who course $XX,XXX season back-to-school that Future to the cover continuing and to our through education year the is our Your gets for we to on wish up benefit school

your chosen we've to to with Kroger, grow merge increase and excited benefit continue that XXXX, with once that We XX% participants well. these we than are we're that so associates. XX,XXX to approximately program career associates of proud started in to Albertsons more utilized are this number bringing benefit as hourly you've since the to see this being committed have We're and thankful to

this overall, which model generated earnings profit growth that closing, our a results, is cash in Kroger about business we free again drove By then and And in and strong environment. consistent reflect alternative costs quarter. streams, growing strength flow the managing challenged delivering of talked we've

for to of proud while customers. creating value results deliver ability are these We our our

customers thankful and our dedication are providing our and friendly to for their fresh experience. associates We incredible a full,

has taken we with to our about the We significant to year merger and we fulfilling we are the last the set proposed announced commitments Albertsons. when our plan, through divestiture committed remain merger out Kroger all excited step commitments fulfill

us Thanks today's again joining for That today. everyone for concludes call.

Operator

This concludes today's call.

disconnect lines. now may your You

The Kroger Co. (KR) 8 Sep 232024 Q2 Earnings call transcript